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The Magnitude of the IP Theft Problem

The Magnitude of the IP Theft Problem – PODCAST

The theft of American IP is about much more than the aggregation of big numbers. It is also the collection of individual, sometimes devastating, stories of loss. For instance, when the American Superconductor Corporation had its wind-energy software code stolen by a major customer in China, it lost not only that customer, but also 90% of its stock value. s o u r c e : Michael A. Riley and Ashlee Vance, “China Corporate Espionage Boom Knocks Wind Out of U.S. Companies,” Bloomberg Businessweek, March 19–25, 2012.[1]

In today’s technological global marketplace—in which goods and information can be so easily stolen and sold—it is a misapprehension to think that efforts to steal any entity’s intellectual property will not be explored, and, at times, achieved, with sometimes severe financial, and reputational consequences. As well as severe health and safety consequences for consumers who stumble into buying counterfeit goods.

The forward-thinking business leaders of today recognize this inevitable reality and adopt strategies to confront it. As Sharon Kreps, Epson’s channel marketing manager put it, “Manufacturers who think their products are free and clear of this problem are living in a dream world.”[2]

Since IP is so expansive to include: trade secrets; trademarks; designs; copyright; and patents. It is virtually impossible for any company’s IP rights to not be at some risk of a breach regardless of its size. IP is so interrelated that when a breach occurs often various acquired rights will be violated simultaneously.

To illustrate that point one need only consider what is lost when an iPhone or Blackberry is counterfeited and/or pirated and sold. Each phone has a trademark logo; a legally protected phone design; copyrighted software; patented buttons; and, there are protected trade secrets utilized by employees in the phone’s construction.

Or, for example, when a pharmaceutical company’s cancer medication is counterfeited, and sold, the brand of the company (trademark), as well as the contents of the medication (patent),  is violated, similarly, when a movie studio’s film is copied and distributed without legal authority the subject matter of the film (copyright) and the title of the film (trademark) is misused.

The magnitude of the problem cannot be overstated. It has prompted some global corporations to establish specialized brand integrity departments (or its equivalent) devoted exclusively to combat the problem of intellectual property misappropriation. Some companies have designated staffers—under the brand integrity umbrella—to focus on specific strategies, such as law enforcement support; product intelligence; market monitoring; litigation; illegal trade legislation; and enforcement of company and trade policies.[3]

U.S. GOVERNMENT/LAW ENFORCEMENT RESPONSE/PARTNERSHIP WITH THE PRIVATE SECTOR

The Obama administration established the first Office of the U.S. Intellectual Property Enforcement Coordinator in 2010 (IPEC), in recognition of the magnitude of the problem.

In 2012, Victoria Espinel (the first Intellectual Property Enforcement Coordinator) emphasized the incredible range and importance of protecting IP, when she said, “Intellectual property is critical to not only pharmaceuticals and contents producers but energy producers, internet and technology companies, to manufacturers, to retailers, and to service providers. The future of America’s economic condition rests squarely on the shoulders of our ability to protect the America innovator. The innovation driving current growth is built on intellectual property.”[4]

In the administration’s White Paper on Intellectual Property Enforcement Legislative Recommendations (2011), it was noted that “Piracy and counterfeiting in the online environment are significant concerns…they cause economic harm and threaten the health and safety of American consumers. Foreign-based and foreign-controlled websites and web services raise particular concerns…”[5] Some consumers, for instance, have at times received drugs online that contain dangerous chemicals or no cancer-fighting chemicals at all, or, batteries that explode in a children’s toy, or, electronics that cause house fires.

The administration acknowledged that the success of combating Intellectual Property misappropriation would require the commitment of the private sector. At the first White House Forum on Intellectual Property in 2011, Victoria Espinel cited, for example, data from The Alliance for Safe Online Pharmacies which indicated that of the 30-40,000 active online drug sellers a fraction is operating legitimately, and stressed, “Effective enforcement begins with effective engagement with the private sector.”[6]

And in the key findings section of the 2013 Report of the Commission on the Theft of American Intellectual Property (The IP Commission Report), it was noted that the impact of international IP Theft on the American economy runs into 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.”[7]

America’s commitment to vigorous IP enforcement at the homeland was highlighted in the 2013 Joint Strategic Plan on Intellectual Property Enforcement to the President and Members of Congress. It was noted that since FY2009 U.S. law enforcement increased enforcement activity considerably in the fight against infringement. It cited the following: U.S. Immigration and Customs Enforcement (ICE)-Homeland Security Investigations (HSI) arrests were up 159 percent; FBI health and safety arrests were up 286 percent, and Customs and Border Protection (CBP) and ICE seizures of infringing products were up 53 percent.

The strategic plan also identified a number of private sector companies that, “… voluntarily agreed to adopt best practices aimed at curbing the sale of counterfeit goods and reducing online piracy.” [8] Essentially encouraging other companies to do the same.

And in the 2011 White House forum then Assistant Attorney General, Lanny Breur, drove the point home by saying, “We at the Justice Department, of course, cannot carry out our enforcement mission without input and assistance from the victims of IP crime. We recognize that it is the victims of IP crime who are often in the best position to know when their products are being illegally copied, or, who can provide invaluable assistance in identifying and distinguishing counterfeits from legitimate goods.”[9]

IPEC is currently developing its 2016-2019 Joint Strategic Plan on Intellectual Property Enforcement and notes that in this year alone worldwide counterfeit and pirated products is estimated to reach $1.8 trillion, at a growing rate of 22% per year.[10]

[1] http://www.ipcommission.org/report/ip_commission_report_052213.pdf

[2] http://www.ipr-policy.eu/media/pts/1/Brand_Enforcement_Manual_FINAL.pdf

[3] Intellectual Property Protection and Enforcement Manual: A Practical and Legal Guide for Protecting Your Intellectual Property Rights, Global Intellectual Property Center (GIPC)

http://www.iprpolicy.eu/media/pts/1/Brand_Enforcement_Manual_FINAL.pdf

[4] Intellectual Property and the U.S. Economy: Industries in Focus (April 11, 2012) https://www.youtube.com/watch?v=Y86EPMfmp9o

[5] https://www.whitehouse.gov/sites/default/files/ip_white_paper.pdf

[6] https://www.youtube.com/watch?v=KBxc7mXEUM0&feature=youtu.be

[7] http://www.ipcommission.org/report/ip_commission_report_052213.pdf

[8] https://www.whitehouse.gov/sites/default/files/omb/IPEC/2013-us-ipec-joint-strategic-plan.pdf

[9] White House Forum on Intellectual Property Theft (2010)(Part 2)

https://www.youtube.com/watch?v=IjAcW5087FM

[10] https://www.whitehouse.gov/blog/2015/09/01/developing-2016-2019-joint-strategic-plan-intellectual-property-enforcement

Disclaimer: IPPIBlog.com is offered as a service to the professional IP community. While every effort has been made to check information in this blog, we provide no guarantees or warranties, express or implied, with regard to content provided in IPPIBlog.com. We disclaim any and all liability and responsibility for the qualification or accuracy of representations made by the contributors or for any disputes that may arise. It is the responsibility of the readers to independently investigate and verify the credentials of such person and the accuracy and validity of the information provided by them. This blog is provided for general information purposes only and is not intended to provide legal or other professional advice.

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Ron Alvarez is an IP Investigations / Protection writer and licensed private investigator in New York City. He is a former NYPD lieutenant where he investigated robbery, narcotics, internal affairs, and fine art theft cases. Ron is a graduate of the FBI National Academy and earned a B.A. in Government and Public Administration from John Jay College of Criminal Justice in Manhattan. He has published a number of articles on various investigative topics for PI Magazine. Ron is certified by the Interpol-International IP Crime Investigators College (IIPCIC.) as a "Transnational and Organized Crime Intellectual Property (IP) Investigator."

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