New Report Challenges The Whole 'IP Intensive Industries Are Doing Well Because Of Strong IP' Myth

from the good-to-see dept

For many years we've vocally criticized a very questionable line of arguments made by various lobbyists and (tragically) the US Commerce Department, that if you look at so-called "IP intensive industries" and see that those industries employ lots of people and are often profitable, it therefore means that stronger copyright, patent and trademark laws are good for the economy. There are all sorts of problems with this argument, highlighted simply by the fact that the single largest employment listed in one of these studies for an "IP intensive" industry is grocery stores. It's somewhat comical to believe that grocery stores employ 2.5 million people because of trademark law.

When challenged on this, the US Commerce Department's incredibly weak defense of this kind of argument (i.e., "Steve Jobs had patents, Steve Jobs made cool things, ergo, patents are important to innovation") was certainly troubling.

Thankfully, a new report by Eli Dourado and Ian Robinson at the Mercatus Center at George Mason University does a nice job dismantling most of the claims in these series of reports that suggest that lots of jobs in "IP intensive industries" automatically means "strong intellectual property laws are good." The report starts out by simply highlighting the problem of generally using "jobs" as a proxy for "good for society." That's a fallacy, and often a problematic one for innovation (where disruption may initially destroy a bunch of jobs, but, in the long-term, create many new opportunities).

Perhaps most fundamentally, jobs are not ends in themselves, and counting the number of jobs created is therefore not the best way to evaluate a policy. As Bryan Caplan notes, “Economists have been at war with make-work bias for centuries. [19th-century French economist Frederic] Bastiat ridicules the equation of prosperity with jobs as ‘Sisyphism,’ after the mythological fully employed Greek who was eternally condemned to roll a boulder up a hill.” Economic progress, Bastiat says, is defined by an increasing ratio of output to effort—indeed, economic nirvana is achieved when there is high output and zero labor effort.

Lawmakers could create jobs by requiring that construction projects be performed with spoons instead of shovels or tractors. Such a policy, however, would reduce worker productivity and decrease total economic output. Consequently, this spoon mandate would not promote economic progress.

Likewise, some of the jobs created by IP may harm the economy instead of helping it. Suppose IP laws necessitated that every firm hire 10 additional IP lawyers, but otherwise left output unchanged. IP could be said to create millions of additional jobs, but these would be jobs that reduced real output per worker, jobs that moved society further away from economic nirvana. They should be reckoned as economic costs of IP, not economic benefits. If (counterfactually) this were the only effect of IP, then abolition of IP would mean that the effort of the heretofore unproductively employed IP lawyers could be redirected to more productive uses.

But of course, the bigger issue, as we've outlined, is the silly argument that these jobs exist because of strict intellectual property laws. Not a single one of these studies has looked at how the jobs change with changes in the law. It simply is ridiculous to naturally assume that most of these jobs (like the grocery store point above) exist because of the current laws.

As a reductio ad absurdum, consider the blogging “industry.” As a matter of law, all authors are automatically, without registration or any other formal notice, bestowed with a copyright in their blog posts. Since the entire output of the blogosphere is copyrighted, under IPUSE’s methodology it would qualify as an IP-intensive industry (if it were considered an industry). Nevertheless, it seems clear that copyright protection accounts for at best a tiny sliver of bloggers’ output—the vast majority of blogs are accessible without a paid subscription, and many bloggers do not attempt to monetize their posts (with ads, say) at all.

If some industries resemble blogging—for example, if copyrights are automatically awarded but not relied on, or if patenting is done for primarily defensive purposes, or if trademarks exist but are rarely relied on by consumers—then IPUSE and the other reports that rely on simplistic counts of IP grossly overstate the number of jobs due to intellectual property. For these industries, IP intensity is not a reliable indicator of IP dependence.

On a similar note, for years we've pointed to CCIA's reports that did such a great job highlighting this fallacy by using the identical methodology to define "fair use intensive industries" to show that based on the copyright industry's own bogus methodology, clearly fair use is "more important" than copyright since it employs more people -- and thus, if we were to believe the original reports, then we should clearly expand fair use (massively, since it's so limited today). The whole point of the report was to mock the silly claims about "copyright intensive industries" -- and, amazingly, those who supported one report were horrified by the fair use report, attacking the methodology, without the self-awareness to recognize they were mocking their own preferred methodology.

As the report also notes, many of these other reports on how "important" IP is assume that intellectual property is the sole incentive for these jobs and related innovations and progress. That's just silly. As the new report notes, there are lots of possible impacts that these studies don't even remotely account for:

As a general matter, intellectual property law can overprotect as well as underprotect. When it overprotects, it creates jobs without a corresponding increase in real output, it creates jobs by destroying other jobs that are not accounted for, and at the margin it accounts for very little of the actual output created by supposedly IP-intensive industries.

The report then goes on to explore each of the three key areas -- copyrights, patents and trademarks -- to show why the assumptions underlying many of the reports simply don't hold up under scrutiny. It's a useful addition to counteract the bogus studies that make the bogus correlation argument based on the broadly defined "IP-intensive industries." If I have one complaint about it, it's that the report doesn't go as far as I expected, based on the title: "How Many Jobs Does Intellectual Property Create?" When I started reading the paper, I expected an attempt to actually look for some sort of causal methodology to determine such a figure, rather than just a dismantling of the arguments of those other reports. It's still a useful bit of research and analysis, but the title overpromises a bit.

Filed Under: copyright, copyright intensive industries, correlation, grocery stores, ip intensive industries, patents, studies, trademarks
Companies: mercatus center, us chamber of commerce

Little Evidence Of 'Infringement Risk' For 'Copyright Intensive' Companies

from the more-smoke-and-mirrors dept

For decades now, we keep hearing various "copyright intensive" companies whining to the press and politicians about how the "biggest threat" they face is continued copyright infringement. We hear about how it's undermining not just their business, but entire economic sectors, the basis of capitalism and the fundamental rule of law. Copyright infringement, we are told, is one of the largest risks to the economy and society that you could possibly imagine. We've long questioned the validity of those claims, especially since history has shown that the industry cries wolf fairly frequently and has always been wrong. Most famously, of course, the MPAA's Jack Valenti told Congress that "the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone." That was in 1982. In 1986, the home video market -- which the VCR created -- made more money for the MPAA's studios than the box office did. It's tough to believe the "threat" claims when they're always wrong.

But, the "copyright intensive" industries just keep on making those claims, and there's always some in the press and among elected officials who either don't know or don't care about the past (or technology or reality) and automatically believe those claims. They just assume that of course copyright infringement must be a huge threat because these companies say so.

A new study, however, found a pretty good way to evaluate the reality of that threat. Jonathan Band and Jonathan Gerafi realized that a good "independent" third party to evaluate the risk and threat of copyright infringement would be investment analysts. Their only stake in the game is whether or not the company is going to do well or poorly. If the perceived risk and threat was real, they'd certainly be letting everyone know. So, Band and Gerafi have produced a new research report studying equity research reports issued over the last quarter for eight of the top companies in the so-called "copyright intensive industries."

The choice of companies is interesting, because all eight are among those that regularly scream the loudest about the "threats" of infringement: Sony (owner of Sony Music and Sony Pictures), Vivendi (owner of Universal Music), Disney, Viacom (who also owns Paramount), Microsoft, Adobe, Pearson and Reed Elsevier. If you're keeping track, that's basically three of the largest movie studios, two of the largest music labels, two of the largest software companies and two of the largest publishers. If copyright infringement was really this existential threat they've all been screaming about, certainly it would show up in the equity analysts' reports, right?

Well, let's take a look at the findings:

• None of the 14 reports for Reed Elsevier and 18 reports for Pearson identified copyright infringement as a risk factor.
• Only 13% of the 15 reports for Sony and 22% of the 23 reports for Vivendi mentioned copyright infringement as a potential risk.
• Just 8% of the 26 reports for Viacom and 27% of the 26 reports for Disney referred to copyright infringement as a risk factor.
• 26% of the 19 reports concerning Adobe and 41% of the 27 reports concerning Microsoft identified copyright infringement as a risk factor.
• Cumulatively, only 19% (32) of the 168 reports referred to copyright infringement as a possible risk; 81% did not.

And, in case you were wondering, the reports that didn't list copyright infringement as a risk (i.e., nearly all of them) did list out a variety of other factors. It wasn't just a case where they weren't covering risks at all. They carefully looked at the market, and didn't seem to think infringement was a real risk at all.

And, it's important to note that since these are all public companies, the execs at those companies often spend a lot of time "educating" the analysts about the state of their business. In fact, in the annual reports for six of the eight companies listed, the companies themselves do list infringement as a major risk. It just looks like the analysts looked at the detail and simply didn't see any legitimate threat in most of the cases.

Filed Under: copyright, copyright intensive industries, equity analysts, infringement, jonathan band, jonathan gerafi, risk
Companies: adobe, disney, elsevier, microsoft, paramount, pearson, reed elsevier, sony, sony music, sony pictures, universal music, viacom, vivendi