The Economics of Intellectual Property in a World without Frontiers: A Study of Computer Software
Book by Meheroo Jussawalla; Greenwood Press, 1992

Introduction
The principal objective of this work is to explore the problems arising from dynamic information technology (hereafter referred to as IT) in its application to intellectual property rights. In the context of a global marketplace of ideas, it appears as if political boundaries and the sovereignty of the nation-state are disappearing, making it increasingly difficult to scrutinize infringement on the many facets of intellectual property closely. This is particularly true in the case of computer software, the focus of this study. In a world of "computer hackers" and instantaneous transborder data flows (TBDFs), how successful are the laws to protect the owners and producers of computer software? As this work shows, there are legal and institutional factors that both constrict and facilitate the free flow of computer-based information.

For the free flow of transborder information, the Organization for Economic Cooperation and Development (OECD) developed guidelines to promote access to data and to seek transparency in regulatory policies relating to computerized communications and thereby promoted harmonized solutions. No such guidelines are present to prevent piracy of information. There is no institutional framework in existence to guide international trust in generating and producing software programs that are not open to domestic and international piracy. This book, therefore, analyzes the legal and political economy implications of investment in the software programming industry and the near futility of monitoring and enforcing protection of intellectual property in that industry. The problems emerge because the same electronic technology that makes it easy and cost-effective for consumers and business corporations to access, store, and transmit data has been used by pirates for unlawful copying. Personal computers enable operators to make exact replicas of computer software in the privacy of their homes and offices without the prior consent of the software owners. As Gary Hoffman ( 1990) and the U.S. Congress Office of Technology Assessment (OTA) ( 1986) have noted, civil suits largely have become ineffective as a means of enforcing intellectual property rights. Computer networks are highly decentralized and their use does not fit into existing intellectual property legislation. As such, this work is designed to integrate the economic and legal issues within the framework of the global political economy, and to address all three aspects (economic, legal, and international) of the problem of intellectual property.

Protection of intellectual property rights now occupies center stage in international relations. IT has pushed the issue of intellectual property forward with its multifaceted impact on marketoriented economic activities. In the field of intellectual property, it has wrought havoc and has led to various protective laws. While intellectual property is a public good, its embodiment in physical form is not. If the definition of a public good is that the consumption of a good by one individual does not lead to any subtraction from any other individual's consumption of that good ( Samuelson 1976), then intellectual property satisfies the definition. But the physical embodiment of intellectual property in books, journals, computer diskettes, and audiotapes and videotapes is not a public good ( Besen 1987). Private-property rights motivate the producers of intellectual property because they receive royalties and income from the use of that property. In the case of information, Arrow ( 1962) points out a fundamental paradox in that the value of the information to the purchaser is not known until the purchaser has the information, but then he or she, in effect, has acquired it. The exclusion principle does not apply to public goods, especially knowledge-intensive ones.

Private property is the most important social institution for facil- itating productive social cooperation. Even so, competition provides the edge for the protection of intellectual property rights. Proprietary information gives its owner a comparative advantage over competitors. Competition, according to Dwight Lee ( 1981), is the direct result of the inescapable condition of scarcity. Deficiencies in the protection of intellectual property rights create trade distortions and loss of export sales. This has become a worldwide problem because inadequate measures for protecting intellectual property in different countries affect the balance of trade in countries that export knowledge-based products and services. These measures apply to copyrights, patents, trademarks, proprietary technical data, and semiconductor masks. The U.S. government appointed a commission under the leadership of Susan Leibeler to report on losses to U.S. trade from inadequate intellectual property protection (IPP) in foreign countries. The report, published in 1988 by the office of the U.S. trade representative (USTR) ( 1988), reveals the infringement of intellectual property rights in each area (e.g., trademarks, patents, etc.) and assesses the losses on a worldwide basis.

In the United States, intellectual property is protected by clearly defined federal laws for copyrights and patents and state laws for trade secrecy. The federal statutes were amended in 1980 to cover computer programs and further extended in 1985 to masks used in making microchips. On January 1, 1978, the U.S. Copyright Act of 1976 (Title 17 of the United States Code) came into effect. This general revision of the copyright law (the first since 1909) makes important changes in the copyright system and is discussed in Chapter 3 of this book. Before 1978, the copyright law required as a condition for copyright protection that all copies published with authorization of the copyright owner bear a proper notice. The Copyright Act of 1978 does not provide retroactive protection to those works published before January 1976. The 1980 law extended the applicability of copyright to computer programs. Under Title 17 of the United States Code (Section 914) the law was extended further to protect masks used for microchips after 1984.

Many countries have become aware of the impact of IT on copyrights and are introducing suitable amendments to their existing laws to cover software, databases, and microchips. The economic and legal problem is to balance the incentives to the creator of intellectual output with the overall need to provide equitable and...