If there ever was a time to get serious with China, now is the time. The recent news of fake Apple and Ikea stores is almost too absurd to be true. But in China, the rules don’t apply. Brand name and innovation mean zip. Intellectual property is free game. Anything is up for grabs, and if I were a betting man, I’d bet that the government is getting a nice cut out of it all. But that’s communism, right? It’s a system in which your ideas are my ideas, your success is my success.
As our deficit soars and the U.S. continues to borrow, borrow, borrow - as much as 43 cents on every dollar - we do not have the upper hand in this battle. China increasingly owns our securities, and thanks to its currency manipulation, our dollar continues to struggle on the world market. The U.S. faced fierce economic competition from Japan in the ‘80s, but that was far different. China represents one-fifth of the world’s population. (By comparison, Japan has less than 2 percent.) China can dominate the market and get away with its unfair theft of American goods and innovation because of its sheer size, wealth and power. But why must we tolerate the biggest robber baron of them all?
Beijing is connected to (or at least benefits from) networks of criminal thugs. Most recently, China admitted to operating the “Online Blue Army.” This is exactly what it sounds like: a military unit of hackers who operate offensively at the behest of Beijing. The U.S. has fallen victim to Beijing’s hackers at least several times over the past few years. In October 2006, the website of the Commerce Department's Bureau of Industry and Security (BIS) was locked down for more than a month after repeated attacks by hackers on Chinese servers. This wasn’t just some arbitrary target. No, BIS has responsibility over U.S. exports for commercial and military applications. The State Department’s Washington and overseas systems were downed thanks to Chinese hackers. It’s intolerable that we have yet to hold communist China accountable for these cyberdeclarations of war against the U.S.
As if accessing our “secure” government networks weren’t enough, the Chinese criminal networks also exploit our financially weak position by placing harmful pharmaceuticals on the market, making defective products and ripping off consumers left and right. Since I joined the House Judiciary Committee’s intellectual property subcommittee in January, I’ve heard from dozens of American businesses that have experienced significant economic harm from Chinese counterfeits.
Take, for example, Houston-based Farouk Systems, maker of Chi hair products. Several years ago, FaroukShami, chairman and founder of Farouk Systems, expanded the company’s operations to China to save costs. When faced with an onslaught of Chinese counterfeits, he closed the factory in China. With that move, he brought production and 1,000 jobs back to Houston and accepted higher manufacturing and salary costs without passing them along to the consumer. But also with the move, he could better protect his intellectual property and innovation.
The Chinese have become so expert in ripping off Farouk Systems‘ Chi flatiron that the detailing on each package is almost identical to that on the legitimate product, including the exact same warranty, with a picture of Farouk Shami’s face for a bit of extra “authenticity.” Farouk Systems regularly fields complaint calls about broken products, but the products are counterfeit! Fighting Chinese counterfeits has cost this company approximately $10 million. That’s $10 million that it could be using to hire more workers or expand its business operations.
I also met Jim D'Addario, CEO of D’Addario Guitar Strings, an instrument strings manufacturer based in New York. This business, family-owned since the 1600s, has spent millions to stop the manufacture of counterfeit guitar strings in China. Mr. D'Addario has watched several coordinated raids on manufacturing facilities in China that exist solely to make counterfeit copies of D'Addario, Fender, Martin and other American companies’ guitar strings. On a website, it’s hard to tell the difference between a counterfeit and a legitimate D'Addario guitar-string set. As with the Chi flatirons, the packaging looks identical, but the fake package of guitar strings contains a hologram sticker - just to trick you - and the product inside is horrendous. It is that unbelievable.
So what do we do? The bottom line is that while Beijing benefits from these criminal networks, they hurt our government and American businesses. We must take every opportunity to (1) raise public awareness of the need for intellectual property enforcement and the dire impact on American businesses of rampant IP theft, (2) insist that China adopt strict enforcement measures to protect IP rights and (3) take action when our words fail (which they will). If China does not protect our intellectual property, we should block its imports into the U.S. It’s time to play hardball with China.
The need for enforcement of intellectual property rights is more than just preventing brand dilution - or in the case of Mr. D'Addario, protecting a reputation earned over four centuries - it’s about the principle of working hard and having it taken from you in an instant by a crook. Today’s criminals are a bit smarter and more high-tech than during my former days on the bench. They sit at laptops overseas, direct online traffic to rogue websites and make a heap of cash from selling fake goods. Many times, buyers never see the product they purchased, and by that point, it’s too late. Their identity is stolen; credit cards are racked up. The problem is too prevalent for us to continue to do nothing. It’s time to get tough on China. And that’s just the way it is.
Rep. Ted Poe, a Texas Republican, a prosecutor and judge in Houston. He serves on the House Judiciary and Foreign Affairs committees.