How Will the Economic Downturn Impact U.S. Patent Practice?
In his Patent and Trademark Law column, Rob Maier writes: These are surely unprecedented times, and it is difficult-to-impossible to predict much with any degree of certainty. That said, history has a tendency to repeat itself, and a look back at past economic declines provides a glimpse of what is to come, so that companies, intellectual property practitioners and other stakeholders alike can plan and strategize accordingly.
May 26, 2020 at 12:30 PM
9 minute read
The global impact of the COVID-19 pandemic has been both significant and far-reaching. With large swaths of the U.S. economy ground to a halt, experts forecast that the pandemic has sparked what likely will be the worst recession in generations. These are surely unprecedented times, and it is difficult-to-impossible to predict much with any degree of certainty. That said, history has a tendency to repeat itself, and a look back at past economic declines provides a glimpse of what is to come, so that companies, intellectual property practitioners and other stakeholders alike can plan and strategize accordingly.
Economic Downturns: The Basics and Recent History
Our cyclical economy naturally experiences periods of expansion and contraction. These periods of economic contraction, or recessions, have been defined, historically, as two consecutive quarters of decline in gross domestic product (GDP). They are typically characterized by decreases in a number of economic metrics, including income, employment, manufacturing, and retail sales, with the most recent periods of economic contraction being the Great Recession of 2008, the early 2000s dot-com bust, and the savings and loan crisis of the early 1990s.
The COVID-19 outbreak has triggered a new state of uncertainty, with economists now confirming we are in a recession. Unemployment in the United States rose to 16% in April, from 4.4% in March, with economists estimating the jobless rate could approach the peak of 25% reached during the Great Depression. Interest rates have been lowered to near zero, the lowest since 2008, and the stock market has experienced extraordinary volatility, with the Dow Jones Industrial Average recently recording the worst one-day point drop in its history. As companies muscle through the current economic environment, many are trying to project, to the extent possible, what is to come in the near term—including with regard to intellectual property strategy, both in terms of patent litigation and patent prosecution.
Patent Litigation: An Increase on the Horizon?
Patent practitioners have historically offered two competing theories about how periods of economic contraction affect patent litigation in the United States. The first, the "capital constraint theory," argues that economic downturns tend to reduce patent litigation due to restrictions on available capital. According to the theory, the economic downturn causes companies to hunker down and look for places to reduce spending, including legal spend on non-essential litigation matters. The alternative theory, the "substitution theory," posits that economic downturns actually increase patent litigation and licensing efforts, as companies seek new revenue streams to compensate for decreased profits on sales of products and services. Both theories are logical and have some merit. So which theory is correct, and how can we estimate the impact of the current economic downturn?
An insightful 2015 study suggests that both theories are, to some degree, correct—patent litigation may increase or decrease during and immediately following an economic downturn depending on the nature of the downturn. Marco et. al., Do Economic Downturns Dampen Patent Litigation?, 12 J. Empirical Legal Stud. 481 (2015). According to the study, there is no one-size-fits-all approach to how an economic downturn has historically impacted U.S. patent litigation filings—rather, specific macroeconomic indicators such as real aggregate GDP, outside investment, real interest rates, investment in research & development, and the TED spread (a measure of the perceived credit risk in the U.S. economy) all play a role. Id.
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