Benefits of an In-house Patent Department

1. Benefits of an In-house Patent Department March 6, 2004

2. Background • Introduction • Motivation for developing an in-house program • Current status of in-house patent department

3. Introduction The development of an in-house patent department, specifically having in-house attorneys draft and prosecute patent applications, has been one of the UVA Patent Foundation’s most successful programs. The benefits have been substantial. These benefits include reduced patent costs, enhanced portfolio management, improved client service, and more personal attorney-inventor relationships.

4. Motivation for developing an in-house program In 1997, the new director, a patent attorney himself, saw that patent costs were overburdening the organization’s limited resources. It was also noted that there were no high-tech patent attorneys in the region, meaning that few inventors ever met their patent counsel. Virtually all technology-driven companies of significant size have in-house patent counsel. Believing that all of those companies couldn’t be wrong, a detailed financial analysis was performed. Concluding that the benefits would be considerable, we started an in-house patent department in 1999.

5. Current status of in-house • patent department • Two experienced patent attorneys: • One Ph.D. biotech patent attorney with 11 years of prosecution experience • One engineering patent attorney with 9 years of prosecution experience • One patent paralegal • One legal secretary

6. Key Features • Costs are reimbursable by licensees • Duties are totally segregated 3. Can counsel cover the waterfront?

7. 1. Costs are reimbursable by licensees The patent department sends an invoice for hourly fees and costs to the business office, on an invention-by-invention basis, just like outside counsel does. When the invention is licensed, these costs are reimbursed by the licensee, just like outside counsel costs are. Initially, we were unsure our licensees would be willing to reimburse such costs, but the opposite proved to be true – licensees were sometimes disappointed when licensed applications were transferred to outside counsel, as costs increased.

8. 2. Duties are totally segregated In-house counsel’s efforts are completely dedicated to patent preparation and prosecution. Nobody would reimburse in-house counsel’s time for transaction work or other matters, and licensing associates are considerably less expensive than lawyers. A “bright line” between departments forces patent counsel and licensing staff to depend on one another, while avoiding territorial jockeying.

9. Division of labor at UVAPF Patent Department • Prosecute patent applications • File provisional applications • Manage outside patent counsel • Advise UVAPF on patentability and scope of protection available, to assist in marketability assessment • Advise faculty on steps to protect inventions and follow on experiments Licensing Department Business Department • Identification of new inventions • Marketing of IP • Negotiating licenses • Assists with IP issues in corporate contracts • Distributes royalties • Monitors licensee performance • Pays bills • Prepares budgets

10. 3. Can counsel cover the waterfront? A highly skilled patent attorney is capable of prosecuting applications for a broad range of inventions – but you have to hire the best, which means you must pay competitive salaries. Although the range may appear quite broad at universities, there are really a collection of “hot spots.” Familiarity with leading inventors and their research efforts over time limits such concerns. Most patent applications get transferred to outside counsel after licensing, and you can send them to the same attorneys you would have used had the initial applications been prepared by outside counsel.

11. Benefits • Improved faculty service • Control of docket • Greater focus on portfolio • Reduction of costs

12. 1. Improved faculty service • How often do your patent attorneys walk into the inventors’ labs? Our in-house attorneys do this all of the time. Face-to-face contact with patent counsel is now common. A number of leading inventors drop by to see their patent attorney on a regular basis. • Inventors can almost instantly obtain: • Assessment of whether a technology might be patentable; • Advice on additional experiments that may be useful in strengthening a future patent application; and • Protection of their inventions prior to public disclosure.

13. 2. Control of docket • Enhanced portfolio management: • In-house counsel’s professional docketing system eliminates the need to rely on reports from outside counsel that cost money and cause delay, or on internal files and databases that may be incomplete and/or uninsured. • In-house counsel is able to allocate time and effort to maximize overall portfolio value, rather than seeking to the maximize value of every individual case. • Quicker recognition of problem cases allows early culling to conserve valuable resources. • Improved work product (a result of attorney experience and focus on overall portfolio)

14. 3. Greater focus on portfolio • We are in-house counsel’s only client: • Attorneys are not concerned with attracting other clients. • Attorneys are not distracted with needs of other clients. • In-house counsel is familiar with our entire portfolio, as well as the strategic significance of specific patents comprising the same. • Since there are no financial benefits to increasing hours worked, we can be sure that in-house counsel’s recommendations are based upon portfolio value, our business model, and conservation of available resources. • Prompt assessment of patentable scope for each disclosure helps our licensing staff prioritize its marketing efforts.

15. 4. Reduction of costs The billing of a typical private practice associate attorney consists of about 1/3 salary, 1/3 overhead, and 1/3 partner profits. Costs of in-house counsel exclude partner profits, and theoretically should be 1/3 less. Actual results are even better. Due to lower billing rates, in-house counsel allows us to more economically file and prosecute applications on unlicensed inventions. If one is using strictly accounting terms, perhaps the term "cost center" is accurate [in describing in-house counsel]. But in business terms, the more appropriate term should be “savings center.” Columbus Business First – 12/12/03

16. Comparison of hourly prosecution costs Our prosecution costs for in-house counsel and for 3 firms we used in FY2003 Entity Hourly Cost Attorney Experience Firm A $285/hr 4 yrs Firm B $270/hr 4 yrs Firm C $275/hr 3 yrs UVA Pat. Fnd. $162/hr * 9 yrs * all costs, including salary, benefits, overhead, secretarial support, and malpractice insurance Average hourly savings: ~$115/hr, plus we get more experienced attorneys

17. Addition cost savings In-house attorneys weigh recommendations of outside counsel against cost, and ensure that invoices are accurate and prosecution is not unnecessarily aggressive. In-house counsel’s management of outside attorneys provides our licensing staff with more time to focus on evaluating, marketing and licensing efforts. In-house counsel can save UVA start-up companies precious resources by prosecuting licensed patents in-house at a lower hourly rate.

18. Conclusions • If you require more than 2000 hours of patent work yearly, it may be programmatically and financially beneficial to have in-house counsel. • Our in-house counsel has had a substantial impact on reducing our unreimbursed patent expenses, even though total patenting continues to grow. • It is impossible to put a dollar figure on the value that in- house counsel has generated from improved inventor relations, reduced licensing staff time spent managing patent prosecution, improved client service, and enhanced portfolio management.