Billions of Dollars’ Worth of IP Stolen
Imagine: Your new Apple iPhone XS Max Gold arrived in the mail. You bought a clone from China and saved 90% off the usual retail price. What a bargain! The Chinese are world leaders in manufacturing knock-offs. A joke told in China is “we can copy everything except your mother.” But that’s not so funny if you work for Apple.
Over 40% of products available from major online retailers in China are counterfeit. Most fake goods entering the U.S. are from China. They’re also illegal according to U.S. trademark laws. Is the booming $1.2 trillion counterfeit market something you should be worried about? Yes. Counterfeit products like toys, pesticides, and pharmaceuticals could threaten your health. A cloned iPhone could be low quality and loaded with malware exposing you to hackers. In fact, fake products are ruining the U.S. economy.
Claims have been made that China steals billions of dollars’ worth of intellectual property (IP). Now the U.S. Department of Homeland Security is testing blockchain through a proof of concept (POC) to stop this from happening.
Why the U.S. Must Protect Its Intellectual Property
IP is the foundation of U.S. industrial policy. IP rights make the United States a leader among developed countries. They enable entrepreneurs to exclude others from making, using, or selling their inventions. IP drives innovation, creates jobs, and pays for roads and schools. From 1994 to 2014, the number of U.S. patent applications tripled. So the system seems to be working.
But knock-off products are devaluing American IP. Buyers of counterfeit products think they’re getting the same quality for less, but they’re not. Counterfeiters steal from brands that are creating legitimate economic value. Fake products are eroding the worth created by the United States. And without IP protection there’s no incentive to create better products.
Counterfeit Goods Promoting Crime and Hurting the U.S.
Manufacturing and selling counterfeit products is a high-profit, low-risk activity. It’s also illegal. Organized crime perpetrators can make more money counterfeiting IP than selling narcotics. Labor is cheap in China. And offshore manufacturers can avoid regulations and taxes. But products copied without the brand owner’s authorization are illicit goods.
Almost 24% of IP seized globally violates IP rights of holders registered in the United States. Not only is the U.S. the greatest producer of counterfeited IP, it’s also the biggest importer of fake goods. Consumers may not realize the damage they cause. There’s less public money for Medicare, housing, and other critical infrastructure. The bottom line is the U.S. is the biggest loser from knock-off products.
Mounting Challenges for U.S. Customs and Border Protection
The U.S. Customs and Border Protection (CBP) stops counterfeit products at the border. Their job is getting increasingly difficult. From 2013 to 2016 alone, the amount of counterfeit and pirated goods globally grew from 2.5% to 3.3%. The CBP processes 77,000 shipments daily. This totals 28 million annual cargo shipments each year. Too, there are 250 million international and express mail parcels. Any one of these could be counterfeit goods.
The CBP uses a three-part strategy of facilitation, enforcement and deterrence. Facilitation involves identifying legitimate shipments not needing inspection. Here, technology can cut out paperwork that’s slowing down the process. Blockchain is the perfect tool for the job.
Advanced Technology Testing to Stop Counterfeiters
A new trial government project is underway to test the effectiveness of blockchain for policing the border. U.S. customs brokerage firm Customs Direct decided to participate. They’re part of a working group organized by the Commercial Customs Operations Advisory Committee (COAC). The goal is to increase the accuracy of shipping information by integrating distributed ledger technology (DLT).
The director of CBP’s Transformation & Innovation Division, Vincent Annunziato, remarked, “We strongly believe blockchain will help the United States maintain a competitive edge in the worldwide competition to grow stronger, better and more reliable ways of protecting our country from illegal imports and exports.”
Blockchain would provide, he added, “more accessibility to importers and more direct communication. And easier access to backup documentation when required.”
Customs Direct needed a blockchain platform for their proof of concept. But finding the right one was a challenge, explained Owner Jim Masloski. “Everybody’s trying to say they can do everything.” He needed a platform that could pull information from various parties including truckers, shippers, and warehouses.
Further, Annunziato had raised a concern that most blockchain platforms were insufficiently compatible with each other. And that the CBP intends to “set standards of interactions between different blockchains, so that all firms and software could easily connect to customs in the future.” This led Masloski to consider the Morpheus.Network platform.
Blockchain-Agnostic Tools for a Better Supply Chain
“We looked at other companies, but Morpheus.Network was my number one pick,” said Masloski. Noam Eppel, co-founder of Morpheus.Network, said, “One unique aspect of our platform is that it’s blockchain-agnostic, which means you don’t need to be tied to a single blockchain. We provide supply chain managers with a Digital Footprint, providing shipment and item visibility for automating safe and secure supply chains while also saving time and money.”
Forbes magazine called Eppel, who is a information security expert and web developer, an industry luminary. Eppel added, “We look forward to helping the U.S. government combat counterfeiting. And further optimizing global supply chains by utilizing emerging technologies.”
Co-founder Dan Weinberger is a UN supply chain expert. He also spoke at a UN conference in Hangzhou, China. Weinberger commented, “We’ve been tackling the direct inefficiencies in global trade, which has led us to this CBP intellectual property rights (IPR) pilot project.”
Making “Made in USA” Great Again
IPRs must be enforced if the United States is to survive and thrive. The CBP needs better tools to protect intellectual property rights. Otherwise, there’ll be no incentive to create better products. Fake goods will slowly nullify the pioneering U.S. spirit.
Blockchain can play a key role in helping prevent unlawful IP use. CBP agents will save time by having greater access to accurate import and export data. Too, they’ll have more direct communication with trade partners and back-up documentation.
New blockchain-powered platforms like Morpheus.Network can play a key role in helping the U.S. Department of Homeland Security stop illicit shipments. Then the country of origin label “Made in USA,” can gain back its greatness – instead of “Made in China” (with American IP).