Intellectual Property & the Economy J. Steven Landefeld, Director New York State Bar Intellectual Property Section Fall Meeting September 14th, 2012

Why adding IP to GDP is Important ▪ GDP, international trade, and other statistics are hard wired into economic policy, including fiscal, monetary, tax, regulatory, and trade policy. ▪ Only a small portion of the nation’s investments in intellectual property are currently included in the nation’s economic statistics. ▪ Including the impact of IP in these statistics is key to assuring that these policies – all of which affect IP – take account of the importance of IP to economic growth, productivity, and trade. 2

A Broader Measure of Business Intangibles, Source: Corrado, Carol, Charles Hulten and Daniel Sichel. “Intangible Capital and Economic Growth, “ Working paper as part of the Finance and Economics Discussion Series, Divisions of Research and Statistics and Monetary Affairs, Federal Reserve Board, Washington, D.C. April 2006.

TFP: Key to Unexplained Portion of Growth  Preliminary results of BEA’s R & D Satellite Account indicate that between , R&D accounted for 5 percent of growth in real GDP.  Between , R & D’s contribution rose to 7 percent  If spillovers (residual unexplained portion of growth) from R&D are – as research suggests- at least as large as the direct returns, R & D may account for 1/6 of total factor productivity growth. Source for table: Jorgenson, Dale W., Mun S. Ho, and Kevin J. Stiroh Information Technology and the American Growth Resurgence, Cambridge, MA: MIT Press, pp

5 Results from BEA’s 2010 R&D Satellite Account:  Treating R&D as investment would have:  : Increased the growth rate of real GDP by.17 percentage point, a 5 percent share of growth  : Increased the growth rate of real GDP by.23 percentage point, a 7 percent share of growth  In comparison, private investment in commercial and other types of structures accounted for just over 2 percent of average real GDP growth  The contribution to average real GDP growth from treating R&D as investment is larger than the contribution from private investment in computers and peripheral equipment

6 Results from BEA’s 2010 R&D Satellite Account: ▪ If spillovers (residual unexplained portion of growth) from R&D are – as research suggests- at least as large as the direct returns, R&D may account for 1/6 of TFP growth ▪ Recognition of R&D as investment would raise private fixed investment by 11.3 percent in 2007 ▪ National saving rate rises by 2.3 percentage points from 14.2 percent to 16.5 percent in 2007

7 Results from BEA’s 2010 R&D Satellite Account:  Information, communication, and technology (ITC) and biotechnology-related industries account for two-thirds of the business sector’s R&D contribution to GDP growth between  Recognizing R&D as investment boosts the level of state GDP the most in New Mexico (9.2%) and in Maryland (6.2%), on average between  The value of U.S investments overseas increases by $171 billion or 0.9%, the value of foreign investments in the U.S. increases by $185 billion or 0.9%, for 2007

Shares R&D Investment by Industry, 1998 and

9 R&D Investment and Investment in Nonresidential Structures

R&D Investment as a Share of GDP, 1998 and

Share of Investment in Entertainment Originals by type, Theatrical Movies Long-Lived Television Books Music Misc. Total Investment in 2010: $69.7 billion

Entertainment Originals Relative to GDP

Investment in Entertainment Originals/ Total Private Investment

Stock of Entertainment Relative to GDP

IP-Related Products and Services Leading the Economy ▪ ICT Services:  Growth  Prices  Productivity ▪ Digitally-enabled international trade:  Exports  Imports  Services balance 15

Percent Changes in Real GDP and ICT- Producing Industries, 2007:Q2-2011:Q4 16

Price Indexes for Real GDP and ICT-Producing Industries, 2007:Q1-2011:Q4 17

Percent Changes in Real Value Added and Labor Productivity, ICT-Producing Industries,

U.S. Exports of Digitally-Enabled Services 19

20 U.S. Exports of Digitally-Enabled Services ▪ The share of digitally-enabled services in total exports grew from 45 percent in 1998 to 61 percent in 2010 ▪ For , exports of business, professional, and technical services contributed most to the overall increase in digitally-enabled services exports  The categories with the fastest rates of growth were insurance services and financial services ▪ For , business, professional, and technical services contributed most to the overall increase  The largest increases were for management and consulting services and R&D and testing services

U.S. Imports of Digitally-Enabled Services 21

22 U.S. Imports of Digitally-Enabled Services ▪ The share of digitally-enabled services in total imports grew from 34 percent in 1998 to 56 percent in 2010  In 2010, there was a surplus on digitally-enabled trade in services of $116 billion out of a total surplus in services of $146 billion. ▪ For , business, professional, and technical services and insurance contributed most to the overall increase in digitally-enabled services imports  The categories with the fastest rates of growth were insurance services and business, professional, and technical services

Real Value Added & Labor Productivity for Digital- Enabled Service Industries, Average Productivity Growth rates, U.S.: 2.6% ITC Producing industries: 12.8%

BEA IP Research & Data Priorities ▪ Incorporation of R & D in National Income and Product Accounts (GDP) ▪ Expanded measures of other intangibles, including movies and entertainment, social science R & D, human capital, business models and firm specific R & D ▪ Continued incorporation of improved measures of prices, output, productivity, and investment returns for IT /IP products and services. 24

U.S. Dept. of Commerce (DOC) Innovation Efforts ▪ i6 Challenge and Advanced Manufacturing Jobs and Innovation Accelerator by Economic Development Administration (EDA) - and ▪ Internet Policy Task Force by DOC ▪ America Invents Act roadshow series by United States Patent and Trademark Office (USPTO) ▪ Advanced Manufacturing Program Office by National Institute of Standards and Technology (NIST) ▪ IP Awareness Assessment Tool by USPTO and NIST ▪ Intellectual Property and the U.S. Economy Report by Economic Statistics Administration - economy-industries-focus economy-industries-focus 25