US Should Get Tough On Chinese IP Theft, Committee Warns

5/23/2013

IP theft is costing the US as much as $300 billion a year, a government report warns, with China by far the biggest offender.

According to the bipartisan Commission on the Theft of American Intellectual Property, which produced the report, China accounts for at least half – and maybe as much as 80 percent – of US intellectual property theft.

Seal of the United States International Trade Commission. (U.S. International Trade Commission, USITC, ITC) (Photo credit: Wikipedia)

“National industrial policy goals in China encourage IP theft, and an extraordinary number of Chinese in business and government entities are engaged in this practice,” it says, with other major offenders including Russia and China.

Much of this theft is facilitated through cyber-espionage, which has come increasingly to the fore over the last few months. Recently, for the first time, the US directly accused the Chinese government of targeting US computer systems, not just for military intelligence but for commercial purposes too. Indeed, President Obama has described the problem as “one of the most serious economic and national security challenges we face”. China has dismissed such claims.

But while cyber-espionage is a growing problem, says the report, most IP theft is still taking place through more traditional methods, such as bribing employees and plain on-site stealing.

All in all, claims the committee, it’s losing the US hundreds of billions of dollars a year – around as much as total US exports to Asia. Millions of jobs, too, are casualties.

One major difficulty in dealing with the issue is the length of supply chains, making it difficult even for ethical multinationals to be certain they’re not exploiting stolen technology. Short product cycles make it even harder to check. This view is borne out by a study last year of the Department of Defense’s supply chain, which uncovered more than a million suspect parts.

The report makes 21 recommendations. Controversially, it praises the Cyber Information Sharing and Protection Act (CISPA), passed by the House of Representatives last month and currently awaiting approval by the Senate. The bill has had strong opposition from privacy campaigners, and the White House has threatened to veto it.

However, “An open, two-way communications flow between companies and US government agencies is more necessary than ever before,” the report reads. “Companies cannot be asked to share more information unless they have a reasonable expectation that they will receive useful information in return, and they need protections from lawsuits if they do provide information.”

And much stronger punitive measures are needed, the authors say. These could include banking sanctions or restrictions on imports and investments. “The American response to date of hectoring governments and prosecuting individuals has been
utterly inadequate to deal with the problem,” the authors say.

As things stand, the International Trade Commission’s 337 process, for sequestering stolen IP, is slow and inefficient, but speeding it up so that suspect goods could be impounded at the country’s borders could act as a powerful deterrent.

Other recommendations include increased funding for law enforcement and an amendment to the Economic Espionage Act, allowing private companies to sue over IP theft. The committee also recommends that the US treasury secretary should have the right to deny offenders the use of the US banking system – effectively shutting them out of the country altogether.

Bizarrely, it even suggests witholding funding from the WorldHealth Organization until the WHO starts monitoring national regulatory agencies for IP compliance. “The US government has leverage at the WHO chiefly because of its financial support,” it points out.

But it really shouldn’t be all that difficult to make more conventional deterrent measures work. The US, after all, is probably the world’s most desirable market to be in, and more powerful penalties agaist offenders could have a strong effect. Punishing the WHO – easily interpretable as “Pay up, or the sick kids get it” – must surely be a step too far.