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Last week, Public Knowledge President Gigi Sohn wrote in support of the creation of an Office of Innovation, arguing that the importance of intellectual property and the existence of a significant number of enforcement agencies necessitated the creation of an agency to look out for the innovators that drive the American economy. Her post was written in response to the release of Intellectual Property and the U.S. Economy: Industries in Focus, a statistical report by the Economics and Statistics Administration and the United States Patent and Trademark Office (USPTO) attempting to quantify the importance of intellectual property in the U.S. economy.
The report examines patents, trademarks, and copyrights in the broader context of the U.S. economy, and, through a variety of measurement techniques, arrives at the conclusion that they are very important. Because this report will likely be used to support future IP policy in legislation and trade agreements, it is important to understand exactly how the report arrives at its conclusions.
The report asserts that intellectual property and its related industries (more on what those are later) are responsible for 40 million jobs. That massive number is the result of an examination of “patent-intensive,” “trademark-intensive” and “copyright-intensive” industries, which are defined as specific North American Industry Classification System (NAICS) classes that the report determines rely heavily on one of the three types of intellectual property.
In counting the size of the three “IP-intensive” industry sets, the report employs different methodologies in each section. In the patent section, the report defines “patent-intensive” industries as those NAICS classifications with a ratio of patents to jobs above the mean (though they exclude any patents granted to service-providing industries). The authors admit that this method does not include “industries with a relatively small stock of highly valuable patents, but relatively large number of employees,” and gives the aerospace industry as an example.
Therefore, although the authors are transparent about the way they determined “patent-intensive” industries, it remains unclear that the final list is the most accurate reflection of the industries to which patents are of central importance.
As in the patent section, the report’s authors look for a numerical justification for designating industries as “trademark-intensive.” After a winnowing process in which they discard trademarks they could not easily match to firms, they place firms into NAICS industry classifications. Like patent intensity, trademark intensity is calculated as a ratio of trademarks to jobs, and industries above the mean are designated as trademark-intensive.
The resulting group is massive: 55 industries meet this initial threshold of trademark-intensity (like cutlery manufacturing, insurance carriers, gambling, and almost all food manufacturing), as compared to 26 total patent-intensive industries.
The report’s authors then move beyond this initial measure: they survey the past 5 years of a USPTO list of “the 50 companies that obtained the largest number of trademark registrations,” and add to their trademark-intensive list any NAICS industry that had a company appear more than five times on the list in the time period. Next, to compensate for the fact that some companies hold a small number of extremely valuable trademarks, the report takes a control sample of seven industries at random from a pool of those industries with at least five trademark registrations in 2010. These two additional calculations resulted in the addition of five more industries (some overlap occurred), for a total of 60 trademark-intensive industries.
In the report’s third section, its authors attempt to determine which industries rely most heavily on copyright protection. While one would expect them to look at copyright registrations, break those registrations down by industry, and then create a registrations-to-employment ratio, the authors choose to go in a completely different direction. Basing their list on the list of copyright-intensive industries set forth in a 2003 WIPO report, the authors arbitrarily decide which industries are engaged in the “creation or production of copyrighted materials,” and which are only involved in the distribution of those materials; newspaper publishers make the cut, CD stores do not. The final list of copyright-intensive industries stands at 13, some of which overlap with classifications selected in other sections.
It is only in full view of these methods that the report’s conclusions can be understood.
For example, the report’s conclusions about the multiplier effects of each industry are impressive: the report’s authors assert that the intellectual property-intensive industries are responsible for about 40 million jobs, including about 13 million indirect jobs. Through a process detailed in a footnote, this would mean that the IP industry has a jobs multiplier of 1.8, meaning that for every ten jobs added in IP-intensive industries, another 8 will be created elsewhere, mostly in the supply chain.
However, this number turns on where the line between IP-intensive industries and their supply chain is drawn. The report notes that of the 27.1 million jobs it attributes directly to IP-intensive industries, only “16.2 million jobs… were associated with producing goods and services to satisfy final demand while 10.9 million jobs in these industries were associated with production for the supply chain.” A line drawn in a different place would have led to the same total jobs number, but the fact that this definitional decision can change the apparent size of an industry is important to note.
Definitional changes could also have shrunk (or inflated) the total jobs data themselves.
For example, the authors of the report decided to define as trademark-intensive any industry with a trademark intensity above the mean. Had this line been moved higher (and it could have been moved to any point) the sheer size of the industries designated as IP-intensive would have been decreased, and they would appear to be less important to the United States economy. However, the report’s authors went with what appear to be broad definitions of IP-intensive industries, particularly in the trademark section, and have gotten big numbers as a result.
This is not to say that intellectual property is unimportant to the American economy; innovators, small businesses and corporations clearly rely on the security patents, trademarks, and copyrights provide to monetize their intellectual property.
However, in the future, when the conclusions found in this report are used to justify new, restrictive intellectual property legislation, remember that they are a product of the definitional choices made by the U.S. Patent and Trademark Office and the Economics and Statistics Administration.