[x-pubpol] USA: New government report on IP doesn't say what Big Content thinks it says

Fri Apr 13 05:59:14 PDT 2012

http://arstechnica.com/tech-policy/news/2012/04/new-government-report-on-ip-doesnt-say-what-big-content-thinks-it-says.ars

By Timothy B. Lee <http://arstechnica.com/author/timothy-b-lee/> |

Yesterday we got an e-mail from the Motion Picture Association of America
trumpeting a new Commerce Department report on the importance of
"intellectual property"—patents, copyrights, and trademarks—to the United
States economy. "IP-intensive industries, including movies and television,
supported the jobs of 40 million American workers, or 27.7 percent of all
US jobs," the MPAA wrote.

The report bills itself as an objective empirical project, measuring the
impact of copyright, patent, and trademark protection on the US economy.
But it isn't shy about touting the importance of these legal regimes to the
US economy. "The granting and protection of intellectual property rights is
vital to promoting innovation and creativity and is an essential element of
our free-enterprise, market-based system," the report claims.

But is that really what the report shows? We decided to dig deeper.
Broad definitions

The report has an extraordinarily broad definition of an "IP-intensive
industry." Thanks to the inclusion of industries that rely on trademark
protection, the list includes the residential construction, "dairy product
manufacturing," paper, and grocery industries. That's right—if you hang
sheetrock, bag groceries, or answer phones at a paper mill for a living,
you're probably in an "IP-intensive" industry as far as the Obama
administration is concerned.

Indeed, the report finds that trademark-intensive industries account for
more than twice as many jobs as copyright-intensive and patent-intensive
industries combined.
 Department of Commerce

However, the patent figures understate employment in patent-intensive
industries because they're based on Patent Office figures that only cover
the manufacturing sector. So, for example, software publishers and
"computer systems design and related services" are not counted as
patent-intensive industries, despite the fact that software and IT firms
are among the most prolific patent filers.
Entertainment vs. software

Copyright-intensive industries account for more than five million jobs,
which is nothing to sneeze at. But it's important to note where these jobs
come from. Hollywood wants you to believe that movie studios are
responsible for most of those jobs, but in reality they employ only 415,000
people. The sound recording industry employs a paltry 36,000 people.

This matters because while all copyright-intensive industries rely on
copyright to some extent, only a few industries would benefit from
draconian copyright enforcement policies like the Stop Online Piracy Act.

On the other hand, the "copyright-intensive" category also includes the
"computer systems design and related services" industry, which employs
almost 1.6 million people, and software publishers, which employ another
259,000. All told, the IT industry employs more than four times as many
people as Hollywood and the recording industry put together—and IT firms
overwhelmingly opposed SOPA.

The rest of the copyright-intensive jobs are in industries like
advertising, radio and television broadcasting, and "other professional and
technical services" that don't have a dog in the file-sharing fight.
Patents

The report suggests that patent-intensive industries employ the fewest
people: 3.9 million of them. The Commerce Department seems to suggest that
the patent system deserves credit for those jobs, but a closer analysis
tells another story.

The report calculates an industry's "patent intensiveness" by dividing the
number of patents it received by the number of people it employs. By this
metric, the IT industry leads the pack. The top four industries are
computer hardware, communications hardware, semiconductors, and "other
computer and electronic products." As we've already noted, the software
industry seems to have been excluded from the list because it's not
considered to be in the manufacturing sector, but it would likely rank
highly if it were on the list.

So should the patent system get credit for the growth of patent-intensive
IT firms? Empirical research suggests otherwise. For example, in a
groundbreaking
2008 book <http://arstechnica.com/old/content/2008/07/book-review-7-08.ars>,
James Bessen and Michael Meurer estimated the value of patents and the
costs of patent litigation in a variety of industries during the 1980s and
1990s. They found that in chemical industries, the value of patents
significantly exceeded the costs of patent litigation, suggesting that
patents may be having the desired effect of rewarding innovation.

However, in most other industries—and especially in the software
industry—the costs of patent litigation began to exceed the value of
patents in the middle of the 1990s. By the end of the 1990s, the costs of
patent litigation exceeded the value of non-chemical firms' patents by a
factor of three. And things have only gotten worse since then—last year
Bessen and Meurer updated their work and estimated that patent trolls cost
publicly traded defendants half a trillion
dollars<http://arstechnica.com/tech-policy/news/2011/09/study-patent-trolls-have-cost-innovators-half-a-trillion-bucks.ars>
between
1990 and 2010.

In other words, identifying the industries that *participate in* the patent
system is not the same thing as identifying the industries that *benefit
from* it. Some of the industries the Commerce Department identifies as
"patent intensive" are actually being harmed, on net, by the patent system.

Yet aside from a passing nod to the need for a "balanced system of IP
rights," this possibility is never mentioned in the report. Even this chart
was apparently not enough to inspire second thoughts:
 Department of Commerce

This chart suggests two interesting conclusions. First, despite warnings
about the devastating impact of Internet piracy, copyright-intensive
industries produced (or failed to produce) jobs at about the same rate as
the economy as a whole during the 2000s. Second, employment in
patent-intensive industries is declining rapidly.

The report attributes the job losses in patent-intensive industries to
"historic losses in manufacturing jobs." And it's probably true that the
patent system doesn't deserve much of the blame for the decline of, for
example, the auto industry.

But that calls into question the whole premise of the report. Most likely,
the effects of patent, copyright, and trademark law on the American
economy—positive or negative—are too small to measure with a statistic as
crude as aggregate employment figures. But then what's the point of
tallying up total employment in "IP-intensive" industries?

Of course, interest groups like the MPAA have a long history of using
dubious statistics<http://arstechnica.com/tech-policy/news/2008/10/dodgy-digits-behind-the-war-on-piracy.ars>
to
bolster their case, and we don't expect them to stop now. But government
statisticians ought to know better.

Further reading

   - Intellectual Property and the U.S. Economy: Industries in
Focus<http://www.esa.doc.gov/sites/default/files/reports/documents/ipandtheuseconomyindustriesinfocus.pdf>
    (esa.doc.gov)

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