The December 2017 half-year reports of the three ASX-listed IP firms contain worrying disclosures about a shrinking market.
Qantm IP states in its report that total Australian market patent applications declined by 2% compared to the previous corresponding period. There was a reduction in offshore-sourced Australia patent filings, prosecution and advisory work and weakness evident in November/December 2017 compared to the previous corresponding period.
“In Australia, patent filings across the IPH group have tracked to the slight decline in the overall market, while the like-for-like revenue decline of 5% is slightly higher due to a further, less material, cycling of the AIA Impact.”
“The Group has maintained its number one market patent market share position (all patent applications filed in Australia) in the half year despite the overall market being 2% down (in terms of number of patent filings) on the prior corresponding period.”
Xenith IP describes it as a “challenging industry environment,” pointing out:
· Industry patent filing numbers down 2.2% on previous corresponding period (Xenith IP down 1.5%, marginally ahead of market)
· Legislative changes in 2013 “Raising the Bar” having a more prolonged impact than first expected
· To a lesser extent, secondary AIA impact on downstream elements of the patent lifecycle (prosecution phase)
The new battleground is Asia
The graph below highlights how patent filings in Asia have been growing compared to Australia and the rest of the world. The graph makes it clear that successful expansion into Asia by the three listed IP firms will determine their future growth and financial performance.
Source: WIPO statistics database
There is still a lot of “noise” in the financial accounts of these firms due to recent acquisition and merger activity which has been a key feature of the Australian market in recent years. The financial accounts show that all three firms are fundamentally solid and profitable businesses. However, if they were to engage in a price war in a flat Australian market, it would weaken each firm financially and also inhibit overseas expansion.
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