The Great Trade War : Counterfeit : Law Little Deterrent to ‘Intellectual’ Theft : Software in Hong Kong, blue jeans in Bangkok: The fruits of U.S. creativity are hawked globally--often without compensation.
Doug Burgum, the president of Great Plains Software, had just finished a meeting with the British colonial governor in Hong Kong one day four years ago when he made an unsettling discovery on the colony’s crowded streets.
The governor had assured Burgum and other members of a visiting trade delegation that Hong Kong had successfully cracked down on the pirates who had been selling counterfeit versions of popular computer software programs. Hong Kong, he said, could protect foreign business.
It was a time at which the spreadsheet program Lotus 1-2-3 was a soaring success in the United States and elsewhere, and it was fetching up to $500 a copy in some retail outlets. The governor’s assurance notwithstanding, Burgum found it for $1 a copy on the streets of Hong Kong.
So much for the protection of foreign products.
Software in Hong Kong. Blue jeans in Bangkok. Sneakers in Seoul. Movies in Malaysia. Architectural plans in Poland. The fruits of American creativity are being hawked throughout the world--in many cases without payment of royalties or licensing fees to companies in this country. Unprotected by outmoded trade agreements, the ripped-off companies and their workers have little recourse.
“In this country, we have a system of laws by which people can protect their products,” said a senior U.S. trade official. “They get trademark protection. But as you go around the world, what you find is legislation on the books, but it is ineffective and doesn’t provide adequate protection. And sometimes, where they’ve got strong laws on the books, the questions of enforcement get serious.”
The rules governing international trade were written in a simpler time, when nations mostly bought and sold commodities such as oil and manufactured goods such as automobiles. Immediately after World War II, when the current trading system evolved, little thought was given to computer-driven, satellite-relayed global communications or to the advent of international banking and insurance.
But in the 1990s, trade is becoming increasingly more diverse, and the old rules cover considerably less than 50% of international commerce. For every $5 worth of goods it sells abroad, for example, the United States sells nearly $2 worth of services--everything from banking and construction to movies and, in Burgum’s world, computer programs to run accounting systems around the globe. Thus, “intellectual properties”--patents, trademarks and copyrights--are becoming increasingly valuable in an international context. However, there are practically no international rules governing trade in services or protecting intellectual property rights.
The World Intellectual Property Organization, a United Nations office with headquarters in Geneva, was established in 1967 and tries to help protect trademarks, patents and copyrights. It assists aggrieved parties who go to court accusing foreigners of ripping off their creations, but it has no real enforcement powers of its own.
The 132-nation organization administers two international agreements: The 1883 Paris Convention, which covers such industrial property as patents and trademarks, to which 108 nations, including the United States, subscribe; and the 1886 Bern Convention, which protects copyrights. Ninety-five nations subscribe to it.
But one of the primary goals of negotiators working since 1986 on an updated version of the General Agreement on Tariffs and Trade is to produce a new set of rules that would move well beyond the century-old, nearly toothless system.
The need for such rules is hardly new.
In the 15th Century, the secrets of glass bead making on the Venetian island of Murano were so closely held that to disclose them brought the threat of death to the craftsmen.
In the 19th Century, Charles Dickens complained that U.S. publishers were printing unauthorized versions of his works without paying him. As a foreigner, it turned out, he was not protected by this nation’s copyright laws.
Today, the products are videos, jeans and computer programs. They add up to the same thing: the fruits of human creativity.
The impact of this dramatic shift in patterns of trade--and the lack of rules governing this shift--can be felt not only in Silicon Valley but also here in the heartland. Auto workers in Flint, Mich., have long been aware of the threat posed by foreign competition. But what about workers in the service industries now facing competition from around the globe as a result of high-speed communications?
“Very few people who are working as a teller in a bank have any sense that foreign competition has put them at risk--or an accountant, or an actuary in an insurance company, or someone working in an engineering firm,” said Bill Brock, a former U.S. trade representative in the Ronald Reagan Administration. “What’s happening in the world is a reflection of the economist’s dream coming real--the globalization of the world economy.”
But without adequate protection, Brock said, workers in California or South Carolina, or anywhere else in the United States, can find themselves exposed to competition based not only on cheaper wages but also on stolen patterns or counterfeit software.
Take the case of blue jeans, he suggests, and the ease with which “knock-off” copies can be made.
“Everybody wants to wear jeans, no matter what country they’re in. You can buy Levi jeans that are not Levi jeans, but you cannot tell it, because the label is identical and the jeans look identical. You can buy them in other countries, and none of that income goes to a Levi worker. That’s theft.
“Our patent laws don’t protect us when a Japanese firm steals an IBM patent and then uses it to produce a competitive product, a chip for a computer. That’s income that doesn’t get to an IBM worker,” Brock said. “In some ways it’s more egregious than the theft of a piece of hardware. This goes on every single day.”
There have been estimates of the losses attributed to the theft of intellectual property rights, but most groups dealing with the issue complain that they have little firm and recent data. One often-cited range is $43 billion to $61 billion a year, an estimate compiled by the International Trade Commission several years ago.
A less inclusive survey by the International Intellectual Property Assn. found that in 1992, pirates bit off $2.8 billion in business from the computer software industry; the recording industry was ripped off to the tune of $1 billion; motion pictures, $900 million, and books, $500 million. A 1986 estimate by the Pharmaceutical Manufacturers Assn. found that such thefts accounted for yearly losses of $6.4 billion in the drug industry.
“U.S. pharmaceutical products can be copied and made and manufactured in India by Indian firms,” said Brock, “without compensation for the $200 million that a U.S. firm put into creating that product. That’s theft. There is no rule of law, no code of conduct, no process by which we can seek remedy,” he said.
It is a moral issue and an economic issue, said Thea Lee, an international trade economist at the Economic Policy Institute, a Washington policy research center.
Protection of intellectual property rights, she said, will “ensure that research and development are rewarded, so you can reap the gains of selling your goods. If everything is knocked off, maybe it’s not profitable to run your lab.”
The problem extends even to the architectural and engineering business.
It is common practice at the Chicago firm of A. Epstein and Sons International Inc. to include in domestic contracts a clause prohibiting reuse of the blueprints the firm draws up for a factory in this country.
But, said Chairman Sidney Epstein, “overseas, we don’t even have the protection of saying, ‘You can’t use our plans.’ We have no protection from a client taking a set of plans and building another building.”
In the 1970s, his firm built three meat-processing plants in Poland. Two years ago, the firm was invited to finish work on another plant on which work had been abandoned in the 1980s.
“The plant was a direct model from the ones we had done,” Epstein said. “They had a right to do it. They didn’t do anything illegal. They used the knowledge they gained from us to do another plant, and there’s no protection against it.”
Here in North Dakota, the rich, dark soil has come to life with the green shoots of the spring crops, the wealth on which the farmers here depend.
But increasingly, cities like Fargo are thriving on the strength of people like Doug Burgum and Virginia Gregg, president of Northcoast Communication Inc., a Fargo company that makes displays for industry trade shows.
Paris is one of the most active centers for such shows, and Gregg is anxious to tap the market there--a move that she says would allow her to boost her business from something under $1 million a year to as much as $10 million within a few years.
At the heart of her business is a unique design for an extremely light, but rigid, display panel. It can collapse into a packing case not much bigger than a large suitcase, but it can be opened up to a screen 30 feet long and seven feet high.
“We have seen displays similar to ours when set up, but none could match our weight and portability,” she said.
So, what is holding her back?
“We’re sitting here with ideas, and the market is over there. I would like to make a splash in the European market. But I have to have some form of protection going in.”
