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An inside look at intellectual property theft

GAO takes a measure of what intellectual property theft means to US

By Layer 8 on Tue, 04/13/10 - 11:08am.

Measuring the exact cost of intellectual property theft is difficult, even for the government entities assigned to measure such activities.

There are a few facts though: China dominates the counterfeit world; digital reproduction technology is making counterfeit movies and music recordings commonplace and the counterfeit industry hurts the overall US economy. Those are but a few of the results of a look by the US Government Accountability Office at what the theft of intellectual property means to the US.

Critics have long said the US needs to do something to put a crimp in the over $200 billion counterfeit and pirated goods industry with better enforcement and increased penalties for violations.

Some of the more telling facts from the GAO report:

According to Customs and Border Protection data from 2004 through 2009, China accounted for about 77% of the aggregate value of goods seized in the United States. Hong Kong, India, and Taiwan followed China, accounting for 7, 2, and 1% of the seized value, respectively. CBP data indicate certain concentrations of counterfeit production among these countries: in 2009, about 58 % of the seized goods from China were footwear and handbags; 69% of the seized goods from Hong Kong were consumer electronics and watch parts; 91% of the seized goods from India were pharmaceuticals and perfume; and 85% of seized goods from Taiwan were computers and consumer electronics.
Digital products can be reproduced at very low cost, and have the potential for immediate delivery through the Internet across virtually unlimited geographic markets. Digital piracy impacts most the music, motion picture, television, publishing, and software industries. Piracy of these products over the Internet can occur through methods including peer-to-peer networks, streaming sites, and one-click hosting services. There is no government agency that systematically collects or tracks data on the extent of digital copyright piracy.
According to a recent Commerce department report, counterfeit electronics parts have infiltrated U.S. defense and industrial supply chains and almost 40 % of companies and organizations-including the Department of Defense-surveyed for the report have encountered counterfeit electronics.
Commerce reported that the infiltration of counterfeit parts into the supply chain was exacerbated by weaknesses in inventory management, procurement procedures, and inspection protocols, among other factors. The Federal Aviation Administration (FAA) tracks and posts notifications of incidents of counterfeit or improperly maintained parts entering airline industry supply chains through its Suspected Unapproved Parts Program in an effort to improve flight safety. The FAA program has identified instances of counterfeit aviation parts, as well as fake data plates and history cards to make old parts look new. FAA's program highlights the risks that counterfeit parts pose to the safety of commercial aircraft.
Counterfeit pharmaceuticals may include toxic or correct ingredients in incorrect quantities, or other mislabeling. These products can be ineffective in treating ailments or may lead to adverse reactions, drug resistance, or even death. The World Health Organization estimates that as much as 10% of medicines sold worldwide are believed to be counterfeit.
Counterfeit automotive products may be substandard. A representative of a US automotive parts supplier told the GAO that it tested a supply of counterfeit timing belts that did not meet industry safety standards and could potentially impair the safety of vehicles.
Counterfeit or pirated software may threaten consumers' computer security. The illegitimate software, for example, may contain malicious programming code that could interfere with computers' operations or violates users' privacy.

Looking to address these kinds of problems, the Department of Justice in February set up a task force it says will focus exclusively on battling US and international intellectual property crimes.

The Task Force will focus on bolstering efforts to combat intellectual property crimes through close coordination with state and local law enforcement partners as well as international counterparts, the DoJ stated. It will also monitor and coordinate overall intellectual property enforcement efforts at the DoJ, with an increased focus on the international IP enforcement, including the links between IP crime and international organized crime. The Task Force will also develop policies to address what the DoJ called evolving technological and legal landscape of this area of law enforcement.

As part of its mission, the Task Force will work closely with and make recommendations to the recently established Office of the Intellectual Property Enforcement Coordinator, which reports to the Executive Office of the President and is supposed to develop an overarching US strategic plan on intellectual property.

Part of the problem with IP enforcement is that even within the US the sheer amount of agencies involved makes it difficult. For example, overseas personnel from the Departments of Commerce, Health and Human Services, Homeland Security, Justice and State, and from the Office of the United States Trade Representative and the United States Agency for International Development all are involved in intellectual property efforts, the GAO has noted.

The new task force is represented by a variety of agencies as well, such as the US Attorney General, the Deputy Attorney General, and the Associate Attorney General; the Criminal Division; the Civil Division; the Antitrust Division; the Office of Legal Policy; the Office of Justice Programs; the Attorney General's Advisory Committee; the Executive Office for U.S. Attorneys and the FBI.

Follow Michael Cooney on Twitter: nwwlayer8

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