A number of countries see cutting-edge intellectual property, especially for life sciences and high-tech goods, much like a predatory bandit saw trade caravans in centuries past—as something there to be raided and plundered. As trade and economic activity becomes more knowledge-based and dependent on intellectual property, the battle between countries that develop and protect the latest technological innovations against those that seek to steal it will only increase. A new paper by Australian academics Sinclair Davidson and Jason Potts—The Stationary Bandit Model of Intellectual Property—presents a new model that captures key traits of this global battle over intellectual property.
Before analyzing how this model reflects the real world, it’s important to consider the contrasting foundations of the new Davidson-Potts model compared to the standard economic model of intellectual property. The standard model sees intellectual property as a government-granted monopoly designed to create public incentives, that the natural domain of this property right is under the government which grants this right, and that intellectual property theft, when it occurs, is largely private—by individuals and firms. Traditional theory paints governments as benevolent actors that create the right conditions—the supply side of the market—for intellectual property to emerge within a country.
The Davidson-Potts model makes none of these claims. Their new model pits “stationary” governments that protect domestic intellectual property in order to maximize tax income against “predatory” governments acting as roving “bandits” trying to steal intellectual property. In this model, governments are not necessarily supportive of intellectual property, but instead are its biggest and most devastating predators. This is because governments are often the predominant consumer of goods relying on intellectual property (e.g., socialized health care, defense, and infrastructure) and therefore have an interest in helping their businesses and consumers get access to intellectual property without paying (i.e. using banditry practices).
As a key consumer and regulator, governments thus have the power to systemically attack and undermine intellectual property. The paper documents a number of ways governments are intellectual property bandits, including by devaluing intellectual property in order to reduce the prices governments pay or the scope over which they pay, increasing their range of control over the commercial product, and improving their bargaining position. Another key distinction is that this model views intellectual property as the product of entrepreneurial discovery that automatically enters a global market, not something that stays within the confines of a country’s borders.
In more ways than one, this framework better reflects reality. First, this model moves the debate to the global level. Modern technology allows entrepreneurs and their startups and ideas to be “born global,” no longer bound to a linear expansion from local to national to international markets. The largest and most innovative firms—think companies like Boeing, Amgen, and Apple—also rely on global markets to provide scale to recoup the significant investments they make in research, development, and design, which enables further investment and innovation and so on in a virtuous cycle. These global opportunities create equally global vulnerabilities as these ideas are quickly and widely exposed to “bandit” countries that are not as innovative and that want the latest technology or other content for themselves—using whatever means necessary.
Second, the strategy used by the “bandit” countries accurately reflects what the Information Technology and Innovation Foundation describes as “innovation mercantilism”—a strategy that seeks to expand domestic innovation capacity and technology exports by manipulating and abusing the international trading system and the market-based principles that underpin free trade. Targeting foreign firms that have valuable intellectual property, such as in information technology, life sciences, and advanced manufacturing, is at the heart of this strategy. The methods are many and varied, including forcing companies to transfer technology or setup research centers as a condition of market access, issuing or threatening to issue compulsory licenses for cutting-edge drugs, mandating local technical standards or certifications to ensure local production, and directly or implicitly supporting government-sponsored theft of intellectual property, especially over the Internet.
China is the global leader in innovation mercantilism, but many countries—such as India, Indonesia, Russia, and Brazil—have taken notice of China’s approach. They are watching what trading partners and institutions have allowed China to get away with and then implemented similar policies. Of course, these “bandits” do not explicitly state that their aim is to steal intellectual property, as this would contravene international trade rules and weaken their status as “victims of the rapacious West,” but it essentially produces the same result. The model reflects a complicated reality: Parts of a government can act as a “bandit” (e.g., the military and crony-linked “local champions”—domestic companies that the government seeks to build into leaders in strategic sectors), while others act as a “stationary” government (e.g., universities and agencies involved in supporting legitimate intellectual property and innovation). While this tension differs country-to-country, what matters is the dominant strategy, which in a growing number of nations is reflected in industrial development strategies that put all sorts of direct and indirect financial and other support towards capturing the latest intellectual property.
Third, the model outlines in broad terms how “stationary” governments need to adopt an aggressive approach in confronting such banditry—using the trade and the economic equivalent of “gunboat diplomacy.” The model does not advocate the use of actual force (akin to U.S. Commodore Perry’s use of gunboats to open Japan to trade in 1853), but merely points out how governments have long acted on behalf of their merchant citizens to create opportunities for trade in new foreign markets. It hits on the point that such “banditry” is unlikely to be deterred by passive approaches such as education or shame (which the U.S. Trade Representative’s 301 report is usually used for), given the large potential payoffs. Instead, these “bandit” countries need to be confronted through a strategy that ramps up both the deterrence—and the costs—of intellectual property theft. However, a complicating factor for governments that seek to take a more aggressive approach with these kinds of countries is that—just like merchants who cut deals with bandits to allow safe passage or market access—some firms with intellectual property are reluctant to cooperate for fear of retaliation.
This model sadly, but accurately, reflects key themes in the global battle to protect intellectual property and promote innovation and content creation. In an ideal world, international institutions, such as the World Trade Organization or the United Nations, would act as an additional overlay on this model to combat such intellectual property banditry. Unfortunately, all too often international institutions are being leveraged by the bandit countries who argue that they are poor victims and deserve to get intellectual property and content for free. One recent case is the UN High-Level Panel on Access to Medicines. There are rules that prohibit many of these “bandit” practices, but enforcement depends on the leaders of the global economy, such as the United States, European Union, and Japan, doing more. That’s needed, because, as Davidson and Potts conclude, what really needs protection “are IP-producing firms and individuals who are predated on by governments. These actions constrain the profitability of these firms, and therefore their ability to reinvest and grow, which of course includes the discovery of further intellectual property.” But if the global community is to tamp down on the global bandits, the gunboat “captains” need to either get bigger boats or better weapons or form a fleet, as the current approach to protecting intellectual property from “bandits” around the world is ineffectual in many cases.
Photo credit, Flickr.