CORONAVIRUS CATASTROPHE: THE VALUE OF INTELLECTUAL PROPERTY DURING AN ECONOMIC CRISIS
March 26, 2020
CORONAVIRUS CATASTROPHE: THE VALUE OF INTELLECTUAL PROPERTY DURING AN ECONOMIC DOWNTURN
By: Katie Rubino
As the number of cases of the novel coronavirus around the world continues to escalate, business enterprises both small and large are feeling the impact of social distancing and shelter in place orders. With the seemingly overnight closure of restaurants, retail stores, movie theaters, shopping malls along with orders to work from home indefinitely, experts are warning of a coming economic recession.
Since its inception, the United States has weathered as many as 47 recessions each triggered by various events such as financial crises, bursting of economic bubbles, trade shocks, terrorism, and pandemics. Perhaps its most famous economic downturn, the Great Depression, lasted from 1929 until 1938 and was brought on by a stock market crash and intensified by drought. The hardships presented by the Great Depression are attributed to the enactment of the New Deal, which sought to revitalize the stagnated U.S. economy.
Likewise, in 2001, an economic downtown was attributed to a combination of the dot-com boom of the 1990s and the 9/11 terrorism attacks. More recently in 2008, a subprime mortgage crisis triggered the worst financial crisis in the United States since the Great Depression, resulting in the economy shrinking for five quarters and the collapse of the investment bank, Lehman Brothers.
During these troubling financial times, many founders, entrepreneurs, and C-suite executives ponder how to manage their intellectual property assets. Many wonder, is it better to wait it out until the economy recovers or to continue to invest in intellectual property?
Generally, economic downturns result in generating profound entrepreneurial activity and flurries of innovation. For example, the Great Depression resulted in inventions that revolutionized modern life, including the first electric dry razor, the Xerox copy machine, and the chocolate chip cookie. A 2009 report by the Ewing Marion Kauffman Foundation found that half of the companies on the 2009 Fortune 500 list were founded during a recession or bear market.[i]
Before, during, and after the 2008 financial crisis, the number of issued utility patents in the United States remained constant.[ii] During the height of the 2008 financial crisis, the United States Patent and Trademark Office (USPTO) issued only a slightly fewer number of patents than it had in 2007.[iii] However, by 2010, the number of patents issued by the USPTO exploded and far exceeded the number of patents issued in the years leading up to the 2008 financial crisis.[iv]
On a global scale from 2007 to 2011, issuance of foreign applications continued to increase each year from 2007 to 2011, indicating that global patenting activity was not affected by the financial crisis in the United States.[v]
During an economic downturn, businesses can use their intellectual property assets to leverage access to new markets and generate dependable revenue through the licensing and sales of their patents. For example, in 2012, shortly after the 2008 financial crisis, Kodak sold 1,100 patents directed towards digital imaging for $525 million, an average of $479,091 per patent.[vi]
Intellectual property plays an important role in driving the economy by providing incentives to innovate by protecting inventors from unauthorized practice of their inventions. Intellectual property also supports entrepreneurial liquidity through mergers, acquisitions, and initial public offerings (IPO). Intellectual property is central to the success of almost every company, with 75% of the asset value of most companies directly tied to its intellectual property.[vii] In addition, intellectual property can fulfill a multitude of business objectives, including revenue generation, conflict avoidance, cost reduction, and assisting in creating a strategic position.
On a closing note, “If there is one universal truth in business, it is that companies that continually invest in innovation are in a better position to ride out economic storms and come out the other end stronger. With the newfound perspective of having seen some of the world’s most tangible asset evaporate- residential real estate and global banking institutions to name a couple- we turn to our intangible assets as the lifeblood of economic growth.”[viii]
[viii] J. Rosie “The value of IP in a recession” Intellectual Asset Management (July/August 2009) 7