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Trading our intellectual property for a lamb chop ...

By Dale Spender - posted Friday, 24 August 2007


Australia - are we the world’s most innovative and inventive country?

Whether Australia is the world’s most innovative/inventive country is an interesting question to ask - but its not a very helpful one if we want to know if such an achievement is an asset: for the test is not whether or not we can invent - it’s whether or not we can commercialise our inventions, so that they become assets.

Certainly, Australia has achieved enormous success in its sheer number of inventions (particularly with its small population base). But this country is but an amateur in comparison to the United States when it comes to converting inventions into the new wealth of intellectual property. (And given America’s history of patent theft and piracy - this might not be a model Australia chooses to follow.)

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More than any other country, the United States has a longer history, and a more explicit policy of protecting intellectual property: its own.

Unlike Australia - which still has no national IP (intellectual property) policy, the United States began with an understanding of the importance of commercialisation.

The founding fathers of the American constitution explicitly stated that Congress had the power to “promote the Progress of Science and useful Arts by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”.

What the Constitution did not state, (but which became the reality) was that this exclusive right applied then only to American citizens, and that it was always meant to serve American interests. It is one reason that in the 21st century, America owns most of the world’s intellectual property, and that regardless of successful inventions, Australia owns very little.

From its first days of independence, the United States placed the greatest emphasis on the development of a “home-grown” American industry - by any means. And to do this, says Pat Choate, himself an American citizen, the Americans stole “ideas and technology from the rest of the world, without embarrassment, apology or compensation” (2005, p17-18).

America hasn’t been the only country to adopt a national policy of pirating other countries trade secrets and industrial know-how, (Japan and China are more recent examples): but it was the first to develop an open culture of piracy.

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Throughout the 19th century, for example, America boldly and blatantly pirated all the works of the great English novelists. Charles Dickens complained and protested that he was losing millions in the United States, as his highly popular books sold (in extraordinary numbers) for a mere fraction of their cost in England, and without one penny going into his pockets.

But the Americans justified their piracy. They wanted to promote a culture of mass literacy and education; they needed workers who could read and write (and follow manuals) in their expanding factory system. And the only way they could achieve this was by providing their citizens with inexpensive literature.

(When in the late 20th century, countries such as India came forward with much the same argument of educating the masses, and sought cheap educational texts from the United States - American politicians had either forgotten their own history, or decided that the Indian argument was not convincing.)

In the US, piracy remained the official policy until American writers emerged and enjoyed international sales - but had no foreign copyright and received no royalties from overseas! Then international agreements were quickly signed to protect American intellectual property in foreign countries. (The same applied with patents: once the US had its own amazing inventors to protect, there was a need for international agreements to prevent their work from being pirated.)

In this culture of government-approved piracy, America was also the first country to treat an industrial spy - such as Frances Cabot Lowell - as a national hero. It was when Britain dominated the textile industry, and America was desperate to obtain the know-how of the Cartwright loom, which was the secret to the British success. So in 1810, Mr Lowell set out to deliberately pirate the technology.

Lowell was well educated, and well prepared. He went to England on the pretext of seeking a cure for ill health, taking his wife and family with him. The English manufacturers saw him as a potentially wealthy client and had no idea he was engaged in industrial espionage.

“Eventually, Lowell accumulated from his British hosts all the technical information he needed to build a fully integrated textile mill” says Choate, and returned to the United States where he was hailed as a hero. He went on to establish the Lowell textile mills and became exceedingly rich.

The American patent system protected its own citizens, but its laws did not apply to foreigners - so there was nothing the British could do about the theft of their inventions in America. This was how America “became by national policy and legislative act, the world’s premier legal sanctuary for industrial pirates” (Pat Choate p30).

There is no doubt that the American policies of stolen patents paid off and established the basis for its immense wealth today. The US could “jump-start” all the many forms of industrialisation, with stolen copyright and patents. It also had a culture of mass literacy, and could draw on skilled workers. By the middle of the 19th century, America was able to establish its industrial dominance.

During the 20th century, America stole many of the patents associated with the film industry - thereby establishing its ascendancy. The most famous American inventor, Thomas Edison played a leading role in getting the movie industry off to a good start: he registered nine movie patents, the most significant of which was his camera which at first dominated the industry.

He built the world’s first movie studios and set up the monopoly, the Motion Picture Patent Company in 1907 - but there were other (European) inventors/competitors, who were distributing films in the US. So Edison simply pirated their films and showed them himself. “Thus it was” says Pat Choate, “that Auguste and Louis Lumière, and George Méliès, true (innovative) pioneers, withdrew from the US market, because the films were being pirated by America’s most admired inventor” (p74).

Not that US movie piracy was always directed against foreigners. William Fox, the father of today’s big media company pirated Edison’s inventions - which is one reason he fled to the west coast and helped to establish the Hollywood movie industry: it was out of the reach of the east coast law enforcers.

And of course, as with books, and industrial inventions, once the US had pirated the essentials and established its own commercial interests, the energy went into setting up laws that were designed to protect its own intellectual property from bring pirated by any other country. To have a trade agreement with America, countries now have to sign up to “harmonise” their own IP laws with those of the United States. They are the laws that favour American IP and which Australia agreed would become our laws, when the trade minister Mark Vaille signed the FTA.

Which is why Australian inventions may languish - or be swiftly acquired.

There is no secret now as to how the US got to own most of the world’s IP at the end of the 20th century.

In the 1970s, two very powerful US businessmen got together: their names were John Opel, CEO of IBM, and Edmund Pratt, the CEO of the giant pharmaceutical company, Pfizer, and they were both in the IP/patent business.

They understood that the world’s economy was shifting to a knowledge based foundation, and that if they wanted to protect - and expand - their commercial interests, they needed to change the way that IP was managed at the international level.

The World Intellectual Property Organisation (WIPO) was the international forum for legal debates and treaties at that time. It was an agency of the United Nations and all member nations had a vote. Not surprisingly, the poorer nations, the ones with little IP legislation (they had few patents or copyrights), generally outvoted the richer ones.

And one very rich nation, which held most of the world’s IP (much of which belonged to the companies of Mr Opel and Mr Pratt) was frustrated and provoked by this arrangement.

To John Opel and Edmund Pratt, WIPO was a most unsatisfactory forum for pushing their IP agenda. It was all talk. The US couldn’t get the decisions it wanted, and what’s more, as there were no penalties for countries that didn’t stick to the legal agreements - there was no point anyway!

These two captains of industry wanted an international body where they had more control. Where they could enforce the rules - and penalise any nation that “misused” (their) intellectual property. And they came up with a way to do it.

Along with a few of their friends - who were the CEOs of Hewlett Packard, General Motors, General Electric, Johnson and Johnson, Monsanto etc - they formed an association - and they changed the vocabulary: they started talking first about IP rights, and then about IP as property, and finally they made the shift to IP as trade!

These CEOs, who had their own agenda, reasoned (ingeniously) that most nations of the world complied with trade agreements. (Partly because tariff barriers, sanctions and penalties could be applied if they did not.) So if only IP could be treated as a form of trade rather than a legal agreement, they would be able to get a better deal for their patents, copyright and trademarks.

This was quite an achievement as there are difficulties in trading IP - which is an intangible - something you can’t see or touch. But having changed the way IP was seen they were able to move it from the legal realm where lawyers argued about rights - to the commercial world where businessmen did their deals with trade.

And the rest is history. Mainly US history.

From their efforts a new world order was created in April 1994 with the signing of TRIPS (Trade Related Aspects of Intellectual Property). IP was taken out of the legal talk-fest and planted firmly in the hard-nosed business negotiations of trade. And the rules are clear; they favour the US multinationals.

This US achievement has been described as “an extraordinary coup of less than 50 individuals” by Pat Choate in his book Hot Property; the stealing of ideas in an age of globalisation: it’s something else to the Australians, Peter Drahos and John Braithwaite:

Put starkly, they say, the intellectual property rights regime we have today, largely represents the failure of democratic processes (p12). Why, they ask, would Australia (and other nations) willingly “give up sovereignty over something as fundamental as the property laws that determine the ownership of information and the technologies that so profoundly affect the basic rights of their citizens?” (Intellectual Feudalism, p11.)

Much the same questions were asked again in 2005 when Australia signed the Free Trade Agreement with the USA. According to one esteemed Australian journalist we traded our IP for a lamb chop. Sydney Morning Herald business commentator Ross Gittins said much the same thing: “To the Australian negotiators it is about eliminating trade barriers; to the US it is all about IP”. They sell it and we buy it. On their terms.

And that’s the story of how IP has become the new wealth. And how countries that don’t “harmonise” their IP laws with the US are in trouble; and individuals who don’t go along with the US laws designed to lock up American IP - are pirates and criminals.

For Australia to routinely commercialise its many great inventions it would have to get round some of the present “harmonisation” requirements. This would take some inventive thinking. But the nation would also need to consider whether it would be prepared to go as far as the US model in protecting that intellectual property.

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About the Author

Dale spender is a researcher and writer on education and the new technologies.

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