Who Owns the Knowledge Economy?€¦ · Who Owns the Knowledge Economy? Political Organising Behind...

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September 2004The Corner HouseBriefing 32: Political Organising Behind TRIPS

THE CORNER HOUSE

THE CORNER HOUSESTATION ROADSTURMINSTER NEWTONDORSET DT10 1YJUKTEL: +44 (0)1258 473795FAX: +44 (0)1258 473748EMAIL<[email protected]>WEBSITE http://www.thecornerhouse.org.uk

Who Owns theKnowledge Economy?Political Organising Behind TRIPSPolitical Organising Behind TRIPSPolitical Organising Behind TRIPSPolitical Organising Behind TRIPSPolitical Organising Behind TRIPS

TRIPS – the World Trade Organisation’s agreement on Trade-Related Aspects of Intellectual Property Rights1 – was themost important agreement on intellectual property of the 20th

century. It marked the beginning of a quiet revolution in the way thatproperty rights in information were defined and enforced in an emerg-ing global knowledge economy.

More than one hundred government ministers signed TRIPS onbehalf of their nations in Marrakesh on 15 April 1994. Why? Why didstates give up sovereignty over something as fundamental as the prop-erty laws that determine the ownership of information and technolo-gies?

Intellectual property rights are not like property rights in land or theownership of physical objects. They are property rights in intangibles –algorithms that drive computers, formulae that underpin chemical proc-esses of production, and methods of doing business. TRIPS is aboutmore than patents on intangibles, however. It sets minimum standardsin copyright, trade marks, geographical indications of manufacture, in-dustrial designs and layout designs of integrated circuits. TRIPS effec-tively globalises the set of intellectual property principles it contains,because most countries are members of, or are seeking membershipof, the World Trade Organisation (WTO) that administers TRIPS. Ithas a crucial harmonising impact on intellectual property regulationbecause it sets detailed standards of intellectual property law2 that willprofoundly affect the ownership of two significant technologies in the21st century – digital technology and biotechnology.3 TRIPS also obligesstates to provide effective enforcement procedures against the infringe-ment of intellectual property rights.

Between them, the US, the European Community4 and Japan hadthe world’s dominant software, pharmaceutical, chemical and enter-tainment industries, as well as the world’s most important trade marks.The rest of the world had nothing much to gain by agreeing to terms oftrade for intellectual property that offered these countries so much pro-tection.

Southern policymakers have argued that “TRIPS was part of a pack-age in which we got agriculture”. The WTO Agreement on Agriculture(AoA), however, does not confer anything like the benefits on develop-ing countries that TRIPS does on the US and Europe.5

Another response was that “we will be eventual winners from intel-lectual property”. But property rules over knowledge have broughtdeveloping countries few gains. Of the 3.5 million patents in existencein the 1970s, the decade before the TRIPS negotiations, nationalsof developing countries held about one per cent.6 Moreover, developingcountries that were industrialising, such as South Korea, Singapore,Brazil and India, were doing so in the absence of a globalisedintellectual property regime.

1. The Agreement on Trade-Related Aspectsof Intellectual Property Rights is one of 28agreements that concluded the UruguayRound of Multilateral Trade Negotiationsthat began in Punta del Este in 1986. An-other of those agreements established theWorld Trade Organisation (WTO), and itis the WTO that administers TRIPS.

2. Every member, for example, has to have acopyright law that protects computer pro-grams as a literary work, and a patent lawthat does not exclude micro-organisms andmicrobiological processes frompatentability.

3. Copyright, patents and protection for lay-out-designs are all used to protect digitaltechnology, whereas patents and trade se-crets are the principal means by which bio-technological knowledge is being enclosed.

4. The European Community (EC) becamethe European Union only after theMaastricht Treaty of the European Unionentered into force on 1 November 1993.

5. Moreover, agricultural goods are increas-ingly the subject of intellectual propertyrights as patents are extended to seeds andplants. Agricultural countries will find thatthey have to pay more for the patentedagricultural inputs they purchase from theworld’s agro-chemical companies, andcompete with the subsidies that the WTO’sAgreement on Agriculture (now being re-negotiated) allows US and EU farmers tocontinue to receive.

6. See Surendra Patel, J., “Intellectual Prop-erty Rights in the Uruguay Round: A Dis-aster for the South?”, Economic and Po-litical Weekly, 6 May 1989, pp.978, 980.

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September 2004The Corner House

Briefing 32: Who Owns the Knowledge Economy?

In fact, developing countries signed TRIPS because of a failure ofdemocratic processes, both nationally and internationally, that enableda small group of men within the US to capture the US trade-agenda-setting process and then, in partnership with European and Japanesemultinationals, draft intellectual property principles that became the blue-print for TRIPS. The resistance of developing countries was crushedthrough US trade power. This briefing paper explores the backgroundto TRIPS and the corporate political organising that orchestrated andpaved the way for the agreement.

Global Knowledge CartelsIn the early 20th century, US and European corporations began to seethe function of patent and copyright systems less as an opportunity tomake returns and more as a public guarantee of returns on privateinvestment – in effect, an investment guarantee. US patent lawyerEdwin J Prindle stressed that corporations had to see the patent systemas a fundamental tool of business:

“Patents are the best and most effective means of controllingcompetition. They occasionally give absolute command of themarket, enabling their owner to name the price without regard tocost of production.”7

Whereas in the 19th century most patents were owned by individuals,early in the 20th century the bulk of patents came to be owned by bigbusiness. The massive corporate research laboratories (see Box, p.6)in the chemical, power machinery, electrical, petroleum and rubber in-dustries8 produced knowledge to develop into products, but the questfor knowledge was really the quest for monopoly. By means of pat-ents,9 competitors could be kept out or made to pay high royalties, de-pending on the way the numbers panned out. Patents allowed largecompanies to fix price and control production. Restrictions over priceand production could also form part of a patent licence agreement withanother producer and were in many cases regarded as a legitimateform of exploitation of a proprietary right.

Corporations could also use intellectual property rights and licencesto structure, disguise and enforce a global knowledge cartel and todivide international markets among themselves.10 Cartels are borne ofa desire by business to dominate markets rather than be dominated bythem. Individual producers come to an arrangement under which theyfix the price of a commodity or limit its production. In 19th-centurybusiness life and the first part of the 20th century, cartels of all kindswere simply a fact of international economic life11 – and unsurprisinglywere eventually made illegal.

Patents and other forms of intellectual property such as trade markscould, however, hide a cartel. The patent monopoly, by its very nature,gives its owner strong rights over the making of an invention, includingthe terms on which it can be licensed. An arrangement between twoproducers dividing market territories and setting limits on production,which would have been illegal in the absence of a patent, could be legalas a patent licensing arrangement.

The details of these arrangements varied as did their legality in dif-ferent jurisdictions. Usually, two or more international players wouldcome together and negotiate an agreement on the intellectual propertyrights relating to the products and technologies in the industries in whichthe players were involved. Typically, the agreement would divide the

7. Quoted in Noble, D.F., America by De-sign, Alfred A. Knopf, New York, 1979,p.89.

8. In 1938, these five industries employed75 per cent of the staff involved in indus-trial research (Chandler, A.D., Jr, Strat-egy and Structure: Chapters in the His-tory of the Industrial Enterprise, MITPress, Cambridge, MA, 1962, p.377).

9. Use was also made of trade marks, tradesecret law and copyright.

10. It was unlikely for one company to haveall the technology it needed to manufac-ture a given product. “Nobody”, as onepatent attorney put it, “has it all.” Tolicense in the technology it needed, a com-pany had something to offer in return. Eachcompany thus had to have a strong portfo-lio of patents to negotiate deals from aposition of strength.

11. Cartels were present in most commoditymarkets, including cocoa, coffee, corn,sugar and tea, and in strategically impor-tant metal industries, such as steel, alu-minium, beryllium, cobalt, copper, lead,magnesium, mercury, tin, iron, brass andzinc. They were also ound in the lumber,woodware, flooring, furniture, casket,leather, petroleum, rubber, footwear, ex-plosives, glass, paper and hardware in-dustries. (Chandler, A.D., Jr, The VisibleHand: The Managerial Revolution inAmerican Business, Belknap Press ofHarvard University Press, Cambridge,MA, 1977, p.317.)

Protectingintellectual propertyuses public funds toguarantee returnson privateinvestment.

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world into areas (the British Empire, the United States, Central America).The agreement might specify that some areas were to be the exclusiveterritory of party A and others the exclusive territory of party B. Someterritories might be shared. Party A would agree to grant party B “soleand exclusive licences” to patents and trade secrets owned by party Aand of interest to party B in its exclusive markets. Party B would returnthe favour. Generally speaking, the more technologically sophisticatedthe process of production, the more use was made of patent and know-how12 agreements among competitors. Through these agreements, mem-bers of the cartel “networked” their territorially based patents in orderto coordinate their actions in world markets. Not every agreement onpatents hid a cartel – but many did.

The Patent and Processes Agreement that DuPont concluded withthe UK’s Imperial Chemical Industries (ICI) in 1929 is a good exampleof the way in which patents were used to mask cartels. The Agree-ment divided the world into exclusive and non-exclusive territories.DuPont took North and South America for its exclusive use and ICIacquired the British Empire. Canada was shared between them bymeans of exclusive licences. Failure to adhere to the terms of the agree-ment usually produced a breach-of-licence issue and could be settled incourt, or if privacy was important to the parties concerned, throughinternational arbitration and mediation.13

The use of intellectual property rights to structure and enforce car-tels spread between the two World Wars. Cartels became the “out-standing characteristic of business”,14 and intellectual property becamethe outstanding marker of knowledge cartels. The partitioning of theworld’s markets using intellectual property rights occurred in all theworld’s key industries. The rubber cartel, the nitrogen cartel, the alu-minium cartel, the magnesium cartel and the electric light cartel werewoven together through the thread of intellectual property agreements.15

Knowledge cartels were not about sharing knowledge, avoiding theduplication of research or achieving efficiencies. They were about pri-vatising knowledge that would grant the holder of that knowledge thepower to discipline markets. When the opportunity came to depriveothers of their patent rights, it was rarely neglected.16

Attacking patent-based cartels, moreover, was far harder for a com-petition authority than attacking commodity cartels or monopolies be-cause an attack could be construed as interfering in the use of privateproperty. Once the veil of private property had been drawn over whatwas essentially a state-granted monopoly privilege, it became muchharder for public authorities to question the nature of the business ar-rangements that individual competitors reached with each other usingthose privileges.

The Changing Knowledge Game

After the Second World War, surveys began to show that the USeconomy generally was building a comparative advantage in highly re-search-intensive and knowledge-intensive industries: computing, elec-tronics, chemicals, pharmaceuticals and scientific equipment.17 US com-panies looked to new markets for their diverse products. They began toestablish overseas production facilities and began a process of expan-sion, especially into Europe.

But competition was looming from all directions.18 The Asian tigereconomies were experiencing hyper-growth. The great profits to be

12. Since knowledge was the basis of com-petitive advantage, all companies wantedto disclose as little of their knowledge aspossible. But the patent system requireddisclosure. Over time, patent attorneyssolved this problem by keeping back someof the core knowledge related to inven-tions as private “know-how”. Know-howwas usually the subject of a separate li-censing arrangement between commercialparties.

13. Another example involves German chemi-cal giant I. G. Farben, which used its stockof patents in synthetic rubber to strike adeal with US Standard Oil over the world’srubber markets. I. G. Farben agreed to passon to Standard any patents it acquired inthe chemical field of relevance to the oilbusiness. In exchange Standard offered I.G. Farben control of chemical patents thatwere not strongly related to the oil indus-try.

14. Stocking, G.W. and Watkins, M.W., Car-tels in Action, Twentieth Century Fund,New York, 1947, p.4.

15. The electric lamp cartel agreement, whichwas signed on 23 December 1924 by theworld’s leading producers (Osram, Philips,Tungsram and International General Elec-tric), based its division of the world mar-ket on the exchange of patents.

16. Members of knowledge cartels may haveswapped patents, but know-how (see note12) was kept under tight wraps even amongcartel members. ICI, for instance, com-plained that DuPont was holding out on itby not communicating its research andtherefore not honouring the spirit of thepatent agreement between the two(Hounshell, D.A. and Kenly Smith, Jr,J., Science and Corporate Strategy:DuPont R&D, 1902–1980, CambridgeUniversity Press, Cambridge, 1988,p.193).

17. Dunning, J.H., and Pearce, R.D., TheWorld’s Largest Industrial Enterprises,Gower, Aldershot, UK, 1981, p.36.

18. Chemical and pharmaceutical companiesencountered other problems too, particu-larly rising R&D costs and falling returns.See Box, p.7.

Copyright andtrade marks are

still routinely usedby international

business to divideup global markets

among themselves.

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Chemical and Pharmaceutical Patents and CartelsChemical and Pharmaceutical Patents and CartelsChemical and Pharmaceutical Patents and CartelsChemical and Pharmaceutical Patents and CartelsChemical and Pharmaceutical Patents and CartelsPatent-based cartels have beenstrongest in chemicals andpharmaceuticals. Indeed, thechemical cartels of the 20thcentury were some of the mostpowerful ever to colonise theworld economy, and the compa-nies participating in them wereamong the first to becomegenuinely global. They learned touse patents, trade secrets andtrade marks to bind themselvestogether into tight dominantgroups that could operate acrossborders according to agreedproduction and marketing plans.

For some chemical compa-nies, the move into pharmaceuti-cals made sense. Drugs could besynthesised through chemicalprocesses, and chemicals were asource of raw materials forpharmaceuticals. Germanchemical company I G Farbenbecame a prominent player inthe pharmaceutical cartels of the1930s, forming agreements withother European companies suchas Ciba and Hoffmann La Roche,as well as US companies such asSterling Products.

The discovery of penicillinand sulphanilamide led to an eraof wonder drugs after the SecondWorld War. Companies like Pfizer,Bristol, Parke Davis and Merckrushed to patent antibioticsbecause they had seen what acompetitive market could do tothe price of a drug like penicillin.

Penicillin, which had not beenpatented, had gone from selling atUS$3,955 a pound in 1945 toUS$282 a pound just five yearslater.

One obstacle to obtaining apatent hold on antibiotics was thefact that the drugs depended on thediscovery of naturally occurringsubstances in soil samples thatkilled harmful micro-organisms.As these substances occurred innature, they were unpatentablediscoveries.

For decades, however, thepatent profession had been push-ing the principle that substancesthat occurred in nature but hadbeen isolated and purified by thediscoverer were patentable.Technically, they no longer existed“in nature”. Progressively, thisprinciple of purification/isolationcame to have a wider and widerapplication in chemical patents.

The US Patent and TrademarkOffice (PTO) came to accept theprinciple and grant patents onbroad-spectrum antibiotics. In fact,it granted too many of them.

Companies found that theywere making life difficult for eachother. Rather than live in a world ofmutually-assured patent litigation,they swapped patents to form aproducers’ cartel. The prices ofantibiotics were held constant thisway between 1951 and 1961.Countless thousands of people whocould not afford to buy them died.

Some companies expandedenormously based on the supra-normal profits they obtained bymeans of the patent system. Butprofits tended to come from oneor two drugs only. For example,in 1960 Terramycin and tetracy-cline accounted for 33 per centof Pfizer’s sales; chlorampheni-col for 45 per cent of ParkeDavis’s sales, and Merck’s Divrilfor 39 per cent. When thesepatents ran out, the companieswould be cast back into competi-tive markets.

They thus had a massiveincentive to strengthen andglobalise the patent system. Theywould need longer and strongerpatents to protect the block-buster drugs on which they hadbecome financially dependent.They would need every countryin the world to recognise productand process patents for pharma-ceuticals so that they couldbecome a monopoly supplier inevery market of their choice.They would need standards ofpatent protection that wouldmake it difficult for the genericsindustry to compete with them inthese national markets. Theywould need stronger trade marklaws that could not be tamperedwith by developing countries toprotect their global marketingstrategies. They would needsomething like TRIPS.

made in chemicals had tempted more and more entrants in the marketto join established players like DuPont, Dow, Monsanto and UnionCarbide. Chemical knowledge continued to be diffused throughout theworld by the universities and through journals and the career move-ments of chemical engineers and researchers. There were only so manypatent battles that a chemical company such as DuPont could fight andexpect to win. Similarly, the pharmaceutical industry had gone throughits happy times of cartels and price-fixing behaviour, for instance, ofbroad-spectrum antibiotics (see Box below), and the large industry play-ers now faced competition from generic manufacturers.

The experience of US pharmaceutical giant Pfizer illustrates theproblems a knowledge company faced. Confronted with strong do-mestic competition in the production of penicillin after the end of theSecond World War,19 the company began to expand into Southern coun-try markets in the 1950s. Manufacturing plants and distribution net-works were established “in countries ranging from Argentina to Aus-tralia and Belgium to Brazil”.20 In many countries, national pharmaceu-tical industries either did not exist or were only in their infancy.21 Patent

19. During the Second World War, Pfizer hadbeen required to share its penicillin pro-duction techniques with other US manu-facturers in order to meet demand.

20. See the Pfizer website, www.pfizer.com/150/1951.htm.

21. In fact, many people in Africa, India andSouth America relied on a variety of in-digenous knowledge systems for theirhealthcare needs.

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protection was not yet important to Pfizer because countries like Indiadid not have the technology or know-how to copy its products. By1957, Pfizer International had more than achieved its target of US$60million overseas sales.22

In India, these sales were aimed at the small but growing class ofIndians who could afford Western prices. In the 1960s, despite havingone of the poorest populations in the world, India had some of the world’shighest drug prices.23 Increasing political stability and technologicaldevelopment, however, gave India the capacity to produce quality af-fordable drugs locally, cheaply – and, by using the patent system,legally.

Passed in 1970, India’s patent law24 followed the German system ofallowing the patenting of methods or processes that led to drugs, butnot allowing the patenting of the drugs themselves.25 This product/proc-ess distinction gave Indian pharmaceutical manufacturers an incentiveto find cheaper processes for the production of existing drugs. The lawopened the path to a highly competitive Indian generics industry, whichbegan to produce quality essential drugs at a fraction of their price inWestern markets.

Southern countries also made use of compulsory licensing26 regimesto bring down the price of essential drugs. Countries like Brazil, Argen-tina and Mexico and the Andean Pact nations limited the scope ofpatentability in the pharmaceutical and chemical sectors. Other statessimply did not have copyright or patent law, and had no legal obligationto recognise the intellectual property systems of other states. All statesdesigned their intellectual property laws in a way that suited their eco-nomic interests – or simply did not have them.

As these policies began to bite, Pfizer was faced with unprofitableoperations in the South. In the words of Edmund Pratt, the CEO ofPfizer from 1972 to 1991:

“[W]e were beginning to notice that we were losing market sharedramatically [in Southern countries] because our intellectual prop-erty rights were not being respected in these countries.”27

This “lack of respect” did not amount to illegality. Rather that Southerncountries were adjusting the rules of the patent game to serve theirlocal industries in exactly the same way that Western states had usedintellectual property for their own protectionist ends.

The loss of market share in developing countries did not greatlyaffect Pfizer’s overall profitability. The world’s biggest pharmaceuticalmarkets remained the US, Japan and Europe, where Pfizer was doingwell. Pfizer’s own sales in developing markets were never much morethan 10–12 per cent of its total sales.28 But these Southern countrieswere not only providing pharmaceutical products to their populations atvery cheap prices; some of them, such as India, were also supplyingneighbours like Nepal and exporting bulk drugs and formulations toplaces such as Canada. Southern-produced pharmaceuticals were alsofinding their way into African states.

The presence of these cheaper manufacturers raised embarrassingquestions about the connections between patents and drug prices. Saidone Western doctor who had worked in Nepal:

“I am intrigued by the Association of the British PharmaceuticalIndustry’s statement that ‘the pharmaceutical industry in the UKis highly competitive especially in terms of prices’. Most of thedrugs available in Nepal are manufactured in India and their ef-ficacy in clinical practice I have found to be the same as their

22. By the 1980s, Pfizer had 21 manufactur-ing plants located in less developed coun-tries including India. Four of its six R&Dlabs were located outside the US (Santoro,M.A., “Pfizer: Protecting Intellectual Prop-erty in a Global Marketplace”, HarvardBusiness School, Cambridge, MA, 1992,p.2).

23. The phenomenon of higher prices in South-ern countries is not unusual. For a surveyof a sample of 16 drugs in 36 countriesthat shows the price of some proprietarydrugs to be higher in Africa and LatinAmerica than in OECD countries, seeBala, K. and Sagoo, K., “Patents andPrices”, HAI News, No 112, April/May2000, pp.1–9. Even if the price of a pro-prietary drug is lower in a Southern coun-try than in an OECD country, it may rep-resent a higher percentage of income.GlaxoSmithKline offered its anti-retroviraldrugs AZT/3TC for US$2.00 a day, butthis represents twice the daily income ofsomeone living on a dollar a day. The logic of patent monopoly is to havea safe and secure distribution system aimedat selling smaller numbers of expensivemedicines to a wealthy class, rather thantrying to distribute large numbers of cheapmedicines at a few cents a day to the poor.When large pharmaceutical companiesspeak about “growing the market” in de-veloping countries, it is the wealthysegment of the market they have in mind.

24. India in fact had a patent law before manyEuropean countries, having acquired onein 1856 under British colonial rule. Fromthat time on, British manufacturers usedthe patent system to obtain the best pos-sible prices in the Indian market. AfterIndia’s independence in 1947, two expertcommittees conducted a review of the In-dian patent system. Unsurprisingly, theyconcluded that the Indian patent systemhad failed “to stimulate inventions amongIndians and to encourage the developmentand exploitation of new inventions”(Vedaraman, S., “The New Indian Pat-ents Law”, International Review of In-dustrial Property and Copyright Law,Vol. 3, 1972, pp.39, 43).

25. Ibid. India granted patent protection forpharmaceuticals for five to seven years onlyas opposed to 14 years for other inven-tions.

26. Compulsory licensing is authorisation bya government for someone to make, use orsell a patented invention without the con-sent of the patent holder.

27. See Santoro, M.A., op. cit. 22, p.6.28. Ibid., pp.2, 4.

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Corporate Laboratories of KnowledgeCorporate Laboratories of KnowledgeCorporate Laboratories of KnowledgeCorporate Laboratories of KnowledgeCorporate Laboratories of KnowledgeIn the early 20th century, com-panies such as DuPont and IBMbecame “knowledge-creatingcompanies”. They did not createknowledge for its own sake, butrather to develop new productsor improve existing ones. Theircrucibles were large-scaleindustrial research laboratories.

Germany’s dominance of theinternational chemical industryin the 19th century was built onan infrastructure of highlyorganised industrial research.The Germans had realised thatnature would give up its chemicalsecrets only under a collectivesystematic assault by largegroups of scientists. The sheernumber of tests required to finda successful dye, for example,meant the lone inventor had littlechance of making discoveries ofindustrial interest.

In the US, General Electric’slaboratory was established in1900, Westinghouse’s in 1903and AT&T’s in 1907. Othersfollowed the path of large-scaleindustrial research. Between1921 and 1941, the number ofindustrial research laboratoriesin the US went from 300 to2,200; research staff increasedto over 70,000. In 20 years, theUS had built an industrial re-search structure that toweredover that of other nations (withGermany perhaps the exception).Like a vortex, this structure drewin much of the best and brightestscientific talent in the country, aswell as talent from abroad.Graduates working for theselarge companies were givensome of the best-equippedlaboratories in the country andsalaries exceeding anything theywere likely to earn in the univer-sity system.

Universities themselvesbecame more and more depend-ent on funding from large

corporations like DuPont, which by1958 spent, on average, aboutdouble that of its competitors onbasic research, and employed PhDgraduates in numbers equallingabout one-third of those in theentire US academic system. Thesecompanies understood that theirneeds for highly skilled scientificlabour could be met only throughhealthy science faculties.

Large, sophisticated laborato-ries staffed by thousands ofresearchers made possible thestrategy of product diversificationthat characterised the chemical,electrical, automobile and machineindustries.

Chemical companies likeMonsanto and DuPont started fromnarrow technological bases – thechemistries of saccharin and nitro-cellulose respectively. Researchthen turned these bases into manydifferent product lines. Nitro-cellulose technology, for instance,gave DuPont “artificial leather,rayon and other textiles, paints,varnishes and dyes, cellulose, andplastic products.”

Individual scientists whoparticipated in the emerging sys-tems of industrial scientific re-search soon learnt that all scientificcommunication with outsiders hadto be vetted by their legal depart-ments. They had joined a system inwhich knowledge was no longerthought of as a public good.

Changing StrategiesChanging StrategiesChanging StrategiesChanging StrategiesChanging StrategiesAfter the Second World War, IBMbecame perhaps the best exempleof the knowledge game. At itsheight, its spending on R&Droughly equalled one-tenth of allcorporate expenditure on R&D inthe US. Its network of researchlaboratories had propelled it to ashare of between 65 and 70 percent of the world’s computer

market (excluding communistcountries).

But while the costs of doingR&D continued to rise, the returnsfrom it began to drop. R&D costsin the 1950s were already threetimes what they were in the 1940s,but by the 1960s and 1970s, therate of chemical innovation had hita plateau. In the US, the number ofnew chemical entities introducedto the market fell from 233 in1957–1961 to 76 in 1967–1971.Despite spending more, DuPont,for one, had fewer and fewercommercial products to showfor it.

The pharmaceutical industryalso faced increasing R&D costs.The rate of discovery of newdrugs based on the synthesis ofchemical compounds haddeclined considerably.

So DuPont and other keychemical and pharmeceuticalplayers took a strategic decisionto enter the life sciences busi-ness. Perhaps biology mightdeliver the kinds of profits in thenew millennium that chemicalshad in the first two-thirds of the20th century.

But before this shift could bemade, intellectual propertyprotection for biological inven-tions would have to be much,much stronger. The knowledgegame would have to acquiremuch tougher rules about whowas to own the source of profits(see Box, p.19).

Another strategy for the bigcorporations was to do less basicresearch themselves and to relyon smaller companies anduniversities instead. This re-quired the integration of univer-sities into the knowledge game.They would, in effect, become thelarge-scale laboratories that thebig corporate players needed inthe knowledge economy (seeBox, pp.26-27).

UK equivalents but the price is about one-tenth to one-twentiethof the UK price. Any argument about research anddevelopment costs can hardly apply to such humble drugs asparacetamol.”29

Developing countries had acquired skills that threatened those at thetop of an international hierarchy of pharmaceutical production – theUS, Japan, Germany and the UK. They were raising issues that noglobal knowledge cartel wanted aired.

29. Hill, D.J., “Letters to the Editor”, TheIndependent, 17 December 1998, p.10.

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Changing Places For Deciding Rules

Underneath the “development” ideology of intellectual property lies anagenda of underdevelopment. It is all about protecting the knowledgeand skills of the leaders of the pack. Leaders of the various Northernknowledge-based industries wanted to close the gaps in the patent sys-tem when it came to the global control of knowledge, so that they couldcontinue to accrue the power necessary to discipline markets and states.They wanted to change the rules of the knowledge game.

They also wanted to change the forum in which the rules weredebated and decided upon. The rules of the international patents re-gime revolved around the Paris Convention of 1883, which had formedthe International Union for the Protection of Industrial Property andwhich was administered by a UN organisation, the World IntellectualProperty Organisation (WIPO). For much of its history, Southern coun-tries had seen little benefit in joining the patents’ regime. But by themid-1980s, two-thirds of the members of the Convention were South-ern countries,30 largely as a result of WIPO’s “persuasion and advice”.31

These countries began to push for the Paris Convention’s reform andfor access to the technology of multinationals on favourable terms. TheParis Union, once a quiet club devoted to the elevation of the interna-tional patent regime, became a battleground. The fiercest debates tookplace over the revision of compulsory licensing (authorisation by a gov-ernment for someone to use a patented invention without the consentof the patent holder) of patented technology.32 For the US, developingcountry proposals for exclusive compulsory licensing amounted to littlemore than expropriation of US intellectual property rights.

The revision of the Paris Convention began in February 1980. At itsfirst meeting, the US hoped to obtain higher standards of protection, butinstead had to defend existing Paris Convention standards. Moreover,in the words of one commentator, the US at this and subsequent revi-sion conferences in 1981 and 1982 found itself “alone and almost iso-lated”.33 The Paris Convention’s change in membership meant that itsreform could no longer be dictated by the developed countries.

The US pharmaceutical and other industries concluded that WIPOwas no longer a forum that could deliver the standards it wanted. Tosecure a favourable investment regime for multinationals with globalproduction needs – which for knowledge industries translated into glo-bally-enforceable intellectual property standards that could protect theirknowledge in whichever jurisdiction a company went – the “locus”where international intellectual property issues were debated, as onePfizer employee later said, had to be shifted away from WIPO. Whenthe US began to push in the early 1980s for a multilateral trade roundthat included intellectual property, it was the clearest possible signalthat it was abandoning WIPO as a forum.34 The new locus turned outto be the international trade organisation, the General Agreement onTariffs and Trade (GATT) and its successor, the World Trade Organi-sation (WTO).

“Stealing from the Mind”

Bringing about change in the rules governing patents was not just amatter of snapping corporate fingers, however. Other business leaderswould have to be convinced, a corporate consensus would have to bebuilt, policy analysts would have to lend legitimacy to the proposed new

30. From 1963 to 1968, membership of theParis Convention increased from 51 to 79.See Bodenhausen, G. H. C., Guide to theApplication of the Paris Convention forthe Protection of Industrial Property, BIRPI,Geneva, 1968, p.7.

31. WIPO, 1993 interview with the authors.32. Dealt with in Article 5A of the Paris Con-

vention. See Mills, D. M., “Patents andthe Exploitation of Technology Transferredto Developing Countries (in ParticularThose of Africa)”, Industrial Property, Vol.24, 1985, pp.120, 122.

33. Kunz-Hallstein, H. P., “The United StatesProposal for a GATT Agreement on Intel-lectual Property and the Paris Conventionfor the Protection of Industrial Property”,Vanderbilt Journal of Transnational Law,Vol. 22, 1989, p.265. The revision ended in deadlock in June1985 and was never completed. WIPO also tended to adopt a “live andlet live” attitude towards intellectual prop-erty, to contain rather than resolve conflictby trying to achieve consensus. But therewas little hope of achieving consensus be-tween the numerous states of the South,which were intellectual property import-ers, and a few wealthy states, which wereintellectual property exporters, when South-ern countries were claiming that much tech-nological knowledge was in fact the com-mon heritage of humankind.

34. After the Second World War, the US hadpursued a policy of international forum-shifting to secure the results it wanted invarious international regimes (seeBraithwaite, J. and Drahos, P., GlobalBusiness Regulation, Cambridge Univer-sity Press, Cambridge, 2000, Chapter 24).In 1984, for instance, the US withdrewfrom UNESCO. UNESCO had been usefulto the US in sponsoring the developmentof the Universal Copyright Convention(UCC) in the 1940s (Sandison, H., “TheBerne Convention and the Universal Copy-right Convention: The American Experi-ence”, Columbia-VLA Journal Of Law &Arts, Vol. 11, 1986, pp.89, 97). UNESCOhad become the UCC’s secretariat whenthe UCC came into effect in September1955. But Southern countries began to useUNESCO as a forum to call for a “NewWorld Information Order”, linking copy-right to education and other human rights,a perspective with which the US was notparticularly comfortable. By the 1980s, the1886 Berne Convention for the Protectionof Literary and Artistic Works had becomethe main game for US copyright interests.

8



Intellectual Property HistoryIntellectual Property HistoryIntellectual Property HistoryIntellectual Property HistoryIntellectual Property HistoryFor most of their history,intellectual property rights werenot seen as property rights, butrather as monopoly privileges ortools of censorship created bystates for their own purposes.

The source of patentsoriginally lay in the right ofmonarchs to grant exclusivetrade privileges to chosensubjects. At first, this power wasused with some restraint andmost probably with the publicgood in mind. In 14th centuryEngland, for instance, “Letters ofProtection” were issued to skilledforeign craftsmen to persuadethem to come and help developEnglish industry. Protectionagainst imports was part of theincentive being offered. Lettersof protection became “letterspatent” (the term simply meansopen letters). Over the next fewcenturies, letters patentproliferated so much that hardlyany part of English commerciallife was unaffected by them.

Over time, monarchs beganto reward courtiers with patentsnot just for inventions, but alsoto give them the sole right topractise a particular trade, tosupervise an industry like inns

and alehouses, or to avoid certainimport or export restrictions.Queen Elizabeth I took the grantingof these patents to new heights inthe late 16th century. Aparliamentary speech in 1601revealed that currants, iron,powder, ashes, vinegar, brushes,pots and oil, along with many othereveryday items, were the subject ofpatents.

When patents are easy to getand apply to anything andeverything, prices go up. Themonopolist is rarely an altruist. Foreveryone else, trying to get intobusiness and doing businessbecomes very difficult. Over time,the ownership of patents becomesmore concentrated as they aretraded and bought up by thewealthy.

ProtectionismProtectionismProtectionismProtectionismProtectionismThe proliferation of monopolies inElizabethan England interfered intrade and commerce to such anextent that successive Englishparliaments worked to eliminatethem. In the 19th century, statesrealised that patent systems couldbe used to cloak protectionist

strategies and thus attacked thepatent system on the groundsthat its operation was contraryto free trade.

Today, this history of freetrade opposition to intellectualproperty rights has beenconveniently elided fromdebates. Monopoly rights, theexercise of which nationalparliaments struggled over thecenturies to bring underdemocratic control, have beenslipped into a world tradeagreement. A TRIPS agreementthat would have been rejected inanother era as a global charterfor monopolists has come to bethought of as consistent withfree trade and competition.Indeed, an important rhetoricalvictory that TRIPS represents isthe belief that the absence ofintellectual property protectionis an impediment to free trade.In the corridors of power thatmatter to the global economy,the World Trade Organisationand the International MonetaryFund (IMF), bureaucrats nowparticipate in a trade “thinkspeak” in which global monopolyprivileges are entirely consistentwith free trade.

direction, and finally the whole thing had to be politically saleable to theUS government. US pharmaceutical giant Pfizer and other knowledgeindustries had to enter “the world of ideas”35 at different levels bothwithin and outside government.

Pfizer had been instrumental in coming up with the radical idea oflinking investment and intellectual property to the trade regime, an ideathat would lead the company into a major national and ultimately globallobbying campaign. The Chair of Pfizer from 1972 to 1992 and CEOfrom 1972 to 1991, Edmund T Pratt Jr.,36 began delivering speeches atbusiness fora outlining the links between trade, intellectual propertyand investment. Other Pfizer senior executives began to push the intel-lectual property issue within national and international trade associa-tions.37 Like the beat of a tom-tom, the message about intellectual prop-erty went out along the business networks to chambers of commerce,business councils, business committees, trade associations and peakbusiness bodies. Progressively, Pfizer executives who occupied keypositions in strategic business organisations were able to enrol theirsupport for a trade-based approach to intellectual property. With everysuch enrolment, the business power behind the case for such an ap-proach became harder and harder for governments to resist.

Part of the domestic strategy to garner support was to talk about“piracy”. On 9 July 1982, an op-ed piece bearing the title “StealingFrom The Mind” was published in the New York Times. Appearing

35. 1994 interview with the authors.36. Those who worked with Pratt described

his intellectual, business and political lead-ership on the issue of trade, investmentand intellectual property as “crucial”. Also involved at Pfizer in the campaignwere Ted Littlejohn (responsible for muchof the detail and intellectual content), GerryLaubach and Michael Hodin. Hodin hadbeen hired by Pratt to work on publicpolicy issues. Under the direction of thesemen, Pfizer’s public relations departmentbecame a public affairs division. Publicrelations was about image, about obtain-ing favourable publicity, giving informa-tion about product releases and so on.Public affairs was about influencing thepublic policy agenda and ultimately se-curing the right regulatory outcomes.

37. See Santoro, M.A., op. cit. 22, p.8.

9


under the name of Barry MacTaggart, then Chair and President ofPfizer International, its central charge was that US knowledge andinventions were being stolen. The culprits were other governments:Brazil, Canada, Mexico, India, Taiwan, South Korea, Italy and Spain.These governments, it was argued, designed laws allowing for US in-ventions to be “legally” taken.38

Although the term “piracy” has rarely been used with much legalprecision, it is associated in the popular mind with a history of desper-ate outlawry and savagery and has thus proved to be a particularlyeffective rhetorical tool. During the 1970s, 1980s and 1990s, US corpo-rations accused most Asian countries of “intellectual property piracy”.39

The strategy proved very effective because it drew on prejudices andanxieties within the US about the future economic security of the US ina world where successful Asian “tiger” economies were on the prowl.40

Pfizer also began to extend its “tentacles”, to quote one companyinterviewee, by contributing financially to influential conservative USthink tanks like the American Enterprise Institute, the Hoover Institu-tion and the Heritage Foundation, to which President Ronald Reaganwas known to listen, and even think tanks closer to the centre or evenslightly to the left of American politics, such as the Brookings Institu-tion. All of these groups develop ideas and theories as part of the publicpolicy process. As Pfizer funded specific projects or supported confer-ences, economic reports from these groups turned the intellectual prop-erty story from one of moral transgression into the loss of markets andprofit.

Most of the think tanks were committed to principles of free trade,but intellectual property has a protectionist history and monopoly na-ture (see Box, p.8). Pfizer thus had to relocate the intellectual propertyissue within a frame of fundamental liberal values – the individual rightof property ownership; the right to a reward for labour; fairness – andappeals to pride in US high-technology achievements and US nationalinterest. By the 1980s, high technology had become a symbol of thenation’s economic and industrial strength.

Pfizer and others portrayed US companies as embattled innovatorsfacing an uncertain future in a world where rapacious Southern coun-tries were ignoring the fundamental rules of business fair play. Its mes-sage was that governments of other countries were stealing from theminds of individual US inventors by denying them patent protection. Bythe time evidence came out that pharmaceutical companies were stealingfrom the collective knowledge of indigenous peoples – the collectivemind of the non-Western Other – the ink had long dried on TRIPS.Pfizer had managed to create its own turf on the intellectual propertyissue, and as a Pfizer employee pointed out, that is fundamental towinning a campaign on any major issue.

Getting US Government On Board

Within US government circles, intellectual property interests soon founda receptive audience for their message that stronger property rightswere desperately needed to protect American ideas and industry fromthievery.

After the Second World War, the US had clearly emerged as theworld’s most powerful economy. The US dollar became the currencyof world trade. The new global financial institutions, the InternationalMonetary Fund (IMF) and the World Bank, created at an international

38. The op-ed piece also criticised the WorldIntellectual Property Organisation (WIPO)for “trying to grab high technology inven-tions for underdeveloped countries” andcontemplating treaty revisions that would“confer international legitimacy on the ab-rogation of patents”. The support the op-ed piece garnered suggested to Pfizer thatmoving standard-setting power over intel-lectual property away from WIPO wouldhave advocates in US policy quarters.

39. Whether piracy of any kind has taken placedepends on an important legal principlethat goes to the heart of intellectual prop-erty rights. The principle of territorialitysimply says that intellectual property rightsoperate in the territory of the sovereignthat created them in the first place. USintellectual property rights simply did notapply in other countries. In any case, itwas far from clear that what Asian coun-tries were doing was piracy, since intellec-tual property rights were for most of theirhistory not seen as property rights, butrather as monopoly privileges created bystates for their own purposes (see Box, p.8).

40. More recently, and somewhat ironically,some of these same US corporations havebeen on the receiving end of this strategy,as indigenous people have accused themof bio-piracy: the theft of traditionalmedicines and knowledge.

Corporations couldnot simply snap

their fingers tochange patent rules.

They neededto convince

business leaders,policy analysts and

governmentsto make intellectualproperty rights partof the trade regime.

10



meeting in Bretton Woods in New Hampshire in 1944, had been lo-cated in Washington, DC. The US had become a credit provider toEurope and Japan. US banks progressively expanded into overseasmarkets creating the era of multinational banking. US companies domi-nated the lists of the world’s largest industrial enterprises. In each ofthe years 1962, 1967, 1972 and 1978, only two non-US companies ap-peared on the list of the top ten largest industrial enterprises in theworld.41

But possession of the world’s largest companies and the world’sbiggest domestic market did not bring peace of mind. In the 1970s andearly 1980s, a policy discourse developed of a United States in decline.Loss of competitiveness became an issue. Other data began to take onominous significance. The massive share of world trade enjoyed byNorthern countries in the 1960s began to lessen in the 1970s. Countrieslike India and Brazil began to show leadership potential, albeit of aregional kind. New economic competitors emerged. The public imagesthe US constructed of these rivals were neither friendly nor comfort-ing. “The gang of four”, “the Asian tigers”, “the dragon economies”could hardly do other than make the US uneasy about its share ofworld markets.

Japanese manufacturing triumphs began to be seen as a portent ofUS deindustrialisation. Public myths began to be constructed in the USabout this success. American ideas, American know-how were beingstolen by the Japanese, it was widely believed.42 The trade surplusJapan enjoyed with the US gave protectionism within the US a strongpolitical foothold.43 “Japan bashing”, even crude xenophobia, occurred,as when the mass media reported burly American auto workers smash-ing a Japanese car to pieces.

Worsening trade deficits and loss of jobs in manufacturing made iteasier to believe in the possibility that the US might, sooner rather thanlater, become a felled economic giant. The trade deficit had gone fromUS$31 billion in 1980 to US$170 billion in 1987.44 During this time, themanufacturing trade balance had swung from a US$27 billion surplusto a US$138 billion deficit. The US had financed the deficit by borrow-ing from foreign creditors (such as Japan), thereby becoming the world’slargest debtor nation. Somewhere between two and four million Ameri-cans had lost jobs in this seven-year period.45

In a climate of insecurity about US political and economic future, anationalistic story that better intellectual property protection meant morejobs for Americans and would restore the US to a positive trade bal-ance with the world made compelling listening. In fact, US economichegemony was not really under threat. In 1978, there was one Japa-nese company, Toyota, in the top 20 companies in the world – and itwas 20th. But the truth of the nationalistic story hardly mattered.

Power Through CommitteesIt is one thing to have the idea of linking investment and intellectualproperty to the trade regime and entirely another to turn this idea into anegotiating objective and then an international legal reality. Despiteexpressions of support from government circles, the US corporate elitecould not simply demand that the US government globalise intellectualproperty rules to allow them to form new and better global knowledgecartels. They had to persuade policymakers that intellectual propertyenforcement was the single most important issue facing the US economy,

41. Royal Dutch Shell and Unilever for eachof those years except 1978 when NationalIranian Oil replaced Unilever. See Dun-ning, J.H., and Pearce, R.D., op. cit. 17,p.148.

42. In many cases, however, the Japanese hadacquired US technology legitimately.Transistor technology, for example, hadbeen patented by AT&T, but under USantitrust law (intended to prevent cartelsand monopolies), the company was re-quired to issue patent licences to quali-fied manufacturers. The Japanese com-pany, Tokyo Tsushin Kogyo KabushikiKasha (eventually to be known to theworld as Sony), was granted a licence byAT&T. (Barnet, R. J. and Cavanagh, J.,Global Dreams, Simon and Schuster,New York, 1994, pp.46–47).

43. At the same time, Japan’s trade surplushelped the US economy by helping tokeep down world interest rates, as wellas enabling the Japanese to become lend-ers on world capital markets to countrieslike the US which were becoming netborrowers of capital. See Corden, W.M.,“The Revival of Protectionism in De-veloped Countries”, in Salvatore, D.,(ed.), The New Protectionist Threat ToWorld Welfare, North-Holland, NewYork, 1987, pp.45, 61–64.

44. See Senator Max Baucus, “A New TradeStrategy: The Case For Bilateral Agree-ments”, Cornell International Law Jour-nal, Vol .22, 1989, p.1, fn.4.

45. Ibid, p.1.

Better intellectualproperty protection,it was promised,would improve theUS’s trade position.

11


so important that the US government would stake the outcome of theentire Uruguay Round of Multilateral Trade Negotiations46 on a dealfor intellectual property. They had to persuade them to use US tradepower against not only Asian countries that were labelled pirates, butalso European states like Italy, Spain, Greece and Portugal. Most na-tions in one way or another were transgressors when it came to USstandards of intellectual property.

Getting policymakers to go this far wasn’t going to be easy. Therewere lots of other issues clamouring for attention during the 1970s andearly 1980s: the 1972 breakdown of the Bretton Woods system of fixedexchange rates and the consequent problems of international monetaryadjustment, OPEC and the oil crisis, the debt crisis and possible col-lapse of the world’s banking system, to mention a few.

Real power in the modern world, however, comes from sitting oncommittees that filter out other interested decision-makers or partiesfrom key decisions. In such committees, power becomes concentratedin the hands of the few. Its exercise is democratically legitimated bythe symbolic links the committee retains with the many that are ex-cluded from the real decision-making.

The Advisory Committee on Trade Negotiations (ACTN) was justsuch a committee. It had been created in 1974 by Congress under UStrade law as part of a private sector advisory committee system, thepurpose of which was to “ensure that US trade policy and trade nego-tiation objectives adequately reflect US commercial and economic in-terests”.47 ACTN existed at the apex of this system. Under its charter,its membership of no more than 45 had to be drawn from a range ofsectors including labour, industry, agriculture, small business, serviceindustries, retailers and consumer interests.48 During the 1980s, repre-sentatives from the most senior levels of big business within the USwere appointed by the President to serve on the committee.

The committee was a purely advisory one but extremely influentialbecause it had direct access to the US Trade Representative. Its dutywas to advise him or her on US trade policy and negotiating objectivesin the light of national interests. It was a direct line of communicationfrom US business to the bureaucratic centre of trade policy. Out of thisbusiness crucible came the trade-based strategy on intellectual prop-erty. As the Uruguay Round unfolded, ACTN became one of the keyportals of influence in developing the US international stance on intel-lectual property.

Pfizer’s Chair and CEO Edmund Pratt, with the assistance of othersenior executives within Pfizer, had begun to put himself forward withinbusiness circles as someone who could develop US business thinkingabout trade and economic policy. He was appointed a member of ACTNin 1979 by President Jimmy Carter, and became its chair in 1981. As apharmaceutical company, Pfizer understood better than most the im-portance of public policy to the operations of business. The drugs thatit sold in the US depended on regulatory approval from the Food andDrug Administration; its growth depended on keeping anti-trust enforce-ment against its monopolistic practices at bay. The sale of Pfizer’sproducts, both in the US and internationally, was thus intimately linkedto government decisions and government regulation. Taking a leader-ship role in influencing that regulation was something to which the com-pany was culturally attuned by virtue of the products it sold.

With Pratt at the helm, ACTN began to develop a sweeping tradeand investment agenda.49 It established a task force on intellectual prop-erty, headed by John Opel, then chair of IBM and a key member of

46. The Uruguay Round of Multilateral TradeNegotiations (1986-1994) was the seventh(and most comprehensive) major renego-tiation session of the 1947 General Agree-ment on Tarrifs and Trade (GATT). Previ-ous sessions are known as the Conferenceof Annecy, France (1949); the Conferenceof Torquay, UK (1950); the Conference ofGeneva (1956); the Dillon Round (1962);the Kennedy Round (1964-67); and theTokyo Round (1973-77).

47. See Private Sector Advisory CommitteeSystem, USTR, 1994 Annual Report,www.ustr.gov/reports.

48. See Charter of the Advisory Committee forTrade Policy and Negotiations.

49. During Pratt’s six years of chairmanship,ACTN worked closely with William E.Brock III, the USTR from 1981 to 1985,and Clayton K. Yeutter, the USTR from1985 to 1989, to shape the services, in-vestment and intellectual property tradeagenda of the US.

Real power in themodern world

comes from sittingon committees thatexclude others from

decision-making.

12



ACTN. Jacques Gorlin also became a consultant to ACTN. Gorlin’spaper, “A Trade-Based Approach for the International Copyright Pro-tection for Computer Software”,50 which was produced for IBM, hadsynthesised the key strategic ideas on bringing intellectual property intothe GATT. Over time, the recommendations of the task force becamethe basis of US strategy and action on intellectual property.51 The taskforce developed a trade-based intellectual property strategy consistingof three parts:

• Multilateralism. To develop in the context of the upcoming GATTround an intellectual property code containing good standards of in-tellectual property protection, which was binding on all parties to thenegotiations and was tied to a dispute settlement mechanism.

• Bilateralism. To begin bilateral negotiations with countries that didnot protect US intellectual property sufficiently with a view to obtain-ing agreements from those countries for better protection.

• Unilateralism. If necessary, to make use of the fact that many “pi-rate” countries traded in the US market to threaten or actually im-pose trade sanctions on those countries if they did not enact andenforce higher standards of intellectual property protection.52

Obtaining a strong multilateral agreement on intellectual property wasa long-term strategy, while the use of bilateral negotiations and unilat-eral trade tools could provide an interim strategy for improving intellec-tual property protection abroad. The US negotiating position had tobecome, “no intellectual property, no trade round” – and at the bilaterallevel, the US had to be prepared to wield the stick of trade sanctions.

The Bilaterals: Carrots and SticksDuring the 1980s, intellectual property was slowly but surely placed atthe heart of the legislative provisions that guarded US commerce. Justtwo years after Pfizer’s “Stealing from the Mind” op-ed article, the linkbetween trade and intellectual property found its way into the US Tradeand Tariff Act of 1984.53 Beneath the legal language, two simple ap-proaches were at work to globalise the standards of intellectual prop-erty that certain US industries wanted: first, the carrot and the stick,and second, the big stick.

A system known as the Generalised System of Preferences (GSP)allowed the US to develop the carrot and stick approach.54 Under thissystem, designated countries were allowed to export eligible productsinto the US duty-free.55 When the US GSP programme began in 1976,authorised by the US Trade Act, protection of intellectual property wasnot a criterion of eligibility. By 1984, roughly 3,000 products from 140Southern countries and territories were part of the scheme.56 Thesecountries were more dependent on being able to trade in the US thanthe US was on maintaining trade relations with them.57

The GSP programme had to be renewed periodically by Congress.In 1984, it was due to expire in one year. The intellectual property lobbynoticed that, in the words of one copyright lobbyist, “major pirates in SEAsia were dependent on GSP”.58 Argentina, Brazil, Egypt, India, Indo-nesia, Singapore, South Korea, the Philippines, Taiwan, Hong Kongand Thailand were among those on GSP benefits. After lobbying by

50. Unpublished, but dated 1 September 1985.51. The recommendations of ACTN are con-

tained in some unpublished papers: “Sum-mary of the Recommendations of the Ad-visory Committee on Trade Negotia-tions”, Task Force on Intellectual Prop-erty’, undated, 11 pages; “Summary ofthe Phase II: Recommendations of theTask Force on Intellectual Property to theAdvisory Committee for Trade Negotia-tions”, March 1986, 8 pages.

52. In Phase 1 of its work programme, theTask Force also recommended that:• work on a counterfeiting code continue;• a broader intellectual property code withminimum standards and dispute settle-ment procedures be developed;• the hostility of certain Southern coun-tries be taken into account and considera-tion given to negotiations of an intellec-tual property code among like-mindedcountries;• a rapprochement be sought between theWIPO and GATT secretariats;• the USTR establish a separate policycommittee on intellectual property.In March 1986, the Task Force’s Phase 2recommended:• an overall US intellectual property strat-egy endorsed by the President andcabinet;• a massive consensus-building exercise,especially with the US’s major tradingpartners, but expanded to include South-ern countries;• a massive capacity-building exercisefunded by both government and the pri-vate sector to bring Southern country offi-cials and members of local legal profes-sions into the Northern intellectual prop-erty community;• the use not only of Section 301 and theGeneralised System of Preferences to linkaccess to the US market to improved in-tellectual property protection but also ofUS votes at the IMF and the World Bank,for instance, when countries with poorintellectual property requested access tofunds;• becoming a member of the Berne Con-vention to give the US a stronger voice inWIPO;• continued support for WIPO to take ad-vantage of its technical expertise to de-velop intellectual property regimes andits funding for technical assistance pro-grammes that could spread the institutionof intellectual property to developing coun-tries.

53. The 1984 Act amended the Trade Act 1974.54. Title V of the Trade Act 1974.55. Ironically, the idea for a Generalised Sys-

tem of Preferences had been developed bythe UN Conference on Trade and Devel-opment (UNCTAD) a few decades earlier.As one of its Indian architects explainedin a 1995 interview with the authors, itwas an attempt to create real bonds oftrade between Northern and Southern coun-tries.

56. See BNA’s Patent, Trademark & Copy-right Journal, Vol. 27, 9 February 1984,p.358.

57. Sell, S.K., “Intellectual Property Protec-tion and Antitrust in the DevelopingWorld: Crisis, Coercion, and Choice”, In-ternational Organization, Vol.49, 1995,pp.315, 322.

58. 1993 interview with the authors.

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business organisations such as the Recording Industry Association ofAmerica, the Association of American Publishers and the InternationalAnticounterfeiting Coalition, the 1984 Trade and Tariff Act brought in-tellectual property into the GSP programme. The US President couldnow look at a country’s conduct on intellectual property in decidingwhether it would receive or continue to receive GSP benefits.

The whole point of the GSP system was to improve Southern coun-tries’ access to the closed and subsidised agricultural markets of theNorth. In November 1985, some of their representatives suggestedthat the US was using its GSP system in a way that was “quite alien tothe spirit and purpose” of the system.59 But at the same time, at leastsome of them were forced to begin thinking about a change in courseon the intellectual property issue.

Ironically, the intellectual property lobby had to push hard for therenewal of the GSP programme – more old-fashioned protectionist el-ements wanted it removed.60 But if old protectionism was about keep-ing your rival’s goods out of your domestic market, new protectionismin the knowledge economy was about keeping your rival out of worldmarkets by securing a monopoly privilege over an intangible asset, andpersuading your rival to recognise your “right” to the asset. Opponentsof the GSP also argued that it benefited newly industrialising econo-mies like Singapore most although they needed it least. But these wereprecisely the countries the intellectual property lobby most wanted toinfluence.61

Singapore was given a favourable GSP package in 1987 because ofits good efforts in copyright especially, while Mexico (1987), Thailand(1989) and India (1992) came in for GSP losses (US$50 million, US$165million and US$80 million respectively) because they failed to meetcertain standards of intellectual property protection.

The Bilaterals: Big Stick Section 301The big stick that the US gave itself was to amend Section 301 of theTrade Act in 1984 to give the US President the authority to withdrawtrade benefits from a country or impose duties on its goods if it failed toprovide “adequate and effective” protection for US intellectual prop-erty. The US Trade Representative (USTR) was also given the powerto “self-initiate” a 301 action against a foreign country. Moreover, any“interested person” could file a petition asking the USTR to launch aninvestigation under 301.62 (Petitions could also be filed to deny GSPbenefits to a country.)

In 1988, “Special 301” was added to the existing procedures,63 re-quiring the USTR to identify within six to nine months those countriesthat denied “adequate and effective protection” of intellectual propertyrights or that denied “fair and equitable market access” to US intellec-tual property owners. Those countries were then put in one of threecategories: watch list, priority watch list, and priority foreign country.To put a country on the watch list was to send it a message about itsunsatisfactory intellectual property practices. If it did nothing to shutdown its piracy, it would be upgraded to the priority watch list. TheUSTR typically formed a set of precise objectives for the relevant coun-try to work towards. Saudi Arabia, for example, was in 1993 shiftedfrom the watch list onto the priority watch list because it was not amember of the Berne Convention dealing with copyright and had apoorly drafted and badly enforced copyright law. Countries with the

59. See Report of Committee on Trade andDevelopment (L/5913) in Basic Instrumentsand Selected Documents, General Agree-ment on Tariffs and Trade, 32nd Supple-ment (1984–1985), pp.21, 26.

60. 1993 interview with the authors.61. The US and EC had little interest in influ-

encing the poorest countries. As one ECofficial said in a 1993 interview with theauthors, “With Bangladesh, you have noth-ing to win and nothing to lose. They haveno capacity to copy with top quality. Soyou disregard them in the debate.” If a country enacted domestic intellectualproperty laws recognising the rights of USintellectual property owners, a US com-pany had three options:1. To allow foreign competitors to use itsintellectual property under licence, earningthe company a royalty income.2. To exploit its intellectual property inthe foreign market itself, earning export dol-lars for the US.3. To relocate its production facilities tothe relevant foreign market because of morefavourable labour and tax conditions, know-ing that its intellectual property could notbe purloined by local rivals. It could thenexport goods with an intellectual propertycontent back into the US market. This woulddo little for US jobs or US tax revenuesbecause the multinationals could alwaysplay complex transfer pricing games withtheir income. Because the value of intellec-tual property, like copyright in new soft-ware, was hard to quantify, it could be soldinto a tax haven at a low price and sold onat a high price, thus shifting taxable profitsto the haven. The intangible nature of in-tellectual property makes it difficult for taxauthorities to prove that a valuation iswrong. Global intellectual property becamea boon to global tax planners. In extollingthe virtues of globalised intellectual prop-erty protection for the US economy, how-ever, the intellectual property lobby drewlittle attention to this third option.

62. See 19 USC 2412. “Special 301” was anamendment made to Section 182 of theTrade Act of 1974 by the Omnibus Tradeand Competitiveness Act of 1988 and codi-fied as 19 USC. There were further amend-ments under the Uruguay Round Agree-ments Act of 1994.

63. 19 USC Sec. 2242.

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Guesstimating Losses to “Piracy”Guesstimating Losses to “Piracy”Guesstimating Losses to “Piracy”Guesstimating Losses to “Piracy”Guesstimating Losses to “Piracy”The International IntellectualProperty Alliance (IIPA),established in 1984 to representUS copyright industries, was apivotal actor in the bilateralstrategy developed for theglobalisation of intellectualproperty rights. It was then, andprobably remains, the singlemost powerful copyrightlobbying organization in theworld.

It represented some 1,500companies and “the leading edgeof the world’s high-technology,entertainment and publishingindustries” through its eightmember trade associations:

• the Association of AmericanPublishers;

• the American Film MarketingAssociation;

• Business Software Alliance;

• the Computer and BusinessEquipment ManufacturersAssociation;

• the Information TechnologyAssociation of America;

• the Motion PictureAssociation of America;

• the National MusicPublishers’ Association; and

• the Recording IndustryAssociation of America.

In commenting on the morelimited success of the US tradeunion movement in linkinglabour standards to trade andthe total failure of theenvironment movement tosecure a “green 301”, one IIPA

leader said: “The problem with thegreens is they’re not as united aswe are.”

Once intellectual propertyprotection had been incorportedinto the US trade system, IIPAworked with the US TradeRepresentative to supply evidencethat countries had egregiouspolicies and practices preventingthem from protecting USintellectual property and to attemptto work out the impact of their lawsand practices on US trade.

The USTR came to rely heavilyon figures on piracy provided by UScompanies, business organizationsand intellectual property lobbyistslike the IIPA. A February 1993 IIPApress release stated, for instance,that trade losses in 1992 in 28pirate countries identified by theIIPA exceeded US$4.6 billion. TheIIPA delivered economic analysis,such as its 1985 Piracy of USCopyrighted Works in Ten SelectedCountries, to make its politicalargument that the US should actagainst intellectual property piratesmore persuasive. Economic datawas also used to justify USTRthreats if problems were not fixed.

But how did the IIPA arrive atfigures of US trade losses in 1992like US$47 million in Bulgaria andUS$490 million in Russia?

The companies representedthrough the IIPA had offices all overthe world. Each year, the IIPA wouldput out the word among itsmembers – “where are you havingproblems?” – and companies wouldsend in their estimates of loss ofcorporate profits due to piracy.

The incentives to be generous

in their estimates were strong. Asmall estimate implied that acompany’s products were notworth pirating, and that the USTRwould put the pirate country fardown the queue of its priorities.Company employees inSouthern country markets alsofound it useful to blame piracyfor slow progress on sales. Andwho was going to contradict thefigures being put forward?

Estimates from far-flungcorporate offices were writteninto analyses and sent on to theUSTR, Congress, other relevantfederal governmentdepartments, the media andconsulting economists. Theybecame part of officialdom,making their way intogovernment reports. A processof constant recycling followedand after a while these estimatescame to be seen as hard facts –and the estimates grew everlarger. By 1985, Jacques Gorlinwas able to state in his seminalpaper written for IBM, “A Trade-based Approach for theInternational CopyrightProtection for ComputerSoftware”, that:

“Foreign pirating reducesthe revenues of the USsoftware industry by severalbillion dollars. One personalcomputer manufacturer hascommented that it has lost80 per cent of its potentialrevenue in Southeast Asia tocompetitors who haveillegally copied itsintellectual and industrialproperty.”

worst records on intellectual property were tagged “priority foreigncountries”, which led to a US investigation of their laws and practiceson intellectual property. These countries on trade’s death row had, inthe words of the legislation, “the most onerous or egregious acts, poli-cies, or practices” when it came to intellectual property. Countries inthis category lived with the possibility of trade retaliation by the US.

Special 301 was in effect a public law devoted to the service ofprivate corporate interests. It was the brainchild of just a small group ofpeople and business associations.64 Its purpose was to bring all theUnited States’ trading partners up to a standard of intellectual propertyprotection satisfactory to the US. A 1989 USTR Fact Sheet stated that“no foreign country currently meets every standard for adequate andeffective intellectual property protection”.65 Japanese and Europeancompanies rather than Brazilian and Indian ones offered US compa-nies the most serious competition.66

15


Global SurveillanceBetween 1985 and 1994 (the year in which TRIPS was signed as partof the Final Act of the Uruguay Round), the USTR brought Section 301actions dealing with intellectual property against Brazil (1985, 1987 and1993), Korea (1985), Argentina (1988), Thailand (1990 and 1991), In-dia (1991), China (1991 and 1994) and Taiwan (1992).67 Given that bythe end of 1994, 95 Section 301 actions had been initiated, the launch-ing of just 11 Section 301 actions related to intellectual property againstonly seven countries would seem to be a modest use of coercive eco-nomic power. Further, in only one of those cases (Brazil in 1987) werepunitive tariff measures actually imposed.

But Section 301 was much more about barking than about biting.Aggression brings costs. Trade thuggery rips apart the webs of dia-logue on which trade negotiators rely to manage their long-term nego-tiating objectives. Closing deals, the mark of every good negotiator,becomes much more difficult. Moreover, international trade relationson intellectual property were part of a larger set of international tradeissues that were in turn part of an even broader set of internationaleconomic, foreign and defence issues. Because intellectual propertywas nested in a much larger game of complex interdependency, theUSTR could not punish every single transgression of US intellectualproperty whenever the private sector demanded it.

In any case, because the aim of the 301 process was to prod devel-oping countries into accepting intellectual property rules that would al-low their economies to be integrated into a global knowledge economybeing led by US entrepreneurs, it was more important to give countriesthe feeling that their behaviour on intellectual property was under con-stant surveillance than to punish them. This drew them into an atmos-phere of threat. Rather than risk a full-blown dispute, countries wouldattempt to appease the USTR. Every year, as the deadline for theUSTR’s Special 301 review approached, countries would rush throughsome amendment to their intellectual property law, perhaps put a fewmore pirates in jail, increase penalties or take some other action todemonstrate their commitment to respecting US intellectual property.

Sovereign states, no matter how big or small, are now caught up ina global surveillance network comprising US companies, the AmericanChamber of Commerce, trade associations and US embassies. All gatherand report on the minutiae of social and legal practices that relate toUS intellectual property. Corporate America picks up the tab for Sec-tion 301 by providing the global surveillance network, the numbers forthe estimates on piracy (see Box, p.14), and much of the evaluationand analysis. The US state provides the legitimacy and the bureauc-racy that negotiates, threatens and, if necessary, enforces.

An Eye to Multilateral ActionThe bilateral 301 actions taken in the 1980s and early 1990s, however,were part of a coordinated strategy that had a multilateral dimension.The US:

“targeted its Section 301 action on forms of conduct that it wasseeking to control through the Uruguay Round, such as disre-spect for US intellectual property laws and restrictions on USforeign investment.”68

Korea, for instance, was making strides in the manufacture of semi-

64. Linking intellectual property to trade hadbeen the work of a few key individuals.Pfizer, led by Edmund Pratt, had played acentral role in pushing this linkage. Un-der Pratt’s leadership, the Advisory Com-mittee on Trade Negotiations (ACTN) hadargued that the US government shoulddevelop an integrated multilateral and bi-lateral intellectual property strategy basedon trade linkages. Jacques Gorlin, adviserto ACTN, headed the Intellectual Prop-erty Committee, the key lobbying bodyon the industrial side of intellectual prop-erty (see p. 17 and footnote 81). EricSmith, the Executive Director of the In-ternational Intellectual Property Alliance(see Box, p.14), had helped to put therelevant language into the Generalised Sys-tem of Preferences programme. Smith andanother copyright lawyer, JohnBaumgarten, had a significant influenceon the framing of the language of Section301 (1993 interview with the authors).

65. The Fact Sheet is reproduced in BNA’sPatent, Trademark & Copyright Journal,Vol 38, 1 June 1989, pp.131–134.

66. Indeed, Japan was the first to feel the heatof the 1984 amendment to 301. In 1984,US trade officials pressured Japan to dropits support for special laws for softwareprotection and use copyright law instead.Japan complied. Europe was needed as anally in the multilateral game, however.

67. Details of these cases are available fromthe table of initiated Section 301 cases onthe USTR’s website at www.ustr.gov.

68. Braithwaite, J. and Drahos, P., op. cit.34, p.180.

Old protectionismwas about keepingyour rival’s goods

out of yourdomestic market.

New protectionismwas about keeping

your rival out ofworld markets

by securingmonopoly rightsover intangibles.

16



conductor chips and showing every sign that its markets would remainbeyond the reach of US knowledge companies. Brazil had attemptedto turn the UN into a forum to re-examine critically the patent system.India had for 30 years led developing country resistance to Westernbusiness initiatives to ratchet up standards on intellectual property pro-tection. All three became the subject of 301 investigations.69

The 301 action against Brazil in 1987 illustrates how important USbilateralism was to the multilateral strategy. Brazil had chosen not tohave patent protection for pharmaceutical products to keep their pricesas low as possible. The US feared that Brazil might team up with Indiain the GATT negotiations to lead a developing country bloc against thepatenting of pharmaceuticals. But if Brazil could be pressured bilater-ally into adopting US-style patent laws on pharmaceuticals, then theywould have little reason to dig in its heels at the subsequent GATTnegotiations. They would only be agreeing multilaterally to patent stand-ards to which they had already agreed bilaterally. As one former UStrade negotiator put it: “Each bilateral brought that country much closerto [the] TRIPS Agreement, so accepting TRIPS was no big deal”.70

In addition to depriving India of a potential ally in multilateral tradingnegotiations, breaking Brazilian resistance on pharmaceutical patentswould send a message to other South American states, such as Argen-tina, Mexico and the Andean Pact countries, which had all decided notto protect pharmaceutical invention or to offer only weak protection.When, on 20 October 1988, the US President imposed US$39 millionof tariff increases on Brazilian paper products, non-benezoid drugs andconsumer electronic items being imported into the US market, Brazilwas faced with a cost-benefit calculation. The cost of not complyingwith US wishes was roughly equal to the death of their markets inthese sectors. At that time, almost one-quarter of Brazilian trade waswith the US. The gain of complying with US wishes was the removalof tariffs, the recovery of their markets and the end of further threatsunder the 301 process on this particular issue.71

Brazil did not cave in immediately. Cheap drugs were important toBrazilian people, particularly as the incidence of HIV/AIDS kept in-creasing. Brazil commenced a counter-action against the US, arguingthat the use of 301 was illegal under GATT. Some US trade expertshad reached a similar conclusion.72 Most 301 actions would have beenillegal under GATT.73 But the longer Brazil resisted, the less likely itwould be to get its US markets back – and it faced a long, uphill battletrying to get justice in a trade system that was more about power thanplaying by the rules. In 1990, the Brazilians began to draft the neces-sary legislation, and the tariffs were lifted in July of that year. In 1996 aUSTR Fact Sheet on Special 301 stated that Brazil had taken “theadmirable step of enacting a modern patent law”.74

Thus the amendments to the US Trade Act during the 1980s gavelegal backing to a bilateral process of ratcheting up standards of intel-lectual property protection in other countries. The process had a chanceof success only because other countries wanted to get their hands onthe vast US market. As long as these countries calculated that the costof complying with US demands on intellectual property was outweighedby the benefits of access to the US market, then the 301 process wouldbring positive results. But there was the danger of an over-reliance onbilateralism.75 Lead “pirates” like Singapore, Hong Kong, Korea andTaiwan were developing fast and would in time lose their GSP status, or itwould cease to matter to them.76 Pushing multilaterally for higher stand-ards of intellectual property protection had to be the long-term objective.

69. The USTR self-initiated a 301 action on 4November 1985 against Korea for its lackof effective protection for US intellectualproperty rights. This action produced thefirst significant bilateral agreement on in-tellectual property, signed on 28 August1986. The agreement was simply a deal inwhich US companies wanted money fortheir patents, protection for their trademarks, the pirates jailed and Koreans toopen their markets, culture and wallets toUS copyright and patent products. A formerUS negotiator said that it “became theblueprint for other agreements plus theGATT” (1994 interview with the authors).The USTR Clayton Yeutter described it assending a message to GATT members andthe rest of the world (cited in BNA’s Pat-ent, Trademark & Copyright Journal, 30October 1986, Vol. 32, p.736). Patents soon became a “number one pri-ority” for companies like Samsung. Theysaw that building up a portfolio of thou-sands of patents, many of them of doubtfulvalidity, and then springing them on com-petitors was going to be an important routeto profits in the future. Korean officialsnow describe intellectual property as “anissue of survival within the world system”(1995 interview with the authors). It is theprice that countries have to pay, largely toUS companies, to enter the world tradingsystem.

70. 1994 interview with the authors.71. US retaliation against Brazil also sent a

message about the level of the US privatesector’s commitment to the intellectualproperty cause. US multinationals, amongothers, had a strong presence in the Brazil-ian economy in the 1980s. By imposingtrade sanctions on a wide range of Brazil-ian goods, they risked hitting their ownBrazilian-made goods. The international-ised nature of production thus set somelimits on the use of 301: “When we retali-ate, we will find we have no clothes” (1994interview with the authors). In the case ofBrazil, however, the stakes were so highthat US business was prepared to bear thepossible costs.

72. See, for example, Hudec, R. E., “DisputeSettlement”, in Schott, J. J. (ed.), Com-pleting the Uruguay Round, Institute forInternational Economics, Washington, DC,1990, pp.180, 198. On the action againstBrazil, trade expert John H Jackson ob-served that the “United States action isclearly a violation of the GATT”. See “Re-marks of Professor John J Jackson” in“Symposium: Trade-Related Aspects of In-tellectual Property” in Vanderbilt Journalof Transnational Law, 1989, Vol. 22,pp.343, 346.

73. But as an IBM lawyer pointed out in a1994 interview with the authors, the UScould always block GATT dispute panelson the use of 301 “while the tariffs did thejob for you”.

74. In 1991, India also received a 301 actionon intellectual property. But as one Indiannegotiator explained, India hardly cared.No Indian politician could afford to be seenas part of a bilateral deal in which the In-dian market was handed over to a US phar-maceutical. India had a large domesticeconomy and so placed less weight on itstrade relationship with the US than didBrazil. It was the multilateral game thatbrought the Indian tiger down.

17


Yet the US continued to use the 301 system aggressively, even afterthe WTO dispute resolution system came into effect in 1995. Indeed, ifanything, 301 has acquired a more machine-like efficiency in the post-TRIPS period as the WTO dispute resolution system has come to betreated as part of the US 301 process. And the US continues bilaterallyto negotiate ever higher standards of intellectual property protection.Its 2000 Free Trade Agreement with Jordan, for example, containshigher standards of patent protection than are to be found in TRIPS.With all eyes upon the WTO and its current crisis of legitimacy,77 theUS has shifted the intellectual property game back to the bilaterals.

Persuading Europe and JapanFor the US, the key imperative of the Uruguay Round of MultilateralTrade Negotiations became a globally enforceable agreement on intel-lectual property. Industry leaders knew this would be a long processthat would have to start with putting intellectual property on the agendain the first place.

Leading Southern countries like India and Brazil, however, opposedUS efforts to deepen GATT involvement with intellectual property is-sues. Nor was there much support from the other “Quad” countries(the US, the European Community, Japan and Canada) to merge intel-lectual property and trade. “In 1986 the USTR said: ‘I’m convinced onintellectual property, but when I go to Quad meetings, they are underno pressure from their industry. Can you get it?’”78

Thus a massive US lobbying campaign got underway to build aninternational business coalition that would pressure other governmentsto negotiate an agreement on intellectual property in any forthcomingtrade round. US business had to convince business organisations inother Quad countries to pressure their governments – and that meantfirst convincing European and Japanese business that it was in theirinterests for intellectual property to become a priority in the next traderound.

In March 1986, Pratt and Opel created the Intellectual PropertyCommittee (IPC),79 an ad hoc coalition of 13 major US corporations,80

that described itself as “dedicated to the negotiation of a comprehen-sive agreement on intellectual property in the current GATT round ofmultilateral trade negotiations”.81 The IPC became another elite com-mittee that helped make the TRIPS agreement a reality.82

Europe was the IPC’s key target. Once Europe was on board, Ja-pan was likely to follow, or at least not raise significant opposition.CEOs of US companies belonging to the IPC contacted their counter-parts in Europe and Japan, urging them to put pressure on their govern-ments to support the inclusion of intellectual property in the next traderound. Small but very senior and powerful business networks wereactivated. The IPC sent delegations to Europe in June 1986 and Japanin August of that year to persuade businesses there that they too had aninterest in seeing the GATT become a vehicle of globally-enforceableintellectual property rights.

Previously, neither European and Japanese business had been giv-ing intellectual property the same priority as US corporations. Perhapswhat US CEOs were able to sell to their European and Japanese coun-terparts was a vision of a globally secure business future in which UScorporations would be dominant because they would do best out of theglobalisation of intellectual property standards, but in which European

75. See Gorlin, J.J., “A Trade-based Approachfor the International Copyright Protectionfor Computer Software”, unpublished, 1September 1985.

76. In January 1988, President Reagan an-nounced that Taiwan, Hong Kong, SouthKorea and Singapore would go off GSPbenefits in 1989. All four states, whichhad enacted intellectual property laws,expressed disappointment. The US stillhad the option, however, of pursuing a301 action against them (BNA’s Patent,Trademark & Copyright Journal, 11 Feb-ruary 1988, Vol. 35, p.282).

77. The “legitimacy” of the WTO was firstcalled into question publicly in December1999 in Seattle, USA, when the third min-isterial (the meeting of WTO memberstates that takes place every two years)collapsed because of protests outside themeeting room, Southern country resist-ance to Northern country proposals for newtrade negotiations, and unresolved tradeconflicts between the EU and the US, par-ticularly in agriculture. Since then, sev-eral issues have deepened the “crisis”: theWTO’s lack of transparency, both inter-nally and externally; the continued at-tempts of the WTO Secretariat and North-ern countries to launch a new trade rounddespite opposition from many Southerncountry members; the WTO’s judicial,legislative and executive powers to force acountry to change its laws and policies;and the dominance of trade and corporateinterests over health and safety, environ-ment, labour rights and national develop-ment. Many countries and public interestorganisations are now calling for funda-mental reform of the WTO process and theWTO rules. Besides Jordan, the US has also negoti-ated bilateral deals with Chile, Singaporeand Australia and is working on agree-ments with 13 other countries.

78. 1994 interview with the authors.79. See Pratt, E., “Intellectual Property Rights

and International Trade”, speech to USCouncil for International Business, avail-able at www.pfizer.com/pfizerinc/policy/forum.

80. Bristol-Myers, DuPont, FMC Corpora-tion, General Electric, General Motors,Hewlett-Packard, IBM, Johnson &Johnson, Merck, Monsanto, Pfizer,Rockwell International and Warner Com-munications.

81. IPC, “Accomplishments and Current Ac-tivities of the Intellectual Property Com-mittee”, 14 June 1988. The IPC’s consulting economist wasJacques Gorlin, whom IBM had engagedto write a paper outlining in detail how atrade-based approach might be developedfor the copyright protection of computersoftware. Gorlin had a background in tradeand had left his government position inautumn 1984 to write the strategy paperfor IBM. In the mid-1980s, Gorlin be-came a consultant on the intellectual prop-erty issue to the Advisory Committee onTrade Negotiations (ACTN) that advisedthe US Trade Representative. Many ofthe strategies that Gorlin had written aboutin his paper for IBM found their way intothe work programme of ACTN.

82. The US delegation that travelled to Puntadel Este in Uruguay in September 1986when the GATT negotiations began wasaccompanied by advisers from the IPC.

18



and Japanese corporations would remain powerful players and strate-gic partners. Such a future, US business may have argued, was prefer-able to one in which corporations from all these countries faced com-petition from increasingly efficient Southern manufacturers. It wouldmake sense, after all, for the most powerful corporations from theworld’s three strongest economies to collaborate on a project that wouldenable them to lock up the intangible assets of business in the newmillennium and allow them to use those assets to set up productionfacilities wherever it suited them best. The international character oftheir production along with their need to capture new markets was thebasis of the mutual interest needed for an alliance between them. Inthe final analysis, European and Japanese business probably reasonedthat even if the fruits of cooperation with US business might not beshared equally, they would all benefit from fencing off the orchard forthemselves. And there was also the enticing prospect for all multina-tionals that a GATT-based intellectual property regime would be en-forceable against states.

Yet European Commission83 bureaucrats were not at first keen ontrying to harmonise intellectual property standards via the trade re-gime. They already had experience trying to harmonise intellectual prop-erty standards in Europe. Some states, such as Germany and the UK,had been keen on higher standards while others, such as Spain andItaly, were not so inclined. The Commission thus favoured pressing onwith an initiative in the GATT on counterfeiting84 (a lot of luxury Euro-pean trade marks were the subject of counterfeiting) and making ageneral intellectual property code a much longer-term priority.

Moreover, business in Europe did not have so direct a role in thedevelopment of the trade agenda. European companies had access tothe European Commission, but tended to travel through a route of pro-cedural steps involving national business organisations, UNICE (theUnion of Industrial and Employers’ Confederations of Europe) and the113 Committee (the committee dealing with Community commercialpolicy matters85).

In Japan, business and the Ministry of International Trade and In-dustry (MITI) persistently sought consensus with each other, making itdifficult for Japanese business to start setting the agenda in intellectualproperty in the way US business did. Japanese corporations and MITIthus initially adopted a wait-and-see attitude towards the US initiativeto include intellectual property in the trade negotiations. In addition, thecase for global intellectual property standards was not clear to somesectors of Japanese industry.

Nonetheless, as a result of IPC’s consensus-building exercise car-ried out at the highest levels of senior corporate management, bothEuropean and Japanese industry did end up putting pressure on theirgovernments to put intellectual property on the trade agenda. From1986 onwards, US, European and Japanese companies set aside theirdifferences and worked together to make an intellectual property codein the GATT a reality.86

Getting Intellectual Property on theNegotiating TableAt the GATT Ministerial Conference in Punta del Este in Uruguay inSeptember 1986, a group of key Southern countries, as expected, re-sisted the US proposal on intellectual property rights. They argued that

83. The European Commission is the centralexecutive body of the European Union (andsince 1967 of the European Community),comprising 20 commissioners nominatedby member states and selected for a five-year term. The Commission negotiateson behalf of the EU in international tradenegotiations and develops proposals forthe initiation and content of such negotia-tions. Its mandate, however, comes fromthe Council of Ministers (comprising min-isters from each EU member government),which establishes the objectives for tradenegotiations and has the ultimate author-ity to implement their results.

84. By the time of the Uruguay Round, suc-cessive GATT negotiations had reducedtariffs on industrial production, but move-ment on other barriers to trade, such asnational rules on technical standards, sub-sidies and customs valuation, had beenmuch slower. States had begun to inchtheir way towards reducing these kinds ofbarriers by means of optional side codes.During the 1973-1979 Tokyo Round, theUS had pushed for a counterfeiting code todeal with cross-border movements of coun-terfeit goods, but, despite some supportfrom the EC, Japan and Canada, was notsuccessful. Developing countries arguedthat WIPO, the specialist UN organisa-tion for intellectual property, had primaryjurisdiction over intellectual propertymatters, not GATT. This failure led keyplayers in the private sector to think inmuch bigger terms about linking the tradeand intellectual property regimes.

85. Article 113 of the 1957 Treaty of Rome(which established the European Commu-nity) provided for a special committee toadvise the European Commission (see foot-note 83) as part of the legal framework fortrade policymaking. The 113 Committeecomprises civil servants from the memberstates and helps member states influenceEuropean trade policy. Formally, it has aconsultative role only, thus its delibera-tions are not published. In practice, theCommission tends to follow its advicebecause it reflects the wishes of nationalministers who ultimately have the powerto refuse to conclude any trade agreementnegotiated by the Commission. The 1997Treaty of Amsterdam amended Article 113– and renumbered it 133; thus the Com-mittee is now called the 133 Committee.

86. This was despite considerable differencesbetween US, European and Japanese busi-nesses. There was, for example, an openpatent war between US and Japanese cor-porations (Warshofsky, F., Patent Wars,John Wiley, Chichester, 1994). US com-panies such as Texas Instruments were ag-gressively pursuing their patent rightsagainst Japanese corporations in thecourts. For years, US corporations hadmade plain their frustrations with the slow-ness of the Japanese patent office (leadingthe US to place Japan on its 301 watchlist in 1989). Patents had become morestrategically important to large Japanesecompanies, who had learnt patent “flood-ing” practices from US companies, albeitlargely as a defensive measure. IBM domi-nated the computing industry whileMicrosoft’s march to dominance of the soft-ware industry was well under way. Fujitsuand Olivetti were simply not in the sameleague.

19


Re-engineering Patent LawRe-engineering Patent LawRe-engineering Patent LawRe-engineering Patent LawRe-engineering Patent LawIn the early 1970s, geneticengineering appeared to offersome multinationals the possibil-ity of an almost endless range ofproducts in the global markets ofagriculture, food, medicines,medical therapy and chemicals.

Genetic engineering break-throughs provided companieswith four broad patent targets:

• life forms (cells, micro-organisms, plants, animals);

• molecules and other elementsof life (proteins, amino acids);

• instructions for the “assem-bly” of those molecules (DNAsequences); and

• methods and processes forthe analysis and manipulationof DNA instructions andmolecules.

But patenting these targetspresented some hard problems.The targets were living, werediscoveries rather than inven-tions, and scientists rarely knewhow they could be used inproducts or processes.

Living?Living?Living?Living?Living?In 1980, the US Supreme Courtset a precedent in the Diamond vChakrabarty case when it uphelda patent granted on a geneticallyengineered, oil-digesting bacte-rium. The fact that the bacteriumwas living did not prevent it beingpatented. Similar decisions hadalready been reached in 1969 bythe Supreme Court of the FederalRepublic of Germany and by theAustralian Patent Office, but theUS decision had a catalysing andglobal effect on biotech patentingsimply because of the size of theUS market.

Plants and animals alsobecame the subjects of patents.Genetic engineering, arguedpatent applicants, resulted in newstructures not previously foundin nature. In 1987, the US PTO

announced that as a matter ofpatent policy “nonnaturally occur-ring nonhuman multicellular livingorganisms, including animals” werepatentable subject matter. Thefollowing year, two Harvard profes-sors were granted a patent on,among other things, a mouse intowhich activated human cancergenes had been inserted. It wasDuPont that ended up with theexclusive rights, however, becauseit had sponsored the research.

Inventive?Inventive?Inventive?Inventive?Inventive?The foundations of patent law hadbeen laid in an era of mechanicalinvention, when drawing a distinc-tion between invention and discov-ery was comparatively easy, forinstance, in the case of a steamengine.

But as companies in the 19thand 20th centuries moved to patentchemical compounds, the inven-tion/discovery distinction becamefuzzier. Drawing on the metaphorof engineering, one could liken thesynthesis of new compounds toinvention in mechanical engineer-ing. The use of the metaphorbecame more problematic inorganic chemistry, however, wherethe chemist finds useful moleculesthat exist in nature. In the case ofpatent claims over DNA instruc-tions and their correspondingproteins, the metaphor seems evenweaker. It is hard to claim anentitlement to a fragment of DNAthat has been in existence forthousands of years.

But chemical companies hadbeen rehearsing technical argu-ments about the patentability ofchemical inventions for almost onehundred years. They had arguedthat one could, through an act ofisolation and purification, trans-form a naturally existing productinto an invention. For the principleto apply, however, the courts ruledin 1958 that the invented producthad to be different in kind from the

naturally existing product.By the 1990s, this rider to

the principle was being largelyignored by patentees and patentoffices. Patent offices weregranting patents on DNA codes“purified” by the removal of“redundant” segments of code,even though the purified DNAcoded for the same protein asthe naturally occurring se-quence.

Useful?Useful?Useful?Useful?Useful?Before an invention can bepatented, it must be shown tobe useful. Applied strictly in thecase of DNA code, the require-ment of utility might defeatmany patent applications sincethe applicant often has little ideawhat the DNA segment’sfunction is and what product itmight yield.

In 1966, the US SupremeCourt stressed that the basicquid pro quo for the grant ofthe patent monopoly was aninvention possessing a specificand defined benefit to thepublic. If an inventor could notspecify a concrete and practicaluse for the invention and apatent was granted, the effect ofthe patent might be “to conferpower to block off whole areasof scientific development”.

The Supreme Court’sapproach, however, did notstick. During the 1990s, utilityturned out not to be a hurdle inbiotech filings with the US PTO.“You get utility if you can spellit,” said a US patent attorney in1999. Patents were granted onDNA sequences, the practicalutility of which the patent office,the inventor and the public hadvery little idea. Patents hadbecome hunting licences, thevery thing the Supreme Courthad said 30 or so years earlierthat they were not.

WIPO, not GATT, was the appropriate forum for the development ofintellectual property standards, and that the trade dimensions of intel-lectual property, because of its close connections to technology trans-fer and development, fell squarely within the trade and developmentremit of the UN Conference on Trade and Development (UNCTAD).

20



Intellectual Property Webs in BiotechnologyIntellectual Property Webs in BiotechnologyIntellectual Property Webs in BiotechnologyIntellectual Property Webs in BiotechnologyIntellectual Property Webs in BiotechnologyBy the late 1980s, the use of thepatent system in genetic engi-neering and molecular biologywas well under way. For thepharmaceutical and chemicalindustries, genetic engineeringhad opened up a biological Edenfilled with overwhelming tempta-tion.

A patent could be used toclaim a DNA sequence and theprotein that it encoded. Anobvious strategy was to patentas many DNA instructions aspossible, even if a companycould not be sure what they wereinstructions for or exactly whattasks the relevant proteinsperformed.

Of course, all firms, smalland large, were making the samecalculation, thus triggering aherd-like rush to the patentoffice to patent DNA sequences,genes and proteins of human,plant and animal origin.

In the US, human partial genesequences were a favouredtarget. In 1991, the US PTO hadapplications covering 4,000such sequences. By September1998, the number of sequencesbeing applied for had climbed toover 500,000. Of the 1,175patents granted worldwide onhuman DNA sequences between1981 and 1995, 76 per cent wentto companies, mostly of US orJapanese origin.

From the point of view of thelarger players in the industry,this rush to patent was at firstalarming. Many small, start-upfirms – and there were largenumbers of them because ofstrong venture capital marketsin the US – were filing patentapplications. The US publicsector was also heavily involved.In 1992, for example, theNational Institutes of Health(NIH) had applied for patents onmore than 2,750 partial genesequences, and in 1993 for2,421 of them. Universities hadalso joined the queues at thepatent office.

Because a lot of thefoundational work in geneticengineering was being done inthe universities and other publicsector organisations, mostnotably the NIH, there was noguarantee that the majorbreakthroughs in genetics and

genetic engineering – and thereforethe major patents – would comeout of corporate laboratories. Thisposed potentially serious problemsfor the chemical and pharmaceuti-cal knowledge cartels. With so manyplayers in the biotech field allholding patents, forming a cartel,let alone enforcing one, was almostimpossible, especially if govern-ment entities were holding some ofthe vital patents.

So many new players could alsomean that the ownership of theknowledge would be diffusedamong many, forcing all playersinto licensing, and only ordinaryprofit levels. If the US governmentowned such basic information, itmight impose licensing conditionsdesigned to encourage the emer-gence of competition or keepprices of the products based on thegenes down in some other way.

The Pharmaceutical Manufac-turers Association in 1992 thusargued that government ownershipof gene sequences was undesirable,while the Industrial BiotechnologyAssociation urged the NIH to putthe sequences into the publicdomain.

But the patenting cultureadopted by small firms and theuniversity sector turned out in theend to be an advantage for multi-nationals. If a small biotech firmhas patented a gene which lookspromising in the drug field, it willhave to enter into an alliance with abig pharmaceutical companybecause only such a company canbear the development, regulatory,distribution and marketing costs ofany resulting drug.

For most small biotech firmsand universities, the market fortheir patents is multinationals withinterests in chemicals, pharmaceu-ticals and agriculture. The pre-ferred destiny of many biotechstart-ups is to be swallowed in oneway or another by the very largefish. Patents act as a signal thatthey are worth swallowing. Theincentives for multinationals toform strategic alliances withsmaller players in the biotechindustry or to take them over arestrong since the internal R&D effortof even a multinational cannot beguaranteed to fill its productpipeline.

In short, the competitiveness ofthe market in biotech information

extends only to the discoveryphase rather than the develop-ment and marketing phase. Thetradeability of biotech informa-tion from the discovery phasemeans that much of it willeventually end up in the hands ofthe large players in the pharma-ceutical, chemical and agricul-tural sectors.

Patent ChallengesPatent ChallengesPatent ChallengesPatent ChallengesPatent ChallengesThe large chemical and pharma-ceutical companies have beennot only the biggest users of thepatent system and the biggestproponents of the re-engineer-ing of patent law; they have alsobeen the only actors rich enoughto absorb the cost of appealsagainst patent office decisions.

The complexity of chemicalscience combined with thecomplexity of patent law hasresulting in companies applyingfor new patents on existingchemical inventions on whichpatents have expired. Eli Lillytried this with its blockbusterdrug, Prozac, for instance. Patentoffices, with their more limitedbudgets, have not been in aposition to keep up with litigationgames or pick up instances ofdouble patenting. Moreover,patent offices over time haveundergone a cultural changeaimed at keeping their multina-tional customers happy because,increasingly, patent offices haveto fund their operations frompatent fees.

Courts, too, have noted thatcompanies have persisted in veryexpensive litigation once patentshave expired, spurning out-of-court settlements. The deepergame here has been the pursuitof precedents. Sometimes courtshave understood what game isbeing played, sometimes not.

Biotechnology reaches into allaspects of food, health, repro-duction and environment. Unlessthey are challenged, the reach ofmultinational intellectual prop-erty webs over biotechnology willbe much greater than it was overchemical technology. All stateswill find the gossamer threads ofintangible property growing evertighter around their economiesand their people.

21


This blocking strategy had proved effective as long as there was nounified push by the US and Europe to include intellectual property inthe trade talks. With the US-European consensus, however, the South’sjurisdictional argument had no support, and Southern countries had noreal fallback strategy.

Despite the long hours of negotiation both inside and outside thenegotiating rooms, it was hard to find a form of words acceptable to all.Southern countries were primarily interested in getting better deals onagriculture and textiles in a future multilateral trade negotiation.87 None-theless, three paragraphs under the heading “trade-related aspects ofintellectual property rights, including trade in counterfeit goods” madeit into the Ministerial Declaration on the Uruguay Round of 20 Septem-ber 1986.88

Although the IPC described this Declaration as “including a strongnegotiating mandate for intellectual property in the new round”, one isstruck by how weak a mandate it seems. The first paragraph speaks ofthe negotiations clarifying GATT provisions and elaborating new rulesand disciplines “as appropriate”; the second of developing a multilat-eral framework for the trade in counterfeit goods; and the third of thenegotiations being without prejudice to complementary initiatives takenin WIPO and elsewhere. As lawyer and intellectual property expertDaniel Gervais observes, the entire edifice of TRIPS rests on the words“ . . . and elaborate as appropriate new rules and disciplines”.89 South-ern countries may have thought they were giving away very little withthese words. But exact phrasing was irrelevant. In the culture of thetrade negotiator, all that mattered was that a subject matter had beenput on the dealing table. Any agreement on intellectual property wouldnot be constrained by the words in the Ministerial Declaration, but rathershaped by negotiating context. Against the background of US 301 uni-lateralism, the issue of what had been decided in the Ministerial Decla-ration would quietly fade away. US officials had given assurances thatSouthern jurisdictional arguments against the GATT dealing with intel-lectual property would be revisited,90 but this never happened in anyserious way. One Southern country official concluded that Southernobjections to GATT’s dealing with intellectual property had been man-aged rather cleverly.

With the US and the European Commission becoming increasinglyunited on the need for some kind of code on intellectual property in theGATT, and with the US (and the EC to a certain extent91) turning upthe heat bilaterally, developing countries were being given a choicebetween a bilateral or multilateral negotiation. They were outgunned inthe former and not collectively prepared for the latter.

Persuasion and Principles

It was one thing to place intellectual property on the negotiating tableand entirely another to achieve the outcome the Intellectual PropertyCommittee (IPC) wanted – and the last thing the IPC wanted was acompromise. Left to their own devices, US and European negotiatorsmight make too many concessions in order to achieve a final deal.Clearly, they would need some help. Pfizer’s Edmund Pratt said:

“Having been successful in getting ‘TRIPS’ on the GATT agenda,government asked the US private sector to provide specific pro-posals for an agreement, and to form an international privatesector consensus to achieve it . . . The US Trade Representative

87. Their resistance to the inclusion of intel-lectual property was broken by raising thecosts of resistance and increasing the re-wards of the agreement.

88. Document MIN.DEC of 20 September1986, reprinted in Stewart, T.P., (ed.),The GATT Uruguay Round: A Negotiat-ing History (1986–1992), Vol. 3, KluwerLaw and Taxation Publishers, Deventer,Boston, 1993, pp.1–10.

89. Gervais, D., The TRIPS Agreement: Draft-ing History And Analysis, Sweet andMaxwell, London, 1998, p.11.

90. 1999 interview with the authors.91. The European Community, despite its

protestations about the use of 301 by theUS, had in the same year (1984) as the USreformed its trade law to accommodateintellectual property and created its ownversion of 301 in the form of the “newcommercial policy instrument” to protectthe Community’s intellectual property in-terests (see Council Regulation 2641/84).It moved against Indonesia and Thailandfor record piracy, as well as suspendingKorea’s GSP privileges for failing to pro-vide satisfactory intellectual property pro-tection for European companies.

Southern countrieshad a “choice”

between bilateralor multilateral

negotiations. Theywere outgunned in

the first and notcollectively

prepared forthe second.

22



was impressed [with the IPC] and suggested that we increaseour effectiveness internationally by joining forces with UNICE,the principal pan-European business group, and its counterpartin Japan, Keidanren.”92

The IPC thus continued its systematic activation of international busi-ness networks. The two years following Punta del Este in 1986 werecritical years of coalition building. Groups of European and Japanesebusinessmen gathered to meet with IPC delegates in cities they allknew: Brussels (November 1986, May 1988), New York (March 1987)and Tokyo (January 1988). The message was that international busi-ness had to provide states with leadership on the intellectual propertyissue in the Uruguay Round negotiations. This message appealed to acommon identity shared by some of the larger US, European and Japa-nese corporations, that of genuinely global, high-technology-based com-panies with core intangible assets, global brands and distribution net-works to protect. Working on and reinforcing this common identity wasimportant to the IPC. Ultimately, it wanted to present states with amodel GATT intellectual property agreement in the name of the inter-national business community. It knew that opposing a model bearingthe approval of international business would be hard for any state.

The IPC realised early on that the Uruguay Round of negotiationson intellectual property would have to be a contest of fundamental prin-ciples, principles that did not necessarily square with existing laws. Notrade negotiation over intellectual property could be conducted withnegotiators having to wade through, let alone argue about, thousands ofsections and cases of intellectual property law. Moreover, there werejust too many sharp differences between the domestic laws of the US,Europe and Japan for it to be possible to aim at harmonising the rules ofintellectual property.93 The chair of the TRIPS negotiating group, LarsAnell, made sure that negotiators stuck to the game at the level ofprinciples:

“I said: ‘This argument that we can’t do that because our lawdoes not allow it should be an argument you cannot use.’ And itwas after that not used again.”94

His gentle but strategic diplomacy was a velvet glove over the iron fistof US and European corporate power.

On 14 June 1988, a text that was to have a decisive influence on thecourse of the negotiations on intellectual property was released in Wash-ington, Brussels and Tokyo. Bearing the title Basic Framework ofGATT Provisions on Intellectual Property: Statement of Views ofthe European, Japanese and United States Business Communities,it represented, in the words of Edmund Pratt, a “multilateral blueprint”for trade negotiators. The report, almost one hundred pages long, wasthe culmination of almost two years’ hard work by the IPC on improv-ing cooperation on global regulatory policy issues among key players inthe US, European and Japanese business communities. The seniormembers of three distinct corporate cultures had agreed to the pre-scription of a set of basic principles that would pattern the domesticregulation of knowledge and information by states.

The function of the fundamental principles in the Basic Frameworkwas, in the words of one of its drafters, Friedrich Kretschmer, to pro-vide states with “reference points” or a “yardstick” by which countriescould judge the adequacy or efficiency of their intellectual propertylaws.95 Their chosen fundamental principle of patentability, for exam-ple, stated that a “patent shall be granted for . . . products and

92. Speech by Edmund T. Pratt to US Coun-cil for International Business, “Intellec-tual Property Rights and InternationalTrade”, available at www.pfizer.com/pfizerinc/ policy/forum.

93. An example being the debate over themerits of “first to file” versus “first todiscover” in patent administration.

94. 1994 interview with the authors.95. Kretschmer, F., Head of the Legal and

Insurance Department, BDI (Federationof German Industry), “The Present Posi-tion of the US, Japanese and EuropeanIndustry”, in Beier, F.-K. and Schricker,G. (eds.), GATT or WIPO?: New Ways inthe Protection of Intellectual Property,Max Planck Institute for Foreign and In-ternational Patent, Copyright, and Com-petition Law, Munich, and VCH Pub-lishers, Weinheim, New York, 1989,pp.95, 96.

96. Basic Framework of GATT Provisionson Intellectual Property: Statement ofViews of the European, Japanese andUnited States Business Communities, TheIntellectual Property Committee (USA),Keidanren (Japan), UNICE (Europe),1988, p.32.

97. “Existence, scope and form of generallyinternationally accepted and applied stand-ards/norms for the protection of intellec-tual property”, World Intellectual Prop-erty Organization, WO/INF/29 Septem-ber 1988, issued as GATT documentnumber MTN.GNG/NG11/W/24/Rev.1.

98. For a discussion of US bilateralism oncopyright and computer software, seeDreier, T., “National Treatment, Reci-procity and Retorsion – The Case of Com-puter Programs and Integrated Circuits”,in Beier, F.-K. and Schricker, G., op. cit.95, pp.65–74. The WIPO study did identify interna-tionally accepted standards, but the USdid not accept them. For example, thereport points out that there is a “generaltrend towards the elimination of formali-ties as a condition of copyright protec-tion”, an important exception being theUS where the copyright notice is a “con-dition of enjoyment and exercise of copy-right”. See WIPO, op. cit. 97, Part II:Copyright, Section 2, para (iii).

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processes without discrimination as to subject matter”.96 Yet a studyundertaken by WIPO in 1988 for the GATT negotiating group on intel-lectual property revealed that, of the 98 members of the Paris Conven-tion, 49 excluded pharmaceutical products from protection, 45 excludedanimal varieties, 44 excluded methods of treatment, 44 excluded plantvarieties, 42 excluded biological processes for producing animal or plantvarieties, 35 excluded food products, 32 excluded computer programsand 22 excluded chemical products.97 The fundamental principle forthe subject matter and scope of copyright simply stated that copyrightshould be granted over computer programs. Yet the same WIPO studypointed out that only 20 countries protected computer software throughcopyright legislation – and did not point out that about half these coun-tries did so because of US trade pressure and bilateralism.98

Implicit in the Basic Framework was also a morality of investmentin information that states would have to foster if they wished to see thebenefits of a high-technology entrepreneurialism within their borders.“Piracy” would have to be eliminated, infringement of intellectual prop-erty would have to be criminalised, states would have to set severelimits on public interest exceptions to intellectual property protectionand, finally, states themselves would have to agree to become the sub-jects of meaningful enforcement procedures if they did not comply withtheir obligations to spread the fundamentals of intellectual property.

The Basic Framework was in many ways the seminal document ofthe TRIPS negotiations. It was a declaration of principles of propertywanted by big business for the global information economy; it was a setof negotiating objectives for the USTR.99

While its principles had been drafted to match the business goals ofthe companies that had been enrolled to support it, different forms ofintellectual property mattered to different industries. The US semicon-ductor chip industry, for instance, had pushed for restrictions on com-pulsory licensing and the option of multiple protection for semiconduc-tor chips (patents, copyright, trade secrets and semiconductor chip lawmodelled on US legislation).100 European and Japanese industry wentalong with this because their access to the US market was at stake.Hollywood’s agenda was to obtain strong copyright and trade markprotection for its global film and merchandising interests, but it did notwant globalised rights that protected the intimate relationship betweenauthor and work or between performer and performance.101 The largeplayers in the US software industry, IBM and Microsoft, wanted to usecopyright to protect their software.102

The Basic Framework, as one who had been involved in its produc-tion pointed out, united companies which under “normal circumstances. . . are competitors, and this competition also extends to the legal sys-tems of our countries or continents”.103 They had united around a setof principles. Whether it would be possible to keep together such alarge coalition with its considerable internal tensions over the course ofa lengthy multilateral trade negotiation was another matter.

Negotiating Circles

In early 1987, the European Commission was indicating support for aweaker agreement on intellectual property that dealt with counterfeit-ing and piracy as its main priorities but left other matters for anothertime. In Europe’s hierarchically-ordered world of business lobbying,the Union of Industrial and Employers’ Confederations of Europe

99. The Basic Framework was circulatedwidely within US policy circles and toUS diplomatic missions. Two officialUSTR communications to the GATT,one dated 19 October 1987, the other 13October 1988, illustrate its influence. Thefirst document, issued before the BasicFramework, was sparse on the detail ofthe different aspects of intellectual prop-erty and on what the US wanted. Thesecond detailed the internal proceduresthat states would have to adopt for theenforcement of intellectual property, thekinds of border measures that stateswould have to implement and the shapeof a consultation and dispute settlementmechanism. In places, echoes of the Ba-sic Framework were replaced by the samelanguage. See “Suggestion by the UnitedStates for Achieving the Negotiating Ob-jective”, GATTDoc.MTN.GNG/NG11/W/14 (20 October 1987) and “Sugges-tion by the United States for Achievingthe Negotiating Objective – Revision”,GATT-Doc .MTN.GNG/NG11/W/14Rev.1 (17 October 1988).

100. The US semiconductor chip industry wasfeeling the strain of competing with theJapanese. By 1986, it was Japan, not theUS, that was the world’s biggest pro-ducer of chips. By 1989, Japan’s tradesurplus with the US in semiconductorswas past US$1.5 billion (Angel, D.P.,Restructuring For Innovation: The Re-making of the US Semiconductor Indus-try, The Guilford Press, New York, 1994,p.1). Companies like Texas Instrumentssaw intellectual property rights as ameans to recover their market share. Theindustry also saw a chance to take outsome insurance against new entrants likeKorea.

101. Most European countries did not havecopyright, but rather an authors’ rightssystem under which authors had verystrong moral rights to control the releaseand use of their work, as well as theeconomic rights recognised by the Anglo-American tradition of copyright. Thesemoral rights never made it into the BasicFramework or TRIPS. (Article 9 ofTRIPS excludes moral rights as set outin the Berne Convention for the Protec-tion of Literary and Artistic Works.)Hollywood’s superstars, though, hadmore than enough bargaining power toprotect their interests, but strengtheningthe rights of those lower down the pro-duction ladder was seen as potentiallyinconvenient in unpredictable ways.

102. To many copyright and computer experts,the long duration of copyright protection(life of the author plus 50 years) did notseem suitable for software and computercode, which was closer to a technologi-cal device than a literary work. The largesoftware firms, however, wanted to pro-tect a mass market plagued by piracy andcompetition. Copyright protection wasa way to maximise Microsoft’s hold overits industry standard of DOS and laterWindows (and therefore markets in ap-plication programs). That meant ram-ming protection for computer softwareinto copyright.

103. Kretschmer, F., op. cit. 95, p.95.

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(UNICE) was the key portal of European business influence on theEC. During 1986 and 1987, close cooperation developed betweenUNICE representatives and EC officials; UNICE was given the op-portunity to comment on the EC’s negotiating position and drafts. InMay 1987, UNICE produced its own position paper on GATT and in-tellectual property, arguing that the EC’s approach was “deemed toonarrow by European industry” and that the “scope of the negotiationsmust be broadened” to include other areas of intellectual property whereEuropean industry was making heavy R&D investments.104 In the fol-lowing months, this became the position of European Community nego-tiators.105

Bringing the EC into an inner circle of consensus with the USTRwas itself crucial to obtaining the support of the most important groupof all within the actual negotiations, the Quad. Of all the groups withinthe Uruguay Round, the Quad was the most powerful, having the ca-pacity to move an agenda forward and decide on the most difficult andimportant issues. And once the US and the European Union came to-gether on intellectual property, the other two Quad members, Japanand Canada, would follow.

The Intellectual Property Committee (IPC) established a regularinteraction with European officials, because in its own words this pro-vided it with “an opportunity to shape the views of these key officials,who at the time were only beginning to focus on the issue”.106 Informaldiscussions between Quad members and other developed countries onthe US proposal for standards of intellectual property and their en-forcement107 allowed negotiators to develop a sense of what was pos-sible in a negotiation over intellectual property. At the same time thatnegotiators were getting a lock on the expectations of their counter-parts, they were also building a Northern consensus on intellectual prop-erty that could be used to overcome Southern resistance.

The IPC also worked on building an outer circle of consensus amongdeveloping countries. The strategy outlined in the Basic Frameworkassumed that initially a GATT code on intellectual property would benegotiated and adhered to by only those states interested in higher stand-ards of intellectual property.108 It would not be a condition of GATTmembership. Once the code was in place, Southern countries could begiven incentives to join. In 1988, IPC delegations travelled to newlyindustrialising countries such as Korea, Hong Kong and Singapore topoint out that their interests were not the same as India’s and Brazil’s.

Having managed to get a diverse group of information industriesgathered around a set of principles, US negotiators would have to ne-gotiate a text of an agreement that would deliver a payoff to each ofthose industries and the countries behind them.

At the Negotiating Table

The Uruguay Round of multilateral trade negotiations was a big traderound organised into two broad groups: a Group of Negotiations onGoods (GNG) and a Group of Negotiations on Services (GNS), both ofwhich reported to the overall Trade Negotiations Committee (TNC)chaired by Arthur Dunkel, the Director-General of the GATT. The Groupof Negotiations on Goods subsequently became 14 negotiating groupsfor different issues. Group 11 was the Trade-Related Aspects of Intel-lectual Property Rights including Trade in Counterfeit Goods. The fateof TRIPS was in part dependent on what happened in the other

104. UNICE Position Paper, “GATT andIntellectual Property”, 12 May 1987,p.2.

105. The best evidence of this is the com-munication to the GATT by the Euro-pean Community, entitled “Guidelinesproposed by the European Communityfor the negotiations on trade-related as-pects of intellectual property rights”,19 November 1987, GATT-Doc.MTN.GNG/NG11/W/16. The docu-ment referring to the Punta del EsteDeclaration suggests that new rules anddisciplines need to be drawn up for in-tellectual property and that these“should apply to all IPRs”. Much likethe Intellectual Property Committee,the European negotiators now saw inthe Punta del Este Declaration a strongmandate to develop a trade-based intel-lectual property regime that went wellbeyond the problem of counterfeitingand piracy.

106. Intellectual Property Committee, “Ac-complishments and Current Activitiesof the Intellectual Property Commit-tee”, 14 June 1988, p.4.

107. One meeting produced a document out-lining areas of agreement and differenceamong the respective delegations. See“Notes on Informal Meeting on Intel-lectual Property Standards, 7–11 March1988”, in Beier, F.-K. and Schricker,G. (eds.), op. cit. 95, pp.335–352.

108. Basic Framework, op. cit. 96, p.8.

The internationalbusinesscommunity knewthat states wouldfind it hard tooppose a modelagreement that hadcorporate approval.

25


negotiating groups. No one expected the negotiations on agriculture togo smoothly.

Each group had its own chair and operated “as a separate entity”.109

Deadlines, timetables and negotiating plans were set. Group 11 had tohave its first meeting in the week beginning 23 March 1987 and theinitial phase of its negotiating plan completed “by the end of 1987 atlatest”.110 It was a tight timetable, especially given the complexity ofthe subject matter.

For the next couple of years, the negotiation on intellectual propertybecame a game of paper flows. Northern countries easily won. InOctober 1987, the US and Switzerland each submitted a proposal fol-lowed by submissions from Japan and the European Community inNovember.111 The following year, 1988, kicked off with a submissionfrom the Nordic states in February, and so it went on.

A group of ten Southern countries led by India and Brazil112 contin-ued to insist that a comprehensive code on intellectual property couldnot be negotiated within the GATT.113 In a 1993 interview, a member ofthe GATT Secretariat said that all that Southern countries did in theTRIPS negotiations was “to complain to the bitter end”. Actually, therewas quite a lot to complain about.

Northern countries flooded the negotiating process with the mostfar-reaching proposals on intellectual property. Between 1987 and 1990,97 working documents were submitted to the TRIPS negotiating groupby governments, the GATT Secretariat and international organisations.Of these, only 19 came from Southern countries.114 The papers pro-vided information on the relationship between GATT norms and intel-lectual property, and membership of intellectual property conventions,on intellectual property treaties and international standards. The ideathat the negotiation would be confined to border control issues and theproblem of counterfeits was swept away.

Southern negotiators making the long journey from the negotiationsin Geneva back home found US negotiators waiting on their doorstep.After the 1984 trade amendments, the US began to use its 301 proc-ess. Everybody knew how it had knocked over South Korea in 1985using 301 and that Brazil was next. By 1989, USTR fact sheets werereporting successes: copyright agreements with Indonesia and Taiwan,Saudi Arabia’s adoption of a patent law, and Colombia’s inclusion ofcomputer software in its copyright law. Special 301 was swung intoaction at the beginning of 1989. When the USTR announced the tar-gets of Special 301, five of the ten Southern country “hardliners” in theGATT found themselves listed for bilateral attention. Brazil and India,the two leaders, were placed in the more serious category of prioritywatch list, while Argentina, Egypt and Yugoslavia were put on the watchlist. The USTR’s action plans for these countries included “construc-tive participation in multilateral intellectual property negotiations”.115

TRIPS was thus less a negotiation than a “convergence of processes”,in the words of a US trade negotiator at the time.

Although Southern opposition to TRIPS was solidifying, the GATTSecretariat sowed seeds of doubt by stating that India was isolated onthe issue.116 The seeds grew into rumours among Southern countrynegotiators about India’s commitment to the cause. A comment from aformer Indian official to the GATT captures the lesson from the expe-rience:

“The impression went round that the show of firmness that thenegotiators were making in the period from Sept. 1986 to Dec.1988 was only a facade not backed by a firm political support at

109. See para 2 of Annex 2A of Decisions of28 January 1987 (GATT/1405 5 Febru-ary 1987), reprinted in Stewart, T.P., op.cit. 88, pp.11–25.

110. Ibid.111. A list of the working documents within

the TRIPS negotiating group can befound in the bibliography in Ross, J. C.and Wasserman, J. A., “Trade-RelatedAspects of Intellectual Property Rights”,in Stewart, T.P., op. cit. 88, pp.2241,2320–2329.

112. The others were Argentina, Cuba, Egypt,Nicaragua, Nigeria, Peru, Tanzania andYugoslavia.

113. Bradley, A. J., “Intellectual PropertyRights, Investment, and Trade in Serv-ices in the Uruguay Round: Laying theFoundations’, Stanford Journal of In-ternational Law, 1987, vol 23, pp.57,81, fn. 72.

114. This is based on a count of the workingdocuments found in Ross, J. C. andWasserman, J. A., op. cit. 111, pp.2320–2329.

115. See USTR Fact Sheet for “Special 301”on Intellectual Property, in BNA’s Pat-ent, Trademark & Copyright Journal, 1June 1989, Vol. 38, p.131.

116. For a detailed account of the role of theGATT Secretariat, see Raghavan, C.,“India Yields in Uruguay Round”, Main-stream, 6 May 1989, p.15.

Negotiations onintellectual property

became a game ofpaper flows that

Northern countrieseasily won.

26



The University-Industrial Knowledge Complex:The University-Industrial Knowledge Complex:The University-Industrial Knowledge Complex:The University-Industrial Knowledge Complex:The University-Industrial Knowledge Complex:The fundamental reason for thepre-eminence of the UnitedStates as a source of innovationin the 20th century was not itsintellectual property law, but thepre-eminence of its universities.The three most consequentialtechnological breakthroughs ofthe century were the fruits ofpublic investment in the scien-tific talent of universities, not ofthe commercial pursuit ofpatents or copyright.• The foundations of the

Internet were laid by concep-tual breakthroughs incomputer software thatpreceded the application ofcopyright to computersoftware. (The pioneeringwork of IBM in laying thefoundations for the compu-ter hardware revolution,however, was very muchmotivated by patent laws.)

• The new molecular biologyspawned by unlocking DNA –the explanation given byJames Watson and FrancisCrick in 1951 of the structureof the DNA molecule, and thetechniques found in the early1970s for directly cuttingand splicing DNA code – waspublicly funded.

• Nuclear energy, was aproduct of US public invest-ment’s ability to attract thebest minds to the Manhattanproject not only from USuniversities, but also fromthose of Germany, the UK,Australia and Canada,

In all these cases, the US govern-ment decided to put knowledgeinto the intellectual commonsrather than into the realm ofintellectual property. (In the caseof atomic secrets, US President

Eisenhower did so, however, onlyon condition that other Northerneconomies sign up to an “Atomsfor Peace” accord – one thatperformed better than expected inpreventing the proliferation ofnuclear weapons.)

Thus the oft-heard pharmaceu-tical company PR assertion that theaccumulated drug breakthroughsof the 20th century are a result ofWestern intellectual property lawsis a very partial truth because itignores the important role of USfederal funding in drug develop-ment, especially development ofthose drugs which afford signifi-cant therapeutic gain. Of the 327drugs and biological productsapproved by the Food and DrugAdministration in 1991, only fivewere classified as offering signifi-cant therapeutic gain. All five weredeveloped with federal funds.

The Public PaysThe Public PaysThe Public PaysThe Public PaysThe Public PaysThe corporate owners of intellec-tual property still rely heavily onthe public sector and the publicdomain. Much of the research thatreally matters to the biotechnologyand pharmaceutical industries goeson at taxpayer expense in publicuniversities. More than 70 per centof scientific papers cited in bio-technology patents, for instance,originated in solely public scienceinstitutions, compared with 16.5per cent that originated in theprivate sector.

Through various legal mecha-nisms, however, the relevantknowledge now ends up in patentportfolios where citizens pay forthe same knowledge again. Thisprocess started in earnest in the USduring the 1970s when Congress

feared that the country was losingits mastery of the knowledgerequired for an internationalinformation economy. Birch Bayh,a US Senator from Indiana, wasone of the many who began topush the idea that the strongerthe patent system became, thebetter the US would do against itscompetitors (at that time, WestGermany and Japan) and inregaining lost markets. Togetherwith Senator Robert Dole, heintroduced the Patents andTrademark Amendments Act,which became known as theBayh-Dole Act and took effect in1981.

The Bayh-Dole Act alloweduniversities and small businessesto own patents in inventions thatthey had developed with federalfunds. Prior to the Act, patents insuch inventions ended up withthe relevant federal fundingagency or the inventions were putstraight into the public domain bymeans of publication. The Bayh-Dole Act saw US universities andhospitals hurrying to the patentoffice. In the next five years,these organisations increasedtheir patent applications inhuman biology by 300 per cent.In health technologies, universi-ties now account for 15 per centof all patents.

As a result of Bayh-Dole, theuniversity sector saw its incomefrom the licensing of its intellec-tual property in technology soar,but that income was unequallydistributed. In 1992, of the top 31royalty leaders in the US, sixuniversities earned betweenUS$12 and US$26 million each,while the other 25 earned be-tween US$500,000 and US$6million. That left a lot of other

the capital. No negotiators can hope to muster support from othercountries on difficult issues involving disagreement and evenconfrontation with major powers, if those countries suspect theinherent strength of the stand or even the sincerity of its pro-pounders.”117

At a time when Indian officials should have been working the lines ofcommunication with the capitals of other Southern countries, they didnot. Cooperation between India and Brazil began to falter as the Bra-zilians became worried by the strength of Indian support. In early April1989, India failed to attend a crucial informal Third World Group meet-ing.118 It all began to fall apart.

117. S. P. Shukla, Indian Ambassador to theGATT at that time, quoted in Agricul-ture in Dunkel’s Draft of GATT – ACritical Analysis, Third World Network,New Delhi, 1993, p.6.

118. See Raghavan, C., op. cit. 116, p.22.

27


universities earning a lot less.Only so many universities were

at the leading edge of biotech. Theuniversities clustered in andaround Boston and San Francisco,for instance, gained enormouslyfrom the patent-based commer-cialisation of biotechnology. Formost other universities, however, itbrought complications becausetheir researchers now had tonavigate their way through patentsowned by others on the researchtools of biotechnology..

The Bayh-Dole Act (and otherlegislation that Congress passed inthe 1980s making it easier foruniversities and businesses bothlarge and small to obtain patentson federally funded inventions) didone important structural thing. Itintegrated universities much moredeeply into the corporate knowl-edge game. Many entrepreneuriallyminded academic scientists in the1980s left their universities to setup small biotech companies,knowing that they could draw onfederal funds for the developmentof their technology and still retain apatent position. This migrationagain followed a distinct geo-graphical pattern, with most start-up companies being established inthe Boston and San Francisco areas.

Most of the knowledge patentedby the public sector flowed to theprivate sector via licensing. In mostcases, a university did best bylicensing a patented technology aswidely as possible rather than byhanging onto the relevant knowledgeand doing its own product develop-ment. University patenting thusassisted rather than hindered theprivate sector. The same was true ofpatenting by biotech start-ups.

Some scientists working in thepublic sector have continued to

place sequences in the publicdomain. But this practice does notnecessarily prevent companiesfrom obtaining patents on “puri-fied” versions of the same geneticsequences.

The US private sector needs thefruits of publicly-funded basicscience. Its challenge has been tofind ways in which to help itself tothis basic research to use it in itscommercial strategies. Patentoffices, the patent profession andthe courts have all played a role inreinterpreting patent law to allowthis lifting from the public domainto take place. Patents, instead ofbeing a reward for inventors whoplace private information into thepublic domain, have become ameans of recycling public informa-tion as private monopolies.

Universities have been greatincubators of innovation forcenturies. Rewarding universitiesfor securing patents and otherintellectual property rights, asgovernments are increasinglydoing, puts this process at pro-found risk because patents lock upknowledge rather than open it up asa platform from which furtheradvances spring. Universityresearchers end up making thesame kinds of profit calculationsabout basic research that compa-nies do. Like companies, they maydecide not to pursue a problem ifthe solution does not promisesome commercial payoff.

Moreover, tying the funding ofpublic universities to their successin securing private patents acceler-ates the privatisation of the intel-lectual commons.

For most of their history,medical schools in universitiesgave the greatest plaudits to thefundamental scientific

breakthroughs that promised thegreatest long-term benefits tohuman health. This was an ethoswith egalitarian effects becausethe greatest unsolved healthproblems happened to beconcentrated among the poor,particularly among those wholive in the tropics. The commer-cialisation of university medicalresearch had a reverse effect.Only 13 of the 1,223 new drugsmarketed between 1975 and1997 were specifically developedto treat tropical diseases (andonly four of these were a directresult of pharmaceutical industryR&D). Universities should ceaserating medical research accordingto its commercial possibilities.

Ironically, by dismantling thepublicness of knowledge,intellectual property will eventu-ally rob the knowledge economyof much of its productivity.

When knowledge becomes aprivate good to be traded inmarkets, the demands of many,paradoxically, go unmet. Patent-based R&D is not responsive todemand, but to ability to pay. Theblockbuster mentality of thelarge pharmaceutical companiestakes them to those marketswhere there is the ability to pay.

And citizens pay and payagain for patented information.Their taxes are used to fundpublic research that often endsup as a private monopoly. Butcosts of patenting are generallytax deductible, as are manyresearch and development costs.In turn, the profits of multina-tionals from patents become thesubject of transfer pricing gamesthat minimise the tax they pay byshifting profits to the lowest taxjurisdiction.

At the same time, the GATT Secretariat put relentless pressure onSouthern countries through the “Green Room” process.119 Key coun-tries were hauled into small group consultations. The groups grew smallerand the strain of resistance greater, so much so that Southern countrynegotiators began to refer to them as the “Black Room” consultations.

Meanwhile, in Brazil, the US had for the first time followed up itsthreat under 301 in relation to intellectual property by increasing dutieson selected Brazilian goods being imported into the US. In June 1990,the President of Brazil announced that he would seek the legislation theUS wanted on patent protection for pharmaceutical products, and on 2July 1990 the increased duties were terminated by the USTR. In that

119. The “Green Room” process was initiatedby the Director-General of the GATT dur-ing the Uruguay Round negotiations. Heor his staff invited selected countries todiscuss and draft compromise texts onspecific items informally behind closeddoors. These Green Room discussionsconstituted the bulk of the negotiations.Whatever was decided had to be ratifiedby consensus in the main GATT plenary,but it proved difficult to change any dealsthat had been made in private.

The Importance of the Publicness of KnowledgeThe Importance of the Publicness of KnowledgeThe Importance of the Publicness of KnowledgeThe Importance of the Publicness of KnowledgeThe Importance of the Publicness of Knowledge

28



same year, a Brazilian negotiator in the TRIPS group informed an In-dian negotiator that “I am only here to observe”.120 The Brazil–Indiaaxis had been broken and India was on its own.

By April 1989, at a mid-term review of the negotiations, trade min-isters had agreed that negotiations would encompass “adequate stand-ards and principles” of intellectual property protection and “settlementof disputes between governments, including the applicability of GATTprocedures”.121 The very things that developing countries had beenopposing well before Punta del Este were now well and truly on thetable. The flood of paper from Northern countries had done its job.

The negotiations on TRIPS are said to have begun properly in thesecond half of 1989, when a number of countries made proposals, or inthe first part of 1990, when five draft texts of an agreement weresubmitted to the negotiating group.122 A more sceptical view is that thenegotiations were by then largely over. Southern countries had simplyrun out of alternatives and options. If they did not negotiate multilater-ally, they would each have to face the US alone. If they resisted the USmultilaterally, they could expect to be on the receiving end of 301 ac-tions. If developing countries negotiated multilaterally, there was at leastthe possibility of being able to obtain some limits on the use of 301actions. At any rate, this was what Northern negotiators and the GATTSecretariat told them.

From 1990 onwards, the main issue to be decided was how far anagreement on intellectual property would deviate from the blueprintthat had been provided to negotiators in 1988 by Pfizer, IBM, DuPontand other members of the international business community.

To push the Uruguay Round negotiations towards a conclusion, andunder pressure from the USTR, the Director-General of the GATT,Arthur Dunkel, tabled on 20 December 1991 a compromise document,the “Draft Final Act Embodying the Results of the Uruguay Round ofMultilateral Trade Negotiations”.123 No part of the Draft Final Act wasconsidered agreed until the entire package was agreed. On TRIPS, theDunkel draft (an amalgamation prepared by the Chair of the TRIPSGroup, Lars Anell, of five draft versions of an agreement on TRIPS,four emanating from Northern countries and one from a group of South-ern countries) gave every major state a win of some kind. The US wonon the extension of patents to all fields, but had to tolerate countrieshaving the option of excluding some things within these fields frompatentability. Southern countries were given transitional periods to complywith TRIPS (four years for developing countries and ten years forleast-developed countries).Given the magnitude of the institution-build-ing task they faced in intellectual property, they did not regard this asmuch of a win. It wasn’t.

In India, the Dunkel draft text was labelled “DDT” and thought tobe just as dangerous for the health of the country as the chemical ofthat name. For those who had seen the Indian-designed patent systemproduce a flourishing pharmaceuticals sector capable of competing inglobal markets, DDT was very hard to swallow: “All our efforts werewiped out in one second by Dunkel”, said a former Commissioner ofPatents in India in 1996. If any country could have mustered the will-power to resist the US agenda on TRIPS to the end, it would have beenIndia. It had, after all, not so many decades earlier thrown out theBritish Empire. Hundreds of thousands of Indian farmers protested inthe streets about the patenting of seeds, but there were no negotiationsin which the mass unrest could have been utilised to support a position.

The US worked tirelessly, pointing out that the Indian government’s

120. Interview with the authors, 2000.121. WIPO, op. cit. 97.122. See, for example, Gervais, D., op. cit.

89, p15; Gorlin, J. J., An Analysis ofthe Pharmaceutical-Related Provisionsof the WTO TRIPS (Intellectual Prop-erty Agreement), Intellectual Property In-stitute, 1999, p.2; Ross, J. C. andWasserman, J. A., op. cit. 111, p.2273.

123. MTN.TNC/W/FA (20 December 1991),available in Stewart, T.P., op. cit. 88,p.457.

A year after TRIPSentered into force,the US begancollecting rentsfrom the rest of theworld.

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analysis would change when the reforms it was putting in place tobecome a more open economy were realised and that it had a softwareand film industry that gave it very different interests from other devel-oping countries in ASEAN. Seeing the shift of geo-political sands thatfollowed the fall of the Berlin Wall in 1989, the Indian government thusdecided to send India into the WTO regime, the most far-reaching traderegime ever negotiated by states. It was time for India to enter in amore significant way the world of trade in merchandise, services andintangibles. Indian industry, the pharmaceutical industry included, wouldhave to learn to play by rules set in Washington and New York. In 1993the GATT Council reviewed for the first time the performance of Indiaand “warmly welcomed the fundamental policy changes in India since1991”.124 India had at last embraced the neo-liberal agenda of marketglobalisation. Although it had held out the longest of any Southern country,India did sign the Final Act Embodying the Results of the UruguayRound of Multilateral Trade Negotiations on 15 April 1994 in Marra-kesh, Morocco, and thereby assume the obligations of TRIPS.

Indeed, most countries accepted the Dunkel draft as more or lessthe final deal on intellectual property.125 After the conclusion of theUruguay Round on 15 December 1993 and the April 1994 signing ofthe Final Act, TRIPS entered into force on 1 January 1995. A year laterthe US began an action against Japan arguing that Japan had breachedits obligations under TRIPS in relation to sound recordings.126 The timehad come for the US to begin collecting rents from the rest of theworld.

The Puzzle of TRIPSWhy did more than one hundred nations that were large net importersof intellectual property rights sign a TRIPS agreement that was sotransparently against their interests as well as being an economic andhealth disaster for them? First, most importer nations were not in theroom when the important technical details were settled and the dealswere done. The WTO formally meets the conditions of equal demo-cratic representation for all states, but the informal reality was thatmost states were not represented until the virtual fait accompli of achairman’s draft being put on the table.

Second, most states did not have a clear understanding of their owninterests or were misinformed. Without intellectual property experts ontheir WTO delegations, they could not have understood the implica-tions of TRIPS – for instance, of 20-year patent terms on pharmaceu-ticals – even if their representatives had been in the room. TRIPS hadall the transparency of a one-way mirror, with only the US and ECknowing exactly what was going on.

And, third, most nations were threatened by US trade power. USstrategy127 has proceeded as follows. First, use threatened trade sanc-tions to negotiate strategic bilateral agreements one by one. Place par-ticular importance on knocking over the most likely opponents to yourfavoured multilateral deal. Then go into the multilateral negotiationshaving made certain terms of the favoured multilateral deal a fait ac-compli. The multilateral agreement then pulls those not subject to bilat-eral agreements up as far as the new standard. After the multilateraldeal is done, the US then returns to a new round of bilateral negotia-tions to begin a new cycle of raising the bar.

For example, having failed to rule out parallel importing128 and

124. FOCUS (GATT Newsletter) November1993, Vol. 103, p.7.

125. The US pharmaceutical industry was un-happy with the Dunkel draft of TRIPSbecause of the concessions to Southerncountries, which the Senior Vice Presi-dent of the Pharmaceutical ManufacturersAssociation, Harvey Bale, regarded as “anenormous break for the biggest pirates(Inside US Trade, 10 January 1992, Vol.10(2), p.2). One or two years to imple-ment TRIPS was more than enough, hefigured (even though Northern countrieshad evolved their own systems of intel-lectual property protection over hundredsof years). Giving the states of sub-Saha-ran Africa ten years in which to be TRIPScompliant seemed “overly long and dis-criminatory” (Testimony of Jacques JGorlin, Consulting Economist to the In-tellectual Property Committee, before theSubcommittee on Economic Policy, Tradeand Environment of the Committee onForeign Affairs, United States House ofRepresentatives, 8 March 1994, p.3). But Southern countries would have tofind tens of millions of dollars to set upan infrastructure of intellectual propertyprotection (patent offices, copyright of-fices, courts, judges) that would largelyservice the needs of foreign rights hold-ers. This in countries where the legalsystem could not afford its citizens themost basic protections against violence.The US pharmaceutical industry publiclysuggested that the US should stay out ofany final agreement and use its 301 proc-ess to open up markets, while privatelylobbying to get the USTR to change thedraft TRIPS text. The US Administration also wanted thedraft of TRIPS changed to give US in-dustry a share of copyright levies col-lected in Europe and full “pipeline” pro-tection on filed pharmaceutical patents,and to limit the transitional provisionsto two years. When Peter Sutherland, thedirector-general who succeeded Dunkel,closed the Uruguay Round negotiationson 15 December 1993, these changes hadnot been made.

126. See Japan-Measures Concerning SoundRecordings, complaint by the US (WT/DS28), 9 February 1996. The case set-tled on 24 January 1997.

127. See Braithwaite, J. and Drahos, P., op.cit. 34.

128. Parallel importing occurs when a productprotected by intellectual property rightsand sold by or with the rights-holders’consent in one country is imported intoanother country without the rights-hold-er’s authorisation. The product is usu-ally cheaper in the exporting country,which is why the importing country fol-lows this route.

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weaken compulsory licensing in TRIPS, the US is now aiming at thesegoals in its new round of bilateral negotiations. The US is also seekingto short-circuit the TRIPS transitional arrangements for Southern coun-tries by persuading them bilaterally to implement all the TRIPS obliga-tions earlier than required.

Other Answers to the PuzzleBut other factors were also at work. The organised consumer move-ment was not active in lobbying against TRIPS when it counted in thelate 1980s and early 1990s (apart from in India). Diffuse public inter-ests tend to be unrepresented because the costs to individuals of organ-ising in large groups are not matched by the small gains for each indi-vidual.129 Producer interests were decisively more organised than con-sumer interests.

For members of the Cairns group of agricultural exporters, the Uru-guay Round promised immediate and greater access to European mar-kets for agricultural products and reduced US subsidies for its compet-ing agricultural exports. In a deal in which Australia, for one, got agri-cultural export benefits and the US got intellectual property, there wereloud voices for the agricultural deal, while those who would lose fromintellectual property were silent. Agriculture was seen as a here-and-now priority, intellectual property a long-term matter with uncertainstructural effects.130

In sum, pro-TRIPS interests were concentrated while anti-TRIPSinterests were so diffuse they generally did not even recognise theirinterests until after the horse had bolted. The carrots and sticks ar-ranged by intellectual property-owning interests involved short-termincentives, while the costs TRIPS would impose seemed (and oftenwere) much further in the future.

Once a majority of states had decided to jump on the TRIPS band-wagon, any country holding out faced the worrying risk that foreigninvestors would brand them as hostile to innovation-based investment,the most useful kind to have in the new information economy. Pharma-ceutical companies began signalling that they were mainly interested ininvesting in states that supported standards even higher than TRIPS –such TRIPS-plus standards included patent protection of more than the20 years guaranteed by TRIPS. States began to compete with oneanother to show that they were committed to TRIPS, to TRIPS plus,and to extravagant enforcement gestures directed at “pirates”. Chinaexecuted a few.

The Visions of a Few

Yet the TRIPS story is not only a deeply structural one, but also onewhich showcases the brilliance of a few visionary individuals who cameup with the simple idea of linking intellectual property to the trade re-gime. Jacques Gorlin and Eric Smith (the Executive Director of theInternational Intellectual Property Alliance, see Box, p.14) were notpowerful men; they were Washington legal and economic entrepre-neurs who got things done by getting powerful people like EdmundPratt of Pfizer and John Opel of IBM interested in their big idea. Dur-ing the 1980s, almost everyone in the US business community whothought about it at all considered TRIPS a pipe dream. It wasn’t just

129. Olson, M., The Logic of Collective Ac-tion, Harvard University Press, Cam-bridge, 1965.

130. As it turned out, the agriculture payoffwas itself uncertain as the US did nothonour its agriculture commitments toAustralia. The Cairns Group of 17 countries (Ar-gentina, Australia, Bolivia, Brazil,Canada, Chile, Colombia, Costa Rica,Guatemala, Indonesia, Malaysia, NewZealand, Paraguay, the Philippines,South Africa, Thailand and Uruguay)account for one-third of the world’s agri-cultural exports. It was formed in Au-gust 1986 to ensure that agriculture wasput and kept on the multilateral tradeagenda. Its inaugural meeting was heldin Cairns, northern Queensland, Aus-tralia. The Uruguay Round agreementssubject agriculture for the first time totrade liberalising rules.

The US is nowimplementingTRIPS-plusstandards via newbilateralagreements.

Pro-TRIPSinterests wereorganised;anti-TRIPSinterests were not.

31


that it was against the interests of almost everyone except a compara-tively small number of powerful US and European knowledge firms:TRIPS seemed like a bad idea to most key individuals in the GATTsecretariat and the EC. It seemed implausible to link an agreement toexpand monopoly rights to a regime that was about dismantling trademonopolies and removing barriers to competition.

Yet the visionaries held out. Taking one step at a time – first gettingUS business on side, then US government, then European business,then their governments, then Japanese business, and so on – they ren-dered the implausible plausible. The visionary few realised their long-term strategy for making the US a richer country at the expense ofmost of the rest of the world by orchestrating shorter-term payoffs forkey global actors who lacked the clarity of vision to see longer-terminterests. TRIPS was pulled off because it mattered so much to thosewho lobbied for it.

Hence, the explanation for the globalisation of the US intellectualproperty regime by the linking of trade and intellectual property re-quires both a structural grasp of economic interests and an understand-ing of entrepreneurship in ideas by individuals who knew how to har-ness structural power. Two decades ago, it took a leap of imaginationfor ordinary citizens to think that what they were doing in copying anitem of software or music or videotaping a television programme wastheft. Such actions had never been criminal offences in most nationsbefore TRIPS. But the public relations campaign to define information“piracy” as a crime has reframed popular consciousness of intellectualproperty. It was important to define TRIPS as a matter of simple jus-tice precisely because it is a matter of complex injustice. TRIPS pulledoff a huge structural shift in the world economy. As the informationeconomy develops, the implications of this for widening inequality inthe world system, even within the US and Europe, will become moreprofound. There will be a digital divide, an access-to-drugs divide, anda divide between those who avoid taxes by shifting their intellectualproperty rights around the world system and those who simply have topay them.

Uniting in Resistance

Intellectual property rights, and TRIPS especially, are now linked tomuch bigger matters than just rewards to an individual inventor. Thesematters include widening income inequalities, excessive profits, thepower and influence of big business on government, the loss of nationalsovereignty, globalisation, moral issues about the use and direction ofbiotechnology, food security, biodiversity, sustainable development, self-determination for indigenous people, access to health services and therights of citizens to cultural goods.

The decline of the moral respectability of intellectual property rightshas been accompanied by increasing levels of transnational activismagainst the use and extension of intellectual property regimes. The USacademic community, especially in the field of copyright, has ironicallybecome one of the principal defenders of the public domain. In alliancewith other groups such as librarians, it has fought the expansionist agen-das of corporate intellectual property owners. The Free Software Foun-dation has been a vital force in showing how a society can meet itsneeds for software without incurring the predatory costs of a Microsoft,which relies on copyright and patents to lock up software development.

The TRIPSagreement was

pulled off because itmattered so much

to those wholobbied for it.

Industry took careto define TRIPS asa matter of simplejustice because it is

a matter ofcomplex injustice.

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In the health field, the US Consumer Project on Technology, the SouthAfrican Treatment Action Campaign (TAC) and Medecins SansFrontieres (MSF) have forced governments to reconsider the impactof patents and TRIPS on access to medicines. Others have drawnattention to bio-piracy and led the fight against the privatisation of ge-netic resources through intellectual property rights, forcing states totake notice of the creep of intellectual property into agriculture andfood.131

Many of the NGOs, businesses, individuals and professional organi-sations fighting for the preservation of the intellectual commons do soin isolation from each other. The groups that attempt to hold back theencroachment of intellectual property on the Internet and in our publiclibraries have not yet forged alliances with groups defending the rightsof farmers to seeds and indigenous peoples to use their knowledge. Ifthe inequalities of “information feudalism” are to be successfully re-sisted, then broader global coalitions will have to be built.132 TRIPSwas only possible because an elite of knowledge-based companies inthe US, Japan and Europe set aside their differences and united aroundtheir need for global intellectual property protection. Resisting this newparadigm requires that diverse groups and communities fight to unite ina global politics that forces governments to design intellectual propertyrights that serve the welfare and basic freedoms of citizens.

This is an edited extract fromInformation Feudalism: WhoOwns The KnowledgeEconomy? by Peter Drahos withJohn Braithwaite,published in 2002 by Earthscan,8-12 Camden High Street,London NW1 0JH, UK.Tel: + 44 (0) 20 7387 8558.Email:[email protected]:www.earthscan.co.uk

Printed by RAP Spiderweb, Clock Street, Hollinwood, Oldham, Lancashire OL9 7LY, UK.

CORNER HOUSE BRIEFING PAPERSCORNER HOUSE BRIEFING PAPERSCORNER HOUSE BRIEFING PAPERSCORNER HOUSE BRIEFING PAPERSCORNER HOUSE BRIEFING PAPERS 1 No Patents on Life 2 Democracy in a Plutonium

Economy 3 Climate and Equity 4 The Politics of Participation 5 The Myth of the Minimalist

State: Free MarketAmbiguities

6 Engineering of Consent:Uncovering Corporate PR

7 Whose Voice Is Speaking?Opinion Polls and Cost-Benefit Analysis

8 The Flawed Economics ofHydroelectric Dams

9 Missing the Point ofDevelopment Talk: Reflectionsfor Activists

10 Genetic Engineering andWorld Hunger

11 ‘Blood’ and ‘Culture’: EthnicConflict and the AuthoritarianRight

12 Internal Conflict: Adaptationand Reaction to Globalisation

13 Forest Cleansing: RacialOppression in Scientific NatureConservation

14 Export Credit Agencies,Corporate Welfare and PolicyIncoherence

15 Carbon “Offset” Forestry andThe Privatization of theAtmosphere

16 If Cloning is the Answer, Whatwas the Question?

17 The Danger of MOX-fuelledNuclear Reactors

18 Fire Planet: The PoliticalEconomy of Combustion

19 Exporting Corruption: Privatisa-tion, Multinationals and Bribery

20 The Malthus Factor: Poverty,Politics and Population inCapitalist Development

21 The Biological Politics ofGenetically Modified Trees

22 Apartheid Cartography: Identity,Territory and Co-existence inBosnia

23 Trading Health Care Away?GATS, Public Services andPrivatisation

24 Democracy or Carbocracy?Intellectual Corruption and theFuture of the Climate ChangeDebate

25 Financial Market Lobbying26 TNC Regulation in an Era of

Dialogues and Partnerships27 The Origins of the Third

World: Markets, States andClimate

28 Re-imagining the PopulationDebate

29 Corruption, Governance andGlobalisation: Lessons fromthe New Thailand

30 Underwriting Bribery: ExportCredit Agency and Corruption

31 A Decade After Cairo:Women’s Health in a FreeMarket Economy

131. See, for example, www.grain.org.132. See Boyle, J., “A Politics of Intellectual

Property: Environmentalism for the Net?”Duke Law Journal, Vol. 47, 1997, p.87.

All the briefing papers are on The Corner House website (www.thecornerhouse.org.uk)together with many other articles and reports.

Electronic versions can be sent FREE, email <[email protected]>Contact The Corner House for printed paper copies.

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