Sunday, January 16, 2022

My Experience With Outsourcing

It is not hard to understand why companies outsource jobs overseas.  That doesn't make it right, of course.

Back when I had a Patent Practice, one of the menial but important jobs we had to do was Prior Art Searching.  Before you bother to spend $10,000 on a Patent Application, it pays to look for other "Art" which may anticipate your invention.  In other words, you want to make sure no one else invented it before you.

Some folks have a hard time grasping this concept.   "Why can't I get a Patent on the wheel?  Just because someone else invented it first doesn't mean I shouldn't be able to get a Patent on it!  After all, Og's Patent on the wheel expired in 10,000 BC!"   They just don't get it.  In order to get a Patent your invention as to be novel and non-obvious.

You are not required to do a Prior Art search, but it isn't a bad idea.  Problem is, most clients were unwilling to pay much for one - $500 to $1000 (with an evaluation by an attorney) back in the day.  So we hired "searchers" back then to go through the paper records of the Patent Office to look for "Prior Art" to the invention.   And this was the basic job of Patent Examiners as well - searching for "Art" and then applying it to the claims in an Office Action (rejection).  About 90% of Patents are rejected - initially anyway.

So the most you could pay the searcher - the going rate - was about $300, which was not enough to justify an attorney doing the work.  Sure, in special cases with high-tech and high-value inventions, you may pull out all the stops. And in litigation, well, when millions are at stake, you don't mind spending a few thousand to invalidate someone's Patent.  But for everyday Prior Art searches, you did a half-day of looking just as a filtering mechanism.

When I started my own practice, I did some searches myself, initially, but realized it was a waste of my time.  A half-day search might net me $300 in billables, but my hourly rate, writing an application, was nearly as much.  Better off to do the heavy lifting and contract-out the search business.  And there is a host of folks and companies that do searches, too, with offices that ringed the Patent Office, at least back in the day.  Online searching - which is the only way to do it today - was still in its infancy.

The problem was, you would find a good searcher - someone just starting out, maybe a former Examiner - and they would do amazing work - finding "spot on" references and preparing a search report that you could almost use verbatim.  But then word got around and they got flooded with work, and the higher-paying firms took precedence and the searcher would raise his price.  Inevitably, the would get too greedy - take on too much work - and produce superficial results.  You would pay for a 'half-day" or full-day search and get an hour's worth of work, at best.  Or, they would hire associates (sometimes high school students!) and you would get some pretty superficial work.

I tried hiring someone in-house and that was a disaster.  Since they were gone all-day at the Patent Office, they would take "side jobs" from other lawyers, and basically use me as a source of healthcare and a 401(k) plan.  They would do four or five "half-day" searches, two for me, and two or three for other attorneys.  And no, they weren't working 24-hour days - 8 hours, if that.

I learned the hard way that being an employer sucks.  Yes, people will take advantage of you - act shocked - it is part of human nature.  I hear all these stories about "nightmare employers" but few people bother to think about whether they are nightmare employees - people who do little work, steal from their employer, and then call in sick all the time.  Human nature works both ways.  And I learned that while we fear and loathe the "asshole boss" who is strict with us, we don't respect the "nice boss" and tend to take advantage of him.  And if you are a "nice boss" and the employees walk all over you, and you try to get strict with them, well, they hate you five times as much - and respect you even less.

It is a losing game.

So I struggled for a while with the search business - going back to "doing it myself" for a while, as the Patent database started appearing online.  Of course, "Prior Art" comprises more than published Patents - it can be any publication, such as a magazine article, book, scientific paper, or even a PhD Thesis (yes, they are published, so to speak).  But even doing online searches was time-consuming and took time away from my writing work, and as a result, I fell behind (at this point, I had gone back to having no employees at all).

So when I got an e-mail from an Indian company offering to do Prior Art searches, I was intrigued.  I had worked with a lot of Indian Engineers and knew the educational system over there was pretty decent and they were very skilled.  Well, that and they would work for cheap.  So I tried them and... about the same result.  Early on, amazing work.  Then, over time, they started phoning it in.  The quality of the work, outsourced versus domestic, was about the same, and the prices started edging up to where it was sort of a wash.

I tried the same thing with Patent drawings.  You need a draftsman to prepare nice drawings for publication.  In the old days, these were pencil drawings that were "inked" and the Patent Office actually prepared the drawings for you.  But eventually it became the applicant's responsibility to prepare the drawings, and you had to hire a draftsman to prepare them. And like with the searches, eventually this was done with computers - CAD systems replacing ink-and-pencil.  But the drawings still had to be correct and accurate.

Again, I hired someone locally and initially they did great work.  But over time they started doing other, more profitable, graphic work and the Patent drawings were pushed to the back-burner.  And mistakes started cropping up - the wrong reference numerals appearing in the wrong areas.  Typos and misspellings of labels - that sort of thing.  Easy to fix, but for some reason  my draftsman though it was "unreasonable" to make the corrections, even as the Examiner required them.  Sometimes I would go around three or four times with the draftsman, trying to correct a simple label text, and each time, they would fix one problem but not the others, or create new problems.

So again, my Indian friends to the rescue.  They could do Patent drawings too!  Well, they farmed it out to some other firm, I think.  And again, initially they did a great job, but over time, the quality started to degrade.  Particularly with Design Patents - where the drawings are the Patent Application - they were kind of sloppy with details.  And in Design Patents, this can be fatal to your Patent Application.  Same old shit, different day.

Over time, they started asking me if I wanted to outsource even more work to them - the drafting of Patent Applications and responses to Office Actions, even!  And I am sure some crooked "invention broker" attorneys probably used these services, too.  But by that time, I had one foot out the door and was ready to retire.  I wasn't about to outsource myself!

Outsourcing presents a lot of difficulties.  You have to pay your people overseas, and this means you have to wire money or send via some other means.  One of my outsourcing sources set up a bank account with Chase, in America, so I could send money to their account directly, without having to resort to time-consuming wire transfers.  It also means they are 12 hours offset in terms of time zones.  So when you e-mail them during the day, they don't see it until that night, and you don't get a response until the next day.  There are language barriers as well.  And of course, if you are sending client confidential information overseas, well, who's to prevent them from using this to file their own Patent Application?

All these problems that I had in a microcosm are present even for large companies.  Apple or Intel sends out production to China, and the Chinese say, "thanks for teaching us all this great technology!  We'll make our own phones and microchips as well!"  You get technology leakage as well as all the other problems.

What did I learn from all of this?  Not much, it seems.  I learned that you have to "go big or go home" - the larger firms with deeper pockets scooped up the better searchers, the better draftsmen, the better associates, the better clients.  You had to expand your business to keep up.  A friend of mine tried that, and it nearly killed him - quite literally of a heart attack.  He ended up merging his practice with one of those big nationwide firms that had the infrastructure and covered the overhead, so he could concentrate on expanding his practice, instead of worrying about the light bill.   Even the "big firms" I started out with ended up merging with larger firms.  It is sort of a disturbing trend these days - running a small business is very hard to do.  The local "diner" in my home town went out of business - replaced by a McDonald's located at the edge of town.  Go big or go home.

And I didn't want to go big, so I literally went home.  .And I have no regrets about that.

I read online from people complaining about their bosses, and one common theme is that small businesses can be the worst places to work - the pay is lowest and the bosses are "assholes".  I think this is because the small business owner has bet ever last dollar he has - and borrowed quite a few more - to start the business, and in some cases (such as my lawyer friend) is making less money that his employees.  If they can keep growing the business, maybe eventually it will pay off.  But if not, they lose it all.  And unlike the big chain company who has offices across the street, they don't get the volume discount when they buy various supplies and materials.  They don't have an "accounting department" to handle all the bills and payroll.  At best they hire ADP (who charges a fortune) or at worst, stay up all night balancing the books.  The little guy can't win - or at least it is damn hard to do.

That's why the smarter ones sell out.  The five guys who started Five Guys sold out to a big corporate chain.  Why?  Well, if they didn't odds are the chain would just come up with something similar and then run them out of business.  Take the millions and retire.  We visited a microbrewery in the Shenandoahs, that sold out to a major beermaker (Anheuser-Bush, I think) and they got a lot of push-back from the other micro-brewers in the region.  "You sold out to the man!" they said.  But as one of the owners noted, it was either that or go to the bank and borrow another $5 million to expand, with the possibility of losing it all.  Giving up 80-hour weeks and cashing in those big Budweiser checks seemed like a no-brainer.  And as he put it,"Isn't this why we're doing it?  For an eventual payoff?"  I suspect the folks complaining were just jealous they weren't offered a deal.

But I digress.

So why do companies outsource jobs overseas?  Well, in most cases, historically, the costs were so much lower that it offset the problems with quality, shipping, communications, language barriers, and currency exchange rates.  It was not without hiccups.  While China today is the largest car market (and probably the largest car-maker) on the planet, in the early days, it was rough going.  Read the book, "Beijing Jeep" sometime - it is hard to believe they are talking about the same China.  But as foreign companies flocked to these "cheap" overseas sources, the local labor rates started going up, so the advantage of outsourcing is slowly evaporating.  With the high cost of shipping, it may have evaporated already, in many cases.  Throw in some political instability and it may go away entirely.

With today's "supply chain" shortages (read: "Let's raise prices and blame the pandemic!") outsourcing is starting to look like a really bad idea.  Ford motor company recently announced plans to build their own chip factory, so they won't be dependent on China for controller chips (and competing with computer, phone, game console, server makers as well as crypto farms for supply).  It could become a new renaissance for American manufacturing.  As I noted in a posting a few years ago, before the pandemic, American manufacturing was poised to outgrow China once again, by 2022 or so - today.  Maybe this will happen.

Meanwhile, when I call the "help desk" for information, I get someone from India who barely speaks English and not without a thick accent.  Maybe outsourcing the help desk was a good idea back in the day when Indian Engineers were out of work and highly skilled. Lately, it seems they are scraping the bottom of the barrel and there really is no point in calling anymore.  Maybe that was the point - to get Americans weaned off 1-800 help desk calls.

The great outsourcing of the 1980's might be coming to an end.  And this might be in part because wages have stagnated in the USA to the point where they are competitive with outsourced labor. We'll see.   But the countries we have outsourced to, well, they now have domestic industries as well as domestic consumer economies.  They might not need or want our outsourcing jobs anymore.

Well, at least China is acting like it doesn't!