The ip coalition report I

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The IPC Philippine Report Series

November 2004

A Report Written Under a Study Grant from Microsoft Philippines to

Upecon Foundation

In cooperation with the Intellectual Property Coalition of the Philippines


The intellectual property rights (IPR) concerns have been gaining popularity internationally, but intensive studies on IPR issues have not yet been fully developed in the Philippines. In response to this need for information, the Intellectual Property Coalition (IPC), in partnership with the UPECON Foundation, conducted this analysis on the protection of intellectual property rights in the country. The IPC is the leading federation of IP Rights Stakeholders and Organizations in the Philippines, and is composed of the following organizations, namely: COMPACT; Filipino Society of Composers, Authors, and Publishers (FILSCAP); Philippine Association of the Recording Industry Inc. (PARI); AVIDPHIL; Business Software Alliance; Asosasyon ng Musikong Pilipino Foundation; Philippine Entertainment Industry Foundation, Inc.; Brand Protection Association; KATHA; Movie Producers and Directors Association of the Philippines (MPDAP), Philippine Software Industry Association, Inc. (PSIA), Quezon City Chamber of Commerce and Industry, Inc., American Chamber of Commerce and Industry, and Microsoft, Inc.

The IPC Report focused on the issue of IPR protection in the country, specifically in the area of copyright. First, brief profiles of the copyright-based industries in the Philippines, namely the software, music/recording and video industries, were presented using statistical data from government and private agencies. Included in this section are the analyses of the effects of piracy on the economic performances of the identified industries.

The second part of the research, which is considered as the heart of the study, examined the state of IPR protection. An “Intellectual Property Rights Protection Model” was devised to serve as a framework for the analysis. The model identified three cornerstones of IPR protection, namely: 1) Policy and Regulation, 2) Enforcement and Adjudication, and 3) Public Information and Education Campaign. Under the Policy and Regulation section, the different IPR laws and regulations in the Philippines were determined, including the most recent ones that have been passed in the Philippine legislation. This section encompasses laws concerning copyright and patents, and other legislative measures regarding border controls and electronic commerce. Meanwhile, the different IPR enforcement activities, by both the government and private sectors, were presented under the section Enforcement and Adjudication. Here, the relationships between the piracy rates (software, music and video piracy rates) and the enforcement activities were analyzed. Lastly, the section on Public Information and Campaign identifies the various efforts of the government, IPR stakeholders, and private organizations, in educating and informing the public on IPR issues and concerns.

The paper also presented “Insights on the Intellectual Property Rights Protection” discussing the interrelationships between and among the legal, social, and economic aspects of the endeavor. The legal side involves the laws governing the IPR and the judicial processes involved in trying IPR cases. These are the de jure institutional arrangements wherein the government is the recognized main authority on the subject. The social side of IPR deals with the social attitudes and customs towards the legitimacy of the rights on intellectual property. In this section, it was stressed that in intellectual property rights, or any property rights issue for that matter, one vital concern is the acceptance of society that intellectual property is an asset in which rights can be allocated to. That it is an income stream that needs management, hence, the provision of the rights. It is significant, therefore, that this knowledge or thinking be ingrained in the value system or norms of the society. On the economics side, the demand and supply of intellectual property assets were discussed.

In general, the study determined the importance of intellectual property rights protection in the Philippines; and how the government, as well as the private sector, responded to the need for it.

Table of Contents


Before discussing the issues covering the intellectual property rights protection, one must first understand the concept of property rights itself and the intricacies involved in the system of its implementation. A property right is the authority to undertake particular actions related to a specific field. It is an instrument of society; and derives its significance from the fact that this right helps man to form expectations that he can reasonably hold in his dealing with others. The said expectations find expression in the laws, customs, and traditions of a society. An owner of property rights holds the consent of his fellowmen to allow him to act in particular ways.

As Schlager and Ostrom (1992) stated, there are two components vital to the understanding of property rights: one is the authority scheme and the other is the specific domain. For every right a person holds, rules exist that authorize or require particular actions in exercising that property right. The rules pertain to the instructions that create authorization. For property rights, there are two relevant rule structures, namely, the operational rules and collective-choice rules. Operational rules define who can participate in which situations, what participants may, must or must not do, and the reward and punishment scheme involved in the actions (Tang, 1991, as cited by Cuevas, 1994). On the other hand, collective choice rules specify who may participate in changing the operational rules and the level of agreement required for their change (Schlager and Ostrom, 1992).

Both the operational and collective choice rules form a system called institutional arrangements. Ostrom (1990) defined these to be the set of working rules that are used by society to determine: 1) who is entitled to make decisions in some arena, 2) what actions are permitted or constrained, 3) what aggregation rules will be used, 4) what processes will be followed, 5) what information must and must not be provided, and 6) what pay-offs will be given to individuals depending on their actions (as cited in Cuevas 1994). Accordingly, institutional arrangements of property are a public system of rules specifying permissible and forbidden actions in relation to ownership, use rights, responsibilities, and obligations of individuals and groups. They include mechanisms for defining and enforcing property rights; hence, they involve both the formal procedures and social customs and attitudes concerning the legitimacy and recognition of those rights (Feder and Feeny, 1991). Therefore, like the rules that comprise it, an institutional arrangement's main function is to define one individual vis-à-vis others, both within the group and with individuals outside the group (Bromley and Cernea, 1989).

Institutional arrangements are classified into two, the de jure and de facto arrangements - the former being the rules and regulations recognized and legitimized by the state, while the latter are arrangements that have evolved into norms that have been accepted and affirmed by the people in the community and society as laws. It is perceived that between the two, the de facto system has a stronger impact on society's behavior. A de facto arrangement is an established and stable phenomenon which everyone conforms to, and which everyone expects others to obey.

With this discussion, how do we now deal with the issues involving intellectual property rights?

Vital to this concern is the acceptance of society that intellectual property is an economic asset in which rights can be allocated to. That it is an income stream that needs management, hence, the provision of the rights. As an asset it is a good and/or service with “definite economic value, and with implications for trade and competition in the market.”1

This leads us to the importance of protecting intellectual property rights. Safeguarding the rights of scientists, artists, and other holders of IP encourages more intellectual property creations. This means more inventions, innovations, discoveries, and scientific discussions that will develop our indigenous science and technology (Optical Media Bill FAQ Primer). In addition, the creative geniuses of Filipinos in the fields of arts and music are also promoted to emerge and thrive. Therefore, by protecting the IPRs, we not only develop our economy though the economic revenues generated by the endeavors, but we also support the growth of our culture.

PR protection also allows efficient and effective technology transfers. A country would only be willing to export its technology if it is confident that it will be able to receive the just economic rents. Numerous studies have concluded a direct relationship between IP protection and foreign direct investments.2 Hence, foreign investment decisions are also dependent in the state of IPR infringements in a country.

With the growing globalization and rapid development in the international distribution systems, intellectual property assets are of central importance in many industries. These industries dependent on intellectual property rights are also becoming significant contributors to the economies of many nations. To stress this point, the framework presented in Figure 1 shows that the various industries in the economy are inter-related through the institutional arrangements that govern the intellectual properties/resources of the players. As earlier defined, these institutional arrangements include the mechanisms for defining and enforcing property rights; that is, they include both the formal procedures and the social customs and attitudes concerning the legitimacy and recognition of those rights. Through these institutional arrangements, different industries in the economy are perceived to be major players in protecting and benefiting from intellectual property rights. These rights are the determining factors in claiming economic rents from their intellectual assets.

With the significance of IPR in industries, countries move to protect these rights. Such movements include the creation of international copyright treaties like the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), and the formation of international organizations like the World International Property Organization (WIPO) that advocate intellectual property rights (IPR) protection. In fact, the TRIPS agreement has taken a pivotal role in fighting piracy worldwide as it sets the minimum standards for IP protection among countries. Meanwhile, the WIPO has chartered the promotion of people's creativity and invention. It promotes the development of IP laws and administers international treaties in order to generate an environment conducive for intellectual property growth.3

The Philippines has long recognized the significance of IPR protection, especially with the country's relevant pool of talents in the fields of science, information technology, biotechnology, engineering, arts, and music. It has been a member of the Berne Convention (Literary and Artistic Works) since 1951; Paris Convention (Industrial Property), 1965; WIPO Convention, 1980; Rome Convention (Performers, Producers and Phonograms and Broadcasting Organizations), 1984; TRIPS Agreement, 1995; PCT (patents), 2001; WCT (WIPO Copyright Treaty), 2002; and the WPPT (WIPO Performances and Phonograms Treaty) in 2002.

However, even with these efforts, the state of IPR infringements in the country continues to be a serious concern. In fact, the Philippines has remained under the Priority Watch List of the U.S. Trade Representative (USTR) “2004 Special 301” Report4 on global intellectual property protection.

At present, among the rampant IPR infringements in the country are: 1) optical media piracy, 2) copyright and trademark violations of all types, 3) importation of counterfeit merchandise, 4) software piracy of all types, and 5) bootleg cable television. The aforementioned are the ones that have the immediate attention of the government and private sectors in the Philippines. Meanwhile, the affected industries of these IPR violations are: 1) Software and IT Services, 2) Music and Recording, 3) Movie and Video, 4) Literary and Publishing, and 5) Merchandising/Manufacturing Industries.

Hence, with the increasing significance of intellectual property assets and IPR protection in the economy of the Philippines, this paper presents an assessment of the IPR protection in the country. Specifically, the study:

  • profiles the IPR dependent businesses such as the business software, music and movie industries;

  • determines how piracy affects or influences the performance of the identified industries;

  • estimates the music and video piracy rates in the country;

  • identifies the efforts of both the government and private sectors in protecting intellectual property rights;

  • analyzes how the IPR protection endeavors influence the performance of the IPR based industries; and

  • assesses the effectiveness of the IPR protection efforts in lessening piracy in the country.

The output of the study provides a profile of three of the copyright dependent industries in the Philippines. This is a step towards organizing information in the IPR system. Indicators to monitor the sector, specifically the copyright aspect, were developed; therefore, producing concrete and quantifiable facts that may be used to assess the sector’s significance, growth, and economic contributions. Moreover, as this study evaluates the individual sector’s performance, information that will support the creation of laws and regulations for IPR protection, are made available.

Meanwhile, the assessment of the IPR protection activities, and their effects on the state of piracy in the country, provides useful information for evaluating present efforts and planning for future IPR protection endeavors.

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