Part 2: Overseas originating filings – the overseas corporate clients
In my last post, I discussed the basics of how overseas originating patent filings are directed to patent attorney firms in Australia. I stated that this source of work contributes to client stickiness and a more corporate model for patent attorney firms than is the case with other professional services firms.
Now let’s turn to the most significant type of overseas clients who file patents into Australia, the overseas corporate clients (usually multinationals).
The most significant multinational clients for any patent attorney firm are companies who rely on patents to establish their competitive edge. The most obvious are the pharma and biotech companies such as Pfizer, Amgen, Boehringer Ingelheim et al. Patents are intrinsic to the business model of these clients. Other important clients are healthcare companies such as Procter & Gamble, Colgate Palmolive and the like. In recent times, high tech companies such as Apple and Samsung have come to the fore. The bigger filers amongst these companies will file hundreds of cases per year.
These clients are the mainstay of every large patent attorney firm in Australia.
The stickiness of these clients occur for two main reasons. The first is that the services they require in the Australian market emphasise a long standing relationship. The second is that it is difficult for a competitor to offer a compelling alternative without some unusual factors at play.
Let’s discuss the first reason.
As I have discussed in the first post, every patent application that you file will progress towards grant over a number of years. It is not a continuous process but rather a series of discrete events, each of which is required to be actioned.
In addition, the lifespan of a patent is 20 years (give or take) and even when granted the patent still needs to be monitored for payment of renewal fees and there may be other activities (eg re-assignment of ownership, amendments, litigation) as well.
So, if you have a very large portfolio of patent applications, with new ones being added to it every year, you need your patent attorney firm to constantly keep track of your entire portfolio. You would expect this to be handled seamlessly. You would not expect the firm to be unable to handle the monitoring of dates and key actions (we call this docketing) if key people leave. You expect a continuity of service.
It is also administratively difficult to move your portfolio to another firm if there are hundreds or even thousands of cases to transfer. Getting the new firm up to speed with the portfolio and integrating with your systems is not a trivial matter.
So a key requirement of any patent attorney firm is the ability to form a long standing relationship with their clients. How does this differ from other professional services? Because the nature of patent attorney work is not transactional. As a law firm or an accountancy firm, although experience with the client is useful, each matter is on the whole an independent piece of work. By contrast, each patent provides a stream of work over time. Patent attorneys are stewards of their client’s patent portfolios and this requires a longstanding relationship and a deal of trust. In some respects, this is similar to a subscription model which many software companies have introduced to maintain client loyalty and ongoing revenues.
Accordingly, patent attorney firms need to be long-lived. They also need to be able to provide a continuity of service independent of the individuals within the patent attorney firm. In effect, they need to be a corporate brand in order to maintain relationships with these important clients. This means that patent attorneys lean more towards a corporate model then a classic partnership.
It also means that clients tend to be stickier.
Let’s turn to the second reason – the lack of firms able to provide a compelling alternative.
One factor that you might expect to contribute but in practice seems never to be an issue for overseas corporate clients is the quality of the people. Patent attorneys in Australia are trained to a high standard. There are only a small number of accredited courses and they are reviewed stringently by the profession. Every large firm offers expertise in a range of technologies.
Obviously, there is variation in the quality of the patent attorneys in the various firms. What I am saying here is that it does not seem to affect client stickiness for overseas corporates when considering their patent filings into Australia. It seems that beyond a certain threshold, overseas corporate clients do not go out of their way to find the best and the brightest to handle their Australian patent filings. Why is that the case?
This comes down to the question, what would drive such a multinational to protect their invention here?
Here are a few key considerations that apply to the selection of any jurisdiction
- Is the jurisdiction a large or key market for my product or potential product?
- Might a competitor manufacture my product here?
- Can I readily enforce my patents in that jurisdiction?
- Can I readily obtain patents in that jurisdiction?
Another factor is whether the patent filings will assist with a transfer pricing model, but that is a subject for a later post.
The other consideration to keep in mind is that multinationals are making a decision about the countries in which they wish to file, not about whether or not to decide on filing in Australia per se. Australia is just one of the options. In a sense, each country is “competing” to be selected for a spot in a patent family.
Let’s dig a little deeper into that point.
The USA is clearly the largest pharmaceutical market in the world. A rule of thumb is that for any particular pharmaceutical product, 50% of revenues will come from the USA. The US legal system provides an easily accessible path to enforcement of patents and its patent regime is kinder to pharmaceutical patents than a number of other countries. The process for obtaining patents is relatively clear and, although there is a high threshold applied in assessing whether patents should go to grant, usually at least some form of protection can be obtained.
These factors mean that in the world of pharma, the US is always picked first in any patent family. If you have a limited budget, it may be the only jurisdiction you proceed in.
Similarly, Europe and Japan are usually picked. Europe can be picked as a single destination because of a convention that in effect allows simultaneous filing in a number of countries. Europe, like the US but for different reasons, also has a high threshold for assessing whether patents should go to grant.
And then come the rest. China, South Korea, Brazil, Australia, India, Russia, Mexico, Canada, Indonesia to name just a few – each have their pros and cons. A decade ago, the most common 5 countries picked would have been the US, Europe, Japan, Canada and Australia. These days that decision is not so clear as the developing nations with large populations become more affluent (and therefore more attractive markets) and more sophisticated and reliable in their patent systems.
So what gives Australia a competitive position, at least in the second tier of countries? Australia has a reasonably sized and developed market. Patents in Australia can be readily enforced and are relatively straightforward to obtain. This is particularly the case if you are also seeking patents in the US and Europe as the standards applied in these jurisdictions means that you can usually also satisfy the standards in Australia.
This last point is important. Remember in my previous post that we spoke about the fact that an instructing patent attorney will know what issues are common across the patent family. If the issues faced for patent applications in the US and Europe have been solved and a scope of protection has been obtained which the client is happy with, then it is usually possible to obtain the same level of protection in Australia. This makes Australia, for the most part, a jurisdiction in which you can consistently achieve the same scope of protection that you can achieve in the more significant jurisdictions. You may be able to get a broader scope of protection, at least historically, but if you are not interested in having that fight then you don’t have to.
So what does this tell us about the multinationals who file patents into Australia?
They have a market in Australia for the products covered by the patent but, unless the patent covers vegemite, Australia is highly unlikely to be anywhere close to being their most significant market. In short Australia is not a high priority jurisdiction.
They almost always have other patents in the family filed in jurisdictions of far more importance to them. In short, they are going to pay more attention to patents in other jurisdictions.
They can afford to file their patent family in a number of jurisdictions, the majority of which are more problematic and expensive than Australia. In short, they are relatively price insensitive.
If they have a history of filing patents then they expect Australia to be a relatively straightforward jurisdiction. I have heard one US attorney describe Australia as the “no worries” jurisdiction as it always seemed to be possible to fix any issue without too many consequences for the client. In short, they don’t need to pay too much attention to their Australian patents.
There are exception to these points of course. For some clients in the agricultural space, the Australian market is incredibly significant and these clients will be far more active in obtaining and asserting their patents and attacking competitors. Similarly, there are certain key patents a large company may pay more attention to. There are other exceptions and I might discuss them in other posts.
In general however, if a patent attorney firm performs above a certain threshold, then it is not worth moving the work. The incremental benefits of following a rainmaker, or pursuing a cheaper option, are simply not enough to justify ending a long standing and painless relationship. In fact, in-house legal groups of multinationals will often not bother to entertain the prospect of a visit or pitch from a competing firm, in the same way I often don’t bother to answer the phone to a telemarketer.
So what are the factors that mean a multinational will move firms? There are many firms who have high profile patent attorneys known for their expertise and experience and upon who their clients tend to rely for important decisions (every firm would say that they have a number of these). There are also examples of these high profile attorneys leaving their firm and taking significant clients with them. The patent attorney firm Houlihan2 was formed in just such a move. However, I have rarely seen this happen when the firm has consistently fostered a firm wide relationship with the client. Similarly, multinationals do go to tender although in practice this is often used to drive down an incumbent’s prices. I have also seen large clients move, or at least consolidate their work in exceptional circumstances, such as when a patent attorney firm acts for them in a “bet the farm” litigation.
From a business development perspective then, the difficulty is not keeping your large multinational clients, it is gaining new ones. And if there is not overall growth in the market, then devising ways to pitch to multinationals becomes more important. That’s a point outside the scope of the present posts but one I want to explore in the future.
This post provides a perspective on why the overseas corporate clients of large patent attorney firms tend to be sticky. It also provides a rationale for why patent attorney firms may be more corporate than other professional firms. In my next post, I intend to look at the other source of overseas originating patent filings – that is patent attorney firms in other jurisdictions, who we usually refer to as “foreign associates”.