2.3-Coordinación municipal

The role of intellectual property in facilitating service exports

Intellectual property (IP) laws provide inventors, artists and institutions exclusive rights to produce, copy, distribute and license goods and technologies within a country. Formal IP protection measures include the enforcement of trademarks, patents and copyright. IP may also be protected by maintaining trade secrets (such as business plans and internal market analysis) and confidentiality agreements. The main rationale for providing legal protection and enforcement for IP rights is to increase incentives to create new products by enabling innovators to capture a sufficient amount of the benefits to support the initial investment.

The benefits of IP protection and enforcement must be weighed against the costs that may arise (in the form of higher prices and restricted supply) from conferring temporary monopoly power to holders of IP rights.

Service providers depend on their IP being protected and enforced in export markets.

Exporters of software services that can be copied relatively easily and cheaply rely on copyright enforcement. Architects and engineers may also rely on copyright protection for their designs and drawings. Some service exporters may rely on patents. For example, Rision, an Australian Human Resources company, has a mobile recruitment and human resources platform that is patented in the United States.

Some service providers rely on having access to IP-protected content. Internet intermediary services such as cloud computing, search engines and trading platforms may be required to handle digital content protected by copyright. Digital content cannot be handled without being copied, so in some jurisdictions these services may be in breach of copyright (ALRC 2013). An example of an Australian business that relies on access to IP-protected content is the music intermediary Guvera, which negotiates legal access to copyright-protected music and streams this music to its subscribers online.

Protecting and enforcing IP is more difficult in some markets

The level of IP protection and enforcement varies across countries. Some countries’ IP laws may have relatively low standards of IP protection — for example, because some ideas or innovations cannot be protected, or because the minimum duration of protection is shorter than in other countries. Some countries may lack strict sanctions to enforce IP rights and deter potential violators (USTR 2015b).

Some study participants raised IP infringement as a barrier to the export of their services.

Cox Architecture (sub. 2) noted instances where its designs had been used in China and Malaysia without permission or payment. Place Associates (a provider of property consultancy services) cited infringement of copyright as a barrier (questionnaire 10, box 5.3). The Commission heard in consultations that engineering designs can also be

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Economic Partnership Agreement, the Western Australian Government argued that unreliable IP and copyright guidelines in Indonesia restrict trade (Government of Western Australia 2011).

Box 5.3 Place Associates and intellectual property rights

Place Associates is a professional services firm that provides property strategy and research services to clients in Australia, Singapore and the Philippines through cross-border supply.

Place Associates develops property advice using an in-house methodological framework, which is underpinned by a large body of accumulated knowledge. Drawing on an established framework enables Place Associates to exploit economies of scale when developing advice for its clients. To help it win business Place Associates shows potential clients parts of its methodological framework.

Place Associates suspects that some of its potential clients have copied the material that it has shared to illustrate its framework, then used this copied material to develop strategies themselves. For example, after making a pitch to a client in Shanghai in 2012, Place Associates suspects that the client copied the presentation materials used for illustrating the methodological framework. The client subsequently developed a strategy itself.

Place Associates estimates that unpermitted use of its intellectual property has cost it up to

$100 000 in lost revenue, and imposed costs through the time taken by senior staff to address the issue. To address this barrier Place Associates altered the way it conducted its business by selectively working with trusted businesses and clients. Place Associates has also not sought to win business in China or India, where it considers it would not be able to receive legal remedies if its intellectual property is used without permission.

Source: Place Associates (pers. comm., 20 July 2015).

Data from the International Property Rights Index (2014) suggest that, of Australia’s top 40 trading partners, the countries with the lowest levels of IP rights protection are in Asia.

Focused on patent and copyright protection, the Index scores 97 countries out of 10 according to their level of protection of IP. Scores in the 2014 report ranged from 8.6 (Finland) to 2.6 (Bangladesh), with the average score 5.7. The countries among Australia’s top 40 trading partners awarded the lowest scores in 2014 were Indonesia (4.2), Vietnam (4.3) and Thailand (4.6). While China scored 5.4 overall (up from 4.5 in 2007), it scored relatively low on copyright protection (2.3). Australia achieved a score of 8, and so according to this measure provides relatively strong protection for IP.

The United States Trade Representative (USTR) reviews the state of IP rights protection and enforcement in a number of countries on an annual basis. In its 2015 report the USTR highlighted a range of concerns, including cases of trade secrets being stolen in China and India, the continuing challenges of online copyright piracy in countries such as Brazil, China, India and Russia, and the unauthorised use of licensed software (USTR 2015b).

International efforts to persuade countries to meet their commitments to protect and enforce IP rights agreed through World Trade Organization (WTO) and World Intellectual Property Organization agreements are ongoing, with some countries yet to establish IP

rights enforcement mechanisms (box 5.4). Chapter 9 includes a discussion on the role of IP rights provisions in Australia’s trade agreements and a draft recommendation for addressing IP issues relating to service exports.

The effects of IP rights violation on service exports

Weak protection and enforcement of IP rights inhibits service exports by reducing demand for services supplied by Australian service providers. For example, an Australian service provider that developed a copyright-protected software program would see demand for licensed copies fall in countries where users can easily obtain illegal copies with little likelihood of punishment.

Box 5.4 International efforts to establish and enforce IP rights

• The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), established in 1995, sets minimum IP protection standards that WTO member states must comply with. The Agreement is the first broadly subscribed multilateral IP rights agreement subject to mandatory dispute settlement provisions. Some signatories, including India and Indonesia, are yet to establish IP rights enforcement mechanisms. The APEC Intellectual Property Experts Group is implementing a work program that aims to fully implement TRIPS.

• Following TRIPS, IP obligations have been included in trade agreements and multilateral arrangements such as the Anti-Counterfeiting Trade Agreement (involving Australia but yet to be brought into force). IP provisions in trade agreements may provide stronger protection for rights holders than TRIPS.

• The World Intellectual Property Organization administers the Copyright Treaty and Performances and Phonograms Treaty. These treaties seek to establish protection for creative works on the internet. The Copyright Treaty extends IP rights to broader subject matter than TRIPS and clarifies rights of authors to control the communication of their works.

Sources: Maskus (2008); USTR (2015b).

Weak protection and enforcement of IP rights may also increase Australian service providers’ upfront and ongoing costs of export operations. For example, a service provider may set up its own commercial operations in an export market (either as a sole or joint venture) to avoid having its IP rights violated, increasing the upfront and ongoing costs of export operations relative to the costs of licensing a third party to sell the service. A Canadian business that designs household products resorted to establishing its own manufacturing facilities in China to help avoid IP infringement there (Smith 2015).

Costs and benefits of greater protection and enforcement of IP

Some Australian service providers would benefit from other countries better meeting their commitments to protect and enforce IP rights agreed through the WTO Agreement on

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available to the Commission, better enforcement of IP rights in other countries could help to reduce barriers to exporting architectural, engineering and software services. Violation of IP rights in these sectors is likely to impose a restriction on some service providers’

ability to export services by reducing demand for their services and increasing the upfront and ongoing costs of export operations.

Against this, there is evidence that, as a net importer of IP, Australia has likely incurred net costs from the inclusion of provisions in trade agreements that strengthen IP rights agreed through TRIPS. Analysis indicates that extensions in the duration of copyright protection under the Australia-United States agreement (which extended the term of copyright to the life of the author plus 70 years and compares with life plus 50 years under TRIPS) imposed net costs on Australia through increased royalty payments (PC 2010a). Hence, while better enforcement of IP rights as they apply under TRIPS would provide some benefits to Australian service providers, this should not be considered justification for extending the coverage of IP in negotiations. Any IP provisions in trade agreements should take account of the net effect on Australian consumers and the Australian community (see chapter 9).