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ICG Risk Blog - [ US intellectual property protection: the targets are asleep or unarmed, the advising guardians are AWOL and the police are offering placebos ]

US intellectual property protection: the targets are asleep or unarmed, the advising guardians are AWOL and the police are offering placebos

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To paraphrase the misattributed quote of Everett Dirksen, a billion to India, a billion to China, and pretty soon you're taking about serious outsourcing - and along with it an uncontrolled and unprotected intellectual property (IP) stream. The unremitting drumbeat of each InfoWorld RSS feed item that crosses my desk (see link list below) on yet another offshore investment reminds me of the laxity of US administrations to address strategic shortfalls in things so essential as K-16+ education, promoting advanced technologies - genetics and biologics included, and what I call the "sleeping princess" vulnerability of irreplaceable IP.

David Berlind's The United States of India notes:

In less than two months time it has become clear that, between Cisco, Intel, and now Microsoft, India will get injected with at least $3.8 billion. China is getting similar injections. According to a report in InfoWorld, Intel chairman Craig Barrett talked about why education is making China more competitive while he was cutting the ribbon on a new $200 million test and assembly center his company built in the western Chinese city of Chengdu.

The landscape for global IP protection (and that includes both domestic and offshore locations) is not a pretty one. Worse, I see no improvement since penning A tipping point in intellectual property protection? in January 2005. (I submit the predictions in Emerging Information Technology (IT) themes in India and China and Refining a China forecast as well.)

I wager that the majority of firms do not know that they are at risk and that, if they do become aware, do not know where to turn for assistance. Fearful of alienating one or more factions with unknown consequences, firms silently capitulate. Targets that are waking seem mostly to feel disarmed despite the presence of heroic individuals. Their leadership does seem to be engaging despite every indicator that they are aware, an equally fatal condition. Consider our current view of global IP risk:

  • Venture Capitalists (VCs) hire management for their nascent firms to produce and deliver a product stream leading to an initial public offering (IPO), not for risk management and risk remediation.
  • VCs are herding their stables to Asia to "save costs," often housing their charges into a single R&D hive that creates a target rich environment that will only culminate in local firms producing similar products before the US startups get to their rev one product.
  • Established industrial firms continue offshoring (see Multisourcing, parts 1 and 2) for lower cost, global 24X7 reach for their firm and their clients, richer talent pool, emerging market base, some of all of the above depending upon the locale. Such firms continue to confuse low cost with low risk.
  • Industrial firms confuse IT approaches such as network packet sniffing and hardware control mechanisms as remedies to IP theft which they are not. Hardware remedies have their place but form only a minority of an effective protective envelope.
  • The established guardian community - major management consultancies, banks, investment houses and law firms - is restrained by fear of reprisal by a host government refusing them business in a designated country. (Witness the concern of repercussions of even advising Unocal and its suitor Chevron against acquisition by CNOOC where those advising firms were exposed across sectors in seeking other Chinese business.)
  • The guardian community is itself a source of IP hemorrhage as aggressive 'up or out' programs flush talent out their back door, taking with them IP on both their prior employer as well as the employer's clients.
  • Those guardians not cowed (a microscopic group) are no better prepared that their benighted brethren in their operational knowledge of truly effective, non-confrontational means to affect IP protection, i.e., should one of these firms make recommendations, the client will only be lulled into a false sense of security that will put more of their IP at risk.
  • The compliance, policy, and legal instruments being floated by DoJ and the FBI are effectively non-remedies as they do nothing to instill competent cost effective IP protection in the target firms, offer no recourse for overseas infractions outside US jurisdiction, save for very limited areas, and do nothing to remediate the direct and drag-along loss of the IP theft.
  • Avoiding reprisal is so strong that the guardian community will often refer their clients to pursue the ineffective DoJ/FBI compliance, policy, and legal instruments.

In short, the targets are asleep or unarmed, the advising guardians are AWOL and the police are offering placebos. Not an comfortable condition as my predictions from January 2005 still stand:

  • Emerging Asian suppliers will displace less efficient US suppliers in US supply chains
  • US OEMs will continue their pursuit of lowest cost suppliers, abandoning historic ‘domestic’ suppliers in favor of new Asian suppliers

And if it is not too late:

  • After enduring growing losses, US OEMs and major manufacturers will use IP security as a key selector for suppliers in the critical path of their supply chains
  • Protective IP programs will be essential to a supply chain’s critical path, and so the health of the supply chain. (The trajectory of IP protection will mimic that of the rise of part quality as a mandatory selection criterion.)

The United States of India
Posted by David Berlind @ 7:10 am
December 7, 2005

China surpasses U.S. as top IT goods supplier, OECD says
China exported $180 billion in ICT goods last year compared to U.S. exports of $149 billion
By Nancy Gohring, IDG News Service
December 12, 2005

Europe's IT industry losing ground
Survey shows U.S. and Asian firms offer better pricing, greater flexibility in contracts
By Jeremy Kirk, IDG News Service
December 12, 2005

India's outsourcing valued at $60 billion by 2010
Industry could face a shortage of half a million workers
By John Ribeiro, IDG News Service
December 12, 2005

Aviva to expand outsourcing in India
British insurance company to double the staff offering BPO and call center services
By John Ribeiro, IDG News Service
December 12, 2005

Lenovo wants to take on new markets in 2006
Lenovo to focus on SMB customers in the U.S. and Europe
By Sumner Lemon, IDG News Service
December 09, 2005

Microsoft to invest $1.7 billion in India
Microsoft is latest technology company making large investment in anticipation of a boom in India's IT market
By John Ribeiro, IDG News Service
December 07, 2005

Intel will invest over $1 billion in India
Intel to expand its business in India, invest to help stimulate technological innovation
By John Ribeiro, IDG News Service
December 05, 2005

EDS likely to double Chinese, Indian workforces
The company currently has up to 20,000 employees in those regions
By China Martens, IDG News Service
November 30, 2005

Juniper to double technical staff in India
Center in Bangalore works on software and hardware development
By John Ribeiro, IDG News Service
November 23, 2005

HP opens research lab in China
Beijing lab will be HP's sixth research facility
By China Martens, IDG News Service
November 15, 2005

Amazon.com sets up second development center in India
Center will focus on developing new features for Amazon's sites
By John Ribeiro, IDG News Service
October 21, 2005

Cisco to invest $1.1 billion in India
Company will triple the number of staff it employs in India
By John Ribeiro, IDG News Service
October 19, 2005

Intel lauds Chinese CPU development
Intel exec says the Godson-2 chip shows fast uptake in design prowess by the Chinese
By Dan Nystedt, IDG News Service
October 18, 2005

Gartner: China's tech industry needs government support
Analyst firm says China's goal of becoming tech leader by 2010 will demand policies across several areas
By Sumner Lemon, IDG News Service
September 01, 2005

India's Infosys plans huge expansion in China
Outsourcer to grow its staff in China from 250 to 6,000 during next five years
By John Ribeiro, IDG News Service
August 04, 2005

CNOOC Throws In Towel
Shu-Ching Jean Chen and Claire Poole
Law.com
Aug-04-2005

There's a New China Syndrome on Wall Street
By ANDREW ROSS SORKIN
New York Times
July 24, 2005

The Big Tug of War Over Unocal
By STEVE LOHR
New York Times
July 6, 2005
Fee
archive
Mirror, Mirror

China throws down gauntlet to USA Inc
Frank Kane
The Observer (UK)
Sunday June 26, 2005

Uncle Sam's CNOOC dilemma
Chinese oil company makes trump bid for Unocal. But will the US block it as it did with Hutch bid for Global Crossing?
By Steven Irvine
Finance Asia
24 June 2005

Goldman goes 'unsolicited'
Investment bank and J.P. Morgan would provide financing
By David Weidner, MarketWatch
23 June 2005

Gordon Housworth



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