Patents and recessions – How to recession proof your patent portfolio

As the United Kingdom potentially teeters on the edge of another recession, many companies are considering their IP strategy for navigating the tricky economic times ahead.

A history of recessions and patents

It is no secret that recessions often lead to a decline in patent filings. Between 2008 and 2009 the number of patent applications received by the European Patent Office (EPO) fell by 8.2% (see Figure 1).

Figure 1. Source: EPO annual report 2009

However, a dip in filing numbers is usually short-lived and, if history is any guide, companies that invest in IP in a recession tend to come out the other side stronger than those who choose to wait for the economy to improve.

By way of case study, throughout the recession period of 2007 to 2009, Amazon’s stock declined, putting the company’s upward trajectory in doubt. While the financial crisis was hurting its competition, Amazon decided to double down on innovation. It launched a whole suite of new products: Amazon Prime, Amazon Kindle, and Amazon Web Services (AWS), its cloud computing arm. By 2009 Amazon’s profits were up 68%, and each of these introduced products has become a major part of the Amazon business we see today.

Managing patents in a recession

There can be the perception that building a patent portfolio is costly and that during a recession it is prudent to keep expenditure low. However, IP budgets can be optimised by focusing on key future development areas. Now is the best time for company owners to allocate their resources (both time and money) to building and managing their patent portfolios.

Below are some practical tips for managing patent portfolios during a recession:

• Handling tighter IP budgets and careful portfolio pruning: It is inevitable that some difficult decisions may need to be made in order to reduce cost spending on IP budgets, in particular, the ongoing costs associated with maintaining granted IP rights. A first step should be to review the extent of territorial protection and consider whether protection is genuinely commercially useful in each country. In most countries, patents require the payment of annual fees to keep them in force. It may be that some territories are no longer of interest and that substantial savings can be made by focusing on a core group of countries. It is equally important to consider the products covered by patents in the portfolio. Often, the market has developed to such an extent that a patent applied for ten years ago, while still potentially in force for another decade, no longer provides commercially useful protection. For pending applications, cost can be deferred to a later date by using appropriate tactics, such as different filing strategies, deferred examination, and making use of available extensions.
• Focus on the future: Invest in products and services that you plan to rely on now and when the recession ends. In particular, prepare to invest your IP budget in upcoming flagship products that you hope to sell when times are good again. Once the economy rebounds, those companies who have a solid and robust patent portfolio and a breakthrough product can sprint while their competitors slowly crawl. It helps to have a first-mover advantage as the recession ends in order to maintain and/or grow your market share. However, it may be sensible to reduce patent filings for potential “blue sky inventions” for which there is no planned use in the future.
• Acquiring IP: We recommend keeping an ear to the ground for any potential IP sell-offs. As competitors change strategy, and unfortunately some businesses fall casualty to the challenging economic times, watch out for any potential opportunities to acquire new IP – there may be deals to be had! Sweeping up IP, via fire sales or from administrators, can grant access to a protected area of the market that previously belonged to someone else. If you are unable to purchase IP yourself, then be sure to carefully watch out for who ownership of IP you are interested in transfers to, or for any IP rights which may have been allowed to completely lapse, so allowing you greater freedom to operate.
• Monitor competitors: It can be helpful to set up patent watches to benchmark against owners of similar portfolios. Changes in pace of patent filings in particular technology areas may be used to determine your own strategy. Although patent applications are not published until 18 months after filing, that information can reveal potential trends by competitors. By gaining strong intelligence on past inventive activity, future developments may be predicted. By seeking to protect such developments pre-emptively, businesses can gain considerable advantage over their competitors.
• Get the creative juices flowing: Recessions are a great time to make use of time with scientists and engineers. As sales and product launches slow, inventors, who are often difficult to pin down, may have increased time to perform research and development and help with invention capture.
• New market entrants: Watch out for new market entrants who may seek to capitalise on changing market conditions. New entrants to the market may be less respectful of any status quo established with reference to more long-standing competitors. Acting wisely against such newcomers is very important to prevent shrinking market shares.

If you would like to discuss this further, please contact Hannah Auger or your usual Venner Shipley attorney.