U.S. Royalties and Fees Generated From Intellectual Property

Companies trade intellectual property when they license or franchise proprietary technologies, trademarks, and entertainment products to entities in other countries. Trade in intellectual property can involve patented and unpatented techniques, processes, formulas, and other intangible assets and proprietary rights; broadcast rights and other intangible rights; and the rights to distribute, use, and reproduce general-use computer software. These transactions generate revenues in the form of royalties and licensing fees.[26] The exception is contract manufacturing, which may permit the use of intellectual property without a licensing fee.

U.S. Royalties and Fees From All Transactions

In contrast to the country’s merchandise trade position, the United States runs a surplus from its trade of intellectual property (figure 6-24figure.; appendix table 6-22Excel.). U.S. receipts from licensing of intellectual property have grown every year since 1986 (except for 2001) and in 2005 reached $57.4 billion, 9% higher than in 2004 (appendix table 6-22). U.S. payments for foreign intellectual property were $24.5 billion in 2005, 6% higher than 2004 and more than 20% higher than in 2003. The slowdown in 2005 primarily resulted from a falling off of U.S. company payments to unaffiliated foreigners. In 2004, U.S. payments to foreign companies spiked because of payments to broadcast the summer Olympic Games in Greece (BEA 2006).

In 2005, U.S. trade in intellectual property produced a surplus of $32.9 billion, up 12% from the $29.3 billion surplus recorded a year earlier (figure 6-24figure.; appendix table 6-22Excel.). About three-quarters of transactions involved exchanges of intellectual property between U.S. companies and their foreign affiliates.[27] Companies with marketable intellectual property may prefer affiliated over unaffiliated transactions to exercise greater control over the distribution and use of this property, especially when the intellectual property is instrumental to the company’s competitive position in the marketplace (Branstetter, Fisman, and Foley 2005). Despite the greater value of transactions among affiliated companies, both affiliated and unaffiliated transactions have grown at the same pace during the past two decades (appendix table 6-22). These trends suggest a greater internationalization of U.S. business activity and a growing reliance on intellectual property developed overseas.[28]

Back to top

U.S. Royalties and Fees From U.S. Trade Between Unaffiliated Companies

Data on intellectual property transactions between unaffiliated companies, in which prices are set through market-based negotiation, may better reflect the value of U.S. intellectual property than data on exchanges between affiliated companies. About 80% of receipts and payments from trade of U.S. intellectual property with unaffiliated foreign companies are generated by licenses for manufacturing know-how and computer software (figure 6-25figure.; appendix table 6-23Excel.).

Trade in manufacturing know-how as described above consists of U.S. trade in industrial processes (including patents and trade secrets) used in the production of goods. Trade in computer software consists of cross-border software licensing agreements, such as on-site licensing. When receipts (sales of manufacturing know-how and software license agreements) consistently exceed payments (purchases), these data may indicate a comparative advantage in the creation of industrial technology and licensing of computer software. These data also provide an indicator of trends in the production and diffusion of these technologies as intellectual property.

U.S. Royalties and Fees From Trade in Manufacturing Know-How

The United States is a net exporter of manufacturing know-how sold as intellectual property (table 6-15table.; appendix tables 6-23 and 6-24Excel.). In 2005, the surplus from trade in manufacturing know-how was $3.9 billion, which was $1 billion greater than the 2004 surplus because of strong growth in receipts and a flat trend for payments.

The U.S. surplus from trade in manufacturing know-how is driven largely by trade with Asia (BEA 2007) (table 6-15table.; appendix table 6-24Excel.).[29] Asia has been the single largest consumer of U.S. manufacturing know-how for the past 20 years, led primarily by Japan.[30] With a 39% share of total receipts in 2005, Japan has historically spent more to purchase U.S. manufacturing technology than any other country. South Korea, a major consumer of U.S. manufacturing know-how since the early 1990s, had the second highest share of any country, accounting for 19% of total U.S. receipts in 2005.

China’s and Taiwan’s shares of total receipts are much smaller than those of Japan or South Korea, although they have increased over the past decade (table 6-15table.; appendix table 6-24Excel.). China’s and Taiwan’s shares were 3% and 6% of total receipts in 2005, respectively, at least double their levels in 1995. Asia was also an important supplier of manufacturing know-how to U.S. companies during this period, although U.S. purchases from Asia largely consisted of trade with Japan. In 2005, Asia supplied nearly 16% of U.S. manufacturing know-how licensed from foreign sources, of which close to 90% came from Japan.

Unlike trade with Asia, U.S. trade with the EU in manufacturing know-how is much more balanced (table 6-15table.; appendix table 6-24Excel.). Receipts from the EU were $1.3 billion in 2005, accounting for 20% of all U.S. receipts from U.S. intellectual property trade in manufacturing know-how. France, Germany, and the UK accounted for more than half of the receipts from the EU in 2005, with Germany having the largest single share among EU countries. Payments to the EU were about $1.6 billion in 2005, accounting for 61% of total payments. France, Germany, and the UK received more than half of U.S. payments to the EU to license its manufacturing know-how.

U.S. Royalties and Fees From Licensing of Computer Software

The United States is also a net exporter when licensing computer software (table 6-16table.; appendix tables 6-23 and 6-25Excel.). The trade surplus from computer software licensing transactions reached a record high of $4.8 billion in 2005, driven by much faster growth in receipts relative to payments. Although 2005 receipts from transactions involving manufacturing know-how ($6.6 billion) were greater than those involving computer software ($5.5 billion), U.S. companies paid almost four times as much for foreign manufacturing know-how ($2.7 billion) than for foreign computer software ($0.7 billion).

Incomplete data suggest that Asia is a large licensor of U.S. computer software (table 6-16table.; appendix table 6-25Excel.). Asia was responsible for more than half of all licensing fees paid to U.S. companies for computer software in 2005. Since 1998, the first year that data were collected on computer software licensing, Asia’s share has steadily increased, surpassing the EU’s share in 2001. Japan is the largest purchaser of U.S. computer software of any country, accounting for 31% of total U.S. receipts in 2005, which is more than 8 percentage points higher than in 1998. South Korea, the only other Asian country from which data are consistently available, had a 5% share in 2005.

The EU accounted for 30% of U.S. receipts from licensing of computer software in 2005. About three-fourths of the EU’s receipts originated from France, Germany, and the UK (table 6-16table.; appendix table 6-25Excel.). Even so, the EU licenses more computer software to U.S. companies than any other region. In 2005, U.S. companies purchased more than 85% of the $0.7 billion spent worldwide on computer software from the EU. The EU, however, spends considerably more on licensing computer software from U.S. companies; as a result, the EU’s deficit in 2005 for this trade area was $1.1 billion.

Back to top

Notes

[26] The U.S. government and U.S. corporations have long advocated the establishment and protection of intellectual property rights. The Office of the U.S. Trade Representative monitors countries with reported violations and reports on the status of intellectual property protection in its annual report, Foreign Trade Barriers.

[27] An affiliate refers to a business enterprise located in one country that is directly or indirectly owned or controlled by an entity in another country. The controlling interest for an incorporated business is 10% or more of its voting stock; for an unincorporated business, it is an interest equal to 10% of voting stock.

[28] In addition, data on the destination of multinational corporate sales to foreign affiliates also suggest that market access is an important factor in the firms' decisions to locate production abroad. See Borga and Mann (2004).

[29] The Bureau of Economic Analysis (BEA), the source of U.S. royalty and fees data, collects data on the following Asian countries/economies: China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand, and other unspecified Asian countries. See BEA (2007).

[30] Asia has purchased more manufacturing know-how than the EU since 1987, the first year data were collected on manufacturing know-how. See BEA (2007).

Right-click on image to save.
print.PrintCloseclose.
CloseClose.