[A2k] FT: Intellectual property: A new world of royalties

thiru at keionline.org thiru at keionline.org
Mon Sep 24 06:29:44 PDT 2012

September 23, 2012 9:15 pm
Intellectual property: A new world of royalties

By Alan Beattie
The US wants tougher IP rules in new trade deals but emerging markets are
worried about the terms

While 16th-century explorers secured royalties armed with 'letters
patent', US companies now want to protect theirs through trade deals

The early-modern European pioneers of global trade ventured abroad with
“letters patent” from their monarchs and sent back royalties for the use
of the sovereign’s name. These days, royalties accrue to the rising barons
of the global economy: the makers of internet technology, pharmaceuticals,
music and films. Global trade, once a matter of ports, trucks and
container ships, is increasingly a question of patents, trademarks and

The US, the imperial capital of intellectual property (IP) rights, now
earns almost as much in royalty and licence fee payments from abroad as
from its famed farm exports – and the net surplus in royalties for the US
last year was twice as big as for agriculture.

But the global spread of IP rules, with Washington as their most
enthusiastic advocate, has met resistance. Critics charge that, through
its attempts to write IP rules into trade agreements, the US is promoting
a one-sided – even dysfunctional – IP rights culture around the world.

Keith Maskus, an expert IP and trade at the University of Colorado, says:
“There is a lot of truth to the claim that the US has exported its IP law
– and the pathology of its IP law.”

Intellectual property has been an established if controversial part of
trade deals since the early 1990s, when Washington succeeded in writing
the Trips (trade-related aspects of intellectual property rights)
agreement into WTO law. Trips, to the anger of some developing countries
dependent on generic pharmaceutical production, forced WTO members to
enact a minimum level of patent, copyright and trademark protection. Many
nations argued this was onerous and the move also disturbed some orthodox
free-trade economists, who noted that granting a monopoly right like a
patent is a very different principle to lowering import tariffs to
liberalise commerce.

As the software, technology and entertainment industries have grown, and
the digitisation of media and the internet have integrated global markets,
the US – continually lobbied by the likes of Disney, Universal and
Microsoft – has pushed for ever tougher rules. For them, it is about rule
of law: for some developing countries, and campaigners already sceptical
of trade pacts, it is another power-grab by rich-world companies.

Strong opposition to IP from developing countries kept the issue out of
the global “Doha round” of WTO trade talks, launched in 2001. But with the
Doha round in effect dead, the US has pursued the issue in smaller deals
where it has relatively more clout. Chief among them is the Trans-Pacific
Partnership (TPP) with eight other Asia-Pacific countries, for which talks
were launched in 2010 and which the US wants to turn into a global
template for future pacts.

It is hard to assess progress in the TPP talks: apart from occasional
leaked copies, the negotiating documents are largely kept secret. But
there is no doubt that IP, and particularly copyright, is controversial.

The US administration insists that it is only trying to extend principles
that already exist in American law, trading off incentives for producers
with access for users. “It is important to make clear that we are looking
for a balanced copyright ecosystem,” a US official says.

Even that is too much for some. The US, under continual lobbying from the
entertainment industries, has relatively stringent laws on copyright. Its
Digital Millennium Copyright Act of 1998 placed more onus on online
service providers such as YouTube or eBay to take down copyrighted
material, shielding them from liability for posting unlicensed photos or
video only if they followed a precise set of rules. It also criminalised
attempts to circumvent the digital locks used to protect against copyright
infringement, such as “jailbreaking” cellphones to allow them to run
unapproved applications. The provisions in US law for “fair use” of
copyrighted material – for example for teaching or research – are
relatively tight.

Debates over intellectual property rights, free speech and the internet
are hardly new or exclusive to international trade pacts. Earlier this
year the US Congress staged a fierce argument over two proposed bills –
the Stop Online Piracy Act (Sopa) and the Protect IP Act (Pipa).

According to their opponents, the bills sought to turn search engines and
media sites into IP police by preventing them doing business with, linking
to or providing internet service for websites selling pirated material.
To continue reading, click here

Susan Aaronson, professor of international affairs at George Washington
University, says: “The US has a limited idea of fair use, which we largely
delegate to companies. This is not how it is done in other countries.”
While lower-income nations in the TPP, such as Vietnam, often have
straightforward rule-of-law IP problems like counterfeiting, even TPP
members with more advanced economies, such as Chile, would have to make
sweeping changes under the US proposals.

. . .

Chile, which last rewrote its copyright law in 2010, has relatively strong
protection for internet service providers and users against action for
copyright infringement, and would prefer that the TPP simply reaffirm
existing treaties such as Trips. Instead, the US has pressed Chile to
tighten its rules, placing it on its “priority watch list” for IP
violations along with nations such as Russia, China and Venezuela, and
pushed the issue hard in TPP.

Leaked negotiating documents have shown the TPP countries far apart on
copyright, with Chile’s resistance to US pressure shared by others
including New Zealand, Malaysia and Vietnam. Reports suggest Chilean
officials have mused publicly about whether it is worth participating in
the TPP, given that its exports already have good access to the US market
through a bilateral trade deal.

Even those who broadly support the US IP regime say the Obama
administration’s negotiating strategy risks exporting an unbalanced
version. In the US, so-called “limitations and exceptions” to copyright
have been carved out through case law and administrative decision, with
powerful internet and telecoms companies acting as a counterweight to the
entertainment lobby (see sidebar). The Librarian of Congress, for example,
has exercised a right to issue temporary exemptions from the digital lock
circumvention rules for certain types of material, such as DVD clips used
for university teaching.

Matthew Schruers, vice-president for law and policy at the Computer &
Communications Industry Association (CCIA), is concerned that the
countervailing forces in the domestic debate have less sway in trade
talks. “The US gives lip service to limitations but they tend to be
optional, whereas the obligations are compulsory,” he says. “If you only
export half a law, you can expect a bad reaction.”

The US administration says it has taken such concerns into account, though
it took a long time to articulate them. This July, more than two years
into the talks, the US trade representative’s office (USTR) publicly
released the outlines of a proposal to enshrine limitations and exceptions
to copyright law in the TPP.

Campaigners were instantly suspicious, not least because actual texts, as
ever, remained confidential. “This proposal could actually make things
worse by subjecting existing exceptions to a new and restrictive test,”
says Carolina Rossini of the Electronic Frontier Foundation, an internet
rights campaign group. US officials say such concerns are unwarranted and
that they have no intention of changing the rules governing so-called
“small exceptions” in international treaties. These protect copyrighted
material in quotations, news reporting and teaching.

USTR also defends its secrecy policy, saying it has conducted
“unprecedented outreach ... while maintaining a level of confidentiality
necessary to preserve the strategic ability of US negotiators to strike a
strong agreement”. Yet the precise details of the talks remain largely
closed from the public, stoking suspicion about the version of IP law that
the US is trying to foist on its trading partners.

Moreover, whatever the original intent of the negotiators, the experience
of IP in past trade agreements counsels caution. Australia, another TPP
country, has discovered how IP rules in international pacts can turn a
domestic policy area of cherished sovereignty like public health into an
unexpected battleground.

Last year Australia passed a law requiring all cigarettes to be sold in
plain olive-green packaging to discourage smoking. Canberra has been
embroiled in legal fights with the global tobacco lobby ever since,
cigarette manufacturers claiming the action violates IP rights by
assaulting the value of their trademarks.

Last month Australia’s high court dismissed a constitutional challenge on
those grounds by manufacturers. But Canberra still faces litigation in
international forums. Ukraine, Honduras and the Dominican Republic have
started cases against Australia at the WTO, arguing that the
plain-packaging rules break the Trips agreement.

Philip Morris, like other tobacco companies, is working with the Dominican
Republic on its case, including covering some of the governments’ legal
costs, as is common practice in WTO litigation. The company has also
aroused particular irritation in Australia by bringing a separate claim of
unfair expropriation using the “investor-state” litigation mechanism,
which allows a company to sue a government directly, in an Australian
bilateral investment treaty with Hong Kong. Philip Morris shifted its
holdings from Australia to Hong Kong shortly before launching the case to
give it legal standing under the treaty – raising concerns that foreign
companies have more rights in Australia than domestic businesses.

Philip Morris defends both that manoeuvre – which predated the
introduction of the plain packaging bill, though not the government’s
promise to legislate – and the substance of the complaint. “This is an IP
issue because nobody has produced any credible evidence to demonstrate
that plain packaging would benefit public health,” the company says.

Australia’s government, in a sharp break with the country’s tradition –
and to the concern of Australian companies operating abroad – now says it
will refuse to sign future treaties with investor-state provisions, and
has demanded an exemption from a proposed such mechanism in the TPP.

. . .

Whether the WTO and investment treaty litigation against Australia will
succeed is unclear. Refusing to allow tobacco companies to use their
branding is not the same as the government stealing trademarks by copying
them for its own use.

But the case underlines the potential for IP rules in trade deals to
arouse fierce dissent. Luke Nottage, a law professor at Sydney University,
argues that the Australian government’s decision is an overreaction, and
says that it could simply rewrite investment treaties to exclude IP
assets. But he notes: “IP is an area where national interests are strong
and often in conflict ... it is overtaking other issues like services
agreements in its ability to create controversy.”

As the global economy shifts online and more of its value-added comes from
research and design rather than fields and factories, few doubt the need
for rules allowing the creators of valuable content to be properly
rewarded. But acceptance and adoption of those laws may depend on their
flexibility over time and between different countries. For now, a
widespread suspicion remains that such rules are mainly being written by
their beneficiaries.


Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)

thiru at keionline.org

Tel: +41 22 791 6727
Mobile: +41 76 508 0997


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