04/11/2012 04:18 pm ET Updated Jun 11, 2012

IP: The Not-So-Secret Sauce in the US Economy

If there was any doubt, a new report from the Commerce Department makes it abundantly clear that intellectual property is the secret sauce in the US economy, officially contributing roughly one-third of the country's GDP and more than a quarter of its employment. If you are keeping score, that comes to $5 trillion and 40 million jobs that pay a significant wage premium over jobs in non-IP-intensive sectors.

Software publishers figure prominently in that picture by, among other things, directly employing approximately 260,000 US workers in 2010 while exporting more than any other IP-intensive, service-providing industry.

This report is the second major government study in a year to underscore the stakes involved in protecting US intellectual property rights at home and abroad. Last May, the US International Trade Commission found that lax enforcement of IP rights in China alone costs IP-intensive companies in the United States nearly $50 billion a year -- and it may cost the broader economy more than twice that amount, putting in jeopardy as many as 2.1 million jobs.

The new Commerce Department report notes, "The granting and protection of intellectual property rights is vital to promoting innovation and creativity and is an essential element of our free-enterprise, market-based system." It goes on to explain:

Patents, trademarks, and copyrights are the principal means used to establish ownership of inventions and creative ideas in their various forms, providing a legal foundation to generate tangible benefits from innovation for companies, workers, and consumers. Without this framework, the creators of intellectual property would tend to lose the economic fruits of their own work, thereby undermining the incentives to undertake the investments necessary to develop the IP in the first place. Moreover, without IP protection, the inventor who had invested time and money in developing the new product or service (sunk costs) would always be at a disadvantage to the new firm that could just copy and market the product without having to recoup any sunk costs or pay the higher salaries required by those with the creative talents and skills. As a result, the benefits associated with American ingenuity would tend to more easily flow outside of the United States.

That neatly summarizes the reason the Founders included a copyright clause in the US Constitution, and it is why the Administration and Congress are right to place IP protection at the top of the country's economic agenda today.

This post was also featured on the Business Software Alliance's blog, BSA TechPost. The Business Software Alliance is a trade group that represents software makers against copyright infringement.