Pirates of the Caribbean

(Photo: methodshop.com)

Hollywood is abuzz with reports that the tiny islands of Antigua and Barbuda may begin operating their own national versions of the Pirate Bay, where individuals can cheaply, or even freely, download the latest films and TV shows. The clincher: this will all be legal.

How is that possible? Because the World Trade Organization says so. Let us explain.

When the U.S. helped create the WTO back in the early 1990s, it had a few main goals. One was to create a serious world trade court. The WTO has a lot of complex rules on trade, and the idea was to build a legal system that could neutrally adjudicate allegations of rule breaking. And it would work by allowing the winning country to retaliate against the loser by “suspending obligations.”

In other words, if the U.S. takes Japan to trade court and wins, Japan has to stop doing whatever bad thing it was doing. And if it doesn’t, the U.S. gets to retaliate–by, for example, increasing tariffs on Japanese goods up to the amount of harm Japan was causing.

The other big thing the U.S. wanted was better protection of intellectual property. If a member state (and basically every significant economy is a member) wasn’t protecting IP adequately, the U.S. could use the same dispute system to attack that problem. The resulting agreement, known as TRIPs (for “Trade-Related Aspects of Intellectual Property”) was big news that forced a lot of states to upgrade their IP laws.

So how is that Antigua and Barbuda get to play Napster? While TRIPs has generally worked as intended (at least for the U.S.), one of the problems with the dispute settlement system is that it works great when big states win. But how can a small state effectively retaliate against a big state?  “Suspending obligations” by raising tariffs is, as any economist will tell you, like shooting yourself in the foot – higher tariffs just raise the prices of goods and take money out of consumers’ wallets. But the problem is much worse when you are a tiny economy and you are trying to inflict pain on a giant one. The tariffs imposed by a country with a small economy don’t cover enough trade to sting, so it just doesn’t work.

Back in 2007, the tiny islands prevailed in trade court against the U.S., successfully arguing that U.S. laws restricting Internet gambling violated the trade in services provisions of the WTO. But then they faced a conundrum. What could they do to punish the U.S.? Antigua’s proposed solution was to “suspend obligations” in the area of TRIPs. In other words, it would start ignoring certain copyright and patent rules. 

Years of negotiations to avoid this outcome ensued. But on Monday, in Geneva, the WTO gave Antigua and Barbuda the right to start retaliating via TRIPs, to the tune of $21 million annually. Cue chaos in Hollywood.

For its part, the U.S. government called the planned withdrawal of obligations under TRIPs “theft” and “government-authorized piracy.”  But the headline in Monday’s Deadline Hollywood gets at the mounting fear among media firms:  “Copyright Nightmare on Horizon as WTO-Approved Legal Piracy Advances.”

Stay tuned. Because “Pirates of the Caribbean” may soon have a very different meaning.

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  1. frankenduf says:

    so the us gov’t wants free trade to open up markets, then it wants protectionism via copyrights and patents- well, u can’t eat ur movie and have it too

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  2. Johnny says:

    This is totally super awesome. I don’t think $21 million is enough though – even if that’s equal to the damages it’s nowhere near enough to hurt the US or Hollywood wallets. But maybe their fear is that this precedent could inspire a lot of little countries abused by the US to file disputes, possibly adding up to the entire US media catalog available for free. Now that would be really hilarious.

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  3. mannyv says:

    The US is trading copyright protection for a ban on online gambling. Pretty poor trade.

    Basically it’s a fight between Reid/Heller (D, NV) and Boxer/Feinstein (D, CA).

    Vegas is going to lose on this one.

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    • Tatil says:

      Actually, Vegas would probably love it if the feds lift the ban on online gambling, so it is NV and CA against the prudes of the rest. :)

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  4. Scott Turner says:

    The $21M is misleading. I doubt Antigua is going to implement rigorous tracking of real identities to benefit the US Justice Department. So anyone accused of piracy can claim they got it legally from Antigua and put the burden on the prosecution to show they didn’t.

    I suspect Antigua will only go so far in antagonizing the US. The endgame is probably for Antigua to get some sort of aid/inducements from the US.

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  5. mfw13 says:

    I think to some extent this is a function of the fact that intellectual property laws are no longer in sync with the way intellectual property is used, especially e-property.

    Modern-day consumers, for example, generally take the attitude that once they purchase an electronic good, they should be able to do anything they want with it. Be it a song (music file), a movie (video stream), or an e-book, once they buy it they should have the right to share it or re-sell it as they see fit, much as they can with physical items.

    Content provdiers, on the other hand, want to limit the ways consumers use electronic items in order to protect their own sales. So when I get tired of listening to a song I bought on iTunes, I can’t lend it to a friend or re-sell it. Same thing with e-books.

    Thus the market demand for pirated goods.

    Just remember the simple truth: black markets only exist when regular markets have failed.

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    • Travis says:

      I think the interesting thing is that the world keeps pushing towards more digital, less tangible content.

      The upside of this for the producer is not having to actually manufacture or ship anything, which reduces overhead and operating costs significantly (also, it can spur innovation because the barriers to entry when making music / movies are significantly reduced).

      Yet on the flip side, the content industry is simultaneously trying to reduce the consumer’s ability to share the data. The content industry is really trying to have their cake and eat it to.

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