Sunday, September 9, 2007

Global Innovation Fatigue: The Demise of International Intellectual Property Rights

The protection of intellectual property rights in the US has arguably been a key factor in the explosive right of the American economy and strength of this republic realized in the dew short decades since its founding. The US Constitution itself is the basis for this protection. Article 1, Section 8 stipulates that "Congress shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." It is the inventors--not those who first file a patent application--who should have the exclusive right to their inventions for limited times.

The notion of property rights is embedded in the language of the Constitution's "Intellectual Property Clause." Our Founders recognized that protection of these rights would promote, not stall, progress in science and the useful arts. When property rights exist, people are motivated to invest time and effort in developing that property, whether it is land, a business, or an invention. When such rights are not secured, when others can simply take what you build or invent, then the motivation to develop and invent is removed. When the only way to protect an invention is to keep it secret, then progress is stymied and we return to the Dark Ages, when inventions were not made public but hidden within the protections of archaic guilds, requiring years of apprentice work before one could be trusted with the secrets of technology. Such a system keeps nearly everyone in the dark and hinders scientific progress.

The beauty of the social compact in the US patent system is that inventors are offered exclusive rights for a limited time, if they will share their secrets with the whole world in the form of an enabling disclosure in the specification of a patent. Once their limited period of exclusivity expires (now 20 years from the date of filing), the monopoly is over. Inventors are motivated to invent and to share their knowledge, and progress can be incredibly rapid. But not when property rights are denied.

Sadly, intellectual property rights are not recognized or adequately protected in many parts of the world. And there are increasing global pressures to weaken intellectual property. Though collective rather than individual rights can sound appealing, the result of collectivist systems is often a far cry from the promise of politicians. Make drugs free for all, take away the property rights of those who take on the risk and expense of developing and testing drugs, and suddenly the incentive to discover and develop safe, effective drugs has vanished. Government can appoint and fund labs to do this work, but the inherent tendency of government to be bureaucratic, monolithic, and inefficient will result in pathetic results, on the average, compared to what inventors can do when their rights are protected.

"Innovation fatigue" is felt strongly in countries where corruption or poorly developed legal systems result in little or no protection for intellectual property. This has been cogently argued by Hernando de Soto, a Peruvian economist and winner of many awards such as the 2006 Bradley Prize for outstanding achievement from the Bradley Foundation and the 2006 Innovation Award from The Economist magazine (December 2, 2006) for the promotion of property rights and economic development. De Soto has shown that a key factor in keeping poor nations poor is their lack of property rights.

De Soto referred to the need for property rights for the poor to be able to rise out of poverty in his speech, "Most People Cannot Participate" given in Brussels, October 30, 2001:
Over the last 6 years, my organisation, the Institute for Liberty and Democracy, ILD, has travelled all over the world, working directly with Heads of State, to determine how many of their citizens' assets can travel globally. Let me give you the example of Egypt which my Egyptian partners have allowed me to reveal.

After many years we determined that the poor in Egypt had accumulated an enormous amount of assets. In real estate alone they owned over US$ 241 billion in land and buildings. US$ 241 billion is more than 55 times the value of all foreign investment in Egypt over the last 200 years, it is 30 times the value of the Stock Exchange of Cairo, and it is 70 times the value of all foreign aid received by Egypt since the times of Napoleon, including the cost of the Suez Canal and the Aswan Dam. But none of it is titled in such a way that it can secure a loan, enforce a mortgage, and permit the sale of any of these assets on a global or even a national scale. Which means that most of the assets that the poor in Egypt own, even though they exceed the value of private foreign investment and public foreign aid, cannot reach the levels required to produce real wealth and be assessed globally.

The case of Egypt is the same as that of other developing countries. On average over 80 percent of the assets that the poor own in developing and former Soviet countries cannot enter the market through legally governed representations. So the first challenge globalisation faces is how to include the overwhelming majority of citizens of the world who cannot participate in the global economy, and who are therefore at a tremendous disadvantage.

To answer then the question of Prime Minister Verhofstadt "How can the poor benefit from globalisation?" the reply is through property law. The problem in the world is that there is a huge legal lag. We have forgotten that the capitalist economy is essentially a legal construct. Capitalism and globalisation is nothing else than a legal framework which through representations and rules allows us to interconnect. And over 4 billion people in the world have no way to interconnect because the law does not apply to them.
The Marxist ideal of no property rights has been demonstrated to be powerfully effective - not in liberating the lower classes, but in holding them firmly trapped in poverty. It is respect of property rights that has created the means for men to be equal - not in results, but in opportunity. The lone inventor can stand before the giant corporation, patent in hand, and declare, "This is my property, and you have no right to take it as your own for free."

As valuable as such property rights are, they are being eroded globally, and American businesses and leaders everywhere need to be more active in resisting this threat. In fact, I would suggest that it's the socially responsible thing to do!

Bruce Lehman discusses some of the global IP challenges in his chapter, "Global IP in Crisis: The Threat to Shareholder Value" in Making Innovation Pay (Bruce Berman, New York: John Wiley & Sons, 2006, pp. 125-139):
While the 1990s was a time of strengthening of the global intellectual property systems, recent years have seen a dangerous shift toward weakening IP protection around the world. The thought is that those with patents have too much power or that the patent system is somehow broken and in need of a major overhaul. For example, in the current Doha Round of trade negotiations, developing countries are pressing for lowering the high level of IP protection reflected in the TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights) that was achieved in 1994 in the prior Uruguay Round of trade discussions. An illustration of this pressure for weaker IP rights is a proposal by Brazil and 13 other developing countries to modify the charter of the World Intellectual Property Organization (WIPO) to establish the principle that a country's level of intellectual property rights should reflect its level of development. In other words, the poorer the country, the less it needs to recognize and enforce intellectual property rights. While this approach may seem fair to some, it is potentially very dangerous to innovation and world prosperity, not to mention shareholder value.

Another problem that has surfaced in WIPO concerns negotiations to harmonize the world's patent laws. For several years, WIPO has been attempting to formulate a new patent law patent law treaty. For the most part, negotiators from the United States and other developed countries have been experts from national patent offices, who are generally seeking to reach agreement on important technical and legal issues (e.g., prior art, grace period, novelty, and inventive step) to improve the efficiency and operation of national and regional patent systems. In contrast, the representatives from developing countries are largely trade diplomats who also deal with highly political trade issues. Rather than improving the coordination and functioning of national and regional patent offices, their goal is to extract concessions on trade issues. In addition, they actively work to stall progress on the technical and legal IP issue of interest in an effort to gain leverage in trade negotiations that are taking place in WIPO's sister organization, WTO.

Another disturbing development is the number of anti-IP non-governmental organizations attending WIPO meetings. . . . Their aggressive presence and lobbying at WIPO are making it more difficult to harmonize and strengthen the patent system. By contrast, there has been much more limited and ineffective participation by IP-dependent industries in WIPO.

Ironically, while the financial press is full of stories emphasizing the importance of global markets and developing economies to corporate growth, few corporate leaders today seem to be responding to these assaults on the system that protects their shareholders' intellectual property rights in these very same markets. If this assault on the international IP system is to be controlled, senior management of IP-dependent companies (practically every global 1,000 company) need to become more engaged, proactively working with their own governments and sending the message that strong IP protection and enforcement is worth fighting for.
Weakening intellectual property rights around the world bodes poorly for innovation and prosperity, while raising the spectre of increased "innovation fatigue" for prospective inventors, who only need a little recognition and protection for their creations in order to benefit us all with their work.

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