IP lawyers per R&D spending, and a plateau effect for R&D spending

Companies that spend proportionately greater sums than their industry peers on R&D don’t enjoy greater revenue gains or better profits. Since IP lawyers and spending probably paces R&D spending, this counter-intuitive – and controversial – finding by Booz Allen Hamilton, as reported in the Wall. St. J., Vol. 246, Oct. 11, 2005 at A2, suggests that IP legal spending also reaches diminishing returns.

The study looked at data from 1,000 publicly-traded companies responsible for the bulk of global R&D spending over a six year period. Within an industry, comparing middle-of-the-pack spenders on R&D to spenders in the top 10 percent, the study looked at sales growth, gross profit, operating profit, market capitalization, and total shareholder results.

What this means to law departments that have IP lawyers is that benchmarks of lawyers per R&D dollar spent could lead to flawed conclusions, if R&D spending is not a reliable marker of corporate fitness. (See my post of July 20, 2005 on practice-area benchmarks.)

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