Tariffs Are Not Likely To Curtail Intellectual Property Theft?

This U.S. administration is persistent in portraying China as the primary – lead bad actor…in the theft of intellectual properties belonging to U.S. companies.  But, I discourage readers from assuming this is a problem that has been suddenly thrust upon U.S. companies, nor is it a problem which only this administration has endeavored to mitigate.

I, and numerous others, have been consistently examining and counseling companies…about the adverse (economic, competitive advantage) effects of theft – infringement of intellectual properties since the early 1990’s. My work in this arena began as an academic (investigative) researcher and more recently, as an intangible asset (business transaction) strategist and risk specialist. After all, IP is a subset of intangible assets, and intangible assets, i.e., intellectual, structural, relationship, and competitive capital underlie – are the foundations to all IP.

The imposition of tariff’s, will elevate…(a.) political – public attention to this troublesome and persistent problem, (b.) produce demands for more aggressive action designed to (c.) mitigate this costly issue, and (d.) punish-sanction offenders.

The target country in this instance, of course, is China….for which there is ample,  30+ years of – evidence for doing precisely what’s being alleged. Of course, to no one’s surprise, this administration’s, not terribly unique tariff-based threats have sparked a bevy of in-kind responses from Chinese officials, i.e., placing tariffs on specific (politically sensitive) U.S. produced-manufactured goods.  The U.S. seeks changes (a.) how China’s trade laws are structured relative to other countries’ IP, as well as (b.) their dynastic and multi-layered business culture which has long viewed the acquisition and use of ‘others knowledge’ as acceptable and complimentary to the originator.

And, to add unhelpful complexity to…negotiating a potentially acceptable agreement – resolution, the U.S. is defining the problem and characterizing its scope largely through the lens of a single individual who may or may not have sufficient operational clarity with its asymmetric components, complexities, nor the quantities of ultra-sophisticated, aggressively predatorial, and global (legacy free) players, who also, seek, broker, and otherwise trade in proprietary information, trade secrets, and intellectual properties.

So, after all the rhetoric and bravado…I would be hesitant to suggest tariff’s, standing alone, will accomplish what’s being argued for, after all, this is China!  It is doubtful a single person can apply coercions, sanctions, and threats of retaliation to the Chinese Communist government to influence change.  And, by change, I mean, suddenly become receptive to accepting and imposing western influenced trade laws upon their people, as espoused and ratified by the World Intellectual Property Organization and the World Trade Organization respectively.

But, any administration’s public and oft-repeated presumption that…economic sanctions (ala tariffs) will quickly manifest to deter – inhibit (China’s) indisputable, but deeply institutionalized mandates for state sponsored and independent entities to routinely engage in the practice of seeking, acquiring, and applying others intellectual and structural capital, knowhow, and IP, is audacious, misleading, and conveys a misperception of what’s at stake.

Another reason that tariff’s or similar government initiatives are not likely to…produce the desired institutionalized behavioral changes (within-throughout China’s international trade arena with any semblance of urgency, but yes, necessary to mitigating broad and persistent misappropriation-infringement of IP, is that

  • infringement-misappropriation of others IP is generationally, institutionally, and culturally embedded.

Once understood in these contexts, its prudent to…recognize China’s business, trade, and cultural history as being described in dynasties, while U.S. history is measured in mere centuries.  Either way, China, and the myriad of other countries where sophisticated ‘bad actors’ have proliferated in the past quarter century, have been consistently and aggressively engaged in asymmetric pursuits of others ‘knowledge and know how’ and its unlikely, in my judgement, it will end abruptly as nationalistic rhetoric suggests.

Rhetoric that singles out and calls for China to…amend its practices by imposing successively broader and higher tariffs, may translate as good political optics and resonate in partisan political rallies in the near term.  But, I am unaware of U.S. company’s among the Fortune 1000, while they may publicly support the imposition of tariffs to influence these desirable changes, few, if any, are expecting a complete and permanent about-face by this Chinese Communist government.

It is here that I can only wish this ‘west wing’ becomes substantially more adept…at Chinese cultural history.  So, will such actions lead to measurable reductions or mitigation in economic espionage perpetrated by Chinese entities and the multitude other countries engaged in similar activities?  Again, as one who has been engaged in this arena for many years, I share enthusiasm there will be a favorable outcome in the foreseeable future.  Hopefully, I shall be proven wrong.

The paths to (politically) maximizing tariff-based initiatives, should, in my judgment, be divided in two distinct parts.  I might add, as well, none of the below should be perceived as ‘rocket science’…

First…

  • clear and current evidence of specific and distinguishable bad actors, not mere anecdotes, i.e., countries and governments who variously sponsor, consistently engage in and/or encourage theft – misappropriation – infringement of intellectual property and its underlying intangible assets.
  • bring more specificity to the types and categories of products, knowledge, know how, and IP being targeted and how and why that evolves over time on a need-demand basis.

Second…

  • objectively measured losses to U.S. businesses, i.e., economic, competitive advantage, employment, etc.
  • acknowledge challenges to acquiring this data because a large percentage are based on anecdotal (incident) estimates.
  • then, portray same in a manner that readily translates to both business decision-makers and creating a more informed public.

Sure, China is a leading culprit…but, also, there are numerous other countries, and individuals which are – have been longtime bad (trade) actors in this (economic espionage) arena.  Admittedly, not necessarily on the scale of government sponsored ‘legal’ tactics of China.  It is good to recognize, again, that many countries and public-private entities routinely engage in some manner of theft, manipulation, or brokering of others’ economic – competitive advantage information on the trade secret or proprietary level. That is, these entities purposefully acquire valuable ‘know how’, reverse engineer, and (mass) produce counterfeits, ala everything from women’s purses, clothing, and men’s running shoes, to increasingly high-tech products such as wind turbine generator apparatus and aircraft parts.

For the more economically sophisticated (growth) countries, they too have sophisticated actors engaged in violations resembling economic espionage…which are not shrinking in number or targets. Such efforts range from the acquisition and integration of extraordinarily valuable ‘game changing’ technologies which may variously render those countries-industries more competitive and/or on par with the U.S. and provide relatively rapid competitive advantage trade boosts which are challenging to overcome or make ‘go away’ through unilateral sanctions or tariffs.

Economic espionage (theft-acquisition of intellectual properties and the underlying intellectual and structural capital) is a global phenomena…which I and others, have devoted many years of investigative research, writing, publishing, and public speaking, including visits to numerous countries to grasp its scope, including how, why, when, and its various (obvious) lucrative components.

To put this in context….it is a truism that, if-when an economic-competitive advantage adversary (human intelligence) can position themselves to take digital photos of a U.S. developed – manufactured product, perhaps still in an R&D stage (which their handlers/superiors have targeted) and/or ‘reverse engineer it’ and forward the photos or findings to certain locations globally, its quite possible within 7-14 days there will be counterfeit reproductions, ala a reasonable facsimile can appear, for sale, at ‘swap meets’ in the U.S., if not, integrated into heretofore legitimate supply chains globally.

I served as one of four principal investigators to…a nationwide study-survey of U.S. companies regarding ‘theft of proprietary information’.  I have also engaged in lengthy (in-depth) conversations with countless private and public-sector (national) security officials who are familiar with, have direct knowledge of, and operational level clarity with a range (big picture) issues related to who, how, what, when, where, and why aspects of economic espionage perpetrated against their employer, not solely U.S. headquartered companies.

In fact, each public – private sector security executive I have engaged about these matters…since the early 1990’s, professes familiarity with the challenges associated with economic espionage. Obviously, more so with those representing companies (organizations, institutions) who actually-engage in trade with China and the numerous other countries where ‘bad actor’ transactions occur.

For obvious reasons, ala ‘company reputation’ and the necessity-pressure to repeat trade transactions…few individuals at these levels, convey comfort ‘to go on the record’, anecdotally, or otherwise, regarding their observations and factual perspectives they have gleaned regarding their company being victimized, i.e., having incurred infringement, misappropriation, and/or theft to its intellectual properties, proprietary information, and/or trade secrets.

That said, when an administration publicly portrays these acts-events as being exclusively related to intellectual property…a legal designation, which respectfully, large percentages of U.S. citizens are unfamiliar, aside from the singularity of patents perhaps, there will be, based on my experience, numerous and unnecessary  misconceptions and generalities espoused which do little to advance the already contentious diplomatics occurring well under-the-radar.

Brand, branding, and brand licensing…are other forms of intellectual property rights enforcement, for which infringement, misappropriation, and counterfeiting are not insignificant matters that necessarily require perpetual oversight.

Again, the fact that China, and numerous other countries, and their governments…have variously sponsored, as well as, aggressively engaged in various forms of ‘economic espionage’, is nothing new. It has been occurring for decades, if not centuries. And, in numerous instances, the theft, infringement, and misappropriation of intellectual property, and/or product counterfeiting have become – are integral to numerous countries economic and social advancement and GDP (gross domestic product), China being no exception.

Generally, it’s a good thing. to elevate business and public awareness about the globalization of intellectual property theft…but, doing so through simplistic phrases and personalized quips as rationale for imposing tariff’s, as a presumed deterrent, may not end well. And, neither is presenting a complex, multi-variable, and deeply embedded matter as this, by espousing broad, angry, fist-clenched, generalizations.  Too me, this suggests the speaker presumes the U.S. public may not be able to understand the distinctions, complexities, and consequences, and economic impact of stolen – misappropriated intangible assets and intellectual property. Through these lens, that is an error in judgment!

So, government officials and the multitude of echo-chambering pundits, with some notable exceptions, find it to easy to portray…the intricacies and nuances of economic espionage and data-information mining with presumably the more understandable and singular phrase ‘theft of intellectual property’ which, based on my various experiences, really doesn’t bring the significance of the matter into context, unless, of course, it is your company which has been victimized, causing significant employment cutbacks and other forms of downsizing which adversely affect both you and them!

It is particularly important for proponents of this and other similar papers, acknowledge…amid all of the discussions and debates regarding U.S. continued role in international trade and globalization, that, it is…

  • an economic fact today, that 80+% of most company’s value, sources of revenue, competitiveness, sustainability, and growth potential lie in – emerge directly from intangible assets, parts of which are – may already be legitimately issued intellectual property, i.e., patent, copyright, trademark, trade secret.
  • more company’s are indeed ‘intangible asset intensive and dependent’.

I urge readers of ‘The Business Intangible Asset Blog’ and audiences to whom I speak, to…avoid characterizing these allegations – this phenomena as merely distinctions without a difference. It is indeed much more. That-is to say, a company’s intangible assets, e.g., its intellectual, structural, and relationship capital, ala specific knowledge and know how, which, by the way, routinely and simultaneously underlie – serve as foundations to conventional intellectual properties.

It is, after all, the intangible assets which are the real targets – produce the most lucrative benefits to those engaged in economic espionage and data mining...the latter being consistently conducted 24/7/365 globally by just about anyone – anywhere with a laptop connection and some rudimentary ‘business intelligence’ skill sets.  So, to lay this entire matter solely at the doorstep of China, may be a starting point, but its far from being an ending point!

Michael D. Moberly April 5, 2018 St. Louis [email protected] ‘The Business Intangible Asset Blog’, since May 2006 https://kpstrat.com/blog  where one’s attention span, intangible assets, and solutions converge!

Readers are invited to explore other blog posts, papers, and books I have published at https://kpstrat.com/blog/papers

 

 

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