IP4D

Intellectual Property is an oddball in international development. It’s one of the areas where developing countries are expected to bring their institutions and policies up to the highest international standards effectively overnight. The argument goes that without strong and strict IP regulation, foreign companies won’t invest in a country (usually in the form of building factories), so the country won’t be able to make significant strides in expanding its economy. Besides, IP is unburdened by physical infrastructure, so it should be easy to change the regulations of it. Everyone wins, right?

Naturally, it’s not as simple as this strawman-level argument. There are two separate debates to be had here - what is the ideal level of international IP regulation, and what is the most beneficial path for developing countries to adopt that ideal level. Most beneficial, that is, for the developing countries in question.

I believe that our current IP regulation framework has wandered into the deep end and is over-protecting IP. Further, I believe that over-protection actively hurts the very innovation it is theoretically meant to encourage by protecting first-movers and first-litigators over innovators. Protectionism is as damaging to the free flow of ideas as it is to the free flow of goods. This post is not about IP protectionism, though.

Let’s presume that there is an ideal international IP framework that at least most of the world’s countries could agree on that enables and encourages transnational business by reducing the risk of rampant IP theft. (While we’re at it, we could also pretend that China would abide by the rules!). Given some ideal (one which is presumably greater than zero IP protection) how should LDCs approach IP policy, so as to attract foreign business, but also encourage domestic innovation?

The current situation is that development agencies lean towards imposing strict IP regulation - often above and beyond even the rules the WIPO sets or the WTO enforces among the wealthier nations - using the basic argument that without such regulations, businesses will not invest. While not wholly false, neither does this ring true.

If there is a business case for entering a country, local IP policies are only one of many risk factors involved, and there are always creative ways to mitigate risk. We don’t require a country to bring it’s entire electrical grid up to OECD-level standards because businesses would be wary about investing in a country that doesn’t have a completely modernized grid. Why? Because the cost is too great, and the business can make side deals with the government or the power utility to get priority access; or mitigate its risk of blackout with backup generators.

The same risk-reduction approach could work for IP problems. Shooting from the hip, two mitigating tactics come to mind; companies could reduce their exposure by limiting what technology they bring (clearly sub-optimal from the developing country’s standpoint), or work with the government to get a gentleman’s agreement to enforce contractual laws and sign strict confidentiality agreements with workers who deal with sensitive, proprietary technology.

This presumes that a country would not immediately adopt stronger IP regulations in order to attract business. Seeing as how this hasn’t just happened without external pressure, one can only presume there’s more to it. What is the cost of a country adopting a strict IP regulatory framework? They’ll have to do it eventually anyway, and it’s largely just passing a law and hiring some lawyers and judges to monitor and enforce it, right? I’d argue that there are significant social costs in leapfrogging from little or no regulation to strict adherence.

The 2001 Doha Declaration during the Doha round of WTO negotiations, is an example of LDCs banding together to limit the impact of strong IPR. In this case it was a push back against the TRIPS agreement – specifically with regards to access to medicine. The Doha Declaration forced a bill of LDC rights to provide medicine to their citizens regardless of IP protections. However, biltateral and multilateral agreements since the Doha Declaration (it’s important to note that the WTO is a one-nation, one-vote system) have chipped away at these rights. CAFTA-DR has and FTAA discussions worked at strengthening IPR through these side agreements, effectively reversing the Doha Declaration and adding restrictions on pharmaceutical test data. This test data exclusivity protects the data normally available to the public through regulatory submission, which arguably holds back generic drug manufacture.

In forcing TRIPS-level IPR on LDCs through CAFTA, we may be guilty of “kicking away the ladder” (Ha-Joon) for their own development process, preventing them from fostering new comparative advantages. The US in its early history played loosely with IPR, disregarding patents held in England in order to foster domestic innovation. Strong IPR encourages continued dependency by creating a barrier for domestic industries which would initially overlap existing US IP – by respecting the vast array of patents in the US, innovation in LDCs is crippled; they simply can’t afford the licensing fees required to stand on the shoulders of giants.

IP protection should be encouraged in LDCs, but the focus should start with bringing them to WIPO standards and encouraging their industries to catch-up, hopefully replicating South Korea’s infant industry protection that has proven so successful. This gradually raises the market bar and the available IP protection, enabling countries to purchase more expensive goods and services as well as attract more IP-intensive industries, creating a real global increase in IP protection as countries increase IP protection in support of local industries.

Though there is a chance that MNCs working in countries with weak IPR may be training future competitors, it is also the case that they are creating a market for their own goods and services. By enabling LDCs to catch up, they may develop new comparative advantages – as seen in India and South Korea, creating global economic benefits.

Our trade policies should increase global IPR harmonization rather than force strong IPR. To that end, pushing IPR regulation should follow the pattern of CAFTA-DR for labor, which used the ILO guidelines, and focus on standardizing along WIPO or WTO-TRIPS guidelines, and respect the Doha Declaration. Pushing beyond these guidelines should be discouraged inasmuch as possible, but to some extent political needs will force some change. Also along the lines of CAFTA-DR, FTAA implementation should include funding to support LDCs in creating their legal frameworks and beginning to enforce them.

IPR in LDCs covered in the FTAA should be allowed some amount of appropriation of technology, and focus on reducing the worst forms of piracy and IP theft. A gradual increase in IP regulation and enforcement will lead to much more successful adoption. Destroying informal markets and requiring rapid compliance with strong IPR will at best simply fail. A slower process will encourage domestic development of new industries in LDCs. Though this may be a short-term loss for US companies, in the long run it will create larger markets in the FTAA for the more knowledge-based, high-tech and service industries that the US is focusing more and more on. Efforts can be made to reduce the backflow of such appropriated goods to not enable gross abuses of this allowance. This more lenient approach will be easier to swallow for our trading partners, and long-term more beneficial.

But does the BSA’s own data support the claim that implementing the WCT is a key element in combating piracy? The short answer is no. WIPO lists seventy countries as having ratified the WCT. The BSA does not offer data for 16 of them (Belarus, Benin, Burkina Faso, Gabon, Ghana, Guinea, Jamaica, Kyrgyzstan, Liechtenstein, Mali, Mongolia, Saint Lucia, Tajikistan, Macedonia, Togo, Trinidad and Tobago) and there is no comparative data for Georgia (this is the first year of data at 95% piracy rate). That leaves 53 countries. The full chart can be downloaded here, but the data shows that […] 68% of the countries that the BSA tracks that have ratified the WCT have shown no change or only a minor increase or decrease in software piracy rates. The three countries that showed a significant decrease are Russia (which only ratified in February), China (which ratified in 2007), and Qatar (which ratified in 2005). Russia and China are important markets, yet their numbers remain very high (68% in Russia and 80% in China) and few would argue that the big declines are as a result of anti-circumvention legislation. Moreover, the average software piracy rate among WCT ratifying countries is 62% and, as mentioned, only five countries that have ratified the WCT have software piracy rates lower than Canada’s. – https://www.michaelgeist.ca/content/view/3958/125/

My take is that where software piracy rates are declining, this is due largely to the increasing use of open source alternatives and tougher enforcement.