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Budget pressures pushing patent processes in house

Technology, life sciences and manufacturing companies say they’re increasingly bringing patent processes in house to make them more cost efficient. The challenge is working out when a function is better done internally, outsourced to private practice or split between the two

Piggy bank budget

Budget pressures are driving companies to bring more patent processes into their IP departments, according to in-house sources at technology, life sciences and manufacturing companies.

Out of the seven corporate lawyers Managing IP interviewed, six said they had brought or were considering bringing certain functions in house either completely or partly because it would make them more cost effective or efficient, and without sacrificing patent protection quality.

“All companies have limited budgets and resources,” says the senior IP counsel at an automotive parts company. “We should be cost efficient, and internal legal professionals are often less expensive than outsourced ones.”

But, he adds, most businesses have peaks in their patent work, and increasing internal capacity just to manage those would be too expensive. “You must find the balance between the size of your internal workforce and how much you outsource,” he says.

The head of IP at a factory tech manufacturer says that his company underwent a process of tightening processes to reduce costs and drive efficiencies, which meant identifying which functions should be done totally or partly inside the firm.

The IP head of a global steel manufacturing company adds that he inherited a mess of around 80 outside counsel charging different rates for different services when he started his role, and put numerous functions in house that could be done better by internal lawyers.

The challenge for these companies has been working out which processes are better to bring in house based on cost and speed and putting mechanisms in place to review whether those findings work in practice and continue to work over time.

Sustaining resources

The first and perhaps most obvious consideration for in-house counsel when working out which functions to do themselves is how much a law firm will charge for a service compared with the price of training employees to do the job and paying their salaries.

The main factors in this analysis, according to in-house sources, are how often the department does a particular function and whether it could afford to produce and sustain the same resources or knowledge sets as a law firm to avoid sacrificing quality.

“If we used outside counsel to sit in meetings and try to understand your company’s invention, for example, we would end up with expensive patents”

The vice-president of legal at a German biotech firms points out that litigation, for example, is commonly outsourced by companies because these cases are large, one-off activities that are not done enough to warrant hiring and training in-house people. Equally, if a company occasionally licenses is patents but is not a prolific licensor, it will likely cost less to leave that function with private practice.

In particular, he says, large licensing transactions require enormous resources and a global reach that could not be produced or sustained in most patent departments.

“That kind of work is hard and fast and very few companies, apart from perhaps large pharmaceutical firms, could not possibly afford to do all of that in house.” He adds that businesses may also want the protection of a law firm’s liability insurance for riskier processes so that they do not have to brunt the cost of that financial protection themselves. 

“It is best to develop a few specialisms within patent departments and more or less outsource the rest,” he says.

The IP head for a Spanish pharmaceutical company agrees with this approach, and adds that her department does drafting, prosecution and freedom-to-operate reporting internally in Europe because its employees have the skills and qualifications they need to produce work to a high standard there.

But she relies on outside counsel when it comes to filing or prosecution in non-European jurisdictions because it would not be cost effective to upskill her patent attorneys to work effectively in different patent systems across the world.

The senior IP counsel at an automotive parts company says that his firm similarly does most prosecution and all of its drafting in house partly for that reason and outsources larger projects to law firms that have the required resources.

But even when a process is seemingly cheaper to give to in-house lawyers than external counsel, it could still work out cheaper with a law firm after some negotiation. Sources say that patent businesses should seek to strike a deals with law firms that could make the service cheaper and introduce price certainty.

The head of IP at the commercial arm of a UK university says his company recently introduced a tendering process for its patent drafting where firms could bid for guaranteed work.

“We now pay a fixed price and would only pay more under exceptional circumstances, which means it works out well to outsource that particular function,” he says. “But the chances are most firms cannot afford to do this sort of work so cheaply and will need to find ways of doing more for less to keep companies giving it to them.”

The IP head of a global steel manufacturing company says his firm underwent a similar process of striking fixed fee deals with private practice firms. He adds that firms might be able to produce even more services for cheaper than in-house departments could afford to in the future by investing in efficiency-driving technologies such as workflow software and artificial intelligence.  

Reducing friction

In-house sources say that another reason to bring a patent processes in house is to drive efficiencies. In-house lawyers often have a better knowledge of a company’s inventions that enables them to do some processes more easily, and ultimately makes it easier for external counsel to complete the work that’s outsourced to them.

“If we used outside counsel to sit in meetings and try to understand your company’s invention, for example, we would end up with expensive patents,” explains the head of IP at a European factory tech manufacturer.

“We have a lot of communication with external firms, and having a reliable centralised system is the best way to manage that”

“If in-house people who are knowledgeable of the product and of IP harvesting do that homework instead, and they describe the invention to an outside drafter, we can get high-quality protection for less money.” He adds that it is ultimately a matter of streamlining the process based on the strengths of both in-house and external lawyers.

The IPR manager at an abrasives and tools manufacturer says that his firm does patent searches to determine novelty in house for the same reason, and puts its findings into a package which it gives to its private practice partner.

“They can work on that much more efficiently than if they were doing searches themselves, I think.”

Doing these processes quicker has the obvious benefit of cutting down the time and money law firms spend on various functions – but it also enables the business to get high-quality protection quicker or enforce its rights more easily. This  translates into competitive advantage and increased revenues for the business as a whole.

In-house departments could also make processes more efficient if they invest in processes and technology. The head of IP at a UK university commercial arm says that his company implemented a property database and time management system to help streamline processes and manage deadline internally and with outside counsel.

“We have a lot of communication with external firms, and having a reliable centralised system is the best way to manage that,” he says.   

Budget pressures are driving more patent processes in in-house because they’re often cheaper and faster that way. But IP heads must be careful to find the right balance and ensure not too much is brought inside or given to external counsel.

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