Today, the Department of Justice announced the indictment by a federal grand jury of “five Chinese military hackers” for crimes between 2006 and 2014 leading to “economic advantage” for China. Among the crimes was the theft of trade secrets, a form of intellectual property.
The DoJ announcement of the indictments will have little direct effect for the individuals involved. It is doubtful those indicted will be extradited to the United States to stand trial. It is even more doubtful that a trial would lead to any restitution to the six injured American companies: Alcoa, USW, ATI, U.S. Steel, SolarWorld, and Westinghouse.
But the indictments do serve a useful purpose: for once in a blue moon, the federal government has taken intellectual property seriously enough to take some steps to enforce it without private action. That intellectual property such as trade secrets is often stolen will come as little surprise to anyone remotely familiar with the topic. Typically, enforcement of intellectual property is left to the owner. Protecting intellectual property from theft by the owner alone—as Alcoa, USW, ATI, U.S. Steel, SolarWorld, Westinghouse and a great many other companies that rely on intellectual property doubtlessly would agree—is a daunting task.
DoJ filed the indictments likely more for broader strategic and national security reasons than to protect the rights of six American companies. It was a warning shot across the bow of China for various purposes, but protection of intellectual property is likely not chief among them. The Chinese government will no doubt take notice for reasons that it and our government likely understand better than the public at large.
Our federal government takes the enforcement of some laws more seriously than others. Consumer protection is one that gets federal support through enforcement. For example, on May 8, 2014, the Federal Trade Commission announced that it was filing a complaint against the online company Snapchat for alleged wrongdoings that purportedly violated consumer protection laws including those prohibiting false or misleading advertising. That afternoon, the FTC announced that a settlement had been reached with Snapchat.
We may never know if Snapchat engaged in actual wrongdoing under consumer protection laws or merely settled to avoid a federal complaint and investigation. Little focuses the minds of corporate executives as much as a complaint lodged against a company by a federal agency. Of course, the announcement of the complaint and the settlement may have all been prearranged, but the entire choreography of the day’s events highlights the extraordinary influence that a federal agency has on enforcement of federal laws.
Consumer protection laws can be enforced in many ways: private actions, class actions, state law enforcement, and federal law enforcement. Largely as a consequence, the United States has both strong consumer protection laws and adherence to those laws. Businesses that do not comply with consumer protection laws do so at considerable risk.
The FTC is not alone among federal agencies in enforcing its own laws and regulations (I leave for another time the problems of separation of powers). It is a rare day without a highly publicized enforcement action by a government agency against a private individual or business. Specialized federal agencies enforce specialized laws and regulations such as securities law, public utilities law, consumer protection law, labor law, communications law, tax law—to name just a few. Although many of these laws can be and are privately enforced, the federal government adds its weight to selected enforcement issues. The consequence is that most of these federal laws are adhered to closely.
Not so with copyright law. Infringement of copyrights is a seemingly socially acceptable wrongdoing, particularly among young people. Although most businesses take copyrights seriously as a matter of common business ethics, some businesses do not. As the Wall Street Journal recently reported, self-proclaimed pirate websites sometimes have advertising from otherwise legitimate businesses. Not coincidentally, no federal agency brings enforcement actions for copyrights. Enforcement is left for the copyright holders to pursue in court.
Occasionally, copyright holders do just that: MGM v. Grokster, Viacom v. YouTube, Authors Guild v. Google, Associated Press v. Fairey, A&M Records v. Napster, to name just a few. In these and other well-known copyright cases, the copyright holder plaintiff is a well-established firm.
But unnamed and unknowable are the countless copyright infringement cases that are not filed. Call them the John Doe vs. Copyright Scofflaw cases. In these cases, John Doe was quite likely aware of piracy, but John Doe also weighed the costs and benefits of litigation and determined that likely benefits of litigation were not worth the effort. It is not just small companies that avoid litigation; the cost-benefit analysis for copyright litigation rarely leads to litigation.
Here’s why. In some of copyright enforcement actions, the copyright holder prevails. In others, the copyright holder loses. In practically all such cases, the copyright holder pays his or her litigation expenses, which can be substantial. The cost of litigation and the uncertainty of the outcome discourage many copyright holders from enforcing their copyrights.
The net result of an ambivalent enforcement of copyrights by copyright holders is at best an ambivalent deterrence of copyright infringement. Scofflaw companies thumb their nose at copyrights. But even otherwise legitimate companies are more likely to neglect copyright laws than other federal laws simply because the likelihood of ever being held accountable is low.
Of course, the solution is not to create a new federal agency just to enforce copyrights and other forms of intellectual property. The federal government has more than enough agencies. But the solution may well be for the federal government to consider more carefully how it enforces federal laws generally. Why are some federal laws closely adhered to, while others are largely ignored?
The answer is in part the asymmetric enforcement of federal laws. Those laws the federal government enforces itself are likely to be more closely adhered to. Those laws that the federal government does not enforce, such as intellectual property generally and copyrights in particular, are not closely adhered to.
This asymmetry in legal adherence is likely not efficient. It does the federal government little good to have some laws that are predictably closely followed and others that are not.
DoJ today indicted five individuals in part for stealing one form of intellectual property, trade secrets. But our government has yet to create a pattern of predictable enforcement of intellectual property generally, including copyrights. Intellectually property is little safer today than yesterday.