Wednesday, September 4, 2019

Should the US Government Do More About Foreign IP "Theft"?


Brian T. emails:
Hi Bob,

Would love to hear your take on this. I believe I know the rough outline you’d make, but you put things much better than I would. Also, I think this will resonate with a lot of people so having a voice of reason speak out on it is important. I know you’re busy so perhaps now isn’t the best time for this. Take care.

RW response:


Well, the first thing to know is that much of what is labeled as "intellectual property theft" is just clever propaganda pushed by US protectionists, crony capitalists and neocon warmongers.

In most cases, what is going on is that Chinese firms, or the Chinese government, say to US firms: "You can not sell your goods here unless you give up your IP rights in China to us." This is not theft, it is the opportunity for a transaction or to turn the transaction down if the price is too steep in terms of giving up IP. It provides US firms with a choice, meet the demands of the Chinese or walk away.

As for actual cases of Chinese theft of IP, David Stockman gets it right:
[N]o more insidious notion is at loose in the beltway than the Trade Nanny predicate which underlies the Donald's attack on China's alleged technology theft and "economic aggression". In the specific case of cyber-theft, companies should buy their own cyber- security protection---just as they guard their own plants, insure their goods against damage or loss, sue infringers on their patents and undertake a whole gamut of like and similar actions which are the cost of doing business in the modern world.
Most of the IP "theft" claim is simply a means of attack by the neocons against China.

Stockman again:
Nevertheless, the reason the Donald's launch into the trade wars is so dangerous is that once again he has been taken hostage by the Swamp creatures on the broader matter of trade. His primitive 18th century mercantilism, in fact, was a plump target for the neocons' insane war-mongering about China and corporate America's ever out-stretched hand for crony capitalist subventions.
The subventions by crony capitalists include the attempt to get the US government, because of its might, to impose the rules it desires on contract negotiations with the Chinese.

It is the US as Empire. The US as global monster. In the end, this never turns out well.

-RW



19 comments:

  1. "In most cases, what is going on is that Chinese firms, or the Chinese government, say to US firms: "You can not sell your goods here unless you give up your IP rights in China to us." This is not theft, it is the opportunity for a transaction or to turn the transaction down if the price is too steep in terms of giving up IP. It provides US firms with a choice, meet the demands of the Chinese or walk away."

    -- Yes, this is not "theft," but it is a case of the Chinese government using force to prevent a willing Chinese buyer and a willing US seller from voluntarily engaging in trade on any terms on which they agree. It's little different from other state regulations that proliferate in the US which condition trade among buyers and sellers on satisfying some other regulatory whim (e.g., occupational licensing, minimum wage, FDA approval, export licensing, anti-trust approval, etc.).

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    1. The Chinese are not using force - they don’t put a gun to a corporation’s head and say ‘hand over your IP rights or else.’ The corporations operating in China and “voluntarily” handing over certain IP rights must value operating in China more than retaining said IP rights.

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    2. That is begging the question. It assumes that the Chinese government has the legitimate right to force the US seller to make that choice.

      If a mugger were to tell A that A could not proceed down the road (which the mugger does not own) without handing over A's wallet, but A is free to go back from whence he came without complying, if A handed over his wallet, your rights analysis would be simply that A must value traveling down the road more than retaining his wallet?

      In a free society, a US seller would have the right to sell his wares to a Chinese buyer AND keep his IP to himself (unless the buyer himself asked that disclosure of the IP be part of the transaction), just as A would have the right to travel down the road AND keep his wallet.

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    3. Your analysis would hold true if the mugger owned the road. In that case, he wouldn’t have to mug me. He would simply tell me what it took to travel down his road - my wallet. Me handing over my wallet to travel down the road would be a voluntary (i. e. free of any coercion) transaction.

      In the end, US corporations are not being forced to operate in China. If they do, according to the information shared by David Stockman, the price is certain IP rights; if they don’t, they can choose to operate elsewhere.

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    4. The Chinese government (as is the case with any state) does not legitimately own "the road" in China, and thus this is a mugging.

      I'm not claiming that US corporations are being forced to operate in China, only that their freedom to do so is being interfered with by the use of force.

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    5. I’m well aware that the Chinese government doesn’t own the roads. My point is that the Chinese government is not “mugging” these corporations. Muggers require to you comply through force, including the threat of force. The Chinese government does not force corporations to give up certain IP rights. That’s all I’m saying.

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    6. That's like saying that there's no force or threat involved in occupational-licensing regulations or minimum-wage legislation ("hey, you don't have to work in that profession" or "hey, you don't have to hire that worker"). The state is prohibiting a consensual trade -- prohibiting you from exercising your private-property rights -- unless you comply with a condition that it imposes. If you try to exercise your private-property rights without fulfilling that condition, then it will use force to prevent or punish you. This is a classic case of Rothbard's "triangular intervention" discussed in Chapter 3 of "Power & Market."

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  2. This sounds like China's domestic partner requirement. Yes you can say no to it and not manufacture in China or sell in China but once your competition does the low cost of labor and government subsidy will give them an advantage over you. Furthermore they will have the market there and you won't. So is it really force? Well no more force than your competition getting a tax break and you not.

    As I have pointed out previously, the goal for China's government is to bring capital within its borders. It is interfering towards those ends.

    Of course China's government is never to be condemned for these things other occasionally mention that the people there suffering so we can have stuff cheap or cheap stuff.

    It is one of the many things that falls under what I would call the 'sucks to be you' part of libertarian orthodoxy. The orthodoxy looks at those who benefit from getting the tax break, subsidy, offset, trade agreement, whatever and say 'look! more freedom, some people are better off' then insults those who end up on the wrong end of the same stick for seeing things differently. Meanwhile governments and cronies take full advantage.

    One can argue crony trade is better than whatever alternative but understand that someone else will be disadvantaged and they may be vocal about it. They may not know how to fix it or be anything but libertarian but they know they are being screwed and when people say whatever system is screwing them is 'libertarian' well guess where their minds go?


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    1. "China or sell in China but once your competition does the low cost of labor and government subsidy will give them an advantage over you. Furthermore they will have the market there and you won't. So is it really force? Well no more force than your competition getting a tax break and you not."

      Jimmy is spot on again. You are in essence playing black jack with a card counter. Everyone only speculates about deals with China based on whats on the table and not what leverage they really wield to their advantage.

      With that being said ... China can do as they please. My gripe is with the US based multinationals that have willingly given away tech to exploit the subsidized slave4 labor high profit manufacturing environment in China.

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    2. My gripe is with the US government that taxed and regulated, making China the place to open up shop.

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    3. I heartily agree. Would RW approve of trade with a nation that practiced child labor to lower labor costs? We could benefit from less costly goods.

      Similarly, PROC has few worker protections, little environmental protection, no liability for discrimination against women or minorities, not parental leave, no overtime rules, etc.

      So trade with PROC is basically a way to get around the oppressive worker and environmental protections of the USA. We love the protections but sub-rosa, get our stuff outside of them and PROC benefits.

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    4. Damn us for trying to be responsible and protective of the worker! Why dont we just make everyone debt slaves and the working poor ... oh wait ...

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  3. I'm with the NAPster on this one. This is not just an "opportunity for a transaction..." as RW writes. Its an opportunity to engage in a coercive transaction that will not only hurt the businessmen but the citizens of China. This does not mean that the US Government should get involved because two wrongs don't make a right. The businessmen have a difficult decision to participate or not. Leonard Read wrote an essay that touches on this issue. It was reprinted in the Future of Freedom Foundation monthly but I can't find it at the moment. Essentially he argued that until we humans stop sanctifying theft there is no hope for a libertarian society (let alone a PPS). Accepting these transactions as somehow OK leads to governments that coercively intervene all over the world resulting in a never ending cycle of might makes right.

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  4. It's not the government's job to protect your secrets.

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  5. > "the first thing to know is that much of what is labeled as "intellectual
    > property theft" is just clever propaganda pushed by US protectionists,
    > crony capitalists and neocon warmongers."

    Well, I guess you don't know zilch about what you're talking about.

    Chinese will copy your designs and clone your software without asking. Just go visit AliExpress or something to see what I mean. Of course, plenty of silly Silly Valley execs willingly agreed to provide licenses and access to source code and schematics, only to see their Chinese subcontractors terminating the contracts and licensing agreements and starting to produce the "genuine" articles without paying anything for the "IP".

    There's plenty of that going around. Chinese see nothing wrong with copying American designs (neither did Soviets, by the way... when they could wrangle an official license, they did - simply because naive Americans provided support and know-how; the "IP" itself is not particularly useful if you want to move beyond making exact clones).

    Add to that the barely concealed program of wholesale industrial espionage (you hire a Chinese engineer, who promptly signs NDAs, works for a few years, and then goes back to China... together with pretty much all of your source plus inside knowledge of how it works - he won't be back in US, he's rich and he's an important man now, Party rewards loyalty). And you can use your NDAs as a TP, because that all they could be used for. A Chinese court would do the same with your NDAs, by the way.

    I don't actually see anything wrong with ignoring "IP rights" (aka government-granted monopoly privileges), but the situation is: American companies are hobbled by the IP regime while Chinese are ignoring it at will, which gives them tremendous competitive advantage. Chinese government understands that very well, and actively encourages that. Quite a lot of Soviet technology was sustained this way, too. Ask me how I know... I participated in this game, on the Soviet side. Have medals to show for it.

    You can't really win against an opponent which hides his cards but can see yours. In this case you willingly refuse to play on the knowledge of the opponent's hand because you believe in "IP" and his "right" to keep you from using what you managed to steal a glance at. Worse yet, you believe that they are just as stupid and play by your rules (which they aren't and don't).

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    1. What are you saying Averros? You mean that blood is thicker than water as they say? I guess that's puts a nail in the coffin for open borders.

      Anyway, libertarians don't care. Cheap labor is everything to these people.

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    2. Nope. IMO Averros is saying that Chinese, both those in China and those working in Silicon Valley, will steal if they can get away with it. And the Silicon Valley execs are being "silly" if they don't take this into account. It has nothing to do with blood. The Chinese politicians are stealing from their own citizens just as the US politicians are stealing from theirs via taxes, regulations and IP extortion. None of these thieves have been slowed by the fact they may be related to their victims. Stop sanctifying theft including the theft necessary to create political borders.

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    3. "I don't actually see anything wrong with ignoring "IP rights" (aka government-granted monopoly privileges)"

      So RW would not mind if I subscribed to his pay service and posted everything he published there for free on my blog to get more views?

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    4. He probably would. The problem with government-imposed IP regime is that it artificially supports crappy business models (such as for-pay electronic subscriptions) by socializing costs of exclusion for the benefit of holders of IP "rights".

      In any case, information is not rivalrous good, you can copy it indefinitely while leaving all the same information at the place you copied it from. (Those of us who understand how networks and computers actually work know that everything you send to another party gets copied multiple times along the way, from buffer to buffer - and none of that is "licensed", so technically it's all illegal).

      That said, there are ways to exclude non-paying customers from access to the information - by either allowing access only in controlled environment (as in cinema) or by embedding into tamper-resistant physical objects (DRM, e-books, Blue-Ray and DVD, etc). It's just these methods are costly and inconvenient, but nobody said that government should prop crappy businesses.

      In fact, most tech content business is based on free content + ads model which doesn't need exclusion of access to the content. That's how Google and FB earn billions. So you don't even need the stupid "IP" to get rich by providing content. The smart play is to package content as a service, not as a passive posting.

      So... "Intellectual Property" (which is neither of these) regime needs to be abolished because it amounts to reduction in liberty and massive violation of property rights (specifically rights to use) in actual rivalrous (i.e. physical) goods.

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