An important part of the legal, financial, and economic environment in which a company operates is the protection of intellectual property rights (IPR). Intellectual property includes patents, copyrights, trade secrets, trade marks, and geographical indications (use of a geographical name in branding or promoting a distinctive product, an action designed to take advantage of the quality and reputation of a product originating in a certain region). IPR violations are claimed to cost U.S. manufacturers billions of dollars each year in lost sales. There is also concern about the potential health and safety consequences of counterfeit pharmaceutical drugs and other products, as well as the link between terrorist groups and organized crime and traffic in counterfeit and pirated goods. 83
In the 110th Congress, legislation (P.L. 110-403) was enacted to establish a new structure to coordinate federal IPR enforcement activities. The role of Congress in addressing IPR and trade- related issues stems from the power to regulate international trade in the U.S. Constitution. Section 337 of the Tariff Act of 1930 (19 U.S.C. 1337) is the primary option available to U.S. companies to protect themselves from imports into the United States of goods made by foreign companies that infringe U.S. intellectual property rights. The U.S. International Trade Commission (ITC) administers Section 337 investigations. Since 2001, over 90% of unfair competition acts asserted under Section 337 have involved patent infringement. 84
Global supply chains enable product makers to exert considerably more control over their property rights in companies abroad who are part of their production process when compared with those producers who procure parts or products from completely unrelated suppliers. Still companies face cases of technology leakage, reverse engineering, and counterfeiting of products by parties whether located in domestic or in foreign markets. They also create sensitive strategic issues about technology transfer or how much intellectual property or defense-related technology embedded in equipment can be made available to supply chain partners overseas. 85
Global supply chains can, however, provide a presence in the foreign market for the company with claim to intellectual property at risk. This may provide a segue into the foreign government policymaking structure through the U.S. company with standing there. When a U.S. company is incorporated abroad, it can become a “naturalized” actor in the political process there. Appeals for stricter enforcement of intellectual property by a locally incorporated company often can complement country-to-country negotiations on IPR issues.
Problems with IPR protection can be found in many countries of the world, including the United States, but are quite common in China. As China has developed, it has become a focus of U.S. efforts to reduce violations of IPR held by American companies. The Chinese government has undertaken anti-piracy campaigns and there is an increasing number of IPR cases in Chinese
83 For details, see CRS Report RL34292, Intellectual Property Rights and International Trade, by Shayerah Ilias and Ian F. Fergusson. CRS Report RL34593, Infringement of Intellectual Property Rights and State Sovereign Immunity, by Todd Garvey and Brian T. Yeh.
84 CRS Report RS22880, Intellectual Property Rights Protection and Enforcement: Section 337 of the Tariff Act of 1930, by Shayerah Ilias.
See CRS Report RL31832, The Export Administration Act: Evolution, Provisions, and Debate, by Ian F. Fergusson.