News

IP Theft: Report Highlights Supply Chain Vulnerabilities

May 23, 2013
Categories: Global Supply Chains, Intellectual Property

The Commission on the Theft of Intellectual Property, an independent and bipartisan initiative chaired by Dennis C. Blair and Jon M. Huntsman, released its report on May 22, 2013 detailing the vast economic effects of intellectual property theft on the U.S. economy. They estimate that annual losses to the U.S. economy are over $300 billion dollars from the theft of IP alone. The effects go beyond U.S. dollars though; they also include a loss of domestic jobs and incentives for innovative entrepreneurs to tackle large problems across the globe.

Intellectual property is a key driving force behind the U.S. economy. Case in point: as many as 27.1 million U.S. jobs in IP-intensive industries are responsible for up to a third of the U.S. economic output. Quoting General Keith Alexander, Commander of the United States Cyber Command and Director of the National Security Agency, the report states “that the ongoing theft of IP is ‘the greatest transfer of wealth in history.’”

One of the main reasons behind the threats of IP theft is the complex global supply chain. Finished products include components from all over the world, and supply chain integrity is hard to manage when suppliers contract to third parties or other agents who do not have proper management systems in place. As the report states:

“[E]ven ethical multinational companies frequently procure counterfeit items or items whose manufacture benefits from stolen IP, including proprietary business processes, counterfeited machine tools, pirated software, etc.”

Several private sector initiatives were highlighted, including the Center for Responsible Enterprise and Trade (CREATe.org), which work outside of government and help to improve supply chain integrity across the globe. CREATe was featured as a non-profit initiative helping companies “standardize best practices for corporate IP policy by enhancing supply-chain accountability on behalf of multinational companies.”

In October 2012, CREATe.org released a whitepaper on the Health and Safety Risks of Counterfeits that highlighted the growing complexity of supply chains in the private and public sectors. Both reports, CREATe.org’s whitepaper and the IP Commission Report, highlight the difficulty of maintaining a secure supply chain with the discovery of almost 2,000 counterfeit electronic components within the U.S. Department of Defense’s supply chain. Expanding on this research, this latest report includes further statistics on the costs of counterfeit software to multinational corporations:

  • In 2013, companies with counterfeit software will spend up to $114 billion to deal with malware associated with that software.
  • The International Chamber of Commerce (ICC) estimates that the total global economic value of counterfeit and pirated software is approximately $650 billion per year.

The Commission makes several short-term and long-term recommendations for the U.S. government in order to protect U.S. innovation and IP more readily. These recommendations include policy endorsements as well as the creation of further management systems and tools to protect supply chains.

CREATe Leading Practices for IP Protection is a practical and scalable program designed to help companies improve management systems around intellectual property. It includes a Self-Assessment, Independent Evaluation, and Improvement Guide.  Learn more about CREATe Leading Practices for IP Protection’s pilot program here.

Download the full IP Commission Report here

Learn more about CREATe Leading Practices or e-mail info@create.org for more information.