Understanding the Economics of Patent Enforcement

A Practical Guide from Years of Lecturing on the Subject

By: John Fuisz

Before Covid, for several years, I would guest lecture in one of Robin Hanson’s classes, walking students through the economics of patent enforcement. If you’re going to spend money enforcing a patent, you need to understand how people are making money off you—so you can make smarter, more efficient use of your capital. This article is a synopsis of those lectures.

The Law Firm Incentive Problem

Large law firms are no longer the intellectual powerhouses they might once have been. Over time, they tend to optimize for what I call “MVHs”—minimally viable humans. If a client will pay $10,000 for a project and a senior associate bills at $1,000 an hour, the firm wants the associate who will take 10–11 hours to complete the work, not the one who can do it in 5. That fast associate leaves $5,000 in potential revenue on the table. Now the partner has to find another client to make up for that lost billable time—something that incurs real cost and cuts into profit. The result? The firm slowly selects for people who conform to the MVH model.

“But My Lawyer’s Different...”

Sure, maybe your attorney is brilliant. You can hold onto that belief—just be prepared to pay for it. If you have consistent legal needs, you may be better off negotiating a fixed annual fee. Many firms will take that deal. But how much should you pay?

Let’s break it down. A $1,000/hour billing rate at a large law firm typically breaks out as follows:

• 50% for overhead (office, staff, etc.)
• 30% for the attorney
• 20% split between the equity and originating partners

So, if a senior associate bills 1,800 hours at $1,000/hour, that’s a $1.8 million bill. Their base salary should be around $540,000. The remaining $1.26 million goes to overhead and partner profit—$180,000 of which goes directly to the originating partner. This is why firms build out teams: more people on a matter means more profit for the originating partner.

Now, imagine you hire that same senior associate directly or negotiate a fixed fee. Pay them $700,000, and they get a raise while you save $1.1 million—for the exact same work.

This also explains why a partner who just left a large firm can charge you half their old rate and still make more money. If you don’t need your attorney working in a skyscraper with a fancy art collection, you can cut your bill in half.

Billable Hour Math

Most attorneys need to bill 1,800 hours per year. That’s not arbitrary. It breaks down to:

• 36 hours/week (assuming 50 working weeks)
• 7.2 hours/day of billable work

Since you can’t bill for lunch, bathroom breaks, or coffee, most lawyers are in the office for 9+ hours a day. Add in commuting time, and they’re likely out from 7 a.m. to 7 p.m. five days a week.

If an attorney bills 2,250 hours on your case, that’s 9 hours a day, every weekday, for 50 weeks straight. So yes, you’re probably paying $1,000/hour for them to eat lunch—because it was technically “working.”

Travel adds another layer. Say your attorney flies to Beijing. If you didn’t agree to travel terms upfront, you might pay for a business-class ticket and $24,000 in billable time for the trip—starting from when they leave their house.

The Write-Off Game

Overbilling becomes routine. Most firms allow billing partners to write off up to 10% of time without approval. Up to 20% might be possible with management sign-off. That means when negotiating your bill, you can reasonably ask for $180,000 off a $1.8 million invoice—and not be out of line.

Contingency Fee Considerations

Contingency arrangements vary. Some give you a discounted hourly rate (which is often inflated anyway) in exchange for a percentage of the recovery. Others waive hourly fees and just bill you for “out-of-pocket” costs like vendors, travel, or expert reports. In those cases, guess who ends up writing the expert reports or reviewing documents? Vendors—so those costs get shifted to you.

Let’s run some numbers. Suppose your patent is valid and infringed, and you get a 10% royalty on 50% of the infringing product’s sale price. If your litigation bill is $2.5 million, the infringer needs $50 million in sales before you make a dime. Want to net $10 million in profit? You’re talking $250 million in infringing sales. Not many infringers have that kind of revenue.

Firms typically aim for a 3–4x return on their litigation investment. If they’re fronting $2.5 million, they’re looking to make $7.5 to $10 million. If you’re using capital with a focus on financial return, you need to be thinking in those same terms.

Litigation Funding and Small Firm Pitfalls

To manage risk, firms often bring in litigation funders—companies that front costs in exchange for a cut of the recovery.

Small firms are another option, but they play their own games. Their contingency deals often include a partial hourly rate or deeply discounted “blended” rate, with you still covering most costs. When you do the math, they often end up worse than large firms.

Take Control: Ask the Right Questions

There’s no perfect solution. But you can take control:

• Ask how partners are compensated. Are they incentivized to be efficient—or to work as MVHs?
• Who is actually assigned to your case, and what value are they bringing for their rate?
• If someone new is added, don’t pay unless you approve them.
• If you’re doing high volume, consider a secondment: hire the attorney full-time for a year and pay their salary directly.
• Cap daily billable hours.
• For expenses, get estimates upfront. Define exactly what goes to vendors—and consider picking those vendors yourself.

The point is: ask questions and do the math. There’s a lot of money at stake—and plenty of ways to spend it poorly.

© 2025 John Fuisz

John Fuisz is the CEO and Founder of Veriphix, a belief data company focused on monitoring and influencing population-level beliefs without relying on social media. With a robust background in intellectual property law, he holds an LL.M. in Intellectual Property Law from George Washington University Law School (1996), a J.D. from Catholic University (1992), and a B.S. in Physics from Georgetown University (1989). Prior to Veriphix, John built a distinguished legal career, serving as a Partner at firms like Vinson & Elkins and McDermott, Will & Emery, and founding Fuisz Law. He has been recognized as one of IAM’s Top 300 IP Strategy attorneys and has led high-stakes patent litigation and licensing deals, including a $100+ million settlement for Creative Labs against Apple. Veriphix’s innovative work earned 1st Place in NATO’s Countering Cognitive Warfare Challenge, and its NatSec tools have been piloted in regions like Ukraine and Russia. John is a registered patent attorney and a frequent speaker on IP strategy.