TRIPS: The Story of How Intellectual Property Became Linked to Trade

Yves here. This Real News Network segment continues its discussion of yet another acronym, TRIPS, that has much to do with how the economic playing field has been tilted against ordinary workers. Please note that the transcript below was published without apostrophes. I added them as best I could but may have missed some.

LYNN FRIES: Welcome to The Real News Network. I’m Lynn Fries in Geneva.

This is part 5 of a series with Peter Drahos who is explaining the story of intellectual property linked to trade.

Joining us from Australia, Peter Drahos is a Professor at the Australian National University, in the School of Regulation and Global Governance. He holds a Chair in Intellectual Property at Queen Mary, the University of London. Peter Drahos is co-author of Information Feudalism: Who Owns the Knowledge Economy?

Welcome Peter.

PETER DRAHOS: Thank you.

FRIES: In Part 4 you talked about how the ownership of intellectual property rights is concentrated among very few key multinationals. And it’’s these incumbent players that profit from the TRIPS Agreement. In what other ways did the globalization of intellectual property rights concentrate power in the hands of these multinationals?

DRAHOS: One of the things that’’s probably not fully appreciated about intellectual property rights is that they are a form of private tax. So that a patent owner or a copyright owner essentially can require a producer say in a developing country, to pay a licensing fee before they can use the relevant bit of intellectual property whether that is copying a book, making use of a film or making use of the patent. Essentially intellectual property rights are a form of private taxation on innovation which is why they should be minimized. When you globalize I intellectual property rights you essentially put in the hands of the owners of intellectual property rights a global private form of taxing power. That’’s a pretty big form of power.

Now this effect people in all countries. But in developing countries the cost of textbooks for example, has a severe impact on accessibility. And of course it’’s not just textbooks in developing countries, students in the United States or Europe would probably be able to say a lot about the costs of textbooks they have to pay for. But chances are those students have more chances of paying for those textbooks than people in developing countries. So the basic point here is that if you globalize IPR you are in effect putting in the hands of multinational companies a form of private taxing power right across the board in relation to copyrighted goods, in relation to patented goods, in relation to trade marked goods.

We can see that citizens essentially pay and pay again. Public taxes support a lot of research and development in US universities, European universities and Australian universities. So we have a lot of research and development that’’s supported through public taxes. Now a lot of that research and development ultimately ends up being patented. Now through the patent system companies can levy private taxes as I said. Intellectual property rights are a form of taxation.

So goods that are produced or innovation that’’s produced at public expense is recycled through the intellectual property system and people in a sense pay the license fees, the private taxes, again. So it’’s a form of double payment both public taxes and private taxes. And this happens all the time. Think of for example books that are produced by university academics and those academics are paid for by tax payers. And then those books end up being published by publishers who basically collect fees from universities that use those books or parts of those books in their various courses. So the problem of copyright cartels essentially obtaining very high profits from recycling textbooks that have been produced at public expense is a very severe problem.

FRIES: An argument in favor of globalized IPR is that it’’s needed for innovation. Talk about your views on that.

DRAHOS: When we look at the history of innovation in most countries what we see is that public investment has played a hugely important role. That public institutes of research have been extremely important. Intellectual property is often confused with innovation but the explanation for innovation lies in states committing to the funding of basic research. And that’’s true for the United States. If we look at the history of the United States, the federal government of the United States has really played a huge role in promoting excellence in universities in funding public research.

Now intellectual property rights have some modest role in all of this. But the problem is that they’ve grown like topsy. They’ve grown out of control. These things march like Frankenstein through our economies. And that’’s the real problem. My argument is not that there is no role for IPR but what to be recognized is that governments have to commit to using public taxes as they have in the past to funding basic research and to funding universities.

And one of the great dangers in relying on the intellectual property rights system is that you are actually undermining public research, the very thing that historically has given us such great innovations whether in biotechnology or whether is areas of mathematics. The contribution of public research has been so profoundly important and now we are moving into a world where there is excessive reliance on intellectual property in the mistaken belief that intellectual property somehow promotes innovation. When in many senses intellectual property or the globalization of intellectual property is actually anti-innovation. One I think has to recognize the role of public investment in innovation.

An obsession with intellectual property rights can have unexpected repercussions on research cultures. And I think many scientists would say that the research environment in universities is profoundly different to what it was thirty or forty years ago. I mean scientists when for example when they were working on recombinant DNA technology as they were in the early 1970s publicly spoke about the dangers of recombinant DNA technology and they spoke about some of the advantages.

They were able to do this because they were working in public institutions. And in the United States public universities drove much of the research in recombinant DNA technology. Now I think if you spoke to those researchers many of them would say that these kinds of public discussions about the direction of research are much harder for our society to have because scientists worry about undermining the validity of a patent application for example.

FRIES: And what’’s the problem on relying on the international patent system?

DRAHOS: There are many complicated problems around patents. And one of the big problems is that patents tend to serve people who can afford to pay. Now if the patented commodity is a tennis racket that’’s not such a big problem. But if the patented commodity is a medicine that is a big problem because patents drive up the costs of medicines. And the way that preferences are measured is through the ability to pay.

And of course billions of people in the world do not have the ability to pay for patented medicines. So in essence the patent system is picking up the preferences of predominantly wealthy citizens which is why many diseases, tropical diseases, are essentially not researched. Because the markets in those patented medicines are not big enough. There are not enough incentives for pharmaceutical companies to enter those particular markets. So relying on the patent system to serve the entire globe, all the citizens of the world, is essentially flawed.

FRIES: It’’s not hard to see the critical need for public institutes of research but they are state funded and states are collecting less taxes. Which brings us to the role of intellectual property rights in tax avoidance games. Tell us about that.

DRAHOS: One of the issues that’’s confronting all countries is raising sufficient revenue. Getting companies to pay sufficient taxes. Now at an international level a perennial problem has been the issue of transfer pricing. This is basically where a large company transfers a particular asset between its subsidiaries.

So for example, a licensing agreement in which one part of the company licenses another part of the company to produce a particular good. Now the whole idea behind transfer pricing from a company’s point of view is that in those countries where the tax is high, the particular subsidiary pays the most for the license. So in other words, it can claim the biggest costs for the purposes of the taxation system in that country. Now in theory, tax departments require that companies value the transfer of assets for the purposes of transfer pricing at arm’s length.

Now this can work fairly well in relation to physical goods such as factories for example, where it is reasonably easy to determine the value of what the sale of the factory really is. It is actually very difficult to value invisible, intangible property. Trying to value what a particular license, a patent license, is worth is quite a complicated problem for a tax bureaucracy. Now the transfer pricing problem has been around for decades. And tax departments all over the world have struggled with it. And it’’s really led to this problem of fiscal degradation.

The taxation games that are played around intellectual property rights ultimately harm all states whether they are rich or poor. So there is a lot of concern in the United States for example that intellectual property rights are being used to shift profits by US companies out of the US tax jurisdiction. So the US Congress for example, a few years ago heard of examples of licensing agreements in which Ireland for example was used as a conduit to land profits in various tax havens whether in the Bahamas or elsewhere. So the problem of using intellectual property rights to shift profits to deprive states of a proper share of public taxes is a problem for the United States as much as it is a problem for China or for India or for Australia.

FRIES: We are going to break and be back with Part 6. Please join us as we continue our conversation with Peter Drahos. Peter Drahos, thank you.

DRAHOS: Thank you.

FRIES: And thank you for joining us on The Real News Network.

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  1. dk

    I feel hemmed in by so many constraints, along so many axes of action in the socio-economic/cultural concourse.

    Thanks Yves, for posting this important discussion.

  2. cnchal

    DRAHOS: When we look at the history of innovation in most countries what we see is that public investment has played a hugely important role. That public institutes of research have been extremely important. Intellectual property is often confused with innovation but the explanation for innovation lies in states committing to the funding of basic research.

    That would be the peasant’s taxes are used to fund innovation.

    . . .So the problem of using intellectual property rights to shift profits to deprive states of a proper share of public taxes is a problem for the United States as much as it is a problem for China or for India or for Australia.

    It seems as if the entire planet is run on the Wells Fargo business model. Beat your employees with no mercy to get them to produce, produce, produce, and then harvest all the production into the executive’s pocket.

    In Canada there are SRED tax incentives (Scientific Research and Experimental Development) which are used by multinational corporations to fund product development, the production of which is then transferred to China. It’s a complete scam perpetrated by collusion between big business and the government of Canada. Canadian taxpayer have the pleasure of funding China’s technical development and then competing with the results of that in the Toronto and Vancouver housing markets, but no one that matters seems able to make any connection between the two,

  3. Lona

    Aren’t intellectual property rights also key to peddling genetically modified crops and seeds to our trading partners? International GMO advocacy is a priority activity of the USDA.

    1. TheCatSaid

      You’re right. If you have the chance, watch this segment (5) and also the previous ones. Draho discusses the specific negative impact of patented seeds (including GMOs) on agriculture and well-being in less-developed countries. He discusses how all the benefits go to the patent-holders–ie., the big multinationals–at the expense of the farmers.

  4. agkaiser

    Most of the objection to GMO foods that I’ve heard focuses on possible health hazards. If they prove to be safe for consumption, that singular focus may continue to obscure other dangers. While the safety issue is worthy of study, of course, to my mind it distracts from the more immediate and greater threats posed by these proprietary food sources.

    It is unquestionable that Agri-Tera-Corps’ court tested and proven right to contaminate the property of others, then come to own it or at least have a claim on it and a lien against it, is a public menace. That their business practices must lead to dwindling genetic diversity of the foods we eat is also obvious. Native species will be driven to extinction to increase the profits of the chemical companies that create the GMOs. When a bacteria, virus or other blight comes along that wipes out GMO species …

    The monopoly of the seeds we need to grow the food we eat is dangerous enough (check out the rising food prices) for economic reasons. The threat to our lives posed by their proprietary interests has the potential to be worse than all the tyrants and terrorists since the beginning of civilization.

    1. agkaiser

      Hmm… Are the chemical companies alien invaders from outer space? Are GMO foods the second wave weapons, because munitions alone haven’t killed all of us?

  5. Carolinian

    “First kill all the lawyers”–a general principle. IP is yet another example of placing the coercive power of the state to the service of private wealth accumulation. As the above shows the libertarians are, to some degree, right in that a large and powerful central government can only work in the context of true democracy. If we can’t have that democracy then perhaps we really do need less government since unchecked power inevitably becomes a kind of tyranny. Of course our real world libertarians often oppose centralized power only when it suits their purposes.

    Meanwhile ordinary citizens thumb their nose at the DMCA and ignore the complaints of multimillionaire moguls who claim they are being victimized. Unfortunately life saving medicines are a lot harder to copy than the latest piece of Hollywood fluff.

    1. JTMcPhee

      From my own descent into the darkness of private law firms and “business clients,” a link to one of the people I used to work with who is now a “Superlawyer” living a Perfect Existence on Bainbridge Island, WA:

      She started out doing “environmental and land use” work, saw that was a dying area of practice due to regulatory capture and diminished income potential, fortuitously hooked up with the Microsoft gang and moved over into “intellectual property” to ride the tide. “Smart cookie.” Seen her opportunities, and all that.

      Interesting that her unusual surname was coined by her parents, who as I recall were a couple of hippies from Wisconsin, all Aldo Leopold types… “C’est” cause it sounds French, and “jon” for their favorite mustard, as I recall.

      Check out the self-description, and statement of “skills and experience,” assisting all those wonderfoul corporations doing dirt to the rest of us, up on the loftier expert plane…

      Of course, if you websearch her, you see she is into good works, and nature too: Balance is everything. And there’s this, about how they’ve got and plan to preserve their personal habitat:

      Helps if rentiers help pay the rent…

  6. paul

    You want a circle?
    I”ll give you a cricle.
    But if you won’t pay me…..
    You won’t have any fucking circles,gears or apple watches.

  7. Minnie Mouse

    The Epipen price gougers did not develop the Epipen. IP traded by takeover. Profits disconnected from the work of development. Why bother to invest in R&D if you can just take it over and maybe hand out pink slips to the actual developers.

  8. shinola

    Some of y’all might recognize the name Jonas Salk – credited for developing the polio vaccine. He did not patent it.
    From wikipedia:

    Salk campaigned for mandatory vaccination, claiming that public health should be considered a “moral commitment.” His sole focus had been to develop a safe and effective vaccine as rapidly as possible, with no interest in personal profit. When asked who owned the patent to it, Salk said, “There is no patent. Could you patent the sun?”

    He was considered a hero at the time (1950’s). Today, he would be derided as a chump.

    In the 21st century, increased profit opportunity is what passes for “innovation”.

  9. JTMcPhee

    Apple just ignored my preference and upgraded my phone and iPad to iOS10. I find it very interesting that effing Apple, the conglomerate, used IP to bludgeon competition that dared to use its trademarked or whatever “swiping” (what a very apt term) motion to open a device or functions — and Motorola and maybe some others,

    And now if I want to access the devices, I have to press the “home button,” twice — no swipe at all! other than all the swiping Big Apple wants to do out of my personal accounts…

    Who gets to sue Apple over infringement of the probably trademarked, copyrighted and/or design-patented “Button Pressing Motion To Activate Function”?

    1. cnchal

      When you consider that corporations are animated by humans, I find it even more interesting that Apple is afraid of challenging Amazon for selling fake Apple stuff. They fear the super predator, and as long as Amazon is only stealing cracker money, Apple is perfectly OK with the arrangement and complicit in the grand ripoff.

  10. Jeremy Grimm

    This post bothered me. Drahos tied a discussion of IP and TRIPS into discussions of IP and tax avoidance, IP and drug company price gouging, IP and high cost of textbooks, IP and the stifling of basic research, IP and the lack of public support for basic research, IP helping the rich get richer and I probably missed something. I missed hearing how TRIPS changes IP laws — which is important within the context of how Cartels are using IP to extract rents (not taxes) from their local and world markets. But I thought the existing IP laws were already enabling Cartels to extract rents. Did Drahos mention what TRIPS changes? Does TRIPS include provisions for Investor-State Dispute settlements like TPP? I thought TRIPS or one of the other “trade” arrangements extended U.S. Patents from 17 years to 20 years.

    Problems with IP remain whether TRIPS passes or not. TRIPS will amplify the problems.

    I am interested in patents and have a little more knowledge of them than I do of copyrights so I’ll discuss IP in terms of patents. I believe Benjamin Franklin had individual inventors in mind when he crafted his ideas for the U.S. Patent Office. Inventing is a slow cut and try process. A patent grants a time limited monopoly right to an inventor to exploit an invention. But the inventor must enforce that monopoly right through legal action or see copies and knockoffs steal the market. Patents were intended to encourage invention and the full disclosure of the new art embodied in the invention. Before patents much of the technology developed was protected as trade secrets closely held by guilds and later by companies. This stifled new invention.

    I’ve found careful reading of patent literature more informative about technology I’m interested in than many other sources of information. By reading the “Background” section of a patent I can learn what problems the patent art addresses and thereby learn what problems exist in a field of practice. Reading the detailed descriptions of the patent art I can learn how the patent solves the problems. This kind of knowledge is invaluable for inventing and for applying known art to a field of practice. This kind of knowledge is seldom taught in any coursework or books.

    I got the impression Drahos was opposed to IP rights in principle. Most of the problems he discusses are problems inherent with the way Cartels can employ IP rights. Individuals still invent and still patent inventions — not all inventions are the product of research teams. But the increased costs of applying for a patent in a home country and high costs of obtaining patent protections in all the countries where the inventor might want to protect an invention put individual inventors at a great disadvantage. For an individual the costs of litigating infringement can be prohibitive — particularly a foreign infringement in a low cost of labor country with fly-by-night production facilities and here-today-gone-tomorrow suable entities. The case of the fore-arm lifter with many knock-offs described in the link from a few days ago is typical of the problems that face individual inventors and small companies. The protections IP laws grant to Cartels and the enforcement mechanisms TRIPS will afford Cartels will do little to help individual inventors. There are many problems with our IP laws. I think it might be fair to suggest the U.S. Patent Office has been subject to Corporate Capture much like too many other Federal Agencies but I also believe patent rights and copyrights as originally conceived are not the root cause of the problems Drahos elaborates.

    1. flashinreno

      TRIPS exists. It is just a definition of typical US-style IP rights. Trade agreements like the TPP have a clause that says a part of this agreement is a commitment to follow TRIPS. That’s how we get developing countries like Vietnam to support US-style IP rights.

      There are a couple of problems with IP that I have not seen in this discussion. I agree Ben Franklin wanted to encourage inventors to fully describe their inventions by publishing them, so other inventors could build upon them, Hence the limited time period.

      I don’t believe he foresaw the way corporations would use the prospect of a job and a technically-equipped laboratory to extort inventors (job-seeking potential employees) to transfer their constitutionally-granted monopoly rights to the corporation as a condition of employment.

      The second thing that is common practice is large corporations making broad cross-licensing agreements with each other. So HP, GE, IBM, and the like each have thousands of patents, and they agree not to enforce their monopoly rights against one another. If you are a self-employed individual inventor you can get a patent with the monopoly right, but it is unlikely you could market a product based upon a single patent that did not violate one of the many patents held by some large corporation. Since you have a portfolio of only 1 patent, you don’t have leverage to get a cross-licensing agreement with the big boys. This functions as a lever big corporations have to prevent competition arising from individuals or small businesses. Those agreements are discriminatory and anti-competitive, but the antitrust violations are not enforced, so the structural barriers to market entry remain.

      1. Jeremy Grimm

        Thank you! for adding the points you made. I am big believer in patents but I think the whole patent system is badly broken.

        One question — I think the U.S. patents are for 17 years with recent loopholes added for extensions — loopholes I don’t understand. Doesn’t TPP extend that to 20 years and add some further loopholes for extending patents?

        From you comment it sounds like TRIPS is kinda like a floating footnote or separate appendix to TPP and our other “trade” agreements. Is that a good way to understand what it is? I didn’t say it as plainly as I should have. I didn’t come away from Drahos presentation with any better understanding of TRIPS than I had before — which was no understanding or awareness of it.

        Another question — is it fair to say Cartels have other means to enforce their patents on countries like Viet Nam but those means are more expensive and catch-as-catch-can than they would like.

        1. flashinreno

          Look up the TRIPS Agreement on Wikipedia. It was created as part of the WTO in 1994, and expanded in 2001. The international standard monopoly period was 20 years. When the US joined the TRIPS Agreement it changed its monopoly period from 17 years to 20 years as a part of reconciling US patent law to TRIPS, so that was 15 years ago.

          Cartels do have substantial negotiating leverage over small countries, but individuals and small businesses have almost none, so putting TRIPS into trade agreements gives protections in law that extends those protections to entities with no other leverage.

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