China is the world's principal IP infringer: US watchdog

Software piracy and theft of trade secrets cost the US economy as high as $600 billion a year

China is the world's principal IP infringer: US watchdog

Counterfeit goods, software piracy and the theft of trade secrets cost the US economy as high as $600 billion a year, says a private American watchdog which labelled China as the "world's principal IP infringer".

The theft of Intellectual Property (IP) remains a grave threat to the United States due to lack of legal enforcement and national industrial policies that encourage IP theft by public, quasi-private, and private entities, according to the latest report by the Commission on the Theft of American Intellectual Property.

"We estimate that the annual cost to the US economy continues to exceed $225 billion in counterfeit goods, pirated software, and theft of trade secrets and could be as high as $600 billion," the report said.

"It is important to note that both the low- and high-end figures do not incorporate the full cost of patent infringement-an area sorely in need of greater research. We have found no evidence that casts doubt on the estimate provided by the Office of the Director of National Intelligence in November 2015 that economic espionage through hacking costs $400 billion per year," it said.

At this rate, the US has suffered over $1.2 trillion in economic damage since the publication of the original IP Commission Report in 2013, it said.

In 2015, the US imported counterfeit and pirated tangible goods valued between $58 billion and $118 billion, while counterfeit and pirated tangible US goods worth approximately $85 billion were sold that year worldwide, the report said.

The proliferation of pirated software is believed to be a much larger problem in scope than statistics suggest due to the ease of downloading software, ubiquitous use of software across industries and countries, and inadequate surveys.

The value of software pirated in 2015 alone exceeded $52 billion worldwide. American companies were most likely the leading victims, with estimated losses of at least 0.1 per cent of the $18 trillion GDP of the US, or approximately $18 billion, the report said.

On China, the report noted that the Communist giant, whose industrial output now exceeds that of the US, remains the "world's principal IP infringer". China is deeply committed to industrial policies that include maximising the acquisition of foreign technology and information, policies that have contributed to greater IP theft.

"IP theft by thousands of Chinese actors continues to be rampant, and the US constantly buys its own and other states' inventions from Chinese infringers.

China (including Hong Kong) accounts for 87 per cent of counterfeit goods seized coming into the United States. China continues to obtain American IP from US companies operating inside China, from entities elsewhere in the world, and of course from the US directly through conventional as well as cyber means. These include coercive activities by the state designed to force outright IP, the report said. transfer or give Chinese entities a better position from which to acquire or steal American IP.

The scourge of IP theft and cyberespionage continues to cost the US economy hundreds of billions of dollars a year despite improved laws and regulations, the Commission said in its report.

The IP theft undercuts the primary competitive advantage of American business-the capacity for innovation. IP-intensive companies generate more jobs both directly and indirectly than firms in other sectors, it said.

The growth of the American economy and the strength of the US labour market depend on the ability of Americans to innovate and increase productivity. The scale and persistence of IP theft, often committed by advanced state-backed groups, erode the competitiveness of firms and threaten the US economy, the report said.

Apart from the economic costs of IP theft are the political costs. Allowing persistent state-backed IP theft to continue represents the erosion of the norms between countries that buttress the international order. The US has chosen to uphold these norms for generations and continues to uphold them when they are threatened in other domains.

It should not give up on leading toward a code of conduct in the cyber domain or on addressing the issue of IP theft. Such leadership requires that the US enforce its own laws.

The report also said the commissioners were discouraged by the Obama administration's inaction on IP theft and cyberespionage.

Although the president took steps to bring his emergency economic powers to bear on cyber-enabled IP theft, the Obama administration failed to bring any cases against the perpetrators of cybercrime or IP theft, the report said.

The US government has the capability and resources to address this problem. President Donald Trump should make IP theft a core issue in the early months of his administration, the Commission said in its report.

"It is perhaps the single best way to correct the problems in the Sino-US relationship that he highlighted during his campaign. To that end, several of this Commission's recommendations remain ripe for implementation, and we hope that the new Congress and administration will examine them early in 2017.

"If the makeup of this Commission is any suggestion, there exists broad bipartisan support for addressing IP theft and safeguarding the competitive advantages of US firms, entrepreneurs, and workers, it said.

The Commission also recommended strengthening US diplomatic priorities in the protection of American IP. Additional IP attaches should be posted abroad, including a dedicated IP attache in the Chinese capital Beijing.