Yo Ho Ho and a Bottle of RAM – Pirates Take a Bite Out of Small Firm Innovation

WASHINGTON, July 22, 2010 – The House Committee on Small Business met Wednesday to discuss the growing problem of intellectual property infringement.

“More than 18 million Americans work in industries with an intellectual property focus. … Collectively, these and other industries make U.S. intellectual property worth $5.5 trillion,” said Committee Chairwoman Nydia Velazquez, D-N.Y.

Copyright infringement, piracy and counterfeiting have taken larger and larger chunks out of intellectual property ownership every year, she said.

Rick Carnes, president of the Songwriters Guild of America, testified that “for every one song purchased online, 20 are stolen.”

The software and related services sector employs almost 2 million people in the U.S. … [and] software exports contribute a $37 billion surplus to our nation’s balance of trade,” said Robert Holleyman, president and CEO of the Business Software Alliance.

Protecting intellectual property is “rooted in the Constitution,” said Holleyman, adding that there was about $51 billion worth of stolen software installed on PCs globally last year.

Holleyman said counterfeiters and intellectual property pirates go to countries where IP laws are lax. From his understanding, there are fewer than 20 people in the Chinese government working on intellectual property, he said.

Carnes said content-specific platforms like the iPod and iPad helped piracy because it makes it easy for a user to legally purchase content, but that people need to know that just because they find something on the internet doesn’t mean downloading it is legal.

Education and enforcement are the keys to solving the growing problem of IP theft, said Holleyman.

Steven Friedman, president of Tampa, Fla.-based T3 Technologies, told lawmakers how intellectual property law abruptly almost put his technology firm out of business. He said large firms are fortunate enough to have cadres of lawyers, but small firms often “eliminate innovation ideas in their plans because of the mere threat of such paperwork and lawsuits. He testified on behalf of the Computer and Communications Industry Association.

“We are encouraged by the Obama Administration’s release of a Joint Strategic Plan on IP enforcement,” Holleyman said. “We urge the U.S. government to execute on this plan and to provide the responsible agencies with sufficient resources to do so.”

The new plan’s suggestions include increasingly stringent trade agreements, increased state and local level involvement, and ensuring that government activity – including contractors – does not use illegal software and hardware.

Peter Carnes, CEO of Traffax of Silver Spring, Md., testified on behalf of the Association for Competitive Technology. He said piracy has affected Traffax because of the sluggishness of the U.S. Patent and Trademark Office. He said it takes 40 months on average for the PTO to grant a patent, and that’s a problem.

During the time between when a patent is published – and consequently the competition can read and see it – and when a patent is granted, there is nothing to stop competitors from making minor changes to the design and selling the product without fear because a patent has not been awarded yet.

Peter Carnes said it’s extremely risky for many small technology businesses because they often do not have furniture, buildings or other physical capital that a bank or investor could repossess. They only have intellectual property.

Peter Carnes suggested that the PTO be given more resources to decrease this delay, sign more stringent trade agreements and expand the Small Business Administration’s loan program for intellectual property.

William Mansfield of the Motor and Equipment Manufacturers Association said while luxury goods and movies and music may be the first things that consumers consider when thinking about IP infringement, it’s a big program for the motor manufacturing industry. Counterfeit goods cost that industry $3 billion in the United States and $12 billion globally in lost sales, he said.