IP Commission Recommends Policies to Protect Americans from Theft

On March 15, the Commission on the Theft of American Intellectual Property released its 2021 review report containing policy recommendations for strengthening protections for American intellectual property from theft by China and pirates in other foreign nations. As the IP Commission's report points out, "IP-intensive industries support more than 45 million U.S. jobs," but IP theft inflicts on the U.S. economy hundreds of billions in annual losses as well as reduced investment and innovation. The report's policy recommendations include statutory authorization for the Secretary of Commerce to be the principal officer on all aspects of IP protection as well as authorization for the U.S. Trade Representative to develop and implement a national IP protection strategy and coordinate interagency efforts. It also recommends that U.S. policy make it a goal to delegitimize communist Chinese business efforts that are dependent on IP theft. Without staking definitive positions here on the report's recommendations, suffice to say they deserve careful consideration. Additionally, the IP Commission released a backgrounder that describes recent and ongoing legislative efforts to strengthen American IP protections. 

As mentioned in previous blog posts, the IP Commission has issued important reports that highlight the massive economic losses and harms suffered by U.S. innovators and our economy due to theft of copyrighted works, patented inventions, and other forms of IP. The 117th Congress and federal agencies must make protection of American IP for foreign bad actors in communist China and other nations. 

IP Commission Recommends Steps to Protect America From International IP Theft

On February 21, 2019, the Commission on the Theft of American Intellectual Property issued a report highlighting "policy developments in the last 18 months related to strengthening the United States' ability to protect IP." The IP Commission's 2019 Review focused on U.S.-China relations, offering recommendations for more effectively preventing forced technology transfers, economic espionage, and intellectual property (IP) theft. 

According to the IP Commission's 2017 report, "the annual cost of counterfeit goods, pirated software, and theft of trade secrets to the U.S. economyis between $225 billion and $600 billion," and China is "the world's principal IP infringer." In fiscal year 2017, 87% of counterfeit goods seized coming into the U.S. originated from China and Hong Kong.

The IP Commission's 2019 Review applauded American policymakers' responses to Chinese IP wrongful practices:

The Trump Administration has elevated the elimination of China’s theft of American IP, whether through cyber-theft, forced technology transfers, stolen trade secrets, counterfeiting of products, or other means, to one of the leading foreign policy priorities and a top goal of the U.S.-China economic negotiations. 

The IP Commission acknowledged the Section 301 investigative report findings of the United States Trade Representative (USTR) regarding Chinese IP policies and practices. The USTR concluded that China "unfairly target[s] critical U.S. technology with the goal of achieving dominance in strategic sectors" and that its practices are harmful to American innovation and competitiveness. Additionally, the IP Commission's 2019 Review acknowledged the USTR's placement of China on the "Priority Watch List" over concerns that include "trade secret theft, online piracy and counterfeiting, a high volume of manufacturing and exporting counterfeit goods, technology transfer requirements, mandatory application of adverse terms to foreign IP licensors, localization requirements, and weak enforcement." 

Finally, the IP Commission made several recommendations for strengthening American IP protections from foreign theft, including: (1) construction of an"independent international database for scoring of entities from foreign countries that pose IP risk;" (2) a streamlined process for reporting and responding to IP theft; (3) requiring the Securities and Exchange Commission (SEC) to determine whether companies' use of stolen IP ought to be publicly reported; (4) meaningful sanctions by the Federal Trade Commission (FTC) against foreign companies using stolen IP; and (5) use of "multilateral institutions to harmonize national and international legal and regulatory frameworks."

Previously, FSF President Randolph May and I have addressed the pressing need to strengthen protections for Americans' IP internationally – particularly for copyrighted movies and music. In our Perspectives from FSF Scholars paper, "Modernizing International Copyright Agreements to Combat Copyright Infringement," we explain that several foreign countries insufficiently protect Americans' copyrighted works from digital piracy and online infringement taking place through cyberlocker websites and stream-ripping websites. As we urged there: "The Trump Administration should ensure that stronger protections for Americans' creative works are included in new treaties and trade agreements that are attuned to the Digital Age."

In particular, the proposed United States-Mexico-Canada Agreement (USMCA) would strengthen copyright protections and enforcement by securing Americans' full enjoyment of exclusive rights in sound recordings, ensuring longer protection terms, and providing stronger civil remedies and criminal penalties for copyright infringement. However, international agreements such as USMCA should not include outdated online infringement provisions that are similar to Section 512 of the Digital Millennium Copyright Act of 1998. Section 512 is ineffective in protecting copyrighted movies and music from massive online infringement via user-upload websites. We identify problems with Section 512 and call for reforms to strengthen online copyright protections in our Perspectives paper, "Modernizing Civil Copyright Enforcement for the Digital Age Economy: The Need for Notice-and-Takedown Reforms and Small Claims Relief."

In sum, in the interest of securing greater protection for Americans' intellectual property, it's worth paying close attention to the IP Commission's most recent report. 

US Trade Rep Investigating China’s IP Practices

On August 14, President Trump issued a memorandum instructing the United States Trade Representative to consider investigating China’s policies and practices relating to IP theft and forced technology transfers. U.S. Trade Representative Robert Lighthizer promptly opened its investigation pursuant to the Trade Act of 1974. Its notice of the initiation of the investigation of China’s practices relating to IP has now been published in the Federal Register.

Among those applauding the opening of the investigation was is the bipartisan IP Commission, which issued a 2017 report update that spotlighted $225 billion in annual costs to the American economy from international IP theft. Concerns about IP theft in China were of FSF Research Associate Michael J. Horney discussed that update in his blog post: “New IP Commission Report Shows Need for Strong IP Enforcement Efforts.”

In the Digital Age, combating international theft and piracy of American intellectual property (IP) has become increasingly important to enhancing our nation’s economic prosperity. Securing American IP rights abroad is also a constitutional imperative. FSF President Randolph J. May and I explore the philosophical and historical aspects of that imperative in our Perspectives from FSF Scholars paper “The Logic of International Intellectual Property Protection.”

New IP Commission Report Shows Need for Strong IP Enforcement Efforts

On February 27, 2017, the Intellectual Property (IP) Commission released an update to its 2013 report entitled “The Theft of American Intellectual Property: Reassessments of the Challenge and United States Policy.” The report finds that the annual cost of counterfeit goods, pirated software, and theft of trade secrets to the U.S. economy is between $225 billion and $600 billion. Since the IP Commission’s 2013 report, the U.S. has suffered over $1.2 trillion in economic damages due to theft of American IP rights. It is important that Congress strengthen enforcement efforts and that more voluntary initiatives emerge to combat the growth of IP theft and to encourage more innovation, investment, and creativity in the U.S. economy.

According to the report, in 2015, the U.S. imported counterfeit and pirated goods valued between $58 billion and $118 billion, and the U.S. exported counterfeit and pirated goods worth approximately $85 billion. An OECD study also estimated the sum of counterfeit goods imported into the U.S. and exported from the U.S. to be valued around $145 billion.

The proliferation of pirated software is a major problem because of the ease of downloading software. The IP Commission’s report finds that the value of pirated software exceeded $52 billion worldwide in 2015, costing the United States approximately $18 billion in economic activity. Furthermore, theft of trade secrets is difficult to measure because many companies do not even know that their IP has been stolen. The report estimates that theft of trade secrets cost the U.S. between $180 billion and $540 billion in economic activity in 2015.

The IP Commission’s report also outlines a number of actions taken by Congress and the Obama Administration since the 2013 report to help stop the theft of IP. Most recently, as I wrote in a December 2016 blog, the Office of the IP Enforcement Coordinator published a report which set four goals for FY 2017-2019 with regard to strengthening protections of IP rights. The goals are the following: (1) enhance national understanding of economic and social impacts from trade secrets misappropriation and IP rights infringement; (2) minimize counterfeiting and IP-infringing activity online; (3) secure and facilitate lawful trade; and (4) enhance domestic strategies and global collaboration.

Enforcing protections of IP rights and stopping online piracy are the deficiencies of United States’ robust IP policy framework. Despite the U.S. still leading the world in terms of strong protections of IP rights, GIPC’s 2017 International Index cites one of the United States’ weaknesses as “inconsistent enforcement against counterfeit and pirated goods, especially goods sold online.” As FSF scholars have stated for many years, theft of IP directly harms job growth in creative industries and discourages further innovation and investment by entrepreneurs. On the other hand, voluntary and governmental enforcement efforts restore the entrepreneurial spirit of creators by upholding strong IP rights protections.

In a February 2017 blog, Seth Cooper and I recommended two potential actions by Congress that could help increase enforcement efforts with regard to copyright. First, Congress should reform the Digital Millennium Copyright Act’s “notice and takedown system” under Section 512 to lessen the burden on copyright holders to monitor infringements of their content. Second, Congress should modernize the U.S. Copyright Office by updating the administrative technologies in order to maintain a searchable database of copyright registrations, to monitor infringements of IP rights, and ultimately to enhance the economic value of copyrighted works.

Voluntary initiatives also can have a large impact on combatting theft of IP online. The Copyright Alert System, TAG, and the Donuts-MPAA initiative all help notify large Internet companies when pirated content or counterfeit goods are being advertised or sold on their websites or networks. These types of initiatives often can have a substantial impact on reducing online piracy because websites and advertisers (in addition to the IP rights holders) have a monetary incentive to report IP rights violations.

A group of think tanks, organizations, and individuals recently submitted a letter to the Trump Administration and the 115^th Congress asking them to continue to promote strong protections of IP rights. IP-intensive industries comprise roughly 38% of all activity and 30% of all jobs in the U.S. economy. Strong protections and enforcement of IP rights are necessary for creators and entrepreneurs to continue to provide consumers with innovated goods and services and to encourage investment and growth throughout the U.S. economy.