White House Report Extolls Value of IP

April 16, 2012

“To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Rights to their respective Writings and Discoveries.”

These 27 words in Article 1, Section 8 of the U.S. Constitution, known colloquially as the Patent and Copyright Clause, have had perhaps a more profound effect on our economic structure than any other U.S. document, creating the foundation for our modern patent, copyright and trademark systems. In the Federalist Papers, James Madison wrote of it that “the utility of this power [to issue copyrights and patents] will scarcely be questioned.”

But that utility has been difficult to quantify, and is often called into question by those who would decry a broken patent system. Most would agree that we must protect the ideas and creativity of American inventors and artists, precisely to promote progress by incentivizing invention, but there seems to be question around what material economic effect has resulted from this system.

Last week, the U.S. Commerce Department released a first-of-its-kind report, titled “Industries in Focus,” which sought to answer that question by analyzing the contributions of intellectual property (IP) intensive industries as a proportion of our overall economy. This cross-section of American industry includes patent-rich technology sectors like computing and semiconductors, pharmaceuticals and medical equipment, and copyright-intensive industries like book publishing, film production and other segments of the arts.

The Industries in Focus report found that in 2011, the 75 industries which rely most heavily on intellectual property contributed $5 trillion and 40 million jobs to the U.S. economy, accounting for nearly 35% of U.S. GDP (nearly equaling the entire GDP of China) and 60% of all U.S. exports. Meanwhile, these same industries on average pay a significant wage premium, have seen more rapid growth during the recent economic recovery, and outpaced the overall American economy by almost every calculable measure. 

The report’s findings also note the beneficial effects of licensing IP and invention rights, observing that IP licensing drives the economy forward by “creating a platform for financial investments in innovation” and “enabling a more efficient market for technology transfer and trading in technology and ideas.” Last year alone, those investments delivered a net $64.9 billion in IP licensing revenue to the U.S. economy.  Like any scarce resource, invention rights need an efficient market to effect transfers from those who have them (inventors and their successors) to those who need and use them (manufacturers). A fully-developed invention economy would be a powerful engine for economic growth.

In short, intellectual property has a tangible, powerful impact on our economy, and the licensing and trading of IP magnifies and streamlines that impact. It protects American industry abroad, supports job growth domestically, and drives innovation globally. 

Despite these findings, as I mentioned earlier, the effectiveness of our patent system is still frequently called into question. In fact, recently the Wall Street Journal ran an op-ed which called for massive, foundational changes to the U.S. patent system; changes which would limit the scope of patent protection solely to commercial products. And while this week’s report clearly demonstrates the value of products supported by IP, of equal value are the inventions and discoveries which led to the development of those products. 

Fittingly, during his remarks on the Industries in Focus report, USPTO director David Kappos, succinctly summed up that value: “America’s core strength lies on our ability to experiment, to explore, to innovate and to create. Sensible government policies that encourage and stimulate that spirit of innovation can demonstrably contribute to job creation and economic well-being for all Americans.”

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