FOREIGN INFRINGEMENT OF INTELLECTUAL

PROPERTY RIGHTS: IMPLICATIONS FOR

SELECTED U.S. INDUSTRIES

No. ID-14

OFFICE OF INDUSTRIES WORKING PAPER

U.S. International Trade Commission

Amanda Horan, Christopher Johnson, and Heather Sykes

Office of Industries

U.S. International Trade Commission

October 2005

The authors are with the Office of Industries of the U.S. International Trade Commission.

Office of Industries working papers are the result of the ongoing professional research of

USITC staff and solely represent the opinions and professional research of individual

authors. These papers do not necessarily represent the views of the U.S. International Trade

Commission or any of its individual Commissioners. Working papers are circulated to

promote the active exchange of ideas between USITC staff and recognized experts outside

the USITC, and to promote professional development of office staff by encouraging outside

professional critique of staff research. 

ADDRESS CORRESPONDENCE TO:

OFFICE OF INDUSTRIES

U.S. INTERNATIONAL TRADE COMMISSION

WASHINGTON, DC 20436 USA
 1

 The authors are with the Office of Industries of the U.S. International Trade Commission. Office of Industries

working papers are the result of the ongoing professional research of USITC staff and solely represent the opinions

and professional research of individual authors. These papers do not necessarily represent the views of the U.S.

International Trade Commission or any of its individual Commissioners. Working papers are circulated to promote

the active exchange of ideas between USITC staff and recognized experts outside the USITC, and to promote

professional development of office staff by encouraging outside professional critique of staff research. The

invaluable assistance of Monica Reed, Wanda Tolson, and Phyllis Boone is gratefully acknowledged. Please direct

all correspondence to Christopher Johnson, Office of Industries, U.S. International Trade Commission, 500 E Street,

SW, Washington, DC 20436, telephone: 202-205-3488, fax: 202-205-2018, email: christopher.johnson@usitc.gov.

FOREIGN INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS: 

IMPLICATIONS FOR SELECTED U.S. INDUSTRIES

Amanda Horan, Christopher Johnson, and Heather Sykes1

ABSTRACT: The primary purpose of this paper is to review foreign IPR infringement issues affecting

selected U.S. industries, with a particular emphasis on patent, trademark, and copyright infringement.

Although the review is primarily based on qualitative information, some attempts to measure the effects

of IPR infringement quantitatively also are reviewed. To provide background and context for the analysis,

the authors discuss the problem of foreign IPR infringement for U.S. industry; describe certain U.S. trade

laws and international agreements that attempt to address such infringement; review examples of

inadequate foreign patent, trademark, and copyright protection and their implications for selected U.S.

industries; and describe U.S. private and public sector efforts to address such problems. The paper finds

that (1) intellectual property protection is essential to encouraging creative expression and the

development of new products in a number of industries; (2) the development of intellectual propertybased products is generally far more expensive than their manufacture or duplication; (3) inadequate IPR

protection leaves firms vulnerable to infringement, causing them to risk their investment and reputations;

(4) foreign IPR infringement results in billions of dollars in lost revenues for U.S. industries; (5) current

estimates likely understate the actual cost of infringement; and (6) more rigorous empirical research is

needed to confirm the actual amount of U.S. industry losses due to inadequate IP protection.
 2

 Government Accountability Office (GAO), Intellectual Property: U.S. Efforts Have Contributed to

Strengthened Laws Overseas, but Challenges Remain, Sept. 2004, p. 6.

 3

 Pharmaceutical Research and Manufacturers of America (PhRMA) representatives, interview by USITC staff,

Washington, DC, Feb. 25, 2004; Michael P. Ryan, Knowledge Diplomacy: Global Competition and the Politics of

Intellectual Property (Washington, DC: Brookings Institution, 1998), pp. 4-10; and Keith E. Maskus, Intellectual

Property Rights in the Global Economy (Washington, DC: Institute for International Economics, Aug. 2000), pp. 57-

60. 

 4

 For the purposes of this study intellectual property-intensive goods and services include those “which are costly

to produce and subject to considerable uncertainty in costs and demand but are often straightforward to produce in

bulk,” and, thus, are often provided legal protection through such means as patents, trademarks, copyrights, and

other methods of intellectual property protection. Examples include pharmaceuticals, software, motion pictures, and

recorded entertainment. Maskus, Intellectual Property Rights in the Global Economy, pp. 2-3. 

 5

 PhRMA representatives, interview by USITC staff, Feb. 25, 2004; and “PhRMA, Health Care Advocates to

Fight Efforts by Generic Industry to Jeopardize the Progress in Medical Research,” PhRMA News Release,

Feb. 25, 2002, p. 1, found at http://www.phrma.org, retrieved Feb. 26, 2005.

1

FOREIGN INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS: 

IMPLICATIONS FOR SELECTED U.S. INDUSTRIES

Introduction

As tariffs are reduced and eliminated as a result of global trade liberalization, nontariff measures

have become increasingly more visible as significant impediments to U.S. industry and trade. Among

these nontariff measures (NTMs), foreign intellectual property right (IPR) infringement is responsible for

billions of dollars in lost revenues for U.S. industries dependent on intellectual property. The purpose of

this paper is to provide background on the issue of foreign IPR infringement and assess the implications

for U.S. industry of inadequate protection of three of the most common intellectual property forms:

patents, trademarks, and copyrights.2

 Although the assessment is largely a qualitative one, some attempts

to measure the effects of IPR infringement quantitatively also are reviewed.

In this paper, we (1) discuss why foreign IPR infringement is a problem to U.S. industry;

(2) describe certain U.S. trade laws and international agreements that deal with intellectual property and

the problems of infringement; (3) discuss qualitatively the views of U.S. industry, government and

academic representatives on the effects of foreign infringement of patents, trademarks, and copyrights on

selected industries; (4) discuss some attempts to measure quantitatively the effects of IPR infringement on

U.S. industry and trade; and (5) describe U.S. public and private sector efforts to counter such foreign IPR

infringement. 

The Problem of Foreign IPR Infringement

Reasons for IPR Protection

The costs of developing new products embodying intellectual property are high.3

 The greatest

expense in bringing most intellectual property-intensive goods and services4

 to market is in development

rather than manufacture or duplication. Developing a new software operating system, making a major

motion picture, producing a new video game or recording album, writing a new software application

program, or releasing fiction books and educational texts can cost millions of dollars. Pharmaceutical,

agricultural, chemical, and biotechnology firms also spend large amounts in discovering and developing

new products.5

 For example, U.S. pharmaceutical manufacturers report spending an estimated 
 6 PhRMA Annual Membership Survey 2005, found at http://www.phrma.org, p. 1.

 7

 Maskus, Intellectual Property Rights in the Global Economy, pp. 57-60.

 8

 Ibid., pp. 52-54; and Ryan, Knowledge Diplomacy, pp. 4-5.

 9

 International Anti-Counterfeiting Coalition (IACC) representatives, interview by USITC staff, Jan. 20, 2004.

 10 Association of American Publishers representative, U.S. Department of State, Foreign Service Institute (FSI)

course, “Intellectual Property Rights,” Arlington, VA, July 15-16, 2004. 

 11 PhRMA representatives, interview by USITC staff, Washington, DC, Feb. 25, 2004.

 12 Robert W. Hahn, “An Overview of the Economics of Intellectual Property Protection,” ch. in Intellectual

Property Rights in Frontier Industries (Washington, DC: AEI/Brookings Center for Regulatory Studies, 2005),

p. 11; and Bernard Hoekman and Michel Kostecki, “Intellectual Property,” ch. in The Political Economy of the

World Trading System: From GATT to the WTO (Oxford: Oxford University Press, 1997), p. 146.

 13 Washington International Trade Association (WITA), “You Must Be TRIPing!: What’s All the Fuss About

TRIPs?,” Washington, DC, Mar. 2, 2005. 

 14 One scholar states that “[there] is a sound justification for public interest in defining and sustaining [IPR] rights

in order to overcome the natural failure of markets to encourage investment in new technologies and artistic works.”

But, he continues, “there is also justification for distributing the fruits of such invention and creation widely to

consumers at relatively low cost.” Maskus, Intellectual Property Rights in the Global Economy, p. 9.

 15 Hoekman and Kostecki, The Political Economy of the World Trading System: From GATT to the WTO,

pp. 148-149.

 16 Integrating Intellectual Property Rights and Development Policy, Report of the Commission on Intellectual

Property Rights, London, Sept. 2002, pp. 57-69, found at http://www.iprcommission.org/papers/pdfs/fullfinal.pdf;

Donald G. Richards, Intellectual Property Rights and Global Capitalism (Armonk, NY: M.E. Sharp, 2004), pp. 141-

166; and Carlos M. Correa, Intellectual Property Rights, the WTO and Developing Countries (London and New

York: Zed Books Ltd., 2000), pp. 35-37, and 167-202. 

 17 WITA, “You Must Be TRIPing!,” Washington, DC, Mar. 2, 2005. 

2

$38.8 billion in research and development (R&D) in 2004, representing 15.9 percent of their total sales

that year.6

 Such investment often entails significant risk since the resultant products are not assured of

success in the market place.7

 Only a small percentage of new drugs, software programs, books, or music

recordings become financially successful for their producers.8

While the costs and risks involved in product development are high, the costs of product imitation

or intellectual property infringement are generally low.9

 Once a successful book is published, it may be

replicated with little effort by photocopying, commercial reprinting, or unauthorized electronic

distributions.10 A successful new software program may easily be copied by digital means and transmitted

via the Internet. A drug approved by the government for marketing after extensive R&D and clinical

testing by the developer may be duplicated with much less cost by others.11

Because individuals or companies developing new products usually do so in anticipation of

having a good chance of receiving an adequate return on their investment, governments often provide a

minimum level of market exclusivity to inventors or developers of products.12 Nevertheless, there are

diverse opinions13 about the amount of exclusivity that should be provided to a protected product or

process.14 One result of market exclusivity is that it permits the intellectual property rightholder to

demand higher prices than she otherwise could if she faced competition in providing the protected

product.

In recent years, a number of developing country leaders have come to recognize the importance

of intellectual property protection to the development of their economies.15 However, especially in the

patent area, other leaders and scholars believe that intellectual property protection could affect the global

availability of advanced agricultural inputs and medicines.16 Leaders of some developing countries also

argue that their societies can never advance educationally or technologically if they do not have lower

cost access to products stringently protected by developed countries.17 That being said, U.S. industry

representatives point to recent studies conducted by industry groups as well as new studies commissioned
 18 Sahid Alikhan, Socio-Economic Benefits of Intellectual Property Protection in Developing Countries

 (Geneva: World Intellectual Property Organization (WIPO), 2000), pp. 61-63; Betty Mould-Iddrisu, Introduction to

Intellectual Property Rights: A Developing Country’s Perspective, July 25, 2003, found at

http://usinfo.state.gov/products/pubs/intelprp/perspect.htm; IIPA, Initial Survey of the Contribution of the Copyright

Industries to Economic Development, Apr. 2005, pp. 1-10, found at http://www.iipa.com/pdf/2005_Apr27_

Economic_Development_Survey.pdf; Edward Mansfield, “Intellectual Property Rights, Technological Change, and

Economic Growth,” in Intellectual Property Rights and Capital Formation in the Next Decade (Lanham: University

Press of America, 1988), Charles E. Waler and Mark Bloomfield, eds., pp. 107-145; Maskus, “The International

Regulation of Intellectual Property,” 134 Weltwirtschaftliches Archiv (1998), p. 154; Maskus, Intellectual Property

Rights in the Global Economy, pp. 45-46; Business Software Alliance (BSA), Contribution of the Packaged

Software Industry to the Latin American Economies (New York: PricewaterhouseCoopers, Sept. 1999), pp. 1-53;

and U.S. industry representatives, written communications to USITC staff, Jan. 2003.

 19 "Value added" refers to gross domestic product (GDP) by industry. It is an industry’s gross output (sales or

receipts and other operating income, commodity taxes and inventory change) minus its intermediate inputs

(consumption of goods and services purchased from other industries or imported). The sum of the value added of all

U.S. industries is equal to U.S. GDP. 

 20 For purposes of brevity (and consistent with general U.S. industry usage), in this report, the “copyright

industries” refer to those industries that manufacture and/or distribute copyright-protected products. Stephen E.

Siwek, Copyright Industries in the U.S. Economy (Economists Inc.: Washington, DC, 2004), p. i., found at

http://www.iipa.com/pdf/2004_siwek_full.pdf, retrieved May 31, 2005.

 21 Ibid., pp. iii-vi.

 22 Estimated by U.S. Bureau of Labor Statistics.

3

by international organizations such as the World Intellectual Property Organization (WIPO). These

studies demonstrate or aim to demonstrate that increased IPR protection in developing countries would

lead to greater numbers of jobs, increased opportunities for foreign direct investment (FDI), and increased

economic welfare in general.18

Importance of IPR-Intensive Industries to the U.S. Economy

U.S. industries that are the most dependent on IPR are particularly important to the strength of the

U.S. economy. They are characterized by their significant contributions to U.S. economic output, above

average growth in employment, and higher than average wages and salaries. A study completed in 2004

shows that value added19 in the core copyright industries (including the motion picture, recording,

business and entertainment software, and publishing industries)20 reached $626.2 billion, or 6 percent of

the U.S. economy, in 2002.21 These copyright industries, meanwhile, accounted for employment of an

estimated 5.5 million, or 4 percent of total U.S. employment of 136.5 million22 in that same year. Foreign

sales and exports by U.S. copyright businesses amounted to almost $89 billion in 2002, exceeding those

of several other major U.S. industry sectors (table 1).

Table 1

Estimated U.S. exports and foreign sales for selected industries, 2002

U.S. Industry Billions of dollars

Core copyright industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88.3

Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83.6

Motor vehicles, parts, and accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50.4

Aircraft and associated equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.9

Food and live animals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.3

Sources: U.S. Department of Commerce and the International Intellectual Property Alliance.
 23 National Science Foundation (NSF), Science and Engineering Indicators 2004, Vol. 2, Arlington, VA, 2004,

app. table 6-1.

 24 Ibid..; and PhRMA Annual Membership Survey 2005, table 8, p. 39.

 25 PhRMA Annual Membership Survey 2005, table 8, p. 39.

 26 Ross DeVol, and others, Biopharmaceutical Industry Contributions to State and U.S. Economies (Santa

Monica: CA: Milken Institute), 2004, p. 1, found at http://www.milkeninstitute.org, retrieved Sept. 13, 2005.

 27 U.S. Bureau of Economic Analysis (BEA), “U.S. International Services,” Survey of Current Business,

Oct. 2004, pp. 32-33.

 28 Royalty and license fees for the use of general-use computer software and use of industrial manufacturing

processes in the pharmaceutical and telecommunications industries were responsible for the largest portion of U.S.

receipts from unaffiliated foreign companies in 2003. BEA, Survey of Current Business, pp. 32-33.

 29 IIPA estimates that total global losses due to piracy at $25-30 billion annually, since losses in countries such as

the United States and EU member countries are not included in the 52 selected countries for which estimates were

made above. For further information on how these estimates were made, see IIPA, 2005 Special 301 Report on

Global Copyright Protection and Enforcement, Feb. 11, 2005, app. A and pp. 1-5.

4

For the pharmaceutical industry, total U.S. production amounted to an estimated $100 billion in

2001, or 25 percent of global production of drugs and medicines of $398 billion.23 Further, while U.S.

exports totaled $32 billion, or less than 15 percent of world exports of pharmaceuticals in that year, U.S.

pharmaceutical industry representatives estimate that total sales abroad, including those of U.S. foreign

affiliates, amounted to $48 billion.24 According to the industry representatives, total estimated sales

abroad reached $81 billion in 2004.25 They point out that the pharmaceutical industry directly employed

more than 400,000 people in the United States and many more abroad in 2004.26

The importance of intellectual property to the U.S. economy is also reflected in the magnitude of 

U.S. receipts and payments of royalties and license fees in connection with both domestic and foreign

transactions related to patent, trademark, copyright, broadcast, and other intangible rights; and the rights

to distribute, use, and reproduce general-use computer software (see text box). Receipts of royalties and

license fees by U.S. companies from foreign affiliated and unaffiliated firms increased by 9 percent to

$48.2 billion in 2003 from the previous year.27 Meanwhile, U.S. payments of royalties and license fees to

affiliated and unaffiliated firms overseas increased by 4 percent to $20 billion in 2003, resulting in a U.S.

surplus of $28.2 billion in such transactions.28

Cross-Border Trade - Royalties and License Fees

U.S. receipts of royalty and license fees, and film and television tape rentals, reflect U.S. exports of intangible intellectual

property, whereas U.S. payments of royalties and license fees, and film and television tape rentals, reflect U.S. imports of such

property. Many transactions involving intangible intellectual property are intrafirm transactions, carried out between parent firms

in the home market and foreign affiliates in host markets. In 2003, intrafirm trade of royalties and license fees accounted for

approximately 74 percent of cross-border trade in intangible intellectual property rights.1

 Intrafirm trade offers additional

protections, as foreign affiliates can monitor its use in host-country markets on behalf of the parent firm.

Source: U.S. Department of Commerce, Bureau Economic Analysis, Survey of Current Business, Oct. 2004, p. 54.

Industry Estimates of Costs of Foreign Infringement 

Because of the economic importance of intellectual property industries to the U.S. economy,

mounting revenue losses due to foreign IPR infringement are of concern to U.S. industry and government

officials. In a 2005 report to the United States Trade Representative (USTR), the International Intellectual

Property Alliance (IIPA) estimated losses due to copyright piracy in 52 selected countries for 5 core

copyright industries to be $12.5 billion (table 2).29 The business software and sound recording industries

had the highest estimated losses cited. The Business Software Alliance (BSA) reports that losses due to
 30 Business Software Alliance (BSA), “Enhancing Trade Opportunities,” Trade Policy News, 2000-2002, p. 1,

found at http://www.bsa.org, retrieved Apr. 13, 2005.

 31 BSA, Second Annual BSA and IDC Global Software Piracy Study, May 2005, pp. 1-13, found at

http://www.bsa.org/usa/press/newsreleases/Global-Piracy-Study-05-18-2005.cfm, retrieved May 31, 2005.

 32 James Rogan, Undersecretary of Commerce for Intellectual Property and Director of the U.S. Patent and

Trademark Office (USPTO), before the Subcommittee on Commerce, Justice, State and the Judiciary, Committee on

Appropriations, U.S. House of Representatives, Apr. 23, 2002, found at http://www.uspto.gov, retrieved

May 25, 2005; and BSA, “Software Theft - Stopping the Piracy of Intellectual Property,” 2000-2002, Copyright

Policy News, p. 1, found at http://www.bsa.org, retrieved Apr. 13, 2005.

 33 International Chamber of Commerce (ICC) Commercial Crime Services, “A Brief Overview of

Counterfeiting,” pp. 1-2, 2001, found at http://www.iccwbo.org, retrieved June 28, 2004.

 34 First Global Congress on Combating Counterfeiting, “The Impact and Scale of Counterfeiting,” Fact Sheet,

May 25-26, 2004, pp. 1-4, found at http://www.anti-counterfeitcongress.org, retrieved Oct. 27, 2004.

 35 Frank Giovinazzi, American International Automobile Dealers Association, “Federal Government Announces

New Anti-Piracy Initiative,” found at http://www.aiada.org, retrieved Oct. 27, 2004, pp. 1-2.

 36 Although U.S. Customs and Border Protection data pertain to seizures for all types of IPR infringement, most

of the goods seized consist of counterfeit and pirated products (“counterfeit” refers to trademark infringement and

“pirated” refers to copyright infringement). U.S. Department of Homeland Security official, telephone interview by

USITC staff, May 10, 2005. 

 37 U.S. Customs and Border Protection, L.A. Strategic Trade Center, “FY 2002 and FY 2003 Top IPR

Commodities Seized,” found at http://www.cbp.gov, retrieved Apr. 1, 2005.

 38 U.S. Customs and Border Protection, “FY 2002 and FY 2003 Top IPR Commodities Seized,” p. 1.

5

Internet piracy have been rising rapidly in recent years, and are believed to contribute to an increasing

percentage of overall global piracy losses.30 A survey conducted for the Business Software Alliance

(BSA) in 2005 suggests that 35 percent of computer software installed worldwide in 2004 was pirated.31

U.S. Government and industry sources estimate that by 2008 software piracy will annually cost the U.S.

economy 175,000 jobs, $4.5 billion in wages, and nearly $1 billion in tax revenues.32

Table 2

Estimated 2004 U.S. sales losses due to copyright piracy in 52 selected countries 

U.S. Industry Estimated losses

(Millions of dollars)

Business Software Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,155.0

Sound Recordings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,437.8

Entertainment Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,743.9

Motion Pictures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,635.5

Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,543.2

Source: International Intellectual Property Alliance, 2005.

Losses to other industries are also believed to be substantial. The International Chamber of

Commerce Commercial Crime Services Division reports that counterfeiting accounts for around

5-7 percent of world trade.33 Counterfeit drugs alone are estimated to account for 10 percent of all

pharmaceuticals.34 Meanwhile, the cost to the U.S. automobile industry due to counterfeiting is estimated

to be $3 billion.35 The value of imported goods seized by U.S. Customs and Border Protection for IPR

infringement36 in 2003 amounted to $94 million, representing a decline of 5 percent over the previous

year.37 Among the imported goods seized most often by Customs in that year were cigarettes, wearing

apparel, handbags, media, consumer electronics, watches, footwear, toys and electronic games,

sunglasses, and headwear.38
 39 P.L. 98573, 98 Stat. 2948.

 40 Section 301 of the 1974 Trade Act, as amended, is the principal U.S. statute for addressing unfair foreign

practices affecting U.S. exports of goods or services. As such, the provision may be used to enforce U.S. rights

under international trade agreements and respond to unjustifiable or discriminatory foreign practices that restrict U.S.

commerce such as inadequate protection of intellectual property rights. United States Trade Representative (USTR),

2005 Trade Policy Agenda and 2004 Annual Report of the President of the United States on the Trade Agreements

Program (Washington, DC: U.S. Government Printing Office, Mar. 1, 2005), pp. 256-257. 

 41 Trade Act of 1974, P.L. No. 93-316, as amended by the Omnibus Trade and Competitiveness Act of 1988,

P.L. No. 100-418, 102 Stat. 1107. See 19 U.S.C. § 2242(a)(A)(2001).

 42 The range of actions that may be taken under Section 301 is broad and includes any action that is within the

power of the President with regard to trade or other pertinent aspects of U.S. foreign relations. For instance, among

other things, under such authority, the President, or the USTR as his representative, may (1) suspend trade agreement

concessions, (2) impose duties or other import restrictions, or (3) enter into agreements with the subject country to

eliminate the offending practice or to provide compensatory benefits for the United States. USTR, 2005 Trade Policy

Agenda and 2004 Annual Report, pp. 256-257. 

 43 Ukraine, designated for the fifth year in a row as the only priority foreign country, is cited in the 2005 Special

301 review for, among other things, continued failure to implement necessary IPR laws and rules providing for

effective protection and enforcement of IPR, and rampant optical disc piracy. USTR, 2005 Special 301 Report,

Apr. 29, 2005, p. 1, found at http://www.ustr.gov, retrieved Sept. 7, 2005.

6

U.S. Trade Laws and International Agreements Related to IPR

This section provides some general information on U.S. trade laws used to address foreign IPR

infringement. It also describes some of the most prominent international agreements pertaining to

intellectual property rights and the organizations that administer them, including WIPO and the World

Trade Organization (WTO).

Major U.S. Trade Laws

Section 301 and Special 301

The Trade and Tariff Act of 198439 amended Section 301 of the Trade Act of 1974,40 the principal

U.S. statute for addressing foreign trade barriers, to identify inadequate protection of intellectual property

as an unreasonable trade practice. The amended law authorizes the President to impose sanctions,

including removal of tariff preferences against foreign countries failing to meet their IPR obligations.

USTR has used Section 301 provisions and the threat of sanctions to address copyright, patent, and

trademark infringement with a number of countries.

The IPR provisions of the 1984 Trade and Tariff Act were strengthened by the passage of the

1988 Omnibus Trade And Competitiveness Act, which contains a provision referred to as “Special 301.”41

Special 301 requires USTR to provide an annual report to identify countries that deny adequate and

effective protection of intellectual property rights, or deny fair and equitable market access to U.S.

persons or firms that rely on IPR. Countries with laws, policies, or practices that have the greatest adverse

effects on relevant U.S. producers or products must be designated as “priority foreign countries” unless

USTR finds that the countries are entering into good faith negotiations or are making significant progress

in bilateral or multilateral negotiations to provide adequate and effective IPR protection. 

Priority foreign countries are subject to investigation and, if necessary, trade sanctions or other

actions by USTR under Section 301 provisions.42 Ukraine was the only country designated as a “priority

foreign country” in 2005.43 USTR also created a “priority watch list” (table 3) and “watch list” for those

countries that, while not considered to be as problematic as “priority foreign countries,” are still
 44 U.S. International Trade Commission (USITC), Understanding Investigations of Intellectual Property and

Other Unfair Trade Practices in Import Trade, found at http://www.usitc.gov, retrieved May 9, 2002.

 45 USTR, 2005 Trade Policy Agenda and 2004 Annual Report, p. 267; and USITC, Understanding Investigations

of Intellectual Property and Other Unfair Trade Practices in Import Trade, p. 1.

 46 Hahn, “Overview of the Economics of Intellectual Property Protection,” p. 1; and Hoekman and Kostecki, The

Political Economy of the World Trading System, pp. 144-158.

7

determined to merit U.S. attention to address IPR problems. Countries can also be selected for out-of

cycle reviews under the Special 301 process when warranted. (See text box below outlining the results of

such a review completed for China in early 2005).

Table 3

2005 Special 301 Priority Watch List

Argentina Kuwait

Brazil Lebanon

China Pakistan

Egypt Philippines

India Russia

Indonesia Turkey

Israel Venezuela

Source: USTR, 2005 Special 301 Report, Apr. 29, 2005.

Section 337

Section 337 of the Tariff Act of 1930, as amended, addresses imported products or processes

alleged to violate U.S. intellectual property rights. Specifically, the law provides for investigations to be

conducted by the U.S. International Trade Commission (USITC) to determine whether foreign producers

of goods imported into the United States are engaging in unfair trade practices.44 Most of the cases

brought under Section 337 involve claims of infringement of U.S.-held intellectual property rights such as

U.S. patents, copyrights, trademarks, or registered semiconductor designs or mask works.45 If a petitioner

can show that infringement has occurred under Section 337, the USITC can issue orders that exclude the

product from entry into the United States or direct offending parties to cease and desist from certain

practices.46
8

China: Special 301 Out-of-Cycle Review

In early 2005, USTR conducted a Special 301 out-of-cycle review (OCR) of commitments made by China in 2004

at an annual meeting of the U.S.-China Joint Commission on Commerce and Trade (JCCT) to significantly reduce

IPR infringements. Based on the review, the United States found that although China had made significant efforts

to improve the protection of IPR, it had not resolved critical deficiencies in IPR protection and enforcement and, as

a result, infringements remained at epidemic levels, and, thus, China did not meet its JCCT commitments.

Among the remaining IPR problems in China reported by USTR in conjunction with the OCR were

(1) unacceptably high levels of infringement, (2) lack of transparency in the IPR regime, (3) insufficient deterrent

effect in the IPR criminal enforcement system, (4) inadequate enforcement of IPR, (5) non-accession to WIPO

Internet Treaties, (6) continued unauthorized use of software by certain government institutions, and

(7) counterfeiting and patent infringement with respect to pharmaceuticals. 

1. With regard to high infringement levels, estimated U.S. losses resulting from copyright piracy in China

amount to between $2.5 billion and $3.8 billion annually. Meanwhile, trademark counterfeiting has not

been significantly reduced. In 2004, the value of Chinese counterfeits seized by U.S. Customs increased

by 47 percent from $94 million to $134 million, representing 67 percent of seizures in 2004.

2. Despite TRIPS requirements and JCCT commitments, lack of transparent information on IPR

infringement levels and enforcement activities in China continues to be a problem. Further, transparency

in rulemaking continues to be a problem as government regulatory agencies often refuse to make drafts

of new rules widely available for public comment. 

3. Criminal enforcement in China has not been shown to have any deterrent effect on infringers, as required

by Article 61 of the TRIPS Agreement and by JCCT commitments made by China. Chinese authorities

have pursued criminal prosecutions in a relatively small number of cases despite China’s commitment to

impose more criminal penalties with respect to copyright piracy and trademark counterfeiting activities.

Further, by not holding Internet service providers liable for infringing material hosted on their networks,

efforts to actually impose criminal liability is hindered.

4. The OCR review indicated that China’s IPR enforcement efforts are hindered by inadequate coordination

among Chinese Government agencies, local protectionism and corruption, high thresholds for initiating

investigations and prosecutions, lack of training, and inadequate and non-transparent processes.

Excessive reliance on administrative enforcement, as opposed to civil and criminal enforcement, is nondeterrent and, thus, not effective. There reportedly has been a decline in the number of cases forwarded

for criminal investigation, even for commercial-scale piracy and counterfeiting. 

5. Despite increased Internet and digital piracy, and despite a JCCT commitment, China has not yet

acceded to the WIPO Internet Treaties. 

6. Widespread use of unauthorized software continues in government offices in China. While some of the

governments of major provinces have instituted measures requiring use of only legal software, many

other provinces have not.

7. While China’s patent laws largely comply with the TRIPS Agreement, OCR submissions indicate that

patents for transgenic plants and animals are virtually unobtainable under Chinese law. Further, China

has not yet implemented any meaningful data protections for pharmaceutical products, as required by

TRIPS and China’s JCCT commitments.

As China failed to significantly reduce IPR infringement levels, as required under the JCCT, the United States

reported in the 2005 Special 301 Report that it will (1) use WTO instruments whenever appropriate to address its

concerns about the unacceptable levels of counterfeiting in China, including the invocation of the transparency

provisions of the TRIPS Agreement to request China to provide detailed documentation on aspects of IPR

enforcement that affect U.S. rights under TRIPS; (2) elevate China onto the Priority Watch List on the basis of

serious concerns about compliance with WTO TRIPS obligations related to IPR enforcement and three April 2004

JCCT commitments made by China to the United States, and also maintain Section 306 monitoring of China’s

implementation of 1992 and 1993 bilateral agreements with the United States; and (3) use the JCCT and IPR

Working Group to secure new, specific commitments concerning additional actions that China will take that result

in significant improvements in IPR protection and enforcement. 

Sources: Adapted, with excerpts, from USTR, 2005 Special 301 Report, Apr. 29, 2005.
 47 WIPO is part of the United Nations system. As administrator of the major international intellectual property

treaties, its mission is to promote the protection of intellectual property throughout the world. As part of its

responsibilities, WIPO helps member countries create multilateral norms, helps developing countries write and

administer national laws and establish patent and copyright offices, and serves the member states through

administration of the treaties. WIPO also provides a service to patent applicants from member countries under the

Patent Cooperation Treaty (PCT), an international clearinghouse in which applicants may submit one patent

application that may take effect in some or all (almost 100) PCT member countries. Ryan, Knowledge Diplomacy,

pp. 125-139. For further information on WIPO, see its website at http://www.wipo.int/about-wipo/en. 

 48 Maskus, Intellectual Property Rights in the Global Economy, p. 2.

 49 The WIPO Internet Treaties are discussed in more detail below in the copyright section of this study.

 50 The Uruguay Round Trade Agreements entered into force on Jan. 1, 1995, creating the WTO. See

http://www.wto.org.

9

International IPR Agreements

The United States has signed a number of conventions related to IPR protection, including several

international conventions and treaties that are now administered under the auspices of WIPO47 (table 2)

and the WTO. Two widely known international IPR agreements administered by WIPO are the Paris

Convention and the Berne Convention (see table 4).48 The Paris Convention deals with patent, trademark,

and other industrial property protection and the Berne Convention addresses copyright issues. The Paris

and Berne conventions provide both national treatment and most favored nation status for foreign

countries, enabling inventors and other innovators an opportunity to apply for patents and copyrights in

member countries on the same basis as nationals. A large number of countries, including the United

States, have signed onto both conventions. Some other notable international intellectual property treaties

are shown in table 2, including the WIPO Copyright Treaty (WCT) and WIPO Performances and

Phonograms Treaty (WPPT), together known as the WIPO Internet Treaties (text box).49

The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was

agreed upon by the United States and its trading partners in 1994 at the conclusion of the General

Agreement on Tariffs and Trade (GATT) Uruguay Round of multilateral trade negotiations.50 It is the

only multilateral intellectual property agreement with a robust dispute resolution mechanism enforceable

between governments. The TRIPS Agreement covers trademarks, patents, and copyrights (and related

rights such as rights of performers, broadcasters, and producers of records, compact discs, and videos)

(table 5). It also covers layout-designs of integrated circuits, geographical indications, and industrial 

designs. Generally, TRIPS (1) establishes minimum standards of protection of such rights, (2) prescribes

procedures and remedies to be available in member states to enforce rights, (3) makes the WTO disputesettlement mechanism available to address TRIPS-related disputes, and (4) extends basic WTO principles

such as transparency, national treatment, and most favored nation treatment to intellectual property rights.
10

Table 4

Major international conventions, treaties, and other agreements on intellectual property

Agreement

Number of

signatories Objectives Administrator

Paris Convention (1883,

revised in 1967)

129 Protection of patents, trademarks, and service

marks, trade names, utility models, industrial

designs, indications of sources or appellations

of origin and the ‘repression of unfair

competition’ based on principles of nondiscrimination and national treatment. Allows for

compulsory licensing.

WIPO

Berne Convention (1886,

revised in 1971)

111 Basic copyright treaty based on principles of

non-discrimination and national treatment.

WIPO

Madrid Agreement (1891) 31 Provides for the international registration of

trademarks and service marks.

WIPO

Universal Copyright

Convention (1952)

57 Copyright treaty accommodating U.S. statutory

requirements and based on principles of nondiscrimination and national treatment.

UNESCO

Lisbon Agreement (1958) 17 Protection of appellation of origin. WIPO

Rome Convention (1961) 47 Protection of neighboring rights (performers,

producers of phonograms, broadcasting

organizations).

ILO,

UNESCO, and

WIPO

Geneva Convention (1971) 52 Protection of producers of phonograms against

the making of duplicates in another country.

ILO,

UNESCO, and

WIPO

Treaty on Intellectual Property

in Respect of Integrated

Circuits (IPIC) (1989)

8 Provides protection to semiconductor designs. WIPO

WIPO Copyright Treaty (WCT)

(1996)

52 Provides obligations for protecting copyrighted

works in the digital environment. 

WIPO

WIPO Performances and

Phonograms Treaty (WPPT)

(1996)

49 Provides obligations for protecting the rights of

performers and producers of phonograms in the

digital environment.

WIPO

Source: Adapted by USITC staff from Bernard Hoekman and Michel Kostecki, The Political Economy of the World

Trading System, 1997; and other sources.
11

The WIPO Internet Treaties

The WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT) are often referred to as the

“Internet Treaties” because they provide new international standards for the protection of copyrights and related rights in the

digital economy. The two treaties entered into force on March 6, 2002, and May 20, 2002, respectively, once the required

minimum 30 countries had ratified each. 

! The WCT provides that traditional means for copyright protection (for such products as books, movies, and software) should

apply to works transmitted on the Internet or otherwise using digital media, technology, and protections. 

! The WPPT similarly provides intellectual property protections to producers of sound recordings, as well as performers, with

respect to works on the Internet or in connection with use of digital technology and media. 

! Both treaties clarify that traditional rights of reproduction continue to apply in the digital environment, including the storage of

material in digital form in an electronic medium. 

! The treaties establish the IPR holders’ rights to maintain control of their works over the Internet and other digital transmission

of their works.

! The treaties ensure that right holders can use digital rights management technology to protect their rights on the Internet. The

treaties’ anti-circumvention provisions address security and intellectual property infringement risks by requiring that signatories

provide minimum levels of legal protection, including civil and criminal penalties, sufficient to deter the unauthorized

circumvention of technical protective measures. 

! Another provision in the treaties requires signatory countries to prohibit the intentional modification or removal of digital rights

management information. This includes prohibitions against interfering with information and data that can be incorporated into

the digital code of a protected work and used “to identify the work, its author, performer or owner, the terms and conditions for

its use, and any other relevant attributes.” 

! Both treaties require signatory countries to impose penalties for circumventing technological protection measures that protect

copyrighted works, and for tampering with or altering rights management information associated with a work. Such provisions

are the principal means for providing copyright owners with security in making their works available in digital formats.

! The United States has ratified both treaties, and implemented them domestically via the Digital Millennium Copyright Act of

1998.

Sources: Adapted, and parts excerpted, by USITC staff from information provided in the following sources: WIPO, “WIPO

Copyright Treaty (adopted in Geneva on Dec. 20, 1996)” and “WIPO Performances and Phonograms Treaty (WPPT) (adopted in

Geneva on Dec. 20, 1996);” and Chris Gibson, WIPO Internet Copyright Treaties Coming Into Force, 2002. 
 51 Neighboring rights (also called related rights) protect the rights of performers, producers of phonograms (sound

recordings), and broadcasting organizations. Phonograms are sound recordings such as audiotapes, records, or music

CDs. Jaleen Moroney, Intellectual Property: Principles and Practice [undated], p. 1, found at

http://www.sis.gov.eg/intellectual/html/716.htm, retrieved May 31, 2005. 

 52 IIPA representative, e-mail dated May 25, 2005, to USITC staff.

12

Table 5

TRIPS requirements for WTO members

Area Requirements

Patents Patents must be granted for at least 20 years from the date of filing. Pipeline

protection must temporarily be granted to pharmaceutical and agricultural products

in countries that are allowed to delay implementing full patent protection.

Copyrights Copyright obligations are based on the Berne Convention for the Protection of

Literary and Artistic Works (1971) and the Rome Convention (1961). Computer

programs, databases, sound recordings, movies, and performances must be

protected for 50 years. Broadcasts receive 20 years of protection. Rental rights

(the rights to authorize or prohibit commercial renting) are provided for performers,

producers, and broadcasting companies. 

Trademarks Trademarks must be made available for 7 years initially, and renewed indefinitely

thereafter. 

Semiconductor Layouts Semiconductor design obligations are based on the Treaty on Intellectual Property

in Respect of Integrated Circuits (1989). Owners of semiconductor layout designs

must receive 10-year protection. Compulsory licensing is not allowed.

Geographic Indications Use of indications that mislead consumers as to the true origin of a product, or that

constitute unfair competition, must be prohibited. 

Industrial Designs Unauthorized making, selling, or importation of copies of new or original industrial

designs must be prohibited for 10 years.

Trade Secrets Trade secrets and other types of “undisclosed information” that have commercial

value must be protected against breach of confidence and other acts contrary to

honest commercial practices. But reasonable steps must have been taken to keep

the information secret. Test data submitted to governments to obtain marketing

approval for new pharmaceuticals or agricultural chemicals also must be protected

against unfair commercial use.

Source: Adapted with excerpts from World Trade Organization, “Understanding the WTO: The Agreements:

Intellectual Property” (2005); and Benedicte Callan, Pirates on the High Seas: The United States and Global

Intellectual Property Rights (1988).

TRIPS is primarily structured around the main international conventions administered by WIPO.

For instance, with respect to copyrights and neighboring rights,51 WTO members are required to comply

with the provisions of the Berne and Rome Conventions for copyright protection (with some important

distinctions). Further, as in U.S. law, computer software is to be protected as a literary work under the

Berne Convention and the conditions under which databases are to be protected by copyright are clearly

specified. WTO members are also required to comply with the most important provisions of the Paris

Convention (1967) on patents; at least 20-year patent protection must be provided by members for almost

all inventions, including both products and processes.

An important feature of TRIPS is the obligation it places on WTO members to adequately and

effectively enforce IPR.52 While previous international agreements on harmonizing standards for IPR

protection contained provisions on enforcement, it is the strength of the dispute settlement mechanism
 53 USPTO official, FSI IPR course.

 54 Maskus, Intellectual Property Rights in the Global Economy, pp. 40-41.

 55 Further discussion of the use of licensing by firms in certain industries is provided in the next section.

 56 U.S. industry and trade officials, FSI IPR course.

 57 Biotechnology Industry Organization (BIO), Special 301submission to Office of the United States Trade

Representative, Feb. 11, 2005, found at http://www.bio.org, retrieved Feb. 17, 2005; and U.S. industry and trade

officials, FSI IPR course.

13

under the WTO that sets TRIPS apart. The enforcement provisions of the TRIPS Agreement

(Articles 41-61) provide the basis under the WTO for determining whether individual countries are

adequately able to fight IPR infringement within and at their borders. These provisions oblige WTO

member countries to provide enforcement procedures, including civil or administrative remedies, as well

as criminal penalties, that permit effective action against any act of IPR infringement (including acts of

copyright infringement that occur in the online environment) and that constitute a deterrent to further

infringements. In addition, enforcement provisions on IPR, crime, customs, taxes, and communications

must effectively reduce high levels of commercial copyright piracy and trademark counterfeiting both

domestically and at the borders of all WTO member countries. 

Patents, Trademarks, and Copyrights

Patents, trademarks, and copyrights are among the most common forms of intellectual property

protection. Following are discussions of each of these three forms of protection, including definitions; 

brief summaries of relevant U.S. legislation and international treaties applicable to each; reviews of the

different means by which patents, trademarks, and copyrights are infringed overseas; and discussions of

the costs such infringement entails. Several other forms of intellectual property protection including sui

generis means of protection for biotechnology, geographical indications, and semiconductor layout

designs will also be discussed as they relate to the major forms of protection mentioned above.

Patents

Patents play an important role in economic development by encouraging technology transfer and

investment, R&D, and the discovery of new technologies.53 Patents permit incremental innovation and

expand the public stock of technical knowledge, as there is a disclosure requirement.54 In addition to

providing patent-holders with exclusive rights, which can result in higher prices and revenues from sales

of patented products, many firms obtain significant revenues from the licensing or sale of the patent rights

themselves for products and processes. Licensing transactions generate revenues in the form of royalties

and license fees.55

Violations of patent laws are known as patent infringement. In the United States, civil remedies

are available for patent infringement. However, foreign laws and enforcement of patents often are not

sufficient to protect U.S. firms’ patent rights.56 According to U.S. industry and trade officials, if the patent

system or judicial institutions for enforcing patent rights in a country are ineffective or nonexistent,

U.S.-and other foreign-patented inventions can be imitated with inpunity by competitors in that country.57

As a result, the patent owner can be deprived of revenues and profits from his or her product or process.
 58 The patent activity information examined by the NSF is based on USPTO’s classification system, which

divides patents into roughly 400 active classes. Using the system, comparisons are made using an activity index. For

a given year, the patent activity index consists of the proportion of patents in a specific class granted to inventors

resident in a particular country divided by the proportion of all patents granted to inventors resident in that country.

Since U.S. patenting data reflect a larger share of patenting by individuals without corporate or government

affiliation than do data on foreign patenting, only patents granted to corporations are used by NSF to construct the

U.S. patenting activity indices. NSF, Science and Engineering Indicators 2004, Vol. 1, Arlington, VA, 2004, pp. 6-

25 and 6-26.

 59 Maskus, Intellectual Property Rights in the Global Economy, p. 43. 

14

Some U.S. Industries Affected by Inadequate Patent Protection

Patents are widely used in both manufacturing and agriculture. According to the National Science

Foundation, in 2001, “corporate patent activity indicated U.S. technological strengths in business

methods, medical and surgical devices, electronics, telecommunications, and biotechnology”

(see table 6).58 Some industries take advantage of patents and related IPR protection in somewhat

different ways for different purposes and thus are affected in a variety of ways by inadequate foreign

protection of their rights. 

Table 6

Technical Fields Favored by U.S. and Leading Foreign Inventors, as of 2001

Country Industries

France . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing applications, biotechnology, and aeronautics

Germany . . . . . . . . . . . . . . . . . . . . . . . . Motor vehicles, printing, switches, and material-handling equipment

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . Photocopying, photography, office electronics technology,

communication technology, information storage

South Korea . . . . . . . . . . . . . . . . . . . . . Television, information storage devices, data generation and

conversion, error detection devices, display systems

Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . Testing and measuring equipment, semiconductor manufacturing

processes, electrical systems, semiconductors, and computer

hardware

United Kingdom . . . . . . . . . . . . . . . . . . Traditional manufacturing, biotechnology, chemistry

United States . . . . . . . . . . . . . . . . . . . . Business methods, medical and surgical devices, electronics,

telecommunications, and biotechnology

Source: National Science Foundation, Science and Engineering Indicators 2004, Vol. 1, Arlington, VA, 2004.

Strong patent protection is a high priority trade issue for the pharmaceutical and chemical

industries because their fixed costs of R&D are relatively high while imitators of patented drugs and

chemicals generally do not incur such high costs in those two industries.59 Several academic studies

suggest that just under one-third of the inventions in those industries would not have been developed 
 60 In one survey, Edwin Mansfield sampled 100 companies in 12 US manufacturing industries in an attempt to

ascertain the relative importance of patents in their decisions on investment in R&D. The survey results suggested

that only in the pharmaceutical and chemical industries were patents considered essential; more than 30 percent of

the inventions would not have been developed without patent protection. In the petroleum, machinery, and fabricated

metal products, patents were viewed as important in the development of 10-20 percent of inventions. Meanwhile, in

the other 7 industries surveyed, patents were viewed as unimportant or only marginally significant in inducing R&D. 

Such results are consistent with results reported in several other studies. Maskus, Intellectual Property Rights in the

Global Economy, pp. 42-43; Edwin Mansfield, “Patents and Innovation: An Empirical Study,” Management Science

32, no. 2, pp. 173-181; and Richard C. Levin, Alvin K. Klevorick, Richard R. Nelson, and Sidney G. Winter,

“Appropriating the Returns from Industrial Research and Development,” Brookings Papers on Economic Activity,

SP ISS: pp. 783-820. 

 61 Maskus, p. 43.

 62 Levin, Klevorick, Nelson, and Winter, “Appropriating the Returns from Industrial Research and Development,

Brookings Papers, pp. 783-820; and Maskus, Intellectual Property Rights in the Global Economy, p. 43.

 63 Wesley M. Cohen, Richard R. Nelson, and John P. Walsh, “Protecting Their Intellectual Assets:

Appropriability Conditions, and Why U.S. Firms Patent (or Not),” National Bureau of Economic Research (NBER)

Working Paper 7552 (Cambridge, MA: NBER, Feb. 2000), p. 19, found at http://www.nber.org, retrieved

Jan. 8, 2005. 

 64 Levin, Klevorick, Nelson, and Winter, “Appropriating the Returns from Industrial Research and Development,

Brookings Papers, p. 798.

 65 Ibid.

 66 For example, according to two economists examining the patenting behavior of firms in industries characterized

by rapid technological change and cumulative innovation, “recent survey evidence suggests that semiconductor firms

do not rely heavily on patents to appropriate the returns to R&D, despite strengthening of US patent rights in the

early 1980s. Yet the propensity of semiconductor firms to patent has risen dramatically over the same period.” 

Bronwyn H. Hall, Department of Economics, University of California, Berkeley; and Rosemarie Ham Ziedonis,

Wharton School of Business, University of Pennsylvania, “The Patent Paradox Revisited: An Empirical Study of

Patenting in the US Semiconductor Industry, 1979-95,” May 2000, p. 1, found at http:

http://www.nuff.ox.ac.uk/economics/papers/2000/w16/hzmay2000.pdf, retrieved Sept. 26, 2005. 

15

without potential protection.60 However, in other patented industries, such as the electronics and

telecommunications equipment industries, with complex products bearing multiple technologies,

imitation is generally more difficult, and patents are not viewed as marginally significant in encouraging

R&D.61 Surveys have suggested that less than 20 percent of inventions in those industries would not have

been made without patent protection.62 

Patenting may be particularly effective in the pharmaceutical and chemical industries due to the

discrete nature of products in those industries. New drugs or chemicals typically are made up of a a

relatively discrete number of patentable elements.63 Manufacturers may find it easier to defend such

products against infringement since relatively clear standards can be applied to assess a chemical

products’s validity. According to some economists, the “uniqueness of a specific molecule is more easily

demonstrated than the novelty of, for example, a new component of a complex electrical or mechanical

system.”64

.....it is easy to determine whether an allegedly infringing molecule is physically identical to a

patented molecule: it is more difficult to determine whether comparable components of two

complex systems “do the same work in substantially the same way.”65 

That is not to say that patenting is not important for other industries, such as the electronics,

telecommunications, and medical equipment industries. It is, but for different reasons than for primarily

recouping fixed R&D costs.66 Patenting for firms in these industries enables them to engage in strategic

patent activities, including using patents to enhance a firm’s reputation, increase licensing revenues, block

rivals from patenting related inventions, protect themselves against infringement suits, and improve their
 67 Maskus, p. 43; Mansfield, “Patents and Innovation: An Empirical Study,” pp. 173-181; and Levin, Klevorick,

and Nelson, and Winter, “Appropriating the Returns from Industrial Research and Development,” Brookings Papers

on Economic Activity, pp. 783-820. 

 68 Cohen, Nelson, and Walsh, "Protecting Their Intellectual Assets," p.17, and table 8.

 69 Ibid., "Protecting Their Intellectual Assets," pp. 22-23.

 70 D.A. Hounshell and J.K. Smith, Science and Corporate Strategy DuPont R&D 1902-1980, Science and

Corporate Strategy (Cambridge: Cambridge University Press, 1988), pp. 183-90 and 249-286.

 71 Cohen, Nelson, and Walsh, "Protecting Their Intellectual Assets," pp. 22-23, and table 10.

 72 Cohen, Nelson, and Walsh, “Protecting Their Intellectual Assets,” p. 22. 

 73 Ibid. p. 19. 

 74 Ibid.

 75 Ibid.; and Carl Shapiro, “Navigating the Patent ‘Thicket: Cross Licenses, Patent Pools, and Standard Setting,”

in Jaffe, A. and others, Eds., NBER Innovation Policy and the Economy (Cambridge, MA: MIT Press, 2001), pp. 1-

31, found at http://www.nber.org/~confer/2000/ipes00/shapiro.pdf, retrieved Sept. 15, 2005.

 76 Ibid.

 77 Shipiro, “Navigating the Patent Thicket,” p. 17. 

16

competitive positions in negotiations over technology rights.67 For instance, the use of patents to improve

firms’ reputations often is used by smaller firms in some high technology industries, including the

biotechnology industry, to assist them in obtaining financing and alliance partners. Meanwhile, a wide

range of industries have reported that they use patenting for the purpose of obtaining licensing revenues.

Included among these are the publishing, petroleum, steel, metal products, motors, semiconductors,

telecommunications equipment, television, radio, and aerospace industries.68 (Licensing revenues are also

important to the pharmaceutical industry to supplement revenues achieved through commercial sales). 

Prevention of rivals from patenting related inventions, or blocking, is another reason for patenting

by firms in some industries. For instance, firms wanting to protect some patented core invention may

patent substitutes to foreclose the possibility of competitors, by creating what some characterize as a

“patent fence.”69 The firms creating these patent fences may have no intention of commercializing the

patented substitutes. For instance, DuPont patented over 22 substitutes for Nylon to protect its core

invention.70 Other industries reporting that they have used blocking strategies in this manner include the

textiles, paper, rubber/plastic products, mineral products, and electrical equipment.71 However, patents by

firms not intending to commercialize them have also been used to secure licensing revenues, as evidenced

by efforts of U.S. semiconductor producer, Texas Instruments, to extract them first from Japanese

producers, then from U.S. competitors, in the 1980s and 1990s.72 

In the electronics, telecommunications, and medical equipment industries, as technologies

mature, R&D at one company often parallels that of others in the same industry.73 The mature products

then tend to comprise a large number of patentable elements covered by different patents and, thus, are

characterized as complex technologies.74 A resulting “thicket” of overlapping patents, frequently leads to

use of such means as cross-licensing and patent pools to avoid conflicts.75 Cross-licensing can be used to

“secure freedom of operation without running a risk of patent infringement litigation with other firms

operating in similar markets.”76 An example of a patent pool is MPEG -2 video compression technology.

The pool was created with patents from Fujitsu, General Instrument, Lucent, Matsushita, Mitsubishi,

Philips, Scientific-Atlanta, Sony, and Columbia University. The patent pool permitted “one-stop

shopping” for makers of televisions, digital video disks and players, and telecommunications equipment.77

Patent pools sometimes raise complex anti-trust issues. 

In the semiconductor industry the cumulative nature of the technology makes it almost impossible

to effectively participate in the industry without access to the patents of many other firms, resulting in
 78 Eric von Hippel, “Appropriability of Innovation Benefit as a Predictor of the Source of Innovation,” Research

Policy, vol. 11, Jan. 1982, pp. 95-115, found at http://web.mit.edu/evhippel/www/cvframe.htm; Levin, “The

Semiconductor Industry,” in Richard R. Nelson, ed., Government and Technical Progress: A Cross-Industry

Analysis (Pergamon Press, 1982), pp. 80-81; and Levin, Klevorick, Nelson, and Winter, “Appropriating the Returns

from Industrial Research and Development,” Brookings Papers on Economic Activity, pp. 783-820. 

 79 Ibid.

 80 This term describes an organism that has had genes from another organism put into its genome through

recombinant DNA techniques. 

 81 The broad definition of biotechnology (in the commercial sense) is the industrial use of living organisms (or

parts of living organisms) to produce foods, drugs, or other products (such as environmental products). The oldest

biotechnologies are plant and animal hybridization. The newest biotechnologies range from protein separation

technologies to genomics and combinational chemistry. BIO, Special 301 submission.

 82 BIO, Special 301 submission; and Maskus, Intellectual Property Rights in the Global Economy, pp. 54-57. 

 83 Maskus, Intellectual Property Rights in the Global Economy, pp. 173-174.

 84 Ibid.

 85 There are some exceptions to this obligation, such as for purposes of public morality.

17

widespread cross-licensing.78 However, established semiconductor firms will not issue a cross license to

new entrants until they have established a significant position in the market. Thus, semiconductor

companies will increase patenting activity in order to develop patent portfolios of their own, so that more

established firms are compelled to negotiate cross-licensing agreements.79 This permits the entrants to

defend themselves against infringement suits, thereby enabling them to participate in the market. 

The following discussion provides a summary of important patent and related IPR trends and

issues in the biotechnology, pharmaceutical, electronic, telecommunications, and electromedical

industries. The biotechnology and pharmaceutical industries, especially, in recent years, have provoked

debate between (and among) many developing and developed WTO country members on the appropriate

role of IPR protection. 

Biotechnology and Genetically Modified Plant Varieties

The biotechnology industry consists of major pharmaceutical, chemical, and agribusiness

companies, and smaller, independent firms that develop transgenic80 strains of plants and animals, genetic

research tools, pharmaceutical products, and biotechnology industrial processes.81 Research in this area is

conducted by small specialized firms, independent research institutes and organizations, and universities,

as well as the major agribusiness, chemical, and pharmaceutical companies.82 Because the section below

on pharmaceuticals addresses many of the patent and related IPR issues pertaining principally to new

drugs, including those drugs developed through biotechnology methods, this section will focus its

attention on IPR issues related to food production, with a limited discussion of the use of biotechnology

for medicines. 

The United States and other advanced countries have moved toward strong and broad patent

protection for biotechnology products and processes. Between 1990 and 1995, the United States and

Japan each accounted for about 37 percent of global biotechnology patents, with the European Union

accounting for another 19 percent.83 Meanwhile, developing countries accounted for only 7 percent of

biotechnology-related patents in that period.84

The TRIPS Agreement generally obliges WTO member countries to make patents available for

any inventions, whether products or processes.85 All WTO members must grant patents on

microorganisms under TRIPS Article 27.3. TRIPS allows member states to exclude plants and animals

other than microorganisms from patentability. However, it requires them to provide for the protection of
 86 BIO, Special 301 submission.

 87 Ibid.

 88 BIO, Special 301 submission.

 89 U.S. industry representatives, in-person and telephone interviews by USITC staff, Jan.-Aug. 2004.

 90 WITA, “You Must Be TRIPing!” 

 91 Outside of the United States, new plant varieties are often protected by sui generis plant breeders’ rights

providing exclusive rights to produce, sell, and import seed varieties. However, one exception is the farmer’s

privilege, which allows farmers, after initially buying protected seeds, to keep for their own use sufficient amounts

of seeds to plant the next year’s crops. Another exception is the breeders’ exemption, which allows competitors to

use varieties freely in developing new strains. The International Union for the Protection of New Varieties of Plants

(UPOV) is an example of a a sui generis system that covers breeding options. The UPOV Convention was signed in

1961 and revised in 1972, 1978, and 1991. Franck Seuret and Robert Ali Brac de la Perriere, “No Patents on

Biotechnology Products: Africa Defies Licenses for Life,” Le Monde Diplomatique, July 2000, pp. 1-5, found at

http://www.biotech-info.net, retrieved Jan. 27, 2004; “Right to Patent vs Right to Freely Use: TRIPS, UPOV and

Farmers’ Rights,” Conservation and Sustainable Use of Agricultural Biodiversity (Lima Peru: CIP-UPWARD,

2003), pp. 514-521, found at http://www.eseap.cipotato.org, retrieved Apr. 13, 2005; and Maskus, Intellectual

Property Rights in the Global Economy, pp. 56-57.

 92 Integrating Intellectual Property Rights and Development Policy, Report of the Commission on Intellectual

Property Rights, London, pp. 57-93; and “Intellectual Property Protection and Biotechnology: Issues and Processes

for African Consensus,” prepared for the African Policy Dialogues on Biotechnology–Southern Africa, Zimbabwe,

Sept. 20-21, 2004, pp. 1-10.

 93 Ibid; and “Intellectual Property Protection and Biotechnology: Issues and Processes for African Consensus, 

pp. 1-10. 

18

plant varieties either by patents or by an effective sui generis (or unique) system, or by any combination

thereof.

U.S. agricultural biotechnology interests are concerned that despite TRIPS requirements to

provide adequate protection of IPR in new plant varieties, a number of countries’ legal systems fail to

provide such protection. The absence of effective mechanisms to enforce IPR in proprietary plants and

plant varieties in some countries, reportedly, has led to a substantial number of unauthorized sales and

uses of protected seed.86 For example, losses by licensed U.S. producers of new plant varieties and seeds

to unlicensed Argentinian producers are estimated to be in the millions of dollars.87 Another, major

concern of some U.S. industry representatives is what they believe to be unreasonable and burdensome

requirements in some countries for patent applicants to disclose the source of all biological materials

contributing to a biotechnology invention.88 Some countries, such as India, require patent applicants to

outline the history of all such materials even if they have been available from commercial suppliers for a

long period of time. According to the industry representatives, such requirements can adversely affect

U.S. biotechnology firms by increasing the costs of applying for a patent.89

On the other hand, a number of developing country proponents are concerned that overly broad

patenting of biotechnology could primarily benefit major biotechnology research and corporate interests

in developed countries, which, they allege, obtain many of their biological and genetic resources from the

developing world.90 Further, they fear that with stronger protection of life forms, including genetically

modified plants and animals, only a handful of rightholders (mostly from the developed world) will

control the production and marketing of seeds and farm inputs.91 This, in turn, they believe, could lead to

pricing beyond the reach of average farmers and make them dependent on the rightholders.92

The developing countries also are concerned about what they consider to be the misappropriation

of traditional knowledge developed in communities over hundreds of years.93 Such knowledge systems

have made use of diverse biological and genetic resources for food and medicine, passing on the
 94 International Federation of Intellectual Property Attorneys (FICPI), FICPI 8th Open Forum, Session 1, Official

Searching, Venice, Italy, Oct. 6-9, 2004.

 95 Seuret and Ali Brac de la Perriere, “No Patents on Biotechnology Products;” and “Right to Patent vs Right to

Freely Use,” pp. 514-521.

 96 WTO, Trips, Reviews, Article 27.3(b) and Related Issues, [undated], p. 1, found at http://www.wto.org,

retrieved Mar. 8, 2004.

 97 Seuret and Ali Brac de la Perriere, “No Patents on Biotechnology Products;” “Right to Patent vs Right to

Freely Use,” pp. 514-521; Integrating Intellectual Property Rights and Development Policy, Report of the

Commission on Intellectual Property Rights, London, pp. 57-93; and Maskus, Intellectual Property Rights in the

Global Economy, p. 225. 

 98 Ibid. For more information on the CBD, see its website at http://www.biodiv.org/default.shtml.

 99 WTO, Trips, Reviews, p. 1.

 100 Ibid.

 101 WTO Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council), Article 27.3(B),

Relationship Between the TRIPS Agreement and the Convention on Biological Diversity, Summary of Issues Raised

and Points Made, Note by the Secretariat, IP/C/W/368, Aug. 8, 2002, pp. 1-9, found at http://www.wto.int retrieved

(continued...)

19

knowhow from generation to generation.94 However, while developing countries are the sources of a

number of valuable genetic resources, the technology, genome platforms, and patents are principally

produced in developed countries.95 To assure that communities in developing countries benefit from their

biodiversity and traditional knowledge, developing country proponents believe that legal frameworks

need to be established governing access and benefit sharing under mutually agreed terms and

compensation arrangements.96

The United Nations Convention on Biological Diversity (CBD), adopted at the Rio Earth Summit

in 1992, attempts to address some of these issues.97 Among other things, the convention (1) reaffirms that

nations have sovereign rights over their own biological and genetic resources, (2) stipulates that access to

these is subject to prior consent of the countries concerned, (3) requires signatories to protect and support

the rights of communities, farmers, and indigenous people over their biological resources and systems of

knowledge, and (4) requires that benefits from the commercial use of biological resources and local

community knowledge be shared in an equitable manner.98

The TRIPS Council, the WTO body responsible for monitoring the TRIPS Agreement, is

currently undergoing a review of Article 27.3(b), which deals with patentability or non-patentability of

plant and animal inventions, and the protection of plant varieties.99 Paragraph 19 of the 2001 Doha

Declaration, made at the 2001 WTO Doha Ministerial, requires a broadening of the review, to consider

the relationship between the TRIPS Agreement and the CBD, which addresses the protection of

traditional knowledge and folklore.100 Several general issues that have been raised in the CBD/TRIPS

discussion are (1) whether or not there is a conflict between the TRIPS Agreement and the CBD; 

(2) whether something needs to be done with regard to TRIPS to ensure that they are both applied in

mutually supportive, non-conflicting ways, and (3), if so, what this would be. With regard to these

questions, views expressed by WTO members all fall into several broad categories:

• there is an inherent conflict between the CBD and TRIPS;

• there is no conflict between the two agreements, and they can be implemented by governments

in a mutually supportive way through national measures; and 

• there is no inherent conflict but there could be a potential for conflict depending on how both

the CBD and TRIPS are implemented, and there is a need, or, at the least, a case for, action to

ensure that the two agreements are implemented in a mutually supportive way.101
 101 (...continued)

Sept. 12, 2005.

 102 Ibid., p. 2.

 103 The Africa Group, for example, proposes amending the TRIPS Agreement "to prohibit patenting of all life

forms (plants, animals, micro-organisms) and wants ‘sui generis’ protection for plant varieties to preserve farmers

rights to use and share harvested seeds." The group also proposes a draft decision on traditional knowledge designed

to prevent what it considers to be "misappropriation." WTO, TRIPS: Reviews, Article 27(b) and Related Issues,

Background and the Current Situation, [undated], pp. 1-5, found at http://www.wto.int, retrieved Sept. 12, 2005.

 104 Although it is not a party to the CBD, the United States reports that it is “nevertheless taking positive steps to

promote and encourage prior informed consent and equitable sharing of benefits on mutually agreed terms,” two of

the objectives Members have raised in the TRIPS Council. WTO TRIPS Council, Article 27.3(B), Relationship

Between the TRIPS Agreement and the CBD, and the Protection of Traditional Knowledge and Folklore,

Communication of the United States, IP/C/W/449, June 10, 2005, pp. 1-9, found at http://www.wto.int, retrieved

Sept. 12, 2005, p. 2.

 105 Ibid., pp. 1-9.

 106 WTO TRIPS Council, Relationship Between the TRIPS Agreement and the Convention on Biological

Diversity, Summary of Issues Raised and Points Made, p. 2.

 107 Ibid.

 108 Ibid., and Integrating Intellectual Property Rights and Development Policy, Report of the Commission on

Intellectual Property Rights, London, pp. 57-93.

20

Some developing countries, including Brazil, India, and a number of African countries, are

proponents of the view that there is an inherent conflict between the TRIPS Agreement and the CBD.

They state that “by requiring that certain genetic material be patentable or protected by sui generis plant

variety rights and by not preventing the patenting of other genetic material, provides for the appropriation

of such genetic resources by private parties in a way that is inconsistent with the sovereign rights of

countries over their genetic resources as provided for in the CBD.”102 Further, they argue that the TRIPS

Agreement allows for patenting or other IPR protection of genetic material without respecting the

provisions of the CBD, including those relating to prior informed consent and benefit sharing. The

proponents of this view call for amending Article 27:3(b) of the TRIPS Agreement to require all WTO

members to make life forms and parts thereof non-patentable.103

The United States, which is not a signatory to the CBD,104 and some other developed countries,

take the view that there is no conflict between TRIPS and the CBD.105 They support their view by

pointing out that (1) the TRIPS Agreement and the CBD have different purposes and deal with different

subject matter; (2) that granting patent rights over inventions using genetic material does not prevent

compliance with CBD provisions regarding the sovereign right of countries over their genetic resources,

prior informed consent, and benefit sharing; and (3) no specific examples of conflict have been cited. The

proponents of this view indicate that no change is needed in either the TRIPS Agreement or the CBD to

accommodate implementation of the other and that each agreement should be pursued in separate

frameworks. The United States suggests that implementation of the TRIPS Agreement actually supports

implementation of the CBD.106 For instance, it points out that TRIPS compliant patent system disclosure

requirements and control provided to patent owners and licensees over manufacturing and distribution

may facilitate sharing of technology, avoid anti-competitive secrecy agreements among commercial

operators and the implementation of bio-safety rules, and be instrumental in encouraging benefit sharing

and conservation of biological diversity based on voluntary contract.107

The EU, Brazil, and China represent proponents of a third category of views, which contend that

while there may be no inherent conflict between the two agreements, there is considerable interaction and

an overlap between their subject-matter.108 As such, there may be a case for enhanced international action

to ensure that the two agreements are implemented in a mutually supportive manner. China, among
 109 Ibid.

 110 The EU's position "also includes a proposal to examine a requirement that patent applicants disclose the source

or origin of genetic material as a subject in itself, with legal consequences of not meeting this requirement lying

outside the scope of patent law." WTO, TRIPS: Reviews, Article 27(b) and Related Issues, Background and the

Current Situation, pp. 1-5; and WTO TRIPS Council, Communication from the European Communities and their

Member States, IP/C/W/383, Oct. 17, 2002, pp. 1-9.

 111 Ibid.

 112 Organisation for Economic Co-operation and Development (OECD), Patents and Innovation: Trends and

Policy Challenges (Paris: OECD, 2004), p. 22, found at http://www.oecd.org, retrieved Feb. 10, 2004. 

 113 Ibid. 

 114 PhRMA, PhRMA Annual Membership Survey 2005, p. 1, found at http://www.phrma.org, retrieved

June 14, 2005.

 115 U.S. Government official and industry representatives, FSI IPR course. 

 116 PhRMA, Pharmaceutical Industry Profile 2005, fig. 1-1, p. 2.

 117 PhRMA representatives, interview by USITC staff, Washington, DC, Feb. 25, 2004.

 118 PhRMA, Delivering on the Promise of Pharmaceutical Innovation: The Need to Maintain Strong and

Predictable Intellectual Property Rights, White Paper on the Intersection of Intellectual Property Law and Antitrust

Law in the Pharmaceutical Industry, Apr. 22, 2002.

21

others, indicates that what is more important than considering whether there is a potential conflict

between the two agreements is considering how the TRIPS Agreement may be implemented in a way

supportive of the CBD. In this regard, Brazil has suggested that TRIPS might be amended to require that

patent applicants disclose the origin of any genetic material or traditional knowledge used in inventions

and to demonstrate that they have obtained prior foreign consent from appropriate authorities in the

country of origin.109 The EU proposes, however, that work on these ideas should first be pursued in

WIPO, CBD, and the Food and Agriculture Organization (FAO), and “where and when relevant, in the

TRIPS context.”110

Discussions in the TRIPS Council on the TRIPS/CBD issue continue. A steady stream of papers

continues to be submitted both on the substance of the debate and how to proceed.111 

Pharmaceuticals

As previously indicated, U.S. pharmaceutical companies, including those that develop or acquire

new biotechnology-based drugs, traditionally have placed a higher value on patents for protecting

intellectual property than have firms in many other industries.112 This industry has very high development

costs, regulatory approval and testing requirements that significantly increase the time to market (and may

reduce the effective term of the patent), relatively few R&D projects that result in a marketable drug, and

liability concerns.113

The cost of pharmaceutical R&D is significant. As previously indicated, the U.S. pharmaceutical

industry estimates that it spent over $38 billion on R&D in 2004.114 Average total drug development time

has increased from 8.1 years to 14.2 years since the 1960s.115 Meanwhile, the average cost to develop a

new research-based prescription drug has reached more than $800 million.116 U.S. industry representatives

contend that to continue developing advanced drugs, the costs of bringing them to market must be

recouped.117 According to them, strong patent protection is required for firms to recover these costs.118
 119 See subheading below under “marketing of generics” for information on some of the major drugs about to go

“off patent” in the near future. 

 120 U.S. Government official and industry representatives, FSI IPR course.

 121 PhRMA representatives, interview by USITC staff, Washington, DC, Feb. 25, 2004.

 122 Ibid.

22

Compulsory licensing, marketing of generics prior to patent expiration,119 patent term restoration,

and disclosure of proprietary test data are all intellectual property issues that concern the U.S.

pharmaceutical industry.

Compulsory licensing

Compulsory licensing is sometimes used by governments to allow the production or sale of a

product without the permission of the patent holder. TRIPS Article 31 allows compulsory licensing in

certain instances, such as in the case of national emergency, but with strict limitations aimed at protecting

the legitimate interests of the patent holder. Among these limitations are that compulsory licensing should

be predominantly for the domestic market and not for export.120 This is to limit the use of such licensing

for the national health emergency purpose for which it is granted and prevent it from being used for

commercial gain. As a result of concerns by a number of developing countries that such interpretations of

TRIPS’ compulsory licensing limitations could reduce access to medicines by people in poorer countries

facing epidemics, the WTO clarified the issue in a statement made at the end of the 2001 Doha Ministerial

(text box). 

Patents and Access to Medicines: Compulsory Licensing and the Doha Declaration

Many developing countries argued that they could not benefit from TRIPS compulsory licensing provisions, even in

cases of national emergency, because they lacked drug production capabilities. Because TRIPS stipulates that

such licensing when permitted is to be predominantly for the domestic market, it was not clear that the developing

countries could use the compulsory license privilege to authorize imports of cheaper generic drugs from other

countries. This issue was addressed in the Doha Ministerial Declaration of November 14, 2001, in which ministers

assigned further work to the WTO TRIPS Council to determine how to provide extra flexibility, so that countries

unable to produce pharmaceuticals domestically could import patent drugs made under compulsory licensing. On

August 30, 2003, WTO member governments agreed to waive the TRIPS Article 31(f) requirement that production

under compulsory license be predominantly for the domestic market so that countries unable to manufacture the

medicines themselves could import cheaper generics under such a license.

Sources: U.S. Government official and industry representatives, U.S. Department of State, Foreign Service

Institute course, “Intellectual Property Rights,” Arlington, VA, July 15-16, 2004; and WTO, “TRIPS and Public

Health,” TRIPS Issues, [undated], p. 1, found at http://www.wto.org, retrieved Mar. 8, 2005.

U.S. pharmaceutical industry representatives indicate that their industry is adversely affected by

overly broad compulsory licensing provisions in some countries that do not meet TRIPS requirements and

limitations.121 According to them, countries that provide too much latitude in the area of compulsory

licensing make it easier for generic producers to obtain permission to copy U.S. patented drugs.122 They

contend that without patent protection, research-based pharmaceutical companies lose sales to generic

firms, which can produce the drugs more cheaply since they do not have to undergo the expensive

development process of the research-based firm. 
 123 Michelle L. Kirsche, “Generics Watch,” Drug Store News, Nov. 17, 2003, found at

http://www.findarticles.com/p/articles/mi_m3374/is_16_25/ai_110533010, retrieved Sept. 22, 2005. See also FDA

website, found at http://www.fda.gov, for further information on drug patenting trends.

 124 Ibid. 

 125 Ibid. 

 126 “Biosciences,” Olswang News, Jan. 26, 2005, found at http://www.olswang.com, retrieved Mar. 8, 2005, p. 1. 

 127 For FDA purposes, in order to be considered “bioequivalent” to a branded drug, a generic copy must contain

identical amounts of the same active drug ingredient in the same dosage form and route of administration and meet

specified standards for strength, purity, quality, and identity. “Inactive ingredients” such as binders and fillers are

allowed to differ but must occur in a ratio to the active compound similar to that of the reference drug. American

Heart Association, “Issues in Bioequivalence and Generic Substitution for Antiarrhythmic Drugs,” p. 1, found at

http://www.americanheart.com; and FDA official, telephone interview by USITC staff, Sept. 6, 2005. 

 128 U.S. pharmaceutical industry representative, FSI IPR course.

 129 U.S. Government official and industry representatives, FSI IPR course.

 130 U.S. pharmaceutical industry representative, FSI IPR course. 

23

Marketing of generics prior to patent expiration

The FDA projects that “more than 200 brand-name medications will come off patent over the

next several years.”123 As this occurs, many pharmaceutical market analysts project that there likely will

be a speedup in the generic drug approval process. According to U.S. Government and industry sources,

popular drugs due to lose patent protection before the end of 2006 include such brand names as Flovent,

Flonase, Cipro, Diflucan, Lamisil, Xenical, Zocor, Prevacid, Zoloft, Pravachol, and Zithromax.

Although pharmaceutical manufacturers can do little to prevent the marketing of generic versions

of branded products that have gone off patent, they have expressed concern that some countries continue

to provide marketing approval to drugs that are still under patent.124 They believe that it is imperative that

marketing approval officials consider the existence of patents before allowing infringing drugs to compete

with patented drugs.125 The U.S. industry would like to see foreign governments address this issue in a

similar manner as has the United States in the U.S. Drug Price Competition and Patent Term Restoration

Act, or Hatch-Waxman Act (1984). 

For example, the Hatch-Waxman Act, which attempts to provide for safe and effective low cost

drugs while protecting patented pharmaceuticals, enables generic companies requesting FDA approval to

shorten the process required to get a new generic product on the market after a branded product’s patent

expires. However, in return, the law requires that relevant detailed patent information be provided to the

FDA in connection with generic producers’ applications for approval so the FDA can ascertain that the

generic does not violate an existing patent. The Bolar Provisions to the Act permit generic manufacturers

to experiment on and test drugs in order to file an abbreviated new drug application while the patents

covering those drugs remain in force so that they may more quickly be placed on the market after the

patents’ expiration.126 Specifically, the new drug applications to FDA must include patent information

about bioequivalent drugs127 that the FDA must consider as part of the approval process for certain

drugs.128 U.S. pharmaceutical industry representatives believe that it is imperative that Bolar-type

principles also be observed among foreign health care regulatory agencies, requiring such detailed patent

information from generic applicants to make certain that infringing drugs do not get on foreign markets.129

Patent term restoration

The effective length of a patent term is shortened by the amount of time taken by regulators to

approve the patent or to provide marketing approval to a pharmaceutical.130 Many countries have adopted

systems of patent term restoration to give patent owners back some of the time lost due to regulatory
 131 In the United States, the Uruguay Round Agreements Act (Public Law 103-465) changed the patent term in the

United States. Before June 8, 1995, patents typically had 17 years of patent life from the date the patent was issued.

Patents granted after the June 8, 1995 date now have a 20-year patent life from the date of the first filing of the

patent application. However, the effective patent term often is less than 20 years because patents are often obtained

before products are actually marketed (largely due to the length of time it takes to obtain FDA marketing approval).

Under Title II of the 1984 U.S. Drug Price Competition and Patent Term Restoration Act (Public Law 98-417), a

maximum of 5 years can now be restored to the patent because of such delays. In all cases, the total patent life for

the product with the patent extension cannot exceed 14 years from the product’s approval date, or 14 years of

potential marketing time. If the patent life of the product after approval has 14 or more years, the product would not

be eligible for patent extension. FDA, Center for Drug Evaluation and Research, “Frequently Asked Questions on

the Patent Term Restoration Program,” July 22, 2005, p. 1, found at 

http://www.fda.gov/cder/about/smallbiz/patent_term.htm, retrieved Sept. 22, 2005. 

 132 Ibid. 

 133 PhRMA representatives, interview by USITC staff, Washington, DC, Feb. 25, 2004.

 134 For instance, the period of exclusivity provided for pharmaceutical test data is 5 years in the United States and

5-10 years in the European Union. U.S. government and pharmaceutical industry officials, FSI IPR course. 

24

delays. However, some countries have not adopted this practice although the United States is addressing

this issue in some of its bilateral free trade agreements. The United States, the European Union, and Japan

provide up to 5 years of restoration.131

Data exclusivity

Data exclusivity is one of the most important trade issues to the pharmaceutical industry.

Although data exclusivity is technically a trade secret or protection of undisclosed information issue

rather than a patent issue, it is so often identified in tandem with patent protection by the U.S.

pharmaceutical industry that it is important to discuss the issues together. U.S. pharmaceutical companies

are concerned that there be sufficient protection of confidential clinical test data required for market

approval of patented drugs.132 Developing such data through clinical trials to prove the safety and

efficacy of new drugs constitutes one of the most expensive elements of bringing such drugs to market.133

Article 39.3 of the TRIPS Agreement requires WTO members to protect test data submitted by drug

companies to health authorities against disclosure and against “unfair commercial use” of that data. 

Most countries with advanced IPR regimes provide at least 5 years of exclusive rights to such

data after approval of the drug by regulatory authorities even if the patent expires during the period.134

During this period of data exclusivity, others may not use such data in support of their own applications

for marketing approval of bioequivalent generic drugs. Data exclusivity recognizes the considerable effort

needed to demonstrate the safety and efficacy of the innovative drug to regulatory authorities and the

need for pharmaceutical and biotechnology firms to recoup investment. However, some countries with

emerging pharmaceutical industries, such as China, Korea, India, and Poland, reportedly do not provide

effective protection of data in compliance with TRIPS Article 39.3.

Electronics, Telecommunications, and Medical Equipment

The United States has among the most advanced electronics and telecommunications equipment

industries in the world. Although outsourcing of manufacturing, especially to East Asian countries, has

increased significantly in recent years, much of the research, design, and production of advanced

electronics and telecommunications technologies continues to take place in the United States. Therefore,

the patenting of such technologies and related manufacturing processes is of great importance to the U.S.

industry.
 135 Joint Statement of the Eighth Meeting of World Semiconductor Council (WSC), Busan, Korea, May 13, 2004,

found at http://www.semiconductorcouncil.org, retrieved Mar. 7, 2005. 

 136 Ibid.

 137 Compiled by USITC staff from Section 337 Investigational History, found at http://www.usitc.gov; USTR,

[2004 and 2005] NTE; and other sources, in-person and telephone interviews by USITC staff, Apr. 2004-May 2005. 

 138 Compiled by USITC staff from USITC Section 337 Investigational History; and USTR, [2004 and 2005] NTE,

Apr. 2004-May 2005. 

25

Certain aspects of semiconductor topography used in chip design are required to be protected by a

sui generis system under TRIPS.135 This is because neither patent nor copyright protection is an

appropriate means for protection. Infringement in this industry consists of the unauthorized direct optical

copying of a chip protected by valid intellectual property rights, and the reproduction of a layout design

based on the optical copying and then fabricating of a semiconductor based on this layout design. This

form of infringement is harder to detect and has become a serious problem, especially with the advent of

lower cost technology for optical copying.136 

Some of the specific types of electronic products and components for which patents have

allegedly been infringed by foreign companies include the following:137

Digital Processors and Components (Japan)

Digital Processing Systems (Japan)

Semiconductor Devices and Products

Containing Them (China)

Personal Computers, Monitors, and Related

Components (China, Mexico, and Taiwan)

Disc Drives, Components, and Products

Containing Disc Drives (China)

Servers (China and Taiwan)

Encapsulated Integrated Circuit Devices

(Malaysia)

Data Storage Systems and Components (Japan)

Semiconductor Timing Signal Generator Devices,

Components (Philippines, Thailand)

Programmable Logic Devices (Taiwan)

Plasma Display Panels and Products Containing

Same (Japan)

Synchronous Dynamic Random Access Memory

Devices and Modules (Korea)

Some of the specific types of telecommunications products for which patents have allegedly been

infringed by foreign companies include the following:138

Integrated Repeaters (Taiwan)

Integrated Switches, Transceivers, and

Products Containing Them (Japan)

WAP-Compatible Wireless Communication

Devices and Components (Japan)

Telephonic Digital Added Main Line

Systems and Components (Israel)

Dense Wavelength Division Multiplexing 

Systems and Components (Italy)

Digital Satellite System (DSS) Receivers and

Components (Mexico)

Self-Powered Fiber Optic Modems (Israel)

Coated Optical Waveguide Fibers (China)
 139 Cohen, Nelson, and Walsh, “Protecting Their Intellectual Assets;” Table A-1. Also see NSF, Science and

Engineering Indicators 2004, Vol. 1, Arlington, VA, 2004, pp. 6-25 and 6-26.

 140 USITC Section 337 Investigational History; and other sources. 

 141 U.S. industry representatives, in-person and telephone interviews by USITC staff, 2002-2005.

 142 “Philips Sets Up Medical Equipment Venture in China,” Appliance Magazine, Feb. 10, 2004, pp. 1-2, found at

http://www.appliance magazine.com, retrieved Mar. 22, 2004; Kathryn Kranhold, “GE Pins Hopes on Emerging

Markets: Strategy is Major Shift From Reliance on the West: Big Rivals Echo Approach,” Wall Street Journal,

Mar. 3, 2005, pp. A-3 and A-4; “Growth [in China],” GE Medical Systems–Asia, found at

http://www.savelives.gecareers.com, retrieved Oct, 13, 2004; and Frost and Sullivan, “Chinese X-Ray Equipment

Markets,” Market Research Report, Feb. 1999, found at http:www.mindbranch.com, retrieved Mar. 2, 2004.

 143 Kranhold, “GE Pins Hopes on Emerging Markets,” pp. A-3 and A-4.

 144 Advanced Medical Technology Association (AdvaMed), Dec. 21, 2004, letter to U.S. Department of

Commerce in response to request for comments with respect to the National Trade Estimate Report on Foreign

Trade Barriers, pp. 1-13, found at http://www.advamed.com, retrieved Feb. 8, 2004.

 145 BEA, Survey of Current Business, Oct. 2004, pp. 32-33. 

26

Some recent surveys indicate that medical equipment (along with pharmaceuticals) had among

the highest levels of patenting activity among industries, with two-thirds of innovations being patented.139

Some of the types of medical and surgical devices and processes for which patents have allegedly been

infringed by foreign companies include the following:140

Excimer Laser Systems for Vision

Correction Surgery and Components

(Japan)

Methods for Performing Excimer Laser

Vision Surgery (Japan)

Mechanical Lumber Supports (Austria,

Canada, and Germany)

Scanning Multiple Bean Equalization

Systems for Chest Radiography

(Netherlands)

Processes for Manufacturing Artificial

Breast Prostheses (Germany, France, and

Ireland)

In recent years, there has been an increase in medical equipment manufacturing and assembly

activities in less developed countries such as the Dominican Republic, Costa Rica, and Malaysia. The

production in these countries has primarily consisted of final assembly and packaging of commodity

hospital supplies such as blood administration and infusion sets for large U.S.- based hospital supply

companies.141 However, increased manufacturing partnerships in China over the past decade by major

U.S., European, and Japanese producers of more advanced x-ray, computed tomography (CT), magnetic

resonance imaging (MRI) systems, and electronic patient monitoring systems, are resulting in higher

levels of technology transfer to that country.142 This has led to increased Chinese production of more

advanced electromedical equipment.143 To protect their technologies, U.S. medical device firms have

indicated that they would like to see more vigorous enforcement of patent laws in China.144

Estimated Costs of Inadequate Patent Protection

Royalty and license fees for the use of general-use computer software and use of industrial

manufacturing processes in the pharmaceutical and telecommunications industries were responsible for

the largest portion of U.S. receipts of such fees from unaffiliated foreign companies in 2003.145 Thus,

patent infringement and other problems in a foreign country’s patent regime resulting in a loss of such

fees can be costly to U.S. firms in those industries. Meanwhile, U.S. companies can also assume
 146 U.S. industry representatives, telephone interviews by USITC staff, Jan.-Mar. 2005. 

 147 Shapiro, “Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting,” 1-31; and

Cohen, Nelson, and Walsh, “Protecting Their Intellectual Assets,” pp. 22-23.

 148 Maskus, Intellectual Property Rights in the Global Economy, pp. 116-118. 

 149 Electronics industry representatives, telephone interviews by USITC staff, Jan.-Mar. 2004.

 150 Ibid.

 151 PhRMA, 2005 Special 301 submission, app. A. 

 152 Compiled by USITC staff from data provided by PhRMA, 2005 Special 301 submission, app. A. 

27

considerable costs in having to hire additional administrative, legal, and investigative staff to pursue

patent infringement cases in problematic countries.146 Expending resources for staff can then lead to

opportunity costs arising from not being able to fund other product development and marketing activities.

Further, poor patent protection in some otherwise lucrative foreign markets causes some companies to

ignore those countries completely. Finally, lost sales and revenues due to inadequate patent protection in

foreign markets can cause financial problems for U.S. companies, leading to a loss in their global

competitiveness. 

Patent infringement cases in economies such as Japan and Europe are less problematic to U.S.

producers since they have more effective institutions and means for settling patent disputes. Also, major

Japanese and European companies with competing technologies often cross license with competitors in

the United States or settle civil patent infringement cases before judgement,147 which is consistent with 

findings reported by Keith Maskus in his review of several other research studies:

The industrial countries tend to have strong technological capabilities and might

therefore represent a competitive threat through imitation. However, they also have

strong patent rights that considerably dampen this effect...148

U.S. industry representatives are more concerned about inadequate patent protection in China and

other less developed East Asian countries such as Thailand, Malaysia, and the Philippines that have less

mature patent regimes.149 Some of the costs to U.S. companies due to deficiencies in patent protection in

those countries result from lost sales, loss of potential licensing income, the time and expense involved in

registering patents, and costs involved in pursuing patent infringement cases.150

The U.S. pharmaceutical industry is the only industry known to estimate revenue losses in foreign

countries due to inadequate patent protection. In 2005, it estimated direct and indirect losses of over

$7 billion in 22 selected countries due to inadequate patent and data protection.151 As indicated in the

following tabulation, inadequate patent protection in China, Korea, Turkey, and Poland reportedly caused

the most damage to U.S. pharmaceutical companies in 2004, and China accounted for the highest

percentage lost sales with 33 percent:152

Rank

Most patent

damages

Most data

damages

Most total 

IPR damages

Damages (percent

of sales)

1 China China China China 33

2 Korea Korea Korea Lebanon 26

3 Turkey Turkey Turkey Poland 21

4 Poland Poland Poland Korea 20

5 Canada Venezuela Canada Turkey 20
 153 A service mark essentially serves the same purpose as trademarks do for manufactured products, but service

marks apply to service products. Examples of three well-known service marks are Wal-Mart, the Rock of Gibraltar

(symbol of Prudential Insurance Co.), and the Golden Arches (symbol of McDonald’s).

 154 Under U.S. law, there are two other types of trademark and service marks: collective marks and certification

marks. Collective marks are used to indicate goods or services that come from the members of the group or to

indicate the members of the group or organization. An example of a collective mark is the American Dental

Association, or its acronym ADA. Certification marks are used to certify the quality, method, or mode of

manufacture of the goods, the origin of the goods or services, or that the goods or services were provided for by

members of an organization. An example of a certification mark is Underwriters Laboratories, or its acronym UL. 

 155 FICPI 8th Open Forum, Session 1, Official Searching (Trademarks), Venice, Italy, Oct. 6-9, 2004; and

Lawrence R. Hefter and Robert D. Litowitz, “What is Intellectual Property?,” USINFO.STATE.GOV, pp. 4-6, found

at http://www.usinfo.state.gov, retrieved Aug. 16, 2004; and WIPO, “What is a Trademark,” p. 1, found at

http://www.wipo.int/about-ip/en/trademarks.html, retrieved Sept. 6, 2005.

 156 William M. Landes and Richard A. Posner, Economic Structure of Intellectual Property Law (Cambridge,

MA: The Belknap Press of Harvard University Press, 2003), p. 173.

 157 15 U.S.C. 1116-1118.

 158 15 U.S.C. 1124.

 159 19 U.S.C. 1526.

 160 Customs Directive No. 2310-008A, Apr. 7, 2000.

 161 18 U.S.C. 2320.

28

Trademarks

A trademark or service mark153 may be any word, name, number(s), letter(s), symbol, logo, slogan,

package design, sound, color, smell, or other device, or combination thereof, whose purpose is to identify

and distinguish particular products from others in the market.154 Thus, the term Coca Cola ® is a 

trademark which differentiates that product from other cola products such as Pepsi Cola ® (which itself is

a trademark). The shape of the original Coca Cola bottle is also a trademark. Trademarks serve a variety of

functions for their owners and society. Some of these include helping consumers identify and purchase a

product or service based on its nature and quality, eliminating confusion in the marketplace, and protecting

an owner’s reputation, or goodwill.155 Trademarks also may reduce “consumers’ search costs by providing

them with valuable information about brands” while encouraging quality products.156

The Lanham Act157 is the most important U.S. law used to protect trademark rights. This law

permits civil suits against alleged trademark infringers in Federal courts. In addition, Section 42 of the

Lanham Act158 and Section 526 of the Tariff Act159 prohibit imports of products bearing trademarks that

have been registered at USPTO but not authorized to be used on the imported goods by the rightholder.

Such goods are subject to seizure and forfeiture for trademark infringement and violation of U.S. customs

laws. The U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement services

of the U.S. Department of Homeland Security have the authority to (1) exclude from entry, (2) detain, or

(3) seize imported counterfeit goods.160 Other important U.S. trademark legislation includes the Trademark

Counterfeiting Act of 1984,161 the Anti-Counterfeiting Consumer Protection Act of 1996, and the

Anticybersquatting Consumer Protection Act (ACPA) (table 7). 
 162 USPTO and USTR officials, FSI IPR course; and U.S. industry representatives, in-person and telephone

interviews by USITC staff, Washington, DC, Jan.-Aug. 2005.

29

Table 7

Other Important U.S. Trademark Laws

Law Major Provisions

Trademark Counterfeiting Act (1984) Provides for criminal penalties for trafficking in counterfeit goods or

services. First time offenders may be imprisoned for up to 10 years

and fined up to $2 million. Repeat offenders may be imprisoned for

up to 20 years and fined a maximum of $5 million. Corporate

offenders may be fined up to $15 million. 

Anti-Counterfeiting Consumer Protection Act

(1966)

Strengthened the Trademark Counterfeiting Act by providing law

enforcement officials at the Federal level with the authority to seize

and destroy counterfeit merchandise or give it to charities with the

consent of the legitimate trademark owner. It also expanded Federal

racketeering law, by amending the Racketeer Influenced Corrupt

Organizations Act (RICO), to include trademark counterfeiting as a

“predicate act.” 

Anticybersquatting Consumer Protection Act

(1999)

Allows a trademark holder to sue an alleged cybersquatter in Federal

court and obtain an order transferring the domain name back to the

trademark holder, and, in certain instances, requires the

cybersquatter to pay damages. A trademark holder may also fight

cybersquatters by using an international arbitration system known as

the Uniform Domain Name Dispute Resolution Policy (UDRP)

created by the Internet Corporation of Assigned Names and

Numbers (ICANN). This international system results in arbitration

rather than litigation of the suit. If the complainant prevails, the

domain name will be cancelled or transferred to the complainant, but

no damages or other financial remedies are available under the

UDRP.

Sources: 18 U.S.C. 2320; 18 U.S.C. 1961, et seq.; information provided by USPTO and U.S. State Dept. in e-mail

and attachment dated July 8, 2005 to USITC staff; and Ellen Rony and Peter Rony, “Comparison of the Trademark

Cyberpiracy Prevention Act and the Uniform Dispute Resolution Policy,” Domain Name Handbook: High Stakes and

Strategies in Cyberspace, 2000.

The United States participates in international IPR organizations and the WTO TRIPS

Agreement to advance its own high standards of trademark protection worldwide.162 Some international

treaties related to trademark protection in addition to the WTO TRIPS Agreement, are the Paris

Convention, Madrid Protocol, and Nice Agreement (text box). 
 163 U.S. State Dept. and USPTO officials, e-mail communication to USITC staff, July 5, 2005.

 164 International Trademark Association (INTA), “Madrid Protocol,” [undated], p. 1, found at http://www.inta.org,

retrieved July 12, 2004.

30

International Trademark Agreements

The earliest treaty addressing the protection of trademarks that is currently relevant, particularly by virtue of its

incorporation by reference into the TRIPS Agreement, is the Paris Convention.163 Paris Convention features

benefiting trademark owners include the establishment of a U.S. priority date based on the filing date of a trademark

application filed in a Paris Union country, provided an application is filed in the USPTO within 6 months of the

foreign application. The Paris Convention also provides that Members must have effective protection against acts of

unfair competition. Most notably, the Paris Convention provides protection for well-known marks, whether registered

or not, against unauthorized use on similar goods. 

The TRIPS Agreement outlines the minimum rights that WTO members must provide to trademark owners,

including the exclusive right to prevent unauthorized uses of the mark when such use would likely cause confusion.

The TRIPS Agreement builds on the Paris Convention by expanding the protection for trademarks in the Paris

Convention to include service marks and increases the protection for well-known marks by including services,

expanding to cover related goods, and by indicating that a mark may be well-known in the relevant sector of the

public, rather than in the entire country or neighboring countries. A 1999 WIPO Joint Recommendation on WellKnown Marks goes even further and outlines a list of factors for countries to consider when evaluating whether a

mark is well-known. 

The other major international IPR treaties addressing trademarks deal primarily with (1) streamlining formalities in

the trademark application process; and (2) simplifying the filing for trademark applications in multiple markets. The

Protocol to the Madrid Agreement for the International Registration of Marks permits nationals of member countries

to file one application in one language, with one set of fees in the country of origin and request extension protection

in some or all Madrid Protocol Member countries. Additionally, trademark owners may file a single application for

renewal and change in ownership, thereby simplifying the maintenance process for trademark owners who would

have had to do so in each jurisdiction individually.164 The Trademark Law Treaty, signed in 1994 by the United

States and 34 other countries, is expected to further unify and simplify trademark application formality procedures in

member countries, and gives service marks equal status as trademarks. The Nice Agreement, a trademark

classification treaty, provides internationally accepted identifications of goods and services for which trademark

protection may be obtained and provides 34 classes for goods and 11 classes for services. 

_____________________________

Sources: State Dept. and USPTO officials, e-mail communication to USITC staff, July 5, 2005; International

Trademark Association, “Madrid Protocol,” [undated]; Stanley Z. Goldberg, “Preserving Your Trademark-At Home

and Abroad,” Global Treasury Management, 2001; and Arnoud Engelfriet, “Crash Course on Trademarks:

Trademark-Related Treaties,” Ius Mentis, 2004.
 165 Ibid.

 166 IACC representatives, interview by USITC staff, Washington, DC, Jan. 20, 2004; and USPTO and USTR

officials, FSI IPR course.

 167 ICC, “A Brief Overview of Counterfeiting,” p. 2.

 168 Charles Hadda, “Fake Drugs, Real Disaster,” Business Week, Feb. 9, 2004, p. 44.

 169 USPTO official, e-mail dated June 10, 2005, to U.S. State Department official (related to review of this paper).

 170 “Cybersquatting: What It Is and What Can Be Done About It,” NOLO Law for All, 2004, found at

http://www.nolo.com, retrieved Aug. 25, 2004.

 171 U.S. industry representatives, in-person and telephone interviews by USITC staff, Jan.-Oct. 2004.

 172 Bill Edgar, President FICPI Trade Committee, FICPI 8th Open Forum, interview by USITC staff, Oct. 9, 2004;

and International Trademark Association (INTA), Special Report on Geographical Indications, Sept. 1, 2003,

pp. 1-7, found at http://www.inta.org, retrieved Aug. 25, 2004. 

 173 USPTO official, e-mail dated July 5, 2005 to U.S. State Department official (related to review of this paper).

 174 Ibid.

31

There are a number of different means by which trademarked products can be infringed. A

common method is the production of unauthorized imitations of products with counterfeit trademarks.

Such imitations are passed off as originals. Infringers sometimes use an otherwise legitimate trademark in

an unauthorized manner. For example, less expensive substitute goods ranging from consumer goods to

automobile parts may be placed in packages of used trademarked products and passed off as originals.

Further, inexpensive substances may be used to refill used containers of branded products such as liquid

detergents, shampoos, and motor oils.165

Digital and other advanced technologies have made it easier to produce and market counterfeits.166

For instance, computers, scanners, and printers have enabled counterfeiters to more quickly and accurately

imitate products, packaging, and documentation. Thus, technology has resulted in better copies “that are

harder to detect, and “easier to slip into the ordinary trade channels used by legitimate commerce.”167

Further, the Internet has resulted in an effective new distribution channel for counterfeit goods.168 All of

this has enormously increased the number of counterfeit products on the market. 

Another form of trademark infringement is cybersquatting, which consists of the unauthorized

registration and/or use of trademarks in Internet domain names.169 This practice involves registering,

selling, or using a domain name for the purpose of profiting from the goodwill associated with someone

else’s name and trademark.170 Some cybersquatters do this with the intent of selling the domain names

back to the trademark owner. Others may engage in the practice to attract Internet users to their website for

advertising or sales purposes.171

One other important issue related to trademarks is geographical indications (GIs) (text box).172 GIs

are indicators of origin used on goods or services that have a specific geographical origin and possess

qualities or a reputation that are due to the place in which the goods or services originate. In the United

States, a GI is considered a subset of trademarks, generally protected as certification and collective

marks.173 However, in other countries, such as France, GIs are protected in a registration system separate

from the trademark system. Many U.S. companies are concerned that a number of countries are creating a

“super-right” for GIs by canceling prior trademarks that conflict with later-established GIs in that territory,

which they contend is in conflict with TRIPS Agreement obligations.174 
 175 ICC, “A Brief Overview of Counterfeiting,” pp. 1-3; IACC, Inc., Special 301 Recommendations,

Feb. 11, 2005, p. 4; and USTR, 2004 Special 301 Report, pp. 24-26.

 176 IACC representatives, interview by USITC staff, Washington, DC, Jan. 20, 2004; and Maskus, Intellectual

Property Rights in the Global Economy, pp. 63-64. 

32

Geographical Indications

Geographical indications are, for purposes of the TRIPS Agreement, a type of intellectual property. “Geographical

Indications” (GIs) are defined, at Article 22(1) of the TRIPS Agreement, as “indications which identify a good as

originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or

other characteristics of the good is essentially attributable to its geographic origin.” (Examples of geographical

indications from the United States include “NAPA VALLEY” for wine; IDAHO POTATOES” for potatoes; and

“WASHINGTON STATE APPLES” for apples.)

Geographical indications are valuable to producers from particular regions for the same reasons that trademarks

are valuable. First, they are source-identifiers–they identify goods as originating in a particular territory, or a region

or locality in that territory. Geographical indications are also indicators of quality–they let consumers know that the

goods come from an area where a given quality, reputation, or other characteristic of the goods is essentially

attributable to their geographic origin. In addition, GIs are business interests–GIs exist solely to promote the goods

of a particular area. Finally, GIs are intellectual property, eligible for relief from acts of infringement and/or unfair

competition.

The TRIPS Agreement requires that WTO members provide the legal means for interested parties to prevent the

use of a GI that: (1) indicates or suggests that a good originates in a geographical area other than the true place of

its origin in a manner which misleads the public as to the geographical origin of the good; or (2) constitutes an act of

unfair competition. For GIs on wines and spirits, the TRIPS Agreement also provides for a presumption of

misleading use when a GI is used on wines or spirits and the goods do not come from the place identified by the GI. 

Source: U.S. State Dept. and USPTO representatives, e-mail communication to USITC staff, July 5, 2005.

U.S. Industries Affected by Trademark Counterfeiting

Industries Affected

Foreign trademark infringement affects a broad range of U.S. industries. Products affected range

from counterfeit versions of apparel, leather goods, soaps, shampoos, razors, and batteries to cigarettes,

alcoholic beverages, automobile parts, medicines, perfume, credit cards, PCs, toys, and tea bags

(table 8).175 Because trademark counterfeiting is so widespread and bears on so many industries, firms

affected by such infringement reportedly often have a more difficult time organizing themselves to

influence domestic and foreign trade polices on IPR compared to industries affected by patent and

copyright piracy, whose common interests have enabled them to more effectively band together on IPR

infringement issues.176 
 177 Sativa Ross, “Parts Counterfeiting,” Aftermarket Business, Oct. 6, 2004, pp. 1-7, found at

http://www.aftermarketbusiness.com, retrieved Oct. 6, 2004.

 178 Jim Mele, “Counterfeit Parts: Buyer Beware–Counterfeit Truck Parts,” Fleet Owner, Mar. 1, 2004, pp. 1-6,

found at http://www.fleetowner.com, retrieved Oct. 5, 2004.

 179 Ross, “Parts Counterfeiting,” pp. 1-7.

 180 The U.S. Food and Drug Administration (FDA) reports that its counterfeiting drug investigations increased to

more than 20 per year during 2001-2003, after averaging only 5 per year during 1997-2000. The agency states that

“although exact prevalence rates are unknown outside the U.S., drug counterfeiting is known to be widespread and

affects both developing and developed countries.” U.S. Department of Health and Human Services, Combating

Counterfeit Drugs, Report of the Food and Drug Administration, Feb. 18, 2005, pp. i and 2 (fig. 1), found at

http://www.fda.gov, retrieved Sept. 6, 2005. 

 181 Charles Haddad, “Fake Drugs, Real Disaster,” Business Week, Feb. 9, 2004, p. 44.

 182 “Protecting Consumers from Counterfeit Drugs,” FDA Consumer Magazine, May-June 2004, p. 1, found at

http://www.fda.gov, retrieved Sept. 6, 2005.

33

Table 8

Some types of products counterfeited worldwide in 2004 

Cell phone batteries Power tools Perfume Crystal

Table salt Christmas decorations Toys Olive oil

Paint Body Creams Steroids Cars and autoparts

Power bar Curling irons Detergent Pesticides

Contact lenses Contraceptives Sugar Juices

Mineral water Electrical cords Alcohol Baby formula

Air conditioners Ovens Canned goods and cream Toothpaste

Soy sauce Distilled water Sesame Oil Sweetened vinegar

Motorcycle chains Maize seed Diapers Air Fresheners

Apparel Shampoos Razors Soap

Leather goods Batteries Golf Clubs Tea bags

Pharmaceuticals PCs Credit cards

Sources: International AntiCounterfeiting Coalition, Inc. (IACC), Special 301 Recommendations, Feb. 11, 2005; and

USTR, 2005 Special 301 Report, Apr. 29, 2005.

The automotive parts industry has increasingly faced counterfeiting, especially in overseas

markets. Among the products that have been counterfeited in foreign markets like Korea and China are

brake linings made of wood chips and cardboard, oil filters made of old rags and perforated food cans,

gasoline filters without check valves, and glass windshields.177 Counterfeiters of well-known auto parts

illegally copy the originals, including the brand logos and packaging, in an effort to pass them off as

genuine original equipment manufacturer replacement parts.178 Sometimes such counterfeiting occurs when

a U.S. company provides its technology to a foreign manufacturer it contracts to make the genuine parts.

After the foreign firm meets the U.S. company’s request, it may produce additional inventory to brand and

sell through its own underground distribution networks.179

Another industry beset by foreign counterfeiting in recent years is the pharmaceutical industry.

There have been increases in reported instances in that industry of the use of counterfeit labeling on

containers of inactive chemicals or other ingredients, passed off as branded prescription drugs (or active

ingredients for other purposes than intended by the original drugs).180 For instance, counterfeiters have

used ingredients like aspirin in bottles bearing counterfeit trademarks, such as for the schizophrenia drug,

Zyprexa.181 In 2003, the FDA investigated counterfeiting of Lipitor, a cholesterol drug, and Procrit, used in

treating anemia in Cancer and AIDs patients.182 Counterfeiters may also purchase or steal legitimate
 183 IACC representatives, interview by USITC staff, Washington, DC, Jan. 20, 2004.

 184 Hadda, “Fake Drugs, Real Disaster,” p. 44.

 185 USTR, “Annual “Special 301” Report Finds Continued Progress on Strengthening Intellectual Property

Protection, but Significant Improvements Needed,” USTR Press Release, May 3, 2004, found at http://www.ustr.gov,

retrieved June 24, 2004; and PhRMA, interview by USITC staff, Washington, DC, Feb. 25, 2004. 

 186 INTA Bulletin, Oct. 2001, p. 3. 

 187 ICC, “A Brief Overview of Counterfeiting,” pp. 1-2, 2001.

 188 INTA Bulletin, Oct. 2001, p. 3. 

 189 PhRMA representatives, interview by USITC staff, Feb. 25, 2004; and USTR, 2004 Special 301 Report, p. 17,

and pp. 24-26.

 190 Other IPR seizures principally consist of pirated copyrighted materials. 

34

pharmaceuticals and repackage them to appear to contain higher dosages than the stolen drugs, enabling

them to increase the price of the drugs.183 

Drug counterfeiters often produce very good copies of labels, bar codes, and logos. Imitations of

products containing such marks typically are sold through legitimate distribution channels or online

drugstores.184 Another means used by counterfeiters to deceive customs and other border enforcement

officials is to export otherwise noninfringing generic products to a country, then attach a counterfeit brand

name label on the product once it is inside the importing country.185 Or they may place legitimate stickers

over products to cover a counterfeit label, then remove the sticker once the product has cleared customs

and is safely inside the intended market. 

Estimated Costs of Trademark Infringement

Foregone revenues to U.S. companies due to foreign trademark counterfeiting are difficult to

quantify. However, they are believed to be considerable.186 In 1995, the International Trademark

Association (INTA) commissioned DRI/WEFA, a U.S. econometric firm, to conduct a study quantifying

losses accruing to trademark owners as a result of counterfeiting and other trademark infringement. The

study indicated that, in 1995, companies participating in the study lost an average of 22 percent of their

total sales or $2 billion as a result of such infringement. The International Chamber of Commerce

Commercial Crime Services Division reported in 2001 that counterfeiting accounts for around 5-7 percent

of world trade, and that the global counterfeit market is worth $350 billion.187 U.S. industry representatives

state that because of the strengths of U.S. brands in global markets a significant portion of such revenue

losses accrue to U.S. companies.188 Meanwhile, the U.S. pharmaceutical industry has estimated that

counterfeit drugs account for up to 40 percent of its sales in some countries.189 Estimated trade losses due

to counterfeiting to that industry in China, India, and Korea together amounted to $3.5 billion in 2003; and

Turkey and Poland accounted for another $1 billion in losses in that year. 

The U.S. Department of Homeland Security (DHS) collects annual information on top IPR

products seized by U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement

from foreign countries attempting to export them into the United States (table 9). Although the IPR

seizures include those made for all types of IPR violations, in fact, virtually all such seizures involve

counterfeits of trademarked products.190 Cigarettes and wearing apparel; and handbags, wallets, and

backpacks accounted for the largest portion of counterfeited products seized by DHS in 2003.
 191 IACC representatives, interview by USITC staff, Washington, DC, Jan. 20, 2004.

35

Table 9

Top Counterfeit IPR Products Seized by U.S. Customs and Border Protection and U.S. Immigration and

Customs Enforcement, Department of Homeland Security, 2003

Product U.S. dollar value Percent of total

Cigarettes . . . . . . . . . . . . . . . . . . . . . . . 41,720,129 44 

Wearing apparel . . . . . . . . . . . . . . . . . . 13,888,823 15

Handbags, wallets, backpacks . . . . . . . 11,458,259 12

Media1 . . . . . . . . . . . . . . . . . . . . . . . . . . 7,357,876 8

Consumer electronics2 . . . . . . . . . . . . . 3,779,736 4

Watches and parts . . . . . . . . . . . . . . . . 3,384,025 4

Footwear . . . . . . . . . . . . . . . . . . . . . . . . 2,555,386 3

Toys and electronic games . . . . . . . . . . 1,510,839 2

Sunglasses and parts . . . . . . . . . . . . . . 1,380,542 1

Headwear . . . . . . . . . . . . . . . . . . . . . . . 1,286,198 1

All other commodities . . . . . . . . . . . . . . 5,697,414 6

Total . . . . . . . . . . . . . . . . . . . . . . . . . 94,019,227 100

1

 Media includes motion pictures on tape, laser disc, and DVD; interactive and computer software on CDROM, CDR, and floppy discs; and music on CD or tape. 2

 Consumer electronics includes cellular telephones and accessories, radios, power strips, electrical tools, and

appliances.

Source: U.S. Customs and Border Protection, LA Strategic Trade Center, 2003.

As the following tabulation shows, in 2003, counterfeit products valued at over $94 million were

seized, representing a 5-percent decline from the previous year. Despite the 5-percent decline in value, the

number of seizures increased by 12 percent in 2003, representing more than double the number reported in

2000. China accounted for well over one-half of the total value of products seized. 

Year

Total number

of seizures U.S. dollar value

2003 . . . . . . . . . . . . . 6,500 94,019,227

2002 . . . . . . . . . . . . . 5,793 98,990,341

2001 . . . . . . . . . . . . . 3,586 57,438,680

2000 . . . . . . . . . . . . . 3,244 45,327,526

1999 . . . . . . . . . . . . . 3,691 98,501,594

Total . . . . . . . . . 22,814 394,277,368

Source: U.S. Customs and Border Protection.

Lost sales and lower profits are not the only costs accruing to trademark infringement. For

instance, when a counterfeit product effectively passed off as an original is of lower quality, ineffective, or

causes injury, the firms holding the genuine trademark are often open to law suits related to health and

safety matters.191 Firms also suffer economically due to the loss of good will and reputation of their

company and products when problems caused by counterfeit products are attributed to the trademark

holder and reported widely in the news media. Firms facing such infringement may have to expend

resources to enforce their intellectual property by hiring lawyers, investigators, and other staff. The time
 192 Kathleen Richards, “Global Market Strains IP Protection Strategies,” Lightwave, Sept. 2004, pp. 47-49.

 193 According to the IIPA, the copyright industry refers to firms that manufacture and/or distribute copyrightprotected products. Siwek, “Copyright Industries in the U.S. Economy,” p. 1. The copyright industry also is often

referred to as “the copyright industries,” taking into account the separate industries making up that industry. See

footnote 20 of this paper. 

 194 IIPA’s methodology meets international standards outlined by the WIPO. WIPO divides the industry into four

categories: core, partial, non-dedicated support, and interdependent. Core industries are those that actually produce

copyrighted products, such as book publishers or software manufacturers. Siwek, “Copyright Industries in the U.S.

Economy,” pp. 5-6. 

 195 Siwek, “Copyright Industries in the U.S. Economy,” p. vi.

 196 IIPA, “10 Years of the WTO TRIPS Agreement, Appendix to IIPA’s Press Release,” Oct. 7, 2004, found at

http://www.iipa.com/trips.html, retrieved May 11, 2005.

 197 Siwek, “Copyright Industries in the U.S. Economy,” pp. vi, and 9-10. 

 198 17 U.S.C. §102(a).

 199 17 U.S.C. §101 (see definition of “fixed”).

 200 Works for hire include works created by employees in the course of their job or works that are “ordered or

commissioned.” U.S. Copyright Office, Circular 1, “Copyright Basics,” found at http://www.copyright.gov/,

retrieved Oct. 21, 2004.

 201 U.S. Copyright Office, Circular 1, “Copyright Basics.” 

36

and resources diverted from other business activities when addressing IPR infringement constitute

opportunity costs incurred by firms.192 Companies may also face costs in having to purchase security

technology and other measures to make it more difficult for their products to be imitated and successfully

marketed. 

Copyrights

According to IIPA, in 2002, the total U.S. copyright industry,193 which includes various supporting

segments, contributed $1.245 trillion in value-added to the U.S. economy, or 11.9 percent of gross

domestic product (GDP); in addition, as indicated at the beginning of this report, “core” copyright

producers contributed $626.6 billion in value added or 6 percent of U.S. GDP.194 Sales by U.S. firms in

foreign markets and U.S. exports of core copyright products reached $89.3 billion in 2002, up 1.1 percent

over 2001 figures of $88.3 billion. This slight increase is due primarily to gains by the motion picture

industry, as most other core industries, including sound recording and music publishing, books and

periodical publishing, and software all reported declines in foreign sales and exports for 2002, largely due

to copyright piracy and economic downturns in key markets.195 Piracy is the largest market access barrier

to producers and distributors of copyright-protected products in foreign markets, reducing investment and

employment opportunities.196 However, these firms contend that improved enforcement methods and

increased legal use of digital distribution of copyrighted materials could reverse these losses.197

Under U.S. law, a work is copyrighted immediately upon “fixation” in a tangible medium of

expression.198 A work is “fixed” when its embodiment in a copy is permanent or stable enough to allow it

to be perceived for more than just a “transitory” period of time.199 Fixed works receive protection

regardless of whether they are published or unpublished. Publication of a work consists of distributing it

either through sale, lease, or rental. Copyrights generally accrue to the author of the work and in cases

where there are multiple authors, they share joint ownership of the copyright. In the case of “works for

hire,”200 the employer becomes the copyright holder.201
 202 17 U.S.C. 102(a).

 203 17 U.S.C. 102(a). For more information, please see U.S. Copyright Office, Circular 2, “Copyright Basics,”

found at http://www.copyright.gov, retrieved Oct. 21, 2004; and Legal Information Institute (LII), found at

http://www.law.cornell.edu/topics/copyright.html, retrieved Oct. 21, 2004. 

 204 Section 107 of the Copyright Act states that certain uses of copyrighted material, including “criticism,

comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research,” are not

necessarily a violation. Section 107 outlines four criteria used to determine if the use of the copyrighted material is in

fact, fair. These include the type of use, i.e., whether a commercial benefit will accrue to the user, the nature of the

work, the amount of the work used, and the effect the use may have on the value of the work. U.S. Copyright Office,

Copyright Law of the United States of America and Related Laws Contained in Title 17 of the United States Code,

Circular 92, Section 107, “Limitations on Exclusive Rights: Fair Use,” found at http://www.copyright.gov, retrieved

Feb. 14, 2005. 

 205 For additional exceptions, please see U.S. Copyright Office, Copyright Law of the United States of America

and Related Laws Contained in Title 17 of the United States Code, Circular 92, found at http://www.copyright.gov

retrieved Sept. 26, 2005. 

 206 17 U.S.C. §109(a).

 207 17 U.S.C. §108.

 208 17 U.S.C. §110.

 209 A work is said to be in the public domain when its copyright expires as the author ceases to have exclusive

rights and the work is now freely available to the public.

 210 Legal Information Institute, “Copyright, An Overview,” found at

http://www.law.cornell.edu/topics/copyright.html/, retrieved Oct. 21, 2004; U.S. Copyright Office, “In Answer to

Your Query: International Copyright;” and “Copyright Basics,” found at http://www.copyright.gov/, retrieved

Oct. 22, 2004.

37

The United States Copyright Act (title 17, U.S. code) provides protection for original authored

works, granting the author exclusive rights to copy, license, distribute, perform (publically or public via

digital audio transmission), or display their work (table 10).202 Examples of categories of products

protected by copyright include literary works (including software); musical works; dramatic works;

pantomimes and choreographic works; pictorial, graphic, and sculptural works; motion pictures and other

audiovisual works; sound recordings; and architectural works.203 Exceptions exist, including for (1) the

affirmative defense of “fair use”204 of the work;205 (2) the first sale doctrine,206 which limits the copyright

owner’s right of distribution by authorizing the resale of lawfully acquired copies; (3) various exceptions

for reproductions by libraries and archives;207 and (4) certain exemptions for various performances and

displays.208

Prior to 1978, authors were required to publish with notice and register their copyright in order to

receive protection for their work. If these rules were not followed, a work could end up in the public

domain.209 Copyright notification includes a sign that the work is copyrighted, typically the word,

“copyright” or the copyright symbol, “©,” the date of publication, and the name of the author. These

requirements were removed when the United States ratified the Berne Convention, which does not allow

such requirements in order to offer protection. Now, neither registration nor notification are necessary to

obtain copyright protection. The registration process is a formality designed to create a public record

outlining basic information about the copyrighted work. However, while optional, registration helps

prevent infringement, since violators cannot claim they were unaware the copied work was protected.210
 211 U.S. Copyright Office official, memorandum dated May 20, 2005, to USITC staff.

 212 Ibid.

38

Table 10 

Copyright law

Legislation Summary Date of implementation

United States Copyright Act

(Title 17, U.S. Code)

Covers published and unpublished works;

extends copyright term; establishes scope

of protection for various works.

1976

Amendments to the Copyright Act

 Berne Convention 

 Implementation Act

Brings United States into full compliance with

the Berne Convention.

1988

Digital Millennium Copyright Act Implements the WIPO Copyright Treaty

(WCT) and the WIPO Performances and

Phonograms Treaty (WPPT); establishes 

liability limitations for ISPs; exempts

computer program copies for

maintenance and repair; provides

protections for hull designs; outlines

other miscellaneous provisions.

October 28, 1998

Sonny Bono Copyright Term 

Extension Act

Extends copyright protection for an

additional 20 years after the death of the

author, bringing total protection to the

lifetime of the creator plus 70 years.

January 27, 1998

Fairness in Music Licensing Act Extends pre-1978 copyright protection in the

United States by 20 years to 95 years.

January 27, 1998

Implements the provisions of the Uruguay

Round, including TRIPS.

December 8,1994

Source: U.S. Copyright Office, Circular 38b, International Copyright Relations of the United States, found at

http://www.copyright.gov/, retrieved Oct. 25, 2004; S. 505 105th Congress 2nd session Jan. 27, 1998, Copyright Term

Extension”; William M. Landes and Richard A. Posner, The Political Economy of Intellectual Property Law, 2004, AEI

Press: Washington, DC, pp. 2-4, 13; and U.S. Copyright Office, “The Digital Millennium Copyright Act of 1998 -

Summary,” found at http://www.copyright.gov, retrieved Oct. 21, 2004.

There have been three major amendments to the Copyright Act: the Berne Convention

Implementation Act, the Digital Millennium Copyright Act, and the Sonny Bono Copyright Term

Extension Act. Passage of the Berne Convention Implementation Act (BCIA) of 1988 was a crucial step

in preparing the United States for participation in international copyright.211 Congress undertook a full and

complete analysis of whether the framework of legal protection in the United States complied with the

BCIA, including the “moral rights” (see text box) requirements of Berne, and made additional changes to

the Copyright Act to ensure compliance.212
 213 See textbox on the WIPO Internet Treaties presented in the above section of this paper on international IPR

agreements.

 214 U.S. Copyright Office, “The Digital Millennium Copyright Act of 1998, U.S. Copyright Office Summary,”

Dec. 1998, found at http://www.copyright.gov, retrieved Oct. 21, 2004.

 215 U.S. Copyright Office, “New Terms for Copyright Protection,” found at

http://www.copyright.gov/legislation/dmca.pdf, retrieved Oct. 21, 2004. 

 216 Public Law 103-465.

39

Moral Rights and the Berne Convention

Most commonly “moral rights” refer to an author's right to have his work identified as his own (the right of

attribution), and an author's right to stop distortion or destruction of his work (the right of integrity). These rights

remain with the author and cannot be transferred.

The Berne Convention provides for moral rights in article 6bis, which states:

“(1) Independently of the author's economic rights, and even after the transfer of the said rights, the author

shall have the right to claim authorship of the work and to object to any distortion, mutilation or other

modification of, or other derogatory action in relation to, the said work, which would be prejudicial to his

honour or reputation.

(2) The rights granted to the author in accordance with the preceding paragraph shall, after his death, be

maintained, at least until the expiry of the economic rights, and shall be exercisable by the persons or

institutions authorised by the legislation of the country where the protection is claimed. However, those

countries whose legislation, at the moment of their ratification of or accession to this Act, does not provide

for the protection after the death of the author of all the rights set out in the preceding paragraph may

provide that some of these rights may, after his death, cease to be maintained.”

_____________________________

Source: Berne Convention, Article 6bis.

The United States passed the Digital Millennium Copyright Act (DMCA) in 1998. The DMCA,

which addresses Internet and other digital piracy, implements the WIPO Internet Treaties in the United

States, including its provisions relating to technological protection measures and rights management

information protection.213 Other core elements include liability limitations for Internet service providers

(ISPs); exemptions for making copies of software in the course of maintenance or repair; and new

protections for vessel hull designs.214 

 The Sonny Bono Copyright Term Extension Act of 1998 extends the term of copyright protection

for original works by 20 years. Under this Act, works created post-1978 or works created pre-1978, but not

published or registered until after 1978, are now protected for the lifetime of the author plus 70 years. For

works created pre-1978 that currently enjoy copyright protection, the term has been extended to 95 years

from the initial date of copyright.215 

The Uruguay Round Agreements Act (URAA)216 implements all of the agreements developed

during the Uruguay Round of trade negotiations, including the TRIPS Agreement. The United States was

obliged to amend its laws to incorporate the provisions of TRIPS. For example, section 109(b) of the

Copyright Act was amended to eliminate the expiration of software rental rights. Now, under the URAA,

software copyright holders enjoy these rights in perpetuity. The URAA also establishes civil and criminal

penalties for unauthorized copying or “bootlegging” of music recordings or performances and provides for

the restoration of copyright protection for foreign works that have fallen in the public domain in the United
 217 U.S. Copyright Office, Circular 38a, International Copyright Relations of the United States, found at

http://www.copyright.gov, retrieved Oct. 25, 2004; and Recording Industry Association of America (RIAA)

representative, e-mail communication to USITC staff, May 6, 2005.

 218 WTO, “Intellectual Property: Protection and Enforcement,” found at http://www.wto.org, retrieved

Oct. 21, 2004.

 219 WTO, “TRIPS: What are IPRs - What are Intellectual Property Rights?,” found at http://www.wto.org,

retrieved Oct. 21, 2004.

40

States, but have not yet fallen into the public domain in the author’s home country through the expiration

of the term.217

International Copyright Agreements

A single international copyright designed to protect an authored work on a multilateral basis does

not exist; in that regard there is no such thing as an international copyright. Authors instead must rely on

the laws of individual countries, as well as multinational and bilateral copyright agreements, in order to

secure protection for their works. The United States is a party to several international conventions that

provide copyright protections, including the Buenos Aires Convention, the Berne Convention, the

Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of the

Phonograms, the Universal Copyright Convention, the WCT, the WPPT, and the TRIPS Agreement

(table 11). 

Table 11

International copyright conventions to which the United States is a party

Convention/Agreement

Date of U.S.

implementation

Buenos Aires Convention, 1910 July 13, 1914

Berne Convention for the Protection of Literary and Artistic Works March 1, 1989

Convention for the Protection of Producers of Phonograms Against Unauthorized

 Duplication of the Phonograms, Geneva, 1971

March 10, 1974

Universal Copyright Convention, Geneva, 1952 and as amended Paris, 1971 September 16, 1955

as amended July 10, 1974

WIPO Copyright Treaty 1996 March 6, 2002

WIPO Performances and Phonograms Treaty March 20, 2002

WTO Agreement on Trade-Related Aspects of Intellectual Property Rights January 1, 1995

Source: U.S. Copyright Office, Circular 38a, International Copyright Relations of the United States, found at

http://www.copyright.gov, retrieved Oct. 25, 2004.

All of the agreements summarized in table 8 accord copyright protection on a national treatment

basis. The TRIPS Agreement provides broad coverage and basic principles for copyright protection, and

includes rules for the standard application of intellectual property agreements, enforcement, dispute

settlement, and transition periods for implementation by developing member states.218 Under TRIPS,

authored works are protected for the author’s lifetime plus an additional 50 years. Works protected by

copyright include literary works, such as books and software, and artistic works such as music, paintings,

sculpture, and films.219 The agreement treats existing international agreements as the baseline for

protection and adds new standards of conduct for all countries where there are deficiencies. For example,

since software is not covered by the Berne Convention, the TRIPS Agreement establishes software as a

literary work, ensuring protection. TRIPS also grants authors of software and sound recordings rental
 220 WTO, “Intellectual Property: Protection and Enforcement.” 

 221 IIPA, “10 Years of the WTO TRIPS Agreement, Appendix to IIPA’s Press Release,” found at

http://www.iipa.com, retrieved Oct. 18, 2004.

 222 Gibson, WIPO Internet Copyright Treaties Coming Into Force (London: Steptoe & Johnson, 2002), pp. 1-4.

 223 U.S. Copyright Office official, memorandum dated May 20, 2005, to USITC staff.

 224 U.S. Government official, AIPLA Annual Meeting, Washington, DC, Oct. 14, 2004.

 225 Ibid.

 226 IIPA, “10 Years of the WTO TRIPS Agreement, Appendix to IIPA’s Press Release.”

41

rights and rights against unauthorized recording, copying, and broadcast of their works.220 In terms of

enforcement, TRIPS requires member states to make copyright violations an actionable offense under their

domestic laws with penalties severe enough to deter similar actions. The agreement outlines enforcement

measures necessary to protect the industry from copyright violations.221

TRIPS was finalized prior to consideration of such copyright issues as Internet and other digital

piracy. The WIPO WCT and WPPT treaties, also referred to as the “Internet Treaties,” were established

under the 1996 diplomatic conference because, as previously indicated, they provide new international

standards for the protection of copyright and related rights in a digital environment.222 The two treaties

confirmed that copyright applies in the digital environment, significantly clarifying exclusive rights in the

distribution of copies of works, and in the communication to the public of works, including the “making

available” of works so they can be accessed at a place and at a time chosen by the user. Other key

provisions of the Internet Treaties include protections against the unlawful circumvention of technical

protective measures used to protect works, as well as protections against illegal tampering or altering of

tags or codes that may be used to facilitate licensing (so-called rights management information).

Additionally, both treaties contain provisions requiring signatories to impose penalties for such unlawful

activities, which are the principal means for providing copyright owners with security in making their

works available in digital formats.223

In addition to the multinational agreements, the United States has also completed a number of

bilateral free trade agreements (FTAs) that provide copyright protection. Among other things, the FTAs

include provisions that require ratification of the WIPO Internet Treaties and implementation of DCMAlike legislation.224 These agreements offer the highest level of intellectual property protection of any

international agreement,225 and U.S. industry endorses the comprehensive treatment of intellectual property

designed to protect copyrighted products.226
 227 IIPA, “2004 Final Estimated Trade Losses Due to Copyright Piracy,” June 4, 2005, found at

http://www.iipa.com/statistics.html. 

 228 IIPA representative, interview by USITC staff, Sept. 7, 2005.

 229 U.S. industry representative, interview with USITC staff, Washington, DC, Sept. 7, 2004.

 230 IIPA, “IIPA’s New Economic Study Reveals the Copyright Industries Continue to be a Driving Force in the

U.S. Economy,” found at http://www.IIPA.com, retrieved Oct. 18, 2004.

 231 U.S. industry representative, AIPLA Annual Meeting, Washington, DC, Oct. 14, 2004.

 232 Refers to movies films.

 233 Also known as Digital Versatile Discs.

 234 U.S. industry representative, interview by USITC staff, Washington, DC, Sept. 7, 2004.

42

Effect of Copyright Piracy on U.S. Industries

Industries Affected

Copyright piracy is the most important challenge faced by U.S. copyright holders. U.S. industries

most affected by such piracy include the book publishing, motion picture, music recording, entertainment

software, and business software industries. 

Reported Costs of Foreign Copyright Piracy to U.S. Industries

The IIPA estimates that foreign copyright piracy cost U.S. industry over $12.5 billion in 52

selected markets in 2004 (table 12), exclusive of Internet piracy such as illegal downloads.227 The IIPA

estimates that global losses for U.S. copyrighted materials range from $25-30 billion each year (not

including Internet piracy). Copyrighted materials may be simple and inexpensive to reproduce making

illegal copying a lucrative endeavor for pirates.228 Typically, the more developed a country, the more

sophisticated the piracy. The IIPA equates piracy rates with the number of unauthorized units sold. For

example, piracy of audiovisual products during 1997-1998 was approximately 15 percent. As a result of

growing optical disc piracy, video piracy has increased to 50 percent currently.229 Optical disc (CDs and

DVDs, etc.) piracy is a particular concern as supply far exceeds demand for these products. The industry

states that strict licensing laws are required to track production and Internet piracy is a critical concern.

U.S. industry representatives believe that the secure transmission of copyright products over the Internet

will lead to gains in economic growth and productivity in the United States. However, they caution that

piracy can easily reverse these gains.230

According to a U.S. industry representative, unauthorized use of content is increasing

dramatically, with illegal movie downloads estimated at 400,000 to 600,000 per day. Movies are often

available on the street just hours after the films appear in theaters in Russia and China.231 In addition, the

Motion Picture Association of America (MPAA) estimates that a quarter of all Internet users worldwide

have used the Internet to illegally download a movie, with the figure as high as 58 percent in Korea. Illegal

downloading of movies is linked to a decrease in legitimate movie attendance and DVD/video purchasing,

thus decreasing the revenues and profits of U.S. motion picture companies. Other digital piracy is also

increasing rapidly, particularly in the case of illegally copied video,232 sound, and other entertainment

recorded on or copied from digital optical discs.233 U.S. industry representatives report that strong

enforcement is needed to prevent online and other digital piracy and encourage the legitimate sale of

copyrighted materials and that implementation of the WIPO Internet Treaties will be instrumental in this

regard.234 
 235 BSA and IDC, “Global Software, Piracy Study,” May 2005, p. 9. This figure is different from that shown for

the types of software shown in the table 9 because it represents global software losses due to piracy for all types of

PC software and is not limited to business and entertainment software. Further, the data is not limited to that for the

52 countries for which the data in table 9 is applicable. 

 236 Robert Cresanti, BSA, statement to the House Committee on Government Reform, Sept. 23, 2004.

 237 IIPA, “Copyright Industry Initiatives and Challenges in 2004,” found at http://www.iipa.com, retrieved

Oct. 18, 2004.

 238 U.S. industry representative, interview by USITC staff, Washington, DC, Sept. 7, 2004.

43

Table 12

Estimated trade losses due to copyright piracy in 52 selected foreign countries during 2000-2004

Year

Motion

pictures

Records

and music

Business

software

Entertainment

software Books 

Estimated

total losses

––––––––––––––––––––––––––––– In million dollars –––––––––––––––––––––––––––––

2000 . . . . . . . . . . . . . 1,221.0 1,800.3 2,821.5 1,608.8 653.3 8,104.9

2001 . . . . . . . . . . . . . 1,288.0 2,034.7 2,653.5 1,767.1 636.4 8,379.7

2002 . . . . . . . . . . . . . 1,578.3 2,227.5 4,835.7 1,024.4 576.8 10,870.1

2003 . . . . . . . . . . . . . 1,671.7 2,777.6 6,728.0 1,686.8 535.6 13,245.1

2004 . . . . . . . . . . . . . 1,635.5 2,437.8 6,155.0 1,743.9 571.0 12,543.2

Source: Adapted with permission from from IIPA, “2004 Final Estimated Trade Losses Due to Copyright Piracy;”

June 4, 2005, found at http://www.iipa.com/statistics.html. 

Software piracy sometimes takes the form of end user piracy, where entities or individuals make

unauthorized copies of licensed software for their own use, and traditional counterfeiting, where pirated

product is made to look like legitimate products or is bundled with other software packages to entice

consumers. In 2004, approximately $33 billion of personal computer software was pirated worldwide.235

Internet piracy is a grave concern for the industry because millions of infringing copies can be downloaded

online, instead of being sold one at a time.236 Book publishers face more traditional forms of piracy, such

as photocopying and illegal translations.237

Parallel import protection can also affect copyright-protected products. For example, through

parallel imports, a movie could be released in theaters in one market at the same time the parallel imported

video is already circulating for sale. Publishers who produce less expensive versions of textbooks for lesser

developed countries are concerned that these cheaper books will be made available in larger markets,

hurting sales of legitimate books.238

Measuring the Impact of Foreign IPR Infringement on U.S. Industry and Trade

U.S. industry trade losses due to foreign infringement are believed to be substantial. However,

hard data is lacking to substantiate the magnitude of such losses, and economists have found the economic

effects of such losses difficult to quantify. This section briefly summarizes and critiques the existing

research and data on IPR-related trade and the costs of foreign IPR infringement. 

The chief sources of intellectual property data include (1) an annual article on U.S. international

services published by the BEA, in its Survey of Current Business, which includes, among other things,

U.S. trade data in intangible intellectual property rights; (2) U.S. foreign revenue loss estimates due to IPR
 239 USITC, inv. No. 332-245, Foreign Protection of Intellectual Property Rights and the Effect on U.S. Industry

and Trade, Report to the USTR, USITC pub. No. 2065, Feb. 1988. 

 240 BEA, “U.S. International Transactions in Royalties and Licensing Fees: Their relationship to the Transfer of

Technology,” Survey of Current Business, Dec. 1973, p. 15.

 241 For a more robust discussion of affiliate trade, please see USITC, Recent Trends in Services Trade 2004

Annual Report, USITC pub. No. 3703, June 2004, pp. 2-1 - 2-13.

 242 BEA, Survey of Current Business, Oct. 2004, pp. 32-33.

 243 Royalty and license fees for the use of general-use computer software and use of industrial manufacturing

processes in the pharmaceutical and telecommunications industries were responsible for the largest portion of U.S.

receipts from unaffiliated foreign companies in 2003. BEA, Survey of Current Business, Oct. 2004, pp. 32-33.

44

infringement for certain countries provided annually by IIPA; (3) damage estimates of foreign IPR

infringement provided by PhRMA for certain countries; and (4) data provided by the U.S. Department of

Homeland Security on the value of counterfeits seized by U.S. Customs and Border Protection and U.S.

Immigration and Customs Enforcement. In the past, the International Anti-Counterfeiting Coalition

(IACC), representing numerous companies and associations dependent on trademarks, has also provided

trade loss estimates in selected publications. The U.S. International Trade Commission published the last

comprehensive U.S. Government analysis estimating U.S. revenue losses due to foreign infringement of

U.S. IPR in 1988.239 

In the annual BEA article, trade in intangible intellectual property rights is captured under the

royalties and license fees line-item in the U.S. balance of payments. These fees are generated by sales of

intellectual property or proprietary rights such as patents, trademarks, copyrights, franchises, broadcast

rights, as well as the rights to distribute, use, and reproduce general-use computer software. These fees also

include the right to sell a product under a certain brand name and management consulting fees.240 Trade in

intangible intellectual property rights is only reported on a cross-border basis, meaning the intellectual

property, fees, and personnel are transmitted across national borders.241 As indicated in table 13, U.S.

receipts of royalties and license fees by U.S. companies from foreign affiliated and unaffiliated firms

increased by 9 percent to $48.2 billion in 2003 from the previous year.242 Meanwhile, U.S. payments of

royalties and license fees to affiliated and unaffiliated firms overseas increased by 4 percent to $20 billion

in 2003, resulting in a U.S. surplus of $28.2 billion in 2003 in such transactions.243 It should be noted that

such trade accounts for only a small portion of total revenues derived by U.S. and foreign companies from

their IPR, since many products dependent on such rights are sold by means other than through collection

of royalties and licensing fees, such as through direct sales and exports.
 244 IIPA’s piracy estimate methodology may been viewed at

http://www.iipa.com/pdf/2005spec301methodology.pdf.

 245 IIPA, “2004 Final Estimated Trade Losses Due to Copyright Piracy,” June 4, 2005, found at

http://www.iipa.com/statistics.html. 

 246 U.S. academic and government economists, and U.S. industry analysts, in-person and telephone interviews by

USITC staff, Aug.-Dec. 2004 and Apr.-May 2005. 

 247 Ibid. 

45

Table 13

U.S. receipts (exports) and payments (imports) of royalties and license fees associated with affilated and unaffilated

foreign companies: 1987-2003

 U.S. receipts (exports) U.S. payments (imports) U.S. trade balance 

Year All Affiliated Unaffiliated All Affiliated Unaffiliated All Affiliated Unaffiliated

1987 . . . . 9,914 7,629 2,285 1,844 1,296 547 8,070 6,333 1,738

1988 . . . . 11,802 9,156 2,646 2,585 1,410 1,175 9,217 7,746 1,471

1989 . . . . 13,064 10,207 2,857 2,602 1,778 824 10,462 8,429 2,033

1990 . . . . 16,634 13,251 3,384 3,135 2,206 929 13,499 11,045 2,455

1991 . . . . 18,017 14,395 3,712 4,076 2,996 1,080 13,941 11,399 2,632

1992 . . . . 19,715 15,718 3,997 5,074 3,381 1,694 14,641 12,337 2,303

1993 . . . . 20,323 15,707 4,616 4,765 3,364 1,401 15,558 12,343 3,215

1994 . . . . 26,712 20,275 6,347 5,852 3,934 1,919 20,860 16,341 4,428

1995 . . . . 30,289 22,859 7,430 6,919 5,257 1,663 23,370 17,602 5,767

1996 . . . . 32,470 24,556 7,914 7,837 5,406 2,431 24,633 19,150 5,483

1997 . . . . 33,228 24,465 8,763 9,161 6,749 2,412 24,067 17,716 6,351

1998 . . . . 39,626 26,313 9,314 11,235 8,547 2,688 28,391 17,766 6,626

1999 . . . . 39,670 29,275 10,395 13,107 10,374 2,733 26,563 18,901 7,662

2000 . . . . 43,233 30,479 12,754 16,468 12,536 3,932 26,765 17,943 8,802

2001 . . . . 40,696 29,164 11,532 16,538 13,241 3,297 24,158 15,923 8,235

2002 . . . . 44,219 32,658 11,561 19,235 15,084 4,151 24,984 17,574 7,410

2003 . . . . 48,227 35,924 12,303 20,049 16,407 3,642 28,178 19,517 8,661

Note.—Details may not add to totals because of rounding. Affiliate refers to a business enterprise located in one country that is

directly or indirectly owned or controlled by an entity in another country. Controlling interest must equal 10 percent or more of

its voting stock or its equivalent.

Source: U.S. Bureau of Economic Analysis, Survey of Current Business, 80 (10): Oct. 2004.

Some analysts believe that IIPA has one of the most comprehensive and transparent methodologies

for estimating revenue losses due to foreign IPR infringement, which it uses in support of its annual

Special 301 submissions to USTR.244 As previously indicated, in 2005, IIPA estimated that copyright

industries represented by its organization amounted to over $12.5 billion in 52 selected markets in 2004

(table 14).245 However, other analysts point out that IIPA’s estimates have certain limitations that affect the

analysis of foreign copyright piracy.246 For example, IIPA’s estimates are limited to losses of companies

represented by IIPA. Further, they do not include the costs of Internet piracy, which is fast becoming one

of the principal means of piracy. Finally, in estimating copyright revenue losses by deriving estimates of

additional revenues of copyright products (such as DVDs) could have been generated in a particular

market or markets if pirate copies were not manufactured and distributed, it is not clear from the IIPA

methodology how many people in a country that paid $3 for an IPR infringing DVD would (or could) pay

$20 for a legitimately marketed DVD, if piracy did not exist.247 

PhRMA estimates revenue losses in foreign countries due to inadequate patent and data protection

for pharmaceuticals. In 2005, it documented losses of over $7 billion in 22 selected countries in 2004 due

to inadequate patent and data protection (accruing to both its U.S.- and non-U.S.-based member firms)
 248 PhRMA, 2005 Special 301 submission, app. A. The PhRMA damage estimate methodology may be viewed at

http://www.phrma.org/international/Appendix_A_Damage_Estimate_Methodology.pdf. 

 249 Such as working within the legal systems of problematic foreign countries to combat counterfeiting, and with

international enforcement groups like Interpol, as well as with U.S. Government organizations such as USTR and

USPTO. IACC officials, interview by USITC staff, Jan. 2004.

 250 USITC, Foreign Protection of Intellectual Property Rights, pp. vii and H-2. 

 251 Ibid., p. viii. 

46

(table 15).248 Previously, that organization had provided damage information in its annual Special 301

submissions to the U.S. Government, but had not separated out IPR-related damages from damages related

to tariff and other nontariff issues (such as price reimbursement and regulatory issues). An important

limitation of the PhRMA data is that it is confined to those countries for which PhRMA submits its annual

Special 301 recommendations. Further, PhRMA has not yet been successful in documenting losses for one

of its most important foreign markets, India. Thus the PhRMA data likely understate total losses due to

inadequate patent, data, and other IPR protection. The lack of estimated revenue loss data due to

inadequate patent and data protection in industries other than the pharmaceutical industry also limits the

ability to analyze the effects of foreign patent infringement on the U.S. industry as a whole. 

The IACC, representing a broad range of industries dependent on trademarks, also has

commissioned studies in the past that included some overall revenue loss estimates affecting its members

as a whole, but not broken out by country. But even these estimates have not been completed in recent

years. IACC representatives indicate that they will not commission such studies in the future, since their

limited resources are more effectively put to use in their other efforts to combat overseas counterfeiting

and piracy.249 

Although estimates of total revenues lost by U.S. companies are not available, data collected

annually by DHS show the value of counterfeit products seized by U.S. Customs and Border Protection

and U.S. Immigration and Customs Enforcement. In 2003, counterfeit products valued over $94 million

were seized by those agencies, with imports from China accounting for almost two-thirds of such seizures

(table 16). Although such data is useful, it accounts for only a small portion of the billions of dollars in

estimated losses to U.S. companies annually resulting from foreign trademark infringement from illicit

sales in their U.S. and overseas markets. Further, a portion of the losses reflected in the DHS statistics

represent losses to trademarked products of foreign companies, making it even more difficult to allocate

foreign trademark infringement losses to U.S. industries. 

The USITC completed the last comprehensive U.S. Government analysis estimating total U.S.

revenue losses due to foreign infringement of U.S. IPR in 1988.250 The study surveyed hundreds of U.S.

firms, including all of the Fortune 500 companies and smaller firms believed to depend on royalties or

sales of goods protected by intellectual property. Respondents estimated their aggregate worldwide losses

as a result of inadequate intellectual property protection in 1986 at $23.8 billion, or 2.7 percent of sales.251

However, the USITC report pointed out a number of caveats with respect to its estimates, including

statements that its figures represent estimates from a percentage of an unknown universe, and, likely

substantially underestimate total losses experienced by U.S. industry. It should also be noted that the

estimates were, at least partly, based on anecdotal responses of companies and associations to a USITC

questionnaire.
47

Table 14

Estimated trade losses due to copyright piracy in 52 selected foreign countries during 2000-2004

Year

Motion

pictures

Records

and music Business software Entertainment software Books 

Estimated

total losses

––––––––––––––––––––––––––––– In million dollars –––––––––––––––––––––––––––––

Argentina . . . . . . . . . . . . . . . . 30.0 41.5 63.0 NA NA 134.5

Azerbaijan . . . . . . . . . . . . . . . . NA 12.0 NA NA NA 12.0

Bahamas . . . . . . . . . . . . . . . . NA NA NA NA NA NA

Belarus . . . . . . . . . . . . . . . . . . NA 26.0 NA NA NA 26.0

Belize . . . . . . . . . . . . . . . . . . . NA NA NA NA NA NA

Bolivia . . . . . . . . . . . . . . . . . . . 2.0 16.0 5.0 NA NA 23.0

Brazil . . . . . . . . . . . . . . . . . . . . 120.0 343.5 359.0 120.4 18.0 960.9

Bulgaria . . . . . . . . . . . . . . . . . 4.0 6.5 18.0 NA NA 28.5

Canada . . . . . . . . . . . . . . . . . . NA NA 560.0 NA NA 560.0

Chile . . . . . . . . . . . . . . . . . . . . 2.0 24.8 49.0 37.9 1.0 114.7

Colombia . . . . . . . . . . . . . . . . 40.0 51.6 46.0 NA NA 137.6

Costa Rica . . . . . . . . . . . . . . . 2.0 NA 9.0 NA NA 11.0

Croatia . . . . . . . . . . . . . . . . . . 2.0 NA 27.0 NA NA 29.0

Dominican Republic . . . . . . . . 2.0 10.3 2.0 NA 1.0 15.3

Ecuador . . . . . . . . . . . . . . . . . NA 20.0 7.0 NA 2.5 29.5

Egypt . . . . . . . . . . . . . . . . . . . NA 7.5 28.0 NA 30.0 65.5

European Union . . . . . . . . . . . NA NA NA NA NA NA

Guatemala . . . . . . . . . . . . . . . 2.0 NA 6.0 NA NA 8.0

Hungary . . . . . . . . . . . . . . . . . 20.0 11.5 65.0 21.5 4.0 122.0

Italy . . . . . . . . . . . . . . . . . . . . . 160.0 45.0 779.0 NA 23.0 1007.0

India . . . . . . . . . . . . . . . . . . . . 80.0 67.3 239.0 59.5 38.0 483.8

Indonesia . . . . . . . . . . . . . . . . 32.0 27.6 100.0 NA 32.0 191.6

Israel . . . . . . . . . . . . . . . . . . . . 30.0 34.0 30.0 12.4 1.0 107.4

Jamaica . . . . . . . . . . . . . . . . . NA NA NA NA NA NA

Kazakhstan . . . . . . . . . . . . . . . NA 23.0 NA NA NA 23.0

Kuwait . . . . . . . . . . . . . . . . . . . 12.0 8.0 26.0 NA 1.0 47.0

Latvia . . . . . . . . . . . . . . . . . . . NA 12.0 10.0 NA NA 22.0

Lebanon 10.0 3.0 15.0 NA 3.0 31.0

Lithuania . . . . . . . . . . . . . . . . . 1.5 15.0 11.0 NA NA 27.5

Malaysia . . . . . . . . . . . . . . . . . 36.0 55.5 73.0 12.9 10.0 187.4

Mexico . . . . . . . . . . . . . . . . . . 140.0 326.0 222.0 132.2 42.0 862.2

Pakistan . . . . . . . . . . . . . . . . . 12.0 70.0 14.0 NA 52.0 148.0

Paraguay . . . . . . . . . . . . . . . . 2.0 127.8 6.0 NA 2.0 137.8

People’s Rep of China ...... 280.0 202.9 1,488.0 510.0 50.0 2,530.9

Peru . . . . . . . . . . . . . . . . . . . . 4.0 68.0 22.0 NA 8.5 102.5

Philippines . . . . . . . . . . . . . . . 33.0 20.0 38.0 NA 48.0 139.0

Poland . . . . . . . . . . . . . . . . . 30.0 36.0 197.0 109.3 5.0 377.3

Romania . . . . . . . . . . . . . . . . . 8.0 18.0 32.0 NA 2.0 60.0

Russia . . . . . . . . . . . . . . . . . . . 275.0 411.9 800.0 255.8 42.0 1,784.7

Saudi Arabia . . . . . . . . . . . . . . 20.0 15.0 73.0 NA 14.0 122.0

Slovakia . . . . . . . . . . . . . . . . . 2.0 NA 26.0 NA NA 28.0

South Korea . . . . . . . . . . . . . . 40.0 2.3 276.0 349.0 42.0 709.3

Taiwan . . . . . . . . . . . . . . . . . . 40.0 49.4 88.0 123.0 20.0 320.4

Tajikistan . . . . . . . . . . . . . . . . NA 5.0 NA NA NA 5.0

Thailand . . . . . . . . . . . . . . . . . 30.0 24.9 100.0 NA 30.0 184.9

Turkey . . . . . . . . . . . . . . . . . . . 50.0 15.0 107.0 NA 23.0 195.0

Turkmenistan . . . . . . . . . . . . . NA 7.0 NA NA NA 7.0

Ukraine . . . . . . . . . . . . . . . . . . 45.0 115.0 63.0 NA NA 223.0

Uruguay . . . . . . . . . . . . . . . . . 2.0 NA 7.0 NA NA 9.0

Uzbekistan . . . . . . . . . . . . . . . NA 31.0 NA NA NA 31.0

Venezuela . . . . . . . . . . . . . . . . 25.0 31.0 39.0 NA NA 95.0

Vietnam . . . . . . . . . . . . . . . . . 10.0 NA 30.0 NA 16.0 56.0

 Total . . . . . . . . . . . . . . . . . . 1,635.5 2,437.8 6,155.0 1,743.9 571.0 12,533.2

Source: International Intellectual Property Alliance, 2005. [Data not available indicated by NA.]
48

Table 15

Estimated U.S. revenue losses due to inadequate foreign protection of pharmaceutical patents and clinical test data

in 2004

Country Total sales Patent Damages Data Damages Total Damages Damages/sales

–––––––––––––––––– In thousand dollars –––––––––––––––––– –––– Percent ––––

Argentina . . . . . . . . . 1,752,284 167,827 35,809 203,636 12

Canada . . . . . . . . . . . 10,996,086 366,726 43,249 409,975 4

China . . . . . . . . . . . . 7,159,283 1,876,921 489,038 2,365,959 33

Egypt . . . . . . . . . . . . 661,565 77,344 43,505 120,849 18

Hungary . . . . . . . . . . 2,001,432 196,783 35,209 231,992 12

India . . . . . . . . . . . . . 4,441,343 NA NA NA NA

Israel . . . . . . . . . . . . . 326,075 21,332 10,503 31,825 10

Korea . . . . . . . . . . . . 5,526,741 832,873 295,068 1,127,941 20

Lebanon .......... 295,139 48,932 29,194 78,126 26

Malaysia . . . . . . . . . . 315,152 5,702 17,945 23,647 8

New Zealand . . . . . . 653,555 19,447 4,357 23,804 4

Pakistan . . . . . . . . . . 974,250 68,481 17,217 85,698 9

Peru . . . . . . . . . . . . . 319,421 52,230 10,487 62,717 20

Philippines . . . . . . . . 1,287,040 50,226 10,518 60,744 5

Poland . . . . . . . . . . . 4,009,913 707,289 137,693 844,982 21

Saudi Arabia ....... 924,556 92,594 52,536 145,130 16

Slovenia . . . . . . . . . . 474,997 30,638 11,253 41,891 9

Taiwan . . . . . . . . . . . 2,845,522 43,728 38,957 82,685 3

Thailand . . . . . . . . . . 1,061,310 89,206 40,333 129,539 12

Tunisia . . . . . . . . . . . 321,205 31,811 24,088 55,899 17

Turkey . . . . . . . . . . . . 4,350,919 741,277 145,824 887,101 20

Venezuela . . . . . . . . 1,528,139 96,337 53,623 149,960 10

Total . . . . . . . . . 52,315,927 5,617,694 1,546,406 7,164,100 14

Sources: Adapted with permission from Pharmaceutical Research and Manufacturers of America (PhRMA). [Data not

available indicated by NA.] 

Table 16 

Top foreign sources of counterfeit products seized by U.S. Customs and Border Protection and U.S. Immigration and

Customs Enforcement, Department of Homeland Security, 2003

Country U.S. dollar value Percent of total

China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,468,018 66

Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,236,507 9

Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,219,268 3

Pakistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,010,465 2

Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,966,929 2

Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,331,925 1

Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,224,058 1

Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,189,160 1

Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676,197 <1

Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662,112 <1

All other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,034,588 12

Total 94,019,227 100

Source: U.S. Customs and Border Protection, L.A. Strategic Trade Center, 2003.
 252 Maskus, Intellectual Property Rights in the Global Economy, p. 88.

 253 Ibid.

 254 For further information on the impact of Internet and other digital piracy on U.S. industries, see USITC, Office

of Industries Working Paper, Protecting U.S. Intellectual Property Rights and the Challenges of Digital Piracy, ID05, Mar. 2003.

 255 U.S. Government and industry officials, in-person and telephone interviews by USITC staff, Jan.-Oct. 2004

and June 2005.

 256 Testimony of Joseph Papovich, Senior Vice President International, Recording Industry Association of

America, before the U.S. House of Representatives, Committee on Government Reform, Sept. 23, 2004.

 257 Ibid.

49

A number of economists, including economists at the USITC, are attempting to develop empirical

techniques to identify, measure, and estimate the economic effects of nontariff measures, including

intellectual property rights. However, the effects of IPRs and the effect on U.S. industry and economy of

IPR infringement is likely to be among the most challenging of the NTMs to assess quantitatively. One

scholar has reviewed the work of a number of economists in the areas of IPR measurement, determinants,

and economic effects. Based on his review, he reports that “unlike tariffs and taxes, IPRs are not readily

measurable; nor do they have obvious price-based equivalents like those used to assess the restrictiveness

of quotas.”252 “Complicating the picture,” he says, “is that, as fundamental rules governing behavior, IPRs

surely interact in complex ways with other policies in reaching their full effectiveness. Thus, identical laws

may have quite distinct effects in countries that differ in their market structures and preferences.”253 

In sum, there have been few comprehensive empirical efforts in recent years to measure the impact

of foreign infringement on U.S. industry. Those studies that have been completed suggest that due to

various limitations in their assessments their revenue loss estimates likely significantly underestimate the

total effects of foreign IPR infringement on U.S. industry as a whole. The most comprehensive effort to

measure the economic impact of foreign IPR infringement was completed by the USITC almost two

decades ago. Since that time, technological developments, such as the Internet and other digital

technology, have increased the speed and ease with which the duplication and illicit file sharing of

products protected by IPR can occur.254 Thus, a number of industry and government leaders believe that

revenue losses are likely much larger today than previously estimated in the ITC study and industry

surveys, which do not include losses due to Internet piracy in their estimates.255 Further research is needed

to confirm these assumptions.

Addressing Foreign IPR Infringement

There are various means available for addressing foreign infringement of IPR. Some of these are

employed directly by U.S. companies affected by foreign counterfeiting, including the initiation of legal

actions under the intellectual property laws of the country in question. Others are employed by the U.S.

Government as a part of its official trade policy, and may include efforts to use trade laws and agreements

to get countries to implement stronger IPR laws and enforcement procedures. Other means combine the

efforts of U.S. private sector and public interests to address the challenges of foreign IPR infringement.

Private Sector Efforts

U.S. industries invest millions of dollars around the world to protect their products from

infringement.256 Intelligence gathering and analysis are among the more important tools that the private

sector uses to combat intellectual property violations.257 Some U.S. industries and individual firms affected

by foreign trademark infringement employ private investigators and lawyers who sometimes work together
 258 Alana Sharenow and Patricia A. Wilcznski, “To Catch a Counterfeiter,” INTA Bulletin, Oct. 2001, p. 1. 

 259 ICC, “ICC Counterfeiting Intelligence Bureau,” p. 2, 2001, found at http://www.iccwbo.org, retrieved

June 28, 2004.

 260 Ibid.

 261 ICC, “A Brief Overview of Counterfeiting,” p. 3.

 262 PhRMA representatives, interview by USITC staff, Feb. 25, 2004.

 263 According to some U.S. industry representatives, the possibility of GSP suspension is one of the most

powerful tools available to the U.S. Government in terms of intellectual property protection. The law authorizes the

President to suspend or revoke all or part of a country's GSP benefits if he determines that it denies adequate and

effective intellectual property protection to U.S. rightholders. IIPA representative, interview by USITC staff, Sept. 7,

2004; and testimony of Joseph Papovich, RIAA, Sept. 23, 2004.

 264 USPTO and USTR officials, FSI IPR course.

50

to detect counterfeiting and build legal cases for enforcing trademark law using the domestic legal systems

of the foreign countries involved.258 For instance, private investigators hired by companies whose

trademarks are infringed often engage in evidence gathering through video and sound recordings and

controlled purchases in countries where there is legal authority supporting the reliance on such types of

evidence. The International Chamber of Commerce established its own counterfeiting investigative unit in

1985, the Counterfeiting Intelligence Bureau (CIB), to provide services to industries exposed to

counterfeiting worldwide.259 CIB gathers and analyzes intelligence, investigates sources and distribution of

counterfeit products, provides expert advice and training, and provides sufficient evidence to police to

enable them to arrest infringers and seize counterfeit goods.260

Private U.S. firms adversely affected by piracy and counterfeiting are also taking advantage of

recent technical advances to counter such infringement in both the United States and important foreign

markets. Some technological means developed and increasingly used by U.S. industries for detecting and

impeding copyright and trademark infringement of their products include hologram and recognition

software, security papers, security labels, radio frequency identification, and digital watermarking.261 Such

technologies enable private or government enforcement officials to more easily identify counterfeits.

Private companies also are changing business strategies to address counterfeiting. For example,

pharmaceutical companies are having hospitals and other healthcare providers order directly from them or

through certified distributors.262

U.S. Government Efforts

When private efforts to address IPR infringement fail or where infringement problems seem

systemic in a country, the United States has a number of trade policy tools it can use to improve the IPR

climate in countries of interest. These include bilateral consultations, FTAs, withdrawal of benefits under

such programs as the Generalized System of Preferences (GSP),263 the Caribbean Basin Economic

Recovery Act (CBERA), the Andean Trade Preferences Act (ATPA), WTO accession negotiations, dispute

settlement proceedings, technical assistance, and other official means. In using these tools, the United

States tries to ensure that legislation, court decisions, and administrative bodies in foreign countries

effectively address IPR problems. Recent efforts using U.S. trade policy tools have especially focused on

encouraging other countries to make commercially based counterfeiting and copyright piracy criminal

offenses, with increased levels of fines and imprisonment, and to ensure that equipment used to make

counterfeits and pirated material is seized and destroyed.264 

The annual Special 301 review is another tool for IPR enforcement, which requires USTR to

identify foreign countries that deny adequate and effective protection of intellectual property rights or fair

and equitable market access for Americans that rely on intellectual property protection. Besides serving as
 265 Ibid.

 266 Testimony of John G. Malcolm, MPAA, Sept. 23, 2004.

 267 Testimony of Joseph Papovich, RIAA, Sept. 23, 2004.

 268 USTR, 2005 Special 301 Report, p. 8.

 269 Ibid.

 270 John G. Malcolm, MPAA, Sept. 23, 2004.

 271 USPTO and USTR officials, FSI IPR course.

51

a way to name foreign countries that do not protect intellectual property and possibly embarrass them into

making changes to their intellectual property regime, it also allows the U.S. Government to set priorities

and determine how to allocate its resources in combating global intellectual property problems.265 The

Special 301 process, including “out of cycle” reviews, also is an effective tool for industry to communicate

its priorities for combating intellectual property problems to the U.S. Government.266

Trade sanctions against countries that fail to comply with the TRIPS Agreement are provided for

under the WTO dispute settlement process.267 The United States has been involved in 9 out of 10 total

disputes regarding patents, but only once as a respondent. The most notable action of the United States in

the area of trademark and related protections was the initiation of a WTO dispute settlement case against

the EU, based on apparent TRIPS deficiencies in EC Regulation 2081/92, which relates to the protection of

geographical indications for food and agricultural products in the EC.268 Among the major issues of

concern to the United States is the regulation allowing dilution and cancellation of trademarks when a GI

is created later in time. In August 2003, the United States requested that a WTO dispute settlement panel

review the consistency of the EU regulation 2018/92 with WTO rules. On March 15, 2005, the WTO

released a panel report affirming the U.S. assertion that EC regulations discriminate against foreign owners

of GI’s, and that the EC cannot deny the rights of trademark owners.1

 The United States expects the EC to

adhere to the dispute settlement recommendation that it amend its GI regulation to come into compliance

with its WTO obligations.269 The United States will continue to monitor the situation and take stock of EU

compliance before an out-of-cycle review to be held in December 2005.

Even with all of these tools to combat foreign infringement of IPR, strategic diplomacy is often the

best way to get other countries to enforce intellectual property rights commitments.270 Many foreign

country leaders want to improve their intellectual property protection regimes to meet their trade

agreement obligations and to establish a prosperous business climate for their own economies. U.S.

Government agencies such as the U.S. Patent and Trademark Office, the U.S. Copyright Office, the U.S.

Justice Department, the U.S. Agency for International Development, and other Federal agencies provide,

coordinate, or fund education, training, and other technical assistance to help countries comply with

implementation of the TRIPS Agreement and with other international agreements.271 They also co-sponsor

programs with WIPO and under WTO technical assistance and capacity building programs, or cooperate

with private sector firms and organizations to provide such assistance. 

Summary and Outlook 

The primary purpose of this paper has been to review foreign IPR infringement affecting selected

U.S. industries, with a particular emphasis on patent, trademark, and copyright infringement. Although the

review primarily has been qualitative, some attempts to measure the effects of IPR infringement

quantitatively also have been reviewed.

The paper finds that (1) intellectual property protection is essential to encouraging creative

expression and the development of new products in a number of industries; (2) the development of

intellectual property-based products is generally far more expensive than their manufacture or duplication;
 272 Maskus, Intellectual Property Rights in the Global Economy, p. 88.

 273 Ibid.

 274 The first phase of an OECD study on counterfeiting and piracy plans will include development and elaboration

of a “methodological framework for assessing the effects of counterfeiting and piracy on stakeholders.” OECD,

Directorate for Science, Technology and Industry Committee on Industry and Business Environment, Counterfeiting

and Piracy: Industry Survey, DSTI/IND(2005)6, July 6, 2005, p. 9, found at http://www.oecd.int, retrieved

Sept. 22, 2005. 

52

(3) inadequate IPR protection leaves firms vulnerable to infringement, causing them to risk their

investment and reputations; (4) foreign IPR infringement likely results in billions of dollars in annual lost

revenues for U.S. industries; (5) current estimates likely understate the actual level of infringement; and (6)

more research is needed to better ascertain both the qualitative and quantitative effects of foreign IPR

infringement on U.S. industries and the economy. 

As we have seen, a major obstacle in analyzing the quantitative impact of inadequate IPR

infringement on U.S. industries is that, with few exceptions, hard data is lacking for many industries

affected by such infringement. Further, data provided by other organizations or individuals on the impact

of IPR infringement are neither comprehensive nor are they remotely comparable, limited often to 

(1) random single number estimates for an industry or product, (2) total revenues for an industry, or 

(3) the value of confiscated infringing goods imported into the U.S. market. No estimates are provided at

all for most industries. 

 From an economic modeling point of view, the economic effects of IPRs have been found to be

among the NTMs most difficult to measure, as they do not have obvious price-based equivalents like those

used to assess the effects of such things as tariffs and quotas.272 Moreover, whereas most research

conducted on tariffs and NTMs is concerned with trade liberalization, research on IPRs is concerned with

protection. Further complicating the situation is the fact that IPRs interact in complex ways with other

policies, such as antitrust and competition policies, which can impede quantitative analyses of the overall

economic impact of IPR protection policies.273 Therefore, much more economic research and analysis of

these complex interactions and how they might be measured needs to be undertaken before further

progress may be made in developing quantitative estimates of the impacts of inadequate foreign IPR

protection on U.S. industry.274