Study: Better IP Protection Needed

Published May 14, 2010

A new report concludes strict protection of intellectual property, especially in the technology sector of the economy, would encourage higher wages, greater productivity, and faster job creation.

The study, conducted by Washington, DC-based NDP Consulting for the U.S. Chamber of Commerce and released April 26, analyzed “the economic impacts of innovation and intellectual property (IP) protection on the U.S. economy” using government data collected from 2000 through 2007.

“This study solidifies the importance of IP and the need for Congress and the Obama administration to continue advocating on behalf of workers, consumers, and entrepreneurs by protecting our intellectual property,” said Mark Esper, executive vice president of the U.S. Chamber’s Global Intellectual Property Center.

Better Pay, More Investment
Among the key findings of the 75-page study, “The Impact of Innovation and the Role of Intellectual Property on U.S. Productivity, Competitiveness, Jobs, Wages and Exports”:

· IP-intensive industries created high-skill jobs during the entire business cycle and low-skill jobs during economic downturns, whereas non-IP-intensive industries lost jobs in all skill levels;

· IP-intensive industries paid their high- and low-skilled employees nearly 60 percent more than non-IP-intensive industries;

· IP-intensive industries generated a trade surplus and thus reduced U.S. trade de?cits; and

· IP-intensive industries allocated more than 2.2 times more on capital expenditures per employee than non-IP-intensive industries, and they spent almost 13 times more on research and development than non-IP-intensive industries.

Piracy a ‘Job Killer’
Noting nearly 60 percent of U.S. exports between 2000 and 2007 were from IP-intensive industries, the study also explored the economic impact of piracy. The theft of U.S.-generated products, which is rampant in China, includes the theft of everything from DVDs to music and computer code and software packages.

“The protection and enforcement of IP rights are imperative for creating strong incentives for innovation and safeguarding it from counterfeiting, piracy, and other forms of IP theft,” the report said. “According to industry estimates, IP theft costs the American economy billions of dollars and hundreds of thousands of jobs per year.”

U.S. Trade Representative Ron Kirk emphasized this point at a Capitol Hill forum marking World Intellectual Property Day on April 26.

“Let’s be clear: IP theft in overseas markets is a job killer, and it’s an export killer,” Kirk said.

Calls for Reform
Congress has tried to keep pace with the growing challenges of IP rights in the digital age with mixed results, the report notes. The challenge comes in balancing the right of innovators to profit from their creations with the flood of patents into the government for every tweak that affects a user interface.

Keith Maskus, professor of economics at University of Colorado, says patent protection can sometimes be a barrier to innovation in complex industries such as information technology.

“Several technologies and standards are embedded in industries like consumer electronics, and the risk of inadvertent infringement is high,” Maskus said. “The damages for infringement are estimated for the entire value of the product rather than any of the components that are alleged to be infringed.”

It would help if the federal patent office could “create a readily accessible database of IP rights,” Maskus said, but “the government has not succeeded as yet.”

Although the consumer electronics industry has continued to grow during the global recession, Maskus says reform is still needed.

“That growth might be even better without patent protection,” he added, “but is hard to prove the counterfactual with quantitative data.”

Patent Backlog ‘Is a Barrier’
The United States Patent and Trademark Office earlier this year released its own study on patent reform, and its conclusions supported the thesis of the Chamber report.

The Patent Office report found investment capital tends to follow innovators who can protect their intellectual property.

“Seventy-six percent of startup managers reported that venture capital (VC) investors consider patents important to funding decisions,” the report said. “Similarly, analyses of VC funding databases demonstrate that owning patents is significantly correlated with success in acquiring first and additional rounds of VC financing.”

The Patent Office report adds the current backlog of 750,000 patents “is a barrier to launching new products and services,” and suggests increasing the fees to file a patent to help alleviate the burden.

Quality Over Quantity
Raymond J. Keating, chief economist at the Oakton, Virginia-based Small Business and Entrepreneurship Council, said any reforms of intellectual property law should take careful consideration of the value of a patent application.

“Improving the quality of patent [grants] should be a higher priority than the quantity of patents,” Keating said. “Their performance should be linked to the incidence of challenges following the grant of patents.”

Reducing Court Challenges
“Smarter” patent law, Keating added, would lead to less litigation, which ties up capital better spent on investment in the technology sector.

“Currently, the courts don’t make a clear distinction between willful copying and inadvertent infringement when they determine damages,” Keating said.

Kishore Jethanandani ([email protected]) writes from San Francisco.

Internet info:

“The Impact of Innovation and the Role of Intellectual Property on U.S. Productivity, Competitiveness, Jobs, Wages, and Exports,” Nam D. Pham, NDP Consulting for the U.S. Chamber of Commerce, April 26, 2010:

“Patent Reform: Unleashing Innovation, Promoting Economic Growth & Producing High-Paying Jobs,” U.S. Department of Commerce, Arti Rai, Stuart Graham, and Mark Doms, April 13, 2010: