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The (Short)cut is the Deepest: The Implications of IP Theft on National Security

What do these three technologies all have in common?  They were all developed and produced within the private sector but have proven indispensable to the government and military in protecting the nation.  It is important not to underestimate the importance that innovation has on a nation’s strength and power.  Imagine the military operating without airplanes or radios.

Again, what is the relationship between these three technologies?  They were developed either by or under the control of the U.S. government and led to future innovations, including secure computer-to-computer communication.  These early computers were small enough to fit on a submarine or so large as to require 1800 square feet of floor space. The computer inside a cell phone, which communicates with orbiting satellites to pinpoint the user’s location, owes its development to military technology.  Imagine all of us operating without smart phones.

All of these products were created and produced by an investment of either public or private funds.  The only viable shortcut to creative innovation is theft of such innovation.  The danger that products will be stolen is ever present.  This risk has been compounded by the theft of intellectual property, which squanders the investment made in its development.  The sheer momentum of successful technological advances is dependent on entities, whether public or private, having some way to recover costs.  When trade secrets are stolen, these entities have no way to recover costs that were incurred during research and development.  It is not disputed that the retarding of innovation will likely occur with the loss of profits.  We have no idea what further advances could be created which could help us militarily, etc.  But how can we protect those inventions that do not yet exist?  With the increase of intellectual property theft, there is an increasing likelihood that the United States will not be the producer of these inventions because we cannot afford the research and development.

Intellectual property theft clearly hurts the nation financially, but it also impacts research and development.  When foreign entities engage in intellectual property theft, it results in less capital invested in search of solutions.  In a capital-intensive endeavor like research and development, anything that cuts into the revenue stream, cuts into the efficiency of the programs that either intentionally make us safer or have the potential to make us safer.  As we have explored earlier, many things that are produced or created in the private sector have applications for security and defense.  Alternately, items that are produced with government involvement often have mass market potential.  There is often not a bright line between which products are private and which are public.

Without a secure revenue stream, there can be no innovation.  As reported by CNBC, the companies identify a percentage of revenue devoted to research and development.  From a market value standpoint, some highly profitable companies spend less as a percentage but spend more as a total dollar amount.  By distorting and inhibiting this revenue stream, not only do the companies not retain the revenue needed for research and development, but the tax receipts also suffer due to this stolen profit.  When a company spends all of its time fighting the intellectual property theft, with reduced resources as a result of the theft, even less money can be allocated to research and development.  Consequently, fewer products are created, making the nation less profitable and potentially less safe.

U.S. intellectual property is under attack by threats both foreign and domestic, with China posing the greatest threat.  Not only does China conduct cyber espionage to infiltrate U.S. government networks, but it also uses these intrusions to fill the gaps in its own research programs, lessening the research and development expenditures supporting national science and technology development.  In 2013, China accounted for approximately 80% of all intellectual property thefts from companies headquartered in the United States, amounting to $338 billion in lost profits.  Because these multinational companies cannot afford to bypass China, they are forced to expend resources trying to prevent and mitigate intellectual property thefts.  The effects from these thefts span from counterfeited products to pirated operational processes and the reproduction of complete business models.

The voices of industry are adamantly aware of the need for a change both in industry standards and intellectual property laws. Due to our reliance on a global economy, ignoring the problem is not a solution.  Lacking the ability to wall off our intellectual property assets, we have no other recourse but to rely on the government to protect our interests. Unfortunately, the only consistent U.S. national security policy is its inconsistency with protecting the nation.  The U.S. government is content with spying on its citizens but resists sealing off its borders.  Currently there is much discussion emanating from Washington D.C. about the need for reform.  Additionally, President Obama could use his authority under the International Emergency Economic Power Enhancement Act (IEEPA) to declare that the cyber theft of intellectual property poses a threat to U.S. national security.  Yes, stricter sanctions for intellectual property theft will absolutely ruffle the feathers of U.S. trading partners.  All strong action has a cost, but inaction has a much greater cost.  How can the U.S. government ignore the impact that intellectual property theft is having on the nation by failing to reform intellectual property and privacy laws?

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