06 May 2020

Listed Group QANTM IP Acquires Sydney-Based Cotters Patent & Trade Mark Attorneys

GrowthOn 6 May 2020, ASX listed holding company QANTM IP Limited (ASX:QIP) announced that it has reached agreement to acquire the boutique Sydney-based IP firm Cotters Patent & Trade Mark Attorneys.  The purchase price is A$6.3 million, paid in a combination of initial and deferred instalments.  Cotters is a small firm that – according to the Register maintained by the Trans-Tasman IP Attorneys Board (TTIPAB) – currently comprises four registered patent attorneys and three registered trade marks attorneys.  It is responsible for 272 Australian patent applications filed on behalf of clients during 2019.  By way of comparison, to the extent that staff numbers and patent filings are any guide, when Watermark (now integrated into Griffith Hack) was acquired by Xenith IP Limited (now merged into IPH Limited) for approximately three times the price of Cotters, it had filed over five times the number of patent applications (1444) during the last full calendar year (2015) prior to the acquisition and employed around four times as many professional staff.

In the announcement, QANTM (and former Xenith IP) CEO Craig Dower is quoted as stating that:

The Cotters business is differentiated from our existing businesses in Australia – Davies Collison Cave and FPA Patent Attorneys – offering a fixed-price service model, and servicing a client base complementary to our existing practices. Cotters was founded just prior to the GFC, and survived and thrived through that difficult period. Cotters will be a positive addition to the QANTM Group.

Read the full announcement [PDF 405kB].  Read on below for a comparison of the patent filing profiles of Cotters, and the other two firms making up the QANTM Group, Davies Collison Cave (DCC) and FPA Patent Attorneys (FPA).

Annual Patent Filings

Cotters’ first full year of operation was 2008, which was – as Dower rightly notes – the height of the global financial crisis (GFC), and perhaps not the most opportune time to be trying to build a new business.  The chart below shows the total numbers of Australian patent applications filed each year by Cotters, from 2008 to 2019, broken down into provisional applications, innovation patent applications, and standard patent applications (including Australian national phase entries of international applications filed under the Patent Cooperation Treaty).

Cotters Annual Filings
The chart shows that Cotters’ patent business grew steadily from 2008 to 2014, and that in 2015 its filings jumped from less than 150 to over 250, primarily from a boost in standard application filings.  Further investigation reveals that much of this sudden growth resulted from a jump in filings handled by Cotters on behalf of Facebook.  Since 2015, filing numbers have fluctuated but remained at around 250 per annum.  Facebook no longer appears to be a significant client of Cotters (all Facebook filings in 2019 were handled by Wrays), with its two top-filing clients in 2019 being Alibaba Group Holding and Guangdong OPPO Mobile Telecommunications – both of which featured prominently among the top filers from last year.

For comparison with Cotters’ new QANTM Group stablemates, the charts below show the corresponding annual filing numbers for DCC and FPA over the same period.  Unsurprisingly, both of these larger firms file considerably more applications each year, although all three handle a similar mix of provisional and non-provisional filings.  Cotters and, to a lesser extent, FPA file proportionally more innovation patent applications than DCC, which is something to watch given that the innovation patent system is being phased out from August next year.

DCC Annual Filings
FPA Annual Filings

Origin of Clients/Applicants

The chart below compares the percentage of Australian patent applications (of all types) filed by DCC, FPA, and Cotters, over the five-year period from 2015 to 2019, broken down by the country of origin of the applicant/client.  Consistently with the overall statistics for Australian patent applications, the largest cohort of patent filing clients for all three firms come from the US.  The ‘European Top 5’ is made up of applicants from Germany, the UK, France, Switzerland, and Sweden.  In addition to applicants from Australia and New Zealand, the next most frequent countries-of-origin for Australian filings are China, Japan, South Korea and Canada.

Filings by Applicant Origin
DCC is notably the least dependent of the three firms on US-originating filings, having a substantial domestic practice, as well as solid business from Europe and Japan.  Half of Cotters’ filings over the past five years have come from the US, but it also has a significant domestic practice, and a greater proportion of its patent filings come from China (doubtless OPPO is a major contributor here) as well as from the general pool of less prevalent countries grouped under ‘other’.

Conclusion – a Good Deal … for Whom?

QANTM’s claim that Cotters’ client base is complementary to those of DCC and FPA may be true, if examined closely.  But from the bird’s-eye view provided by patent filing statistics it is not at all self-evident.  The mix of application types, and domestic versus foreign clients, across the three firms is not hugely dissimilar.  There is some variation in the countries of origin of foreign applicants, but the significance of this is not readily apparent.  And DCC and Cotters have one major client in common – the top applicant of 2019, OPPO, filed 145 of its 314 applications in 2019 through these two firms, so collectively they have nearly half of its Australian patent prosecution business.

Cotters appears to have some exposure on a couple of fronts.  Firstly, in recent years it has been highly dependent on a small number of applicants to maintain its patent filing rate.  A decline in business from Facebook has been compensated by a rise in applications by Alibaba and OPPO.  This might be a good sign, considering that China is by far the most rapidly growing source of new Australian patent filings.  On the other hand, neither of these companies files exclusively through any one firm in Australia, and both also use the services of firms within the IPH Group (among others). 

Secondly, a significant jump in innovation patent filings boosted Cotters’ numbers in 2019.  Without these filings, it would not have achieved any growth in applications over its 2018 total.  With the innovation patent system due to be phased out from next year, future growth will need to come from provisional and standard applications filings.

Given this exposure – particularly in these uncertain times – acquisition by QANTM looks like a fairly good deal for the Cotters equity-holders.  It is less clear what the benefit will be for QANTM.  Based on 2019 numbers, Cotters adds a little under 5% in additional patent filings to the QANTM Group, and one of Cotters’ largest clients, OPPO, is already also a DCC client.

Of course, there is much more to the Cotters business than can be measured merely by the number and distribution of patent applications filed.  There may be some gems among its smaller clients, and its success in attracting a notable – and growing – share of its business from China could be a positive sign of things to come.  And then there are other areas of practice, such as in trade marks and other forms of IP, as well as legal and advisory work, that patent data does not reveal at all.  Doubtless QANTM has done its due diligence, and believes it has made a good acquisition in Cotters.  As always, it will be interesting to see how things develop from here.


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