Getting beyond woeful: my submission to the PC’s inquiry on Intellectual Property

From a quick squiz at their report, the PC seems to have done an excellent job on the question of IP. It didn’t put too much effort distorting its recommendations to somehow second guess what was politically palatable and just set out the appropriate principles and their upshot.

Without having read it all carefully, I looked at the couple of chapters which had something sustained to say about our international circumstances – the way in which we’ve agreed to hem ourselves in by agreeing to all sorts of patently outrageous claims – most obviously the retrospective extension of IP which, axiomatically can only have costs, since you increasing the incentives to bring something that’s already with us can’t increase its chances of being brought into existence (it already has been). And I thought they were a bit lame. I thought they were lame because they didn’t point out how consistent a disgrace the Department of Foreign Affairs and Trade has been to the Australian national interest on this point. As it showed in its hearings before the inquiry I was on into Pharmaceutical Patent Extensions, it hadn’t the slightest glimmering of what might be in the Australian interest, other than arguing in the first instance that we didn’t want to change any of the laws we already had. This came out when I asked them some very open ended questions in the inquiry. I asked them a very low key open ended question – what their objectives were when they were negotiating on IP and they became completely incoherent. They consulted with all and then kind of, well represented what they’d heard. What if they heard different things from different Australian interests. That pretty much stumped them.

Anyway the PC gets the basic principles right, but in an attempt to stiffen their spine on this point I wrote the following introductory letter to introduce a document I penned a few years ago trying to engage firms like Google, Facebook and other internet companies that fancy they don’t want to do evil. I even know some quite senior people in those companies in the Bay Area – including Google Chief Economist Hal Varian. But, not surprisingly for something I didn’t turn into a full time crusade, it didn’t go anywhere. In any event the introductory letter I penned to the Commission is below and the document “An international agenda for balanced IP” appears below the fold.

Saturday, 28 May 2016

To whom it may concern,

Attached is a document drafted some years ago, which I nevertheless hope will be of some interest and use to the Commission in its current labours to more fully inform debate about IP in Australia. The immediate context in which it was written meant that it addressed providers of the digital infrastructure for the internet. But the principles to which it appeals are far more general.

There appear few countervailing forces to IP mercantilism and yet it should be possible to make headway by more vigorously and self-consciously promoting the interests of all those who stand to benefit, whether they realise it or not, from resisting it. Using transparency as a weapon against the siren song of mercantilism – which as Adam Smith observed works by misleading the public into believing that their own interests coincide with the sectoral interests of a powerful minority – is part of the founding myth of the Commission.

In that spirit I am hoping that the Commission might help Australia vigorously identify its own strategic interests in resisting the more outrageous demands of the IP mercantilists, and build institutions more capable of promoting greater understanding of the issues amongst Australia’s policy and opinion makers. Further, in the spirit of its success with the Cairns group of agricultural exporters, Australia should lead the formation of a group of countries who identify their interests not with mercantilism but with policies designed to optimise national economic interests, most particularly where those policies also promote the global economic interest.

I’d be happy to appear before the Commission on this subject should it wish.

Regards,

Nicholas Gruen

An international agenda for balanced IP

Background

The political economy of intellectual property is broken.

Fading businesses with legacy business models focus their energies on lobbying lawmakers to impede new business models, rather than to innovate themselves.

IP rights holder groups seek draconian powers over legitimate businesses that are the infrastructure of the new economy, such as internet service providers, internet intermediaries, and cloud services providers. They seek domestic legislative change.[1]

While there is a legitimate case for preventing subversion of IP rights, these initiatives show little regard for the public interest. Extraordinarily, some national IP regimes, such as Australia’s provide no clear right for those in the value chain, such as ISPs like Bigpond, TPG and iiNet and search engines like Google, or social networks like Facebook and Twitter to handle IP, even where their only purpose and effect is to disseminate the IP and so assist IP holders in exploiting their work.

Increasingly, rights holders seek to reach beyond domestic legal and legislative channels to pursue their interests in other jurisdictions: directly, through the extradition of alleged copyright infringers to face trial in the US,[2] and indirectly, through the financing of court actions in other countries. In Australia, Hollywood movie studios financed the copyright action brought against the Australian ISP, iiNet, because in their view iiNet was insufficiently vigilant in preventing copyright infringement by its users.

Further, international pressure is exerted through the US Trade Representative’s Special 301 process, under which many of the US’s closest diplomatic allies and trading partners in other contexts, such as Canada and Australia, have been placed on the “Priority Watch List“ as soft on IP, even where, broadly speaking, their IP regimes are of comparable strength to the US’s and in some regards stronger.

Special 301 pressure often produces the desired result, as illustrated recently by Spain enacting provisions that enable websites and web-services to be shut down without due process within ten days of complaints being made. There is also pressure to agree to international treaties aimed at maintaining and extending IP rights, as in the Anti-Counterfeiting Trade Agreement (ACTA). Today there are substantial IP chapters in virtually all trade agreements.

What is needed

Whereas typically the US will pursue the maintenance and extension of IP rights in such treaties, other countries tend simply to resist changes to their own law. Eventually some compromise is reached between US assertiveness and the defensiveness of their trading partners. Yet it is surprising that countries other than the US do not assert their own interests more strategically and energetically. This proposal seeks to address this lacuna.

What is missing for IP user countries is a framework within which they might assert their own strategic interests and, by balancing the US’s assertiveness, produce a more balanced global regime which is more in tune with their own interests – and that of the global public interest. To be effective, any such framework would embrace simple economics and political economy to elucidate the case for a more balanced approach to IP in a way that is simple and compelling to the interested lay-person.

Given the existing polarisation of the IP field, it would be imperative that the framework be ideologically centrist rather than partisan. There is no shortage of partisan activism on both sides of the IP debate. The Washington Declaration on Intellectual Property and the Public Interest [3] is a worthwhile document in this regard, though its ideological provenance is social-democratic. The proposal here seeks to build on the wider self-interest of businesses and citizens in promoting more economically efficient outcomes.

Some principles and propositions

The broad principles which could be part of such a framework are as follows:

  • Whereas harmonising and reducing trade barriers is presumptively in the interests of all countries involved in such activity,[4] there is no such presumption in the case of IP treaties (including of course the IP chapters of trade treaties), which typically involve net exporters of IP winning and net importers losing.
  • Increased IP helps IP producers and hurts IP consumers. If producers and users were always different parties, it would probably be best to err on the side of producers’ interests, at least where IP generates dynamic benefits and productivity growth. However:
    • Even here this should not extend to:
      • Criminalising actions that are widely practiced as reasonable by the populace (especially where this involves minimal damage to producers’ interests and assists in supporting productivity growth).
      • Imposing onerous rights on innocent parties in the value chain who are not seeking to promote IP infringement.
    • More importantly however, since before Newton spoke of seeing further by standing on the shoulders of giants, those who produce IP have also been users of IP. Thus an imperative of the IP system is to minimise any constraints it imposes on new and innovative ways of adding value to existing IP to produce new IP.
  • IP imposes costs; therefore it is only justified where its benefits exceed those costs. This cannot be the case unless it produces incentives to create new IP as without inducing new IP, IP protection simply imposes costs.
  • There will never be a justification for retrospective extensions of IP terms. This can only generate windfalls to existing IP holders, rather than incentives to create new IP.
    • Simple economics tells us that it will impose greater costs on consumers than it generates benefits for producers. In this sense such measures are very unlikely to even be in the interests of countries proposing them. Rather, they reflect the political dominance of IP rights holders over the interests of IP users.
  • Encouraging countries to prohibit parallel imports is presumptively contrary to their own interests and to the global public interest in economic efficiency.
  • There are clearly areas in which IP is more extensive than is warranted by any benefits it may generate.
    • This includes orphan copyright works and rights to handle IP for legitimate purposes, such as caching, search, and adequate ‘safe harbour’ rules.
  • The US rule of flexible fair use has been important in supporting innovation on the internet in the US, despite that country’s preference for other countries to adopt more narrow exceptions.
    • US ‘fair use’ permissions provided critical facilitation of both Google search and Apple’s iPod business models where both would have faced substantially higher risks with other countries’ narrower ‘black letter law’ exceptions.
  • Rights should be both practically enforceable and proportional. It is on the grounds of practicality that IP rights holders have argued that the legal costs of detecting and prosecuting individual rights violations is prohibitive on a case by case basis and therefore seek mandatory statutory damages for IP infringement – a route which often lacks proportionality. The case for or against such a measure will depend on circumstances, but there are huge inequities between large firms on the one hand and small firms and individuals on the other in their access to legal remedies. This should be addressed in including with penalties for vexatious litigation and IP ‘trolling’. More and more, legitimate IP creators are being preyed upon by IP trolls exploiting the fear, uncertainty and doubt generated by vexatious legal action (particularly against small parties).
  • While international treaties should be respected, they should not operate to prevent sensible adjustment of national IP regimes to the new phenomena of the digital economy. Where sensible domestic reforms are stymied by the architecture of international agreements such as that existing under the Berne Convention, it is important for nations to cooperatively update those agreements, not just on behalf of IP producers, but also on behalf of users and particularly of those who use IP in innovative ways to generate new IP.
  • Because of the complexity of the issues, transparency is important to allow stakeholders to understand what is at issue and help to inform the debate.
  • It follows that such treaties should not be negotiated in secret, but that negotiating drafts should be released to the public at regular intervals during negotiations.
  • Extensions to IP should not proceed without some independent economic analysis of such measures to determine the likely costs and benefits for
    • Producers;
    • Users (including users seeking to use IP in the production of IP);
    • The community as a whole.
  • This principle should be applied by nations in the same way that this principle has been applied in Australia to industry assistance like tariffs since the 1920s.
  • It should also be applied to treaty making to improve the transparency of decision-making as countries seek to serve their own economic interests in the context of the wider global community’s interest. Thus, as alternative provisions are negotiated, there should be some independent expert advice on the effects of such provisions on each of the parties, and where it is impracticable for this to be detailed quantitative analysis there should be some independent qualitative analysis by those qualified to provide it.
[1] Most recently observed in the US in the Hollywood-backed Protect Intellectual Property Act (PIPA) and Stop Online Piracy Act (SOPA). These bills would have enabled internet services and websites to have been closed for allegedly inadequate vigilance against piracy with minimal due process. The bills were strenuously opposed by virtually every significant internet innovator and included Facebook, Google, Yahoo, Wikipedia and even American Express.
[2] as in the case involving the operators of Megaupload.
[3] See http://infojustice.org/washington-declaration-html.
[4] Although of course there can be exceptions.
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10 Responses to Getting beyond woeful: my submission to the PC’s inquiry on Intellectual Property

  1. paul walter says:

    Stunning stuff. At the moment the GM issue concerning farmers of “natural” seedings being sued or forced to pay rent to those who use GM wanders through my brain.

    I digress. Reading it is like the village organist listening to a concert pianist.

  2. R. N. England says:

    There is a fundamental conflict between the concept of intellectual property and science. Science obliges its practitioners to make their findings public as soon as possible so that others can check and improve on them. Science, and technology which differs in no significant way from science, are public culture. Turning their discoveries into legally protected secrets slows down or stops their progress.

    The scientific view of ideas is the same as the scientific view of living organisms. They evolve. Just as there is no living organism created by a god, there is no idea that has been created by an individual. Ideas evolve in a pool that is ultimately public. Without everything that leads up to them, they would never exist. Newton’s laws of motion, or the calculus were ideas whose time had come. If it hadn’t been Newton, it would very soon have been someone else. Newton’s squabbles with Leibnitz over precedence in the “invention” of calculus do them no credit. Like those squabbles, intellectual property is just another embarrassing by-product of human vanity: bourgeois fundamentalism at its most contemptible.

    It is hard to think of a more stupid and stultifying project than to attempt to privatise the culture which began to flourish with the European Enlightenment. Imagine handing the world economy over to a bunch of accountants administering the estates of Newton, Darwin, and all the others who appear to have got there first by the skin of their teeth; or selling science to students whose parents could afford to pay the royalties, and leaving the others in the dark.

    • conrad says:

      There’s a lot to be said about open science, but this view is clearly simplified — basically, if people couldn’t get IP protection, they wouldn’t invest the money to investigate many things, like, for example, medicines which are vastly expensive to discover.

      If you want to think of the flip-side of your comment, just imagine the following scenario:

      Donald Trump gets in and starts a serious trade wars with China, the EU, and whoever else is convenient. China retaliates by ignoring IP protection for all American companies, and allows Chinese companies to simply copy designs, drugs, etc. . Goods that are essentially identical to the protected ones suddenly flood the world, and there is nothing to stop them. In the short term, this is good for most people, although then many of the American companies go broke and those left realize it is worthless trying investigate things when they can be ripped off as soon as they are found.

      Are we going more or less technological progress without any protection?

      • Nicholas Gruen says:

        It’s a good question Conrad. If the choice is a binary one, Levine and Bouldrin argue that we’d be better off without IP. I expect they may be right.

        Certainly, other things being equal, pharmaceutical innovation would fall, but then the equilibrium we’re in now, with gold plated safety arrangements, with efficacy and safety effectively largely regulated together (when they’re quite different and suggest very different regulatory approaches), with little done to try to address asymmetric information, and more going into marketing pharmaceuticals than in developing new ones is an equilibrium that could be massively improved upon.

        I’m certain that IP gets in the way in numerous areas. Most particularly in software. But a read of Levine and Bouldrin suggests it’s much wider than that.

        The other thing that remains invisible to most of the debate is the immense dysfunction of the legal system. Not only does this simply impose huge costs. It imposes huge delays which are probably much more important. And it massively discriminates against small (probably the most innovative) players.

        As I documented in this post:

        In an interview with Nature News Andre Geim explains why: ‘We considered patenting [graphene]; we prepared a patent and it was nearly filed. Then I had an interaction with a big, multinational electronics company. I approached a guy at a conference and said, “We’ve got this patent coming up, would you be interested in sponsoring it over the years?” It’s quite expensive to keep a patent alive for 20 years. The guy told me, “We are looking at graphene, and it might have a future in the long term. If after ten years we find it’s really as good as it promises, we will put a hundred patent lawyers on it to write a hundred patents a day, and you will spend the rest of your life, and the gross domestic product of your little island, suing us.” That’s a direct quote.

        • conrad says:

          My preference is for some intermediate position (similar to what you are arguing for) although there are clear cut cases where you need IP protection in the 21st century, such as novel antibiotics (which we are in desperate need of), drugs in general (since most of the cost goes into discovery and testing), and computer chips (for which more or less any foundry can make any chip if it has advanced enough manufacturing capacity). Some of this could be done by allowing certain groups of things to have a special status, as already occurs with some types of drugs which get expediated processing.

          I think part of the problem is basically just corruption in the legal system incidentally — it’s clearly in the interest of rich lawyers and rich companies to have the most difficult and convoluted system as possible and it’s hard to imagine we would have got where we are based on choosing optimal levels of protection in different areas.

          I also think the system will break-down — I brought the previous example up because it or similar seems like a real possibility to me. Even now, many countries ignore some of the crazier stuff like gene patents, and if we see borders go up again in the world due to nationalism (or similar), these sorts of ridiculously complicated agreements are likely to be the first to go.

      • John walker says:

        (Roughly speaking)
        Copyright in England grew out of a 16 c to 17c system of licensing , for censorship reasons I.e. for the purpose of prohibiting the publication of undesirable books etc.
        That system lead to the establishment of a group( guild) of publishers that , by about 1670, had an effective monopoly over publishing. It was a situation that was very unpopular with just about everybody (apart from from those publishers.)

        In about 1695 the original act that had created the situation was rescinded – the predictable chaos ensured.
        Authors such as Swift and Defoe who by that time had much greater social standing , than authors had had back in 1660, were prominent in calls for the establishment of ‘a right of the author over printing copies’.
        Result was the 1709 Queen Anne act :

        “Whereas Printers, Booksellers, and other Persons, have of late frequently taken the Liberty of Printing, Reprinting, and Publishing, or causing to be Printed, Reprinted, and Published Books, and other Writings, without the Consent of the Authors or Proprietors of such Books and Writings, to their very great Detriment, and too often to the Ruin of them and their Families: For Preventing therefore such Practices for the future, and for the Encouragement of Learned Men to Compose and Write useful Books; May it please Your Majesty, that it may be Enacted … ”
        The term was for ” one and twenty years” the publishers at the time ( and ever since wanted it to be in perpetuity ).

      • R. N. England says:

        When Florey and his team became certain of the effectiveness of penicillin, they turned to America to mass produce the stuff, because they could do it in big quantities cheaply. The Americans then were like the Chinese now. Florey and his team didn’t in any way consider themselves to be ripped off. The notion that they should have been able to make a fortune out of their discovery was alien to them. It is an invention that has entered our culture (I would say polluted it) since then.

        • conrad says:

          If you read the history of Howard Florey, you will find out that discovery almost wasn’t made because he couldn’t get grant money for it and he had to waste endless amounts of his time writing grant applications to try and get the money. So we are actually very lucky Florey was so determined, and we find out the more things change the more they stay the same.

    • Peter WARWICK says:

      RN, are you suggesting that WiFi should not have been patented by the CSIRO ?

      • R. N. England says:

        Yes. Research should be payed for by the taxpayer. It’s useful outcomes are a public good and the extent to which it is funded depends on the public spirit of the population. Public spirit needs to be effectively promoted. In the age of bourgeois fundamentalism the opposite has happened.

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