[A2k] New Yorker: Exporting I.P.

[Thiru Balasubramaniam]

http://www.newyorker.com/talk/financial/2007/05/14/
070514ta_talk_surowiecki

The Financial Page
Exporting I.P.
by James Surowiecki May 14, 2007

Free trade is supposed to be a win-win situation. You sell me your
televisions, I sell you my software, and we both prosper. In practice,
free-trade agreements are messier than that. Since all industries crave
foreign markets to expand into but fear foreign competitors encroaching
on their home turf, they lobby their governments to tilt the rules in
their favor. Usually, this involves manipulating tariffs and quotas.
But, of late, a troubling twist in the game has become more common, as
countries use free-trade agreements to rewrite the laws of their trading
partners. And the country that is doing this most aggressively is the
United States.

Our recent free-trade agreement with South Korea is a good example. Most
of the deal is concerned with lowering tariffs, opening markets to
competition, and the like, but an important chunk has nothing to do with
free trade at all. Instead, it requires South Korea to rewrite its rules
on intellectual property, or I.P.-the rules that deal with patents,
copyright, and so on. South Korea will now have to adopt the U.S. and
E.U. definition of copyright-extending it to seventy years after the
death of the author. South Korea will also have to change its rules on
patents, and may have to change its national-health-care policy of
reimbursing patients only for certain drugs. All these changes will give
current patent and copyright holders stronger protection for longer.
Recent free-trade agreements with Peru and Colombia insisted on much the
same terms. And CAFTA-a free-trade agreement with countries in Central
America and the Caribbean-included not just longer copyright and
trademark protection but also a dramatic revision in those countries'
patent policies.

Why does the U.S. insist on these rules? Quite simply, American drug,
software, and media companies are furious about the pirating of their
products, and are eager to extend the monopolies that their patents and
copyrights confer. These companies are the main advocates for such
rules, and the big winners. The losers are often the citizens in
developing countries, who find themselves subject to a Draconian I.P.
regime that reduces access to new technologies.

Intellectual-property rules are clearly necessary to spur innovation: if
every invention could be stolen, or every new drug immediately copied,
few people would invest in innovation. But too much protection can
strangle competition and can limit what economists call "incremental
innovation"- innovations that build, in some way, on others. It also
encourages companies to use patents as tools to keep competitors from
entering new markets. Finally, it limits consumers' access to valuable
new products: without patents, we wouldn't have many new drugs, but
patents also drive prices of new drugs too high for many people in
developing countries. The trick is to find the right balance, insuring
that entrepreneurs and inventors get sufficient rewards while also
maximizing the well-being of consumers.

History suggests that after a certain point tougher I.P. rules yield
diminishing returns. Josh Lerner, a professor at Harvard Business
School, looked at a hundred and fifty years of patenting, and found that
strengthening patent laws had little effect on the number of innovations
within a country. And, in the U.S., stronger patent protections for
things like software have had little or no effect on the amount of
innovation in the field. The benefits of stronger I.P. protection are
even less convincing when it comes to copyright: there's little evidence
that writers and artists are made more productive or creative by the
prospect of earning profits for seventy years after they die, and the
historical record suggests only a tenuous connection between stronger
I.P. laws and creative output.

The U.S., in its negotiations, insists on a one-size-fits-all approach:
stronger rules are better. But accepting a diverse range of I.P. rules
makes more sense, especially in light of the different economic
challenges that developing and developed countries face. Lerner's study
found that the benefits of stronger patent laws were reduced in less
developed countries. And developing countries, being poorer, obviously
have more to gain from shorter patent terms for foreign innovations,
since that facilitates the spread of new technology and the diffusion of
ideas. Tellingly, this is the approach the U.S. takes when it comes to
labor standards, arguing that we shouldn't impose developed-country
standards on developing countries. But in the case of intellectual
property the government's position is exactly the opposite. The only
difference, it seems, is whose interests are at stake.

The great irony is that the U.S. economy in its early years was built in
large part on a lax attitude toward intellectual-property rights and
enforcement. As the historian Doron Ben-Atar shows in his book "Trade
Secrets," the Founders believed that a strict attitude toward patents
and copyright would limit domestic innovation and make it harder for the
U.S. to expand its industrial base. American law did not protect the
rights of foreign inventors or writers, and Secretary of the Treasury
Alexander Hamilton, in his famous "Report on Manufactures," of 1791,
actively advocated the theft of technology and the luring of skilled
workers from foreign countries. Among the beneficiaries of this was the
American textile industry, which flourished thanks to pirated
technology. Free-trade agreements that export our own restrictive I.P.
laws may make the world safe for Pfizer, Microsoft, and Disney, but they
don't deserve the name free trade.


---------------------------------
Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
voice +41.22.791.6727
fax +41.22.723.2988
mobile +41 76 508 0997
thiru@keionline.org