America’s Patent Office Measures IP’s Footprint, Not Its Payoff
The U.S. Patent and Trademark Office (USPTO) recently published the fourth edition of its assessment of intellectual property (IP) in the U.S. economy, “Intellectual Property and the U.S. Economy in 2024.” The study does a careful job measuring the use of IP across American industries. It does not measure, and does not claim to measure, how much of the nation’s economic output is generated by IP. While this distinction is important, it is easy to overlook, as seen in comments about the report.
John A. Squires, the Director of the U.S. Patent and Trademark Office (USPTO), praised the report, saying: “The continued growing prominence of IP-intensive industries over the past several years demonstrates clearly how important their contribution is to the U.S. economy as a whole, and the substantive benefits that accrue to the workers employed by them. Every piece of intellectual property we put into circulation is a potential job, a new business, a competitive advantage, and an investible asset. Today’s report is remarkable and proof-positive of the effect of American ingenuity at scale.”
The report proclaims that industries classified as intellectual property-intensive generate $11.4 trillion in GDP, or 44 percent of private-sector output, while supporting 66 million jobs. Director Squires extols these findings as “proof-positive” of the value of intellectual property (IP) for the U.S. economy. While these findings demonstrate that important sectors of the U.S. economy invest in patents, trademarks, and copyright, the study says little about IP’s contribution to the economy. In fact, the study’s authors are quick to note that they “cannot isolate IP’s impact from other factors” that drive innovation, productivity, employment, or economic growth. The study provides interesting statistics on the distribution of IP across the U.S. economy, yet these findings are descriptive rather than causal.
This distinction matters for current policy debates surrounding patent reform and cautions against using such studies as evidence that stronger patent protections by definition promote innovation and economic growth. The USPTO director’s enthusiastic endorsement of the study as a measure of IP’s economic contribution goes beyond what the authors were willing to claim. Understanding the study and its limitations is important to avoid using it erroneously to support claims beyond its scope.
What the Study Is
Most fundamentally, the study catalogs the use of IP across the U.S. economy, finding that firms in large and important sectors of the economy invest in patents, copyrights, and trademarks. All true, but the report does not identify which economic activity is actually generated by IP. The authors start by building a baseline for IP’s role in the economy using the North American Industry Classification System, which categorizes economic activity across different sectors of the U.S. economy.
The study applies a measure of IP-intensity across 210 industries comprising the private sector based on the level of IP per worker. (For utility patents, design patents, and trademarks, the study uses the total number of rights per worker for each sector.) If the number of patents and trademarks per worker exceeds the economy-wide average, the sector is labeled IP-intensive. (Copyright intensity is handled differently and is calculated based on economic activity in industries traditionally associated with creative works.) To qualify as IP-intensive, an industry needs only to be on the fixed list of copyright industries or exceed the national average in one of the three categories: utility patents, design patents, or trademarks.
This methodology finds that 128 of the 210 industries included in the study are categorized as IP-intensive. Industries where IP use exceeds the economy-wide average account for $11.4 trillion in economic output and 33 percent of private sector employment. Additionally, the study finds workers in industries categorized as IP-intensive earned $1,897 in average weekly wages—53 percent higher than weekly earnings in other industries. With respect to trade, IP-intensive industries generated $1.58 trillion in commodity exports, accounting for 81.5 percent of total commodity exports. This may be true, but it does not explain why this is the case or what role IP plays.
What the Study Isn’t
The authors are thankfully upfront about its limitations. Importantly, the report’s findings should not be interpreted as evidence of the IP system’s contribution to economic growth. The authors emphasized the descriptive nature of the report, noting the study was not designed to demonstrate the impact of IP on key economic variables, such as innovation, productivity, employment, or growth. Highly productive firms may acquire patents and other IP because they innovate, which is different than saying they innovate because they acquire patents.
Determining cause and effect is beyond the scope of the study. The report does not prove that patents or stronger patent rights contribute to economic growth. Several factors contribute to economic growth, including capital investment, labor inputs, and technology, along with institutional structures such as the rule of law, regulatory policy, and the constitutional framework. The authors acknowledge that they cannot separate the impact of IP from the impact of these other variables, a point ignored by those using the report to advocate for stronger patents.
Methodology Problems
The instrument driving the study’s results—IP intensity—poses its own challenges. Because it is measured by IP rights per employee, fitting the definition of IP-intensive means either acquiring more IP or having fewer employees. For example, a capital-intensive firm with a relatively small number of employees can qualify as IP-intensive more easily than a firm with the same number—or even more—patents but a larger workforce. The study’s measure of IP-intensity is as much a function of employment as of IP acquisition.
Non-practicing entities (NPEs) provide the limiting example. These firms acquire patents not to produce anything, but to extract licensing revenues or settlements through the threat of litigation. They have relatively few employees but can hold patent portfolios of hundreds, or even thousands, of patents. According to the study’s classification measure, NPEs are among the most IP-intensive firms, yet they produce nothing themselves and employ few people.
Alternatively, patent thickets—dense webs of patents surrounding a product—are often used to deter generic drug competition in the pharmaceutical industry. They drive up the number of patents per employee, clearly tilting firms into the IP-intensive group of industries. Yet many of these patents are minor variants of existing patents with little innovative value, but substantial impacts on competition.
The study’s methodology has no way to categorize such IP uses as beneficial or harmful to economic growth, technological development, or affordability. Counting patents per employee does not measure innovation and cannot distinguish between a patent on a revolutionary new invention or a secondary patent on a minor variation of a drug that simply exists to thwart market entry by lower-cost competitors. Serial continuation patents drive up patent counts and IP intensity, but can actually reduce consumer welfare and innovation.
The study classifies industries as IP-intensive or not, with intensity determined by employee numbers and IP count. The cutoff is set by whether this figure is above or below the average for all firms. But this binary measure is artificial and lacks nuance. As a result, two similarly situated firms may lie just above or below the IP-intensity cutoff solely based on employment numbers. There is an arbitrary quality to this economic bifurcation that poses limitations on the study’s findings. For example, the study notes that annual growth in IP-intensive industries since 2019 was 3.6 percent, above the industry-wide annual growth of 2.3 percent. But this difference was primarily due to industries crossing the IP-intensity threshold and being reclassified, rather than to growth within the IP-intensive industry group.
Comparing the broad categories also raises questions about linking IP intensity to economic growth. First and foremost, industries the USPTO study does not classify as IP-intensive generated more economic output than their IP-intensive counterparts. While this does not indicate that IP-intensive industries are less important, it does give pause to suggestions that they are the sole engine of economic growth.
Innovation Is Everywhere
This is not a surprising outcome because considerable research demonstrates that a significant number of inventions are never patented. Rather than file patents, firms often rely on trade secrets, first-mover advantage, and other mechanisms to capture the benefits of innovation. In fact, research finds that first-mover advantage, learning curve advantages, and complementary goods such as sales and service are often preferred over patents for capturing the returns to innovation. Another study found that for manufacturing industries, patents play a role but are considered less important than these other mechanisms for protecting the returns to innovation.
Patents can play a constructive role, but their value and use vary across industries, and the binary variable in the USPTO’s study may not capture these distinctions effectively. A firm’s decision to acquire patents is not a function of patents per worker, but a series of decisions based on factors such as the nature of the technology deployed, the ability to maintain secrecy, product life cycles, and complementary assets.
Conclusion
The USPTO has provided useful descriptive statistics on the footprint of intellectual property in the U.S. economy. Not surprisingly, highly productive industries often utilize intellectual property, and the study catalogs how different industries deploy it through patents, copyrights, or trademarks.
Examining IP intensity is a useful endeavor, and the USPTO should build on its descriptive studies to gain more instructive insights into the role of patents in innovation, productivity, and economic growth. Understanding how factors such as patent quality and patent eligibility affect economic outcomes is an important question that moves the debate beyond simply counting patents to more pointed studies that evaluate optimal patent design. With its data and resources, the USPTO could make important contributions to this essential question on the role of patents.
Without answering such questions, the current report has important limitations in how it should be used. There is a temptation to move beyond the descriptive statistics to causal claims about the economic value of intellectual property, something which the authors say the report cannot do. The study measures the scope and use of intellectual property; it does not—and was not intended to—inform the current debate over patent eligibility, patent quality, and the host of issues surrounding patent reform.
Yet, as seen in the comments by Director Squires, it can be tempting to point to the report to claim that “every piece of intellectual property we put into circulation is a potential job, a new business, a competitive advantage, and an investible asset.” The authors make no such claim, and policymakers should be wary of others that do so.