Increase Economic Prosperity by Strengthening IP Rights Protections

By Seth L. Cooper and Michael J. Horney

On February 8, 2017, the U.S. Chamber of Commerce’s Global Intellectual Property Center (GIPC) released the fifth edition of the International IP Index. Entitled “The Roots of Innovation,” the Index scored the IP systems of 45 countries, representing over 90 percent of the world’s gross domestic product (GDP). Scores were derived from several specific factors pertinent to IP rights protections, allowing policymakers to better understand where their countries stand in comparison to their peers.

The International IP Index should prompt U.S. policymakers to strengthen our IP rights system. Although the U.S. ranked high in the Index, the Index nonetheless identified IP rights enforcement as one of the areas in which improvements need to be made. Lackluster Index scores for IP rights systems in certain foreign countries should also spur U.S. trade negotiators to seek stronger protections for Americans’ IP rights overseas. By bolstering IP protections, the U.S. will further benefit from the correlations between strong IP rights and overall economic innovation and investment. 

Scores in the Index were based on six key categories, including: patent rights, copyrights, trademarks, trade secrets and market access, and enforcement, as well as membership and ratification of international treaties. Those categories encompassed numerous indicators of a strong IP system, including: industrial designs term of protection, availability of legal measures to obtain redress for unauthorized use of industrial design rights, regulatory and administrative barriers to the commercialization of IP assets, and transparency and public reporting by customs authorities of trade-related IP infringement.

Because scoring for this year’s Index was based on 35 indicators, instead of 30, a weighted-score was calculated (by Michael Horney) to determine whether countries’ protections of IP rights were stronger or weaker than what was calculated in last year’s Index. Of the 38 countries included in the last Index, twenty improved their weighted-scores in this year’s Index.

For the fifth consecutive year, the United States had the highest score. The U.S. IP system rated 32.62 (out of 35). The United Kingdom and Germany followed with scores of 32.39 and 31.92, respectively. The countries with the lowest scores were India, Pakistan, and Venezuela at 8.75, 8.37, and 6.88, respectively.

However, the United States’ weighted-score, which takes into account five new indicators, actually decreased compared to the prior Index. The U.S. fell to 10th place in patent protections after previously being tied for first. A reason for this drop is that the patent opposition system in the U.S. adds substantial costs and uncertainty to the economy. The U.S. also needs to improve its enforcement efforts to combat counterfeit and pirated goods. Certainly, Congress can help step up enforcement by reforming and updating the Digital Millennium Copyright Act’s “notice and takedown system” under Section 512. Modernizing the U.S. Copyright Office and giving it authority for addressing Section 512 matters as well as small claims for infringement – as provided in the Goodlatte/Conyers proposal – would also bolster IP protections.

Moreover, the relative lack of IP rights protections in several other countries, as reflected in the Index, reinforces the need for U.S. pursuit of treaties or agreements to better secure protections for American IP rights holders internationally. In January, President Trump withdrew the U.S. from the Trans-Pacific Partnership (TPP) agreement, which the Index regarded as pro-IP. But there is no reason to think that TPP provisions regarding IP rights prompted the withdrawal. Rather, the U.S. should seek new bi-lateral or multi-lateral agreements, including ones more narrowly focused on strengthening protections for American IP rights holders in foreign countries. And as more countries adopt strong protections for IP rights through trade agreements, the global economy will grow substantially. Mutual gains from international trade are much higher when more nations adopt and enforce laws that protect IP rights.

Indeed, the Index emphasized how “IP provides the living and growing roots that stimulate innovation and bolster growth,” since economies with “the strongest IP systems stand to reap the greatest economic rewards.” Across all countries, the Index found several noteworthy correlations between strong IP protections and economic innovation and creativity:

• Resources dedicated to innovation: Economies that provide a robust IP environment are more likely to embrace policies that create a complete innovation “ecosystem” by investing in other key building blocks, such as human capital and technological infrastructure.

• R&D and creative activities: Economies that exhibit a steady buzz of innovation and creativity are, with few exceptions, those that have established strong IP environments – both generally and for specific high-tech sectors. The opposite is also true: on the whole, those economies with relatively weaker IP environments do not tend to experience the levels of R&D and release of new content that economies with more secure and stable IP environments do.

• Access to technologies and creative content: A strong relationship exists between IP protections and greater access to end products and services that make novel technologies and content available to consumers.

• A dynamic economy: IP is strongly related to measures of foreign direct investment, business and industrial growth, jobs, and GDP, ultimately providing the basis for reinvestment of resources as the virtuous cycle begins anew.

The Index concluded that strong protections of IP rights incentivize investment in R&D, innovation, and creative content because they ensure entrepreneurs have opportunity to earn a return on their labors. And as economies with strong IP rights regimes grow and prosper, new goods and services are brought to market, making consumers the ultimate beneficiaries.

The International IP Index provides U.S. policymakers a useful tool for assessing how to improve our nation’s IP systems and enhance innovation and creativity in the 21st Century economy. 

GIPC Releases International IP Index and the US is on Top

On February 4^th, the Global IP Center at the US Chamber of Commerce released its 3^rd edition of the International IP Index. The Index scores 30 countries, representing 80 percent of the world’s gross domestic product, between 0 and 1 for 30 indicators across six separate categories. The six categories are: 

• Patents, Related Rights, and Limitations
• Copyrights, Related Rights, and Limitations
• Trademarks, Related Rights, and Limitations
• Trade Secrets and Market Access
• Enforcement
• Membership and Ratification of International Treaties

The United States scored the highest with a 28.53 (out of 30) followed by the United Kingdom and Germany with scores of 27.61 and 27.28, respectively. The countries with the lowest scores were Vietnam, India, and Thailand at 7.84, 7.23, and 7.1, respectively.

The index also found some interesting correlations concerning strong IP rights across all countries:

• Strong IP rights and research and development (R&D) expenditure: Companies in economies with advanced IP systems are 40% more likely to invest in R&D.
• Strong IP rights and high-value job growth: Economies with favorable IP regimes employ more than half their workforce in knowledge-intensive sectors.
• Strong IP rights and foreign direct investment (FDI): Strong IP protections in the life sciences sector account for 40% of life sciences investment. Additionally, economies with beneficial IP protection see 9–10 times more life sciences investment than economies with weak IP protections.
• Strong IP rights and innovative activity: Economies with robust IP environments yield 50% more innovative output compared with economies with IP regimes in need of improvement.

The United States is certainly a world leader with respect to IP rights and enforcement. But while the United States is at the top of the index, it would be better off if all countries caught up to its leadership in IP. In fact, the entire global economy is better off when developing countries adopt stronger IP policies, because strong institutions, such as IP, have a positive externality on the global economy. When one country adopts stronger IP rights, it makes its surrounding countries and trading partners better off, because it encourages more innovation and more economic activity. Even if one country has weak IP rights protections, it can import goods from a country with strong IP rights, which will hopefully lead to better policies as the benefits from strong IP rights are realized. Thus, the gains from global trade are much higher in a world with robust IP rights.

The Ambassador of the Republic of Singapore to the US, H.E. Ashok Kumar Mirpuri, stated during the ceremony at which the index was released that policymakers should use the index as a guide for how their country can improve. The index provides sound analysis for areas in which specific countries can gain ground in coming years, and it shows as 20 of the 30 countries improved their score over the past year.

The data shows that strong IP protections incentivize investment in R&D, innovation, and creative content, because entrepreneurs can earn a return on their labor and ideas. In turn, this means that economies can grow and prosper if individuals have the ability and incentives to provide valuable goods and services for consumers.

Hopefully we will see even higher scores next year!

GIPC Celebrates IP Champions – And America Should Too!

On April 23, the Global Intellectual Property Center (GIPC) of the U.S. Chamber of Commerce hosted its 2nd Annual IP Champions Conference. The event honored innovators, creators, and defenders of intellectual property for their contributions to increasing awareness of and protecting IP rights. The core theme of the event was the importance of safeguarding IP rights in order to promote the positive impact of IP-centric industries on our nation’s innovative economy. As GIPC president and CEO David Hirschmann stated, “Intellectual property rights are the cornerstone of our innovative economy and are critical to dozens of industries and millions of consumers around the globe.”

Panelists discussed the importance of supporting IP-based sectors, promoting IP awareness, and enforcing strong IP rights in the contexts of business innovation, consumer safety, and economic development domestically and worldwide.

Mark Crowell, Executive Director of U.Va. Innovations, reported that three-fourths of new jobs in the U.S. economy are in entrepreneurial companies founded on inventions that come out of universities, which demonstrates the importance of investing in research and education. For instance, U.Va. Innovations alone has created nearly 900 local jobs, brought 342 products to development or to market, and generated $329 million in external funding and $14 million in sponsored research. 

On a national scale, IP-driven industries provide 55.7 million jobs, 35% of U.S. GDP, and three-fourths of the nation’s exports. The impact of IP in the U.S. is valued at over $5 trillion. And, half of the economic growth in the U.S. economy takes place in industries that did not exist even ten years ago. These impacts clearly show that innovation drives economic development, and entrepreneurs and creators who rely heavily on IP protection for their products create jobs, attract investment to local and national markets, and make valuable contributions to the information economy.

Panelists lauded accomplishments like these, but cautioned that IP-based industries can only create value if investors and innovators can rely on the safeguards of IP rights to protect their works, and also to help ensure that creators will be able to recoup returns on investment. Representatives from the National Football League (NFL), U.S. Department of Justice (DOJ), and the National IPR Coordination Center (IPR Center) discussed their efforts to prevent counterfeit products from reaching the market. They explained that piracy and counterfeiting have become much more sophisticated and global in nature and coordination between public and private entities and among nations worldwide must increase.

The U.S. loses over $250 billion each year to counterfeit products and global piracy; IP infringement is one of the biggest sources of drain to the economy. But there are some success stories. For example, the IPR, jointly with other federal agencies, international and local law enforcement, and private companies disrupted a massive sports counterfeiting ring involving arrests of 70 people, shuttering more than 5,000 counterfeiting websites, and seizing $37 million-worth of fake NFL merchandise in New York and New Jersey. The scale of these operations and the potential loss to the U.S. economy demonstrate the importance of helping promote, protect, and enforce IP rights.

While the financial impact of IP-based industries provides a clear reason to protect IP, the IP protection is embedded in the foundational values our country was built upon. Mark Crowell noted that our founding fathers recognized the value of the useful arts. He observed that Thomas Jefferson founded the patent office and was an inventor himself, and he quoted the former President who stated, “Wherever an invention proves useful it ought to be tried.” Congressman Doug Collins of the 9th District of Georgia noted that IP was so important to our Founders that it was enshrined in the constitution. He explained that although we are in the midst of fundamental change in our society, moving from tangible to digital, the property right and value of an intangible idea and innovations are no less important than the proverbial bundle of sticks.

David Lowery, Musician and Guest Lecturer at the University of Georgia’s Terry College of Business, discussed how songwriters are among the original authors clearly protected by IP rights. He drew a comparison between songwriters and poets and innovators and entrepreneurs, suggesting that these groups are the "garage tinkerers." They are the creators that have always recognized, unlike many people today, that you do not have to choose between protecting IP and embracing new ideas or creating new innovations or technologies.

Finally, as Congressman Collins said, “strong IP protections are not a hindrance to creation but are the very spark for innovation… From healthcare, to technology, to poetry, it all starts with a creative spark,” these are all products of an intangible idea that comes from the individual that is valuable, “property that comes from within.” The only way to incentivize further creation, as our Founders recognized, is to provide protection for intangible property, the fruits of man’s labor, through strong IP rights.

U.S. Wireless Market is Competitive, Despite What Son May Say

Wireless market observers have been buzzing about the rumored acquisition of T-Mobile by Sprint for months now. Sprint has not made an official merger offer to T-Mobile, and Softbank and Sprint have repeatedly declined to comment on the possible transaction with T-Mobile. But recent actions by Masayoshi Son, head of SoftBank Corp. and Chairman of Sprint Corp. have certainly shown that Mr. Son means business. After U.S. antitrust officials voiced opposition to the acquisition, Mr. Son announced plans to make a presentation to the Chamber of Commerce in Washington, D.C. on March 11 to argue the merits of a merger between the wireless providers.

It is all well and good for Mr. Son to state his case wherever he wishes. But he has been vocally critical of the U.S. wireless market in making his arguments for approval of the rumored transaction. In particular, he has charged that Verizon Wireless and AT&T dominate the U.S. market and keep the costs of data communications high. The Wall Street Journal [subscription required] recently quoted Son saying, “The U.S. has one of the world’s highest mobile fees,” and the principles of competition aren’t working. Presumably he is tossing out these allegations to support his claims that Sprint needs more scale to compete with the top-two providers.

Unfortunately for Mr. Son, his claims are not supported by marketplace realities. There is plenty of evidence that the U.S. wireless market in fact offers its consumers some of the best prices and value for service in the world. For example, the Organisation for Economic Cooperation and Development (OECD) found in its most recent publication of Communications Outlook 2013 that U.S. pricing was more favorable than Japanese pricing for handsets/smartphones for 10 out of the 11 baskets or service bundles it studied. Further, the most popular mobile service bundle in the U.S. was 290% more expensive in Japan. The only market segment in which Japan led the U.S. in price was for USB sticks, which accounts for less than 3% of U.S. mobile connections. Overall, Japanese prices averaged 55% higher than U.S. prices.

The results of the mobile baskets price comparison compiled from the relevant tables in OECD’s publication are presented the chart below.

* Source: OECD Communications Outlook 2013, available at http://www.keepeek.com/Digital-Asset-Management/oecd/science-and-technology/oecd-communications-outlook-2013_comms_outlook-2013-en#page3. This chart is compiled from the various numbered charts in the left-hand column.

In addition to offering better price options for mobile baskets than Japan, the U.S. wireless market also offers consumers more advanced networks to support their wireless service. For instance, competition for speed and data-hungry consumers has driven service providers to invest $34 billion in network upgrades and development to build out 4G LTE networks in 2013 alone. This historic level of investment ranked 4th in the world according to OECD, and amounted to more than any other U.S. industrial sector invested in 2013. In contrast, Japan ranked 12th in investment according to OECD.

U.S. investments led to over half of the world’s 4G LTE subscribers being here in the U.S., despite the fact that only 5% of the world’s wireless subscribers in the U.S – nearly double that of Japan. And over 97% of the world’s smartphones sold in 2013 run on operating systems developed by U.S. companies.

Finally, despite whatever Mr. Son may say, competition is alive and well in the U.S. wireless market. The remarkable investment in U.S. wireless 4G LTE and broadband networks have enabled providers to offer consumers a wide range of choice in networks, devices, applications, and subscription plans. The FCC reported that at by the end of 2012, the U.S. had more facilities-based wireless service providers that own and manage network equipment than any other country in the world, and nearly all U.S. consumers have a choice of three or more mobile voice carriers; 97.2% of the U.S. population is covered by three or more mobile voice carriers and 92.8% is covered by four or more mobile voice providers. 

Regarding mobile broadband, 91.6% of the U.S. population is served by three or more mobile wireless broadband providers and 82% are served by four or more providers. Additionally, U.S. consumers have a choice of nearly 300 different handsets, and more than 3.5 million apps for 14 different mobile device operating systems. And recent trends indicate that investment, consumer demands, and disruptive technologies will continue to drive fierce competition in the wireless marketplace in the future.

All this is to say, when Mr. Son comes to town on March 11, skepticism is warranted regarding his claims that U.S. wireless consumers somehow are less well off than those in Japan, or anywhere else in the world for that matter. If Mr. Son wants to argue in favor of a merger between Sprint and T-Mobile, he can surely do so. But despite whatever Mr. Son may say, the U.S. wireless market is dynamic, competitive, and offers consumers some of the best prices and value for service in the world. 

Strong IP Protection Leads to Economic Growth and Innovation, Just as Our Founding Fathers Said – Part I

On January 29, the Global Intellectual Property Center of the Chamber of Commerce held a conference to celebrate the launch of its Second Annual International IP Index, Charting the Course. The Index provides an in-depth look at the IP environments of 25 countries, and offers proposals for improvement. Panelists at the GIPC event presented responses to the findings, as well as additional evidence on the impact of IP protection systems. The resounding message of the Index and panelists, based on empirical evidence in the Index and independent research, was that strong IP systems foster economic growth and development.

Senator Orrin Hatch took this message further, advocating for strong IP protection, but also recognizing that before evidence supported the theory of strong IP rights, the Founding Fathers explicitly provided protection for authors’ works as a founding principle of our nation. He credited this constitutional basis of intellectual property for leading the U.S. toward the strong IP environment in place today. In Part II of this blog on the GIPC event, I will discuss Senator Hatch’s comments and the constitutional foundations of intellectual property in further detail.

The Index ranks the IP environments of 25 countries that vary in market size, income level, and development. The Index uses 30 key metrics, which indicate whether an environment fosters growth and development and which provide a dynamic view of the strengths and weaknesses of each country’s IP protection system. The Index also includes proposals for improving economies, creating jobs, promoting innovation, ensuring safety, and providing access to creations and inventions through enhanced IP protections and supporting mechanisms.

The Index reports that most high-income economies, with some exceptions, have “robust national IP environments in place,” while the “weakest total national IP environments are in the lower-middle-income countries.” The Index ranks the U.S. first in the world in overall IP strength, and first in most other categories including Patents, Related Rights and Limitations, Copyrights, Related Rights and Limitations, Trademarks, Related Rights, and Limitations, and Trade Secrets and Market Access. The U.S. led the UK and France in all of these categories. The U.S., the UK, and France were equal in the Membership and Ratification of International Treaties category. The UK and France only out-ranked the U.S. in the Enforcement category, one of the weakest categories for all countries examined in the Index due to high rates of piracy worldwide.

The country with the weakest IP environment is India. This ranking was based on India’s continued use of compulsory licenses, patent revocations, and weak legislative and enforcement mechanisms. Other countries, like China, received low rankings due to their practice of conditioning market access on the forced sharing of protectable content, trade secrets, and sensitive technologies, despite its otherwise strong economic environment. Other countries that were among the lowest ranked on the Index include Indonesia, Vietnam, and Thailand.

Based on the Index findings and independent studies, the speakers at GIPC’s launch event delivered a unified response: Strong IP protection systems lead to strong economies, growth, and innovation. Panelists included members of Congress, government employees, interest group representatives, economists, and private industry stakeholders. Each advocated the importance of an empirical, fact-based analysis of an IP system’s impact, and presented evidence showing the indisputable link between strong IP protection and increases in innovative output, foreign direct investment, job creation, and other metrics indicative of economic growth and development.

For instance, Douglas Lippoldt, Senior Economist and Trade Policy Analyst at the Organisation for Economic Co-operation and Development (OECD) presented evidence demonstrating the link between strong patent protection and economic development. He found countries that increased their legal frameworks for patent protection after the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) experienced a clear increase in expenditure on research and development as a share of national GDP, in-flows of foreign direct investment, and increased output in creation and invention. He also noted an increase in foreign patent application filings, which indicated that increased patent protection attracted market entry.

Additionally, Michael Schlesinger, Counsel at the International IP Alliance and Aaron Brickman, Deputy Executive Director of SelectUSA, provided statistics proving the merits of the strong IP protection system in the U.S. Mr. Schlesinger noted that copyright-intensive industries grew by 4.73% in 2012 – more than double the growth in the rest of the U.S. economy. Those industries added $1 trillion to the U.S. economy in 2012, and employed 5.4 million workers. Further, those workers earned an estimated $85,000 on average, which is 33% higher than the average U.S. annual wage. Mr. Brickman stated that 1/3 of U.S. GDP is impacted by IP-intensive industries, and those industries are responsible for 1/3 of U.S. employment. He found that the U.S. IP framework is the reason the U.S. is the most attractive market for foreign direct investment, with approximately 1/3 of global research and development taking place in the U.S.

These numbers seem to clearly demonstrate that the U.S. IP environment leads the world, and that strong IP protections do indeed contribute to economic growth and innovation. However, Senator Orrin Hatch, Ranking Member of the Senate Committee on Finance, recognized that many economic and strategic competitors to the U.S. fail to understand that strong IP protections in the U.S. are to thank for much of its economic success. And, that the basis for protection of IP in the U.S. is the constitution. In his keynote address, Senator Hatch focused on the importance of strong intellectual property protections like other panelists, but he was the only presenter to recognize the role of the Founding Fathers in building the the U.S. system of intellectual property protection.

I will discuss Senator Hatch’s comments and the fundamental influence of the Founding Fathers on the U.S. intellectual property rights system in Part II of this blog series.