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
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
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