New Study by Harvard Business School Professor and NAM Chief Economist Shows International Software Piracy Hampering Manufacturers in the U.S.

Low-cost imports made by global firms using illegal software have drained $240 billion in revenue

WASHINGTON, Jan. 30, 2014 /PRNewswire-USNewswire/ -- Today, the National Association of Manufacturers (NAM) unveiled a study by Bill Kerr, associate professor at Harvard Business School, and Chad Moutray, chief economist for the NAM, finding that unfair competition fueled by stolen software is a significant drain on manufacturing in the U.S. Estimated losses between 2002 and 2012 totaled nearly $240 billion in manufacturing revenue, $70 billion in GDP and 42,220 U.S. manufacturing jobs.

The study, unveiled during a panel discussion at NAM headquarters, is among the first to prove that stolen software use damages sectors of the U.S. economy beyond the software sector.

"The startling losses manufacturers have suffered in the last decade due to intellectual property (IP) theft should jumpstart action by our policymakers and law enforcement officials," said NAM President and CEO Jay Timmons. "It's absolutely clear that the effects of IP theft overseas are significantly felt here at home, threatening jobs, investment and growth. The study released today paints a stark picture of what we've already lost due to software IP theft—and how much we stand to gain if manufacturers in the U.S. can compete on a level playing field. Until proper enforcement action is taken, our nation's innovators will remain at a disadvantage."

Another study result revealed that a 10 percentage point reduction in global software piracy over four years would add an estimated 65,745 jobs to the U.S. economy as a whole.

As study coauthor Kerr noted, "The use of pirated software by foreign manufacturers hurts manufacturers in the U.S. that pay the full cost of their inputs, costing the U.S. economy jobs, revenues and GDP. This represents an unfair practice that deserves attention."

National Alliance for Jobs and Innovation

The National Alliance for Jobs and Innovation (NAJI), a nonpartisan organization of nearly 400 U.S. member companies and associations, commissioned the study with the NAM. NAJI is a coalition working to stop unfair competition from the use of stolen IP, whether it be through piracy, counterfeiting or trade secret theft.

Rob McKenna, former attorney general of Washington and cofounder of the State Attorneys General Intellectual Property Taskforce, served as moderator of the panel. McKenna, now a partner at Orrick, Herrington and Sutcliffe, noted, "We have legal and diplomatic tools to fight this problem. We need more efforts at the state and federal levels now that we know the severity."

Additional NAM and NAJI member companies participating in the panel discussion expressed their concerns about software and IT piracy.

"Marlin Steel has experienced the losses and competitive disadvantage revealed in the study released today," said Drew Greenblatt, owner and President of Marlin Steel. "Our innovations are critical to our growth and success—our IP is our 'secret sauce' and it must be protected. Manufacturing jobs in the U.S. will certainly accelerate when we can compete on a level playing field."

"In the business of manufacturing pharmaceuticals that save lives, safeguarding IP and IT infrastructure is a critical component in ensuring that products in the market are safe, effective, dependable and work as intended," said Daniel J. Abdun-Nabi, president and CEO of Emergent BioSolutions. "Respect for the rule of law and a decrease in IP piracy will certainly benefit the manufacturing industry and have a positive impact on patients and public health."

"Software is critically important at every stage of my company's design, manufacturing and sales processes," said Michael Sigourney, president and CEO of AVTECH Software Inc. "We've had direct experience with many of the unfair competitive practices we see abroad, including theft of trade secrets and proprietary materials, which not only hurts our ability to provide local jobs, but, at a larger scale, slows the process of innovation."

Microsoft Pledges Support

Microsoft Corporation, a member of NAJI, supported the study after uncovering numerous examples of unfair competition impacting its manufacturing customers. Microsoft is working on multiple fronts to help stop IP theft, including the recently unveiled Cybercrime Center, which works with law enforcement, industry, security organizations and academia to help fight technology-related crimes.

"Not only does software piracy undermine manufacturers in the U.S., it also poses significant risks to our citizens, businesses and IP," said David Finn, executive director of the Microsoft Cybercrime Center and Microsoft's Digital Crimes Unit. "As the FBI has declared, pirated software enables malicious code and identity theft. So we're working with government and law enforcement, as well as NAJI and the NAM, to help stop software piracy and build a safer digital environment for everyone."

NAM Members Speak Out

Separately, at today's panel discussion, the NAM unveiled the results of its recent member survey, which revealed:

• One-third of NAM members report theft of IP, trade secrets or proprietary knowledge being stolen by competitors in emerging markets.
• Three out of five NAM members say that IP and trade secret theft impacts their overall global competitiveness, including a third who say it has a strong impact.
• Manufacturers are reluctant to do business with firms in emerging markets out of concern for theft or use of IP, trade secrets and proprietary information in direct competition with their interests.

The Kerr-Moutray study on the impact of software piracy on the economy and the NAM member survey are available here.

About Bill Kerr

Bill Kerr is an associate professor at Harvard Business School, where he focuses on entrepreneurship and innovation. Kerr has researched agglomeration and entrepreneurship, and how government policies aid or hinder the entry of new firms, cluster formation and growth. He has worked extensively with the World Bank, the Massachusetts Technology Leadership Council and the National Science Foundation, and has received several awards for his research papers.

About Chad Moutray

Chad Moutray is the chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM's economic forecaster and spokesperson on economic issues. Prior to joining the NAM, Dr. Moutray was the chief economist and director of economic research for the Office of Advocacy at the U.S. Small Business Administration.

-NAM-

The National Association of Manufacturers (NAM) is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 12 million men and women, contributes more than $1.8 trillion to the U.S. economy annually, and has the largest economic impact of any major sector and accounts for two-thirds of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the Manufacturers or to follow us on Shopfloor, Twitter and Facebook, please visit www.nam.org.

733 10th St. NW, Suite 700 • Washington, DC 20001 • (202) 637-3000

SOURCE National Association of Manufacturers

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