Hot Property: The Stealing of Ideas in an Age of Globalization
With author Pat Choate, Co-Director, Manufacturing Policy Project

June 1, 2005

Pat Choate, author of Hot Property, warns that the future ability of the United States to remain a leading innovator is being challenged by the widespread theft of intellectual property and pressures to adopt a patent system that will penalize the small scale inventor. Copied but substandard medicines and airline parts already threaten injury or worse for many Americans. In Choate's view, the future of the U.S. economy is also at risk. The theft of intellectual property already costs American inventors and companies some $200 billion and threatens the entire innovation system that under girds America's economic future.

Choate has been an important force in the national economic debate for more than two decades. In the early 1980s he authored a report for the Business-Higher Education Forum that called for America to focus on its long-term competitiveness. He followed that with The High –Flex Society and Agents of Influence among other works. No stranger to politics, Choate has been an advisor to many members of Congress and ran for the vice presidency as Ross Perot's running mate in 1996.

Choate divides his book into roughly three parts. The first section of Choate's book traces the rise of the U.S. patent, copyright and trademark system. He then describes the economic rise of Germany, Japan, and China. The concluding chapters contain Choate's prescription for fighting the phenomenon of intellectual property theft and strengthening the U.S. innovation system.

The special role of patents started with the American Constitution itself. Article I, Section 8 of the Constitution explicitly gives the Congress the power "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." Speaking before his election to the presidency, Abraham Lincoln saw the American patent system as itself being one of the great inventions of all time. By giving inventors, for a limited time, the exclusive use of their invention, the country had "...added the fuel of interest to the fire of genius..."

In his book, Choate describes the development of U.S. intellectual property law. A system that initially required the President to issue individual patents has developed into the U.S. Patent and Trademark Organization, part of the U.S. Department of Commerce. The duration and scope of patents has evolved over time to now provide twenty years of protection from the time of filing. In 1930, Thomas Edison and others succeeded in amending the patent laws so that they extended to plant and life forms. Today, patents can also cover business processes.

Noah Webster, whose name lives on in a still popular dictionary, played a major role in securing adoption of the first Copyright Act in 1790. Current law extends the copyright for the life of the author and an additional 70 years. Works published before 1978 have copyright protection for 95 years after the copyright is issued. Congress took its first step toward protecting trademarks in 1870 with more significant legislation following in 1905. Trademark rights can last as long as the owner uses the trademark and re-registers it every ten years.

In the 1980s, U.S. business successfully sought international protection for its intellectual property in the context of a global economy. As a result, the United States was able to included rules for the protection of intellectual property in the World Trade Organization created by the Uruguay Round of Multilateral Trade Negotiations.

Choate is quite candid about how the infant United States pirated industrial technologies from England, the industrial power of that era. The government encouraged immigrants to capitalize on their industrial trade secrets and did not offer patent protection for foreign inventions until well into the 19th century. After tracing the development of the U.S. system, Choate turns to the ways in which Germany, Japan, and China have all acquired or stolen intellectual property as part of government backed strategies to stimulate rapid industrialization. Choate points to a German patent system that protected German inventors but "stripped foreign inventors of their rights." He also reports instances of the German government assisting in the theft of intellectual property "when other nationals had better technology."

Devastated by the Second World War, Japan sought technology from around the world as a way of rebuilding its shattered economy. With the start of the Cold War, Japanese economic recovery became an American priority as well. According to Choate, the Eisenhower Administration "actively encouraged, even forced, U.S. firms such as Motorola and GE to share their patents and knowledge with the Japanese." Japan sought access to overseas technology as the price for foreign firms doing business in Japan or, in other cases, purchased technology by acquiring U.S. companies.

For Choate, China currently poses the greatest threat to the sanctity of intellectual property. "China is using all the usual means – licensing, theft, piracy, intimidation, spies, and cooperation – to get the technology it needs." American manufacturers first went to China to take advantage of abundant, low-cost labor. By the early 21st century, major American firms were already establishing advanced manufacturing facilities and scientific laboratories to take advantage of a growing pool of talented, well-educated, low-cost scientists and engineers.

Choate notes that China has joined most of the world's intellectual property organizations, adopted patent, copyright and trademark laws, and joined the World Trade Organization, which can enforce intellectual property rights. Enforcement, according to Choate, has been largely non-existent.

In looking to the future, Choate advanced three interrelated propositions. First, innovation is the key to future American prosperity and leadership. Second, adequate protection of intellectual property is critical to that innovative future. Finally, the United States needs to maintain a patent regime that protects the small inventors who, together, generate about 40 percent of U.S. patents.

Choate advocates improved funding of the Patent and Trademark Office to increase the size of the professional staff, deepen its expertise, and speed the consideration of patent applications. He is particularly critical of the U.S. failure to enforce its rights in the World Trade Organization, noting that the United States has "not brought a single intellectual property case to the WTO since June 2000." He is concerned about pressures on small investors, fearing a proposal to credit inventors who are first to file a patent application rather the current first to invent, an approach that will favor large companies.

Choate adds an historical perspective to today's "copyright wars," describing how technological advances had often challenged copyright practices of the past. He also notes that copyright holders with very valuable copyrights – he cites the Disney Corporation's Mickey Mouse and other world famous cartoon characters as examples – will seek to extend their copyrights. He suggests adopting a version of the trademark law, allowing perpetual copyright as long as it is periodically renewed. In his view, the bulk of copyrighted material would not be renewed and would thus become part of the global, intellectual commons.

Choate has written a book that is at once entertaining, informative, and important. If there is unity on any economic debate it is on the need to maintain (if not accelerate) the pace of innovation and that intellectual property rights will continue to play a role in the American system. A careful read of Hot Property will reward the serious student of intellectual property, the policymaker, and the general reader alike.

Prepared by Kent Hughes, Director, Program on Science, Technology, America, and the Global Economy Ext. 4312