Innovation suffers during the downturn

16 September 2010

NEW YORK: Many brand owners reduced innovation spending as a result of the recession, although companies like Microsoft, L'Oréal and Apple boosted their outlay.

The World Intellectual Property Organisation estimated the number of patent applications worldwide rose by just 2.6% in 2008, a more modest pace than previous years, to 1.9m.

Provisional data covering 80% of global output for 2009 anticipate a 2.7% decrease on an annual basis, which would constitute the first decline since 2002 should it ultimately mirror overall figures.

Elsewhere, the amount of applications through the Patent Corporation Treaty – supporting simultaneous international claims – dropped 4.5%, having increased consistently from 1970.

Multinational trademark requests started to see expansion rates slow in 2006, and actually contracted by 12.3% in 2009 to 3.3m.

"The world economy is recovering from the steepest economic downturn since the Great Depression of the 1930s," said Francis Gurry, WIPO's director general.

"In such a situation, companies' strategies and public policies towards innovation and intellectual property rights are central to promoting sustained economic growth and a confident approach to the future."

Based on statistics filed with the US Stock Exchange, WIPO reported R&D spending among 2,450 featured organisations fell 1.7% between 2008 and 2009.

Pharmaceutical giant Hoffmann-la-Roche provided the most substantial improvement in expenditure, as budgets grew 11.6%.

Microsoft, the information technology specialist, generated a 10.4% surge, trailed by electronics firm Samsung on 5.4% and healthcare group Novartis on 3.5%.

Steve Ballmer, Microsoft's ceo, emphasised the primacy of new product development when speaking at a recent conference.

"How do we continue to develop, how do we continue to put people back to work?" he asked.

"I think it is important at the end of the day to stop and reflect on the importance of innovation, invention and technology to the economy."

Automakers delivered the largest declines, with General Motors off 24.5%, Toyota down 19.8%, Honda registering a 17.7% slide and Daimler's budget falling 5.9%.

In the FMCG sector, Procter & Gamble's outlay slipped 7.6% and Unilever's costs shrank by 3.9%, although French cosmetics manufacturer L'Oréal posted a 3.7% uptick.

"The first objective is to continue to innovate, so that we can really come up with breakthrough formulas in the major categories," Jean Paul Agon, L'Oréal's ceo, said during a presentation last month.

"The second objective is universalisation. This means the development on each continent of formulations adapted to the specific needs of local consumers."

Many technology firms slashed their R&D expenses in 2009 according to WIPO, as Pioneer cut back by 34.3%, a total standing at 22.5% for Motorola, 20.4% for HP, 14.8% for Sharp, and 13% for Sony.

However, Apple heightened its investment by 20.2%, having scored hits with original gadgets like the iPod, iPhone and iPad.

Chinese operator ZTE drove a 44.8% spending improvement and Huawei's new product development funding jumped 27.4%, part of a broader trend in the country.

Patent applications by domestic and foreign players in China climbed 18.2% in 2008 and 8.5% in 2009 and trademark requests leapt 20.8%, measured against decreases across the US, Japan and Germany.

"We are increasingly going to look to see innovation come from not just China, but also India," Rajeev Singh-Molares, Asia-Pacific president of telecoms group Alcatel-Lucent, said in September.

"China is a long-term play for us ... We've seen obviously an evolution in the Chinese government's policy and they want to encourage us to move more innovation into China."

Data sourced from WIPO; additional content by Warc staff