Pirates on the High Seas: Introduction

Pirates on the High Seas

The United States and Global Intellectual Property Rights

Bénédicte Callan

1998

Introduction

I have no doubt that if I could poll American readers, or American Senators. . . or even American booksellers, that an assent to an international copyright would be the result. The state of things as it is is crushing to American authors, as the publishers will not pay them on a liberal scale, knowing that they can supply their customers with modern English literature without paying for it. It is equally injurious to American booksellers—except to two or three of the greatest houses. No small man can now acquire the exclusive right of printing and selling an English book If such a one attempt if, the work is reprinted instantly by one of the leviathans—who alone are the gainers. The argument of course is that American readers are the gainers—that as they can get for nothing the use of certain property they would be cutting their own throats were they to pass a law debarring themselves from the power of such appropriation. In this argument all idea of honesty is thrown to the winds.. . . The ordinary American purchaser is not much affected by slight variations in price. He is at any rate too high-hearted to be affected by the prospect of such variation. It is the man who wants to make money, not he who may be called upon to spend it, who controls such matters as this in the United States.

Anthony Trollope 1876

The america that Anthony Trollope came to know as an English emissary in the 1870s is entirely unfamiliar to contemporary readers. Despite their nominal protection in the U.S. Constitution, Trollope encountered indifference and resistance from American officials in his efforts to enforce copyrights for literary works. ₁ His eloquent arguments about the benefits of strong intellectual property protection for the domestic literary market fell on deaf ears. Yet a century later, an older and more prosperous United States casts itself as the great proponent of intellectual property rights worldwide. Modern American negotiators take the moral high ground in the battle against international piracy and counterfeiting, denouncing unfair practices abroad and claiming that stronger rights can only help the economy in developing countries. Much has changed in a hundred years.

The switch in the U.S. position is understandable. A country’s level of development heavily influences the value placed on intellectual property rights. Developing countries have always been leery of strong IP protection, which favors innovators over consumers, creative production over diffusion, and private interests over social goals. In Trollope’ s time, the United States was just becoming an international economy and remained unconvinced that IPR enforcement was a necessity. The U.S. position changed with its status in the world. In fact, just a few years after Trollope’s visit, the United States came to see the value in international intellectual property cooperation, and joined Europe in signing the Paris Convention for the Protection of Industrial Property (1883) and the Berne Convention for the Protection of Literary and Artistic Works (1886). An era of international cooperation opened, and while IPRs were mainly of domestic concern, countries extended national treatment to foreign firms. Decades of relative quietude passed, during which intellectual property remained an arcane and technical field populated by inventors and lawyers.

In the 1980s intellectual property suddenly became the cause célèbre of trade politics, and the United States quickly became a formidable proponent of global IP rights. The United States has had showdowns with half a dozen countries over their IP policies. Twice, altercations with the People’s Republic of China have brought the United States to the brink of a trade war. The Trade-Related Intellectual Property (TRIPs) Agreement is in many respects the heart of the new World Trade Organization (WTO). The United States concocted a policy of aggressive unilateral pressure for key countries with weak IPregimes to curb their piracy rates and maintain American incentives to innovate despite a world of porous international boundaries. Through the use of the Special 301 clause in the 1988 Trade Act, the General Agreement on Tariffs and Trade (GATT) negotiations on TRIPs, and the North American Free Trade Agreement (NAFTA), the United States brought intellectual property to trade’s center stage. The policy was a radical break with the past, and it coincided with a change in America’s position in the world economy.

This activist IP policy was formulated amid the economic and security upheavals of the 1980s, which included the globalization of business, the yawning trade deficit, slow growth rates, and Asian competition. Its first objective was to strengthen American exports in the entertainment and technology industries—the so-called information industries of the future. If the United States could recapture $25 billion of sales lost to piracy, a very optimistic scenario, exports would rise by about five percent. ₂ The second objective of the policy was to combat the free rider problem inherent in industrial research and development (R&D) investments. When piracy is rampant, industrial R&D essentially becomes a nonexcludable and nonrival good (i.e., companies at home and abroad are loath to invest in research since its fruits are easily available to all for free). ₃ Reinforcing research incentives for U.S. firms should encourage them to maintain technological leadership. A third and related objective was to expand the innovation pie for all countries. Enhancing the appropriability of knowledge in developing countries should not only help local innovators but also facilitate technology transfers, trade in technology goods, and foreign direct investment. Increasing access to technology should spur growth in developing countries, and growing export markets are good for U.S. business.

In an era of such economic turmoil, an aggressive global intellectual property policy was perceived as necessary to champion American jobs, exports, and growth. The idea was not to coddle weak industries. In fact, the industries in the IP limelight—software, entertainment, and pharmaceuticals—were already stars of the American economy; big, dynamic sectors that exported their products worldwide. For example, in the 1980s the personal computer created a mass market for business software estimated at $8 billion, and jobs for software engineers boomed, growing by156 per cent over the decade. ₄ Looking more broadly at information industries, almost five percent of the U.S. work force is employed, directly or indirectly, in copyright-dependent sectors—including software, music, film, and print. ₅ The vitality and promise of these industries are embodied in their growth rates, which have recently been twice as high as that of the U.S. GDP (5.6 per cent versus 2.7 percent between 1991 and 1993) ₆ World-wide revenues from video entertainment—films, TV, and rentals grew by 16 percent in 1993, and video games alone have become an impressive $12 billion industry with a 40 percent annual growth rate. ₇

In addition to their contribution to growth rates and employment, the intellectual property-dependent industries are important because they export. Copyright industries exported $45.8 billion in 1993, second only to the automotive industry. Chemical products, which include pharmaceuticals and other goods heavily reliant on patent protection, exported $45.1 billion that year ₈ In general, "high-technology" goods are increasingly important to trade, accounting in the United States for more than 52 percent of all merchandise trade and growing 17 percent faster than trade in all goods from 1985 to 1993. ₉

Piracy is, therefore, a scourge because it affects the symbols of American industrial strength—modern information-intensive industries—in which the United States places its greatest hopes for the future. Remember also that this IP strategy was forged in the dying embers of the Cold War, just as the United States was getting its first glimpses of a liberal trade regime on an unprecedented geographic scale. At stake, therefore, is not simply the competitiveness of a handful of U.S. industries but the shape of the entire international R&D system—who pays for innovation, and who benefits from it. Developing countries see American policy as an attempt to freeze the present technological division of labor, and not entirely unreasonably, they accuse the United States of technological protectionism. ₁₀ The United States emphasizes the incentives for creativity that stronger IPRs promise for all countries.

Despite skepticism abroad, from 1986 to 1996 American powers of persuasion worked to improve the level of international IP protection. Dozens of bilateral agreements have raised protection levels in the four corners of the globe. The GATT TRIPs Agreement was signed, NAFTA included an intellectual property agreement, and the Asia-Pacific Economic Cooperation (APEC) forum is considering doing so. Anthony Trollope would hardly recognize this new world. Yet the success of American IP policy has bred its own problems, and U.S. policymakers are struggling with how to proceed in further raising IP standards abroad. The second term of the Clinton administration offers the opportunity to redefine intellectual property policy, to clarify its goals and make it more consistent across countries.

The following article explores the types of strategies open to the United States in its effort to continue combating global piracy in a post-TRIPs environment. A change in strategy is necessary, not because American IP goals have changed but because the challenges are different. First, the momentum of the Uruguay Round has dissipated, leaving the United States with little visible support from Japan and Europe in its efforts to raise IPstandards globally Second, bilateral negotiations will produce fewer results, both because the United States has already concluded the easy bilateral IP agreements and because the tools it once relied upon to force changes abroad have become blunt with wear. ₁₁ Third, no matter what means are used, extracting further IP concessions in the developing world is going to become more difficult and expensive, especially as the U.S. must now contend with typical behind-the-border monitoring and enforcement problems. Finally, the countries the United States most wants to reach are in Asia. They are neither as vulnerable to U.S. demands as Latin America was, nor as interested in a rule-based trade agreement.

If the United States is committed to furthering the harmonization of IP systems internationally, it has three policy options—a deepening of multilateral commitments through the World Trade Organization, the forging of regional agreements with an intellectual property dimension, or the country-by-country negotiation of bilateral IP agreements within the parameters allowed by the WTO. The present administration, much like its predecessors, has a predilection for bilateral negotiations. This paper argues that, while effective for a limited number of countries, in order to build a global IPsystem, the U.S emphasis should be on putting IPRs front and center in future multilateral forums.

Asia, as the home to some of the most inveterate IP infringers, will be the proving ground for American policy in the near future. At the moment, neither APEC nor the WTO seems capable of convincing recalcitrant Asian countries to upgrade their IP regimes. The United States will be tempted to rely on bilateral agreements to raise standards in specific nations. But a bilateral strategy is too expensive and inconsistent to employ on a large scale. And while regional agreements have an important role to play in coordinating national IP policies and creating global standards, regional strategies cannot fully achieve U.S. goals either. Neither strategy should be pursued to the detriment of broader multilateral agreements that will bring all countries into a single system and provide a predictability attractive to the developing countries that sign on.

This paper starts by briefly reviewing the recent history of U.S. IP policy (Section 2); what global IP standards have been achieved (Section 3); and why the United States, given its present IP strategy, must expect iterative rounds of negotiations before satisfactory levels of international protection are achieved. Next the challenges to American IP policy are described, including the growing price tag and geographic spread of piracy (Sections 4); and the difficulty of eradicating piracy because of its behind-the-border character (Section 5). The U.S. government must choose among possible strategies and goals for combating global piracy (Section 6); and its choices are constrained by important political and financial considerations (Section 7). Finally, Section 8 uses Asia as an example of the comparative effectiveness of regional and multilateral agreements in raising IP standards.

Endnotes

Note 1: The U.S. Constitution lays out the intention "To promote the Progress of Science and usetul Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries," Article I, section 8. Back.

Note 2: According to the International Monetary Fund, total U.S. exports in 1994 were$465 billion; see 1994 International Financial Statistics Yearbook Back.

Note 3: Nonexcludable means that a company cannot prevent others from using its ideas or products. Nonrival means that one person’s use of the good does not detract from another’s enjoyment of it. When a good is nonexcludable and nonrival, the private sector has a tendency to underinvest in its production. Back.

Note 4: By comparison, the growth rate in jobs nationwide was a modest 12% over the same period, according to the U.S. Bureau of the Census’ Statistical Abstract of the United States: 1995. Back.

Note 5: Just under six million people, or 4.8% of the U.S. work force, work in copyright-related areas; see National Intellectual Property Association, "Copyright Industries in the U.S. Economy: 1977–1993 Washington, D.C., 1995. Back.

Note 6: International Intellectual Property Association (IIPA), "Copyright Industries in the U.S. Economy: 1977–1993," Washington, D.C., 1995. Back.

Note 7: For total revenues of $23.7 billion; see IIPA, "Copyright Industries in the U.S. Economy: 1977–1993." The growth rates are for 1987–93 as quoted in Gary Nelson, "The Sufficiency of Copyright Protection in the Video Electronic Entertainment Industry: Comparing the U.S. with the European Union," Law and Policy in International Business, vol.27, no.3 (1996), p.805. Back.

Note 9: Maskus, "Regionalism and the Protection of IPRs," unpublished paper presented to the Council on Foreign Relations study group American IPR Policy after the TRIPs Agreement, April 19, 1996. Back.

Note 10: For this argument see Paulo R. de Almeida, "The Political Economy of Intellectual Property Protection: Technological Protectionism and the Transfer of Revenue among Nations," International Journal of Technology Management, vol.10, no.2/3 (1995), pp. 214–9 Back.

Note 11: Harvey Bale suggests that for a number of reasons the American strategy of using sticks to encourage the enactment of stronger IPRs has reached an impasse.
See Harvey Bale, Jr., "External Pressure: Does It Work? The Case of Pharmaceuticals," unpublished paper for the Council on Foreign Relations study group American IPR Policy after the TRIPs Agreement, Washington, D.C., June 6, 1996. Back.