IP Law Bulletin

The World Intellectual Property Organization (WIPO) recently published its second annual World Intellectual Property Indicators report, providing an in-depth look at worldwide trends in intellectual property (IP) activity. Though the report principally focuses on the impact of the 2008 worldwide economic crisis on research and development (R&D) investment, innovation, and the acquisition of IP rights, the report also captures preliminary data from 2009 and 2010. During the examined period, most major economies have emerged from recession, while many middle-income economies have returned to their rapid, pre-crisis growth levels, and it is expected that continued economic recovery will soon prompt a rebound in overall IP activity. Indeed, some preliminary data indicates this may already be happening, though a lingering impact may be seen on patent filings through 2011. The post-crisis innovation landscape will invariably look different than before, as the center of gravity of the world economy shifts and new innovation centers continue to emerge, particularly in Asia and middle-income countries. Notably, the continued growth of IP activity in China throughout the worldwide economic downturn indicates that China is becoming a major player in the intellectual property market.

Investment in Innovation

Overall, R&D expenditures in 2009 decreased slightly over the previous year. Because the expenditures fell at a lower rate than revenues, however, the report indicates that firms are again increasing the intensity of their R&D.

Venture capital (VC) investments showed significant decline from 2008 to 2009. Though VC investment in the U.S. totaled only about $13 billion (down 55% from 2008), the report notes that this decline is small compared to the great shifts of the VC boom and bust at the beginning of the century. Promisingly, preliminary 2010 data shows signs of improvement, with recent evidence pointing toward a focus on later-stage, lower-risk investing.

Patents and Utility Models

Due in large part to the lengthy process of moving innovation out of the development pipeline and into patent offices, patent activity tends to be a lagging indicator of both an economic downturn and the subsequent recovery. At the outset of the financial crisis in 2008, worldwide patent filings increased over the previous year, though at a slower rate. In 2009, however, the number of filed patent applications actually dropped below the levels of the previous year for the first time since 2002. Indeed, the Patent Cooperation Treaty (PCT) system experienced its first drop in patent applications (almost 5% over the previous year) for the first time since its inception. Preliminary 2010 data is encouraging though, as it points to renewed growth in worldwide patent filings.

WIPO data additionally indicates significant regional variation in patent filings. Generally, the recent overall decline in national filings was driven by a decrease in non-resident filings, thus suggesting a greater short-term focus on a firm’s home markets. Notably, the United States was one of several exceptions to this trend, instead seeing a drop in resident filings and an increase in non-resident filings. Further, despite the overall worldwide decrease in patent filings, filings in the Chinese patent office continued their strong growth with a roughly 18% increase in 2009. Additionally, PCT applications arising out of China and Korea outpaced the growth of their domestic applications in 2009.

In contrast to patents, the worldwide utility model system continued its decade-long trend of increased filings year-after-year. Because utility models are primarily used by residents to protect inventions at their national patent offices, utility model filings may have been bolstered during the economic downturn by firms’ short-term focus on their home markets. Again, the growth of utility model filings in China far outpaced the overall worldwide growth.

Trademarks

Because businesses are typically cautious about introducing new products during uncertain economic times, trademark activity tends to be a leading indicator of declining economic health. Indeed, trademark activity began slowing in 2006, with worldwide filings decreasing in 2008 over the previous year. Despite the continuing decrease in filings in most national offices in 2009, trademark activity in China grew substantially with filings up nearly 21% over 2008. Chinese registrations were up nearly 57% during the same period. Though the flurry of activity in China skews the worldwide data, the WIPO Director General stated that preliminary data for 2010 indicates a return to 2008 levels with a projected 11% increase in trademark filings.

Industrial Designs

Industrial design applications in 2008 also demonstrated significant regional variation. Overall, worldwide industrial design applications increased for the 15th consecutive year, though the 5.7% increase was lower than the increase of subsequent years and is largely attributed to increased activity in China. Indeed, the number of industrial design applications filed in China in 2008 was four times higher than that filed at the second busiest office.

Conclusion

The 2010 World Intellectual Property Indicators report indicates that activity in the IP realm is on the road to recovery throughout much of the world; in China, no recovery was necessary as the trends indicate a continued growth over the past few years. We anticipate many of our clients are restoring their R&D budgets to continue to spur innovation. IP owners should give strong consideration to protecting their rights globally, and in particular in China, where it is clear that IP is finding an increasing importance.

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617.439.2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.