Intellectual capital is now said to be as valuable as iron ore and oil were in the Industrial Age. This is often called the “Information Age,” but information has long been important. At the turn of the century, Mark Twain aptly observed: “Every improvement that is put upon real estate is the result of an idea in somebody’s head. The skyscraper is another idea. .... There is no property on earth that does not derive pecuniary value from ideas....” Of course, people cannot survive on ideas or information alone, but innovation in such areas as medicine and agriculture contribute to both wealth and well-being. Mining Cyberspace
Thomas G. Field, Jr.
[A paper delivered to several audiences in Malaysia.]Cyberspace is a Global Equalizer
Ideas in the form of digital text, images and sounds increasingly span the globe at lightspeed. Tools to create and manipulate economically and culturally important information are ever cheaper and easy to use. Today, “Cyber Age” may be more apt than “Information Age.” Entrepreneurs working with ideas and information need only a fraction of the resources required to make and distribute kitchen appliances, much less automobiles.
Success is less determined by access to large amounts of cash. Success is also ever less determined by territory — its size, what crops it can grow, where it is or what lies under it. Entire countries can mine the wealth of cyperspace. Those without extensive natural resources or key locations on major shipping routes may find this vitally important.Cyberspace is intangible. Its contents cannot be fenced in or locked up. Still, innovative individuals and firms need incomes and often need to attract further private investment. Free riders interfere with this and can be excluded with copyright, trademark and related laws. These collectively create intellectual property rights (IPRs) or simply IP. IPRs Encourage Innovation
IPRs do not generate market success any more than sinking a shaft means that oil will be found. Yet, when consumers value new products or services, such rights are critical. Income can be sizeable; consider, for example, the Star Wars sequels. Besides direct earnings from showings and videos, The Phantom Menace may generate over $3 billion in licensing fees. Hasbro, alone, paid $590 million for rights to make toys associated with that and the other two further planned sequels. In mid-June, sales, particularly of dolls, were matching or exceeding Hasbro’s expectations.
The situation is similar in the software and hardware — and other industries ranging from pharmaceuticals to toys. The U.S. is sometimes regarded as world’s largest producer of intellectual property. This would not be true if IP could not be easily secured and its various associated rights transferred and enforced.
But IPRs are not about only money. Bette Midler, a famous singer who chooses not to endorse products, has used them to stop a company from using a sound-alike singer in its ads.
While IPRs have sometimes been seen more as tools of “monopolists” than as critical to innovation, attitudes are changing everywhere. Just last year, the main U.S. patent court declared that business methods and software, as such, are patentable. Europe, too, is revisiting long-standing aversions to such subject matter. Given such evidence of renewed faith in IPRs, some see this as a golden age. Still, we face challenges in tailoring IPR for cyperspace and in balancing the needs of current innovators with those of future creators — and with IP users. Indeed, such matters now occupy about half of the U.S. copyright statute.Advances in technology and, more recently, global efforts to harmonize IP laws have generated many changes. It is increasingly difficult to command the details of this complex field within a single country, much less throughout the world. Fundamentals, however, vary little. For example, as real estate titles may cover a square inch of Arctic tundra or a square mile of Singapore, IPRs may be broad or narrow, or cover various kinds of products or processes. The strategic importance of such matters must be kept in mind. One need not master many details to understand basic IP options or to have an adequate grasp of comparative costs and benefits. The IPR Spectrum
Copyrights
Under the Berne convention, copyrights automatically arise and may be enforced throughout much of the world. Registration is usually unnecessary, but prompt registration in the U.S. confers important remedial advantages at little cost. Copyrights endure for up to 70 years beyond an author’s or artist’s death. They offer essentially the only protection for music, films, novels, architecture and other works of cultural value. Yet, ready court access and meaningful remedies have spawned enormous entertainment industries.
Copyrights have also played a major role in software development. While they do not protect processes, copyrights can be used to halt low-investment free riding. When patent protection is uncertain, not to mention too slow or expensive, copyrights can sometimes substitute. Consider Bill Gates. Although that is not all of the story, it is difficult to believe that he could be so wealthy absent copyright protection for Microsoft products.
Yet, even before the advent of cyberspace, predictions that copyright would become useless for protecting digital works were common. More stridently and frequently, the situation is described as bleak. Can copyright continue to cope with the ability of users and competitors to make, for pennies, exact duplicates of software worth hundreds of dollars? I believe so.
Consider a poll conducted by the Boston Globe about five years ago. It showed that most people regard unauthorized copying as wrong. Such perceptions are reinforced when consumers understand the big picture — that illicit copying means not only that law-abiding citizens pay more, but also that new products are less available.
Second, consider that computer files can be “watermarked.” Increasingly in cyberspace, it is as easy to catch pirates, as it is for them to be pirates.
Third, effective remedies help. In the U.S., commercial defendants are deterred by criminal sanctions and important civil remedies going well beyond actual damages. Also, recent legislation has criminalized significant willful infringement, regardless of commercial motivation.
It is doubtful that technology, coupled with the political will to deter piracy, cannot meet the challenges of cyberspace. If so, innovators will continue to be rewarded. At least, equally important, individuals such as local poets, artists and musicians will be able earn a living as well as to contribute to the survival and growth of globally-diverse cultures.Trademarks
Trademarks are commercial source indicators. They are hard to avoid. Even in the smallest villages, cobblers’ names serve that function. In large geographical markets, trademarks are critical. Firms that treat customers well should be rewarded by having rights in their marks enforced and by finding them, over time, to become increasingly valuable.
Many firms have copyrights; some have patents. It is hard to imagine many firms without trademarks. Trademark law may be used to prevent unaffiliated persons from misrepresenting the source of goods and services. Few firms assign book value to their brands, but Apple, BMW and Nike brands have each been said to represent over three quarters of the market capitalization of their respective owners.
Thus, trademarks are diligently protected in a variety of ways. For example, owners of Xerox, Kleenex or Bandaid brands regularly ask people not to use those marks when they have no idea who made a particular product and may not care.
Children ask for Barbie dolls, Lego building blocks and Hot Wheels cars. Adults may wish for Ferarri automobiles, but more buy Toyota or Honda brands. In most world-class cities, McDonalds food and Coca-Cola soft drinks are offered. Individual consumers may care for none of these brands. Yet, such consumers should be as grateful as those who seek those brands. Trademarks enable shoppers to avoid as readily as to purchase goods. If trademarks did not exist, consumers would probably invent them. Trademarks are commercially valuable, but their consumer value may be higher — particularly when one considers the likely quality of goods offered by firms that sell under another’s name.Sports as an example
Sports are estimated to account for 2.5% of world trade. Much of this, of course, derives from broadcast rights that may be enforced under copyright laws. Merchandising rights also figure prominently. Licensing others to use one’s name or image is closely akin to trademark law.
Only last month, for example, Dow Jones reported that the U.S. National Football League has filed a trademark and false advertising suit against Coors Brewing Co. to contest its claim of selling the “Official Beer of NFL Players.”
Once, purchasers of products bearing the names or logos of famous college or professional sports teams would not have assumed either a connection or any particular level of quality. Increasingly, however, consumers can assume both. As far back as 1993, U.S. baseball teams, alone, licensed $2.5 billion in goods.
Such licenses also heavily support the Olympics, but firms will not pay for anything that others can have for free. Licensing organizations must act to preserve this important source of income. And act they do; well over $6 million worth of unlicensed goods were seized at the time of the Atlanta Olympic games.
Famous athletes and performers also control use of their names and images. Michael Jordan, the former star of the Chicago Bulls, is said to have made more money from that source than from playing basketball. Yet again, as Bette Midler demonstrated, celebrities may be motivated by more than economic interests.Under the General Agreement on Tariffs and Trade (GATT), the world could soon be essentially a single market. GATT is predicted to adds hundreds of billions of dollars to world trade. Already, the North American Free Trade Agreement (NAFTA), has converted a large continent into a single free trade area of about 370 million people with a combined gross annual profit of almost $7 trillion. IPRs in the Evolving Global Marketplace
Because firms have long complained about yearly losses billions of dollars to uncompensated intellectual property use, they lobby for better recognition of IPRs. This figured prominently in negotiating both the NAFTA and GATT agreements. Firms also form collectives to increase their leverage. Those belonging to the International AntiCounterfeiting Coalition account for an aggregate $500 billion in sales and more than 10% of the U.S. GNP. The Coalition even maintains a web site to publicize its members’ problems.
Yet, it is often difficult to change IP laws. U.S. patent changes, for example, have been strongly resisted by small firms and individual inventors. Although large firms must view patents as both shield and sword, others may perceive that only large firms benefit. This is demonstrably inaccurate.Owners of start-up firms may find that economies of scale and lack of development costs allow large, well-known competitors to undersell them. Even well-developed goodwill may not motivate customers to pay large premiums. IPRs are particularly helpful while new firms get established. Little Fish, Big Fish
No one wants to invest precious start-up capital in legal fees. Some entrepreneurs believe that IPRs are not worth their expense and bother. In some instances this is true. Yet, proceeding in a new venture without attention to IPRs is akin to erecting a building or signing a long-term lease without clearing the real estate title. IPRs do not add to the appeal of new products or services, but they are often critical to enjoyment of hard-won success.
Sophisticated investors and large business owners certainly understand that. Laws that promise but do not satisfy such needs generate cynicism, not investment. False hopes are worse than none, but encouragement for innovation, in the form of cost-effective options to secure, transfer and enforce IPRs, can create jobs and benefit society in many other ways.
© 1999 Franklin Pierce Law Center
7/1/99
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