Chapter 1
Intellectual property is a form of knowledge which societies have decided can be assigned specific property rights. They have some resemblance to ownership rights over physical property or land. But knowledge is much more than intellectual property. Knowledge is embodied in people, in institutions and in new technologies in ways that have long been seen as a major engine of economic growth.[1] Alfred Marshall, the “father” of modern economics, thought so in the 19th Century.[2] With recent scientific and technical advances, particularly in biotechnology and information and communications technologies (ICTs), knowledge has become to an even greater degree than before the principal source of competitive advantage for both companies and countries. Trade in high technology goods and services which are knowledge-intensive, and where IP protection is most common, tends to be among the fastest-growing in international trade.[3]
In developed countries, there is good evidence that intellectual property is, and has been, important for the promotion of invention in some industrial sectors, although the evidence as to exactly how important it is in different sectors is mixed. For example, evidence from the 1980s indicates that the pharmaceutical, chemical and petroleum industries were predominant in recognising that the patent system was essential to innovation.[4] Today, one would need to add biotechnology and some components of information technology. Copyright has also proven essential for the music, film and publishing industries.
For developing countries, like the developed countries before them, the development of indigenous technological capacity has proved to be a key determinant of economic growth and poverty reduction. This capacity determines the extent to which these countries can assimilate and apply foreign technology. Many studies have concluded the most distinctive single factor determining the success of technology transfer is the early emergence of an indigenous technological capacity.[5]
But developing countries vary widely in the quality and capacity of their scientific and technical infrastructures. A commonly used indicator of technological capability is the extent of patenting activity in the US and through international applications through the Patent Cooperation Treaty (PCT).[6] In 2001, less than 1% of US patents were granted to applicants from developing countries, nearly 60% of which were from seven of the more technologically advanced developing countries.[7] In the PCT, developing countries accounted for under 2% of applications in 1999-2001, with over 95% of these applications coming from just five countries: China, India, South Africa, Brazil and Mexico.[8] In these countries patent applications, although small, are growing faster than PCT applications generally. PCT applications grew by nearly 23% between 1999 and 2001, but the share of these countries in the total increased from 1% in 1999 to 2.6% in 2001. As we have seen R&D expenditure is heavily concentrated in developed countries, and in a few of the more technologically advanced developing countries. Few developing countries have been able to develop a strong indigenous technological capability. This means that it is difficult either for them to develop their own technology, or to assimilate technology from developed countries.
The crucial question is whether or not the extension of IP regimes assists developing countries in obtaining access to such technologies, and whether and how intellectual property right protection might help developing countries to achieve economic and social development and to reduce poverty. In this chapter we examine:
·
The rationale for IP protection
·
Its use historically in developed and developing
nations
·
The available evidence on the impact of IP on
developing countries
·
The role IP might have in facilitating the transfer of
technology to developing countries.
Box 1.1 What are Intellectual Property Rights?
Intellectual property (IP) rights are the rights awarded by society to
individuals or organisations principally over creative works: inventions,
literary and artistic works, and symbols, names, images, and designs used in
commerce. They give the creator the right to prevent others from making
unauthorised use of their property for a limited period. IP is categorised as Industrial Property (functional
commercial innovations), and Artistic
and Literary Property (cultural creations). Current technological
developments are blurring, to some extent, this distinction, and some hybrid sui generis systems are emerging.
Patents: A patent is an exclusive right awarded to an inventor
to prevent others from making, selling, distributing, importing or using their
invention, without licence or authorisation, for a fixed period of time (TRIPS
stipulates 20 years minimum from filing date). In return, society requires that
the patent applicant disclose the invention in a manner that enables others to
put it into practice. This increases the body of knowledge available for
further research. As well as sufficient
disclosure of the invention, there are three requirements (although details
differ from country to country) that determine the patentability of an
invention: novelty (new characteristics which are not "prior art")[9],
non-obviousness (an inventive step not obvious to one skilled in the field),
and utility (as used in the US) or industrial applicability (as used in the
UK). Utility models are similar to patents, but in some countries confer rights
of shorter duration to certain kinds of small or incremental innovations.
Industrial Designs: Industrial
designs protect the aesthetic aspects (shape, texture, pattern, colour) of an
object, rather than the technical features. TRIPS requires that an original
design be eligible for protection from unauthorised use by others for a minimum
of 10 years.
Trademarks: Trademarks
provide exclusive rights to use distinctive signs, such as symbols, colours,
letters, shapes or names to identify the producer of a product, and protect its
associated reputation. In order to be
eligible for protection a mark must be distinctive of
the proprietor so as to identify the proprietor’s goods or services. The main purpose of a trademark is to prevent
customers from being misled or deceived.
The period of protection varies, but a trademark can be renewed
indefinitely. In addition many
countries provide protection against unfair competition, sometimes by way of
preventing misrepresentations as to trade origin regardless of registration of
the trademark.
Geographical Indications: Geographical
Indications (GIs) identify the specific geographical origin of a product, and
the associated qualities, reputation or other characteristics. They usually consist
of the name of the place of origin. For example, food products sometimes have
qualities that derive from their place of production and local environmental
factors. The geographical indication prevents unauthorized parties from using a
protected GI for products not from that region or from misleading the public as
to the true origin of the product.
Trade Secrets: Trade secrets consist of commercially valuable
information about production methods, business plans, clientele, etc. They are protected as long as they remain
secret by laws which prevent acquisition by commercially unfair means and
unauthorised disclosure.
Copyright: Copyright
grants exclusive rights to the creators of original literary, scientific and
artistic works.
Copyright only prevents copying, not independent derivation. Copyright protection begins, without
formalities, with the creation of the work, and lasts (as a general rule) for
the life of the creator plus 50 years (70 years in the US and EU). It prevents
unauthorised reproduction, public performance,
recording, broadcasting, translation, or adaptation, and allows the collection
of royalties for authorised use. Computer programs are protected by copyrights, as software source
and code have been defined as a literary expression.
Integrated Computer Circuits: A specific sui
generis form of protection for the design of integrated computer circuits.
As the inventive step is often minimal and originality is the only requirement,
the minimum period of protection under TRIPS is 10 years.
Plant Breeders’ Rights: Plant breeders’ rights (PBRs) are granted to breeders
of new, distinct, uniform and stable plant varieties. They normally offer protection for at least fifteen years (counted
from granting). Most countries have
exceptions for farmers to save and replant seeds, and for the use of protected
materials for further breeding.
Database Protection: The EU has adopted legislation to provide sui generis protection in respect of databases,
preventing unauthorised use of data compilations, even if non-original.
Exclusive rights to extract or utilize all or a substantial part of the
contents of the protected database are granted.
THE RATIONALE FOR IP PROTECTION
Introduction
Intellectual property creates a legal means to appropriate knowledge. A characteristic of knowledge is that one person’s use does not diminish another’s (for example, reading this report). Moreover the extra cost of extending use to another person is often very low or nil (for example, lending a book or copying an electronic file). From the point of view of society, the more people who use knowledge the better because each user gains something from it at low or no cost, and society is in some sense better off. Economists therefore say that knowledge has the character of a non-rival public good.[10]
The other aspect of knowledge, or products embodying knowledge, is the difficulty - often intrinsic - of preventing others from using or copying it. Many products, incorporating new knowledge, can be easily copied. Probably most products, with sufficient effort, can be copied at a fraction (albeit not necessarily small) of the cost it took to invent and market them. Economists refer to this latter characteristic as contributing to market failure. If a product takes considerable effort, ingenuity and research, but can be copied easily, there is unlikely to be a sufficient financial incentive from society’s point of view to devote resources to invention,
Patents are one way of addressing this market failure. By conferring temporary market exclusivities, patents allow producers to recoup the costs of investment in R&D and reap a profit, in return for making publicly available the knowledge on which the invention is based. However, someone else can only put that knowledge to potential commercial use with the authorisation of the patentee. The costs of investment in R&D and the return on that investment are met by charging the consumer a price based on the ability to exclude competition.
Protection is therefore a bargain struck by society on the premise that, in its absence, there would be insufficient invention and innovation. The assumption is that in the longer run, consumers will be better off, in spite of the higher costs conferred by monopoly pricing, because the short term losses to consumers are more than offset by the value to them of the new inventions created through additional R&D. Economists take the view that the patent system improves dynamic efficiency (by stimulating technical progress) at the cost of static efficiency (arising from the costs associated with monopoly).
This rationale for patent protection is relatively straightforward, but it is dependent on a number of simplifying assumptions that may not be borne out in practice. For instance, the optimal degree of patent protection cannot be accurately defined. If protection is too weak, then the development of technology may be inhibited through insufficient incentives for R&D. If too much protection is conferred, consumers may not benefit, even in the long run, and patentees may generate profits far in excess of the overall costs of R&D. Moreover, further innovation based on the protected technology may be stifled because, for instance, the length of the patent term is too long or the scope of the protection granted is too broad.
The length of the monopoly granted is one determinant of the strength of patent protection. Another is the scope of the patent. A broad patent is one that allows a right that goes considerably beyond the claimed invention itself. For example, a patent which claims a gene might only specify one use of that gene. But, under certain approaches to the scope of protection, the patentee will also have the rights to uses of the genetic information other than those disclosed in the patent, including those discovered later by someone else. Broad patents can tend to discourage subsequent innovation by other researchers in the general area of the patent. In contrast, narrow claims will encourage others to ‘work around’ the patent, offering less restriction on related research by others. They may also tend to create stronger rights which are less vulnerable to challenge in the courts.[11] The licensing policy pursued by the patentee will also have an important effect on the dissemination of new technologies, and the extent to which further research is affected by the granted rights.
The optimal degree of protection (where the social benefits are judged to exceed the social costs) will also vary widely by product and sector and will be linked to variations in demand, market structures, R&D costs and the nature of the innovative process. In practice IPR regimes cannot be tailored so precisely and therefore the level of protection afforded in practice is necessarily a compromise. Striking the wrong compromise - whether too much or too little - may be costly to society, especially in the longer term.
One underlying assumption is that there is a latent supply of innovative capacity in the private sector waiting to be unleashed by the grant of the protection that the IP system provides. That may be so in countries where there is substantial research capacity. But in most developing countries local innovation systems (at least of the kind established in developed countries) are weak. Even where such systems are stronger, there is often more capacity in the public than the private sectors.[12] Thus, in such contexts, the dynamic benefit from IP protection is uncertain. The patent system may provide an incentive but there may be limited local capacity to make use of it. Even when technologies are developed, firms in developing countries can seldom bear the costs of acquisition and maintenance of rights and, above all, of litigation if disputes arise.
Economists are also now very aware of what they call transactions costs. Establishing the infrastructure of an IPR regime, and mechanisms for the enforcement of IP rights, is costly both to governments, and private stakeholders. In developing countries, where human and financial resources are scarce, and legal systems not well developed, the opportunity costs of operating the system effectively are high. Those costs include the costs of scrutinising the validity of claims to patent rights (both at the application stage and in the courts) and adjudicating upon actions for infringement. Considerable costs are generated by the inherent uncertainties of litigation. These costs too need to be weighed against the benefits arising from the IP system.
Thus the value of the patent
system needs to be assessed in a balanced way, acknowledging that it has both
costs and benefits, and that the balance of costs and benefits is likely to
differ markedly in diverse circumstances.
Amongst academics, notably economists, IPRs have generally been viewed critically. Such rights necessarily involve restrictions on competition which may be to the detriment of consumers and the freedom of trade, and the question is whether these costs are outweighed by the incentives for research and invention. The quotations in Box 1.2 below reflect well the ambivalence that is widely expressed about the effects of the IP system in developed countries, and its impact on developing countries. This ambivalence has tended to strengthen as the IP system has embraced new technologies.
Box 1.2 Conclusions on the
Value of the IP System
Edith Penrose in “The Economics of the International Patent System” in
1951:
“Any country must lose if it grants monopoly privileges in the domestic
market which neither improve nor cheapen the goods available, develop its own
productive capacity nor obtain for its producers at least equivalent privileges
in other markets. No amount of talk
about the “economic unity of the world” can hide the fact that some countries
with little export trade in industrial goods and few, if any, inventions for
sale have nothing to gain from granting patents on inventions worked and
patented abroad except the avoidance of unpleasant foreign retaliation in other
directions. In this category are
agricultural countries and countries striving to industrialise but exporting
primarily raw materials…whatever advantages may exist for these countries…they
do not include advantages related to their own economic gain from granting or
obtaining patents on invention.”[13]
Fritz Machlup concluded after studying the US patent system in 1958:
“If one does not know whether a system…is good or bad, the safest
“policy conclusion” is to muddle through – either with it, if one has long
lived with it, or without it, if one has lived without it. If we did not have a patent system, it would
be irresponsible, on the basis of our present knowledge of its economic consequences,
to recommend instituting one. But since
we have had a patent system for a long time, it would be irresponsible, on the
basis of our present knowledge, to recommend abolishing it. This last statement refers to a country such
as the U.S. – not to a small country and not a predominantly non-industrial
country, where a different weight of argument might well suggest another
conclusion.”[14]
And another leading economist, Lester Thurow, wrote in 1997:
“In a global economy, a global system of intellectual property rights is needed. This system must reflect the needs both of countries that are developing and those that have developed. The problem is similar to the one concerning which types of knowledge should be in the public domain in the developed world. But the Third World’s need to get low cost pharmaceuticals is not equivalent to its need for low cost CDs. Any system that treats such needs equally, as our current system does, is neither a good nor a viable system.”[15]
A prominent academic lawyer, Larry Lessig, said of the US in 1999:
“No doubt we are better off with a patent system than without one. Lots of research and invention wouldn't
occur without the government's protection.
But just because some protection is good, more isn't necessarily
better…There is growing skepticism among academics about whether such
state-imposed monopolies help a rapidly evolving market such as the
Internet…The question economists are now asking is whether expanded patent
protection will do any good. Certainly
it will make some people very rich, but that's different from improving a
market…Rather than unbounded protection, our tradition teaches balance and the
dangers inherent in overly strong intellectual property regimes. But balance in IP seems over for now. A
feeding frenzy has taken its place - not just in the field of patents, but in
IP generally…”[16]
And Jeffrey Sachs, an eminent economist,
said in 2002:
“…there is an opportunity to re-think the
intellectual property rights regime of the world trading system vis-à-vis the
world’s poorest countries. In the Uruguay Round negotiation, the international
pharmaceutical industry pushed very hard for a universal coverage of patent
protection without considering the implications for the poorest countries.
There is little doubt that the new IPR arrangements can make it more difficult
for consumers in the poorest countries to access key technologies, as we’ve
seen vividly in the case of essential medicines. The countries negotiating the
new Doha round have already committed to re-examining the IPR issue in light of
public health priorities, and they are wise to do so. It also may well be the
case that the tightening of IPRs may slow the diffusion of technology to the
world’s poorest countries that has traditionally come through copying and
reverse engineering. Those hallowed pathways of technological diffusion are
increasingly being slowed, and the effects on the poorest countries may be
unduly hindered. This is an area for close observation, policy attention, and
continuing research."[17]
The rationale for copyright protection is not dissimilar to that of patents, although historically greater weight has been given to the inherent rights of creative artists to receive fair remuneration for their works than to the incentive effects. Copyright protects the form in which ideas are expressed, not the ideas themselves. Copyright was and remains the basis for making the publishing of literary and artistic works an economic proposition by preventing copying. Unlike patents, copyright protection does not require registration or other formalities (although this was not always the case).
As with patents, the trade-off for society is between the incentive offered to creators of literary and artistic works and the restrictions this places on the free flow of protected works. But, unlike patents, copyright in principle protects the expression of ideas, and not the ideas as such, which may be used by others. And it only prevents the copying of that expression, not independent derivation. The central issue for developing countries concerns the cost of access to physical or digital embodiments of the protected works, and the approach taken to enforcement of copyright protection.
As with patents, there are normally exceptions in law where the rights of owners are moderated in the wider public interest, known in some countries as “fair use” provisions (for example in the US), as “fair dealing” in the UK tradition, and exceptions to the reproduction right in the European tradition.[18] It is the issue concerning the cost of access, and the interpretation of “fair use”, that is particularly critical for developing countries, made more so by the extension of copyright to electronic material, and to software.
Copyright protects works for much longer than patents but does not protect against independent derivation of the work in question. Under TRIPS copyright allows a minimum of fifty years after the death of the author, but most developed countries and several developing countries have increased this to 70 years or more. While the main reason for the extension of copyright has been pressure from the copyright industries (notably the film industry in the US), there is no clear economic rationale for copyright protection being so much longer than that for patents. Indeed, the rate of technical change has led in several industries to a shorter effective product life (for example, successive editions of software programmes) which point to longer copyright protection being redundant. The successive increases in the period of copyright protection have given rise to concern in some quarters. This year the US Supreme Court is hearing a case that challenges the 1998 Copyright Term Extension Act on the grounds that it violates the Constitution which specifies that protection must be for “limited Times”. In addition, it is asserted that an extension of protection granted for a work that already exists can have no incentive effect, and also violates the quid pro quo requirement in the Constitution that monopoly rights are provided in exchange for public benefits.[19]
As with patents, a key issue for developing countries is whether the gains to be elicited from the incentives provided by copyright outweigh the increased costs associated with the restrictions on use that flow from copyright. Although there are exceptions, such as India’s film or software industry, most developing countries are net importers of copyrighted material, just as they are net importers of technologies. Since copyright does not need registration or other formalities, once a country has copyright laws in place, the impact of copyright is more ubiquitous than in the case of patents. Software, textbooks, and academic journals are key items where copyright is a determining factor in pricing and access, and which are also essential ingredients in education and other spheres crucial to the development process. For instance, a reasonable selection of academic journals is far beyond the purchasing budgets of university libraries in most developing countries, and increasingly in developed countries as well.
The interaction of the Internet and copyright is an issue of particular and growing importance for developing countries. With printed media, there are provisions for “fair use” under copyright law, and the nature of the medium lends itself to multiple use either formally through libraries or informally through borrowing and browsing (as may be done in a bookshop before deciding to purchase). With material accessed through the Internet, the technology allows encryption and other means to exclude potential users even from browsing, unless they have paid the relevant charge. While the “philosophy” of the Internet has hitherto been about free access, increasingly sites with material of value are moving towards charging for use, or limiting access in other ways. Further, the DMCA in the US and Europe’s Database Directive have provisions that go well beyond what is required under TRIPS, and are held by many users to have shifted the balance of protection too far in favour of investors and originators of collections of data.
Thus, as with patents, there is a need for balance. Too much protection by copyright, by other forms of IP protection, or by technology, may restrict the free flow of ideas on which the further progress of ideas and technology depends. For developing countries, affordable access to works essential for development such as educational materials and scientific and technical knowledge may be affected by unduly strong copyright rules.
There are several lessons that we can learn from history, particularly from the experience of the developed countries in the 19th century, and the emerging economies of East Asia in the last century.
First, historically IP regimes have been used by countries to further what they perceive as their own economic interests. Countries have changed their regimes at different stages of economic development as that perception (and their economic status) has changed. For instance between 1790 and 1836, as a net importer of technology, the US restricted the issue of patents to its own citizens and residents. Even in 1836, patents fees for foreigners were fixed at ten times the rate for US citizens (and two thirds as much again if one was British!). Only in 1861 were foreigners treated on an (almost wholly) non-discriminatory basis. In his Annual Report for 1858, the US Commissioner of Patents noted:
“It is a fact, as significant as it is deplorable,
that of the 10,359 inventions shown to have been made abroad during the last
twelve months, but forty-two have been patented in the US. The exorbitant fees
exacted of the foreigner, and the severity of the offensive discrimination
established to his prejudice, afford a sufficient explanation of the result…it might
well be concluded that the government of this country regarded an invention
made beyond the seas as something intrinsically dangerous, if not noxious, the
introduction of which it is morally just and politically wise to burden with
taxation, just as you would thus burden the importation of some foreign
poisonous drug. There is a loftier view of this question, and one deemed more
in harmony with the progressive spirit of the age -- a view which hails the
fruits of the inventive genius, in whatever clime matured, as the common
property of the world, and gives them cordial welcome as the common blessings
of the race to whose amelioration they are devoted.”[20]
Until 1891, US copyright protection was restricted to US citizens but various restrictions on foreign copyrights remained in force (for example, printing had to be on US typesets) which delayed US entry to the Berne Copyright Convention until as late as 1989, over 100 years after the UK. It is for this reason that some readers may remember purchasing books which had on the cover the words: “For copyright reasons this edition is not for sale in the U.S.A.”
Until the adoption of the Paris Convention (on protecting industrial property) in 1883, and its 1886 Berne counterpart (on literary and artistic works) countries’ ability to tailor the nature of their regimes to their own circumstances was unconstrained. Even then, the rules of these Conventions exhibited considerable flexibility. The Paris Convention allowed countries to exclude fields of technology from protection and to determine the length of protection afforded under patents. It also permitted revocation of patents, and compulsory licences[21] to remedy abuses.
Secondly, numerous countries have at times exempted various kinds of invention in certain sectors of industry from patent protection. Often the law has restricted patents on products confining protection to processes for their production. Typically these sectors have been foodstuffs, pharmaceuticals and chemicals, based on the judgement that no monopoly should be granted over essential goods, and that there is more to be gained by encouraging free access to foreign technology, than by potentially stimulating invention in domestic industry. This approach was adopted by many countries which are now developed in the 19th Century, and for some until late in the 20th Century, and also in the East Asian countries (such as Taiwan and Korea) until relatively recently. However, TRIPS now forbids discrimination in the grant of patent protection in respect of different fields of technology.
Thirdly, intellectual property, and patents in particular, have often been politically contentious. Between 1850 and 1875, a debate raged in Europe, both in academic and political circles, on whether the patent system was a blight on free trade principles or the best practical means of stimulating inventions. John Stuart Mill took the latter view:
“…an exclusive privilege, of temporary duration is
preferable [as a means of stimulating invention]; because it leaves nothing to
anyone’s discretion; because the reward conferred by it depends upon the
invention’s being found useful, and the greater the usefulness, the greater the
reward; and because it is paid by the very persons to whom the service is
rendered, the consumers of the commodity.”[22]
In essence, this remains the case for the system today – a relatively inexpensive way (at least for governments, in so far as they are not purchasers of the goods) to provide an incentive for invention with a reward proportionate to the use subsequently made of it.