Finding the IP balance

The different groups in our Disruption Technology Law course have been looking at the transformation of various industries as a result of disruptive technologies. Although we have discussed some of the interconnectivity between industries, I would argue that the trade industry is inherently interconnected with every other industry being examined by our class. One area in which this is especially apparent is intellectual property (IP) rights under trade law. A countless number of industries are dependent on intellectual property. Patent law is crucial for industries in aerospace, automotive, computers, consumer electronics, pharmaceuticals, and semiconductors. Industries in software, data processing, motion pictures, publishing, and recording are likewise reliant on copyright. So why do we care? These industries contribute to the overall US trade balance through royalties and licensing fees. But to take a more direct look on how this affects the US economy, Tufts conducted a study and found that the estimated cost for developing a new drug is $800 million, taking an average of 10-15 years to create. In turn, these drugs are then relatively easy to counterfeit abroad, resulting in huge losses for American pharmaceutical companies. In fact, between 10-30% of drugs in developing nations are now counterfeit. On another note, the motion picture industry lost $6.1 billion to piracy in 2005.

So why not just expand intellectual property laws to protect more American companies? Internationally, it’s not that simple. To understand why, we have to take a closer look at current US and international trade law. Section 301 of the Trade Act of 1974, as amended, is the principle US statute for identifying foreign trade barriers due to inadequate IP protection. By the 30th of April of each year, the Office of the US Trade Representative must identify countries that do not offer “adequate and effective protection of IP” or “fair and equitable market access to US persons that rely upon IP rights.” Those labeled “Priority Foreign Countries” with very egregious policies will go through an investigation and possibly be subject to sanctions by the United States. But this process is lengthy and not always soundproof in analyzing both the scope and level of infringement. It is also much more expansive than current international agreements on trade law and therefore elicits higher standards than some developing countries are able to meet.

The existing international protection for IP infringement is the Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS was created under the World Trade Organization during the Uruguay Round of trade negotiations. This agreement sets minimum standards for all members of the WTO, such as, copyright terms must extend at least 50 years after the death of the author. TRIPS was the first incorporation of IP rights into the multilateral trading system and requires both national treatment and most-favored nation treatment. Yet, it has been argued that these standards place too great a burden on developing nations. For this reason, certain nations (including post-Soviet nations) were given an extra four years to reform their intellectual property standards. The Declaration on the TRIPS Agreement and Public Health also allowed for delayed implementation of patent system provisions for pharmaceutical products in least developed countries. Compulsory licensing is even permitted for some of these nations with waived domestic market provisions for certain diseases. This leniency is due to the fact that IP expansion can be an obstacle to growth for developing nations. Higher fees for licenses can stint innovation. It is also much more difficult for developing nations to properly implement such great reforms. On the other hand, higher standards might bring developing nations up to speed and make them more attractive to foreign trading partners.

One method of addressing this problem for developing nations has been through Free Trade Agreements. Bilateral, and some multilateral, FTAs have the ability to personalize IP standards to individual nations. With TRIPS as the minimum standards for IP protection, FTAs can then strengthen the regime even further. NAFTA is an example of an FTA with relatively stringent IP standards. On the other hand, FTAs between the United States and Colombia, Panama and Peru include much more relaxed IP requirements. A top concern in creating these three particular agreements was finding the balance between preserving owners’ IP rights while promoting access to life-saving medicines. Although copyright standards were heightened across the board, the US found a moral issue with preventing these countries’ access to life necessities and thus made exceptions for patent laws. But if standards remain relaxed, American pharmaceutical companies will continue to experience significant losses in profit. How do we move forward with intellectual property protection to better secure owners’ rights while catering to developing nations? Is there a way to successfully increase these countries’ standards through FTAs or on an entirely new platform?

 

For more information, see the following CRS report: http://fpc.state.gov/documents/organization/99532.pdf

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