Australian SMEs Show a Growing Preference for Smaller Patent Attorney Firms

Back in February, I published data which indicated that Australian patent attorney firms within listed groups, and perhaps larger firms in general, appear to have been losing share in the market for Australian patent applications filings to smaller, privately-held firms.  In this article I will take a closer look at this trend, by focusing specifically on filings by Australian-resident applicants, breaking firm size and corporate structure down into more precise groups, and looking at the behaviour of small and medium sized enterprises (SMEs) in particular. 

When it comes to preparing and filing original patent applications for new inventions, Australian SMEs collectively are patent attorneys’ most significant clients, by far.  In 2017, SMEs filed as many original patent applications with the assistance of patent attorneys as all other categories of Australian applicants combined.  They are also the only category of Australian applicants that actually generated an increase in the number of original patent applications filed over the decade spanning 2008 to 2017.

In recent years, however, this important category of patent applicants has been exhibiting some clear trends in choice of patent attorney service providers.  In particular, as I will show in this article, Australian SMEs are increasingly choosing smaller service providers over larger ones and, since local attorney firms began to be owned by publicly-listed companies, privately-held firms over those within the listed groups.

Data Sources and Content

The application data presented below is based upon the 2018 release of IP Australia’s Intellectual Property Government Open Data (IPGOD).  This dataset includes filings up to the end of 2017, i.e. it does not cover 2018 or 2019 filings.  However, it has the advantage over other currently available data sources of including information about the size and nature of Australian applicants, i.e. whether they are private individuals, SMEs, large corporations, or universities and other research institutes.

Data on patent attorney firm sizes and corporate structure is based upon an extract from the Register maintained by the Trans-Tasman IP Attorneys Board, as at early January 2018.  This data identifies the firms in operation at that time, and the number of registered attorneys working within each firm.  It also corresponds substantially with the IPGOD data at the end of 2017.  However, it should be kept in mind that, due to staff movements, firm sizes may have been different at earlier filing dates.  Additionally, due to incorporation, listing, and acquisition dates, all ‘listed group’ firms were still privately held for a majority of the period covered by the results.

The applications that I am interested in are those that:

1. were filed with the assistance and advice of a registered patent attorney;
2. have at least one Australian applicant; and
3. make no earlier claim to priority (i.e. are ‘original’ applications, including provisional filings)

The first criterion above is typically satisfied if the ‘address for service’ on the application (as at the nominal IPGOD data extraction date of 31 December 2017) is an individual registered attorney, or a firm that employs one or more registered attorneys.  (While applicants do sometimes switch attorneys, or engage an attorney after filing, these are relatively rare events in the overall scheme of things, and the IPGOD data does not, in any case, enable them to be tracked.)

With regard to the third criterion, ‘original’ applications (often, though not exclusively, provisional applications) generally represent new inventions for which the patent attorney provides patentability advice and drafting services, and are potentially the first step in development of a larger patent family by the applicant.  Any subsequent applications that claim priority back to these original filings most commonly remain with the same attorney firm, and do not generally reflect new inventive activity or entry to the patent system.  They are therefore not included in the present analysis (even though they may be of interest for other purposes).

Patent Filings by Australian Applicants

The chart below shows the total number of original patent applications filed by all Australian-resident applicants, using the services of patent attorneys, annually from 2008 to 2017.  A slight recovery in numbers between 2013 and 2015 notwithstanding, filings generally declined by just over 12% during this decade.
The next chart shows the same data, but now broken down into filings by individual applicants, SMEs, universities and other research institutes, and large corporations.  The data indicates that the main contributors to the overall decline in filings were individual applicants and large corporations, with university and research institute filings remaining relatively stable.  SMEs, however, have increased their collective contribution over the decade, despite a slight decline in 2016 and 2017.
A decline in demand for patentability advice, drafting, and initial filing services is, of course, not good news for patent attorneys!  However, not all firms have been equally affected by this decline.  In particular, there have clearly been opportunities for firms providing such services to SMEs, given that this segment of the market actually grew between 2008 and 2017, and that it is, collectively, the largest segment by a substantial margin.

Trends by Firm Size

The chart below shows the market share, in terms of the percentage of original applications filed on behalf of Australian SMEs, broken down according to the number of registered patent attorneys working at a firm.  I have defined four categories of firms: ‘micro’, being 1-3 attorneys (and thus including solo practitioners); ‘small’, being 4-9 attorneys; ‘medium’, being 10-24 attorneys; and ‘large’, being greater than 24 attorneys.  The chart also shows the total number of original SME filings (on the right-hand axis) as an indication of the size of the market that is being divided up.
There is a clear trend over the period shown for SMEs increasingly to choose the services of smaller attorney firms.  The share of this work has declined in larger firms, and grown in smaller firms – the larger the firm, the greater the fall, while the smaller the firm, the larger the rise.  To some extent, the share of work is influenced by the number of attorneys actually working in firms within the different size categories: in January 2018, 41% of all trans-Tasman registered patent attorneys worked in ‘large’ firms, while 16% worked in ‘medium’ firms, 13% in ‘small’ firms, and 30% in ‘micro’ firms.  Even so, by 2017 ‘micro’ firms had a larger share of SME original filing work than ‘large’ firms, despite representing a smaller cohort of attorneys.  And while ‘medium’ firms actually handle more of this work per attorney than either ‘small’ or ‘large’ firms, they have nonetheless been losing market share to smaller firms.

Trends by Firm Ownership Structure

Finally, the following chart shows market share broken down according to firm ownership structure, and a coarser measure of size in the case of privately-held firms.  This data demonstrates that firms that are now members of one of the three publicly-listed groups – IPH Limited (ASX:IPH) (listed 19 November 2014), Xenith IP Group Limited (ASX:XIP) (listed 20 November 2015), and QANTM IP Limited (ASX:QIP) (listed 31 August 2016) – lost a significant share of SME original filing work between 2008 and 2017.  This is largely explained by the fact that many (though not all) of these firms fall into the ‘large’ category, given that the listings did not begin until the end of 2014.  However, it seems that the decline accelerated after 2015 – although just two years of data may not be sufficient to draw any firm conclusions here.  In any event, the main beneficiaries of the decline in listed-group market share are ‘micro’ and ‘small’ privately-held firms with fewer than 10 patent attorneys.  ‘Medium’ and ‘large’ privately-held firms have collectively maintained a fairly static share of the market.

Conclusion – the Trend Among SMEs is for ‘Small’ and ‘Private’

Overall it seems that, for at least the past decade, Australian SMEs have been showing an increasing preference for smaller firms of patent attorneys when seeking to protect their new inventions.  Furthermore, since the recent public listings and consolidation in the profession, there are also signs that SMEs prefer privately-held firms over firms in publicly-listed groups.

I do not intend to speculate in this article about the reasons for – and potential consequences of – these trends.  However, the data seems clear and consistent enough, and should give Australian patent attorneys, and their clients, something to think about.

Tags: Australia, IPGOD, Patent attorney profession