Intellectual Property Theft: Part One

Safety at Stake

When most people think of intellectual property theft, they think of movies and music and designer purses and watches. It’s likely that many readers of this article have either knowingly or unwittingly purchased a fake purse or watch or perhaps even a pirated DVD. While IP theft of this type most certainly affects the economic well-being of rights holders through brand dilution and lost profits, generally speaking, the fact that somebody illegally ripped a compact disc is not a life-threatening matter.

What is being done to protect public safety and manufacturers’ intellectual property rights? How do the governments of the U.S. and Canada deal with the countries that seem to do very little to enforce patent laws and intellectual property rights within their own borders? What responsibility does private industry have, and what is being done to date in the private sector?

Government Crackdowns

According to the November 2011 U.S. government report, Intellectual Property Rights Violations: A Report on Threats to United States Interests at Home and Abroad, “Most physical infringing goods are produced overseas and cross United States borders to reach consumers in the United States. Offenders in many countries pose a threat, but China-based offenders are the dominant threat and dwarf all other international threats.”

While there have been some successful, highly publicized cases won against counterfeiters, generally speaking, clever operators are increasingly finding ways to exploit supply chain vulnerabilities or develop alternative supply chains to evade the standards meant to ensure supply chain integrity.

Theft of trade secrets from United States companies is most often committed within the United States by United States actors, but they are often selling to Chinese buyers.

In early March 2012, the Justice Department filed charges against four individuals and a Chinese government owned company, Pangang Group, for theft of trade secrets of DuPont Company.

In June 2011, employees at two Chinese companies were given criminal sentences for making and selling counterfeit Hopkinsons Valves, which are manufactured by the Weir Group Plc.

The managers of the companies, Shanghai Saimeng Mechatronic Engineering Co. Ltd and Yangzhou Yikai Machinery and Engineering Co. Ltd, were given fines and 15- and 16-year custodial sentences. The counterfeit Hopkinsons-branded valves were installed in Chinese power stations and malfunctioned, resulting in serious injuries and damage because they were defective.

Threats Continue

While these victories are welcome, the November government report says, “China’s push for domestic innovation in science and technology appears to be fueling greater appropriation of other country’s IP. The U.S.-China Economic and Security Review Commission (China Commission) has cautioned that China's approach to faster development of sophisticated technology has included the aggressive use of industrial espionage. As the globalization and growth of multinational corporations and organizations blurs the distinction between government and commerce, it is difficult to distinguish between foreign-based corporate spying and state-sponsored espionage. Although most observers consider China’s laws generally adequate for protection of IPR, they believe China’s enforcement efforts are inadequate. Despite some evidence of improvement in this regard, the threat continues unabated.”

So that leaves enforcement and prosecution in domestic hands. In his 2012 State of Union address, President Barack Obama announced the creation of a Trade Enforcement Unit that will be charged with investigating unfair trade practices in countries like China. He said, “There will be more inspections to prevent counterfeit or unsafe goods from crossing our borders... Our workers are the most productive on Earth, and if the playing field is level, I promise you—America will always win.”

A July 2011 White House report on the Strategic Plan for Intellectual Property Enforcement stated: “Law enforcement agencies across the U.S. Government have improved their efforts to combat intellectual property infringement. From fiscal year 2009 to 2010, ICE’s opened intellectual property investigations were up more than 41% and arrests were up more than 37%, DHS intellectual property seizures were up more than 34%, and FBI intellectual property investigations opened were up more than 44%. In fiscal year 2010, CBP and ICE intellectual property seizures of consumer safety and critical technology increased by 97%. The domestic value of the goods was $145,605,100.” It’s a good start, and more will be covered in Part Two of this Web feature, but there is still much to be done both domestically and abroad.

On the campaign trail, Republican Presidential hopeful Mitt Romney noted that China’s currency manipulation and cheap labor is only part of the reason it's taking so many jobs from the U.S. He says, “It’s time for Washington to address all of China’s abuses.” That includes Beijing’s theft of intellectual property, copyright piracy, cyber-espionage, forced technology transfer and discrimination against foreign companies. He said that the U.S. government should stop buying from China until the Chinese government starts buying from the United States.

Corporate Sector Plays a Role

As is the case with most matters, though, governments are simply not able to solve problems like this without help from the corporate sector. In a recent discussion with Leon Brooks of Cameron Valves & Measurement, we asked what he has experienced regarding counterfeiting in his 40 years in the valve industry.

“If the patents run out, there’s nothing you can really do,” he said. “When the patents have run out and the products have been copied, they’ve even used the actual name, the color, part number, everything. All our legal department has said we can do is send a letter and ask them to cease and desist.” But, he says, we can then go directly to the customers. “We let our customers know that there is a counterfeit product out there. I did that a couple of years ago, and I received many emails from drillers saying thank you. They were glad to know what was happening, and of course they wanted to ensure they didn't get these counterfeit parts.”

Another modern way for manufacturers to protect against IP theft is by placing RFID tags on the valves, actuators and controls. A comprehensive article covering RFID technology appeared in the Valve MagazineWinter 2011 issue of . Manufacturers make it known that, if the RFID tag is not present and it cannot be verified against authorized company records, then that product is not the real thing. While it may be expensive to implement, this is a reasonable and efficient method of tracking and quality control.

End users also must always be vigilant. If a deal on valves sounds too good to be true, it is. The way to ensure that you're buying the real thing is to buy through an authorized distributor. The only way to be sure that valves, actuators and controls are the safest and most reliable they can be is to double check that you're getting the real thing.

In Part Two of this exclusive report on Intellectual Property Theft, we will be talking to our readers about this important topic. Write to Kate Kunkel at kkunkel@vma.org to share your input.