Business Practice Guidance Professional Charges

Transcription

1 This note is produced on behalf of Chartered Institute of Patent Attorneys (CIPA) and The Institute of Trade Mark Attorneys (ITMA) as guidance to members of both Institutes. The Intellectual Property Regulation Board (IPREG) has declined to approve general guidance on matters of business practice. This note therefore sets out common practice within the patent and trade mark professions but cannot guarantee that such practice will be acceptable to IPREG in all circumstances. Business Practice Guidance Professional Charges By The CIPA/ITMA Joint Business Practice Committee, November Introduction Professional fees should be fair to the client, and sufficient to enable proper attention to be given to the work. Systems have to be maintained if services are to be provided. Rule 10 of the IPReg Rules of Conduct states that regulated persons fees must be justifiable, and the accompanying non-mandatory Guidance Note 10.1 reads: Fees charged should be based upon the information provided in any letter of engagement or on the basis of any amendment thereto. Prior to entry into force of the IPReg Rules of Conduct, Guideline A.4 (ii) of CIPA s Guidelines concerning the observance of the Rules of Professional Conduct read: Members have a duty to charge only fees which are reasonable, that is to say generally in line with professional fees elsewhere. Factors which may be taken into account are the time spent, the costs of running a practice, the urgency of the situation and any special circumstances. All this should be specified to the client before any work is done. New clients and those who wish should be advised of the hourly rates for different classes of work, and of the anticipated costs of pieces of work, both individually and as a whole job. All clients should be advised as to costs at frequent intervals, and particularly when an estimate looks likely to be exceeded. There is an increasing demand for fixed-price quotations for particular pieces of work. The work for which a quotation is given should be precisely defined, and a member should seek to keep the time-period covered by the quotation as short as possible in the interest of predictability, but the additional risk involved will anyway make a quotation higher than a cost-plus estimate. A quotation may be accompanied by a request for payment before work is started, and this will have the advantage that it will be less likely for the client subsequently to argue that the charge was unreasonable. Prior to entry into force of the IPReg Rules of Conduct, the ITMA Code of Practice, paragraph 1(iv) included: Any publicity as to charges or a basis charging must be clearly and fairly expressed. If publicity contains a reference to a fixed charge for a particular item of work, then that the charge must cover either all of the work which would normally be carried out by a Practitioner in connection with that item, or specify precisely what further charges might be Page 1 of 5

2 made for additional time spent on the case. The reference shall also state whether or not the charges are exclusive of VAT and disbursements. No publicity may directly compare the charges of Member or group Members or their firm with those of any other identifiable intellectual property Practitioner or Practitioners and no publicity may directly criticise the charges of any identifiable intellectual property Practitioner or Practitioners. Discretion should be used in calculating a level of charging appropriate to the particular circumstances of a practice and client. Traditionally, charges have been made up using a mixture of professional time charges, flat rate service charges (covering formal matters and often performed by clerks or secretaries) and mark ups on outlays (covering the costs and overheads associated with upfront payment of outlays on a client s behalf). However this is not obligatory and other charging models have been used, for example a flat rate per case irrespective of the difficulty and professional time spent. Broadly, professional service firms can charge in several ways, either alone or in combination: 1) a fixed rate for completing an agreed task (e.g. filing an application); 2) a rate for the job dependent on how happy the client is with it; 3) time-based fees; 4) a rate based on the length of the document (specification) produced; or 5) a commission (e.g. a fixed percentage or mark up of, say, Patent Office fees or foreign agent charges outlaid for the client). Basis 1 is equivalent to our service charges. Basis 5 used to be the way stockbrokers, advertising agencies, etc., operated but is increasingly falling out of favour as a sole basis for charging, as the commission may bear no obvious relation to the amount of work involved. Many Practitioners would be nervous of operating on basis 2. Basis 4 was used by lawyers of old and was notorious for leading to lengthy documents. The traditional judicious balance of bases 1, 3 and 5 is the fairest system for both client and Practitioner. Flat rate service charges For services frequently performed, even the smallest practice will find it convenient to have a flat rate service charge, which can be entered by clerical/secretarial staff. Formal or clerical work in preparing and filing papers, and determining the fees on any particular matter, is generally best charged in this way, working from a fully itemised list for internal office use. This may serve as a reminder for all the operations that are usually carried out at one time. Charges usually incurred may be added to provide an estimate of the likely cost to a client at a particular stage. In so doing, consideration may be given to whether to charge above the minimum for professional care for the job as a whole. To handle a first patent application with minimum requirements at a low rate has often been done as a loss leader, to encourage innovation and/or obtain a client. Prosecution charges may be loaded for counter-effect, but it may be doubted whether this is fair, and there may be some difficulty in obtaining final payment, for example for forwarding a Certificate. Page 2 of 5

3 The charge should cover not only the work actually involved but also its inevitable consequences. To claim or not to claim priority may be considered equally demanding. To remind as to the approaching end of a priority period may be regarded as inevitable. Adequate records must be maintained, and the office kept running. In the interest of simplicity, rarer items may be charged at a figure which is a multiple of the charge for the simplest operation. Service charges should be calculated on the basis that they cover an appropriate proportion of the total office overheads. Alternatively, they can be calculated on a historical basis by comparison with the current hourly rates, or more analytically by working out the time likely to be spent having regard to the different levels of skills and remuneration of the people involved. For rarer services, the formal and clerical work must be closely supervised by a qualified person, at least in a small practice. Unfamiliarity with the details will render a flat rate charge unprofitable if the supervisor s time is strictly accounted for. An assessment should be made of all overheads, including: Establishment Communication Staff Subscriptions Office rent Post Salaries CIPA Rates Printing Insurance ITMA Equipment Telephone Pensions IPReg Furniture Fax epi Maintenance Internet AIPPI etc In-house publications Couriers Journals etc Web site To this should be added updating services relating to standard reference works such as the European Patents Handbook. Then there is the cost of finance to cover capital expenditure, the need for working capital, accountancy services, the risk of adverse currency movements and the risk of bad debts. The cost of money borrowed, actually or notionally in the sense of not earning interest while being lent to clients, should not be overlooked. Marketing and training costs, including foreign travel for seeking business and attending conferences, and continuing professional development should be included. An aggregate of these expenses, together with an analysis of routine service chargecarrying items carried out, can be used as a basis for setting service charges. Every Patent or Trade Mark Application is likely to remain pending for a number of years and after grant/registration may remain the responsibility of the Practitioner for renewal or address for service purposes. During all this time, professional supervision is required, and actions have to be taken, often within precise and short periods. Co-operation among personnel is to be encouraged for mutual dependence and the trapping of errors. A sole Practitioner should maintain a contact with an outsider to provide cover in an emergency. Page 3 of 5

4 Chargeable time A Practitioner will rarely be able to record even as much as 25 hours chargeable time in a week: much time is necessarily spent on other work such as administration and training. Of interest on this subject is The Solicitors Guide to Good Management: practical checklists for the management of law firms by Trevor Boutall & Bill Blackburn (2001) which is available from The Law Society. This handbook is almost equally relevant to running a Patent or Trade Mark Attorney firm, and is recommended reading. However, it may be considered too transaction-based; for the establishment of a more constant or continuing relationship reference may be made to Chartered Accountants publications. A Practitioner with some administrative and managerial duties may be able to record 800/900 chargeable hours a year, while an assistant with no such duties may be expected to record nearer Thus, say, 20 hours per week over about 44 weeks (to allow for holidays, etc) could be used as a basis for setting an hourly rate. Professional time on advising clients and the study and preparation of documents may be calculated on the basis of a unit of perhaps 15 minutes of qualified professional time, although for computerised job ledgers a unit of 6 minutes (0.1 hours) may be more useful. The appropriate rate will depend to a considerable extent on whether all the time spent is recorded or only that devoted to purely professional work. If the latter, the hourly rate will need to be increased to cover an appropriate proportion of the overheads. Work done by an assistant may be charged at a rate appropriate to the knowledge, skill and experience of the assistant, plus an allowance for the time spent in supervising and checking. As the former is usually salary-related, a useful rule of thumb is x times salary divided by the number of chargeable hours in a year to give an hourly charge rate. Traditionally, three times salary has been used. Alternatively, a figure based on how long a principal might have spent on the work may be entered. Generally speaking it is not practical to charge the work of administrators or juniors on a time basis. They have to deal briefly with so many matters that the time spent on each is difficult to assess and record. Such persons employment costs are best regarded as part of a general overhead. Time spent in travelling on clients business may be charged at the full rate, particularly if the time would otherwise have been spent on professional work. A day out of the office must be charged at the number of hours normally put into professional work if it is to be economic. Consultants often charge half rate when travelling, particularly if travelling by train when some work can be done. The services provided by a practice can conveniently be divided into professional work done by a partner, attorney or technical assistant, and formal or clerical work done by a clerk, typist or secretary. A work sheet may be kept in relation to each file or project in the office, the person responsible entering each charge as it arises. Only a brief description on the work sheet is required. A professional may, for example, enter: Attendance at meeting with Mr X; Taking instructions; Considering instructions; Drafting description, claims, abstract, amendment or other document; Submitting for approval; Filing; Reporting; or Advising generally. A typist may enter charges according to length of typescript, for copying, obtaining documents, or for sending messages. A clerk may enter service charges and disbursements (exclusive of VAT). The detailed recording of charges (including the time spent and the relevant hourly rate) is particularly important in legal disputes where there is a possibility that costs may be claimed. In practice, the charging of telephone calls for example may be overlooked or scaled down, and small items, such as printing costs, may be omitted altogether or included as part of the overhead. A Practitioner may choose not be charge for work for which a charge is justifiable, because of the high Page 4 of 5

5 cost of raising an invoice and monitoring its payment. All professional time should be recorded, since the cost of unrecorded time is difficult to recover. There are many computer-based systems, either tied to accounts packages or stand-alone, which in many respects are superior. The overwhelming advantage of such systems (referred to as job ledgers) is the ability to print out a summary of all jobs with charges outstanding at any given time (or all jobs with more than x outstanding). Such systems can be used with a file-based work sheet as above, or more easily with computer based time recording in which time spent on a job is recorded as the job is carried out. Mark ups on official fees and agents invoices These are dealt with in the practice note on other money matters. Page 5 of 5