Publicly-Listed Firms Account for Half of the Australian Market for Patent Services

According to my analysis of patent data made available by IP Australia, nine firms of Patent and Trade Marks Attorneys now owned by the three Australian publicly-listed holding companies IPH Limited (ASX:IPH), Xenith IP Group Limited (ASX:XIP) and QANTM IP Limited (ASX:QIP) account for around 48% of patent services provided to Australian companies and individuals.  Furthermore, following its acquisition of Griffith Hack, Xenith now commands a leading market share at around 19%, with IPH and QANTM at around 15% and 14% respectively.

The top 20 Australian firms overall now collectively account for nearly 80% of all patent services provided to Australian clients.  The market is, however, more fragmented when it comes to ‘small entity’ clients (i.e. individuals and small businesses), with the top 20 firms in this segment handling about 75% of patent work.  For larger clients, the market is more highly-concentrated: the top 20 firms in this segment handle nearly 95% of patent work for non-‘small entity’ organisations.

Prior to the consolidation of the market resulting from the acquisition of firms by public companies, the top 20 ‘independent’ firms overall covered just under 75% of the market.  In the ‘small entity’ segment, the top 20 firms handled a little under 70% of patent work, whereas the figure was around 92% for patent services to larger organisations.

While all of this suggests that the recent spate of acquisitions has resulted in a reduction in competition for patent attorney services (as one would expect during consolidation in a market of any kind), it is important to keep in mind that the true position is more nuanced.  As I have explained previously, all of the firms acquired by IPH, Xenith and QANTM continue to operate independently and in competition with one another.  Each firm maintains its own client files and record-keeping systems.  Attorneys and other staff have no access to information held by the other firms within the commonly-owned group.  For most practical purposes, therefore, there has been no change in the competitive landscape for patent services in Australia.

However, the consolidation in the Australian market has been of sufficient concern for the Professional Standards Board for Patent and Trade Marks Attorneys to commission Professor Andrew Christie of the University of Melbourne to examine the issues and advise on whether any changes to the regulation of the profession are required in light of these developments.  It is therefore timely to look a little more closely at the extent of the effect of the changes within the Australian market for patent services.

The IPGOD Data Set

For my analysis, I used the Intellectual Property Government Open Data (IPGOD) 2016 data set, which is freely available from data.gov.au.  It is claimed that the IPGOD includes over 100 years of publicly-available data relating to IP rights administered by IP Australia and its predecessors, up to the end of 2015.  While this is technically true, in that there are records going back to 1904 within parts of the data set, the information becomes increasingly sparse the further back in time it gets, particularly prior to 1980.  For the current analysis, I am only using data from 2006 onwards, so this has no impact.

The thing that makes the IPGOD data set more interesting than the IP Australia records alone (e.g. in AusPat) is that the data relating to IP rights has been augmented by matching Australian applicants to information held by other authorities, including the Australian Tax Office (which maintains the Australian Business Register) and the corporate regulator, the Australian Securities and Investments Commission (ASIC).  Among other things, for Australian companies this has made it possible to identify whether patent applicants are small entities (defined as individuals, sole traders, and companies with fewer than 200 employees) or larger companies.

Data for Analysis

To perform my analysis, I extracted from the IPGOD data all patent information for Australian applicants corresponding with applications filed during the ten-year period between 1 January 2006 and 31 December 2015.  I excluded the relatively small number of self-filed applications, and matched the remaining records to the corresponding agent or attorney with responsibility for the application.  From this data I was able to generate statistics relating to the number of applications filed and/or prosecuted by all Australian agents over the selected ten-year period.  I consider this period, which provides a sample of over 64,000 applications, sufficient to capture the relative market share of at least the top 20 attorney firms as at the end of 2015, without being unduly influenced by historic changes.

This data represents a well-defined market, namely that of Australian innovators (individuals and companies) employing the services of Australian patent attorneys to assist and advise in the preparation, filing and prosecution (i.e. examination) of patent applications in Australia over the study period.  It says nothing about the extent to which these Australian applicants have been filing overseas (although it is very likely that foreign filings, accumulated at an attorney level, are roughly proportional to Australian filings).  It also says nothing about the market for foreign entities seeking to file applications in Australia.  Incoming foreign applications now make up around 90% of all Australian patent filings, however the nature of this market and the work conducted by Australian patent attorneys is generally very different from the local market.  Additionally, from a policy perspective the nature and quality of services provided to Australian clients is of substantial importance.

Limitations and Assumptions

There is a range of important patent-related services and advice that is not captured by the data I have used in my analysis.  In particular, it only reflects work conducted on behalf of innovators in pursuit of granted patent rights.  It does not encompass services provided to non-applicant parties, such as conducting patent oppositions, or other advice provided to parties on both sides of actual or prospective patent disputes or negotiations, including infringement and validity advice, licensing, sale or settlement agreements.

Clearly, also, patent-related data tells us nothing directly about other IP rights, i.e. trade marks, registered designs and plant breeder’s rights.

Broadly speaking, however, from experience I would expect the patent application statistics to be a rough proxy for all work conducted by most of the top attorney firms.  That is, if a firm has a large market share in patent filing work, it is likely that it would have a similarly large market share in other types of patent and IP work.  Nonetheless, at this stage I do not have the numbers to confirm or refute this hypothesis.

I have assumed in my analysis that the IPGOD data set is sufficiently reliable and complete.  In working intensively with the data over a few days, I have certainly noticed some omissions and inconsistencies, but these appear to affect only a small minority of records.  Where possible, I have endeavoured to correct and reconcile these entries.  Nonetheless, if any representatives of firms named in this article take issue with the numbers, that will be down to the source data, not me!  By all means let me know, however, because there could be an opportunity to provide feedback to improve the next release of IPGOD data, due around April.

The agents associated with individual applications and patents represent a snapshot in time, when the data was captured.  The IPGOD data set does not record changes in agent, and it is therefore not possible to identify cases in which, for example, an attorney other than the one on record at 31 December 2015 may have originally prepared and filed an application.  Furthermore, while the IPGOD data does include assignment information, I have not attempted to identify any changes in ownership during the lifetime of each case.  I do not believe that these simplifications significantly affect the overall results.

In calculating market share I have counted all provisional, national standard, PCT national phase entries and innovation patent filings.  Some of these applications will be related to each other (e.g. one or more provisional applications may form the basis for a priority claim in one or more subsequent national or PCT filings).  However, the IPGOD data set does not record these linkages and it is therefore difficult to account for them reliably.  However, I have calculated separate results for the different application types, and they show only relatively small variations in the resulting estimates of market share.  The distinction between ‘small entity’ and ‘large entity’ applicants is far more significant, as the results below will demonstrate.

Finally, in calculating market shares of the three publicly-owned groups I have assumed that the acquisitions have had no impact on the market share of each individual firm, i.e. the market share of a group is simply the sum of the market shares of the firms making up the group.  This means that consolidation is assumed to have no impact on individual firm market share (whether a firm is within a publicly-held group or not).  However, it does enable additional firms to enter the top 20 lists, and affects the total market share of the top listed firms.

Individual Firms’ Overall Market Share

The top 20 individual patent attorney firms, ranked by overall market share, not accounting for common ownership, are listed in the table below.  The two clear market leaders are Griffith Hack and Davies Collison Cave with over 10% market share each, and there is a drop of over 50% to third-placed Cullens.  There is a more gradual decline to Madderns at number 12, and then a further significant drop to Halfords IP at 13.  The remainder of the market is highly fragmented.  The top 20 firms account for just under 75% of all applications filed by Australians with attorney assistance.  There are, in fact, a total of 75 agents responsible for 100 or more applications over the ten-year period studies (i.e. averaging 10 or more applications per year).

Notably, Griffith Hack and Davies Collison Cave are now owned by Xenith IP and QANTM IP respectively, i.e. the two market leaders remain associated with distinct ownership groups.

Rank	Firm	Share (%)
1	Griffith Hack	12.7
2	Davies Collison Cave	11.0
3	Cullens	4.9
4	FB Rice	4.8
5	Spruson & Ferguson	4.8
6	Fisher Adams Kelly Callinans	4.7
7	Phillips Ormond Fitzpatrick	4.7
8	Wrays	4.5
9	FPA Patent Attorneys (Freehills)	3.3
10	Shelston IP	3.1
11	Watermark IP	3.1
12	Madderns	2.7
13	Halfords IP	1.4
14	Baxter IP	1.4
15	Fraser Old & Sohn	1.1
16	Adams Pluck	1.1
17	Tatlocks Chrysiliou IP	1.1
18	Ahearn Fox	1.1
19	Armour IP	1.1
20	IP Monitor	1.0
	Total	73.5

‘Consolidated’ Market Share

Notwithstanding that the common ownership arrangements maintain the independent operation of individual firms in the marketplace, the table below illustrates the effect of consolidation by grouping together the market share of commonly-held firms.  Specifically, Xenith IP includes Shelston IP (number 10 on the list above), Watermark (number 11) and Griffith Hack (number 1).  IPH includes Spruson & Ferguson (number 5), Fisher Adams Kelly Callinans (number 6), Pizzeys (number 28, and thus not shown above) and Cullens (number 3).  QANTM IP includes Davies Collison Cave (number 2) and FPA Patent Attorneys (number 9, formerly Freehills Patent Attorneys).

The three publicly-listed groups jointly cover 48.5% of the market.  However, consolidating these groupings creates room for five smaller firms to join the top 20, which still covers less than 80% of the total market.

Rank	Firm/Group	Share (%)
1	Xenith IP	19.0
2	IPH	15.2
3	QANTM IP	14.3
4	FB Rice	4.8
5	Phillips Ormond Fitzpatrick	4.7
6	Wrays	4.5
7	Madderns	2.7
8	Halfords IP	1.4
9	Baxter IP	1.4
10	Fraser Old & Sohn	1.1
11	Adams Pluck	1.1
12	Tatlocks Chrysiliou IP	1.1
13	Ahearn Fox	1.1
14	Armour IP	1.1
15	IP Monitor	1.0
16	Wallington Dummer	1.0
17	Sandercock Cowie	0.9
18	Lord & Company	0.9
19	Molins & Co	0.8
20	Peter Maxwell & Associates	0.7
	Total	78.5

‘Small Entity’ Market Share

The top 20 patent attorney firms, with consolidation, are listed in the table below, ranked by overall share of the Australian ‘small entity’ market segment.  While the three publicly-held groups obviously still dominate, by virtue of the fact that each comprises multiple individual firms, overall it appears that the market for smaller companies and individual inventors is more competitive and widely dispersed than for the totality of Australian applicants.  While IPH has a slightly higher share in this specific segment, both Xenith IP and QANTM IP have smaller shares than in the overall market.  Meanwhile, a larger number of the smaller firms have a market share of 1% or higher in the ‘small entity’ segment.

Rank	Firm/Group	Share (%)
1	IPH	15.8
2	Xenith IP	15.0
3	QANTM IP	12.7
4	Wrays	4.9
5	Phillips Ormond Fitzpatrick	4.0
6	FB Rice	3.9
7	Madderns	1.9
8	Baxter IP	1.8
9	Tatlocks Chrysiliou IP	1.5
10	Ahearn Fox	1.4
11	Armour IP	1.4
12	Fraser Old & Sohn	1.4
13	IP Monitor	1.4
14	Wallington Dummer	1.3
15	Sandercock Cowie	1.3
16	Adams Pluck	1.2
17	Lord & Company	1.0
18	Peter Maxwell & Associates	1.0
19	Michael Buck	0.9
20	Lesicar Murray Trento	0.9
	Total	74.5

‘Large Entity’ Market Share

Market share, with consolidation, for the ‘large entity’ segment (defined as all applicant organisations that are not classified as small entities) is listed in the table below.  Here, there is a clear concentration of the market within the firms making up the Xenith IP group (i.e. Shelston IP, Watermark and Griffith Hack), with a combined share of just over 30%.

Independent firms FB Rice, Phillips Ormond Fitzpatrick and Madderns, ranked at 4, 5, and 6, perform particularly well in this segment, significantly exceeding their overall share figures.  There is then a substantial drop to Wrays and Halfords IP at 7 and 8, and a further drop by more than 50% to Molins & Co in ninth position.  The top 20 firms (including consolidated groups) account for nearly 95% share of the ‘large entity’ segment.

It is not at all surprising, nor do I imagine that it is anything new, that large companies tend to engage the larger and better-known patent attorney firms to assist in the protection of their IP, and thus that there is greater concentration of this business at the top of the market.  And while Xenith IP, as a group, holds almost a one-third share in this market segment, Griffith Hack alone contributes 23% to this figure and was already hugely dominant in this segment (Davies Collision Cave is second, with about half Griffith Hack’s share) prior to its acquisition by Xenith IP.

Rank	Firm/Group	Share (%)
1	Xenith IP	30.4
2	QANTM IP	18.9
3	IPH	13.3
4	FB Rice	7.4
5	Phillips Ormond Fitzpatrick	6.6
6	Madderns	4.7
7	Wrays	3.3
8	Halfords IP	2.9
9	Molins & Co	1.3
10	Allens	0.9
11	Hodgkinson Mcinnes	0.8
12	Adams Pluck	0.8
13	McCarthy Port	0.5
14	Fraser Old & Sohn	0.5
15	Lord & Company	0.5
16	Smoorenburg	0.4
17	IP Gateway	0.4
18	Houlihan2	0.4
19	Ashurst Australia	0.3
20	Lesicar Maynard Andrews	0.3
	Total	94.4

Conclusion – Do We Have a Problem?

Looking at the above numbers, I do not see a significant problem arising, in terms of competition in the Australian marketplace for patent services, as a result of recent consolidation even if the commonly-owned firms are not regarded as independent service providers (which, as I have said, is not really an accurate characterisation).

Small businesses, in particular, have abundant choice of quality service providers with between 1% and 5% market share in the ‘small entity’ segment, in addition to the firms within the consolidated groups.  Larger companies tend to choose the larger and more reputable service providers in any case, and they still have ample choice between consolidated and independent firms at the top end of the market.

Concerns that the publicly-held firms may be more focussed on shareholder value, and may charge accordingly, therefore appear likely to be unfounded.  There is more than adequate competition to ensure that any price rises will need to be correlated with enhanced client service relative to the many alternative service providers.  Indeed, maintaining a focus on clients is not only an obligation under the Code of Conduct by which Australian Patent Attorneys are bound, it is essential business practice in such a competitive environment.

The remaining highly technical legal question is whether the ownership and management arrangements within the three publicly-held groups create unforeseen conflict-of-interest issues.  My understanding is that all three have obtained high-level legal advice that they do not, which doubtless they will present to Professor Christie when he comes knocking on behalf of the Professional Standards Board.  Attorneys within independent privately-held firms may have a different view – although even this is not without a strong element of commercial interest.  Ultimately, client perception may be a more significant factor than the risk of any actual legal conflict arising.

Tags: Australia, IPGOD, Patent analytics, Patent attorney profession