By Ian C. Schick, PhD, JD, CEO & Co-founder of Specifio (first posted on blog.specif.io)
A seismic shift is occurring in the demographics of the US patent bar that will have a lasting impact on the broader patent ecosystem. Specifically, the average patent practitioner is aging, which, in combination with other market forces, is already precipitating a number of fundamental changes in how patent practices must operate to remain profitable.
Below, I present a histogram of the number of currently active practitioners binned based on their earliest year of registration at the USPTO. For example, if a given practitioner registered first as a patent agent and then again a few years later as a patent attorney, this graph would reflect the year registered as a patent agent. To make this information a little easier to pick apart, we’ve divided the active practitioners into 5-year cohorts.
Before diving into the analysis, I should mention it was performed under the assumption that the underlying data from the USPTO Active Practitioner Roster is at least close to accurate with respect to the active status of practitioners. Also, Cohort #1 represents 4.5 years at the time of writing and will likely grow by another roughly 500 practitioners in the remaining 6 months concluding at the end of 2019. The discussion below, however, considers the numbers as of June 2019.
Not surprisingly, there are major falloffs after 20, 25, and 30 years of practice, which likely coincide with retirement in Cohorts #5, #6, and #7, respectively. The more interesting trend, however, lies with early- and mid-career practitioners.
In a workforce reflecting the typical law firm leverage model, we would expect to see the highest numbers of practitioners in the most recent years of registration. Instead, we see levels that are not even close to the highest. Cohort #2, for example, is 65% larger than Cohort #1. Cohorts #3 and #4 are both over twice the size of Cohort #1. Twice!
But it doesn’t stop there. Cohort #1 is even smaller than Cohort #5. Stated differently, there are more active practitioners today with 21-25 years of practice experience than there are active practitioners with 1-5 years experience. Indeed, half of all active practitioners have been practicing for 16 or more years, with the average years of practice for all active practitioners at 17 years. This should be shocking for patent owners and patent practice leaders, alike.
“There are more active practitioners today with 21-25 years of practice experience than there are active practitioners with 1-5 years experience.”
All of this begs the question: Why is Cohort #1 so surprisingly small? Is it less STEM students, higher engineering salaries, law school falling out of vogue, bad press from Alice/Mayo, who knows? There are probably many factors at play which certainly deserve a closer look.
In the near term, the demographic shift we’re experiencing as an industry is leading to some very tough issues. For example, average billing rates are rising at an accelerated pace because the average practitioner is becoming more senior in combination with the usual rate increases for inflation.
For patent drafting, higher hourly rates means either lower hours-budgets per app or higher fees per app. The latter seems very unlikely given the ten-year industry trend of stagnant, if not declining, average fees for preparing a patent application. Lower hours-budgets per app is also problematic, in that it can only go so far until the effects on patent quality are unacceptable. Furthermore, to the extent that rising average billing rates are driving reliance on the junior practitioners of Cohort #1 for certain types of work like patent drafting, we can expect to see the shortage of practitioner bandwidth becoming increasingly acute.
Even more ominous is what lies 5 or 10 years down the road. As mentioned above, retirement trends manifest as falloffs in active practitioner numbers at 20, 25, and 30 years of practice. Assuming average career lengths stay more or less constant, we can expect the retirement trends to hold true with Cohorts #3 and #4. If there is a drastic reduction in numbers in these cohorts, who will be there to replace them? Not Cohorts #1 and #2!
Now consider the fact that annual filings at the USPTO have been on an ever-increasing trend for the last 30 years. We, as an industry, cannot continue to defy the basic principles of economics forever. This just does not make sense: increasing demand (i.e., annual patent filings), decreasing supply (i.e., practitioner bandwidth), and decreasing costs (i.e., stagnant/decreasing fees).
Let’s assume that market forces will keep patent demand and costs on their current trajectories. That leaves supply, in the form of practitioner bandwidth, as the thing that must change to balance the supply-demand equation. One way to increase practitioner bandwidth would be to simply add significantly more new practitioners to the workforce. That, however, seems unlikely and, even if it did happen, it would do nothing to change the low numbers in Cohorts #1 and #2.
Another option for increasing practitioner bandwidth is to increase practitioner efficiency. With patent drafting, for example, efficiency can be looked at in two ways: dollars per application or hours per application. The dollars-per-app viewpoint is what is driving law firms to leverage outsourcing and insourcing in a quest to find lower-cost ways of generating patent application documents in the traditional manner (i.e., written and reviewed manually).
Patent outsourcing typically means outsourcing drafting work to a domestic alternative legal service provider (ALSP) or offshoring the work to India or elsewhere with low labor costs. The pros to these approaches include reduced costs and flexible bandwidth, but at the expense of quality control and work product consistency. Furthermore, with offshoring, export controls can come into play.
Insourcing involves law firms hiring unlicensed technical writers who effectively ghost-write patent applications under the supervision of patent attorneys and agents. These technical writers command lower salaries compared to licensed practitioners, so their hourly rates are also lower. One of the most challenging aspects of insourcing is often high turnover, which means that hiring and training are continuous activities. Quality control with insourcing is easier than with outsourcing because the work is locally supervised, but it can still be a significant project for an experienced practitioner to review and revise an application written by a neophyte.
If we think about practitioner efficiency in terms of hours per application instead of dollars per application, then leveraging new technologies starts to make a lot of sense, specifically automation. Luckily, there is a wide variety of automation tools hitting the market. These include automated patent proofreaders, automated patent drafting, and other tools that shave off significant chunks of practitioner time per project.
“If we think about practitioner efficiency in terms of hours per application instead of dollars per application, then leveraging new technologies starts to make a lot of sense, specifically automation.”
With automation incorporated into the preparation process, the time it takes for a practitioner to complete a patent application can be reduced by several hours. This means that that individual practitioner can process more applications per year and at a lower per-app cost. One law firm leader recently suggested that his firm, by using automation and process optimization, has individual associates generating over 150 unrelated applications per year. That is astounding. That’s about three applications per week per associate compared to one or less applications per week in traditional practices.
While automation also wins on quality control and work product consistency, there are limitations to today’s automation tools. For example, most require at least some adjustments to workflows. And some are not yet available in all patent domains or proficient at highly-complex patent projects.
The patent bar may be in the midst of a perfect storm in terms of demographic changes and challenging economic realities, but the silver lining appears to be a burgeoning, tech-enabled patent workforce. Legal may be one of the last industries to be disrupted by AI and automation, but, at least in the patent ecosystem, the inflection point seems to be roughly now. As the trends discussed above play out, patent practices that fail to adjust course will struggle to remain profitable.
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* Top ten most-read IP Law360 guest article of 2019.