Rediscovering the Value of Intellectual Property Rights - Itssd

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Rediscovering the
Value of Intellectual
Property Rights


By Lawrence A. Kogan

ITSSD

2

April 17, 2007


Presented at


The 20th Liberty Forum


Of


Instituto de Estudos Empresariais
-

iee


“Property Rights and Development”



‘IP in the 21st Century: Challenges & Concerns’


Porto Alegre, Brazil

April 17, 2007


ITSSD

3

April 17, 2007

I.
Why is it Important to Recognize and Respect Private Intellectual Property?


Because:
Like Other Private Property, IP is Rooted in the International Order.


Private

IP

Rights

Fulfill

the

Goal

of

the

Established

International

Order




Private

Property

ensures

int’l

peace

&

security

thru

trade

&

investment

(T

&

I)


Private

Property

promotes

peaceful

economic

competition


Private

Property

provides

opportunities

that

enable

people

to

realize

their

individual

potential
.



Private

Property

depends

on

Exclusivity

&

Legitimacy


IP

Laws

that

protect

private

property

rights

provide

public

benefits


Granting

or

withholding

property

status



The

Roots

of

Private

Intellectual

Property

(IP)



English

statutory

and

common

law


Enlightenment

principles



Natural

Rights


De

Tocqueville


Federalist

Papers

ITSSD

4

April 17, 2007

I.
Why is it Important to Recognize and Respect Private Intellectual Property?


Because:
Like Other Private Property, IP is Rooted in the International Order.


Private

IP

is

an

Internationally

Recognized

Economic

and

Legal

Right



The

WTO

TRIPS

-

1995
;

(Extensions

until

2006
;

then

2013

for

LDCs)


The

WIPO

Patent

Law

Treaty



2005


The

WIPO

Copyright

and

Related

Works

Agreement



2001



Private

property,

Including

IP,

is

an

Internationally

Recognized

Human

Right



The

United

States

Constitution



1789

and

accompanying

Bill

of

Rights



1791


Art
.

I,

Sec
.

8
,

Clause

8
;

5
th

Amendment


The

Universal

Declaration

of

Human

Rights



1948


The

American

Declaration

on

the

Rights

and

Duties

of

Man



1948


The

International

Covenant

on

Economic,

Social

and

Cultural

Rights



1976


The

Universal

Declaration

on

the

Human

Genome

and

Human

Rights



1999


The

Vienna

Declaration

and

Programme

of

Action



1993


The

Constitution

of

the

independent

and

sovereign

Republic

of

Mongolia



1992




It’s

Time

Brazil

Learns

There

is

Something

Called

IP

(
Brazzil

Magazine



9
/
22
/
06
)


ITSSD

5

April 17, 2007

II.

What are the Economic Impacts to a Culture that Disregards Private IP?



Answer:

Loss of Economic Opportunity and Incentive for Tech Innovation


IP

is

the

Global

Engine

of

Future

Scientific,

Technological,

and

Economic

Growth,

Trade

&

Investment



“Intellectual

property

is

a

crucial

factor

[in

helping]

nations

attain

sustainable

economic

and

social

development
.




“The

chemical

and

pharmaceutical

industries

appear

especially

sensible

to

patenting
.


Protection

of

IPRs

is

one

of

‘key

factors’

needed

to

ensure

the

competitiveness

of

firms

operating

in

Latin

American

regional

markets



Private

Patent
-
based

IP

is

Economically

Valuable



Utility

Patents

&

Plant

Patents


The

economic

value

of

patents,

in

ICT,

pharma

&

biotech

sectors

has

been

rising


Patents

must

promote

the

progress

of

science

&

the

arts

in

exchange

for

a

temporary

exclusive

intangible

property

right


Patents

serve

four

key

functions

within

society

ITSSD

6

April 17, 2007

II.

What are the Economic Impacts to a Culture that Disregards Private IP?



Answer:

Loss of Economic Opportunity and Incentive for Tech Innovation


Privately
-
owned

Copyrights

(in

Original

&

Derivative

Creative

‘Expressions’)

are

Economically

Valuable


“The

essence

of

copyright

law,

like

other

systems

of

property

rules,

is

the

power

to

exclude
.


Original

&

Derivate

‘Works

of

Authorship’,

including

computer

programs


‘Open

Source’

Non
-
proprietary

systems


General

Public

License

(GPL)



‘Copyleft’


Berkeley

Systems

Development

(BSD)

Model



‘Copy
-
center’



Brazil

Mandates

Use

of

‘Open

Source’

Software


Bill

PL
-
2152
/
2003


PC

Conectado


President

Lula

studies

a

draft

decree


But
...
the

GOB

does

NOT

specify

which

open

source

model
...

ITSSD

7

April 17, 2007

II.

What are the Economic Impacts to a Culture that Disregards Private IP?



Answer:

Loss of Economic Opportunity and Incentive for Tech Innovation


Trade

Secrets

&

Testing

Data

are

Valuable

IP

in

Pharma

&

Biotech

Sectors


Costly

confidential

and

proprietary

clinical

testing

data,

know
-
how,

or

other

undisclosed

information


Such

data

is

granted

temporary

‘exclusivity’

or

treated

as

a

‘trade

secret’

by

many

countries,

including

the

U
.
S
.


Serves

as

an

incentive

to

innovate

&

to

compensate

the

originator

for

data

generation

costs


Reflects

“an

attempt[]

to

prospectively

protect

the

originator’s

investment


A

grant

of

temporary

market

exclusivity

does

not

depend

on

the

existence

of

patent

protection


Data

Exclusivity

-

No

third

party

applicant

can

rely

on

original

applicant

data

filed

to

obtain

a

marketing

authorization



Information

that

the

originator

made

a

reasonable

effort

to

keep

secret

(from

public

knowledge),

and

that

has,

in

fact,

remained

undisclosed

(‘secret’)

at

the

time

submitted

to

regulators




Trade

Secrets

&

Testing

Data



Legal

Significance


Common

law

of

trade

secrets

&

unfair

competition





‘Prospective

Economic

Advantage’

ITSSD

8

April 17, 2007

III. How Important is an Efficient Patent Registration System?


Answer:

It Allows for Conversion of ‘Dead’ Capital into ‘Liquid’ Capital


Inefficient

Patent

Systems

Discourage

Domestic

Innovation



Developing

world

has

much

underdeveloped

‘dead’

capital,

including

intellectual

capital

that

can

be

converted

into

‘liquid’

capital


World

Bank‘s

recently

released

“Doing

Business

2007


report


Property

registration

in

Brazil

is

difficult


World

Bank’s

recently

released

“Doing

Business

in

Brazil

2007


report


Brazil’s

poor

rankings


Brazil‘s

inefficient

real

property

registration

system

is

a

negative

harbinger

of

its

IP

/Patent

registration

system


Create

Critical

Patent

Backlogs

-

According

to

GOB’s

INPI,

1

year

ago

there

were

only

40

trademark

examiners

and

88

patent

examiners


Create

Very

Poor

Operational

Conditions

-

A

lack

of

qualified

personnel

at

the

INPI

results

in

the

limited

use

of

the

industrial

property

system

in

Brazil
.


Encourage

Ideological

Biases

Against

Proprietary

IP

ITSSD

9

April 17, 2007

III. How Important is an Efficient Patent Registration System?


Answer:

It Allows for Conversion of ‘Dead’ Capital into ‘Liquid’ Capital


Inefficient

Patent

Systems

Promote

Trade

Protectionism

&

IP

Nationalization
;

Impede

Industry’s

Ability

to

Commercialize

S&T

Know
-
how



Brazil’s

past

failure

to

allow

pharma

or

biotech

product

patents

impeded

industrial

development

in

health

biotechnology

and

promoted

copying

of

foreign

innovations


Brazil‘s

innovations

have

remained

essentially

‘trapped’

within

the

nation‘s

universities

and

government

funded

laboratories

and

research

institutes


Statements

from

two

Brazilian

citizens
:

an

Industrial

Minister

and

a

Scientist



Inefficient

Patent

Systems

Cause

Domestic

Companies

to

File

Patent

Applications

Outside

the

Country
:

Uncertain

Whether

Gov’t

Will

Implement

Patent

Law



A

properly

calibrated

patent

system

encourages

basic

innovation,

as

well

as,

commercialization

via

3
rd

party

patent

licensing

to

exploit

domestic

markets



Laboratorios

Ache

-

anti
-
inflammatory

cream

‘Acheflan’


Biolab
-
Sanus

Farmacêutica,

Biosintetica

and

União

Química


Biolab

Farmaceutica

Ltda

and

Proteogenética

(formerly

Hormogen

Biotecnologia)



ITSSD

10

April 17, 2007

III. How Important is an Efficient Patent Registration System?


Answer:

It Allows for Conversion of ‘Dead’ Capital into ‘Liquid’ Capital


Inefficient

Patent

Systems

Can

‘Hold
-
Up’

Technology

Transfers,

If

the

National

Tech

Transfer

Law

Also

Fails

to

Recognize

Exclusive

IP



Biolab

Sanus

Farmaceutica

Ltda
.

&

Federal

University

of

Minas

Gerais

(UFMG)


Biolab
-
Sanus

Farmaceutica

Ltda
.
,

Biosintética,

&

União

Química


Brazil

Technical

Innovation

Law



Dec
.

2004


Promotes

formation

of

public
-
private

p
-
ships

and

charges

Brazil’s

STI’s

with

managing

the

entire

national

innovation

system


There

are

several

unanswered

questions



Inefficient

Patent

Systems

Ultimately

Threaten

Universal

Access

to

Health


“The

limited

innovative

capability

of

the

Brazilian

health

system

constitutes

an

obstacle

to

government

policies

for

universal

access

to

health



The

GOB

Should

Unleash

the

Innovative

Capacity

of

its

Many

IP
-
Rich

Domestic

Industries



The

GOB

Should

Help

its

Domestic

Industries

Attract

Critically

Needed

Foreign

Direct

Investment

(FDI)

ITSSD

11

April 17, 2007

IV. What is the Role of the State in These Matters?


Answer:
To Create & Oversee a Market
-
Friendly, Rule of Law
-
based ‘Enabling
Environment’ that Recognizes & Protects IPRs & Attracts R&D
-
based FDI



Foreign

Direct

Investment

(FDI)

Has

Become

More

Important

Than

Trade

for

Delivering

Goods

and

Services

to

Foreign

Markets
...




Participation

in

multilateral

&

bilateral

trade

and

investment

regimes

increases

the

odds

for

developing

countries

to

secure

greater

FDI

flows


It

is

not

rational

for

developing

country

governments

to

IPR

oppose

protection,

when

technology

transfers

are

‘at

stake’


The

level

of

such

countries’

IPR

protections

substantially

affects

the

FDI

decisions

of

high
-
technology,

research
-
intensive

industries

with

easily

copied

products

or

processes


The

largest

R&D

spenders

are

in

the

IT

hardware,

automotive,

pharmaceuticals

and

biotech

sectors


IPR

policy

may

also

affect

the

mode

of

technology

transfer

(licensing,

joint

ventures,

or

wholly

owned

subsidiaries”)

and

thus

the

character

of

FDI


Low

protection

vs
.

high

protection


Internalization

(vertical



w/in

corp
.

group)

vs
.

Externalization

(horizontal

-

outsourcing)


Multinational

firms

with

strong

internal

linkages

engage

in

intra
-
firm

transfers

to

substitute

for

inadequate

external

institutions

ITSSD

12

April 17, 2007

IV. What is the Role of the State in These Matters?


Answer:
To Create & Oversee a Market
-
Friendly, Rule of Law
-
based ‘Enabling
Environment’ that Recognizes & Protects IPRs & Attracts R&D
-
based FDI


R&D
-
based

FDI

Generates

Domestic

Technology

&

Other

‘Spillover’

Effects



It

opens

the

door

not

only

to

the

transfer

of

technology

created

elsewhere,

but

also

to

the

domestic

technology

creation

process

itself,

that

is

essential

for

development


“Spillover

Effects”



Observed

impacts

on

economy

generally,

and

on

local

companies

and

labor

specifically


Direct
;

Indirect



Governments

Must

Build

Up

Indigenous

Capacities

to

Take

Advantage

of

Spillover

Benefits

From

R&D
-
based

FDI

Flows



Policy

changes

must

focus

on

education,

R&D,

and

human

capital

accumulation


Spillover

Benefits

directly

correlated

to

host

economy’s


absorptive

capacity’


Governments

must

encourage

MNC

interaction

with

host

developing

country

local

firms

and

R&D

institutions

&

develop

a

high

quality

national

innovation

system


R&D
-
based

FDI

not

likely

among

primary

corporate

functions

coming

to

Brazil


Adaptive

vs
.

Innovative

R&D

ITSSD

13

April 17, 2007

IV. What is the Role of the State in These Matters?


Answer:
To Create & Oversee a Market
-
Friendly, Rule of Law
-
based ‘Enabling
Environment’ that Recognizes & Protects IPRs & Attracts R&D
-
based FDI


Local

Knowledge

‘Absorption

Rate’

Depends

on

Institutional

Capacities


Domestic

innovative

capacity

is

influenced

by

an

IPR

regime

that

facilitates

knowledge
-
sharing


Positive

IPR

reforms

can

cause

local

affiliate

output,

employment

levels

and

‘capital

stock’

(capital

assets

&

investments,

etc
.
)

to

expand


FDI
-
attracting

IPR

reforms

encourage

technology

spillovers

and

greater

tech

adoption

by

local

companies


Local

Knowledge

Absorption

Rate

Depends

on

‘Human

Capital

Stock



National

education

systems

must

be

improved

to

enhance

capital

stock

-

local

Yrs

of

Education/Schooling

&

Innovative

Ability


Governments

must

improve

SME

innovative

capabilities
:

by

improving

local

firm

capacity

to

absorb

spillovers

and

develop

linkages

with

‘embedded’

MNCs

thru

‘clusters’


Upstream

(supplier)

&

Downstream

(customer)

linkages


FDI
-
attracting

IPR

reforms

that

secure

broad

local

‘knowledge

spillovers’

in

technology

&

other

disciplines

best

contribute

to

development

ITSSD

14

April 17, 2007

V.

How Can We Prevent Acts of Piracy, Counterfeiting and Unauthorized Use of
Artistic Expression From Becoming Commonplace?

Answer:
Facilitate Important Socio
-
Economic & Institutional Policy Changes


It’s All About Incentives and Disincentives/Deterrents



No Risk of Loss


Poverty, deprivation of property rights, and no economic opportunity breeds Piracy


Non
-
enforcement of existing private property rights breeds infringement &
unauthorized uses by others


Governments must play a general policy role & create a rule of law
-
based ‘enabling’
environment for entrepreneurs


Governments Must Pursue Specific Institutional Objectives


Strengthen National Patent Office


Increase tech transfer opportunities


Educate judges in civil & criminal IP enforcement


Improve international IP law enforcement agency exchanges & coordination


Increase law enforcement funding


Educate the public about the socio
-
economic benefits of private property, including IP

ITSSD

15

April 17, 2007

VI. How Do Foreign Investors View Countries that Do Not Respect IP?

Answer:
They Believe Their Private Property Rights are Being Threatened


Foreign

Investors

Measure

Implementation,

Not

Only

Adoption

of

the

Law



Brazil

enacted

TRIPS
-
compliant

Patent

Law,

but

implementation?


Threatened

compulsory

licensing

of

foreign

medicines

patents

&

abrogation


Brazil

enacted

TRIPS
-
compliant

Data

Exclusivity

Law,

but

implementation?


Unauthorized

disclosure

of

confidential

testing

data



USTR

301

Priority

Watch

List


Brazil

enacted

TRIPS
-
compliant

Copyright

Law,

but

implementation?


Mandating

‘open

source’

software

for

government

procurement

contracts

&

in

the

markets


Common

Foreign

Impressions


‘Brazil

Patent

Seizure

Threatens

Global

Trade

and

Public

Health’


‘Brazil

Attacks

the

‘Foundations

of

American

Prosperity’’


‘Brazil

is

a

Prominent

Member

of

the

‘Axis

of

IP

Evil’’


‘Stealing

US

Drug

Patents’


‘The

‘Two

Faces’

of

Intellectual

Property

in

Brazil’



‘Brazil’s

IP

Opportunism

Threatens

U
.
S
.

Private

Property

Rights’


‘Thailand

and

the

Drug

Patent

Wars’


‘Thailand’s

Patent

Damage’


‘U.S. Files WTO Case Against China Over Deficiencies in China’s IP Rights Laws’


“Ultimately, it is in the best interest of all nations, including China, to protect intellectual
property rights”


USTR Susan Schwab


‘Taiwan’s

Adventures

With

Tamiflu’


Is

Brazil’s

current

treatment

of

patents,

copyrights

&

trade

secrets

based

on

its

concerns/fears

about

a

prior/future

economic

downturn?

ITSSD

16

April 17, 2007

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