Microsoft

Microsoft

Response to Patent Office Consultation on the Report of the Commission on Intellectual Property Rights

Microsoft welcomes this opportunity to respond to the Patent Office consultation on the Commission on Intellectual Property Rights (CIPR) report entitled Integrating Intellectual Property Rights and Development Policy. As a leading software developer with millions of customers and thousands of industry partners, employees and contractors located in developing nations, Microsoft has a vital interest in promoting economic growth and sound intellectual property (IP) policies in the developing world. Microsoft is also keenly aware of the challenges facing developing nations and invests considerable resources in helping developing world populations surmount these challenges.

The CIPR report's basic premise - that copyright and other IP rights are antithetical to the interests of the developing world - constitutes a dramatic departure from established Government policy. If adopted, the report's recommendations would seriously undermine developing world efforts to become significant producers, rather than just consumers, of software and other IP. Such a result would isolate developing nations from many IP-based sectors of the global economy and reverse decades of work by the UK and other nations to harmonise IP laws in order to provide a basic, internationally consistent level of protection for creative works and inventions.

Adoption of the report's conclusions would also harm UK authors and inventors by rendering their IP significantly more susceptible to piracy in developing nations - piracy that would almost certainly infiltrate developed world markets as well. As a result, UK firms would have strong incentives not to distribute their works in the developing world or to establish research facilities or other technology transfer mechanisms in these markets.

Although the CIPR report's conclusions encompass a broad range of issues and industries, this response addresses only those conclusions that are of greatest relevance to the software industry. Part I focuses on the report's broader recommendations, while Part II addresses certain specific proposals.

I. Responses to CIPR Report's General Recommendations

· Robust IP protection is critical to sustainable, long-term economic growth in the developing world.

Although the CIPR report accurately identifies certain root causes of developing world poverty - such as inadequate access to financial resources, lack of funding for education, institutional limitations, and underdeveloped technological and scientific capabilities - the report errs in concluding that weak IP protection will help solve these problems. Authors and inventors depend on IP rights to protect the integrity and economic value of their works. This is equally true for creators located in the developing world. Without robust IP protection, developing-world firms and entrepreneurs will lack the financial incentives to invest in IP-based innovation on a sustained basis, as they will be unable to recoup these investments in the marketplace. Strong IP protection is also a critical driver of foreign and domestic funding for research and development, technology transfer projects, and improvements to telecommunications infrastructure, all of which are crucial to economic progress in the developing world.

Where developing nations have pursued IP education and enforcement efforts, software firms and other industries that rely on innovation and IP protection have often prospered. For instance, a recent International Data Corporation study found that where developing nations strengthened their IP laws and stepped up enforcement efforts - for example, in Argentina, Brazil, Chile, China, Colombia, Costa Rica, Czech Republic, India, Malaysia, Mexico, and South Africa - local information technology industries experienced rapid growth, many at a pace that exceeded the corresponding growth rates in several developed nations. Similarly, a recent study of ten Eastern European countries found that, while the software industry in these countries already generated 137,000 direct jobs and indirectly accounted for a further 575,000 jobs in 2000, those figures could more than double by 2004 if these countries succeeded in reducing software piracy to the Western European rate of 34 percent. These and similar data demonstrate that all nations, regardless of their stage of development, can benefit from strong IP protection.

The adoption of weak IP regimes by developing nations, by contrast, would jeopardise IP-based industries and investments and force developing world populations to rely even more heavily on IP developed in other countries. Weak IP regimes are also likely to prompt developing world inventors and innovators to emigrate to jurisdictions with stronger IP protection so as to maximise their opportunities to realise the full economic value of their intellectual contributions. Such a "brain drain" of the best and brightest from developing nations - which is already a significant problem for many countries - will only exacerbate the economic challenges facing the developing world.

In short, the CIPR report fails to recognise the extent to which nations at every level of development need robust IP regimes to generate creativity, innovation and employment opportunities. As knowledge-based industries continue to grow and prosper, respect for IP will be an increasingly essential element for sustainable, long-term economic growth in the developing world.

· Strong IP protection is essential to integrating the developing world fully into the global economy.

The ultimate goal of any realistic effort to eradicate developing world poverty must be to integrate developing nations as fully as possible into the global economy. The explosive growth of the Internet has, in many ways, made this goal more achievable, as the Internet facilitates collaboration between firms and workers located in different countries and allows developing world businesses to distribute digital content and provide online services to customers anywhere at virtually no cost. Such a global digital marketplace will emerge, however, only if built upon a bedrock of strong, harmonised IP rules.

The CIPR report's support for weak IP protection, by contrast, invariably perceives developing nations as consumers of software and other IP, rather than as active producers of such IP. This is a short-sighted perspective that will only reinforce developing nations' reliance on technologies developed elsewhere. A country that does not protect IP domestically ensures that local software developers and other innovators will be unable to sell their own IP for a profit and accumulate the funds necessary to build strong domestic businesses, let alone enter foreign markets. Without the incentives to creativity offered by robust IP protection, countries with weak IP regimes will be unable to attract foreign technologies or retain innovative talent, leaving them few alternatives but to become piracy havens with little to offer on the global marketplace but cheap imitations of existing technologies.

The CIPR report itself recognises that many mechanisms besides weak IP protection exist for promoting developing world access to and use of IP. These mechanisms - which Microsoft fully supports - include the use of tax-based and other incentives by developed-world governments to facilitate technology transfer to developing nations, the provision of additional public funding to promote scientific and technological capabilities in the developing world, and the implementation of laws that would encourage unfettered access to the results of publicly funded research. Each of these mechanisms is preferable to weak IP laws because each would promote developing world access to and utilisation of IP in a manner that did not simultaneously destroy the economic incentives for local IP-based innovation.

· Support for strong IP protection is a cornerstone of international law as well as UK trade and development policy.

The vital link between IP protection and economic growth constitutes a pillar of UK and EU trade and development policy. Several EU legal instruments - including the Software Directive, the Database Directive, the recently enacted Copyright Directive, the proposed Directive on software patents, and many others - reflect the high priority given to IP protection throughout the EU. Likewise, UK legislation and practice has traditionally recognised the importance of strong IP protection. The CIPR report's recommendations, if adopted, would encourage developing nations to implement IP regimes that are incompatible with existing rules governing IP protection and enforcement in the UK, which would serve only to frustrate, rather than facilitate, technology transfer and trade between the UK and the developing world.

Adoption of the CIPR report's recommendations would also undermine years of effort by the Government to promote internationally harmonised IP rules. The WTO TRIPS Agreement, the WIPO Copyright Treaty and Performances and Phonograms Treaty, and countless other trade agreements and international legal instruments to which the UK is a party reflect the tremendous resources the Government has invested in promoting international trade and development through harmonised IP rules. Adoption of the CIPR report's recommendations would violate the spirit, if not also the letter, of many of these international legal instruments and place Government policy on this issue at odds with that of many of the UK's most important trading partners.

· Weak IP protection will not solve the challenges facing the developing world.

The CIPR report's basic hostility to IP appears to be grounded in the belief that weak IP laws are necessary to ensure adequate developing world access to protected works and inventions. At least with respect to software, this position is doubtful as an empirical matter. In many developing nations, Microsoft and many other software firms already offer their products to educational institutions and other key customer segments at very low cost. Moreover, the use of unlicensed software in many of these countries already exceeds 50 percent, and in several nations that figure is closer to 70 or even 90 percent. Thus, it seems unlikely that further scaling back IP protection will have any significant impact on the use of software or other protected works in the developing world.

The CIPR proposals specifically targeted at weakening IP protection for software seem equally unlikely to promote developing world prosperity. For instance, the report's recommendation that developing nations permit reverse engineering of software beyond that necessary for interoperability would place these nations' legal regimes at odds with those in the EU and many other nations, but - apart from removing legal obstacles to piracy - would do little to promote innovation or economic growth. Similarly, the report's proposal that developing nations promote the use of software licensed under terms that prohibit IP owners from charging royalties would provide few significant benefits to local users, but would make it exceedingly difficult for a local software development industry to take root or prosper.

The real challenge facing developing world populations is not access to software or other protected works, but learning how to use these resources effectively to become more productive, efficient and competitive. Microsoft, like many leading IT companies, donates substantial sums each year to IT training and education programs in the developing world. To the extent developed nations and donor institutions seek to promote developing world growth, they should focus on expanding developing world access to training and education programs, not on restricting the ability of creators to protect their works against piracy.

II. Responses to Specific Proposals

· The CIPR report's hostility to digital rights management technologies is misplaced and is contrary to international and EU law.

The CIPR report urges developing nations not to enact legislation protecting DRM technologies. Yet as the UK and other signatories to the WIPO Copyright Treaty have recognised, legal protection for DRM technologies is critical to protecting the rights of authors and performers in the digital environment and to the continued growth of e-commerce. DRM tools already provide the technical foundation for new online distribution models that will substantially increase the diversity of online content and the range of price/usage offerings available to developing world consumers. Moreover, IP-based firms and entrepreneurs in the developing world - particularly those that lack the resources to distribute their works in foreign markets through offline distribution channels - will increasingly need to rely on DRMs to protect their own valuable IP against theft. In short, DRM technologies will prove increasingly vital to e-commerce growth and IP protection in developed and developing nations alike.

As even a casual survey of online "hacker" sites reveals, however, virtually any DRM technology is ultimately vulnerable to circumvention. Although the CIPR report repeatedly seeks to invoke non-infringing rationales for developing countries to withhold legal prohibitions against circumventing DRM protections, the clear and undeniable fact is that most circumvention tools are used for one and only one purpose - to facilitate piracy. The CIPR report's suggestion that developing nations should nonetheless permit the circumvention of DRM technologies simply ignores this obvious truth and would place developing world legal provisions on this issue in direct opposition to the rules set forth in the WIPO Treaties, the EU Copyright and Software Directives, and UK law.

· Failure to provide effective enforcement procedures and remedies will promote piracy rather than creativity.

In addition to recommending the adoption of weak IP laws, the CIPR report also advises developing nations to scale back their IP enforcement efforts. The report specifically recommends that developing nations devote fewer resources to criminal enforcement and restrict the availability of civil injunctive relief against suspected IP infringers. As governments worldwide have recognised, however, IP rights are meaningless if they are not enforced. Thus, both the WIPO Copyright Treaty and the TRIPS Agreement require countries to implement enforcement procedures that permit effective action against infringement, including criminal remedies and effective procedures that deter piracy.

The availability of injunctive relief and criminal remedies are particularly vital to the software industry. Software developers often rely on civil ex parte injunctive procedures to identify infringers before they have the opportunity to erase or delete evidence of their illegal activities. And because civil procedures in many developing nations are time-consuming, cost-prohibitive, and largely ineffective against professional criminals, software developers are often forced to rely on criminal prosecutions by public authorities to deter rampant piracy of their products. Thus, the primary impact on developing nations that adopt the CIPR report's recommendations on scaled-back IP enforcement efforts will be to create additional incentives for piracy - to the detriment of these nations' own inventors, creators, and IP-based industries.

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Microsoft appreciates this opportunity to respond to the Patent Office consultation on the CIPR report. Questions regarding this response may be directed to Matt Lambert, Director of Government Affairs, Microsoft Ltd, 10 Great Pulteney Street, London W1R 3DG or mlambert@microsoft.com.