Violate WTO rules, forfeit your IP?

With lousy Internet access over Christmas vacation, it was nice to have an RSS reader that automatically downloads stories for offline reading. One of the stories I found intriguing was on the Madisonian blog, about an odd case of IP retaliation in world trade.

The story starts with US efforts to prevents its residents from gambling using unregulated Internet casinos. (While I’d heard about the controversy, I didn’t realize that it was big enough to have a dedicated MSNBC news page).

In May 2003, offshore gambling interests filed a complaint at the World Trade Organization saying that the US ban on Internet gambling is an unfair trade practice. In November 2004, Antigua and Barbuda won their case.

If I understand the reasoning, because the US allows off-track betting within the US, the WTO regulators think it should allow offshore betting. Presumably the US could comply by imposing regulations for remote wagering (such as permit fees, bonding and background investigations) that could be applied equally to US and foreign remote betting organizations, but thus far the Bush administration has not made WTO conformance a priority. (The US still holds that its ban on interstate gambling is being applied fairly to international gambling).

The reason? Perhaps it was because there were real questions about the ability of the small countries to enforce the sanctions. So instead, Antigua (and its gambling industry) sought to collect the damages in other ways.

A week ago, the WTO arbitrator ruled (original bureaucratese here) that Antigua could violate US copyrights to the tune of $21 million every year. The novel precedent was successfully pushed by a clever Texas lawyer representing the gambling interests.

The $21 million represents a compromise damage amount between the US estimate of $0.5 million and the Antigua-Barbuda claim of $3.44 billion. Still, the decision sets a terrible precedent.

I realize that mutual hostage taking is the norm in international disputes — e.g., if Iranians seize US assets then the US government can seize Iranian assets. But having the WTO (which nominally is required to protect IP rights) sanction IP theft creates untold opportunities for mischief by countries that like to ignore IP rights already. There's also the question (as in many international sanctions) of punishing companies not party to the dispute.

Blogger Corry Doctorow argues that the US — which pushed hard to create the WTO — has been “hoisted on its own petard.” True enough. Since the US is pursuing an important public policy goal (reduced gambling) — even if through an imperfect manner — I wonder whether the ruling will fuel further U.S. cynicism towards subjecting domestic policies to review by international institutions.