GAO report on economic impact from IP theft underwhelms

For example, the ITC’s report, China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy, estimated that in 2009 alone Chinese theft or infringement of U.S. intellectual property cost almost one million U.S. jobs and caused $48.2 billion in U.S. economic losses due to lost sales, royalties, or license fees. The report found that, “Of the $48.2 billion in total reported losses in 2009, approximately $36.6 billion (75.9 percent) was attributable to lost sales, while the remaining $11.6 billion was attributable to a combination of lost royalty and license payments.” More recently, the IP Commission Report, a report from the Commission on the Theft of American Intellectual Property, found that the impact of international IP theft on the U.S. economy exceeds $320 billion annually, comparable to the level of U.S. exports to Asia.

So there are good estimates out there of the damage foreign IP theft—including specifically the damage done by counterfeit and pirated goods—is doing to the U.S. economy, which even if they don’t arrive at the precisely, perfectly right figure, should at least have been noted in the GAO report.

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Rather, the GAO report laments the fact that “quantifying the economic impact of counterfeit and pirated goods on the U.S. economy is challenging primarily because of the lack of available data on the extent and value of counterfeit trade.” And it falls back on a 2008 Organization for Economic Cooperation and Development (OECD) report that attempted to develop an estimate of the economic impact of counterfeiting and which concluded by arguing “that an acceptable overall estimate of counterfeit goods could not be developed.” Yet the GAO did not even then recommend steps the government could take to develop better estimates.

Despite this, the GAO report makes the obvious statement that, “The U.S. economy as a whole may grow at a slower pace than it otherwise would because of counterfeiting and piracy’s effect on U.S. industries, government, and consumers.” “May”? How about “will” grow at a slower pace. The simple reality is that foreign IP theft or infringement does cause significant damage to the U.S. economy—and all agencies of the U.S. government need to be forthright and frank in stating so.

IP-intensive industries are foundational to the U.S. economy. They contribute over $5.1 trillion in U.S. economic output, accounting for nearly 35 percent of U.S. GDP in 2010, as the U.S. Department of Commerce found in its report Intellectual Property and the U.S. Economy: Industries in Focus. At the same time, IP-intensive industries exported more than $1 trillion worth of goods and services in 2011, accounting for approximately 74 percent of total U.S. exports that year, and supported at least 40 million jobs, or 20 percent of all U.S. private sector employment.

Aggressive foreign IP theft harms firms and workers in the United States and the overall U.S. economy. It’s high-time that the federal government makes it readily apparent that IP theft will be punished systematically and significantly. ITIF has argued this should include measures such as empowering customs officials to impound imports suspected of containing or benefitting from IP theft at the border based on probable cause and amending the Economic Espionage Act to create a federal right of action for trade-secret theft.

The U.S. has taken an important step with the creation of the White House Office of Intellectual Property Enforcement and that office has done excellent work, including the release of a new IP enforcement strategy. But that strategy needs to be effectively implemented and the federal government needs to make it clear that it will no longer tolerate foreign entities counterfeiting or pirating U.S. goods, stealing trade secrets, copying digital content, or otherwise taking U.S. property without paying for it.

Ezell is a senior analyst with the Information Technology and Innovation Foundation.

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