International cooperation on intellectual property

By Matthew Parish

New ideas, inventions, technology, literature and media are public goods. They make society as a whole better. Therefore people who create such things ought to have a financial incentive to do so. That is the idea underlying intellectual property: an exclusive legal right to use the products of one’s creative mind for a specific period of time. This right may then be licensed to others to use, for money. The challenge to preserving the public goods captured by the concept of intellectual property is international: copying ideas without the consent of the owner of the idea often takes place abroad. The domestic law of the residence of an investor may protect his or her intellectual property using civil and criminal law. But if somebody copies the invention on the other side of the world, there may be little one can do by way of remedy. The international law of intellectual property is intended to address that problem.

The traditional focus of the international law on intellectual property has been the question of how to ensure registration of an intellectual property right in one jurisdiction has legal effect in other jurisdictions in which it might otherwise be copied. It is normal that most types of intellectual property need to be registered with national government registries in order that legal protection attach to them. Patents and trademarks are two types of registrable intellectual property right. Is it therefore possible to create a legal regime whereby registration in one jurisdiction serves as an effective registration in other jurisdictions?

The mission of the World Intellectual Property Organization, a specialised agency of the United Nations based in Geneva, Switzerland, is to achieve precisely that. However there is an obstacle. Standards for registration of a patent (that is to say, a new technological invention) may vary around the world. There are issues of sovereignty involved: each nation has its own distinctive intellectual property law. Although there are moments for nations to harmonise their intellectual property legislation, national practice in being more or less liberal in registering different sorts of intellectual property inevitably varies. Some countries may accept patent applications more or less readily than others: it depends upon the practice of the registry in question.

By reason of these differing practices, no national intellectual property registry will accept registration in another country’s registry de jure as a valid registration in their registry. That would involve one country relying upon the judgments, skill and practices of another nation’s registry, as well as complete alignment of formal legal standards. This is too much to ask. The World Intellectual Property Organization therefore offers another solution to issues of cross-border patent registration.

In most countries’ intellectual property laws, a patent, once granted by the country’s patent registry, serves as a legally binding right to have the patented invention protected from copying or imitation. However the registry may need a substantial period of time to decide whether or not to grant the patent. It must cross-check the patent application against existing patents, and ensure that application meets the requisite legal standards of originality inter alia. This process takes years in practice, and every country has its own patent application procedure.

However most countries’ patent legislations have a mechanism for protecting an invention while the validity of a patent application is being assessed by a national registry. This Is called “patent pending” status, and it represents the period between the date the patent application is made and the date it is granted. During this period, a putative patent owner is entitled to sue upon the unconfirmed patent alleging infringement by another, and the Court will decide whether the patent is valid (rather than the Registry).

WIPO (World Intellectual Property Organisation) is established as an international organisation by international treaty. WIPO permits a patent applicant in any member state to file their national patent application with WIPO in Geneva. WIPO then translates a summary of the patent application, presented in a standard form, into one or more of the official languages of the organisation and transmits it to the patent registries of all WIPO’s member states, whereupon each member state registry and legal system Is supposed to afford the patent application “patent pending” status in their jurisdiction. It is important to observe what legal protection this does afford, and what protection it does not. Imagine that an information technology company in California applies to register a patent in California. It then registers this patent application with WIPO in Geneva. This means that the patent application will be afforded “patent pending” status in the other WIPO member states: for example in Russia and China. For a WIPO registration, the global patent pending status lasts for 18 months. This means that if a Russian company infringes the Californian company’s alleged patent in that 18-month period, then the Californian company can sue the Russian company in the Russian courts and ask the Russian courts to determine whether its patent application is valid under Russian law. Ditto, mutatis mutandis, a Chinese company, Chinese courts and Chinese law.

But a Russian or Chinese court decision will not then bind a non-Russian or non-Chinese registry, and neither a Russian nor a Chinese court decision will bind the registry in California or any company in the United States that might infringe the averred patent. Nor will a Russian or Chinese court decision bind anyone in any other WIPO member states. WIPO does not create a global system of intellectual property rules. Instead, what it does is to serve as a giant global postbox. Moreover a WIPO filing Is not the same as making an actual patent registry filing in every WIPO member state. A WIPO filing does not mandate any patent registry actually to examine the patent application. It just permits a patent applicant in one state to sue upon a patent application in the courts of another state for a period of 18 months, without prejudice to any defendant’s contention that the original patent application is not valid: a defence that can be run separately before the courts of every member state in which suit is initiated. Furthermore a WIPO filing will never end up with a patent registered in more than one member state. Separate applications must be made to each state’s patent registry for each jurisdiction in which one desires one’s patent to be registered.

What WIPO offers is therefore a relatively weak level of protection. Why do inventors (or more usually, companies whose employees invent things and assign the intellectual property rights to their employers) register with WIPO, rather than filing patent applications with every national patent registry? The answer is a raw cost-benefit analysis, the understanding of which is essential to appreciating WIPO’s success. The starting point to the analysis is to acknowledge that for the vast majority of patent infringements in the vast majority of countries, the prospect of patent infringement litigation in the courts of the jurisdiction of the infringing party is profoundly unattractive. The courts of most states are simply not good enough to enforce patents. They may be insufficiently sophisticated. They may be too slow. They may not issue effective injunctive relief. Their judgments may not be enforceable as a practical matter. They may be corrupt or biased.

Patent infringement litigation is one of the most sophisticated and technical areas of law, and many countries’ courts are simply not up to it. The same can be said about the majority of national patent registries. They may be slow, arbitrary in the way they make decisions, and lacking the highly skilled technical staff needed to examine patent applications. But patent applications are expensive, both in application fees to the registry and in patent attorneys’ fees. Those fees may have no outcome of value if the patent registry never rules upon the application; if it never even acknowledges the application (hence not according the “patent pending” status), and if the courts cannot reliably rule upon a patent infringement lawsuit even if the patient application is granted. Creative companies would spend the vast majority of their time doing nothing but retaining patent attorneys around the world, at massive expense, were they to follow this logic.

Next consider the following. Most cases of patent infringement tend to take place early in the commercial lifetime of the invention. That is because premiums upon copied ideas are highest when the new idea has just been released, and before lots of people have copied it (thereby reducing the price of the copied idea, as market economics would predict). The most egregious patent infringers, that make the most money from their illegal actions and thereby cause maximum damage to patent holders, do so early on after public release of the idea in question. What WIPO registration therefore grants to its registrants is the potential to sue for patent infringement (without any guarantee that the court will recognise the patent) in every jurisdiction of the world, during the period in which the most damaging and egregious patent infringements are likely to take place (the first eighteen months).

Given that WIPO registration costs only a few thousand US Dollars, this is a comparative bargain. True, the right to sue may be worthless in many or most states. But it could be useful upon occasion; and the fact that it exists deters intellectual property right infringements. Much of the value in the system of WIPO registration lies not in the various international lawsuits that registration permits, but instead in all the lawsuits that do not take place because the increased potential ease with which they can be pursued encourages putative intellectual property thieves not to steal. For a few thousand dollars – for modern technology companies, a nominal sum compared to the colossal costs of developing a new patentable idea or invention – WIPO registration is an expensive obviously worth it.

Hence WIPO registration is immensely popular, particularly with US technology, computing and media companies (and not just in California: across the United States and across a range of different industries). American, and to a substantial degree European, WIPO registrations power the organisation, rendering it the only international institution effectively able to balance its budget without substantial member state subsidies. Moreover WIPO’s registration scheme is efficient. Registrations can be submitted online, in a standard format, whereupon the requisite translations and onward transmission to WIPO member states’ registries takes places quickly and effectively. WIPO serves as a highly complex and extremely efficient mailbox services, and its users are happy with its operation.

Nevertheless the World Intellectual Property Organization is notorious within the United Nations system as an impossible shambles, and it always has been. One scandal and embarrassment after another have sunk its reputation so low that it was described in the United States Congress as the FIFA of the United Nations. How is that consistent with the account of its efficient provision of a useful service to private market actors developed above?

Much has already been written and spoken about dysfunction within the World Intellectual Property Organisation, and I do not wish to repeat it here save to summarise, in briefest form, some of the accusations that have been levelled. The organisation is said to have a repressive and fearful staff culture. There have been allegations of misprocurement. Assertions have been made that the organisation does not respect UN sanctions against Iran and North Korea. Senior management officials have complained of victimisation and being forced out. Rumours abound about corruption. There has been an ongoing pitched battle between the organisation and its staff representatives for years. The organisation has some 1,500 staff: far too many for a complex mailbox service. The rest of the United Nations is resentful that WIPO employees are paid more than the rest of them. Nevertheless staff remain extremely unhappy. WIPO occupies the most modern buildings in central Geneva, while the infrastructure for the rest of the United Nations is battered and wilting. WIPO’s reputation within the UN is exceptionally poor. What ought to represent a pinnacle of successful international cooperation is widely derided as a shameful joke.

To understand why this is, we must consider the following matters. Firstly WIPO, unquietly amongst international organisations, is tremendously successful at providing a service that private entities want to pay for. Moreover it is a monopoly. Nobody else can provide anything like a similar service. (The European Patent Organisation or EPO in Munich is not a European analogue of WIPO. The EPO receives and assesses patent applications, and grants patents. It is therefore a Europe-wide supra-national alternative to national patent offices, rather than a mere mailbox registry.) While WIPO does not charge “monopoly prices” for its services in strict economic terms (a monopoly price being the marginal price at which consumers switch out of a product altogether), it does charge far more for its services than is needed to cover the costs of providing its core services. That is because it can easily do so, without complaint by either its customers (for whom WIPO registration fees are negligible) or by its member states (who do not much care unless the companies in their jurisdictions complaint to them, which they do not). The result is that WIPO is habituated to making a massive profit. This might seem strange, because political organisations do not typically make a profit; and in the few instances where they do, such as parking fine administrations, the surpluses they make are soon siphoned off to another branch of the same government department that does not make a profit and stands in need of funding.

WIPO’s phenomenal surpluses, that arise from the fact that the organisation provides monopoly control over a relatively simple service (translation of short patent descriptions and cross-registration of the same with national patent offices), are perhaps the principal source is too successful, and there is nowhere to send the money. A free-standing international organisation that does not share a budget with the broader UN system of which it theoretically forms a part, WIPO’s surpluses cannot be redistributed to the rest of the United Nations that suffers from such perennial funding shortages. The Convention creating WIPO does not anticipate such things. Nor can the member states be treated as shareholders to whom surpluses are distributed as though dividends: in what proportions? WIPO could cut its fees, but its customers don’t care.

There is only one option left: spend the surplus, and this is what does. It does it so effectively that It can still say that a nominal (5%) proportion of its budget is contributed by member states, by distant analogue with the funding arrangements for other branches of the United Nations. Hence WIPO is engaged in a constant exercise in spending unwanted money If one is to wonder why WIPO has so many new buildings in central Geneva; state of the art security; large numbers of overlapping internal departments with incomprehensible missions; higher salaries than UN norms; and excessive lawyers o management that cause endless strife in their combat with one-another, then the answer is because WIPO needs to spend large amounts of money consistently with the least appearance of corruption. (Rightly or wrongly, WIPO is nonetheless perceived as corrupt.)

The central problem WIPO has with its reputation is that whereas in function it is a government-owned regulatory monopoly, in form it is a (presumptively government-financed) international humanitarian organisation. In fact WIPO is virtually unique amongst international organisations in having essentially no humanitarian or quasi-humanitarian function whatsoever. The World Trade Organisation can credibly assert that it has a humanitarian role: increased trade is a dominant factor in eliminating poverty in the developing world. WIPO cannot even pretend. Persons who file patents are typically massively wealthy western technology companies. Helping them preserve their intellectual property rights abroad cannot colourable be said to contribute to the alleviation of poverty, even though it does serve a very important global economic role.

Now we reach the height of the WIPO absurdity. It is an intergovernmental organisation run by an executive head, the Director General, who himself (for it has always been a man) is appointed by a simple majority vote of the member states, each of whom has one vote irrespective of that nation’s contribution to the world of intellectual property. While US companies pay more into WIPO than anyone else, the United States still has only one vote. The one member, one vote rule applies likewise to the limited oversight functions the member states have over the Director General’s broad powers. The majority of WIPO member states have essentially no interest in its operation, because the majority of states do not have functional intellectual property laws.

Therefore the only interest of member states in WIPO becomes patronage: key people associated with a national government, or their friends and relatives, would like well-paid WIPO jobs, living in Geneva with diplomatic immunity. Their votes being up for grabs, they are traded for jobs. This happens to an extent in all international organisations. But in WIPO the problem is particularly acute, because all member states effectively pay the same towards its operating expenses (i.e. virtually nothing); and most of the members states have no interest in its output. Therefore they do not care even tangentially whether it is run well (unless it becomes an embarrassment); and even if they do care whether it is run well the conventional weapons with which to discipline international organisations – i.e. restricting funding – does not work.

The World Intellectual Property Organization was a brilliant idea, undoubtedly designed by a highly astute international intellectual property lawyer. Where it went wrong was in the execution: it was structured as though it was any other public international organisation. Because WIPO was such a good idea, its financial structure proved totally different from any other international organisation and WIPO was not financially self-disciplining by reason of the incentives of its donors. In theory, the UN should be self-disciplining by reason of the incentives of its donors. In theory, the UN should be self-disciplining in tis way: if its donors do not like what it does, they can turn off the funding. (In practice, it has taken decades of profligacy before the United Nations has recently arrived at the point that its major donors are now demanding reforms on pain of cutting funds.) By contrast, WIPO has a structural incentive to be as wasteful as it possible can be. Its perfect Director General must be diabolically imaginative in inventing ever more departments, mandates, purposes and management structures in order to fill expensive buildings with well-paid people doing nothing but arguing with one-another in exchange for their national member states voting his favour.

Of course this is no good. WIPO has already transcended the absurd. Now it is a humiliation and embarrassment to the United Nations system, the gaffes and scandals emerging from its walls occupying the time of diplomats and national politicians alike far beyond what is proportionate. The organisation is also absorbing talented civil servants that would be better utilised re-deployed elsewhere in the United Nations system. Their skills are rare and needed for more utile activities. WIPO must remain an international organisation. The requisite level of multilateral cooperation with the world’s national patent registries can be achieved only under the auspices of an agency of the United Nations. As a practical matter, it will be impossible to move the member states away from the “one member, one vote” (UN General Assembly) approach towards a tilted voting system (akin to the UN Security Council) for WIPO’s member state governing body. The member states will always block such a change using the existing voting structure. But there is another way to reform WIPO.

Henceforth the member states might fund WIPO entirely themselves, in proportion to the number of WIPO registrations filed each year. This does not mean that WIPO registration fees are reduced to zero. In fact they can be substantially increased. As already observed, registrants will barely care or even notice unless fees start to get close to the monopoly price (which currently they are nowhere near: but this is a matter for econometrics to calculate). The funds from WIPO registrations should then be contributed towards the UN’s general budget, the money being spent where the UN really needs it and not on any further WIPO fripperies.

Lest one might imagine that this reduces the incentive for WIPO to reduce the quality of service to its customers, that structural disincentive may be ameliorated by assigning to member states shares in the WIPO revenues contributed to the United Nations budget proportionate to the quantum of WIPO registration revenues received from persons / entities in each member state. In other words, the more WIPO registrations are filed by companies in the United States, the lower the amount the United States is obliged to contribute from general taxpayer revenues to fund the United Nations. In tis way, the member states have an incentive to ensure that WIPO meets the needs of its customers from each of their territories.

The “one member state, one vote” system of selecting the WIPO Director General and undertaking oversight functions will be rebalanced by the fact that WIPO’s operating costs are funded proportionate to member states’ use of the organisation. Therefore bigger users will acquire greater influence by virtue of their greater financing contributions.

The key to WIPO reform is in a subtle modification to the way the organisation does its accounts. One must separate out operating costs and revenues, and sift them into entirely different accounting streams. Then the organisation’s excesses should self-correct. The member states could, with appropriate diplomacy, surely agree upon such facially moderate reforms. Nobody of influence could object. Finally, WIPO management would surely themselves welcome such a reform. It would take the pressure off them, leaving them to manage their passion: international intellectual property.

Matthew Parish is an international lawyer based in Geneva, Switzerland and a former UN peacekeeper. He has published two books and over 250 articles on the subject. In 2013 he was elected as a Young Global Leader of the World Economic Forum and he has was listed as one of the three hundred most influential people in Switzerland. He is currently a preferred candidate of the United Kingdom of Great Britain and Northern Ireland for appointment to a position of Under Secretary General of the United Nations with an agenda for institutional reform.

The views expressed in this article do not necessarily reflect the views of TransConflict.

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