Ask any law firm to name the benefits of managing its clients’ patent renewal functions and you’ll likely obtain a response that links to client service or client retention rather than the firm’s profit margin. In fact, as soon as you start to outline the potential pitfalls of patent annuity management, that rosy image of client service starts to look less enticing; particularly in jurisdictions such as the US, where maintenance fees are payable throughout the life of a granted patent and not just when the rights are issued as in some European countries.
A bank or a law firm?
Depending on the size of the law firm, patent renewals will generally be managed by an administrative specialist or a paralegal, by an annuities provider, such as CPA Global, or by a mixture of both, and always under the supervision of an attorney. Typically, intellectual property (IP) departments will split renewals management between US and non-US jurisdictions, given that the rules for filing outside the US can differ so markedly between countries. Deadlines, reminders and the status of payment instructions have to be maintained in the firm’s IP management system in order to manage this process.
Law firms will inevitably pay the cost of renewals and the associated taxes on behalf of their clients and then invoice clients for repayment. That appears to be a sensible option given the risk of loss or damage to a right should the fees not be paid on time.
However, what makes sense for a client’s rights doesn’t necessarily improve a law firm’s balance sheet, as John Donohue of Woodcock Washburn LLP explains. ‘When you look at the economics, law firms are basically functioning as banks,’ he says. ‘Firms need to ask themselves: “Do we want to be a bank?” The answer should clearly be, “no”.’
In addition, the impact on cash flow is only one cause for concern. ‘Law firms just always considered the management of patent renewals to be a necessary element in the client portfolio management process,’ explains Donohue. ‘It wasn’t until insurance companies stepped in that we really became conscious of the extra liability that we were accepting along with the work.’
Donohue explains that the shift in law firm professional liability policies away from multi-year to annual policies played a key role in this new focus on risk. ‘At that time, insurance companies had been badly hit by [the] stock market decline and a hike in premiums was the obvious response.’ In addition, the price tags of professional liability law suits against firms which had lapsed a client’s patent matter were soaring into multimillion-dollar claims.
‘Law firms were obviously unhappy with these sudden and yearly increases, but insurance companies said they would only offer discounts in return for better risk management. Their statistics showed that “missed dates”, resulting in loss or damage to rights, were the most frequent claims being raised by clients, and that many of these related to annuities and renewals. Law firms began to say to themselves: “We’re not making a lot of money from the work and yet we’re accepting unlimited liability for that work; can we even justify that risk?”
‘We weren’t directly told to outsource it to an annuities provider,’ Donohue adds, ‘but that was the obvious solution.’ He says that his firm is just one of hundreds of law firms in the US which are now making the move away from annuities management. However, he emphasises that the process is burdensome and arduous without the right resources in place. In fact, without the proper support, the procedure of disengagement can go on for years without a successful outcome. ‘It’s not as simple as just sending your clients a letter to say: “We’re not doing that work for you any more”,’ he says. ‘You need to make sure your clients accept and step in to organise the new management of their rights. Even if you say: “Here’s a list of possible companies, talk to them and let us know what you decide.” A major issue then arises when it comes to monitoring and following up those letters; there’s a lot of chasing to be done.’
Donohue says that some companies made arrangements right away, especially the larger clients. ‘Many of them said: “Yes, it’s the right thing to do; we should have done this a long time ago”,’ he says. ‘But other smaller clients just didn’t respond. There will be a considerable group of clients you just won’t hear from,’ says Donohue. ‘It leaves you in limbo – and takes up an incredible amount of your time.
‘Woodcock Washburn dedicated a senior paralegal to the project full time for two years, and even then the project wasn’t complete,’ he adds. ‘That’s two years of time that couldn’t be billed. I thought: “There must be a better way”.’ Fortunately there is a better way. ‘Early on in the process I attended a presentation by a senior partner at Morrison & Foerster LLP, which outlined the exit strategy that the law firm was following with CPA Global. We thought: This sounds like the way to go,’ says Donohue. ‘We probably should have started implementing it right away.’
A proven solution
The difference with the CPA Global Patent Exit Programme is that you can provide a client with a preferred supplier without adopting any of the risk that comes with that recommendation. ‘It’s also important that there’s an existing and well-established process in place to adopt,’ adds Donohue. ‘If you try to manage the process yourself, it takes longer to remove yourself and puts greater pressure on your in-house team. With CPA Global’s Patent Exit Programme, the work is done for you.’
But Donohue warns that not all annuity providers offer the same level of service. ‘Some of these companies are only interested in obtaining the business of your larger clients,’ he says. ‘We’ve even been told by some clients that they don’t want to have to deal with some of the providers again. Obviously, that’s a body blow to a client relationship, as even though you’re trying to step out of the risk framework, you still want your clients to trust that you know what you’re talking about. That’s why it’s important to link up with a responsible annuity provider like CPA Global.
‘Law firms need to step away from patent renewals management, but not at the expense of their client service,’ Donohue concludes. ‘Adopting a proven exit programme takes pressure away from a law firm while ensuring that client satisfaction is maintained.’
Alex Cregan is vice president of Legal Markets at CPA Global North America. He can be contacted at acregan@cpaglobal
This article first appeared in IP Review, Issue 28