TCS Daily

Lost in Translation

By Nancie G. Marzulla - March 8, 2004 12:00 AM

Over the past two decades, the world has seen impressive economic growth due in large part to the advent of the Information Age, a time of unprecedented creativity and innovation. With the creation of the Internet, too, this new period of creativity has crossed borders of countries traditionally closed off from the rest of the world, such as the People's Republic of China. As intellectual property has become the U.S.'s biggest export (accounting for at least 50 percent of U.S. exports), the need for intellectual property rights protections has become critical. As a result, through its Trade Representative and the Patent and Trademark Office, the U.S. has negotiated numerous Free Trade Agreements with its trading partners that include strong protections for intellectual property.

China would appear to be the poster-child for a remarkable development of intellectual property rights protection through the free trade process. Since 1992, when China and the U.S. entered into a Memorandum of Understanding on Intellectual Property, China has made significant inroads in strengthening its framework of laws and regulations regarding intellectual property, closing down factories producing and exporting pirated goods. In 2001, China entered into the World Trade Organization (WTO) and became subject to the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Most recently, in December of 2003, China's ruling Communist Party indicated it would endorse an amendment to the country's constitution stating "private property obtained legally shall not be violated," putting private property on an equal footing with public property.

Despite these significant advancements, piracy of copyrighted products is still rampant in China today. For example, according to the International Intellectual Property Alliance (a coalition of six trade associations representing the copyright industries), U.S. companies lost over $1.8 billion dollars due to piracy of copyrighted materials in China in 2002. Although many optical media plants were shut down in the 1990s, there is evidence today that those plants are again in operation and merely shift operations to another location under a different corporate name to operate their illegal operations after their premises are raided and illicit products are seized. The IIPA reports that piracy levels remain at over 90 percent in China for all copyright industries -- for the movie industry alone, the level of piracy is at 95 percent of the market.

China however is not alone. On January 8 of this year, U.S. Trade Representative Robert Zoellick announced Korea would be elevated to its "Priority Watch List" under the Special 301 provision of the Omnibus Trade and Competitive Act of 1988 due to the piracy of online music and U.S. motion pictures, resulting in the loss of millions of dollars in revenues for U.S. and Korean copyright holders ($572 million lost to U.S. copyright holders alone). On February 13, 2004, the IIPA recommended that the USTR use its Special 301 authority to name Pakistan as a "Priority Foreign Country," for ignoring the growing production of pirate U.S. copyrighted products by illicit optical disc factories flooding the world market, and to maintain the Ukraine as a "Priority Foreign Country" since the Ukraine has failed to adopt the agreed-upon adequate laws to control pirate optical media production and distribution. The group named seventeen additional countries for the USTR to elevate to (or maintain on) on its Priority Watch List and asked the USTR to place (or maintain) 20 countries on its Watch List. This rampant problem of piracy continues despite the fact that the U.S. continues to negotiate higher standards of intellectual property protection and enforcement through the Free Trade Agreement process -- most recently with Singapore Chile, Central American countries and Australia.

Why is piracy still a major problem? For one, piracy is a lucrative business -- one that encourages the growth of organized crime and black markets. It has been reported that some terrorist organizations have used piracy to fund their operations. According to the IIPA, while a drug dealer can pay $47,000 for a kilo of cocaine and sell it for $94,000 on the street, netting a 100 percent profit, a digital pirate can buy or produce 1,500 pirated copies of business software and resell it for a profit of 900 percent -- at a lot less risk. Secondly, and more importantly, even for those countries with significant intellectual property rights laws on their books, the deterrent enforcement of these laws is severely lacking. In China, for instance, the enforcement system merely imposes administrative fines and actions to deal with piracy even though TRIPS requires such acts to be subject to criminal remedies.

Although piracy exists in the U.S., it does not go unchecked. Our country has a strong commitment to protect intellectual property rights, and inventors and investors can be confident that the effective enforcement of our laws and our Constitution will protect their inventions and their investments. How can we translate the kind of property protections that exist in this country to other nations -- especially nations that exist under Communist regimes, such as China? Negotiating Free Trade Agreements with strong intellectual property rights protections is a good start; so too is helping these countries to amend their Constitutions to include provisions protecting private property rights, such as China has recently indicated it is doing. However, the next step is to require our trading partners to better enforce their laws by imposing criminal and stricter civil penalties on violators and to increase effective prosecution and punishment. Many countries will need to lower their current thresholds for criminal prosecution, train their police authorities in better investigation and enforcement techniques, and ensure their court systems are able to fairly and fully prosecute criminals and adjudicate civil suits.

The key to both the U.S.'s economic growth (since intellectual property accounts for the country's biggest export), and that of the world market, is the effective protection of intellectual property rights. To continue this growth, we must ensure that our trading partners not only have the laws to effectively protect these valuable property rights, but also that those countries are translating the laws into meaningful intellectual property right protection.

Nancie G. Marzulla is President of Defenders of Property Rights.


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