Benchmarking in the pharma sector

Our client asked us to undertake a worldwide review of our external patent and trademark service providers to bring about cost savings where appropriate and, where possible, to rationalise the number of firms the client was using.

In the client’s experience, 80% of global spend was concentrated in 25 countries. The client had relationships with 368 patent firms in 140 countries and 250 trademark firms in 197 countries; in many countries they were working with more than one firm.

The primary focus of the review of costs required the collection and analysis of data covering fixed fee and hourly charges for a total of 2,139 agent/country combinations, something the client simply could not manage in-house and so turned to Brandstock as the only IP service provider willing and able to carry out such a project. Throughout the project we worked closely with the IP department’s project lead and with their colleagues in procurement.

Stage 1: gathering fee data

We were first approached in July 2014. The project objectives, scope and process were discussed in detail and in November 2014 an agreed form of communication was sent to all agents by Brandstock. Each firm was given access to a dedicated Brandstock web portal providing a structured means by which data for all fee categories could be provided.

Brandstock followed up with reminders to all the firms involved, and gave support to any that asked for it. By early December, 82% of the trademark firms and 74% of the patent firms had provided the information requested. The client was forewarned not to expect a 100% response from firms so the response rate, although disappointing, was not a surprise and allowed us to eliminate unresponsive firms from the exercise.

After requesting some additional information, we delivered a report in January 2015 that presented the data recovered for each country, including the following for each fee item:

1. The price charged by each of the agents;

2. The average charge;

3. An average charge based on data collected by Brandstock in previous benchmarking projects;

4. The lowest charge based on data collected by Brandstock in previous benchmarking projects;

5. The difference between 2. and 4.; and

6. The ‘target’ charge that Brandstock recommended could be achieved through negotiation.

We then met with the client to go through the data and agree on the target fees that we would seek to negotiate on its behalf. The client wanted to know that new fees would not be subject to short-term change so our negotiations also sought agreement that fees would be fixed for two years.

Stage 2: negotiating target fees

This stage began in April 2015 and involved 280 patent firms in 119 countries and 237 trademark firms in 194 countries. All firms were contacted and asked to revisit the web portal where they would find the target fees requested by the client and where they could, for each fee item, either indicate their agreement or propose a different fee.

“We reviewed a total of 3,808 invoices, comprising more than 11,500 individual line items, with a combined value of over $4 million, and rejected just over 2,000 of them.”

This stage inevitably took longer to complete than the first as it involved some back and forth with those firms who proposed different fees rather than agreeing to the rates requested.

Our first report on progress was sent in June 2015 and the final report, following a further round of negotiations, was delivered in October 2015. In all, new fees were agreed with 220 patent firms and 181 trademark firms. We also produced an executive summary report with headline figures for percentage reductions in agent and official fees charged (firms in several countries had been inflating official fees).

Stage 3: invoice reviews

Once fee agreements were in place, we were asked to carry out invoice reviews, involving 70 selected agents, to check that agents were submitting invoices in accordance with their new fee agreements. We were given the means to access the client’s billing system where our trained staff could examine submitted invoices and then communicate any errors to agents using specially allocated client email accounts.

We reviewed a total of 3,808 invoices, comprising more than 11,500 individual line items, with a combined value of over $4 million, and rejected just over 2,000 of them due to incorrect official and/or professional fees and insufficient or ambiguous description of the invoiced fees. In some cases, agents had not applied the new fee rates agreed. In others, agents had bundled costs together into single amounts so that it was not possible to determine whether the new rates had been applied.

Our approach with agents was one of clarification and education, seeking to explain the importance of having a detailed breakdown of charges for the sake of transparency and audit. Challenged invoices resulted in savings of more than $200,000 and there was a marked improvement in invoicing practices, making the exercise an undoubted success overall.

Conclusions

Working with an outside partner

We took the burden of this complex and resource-intensive project from the client while providing it with complete transparency and control throughout the project.

Outcomes achieved

The results of this benchmarking project were remarkable. In total, Brandstock achieved savings on fixed fees of approximately 30% for patents and 23% for trademarks.

Hourly rates have also come down: by an average of 22% in countries making up 80% of external spend; and by 16% in the rest of the world. In overall terms, the client substantially reduced spend without reducing volume or compromising quality.

Lessons learned

There may be many reasons why agent fees are higher than they need be, including historic pricing that has not caught up with current trends; lack of competition; varying economic conditions; and pricing that does not reflect growth in the quantity of matters under management (volume-related discounting).

Another factor, one that impacts transparency, relates to pricing structures and the manner in which invoice items are presented; standardisation and simplification are desirable and achievable.

What is clear is that substantial savings can be made by accurately benchmarking fees across jurisdictions. It achieves at least two important things. First, a good benchmarking project provides transparency on fees, allowing companies to clearly see where in the world their costs are relatively higher, investigate the reasons for that and, where necessary, take action.

Second, our benchmarking service allows companies to negotiate fees from a position of strength, armed with data from comparable jurisdictions and/or competitors within a jurisdiction to more clearly establish the appropriate fee level.

There are, arguably, also benefits for the agents themselves as the process encourages them to think more clearly about their fee rates and charging. We have seen how this process has prompted many firms to rationalise resources and increase efficiency, making them more competitive and profitable.

If done properly, a project such as this provides a win/win for clients and their agents across the world.

Brandstock can provide this service to any size of business. To find out more visit our Agent Benchmarking page at:  http://www.brandstock.com/index.cfm/en/services/ip-portfolio-services/agent-benchmarking/