Leveraging Taiwan's Talents through IPR Protection Douglas H. Paal, Director, American Institute in Taiwan World Trade Law Association Asia-Pacific Regional Conference October 18, 2003 Taipei, Taiwan

PR0355E | Date: 2003-10-18

President Slynn, Chairman Lin, Dr. Ma, and members of the World Trade Law Association, it is an honor to address you today as part of your First Asian-Pacific Regional Conference. The WTLA plays a highly positive role in analyzing the WTO's impact on how trade is conducted. Your efforts serve as a link between the abstract rules of international commerce and the practical means to deliver tangible benefits of liberalized trade to people around the world.

It is particularly fitting that you have chosen to hold your conference in Taipei. There are few places in the world that value trade more than Taiwan. This island has limited natural resources. Yet it plays a significant role in the global economy. This is by virtue of the gifts, skills, and dedication of Taiwan's people, and a pro-trade international system constructed and improved since the end of World War II by farsighted leaders in many capitals.

You could say that trade is the vehicle that enables Taiwan to share its talents with the world, from logistics management to precision manufacturing, from popular music to world-renowned cuisine.

The US has great respect and admiration for Taiwan's people. We value their entrepreneurship and innovation. We are inspired by their commitment to democracy. Globalization serves all of us better because of Taiwan's participation. For example, Taiwan's semiconductor foundries offer American companies expanded production flexibility without extra investment. This results in the more efficient use of production resources and lower prices for consumers -- exactly the benefits that we are all looking for in a globalized trading regime. Because Americans know that Taiwan has so much to offer to international commerce, we strongly backed the island's accession to the WTO. This is also why we continue to encourage Taiwan to follow through on all of its WTO commitments.

As I said a moment ago: trade is the vehicle that enables Taiwan to share its talents with the world. Let me add to that comment: The protection of intellectual property rights is the means for Taiwan to turn its talents into marketable assets.

These statements are not only true for Taiwan, but for any innovative economy. Over a century ago, Abraham Lincoln put IPR protection in its proper context. He was discussing the importance of safeguarding the rights of inventors, and commented that such protection adds "the fuel of interest to the fire of genius in the discovery and production of new and useful things."

The effective protection of intellectual property rights, or IPR, is key to the future of Taiwan knowledge-based economy. Creating good jobs here now depends on expanding IP-rich activities. The future is clearly in highly complex industries such as semiconductors and wireless appliances. It is in services such as product design and logistics management. Tomorrow's good jobs will also be found in fields that rely heavily on research, such as pharmaceuticals and biotech.

Effective IPR protection is also part of Taiwan WTO commitments, specifically as part of the international agreement known as "Trade Related Aspects of Intellectual Property Rights," or TRIPS. TRIPS requires WTO members to both implement standards of intellectual property protection but also and very importantly in the case of Taiwan to enforce these standards effectively as a deterrent to IPR infringement. For instance, the penalties for infringers must be severe enough to deter would-be pirates.

At AIT, we know first-hand that foreign corporations want to work with Taiwan's businesses in IP-rich industries. They wish to collaborate with Taiwan partners to develop and use intellectual property. They wish to work with the island's copyright-protected industries to distribute and "localize" protected works.

Taiwan has already scored numerous successes in this regard. Its semiconductor firms, like TSMC and UMC, are known globally for their strong corporate cultures that protect the industrial secrets of their clients. Notebook computer producers, like Compal and Quanta, share similar status.

I could give you many more examples of the successful collaboration between large, well-known Taiwan companies and their foreign partners. However, much of Taiwan's talent and innovation also occurs in start-up enterprises. Such firms are by their nature less well known abroad, and have not yet established reputations for protecting IP on their own. But if these start-up businesses are to succeed, they too need to be trusted with unique manufacturing technology, or the rights to localize proprietary software, or contracts to replicate copyrighted works. If foreign companies know that Taiwan's IPR protection regime is strong, they will be more inclined to give start-up partners a chance. But investors from abroad must first have confidence that Taiwan's legal system can protect them in any IP-oriented deal.

Taiwan's government knows the importance of IPR protection. We are encouraged by stepped-up efforts to obstruct piracy and seize counterfeited goods. Cases under investigation increased 30% in the first half of this year. A special police force has been expanded. Warehouses have been opened to store infringing products and seized equipment.

While Taiwan is taking steps in the right direction, it still has far to go. US industries that depend on copyright protection suffered approximately $750 million in trade losses last year. The US already runs a trade deficit with Taiwan of about $9 billion per year. It is highly unfortunate that weak IPR protection adds further to this imbalance.

IPR protection also plays a significant role in how global investors choose where to place their funds. Recall that foreign direct investment in Taiwan shrunk 33% in 2001 and 36% in 2002. Getting those numbers back up will depend in part on demonstrating that the island's business climate is friendly to investors in IP-rich industries.

Taiwan's IPR challenge is compounded by the fact that piracy and counterfeiting are highly lucrative activities, offering returns along the lines of cocaine production but at far less risk. Therefore, it will always be an uphill battle for law enforcement to single-handedly stop the activities of "knowledge criminals."

I would like to highlight two steps that Taiwan can take to supplement the activities of the police and customs officials who work so hard to stop the IPR bandits. First, pass a strong Copyright Law, as soon as possible, to deter potential infringers who would otherwise seek a living from IPR violations. Second, create a more user-friendly power-of-attorney system to empower foreign victims of IPR violations to take corrective action.

Let us first focus on the Copyright Law. A strong and effective copyright law protects those who create value with their ideas. This is essential for all knowledge-based economies to succeed.

Last June, the LY considered draft revisions to the Copyright Law. Had those revisions been passed intact, Taiwan could have declared a major IPR victory. Most people here believe the law has been strengthened. Unfortunately, last-minute changes made to the bill by LY members fatally weakened the text. In some respects, the revised Copyright Law is a step backward for IPR protection. Foreign investors have consequently taken note that Taiwan, a WTO member now for nearly two years, has been unable to pass legislation consistent with its commitments under TRIPS. And the people of Taiwan, who are needed to press for improvement, still do not know the new law's failings.

The US would like to see the original copyright revisions resubmitted to the LY as soon as possible -- and then passed without alteration. This is highly important if Taiwan is going to pursue its vision of an innovative economy that creates continued prosperity. Passing the revisions is also important to American and other foreign corporations who would like to invest in Taiwan, to create jobs in Taiwan, to bring technology and creativity to Taiwan, and to make a place for Taiwan in their global strategies.

To put it another way, those who are preventing passage of a TRIPS-compliant copyright law are doing an excellent job of marginalizing the island in the eyes of foreign corporations while keeping crooks in business.

USTR has already provided extensive comments to Taiwan on numerous articles in the revised Copyright Law. USTR's views can be summarized as follows: the changes made to the Copyright Law bill last June resulted in legislation that falls short of international standards. The weakened legislation hurts the island's investment environment. It does not sufficiently protect the rights of intellectual property holders. By resubmitting and passing the original draft amendments as soon as possible, Taiwan would go a long way towards addressing these issues.

I would like to highlight three flaws of particular concern in the newly passed Copyright Law:

First, Taiwan has truly weakened its enforcement regime with insufficient penalties. In many cases, there are no minimum penalties for infringers, in particular for situations where there is no clear intent to profit. If someone illegally takes another person's property, there should be no question as to whether the choice to break the law is subject to legal sanction. A lack of minimum penalties for IPR infringements falls short of achieving the deterrence necessary to satisfy the requirements in TRIPS.

The same articles that fail to specify minimum penalties also restrict the scope of infringements to the actual distribution of pirated optical discs, not to public display or public possession. This makes law enforcement less efficient by forcing the police to catch night market vendors in the act of selling infringing goods. It also makes it more difficult to investigate other types of violations -- for example, the on-demand reproduction of textbooks.

Second, Taiwan needs to implement measures that ensure effective protection of intellectual property in the digital environment, including the on-line environment. Put simply, a strong copyright law leaves no room for hackers and other computer criminals. But several articles in the new Copyright Law have weaknesses sure to be exploited by organized criminals.

Third, the new Copyright Law fails to grant appropriate authority to Customs officials to take action against the import and export of infringing goods. Taiwan already has a reputation as a major supplier of pirated movies, music, and software to other markets. Granting Customs inspectors the tools they need to get the job done would send a strong message. It would serve as a warning to those who are today making Taiwan known as a source of illegal goods that distort legitimate commerce in other locations.

Now, I realize that some Taiwan government officials are working diligently to find administrative remedies to mitigate these problems. Their constructive approach is welcomed not only at AIT, but also in numerous agencies of the US Government. However, no "administrative interpretation" can substitute for a clear law. And Taiwan does not have time to wait and see whether such an approach will work.

There is a better way to deal with the flawed Copyright Law. There is a better way to send a strong message to the pirates that are stealing Taiwan's future prosperity. And that better way is to show the IPR infringers that Taiwan's politicians stand united against the criminals. That better way is for the LY to reconsider and pass the Executive Yuan's originally proposed amendments to the Copyright Law as soon as possible.

Let us now look at the power-of-attorney situation. Imagine a foreign investor who has had his IP stolen in Taiwan. Our investor came to the island hoping to conduct profitable business. He was drawn here by Taiwan's sophisticated market. In all likelihood, his firm is investing millions of New Taiwan Dollars in the economy and has already created hundreds of jobs. Our investor's staff likely includes talented graduates from Taiwan's universities -- graduates who are grateful for the opportunity to use their skills in a global business.

But our investor has a problem: he needs legal redress because he has been robbed of his intellectual property. Perhaps his software was pirated, or a proprietary integrated circuit duplicated, or machinery spare parts illegally reproduced, posing a safety hazard to users of his firm's products.

When our investor decides to take action, the first thing he will discover is that he needs a power-of-attorney from a senior corporate official back home. To get this document, he will have to follow lengthy and cumbersome procedures. It will likely take weeks to get the power-of-attorney. This is because the US headquarters office will have to take the document to a Taiwan trade office -- possibly located hours away -- to have it notarized. The time wasted may well allow the thief who has stolen the IP to cover his tracks and get away with the crime.

Once our investor has his power of attorney in hand, the document may still be challenged in a Taiwan court. There was a case here some years back involving Disney Corporation's intellectual property. You'll find this hard to believe, but it's true: the power-of-attorney involved was thrown out of court because the "senior corporate official" who signed it was not the then-deceased Walt Disney himself! Of course, this is an extreme example, but it illustrates the environment that foreign IP holders confront when taking steps to protect their intellectual property in Taiwan.

I realize that the Judicial Yuan last year sent notices to judges informing them that foreign companies are to be treated no differently from local companies with regard to formalities for court documents. Unfortunately, there is no evidence that judges are using this guidance to simplify power-of-attorney procedures for foreign rights holders. Taiwan should take further steps to ensure that judges and prosecutors put an end to the lengthy power-of-attorney process. This flaw in the system adds unnecessary complexity to the process of protecting intellectual property.

As I noted, effective IPR protection is among Taiwan's WTO accession-related obligations. IPR is also one of the trade-related issues that the US and Taiwan are working to address as part of our broadening bilateral trade agenda.

There are other areas where progress on our bilateral trade agenda is lacking, most notably in agriculture, telecommunications, and pharmaceuticals. Taiwan still needs an open, transparent, and fair telecommunications market overseen by independent regulators. In agriculture, there remain concerns on our side about details that impact the trade of rice. In pharmaceuticals, pricing and reimbursement policies do not reward the innovation that is part of the expensive and time-consuming research and development activities of international drug companies.

Our trade agenda with Taiwan is, of course, even broader than the areas I just mentioned. I look forward to seeing the US and Taiwan continue to work together to expand the list of resolved bilateral trade issues. This is essential to ensuring that our expanding economic relationship offers the greatest possible rewards to our respective economies.

When I was originally invited to speak at your conference, I took some time to look over the agenda of this gathering, which I found to be quite interesting. It struck me that the papers to be presented essentially focus on how the WTO can bring prosperity to people through trade. There are few places in the world where that message rings more strongly than Taiwan.

I have been involved in one way or another with Taiwan for over thirty years. I have experienced first-hand the innovative and entrepreneurial spirit of this island's culture. This is a place bursting with talent, and strong trading relationships have allowed Taiwan to turn the innovative and entrepreneurial nature of its people into a marketable asset that generates prosperity. I can think of no better way to ensure that Taiwan's talents remain the guarantor of a bright future than to back them up with strong IPR protection.

Thank you.