In the Beginning
The outsourced Annuity Payment business got started in the late 60’s and early 70’s with a compelling value proposition. By aggregating a large number of patent payments and negotiating volume discounts with agents around the world, Annuity Vendors were able to simplify the complex process of managing renewal payments while also decreasing overall costs. This win-win combination saw vendors like CPA Global, Olcott, Dennemeyer, CPI and Master Data Center quickly gain clients.
It Started As a Simple Service Fee
Annuity service offerings were basic in the early days and annuity pricing cost structures were correspondingly simple. The standard pricing model at the time was a single service fee which typically increased or decreased based upon the number of annual payments. Most companies embraced this approach due to its simplicity and it is still the most common model we see when auditing IP invoices today. This is our preferred pricing model, but only if the vendor is transparent about all other fees associated with the payment process, which will be discussed next.
Things Begin to Get Complicated
The unwritten understanding between annuity vendors and their clients throughout the years was that the service fee covered the annuity vendors’ operational costs. Clients expected transactional costs like official fees, currency fees or agent fees to be passed along without any markup.
As more and more vendors entered the highly profitable space, the battle over service fees began, and owners of large portfolios came to expect service fees of 5 or 6 USD. Interestingly, despite substantial pressure downward on service fees, companies noticed that their overall maintenance costs were rising.
For companies looking to better understand this conundrum, the Internet made it easy to observe official fees and currency rates. As they began digging into their invoices, it became increasingly clear that vendors weren’t being totally transparent about the fees clients were paying.
The Arrival of the Fixed Fee Model
In an attempt to eliminate the discussion about foreign exchange rates, agent fees or any other fees, some vendors have introduced a variety of different “all inclusive” rates, which are often described as “fixed fee” arrangements.
The most common fixed fee model we encounter is the combined service and currency exchange fee. In this model, the client gets a single fee which includes the service fee and currency costs.
These tend to be less popular than the traditional service fee models because the fixed fee model appears to be substantially more expensive than the traditional fee approach. In reality, when traditional fees and currency costs are added together, both models cost clients about the same.
We also occasionally see agent fees included in the fixed fee arrangement, which makes it simpler for clients to budget, but typically hampers transparency.
Generally speaking, we recommend clients avoid any fixed-fee annuity payment model due to their lack of transparency.
The Internet didn’t just make it easier to understand costs, it also made it easier for clients to make payments directly to patent offices. In an attempt to make sure that clients don’t attempt to make their own payments in their home jurisdiction, it’s increasingly common for Annuity Vendors to apply additional discounts for a company’s home payments. For example, we frequently see US clients charged 20% or 30% less for US payments when compared with their global portfolio. The same holds true for EU payments for European patent holders.
Wrap Up and Recommendations
Patent maintenance is a time consuming, expensive proposition, and most IP owners don’t have the time (or desire) to deal with all the potential nuances associated with the various pricing models. Given the choice, we recommend all clients select a standard service-fee based model and complement it with contract language that provides visibility into agent fees and currency handling. While the fixed fee models are simpler to understand and budget for, we recommend that they be avoided due to their typical lack of transparency. When possible, we also recommend that you negotiate lower rates for your home payments. The savings will likely be negligible, but any savings can add up over the years.
If you have questions about your annuity pricing, feel free to drop us an email at firstname.lastname@example.org and we can give you advice on how to best manage this complex topic.