Patent Prosecution’s Fatal Asteroid: Why Law Firms Shouldn’t Wait for AI’s Full Impact

“Extinction was simply proof of failure to adapt.” ~ Michael Crichton, The Lost World

Given the recent proliferation of artificial intelligence (AI) patent drafting technology, some in the legal services industry are asking whether AI is the patent profession’s “ultimate bad day,”on par with the dinosaurs’ ultimate bad day posited by Nobel Prize-winning physicist Luis Alvarez in 1980.

Like the asteroid thought to cause a mass extinction of the dinosaurs, will AI be a formidable impactor that renders patent prosecution an unprofitable practice area in law firms and alternative legal service providers (ALSPs)? Will AI decimate patent prosecution as a viable career?

Although the future is still being written, even those who have just begun to dip their toes in AI patent drafting tools already have found valuable use cases and witnessed dramatic improvements in a short time. They also can envision a future state in which AI competently or even expertly can perform a considerable subset of prosecution tasks that are currently performed by patent practitioners and billed to clients at significant cost.

How will the patent prosecution profession survive the full impact of AI?

Law firms, ALSPs, attorneys, agents, other patent professionals, and those considering entering the profession should face this existential question head on before it’s too late.

AI’s One-Two Punch on Client Value and Firm Profitability

In recent decades, corporate and other IP clients have become masters at controlling IP spend by imposing tight budgets on outside counsel. They’ve also contained spend by executing cost-efficient insourcing strategies that include employing highly qualified IP professionals and deploying software tools for IP and legal operations.

In short, clients are more sophisticated consumers of IP and legal services than ever before. They’re also far more self-sufficient in many things, like homeowners ready and willing to tackle basic and complex DIY projects. The net result is that the IP services segment largely operates as a buyers’ market, with clients calling the shots on pricing and performance.

AI enhances clients’ already enviable position.

As AI patent drafting tools become increasingly powerful, many clients will feel more empowered to insource patent work formerly performed by outside patent counsel. Their make-or-buy decision calculus will shift further toward “making.”

Moreover, clients are aware that efficiencies realized by AI tools can drastically reduce outside counsel’s cost of production. For outsourced patent prosecution services, clients expect outside counsel to price their services commensurate with the altered landscape.

Thus, AI reduces client value—a client’s perception of the value of the firm’s services compared to current rates or fees charged by the firm.

Assuming clients expect to share in AI-enabled cost efficiencies, then law firm rates and fees must fall, at least with respect to those prosecution tasks leveraging AI. The better that AI gets, the more it will threaten a firm’s value proposition, erode pricing, and reduce revenues.

Eventually, such reduced revenues could topple the basic profit equation of a law firm: Total Revenue – Total Expenses = Profit

Firm profits may decline sharply, or even fall negative, because the firm’s operating expenses dwarf revenues received from clients. Some law firms dedicated to or highly reliant upon patent prosecution work may shrink, disband, or go bankrupt. Other firms may never be established in the first place when entrepreneurs do the math, realizing there’s no upside.

In sum, a law firm’s rationale for existing—to generate sufficiently high profits for the partners—is imperiled by AI. Also, the lives of partners, associates, agents, and other firm personnel are premised on current expectations of what compensation they need and deserve to make. AI may take a wrecking ball to these expectations, ushering in a harsh new reality for patent prosecution professionals.

Modification and Reinvention Strategies

To effectively contend with AI’s intensifying challenge to client value and firm profitability over the long term, tactics like cutting firm headcount, salaries, and other operating expenses are likely to fall short. Such tactics may provide a short-term cushion but fail to address fundamental incompatibilities between traditional operating models and AI’s transformed domain.

It’s also hard to envision ambitious patent attorneys, patent agents, and other IP professionals accepting markedly lower compensation as their lot in life.

Outside-the-box thinking will be required to build profitable patent prosecution practices. This may include tweaking or replacing existing approaches, borrowing ideas from innovators and early adopters, and fashioning substantially new models.

Example strategies that firms and practitioners may employ include:

a. Cohort Selection

In an AI-driven world, it’s vital to choose your collaborators wisely.

Collaborators include a practitioner’s partners, shareholders, attorney and non-attorney colleagues, software and solutions vendors, and clients. Collaborators who proactively meet AI’s challenges are most likely to help you succeed. Conversely, those who downplay AI and hold fast to conventional ways are like passengers in a waterlogged canoe who refuse to help bail water or plug leaks, thus hastening disaster. They’ll impede your chances of success.

Selecting optimal cohorts for collaboration encompasses hiring AI-enlightened people; engaging with like-minded entities; firing, dissociating with, or disengaging those who aren’t aligned; making lateral moves to other firms; combining with or acquiring other practices or firms; and establishing startup firms or ALSPs infused with an AI-savvy ethos from inception.

b. Organizational Structures

Virtualization in the legal services industry has gained momentum in recent years. By operating primarily or exclusively online, a virtual law firm or ALSP can substantially lower overhead and scale flexibly, drawing upon geographically dispersed talent.

These and other advantages may make virtualization a natural fit for patent prosecution practices that are vulnerable to AI-inflicted economic pressures but have resisted adopting the model so far.

Firms that wish to exit patent prosecution entirely should consider forming strategic partnerships or networks with outside firms or agencies. For instance, a firm with an IP litigation practice could own an equity stake in a well-run virtual patent prosecution boutique firm or otherwise establish ethically permissible arrangements with a virtual firm or ALSP for mutual benefit.

c. Client Service Models

Traditionally, general practice firms have looked askance at patent prosecution due to its typically lower profit margins relative to litigation, M&A, and other practice areas commanding premium pricing. Yet, some have made patent prosecution a viable, albeit lower margin practice through fixed fee arrangements and volume discounts that incentivize clients to consolidate large swaths of prosecution work with chosen firms.

For practices already in a precarious position, AI may become the final straw unless firms and practitioners rethink what patent prosecution services to provide to clients and how to deliver and charge for them.

Openness to new service models can provide firms with new revenue sources or shore up existing ones, where the sum of the parts constitutes strong revenue and acceptable profit margins and may offer strategic advantage for other firm practice areas.

New models can be more transactional or ad hoc than conventional counterparts. For corporate clients that decide to insource patent drafting, a law firm can provide “law firm in the loop” expert support on a retainer, fixed fee, or hourly basis. Firm lawyers can provide strategic drafting and counseling advice to complement drafting work being undertaken by the client via AI patent drafting tools.

Firms also can architect lean prosecution teams or sub-teams to perform large amounts of high-value or commoditized work profitably, with non-attorney employees or qualified external contractors being utilized to address variable workloads. Existing firms have built similar models successfully, but the rise of AI calls out for their increased use across the board, adapted to and optimized for AI-embedded ecosystems.

d. Bundling of Analytics Services

Historically, many patent prosecution professionals have not become experts in IP analytics. They’ve tended to delegate discrete research projects to outside search firms or internal data scientist colleagues and not become well versed in the use of analytics tools and in associated holistic, critical thinking with respect to clients’ businesses.

The potency of AI can be unleashed in the IP analytics realm, removing past barriers to entry, such as esoteric, proprietary tool interfaces.

To help preserve their client value, patent practitioners can build analytics expertise that clients can’t find elsewhere and that delivers salient IP, business, and operational insights that drive clients’ competitive advantage. In so doing, a patent attorney or agent becomes a much stronger, more well-rounded IP and business counselor.

If a firm offers bundled patent prosecution and high-end analytics services, clients may see a strategic advantage to keeping prosecution work with the firm. They also may be less sensitive to pricing, recognizing the immense value of the combined offerings.

e. Talent Development

Like a tiger menacing wanderers in the jungle, AI is forcing the patent profession into a perilous situation with limited means of escape. Nevertheless, practitioners who are specially trained to deal with this “tiger” have the best shot at safely navigating the dense practice “jungle” ahead.

Firms should equip personnel at all levels with tailored knowledge and expertise to effectively use and maximize the benefits of AI patent drafting and related tools. Each practitioner also must take ownership of their own knowledge and skills acquisition.

Intensive AI and substantive practice training should be provided to freshly minted attorneys, agents, and other new IP professionals. Lacking prior practice experience, they’ll need to find their footing in the face of AI patent drafting tools that perform functions previously performed by junior practitioners.

For Self-Preservation, Do These Things Now

Awareness of AI-induced patent prosecution challenges and mitigating strategies is just the beginning. You need to act now to safeguard your future as a law firm, ALSP, or practitioner.

Here are essential action items:

1. Adopt AI tools and closely monitor developments. Emerging AI patent drafting tools, as well as tools directed to other IP services or to IP and legal operations, are available and improving at seemingly lightning speed. Find tools to address appropriate use cases, pilot them, and adopt them even on a modest initial basis. Your active use of AI tools both will deliver value and be part of your learning and maturing process. In addition, diligently monitor the AI tools landscape, such as through blogs, webinars, conferences, and discussions and demos with software vendors, so you progress in sophistication in step with the state of the AI art.
2. Train up in how to use AI. Besides using AI, pursue learning opportunities that, as noted above, provide tailored knowledge and expertise. For instance, attend deep dive courses covering effective prompting for patent application drafting. In view of the magnitude of risks and opportunities presented by AI, seasoned practitioners should avoid offloading learning to the younger generation.
3. Make and execute a strategic plan. If ever there were a time for firms, ALSPs, and practitioners to intensively strategize beyond substantive client matters, that time has arrived. Devise short-term and longer-term comprehensive strategic plans that can be iteratively modified and expanded over time. As needed, engage IP practice consultants with true ecosystem expertise to complement your internal strengths.
4. Get closer to your clients. In times of crisis, the ability to manage the everyday and keep moving forward is a clear advantage to survival and ultimate flourishing. Your current client relationships are foundational to you making it through the sea change brought by AI. Holistically assess those relationships through structured frameworks, implement learnings, and continuously reassess. Be at the top of your game in service delivery. Closely partner with your clients on AI issues and projects. Remember that helping clients achieve a win likely will accrue to your and your firm’s benefit in the future, even if it deprives you of revenue now.
5. Take an honest look at your collaborators. Your ability to succeed, and the level of success you can attain, correlate closely to the people and entities with whom you team up—to how visionary, engaged, expert, and abundance-minded they are with respect to the dangers and possibilities of AI. If you doubt that certain collaborators will rise to the occasion, for your own self-interest seek others who inspire confidence.

Fortune Favors the Bold

Is AI’s arrival an asteroid moment for the patent profession? Is it a harbinger of the end of patent prosecution as we know it?

We don’t yet know the full scope of AI’s impact, but—unlike the ill-fated dinosaurs of the Cretaceous Period—we still have time to adapt.

Law firms, ALSPs, and patent prosecution professionals who proactively explore modification and reinvention and pursue self-preservation tactics such as described above are most likely to survive and thrive in this new era of IP practice, business development, and firm management.

Those frozen by uncertainty, coasting on their past successes, or waiting for the perfect AI patent drafting tool risk falling irreparably behind.

Image Source: Deposit Photos
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Author: Andreus