IP lawyers in Hong Kong are finding the competition from mainland China tougher these days. The fact is, the rise and fall of IP firms is faster as change and competition characterise the fast-changing Chinese market. Law firm departures confirm the point.

Lindsay Esler, managing partner and head of IP at Deacons, says the Hong Kong IP market is characterised by change: “The most striking thing about IP practices in Hong Kong is the extremely short rise and fall cycle of IP firms. You could be significant one year and gone the next.”

Recent departures include the practices at UK firms Linklaters, CMS Cameron McKenna and Denton Wilde Sapte. “The recent closures of several IP departments demonstrates that firms that are overly reliant on a few clients and who do not provide a diversified range of IP services will now struggle to survive,” says Esler. “I expect to see more practices closing down or shrinking to insignificance over the next several years.”

Adding to the pressure is increased competition from firms on the Mainland. “Competition between PRC and Hong Kong IP practitioners will increase, with PRC IP firms already starting to recruit overseas experts to enhance their profile, exposure and expertise in Hong Kong,” says Kenny Wong, head of IP/IT at JSM. “To be cost competitive while maintaining high quality standards will be a major challenge for Hong Kong IP practitioners.”

Hong Kong Law Society restrictions never did prevent PRC firms and agencies from operating south of the border in the more lucrative market of Hong Kong. And, by not being bound by Law Society recommendations nor covered by insurance in the same way as their Hong Kong rivals, PRC firms and agencies have for years been able to undercut and offer much cheaper services. “The quality of the service is not comparable to ours,” says Wong, “but some clients will still query costs. They will still ask, ‘why am I paying HK$6500 for a Hong Kong registration when I can get it at a cheaper rate at this PRC agency?’. And these PRC firms and agencies are a growing threat because we do accept that the quality of their services has improved.”

PRC firms are offering fixed fee arrangements to do the whole registration process, something the leading Hong Kong firms are reluctant to as a result of the possibility of complications. “But we are finding that clients are coming back to us more and more to obtain advice on the more complicated aspects of any particular matter or transaction,” says Wong. “For the more straightforward administrative tasks, they’re prepared to pay the low costs. But when complications arise, we’re finding that they come back to us for that.”

The real prize
Though PRC firms may only be getting access to a portion of Hong Kong’s straightforward applications – what some firms consider their ‘bread and butter’ – perhaps of more concern to Hong Kong’s elite is that they are able to promote to clients their ‘one-stop-shop’ PRC capability.

As a result of this competition, and with the importance of Hong Kong as a centre for IP registrations and work declining in the face of a flourishing China post-WTO, Hong Kong’s small band of firms with expertise in this area are juggling resources accordingly. Baker & McKenzie partner Jeannie Smith says: “We are looking to beef-up our on the ground capabilities in both Beijing and Shanghai to meet the ever-expanding client work and expect the numbers to rise by the end of the year. The focus of such expansion is on the enforcement and investigation side.” And it is a similar story at JSM. “In China, we see a lot more registrations, enforcements and commercial activity in general,” says Wong. “And, for a long time, our practice has been involved in advising clients on PRC matters.”

For a long time also, Hong Kong firms were the main source of know-how on China’s emerging IP system and there were only three or four mainland firms (only one based in Shanghai) authorised to act for foreigners. Now there are over 100 such firms, as well as international firms, with offices in Shanghai. And Wong believes the recent appointment by Chinese IP firm China Sinda of the former head of intellectual property at Deacons Paul Scholefield to be particularly significant. “That marks the start of more fierce competition between Hong Kong and PRC firms,” he says. “China Sinda realises that Scholefield will be able to apply the management structure and experience he gained in Hong Kong to Sinda in Beijing. Many overseas IPR owners prefer Hong Kong practitioners but if a PRC firm has an experienced Hong Kong practitioner like Scholefield, this will attract their attention. I believe Sinda’s ambition with Scholefield is to deliver Hong Kong quality at PRC rates.”

On the Mainland, the leading IP firms will be acknowledged this month in Shanghai when CCPIT Patent & Trademark Law Office, Grandall Legal Group, Jincheng Law Firm, King & Wood and Liu, Shen & Associates vie for the title of IP Law Firm of the Year at ALB’s inaugural China Law Awards. With PRC IP firms starting to recruit overseas experts to enhance their profile, exposure and expertise, the international firms are responding in kind, beefing up their PRC counsel headcount in this area of law.

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