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Professor Peter Drahos explains the TRIPS Agreement gave multinational corporate owners of intellectual property rights a global form of private taxing power

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LYNN FRIES: Welcome to The Real News Network. I’m Lynn Fries in Geneva. This is part 5 of a series with Peter Drahos who is explaining the story of intellectual property linked to trade. Joining us from Australia, Peter Drahos is a Professor at the Australian National University, in the School of Regulation and Global Governance. He holds a Chair in Intellectual Property at Queen Mary, the University of London. Peter Drahos is co-author of Information Feudalism: Who Owns the Knowledge Economy? Welcome Peter. PETER DRAHOS: Thank you. FRIES: In Part 4 you talked about how the ownership of intellectual property rights is concentrated among very few key multinationals. And it’s these incumbent players that profit from the TRIPS Agreement. In what other ways did the globalization of intellectual property rights concentrate power in the hands of these multinationals? DRAHOS: One of the things that’s probably not fully appreciated about intellectual property rights is that they are a form of private tax. So that a patent owner or a copyright owner essentially can require a producer say in a developing country, to pay a licensing fee before they can use the relevant bit of intellectual property whether that is copying a book, making use of a film or making use of the patent. Essentially intellectual property rights are a form of private taxation on innovation which is why they should be minimized. When you globalize I intellectual property rights you essentially put in the hands of the owners of intellectual property rights a global private form of taxing power. That’s a pretty big form of power. Now this effect people in all countries. But in developing countries the cost of textbooks for example, has a severe impact on accessibility. And of course it’s not just textbooks in developing countries, students in the United States or Europe would probably be able to say a lot about the costs of textbooks they have to pay for. But chances are those students have more chances of paying for those textbooks than people in developing countries. So the basic point here is that if you globalize IPR you are in effect putting in the hands of multinational companies a form of private taxing power right across the board in relation to copyrighted goods, in relation to patented goods, in relation to trade marked goods. We can see that citizens essentially pay and pay again. Public taxes support a lot of research and development in US universities, European universities and Australian universities. So we have a lot of research and development that’s supported through public taxes. Now a lot of that research and development ultimately ends up being patented. Now through the patent system companies can levy private taxes as I said. Intellectual property rights are a form of taxation. So goods that are produced or innovation that’s produced at public expense is recycled through the intellectual property system and people in a sense pay the license fees, the private taxes, again. So it’s a form of double payment both public taxes and private taxes. And this happens all the time. Think of for example books that are produced by university academics and those academics are paid for by tax payers. And then those books end up being published by publishers who basically collect fees from universities that use those books or parts of those books in their various courses. So the problem of copyright cartels essentially obtaining very high profits from recycling textbooks that have been produced at public expense is a very severe problem. FRIES: An argument in favor of globalized IPR is that it’s needed for innovation. Talk about your views on that. DRAHOS: When we look at the history of innovation in most countries what we see is that public investment has played a hugely important role. That public institutes of research have been extremely important. Intellectual property is often confused with innovation but the explanation for innovation lies in states committing to the funding of basic research. And that’s true for the United States. If we look at the history of the United States, the federal government of the United States has really played a huge role in promoting excellence in universities in funding public research. Now intellectual property rights have some modest role in all of this. But the problem is that they’ve grown like topsy. They’ve grown out of control. These things march like Frankenstein through our economies. And that’s the real problem. My argument is not that there is no role for IPR but what to be recognized is that governments have to commit to using public taxes as they have in the past to funding basic research and to funding universities. And one of the great dangers in relying on the intellectual property rights system is that you are actually undermining public research, the very thing that historically has given us such great innovations whether in biotechnology or whether is areas of mathematics. The contribution of public research has been so profoundly important and now we are moving into a world where there is excessive reliance on intellectual property in the mistaken belief that intellectual property somehow promotes innovation. When in many senses intellectual property or the globalization of intellectual property is actually anti-innovation. One I think has to recognize the role of public investment in innovation. An obsession with intellectual property rights can have unexpected repercussions on research cultures. And I think many scientists would say that the research environment in universities is profoundly different to what it was thirty or forty years ago. I mean scientists when for example when they were working on recombinant DNA technology as they were in the early 1970s publicly spoke about the dangers of recombinant DNA technology and they spoke about some of the advantages. They were able to do this because they were working in public institutions. And in the United States public universities drove much of the research in recombinant DNA technology. Now I think if you spoke to those researchers many of them would say that these kinds of public discussions about the direction of research are much harder for our society to have because scientists worry about undermining the validity of a patent application for example. FRIES: And what’s the problem on relying on the international patent system? DRAHOS: There are many complicated problems around patents. And one of the big problems is that patents tend to serve people who can afford to pay. Now if the patented commodity is a tennis racket that’s not such a big problem. But if the patented commodity is a medicine that is a big problem because patents drive up the costs of medicines. And the way that preferences are measured is through the ability to pay. And of course billions of people in the world do not have the ability to pay for patented medicines. So in essence the patent system is picking up the preferences of predominantly wealthy citizens which is why many diseases, tropical diseases, are essentially not researched. Because the markets in those patented medicines are not big enough. There are not enough incentives for pharmaceutical companies to enter those particular markets. So relying on the patent system to serve the entire globe, all the citizens of the world, is essentially flawed. FRIES: It’s not hard to see the critical need for public institutes of research but they are state funded and states are collecting less taxes. Which brings us to the role of intellectual property rights in tax avoidance games. Tell us about that. DRAHOS: One of the issues that’s confronting all countries is raising sufficient revenue. Getting companies to pay sufficient taxes. Now at an international level a perennial problem has been the issue of transfer pricing. This is basically where a large company transfers a particular asset between its subsidiaries. So for example, a licensing agreement in which one part of the company licenses another part of the company to produce a particular good. Now the whole idea behind transfer pricing from a company’s point of view is that in those countries where the tax is high, the particular subsidiary pays the most for the license. So in other words, it can claim the biggest costs for the purposes of the taxation system in that country. Now in theory, tax departments require that companies value the transfer of assets for the purposes of transfer pricing at arm’s length. Now this can work fairly well in relation to physical goods such as factories for example, where it is reasonably easy to determine the value of what the sale of the factory really is. It is actually very difficult to value invisible, intangible property. Trying to value what a particular license, a patent license, is worth is quite a complicated problem for a tax bureaucracy. Now the transfer pricing problem has been around for decades. And tax departments all over the world have struggled with it. And it’s really led to this problem of fiscal degradation. The taxation games that are played around intellectual property rights ultimately harm all states whether they are rich or poor. So there is a lot of concern in the United States for example that intellectual property rights are being used to shift profits by US companies out of the US tax jurisdiction. So the US Congress for example, a few years ago heard of examples of licensing agreements in which Ireland for example was used as a conduit to land profits in various tax havens whether in the Bahamas or elsewhere. So the problem of using intellectual property rights to shift profits to deprive states of a proper share of public taxes is a problem for the United States as much as it is a problem for China or for India or for Australia. FRIES: We are going to break and be back with Part 6. Please join us as we continue our conversation with Peter Drahos. Peter Drahos, thank you. DRAHOS: Thank you. FRIES: And thank you for joining us on The Real News Network.


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Peter Drahos is Professor of Law and Governance in the Law Department at the European University Institute, Florence. He holds a Chair in Intellectual Property at Queen Mary, University of London. He is a member of the Academy of Social Sciences in Australia. In 2004 he and his co-author Professor John Braithwaite won the Grawemeyer Award in Ideas Improving World Order for their book Global Business Regulation.