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<text> <title> Imitation and the New Industrialists </title> <article> <hdr> Foreign Service Journal, November 1991 Imitation and the New Industrialists: Why some countries don't buy intellectual property rights </hdr> <body> By Robert E. Evenson. Mr. Evenson is professor of economics at Yale University. During the 1980s, the United States repeatedly charged that a group of developing countries were stealing its intellectual property. The accused tended to be the Newly Industrialized Economies (NIEs), or they were near-NIEs. Frustrated by the ineffectiveness of traditional intellectual property rights (IPR) conventions, the United States and other developed countries have recently turned to international trade law and agreements to regulate intellectual property claims. Primarily, the United States has used section 301 of the U.S. Trade Acts (1975 and 1988), along with a multilateral initiative to incorporate intellectual property rights into the GATT negotiations. Will this route lead the United States to success? To answer the questions, it is useful to examine which countries tend to violate IPR conventions, and why. Real-world failures Traditional IPR conventions have failed. To understand why, consider one example: IPRs for inventions. Within a particular country patent laws are designed to: -- Stimulate inventive effort by providing incentives to inventors enabling them to "sell" their inventions; -- "Remove inventions from secrecy," enabling potential imitators to make imitative or adaptive inventions; -- Obligate purchasers or users of inventions to pay license and royalty fees to the holders of patent rights (for a limited period of time). Inherent in the arrangement is a conflict between buyers and sellers of patent rights. Buyers would prefer to pay nothing for inventions. But without IPRs, inventions would not be produced. Hence IPRs constitute a "social bargain" that is in the interests of sellers and buyers collectively. When two similar countries agree to recognize the IPRs of inventors from other countries, they effectively expand the market for inventions, and this constitutes a strengthening of IPRs. Thus two countries with both sellers (inventors) and buyers (licensees) will find workable a simple agreement calling for "national treatment." National treatment gives foreign inventors the same rights as national inventors, as required by the Paris convention for patents. National buyers will be obligated to recognize the IPRs of foreigners and hence "pay" for the rights to use inventions that they might otherwise simply copy of reproduce. In return, national sellers will have expanded markets and rights to sell in other countries, and this increases the incentives to invent in both countries. But consider this arrangement for two types of developing countries. In one case, the developing country is very poor, engages in little R&D, and generally lacks the institutions to effectively administer an IPR system. It does only a minor amount of adaptive invention. This country has no inventions to sell to the developed country; it imports inventions and naturally wishes to import on the best terms possible. It lacks the skills required for large-scale copying and reproduction of inventions originating abroad. It usually contracts with foreign firms to purchase engineering and technical services along with capital goods. IPRs are largely irrelevant to this type of technology exchange, because the seller usually sells IPRs through these larger contracts. The second type of developing country, as typified by the NIEs, has invested in and achieved a considerable capacity to "reverse engineer" and copy the inventions of developed countries. It has significant numbers of trained personnel. It has usually adopted an international export-oriented commercial policy stance and aggressively seeks to import technology in many forms on the best terms. However, even though it has substantial inventive capacity and research and development, it remains uncompetitive in selling inventions to developed countries. Its comparative advantage is in imitative adaptive invention, and thus, in developed countries, its imitations are of less value than the originals. These countries, on one hand, can copy and reverse engineer as well as screen and search for specific inventions. On the other hand, they lack incentives to recognize the rights of exporters. This combination provides powerful incentives to infringe upon the IPRs of foreigners. Easy prey While oversimplified, this basic logic explains why IPR infringement is not an issue between similar developed countries of the Organization for Economic Cooperation and Development (OECD), why it is unimportant issue between OECD and poor developing countries, any why it is extremely important between OECD countries and the NIEs and near NIEs. The logic applies with some modification to copyright and trademark issues as well. The modification is that a broader range of countries are able to copy items protected by copyright and trademark laws than are able to reproduce inventions. And even the poorest countries have the infrastructure to sell (as opposed to produce) such materials. Very few developing countries are willing to invite international hostility by directly refusing to recognize the IPRs of foreigners. Most have some form of IPR system and most belong to the international conventions, but their IPR systems are generally weak, with limited protection for certain inventions (e.g. pharmaceuticals and food-related inventions). Violations of the IPRs of foreigners occur in spite of these laws because of lax administration and compliance. The "moral" cure One approach to a remedy to the existing IPR "problem" from the perspective of developed countries is to invoke a natural rights case for stronger sanctions. This moral argument maintains that an inventor, writer, or artist has a natural right to exclude others from using or copying an invention, a book, record, or film. There is, however, a competing moral or natural right argument. This is the "common heritage" or public good argument, which holds that many creative acts are the common heritage of mankind and should be enjoyed by all. Patent laws clearly recognize the common heritage argument by excluding concepts, ideas, and naturally occurring materials from patent protection on common heritage grounds. Furthermore, they explicitly limit protection for eligible inventions to a fixed period, and they recognize the social bargain inherent in patent protection. Thus for patent laws, the natural rights case is probably untenable and is so regarded by most policy-makers. For copyrights, the case for natural rights is stronger. Almost all would agree that plagiarism is a violation of natural rights, but many poor countries also argue that writers and artists have a common heritage obligation. Thus, they argue that copying without plagiarism should be allowable under the public good or common heritage argument. For trademarks, the case for natural rights is very strong. It is basically the case for protection from plagiarism. If the OECD countries hope to achieve remedies through its international (natural rights) law mechanisms, they will have to do so specifically for trademarks and possibly copyrights. Little is likely to be obtained by making a general case for all IPRs. Everybody's best interest A second approach is to convince developing countries that stronger IPRs (including the IPRs of foreigners) are in their own real interest. Economists have directed little attention to this problem and probably would not reach much consensus on it. It would appear, however, that the present system in general does not serve the interests of developing countries.