Intellectual Property Theft: Everything You Need to Know
Intellectual property (IP) theft occurs when someone uses your intellectual property for any reason without your permission.19 min read
Intellectual Property Theft: What Is It?
Intellectual property (IP) theft occurs when someone uses your intellectual property for any reason without your permission. Laws protect intellectual property rights, including trademarks, copyrights, and patents. If you have the proper protections, you can sue for money damages.
Why Are Intellectual Property Protections Important?
Intellectual property is the ownership of an innovation, whether it's a commercial product, an artistic creation, a method or formula, unique symbol, logo or name, or other creation or invention. It can involve a range of creations, including but not limited to a:
- Industrial machinery
- Computer program
- Smartphone design
- Chemical formula
- Business process
- Company logo
- Client list
Types of intellectual property protections include:
- Copyrights, which defend authored works. These include poems, books, music, movies, paintings, photography, and software. They are mainly protected under the Digital Millennium Copyright Act, or DMCA.
- Trademarks, which protect symbols, phrases, words, or designs that identify or distinguish the source of goods from competitors. Similarly, service marks identify services. The United States Patent and Trademark Office (USPTO) issues trademarks.
- Trade secrets are valuable pieces of information that are not publicly known but provide a business with its competitive edge, like the secret formula for Coca-Cola.
- Patents protect inventions, business processes, or innovations that are new, unique, and nonobvious, from smartphone designs to business processes to unique lab-created plant species. The USPTO issues patents.
Each of these has its own type of intellectual property protections. Carefully inventory all of your intellectual property, and find out what you can protect using these methods. Also look for cases where companies like yours have had intellectual property theft issues.
Why Does Intellectual Property Theft Occur?
Intellectual property theft occurs because it's easy to do and can be highly profitable. Thieves see something they think is a good idea, take it, and profit from it. They might rationalize it as a "victimless" crime. They aren't concerned with the consequences, which range from robbing the inventor or creator of their livelihood to damaging companies and reputations. IP theft can steal tax revenue from the government and even support organized crime.
Some defenders of IP theft have a "Robin Hood" syndrome, arguing that the very concept of intellectual property is theft. These individuals claim that information and ideas should always be free and that people will innovate on their own, without encouragement. They claim that nobody should have the right to own information. They also argue that it creates a monopoly and interferes with progress.
Specifically, these people claim that intellectual property impedes future innovations and improvements the creator might have developed. They seek to draw a line between actual property (a physical thing you own) and intellectual property, or something you create.
Intellectual property, they claim, should be abolished because it damages competition and the economy. They think it's perfectly fair for people to steal music and movies and books and inventions. This is also a defense of piracy, and the federal government disagrees with it.
Then you have patent trolls. These individuals or businesses don't make anything of their own but buy patents to license them and sue others for infringement. They often victimize small businesses that can't defend themselves or demand ongoing licensing fees from larger companies that are more eager to pay out "hush" money than to take legal action. Intellectual property insurance can form a line of defense against patent trolls.
IP pirates commonly come from foreign countries. Some of the biggest offenders include China, South Korea, Vietnam, and Russia. Unfortunately, there is little to no international intellectual property law. Offline violations can still be investigated with standard methods, including undercover law enforcement officers. However, most IP pirates work only online, making them hard to track.
Reporting and Tracking IP Theft
If you think someone has stolen intellectual property (yours or someone else's) you can report the theft to various outlets. These include:
- The U.S. Department of Justice Computer Crime and Intellectual Property Division
- National Intellectual Rights Coordination Center
- National White Collar Crime Center
- FBI Local Field Offices
- Internet Crime Complaint Center
- Internet Fraud Complaint Center
- National Intellectual Property Rights Coordination Center
- RIAA (Recording Industry Association of America)
- ICE (U.S. Immigration and Customs Enforcement)
- Postal Inspection Service
- U.S. Food and Drug Administration
- Business Software Alliance
- National Association of Attorneys General
Where you should report the crime depends on the type of intellectual property theft. While many of these agencies take all complaints, the RIAA, for example, is only for music theft, while the Postal Inspection Service deals only with property crimes committed through the U.S. mail service.
The U.S. government monitors IP theft using a "priority watch list." The priority watch list keeps tracks of countries where intellectual property theft is most likely to occur. Currently, the 11 countries on the priority watch list include:
The United States Trade Representative (USTR) considers these countries concerning due to "insufficient [intellectual property rights] protection or enforcement." Another 23 countries are on a "watch list."
Countries tend to stay on the priority watch list in perpetuity. China, for example, has been on the list for several years. Unfortunately, there is no punishment for these countries, which is why they continue to steal intellectual property.
Types of Intellectual Property Theft
Types of intellectual property theft include:
- Copyright theft, most commonly seen among computer software, electronic games, movies, and recorded music, though theft of published materials such as books in print or PDF format is also very common.
- Trademark theft occurs when someone uses another business' trade dress, identifying symbols or marks, or something so similar that it causes brand confusion. This can involve clothing, electronics, or even service branding.
- Trade secret theft happens if someone steals the technologies, methods, plans, processes, or other sensitive information that give a business its competitive edge. It often occurs among manufacturing businesses, financial services, and computer companies. For example, if a cell phone manufacturer comes up with a revolutionary new smartphone that they have not publicly unveiled and their competitors steal those plans and produce their own before the first company goes to market, this is trade secret theft.
- Patent theft occurs when someone copies a patented invention and puts it on the market without the patent owner's permission or licensing. This can range from machinery to business processes to asexually reproduced plant species.
Threats to Trade Secrets
Some forms of IP, such as business and trade secrets, are more vulnerable to attack than others. These at-risk business assets can include:
- Designs for future products
- Customer and price lists
- Private internal policies
This list does not include personal customer information. Personal information such as Social Security numbers and health records are not considered intellectual property. Instead, these are personally identifiable information (PII). Stealing PII falls under the category of insider fraud.
In most IP theft cases, using or misusing a business' network is the primary information-stealing method. After reviewing 32 cases, it was found that 50 percent were perpetrated by company insiders that used their business email to send sensitive information to competing businesses, foreign governments, and their own email.
To fight this issue, businesses must monitor employees' work emails closely, particularly the addresses they are providing with information. It's also common for IP thieves to commit more complex crimes through little-used communication channels. This can include using ssh to set up secret channels or using unmonitored channels to transfer data off business servers.
Another study showed that the most prevalent method for physically removing data was removable media. Before 2005, writable CDs were the top type of media used in these crimes. In the modern era, devices such as removable USB drives and portable external hard disks are larger threats. These devices hold much more data than CDs, allowing thieves to steal an entire data set at once.
It's important that businesses fight trade secret threats in any way possible. This includes employing best practices and standards for preventing insider threats, which commonly take advantage of policies or controls allowed by typical IT security rules.
Understanding nontechnical aspects of intellectual property theft is also important. Many experts, for instance, recommend using technical indicators for behavioral action to get a better idea of how to best stop insider crime. Businesses must also look at the technical areas where they are most vulnerable so they can put the right security measures in place, particularly in regard to removable media.
Some businesses depend on removable media to function. In this scenario, protect your IP by:
- Limiting which machines in your network can use removable media
- Taking inventory of the media allowed in your system
- Establishing security protocols to prevent employees from removing media from your facilities
You should also try to identify suspicious email communications. This includes emails with attachments and those sent to suspicious sources such as personal addresses, competitors, and foreign governments. Use indexing tools or log aggregators to help, particularly during stressful times such as downsizings or corporate mergers.
Creative Workers and Copyright
Copyright protection is important for creative workers. Creative workers rely on these laws to make sure they receive residual and royalty payments and can make money from their performances or creative pieces. Even freelance creative workers receive some level of protection from copyright laws. Because of shifting technology, creative unions must be careful about protecting IP and ensuring creative workers get paid for their art.
Copyright laws grant protections and rights to creative workers. These laws are the bedrock for how creative workers get paid for their art. Basically, a copyright is a type of legal protection offered to creators of "original works of authorship." Copyright laws protect literature, music, art such as paintings and sculptures, and dramatic works. A copyright is automatically granted when a work is created and lasts for a set period.
The copyright owner has exclusive rights to the work. Copyrights allow copyright holders to:
- Make copies of their work
- Create derivative work based on their original creation
- Provide their work for sale, rental, lease, lending, or ownership transfer
- Perform or display their work publicly, including playing audio recordings
A copyright grants the copyright owner control over their intellectual property. This includes distribution. Many copyright holders make money from their copyright by granting licenses to other people. These licenses allow a person to make copies, display, perform, or distribute a copyrighted work.
Countless creative workers make a living from residual payment. A residual payment is compensation for reusing a copyrighted material. This can include items such as movies, audio recordings, or TV shows. If a creative worker is credited on a created work, he or she might be entitled to residual payments if the creative piece is used outside of its original capacity. For instance, TV show stars often get residual payments for later airings or release to home video.
Creative workers that create copyrighted sound recordings receive royalties instead of residual payments. But not all countries have established copyright laws, sometimes preventing creative workers from receiving their residuals or royalties. To improve copyright protection across the globe, the United Nations created the World Intellectual Property Organization (WIPO). WIPO works to facilitate cooperation between countries and organizations to improve global IP protection.
Copyrights and the Economy
IP theft has a tremendous impact on the U.S. economy. In 2012, the USPTO released "The Intellectual Property and the U.S. Economy: Industries in Focus." This report stated that jobs in patent-dependent industries have decreased while those in copyright-dependent industries have increased. Copyright-dependent industries include:
- Software Publishers
- Movie Studios
- Television and Radio
- Subscription Programming
In 2011, copyright-intensive industries grew 2.4 percent, the largest of any IP-dependent industry. In 2009, there were 93,000 copyright registrations for performing arts works. There were 75,000 for applied and visual art and 42,000 for sound recordings.
The entertainment industry's effect on the economy is sometimes overlooked. In 2011, both the National Endowment of the Arts and the U.S. Bureau of Economic Analysis estimated that arts and culture was responsible for $502 billion, which was 3.2 percent of the Gross Domestic Product (GDP). This sector includes:
- Cable television
- Motion pictures and videos
- Performing arts
The U.S. Department of Commerce reported in 2011 that spectator sports, performing arts, and museums were valuable to the economy as well, and that these sectors created $83 billion or 0.6 percent of the GDP. In 2013, the movie and recording industries contributed $114.9 billion to the GDP.
The arts and entertainment industries employ millions of people. In 2014, 905,000 businesses in the United States were based on the arts. That same year, 2.9 million people worked in sports, arts, entertainment design, and other media occupations. These figures don't include jobs that depend on the entertainment industry, such as movie rental stores, online stores, music stores, and other downstream or secondary industries.
In May 2014, 377,470 people were employed in the video and motion picture industry. As of July 2015, there were 468,000 fully and part-time employees in spectator sports, the performing arts, museums, and related fields.
The entertainment industry also has one of the highest concentrations of unions of any economic sector. These unions include the:
- Actors' Equity Association
- American Federation of Musicians
- American Guild of Musical Artists
- American Guild of Variety Artists
- Guild of Italian American Actors
- International Alliance of Theatrical Stage Employees
- Moving Picture Technicians
- Artists and Allied Crafts
- International Brotherhood of Electrical Workers
- Office and Professional Employees International Union
- Writers Guild of America, East
Jobs in the Entertainment Industry
The motion picture and television industry is one of the largest job creators nationwide, employing millions of people every year and supporting smaller businesses and communities.
In 2013, this industry employed 1.9 million people and had a $113 billion trade surplus. Those employed in the motion picture and television industry include writers, craftspeople, actors, directors, movie theater staff, caterers, and costume dry cleaners, among others.
Also in 2013, this industry paid American workers $47 billion in wages and paid vendors $40 billion.
All 50 states and Washington, D.C., have workers in the film and television industry, making this one the economy's most important sectors.
Because the U.S. relies so heavily on the entertainment industry, IP theft can hurt Americans' work as well as the country's economy.
In 2010, the Government Accountability Office (GAO) released a report titled "Intellectual Property: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods." It gauged how digital theft affected a range of industries, including media and pharmaceuticals. While data was hard to find and measure, it was clear that IP majorly affected consumers, major industries like the arts and entertainments, and the government.
The GAO also found that IP theft in industries such as pharmaceuticals can endanger consumer health and safety, as well as reduce the quality of available goods.
IP theft hurts the entertainment industry in several ways. According to the GAO:
- IP theft harms sales of products like DVDs and CDs.
- Because stolen entertainment goods are low-quality, IP theft can harm an artist's brand or image.
- The arts and entertainment industry must pay more to protect their IP. These costs are compounded by the loss of revenue due to digital theft. Because of these losses, the entertainment industry has no incentive to invest in new technologies or products.
IP theft can also harm the government. The government is responsible for covering the costs of fighting IP theft and experiences tax revenue losses due to these crimes.
Unfortunately, the GAO found that gauging IP theft's exact economic impact is nearly impossible, mostly because people are unwilling to report their illegal activities. Also, it is hard to guess how many IP thieves might be willing to pay for a product legally. However, organizations dedicated to IP theft estimate that these crimes result in billions of dollars in losses.
Virtually every part of the entertainment industry is vulnerable to IP theft. For example, live theater is increasingly broadcast in cinemas. While this has provided greater access to live theater, it has also made it easier for IP criminals to pirate these shows. This harms the theatre industry and affects the earnings of everyone involved with a show's production.
The American Federation of Labor and Congress of Industrial Organizations President Richard Trumka discussed the link between IP theft and jobs in 2012. His said professional entertainers depend on both pay and downstream revenue from reuse of a movie, piece of music, or television show. He also said that 75 percent of a movie's revenue comes in after it is no longer in cinemas. Downstream revenue creates residuals and royalties that help creative workers survive between projects. Digital IP theft has damaged downstream revenue, costing the entertainment industry billions of dollars and many jobs.
Trumka also said IP is essential to the U.S. economy. However, he made it clear that IP alone cannot grow jobs and that it is part of an economic picture that needs dedicated trade and industrial policies.
Pharmaceuticals and IP
The pharmaceuticals industry is responsible for $1 trillion in yearly sales. Bringing a drug to market requires a complex process of development. Many drug companies spend a lot of money to speed up drug research and development. Unfortunately, not all drug companies follow the rules. Some unscrupulous companies skip development and go directly to production, putting consumers at risk.
For instance, GlaxoSmithKline (GSK) faces criminal charges for selling cancer research data. According to a 2014 study from Tufts University, it costs an average of $2.5 billion to bring a new prescription drug to market. However, manufacturing the drug is a very small part of these costs. Because they are not involved in development, generic drug manufacturers do not need to spend much money to produce a drug once patent protection expires.
The first company to bring a drug to market, however, will have almost no competition and can price their drug however they wish. This provides big incentive for competitors to try to gain an advantage through IP theft. If one pharmaceutical company can steal another's development information, they can beat them to market and acquire patent protection and control of the drug.
This desire to be first to market is the likely motive in the GSK case. The available details show that a senior employee stole information related to a possible treatment of cancer antibodies, even though he knew the importance of protecting development data. With a co-worker's and three outside individuals' help, the employee planned to sell the IP to Chinese companies that had received government funding.
Unlike other parts of the world, cancer research in the United States has advanced greatly. Because it can take as long as 10 years to develop a drug, and because patents are granted first to file instead of first to invent, drug companies might submit patents earlier in the development process to protect their IP. This results in a shorter patent protection period before generic manufacturers can release their own products.
Organizations like pharma companies, biotech companies, and research hospitals are very vulnerable to foreign governments looking to steal medical IP so they can reach the market faster. Businesses and institutions that depend on IP must understand how to best protect their data and when to notify managers about security protocol violations.
IP Theft and the Computer Age
IP theft used to be much more difficult than it is today. Before computers, music, movie, and book piracy was time- and labor-intensive, requiring physical theft, copying, and production as well as in-person sales. Now, music, software, movies, and trade secrets can be stolen and distributed online. They go to individuals, other countries, and even illegal hacker and terrorist groups.
The entire process takes just minutes and is easy, with no travel or in-person contact necessary. The profits for pirates are huge. That makes piracy very dangerous in a way it wasn't before.
Another form of intellectual property damage involves cyberstalking, in the form of doxing. Doxing is when someone steals another's personal details, such as name, address, Social Security number, and telephone number and posts them publicly online.
Legal Consequences of IP Theft
IP laws provide for very harsh penalties. Most of these infringements are prosecuted as federal crimes rather than state ones. They can result in:
- Imprisonment for up to several years
- Seizure of stolen properties
- Loss of business licenses
- Civil suits filed by the victim to recoup lost profits and financial damages
Intellectual Property Theft Defenses
When accused of IP theft, that person has several defenses. These include:
- Lack of intent, where the defendant didn't realize they were stealing someone's IP;
- Lack of ownership by the plaintiff, meaning they didn't actually have IP law protection over the material; and
- The "unclean hands defense," which means the plaintiff has engaged in some sort of wrongdoing in the lawsuit itself. For example, they knew about the theft but waited years to sue to increase the damages they could collect.
Other defenses are more technical, such as fair use, which allows defendants to use copyrighted material in a very limited way for educational or review purposes. In general, IP law defenses are very complex and require help from a qualified IP law attorney.
Donald Trump and IP Theft
Recently, President Donald Trump took action related to intellectual property. However, these rules have mostly gone unnoticed as they are part of the large Presidential Executive Order on Enforcing Federal Law with Respect to Transnational Criminal Organizations and Preventing International Trafficking.
Essentially, the order directs the Threat Mitigation Working Group to increase their efforts to fight organized crime across countries. A report should be issued in June 2017 detailing to what extent the Threat Mitigation Group has been able to infiltrate criminal organizations and how they are stopping crime.
The language addressing IP is sparse, stating:
It shall be the policy of the executive branch to (a) strengthen enforcement of Federal law in order to thwart transnational criminal organizations and subsidiary organizations, including criminal gangs, cartels, racketeering organizations, and other groups engaged in illicit activities that present a threat to public safety and national security and that are related to, for example … intellectual property theft.
This language suggests the executive order is mostly concerned with criminal actions such as identity theft and criminal copyright theft.
Growth of IP Theft
Between 2000 and 2001, digital theft grew at an alarming pace thanks to faster internet speeds and new pirating technologies such as peer-to-peer sharing. Digital theft, particularly over the internet, is now the largest segment of IP theft. Digitally stolen IP can be acquired instantly and copied and transmitted limitlessly.
In the first half of 2014, it was estimated that more than 500 million IP addresses shared files, resulting in 17 billion downloads that caused $275 billion in losses. Take, for example, the popular Netflix show "Orange is the New Black." During the second quarter of 2014, this show was downloaded illegally 60.8 billion times. Similarly, the hit AMC show "Breaking Bad" had an unmonetized demand of $4 billion.
While TV shows, music, movies, video games, computer software, and books are some of the most popular items subject to IP theft, this crime can impact almost any digital information. Although some digital items are still pirated and sold physically by street vendors, most IP theft now occurs digitally. The music industry is particularly vulnerable, as music files are very small and can be downloaded by those with even the slowest internet connections.
One study out of Columbia University found that nearly 70 percent of people between ages 18 and 29 downloaded music or videos illegally. Since 1999, revenue for recorded music has decreased by 64 percent. Music spending is 47 percent lower than it was in 1973. Also there are 25 percent fewer professional musicians since 2000.
David Lowery, a musician and teacher at the University of Georgia, has estimated that tax-paying musicians make around $35,000 a year without benefits. Almost none of this money comes from touring. In the past, artists were supposed to recoup their touring losses from music sales. Due to digital theft, this is no longer the case.
Proving IP Theft
The first step in pursuing damages for intellectual property theft is to identify who might have had access to it. You'll need to prove that the defendant was able to access the work. If it was online or released publicly, just about anyone could've gotten it with an internet connection and the right software.
Trade secrets are trickier. Be aware of everyone who had access to the trade secret, as well as records of who handled it. If it's being sold on a website, you can check the site's WHOIS data and learn who owns the domain.
You'll then need to document every instance of the unauthorized use of your protected property. If you can, get a copy of the illegal use.
Be prepared to address defenses. Is the infringement under fair use (it's noncommercial, limited in scope, and won't deprive you of income)? If it's a trade secret, it's not illegal to reverse-engineer something. There's no law, for example, against buying a bottle of soda and chemically reverse-engineering the formula to produce something similar.
Next, determine how much you stand to lose from the infringement. Pursuing intellectual property theft can be expensive and time-consuming, and you want to be sure the loss is going to make the potential gain worthwhile.
Issue a cease and desist (C&D) to those who are infringing on your work. This alerts them to stop what they're doing. If they refuse, you've got further evidence to pursue your case. Finally, you'll want to contact the authorities to report the theft. The thief might be subject to criminal charges as well as your civil case.
If it's a copyright issue, your takedown request or C&D will be under the DMCA. If it's online you can also send a request to the service providers and web host, demanding they remove the infringing materials. Be sure to include the posting's URL.
Suing for IP Theft
The first step in filing your intellectual property lawsuit is to hire a lawyer. Intellectual property suits are extremely complex and time-consuming. They require a degree of knowledge and experience that most business owners don't have. The right attorney will be able to help you take the right steps in pursuing your case.
Your attorney can help you to prove the important aspects of your case. If it's copyright infringement, for example, you'll need to prove that the defendant accessed your work and then produced a very similar work. One case involved a Chinese publisher putting out unauthorized sequels to the Harry Potter books, which turned out to be plagiarized texts of the Hobbit with character names changed. This was a violation of both J.K. Rowling's and the Tolkien Estate's properties.
Trademark violations must prove that the use of the mark will cause confusion in the marketplace and dilute your brand, possibly causing consumers to confuse a competitor's product with your own. A trade secrets violation must prove that the defendant misappropriated your secrets and used them to undermine your business.
You might need to register your property to protect it. Copyrights exist the moment you create the work. Trademark rights also can be established through use. However, registering them strengthens your claim. Inventions must be patented to get protection, particularly after they are publicly revealed. Your attorney can help you with these aspects, as well.
Pursuing the Case
Your attorney will file a complaint in state or federal court, which names the defendant, alleges the facts of the case, and requests relief for damage. Next comes the discovery process, where each party can request information from the other, asking questions in a deposition, strategizing about the necessary documents to pursue the case, and placing litigation holds.
Depositions are an important part of this process, as sometimes defendants will perjure themselves during a deposition or upon questioning in court. This can be devastating to a case. Always be sure your facts are straight.
Next, the defendant might ask for a summary judgment, claiming there is no provable dispute or violation and that the law requires such a judgment. The prosecution's attorney will argue that there is a violation that needs to be heard in court.
If a summary judgment isn't issued, settlement negotiations will follow. Many cases are settled out of court during this process. Getting a settlement involves a lot of back-and-forth, high demands, and low counteroffers before the two parties reach a satisfactory middle point.
Going to Trial
If you don't reach a settlement, the case goes to trial. Both sides will take part in picking a jury. This process is called "voir dire" and involves asking questions to decide how fair the potential jurors seem. Biased jurors get dismissed. Attorneys can make a limited number of peremptory challenges to exclude jurors for no other reason.
Next, both sides will make their opening statements, which are usually be no longer than 15 minutes and will outline your case while poking holes in the other side's case. Witnesses and evidence will then be presented to defend each side's claims about infringement or the lack thereof. You might be called as a witness. Each witness will be questioned by their side's attorney, then cross-examined by the other side.
Lastly, closing arguments will summarize the case and put an exclamation point on the argument. These use graphics, visuals, and other tools, including showing evidence to the jury. The jury will deliberate and come back with a verdict. If you aren't happy with the verdict, you can appeal or ask for a new trial, though this will cost more money.
If you need help protecting against intellectual property theft, filing for a patent or trademark, or even defending against accusations of intellectual property infringement, post your legal need on UpCounsel's marketplace. The IP lawyers in this network are among the best in their field, having graduated from such notable institutions as Yale, Stanford, and Harvard, with an average of over 14 years in the field and representing major Fortune 500 corporations.