20 January 2012

Australian Patent Attorneys Accused of ‘Crippling’ Entrepreneurs

Patent ApplicationsAn article appeared this week on the news and information website startupsmart.com.au under the by-line of Michelle Hammond, entitled ‘Patent attorneys under fire over “crippling” fees’.

The article opens with the allegation that:

Australia’s patent attorneys have come under attack for charging too much for patent filing, with claims that some attorneys charge as much as $150,000 to file patents overseas.

Before we turn to the substantive issues raised by the article, we note that this opening raises (at least) the questions of who has launched this ‘attack’, which attorneys are charging ‘as much as $150,000’, and what exactly are these fees covering?

The answer to the first question is pretty clear from the remainder of the article, which shows all the hallmarks of modern media release ‘journalism’.  The source of this particular story is the foreign filing service provider inovia, which is just one of a number of such companies that have emerged in recent times to compete directly with ‘traditional’ patent attorneys in the specific area of filing foreign patent applications, and particularly handling PCT national phase entry, European patent validation and patent translations.

The answers to the second and third questions are far less clear, and the StartupSmart article really serves only to muddy the waters further with claims that are in dire need of some sanity-checking.

In this article, we will look at the differences between the filing services provided by patent attorney firms, and those of companies like inovia.  We will also address some of the other assertions in the StartupSmart article.  And, despite our obvious potential for self-interest in these matters, we will endeavour to do so in a reasonably fair and balanced manner!

WHAT ARE ‘FOREIGN FILINGS’?

In the context of the services discussed in the StartupSmart article, the term ‘foreign filing’ has a fairly narrow meaning.  Specifically, foreign filing service providers handle national filings derived from international applications made under the Patent Cooperation Treaty (PCT).  Many also handle European patent validations, which refers to the process of ‘converting’ a European patent application into a collection of individual national patents after it has been centrally-granted by the European Patent Office (EPO).

These two processes have a couple of features in common.

Firstly, both are essentially administrative in nature.  The patent specifications, claims, drawings and bibliographic information such as inventor and applicant details are already established and held in the public electronic records of the World Intellectual Property Organisation (WIPO) and/or the EPO.  In principle – at least in the simplest cases – filing comprises transferring this existing information into the records of the target national offices via whatever procedures are dictated by the laws and regulations in each country.

Secondly, in both cases translations of the patent specifications and/or claims may be required if the destination country does not accept applications or patents in the original language of filing.

Aside from the fact that most patent laws require that the administrative procedures be conducted either by the patent applicant/owner, or by an agent who is a duly qualified and registered practitioner in the relevant jurisdiction, no specialised legal expertise is required to complete the formalities.  However, since the requirements are different in every country, a great deal of experience and knowledge of the specific national procedures is needed, which is why the foreign filing process has become so complex and relatively expensive.  And it is precisely this circumstance that has led to the emergence of specialist foreign filing service providers.

WHAT DO FOREIGN FILING SERVICE PROVIDERS DO?

Foreign filing service providers are essentially ‘one-trick ponies’.  This does not mean that they are all the same, nor is it intended in a derogatory manner.  Some are extremely good at what they do, for example providing online systems that enable applicants with absolutely no experience or knowledge of filing procedures to drive the process themselves, largely without any human assistance.

But the only aspects of the patent process that foreign filing firms are concerned with are the administrative procedures required to carry an existing global or regional application/patent over into one or more national applications/patents.

How the application came into being, how it reached the particular state it is in at the time of national filing, and its subsequent fate after filing formalities are complete, is not the concern of the foreign filing service.

This business model has certain advantages:
  1. the service provider can focus all of its efforts on maintaining its knowledge and processes in relation to the various national filing procedures, without being distracted by concerns relating to the substantive law;
  2. it can aggregate filings from a wide range of applicants, without any knowledge or understanding of their inventions, technologies, industries or business strategies, giving it potentially huge economies of scale, which can be deployed either as purchasing power with third-party national agents, or to establish its own offices with national agents in major filing destinations;
  3. it can invest funds in developing automated systems for further improving efficiencies, given that filing is its core business; and
  4. these factors (at least) result in lower costs overall, which can be passed on to clients.

HOW DO PATENT ATTORNEY FILING SERVICES DIFFER?

Let’s get the bottom line out of the way first – clients using the services of their patent attorneys for foreign filings will, in the current market, almost certainly pay more than if they use the services of a dedicated foreign filing service provider.  inovia claims savings of 20%-50% by the use of their services, and we have no reason to believe that this is not, on average at least, about right.

While we are not in a position to disclose specifics of the fees charged by any particular service providers, we ran an example case through inovia’s quotation generator, and can confirm that for some countries the savings could be quite substantial, for other less so, and in the particular case of ‘local’ filings (e.g. Australia and New Zealand, for Australian applicants), where no additional foreign agent charges are incurred, we would expect that at least some patent attorney firms would in fact provide a cheaper filing service.

So what are clients getting for the extra money they might pay to their patent attorneys?

Again, in the interests of fairness, we will be up-front and concede that in straightforward cases the added value of the patent attorney at the national filing stage might well be minimal.

But there are many issues that a good patent attorney will advise on in the lead-up to national filings, without the client even necessarily being aware of the questions that they should perhaps be asking.  For example:
  1. whether there are issues with the subject matter of the application in some jurisdictions – for example, many software and ‘business process’ inventions are not patentable in Europe, China and various other countries, even though they may be acceptable in, e.g., Australia, Canada and the US;
  2. whether there are additional fees associated with ‘excess claims’, and if so how these can be avoided by making suitable amendments at filing – e.g. in Europe there are fees of €200 per claim for the 16th to 50th claim, and €500 per claim for each claim over 50;
  3. how filing in particular countries – or failing to do so – might impact on the applicant’s business strategies and availability of patent protection for future improvements on an invention; and
  4. whether there are particular foreign agents (i.e. patent attorneys/lawyers) with skills and expertise that are particularly relevant to the applicant’s invention and technology – there is little gained by a cheap US national filing, if issues with the agent’s handling of the case during examination lead to a difficult and protracted prosecution (and we have absolutely seen this happen).
With regard to the last point above, the professional relationships between patent attorneys around the world are, in some cases, absolutely vital to working effectively together in order to obtain the best, most commercially-relevant and most cost-effective outcomes for the applicant.  In many cases, these may be personal relationships between attorneys who have worked together in the past, and not simply relationships between firms.  Such relationships are difficult for foreign filing service providers – competing on volume and price – to duplicate.

There are other issues that may require consideration in choosing between dedicated foreign filing services and patent attorney service – such as liability, professional indemnity, and the handling and correction (where possible) of any errors or missed deadlines that may occur – but these are well beyond the present discussion!

WHERE TO FOR FOREIGN FILING? IN-HOUSE, OR OUTSOURCE?

Some readers will no doubt have recognised the potential for clients to get the best of both worlds – obtain all of the valuable advice from the patent attorney, and then use the cheaper foreign filing service provider for the national filings, before handing everything back to the patent attorney again.

Of course this is possible, but there are a number of reasons why it might result in unexpected, and undesired, outcomes.

One of these is the potential impact on the client-attorney relationship.  Indeed, it is quite possible that this is why more applicants have not switched to using dedicated foreign filing providers.  For example, by the time of national phase entry of a PCT application, the client has typically been working with the patent attorney for around three years – maybe more, if this is not their first application.  During that time they may have gone through good and bad times together – the rigours of International Preliminary Examination, perhaps, or the ups and downs of seeking grants, funding and investment to develop the invention into a viable commercial product.  A client may not wish to damage a good working relationship with a trusted advisor just to save a bit of money on a single step of the overall process.

Of course, this would not be sufficient justification for attorneys to charge excessively!

More importantly, however, a sudden loss of national filing income would force patent attorneys to rapidly re-evaluate their entire cost and charging structures.  For one thing, if an attorney is providing the substantive pre-filing advice, but then missing out on the filing fees, it will become more important to ensure that time spent on the advice is diligently recorded, and billed to the client.  Many applicants will be aware that Australian patent attorneys are not generally as obsessed as lawyers with the ‘six-minute increment’, and this is partly due to the broader-based cost recovery in the patent profession.

Furthermore, a general trend that may be accelerated by this type of competition is a move away from the mix of time-based charging, and fixed fee-for-service charges which currently exist in the Australian patent profession, towards a wholly time-based approach.  However, this will almost certainly be accompanied by increased hourly rates for patent attorneys, as fixed charges are reduced or eliminated.  And if this happens, then it is not at all clear that clients will be better off overall, and in fact one effect may be to increase costs over the earlier parts of the process to compensate from reduced income at later stages.

It is, however, almost certain that, over time, change will come as a result of competition from new – and in some cases disruptive – service providers and technologies.  Patent attorneys will need to adapt to these changes, to ensure that we continue to provide the best possible outcomes for our clients, in the most efficient and cost-effective manner.

It may be, for example, that some firms which currently maintain in-house foreign filing departments will themselves move to outsource this function to dedicated service providers.  No doubt there are smaller firms and sole operators who are already doing this.  On the other hand, large firms may have the volume of filings to justify keeping an in-house function.

It is not clear what impact all of this will have on fee structures and costs overall.  And as the above discussion demonstrates, there are pros and cons to both the in-house and outsourced approaches – which is perhaps why, time and again, we see outsourcing going in and out of fashion across a range of industries.  In any event, most people will agree that competition is generally a good thing for clients, and it keeps the service providers on their toes!

OTHER ISSUES IN STARUPSMART ARTICLE

There are a few other dubious assertions in the StartupSmart article which, while we are on the topic, we would like to briefly address.

Firstly, the claim that patent attorneys are charging ‘between $25,000 and $150,000 to file patents overseas, depending on the number of countries chosen’ needs to be challenged.

Without going down to the bargain basement, $25,000 should pay for national filings in at least Australia, New Zealand, the US and Europe.  If you want to add Canada, China, Japan, South Korea and India to this list, you should still be up for less than $60,000 with a mid-tier Australian firm, using reputable foreign agents.  Throw in Brazil and Russia, to complete the BRIC countries, and you might get up to around half of that alleged $150,000 figure.

We would therefore love to know what countries people are filing in to reach those kinds of costs, and why!

We would also like to see substantiation for the claims that costs have reduced ‘dramatically’ in the US compared to Australia, and that ‘Australian innovators are paying between 40% and 60% more for their patents than their American and European competitors.’  We work with attorneys in the US and Europe all the time.  We therefore see what they charge, and in many cases it is higher – not lower – than comparable Australian service providers.  If foreign firms are charging their local clients less than their overseas clients (and we have reason to believe this is the case), then the charges of Australian attorneys are not to blame for any lack of competitiveness.

Talk of a ‘drain of legal fees during the start-up phase’ also does not really add up.  National filings from a PCT case are not required until 30 months after an initial application is filed.  If this is insufficient time for a start-up to develop viable overseas markets for its product, or to secure the investment required to do so, then perhaps the impending costs provide a good opportunity to consider whether the invention is truly commercially viable enough to justify continuing with national patent applications. 

If $25,000 is spent on filings in Australia, New Zealand, the US and Europe, that provides coverage of markets in developed economies with a total population of around one billion people.  The costs of bringing a product to market in these territories would completely overshadow the patent filing costs.  Looking at IP protection costs divorced from the overall business costs and strategy just makes no sense whatsoever.

Finally, the claim that it would cost ‘millions of dollars to get a patent’ for an iPad security locking device is so wildly inaccurate it is laughable.  Assuming the device is satisfies the patentability requirements, it should be possible to obtain granted patents in at least half a dozen major markets for this type of product for well under $100,000. 

But it is also possible that the strategy actually adopted by the inventor, to ‘get out there first and do it better than everyone else’, was actually the best approach for this particular product.  A good IP management strategy is not just about applying for patents.  You have to know what IP you have, and then work out how best to deploy that IP in order to further the organisation’s business strategy.  Sometimes that means applying for a patent, but sometimes the money is better spent on being the first and the best, and investing in the company’s reputation and brand.

Could it be that the lack of international competitiveness of Australian companies is not due to professional services fees, but rather to the very narrow view of IP strategy and value exemplified by the comments in the StartupSmart article?  Start-up companies looking for useful advice and information require better than this!

3 comments:

dk said...

patent attorney fees are expensive in this country because we have political activists working as patent examiners. these activists are determined to reject patents entirely on subjective grounds thereby making advice/suggestions of patent attorneys completely worthless. 

Joe S said...

Thank you for putting forward some reasoned arguments to counter the scaremongering that sometimes masquerades as information. You have managed to address the issues very eloquently.

Patentology (Mark Summerfield) said...

Thanks for your comment, Joe.  I expect this to become a growing issue over the next few years.  On the one hand there is certainly opportunity for enhanced competition in specific areas of service.  On the other, patent attorneys are going to need to do a better job of educating the market about the value proposition they (we!) offer, as well as adapting to change through more consistent and transparent charging structures.

There are, I think, interesting and challenging times ahead!

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