IP Matters

Right now, literally as I type this, Australian trade negotiators are reportedly resisting U.S. demands for increased protection of pharmaceutical and biotech innovation in the Trans-Pacific Partnership (TPP) agreement. They are no doubt motivated by the warnings of Australian academics and researchers that Australia’s Pharmaceutical Benefits Scheme (PBS), which the Australian government uses to control drug prices, will be weakened or undone altogether by extending the period of data protection for biologics, among other provisions.

The sky-is-falling warning from these academic critics of the pharmaceutical industry is that protecting the products of innovation will necessarily result in dramatic price increases, which Australia (and Australians) will no longer be able to afford.

Interestingly, Australian academics made this exact same argument in 2003, warning Australia about the treaty that was then being negotiated, the Australia-U.S. Free Trade Agreement (FTA).  

I have before me a copy of a paper published by The Australia Institute, entitled “A Backdoor to Higher Medicine Prices? Intellectual Property and the Australia-US Free Trade Agreement,” by Dr. Buddhima Lokuge, Dr. Thomas Alured Faunce, and Richard Denniss.

The paper predicted that the Australia-U.S. FTA would result in dramatic increases in the cost of prescription drugs in Australia.

“This paper examines five leading medicines near the end of their patent lives in Australia. Based on PBS expenditures for these drugs in 2003, we estimated the potential cost of likely changes to IP provisions under the FTA to the PBS and Australian taxpayers. The costs accrue over a four-year period from 2006 to 2009. . . . The ‘central case’ estimate is that the additional cost of these five drugs alone, as a result of IP provisions in the FTA, will be more than $1.12 billion with a lower estimate of $850 million and an upper estimate of $1.56 billion.”

But they were wrong then, and they’re likely wrong now.

A piece in today’s Dominion Post (New Zealand) finds that warnings about higher drug prices as a result of free trade agreements are baseless, as least as far as facts are concerned:

“We can't assume medicine costs will increase if some patents or Intellectual Property protections are extended. Speculation about rising medicine prices under the TPPA mirror concerns Australians voiced over the U.S-Australia FTA. However, since signing the FTA in 2005, Australia's spend on pharmaceuticals has remained stable and the rate of expenditure has decreased. In 2006 Canada's pharmaceutical spend decreased after implementing an eight year data protection period. Similarly, after Japan increased data protection in 2007 to eight years, pharmaceutical spend decreased and health care spend increased by the year 2010.”

On Monday, a writer named Fran Quigley had a piece published on the Foreign Affairs website that was highly critical of some of the provisions in drafts of the Trans-Pacific Partnership (TPP) agreement.

We’ll get around to dealing with the arguments in Quigley’s FP article in a separate blog post.

Quigley’s title of “Clinical Professor of Law in the Health and Human Rights Clinic” at Indiana University tells us much of what we need to know. If you merge health and human rights, you have already decided that access to every bit of the latest health care technology available is a human right, and if it’s a human right, it’s your right to have it for free, or for something very close to free.

That makes Quigley an activist more than an analyst of the provisions of the TPP. A look at his cv demonstrates that Fran is a social justice crusader, a proponent of the labor movement, and a neighborhood organizer type.

For the past two years, Chairman Goodlatte of the House Judiciary Committee has been conducting a comprehensive review of the copyright system, mostly through a series of topical hearings. Many of us who defend copyright against the barbarians saw this process as a threat--as an opportunity for copyright critics to vent before Congress and demand wholesale changes to copyright law. Fortunately, and rather surprisingly, that’s really not what happened. In the course of the hearings, very few aspects of copyright law were revealed as being out-of-step with today’s marketplace and current technology.

In fact, in a recent letter, the Internet Association itself said that existing U.S. copyright law “has adapted well to Internet era.”

One thing that DID come out of the hearings, however, is the need to modernize the Copyright Office itself. Even though the copyright industries now contribute more than $1 trillion to U.S. GDP and comprise 6.7% of the U.S. economy, the Copyright Office itself is still housed as a subset within the Library of Congress, and is widely recognized to be underfunded.

IPI has long been involved in explaining to policy makers the many harms of copyright piracy. These harms extend beyond the obvious losses to the property owners and affect many downstream businesses that depend on getting business and employment from the copyright industries.

And it’s not a stretch to say that ignoring blatant, widespread piracy contributes to the erosion of rule of law and property rights. It’s problematic to say the least when a culture decides that they no longer need to respect the ownership of property simply because it’s become easy to steal and hard to prosecute.

Further, it’s reasonable to think that, over time, toleration of widespread and blatant piracy will have at least a marginal impact on the incentive to create high-quality content—the kind of content that requires substantial up-front risk and investment to create. No, piracy probably doesn’t impact your incentive to film your dog running around chasing its tail and post that on the Internet, but it certainly does impact the willingness of a record company or film production company to put millions of dollars at risk.

These are some of the reasons why we’ve argued that the United States has many reasons to facilitate the defense of intellectual property rights and to discourage illegal piracy of intellectual property, both domestically and internationally.

But in a free society, rule of law is reinforced not only by government action, but also by the voluntary actions of responsible people in the marketplace. We’ve also argued that, eventually, the interests of the entire Internet economy will converge around the importance of protecting content. A healthy Internet ecosystem requires rule-of-law, property rights, and the other basic institutions of a free society. There is nothing about the Internet that logically puts it at odds with the institutions of civil society that have been recognized as necessary for the function of analog society.

So we celebrated the Copyright Alert System (CAS), a voluntary agreement between content owners and ISPs to notify broadband customers that piracy has been detected on their accounts. And it’s why we’re pleased about the new Trustworthy Accountability Group (TAG), a voluntary agreement between content owners and advertisers to avoid having their brands associated with illegal pirate websites.

Recently, Eli Dourado at the Mercatus Center posted a blog in the wake of the Sony attack discussing stolen correspondence and privileged documents from the MPAA, which were leaked as collateral damage. I’m particularly disappointed to see Eli engaging in hyperbole that borders on dishonesty when he claims content owners are trying to “censor the Internet” and that MPAA is engaged in a “war against the Internet.” Preventing illegal activity on the Internet is not censorship, any more than preventing illegal activity on the streetcorner is censorship, and to use that language is sloppy, inaccurate, and even dishonest. This kind of hyperbole is often engaged in by activist groups, but is a surprise coming from some who claims to be a serious policy analyst at a serious policy organization. It’s also ridiculous for Eli to suggest that the whole episode surrounding Sony Pictures and the movie “The Interview” was a financial success for Sony. In truth, Sony has been devastated by the experience.

He suggests there are two lessons to be learned:  1) that the MPAA is trying to “censor the Internet” by reviving the Stop Online Piracy Act, the much maligned 2012 legislation aimed at combating online theft; and 2) that the extraordinary circumstances surrounding the release of “The Interview” are proof positive that movie studios should bypass theatrical exhibition altogether and release their films online as soon as the director yells, “cut!”

At the outset, it is troubling that when we have just witnessed an unprecedented attack by a rogue-state on an American company, people continue to focus on salacious details revealed in stolen material rather than the big picture. Here, Dourado chooses to exploit the attack to perpetuate stale narratives to support his disdain for copyright.

It’s not clear to me what Eli Lehrer is torqued off about sufficiently to sit down and pen a blog entry about the fact that Mississippi Attorney General Jim Hood is working with content owners to help fight online piracy.

Eli grants that A.G. Hood has done “meritorious work” in a number of policy areas of which Eli approves, and he grants that Hood hasn’t done anything to violate laws, canons or legal ethics. (I’m a little confused that Eli thinks one of Hood’s meritorious causes include going after drug companies about drug prices—I thought free-market types thought markets should set prices rather than governments. Same with going after insurance companies. Of course, Eli is in favor of carbon taxes, too, so he’s full of surprises.)

Nonetheless, Eli gives us a five paragraph blog entry. His gripe is apparently that content owners are still trying to protect their content even though SOPA didn’t become law, and that A.G. Hood is willing to work with content owners to do so.

I’m cataloging some of the misleading, distorting, uninformed and just plain awful reactions to the latest Wikileaked IP chapter of the Trans-Pacific Partnership treaty in a series of blog posts, in order to keep my response down to manageably sized bites.

My general reaction to this pattern of distortion can be found in my response to the previously leaked chapter, here. Frankly, not much has substantively changed since then, except for the ever greater heights of distortion from the IP skeptic crowd.

Perhaps the worst reaction was from Katheryn Thayer at Forbes, and I want to stress that Katheryn identifies herself as “staff” at Forbes, and not just as one of their many authorized bloggers. Katheryn uncritically accepts and then further inflates the inaccurate and policy-sloppy arguments of the IP skeptic activist groups, and her article is much more of an opinion piece. Most problematic, she works from the assumption that the TPP is “the latest threat to digital innovation and free speech online.” That’s just totally unjustified. You don’t get to throw around a charge of threatening free speech without backing it up. But she doesn't.

This evening Grooveshark, the popular music streaming service that has up to now managed to skirt accusations by copyright holders that is was hosting music files without paying appropriate royalties, was found to be guilty of massive copyright piracy.

Grooveshark’s defense has long been that it is legal under the Digital Millennium Copyright Act, the federal law that protects websites that host third-party material if they comply with takedown notices from copyright holders.

I've always thought it was somewhat self-incriminating that critics of copyright tend to excuse copyright piracy. They usually claim to believe in some form of copyright (though they can almost never describe what they would support), and claim to believe in obeying the law, yet they excuse and explain away piracy.

Very often, the technique is to deflect "but don't you think piracy is wrong?" with a quick "yeah, but Hollywood . . . " and then you either get:

• Hollywood doesn't make content available to consumers they way they want it (what they really mean is that Hollywood should make its products available to consumers immediately, easily, in a variety of formats, and for almost nothing).
• All those rich Hollywood fatcats make too much money. I'm just depriving them of their next Bentley
• Hollywood is defending their old business model instead of adapting to changing technology
• Copyright term is too long (what this has to do with pirating a movie that's been out for a week is not obvious to me)

or some other foolishness.

Simon Lester, who I met earlier this year speaking at a Cato event, has a blog up over at Cato at Liberty giving a somewhat nuanced response to my new IPI Ideas on including IP protection in trade agreements.

His point, essentially, is that I'm being very general rather than granular in my argument. And he's completely right, of course. My argument in the piece IS a general argument; namely, that it's appropriate and important to include IP in trade agreements.

And, in fact, my general argument in favor is a response to the general argument that is being made by many, including Cato personnel, that IP should NOT be included in trade agreements.

Wednesday the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet will hold a hearing on the portion of the Digital Millennium Copyright ACT (DMCA) that makes legally possible and enforceable strong digital rights management (DRM) and other forms of technical protection measures (TPMs). Section 1201 of the DMCA makes it illegal to circumvent such technical protection measures, and was designed in part to implement the WIPO Internet treaties.

Section 1201 has been the subject of much ire from both technologists (who didn’t see the point and who like things simple) and from the IP skeptic community (who don’t like IP and certainly don’t like anything that reinforces IP). TPMs are occasionally inconvenient, but the track record of TPMs has been one of facilitating numerous new business models for the distribution of music, video and software. Today’s content-rich environment is due largely in part to the fact that content owners have sufficient confidence that they can make their content available through reasonably secure channels, and those channels are made reasonably secure through TPMs.