Billable hour vs. flat rates

How clients perceive hourly billing versus flat rates

When I started practicing IP law back in the last millennium, hourly billing was the standard for patent and trademark filings. Nowadays, flat rates for trademark and patent filings have become more prevalent. Client preferences have certainly impacted this shift from the billable hour to fixed fees.

It’s no mystery that clients typically prefer the transparency of flat fees. Cost-sensitive clients, such as startups and foreign companies, require certainty in budgeting for IP expenditures. Clients also take comfort in knowing that a particular patent or trademark filing will cost a fixed amount no matter how many times they need to speak with the IP attorney.

Clients may be wary of hourly billing due to the uncertainty of cost and suspicions of the biller’s motive.

Attorney-centric approach vs. client-centric approach

Not all IP projects are suitable for flat fees, but adopting a flat fee model wherever possible signals to clients that you (the IP attorney) are taking a client-centric approach rather than an attorney-centric approach. The attorney-centric approach generally wants every billable hour accounted for and paid. The thought of not getting paid for some billable time spent on a matter is difficult to swallow for attorney-centric billers.

The client-centric approach considers what would work best for the client. Perhaps the attorney may spend a couple of extra hours of work beyond the original time estimate in order to complete the task. The attorney bears the cost of the extra time while the client reaps the benefit. In the long term, however, I contend that flat-rate attorneys come out on top over the billable-hour attorneys because most clients prefer the client-centric approach.

My experience in representing startup clients and foreign companies has confirmed this preference. Other IP attorneys may disagree or have different experiences. I would suggest that if you want to gain more clients and you are still billing hourly on IP prosecution, consider flat rates whenever possible.

IP matters for suitable for hourly billing

Our firm has been one of the earliest to adopt flat rates for TTAB oppositions and cancellations. Yet, not all tasks in a TTAB case can billed at fixed fees. IP litigators know that certain tasks, particularly in discovery and motion practice, can be wildly uncertain.

While clients generally prefer flat rates, savvy clients experienced in litigation understand that hourly billing is sometimes necessary for adversarial matters. If a client is embroiled in an intense patent litigation that could make or break the business, the client’s primary concern is a favorable outcome. Winning is more important than saving money in IP litigation. Victory or a favorable settlement, even at a higher cost, is preferred over defeat at lower costs.

Flat rates may not be fair or feasible in high-stakes patent litigation. The amount of time required to prepare for a gargantuan task such as Markman hearing or a summary judgment motion of noninfringement can be both huge and uncertain. If a litigator were to propose a flat rate sufficient to cover all the work required for a particular litigation project, that flat rate estimate might be too high, in which case the client would bear the extra cost. If the flat rate estimate is too low, the litigator may be tempted to either work less zealously or cut corners in order to save time.

Clearly define scope of work for flat rates

The risk for IP attorneys in providing flat rates, particularly for patent prosecution, is that the amount of work may greatly exceed the attorney’s initial estimate. To be fair to both the client and the attorney, any offer of fixed fees should come with a clearly defined scope of work.

For example, when quoting the initial preparation and filing of a utility nonprovisional application, certain parameters should be stated regarding what will be covered and what will not be covered (e.g., new matter subsequently added by the client during the initial drafting process). That way, clients should have an accurate expectation of what they are getting for flat rates. Make sure your scope of work is in writing, and confirm in writing that the client has understood that scope.

Stick to your flat fee estimate

If you decide to offer flat rates, you must honor your estimates even if it means eating up a bit of extra time (to a reasonable degree). That is why a clearly defined scope of work is so helpful. If you really have to exceed your initial quote, point out how the scope of work has substantially increased from the original scope.

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