Pirates of the Potomac
In our rush to condemn China's intellectual piracy, we've forgotten that our own prosperity was built on stolen technology.
CHINA HAS BEEN THE ECONOMIC MIRACLE of our time. Less than three decades ago, the country defined poverty and underdevelopment; today, China is one of the premier engines of world economic growth, thanks in large part to the political repression that keeps the cost of labor there at a pittance. Mao's successors have also realized, however, that in order to join the ranks of developed nations China must close the technology gapand that the surest and quickest way to do so is to pilfer Western know-how. Last November, a woman named Gao Zhan pleaded guilty in Virginia to being an industrial spy. Using the assumed name Gail Heights and a front company supposedly affiliated with George Mason University, Gao delivered to her Chinese operators $1.5 million worth of high-tech components from American companies, including microprocessors with possible military uses, before she was caught.
The depth and extent of the Chinese piracy effort, which has gone after everything from computer software to music, has alarmed members of Congress in both political parties. Republican senator Richard Shelby of Alabama, the former chairman of the Senate Select Committee on Intelligence, recently warned that China's next "great leap forward" will be made possible through illegal appropriation and use of American patented and copyrighted materials. Last March, during Congressional hearings on the piracy of intellectual property and their links to organized crime and terrorism, Congressman Howard Berman, a Democrat from California, estimated that China's transgressions cost the U.S. economy $1.85 billion a year.
With this kind of money at stake, the battle over intellectual property has risen to the forefront of contests between developed and developing nations. Developed nations are concerned about piracy by consumers and producers. On the consumer front, companies and individuals in developed nations complain that their creations, whether designer accessories or drug patents, are being copied and sold without authorization or compensation. Piracy by producers in the developing world causes even greater anxiety in the West. The movement of manufacturing to the developing world, where raw materials are readily available and labor costs are low, has rendered intellectual capital the most important asset of modern corporations. In the Gao Zhan case, American companies whose technology was stolen stand to lose a bundle if such technology can be reproduced by Chinese manufacturers without compensation.
American companies have learned to safeguard their intellectual property. At a leadership summit for chief executives last fall, the CEOs of Medtronic, a medical technology company, and Sealed Air, which specializes in packaging, said that they avoid using top-of-the-line technologies in their overseas operations because they fear their intellectual property will be stolen. In addition to these preventative measures, Western-based companies have also marshaled international agencies to help. International organizations have adopted Western standards and have created an agency, the World Intellectual Property Organization, that is "dedicated to helping to ensure that the rights of creators and owners of intellectual property are protected worldwide and that inventors and authors are, thus, recognized and rewarded for their ingenuity."
Developing nations, for their part, tend to believe that Western standards of intellectual property are economically self-serving. For these countries, abiding by such standards sometimes means sacrificing the basic needs of citizens. Should the government of South Africa insist that AIDS patients pay the price Bristol-Myers Squibb charges for its antiretroviral drug Zerit, rather than allow them to purchase a pirated version that costs 3 percent as much? Should societies struggling to lift up their people from poverty and provide basic healthcare allocate scarce resources to pursue those who steal the intellectual property of the rich and powerful?
HAVING OBSERVED THE WEST'Sand especially America'sfierce defense of its intellectual property rights, I was surprised when I realized, in researching a book on Thomas Jefferson's commercial policy and diplomacy, just how integral piracy was to the development of this republic. Its bookstores and libraries were largely composed of unauthorized reprinting of British authors, a phenomenon similar to the rampant piracy of music by consumers in today's developing world. On the producer front, the violations were even more blatant. A British attorney reported in 1818 that "European discoveries in art and science generally reach the United States within a few months after they first see the light in their own country, and soon become amalgamated with those made by Americans themselves."
Of course, the United States wasn't alone; every major European state engaged in technology piracy and industrial espionage in the 18th and 19th centuries, and the U.S. could hardly afford to behave differently. What was surprising about the young republic's embrace of technology theft is the contrast with the founders' high-minded approach to intellectual property in the country's laws. Whereas Great Britain awarded patents of importation, which granted rights to foreigners who introduced mechanical innovations unknown in the kingdom, the first U.S. Congress restricted patents exclusively to original inventors and established the principle that prior use anywhere in the world was grounds for invalidating a patent.
Officially, the United States pioneered a new standard of intellectual property that set the highest possible requirements for patent protectionworldwide originality and novelty. In practice, however, the country encouraged everything from the emigration of foreign artisans to America to industrial espionage. Acts of intellectual piracy were often undertaken with the full knowledge and aggressive encouragement of officials from federal and state governments. Congress never acted to protect the intellectual property of European authors and inventors, and Americans did not pay for the reprinting of literary works and use of patented inventions. In short, the early American republic was just as guilty of theft and smuggling of protected materials and machinery as are the nations of today's developing world.
Then, as now, lax enforcement of laws on the books was the primary facilitator of intellectual property piracy. The early republic made no effort to enforce its groundbreaking patent laws. When piracy by producers was involved, acquiring a patent involved little more than the successful completion of some paperwork and the taking of an oath that the applicant was indeed the first and original inventor. William Thornton, the first superintendent of patents, who ran the office almost single-handedly from 1802 to 1828, was in effect the only one who could deny an application because its claim to international originality was suspect. Thornton, however, had neither the will nor the means to monitor the issue. He did not even insist that patentees take the required oath that their application was original. Though the patent acts of 1790 and 1793 forbade patents of importation, the federal government did little to enforce this provision. It is entirely possible, in fact, that most of the applications received at the patent office during the first few decades of national independence were for devices already in use elsewhere.
IN DECEMBER 1791, TREASURY SECRETARY Alexander Hamilton submitted to Congress a "Report on Manufactures" in which he proposed to set up a federally orchestrated program aimed at acquiring the industrial secrets of rival nations. Most manufacturing nations, Hamilton explained, "prohibit, under severe penalties, the exportation of implements and machines which they have either invented or improved." The U.S. government, he argued, must circumvent the efforts of these industrially advanced nations to prohibit the international diffusion of industrial know-how.
The brainchild of Hamilton's report was the Society for Establishing Useful Manufactures, an outfit created "to procure from Europe skillful workmen, and such machines and implements as cannot be had here in sufficient perfection." The society was the most ambitious economic enterprise of the early republic. By 1794, it had built Paterson, a British-model industrial center on the falls of the Passaic River in New Jersey. The entire project was founded on pirated knowledge.
Hamilton, like all champions of American industry, knew that his actions violated British laws. Prohibitions on the exportation of machinery from the British Empire had been in effect throughout the 18th century, and in the period following American independence growing anxiety in Britain over industrial piracy prompted even stronger legislation. A £200 fine, forfeiture of equipment, and a year in prison were laid down for the export or attempted export of industrial machinery. The penalty in the case of textile machinery was even steeper.
But these prohibitions did little to deter American piracy, which the president himself supported. In the summer of 1789, soon after George Washington was sworn in, the Englishman Thomas Howell wrote to him proposing to bring over to Virginia British textile technology and skilled workers to operate it. Howell offered to put up £1,000 of his own capital if the U.S. government promised to pay him a stipend, cover his losses in the initial stages of the project, and award him land he could then use to lure prospective European workers into migrating to the United States.
Howell's petition was similar to ones submitted by other European artisans and entrepreneurs at the time, and President Washington initially supported the scheme. For much of the previous decade, he had publicly and privately supported American acquisition of European advances. In the 1780s, determined to make the Potomac River a major commercial artery in the economic life of the new nation, he tried to recruit a French engineer to come to Virginia and employ new technology to dig a system of canals linking the river to the commonwealth's plantations. In the fall of 1789, Washington traveled through New England, where the people of the region showered him with parades and dinners. Washington, in turn, made a point of wearing clothes made at a wool manufactory in Hartford, Conn. "I hope it will not be a great while," he wrote, "before it will be unfashionable for a gentleman to appear in any other dress."
Washington forwarded Howell's proposal to Beverly Randolph, the governor of Virginia, pointing out that in his tour of New England he had seen how the implementation of British know-how could increase industrial production. He wanted his home state to follow suit. Aware of the questionable legality of the proposalHowell had in no uncertain terms asked Washington to help him circumvent British prohibitionsthe president urged Randolph to keep Howell's name secret so that the Englishman could avoid "the most distressing consequences" at home.
To Washington's undoubted chagrin, Virginia ultimately declined to offer Howell material support. Despite the president's promise of assistancehe had pledged "to give it every aid that I can with propriety"nothing came of the scheme. But other textile pirates succeeded where Howell failed. In 1789, his contemporary, Samuel Slater, constructed a factory in Pawtucket similar to one he had left behind in England. America's most famous industrial experiment, the mills of Lowell, Mass., also originated in an act of industrial espionage: In 1811, Francis Cabot Lowell talked his way into Britain's factories, closely observed their construction, and replicated what he had seen when he returned to the United States.
These new technologies were only as useful as the people who were on hand to operate them, so, in addition to stealing Europe's technology, America also wooed its workforce. American leaders and entrepreneurs recruited aggressivelyHamilton, for instance, helped secure financing for recruitmentand successfully. Almost every branch of American industry was founded upon imported skill. As late as 1850, immigrants from the British Isles comprised more than three-fourths of the weavers and skilled workers of the textile industry of Germantown, Pa.
All of these efforts at acquiring intellectual and human capital went on with the knowledge and at least tacit consent of the young government. The founders of the republic, divided on many issues, seem to have been nearly unanimous in their belief that the United States needed to appropriate Europe's industrial secrets to compete. The commitment to protecting new ideas that the country had made in the 1790 Patent Act did not reflect American convictions about the sanctity of intellectual property. Rather, the backers of that law realized that the young republic could declare its commitment to worldwide originality while simultaneously, through a policy of open gates and nonenforcement of the law, allowing the introducers of technology to claim the privileges of inventors.
The outbreak of the French Revolution in Europe spread bloodshed and misery throughout the continent and pushed many to seek peace and prosperity across the Atlantic. By the summer of 1793, British correspondents reported to Hamilton that the British entry into the European war was "occasioning great emigrations from Britain to America," especially "manufacturers, the most valuable part of our labourers." The federal government no longer had to offer many premiums for technology smugglers to come to the New World. They were coming anyway.
THE BEST AND BRIGHTEST MINDS from the rest of the world continue to come, attracted by the prosperity and openness of the contemporary United States. Human capital is of the utmost importance in the digital age, just as it was two centuries ago. Immigrants form the rank and file of teaching and research at departments of natural sciences in universities across America. Engineers from all corners of the globe have turned Silicon Valley into the center of innovation and creativity in our time.
As America prospers, those left behind in the developing world struggle to stop the brain drain and persuade their brightest not to opt for research and business opportunities in North America. But today's developing nations have few enticements to offer as an alternative. In the competition for the minds that produce intellectual capital, they are at a distinct disadvantage. The developing world finds itself in a similar predicament to that of the young republic, but with few of its prospects and without the sense of promise that America enjoyed in its early years.
I don't draw these historical parallels in order to condone piracy, but rather to point out the wrongheadedness of the West's often self-righteous position on intellectual property. The United States emerged as the world's industrial leader by illicitly appropriating mechanical and scientific innovations from Europe. The Europeans tried but failed to stem the tide, just as current national and international agencies pass resolutions condemning piracy but can do little to stop it. Unlike such agencies, Bristol-Myers Squibb showed it was aware of the real situation of the developing world when it stopped enforcing its patents on Zerit, paving the way for greater access to the HIV drug in Africa.
There's also a lesson here for the developing world. Countries like China must realize that they will not be able to find prosperity through piracy alone. There will always be a limit on how much a country can steal. Developing nations will remain importers of skill and its product, technology, for as long as their citizens believe that the developed world is the only place where they will find freedom and its product, opportunity. ...