27 Feb’19

The Annual Intellectual Property Report to Congress: Risking 40% of GDP to Recoup 3%

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The Office of the U.S. Intellectual Property Enforcement Coordinator (IPEC) issued its Annual Intellectual Property Report to Congress this month (“Annual IP Report”). The Annual IP Report details the coordinated efforts of the White House, the Departments of Commerce, Justice, Homeland Security, State, Treasury, Health and Human Services, and Agriculture, the Office of the U.S. Trade Representative, and the U.S. Copyright Office to promote strong intellectual property rights protection and enforcement, both domestically and abroad. Included in the Annual IP Report is the Administration’s four-part strategic approach to promote and protect intellectual property which is quoted below:

  1. Engagement with our trading partners;
  2. Effective use of all our legal authorities, including our trade tools;
  3. Expanded law enforcement action and cooperation; and
  4. Engagement and partnership with the private sector and other stakeholders.

While the Annual IP Report goes into great detail about the above referenced strategic approach, as well as other actions taken by the Administration to enforce intellectual property rights over the 197-page report, one interesting section that occupies only 2 pages of the report describes the impact of intellectual property on the U.S. economy as well as the economic costs related to theft of U.S. intellectual property (pages 32-34 of the report). The one-page summary titled “Intellectual Property and the Economy” highlights the significant role intellectual property plays in the U.S. economy. Below are a few highlights from this section of the report that are worth mentioning:

  1. Intellectual Property Intensive Industries Accounted for 30% of U.S. Employment in 2014: The Annual IP Report references a 2016 report published by the USPTO in conjunction with the Economics & Statistics Administration that details the impact of intellectual property on the U.S. economy. In this report, IP-intensive industries directly accounted for 27.9 million jobs in 2014. Interestingly, Patent-intensive industries rank last in the IP-intensive employment with 3.9 million jobs in 2014 compared to 5.6 million for Copyright-intensive industries and 23.7 million jobs in Trademark-intensive industries. The downstream impact of IP-intensive employment includes nearly 18 million additional supply chain jobs resulting in the share of employment directly and indirectly supported by IP-intensive industries totaling approximately 30 percent of all U.S. employment.
  2. Intellectual Property Intensive Industries Accounted for $6.6 trillion in value added in 2014: This figure represents an increase of more than 30% since 2010. This also represents 38.2 percent of the U.S. GDP which is attributable to IP-intensive industries, an increase over the 34.8 percent of GDP in 2010. IP-intensive industries also provide a 46% wage premium over non-IP-intensive industries. Patent and Copyright-intensive industries see an even larger wage premium of 74% and 90%, respectively.
  3. Innovation-Driven Growth is Linked to Roughly 75% of U.S. Growth Since the Mid-1940s: Referenced in this section of the Annual IP Report is a study from the Department of Commerce that investigated the impact of technological innovation on U.S. growth.

It is unfortunate that the Annual IP Report does not include more recent statistics regarding the impact of Intellectual Property on the economy in the past 5 years. However, the report does include some recent statistics on the economic cost of IP theft, which may explain the focus of this Administration on imposing sanctions and tariffs in an effort to protect U.S. IP rights internationally, rather than engaging in efforts directed at promoting the role of U.S. IP in domestic and foreign markets. The Economic Cost of IP Theft section of the Annual IP Report largely focuses on the role China plays in the misuse and misappropriation of U.S. intellectual property. The focus on China is not limited to this section of the report and can be found throughout the report, and China is specifically the target of the Administration’s four-part strategic approach to promote and protect intellectual property. The focus on China’s role in IP theft and the impact on the U.S. economy relies on the following statistics:

  1. The U.S. Customs and Border Protection Bureau (CBP) reports that approximately 88% of seized goods were sourced to China and Hong Kong in 2016.
  2. It is estimated that the total value of seized counterfeit goods from China and Hong Kong was between $52.9-$101.4 billion in 2016, roughly 0.5% of 2016 GDP.

Given that an estimated 1.2-2.3 percent of counterfeit goods are actually seized by CBP, it is difficult to see how the approaches outlined in this report will make a meaningful impact on preventing IP theft, and in turn on the U.S. economy. Time will tell whether this approach will further the Administration’s stated goal of advancing American economic interests overseas and enabling American innovators and creations to operate in foreign markets with clear paths to secure and use their intellectual property. However, given the profound impact of IP-intensive industries on the U.S. economy, any approach to promoting and protecting U.S. intellectual property must balance the economic value add of the status quo which accounts for roughly 40% of the U.S. GDP against the risk of disrupting IP-intensive industries to address the 1%-3% cost to the U.S. GDP from IP theft in the form of counterfeit goods, pirated software and theft of trade secrets.

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