Patexia Insight 92: Top 10 Patent Firms by Revenue
Update: After publishing this article on October 7, 2020, several law firms reached out to confirm their actual patent prosecution revenue which helped us discover a bug in our model. The error had resulted in significant underestimation of patent revenue. Since then, we have addressed the issue and the numbers should be much closer to the real numbers for the firms.
Last week we estimated the size of the patent prosecution in the US. Based on our estimates, the attorney’s fees generated from the patent prosecution work is approximately close to $6B per year. That is the revenue generated by close to 50,000 registered patent attorneys and agents every year. We also estimated that the entire patent market (including USPTO fees) is close to $9B per year. In other words, US and foreign corporations spend about $9B per year to protect their market share in the US. This week, we have identified the top 10 firms by patent revenue as estimated by the Patexia Patent Analyzer revenue estimator.
This has been calculated based on the work done by these firms since early 2000 and our estimated revenue for their 2019 revenue. The model we developed has taken into account many factors such as the differences between design and utility applications, domestic and foreign originated applications, high-tech and biotech applications, the complexity of applications, and most importantly the brand and size of the firm.
The table below shows the top 10 law firms sorted by our estimate for their patent prosecution revenue in 2019. Please note that “2019 issued patents” (last column) is only used as a proxy to show their approximate workload but most likely the majority of work for those patents was done in prior years and did not contribute significantly to their revenue in 2019.
The top 10 firms generate approximately $1.01B per year from patent prosecution, which is around 12% of the entire market. As we reported in our 2020 Patent Prosecution Intelligence Report, there were a total of 3,500 active patent firms in the last five years. This shows that the market is very fragmented but the top players control a big share of the market.
As indicated in the table, Fish & Richardson is at the top with an estimated revenue of ~$175M in 2019 despite the fact that there are two other firms with more issued patents compared to Fish. Another similar example is Foley & Lardner with an estimated revenue of ~$103M in 2019. The firm with 3,305 patents ranked higher by revenue than Harness Dickey.
Earlier this year, we conducted a survey to figure out the approximate cost for different steps of patent prosecution. The results of our survey were published in our second annual Patent Prosecution Intelligence Report 2020 (released in March). Using this data which was obtained from more than 50 law firms, our engineering team has built a complex model to estimate the cost of patent prosecution per each application. The model takes into account many actions from filing an extension, RCE, response to an office action, appeal, etc.
In addition, to make the model more accurate, we have taken into consideration the profitability of different firms. For example, depending on the brand of a firm and its profitability, we have adjusted the cost of each application. We have also considered the complexity of an application, number of claims including independent claims, etc.
While the number of patents usually correlates with the revenue, as explained above, there are other factors that could increase or decrease the average revenue per application. For example, around 95% of patent work for Oblon is foreign originated work. These applications are often not as profitable as domestic applications and overall generate less revenue.
Foley & Lardner on the other hand is one of the more profitable firms for patent prosecution and it is quite active in biotech. Life science patents tend to be more complex and often cost more. As a result, Foley’s estimated revenue is much higher relative to their number of applications.
In the past, we had written several articles about the ever-changing cost models that have forced patent firms to re-invent themselves (Patexia Insight 54). The downward pressure from corporations pushes law firms to work on a flat-fee model versus the traditional hourly model. Based on our recent survey, only a small fraction of patent attorneys have kept their hourly model for larger corporations.
Am Law firms that have a very profitable litigation practice are gradually moving away from patent prosecution to maintain their high-profit margins. The high-profit margin from litigation creates internal competition and challenges for patent prosecution attorneys as they often need to maintain the minimum hourly rates imposed by the firms to stay profitable and that often results in loss of clients. For example, Paul Hastings ended their patent prosecution practice several years ago and our data suggest that the same thing is happening to Covington Burling as their number of issued patents has dropped to a single digit in recent years.
Additionally, the higher cost of living and office expenses in the more expensive metropolitan areas such as New York, Palo Alto and Los Angeles, puts more pressure on profit margins for law firms with physical locations in those regions.
All of these result in the formation of more efficient IP boutique firms or give rise to new business models such as virtual firms which have even gained more popularity during the pandemic. For example, Xsensus IP Law was formed by ex-Oblon partners while Kubota & Basol started by ex-Morrison Foerster partners in recent years. In another example, FisherBroyles operates mostly based on a virtual model which has helped them lower their overhead and pay more to their attorneys. The firm works with top tech companies such as Facebook, Juniper Networks and Real-Time Data.
In the following weeks, we will look into corporations and will publish the list of the top 10 companies with the highest IP spending in the US in recent years. Stay tuned...
Note: We understand that the revenues reported here are still estimates based on our models and the actual numbers may be significantly different from what we are reporting here. We hope the readers can help us improve the model by providing any information that we can use to improve our models. All confidential information will remain within Patexia and we will not disclose or use the information in any other forms.