Will a Recession Impact the Patent Industry?
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 patent 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.