Trade-Related Aspects of Intellectual Staff Property Rights Research Paper John Revesz The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission. Appropriate citation is May 1999 indicated overleaf. ã Commonwealth of Australia 1999 ISBN This work is subject to copyright. Apart from any use as permitted under the Copyright Act 1968, the work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgment of the source. Reproduction for commercial use or sale requires prior written permission from AusInfo. Requests and inquiries concerning reproduction and rights should be addressed to the Manager, Legislative Services, AusInfo, GPO Box 1920, Canberra ACT 2601. Inquiries: Media and Publications Productivity Commission Locked Bag 2 Collins Street East Post Office Melbourne VIC 8003 Telephone (03) 9653 2244 Fax (03) 9653 2303 Email [email protected] An appropriate citation for this paper is: Revesz, J. 1999, Trade-Related Aspects of Intellectual Property Rights, Productivity Commission Staff Research Paper, AGPS, Canberra. The Productivity Commission The Productivity Commission, an independent Commonwealth agency, is the Government’s principal review and advisory body on microeconomic policy and regulation. It conducts public inquiries and research into a broad range of economic and social issues affecting the welfare of Australians. The Commission’s independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole. Information on the Productivity Commission, its publications and its current work program can be found on the World Wide Web at www.pc.gov.au or by contacting Media and Publications on (03) 9653 2244. Contents Preface VII Abbreviations VIII Overview XI 1 Scope of the paper 1 2 Description and background of TRIPS 4 2.1 The history of international agreements 4 2.2 Enforcement of IPRs 8 2.3 A summary of changes introduced by TRIPS 10 2.4 Outstanding issues in TRIPS 11 2.5 TRIPS and current IPR policy issues in Australia 12 3 Economic considerations 15 3.1 The economic rationale of IPRs 15 3.2 Cross-border spillovers of R&D benefits 17 3.3 Forms of IPR protection for R&D 20 3.4 Patent policy issues 24 3.5 Policy issues concerning industrial designs 32 3.6 Policy issues concerning copyrights 34 3.7 The rationale for trade marks 42 3.8 Parallel importing 44 3.9 The impact of TRIPS on developing countries 51 4 Statistical analysis 57 4.1 Different approaches to quantitative analysis 57 4.2 The Maskus indices 59 4.3 Estimated patent content of production and trade 65 4.4 The economic contribution of copyright protected industries 72 4.5 Applications and registrations 77 4.6 A brief overview 80 CONTENTS III Appendixes A IP law and international agreements 82 A.1 Intellectual property rights broadly defined 82 A.2 Patents 83 A.3 IPR protection of biological innovations 90 A.4 Industrial designs 95 A.5 Trade marks 98 A.6 Geographical indications 102 A.7 Copyrights and neighbouring rights 104 A.8 Circuit layout rights 113 A.9 Protection of undisclosed information 114 B The Australian Maskus indices 116 C The patent content in trade 118 D Trade in copyright material 125 References 127 FIGURES 4.1 Patent applications and registrations 1983 to 1996 78 4.2 Trade mark applications and registrations 1983 to 1996 79 4.3 Industrial design applications and registrations 1983 to 1996 80 TABLES 3.1 Mean rating of effectiveness of alternative means of protecting new products and processes 20 3.2 Limitations of effectiveness of patents for new or improved processes and products 21 4.1 Product groups with potential IPR problems 59 4.2 Trade in patent-dependent goods 61 4.3 Trade in copyright-dependent goods 63 4.4 Trade in trade mark-dependent goods 64 4.5 Share of BERD and patent content in GDP 69 IV CONTENTS 4.6 Percentage share of patent content in total trade of goods and services 69 4.7 Analysis of the increase in the patent content of trade 71 4.8 Comparison of estimates of aggregate patent values 72 4.9 Estimated value added of copyright protected industries 73 4.10 Share of traded copyright material in total trade in goods and services and in GDP 75 4.11 Share of copyright content and patent content in GDP in 1996-97 76 B.1 Share in merchandise trade of patent-related goods 116 B.2 Share in merchandise trade of copyright-related goods 117 B.3 Share in merchandise trade of trade mark-related goods 117 C.1 Estimated patent content of BERD expenditure at the sectoral level 118 C.2 Sales, trade and BERD data at the sectoral level in 1996-97 119 C.3 Estimated patent content in trade and domestic sales in 1996-97 120 C.4 Sales, trade and BERD data at the sectoral level in 1986-87 121 C.5 Estimated patent content in trade and domestic sales in 1986-87 122 C.6 Sales, trade and BERD data at the sectoral level in 1976-77 123 C.7 Estimated patent content in trade and domestic sales in 1976-77 124 D.1 Trade in copyright material 125 D.2 Estimated copyright content in trade and domestic sales 1996–97 126 CONTENTS V Preface The primary motivation for this paper is to provide input to the upcoming legislative review of intellectual property rights. Other developments, including the resumption of the World Trade Organisation negotiations on agriculture and services, plus the prospect of a so-called ‘Millennium Round’ of new World Trade Organisation negotiations, make it timely to examine trade-related aspects of this subject. The aim of this paper is to contribute to a better understanding of intellectual property right issues from an economic perspective. The paper was written by John Revesz under the direction of Philippa Dee. The paper was refereed within the Productivity Commission, but it does not necessarily reflects the views of the Commission. Helpful information and comments were provided by officers of IP Australia, the Attorney General’s Department, the Intellectual Property Branch in the Department of Communications, Information Technology and the Arts and the Intellectual Property Unit in the Department of Foreign Affairs and Trade. The views expressed in this paper are not necessarily shared by the abovementioned departments or agency. PREFACE VII Abbreviations ABS Australian Bureau of Statistics AGPS Australian Government Publishing Service AGD Attorney General’s Department AIPO Australian Industrial Property Organisation ALRC Australian Law Reform Commission BERD Business enterprise research and development BIE Bureau of Industry Economics CD Compact disk CLRC Copyright Law Review Committee CSIRO Commonwealth Scientific and Industrial Research Organisation DFAT Department of Foreign Affairs and Trade DIST Department of Industry, Science and Technology DOCA Department of Communications and the Arts GATT General Agreement on Tariffs and Trade GDP Gross domestic product IC Industry Commission IP Intellectual property IPR Intellectual property right OECD Organisation for Economic Co-operation and Development ORR Office of Regulation Review PC Productivity Commission PCT Patent Cooperation Treaty PSA Prices Surveillance Authority R&D Research and development VIII ABBREVIATIONS TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights UNESCO United Nations Educational, Scientific and Cultural Organisation UPOV International Union for the Protection of New Varieties of Plants USITC United States International Trade Commission WCT WIPO Copyright Treaty WIPO World Intellectual Property Organisation WPPT WIPO Performance and Phonograms Treaty WTO World Trade Organisation Y2K Year 2000 computer bug ABBREVIATIONS IX X ABBREVIATIONS Overview The purpose of this paper is to describe and analyse from an economic perspective major issues in the intellectual property rights (IPR) area. IPRs provide legal protection to intellectual property against imitations or copying through patents, copyrights, trade marks, industrial designs and to a certain extent also trade secrets. Much of the discussion is concerned with the implications of the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). This international agreement was introduced in 1995 and is one of the set of agreements under the World Trade Organisation (WTO). The paper describes the TRIPS and other international IPR agreements, as well as broad features of Australian IPR legislation. On the empirical side, the paper presents various statistical indicators of Australian intellectual property, including some estimates of the patent and copyright cost content in production and trade. The rest of the paper is devoted to identifying and analysing IPR policy issues from an economic perspective. TRIPS and intellectual property legislation Over the last century, domestic IPR legislation has been strongly influenced by international conventions and agreements. International agreements on IPRs date back to the Paris Convention (1883) on industrial property (patents, trade marks and designs) and the Berne Convention on copyrights (1886). Bilateral IPR agreements between European countries started in 1829. International cooperation in the IPR area is motivated by the fact that IPR protection restricted within national boundaries has little effect in preventing imitation or copying abroad, unless protection is also provided by other countries. The primary purpose of the Paris and Berne conventions and subsequent agreements is to ensure an international coverage of IPR protection by providing to foreigners equal protection as for domestic residents. In addition, these agreements seek to make it easier to obtain IPRs in different jurisdictions. While these international agreements ensured some measure of global IPR protection over the last century, this became less satisfactory in recent years. One reason was the increasing globalisation of the world economy.