INTELLECTUAL PROPERTY AND ECONOMIC DEVELOPMENT:
OPPORTUNITIES FOR CHINA IN THE INFORMATION AGE
by
"In the enthusiastic advocacy of intellectual property rights by China’s trade, industry, science, culture, and propaganda officials and their legal commentators, we have heard the gongs and drums of the approaching pageant of an ambitious global competitor, an information proprietor and user of the 21st century."1
Since China launched major economic reforms in the late 1970’s, its economy has experienced tremendous growth.2 This fact is well-known and widely respected in the international community.3 Much of China’s economic reform, as well as much of the economic development resulting from this reform, has been in the agricultural and manufacturing sectors of the Chinese economy.4 The information sector of the Chinese economy, although it has grown in recent years, remains a sector with a far greater potential for growth than has occurred to date.5
Intellectual property law can help fulfill China’s further aspirations for growth of its economy. As Dr. Gao Lulin has observed, "[t]hough there is no doubt that many factors contributed to the rapid development of the Chinese economy, the favorable legal situation for intellectual property assumes an ever-increasing importance in stimulating economic development."6 This is especially true for the information sector of China’s economy because markets for information products and services can only thrive when intellectual property rights are secure.
A. Intellectual Property Will Promote China’s Growth
At the moment, the Chinese people are, as Professor Alford has observed, "the greatest victims of the infringement of intellectual property [rights]."8 Physical harm sometimes befalls those who ingest adulterated, counterfeit pharmaceutical products, and consumers feel cheated when they pay substantial sums for counterfeit goods that they believed to be genuine.9 By enabling consumers to return fake goods for a refund and a reward, China has taken an innovative approach to deter such counterfeiting and to induce commercial enterprises not to deal in fake goods.10
Consumer injuries are, however, far from the only ways that the Chinese people have been victimized by infringing acts. Infringement also damages China’s efforts to promote innovation and economic growth in its economy. As Professor Alford explains:
Emerging entrepreneurs are all too often unable to realize the fruits of their innovation. Businesses and educational centers find that the costs of needed foreign technologies and materials have risen to take account of infringement, if they are even available. The reassertion of artistic creativity…is threatened as authors and other artists are unable to collect royalties needed to sustain themselves in the absence of the state support they once enjoyed.11
Thus, innovative firms and creative individuals in China have sometimes been unable to fulfill their potential because meaningful protection for intellectual property has not always been available.
The Chinese government has, of course, has made substantial progress toward addressing these problems by: (1) adopting internationally recognized intellectual property laws; (2) committing itself to strengthening the enforcement of rights under these laws; and (3) establishing programs for training judicial and administrative officials about intellectual property rights. This includes training that will occur at the China Intellectual Property Training Center whose opening we celebrate at this conference.12
More difficult to achieve, but still important to attempt, is nurturing broader public acceptance of and respect for intellectual property rights. It is important to understand that prosperity in the emerging global information economy depends in substantial part on the strength of information industries which, in turn, depends on respect for intellectual property rights.13 The link between respect for intellectual property rights, on the one hand, and economic development and prosperity likely to flow from intellectual property protection, on the other hand, is not always easy to perceive.14 But there is reason to be optimistic that, as this becomes more evident throughout China, the prospect of long-term benefits will induce people to forego the short-term benefits of using illicit copies.
B. Other Factors Affect Information Economy Growth
As important as it is to adopt, enforce, and cultivate respect for intellectual property rights, more will need to be done to promote the growth of China’s information economy than just these steps. Strong information economies also depend on a highly educated and skilled workforce, the availability of capital, rules that permit firms to efficiently organize their production, distribution, and marketing of information products, broad availability of communications and information technologies, and strategic information systems that support commerce and financial markets more generally.15 These are among the key elements of an infrastructure to support economic development in information industry sectors. For China, it will also be a complex process to evolve appropriate social institutions and policies to support private property in intellectual property.16
Paying attention to the infrastructure necessary to support economic development in information industry sectors is important because it avoids over-simplistic thinking. Adopting intellectual property laws and making certain commitments about enforcement will not inevitably induce growth of local information industries nor will it automatically attract foreign investment into a developing country.17 Other infrastructure elements must be present to support investments in information industries. For some developing countries, the lack of other infrastructure elements may make the social costs of strengthened intellectual property protection higher than the benefits to be reaped.18 However, China has already made so much progress in developing the infrastructure for creative enterprises that its prospects for successfully inducing economic growth through strengthened intellectual property rights are very good.
Among the most significant steps that China has taken to assess and improve its information infrastructure is reform of its telecommunications sector.19 World Bank studies have shown that "[t]here is a positive correlation between economic development and telecommunications density, and some studies even claim that a causal relationship exists in both directions."20 This should be very good news for those parts of China that have recently experienced high growth in telecommunications services.21 There is some hope that information technologies might enable China and other developing economies to "leapfrog" from a predominantly agricultural to an informational economy.22 Even if this hope is not fully borne out, improvements in the telecommunication sector in China will surely promote more efficient industrialization as well as laying the groundwork for eventual flourishing of China’s information industries.23
The primary "lesson learned" from countries that have achieved substantial growth in their information industries is that the private sector is "the primary engine of the information economy."24 Partnerships between the public and private sectors to facilitate investments in specific projects can be helpful, but the government alone cannot build the infrastructure for an information economy.25 Nevertheless, government policy planning is necessary to promote the growth of information sectors of national economies, particularly in developing countries such as China where information industry sectors are far from mature.26 Planning and implementing strategic plans for an information economy is challenging work, in part because it sometimes requires governments to leave the development of some infrastructure elements to private sector initiatives.27 Countries that want to be leaders in the global information economy have no choice but to engage in these complex planning activities.
II. TAILORING INTELLECTUAL PROPERTY RIGHTS TO PROMOTE INNOVATION
China has already developed a substantial body of intellectual property law. Now it faces the challenge of applying and refining its laws so that they promote innovation and an optimal degree of economic development. So much attention has been given to advocacy of strengthened intellectual property rights in China that it may seem strange to say that "stronger" intellectual property rights are not always "better" intellectual property rights. But this is true at least for societies that seek to promote innovation over time. Intellectual property rights can, of course, be too weak, and when they are, this can be harmful to economic growth. However, intellectual property rights can also be too strong, and this too can stifle economic development.
No one would, for example, seriously contend that doubling the term of patent protection would inevitably bring about twice as much invention or investment in technological innovation. Nor would anyone seriously contend that extending copyright protection to the ideas in literary works will induce a spectacular burst of creative work. Because innovation is an ongoing, cumulative, and dynamic process, strengthening intellectual property rights can sometimes impede this process, and when this occurs, this can be harmful to economic development. In recognition of this, intellectual property laws have to guard against two things at the same time. It must avoid giving so little protection to innovation that prospective innovators will decide not to engage in research and development because the prospect of reward is too uncertain or paltry (i.e., a state of "underprotection" for intellectual products). It must also avoid giving so much protection to the first innovator in a field that the first innovator blocks development of socially beneficial new creations that build upon the first creator’s work (i.e., a state of overprotection).28 Well-designed intellectual property laws balance society’s interests in inducing initial creations against its interests in inducing follow-on creation.
A. How Intellectual Property Laws Achieve Balance
Intellectual property regimes contain numerous mechanisms for maintaining this delicate balance. For example, one reason that patent laws require inventors to precisely define the nature of their invention is to ensure that the patents leave room for follow-on innovation.29 Patent laws also facilitate follow-on innovation by compelling inventors to disclose specific details about how to make their inventions as a condition of receiving a patent so that others will have a chance to read and use this knowledge in ways that do not infringe the patent.30 In addition, patent laws typically allow follow-on inventors to patent their nonobvious improvements on an existing invention owned by someone else.
In trade secrecy law, the balance between initial and follow-on innovation is accomplished, in substantial part, by recognition of the legitimacy of reverse engineering.31 Reverse engineering is the process of "starting from the known product and working backward to divine the process which aided its development or manufacture."32 When the known product has been lawfully acquired (e.g., legally purchased) and is not protected by other legal regimes (e.g., by patent or copyright law), reverse-engineering is regarded as a socially valuable activity that encourages fresh innovation.33
In copyright law, the societal interest in a balanced approach to inducing initial and follow-on innovation is maintained in a number of ways. Chinese copyright law, like American copyright law, contains a purpose provision indicating that this law is intended to promote innovation.34 Among the rules of copyright law that facilitate ongoing innovation are: (1) the idea-expression distinction, (2) creativity-based originality standards for copyright protection, and (3) certain exceptions or limitations to the rights of authors, such as the right of fair quotation recognized in the Berne Convention for the Protection of Literary and Artistic Works (of which China is a member).35
B. The Idea-Expression Distinction
Because the principal products of the information economy are likely to be primarily protected by copyright laws,36 maintaining balance in copyright law in order to foster innovation is very important. The distinction between "expressions" which copyright protects and "ideas" which copyright does not protect is an important way this balance is achieved. In reviewing Chinese copyright law sources to learn how it deals with ongoing innovation issues, I observed that China’s copyright statute does not contain a provision explicitly stating that copyright protection extends only to expression and not to ideas, processes, methods or facts. However, its regulations for the protection of computer software state that copyright protection for software "cannot be expanded to encompass the ideas, concepts, discoveries, principles, algorithms, processing methods and operations used in the development of software."37
Does this mean that the ideas and methods in non-software works of authorship can be protected under Chinese copyright law? The answer to this question is surely no, as Chinese sources clearly reveal. A review of Chinese caselaw reveals that courts have denied copyright claims in some instances because the second author had only taken facts or ideas from the first author’s work, not his expression.38 Commentary by Chinese authorities also states that China’s copyright law only protects the expression of authors, not their ideas.39 Moreover, China participated in the deliberations leading up to the adoption of the World Intellectual Property Organization (WIPO) Copyright Treaty in Geneva in 1996 that included a provision endorsing the principle that "[c]opyright protection extends to expressions, and not to ideas, procedures, methods of operation or mathematical concepts as such."40 The Berne Convention, which has long been the most significant international treaty on copyright protection, may have previously been silent about the idea-expression distinction, but this distinction has long been a part of the mature copyright systems governed by that Convention.41
Unfortunately, the idea-expression distinction is sometimes easier to articulate than to apply. When the most valuable aspects of a copyrighted work are its ideas, facts, or processes,42 copyright owners will sometimes assert that an aspect of a work is expressive in order to get protection for it. Adopting this stratagem may be tempting partly because the distinction between ideas and expressions, while clear in the abstract, does not always shimmer with clarity in the context of any particular dispute.
Yet, that temptation should be resisted. Were it not for copyright law’s denial of protection to ideas, processes, methods of operation, and other functionally constrained designs, competition and ongoing innovation in copyright-dependent industries would be seriously curtailed. For example, some years ago Apple Computer tried to stop Microsoft Corp. from distributing the Windows operating system program, alleging that the "look and feel" of Windows infringed Apple’s copyright in the user interface for its Macintosh home computer. Apple sought five billion dollars in damages from Microsoft for this alleged infringement.
Courts in the U.S. gave several reasons for deciding that Microsoft did not infringe the Apple copyright.43 Microsoft had licensed some aspects of the Macintosh interface from Apple. Other aspects, such as zooming animation when a user clicked on an icon to open or close a file, were found to be unprotectable procedures, rather than the expressions of an author. Still other aspects of the Macintosh interface, such as the overlapping window design, were unprotectable due to the narrow range of expression possible for ideas about user interface windows.
A ruling in Microsoft’s favor not only enabled Microsoft to compete with Apple on the merits of their user interfaces. It also enabled follow-on innovation by Microsoft and Hewlett-Packard, among others, which improved user interface designs. Competition and innovation similarly occur in other copyright-dependent fields, as for example, when new works are created drawing upon facts, theories, and discoveries of pre-existing factual works and as when engineers borrow concepts from other engineers’ drawings and designs.44
A case such as Apple v. Microsoft would likely be resolved the same way under Chinese law. This is because Chinese copyright law also excludes ideas and procedures from the scope of protection available from copyright law45 and because its software regulations recognize that similarities in computer programs should not be infringing when only "limited categories of expression" are possible.46
The Chinese software regulations also have relevance for the "interoperability" concerns that have been widely debated in the international arena. The term "interoperability" refers to the technological necessity for a computer programmer who seeks to develop a program that will successfully interoperate with another program to make use of details of the other program’s interface in constructing a second program that can successfully exchange information with the first program so as to execute the desired commands.47 Courts in the U.S. and policymakers in the E.U. have decided that the first program’s interface limits the range of expression available to the second programmer, and that competition and innovation in computer program markets can best be achieved by leaving program interfaces unprotected by copyright law.48 China’s software regulations will enable it to follow the examples of the E.U. and the U.S. on this interoperability issue, should it wish to do so.49
C. Limitations on Exclusive Rights Can Promote Innovation
Ongoing innovation can also be nurtured by careful application of exceptions and limitations to copyright law.50 For example, China’s copyright law, like the copyright law of the United States, protects engineering drawings and descriptions. It does not, however, confer upon the drafter an exclusive right to control the manufacture and sale of any engineered product depicted in the drawing.51
Among the other limitations or exceptions to copyright that can promote innovation are the fair quotation and fair use doctrines of Chinese and other national copyright laws.52 New ideas emerge as subsequent authors make transformative uses of portions of pre-existing works in the course of commenting on earlier works.53 Recent Chinese interpretations of its fair quotation rule are consistent with international standards. For example, the author of a book about the last emperor of China successfully invoked China’s fair quotation rule in defending against a copyright claim in an unpublished diary because it satisfied the three criteria used in judging fair quotations under Chinese law.54 Those criteria were not, however, satisfied in another case in which a playwright reproduced the menu of a famous Peking duck recipe in a dramatic play.55
Although China does not presently have a general fair use provision akin to that in U.S. copyright law, it might want to consider adopting such a rule. In times of rapid technological change, a general fair use doctrine gives the courts some flexibility in applying copyright law to respond to situations not foreseen by lawmakers in a balanced way.56 In the United States, for example, the fair use doctrine helped the U.S. Supreme Court decide how to deal with a new technology issue that the U.S. Congress had not considered in enacting copyright law, namely, whether home videotaping of movies from broadcast television was fair use. After weighing various factors and balancing the competing interests, the U.S. Supreme Court in Sony Corp. of America v. Universal City Studios decided that such taping was fair use.57 Even though the motion picture industry initially tried to stop the sale of videotape machines, the widespread availability of these machines opened up vast new markets for videocassettes. This brought substantial benefits to the motion picture industry whose fears of this new technology turned out to be unfounded.
While the private use exception in Article 22 of China’s copyright law might allow the kind of home taping involved in the Sony case, it is less clear whether this or other exceptions in Article 22 would have sufficient flexibility to deal with other challenging new technology issues. How, for example, would Chinese courts to deal with the new technology question posed in the Lewis Galoob Toys v. Nintendo of America case?58 Galoob’s "Game Genie" was a device that enabled consumers to temporarily change the audiovisual display of Nintendo games, for example, by increasing the number of lives of a fictional videogame character.59 Nintendo alleged that use of the Game Genie infringed the derivative work rights in its games. Congress had never contemplated this issue nor was there any close precedent, so the U.S. courts used fair use to balance the interests of the videogame copyright owner, the maker of the Game Genie, and the public. The courts decided that no infringement had occurred.
Fair use has also proved useful in dealing with another controversial interoperability issue: whether developers of computer programs can lawfully "decompile" programs of their competitors for the purpose of discerning details of the other program’s interface in order to develop a new noninfringing program that will interoperate with the other program. (Decompilation inevitably requires making some copies of the text of a computer program.) A number of decisions in the U.S. have invoked fair use to allow decompilation for purposes of achieving interoperability.60 The European Union, whose member states do not have U.S.-style fair use rules, reached the same result, although it did so by a different route, that is, by adopting a special exception to legalize decompilation for interoperability purposes.61 In early 1997, Hong Kong considered adopting an EU-style special exception for decompilation, but was persuaded by U.S. industry groups and officials that a fair use rule was a preferable way to balance the interests at stake when decompilation occurs.62 This suggests that China could adopt a general fair use provision to achieve the same goals of promoting innovation and competition in a balanced way.
D. Competition Policy
The decompilation-to-achieve-interoperability issue is one of many intellectual property issues that have profound implications for innovation and competition in market economies. Some commentators suggest that as China’s market economy develops, it will need to adopt a law to regulate and preserve competition.63 One professor thinks that the "European experience with competition law may be of significant value to the Chinese…who are faced with decisions about whether to introduce competition legislation, how to shape it, and how to implement it."64 The European civil law tradition has much in common with China’s legal tradition. The experience of European and other mature market economies teaches that firms with dominant positions in specific markets will sometimes abuse their dominant position in a way that harms competition in that market, for example, by adopting measures that will unreasonably exclude competitors from the market.
That such abuses may sometimes occur in the licensing of intellectual property rights is illustrated by the important decision of the European Court of Justice in the Magill case. In Magill, a British firm claiming copyright in a collection of television program listings denied an Irish firm’s request to license the listings to prepare a weekly guide for the Irish market. The Irish firm complained that this was an abuse of the British firm’s dominant position. The European Commission and the European Court of Justice ruled in favor of the Irish firm. The British firm was ordered to license the listings to the Irish firm for a reasonable royalty.
Some jurisdictions also have rules in their intellectual property laws that make misuse of intellectual property rights illegal, even when firms engaging in misuse do not have enough market power to have violated antitrust or competition laws. The Agreement on Trade-Related Aspects of Intellectual Property Rights expressly recognizes the legitimacy of invoking competition law to curtail such abuses of intellectual property rights.68
III. CONCLUSION
"Innovation is the soul of a nation’s advance and the eternal driving force for national prosperity." 69
China has made great strides in reforming its economy and becoming a major force in the world economy. It has also made great progress in adopting and enforcing intellectual property rights. Continued progress along this path is necessary if China is to develop a strong and innovative information industry sector, as well as to become a leader in the global information economy. Nurturing innovation and growth of domestic information industries in China will be a complex and challenging task. The potential rewards of successfully accomplishing this goal surely suffice to make pursuit of this goal worthwhile.