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.

USMCA Strengthens IP Rights Protections But Can Be Improved Further

On October 1, 2018, the Trump Administration announced a new multilateral free trade agreement with Mexico and Canada, set to replace the North American Free Trade Agreement (NAFTA). In some respects, the Intellectual Property (IP) Chapter in the United States-Mexico-Canada Agreement (USMCA) would strengthen the protections and enforcement of IP rights relative to NAFTA's IP Chapter, and this is an improvement. Notably, the USMCA would implement provisions and enforcement mechanisms that should diminish the facilitation of pirated and counterfeit goods in the three member countries.

However, the proposed agreement also carries forward an outdated "notice-and-takedown" provision that does not properly protect the interests of creators and consumers.

FSF scholars recently have advocated for the modernization of NAFTA's IP Chapter. (See here and here.) And the USMCA would improve some important measures related to the protection of the rights of trademark and copyright holders. Here are some of the key provisions in the USMCA that would strengthen IP rights protections:

• Requires a minimum copyright term of life of the author plus 70 years, and for those works with a copyright term that is not based on the life of a person, a minimum of 75 years after first authorized publication. Canada currently has terms of life of the author plus 50 years and 70 years, respectively.

• Requires strong standards against the circumvention of technological protection measures that often protect works such as digital music, movies, and books.

• Enhances provisions for protecting trademarks, including well-known marks, to help companies that have invested effort and resources into establishing goodwill for their brands.

• Provides important procedural safeguards for recognition of new geographical indications (GIs), including strong standards for protection against issuances of GIs that would prevent United States producers from using common names, as well as establishes a mechanism for consultation between the member countries on future GIs pursuant to international agreements.

Additionally, the proposed agreement would require some enforcement mechanisms to deter the facilitation of pirated and counterfeit goods. Specifically, IP enforcement procedures must be available for the digital environment for copyright and trademark. The USMCA also includes procedures and penalties for unauthorized "camcording" of movies, which is a significant source of pirated movies online.

From the United States' perspective, about $1.3 trillion in annual economic activity is attributable to trade that crosses the U.S. borders with Canada and Mexico. Efforts to stop online piracy and the sale of counterfeit goods will encourage creators and entrepreneurs to develop new content and invest in new brands because they will have a greater ability to earn a return on their labor and resources.

However, there is one area where the USMCA needs work. The USMCA includes outdated safe harbor provisions very similar to the provisions adopted in the Digital Millennium Copyright Act (DMCA). In particular, the USMCA carries forward without strengthening a "notice-and-takedown" provision that does not adequately protect creators and consumers.

As Free State Foundation President Randolph May and Senior Fellow Seth Cooper stated in a February 2018 Perspectives from FSF Scholars, the notice-and-takedown provision was adopted twenty years ago and does not reflect today's digital marketplace for copyrighted works:  

"[Under the notice-and-takedown provision], copyright holders are entitled to give notice to an online service provider when infringing content is posted on its network or website. A provider receives immunity if it 'responds expeditiously to remove, or disable access to, the material that is claimed to be infringing.'"

"In the late 1990s there were far fewer Internet users and far fewer online platforms for user posting of content. Today, user-upload websites such as YouTube, Vevo, Dailymotion, and SoundCloud make massive amounts of music and video content available. Regrettably, users of those websites and others post far too much infringing content. For example, between 2011 and 2015, the sound recording industry issued over 175 million takedown notices to various online providers."

"As a result of mass online infringement and the burdensome nature of the notice and takedown process, copyright owners lose revenues that they would receive otherwise from legitimate sales of copies to consumers."

Compared to NAFTA, the USMCA takes some important steps to modernize and strengthen the protection and enforcement of IP rights to account for a burgeoning digital marketplace. But it's not perfect. Congress and the Office of the United States Trade Representative still need to find a way, in the context of negotiating trade agreements, to revise the "notice-and-takedown" regime in a way that adequately protects creators and consumers.

Trade Negotiations Should Focus on IP Protections, Not Retaliation

The ongoing controversies regarding international trade, including the current negotiations over the North American Free Trade Agreement (NAFTA) that are coming to a head one way or the other, have increased attention on the economic importance of international trade. With the intense focus on the United States’ position in the current NAFTA talks and other negotiations, it is important to understand that economists across the political spectrum overwhelmingly favor free trade policies. At the same time, advocating for improved international protections for intellectual property rights is entirely consistent with promoting free trade.

The consensus among economists is that free trade policies are superior to tariffs and other protectionist measures in promoting economic growth and higher wages. Free trade can also lead to increasing returns to scale from larger markets, the exchange of ideas through communications and travel, and the spread of technology by exposure to new goods and production methods. Economists find that any localized economic benefits from protectionism tend to be short-lived, and in any event are greatly outweighed by the tremendous benefits spread throughout the rest of the economy.

Nonetheless, free trade policies are not nearly so popular among non-economists, on both the left and the right ends of the political spectrum. Opponents typically claim that free trade leads to fewer jobs, lower wages, and harm to domestic industries. Economists respond that if a country follows protectionist policies, it harms itself more than its trading partners, which can be seen in recent sharply negative reactions in financial markets to threats of trade wars. While it is possible that threats of retaliation can lead countries to back off from protectionist policies, such threats are risky because the country threatening retaliation will usually harm itself more than its trading partners if the threat is carried out.

Trade policies create unusual political alliances. Most Republican leaders in recent years have generally favored free trade policies. This view is shared by prominent Democrats like President Bill Clinton and many liberal economists like Paul Krugman. But President Trump campaigned against certain U.S. trade agreements, and in one of his first acts as President, he withdrew the United States from the Trans-Pacific Partnership (TPP). Fareed Zakaria, usually a harsh critic of the President from the left, recently expressed support for the current administration’s approach, stating: “Previous administrations exerted pressure privately, worked within the system and tried to get allies on board, with limited results. Getting tough on China is a case where I am willing to give Trump’s unconventional methods a try. Nothing else has worked.”

It should be noted that President Trump claims he is actually a supporter of free trade. In his 2017 State of the Union Address, President Trump said: “I believe strongly in free trade, but it also has to be fair trade.” If so, President Trump’s actions could be seen as seeking better deals from trading partners. Indeed, President Trump has indicated that he may be willing to reconsider the United States rejoining the TPP, which is a positive development.

None of this is to say that existing trade agreements, such as TPP and NAFTA, cannot be improved. This is certainly true, for example, with regard to the failure to protect intellectual property. Theft of intellectual property is rampant. A 2017 Organization for Economic Cooperation and Development report found that the global value of international and domestic trade in counterfeit and pirated goods in 2013 was between $710 billion and $917 billion, and the global loss in value of digital piracy in movies, music and software in 2015 was $213 billion.

But these opportunities to improve trade agreements do not undermine the benefits of policies favoring free trade. Strengthening measures to prevent such theft, rather than retaliation, should be the focus in negotiating multilateral or bilateral trade agreements. This certainly includes the ongoing NAFTA negotiations in which the Trump Administration thus far has not made strengthening IP protections the priority it should be. Well-defined and stronger protections in trade agreements for copyrights, patents, trademarks and trade secrets would help stimulate growth in IP-intensive industries, increase U.S. exports, and improve economic competitiveness without the economic harms that result from protectionism.

The modernization of NAFTA creates an opportunity to encourage cross-border free trade, while, at the same time, strengthening international intellectual property protections to make sure innovation and creativity are rewarded.

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. 

TPP Is Beneficial for Consumers and Entrepreneurs around the Globe

The Cato Institute held an event today releasing an abstract of a forthcoming paper entitled “Should Free Traders Support the Trans-Pacific Partnership (TPP)?” Yes, free traders should support TPP and so should Congress!

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 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 perspective, TPP would establish strong protections of IP rights in member countries, allowing artists and entrepreneurs around the globe to earn a return on their creative works and the labor that makes them possible. U.S leadership regarding strong IP rights protections will incentivize more investment, innovation, and economic growth at home and abroad.

See my July 2015 blog on how multilateral trade agreements create global IP protections.

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.