GAO Publishes Study On Counterfeit And Pirated Goods

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The Government Accountability Office ("GAO") published the testimony of Chief Economist Susan Offutt prepared for the House of Representatives Energy and Commerce Committee on July 9, 2013. The testimony discusses the importance of strong intellectual property rights enforcement to the overall economic health of the United States, given the relatively recent increase of incidents involving pirated and counterfeited intellectual property.

The testimony reports that because IP-related industries play a larger role in the U.S. economy than ever before, piracy and counterfeiting have resulted in significantly slowing economic growth. The detrimental effects are further magnified because the theft occurs in industries which typically pay higher wages and lead the way with respect to job creation. Especially troubling is that in addition to short-term effects of lost revenue and market share, U.S. companies face deterioration of brand image and lack of incentive to invest in research and development. The report identifies a few recent incidents which illustrate the sophistication and magnitude of the piracy facing U.S. companies.

• In mid-2009, a research chemist with DuPont Corporation reportedly downloaded proprietary information to a personal email account and thumb drive with the intention of transferring this information to Peking University in China and also sought Chinese government funding to commercialize research related to the information he had stolen.

• Between 2008 and 2009, a chemist with Valspar Corporation reportedly used access to an internal computer network to download secret formulas for paints and coatings, reportedly intending to take this proprietary information to a new job with a paint company in Shanghai, China.

• In December 2006, a product engineer with Ford Motor Company reportedly copied approximately 4,000 Ford documents onto an external hard drive in order to obtain a job with a Chinese automotive company.

One of the primary goals of the GAO is to quantify the effects of piracy and counterfeiting on the U.S. economy. Quantifying these effects, however, has proven to be extremely difficult. Because of the illicit nature of IP theft, there are few reliable data sources upon which economists can depend. In fact, even the companies victimized by pirates are often unwilling to publicize incidents which expose their vulnerabilities for fear of tipping off pirates and eroding customers' confidence. Economists are therefore forced to rely on anecdotal evidence and assumptions when attempting to quantify macro effects on the economy. However, narrower research of individual companies and industries suggest that the effects of piracy and counterfeiting are sizable.

By Justin Enck and Taryn Koball Williams