The partnership model: a highly inefficient management technique

  • Law firms will pay more attention to diversity and work-life balance
  • Individuals may prefer to work more flexibly and in different environments
  • More firms will experiment with different structures, including seeking external investment

Patent practitioners will have to navigate all of these challenges while also facing up to fundamental changes likely to take place in the workforce over the coming decade. With more automation, there will be a greater premium on soft skills such as client services and marketing to new prospects. Through leadership will become more important. For many patent practitioners, this will be a difficult change to navigate. As one interviewee observed: “The stereotype of patent attorneys is that they only communicate by email or grunt.”

Fortunately, many of those coming into the profession are likely to be more flexible. The millennial generation will be comfortable engaging with clients via WhatsApp groups, blogs or other social media. Having grown up during a recession, they may also be hungrier; as one in-house counsel notes: “The younger generation are more focused on money and what they will earn.” The question is whether traditional law firm structures will be able to accommodate them. The next generation of patent practitioners are more likely to want to work flexibly or remotely, have time to study (or even teach) or take extended breaks. Law firms will need to adapt their work systems, including communications, billing and career development, to accommodate this.

Some firms have already taken big steps to change. Notably, in Australia, following a change in the law in 2013 many IP firms ceased to be partnerships and floated on the stock market. There are now three listed IP companies, each comprising several firms (see Table 1) accounting for over half of the IP market. Executives in these companies argue that a market such as Australia’s, which has been flat for several years in terms of patent filings, is ripe for consolidation and new thinking. For practitioners, a corporate model may provide rewards sooner compared to a partnership structure, especially where senior partners are working longer and unwilling to retire. It also makes it easier to take big steps on investment or expansion. “All too often, in the old firms key decisions would just get kicked to the next partner meeting,” laments one executive.

Table 1: IP firms listed on the Australian Securities Exchange

CompanyBrandsLatest annual revenue and net profit after taxMarket cap (September 2018)
IP Holdings
  • Spruson & Ferguson
  • Practice Insight
  • Pizzeys
  • AJ Park
A$226 million; A$40.7 millionA$1.13 billion
  • Davies Collison Cave
  • FPA Patent Attorneys
  • Advanz Fidelis
A$101.7 million; A$11.9 millionA$177.6 million
Xenith IP
  • Griffith Hack
  • Shelston IP
  • Watermark
  • Glasshouse Advisory
A$126.3 million; A$7.4 millionA$123 million

Given the pressure to invest and innovate, it’s likely that all three of these groups will continue to expand in the coming years, whether by merging with more firms, spreading to other markets or adding related businesses. “I’d be surprised if there aren’t more acquisitions,” contends one executive in Australia. Now that domestic opportunities have been almost exhausted, other net importers of intellectual property, including New Zealand or countries in Southeast Asia or Southern Africa, are the most likely targets. Two of the Australian companies have also added complementary IT and consultancy businesses, so this may indicate another area of opportunity. “We’re looking at strategic partnering opportunities,” says one executive. “We can go deeper and broader into services… There’s a huge ecosystem out there and we’ve only just begun the journey of building up adjacent advisory services.”

Some critics have alleged that the corporate model creates potential conflicts of interest and risks lowering standards in what is, after all, a regulated profession. But one executive denies this: “We have to be more compliant than anyone. The same as for clients themselves. We have non-executive directors, for example.” He adds that some clients appreciate that the firms are subject to the same reporting standards, corporate governance and market pressure as they are.

The big question is whether the corporate model could take off in other jurisdictions, particularly in IP-exporting markets such as the United States, Western Europe and East Asia. Only one UK IP firm, Murgitroyd, is listed on the stock market (although service provider RWS Inovia is listed). Several firms in Europe have attracted venture capital investment, although one of the larger ones – Gevers – recently reverted to family ownership.

It is possible that more IP firms in Europe will go down the corporate route: there is certainly an appetite among institutional investors for businesses that have loyal customer bases and can deliver solid annual returns over the medium term (unlike venture investors, which are looking for rapid growth or turnaround opportunities). But there are several obstacles to overcome:

  • most firms are not big enough to be attractive in their own right, so some sort of consolidation will be necessary;
  • investors will expect efficiencies or cost savings; and
  • partners need to be willing to give up control.

Given these obstacles, some firms may pursue the corporate route, but it is unlikely to be dominant within the next decade.

However, it is likely that alternative or hybrid structures might become more attractive, particularly as law firms develop other services (see above). For example, Keystone Law in the United Kingdom (which is also listed on the stock market) provides a structure for solicitors to work independently, while sharing some overheads and branding. After notable recent additions, it now includes more than 30 IP lawyers. Similarly, K2 IP (owned by IP firm Keltie) provides a network of patent and trademark attorneys who work independently and flexibly.

The challenge for firms setting up such low-cost outfits is how to make them succeed without undercutting their own business model. In the longer term, such structures also raise questions about training and investment in new services.

Diversity in patent law

Diversity and inclusion are already priorities for many firms. They recognise that there is a particular challenge in patent law, given the under-representation of minority groups in STEM subjects, and are taking steps to ensure their staff are as diverse as possible. Increasingly, that is something that clients will expect: many US companies consider diversity when they are inviting pitches for work, and in countries such as South Africa there are requirements to promote diversity in recruitment and training.

Over the next decade, it is likely that these issues will become even more important – and in particular, that they will not be seen simply as about recruitment or something for HR departments to worry about. Issues such as unconscious bias and using respectful, neutral language will be more prominent – as in other areas, IP offices including WIPO will take the lead on this. Firms will also become more aware of the needs of their staff – for example, a recent report by IP Inclusive found significant levels of work-related stress, anxiety and depression in the IP world. Millennial workers are expected to be more mobile and seek more flexibility, so firms will have to cater for that.

Understanding of diversity will surely improve – and that will benefit everyone. In consequence, diversity will be seen not as a box to be ticked but as something that improves and enables a successful practice. “A diverse workforce is a better workforce,” says one practitioner, while another adds: “It’s important to be cognisant of how people work and what drives them, and how they tick.”

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