Patents and the Economic Crisis

Expert Article by Bart Van Wezenbeek

The worldwide, but especially European economic crisis has lasted for about two years now and seems to hit the SMEs the hardest, at least in my country according to a newspaper today. A major part of the total of SMEs is formed by young start-up companies: they are still small or medium-sized. These young companies seem to form an important part of the companies that file patent applications.

From an OECD report (OECD Science, Technology and Industry Scoreboard, 2011), it appears that the presence of a relatively large number of young firms among patent applicants underlines the inventive dynamics of firms early in their development and their desire to develop new products, which may affect their survival and growth. In the period from 2007 to 2009, firms less than five years old that filed at least one patent application represented on average 25% of all patenting firms, and generated 10% of all patent applications. Accordingly, these young start-up companies are responsible for a substantial patent volume. Further, of course, also the large companies cut back on their expenses, which also affects the protection of IP.

Looking at patent activity from a historical perspective, it appears that the demand for intellectual property rights declines during an economic recession. For example, the number of patent applications in the USA during the Great Depression decreased by 37 percent during the period 1929-1933.

Is the same thing happening now again? That is something that is not simple to answer. First of all there are differences between national and regional or international applications. In some national systems the economic crisis is (nearly) absent, so that still major increases in patent applications are visible, e.g. in the BRIC countries. Of course this also has an effect on the international filings from those countries, which may mask the decrease in international filings from countries where the crisis is at its top. Further, the crisis may cause shifts in the filing strategies that companies employ: in many cases regional or international filings will now have become more attractive than local filings because of the internationalization of the commerce. And lastly, there may be a difference in the technical field. Telecommunication and medical diagnostics seem hot areas nowadays, while chemistry and automobile industry are suffering more from the crisis.

Can we then make any conclusion as to the impact of the crisis on the innovative activity, especially relating to SME and in particular start-up companies? No, because next to the previously mentioned effects, there will also be a further effect, applied as an answer to the crisis: the necessity for companies to innovate in order to outperform the competition and thus survive the crisis. This drive for innovation stimulates research into new products or new applications for existing products, which research will eventually and inevitably result in inventions that need to be protected.

Thus, to my opinion, the old rule that an economic crisis causes a decrease in patenting activity is no longer tenable. First of all, the present crisis is not or at least less world-wide. Secondly, an economic crisis induces innovation and thereby patenting. Why such an effect was not observed during the Great Depression in the US is a riddle that still needs to be solved.