“In the late 2000s, long-established and larger firms seemed to dominate the Australian patent and trademark profession. However, the last few years have seen smaller firms gain a foothold in the Australian market.”
A recent study by IP blogger Mark Summerfield discussed the winners and losers as far as Australian patent filings are concerned, and there is a clear indication that more businesses are engaging smaller independent boutique IP firms than ever before. In some cases, Australia’s largest publicly-traded firms have seen drops in the range of 5% to 10% over previous years, while smaller firms have seen increased filing numbers. In this article, we look at some of the reasons for the change of filing patterns in Australia.
Lack of Choice: Amalgamation and Public Trading of Australia’s Largest Firms
It is no secret that that the last few years have seen a seismic shift in the business landscape of patent attorney firms, and this changing landscape appears to be the biggest contributor to the evolving preferences.
IPH Limited (ASX:IPH) listed on the stock exchange more than five years ago in late 2014 and has since acquired many patent attorney firms, including:
- Spruson and Ferguson
- Fisher Adams Kelly (merged with Spruson & Ferguson in 2018)
- Callinans (merged with Spruson & Ferguson in 2018)
- Cullens (merged with Spruson & Ferguson in 2018)
- AJ Park
- Griffith Hack
- Shelston IP
- Watermark (merged with Griffith Hack in May 2020)
- Baldwins (merging with AJ Park later in 2020)
After the listing of IPH Limited, another publicly traded company, Qantm IP Limited, emerged in 2016 and acquired the well-known firms of Davies Collison and Cave and Freehills Patent Attorneys (rechristened as FPA). In 2020, Qantm IP also acquired Sydney-based firm Cotters.
As a result of the above acquisitions, the older boutique attorney firms no longer exist, or even if they appear to exist, they are effectively part of a much larger network of subsidiary companies.
Disappearance of Many Well-Known Boutique IP Firms in Australia
Boutique IP law firms of the past were typically small offices of 5 to 15 attorneys and usually didn’t have offices in every major Australasian city. Boutique firms also had a more specialized and narrow focus, confining their services to a given practice area or industry, and these firms were headed by highly experienced senior partners. With the spate of acquisitions in the Australasian market, many of these partners have sold their interest in these boutique firms and retired or moved on.
As an example, two Brisbane (Australia’s third largest city) based boutique firms, Fisher Adams Kelly (FAK) and Cullens, were acquired by IPH Limited in 2015 and 2016, respectively, and absorbed into Spruson and Ferguson. Similarly, another long-standing boutique firm, Watermark, was absorbed into Griffith Hack. A lack of choice of boutique firms coupled with loss of key staff members in the longstanding Australian firms means that that many small and medium sized businesses are turning to the new and emerging boutique firms, as Summerfield also observed.
So why are many businesses and foreign firms turning to new boutique patent attorney firms? The main reasons appear to be: the level of personalized service, ability to typically focus on one or two core areas, and ability to attract and retain top legal talent by providing equity ownership options. With a smaller client list, boutique IP firms can provide more individualized service. With the disappearance of many of the older boutique firms, the emerging boutique firms that are independently owned have seen a change in fortunes, with a greater number of patent filings.
Another advantage of independent boutique IP firms is their cost structure. Large, and especially publically traded firms, tend to derive profits from growing the scale of their businesses, catering to international markets and raising hourly rates. Of course, independent boutique firms do not have the same overhead costs (such as much more onerous reporting requirements). As a result, most boutique Australian IP firms charge 25% to 30% less for the same services compared to a larger publicly traded firm in Australia.
Moreover, while some of these publicly traded firms claim to have international presence, in most instances, the foreign operations for these firms outsource the work to a local firm. For example, the Chinese government does not allow a wholly owned foreign entity to operate as a patent attorney firm. As a result, a number of the publicly traded Australian firms that claim to have a Chinese presence engage a local Chinese firm to carry out the work. There are similar examples for other Asian jurisdictions, and in most instances, clients have to pay a lot more for double handling of their patent matters. It is not surprising that many clients who were previously working with Australia’s larger firms are reconsidering their options and turning to the smaller boutique Australian firms.
In today’s economy, most boutique firms are subject to less staff turnover and are more careful than larger firms. The larger listed firms have scaled back on personnel in recent years, generally carry more debt than smaller firms, and are not able to adapt to clients’ needs as readily as boutique practices. Moreover, the listed firms must shoulder pressure from external shareholders to demonstrate high profits in every quarter instead of focusing on long term strategy. On the other hand, boutique firms serving a small, loyal client base can offer more consistency in their representation. More senior attorneys, who are often equity owners of the firm, can serve a particular client in a boutique firm and are able to stick with a case or issue over the long term and develop meaningful working relationships with clients. Lack of ownership options for senior attorneys in publicly traded attorney firms has resulted in these firms each becoming a revolving-door workplace, which eventually results in a lack of continuity and consistency for long term clients of these firms.
Movements of Patent Attorneys Between Firms
With so many acquisitions and changes, one might expect that instability might breed restlessness among professionals at the larger firms. Suddenly, the perceived prestige and security associated with long-established firms has faded, causing many to move on.
Once again, it is not just the disappearance of longstanding firms that is the only issue. In most instances, the key personnel who used to be shareholders in these firms have also left. Five years ago, IPH Limited published a prospectus in which they had listed 21 “key people,” of which only five are still working with Spruson and Ferguson. Going back to the example of Cullens and Fisher Adams Kelly, these two firms lost nine out of their original 14 partners. Another case in point is the boutique firm of Pizzeys, which has lost seven out of their 11 partners. While both Cullens and Fisher Adams Kelly have now been absorbed into the much larger firm of Spruson & Ferguson to manage the loss of people, other firms like Pizzeys are scrambling to replace well experienced attorneys with little success. It is not uncommon to hear the term “sticky clients” being thrown around at shareholder meetings for Australia’s publicly traded firms and it is not wrong to argue that the business of a good law firm relies on good systems and brand recognition, which should inherently lead to “sticky clients” or long term clients. However, losing close to 75% of your key personnel in a handful of years does impact the way in which some of these “sticky clients” would view the firm, and movement of attorneys in most instances results in movement of their clients.
In the Australian landscape, many equity partners sold their interests in their former firms to publicly traded companies and effectively deprived younger attorneys of the equity goal, which initially led to exodus of the younger ambitious attorneys in looking for greener pastures.
Two recent surveys have confirmed that the number of patent attorneys employed in the publicly listed firms owned by IPH Limited and Qantm Limited has fallen by over 10% since January 2018, and observations in another survey indicate that most of the movement has been from the listed firms to smaller private firms.
This movement of attorneys also seems to coincide with more original drafting and filing work moving away from the publicly listed Australian firms. Some of the publicly traded firms have experienced a steady and consistent drop in patent filings, as discussed in another survey. Can we expect this drop to accelerate in the coming years in light of the movement of senior and experienced attorneys from the publicly traded firms?
An eminent senior patent attorney who recently left one of Australia’s most well-known boutique patent attorney firms acquired by IPH limited commented that there have been two distinct waves of movement of Australian attorneys in the last four to five years. The first wave of attorneys to move were the ambitious associates in the firms which went public and these associates moved on to find favourable circumstances where they would have better opportunities to obtain equity in private firms. This writer was one of these attorneys who left a former firm a few days before the announcement of its acquisition.
The second wave, which commenced a couple of years ago, has seen an exodus of equity partners, including a number of former equity partners of the firms which were listed. Their motivation is largely to return to a world of professional autonomy after having served their service agreement, which required them to remain employed with the publicly listed firm for varying periods between two and three years. One of the consequences that avid observers of the profession will have noticed is that a number of partners who have sold their interest in a firm have subsequently retired or moved on. There is an argument that this is a tragic loss of expertise and experience and there is obviously some merit to that argument but, on balance, I consider the exit of the more senior partners and attorneys to be positive. Expertise and experience are one thing, but taking away major career progression opportunities from less experienced colleagues is another. The “next generation” of attorneys are hungry and should be given the opportunity to grow their business and take it from strength to strength. Many of the more senior partners have now started leaving the publicly listed firms to start their own firms (for example, RNBIP, Davis IP) or joined much smaller privately owned practices. This could be why even more clients have started moving away from the publicly traded firms, and we might expect the trend to continue in the coming years.
Perceived Conflict Issues
There is also some confusion around the relationship between some of the commonly owned firms. IPH Limited acquired nine Australian patent attorney firms in the last five years has merged some of the smaller boutique firms with other larger firms. By doing so, choice in IP service providers has effectively been reduced, which has obviously helped Australia’s micro-firms and some of the newer firms grow their market share. For clients looking to choose patent attorney services it must be difficult for them to understand how the attorneys at the “absorbed” firms are managing conflicts of interest, i.e., what if they are acting for a client’s competitor? Also, it must be challenging for prospective clients to determine how service offerings from commonly owned firms are different, particularly since all of these firms are undergoing operational integration to improve profitability.
By all accounts, the listed firms are trying to comply with the requirements and obligations (imposed by Australia’s regulatory body, the Trans-Tasman Patent Attorney Board) to be deemed sufficiently independent. However, optics are an important issue and the concept of multiple rival law firms being commonly owned by a publicly traded company is relatively new territory. The concept of a number of companies being owned by a larger holding company is well known, but it is unclear how different patent attorney firms owned by the same parent company can offer competition or differentiation in terms of service.
Looking to the Future
A lack of choice in the Australian market, combined with the movement of experienced patent attorneys and perceived conflict issues, have influenced how clients select Australian patent attorney firms. In some ways, the Australian profession is undergoing a significant reordering, and it will be interesting to see what the market will look like in 2021 and beyond.
UPDATE: IPH provided the following statement on this article to IPWatchdog on July 24:
This article makes a number of statements about Australian publicly owned IP firms and businesses within the IPH group which in our opinion are incorrect, misleading and/or made without any supporting evidence. While IPH welcomes healthy debate, these claims are without basis and only serve to undermine the IP profession as a whole. The IPH group employs highly qualified and experienced IP professionals across the Asia-Pacific region who are committed to providing their clients with quality IP services.
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