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Morrison on Metrics: The ins and outs of patent costs

The distinctive ways in which law departments take control of fees.

One common way that metrics vary from one law department to another arises from their treatment of patent-related costs. Some law departments absorb the full cost of patent preparation and prosecution, as well as registration in foreign countries and the ensuing annual annuity fees paid to governments. Other departments revert to clients some portion along that continuum of costs. For example, some departments include the cost to obtain a patent in their legal budget, but thereafter clients pay for government fees and annuities. In between, the law department also picks up the costs of foreign patent agents as well as translation costs (which can often be considerable).

Another variation is that the law department will handle all patent work and expenses up to a certain number of patents in the year, but above that, a business unit needs to absorb some of the costs. A service level agreement is one way to lay this arrangement out. Another variation is to have the law department responsible for all patent-related costs in the home country, but for a business unit to pick up the tab for international filings and maintenance. For that matter, the legal department should charge the business unit the costs of patent litigation that arise from the business unit’s activities.

Quite a few law departments that oversee a flow of patent disclosures and applications negotiate fixed-fee deals from prosecuting law firms. If so, and if those fees are charged per patent, it makes it easier to allocate costs among budgets.

No general counsel wants to negotiate with clients, but strapped by tight budgets, they must sometimes try to draw lines around what are appropriate expenses and what lies outside their budget. In the end, while the law department should spend corporate money judiciously, the initial decision to protect a patentable idea must rest with the business unit that seeks to enforce or profit from it, and this allows for the best allocation of investments.. Decisions about who bears the cost of patents bring into play the massive uncertainty of how to value a newly hatched patentable idea. It also touches on the notion of a law department as a profit center.

With all these permutations of paying for the multiple elements of patent costs, the numbers that law departments use for their internal budget can vary according to the decisions they make and the manner in which they allocate this range of patent costs. Whatever the decision, the total costs—regardless whose budget ox is gored—should be attributed to the law department for purposes of benchmark metrics. Total legal costs should not depend on internal corporate accounting and charge-back practices. 

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Rees Morrison

Rees Morrison, Esq. is a partner at Altman Weil, Inc. with countless interests in legal data analytics. He is also the founder of General Counsel Metrics, LLC....

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