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Why a Uniform Intellectual Property System Makes Sense for the World

ROBERT M. SHERWOOD

The central question of the debate "Does a uniform intellectual property system make sense for the world?" is whether, on balance, strong intellectual property protection can be expected to benefit or harm countries in development. The answer given in this chapter is that the benefits outweigh the harm, whatever the stage of a country's development. Thus, a uniform intellectual property system makes sense for the world.

A chapter of this length cannot go deeply into any of the points it raises. If it stimulates others to think more deeply about this subject, it will serve its purpose well.

A UNIFORM SYSTEM: WHAT IT IS AND IS NOT

Our attention is centered not on what a uniform world system of intellectual property might look like, but rather on what will happen when such a system comes into being. The consequences of such a system are more interesting than its contents. Even so, some terms of reference must be set to define a "uniform system."

The first characteristic of the uniform system being proposed is that the specific intellectual property systems of individual countries need not be identical. Identical national systems would require a uniformity beyond that needed to achieve the beneficial effects of a uniform system.

The diversity of jurisprudential concepts and legal systems found throughout the world implies something short of identical national intellectual property



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Global Dimensions of Intellectual Property Rights in Science and Technology 3 Why a Uniform Intellectual Property System Makes Sense for the World ROBERT M. SHERWOOD The central question of the debate "Does a uniform intellectual property system make sense for the world?" is whether, on balance, strong intellectual property protection can be expected to benefit or harm countries in development. The answer given in this chapter is that the benefits outweigh the harm, whatever the stage of a country's development. Thus, a uniform intellectual property system makes sense for the world. A chapter of this length cannot go deeply into any of the points it raises. If it stimulates others to think more deeply about this subject, it will serve its purpose well. A UNIFORM SYSTEM: WHAT IT IS AND IS NOT Our attention is centered not on what a uniform world system of intellectual property might look like, but rather on what will happen when such a system comes into being. The consequences of such a system are more interesting than its contents. Even so, some terms of reference must be set to define a "uniform system." The first characteristic of the uniform system being proposed is that the specific intellectual property systems of individual countries need not be identical. Identical national systems would require a uniformity beyond that needed to achieve the beneficial effects of a uniform system. The diversity of jurisprudential concepts and legal systems found throughout the world implies something short of identical national intellectual property

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Global Dimensions of Intellectual Property Rights in Science and Technology regimes in defining the proposed uniform system. Harmonization of laws, procedures, and rules in every country is not called for, although that could follow and is indeed already an objective being sought by some countries. The uniform system is not a system with a single court of appeals, or a single international intellectual property court, although that might someday prove useful. Nor does it call for a single patent or copyright office or a single worldwide patent or copyright, however cost-efficient that might be. The second defining characteristic of the proposed uniform system is that of congruence. Robust similarities of outcome from one country to another, rather than identical statutory provisions, would be its hallmark. When such congruence is achieved worldwide, those who make investment decisions, conduct research, or invent and move technology from place to place will be able to go about their business without having to think about differences between the intellectual property systems of various countries. Those differences that remain will be a proper subject only for specialist lawyers. Where congruence does not exist, people other than lawyers are troubled by system differences when making investment, research, and licensing decisions. The third defining characteristic of the proposed uniform system is that of stimulation. People involved in the process of invention, technical advancement, and creative expression will be stimulated by confidence that the results of their efforts can be safeguarded from misappropriation and unauthorized copying, no matter which country becomes the location of their activity. The knowledge that others can be prevented from unauthorized copying has been widely experienced as a powerful stimulus to invest time, resources, and effort in inventive activity. What constitutes reasonable protection can, in part, be gauged by the degree to which this stimulation is active in the technology-producing infrastructure of a country. The proposed uniform system, then, is a robustly congruent, highly stimulative global system that embodies basic underlying concepts of protection. A quasi-numerical approach to defining this uniform system may clarify the concept. In comparing the intellectual property systems of various countries, it has been found useful to rate them on a scale of 1 to 100. In doing this, the entire system is taken into consideration: substantive rules, administrative practice, and judicial enforcement. As examples, Germany can be rated at slightly more than 90, the United States and some of the European countries in the high 80s, and Mexico after its recent reforms at about 75, whereas Argentina and Brazil currently rank in the 30s and 40s. Only as a system rises above a 70 will it produce positive results for that country. Those results can be measured in terms of three critical things that begin to happen: private venture capital firms become willing to invest

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Global Dimensions of Intellectual Property Rights in Science and Technology in technology-based start-up companies, valuable technical knowledge flows more readily from university laboratories to the marketplace, and local firms become willing to devote substantial resources to internal research. The congruence test for a uniform worldwide, high-stimulation system, then, might be defined numerically as having been met when the intellectual property systems of all countries rise above a ranking of 70. Two examples of congruent systems help to illustrate these terms of reference. Within the European Community, the various national intellectual property systems have not been made identical or harmonized, yet people doing business across member states there pay little attention to the differences that exist between individual systems. In the United States, each state has its own approach to the protection of trade secrets and in fact there are differences, yet no one thinks much about them when planning interstate business activity. In these two examples, each state is well above the level of protection needed to provide high stimulation to research and technological activity. Another way to look for a uniform, high-stimulation system would be to ask whether, in fact, the general reflex of the business culture of each country is to respect invention, technical knowledge, or creative expression as the property of those who create it, rather than to operate on the assumption that it is open to copying and imitation. A uniform world intellectual property system would further mean that each national system is comprehensive and would have three distinct elements. First, all forms of intellectual property would be included (i.e., copyright, patents, trade secrets, trademarks, "chip" topography, and so forth.) Second, each would have efficient public administration, with transparency where discretion is involved. Third, each would have the judicial means to enforce individual rights swiftly. As a consequence, each system would be reasonably predictable. Intellectual property systems are continuously called on to accommodate new forms of technology. Currently, for example, we are watching the world's national systems adjust to the complexities of biotechnology and software. In the proposed uniform, high-stimulation world system, countries would learn from each other as traditional forms of protection are adjusted to accommodate new technology. Is it true to say that the countries with legal systems based on common law adapt more quickly to new sets of facts than do civil code countries? Whatever the case, some countries will lead others in incorporating new forms of technology into the uniform system. This has happened in the past. In time, the desire for high stimulation, which is the underpinning of the uniform system, will bring all countries within the parameters of congruence. This is the vision of a uniform, high-stimulation world system consisting of robustly congruent national intellectual property regimes. Having set

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Global Dimensions of Intellectual Property Rights in Science and Technology these terms of reference, this chapter turns to an examination of what such a system can be expected to produce. BENEFITS FOR NATIONS AND THE GLOBAL ECONOMY This section discusses the implications of a uniform, high-stimulation system both for individual nations engaged in the development process and, briefly, for the world as a whole. A Subject Little Studied Without doubt, there is a fairly high burden of proof to be met in finding that a uniform, high-stimulation system makes sense for the world, particularly for the countries in development. That burden is particularly heavy because this subject has been little studied (Siebeck et al., 1990).1 There are reasons for the neglect. One is that Adam Smith told us to look at capital, labor, and resources in figuring out why some nations are wealthier than others. He left out innovation and knowledge. So economic theory itself has not had intellectual property on its agenda until fairly recently. Even recent work has looked mostly at the return to research investment in developed countries where high-stimulation systems are already in place. Another reason for neglect is that since World War II, the World Bank and companion institutions have operated under the assumption that bringing more money to poor countries will help them develop. Less has happened than expected. Now, the research agenda is changing. Things such as property rights, transaction costs, and knowledge itself are beginning to be examined for their role in the development process. Perhaps a third reason for neglect is that the subject is not easy to study. Data that would be relevant are often not kept in developing countries. For example, data on amounts spent by local firms on research are often not available or, if tax laws offer credits for such expenditures, they may be distorted. Moreover, in a sense, it is a study of things that do not happen. How many inventions would have been made by local nationals or how many local scientists would have stayed home to conduct research rather than join the ''brain drain" if intellectual property had been well protected? Often we can only speculate. Once this has been said, are there methods for careful examination of this topic or can we only conjecture? It is not a simple matter, but methods exist by which the interface between intellectual property and the develop- 1   For one of the first papers to deal directly with the subject, see Burstein (1984).

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Global Dimensions of Intellectual Property Rights in Science and Technology ment process can be examined. Some are being developed now at the World Bank, and more need to be conceptualized. One that seems promising would be to examine shifts in activity patterns after a developing country upgrades its intellectual property system. There are reports that immediately after Mexico reformed its patent law in June 1991, large numbers of patent applications were filed by Mexican nationals. Apparently Mexico's protection rose to a level at which it made a difference to local activity. It will be interesting to study this "before-and-after" opportunity in Mexico. Sharp changes that offer opportunities for research have been made in at least half a dozen developing countries in the last four to six years. Although the changes in Mexico are probably the most sweeping, reforms in Korea, Taiwan, Singapore, Brazil (copyright for software), and China present interesting before-and-after situations. A small but striking example of a before-and-after shift comes from Colombia where copyright protection for software took effect in 1989. More than 100 Colombian nationals have since produced application software packages that have been registered with the copyright office, with hundreds more written but not registered. Many of these customized programs help run local industrial manufacturing processes. This example hints that there is a great deal of very useful technology that could be generated in developing countries by local people, given the stimulus of an intellectual property system that works. It is commonly assumed that all technology comes from developed countries and that, by definition, developing countries cannot be expected to generate technology. As a consequence of this thinking it is presumed that weak protection for intellectual property will assist in obtaining developed country technology at little or no cost. The possibility that valuable technology could be generated from within developing countries comes almost as a shock, yet this is precisely the point of urging strong intellectual property protection in these countries, so that this possibility can be realized. It is far less likely to be realized without protection. The negative assumption gains currency particularly when attention centers on headline-grabbing technology. It may be part of the syndrome that proclaimed that every developing country ought to have its own steel mills. It fails to recognize that incremental innovation can be of great value to a developing country. As a general comment on research methodology it may be suggested that in seeking evidence, the greatest reward will probably come from getting close to those in developing countries who are involved in the creation and transfer of technology or in free riding. Yet a methodological difficulty that has been encountered is that even local businessmen who have a good deal at stake in terms of their ability to protect innovation, have little idea of what intellectual property is or does. General ignorance about intellec-

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Global Dimensions of Intellectual Property Rights in Science and Technology tual property is not surprising where the local system is so weak it plays no active role in people's planning or thinking, but it hinders discussion of the topic. Another methodological observation is that there are, of course, many factors at work in any economy, making it hard to isolate single causes where a galaxy of factors is operating. Competing explanations are, therefore, often presented. For example, my finding that weak intellectual property protection stifles the willingness of local firms to conduct internal research was countered by the explanation that local firms do not conduct internal research because they have no money or because they are protected by closed borders, rather than because their research results would quickly be lost to competitors. The results of a survey conducted in 1988 by a Brazilian government agency shed some light on this. A high proportion of the responding companies stated that lack of legal protection reduced their willingness to conduct internal research (Sherwood, 1990:Appendix 1). Although little studied, this subject is at a threshold of attention. As research results come in, they will throw a great deal of light, not only on intellectual property but on many aspects of the development process itself. Research Findings From Interviews Over the last five years, the subject has been researched by the author at a grass roots level in selected developing countries, chiefly through individual interviews. This work has been concentrated in Brazil, where more than 20 weeks were spent, but interviews were also conducted in Mexico, Argentina, Colombia, Venezuela, and in what are now Russia, Belarus, and Estonia. The effort has been to talk with people who have a direct stake in the local intellectual property system. More than 200 interviews were conducted, mainly with local businessmen, but also with university researchers, venture capital firm owners, ranchers, research park directors, state enterprise officials, and then, to help in formulating reflections, with local academic economists.2 Among the businessmen, there was, as noted, considerable lack of understanding about what intellectual property is and does. Still, almost all of them reported having lost valuable technology to competitors, and as a result, they were reluctant to devote significant resources to internal research. Most said that if they had the means to better protect the results of their own research, they would be willing to devote more resources to internal research. Many businessmen reported resorting to various techniques by which 2   For a more extensive report, see Sherwood (1990:Ch.5).

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Global Dimensions of Intellectual Property Rights in Science and Technology they sought to minimize loss of technology in the absence of legal protection, particularly trade secrets. One of the more frequent ways in which competitors get their hands on technology is to hire away key employees, a kind of "predatory hiring." To defend against this, businessmen segment their technology, exposing the fewest possible workers to each segment. That, and a number of other techniques, work to a limited degree to prevent technology loss, but those same techniques have a negative effect on efforts to advance technology and have a distressing effect on employee training. Human resource development suffers in silent, unnoticed ways in low-protection intellectual property environments. Most important, as noted, there seems to be a direct connection between low protection and lack of stimulation to perform in-house research. In the universities, researchers who had come up with important inventions, sometimes to their own surprise, found they had to start their own company to commercialize their invention. When they do this, they are usually ill equipped to function as entrepreneurs, they neglect their students, and worse, they neglect their ongoing research. Some, who have studied abroad, understood that if they could effectively protect their inventions with patents and trade secrets, it would be possible to license the invention to others better prepared to commercialize the new technology. Some of the younger researchers were particularly restless on this point. Venture capital firms find they cannot obtain useful information about the underlying technology on which start-up firms base their requests for venture capital because the typical start-up company fears losing its technology to the venture capital firm. As a consequence, venture capital firms seldom even reach the question of whether they are willing to invest in such start-up firms. Instead, they invest in firms that are not based on technology or they invest in existing companies with assets and track records. Research park directors reported that they cannot raise private funds to support their work. This is a serious problem, particularly when government research expenditure diminishes. Moreover, the synergy expected within the parks has not materialized to the extent it does in countries with high-stimulation systems. Both deficiencies are traceable to low-protection environments. Normally, private funds will not be invested in research, other than as an act of charity, if the expected results cannot be appropriated through the application of the tools of intellectual property. Within research parks, investigators who are brought together to stimulate each other's thinking, are instead wary of sharing proprietary technical knowledge for fear it will be misappropriated by others at the center. In countries with adequate protection, this fear is overcome by enforceable confidentiality agreements and other protective mechanisms. It appears that weak intellectual property protection inflicts very high costs on the development process. These costs are largely in the area of

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Global Dimensions of Intellectual Property Rights in Science and Technology opportunity losses. Counting things that do not happen is frustrating, but this does not mean the costs are not great. Research methods are needed to measure these costs. What Does Free Riding Accomplish? Free riding in relation to intellectual property is simply shorthand for what happens when technical knowledge is treated as property in one country but not in another. The second country permits its citizens to take the technical information of citizens of the first country as a result of the design of its intellectual property system. It should be stressed that the second country thereby also permits its own citizens to take from each other. From a short-term or static perspective, free riding may appear attractive. From a dynamic, longer-term perspective a different view emerges. It is like the village in which the local council votes one day to make bank robbery legal. The diffusion of money increases and some villagers are happy, but when the village needs a firehouse, the bank has no funds for its construction. Even in the short term, more needs to be learned about free riding in developing countries. Theory suggests that free riding provides optimal diffusion of its object—in this case, technical information. However, free riding in relation to developing countries has been little addressed empirically and certainly not in any systematic way. It is said that free riding has provided benefits in specific situations. For a limited range of industries, individual companies may have been able to incorporate a new product or process into their business by appropriating technology that became available through weak or absent intellectual property protection. However, to conclude that the economy of an entire country has advanced as a result is probably unwarranted. There is simply a great deal of technology that cannot be appropriated, much less advanced, without the willing cooperation of its originator. On the other hand, the damage to a country's technological infrastructure that arises from a free-rider strategy has been little thought about, much less measured. The opportunities to conduct local research, train local technicians and researchers, attract local venture capital to the development of promising new technology, support the movement of research results from university laboratories to the marketplace, and find greater outlets for research results produced in state enterprises are among the opportunities lost to a country. In considering methodologies for researching free riding, a distinction should be made between economic imitation and legal imitation. Some activity that is described as free riding by economists may be perfectly legal. It is often said, for example, that Japan advanced by illicit copying

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Global Dimensions of Intellectual Property Rights in Science and Technology after World War II. It appears, instead, that Japan licensed a great deal of technology in the postwar period, paying full value, and then improved on it. There was some free riding, no doubt, but that was not the secret of Japan's success (Rahn, 1983). From extensive interviewing in Brazil and general familiarity with Mexico's intellectual property system, it can be suggested that these countries probably have less to show from free riding than is claimed. Free-riding strategies tend to foster advances in those technologies where reverse engineering or direct copying are possible, but not in others. Where such advances are made, they tend to lag behind developments in originating countries, particularly where copying and reverse engineering do not involve the same level of knowledge that is needed to innovate. For certain technology, the ability to free ride is remarkably easy. Software and medicine are good examples, even classic examples, of technology that is costly and risky to develop, yet quite easy to copy. In a sense this is simply a taking of products and not an appropriation of technology. Those who copy learn very little about developing software or medicine. The skills gained from copying are typically not useful in the transition to innovation. In approaching the analysis from other perspectives, it might be asked whether free riding can be expected to foster innovation and technological growth in developing countries in the future. Has the velocity of technical change accelerated so that free riding becomes more expensive as a strategy? Does free riding condemn a country to play perpetual catch-up? Does it mean a country falls further behind as technology becomes more complex and advances with increasing speed or does free riding accelerate the catchup process as all countries move forward? These questions deserve more attention. It might also be asked what happens to the predicted cost savings that result from free riding. If there are cost savings for an economy, how are those savings harnessed to foster development and growth? It can be asked whether the products resulting from free riding are sold at prices that are quite high when one considers they bear no innovation costs. Pent-up Demand Recent press attention has highlighted the great number of foreign graduate students in U.S. universities. Behind this story is the increasing number of researchers who are trained in the United States and then return to research positions in countries with weak intellectual property systems. In the last few years, many of them have been interviewed in the course of the work reported above. They are a frustrated group. Part of their frustration stems from poor research facilities. This may

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Global Dimensions of Intellectual Property Rights in Science and Technology itself be a symptom of a weak intellectual property system. After all, why allocate scarce resources to research when the results can be taken by others? These returning researchers, however, have experienced the ways in which the high-stimulation system of the United States shapes the infrastructure of technology advance. They see industry conducting serious internal research and working in close association with universities—things that are unlikely to happen in the absence of such a system. They see how the system channels private financing to research. From the interviews reported, the impression was formed that there is, indeed, what can be termed a pent-up demand for better intellectual property protection in developing countries. Several examples illustrate this. On a recent visit to Colombia, I found that the technical team that works in the national coffee growers cooperative was frustrated by the lack of protection for biotechnology there. They have research projects in mind that could improve the stock of coffee trees, as well as some of the process technology by which coffee is prepared for market. They are unwilling to pursue this research without the benefit of better protection for the results of their research efforts. They reported that some new technology produced by a private local company had already been pirated. On the same visit, I found that the cut-flower growers association expressed reluctance to inaugurate a research program for improved species through biotechnology without the assurance of better protection. The lack of protection already impairs the ability of local growers to import breeding stock from abroad. In both examples, the individuals had studied abroad and were well acquainted with the influence of strong intellectual property systems on the research environment. In both cases, the individuals were perplexed when they considered approaching policymakers to discuss their frustration, assuming that nothing could be done. It was hard to see themselves as part of this pent-up demand for stronger intellectual property protection. From Brazil, there is an interesting example of a researcher who, after study abroad, worked in a government-supported university laboratory. He has made significant inventions in medicine. Since Brazil excludes pharmaceuticals from patent protection, he has adopted the practice of flying to Europe to obtain and then license patents there. Some have been commercially successful. No economic activity has resulted in Brazil, however. Another Brazilian example raises the question of how Brazil is helping its development by excluding certain fields from patentability. A professor from the University of Sao Paulo is the joint inventor of a bacterium that efficiently produces ethanol from sugar waste (bagasse). While a visiting professor at the University of Florida, he and two colleagues made this invention and were granted a U.S. patent. Lawyers for the university did not seek a patent in Brazil, since none would be granted under current

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Global Dimensions of Intellectual Property Rights in Science and Technology administrative practice there. The U.S. patent has been licensed by the university, and commercial production is about to begin in the Florida sugar industry. Nothing is happening in Brazil where sugar is one of the major crops. A recent visit to Argentina revealed still another indication of pent-up demand. The government of Argentina has long conducted research for the agriculture sector. Now, increased discipline over government spending has greatly reduced public resources for such research. This means that, in all probability, at some point the private sector will begin to pick up the slack, in efforts to apply higher levels of technology to the agriculture base. Criteria that guide private investment in research will call for higher levels of intellectual property protection. Several interviews with government and private observers point to this possibility already. A different kind of example, again from Brazil, illustrates the damage being done to the technological infrastructure because the intellectual property system there is weak, particularly in regard to trade secrets. Again, a professor from the University of Sao Paulo is the source of this example. He stated that Brazilian companies are afraid to utilize the Japanese techniques for quality and process improvement that are so successful in other countries. These techniques involve all the employees who work with a particular process, which means they are all asked to learn about the entire process so they can suggest improvements. This flies in the face of common industrial practice in Brazil whereby process technology is segmented. Employees are exposed to as little technology as possible so that they do not become targets for predatory hiring by competitors. Predatory hiring to obtain technology is rampant in Brazil. No one has written about this yet in Brazil, but it is clearly having a silent but devastating effect on that country's industrial development. These few examples of pent-up demand point to the negative impact that weak intellectual property systems have on the development process. As yet, this demand is poorly organized and in at least that sense is "pent up." The examples point in large part to that which does not happen. Statistics will tell us very little of the story. A good part of the argument for robust intellectual property system congruence in developing countries must, in the absence of systematic research, rest largely on anecdotes, which nonetheless suggest patterns of widespread barriers to innovative activity. Diffusion of Benefits The introduction of new technology into an economy has been shown not only to contribute handsomely to growth, but also to provide a high social rate of return. We have Solow, Mansfield, and others to thank for these insights (Solow, 1957; Mansfield et al., 1977). Recently Mansfield

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Global Dimensions of Intellectual Property Rights in Science and Technology extended his study to identify intellectual property as an important ingredient in the production of new technology (Mansfield, 1988). This work centered on the U.S. economy. What would Solow's and Mansfield's analyses show if transposed to developing countries? In private conversations, several of Brazil's well-regarded economists have offered help in answering that question.3 They were inclined to think the analyses would be as valid for Brazil as for the United States, with an added comment by one that the introduction of new technology could have an even greater impact in Brazil because it would benefit from the store of technology already known and practiced elsewhere. They felt that strong intellectual property protection would facilitate the introduction of new technology from both internal and external sources. It is not unwarranted to suggest that high stimulation for research and protection for incoming technology in a country like Brazil would boost economic growth and produce a high social rate of return. It does not appear that imitation and copying produce the same results. Global Benefits What has been said thus far has concentrated on identifying benefits that any country in development can expect to obtain for itself from installing a high-stimulation system. The benefits available to the global economy from a uniform, high-stimulation system deserve attention as well. Intellectual property is both a stimulus to research and an aid in conducting valuable technology from place to place. To the extent that research can be conducted through international networks, joint research programs, and shared facilities, the role of intellectual property protection is becoming more pronounced at the global level. Any country that wants its researchers to participate in internationalized research will want to be sure the protection it provides is equivalent to that afforded research participants in other countries. The greater the uniformity of protective systems, the greater is the range of potential research participants and, presumably, the greater are the research results that then flow to participating countries. Intellectual property protection enables research to become a magnet for funds. Both public and private funds in search of worthwhile research programs are quite willing to cross national boundaries. Such willingness is dampened where the magnet effect of intellectual property protection is weak or limited. More widespread protection will provide a greater range 3   Julian Chacel, Affonso Celso Pastore, and Annibal Villela, in private conversations.

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Global Dimensions of Intellectual Property Rights in Science and Technology of candidate research programs and a larger pool from which to draw research funds. The role of intellectual property as an aid in transferring valuable technology from place to place is critical for the world economy.4 Once research has produced results, the willingness of those who own the results to transfer them across national boundaries is boosted when their ability to maintain their rights to the results is secure. Perhaps more important, the desire of those in other countries who want to receive the results through purchase or license is increased if they in turn can feel secure about protecting what they acquire. Moreover, high-quality technology acquisition is more likely to occur if the supplier is making a willing transfer. As a uniform intellectual property system comes into place around the world, we can expect not only higher-quality technology transfers, but also a greater willingness to conduct joint research from transnational platforms. The sharing of technical knowledge within a protective environment will have far-reaching consequences for those conducting research in all participating countries.5 Finally, in considering the global benefits of a uniform system, it can be projected that by fostering a faster technological pace in the economies of more countries, the proposed uniform system will accentuate the "winwin" nature of an increasingly interdependent global economy. That is to say, with more countries generating new technology, the growth that comes from its introduction can be greater as that technology becomes more widely available through the action of willing originators. Those outside the uniform system could be expected to fall further off the pace of technical advance and to experience proportionally less benefit from that technology. REBUTTALS This section rebuts several arguments commonly made in support of a differentiated world system in which national regimes would remain indefinitely below the rating of 70 noted at the beginning of the chapter.6 Special and differential treatment is a concept that comes from the General Agreement on Tariffs and Trade (GATT), which forms the basis of the world's trading system. The concept of special and differential treatment is applied by the GATT to the world's poorest countries as they participate in the world trading system. It is interesting that in the section of the Final Draft Act proposed to the Uruguay Round negotiators by Arthur Dunkel on December 20, 1991, relating to intellectual property, there are provisions 4   For an assessment of the various patterns of conductivity, see Sherwood (1989). 5   For a portrait of joint research activity at the transnational level, see Chapter 8. 6   For a more extensive analysis, see Sherwood (1990:Ch.7).

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Global Dimensions of Intellectual Property Rights in Science and Technology that would permit delay in implementing the protection stipulated in that text by as much as 10 years, but there is virtually no provision for ongoing special and differential treatment. This implies that as far as the GATT negotiation is concerned, pleas for special and differential treatment with respect to intellectual property systems apparently have been ruled out. Ethics It is argued by some that there are ethical trade-offs to be considered when envisioning a uniform intellectual property system for the world. Very roughly, the argument is that poor countries should be granted special treatment because they are poor. This argument implies that someone wins and someone loses if intellectual property protection is strong and effective. If intellectual property is viewed as a tool of exploitation, it is easy to follow this argument. If, on the other hand, intellectual property is viewed as a tool of development, as suggested here, then a different perspective emerges. Viewed from the perspective of opportunity gains and losses for the development process, intellectual property can be seen as part of a country's infrastructure. That is to say, it stands in the background and helps more things to happen in the country's technological base. As suggested above, it encourages innovative people to ''come out of the woodwork." It serves as a magnet for local private funds, drawing them to support local research efforts, which in turn introduce growth-producing new technology into the economy. This is turn aids human resource development by providing more research job opportunities and by permitting real technical exchange within research parks and centers where synergy is expected. The more relevant ethical consideration is how a country can continue with a weak system when a strong system holds the promise of considerable opportunities for raising the level of a country's technical base. Dominance It is argued that strong intellectual property protection helps multinational companies dominate a market and kill infant industries. Stated in these terms, this assertion has emotional appeal, of course, but does not describe accurately the dynamics of technological competition. This argument assumes inter alia that only multinational companies obtain intellectual property rights and that industries in developing countries would spring to life if it were not for intellectual property protection. In fact, few developing countries have intellectual property systems that exhibit effective protection, yet infant industries do not spring up there, except perhaps where copying is relatively simple and highly profitable

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Global Dimensions of Intellectual Property Rights in Science and Technology (e.g., pharmaceuticals, cassettes, and software). Multinationals that invest heavily in research tend to produce valuable technology, but it is not difficult to observe that a position of dominance one year can be reduced swiftly to panic the next as technological innovation roars ahead. We can see increasing instances in which companies in developing countries rise up to challenge companies in developed countries. Countries with strong intellectual property systems aid their companies in this global technological competition. Economics It is argued that a weak intellectual property system enables a country to gain access to foreign technology without paying for it. This approach has severe limitations as a strategy for development. This argument carries the supposition that by disregarding intellectual property, the acquisition cost of new technology can be avoided. Although this is perhaps true in some fields, in others the cost of imitation is nearly as high as the cost of innovation. In still others, notably pharmaceuticals, the price at which the imitation is sold is often nearly as high as the original. In both cases the expected benefit from free riding is reduced. In looking more broadly at the issue of technology acquisition cost, it should be noted that any industrial project has a technology acquisition cost, whether it is an internal or an external acquisition. If it cannot bear that cost, the project is probably not viable for other reasons. Another frequent comment in support of weak intellectual property systems in developing countries is that these countries cannot hope to match the research expenditures of major multinationals. The IBM research budget is cited as larger than the gross domestic product of some countries. Although that fact may be striking, it is worth looking a little deeper. Switzerland has not stopped stimulating research because it is small. A relatively small but focused research effort may have a relatively large impact on the economy of a small country. After I had visited Montevideo a half dozen times, the thought emerged that Uruguay might spring back to life and dramatically help recover its onetime role as the Switzerland of Latin America if it would stimulate local research instead of hindering it. There is a broad range of research opportunities open to developing countries at both the international and the domestic levels. Chapter 8 in this volume makes the point that the rapid expansion of scientific knowledge today means there are more than enough research targets to go around. It notes that even the largest companies can no longer stay abreast of all that is happening in their own fields. They are turning to alliances with others, including small firms. This can include firms in developing countries. If well protected, developing country researchers will find niches where they

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Global Dimensions of Intellectual Property Rights in Science and Technology can contribute to world-class technical advance and earn foreign exchange as well. The supposition that developing countries do not have the capability to conduct serious technological research is largely a statement of presumed lack of opportunity. Once that opportunity is perceived and then backed by a system of effective protection for intellectual assets, the means to conduct research are likely to be found. Local researchers in developing countries can contribute to adaptation and improvement of the local technological base. Inglorious, incremental work can have a big cumulative impact. It is useful to get away from thinking predominantly of headline-grabbing technology. In the developing countries, it is a loss when the humble farm worker who might have designed a better plow is not stimulated to do so. Creativity, not the size of research budgets, is usually the critical element for results. Surely there are as much intelligence and creativity per capita in developing countries as in countries with advanced economies. It is occasionally asserted that a country ought to have weak protection for intellectual property because it is less competitive internationally. Apparently, a weak protective system is somehow expected to improve its competitiveness over time. From what has been said already, this can be shown to be poor policy advice. Competitiveness is not likely to be improved by weak systems of protection, especially since a weak intellectual property system may be undermining local impulses to innovate. Prowess First, Then Protection It is asserted by some Brazilians that Brazil deserves to have a strong intellectual property system, but only once it achieves world-class stature in research. In the interim, something less is appropriate. Does this mean that Brazil's system should be upgraded only after all fields of research have attained world-class levels of achievement? What about the interim effect on fields that are nearing, or have already reached, world-class levels? There are some in Brazil. Are they to be denied intellectual property safeguards until the lagging fields catch up? The ability of the leading fields in Brazil to attract funds to support research is already being negatively affected by the lack of intellectual property protection. If we assume that achieving world-class stature is desirable sooner rather than later, it is not clear how achieving it sooner is boosted by a national strategy of weak protection. Strong intellectual property safeguards seem likely to speed rather than retard progress toward world-class achievement. Brazilian researchers at the verge of world-class achievements are themselves calling for a stronger intellectual property system in Brazil, whereas most of those urging continued weak protection are quite distant from research.

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Global Dimensions of Intellectual Property Rights in Science and Technology TRENDS TOWARD HIGH-STIMULATION SYSTEMS A survey of national approaches to intellectual property around the world today compared with 10 years ago would show remarkable change. In the developed countries there is a high level of ferment as the basic concepts of intellectual property are tested by new forms of technology. There is also tension over how to achieve higher degrees of congruence, but that objective and those basic concepts are not seriously in question. There is also ferment in the developing countries. Mexico, which experimented with destruction of some basic intellectual property concepts in the 1970s, reformed its system last year to bring it well above the 70 rating noted earlier. Argentina has recently put before its congress a draft patent law with a striking resemblance to the new Mexican law. Officials of the two countries conferred on the draft. Chile moved forward early last year, and the Andean Community countries are close to reform of their common intellectual property regime. India has reform under consideration. The former Soviet Union, shortly before its collapse, made dramatic reforms in its intellectual property system in anticipation of conversion to a market-driven economy. The reforms even included a strong trade secret law, apparently designed to prevent loss of valuable technology bottled up until now in state institutions. Starting from virtually nothing, the People's Republic of China has instituted many elements of an effective intellectual property system in the last 10 years and continues to move in this direction. Whether it plays any part in daily activity is not clear, although there are reports of enforcement litigation in some fields that point to a concrete influence. Brazil has on the drawing board reform in several areas of its intellectual property system. In addition to the well-publicized patent law reform, this includes work on separate draft laws for protection of semiconductor chips and plant breeders' rights. This is particularly interesting because these are areas of the system that the United States has not raised with Brazil. There may be resistance to reform from various quarters in various countries, but few are advocating less protection or no protection these days. Today, resistance often comes from a dislike of being pressured by the United States rather than from any deep sense that reform is ultimately wrong. It appears that as countries shift from command economies to market-driven economies there is a correlative shift from weak to strong intellectual property protection. This is surely more than an accident, yet not quite an axiom. Where the state is the only actor, there is thought to be very little need for intellectual property, that is, for rules that delineate the positions

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Global Dimensions of Intellectual Property Rights in Science and Technology of competing actors relative to new technology. (This is not true, however, where international technology exchanges are involved.) Even where the state only mandates actions by competing actors, there is reduced need for intellectual property. However, as private competition plays a bigger role in economic activity, intellectual property assumes a more prominent place in the technological infrastructure of a country. INSTALLING A UNIFORM, HIGH-STIMULATION SYSTEM For a national intellectual property system to work, there must first be a judicial system that works, a precondition that is often missing. Because of this, intellectual property protection has simply never been tried in many countries. Although there are laws on the books, they do not influence day-to-day activity. Recently, the World Bank began work on a project designed to help Venezuela upgrade its judicial system. Whether any attention will be paid to intellectual property as a subset of the overall project is not clear, but the possibility of assisting in the creation of specialized courts for intellectual property would be an option worth considering. For a national intellectual property system to work, there must also be a bureaucracy that administers the system fairly and efficiently. The fact that this precondition is also often missing is another reason that intellectual property protection has never really been tried in many countries. This is partly a problem of resources and partly a problem of training and administrative methodology. The patent office is typically the most costly element of a national intellectual property system. Yet patent offices generate significant revenue, including foreign exchange (through fees) for the national treasury. Patent offices typically receive less from the national budget than they contribute. If patent offices were permitted to keep their fee income, greater progress could well be made in upgrading their administration. When intellectual property systems are designed, most attention is usually given to the levels of protection to be awarded by the system. More consideration needs to be given, during system design, to administrative and judicial cost reduction opportunities.7 For example, greater emphasis should be given to efficiently protecting trade secrets because they are very low cost and, if properly implemented, can shift the business culture of a country to greater emphasis on innovation. In the patent area, more attention can be given to utility patents as a supplement to ordinary patents, as is 7   For a thoughtful discussion, see Estache (1990).

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Global Dimensions of Intellectual Property Rights in Science and Technology the practice in Germany and Japan. It is probable that many patent laws can be simplified to reduce administrative burdens. At the international level, more can be done to aid developing countries that seek to install high-stimulation systems. Successful steps toward examination of patent applications by transnational patent offices have been taken in Africa and Europe. The Patent Cooperation Treaty gives a workable basis for linking many patent offices so that costly duplication of effort can be eliminated. The treaty could be undergirded by an international computer network using satellite connections. The resulting data base could serve collateral information purposes as well.8 More and better training is needed for officials who administer developing country intellectual property systems. The World Intellectual Property Organization and national patent offices in Europe, Japan, and the United States have made efforts in this regard, but the expanding need warrants more effort. Also at the level of international cooperation, it is worth noting that by reflex, as free trade agreements are fashioned, attention is being given to greater congruence in intellectual property systems among participating countries. For example, representatives from Brazil, Argentina, Paraguay, and Uruguay met last year to consider their respective systems in view of progress toward creation of their common market. The North American Free Trade Agreement negotiations include a working group on intellectual property system congruence. Of course, the European Community has been at work on a higher level of congruence for several decades, and there have been interesting achievements in Africa. Attention to cost reduction is not an explicit focus of any of these efforts, but centralized examination is emerging as a logical implication and this reduces costs. The world is well on its way to a uniform, high-stimulation system. Although at a momentary impasse, activities in the GATT Uruguay Round 8   Such a linkage system would provide for electronic filing of patent applications in the home language of each participating country. Uniform formats for applications would assist computer-aided translation to a functional language for patent examination by a central examination office (quite probably the European or U.S. patent office). The status of the application would be available on-line whenever needed. The central examination office would sustain the cost of maintaining the vital library of prior art, and this too might be available for on-line access by researchers. The linkage system could also provide access to anyone in any participating country wishing to search for the latest technology in any field of interest. Finally, patent holders could specify from time to time their willingness to license the technology represented by the patent, thereby providing an electronic brokerage facility the world does not now have. Although visionary, such a system is within the scope of current technical capabilities. Its cost is a matter for international cooperation.

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Global Dimensions of Intellectual Property Rights in Science and Technology that relate to intellectual property point in this direction. Action by the United States in its bilateral trade relations keeps raising the question of intellectual property. However, as more countries come to appreciate the benefits they stand to gain from installing high-stimulation systems, there will be increasing movement toward a uniform worldwide system. CONCLUSION Technology, not ideology, increasingly drives much of the world's activity. This means two things for intellectual property. First, ideological arguments against strong intellectual property protection will fade, permitting a fresh examination of its positive role in development. Second, the close connection between protection of intellectual property and the creation and transfer of technology will become more evident, fostering greater appreciation of this positive role. The uniform, high-stimulation system proposed here is in effect a landscape of systems in which human creativity is encouraged. It has the ability, in conjunction with other policies, to bring into action many people who are willing to bet their energy, time, and money on being inventive and getting something for it. This can be a powerful tool of economic development, one that can release creativity within a country while linking it with activity and advances in other countries. Returning to the Solow and Mansfield analyses, the more technology that is available to a country from both internal and external sources, the greater is the stimulus toward indigenous growth. Free riding can make technology available in some fields, but not across the spectrum. On balance, any benefits that can be ascribed to free riding are more than offset by the damage that a country's technological infrastructure sustains for lack of intellectual property protection that works well. In view of the prospective benefits to be gained by countries in development, a uniform intellectual property system makes sense for the world (see Table 3-1). TABLE 3-1 Summary of Benefits and Harm of a Uniform System Benefits Harm Boosts local private research Diminishes "pirates" Develops human resources   New technology enters economy Some technology may cost more Increases local competition Increases cost of some products Innovation becomes new reflex   Expands global research  

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Global Dimensions of Intellectual Property Rights in Science and Technology REFERENCES Burstein, M.L. 1984. Diffusion of knowledge-based products: Applications to developing countries. Economic Inquiry, Western Economic Association International 22(4). Estache, Antonio. 1990. Brazil: Issues in the design of property rights. Internal Discussion Paper, Latin America and the Caribbean Region. Washington, D.C.: The World Bank. Mansfield, Edwin. 1977. Social and private rates of return from industrial innovations. Quarterly Journal of Economics (May). Mansfield, Edwin. 1988. Technical change and economic growth. In Intellectual Property Rights and Capital Formation in the Next Decade, Charles E. Walker and Mark A. Bloomfield, eds. Lanham, Md.: University Press of America. Rahn, Guntram. 1983. The role of industrial property in economic development: The Japanese experience. 14 International Review of Industrial Property and Copyright Law. Sherwood, Robert M. 1989. New theory of conductivity in licensing. les Nouvelles: Journal of the Licensing Executives Society 24(4). Sherwood, Robert M. 1990. Intellectual Property and Economic Development. Boulder, Colo.: Westview Press. Siebeck, Wolfgang E., Robert E. Evenson, William Lesser, and Carlos A. Primo Braga. 1990. Strengthening Protection of Intellectual Property in Developing Countries: A Survey of the Literature. World Bank Discussion Papers No. 112. Washington, D.C.: The World Bank. Solow, Robert. 1957. Technical change and aggregate production function. Review of Economics and Statistics.