By Kaitlin Mara
Intellectual property is the last real comparative advantage that rich countries have, said a panellist at a recent International Centre for Trade and Sustainable Development (ICTSD) and UN Conference on Trade and Development (UNCTAD) joint event. This may explain an increasing global drive for enforcement of these rights, but does not mean that such enforcement is necessarily good for developing countries, said the panel.

“We are witnessing one of the most intense and prolific periods” in intellectual property and enforcement, said Ahmed Abdel Latif, the manager of ICTSD’s intellectual property programme. IP enforcement efforts are occurring at the regional, bilateral and multilateral level, in attempts to strengthen enforcement standards, he added.

He was speaking at a 17 July event entitled “The Global IP Enforcement Debate: New Economic Perspectives and Policy Challenges.” UNCTAD recently made moves to explore in more detail the role of intellectual property in the trade and development context, and this partnership with the ICTSD intellectual property expert team is part of a new series of projects in this vein (IPW, United Nations, 24 July 2008).

Carsten Fink, a World Bank economist in the Development Research Group trade team, said that the fast growth of emerging economies and improved ease of copying products thanks to new technology has led to a concern among wealthier nations about inadequate enforcement of protections on their innovations. Cheap labour in developing countries combined with IP infringement could potentially undermine the last comparative advantage that rich countries have, he said.

There has been pressure on developing countries, said Carlos Correa of the University of Buenos Aires, “to harmonise or approximate laws and procedures on enforcement,” and create task forces that could act on enforcement without the rights holder needing to spur them, and even to criminalise IP infringement.

But all of this is of questionable utility to developing nations who, Correa noted, generally have other priorities on which to spend scarce resources, such as hospital building or urban crime, before coping with intellectual property. Further, he added, IP is a private right and “should be the burden of the owners.” Currently, there is strong pressure on developing countries to act without the rights holder, he said.

More importantly, some of the measures being pushed in developing countries are not in place in developed nations. The EU for example recently refused to criminalise patent infringement, said Correa, but then turned around asked in a proposal to the Andean block of countries that they criminalise patent infringement.

Commentator Carolyn Deere of Oxford University and ICTSD said the three key issues for developing countries are data, discourse, and dialogue. That is, one cannot achieve good public policy without good data and impact assessment, nor is it easy to ask questions about IP enforcement when, Deere said, the current discourse paints nations reluctant to take enforcement measures as rogue. The debate needs to be reframed, and there needs to be dialogue to assess the capacity of developing countries to implement enforcement measures.

There could be danger, said Yusong Chen of the Chinese Mission to the World Trade Organization, for developing countries if they must enforce agreements like the Anti-Counterfeiting Trade Agreement (ACTA), which has raised concerns in part because it is being negotiated behind closed doors and without developing country input.

Social Impact of Infringement Depends on Type

Fink has recently completed a study on the net benefits of IP enforcement for a society that suggests that the utility of IP enforcement depends a great deal on the kind of infringement occurring.

The key distinction in IP infringement that affects public welfare is whether or not the buyer is aware of purchasing a “fake,” said Fink.

Deceptive copying – that is, when the consumer is not aware of the falsity of the product – of drugs, of tobacco, or of replacement parts for vehicles, is dangerous to consumers (even if the salespeople gain), and represents a net welfare loss if not controlled, said Fink.

Non-deceptive infringement is more ambiguous: the purchasing of fake designer handbags, for instance, benefits consumers. But it may harm the brand name producers, said Fink, even if an “exclusivity value” to the original could ameliorate the harm.

There is also the question of the IP system: if IP is overprotected, infringement might correct the system and bring net social good. Conversely, if the IP system is functioning optimally, then any change to it – including piracy or counterfeiting – brings net social harm. Piracy can also have indirect positive effects by increasing the cache of an item, or by increasing the necessity of purchase, added Fink, citing the necessity of purchasing the same or compatible software as used by others.

Fink said economic analysis raises scepticism about the common topics of those advocating the strongest IP enforcement: namely, that it is linked as strongly to organised crime and that counterfeit drugs are as widespread problem as is often stated. It is true, said Fink, that IP infringement involves organisation, but asked whether that makes it “organised crime” in the way the phrase is usually interpreted. He allowed that drug traffickers, for example, might also trade in IP-infringing material. But the linkage here is “anecdotal and not systemic.”

Correa separately noted that “false argumentation” that links the manufacture of generic versions of patented drugs with terrorism “could lead countries astray.” Counterfeiting is not the same as piracy, and neither are the same as patent infringement, said Correa. These distinctions, he added, are very important.

Further, counterfeiting in medicines is a public health issue, and not an intellectual property issue, Correa asserted. Counterfeit drugs, according to the World Health Organization, constitute “frauds in labelling with respect to identification and source,” and mention neither generics nor copies. Drug regulation is more important than IP enforcement here, and it would be a “major mistake” to lead governments to believe otherwise, he concluded.

The vast majority of IP infringement is in the area of fashion and in the area of software and audiovisual material, Fink’s paper said, which belies the point that large numbers of people are being duped into purchasing counterfeit drugs.

And, he added, when analysing the impact of IP infringement, it is important that methods used to calculate data inform the way the statistic is viewed, as often the rates of infringement are exaggerated.

The Business Software Alliance, for example, estimated its losses due to piracy by assuming that, “in the absence of piracy, all consumers of pirated software would switch to legitimate copies at their current prices,” says Fink’s paper. But this is an incorrect assumption, Fink said: for many software pirates, the legitimate asking price is too high, making it likely that demand for the software would fall if pirated versions were taken off the market.

This is especially true, Fink said, in developing countries where incomes “would likely imply that many consumers would not demand any legitimate software at all.” So, the losses estimated by BSA are likely an overstatement, Fink concluded.

Finally, said Fink, a good 87 percent of variation in piracy rates across countries can be explained away by that country’s per capita income. In that case, the provision of real employment opportunities might to do more to fight piracy than any enforcement measure. But if enforcement measures are to be taken, he added, rich countries should pay.

Kaitlin Mara may be reached at kmara@ip-watch.ch.