Five ways IP can help in a recession

Writing in the Financial Times in July, David Lubin, Head of Emerging Markets Economics at Citi, pointed out that the global dip in goods exchange is now having an impact on investment in emerging markets.

On the other hand, as a category of intangible assets, Intellectual Property (IP) is less susceptible to these kinds of fluctuations and can offer much-needed stability in financially worrisome periods. As such, those responsible for managing IP portfolios are in a position to help steer through economic squalls, but only if they are properly informed of the strategies available.

IP in times of adversity

A negative outlook means that many businesses and IP owners will be cautious about investing and may be looking to cut costs where possible. Evidence from previous downturns suggests that applications for IP rights fall when the global economy declines, and some IP offices have already reported a drop in trademark applications.

Use of the Madrid System for international trademark filings shrank by 6.1% in 2022, according to World Intellectual Property Organization (WIPO) statistics – its most significant decrease since the fallout of the 2008 financial crisis.

However, there are five key reasons why now is the right time to concentrate on protecting and enforcing IP rights.

1: IP rights are generally a medium-to-long-term asset

Patents last up to 20 years from filing (with extensions possible for pharmaceuticals), registered design rights in the European Union for up to 25 years and trademarks indefinitely (providing they continue to be maintained).

A commitment made now can reap rewards for many years to come. Joint research by the European Patent Office (EPO) and European Union Intellectual Property Office (EUIPO) found that small and medium-sized enterprises (SMEs) that register one or more IP rights were 21% more likely to experience a subsequent period of growth and 10% more likely to experience high growth.

2: IP rights can generate additional revenue during challenging periods

For example, patents and trademarks can be enforced against competitors, leading to damages awards, or licensed to ensure ongoing royalties.

They can also be used to raise capital by acting as collateral, attracting outside investment through breaking new ground or adding value during mergers and acquisitions. At times of economic stress, IP managers should evaluate and reinforce their IP portfolio to create new monetization opportunities.

3: Consumers are likely to become more discerning

With household budgets under pressure, shoppers may think twice before making purchases. In this context, standing out from competitors with a strong brand identity or innovative product is even more influential in buying decisions.

At the other end of the consumer spectrum, this could partly explain the "luxury goods boom" of the past few years, which has led to massive demand for high-end fashion and cosmetics and record valuations for companies such as LVMH, Kering, Hermès International and L'Oréal.

4:  The threat from counterfeiters and pirates will increase

It is inescapable that bad actors will take advantage of a slump to prey on vulnerable purchasers looking for bargains by offering fake, imitation or grey-market goods. IP managers need to be vigilant in monitoring and taking action against counterfeits, making every effort to foil wrongdoers before they have a chance to damage a brand that may already be ailing from recessional pressures.

These measures invariably begin with IP registrations but can extend to civil and criminal actions for IP infringement or unfair competition, recording trademarks with customs authorities, online takedown requests and, of course, education campaigns to raise internal awareness.

5: There is ample evidence that necessity is the mother of invention

As set out in detail in the WIPO's 2022 report, "The Direction of Innovation," the Second World War led directly to investment in the mass production of penicillin, the development of blood substitutes and the creation and production of new vaccines.

Through a similar mechanism, the Cold War Space Race drove the research and development of solar panels, carbon fiber composites and, ultimately, artificial intelligence (AI).

More recently, the COVID-19 pandemic and lockdowns resulted in medical advances, including effective mRNA vaccines and novel or improved digitalization tools (such as videoconferencing).

The best of a bad situation or the worst of a good?

In every time of hardship, there are casualties, and even a well-stocked IP portfolio does not render an organization immune from succumbing to external pressures. Inevitably, businesses undergoing liquidation will relinquish their IP assets to all takers at less-than-optimal rates.

Such "closing down sales" not only remove competitors but present surviving companies with a chance to boost their stores of patents, trademarks, designs and copyrights at a fraction of the cost in better days. For instance, the pandemic acted as an innovation catalyst in some industries by forcing a "survival of the fittest IP" scenario through the redistribution of IP rights to surviving players with doubly improved chances of success.

It is regrettable, then, that not all such beneficiaries utilize these gains in the best of faith. Some holding companies will snatch up cheap assets to pursue litigation in industries in which they are non-practicing entities (NPEs). So-called "patent trolls" are an expensive thorn in the side of SMEs and major corporations alike, with aggregate defense costs in the United States reaching billions of dollars every year.

To be clear, not all NPEs behave in a manner that obstructs business, but the actions of genuine patent trolls can, rather inversely, be facilitated by slow or negative economic growth, and so other IP owners must be attuned to this added threat.

Turning crisis into opportunity

While economic slides are painful, they do not last forever and can create fresh opportunities, at least for some. For instance, the legacy of the Great Depression from 1929 can be seen in the invention of the car radio and tampon, as well as the conservation of areas of natural beauty.

Today, the world faces not just an economic crisis but also an environmental one. These current hard times will likely provide incentives to develop more sustainable technologies. Cost pressures and the need to implement creative solutions to fuel shortages have prompted advances in low-carbon technologies, electric vehicles and plastic-like materials free from hydrocarbons.

The requirement to manage expenditures could also accelerate the uptake of automation and AI across products and services, for example, in public transport and e-commerce.

In all these areas, IP assets have a critical role to play in protecting investment, stimulating research and promoting competition. While there are overheads associated with registering IP rights and obtaining legal remedies, these are small when compared with the potential benefits of developing must-have products and entering untapped markets.

For all companies – big and small – now is the time to consider how best to cultivate and exploit the IP in your organization.

Editor's note: This article is gratefully republished with the permission of Dr. Cornelia Peuser, formerly of Dennemeyer Consulting. A version first appeared in WIPR Issue 2, 2023.