4:07 AM Dec 1, 1995


Geneva 1 Dec (Chakravarthi Raghavan) -- Developing countries and the transition economies, face some major hurdles in the pursuit of their development objectives in the post-Uruguay Round WTO trading system of an "integrated world market" of IPRs, and the neo-mercantalist policies and barriers in industrialized countries, and need to adopt and pursue strongly pro-competitive policies in implementing their WTO obligations.

Given the complex interface of issues and disciplines involved, the UN Conference on Trade and Development (UNCTAD) would be in the best position to undertake an overall study of implications of TRIPs on development and provide technical advice to countries, individually and collectively, to implement their obligations with a strong pro-competitive bias.

This would benefit not only UNCTAD member-countries, but also the international community.

This is the view of some experts in Intellectual Property Rights (IPRs), Competition policies, economics and WTO trade rules, who participated in an UNCTAD consultation last week on the New Issues in the areas of Intellectual Property Rights and Transfer of Technology.

In a general way, developing countries who relied on a sectoral approach to balance the monopoly rights or privileges of IPR holders against public interest would now need to address these questions on individual case basis, balancing the private and public interest through competition policies and a competitive approach.

But they must ensure that this is done at a professional expert level, through maximum transparency - whether at the patents office, judicial and semi-judicial processes, or governmental industrial policy decisions (in terms of licensing of IPRs etc). This would be needed both to ensure that one set of rentier incomes are not replaced by another set, to the detriment of consumers and public interest, as also to prevent corruption and wastage.

The experts, participating in personal capacities, addressed the complicated interface of these issues, particularly the development implications of the Uruguay Round TRIPs agreement for developing countries and the countries in transition and possible options. They also talked to SUNS and explained and elaborated their views.

Participants included, Prof. Jerome Reichman of the Vanderbilt Law School in Nashville, Tennessee (USA), a well-known expert on IPRs, Prof. Hanns Ullrich of the Munich Universitat der Bundeswehr and a competition law expert, Prof. Keith Maskus of the Department of Economics at the University of Colarado (USA) and Mr. Chengsi Zheng of the Intellectual Property Centre of the Chinese Academy of Social Sciences and Beijing University.

The consultative meeting came to no conclusions, but a common view that seemed to emerge was that while TRIPs created some serious obstacles for the late entrants to industrialization, its implications for both static and dynamic competition would need to be studied in a sober and realistic way without too much exaggeration.

A defeatist view was not warranted, and developing countries and transition economies could cooperate and coordinate to address the situation by implementing the WTO obligations with an overall pro-competitive stance by taking advantage of the space available and options to be exercised in order to sustain their economic development.

UNCTAD could play an important complimentary role with a coherent unified approach (but not a single model for every country) to issues of macro-economic policy, investment, technology, competition policies for a well-functioning market economy and development.

Prof. Reichman has filed amicus curie briefs before US courts in IPR cases, and has written and published extensively on IPR questions in academic journals including on the TRIPs accord (in Vol 29 No.2, summer 1995, of the International Lawyer, a quarterly publication of the American Bar Association and in an UNCTAD Discussion Paper, 1993, on Implications of Draft Trips Agreement for Developing Countries as Competitors in an Integrated World Market).

The TRIPs agreement, he explains, has put the developing countries into an integrated world market with a framework of rules to balance the incentives for innovation against the public interest in free competition. It enables innovators to appropriate the fruits of their investment in research and development and limits the ability of imitators to appropriate 'protected' technical and artistic creations without contributing to the costs of producing such innovation.

The justification is that without such protection to block 'free riders', there would be market failure. In theory as a result of a lesser risk of market failure, investment in R & D would increase and it would create more, and not less, competition in the global market.

[IPR theories that protecting IPRs promotes competition, like the free trade theories, are based on some assumptions not always spelt out. The exclusive right, for a period of time, is given to the innovator to exploit his innovation and regain the investment through a lead time for the new product/process, but by disclosing fully the information to promote spread of knowledge and further innovation. This assumes that others in the market have the capacity to innovate, and therefore will invest to innovate and compete or obtain the use of protected innovation through payment of licence fees. But when applied across countries, which may not have the technological capacities, it may result in creation of a monopoly and not competition].

Reichman notes that the TRIPs accord has not reduced the demand for new and more extensive IPR protection in the technology advanced countries of the North. It has also not slowed down the prevailing tendency in the advanced countries to relax anti-trust laws and restrictions on horizontal collaboration among competitors to promote formation of strategic alliances and cartelization of R & D activities.

Those who innovate in the highly advanced countries under such conditions, and gain global IPRs under the WTO, are able to surround their innovation with neo-mercantalist barriers that limit the ability of technologically less advanced countries to catch up and compete.

The developing countries, Reichman says, must hence implement their TRIPs obligations with an eye to their sustained economic development despite the protectionist barriers they face. They should implement their obligations under TRIPs in ways that would maintain or restore a healthy balance between providing incentives for innovation and the needs of free competition on a global market.

They have to look carefully at their national systems of innovation in order to maximise their ability to acquire and absorb scientific and technical knowledge, even though legal and non-legal barriers to frustrate this objective are being erected in the advanced countries.

There are some areas covered by the TRIPs (patents, trade marks etc), particularly in pharmaceuticals, food and chemicals and agro-chemicals, where they have little leeway in extending the rights.

But there are several grey areas in TRIPs -- such as those relating to bio-technology and computer programs, industrial designs etc -- where there are differences among innovators and users within the advanced countries themselves and resulted in the negotiators inability to come to grips and lay down rules.

Developing countries could carefully assess these 'grey areas', and use the opportunities to their advantage, and also cooperate and coordinate among themselves to ensure that new obligations and restrictions are not imposed, Reichman suggests.

The theme of need for cooperation and coordination -- among developing countries as a whole, within regions, and/or amount countries similarly situated -- is a view that was stressed by many of the experts.

But they also made the point that it is not a simplistic North/South issue or paradigm.

TRIPs, according to Prof. Keith Maskus has changed competitive realities between technology and information developers on the one side and users on the other. The users are not merely developing countries, but also consumers in all countries, innovators who follow and downstream producers. In a dynamic view of the market, the net users of today may become innovators tomorrow. The implications of TRIPs have to be looked at very carefully, and a sober and realistic assessment made both in terms of individual country particularities and an overall perspective. The market power and the rentier incomes that a rights holder might derive depends on a number of other elements like the structure of the market and the extent of competition, scope of protection and the local ability to undertake reverse engineering and imitate "fairly".

TRIPs is an opportunity for countries to evolve a rational Science and Technology policy complex -- one that has to be tailored to individual country needs and capacities and need to link them to the global technological progress. It involves policies for general property rights (individual, community etc) over resources, biogenetic resources and mechanisms to ensure that there is a social return through exploitation of such reserves.

Development of S & T has to be based on market principles of competition to the fullest extent possible. The Government has an important role to play -- in setting the conditions of competition, building up the education, science and technology infrastructure, providing and disseminating information about dynamic markets where this information is missing.

Prof. Maskus agrees that there is considerable room for manoeuvre in implementing TRIPs, with a bias towards more competition and access and less towards broad, exclusive rights. But this involves some delicate balancing act, and considerable expertise -- both in looking ahead at likely responses from the US and the EU, as also assert and defend rights at the WTO and its rules-based system.

The WTO and its Dispute Settlement system has great potential, but developing countries must make sure that they take a good case before a panel and its appellate process for rulings, and not take weak ones that enable others to create or extend the law, Reichman however warns.

The European Competition Law expert, Prof Hanns Ullrich says the TRIPs agreement, in terms of general principles of interpretation should be viewed as an international trade agreement and a legal instrument for this.

UNCTAD in getting involved in this area, and providing guidance in implementing TRIPs, and transforming it into national laws and intellectual property policy and applying it nationally, would not only be assisting its members, but may be rendering a signal service to the international community at large.

The issue, Ullrich suggests, should be approached from the viewpoint of comparative law, balancing in a systematic way protection and exceptions, and presenting solutions to various problems -- keeping in mind that the advice is for economic and political decision-makers. TRIPs should be looked at as an autonomous, self-sufficient system where the needs of balance between protection and competition, should be viewed in specific cases of market failure rather than broad blanket exemptions.

In terms of future there were several areas that need to be addressed.

As IPR protection broadens and technological development is increasingly science-based and systemic, the issues of experimental use and dependent patents and copyrights become important.

There is also need to investigate afresh issues of cumulative protection of the subject matter protected through use of patents,, copyright, designs and trade-marks. This is a problem particularly in computer programs, as also in patent or utility model protection that is cumulated with design protection.

Both Reichman and Ullrich suggest that developing countries do not have to accept and adopt, particularly in the grey areas, the models and rules of the advanced countries -- whether in the US or in Europe.

They could and should evolve their own, and if they coordinate to some extent, would be in a better position to defend and evolve pro-competitive rather than protectionist policies.

Reichman notes that in recent years, highly protectionist interests have gained influence and capture the relevant legislative and administrative bodies in the advanced countries to the detriment of the internal dialogue and stifling of the voices on behalf of consumers and competition. Both in the EU and the US are extending old IPR laws to new areas and proliferating sui generis systems and relaxing antitrust laws to facilitate horizontal cooperation in R & D among competitors.

In his article in the International Lawyer, Reichman suggests that since inventors in developed countries are eventually entitled to obtain and enforce patents everywhere as a result of TRIPs, competitive pressures in developing countries ought to shift from subject-matter exclusions of patentability to scope of protection issues bearing on single patents as occurs in the industrialized countries.

Developing country firms should exploit disclosed information in order to work around claimed inventions as well as any unpatented know-how that obtain fairly, whether disclosed or not. The lack of international standards defining the doctrine of equivalents affords them additional room to manoeuvre.

But the extent to which developing countries would benefit from stronger patent systems - as distinct from compensatory market access - depends in part on the willingness of firms in developed countries either to increase FDI in developing countries or license more of their advanced technology.

"Nevertheless," Reichman says, "the value of a patent system to developing countries remains controversial and single developing countries could suffer hardship because of a growing dependence on foreign patents with few countervailing benefits.

"In such a case," he adds, "one must acknowledge the achievements of the developing country negotiators, who have built in numerous safeguards and escape hatches into the TRIPs Agreement."

Reichman, Ullrich and other experts all stress that developing countries should take a stand in implementing their obligations in terms of the requirements of the rules in the TRIPs, and not go beyond in response to pressures from individual advanced countries.

(This is first in a series on post-Uruguay Round options for developing countries and transition economies)