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A Dilemma of Intellectual Property Rights in Developing Countries

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Abstract: Intellectual property rights give statutory expression to the moral and economic rights of the creators and other producers of the intellectual goods and services by granting them certain time-limited rights to control the use of those productions.

Historical evidence shows that well designed IP systems can benefit national economies just as poorly designed ones can harm them. This essay deals with the relationship between TRIPs agreement on the trade and FDI of developed countries in developing countries and concludes that developing countries are in a serious situation if they try to comply with the obligations imposed on them by the TRIPS agreement.

There is an urgent need for a reform of TRIPS although in some cases a different interpretation of the regulations would be sufficient in order not to discriminate against developing countries, their economies and their people.

Also, enforcing patents in all fields of technology, including pharmaceuticals will restrain the innovation and information flow. Also, prices of medicines will continue to rise, making access difficult and damage to pharmaceutical industry.

And, Biopiracy has emerged as a term to describe the ways that corporations from the developed world claim ownership of, free ride on, or otherwise take unfair advantage of, the genetic resources and traditional knowledge and technologies of developing countries. The essay also focuses on the impact of IPRs on pharmaceutical industry and on Biopiracy.

Introduction Intellectual property rights are a bundle of exclusive legal rights over creations of mind, both artistic and commercial. These rights give statutory expression to the moral and economic rights of the creators and other producers of the intellectual goods and services by granting them certain time-limited rights to control the use of those productions.

These rights also promote creativity and the dissemination and application of its results and encourage fair-trading, which contributes to economic and social development. Thus, intellectual property refers to the creations of the human mind and human intellect.

There are variations as to the set of the rights forming the basket of the intellectual property rights. The Agreement on Trade Related Aspects of the Intellectual Property Rights (TRIPs) includes within the scope of IPRs- Copyrights & related rights , Trademark , Industrial Designs , Breeder’s Rights , Patents , Geographical Indications , Layout Designs , Trade Secrets .

The question of intellectual property rights (IPRs) has attracted especially close attention in recent years. A current World Bank Report highlights the role of knowledge and the contribution of intellectual property rights in social and economic progress . Among developing countries themselves a greater attention to protection and enforcement of intellectual property rights is clearly evident.

There is an enhanced and more widespread awareness of the importance of intellectual property in general . Nevertheless, intellectual property policies have been a source of dissension between developed and developing countries, as well as within the developed countries themselves. Controversy has centered on intellectual property rights for the following reasons.

One of the primary reasons for the their current status in international policy agendas is that global trade in IPRs themselves as well as trade in associated goods and services account for a substantial and increasing amount of revenues.

Second, IPR coverage has expanded to incorporate software, genetic material, business methods, digital information and plant varieties and a key question is the nature of protection that should be accorded new technologies through conventional property rights. For example, the United States has granted patents for genetically modified animals, but rejected property rights in databases; whereas European authorities have protected rights in databases, but resisted the patenting of life forms.

Third, disagreement surrounds the nature of property rights in intellectual output . The United States IPR system is based on an instrumentalist approach: that is, it adopts a pragmatic market orientation, with statutory rights that are designed to facilitate trade, innovation and social welfare; but other jurisdictions have favoured more philosophical ideas of inherent rights of personality or moral rights which cannot be extinguished or alienated.

The debate about the nature of property rights has far reaching implications for the design of patent institutions, such as the extent to which producer rights persist beyond the first sale and whether the validity of copyright depends on statutory restrictions such as compliance with formalities.

The fourth area of controversy is the extent to which property rights can legitimately be infringed upon or restricted by stipulations such as working requirements or compulsory license. For instance, in United States compulsory licenses have been routinely granted to limit the extent of copyrights, but proposals to include similar restrictions in the patent statutes have always been rejected.

At the same time, licences to compel access to entire portfolios of patented technologies have frequently been applied in consent decrees to settle cases brought under antitrust laws. Compulsory licences have been more readily included in patent legislation in most other countries including developed countries such as the United Kingdom, but the number of patents affected tends to be quite small .

Trade and IPRs Trade Related aspects of Intellectual Property Rights (TRIPS) agreement of the World Trade Organisation (WTO) is considered to be one of the milestones in the international harmonization of patent protection. It is one of the most controversial international intellectual property agreements that have entered into force. Its negotiations were highly contentious, and the perspectives of developed and less developed countries on the role of intellectual property protection and enforcement remain far apart.

In recent years, less developed countries -including both developing and least developed countries- have expressed their deep dissatisfaction with the way the Agreement has been interpreted and implemented. They are also frustrated by the ongoing demands by developed countries for protections that are in excess of what they promised during the TRIPS negotiations- often through new bilateral and regional trade and investment agreements.

As they claim, the Agreement as interpreted by their developed trading partners and the additional TRIPS-plus ignore their local needs, national interests, technological capabilities, institutional capacities, and public health conditions.

Economically, they facilitate innovation, technology transfer and knowledge production while at the same time promoting social and economic welfare and development goals . Politically, they provide the much-needed balance to make the Agreement a legitimate bargain between developed and less developed countries.

Globally, they have sowed the seeds for the development of new international norms both within and without the TRIPS regime. Although most of the draft language proposed by less developed countries did not make its way to the TRIPS Agreement, the choice of such language for Articles 7 and 8 is more than consolation.

The agreement recognizes the role of technology in social and economic welfare and sets out its objectives in Article 7, that efforts to promote compliance with to the TRIPS agreement should be accompanied by measures that enhance the participation of the developing countries in international trade.

These measures include a broadening of the intellectual property regime to cover products and resources that are provided by these countries. It notes the importance of exploring ways by which public interest issues such as health, nutrition and environmental conservation could be addressed through scientific and technological cooperation in accordance with the provisions of the TRIPS agreement .

The TRIPS Agreement has an additional important principle that intellectual property protection should contribute to technical innovation and the transfer of technology. Both producers and users should benefit, and economic and social welfare should be enhanced.

The basic principle on which TRIPS is based are the National treatment principle wherein imported and locally-produced goods should be treated equally- at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents.

National treatment only applies once a product, service or item of intellectual property has entered the market.

Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.

For most developing countries, imports allow them to acquire goods through importation that are necessary for economic growth and poverty reduction, but are not produced domestically. In turn, exports can make it possible to transform under-utilised natural resources and surplus labour into foreign exchange, in order to pay for imports to support economic growth. However, this process requires speed and stability in export growth so as to meet growing import demand sufficiently.

The TRIPS Agreement increases the strength of IPRs through bilateral agreements in the TRIPS-plus era have raised concerns for policymakers about the effect of IPRs on trade. The theory of IPR trade is a growing body of scholarly literature examining the relationship between IPRs and international trade developed through the 1990s and 2000s.

However, within this body of work, the relationship between IPRs and trade remains ambiguous from a theoretical viewpoint. Stronger IPRs confer ownership advantages to firms serving foreign markets by providing legal recourse against violation of their assets. In this regard, stronger IPRs expand the markets served by firms.

Exporting firms in developed countries face additional costs when exporting to developing countries, when they must engage in activities designed to inhibit local imitation . International harmonisation of IPR regimes can diminish the transaction costs of operating in different regulatory environments. In this regard, it can represent a location advantage for the participating countries.

FDI and IPRs Over the past two decades, there has been a growing scholarly literature on the relationship between IPRs and FDI inflows in developing countries. The Foreign Direct Investment would be greatest benefit for developing countries, since they could catch up with their technological development.

IPRs affect the composition of FDI. Strong protection may encourage FDI in high technology sectors, where such rights play an important role. In addition, it may shift the focus of FDI projects from distribution to manufacturing it.

The TRIPs requirement that patent protection has to be ensured even if a product is just imported and not locally produced will hamper more FDI in developing countries . As a consequence, countries can be supplied with finished products, which are protected but produced elsewhere. Developing countries in particular, will not unconditionally benefit from foreign direct investment or transfer of technology.

Pharmaceutical Industry and IPRS The Indian Pharmaceutical industry is one of the largest in the developing world and is ranked as the fourth largest in terms of production and 13th largest in terms of domestic consumption value. Over the past 30 years Indian drug industry has emerged from almost non-existent to a world leader in the production of generic drugs.

With the changes brought about by the Patents Act of 1970, Indian drug manufactures became experts in the field of reverse engineering and increased its supply of less expensive copies of the world’s best-selling patent protected drugs.

This could only be possible because there was no product patents system for drugs and medicines. While the Patent Act of 1970 in its original form does provide a distinction between product patents and process patents, the exception provided in section 5 of the act of 1970 (which has been omitted by the amendment of 2005) offered only a process patent for food, medicine or drug substances and specifically excluded product patents for the same.

Thus India was able to copy foreign patented drugs without paying a license fee and was able to make it available to the masses at one-tenth of the original price.

Now, India is a leading example of a low-income developing country that had not recognized patents prior to 1995 and did in fact lead the opposition of developing countries to TRIPS. This prominent position of Indian firms in the global pharmaceutical industry is the result of a unique and successful industrial policy in the 1970’s and 1980’s.

In addition, a number of other measures, such as drug price controls, restrictions on capacity expansion, limits on multinational equity shares, etc., encouraged the development of the Indian pharmaceutical industry, while keeping prices low for domestic consumers. Many of these regulations and restrictions have been lifted or eased since the mid-1980s with marked acceleration in the pace of liberalization during the 1990s.

As a result of these policies, the Indian pharmaceutical industry grew rapidly to the point where it is now the world’s largest producer of formulations in terms of volume and one of the world’s largest producers of bulk drugs.

The history of intellectual property protection in pharmaceutical products demonstrates it.

Many of the industrialized countries introduced patent legislation in this field after they had reached a certain level of technological competence and international competitiveness. Under TRIPS, all countries must, as a condition for membership in the World Trade Organization, recognize and enforce patents in all fields of technology, including pharmaceuticals which will restrain the innovation and information flow.

Moreover, prices of medicines will continue to rise, making access difficult and damage to pharmaceutical industry.

While many low and middle income countries initially made an exception for pharmaceuticals, they agreed to introduce or amend their patent legislation to include pharmaceutical product patents by 2005. This effect seems particularly undesirable in the market for pharmaceuticals, where many believe that it is-unethical for firms to make profits from selling life-saving medicines.

A quote by Indira Gandhi crisply summarizes this view :- The idea of a better-ordered world is one in which medical discoveries will be free of patents and there will be no profiteering from life and death.

In a study by Chaudhuri, Goldberg and Jia (2006) that analyzed the effects of patent enforcement for a sub-segment of antibiotics in India. Though the study focused on a particular country and pharmaceutical segment, it also highlighted the main insights are applicable to many other low- and middle-income developing countries.

It mentioned that the actual effects of TRIPS are likely to be small for several reasons. First, TRIPS affects only patents issued after 1995; given that the majority of the products currently marketed in India involve molecules with either expired patents or patents that were issued pre-1995, only a very small number of products will be directly affected by TRIPS-enforcing legislation.

A good fraction of such recently patented products are life-quality drugs, which are arguably less important in developing countries from a public health policy perspective. Along the same lines, some of the newer drugs may be marginal improvements to existing ones rather than important new medicines. The short-run effects of patent enforcement are further attenuated by a provision that allows Indian companies that are now producing drugs for which patent applications if they pay a royalty to the patent holder.

Finally, TRIPS has several loopholes (e.g., for epidemics) that aim at guaranteeing access to life-saving medicines in cases where new patented drugs may not be readily available in developing countries. For all these reasons, it is unlikely that patent enforcement will have any dramatic effects in the short run.

However, the main concern with patent enforcement in developing countries regards not the specific effects of TRIPS, but rather the new equilibrium that would emerge if IPR systems were harmonized across the world.

Specifically, we estimate a model of supply and demand for a specific sub-segment of the pharmaceuticals market and then use the estimated model parameters to conduct simulations and provide a counterfactual analysis of what prices, sales, consumer welfare and firm profits would have been, if patents had been in effect.

It is important to note that this exercise does not inform us about the actual effects of TRIPS. Rather it derives the effects associated with a thought experiment, in which India is at a steady state with full IPR protection.
Biopiracy and IPRs Biopiracy has emerged as a term to describe the ways that corporations from the developed world claim ownership of, free ride on, or otherwise take unfair advantage of, the genetic resources and traditional knowledge and technologies of developing countries.

Biopiracy is defined as the commercial development of naturally occurring biological materials, such as plant substances or genetic cell lines, by a technologically advanced country or organisation without fair compensation to the peoples or nations in whose territory the materials were originally discovered.

The problem is growing but as of today, there is no common view on how this problem should be regulated . Hence bio-piracy describes the situation where someone, either an individual or a corporation, gains a patent on a plant variety already in use by someone else.

The Rural Advancement Foundation (RAFI) points out that in most cases the victims of such action will be farmers in developing countries and the perpetrators mostly are companies in industialised nations. As a consequence, the title holder may prevent importance of the product in question or demand royalty payments .

There is difference between biopiracy and bioprospecting. Bioprospecting identifies biological resources (which might be traditional knowledge) with commercial potential, while biopiracy appropriates these resources and knowledge without obtaining prior informed consent or awarding just compensation.

Biopiracy arises first when there is a claim of the action taken without prior informed consent or awarding of just compensation . Biopiracy is a kind of theft, as the definition implies in its’ without fair compensation. This is one of the greatest problems with biopiracy.

If there was a fair compensation- which is very rare in the actual cases concerning biopiracy- the problem would be a lot smaller. However, even if there was compensation, problems and concerns would still remain, such as ethical questions about stolen traditions, sacred materials, old traditions, religious beliefs and so on.

Two conventions that are related to the subject are the Convention on Biological Diversity (the CBD) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The main goal of the CBD is to preserve biological diversity while the goal of TRIPS is to stimulate technological advancement, giving individual rights to the inventor through intellectual property rights (IPRs).

Some advocates that there is a conflict between these two conventions, some that there is no conflict, often with the argument that they do not deal with the same subject matter .

Who is the owner of nature? This question must be kept in mind when dealing with biopiracy. Is it Mankind, the Nation in which the resources are located, a specific group of people or is it a single man or woman? And who is the owner of the resource if the same species is located in two different jurisdictions? There is no common or correct answer to these questions- they are on a philosophical level.

The CBD clearly states that the individual state has the sovereign right to exploit their own resources pursuant to their own environmental policies. To put it in other words: When interpreting the CBD, the owner of nature is the state. TRIPS, on the other hand, facilitates that individual persons or organizations can patent individual species, substances or plants. Compared to the CBD, there is a clear difference.

The CBD acknowledges the ownership of nature to a group of people while TRIPS acknowledges the ownership to a single inventor.

If the substance patent gets approved, the implications for the source country can be devastating. Some examples:
– Possible necessity for the farmers to use the new patented variety, implying increasing dependence on the company “owning” the seed, especially in case of monopoly;

– Prohibition of the use of the seed for any further breeding;

– Loss of biodiversity resulting from increased monoculture and monospecies culture;

– Possible financial loss when fair agreement on benefit sharing between the source country and the company achieved;

– Possible loss of traditional community knowledge, with limited compensation.

India has bitter experience in case of Biopiracy. Neem has become a symbol of Biopiracy in the new world order .

Similarly, one of the most talked cases of Biopiracy is that of basmati rice. An U.S. based company named Rice Tech. inc. patented a modified strain on Basmati Rice, traditionally cultivated in India and Pakistan and sold it in the international markets as Kasmati and Texmati.

However, As a result of a worldwide citizen campaign against RiceTec Basmati patents, on Aug 14th 2001 the U.S. Patent and Trademark Office struck down large sections of the Basmati patent and no new patents have been given to RiceTec, and no new right has been given to market their varieties as equivalent to or superior to Basmati . RiceTec has been forced to give up its far-reaching and false claims to having invented a very broad range of Basmati rice lines and plants.

Conclusion To summarise the situation, developing countries are in a serious situation if they try to comply with the obligations imposed on them by the TRIPS agreement. There is an urgent need for a reform of TRIPS although in some cases a different interpretation of the regulations would be sufficient in order not to discriminate against developing countries, their economies and their people.

In globalised economic scenario, creativity and innovation are the new drivers of the world economy. An effective intellectual property is the foundation of such strategy.

IPR is a dynamic tool for wealth creation providing an income for enterprises and individuals to create and innovate, encompassing more monopoly element. To gain with IPRs, developing countries including India are introducing harmonized national system of IPRs following an agreed set of minimum Standard of TRIPs Agreement.

Developing countries in general and India in particular lag much behind of patents and revenue out of patenting from intellectual properties.

To meet the requirements of TRIPS, the entire Patent Act, as operative in India will have to be changed and India must show a commendable result in granting patents to its innovations.

More attention is required to IP protection for IT sector and biotechnology industries because of its abundant scientific and technical manpower.

Zaid Imam

Zaid Imam

Zaid Imam is a student of NUSRL, Ranchi. He writes regularly for The Avenue Mail. He may be contacted at zaidimam08@gmail.com.
Zaid Imam

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