New Zealand: Emerging from a recession by investing in innovation

Last Updated: 28 March 2013
Article by Jonathan Lucas

How to get the most out of your intellectual property strategies even when budgets are tight.

Difficult economic times can often stimulate innovation. Even when budgets are tight, careful consideration of intellectual property (IP1) strategies can ensure adequate protection is obtained, allowing the benefits of innovations to still be realised.

Innovation in a recession

Most businesses experience reduced revenues and tighter profit margins during difficult financial times. To cope, businesses often reassess their strategies and processes – and by doing so foster an innovative culture, creating new products or services and therefore revenue streams, or developing more cost-effective ways to deliver existing products or services.

Many economists believe that this mechanism links periods of recession to increased levels of innovation. Nurturing innovation through increased research and development (R&D) expenditure during an economic downturn is frequently advocated as a way to halt the decline and trigger economic growth.

But when the market is depressed, many organisations instead focus on cutting costs to minimise the impact on profit margins associated with low revenues. Consequently, R&D spend may suffer.

IP protection may also suffer from budget constraints and cost cutting. However this reduces the potential to profit from innovations at a later date. It may also slow the time it takes for an organisation to pull itself out of a period of financial difficulty.

Recession in the cleantech industry

In the cleantech sector, reducing R&D investment during a recession arguably has an even more significant impact. The development of new clean technologies may be delayed or simply fail to occur.

Failure to invest adequately in IP protection for clean technology can also impact the environment. If financial rewards for innovations are not obtained, less revenue is available to inject back into a business to drive further innovation. Furthermore, without protection, IP licensing to quickly enable widespread use of a new technology is not available, causing a delay in the onset of beneficial effects.

Even in tough economic times, cleantech innovators should see IP protection as a necessary investment in the future.

Trends in New Zealand

New Zealand fell into recession at the time of the Global Financial Crisis in 2008. The economy continued to decline until late 2009 and has since undergone sluggish growth. Over that period R&D expenditure in New Zealand has increased but remains low by global standards, about a third of the OECD average.

One measure of innovation is the number of patent2 applications filed. This has fallen by about 15% in New Zealand since the recession hit.

While patent data only indicates technological innovation, not necessarily less tangible forms of innovation, it suggests even though R&D spending has increased in New Zealand, businesses are neglecting to protect the outcomes of their increased R&D. This is a dangerous tactic since it risks giving away the fruits of the very R&D being invested in.

Maintaining IP protection in tough economic conditions

The following strategies can be implemented to maintain effective IP protection during a tough economic climate when limited budgets are available.

  1. Prioritise. Rank innovations according to their importance and allocate budgets accordingly. While the most business-critical innovations should maintain strong and widespread levels of protection, others might only need protection in key markets.
  2. Use the system widely. IP protection systems have different mechanisms which can be used cleverly to reduce or delay costs. For example, purposely delaying actions can also delay associated costs, parallel applications in several countries can be carefully managed to reduce replication, and planning in advance can minimise administrative costs.
  3. Seek realistic protection. The aim of IP protection is usually to obtain the broadest possible protection for an idea – but very broad protection can be difficult, expensive and, in some cases, unsuccessful. Taking a pragmatic approach and aiming for protection that is realistic but still adequate to prevent copycat products will save costs.
  4. License don't litigate. When IP rights are being infringed by a competitor, two options are to license the use of the IP in return for a royalty, or sue for infringement3. Litigation can be very expensive and difficult to budget. Licensing may be more practical, at least in the short term.

Footnotes

1Refers to the ownership of an intangible thing - the innovative idea behind a new technology, product, process, design or plant variety, and other intangibles such as trade secrets, goodwill and reputation, and trade marks. Although intangible, the law recognises intellectual property as a form of property which can be sold, licensed, damaged or trespassed upon. Intellectual property encompasses patents, designs, trade marks and copyright.

2A proprietary right in an invention which provides the owner with an exclusive right for up to 20 years to make, sell, use or import the invention. In exchange for this monopoly the patent is published so that others can see how the invention works and build on that knowledge. The patented invention may also be used by the public once the patent lapses.

3Refers to the commission of a prohibited act with respect to a patented invention without permission from the patentee. In New Zealand, the Deed of Letters Patent confers on the patentee a monopoly to make, use, vend or exercise the invention in New Zealand. Performing any of these acts without the permission of the patentee will amount to an infringement if the patent is current and in force. Permission will typically be granted in the form of a license. Remedies for infringement can include an injunction to restrain further infringement, payment of damages suffered by the patentee as a consequence of the infringement or payment by the infringer of any profit he/she/it made by virtue of the infringement, and legal costs.

James & Wells specialises in formulating IP protection strategies to suit our clients' commercial goals. Our expert attorneys can advise on optimising the use of IP given the current economic constraints. Even at the peak of a recession, IP protection should remain a crucial strategic business tool to ensure the beneficial effects of innovation can still be enjoyed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

James & Wells Intellectual Property, three time winner of the New Zealand Intellectual Property Laws Award and first IP firm in the world to achieve CEMARS® certification.

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