What is the cost of securing intellectual-property rights? This question resurfaces from time to time (usually with the foredrawn conclusion that it is too much) as if revisiting an old question will shed new light on an overlooked solution. Typically, in times when corporate legal teams and in-house counsel are going through cutbacks and assessing their preferred providers from a host of intellectual property firms, the pitch of the debate becomes higher. As upper management struggles to find ways to reduce expenditures, they often don’t consider the impact that excessive focus on patent cost can have on their IP strategy.
Often, the pendulum swings too far in the other direction with too much tightening of the fiscal policy as a means to an end. Such approaches usually produce dramatic results, but the gains are short-lived, and frequently are more damaging over the long term as IP capabilities, quality, and coverage are eroded.
What makes the value equation even harder to balance is the see-saw mentality that causes legal departments to outsource IP matters to intellectual property firms to an extreme, reducing their in-house IP staff to an anemic function – incapable of managing and monitoring outside counsel effectively and developing a cohesive IP strategy. This is followed by the realization later that core competencies have been lost for the sake of reducing patent cost, and reclaiming competitive advantage requires rebuilding the company’s talent pool and knowledge base that was allowed to walk out the door without concern.
In recent years, many stakeholders in the debate have bantered about the idea of alternative fee arrangements (AFAs) to stem the tide of rising legal fees. In such discussions, bringing up the issue of billable hours almost becomes taboo. Intellectual property firms that employ AFAs attempt to skirt the fact that resource allocation becomes hard to forecast for clients with large interrelated portfolios or those with complex cases.
An article a few years ago on the topic of patent cost and AFAs hit the bull’s-eye on this matter. Cheryl Solomon, General Counsel to Kidlandia, Inc., wrote as a guest blogger on the In-house Access page of the Association of Corporate Counsel (ACC) on “Why Alternative Fee Arrangements Aren’t the Answer,” saying:
The idea is that by discussing alternative fee arrangements, in-house and outside lawyers will be discussing the value of the legal work in a way that better meets a company’s budget and need for certainty. In addition, there is much discussion and debate about choosing preferred law firm panels and negotiating deeper discounts.
This debate misses the mark for one fundamental reason. When a new matter arises, the most important decision you must make as an in-house lawyer happens before you ever begin discussing fees. Your most important decision is selecting the correct lawyer: This is the holy grail of getting value for money. If you choose the right lawyer, the fees take care of themselves. If you choose the wrong one, you will be unhappy for the entire duration of the matter.
So, it strikes me that the most important question is not how to negotiate fees that represent value for money, but rather how to choose the right lawyer. That sounds as though it should be easy – you just hire a technical expert in the area – but it is much more difficult than it sounds. Why, you might ask? Here are a few reasons we might choose the wrong lawyer:
- Flight to safety, or risk aversion – If we have an existing relationship with an outside lawyer, we are likely to go ask them for advice, even if it is not their area of practice or jurisdiction.
- Large law firm syndrome – We go to a large law firm just because they have a department that relates to the matter.
- Saving money – We are so focused on saving money that we go to the cheapest lawyer.
Cheryl nails the key points beautifully. Isn’t it odd that the primary concerns of how your IP is being secured, how your IP strategy is being deployed, and how your portfolio will fare in potential valuation assessments, transactions, litigation, and assertions of invalidity are relegated to the back seat as important and pivotal decisions are being driven by an obsession to pinch the dollar as tight as possible? When in fact the final bill may be much greater as compact prosecution becomes drawn out needlessly and excessively, or gaps in protection catch a company off guard with diminished business expectations or unfortunate legal actions.