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Patent Filings, Litigation May Shift in Economic Crisis

April 21, 2020, 10:30 AM

Companies are facing tough decisions about applying for patents and launching infringement lawsuits amid the Covid-19 pandemic.

Fewer patent applications are expected to be filed with the U.S. Patent and Trademark Office during the economic slowdown, and more applications could be abandoned, as businesses tighten their budgets.

Some IP watchers project thousands of fewer filings over the next couple years. Filing activities could fall 2% to 4% in 2020 and 2021, according to an estimate from Patexia, an intellectual property research company that has studied patent activity in past recessions.

The pandemic could also affect how existing patents are enforced. Businesses consumed with virus-related disruptions aren’t as focused on pursuing alleged infringers, attorneys said. Cash-strapped companies might be reluctant to pour resources into new litigation for now.

“I would think that conservation of capital is the goal of a lot of businesses,” said Ted Stevenson, a trial lawyer and patent attorney at McKool Smith PC.

The rate of patent infringement lawsuits could rise if patent owners look to their intellectual property as a source of revenue.

Past Recessions

The “Great Lockdown” recession could be the worst in almost a century, the International Monetary Fund said. U.S. businesses are struggling amid the dramatic drop in economic activity.

“It’s not crazy to think that there will be a significant decrease in patent filing that is pretty immediately apparent, and a pretty significant decrease in payment of maintenance fees, because this is a very dramatic economic hit for most companies,” said Jonathan Stroud, the chief IP counsel at Unified Patents LLC.

Republican and Democratic leaders of the House and Senate IP subcommittees last week asked agency director Andrei Iancu whether patent applications have decreased, or if the office anticipates a decrease soon.

The patent office declined to comment.

Past economic disruptions have impacted patent application rates. In 2009, new patent applications ticked down—from 485,312 the previous year to 482,871—after several years of steady growth, according to patent office data.

The number of patents that expired because of unpaid maintenance fees also rose during the 2009 financial crisis, and there were significantly more abandoned patent applications, according to Patexia’s analysis. Similar patterns also emerged after the turn-of-the-century tech bubble burst, Patexia said.

Patent prosecution has been “under pressure” in recent years, Patexia CEO Pedram Sameni said. He pointed to a slowdown in year-over-year growth for patent applications. The economic slowdown could fuel those pressures.

“It’s going to be more focused on quality, rather than quantity,” Sameni said.

The patent office last month extended the time to file certain patent documents, as well as deadlines for small businesses to pay maintenance fees.

Large businesses are taking stock of the situation as well. IP management and technology company CPA Global—which works with many of the top global patent filers—said in a recent blog post that customers feel their IP departments will face pressure to be “even more strategic” in the future.

Patent Enforcement

The pandemic is influencing how some companies enforce the patents they already own.

Knobbe Martens Olson & Bear LLP partner Irfan Lateef, who represents medical device and consumer product manufacturers, said many of the companies he’s speaking with are too busy with coronavirus issues to “put much effort into the patent infringement side of things.”

Others might be sensitive to the financial commitment of patent litigation, weighing whether this is “a good use of money or should we be using our resources, using our legal team, to help us do something else,” Jeanne Gills, vice chair of the national intellectual property department at Foley & Lardner LLP, said.

Faced with deadlines or other requirements, some companies might have no choice but to file suit now. Those that can wait might want to see how the competitive environment shakes out, Foley’s Jeffrey Costakos, said.

“The things that might have motivated you to file a lawsuit today might be different six months from now,” Costakos, who chairs the firm’s IP litigation practice, said. “Who knows what companies are still going to be around, or what their competitive situations are going to be.”

District courts are facing their own challenges, with trials postponed and case schedules disrupted. The U.S. International Trade Commission, a tribunal known for its fast-paced handling of patent disputes, is also dealing with scheduling uncertainties.

How the virus impacts patent litigation rates, which have fluctuated in recent economic downturns, won’t be fully apparent for months. But even if some companies are discouraged from suing right now, lawsuit numbers could rise in the coming months as struggling companies look to turn existing patents into sources of revenue.

And as startups and small businesses fail, patents and other IP assets will hit the open market at bargain prices. Alan Marco, a Georgia Tech professor and former chief economist at the PTO, said there could be an unprecedented number of IP transactions in the next year. That could lead to litigation as new patent owners seek to enforce their rights.

The availability of credit amid the downturn could also impact how patents are bought and litigation is funded, said Ted Sichelman, a law professor at San Diego University who has studied the impact of economic downturns on patent litigation.

Market volatility is a “huge wild card,” Sichelman said.

For additional legal resources, visit Bloomberg Law In Focus: Coronavirus (Bloomberg Law Subscription)

To contact the reporter on this story: Matthew Bultman in New York at mbultman@correspondent.bloomberglaw.com

To contact the editors responsible for this story: Roger Yu at ryu@bloombeglaw.com; Keith Perine at kperine@bloomberglaw.com

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