James & Wells – Proud to be locally owned & operated28 November 2017. Posted by Ceri Wells.
In the last three years, the Australasian intellectual property (IP) profession has undergone massive change. In October 2017, New Zealand’s largest IP firm AJ Park announced their acquisition by Australian owned Intellectual Property Holdings (‘IPH’), a publicly listed ASX corporation. After 125 years and generations of partners and attorneys, it is sad to see one of New Zealand’s oldest intellectual property firms sold off in this way to Australian investors.
AJ Park’s sale is notably the first of its kind in New Zealand and the latest in a series of sell-offs that has seen eight of the top ten Australian IP firms now owned by publicly listed ASX companies. Consequently, conflicts of interest have arisen - including the conflict which arises when an attorney’s duty to his/her client conflicts with the obligation to generate maximum fees to satisfy the profit demands of the shareholders of the corporations that employ them.
We hope the AJ Park acquisition will be the last such sale of a New Zealand IP firm to an Australian company. In a profession as small and as vulnerable as the New Zealand patent attorney profession, we believe that acquisitions like this by publicly listed ASX companies are not beneficial for the firm, its clients, its staff, and is detrimental to New Zealand innovation and business in general.
IP firms which are owned by the same ASX listed corporation still represent themselves as separate IP firms and compete against each other. This is despite the fact that such firms often share common IT systems and backroom support, and their profits go to the same shareholders. This approach means that firms that are owned by the same parent company and are governed by the same board, could find themselves representing opposing parties in a legal dispute.
Consider this scenario: two IP firms (‘A’ and ‘B’) are owned by the same parent company and represent opposing parties in a contentious patent opposition proceeding. When the stakes are high, how many clients would be comfortable knowing their adversary is being represented and advised by attorneys from the same ‘family’? Or that the firms’ owners are profiting from the fees generated by the firms on both sides of the dispute. As clients become more aware of this potential for conflict, we anticipate that many will transfer their intellectual property portfolios to truly independent firms.
Shareholder return over client interest
Since November 2014, three IP Firm holding companies have listed on the ASX – they are:
- IPH comprising Spruson & Ferguson, Fisher Adams Kelly Callinans, Pizzeys Patent and Trade Mark Attorneys, Cullens Patent and Trade Mark Attorneys, Ella Cheong in Asia and most recently AJ Park.
- Xenith IP comprising Shelston IP, Watermark, and Griffith Hack.
- QANTM IP comprising Davies Collison Cave and Freehills.
A survey of clients of ASX-listed IP firms in Australia conducted by Beaton Research + Consulting noted heightened anxiety about the pressures to maximise billings which fall on an IP firm owned by an ASX listed company.
IPH, Xenith, and QANTM have each seen the value of their shares fall due to a failure to meet some lofty expectations built into their share price.
- In November 2016, IPH saw its share price sink more than 40% to $5.25 - a long way from its highs of $9.43. In the year since this decline IPHs’ share price has recovered slightly to just $5.75.
- In May 2017, QANTM IP share price fell 28% to $1.21 after reporting that legal and advisory service charges were below the prospectus forecast level.
- In October 2017, Xenith IP provided the market with a trading update which revealed that its first-quarter performance had fallen short of expectations causing its share price to decline a massive 30% to $1.17 - bringing its year-to-date decline to more than 56%.
Avoiding a dramatic decrease in the company’s value could place pressure on the IP firms to cut overheads, increase charges and take an uncompromising approach to billing.
Other concerns found by the same survey (and not already discussed) include:
- Cashed up partners in ASX listed IP firms will be less concerned about client service now that they’re mere employees and can leave if they want;
- Senior attorneys and rising stars in ASX-listed firms who missed the payout will no longer be committed to the business and its clients because the equity partnership they had been working towards is no longer a prospect; and
- ASX-listed IP firms will face additional regulatory costs leading to an increase in fees.
Recent regulatory changes
We acknowledge that for IP firms in New Zealand, business hasn’t been easy. Regulatory changes forced on the profession by the Ministry of Business, Innovation and Employment (“MBIE”) have made it harder and much more expensive to train new patent attorneys in New Zealand or to attract new patent attorneys to work here.
Patent attorneys in New Zealand make up a small profession who provide specialist advice and assistance to businesses on owning and controlling innovation and brands, and obtaining patents and registering trade marks. In a country that already has fewer patent attorneys than a sophisticated economy needs, anything that demotivates or leads to the loss of experienced patent attorney professionals and their support staff is exceedingly detrimental to New Zealand innovation and business.
According to the New Zealand Institute of Patent Attorneys (“NZIPA”), an issues paper released by The Productivity Commissions of Australia and New Zealand entitled Strengthening economic relations between Australia and New Zealand states “…New Zealand has failed to undertake a substantive analysis of the effects of economic integration activities on the New Zealand patent attorney industry prior to commitment to harmonisation activities. It is the finding of the current study, that if care is not taken to structure relationships appropriately harmonisation will lead to a decline in the New Zealand patent attorney industry. New Zealand will lose a valuable resource in the innovation ecosystem, and a valuable opportunity to grow a local knowledge industry.”
Ironically, in a submission to the Commerce Commission in March 2016 by Corinne Cole, then a partner at AJ Park and President of the New Zealand Patent Attorneys Inc., noted:
“…consultation with the New Zealand profession has focussed solely on how a joint registration regime should be implemented rather than on whether or not a joint registration regime would benefit New Zealand business ... the cost of introducing the joint regime will be disproportionately borne by the New Zealand profession ... no-one has explained to us what is the downside with the present system of having separate independent professions … I am concerned the increased costs my firm and other 6 firms will face will lead to a hollowing out of the New Zealand profession which will only be to the detriment of New Zealand businesses … New Zealand businesses would then have no or little choice other than to use Australian resident patent attorneys at a higher cost. This also can’t be seen as good for New Zealand businesses … for competition to be real and effective it must be footed on a level playing field.”
James & Wells is proud to be independent and locally owned
In recent years, the New Zealand profession has witnessed lucrative patent and trade mark filing work from overseas worth tens of millions of dollars being diverted to Australian firms. Our analysis of patent application submission made at the Intellectual Property Office of New Zealand (IPONZ) during 2016 shows that for the first time, the agent of record (i.e. the IP firm that handled the application) is now dominated by Australian IP firms.
Despite these headwinds, James & Wells remains strong and continues to maintain its top-ranking leadership position, having adapted and grown, by choosing to evolve and innovate like the clients our firm represents.
The partners at James & Wells are determined to remain an independent locally owned IP firm so that we can continue our mission as ‘Champions of Innovation’ and outspoken supporters of innovative New Zealanders and New Zealand businesses.
Ceri Wells is a founding partner of national intellectual property law experts James & Wells. He has been involved in patent drafting, litigation, trade mark ownership, unfair competition and copyright matters for around 30 years and specialises in working with start-up companies, venture capitalists and seed-funding organisations to encourage and commercialise NZ innovation.