Amending your Business Structure

Many patent and trade mark agents in the UK were taken by surprise in the New Year to discover that they were ABS because someone other than a regulated person had an ownership interest. I understand that if you unwind this IPREG won't be pursuing you for illegal trading so there is likely time for agents to buy back the shares from their spouses or retire incoporated partners.
For the gospel on this do call the IPREG to make sure you have done it right.

Rule 11 and opening your Client Account

I was pondering (as you do) whether the profession was ready for ABS licensing and client accounts. Back in February we were all told Rule 11 meant we had to have our client accounts open and ready for 2015. See my post at the time.

I was pondering because I happened to notice  a few days ago, on the SRA Question of Ethics page, a note about the operation of client accounts and how evil it was to have the interest paid into the client account because the interest on a general account is office money (at least in SRA land it is - IPREG may have other ideas but I doubt it). In any event the interest on the overpaid sum of £35 that came from an Australian client and which would have been lost in exchange rate differences and banking fees if I had paid it back was going into my client account. Oh woe! Now don't worry that client account has always been IPREG regulated so I wasn't about to get hung drawn and quartered as promised by the helpful Ethics police at the SRA. Even so I got in touch with my Bank (Barclays fortunately not a Building Society) and they have made me honest by directing the interest to my office account. OK so if you have set up your client account in readiness you too might want to check where the interest will go.

Meanwhile the Bar Standards Board have started an escrow service BARCO regulated by the Financial Conduct Authority. If you use that they charge you 1% but it seems to be capped at £250 per transaction. Presumably you have to pay that out of your funds rather than the client's so I'm not thinking of using BARCO myself for that overpaid £35. If you charged the £250 to the client would that be "protecting client money" - the tenth SRA principle.?

Next I heard from ITMA via their Chief Executive's Bulletin today (4 December 2014):

Unfortunately the current banking practice only allows true client accounts to be opened by a profession included in Schedule 3 of the Money Laundering Regulations 2007 and currently the IP profession is not included in this schedule making it difficult for those bound by the new rules to comply. The new Rules are due to come into force on 1st January 2015 and we have written, together with CIPA, to IPReg to request they delay bringing into force the new rules until it is possible for our relevant members to fully comply. We will advise as soon as we have any further information on this matter.

Its very easy to blame "banking practice" and I would be interested if others have found difficulty with the mainstream banks. I didn't and all litigators have needed to have client accounts for a while.

I was surprised to hear that postponement of the rules was being requested on my behalf. The bar has managed to prepare itself and given that we nearly always deal with business clients we should be able to manage a client account or credit risk  by now. Moreover delaying the new regime would presumably knock back those who are ABS and want to offer more co-ordinated business and IP advice to their clients.

Anybody know more about this? Please comment

Regulating Client Money

One of the major difficulties I encountered in managing an IP practice as a Solicitor was compliance with the detailed acounts rules. At present those regulated by IPREG have a delightful concise Rule 11.

"Regulated persons shall ensure that their professional finances are managed appropriately."

If you are acting as a litigator it is a little more complex but in either case "money on account for fees or disbursements paid up front" can sit in the Office account. Possibly many patent and trademark agents do not even have a client account. However Financial Matters are one of the areas set to change under the latest proposals and we are beginning to see detail coming in that will make our terms of trade get ever longer and the duties of our Head of Finance ever more elaborate. So we may get:

"In the event that a regulated person receives money from a client, other than by way of payment of fees or disbursements incurred, but including money on account for fees or disbursements paid up front, they should ensure that such money is held on trust for the client in an account which is entirely separate from the regulated person’s or the firm’s professional business accounts.

In the event that money may be held on trust for a client, a registered person’s terms of business should deal with the issue of ownership of interest earned on money held on behalf of a client."



Running Away with Client's Money by Ian Burt et al

It may well be that there is no other way than to require the client account. However money can be recived for a client from the EPO and OHIM as refunds of fees and this necessarily becomes mixed with office money in deposit accounts. Many of us will have different ways of dealing with this and the client will usually be told what they are if and when it arises.   The matter is further complicated by the fact that that money is in Euros and we account in sterling. Nothing so far has appeared in the Code about the vexed question of how to convert unpaid disbursments in foregin currency into sterling. It has been common practice to include a profit cost uplift here. Even if you try to make a genunine pre-estimate of actual cost my rule (Xe rate +5% plus £10) won't be yours and indeed if your charges for currency conversion are higher than £10 nor should it be.

If you are a client where there are substantial disbursments its best to discuss policies in the engagement process. However it is worth remembering that cutting costs in one area often results in them appearing elsewhere so the overall cost is the one that needs to be fair.

Keeping it simple means keeping no client money, but that forces you into valuing disbursments so lets all head of to the Banks looking for client accounts that won't deduct charges. Dont forget to tell your clients that such money accrues no interest due to them.

Of course if IPREG give guidance on all this we are all compelled to operate the same way and that will likley be the Solicitor's way and may be anti-competitive. Remember the Red Book.

Let's all be Alternative

The UK Patent and Trademark Attorney's Regulator, IPREG has issued a Consultation on their proposal to apply for ABS licensing status. Being a small regulator and trying to keep things as simple as possible they have come up with the ingenious idea that every entity should be treated the same way, ABS or not.
Every Entity will need a Head of Legal and a Head of Finance and Administration. If they follow the Law Society interpretation of the equivalent SRA provisions these can be the same person, which is essential for the true SOLO.

Two heads are better than one from Paul Mannix

IPReg is also proposing to set up a Compensation Fund (required for ABS licensors). It would be hard to do this if only true ABS were required to fund it so I assume this was a big motivator for the single solution. This funding issue seems to be a problem for the Solicitors Regulation Authority too and they are consulting about it as well.
If you are already regulated by IPReg you should have received the papers directly by email on Friday. We are supposed to respond by 17 September.
Will these proposals encourage you to consider re-joining a partnership or getting into a larger association to ease the regulatory burden?
Will they make trademark only, non-litigation practices opt out of regulation altogether. I want to litigate so accept that there has to be regulation, but if you look in the Journal at the names of agents on UK trademark applications it seems that Google Ad-words are more influential on the market than indications of regulation.

The ABS arrives at last..or does it

In this structure in Serjeant' Inn, I once worked
before it took on this alternative form

The Ministry of Justice marked the entry into business of the Solicitor's Regulation Authority as an ABS regulator on 3 January 2012, with an inspirational  press release . Amongst other good and proper things, the Minister suggests

"Customers will find legal services more accessible, providing a much more competitive and efficient service."

 It is unlikely that many sole practitioners will be transforming themselves into ABS with SRA regulation. Although the SRA team reports that they are ready and waiting, it looks as if the customers may have to wait at least another six months before they can go knocking for real services onto an ABS door, as that is how long it is going to take the SRA to make a decision on your application ( if they don't decide to extend the time to 9 months).  Should you be interested in applying  this is the link you need along with at least £2000 for the initial fee to get your application looked at.

The awesome regulatory burden is likely to deter existing law firms who merely want to improve and modernise their management structures. The Lawyer magazine reports that the insurance company Admiral might constitute itself as an ABS as a workaround to recover some profits to replace those lost when the referral fee ban was introduced. Frankly, this probably wasn't what the Ministry of Justice had in mind, when they began this well-intentioned initiative to bring modern management practice into the legal world by abolishing the rule that only lawyers can manage lawyers.

Across the Atlantic, I was amazed by this piece in which the IBM Gen Counsel Robert Weber rails against the possibility of such structures being introduced into the US market. In his view investment isn't needed because there already exists global law firms, who are market leaders without having needed external investment. I am sure that his law firm suppliers won't mind the barriers to new entrants remaining high.

IPReg is already applying to the Legal Services Board to become an ABS regulator in its own right and it is likely that any IP practice or new business support firm offering low-cost IP business advice that Hargreaves wants to see (see my earlier post here) will prefer to use that regulator.  Incidentally, if you want a closer look at how this whole process works, there are currently vacancies on IPReg for professional members at £320 a day. More information here

Lower Cost IP Business Advice

One of Hargreaves's recommendations was that SMEs needed access to lower cost IP and commercial advice. The BIS and IPO announced today that the IPO are going to consult businesses, business advisers and IP specialists on how this might be achieved. I can already see the professional bodies girding up their loins to defend the profession and say there is nothing wrong. FICPI have launched a survey designed to show that almost all firms of patent agents offer some free advice and do their marketing at events where entrepreneurs gather. Its true we do and Hargreaves knew that so his conclusion was not made in ignorance. What we need to work out is how the advice can be delivered in a way that is both trustworthy and usable by individual businesses.

• The call to the IPO. This is the most obvious first step for many. Not a bad idea. It connects you to someone paid £17k pa who has the whole of the wisdom of the IPO to call on.
• The British Library Business and IP section is a great place to go and get information and do your market research.
• Inventors clubs. These allow inventors to get together and share information. Leeds is just one example.
• On line resources such as  a BetterMouseTrap and IdeasUploaded that will link you to designers and others and provide plenty of shared learning experiences.
• University |Tech Transfer or KT offices. UCL and Greenwich have been particularly keen lately to help all local comers.

This is just a sprinkling of the offers for those intrepid enough to do the research. The mix of business and IP varies considerably from almost all IP at the top of the list to almost all business at the bottom. Mix was important to the Hargreaves recommendation and the professional classes are not very good at mixing it. Indeed we barely try.

So why are the start ups on the Silicon roundabout telling Cameron they are unhappy. Free advice is not enough for them. Its either an untrustworthy grant aided offer from the inexperienced (OK that's harsh but one thing an SME knows is that he is not competent to judge quality and price is often the best indicator of value) or pure marketing designed to sell something paid for (the classic offering we professionals make).

A conundrum

Could we design an ABS that would be *for profit* but not at the super margins of the City law firms but still of interest to shareholders. It would need staff and it would need to mix them up a bit and therein is the hard part because the trend today is for lawyers to become ever more specialised and what we are saying no you cannot do trademark oppositions all day, you need to be able to hack some proper advice about where the marketing budget should be spent as well. Its a tall order and people with those skill sets tend to be CEOs of large organisations not settling in the provinces on a £17k salary. Right we cannot staff it with individual super consultants so it has to be a consultancy that brings teams together and works with the classic pyramid of effort. Hey aren't the accountants rather good at their consulting offers. Oh SMEs cannot afford to go to Accenture. If our ABS IP/Business consultancy is to make a profit it either takes a range of clients and very soon - like large patent agencies and grown up venture funds (3i anyone)  - decides that start ups are not worth bothering with, or it takes real investments in the start ups. Might work. Would the start ups want to share their equity with their consultant. its not a novel business model. To some extent ?What If  do it and it might sound a bit like Intellectual Ventures. Anyone in?

How to Protect Consumers and Regulation - Titles and the Unregulated

Having read the various comments in response to the post The Great Unregulated (why so many anonymous?) I think the issue is not whether there are regulated firms that provide poor value, or unregulated ones that are excellent, so much as whether the area of advice is important enough for society to ring fence in some way to protect consumers. For example, nobody would dispute that only doctors should be let loose on the public to provide certain types of services. So, that is the question, what types of legal services should be reserved activities that only lawyers, patent attorneys, trade mark attorneys, or whatever other discipline is permitted to provide?

Consumer protection?

If the aim of the Legal Services Act is in part, consumer protection, then these sort of questions need to be considered. Fine distinctions between trade mark attorney, and registered trade mark attorney, or trade mark agent, are not going to be easy for the public to understand. The question is, should the public be protected against the clerical assistant who worked for a short stint in a law firm, and who then sets himself up in business as a trade mark agent because they can’t find any other work? Their knowledge may be miniscule, but it will be greater than that of the lay public, so they may well be able to attract work if they price themselves cheaply enough. Does society think that trade mark registration is important enough to become a reserved activity? What about web design, search engine optimisation, marketing and many other areas where anyone can set up in business…. with little experience, and pick up the ropes as they go?

The Unregulated

What is unhelpful in my opinion is the rivalry between professional bodies, and all the protected titles that are devised in order to mark out a particular group as the ones who should be consulted above all others for that particular area of work. Surely, other regulated entities are not the real problem. If the people who should not be allowed to mislead the public by use of titles are the unregulated sector, (possibly those people with little background in law, who may be passing themselves off as suitable to provide legal services), then let's find solutions to stop some of their unregulated activities.

If we thought trade mark registration work should be a reserved activity, then it might be relatively easy to prevent certain people filing trade marks as agents for others. They might still find a role providing help to the public to draft their own applications, but at least their limited capacity to act would mark them out as a different type of trade mark agent. But in the absence of some radical measure like this to distinguish between providers, what is the point of reserving use of titles, if there would be some other title that the unregulated would be able to use in order to provide their desired service?

Protecting Titles

In the meantime, we are in the ridiculous situation where confusion reigns over who may or may not call themselves trade mark attorneys. For example, recently, after verifying on this post that there appeared to be an error in the IPO’s booklet Choosing the Right IP Adviser I wrote to the IPO to point out that solicitors could also call themselves trade mark attorneys and could they please correct the error. To my astonishment this week I received the following reply from ‘Debbie’ of the iPO:

Thank you very much for your feedback on the 'Choosing the Right IP Adviser' booklet which has been forwarded to me from Paolo Senese. Please accept my apologies for the delay in response but I have been absent due to a bereavement.

I can confirm that the point you have raised re: page 7 about Trade Mark Attorneys is being looked at. This issue has also been raised by another Attorney.

The text in the booklet was taken from the CIPA website relating to Trade Mark Attorneys and cleared internally by TM colleagues, but as you rightly state this does not tie in with Section 84 of the Trade Marks Act 1984. Thus, "trade mark agent" and "trade mark attorney" remain open for anyone to use.

I have been discussing with CIPA and I understand that the Protected Titles Committee recently considered the matter and was making a report to Council on 5th January in which it is suggested that the public would be misled now by anyone using the term if they are not on the Register of Trade Mark Attorneys. The reason for this is that the treatment of trade mark attorney is now in all other respects analogous with the treatment of patent attorney and with the "Register of Trade Mark Attorneys" now in place the public is likely to assume that someone using the title is entered on the Register. Thus the Committee is proposing that Council should issue guidance to Fellows that they should not use the title unless they are also entered on the Register. Whether that will be accepted by Council I do not know and am trying to establish the outcome of the report with CIPA.

CIPA has confirmed that they will not be updating their website until the outcome is known with the view that I would amend the publication at that time.

I will be more than happy to provide you with an update when I hear anything further from CIPA.

Thank you for your interest in the IPO publications and if you have any further feedback in due course this would be most welcome.

I was amazed that the IPO seem to think that CIPA have the right to make changes except possibly with regard to their own members. If CIPA wish to issue guidance to Fellows that they should not use the title Trade Mark Attorney unless they are also entered on the Register, I doubt this would have effect on anybody else’s use of this term. It's also surprising that the CIPA website has this statement about the term Trade Mark Attorneys. What happened to consultations with other interested parties?

While I agree with CIPA that all these terms are confusingly similar, I do object as a solicitor, to them effectively trying to deprive solicitors of the use of the title. It speaks volumes about the problems that need to be addressed. I read recently that there is a realisation that greater consideration is needed as to the activities that should be reserved and what Alternative Business Structures (ABS) will be able to provide once legal services are deregulated. Otherwise, consumers are in danger of being misled.

While Jeremy’s suggestion that some further research is needed in this area is correct, it clearly needs to focus on both regulated and unregulated IP providers.