“Intangible assets”—ideas, concepts, brands, and innovative products and services—constitute around 85 percent of the value of the S&P 500. Knowledge-intensive goods and services now make up over half of all U.S. exports, according to the Department of Commerce.
TRIPS set only basic standards of IP protection; it was negotiated in the late 1980s and early 1990s when the Internet as we know it barely existed and when knowledge industries had far less prominence. It is a relic from another era.
International trade in knowledge-related goods and services has never been more fundamental to U.S. prosperity. Yet the IP rules that govern this trade need a shake up to give knowledge-based industries a level playing field overseas.
Strong words on enforcement aside, the Trump administration has yet to reveal its strategy for protecting U.S. companies’ IP. But trade watchers see the U.S. Trade Representative’s recently released annual report on the global state of IP protection and enforcement as the start of the process to move from rhetoric to action.
A brief survey of the state of IP protection overseas outlines the challenge. U.S. IP is being misappropriated at an alarming rate. A 2016 study by the Organization for Economic Cooperation and Development finds U.S. brands and patents are the most infringed of any nation and account for one-fifth of all counterfeit seizures globally.
Online piracy is a special threat to the global digital economy. Proprietary software, apps, games, and media can be replicated and disseminated globally with ease. Weak or ineffective IP rules and an unwillingness to enforce existing rules among major U.S. trading partners exacerbate this problem.
Many countries also give their local firms an unfair advantage by enacting weak patent laws. Countries like India, Argentina, and Indonesia have reduced the varieties of pharmaceutical inventions eligible for patent protection to allow their generic drug industries to profit from copying U.S.-invented drugs. Indonesia amended its law to make it far easier to override drug patents, to the obvious benefit of local companies.
The global leader in undermining IP is China, which systematically targets U.S. and others’ knowledge assets to give its domestic enterprises an unfair competitive advantage.
China routinely forces foreign companies to transfer IP, research and development facilities, and technology before they can enter the market. One example of this “innovation mercantilism” is China’s use of new cybersecurity laws which force foreign technology firms to hand over valuable IP and source code in return for permission to operate.
This widespread abuse succeeds partly because the international treaty governing IP, the World Trade Organization’s Trade-Related Aspects of Intellectual Property Agreement (TRIPS), is outmoded and increasingly impotent. TRIPS set only basic standards of IP protection; it was negotiated in the late 1980s and early 1990s when the Internet as we know it barely existed and when knowledge industries had far less prominence. It is a relic from another era.
Efforts to update the rules have consistently floundered due to opposition from some developing countries who wish to free-ride off U.S.-based knowledge industries by portraying IP as an oppressive tool of rich countries.
As such, slow-moving multilateral fora such as the World Trade Organization increasingly look useless for the United States (and its allies) to pursue new IP agreements to set the standard for trade in modern technologies from biopharmaceuticals to online media.
Poor enforcement, weak IP rules, “innovation mercantilism,” and the difficulty of multilateral reform add up to a complex set of challenges for the new U.S. administration. Nevertheless, the new administration must redouble U.S. leadership efforts in reforming global IP rules to take account of the rapid pace of technological change.
With sclerotic multilateral fora a dead end, the United States should prioritize bilateral trade deals with individual partners, or even better, regional deals like the Trans-Pacific Partnership or an updated North America Free Trade Agreement. Whatever negotiations are started, whether bilateral or regional, they need to include modern IP rules to take account of the latest technological developments.
The success of this strategy depends, in part, on the willingness of the Trump administration to insist on strong, binding IP provisions in any new trade agreements and prosecute this case in multilateral forums. But their effort will be helped if developing countries realize that IP is not a plot to keep them down, but rather enabler of global economic progress.
Philip Stevens is director of Geneva Network, a public policy research organization focused on intellectual property. Nigel Cory is trade policy analyst at the Information Technology and Innovation Foundation, a science- and tech-policy think tank.