TCS Daily

Time to Play Hardball on IP

By Duane D. Freese - March 22, 2005 12:00 AM

Bush administration officials might sit down and have a good long talk with St. Louis Cardinals' manager Tony La Russa. They could learn something about what it means to protect your players.

In "To Bean or Not To Bean" in the March 21 Sports Illustrated, La Russa faces tough decisions about when to retaliate against another team for beaning his key players. He didn't take retaliation lightly. Nor did he unethically have his pitchers aim at other batters' heads. But, as Buzz Bizzinger writes, "[h]e knew that if he hadn't stood up for his players, the respect they had for him would crumble."

Well, the Bush administration and its trade team risks losing the respect of American business if it doesn't retaliate against the high hard ones being thrown at the creators, innovators, researchers and developers of America's greatest economic assets -- its intellectual property in software, pharmaceuticals, manufactured goods, music and film.

IP is a big hitter for the U.S. economy, creating about 6 percent of GDP -- more than $600 billion. But it is getting laid low at home and abroad by a bunch of people whose basic philosophy has become that what is your creation is mine to have for free because I want it or need it.

At home, this philosophy permits teen-agers and college students to download copyrighted works of songwriters and movie makers over the Internet. Such "piracy" is, according to the cliché, just liberating "information that wants to be free."

But as Songwriters' Guild of America President and country music song writer Rick Carnes told an audience at a forum on a property rights at the Heritage Foundation on March 15, "I am familiar with all my songs more than anyone else alive. And I can assure you they don't want to be free. Being free makes them feel cheap and unloved."

Furthermore, those "dot.communists," as Carnes calls them, are not true pirates. "A pirate is a guy who comes up beside your ship and fights it out mano-a-mano," he sneered. "Stealing songs anonymously on the Internet makes you a sneak thief."

Carnes' most important observation, though, was this: "Intellectual property that isn't defended isn't worth a dime. It won't feed the family. It won't pay for the house note, the medical insurance, the college tuition. It isn't worth the risk to build it. Because if you build it, they will come and steal it. No single songwriter could ever sue all the millions of people who download (his or her) song on the Internet.

"Intellectual property only works if there is a government somewhere willing to enforce the laws that establish it. ... It doesn't do any good to establish the law and turn a blind eye as everybody violates."

While doing as some in the music industry want -- to outlaw technology that allows for downloading of pirated materials or holding the producers of such materials and of networks liable for abuse -- goes way too far, going after businesses that actually sell themselves as conduits for "free downloads" makes sense. It's one thing to provide a service that has a legitimate purpose, it's another to encourage illegal activity over it. The Bush administration needs to continue to go after them.

But where the Bush administration may need to make an even stronger pitch is in going after those governments that are not only not enforcing property protections but are encouraging theft of IP.

According to the International Intellectual Property Alliance, $13.4 billion worth of books, motion pictures, records and music, and business and entertainment software were pirated last year. This doesn't include the strong arm tactics placed on pharmaceutical companies and outright theft of their patented formulas by foreign generic companies that adds billions more in losses.

Most of these losses took place in developing and poor countries, with the justification being provided that people simply couldn't afford the high prices charged for some goods -- in particular for essential medicines.

In fact, though, these countries often put high tariffs on foreign products which they then encourage domestic producers to pirate and sell domestically. It seems like a bargain for them, but it is really a lose-lose situation -- for their people as well as the foreign producers.

As outlined by Peruvian economist Hernando de Soto, much of the poverty of most countries can be traced to a lack of enforceable property rights. That undermines incentives and discourages effort; it also tends to encourage corruption.

That certainly seems to be the case in many of the highest nations on the IP theft list -- China, Russia and Brazil.

It's time to deliver one of them a brushback pitch. And the target should be Brazil -- with $931 million worth of theft -- up from $785 million three years ago, not including breaking of U.S. pharmaceutical patents. Brazil has not merely turned a blind eye to IP theft, it has openly abetted it in medicines.

The Bush administration is supposed to decide in the next few weeks whether to keep Brazil on the list of countries offered duty-free import of some of their goods into the United States under its Generalized System of Preferences (GSP). Brazil's $2.5 billion in duty free imports comprise about 14 percent of the total granted to countries under GSP.

Now, a free trader normally won't favor any kind of duties. After all, American consumers benefit from lower prices. But American society depends for its wealth upon property rights, particularly for IP. And Brazil has been trying to knock them down. It's time for the administration to defend them - by playing hardball with Brazil on renewal of GSP.


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