How to Stop Intellectual Property Theft in China

America's most innovative industries are being robbed every day on the floors of Chinese factories. Here's how to make it stop.

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William J. Jones has money worries. Of course, all CEOs worry about money, and as chairman of Cummins-Allison, a business that's been in his family for three generations, Jones frets about keeping his customers, paying his 1,000 employees, and financing his company's plans to keep growing. But Jones also worries about money itself, the physical stuff you hold in your wallet or let jingle in your pocket. He worries about how to tell the real stuff from a profusion of fakes, and he wonders whether his customers are using the best ways to check and count the money they collect. He worries that the United States isn't doing enough to ensure that the money that runs our economy is secure from the machinations of rogue foreign governments and crime rings that work every day to undermine the integrity of the dollar with counterfeits. Cummins-Allison is America's only domestic producer of advanced currency processing machines. These are the machines deployed by banks, casinos, big retailers, and the U.S. government to count and verify currency. Jones believes, with reason, that his company makes the most advanced currency processing machinery in the world, and he sees his primary job as making certain that Cummins-Allison has the culture of innovation to keep its lead.

And therein lies Jones's biggest money worry of all. Every day the company sees evidence that its competitors around the world will go to nearly any length to copy or to finagle a transfer (that is, a theft) of its core technologies. "Cummins survives," says Jones, a lean, scholarly man of 49, "by protecting our intellectual property." Jones knows he's not alone in his worries; his peers in every manufacturing sector feel the same pressure. Jones fears that America's weak efforts in taking on the world's intellectual property pirates will, over time, gut the American economy.

Jones wasn't able to make it the first time we were to meet. That was in Beverly Hills late last year at Senator Tom Coburn's hearings on China's intellectual property practices. I was invited because of the arguments I made regarding the IP issue in my book China, Inc. Coburn was interested in hearing what I had learned since the book was published last year. I went to Beverly Hills to say that the problem is one of the most serious challenges to American competitiveness and is growing worse.

The World of No-Cost Competitors

Beverly Hills had the honor of hosting the hearings because to date the entertainment industry has been the most outspoken critic of China's policies. Dan Glickman, CEO of the Motion Picture Association of America, reported to the committee that for all its success around the world, America's entertainment industry makes almost no money in China. He noted that nearly any movie available in U.S. theaters and video rental shops is for sale on pirated DVDs in China. Glickman and other witnesses offered a sobering picture. Much of American industry has seen its trademarked, patented, copyrighted, and otherwise proprietary products get copied in China. Globally, the trade in pirated and counterfeit goods rakes in more than $500 billion annually. Chinese factories are responsible for as much as 70 percent of the world production of bogus goods.

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