Will a Recession Impact the Patent Industry?
by Tyron Stading on October 09, 2008
With the US and international markets in turmoil, everyone is focused on the economy. The Dow and the NASDAQ have experienced historic drops, and many people may be concerned about which industries will grow or contract, and what that means for their job.
Given the economic conditions, what will happen to the IP and Patent industries? The short answer is that there is good and bad news.
First, the good news. Historically speaking, in recessions the US patent filing and IP litigation markets have experienced significant growth. While I have not found an academic explanation for this, let me attempt to explain my personal view. When money becomes tight, companies look for alternatives to increase their cash flow and find two paths: 1) product innovation, and 2) litigation. For product innovation, this means creating indispensable products that people can’t live without, meaning you need to increase R&D and also to protect your innovations. For litigation, companies try to enforce their IP rights to protect their product revenues by asserting their patent positions. No matter what the reason, patent activity (litigation, innovation, etc) only surges in response to a recession.
The following chart illustrates the IP and Patent Litigation over the last 40+ years in the context of 3 documented recessions. As you will see in the chart, recessions caused increased growth in the patent and IP litigation. Over the course of 3 years following a recession, there was an average 30% increase in activity across three different periods. While leading up to the recession there was only slight growth, there was never really a dip in patent litigation.
To further this point, we can also look at the number of patents filed during those same periods of recession. The following chart shows similar increases in response to recession. On average, patent filing activity increase 10-11% across the three recession periods.
Now for the bad news. The flip side of this increase is that companies may be facing increasing litigation costs as they defend their products and market positions. With a statistical increase in litigation activity, there is a strong likelihood more companies will be sued over patent infringement. This may be especially difficult with the increases in patent troll activities. As I’ve mentioned in previous posts, companies are already seeing more infringement letters than ever before.
So what is the outcome? What does this mean to you?
First, I think companies need to look to innovation as the key to increasing margins and maintaining market presence. Without innovation, companies will have decreased sustainability and will be susceptible to competitors undercutting them on costs and beating them on functionality. As part of innovation, this also means looking for good deals in the IP world. Tons of good patents are available for licensing and can accelerate your development if you know where to look.
Second, I think companies need to be more vigilant and structured in their litigation defense and strategy activities. With increased litigation, you have to become a very unattractive target for litigation. Being able to respond quickly and intelligently to threats/infringement will immediately dissuade would-be litigators. Furthermore, many of your competitors may try to copy or steal your products in an attempt to increase revenues. The only way to prevent this is to constantly monitor and track your competition. You can either be the victim or the savior when IP theft strikes, so understanding the competitive landscape becomes even more important for litigation and competitive product activities.
While these are difficult economic times, companies can come out ahead if they take advantage of these historical trends. One thing is certain: the patent industry will continue to be strong and grow. The only question is whether you take advantage of that growth or not.
Sources:
University of Houston Patent Statistics
NBER Business Cycle Expansions and Contractions
USPTO Filing Stats
From Patent Landscaping to Technology Intelligence
by Ryan Rozich on July 07, 2008
I get to spend a lot of time with our customers discussing their specific goals, needs and challenges related to IP intelligence. I’d like to expand on Tyron’s last post about the fundamental shifts in the IP industry and discuss what I’ve been hearing that this shift means for IP professionals and their day-to-day responsibilities.
The Evolution of IP Intelligence
I covered a lot of this in a talk that I gave at the PIUG 08 conference a couple months ago. This talk mostly described the expanding role of IP professionals and what data sources and tools can be leveraged to meet the new demands. We started off by defining some terms (both historical and new terms):
- The term patent search has been used for quite some time to describe the practice of finding patents that matched specific criteria – the business cases for these ‘searches’ usually revolved around patentability or prior-art searching.
- A while back, someone coined the term patent landscaping for looking at broader trends such as if patent activity for a given area is increasing/decreasing, etc.
- Moving beyond patent landscaping, many IP professionals are now looking to answer broader technology intelligence questions such as “what is my IP position in this market”, “who are my small/large technology competitors”, “what are the legal/market/IP threats in this area”, “who would be a good partner candidate or in/out license target”, “what are the IP/legal/other risks in partnering or acquiring this company”. These questions go deeper than simple patent searching or even patent landscaping since in order to answer those questions we need to look beyond patent data.
The Current State of Technology Intelligence
Traditionally, performing IP due diligence for M&A, assessing litigation risks, performing licensing analysis or other competitive intelligence analysis involves multiple roles all looking at the question from different perspectives. For example: a legal group might analyze the litigation landscape, IP analysts perform their patent landscaping, marketing groups look at market trends.
Each data source and group comes with its own biases and perspectives - what is needed is a common reference across all groups, competitive intelligence/marketing, legal, professional IP researchers and business stakeholders.
Building a Unified System
Having discussed the need for a unified analysis platform, we next look at what such a system might look like. Many companies have endeavored to put together internal systems to address the shortcomings of many of the vendor tools in the IP space. Most of these tools are spreadsheet-based with a lot of manual data entry involved. Here is a sample list of requirements for such a system:
- First, identify the types of data that we want to analyze and correlate and obtain the data – so the first step is to aggregate data from multiple data sources.
- The next step is that the data needs to be cleaned into a format that lets us cross-correlate the dimensions of data (for instance, we need to know that company A on this patent is the same company that we have business data for, and is the same company that we have this litigation information about), so the next step is to normalize the data in such a way that we can next correlate the many dimensions of data that we have aggregated.
- After that, we need a system that will allow us to group data, count items, and present results back in a visualized manner.
- Finally, the ultimate goal is to create a reusable system that isn’t a one-off spreadsheet for each project but instead is a unified knowledge platform that can be used across business units and roles for any project. This involves some heavy data warehousing, since data about all patents, companies, lawsuits, markets, etc need to be included.
Innography solves many of these issues and it is our goal to be a unified knowledge platform for performing these technology intelligence activities. We aggregate data from over 12 patent and non-patent data sources, normalize and correlate it and then present it in an visual, interactive format so that our users can perform advanced technology intelligence.
As the IP industry continues to mature and IP is managed like a business unit rather than legal documents, the roles of the technology intelligence professionals will continue to expand. The requirements for access to actionable intelligence will become more and more critical for companies looking to protect their IP and proactively monitor opportunities and threats.
IP Industry State of the Union
by Tyron Stading on June 19, 2008
The IP industry is undergoing a fundamental shift.
While IP has existed for over 200 years, we are just now seeing how IP is being leveraged. Whereas “IP” used to focus on people who generate IP, it is much more about how people are IMPACTED by IP. Executives, HR, managers, sales, etc are all being impacted directly or indirectly by IP, and need to understand what it means to them.
IP wants to be managed like a normal business unit.
The last 20 years has shown us that establishing metrics and monitoring performance is the only way to truly track progress. Whereas IP was a blackhole before, companies are struggling to find ways to manage their IP assets like a regular business. This will increase the sales activities, performance metrics, and P/L of a company.
The holy grail in the IP business is the correlation between companies, products, IP, markets, and financials.
Given the above trends, I believe companies want to understand the interplay between their other areas of operations. Since IP impacts every aspect of a company, the holy grail is to understand how IP impacts other operations. When a business can attribute real revenues, profits, losses, market share, and resources related to IP, we will truly have a mature system. It is a very hard problem, but it has deep impacts in daily operations.
IP litigation will only continue to increase.
I recently read the number of defendants on litigation cases increased 33% last year. Whereas IP used to be MAD (Mutually Assured Destruction), patent trolls (or non-practicing entities - NPE) have changed the game. NPEs are now getting funded by VCs and hedge funds, which will only feed more litigation. We’ve also seen considerable increases by companies looking to leverage their assets as well. Companies now tell us they are receiving upwards of 100-200 “infringement letters” per year.
Businesses and patent trolls are in an arms race, and information is the new ammo.
Much like the security industry, there is a constant battle between “white hats” and “black hats.” Each time a new strategy is launched to combat a threat, the other side comes up with an alternative. Information has increasingly been the one constant in this battle as new sources and types of information become freely available. The key is not just finding information, but understanding HOW TO USE IT.
However, I believe the IP industry is absolutely key to the future of the global economy. I will be commenting more about the growing pains, where trends are heading, and how this will impact the economy and companies.
