©2016. Published in Landslide, Vol. 8, No. 5, May/June 2016, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
The French epigram plus ça change, plus c’est la même chose,1 as translated and more recognizable to our American colleagues in the title of this article, is probably one of the most quoted expressions on both sides of the Atlantic. We hear this expression, or its translated equivalent,2 in many contexts, including when the patterns or trends of a particular industry are scrutinized.
If the epigram is so popular, it must surely hold some truth at least some of the time? Could what we perceive at face value as change in an industry or a trend within it turn out to be insignificant, if one considers those changes in the context of the root cause for the existence of the industry?
A topic of much ongoing debate in the legal profession and in the intellectual property (IP) sector is how the practice might or, if the epigram applies, might not change in the coming decade and to what extent new business models will emerge in the industry as a result of those changes.
A Profession That Is Always Changing
Discussions about changes in law firms and IP firms have often been current topics in the profession, especially over the past three decades.
Examples of changes that were most often discussed in the previous decades were economical changes due to cost pressures from clients, the ambitions of law firm partners to increase profits per equity partner and how this affects the operations structure of a law firm, and, in the context of intellectual property and the IP industry specifically, the impact of the introduction of regional and international registration systems that are increasingly existing in addition to national registration systems.
In the 1990s and thereafter, the impact of technology has evolved from a debate about replacing letters in the post with faxes, and later replacing typewriters with computers and e-mails—topics that seem obsolete in 2016—to more recent debates about more advanced technology, such as automation and artificial intelligence.
In hindsight, many of the anticipated changes did occur in an IP industry that likes to call itself “progressive.”
A Profession That Is Always Staying the Same
However, many of the anticipated changes did not occur nearly as rapidly as anticipated.
As an example of slow progress, some of the most “progressive” IP attorneys still use faxes in 2016. More than two decades since computers and IP docketing software became necessities to stay in business (as opposed to items one could ask the firm’s librarian about), many cutting-edge practices are still not operating in a paperless or semi-paperless environment, and most firms still employ filing clerks to help administrate the firm’s physical files; and “paperless” often does not mean that a firm has zero paper records.
To some extent, changes may be slowed by laws that make provision for the storing of original documents and that require formalities such as legalization and notarization. In addition, the IP profession has sometimes been accused of resisting changes until they become essential for the survival of the business model.
The Roots of the IP Firm’s Business Model
Given the speculation about what the future may hold for the business model of the IP firm or service provider, how do we see the future of intellectual property unfolding?
In answering our question, we went back to the very root of why the IP profession exists in the first place and for what purposes the client goes to the IP attorney for assistance.
Throughout all the changes over the decades, one constant factor is that clients have at all relevant times and at an increasing pace been prepared to pay to register intellectual property and to exploit it. Herein lies the root of the IP firm’s business model. Clients are prepared to pay for IP protection, so what’s the problem then? This is not the issue. The issue is what are they prepared to pay for and how much. Are clients moving to a direction where they look for value for money as opposed to simple cost saving, or is the investment in intellectual property a low-priority expense where cost saving is the most relevant?
Answering the above question depends to some extent on the legal nature of intellectual property and how clients perceive it.
The Legal Nature of IP from a Client’s Perspective
From a legal perspective, IP laws by their very definition are usually statutory rights designed to protect different aspects of innovation by providing the holder of the applicable right a statutory negative property right, specifically a right to stop others from exploiting the object of the right once the right has been granted through, in most instances, a registration process.3
The Commercial Purposes of Registering IP
If one considers the legal nature of the IP right and the benefits that IP laws grant to clients, registering intellectual property has at least two commercial purposes to the client:
- to gain a commercial advantage by stopping infringement (the direct enforcement of the statutory negative property right); and
- to create income and future income potential through royalty streams and as an asset on the balance sheet for the client (the indirect or positive exploitation of the statutory negative property right).
To the client, both commercial objectives of having intellectual property as an asset require the registration of most types of intellectual property as a prerequisite to gaining any commercial advantage from the IP. From this perspective, obtaining registration of the IP is perceived by the client to be somewhat as a “grudge purchase,” while the commercialization and enforcement of the IP right are considered ways to obtain a return on the investment of obtaining IP registration and which may be considered money better spent, or better “invested”, by the client.
Activities for Which the IP Attorney Is Briefed
Considering the above objectives of the IP owner, we must also consider that the services of the IP attorney are traditionally engaged by the client:
- when the client makes the initial “grudge purchase” of obtaining registration at the lowest cost possible (but without compromising the integrity of the right);
- when developing a strategy and drafting the commercial documents that are necessary to monetize intellectual property; and
- when enforcing intellectual property.
If the client or technology changes, the business model of the filing and prosecution practice, which is perceived mainly under the “grudge purchase” component of the client’s budget, would obviously not be impacted the same way as the IP commercialization and enforcement department of the IP attorney’s practice. In this context, we have considered the trends in each area of practice and how the business model is impacted.
The Future of the IP Registrations Practice
Once the scope of the IP right is defined by a specialist expert attorney, registration requires compliance with a number of administrative procedures, performance of one or more translations, in some cases legalization and notarization, and, for most clients with business across borders, briefing foreign agents to extend the right to other jurisdictions.
Aspects of the IP registration process such as specification drafting and properly classifying and defining the scope and subject matter of a trademark application would nearly always require a highly specialized IP attorney to avoid the integrity of the right from being compromised. The same would apply in the patent world.
In the area of conducting searches, technology is playing an increasing role in defining the scope of the prior art, and, in the case of trademarks, conducting an analysis of potentially confusingly similar marks is aided by technology. Readily available tools such as Google have changed the way that searches are done, but in addition there is a range of search optimizing software and technology-backed services that are changing the way (and time frame within which) a search can be performed.
And so the argument goes, if the IP attorney can do the job quicker, why should the client pay the same rate that was paid before technology was at the disposal of the IP attorney?
In the area of purely administrative tasks such as bulk filings, typically where an IP right has already been defined and needs to be extended, we see the most cost pressure and willingness by clients (including progressive IP firms trying to reduce their clients’ costs) to try out the services of IP service providers.
Where many IP firms have been slower to embrace technology that allows documents and forms to be automated, many IP service providers have embraced technology to streamline workflows, make obtaining a translation easier and more cost effective, and, effectively, industrialize certain routine processes that can be done in bulk, such as Paris Convention filings, Patent Cooperation Treaty (PCT) national and regional phase entries, European Patent validations, recordals, renewals, trademark or patent searches and bulk filings, and other transactions in this family.
We see two possible trends. On the one hand, clients are not prepared to pay highly qualified IP attorneys to perform administrative tasks that can be better performed by either a computer program or by an equally administratively competent paralegal. On the other hand, clients do not want to sacrifice the quality of the work done to secure IP registration, grudge purchase or not, due to the simple fact that saving US$100 and risking losing millions in the case of loss of right is not a good business model for the protection, enforcement, and monetization of IP rights.
The saying “penny wise, pound foolish” rings to mind. Without a guarantee that work that is automated or done in a nontraditional way is just as sound as work done traditionally by the IP firm, the client would not be making a wise decision to cut the IP budget and switch to an alternative.
What we see for the future of IP registrations, both in IP firms and service providers, is that, at least in developed countries at first, an increasing degree of industry-specific specialization will be required to ensure accuracy and quality control, combined with sufficiently supervised and controlled automation to ensure that a high, or even higher, quality work product ensues. In some ways, automating certain mechanical processes, such as automatically importing priority dates from bibliographical data into forms and then manually checking those entries, produces a lower margin of error than a human typing numbers into form fields.
For IP firms, the above means change. The days where firms rely on charging attorneys’ fees for administrative tasks that can be automated or performed through more efficient, structured bulk processes are numbered.
Even so, the evident change does not spell bad news for IP firms from a business model perspective. To the contrary, the opportunity of change presented to the client, namely more affordable registrations, means that clients can afford the luxury of filing more patent and trademark applications in more jurisdictions at a reduced cost, but with an increased need for specialized attorney skills at the search and strategy phase. Indeed, taking Europe as an example, the number of qualified European patent attorneys has almost doubled since the late 1990s, reflecting a demand for those skills considering the unemployment rate is virtually zero in this profession. The story of change in the IP industry and its impact on the business model of the registrations practice is by no means negative.
The Future of the IP Commercial Practice
Despite the seemingly good news for newly qualified IP attorneys, the changes impacting the registration or “grudge purchase” component of the IP budget are also affecting what clients are prepared to pay for IP advice.
Clients are prepared to pay for good, commercially sound advice that helps the client to structure the IP portfolio and monetise its intellectual property effectively. However, not all IP attorneys are trained or skilled to give this advice, especially given the other need mentioned earlier, namely the need to specialize insofar as industry area is concerned. Clients increasingly need “soft” IP advice that views IP rights not in isolation, but as a bundle of rights covering trademarks, patents, licensing, royalties, litigation strategy, counterfeit goods, and issues relating to taxation and valuation.
In the above multidisciplinary commercial field, competition is growing from auditing and business advisory firms. In addition, it is often a strategy of IP owners to structure these commercial activities largely in-house and only to brief the IP attorney specialist at an IP or law firm if counsel on a specific issue is required.
Even in the field of document drafting, software solutions and attorney support aides are making it easier and more efficient for IP attorneys to do the job with less assistance. In parallel, with the in-house attorney, clients increasingly see the opportunity for them to do the work themselves, not to mention internet based sources.
We see the future of commercial IP being impacted by technology and automation. It may be a growing area for potential revenues for IP firms and alternative service providers alike.
The Future of the IP Enforcement Practice
IP litigation is on the rise throughout the globe. This is a result of clients using the opportunity to gain an advantage from their registered IP rights by deterring competition.
Even in respect of litigation, technology and client pressures are having an impact on the way that litigation is practiced and the business model on which the practice is based. Typically, an IP litigation practice has two or three associates and several paralegals per equity partner to assist the partner in generating the highest profits.
As in commercial litigation, traditionally billing works like a pyramid, where the paralegals support the associates with administrative work (compiling briefs, preparing annexures, and doing document review and discovery) and the associates prepare and bill an hourly rate to finalize a draft, which is then reviewed at a higher hourly rate, sometimes in excess of US$1,000 per hour, by the litigation partner.
While litigation is on the rise, clients are recognizing that they want to see return on their “investment” in litigation. Many items for which attorneys have billed exorbitant rates, such as keeping a file on diary, sending routine reminders, and indexing and paginating a court brief, are items that can be done at a lower cost through automation and outsourcing. In this regard, in-house counsel plays the role of a legal fees broker for the client, scrutinizing and refusing to pay for those tasks that do not require the $200, $400, or $800 per hour rate to prepare.
Flat, or fixed, fees are good for the client and what clients often want. They are not, however, good for the IP litigation practice, which bases its business model on adding more and more fee earners to the fee earnings pyramid. One does not have to look far to see the destructive results that a fixed fee structure could have in a traditional firm, if implemented incorrectly and combined with an “eat what you kill” remuneration structure for partners. It’s simple: the best, brightest, and highest earning partners will simply leave and a firm could risk folding.
So what can an IP firm do to meet the client’s cost pressures on litigation but maintain the profits per equity partner ratio? One solution could be automation of standard processes. Another could be legal process outsourcing. In addition, not too far into the future, there is speculation that certain artificial intelligence software such as IBM’s Watson would replace the role of the legal assistant or, more likely, aid the legal assistant to perform the job quicker, therefore requiring less legal assistants to do the same job.
Unlike internet search engines, which are perfect examples of how technology has aided the IP attorney with research, the artificial intelligence software can analyze information in a logical and structured manner. One could hypothetically ask artificial intelligence program a procedural legal question, such as “what is the opposition term in Europe for a granted patent application,” and receive a structured, researched answer in seconds.
The Future IP Attorney
Given the continuous developments in the industry and the more recent acceleration of technological advances coupled with client billing pressure, we cannot imagine with certainly what the future IP firm, IP service provider, or in-house IP legal department will look like. Probably more automated. Possibly smaller teams, with a higher percentage of expertise, both in terms of having higher skilled, more specialized, and more business-minded attorneys, and paralegals who may no longer be paper pushers but most probably persons with a legal degree and substantive IP background and possibly even an IT background.
One thing that certainly won’t stay the same is the profile of the successful IP attorney. The bright attorney with a good academic background but no business skills may struggle to survive. Likewise, the business-minded attorney who is not able to increase his or her skills to the specialized skills required by the client may also find it difficult to succeed. Gone are the days when an IP attorney could be good at just one thing (specification drafting, for instance) and succeed. The ability to market intellectual property and the value provided to clients and to demonstrate the sales pitch with a solid business case will also be important.
On the other hand, many things are likely to stay the same. Intellectual property has always been and will continue to be big and profitable business, for IP firms and service providers alike.
As far as clients are concerned, what we speculate will stay the same is that IP rights will always be important and legal protection will be required, perhaps with an increasing degree of importance as competition in the global market intensifies. In 2016, clients need IP protection, and IP firms and service providers make money from this need and run profitable enterprises. This fundamental reason for the existence of an IP industry is likely to remain as far as the eye can see into the future. As has always been the case, change will be constant. The more things change, at a fundamental level, they will stay the same.
1.The saying was originated by Jean-Baptiste Alphonse Karr, a French novelist, in his journal entitled Les Guêpes (“The Wasps,” 1849).
2. At Valipat, the author’s IP service provider, 23 different languages are spoken by the staff, counting only the Brussels office. Of course, Valipat’s IP translations partners can also articulate in many languages!
3. Generally speaking, in the context of patents, IP laws grant the owner the exclusive right to stop the unauthorized exploitation of the same, or substantially the same, invention. In the context of trademarks, the main right granted by legislation to the IP owner is to stop the unauthorized use in the course of trade of marks that are confusingly similar marks to the registered trademark. Copyright laws generally allow the owner of the copyright to stop the unauthorized reproduction, publication, or dissemination of the protected work. Design laws are less harmonized globally but essentially grant the owner of the right the exclusive right to stop reproducing or imitating the protected design, whether registered or unregistered.