Some buddies & I were debating the other day if more people start businesses during recessions, or during periods of growth. I didn’t have access to yearly data on entrepreneurs, but what I do have is access to the US Patent & Trademark Office data. So if we asked another question, do more people start inventing during a recession or expansion?
Just a few disclaimers. We looked at approved utility patents that were filed by independent inventors. In the definition of the USPTO, a patent is filed by an independent inventor if an individual is listed and not a company. Unfortunately, year by year data isn’t available before 1991. The year is the year that the application is approved, not the year it was submitted.
Actually, the data shows us one thing for sure – we peaked in the late 1990’s during the dot com boom. Since then, we have been on a slow and steady decline in the number of applications being approved, not because the USPTO isn’t approving enough, but just fewer applications are being submitted.
Inventor Patents vs Economy
We had a positive blip in 2006, but after that it was back to the usual decline.
So back to the original question: how closely does the economy relate to people inventing?
It appears that there may be a slight direct and positive correlation between GDP growth and approved patents, but there is a 2 year delay (see GDP growth in 1994 and patent peak in 1996, again GDP growth 2004 and patent peak in 2006). That makes sense that there would be a delay after the application is approved. A rough guideline is that patents take on average 2 years to get approved, which would account for the delay. So the answer appears to be that, yes, in a growing economy, more people will be creating inventions. In a sagging economy, fewer people will jump ship to create a risky invention.
However, the larger thing that this shows us is that relatively steady decline in patents from the late 1990’s. I have two theories of why this might have happened:
- The high-tech boom of the late 1990’s caused a slew of patent applications and approvals because everyone wanted a piece of the gold rush. Not only that, since internet technology was new, no one was sure what could be patented and what couldn’t. Since then, we’ve come to a better realization of what can be patented, thus the drop in patents being submitted and approved. (Patent approval rates as a percentage have actually decreased since 1998, also having some effect)
- Also, I think the mounting legal costs of filing and then PROTECTING patents is increasing. Because of this, fewer individuals have the resources necessary to pay a lawyer $10,000-$20,000 to file, and potentially hundreds of thousands to defend a patent if it is infringed.
So there you have it. When the economy is good, more people invent (albeit with a little lag).
