Technology & Trade

The Challenge of Intellectual Property Protection

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By William Reinsch: 

Sometimes things you think are obvious turn out to not be so simple. You would think that there would be a broad consensus that protecting intellectual property – patents, trademarks, trade secrets, and the like – is a good thing, that it is an important way to encourage innovation because it assures inventors, designers, and creators that their works will be protected, and they will be able to receive whatever financial reward for their work the market offers them. 

You would also think that there would be particular sensitivity to this issue here in the U.S. because our innovators have been the world’s leading victims of IP theft, largely, but not exclusively, from China. The report of the Commission on the Theft of American Intellectual Property in 2013 concluded that the U.S. was losing over $300 billion per year due to IP theft, with China grabbing the largest share.  While the Chinese appear to be targeting high technology currently, more traditional manufacturers, pharmaceutical manufacturers, musicians, film producers, and others have many stories to tell about how their creations ended up widely sold in China via pirated versions. 

My original, apparently naïve, view that this was a simple case of right vs. wrong was challenged some years ago where I heard a representative of a developing country argue that IP protection was one more tool rich countries use to exploit and hold back poor countries by denying them the means of economic advancement. You can believe that or not as you wish, but I have noticed that a developing country’s interest in IP protection grows dramatically once it has some IP worth protecting, proving once again the truth of the old adage, where you stand depends on where you sit.

In the past few years, however, a new version of that argument has gained currency, and it is influencing the debate over TPP and TTIP.  While it bears most directly on pharmaceuticals, that is not the only sector affected. The argument is that access to medicines is a public health issue and that pharmaceutical companies effectively deny poor countries that access through long lasting patents and lengthy data exclusivity requirements which prevent manufacturers of generic products from making and marketing more affordable products. The company response is usually that those protections are necessary to permit recovery of the enormous R&D investment required to develop the drug in the first place. Since the actual cost of producing a drug is usually low once it has been created and approved, it is a tempting target for generic competitors, who, if they can access the IP behind the drug, can produce it at least as cheaply but sell it for much less since they have no R&D costs to recover.

This is essentially the same argument as the one I heard many years ago: IP should not be extensively protected because developing countries should be able to establish and grow their own industries. This raises a number of issues.

First is the implication that trade rules should be ignored if they get in the way of larger social policy goals. Public health is important. So is renewable energy. So is a cleaner environment. And so on. This debate often ends up between health (or energy or environment) policy wonks and trade policy wonks, neither of which cares all that much about the other’s priorities. We have seen that most clearly in the fight over tobacco plain packaging legislation in Australia and other countries. From a trade policy perspective, this is a taking – the companies have lost their IP – trademarks, logos, designs, etc. From a health policy perspective this is about discouraging smoking (never mind that the data suggests it is not having that effect). In that case and the pharmaceutical case, health will probably win out for a simple reason – it’s hard to compete with pictures of sick children or people dying of lung cancer. In technology sectors, the outcome is less certain.  Pictures of solar panels or coal scrubbers don’t have quite the same cachet so the same debate may play out differently. But the principle in both cases is a dangerous one – it’s ok to bend the rules if you don’t like the company or industry benefitting from them.

Second is the larger question of how far rich countries should extend special and differential treatment to developing countries. S&D, as it is known to trade wonks, is a concept that has been around for a long time and has wide acceptance, although there are periodic tussles over which countries are actually “developing” and thus entitled to it. To the extent the term is applied to unilateral non-reciprocal tariff or other market access concessions to developing countries, there has not been much controversy.  To the extent it is about waiving rules, less generosity has been shown, although the usual compromise is a delayed compliance schedule for the developing countries and a (small) boatload of money to help them get their institutions in shape to comply. The underlying principle is that they have to comply eventually, but how and when is negotiable. That seems a sensible approach which is currently being tested in the implementation of the Trade Facilitation Agreement. We’ll see, eventually, how it works out. Paul Collier, in his book The Bottom Billion, tells of a notorious case in which the Kenyan government “promised the same reform to the World Bank in return for aid five times over a fifteen year period.” It’s sometimes hard to tell who to blame – the Kenyans for their mendacity or the donors for their gullibility. 

Similarly, in the pharmaceutical context, the debate has been over how to distinguish between situations where a company might be withholding a drug in the face of a health emergency vs. a situation where there is no public health crisis but a developing country simply wants to promote its generic industry. WTO members have agreed to an exception for the former but not the latter. Distinguishing between them is harder than one might think.

In the U.S. this issue has been divisive. On the one hand, IP is the foundation of U.S. competitiveness. It is essential to our national security and to our position as a global economic leader. We are not a low cost producer. Our advantage lies in making high quality cutting edge products and sophisticated, IT-based services. If we lose control of our IP, we lose our advantage. On the other hand, there are numerous NGOs here arguing for the primacy of social policy goals over trade rules regardless of the domestic economic consequences. This does a disservice to jobs and growth in the U.S. In these cases international trade rules – when they are enforced – work to our advantage, and it makes sense for us to continue to defend them.
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.

Photo credit: U.S. Mission to Geneva via Flickr
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