American firms lost nearly $48 billion in 2009 due to Chinese violations of U.S. intellectual property, new data show. Improving IP rights protection in China could have a sizable effect on the U.S. economy and jobs.

Despite broad success in the Chinese market, many businesses in the United States continue to claim that the infringement of their intellectual property (IP) rights in China and “indigenous innovation” policies have undermined their competitive positions, a new report from the U.S. International Trade Commission (USITC) says.

Released in May, the USITC’s China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy is the second of two reports conducted at the request of the U.S. Senate Committee on Finance. For the study, the USITC surveyed more than 5,000 IP-intensive U.S. firms to assess the effects of China’s indigenous innovation policies on the U.S. economy and employment.

The independent, nonpartisan research agency estimates that U.S. firms lost approximately $48 billion in 2009 due to infringement of IP rights by China. Of this total, approximately $36.6 billion (75.9 percent) was attributable to lost sales, while the remaining $11.6 billion was due to a combination of lost royalty and license payments as well as other unspecified losses.

Firms reported that among the losses they incurred as a result of IP rights infringement in China, those associated with copyright infringement were the largest monetarily, accounting for approximately $23.7 billion in losses in 2009.

However, those associated with trademark infringement were the most widespread, with nearly one-third (31.5 percent) of surveyed firms doing business in China citing losses associated with this form of infringement. Almost all firms in the consumer goods manufacturing sector (91.6 percent), particularly apparel manufacturers, reported material losses from Chinese trademark infringement.

The report determined that if China raised its IP rights protection and enforcement to U.S. levels, companies could increase employment at home by 923,000 jobs.

“The commission gave an even higher estimate when it relied on a statistical model rather than its survey,” Agence France-Presse says. “It said up to 2.1 million jobs could be supported if China cracked down on rampant piracy in areas such as software and movies.”

The unrealized employment effects were largest in information and other services, consumer goods manufacturing and high-tech and heavy manufacturing.

China’s discriminatory indigenous innovation policies, the report says, also give preferential support to Chinese companies in a manner that may lead to additional U.S. job losses.

For example, the Chinese wind power market is skewed in favor of Chinese-owned firms to an extent that has dramatically reduced the market share belonging to foreign-owned companies. China places local-content requirements on new wind farm construction that effectively locks foreign firms out of new contracts. The Chinese government has not awarded a wind farm contract to a foreign-owned firm since 2005.

“Time and time again, China has failed to protect and enforce American intellectual property rights, and it continues to discriminate unfairly against American businesses,” Senate Finance Committee Chairman Max Baucus (D-Mont.) said in a statement. “We cannot pretend that there aren’t real consequences to these violations when these numbers show that millions of American jobs are on the line.”

The first report requested from the ITC by the Senate Committee on Finance, released late last year, outlined the structural and institutional impediments that undermine IP rights enforcement and described China’s indigenous innovation policies that discriminate against American companies.

In June 2010, several government agencies unveiled the Joint Strategic Plan on Intellectual Property Enforcement, a comprehensive outline for protecting the IP rights of U.S. businesses and individuals. In June, the Obama administration released an update on the results one year after the initiative’s roll-out, including major counterfeit-goods seizures, convictions on trade secret cases and coordinated partnerships.

Related

U.S. Unveils Plan to Combat Counterfeit Goods

How to Protect Your Intellectual Property

Resources

China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy
U.S. International Trade Commission, May 18, 2011

U.S. Firms Report Losing Sales, Profits, Royalties and Brand Reputations Due to IPR Infringement in China…
U.S. International Trade Commission, May 18, 2011

China Piracy Costs Almost Million Jobs: US Study
by Shaun Tandon
Agence France-Presse, May 18, 2011

Standing Up for America’s Innovators
by Victoria Espinel
The White House, June 22, 2011

2011 U.S. Intellectual Property Enforcement Coordinator Joint Strategic Plan: One Year Anniversary
The White House, June 2011