Posted by: Jaren Martineau
Historical pirates on the high seas caused some serious international commerce problems in their day. A significant portion of international goods and commerce were carried by ships across oceans and vulnerable to skilled thieves. Like these pirates of the past, when internet piracy of intellectual property runs rampant, there are some serious negative economic consequences, especially to economies that have a large stake in intellectual property. The solutions to these problems are difficult to implement and may even cause additional serious consequences of their own.
Early Property Theories
From the earliest periods of human history, human civilization has had to grapple with issues of property rights. Most notably, these disputes have dealt with real tangible property such as land, rivers, possessions, food, and other natural resources. When does something belong to someone? Under what circumstances can something found in nature “belong” to a person or even to a society? These struggles have largely resulted in international disputes and conflicts, as different societies have had differing views on the origins of property rights, or have otherwise chosen to disregard the property of others.
Many early philosophers have contributed to the evolution of the theories of property law. Many of these thinkers developed their views along the lines of the theories of natural law, in which rights are inherent in human beings and their place in nature. John Locke, a well known philosopher in the minds of early Americans, advocated for a view of property rights in which the resources of nature, in combination with human labor, is what creates a right in property. He described what is now known as the Labor Theory of Property in this way:
“Whatsoever then [a person] removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned to it something that is his own, and thereby makes it his Property. It being by him removed from the common state Nature placed it in, hath by this labour something annexed to it, that excludes the common right of other Men.” (emphasis added by author)
In short, Locke theorized that when a person adds his or her creative energies or labor to something, even something that is originally found in nature, it then becomes his or her property. This property belongs to its laborer and should thus be legally protected property. There are multiple categories of property such as personal property and real property. These kinds of property are typically a tangible form of property such as a car, a hat, or a house. Intellectual property (IP), on the other hand, is somewhat different. At its most basic level, IP is characterized by the creativity of the human mind. It is often something that is not tangible. It may include things such as movies, inventions, processes, or software.
Despite this difference between IP and other forms of property, Locke’s labor theory of property was used as justification for the creation of early intellectual property (IP) law in England, ultimately leading to the Statute of Anne. This statute, established in 1710 was the first recognized copyright law in England to protect the author’s right to his work. The American founders, influenced by political thinkers such as John Locke and familiar with English Law and the Statute of Anne, included their own protections for IP when they formed the United States Constitution. The Constitution gives to congress the power to create various IP laws.
Purposes of Intellectual Property Law
In Article I Section 8, paragraph 8 it says:
“[…Congress shall have power]…[t]o 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…”
The founders, in addition to natural law theories, sought to establish a system that implemented a system of utility, as is hinted at in the phrase “useful Arts.” The basic underlying concept is that when the IP rights of creators are protected, that this protection creates a financial incentive to produce IP. This concept is counterbalanced by the other primary concept: the public benefit. Because IP rights are “limited” to a finite period of time, they will ultimately benefit the public at large when they enter into the public domain. It is a balancing act in an attempt to provide enough protections in order to spur creation to a degree that otherwise might not be present, so that the public will have a larger degree of IP than they might otherwise have had. In this way, the natural law theory of property rights for the owner is respected, and the public benefits through the principle of utility.
This system has worked remarkably well in the United States. But what happens when IP is not respected in the international realm? What happens when it becomes trivial to gain access to unauthorized IP through a worldwide internet? What is the result to an economy that is based to a large degree on IP when its protections are not enforceable internationally?
Pirates, Plunder, and the Internet
The early French political theorist, Frederic Bastiat, observed:
“Man can live and satisfy his wants only by ceaseless labor; by the ceaseless application of his faculties to natural resources. This process is the origin of property.
But it is also true that a man may live and satisfy his wants by seizing and consuming the products of the labor of others. This process is the origin of plunder.
Now since man is naturally inclined to avoid pain — and since labor is pain in itself — it follows that men will resort to plunder whenever plunder is easier than work. History shows this quite clearly. And under these conditions, neither religion nor morality can stop it.” (emphasis added by author)
As Bastiat observed, when it is easier and less painful to plunder than to labor, there will be a tendency to plunder. And that is exactly what happens in the absence of enforceable IP rights. And today’s plunder is “easier” than it has been in the past due to the broad reach and convenience of the internet.
Imagine that you wanted to be a pirate in the 1600’s. In order to carry out your evil devise, you would first need to secure a ship. You would need not only a ship, but a significant ship. Your ship would need to be able to carry cannons and a crew, a trained crew. This would be very costly. Contrast that with what you would need to be a pirate in the digital age: a computer and an internet connection. It is no wonder then, that the theft of IP using the internet is so prevalent today. But what makes this problem even more troublesome is that it is happening at a large scale in part because the United States is not always able to enforce its IP protections to the large percentage of the internet population who live in foreign countries.
Magnitude and Scope of the Problem
It is estimated that the United States economy suffers somewhere between $225 billion to $600 billion annually due to international IP violations. And this estimate does not even include the full costs of patent infringements. Much of the IP that is pirated is in the form of digital content such as movies, images, software, and music, which can easily be accessed via the internet. This is especially troubling because of the significant amount of the United States economy that is based upon IP. Approximately 45 million jobs and 38% of the United States GDP comes from industries that heavily rely upon IP. Some have described this theft of IP as the “greatest transfer of wealth in history.” When such a large portion of the American economy is so heavily dependent upon the protection of IP, it becomes important to find ways to enforce these protections.
Recall that the initial purposes for the recognition and creation of IP law in the United States was to provide incentive to maximize the production of IP for the benefit of the public by offering a financial reward for a limited amount of time to property creators. With that in mind, how would a lack of international enforcement of these laws affect these objectives? It may be argued that there is enough of a market within the United States to provide sufficient incentive for individuals and businesses to create IP without having to police foreign activities. After all, the United States is capable of enforcing these rights within the United States and other areas that it controls or has made treaties or agreements with. Is it really necessary to address this issue?
The answers to these questions may vary, but in theory there are harms to the public, to United States businesses, and to IP owners when these property rights are violated and not enforced in foreign countries. The public is harmed because if infringing foreign nations are not paying for billions of dollars of United States IP, the pool of money that incentivizes its production is necessarily smaller. Many inventions or creations that might otherwise exist, may never be created.
In order to illustrate, consider as a hypothetical situation a company that wants to invest in the treatment of a relatively uncommon disease. The costs for developing this treatment may be extremely high. With the limited number of patients within the United States that are going to have the disease, it may take decades to recover just the cost of the development of such a treatment. It might not make financial sense for a company to invest in such a treatment. If, however, the treatment could also be sold to the much larger pool of people who have that disease across the entire world, the investment then has the potential to be profitable enough for a company to develop the treatment. In this way, the medical business prospers, and patients in both the United States and in the rest of the world benefit from a newly developed treatment to an uncommon medical condition.
If, however, the trade secrets are stolen by hackers, or the treatment itself is made in a foreign country after it discovers how to provide the treatment without buying it from the company in the United States, then the company that invested in the development of the treatment may not recover their investment. And while this will likely benefit people in the short term because they can buy a generic or alternate form of treatment at a much reduced cost, in the long run, people will not invest their money into the development of future medical treatments, knowing that their investment may likely be lost. Ultimately, this results in fewer investments in medical treatments.
Another problem can happen as a result of IP laws being only enforced in some countries and not others. As business is extremely competitive, and businesses that can lower their expenses are able to produce a product at a lower cost, the theft in IP can result in unfair competition. If, for example, new expensive specialized software is developed and copyright protected in the United States that greatly reduces the expenses of operating mining equipment, mining companies in the United States will want to purchase the software as long as it improves their bottom line. Foreign mining companies, however, may not honor United States copyright law. These companies may be able to easily find an illegal copy on the internet and even distribute this software without risk of penalties from infringement. Because these companies do not have to pay for the software, but are able to benefit from it, they have an unfair competitive advantage against their United States competitors who are legally obligated to pay for the same software. Although this kind of infringement may not inhibit the software maker from developing the software, it could unfairly put United States businesses into a weaker competitive position worldwide.
Is Anything Being Done About It?
The United States has recognized the problem of international IP violations for years and has been making efforts at better protecting those rights. This often happens through treaties and agreements with foreign nations. For example, President Obama met with Chinese President Xi Jinping in 2015 in an attempt to negotiate improved cyber relations with China. Although China has been one of the largest abusers of United States IP, it has made a number of improvements in recent years. There are a multitude of trade agreements and treaties that the United States has entered into in order to protect IP rights abroad. While these treaties have resulted in improved protections, the volume of IP theft remains extremely high.
President Trump has recently announced that his administration seeks to drastically strengthen its attempts at enforcing IP rights internationally. It was suggested in January that there should be an investigation under the Trade Act of 1974 that could result in penalties against China. The Administration has also been looking into imposing tariffs and restrictions on China.
In the State of the Union Address in late January of 2018, President Trump specifically spoke on this issue. He said, “We will protect American workers and American IP, through strong enforcement of our trade rules.” And while much of what President Trump says sounds strong on its face, as the President of the Alliance for American Manufacturing said, “It’s time for the president’s policies and actions to match his talk.”
Some question the wisdom of these potential policies. Could a strong enforcement of United States IP law internationally, particularly against China spark a trade war? How will these strong policies impact international relations? Could the harm caused by such a trade war injure the United States economy more than its current losses due to international IP theft? These are difficult questions with difficult answers. The difficulty of the situation has largely resulted in inaction, or in actions that look good on paper, but that do not really resolve the issue. What will happen going forward is difficult to predict. But for now at least, many countries will carry on and continue their chorus, “Yo Ho, Yo Ho, a Pirates Life for Me!”