Patexia Insight 89: IPR Cost and Market in 2020

Last week, we released our 4th Annual IPR Intelligence Report. For the first time this year, we dedicated an entire chapter to cover IPR cost and staffing. The goal was to help all stakeholders to better understand the current market and the cost structure of IPR. This not only helps companies with budget allocation for litigation spending but also provides some guidance to law firms whenever they need to prepare a proposal for a potential client. This week, we will break down a typical IPR into multiple phases and look into different factors that could impact the cost.

This cost review and analysis, which was provided in Section 2 of the IPR Intelligence Report was based on our IPR survey data we collected in July.

Cost modeling has been our focus for quite some time. As some of you might have already noticed, we have started estimating the IP revenue for all patent firms. For example, if you visit any law firm page on Patexia, you can see our estimate for their annual patent prosecution revenue (e.g., Alston & Bird, Perkins Coie, and Wolf Greenfield). We have also estimated the IP cost for corporations. This is also available on Patexia (e.g., Microsoft, Apple, and Google).

The current models only cover patent prosecution and by no means are perfect. Although our data scientists are working on improving and perfecting the patent prosecution cost models by taking into consideration factors such as size and brand of the firm, type of the applications (e.g., foreign vs. domestic) and even the geographical locations of IP attorneys and the client size/technology area, at the same time, they are also working on developing new models for other areas of IP such as trademark, patent litigation and of course, IPR.

To correctly estimate the IPR cost, we need to first break down the case into multiple phases depending on the filing timelines, party’s actions, etc. and then, we need to consider the case status, and different filings to estimate the cost according to the outcome of the case (e.g., settlement before institution, settlement after institution, denial, etc.).

We have defined the following nine phases that a petitioner may go through. This process should be done both from the perspective of the petitioner and the patent owner. However, to keep this short, here we are going to only look at the petitioner’s side. The nine phases include:

Phase 0 - Initial Review: Patent and prior art review is usually done by the petitioner’s attorneys sometimes even before they accept the case. This helps them design and plan the strategy as well as timelines and costs.
Phase 1 - Petition: This phase includes drafting and filing the IPR petition as well as one expert declaration.
Phase 2 - Patent Owner’s Response: Once the patent owner files its response, the petitioner’s attorneys need to evaluate the preliminary response and adjust their strategy.
Phase 3 - Patent Owner’s Discovery: Once the IPR is instituted, the petitioner’s attorneys need to evaluate Board’s institution decision, draft and file evidentiary objections as necessary, prepare the expert for deposition, defend the expert in the deposition, and responses and motions as necessary during the patent owner’s discovery period
Phase 4 - Petitioner’s Discovery: In this phase, the petitioner’s attorneys evaluate the patent owner’s response and expert declaration, draft and file evidentiary objections as necessary, take the deposition of the patent owner’s expert, and responses and motions as necessary during the petitioner’s discovery period
Phase 5 - Pre-Hearing: After both discoveries are done, the petitioner’s attorneys need to draft and file the petitioner’s reply and supplemental expert declaration, draft and file motion to exclude evidence as necessary
Phase 6 - Oral Hearing: This is one of the important and costly phases. Petitioner’s attorneys need to prepare for and conduct the oral hearing before the PTAB judges.
Phase 7 - Post-Hearing: Once the hearing is completed, the petitioner’s attorneys need to evaluate the final written decision and draft and file a request for rehearing as necessary
Phase 8 - Appeal: While filing an appeal is not very common, sometimes and depending on the IPR outcome, one of the parties may decide to file an appeal and conduct appeal to Federal Circuit.

The case obviously may be terminated during each of the above nine phases and that could substantially change the total cost. For example, an early settlement or denial will immediately reduce the cost for both parties.

The cost structure and how the petitioner or patent owner work with their counsel, to a large extent depends on the co-pending district court cases and the overall litigation strategy. As a result, sometimes it may be beneficial to work on an hourly basis (e.g., if the petitioner expects an early settlement) while sometimes a fixed fee model may be suitable.

We have also seen other popular methods such as capped fee or contingency (success-based) models. Contingency for IPR is often very rare and is usually used when the attorneys or firm representing the patent owner is heavily invested in the outcome of the district court case (takes a large percentage of the profit).

The total IPR cost the patent owner or petitioner pay is made up of several components such as attorney fees, expert fees (including the prior art search cost for the petitioner) and PTAB fees.

The cost is also a function of many other factors such as:

The nature of the technology in dispute - For example, IPRs related to pharmaceutical patents may generally be more costly.
The number of independent grounds of invalidity included in the IPR - For example, an IPR that tries to invalidate an independent claim in one ground is less costly than arguing two separate grounds.
The total number of patents challenged in the co-pending district court case (if any). This usually will increase the number of attorneys involved.
The number of patents that belong to the same family - Law firms often provide an additional discount if there is a need to file more than one IPR and patents come from the same family.
The number of experts who submit expert declarations may have a significant impact on the cot
The number of partners or associates assigned to each case and their seniority. This may vary from one law firm to another.

The full 129-page report also covers the typical associate or partner hourly rates as well as expert costs. While the total IPR cost depends on how far the case progresses and when it gets terminated, our survey results indicate that even for those cases that reach the final written decision, there is a big difference between different firms. The total attorney fees for completed cases (those with FWD Decision) ranges between $100,000 to $600,000 based on our survey. This wide range makes the task of IPR market size estimation more complicated than a quick back of the envelope calculation.

Our data science team has been working on the IPR cost modeling problem for quite some time and we expect to have some improved and reliable models before the end of the year that we can present on the site. Our goal is not only to estimate the IPR cost at the attorney level but also to identify the rainmakers and relationship partners who manage the relationship with clients using artificial intelligence. This information is very useful and helps Patexia’s recruiting division to perform targeted data-driven recruiting.

In the following weeks, we plan to publish some of the top IPR attorneys in 2020. Stay tuned...

Companies

Wolf, Greenfield & Sacks