Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism

for chemical substances (as opposed to chemical processes). The reasoning was that those substances, unlike mechanical inventions, already existed in nature and, therefore, the ‘inventor’ had merely found a way to isolate them, rather than inventing the substance itself. Chemical substances remained unpatentable in Switzerland until 1978.

Switzerland was not the only country at the time without a patent law. The Netherlands actually abolished its 1817 patent law in 1869, not to introduce it again until 1912. When the Dutch abolished the law, they were in no small measure influenced by the anti-patent movement I mentioned above – they were convinced that patent, as artificially created monopoly, went against their free-trade principle.[25] Exploiting the absence of a patent law, the Dutch electronics company, Philips, a household name today, started out in 1891 as a producer of light bulbs based on the patents ‘borrowed’ from the American inventor, Thomas Edison.[26]

Switzerland and the Netherlands may have been extreme cases. But throughout much of the 19th century, the IPR regimes in today’s rich countries were all very bad at protecting foreigners’ intellectual property rights. This was partly the consequence of the general laxity of early patent laws in checking the originality of an invention. For example, in the US, before the 1836 overhaul of its patent law, patents were granted without any proof of originality; this encouraged racketeers to patent devices already in use (‘phony patents’) and then to demand money from their users under threat of suit for infringement.[27] But the absence of protection for foreigners’ intellectual property rights was often deliberate. In most countries, including Britain, the Netherlands, Austria, France and the US, patenting of imported invention was explicitly allowed. When Peter Durand took out a patent in 1810 in Britain for canning technology, using the Frenchman Nicolas Appert’s invention, the application explicitly stated that it was an ‘invention communicated to me by a certain foreigner’, then a common proviso used when taking out a patent on a foreigner’s invention.[28]

‘Borrowing’ ideas was not simply done in relation to inventions that could be patented. There was also extensive counterfeiting of trademarks in the 19th century – in a manner similar to what was subsequently done by Japan, Korea, Taiwan and, today, China. In 1862, Britain revised its trademark law, the Merchandise Mark Act, with the specific purpose of preventing foreigners, especially the Germans, from making counterfeit English products. The revised act required the producer to specify the place or country of manufacture as a part of the necessary ‘trade description’.[29]

The law underestimated German ingenuity, however – the German firms came up with some brilliant evasive tactics.[30] For example, they placed the stamp indicating the country of origin on the packaging instead of on the individual articles. Once the packaging was removed, customers could not tell the product’s country of origin. This technique is said to have been particularly common in the case of imported watches and steel files. Alternatively, German manufacturers would send some articles, like pianos and bicycles, over in pieces and have them assembled in England. Or they would place the stamp indicating the country of origin where it was practically invisible. The 19th-century British journalist Ernest Williams, who wrote a book about German counterfeiting, Made in Germany, documents how ‘One German firm, which exports to England large numbers of sewing-machines, conspicuously labeled ‘Singer’ and ‘North-British Sewing Machines’, places the Made in Germany stamp in small letters underneath the treadle. Half a dozen seamstresses might combine their strength to turn the machine bottom-upwards, and read the legend: otherwise it would go unread’.[31]

Copyrights were also routinely violated. Despite its currently gung-ho attitude towards copyright, the US in the past refused to protect foreigners’ copyrights in its 1790 copyright law. It only signed the international copyright agreement (the Berne Convention of 1886) in 1891. At the time, the US was a net importer of copyright materials and saw the advantage of protecting only American authors. For another century (until 1988), it did not recognize copyrights on materials printed outside the US.

The historical picture is clear. Counterfeiting was not invented in modern Asia.When they were backward themselves in terms of knowledge, all of today’s rich countries blithely violated other people’s patents, trademarks and copyrights. The Swiss ‘borrowed’ German chemical inventions, while the Germans ‘borrowed’ English trademarks and the Americans ‘borrowed’British copyrighted materials – all without paying what would today be considered ‘just’ compensation.

Despite this history, the Bad Samaritan rich countries are now forcing developing countries to strengthen the protection of intellectual property rights to a historically unprecedented degree through the TRIPS agreement and a raft of bilateral free-trade agreements. They argue that stronger protection of intellectual property will encourage the production of new knowledge and benefit everyone, including the developing countries. But is this true?

Making Mickey Mouse live longer

In 1998, the US Copyright Term Extension Act extended the period of copyright protection from ‘life of the author plus 50 years, or 75 years for a work of corporate authorship’ (as set in 1976) to ‘life of the author plus 70 years, or 95 years for a work of corporate authorship’.Historically speaking, this was an incredible extension in the period of copyright protection from the original 14 years (renewable for another 14 years) laid down by the 1790 Copyright Act.

The 1998 act is derisively known as the Mickey Mouse Protection Act, from the fact that Disney was heading the lobby for it in anticipation of the 75th birthday of Mickey Mouse, first created in 1928 (Steamboat Willie). What is particularly remarkable about it is that it was applied retrospectively. As should be immediately obvious to anyone, extending the term of protection for existing work can never create new knowledge.[32]

The story does not end with copyrights. The US pharmaceutical industry has already successfully lobbied to extend de facto patents by up to eight years, using excuses like the need to compensate for delays in the drugs approval process by the FDA (Food and Drugs Administration) or the need for data protection. Given that US patents, like copyright, used to be for only 14 years, this means that the pharmaceutical industry has effectively doubled the patent life for its inventions.

It is not just in the US that the terms of IPR protection have been lengthening. In the third quarter of the 19th century (1850–75), the average patent life in a sample of 60 countries was around 13 years. Between 1900 and 1975, this was extended to 16 or 17 years. But recently the US has played the leading role in accelerating and consolidating this upward trend. It has now made its 20-year term for patent protection a ‘global standard’ through enshrining it in the World Trade Organisation’s TRIPS agreement – the 60-country average stood at 19 years as of 2004.[33] Anything that goes beyond TRIPS, such as the de facto extension of drug patents, the US government has been spreading through bilateral free-trade agreements. I know of no economic theory that says that 20 years is better than 13 years or 16 years as the term of patent protection from social point of view, but it is obvious that the longer it is, the better it is for the patent- holders.

As the protection of intellectual property rights involves monopoly (and its social costs), extending the period of protection clearly increases those costs. Lengthening the term – like any other strengthening of IPR protection – means that society is paying more for new knowledge. Of course, those costs may be justified if the term extension produces more knowledge (by strengthening the incentive for innovation), but there is no evidence that this has been happening – at least not enough to compensate for the increased costs of protection. Given this, we need to carefully examine whether the current terms of IPR protection are appropriate and shorten them if necessary.

Sealed crustless sandwiches and turmeric

One basic assumption behind IPR laws is that the new idea that is awarded protection is worth protecting.This is why all such laws demand the idea to be original (to possess ‘novelty’ and ‘non-obviousness’, in the technical jargon). This may sound incontrovertible in abstract terms, but it is more difficult to put into practice, not least because investors have an incentive to lobby for lowering the originality bar.

For example, as I mentioned when discussing the history of Swiss patent law, many people believe that chemical substances (as opposed to the process) are not worthy of patent protection, because those who have extracted them have not done anything really original. For this reason, chemical and/or pharmaceutical substances could not be patented in most rich countries – such as Germany, France, Switzerland, Japan and the Nordic countries – until the 1960s or the 1970s. Pharmaceutical