Corporate ‘pirates’ part of America’s own history

What would you call businesses in a country that try to reverse-engineer products, equipment or methods patented in another country? Or, what would you call businesses that lure employees with confidential and trade-secret information protected by one country’s laws to work for a company in another country that does not enforce those laws? And, what country would allow – or even encourage – such behavior?

You probably used the word “pirate,” and may have identified the country as “China” or “North Korea.” You may be right. But you could also identify the country as the United States of America in the 18th and 19th centuries.

I frequently hear complaints about companies in China or about the lack of enforcement of intellectual property rights in China. And, by and large, it’s true that it is difficult to enforce those rights in China. I was preparing to write a column about the importance of understanding other cultures and legal systems prior to doing business internationally. Then, as I was preparing for the class that I’m teaching on intellectual property next semester at University of Denver in the law school’s new program in international business and trade, I came across a book of essays, “Intellectual Property Rights, Development and Catch-Up.” One of the first essays details the United States’ efforts to “catch up” to Europe. I’m not sure that it does much to help in deciding how to protect intellectual property for a company in a developed country. But, it puts things in perspective.

In the late 18th century, Great Britain had limitations on the export of manufacturing equipment and the emigration of skilled mechanics. Companies in the United States wanted to compete with England in textiles. So, what did we do? We found a former British factory superintendent who would disguise himself as a farmer and immigrate to the United States to share his secrets with us. By 1814, the companies in the United States were competing effectively with Great Britain. Due to proximity of natural resources, companies here soon were able to manufacture clothing at a lower price than Europe. Interestingly, the companies here improved the technology rapidly. Later, companies in the United States did the same thing to Germany with respect to chemical processes – the latest technology at that time. Through hard work, U.S. companies made great improvements on the existing technology.

Today, U.S. companies can whine and complain about China or North Korea or any other country. Or, we can do what the British and German companies did (when they got over whining and complaining). They found out they couldn’t make products cheaper, but they could make them better, and develop in areas where the developing country – the U.S. back then – did not have the skills or resources. And, we can do the same thing – we can embrace technological improvements on our technology wherever made and do it better. But, that implies that companies in the U.S. will decide to improve quality and service. As a consumer, however, I don’t hold out much hope that that, given the dismal service that I usually experience.

This is my last column of the year and as you think about global competition, ponder this scenario:

The president of a pharmaceutical company visits a remote area of a developing country on vacation. While there, he finds that even though the country has one of the highest rates of HIV and AIDS in the world, none of the people in a particular village have the disease. The village leaders tell him they have been extracting from a plant and giving it to the people to prevent HIV infection. The company president gathers up some of the plants and some of the extract and smuggles it back into the United States. His company spends millions of dollars creating a synthetic vaccine that prevents HIV infection and they get FDA approval. They sell it for $100 per dose to recover their costs. No one in developing countries can afford to buy it. Someone in the country where the plant was found gets some, reverse-engineers it and sells it to others in that country for $2 per dose. Of course, the generic version makes its way back into the United States and the U.S. pharmaceutical company is displeased.

Have a good holiday season. And, keep it legal.



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