Reality Check: Compensation for Patent Practitioners

Every so often I hear something about how it is unfair or unjust that patent attorneys charge so much money for the services they provide. When I hear that I always chuckle. It seems that universally people believe that whatever a patent attorney charges goes straight into his or her pocket. If only that were true!  On Wednesday I published an article titled Patent Strategy: Discovering Crucial Patent Examiner Data.  As the comments to the article progressed on topic for the most part, things started to get a little off topic just a bit, which is what is prompting this article.

In Patent Strategy I explained that a reasonable quote for an office action response is $2,000.  Certainly it can be more depending upon the technology, but if you were going to poll patent practitioners from patent attorneys to patent agents I suspect you would come out with something close to a $2,000 average.  This prompted one patent examiner to comment: “You said in this article that practitioners make $2,000 per response on average. How much do examiners make per response? Probably a fourth or a third of that. I mean I try to do the best job I can but do you really expect all examiners who get paid a fourth or a third of what you make to perform at the level that you do?”

This comment caused me to respond to explain the business reality of practicing law, which seems lost on most everyone other than patent attorneys.  It should go without saying, but 100 cents on the dollar do not go to the that the attorney or agent representing the client.  Not even close!

There is a “typical” formula that most firms as it relates to compensation.  Many attorneys and agents are salary based and do not get paid by the hour, but the salary is typically calculated using these guidelines nonetheless.

• Associates typically receive compensation (i..e, salary and benefits) of about 30% to 35% of what they bill.  Another 30-35% goes to overhead and the remaining 30-35% going to firm profits.
• Partners  typically receive compensation (i..e, salary and benefits) of about 50-60% of what they bill.  Another 30-35% going to overhead and the 10-20% going to firm profits.

Thus, on a $2,000 office action response the person doing the work would typically get compensated somewhere between $600 to $1200, depending upon years of experience and level within the firm. Of course, even this compensation does not take the form of 100% cash payment or salary.  Benefits get factored into the total value of an employees compensation package.  Thus, it is not accurate to say that $2,000 means the attorney gets 3 to 4 times what an examiner gets.  When you factor in patent examiner benefits there is likely little difference between what an associate gets paid for the response versus what the patent examiner gets paid to review the response.  This is likely a premium in favor of the patent attorney who is a partner, but with business ownership comes risk and risk has to come with suitable reward, so this is hardly nefarious or outside business norms.

People frequently forget that lawyers operate a business and have rent, insurance costs, staff costs, regulatory compliance costs, CLE requirements, phones, electricity, advertising costs, printing costs, computer costs, and many other business expenses.  I just wish that message would get through so that when an attorney says “your Y will cost X” people wouldn’t always incorrectly assume that means that 100 cents on the dollar is going to the attorney.

In terms of what hourly fee patent attorneys charge, the fee for patent attorneys is going to vary quite significantly depending upon the geographical market and the attorney’s level experience. Based on 2001 economic data, the national average is about $252.00 per hour, the national median is $240.00 per hour, the 25th percentile is $198.00 per hour and the 75th percentile is $300.00 per hour. Cities like Boston and New York tend to be the most expensive (add about $75.00 to each number), with California close behind (add about $50.00) to each number. Texas, Chicago and Washington, D.C., also tend to be more expensive than most other parts of the country, but not as significantly so when compared to Boston, New York and California.

Since 2001, according to available survey data, the national average has largely remained in the $250 to $275 per hour range, but that estimate seems low if you ask me. In major cities the per hour average continues to be at a premium, and you should expect to pay much higher, perhaps even double. Additionally, it needs to be understood that this national average takes into account all patent attorneys and agents, which means that a good number of extremely low costs service providers are driving down the averages. If you are looking for experienced patent attorneys at a reputable firm you should anticipate hourly rates to be somewhere between $300 to $400 per hour in areas outside major metropolitan areas and somewhere between $450 to $800+ per hour in major metropolitan areas.