IP in recession

Source: Oxfordjournals
By Jeremy Phillips
News reports from almost every quarter have been delivering a dismal message. Banks, many of which face debt crises, are reluctant to lend their way out of their difficulties. Oil and food prices have surged upwards and show little sign of an imminent descent. Manufacturing output is subject to painful spasms. The environment continues to give cause for concern and the cost of preserving it, even in its present damaged state, is unappealingly high. Following the sub-prime credit slump, we may feel tempted to describe ourselves as the sub-prime generation.

How does this affect IP rights, their owners, and those who advise them? In the global economy, it is not merely all countries and all markets but all sectors of activity that have become linked, to the extent that what damage to one element of it is damage to all. To put it another way, it does not matter which part of the hull is holed, it is the whole boat that ships water and, if nothing about it, it is the whole boat that sinks. If the global economy withers on the vine, it would be folly to imagine that IP practice would be immune.

Yet, our position is better than that of many. Even though the boat may sink, one's chances of survival if one occupies the last part of it to become submerged. Is IP that last part?

The good news for the IP sector is that, though it is not recession-proof, it is remarkably buoyant—as those who have lived through previous, admittedly smaller, economic dips, and mini-recessions will recall. IP rights, particularly long-lived and potentially perpetual ones such as trade marks, still have to be maintained and generally have a value of some sort even when times are tough.

When a market expands and the going is good, an IP-owning enterprise may spend relatively little time and resources in policing their rights: the effort and expense of doing so, and the predicted risk of a small return, may argue for the same resources that might be committed to litigation being spent on product development, marketing, and new corporate acquisitions instead. But when a business watches its market decline in size and spending power, the retention of existing consumer goodwill becomes increasingly important because competitors, becoming desperate, may resort to more extreme measures than fair competition in order to preserve their own existence. This is why IP litigation does not die down in proportion to the rate at which market activity declines but appears instead to remain constant or even increase.

There is another reason why IP practitioners and consultants may find themselves increasingly busy, and remuneratively so. In the olden days, when IP-rich manufacturing businesses made their own products and owned their own real estate, they could mortgage their offices, factories, warehouses, distribution centres, laboratories, recreational facilities, and so on. Nowadays, the functions that required territorial investment are frequently fulfilled through outsourcing. With plummeting property prices and many companies not even having a serious property portfolio on which to borrow, the ownership of statutory IP rights provides them with assets that can be securitized or the income from them used as a means of obtaining a cash flow benefit. This too provides jobs for the IP boys.

For as long as a recession ends, the IP system helps to encourage innovation, if not also the investment in it. The exercise of the intellect in thinking up creative concepts and ways of developing and marketing them is not normally a capital-intensive activity (even though in some advanced industrial sectors mere thought alone can only get the creator so far). This too should lead to at least a modest flow of work, though it is obvious that small-time IP rights filing in a weak market is not an activity that can support the entire range of IP professions.

So let us not be too despondent. A full-blown recession will hurt us all, and it is a nightmare for those of us who like to cherish the notion that the development and maturity of profitable markets is a one-way irreversible affair. But, it is not too much to dream that the damage which we suffer will not be fatal and that the big debating point is not whether we jump off the tops of our Patent Offices, but the less pressing issue of whether to spell ‘recession’ with one ‘c’ or two.