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How could we stop Chinese Investors from Buying U. S. Companies?

Wednesday, April 11th, 2018

After my article, “Should We Allow the Chinese to Buy Any U.S. Company They Want?” was published January 9th, I was made aware that AXIOS published an article by Steve LeVine on January 10th that provided data from MacroPolo showing that the amount of Chinese investment in the U.S is far greater and more dangerous that I thought.

He wrote, “Chinese investors and firms own a majority of almost 2,400 American companies employing 114,000 people, about the same number as the combined U.S. staffs of Google, Facebook and Tesla…”

On their website, MacroPolo is described as “an initiative of the in-house think tank of the Paulson Institute at the University of Chicago,” which “has a dedicated team of experienced observers and seasoned analysts” whose “aim is to decode China’s economic arrival …across multiple dimensions.”

The article featured MacroPolo’s interactive map, which shows the economic impact of Chinese investment in each state by economic contribution, number of firms owned, and total employment of these firms. The map “appears to be the first open-source, county-by-county study of every majority-owned Chinese company in the U.S. — $56 billion worth.”

In 2017, the top three states were:

  • California: $12.3 billion – economic contribution, 19,300 employed, 598 firms
  • Michigan: $7.6 billion economic contribution 15,200 employed, 111 firms
  • New York: $3.1 billion economic contribution, 6,300 employed, 198 firms

Kentucky was the top state in 2016 with the $5.4 billion buyout of GE Appliances in Louisville by Haier.  I was horrified when this happened because I had used GE’s reshoring of a water heater as the headline case study in my reshoring presentations, and I had visited the GE new product design center in Louisville in the fall of 2015. I had been delighted to see one appliance after another being reshored.

The most immediate way that we could reduce Chinese investment in the U. S. would be to pass the legislation I mentioned in my previous article:  The Foreign Investment Risk Review Modernization Act (FIRRMA), introduced on November 8, 2017 by Congressman Pittenger (H.R.4311) and Senator Cornyn (S. 2098).  The key features of these bills are:

  • “Expands CFIUS jurisdiction to include joint ventures, minority position investments, and real estate transactions near military bases and other sensitive national security facilities.
  • Updates CFIUS definition of “critical technologies” to include emerging technologies that could be essential for maintaining the U.S. technological advantage over countries that pose threats.
  • Adds new national security factors to the review process.
  • Strengthens the government’s ability to protect American “critical infrastructure” from foreign government disruption.”
  • Representatives Devin Nunes (CA-22), Chris Smith (NJ-04), Denny Heck (WA-10), Dave Loebsack (IA-02), Sam Johnson (TX-03), and John Culberson (TX-07) are co-sponsors of H.R. 4311.

In his press release, Senator Cornyn said, “By exploiting gaps in the existing CFIUS review process, potential adversaries, such as China, have been effectively degrading our country’s military technological edge by acquiring, and otherwise investing in, U.S. companies…This undermines our national security and highlights the imperative of modernizing the CFIUS review process to address 21st century threats. This bill takes a measured approach by providing long overdue reforms to better protect our country, while also working to ensure that beneficial foreign investment is not chilled.”

Senators Burr (R-VA), Feinstein (D-CA), Marco Rubio (R-FL), Amy Klobuchar (D-MN), John Barrasso (R-WY), Gary Peters (D-MI), James Lankford (R-OK), Joe Manchin (D-WV), and Tim Scott (R-SC) are also co-sponsors of S. 2098.

The introduction of FIRRMA may be the outcome of the recommendations of the draft annual report of the U.S.-China Economic and Security Review Commission  “calling for a ban of the commission’s annual Chinese state-owned enterprises’ purchases of U.S. companies…The Commission recommends Congress amend the statute authorizing the Committee on Foreign Investment in the United States to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies…” as reported by Ali Meyer on October 27, 2016 in the Washington Free Beacon.

The first independent review of these 79-page bills was published December 21, 2017 in the Latham & Watkins Client Alert White Paper titled, “CFIUS Reconstructed: The Foreign Investment Risk Review Modernization Act of 2017.” The White Paper states, in part:

“The proposed Foreign Investment Risk Review Modernization Act would bring substantial changes to CFIUS review. Key Points are:

  • FIRRMA could speed review of certain transactions
  • It would provide for increased scrutiny of transactions from countries of concern.
  • It would expand the scope of activities subject to CFIUS review

FIRRMA would also lengthen the CFIUS review process, extending the initial review period from 30 to 45 days, and allowing CFIUS to extend a national security investigation for 30 days beyond the existing 45-day period where “extraordinary circumstances” require. Thus, the post-notice CFIUS clock would expand from 75 days currently to either 90 or 120 days from the time of filing to the end of the national security investigation.

…But FIRRMA would also increase the resources CFIUS would have to undertake its expanded responsibilities.… In a number of important ways FIRRMA would clarify, alter, or expand current CFIUS practices. And yet, the 79-page bill leaves open certain questions, and raises still others.”

The White paper also stated that “an alternative bill was introduced into the Senate, the “United States Foreign Investment Review Act of 2017 (S.1983),” also with bipartisan sponsorship (Sens. Sherrod Brown (D-Ohio) and Charles Grassley(R-Iowa). That said, FIRRMA’s bicameral introduction and bipartisan support, which includes Senator Diane Feinstein (D-California), as well as reports that some of FIRRMA’s sponsors worked with the Administration on the bill before it was introduced, all provide some reason to expect a version of FIRRMA to move during upcoming months.”

On December 11, 2017, Alexandra Kilroy wrote a guest blog for Adam Segal on the Council on Foreign Relations website. Alexandra is an intern in the Digital and Cyberspace Policy program at the Council on Foreign Relations. She wrote, “As Chinese firms pour funds into promising Silicon Valley start-ups, many national security experts are concerned that China may soon surpass the United States as a technological power, in part though investing in U.S. firms and acquiring cutting-edge technology.”

She commented that “the Foreign Investment Risk Review Modernization Act (FIRMMA), … appears to be motivated in part by an unreleased Pentagon report of the military applications of Chinese investments in the United States. Under the new legislation, CFIUS oversight would be expanded to include foreign investments near military facilities, minor-share investments in critical technology and infrastructure sectors, and transfers of dual-use technology to foreign entities. Acquisitions of critical technologies by “countries of special concern” would also be subject to CFIUS oversight.”

She commented that “Chinese state-led capitalism makes it difficult to distinguish between private and state-owned businesses, and many private firms have strong ties to the Chinese government. In addition, China has been historically disinclined to allow private foreign investment in many critical parts of the economy…it has traditionally maintained strict limits on foreign investment in its energy, transportation, and technology industries. Chinese firms, many with connections to the state, can invest billions in U.S. technology, but U.S. companies are often barred from doing the same.”

As a director on the board of the San Diego Inventors Forum, it greatly concerns me that Chinese investors are buying startup companies whose new technologies may be critical to the future of American technological advances.  Under the current law, Chinese investors could be buying small emerging companies that have advanced technologies that are down at the Tier 3 and 4 levels in the supply chain and never get brought up for a CIFIUS review of the acquisition.

In this regard, there are two possible scenarios that frighten me: (1) Chinese investors buying an advanced technology company and shutting it down to keep the U. S. from benefitting from the technology, and (2) having Chinese engineers insert “backdoor” technology into the product to make it not work properly or quit working when triggered remotely. The latter is already a problem with counterfeit Chinese parts in the defense and military supply chain.

On January 22, 2018, Daniel DiMicco, Chairman, and Michael Stumo, CEO, of the Coalition for a Prosperous America sent letters to Congressman Robert Pittenger and Senator John Cornyn, which said, in part:

“The Coalition for a Prosperous America (CPA) board of directors has voted to support the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA) which you introduced on November 8, 2017 with bipartisan support.

We appreciate your recognition that foreign investment should be more tightly monitored to address new security threats posed by an evolving global landscape. Your bill appropriately expands CFIUS’s authority to review certain transactions that pose national security concerns, expands the list of factors to be considered by CFIUS and mandates disclosures by state-owned enterprises.

We agree with your reasons, and those of your cosponsors, for advancing this bill. We would additionally point out that trade is part of China’s multidisciplinary strategy to surpass the US on the global stage. China engineers persistent trade surpluses. Our corresponding deficits require us to be a net importer of capital. We sell our assets to balance the books as they sell more goods than they buy. Thus, the greater the US trade deficit, the more we sell our assets and the more we must monitor and restrict which assets are sold.

CPA believes your bill could be improved by adding economic security as a basis for rejecting investment. As an example, Canadian laws restricting investment go beyond national to economic security, i.e. net gain to the domestic economy, when buyers are state-influenced companies.”

The expansion of CIFIUS by FIRRMA may not be enough to stop the dangerous level of Chinese investment in the U.S.  Another solution would be to require reciprocity between China and the U.S. with regard to investment.  Currently, U. S. companies are not allowed to buy 100% of any Chinese company.

On January 17, 2018, CPA’s Trade Blog included an excerpt from Jenny Leonard’s article on Inside US Trade, which stated, “The White House is considering the creation of a reciprocal investment regime with China following a Section 301 [Trade act of 1974] investigation into Chinese technology and intellectual property policies…The sources said the administration, if it went that route, would apply the 1977 International Emergency Economic Powers Act, which gives the president broad authority to regulate commerce “to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared for purposes of this chapter and may not be exercised for any other purpose.”

The article describes how it could be done: “Trump, they said, would sign an executive order declaring a national emergency and, as required under the statute, “immediately” transmit a report to Congress specifying the rationale behind the emergency and actions, and naming “any foreign countries with respect to which such actions are to be taken and why such actions are to be taken with respect to those countries.”

The result “would be to restrict Chinese foreign investment in the U.S. to the extent that Beijing restricts U.S. foreign investment in its market, which could effectively lead to sectoral investment bans. Chinese investors under the new regime would have to demonstrate that China allows U.S. investment in a specific sector. For example, one source said, if Chinese investors wanted to buy a U.S. bank, they would be able to acquire no more than a 49 percent stake — in line with Chinese rules on foreign ownership of banks in China.”

Personally, I like this latter solution the best as there is still too much possibility that a Chinese acquisition may escape the expanded CIFIUS “radar screen” for a review. It’s not just our national security that is being threatened, it’s our economic security as well.

 

Posted in Inellectual Property, Legislation, Manufacturing, National security, Trade Policy | No Comments »

Threat to the American Patent System and Inventors’ Rights

Tuesday, October 10th, 2017

On August 11, 2017, a group of inventors went to the United States Patent Office to make a statement and give testimony against new patent laws that promote the theft of our intellectual property instead of protecting it. Afterward, the inventors demonstrated in front of the Patent Office, and several burned their patents.  Michael Caputo, Managing Director of Zeppelin Communications, stated, “Patents have become worthless.”  The C-Span video of the protest can be viewed here.

Why is the American patent system and inventors’ rights being threatened?  In September 2011, Congress passed and the president signed the Leahy-Smith America Invents Act (AIA) that changed the U.S. patent system to the party “first to file” instead of the “first to invent to bring the U.S. in line with other countries who adopted first to file patent systems years ago, supposedly to simplify the patent process for companies that file applications in multiple countries. Its central provisions went into effect on September 16, 2012 and on March 16, 2013.

At the time, supporters said it would improve patent quality by creating a new process for reviewing patents after they have been issued and allow third parties to provide information on other parties’ applications.

Opponents argued that there was no reason to change the U.S. system, and inventors and small businesses complained that switching to a “first to file” system would give large companies an advantage and hurt individual inventors.

To find out what has happened to the American Patent System and Inventors’ Rights since 2011, I requested information from Randy Landreneau, Founder Independent Inventors of America, Paul Morinville, Founder US Inventor, and Adrian Pelkus, President of San Diego Inventors Forum.

Randy Landreneau: “America has been the most innovative country on earth from the start. A key reason for this is the revolutionary patent system created by our Founders that provided intellectual property rights to any man or woman, rich or poor. The rest of the world had systems that were for the aristocracy and those favored by the powerful…America maintained a superior system in protecting the intellectual property rights of inventors until …the passage of The America Invents Act in 2011…While it is hard to quantify the effect of changing to First-to-File, this change does place a disadvantage on the independent inventor relative to the large corporation. But another change has had very measurable negative effects.

The America Invents Act created new and easier ways to invalidate an existing patent. Prior to this, to invalidate a patent required going to a judicial court with its various protections offered to the holder of a property right. The America Invents Act created procedures for an administrative court, the PTAB (Patent Trial and Appeals Board), that does not have the same protections. Approximately 70% of the patents that companies try to invalidate using the PTAB get invalidated.

There are efforts underway to get the PTAB procedures ruled unconstitutional or at least reigned in and similar to the procedures of a Judicial court. Certainly, the PTAB procedures are doing great harm to American innovation.”

A more recent bill was even worse – The Innovation Act (H.R. 9), which passed the House in December of 2013. But, the Senate version (PATENT Act, S.1137) was fought effectively and did not pass the Senate.  However, these bills were reintroduced in subsequent sessions of Congress until the summer of 2016, when it became clear these bills were not moving forward.

Hundreds of millions of dollars have been spent pushing a false narrative that nefarious entities called “patent trolls” are using frivolous litigation to make companies pay them unfairly. More often, in actuality, an inventor has a patent that is being infringed by large corporation that he cannot afford to fight in court. So, he sells his patent to a company that does have the wherewithal to fight in court (a non-practicing entity or NPE), and the infringer loses because he is guilty.

One element of the Innovation Act was ‘Loser Pays.’ If an inventor sues a corporation for patent infringement and does not win, he could be liable for the infringer’s legal costs. This could be more than $5,000,000. This liability would also be a personal liability to an investor with an interest in the patent (piercing the corporate veil and placing personal assets at risk).

There are still efforts underway by multinational corporations to get a similar bill passed in the future. Currently, there is the threat that something similar to the Innovation Act will come back.

But, the more current threat is how the courts have been moving toward not considering a patent as the property right that it has been for 200 years. A three-judge panel actually ruled that a patent is a public right. If the courts start to widely regard patents as not being property rights, as some feel they are already doing, this will greatly harm American innovation. If a court does not respect the rights of an inventor, court procedures end up being applied in ways that work against him. Recently, there have been numerous cases where judges ruled that a patent was too abstract, and the inventor was not given the normal due process of providing witnesses, testimony, or otherwise fighting to retain his intellectual property.

There is an effort underway to get the U. S. Supreme Court to take up this issue and rule in the favor of patents being property rights. If this effort succeeds, we will have, at least temporarily, stopped the erosion of inventor rights that are so important to this great nation. I and others are involved in fighting to maintain the rights of inventors, and to expand them where they have been reduced in recent years.”

Paul Morinville wrote his opinion in a paper titled, “We’ve Been Googled,” when H.R. 9 looked like it would pass in which he stated that “H.R.9 creates a Patent System without Inventors. Over the last decade, Google and others have spent hundreds of millions of dollars to lobby Congress and produce an ingenious ‘patent troll’ narrative, which distorts the reality of invention in America. In this decade long war on inventors, H.R.9 is the Google lobby’s latest accomplishment. Not surprisingly, H.R.9 is not directed to fixing the fictional problem of ‘patent trolls.’ Instead, H.R.9 mounts its considerable damage on the patent system in general, specifically harming inventors and small patent-based businesses.”

Morinville explained, “If this bill becomes law, inventors will not be able to enforce their patent rights against moneyed corporations like Google. However, moneyed corporations like Google will still be able to enforce their patents against small businesses with even more devastating consequences to those small businesses. Patent litigation is about risk and cost versus reward. If risk or cost is too high in relation to reward, a patent cannot be enforced.”

Adrian Pelkus: “I’m an inventor named on 14 issued patents and have made my life as a serial entrepreneur doing new product development for over 30 years. Along the way I have created many startups and raised millions of dollars on the back of IP. I have coached inventors and startups every Thursday since 1985 and have run one of the larger inventor clubs in the U. S. since 2005, the San Diego Inventors Forum (www.sdinventors.org.)

He said, “What is most absurd about the America Invents Act to American inventors is the fact that with PTABs we can lose our ISSUED PATENTS… A company challenging a patent wins 90% of the time. The cost to defend is so expensive that inventors give up and are unable to afford achieving their dreams.”

Now, issued patents guaranteed as a Property Right in the constitution are being challenged. A business that infringes would just pay a royalty to the inventor if found guilty hence ‘efficient infringement.’ The biggest incentives to create new ideas and businesses are weakened because the guarantee that an issued patent will protect your IP interests and investments is gone. Patents can now become liabilities. The proposed bills to penalize an inventor with loser pays and threatens to make their investors pay was beyond absurd; it would be economic and intellectual suicide. The end of our rights and hopes as inventors is in plain sight.”

Adrian became connected to Randy Landreneau and Paul Morinville when they reached out to other inventor groups, and he was invited to join the fly-in to Washington, D.C. to fight H.R.9 in April 2015. After that fly-in to Washington, D.C. he became focused on fighting against bills that would destroy our patent system and joined the board of US Inventor in August 2016. He was already on the board of the United Inventors Association and had been working to unite the inventor clubs and groups nationwide.

In January, 2017, the Policy Panel of US Inventors authored a USI Policy Section 101 paper and in February, it was determined that they had to “get as many inventors as possible calling Congress and writing about the threat of a new bill.” 

Adrian said, “I sent out my first call to action to all the clubs and sent a second one the next week and every week since. I discussed the plan to unite the groups and clubs with Stephen Key of Invent Right and Louis Foreman of Edison Nation, who asked how they could help. With their help, we have united 24 inventor groups nationwide to fight the threat to our American patent system and protect inventors’ rights.

I established a bimonthly phone conference with the heads of the biggest organizations in the inventor community, inventor clubs, and individual inventors in an effort to create a coalition that would support a petition that reflects our concerns about and suggestions to change the America Invents Act. This coalition is a historic cooperation that will unite the inventor community and bring a voice to Washington, D.C. they need to hear!

We now have a petition that we believe will help make America great again by making it a great place for American Inventors again. This petition represents concerned citizens, inventors, entrepreneurs, and businesses from coast to coast. I’m proud to contribute my efforts to help America by restoring its patent system.” 

I agree with Landreneau, Morinville, and Pelkus that the America Invents Act is gradually destroying the American Patent System. If a bill similar to H. R. 9 passes Congress, it would the final nail in its coffin.

Why is this important? Because most new technologies, especially break-through or disruptive technologies, come from individual inventors who either start a company or license their technology to companies that are more able to take them to the market.

As a mentor for San Diego’s CONNECT Springboard accelerator program and fellow director on the board of the San Diego Inventors Forum with Adrian Pelkus, I work with inventors designing new products or break-through technologies. Local inventors have the opportunity to compete in the San Diego Inventors Forum annual invention contest for best new consumer product or best new technology. All contestants must have applied for at least a Provisional patent before they can participate. The future success of their product or technology is contingent upon their having a patent they can protect from infringement. Their ability to raise the financial investment they need to bring their product to the marketplace depends upon their being able to protect their patent. No investor will take the risk of investing in a product or technology that cannot be protected.

Please join the American inventors coalition formed by Adrian Pelkus, Randy Landreneau, Paul Morinville, and others to save American inventors by signing the petition at http://www.usinventor.org/petition.

 

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Posted in Inellectual Property, Innovation, Patent Reform | No Comments »

CONNECT’S MIP Awards range from Pure Fun to Life-Saving

Tuesday, December 13th, 2016

On December 1st, the winners of the 2016 CONNECT Most Innovative New Product Awards were announced at the 29th annual dinner event held at the Hyatt Regency Aventine in La Jolla.

CONNECT is a premier innovation company accelerator in San Diego that helps start up entrepreneurial teams become great companies in the technology and life sciences sectors by providing access to the people, capital, and technology resources they need to succeed. CONNECT has assisted in the formation and development of more than 3,000 companies since 1985. Lead sponsors for the event were Cubic Corporation, and JP Morgan Chase & Company.  Tom West, San Diego Executive Director & Regional Manager of JP Morgan Chase, presented CEO Greg McKee with a check for $200,000 to support CONNECT.

CONNECT CEO Greg McKee said in part, “This event gives us an occasion to celebrate what we do best in San Diego ? innovate. From genomics to robotics, Bluetech to biotech, and data analytics to medical devices the breadth of our innovation economy is staggering. In fact, it’s a quarter of our GDP. You, as innovators, matter. And, I would bet, that many of the products we see here tonight will have an equally profound impact. For over thirty years CONNECT has been, and continues to be, an organization driven by discovery, innovation, economic empowerment, and the opportunity to change the world. But, changing the world isn’t always about a single sweeping gesture or one grand moment, it’s hard work, it’s a blend of small insights and little steps forward, it’s about sharing discoveries and thriving on others’ inspiration.”

There were a record 111 entrants this year across the ten categories listed below. To be eligible, the product must have been first introduced after January 1, 2014, never been selected as a MIP finalist, and generated revenue from sales (except for free mobile apps and companies submitting for the Life Science Products – Clinical Stage category). Each semi-finalist demonstrated their products in front of an expert judging panel in early October, from which 30 were selected as finalists. The winners and other finalists were:

Bluetech:  Water Pigeon – a fast, simple, secure way to deliver automated metering infrastructure (AMI) capability without replacing existing water meters or building wireless networks. Water Pigeon is a graduate of CONNECT’s Springboard program and a resident of EvoNexus.

After winning the award, CEO/CoFounder Clay Melugin said, “The MIP award from Connect is an outstanding honor to win. With so many great startup companies in San Diego in all categories, being recognized for Innovation delivers a boost to our team as we continue to push forward on goals that improve the world. Innovation is clearly not dead in the US and we want the world to see how innovation emboldens a supportive city like San Diego.

The outreach from others after the award has been amazing. It is very inspiring when people take time to understand our mission and offer to help us continue the journey both as investors and people who simple want to help. This only happens in a vibrant technology community like San Diego where startups encourage and help each other move forward towards success.”

Other Finalists:

Diver6 – a life-saving diver tracking system used to wireless supervise divers position and monitor their vital information provides services and technology for government and industry with extensive experience and capabilities supporting complex scientific and maritime operations.

Planck Aerosystems – its flagship drone brings high performance, autonomous unmanned aerial systems to moving vessels previously only possible from manned helicopters.

Cleantech, Sustainability, and Energy:  Camston Wrather LLC – recovers gold, precious metals, and polymers from electronic waste using proprietary patents and green chemistry.

Other Finalists:

  • Measurabl – an all-in-one commercial real estate energy and sustainability management software.
  • SDG&E – a regulated public utility that invented the Renewable Meter Adapter (RMA) as an alternative for private solar rooftop customers to avoid costly panel upgrades.

Defense, Transportation, and Cybersecurity:  Cubic Corporation – designs, integrates and operates systems, products and services that increase situational awareness for customers in the transportation and defense industries.

Mike Twyman, President of Cubic Mission Solutions, said, “Cubic is honored to receive the Most Innovative Product (MIP) award from CONNECT in the Defense, Transportation and Cybersecurity category for our inflatable satellite communication system. Cubic GATR’s industry-leading inflatable satellite antenna is changing the satellite communications industry and receiving innovation awards, such as the MIP from CONNECT, validates the push for innovation at Cubic. We look forward to continuing our support of CONNECT and fostering innovation in San Diego region.”

Other Finalists:

  • B&B Technologies LP – developer of the DAMPS advanced magnetic suspension/propulsion shock mitigation technology R&D for the military, medical and professional/commercial markets.
  • Space Micro – the Micro-STAR-200M is a space qualified sensor observing start and delivering precision pointing information to its host spacecraft.

Information Communications Technologies: Aira – develops remote assistive technology and services that bring greater mobility and independence to blind and low-vision people in daily living by connecting them to a network of certified remote agents via the blind user’s wearable smart device.

“The impact of winning the CONNECT Most Innovative Product (MIP) Award certainly marks an important milestone at Aira, including our place as a recognized technological innovator in the San Diego region” said CEO Suman Kanuganti. “We believe that San Diego, because of its supportive and engaging technological environment, is truly the best community for startups like Aira, and we thank CONNECT for the work they do to grow the region, and of our peers who continue to inspire and challenge us to be more competitive, smarter, and committed to thrive and succeed here in San Diego. Equally important, Aira’s winning of the MIP Award allows further light to be shed on the often-forgotten challenges that people with vision loss face on a daily basis in functioning in a sighted world, and how the power of technology and innovation can play a major role in alleviating these challenges.”

Other Finalists:

  • Creative Electron – the TruView Cube is an innovative x-ray machine used to count the number of semiconductors without the need to open protective cases.
  • Qualcomm Technologies, Inc. – The SnapdragonTM 820 processor represents a rare feet in the engineering and design of semiconductors, in which every major IP block in the system is a new and custom design.

Life Science Diagnostics and Research Tools:  Echo Laboratories Inc. – developed the Revolve, a new hybrid microscope that easily transforms between upright and inverted configurations, merging the capabilities of two instruments into one. Echo Laboratories graduated from CONNECT’s Springboard program two years ago.

CEO/Founder Eugene Cho said, “Winning the event was a big achievement for us. Just two years ago we were at the same event, sitting in the audience as Springboard graduates. It was incredible validation to our team of how far we’ve come since then.”

Other Finalists:

  • DermTech – a non-invasive gene expression platform that works with samples collected using DermTech’s Adhesive Skin Biopsy Kit to facilitate the diagnosis and treatment of psoriasis and other inflammatory skin conditions.
  • NanoCellect Biomedical– the WOLF Cell Sorter is the new benchmark for access and performance to make flow cytometry and cell sorting technology more affordable and accessible for life science researchers to perform cellular analysis, develop molecular diagnostics, and improve personalized medicine.

Medical Devices:  Onciomed, Inc. – the Gastric Vest System™ (GVS) is a revolutionary, minimally invasive implantable device to treat obesity and diabetes.

Other Finalists:

  • Innovative Trauma Care – created the ITClamp Hemorrhage Control System which is designed to address massive hemorrhage – a leading cause of death in traumatic injury – by controlling critical bleeding in seconds.
  • 11Health – a connected medical device company, where all patented devices use Bluetooth® wireless technology to send secure real-time data to mobile devices, including smart phones, tablets and watches.

Pharmaceutical Drugs and Biologic Therapies:  ACADIA Pharmaceuticals, Inc. – NUPLAZID is the first FDA-approved treatment for hallucinations and delusions associated with Parkinson’s disease psychosis.

Bob Mischler, Senior Vice President, Strategy and Business Development said, “We’re honored that NUPLAZID was chosen as the winner of the Pharmaceutical Drugs and Biologic Therapies category. Even more importantly, we are gratified that this innovative treatment offers renewed hope to patients with Parkinson’s disease psychosis, a debilitating condition that affects around 40 percent of people with Parkinson’s disease, and the loved ones who care for them.”

Other Finalists:

  • Ardea Biosciences– Zurampic is the first new oral medication for treatment of gout approved by the FDA in 60 years.
  • GlyConMedics LLC – Pre-biotic (OZ101) tables advance the treatment for type 2 diabetes by providing an affordable and effective long-term ADD-ON treatment to existing SU therapies to improve glucose control, educe hypoglycemia and weight gain.

Robotics and Unmanned Vehicles:  Clever Pet – a connected game console that intelligently trains and engages dogs using their normal daily food automatically, whether their humans are home or not. CleverPet is a resident of EvoNexus.

“We were honored to receive CONNECT’s Most Innovative Product award in our category,” commented Co-founder Leo Trottier. “We could not have built CleverPet without the support of the San Diego community and organizations like Connect. We see this award as validating a business and idea that when we started felt at best a pipe dream.”

Other Finalists:

  • NXT Robotics – provides service robots to support increased security monitoring and alerting requirements.
  • Robolink – aims to make STEM education accessible, engaging and fun for children and hobbyists by producing robotics educations kits and providing educational lessons that teach core principles of engineering and programming.

Software, Digital Media, and Mobile Apps:  Guru – an app that features beacon-enabled technology that interacts with smartphones to create digital experiences for museums, aquariums and zoos. Guru is also a CONNECT Springboard graduate and a resident of EvoNexus.

Hilary Srole, Project Manager said, “Entrepreneurship is hard, so receiving recognition like this from CONNECT is awesome. Winning gave us a great sense of validation. Not only for us, but for the San Diego Museum of Art for taking a chance with us. It really feels good to show that their faith in us wasn’t misplaced. This whole process has been rewarding. Springboard’s mentorship has helped us avoid some of the pitfalls commonly associated with start-ups and has helped us to move in the right direction faster.”

Other Finalists:

  • Nanome, Inc. – developed the world’s first immersive and scientifically accurate molecular modeling tool in Virtual Reality.
  • South Doctors, Inc. – the leading platform that connects patients from around the world with the best doctors and facilities in Mexico.

Sport and Active Lifestyle Technologies:  Bixpy LLC – the world’s first portable and modular personal water propulsion device that runs on lithium batteries for snorkelers and scuba divers, with attachments available to motorize kayaks and standup paddle boards.

Founder/CEO Houman Nikmanesh, said, “We were absolutely humbled by our selection as a finalist for the MIP Awards by Connect. We were among some brilliant people, amazing products, and innovative ideas. So when we won, we were absolutely beyond ourselves. It has taken us more than two years to develop the Bixpy Jets and we have worked tirelessly on a project that at times seemed like a pipe dream. Winning such a prestigious award validates our vision and paves the way forward for us. We’re proud and attribute much of our success in our product development to being in San Diego. Aside from being the perfect hub for an outdoor lifestyle company, the San Diego startup and innovation community has been instrumental to our drive and success.”

Other Finalists:

  • ElliptiGO Inc. – the world’s first elliptical bicycle, combining the best of running, cycling, and the Elliptical trainer for a fun and effective way to exercise outdoors.
  • FlyDive – the X-BOARD connects to a personal watercraft for hydro jet propulsion, empowering riders to hover and fly above the water. It is the most advanced hydro flight system designed and engineered to support both beginners and professional riders.

It was a very exciting night for me because I had been one of Bixpy’s mentors in the CONNECT Springboard program this year. Bixpy graduated in July, and in only four short months, they conducted a successful Indiegogo crowdfunding campaign, were selected as a finalist, and won this prestigious award.

CONNECT has a built an unbeatable roster of over 500 highly-qualified individuals to serve as Springboard Entrepreneurs-In-Residence and Mentors who volunteer their time as mentors to help entrepreneurs develop successful companies. I look forward to mentoring more companies in the future.

 

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How the Trade Secrets Act will Benefit Manufacturers

Tuesday, October 11th, 2016

Many times, Congress passes important bills that are go unreported by the mainstream media. Such was the case with the Defend Trade Secrets Act of 2016 (DTSA – S. 1890), passed by the Senate and House of Representatives with near unanimous support in April and signed by President Obama on May 11, 2016. This beneficial bill was authored by U.S. Senators Chris Coons (D-DE) and Orrin Hatch (R-UT) and cosponsored by nearly two-thirds of the Senate.

The bill was supported by a broad industry coalition that included manufacturers and organizations, such as the Alliance of Automobile Manufacturers, the Association of Global Automakers, Inc., Biotechnology Industry Organization, The Boeing Company, Caterpillar Inc., Corning Incorporated, Eli Lilly and Company, General Electric, Honda, IBM, Intel, The Intellectual Property Owners Association  Johnson & Johnson, Medtronic, National Alliance for Jobs and Innovation , National Association of Manufacturers, The Procter & Gamble Company, Siemens Corporation, Software & Information Industry Association (SIIA), U.S. Chamber of Commerce, and United Technologies Corporation (click here for full list). This industry coalition sent a letter dated December 2, 2015 to Senators Hatch, Coons and Flake, saying in part:

“Trade secrets are an essential form of intellectual property. Trade secrets include information as broad-ranging as manufacturing processes, product development, industrial techniques, formulas, and customer lists. The protection of this form of intellectual property is critical to driving the innovation and creativity at the heart of the American economy. Companies in America, however, are increasingly the targets of sophisticated efforts to steal proprietary information, harming our global competitiveness.

Existing state trade secret laws are inadequate to address the interstate and international nature of trade secret theft today. Federal law protects trade secrets through the Economic Espionage Act of 1996 (“EEA”), which provides criminal sanctions for trade secret misappropriation. While the EEA is a critical tool for law enforcement to protect the clear theft of our intellectual property, U.S. trade secret owners also need access to a federal civil remedy and the full spectrum of legal options available to owners of other forms of intellectual property, such as patents, trademarks, and copyrights.

The Defend Trade Secrets Act will create a federal remedy that will provide a consistent, harmonized legal framework and help avoid the commercial injury and loss of employment that can occur when trade secrets are stolen. We are proud to support it.”

The intent of the DTSA is:

“IN GENERAL.—Section 1836 of title 18, United States Code, is amended by striking subsection (b) and inserting the following:

‘‘(b) PRIVATE CIVIL ACTIONS.—

‘‘(1) IN GENERAL.—An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”

‘‘(c) JURISDICTION.—The district courts of the United States shall have original jurisdiction of civil actions brought under this section.

However, the DTSA does not preempt state law. Therefore, the owner of a trade secret could potentially file a federal claim and a state law claim at the same time.

In a May 11, 2016 guest post on www.manufacturinglawblog.com by Ian Clarke-Fisher of Labor & Employment and Jim Nault of Robinson + Cole’s Intellectual Property Litigation Practice Team, they wrote, “…the DTSA provides the following important provisions, among others:

Federal Civil Action:  The DTSA creates a federal civil cause of action, giving original jurisdiction to United States District Courts. This will allow companies to decide whether to bring claims in federal or state courts, and may have the net effect of moving most trade secret litigation to federal courts…Importantly, similar to federal employment laws, the DTSA does not supersede state trade secret laws.”

“Seizure of Property:  The DTSA includes a provision that permits the Court to issue an order, upon ex parte application in ‘extraordinary circumstances,’ seizing property to protect against to improper dissemination of trade secrets…the DTSA permits such an order only if the moving party has not publicized the requested seizure…”.

“Damages and Attorney’s Fees:  In addition to the seizure of property and injunctive relief, the DTSA permits for the recovery of damages for actual losses and unjust enrichment, and allows for exemplary (double) damages trade secrets that are ‘willfully or maliciously misappropriated’… The DTSA also provides for the recovery of reasonable attorney’s fees in limited instances…”

In a blog article prior to the bill’s passage (April 8, 2016), Nuala Droney and James Nault, members of Robinson + Cole’s Intellectual Property Litigation Practice Team commented: “The law provides for the award of damages for trade secret theft as well as injunctive relief. It even includes a provision allowing a court to grant ex parte expedited relief to trade secret owners under extraordinary circumstances to preserve evidence or prevent dissemination of the trade secret…”

They explained that “Trade secrets are a form of intellectual property that are of increasing importance to many manufacturers for a variety of reasons. A trade secret can be any information that is (i) valuable to a company, (ii) not generally known, and (iii) not readily ascertainable through lawful means, as long as the trade secret holder has taken reasonable precautions to protect it. A classic example of a trade secret is the formula for Coca-Cola. A more recent example is DuPont’s innovative Kevlar product, which was the subject of a large scale trade secret theft in 2006. Trade secret theft is a huge problem; a recent Pricewaterhouse-Coopers study showed that trade secret theft costs American businesses $480 billion a year.”

Dennis Crouch, Law Professor at the University of Missouri School of Law and Co-director of the Center for Intellectual Property and Entrepreneurship, provides this commentary on his blog:

” The Defend Trade Secrets Act (DTSA) includes a new provision added to the Economic Espionage Act (EEA) that, depending upon how it is interpreted, may govern how district courts handle trade secret information in all cases. The new section will be codified as 18 U.S.C. 1835(b) and reads:

(b) Rights Of Trade Secret Owners—The court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential. . . .

Courts already liberally allow parties to file documents under seal – so that doesn’t provide the entire impact of the provision. Rather, the provision’s importance is that it extends beyond briefs being filed by parties and instead reaches disclosures at trial and court opinions. Thus, the statute presumably prevents a court from disclosing a trade-secret in its opinion without first providing the trade-secret owner with the opportunity to brief the issue of disclosure. In addition, it provides non-parties with a right to request (under seal) non-disclosure of their trade secret rights.”

However, the website of the Essex Richards law firm of Charlotte, NC has a warning that “businesses should know that the DTSA contains certain requirements that affect their employment and similar agreements with provisions protecting against disclosure or misappropriation of the company’s trade secrets or confidential information.” Here are a few provisions of the DTSA that they highlight as important for employers to understand:

  • “The DTSA provides immunity from trade secret misappropriation claims to whistleblowers who disclose their employer’s trade secrets or confidential information to government officials for the purpose of reporting or investigating a violation of the law.
  • The DTSA requires all employers to notify employees of the DTSA’s whistleblower protection provisions in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. Otherwise, an employer will be deprived of exemplary damages and attorney’s fees under the DTSA. This notice requirement is satisfied if the agreement cross references a separate written policy that addresses reporting suspected violations of the law. Importantly, the DTSA broadly defines “employee” to include any individual “performing work as a contractor or consultant for an employer.” Therefore, independent contractors and consultants, in addition to “W-2 employees,” are covered under this definition. The notice requirement applies to agreements that are entered into or modified after May 11, 2016.
  • The DTSA provides a variety of remedies. If the court finds liability, it may: (1) issue an injunction so long as the order does not prevent an individual from entering an employment relationship and does not conflict with applicable state law prohibiting restraints on lawful employment; (2) order that a party take certain affirmative action to protect the trade secret; (3) award actual damages and damages for unjust enrichment; (4) condition future use of the trade secret on payment of a reasonable royalty, and (5) in a case of willful misappropriation, award exemplary damages not more than twice the original damages amount.  In addition, if the court determines that a party willfully and maliciously misappropriated a trade secret, or if it finds that a misappropriation claim or a motion to terminate an injunction has been brought in bad faith, it may award reasonable attorney’s fees to the prevailing party.
  • In the event a defending party is damaged due to a wrongful seizure, it may sue for and recover “relief as may be appropriate,” such as damages for lost profits, damages for loss of goodwill, reasonable attorney’s fees and punitive damages if the seizure was sought in bad faith.”

As a director on the board of the San Diego Inventors Forum, I am particularly interested in the fact that the DTSA is the first federal legislation that allows private citizens, without first having to obtain patent, trademark, or copyright registration, to sue in federal court to protect their trade secrets. This will be a great help for inventors and existing businesses that do not have “patentable” Intellectual Property and have to rely on trade secrets to protect their “secret” formulas or processes to produce their products.

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Innovative Products Win Best Invention at San Diego Inventors Forum Contest

Wednesday, September 7th, 2016

Ten companies competed for the best consumer product of the year at the 9th annual invention contest of the San Diego Inventors Forum on August 11, 2016 held at Coleman University. The San Diego Inventors Forum (SDIF) meets every 2nd Thursday in Del Mar (just north of San Diego) and has been the nursery for hundreds of ideas of local San Diego inventors for over 10 years.

The San Diego Inventors Forum is a non-profit organization that provides a year-long education program at monthly meetings where keynote speakers cover the full spectrum of what inventors need to know to go from capturing a design concept to how to get their product to the market. I have been involved with SDIF for seven years, first as a member of the steering committee and mentor to inventors, and now as a director on the board after SDIF incorporated in 2014.

Our meetings cover topics such as harnessing creativity, patents, trademarks & copyrights, licensing, video and internet marketing for inventors, finding funding/investors, and planning and giving presentations. I give one of the presentations each year on “Manufacturing 101 – how to select the right processes and sources for your products.” All of our meeting presentations have been videotaped for the past three years and can be viewed on YouTube and are linked at the SDIF website:  www.sdinventors.org

The meetings also provide unique opportunities for inventors to connect with people and services they may need to develop the knowledge, skills, and confidence needed to bring their product to market and profitability.

At the end of each year, SDIF hosts a competition where ten inventors have the opportunity to present their product to an audience of 75 – 100 people. The number of votes by members of the audience determines which inventors receive the top prizes ? 1st prize is $1000, second is $500, and third wins $250.

President Adrian Pelkus said, “This was one of the most competitive contests we have ever had. Each of the products was so innovative, unique, and useful that it was tough to choose the best consumer product. There was only a five vote spread between the first place winner and the third place winner.”

The winner was Greg Wawrzyniak for his PaintWell Caddy. The two models attach easily to any kind of a belt and hold the brush and roller in place with embedded magnets when not being used. The small size holds a small roller and paintbrush for painting trim and the larger size holds a large roller and brush for painting walls. For further information, contact Greg at  enovex@gmail.com.

Second place went to Dean McBain for his Alive Iris Biometric security system solution that comprises a dual parallel authentication ID system that analyzes an individual’s iris independently. The system identifies the individual as well as verifying the “alive” status simultaneously. For further information, go to www.trueidsecurity.com.

Third place winner was Dan Garcia and Kirsten Hanson Garcia for their Sipsee – the only universal, sanitary, reusable, portable bottle plug. The Sipsee enables you to immediately be able to identify your bottle among a myriad of identical bottles at home, parties, sporting events, picnics, campsites, and other places. The plug has a cover that can be attached to a lanyard or key chain for handy use. For further information, contact Daniel.L.Garcia2014@gmail.com or go to their website www.mysipsee.com.

Other contestants were:

Marvin Rosenthal for his Enforcer dog leash ?  a innovative leash with three ergonomically designed handles to allow owners/handlers to choose how much control they have over their dog, especially designed for military or law enforcement applications. For further information, contact lawdog_leashco@yeahoo.com.

Van Dexter Duez for his Pieceptions – an easy to use baking device that allow you to create two pies in one for flavorful combinations, as pumpkin and pecan, cherry and chocolate silk, and spinach and Lorraine quiche. For further information, contact pieceptions@gmail.com.

Robson Spiane for his Pro RiseTM seat assist product that allows seniors, wounded veterans, and post-surgical individuals to rise from their seats independently without motors, pistons, or hydraulics.  It allows an individual to use their upper body to assist their legs in rising up or descending into a seated position. It is portable and can be secured too many types of seating. For further information, go to www.tryprorise.com.

Josh Rifkin for his Bit Viper ? a right angle hand tool that holds two interchangeable bits in one small easy to use tool. For further information, contact joshrifkin@gmail.com.

Mr. Tam Phuong Tran for his patented, new age eating utensil that makes grabbing and picking up food easier than traditional chopsticks. For further information, contact tamptran@yahoo.com

Alex Robertson for his Lumasoothe Low Level Light Therapy (LLLT) device to provide an advanced, cost-effective, non-surgical home treatment  for pets that are suffering from various conditions, including arthritis, back pain, wounds, hair loss, skin discolorations, and more. For further information, contact Luma-Tech, LLC at www.LumaSoothe.com.

The San Diego Inventors Forum is one of 45 different accelerator or incubator programs in San Diego County, and San Diego is a hotbed of innovation. One of the more well-known accelerator programs is the CONNECT Springboard program that helps to create and scale great innovation companies through access to the resources that entrepreneurs and growing companies need most – People, Capital, & Technology. I joined the team of Connect mentors last year and had the pleasure of mentoring a company that came in second in the San Diego Inventors Forum invention contest last August – Bixpy for their lightweight water jet system that adds propulsion to water sports and can be used by kayakers, standup paddle boarders, divers and other water-sports enthusiasts. Houman Nikmanesh, founder and president of Bixpy, just graduated from the CONNECT Springboard program in July. SDIF has often been a “feeder” organization for entrepreneurs who want to found a company rather than license their technology.

The San Diego region has long been a hot bed of innovation. In fact, a report released in April by “the U.S. Patent and Trademark Office shows that the San Diego region comes in ninth for the number of technology patents granted with over 34,000 patents, among other metropolitan areas from 2000-2013.

The amount of technological intellectual property granted in the region has more than doubled in the last decade, with 4,805 patents awarded in San Diego County in 2013, up from 1,724 patents in 2000. The region had a total of 34,605 patents from 2000-2013.”

However, according to an article in the L. A. Times on July 13, 2013, “the Organization for Economic Cooperation and Development, which ranks cities around the world by calculating ‘patent density,’ or the number of patents produced per a certain level of residents” ranked San Diego as the second most innovative city in the world. The OECD ranked Eindhoven, a city in the Netherlands, as the most innovative city in the world that year.

“Eindhoven, for example, churned out 22.6 patents for every 10,000 residents, dramatically outpacing the 9 patents per 10,000 residents produced by San Diego. The top 10 list includes four American cities and 6 European ones. San Francisco follows San Diego at No. 3, while Boston clocks in at the seventh spot and Minneapolis at No. 9.”

The San Diego Inventors Forum is a member organization of United Inventors Association of America (UIAA), and our SDIF president, Adrian Pelkus, is on the board of directors. Mr. Pelkus also participated with other members of www.usinventor.org in testifying before a Congressional committee in Washington, D. C. in opposition to legislation that would have destroyed the patent system as we know it (H.R.9, The Innovation Act and S.1137, The Patent Act).

We welcome all inventors in southern California to attend our meetings, which are held at the conference facilities of AMN Healthcare in the Carmel Valley area of San Diego the second Thursday of every month at 6:30 PM. The availability of Kickstarter and other crowdfunding mechanisms is providing the opportunity for inventors to get their products into the marketplace faster than ever. It has been exciting to see the successful launching of new products of so many of our San Diego Inventors Forum members in the past two years.

 

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How the Trade Secrets Act will Benefit Manufacturers

Tuesday, August 16th, 2016

Many times, Congress passes important bills that are go unreported by the mainstream media. Such was the case with the Defend Trade Secrets Act of 2016 (DTSA – S. 1890), passed by the Senate and House of Representatives with near unanimous support in April and signed by President Obama on May 11, 2016. This beneficial bill was authored by U.S. Senators Chris Coons (D-DE) and Orrin Hatch (R-UT) and cosponsored by nearly two-thirds of the Senate.

The bill was supported by a broad industry coalition that included manufacturers and organizations, such as the Alliance of Automobile Manufacturers, the Association of Global Automakers, Inc., Biotechnology Industry Organization, The Boeing Company, Caterpillar Inc., Corning Incorporated, Eli Lilly and Company, General Electric, Honda, IBM, Intel, The Intellectual Property Owners Association  Johnson & Johnson, Medtronic, National Alliance for Jobs and Innovation , National Association of Manufacturers, The Procter & Gamble Company, Siemens Corporation, Software & Information Industry Association (SIIA), U.S. Chamber of Commerce, and United Technologies Corporation (click here for full list). This industry coalition sent a letter dated December 2, 2015 to Senators Hatch, Coons and Flake, saying in part:

“Trade secrets are an essential form of intellectual property. Trade secrets include information as broad-ranging as manufacturing processes, product development, industrial techniques, formulas, and customer lists. The protection of this form of intellectual property is critical to driving the innovation and creativity at the heart of the American economy. Companies in America, however, are increasingly the targets of sophisticated efforts to steal proprietary information, harming our global competitiveness.

Existing state trade secret laws are inadequate to address the interstate and international nature of trade secret theft today. Federal law protects trade secrets through the Economic Espionage Act of 1996 (“EEA”), which provides criminal sanctions for trade secret misappropriation. While the EEA is a critical tool for law enforcement to protect the clear theft of our intellectual property, U.S. trade secret owners also need access to a federal civil remedy and the full spectrum of legal options available to owners of other forms of intellectual property, such as patents, trademarks, and copyrights.

The Defend Trade Secrets Act will create a federal remedy that will provide a consistent, harmonized legal framework and help avoid the commercial injury and loss of employment that can occur when trade secrets are stolen. We are proud to support it.”

The intent of the DTSA is:

“IN GENERAL.—Section 1836 of title 18, United States Code, is amended by striking subsection (b) and inserting the following:

‘‘(b) PRIVATE CIVIL ACTIONS.—

‘‘(1) IN GENERAL.—An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”

‘‘(c) JURISDICTION.—The district courts of the United States shall have original jurisdiction of civil actions brought under this section.

However, the DTSA does not preempt state law. Therefore, the owner of a trade secret could potentially file a federal claim and a state law claim at the same time.

In a May 11, 2016 guest post on www.manufacturinglawblog.com by Ian Clarke-Fisher of Labor & Employment and Jim Nault of Robinson + Cole’s Intellectual Property Litigation Practice Team, they wrote, “…the DTSA provides the following important provisions, among others:

Federal Civil Action:  The DTSA creates a federal civil cause of action, giving original jurisdiction to United States District Courts. This will allow companies to decide whether to bring claims in federal or state courts, and may have the net effect of moving most trade secret litigation to federal courts…Importantly, similar to federal employment laws, the DTSA does not supersede state trade secret laws.”

“Seizure of Property:  The DTSA includes a provision that permits the Court to issue an order, upon ex parte application in ‘extraordinary circumstances,’ seizing property to protect against to improper dissemination of trade secrets…the DTSA permits such an order only if the moving party has not publicized the requested seizure…”.

“Damages and Attorney’s Fees:  In addition to the seizure of property and injunctive relief, the DTSA permits for the recovery of damages for actual losses and unjust enrichment, and allows for exemplary (double) damages trade secrets that are ‘willfully or maliciously misappropriated’… The DTSA also provides for the recovery of reasonable attorney’s fees in limited instances…”

In a blog article prior to the bill’s passage (April 8, 2016), Nuala Droney and James Nault, members of Robinson + Cole’s Intellectual Property Litigation Practice Team commented: “The law provides for the award of damages for trade secret theft as well as injunctive relief. It even includes a provision allowing a court to grant ex parte expedited relief to trade secret owners under extraordinary circumstances to preserve evidence or prevent dissemination of the trade secret…”

They explained that “Trade secrets are a form of intellectual property that are of increasing importance to many manufacturers for a variety of reasons. A trade secret can be any information that is (i) valuable to a company, (ii) not generally known, and (iii) not readily ascertainable through lawful means, as long as the trade secret holder has taken reasonable precautions to protect it. A classic example of a trade secret is the formula for Coca-Cola. A more recent example is DuPont’s innovative Kevlar product, which was the subject of a large scale trade secret theft in 2006. Trade secret theft is a huge problem; a recent Pricewaterhouse-Coopers study showed that trade secret theft costs American businesses $480 billion a year.”

Dennis Crouch, Law Professor at the University of Missouri School of Law and Co-director of the Center for Intellectual Property and Entrepreneurship, provides this commentary on his blog:

” The Defend Trade Secrets Act (DTSA) includes a new provision added to the Economic Espionage Act (EEA) that, depending upon how it is interpreted, may govern how district courts handle trade secret information in all cases. The new section will be codified as 18 U.S.C. 1835(b) and reads:

(b) Rights Of Trade Secret Owners—The court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential. . . .

Courts already liberally allow parties to file documents under seal – so that doesn’t provide the entire impact of the provision. Rather, the provision’s importance is that it extends beyond briefs being filed by parties and instead reaches disclosures at trial and court opinions. Thus, the statute presumably prevents a court from disclosing a trade-secret in its opinion without first providing the trade-secret owner with the opportunity to brief the issue of disclosure. In addition, it provides non-parties with a right to request (under seal) non-disclosure of their trade secret rights.”

However, the website of the Essex Richards law firm of Charlotte, NC has a warning that “businesses should know that the DTSA contains certain requirements that affect their employment and similar agreements with provisions protecting against disclosure or misappropriation of the company’s trade secrets or confidential information.” Here are a few provisions of the DTSA that they highlight as important for employers to understand:

  • “The DTSA provides immunity from trade secret misappropriation claims to whistleblowers who disclose their employer’s trade secrets or confidential information to government officials for the purpose of reporting or investigating a violation of the law.
  • The DTSA requires all employers to notify employees of the DTSA’s whistleblower protection provisions in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. Otherwise, an employer will be deprived of exemplary damages and attorney’s fees under the DTSA. This notice requirement is satisfied if the agreement cross references a separate written policy that addresses reporting suspected violations of the law. Importantly, the DTSA broadly defines “employee” to include any individual “performing work as a contractor or consultant for an employer.” Therefore, independent contractors and consultants, in addition to “W-2 employees,” are covered under this definition. The notice requirement applies to agreements that are entered into or modified after May 11, 2016.
  • The DTSA provides a variety of remedies. If the court finds liability, it may: (1) issue an injunction so long as the order does not prevent an individual from entering an employment relationship and does not conflict with applicable state law prohibiting restraints on lawful employment; (2) order that a party take certain affirmative action to protect the trade secret; (3) award actual damages and damages for unjust enrichment; (4) condition future use of the trade secret on payment of a reasonable royalty, and (5) in a case of willful misappropriation, award exemplary damages not more than twice the original damages amount.  In addition, if the court determines that a party willfully and maliciously misappropriated a trade secret, or if it finds that a misappropriation claim or a motion to terminate an injunction has been brought in bad faith, it may award reasonable attorney’s fees to the prevailing party.
  • In the event a defending party is damaged due to a wrongful seizure, it may sue for and recover “relief as may be appropriate,” such as damages for lost profits, damages for loss of goodwill, reasonable attorney’s fees and punitive damages if the seizure was sought in bad faith.”

As a director on the board of the San Diego Inventors Forum, I am particularly interested in the fact that the DTSA is the first federal legislation that allows private citizens, without first having to obtain patent, trademark, or copyright registration, to sue in federal court to protect their trade secrets. This will be a great help for inventors and existing businesses that do not have “patentable” Intellectual Property and have to rely on trade secrets to protect their “secret” formulas or processes to produce their products.

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Posted in Inellectual Property, Innovation, Patent Reform | No Comments »

How Could the Trans Pacific Partnership Affect you or your Business

Tuesday, April 19th, 2016

On February 4, 2016, President Obama signed the Trans Pacific Partnership Agreement on behalf of the United States. The TPP agreement has been in negotiation behind closed doors since 2010 between the United States and 11 other countries around the Pacific Rim: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The TPP is a “docking agreement” so other countries could be added without the approval of Congress. India, China, and Korea have expressed interest in joining the TPP.

Our elected representatives in Congress had no involvement in writing the TPP – it was written by the staff of the U. S. Trade Representative office, with over 600 corporate advisors (think corporate lawyers) helping them write it. It contains more than 5,500 pages, and no member of Congress could view it as it was being negotiated until late 2014. Even then, they could not take any staff with them and were not allowed to take pen, pencil, paper, or a camera when they went to view it at the U. S. T. R.’s office.

The full text of the TPP was finally released to the public to review in November 2015, and it now awaits Congressional approval. According to the rules established by the Trade Promotion Authority (TPA) that passed Congress narrowly in June 2015, Congress will only be allowed 45 days for committee analysis after the bill is introduced, only 15 days after that is completed to bring it up for a floor vote, and only 20 hours of debate in the House and Senate. The TPA does not allow any amendments, filibuster, or cloture. Notice that the TPP is called an “Agreement,” as was NAFTA, CAFTA, KORUS, and every other trade deal in the past 22 years. The purpose for this is to get around the requirement of the two-thirds vote of the Senate to approve a Treaty that is required under Article 1, Section 8 of the Treaty clause in the U. S. Constitution. The TPP requires only a simple majority vote (50% + one.)

Supporters of the TPP say that it represents 40% of the world’s economic activity (GDP), but they fail to mention that the U. S. and its current trading partners represent 80% of that 40%. The other five countries represent the other 20%, with Japan alone being 17.7% of that total.

The current goal of trade agreements as given by Congress to the U.S.T.R is to “remove trade barriers,” such as tariffs, quotas, etc. and increase U. S. exports. The U. S. cut tariffs and opened our markets by means of these trade agreements. However, our trading partners didn’t really open their markets to us. They played another game ? mercantilism, featuring rampant global currency devaluation, consumption taxes called Value Added Taxes (VATs) that are tariffs by another name, massive subsidies to their industries, and industrial policies that favor their domestic supply chains.

In brief, the effect to the United States of this unbalanced trade has been:

  • Loss of >600,000 mfg. jobs from NAFTA
  • Loss of 3.2 million mfg. jobs between 2000 – 2010 from China’s entry into WTO
  • Loss of >60,000 mfg. jobs since Korea-US Agreement went into effect in 2012
  • Loss of an estimated 3.4 million U. S. service & call center jobs since 2000
  • Loss of an estimated 700,000 public sector jobs (2008-2013)
  • Racked up cumulative trade deficit of $12 trillion in goods (average $500 billion each year) since 1994

As a result, we now have the worst trade deficit in U. S. history, and we are off to even a higher deficit this year based on the trade figures released for January ($45.9 billion) and February ($47.1 billion). As a recent example of the effect of trade agreements on our total trade deficit, our trade deficit with Korea has nearly doubled in less than four years, increasing from $14.7 billion in 2012 to $28.4 billion in 2015. Proponents of KORUS promised that it would create 70,000 jobs and $10 billion in exports.

As mentioned in a previous article, proponents of the TPP aren’t even giving such rosy predictions. The Peterson Institute’s analysis of the TPP states: “…GDP is projected to fall slightly (-0.54 percent), employment to decline by 448,000 jobs…”

What are some of the ways the TPP could affect you or your business?

Buy American Act would essentially be made Null and Void: The worst effect would be to those businesses who sell to the government, whether it be local, state, or federal because under the TPP procurement chapter, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries. This means that all companies operating in any country signing the agreement would be provided access equal to domestic firms to bid on government procurement contracts at the local, state, and federal level. There are many companies that survived the recession and continue in business today because of the Buy American provisions for government procurement, especially defense and military. The TPP could be a deathblow for companies that rely on defense and military contracts. However, it would also affect procurement for infrastructure projects, such as bridges and freeways, as well as construction of local, state, or federal facilities.

Of course, this means that U. S. companies could bid on government procurement projects in TPP countries, but the trading benefit is miniscule. The U. S. government procurement market is 7X the size of current TPP partner countries (+550 billion vs. $55 -70 billion.) It is also highly unlikely that U. S. companies would be the low bidder against domestic companies in these TPP countries because of the vast difference in wages in countries such as Vietnam, where the average wage is 55 cents/hour. Past trade agreements has resulted in an average annual wage loss of 5.5% for full-time workers without college degrees, and U. S. wages have been stagnant for decades, growing by only about 2% per year since 2008. The result has been increased wage inequality from low to high wage earners.

Product Labeling could be Made Illegal: If you like to know if your food is safe, then you won’t like the fact that “Country of Origin,” “Non-GMO,” or “Organic” labeling could be viewed as a “barrier to trade” and thus be deemed illegal. According to Food & Water Watch, around 90% of the shrimp and catfish that Americans eat are imported. They warn, “The TPP will increase imports of potentially unsafe and minimally inspected fish and seafood products, exposing consumers to more and more dangerous seafood.” Many TPP countries are farm-raising seafood in polluted water using chemicals and antibiotics prohibited in the U. S. Farmed seafood from Malaysia, Vietnam, and China is being raised in water quality equivalent to U. S. sewers. Today, the FDA only inspects 2% of seafood, fruits and vegetables, and the USDA only inspects 4-5% of meat & poultry. Increased imports of food from TPP trading partners could swamp FDA and USDA inspections, so that even less is inspected.

TPP would Increase Immigration: If you are concerned about jobs for yourself or family members, then you won’t like the fact that the TPP increases “the number of L1 visas and the number of tourist visas, which can be used for business purposes.” Any service provider (phone service, security, engineers, lawyers, architects or any company providing a service) can enter into a TPP partner country and provide that service. Companies don’t have to hire Americans or pay American wages – they can bring in own workers and pay less than the American minimum wage.

TPP would Increase Job Losses in Key Industries: If you work in the automotive or textile industries, you may lose your job. The Center for Automotive Research projects a loss of 91,500 U. S. auto jobs to Japan with the reduction of 225,000 automobiles produced in the U. S. Also, the National Council of Textile Industries projects a loss of 522,000 jobs in the U. S. textile and related sectors to Vietnam.

TPP would Reduce Reshoring: Because TPP will reduce tariffs in trading partner countries, such as Vietnam, it will make the Total Cost of Ownership analysis to return manufacturing to America more difficult to justify. The high U. S. dollar has already diminished reshoring in the past year, so Harry Moser, Founder and President of the Reshoring Initiative, recently told me that “The combination of the high USD and TPP will reduce the rate of reshoring by an estimated 20 – 50%.”

Remember that the TPP is missing any provisions to address the mercantilist policies practiced by our trading partners: currency manipulation, Value Added Taxes that are both a hidden tariff and a hidden export subsidy, government subsidies/state owned enterprises, and “product dumping.”

 America is at a crossroads. We can either continue down the path of increasing trade deficits and increasing national debt by allowing anything mined, manufactured, grown, or serviced to be outsourced to countries with predatory trade policies. Or, we can forge a new path by developing and implementing a national strategy to win the international competition for good jobs, sustained economic growth and strong domestic supply chains. If you support the latter path, then add your voice to mine and millions of others in urging Congress not to approve the TPP in either the regular session before the Presidential election or the “lame duck” session after the election.

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CPA Criticizes Peterson Report on Trans Pacific Partnership Agreement

Sunday, March 13th, 2016

On January 25, 2016, the Peterson Institute for International Economics (PIIE) released a report  on the Trans-Pacific Partnership trade agreement. The Coalition for a Prosperous America (CPA) promptly released their commentary on the Peterson Institute report the same day, which was based on oral and written testimony CEO Michael Stumo had given to the U. S. International Trade Commission on January   15, 2016.

The Peterson Institute used the “”computable general equilibrium (CGE) model.” I’m not an economist. I live and work in the real world of manufacturing. Thus, I am not familiar with some of the terms economists use for economic models, and had not heard of this term previously. I try to find explanations that make sense, but even the Wikipedia definition was complex; “A CGE model consists of (a) equations describing model variables and (b) a database (usually very detailed) consistent with the model equations… CGE models are useful whenever we wish to estimate the effect of changes in one part of the economy upon the rest. For example, a tax on flour might affect bread prices, the CPI, and hence perhaps wages and employment. They have been used widely to analyse trade policy.”

The World Bank states, “Computable General Equilibrium (CGE) models offer a comprehensive way of modeling the overall impact of policy changes on the economy… However, CGEs are significantly affected by the assumptions that they are based on which, depending on their definition, can impact on the results.”

CPA criticized the PIIE for using “the controversial computable general equilibrium (CGE) model to analyze the TPP rather than models that produce less optimistic results.” Stumo stated that the CGE model is increasingly recognized as unreliable because:

Untrue Facts Assumed ? “full employment always exists, trade is in balance, that wages and productivity stay in alignment rather than diverge, and that all countries have perfectly free markets with rational economic behavior.” These assumptions are false ? “full employment rarely exists; trade is almost never in balance; wages have diverged downward from productivity for the past several decades; and many TPP countries have state-directed capitalism or strong industrial policies to influence and alter market outcomes.”

Untrue Past Results ? The CGE model was used to analyze China’s being granted Permanent Normalized Trade Relations with China (China PNTR) in 2000 and the Korea-U. S. trade (KORUS) agreement in 2012. A reduction in the trade deficits were predicted for both countries, but the reality is that U. S. trade deficit with China increased from $68.7 billion in 1999 to $337 billion in 2015, and the Korea trade “deficit worsened by $12 billion annually between 2012 (date of KORUS implementation) to 2015.” (US Census Bureau)

Untrue Assumption of No Net Job Losses? “The CGE model wrongly assumes that there are no job losses to produce its results. The International Trade Administration assumes that for every billion dollars of U.S. exports supported 5,796 jobs, down from 7,117 jobs per billion dollars of U.S. exports in 2009. Conversely, every billion dollars of imports has the opposite result. Thus, where trade agreements result in worsening trade deficits, as is the case for the NAFTA, Korea and China PNTR deals, the job losses are drastic.”

Additionally, Stumo criticized the Peterson report because it ignores the fact the Trans Pacific Partnership Agreement does not address problems with currency misalignment, border taxes (VATs), and industrial policies, such as state-owned enterprises and government subsidies.

Stumo stated, “The PIIE model incorrectly assumes that currency valuations will be set by the perfectly free market and will not be manipulated. It does not take into account rising foreign value added taxes – which replace tariffs – charged to imports from the US.  It also ignores the industrial policy and state-directed strategies that Japan, Vietnam and others use to give an advantage to state-influenced or national champion domestic industries.”

Stumo criticized the fact that PIIE admits the TPP will create no new jobs and little growth even if the CGE model’s conclusions are true.

Job Creation Will Not Occur ? “…while the TPP is not likely to affect overall employment in the United States, it will involve adjustment costs as US workers and capital move from less to more productive firms and industries. Section 4 estimates that 53,700 US jobs will be affected—i.e., that number is both eliminated in less productive import-competing firms and added in exporting and other expanding firms—in each year during implementation of the TPP. This kind of movement between jobs and industries is what economists refer to as “churn,” and most kinds of productivity growth cannot occur without it taking place. For perspective, 55.5 million American workers changed jobs in this way in 2014—so the transition effects of the TPP would represent only less than 0.1 percent increase in labor market churn in a typical year. Most workers who lose jobs do find alternative employment, but workers in specific locations, industries, or with skill shortages may experience serious transition costs including lasting wage cuts.”

The Peterson report even admits job loss from past trade agreements, stating “The largest loser is the United States, whose trade and current account deficits have been $200 billion to $500 billion per year larger as a result. The United States has thus suffered 1 million to 5 million job losses.

The reality is that we lost 6.2 million manufacturing million jobs in the past 20 years as a result of NAFTA, China’s being granted PNTR in 1999, and the subsequent trade agreements with Central America, Korea, and other countries. Since manufacturing jobs create three to four other supporting or related jobs, we really lost 18 – 20 million jobs, which partly explains why 94,610,000 Americans are no longer in the labor force, which is the lowest participation rate in 38 years.

What do the report’s authors mean by “import-competing firms”? It appears to me that this means American manufacturing firms whose domestically-made products compete with imports for market share in the U. S. In addition, the Made in USA products are also competing as exports to other countries against the exports of China, Korea, our other trading and non-trading partners. So what guarantee do we have that the people losing jobs at import-competing firms will find jobs at exporting companies? None!

In addition, the CPA commentary highlighted the following:

Income gains are Negligible ? “The study projects that, by 2020, US incomes will rise a mere 0.1% of GDP. (Table 2).  This means that 99.9% of growth will happen without regard to the TPP.  The number 0.1% is equivalent to, or less than, a rounding error. It can only come true if all untrue assumptions in the CGE model are true. It will take another 10 years for the optimistic projection to deliver a meager 0.5% income gain by 2030.”

Middle Class Will Not Benefit ?  “Assuming (which we do not) the small income gains are realized, the study is silent on who benefits from them. The Economic Policy Institute reported that trade agreements account for 90% of wage inequality. If there are any income gains, the middle class will be a net loser.”

Other countries will “benefit” more than the US ? “The Peterson Study projects that Japan, Malaysia and Vietnam will gain far more than the United States.  The US Trade Representative, by pushing the TPP, is helping open markets for competitors in Japan and other countries. Japan is estimated to gain five times more income (in relation to GDP) than the US, Vietnam 16 times more, and Malaysia 15 times more. (Report, Table 2).”

Finally, the CPA commentary points out that other economic models show losses to the U.S. and other TPP countries. The commentary cites the fact that scholars at the Global Development And Environment Institute of Tufts University released a working paper in January 2016 that used the United Nations Global Policy Model (GPM). The Executive Summary of this paper states, “This GDAE Working Paper employs a more realistic model that incorporates effects on employment excluded from prior TPP modeling. We find that any benefits to economic growth are more limited, and even negative in some countries such as the United States. More importantly, we find that TPP would lead to losses in employment and increases in inequality. This is particularly true for the United States, where GDP is projected to fall slightly (-0.54 percent), employment to decline by 448,000 jobs, and inequality to increase as labor’s share of income falls by 1.31 percent.”

The paper states that the job loss would not be limited to the U. S, stating, The TPP would lead to employment losses in all countries, totaling 771,000 lost jobs…Participating developing economies would also suffer employment losses, as greater competitive pressures force them to limit labor incomes and increase production for export.”

In fact, it also states that job losses would not be limited to TPP trading partners: “The TPP would lead to losses in GDP and employment in non-TPP countries. In large part, the loss in GDP (-3.77 percent) and employment (879,000) among non-TPP developed countries would be due to losses in Europe, while developing country losses in GDP (-5.24%) and employment (-4.45 million) would reflect possible losses in China and India.”

The CPA commentary concludes that “the PIIE report as revealing the lack of any economic benefit from the TPP under the most optimistic, albeit implausible, circumstances. It is more likely that job destruction and industry shrinkage will continue being the net result.”

I will be even more emphatic in my predictions if the TPP is approved by Congress. The TPP will result in millions of job losses since past predictions were always exceeded. It will be another nail in the coffin of American manufacturing. The TPP is so overreaching in its scope that it would change many aspects of American life. I’ve written several previous articles posted on the blog section of my website under “trade” on the dangers of the TPP and why we must stop it from being approved by Congress. Do your own research and don’t be fooled by the rhetoric of its supporters. You can read the full text of the agreement for yourself here.

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What Could be done about China’s Theft of Intellectual Property

Sunday, March 13th, 2016

Hardly a week goes by without a report of Chinese “hacking” or Intellectual Property Theft, so it was no surprise that a published analysis by CrowdStrike, a California-based cyber security company, revealed that China violated its cyber agreement with the United States the very next day after CNBC reported that President Obama and China’s President Xi Jinping agreed to not conduct cyber theft of intellectual property on Friday, September 25, 2015. President Obama said. “The United States government does not engage in cyber economic espionage for commercial gain, and today I can announce that our two countries have reached a common understanding on a way forward.” However, the U.S.-China agreement “does not prohibit cyber spying for national security purposes.”

It is interesting to note that the day before the announcement, September 24, 2015, Chet Nagle, a former CIA agent and current Vice President of M-CAM, penned an article in the Daily Caller, stating, “At FBI headquarters in July, the head of FBI counterintelligence, Randall Coleman, said there has been a 53 percent increase in the theft of American trade secrets, thefts that have cost hundreds of billions of dollars in the past year. In an FBI survey of 165 private companies, half of them said they were victims of economic espionage or theft of trade secrets — 95 percent of those cases involved individuals associated with the Chinese government.”

He blamed the corruption of Chinese government officials for the problem and stated that “President Xi Jinping has instituted a strict anti-corruption campaign. Regrettably, the campaign has focused on “tigers” — senior government officials — at the expense of eliminating the rampant corruption by the “flies” — officials at the provincial and local level. In any event, putting a dollar value on direct corruption does not address the totality of the costs. Business confidence and foreign direct investment in China are already falling because of the absence of the rule of law.”

He concluded, “China’s disregard of the rule of law should be the underlying driver for all discussions of commercial topics during the coming visit of China’s president. Lack of the rule of law is the most difficult challenge American enterprises face in China.”

In researching this topic, I found out that three years earlier, May 22, 2013, the bipartisan Commission on the Theft of American Intellectual Property of the U.S. International Trade Commission released a report. Dennis C. Blair, former Director of National Intelligence and Commander in Chief of the U.S. Pacific Command, and Jon M. Huntsman, Jr., former Ambassador to China, Governor of the state of Utah, and Deputy U.S. Trade Representative, were the Co-chairs of the Commission.

The day after the release, Forbes published an article about the report, stating that “China accounts for at least half – and maybe as much as 80 percent – of U.S. intellectual property theft.” The article briefly discussed the problem of China’s Intellectual Property theft and included quotes from the co-chairs, but did not go into any detail about the recommendations of the Commission.

The article did provide the link to the 100-page report, which I have since read. In view of the continuing problem, it is time to reconsider the key findings of the report, titled, “The Impact of International IP Theft on the American Economy”:

  • ”Hundreds of billions of dollars per year. The annual losses are likely to be comparable to the current annual level of U.S. exports to Asia—over $300 billion…”
  • Millions of jobs. If IP were to receive the same protection overseas that it does here, the American economy would add millions of jobs.
  • A drag on U.S. GDP growth. Better protection of IP would encourage significantly more R&D investment and economic growth.
  • The incentive to innovate drives productivity growth and the advancements that improve the quality of life. The threat of IP theft diminishes that incentive.

The report stated, “A core component of China’s successful growth strategy is acquiring science and technology. It does this in part by legal means—imports, foreign domestic investment, licensing, and joint ventures—but also by means that are illegal. National industrial policy goals in China encourage IP theft, and an extraordinary number of Chinese in business and government entities are engaged in this practice.”

The report stated that existing remedies are not keeping up with the problem because of:

  • Short product life cycles – “the slow pace of legal remedies for IP infringement does not meet the needs of companies whose products have rapid product life and profit cycles.”
  • Inadequate institutional capacity ? a shortage of trained judges in developing countries
  • China’s approach to IPR is evolving too slowly – “improvements over the years have not produced meaningful protection for American IP.”
  • Limitations in trade agreements? there are also significant problems in the WTO process that have made it impossible to obtain effective resolutions. “Bilateral and regional free trade agreements are not a panacea either.”
  • Steps undertaken by Congress and the administration are inadequate.

The Commission recommended short-term, medium-term, and long-term remedies. The short-term measures are immediate actions that are largely regulatory or made effective via executive order and include the following:

  • Designate the national security advisor as the principal policy coordinator for all actions on the protection of American IP.
  • Provide statutory responsibility and authority to the secretary of commerce to serve as the principal official to manage all aspects of IP protection.
  • Strengthen the International Trade Commission’s 337 process to sequester goods containing stolen IP.
  • Empower the secretary of the treasury, on the recommendation of the secretary of commerce, to deny the use of the American banking system to foreign companies that repeatedly use or benefit from the theft of American IP.
  • Increase Department of Justice and Federal Bureau of Investigation resources to investigate and prosecute cases of trade-secret theft, especially those enabled by cyber means.
  • Consider the degree of protection afforded to American companies’ IP a criterion for approving major foreign investments in the United States under the Committee on Foreign Investment in the U.S. (CFIUS) process.
  • Enforce strict supply-chain accountability for the U.S. government.
  • Require the Securities and Exchange Commission to judge whether companies’ use of stolen IP is a material condition that ought to be publicly reported.
  • Enforce strict supply-chain accountability for acquisitions by U.S. government departments and agencies by June 1, 2014, and work to enhance corporate accountability for the IP integrity of the supply chain.

The Commission made the following medium term recommendations to build a more sustainable legal framework to protect American IP that Congress and the administration should take:

  • Amend the Economic Espionage Act (EEA) to provide a federal private right of action for trade-secret theft. If companies or individuals can sue for damages due to the theft of IP, especially trade secrets, this will both punish bad behavior and deter future theft.
  • Make the Court of Appeals for the Federal Circuit (CAFC) the appellate court for all actions under the EEA. The CAFC is the appellate court for all International Trade Commission cases and has accumulated the most expertise of any appellate court on IP issues. It is thus in the best position to serve as the appellate court for all matters under the EEA.
  • Instruct the Federal Trade Commission (FTC) to obtain meaningful sanctions against foreign companies using stolen IP. Having demonstrated that foreign companies have stolen IP, the FTC can take sanctions against those companies.
  • Strengthen American diplomatic priorities in the protection of American IP. American ambassadors ought to be assessed on protecting intellectual property, as they are now assessed on promoting trade and exports. Raising the rank of IP attachés in countries in which theft is the most serious enhances their ability to protect American IP.

The more idealistic long-term recommendations are:

  • Build institutions in priority countries that contribute toward a “rule of law” environment in ways that protect IP.
  • Develop a program that encourages technological innovation to improve the ability to detect counterfeit goods.
  • Ensure that top U.S. officials from all agencies push to move China, in particular, beyond a policy of indigenous innovation toward becoming a self-innovating economy.
  • Develop IP “centers of excellence” on a regional basis within China and other priority countries.
  • Establish in the private, nonprofit sector an assessment or rating system of levels of IP legal protection, beginning in China but extending to other countries as well.

Of particular interest is the mention in the report that an annual survey in late 2012 of member companies of the American Chamber of Commerce in the People’s Republic of China “over 40% of respondents reported that the risk of data breach to their operations in China is increasing, and those who indicated that IP infringement has resulted in “material damage” to China operations or global operations increased from 18% in 2010 to 48% in 2012,” and that “The longer the supply line, the more vulnerable it is to IP theft.”

The risk of Intellectual Property is one of the major reasons many companies are returning manufacturing to America through reshoring. This is also why I urge the inventors that are part of the San Diego Inventors Forum to avoid going to China if at all possible, and if they have to go to China to meet their target Bill of Material cost, they should never source all of the parts of their product with one vendor. Otherwise, they are at risk of being victimized by their Chinese vendor stealing their IP and getting a counterfeit version of their product on the market first.

In conclusion, “The Commission considered three additional ideas for protecting the intellectual property of American companies that it does not recommend at this time.” The following one of the three is particularly interesting to me because of the enormous trade deficits we have with China:

“Recommend that Congress and the administration impose a tariff on all Chinese-origin imports, designed to raise 150% of all U.S. losses from Chinese IP theft in the previous year, as estimated by the secretary of commerce. This tariff would be subject to modification by the president on national security grounds.”

“The Commission is not prepared to make such a recommendation now because of the difficulty of estimating the value of stolen IP, the difficulty of identifying the appropriate imports, and the many legal questions raised by such an action under the United States’ WTO obligations. If major IP theft continues or increases, however, the proposal should be further refined and considered.”

What is outrageous to me is that it is obvious to me that none of the short-term, medium-term or long-term recommendations have been implemented or we would not still have the serious problem of cyber espionage and Intellectual Property Theft three years later.

Supporters of developments in China “essentially argue that when China begins producing its own intellectual property in significant quantities, the country’s own entrepreneurs and inventors will put pressure on political and Communist Party leaders to change the laws and improve IP protections.” Since China has the stated goal of becoming the superpower of the 21st Century and is Intellectual Property Theft is one of their tools to achieve this goal, I do not feel that this will ever happen.

To me, the most important conclusion of the report is “If the United States continues on its current path, with the incentives eroding, innovation will decline and our economy will stagnate. In this fundamental sense, IP theft is now a national security issue.” It will be interesting to see if the next president and the next Congress we elect will have the courage to play hardball with China by implementing some of the recommendations of the Commission.

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