Giant Sucking Sound: China and IPR Theft

That phrase is of course associated with presidential candidate Ross Perot and what he believed would be the massive loss of jobs to Mexico after the signing of the North American Free Trade Agreement. Now it may best summarize the emerging view of congressional leaders about China and intellectual property.

Last week, in his opening statement, House Permanent Select Committee on Intelligence Chairman Mike Rogers called out Chinese economic cyber espionage: "A massive and sustained intelligence effort by a government to blatantly steal commercial data and intellectual property."  As Ellen Nakashima pointed out in the Washington Post, that Chinese hackers are behind the massive theft of intellectual property is widely assumed. People just don’t say it so directly very often.

At almost the same time, Senator Jim Webb was introducing legislation that is supposed to stop the transfer of technology funded by the U.S.  government to China and other countries that "by law, practice, or policy require proprietary technology transfers as a matter of doing business."  These transfers, in Webb’s view, "clearly and unequivocally place the competitive advantage of the American economy at risk.” In his statement, Webb offered the specific examples of Westinghouse and third generation nuclear reactors; General Electric and avionics; and Ford and electric vehicles.

The question is what to do about it. It is not clear to me how the Webb legislation would actually work. The amendment covers "any proprietary technology or intellectual property that was researched, developed, or commercialized using a contract grant, loan, loan guarantee, or other financial assistance provided or awarded by the United States Government." That seems like an overly expansive definition, and I wonder if it is even possible to identify any major technology that has not received some form of government funding or support. What about technologies that are no longer cutting edge--are they also restricted? And what will this mean for collaboration with European or Japanese companies? Will they shy away from American partners in fear that they may be caught in the legislation’s net?

Maybe the intent of the Webb legislation is not to be found in its actual provisions but is similar to what Representative Rogers appeared to be trying to do in his opening statement: naming and shaming China. Or as Rogers put it, "China’s economic espionage has reached an intolerable level and I believe that the United States and our allies in Europe and Asia have an obligation to confront Beijing and demand that they put a stop to this piracy."

For naming and shaming to work, you need to get at least three ducks in a row: enough companies and countries willing to complain vociferously and continuously; a united front among companies and countries; and a Chinese leadership that is shame-able and willing and able to stop or at least slow the IPR theft. If we just look at the general trends in IPR protection over the last decade, there is not a lot to be optimistic about. Companies generally do not like to talk publicly so as not to attract unwelcome attention from China. There is a high degree of defection as companies make deals to get access to the Chinese market. And the Chinese leadership appears committed to moving China up the value chain, one way or another. So while the sound of complaining will go up, I am not sure we will be able to hear it over the giant sucking sound.