IP Commission: Cut Off WHO Funding If It Doesn't Make IP Protection Priority One

from the if-you-haven't-got-your-health-IP,-you-haven't-got-anyt dept

The IP Commission Report on the "theft" of American IP is the gift that keeps on taking. We've already discussed the commission's suggestion that infringers' computers be loaded up with spyware and malware and the apparent "fact" that China has singlehandendly destroyed every IP-reliant industry in America.

Hidden towards the bottom of the report is (yet another) terrible proposal, guided by the heavy hand of self-interest. It plainly spells out the commission's priorities: American IP above all else, even the health and well-being of other nations.

Recommend to Congress and the administration that U.S. funding to the World Health Organization (WHO) program budget in whole or in part be withheld until (1) the WHO’s process of certifying national regulatory agencies includes attestation that IP protection is an essential part of the regulatory evaluation process, and (2) the WHO refrains from prequalifying any product until the regulating agency of jurisdiction demonstrates and certifies that it does not violate IP rights...

The U.S. government has leverage at the WHO chiefly because of its financial support, which consists of annual “means tested” contributions to the WHO’s program budget and “voluntary” contributions whose total value is about $350 million. This support from the United States can be a carrot or a stick to influence the WHO’s actions.

So, if the WHO puts health ahead of American IP holders, the US should just cut off its contributions to the organization, and indirectly, the countries it assists. One would think that the "regulatory evaluation process" would be primarily concerned with ensuring new drugs and medical technology do more good than harm, healthwise. The possibility of IP infringement probably doesn't even cross the radar of the WHO. That job belongs to other agencies.

But the commission ties IP enforcement and worldwide health together, forcing one to rely on the other by linking US monetary contributions to protection of American IP. The WHO would now be required to make sure rights holders aren't being cut out of a market before attempting to solve larger problems -- like halting an outbreak before it becomes an epidemic.

The commission also suggests the US solicit a little help with its low-level IP extortion by asking for other affected countries (affected by IP theft -- not widespread health issues) to follow its lead in chaining contributions to IP enforcement.

Multilateral coordination may also be possible. For example, the IP of Japanese-developed medicine is frequently stolen, and Japan’s current annual and voluntary contributions to the WHO total over $70 million.

With enough support, maybe the commission can force the WHO to properly reflect its new priorities by dropping the "H" (which is of secondary concern) and replace it with "IP" (job #1). WIPO!

The commission "recommends" this course of action but can't "endorse" it quite yet, possibly because it will make everyone involved look like a bunch of greedy meatbags who value their profits over the health of the developing world. (Heavily paraphrased -- here's the original.)

The Commission believes this recommendation has strong promise but is not ready to endorse it. To be acted upon, this recommendation requires careful assessment of the likely impacts and the potential for unintended consequences. It will be essential to ensure that the poorest and most vulnerable across the world continue to have access to life-saving, high-quality health interventions, now and in the future. In fact, IP protections are vital to that outcome, because they preserve incentives for innovation and foster predictable markets for manufacturers.

In other words, we like it but we can't endorse until we can mitigate the unintended consequences (one of which was listed earlier). The poorest and most vulnerable across the world should still have access to lifesaving medicine and technology, pending licensing approval and WHO due diligence. (The last sentence in the Commission's bet-hedging paragraph is simply wishful thinking -- the kind that gets copyright extended and bad legislation crafted.)

Threatening to yank WHO funding screws up the organization's priorities. The funding should be contingent on the WHO providing the best possible health assistance it can worldwide. Being an IP cop for US interests (and other countries, should they choose to go this regrettable route) shouldn't even be part of the equation.

Filed Under: china, commission the theft of american intellectual property, dennis blair, healthcare, henry jackson, intellectual property, ip, ip commission, ip theft, john huntsman, trade war, who
Companies: national bureau of asian research

IP Commission Thinks YOU Should Pay For China's Infringement

from the alternatively,-it-could-just-deduct-$1,000-a-year-from-your-paychecks dept

As Mike discussed in a previous post, the IP Commission's report on "theft of American IP" points a finger almost exclusively at China. And, as was pointed out in another post, the report is also loaded with some genuinely terrible ideas (protect IP with malware, anyone?). Here's another one: starting a trade war with China over intellectual property. This recommendation, taken from the final pages of the document, is both a broadside against China and a genuinely terrible idea.

Generally speaking, instigating a trade war is a bad idea, even when you have the upper hand. Instigating a trade war over something as poorly defined (especially in this report) as "IP theft" is a worse idea. Instigating a trade war with a country that already has you staring down the barrel of a steep trade deficit is just asking for trouble. The US has tried this sort of thing before (to protect the American steel industry) and found itself facing retaliatory tariffs from European nations as well as having its tariffs declared illegal by the World Trade Organization.

No one truly "wins" in a trade war, but there's no shortage of losers -- mainly the consumers caught in the crossfire. But despite the enormous potential downside and the shortsightedness of this move, the commission seems to feel protecting the US from "IP theft" is worth the sacrifice. (It helps that the entire sacrifice will be borne by others.) The commission's recommendation bases itself on the claim that China alone is responsible for around 70% of the "$300 billion" it claims the US is losing every year. And it aims to make China pay... by making Americans pay. In the "Potential Future Measures" section (Chapter 14), the commission makes this suggestion:

Recommend that Congress and the administration impose a tariff on all Chinese-origin imports, designed to raise 150% of all U.S. losses from Chinese IP theft in the previous year, as estimated by the secretary of commerce. This tariff would be subject to modification by the president on national security grounds.

The argument for this proposal is that only by seriously limiting the U.S. market for Chinese goods and services will sufficient incentive be created for Chinese authorities to systematically reduce IP theft. The method proposed to accomplish that goal is to impose the calibrated tariff just described.

While such action would allow retaliation, the huge Chinese trade surplus with the United States could cause the retaliation to be ineffective. Chinese exports to the United States are between three and four times the dollar value of U.S. exports to China.

The Commission is not prepared to make such a recommendation now because of the difficulty of estimating the value of stolen IP, the difficulty of identifying the appropriate imports, and the many legal questions raised by such an action under the United States’ WTO obligations. If major IP theft continues or increases, however, the proposal should be further refined and considered.

Wonderful. Despite the fact the commission openly admits it can't accurately estimate the value of "stolen IP," and despite the fact this plan could possibly be illegal, it proposes that, in the middle of an economic downturn, the government should artificially raise the price of consumer goods in order to ensure the fiscal well-being of the MPAA, RIAA and the BSA. This would add $450 billion in tariffs onto the cost of imported goods. This works out to roughly $1,000 per person annually, or $4,000 for a family of four. China's manufacturers aren't simply going to eat the tariff. They'll either raise prices or stop shipping to the US. Costs of goods will rise in the US no matter which path they take. Kicking a major competitor out of the market tends to have that effect, especially when the competitor prices aggressively.

Now, these industries will make assurances that the money they're receiving (as part of an international "you must be a pirate" tax) will be shoved right back into the economy, either through job creation or additional investments. But those assurances won't mean much to Americans being stretched even thinner by rising prices, especially when they notice this plan basically transfers money out of their pockets and into the accounts of select US companies.

The commission feels that by artificially limiting China's exports, it can force the country to respect US intellectual property. The reward for China would be a decrease in the tariff, provided the "theft" numbers drop. But if I know anything about industries and subsidies (which this essentially is), those benefitting from this "deal" will soon be hooked on the new revenue stream and will have zero incentive to officially recognize any sort of downturn in Chinese infringement.

And if I know this, then you'd better believe China knows this. Instead of being rewarded for making efforts to curtail infringement, it will more likely see the tariff increase or hold steady, rather than decline by any appreciable amount. There's little incentive for China to improve its IP record and next to no incentive for IP industries to wean themselves off the tariff. All this will do is inch us closer to the frontlines of a trade war with the largest exporter in the world -- a war we can't hope to win and one that puts the American consumer right in the line of fire.

Filed Under: china, commission the theft of american intellectual property, dennis blair, henry jackson, intellectual property, ip, ip commission, ip theft, john huntsman, trade war
Companies: national bureau of asian research

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.

Filed Under: china, commission the theft of american intellectual property, dennis blair, henry jackson, intellectual property, ip, ip commission, ip theft, john huntsman
Companies: national bureau of asian research