Unfortunately, as the commission reports, “the scale of international theft of American intellectual property is unprecedented” causing job losses that “run into the millions” and at least $320 billion in annual losses to the U.S. economy—an amount equal to U.S. exports to Asia. General Keith Alexander, Director of the National Security Agency, calls this ongoing theft “the greatest transfer of wealth in history.” Yet, as bad as the economic and employment losses are, the commission notes that IP theft’s most insidious impact lies in undermining both the incentives and means to invest in innovative activity. Why invest in innovation if the fruits of it will be stolen? How can entrepreneurs invest in the next round of innovation if they can’t make money from their current investments in innovation?
IP theft has been a challenge for decades but a confluence of factors has led to massive increases. First, the Internet has created new methods for stealing IP, particularly through cyber-espionage. A case in point is the U.S. firm American Superconductor, which had its core IP stolen by its largest customer, the Chinese state-owned company Sinovel Wind Group.
Second, an increasing number of countries, led by China, have created industrial policies that feature the acquisition of foreign intellectual property, whether by legal or illegal means, as the centerpiece of their economic strategies. In fact, the commission notes that China is the largest source of IP theft, accounting for 50 to 80 percent globally. And because it has been able to steal with impunity, China has shown the way for other scofflaw nations, like India and Russia, to take similar actions, as manifested by India’s recent announcement of compulsory licenses for biopharmaceutical IP and Russia being a lead source for pirated digital goods.
Despite this egregious level of IP theft, the response from the United States has been inadequate to the challenge. While the government has recently taken some useful steps—such as establishing an Office of the Intellectual Property Enforcement Coordinator and creating an Interagency Trade Enforcement Center—these entities still lack adequate tools and enforcement mechanisms. Moreover, they are compromised by a World Trade Organization that does not see its primary goal as combating mercantilist practices like IP theft and is so encumbered by languid dispute settlement mechanisms that damage is often done to infringed parties by IP thieves well before cases are resolved.
As such, U.S. policy needs to make it readily apparent that systemic theft of U.S. IP will have significant consequences. The commission laudably proposes a range of innovative policy recommendations (beyond providing more resources for detection and enforcement) to strengthen the penalties for IP theft and these should serve as a framework for a comprehensive Congressional reform package. For example, the Secretary of the Treasury should be empowered to deny use of the American banking system to foreign companies that repeatedly use or benefit from the theft of American IP, even if Wall Street objects. The Economic Espionage Act should be amended to create a federal right of action for trade-secret theft. Customs officials should be empowered to impound imports suspected of containing or benefitting from IP theft at the border based on probable cause. These policies and others would begin to change the cost-benefit calculation for foreign entities that steal American intellectual property.
At the same time, U.S. policy should focus on capacity building measures to strengthen IP regimes in developing countries, including expanded legal and judicial exchanges and training programs that contribute toward enhanced “rule of law” environments and investment in regional “centers of excellence” in China and other priority foreign nations.
Left unchecked, global theft of U.S. IP will only grow with increasingly deleterious consequences to our economy, while also hampering the development of innovative new products and services that benefit citizens around the world. It’s time for Congress and the administration to say enough is enough.
Stephen Ezell is a senior analyst with the Information Technology and innovation Foundation.