Adm. Dennis Blair was director of national intelligence from January 2009 to May 2010 and was head of the U.S. Pacific Command from February 1999 to May 2002. Jon Huntsman Jr. was governor of Utah from 2005 to 2009 and U.S. ambassador to China from 2009 to 2011.
At a time when the U.S. economy is struggling to provide jobs, the hemorrhage of intellectual property (IP) — our most important international competitive advantage — is a national crisis. Nearly every U.S. business sector — advanced materials, electronics, pharmaceuticals and biotech, chemicals, aerospace, heavy equipment, autos, home products, software and defense systems — has experienced massive theft and illegal reproduction.
The individual stories are infuriating. In one recent instance, a foreign company counterfeited a high-tech product it had been purchasing from a U.S. manufacturer. The customer then became the U.S. company’s largest competitor, devastating its sales and causing its share price to plummet 90 percent within six months.
The scale is staggering. The Commission on the Theft of American Intellectual Property, which we co-chaired, estimates that the total revenue loss to U.S. companies is comparable to the total value of U.S. exports to all of Asia. U.S. software manufacturers — a sector in which this country leads the world — lose tens of billions of dollars in revenue annually from counterfeiting just in China, where the problem is most rampant. The U.S. International Trade Commission estimated in 2011 that if IP protection in China improved substantially, U.S. businesses could add 2.1 million jobs.
Equally as important as the current situation is the potential for future damage. Our intellectual property is what provides the new ideas that will keep the U.S. economy vital and productive over the long term. If less innovative foreign companies can reap the profits of U.S. research and development and innovation, we will lose our competitive edge and eventually experience a decrease in incentives to innovate altogether.
Our concerns go beyond economic factors. An investigation by the Senate Armed Services Committee last May found “approximately 1,800 cases of suspect counterfeit electronic parts” in U.S. military equipment and weapons systems, with as many as 1 million individual counterfeit parts now embedded in our military aircraft. Even the security-conscious Defense Department has lost the capacity to verify the integrity of its supply chains.
So far, our national response to this crisis has been weak and disjointed. Our commission was advised by some experts who said the U.S. should simply wait until lesser-developed economies mature and then find it important to protect their own intellectual property. Others counsel against antagonizing countries such as China, whose buying power is strong but where IP protection is especially poor.
Many companies simply internalize the threats of IP theft by going on the defensive; in the process, they pay ever-greater sums for improved cybersecurity precautions without any real increases in security. The Obama administration has made some progress in raising this issue with foreign governments, but more needs to be done.
For nearly a year, the nonpartisan, independent commission we co-chaired has sought to document the causes, scale and national impact of international IP theft and to recommend robust policy solutions for the administration and Congress. Our report — which will be published Wednesday at IPCommission.org — includes practical measures, both carrots and sticks, to change the cost-benefit calculus for foreign companies and their governments that illegally acquire U.S. intellectual property. The United States must make the theft of U.S. intellectual property both risky and costly for thieves.
We recommend immediately: denying products that contain stolen intellectual property access to the U.S. market; restricting use of the U.S. financial system to foreign companies that repeatedly steal intellectual property; and adding the correct, legal handling of intellectual property to the criteria for both investment in the United States under Committee for Foreign Investment in the United States (CFIUS) approval and for foreign companies that are listed on U.S. stock exchanges. All of these recommendations will require strengthening the capacity of the U.S. government in these areas.
In addition to these measures, which use the power of the U.S. market, we recommend reinforcing the capacity-building programs underway that strengthen the legal frameworks and practices for IP rights overseas. As these countries develop, their companies will want protection for their ideas. But the United States cannot afford to wait the many years this will take. We must help speed the process, and only when we make IP theft very costly for thieves can U.S. companies begin to realize a fair playing field.