Understanding the Small Business Presence in Patent-Intensive Industries

By Jonathan Porat, Regulatory Economist, Office of Advocacy

Congress has ramped up efforts to pass patent reform legislation after years of debate and discussion. This increased attention to intellectual property has touched on the importance of patents to small businesses. Small businesses may be particularly affected by patent reform since startups rely on patents for fundraising, and entrepreneurs build on newly discovered technologies. Established small businesses that rely on intellectual property protection and licensing would be affected as well.

Small businesses make up an important part of “patent-intensive” industries, which rely relatively heavily on intellectual property. When we combine the U.S. Census Bureau’s Statistics of U.S. Businesses and a grouping methodology from an upcoming Office of Advocacy report, we can see that small businesses make up a substantial majority of firms in patent-intensive industries. Overall, approximately 96 percent of all firms in patent-intensive industries are considered small businesses.

As the chart below shows, these small businesses tend to employ more people on a per-firm basis than the national average. U.S. small businesses have an average of 10 employees per firm. In contrast, small firms in “super-heavy” patent intensity industries—or those which receive over 9 percent of all patents issued to corporations (corporate patents)—employ 24 employees per firm. Small businesses in “heavy intensity” industries (which receive between 2 and 6 percent of all corporate patents) employ almost double the average number of people per firm. Continuing the trend, small firms in “light intensity” industries (which receive between a half percent and 2 percent of corporate patents) employ over double the average number of people per firm.

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While these firms are larger than the national average in terms of the number of people they employ, the small business share of employment in patent-intensive industries is below the national average of 48 percent. (This is shown in the next chart.) Therefore, while small businesses in patent-intensive industries are larger than average, they make up a smaller-than-average share of their respective industries’ employment. On the most basic level, these data show that small firms in patent-intensive industries contribute to overall economic growth, but have a complex relationship within their respective industries.

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Considering the importance of patent policy changes to small businesses on both a firm- and industry-level, the Leahy-Smith America Invents Act of 2011 (AIA), a seminal piece of legislation in patent policy, included a provision asking the Office of Advocacy to study the small business impacts of AIA implementation. Over the next week, Advocacy will be releasing this study and related publications to provide further context for the small business impacts of patent policy. The aim of this research is to improve the discussion of how patent policy is affecting small businesses and provide additional methods for analyzing its economic impact.

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