The U.S. economy runs on startups. For all of America’s brand-name mega-corporations, it’s young firms that create most of our new jobs during periods of economic growth.
Those startups, in turn, depend on America’s famously strong laws protecting their patented inventions and other intellectual property. The only way someone with a big idea but minimal resources can outcompete established firms is through proper government protection of their innovations.
Today, we are failing in that responsibility. Instead, our laxity is empowering predators foreign and domestic — endangering not only the next Apple, Microsoft, or Facebook, but our entire economy.
For years, the greatest threat to American intellectual property has been China. As our economy became more globalized and digitized, Chinese IP piracy became endemic — totaling an estimated $600 billion in costs to the U.S. economy per year. In 2019, a CNBC survey of American corporations found that nearly one-third of respondents had experienced IP theft by Chinese pirates in the past decade. Testifying before Congress in 2020, Facebook CEO Mark Zuckerberg said, “I think it’s well documented that the Chinese government steals technology from American companies.”
More telling than Zuckerberg’s acknowledgment, however, was the strange but unmistakable equivocation by the other Big Tech executives at the hearing. When asked the same question, the CEOs of Apple, Amazon and Google — individuals famous for their breadth of knowledge and laser focus on their businesses — all shrugged and testified only that they hadn’t personally seen any Chinese IP piracy.
While many, including the U.S. Attorney General, slammed them for “kowtowing” to Beijing, there is another reason those firms might not want to shine too bright a light on IP theft: it’s become a valuable part of their own business models.
Early this month, the U.S. International Trade Commission issued a final ruling finding that Google infringed on five patents belonging to Sonos, a company that makes smart speakers. The story is a worst-case scenario for a startup innovator. Over a decade ago, Sonos developed one of the most advanced wireless audio systems in the market — a product so impressive that Google wanted to partner with the company on it. Sonos alleges that early in the partnership, Google lifted Sonos-patented technology for Google’s own audio equipment — and continued doing so for future products despite Sonos calling the tech giant out for infringement.
Sonos’s experience was no fluke. Google faced 48 patent infringement lawsuits in 2021.
That’s more than any other company, but Google is certainly not the only alleged perpetrator.
Sonos has accused Amazon of stealing the same technologies for use in its Echo audio systems. Additionally, in 2020, a federal jury ordered Amazon to pay $5 million to Texas-based Vocalife for infringing on its patents to make Echo. Meanwhile, Apple was recently ordered to pay $300 million in damages to Optis Wireless Technology for patent infringement.
It’s no accident, then, that the number of IP lawsuits rose in 2020 for the first time since 2015, and court awards rose to $4.67 billion from just $1.5 billion in 2019.
It also makes holding China to account much harder. After all, if the richest and most powerful businesses in America are ignoring our intellectual property laws — supposedly some of the strongest in the world — why shouldn’t our global adversaries?
The real issue here isn’t complicated: When laws against theft aren’t vigorously enforced, thieves are going to steal. That’s true as much for sophisticated IP infringement as it is for the wave of organized shoplifting in Californiatoday. With billions of dollars at stake, slaps on the wrist or gentle nudges aren’t going to deter highly motivated pickpockets in Beijing, Silicon Valley, or anywhere else. Congress has to tighten up our IP laws and stiffen penalties, and the Justice Department needs to ramp up enforcement while there are still innovative American startups left to save.
One noteworthy aspect of the American Dream is that even in a mature $20 trillion economy, the most important businesses of 20 years from now are probably ones we haven’t heard of yet. In order for them to lead us into the future, however, the federal government must protect them and their intellectual property from the racketeering operations that too many foreign adversaries and Big Tech elites have turned into.
George Landrith is president of Frontiers of Freedom, a public policy think tank.