Correlates of Intellectual Property Violation

Abstract

Intellectual property violation is the single most significant threat to the competitiveness of international firms. The primary purpose of this study is to propose set of possible determinants of intellectual property violation followed by an examination of their ability to explain it. These determinants are divided into two groups: markets factors and involvement factors. The results show that market variables emerge as the most significant predictors of software piracy, which was used as the case in this study. Involvement factors in the international market place do play a role in thwarting piracy but are likely to be superseded by other factors. INTRODUCTION Intellectual property can be defined as the results of innovative and creative activity of a society. In most industrialized nations, intellectual property in the form of patents, copyrights, and trademarks forms the backbone of economic activity and competitive advantage in the world market place. For example, the copyright industries in the United States now account for nearly 5.7 percent of the GDP, are the largest sector in exports, and grow at a rate twice of the rest of the economy (IIPA, 1999). The promotion of innovation and creativity will have to include protecting intellectual property against piracy. This is in the interests of the governments whose companies are behind this effort as well as the companies whose rewards for this activity are threatened. If not controlled, piracy will thwart growth in the industry by limiting investments, such as research and development, in the sectors affected. Effective legislation and enforcement, however, will result in increased employment in highly skilled and paid positions and thereby result in increased tax revenues. The protection of intellectual property varies significantly across countries with industrialized countries providing the strongest support and developing countries at the other end of the spectrum. The losses are significant: the International Trade Commission has estimated these losses at $60 billion a year with the most innovative, fastest -growing industries such as software, pharmaceuticals, and entertainment hit hardest. The software industry, for example, estimated its losses at $11.4 billion in 1997. Similarly, the pharmaceutical industry estimates losses at $ billion annually to entities that make unauthorized copies of medicines in countries where patent laws are weak or nonexistent. The entertainment industry, both in terms of films and recording, expects its annual losses of $8-10 billion to grow due to new phenomena such as Internet piracy. The geography of intellectual property violation is widespread. While the highest total dollar losses are incurred in many developed countries such as the United States, the rates of piracy as a percentage of all use is highest in emerging and developing economies. The data IMAGE FORMULA5 in Figure I indicate the overall piracy rates for the software industry. Eastern Europe has been the region with the highest rate throughout the mid-1990s although the actual dollar losses place it 5th among the seven regions. However, given the increasing need and use of software, the region will be of concern to intellectual property owners. In Asia, which is the region with the highest monetary losses, markets such as China and Vietnam have piracy rates of over 90 percent. In general, the share of pirated software in use in decline but the corresponding dollar amounts are increasing due to the overall growth in demand. This is most evident in the European Economic Area where a piracy rate drop from 52 percent to 39 percent during 19947 has not corresponded to any noticeable difference in dollar losses. Given the extent of the losses and the geographic spread of the phenomenon, intellectual property protection has become a focal point of both government action and corporate response. …

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