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May 15, 2005
 
'Hot Property' Tells How Fake Goods, Stolen Intellectual Rights Costs U.S. $200 Billion Annually, Degrades Our Infrastructure, Eliminated Jobs
 
Reviewed by David M. Kinchen
Hinton News Network Book Critic
 
Hinton (HNN) —If you think a fake Louis Vuitton handbag or an imitation Rolex watch is relatively harmless, consider that fake prescription drugs pretending to be from reputable American and foreign manufacturers can kill you. Consider this: the theft of American intellectual property (IP) costs the nation about $200 billion a year, resulting in the loss of many jobs we can ill afford to lose at a time when everything seems be outsourced or scheduled to be in the near future.
 
That's the word from Ross Perot's 1996 vice presidential running mate, economist and author Pat Choate ("The High-Flex Society, "Agents of Influence"). He provides a thorough overview of the entire patent and IP spectrum in "Hot Property: The Stealing of Ideas in an Age of Globalization" (Knopf, 368 pages, $26.95).
 
Globalization is the key word: Many American-based companies are the villains here, giving away the store in the form of licenses to manufacture products in countries like China, where low-labor cost industries reverse-engineer products, manufacture them to levels of the highest quality and sell them in the neighborhood Wal-Mart. Am I the only one who thinks Wal-Mart, Target, Costco and other big-box discount stores are either owned by the Chinese or on their way to being so owned?
 
Why are we giving away our prized patents? The quick and dirty answer is that countries like China and South Korea and India require "the transfer of U.S.-owned technologies to their local companies as a condition of access to their markets, a requirement that both weakens the U.S. economy and national security." (Page 284).
 
General Motors found out about the downside of this when they discovered in 2003 that the Chinese manufacturer Chery Automobile – in which GM had a 20 percent stake – had made an exact copy of the solely GM Spark, made for the domestic Chinese market. All parts on the two cars were interchangeable, including the doors!
 
Choate, who has a doctorate in economics from the University of Oklahoma, says China takes advantage of our so-called free trade, while practicing "Darwinist capitalism." He adds: "Eventually, just as the Japanese and Koreans did, Chinese companies will establish brand trademarks that become known worldwide, which they will sell through their joint distribution networks." (Page 183).
 
Ready for a General Motors owned by a repressive Communist China regime? IBM has already sold its personal computer business – including their desirable laptop line – to a Chinese company.
 
What is our government doing to stop this? A good question. The answer is simple, Choate says: "Nothing." Yes, nothing, nada, bupkis. "The U.S. government devotes virtually no resources to deterring, catching and punishing those foreign-based pirates who are stealing our ideas and intellectual properties." (Page 286). Choate says the U.S. has not brought a single intellectual property case to the World Trade Organization since June 2000—"not one."
 
Choate says much of this federal inaction is deliberate, a way to gain influence with China, Japan, India, South Korea and other countries. It seems like a poor trade-off: giving away our manufacturing and scientific infrastructure in return for a temporary gain that probably doesn't amount to much anyway. Through short-sighted actions like this, the British lost their dye industry to the Germans (see below).
 
If you want to skip the historical background – something I wouldn't recommend because it's so fascinating – read the last 100 or so pages, especially the Epilogue. As I said, the historical basis of IP is fascinating in and of itself.
 
The early nation was vitally interested in IP because our British masters had severely restricted manufacturing in the colonies. We were the source of raw material; manufacturing was done in the mother country, except for a few handicrafts.
 
Patents and copyrights are enshrined in the Constitution in Section 8:
 
"To promote the Progress of Science and useful Art, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."
 
A year after the Constitution was ratified in 1789, the U.S. Patent Office was established. It was a major factor in the development of a scientific and manufacturing infrastructure in the fledgling country, Choate says.
 
Also important was industrial espionage, which resulted in the creation of the U.S. textile industry. Choate tells how Boston aristocrat and entrepreneur Francis Cabot Lowell set out to steal the secret of the Cartwright loom. Lowell moved in the highest British social circles so it was possible for him in 1810 to visit English textile factories and glean the secrets of the device, which was the key to British manufacturing leadership.
 
Lowell had an almost photographic memory, so he was able to perform his industrial espionage without his hosts catching on. He stored up the information until he got back to his luxurious lodgings where he wrote everything down. He managed to smuggle the secrets of the Cartwright loom back to Massachusetts where he started a huge factory in Lowell, Mass. Complete with dormitories for the young women employed in the mills, the factory was the basis for America's textile industry – which has largely disappeared. The women workers were recruited from farms and the jobs were highly desirable, but the women had to be of "good moral character" and were strictly chaperoned. It was paternalistic by today's standards, but it was a big success, Choate says.
 
It's important to remember that Britain was the industrial and scientific leader of the 18th and 19th Century. The famous German chemical, pharmaceutical and dye industry was created by entrepreneurs based on technology acquired from Britain, Choate relates. The account of Sir William Perkin of England is important to those who mistakenly believe – as I did – that the Germans created the dye industry, which led to the formation of the infamous – especially during the Nazi era – dye and chemical giant I.G. Farben.
 
Especially in the earlier part of the book, where Choate discusses, Lowell, his fellow textile entrepreneur Samuel Slater, cotton gin inventor Eli Whitney and other inventors, the narrative moves along speedily. It slows down a bit when he discusses the implications of industrial transfer that began in the 1950s, when the American electronics industry began to be eroded by the Japanese and other Asian manufacturers, often with the connivance of short-sighted American firms. The narrative slows even more when Choate deals with the IP events of the 1980s and 1990s, when America gave away the store in a major way.
 
Choate concludes that America has been so complacent for so long that the topic "is unpleasant," particularly in political, diplomatic, business and academic circles. Why: "The United States has had such a treasure trove of scientific advances and technologies that its political and business leaders have been willing to overlook the theft of even the most important discoveries, inventions and applications in order to avoid unpleasant confrontations."
 
With the United State in a steady downward spiral in the scientific and technological sphere, my own view is we're a little late to be worrying about "unpleasant confrontations." Especially since China and India, to name just two nations, are graduating at least three or four times as many engineers and scientists as we do every year, Choate notes.
 
Publisher web site: www.aaknopf.com

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