31 May 2022

Privately-Held Attorney Firms Have Built Filing Share Over the Past Decade, Thanks Largely to IPH!

Building While some doomsayers predicted that the rise of publicly listed groups of patent attorney firms would lead to terrible problems, including a reduction of competition, in the Australasian market for IP services, the sky has yet to actually fall.  After a few years of upheaval in the profession, two listed holding companies – IPH Limited (ASX:IPH) and QANTM IP Limited (ASX:QIP) – have established themselves, while the number of mid-sized firms has fallen slightly, as a result of acquisitions and mergers within the listed groups. 

Despite this, however, there is no evidence of any lessening of competition.  On the contrary, patent filing data shows that IPH’s strategies, in particular, have resulted in an increase in the share of new applications being handled by non-IPH, independent, firms.  Indeed, in the present financial year, a greater proportion of Australian patent applications have been filed by smaller independent firms than was the case a decade ago.

How has this happened?  Based on the data, I speculate that IPH’s strategies of acquisitions and mergers have resulted in its stable of firms becoming generally smaller – in the sense that they now collectively employ fewer attorneys than before acquisition – but also more efficient.  They can therefore be more profitable, despite attracting a smaller share of new filings.  Meanwhile, many of the attorneys who have left the IPH group firms have rejoined the independent sector, either as employees of established firms, or in a number of cases by establishing their own new firms.  The net effect is that IPH’s overall share of filings has risen – although by less than would have been the case if the firms it acquired had maintained their own individual shares – while the share of filings going to new and established firms in the independent sector has also risen.

As a result, rather than lessening competition, the rise of the listed groups may have strengthened the viability of many existing independent firms, while also contributing to the successful formation of a number of new independent firms.  It seems counter-intuitive, but that is what the data tells us is happening.  Of course, these gains have not come from nowhere, and it is probably fair to say that the ‘losers’ have been the firms, such as Fisher Adams Kelly, Callinans, Cullens, Watermark, Baldwins, and Shelston IP, that have been acquired and ‘integrated’ out of existence.

In this article, I will present the data that underlies my speculation.  In particular, I have analysed the share of Australian standard patent application filings by firms over the past decade (i.e. since before the public listings), to evaluate the relative performance of firms that are now incorporated into the listed groups, before and after acquisition, as against that of independent firms and attorneys.  You can decide for yourself whether you agree with my conclusions.  I would welcome any thoughts, in agreement or otherwise, in the comments.

Important Notes on the Data

It is impossible (for me, at least) to capture past filing performance of individual firms with complete accuracy.  IP Australia does not maintain readily-accessible records of changes of agent.  A ‘snapshot’ of the firms currently responsible for applications and patents can be obtained from time-to-time, most notably upon the release of the IP Government Open Data (IPGOD) dataset each year.  However, this does not provide any information about firms that might previously have handled, or that originally filed, each application.

The earliest source used in my dataset is the 2019 IPGOD release, which reflects the agents of record in early 2019.  At that time, the firms of Fisher Adams Kelly Callinans and Cullens had already been integrated into Spruson & Ferguson, and the Patent Office records updated en masse to reflect this.  There is, therefore, no record of any applications filed by these firms in my data, as they are all attributed to Spruson & Ferguson.  On the other hand, applications still handled in early 2019 by Watermark and Baldwins – which have since been integrated into Griffith Hack and AJ Park respectively – are captured in this data.

The next major capture point in my data is early 2021.  By this time, records of applications originally filed by Watermark and Baldwins had been updated, and all of these filings from early 2019 onwards are attributed to Griffith Hack and AJ Park.  On the other hand, applications still handled by Shelston IP, prior to its integration into Spruson & Ferguson in late 2021, are captured in this data.

Finally, transfers of responsibility for applications can occur at any time, for a variety of reasons.  Generally speaking, the rate of such transfers is low, and tends to equalise among firms – I have previously published data indicating that only about 1% of active cases are transferred in a typical year, and that there is no strong bias in the direction of transfer of applications between firms.

Overall, then, while I have endeavoured to capture agents as close to the time of original filing as possible, the shares of filings reported below should be regarded as indicative only.

IPH Shedding Share to Independent Firms

The chart below shows the total share of all new Australian standard patent filings from the 2012 financial year up until the present financial year, broken down according to the current grouping (i.e. IPH, QIP or INDependent) of the responsible agent.  (The financial year for most entities in Australia runs from 1 July to 30 June, and is conventionally identified by the calendar year in which it ends.)  I define ‘filing share’ as the number of applications filed by an organisation, divided by the total number of applications filed by all attorneys/firms, excluding applications that have been filed without the assistance of an external attorney (which I do not consider to form part of the available ‘market’).  The chart illustrates how the filing share of firms that are now part of each group has changed collectively during the period of listings, acquisitions, and mergers.

Standard patent application filing share of attorney firm groups

In 2012, the firms that now make up the IPH group collectively accounted for just over 50% of all new patent filings in Australia.  However, since the listing of IPH in the middle of the 2015 financial year, and subsequent acquisitions and mergers, this share has steadily declined and IPH firms now account for under 40% of new filings.  QANTM listed in FY2017, and the share of filings by the three firms now making up the QIP group (Davies Collison Cave, FPA Patent Attorneys and Cotters) has remained fairly steady since then.

Independent firms have been the big ‘winners’, with their collective share of patent filings rising from 31% in FY2015 (when IPH initially listed) to 46% over FY2022 to date.  Clearly, the vast majority of these gains have come at the ‘expense’ of firms within the IPH group.

Filing Share Among Firms in Listed Groups

The ‘transfer’ of filing share from IPH to independent attorneys and firms needs to be understood in context.  IPH has executed a relatively aggressive strategy of capital-raising, acquisitions and mergers.  While the collective share of filings by all firms now part of the IPH group may have fallen over time, IPH’s share of the market has grown with each acquisition.  In pursuing this strategy, its focus has presumably been on improving efficiency, productivity and profitability, rather than merely maximising its share of filings.

To further illustrate this point, the chart below shows (as far as possible, given the data limitations discussed above) the individual filing shares of all firms that are now part of the IPH group, either in their own right or as part of merged businesses.  The decline in filing share by flagship firm Spruson & Ferguson appears already to have commenced in FY2015, and cannot readily be attributed to public listing.  Griffith Hack and Watermark were both experiencing a declining share of filings by FY2015, and were therefore likely targets for acquisition (originally by Xenith IP, prior to its acquisition by IPH). 

Standard patent application filing share of IPH group firms

Attorneys have departed IPH firms following each acquisition, and in a number of cases have established their own new independent firms.  A share of new filings has flowed to these, and other, independent attorneys and firms, while the IPH firms have become leaner (and, through mergers, less numerous).  Whether IPH firms have lost the people that they would have ‘preferred’ to lose, or whether the outcome of running leaner businesses with a smaller share of filings was the result of a deliberate strategy, is not for me to say.  But with a market cap of A$1.72B, and its shares trading today at over twice the price at which it originally listed, I do not imagine that IPH is especially unhappy with how things are going.

By way of comparison, the following chart shows the individual filing shares of all firms that are now part of the QIP group.

Standard patent application filing share of QANTM group firms

A decline in the filing share of Davies Collison Cave between FY2013 and FY2015 appears to have been largely arrested since listing of the QANTM group, although it would be a stretch to claim that there is any evidence of these events being causally-related.  In any event, the stability of all of the QIP firms’ market share perhaps says something about the group’s more ‘steady as she goes’ approach to running these businesses, when compared with IPH’s more aggressive strategy.

Filing Share Among Independent Firms

The chart below shows the filing share since FY2012 of the five leading independent firms, as measured by their filing numbers in the 2021 calendar year, along with the combined share of all other independent attorneys and firms combined (labelled ‘OTHER’).

Standard patent application filing share of independent firms

Of the leading established firms, Madderns and Wrays made modest gains in filing share over the past decade, while FB Rice has achieved significant growth.  Of the major independents, only Phillips Ormonde Fitzpatrick has seen a decline in filing share.  None of this, however, appears to be obviously correlated with the public listings and firm acquisitions that commenced with IPH in FY2015.

On the other hand, the collective gains in filing share by smaller operations in the ‘other’ category began around FY2015-16, and have continued to outpace the gains of any of the major independent firms.  Indeed, this is clearly where the lion’s share of the IPH firms’ loss in filing share has gone.  The ‘other’ category includes 182 distinct attorneys/firms that have been responsible for filing patent applications over the period shown in the chart.  Of these, 139 have been active in filing during the current financial year.  A number of these are new businesses that have been established by former employees of firms in the listed groups, the most successful (in terms of filing share) being RnB IP, which entered the top five independent firms in 2021.  Even so, RnB’s share of filings in the current financial year to date is only 2.3%.  Remarkably, 21.8% of all new filings so far this financial year have been made by scores of small firms, micro firms, and solo practitioners, the majority of which have far less filing share than RnB IP.

Conclusion – Has IPH Helped Itself and Independent Firms?

One possible conclusion from the above data is that, perhaps counter-intuitively, the rise of publicly listed ownership groups, and the acquisitions and mergers of IP firms over the past decade has actually enhanced competition in the market for patent attorney services.

Back in FY2012, before patent attorney business were even permitted to incorporate, let alone become publicly-listed companies, around 70% of all standard patent applications filed in Australia were handled by the handful of firms that have since been acquired by the two remaining listed groups.  Now, that share is only 54%.  And while three of the four largest independent firms have made some gains in filing share, the bulk of the growth in the independent sector of the market has been in smaller firms, including a number that have only been founded since – and, arguably, because of – the rise of the listed group model. 

IPH, in particular, has implemented aggressive strategies that have seen it sacrifice the overall filing share of the firms that it has acquired in favour of smaller gains in filing share for the group as a whole, in combination with greater efficiency.  If its share market performance is anything to judge by, these strategies have been largely successful.  But it appears that they have benefitted attorneys in the independent sector of the market as well.


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