PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
PROTECTION OF
INTELLECTUAL PROPERTY RIGHTS
Most of the discussion in this chapter has centered on direct investment; however, one of the key business-government and government-to-government conflicts of recent years has involved intellectual property rights, sometimes referred to as intangible assets. The poet and essayist Ralph Waldo Emerson said, "If a man can write a better book, preach a better sermon, or make a better mousetrap than his neighbor, though he builds his house in the woods, the world will make a beaten path to his door." But if someone else gets hold of the design for the same book, sermon, or mousetrap the number of people beating the way on any single path will be divided. Some of the most valuable assets that businesses have are their intangibles, such as patents, trademarks, and copyrights, and millions of dollars can be spent in their development. Improper protection of these assets could lead to limited profitability by the parties that invested in developing the intangible. Given the different attitudes countries have toward property rights, adequate international protection of a firm's intangibles can only come about through international cooperation. Most countries have legal procedures for registering patents, trademarks, and copyrights, but it takes time for an MNE to duplicate the application process in every country in which it operates, which is why international treaties can be so important.
Patents
The first major attempt to achieve cross-national cooperation was the Paris Convention, initiated in 1883 and periodically revised. This convention gave rise to the International Bureau for the Protection of Industrial Property Rights (BIRPI) and involved the protection of patents, trademarks, and other property rights. The general idea behind the Paris Convention was that a nation would grant to foreigners who are members of the Convention the same status accorded its own citizens in the protection of property rights. A second major provision of the Paris Convention was that a registration in one country has a grace period of protection before filing in other member countries. The Inter-American Conference of 1910 on Inventions, Patents, Designs, and Models was initiated among the United States and Latin American countries to accomplish the same objectives as the Paris Convention.
The three most important contemporary cross-national patent agreements are the Patent Cooperation Treaty (PCT) of the World Intellectual Property Organization (WIPO), the European Patent Convention (EPC), and the EEC Patent Convention.48 The PCT and EPC allow firms to make a uniform patent search and application, which is then passed on to all signatory countries.
Patent-infringement battles are both costly and complex, and they may take years to settle. The major problems on the international level are the rapid development of technology and the different patent rules and regulations in different countries.49 Companies are forced to change their patents from country to country to meet local needs, and patent infringement is often difficult to prove. For example, a company in Italy, where there is no patent protection on pharmaceuticals, could manufacture a drug patented by a firm in the United States and sell it anywhere in the world. If the U.S. firm were to bring suit, it would have to prove patent infringement but would have difficulty getting the proof in Italy. Owing to the high costs of patent-infringement suits, many firms are attempting to settle out of court. Another problem is that the duration of patent protection varies among countries. For example, Canada has a shorter protection period on drugs than the United States has; thus Canadian producers may export generic drugs to compete against U.S. firms elsewhere in the world.
Trademarks
Companies may spend millions of dollars to develop brand names. If the brand names are not protected by a trademark, then other companies may produce under the same brand name. Even if the names have a trademark, they may become generic and thus enter the public domain. "Yo-yo" is actually a foreign trademark that has become generic in the United States; although "Ping-Pong" is a registered trademark in the United States, it has become generic in China and is used in place of "table tennis." Since the Japanese have no name for vulcanized rubber, they use "goodyear" to identify the product. One development in cross-national cooperation for trademark protection is the Trademark Registration Treaty, commonly known as the Vienna Convention. The United States, the United Kingdom, Germany, and Italy were among the industrialized countries that signed initially.
Some countries require the use of a trademark before an application of registration can be filed. Codified-law countries (those using statutory law rather than common law) traditionally have not recognized use as a precondition to registration or as a valid protection against infringement. According to the Vienna Convention, a country may not require the use of a mark as a prerequisite to obtain or maintain registration until three years after its international registration. Once the mark has been registered internationally, each country must accept it or provide grounds for refusal within fifteen months so that the firm will have sufficient time to act before its three-year period is completed.
Copyrights
Most large publishing and recording companies have extensive foreign interests and can be influenced easily by foreign competition. If there were no international copyright laws, it would be feasible for a foreign producer to copy a book or tape and then distribute it at cut-rate prices in the country where it was first produced. The Universal Copyright Convention (UCC), the major cross-national agreement, honors the copyright laws of the signatory states.
Piracy
Not all countries are members of the various agreements to protect intangible property rights. Of those that are, some enforce the agreements haphazardly. Many countries simply do not place a high priority on tracking down or prosecuting people who violate these property rights, preferring to focus their police efforts on crimes they consider more serious. Disagreement on the protection of property rights was a major factor in the inability of GATT's Uruguay Round to reach agreement by its 1990 target date. Many LDCs have resisted agreement on protection because payments almost always go to firms headquartered in industrial countries.
The cost to companies that depend on a well-known trademark to merchandise their goods has become enormous. Cashing in on massive advertising by placing well-known trademarked labels on copies of products is tempting for some companies. This has occurred with almost every type of goods—fake labels even go on merchandise that the copied companies do not make, such as the Jordache label on disco bags and caps.
What about consumers? Sometimes they get good-quality merchandise with a prestige label for a fraction of what the legitimate product would have cost. Some firms have even contracted counterfeiters to be legitimate suppliers. Often, though, shoddy or even dangerous merchandise is substituted for the original, legitimate goods. In Britain defective brake parts turned up in military aircraft, and in the United States twelve people died from counterfeit tranquilizers.50
Sales also are lost when products are copied, although the copier does not use someone else's trademark, such as in the copying of books, tapes, and software. When the drug company Pfizer introduced Feldene, an antiar-thritic drug, to Argentina, five Argentine firms were already selling generic copies in the market.
Various associations of manufacturers have sprung up worldwide to deal collectively with the problem of piracy. Among the deterrents that have been proposed are greater border surveillance, criminal penalties for dealing in counterfeit goods, and the cessation of aid to countries that do not join and adhere to international agreements. Companies such as Apple Computer and Union Carbide are also successfully tracking down infringers on their own and bringing cases against them, but it is difficult to prove infringement when slight changes are made in trademarks or product models. Other companies are using high technology, such as holographic images and magnetic or mi-croship tags, to identify the genuine products. This has cost them millions of dollars in payments for detecting devices.53 Vuiton, a French luggage manufacturer, is fighting with a withdrawal strategy—selling registered and numbered goods only in company-owned retail outlets. Still other firms are warning the public of imitations and advising on how to discern the genuine product.
<strong>LOOKING TO THE FUTURE</strong> Probably the most significant factor affecting a possible change in business-government diplomacy is the ebbing of the cold war, which had pitted the Eastern and Western blocs against each other for nearly half a century. Governments had been prone to influence business activities because of political-military objectives, sometimes protecting their national companies so that they would gain spheres of influence abroad and sometimes withholding support for fear that a neutral nation might otherwise be prone to lend more support to the other bloc. But political schisms are not yet a thing of the past, and thus managers must continue to contend with cross-national animosities when planning their own international expansion strategies.
National economic rivalries with new alignments may well replace some of the political-military rivalries of the recent past. For instance, a new economic rivalry between Europe and North America may become as intense as the old political rivalry between the communist and noncommunist blocs. Companies may thus be no less subjected to having to satisfy national interests in their operations. During the short term, it appears that most countries will welcome foreign firms' operations or at least take a laissez-faire attitude toward them because of a belief that, on balance, they serve their national economic interests. But there are likely to be many exceptions. One involves countries such as India and South Korea, which have traditionally not welcomed wholly owned foreign operations. Another involves the privatization of state-owned enterprises, for which prospective buyers must negotiate on much more than the price. Still another involves the countries transforming from centrally planned to market economies, where negotiations are apt to be very long and complex. Furthermore, historically there have been broad swings in host-country attitudes toward foreign ownership. The present welcome to FDI could easily reverse, particularly if governments feel that their own constituencies are not receiving a just share of global economic benefits. Regardless of the direction of swings in national policies, companies are likely to face ever-more sophisticated government officials when they negotiate their operating terms abroad.
It is probably safe to say that companies headquartered in different countries will continue to become more entwined through joint ventures, licensing, contract buying, and other arrangements. Many of these companies will likewise continue to depend more on sales and production outside their home countries, while simultaneously bringing in more shareholders and top managers from abroad. These activities may strengthen their positions vis-a-vis governments as a whole, but they may weaken their positions with their home-governmental officials, who no longer see them as representing a national interest.
Government-to-government cooperation to deal with international firms is apt to move slowly, at least on a global scale. There are simply too many divergent interests among countries, which tend to divide them on different issues based on economic development levels, product-specific interests, and regional viewpoints. One such issue is the protection of intangibles, which pits the interests of industrial countries that create most of the patents, trademarks, and copyrights against the interests of many LDCs that do not want to pay for their use. In such instances, we may see more linkages to other areas in overall economic policy, such as the cessation of trade preferences for countries that do not protect intangible property rights. We may see more attempts by small groups of countries to band together to unify or coordinate policies toward international firms, such as by countries operating in trading blocs.
INTELLECTUAL PROPERTY RIGHTS
Most of the discussion in this chapter has centered on direct investment; however, one of the key business-government and government-to-government conflicts of recent years has involved intellectual property rights, sometimes referred to as intangible assets. The poet and essayist Ralph Waldo Emerson said, "If a man can write a better book, preach a better sermon, or make a better mousetrap than his neighbor, though he builds his house in the woods, the world will make a beaten path to his door." But if someone else gets hold of the design for the same book, sermon, or mousetrap the number of people beating the way on any single path will be divided. Some of the most valuable assets that businesses have are their intangibles, such as patents, trademarks, and copyrights, and millions of dollars can be spent in their development. Improper protection of these assets could lead to limited profitability by the parties that invested in developing the intangible. Given the different attitudes countries have toward property rights, adequate international protection of a firm's intangibles can only come about through international cooperation. Most countries have legal procedures for registering patents, trademarks, and copyrights, but it takes time for an MNE to duplicate the application process in every country in which it operates, which is why international treaties can be so important.
Patents
The first major attempt to achieve cross-national cooperation was the Paris Convention, initiated in 1883 and periodically revised. This convention gave rise to the International Bureau for the Protection of Industrial Property Rights (BIRPI) and involved the protection of patents, trademarks, and other property rights. The general idea behind the Paris Convention was that a nation would grant to foreigners who are members of the Convention the same status accorded its own citizens in the protection of property rights. A second major provision of the Paris Convention was that a registration in one country has a grace period of protection before filing in other member countries. The Inter-American Conference of 1910 on Inventions, Patents, Designs, and Models was initiated among the United States and Latin American countries to accomplish the same objectives as the Paris Convention.
The three most important contemporary cross-national patent agreements are the Patent Cooperation Treaty (PCT) of the World Intellectual Property Organization (WIPO), the European Patent Convention (EPC), and the EEC Patent Convention.48 The PCT and EPC allow firms to make a uniform patent search and application, which is then passed on to all signatory countries.
Patent-infringement battles are both costly and complex, and they may take years to settle. The major problems on the international level are the rapid development of technology and the different patent rules and regulations in different countries.49 Companies are forced to change their patents from country to country to meet local needs, and patent infringement is often difficult to prove. For example, a company in Italy, where there is no patent protection on pharmaceuticals, could manufacture a drug patented by a firm in the United States and sell it anywhere in the world. If the U.S. firm were to bring suit, it would have to prove patent infringement but would have difficulty getting the proof in Italy. Owing to the high costs of patent-infringement suits, many firms are attempting to settle out of court. Another problem is that the duration of patent protection varies among countries. For example, Canada has a shorter protection period on drugs than the United States has; thus Canadian producers may export generic drugs to compete against U.S. firms elsewhere in the world.
Trademarks
Companies may spend millions of dollars to develop brand names. If the brand names are not protected by a trademark, then other companies may produce under the same brand name. Even if the names have a trademark, they may become generic and thus enter the public domain. "Yo-yo" is actually a foreign trademark that has become generic in the United States; although "Ping-Pong" is a registered trademark in the United States, it has become generic in China and is used in place of "table tennis." Since the Japanese have no name for vulcanized rubber, they use "goodyear" to identify the product. One development in cross-national cooperation for trademark protection is the Trademark Registration Treaty, commonly known as the Vienna Convention. The United States, the United Kingdom, Germany, and Italy were among the industrialized countries that signed initially.
Some countries require the use of a trademark before an application of registration can be filed. Codified-law countries (those using statutory law rather than common law) traditionally have not recognized use as a precondition to registration or as a valid protection against infringement. According to the Vienna Convention, a country may not require the use of a mark as a prerequisite to obtain or maintain registration until three years after its international registration. Once the mark has been registered internationally, each country must accept it or provide grounds for refusal within fifteen months so that the firm will have sufficient time to act before its three-year period is completed.
Copyrights
Most large publishing and recording companies have extensive foreign interests and can be influenced easily by foreign competition. If there were no international copyright laws, it would be feasible for a foreign producer to copy a book or tape and then distribute it at cut-rate prices in the country where it was first produced. The Universal Copyright Convention (UCC), the major cross-national agreement, honors the copyright laws of the signatory states.
Piracy
Not all countries are members of the various agreements to protect intangible property rights. Of those that are, some enforce the agreements haphazardly. Many countries simply do not place a high priority on tracking down or prosecuting people who violate these property rights, preferring to focus their police efforts on crimes they consider more serious. Disagreement on the protection of property rights was a major factor in the inability of GATT's Uruguay Round to reach agreement by its 1990 target date. Many LDCs have resisted agreement on protection because payments almost always go to firms headquartered in industrial countries.
The cost to companies that depend on a well-known trademark to merchandise their goods has become enormous. Cashing in on massive advertising by placing well-known trademarked labels on copies of products is tempting for some companies. This has occurred with almost every type of goods—fake labels even go on merchandise that the copied companies do not make, such as the Jordache label on disco bags and caps.
What about consumers? Sometimes they get good-quality merchandise with a prestige label for a fraction of what the legitimate product would have cost. Some firms have even contracted counterfeiters to be legitimate suppliers. Often, though, shoddy or even dangerous merchandise is substituted for the original, legitimate goods. In Britain defective brake parts turned up in military aircraft, and in the United States twelve people died from counterfeit tranquilizers.50
Sales also are lost when products are copied, although the copier does not use someone else's trademark, such as in the copying of books, tapes, and software. When the drug company Pfizer introduced Feldene, an antiar-thritic drug, to Argentina, five Argentine firms were already selling generic copies in the market.
Various associations of manufacturers have sprung up worldwide to deal collectively with the problem of piracy. Among the deterrents that have been proposed are greater border surveillance, criminal penalties for dealing in counterfeit goods, and the cessation of aid to countries that do not join and adhere to international agreements. Companies such as Apple Computer and Union Carbide are also successfully tracking down infringers on their own and bringing cases against them, but it is difficult to prove infringement when slight changes are made in trademarks or product models. Other companies are using high technology, such as holographic images and magnetic or mi-croship tags, to identify the genuine products. This has cost them millions of dollars in payments for detecting devices.53 Vuiton, a French luggage manufacturer, is fighting with a withdrawal strategy—selling registered and numbered goods only in company-owned retail outlets. Still other firms are warning the public of imitations and advising on how to discern the genuine product.
<strong>LOOKING TO THE FUTURE</strong> Probably the most significant factor affecting a possible change in business-government diplomacy is the ebbing of the cold war, which had pitted the Eastern and Western blocs against each other for nearly half a century. Governments had been prone to influence business activities because of political-military objectives, sometimes protecting their national companies so that they would gain spheres of influence abroad and sometimes withholding support for fear that a neutral nation might otherwise be prone to lend more support to the other bloc. But political schisms are not yet a thing of the past, and thus managers must continue to contend with cross-national animosities when planning their own international expansion strategies.
National economic rivalries with new alignments may well replace some of the political-military rivalries of the recent past. For instance, a new economic rivalry between Europe and North America may become as intense as the old political rivalry between the communist and noncommunist blocs. Companies may thus be no less subjected to having to satisfy national interests in their operations. During the short term, it appears that most countries will welcome foreign firms' operations or at least take a laissez-faire attitude toward them because of a belief that, on balance, they serve their national economic interests. But there are likely to be many exceptions. One involves countries such as India and South Korea, which have traditionally not welcomed wholly owned foreign operations. Another involves the privatization of state-owned enterprises, for which prospective buyers must negotiate on much more than the price. Still another involves the countries transforming from centrally planned to market economies, where negotiations are apt to be very long and complex. Furthermore, historically there have been broad swings in host-country attitudes toward foreign ownership. The present welcome to FDI could easily reverse, particularly if governments feel that their own constituencies are not receiving a just share of global economic benefits. Regardless of the direction of swings in national policies, companies are likely to face ever-more sophisticated government officials when they negotiate their operating terms abroad.
It is probably safe to say that companies headquartered in different countries will continue to become more entwined through joint ventures, licensing, contract buying, and other arrangements. Many of these companies will likewise continue to depend more on sales and production outside their home countries, while simultaneously bringing in more shareholders and top managers from abroad. These activities may strengthen their positions vis-a-vis governments as a whole, but they may weaken their positions with their home-governmental officials, who no longer see them as representing a national interest.
Government-to-government cooperation to deal with international firms is apt to move slowly, at least on a global scale. There are simply too many divergent interests among countries, which tend to divide them on different issues based on economic development levels, product-specific interests, and regional viewpoints. One such issue is the protection of intangibles, which pits the interests of industrial countries that create most of the patents, trademarks, and copyrights against the interests of many LDCs that do not want to pay for their use. In such instances, we may see more linkages to other areas in overall economic policy, such as the cessation of trade preferences for countries that do not protect intangible property rights. We may see more attempts by small groups of countries to band together to unify or coordinate policies toward international firms, such as by countries operating in trading blocs.
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