12 October 2008

Practice: How will the Economic Downturn affect IP Practice

Regardless of whether the steps agreed in Paris today will work (see "EU chiefs confront markets crisis" BBC website 12 Oct 2008), markets will eventually stabilize. However, that is unlikely to be the end of the economic crisis as there is every indication of a downturn more prolonged and more severe than any that most IP practitioners have experienced in our working lives.    The purpose of IP is to protect investment in the branding, design, technology and creative works that give one supplier and edge over his or her competitors. As it can safely be assumed that overall demand for products and services generally is likely to slacken the question that I and no doubt many other practitioners have been considering is whether that will create more work for IP practitioners or less.

Views of Other Practitioners
Some IP practitioners seem quite bullish. According to Crain's, Ian Morris of Kuit Steinart Levy, said:
"the rest of the economy may be feeling nervous about a slump, but one of the winners of a downturn will be sharp-eyed intellectual property lawyers"
(Crain's Manchester Business, 
Credit crunch encourages more IP claims Crain's 8 Sep 2008).
Earlier in the year, Gordon Harris of Wragge & Co. said:
"IP, or at least contentious IP, is pretty recession-proof," he adds. "Unless you're really strapped for cash, you're going to fight something like a patent infringement. A lot of these cases are bet-the-company disputes."
(see Ben Moshinsky IP and TMT associates left behind in a promotion round to forget, 21 April 2008)
Similarly most of the respondent s to a recent poll by Bruce MacEwan of readers of his Adam Smith Esq. (a law firm economics blog) asking  whether the realignment of the top financial services institutions will fundamentally alter the long-term demand for legal services, expressed the view that demand for legal services would increase for one reason or another. A large part of the respondents replied flippantly "Why do I care? I'm a Litigator".

Are they Right?
As a practising member of the IP Bar I should love to believe that Ian and Gordon are right but their views are hard to reconcile with other indicators. The headline of the article that quoted Gordon Harris was "IP and TMT associates left behind in a promotion round to forget".   To make its point it contained a table showing that only 7 of the top 19 IP law firms had actually proposed IP and technology, media and telecommunications associates to partnership in 2008. The authoritative Thomson Reuters PeerMonitor Index reported softness in IP notwithstanding that it is usually a high growth area. Looking at the client base Bobbie Johnson reported imminent job losses at eBay and sharp falls in the prices of leading technology stocks in In "Credit crunch hits tech sector" (The Guardian 6 Oct 2008). Most of the items on ZDNet's Management Toolkit "How the credit crunch is hitting the IT industry" are pretty negative.

My Perspective
Like Ian and Gordon I am now quite busy. Busier than I have been for some time, in fact, because I have a number of cases that seem certain to go to trial because all the parties involved are taking the dispute personally. There will always be disputes where litigants will pay whatever it takes to have their day in court. But I think there will be fewer of them and here's why.

First, litigation will become much harder to fund. Because large sums of money have to be raised quickly at short notice many litigants have had to rely on their bankers. That is likely to become increasingly difficult and expensive. even after the banks are recapitalized and short term inter-bank lending is restored.   That is because depositors, shareholders and governments will expect banks to be far more conservative in their lending.

Secondly, reduced demand will lower revenue streams and hence the capital value of intellectual assets. The lower the asset value the less the incentive to litigate over it.

Thirdly, with the collapse of land values and share prices many defendants be less able to satisfy a judgment and hence less worth suing.

I think litigants will be much more ready to consider alternatives to litigation such as IP Office opinions on the validity of patents and whether they have been infringed and the Uniform Domain Name Dispute Resolution Policy.  I also expect that they will seek remedies in Continental Europe where enforcement costs are lower than in the UK or in the USA where contingency fees are available 

Finally, in view of public revulsion against massive bonuses for traders there is likely to be increasing resistance to very heavy brief fees and high hourly rates.

No comments: