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

[Riaz K Tayob]

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 ©Getty 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 copyright. 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. --



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