Beyond Doha – part II

More on the trade talks and I-Cubed Economy issues from Intellectual Property Watch » WTO Doha Round Suspended Indefinitely, IP Issues May Be Kept On Table:

The end of the talks means that important developing country issues, such as the relationship between the Convention on Biological Diversity (CBD) and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) likely will not go forward for the time being. This issue has been seen by some as outside of the mandate of this round of talks.
Biodiversity Patent Disclosure, Geographical Indications Still to be Pushed
A number of developing countries, including Brazil, China and India, have proposed that the TRIPS agreement be changed to make it mandatory to include disclosure the origin of genetic resources in patent applications (IPW, Genetic Resources, 7 June 2006).
Brazilian Foreign Minister Celso Amorim told Intellectual Property Watch that Brazil “will continue to push” the issue although he noted that “all the groups are stuck,” referring to the negotiations in general.
India’s Nath agreed. He told Intellectual Property Watch: “Of course we will continue to push” for disclosure of origin in patent applications, as the CBD issue has been an “important ingredient of this round.”
But he added that India and the other supporters of the CBD issue did not want it to become an “instrument of abuse” through unfair use, saying that it should not be something these countries would have to use to trade off for something else.
The European Union is also determined to keep its demand regarding geographical indications (GIs), referring to products deriving their names from geographic places, alive.
European Commissioner for Agriculture and Rural Development, Mariann Fischer Boel, told Intellectual Property Watch that the GIs are “extremely important” for southern European countries in particular. She said the European Union would therefore keep the issue on the table, meaning not only on the EU agenda, but “on this [the WTO] table as well.”

While this round of talks may have broken down, many of the issues remain at the forefront of interest. What mechanisms emerge to address these issues is uncertain. As the above comments concerning India and the CBD issues indicate, these issues may need to be addressed directly rather than incorporated into some trade-off negotiations.

Beyond Doha – the next trade agenda

According to Reuters, the Doha Round of the trade negotiations is over: “Trade power talks collapse”:

WTO Director General Pascal Lamy told the G6 late on Sunday he would halt the Doha Development Agenda — launched in 2001 to ease poverty and boost the global economy — without a quick end to the deadlock, diplomats said earlier.
But 14 hours of talks yielded no breakthrough on Sunday and ministers were meeting again on Monday not to negotiate but to discuss what the next steps should be, diplomats said.

Frankly this comes as no surprise (see my earlier postings – “Future of trade talks” and “Trade focus shifting to IMF?“).
Discussing the next steps, however, is likely to be as messy as the negotiations themselves. The breakdown is essential over the issue of agriculture. Anti-globalization forces will claim victory as well. But agriculture and the perceived backlash against globalization are only part of the problem. As I stated back at the beginning of the Round in 2001 (in After Doha: What The WTO Is Not Talking About, many of the real issues weren’t even on the table:

Slightly less than a decade ago, I played a small part in the implementation of the Uruguay Round and the birth of the WTO. As a Senate trade policy staffer, I had fly-on-the-wall view of the pushing and shoving. At the time, I could not help but think that I was witnessing the last major trade round. I may be proven wrong. But, regardless of whether a new round is launched and successfully completed, it will be outdated before it begins. As we engage in the first war of the 21st century, we may be entering into the last trade negotiations of the 20th Century.
This is not to say that the negotiations are unimportant. There are numerous areas, ranging from agricultural subsidies to the dispute settlement process, that need to be addressed. These are, however, the loose ends of trade in the Industrial Age – not the emerging issues of the Information Era.

It remains to be seen if Pascal Lamy and the WTO can move the agenda into the 21st Century. It maybe, as I mused about before, the focus of the discussion needs to move to other venues.

Do patent promote or retard innovation

It is axiomatic in some circles that stronger patents are the key to greater innovation (see for example my posting on EU Innovation Scorecard). The counter to that claim might be found in a recent Wall Street Journal story – “How a University’s Patents May Limit Stem-Cell Research”:

When executives at Carlsbad, Calif.-based Invitrogen Corp. chose to locate their stem-cell research in Asia recently, they blamed the patents. And today, a California watchdog group, the Foundation for Taxpayer and Consumer Rights of Santa Monica, says it will ask the U.S. Patent and Trademark Office to overturn three patents awarded to James A. Thomson, the Wisconsin researcher who first isolated stem cells from human embryos in 1998.
The broadly worded patents, which cover nearly any use of human embryonic stem cells, are held by the Wisconsin Alumni Research Foundation, a nonprofit group that handles the school’s intellectual-property estate, managing a $1.5 billion endowment amassed during 80 years of marketing inventions.
John Simpson, an official at the foundation bringing the challenge, says WARF’s efforts to enforce its patents are “damaging, impeding the free flow of ideas and creating a problem.” Mr. Simpson’s group got involved in the dispute earlier this year after Wisconsin officials said they would demand a share of state revenue from California’s voter-approved stem-cell initiative.

One of the characteristics of knowledge (as described in the endogenous growth theory – or New Growth Theory) is that it is self-perpetuating: knowledge begets more knowledge. But the process only works if knowledge is shared — and a balanced patent system is key to that sharing. Which is why we need patent reform legislation — legislation that is unfortunately stalled. Given it is July of an election year, it is doubtful that anything will come out of this Congress. I can only hope that next year Congress will make patent reform a top priority.

John Deere gets into information services

One of the charateristics of the I-Cubed Economy is the fusion of manufacturing and services. Here is a good example from the Wall Street Journal story – “For Now, the Focus Is More on Innovation Than on Budget Cuts” – which highlighted that paragon of the industrial age, John Deere:

Last year, Deere formed two business groups: the intelligent mobile-equipment technology group and the Agri Services group, which is developing and marketing new services to help farmers grow more uniform crops. Last summer, the unit collected data from more than 300,000 acres of cotton fields so farmers knew precisely where to spray fertilizer.
Agri Services also aims to tell food companies and consumers more about what they’re buying. If a cereal company learns that certain crops make production easier or result in a better-tasting product, it may pay more for them. “We’ll be able to trace exactly what’s in the food we’re eating, where it was grown and what was done to it at every point in the food-production chain,” says Dan McCabe, senior vice president at Agri Services.

Many manufacturing companies have built businesses around servicing their own products. Deere has gone beyond that to build a business around their knowledge-base. In my mind, that is the mark of an I-Cubed Economy company!

Challeging innovation – and reforming copyright

Steven Pearlstein’s column in this morning’s Washington Post “A Sound Marketplace For Recorded Music” is a case study in how to attempt to stifle innovation:

Here in Washington, there is nothing more amusing than watching business interests work themselves up into a righteous frenzy over a threat to their monopoly profits from a new technology or some upstart with a different business model. Invariably, the monopolists (or their first cousins, the oligopolists) try to present themselves as champions of the consumer, or defenders of a level playing field, as if they hadn’t become ridiculously rich by sticking it to consumers and enjoying years in which the playing field was tilted to their advantage.
A recent example is the political and legal attack mounted by the music-recording industry against the upstarts of satellite radio.
You’d think an industry that has managed to turn out so much mediocre music for so many years, done so much to lower moral standards and lost so much business to illegal file-sharing would have something better to do than attack some of the few distributors that are actually expanding the market and charging for music. But the prospect that the industry might not extract every last penny out of the new satellite radio services and their customers is simply unacceptable to the Recording Industry Association of America.
. . .
The fundamental problem here is that there really isn’t a free and open “market” for recorded music.
It starts with copyrights, which are nothing more than little government-issued monopolies. As a result of the recording industry’s lavish political contributions, Congress has extended the copyright for music to absurd lengths of time (70 years after the death of the artist) and absurd situations (singalongs at Boy Scout campfires). This is well beyond what is reasonably required to meet the aim of encouraging artistic creation.
. . .
The copyright laws also effectively set up the record labels as a cartel that can bargain as a group with satellite and Internet radio operators over royalties and other terms. Not surprisingly, the same cartel-like behavior appears to extend to the industry’s negotiations with Apple’s iTunes and other download services, which seem to strike suspiciously similar deals at suspiciously similar times with all of the major recording studios. It’s perhaps no coincidence, then, that the industry has already settled an antitrust suit over price fixing of compact discs and is reported to be the subject of another antitrust probe regarding prices for music downloads.

After a succinct analysis of the problem, Pearlstein’s solution is straightforward:

if the goal here is to encourage innovation and competition in the market for recorded music, I can assure you that lawsuits and lobbying battles are a lousy way to go. The better strategy is to prune overgrown copyright protections, deregulate the industry and let the marketplace set prices and decide which companies and technologies and business models survive.

I agree to some extent – but wonder how far he is willing to push the competitive market. Is Pearlstein willing to go as far as the French in forcing Apple to open up the iPod? As far as I can tell, a significant part of the iPod success is due to the proprietary linkage between the gadget (iPod) and the download service (iTunes). Yes, the design is of the iPod is fantastic – but the business model is even better.
What the French propose to do is break that business model as anti-competitive. As one commentator in Wired put it, it may be the case of “How France Is Saving Civilization”:

Apple may not qualify as a literal monopoly — there are lots of ways to get music and buying online accounts for only a small fraction of total music sales. But the sliver it does control it controls almost completely, and it’s not out of the question to suggest that this sliver will ultimately become the only way people will buy music in the future.

Whether you agree or disagree with the French action, it highlights the problem of competition (anti-trust) policy in the equation. When is a business model innovation and when is it simply a new monopoly?
Implied, but not stated in Pearlstein’s solution is a careful analysis of the linkage between intellectual property and competition (anti-trust) policy. A few years ago, the Federal Trade Commission (FTC) did such an analysis in 2003 – To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy – which we featured in an Athena Alliance congressional luncheon briefing last year. Unfortunately, that report has had little impact, as patent reform legislation is stalled and no one is even considering copyright reform.
As Pearlstein says, it is time to “prune overgrown copyright protections.” In fact, it may be past time. Let us see if the fight he describes between satellite radio and the music-recording industry will provoke action.