08.07

Protecting IP Rights in a Global Economy

By George McClure

Intellectual property (IP) — original creations, whether in hardware design, software engineering, or art (literary works, musical compositions, trademarks, or performance art) — is a key to national competitiveness. IP owners are entitled to a return for its use, whether through their own efforts or by licensing the rights for use by others.

However, respect for intellectual property rights, and their duration, varies around the world. In 1996, the European Union extended copyright protection from 50 years to the life of the author plus 70 years. In the United States, the period for copyright protection — 95 years plus the lifetime of the author — was extended in 1998 by 20 years prior to the expiration of the rights on Disney characters [www.copyright.cornell.edu and everything2.com].

Patent protection has historically been offered in the United States for 17 years from the date of an invention, while many other countries measured the protected period from the date of filing. There are three types of patents available in the United States: (1) a utility patent, which covers the functional aspects of products and processes; (2) a design patent, which covers the ornamental design of useful objects; and (3) a plant patent, which covers a new variety of living plant. The duration of U. S. patent protection was changed in 1994 from 17 years from date of issue to 20 years from date of filing. The 17 years was based on a first-to-invent system. The new approach is a first-to-file system, but proponents claim that it still gives priority to the first-to-invent. The rest of the world uses the first-to-file system. Opponents of the first-to-file system argue that it can give would-be infringers a license to steal, while first-to-invent allows the first inventor to rightfully claim being first. It is possible for foreign parties to file for inventions in their respective countries, after visiting first inventors in the United States. If this is detected, cross-licensing opportunities can be created for the parties in question. Cross-licensing is useful, as parties can create claims that were beyond the objectives of the first inventors. [3]

A U.S. patent provides protection against infringement by other designs in the United States and its territories, as well as from infringing products using the patented design or processes that could be imported into the U.S. For protection in other countries it is necessary to apply for patents in those countries.

In 2001, Cisco Systems discovered that a Chinese company was using pirated Cisco software including source code and documentation. Cisco sued to stop Huawei Technologies from using Cisco firmware and software in its routers. China had joined the World Trade Organization in 2001 and was receptive to stopping the IP abuse. After a U.S. federal court found for Cisco, Huawei withdrew from the U.S. market [www.heritage.org].

In 2004, General Motors became aware that there was a Chinese copy of one of its sub-compact cars. According to GM China, the similarities between its Spark minicar and the virtually identical Chinese Chery Automobile Company Ltd.'s QQ model are more than just mere coincidence. General Motors filed a complaint with the Chinese government that the QQ was an illegal copy of its Spark. The Chinese said that was coincidental and that unless IP theft could be proved, the mere similarity in design does not prove theft [www.businessweek.com].

Two other automobile examples of unauthorized technology transfer have been cited. Chrysler was producing Jeep Cherokees in China in the 1990s until it spotted an unauthorized copy in Beijing. The Chinese thought Chrysler should be pleased at how well the Chinese auto industry was progressing to be able to do that — but Chrysler broke off the arrangement.

Audi was contracting the Chinese to produce its popular 5000 sedan during the 1990s. However, once the terms of the deal expired, Audi was pushed out of China. But the same Beijing car maker began producing the "Red Flag" sedan. The Red Flag was identical to the Audi 5000 right down to the last nut and bolt — with the sole exception of a plastic red-flag hood ornament. Chinese officials scoffed at Audi's accusations of out-right theft and cited the red flag as proof the vehicle was different.

The ‘new’ Chrysler (80 percent divested by Daimler) signed an agreement on 4 July to outsource the production of a small car to Chery. The car will be labeled a Dodge and sold initially in South America, with plans to market it in the United States and western Europe starting late in 2009. It will be a challenge for formerly state-owned Chery (now a private company which produced its first automobile in 1999). According to the Wall Street Journal, concerns exist over emissions, safety and quality of the basic platform, which is already sold in China.

A current example is the Broadcom-Qualcomm controversy, in which Broadcom claims infringement of four of its patents by Qualcomm — one for chips produced overseas for Qualcomm. The Financial Times reported that the International Trade Commission had found in favor of Broadcom that Qualcomm’s chips infringed its patent relating to power management — a battery-saving feature on mobile devices. Separately, a California jury had found that Qualcomm had infringed three other patents owned by Broadcom. The ITC decision may be appealed, but for now, the chips cannot be imported into the United States [www.ft.com].

The Patent Reform Act of 2005 (H.R. 2795) has been revived as the Patent Reform Act of 2007 (S.1145 and H.R.1908), which would harmonize U.S. patent law with the patent laws in the rest of the world [thomas.loc.gov]. A Wikipedia summary of the bill is available online at en.wikipedia.org.

Trade Protections

Free trade agreements began under the auspices of the General Agreement on Tariffs and Trade (GATT). More than 100 countries joined in the Uruguay round of trade negotiations beginning in 1986. A Free Trade Agreement (FTA) with Israel resulted in 1987, followed by the Canada-U.S. FTA in 1989, to which Mexico was added to form the North America Free Trade Agreement (NAFTA) in 1994. At the end of the Uruguay Round of GATT in 1994, minimum standards for regulation of the many forms of intellectual property were set down in the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs), administered by the World Trade Organization (WTO). Protection of Digital Rights Management Systems was added in 1996 [en.wikipedia.org].

Free trade agreements' provisions to protect intellectual property enjoy varying degrees of effectiveness. Beyond NAFTA, the United States. has entered into 12 ratified Free Trade Agreements (FTA), five regional agreements, four Trade Promotion Authorities (TPA), 40 Bilateral Investment Treaties (BITs), and more than 30 Trade and Investment Framework Agreements (TIFAs) [www.ustr.gov]. The last free trade agreement, with South Korea, was approved by both countries under the president’s fast track (Trade Promotion) authority, which expired on 30 June. But the South Korean agreement — along with those with Colombia, Panama and Peru — still requires Congressional ratification. Under fast track guidelines, no amendments are allowed — each will get either an up or down vote.

The World Intellectual Property Organization (WIPO), under auspices of the United Nations, is in discussions with member states to develop a framework for IP protections. Negotiators from 105 countries met in February to look at proposals to enhance the development dimension in WIPO’s work, agreeing on a set of recommendations that will be included in a final list of proposals to be recommended for action to the WIPO General Assembly in September 2007 [www.wipo.int].

Even if the IP protections in FTAs and TPAs were fully adequate, many opportunities for leakage of intellectual property exist. The Recording Industries Association of America (RIAA) has aggressively pursued copyright violations in downloads of songs to PCs and iPods [www.riaa.com], giving rise to the marketing of songs for 99 cents each.

There is no FTA with China, but since 1996 enjoys most-favored nation trading status with the United States [www.sourcewatch.org].

IEEE Spectrum reported, “Everything about China, good and bad, is big: its population, its cities, its Miracle-Gro economy, its trade volume, its piracy problem, its Internet-censorship effort. China today is the dragon in the living room of the world market. And everyone in that market has to come to terms with it” [www.spectrum.ieee.org].

A 2004 report by the U.S.-China Economic and Security Review Commission concluded that the Chinese tolerate rampant piracy of copyrighted U.S. material, with rates running above ninety percent across all copyright industries for 2003. This cost U.S. industries an estimated $2.6 billion in lost profits in 2004. According to the report:

"U.S. companies are sometimes forced to transfer technology to Chinese partners as a condition in business deals. The Chinese government violates its WTO (World Trade Organization) obligations when it expressly requires technology transfers as a condition of doing business. It is also able to compel such transfers through use of its regulatory powers as well as its extensive role in the economy. These technology transfers pose substantial economic and security concerns for the United States" [www.businessweek.com].

The Caribbean Area FTA is instructive. Covering six countries — Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua — Congress ratified CAFTA by a narrow vote. Advantages in selling high-tech equipment were offset by concerns over the effects sugar and textile imports would have on U.S. producers. As reported by Red Herring magazine, Ed Black, president of the Computer and Communications Industry Association, welcomed the agreement but warned that certain of its intellectual property provisions are problematic.

"We have been increasingly wary of the inclusion of overly broad intellectual property protections in free-trade agreements," Mr. Black said in a statement. "The micromanagement of other nations' domestic laws is unwise and is being used to create legal regimes more restrictive than U.S. domestic law."

“The vote represents a major legislative win for the Bush administration, which was forced to lobby hard for the agreement in the final days" [www.redherring.com].

IEEE-USA has a policy position statement regarding New Forms of Intellectual Property Protection [www.ieeeusa.org]. In June, IEEE-USA joined with a coalition of more than 200 national, state and individual organizations in sending a letter to key Congressional leaders expressing concerns with certain provisions of the Patent Reform Act of 2007 (S.1145/H.R.1908).

To Dig Deeper

1. “Intellectual Property Rights and Economic Development,” Carlos A. Primo Braga, Carsten Fink, Claudia Paz Sepulveda. World Bank Discussion Paper No. 412, World Bank, Washington, D.C. 2000. [Over the past decade, the protection of intellectual property rights (IPRs) has undergone tremendous changes — fostered on the one hand, by a widening of the range of products and technologies covered by proprietary rights and on the other hand, by policy shifts that have initiated a move towards globally harmonized standards of protection. This discussion paper reviews these changes and their implications for developing countries.]
    
2. “WTO; Whose Trade Organization? A comprehensive guide to the WTO,” Lori Wallach and Patrick Woodall/ Public Citizen. New York: The New Press, 2004.
   [Lori Wallach was interviewed on “Bill Moyers Journal,” 29 June 2007.[www.pbs.org] She opposed both NAFTA and CAFTA. The book discusses, inter alia, “biopiracy,” where corporations seek to get patents on indigenous seeds, herbs, and traditional processes for obtaining medicinal or pesticidal benefits from local flora and fauna in developing nations — claiming they are the property of the corporation.]
   
   Monsanto charged a Canadian farmer fees for use of its genetically modified canola seed after his non-GM canola field was contaminated by the GM version, through wind or pollinators. He paid $19,832 in damages for violating patent and $153,000 in court costs for “theft” of “intellectual property” when he saved seeds from his contaminated field for the next year’s crop and planted them. Other farmers have also been sued.
   
   TRIPs rules mean that agribusiness giants can demand fees from farmers wherever the company’s seed or variety appears. [ibid. page 204]
    
3. Communication from Edward G. Tutle, member of the IEEE-USA Intellectual Property Committee.

George McClure is a member of IEEE-USA's Communications Committee, a member of the IEEE-USA Career and Workforce Policy Committee, and technology policy editor for IEEE-USA Today's Engineer. Comments may be submitted to todaysengineer@ieee.org.