Q: How has the challenge of promoting intellectual property protection changed in recent years in the wake of the TRIPS agreement? Are the stakes higher today than before? Are countries with weak intellectual property protection losing ground in the competition for investment and access to technology?

Sherwood: I find myself marveling at the TRIPS TRIPS agreement and this linkage of intellectual property with trade. In one sense, the TRIPS agreement is almost old news, it goes back five years. On the other hand, for most of the world it's still on the horizon since so many developing countries have until the turn of the century to comply. I think some of them are a little bit asleep at the switch; they're not quite aware of what to do and what it implies for them. In any event, the linkage of intellectual property with trade has done some interesting things. It has turned intellectual property into an issue of trade contention as well as an instrument of trade facilitation. Intellectual property evolved historically as a means of stimulating people to do things. In modern terms, we talk about this as stimulation to invest, to take risks in backing new ideas, new ventures, new expressions. Yet in a lot of countries that I've visited, there is a feeling that the TRIPS agreement is the top of the hill, as far as you need to go, that TRIPS is it. And that bothers me a lot because it seems to me that the TRIPS agreement is perhaps half way to what will be sufficient for mobilizing the developing world and the transition countries. I'm a little worried that for a time there will be a false expectation that the TRIPS agreement standard of protection will bring the fullest set of benefits to these countries.

Hurley: The TRIPS was meant to be a threshold. Over time, some people have forgotten that it was meant to be a minimum set of standards, not the final. I think it's worth reminding everyone of that as often as possible. Still, there are very few countries and very few government officials who would say that intellectual property laws are unnecessary. Most would say they think intellectual property laws are a good idea and often it's a matter of development goals and the ability to adapt and absorb a set of regulations at a given point.

We live in a time of unbelievable asymmetry. We've been talking about developed country values directed toward the developing world, but in this whole swirling set of asymmetries we're seeing another type of flow. Back in 1992, the OECD (Organization for Economic Cooperation and Development) organized a conference with the Max Planck Institute that looked at intellectual property protection in Eastern Europe, at a time when the Eastern European countries were adopting a lot of new legislation. Their laws relating to biotechnology were much closer to American and Japanese laws than to those of Western Europe. So in terms of encouraging investment by biotech companies, the countries in Eastern Europe were much more welcoming places to invest and create new operations than those of Western Europe. It was interesting because many of the European intellectual property lawyers wanted to deliver this message as strongly as possible to their government officials and the European Patent Office and the European Parliament.

As new countries come on line, they clearly look around the world to see what is the state of the art, what are the models, what are the best practices. In doing so, they may put pressure even on developed countries to change their level of protection and their means of protecting certain types of inventions and works.

Fowler: The growth and expansion of the Internet is forcing countries to consider harmonizing global copyright laws, and probably trademark laws as well. I was struck at the 1996 diplomatic conference of WIPO (World Intellectual Property Organization) that while some 160 different countries had somewhat different approaches, or disagreed on certain issues, they felt the need for a global set of treaties to address copyright protection and sound recording protection in a digital environment. That was kind of a given, and then the parties moved on to the details. I don't think that would have happened 10 or 15 years ago. There would have been a huge disagreement.

Q: Is piracy still on the rise? How serious a problem is it? Why should developing countries care?

Smith: We've done some studies and tried to rank regions of the world in terms of piracy rates. The worst region -- with piracy levels between 75 and 80 percent of all copyrighted products -- is Eastern Europe, the CIS, and Russia. There is no tradition of good judicial machinery, of the rule of law and criminal prosecution, other than through political mechanisms, and that has put this region at the very top in terms of piracy levels. Correspondingly, their economies are going to be among the weakest. If we could launch a worldwide effort to boost judicial effectiveness around the world, they could have economic gains in those countries that we haven't seen in any period.

Hurley: The principal conclusion of the OECD conference on Eastern Europe I mentioned earlier was the need for much better enforcement mechanisms. Again, it is a complex area. In the United States, we had to create a special court of appeals to deal with these issues. We should reach out and provide a better way of training those in the judicial process in other countries; it would do a massive amount of good, and it doesn't require any new legislation or international accords.

Fowler: It's not surprising because these areas are terribly complicated and for some countries there is not a lot of trained expertise in the first place. From the economic standpoint, perhaps smaller countries should not be channeling a lot of their highly skilled engineers into being patent examiners. They would be better and more productive working in the private sector and in research. A number of countries -- for instance, Thailand, the Philippines, Panama -- have begun to opt for specialized judicial courts and prosecutors to deal with intellectual property crimes. They're recognizing that, in many cases, their own judiciaries are not up to the task and that they have to do something to provide incentives for better trained judges and prosecutors, more predictable enforcement, and fewer delays. This may be the whole thrust of what the Patent and Trademark Office and other branches of the U.S. government will do for the next decade or more: working on enforcement issues and training judiciary, training prosecutors, and, in many cases, training the local practicing bar. It's critically important.

Sherwood: The idea that every developing country ought to technically examine patents strikes me as absurd. The redundancy of a technical examination is being exposed more and more now. The Patent Cooperation Treaty (PCT), which permits an applicant to file one application and in effect use it in a number of countries around the world, is a movement toward a more unified approach. It would reduce the costs of patent administration in a lot of developing countries if they would decide that if one of the PCT-designated examining centers has indicated that this is a patentable invention, they would then automatically grant a patent, subject to some conditions. The cost of creating a cadre of patent examiners is the single largest item in the administration of intellectual property. If you consider that, under the international classifications, there are some 200 discrete fields of technology in which applications are filed, it would suggest that any country, in order to conduct a technical examination, ought to have at least 200 examiners. That's simply not possible in a lot of countries. So it makes a great deal more sense to rely on the international system that is beginning to emerge for that.

There are probably more inventions made in the world than is realized. From visiting a number of Latin American universities, I am persuaded that they have indeed made significant inventions with commercial potential. And yet not thinking about patents, and also aware of their cost and so forth, many of these inventions have been written up as papers that have enriched the library of a university, but nothing of commercial value has developed.

Smith: In developing countries, the people who depend on intellectual property protection have been hurt so badly by the lack of it that they tend to recede into the background. They're not accustomed to lobbying their government or being out front politically, and they don't have the funds to organize themselves. Typically, it is U.S. industry that screams and yells about how much it is losing as a result of piracy. Yet the Mexican record industry, for example, is facing a 60 percent piracy rate, and it is now becoming very active within Mexico because its members collectively lose more money than their American counterparts operating in Mexico. Often, U.S. industry goes in guns blazing, but we should be spending more time helping the local creative community because that's where the politics are. No country that I know of has passed a good law solely because of U.S. pressure. They've got to believe it themselves; the country will come along when it's pressed by its own local industry. Indonesia and its music industry are a great example. It was those folks that got a copyright law passed, not the U.S. industry and not pressure from the U.S. Trade Representative.

Q: What are the benefits for developing countries of protecting intellectual property? What strategies can developing countries adopt?

Smith: The best way to see what can be done is to look at countries where it has worked. I'd like to name just two or three countries although I could point to 50 or so right now -- starting out in the mid-1980s, and what's happened because they decided to protect intellectual property. You can start with Singapore, which initially had no performers or record companies. Instead, pirates were exporting 180 million units of sound recordings to other countries. Piracy was basically at 100 percent across the board; they had no law, they did not protect any foreign copyrighted works. Then Singapore passed a law and started enforcing it; today the country is exporting the efforts of its own performers. They quadrupled the number of recording studios. None of that was possible when there was no law.

Another example is Indonesia, where there is a huge music culture. Today, Indonesia has a piracy rate of 30 percent, which is still too high, but back then it was 100 percent and no local person could make a living recording and selling music. That is now no longer true.

Finally, there is the publishing industry in Korea. Again, no protection whatsoever in 1985. There were 2,000 publishers in Korea, and they bitterly opposed the passage of a copyright law. What those publishers did for a business was to pirate foreign educational, reference, and medical books, which were used almost exclusively in Korea. The quicker you got a pirated book on the market, the bigger the profit. If you were slow, you didn't make a profit. Now the Korean publishing industry is very prosperous, and it is made up of real publishers. They bring on authors, they edit, and they promote and distribute; the pirating of books is down from 95 percent in 1985 to about now 20 percent.

These examples are not unusual -- it's happening all over the world. Without intellectual property protection, you cannot have a healthy domestic publishing industry where authors are compensated for their works, you cannot have an effective local music industry. And you can talk to good software developers in any country -- in Russia, in China, in India, no matter where -- they're going to have people who are geniuses in software. The first software program that's going to be pirated is theirs, and they cannot make a living without an intellectual property regime with a high level of protection. I've been in this business for 15 years, and when intellectual property is protected, piracy rates have come down while income and creativity have gone up.

Sherwood: I'm reminded of a story about a leading Ecuadorian film producer who made two highly acclaimed films, and as soon as he released them, they were pirated and all the corner video stores throughout the country were selling them. He made a dramatic statement in front of Ecuadorian officials. He said, "Steven Spielberg and Walt Disney do not need copyright protection in Ecuador. But I do, and I suffer greatly for not having it."

Where creative people are not supported by the intellectual property system, and thus cannot produce and disseminate their creative expression, a country loses something very important. These are the people who first absorb the new things that are happening in the world and reinterpret them in terms of an existing culture. When a culture is frozen in time, a country tends in some ways to become reactive. There's a sense that people are not embracing what's coming and evaluating it for others, and then expressing the reaction, so that the whole community begins to move forward. In countries where the local artists are supported, work of the cultural people does go forward and the reactive mindset is changed and overcome, there's much more openness to the new things that are happening. And that's critical in the face of the enormous changes we are seeing today with the Internet and so many other things.

If there isn't a fairly strong belief in a country that intellectual property is good for that country, the system isn't going to work. If a country says under pressure, OK, we'll fix our intellectual property system, that system is so full of discretion of all kinds that it's difficult to make it work if those operating it don't believe in it. This puts a lot of pressure, I think, on growing local demand for stronger intellectual property protection.

Intellectual property is not something that the U.S. Trade Representative's Office invented, although it seems to many that is the case. Intellectual property is really a very ancient creation. Villages discovered it was useful to the whole community if the bright people, the creative people, could be given special encouragement. What they produced benefited the whole community. Trademarks were first recognized when potters created water vessels that held water much better than other vessels. Copyright goes back to the printing press, patents to the northern Italian states at a time when trade with the Orient increased and inventiveness was flourishing. The point is that it was valuable to the community to protect and encourage works done by its bright and inventive people. They saw the value of harnessing a natural resource that was available to them.

Q: What is the impact of the new technologies, including the Internet, on copyright and trademarks? What will be the impact on economic growth of an altered intellectual property landscape? Who will be the winners and losers?

Hurley: There are two strong trends that we see now in the intellectual property area - and they are curious and divergent. In the area of privacy and data protection, we see a powerful tendency toward treating personal data as a trade issue, but there is also a strong trend of handling it as a human right. The human rights portfolio is expanding, and more and more things are going into that basket. I think that basket is going to get too full and tip over because there's an attempt to cram so many things into it.

On one side, people argue that data protection should be treated more and more as a property right, that the correct analysis is that personal data is property and that the individual should be able to claim the value in that property. For example, when direct marketers take your personal data and use if for ancillary purposes, then you should be able to claim some of the value and be renumerated for that use. New technology will allow some of these micropayments or instant brokering, where you would get an instant payoff of 50 cents or so when your information is used in some sort of survey or some kind of aggregated data. But that's only one way of analyzing it - by looking at the value of "commoditizing" personal data.

On the other side of that, people are saying, Wait a minute. Maybe personal data and privacy are a human right. They argue that under the various human rights conventions, that kind of protection is contemplated and that it's something inalienable like voting in the United States - you can't mortgage or lease your vote --or like organ sales in many countries.

Ten or 15 years ago, there was a very small minority in the United States saying that copyright was not the right way to go in protecting computer programs. Meanwhile, the U.S. government was arguing that it was the way to go since it addressed the problems of reproduction and it fit under existing international conventions. What has been so surprising and interesting to me over the past decade is to watch what was a very small minority view in the United States grow so that it's almost a half and half split between what I would characterize as a traditional intellectual property analysis and those who are a bit more heretical and say that notions of intellectual property that we have had for 250 years or so don't work in a digital era, or don't work in a globalized economy or infringe on people's basic rights. I don't see that debate going away. Other countries may take comfort from the fact that there is a fairly vocal schism in the U.S. legal community about this set of issues; that was reflected clearly in the recent WIPO diplomatic conference. In general, though -- and this is perhaps being a bit optimistic -- there is a slow trend toward consensus and better intellectual property protection.

Smith: I agree with your analysis, although I would argue that 15 years ago there was almost no one in the academic community who thought that copyright was the right way to protect software. My view was the traditional view. Fortunately for my point of view, the world has gone the route of protection of software as a literary work under copyright; the nonacademic world seems to be moving very quickly in that direction, while the academic world is still challenging that view pretty regularly.

Hurley: Many of these things may be process problems. The entertainment industry in the United States is extremely powerful and able to move quickly and move with a lot of resources and overtake a debate before the other parties have been able to assemble about the debate. So a lot of the screaming and yelling has to do with process rather than substance.

Smith: If you look at the Internet, you're certainly right. If you look at any of the copyright sites, it's almost 100 percent the opposite view from the business community. No question about it.

Fowler: There have been some recent press reports about academics, primarily in higher education, who are beginning to say, well wait a minute, all this talk about free information on the Internet, all this discussion about everything being covered by fair use was fine. But I want to control my class notes, I want to control my material; I don't want someone putting that up on the Internet. Perhaps there is the beginning of a trend toward a more traditional view of authors retaining some control over their works, even on the Internet.

The Internet and electronic commerce are also having a tremendous impact on trademark law. In some respects, the trademark system is being dragged kicking and screaming into the Internet age, and the domain names and addresses are just the tip of the iceberg. Multinational companies have a lot of resources invested in the development and marketing of their trademarks and logos. The Internet is providing a great vehicle for expanding their use, but at the same time it is providing the same sort of counterfeiting and piracy potential as exists in the copyright field. The United States has not yet even ratified the trademark law treaty; we're behind on this.

Q: How widely shared will be the fruits of electronic commerce and the digital economy?

Fowler: Although we focus so much on the new digital technologies, there are estimates that that 97 percent of the world still doesn't have access to the Internet. What is this doing to the gaps that already exist between developed and developing countries in terms of their ability to use technology for economic advancement? Is this gap widening?

Smith: It shouldn't widen. It should be closing as a result of electronic technology. Books are expensive to distribute to developing countries, particularly textbooks. If you could do that by electronic means, transaction costs are lowered and the cost of information to students is reduced. Ultimately, the new technology portends great benefits for developing countries. But it's not going to happen unless a country puts itself in the position to protect the material that's going over those telephone lines --- or fiber optic lines, or whatever. If that doesn't happen, then electronic commerce will stay within the developed world, and what you suggest might very well happen.

Sherwood: I think there are a lot of barometers indicating that the 97-to-3-percent split is under a lot of pressure. The World Bank is beseiged by requests from countries for help in moving into the information technology age. The Bank is trying to respond - but it's an enormous problem. What it does say is that political leaders in a lot of governments are seeing that this is the way to go. I think they see the potential of broadening distance learning, of making more information available to their populations. The costs of doing so are very great, and both the public and private sectors are going to be challenged to find new balances and new equations.

Hurley: One of the significant differences now for developing countries is that the barriers to their entry as publishers and broadcasters have come down enormously through the Internet. They're able to get on the Web and become publishers and broadcasters to the world. The search for novel, high-quality content is not going to diminish in any way, and that's true around the world, including in developed countries. People want that, and many developing countries are able to offer content that is different from, although appealing to, Western markets and the kind of mainstream content that's out there now. The returns may not be as big as those of the Hollywood studios, but it's still worth seeking and asserting property rights in them.

Q: Will copyright standards spur more electronic commerce or stand as an impediment? Are concerns in the United States about an erosion of "fair use" access to information warranted?

Hurley: There were certainly some very strong voices within the academic community arguing for greater access to information. But I think people in the academic community sweat long and hard to write all those seminal articles or seminal books. They want to make sure that there's a return from it. I think at any point in the time spectrum if there were efforts to strip them of that, they'd be pretty upset about it. So I think it depends on which issue you're facing at any given moment.

Certainly there has been a culture on the Internet of "Oh, this stuff's all out there so anyone can use it." It has been fairly easy to download it or copy it. And again, this is a very transitional moment. A lot of people are saying, We want to claim the value of what we're putting up there. There's been a great deal of attention paid to electronic copyright management systems. There are many pilot projects and technology prototypes being developed, both by industry groups and the European Commission. It's going to happen; it's natural for people to want to claim some of the value in their work, and that's reinforced by the traditional intellectual property regimes that we're used to. So we will see people using these kinds of electronic copyright management systems to be able to gauge people's access and take renumeration.

One of the things that it offers that people don't think about is the potential for greater access by the public to protected works. For example, you may not be able to buy a $25 book, but if you can go into that book and it's on the Web, and it costs you 50 cents to look at the chapter that you like the most, that's access you didn't have before. And we can all reel out a number of examples like that. The potential for more access for more people is definitely there.

There's also a huge amount of discussion in the U.S. academic community right now about fair use principles. Some American legal specialists argue that the institution of electronic copyright management systems would vitiate fair use. In other words, the copyright holders would gauge everything, and so they would charge for it.

Fowler: There is an interest in other countries about the process here, to try to develop guidelines about educational fair use in the Internet digital environment. The concepts that we have of fair use are not going to be restrictive, but in fact will have the effect of expanding fair use in many countries that have had very narrow jurisprudence. I do a lot of reviewing of legislation and legislative changes in other countries, and I can see this on a regular basis. As they're going through changes in their copyright laws to bring them into TRIPS compliance or just to update them generally, countries are adopting what are really American fair use concepts into their own statutory frameworks. So I think the reality is that we're actually having the effect of expanding fair use globally as opposed to seeing it restricted in the United States. Ironically, I think the real issue for fair use down the road -- whether it's in copyright information management systems, encryption, or other kinds of protections - is whether fair use is a right of access to works. I'm sure that there are some in the current debate who would like to suggest that fair use equals access, as opposed to the more traditional view that it is an affirmative defense to infringement.

Hurley: That's right. I think there are people arguing that fair use is the right of access. If you're a teacher in Ohio and you can pay 10 cents on the Internet to show your class something, is that a fair use? I think under U.S. jurisprudence now we might say yes. So that field still needs a lot of tilling.

Smith: There's a fundamental misunderstanding of what fair use is. If you make works available on the market in ways that they've never been made available before, for example by selling excerpts of books for small amounts of money relative to the whole, the Berne Convention rule is there's no exception from the reproduction right if that exception would interrupt the normal exploitation of the work. Until the digital age, there was no way to get access to little pieces of a work without just taking them because they weren't available for licensing. Now we've created a system in which people can get back the value of their work in small increments.

Librarians and the educational community feel that this is somehow fundamentally wrong. They could get it for free before in a world where it wasn't being sold anyway. But I think what we have now is the ability -- you might have to pay for it, but there are tons of information out there, much more than ever before. There's nothing fundamentally wrong with having to pay for what someone else has created. I think there's just a lot of fear here. I don't think, for example, copyright owners would encrypt everything. It wouldn't make sense to encrypt everything. People wouldn't know it was out there. This debate is going on in Congress right now, and it will be most interesting to see how it comes out.

Hurley: Also, one has to posit a competitive marketplace if my content is too expensive. If I charge 25 cents a page, then someone else is going to write something and charge 10 cents a page, and it's going to be almost the same or better. So I think we're going to see a lot more competition in real time. The technology is going to make it much easier.

Fowler: It means that copyright protection in this case is really being driven by the electronic commerce potential.

Hurley: I hadn't thought of it that way. I think people are focusing on the negative of copyrighted works going up on the Web. But there are definite positives both for producers and users.

Smith: We should not forget that it will be a very long while before copyright protected material is available generally on the Internet. Most of this material will be in a physical medium still for years to come. Some books and movies are going to move into the electronic context. But a lot is still going to be available where normal rules of fair use apply, just like they have in the past.

Q: What will the concept of intellectual property mean 10 years from now? How will it be different from today? Can the delicate balance between the innovators and the public be maintained in a global economy and a networked world?

Sherwood: You will begin to have voices in developing countries stand up in the political process and demand stronger protection and enforcement of their rights. And as that happens, there will be a higher quality, better balanced political debate. Over time -- and we're talking about maybe 10 to 15 years -- there will be a growing indigenous demand for intellectual property rights in many countries. This is probably the best hope for building up a country's technical base and support for the local creativity that is so obviously there.

I think the great difficulty is going to be the judicial systems. About 80 percent of the countries in the world have judicial systems that really are not up to the task of enforcing intellectual property rights. It's a very complicated and esoteric area of the law, and it requires a level of knowledge not usually had by judges, even in this country. It is difficult to say what will happen as intellectual property systems are created and rights are available and yet not enforceable. In many places, it is difficult to make the argument that the judicial system ought to be cranked up to a higher level of efficiency purely for the sake of intellectual property protection. There are so many other issues that these countries face that it seems to me very important to make the broader argument that judicial systems in general need to be improved for the sake of many factors, including intellectual property.

Along with a World Bank economist, I have been looking at the question of what is the loss to a national economy if a judicial system is dysfunctional. In Brazil, a think tank has derived a methodology for measuring the discrete influence of dysfunctional judicial systems on national economic performance. They completed their work recently and found that the growth trend for Brazil is impaired by a factor of about 20 percent directly traceable to the malfunctioning judicial system. That methodology is now being applied in Peru, and hopefully it will also be applied to some other countries so that we can get a sense of the magnitude of the economic loss to countries as a result of a judicial system's poor performance. It turns what traditionally has been a kind of ethical or moral approach to judicial reform into an economics-based assessment. It brings a whole set of new minds to work on the question of the importance of judicial systems functioning well. Within that general framework, we're beginning to find that it may be possible to determine which factors of dysfunction contribute most to impeding economic performance. In the Brazil study, it was found that extended, unreasonable delays in processing court proceedings was the single largest contributor to the loss that they found.

I think if this approach to judicial systems can be established more broadly it will turn the issue into a pocketbook issue. The elite in a lot of countries that have benefited from weak judicial systems will begin to realize that their pocketbooks are being adversely affected by the weakness, and this may begin to build a broader consensus that there is a need to fix the judicial systems. And that would, in turn, help promote not only intellectual property but a lot of other factors like investment and greater bureaucratic discipline. Even legislation would improve if the judicial systems functioned better and had a better sense of their importance.

Smith: The software industry has done regional studies trying to estimate what governments lose in tax revenue at various piracy rates. In Latin America and in the Middle East, the governments are losing staggering amounts by allowing high piracy rates. It's very easy to see. Pirates don't pay taxes; legitimate businesses do. This is what you lose if you have this kind of rate of piracy. This has been a very effective way of pushing finance ministers and other political leaders to begin to rethink the economics of piracy and the positive role that intellectual protection provides for their country.