A Patent Reality Check: When Does it Make Sense to Get a Patent?

Have you built a better mousetrap?
If so, you need to figure out how to sell
it before you patent it.

People are unquestionably ingenious and many believe that such ingenuity can lead to great financial rewards.  Indeed, most of us have heard our entire lives that “if you build a better mousetrap and the world will beat a path to your door”.  This combination motivates countless people each year to expend the time, effort and money needed to file and obtain a US patent on their idea.  In recent times, the number of patents filed yearly has approached 400K, with about 20% of these estimated to be filed by small businesses (as this term is defined by the Small Business Administration) and individual inventors. 

As a highly experienced patent attorney, I have benefited greatly from the perceived need to protect innovative ideas with patents.  But after years of writing patent applications that created little to no business value for my clients, I have decided that at this stage of my career I will only take on patent matters that are a critical aspect of capturing a significant aspect of the value available in a well thought out and executable business plan.  In other words, in my role as co-founder of the Lean Legal Team of Michael / Hutter, I will only obtain patents for clients if there is a realizable opportunity to make money from the innovation.

What do I mean by realizable business opportunity?  First and foremost, licensing is not one such opportunity. While a strong majority of inventors believe that they can license their idea upon obtaining a patent, the reality is that almost no patents are ever licensed when the sole aspect of the license is the patent itself.   Certainly, there is much press activity addressing the problem of “patent trolls,” the patents that are suitable for “trolling” only comprise a small minority of the total number of patents in force today.  Notably, however, the reason that such patents ever get licensed is that an existing or soon to exist business model infringes the patent owned by the “troll,” and the license is entered into to avoid litigation.

The In-House Solution

In-house counsel swims in the same tank as their clients
and know what the water is like.

I once had a very esteemed corporate partner at the very esteemed law firm where I first cut my teeth practicing law tell me that, although he appreciated the positive effects that technology like computers, fax machines (this was back in 1996 or 97) and email were having on the practice of law, he was not so happy with the pressures the technology created.  Specifically, in his opinion technology had changed client expectations such that they expected answers almost immediately, or as they used to say in my hometown of Mobile, Alabama – “quick, fast and in a hurry.”  Most clients think that “quick, fast and in a hurry” is a great thing (i.e., cheaper legal bills).  The truth is – that’s not always the case.

While it is true that some legal work is routine and can be cranked out quickly and reliably by an efficient and knowledgeable attorney, there are those legal issues that require more cognitive time.   These issues are not black or white, but the grayest gray.  These are legal issues that are inextricably linked to important business issues and, thus, require more than a superficial understanding of the client’s business and strategic objectives.   An attorney with a deep understanding of a client’s business is able to give more informed legal counsel, which leads to better business decisions.   However, in order for an attorney to gain this knowledge he must spend costly billable time interacting with the client, which results in larger legal bills.    

Large corporations were the first to realize that legal expenses could be reduced and results improved (especially for those problems that require a thorough understanding of the corporation’s business) by hiring attorneys as full-time employees.  Often referred to as in-house or corporate counsel, these attorneys give large corporations a distinct competitive advantage.  In-house attorneys are able to develop knowledge about the business and goals of their employer that inevitably leads to better decisions.

Until recently, only large corporations were able to afford to hire dedicated in-house counsel.  However, the Lean Legal Team at Michael/Hutter offers an in-house solution for smaller companies that gives them this same competitive advantage at a reasonable cost.  Michael/Hutter is able to do this by utilizing the latest technology and lean methodologies to deliver its services.  The Lean Legal Team offers in-house counsel services for a fixed monthly amount tailored to the needs of the client.  Visit our website  (Michael/Hutter) to find out how The Lean Legal Team at Michael/Hutter can help improve your business. 

Business Litigation--Settlement is Inevitable

My friend Vickie Pynchon wrote this great post for Forbes.com titled "A Heart to Heart with Your Business Laywer."   In short, she explains to business litigants that, since you will end up settling, you should try to figure out how to settle with the least cost and overall grief from the outset.  This will require you to look your opponent in the eye and have a conversation with her and come to a business agreement.

As a former big ticket IP litigator, I can say I agree 100 % with Vickie.  Litigators got to litigate.  That's their business model.  They need litigation to survive like they need food, clothing and shelter.  Few entrepreneurs or corporations are in the business of litigation, however.  This means litigation is a deviation from their chosen business model and decision makers must figure out how to end it before it weakens their ability to sustain their companies.  In order to do this most effectively and efficiently, the litigants must sit down together early in the process, a time when it is most difficult to do so.  Typically, and this is Vicky's overall point, people are loathe to do so before they have bled time, money and resources into a futile business litigation where settlement is required.  While it takes a lot of guts to face one's opponent early on, if settlement is the inevitable outcome, why not go ahead and get it over with and get on with your respective businesses?

Maximizing Exit Value: A Short Primer

This short presentation on how to think about exit value will be helpful to entrepreneurs who are looking to sell their business to someone else in the future.  The key to maximizing exit value is to get others to think your venture is worth as much as you do.  A few tips and tricks are set out in the presentation, and the Lean Legal Team of Michael / Hutter can let you in on a whole bunch more.

The Fixed Cost Problem of Law Firms and How Clients Can Avoid It

"The Fixed Cost Problem"

In a previous post, I posited why we are now seeing some US law firms modify their processes using Lean Six Sigma or other, less formal processes, in recent years. In this post, I will demonstrate why I believe that clients seeking business advice should engage lawyers who can provide service to allow avoidance of "the fixed cost problem," which exists at law firms as much, or more than, at other types of business.  Lawyers who live lean can provide high quality legal services without needing to reinvent themselves by going lean.

Large law firms feeling push-back from clients over high legal fees have become increasingly adept at offering "alternative fees."  These lawyers are able to do this more confidently because they have learned in recent years how to squeeze efficiencies out of their legal practice models.  However, regardless of the discounts from prevailing hourly rates clients are able to obtain from these law firms, the fixed costs associated with establishing and maintaining a large law firm business means that even the "alternative" fee arrangements charged by these law firms must always be sufficient to provide the desired profit level only after the fixed costs have been exceeded.  Clients must question whether their issues merit payment of fixed costs that pay for things  that may not, in fact, add to the quality of their legal service.  If these fixed costs sustain people, technology and amenities that do not directly add to the quality of the legal services for which a client has engaged the attorney, they should be considered as "waste" as applied to the client.

Law Firms as a Business: A Broken Model Ripe for Lean Process Innovation

Ephraim Michael and I were able to grab the "LeanLegalTeam.com" url, which I found a bit surprising because we are not the only lawyers who are actively touting the benefits of legal practice the lean way.  For example, the US mega-firm of Seyfarth Shaw has a practice group it calls "Seyfarth Lean," which got a nice write up in the New York Times last year.  There is also a Canadian consulting firm, Gimbal Canada, with a business model of helping lawyers become more efficient by applying Lean Six Sigma to their practices. These, and likely others, examples demonstrate that their is a burgeoning movement by lawyers to transform the traditional practice model, a model that is undeniably broken.

There are striking parallels between application of Lean Six Sigma principles between traditional law firm models and manufacturing, the latter of which served as point of adoption for building efficiencies into existing business infrastructures.  Much like corporations, law firms originated as a way to centralize resources and build efficiencies into a validated business model.  In the case of law firms, clients needed legal services, but it was expensive to practice alone.  Lawyers joined practice groups to share not only expensive law books needed for access to cases setting out precedent, but also to join with partners having highly sought after specialties (e.g., tax law, patent  law), that allowed them to provide "full service" to clients.  In time, clients came to rely on the law firm as a mark of quality legal services in that lawyers in a prestigious law firm provided reflective credibility to the apparent legal skills of lawyer in the same firm.

Over the years, however, the business model morphed from providing legal services to being a law firm which, in turn, made client the customers who provided the profits that made high salaries and nice offices possible for successful lawyers.  Support of this model required the hiring of more associates and staff to allow scaling of the revenue stream and this, of course, caused even more expense that had to be recouped from client billings.  Business people would understand this as increasing the lawyers' fixed costs.

Lean Legal Practice Means Never Having to Write a New Agreement from Scratch

We'll start the Lean Legal Blog by letting you in on a big secret:  I haven't drafted a document from scratch for years.  Why should I?  My files are full of solid agreements that previous clients paid me handsomely to prepare.  And, if I don't have a document needed for a particular issue, I just ask the Great Google to find me an assortment from which to choose.  Many agreements emanating from the law firms of large public companies are placed online in public securities filings and others are available online for review, cutting and pasting for no apparent reason.  For more focused searching, I can review a growing list of businesses where experts--lawyers or otherwise--post their forms online for people to use.  Some of these like WhichDraft charge per download, but others like Docracy provide documents free for the taking.

When learning the ropes of legal practice, business lawyers like Ephraim Michael and myself spent 1000's of hours as young lawyers preparing agreements for clients--often badly at first--but always expensively.  Today, I am an experienced lawyer in the areas needed by my business clients and I don't add value for clients by demonstrating to them my skills in agreement composition. In fact, I feel that at a minimum, I am being wasteful if I give them a newly created document.  Often when I am reviewing the work product and bills of other law firms, I wonder if the attorneys realized that they were stealing from the client, because that's what it looked like when you see $1000's in fees for drafting from scratch a standard commercial agreement that is widely available for free on the Internet.