The Importance of Combatting Digital Piracy

This week the Chamber of Commerce's Global Innovation Policy Center (GIPC) and NERA released a new report titled, "Impacts of Digital Piracy on the U.S. Economy." Anyone interested in protecting intellectual property rights, especially including copyrights, should read this important, if somewhat alarming, study.

The report chronicles the extraordinary growth of digital streaming video services just in the past few years. Now, according to the report, there are more than 500 licensed online video portals. And more streaming subscribers than paid TV subscribers. Not only are all the proliferating video streaming services providing consumers with an abundance of choices for enjoying an incredibly wide variety of content, but, not surprisingly, they have contributed significantly to economic growth and produced hundreds of thousands of new jobs.

All that is good.

But there is a dark side too – an alarming increase in digital piracy – which largely is the focus of the new GIPC/NERA report.

It's worth reading the entire report, but here are some of the key findings:

·     80% of digital piracy is now due to streaming, largely encouraged by the widespread proliferation of piracy devices and apps that make pirated content easier to access. 

·     Overall, approximately 26.6 billion viewings of U.S.-produced movies and126.7 billion viewings of U.S.-produced television episodes are digitally pirated each year, mostly from outside the U.S.

·     Digital video piracy deprives the U.S. economy of a minimum of $29.2 billion in reduced revenue each year.

Enough said to demonstrate that the losses resulting from digital piracy – the harm suffered by the artists and creators who labor to produce the pirated works, and the harm to the overall economy – demand attention from U.S. policymakers and those abroad.

My Free State Foundation colleague, Seth Cooper, and I have addressed the scourge of digital piracy many times in the past, and we've offered various proposals to combat it. Here are two FSF Perspectivesthat contain proposals for addressing digital piracy at home and abroad:

·     Modernizing Criminal Copyright Law to Combat Online Piracy, June 18, 2018

·     Modernizing International Agreements to Combat Copyright Infringement, November 16, 2018

I submit that along with the new GIPC/NERA report, these Free State Foundation papers are worthwhile reading too.

United States Still Leads the World in Strong Protections for IP Rights

On February 7, 2019, the U.S. Chamber of Commerce’s Global Innovation Policy Center (GIPC) released the seventh edition of the International IP Index. Appropriately enough it's titled “Inspiring Tomorrow.” The Index rates the intellectual property (IP) systems of 50 countries, representing over 90% of the world’s gross domestic product. Scores were derived from several specific factors pertinent to gauging protection of intellectual property rights.

Thus, the GIPC Index is a valuable tool which allows policymakers to better understand where their countries stand in relation to others.

Although the U.S. ranks at the top of the International IP Index, its release nevertheless should prompt U.S. policymakers to strengthen our IP rights system. The Index identifies the lack of a targeted legal basis for addressing online piracy as a key area of weakness. Moreover, poor Index scores for IP rights systems in certain foreign countries should spur U.S. trade negotiators to seek stronger protections for Americans’ IP rights overseas. By seeking to bolster IP protections around the globe, the U.S. will further benefit from the strong relationship between strong IP rights and economic activity.

Scores in the 2019 International IP Index are based on eight key categories relating to IP rights: patent rights, copyrights, trademarks, trade secrets, commercialization of IP assets, enforcement, systemic efficiency, and membership in and ratification of international treaties. Those eight categories encompass 45 separate indicators pertinent to assessing the strength of an IP system.

Because scoring for this year’s Index is based on 45 indicators instead of 40 as in last year’s Index, a weighted-score was calculated to determine whether countries’ protections of IP rights were stronger or weaker than that calculated in last year’s Index. Among the 50 countries, 23 improved their weighted-scores in the 2019 Index. Many of the improved scores came from developing countries.

For the seventh consecutive year, the United States had the highest score. The U.S. IP system rated 42.66 out of 45. The United Kingdom and Sweden followed with scores of 42.22 and 41.03, respectively. The countries with the lowest scores were Egypt, Algeria, and Venezuela at 11.83, 10.28, and 7.11, respectively.

Despite the United States’ leadership, there are some areas of weakness discussed in the Index. For example, the United States has a perfect score with regard to encouraging creativity by virtue of strong copyright protections, but it lacks an effective enforcement regime to disable access to websites which facilitate pirated content and counterfeit goods. A 2017 report by the IP Commission found that the annual cost of counterfeit goods, pirated software, and theft of trade secrets to the U.S. economy is between $225 billion and $600 billion.

To combat online piracy, Congress can help by updating the Digital Millennium Copyright Act’s notice and takedown system under Section 512. My October 2018 FSF blog stated that the United States-Mexico-Canada Agreement (USMCA) strengthens IP rights protections and enforcement relative to the North American Free Trade Agreement’s (NAFTA) IP Chapter. However, the USMCA failed to address the outdated “notice and takedown” provision to improve its protection for creators' content.

Moreover, modernizing the U.S. Copyright Office by updating its technological capabilities to maintain a readily searchable database of copyright registrations would be helpful. So too would be giving the Copyright Office the authority to address Section 512 matters and establishing a process for adjudicating small infringement claims. Congress should act to modernize the Copyright Office to enable it to adequately address piracy issues and other copyright-related infringements.

While there was significant improvement among many of the developing countries in GIPC’s Index, the low scores in many developing countries reinforces the need for U.S. pursuit of trade agreements that better secure protections for IP rights holders internationally. As more countries adopt strong protections of IP rights through trade agreements, the entire global economy also will grow substantially, because legal institutions, including regimes that safeguard IP rights, constitute a positive externality for the global economy. The mutual gains from global trade increase when more nations adopt and enforce laws that protect IP rights.

Importantly, the Index emphasizes that there is a “strong correlation between the strength of the national IP environment and different types of economic activity, including rates of R&D spending, innovation, technology creation, and creativity.” Across all countries, the Index found several noteworthy correlations between strong IP protections and economic innovation and creativity. On average, IP-driven countries:

• Are 26% more competitive,

• Are 53% more likely to employ high-skilled and high-paid workers,

• Are 33% more likely to receive private-sector investment in R&D activities,

• Are 39% more likely to attract foreign investment,

• Have over 4 times more online and mobile content generated,And are twice as likely to produce and export complex, knowledge-intensive products.

Strong protections for IP rights incentivize investment in research and development, innovation, and creative content production because they ensure entrepreneurs have an opportunity to earn a return on their labors. And as economies with strong IP rights regimes grow and prosper, consumers are the ultimate beneficiaries as new goods and services, in whatever form they take, are brought to market.

In sum, the International IP Index provides U.S. and foreign policymakers a useful tool for assessing the need to improve their IP systems so that they can enhance innovation and creativity in today’s economy.

Robust Physical and Intellectual Property Rights Encourage Economic Activity

On August 8, 2018, the Property Rights Alliance published the 2018 International Property Rights Index (IPRI), ranking 125 countries around the world based on the strength of both physical and intellectual property rights. The countries included in the 2018 edition comprise over 98% of global gross domestic product (GDP) and over 93% of the world’s population. Most notably, the IPRI finds that property rights are a defining factor impacting a country’s investment, entrepreneurship, and economic activity.

The IPRI includes three core components (legal and political environment, physical property rights, and intellectual property rights) and ten corresponding categories. The legal and political environment component includes judicial independence, rule of law, political stability, and control of corruption. The physical property rights component includes the protection of such rights, the ability to register property, and the ease of access to loans. The intellectual property (IP) rights component includes the protection and enforcement of such rights, strength of patent protections, and the level of copyright piracy. Using data from other international indices, the IPRI compiles scores from each of these components into a 0-10 scale for each of the 125 countries.

Finland ranks highest with a score of 8.69, followed by New Zealand and Switzerland with scores of 8.63 and 8.62, respectively. The United States ranks 14^th with a score of 8.12, which is exactly where it ranked in 2017. But its 2018 score did improve slightly from 8.07. On the other end of the scale, the bottom three countries are Venezuela, Yemen, and Haiti, with scores of 2.96, 2.79, and 2.73, respectively.

Significantly, the Index provides insight into correlations between IPRI scores and many economic outcomes. Free State Foundation scholars often have stated that strong protection of property rights, specifically strong protections of IP rights, foster creativity, innovation, and economic growth. The strong positive correlations found in the IPRI are consistent with those statements. For example, IPRI scores have a correlation coefficient of 0.833 with GDP per capita, 0.756 with gross capital formation per capita, and 0.904 with global entrepreneurship. Other strong positive correlations include a 0.900 coefficient with networked readiness/connectivity, 0.807 with telecommunication infrastructure, 0.842 with civic activism, and 0.818 with overall economic freedom.

With these robust positive correlations, it should not be a surprise that the top 20% of countries in the IPRI have an average GDP per capita of over $56,000, while the bottom 20% of countries have an average GDP per capita under $3,000.

 

Notably, China ranks 52^nd overall with a score of 5.91. As I stated in a blog last week, although China does not have the weakest IP system in the world, the size of its economy in conjunction with its lack of strong IP rights protections and enforcement means it is a major threat to U.S. creators and innovators. While the IPRI does not give specific policy proposals about how each country should improve its intellectual and physical property rights, it provides an aggregate view of how countries compare to each other and how strong property rights incentivize economic activity around the globe. The IPRI, along with the Global Innovation Policy Center’s (GIPC) International IP Index, provide policymakers useful tools for assessing ways to improve their country’s property rights systems.

From the correlations cited above, it is clear that robust physical and IP rights foster innovation and economic prosperity. As undeveloped and developing countries (like China, Mexico, and Haiti) continue to strengthen their property rights protections, U.S. companies will be more inclined to expand international trade with those countries, creating economic opportunities in impoverished parts of the world. Robust property rights reduce poverty by incentivizing economic activity because entrepreneurs understand that their innovations and earnings will be protected.

Finally, the U.S. must continue to strive to be a leader throughout the world by participating in free trade agreements that contain effective provisions that support the protection of property rights. The U.S. ranks first overall in GIPC’s International IP Index, but only 14^th in the IPRI. The United States’ lowest score was in the component of political stability, followed by judicial independence and ease of access to loans. While it may be difficult to create a stable political environment overnight, political instability often is the product of unemployment and a stagnant economy. Economic indicators suggest that unemployment is very low and the economy is growing. Expanding international trade and promoting innovation policy through the protection of property rights should stimulate the economy even further.

The United States should strive to improve its IPRI score even further. If it does, the effort should encourage additional entrepreneurship and economic activity.

United States Remains Global Leader in IP But Still Can Improve

On February 8, 2018, the U.S. Chamber of Commerce’s Global Innovation Policy Center (GIPC) released the sixth edition of the International IP Index entitled “Create.” The Index scored the intellectual property (IP) systems of 50 countries, representing over 90% of the world’s gross domestic product. Scores were derived from several specific factors pertinent to IP rights protection, allowing policymakers to better understand where their countries stand in relation to others.

The International IP Index should prompt U.S. policymakers to strengthen our IP rights system. Although the U.S. ranked at the top of the Index, by a smidgen, 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 strong relationship between strong IP rights and economic activity. 

Scores in the 2018 International IP Index are based on eight key categories, including: patent rights, copyrights, trademarks, trade secrets, commercialization of IP assets, enforcement, systemic efficiency, and membership in and ratification of international treaties. Those categories encompass 40 separate indicators of a strong IP system.

Because scoring for this year’s Index is based on 40 indicators, instead of 35, a weighted-score was calculated to determine whether countries’ protections of IP rights were stronger or weaker than what was calculated in last year’s Index. Of the 45 countries included in the 2017 Index, 28 improved their weighted-scores in this year’s Index.

For the sixth consecutive year, the United States had the highest score. The U.S. IP system rated 37.98 (out of 40). The United Kingdom and Sweden followed with scores of 37.97 and 37.03, respectively. The countries with the lowest scores were Egypt, Algeria, and Venezuela at 10.10, 9.53, and 6.85, respectively.

Despite the United States’ leadership with regard to strong IP rights protections, there are some areas of weakness discussed in the Index. For example, the United States has a perfect score with regard to encouraging creativity by virtue of strong copyright protections, but it lacks an effective enforcement regime to disable access to websites which facilitate pirated content and counterfeit goods. A 2017 report by the IP Commission found that the annual cost of counterfeit goods, pirated software, and theft of trade secrets to the U.S. economy is between $225 billion and $600 billion.

To combat online piracy, Congress can help step up enforcement by reforming and updating the Digital Millennium Copyright Act’s notice and takedown system under Section 512. Also, modernizing the U.S. Copyright Office by updating the administrative technologies in order to maintain a readily searchable database of copyright registrations would be helpful. So too would be giving the Copyright Office the authority to address Section 512 matters. A process for adjudicating small claims for infringement would bolster IP protections and enhance the economic value of copyrighted works. The Register of Copyright Selection and Accountability Act of 2017, which would address some of these issues, passed the House of Representatives in April 2017, but it has not made much progress in the Senate. (See FSF Senior Fellow Seth Cooper’s February 2017 blog discussing the need to modernize the Copyright Office.)

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 agreements to better secure protections for IP rights holders internationally. The 2018 Index notes that the United States’ withdrawal from the Trans-Pacific Partnership (TPP) negatively affected the scores of member countries. (See our blogs about the importance of multilateral trade agreements and TPP here, here, and here.)

The U.S. should continue to seek new bilateral or multilateral agreements, including ones more narrowly focused on strengthening protections for all IP rights holders in the U.S. and foreign countries. As more countries adopt strong protections of IP rights through trade agreements, the entire global economy also will grow substantially, because legal institutions, including regimes that safeguard IP rights, constitute a positive externality for the global economy. The mutual gains from global trade are much higher when more nations adopt and enforce laws that protect IP rights.

Importantly, the supplemental statistical analysis of the Index emphasizes that “the stronger the IP environment is, the stronger an economy performs.” It also states that “even economies that implement moderate improvements to their IP environment experience positive economic and societal outcomes ranging from access to financing and foreign direct investment to higher levels of economic value generation.”

Across all countries, the Index found several noteworthy correlations between strong IP protections and economic innovation and creativity. On average, countries that scored above the median of the Index:

• Are 20% more productive and 60% more likely to have robust entrepreneurial activity,

• Produce up to 80% more knowledge and technology outputs,

• Have twice the percentage of high-value workforce and over six times more highly skilled researchers in its labor force,

• Are 62% more likely to have larger and more dynamic content and media sectors,

• Provide up to three times wider access to new music through legitimate and secure platforms,

• And generate twice as many video-on-demand and streaming services.

Strong protections of IP rights incentivize investment in research and development, innovation, and creative content because they ensure entrepreneurs have an opportunity to earn a return on their labors. And as economies with strong IP rights regimes grow and prosper, consumers are the ultimate beneficiaries as new goods and services, in whatever form they take, are brought to market.

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

New IP Commission Report Shows Need for Strong IP Enforcement Efforts

On February 27, 2017, the Intellectual Property (IP) Commission released an update to its 2013 report entitled “The Theft of American Intellectual Property: Reassessments of the Challenge and United States Policy.” The report finds that the annual cost of counterfeit goods, pirated software, and theft of trade secrets to the U.S. economy is between $225 billion and $600 billion. Since the IP Commission’s 2013 report, the U.S. has suffered over $1.2 trillion in economic damages due to theft of American IP rights. It is important that Congress strengthen enforcement efforts and that more voluntary initiatives emerge to combat the growth of IP theft and to encourage more innovation, investment, and creativity in the U.S. economy.

According to the report, in 2015, the U.S. imported counterfeit and pirated goods valued between $58 billion and $118 billion, and the U.S. exported counterfeit and pirated goods worth approximately $85 billion. An OECD study also estimated the sum of counterfeit goods imported into the U.S. and exported from the U.S. to be valued around $145 billion.

The proliferation of pirated software is a major problem because of the ease of downloading software. The IP Commission’s report finds that the value of pirated software exceeded $52 billion worldwide in 2015, costing the United States approximately $18 billion in economic activity. Furthermore, theft of trade secrets is difficult to measure because many companies do not even know that their IP has been stolen. The report estimates that theft of trade secrets cost the U.S. between $180 billion and $540 billion in economic activity in 2015.

The IP Commission’s report also outlines a number of actions taken by Congress and the Obama Administration since the 2013 report to help stop the theft of IP. Most recently, as I wrote in a December 2016 blog, the Office of the IP Enforcement Coordinator published a report which set four goals for FY 2017-2019 with regard to strengthening protections of IP rights. The goals are the following: (1) enhance national understanding of economic and social impacts from trade secrets misappropriation and IP rights infringement; (2) minimize counterfeiting and IP-infringing activity online; (3) secure and facilitate lawful trade; and (4) enhance domestic strategies and global collaboration.

Enforcing protections of IP rights and stopping online piracy are the deficiencies of United States’ robust IP policy framework. Despite the U.S. still leading the world in terms of strong protections of IP rights, GIPC’s 2017 International Index cites one of the United States’ weaknesses as “inconsistent enforcement against counterfeit and pirated goods, especially goods sold online.” As FSF scholars have stated for many years, theft of IP directly harms job growth in creative industries and discourages further innovation and investment by entrepreneurs. On the other hand, voluntary and governmental enforcement efforts restore the entrepreneurial spirit of creators by upholding strong IP rights protections.

In a February 2017 blog, Seth Cooper and I recommended two potential actions by Congress that could help increase enforcement efforts with regard to copyright. First, Congress should reform the Digital Millennium Copyright Act’s “notice and takedown system” under Section 512 to lessen the burden on copyright holders to monitor infringements of their content. Second, Congress should modernize the U.S. Copyright Office by updating the administrative technologies in order to maintain a searchable database of copyright registrations, to monitor infringements of IP rights, and ultimately to enhance the economic value of copyrighted works.

Voluntary initiatives also can have a large impact on combatting theft of IP online. The Copyright Alert System, TAG, and the Donuts-MPAA initiative all help notify large Internet companies when pirated content or counterfeit goods are being advertised or sold on their websites or networks. These types of initiatives often can have a substantial impact on reducing online piracy because websites and advertisers (in addition to the IP rights holders) have a monetary incentive to report IP rights violations.

A group of think tanks, organizations, and individuals recently submitted a letter to the Trump Administration and the 115^th Congress asking them to continue to promote strong protections of IP rights. IP-intensive industries comprise roughly 38% of all activity and 30% of all jobs in the U.S. economy. Strong protections and enforcement of IP rights are necessary for creators and entrepreneurs to continue to provide consumers with innovated goods and services and to encourage investment and growth throughout the U.S. economy.

We Agree with Open Letter Addressing Importance of Strong IP Rights

This week, the Property Rights Alliance, along with Americans for Tax Reform and Digital Liberty, sent an open letter to the Trump Administration and the 115th Congress addressing the fundamentals of intellectual property (IP) rights, the positive impact that strong protections of IP rights have on the American economy, and the need to strengthen U.S. protections of IP rights even further. The letter was signed by more than 70 think tanks, advocacy groups, and individuals. While as a matter of policy, we at the Free State Foundation, except in rare instances, do not generally sign group letters, we certainly agree with the thrust of the letter and are happy to spread the word.

Here are some of the important points articulated in the letter:

• IP Rights Are Grounded in the Constitution: The Founding Fathers recognized the importance of IP in Article 1, Section 8 of the Constitution: “To promote the Progress of Science and useful Arts, by securing for limited times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” 

• IP Rights Promote Free Speech and Expression: Strong IP rights go hand-in-hand with free speech as creators vigorously defend their ability to create works of their choosing, free from censorship. By affording innovators and creators the ability to support themselves, IP rights promote free expression unencumbered by government.

• IP Rights are Vital to Job Growth & Economic Competitiveness: The most recent report on IP-related jobs in the U.S., by the Department of Commerce and the Patent and Trademark Office, found that in 2014, direct employment in the most IP intensive industries accounted for 27.9 million jobs. Indirect activities associated with those industries provided an additional 17.1 million jobs, for a total of 45 million jobs, or 30% of all jobs in the economy. 

• IP Rights Must Be Protected Internationally Through Effective IP Provisions in Trade Agreements: Far too many foreign governments look the other way when it comes to the theft of IP. State-sanctioned IP theft from other countries costs the U.S. economy more than $320 billion annually. The lure of access to the U.S. market should be used as an incentive to convince trading partners that they should increase their protection of IP rights. Therefore, strong IP protections are integral to all trade agreement negotiations. 

• IP Rights Are Integral to Consumer Protection and National Security: IP rights protect consumers by enabling them to make educated choices about the safety, reliability, and effectiveness of their purchases. In 2014, consumer electronics and parts represented 24% of total counterfeit goods seized, presenting a dangerous risk to American consumers if those products malfunction. 

• IP Rights Must Be Respected and Protected on the Internet: The Internet is an incredible platform for innovation, creativity and commerce enabling widespread distribution of ideas and information. However, IP theft online is a persistent and growing problem. For example, between 2001 and 2015, U.S. recorded music revenues fell from $14 billion to $7 billion—losses largely attributed to online theft.

Congress and the Trump Administration should use this letter as a guide over the next several years to ensure that the United States’ robust protections of IP rights grow even stronger. Moreover, Seth Cooper and I stated in a February 2017 blog that U.S. policymakers also should use Global IP Center’s International IP Index as a tool to understand the ways in which our country can strengthen its protections.

Strong protections of IP rights help artists and entrepreneurs earn a return on their labor, encouraging more investment, innovation, and growth throughout the U.S. economy.

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. 

It's Up to President-elect Trump to Revive TPP

The Tran-Pacific Partnership (TPP), a trade agreement between the United States and 11 other Pacific Rim countries, seemingly is dead, at least for now. It will not be approved by the current Congress. Therefore, it is up to President-elect Donald Trump to revive it during his Administration.

It’s true that President-elect Trump has said that TPP is a “disaster” and he has declared that he will withdraw from the agreement on his first day in office. But other than a few bullet points on his website, the President-elect has never publicly explained why he does not like this particular trade deal, which looks to be a win for entrepreneurs, creators, consumers, and the global economy.

As I discussed in a June 2016 blog, TPP would expand global trade by eliminating roughly 18,000 tariffs that member countries have imposed on imports from the United States, lifting millions of people out of poverty around the world. By removing these trade barriers imposed by foreign countries and others imposed by the United States, TPP would allow consumers and entrepreneurs in all member countries to enjoy more economic activity and lower prices than what the status quo offers.

From an intellectual property (IP) perspective, TPP appears to require adherence to strong protections of IP rights in member countries. This would help artists and entrepreneurs around the globe to earn a return on their creative works and the labor that makes them possible. According to a September 2016 report by the Department of Commerce and the Patent and Trademark Office, in 2014, 45 million jobs (or 30% of the jobs in the U.S. economy) either directly or indirectly were generated by IP-intensive industries. In the same year, IP-intensive industries added $6.6 trillion of economic activity, which is roughly 38% of GDP.

TPP addresses all aspects of IP, including copyright, patents, trade secrets, and trademarks. The IP chapter of TPP aims to do the following:

• Improves strong and balanced protection of rights and enforcement of laws;

• Bolsters incentives for the development of, and trade related to, IP-intensive products;

• Addresses common threats, including piracy, counterfeiting, and other related infringements, as well as misappropriation (including cyber theft) of trade secrets;

• Promotes transparent, efficient, and fair regulatory systems, including for patent and trademark application and registration;

• Promotes development of and access to innovative and generic medicines;

• Facilitates legitimate digital trade, including in creative content; and

• Prevents the spread of overly-restrictive geographical indication policies, including by safeguarding the rights of prior trademark owners and rules clarifying the use of generic terms.

Establishing strong IP safeguards among countries in the Pacific Rim would diminish theft of American IP, which totals $320 billion annually. U.S leadership regarding strong IP rights protections will incentivize more investment, innovation, and economic growth at home and abroad.

A 2014 report from NDP Analytics estimates that TPP would increase U.S. exports by $26 billion, U.S. GDP by $11 billion, and American jobs by 48,000 with roughly two-thirds of these benefits coming from IP-intensive industries. This increase in U.S. exports would have direct spillover effects for the other 11 member countries, leading to an estimated $6.4 billion increase in GDP and 68,240 additional jobs. Of course, these figures do not include the increases in economic activity and job creation that will occur among member countries nor do they include the increases in U.S. imports.

Additional economic activity and development within member countries would not be the only benefit flowing from a stronger IP framework; mutual gains from trade are much higher with transactions that contain strong protections of IP rights rather than weak protections. Therefore, member countries which currently have weak IP protections according to the Chamber of Commerce’s Global IP Center International Index, such as Peru, Chile, and Mexico, will incentivize creation and innovation within their own countries. And also, other developing economies, which trade with TPP countries, will recognize the gains from trade and be encouraged to adopt similar IP rights protections.

Gains from trade are mutually beneficial but not necessarily equal. If TPP is adopted, the United States would benefit from the positive externality of robust IP rights protections in other countries and from lower trade barriers with countries in the Pacific Rim. When more countries around the world have strong IP rights protections, American creators and entrepreneurs have a greater incentive to innovate because their creations are less likely to be stolen overseas. However, developing countries, which, on the whole, would substantially upgrade their IP rights protections with the adoption of TPP, likely will enjoy an even higher marginal benefit than the U.S. because their economies have not experienced as much innovation as countries with strong IP rights protections in place. In general, and all else equal, developing countries grow faster than developed countries when there is an expansion in global trade. 

Perhaps, the President-elect views the trade agreement as problematic because he considers global trade as an “us versus them” phenomenon. In other words, he may consider global trade as a zero-sum game, when, in actuality, it is a variable-sum game. For example, even if Vietnam benefits more from TPP than the United States, this does not mean the U.S. loses. Both countries are better off, even if the marginal benefit might be greater for one country over another.

President-elect Trump should revive TPP during his administration. It is vital that this trade agreement be adopted to encourage the creation of jobs and to foster greater innovation and investment in the United States and in the Pacific Rim. Mr. Trump’s campaign primarily focused on creating jobs in the United States. TPP is a win for American workers and consumers because it would expand economic activity around the world, increasing American imports and exports.

In 2014, U.S. imports and exports from IP-intensive industries were valued at $1.4 trillion and $842 billion, respectively. Those values likely would increase if IP rights are enhanced around the world. (NDP Analytics projects that TPP will increase annual U.S. exports by up to $26 billion.)

With the adoption of TPP, President-elect Trump could help spur the economy, which is clearly a top priority. Let’s hope that Mr. Trump changes his mind about TPP.

IP Licensing Is Essential for Software Creation

Today, the App Association (ACT) and the Global Intellectual Property Center (GIPC) hosted a lunch briefing regarding the essential role that IP licensing provides for software creators to deliver consumers timely products. Consumers often take for granted the many licensing agreements that are needed to provide the software in smartphones, personal computers, or video game consoles. For example, Ben Golant, Chief Counsel for IP Policy at the Entertainment Software Association, spoke about how video game developers, online video providers, and communication platforms need to license their IP to video game console companies so consumers can experience the same product across many devices.

Strong IP rights protections promote creativity, innovation, and investment by software creators and by artists and entrepreneurs throughout the entire economy. In the software industry and other creative industries, consumers, ultimately, are the beneficiaries of such creativity, innovation, and investment. 

Multilateral Trade Agreements Facilitate Global IP Protections

On July 9, 2015, the United Nations Foundation and the U.S. Chamber of Commerce hosted a briefing on Capitol Hill entitled “Global Impacts of American Intellectual Property.” The most significant takeaway came from Patrick Kilbride, Executive Director of International IP at the U.S. Chamber of Commerce’s Global IP Center (GIPC). He discussed the important role the United States should play in influencing developing countries to adopt stronger protections of IP rights. He pointed to GIPC’s February 2015 International Index, which scores and ranks countries based on different IP protections (patents, copyright, trademarks, trade secrets, international treaties) and enforcement mechanisms. (See my February blog for more on the index.)

Mr. Kilbride said that the best way for the U.S. to promote strong IP policies around the globe is through multilateral trade agreements. He mentioned that the most recent IP-related multilateral agreement, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), is over twenty years old. TRIPS established only minimum standards for IP and many of the leading countries within GIPC’s International Index have now surpassed these standards. Because of this, Mr. Kilbride said that it is time for a new multilateral trade agreement with stronger IP standards. He added that the current one under negotiation, the Trans-Pacific Partnership (TPP), is an important place to start.

TPP would export American IP protections to developing countries in the Pacific realm, thus incentivizing more investment and innovation within those economies. However, additional economic activity would not be the only benefit of a stronger IP framework; mutual gains from trade are much higher with transactions that contain strong protections of IP rights rather than weak protections of IP rights.

Developing countries also would vastly benefit from TPP because an expansion of trading partners increases the number of buyers and sellers in a marketplace leading to more transparency, accountability, consumer welfare, and, ultimately, economic growth. This is why Mr. Kilbride declared that the global economy would be much better off if a trade agreement with a strong IP framework could be reached with heavily populated countries such as China, India, and Indonesia.

It is important to remember that gains from trade are mutually beneficial but not necessarily equal. If the TPP agreement is reached, the United States would benefit from the positive externality of robust IP protections in other countries and from lower trade barriers with countries in the Pacific realm. However, the positive impacts for developing countries would be much greater if they adopt American IP protections, incentivizing more economic activity and expanding trade throughout the global economy. Developing countries grow significantly faster than developed countries when there is an expansion in global trade.

That being said, TPP and all multilateral trade agreements with strong IP frameworks are very beneficial for all parties involved, including, most especially, consumers who benefit from increased competition and lower prices. 

“House of Cards” Illegally Distributed Throughout the World

On Friday February 27^th, Netflix released the third season of “House of Cards” for subscribers to binge watch over the weekend. However, according to Variety, almost 700,000 people illegally downloaded the show’s newest season within the first 24 hours of its release. This is twice as many pirates (or illegal downloaders) as the show’s second season and the distribution of downloads was spread throughout the world.

Top ten nations with illegal downloaders of “House of Cards” Season Three:
1. China – 60,538
2. US – 50,008
3. India – 47,106
4. Australia – 40,557
5. Poland – 37,552
6. UK – 32,703
7. Canada – 27,584
8. France – 27,151
9. Greece – 20,551
10. Netherlands – 20,402

I would think that Netflix’s content would be pirated less often than most video content, because users can view it anytime and because Netflix allows up to four devices to stream from the same account at the same time. However, residents of five of the top ten countries –China, India, Australia, Poland, and Greece – do not have access to Netflix’s service yet.

Some of these countries do not rank very high in the Global IP Center’s International IP Index, so while an expansion of Netflix’s service could help diminish the number of illegal downloaders, it would not completely eliminate it. Of course, this is obvious because the United States, which ranks first in the International IP Index and where Netflix’s service is prevalent, had the second most illegal downloaders.

Theft of intellectual property should never be excused. With that said, more ubiquitous access to Netflix’s offerings on a legal basis might disincentivize people from pirating content. Not only might Netflix benefit from expanding its service, but artists and creators throughout the world would have a greater incentive to produce more content as piracy decreases.

As for the piracy that is occurring despite access to Netflix’s service, ongoing tools and initiatives, such as WheretoWatch.com, Rightscorp, and Brand Integrity Program Against Piracy, are working to reduce the size and scope of illegal content markets. (See this FSF blog for more.)

Netflix does have a plan in place to reach 200 countries by 2017, and hopefully, if implemented, it will reduce the amount of pirated content in the future. Strong IP rights are important for ensuring that content providers, artists, innovators, and marketers can earn a return on their ideas and labor, incentivizing more innovation, investment, and economic growth.