14 December 2019

Transformation of the Australian Patent Attorney Profession Turns Ugly with Firms Fighting in Federal Court

BoxingA dispute between the firm of Pizzeys Patent and Trade Mark Attorneys – owned by listed entity IPH Limited (ASX:IPH) – and a firm established by two former Pizzeys principals, has gained public exposure through a decision of Justice Jagot in the Federal Court of Australia: Pizzeys Patent and Trade Mark Attorneys Pty Limited v Bennett [2019] FCA 2084.  The court has determined that Pizzeys is entitled to an order for preliminary discovery, which will compel patent attorneys William Bennett and Martin Richardson, and their new firm RnB IP Pty Ltd, to produce a range of documents that Pizzeys hopes will enable it to determine whether Bennett and Richardson have breached terms of their contracts with, and other obligations to, their former employer, including ‘non-dealing’ and ‘non-solicitation’ restraints.

The basic facts underlying the dispute are straightforward, and uncontested.  As noted, both Bennett and Richardson were principals of Pizzeys, where Bennett was also the managing principal and a patent attorney director.  Both were employed under contracts of employment which included confidentiality and post-employment non-competition, non-solicitation and non-dealing provisions.  On 19 March 2018 and 1 April 2018 respectively, Bennett and Richardson resigned from Pizzeys.  It appears that both were subject to substantial notice periods, and did not actually leave Pizzeys officially until the end of September 2018.  They subsequently established RnB IP, which first filed Australian patent applications on behalf of clients in April 2019.  Additionally, at around the same time, Pizzeys began to receive requests from existing clients to transfer patent files to RnB IP.

According to Pizzeys (although I imagine that this is disputed, given the date at which RnB IP seems to have commenced operations) the non-compete restraint expired on 30 September 2019, while the non-dealing and non-solicitation restraints expire on 30 September 2020.  The non-dealing restraint bars Bennett and Richardson from ‘performing work or providing services of the kind performed or provided by Pizzeys to actual or prospective customers or clients of Pizzeys or the IPH Group with whom [they] had dealings in the period two years preceding the termination of employment’.  The non-solicitation restraint bars them from ‘soliciting or interfering with clients or customers of Pizzeys or the IPH Group.’

In addition to possible breach of these specific restraints, Pizzeys is also concerned that Bennett and Richardson may have breached obligations in relation to use of Pizzeys confidential information, obligations under the Corporations Act 2001, other contractual and equitable obligations, and that Bennett, Richardson and RnB IP may have engaged in an ‘unlawful conspiracy’ to engage in these various breaches.

After reading the court’s decision, I had a look at filing data for Pizzeys and the IPH Group over the past two years, and of RnB IP since it commenced operations.  Based on what I see, I would frankly be surprised if the additional competition from RnB IP is having a significant impact on Pizzeys’ business.  It has experienced no apparent downturn in filings since April 2019.  Almost all of the business in question comprises ‘agency work’, i.e. filing and prosecution of patent applications on behalf of foreign applicants, on instructions from patent attorney associate firms in other jurisdictions.  Most of these associates spread work around multiple Australian firms anyway based on a variety of considerations, including technical expertise, reciprocity, and personal (as distinct from firm-level) relationships.  Unsurprisingly, filings by RnB IP are dwarfed by those of the IPH Group as a whole, particularly following IPH’s acquisition of the former Xenith IP firms (Griffith Hack, Shelston IP, and Watermark) in August 2019.

Patent Filings – Pizzeys vs RnB IP

The chart below shows the number of patent applications filed on behalf of clients each month by both Pizzeys and RnB IP since January 2018. 
Filings - Pizzeys v RnB IP
Consistently with the facts set out in the Federal Court decision, the first month in which RnB IP filed any applications was April 2019.  Its practice has since grown modestly, and last month (November 2019) it filed 22 applications, for a total of 119 since commencing operations, up until the end of November.  The overwhelming majority (109) of these applications are Patent Cooperation Treaty (PCT) national phase filings made on behalf of foreign applicants.  Additionally, it appears that RnB IP has taken over responsibility for a further 102 pre-existing applications, 92 of which were transferred from Pizzeys, and 10 from seven other firms. 

Over the same period, i.e. between April and November 2019, Pizzeys filed 1466 applications (which is just 23 applications fewer than for the same period in 2018).  Indeed, it is clear from the chart above that since RnB IP commenced operations, Pizzeys’ monthly filings have been largely unaffected, within typical month-to-month variations.  Indeed, of only five months since January 2019 in which Pizzeys filed over 200 new applications, three have occurred during the period of RnB IP’s operation.

Furthermore, looking more closely at the filing data, it is far from clear that RnB IP’s new filing work is coming specifically at the expense of Pizzeys, or any other firm in the IPH group.  For example, the single applicant for which RnB IP has acted most frequently is the Saudi Arabian Oil Company, with 15 filings since April 2019.  Over the past two years, the only other Australian firm to have filed applications on behalf of this company has been Davies Collison Cave, a member of the QANTM IP Limited group (ASX:QIP).  Next on RnB IP’s top applicants list is Uber Technologies Inc (seven applications), for which Pizzeys has indeed filed 31 applications since January 2018.  Over this period, however, applications have also been filed for Uber Technologies by Spruson & Ferguson (IPH group, two applications), FPA Patent Attorneys (QANTM group, 19 applications), and FB Rice (independent, two applications).  So Pizzeys certainly does not have any exclusive hold on Australian filings by this applicant.

As a general rule, agency work – which forms the bulk of both Pizzeys’ and RnB IP’s businesses – does not arise from a direct relationship between any Australian patent attorney or firm and the applicant (i.e. the end client).  Most comes from foreign attorneys or agents that are the Australian firm’s ‘direct’ client, and it is this associate relationship that results in new filing and prosecution work.  The sources of work, i.e. the identities of the foreign associates, do not form part of the public record (although in some cases they may be traceable through records of corresponding patent applications in other jurisdictions).  This is presumably why Pizzeys is seeking discovery of documents in the possession of Bennett, Richardson, and RnB IP – this may be the only way it can determine exactly how the new firm has gone about acquiring work.

Patent Filings – the IPH Perspective

To provide further perspective on the above numbers, the chart below shows the RnB IP monthly filings in comparison to those of the entire IPH Group, along with the overall number of Australian patent applications filed using the services of agents (i.e. excluding self-filed applications) each month since January 2018. 
Filings - IPH v RnB IP
The large uptick in filings by the IPH Group commencing in August 2019 corresponds with IPH’s acquisition of the Xenith IP Group.  Last month (i.e. November 2019) firms in the IPH group were responsible nearly 40% of all Australian patent applications made using the services of patent attorneys or other agents!  It is also clear from this data that month-to-month fluctuations in Pizzeys’ filings are no more extreme than those experienced, over time, by the market as a whole.

Comment – Is This Really Worth the Effort for Pizzeys and IPH?

Of course, if Pizzeys believes that its former employees may be in breach of their contractual and other obligations, it is perfectly entitled to act on this belief.  And I understand that, as a publicly-listed entity with duties to its shareholders, IPH may feel obliged to aggressively enforce the Group’s purported rights against competitors.  However, looking at the data outlined above, I cannot help but wonder about the commercial sense of pursuing legal action.  Even if Bennett and Richardson are in breach of contract (which is far from apparent from the publicly-available data, hence the successful discovery application) the extent of any damage experienced by Pizzeys appears to be difficult to quantify, and is almost certainly relatively minor.  Assuming, for argument’s sake, that some of RnB IP’s work has been acquired via activities that might be viewed as contrary to Bennett and Richardson’s obligations to Pizzeys, it is unlikely that this would apply to all of its work.  Furthermore, the extent to which this work would have gone to Pizzeys in any event is unclear, and would be very difficult to establish.

In all likelihood, therefore, potential damages would be, at most, some fraction of the value of work acquired by RnB IP since April 2019.  And assuming that the date of expiry of the non-dealing and non-solicitation restraints is, as Pizzeys contends, 30 September 2020, there seems little prospect of obtaining a court order for specific performance within this timeframe, so damages would have to suffice. 

We can also speculate about the existence of a genuine dispute over whether the restraints on Bennett and Richardson are reasonable.  It would be one thing if their obligations related only to customers or clients of Pizzeys, but they extend to all firms in the IPH Group which, as I have noted above, now account for 40% of all Australian patent filing business.  The five firms in the IPH Group were all in the top-10 filers of 2018, and collectively have relationships with literally thousands of associate firms around the world, including most, if not all, of the largest sources of Australian agency work.  This is in the context of a relatively small profession, with only around 620 registered practitioners in Australia providing patent attorney services to clients.  Yet it is perhaps arguable that restrictions and obligations as extensive as those being prospectively asserted by IPH, through Pizzeys, have the potential effectively to prevent registered attorneys from practising their profession almost entirely for an extended period, exceeding that of a non-compete restraint.

There may also be a question of reputational damage to consider.  IPH is now a company with more than A$1.7 billion market capitalisation.  When it chooses to throw that weight around against two individual practitioners and their nascent firm – which does not appear to be having any significant impact on Pizzeys, or any of the other businesses in the IPH Group – then there is clearly a risk of coming off as a bully. 

Overall, it seems far from clear how much Pizzeys, or its parent IPH Limited, stand to gain on a cost/benefit basis by pursuing legal action against Bennett, Richardson, and RnB IP.  Hopefully, then, the dispute will settle quickly, on terms that allow everybody concerned to get on with business.


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