Why Protecting Intellectual Property Rights are Important for Creating Wealth Prepared By: Tony Lyall Why Protecting Intellectual Property Rights are Important for Creating Wealth What is intellectual property? The World Intellectual Property Organization defines intellectual property as the “creations of the mind: inventions, literary and artistic works, and symbols, names, images and designs used in commerce” (WIPO).
If a country wants to create wealth it must provide opportunities for its citizens to protect their intellectual creations from thief, otherwise there is no incentive for people to be inventive, creative or to produce new ideas, products or services and bring them to market. Without newly created goods and services the market for exchange would soon dry up and the opportunities for creating new wealth would as well. It is important to the creator of intellectual property that he be allowed the opportunity to profit from his work.
Commonly intellectual property is protected by the use of copyrights, trademarks, servicemarks, patents, industrial designs and trade secrets. A “copyright is a form of protection provided to the authors of “original works or authorship” including literary, dramatic, musical, artistic, and certain other intellectual works both published and unpublished”. A “trademark is a word, name, symbol or device which is used in trade with goods to indicate the source of the goods and to distinguish them from the goods of others”.
A “servicemark is the same as a trademark except it identifies and distinguishes the source of a service rather than a product. ” A “patent for an inventor is the grant of a property right to the inventor” (USPTO). Trade secrets are formulas, processes, services or similar things that give companies a competitive advantage over their competition, for example the formula for Coca-Cola or Kentucky Fried Chicken’s eleven herbs and spices recipe. Industrial designs are the designs for Page 1 quipment or machinery that allows a company a competitive advantage. The rights given the creator by these instruments give the individual or company a type of legal monopoly to profit from the creation for a certain number of years dependent on the method used without outside interference. The rights granted by these intellectual property protections are normally territorial and require the inventor to apply for the necessary protection in each country in which he or she desires protection of the intellectual property.
One exception is the Berne Convention which provides protection of copyrighted works of authors are automatic with no registration required. Countries who are members of the Berne Convention must copyright works for a least 50 years, or longer if the country wishes, after the author’s death, photographic and cinematographic works are excluded (Wiki). Without the protection afforded to intellectual property rights inventors and creators would be subject to their valuable ideas and creations being stolen and duplicated for profit by others.
Even with these protections many individuals and corporations are constantly battling counterfeiting and brand hijacking. The Organisation for Economic Co-Operation and Development (OCED) estimates counterfeiting and piracy cost the world economy 200 billion dollars annually. The OCED states “counterfeiters and pirates target products where profits margins are high, taking into account the risk of detection, the potential penalties, the size of the markets that could be exploited and the technological and logistical challenges in producing and distributing products” (OCED, 2007).
This sounds like the actions of any well run competitive firm, however, these actions result in counterfeiters and those who pirate products having an unfair advantage in the marketplace. These firms pay nothing for the research and development costs involved in producing the new product; they have no advertising expenses, no expense for Page 2 packaging design or development and are not responsible for warranty or service claims.
They are therefore able to sell the product considerably cheaper than the original manufacturer. The problem has grown to include organized crime because as the compensating differential for higher profits increases, and the lack of concerns by the authorities prevails, the risks of prosecution are small compared to the financial awards available. Several countries have turned a blinded eye to the situation and seem to think is not really a crime that warrants serious consideration.
The products affected cover just about anything you can imagine apparel, footwear, automotive parts, pesticides, electronics, foods, drinks, watches, leather products, drugs, tobacco, household products and furniture just to name a few. In 2005 the International Chamber of Commerce launched The Business Alliance to Stop Counterfeiting and Piracy (BASCAP). The Chamber recognizes that counterfeit and pirated products are a threat to a free economy and its rapid growth in developed and undeveloped countries a serious problem.
Counterfeits reproduced by others without permission can be of poor quality and inferior materials. For example, brake pads made from compressed grass, baby food without proper ingredients or proper cooking, cigarettes with cheap additives to the tobacco, inferior materials used to produce cars and airplane parts, toys painted with lead paint, all sold as the original brand in identical packaging. These products can be very unsafe and result in harm to the user. Piracy includes the” illicit reprinting of or reproduction of a copyrighted book” (Black’s Law Dictionary).
Pirated works steals wealth from the author and publishers who are prevented from collecting royalties for his or her work. It is interesting to note in the 1800’s in the United States most of the contents of the books published here were illegally copies without compensation to the author and publisher from best selling books being published in Page 3 Europe. This resulted in copyright laws in Europe protecting European writers and publishers and forcing U. S. publishers to come up with original works (CyberCollege).
The Chamber states of counterfeits, “Millions of consumers are now at risk from unsafe and ineffective products, and governments, businesses and society are being robbed of hundreds of billions in tax revenue and business income and jobs. Taken together with the value of domestically produced and consumed counterfeits, the significant volume of digital and fake products being disturbed via the internet, and the loss of economic development, harm to health & safety, reduced technology transfer, and innovation, the total magnitude of counterfeiting and piracy orldwide is well over US$ 600 billion” (BASCAP). While $600 billion is certainly the high end of estimates, lower estimates of $200 billion still indicate an enormous market for these goods. BASCAP is actively involved in the fight to reduce the infringement on intellectual property rights actively participating in the annual G8 Summit, OECD, Interpol, and WIPO. In many instances counterfeiting has been actually encouraged by a government which was the case in China. Many businesses produced nothing but counterfeit goods in China and were eagerly encouraged and financed by the Chinese government.
With China’s enter into the WTO organization this situation has now supposedly stopped. The WTO has opened an office in China to monitor the situation. It will be interesting to see if a practice that was the norm for so long can be completely curtailed. The World Intellectual Property Organization (WIPO) is an agency of the United Nations established in 1967 charged with “developing a balanced and accessible international intellectual Page 4 property (IP) system, which rewards creativity, stimulates innovation and contributes to economic development while safeguarding the public interest” (WIPO).
Since its beginning the WIPO has been instrumental in promoting IP rights among the 184 member countries it refers to as “Member States”. The World Trade Organization (WTO) has been very active in trying to protect intellectual property rights around the world with its Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The WTO through the TRIPS agreement attempts to protect Intellectual Property Rights (IPR) internationally among its members.
The WTO states, “Society benefits in the long term when intellectual property protection encourages creation and invention, especially when the period of protection expires and the creations and inventions enter the public domain” (WTO). The TRIPS agreement cover five issues: (1) application of IP agreements and principles of trading among members; (2) protection of IP rights; (3) enforcement in the members own countries; (4) settlement of disputes between members; (5) special agreements to members during the introduction phrase. The TRIPS agreement also covers actions against selling goods in another country at a rice that is unfairly low. Anti-dumping disallows a country to export goods to another country and sell them at a price that is lower than charged in the manufacturing country causing harm and killing competitive similar products in that market. The TRIPS agreement allows the offender if he harms the industry in the competing country to be removed from exporting to the harmed country for a period of five years or requires the seller to rise its’ price to the proper level. TRIPS also contain safeguards against tariff and non-tariff barriers that are important to free trade.
Page 5 While there are many people and organizations that support intellectual property rights there are also those who insist that IP restricts the development of new products and is not a reward to inventors and creators but a form of monopolistic privilege and censorship. Markus Krummenacker in his paper Are”Intellectual Property Rights” Justified? traces the historical origins of IPR back to the English Crown. He states “the English Crown granted patents in order to raise funds and to secure control over industries that were considered to be of political importance…….. nd was a measure for ensuring government control over the printing press, in a time of great religious and political dissent” (Krummenacker, M. ). The system became so political it included not only production items but also things such as salt and leather. This became so unpopular that it was eventually abandoned and replaced in 1620 by the “Statute of Monopolies”. The English Crown still retained control over the production of some items including gunpowder, munitions and the printing press claiming national security interest.
Later the rights of publishers and authors were emphasized in 1710 with the passing of the Statue of Anne. Krummenacker insists that IPR’s are “artificial constructs, erected by powerful governments for very particular political purposes……….. tries to enforce artificial barriers upon the free flow and use of information, thus creating scarcity where it is most damaging to all humanity and where a rich bounty of wealth could exist instead” (Krummenacker, M. ) The government claims to promote IPR’s to encourage creativity. One field in which this idea appears to have faults is the software industry.
Until the early 1980’s there were no software patents and the industry grew rapidly on its own in the preceding twenty years. Since the introduction of software patents new technology has been stalled in lawsuits restricting the release of the newest technologies to consumers. It is Krummenacker’s stand that the only Page 6 people benefiting from the IPR’s game is the IP lawyers by using “scare tactic, painting dark pictures of other companies plastering the landscape with patents, disabling technology access for the client company, unless the client launches a pre-emptive strike first”.
Rather than issuing patents and copyrights Kummenacker suggest “rapid product development to get to the market first, creating a really well-done and superior product, and using well-thought out market strategies to satisfy the needs of a larger potential customer base”. This he argues is better than filing large numbers of patents and copyrights and then incurring the expense of discovering and suing all those who infringe. This system only benefits large corporations who hold hundreds of patents and IP lawyers who are interested in obtaining fees.
According to Krummenacker eliminating the current patent system would open the whole economy to fresh ideas and a world of new creativity without the fears of legal action. The current system of protecting IPR’s is well established and is credited with promoting democracy and building wealth after the economy and personal incomes have reached a certain point of economic development. While it may not be perfect, no system ever is, it does have the support of the major developed countries of the world and has worked well when everyone plays fairly together.
I don’t believe that changing things now and eliminating the current system would result in anything other than pure chaos. If the market finds it necessary to give away its inventions it will be for the purposes of selling complementary items of perceived higher value. In the future this could surely happen with such things as software programs. In any event we are still concerned with building wealth and that in itself would continue the wealth building process but only in a different way in which we have been use too.
Right now I think we have a system that works, builds wealth, and protects the creator by allowing the recapture of research Page 7 and development costs and stimulates the desire to invent again. Changing the system now even though it may have its faults would severely hamper the market as we know it and would surely deter creativity and as a result destroy the desire to build wealth. Page 8 References World Intellectual Property Organization. What is Intellectual Property? Retrieved from: http://www. wipo. int/about-ip/en/index. html. United States Patent and Trademark Office.
What are Patents, Trademarks, Servicemarks and Copyrights? Retrieved from: http://www. uspto. gov/web/offices/pac/doc/general/ whatis. htm Berne Convention for the Protection of Literary and Artistic Works. (n. d. ) Retrieved June 11, 2010. from Wikipedia: http://en. wikipedia. org/wiki/Berne_Convention_for-the-Protection_of-Literary_and-Artistic_Works Organisation for Economic Co-Operation and Development. (2007) The Economic Impact of Counterfeiting and Piracy: Executive Summary. Retrieved May 26, 2010 from http://www. org/dataoecd/13/12/38707619. pdf. Business Action to Stop Counterfeiting and Piracy. What is BASCAP?
Retrieved May 30, 2010 from http://www. iccwbo. org/bascap/id883/index. html. Piracy (1979). Black’s Law Dictionary with Pronunciations 5th Edition. By Henry Campbell Black, M. A. CyberCollege InternetCollege. (n. d. ) Puritans to Pirating. Retrieved June 11, 2010 from http://www. cybercollege. com/frtv/book2. htm World Trade Organization. Intellectual property: protection and enforcement. Retrieved May 30, 2010 from http://www. wto. org/english/thewto_e/ehatis_c/tif_e/agrm7_e. htm. Krummenacker, M (1995). Are “ IntellectualProperty Rights” Justified? Retrieved from http://www. n-a-n-o. com/ipr/ectro2/extro2mk. html/