Isn’t it time to put a bullet in the brain of the billable hour?
When it comes to pricing, the legal sector is stuck in the dark ages, especially patent attorneys. Almost all patent attorneys bill their clients by the hour for the time they spend on a job. It’s bad for clients, bad for attorneys and (most surprisingly), bad for the firms.
Let’s take a look at some of the many problems this practice generates, and how, as a tech business wanting to work with patent attorneys, you can try to avoid it.
The principle of billing by the hour is simple: the longer a task takes your attorney to complete, the more you pay. From the attorney’s point of view, this is intended to reflect their view that no two tasks are equal and that a more complicated job should command a higher fee. From the client’s point of view, it raises serious questions about whether their attorney’s interests are really aligned with their own, and means they can have no understanding of what a job will cost them.
Expand this over the annual budget cycle and it makes a budget figure for patent (and other legal) costs almost impossible to arrive at, and then almost impossible to stick to. The reality for clients is that they have to watch every invoice and sense check it, which is a pain and takes up their time. They are also quite often surprised by an invoice that is larger than expected, which means they might need to have an awkward conversation with their attorney about why the bill is high. If they are not able to reduce the bill then they will need to cut budget from somewhere else, or go cap-in-hand to their Finance Director to ask for more money and explain why their budget has overrun…again.
Why would a client want to work with someone they have to watch all the time and that consistently causes them problems with their budget?
Another outcome of the billable hour is that there can be great variability over what a client will pay. Sometimes different clients will pay different amounts even within the same firm. Sometimes different clients will pay different amounts even from the same attorney within the same firm!
Some partners will charge their clients time for meetings reviewing their patent portfolio, some will not. Some partners will charge their clients for invention capture sessions, some will not. Some partners will stop recording their time after they see the price of a job has increased beyond an arbitrary amount that they consider the maximum, and some partners will not. Not only that, but the arbitrary nature of each attorney’s cap on the cost of a job means that there is just no price consistency.
These differences can happen across firms, across partners within the same firms, and even across clients of a single partner in a firm.
I am not saying that these ways of charging are always bad or always unfair. It is simply that they are not transparent to the consumer and are not consistent and that, I think, causes issues for clients.
Efficiency becomes the client’s problem
Most businesses are motivated to become more efficient so that they can increase margin. That is also true of patent attorney firms, but there is another factor at play in the form of the billable hour. I wouldn’t want to suggest that patent attorneys might take longer than necessary to complete a job so that they can bill their client a higher fee — I have never seen that happen. However, a client does potentially pay more for having a less efficient attorney or a less efficient firm.
Essentially, a lack of efficiency can become the client’s problem because it will increase the bill, whereas in other sectors efficiency is the vendor’s problem (as it should be!).
It can incentivise the wrong behaviours in attorneys…and in clients
In most firms, the billable hour is the key metric by which an attorney’s performance is judged. Other performance criteria are given lip service, but everyone knows it’s all about the hours. If an attorney exceeds their billed hours target, they are looked upon more favourably for promotion than one that is not meeting their hours target. This can drive good performance from attorneys, but if care is not taken then it can have a negative impact on clients.
Apart form issues with efficiency mentioned above, the billable hour can incentivise an attorney to charge for any telephone call, any meeting etc. regardless of whether they are actually adding value. It can also incentivise an attorney to prioritise “billable” work over other work that it is more difficult for them to charge for, but which is important to the client and the client relationship.
Another impact is that clients start to worry about invoices for every call and every meeting and simply reduce the amount of time they spend talking to their attorney. This is bad news for firms, who should really want to talk to their clients as much as possible. It’s also bad news for clients because they might be missing out on great advice and are also unable to build the strength of relationship with their attorney that they need.
It can make many attorneys unhappy in their work
I would gamble that if you asked 100 patent attorneys what they dislike most about their job, more than 85% of them would say recording their time. Patent attorneys are highly educated professionals and they enjoy giving great service to their clients, but they do not typically enjoy having to record what they spend their time on in 6 minute intervals — who would! It’s a level of oversight that is patronising and shows a massive lack of trust. Most of them took the time and effort to become highly educated so that they did not have to clock in and clock out. The last thing they want is to be treated like battery hens.
This has obvious effects on their morale, but it also can impact on clients because an employee that is happy in their work will almost always provide a better service.
All of this would be acceptable, I guess, if there was not a better way…but there is.
It doesn’t have to be this way
In patent attorney work the tasks undertaken can easily be ‘productised’ and charged to clients at fixed prices.
In fact, this is done unofficially anyway as partners will commonly stop charging their own, or a junior attorney’s time on an invoice if they feel like the costs add up to more than can be charged to the client. They are essentially fixing the price. But this is usually done internally and without the client knowing.
Also, large patent filers (e.g. 15+ new patent applications a year) will demand capped or fixed prices for each job that an attorney might undertake. This is accepted by the attorney firms, partly because the volume of work is there to justify it, but also because in that section of the market the buyer is typically an attorney themselves and understands the way things work so the firms’ hands are forced.
So really, the big clients get fixed prices all the time. The only clients left paying via the antiquated billable hour are the smaller clients that perhaps don’t know the game quite so well.
In one stroke, fixed prices for patent work takes away all of the issues discussed above and has to represent a better deal for clients.
How to improve the situation for your business
If you are spending more than £50k a year with your patent attorney then you are in a position where they will probably not want to lose your work. In that case, you should leverage that power to drive a conversation on fixed or capped charges. Understand, this does not mean that you are asking for a discount (although you might want to do that too!), but rather that you have a very reasonable desire to have some control over the fees you pay.
At Matter, we have always had fixed prices, and we can give you guidance on some amounts that would be a good starting point for a discussion on fixing costs with your attorney — free of charge, of course.
If you are a smaller client then it will be more difficult to get away from the billable hour, but there are some things you can do to drive things in that direction. You can ask for a “quote” for each job before you give your attorney instructions and then insist that they stick to it. Your attorney might prefer to give you an “estimate” which is a looser figure that has some play in it, but try to insist on a quote.
Again, at Matter we can give you a useful benchmark against which you can assess any quotes you get.
If none of that works then you could just move your work to a firm that offers fixed prices and the best service. One like ours 😊