The Report on “IP Industries” and the US Economy: A Closer Look
The Report on “IP Industries” and the US Economy: A Closer Look
The Report on “IP Industries” and the US Economy: A Closer Look

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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.

    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

    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