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Good and bad news for the IP industry if recession does bite

With stock markets all over the world heading south, an economic slowdown - if not a full blown recession - is becoming more likely; especially, it seems, in the US. So I got to wondering what would a recession mean to various parts of the IP world – what dangers and opportunities would recession present and how would everyone cope? None of the following is scientific, it’s all speculation. But this is what life could be like for some:

Corporate IP departments

Here I guess it will all depend on the way in which companies see their IP rights: costs or assets. In companies where the IP department or group is there merely to manage portfolios and deal with renewals the temptation will be to see it as a cost centre and so ripe for trimming – especially if expenditure on R&D and new product launches is restricted. But IP departments that have successfully managed to monetise rights and/or develop (and demonstrate) other types of value-creating benefits will probably feel a lot safer. The great thing about the money that companies make from their IP is that so much of it goes straight to the bottom line, so a successful IP monetisation programme run by people who know what they are doing is remarkably cost-effective; and it's the same principle with value-creation - the cost to benefit ratio is significant. On the other hand, those who have been talking the talk but not walking the walk should feel nervous – big salaries on the back of promises but no delivery are unlikely to be tolerated for long as corporations batten down the hatches.

Legal community

Managing partners at major US law firms were already gloomy about the prospects for 2008, even before the latest stock market plunges. Law firms are never scared to cut back when things are looking tricky and any group that is not producing the goods is likely to suffer, and quickly.

There are three types of law firm when it comes to IP: (1) the specialist or boutique firms, driven only by litigation and/or prosecution, usually concentrating on patents; (2) the general practice firms with strong IP groups that may do some prosecution (in the US at least), but which are driven by litigation; and (3) the general practice firms that have IP groups which generally act as support for other areas and bring in only a small amount of work on their own behalf – they may want the big cases but they do not get them.

My guess is that the good firms that operate on the basis of (1) and (2) will be fine over the coming months - although they may have to be a little less ambitious with the fees they charge; but I would be worried if I were practising in an operation similar to (3). IP rights – especially patents - become more precious and even more worth protecting in the courts when times are bad; the M&As, the IPOs and the other types of deal that keep the IP lawyers in law firm (3) busy become much scarcer.

It is interesting that despite the fears of a downturn, law firms in the US still seem keen to recruit patent attorneys with litigation experience.

Patent and trademark agents may also find times getting a little tougher. Companies wishing to make savings may well look at filing and prosecution as candidates for potential cuts or they may look to take work in-house. If R&D cuts occur, this will also have an effect on the amount of work available. I suppose that this will be more of an issue for agents that do not have expertise in specialist areas or the size to take a hit on lowering prices. For patent and trademark agents inside law firms, the prospects must be pretty grim as they are doing high-investment work for relatively low returns. Partners in law firms don’t like that at all.

Patent and trademark offices

We have not really experienced a full-blown recession during the IP boom of the last 10 years so it is difficult to predict just how a downturn will affect patent and trademark offices. What we may see with patents, however, is that with money tight companies will be much less likely to file applications speculatively and will be even more severe than they are now when making assessments about renewals.

On the negative side of things, this will put patent office income under real pressure at a time when the expensive tasks of cutting backlogs and increasing quality are number one on the agenda. On the plus side, less applications may mean greater scope to eat into backlogs and give examiners more time to spend on looking at individual applications. Falling incomes may also mean even greater efforts among offices to work together on procedural and substantive matters.

Something else that could be a bonus for the USPTO at least is that cut-throat, trigger happy law firms may be a less attractive option for examiners who would prefer the security of working for a government agency. Thus, retention rates among experienced examiners could increase.

The middle men

Oh to be a patent troll now that recession is near! Imagine all those companies going bust leaving behind patent portfolios to acquire. These will be investments not only for now, but also for years to come. As long as the cash is in place, recession will be time for the trolls to make hay. And, who knows, companies that trolls target may be even more likely to settle up in order to avoid the expense of going to court

Other types of intermediary could also do well. It will not only be trolls that are after the IP rights of bankrupt companies - all kinds of people wil want them and they will also want help in finding them. IP-rich companies looking to raise money may find it more difficult to attract cash from traditional sources and so may be more inclined to think about and then do innovative things with their rights. People with expertise in areas such as selling and licensing could also be in demand. If the message is understandable and bears up to scrutiny there could be some rich pickings for the IP service providers as companies think much more carefully about where real value lies.

So, all in all, although any recession will be bad for economies in general, for the IP industry it does not have to be a negative. In fact, a serious downturn could be the making of it. Companies will be forced to think more about what is truly valuable to them; this should enhance IP’s position as a business asset and make many types of IP professional much more in demand. A slowdown could also give patent offices much needed breathing space. There will be casualties, however. These will mainly be people and organisations that have failed to understand the potential that exists in IP. They will learn a difficult lesson. And as for the trolls, well for them I suppose recession cannot come soon enough.


Joff Wild
IAM Magazine
22 January 2008

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RE: Good and bad news for the IP industry if recession does bite

Joff,

Semi IP licensing is growing at 63% according to Gartner research. That is about 5-6 times faster than the overall semi market. Bio IP licensing has grown at a compounded 31% growth rate since 1991. Patent litigation is on the rise, IP attorneys are in hot demand, and patent sales and auctions seem to be doing well with Research in Motion recently announcing 173mm buy of some GSM patents.

steve lozan, ssb on 24 Jan 2008

RE: Good and bad news for the IP industry if recession does bite

I think, as usually happened in the past, the companies will be focused into lower their IP-related costs, but improving the efficiency of their in-house departments rather than cutting R&D and IP exploitation. They will see how to do the same with less money, seeking better providers for some tasks (like translations, searches, etc), cutting down the staff at certain levels (low ones), improving the performance of their processes and people. It is the right time for seek new, less expensive associates in foreign countries for foreign IP registrations, almost for their less valuable IP assets or the IP assets they can control/monitor better. The registration of accessory, non-strategic patents and trademarks will go down, along with the registration of certain IP assets in some non strategic markets.

The patent and trademark offices can be affected by fewer filings, but I guess this will be a minor issue for the next two years. Because the offices are governmental institutions with a yearly fiscal plan/budget and I have my concerns such plans, almost in most countries, include a possible global recession. On the other hand, usually, the offices obtain more profits from the renewal (the margin is bigger than the filing ones), so they will see an impact in their balance in a year or two.

The recession will affect the expenditure in R&D, but not so much. There are a lot of mid/long term R&D programs running on right now and they cannot be paused or canceled just for a situation that can long a couple of months/year.

It is time to do the same with less. It is time to improve the processes and become more efficient.

Erwin Cortagerena

Erwin Cortagerena, Equerion Information Services Corp on 24 Jan 2008

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