World must respect patent rights

David G. Tuerck

February 1991

Nowadays, everyone accepts the idea of "global interdependence." Economic and cultural barriers fall as countries form economic unions, abandon socialism and liberalize their foreign trade laws. The electronic media link capital markets and cultural centers. High technology, which moves quickly across national borders, accounts for a growing share of US exports.

There is, however, one respect in which the global economy remains stuck in an isolationist time warp. This is the unwillingness on the part of many countries, including a number of important US trading partners, to respect intellectual property rights.

The absence or weakness of patent, copyright and trademark law in other countries has created a profitable business in stealing new ideas and then marketing products based on those ideas in competition with the companies that developed them. Hong Kong has become notorious as a source of illegally copied computer software. Companies filing for patent protection in Japan take the chance of having their secrets made public without any guarantee that the sought-for protection will in fact be granted. Other countries wink at the practice of illegally copying US brand names and trademarks. Estimates of the cost of this piracy to US companies range from $40 billion to $60 billion a year.

As a result, the United States is losing its competitive advantage in world markets. US companies find themselves unwilling to develop new products out of fear of having to enter into time-consuming, costly legal battles that may reach a successful conclusion only after the copyright or patent has expired. It took Texas Instruments 25 years to get patent protection for its work in integrated circuitry. Honeywell is only now reaching the end of a long, costly patent-infringement suit against Minolta Camera for using the autofocus technology that Honeywell invented and patented.

Both foreign and domestic consumers lose in this process, as companies divert their energies and resources from innovation to litigation and as the incentive to introduce new products disappears. The absence of adequate, uniform protection of all intellectual property rights means the globalization, not of commerce and culture, but of technological backwardness and economic stagnation.

The General Agreement on Tariffs and Trade provides a framework for solving the problem. Under GATT, member countries reduce trade barriers on a multilateral basis, permitting a country that makes reductions in its trade barriers to get, in return, equivalent reductions from other countries.

Last year, however, GATT suspended its negotiations as a result of differences between member countries over the subject of farm subsidies. The need for a legal code protecting intellectual property rights offers one of the most important reasons for an early resumption of these negotiations in 1991.

One subject for discussion will be a 1988 law, under which the United States excludes products embodying stolen technology when there has been a "substantial investment" in their development by a US company. GATT objects to this law because it applies differently to foreign-produced than to American-produced goods.

Our trade negotiators should not be intimidated by these objections. They should demand a uniform code for the protection of intellectual property rights and an enforcement mechanism that will take the profits out of product piracy.

First, however, it is necessary for GATT negotiations to resume. Countries that want to reduce their trade barriers can do so unilaterally without GATT and as economics proved long ago, gain in the process. Where GATT is needed is in areas like intellectual property rights where effective enforcement is impossible without multilateral cooperation.

David G. Tuerck is executive director of the Beacon Hill Institute and chairman and professor of economics at Suffolk University. This article first appeared in The Boston Globe on February 5, 1991.

Format revised on 18 August, 2004