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Reality Check: Compensation for Patent Practitioners

Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog
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Posted: Jan 7, 2012 @ 4:07 pm
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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.

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Posted in: Attorneys, Educational Information for Inventors, Gene Quinn, Inventors Information, IP News, IPWatchdog.com Articles, Law Firms


About the Author

is a US Patent Attorney, law professor and the founder of IPWatchdog.com. He is also a principal lecturer in the top patent bar review course in the nation, which helps aspiring patent attorneys and patent agents prepare themselves to pass the patent bar exam. Gene started the widely popular intellectual property website IPWatchdog.com in 1999, and since that time the site has had many millions of unique visitors. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, USA Today, CNN Money, NPR and various other newspapers and magazines worldwide. He represents individuals, small businesses and start-up corporations. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

 


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16 comments
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  1. Gene, you might want to also note that it is much more difficult to carefully write a new or amended claim to distinguish prior art yet not be so narrow as to inadequately protect the invention from easy design-arounds or alternatives that simply avoid the patent, as compared to an examiner merely rejecting or allowing claims.
    [However, given the current trend of large companies outsourcing preparation and prosecution to low bidders, and filing applications without doing prior art searches first [resulting in "shots in the dark" specifications and claims], I wonder how many issued patent claims will be accomplishing those objectives?]

  2. Gene –

    More data to support your argument. If an associate is paid $120K a year and has to bill 2,000 hours a year, that works out to $60. an hour. This 2,000 hours does not include the nearly 1,000 other hours the lawyer has to spend in firm meetings, CLE, “rain making”, etc.

    Independents might keep a higher percentage but their ratio of billables to rain making is far lower. It is not unusual for solos and attorneys in small firms to spend over 60% of their time chasing business. Not that Gene writes this blog to “show the flag”, but he puts in a lot of hours helping others be better practitioners. (And I sure can use all the help I can get. Thanks, Gene.)

    Having been in computer consulting before law school, I know my “eggs” on this topic. And there is the old rule “Billing ain’t the same as collecting.”

    Tifoso

  3. One thing often overlooked in all this, is the expense of time and financing to get to the point of being a very good patent attorney. From what I could tell at the time, it seemed to cost at least as much to become a Patent Attorney as it took to become a Medical Doctor, the latter becoming more valuable as their specialties and extra efforts would seem to suggest. I tend to think I would be much better off hiring the real deal in the first place. No errors at all.

    Alas and alack at the time, I could not afford to go to law school. My patent agent had a good quip though about becoming a Patent Attorney, where he asked me why he or myself would ever want to appear in a Court of Law? Very good question to my way of thinking….

    Stan~

  4. Thanks for the info Gene.

    I’ve always felt patent pros were well worth what they charged, but it’s nice to see what the common percentage breakdowns are.

    Any idea how much the outsourced entities for their OAs?

  5. Reply to Stan on why anyone would ever want to appear in a court of law.

    In patent litigation, I agree, but there are times when bad things happen to good people. Before I became a patent attorney, I did a fair number of hearings and trials. I seldom took on cases except those in which there was good reason. Luckily, we (not I, the other partner being “the facts”) won about 85% of the time. Never lost a felony defense. The conclusion is that there were a lot of people being wrongfully dragged through the system who, had they not had representation, would have been screwed by that system. Should add that this experience made me a firm believer in mediation.

    Now, I only come to court when brought and it has been almost ten years since the last time. I can sleep nights.

    Tifo

  6. Steve-

    I really don’t know how much the outsourced entities in India and elsewhere charge for office actions because I have never used them. Perhaps someone with some familiarity can explains.

    In the past when I have been given information from outsource entities it has always struck me that there where no cost savings whatsoever. They charge maybe $35 to $50 per hour, but then estimate 4 to 5 times the number of hours it would take a US practitioner to do the job. What I have seen in terms of quality is spotty at best, but personally I’ve seen only low quality. So for a marginal savings the quality is much lower requiring the US practitioner to spend time fixing, or just filing inferior responses. I wonder as I write this if this explains some of the truly awful responses that I see from time to time.

    -Gene

  7. Dang… GREAT argument!

    Now we know why folks can not afford to hire patent attorneys. We now have complete justification, and an understanding, for the fees charged.

    Now, replace the word “Patent Attorney” with “Engineer”, “Nurse”, “School Teacher” and tell me why those folks, who work to provide services that are just as valuable… and perhaps more because it is your second thru fifth grade teachers you can thank for your ability to read this… are not rewarded in the same way.

    Anyway, to me they are all just excuses for a bloated system that our society has seemed to accept.

    BTW: I mostly LOVE all your articles and read them and feel they are ALWAYS well written and I even agree with this particular one but invite folks to just think a bit outside the box of the legal profession.

    I must talk to hundreds of folks who sign up for the Provisional Patent Video course http://provisionalpatentvideo.com/ who piss and moan about attorney fees and MANY of these folks paid many of these attorneys to draft provisionals and many of them filed the provisionals EVEN THOUGH there were clearly prior art on the peoples inventive ideas!

    Can’t Patent Attorneys get in trouble if they file a provisional for someone when even I can find prior art on their provisionals? If so how do I help folks I know to report those slime-balls?

  8. Tifoso-

    OMG… you are dead on when you say that billing is different than collecting. That is why in almost all cases I require a retainer. Business clients who are vouched by other attorneys or long time clients who pay regularly get treated differently, but I can’t agree more. Attorneys need to be extremely mindful that they need to be collecting on as many hours billed as possible. 80% collections is for many attorneys considered good, but when you are doing patent prosecution you can only do so many hours a week without going crazy, so 80% collection is really inadequate.

    Thanks for reading, and for more factual information to round out the case.

    -Gene

  9. Paul-

    Excellent point. It is definitely easier to review/edit than to write in the first instance.

    -Gene

  10. Dave Korpi –

    “tell me why those folks… are not rewarded in the same way.”

    Supply and demand. Supply: Patent attorneys are required to graduate from law school, pass a bar exam, and pass an additional “patent bar” exam that even other attorneys are not required to pass. Demand: Most patent practitioners took 10-15% pay cuts (or more) during the recession since the demand for legal services went down in general. If there weren’t such demand for high quality patent protection, attorneys would not be able to be compensated the way they do. So maybe you should take up your cause against Congress and the strength of patent laws. And hey, maybe it has to do with insurance costs too. It’s way less likely that a grade school teacher will be sued for malpractice by a third grader.

  11. Dave-

    I do appreciate you reading, but your comment demands a response.

    You ask why “engineer”, “nurse” or “school teacher” couldn’t be substituted for “patent attorney” in this article. Are you serious?

    The article discusses the reality of running your own business and the fact that there are MANY hidden costs that most people choose to ignore. Engineers (by and large), nurses and school teachers are NOT self-employed, nor are they partners that must contribute to overhead. They are employees. Employees always get paid less than business owners because there is no risk taken by an employee. The employee gets a paycheck every pay-period. Owners do not get paid every pay-period, and if they do that amounts can and do shift widely depending upon whether funds are available.

    It should be obvious on its face why a patent attorney has to charge a certain rate. The one legitimate comparison you didn’t include would be doctor, which I suspect you left out because that again is a scenario where a highly trained professional has had to spend many years of school and practice to become a master, has employees and overhead concerns, as well as insurance/malpractice concerns, that all require the doctor to charge more than most people would like.

    The alternative is for highly trained professional simply not to exist. I suspect that would be to your liking in our industry so that you could get unsuspecting inventors to take legal advice from someone (like yourself) who is not a patent attorney or a patent agent.

    I have long given up believing that I can save all inventors. So many seem so willing to believe attorneys are not necessary and the inventor down the block who has a few patents can do the same job. The same mentality draws inventors to the scams. The truth is that those who accept legal advice from people not admitted to practice get what they deserve.

    -Gene

  12. Rick-

    You say: “It’s way less likely that a grade school teacher will be sued for malpractice by a third grader.”

    You are, of course, correct. I just write, off-topic a bit, to suggest that if there were more accountability education in the U.S. would be much better!

    Cheers.

    -Gene

  13. I got some first-hand experience in what malpractice insurance costs for some medical doctors, when I was working for a young doctor for about a year. While working together one day, the subject of malpractice insurance came up, and I was somewhat stunned when he told me he was paying over 60K per year for the minimum type of insurance! For only an extra $20,000 a year he could get the comprehensive type, but that was back in the mid 80’s or so, when he was still working at a hospital as an ER doc. That is not to say what insurance might cost attorneys, but the training levels and responsibilities would seem to be about on a par to me, where an attorney might be responsible for losing millions for their clients in litigation costs if they goof things up.

    Stan~

  14. To Dave Korpi-

    Your comparison is not apposite. Take ‘teacher’, for example. The appropriate comparison is not what an employee teacher its paid as a salary, it its what a parent and/or the taxpayer posts to educate a child.

    A quick review of a few results of a google search for ‘US private school fees’ suggests that an average cost for private education in years 9-12 is around US$15,000 (which is fairly similar to Australia at the current exchange rate). Using round figures, if class sizes average 20 students, and there are 1000 hours in an academic teaching year, then the school is effectively being paid $300 per teacher-hour delivered to its clients. The teachers are being paid nothing like this amount!

    This does not even take into account the fact that (in Australia at least) private schools additionally receive significant public funding per student in addition to fees.

    The point is that the cost of running a business – any business – is not just the cost of paying the he-range for bolted hours

  15. The point is that the cost of running a business – any business – is not just the cost of paying the fee earner for billed hours. And what you charge is the total cost of doing business, plus a profit margin. In my experience, patent attorney businesses are no more profitable than many other professional services.

    Mark

    PS Sorry for the split posting – hazards of going mobile!

  16. I totally agree!! We should feel bad for the underpaid overworked attorneys with all the RISK. In many instances, an experienced examiner (working from home) living in an area with a low cost of living has a higher standard of living than many attorneys making 250K + living in metro areas like DC (VA, MD), NY, Boston, LA, etc. where a nice house costs over a million $$. Plus (on top of all the RISK) an attorney living in the big metro areas need to fork over the extra $$ for a Mercedes or BMW to look extra successful on top of that million dollar house. In many instances, if the attorney doesn’t live/work in such high cost areas their salaries will significantly drop. So agreed, the examiner with NO RISK, a pension and living in BFE with a large 350K house, a nice car (an American car loaded with all the options) and plenty of cash to SAVE is very equivalent, and thus the Office Action is worth the same as the response. The firms should be charging AT LEAST $500/ hour to keep it fair. Think this is a ridiculous comment? There’s a lot more truth to it than one would think!!!! Also, why are so many of the new examiners that are being hired ex-patent attorneys who’ve previously worked for large firms? Is the job market that bad for hiring attorneys right now?