EDITORIAL NOTE: If you are a new patent practitioner in need of training, or a firm seeking a training or mentoring solution, please see our Patent Practitioner Training course, created by Gene Quinn and John White.
Once you pass the patent bar exam how does one learn to actually practice? Like so many things in life, experience is the best teacher, but finding a job without some experience can be extremely difficult. For that reason many times new patent practitioners, whether patent attorneys or patent agents, will decide to start a practice and begin representing clients.
While there are many important aspects to starting a firm and representing clients, two critical pieces are signing up clients with representation agreements and holding unearned client money in appropriate client trust accounts prior to funds becoming earned.
The minute a client contacts you to seek your advice or potentially hire you the attorney-client privilege (or agent-client privilege) attaches and everything you learn must be kept confidential. But what if you do not accept the case? You still must keep information confidential.
One particular problem arises, however, when the individual believes you have accepted the case. If the prospective client thinks you represent them then you do, regardless of whether you actually entered into a representation agreement or not.
This is one of the many reasons why you want to make sure that everyone understands that representation will not be accepted or undertaken unless and until a written representation agreement has been entered into. With an eye toward this, in every e-mail you send you should have something similar to the following at the bottom:
DISCLAIMER: No legal or consulting services will be provided or representation undertaken until a written representation agreement has been entered into and the required retainer has been paid.
You will want a written agreement with everyone you represent that spells out the scope of representation. This sets the expectations for what you will do and deliver, and it can also be quite useful for setting any expectations or obligations the client will have, such as providing information relating to an invention, reviewing drafts, and providing feedback.
For example, if you are going to do a patent search and provide a written opinion you want to define the scope of the project that will be undertaken clearly so it is understood that no further representation (i.e., the filing of an application) will be undertaken beyond simply providing a patent search absent a further agreement and further payment.
Client Agreements are also important in order to explain payment terms to clients. Patent practitioners will frequently quote work on a project basis rather than charge by the hour. This provides cost certainty to the client, which clients like, but it can create headaches for practitioners if terms are not thought through. What if the project is not completed because the client refuses to participate and provide the feedback you need, or they simply disappear? If you are going to be delivering a draft for the client to review perhaps a portion of the flat fee could (and should) be deemed earned when the draft is completed and transmitted to the client. That way you are paid for the work you’ve done and there cannot be any questions or surprises because it was laid out and agreed to by the client.
Client Agreements are critical because they define the relationship and set expectations. For example, will the client be able to ask for revisions? How many revisions? If the invention changes as the application is in process, or significantly expands, will the same flat fee quoted apply?
Client Agreements must be in place to start every representation relationship, and your agreements will almost certainly change over time. But merely having an agreement isn’t enough. An agreement that envisions likely realities of working with an inventor in a creative process need to be taken into consideration.
Client Trust Accounts and Accepting a Retainer
One thing that virtually every patent attorney and patent agent learns is that if you do not get the money from the client up front you are not likely to get paid without expending large amounts of time chasing clients for payment. At the end of the day you will also simply not be able to collect everything you are owed because clients will sometimes simply refuse to pay, particularly if you opined that their invention is not patentable. It is a sad reality, but the last person in line to be paid always seems to be the lawyer.
This is why most require payment in advance for the services to be rendered, unless the client is a well established corporation or a long-term client you feel comfortable billing because of a track record of payments. What is critically important to understand, however, is that if you are going to accept payment in advance you absolutely MUST have a separate bank account that you use ONLY for the purpose of holding client money that has not yet been earned. This is called a Client Trust Account.
You ABSOLUTELY CANNOT co-mingle business funds with unearned funds and you MUST have a separate bank account. Having a single bank account and different ledgers or spreadsheets is not enough. I cannot stress this enough. If you do not have a separate Client Trust Account you are breaking the most basic of all Ethics Rules and you very well could be disbarred. At the very least, if you get caught you will be suspended from practice for a very lengthy time (likely several years).
It is not necessary to have a separate Client Trust Account for each different client. A single Client Trust Account for all unearned client money is perfectly fine. It is also appropriate to place a small amount of money into the Client Trust Account to start the account, and to cover any costs associated with maintaining an open account and paying for checks. This nominal sum for routine account fees and maintenance is typically on the order of $100 to $150 a year.
If you are also an attorney you should consult with the State where you are admitted to find out what particular requirements might exist for maintaining client funds. Generally speaking it is as easy as opening a separate bank account and then placing all unearned money in that account. Once the money has been earned you transfer the funds out of that account and into your general business account, leaving whatever portion of the fee that remains unearned.