12 January 2021

While One IPH Firm Sues Former Partners, 20% of Patent Attorneys Jump Ship from Another

Moving boxesOn 14 December 2020, Pizzeys Patent and Trade Mark Attorneys – a firm in the stable owned by listed company IPH Limited (ASX:IPH) – filed suit in the Federal Court of Australia against former Pizzeys principals William Bennett and Martin Richardson, along with the new firm they have established, RnB IP (collectively ‘RnB’).  The lawsuit alleges that Bennett and Richardson lured lucrative US law firm clients away from Pizzeys, in breach of non-compete, non-dealing, and/or non-solicitation restraints that were included in their employment contracts subsequent to the acquisition of Pizzeys by IPH.

This lawsuit has been a long time coming, after Pizzeys was awarded preliminary discovery back in December 2019.  The documents required to be produced by William Bennett following that decision included communications with Martin Richardson, marketing plans, and communications with prospective clients, relating to the establishment of RnB IP.  I believe that discovery was provided early in 2020, and it is unclear why it has taken Pizzeys so long to decide to commence proceedings against RnB.  Perhaps they would blame the pandemic?

Meanwhile, elsewhere in the IPH group, there appears to have been a recent exodus of patent attorneys from Griffith Hack.  In December 2020, there were 48 patent attorneys recorded on the Register maintained by the Trans-Tasman IP Attorneys Board (TTIPAB) as being employed by Griffith Hack, but only 37 of these were still listed on the firm’s web site.  I am aware that at least one of these was a departure earlier in 2020, but my understanding is that most are recent resignations where staff are currently on ‘gardening leave’, or otherwise temporarily restrained from commencing new employment (and thus updating their registration details). 

These numbers represent a loss of about 20% of registered patent attorneys from Griffith Hack over a short period of time, suggesting a significant level of dissatisfaction among the firm’s professional staff.  Whether this dates back to life under the ownership of Xenith IP (which acquired Griffith Hack in 2017), or is a consequence of the more recent management of IPH (which acquired Xenith in 2019) is unclear.

Has RnB Lured Lucrative Business from Pizzeys?

The bulk of Pizzeys’ and RnB’s businesses is made up of so-called ‘agency work’, i.e. filing standard patent applications (including PCT national phase entries), primarily on behalf of foreign applicants.  Much of this work comes from overseas attorneys or agents arranging Australian filings on behalf of their own domestic clients.  Pizzeys focuses much of its effort on securing work from US-based agents – approximately 80% of applications filed by Pizzeys in 2020 named at least one US applicant, which is considerably above the odds, given that just 45% of all Australian standard patent applications last year named a US applicant.  It is these lucrative US law firm clients that Pizzeys is asserting RnB lured away.

One problem that Pizzeys faces in establishing any loss of business resulting from RnB’s activities is that, in my experience, most foreign agents do not have exclusive arrangements with any Australian (or New Zealand) attorneys, and many spread work around a number of firms.  This is particularly true of those that might be regarded as most ‘lucrative’, e.g. larger US-based law firms with a significant number of clients seeking to file in Australia.  The choice of Australian agents typically depends on a number of factors, of which an existing relationship with a particular attorney or firm is just one.  And while the patent attorney profession in Australia and New Zealand is relatively small, it is large enough to provide any foreign attorney with plenty of choice of service providers.

According to the TTIPAB Register, there are currently 762 patent attorneys working in 235 private practices (firms or solo) across Australia and New Zealand.  Nearly half (378) of these attorneys work in the 11 largest firms, which were collectively responsible for two-thirds of all Australian patent applications (of all types) filed by attorneys during 2020.  Four of those 11 firms are owned by IPH, two by QANTM IP Limited (ASX:QIP), while the other five are independent.  The remaining 224 practices accounting for the other half of private practitioners each comprise fewer than 10 patent attorneys, and were collectively responsible for the remaining one-third of applications filed last year.

It is true that Pizzeys has experienced a decline in market share since 2019 (i.e. the year that RnB commenced operations).  Its share of Australian standard patent applications fell from 7.5% to 7.3% between 2018 and 2019, and then further, to 6.2%, in 2020.  However, it is far from clear that RnB is responsible for these declines.  While it filed more than enough applications to account for a 0.2% loss in 2019, the number of additional applications filed by RnB in 2020 was insufficient to account for a further 1.1% drop.  Meanwhile – by way of comparison – Australia’s largest patent attorney practice, FB Rice, also experienced a 0.2% decline in share of standard filings in 2019, presumably unrelated to the entry of RnB, followed by a 1.3% increase in share (from 7.8% to 9.1%) in 2020.  Perhaps, then, Pizzeys should be blaming FB Rice for its declining market share?  I am kidding, of course, but this does serve to make the point that, in a market comprising 11 large(ish) practices and a couple of hundred smaller ones, no one competitor can be held responsible for any firm’s fortunes, good or bad.

The chart below shows monthly total standard patent application filings by Pizzeys and RnB between January 2019 (bearing in mind that RnB commenced operations in April of that year) and November 2020.  (I have excluded December, for which IP Australia’s data is currently incomplete, meaning that both firm’s filings for this month underestimate the true numbers.)  While there does seem to be a general downward trend in Pizzeys filings up until around the middle of 2020, there are also some significant month-to-month fluctuations, as well as an apparent recovery to pre-2019 levels over recent months.

Pizzeys and RnB monthly filings

Other than the general growth trend of RnB’s filings – which is inevitable, since it started from nothing in 2019 – there is no apparent correlation between its monthly numbers and those of Pizzeys.  Indeed, a simple linear regression analysis produces an R2 value of just 0.15.  A na├»ve interpretation of this result would be that RnB’s filing activity accounts for just 15% of the variation in Pizzeys filings.  However, this does not mean that RnB has acquired 15% of Pizzeys’ filing business, but merely that the two sets of numbers are correlated to this extent (i.e. correlation is not causation).  In other words, knowing RnB’s filing numbers alone would get you 15% of the way towards being able to predict Pizzeys’ filings over this period, which is not very useful at all, since the remaining 85% of variation could be anything!

In addition to these new filings since RnB commenced operations, I have identified a total of 213 pre-existing cases that have been transferred from Pizzeys to RnB IP.  To put this in perspective, as at the end of 2020, Pizzeys had over 5,200 pending patent applications and nearly 10,100 granted patents under its care.

Griffith Hack – A Case of Out with the Old, In with the New?

While Griffith Hack may be losing a fifth of its qualified patent attorneys, there is a silver lining to this seemingly dark cloud.

There are currently nine trainee patent attorneys listed on the firm’s web site.  Not only is this almost sufficient to replace the outgoing qualified attorneys, it represents an admirable commitment to the training and development of the next generation of practitioners – an activity that some critics have (without evidence) suggested may decline within listed-group firms, since it detracts from profitability in the short term. 

One potential benefit to Griffith Hack of this renewal (other than the injection of youthful energy and new thinking) is that aspiring attorneys now entering the profession in the current era of public listings and group ownership of firms are likely to be less concerned with traditional goals and measures of career success such as equity partnership.  They may therefore see new benefits and opportunities in the corporatised structures of these firms, and avoid the dissatisfaction that changes in the profession have created for some established practitioners.

Conclusion – Is RnB a Warning for Other Departing Attorneys?

If Pizzeys is to gain any benefit from suing RnB (other than the damage it may hope to inflict merely by virtue of dragging its smaller competitor through the Federal Court) it will need to establish three things:

  1. that Bennett and Richardson actually breached the terms of their employment contracts – the documents obtained through discovery should assist in this respect;
  2. that the restraint clauses of the employment contracts are valid and enforceable – as I have indicated previously, I have some doubts as to the reasonableness of the duration and scope (which covers not just clients of Pizzeys, but of all firms in the IPH group) of the non-dealing and non-solicitation restraints; and
  3. the quantum of economic damage suffered by Pizzeys as a result of any breach of valid terms of the employment contracts – which is likely to be limited, based on the data presented above, and the fact that the restraint periods have now expired, making any damage largely historical.

At the same time, Pizzeys – and, indeed, the entire IPH group – is exposing itself to some risk, in that if the dispute goes to trial, and court strikes out the extensive restraint clauses in Bennett’s and Richardson’s contracts, that could invalidate the equivalent provisions of employment contracts across all IPH firms.

Frankly, given all of this, I have some difficulty comprehending why Pizzeys is so intent on pursuing legal action.  One possibility is that it is simply a mechanism for IPH to attempt to crush RnB as an example to other current employees within the group who may have similar aspirations to leave and establish their own new practices.

Which brings us back around to the recent resignations from Griffith Hack.  I hear that some of the departing attorneys do indeed have plans to set up their own firm(s).  I wish them all the very best in their new endeavours, and hope that the terms of their employment contracts provide them with the freedom to continue to practise their profession, and to compete fairly with their former employer.

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