07 January 2024

The Major Australian Client at the Centre of David and Goliath Legal Battle Between Patent Attorney Firms

Breville invented the electric toasted sandwich maker in 1974As some readers may be aware (I have previously mentioned it only in passing) a firm in the IPH Limited (ASX:IPH) group – the market cap of which is A$1.56B at publication – is once again taking legal action against a recently-established firm and its founders, all of whom are former employees of Spruson & Ferguson (‘S&F’).  Earlier, IPH group firm Pizzeys had sued RnB IP and its two founders – formerly partners in Pizzeys at the  time of its acquisition by IPH – for alleged breach of non-compete, non-dealing, and/or non-solicitation restraints that were included in their employment contracts.  That dispute ultimately settled out of court and was finalised prior to trial, in September 2022, so we did not get the benefit of judicial consideration of whether the contractual restraints were reasonable and/or enforceable.

The startup firm on this occasion is GLMR, founded by Edward Genocchio (‘G’), Michelle Lee (‘L’), David Müller-Wiesner (‘M’) and Simon Reynolds (‘R’).  The firm was also, for a short period, known as LMW IP, which was established by ‘L’ and ‘M’ before they were joined by ‘G’ and ‘R’.  The action taken thus far against GLMR and its founders by S&F is an application to the Federal Court of Australia for preliminary discovery (case no. NSD6/2023), in which the GLMR parties are identified as prospective respondents in a potential future action.  This is the same strategy previously employed by Pizzeys against RnB IP.  In the RnB case, the preliminary application was contested, and resulted in a published decision of Justice Jagot ordering discovery.  In the present case, however, it appears that the parties have reached agreement on scope of discovery, with the corresponding orders made by a Registrar of the court (see orders made on 23 October 2023 [PDF, 135kB]).  While preliminary discovery was initially due by 29 November 2023, this has been extended by further orders to 5.00pm on 16 February 2024.

The discovery orders provide some insight into the nature of S&F’s prospective case against GLMR.  An impression of the impact that GLMR has had on S&F’s patent business can also be discerned from the public records of the Australian Patent Office.  In this article, I take a look at these two aspects of the matter.

What is Revealed by the Preliminary Discovery Orders?

The preliminary discovery orders cover documents relating to the establishment and funding of GLMR and its predecessor in name, LMW IP.  This includes any documents that may belong to S&F and/or have been created by any of the GLMR founders in the course of their employment by S&F, such as templates, precedents, marketing information, client lists, client communications, and information relating to fees and charges.  (Note that I am not suggesting that any such documents are actually in the possession of any of the GLMR parties, only that they are the subject of preliminary discovery orders.)

Interestingly, the orders make specific reference to communications and documents relating to two former clients of S&F in particular.  The first of those clients is Breville, which has long been a household name in kitchen appliances in Australia.  In 1974 Breville gave the world the electric sealed toasted sandwich (or ‘jaffle’) maker.  The company’s reputation has further grown worldwide in recent years, due in no small part to its range of high quality home espresso machines that compete internationally with more established European brands such as De’Longhi and Jura.  (If you do a search, you will find multiple online reviews that put Breville products at or near the top of their lists of ‘best home espresso machines’ in 2023.)  Innovation is central to Breville’s success, and it is one of the few Australian companies with a substantial patent portfolio both in its home market and overseas.  Breville is a major domestic client for any IP firm, small or large, that is fortunate – and talented – enough to win its business.

The second named client is Planet Protector Packaging (‘PPP’), which has developed wool-based thermal packaging (i.e. ‘cold-chain’) solutions for products including food and pharmaceuticals as a more environmentally-friendly (and, it is claimed, superior) alternative to materials such as polystyrene.  PPP has so far filed just seven provisional applications, three (published) PCT applications, and five complete patent applications in Australia, with the first in May 2018.  It has also filed four patent applications in New Zealand, and I would guess (though I have not checked) similar numbers in other jurisdictions that it sees as significant markets for its products.  But it is not, by any stretch of the imagination, a client on the same scale as Breville.  Perhaps S&F regards it as having major potential, or as a valuable client for other reasons.

The orders also impose additional discovery obligations on ‘G’, and communications relating to his involvement in the establishment of GLMR and LMW IP before it.  I infer from the orders that S&F believes, and is seeking to confirm via preliminary discovery, that LMW IP, while initially founded by ‘L’ and ‘M’ only, may have been supported by ‘G’, e.g. as some form of ‘silent partner’, at a time when he may still have been subject to non-compete restraints under his S&F employment contract.

My Position on the Dispute and on Non-Compete Agreements

Before presenting data on transfers and new filings, I want to emphasise a couple of points in the interests of clarity and full disclosure.

Firstly, this is all public information.  Everything I present below has been obtained from IP Australia’s AusPat online patent data search service.  It is also, for the most part, information that will be well-known to the parties involved in this dispute from their own records.  The data is what it is, and I have formed no firm view on whether it supports the position of either side in the dispute.  For this reason, I will also make no editorial comment on the data, and leave it up to you, the reader, to form your own opinion should you be so inclined.

Having said that, I admit that my sympathies lie (mostly) with GLMR, primarily as a matter of principle rather than personal affinity.  In my opinion, ‘non-compete’ clauses, and other contractual terms that restrain the freedom of former employees to engage in a lawful profession, trade or business – and which, by implication, limit competition and restrict the freedom of customers to choose their preferred suppliers – should be, with very few exceptions, null and void.  I would support the introduction in Australia of laws similar to those in California, which prohibits the enforcement of non-competes with only three limited exceptions: where an employee sells business goodwill; where a business owner sells their business interest; and where a business owner sells all operating and goodwill assets. 

As far as I can tell, California-style exceptions could plausibly apply only to ‘G’.  While all GLMR founders were formerly employees of S&F, only ‘G’ was a principal and equity holder at the time of IPH’s listing in November 2014, and thus a direct beneficiary of the listing and acquisition.  He would therefore have been subject to additional obligations and restraints when compared to ‘ordinary’ and subsequent employees of S&F, although whether these would, or should, continue to apply nearly seven years after the acquisition might be open to debate.  Nonetheless, this is presumably the reason for the additional discovery obligations relating to ‘G’s involvement in the establishment of GLMR.  One other GLMR founder (‘L’) was also employed at S&F in 2014, but only as a ‘Patent Engineer’, i.e. an unqualified trainee attorney.  The remaining two were only employed subsequent to IPH listing – ‘M’ as a trainee in 2016, and ‘R’ as a principal, coming across from Davies Collison Cave, in 2018.

Growth in Australian Patent Cases Managed by GLMR

The chart below shows, cumulatively (to the end of November 2023):

  1. the total number of active Australian patent cases transferred from Spruson & Fergusson (labelled ‘From S&F’) to GLMR (either directly or via LMW IP);
  2. the total number of active Australia patent cases transferred from other patent attorney forms (labelled ‘From Other’) to GLMR (again, either directly or via LMW IP); and
  3. the total number of new Australian patent applications filed by GLMR (labelled ‘Filings’).

By ‘active’ I mean cases that were live (i.e. not lapsed, expired, ceased or revoked) at the time of transfer.  No distinction is made in this data between different types of application or patent (i.e. provisional, innovation or standard).

Cumulative Growth in Australian Patent Cases Handled by GLMR

The large jump in cases transferred from Spruson & Fergusson to GLMR around April 2022 corresponds with Breville moving its portfolio of 197 active applications, comprising 170 standard patents and applications, 21 provisional applications, and six innovation patents.  Additionally, included with the ‘filings’ numbers are 36 new standard patent applications and 28 provisional applications since filed by GLMR on behalf of Breville.

Australian Patent Cases Transferred to GLMR From Other Firms

Spruson & Fergusson is not the only source of clients transferring matters to GLMR.  It is, however, by some margin the largest source.  The table below summarises the total number of active Australian patent cases transferred to GLMR from all other firms up until the end of November 2023.  Cases that were first transferred to LMW IP, and subsequently to GLMR are counted under the originating firm.  Note that LMW IP nonetheless also appears on this list, reflecting applications that were originally filed by LMW during its relatively brief existence, and thus did not have an earlier originating firm.  The category ‘other’ encompasses all other firms from which fewer than six cases were individually transferred.

Prior Agent Transferred

Clients Transferring Australian Patent Cases to GLMR

While Breville’s is the largest portfolio of Australian patent cases transferred from Spruson & Fergusson to GLMR, it is not the only applicant to have transferred a significant number of cases.  The table below summarises the total number of active cases transferred to GLMR (either directly or via LMW IP) from Spruson & Fergusson, up until the end of November 2023, broken down by applicant.  Here, the category ‘other’ encompasses all other applicants by which fewer than 10 cases were individually transferred.

Applicant Transferred
I.V.A.R. SPA 10

The second company on this list, O & M Halyard, has a relatively large portfolio of Australian patents and applications, many of which were assigned to it by related company Avent, Inc (ninth on the list).  While O & M Halyard and Avent, Inc have each transferred a portion of their portfolios to GLMR, the majority (currently 167 active cases) remain with Spruson & Fergusson, with a handful of cases handled by Pizzeys (also a member of the IPH group).  Other applicants on the list that have transferred some, but not all, of their Australian portfolios to GLMR include Capital One Services, SWM Luxembourg (which has transferred pending applications, but not granted patents), and Grifols SA.  Geobrugg AG previously had other cases (in addition to the 12 handled by Spruson & Fergusson) with other firms (Griffith Hack and Davies Collison Cave), and has consolidated its portfolio with GLMR.

Conclusion – Who ‘Wins’ in a Fight Over Clients?

I have no doubt that Spruson & Fergusson – and, by extension, IPH – would say that it has an obligation to enforce its employment contracts, and to make it clear to employees that they are expected to abide by the terms of those contracts.  Otherwise, why have them?  That assumes, of course, that the terms of the employment contracts have been correctly interpreted, and are enforceable.  If the matter were to proceed to trial and a final judgment, then we might find out who is ‘right’ and who is ‘wrong’.  But that is a pretty big ‘if’, and would not necessarily result in any real ‘winner’.

At the end of the day, whether or not a client’s business is solicited, and whether or not that solicitation is in breach of any employment contract, it is the client that decides on their choice of preferred service provider.  When a practitioner – especially one who is experienced and/or senior – leaves a patent attorney firm (or, indeed, any professional service business) the client will have a view on whether their relationship, loyalty and trust lies primarily with the individual or with the organisation.  There are, of course, things that can help to build relationships with the firm, such as ensuring that important clients are serviced by a team rather than one or two individuals.  But trying to deploy non-compete restraints to prevent a client from exercising its freedom of choice to follow a departing practitioner is only going to undermine whatever trust and loyalty might remain between the firm and the client.  If it comes to that, then the client is most likely lost anyway.

Personally, I would like to see the enforceability of restraints in IPH’s employment contacts tested in the Federal Court.  Currently, 140 registered patent attorneys across Australia and New Zealand (over 13% of the profession) are employed by IPH firms. Many of these attorneys would no doubt welcome certainty over what they can and cannot do if and when they choose to move on from their current employers (whereas IPH arguably benefits from uncertainty).  But I suspect that, like the Pizzeys and RnB dispute, the case is unlikely to go to trial.  S&F cannot win back the clients it has lost to GLMR by suing their preferred service provider.  It cannot restrain GLMR’s ability to trade going forward.  All it can possibly achieve is some small (relative to its market cap) financial compensation, and to send a message to other employees that any future breaches of the terms of their employment contracts will not be tolerated – which should also be enough to keep IPH’s shareholders happy that the company is looking after their interests.  And my guess is that GLMR is covered by insurance, in which case the insurer will want the certainty of a settlement rather than risk going to trial.  The nature and value of the settlement will depend upon what comes to light in discovery.  But if I am right, and this is the way it goes, everything will remain confidential, and we will never know.


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