ESA & USPTO Report Indicates Importance of IP Protection to U.S. Economy

[author: Donald Zuhn]

CoverA report prepared by the Economics and Statistics Administration and U.S. Patent and Trademark Office shows that IP-intensive industries support tens of millions of jobs and contribute several trillion dollars to the U.S, economy.  The 76-page report, entitled "Intellectual Property and the U.S. Economy: Industries in Focus," which was released in March, identifies industries that are growing IP in the U.S. economy and protecting their innovations through patents or other forms of IP, and estimates the contributions of these industries to the U.S. economy.

Noting that "[i]nnovation . . . is a primary driver of U.S. economic growth and national competitiveness," the report asserts that without the means to establish ownership of inventions and creative ideas, "the creators of intellectual property would tend to lose the economic fruits of their own work, thereby undermining the incentives to undertake the investments necessary to develop the IP in the first place."  The report contends that:

[W]ithout IP protection, the inventor who had invested time and money in developing the new product or service (sunk costs) would always be at a disadvantage to the new firm that could just copy and market the product without having to recoup any sunk costs or pay the higher salaries required by those with the creative talents and skills.  As a result, the benefits associated with American ingenuity would tend to more easily flow outside of the United States.

"While IP rights play a large role in generating economic growth," the report's authors point out that "little attention has been given to identifying which industries produce or use significant amounts of IP and rely most intensively on these rights."  To identify such IP-intensive industries, the authors used several databases (some publicly available) to develop several industry-level metrics on IP use.

Among the report's findings:

• 75 of 313 industries analyzed were found to be IP-intensive.

• Direct employment in these IP-intensive industries accounted for 27.1 million jobs in 2010, or 18.8% of all employment in the U.S. economy.

• Indirect activities associated with these IP-intensive industries provided an additional 12.9 million jobs in 2010, for a total of 40.0 million jobs, or 27.7% of all jobs in the U.S. economy.

• 26 of the 75 IP-intensive industries were found to be patent-intensive.

• Direct employment in patent-intensive industries accounted for 3.9 million jobs in 2010.

• IP-intensive industries accounted for $5.06 trillion of value added to the U.S. economy in 2010, or 34.8% of U.S. domestic gross domestic product.

• Because of "historic losses in manufacturing jobs," employment in IP-intensive industries over the past two decades has grown by only 2.3%, while employment in non-IP-intensive industries has grown by 21.7%.  (The report indicates that this is because "patent-intensive industries are all in the manufacturing sector," and these industries experienced relatively more employment losses over this period, especially during the past decade.)

• IP-intensive industries experienced 1.6% job growth during the economic recovery, while non-IP-intensive industries saw only 1.0% job growth.  Job growth in patent-intensive industries was even better, hitting 2.3%.

• Average weekly wages for IP-intensive industries in 2010 were $1,156, while average weekly wages in non-IP-intensive industries were $815.  The higher average for IP-intensive industries corresponded to the completion of more years of schooling by workers in these industries (42% of workers over 25 years of age in IP-intensive industries were college educated compared with 34% in non-IP-intensive industries).

• Exports by IP-intensive industries totaled $775 billion in 2010, or 60.7% of all U.S. exports.

With respect to the report's identification of patent-intensive industries -- the report also identifies trademark-intensive and copyright-intensive industries -- the authors note that their analysis focused on patents issued to U.S. corporations, which the report indicates accounted for about 45% of all patents issued between FY 2004 and FY 2008.  The report explains that the USPTO classifies patents using more than 430 different technology classes and that the Office maintains a concordance between these technology classifications and the 32 North America Industry Classification System (NAICS) codes.  The report identified patent-intensive industries using NAICS-based patent counts for FY 2004 to FY 2008.  The authors note that their analysis is limited to utility patents, and further, that their approach "strictly limits the patent analysis to the manufacturing sector because the concordance system [between the technology classes and NAICS codes] only associates patents with manufacturing industries."

The report determined that patent-intensive industries are those having above average "patent intensity," which the report defines as the ratio of total patents issued between FY 2004 and FY 2008 in the relevant NAICS category and the average payroll employment in an industry.  The results, shown in Table 1 of the report (see below), indicate that computer and electronic product manufacturing is the most patent-intensive industry, which the report notes is "unsurprising when one also looks at the recent top ten U.S. companies ranked by granted patents."

Table 1
By combining the results of its patent-, trademark-, and copyright-intensive industry analyses, the report generates a list 75 IP-intensive industries.  Using this list, the report then proceeds to assess the impact of these industries on the U.S. economy in terms of employment, value added, average wages, and foreign trade, generating the results outlined above.  One of the more interesting graphics in this section of the report shows states having patent-intensive employment shares above the 3.0% national average:

Map 3