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Perhaps the most strikingly scandalous feature of this trial is that the software giant is essentially being punished for its success; as a corollary, the investigation was largely and (even by official recognition) conducted on the basis of information provided by some of Microsoft’s major competitors, who are naturally the first to benefit from the judgment. Second, the ruling amounts to the confiscation of intellectual property, as it makes Windows source code available to competitors. I will not dwell on details here, for it is beyond my expertise and harmful to my appetite. But allow me to provide a couple of tips for instructive holiday reading: Fellow blogger Alberto Mingardi and his colleague Paolo Zanetto have produced an excellent briefing paper on the affair, which you can also get in my French translation here. All the very best for the New Year (although in this particular
instance improvement probably remains distant)! A passage for India The progress of the subcontinent’s generic industry is well-known; its limits perhaps less so. Whereas 48% of its sales go to US consumers, Ranbaxy also holds 15 drugs of its own brand and aims at investing heavily in research and development. Provided it can recover from the recent international humiliation involving serious problems with its 10 AIDS drugs, the company and its competitors must comply with TRIPs starting in January 2005. This means that intellectual property will (again) be protected
in India and the copycat industry would do well to invest in R&D
to ensure its survival. This is a key indicator for the future of
India’s numerous copiers; when protection of IP is brought to bear,
the imitators of yesteryear will have to adapt or die. That should
be joyous tidings for innovation and those who provide it. Let's get them busy The classical assumption is that academia and business are somehow antinomic, and never the twain shall meet. In truth, the two are complementary and interwined although this seems difficult to accept in Europe. The more other-worldly aspect is ripped from the image of higher education, the more they will prosper. Let's face it: what is technology other than applied science? What is business without information? If we cannot combine the two, public opinion is bound to criticize academics as metaphysicists and business people as crass money-makers. If you give us the goods, you'll gain; provided of course
that academics may be allowed to earn a buck from their work. Which
incidentally is what we all do. Hopefully. Is P2P "pirate-to-pirate"? But it ain’t over until the fat lady makes an injunction: the current debate is reminiscent of previous fights opposing existing industries and pioneers of reproduction technologies: Xeroxing, VCRs, etc. As pointed out in The Economist last week, P2P enables personal computers to do things together which they could not do in splendid isolation (reproduction without the naughty bits). The problem is really to bring it into the legal sphere and take it to market: this is an architecture looking for a market mechanism. Informal markets are bound to be hampered because property rights are absent or ill-defined, or because the market itself is insufficiently policed. In effect, should P2P be outlawed because it sometimes leads to copyright infringement? William Adkinson of the Progress and Freedom Foundation provides an excellent overview (pdf) of these issues, underlining the difficulties of concepts such as secondary liability (i.e. the use of P2P systems is in question, and not the technology per se). This once again highlights the issue of self-regulation of
the web; but let’s be inclined to put greater faith in market dynamics
than in bureaucratic peristaltics to resolve it. Watch that crocodile
According to figures by the European Commission, trade in counterfeited products increased by 800% between 1998 and 2002, representing between 3 and 9% of international trade. In France alone, some 3 million products were seized by customs in 2003 and the number is rising. This has also attracted some media attention, whereas previously the French media didn’t seem overly interested in issues like trademark infringement. But now the luxury brands are becoming increasingly threatened. The other day, the French brand Lacoste won its case against the Chinese company Crocodile International which had marketed articles carrying crocodiles identical to the original. The Chinese manufacturer tried to get off the hook by explaining that the local reptile looked to the left (a case of copylefting?) and the French original to the right (unlike its politicians). Nice try, but even in China people are
less tempted to look left these days. Better cheap than
sorry? This means not only that the so-called prequalification scheme of the WHO should be under severe scrutiny; but that thousands of people suffering from HIV-AIDS have been put at risk by drugs which are ineffective at best, and possibly dangerous. More importantly however, it highlights a peculiar double standard in relation to generics. Why should some products be granted more lenient procedures for qualification, especially when you deal with as lethal a disease as HIV-AIDS? It is commonly believed that generics are always cheaper (but as effective) as branded products. In fact, 8 of the 13 most commonly used single-dose ARVs are branded. And cheaper. According to the UN Global Fund, at least
$ 2 million have been spent on top-generic producer Ranbaxy drugs
which are now withdrawn. How’s that for cost-effectiveness? Writing in the time
of counterfeiting His latest novel is about to be published in Spanish (English and French translations are due in 2005) but it is already on the market in a Colombian pirate version! The latter sells at half price, much to the dismay of its author probably. On the other hand, as a Marxist he should approve of any initiative aimed at bringing great literature to the poor at a discount. I understand the wish to read Garcia Marquez for free myself (but you can do this at any public library, or wait for the cheaper editions). This is reminiscent of the situation which still prevailed little more than a hundred years ago. Until the late 19th century, British authors did not enjoy copyright protection in the United States; conversely, a Canadian publisher even managed to get Mark Twain’s Tom Sawyer to market before the American original edition came out. Interestingly, Garcia Marquez fooled the counterfeiters by modifying the end of his novel for artistic reasons and thus to some extent deflected the attack on his work. According to the International Chamber
of Commerce, counterfeiting globally is estimated to represent 5-7%
of world trade in value terms; quite a business in other words. Quarter to three,
no one in the place ... The Economist recently offered a thorough investigation on this topic (30 October) which points out that legal downloads still only represent less than 5% of industry revenues. True, Napster et consortes proved a considerable threat to the major labels when it relied on P2P mechanisms. Still, the article suggests that declining sales in music CDs could be explained by withering creativity in the business. According to an internal study by one major label, “between two-thirds and three-quarters of the drop in sales in America had nothing to do with internet piracy”. But the industry is obviously less than happy with developments. Clearly, more innovation in online sales and marketing techniques is needed, as well as more electronic fencing. So far, people predominantly buy single tracks rather than albums online. As mentioned earlier, big stars get a lot
more kudos out of concerts and derivative products and have less
reason to complain about piracy than others. Therefore, declining
creativity among the majors should prove an opportunity for independent
producers and young talents. Who owns your image?
French legislation is clearly in favour of the individual, famous or not: you may sue a person taking a picture of your home without permission. Some years ago, French magazines started barring the eyes of people in photos taken of crowds. You will never or rarely see articles on the private lives of stars like Sophie Marceau, Isabelle Adjani or Catherine Deneuve who drag the press to court whenever they consider their reputation has been tarnished. This article is instructive. “Le
droit à l’image” is draconian, geared to protect privacy at
almost any cost. This zeal will sometimes necessarily conflict with
press freedom. We may resent the fact that celebrities use the press
as they see fit. But if you are a person-trademark (or a private
individual with no claim to fame) it should be your decision to
be in the limelight. We cannot confidently assume that we own our
reputation; but we should be able to control how it is used. This
should not prevent you from telling the world media about this blog.
Thank you for your attention. Go on, be a (Celtic)
Tiger! Being true to his statist convictions, French president Chirac has repeatedly declared that government must do more to keep top scientists down on the farm. But this is not enough: research and the competitive edge in the form of new discoveries (and hence industrial property) come not only from alluring pay checks. It is more importantly grounded in the greater freedom which European scientists and their colleagues from other parts of the world enjoy in American universities and corporations. A recent article in Time magazine puts it quite well. Ireland is one of the few EU members to attract scientists, even bringing their own nationals back from exile: one quarter of all American foreign direct investment in Europe takes place in Ireland, and almost one third of FDI in Europe in terms of health care and pharmaceuticals, according to the Economist. De Gaulle had a point when he said “scientists
who search can be found; we are searching for scientists who find
something”. But first, you need to find those scientists who are
actually willing to search. And that carries a price. The show must go
on, mais à quel prix? Creative industry takes a break once in a while, but it cannot be supported all the time by the taxpayers: writers, painters and filmmakers should own up to their choice of profession. Sometimes it pays, sometimes it doesn't; that's the nature of entrepreneurship. All the same, artists are deemed worthy of a constant flow of revenue, sometimes largely independent of their achievements. Despite this, France may boast a few blockbuster productions in recent years. Sadly, artists in many cases prefer to rely on the state providing a generous unemployment insurance which proved so successful that thousands enjoy the benefits (including many people who are not in the least connected with the arts, but artful in getting handouts). The government has found an ingenious way
to combat and profit of people's demand for Hollywood productions:
tax American movies and give the proceeds to domestic filmmakers
(see a review of an interesting French book here).
If you hear French film producers rave about US cultural imperialism,
remember they get their cut. The box office doesn't lie. It's what we know,
stupid This has been pointed out in countless reports by governments and international organizations, to little avail in terms of public policy response it seems. The OECD recently released its annual education report showing that although the general education level is rising, several member countries are lagging behind. The lack of skills is a serious problem for industry, but we shouldn’t get trapped by official discourse. Too often, we are told that “we” (i.e. EU governments) should consider importing x number of computer engineers from India. (And throw out some other people to keep the demographical balance?) Conversely, should we “allow” EU companies to outsource services, e.g. call centres, to North Africa? This official rhetoric is deeply disturbing, arguing as though humans and their undertakings were mere dominoes to be moved around and rejected according to an intricate puzzle reserved for technocrats. What we, the people, decide to do with
our intellectual capacities is not for governments to decide. Does
your job belong to the state? If you can’t express your opinion
on the subject, look for the exit. Quickly. Navigating between
Leviathan and Galambos If IP is to be judged on its social utility, this perspective could also be applied in the context of the contemporary Welfare State, the morality of which is that we’re all here to serve the final utility (see your income tax return for details). As government takes care of health insurance, it is increasingly considered logical that it should dictate our behaviour (driving, drinking, smoking, child care and soon the fat content in our diet). Don’t let us regret the demise of the Soviet Union, it will be restored soon in a country near you. The other extreme is also interesting: in libertarian history, Andrew Galambos comes to mind: he made it a point to pay a penny every time he used the word “liberty”, the proceeds of which he intended to restore to the heirs of Thomas Paine, presumably the inventor of the term. An inventor of “primary property rights”, Galambos tried to prevent any follower of his from discussing his ideas accordingly. What’s the link? I submit that the Welfare
State is frequently the thief of your ultimate intellectual property,
namely your faculty of making a choice. Drugged by politics
The issue has been gathering momentum over the past year, and the IPI study provides fascinating information on the dire (and direct) impact of reimportation on research and innovation, should the US Congress vote to legalize this in 2005. The authors predict a fall in R&D spending of $14.8 billion over the next 12 years, an abandonment of 262 drugs for economic reasons and, perhaps more importantly, a significant slow-down in the approval of new drugs. The report even ventures that reimportation and price controls would have a similar impact to that of outright elimination of patents, as brand names would then be sold at a price approaching marginal cost of production. A recent CNE report makes similar points. Once again, it becomes appropriate to quote Frédéric Bastiat: reimportation provides short-term gains in the form of cheaper drugs. This is what you see (and incidentally all that counts for politicians who decide to make the move). Longer-term, drug companies are bound to shun markets where parallel trade and price controls increasingly reduce the incentives for innovation. Welcome to the delirious delights of the
political market; the label on the box just omits to tell you that
secondary effects are just around the corner. Turn on, trade
in, drop out My children are extremely brand conscious; they know what works. Manipulation through commercials? Yes, that happens but the sanction is immediate. Buying a product is the hallmark of confidence. We trade with those anonymous people who produce trademarked goods. Interestingly, even vociferous opponents
of this practice, such as advocates of “fair” trade, have their
own brands, if only to inform the consumer that they have a different
way of doing things. And that’s what it is all about; even Naomi
Klein would probably agree with that. After all, there’s no logo
like No Logo. Thank you for
the music If you heard that e-commerce is dead or all hype, think again. Apple’s iTunes launched in 2003, sold about 70 million songs in its first year for 90 cents a piece. That’s serious money and it’s only the beginning. New formats have emerged to replace the dreaded MP3 in order to avoid piracy. Apple gives you the possibility of burning an album up to seven times, and Sony permits downloading twice, for a price. OD2 (On Demand Distribution) is a little-known pioneer for music downloads which even preceded Apple (launched in 1999). In fact, the format is less important, although prices and quality vary; according to each site, you may download a song to your computer, register it on your Walkman or burn a CD. This is a great progress and augurs well for the business which is otherwise prone to complain about free-riding. We should keep an eye on legislative action
in this field such as P2P, but recent developments show that the
Internet remains a powerful instrument for trade where producers
are perfectly capable of devising their own protection, provided
they are free to do so. Play it again Sam! Musical Viagra
You don’t often encounter artistic praise of drugs (except old-style rock’n roll enthusiasm for illicit substances, which is something else). But it just so happens that the renowned German Palastorchester and its fabulous singer cum song-writer Max Raabe produced a smash-hit entitled Viagra a couple of years ago. It’s not available on the site, but you may listen to excerpts of other songs, for instance Kurt Weill’s magnificent Speak Low; I can only recommend the orchestra’s impressive array of CD recordings. Hopefully, there is no threat of lawsuit here from the original manufacturer; the song should probably be considered more of a free advert, albeit in the satirical form. It concludes by saying “it is in the hands of a woman that things stand or fall”. Still, I assume they made a buck out of it. Standing erect in the face of adversity
takes on multiple meanings, but at least the reputation of the product
is not under attack, methinks. A mountain view
of the future This high-calibre get-together produced fascinating insights into the process of defining property rights as the Internet gears up for coming tech revolutions: the move to 64-bit and the huge investments into wired and wireless networks will generate new applications and a new wealth of information. But this requires careful attention to policy decisions on IP protection. Industry and government representatives alike stressed the importance of getting the property rights issue settled to encourage innovation and investments. A truly encouraging and optimistic event,
although I did privately challenge the US assistant secretary of
commerce on the issue of steel tariffs. He told me this was necessary
to "stabilize the market"; I complimented him saying he was a genuine
politician. Can't win them all. This bargain
could prove expensive The solution may seem commonplace; but it amounts to cheap electoral rhetoric. Following the example of other politicians, the Illinois governor Balgojevich recently declared that the state would authorize reimportation from Canada and other countries, despite the opposition of the FDA. Drugs may be expensive to US consumers and shopping around through Canadian online pharmacies would seem to make sense. But there are several problems here. Each country is free to set its own prices. This explains why reimportation is a huge business in Europe: buying the same product in Greece or Spain to resell in the UK or Germany yields huge profits, although the parallel trader needs nothing more than a vehicle and an import license. But the distributor in many cases doesn’t carry the liability of the original manufacturer, nor does he comply with the same legislation. Hence the issue of identifying the owner of the product, should problems arise, such as recall of deficient products. The price of a drug may seem prohibitive, because
patients have to pay the price directly. But it is a tiny portion
of overall health care expenditure. We should always look for ways
of making new, innovative medicines reduce general spending. But
importing price controls from one country to another will not do
the trick, although for politicians it is a bargain. Parallelpills.com 26 JULY 2004 - What kind of spam emails are you receiving these days? Apart from manhood enlargement and mortgage offers (a matter of size in both cases) chances are that you’ve been offered to fill your prescription online. The debate on reimportation of drugs (often through internet pharmacies) from Canada and Mexico into the USA continues, although its supporters in Congress currently look set to fail: the Bush administration opposes the various bills which would allow parallel imports and the FDA has consistently done the same. Even so, there is a disquieting tendency, even among wealthy people, to want drugs at no or low cost and therefore to favour reimportation. On the other hand, they often seem ready to pay for lifestyling more than for lifesaving drugs. The discussion is sometimes heated, but precious little research has actually been done on the impact of parallel trade. The Social Market Foundation organized a seminar in January 2004 on the subject and you can find a good summary here. If the rainy season has reached your holiday abode, you may want to consider reading something more meaty. Try the study by London School of Economics' Dr. Panos Kanavos which suggests that parallel trade offers no tangible advantages for patients, but creates problems of shortage and substantial profits for parallel traders. Something to think of next time you get
an offer in the mailbox. Bang for the
buck in Bangkok? According to a popular myth, AIDS is spreading because antiretroviral drugs are patented and thus unaffordable for most developing countries. Ergo: to solve the problem, get rid of (or at least around) patents by using cheap generics or compulsory licensing. In fact the AIDS epidemic has nothing to do with patents. Research shows that non-patented ARVs have not been consumed more than patented ones in Africa. As Dr. Amir Attaran puts it, poverty, not patents, is the greatest limitation on access. In fact, branded AIDS drugs are often cheaper than generics. Malaria (a less politically popular disease)
is killing more than 2 million people in Africa every year, although
the cure has existed for a long time, is not protected by patent
and does not cost much. As activist Colin
Webb points out this is about “getting the medicine out”. It’s
not about supply, but about infrastructure: free ARVs will not pave
roads, build hospitals nor train doctors and nurses. Holiday tIPs
I won't try to settle the dispute (nor tell you who won the pugilistic argument which ensued), only note that it borders on the absurd. FA Hayek would probably have told them to lay off: he always insisted in his seminars that ideas expressed in this kind of forum were devoid of copyright. When Leon Louw (Free Market Foundation) once asked Hayek to autograph his copy of The Road to Serfdom, Hayek mildly remarked, "Ah, this is from the pirated edition." But he had no objection as his chief concern was spreading the ideas. Looking for some holiday reading to brush up on the history of IP? Here is a good overview of the pros and cons; Henri Lepage also provides an incisive analysis on the new portal Eurolibnetwork (French only). If you are visiting Paris this summer,
don't miss the Museum
of Counterfeit. No, I don't have any tips on where to buy fake
stuff. On the toll-road to Nirvana 05 JULY 2004 - I mentioned recently that open source seems to spread like wildfire; the newest addition to the list seems to be yoga (subscription only link). Is it a case of "die now, pay later" as Woody Allen once quipped in his quest for spiritual solace? Take a deep breath and check this: the yogi Bikran claims that his approach to the art is health promoting, which theoretically means he could patent the method as a functional process: yoga is a rapidly growing business and offers many profitable ventures. On the other side of the barricade, we find the Open Source Yoga Unity (I kid you not) which says yoga is an ancient tradition which may not be appropriated. Now, we may assume that the Lotus position (not the software) is devoid of royalties for anyone teaching it. Or are we bending it here, worse than Beckham? Bikran claims copyright for his 26 poses, but also and more interestingly for his instructions in class. It may be argued that anyone adding an interesting
feature to teaching may claim a right to the proceeds (such as methods
to quit smoking, or teaching the piano etc). In this sense, Bikran
could provide an interesting example helping to better define the
limits of IP rights. Remember your mantra and watch this space. Choose your
weapon Still, piracy in France for instance remains limited to about 2% of the market according to a recent study. But the issue seems to concern technologies for more effective fencing of property than anything else. True, Napster and Gnutella went some way into the profit margins of musicians around the globe and allowed freebies (or should we say, provided lots of free publicity for artists?). Rather than ranting about their losses, IP stakeholders in the music industry should get creative. Experience shows that at least established artists earn a lot more from concert tours (where payment may be collected) than from selling CDs; technology can also help recuperate revenues. Also, big stars are “trademarks” in their own
right, lending their names to products, galas, charity events etc.
Proper protection should be more of a concern for newcomers and
budding celebrities. As one musician recently dismissed by his label
said, “maybe I should change producer for each new album. Or sign
a contract directly with an online distributor”. This seems logical:
contractual law and competition can solve many problems. Provided
it is allowed to function, the market will also get the necessary
electronic barbed wire into cyberspace. Generically
speaking, copying is not original However, generics are being promoted with the hope of saving 1bn euros a year. Health Minister Douste-Blazy insists that previously it would take 15 years between the marketing of a new drug and the arrival of its generic equivalent. This may be true; but remember that the 20-year patent granted to new drugs generally amounts to about half the time to recoup R&D investment. Generic drugs are very useful (I take generic painkillers every time I have to read the latest government reports on healthcare). But for serious diseases, innovative drugs are more efficient and provide important savings in other domains, such as hospital stays which are very costly. In France, generics represent 15% of the market,
compared to 50% in the US. Promoting their use may be cost-efficient
in some instances, but it's certainly not a panacea. In particular
because a copy means there is an original somewhere Open source and
open questions This new church of sharing and caring seems sympathetic: let’s build software, produce medicines or even books through collaboration, outside of the evil world of competition and profit motives. Fine: we all know about the success of Linux, although it is allegedly based on proprietary software to start with. The open source ideology is interesting and in some parts libertarian in its approach, but it still needs to show its worth in terms of innovation. Also, many of its supporters (in terms of software) have an explicit agenda: dethroning Microsoft and establishing the OS approach as a standard in public administration, i.e getting the kind of protection (without patents) that they publicly denounce. Open Source and so-called free software
doesn’t mean free of charge: IBM made millions of dollars last year
by promoting open source platforms. Whatever the merits of open
source vs. proprietary business models, both should be able to prosper
without government subsidies. Or did I miss something? Parallel pills
No, says Doug Bandow. Reimportation amounts to importing price controls. In the EU, this means an unholy alliance of free exchange and national price controls. Canada has developed a market for US drugs which are reimported to the United States with the eager support of politicians. Price controls generate an immediate benefit in the form of cheaper drugs; this is what you see. Eventually, this will give pharmaceutical companies an incentive to delocalize their development and production; this is what you don’t see. Prof. Frank Lichtenberg has shown that there is a strong correlation between new drugs and life expectancy. Prescription drugs represented 5.6% of US health expenditure in 1995-96, and hospital stays 42%. About 40% of the increase in life expectancy in 52 countries in the period 1986-2000 may be attributed to the marketing of new drugs. Bandow dispels the myth that price controls
help patients: managed care amounts to restricting access to the
most recent innovations. But mostly the debate contains no opportunity
cost analysis. You may argue that medicine is too expensive: but
compared to what? If a new drug saves your life, reimportation or
regulations will seem secondary.
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