Black Friday, small business Saturday, sofa Sunday and Cyber Monday are here! Buyer beware, deep discounts at the store and online could be concealing infringed items. Counterfeit products are not cheap, not only do they fund criminal organizations and harm consumers, their prevalence undermines one of the most important sectors of the economy: the IP-intensive industries. This sector employs 1 out of 3 Americans, pay higher wages, and contributes more than their weight to GDP. Protecting U.S. intellectual property rights at home and abroad is fundamental to a winning trade strategy.
This year the shopping week is on track to be a record-breaker, UPS anticipates a 14% increase in deliveries this holiday season.
As consumers jostle through the mall and thumb through e-commerce sites they will be admiring the benefits of international trade. Indeed, nearly every item Americans purchase this week will have some portion manufactured in the global supply chain. But, that doesn’t mean trade is free or fair. President-elect Donald J. Trump unapologetically wants to win at trade (as should we all) – and this week we will lose the most, to Chinese counterfeiters, who are laughing at us.
The U.S., Japan, EU and other modern economies are fueled by the incentives borne out of robust legal systems that protect intellectual property rights. These rights incentivize large capital investment into R&D by ensuring inventors and artists will be able to own their own work, sell it, lease it, and leverage it anyway they wish. Part of protecting ownership includes preventing trolls from registering trademarks intent on confusing consumers, that’s why the USPTO rejected comedian John Oliver’s “Drumpf” application which was intended to smear the then candidate’s brand.
Recent reports from the EU and US patent offices confirm exactly how much IP-intensive industries contribute to the economy. They are exactly at the pinnacle of the production pyramid, securing the very sectors where each compete in exports and produce technologies of the future: semiconductors, electronics, pharmaceuticals and motor vehicles to name a few. Modern economies are knowledge economies. As these industries continue to claim their space in the economy they have become responsible for larger contributions of GDP growth, employment, higher wages and value-added products in the global supply chain.
Here’s a quick breakdown of the role IP-intensive industries play in the U.S. and EU
|In Europe 2011-2013||In the U.S., 2014|
|· Employed 38%, 82 million jobs, of the EU labor force||· Employed 30%, 45.5 million jobs, of U.S. workforce|
|· Generated 42% of total EU GDP||· Generated 38% of GDP|
|· Accounted for 85% of total EU imports and 93% of exports, resulting in an IP trade surplus and a reduction in Europe’s total trade deficit.||· 52 % of total manufacturing exports |
· 12% of service exports
· 59% of merchandise imports
|· Paid employees 46% more than their counterparts in non-IP intensive sectors||· Also paid employees 46% more than counterparts in non-IP intensive sectors|
And this is where U.S. manufacturers lose to the underground Chinese economy. The OECD report this year pinpointed China and Hong Kong as the place of origin for 84% or the world’s counterfeit goods. While the EU, US and Japan owned the rights to 88%, $405 billion, of counterfeited goods seized. These revenues end up going to criminal organizations and state owned-enterprises that not only reap the massive financial gains off the stolen property, but produce shoddy products that harm consumers, damage brand reputations worth billions and discourages the incentive structure designed to encourage innovation through competition.
Fortunately, enforcing IPRs is Trump’s forté. As a business mogul Trump has been keenly aware to protect his brand during the campaign and utilize the value of his IP for business. Trump owns the rights of all his physical and intellectual properties that bring him value including “Success by Trump”, “Donald J. Trump Signature Collection”, “Trump Steaks”, “Donald Trump the Fragrance” and especially “Make America Great Again” trademarks. Trump has even taken on the Chinese government to protect his trademark there, and won, and that’s the kind of winning we need.
The U.S. government knows U.S. intellectual property is copied around the world, especially in China, but has done extremely little to stop it. The USTR places China on a Notorious Markets List and a Priority Watch list for “widespread online privacy and counterfeiting”. Congress even has its own U.S.-China Economic and Security Review Commission that included in their latest annual report “industrial espionage appears to be a key mission of the Chinese intelligence services”. The FBI has made no fewer than two videos to warn the private sector (here and here) about how the Chinese conduct such espionage to steal IP.
The U.S. government only has a few operations around the porous border to prevent counterfeits from coming in. Probably the biggest program is Operation Chain Reaction which involves 16 agencies, ranging from Interpol (now headed by a Chinese national) to the U.S. Air force, in order to prevent counterfeit goods from entering the supply chain of the Department of Defense and other agencies (note: that excludes your house).
The problem is so big that even China has had enough. Both the Chinese Ministry of Commerce and the National People’s Congress Standing Committee carried out their own studies, spurred by quality hungry Chinese consumers. They found 40% of products ordered from online retailers are fakes. The Chinese government, like the U.S., has given stern warnings to e-retailer Alibaba for hosting businesses that sell fake goods online, as well as “staffers taking commercial bribes”, bullying competition, deleting negative product reviews and creating fake transactions.
In contrast, American e-commerce giant Amazon has taken to suing retailers peddling counterfeit products on its site.
Why are we not doing more? This clearly is an area where both China and the U.S. would like to improve enforcement. Intellectual property rights are a global asset, it is a win-win for everybody when property is protected and innovation incentivized. Counterfeits are illegal, even in China. As long as U.S. products and brands are available on the black market, the economy, especially job growth and wages, is undermined. Usually mechanisms to define and enforce IP rights are articulated in trade agreements, and while TTIP and TPP included IP chapters they likely would not have helped on this issue. China was not at the table. Yet, China, is a focal point of Mr. Trump’s “7 Point Plan to Rebuild the American Economy by Fighting for Free Trade.” In his past life, CEO Trump proved himself to be a vigilant protector of his intellectual property rights, now as President Trump he must use the same vigilance to protect the U.S. economy.