Why TPP on IP law is better than you think

by on April 28, 2015 at 12:35 am in Current Affairs, Economics, Law | Permalink

I have read and heard many times that TPP will bring harsher intellectual property law than is appropriate for the poorer Asian countries, noting that over time we can expect more of them to join the agreement.  In general poorer countries often benefit from weaker IP enforcement, more copying, and lower prices.  This is standard stuff.

It is less commonly recognized by the critics, however, that tougher IP protection may induce more foreign direct investment.  Why for instance invest in a country which might subject your patents and copyrights to an undesired form of compulsory licensing?  Trade agreements are likely to rule out or restrict such risks.  There will be more cross-border licensing activity as well, if there is tougher IP enforcement.  A company might even set up an R&D facility in a upper-tier developing country.

Carsten Fink and Kwith E. Maskus have an entire volume on these questions, Intellectual Property and Development.  Here is one sample bit from their introduction (pdf):

IPRs are quite important for multinational firms making location decisions among middle-income countries with strong abilities to absorb and learn technology.

You will note however that the effect is not there for poorer countries.  But in general:

…stronger IPRs have a significantly positive effect on total trade.

And this:

The study’s findings support a positive role for IPRs in stimulating enterprise development and innovation in developing countries.

I would say the volume, and the surrounding literature, as a whole provides some positive support for how IP rights may boost economic development, though not overwhelming or unambiguous support.  And the literature does not support a “one size fits all” approach to IP law; in this sense TPP is far from ideal.  But still, the literature does find some very real development benefits when a country moves to tougher IP rights.

But here’s the thing: TPP opponents simply tell us that bad and too tight IP law will be foisted upon the world’s economies.  I see talk of Aaron Schwartz and Mickey Mouse extensions, but I don’t see enough of the critics weighing the costs and benefits, or for that matter even mentioning the possible benefits of extending IP regimes.  I think the benefits of this IP extension may well outweigh the costs, when it comes to the developing nations involved in TPP.  At the very least it seems to me up for grabs.  And I certainly don’t think that voting down TPP this time around is going to lead to a more favorable redo of the agreement, not on IP for sure.

So IP considerations are not weighing nearly as much against TPP as you might think.

1 carlolspln April 28, 2015 at 1:31 am

“I think the benefits of this IP extension may well outweigh the costs, when it comes to the developing nations involved in TPP”

What benefits?

& since when do libertarian economists such as yourself or your Wichita benefactors care about developing countries?

Show your work.

2 Cliff April 28, 2015 at 9:59 am

Such as always? Have you heard of the Chicago school? He cites extensively to the literature. I consider that “showing your work”

3 Picador April 29, 2015 at 10:35 am

All of the advantages you list are rent-seeking opportunities for a handful of oligarchs in developing countries and their counterparts in the developed world. Extensive IP laws hurt the public immensely in order to marginally increase revenues for the biggest handful of IP holders. In typical economist fashion, you’ve defined “the economy” as “the financial interests of capital” as opposed to, say, the financial interests of the vast majority of people in the world who hold negligible amounts of capital and have to work for a living.

I would think a “libertarian” would be opposed to laws that place draconian restrictions on speech and on the exercise of actual personal property rights. But I guess that would only be true if “libertarianism” actually stood for something other than concentrating wealth in the hands of wealthy rent-seekers.

4 prior_approval April 28, 2015 at 1:37 am

‘TPP will bring harsher intellectual property law than is appropriate’

Considering this website’s studious disregard of free software as a simple example of how property of value can be communally created by anyone for anyone without any money exchanging hands or taxes being levied, one could reasonably ask whether the GPL was merely a bump in the road towards a much better world, one where no one has the right to use software which violates anyone’s cherished business model.

Or to buy any device which does not restrict the freedom of the device’s owner to do with it as they please.

‘that tougher IP protection may induce more foreign direct investment’

Well, considering that GPL software is available to everyone, free, I’m not precisely sure why a local software industry based on Android, to use an example of the software found on 80% of the world’s latest smartphones, would require foreign direct investment. On the other hand, as seen in the case of Zuckerberg’s internet.org, one can certainly understood the web 2.0 version of cutting off the oxygen supply of local competition.

‘So IP considerations are not weighing nearly as much against TPP as you might think.’

Well, I’m sure that the Bartley J. Madden Chair in Economics at the Mercatus Center would be able to explain why the TPP poses real issues in regards to generic drug manufacturers, and the resulting effects in those poorer Asian countries of which you now seem so deeply and sincerely concerned about.

Or, if Prof. Tabarrok is not available, you can read what these people (admittedly, they are just doctors who work in poorer countries, not NYT columnists) write –

‘The negotiations are being conducted in secret, but leaked documents reveal that the United States is pushing for stringent intellectual property protections for drugs. These protections could give pharmaceutical companies longer monopolies over brand name drugs. This would allow them to charge high prices for longer periods of time and either stop or delay the generic competition from producing less expensive versions that are vital to global health.

As a medical humanitarian organization working in nearly 70 countries, MSF is concerned about the impact the deal will have on public health in developing countries where the organization works, and beyond. MSF urges the U.S. government to withdraw – and other TPP negotiating countries such as Canada to reject – rules that threaten to dismantle internationally-agreed public health safeguards and restrict access to medicines in developing countries.’ http://www.msf.ca/en/trans-pacific-partnership

One could reasonably say that your words do not weigh as much as you think, at least compared to people who actually save lives, and who are concerned about what TPP means in that regard.

5 bob April 28, 2015 at 1:52 am

But have you read the TPP? Because I would find it hard to advocate for something that I haven’t read. In this case, it’s especially hard because this is 40,000 pages of legislation written and negotiated in secret by special interests and lobbyists.

Legislation no longer seems to have much to do with their stated intent. In this case, you have 40,000 pages of protectionism for Hollywood masquerading as a “free trade bill,” like Dodd-Frank “Wall street reform” instead being a corrupt handout to bankers, Obamacare, “medical reform” being a corrupt handout to doctors, the Patriot Act to the military-industrial complex, and so on. Is this really a free trade bill, or 40,000 pages of new trade restrictions for everyone except the firms whose lobbyists actually wrote it, with their 100 person legal teams who can spend their time suing competitors for violating some obscure provision that they specifically inserted? How can anyone support anything that’s presented through Congress when this is how the system works?

6 Just An Australian April 28, 2015 at 2:11 am

well, they could be paid to support it. Apparently, that’s how democracy is supposed to work. Oops, sorry, that’s how freedom is supposed to work.

7 Joey_33 April 28, 2015 at 2:10 am

“It is less commonly recognized by the critics, however, that tougher IP protection may induce more foreign direct investment.”

Is there literature to support this, or is this just something else that theoretically should be the case that you thus proclaim to be? I note the flagrant lack of such protection did not dampen enthusiasm for investing in China the last several decades, almost like companies did not consider these legal matters when making their investment decisions nearly as much as libertarian policymakers would imagine.

8 T.Miller April 28, 2015 at 2:39 am

“tougher IP protection may induce more foreign direct investment.”

If you are a small middle income country then local consumption would presumably be very small as a percentage of world consumption. Why would FDI decisions be influenced by domestic patent law when the inhabitants of such a country represent a negligible percentage of global consumption?

If stronger IP laws were in the interests of many countries why did the US need to resort to the special 301 process and amended GSP provisions to pressure those who opposed TRIPs into accepting the deal?

If stronger IP was in the interests of the world why was WIPO abandoned (at the insistence of the US, Japan, the EU and Canada) as the appropriate forum for international IP law debate and supplanted by broad based, single undertaking trade agreements?

9 prior_approval April 28, 2015 at 3:10 am

‘why was WIPO abandoned’

Only a cynical person would note this 2008 case – ‘In a rare move, the WTO last month awarded Antigua and Barbuda the right to place sanctions on US patents, copyrights, and other intellectual property, as compensation for being unduly shut out of the US’ online gambling market.’ http://www.ictsd.org/bridges-news/bridges/news/as-antigua-considers-cross-retaliation-against-us-wipo-official-creates

Five years later, the reporting reads more like this – ‘The government of Antigua and Barbuda is said to be taking steps to set up a platform to allow the tiny Caribbean nation to monetise or otherwise take advantage of the suspension of US intellectual property rights, as it is permitted to do by a World Trade Organization dispute panel. The WTO panel had ruled that Antigua could make up its loss in IP rights for US measures blocking Antiguan online gambling in the US.

A WTO Remedies Implementation Committee in Antigua and Barbuda, made up of experts in IP and trade law, information technology, and economics has held a meeting “geared toward harvesting benefits” of the WTO case, according to a 23 October Antigua release. The committee is chaired by Attorney General Justin Simon, and includes Ambassador Colin Murdoch and chief legal counsel in the WTO matter, Mark Mendel.’ http://www.ip-watch.org/2013/10/24/antigua-creating-platform-to-monetise-suspended-us-ip-rights-from-trips-case

The U.S. is exceptional – it only tries to have treaties that others need to follow, and not itself. A statement which would undoubtedly be fully endorsed by 47 current Republican Senators, it should be noted.

10 Ray Lopez April 28, 2015 at 11:44 am

Online gambling prohibitions are indeed a EU violation of free trade–not so much IP–and there are several EU decisions against French, German and Greek law clamping down unfairly on online gambling.

11 Ray Lopez April 28, 2015 at 11:48 am

@Joey_33: ” I note the flagrant lack of such protection did not dampen enthusiasm for investing in China the last several decades ” – I have been told that investing in China is with first generation equipment that really is not state of the art, and the ‘real good stuff’ is not manufactured in China, and in theory the IP cannot be easily reverse engineered. Against that, I’ve read that the Chinese employ “parallel runs” or “parallel factories” where the US-IP designs are blatantly ripped off by the Chinese and sold on the black market. So I guess the answer is: “China makes low-tech stuff that is not really covered by IP, and/or they make high-tech stuff but cheat their foreign partners on occasion, but there’s not much said foreign partners can do, since the lucrative US market is being adequately served (that is, the pirated stuff ends up being sold outside the USA)”.

12 Harun April 28, 2015 at 9:38 pm

THIS.

There have been instances where foreign companies invested in China, were forced to have a JV partner, and essentially you just are handing them all of your IP for them to reverse engineer and dump you later. Carrier had Chinese employees of the JV come to the US to learn the US culture. They spent all night and week-end faxing everything back to China they get their hands on. They were caught when accounting noticed the higher than normal phone line bills.

There are cases where the factory manager runs your molds on the week-end to sell on the side. (This is why Taiwanese owners often live inside the factory – can’t do that when the machines wake up the boss.)

Or the factory manager opens his own plant down the street copying your products, knows you pricing, customers etc. Sometimes they still are your factory manager while they are still doing this.

I have had products that I sold to one European customer for decades. Then that customer gave the item to a new German customer who promptly sent a sample to about 20 factories in China. He chose one to be his new supplier cutting off the original designer and supplier from Holland (our customer.) But get this…those other 19 Chinese factories don’t just say aw shucks. They upload photos of the samples on the internet, and offer this item to anyone. The fastest way to make your product a commodity is to shop it around.

13 Harun April 28, 2015 at 9:41 pm

Final story. We had a new design of a computer desk. We had the factory sign an agreement in Chinese before they could even see the product where they agreed that the design was our’s and they could not sell it.

They were having trouble actually making the product, but we worked with them. Then we noticed they had printed up new catalogs which included this product…and item they did not even have the capability to make yet, featured on its cover. This guy had read the contract, couldn’t even make the item yet, but he’s planning to steal the design.

We made him destroy every copy of that catalog.

14 Ray Lopez April 29, 2015 at 1:03 am

@Harun -thanks for those war stories. You sound like a patent law practitioner, or somebody familiar with the same as me, and reminds me of the UK white business consultant from the UK whose book I read and who was fluent in Mandarin and wrote on the same themes around 2006 or so. In China copying is so entrenched that this sort of behavior is the rule not the norm and does not even raise eyebrows, though I wonder if the Chinese try and copy each other, when said other is a SOE with powerful connections. Do you dare make your knock-off Mao watch when the original is being made by a Red Army factory, lol?

15 Chuck April 28, 2015 at 3:23 am

The corporatists are really going full bore on this aren’t they?

16 Dan Weber April 28, 2015 at 10:58 am

SHILL! SHILL!!!!!1

17 Tom Warner April 28, 2015 at 3:25 am

The thing is TPP is mainly a mainly developed economy treaty. It’s really mainly between the US and Japan, and then you’ve got Canada, Australia, New Zealand, Korea, Taiwan, Singapore and Brunei.

Then in the middle income range you’ve got Chile, Peru, Mexico and Malaysia, and really only one developing country, Vietnam. It’s a mystery to me how the negotiators of this agreement imagine an agreement negotiated mainly between the US and Japan is going to be applied in Vietnam.

But I don’t think TPP is really setting its sights on the kinds of reforms of IP policies that these writers are thinking about. Malaysia is the only country where these issues could really matter, and I haven’t heard that TPP would make much difference there. From what I’ve heard it’s all about lengthening patent life for pharmaceuticals. At least that’s what they’re complaining about and trying to negotiate away.

18 Nathan April 28, 2015 at 3:55 am

I find it easy to imagine stronger IP would lead to more trade, if it means people have to pay for what they once got for free. It’s hard to see how that improves actual utility though.

19 chuck martel April 28, 2015 at 5:54 am

How can one be pro or con toward a complex agreement that’s being negotiated in secret, with major influence from the US entertainment and medical industries? The idea that this process is designed to improve the life of the Vietnamese or any other Southeast Asians is preposterous.

20 Horhe April 28, 2015 at 5:57 am

Will the benefits outweigh the cost of enforcement and the utility loss? And to whom will the benefits accrue? Generally, they won’t go to ordinary people, who benefit more from knock-offs and pirated software.

21 Tyler Cowen April 28, 2015 at 6:59 am

It’s worth noting that over time there is a very good chance that more developing Asian nations would join the agreement.

22 carlolspln April 28, 2015 at 6:02 pm

You don’t know what you’re talking about.

The last thing countries like Indonesia, Thailand, Korea & Malaysia [this last putatively ‘in-scope’, though I don’t believe it will join] will sign for is a USA corporation sponsored ‘agreement’.

Particularly after the searing experience with the USA sponsored IMF, and the violence and destruction visited upon them in the so called ‘Asian Financial Crisis’ of ’97, ’98.

ESPECIALLY Malaysia or Indonesia. http://3.bp.blogspot.com/_IzGDYJE7jOs/Rt3CTpRhw6I/AAAAAAAAA-8/mvlDA7EhIpU/s400/michel.jpg

23 rayward April 28, 2015 at 7:21 am

I support TPP as well as the protection of IPR but there is a certain disconnect: if IP never leaves the file drawer in a tax haven country, why is there even a need for laws protecting IPR? Laws protecting the file drawer, perhaps, but not laws protecting IP. Of course, that’s supercilious, but no less supercilious than the claim made by owners of IP that they should be allowed to evade taxes, including taxes attributable to activities in developing countries, by apportioning most of their income to the file drawer.

24 Just Saying April 28, 2015 at 7:43 am

Isn’t it interesting how the elite, of which Tyler is certainly one, is all too happy to pawn off American wages and standards of living of the working class in order to lift up other nations. “Sacrifice some of what you have for the greater good of community”, he says, “90 million Vietnamese need us.”

“But are you sacrificing anything?” one might ask, and the answer would be “No. I benefit.”

The TPP, like all such trade agreements, is a fraud and a con on the American people, trading the wealth of our many to the many of a foreign nation, in order to increase the wealth of the already obscenely wealthy few.

25 Anon. April 28, 2015 at 9:46 am

The nation state will soon be viewed as a silly parenthesis in world history, and your absurd moral standards (“these people don’t deserve to live well because they happened to be born in the wrong place”) will die with it.

26 Dan Weber April 28, 2015 at 11:01 am

What industry that is currently protected would lose protection from TPP?

I get complaining about sacrificing wages of the lower-half of Americans to boost foreigners’ wages. But why are you worried that TPP is part of this?

27 Harun April 28, 2015 at 9:43 pm

Most importers aren’t obscenely wealthy. Look to financiers and software for that.

28 collin April 28, 2015 at 9:24 am

Overall I do agree that stronger IP for the negotiating nations is a good thing as it better share the cost of drug research and so on. But again while this would be a net positive, I don’t see why this is SO IMPORTANT to the US.

I still say signing the Iranian Nuclear Deal impacts our (and global) economy at lot more than TPP mostly because there are 13 nations all of whom are going to have their special interest to pass the deal. Frankly I wish the deals were done separately as it take less time to pass.

29 Sam April 28, 2015 at 9:30 am

I took a quick scan at Chapter 2 of the volume you linked, which shows stronger IPRs increase (non-high tech) trade. It seems like pretty weak sauce. The empirics use a single year of data, albeit obtaining results consistent with the (seemingly rather limited) results in the literature. I don’t know how to justify their use of so many dummies in the gravity model they estimate. And in the end they find a strongly statistically significant effect, but (glancing at the coefficients they estimate) it is perhaps not so economically significant. Just doesn’t seem likely to be low-hanging fruit from a welfare point of view. And the authors point out that the political economy considerations which have led to increasing IPRs certainly overwhelm all the (ambiguous) theoretical arguments for IPRs. Since a lot of us (including your co-blogger, I believe) would argue that IP rights have long since jumped the shark in terms of costs versus benefits, and need to be rolled back, entrenching them further using a relatively undemocratic mechanism (treaties are hard to get out of and not particularly visible in the domestic political debate once they’re ratified) seems like a Bad Idea.

Besides, the most welfare-enhancing thing we could do is probably just unilaterally lower the last few barriers in place to trade with TPP countries, without fussing about IP or anything else. Easy-peasy lemon squeezy.

30 ivvenalis April 28, 2015 at 9:32 am

“It is less commonly recognized by the critics, however, that tougher IP protection may induce more foreign direct investment. ”

China

“Why for instance invest in a country which might subject your patents and copyrights to an undesired form of compulsory licensing?”

China

“Trade agreements are likely to rule out or restrict such risks. There will be more cross-border licensing activity as well, if there is tougher IP enforcement.”

China

“A company might even set up an R&D facility in a upper-tier developing country.”

The People’s Republic of China

“the literature does find some very real development benefits when a country moves to tougher IP rights.”

This is a justification for developing countries passing IP laws, not for signing 40,000 page “treaties” written by third parties.

“I see talk of Aaron Schwartz and Mickey Mouse extensions”

That’s because the same people and organizations behind the Mickey Mouse extensions wrote the TPP portions on IPR. Well, we don’t actually know that, because it’s secret, but it’s reasonable to assume so.

“the possible benefits of extending IP regime”
Copyright holders increase their rents, while offloading the collection costs onto national governments.

31 definitelybetterthanyouthink April 28, 2015 at 9:56 am

I think what people are afraid is that it is indeed, “better than you think” but only for a handful of corporations / capital owners/ Mercatus center donors, for the rest of us…

32 Alex Malone April 28, 2015 at 10:19 am

Maybe. But also, maybe not. Those stats are pretty weak even by economics standards.

And if the next bit of literature says otherwise, then dozens of countries are stuck with bad laws that are incredibly complicated to legislate away.

So sure, IP protections might be good. Ask other countries to put them in place. Negotiate for them. Don’t put them in a giant trade treaty.

33 ohwilleke April 28, 2015 at 11:49 am

Tight IP standards, at any rate, those as strict as currently in force in the developed world, are bad for everyone, rich economies and poor economies alike. Moreover, a treaty structure, forbids a country from loosening its IP regulations when this becomes clear.

Secretly negotiated up and down trade treaties are not the right means to legislate on a broad range of domestic economic policies.

34 Bruce Jenks April 28, 2015 at 11:52 am

Please have a way for us un-informed readers to learn what these letters stand for…..TTP,IP, etc. There are no cross references.

35 Ray Lopez April 28, 2015 at 11:58 am

Good op-ed by TC, who is one of the few economists who give IP its due. BTW the literature I’ve seen on IP says that IP is neutral–no clear bias for or against, though I, being in the field, happen to think you can engineer innovation with better IP laws (e.g., prizes, like AlexT favors, and a dual track IP system, one for ‘real good’ inventions and the other for ‘industrial design’ patents). What is interesting is that for years economists and eminent politicians like congressman John David Dingell, Jr were notoriously anti-patent for no good empirical reason. It’s not just “lower costs are good for society”, but also, like TC says, “more investment due to better IP protection is better for society”.

Earlier last year recall TC made good arguments why net neutrality is not necessarily good as it cuts down the incentive to innovate, for the same reason as IP: the chance to have a temporary monopoly is arguably the only reason businesses invest (other than being first to market and obtaining economies of scale). Nobody wants to be a classic free trade commodity wheat farmer as taught in Econ 101, where the MR = Price curve is flat and profits are in fact zero (Malthusian subsistence). Further, arguably all USA service jobs are ‘local monopolies’ yet most white collar and other service professionals do not complain of the lack of competition from developing countries.

In short, we all enjoy pirated works, including me, but without somebody paying royalties innovation would suffer even more. It would become more trade secret driven and employee-labor law driven than it is now.

36 chuck martel April 28, 2015 at 6:05 pm

Yes, what a sad and uninteresting world it would be without innovative Hollywood special effects and rap musicians having no incentive to produce whatever it is that they produce.

37 Ray Lopez April 29, 2015 at 12:58 am

@chuck martel – I think you mix your metaphors, as Hollywood special effects do indeed look patentable and copyrightable to me, while rap musicians by and large look like they are sampling (copying) somebody else’s IP, thus not IP protectable, though you could argue that they are a ‘derivative work’ (grey area, hard to articulate unfortunately, kind of like the gray area of ‘fair use’ in copyright), see more here: http://en.wikipedia.org/wiki/Derivative_work

38 Chris Geary April 28, 2015 at 5:56 pm

Are we also going to ignore that patent protection is a *government protected* monopoly that has nothing to do with *free* trade? In fact actual “free” trade would necessitate abolition of such protectionism.

39 prior_approval April 29, 2015 at 10:14 am

Only if either Prof. Cowen or Prof. Tabarrok turn into Dean Baker.

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