How Patent Attorneys Represent Startups And Small Companies: A Review Of Practice Types

Guest post by Jackie Hutter

 

Introduction

As someone who works with a wide variety of startups and small companies as the in-house expert interfacing between outside patent lawyers, I have found it helpful to compare and contrast the various legal practice styles encountered, at least because I strive to continuously improve the IP strategy consulting services that I provide my clients. Recently, I have noted that there often appears to be a profound lack of alignment between the desired outcomes that my clients seek from their patent efforts and the business models of many of the lawyers we encounter. These lawyers seek to engage clients like mine, but often they are not able to provide the value we are seeking. Since I have been thinking a lot about this topic lately, I decided to write about my experiences because others may appreciate the context that I can bring to the selection and management of outside IP counsel.

A word of warning: this is a long article that reflects considerable thought about this topic, and it is likely best read while having a cup of coffee or over lunch.

Readers should consider this to be a working paper articulating various aspects of IP practice models that I have observed in the past couple of years. I have formatted this article into six actual scenarios that I have made anonymous as to the client and outside counsel, while still maintaining the basic outlines of each story. While I highlight practice models that I find fault with in the first five scenarios, the sixth scenario illustrates a practice model that successfully meets the needs of my clients.

Note that my goal is not to criticize the IP legal profession. To the contrary, if a specific business model works for an IP lawyer and his partners, by all means they should keep on doing what they’re doing. I have found, however, that the startups and small companies that hire me to develop and manage their IP strategies require different perspectives on IP protection than that which are provided by lawyers who may operate according to status quo law firm practice models. To this end, I have been searching for lawyers whose practice styles are more aligned with those of my clients specifically, as opposed those that are better suited to serve the needs of large companies, academic institutions, or even solo inventors. Only by first identifying the “pain” that my clients experience with IP counsel can I improve how I vet and engage lawyers for my clients. The identification of this “pain” is premise of this article.

Scenario 1: The “I’m In Business for My Business” Lawyer

A client, let’s call him “Pete,” recently said to me:

“I didn’t know my lawyer thought his job was to make his business flow, not to make my business grow.”

Pete, for whose company I have been part in-house IP counsel for a bit over 2 years, was commenting on how his former patent counsel of 20+ years, in retrospect, was not only expensive, but also highly ineffective. Pete continued by wondering aloud why he had not realized that he was not being well-served until after his company had spent (literally) millions of dollars generating patents and litigating patents to obtain outcomes that did virtually nothing to improve the revenues of his small medical device company.

The good news is that Pete has learned from this experience and now is ready to move on, but he clearly regrets not realizing that his attorneys weren’t focused on his success in any manner before he expended all the money, time, and emotional capital with them. He also feels the financial pain today when I have to let him know that his patents that his former patent counsel said were a “sure thing for licensing” really are not. Licensing of patents is the exception, rather than the rule, and Pete has learned this the hard way.

I am now in the process of identifying value in Pete’s extensive (and expensive) patent portfolio. We have dropped dozens of issued patents and pending applications that did nothing but line the pockets of Pete’s outside counsel. Indeed, in our several “roll up the sleeves” conferences about these patent matters, Pete frequently said something along the lines of “why did they file that?” or “that is not related to a product that would even function.” His lawyers would likely say that it is Pete’s fault for not paying more attention to his patent matters over the years–in fact, that was their excuse when I confronted them at his request. As a busy small businessman without the IP knowledge needed to properly manage his patent lawyers, Pete trusted his outside counsel to generate strong IP to help his business grow. However, in the end, it turned out that they were actually looking out for their business by generating IP that did little for Pete’s business.

Scenario 2: The “Patent Assembly Line” Lawyer

In another situation, I worked with the longstanding law firm of “StartupCo’s” founder to generate a foundational patent application on a disruptive technology. Since the founder was already a client of a law firm, I didn’t want to rock the boat by suggesting that we change law firms, even though this patent application involved a different company and subject matter. I checked the credentials of the attorney assigned to Startup Co, and she appeared to check out technically. Moreover, since she had in-house experience, I thought she might have a better perspective on what we needed to accomplish than a lawyer who had not been embedded with a corporate business team.

Notably, although they are just starting out, StartupCo is in licensing discussions with one of the world’s largest companies. This early stage interest by an established company is indicative of the fact that StartupCo’s technology genuinely could change the nature of the industry and, if this is the case, BigCo wants a piece of that action before its competitors find out. Nonetheless, having been on the other side of BigCo many years ago with a former client, I realized that this company would likely much rather use my client’s innovation without having to pay, and that its in-house lawyers are incentivized to figure out how to make this happen. This means that the patent application we were preparing for StartupCo was “bet the company,” in that if we don’t gain adequately broad protection, BigCo would be able to leverage our innovative insights to create their own version of our products. Moreover, as an established company, BigCo could use its existing resources (e.g., R&D, marketing, sales, distribution channels, customers, etc.) to get the product to market quickly and efficiently, with StartupCo possibly being left with only a patent that may not even be infringed. Even if the patent was infringed, BigCo’s deep pockets to fund litigation could make litigation an insurmountable challenge. In short, we have one chance to get our patent coverage right, or else StartupCo will likely be left with nothing to show for its effort and expense.

I explained all of this to the outside counsel, who was tasked with “dotting the I’s and crossing the t’s” on the application draft I sent to her. Disappointingly, the counsel’s first two drafts back to me were wholly devoid of the substantive additions that I expressly requested that she include. I soon realized that I would have to carry this application across the finish line myself because this outside counsel obviously had not internalized the importance of this application to StartupCo, even though I had explained this to her on multiple occasions. We were able to generate an excellent application by the due date, but I had a few short nights in getting there. What I had expected would be a collaborative project with a skilled outside counsel instead turned out to be a solo project.

In conducting an “after action” breakdown for the client, it dawned on me that the counsel assigned to us actually had not been the right person for this patenting job because, as a former large company patent person—indeed, she worked for years at a company not that much different from BigCo—she may not have had the professional capacity to understand the relative importance of this patent matter to her client. This is because rarely, if ever, does a large company have a patent matter that is critical to the ability of the company to succeed. In other words, patents appeared to be treated by our assigned outside counsel as if they were on an assembly line. It seemed as if she likely expended the same caliber of effort for each matter. Certainly, clients should expect that each of the patents that move along her “patent assembly line” are created in a quality manner, but in her mind there may be no reason to deviate from the standard model when assembling each one because “if it ain’t broke, why fix it?”

Scenario 3: The “I’m Not Comfortable Poking the Bear There” Lawyer

In another situation, I was asked to provide a second opinion of whether litigation counsel’s legal strategy was aligned with the client’s stated business objectives. MetalCo tasked its counsel with bringing a claim against a competitor that appeared to have misappropriated valuable trade secrets. The client had asked the counsel to deploy a legal strategy that would get the other side to sit up and take notice in order to force a quick resolution. Notwithstanding this clear client dictate, the litigation team brought a lawsuit that is destined to languish in court for years at considerable expense before a resolution is likely to happen. In short, outside counsel’s litigation strategy is seriously misaligned with the client’s goals for the litigation for at least these two reasons.

MetalCo’s

management team was confused as to why there was a fundamental disagreement between legal counsel and me regarding the litigation strategy. This is not surprising because they are business people, not attorneys. I let the client know that while they had effectively asked their counsel to “poke the bear” so as to push the competitor to obtain the desired business result but, in reviewing the litigation strategy, it is apparent to me that outside counsel was not willing to “poke the bear there,” perhaps because it would take out of them out of their professional comfort zone. Or, maybe, they are afraid of losing. Either way, it is apparent that these lawyers are too risk-averse to be able to affect the business goals of their client.

The client continues to let this litigation go along for the short term, however, current counsel is not out of the woods. The client knows that they are not being well-served by their attorneys, and I expect they will ask me to help make a change soon. I have already identified a patent litigator who is willing to bring any legal claim available, including finding a basis to accelerate the action in court. This patent litigator is willing to bring claims that are not necessarily winnable on the facts as known today–which appears to be the prerequisite for current counsel to bring a claim. Of course, there is nothing wrong with bringing a lawsuit where the facts are not currently known; indeed, this is how most lawsuits start out, but current counsel seems willing to bring only a low-risk lawsuit. Inexplicably, this is the opposite of what MetalCo has asked them to do. Although it can cost more upfront and generate more legal risk, such aggressive action may improve the chances that the opposing party will see the need to begin negotiating with MetalCo. Put another way, the lawyer I have identified is willing to “poke the bear there,” if that’s what the client needs to achieve his desired business outcome.

Scenario 4: The “I’m Just Not That into You” Law Firm

Many clients believe that hiring a “name brand” law firm will necessarily generate quality that is commensurate with the reputation of the law firm. Indeed, there is a saying among us old timer lawyers in Atlanta that “no one ever got fired for hiring [famous ‘White Shoe’ law firm].” Unfortunately, I have seen many patents coming from these prestigious firms that do not meet the minimal standards for competency required to create value for clients. The reason for this is twofold.

First, when a first-year associate with little or no experience in the practical aspects of patent drafting often has an hourly rate of $350 or more, a patent application can quickly become expensive. When this rate is combined with that of a supervising attorney who is needed to make sure that the associate is doing adequate technical work so as to avoid malpractice liability for the firm, one is looking at $15K or more for even the most basic patent filings. To keep the bills down, the quality of a patent application can be expected to suffer.

Second, and there’s no way to sugarcoat this, small companies or inexperienced patent filers can be challenging to represent. Typically, these clients need the type of care that cannot be properly provided in large law firm environments at least because they may need more substantive guidance than more sophisticated clients. This means that a partner may need to spend time in “care and feeding” of these clients, even while they do not generate much revenue for that partner. Senior lawyers at prestigious firms are then often dis-incentivized from taking on such clients, even when they may otherwise want to represent them on a personal level. In this regard, I have a dear friend—perhaps one of the most talented patent lawyers I know—who has recently dropped several of her smaller clients because she cannot adequately represent them at her $900 hourly rate. She has recommended that they seek representation at smaller firms, instead of being serviced at her firm by younger associates with lower hourly rates.

Unfortunately, there are not enough lawyers like my friend. Many senior lawyers at prestigious law firms are loath to give up a new client opportunity, even when that client cannot be served profitably by their law firm’s business model, at least because, candidly, many lawyers are not great business people. These partners also need to provide training to their young associates, and the best way to train someone is to provide them with substantive work. While there’s nothing wrong with training someone when they are adequately supervised—heck, that’s how I got good at what I do 20 or so years ago—in today’s legal environment, it is doubtful that the budget will justify the several additional partner hours that are often needed to develop the basis for good patent work product. As a result, an inexperienced and minimally supervised young attorney will often be the lead person responsible for generating patent protection for the client.

Larger law firms are coming to terms with the fact that patent practice is only profitable under certain business models. Many firms today consider their patent groups to be “loss leaders” for other aspects of their practices, such as litigation, corporate, and M & A. I expect that we will begin to see lawyers at firms like that one which my friend is at start to be more particular about the clients they take on, but until then, clients engaging these firms need to appreciate that they just might not be that into you.

Scenario 5: The “I’m Not Taking Instructions from Someone Else” Lawyer

The smaller firms that are configured to provide better value to startups and smaller companies nonetheless may come with lawyers who are not used to dealing with in-house IP counsel who serves as the interface between him and the client. These lawyers are used to running the show, and telling the client what needs to be done even though they likely have little idea how and why what they are doing affects (or not) the business goals of the client. Indeed, that is why the client brings me in to assist in the first place!

For example, an experienced lawyer at a small IP firm came highly recommended by a serial entrepreneur who is a friend of mine. While this lawyer could no doubt look up my resume and see that I had been practicing IP law longer than him, he not only ignored my instructions–which were based on my deep understanding of the business goals of our mutual startup client–he repeatedly sought to explain basic patent law concepts to me. He was clearly a competent patent lawyer, but there was no way I could continue to work with someone who not only did not listen to me but who obviously did not respect me. I fired this attorney and moved on.

My serial entrepreneur friend continues to work with this lawyer, and that makes sense. He is someone who needs someone who understands patent law first and foremost. Clients who work with me don’t want to, or need, to understand patent law. That’s what I do for them. I serve as the person who can bridge the client’s business goals to the arcane patent world when the clients neither have the time nor, in some cases, interest to interface with their outside patent counsel. To properly leverage the expertise that they hire me for, we need outside counsel who “plays well with others” and who recognizes that having another experienced lawyer on a case does not mean that you are being second-guessed. Rather, our outside counsel partners must realize that, first and foremost, when you need an expert, sometimes you need two.

Scenario 6: The “Your Business is My Business” Lawyer

Lest the reader think that my experience with outside patent counsel is always bad, here’s a story about an attorney who consistently hits it out of the park for my clients.

“Bob” is a partner at a mid-size patent boutique firm here in Atlanta. I have referred a dozen or more clients to him in the last couple of years, including Pete, the client from Scenario 1 above. Indeed, it is Bob’s legal effectiveness at a fair price that solidified Pete’s opinion that his former IP counsel was not in business to advance Pete’s business.

So what does Bob do that is so different from the other IP lawyers (anonymously) profiled in this post? In short, I would say that he believes that the client’s business is his business and, as such, aligns his legal efforts with the clients’ desired outcome.

Notably, my clients are different from many of Bob’s other clients. For the companies I work with, the goal is always to identify opportunities to increase business value by leveraging IP protection aligned with revenue generation or exit. This is my specific practice model “sweet spot,” and I expect that any lawyer who works with me on behalf of my clients understands this and acts accordingly.

For such clients, the goal is to generate broad patent coverage that will allow them to scale into a new or emerging product category. A product may not always exist prior to preparing a patent application, but there will nonetheless be a solid understanding of what a suite of products associated with an innovative idea may look like in the future. Thus, my clients’ patent filings must be forward-looking with an eye toward the possible products and markets. This requires creativity and foresight that can provide broad protection that preserves future options.

However, Bob also represents academic and research institutions that have a desired outcome of obtaining solid protection of early stage technologies that are not yet associated with products, nor can products probably be visualized. In other words, there is no revenue or exit value to be leveraged for these academic clients in the short term; instead, the mission is to set down a marker of protection at the lowest possible cost in the event that another entity will see value in building a business model around that well-protected, yet unproven in the market, technology. This requires detailed protection of early stage technical insights, as opposed to a detailed description of marketable products, and Bob is able to provide this type of protection to them.

Still other of Bob’s clients are established companies that seek to generate patent protection for products that will be brought to market in the near future, with the goal to be able to keep their competitors at bay by having the ability to assert patent rights against them. Patents covering such inventions will typically be detailed as to existing products, as that is what the company sells to its existing customers and markets. As a result, work that Bob does for these clients will incorporate product features that actually exist, or that will exist in the near future.

A further notable exception between Bob’s efforts and those of other attorneys with whom I have worked is that he understands that, for his practice to thrive over the long term, he must work hand-in-hand with the client to make sure they are seeing value from his patenting efforts. If not–and I know this from my experience as a law firm partner–a lawyer will be spending unbillable time chasing the next client because the first client’s business is not sustainable. So it is actually in his best interest to make sure his clients’ business is his business.

Lastly, I find Bob refreshingly receptive to collaboration and constructive criticism. To this end, experienced lawyers who get paid for their expertise often bristle at being challenged by another person, even an expert like myself. Indeed, I can say this is truly an occupational hazard, at least because I had this problem in my prior life as a fancy law firm lawyer: clients came to me for my expertise, so I’m going to give them what they’re paying for, right? Only when I entered the collaborative environment of a corporate innovation team, did I learn to appreciate that my own expertise was only part of the pool of total expertise that was needed to achieve the goals of the business. Additionally, Bob is not afraid to correct me if needed, nor does he relish in doing so, as do some expert lawyers. In short, neither one of us desires to be “right” in a particular situation; rather, the goal is only to align our activities to achieve the desired outcomes for the client.

Unfortunately, Bob’s subject matter expertise does not coincide with the full range of technology needs of my clients. Also, he may sometimes be conflicted out of representing my clients at a law firm level, as happened recently. I am continually looking for lawyers like Bob who “get” what I do, and what my clients are trying to accomplish.

Conclusion

These are my experiences illuminating as to these several legal practice models with which I have interfaced recently.

Certainly, the fact even someone as forward-looking as myself still experiences difficulties in identifying the right outside counsel for my clients means that there is much for everyone to learn before progress can be made in the IP profession.

Improvements will not come until we unabashedly shine a light on flaws that we observe in practice models, at least in relation to the types of representation that fail to serve startup and small company clients seeking patents that will allow them to reach their revenue and exit goals.

I look forward to collaborating with others who share the desire to develop client service models that can better serve startup and small company clients.

 

This article was first published here

https://www.linkedin.com/pulse/how-patent-attorneys-represent-startups-small-companies-jackie-hutter/