The Commission on the Theft of American Intellectual Property Report

The Commission on the Theft of American Intellectual Property (The IP Commission) released its report earlier today, May 22, 2013.  The IP Commission is an impressive group of individuals led by Dennis C. Blair, former Director of National Intelligence and Commander in Chief of the U.S. Pacific Command, and Jon M. Huntsman, Jr., former Ambassador to China, Governor of the state of Utah, and Deputy U.S. Trade Representative.  (I thought Huntsman was a very credible candidate for President of the United States in the last U.S. presidential election cycle.)  The other members include: Craig R. Barrett, former Chairman and CEO of Intel Corporation; Slade Gorton, former U.S. Senator from the state of Washington, Washington Attorney General, and member of the 9-11 Commission; William J. Lynn III, CEO of DRS Technologies and former Deputy Secretary of Defense;  Deborah Wince-Smith, President and CEO of the Council on Competitiveness; Michael K. Young, President of the University of Washington and former Deputy Under Secretary of State.  (Notably, President Young was also the Dean of George Washington University’s law school.)  I have included the recommendations of the IP Commission below.  The recommendations that caught my immediate attention involve the International Trade Commission, the Economic Espionage Act, increasing the number of green cards available for high-tech workers and expanding the U.S. Court of Appeals for the Federal Circuit’s jurisdiction.   I’ve previously blogged on the issue concerning IP theft and cybersecurity here.  Here is a Washington Post editorial about the report.  The full report is here. 

Recommendations

The Commission recommends short-term, medium-term, and long-term remedies.

Short-term measures incorporate the immediate steps that policymakers should take to stem the tide of IP theft and include the following:

Designate the national security advisor as the principal policy coordinator for all actions on the protection of American IP. The theft of American IP poses enormous challenges to national security and the welfare of the nation. These challenges require the direct involvement of the president’s principal advisor on national security issues to ensure that they receive the proper priority and the full engagement of the U.S. government.

Provide statutory responsibility and authority to the secretary of commerce to serve as the principal official to manage all aspects of IP protection. The secretary of commerce has sufficient human, budgetary, and investigative resources to address the full range of IP-protection issues. If given the statutory authority to protect American IP, we anticipate a robust set of responses.

Strengthen the International Trade Commission’s 337 process to sequester goods containing stolen IP. The current 337 process is not fast enough to prevent goods containing or benefitting from stolen IP from entering the United States. A speedier process, managed by a strong interagency group led by the secretary of commerce, can both prevent counterfeit goods from entering the United States and serve as a deterrent to future offenders. The speedier process would impound imports suspected of containing or benefitting from IP theft based on probable cause. A subsequent investigation would allow the importing company to prove that the goods did not contain or benefit from stolen IP.

Empower the secretary of the treasury, on the recommendation of the secretary of commerce, to deny the use of the American banking system to foreign companies that repeatedly use or benefit from the theft of American IP. Access to the American market is a principal interest of firms desiring to become global industrial leaders. Protecting American IP should be a precondition for operating in the American market. Failure to do so ought to result in sanctions on bank activities, essentially curtailing U.S. operations.

Increase Department of Justice and Federal Bureau of Investigation resources to investigate and prosecute cases of trade-secret theft, especially those enabled by cyber means. The increase in trade-secret theft, in many ways enabled by emerging cyber capabilities, requires a significant increase in investigative and prosecutorial resources.

Consider the degree of protection afforded to American companies’ IP a criterion for approving major foreign investments in the United States under the Committee on Foreign Investment in the U.S. (CFIUS) process. CFIUS assesses national security risk and national security implications of proposed transactions involving U.S. companies. Adding an additional evaluative criterion to the review process that assesses the manner in which a foreign company obtains IP would help improve IP-protection environments.

Enforce strict supply-chain accountability for the U.S. government. Establishing control and auditing measures that enable suppliers to the U.S. government to guarantee the strongest IP-protection standards should be the “new normal” that the U.S. government demands.

Require the Securities and Exchange Commission to judge whether companies’ use of stolen IP is a material condition that ought to be publicly reported. Corporate leaders will take seriously the protection of IP, including in their supply chains, if reporting IP theft in disclosure statements and reports to boards of directors and shareholders is mandatory.

Greatly expand the number of green cards available to foreign students who earn science, technology, engineering, and mathematics degrees in American universities and who have a job offer in their field upon graduation. In too many cases, American universities train the best minds of foreign countries, who then return home with a great deal of IP knowledge and use it to compete with American companies. Many of these graduates have job offers and would gladly stay in the United States if afforded the opportunity.

Legislative and legal reforms represent actions that aim to have positive effects over the medium-term. To build a more sustainable legal framework to protect American IP, Congress and the administration should take the following actions:

Amend the Economic Espionage Act (EEA) to provide a federal private right of action for trade-secret theft. If companies or individuals can sue for damages due to the theft of IP, especially trade secrets, this will both punish bad behavior and deter future theft.

Make the Court of Appeals for the Federal Circuit (CAFC) the appellate court for all actions under the EEA. The CAFC is the appellate court for all International Trade Commission cases and has accumulated the most expertise of any appellate court on IP issues. It is thus in the best position to serve as the appellate court for all matters under the EEA.

Instruct the Federal Trade Commission (FTC) to obtain meaningful sanctions against foreign companies using stolen IP. Having demonstrated that foreign companies have stolen IP, the FTC can take sanctions against those companies.

Strengthen American diplomatic priorities in the protection of American IP. American ambassadors ought to be assessed on protecting intellectual property, as they are now assessed on promoting trade and exports. Raising the rank of IP attachés in countries in which theft is the most serious enhances their ability to protect American IP.

Over the longer term, the Commission recommends the following capacity-building measures:

Build institutions in priority countries that contribute toward a “rule of law” environment in ways that protect IP. Legal and judicial exchanges, as well as training programs sponsored by elements of the U.S. government—including the U.S. Patent and Trademark Office—will pay long-term dividends in the protection of IP.

Develop a program that encourages technological innovation to improve the ability to detect counterfeit goods. Prize competitions have proved to be both meaningful and cost-effective ways to rapidly develop and assess new technologies. New technologies, either to validate the integrity of goods or to detect fraud, would both deter bad behavior and serve as models for the creation of new IP.

Ensure that top U.S. officials from all agencies push to move China, in particular, beyond a policy of indigenous innovation toward becoming a self-innovating economy. China’s various industrial policies, including indigenous innovation, serve to dampen the country’s own technological advancements. Utility, or “petty,” patents are a particularly pernicious form of Chinese IP behavior and need to cease being abused.

Develop IP “centers of excellence” on a regional basis within China and other priority countries. This policy aims to show local and provincial leaders that protecting IP can enhance inward foreign investment; this policy both strengthens the protection of IP and benefits the promotion possibilities of officials whose economic goals are achieved by producing foreign investment.

Establish in the private, nonprofit sector an assessment or rating system of levels of IP legal protection, beginning in China but extending to other countries as well. One of the tools necessary to develop “centers of excellence” is a rating system that shows the best—and worst—geographical areas for the protection of IP.

The Commission recommends the following measures to address cybersecurity:

Implement prudent vulnerability-mitigation measures. This recommendation provides a summary of the security activities that ought to be undertaken by companies. Activities such as network surveillance, sequestering of critical information, and the use of redundant firewalls are proven and effective vulnerability-mitigation measures.

Support American companies and technology that can both identify and recover IP stolen through cyber means. Without damaging the intruder’s own network, companies that experience cyber theft ought to be able to retrieve their electronic files or prevent the exploitation of their stolen information.

Reconcile necessary changes in the law with a changing technical environment. Both technology and law must be developed to implement a range of more aggressive measures that identify and penalize illegal intruders into proprietary networks, but do not cause damage to third parties. Only when the danger of hacking into a company’s network and exfiltrating trade secrets exceeds the rewards will such theft be reduced from a threat to a nuisance.