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GLOBAL DIMENSIONS OF INTELLECTUAL PROPERTY RIGHTS IN SCIENCE AND TECHNOLOGY

Office of International Affairs

National Research Council

Edited by

Mitchel B. Wallerstein

Mary Ellen Mogee

Roberta A. Schoen

NATIONAL ACADEMY PRESS
Washington, D.C.
1993



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Global Dimensions of Intellectual Property Rights in Science and Technology GLOBAL DIMENSIONS OF INTELLECTUAL PROPERTY RIGHTS IN SCIENCE AND TECHNOLOGY Office of International Affairs National Research Council Edited by Mitchel B. Wallerstein Mary Ellen Mogee Roberta A. Schoen NATIONAL ACADEMY PRESS Washington, D.C. 1993

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Global Dimensions of Intellectual Property Rights in Science and Technology National Academy Press 2101 Constitution Avenue, NW Washington, D.C. 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the advisory committee responsible for the project were chosen for their special competencies and with regard for appropriate balance. Publication of signed work signifies that it is judged a competent and useful contribution worthy of public consideration, but it does not imply endorsement of conclusions or recommendations by the governing bodies, officers, or staffs of the National Research Council, or the NAS, NAE, or IOM. The program described in this report was supported by the Alfred P. Sloan Foundation, the U.S. Agency for International Development, the U.S. Department of Commerce, the Ford Aerospace Corporation, the Industrial Biotechnology Association, the National Academy of Engineering, the National Science Foundation, and the Pharmaceutical Manufacturers Association. The views expressed in this volume are those of the authors and are not presented as the views of the conference sponsors or organizers. Library of Congress Cataloging-in-Publication Data The Global dimensions of intellectual property rights in science and technology : a conference, January 7-8, 1992, National Academy of Sciences, Washington, D.C. / Office of International Affairs, National Research Council; edited by Mitchel B. Wallerstein, Mary Ellen Mogee, Roberta A. Schoen. p. cm. Includes bibliographical references and index. ISBN 0-309-04833-8 1. Intellectual property—Congresses. 2. Technology and law-Congresses. I. Wallerstein, Mitchel B. II. Mogee, Mary Ellen. III. Schoen, Roberta A. IV. National Academy of Sciences (U.S.) V. National Research Council (U.S.). Office of International Affairs. K1401.A55 1992 93-720 341.7'58—dc20 CIP Copyright 1993 by the National Academy of Sciences. All rights reserved. B-119 Printed in the United States of America.

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Global Dimensions of Intellectual Property Rights in Science and Technology ADVISORY COMMITTEE FOR CONFERENCE ON THE GLOBAL DIMENSIONS OF INTELLECTUAL PROPERTY RIGHTS IN SCIENCE AND TECHNOLOGY ALBERT R.C. WESTWOOD, Chair, Vice President, Research and Technology, Martin Marietta Corporation, Bethesda, Maryland ARDEN L. BEMENT, JR., Vice President, Technical Resources, TRW, Inc., Lyndhurst, Ohio HARVEY J. BERGER, Chairman and Chief Executive Officer, ARIAD Pharmaceuticals, Inc., Devon, Pennsylvania ANNE W. BRANSCOMB, Research Affiliate, Program on Information Resource Policy, Harvard University, Cambridge, Massachusetts JACQUES J. GORLIN, President, The Gorlin Group, Washington, D.C. ZVI GRILICHES, Professor of Economics, Harvard University, Cambridge, Massachusetts KARL F. JORDA, David Rines Professor of Intellectual Property Law and Industrial Innovation, Franklin Pierce Law Center, Concord, New Hampshire JAMES L. MERZ, Professor, Department of Electrical Engineering, University of California, Santa Barbara JOHN T. PRESTON, Director, Technology Licensing, Massachusetts Institute of Technology, Cambridge GUSTAV RANIS, Frank Altschul Professor of International Economics, Yale University, New Haven, Connecticut HERBERT C. WAMSLEY, Executive Director, Intellectual Property Owners, Inc., Washington, D.C. Staff MITCHEL B. WALLERSTEIN, Deputy Executive Officer ROBERTA A. SCHOEN, Staff Associate MARY ELLEN MOGEE, Consultant MONIQUE GREGORY, Administrative Secretary

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Global Dimensions of Intellectual Property Rights in Science and Technology The National Academy of Sciences (NAS) is a private, nonprofit self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Frank Press is president of the National Academy of Sciences. The National Academy of Engineering (NAE) was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievement of engineers. Dr. Robert M. White is president of the National Academy of Engineering. The Institute of Medicine (IOM) was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth Shine is the president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Frank Press and Dr. Robert M. White are chairman and vice-chairman, respectively, of the National Research Council.

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Global Dimensions of Intellectual Property Rights in Science and Technology Preface Intellectual property rights (IPRs) have become an area of international interest and controversy as the rate and cost of technological progress have increased, and as national borders have become ever more transparent. Disagreements have arisen not only over the mechanics of granting such rights, but even over the validity and merits of certain fundamental concepts concerning IPRs. For example, there are those who argue that the existence of robust IPR laws catalyzes innovation, and beneficially influences the economic future of companies and nations. Others argue that such laws are economically inefficient and exploitative, and that they are detrimental to the development of emerging nations. IPRs are not a recent invention, and the word "right" may not be particularly well chosen. As Paul David notes in Chapter 2 of this volume, patents were used as early as the 14th century by English monarchs to protect the knowledge base of foreign craftsmen imported to enhance the state of the domestic technology. In those days, patents were granted initially for 14 years, which was the time necessary to graduate two generations of apprentices. The fact that rights to exploit advances in technical capability are granted by some governing authority, and are not considered inherent to the creator, is not generally appreciated. In the United States, for example, the government grants rights primarily to promote the public interest, and such rights are formulated so as to balance in some manner the economic benefits to the inventor and to society at large. Thus, it will be appreciated that the center of gravity of this balance may shift with changes in the state of the technology, the market, or social values (U.S. Congress, Office of Technology Assessment, 1992).

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Global Dimensions of Intellectual Property Rights in Science and Technology Nowadays, the varying laws governing IPRs in different nations play a major role in the strategic thinking of corporations as they attempt to ensure that they receive a sufficient return on their often large and certainly risky investments in research and development. Clearly, a company will not be enthusiastic about doing business in a country unwilling to provide protection for the intellectual content of its products—a concern now facing U.S. businesses as they evaluate opportunities in the former Soviet Union. Moreover, in these times of fiscal constraint, U.S. research universities also are increasingly concerned with exploiting the fruits of their intellectual labors and are encountering problems related to differences in national laws. Part of the problem is that the United States follows the "first-to-invent" rule and permits an inventor a grace period of one year between the announcement of a discovery in a scientific paper or at a meeting, and filing for a patent. Other nations follow a "first-to-file" rule and do not permit disclosure before filing a patent application. This difference has had unfortunate consequences, for example, in the case of Boyer and Cohen's exploitation of their discoveries associated with rDNA. In this particular case, the recombinant DNA technique was granted patent protection in the United States but not in Europe, thereby causing a considerable loss of royalties to the inventors. Also of increasing concern is the unauthorized use of intellectual property, which is sometimes referred to as piracy. A recent study by the U.S. International Trade Commission indicated that losses to U.S. companies from unpaid royalties on drugs, software, and electronic technologies, for example, may amount to as much as 2-3 percent of sales (i.e., many billions of dollars per year). Multinational companies thus have had to develop multinational IPR strategies, and these may include the aggressive pursuit of patent royalty income as a means of ensuring profitability. Governments of developing countries, on the other hand, sometimes condone, either explicitly or implicitly, unauthorized use of IPRs, arguing that all knowledge should be in the public domain, or that some degree of protection from the need to pay IPR royalties is required if industry in an emerging nation is to survive the competition from more advanced and fiscally strong industries in industrialized countries. Indeed, IPR issues have now become sufficiently important that they have appeared on the agenda of recent G-7 Economic Summit meetings and are a principal subject of debate in the current Uruguay Round of the General Agreement on Tariffs and Trade (GATT) negotiations. The issue of IPR infringement was first addressed by the Academy complex at the annual meeting of the National Academy of Engineering in 1986. Subsequently, in February 1988, a group of experts was convened to identify areas for further study. Mary Ellen Mogee, a consultant with expertise on the IPR issue, was then commissioned to develop a comprehen-

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Global Dimensions of Intellectual Property Rights in Science and Technology sive background paper. This work was discussed by a larger group of experts and practitioners in June 1988, and led to a recommendation that the National Research Council (NRC) should organize a conference focused on the long-term impact on IPR issues resulting from the accelerating global diffusion of technology and from changes in the nature of technology itself. Public and private sector sponsors for such a meeting subsequently were sought by Mitchel Wallerstein, who was then the associate executive director of the NRC Office of International Affairs. In April 1991, after funding had been obtained, an oversight committee was appointed to plan and organize a conference on the "Global Dimensions of Intellectual Property Rights in Science and Technology." The principal objectives of the meeting were (1) to examine the mutual impacts of trends in science and technology and in the philosophy and practice of IPRs, and (2) to discuss and define new approaches for resolving emerging conflicts in international IPR policies. The conference was held at the National Academy of Sciences on January 8-9, 1992, and was attended by more than 400 participants. This volume is based, in part, on the proceedings of the meeting. It should provide a valuable compendium of historical facts, current opinions, and options for action for both scholars and practitioners in the field of intellectual property rights. It is a pleasure to acknowledge the invaluable contributions of the Conference Oversight Committee (Arden L. Bement, Harvey J. Berger, Anne W. Branscomb, Jacques J. Gorlin, Zvi Griliches, Karl F. Jorda, James L. Merz, John T. Preston, Gustav Ranis, and Herbert C. Wamsley); the visionary enthusiasm and energetic persistence of Mitchel B. Wallerstein and his colleagues, Roberta A. Schoen and Mary Ellen Mogee, who served both as the primary organizers of the meeting and as editors of this volume; and the financial support of the National Academy of Engineering, the U.S. Agency for International Development, the National Science Foundation, the U.S. Commerce Department, the Ford Aerospace Corporation, the Industrial Biotechnology Association, the Pharmaceutical Manufacturers Association, and the Alfred P. Sloan Foundation, in making this meeting as timely and valuable as it turned out to be. A.R.C. Westwood Chairman, Conference Oversight Committee REFERENCE U.S. Congress, Office of Technology Assessment. 1992. Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change . OTA Report No. 052-003-01278-2 (April). Washington, D.C.: U.S. Government Printing Office.

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Global Dimensions of Intellectual Property Rights in Science and Technology Contents I INTRODUCTION     1   The Global Dimensions of Intellectual Property Rights in Science and Technology   3 2   Intellectual Property Institutions and the Panda's Thumb: Patents, Copyrights, and Trade Secrets in Economic Theory and History Paul A. David   19 II THE CASE FOR AND AGAINST A UNIFORM WORLDWIDE INTELLECTUAL PROPERTY RIGHTS SYSTEM         Introduction   65 3   Why a Uniform Intellectual Property System Makes Sense for the World Robert M. Sherwood   68

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Global Dimensions of Intellectual Property Rights in Science and Technology 4   Harmonization Versus Differentiation in Intellectual Property Right Regimes Claudio R. Frischtak   89 5   Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation Edwin Mansfield   107     Discussion   146 III National and International Approaches to Intellectual Property Rights         Introduction   151 6   Comparative National Approaches to Intellectual Property Rights:         JAPAN, James E. Armstrong III   155     THE EUROPEAN COMMUNITY, Bryan Harris   158     INDIA, Deepak Nayyar   162     THE NEWLY INDUSTRIALIZING ECONOMIES, Carlos Alberto Primo Braga   168 7   Update on International Negotiations on Intellectual Property Rights Jacques J. Gorlin   175     Discussion   183 IV SCIENTIFIC AND TECHNOLOGICAL ADVANCE AND ITS IMPACT ON THE ROLE OF INTELLECTUAL PROPERTY RIGHTS         Introduction   189 8   Trends in Global Science and Technology and What They Mean for Intellectual Property Systems John A. Armstrong   192

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Global Dimensions of Intellectual Property Rights in Science and Technology 9   Sectoral Views:         THE RESEARCH UNIVERSITY, John T. Preston   208     THE FEDERAL GOVERNMENT, Bruce Merrifield   214     U.S. INDUSTRY, George W. McKinney III   217 10   Intellectual Property Rights and Competitive Strategy:         A MULTINATIONAL PHARMACEUTICAL FIRM Otto A. Stamm   221     A MULTINATIONAL ELECTRONICS FIRM Michiyuki Uenohara   228     THE MEXICAN SOFTWARE INDUSTRY Antonio Medina Mora Icaza   232     A MULTINATIONAL TELECOMMUNICATIONS FIRM William L. Keefauver   236     Discussion   241 V ADAPTING INTELLECTUAL PROPERTY RIGHTS TO NEW TECHNOLOGIES         Introduction   249 11   Adapting the Intellectual Property System to New Technologies John H. Barton   256 12   A Case Study on Computer Programs Pamela Samuelson   284 13   Biotechnology Case Study George B. Rathmann   319 14   Semiconductor Chip Protection as a Case Study Morton David Goldberg   329 15   Optoelectronics Eugene I. Gordon   339     Discussion   351

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Global Dimensions of Intellectual Property Rights in Science and Technology VI GLOBAL INTELLECTUAL PROPERTY RIGHTS ISSUES IN PERSPECTIVE         Introduction   357 16   Global Intellectual Property Rights Issues in Perspective: A Concluding Panel Discussion         Robert E. Evenson   360     David C. Mowery   368     Michael Borrus   373     Robert W. Lucky   377     Eugene B. Skolnikoff   380     Discussion   384     Moderator's Summation   388     Coda: Issues for Future Research   391 VII APPENDIXES     A.   Conference Agenda   397 B.   Biographies of Contributors   401 Index   419