Fear Mongering Report Suggests 'IP Theft From China' One Of The Biggest Problems America Faces

from the based-on-what? dept

A bunch of folks have been sending in variations on a report that came out last week, grandly titled "The IP Commission Report" as if it were some sort of official body. In the subhead, we find out that it's actually by the even more ridiculously named "The Commission on the Theft of American Intellectual Property." Who put together this "commission"? Well, it's the National Bureau of Asian Research, which also is not an official government organization as you might think, but a private think tank that more or less was spun out of the University of Washington, and was originally the National Bureau of Asian and Soviet Research, put together at the behest of Senator Henry Jackson, who believed strongly that America should intervene around the globe to promote American interests, often at the expense of those where we were intervening. He supported interning Japanese Americans during WWII. He strongly supported the Vietnam War. He's considered the spiritual father of today's neoconservatives. As you may have guessed, the "National Bureau of Asian Research" is not exactly about figuring out the best way to understand and improve relationships between the US and Asia. It's about how US interests can dominate Asia.

As the NY Times points out, the report itself was put together by two ex-Whitehouse officials, both of whom left "on strained terms," Dennis Blair (former Director of National Intelligence) and John Huntsman Jr. (former ambassador to China, who ran for President, badly, in the last election). The report itself is quite incredible. Based on almost nothing factual, it makes incredibly sweeping statements about "IP theft" (which it never actually defines, and it seems to use the broadest possible way of determining it), and then insists that the problem is incredibly big. It also assumes, without any proof, that the only possible way to have incentives to innovate is to have the strictest possible intellectual property regime out there -- and that IP is the fundamental incentive for innovation. The fact that this has been disproved by a tremendous amount of evidence doesn't even enter into the conversation. Blair and Huntsman take it on faith that strong IP absolutely leads to greater economic benefit.

The second, and more fundamental, effect is that IP theft is undermining both the means and the incentive for entrepreneurs to innovate, which will slow the development of new inventions and new industries that can further expand the world economy and continue to raise the prosperity of all. This effect has received some attention in the cases of a few industries, but it affects others as well. Unless current trends are reversed, there is a risk of the relative stagnation of innovation, with adverse consequences for both developed and developing countries.

Except, that's simply not true. It assumes, incorrectly, that without IP there's no incentive to innovate. Yet, actual research shows that most innovation happens because companies or individuals need the innovation themselves, or they see value in selling the actual product or service in the market. You can do that whether or not there's IP protection. But the report's authors don't even consider that a possibility -- perhaps because they're not actually even remotely tied to innovative industries.

As you might have guessed from the name of the commission itself, they talk a lot about "theft" even in nonsensical ways:

On an unprecedented level, a critical driver of this worldwide economic growth is in trouble. Trade secrets, patents, copyrights, and trademarks are being stolen, especially from American but also from European, Japanese, and other nations’ companies and organizations

But what does that even mean? Does it mean copied -- as in infringement? Or does it mean someone actually "stealing" the underlying products? Or does it mean somehow registering a patent or copyright or trademark away from the original holder (about the only thing that would actually be "theft")? How the hell do you "steal" a trademark anyway? Or a patent? None of this makes any sense, which makes it difficult to take seriously. The report never actually defines IP theft. It just leaves it out there, and sometimes appears to be talking about actual stealing of hard drives of information, but often, it just seems to be about whatever the hell the report's authors want it to mean. There is simply no intellectual rigor behind this. It's just throwing everything together into a giant messy, stupidly meaningless pile.

The report correctly notes that much of the value of publicly traded companies is tied up in "intangible assets" but then falsely claims that this is the same as "IP." But it's not. So much growth in intangible assets often comes from a lack of intellectual property, allowing for greater information exchange and sharing, which grows the overall pie. Leave it to a bunch of politicians to not understand the difference between a zero sum and non-zero sum economy. Throughout the report, the authors confuse any kind of intangible concept or knowledge with "intellectual property." But "intellectual property" are laws, not the actual ideas -- and knowledge grows not by strengthening the laws, but frequently by ignoring those laws and having information and innovation shared. Under this report, massive economic growth driven by open source software, for example, is credited to strong IP laws. Which is absurd.

More ridiculous: in discussing the impact of "IP theft" it only looks at one side of the equation. Take the following two examples:

Effects on industry. Lost sales; lost brand value; reduced scope of operations; lost jobs and reduced ability to provide employee benefits; reduced ability to conduct R&D; increased IP protection expenses for prevention, remediation, and enforcement; increased costs from dealing with malware acquired from unlicensed software; reduced incentive to innovate.

Um. What about about increased sales, increased services, ability to do things more cheaply thanks to lower resource costs? How about increased incentives for innovation due to stronger motivation to keep ahead of the competition? All of those things have been widely observed. All of them are ignored.

Effects on consumers. Harm to health, harm to safety, costs incurred as a result of product failure, decreased or increased purchasing power.

How about keeping prices of proprietary goods in check as they need to compete? How about the ability to be productive, to accomplish more for less? How about the ability to make use of these products to create even more economic wealth? Again, ignored.

Even worse, it completely ignores the fact that the $200 billion estimate it extrapolates as one basis for claiming $300 billion has been debunked over and over again, and is based on layers upon layers of bogus premises from decades ago, that today is just expanded every few years by lobbyists who insist it's growing. Of course, when the actual numbers were looked at closely, it was discovered that a more accurate assessment might be about 2% of that number. But Huntsman and Blair instead insist that the $300 billion is probably too low. Based on what? Nothing. Just the fear mongering they hear from companies and lobbyists -- the same companies who certainly have a very strong vested interest in protectionism against Chinese competitors (oh wait...).

The authors are further suckered by the ridiculous belief that China's growth in its patent system is "a response to a concerted government effort to spark innovative activity." That's wrong. There was a concerted government effort to spark growth in the patent system because China understands what US politicians still can't grasp: patents are a purely protectionist system, and having more Chinese patents (no matter what they're for, and no matter whether or not they spur any innovation at all) means they can leverage those as a weapon against US and other foreign companies. Nearly every single major patent case in China has been a Chinese company against a foreign company and (spoilers!) the foreign company always loses.

We'll be having a few more posts about the suggested "remedies" set forth in the paper, but since they all seemed to be based on ridiculously poor methodology and assumptions, as you can imagine, the recommendations are ridiculously problematic as well. We'll highlight one quick one, and then delve in deeper in a few later posts:

Designate the national security advisor as the principal policy coordinator for all actions on the protection of American IP.

Yes, you read that right. They want to elevate "the protection of American IP" to the level of a national security issue. As if it hasn't already gotten to an insane level by having Homeland Security and Immigrations and Customs Enforcement cowboys shutting down websites based on nothing. Now we're going to make it into a national security issue? Based on a report that's almost entirely wrong? Yikes.

The whole paper is incredibly problematic, based on bad methodology and ridiculously bad assumptions. It conflates a number of different topics, ignores significant amounts of well-respected research debunking huge parts of the claims, and makes a number of outlandish statements based on a near total ignorance of how actual innovation works today. The paper is a complete joke.