Is Recession the Mother of Innovation?

(pic: “Necessity” and “Recession” Fighting for Solomonic justice Over the “Innovation” Baby)

The report has several other interesting articles and podcasts, including one highlighting 20 top companies that were founded during economic recessions (depressions) and leveraged such troubled times to their advantage. The list includes Microsoft, Disney, GE, Eli Lilly, Intel, Mattel, Colgate Palmolive etc.

India Business Law Journal, a leading Indian law journal has two special articles by Vandana Chatlani on this issue, with special reference to the Indian context (as most of you aware, India is not as badly hit by the slump). We thank James Burden, the dynamic founder of IBLJ for making these articles available to SpicyIP readers. We’ve uploaded these articles to the IP Resources Section of the SpicyIP website.

Duncan Bucknell ran a podcast on this issue some months ago, involving IP thought leaders such as Teresa Stanek-Rea, Nick Redfearn, William New and Jeremy Phillips. Unfortunately, since my phone connection acted up that day, we did a separate session later.

During that time, I made some short notes in response to his questions which I list below:

I. In what ways have you seen the economic crisis impact on the way companies are using the IP ecosystem?

Cutting costs seems to be the main mantra. And from my various conversations with companies and laws firms, I gather that a number of them have reduced the number of patent and other IP filings to just those ones that are critical to their businesses and more importantly, to ones that are of good quality and likely to be issued.

This is a great opportunity to move away from quantity towards quality.

Secondly, costs can be cut by outsourcing the drafting of patents to countries such as India. Having spoken to some of the legal process outsourcing units or LPO’s, it would appear that the number of applications coming in from the US and EU have in fact increased.

Traditionally, the main roadblock for this sector was a cultural one…many of the big companies were extremely conservative and didn’t want to ship their patents to India. One good thing about the downturn is that it will force them to move beyond their conservative shackles. And this I guess is the best part about the downturn—that it will force companies to consider approaches, some of them innovative, that they might have never considered earlier—when they were cocooned by a good economic run .

It is also likely that many IP owners will reduce the number of litigations or will want to settle existing litigations to cut down on costs. Perhaps it’s the best time to push more IP owners towards alternative dispute resolution mechanisms such as mediation and conciliation.

Lastly, many companies that are IP users are likely to shift to lower priced substitutes such as open source software. So perhaps this phase will see a jump in the use of open source software as well.

II. What do you think is the single most important IP issue that companies should focus on in times such as these?

Innovation innovation innovation…. This is the only way companies can survive this downturn.

A blind reduction of costs by firing employees is really short sighted and not always the best answer. Rather companies should focus on innovative cost cutting methods. Eg. in so far as entertainment majors are concerned, low cost distribution models would help cut costs and garner more revenues. There is a huge place for innovation in all of this…..and companies ought to use the internet and web 2.0 in creative ways to help lower costs but sell more.

Similarly for big pharma, their greatest worry has been the escalating costs of drug discovery. This is therefore the perfect time to try and figure out alternative R&D methodologies that costs less. And even to consider alternative innovation approaches. I think the downturn presents an excellent opportunity for companies to introspect and move beyond their conservative shackles.

I’ve always heard the truism that in a downturn, it’s the insolvency lawyers that do really well. With respect to patent filings, although the numbers will go down since everyone is cutting costs, I’m guessing that there’s going to be one kind of business method patent whose numbers will go up. I mean, patents over methods of cutting costs. Perhaps we can do a USPTO (US Patent and Trademark Office) search after a couple of more months and find out how many such innovative cost cutting methods have been filed so far.

Obama fought and won the presidential campaign on the “change” “matra”:

To survive this economic downturn, I think we must change “change” to “innovate”. In other words, our mantra ought to be: “Innovate we must. Yes we can..”

III. What mistakes should companies particularly be trying to avoid in times such as these?

Cutting costs by reducing R&D expenditure etc…and being less risk averse. This mentality will do more harm than good. As it is only innovative solutions and products etc that will give companies a leeway in this economic slump.

IV. What do you think governments should be doing on the IP front in light of the current economic situation?

i) Since private funding of R&D will reduce, the government ought to pump in more money into R&D. Korea did this during the Aisan economic crisis and it yielded rich dividends, since its companies did not have to play too much technology catch up when the slump ended.

ii) The government ought to ensure that its agencies such as the patent office begin focussing on patent quality, since such offices will now have a lesser work burden owing to the reduced number of applications filed. This is a great opportunity to get more quality patents.

iii) The government ought to take more steps to drive more litigants towards alternate dispute resolution: since more companies will be willing to settle expensive IP litigations..

iii) The government ought to encourage alternative innovation methods such as collaborative and open source innovation, prizes etc.

V. In what ways can the IP community assist the broader community to move out of the current economic situation?

By helping innovate our economy out of this mess. Innovative financial instruments, smothered with layers of greed and short sightedness got us into this mess. And it is innovation alone innovation that will lift us out of this economic dump….

And lastly, although I really didn’t address this issue in the talk with Duncan, a few words on the global recession and the opportunity for India

Indian Innovation and the Recession Opportunity?

Although the domestic Indian market has not been hit very hard by the downturn, most of its technology intensive industries such as IT and pharma rely hugely on exports for their revenues. These industries are generally known to be “innovation shy” (which I know is a terribly euphemistic term). In an earlier post, I’ve asked why the Indian IT sector, despite being technologically proficient is not really innovative. I’ve also followed up that thought a little bit in this article here with an Italian economist, where we’ve labelled India as a “technologically proficient developing country” and not really an “innovative developing country”.

Our IT and pharma industry should really use the current recession to ramp up their innovative capabilities. Particularly, when India is now a leader in attracting off shore R&D and can really leverage the slump to attract more R&D and technology transfer. Note this telling figure from the Mint:

“Half of Cisco’s core R&D work, including innovations in WiMAX and optical networks, and around 40% of business software firm SAP AG’s ideas for processes and product development come from India”