NOTES
3.3 AN INTERNATIONAL IP SYSTEM AND TECHNOLOGY TRANSFER
3.3.1 Direct Effects on Technology Transfer – the Extent to which the Granting of IP Protection to Foreigners Forces them to make
their Technologies more Accessible and Available in Developing Countries
As an example, consider the direct effects of patents on technological access and availability. Regarding accessibility, patent laws require every patentee to disclose all the information concerning his or her inventions to the patent office of the granting country. It is often argued that by granting such rights to foreigners, a developing country will enable its domestic firms to gain direct access to new technologies. These firms in turn would be able to use the newly disclosed information either as a basis for further inventive activities or in order to imitate the original invention, once its patent term has expired.41
This argument (that is more accessible technology in exchange for patents) is both logically and empirically flawed. It is quite likely that a foreign firm seeking to extend its patent rights in other countries has already disclosed the details of its invention to the patent office in its own home country. This means that firms of other countries, including firms from developing countries, can behave as free-riders and obtain the disclosed information from the patent office of the home country.
Thus, theoretically speaking, a developing country cannot expect to benefit much, in terms of additional access to information, from granting patent rights to foreign technology owners since its domestic firms can obtain the same information elsewhere.42 Indeed, the entire basis for IP protection rests on the assumption that once new information is available to the market it will be transmitted in a rapid and cost-free manner.
Furthermore, large quantities of counterfeit goods suggest that many developing countries, particularly those with reverse-engineering capabilities, are able to copy IP-related products without relying on any disclosed data.43 A few examples may be given. Data from 1985 suggests that the sales of pirated goods in six developing countries (Brazil, India, Mexico, South Korea, Singapore and Taiwan) are extremely common.44 The sales of counterfeit pharmaceutical products in these countries amounted to a total of $1.6 billion, of which $920 million was generated in India.45 A notable and often quoted survey conducted by the US International Trade Commission (ITC) found that the losses of 193 US-based firms from various pirated activities, including trademark counterfeiting and patent infringements, amounted to $23.8 billion in 1986.46 It should be noted however that a more accurate study, using the same ITC data but constructing a model in which there is competition between the dominant and the infringing firms, found that losses for US companies amounted only to $2.3 billion while gains to consumers (US and foreign) reached $3 billion.47 The European Commission issued a Green Paper in 1998 on combating counterfeiting within the single market.48 Citing various sources, the Commission has estimated that counterfeiting accounts for 5 to 7 per cent of world trade and leads to 100 000 job losses per year in the EC alone.49 It argues that since the 1980s ʻcounterfeiting and piracy have grown considerably to a point where they have now become a widespread phenomenon with a global impactʼ.50 This evidence suggests that the ability of developing countries to counterfeit IP-related products in such magnitude, regardless of its illegal nature, is in itself a strong alternative to TT. As Subramanian explains:
There is an important ethical/legal distinction between counterfeiting and piracy on the one hand and IP protection in the technology areas on the other, but in terms of the economics there is very little difference. Counterfeiting and piracy are potentially more likely areas of conflict as they better fulfil the copyability criterion…Copyability can almost tautologically be defined as the lack of the need for technology transfer.51 Hence, developing countries may find that the access to the information disclosed by foreign technology owners in exchange for granting them IPRs is not only insufficient but in many cases irrelevant.
The extent to which the information disclosed by the patentee contains all the particulars of his or her invention is also questionable. In fact, many authors note that the data provided to the patent office is often incomplete in the sense that it is not possible for others to re-develop the invention using this data alone.52 Additional information, which is usually described as ʻknow-howʼ, is often required in order to commercially exploit those products and processes that cannot be easily copied.
Regarding availability, one must not forget that the establishment of property rights in intellectual creations, such as inventions, artistic works and
so on, restricts the use of newly created knowledge and inhibits its rate of dissemination. There may also be cases in which IP owners make their products even scarcer than intended by the legislator. ʻSleepingʼ or ʻnon-workingʼ patents is one example for which patentees not only prevent others from using their inventions but also do not use them themselves.
The percentage of non-utilized patents (that is patents that are not used for production purposes) is high both in developed and in developing countries, although greater in the latter. From 1950 to 1970 approximately 90 to 95 per cent of foreign owned patents were not utilized in nine developing countries.53 In comparison, around 50 to 60 per cent of patents in the US were commercially utilized in the years 1932 to 1953.54 According to the Economic Council of Canada, only 15 per cent of the patents granted to foreigners from 1957 to 1963 have been ʻworkedʼ in that country.55 To what extent the magnitude of unused patents may be attributed to technology obsolescence or to monopolistic behaviour, such as ʻpre-emptive patentingʼ, is unclear.56 UNCTAD, making a distinction between developed and developing countries, expresses a rather harsh view on the matter. It argues that in developed countries a large extent of non-use of patents derives from the fact that they are no longer of commercial interest, while in developing countries it must be connected to ʻbusiness interests and commercial strategies of maximising the profits of the foreign patent ownersʼ.57 However, lack of sufficient data does not currently permit one to conclude that the non-use of patents in developing countries is strategically different from that of developed countries.
Regardless of its purpose, the most common tool for solving the problem of non-use is through compulsory licensing which forces the patentee to license his or her invention to other potential users while enabling him or her to receive some form of financial compensation in exchange. The economic desirability of compulsory licensing is in itself a highly debatable issue. Suffice it to say that it contains all the disputable and contradictory elements embedded in the patent mechanism, such as balancing between private and public interests, the incentive to invent in the future vis-à-vis the restrictive use of patented inventions in the present, the extent to which monopoly power is exploited and so on.58
Yet empirical evidence shows that the actual use of compulsory licensing against non-working patents is negligible. Both in developed and in developing countries the number of applications for compulsory licenses is surprisingly small and the granting of such licences is even smaller. UNCTAD, citing evidence from various countries (developed and developing), found that in the period 1958–1963 there were very few instances of implementation of compulsory licence provisions.59 The number of compulsory licences granted in Canada between 1935 and 1970 amounted to an annual average of 0.01 per cent of patents granted.60
This section has focused on the direct effects of IPRs on TT and assessed the extent to which the granting of IPRs to foreigners requires them to make their technology accessible and available in developing countries. It concludes that a developing country may find this aspect inadequate and unsatisfactory mainly due to three reasons.
First, any information disclosed by a foreign IP owner in exchange for extending his or her rights in a developing country, such as that given to the patent office, does probably already exist in his or her home country. Therefore, a developing country can behave as a free-rider, that is, it can obtain the same information from the original home country without the cost of granting IP protection to that foreigner. Furthermore, the problem of piracy suggests that numbers of IP products, many of which are extremely costly in terms of R&D expenditures, can be easily copied. In these cases developing countries, particularly those with copying capabilities, would find it unnecessary to obtain any disclosed information at all.
Second, for those products that do require technological disclosure it is often the case that any information submitted by foreign IP owners, such as the particulars of an invention, is insufficient in the sense that additional know-how is required in order to exploit these technologies in full.
Finally, the problem of non-working patents suggests that many foreign IP owners decide not to utilize their inventions in the granting country. Whether this decision can be attributed to simple monopolistic calculations or to technological obsolescence is unclear. What is clear is that the use of compulsory licences in order to tackle this problem is negligible.
Having considered the direct implication of IPRs on TT there is a need to examine the more indirect and dynamic aspect of that link.
3.3.2 Indirect Effects of IPRs on Technology Transfer – the Extent