IP in Times of Recession: A Comprehensive Guide for IP Professionals

Counsel Dana N. Justus was a member of the project team that produced the report “IP in Times of Recession: A Comprehensive Guide for IP Professionals,” published by the International Trademark Association. Following is the full Executive Summary of the report:

Executive Summary

“In compiling the data for this report, we have gained a comprehensive understanding of the 2020 recession, primarily driven by the unprecedented COVID-19 pandemic. The pandemic’s global economic repercussions were substantial, leading to widespread shutdowns, disruptions in various industries, supply chain issues, and a sharp stock market decline. We have also identified key indicators commonly used to recognize a recession, including GDP fluctuations, unemployment rates, consumer spending patterns, business investments, and stock market performance. These indicators can help us gauge economic health and anticipate potential economic headwinds.

Internally, INTA has consulted with J.P. Morgan to assess the current economic climate, with the latest report indicating mild recession-like conditions in early 2023. J.P. Morgan’s analysis relies on the National Bureau of Economic Analysis’ six-factor test, considering personal income, employment, spending, wholesale/retail sales, and industrial production. Their assessment suggests mild recessionary headwinds, distinct from the full-blown recession experienced in early 2020.

Furthermore, we have outlined ways to recognize a recession, and the potential impact on intellectual property (IP), which can be distinct from broader economic trends. These include fluctuations in IP filings, licensing and litigation activity, changes in IP portfolio management, increased IP theft and infringement, and shifts in IP-related investment across different industries.

The data reveals that recessions can take various forms, with the COVID-19 recession serving as a unique example. The response of the IP system during this recession demonstrated its adaptability and resilience, as it played a critical role in overcoming the crisis through public and private investments, trade secrets, patents, and IP licensing.

As we move forward, it is essential to remain vigilant and closely monitor changes in IPrelated activities, as they can provide early indications of a recession’s impact. Different regions and industries may respond differently, as demonstrated by the data, making it crucial for organizations to adapt their IP strategies to navigate the challenges and opportunities presented by recessions.

Better IP reporting and improved IP accounting standards would help companies, including SMEs, gain access to funding, which is generally harder in times of recession, especially for companies that rely on intangible assets. Accounting standards should not require a blanket exclusion of trademarks and complementary IP that are developed in-house from recognition as assets on corporate balance sheets.

Companies are focusing on predictable legal budgets. Therefore, it may be preferable for companies to use fixed-fee deals.

Law firms may help generate revenue by helping distressed businesses seek creative methods of resolving ongoing debt issues. It is important to recognize the sectors that are affected by recession comparatively more and help them prioritize their legal work. During economic downturns, companies and individuals may consider enforcement of their IP rights as a source of funding that could lead to compensation or licensing deals. Law firms should encourage their clients to partner in IP endeavors. For example, collaboration with other companies or universities could help cut the costs of R&D, overhead, and payroll in return for a shared revenue. It is advisable for companies to revise their strategies for entering new markets/ jurisdictions, if any. Licensing from a local company instead of making an investment during unpredictable times may be more beneficial.

Law firms may help distressed companies review their IP registrations, identifying the core rights and perhaps abandoning the remainder (or offering them for transfer/license to another company), which would cut annuity costs and thereby cut administrative costs for monitoring. Not all IP rights are aligned with business interests that are relevant in the moment. This may also require the review and sale of businesses that are a liability rather than a benefit. Recessionary times may also be the best time for acquiring IP from companies in need of cash flow.

Law firms may help distressed companies review their IP rights and help them to determine whether all their rights are registered, consider whether they need to be registered and, if so, whether they can still be registered in light of grace periods. Because a lot of local companies see IP registration as an unnecessary expenditure, they may be missing an opportunity to gain revenue from their unregistered rights.

A recession impacts IP in many ways, including the budgets allocated by companies to protect and enforce IP rights, investment in technology relevant to IP assets, staffing of in-house legal teams and within IP departments in law firms, and the sale and purchase of IP assets. The direct impact of a recession is that budgets are reduced across businesses, which decreases the funds available to protect, maintain, and enforce IP rights. Companies are likely to focus on core brands and core markets and less likely to oppose third-party marks or file cancellation actions. Budget restrictions are also likely to deter business owners from litigating over IP assets. During a recession, law firm teams may invest more in technology to increase work product efficiency. Our research indicates that legal tech spend within in-house departments increases in times of budget crisis. Merger and acquisition activity tends to decline before a recession. However, companies that have the resources to invest may reap the benefits as our research also shows that companies that make acquisitions during a recession are likely to see better shareholder returns in the long term. Overall, a recession tends to reduce the investment in maintaining and protecting IP assets but leads to greater investment in legal tech to gain efficiency in tough times.

Technology could be an especially important tool to help the IP community to weather the impact of recession. This seems to be a consistent finding in both the external reports and our original research conducted through this Project Team’s survey in 2023. Implementation of legal tech solution for in-house use seems to bring the highest result although, sharing of the IP data between the clients and the vendors, as also between multiple vendors becomes problematic. Currently, there doesn’t seem to be a cost-effective solution to this lack of technology “harmonization.” In-house practitioners lack the time to prioritize this, while law firms find it a technical and resource burden.

Online infringement is typically expected to increase during recessions, and most expect enforcement budget and costs to be a primary concern. A more specific study might be required to investigate the issue more granularly.

Recession may also bring financial implications to law firms. The key problem for tech adoption is cost and technical know-how, and these require a longer-term investment to resolve. It is recommended that law firms should prepare for technology adoption well ahead of a potential recession.”