Weakening political support for IP?

In this morning’s Wall Street Journal, the former dean (1990-2004) of the Boston U. law school, Ronald Cass, wrote a scathing attack on the efforts of 35 Congressional Democrats to weaken Bush Administration efforts to get Thailand to respect the intellectual property rights of U.S. companies.

The opinion piece (Democrats and U.S. Intellectual Property) is available by subscription only and not on the free OpinionJournal site. But the gist is that some of the IPs being infringed by the Thai military government are U.S. drug company patents, the Bush administration wanted to do something about that, but some U.S. politicians think that’s such infringement is a good thing.

The charge is being led by Rep. Henry Waxman (D-Hollywood), who has represented entertainment industry interests in Washington since 1974. His involvement here is a little surprising. On the one hand, Waxman is a lawyer and career politician who has never been a friend of free markets or (other than Hollywood) business interests. He is also the co-author of the main U.S. law encouraging generic drug competition, the 1984 Hatch-Waxman Act.

On the other hand, the largest losses due to IP “piracy” in Southeast Asia over the past 20 years have been for prerecorded music and video, followed by computer software (a major California export). Cass noted that “The International Intellectual Property Alliance reports that 80% or more of the software sold in Thailand is pirated, as are more than 60% of the motion picture works and 50% of the records and music.”

Like the U.K. and several other developed countries, the United States has long been a net importer of manufactured goods. IP has been one of the few areas where the U.S. has a positive current account balance, and thus U.S. policy for about 20 years has been that lax IP enforcement is a non-tariff trade barrier (NTB). Some outside the U.S. have plausibly argued that the current global IP system largely exists to reward American interests.

I studied this in depth over 10 years ago in researching my first academic paper, “Software rights and Japan’s shift to an information society.” While IP creation tends to avoid smokestacks and manual labor, the problem is that it’s easier to steal IP than it is to steal a car (let alone a factory or piece of real property). The 1994 TRIPS accords under the multilateral WTO system — as well as the unilateral US Special 301 retaliation clauses — were set up to address this problem.

Among his harsh criticisms, Cass raises some important points. Who should make U.S. trade policy? The executive branch? A majority of both houses of Congress? Or 8% of the lower house (not having gone to the trouble of introduced specific legislation to be decided through the democratic process).

For American companies, this fight has broader implications. Sure, the question of Thailand’s compulsory licensing of AIDS drug patents is controversial, with some Americans siding against U.S. drug companies. And — as with any lax IP enforcement — there is always the fear of gray market reverse imports hurting your home market. But my main question is whether this is symptomatic of a larger policy shift.

President Bill Clinton was probably the most aggressive U.S. president in two decades pushing retaliation against NTBs (with weapons such as Super 301) in the name of protecting (in both senses of the word) U.S. industries. He was heavily backed by fellow Democrats, particularly in the House. Three years ago, then-Minority Leader Nancy Pelosi pushed hard for Super 301 retaliation against Chinese firms.

So this leaves a puzzle. Is the current politicking against U.S. IP interests happening because

• it’s just greedy Big Pharma, being demonized with Bill Oil and Big Tobacco?
• a fringe group wants free health care at any cost?
• you can’t get elected dogcatcher as a Democrat without attacking George Bush?
• the majority of Congress no longer wishes to fight foreign governments to protect enforcement of U.S. IP abroad?

A little certainty would be good here. It’s often my view that (shy of Hugo Chavez-style confiscation) businesses usually have more trouble with uncertainty of regulation than the regulation itself. If IP investments aren’t going to be rewarded, drug companies can fire their R&D departments and go into generics, or just try to cure diseases that impact rich Americans rather than poor Third World residents. My faith in free markets is strong enough to believe that the resulting underinvestment in necessary innovations would eventually lead to a policy change.

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