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Commission on the Theft of American Intellectual Property (The IP Commission) Report, May 2013

Published May 22, 2013

The Commission on the Theft of American Intellectual Property (The IP Commission), with members from the "private sector and public service in national security and foreign affairs, academe, and politics," released its report on May 22, 2013. The Commission addresses theft by cyber means and pinpoints China as a main concern.

The findings of the report:

The Impact of International IP Theft on the American Economy

Hundreds of billions of dollars per year. The annual losses are likely to be comparable to the current annual level of U.S. exports to Asia—over $300 billion. The exact figure is unknowable, but private and governmental studies tend to understate the impacts due to inadequacies in data or scope. The members of the Commission agree with the assessment by the Commander of the United States Cyber Command and Director of the National Security Agency, General Keith Alexander, that the ongoing theft of IP is "the greatest transfer of wealth in history."

Millions of jobs. If IP were to receive the same protection overseas that it does here, the American economy would add millions of jobs. A drag on U.S. GDP growth. Better protection of IP would encourage significantly more R&D investment and economic growth.

Innovation. The incentive to innovate drives productivity growth and the advancements that improve the quality of life. The threat of IP theft diminishes that incentive.

Long Supply Chains Pose a Major Challenge. Stolen IP represents a subsidy to foreign suppliers that do not have to bear the costs of developing or licensing it. In China, where many overseas supply chains extend, even ethical multinational companies frequently procure counterfeit items or items whose manufacture benefits from stolen IP, including proprietary business processes, counterfeited machine tools, pirated software, etc.

International IP Theft Is Not Just a Problem in China. Russia, India, and other countries constitute important actors in a worldwide challenge. Many issues are the same: poor legal environments for IPR, protectionist industrial policies, and a sense that IP theft is justified by a playing field that benefits developed countries.

The Role of China Between 50% and 80% of the problem. The major studies range in their estimates of China's share of international IP theft; many are roughly 70%, but in specific industries we see a broader range. The evidence. Evidence comes from disparate sources: the portion of court cases in which China is the destination for stolen IP, reports by the U.S. Trade Representative, studies from specialized firms and industry groups, and studies sponsored by the U.S. government. Why does China stand out? A core component of China's successful growth strategy is acquiring science and technology. It does this in part by legal means—imports, foreign domestic investment, licensing, and joint ventures—but also by means that are illegal. 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. There are also weaknesses and biases in the legal and patent systems that lessen the protection of foreign IP.

In addition, other policies weaken IPR, from mandating technology standards that favor domestic suppliers to leveraging access to the Chinese market for foreign companies' technologies.

Existing Remedies Are Not Keeping Up Short product life cycles. Even in the best judicial systems, the slow pace of legal remedies for IP infringement does not meet the needs of companies whose products have rapid product life and profit cycles. Inadequate institutional capacity. Particularly in developing countries there is inadequate institutional capacity to handle IP-infringement cases—for example, a shortage of trained judges. China's approach to IPR is evolving too slowly. The improvements over the years have not produced meaningful protection for American IP, nor is there evidence that substantial improvement is imminent. Indeed, cyberattacks are increasing.

Limitations in trade agreements. Although there appears to be a great deal of activity on the part of the United States through the WTO, there are also significant problems in the process that have made it impossible to obtain effective resolutions. Bilateral and regional free trade agreements are not a panacea either. Steps undertaken by Congress and the administration are inadequate. Actions have been taken recently both to elevate the problem as a policy priority and to tighten U.S. economic espionage law. These are positive steps. A bill in Congress that would allow greater information-sharing between government and private business needs to be enacted and amended if needed. All of these efforts, however, will not change the underlying incentive structure for IP thieves and will therefore have limited effect.

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