I\’m not someone who calls for ever-tighter protection of intellectual property. Even when intellectual property raises profits for innovators and producers in the short-run, the ultimate goal is lower prices and new products for consumers in the long run. I\’ve even speculated that the very term \”intellectual property\” may be a misnomer, encouraging an inappropriately strong idea of what patents and copyrights are intended to accomplish.
But that said, it clearly makes little sense in a global economy to seek tight enforcement of intellectual property rights within U.S. borders when such protections for innovators are often being extensively broken in other parts of the world–and especially in China. The Report of the Commission on the Theft of American Intellectual Property was recently published by the National Bureau of Asian Research, a Seattle-based think tank, and it lays out some troubling evidence (as usual, footnotes and citations are omitted here for readability.)
\”It is difficult to overstate the importance of intellectual property to U.S. economic prosperity and difficult to gauge the full extent of the damage done by IP [intellectual property] theft. … A 2012 study by the Department of Commerce found that protection and enforcement of IPR around the globe directly affects an estimated 27 million American jobs in IP-intensive industries, which is roughly 19% of the U.S. workforce, producing over one-third of America’s GDP.
\”Overseas, products are counterfeited on a mammoth scale or re-engineered with small changes and then patented as if they were new inventions. Because much of the theft is not counted, estimates of the total vary. In 2010, the commander of the U.S. Cyber Command and director of the National Security Agency, General Keith Alexander, stated that “our intellectual property here is about $5 trillion. Of that, approximately $300 billion [6%] is stolen over the networks per year.” He later called the theft “the greatest transfer of wealth in history.”
\”Intellectual property that is stolen over the Internet constitutes only a portion of total IP theft. Much of it occurs the old-fashioned way. Hard drives are either duplicated on site or physically stolen by bribed employees; employees are planted temporarily in companies or permanent employees leave and illegally share proprietary information; products are dissected, re-engineered, and sold without permission or payment of royalties; digitized products are pirated and sold illegally; phones are tapped for the purpose of obtaining trade secrets; and email accounts are compromised. The list
goes on. … Totaled, it is safe to say that dollar losses from IP theft are hundreds of billions per year, which is at least in the range of total exports to Asia in 2012 (valued at $320 billion).
Indeed, IP is hugely important to the U.S. economy. Loss of revenues to the victimized inventor or owner of a trade secret is the first and most obvious cost of IP theft, but an asset is lost too. Both losses mean fewer jobs and less money to reinvest in the next generation of products. Stolen IP represents a subsidy to the party that did not have to bear the costs of developing it, and the effects can ripple across industries and companies.\”
Looking at a range of estimates, the Commission argues that China accounts for about 70% of the theft of intellectual property. It points out that with long global supply chains, and sluggish enforcement, intellectual property is at ever-greater risk. It\’s clearly a counterproductive state of affairs that prevents U.S. companies from using the intellectual property of their competitors, but then makes them compete against Chines producers who have gained access to that same intellectual property without a license or payment.
What\’s to be done? This commission was co-chaired by Dennis C. Blair (former Director of National Intelligence and Commander in Chief of the U.S. Pacific Command and Jon M. Huntsman (former Ambassador to China, Governor of the state of Utah, and Deputy U.S. Trade Representative). It\’s proposals are mainly for greater government attention and enforcement for these issues, including everything from investing in cybersecurity measures to requiring that imported products show that their supply chain used intellectual property fairly.
While such recommendations are sensible enough, they do run a risk that the U.S. government becomes an agent pushing solely for higher royalty profits for U.S. innovators and producers, without taking into account how the diffusion of new technologies can benefit consumers. Trying to enforce U.S. standards of intellectual property protection around the world for all products is going to be costly and cumbersome, at best. Improved protection of intellectual property is a worthy goal, but we also need to be rethinking more broadly how to encourage U.S.-based innovation in a competitive global economy that is not always going to play by U.S. rules with a variety of policy tools, including government-supported research and development, training of researchers, tax breaks for corporate research and development, and a U.S. business climate that is supportive for new U.S. firms.