Ryan Greenaway-McGrevy says that while the US pushed hard for tough intellectual property protections in the TPPA, the final Treaty text reveals a much more nuanced outcome

This is the fourth in a series of articles Interest.co.nz has commissioned reviewing the key chapters and issues for New Zealand in the Trans-Pacific Partnership Agreement (TPPA). Links to all the analysis in this series are below.

Ryan Greenaway-McGrevy*

The treatment of intellectual property (IP) proved to be a stumbling block in the final rounds of negotiation in the TPPA.

Leaked documents from earlier rounds revealed that the US was pushing for new, cast-iron protections of IP.

But the final text revealed that most of these demands had not made the cut, suggesting that the US had capitulated or otherwise received concessions on their other demands.

Intellectual property refers to a set of legal instruments that creates and protects ownership over inventions, creative works and product branding. Copyright and patents are perhaps the best-known examples. Copyright is used to protect creative works such as music, movies, and literature, while patents are used to protect inventions and other innovations. IP also covers various forms of product branding, such as trademarks and appellations of origin.

Intellectual property is dealt with in Chapter 18 of the TPPA. Much like the labour and environmental chapters of the agreement, the IP chapter requires signatories to meet minimum standards on the protection of intellectual property. For many signatories – and particularly the emerging economies -  this means that they will have to pass domestic legislation in order to comply with the agreement. In New Zealand, for example, we will have to extend copyright on artistic originals from 50 years to 70 years after the death of the author.

If you take a quick glance at how the US economy has evolved over the past few decades, you will understand their focus on IP protection. The US economy used to make things for the rest of the world. Now it makes ideas. That iPhone may have been made in Asia, but it was designed in Silicon Valley, as Apple somewhat awkwardly likes to point out.

​The problem with IP is that it is easy to replicate and distribute - hence the need for legal instruments to protect the rights of owners. In the past it was largely the prerogative of a government to choose the amount of IP protection within its borders. This predictably resulted in very lopsided protections across different nations. Emerging economies that imported a lot of products embodied with IP would often set very low protections. Developed economies that produced and exported IP would set higher protections. This divergence ultimately led developed countries to push for stronger IP protections in international agreements, and as a result, IP protections are now more common in free trade agreements. The TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement administered by the world trade organization (WTO) is the most comprehensive accord on the treatment of IP, covering 162 WTO members. 

The Economics of IP

Consider a common prescription drug such as Atorvastatin (marketed as Lipitor here is New Zealand), which reduces the bad kind of cholesterol. Because of all the research, development, and clinical trials, it cost millions of dollars to make the first Atorvastatin pill. But once a drug company knows how to make it, the second pill only costs a few cents.

This lopsided cost structure poses difficulties for a society that wants to incentivise investment in research or creative works. There is a massive upfront cost. But once the investment is made, the per unit cost of production is comparatively much smaller. If the general public has access to the know-how it will be difficult for the investor to recover their investment, because increased competition would push product prices down. That is potentially a big disincentive to anyone thinking about spending their time and money on finding a cure for cancer or writing that great Kiwi novel.

IP laws incentivise this upfront investment by treating the knowledge or creation as a form of capital that can be privately owned and therefore controlled. This allows the inventor or artist to earn revenue to recover the cost of their initial investment - and to make a profit.

Yet once the investment has been made, it is also often in our broader interest to keep the price of replicating that knowledge or creative work as low as possible. Who among us would argue that a cure for cancer should command monopoly prices - and thereby ensure that longevity becomes another privilege of the wealthy?  Article 18.4 of the agreement acknowledges the different and divergent goals of IP policy. It states  

Having regard to the underlying public policy objectives of national systems, the Parties recognise the need to:

(a) promote innovation and creativity;

(b) facilitate the diffusion of information, knowledge, technology, culture and the arts; and

(c) foster competition and open and efficient markets, through their respective intellectual property systems, while respecting the principles of transparency and due process, and taking into account the interests of relevant stakeholders, including right holders, service providers, users and the public.

It is a difficult balancing act. IP law must provide enough financial incentive for innovation, but at the same time ensure that the knowledge, once generated, can be accessed at low cost.

Conventional IP law does this by granting the creator ownership for a limited period of time, after which, the developed knowledge enters the public domain and can be used by anyone. Here in New Zealand, the 2013 Patent Act states that all patents are for a period of 20 years. Our Copyright currently extends for 50 years after the death of the author, or, in the case of movie and sound recordings, 50 years after they were first made public.

But it is clear that we do not always get the balancing act right. Some argue that these protections do not last long enough to incentivise investment in some important areas, such as cancer prevention. Others argue that patents and copyright protections are set too high – including the NZ trade negotiators at the TPPA – thereby granting Big Pharma and Hollywood too much profit. Throw in the fact that innovators can game the IP laws in order to extend the lifetime of their profits, and it all adds up to a rather imperfect system. We could do better. Some are calling for the public to fund prizes for milestone innovations (similar to the Ansari X prize), because the knowledge generated would immediately enter the public domain. And given the public interest in promoting the distribution of knowledge, it is perhaps disappointing that the TPPA only requires minimum terms on these protections, but not a maximum.  In fact, under Article 18.5, signatories are permitted to set the protections on IP as high as they like.

Creative Destruction

Many of the tougher provisions that the US was pushing for were intended to protect the interests of the creative industries, such as motion pictures and music, through a tougher crackdown on copyright infringements. The Motion Picture Association of America and the Record Industry Association of America have been lobbying the US congress since the late nineties for better protection and enforcement of copyright.

It has been the rise of Information Technology (IT) that has ultimately undermined the old business model of the creative industries. IT has made the communication of information fast, cheap, and easily accessible. While it has been a boon for many other industries, the IT revolution has been bad for the creative industries. Anybody with a laptop and an internet connection can access pirated movies, music, even software. Just ask your nearest teenager what their favourite torrent platform is.

The leaked documents revealed that the USTR was pushing for a seismic shift in how copyright infringements are policed and enforced. Their demands included pushing the responsibility of policing copyright infringement onto internet service providers, a 70-year copyright, and statutory damages for infringements or even imprisonment.  (A more comprehensive discussion of their demands is available here.) These various provisions add up to a significant deterrent to copyright infringement, and they would go a long way to preserving the traditional business model of the creative industries. Meeting the USTR wish-list of IP protections would have required substantial changes to our domestic laws. But as we now know, most of these demands did not make the final text. Only the 70-year copyright made the final draft, meaning that here in New Zealand we will have to extend our copyright by 20 years.

Data Protection

Another contentious issue in the chapter is the protection of pharmaceutical IP. This form of IP is primarily protected through data protection – which refers to a period during which data generated by the pharmaceutical innovator is inaccessible to other pharmaceutical manufacturers for approval for their own similar (but much cheaper) generic products. Although the leaked document did not reveal what the USTR was asking for on data protection, media sources reported that the big pharmaceuticals were pushing for significantly enhanced protection in the agreement. For example, big Pharma wanted the data protection lifespan on biological medicines (or “biologics” - which cover medicines and treatments derived from living organisms, such as insulin) to be twelve years – matching the current lifespan on data protection in the US.

These demands threatened to increase the price of medicines in many countries that have less restrictive terms, and therefore can access low cost generic drugs or so-called biosimilars relatively quickly. Japan offers eight years of data protection on biologics, whereas Brunei offers no data protection. In New Zealand, we offer five years of data protection on small molecule and biological pharmaceuticals.

While we may not know what the USTR demanded in the negotiations, we do know the outcome. And much like the provisions on copyright, the US did not get its way. Not entirely.

Patents and data protection measures are covered in section F of the IP chapter. Article 18.51 outlines the specific provisions for biologics which are effectively data protected for eight years (signatories can opt for the full eight years, or five years of data protection to be followed by three additional years of “other measures” equivalent to data protection.) In addition, under Article 18.51 the biologics data protection standards are to be revisited in ten years, meaning that they could be extended. Single molecule drugs, which are much cheaper to develop than biologics, are covered under Article 18.50, and are to be data protected for a period of five years under the agreement – which is the lifespan currently recognized in New Zealand.

What IP means for developing nations

Here in New Zealand we will have to increase our protections of IP a wee bit if we ratify the TPPA. Not so for the emerging economies in the agreement. The TPPA will significantly enhance the protection of IP in many of the poorer signatories to the agreement, and this will undoubtedly push up the costs of medicine (and entertainment) for those that can least afford it. Not surprisingly, Doctors Without Borders have been vocal critics of the pharmaceutical IP provisions in the agreement. That said, it is the poorer countries that are expected to gain the most through unfettered access to the consumer markets of developed nations. Overall, this can be a fair trade-off for the people of these countries, provided that their leaders ensure that the gains from trade are spread equitably amongst their people. But that, of course, is a big ‘if’.

Like TRIPS, the TPPA does provide a carve out to allow cheap access to life saving drugs and medicines. Article 18.6 states that signatories have the right to “protect public health and, in particular, to promote access to medicines for all.” The text specifies epidemics including HIV/AIDS, tuberculosis and malaria and acknowledges that these can constitute national emergencies of extreme urgency which would require alternative treatment of the requisite drugs than is otherwise provided for in the chapter. These exceptions are intended to allow nations stricken with epidemics such as HIV/AIDS cheap access to life-saving medicines.

New Zealand could also gain from greater IP protection

Although our economy is seemingly dominated by the commodity sector, we have been developing our own creative and research-intensive industries. Take Weta Workshop or the Research Centres at the University of Auckland: These and similar enterprises stand to gain from stronger protection of IP, which would ultimately translate into a few more hi-tech jobs being located right here.

And although we are one of the few developed nations with an agricultural sector that stands on its own two feet, we should also be leading the world in agricultural R&D. Ultimately, diversifying our economy by building capacity in sectors other than primary commodities can only be a good thing.  

*Ryan Greenaway-McGrevy is a senior lecturer at the University of Auckland in economics. Prior to that he was a research economist in the Office of the Chief Statistician at the Bureau of Economic Analysis (BEA) in Washington DC.

Amber Carran-Fletcher contributed to this article.

The series so far:

Investor-state dispute settlement

Labour standards

Settling disputes

Intellectual property

SOEs and designated monopolies