Industrial Espionage With the Relation to the Intellectual Property Rights


Industrial espionage became the real scourge of today’s business. Inspite that the whole organizations and legislative systems had been created to protect Intellectual Property Rights, the number of espionage cases tend to increase. This work is claimed to view the key international laws related to the IP, such as TRIPS and agreements concluded under the auspicious of WIPO (Word Intellectual Property Organization). The main philosophies of the property and intellectual property rights will be regarded and compared with the current situation. These are the Lockean philosophy, including the history of the Property Rights development, and the Libertarian point of view, which relates the full refuse of IPRs. As the addition some Export control organizations will be regarded, as they manage not only the technologies, but also control the use of military technologies, thus making specific contribution to the Intellectual Property Rights development.


The industrial espionage started its existence from the times of ancient Greece, when Prometheus, who fulfilled the unapproved by other gods transmission of the absolutely secret technology of getting fire, which consequently led to space flights, or just remember the Biblical history of the forbidden fruit; it may be regarded as the unapproved access to confidential data. Human has always strived to know as much as possible about his neighbors. Information has acquired decisive role in our post-industrial era (Lysov, Ostapenko, 1998).

Espionage or spying the act of clandestine collection of the information. The term is applied particularly to the act of gathering military, industrial, and political information about one state for the profit of another. Industrial espionage or corporate espionage is the spying process conducted for commercial aims but not for providing national security. It is the robbery of patents and procedures from business firms (Columbia Encyclopedia, 2007).

The term differs from lawful and ethical actions such as studying of corporate publications, web pages, patent filings, and the desire to determine the activities of a corporation (this is usually named competitive intelligence). As a substitute, it describes activities such as theft of commercial clandestine, corruption, blackmail, and technological surveillance. As well as espionage for commercial enterprises, governments can become the targets of commercial espionage—for example, to define the terms of a tender for a state contract so that another tenderer could appoint lower price.

Literature review

This chapter is claimed to show how innovation, technology, knowledge has been coveted, throughout the history. Humans have chosen espionage to gain information from which they can generate wealth. The brief look at historical cases in espionage helps to establish that one’s gain is the opponent’s loss, and that wealth tends to change hands with diffusion of knowledge. The following chapter is aimed to sketch the development of technology in Britain during the industrial revolution. This research also examines how British technological revolution was achieved by slow research and development over a century and was diffused to other European nations and finally reached America.

Industrial Espionage is not a new phenomenon. James croft trails espionage right back to the bible he illustrates how “in 1250 BC the lord instructed Moses to send twelve secret agents to explore the land of Canaan and gave him useful advice on selection criteria for espionage work” (Croft, 1994).

Its root our deep embedded in the history of civilization itself. Knowledge, specifically scientific knowledge’s movement can be historically traced from east to west, south of Europe to north and from Europe particularly Britain to the United States.

World history of the industrial espionage

The history of industrial espionage shows that lots of rulers and private individuals had succeeded a lot in it. Perfectly organized intelligence services helped Venice merchants and banking house by Fuggers, Krupp’s enterprise, and Rothschild’s’ house. Methods had been never subjected to changes for the centuries: they bribed, blackmailed, sent ambassadors-spies, intercepted the letters, and read parchments (later books and newspapers) in the libraries and temples. Oversaw and overheard when succeeded. Difficulties arose when the information needed to be passed to the collection and procession center. Spies sent pigeons or unreliable couriers, ran marathon distances, to deliver information, and usually ciphered it. (Bottom & Gallatti, 2004)

Thus, the prototype of information collection system can be observed

  • Microphone, camera – spy’s eye or ear
  • Voice recorder or information accumulation system – notes
  • Radio-channel, wires – courier, pigeon
  • Receiver – person, who accepted the message (Bottom & Gallatti, 2004)

As for the industrial revolution, the stealing of silk production secrets became one of the most well known affairs of industrial espionage in ancient world. Silk had been estimated highly in ancient China. Chins was the only source of silk, and he kept the monopoly. As a result the prices stayed rather high, and the supplies restricted (Croft, 1994).  The dangers and time losses essentially complicated the delivery by caravans. The situation changed after the visit of the Persian priests to Roman emperor Justinian. The priests had revealed the secrets of silk production, and had persuaded the emperor that the climate in some parts of Greece is suitable for the breeding the necessary mulberry. He managed to get the trees, but he also needed silkworms. Obviously, the same priests returned to China and managed to “export” the silkworms from China to Rome successfully in hollow crooks. Justinian multiplied his wealth, and China lost millions in its foreign trade (Croft, 1994).

Another example is the production of textile and the industrial revolution at the territory of the US as the British colony. Early American colonists were dependant on England in gaining fabric productions. The colonists supplied the most important materials, including wood, food, and also cotton and tobacco. But the colonies experienced great losses, as England controlled the price market for the imported goods, especially textile. England banned the immigration of the textile production specialists to the New World, and the export of fabric equipment and the drafts to the colonies. The situation seemed hopeless, until Samuel Slater strapped to solve this problem. American industrial revolution is often dated by the year 1789, when Slater arranged the textile factory, bearing his name in Potaket, state Rhode-Island. As an apprentice in England he remembered the drat of the textile factory and managed to leave England (probably with the help by some American financier) and reach the colonies, where he used is knowledge to ruin the monopoly (Croft, 1994).

Up to the beginning of the 20th century Brazil owned the caoutchouc production monopoly. Brazilian economy greatly depended on the caoutchouc industry, which provided some level of national flourishing and full employment. But lots of other countries were very interested in the liquidation of Brazilian monopoly, and get economical benefits, as the use of caoutchouc in different spheres instantly grew. Situation looked hopeless, until one of English enterprises started to undertake necessary actions. Inspite of the strict prohibition by the Brazilian government to export the caoutchouc trees, it was managed to export illegally a couple of plants to England. British gardeners started cultivating the caoutchouc plants in the green-houses, and study the possibilities of caoutchouc planting. They decided to grow it in Malaya because of suitable climate, and Malaya was the part of British Empire. The Malayan caoutchouc pressed the Brazilian on the world markets, and Brazilian economy experiences failure (Croft, 1994).

German intelligence during the WW II

Abwehr, German intelligence service, widely used the opportunities of German firms of conducting the industrial espionage, for gaining economical and sci-tech information. Every large German enterprise had the intelligence department in it structure, and was obliged to share the gained information with the state, i.e. with Abwehr. While spying against France, agents were sent as the merchants, tourists, or journalists. In 1936 the Berlin department of Abwehr recruited the entrepreneur, who as engaged in “Maginot line” building, and transferred the secret information of these enforcements to the Germans. The firm, which published the railway and topographic maps was established in France. Thus, the Abwehr agents almost legally traveled in France, and photographed everything they needed from the windows of trains. The intelligence against Great Britain appeared much more difficult. It was complicated by the active counterespionage activity by the MI-5, and by the geographical difficulties of sending agents to the islands. MI-5 had captured almost all German agents in Great Britain in the course of the largest counterespionage operation “Double cross” (Committee-XX). In 1936 MI-5 over recruited the German agent, engineer-electrician Arthur Owens (“Donny”, “Snow”). By leading successful radio game, the English arrested and over recruited 120 Abwehr agents, 39 of them had been working under the MI-5 control for a long time. By the 1940 no German agents had stayed at the territory of GB. The “agential net”, controlled by MI-5, successfully provided the coordinated with military officership disinformation (Croft, 1994).

The main forms of industrial espionage

  • Bribery (individuals, who are able to transfer documentation or the specimen of the production on the subject of interest, are bribed)
  • Obreption (relates the same persons)
  • Thief (document or production)
  • Diversion (temporary or full put out of action of the production, staff, or the enterprises of the opponent)
  • Secret physical penetration on the object of the opponent, linked with the intentional overcoming of the defense barriers, created by the opponent for the provision of the information and/or production safety.
  • The implementation of the agent to the enterprise with the aim to get access to the information or production, which are the object of commercial or state secret of the opponent
  • Thief of the information by the means of unlawful usage of technical tools (audio interception of the phone lines, unlawful penetration to the computer nets etc.) (Etro, 2004)

Reasons for espionage

Espionage had never pursued noble goals. The main aim of it is to find out the enemy’s weakest points, or to discover the secrets of its success. Industrial espionage is not an exception. The reasons and the motives are the following.

  1. To increase a financial benefit over a competitor
  2. To gain research data at the lowest possible price
  3. To decrease R & D costs by revealing what has already been discovered by others
  4. To obtain new technologies at the lowest price
  5. To evade expensive researches.
  6. To enlarge the number of possible clients by observing who buys from opponents
  7. To verify competitors’ sales volumes
  8. To get to know about trade provisions offered by competitors
  9. To calculate competitors’ detailed cost breakdown.

R&D cost is saved. Espionage is performed not only by poor states but also by developed countries to enrich. It is important to differentiate espionage from piracy. In piracy, a product is imitated with the intent of selling it in place of the original. Thus it partially helps an import substitute or an exportable item. Espionage, on the other hand, deals with highly technical, secretive and expensive products and processes. It would take some major activity to steal or imitate these products, but the unscrupulous national leaders of our times are very tempted to steal these formulas or products to enhance their evil goals. These may be complicated and expensive industrial products, very sophisticated military equipment or the most recent computer and software-related innovations, among others. The additional motivating activity factors are lack of protection and increasing value of trade secrets. (Fraumann, 1997)

Lack of protection

Most American firms do not have specific programs for protecting their vital secrets (Duffy 1999). A company’s basic research, product development, pricing and marketing plans are all targets of global industrial espionage. Basic research findings and product development plans are critically valuable for spies from different countries, but particularly less-developed countries, since they do not have research capabilities.

IP laws and TRIPS: the way to monopoly

Industrial espionage can be regarded as one of the key problems in the up-to-date world of industry business and competence. To prevent the possible means of spying against competitors, the worldwide community has undertaken several steps, which are the most efficient at the moment. These steps are the laws which concern intellectual property, and the TRIPS (The Agreement on Trade Related Aspects of Intellectual Property Rights). It is necessary to add, that the letter concerns the issues of industrial espionage in higher degree (Etro, 2007).

The IP laws relate the protection of products of intellectual labor, and observe the following principles: laws of nature, mathematical formulas, and methods of doing business, for instance, cannot be patented. The patentables are processes, machines, manufactures, or compositions of matters. The patented things need to be principally innovative (not previously patented), and they need to be useful (unworkable inventions can not be patented). It is impossible to patent the scientific principle, for example that light speed is 300,000 km/second, but anyone may patent at least principally new light bulb, or the engine, which makes such speed (Etro, 2007).

Commercial secrets involve a variety of secret and important business data, such as sales, marketing, costs policy, and advertisement data, information on customers and suppliers, and such data as plant outline and producing technologies. Commercial secrets need to be kept in secret, as their nondisclosure gives some advantage over opponents and competitors, and efforts to stop outflow of the information must be undertaken in time (Etro, 2007).

The only but sufficient demerit of Intellectual Property laws is the protection of monopoly. As it is claimed to protect the authorship of an invention, or an idea it permits its sole usage, until the inventor gains all possible benefits, and decides to sell it. Thus, we can observe the clear example of monopoly. The only definition of the “patent” term proves that: A patent is a property right in the sphere of inventions, that present useful functioning. A patent efficiently guarantees the originator a limited monopoly on the producing, use, or sale of the invention.

As for the international law in this sphere, the only which exists at the moment is the TRIPS (as it has been mentioned above). States-members to the TRIPS are required to provide strong defense of the intellectual property rights. For example, under TRIPS:

  • Copyright time frames must be lengthened up to 50 years after the death of the author, while films and photos are required to be extended up to 50 and 25 years correspondingly;
  • Copyright must be provided automatically, without any “formalities” and renewals.
  • Software must be considered as “literary works” and obtain the same periods of protection.
  • The exceptions to copyright that exist in some countries (such as “fair use” in the USA) must be strictly controlled and constrained.
  • Patents need to be provided in all “technological fields,” though exclusions for public interests are permitted (Art. 27.2 and 27.3) and must be valid for at least 20 years (Art 33).
  • All the exclusions to patent law must be restricted or removed almost as strictly as those to copyright law.
  • In every state, IP laws may not offer any profits to local citizens which are not accessible to citizens of other members to the TRIPS by the standards of national lawmaking (with certain limited exceptions, Art. 3 and 5).

Lots of the TRIPS stipulations on copyright were borrowed from the Berne Convention for the Protection of Literary and Artistic Works and others its trademark and patent prerequisites were imported from the Paris Convention for the Protection of Industrial Property (Camerona, Proudmanb, Redding, 2005).

Industrial espionage – is one of the forms of unfair competition, which is applied at all the levels of economy, starting from small enterprises, up to the states.

The main aim of the industrial espionage – the economy of the means and time, which are required to gain the opponent’s level, who places the leading position, or do not allow the recession from the opponent, if he is conducting or have already conducted the elaboration of new perspective technology, and also to achieve the entrance for the new perspective markets.

The main difference of the industrial espionage from the competitive intelligence is that the former violates the norms of lawmaking, first of all criminal, while the latter is not able to do that (Camerona, Proudmanb, Redding, 2005).

The industrial espionage stays and will stay the powerful tool of state intelligent services, the main aim of which – the direct violation of the foreign states legislation in the interests and by the direction of the country the service belongs to.

On the level of the enterprises, the choice is usually made in favor of the competitive intelligence, as any enterprise does not have the authorities of the state intelligent services; that is why in the case of failure of industrial espionage it risks to be subjected to criminal discretion, and also bear reputation risks (Camerona, Proudmanb, Redding, 2005).

In most industrially developed countries information is on of the main basis of the community development. The advantage and the specification of information is that it never disappears while usage, and never transferred wholly while the exchange (staying in the user’s informational system), it is “indivisible”, i.e. it has meaning only with the enough set of facts, ad its quality rises with the adding of new information. Though, society, whose scientific, technical, industrial, practical and theoretic activity is based on the operatively accumulative information, gets in its disposal the resources o high significance, subjected to multy-sided and multy-repeated usage, further “renewing” in the improved form and rapid creation of the new informational systems. Information is, firstly, knowledge of principally new type, and secondly, knowledge, production, stockpiling and usage of which becomes more and more important activity for the society, it produces the corresponding technical-organizational structures. Such structural formations are the organizations, conducting the unapproved gaining o the information, with the aim of getting benefits, thus making industrial espionage. The fact is that, humanity has accumulated sufficient experience in this sphere.

It is necessary to mention that there are no substitutes for the patentables – thus pledging to prize its inventor/ owner with a monopoly profit. Additional analysis suggests, that few patents grant monopoly power upon their owners, mainly due to the existence of diversity of worse alternatives for most patentables; despite that, most successful patents possibly confer some supracompetitive profits. The only sufficient distinction between the monopoly and supracompetitive income scenarios dwells not in the substance of the most favorable rule, but rather in its appliance. In the questionably rare case in which a patent grants monopoly power, the profit which is appropriate to the patent will is the profit wholly derived from the sales. If the patent grants only supracompetitive revenue, the income appropriate to the patent will be less than this sum. Determining the correct amount of the profit expectable to an act of encroachment in the latter situation can provide very difficult realistic issues; but in theory, the basic analysis is no different from the one developed above under the assumption of non-substitutability (Blair & Cotter, 1998).

The implementation of TRIPS provisions and obligations in the developing countries

In the community with lots of countries and where inventions can flow from state to state free-riding interactions might occur. Any state would like to observe IPRs in the other countries but would be unenthusiastic to approve them at home. Thus, this state can benefit from the innovations invented elsewhere avoiding paying for the R&D expenditure. This is the present situation in the world, in which the rich states have adopted IPRs, while developing states have not. These are the poor countries that use the achievements of the richer ones. But the developed, in opposition, can not benefit from the slight achievements of the poor ones (Blair, Roger, Thomas, 1998).

Governments of the developed countries have been requiring that IPRs need to be harmonized allover the world since this could allow the innovatory firms of the developed world were able to benefit not only in inner markets but also in the markets of the developing countries. The adoption of the TRIPS Agreement (Trade Related Aspects of intellectual property rights), terminated these argues. TRIPS establishes that all WTO members must accept some minimum standards of IPRs. This standard minimum corresponds to that customary in developed countries. (Blair, Roger, Thomas, 1998).

The provisions and obligations under the TRIPS need to be applied equally among all member states, though developing countries were allowed to extend the time for the implementation of the necessary changes to their state laws. The conversion period for developing countries terminated in 2005. The conversion period for least developed countries was expanded to 2016, and could be expanded furthermore.

Developing countries are great exporters of copyrights, patents and trademarks. It has been disputed that the TRIPS obligations of requiring all states to create distinct intellectual property lawmaking systems will harm poorer countries’ development. It is considered, that it is in the strategic interests of all underdeveloped states to use any elasticity available in TRIPS to create the weakest IP laws achievable.

A 2005 report by the World Health Organization (WHO) revealed that lots of underdeveloped and developing countries have not integrated TRIPS obligations into their lawmaking to the extent approved under Doha Declaration.

This is likely reasoned by the lack of legislative and technical expertise necessary to sketch laws that legislate the flexibilities of IP.

The economic espionage act

The Economic Espionage Act was signed by President Clinton on October 11, 1996. The EEA makes the theft of commercial secrets a criminal offense.

By the terms of the EEA, a commercial secret is identified as ” all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:

  • the inventor or patent owner has undertaken measures to keep such information classified; and
  • the information obtains autonomous economic value, current or potential, from not being commonly known to, and not being eagerly proved through proper means by the public” (Fraumann, 1997).

Despite this classification coincides with the meaning of “commercial secret”, there are important differences. The EEA definition of commercial secret is much broader than the UTSA definition. Furthermore, the EEA definition includes data in any form, “whether substantial or intangible,” and if/how stored, compiled, or memorialized physically, electronically, graphically, photographically or in writing. It is clear from the explanation that the EEA covers that information that is stockpiled only to the extent that an individual has remembered it. This extended explanation has serious suggestions for businesses that hire from contestants, which will be argued more fully in the verbal presentation (Fraumann, 1997).

The core of the EEA includes two sections, Sections 1831 and 1832, which punish an individual or organization that intentionally

  1. steals, or appropriates without authorization, takes, carries away, or conceals, or by fraud, artifice, or deception obtains a commercial secret;
  2. without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret, or
  3. receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained, or converted without authorization

Sections 1831 and 1832 also make illegal the attempt to commit one of the acts prohibited by paragraphs (1) to (3), or a conspiracy to commit such an act (Fraumann, 1997).

Sections 1831 and 1832 differ in the range of defense subjected individuals they reach. Section 1831 is explicit in penalizing someone who realizes that the violation of the Act will help to gain benefits by any foreign subject (government, organization, agent), as those terms are defined by Section 1839 of the Act. In distinction, Section 1832 aims the theft of commercial secret more generally, without regard of foreign subjects of international activity. Specifically, Section 1832 targets to penalize those who obligate one of the forbidden acts with the purpose to transfer a commercial secret, which secret is concerned to or included in a product that is manufactured for or located in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will injure any owner of that trade secret.

The chapters also differ vaguely with regard to what represents a trade secret. By the provisions of Section 1831, the stealing of an intangible idea will not avoid prosecution and/or penalty just because it has not been commercially developed Under Section 1832, though, a trade secret is classified as being “concerned to or included in a product that is produced for or placed in interstate or foreign commerce.”

The EEA concerns not only illegal acts performed entirely within the United States, but also concerns foreign offenses, provided that any act in the furtherance of the offense was committed in the United States. As it may be expected, significant number of foreign economic spying occurs outside of the USA. Under Section 1837 of the EEA, a foreign enterprise that sells goods within the United States that involves a stolen commercial secret can be punished in the United States if the misappropriation would be found at the territory of the USA. This provision applies regardless of where the product is manufactured. The EEA also touches upon completely foreign acts of economic espionage, but with the provision that the defendant is either a citizen of the US, a permanent resident at the territory of the United States, or a United States corporation  (Fraumann, 1997).

Lockean Philosophy and the Intellectual Property Laws

First of all it is necessary to admit, that the juridical side of the intellectual property protection had never been paid sufficient attention since the ancient times up to the late Medieval. The results of technical or art creation were usually spread by non-market means, and the authors’ labor was either paid by Maecenas or regarded as custom but qualified job (Etro, 2007).

With the steady destruction of the existing craft systems and transfer to the manufacturing production and book-printing in European cities, the need to separate the manufacturers’ and publishers’ interests from the negligent competency.

It was necessary to fix special rights for the interested people, in order “nobody could crop, where had planted nothing”. The most important aim was to define what was owned by one, and what was owned by the other. Only state could solve this task, as only state’s legislative function is able to provide the development of the regulatory basis, which is claimed to serve as the “juridical cover” for the existing relations. The execution of the legislative regulations, the setting of the rules, offering of the lawful variants of achieving of the legitimate aims and further submission of human behavior to these rules – are the main aims of any civilized state. Roman lawyers considered, that “Law is the general promise of the state”, “where there are no legislative norms, everything needs to be regarded with suspicion”. The philosopher John Locke wrote that “The freedom of the people, who are under the authority of the state, involves having the stable life rule, unique for any society member, and stipulated by the state power created within: this is the freedom to follow one’s own desires if this following in no way leads to the law violation, and not to be dependant on unstable, unknown and undefined someone other’s authority”. Locke is considered as the founder of the property law, and intellectual property in particular, as he had argued on the issues of not only state law. Locke regarded property as a foundation for a sophisticated vision that opposed an total and negligent monarchy. As the philosopher he realized, that the intellectual property, the result of any cognition process must be protected, in order only philosopher owned the right of usage and application of the theories and concepts, he had invented (Etro, 2007).

It is undoubtedly, that the distinctions between tangible and intellectual property affect the basic arguments, which maintain Property lawmaking as an institution, particularly the Lockean arguments. But on the other hand, the intangibility of the Intellectual Property makes the reasons by Locke for recognizing as the institution much stronger than tangible property. The disadvantage of the Lockean position on this issue is that it deals with the world of unlimited natural resources. Locke himself identified that labor needs to be mixed up with the natural resources in order the basis for property could be created. To get to the intellectual property laws, it is necessary to regard the concept of property through the time. The scarcity of the resources leads to the enrichment of the X (over a few generations), while Y becomes poor, as he lacks access to the natural resources, and thus loses forces, time and money. The theory by Locke describes the situation, when lazy X becomes renting landlord, meanwhile working Y stays poor (Etro, 2007).

But this objection is rather weak for the appliance to the intellectual property concepts, as the lack gap between those who have and those who do not is not so sufficient and offensive. If X ones some idea, it in no way prevents Y from creating his/ her own. Another detail is that intellectual property exists only in the real time regime, and always limited in time, the problem of intergenerational transfer is solved by itself.

As for the issues of industrial espionage, it is necessary to mention, that IPRs are claimed to prevent it, as they make impossible the implementation of the stolen secret (especially, if it is innovatory, and has been patented). The necessity of such control is inevitable. First of all it supports fair players of the market, and helps to benefit those who really worth it. It is also claimed to control the technology transfer. Let alone the financial benefits, the technology transfer control is a part of the world global security, as military technologies are of the highest priority for spies. Few international agreements are concluded with the aim to control the transfer of military and cryptography technologies. These are the Wassenaar agreement, Missile Technologies Control Regime (MTCR), Zanger committee (in 1996 was transformed to the Nuclear Suppliers Group), and Australian group. All the enumerated agreements, and organizations based on the agreements of non-proliferation have in common the control of technology and weapons transfer, but each has its own specialty: thus Wassenaar agreement is claimed to control the proliferation (or non-proliferation) the technologies of ciphering (encryption); MTCR is characterized by the name of the organization, but the portable anti-air craft complexes are of the highest control priority, as these complexes are the main weapons of Islamic terrorists. Nuclear suppliers group is convened against the nuclear technologies and materials proliferation. Australian group is the largest, and has collected 30 states for the time of its existence. The main aim of the members is to prevent the proliferation of the technologies and materials which are necessary for the creation of the Weapons of Mass Destruction. The statute includes the two groups of technologies and materials, which are forbidden to transfer without prior agreement of the member-states.

Libertarian View

Libertarian view to the issues of the intellectual property involves the full refuse from the latter. According to the discussions held by the representatives of this school, copyrights only lead to the increase of monopoly tendencies. Libertarians consider that intellectual property is a monopoly privilege exists only for government intervention, so it must be eliminated. To them, any secrecy and exceptionality which exist ought to be achieved out of voluntary contracts, and the value of it must be appointed only by those, who want to benefit. Luckily, the libertarians publish the journal, specializing on the issues of the Intellectual property laws, including copyrights, patents and the description of each matter. For the following chapter the materials of “ the Journal of Libertarian Studies” will be used (Boldrin, Levine, 2003).

If let alone the issues of inter-individual value comparisons, such as the comparison of the benefits of having or not having the copyright for something, and the fairness of reallocation, and move ahead, making use of basic measurement tools, it is not at all understandable that IP laws cause any change in the redistribution of the overall wealth. It is arguable if copyrights and patents are necessary to stimulate the output of creative works and inventions, or that the increasing achievements in innovation outweigh the gigantic expenditure of an IP system. Econometric studies do not convincingly demonstrate net gains in wealth. Obviously, more innovations and inventions would be represented, if IP laws did nit exist; and more funds would be available for the research and development, if these money were not spent for patents, copyrights, elaboration and implementation of the new laws. And most obviously, that the companies would invent and innovate more in order to succeed in competency, if they were not maintained by the monopoly, which the patent provides (Boldrin, Levine, 2003).

It is necessary to mention, that libertarians also argue about the precision of the laws themselves, and the definitions of the key concepts. Thus, physical, mathematical, philosophical etc. rules can not be patented. But their material or practical implantations can. Herewith, we have the concepts of patentable invention, and unpatentable discovery. This rather complicated issue needs to be arbitrated.

But the difference between invention and discovery is as clear as it must be. Nobody is able to create some natural law, everybody just may use previously discovered one. In this meaning, nobody creates anything. An inventor who creates a new mousetrap just rearranges already existing parts to perform principally new function. Others who study this new invention are able to create an improved mousetrap. But still, the mousetrap just follows the laws of nature. The creator, thus, do not creates the new law; he just puts it to work (Boldrin, Levine, 2003).

Issues linked with intellectual property laws are becoming more and more important in arguments. New areas of products which need to be subjected to patenting have been created, and these areas raise issues for the description and delimitation of “property rights, including one of the most burning – “internet patents”

Meanwhile, some of these innovations, which are claimed to clarify the issues, usually complicate the conventional forms of IP – for example, the initiation of “.mp3” file-exchange, which raises issues relating the future possibility of copyright in music records. The complications which technologies are compelling on existing IP law have caused harder and more severe enforcement of current legislative tools.

In the regard of such improvements, it is the best time for fundamental re-elaboration of the existing IP rights. Instead of performing reforms and strengthening current laws, libertarians argue in favor of moving in the opposite direction. More exactly, as for them, the need for the intellectual property needs to secede by its own.

Inspite of the fact that libertarians are against the implementation of the intellectual property rights, they never mention the opportunities of the increased industrial espionage, which may be caused by the absence of the former. But there are lots of means of such called “fair” espionage. Moreover, when it is talked about industrial espionage, the illegal means are rather an exception than a rule. According to the observations of the president of Marketing Specialists Russian Guild Igor Berezin, 70-80 percent of information about the opponents could be gained legally, by using the open sources: newspapers, magazines and internet, just listening to the talks in cafes, pubs and restaurants. Than, nearly 25% of confidential data are gained by the means of legal arrangements, such as opponent’s production purchase, participation in expositions, conferences, where all the available or left information is collected, and everything possible is photographed. If the standard methods are of no result, more expensive ad sophisticated methods are used. For example the concluding of contracts on behalf of the false companies for the conduction of the researches in the competitors’ laboratories, sending of the students and trainees abroad for study, conduction of a fortiori fruitless negotiations, with constant requests of additional information. (Boldrin, Levine, 2003)

With the abolishment of the IPRs the situation with “fair” espionage will tend to worsen, and new methods will be invented. Libertarians have noble goal – to diminish the monopolies, caused by the implementation of the IPRs, but they can not see the reverse side of the issue, which is much more crucial than monopolies.

Innovation and monopoly

Monopoly authority may encourage innovation, according to recent research by Professor Federico Etro. Although the market leadership of enterprises like Microsoft is often condemned, their assets in research and development (R&D) are helpful to society because they increase the technological boundary and open new means of success.

Lots of technological improvements are expanded by firms with patents on the principal edge technologies. These firms effect their leadership and market position by the means of innovations. Etro’s study describes why the innovatory expansion is closely connected with the indefatigability of monopolies and why this actually harmful outcome can be encouraging for consumers and the society.

It is well known among the economists that the companies which obtain the leading technologies, reluctantly agree to share researches and developments with the outsiders (Etro, 2007).

Etro’s study reveals that this Arrow phenomenon disappears with the existence of either circumstance:

  1. the current owner of a patent races for further technology development oin order to ,maintain its leadership;
  2. the market is featured by open entry; this way, the corporation will have more encourages for the investment of R&D than any other firm.

The grounds are that by assigning to a high investment in research and development, the leading company will enhance the likelihood of preserving its technological guidance without influencing the current patent. The leadership of the existing monopolist enlarges total investment in R&D and accelerates the process of technical modernization with positive outcomes for customer welfare and state growth (Etro, 2007).

In contradiction, a market with some determination of monopoly is competitive, while one with steady monopoly hops must conceal some obstacles to entry!

This result applies a more universal result achieved by Federico Etro in an associated study, ‘Stackelberg Competition with Endogenous Entry’. In this research, Etro demonstrates that in any market with open entry and some leading enterprise, that enterprise will be more insistent in any rivalry: produce in larger volumes, reduce prices, select higher quality productions and in addition invest more in R&D sphere. Furthermore this leadership produces higher benefits for customers (Etro, 2007).

Etro illustrates that sometimes market leadership is very aggressive, and thus other enterprises are unable to come into the market: markets with the only firm as a leader can be rather aggressive in competency.

The relation between the structure of the market and intentions to innovate has interested economists at least since the times of Joseph Schumpeter (1950) who emphasized that the rivalry is a procedure of “creative destruction”. Examining that firms in atomistic industries are short of the resources needed to support continuing studies and developments, Schumpeter noticed large enterprises in aggressively competitive markets as the subjects of economic progress. Just they gain benefits in excess of standard, few of which can be assigned toward the invention of the new productions, new producing methods, and new organizational structures that raise human standards of living. No one but these companies can efficiently utilize scale economies in basic and practical research, promoting the considerable expense of establishing foremost industrial laboratories over great volumes of production, only they can succeed of productive partnership between full-time research scholars and the working engineers, moreover, these companies are competent in undertaking the prolonged and risky process of commercializing sci-tech breakthroughs.

Though, R&D investment may act as the separate market power (Romer 1990; Etro 2004). Schumpeter doubted that comparative advantages of big enterprises could provide steady market dominance. As the other companies have the same motivations, nobody would be able to benefit more than the competitive edge allows to, but steady supply of new ideas from competency, both inside and outside the market, threatens to ruin the status quo.

The concept that monopoly encourages innovations was firs argued by Kenneth Arrow (1962). He proved that organizational inactivity, empowered by the lack of competitive forces, would make large firms uninterested to the innovations.

Swan (1970) proposes that, until a monopolist not inevitably delays promotion of a newly invented replacement for his own production, the replacement will need to be promoted at a higher value and in small quantities in comparison with the competitive industry.

But does intellectual monopoly really lead to more intensive innovation than competition? From a theoretical viewpoint the answer is gloomy. In the long-term perspective, intellectual monopoly offers enlarged incomes to those that innovate, and also makes innovation more expensive. Innovations are usually built on already existing ones. While every innovator gets more income from innovating if he obtains an intellectual monopoly, he also faces a larger expenditure for further innovating: he needs to induce all those other monopolists who own rights to presented inventions. Indeed, in the extreme situation, when every new innovation involves the utilization of lots of previous ideas, the existence of intellectual monopoly can bring innovation to a halt.

Moreover, intellectual monopoly gives the current situation a leading position that dampens contestants from entering the market, thus decreasing the likelihood for further innovations by the new participants. Partially, this is caused by the fact that innovations are built on already existing innovations, consequently the monopolist can establish high prices and make new innovations too costly for competitors. Partly, this is caused by the fact that monopolists usually face lowered prices of “corresponding” of any improved new product. It is mentionable that in both cases, it is the “discouragement effect” that is significant: this involves less efficient marketability, therefore less innovatory attempt. Besides, theoretical contemplations also suppose that the reaction of innovation to the amplification of intellectual monopoly is not consistent over time. In the short-term perspective –instantly after the primary introduction of legislation which allows patents – the world community would expect the increase of innovation, as the incomes from innovating grow up, but expenditure will not enlarge for some time when lots of ideas have been patented.

Remarkably – from a hypothetical viewpoint – it is probable that, in the short-term perspective presenting patents causes more modernizations and elimination of patents after they have been introduced for some time – by tumbling the price of innovation – raises innovation as well. A similar phenomenon is to encourage the long run practice of western societies. Some economic historians, Douglass North is the most well-known among them, have disputed that the immense speeding up in modernization and productivity are usually associated with the Industrial Revolution, which was caused by the expansion of ways to defend the right of originators, thus allowing them to benefit from their creations.

Fundamental within these ways was the acknowledgment of patents to originators, and their maintenance either by Parliaments or by the Courts. Related to the most poorly definite contractual rights of pre-seventeen epoch of Europe, overwhelmed by royal and upper-class exploitations of property, there is no suspicion that providing to persons an impermanent but well defined monopoly over the results of their creative attempts was a key step ahead. Even monopolistic possessions are much better than a structure that permits arbitrary abduction by the rich. However this in no way contradicts our claims that prevalent and further growing monopolistic rights are not as communally advantageous as well identified competitive property rights.


Historically, patents were given only for some mechanical inventions something tangible. In order to get a patent, inventor had to have a working model of some mechanism he had invented, in other words – physical demonstration.

Prior to summarize everything up, it is necessary to outline, how industrial espionage could be stopped. Ideally, the IPRs and TRIPS are claimed to stop it, but if the spies are so reluctant to observe these rules and laws, it means either the legislation is not strict enough, or is not efficient enough. First of all it is necessary to provide the proper level of awareness and education on the issues of economic espionage and intellectual property. Than, it is necessary to be sure in personnel, that is why managers need to know they are going to hire, and maintain contacts with the already working staff. Special polices need to be implemented for checks and balances.

The information security factor is the key one in preventing espionage. The best way would be to recruit certified information security professionals, use efficient information security technologies, and be sure that the disposed documents have been terminated.

Physical security prevents from getting a spy to the territory, and it is also useless to implement information security or hold some investigations if anyone has free access to the territory of the enterprise.

Administration needs to perform retaliatory actions: to know the competitor, partners and customers (both, own and competitor’s). Be sure to use legal methods, as even if some owner is supported by the law, market may be lost for him. Any director needs to work towards the protection of information, and avoid any litigation.

Another issue which should be mentioned in the conclusion is the issue of the future of the IPRs. Property rights and IPRs in particular shape the basis of the market system. They have become an issue of the allover discussions for the recent decade. The world has become the area of the global trade and competency, but various economic regions of the world stay rooted because of their historical and cultural traditions, especially towards the relations of property, price formation and economic justice. The consequence is that people meet an increasingly global economy that lacks the fundamental issues of Property Rights, which strengthen trade and development (Wallerstein, 1993).

The IPRs regulation creates special problems: first, intellectual property acquires economic features not found in concrete commodity property. It is readily detachable and movable and can be effortlessly appropriated by lots of parties at once. Secondly, IP is engaged in the expansion projects of many states that they are unable to afford to be eliminated from access to it.

The IPRs regulation will probably become stricter, inspite of the libertarians’ efforts to diminish the existence of patents and copyrights. The reasons of empowering the copyrights are not numerous, but rather fundamental. The key one is to prevent industrial and economic espionage, as it became real scourge for the businessmen. The increased number of espionage cases is not revealed as companies prefer not to wash the dirty linen in public. Another reason is the necessity of defense of any data subjected to patenting or copyright.

Unfortunately there is absolutely no statistics in the sphere of property rights, that is why it is very difficult to follow the changes of the legislative base, count or observe the cases of IPRs violation and so on. The modern digital technologies and the mass communication make the information exchange faster and easier, the inventions become more and more intangible, the IPRs experience enormous stress as they outline their establishments to the origin of the printing production and mechanical industrialization. Industries that depend on copyright and patent defense are more and more revolving to the law to defend their trades. For example, music corporations are charging crowds of people for trading songs in the internet and trying to stop the sales of counterfeit CDs. Google has also been accused by a union of writers to avert it from publishing book passages online. Meanwhile, the World Intellectual Property Organization and the United Nations Organization are about to convene negotiations with the aim to create new layer of rights for broadcasters, involving the web positions.

As for the international community, and its opinion as for the future of Intellectual Property rights, it is necessary to mention, that WIPO is only for the further development of IPRs, and for the implementation by all the countries. Moreover, it plans to reform the whole IPRs system. At an exceptional three-day meeting on a Development Agenda for WIPO, 14 countries which are called the Group of Friends of Development (FOD) introduced a comprehensive and remarkable paper claimed to change the IPRs, and a reform the way WIPO operates. The FOD Group, under the heading of Brazil and Argentina, disputed that current international agreements at the WTO and WIPO had led to the adoption of the high levels of IPRs by the developing countries with unpleasant financial and public effects.

The states argue that the adoption of Intellectual Property Rights is not a terminal goal, but a tool for supporting the civil interests, modernizations, and admission to science. There needs to be an appropriate balance between the community interest and the interests of right holders.

The Africa Group maintained a development Agenda that would introduce the development aspect in WIPO’s plans. The Asia group also received the proposal of FOD. It adopted that protection of IP is not final goal itself, saying “the Development Agenda should take into account any negative impact on the users of IP, on consumers at large and on public policy in general, not just the interest of IP owners. It is vital to inject this balance and equity into the various WIPO bodies.”

Thus it is possible to conclude, that inspite all the arguments on the issues of monopolies caused by the implementation and observation of the Intellectual Property Rights, the world community realizes, that industrial and economic espionage caused by the absence of the former. Even despite all the difficulties related with the adoption of the IPRs in the developing and underdeveloped countries, the world leaders agree to help materially, and send necessary specialists to help with the implementation of the legislation.

As the worldwide economy tends to be information based, the importance of intellectual property will keep on to act an increasing function as the motivating force behind future combination and gaining action. Indeed, intellectual property is expected to be the central force in future trade relations including tomorrow’s unifications and acquisitions.

Thus it is possible to conclude, that IPRs play rather significant role in the flourishing of the nowadays world, as it has been argued above, Patents and Copyrights are claimed to encourage the innovations, and creations of new secrets, tools, mechanisms etc. Inspite, that in some measure IPRs encourage the creation of monopolies, they prevent direct espionage, making entrepreneurs invent more and more sophisticated measures to gain information. Obviously, the fair espionage tools also will need to be patented in future.


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