Intellectual property (IP) comes in many forms. From software to song lyrics, to blockbuster films and more, intellectual property weaves its way into our everyday lives on a massive scale. When it comes to international trade, there are sweeping issues facing IP protections beyond states’ borders; as a result of this, countries such as the United States and the United Kingdom who have comparative advantage in IP trade have pursued policies aimed at reducing piracy in less regulated areas. The following article will examine IP as an asset to international trade, as well as the issues facing IP globally. I will subsequently analyze past and current strategies that have sought to limit piracy abroad—the success or failure of which have shown that liberal policies are most effective at preserving the integrity of IP trade.

To understand why a liberal approach is more effective at preserving IP protections globally, we must first understand the role that IP plays in the global economy. According to the Information Technology & Innovation Foundation (ITIF), today, the management of knowledge (IP) supports innovation and wealth creation even more so than traditional factors like labor, land, and capital (Ezell). Consider this: many farmers could not be competitive if they did not operate using patented technologies like the ‘Ferguson System,’ a three-point rear mounted attachment system that is universal to plows and tractors. Similarly, oil-exporting countries could not extract oil from the ground without patented oil pumps and drills. Combine industry reliance on patented technologies, with intangible goods such as software, films, music, and books, and you have a category of trade that is absolutely vital to the global economy. Moreover, the U.S. has a particularly strong comparative advantage in the international trade of IP, but despite the government’s best efforts, the state repeatedly fails to promote IP protections in certain states abroad.

China, Taiwan, India, Thailand, Brazil, and former Soviet states have high rates of piracy. Piracy most often occurs with software, films, and music, but can occur with other creative works as well (Goldstein et al.) Piracy has become a growing concern for U.S. IP trade, but many of the aforementioned countries have turned a blind eye to IP protections, allowing piracy to run rampant within their borders. Recent studies have shown that close to 80 percent of all films in both China and Russia are illegally pirated copies. Because of film piracy alone, it’s estimated the U.S. economy loses up to $70 billion USD annually (BSA). Compare that with the estimated $229 billion that the film industry actually contributes to the U.S. economy each year, and we see that film piracy accounts for the loss of almost a quarter of film’s potential economic contributions (NCTA). Similarly, the U.S. economy loses an estimated $12.5 billion to music piracy, and an estimated $23 billion to software piracy each year (BSA).

The statistics on piracy are alarming, but what does this loss of capital actually mean for the U.S.? The International Chamber of Commerce (ICC) projects that by 2022, there will be a net job loss of between 4.2 and 5.4 million due to piracy and counterfeiting (ICC). Piracy causes the loss of jobs in industries like music, film, and software, where pay is connected to the success of the product’s sales. For innovators, a lack of IP protections means that their inventions or designs can be cheaply reproduced and used as competitors in the market. The ‘fidget cube,’ for instance, was a 2016 invention by Matthew and Mark McLachlan; the plastic toy, designed for individuals with ‘fidgeting’ habits, was granted a U.S. patent in 2017. Before the ‘fidget cube’ could be released, a knockoff version called the ‘stress cube,’ sporting an identical design, flooded the U.S. market from a factory in Shenzhen, China. While the McLachlan brothers eventually released their invention, it was impossible to compete with the growing number of cheap knockoffs, and their company later filed for Chapter 11 bankruptcy in 2018 (Guzman). According to the ICC, the rate of piracy, counterfeiting, and knockoffs has been on the rise in recent years; the question remains: what should be done to combat the growing rate of illegal IP use internationally?

The first sufficient effort to protect IP in international trade came with the ‘Paris Convention for the Protection of Industrial Property’ in March of 1883. The treaty outlines major provisions for international patent and trademark filing across 178 member countries, but it does not dictate clear consequences for violators. More importantly, the Paris Convention introduces the principle of ‘national treatment’—the idea that participating countries should give the same level of IP protection to foreigners that they give to citizens. The treaty has been revised six times since its original drafting in 1883, and was amended in 1979. The Paris Convention led to the formation of the World Intellectual Property Organization (WIPO) in 1970, and has served as the foundation for global IP protection policy since its signing (WIPO 2018).

A few years after the Paris Convention, in 1886 the ‘Berne Convention’ was signed; it governs international copyright protections and establishes the first official appeals process via the international court of justice. Despite the writers’ best intentions, the Berne Convention’s appeals process has never been used by any party. The Berne Convention was a collective effort by writers and diplomats, and it sought to better regulate IP trade across rich western nations. The agreement had ten original member states: Belgium, France, Germany, Haiti, Italy, Liberia, Spain, Switzerland, Tunisia, and the United Kingdom. Similarly to the Paris Convention, the Berne Convention became archaic by the end of the twentieth century; many of its provisions were authored before software and film were invented, which led to ambiguous rules around copyright in those categories. Additionally, early IP protection treaties did little to mitigate widespread piracy and counterfeiting (WIPO 2018(b)). The Berne Convention was later incorporated into the ‘TRIPS’ agreement, which addressed many of the original agreement’s flaws.

The ‘Agreement on Trade-Related Aspects of Intellectual Property Rights’ or ‘TRIPS’ was enacted in 1995, shortly after the formation of the World Trade Organization (WTO). All of the members of the WTO are required to adhere to the IP regulations that TRIPS sets forth, and unlike past agreements, there are clear appeals procedures and consequences for violators of the agreement. The WTO has a strong dispute settlement body that has imparted punishments—such as sanctions or required compensation—on violator states. Even still, very few WTO disputes have involved violations of the TRIPS agreement (WTO 2017). TRIPS’s long-term success has been debated, but since its initial enactment, TRIPS has consistently provided strong IP protections internationally. Statistics from the International Monetary Fund (IMF) show that payments for the use of IP rights have increased by 1053% since TRIPS’s enactment in 1995 (WTO 2020). Critics argue that the success of the TRIPS agreement comes mainly from its inception, and that recent years have seen little progress. Let us examine the TRIPS agreement’s current status in 2021 to determine its long-term efficacy.

Each year, the United States Chamber of Commerce gives scores to a set of different economies, which are subsequently used to rank each country on its enforcement of IP protections; this is one way we can operationalize the state of IP protections, namely TRIPS, in 2021. In this year’s IP index, the chamber reports that 32 out of 53 economies measured had positive increases in their scores, with a 6.24 percent improvement of the overall benchmark. According to the official report, these improvements are shared across various categories including patents, trademarks, and creative works (Swanek). But beyond this, the report points to a newly developing “pipeline” of therapeutics and pharmaceuticals in international IP trade. Medication has been a common source of debate when it comes to current global IP protections. Some economists argue that the TRIPS agreement is unnecessarily strong in its protection of IP rights, and that in some cases, overly aggressive IP protections have prevented sick populations from receiving proper medication in their countries. Indeed, the TRIPS agreement has a checkered past with pharmaceuticals; with its drafting in 1995, the TRIPS agreement gave 20 years of patent protection to pharmaceutical innovations such as vaccines, but postponed compliance requirements for developing countries until 2005 (Smith). Since then, that compliance deadline has been pushed back, and with the COVID-19 pandemic, the debate over vaccine IP protections has risen to the forefront of international IP talks. In October of 2020, 62 WTO member states voted to temporarily waive the TRIPS agreement for COVID-19 vaccinations and vaccine technology. This waiver provides an important insight into the flexibility of TRIPS, but simultaneously highlights a need for revisions to the agreement’s problematic pharmaceutical policies (Gupta).

Dr. Molly Land, a professor of political economy at New York University, takes the common concerns around TRIPS a step further by arguing that some levels of counterfeiting and piracy are good for the global economy. Land argues that illegal acquisition and use of IP can (to an extent) stimulate the market by creating competition which agreements like TRIPS would otherwise prevent (Land). While there is merit to concerns about overregulation in IP trade, the notion that countries should deliberately use piracy and counterfeiting for economic stimulation is a radical idea that generally only applies to developing countries in the global south. Furthermore, dissolving TRIPS entirely would be unrealistic because without it, rates of piracy and counterfeiting affecting the U.S. would only increase drastically. The biggest culprit of inhibiting developing nations’ innovation growth is the set of principles informally labeled as ‘TRIPS Plus’—higher level IP protection demands that are pushed by developed nations such as the United States (note that TRIPS Plus is not a WTO agreement, nor is it formally connected to TRIPS). TRIPS Plus is an example of a U.S. policy that is mercantilist; it ignores the concepts of moral economy and mutual gains, instead focusing on policies that will protect the United States’ comparative advantage in IP trade. The most important distinction between TRIPS and TRIPS Plus is that TRIPS is an official, voluntary agreement that is maintained the WTO, where TRIPS Plus is informal, and puts unwanted pressure on foreign powers to realize U.S. policies. Though seeking relative gains seems like a logical approach on the surface, aggressive policies like TRIPS Plus ultimately make cooperation more difficult and trade relations more contentious (Jose).

Rooting global IP protections in international institutions like the WTO and international agreements like TRIPS is a liberal approach. The creation and maintenance of multilateral agreements assumes that states can achieve mutual absolute gains, contrary to the mercantilist viewpoint that all gains are relative in nature. The liberal approach has its flaws—the potential for overregulation, the potential for defection, and the need for constant redress of agreements—but the pros of relying on international institutions outweigh the cons. The WTO has effectively formed a regime on trade; since 1995, the world has seen dramatic improvements in IP protections internationally. Though piracy is on the rise, the number of parties paying for the legal use of intellectual property rights is also increasing at a comparable rate.

The mercantilist would likely argue that defection on the TRIPS agreement is logically inevitable. This is true of all long-term multilateral agreements; famous liberal theorist Kenneth Oye makes several key concessions in his paper Conditions for Cooperation. Oye concedes to the counterargument that cooperation is inherently difficult in international relations because states pursuing their rational interests will defect from agreements. According to Oye, there are three strategies that can be employed to forego collective action problems in international agreements: building cooperation over time, limiting the number of players, and changing the payoff structure (Oye). The TRIPS agreement has accomplished the first of these three strategies by building a robust regime over the last 26 years, fostering cooperation and loyalty from states, and standardizing global IP protections. Oye’s other two strategies, though, should be considered to mitigate piracy and counterfeiting in the modern era.

China and other states where piracy has been a growing issue have technically defected from the international trade regime by ignoring illegal IP activities instead of prosecuting them. To stop such defection, the U.S. should pursue bilateral agreements with problem states to seek out IP criminals and punish them domestically. Bilateral agreements concurrent with the TRIPS agreement would limit the number of players; instead of one agreement being shared across over one hundred countries, a more specific agreement could be shared between two. Limiting the number of players would also make accountability check-ups more feasible. Liberal economists tend to agree that bilateral treaties make way for better agreements and less defection; in her 2016 article What Could Be Done About China’s Theft of IP, Michele Nash-Hoff, an economist at San Diego State University, outlines a list of policies that the U.S. should incorporate into a bilateral agreement with China to mitigate the high rates if IP theft in the country. Her suggested policies include provisions for stricter enforcement of IP laws within China, and U.S. check-ups to ensure that China is upholding the agreement (Nash-Hoff).

According to Oye, the other way to mitigate regime defection is to change the payoff structure of agreements. Making cooperation less of a risk for both parties would encourage cooperation across the board. For example, in a weapons agreement, agreeing only to reduce offensive weapons would allow either party to retain its defenses, leaving both parties less vulnerable for cooperating. The risk involved with cooperating in IP protection agreements is losing out on potential domestic economic gains from piracy and other illegal IP activities. If the U.S. changed the payoff structure of bilateral agreements so that developing nations could be rewarded with lower tariffs or discounted IP trade, it would promote innovation development in those nations without the need for piracy. Similarly, in his article Cash for IP, economist Patrick Herbst formulates a system by which developing countries can be subsidized for U.S. IP rights using a credit system. According to Herbst, by using fungible credits to discount IP, the U.S. can reduce the cost of IP rights for developing nations, whilst not risking foreign assistance in the form of actual money, which could easily be spent elsewhere (Herbst et al.). Policies like those that Herbst suggests would encourage developing nations to stimulate their growing economies with legally obtained IP, rather than relying on piracy.

While IP is not the only form of trade facing mounting issues of integrity from regime defection and disregard for the WTO, it is certainly a good that is vital to innovation and economic development for all countries. The efficacy of early agreements such as the Paris and Berne conventions, and the success of the TRIPS agreement in the modern era has shown that a liberal approach rooted in regime building is far more effective than the mercantilist approach that disregards mutual absolute gains. While the liberal approach to IP protections is not without its flaws, the TRIPS agreement stands as the current paradigm of multilateral agreements. To preserve its economic interests in the exporting of IP, the U.S. should further liberal policies through several bilateral treaties that limit the number of players and alter the payoff structure for developing nations where piracy rates are high. By following the liberal approach, IP protections can be supported while sustaining high innovation and development, leaving a more prosperous global economy for all.

References

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