Patent Trends among Small and Large Innovative Firms during the 2007-2009 Recession

Anthony Breitzman, Ph.D., May 2013

Purpose

According to the National Bureau of Economic Research (NBER), the Great Recession commenced in December 2007 and ended in June 2009. This research examines whether observable differences in patent behavior between small and large firms occur during this 2007-2009 period.

Background

According to NBER, recessions are typically indicated by a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.1 Research and development (R&D) plays an important role in economic productivity. The United States spends approximately 3 percent of its GDP on R&D, and labor productivity growth has been linked with high levels of R&D.2 Further, the United States accounts for more than 50 percent of the world’s patents.3

Previous literature examines innovation in large and small firms via patent generation. Prior research finds total innovation to be negatively related to industry concentration and unionization and positively related to R&D, skilled labor, and the number of large firms in an industry. In addition, prior research finds that small firms are less able to protect their patent rights during litigation. Finally, other literature finds that among small firms that do apply for patents, those firms tend to generate higher per capita patents relative to large firms.

This study explores small and large firm patent behavior during the 2007 to 2009 Great Recession. The research first provides a descriptive overview of general trends among small and large firms during the 2007 to 2009 period. The study also includes a comparison of domestic versus foreign patent trends, as well as a regional examination of small and large firm patent behavior in the United States.

Overall Findings

The key observation is that small firm patent activity declined sooner and to a greater degree than large firm patent activity during the 2007 to 2009 period. In addition, small firms increased patent activity sooner than larger firms in the two quarters of 2009 following the end of the recession.

The researcher observed similar small and large firm patent activity across U.S. and non-U.S. patent generators. Also, while the level of patent activity fell on average during the 2007 to 2009 period, China’s activity merely leveled off rather than declined.

Finally, the researcher observed that regional small and large firm patent activity behaved consistently with overall U.S. patent activity. The regional examination reveals that California represents a significant portion of the U.S. innovative sector, constituting 22 percent of all large firm patents, and 40 percent of all small firm patents in the dataset. In addition, small and large firms in California provided additional insights. Large firms in California did not follow the generally observed pattern, showing no major declines in patent activity during the recession. By contrast, patent activity among small firms in California declined at a greater rate relative to the U.S. rate overall.