Equity and Contingency Patent Fees

Equity Interests

Having equity is like having a slice of ownership in something. An equity interest represents a percentage of ownership of a particular business, asset, venture, or intellectual property. For businesses or investments, it often takes the form of stocks or shares. For example, if someone owns stock in a company, they have an equity interest in that company.

In the context of legal services, taking an equity interest involves an attorney receiving a percentage of ownership in a client’s business or intellectual property. This equity interest is typically established in exchange for the attorney’s services. The attorney may then be entitled to a portion of the financial gains or benefits that result from the success of the client’s business ventures, such as licensing out a patent to an external party. Read more about licensing agreement types and licensing agreement advantages and disadvantages.

Contingency Fees

A contingency fee arrangement is a payment method in which the attorney only gets paid if the case is successful or the client otherwise receives monetary compensation. In other words, the attorney’s compensation is contingent upon the success of the case. Instead of charging a standard hourly rate as the case progresses, the attorney agrees to take a portion or percentage of the monetary gains resulting from their services. The specific portion or percentage depends on the details of the agreement. This fee structure can help clients facing financial constraints access legal services.

For patent application services, a contingency compensation setup usually means that the patent attorney gets paid once the patent is granted and the invention is monetized. Note that even with contingency patent fees, clients may still be responsible for certain fees, such as filing fees.

Equity Interest or Contingency Fee as Payment Method

Can a patent attorney accept equity interest or contingency fees as payment for providing patent services? Yes, patent attorneys are generally allowed to take an equity interest or contingency fee in exchange for helping an inventor secure patent protection—with some exceptions and considerations.

Generally, patent attorneys bill based on services provided rather than using an hourly rate. Professional patent fees are incurred during 5 separate events in the patent application process. Learn more about patent costs. However, instead of this usual fee payment method, a patent attorney may accept equity or provide contingent fee payment plans in certain cases.

Can I pay for a patent with stocks or shares? Yes, a patent attorney may, for instance, agree to receiving stakes or shares in a client’s business in exchange for patent application services. The patent attorney may then be entitled to a percentage of the financial gains or benefits that result from the success of the client’s business ventures, such as monetizing the patented invention or licensing out the patented invention to another company.

Exceptions and Considerations

Equity interest and patent contingency fee payment options are crucial for making patent application services such as the prior art search, patentability study, patent application writing, and patent prosecution more accessible. Equity and contingency payment structures can be particularly appealing to inventors and entrepreneurs who may face financial constraints but believe strongly in the potential value of their invention. However, it is important for both attorneys and clients to be aware of legal guidelines and ethical considerations before arranging these kinds of payment plans for patent fees.

USPTO Guidelines for Taking an Equity Interest

The USPTO’s Rules of Professional Conduct govern the actions of patent attorneys and patent agents (patent practitioners). The USPTO generally prohibits patent practitioners from acquiring a personal interest in the cases they are handling for their clients. However, exceptions are allowed under specific circumstances.

One important exception is outlined in 37 CFR § 11.108(i)(3): patent practitioners are permitted to take an interest in a patent or patent application as part or all of their professional fee. This could involve the practitioner receiving a share of the client’s business or the client’s rights to the patent.

37 CFR § 11.108 also offers guidance on how patent practitioners can engage in business transactions with their clients. According to Section 11.108(a), patent practitioners cannot engage in business transactions or acquire interests that conflict with the client’s interests unless specific conditions are satisfied. Here are the conditions that must be met:

• Fair and Reasonable Terms: The patent practitioner acquires the interest through a transaction or terms that are fair and reasonable to the client.
• Full Disclosure: The transactions or terms used to acquire the interest are fully disclosed and communicated in writing in a way that the client can reasonably understand.
• Advice to Seek Independent Legal Counsel: The client is advised in writing about the importance of seeking independent legal counsel regarding the transaction. The client is also given a reasonable opportunity to seek this advice.
• Informed Consent: The client gives informed written consent to the transaction. The written consent covers the essential terms of the transaction and explicitly states the practitioner’s role in the transaction. This includes whether the practitioner is representing the client in the transaction.

Put simply, for a patent equity interest compensation agreement to be acceptable, it needs to be fair and reasonable to the client. Additionally, the agreement must be fully disclosed to the client, the client must be advised about seeking independent legal advice, and the client must provide informed consent. If you are arranging an equity interest compensation plan with a patent practitioner, the practitioner should ensure that you fully understand the terms of your potential contract. Additionally, note that patent practitioners are permitted to acquire a lien authorized by law to secure fees or expenses (37 CFR § 11.108(i)(1)).

USPTO Guidelines for Contingency Patent Fees

37 CFR § 11.105 offers guidance on fees. Section 11.105(c) allows for contingent fees under certain conditions. Here are the conditions that must be met:

• Reasonable Fee: The contingent fee must be reasonable; patent practitioners are not allowed to collect an unreasonable amount of expenses.
• Signed Written Agreement: A contingent fee agreement must be in writing and signed by the client.
• Specification of Fee Determination Method: The agreement must describe how the fee will be determined. This includes percentage(s) accruing to the practitioner in the event of settlement, trial, or appeal, litigation and other expenses that will be deducted from the recovery, and whether these expenses will be deducted before or after calculating the contingent fee.
• Notification: The agreement must clearly inform the client about any expenses for which they will be responsible, whether or not the client is the “prevailing party.” In the context of patent application services, this means that the client must be informed about any expenses they must cover, whether or not their patent is granted.
• Post-Conclusion Statement: After concluding a contingent fee matter, the practitioner must provide the client with a written statement. The statement must include the outcome of the matter, details of the remittance to the client if there is a recovery, and explanation of the method used to determine the remittance.

In other words, a patent practitioner contingency payment arrangement must be reasonable, and the agreement terms, fee calculation method, client’s liability for expenses, and post-conclusion reporting should all be clearly specified to protect the interests of both the practitioner and the client. Full disclosure and informed consent from the client are crucial in patent attorney contingency compensation arrangements. Clients must be aware of the potential implications and conflicts that may arise from such an agreement. Several factors can impact what constitutes a “reasonable” fee.

Additionally, in this context, “recovery” means the money that the client receives as a result of a favorable outcome of a settlement, lawsuit, or appeal. In the context of patent application services, contingency compensation arrangements typically depend on the monetization of a patented invention rather than a settlement, lawsuit, or appeal.

Expert Patent Attorney Help Available Online

Can I pay for a patent with equity? Can a patent practitioner accept stocks or shares? Can I pay for a patent with contingency fees? Yes, when specific conditions outlined by the USPTO are met, patent practitioners can provide their services with equity or contingency payment plans.

At Carson Patents, we are dedicated to supporting inventors and entrepreneurs across the nation and around the globe in seeking patent protection for their inventions. Individual inventors and small businesses in particular may be eligible for equity interest or contingency compensation arrangements. These payment plans for patent fees may be particularly helpful for those facing financial constraints who have confidence in the potential value of their invention.