Another Giant Sucking Sound: Lost Royalties, Licensing Fees

American firms lose $60 billion annually to patent pirates

BUOYED by his NAFTA victory, President Clinton seeks to project United States leadership in the international economic arena. But Asian and European nations want Washington to soften its stand against unfair traders in the GATT world trade talks. With the pirating of American intellectual property causing a massive transfer of jobs and wealth abroad, the administration needs to link GATT with a tough new strategy to combat pirating and maintain US competitiveness in high-tech and service industries, the foundation of our 21st-century economy.

The Commerce Department and the Office of the US Trade Representative report that American firms lose $60 billion in business annually to foreign companies that copy technologies covered by US and international patents and copyrights without paying royalties or licensing fees. That surpasses last year's $47 billion trade deficit with Japan and doubles the $30 billion to be generated by the administration's 4 cent per gallon fuels tax.

The International Intellectual Property Alliance, a Washington, D.C.-based watchdog group that follows trade issues, finds that computers and software, film and sound cassettes, books, manufactured goods, and pharmaceuticals developed and produced by US firms are favorite targets of patent and copyright pirates.

Director of Central Intelligence James Woolsey and House Intelligence Committee Chairman Dan Glickman (D) of Kansas have suggested that Washington take new steps - which could include targeting foreign companies - to curb this growing form of economic warfare. Trade Representative Kantor has placed several nations on a ``priority watch list'' for denying US firms equitable market access and for failing to protect intellectual property rights. But the White House has yet to unveil an aggressive strategy to rein in the pirates.

The issue is complicated by trading partners who turn a blind eye in order to shield influential firms, including some Fortune International 500 companies, that are engaged in pirating. GATT negotiators from several nations are demanding that Washington roll back the ``Special 301'' provision of the 1988 Omnibus Trade and Competitiveness Act, passed specifically by Congress for the purpose of sanctioning nations that allow pirating and other unfair trading practices to flourish. Antipirating measures under discussion by GATT experts lack the stiff penalties that can be a serious deterrent to offenders.

With many pirate companies hiring lawyers and lobbyists who have White House and Capitol Hill experience to make their case in Washington, the administration is under pressure to trade off usage of the Special 301 provision in order to obtain foreign concessions on agriculture subsidies and trade in traditional industries such as machinery, steel, and furniture before Mr. Clinton's authority to conclude the treaty expires on Dec. 15.

Meanwhile, Mr. Kantor's watch list of unfair traders continues to grow.

* Argentina's patent protection laws haven't been revised since 1864.

* Brazil's huge market in pirated US software continues to expand despite government efforts to police it.

* Software pirating in France and Germany generated $3 billion in losses for US firms last year.

* India's parliament refuses to pass laws protecting US patent and trademark holders.

* Japan's tolerance of software piracy - pirates control 86 percent of the market - caused US software firms to lose $2.3 billion in revenue last year.

* Indonesia and Thailand deny US firms adequate patent protection.

* Columbia and Venezuela balk at giving US companies effective intellectual property protection.

The list includes strategic allies, notably Greece, the Philippines, Saudi Arabia, and South Korea.

Buying influence to avoid the unfair-trader tag is not reserved for wealthy nations like Germany, Japan, or Saudi Arabia. Even a heavily indebted developing country like Argentina, where US firms lose $1 billion annually to pharmaceutical and software pirates, can buy it. According to the Justice Department, the Rendon Group, a Washington lobbying firm, has received several hundred thousand dollars from Argentine companies associated with CILFA, a nationalistic industry association. Earlier this year, CILFA representatives lobbied Sen. David Pryor (D) of Arkansas as part of their successful effort to avoid Special 301 action.

During the cold war, US policy tolerated pirating because many firms engaging in it promoted capitalism and the free enterprise system. But with the collapse of communism in Europe and the former Soviet Union and dictatorships in Latin America, pirating was an easy way for military and state-run firms to move from politico-military and state-run firms to ``free market reforms.'' The pirating curve will continue to spiral upward so long as nations are unable to reconcile laissez-faire economic policies with the rule of law.

European Community economists claim a new GATT agreement will inject $200 billion into the world economy. But with American companies projected to lose $600 billion in revenues to pirating over the next 10 years, the stakes are much higher. Trading away the Special 301 option to retaliate against patent and copyright pirates in order to obtain a patchwork GATT deal is hardly the victory Clinton needs.

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