A Production View on Patent Procurement

By Ian C. Schick, PhD, JD, CEO & Co-founder of Specifio (first posted on blog.specif.io)

When we think of a “production environment”, a law firm patent practice is not usually the first thing that comes to mind. But why not?! Patent practices are highly process-oriented and they certainly involve “manufacturing” work product, primarily in the form of new patent applications and office action responses. This article discusses how, with a production view on patent procurement, exploiting the principles of lean production can be a compelling way to adapt to tough issues presently roiling the patent ecosystem.

The idea of commercial manufacturers providing completely-handcrafted products went out the window, for the most part, during the industrial revolution (the first one). To be sure, examples of prideful handiwork can still be found today, like with Amish woodworking or specialty items like, say, Rolls Royce automobiles. Speaking of cars, Rolls Royce and BMW both had record sales last year. Rolls Royce automobiles are assembled by hand and are of the finest quality. BMW automobiles are also very high quality, but manufactured by employees, automation, and OEMs working in concert. Rolls Royce sold 4,107 vehicles in 2018 (0.082 vehicles per employee), while BMW sold over 2.49 million vehicles (18.5 vehicles per employee). If these car companies were law practices and the cars were patent applications, which one would you want to model your own practice after?

We all know the Rolls-Royce approach to patent procurement–more or less the way it’s been done for the past 100 years. In today’s hyper-competitive patent market, however, having a more BMW-style practice may prove key to prospering (or even to survival in some cases). So what would a BMW-style patent practice look like? More specifically, how can patent practices modernize through lessons learned in traditional production industries–where decades of intense competition has resulted in process optimization evolving into a science?

Some of the most successful patent firms today are leveraging ideas from “lean production” to maximize their competitive edge. Lean production is a convenient framework for thinking about operations and possible improvements. It is a school of thought that originated in the Japanese automotive industry in the 1990’s. The basic idea is to maximize the creation of value for customers while eliminating waste. Here, “value for customers” means any action or process that a customer will be willing to pay for. Parts of the production process that do not add value are considered waste.

Several interrelated concepts are central to the lean production ethos. They include minimizing waste, just-in-time production, kaizen (continuous improvement), and cell production. Each of these is explained below in the context of patent procurement.  

Minimizing waste

Waste in patent procurement can take on many forms. At a high-level, however, waste can be categorized as overprocessing, overproduction, or defects.

Overprocessing

There is a waste of resources if an expensive resource (e.g., an attorney, a patent agent, a paralegal, a secretary, etc.) is used for a task when another resource could complete the task just as well. At first blush, this sounds a lot like the classic mantra of law firm leverage. However, there are things that can be done besides delegating talks to lesser-trained individuals to avoid overprocessing. For example, tasks can be decomposed into subtasks and those subtasks can be examined for further delegation even if the larger task is traditionally handled entirely by the more expensive resource. Also, in some cases, emerging technologies in automation may present alternatives to delegation. Where automation can be utilized instead of human labor, tasks are often performed cheaper, faster, and with less errors. 

Overproduction

In the law practice context, overproduction means generating more work product than is needed to meet a client’s needs. Take patent application preparation, for example. How does a drafter know when a patent application is done? In traditional practices, it’s often done when the budget is exhausted. What if, instead, the drafter stopped working on the application when it (1) provides sufficient backup positions that might actually end up in the claims during prosecution, (2) provides sufficient enablement for the initially-claimed and potentially-claimed embodiments, and (3) conforms to any and all requirements from the client. Law firm clients expect work product that satisfies official and strategic requirements, not a treatise on the field of invention.

In order to cut out overproduction, practice management will need to align their own incentives with those of the practitioners doing the drafting work. One easy change, for fixed-fee projects, is to give practitioners a fixed billable hours credit for completing the project, regardless of whether it came in under the budgeted time. Rather than just hours worked, which encourages overproduction, this ties performance more closely to revenue generated.

Defects

This includes any mistakes that occur in the patent pipeline, whether they be clerical (e.g., errors in filing forms), more substantive (e.g., curable § 112 issues), or procedural (e.g., incurring extension of time and other unforced fees). Defects-type waste can lead to additional cost in the form of penalties and legal fees for curing mistakes. Prosecution can also be delayed while defects are addressed, meaning even more waste.

Adjustments in processes and leveraging technology can effectively reduce defects. For example, getting religious about the “four eyes principle” can have a drastic impact in catching errors, but perhaps at the expense of efficiency. Today, there are many automated patent proofreaders available that, in just seconds, can thoroughly review a patent application or office action response for common errors.

Just-in-time production

In general, the focus of just-in-time production is on reducing inventory waste. That is, products are not stockpiled, but rather produced “just in time” to meet orders. With minimal stockholding, producers can be more flexible. For example, they can switch to make new products without having to get rid of much stock, meaning they can act quicker to add value.

Inventory in the law-practice context is work that has been requested by clients (i.e., “work orders”) but not yet completed. In traditional practices, where a stable headcount means production capacity (i.e., full utilization of all employee resources) is essentially fixed, completion of any overage work (i.e., work orders above and beyond what employees can process at a given time) is delayed until work orders dip below the production capacity of the practice. A goal of this conventional approach is to compensate for the ebb and flow of work coming in so that practitioners keep as close as possible to their individual capacities (e.g., 35-40 billable hours per week). The inherent side effect of the traditional model, however, is the stockpiling of inventory in the form of pending work orders.

To realize just-in-time production in a patent practice, flexible production capacity is required. Practices should be able to handle bursts in work orders without having to delay completion for lack of available resources. This is done by incorporating non-employee resources into patent workflows. Non-employee resources can include automation tools, contract patent professionals, and/or domestic or offshore outsourcing services. These are resources that can effectively be turned “on” and “off” as needed such that overage work is completed on pace with client work orders while keeping employee resources at their production capacity. All of the undulations in work orders are absorbed by non-employee resources, thus sufficient resources are always available to meet production needs but the practice is never punished by having to pay for unused or underutilized resources.

For work orders that come today, when is “just in time” to complete them? For a variety of reasons, conventional wisdom says filing by client deadlines (e.g., a product release), non-statutory deadlines (e.g., three-month deadline for office action responses), or statutory deadlines (e.g., on sale bar) should not be the goal. Instead, with a lean production approach, work should be completed as expeditiously as possible to minimize inventory, i.e., the time between the client requesting the work and the work being finished. With the rapidly expanding range of available non-employee resources, be it automation or outsourcing, it has never been easier to find right-fit services for patent procurement production.

Kaizen (continuous improvement)

This is really process optimization but in an incremental fashion and in a way that involves all members of a patent practice, top to bottom. The philosophy of kaizen relies on a continuous effort to improve production. To be effective, a decentralized organizational structure is required with regular team meetings to identify and implement small, often quite simple, improvements to processes and activities. Discrete steps may be eliminated, combined, automated, outsourced, or made more efficient in other ways. Providing training to practice members to help them be more analytical may boost results. 

Another requirement for effective kaizen is that efficiency among practice members must be incentivized. As with overproduction, the traditional billable-hours model for assessing practitioner performance can be counterproductive for kaizen. Here again, tying compensation to revenue generated may often get closest to aligning the interests of management and other practice members. One way to do this, as mentioned previously, is awarding practitioners the full balance of the hours budget for fixed fee projects even when they come in under.

Cell production

According to lean production thinking, processes should be viewed as a series of separate but interlinked subprocesses. Each subprocess is then delegated to the most efficient resource. Traditionally, in manufacturing, each process is assigned to a “cell” or group of production workers. In patent processes, a cell could be comprised of one or more employee resources, one or more non-employee resources (i.e., automation tools, contract patent professionals, and/or domestic or offshore outsourcing services), or combinations thereof.

Processes large and small can be decomposed and optimized in this way. At one end of the spectrum, the “process at issue” could be an overarching process (e.g., “starting with an idea, procure a patent”). In fact, some leading practices have one group of practitioners who draft new patent applications and a completely separate group of practitioners who prosecute pending applications before the USPTO. As the process at issue becomes more granular, however, the opportunity is enhanced to squeeze out more value and eliminate more waste.

To illustrate, if the process at issue is preparing a patent application, subprocesses may include something like (a) invention download, (b) drafting claims, (c) assembling a first draft of the specification with baseline § 112 support, (d) bolstering the draft specification with strategic additions for future prosecution and litigation, (e) preparing formal drawings, and (f) finalizing the application ahead of filing. An attorney can certainly perform all of these subtasks, like in a Rolls-Royce-style practice, but it involves a significant amount of “overprocessing”, in the lean production sense. A more BMW-style practice would find the most efficient solution to each subprocess in order to maximize the creation of value for customers while eliminating waste.

Conclusion

With changing demographics among practitioners, challenging economics in the patent market, and exciting new technologies designed for patent practices, it is imperative that practices evolve their operations to remain competitive. To some, transitioning an operating patent practice to incorporate the tenets of lean production may sound like repairing a car while driving down the highway. But it can be done, it has been done, and an incremental approach will keep the changes relatively painless.

DISCLAIMER: The views and opinions expressed in this article are those of the author and (1) are not provided in the course of and do not create or constitute an attorney-client relationship, (2) are not intended as a solicitation, (3) are not intended to convey or constitute legal advice, and (4) are not a substitute for obtaining legal advice from a qualified attorney. You should not act upon any such information without first seeking qualified professional counsel on your specific matter. The hiring of an attorney is an important decision that should not be based solely upon Web site communications or advertisements.

What A Maturing Patent Bar Means For The Industry

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.

DISCLAIMER: The views and opinions expressed in this article are those of the author and (1) are not provided in the course of and do not create or constitute an attorney-client relationship, (2) are not intended as a solicitation, (3) are not intended to convey or constitute legal advice, and (4) are not a substitute for obtaining legal advice from a qualified attorney. You should not act upon any such information without first seeking qualified professional counsel on your specific matter. The hiring of an attorney is an important decision that should not be based solely upon Web site communications or advertisements.

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