Korea's road toward respecting intellectual property rights.

Author:Choe, Amy

    The Republic of Korea is at a crossroad in recognizing the intellectual property rights of software manufacturers. Once a rampant software pirate, Korea is beginning to alter its approach to intellectual property protection.

    Korea's transition from software piracy to protector began in 1985 when the United States used the threat of trade sanctions under "Section 301"(1) to force Korea to amend its intellectual property laws.(2) The Korean National Assembly responded to U.S. trade pressure by overhauling its intellectual property laws.(3) On December 31, 1986, the Korean National Assembly passed amendments to its Patent Act,(4) Trademark Act(5) and Copyright Act.(6) On the same day, the Korean Assembly also passed the Computer Program Protection Act(7) ("CPPA"), which recognizes the need for computer program software protection.

    U.S. trade pressures and threats resulting from Special 301 were the catalysts that forced Korea to reform its laws and improve enforcement of intellectual property rights.(8) However, as demonstrated by continuing acts of software piracy, enforcement has been a persistent problem.(9) According to one author, who is a critic of current U.S. policy, formal changes in a country's laws that are brought about by external pressure, will not transform traditional attitudes or practices of intellectual property violations.(10) Passing legislation is only the first step toward protecting intellectual property rights, and without widespread understanding, enforcement cannot be achieved.(11)

    First, domestic economic factors must be considered to understand the continued problem of enforcement in Korea. Korea's economic policy of rapid development through establishing a close government-business relationship, has worked to inhibit enforcement of the CPPA.(12) This economic policy, that has allowed piracy to persist, has been working in opposition to U.S. pressure to improve intellectual property rights in Korea. Recently, however, through the development of a domestic software industry, Korea has begun to appreciate the negative effects of piracy. Moreover, the structural economic reforms, resulting from the 1997 financial crisis, will sever the past economic policy that promoted economic development over everything else, including property rights. Although external pressure may lead to some improvement in protecting intellectual property rights, significant long-term change will occur only when the Korean government understands the impact of piracy on its own economy.

    Part II of this Note will examine the impact of software piracy on the U.S. software industry. Part III will scrutinize the role of international pressure, particularly U.S. Special 301 policy plays on compelling Korea to improve its protection of intellectual property rights. Part IV will explore Korea's economic policy as a means of understanding the underlying problems of enforcement. Lastly, Part V will explain how the development of Korea's software industry and its current financial crisis may produce significant long term changes in software protection.


    Software piracy is generally considered "the unauthorized use or illegal copying of a software product."(13) Although software piracy occurs throughout the world, including the United States, it is rampant in certain countries, such as Korea.(14)

    According to the president of Business Software Alliance, Robert Holleyman, "software piracy is the greatest single threat to the advancement of the software industry."(15) The U.S. software industry lost approximately $2.8 billion in 1997 as a result of piracy.(16) Because the U.S. software industry employs more than 2 million people annually, large revenue losses translated into approximately 130,000 lost jobs and $1 billion in lost tax revenue in 1996.(17) Piracy in Asian countries constitutes 29% of the worldwide losses.(18) Therefore, a 25% decrease in piracy in Asia would create "an additional $2 billion ... in potential business software sales for PCs in the region."(19)

    The Business Software Alliance ("BSA")(20) and the Software Publishers Association ("SPA")(21) are two leading international associations with members from the computer and software industry. SPA is the software industry's primary trade association, which supports companies that "develop and publish software applications and tools for use on desktop computers, client-server networks, and the Internet."(22) BSA "promotes the continued growth of the software industry through international public policy, education, and enforcement programs in sixty-five countries."(23) Both associations have initiated a massive, worldwide computer software anti-piracy campaign.(24) BSA and SPA also conduct research and initiate litigation for copyright infringement against corporations, computer dealers, individuals, and educational institutions.(25) Both associations use a two-pronged approach of education and enforcement to reduce illegal software piracy in the United States and abroad)(26) These two groups are also actively involved in the United States Trade Representative's ("USTR") naming of "priority foreign countries" and filing recommendations with USTR.(27)

    BSA and SPA have both conducted statistical studies through the International Planning and Research Corporation ("IPR") on the effects of piracy on the global software market.(28) In one study, IPR developed a highly accurate, scientific methodology to quantify worldwide losses from software piracy.(29) According to the study, worldwide software piracy losses were estimated at $11.4 billion in 1997,(30) $11.2 billion in 1996, $13.1 billion in 1995, and $12.2 billion in 1994.(31) In 1997, countries with high software piracy rates included Vietnam (98%), China (96%), and Bulgaria (93%).(32) Countries with lower piracy rates included the United States (27%), the United Kingdom (31%), and Australia (32%).(33) The highest regional piracy rate occurred in Eastern Europe, with an average of 77%, while the lowest regional piracy rate arose in North America, with an average of 27%.(34)

    According to the IPR study, Korea's piracy rate was estimated at 75% in 1994, 76% in 1995, 70% in 1996, and 67% in 1997, which amounted to worldwide losses of $510,605,000 in 1994, $675,281,000 in 1995, $515,547,000 in 1996, and $582,320,000 in 1997.(35) Korean end-user piracy, where a business buys one copy of a software product and creates multiple unauthorized reproductions for employee utilization, has been the primary piracy concern for American companies and the U.S. government.(36)


    1. U.S. Pressure - Special 301

      1. Origins and Purpose

        In 1988, the U.S. Congress recognized the importance of U.S. intellectual property rights in foreign countries and enacted section 182 of the Trade Act of 1974, commonly referred to as "Special 301."(37) Special 301 directly addresses the United States' concern for violations of its intellectual property rights in foreign countries, and the effects of such violations on U.S. businesses.(38) The provisions of Special 301 require that the USTR place countries on a tiered list, according to their level of infringement of intellectual property rights.(39)

        As international circumstances began to change in the mid-1980s, intellectual property issues became more prominent in U.S. foreign policy.(40) Motivation to pass Special 301 stemmed largely from the effects of an economic recession in 1988, the U.S. trade deficit,(41) increases in international trade and reduction of trade barriers, financial losses from acts of piracy, and strong domestic industrial lobbying.(42) Congress recognized that U.S. exports and economic interests were harmed by inadequate intellectual property protection and unfair market access abroad.(43) Congress believed that one way to fix the deficit problem was by reforming Special 301.(44)

        Since the United States is a significant export market for many developing countries which lack adequate intellectual property laws, the United States opted to use market access as a weapon against countries that infringed U.S. intellectual property rights.(45) The stated purpose of Special 301 is to promote the "adequate and effective protection of intellectual property rights" by linking the issue of these rights abroad to U.S. trade policies.(46) As a result, many developing countries have created or amended their intellectual property laws to standards comparable to those of the United States and other developed countries.(47)

      2. Special 301 Provisions(48)

        Pursuant to 19 U.S.C. section 2241, the USTR must submit a National Trade Estimate Report ("NTE Report") to the President and to the appropriate Congressional committees by March 31 of each year.(49) The report must "identify and analyze acts, policies, or practices of each foreign country which constitute significant barriers to, or distortions of U.S. exports of goods or services (including agricultural commodities; and property protected by trademarks, patents, and copyrights exported or licensed by U.S. persons)."(50) The report should estimate the trade-distorting impact of these practices on U.S. commerce, and estimate the value of additional U.S. goods and services that would have been exported if such practices did not exist.(51) The report must also include information relating to actions taken to rectify the problem.(52) Furthermore, the USTR must designate foreign countries for Special 301 treatment within thirty days after the NTE Report is submitted, by identifying those nations that either "deny adequate and effective protection of intellectual property rights, or deny fair and equitable market access to U.S. persons that rely upon intellectual property protection."(53) In the identification process, the USTR must take into account: (1) the country's history and practices in intellectual property protection, which includes prior...

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