UNCTAD The Least Developed Countries Report 2007...

UNCTAD The Least Developed Countries Report 2007

Background Paper

Intellectual Property in LDCs: Strategies for Enhancing Technology Transfer and Dissemination

Carlos Correa University of Buenos Aires

Background Paper No. 4

This is a revised version of a paper which was prepared by the author as a background paper for UNCTAD's Least Developed Countries Report 2007: Knowledge, Technological Learning and Innovation for Development. The views in the paper are those of the author and not necessarily those of UNCTAD or its Member States. The designations and terminology employed are also those of the author.

Table of Contents

A. Introduction……………………………………………………………………...3 B. Technology transfer and dissemination in LDCs………………………………..4 C. The role of intellectual property…………………………………………………7 D. Utility models…………………………………………………………………..11 E. LDCs under the TRIPS Agreement…………………………………………….14 F. Incentives for the transfer of technology……………………………………….18 G. Technical assistance to LDCs…………………………………………………..26 H. Conclusions and recommendations…………………………………………….32 References……………………………………………………………………………...37

A. Introduction

The production structure in least developed countries (LDCs) is dominated by agriculture and petty service activities. Agriculture contributes a large part of value added (33 per cent), with little diversification of primary commodity exports (UNCTAD, 2006: 147).While, some industrial activities are becoming slowly more important for the LDC group as a whole, the share of manufacturing activities in GDP is low (11 per cent), the main types of activities are technologically unsophisticated and the productivity gap with other developing countries is important and widening. Services make the largest contribution to GDP, but most of the LDCs have a very weak specialization in advanced commerce-support services (UNCTAD, 2006: 129–135). This general characterization, however, obscures important differences in the production structure of various LDCs1.

The technological infrastructure in LDCs is extremely weak. Some indicators of technological effort are revealing:

• Gross expenditure in R&D in 2003 was 0.2 per cent of GDP, that is, about ten times less than in developed countries. • The number of researchers and scientists engaged in R&D activities per million population in 2003 is 2 per cent the level in developed countries. • Between 1991 and 2004, only 20 US patents were granted to applicants from LDCs (compared with 1.8 million granted to applicants from developed countries) (UNCTAD, 2006: 157–158)

Given the serious shortcomings of the scientific and technological infrastructure

in LDCs and, particularly, the absence of firms that could absorb existing technologies and innovate thereon2, the use of the concept of ‘systems of innovation’ –– well accepted in the literature on economics of innovation- may be inappropriate in the context of such countries. UNCTAD has suggested to use rather the broader notion of ‘domestic knowledge systems’ in order to understand LDCs’ current situation and design suitable policies. This notion assumes that the entrepreneurial capabilities that are necessary to innovate on the basis of R&D and linkages with different actors of the innovation system are missing (UNCTAD, 2006: 246–247).

1 For instance, Bangladesh accounted for 38 per cent of the manufacturing value-added in the LDC group in 2000–2003 (UNCTAD, 2006: 133). 2 There are, on the one hand, a multitude of informal micro-enterprises which use basic and traditional technologies, and a few large firms, ‘which are mainly capital-intensive, resource-based, import dependent or assembly-oriented… These firms are often wholly or minority owned foreign affiliates, or state-owned enterprises. These large firms are not large by international standards, but they dominate the business landscape within most LDCs. Between these two extremes, there are very few formal sector SMEs’ (UNCTAD, 2006: 224).

Technological learning and technical change in the LDCs take place primarily by exploiting and improving mature technologies already in the public domain, obtained by various channels, mainly of an informal nature,3 from developed or other developing countries. A crucial policy challenge for LDCs is to build productive capacities through improving the mechanisms of technology transfer and strengthening technological learning capacities in production at firm level. This will require, inter alia, to increase the knowledge component of their productive processes and to enhance their human capital formation and knowledge base.

This paper briefly characterizes, first, the importance of different modes of technology transfer and dissemination in LDCs. Second, it examines the possible role of intellectual property rights (IPRs) in learning and knowledge accumulation in such countries. Third, it explores the possible use of utility models as a means of encouraging local innovation. Fourth, the implications of the TRIPS Agreement are examined, including the extent to which the implementation of article 66.2 of said Agreement may contribute to the creation of a viable technological base in LDCs. Fifth, the possible role of technical assistance and other modalities of technology transfer is discussed. Finally, the main conclusions and a set of recommendations are presented. B. Technology transfer and dissemination in LDCs

A central hypothesis in this paper is that the most important instruments4 for building up an endogenous knowledge-base in LDCs include the transfer5 and effective absorption of foreign technology. The design of policies aimed at upgrading technological capabilities in LDCs, however, should not ignore the potential offered by existing local innovation and integrate it with transferred technologies. Informal knowledge systems prevailing in LDCs and in informal sectors in other countries include creative repair, reprocessing and recycling of artefacts, including in some cases complex technologies (Chamarik and Goonatilake, 1994: 363). In addition, traditional knowledge plays a crucial role in agriculture and other sectors of LDCs. Blending of traditional and new technologies (including microelectronics and modern biotechnology) rather than substitution or coexistence in a dual technological system, may be the best strategy to develop new activities and increase the productivity of the existing ones (Bhalla, 1996: 70).

3 The incorporation of new machinery and equipment is the most important channel of technology acquisition in LDCs. See UNCTAD, 2006, table 3.5. 4 There are, of course, other important instruments, such as education and capital accumulation, which are not specifically addressed in this paper. 5 ‘Transfer’ of technology refers to different mechanisms that permit the transmission of technological knowledge, embedded or not in machinery and equipment. It includes "formal" modes such as foreign direct investment (FDI), the purchase of turn-key plants, patent licenses, transfer of know-how, the supply of technical assistance and the like, and "informal" modes such as acquisition of machinery and reverse engineering.

Studies on technological development suggest that the relevance of different modes of technology transfer significantly vary at different stages of industrial development (Kim, 1997; Correa, 2000). The type and content of such transfers evolve as the technological capabilities of domestic firms increase. Three stages of industrial development -initiation, internalization and generation- can be identified (Lee, Bae and Choi, 1988: 242).

At the initiation stage, mostly "mature" technologies are incorporated through informal channels of technology transfer, notably the acquisition of machinery and equipment and reverse engineering (Kim and Dahlman, 1992: 439)6.However, more formal modes of transfer are also used, such as turn-key agreements for the establishment of plants, particularly where production processes are complex and plant lay-outs are difficult to imitate. Foreign direct investment (FDI) can also constitute an important channel of technology transfer at the initiation stage as local absorptive capabilities are low and foreign investors need to be directly involved in the creation of local capacity for production (Correa, 2000: 263).

The situation in LDCs corresponds to the just described ‘initiation phase’. The focus of technological efforts lies in the mastery of operation and low-level design technology, including simple assembly. Technological change is likely to mainly consist of product specification and production know-how. The absorption of new technologies would require a considerable upgrading of LDCs’ firms capabilities, which are still in their majority informal micro-enterprises (UNCTAD, 2006: 234).

In this context, as discussed below, IPRs are unlikely to play any significant role in promoting local learning and innovation. At the initiation stage, the basic conditions for patents to operate as incentives for innovations, namely high R&D investments and capacity for reverse engineering and low cost production (Foray, 2004: 146) do not exist. At the internalization stage local firms can learn through imitation under a flexible IPRs regime; technology owners face a growing risk of imitation and tensions between domestic and foreign firms increase. It is only at the generation stage that local innovative firms in the most dynamic sectors aim at a more stringent IPRs regime to protect higher R&D investments and accumulate IPRs as a defensive strategy and to improve their bargaining position vis-à-vis competitors7. It is to be recalled that, with the adoption of the TRIPS Agreement, the countries’ leeway to adapt their IPRs to different stages of technological development has been drastically limited. LDCs, as examined more in detail below, enjoy temporarily such leeway but may be forced to adopt TRIPS-consistent regimes (in case of upgrading to ‘developing country’ status or end of the transitional period) before their industries are prepared to benefit in any way from an IPRs regime.

Of course, within LDCs there are firms and sectors with different degrees of

technological development which may use different channels to acquire new

6 In the case of South Asian countries, the supply of technical assistance provided by Original Equipment Suppliers (OEM) also played an important role at the initiation stage. 7 For an analysis of patenting strategies, see Granstrand, 1999 and OECD, 2005.

technologies. For instance, there is a significant development of the pharmaceutical industry in Bangladesh. The industry is focused on the formulation of generic products using imported active ingredients. Local firms produce at lower cost than foreign pharmaceutical companies; they supply up to 95 per cent of the total medicine requirement of the local market and export medicines, including to the European market8. The industry ‘does not have the research capacity to invent new pharmaceutical products, nor does it have the imitative capacity to reverse engineer patented drugs in order to develop competing generic products’(Van Duzer, 2003: 5). However, the industry has reached a stage of development in which the utilization of formal modes of technology transfer, such as licensing, becomes an important option to upgrade its manufacturing capacity.

As a result of this diversity, transfer of technology policies in LDCs should focus on mobilizing informal modes of acquisition, but should also address the situation of firms at a more advanced stage of technological development. Such policies should include, on the one hand, mechanisms to expand the acquisition and ensure the appropriate utilization of machinery and equipment and, on the other, improve the bargaining capacity of the more advanced firms to acquire technologies through licensing agreements.

In the 1970’s and the 1980’s many developing countries adopted policies to control restrictive business practices in licensing agreements and the levels of royalty payments. An evaluation of the lessons learned from the application of those policies (which were later abandoned in most countries) would be useful to adopt the right approach in LDCs. For instance, a noticeable shortcoming of the policies applied in Latin America was the very little consideration given to the conditions for the effective absorption of the imported technology (Correa, 1995).

The absorption of technologies crucially depends on the learning capacity of the recipient firms. Access to knowledge (e.g. through the availability of documentation or technical assistance) is a necessary but not a sufficient condition to ensure that technology absorption takes place. The ease of learning in a firm is generally related to the level of deliberate innovative efforts, particularly in R&D (OECD, 1992: 51) which are extremely low in LDCs’ firms.

Firms’ attitudes regarding the absorption of foreign technologies considerably differ among countries and sectors. Thus, many Asian firms aggressively and successfully sought to learn about and improve on imported technologies, in contrast to most Latin American firms which ‘were naturally dependent on the suppliers, they bought technology as a sort of capital good and purchased technical assistance as a regular input. Complex negotiations to assure learning were rarely considered; suppliers were not seen as potential strategic partners, neither was technology understood as a strategic tool in competition with others or eventually even with the original supplier…’ (Pérez, 1993: 12).

8 See http://www.pharmadu.net/bps/companyinfo.htm.

As noted, most firms in LDCs are micro-enterprises that use mature technologies and do not undertake any significant innovation effort. Only 7 per cent of domestic firms license foreign technologies and R&D is close to zero (UNCTAD, 2006: 158). In this context, any policies directed at increasing the transfer and dissemination of technologies should be actively supplemented by measures aimed at strengthening the firms’ capacity to effectively absorb new knowledge and further innovate thereon. C. The role of intellectual property

To what extent can intellectual property contribute to improving the technological capabilities in LDCs? There is no simply reply to this question, as the impact of IPRs on innovation, transfer and dissemination of technologies depends on a great variety of factors. In addition, a significant part of innovation takes place as a result of routine production activities and learning, unrelated to the existence and scope of IPRs. This is true in both developed and underdeveloped technological contexts, but it is particularly valid where formal R&D is low and the innovation path is dominated by incremental innovations, as it is the case in LDCs.

IPRs confer an incentive to innovate9 but, as any other incentive, it only works as such in certain contexts. IPRs are not a magic tool and cannot boost innovation where the required conditions –– skills, information, capital, market prospects –– do not exist. There is strong evidence, for instance, suggesting that patents do not encourage R&D in pharmaceuticals for diseases prevalent in developing countries, as large pharmaceutical companies concentrate on projects leading to profitable drugs and tend to ignore those for which the effective demand is low (Commission on Intellectual Property Rights, Innovation and Public Health, 2006). More generally, it seems clear that patents only marginally stimulate innovation, if at all, in developing countries and LDCs where the scientific and technological infrastructure is weak and, in particular, R&D efforts at the firm level are low or inexistent.

On the contrary, the lack of IPRs protection may be essential to allow learning through imitation at the initial levels of technological development. IPRs may preempt the duplicative imitation of foreign technologies which was key, for instance, in the process of technological catching up of South Korea and Japan (Kim, 1997: 259). A fresh and telling example is the development of the pharmaceutical industry in India before patents were introduced as a result of the obligations imposed by the TRIPS Agreement. Based on strong technological capacity in chemistry and pharmaceutical formulation, the Indian generics pharmaceutical industry became a global provider of low cost medicines and active ingredients in the absence of product patent protection (Chaudhuri, 2005).

More generally, competition (as opposed to the monopolization entailed in some cases by IPRs) can be a powerful incentive to introduce product, process or organizational innovations. Many important innovations are the result of stiff competition, particularly when different technological options may be pursued. One

9 See generally on this issue Scotchmer (2004).

well known example is the case of the semiconductors’ industry, where IPRs have played a marginal role as an incentive for innovation10. Many studies also indicate that patent protection is not always, or even usually, the driving force behind R&D11. In the area of software, in particular, non-appropriation mechanisms, such as ‘open source’ schemes, have proven to promote a vibrant process of innovation (Boyle, 2004).

The strengthening and expansion of patent protection does not seem to have stimulated innovation in developing countries so far. In Mexico, Aboites found no increase in domestic patenting after the substantial changes introduced to the patent law in 1991, while a significant increase in foreign patenting was observed (Aboites, 2003). In the case of Brazil, in the period 1990–200112 only 27 patent applications were filed by domestic enterprises in the pharmaceutical sector –– one of the most active in patenting worldwide –– compared to 2.934 applications made by foreign companies (Elias, 2004).

Another important consideration for the analysis of the role of IPRs in LDCs is that there are major asymmetries in the potential benefits of IPRs for small and large firms, as it is also the case in developed countries. The take up of patents and the enforcement of such rights increases the larger the business and the higher the level of innovation. The available studies on the relationship between patenting and firm size indicates that patenting is rare among SMEs, which rather prefer to protect their innovations through informal means such as trade secrets, trust and contracts (Correa, 2003)

Poor managerial capacity and skill level of workers, poor financing or lack of access to financial capital, poor support services, weak industrial and social infrastructure, poor marketing and distribution networks, and a poor technological knowledge base make the use of innovation-related IPRs13 illusory for most firms in LDCs.

10 See, e.g. the classical study by Levin, et al. (1987), which found that firms in 130 lines of business reported that patents were the least important means of securing competitive advantage for new products. 11 This certainly does not exclude the possibility of obtaining a patent even where the innovation would have taken place without it. In this case, a patent represents a windfall gain for the firm at the expense of social efficiency (Hart, 1994: 232). 12 Product patent protection for pharmaceuticals was granted in Brazil as of 1996, including with regard to products covered in applications filed in foreign countries before that date, to the extent that the product was not previously commercialized. 13 IPRs cover a broad set of subject matter. Not all titles, such as trademarks and geographical indications, directly aim at or relate to innovative activities. For instance, the use of trademarks may positively influence firms' technological evolution, if they improved marketing performance and capital formation. However, this will not be an automatic outcome, if learning efforts and the availability of the required inputs were absent. This paper focuses on innovation-related IPRs, such as patents and utility models. It does not address either issues relating to the protection of traditional knowledge, which have been extensively dealt with elsewhere. See, e.g. the documents available at http://r0.unctad.org/trade_env/tk.htm.

In addition, obtaining patents and other registered IPRs and maintaining them in

force is costly and unaffordable to most small firms. For instance, the acquisition of a patent is generally subject to a fee and requires legal expert’s advice to appropriately draft the specifications and claims. Such advice is costly, where available. In many LDCs there are few, if any, attorneys specialized in patents’ search and drafting. Further, if a patent were obtained, maintenance fees would need to be paid periodically during the term of patent (generally twenty years from the date of filing) in order to prevent it from lapsing.

Even more significant may be the costs of monitoring possible infringements and enforcing patents and other rights against infringers or defending them against validity challenges by third parties. Patent litigation may be extremely risky and expensive, especially if foreign grants have been obtained, and well beyond the reach of small enterprises14, including in developed countries15. Given the dissemination of knowledge that a patent entails and the difficulty to engage in litigation, small companies are at a disadvantage with regard to large companies since small companies would be unable in many cases to assert their rights in courts, at the same time, if they did, they would be at a disadvantage too because litigation may lock-up their resources (Blackburn, 2000).

In contrast to patent protection, the protection under trade secrets has no acquisition costs, while the competitors’ cost and time for overcoming the secrecy barrier by legitimate reverse engineering, may in some cases be substantial. Trade secret protection, however, is not a valid option when the technology can be easily traced from a product put on the market. In addition, infringement actions can only succeed when the plaintiff provides sufficient evidence about its prior possession of secret knowledge, that he has undertaken appropriate measures to keep it confidential and that the defendant has obtained the knowledge through dishonest commercial practices. Enforcement of trade secrets, hence, poses significant procedural burdens.

It might be argued that while patents may not be suitable for LDCs, utility models (often known as ‘petty patents’) could be better adapted to their present level of development and contribute to foster minor innovations. This issue is further developed in the next section.

14Litigation costs in patent cases, according to some estimates amount to $2–4 million in the United States, $1 million in United Kingdom and $200,000 in Germany (Orange, 2002). 15 For instance, a survey covering 400 SMEs in the United Kingdom found that “[T]he possession of intellectual property rights does not necessarily indicate a willingness to enforce them in the courts. Formal rights were treated largely as deterrents, rather than a means of seeking legal redress. Most owner-managers reported no intention to pursue legal action to court, even when success was likely. The costs associated with taking legal action in terms of money, time, difficulty of establishing infringement and risk to the reputation of the business, compared with any benefits, were felt to be prohibitive. Most owner-managers preferred to allocate resources to product and process innovation, rather than acquiring and enforcing formal intellectual property rights” (Blackburn, 2000).

Another key question is the role that IPRs may play with regard to technology transfer to LDCs. Although a number of econometric studies made on the relationship between IPRs and technology transfer indicate a positive association of both variables16, there is no conclusive evidence about the impact of IPRs on technology inflows17. In particular, there is no evidence suggesting that increased IPRs protection in developing countries will lead to more opportunities for acceding to up-to-date technologies18, or that the global rate of innovation will increase19. While the availability of such rights reduces the risk for potential transferors and may encourage formal modes of transfer (such as licensing), the increased power IPRs confer leaves at title-holders’ discretion whether to transfer or not the technologies they posses, and to determine the price and other conditions thereof20.

There seems to be broad consensus, as implied by article 66.1 of the TRIPS Agreement21 that in the early stages of their industrial growth, countries are logically interested ‘in being able to imitate imported technologies freely, calling for limited protection’ (Maskus, 2005: 60). In addition, internalized forms of technology transfer (i.e. those taking place intra-firm) are likely to be preferred by technology holders or constitute the only viable option when the absorptive capacity in the recipient country is

16 See, e.g., Maskus (2005: 41–74). 17 Thus, Yang and Maskus conclude that although they ‘cannot reject the hypothesis that stronger IPRs favor licensing through easing contract enforcement and raising imitation costs’, the evidence indicating that stronger patent rights induce greater dollar volumes of licensing does not permit to ‘claim that stronger patent rights encourage more licensing contracts and additional transfer of technological information. The problem arises because the increase in receipts for using intellectual proper could be caused by either higher licenses rents per contract or a greater number of contracts’ (Yang and Maskus, 2005: 128). 18 For instance, in Brazil only one out of 176 ‘transfer of technology’ contracts in the pharmaceutical sector registered with the National Institute of Intellectual Property included the exploitation of a patent. In 138 cases the use of trademarks was licensed (Elias, 2004). 19 For instance, studies by Glass and Saggi (2002) and Helpman (1993) suggest that the rate of global innovation declines with a reduction in the rate of imitation due to stronger IPRs. 20 Unless there is a credible threat of compulsory license or government use in accordance with article 31 of the TRIPS Agreement. One example is the case brought before the South African Competition Commission by COSATU, the TAC, CEPPWAWU, Hazel Tau, Nontsikelelo Zwedala, Sindiswa Godwana, Sue Roberts, Isaac Skosana, William Mmbara, Steve Andrews, Francois Venter and the AIDS Consortium against GlaxoSmithKline South Africa (Pty) Ltd and Boehringer Ingelheim, which eventually led to the negotiation of voluntary licenses. 21 See an analysis of this provision below.

low. The availability of IPRs may play in these cases a neutral role, since the transferred technology remains under the firm’s control and spill-overs are unlikely22.

Even if, under certain conditions, IPRs were to positively encourage technology transfer through licensing, LDCs are unlikely to become significant recipients of licensed technology. The low technical capacity of local enterprises constrain their ability to license-in technology, while the low GDP per capita in LDCs is not likely to stimulate potential transferors to engage in such arrangements (Yang and Maskus, 2005: 128).

Finally, a positive association has been found in various studies between increasing IPRs protection and imports (Maskus, 2005: 7). The adoption of higher levels of IPRs protection is likely to increase imports of certain kinds of goods subject to IPRs where the risk of imitation had discouraged exporters to sell their products. However, imitation, especially of technological complex products is unlikely in LDCs. If there were an increase in imports attributable to IPRs, it would probably concentrate in consumer goods, such as pharmaceuticals, rather in technology diffusing goods such as machinery and equipment. In this sense, one study found that the potential diffusion of technology via increased international trade of technological goods generated by strengthened IPRs in Latin America only was relevant to the most relatively industrialized economies (Blyde, 2006: 10). As a result, increasing IPRs protection in LDCs is unlikely to have a positive effect on the dissemination of technologies through trade.

In sum, the dynamics of the relationship between IPRs and learning at the firm level is such that IPRs are likely to be largely irrelevant to firms in LDCs as a means to foster innovation and the acquisition of technology through licensing. IPRs, particularly patents, only promote innovation where profitable markets exist and where firms possess the required capital, human resources and managerial capabilities. Licensing, similarly, is out of reach for firms without certain level of absorptive capacity, particularly in countries with low GDP. As firms’ capability increases, patents may growingly perform their incentive, transactional and signaling functions (Foray, 2004: 139) and the information contained in patent applications may be more useful to plan and undertake innovative activities. However, only when the ‘generation’ stage is reached, the benefits generated by the acquisition of patents are likely to off-set the constraints imposed on local research and production and the costs resulting from reduced access by consumers to protected products. D. Utility models

Utility models, first introduced in Germany in 1891, have been implemented in many developed and developing countries23. Box 1 indicates the differences between utility models and patents.

22 The absorptive capacity of domestic firms is a fundamental precondition for benefiting from foreign direct investment spillovers, which appear to be greater in the more developed regions (Crespo, 2007: 420).

Box 1 Utility models and patents

• The requirements for acquiring a utility model are less stringent than for patents. While the requirement of “novelty” is always to be met, that of “inventive step” or “non-obviousness” may be much lower or absent altogether. In practice, protection for utility models is often sought for innovations of a rather incremental character which may not meet the patentability criteria.

• The term of protection for utility models is shorter than for patents and varies from country to country (usually between 7 and 10 years without the possibility of extension or renewal).

• In most countries where utility model protection is available, patent offices do not examine applications as to substance prior to registration. This mean that the registration process is often significantly simpler and faster, taking, on average, six months.

• Utility models are much cheaper to obtain and to maintain. • In some countries, utility model protection can only be obtained for certain

fields of technology and only for products but not for processes. Source: WIPO at www.wipo.org/sme/en/ip_business/utility_models/

As indicated in Box 1, utility models are essentially suited to protect ‘minor’ or incremental innovations and can be acquired more easily and at lower cost than patents. The protection of utility models is not mandated by the TRIPS Agreement. Although the Paris Convention for the Protection of Industrial Property lists ‘utility models’ among the covered areas, the Convention does not obligates contracting parties ‘to regulate all subjects indicated in the definition’ (Bodenhausen, 1968: 24).

The use of utility models in countries that recognize them is very uneven. Available statistics suggest that in countries where a clear distinction between requirements for patent and for utility model protection does not exist, few applications for the latter are filed (Richards, 1998: 47–3). In other words, close standards for eligibility for patent and utility models protection tend to discourage applications for the latter24. The number of applications for utility models is very significant25 in China (93.139 applications, 57.848 grants) and South Korea (39.193 applications, 39.957 grants),

23 Such as Argentina, Armenia, Austria, Belarus, Belgium, Brazil, Bulgaria, China, Colombia, Costa Rica, Czech Republic, Denmark, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Guatemala, Hungary, Ireland, Italy, Japan, Kazakhstan, Kenya, Kyrgyzstan, Malaysia, Mexico, Netherlands, members of the African Organization of Intellectual Property (OAPI), members of the Andean Community, Philippines, Poland, Portugal, Republic of Korea, Republic of Moldova, Russian Federation, Slovakia, Spain, Tajikistan, Trinidad & Tobago, Turkey, Ukraine, Uruguay and Uzbekistan. 24 In some countries, the patentability standards have been significantly relaxed allowing for the granting of patents on very minor, sometimes trivial developments. This is, for instance, the case of United States (Jaffe and Lerner, 2004) where utility models are not recognized. 25 Data for 2002 based on WIPO, IP/STAT/2002/A.

as well as in Germany (23.428 applications, 17.188 grants)26. In Brazil they accounted for 3.211 applications and 3.258 grants. In all countries where utility models are recognized, the great majority of applications and grants corresponds to domestic applicants, in contrast to the case of patents where foreign applicants largely dominate, particularly in developing countries.

The intensity of use of utility models is likely to be determined to a great extent by the system of acquisition applied. Although utility models may be subject to examination, the international trend is to allow for their registration without prior assessment of eligibility for protection. This provides a great advantage for entering into the system, but generates the risk of engaging into procedures for infringement that may end up with litigation costs or damages imposed on the title-holder, if the model is finally found to be invalid or non-infringed27. In China, for instance, litigation involving utility models has been important and disruptive of legitimate commercial activities. The government has attempted to curb it by requiring a search by the patent office to establish the validity of the title as a condition to institute an infringement action28.

Variants of the concept of utility models have been developed in some countries, such as the ‘innovation patents’ in Australia. After an extensive research into the needs of SMEs, this modality of patent was introduced in 2001, with the aim of replacing the petty patent system and providing a low-cost protection for minor innovations and products with a short shelf life. It provides for a longer term of protection, eight years as opposed to six, and allows for up to five claims, as opposed to three. A new e-business centre to process on-line applications and payments for innovation patents was also established. The number of ‘innovation’ patents filed in 2001–2006 almost doubled that of ‘petty’ patents in 1997–200029. Yet the number of applications is considerably lower than in countries with a long tradition in the grant of utility models, as mentioned above.

The World Bank has reported that in Brazil utility models helped domestic producers gain a significant share of the farm-machinery market by encouraging adaptation of foreign technologies to local conditions. Utility models in the Philippines were said to encourage successful adaptive invention of rice threshers. In Japan, utility models were found to have had a strong positive impact on real total factor productivity (TFP) growth because they were an important source of technical change and information diffusion (World Bank, 2001: 123).

26 It should be noted that the scope of protection was broadened in Germany in 1987 in order to include inventions concerning chemicals and polymers, in addition to mechanical devices. 27 For instance, in Japan there has been a steady drop in applications for registrations of utility models from approximately 191,000 in 1980 to 77,000 in 1993 and 10,000 in 1999. One of the possible explanations for this trend is the elimination of the examination for grant. It has been suggested that this reform has ‘meant difficulty in obtaining judicial or administrative relief and a loss of confidence as to the validity of non-examined rights, (UNCTAD-ICTSD, 2003: 67). 28 See also Suthersanen (2006: 39), who advocates a compulsory examination/report when invalidation/infringement proceedings are initiated. 29 See http://www.ipaustralia.gov.au/pdfs/statistics/P10Aug06.xls.

Utility models generally apply to mechanical devices, although in Germany their

scope was extended in 1987 to chemicals and polymers, and in the European Union its extension to computer programs was considered (Leith, 2000). The extent to which a system of utility models may be useful in LDCs is open to question. Given the low development of manufacturing activities in these countries, it is unclear whether there exists a flow of (minor) innovations that can be captured by the system. Most importantly, it is unclear whether the availability of utility models protection will encourage such innovations to be made. The very purpose of such protection is to stimulate activities that otherwise would not occur or that would occur at a lower pace. It may also favor the disclosure of innovations that may otherwise remain secret30. Most firms in LDCs, however, rely on mature technologies and on imported machinery and equipments, and are unlikely to be active in the kind of improvements that utility models may protect. This will change, however, over time, as their technological capacity is upgraded. Utility models protection seems, in any case, a better starting point than patents. The granting of utility models, however, is unlikely to determine such upgrading per se, it may contribute to strengthen that process if other conditions are met, namely that potential users become knowledgeable about the system31 and find real advantages in relying thereon.

Making utility models operative would require active policies to create the user base, including the availability of legal advice. In addition to the absence of prior examination, other desirable traits of a utility model system would be the following:32

a) A maximum term of 10 years (3 years as a minimum); b) Registration without prior examination; c) Compulsory search report for renewal, if available, and as a condition to initiate

infringement proceedings; d) Renewal fees in order to weed out underutilised utility models; e) Universal novelty and low inventive step requirement; f) Compulsory licensing, especially in cases of dependency of patents or utility

models (that is, when a subsequent inventor cannot obtain or exploit a patent or utility model without infringing a prior utility model);

g) The judicial system is prepared to deal within reasonable periods with validity and infringement cases.

E. LDCs under the TRIPS Agreement

30 As mentioned, trade secrets protection may, in fact, be one important modality of IPRs protection in countries where the formal acquisition of IPRs is difficult. 31 Ample awareness within industry is likely to be one of the factors behind the extensive use of the system by that German, Japanese and South Korean local industries (UNCTAD-ICTSD, 2003: 67). 32 Based on Suthersanen (2006), p. 38–39.

LDCs were not required to apply the TRIPS Agreement's provisions for a period

of ten years from the general date of entry into force of the WTO Agreement (January 1, 2006)33. Extensions to this period can be indefinitely agreed upon by the Council of TRIPS upon duly motivated request of the interested LDCs.

The wording of article 66.134 suggests that the GATT negotiating parties recognized that the implementation of high standards of IPRs protection, as required by the TRIPS Agreement, would not be instrumental to LDCs’ technological development. It indicates that in order to develop a ‘viable technological base’ LDCs need a flexible intellectual property system, that is, less protection than that required under the Agreement. This is in contrast to the main argument of the proponents of the TRIPS Agreement, in the sense that more intellectual property protection would almost necessarily lead to more innovation and technology transfer, and is in tune with developing countries’ demand for more flexibility and policy space to develop their IPRs regimes in accordance with their level of economic and technological development35.

In view of the possible impact of the implementation of the TRIPS Agreement on access to medicines, the Doha Declaration on TRIPS and Public Health36 also provided that LDC Members would not be obliged, with respect to pharmaceutical products, to implement or apply Sections 5 (patents) and 7 (undisclosed information) of Part II of the TRIPS Agreement or to enforce rights provided for under these Sections until 1 January 2016, without prejudice to the LDC members’ right to seek other extensions of the transition periods as provided for in Article 66.1 of the TRIPS Agreement (paragraph 7)37.

33 However, this exemption does not include the national treatment and most-favoured-nation principles (articles 3 and 4 of the TRIPS Agreement). 34 Article 66.1:’In view of the special needs and requirements of least-developed country Members, their economic, financial and administrative constraints, and their need for flexibility to create a viable technological base, such Members shall not be required to apply the provisions of this Agreement, other than Articles 3, 4 and 5, for a period of 10 years from the date of application as defined under paragraph 1 of Article 65. The Council for TRIPS shall, upon duly motivated request by a least-developed country Member, accord extensions of this period’. 35 See the proposal by Argentina and Brazil for a ‘Development Agenda’ at WIPO, document WO/GA/31/11, available at: http://www.wipo.int/documents/en/document/govbody/wo_gb_ga/pdf/wo_ga_31_11.pdf. 36 See WT/MIN(01)/DEC/W/2, 14 November 2001. 37 In implementing paragraph 7 of the Doha Declaration, the Council for TRIPS adopted on June 27, 2001 a decision on the ‘Extension of the Transition Period under Article 66.1 of the TRIPS Agreement for Least-Developed Country Members for Certain Obligations with Respect to Pharmaceutical Products, IP/C/25, July 1, 2002, available at http://www.wto.org/english/tratop_e/trips_e/art66_1_e.htm. The General Council also adopted on July 8, 2002 a Decision on ‘Least-Developed Country Members — Obligations Under Article 70.9 of the TRIPS Agreement with Respect to

While LDC members38 were allowed to further delay the implementation of the TRIPS obligations relating to pharmaceutical products, they remained bound to apply all other provisions of the Agreement as of January 1, 2006. Shortly before this deadline, LDCs jointly requested an extension of that period to the Council for TRIPS, which on November 29, 2005 agreed to extend the transitional period until July 1, 2013, or until such a date on which they cease to be a least-developed country Member, whichever date is earlier. The Decision established a ‘freezing clause’39 similar to that contained in article 65.5 of the TRIPS Agreement, which obliges LDC members not to reduce the level of compatibility of their legislation with the TRIPS Agreement during the extended transitional period40.

Although LDC members can delay the introduction of protection with regard to pharmaceutical products, in accordance with paragraph 7 of the Doha Declaration and the ensuing WTO Decisions, practically all African LDCs41 seem to grant patents for pharmaceuticals42. Since LDCs are exempted from both making available and enforcing patents and test data protection, such countries may decide not to enforce granted patents and thereby allow competition in the respective product market. It might also be possible to change the law and derogate patent protection until the expiry of the transitional period. All this will be perfectly compatible with the WTO rules and could raise no complaints from other Members under the dispute settlement mechanism. However, patent owners might rely on the national law and eventually put forward constitutional arguments in order to preserve their rights under granted patents (UNCTAD-ICTSD Project on IPRs and Sustainable Development, 2005: 721).

Pharmaceutical Products, (WT/L/478, 12 July 2002. available at http://www.wto.org/english/tratop_e/trips_e/art70_9_e.htm) which clarified that LDC members are not obliged to grant exclusive marketing rights (EMRs) in accordance with article 70.9 of the TRIPS Agreement. If granting of EMRs were required, the concession made by the Doha Declaration to LDCs would have been of very limited practical value, since access to generic pharmaceutical products could have been effectively blocked under EMRs for at least five years. 38 32 LDCs are currently members of the WTO. Eight additional LDCs are in the process of accession: Bhutan, Cape Verde, Ethiopia, Laos, Samoa, Sudan, Vanuatu and Yemen. Equatorial Guinea and Sao Tome & Principe are WTO observers. 39 Paragraph 5: ‘Least-developed country Members will ensure that any changes in their laws, regulations and practice made during the additional transitional period do not result in a lesser degree of consistency with the provisions of the TRIPS Agreement’. 40 This limitation, which was not present in the TRIPS Agreement, does not prevent LDC members from reducing the level of IPRs protection, but only to do so in case that the resulting protection would be lower than that required by the Agreement. The limitation does not apply to pharmaceutical products. 41 Twelve out of the thirty African LDCs are members of the African Intellectual Property Organization (OAPI) and eight of the African Industrial Property Organization (ARIPO). 42 The majority of non-African LDCs also seem to confer patent protection for pharmaceutical products, due to the application of their ex-metropolis’ legislation (personal communication from WIPO Secretariat).

A similar situation exists with regard to other obligations under the TRIPS

Agreement. Although compliance therewith may be delayed until July 1, 2013, LDC members have already passed national legislation in various areas, such as copyright, or are bound under international conventions to grant and enforce certain categories of IPRs. For instance, the following countries have ratified the Berne Convention and are obliged to comply with its obligations (even if not enforceable under WTO rules): Bangladesh Benin Burkina Faso Chad Congo, Democratic Republic of the Djibouti Gambia Guinea Guinea Bissau Haiti Lesotho Madagascar Malawi Mali Mauritania Nepal Niger Rwanda Senegal Togo Zambia

Moreover, Benin, Burkina Faso, Guinea, Mali and Togo have ratified the WIPO Copyright Treaty (WCT), generally known as the ‘Internet treaty’, and the WIPO Performances and and Phonograms Treaty (WPPT). These treaties establish a number of TRIPS-plus protections for information in the digital environment, such as technological protection measures, that may eventually limit access to materials for fair use as well as to non-copyrighted materials. The adoption of these treaties is at least highly premature for LDCs where illiteracy and poverty, combined with the ‘digital divide’, already create formidable barriers for access to knowledge (Okediji, 2006: 32).

Article 66.1 of the TRIPS Agreement clearly points out that LDCs need a flexible approach to IPRs and on December 10, 2002, the General Council adopted a Decision on the Accession of Least-Developed Countries providing that ‘[T]ransition arrangements in the WTO agreements would be granted for LDC accessions taking into account individual development, financial and trade needs’43. Despite this, LDCs in the

43 The Decision also stated that ‘a)Special and Differential Treatment provided for in the WTO agreements would apply to acceding LDCs;…c) Transition arrangements would be accompanied by Action Plans for compliance with WTO rules; and supported

WTO accession process have been forced to relinquish the transitional periods that original LDC members enjoyed. Moreover, they have been required to comply not only with the TRIPS Agreement but also to implement protections beyond the Agreement’s requirements.

Thus, articles 3-5 of the TRIPS Agreement became applicable for Cambodia and Nepal as of the date of accession and the rest of the TRIPS provisions as of January 1, 200744. Although these countries were able to retain some of the flexibilities confirmed by the Doha Declaration on the TRIPS Agreement and Public Health, in the accession negotiating process they ended up making a number of TRIPS-plus concessions that substantially eroded their ability to design their IPRs regimes. For instance, both countries became bound to provide five years exclusivity for test data, a requirement not provided for in the TRIPS Agreement which may significantly reduce access to generic medicines (Correa, 2006). Nepal and Cambodia also agreed to subscribe intellectual property conventions not incorporated into the TRIPS Agreement. For instance, Cambodia’s action plan on the implementation of IPRs included the ratification of UPOV, Geneva (phonogram) and the Brussels Convention, and it also committed to ratify the Patent Cooperation Treaty (PCT). Significant TRIPS-plus obligations were, in sum, assumed in the accession process of LDCs in various substantive as well as procedural areas (Abbott and Correa, forthcoming). F. Incentives for the transfer of technology

In accordance with article 66.2 of the TRIPS Agreement, ‘[D]eveloped country Members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least-developed country Members in order to enable them to create a sound and viable technological base’. This article puts an obligation on developed Member countries to provide incentives to enterprises and institutions. However, the precise nature of the incentives is not established; only their end is spelled out: to enable LDC members ‘to create a sound and viable technological base’. Unlike other obligations imposed by the TRIPS Agreement, there are no clearly set standards to assess compliance with this obligation.

At its meeting of September 1998, the Council for TRIPS agreed to put on the

agenda the question of the review of the implementation of Article 66.2 and to circulate a questionnaire on the matter in an informal document of the Council. On February 19, 2003, the Council adopted a Decision on the Implementation of Article 66.2, which establishes mechanisms for “ensuring the monitoring and full implementation of the obligations in Article 66.2”, including the obligation to “submit annually reports on actions taken or planned in pursuance of their commitments” under said article and their

by technical assistance. The Doha Ministerial Declaration (WT/MIN(01)/DEC/) had indicated the intention of speeding up accession of LDCs and providing technical assistance (paras. 9 and 42). 44 See WT/ACC/KHM/21 and WT/ACC/NPL/16.

review by the Council at its end of year meeting each year. The reports on the implementation of Article 66.2 shall, subject to the protection of business confidential information, provide, inter alia, the following information:

(a) An overview of the incentives regime put in place to fulfill the obligations of Article 66.2, including any specific legislative, policy and regulatory framework; (b) Identification of the type of incentive and the government agency or other entity making it available; (c) Eligible enterprises and other institutions in the territory of the Member providing the incentives; and (d) Any information available on the functioning in practice of these incentives, such as: - Statistical and/or other information on the use of the incentives in question by the eligible enterprises and institutions; - The type of technology that has been transferred by these enterprises and institutions, and the terms on which it has been transferred; - The mode of technology transfer;

- The least-developed countries to which these enterprises and institutions have transferred technology, and the extent to which the incentives are specific to least-developed countries; and

- Any additional information available that would help assess the effects of the measures in promoting and encouraging technology transfer to least-developed country Members in order to enable them to create a sound and viable technological base.

The issue of transfer of technology to LDCs was also addressed in paragraph 7

of the Doha Declaration on the TRIPS Agreement and Public health, which reaffirmed the commitment of developed-country Members to provide incentives to their enterprises and institutions to promote and encourage technology transfer to least-developed country Members pursuant to Article 66.2.

Though the wording in paragraph 7 is broad, its inclusion in the Doha

Declaration indicates that effective incentives should be granted in developed countries in order to specifically foster the transfer to LDCs of health-related technologies, including pharmaceutical technologies. An interesting aspect of the Declaration is that it refers to “commitments of developed-country Members”, thereby confirming that article 66.2 does not contain a mere “best efforts” obligation.

An analysis of the reports presented by developed countries to the Council for TRIPS illustrates what their understanding is about the obligations under article 66.2 and the degree to which the actions taken may be actually instrumental to achieve its intended objective. At its meeting of October 2006, the Council for TRIPS took up its fourth annual review of developed country Members' reports on their implementation of Article 66.2. For this review, the Council received reports on actions they had taken or planned in pursuance of their commitments under Article 66.2 from the following developed country Members: Japan; New Zealand; Australia; Switzerland; Norway; and the European Communities and individual member States (Austria, Belgium, the Czech

Republic, Denmark, Finland, France, Germany, the Slovak Republic, Spain, Sweden and the United Kingdom); the United States; and Canada45.

Some of the reports included a clarification about how ‘technology transfer’ was

interpreted. For instance, New Zealand interpreted it ‘broadly to include training, education and "know-how", along with any capital component’46. The report added that ‘the main vehicle for the channelling of New Zealand's technology transfer to LDCs is through the New Zealand Agency for International Development (NZAID). NZAID views technology transfer as an implicit element in achieving its overall objective of reducing poverty’47. New Zealand’s report recognized that ‘NZAID does not provide any direct incentives to New Zealand organisations to promote technology transfer to LDCs… NZAID's bilateral and regional programmes do, however, provide technology transfer through training, skill development, and technology infrastructure…New Zealand provides LDCs with transfers of technology and assistance to encourage investment through various regional assistance programmes. In some cases it is difficult to separate expenditure specifically provided to LDCs, although it is clear that LDCs within these regions benefit from these programmes’48.

Japan reported acceptance of trainees, dispatch of experts, technical cooperation as well as cooperation in research and development studies49.

Norway reported the activities of the Norwegian Agency for Development Cooperation (NORAD). It stated that ‘incentives for technology transfer to developing countries, including least-developed countries are provided through (1) its facilities for investment support, (2) its financing mechanisms for import to developing countries, and (3) support to export related activities in developing countries’50.

Switzerland reported that ‘there are mainly two Swiss government agencies

involved in the provision of incentives, either directly or indirectly, for Swiss as well as for other developed country Members' enterprises and institutions to engage in activities involving technology transfer to LDCs. These two agencies are the Swiss Agency for Development and Co-operation (SDC) and the State Secretariat for Economic Affairs (SECO)’ 51. The report contains a list of projects with indication of parties, funding and objectives52.

Australia’s report indicated that ‘technology transfer’ is interpreted ‘broadly to

include training, education and know-how. Australia's transfer of technology to least-developed countries (LDCs) occurs through export-related activity as a normal process of market forces, through facilitating a strong intellectual property environment in

45 IP/C/44, 4 December 2006. 46 IP/C/W/480/Add.1, 12 October 2006. 47 Idem. 48Idem. 49 IP/C/W/480, 10 October 2006. 50 IP/C/W/480/Add.4, 13 October 2006. 51 IP/C/W/480/Add.3, 13 October 2006. 52 Idem.

LDCs and through incentives which are a part of the Government's bilateral and regional development assistance programme’53. The report added that:

the Australian Government has in place programmes designed to promote innovation and competitiveness in the Australian economy which in turn can contribute to increased transfers of technology in export markets including LDCs. For example, technology transfer may occur through exports and outward or direct investment by Australian firms in other countries. This transfer of technology may occur in joint ventures between Australian firms and overseas companies or governments… Australia's development assistance programme to LDCs includes many activities that include a large technology transfer component delivered via the provision of monetary incentives to Australian business enterprises, educational institutions and other organizations. Australia considers that this provision of monetary incentives not only qualifies as an incentive to encourage and promote technology transfers to LDCs for the purposes of Article 66.2, but is effective in meeting the Article's objectives… In addition to direct monetary incentives, Australia recognizes that technology transfer, economic growth and poverty reduction are best fostered in an efficient, open and market-based economy. Fundamental to this framework is good governance…which includes improving economic and financial management, strengthening the rule of law and justice, increasing public sector effectiveness and developing civil society and human rights54. The European Communities and their Member States also suggested in their

report what their conception of ‘technology transfer’ in the context of article 66.2 was. They indicated that

a privileged channel for technology transfer, including transfer of know-how, is foreign direct investment (FDI); joint research projects between private and/or public partners are also important in helping LDCs to benefit from technologies and adapt them to their specific needs; access to the right partners, to information and to expertise are key at all stages… In their efforts to encourage and promote technology transfer, developed country governments are usually limited by two factors: (1) they do not own the vast majority of such technologies; (2) they cannot force the private sector to transfer its technologies. … Incentives can therefore only take the form of encouragement, promotion and facilitation of the (potentially) most fruitful projects. They shall be part of a global and comprehensive approach of development55.

Against this background, the European Communities and their Member States

considered that relevant incentives can be identified as those that: promote projects, such as direct investment, licensing, franchising, sub-contracting, etc; improve access to available techniques and industrial processes; support joint research projects; provide training in technology management and production methods; more indirectly, improve

53 IP/C/W/480/Add.2, 13 October 2006. 54 Idem 55 IP/C/W/480/Add.5, 12 February 2007.

the absorption capacity of LDCs (capacity building); and encourage trade in technological goods56. In accordance with Canada’s report in general, Canada provides domestic incentives for the transfer of technology in the form of (i) intellectual property embedded in transferred goods and services; (ii) management and business know-how to support production and distribution of goods and services; and (iii) human capacity building. Several Canadian government departments, agencies and programmes are involved in providing incentives, either directly or indirectly, for Canadian enterprises and institutions to engage in activities involving technology transfer to developing country Members and LDCs57.

United States’ report describes activities by the US Patent and Trademark Office (USPTO), which has greatly increased its training and capacity-building initiatives on intellectual property protection and enforcement by creating the Global Intellectual Property Academy (GIPA) in Fiscal Year (FY) 2005. Through the GIPA, USPTO brings foreign government officials from developing and least developed countries - including judges, prosecutors, police, customs officials, patent, trademark, and copyright officials and policy makers - to the United States to learn, discuss, and strategize about global IP protection and enforcement58. The U.S. report also indicates that:

The United States pursues science and technology (S&T) cooperation agreements with both developed and developing countries as an effort to foster partnerships between the scientific communities of both countries. Within the context of Article 66.2 of the TRIPS Agreement, such cooperation activities with developing countries, and the exchange and diffusion of knowledge and technologies, strengthen economic cooperation, and are important mechanisms for the development of national economies and the basis for expanded trade… Science relationships have the ancillary benefit of helping to foster democracy and civil society, enhancing a country's ability to make science informed decisions on issues related to sustainable development, and advancing the frontiers of knowledge59. The report further provides information on various programs, such as the

Embassy Science Fellows Program, the Millennium Challenge Account, the US Department of Commerce Commercial Law Development Program (which provides training and consultative services with respect to IPRs), Trade Capacity Building assistance (TCB) (aimed at promoting economic growth through trade and to enable developing countries to negotiate and implement market-opening and reform-oriented trade agreements), the African Global Competitiveness Initiative (AGCI) to build sub-Saharan Africa's capacity for trade and competitiveness, the Integrated Framework (IF) initiative (a multi-agency, multi-donor programme that helps LDCs to expand their

56 Idem. 57 IP/C/W/480/Add.7, 20 November 2006. 58 IP/C/W/480/Add.5, February 12, 2007. 59 Idem. Bangladesh is the only LDC mentioned with which a bilateral S&T agreement has been or is in the process of being concluded (para. 7).

participation in the global economy and to enhance their economic growth and poverty reduction strategies), and different USAID programs60.

As this overview indicates, developed countries tend to consider ‘incentives’ for

the ‘transfer of technology’ under article 66.2 in overly broad terms, including activities as diverse as trade and investment promotion, training of IP and custom officials, funding provided to multilateral organizations, such as the World Bank, granting general incentives to their own enterprises, building capacity to ensure pest surveillance and management and phytosanitary matters, assistance in developing legislation, scientific cooperation, and governance issues. Illustrative of this broad conception is the Australian rather extreme argument that ‘programmes designed to promote innovation and competitiveness in the Australian economy… in turn can contribute to increased transfers of technology in export markets including LDCs’ through exports and outward or direct investment by Australian firms in other countries or through joint ventures between Australian firms and overseas companies or governments’61.

While the projects and programs mentioned in the developed countries reports

may benefit LDCs in various areas62, it is questionable whether the broad approach taken with regard to the concept of ‘incentives to ‘and ‘transfer of technology’ is compatible with article 66.2 of the TRIPS Agreement.

The WTO panels and the Appellate Body have consistently applied articles 31 and 32 of the Vienna Convention on the Law if the Treaties - which codify principles of customary international law- to interpret the TRIPS provisions in all cases subject to dispute settlement. The same method of interpretation –– based on a literal reading of the treaty text according to the ordinary meaning of its terms –– needs to be applied with regard to article 66.2. The concept of ‘incentives’63 in this article clearly alludes to actions taken by the State to encourage transfer of technology by ‘enterprises and institutions in their territories’. The aim of the provision is to ensure the transfer of technologies under the control of such enterprises and institutions. This clearly indicates that implementing purely governmental projects does not suffice to comply with the provision. The Members’ obligation is to create encouragement for enterprises and institutions to do so. This is a logical consequence of the fact that, as recognized by the European Communities, developed country governments ‘do not own the vast majority of such technologies’ and ‘they cannot force the private sector to transfer its technologies…’64.

Article 66.2 seems to unambiguously require, hence, the adoption of measures that directly motivate private companies and institutions to transfer technology to

60 Idem. 61 IP/C/W/480/Add.2, 13 October 2006. 62 However, some of such programs seem mainly designed to benefit the firms from the developed countries themselves, such as those relating to enhancing IP levels of protection and enforcement. 63 ‘Incentive’ is ‘incitement (to action, to do, to doing), provocation, motive’, Oxford Concise Dictionary, 1982, p. 505 64 IP/C/W/480/Add.5, 12 February 2007.

LDCs65. This interpretation is confirmed by the Decision of the Council for TRIPS of 19 February, 2003, which required developed country Members to provide, inter alia, information on ‘eligible enterprises and other institutions in the territory of the Member providing the incentives’.

The encouragement given to enterprises and institutions in developed countries should demonstrably lead to the transfer of technology. There must be a credible relationship between the incentive and the outcome. It does not seem viable to consider that a developed country would comply with article 66.2 merely by implementing programs designed to promote innovation in and competitiveness of its own enterprises which might eventually transfer technology to LDCs, including through exports or direct investment. Nor would it seem acceptable the concept that the obligation is met by generally promoting that intellectual property be embedded in exported goods and services. As noted above, the Decision of the Council for TRIPS of 19 February, 2003, requires developed country Members to provide, inter alia, ‘an overview of the incentives regime put in place to fulfill the obligations of Article 66.2, including any specific legislative, policy and regulatory framework’ and an ‘identification of the type of incentive and the government agency or other entity making it available’.

The purpose of the obligation under article 66.2 is to ensure the transfer of technology. The concept of ‘technology’ encompasses the idea of a ‘practical or industrial art’66. Scientific cooperation, training without a specific technological component and education, although important for LDCs, does not meet the obligation set out by that article. In particular, ‘science’ cannot be confused with ‘technology’. Although in some high-tech disciplines (such as biotechnology) the boundaries between them have been blurred, scientific results are not generally susceptible of immediate practical or industrial application67. The objective of article 66.2 is to help LDCs to upgrade their ‘technological base’ and not to support their scientific development. As proven by the experience of a number Asian countries, access to technology may provide the basis of such upgrading at the initial stages of industrialization while a scientific base is developed to support later stages as scientific inputs become more critical68.

In addition, since article 66.2 belongs to a treaty specifically dealing with technologies protected under IPRs, the technologies referred to cannot be limited to those in the public domain, but they should include those protected under various forms

65 Arguably, such measures would not need to be exclusively addressed to LDCs (they could benefit other countries as well) but should be effective with regard to the LDCs. 66 Oxford Concise Dictionary, 1982, p. 1098. 67 Footnotes 26, 28 and 29 of the Agreement on Subsidies and Countervailing Measures make a distinction between "fundamental research" defined as ‘an enlargement of general scientific and technical knowledge not linked to industrial or commercial objectives’ , ‘industrial research and ‘pre-competitive development’. The provisions of the Agreement do not apply to fundamental research activities independently conducted by higher education or research establishments. 68 See generally Chamarik and Goonatilake, 1994.

of IPRs. There is no indication in the commented reports with regard to the nature of the transferred technologies, in the few instances in which such a transfer is mentioned. A strong presumption can be made that in most cases knowledge publicly accessible is transferred.

None of the examined reports concretely inform about specific incentives made available to enterprises and institutions for the transfer of technology to LDCs. At least one country (New Zealand) candidly reports, as noted above, that it ‘does not provide any direct incentives to its organisations to promote technology transfer to LDCs’69. If such measures were adopted, a further issue would be whether compliance with article 66.2 would require effectiveness, that is, not only the availability of the measures on paper but an actual impact on the behaviour of enterprises and institutions with regard to technology transfer to LDCs. This is a difficult issue. A parallel could be made with enforcement requirements under TRIPS, which impose on Members an obligation to make available ‘effective’ procedures for that purpose70.

Obviously, the objective of article 66.2 will not be reached if the designed incentives are inappropriate or insufficient. In fact, the Decision of the Council for TRIPS of 19 February, 2003, also required developed country Members to provide, inter alia, ‘any information available on the functioning in practice of these incentives’ thereby suggesting that merely providing for such measures will not automatically mean discharging the obligation stipulated under that article.

Developed countries have used a vast array of incentives to promote diverse production and technological activities, including tax exemptions of various types, financial support, preferences in governments’ purchases and technical assistance. While the allowance for R&D subsidies was subject in the Agreement on Subsidies and Countervailing Measures to a temporal limit71, nothing seems to prevent Members from establishing incentives for R&D specifically aimed to generate technologies for LDCs or for the transfer of existing technologies through licensing and other disembodied means.

More complex would be the adoption of incentives to promote the transfer of technology embedded in machinery and equipment, in the light of the prohibition

69IP/C/W/480/Add.1, 12 October 2006. 70 In accordance with Article 41.1 of the TRIPS Agreement, ‘[M]embers shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement,…’ (emphasis added). 71 Article 31 of said Agreement established that the provisions, inter alia, of Article 8 ‘shall apply for a period of five years, beginning with the date of entry into force of the WTO Agreement. Not later than 180 days before the end of this period, the Committee shall review the operation of those provisions, with a view to determining whether to extend their application, either as presently drafted or in a modified form, for a further period’. No decision on this matter has been made as yet.

regarding export subsidies stipulated in article 3.1 of the same Agreement. It may be argued, however, that subsidies carefully catered to promote the supply of such machinery and equipment exclusively to LDCs should be seen as consistent with WTO rules interpreted as a whole, since the TRIPS Agreement is ‘an integral part of the WTO system, which itself builds upon the experience of over nearly half a century under the GATT 1947’72. Of course, a strong counterargument would be that article 3.1 of the Agreement on Subsidies and Countervailing Measures is a specific –and important- provision that cannot be nullified by the more general wording of article 66.2. An issue of inequality would also arise if only developed country Members (the only Members who are obliged under article 66.2) were permitted to derogate from the prohibition on export subsidies.

In addition to other possible actions under WTO rules aiming at increasing compliance with article 66.2, LDCs might consider to develop a proposal to review the Agreement on Subsidies and Countervailing Measures, as necessary to facilitate the adoption of the required incentives by developed countries. G. Technical assistance to LDCs

The Decision of the Council for TRIPS of November 29, 2005, which extended the transitional period for LDCs until 1 July 2013, contains a section on ‘Enhanced technical cooperation for least-developed country Members’ which requires LDCs to provide ‘as much information as possible on their individual priority needs for technical and financial cooperation in order to assist them taking steps necessary to implement the TRIPS Agreement’ (paragraph 2). Developed country Members, in turn, ‘shall provide technical and financial cooperation in favor of least-developed country Members in accordance with Article 67 of the Agreement in order to effectively address the needs identified in accordance with paragraph 2’. The Decision also stipulates that in order to assist LDCs to draw up the information to be presented, and ‘with a view to making technical assistance and capacity building as effective and operational as possible’, the WTO shall seek to enhance its cooperation with WIPO and with other relevant international organizations’.

As indicated in paragraph 2 of this Decision and suggested by the references to article 67 of the TRIPS Agreement (referring to technical assistance for the implementation of the Agreement) and to WIPO, the Decision deals with technical and financial cooperation in the area of IPRs and not that needed to enhance the technological capability of LDCS. It thus responds more to the interests of developed countries’ right holders in enforcing their titles than to the fundamental development concerns of LDCs.

72 Report of the WTO Panel, India- Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS79/R (1998), para. 7.19.

The reports commented in the previous section indicate a number of modalities of technical assistance that may be helpful in upgrading general LDCs capabilities, but few specifically relate to the enhancement of those countries’ technological base, the very objective of article 66.2. In designing technical assistance to LDCs two considerations made above should be borne in mind.

On the one hand, informal modes of innovation and creativity exist in LDCs and other developing countries that need to be taken into account in order to ensure that the incorporation of new technologies is effective and compatible with the cultural and technical environment where it is intended to work. Technical assistance, hence, should not be aimed at displacing existing technologies but, where possible, at integrating and upgrading them with the incorporation of inputs from new technologies. To this effect, the supply of technical assistance needs to involve the potential users not as mere recipients, but as co-developers of new solutions adapted to the local conditions. A good example in the area of agriculture is ‘participatory breeding’, which builds on farmers' knowledge. This approach is based on an identification of farmers' needs and preferences and the reasoning behind them. More than 80 participatory plant breeding efforts have been documented. The new generated knowledge has not only been of direct importance for the participating farmers, but has also been useful for formal breeding programs73.

On the other, technology demand varies as the firms and the industry evolve through different technological stages. At the current stage of development of LDCs, demand is likely to concentrate on mostly "mature" technologies which can be acquired through various informal channels of technology transfer, including imitation based on reverse engineering. Formal modes of technology transfer prevail as the industrialization process advances, and FDI and licenses become more important than the purchase of machinery and other informal modes of transfer. Given the key importance of technology as a competitive asset, FDI is also likely to growingly become a substitute for unbundled licensing whenever state-of-the-art technologies are involved.

LDCs may benefit from the transfer of technologies relevant for the production of specific goods and services, as well as from the transfer of horizontal technologies, such as for the implementation of technical standards, metrology, testing and quality control, project feasibility and management. This assistance may be provided by some international organizations, such as UNIDO, and national institutions74.

73 See e.g. http://www.prgaprogram.org/index.php?module=htmlpages&func=display&pid=9. 74 Norway, for instance, has informed the Council for TRIPS about NORAD’s programmes with these objectives. NORAD is also ‘supporting several regional and national programmes leading to international recognition and acceptance of certification systems, both on multi-bi basis as well as bilaterally. Some of these programmes also include financing of testing laboratories both for food export and particular industrial goods. Assistance is also given to exporters in developing countries and to development

WIPO's mandate is to promote intellectual property protection. As mentioned

above, the argument that technology transfer will necessarily follow the adoption of a strong IPRs regime is speculative and has no evidential support. Such a regime may rather deprive countries of the needed flexibility to engage in a sustained catching up process, as other countries did in the past under less stringent rules (Commission on Intellectual Property Rights, 2002: 18–20). Although WIPO –given its specific functions- has no capacity to provide technical assistance for strengthening the knowledge content of the LDCs' productive processes, it should provide technical assistance on the matters of its competence in a way that facilitates such processes in countries with a weak industrial and technological base. WIPO should not operate on the flawed assumption that the higher and broader the IPRs protection the better for any country. As suggested by Prof. Boyle,

[T]he assumption seems to be that to promote intellectual property is automatically to promote innovation and, in that process, the more rights the better. But both assumptions are categorically false. Even where intellectual property rights are the best way to promote innovation, and there are many areas where they are not, it is only by having rules that set the correct balance between the public domain and the realm of private property that we will get the innovation we desire (Boyle, 2004: 2).

As implied by article 66.1 of the TRIPS Agreement, the lack of stringent IPRs

rules is the best scenario for developing a viable technological base in LDCs. WIPO should help these countries to maximise the flexibilities they can enjoy, not different from those that today developed countries and emerging economies had in the past. WIPO’s technical assistance to LDCs, in cooperation with WTO, however, seems to be philosophically oriented by the idea that IPRs are always functional to development, including in LDCs75.

The supply of technical assistance by WIPO should be based on principles such as76:

Development Focused Technical Cooperation: the provision of technical assistance should have as its objectives the fulfilment of the development goals of the

of quality and design of products in order to meet international marked requirements’ (IP/C/W/480/Add.4, 13 October 2006). 75 In announcing a joint WIPO-WTO initiative on 14 June 2001 ‘to help least-developed countries maximise the benefits of intellectual property protection’, the WTO Director-General Mike Moore said that the ‘implementation of these [TRIPS] obligations also represents an opportunity for the world's poorest nations to harness intellectual property in order to accelerate their economic, social, and cultural development” (WTO Press release, 14 June, 2001, available at http://www.wto.org/english/news_e/pres01_e/pr231_e.htm). 76 The following is substantially based on Correa and Deere (2005).

recipient countries and broader development goals such as the United Nations Millennium Development Goals (MDGs).

Comprehensive and Coherent Assistance Programmes: technical cooperation should assist countries to devise coherent national IPRs policies that are linked to broader development and public policy objectives. The existence of such policies should be recognised as a necessary part of developing a coherent approach to the implementation of international IP-related commitments.

Integrated Approach: in designing technical assistance programmes, there is a need to expand its coverage to include matters related to the use of competition law and policy to address abuses of intellectual property and practices that unduly restrain trade and the transfer and dissemination of technology, and to innovation and technology transfer.

Neutral, Unbiased and Non-Discriminatory: the provision of technical assistance should be unbiased, neutral and development-focused. They should be of an advisory nature based on actual and expressed needs. The assistance should not discriminate among recipients or issues to be addressed and should not be perceived as being a reward system for supporting certain positions in international negotiations.

Assessment-based: recommendations should be based on a thorough assessment of the potential positive and negative socio-economic effects of IPRs, including with regard to the impact on GDP, dissemination of technologies, access, especially by the poor, to the outcomes of foreign and local innovations, transfer of rents (via profits and royalties), affected social groups and sectors.

Full use of TRIPS flexibilities. Technical assistance should inform LDCs about the flexibilities allowed by the TRIPS Agreement (parallel imports, compulsory licences, definition of patentability standards, exceptions to exclusive rights, etc.) and the advantages of incorporating them into national legislation. It should also inform about the negative implications of accepting TRIPS-plus obligations in RTAs or in the context of accession to the WTO77.

In addition to the traditional channels of technology transfer and dissemination, alternative means and mechanisms, such as joint research, country-level technology-

77 It should be noted that in February 2007 the third session of the Provisional Committee on Proposals Related to a WIPO Development Agenda (PCDA) agreed a set of criteria for development-oriented technical assistance. Among other criteria, it was agreed that ‘WIPO technical assistance shall be, inter alia, development-oriented, demand driven and transparent, taking into account the priorities and the special needs of developing countries, especially LDCs, as well as the different levels of development of Member States and activities should include time frames for completion. In this regard, design, delivery mechanisms and evaluation processes of technical assistance programs should be country specific’. See Summary by the Chair of the PCDA, available at www.wipo.int/edocs/mdocs/mdocs/en/pcda_3/pcda_3_summary.doc.

sharing consortia, patent pools and technology sharing consortia at the regional level may be explored.

Joint research initiatives involving various firms and research institutions may permit LDCs to put together the human and financial resources needed to undertake well defined projects. Significant efforts should be made, however, to overcome the lack of a R&D culture and to build up the required inter-firm and inter-institutional trust and operational methods. The role of ‘bridging institutions’, such as financial entities, specialized NGOs, business and farmers’ associations, public extension and technology support services would be crucial to link possible partners and help them to define common objectives and procedures (UNCTAD, 2006: 248).

Transfer and dissemination of technology could be boosted through country-level technology-sharing consortia. Members of the consortia that receive technology from one or more suppliers may mutually support absorptive efforts and reduce the costs of incorporation of new technologies78. As in the case of joint research initiatives, a great deal of collaboration from bridging institutions would be necessary to set up consortia among firms of low technological development and with little or no tradition of inter-firm cooperation, and to make such consortia operative.

Patent pools organized by technology suppliers in particular fields may also help to provide access to needed technologies, where protected under patents79. A patent pool is an agreement between two or more patent owners to license one or more of their patents to one or more third parties. The creation of a patent pool to the benefit of LDCs would require the agreement of patent owners to license their technologies free or at a pre-determined royalty rate. Patent pools drastically reduce transaction costs, as individual negotiations can be avoided. Given that LDCs’ markets represent a tiny portion of global markets, licensing conditions under patent pools should allow exports so as to permit potential licensees to exploit economies of scale. One limitation of this mechanism may be the antitrust concerns that patent pool raise in some countries80 and,

78 As amply elaborated in the literature on economics of innovation, and contrary to Arrow’s conception of a passive, automatic, and costless process, the adoption of technologies require deliberate efforts and investment (Radosevic, 1999, p. 82). 79 As mentioned above, although LDCs can delay the introduction of IPRs protection under extended TRIPS transitional periods, most of them already grant patents and other forms of IPRs protection. 80 Case law in the USA has condemned patent pools in certain circumstances (eg., Hartford-Empire Co. v. United States, 1945, US Supreme Court). However, the US Department of Justice and the United States Federal Trade Commission have adopted a generally positive view regarding licensing in their Antitrust Guidelines for the Licensing of Intellectual Property: “Licensing, cross-licensing, or otherwise transferring intellectual property … can facilitate integration of the licensed property with complementary factors of production” and that such integration can “benefit consumers through the reduction of costs and the introduction of new products” (para. 2.3.) The Guidelines, nevertheless, indicate that “[w]hile intellectual property licensing arrangements are typically welfare-enhancing and procompetitive, antitrust concerns may nonetheless arise” particularly “when a licensing arrangement harms competition

most importantly, the fact that patent specifications generally do not contain information sufficient to put an invention into practical use. Even where disclosure adequately fulfils the sufficiency requirements established under patent laws, the specifications do not generally contain information that is assumed to be known to a ‘person skilled in the art’. The standard applied is generally based on the knowledge available to a skilled person in developed countries81. In addition, the manufacturing know-how is not normally described in the patent specification.

In accordance with a generally accepted view, joint-ventures offer greater opportunities for the transfer of technology than other modalities, since domestic partners share in the ownership and management of the enterprise that receives new technologies82. Though a systematic assessment of the comparative advantages and disadvantages of this modality has not been conducted, it seems to lead to mixed results depending, among other factors, upon the terms of the particular agreements, the partners’ behavior and their capacity to develop a complementary relationship. The equity participation of the technology holder does not necessarily mean that he is actually committed to the success of the venture and to the transfer of know-how. Anecdotal evidence suggests that through royalties-plus-profits formulae and the capitalization of technological assets (or trademarks) and equipment, foreign parties may share little risks and offset any costs incurred to establish a joint operation (Correa, 2000).

Inter-firm cooperation, via joint research, technology sharing consortia or other modalities, may be conceived at the national level but also at the regional level. However, some regional experiences do suggest that trans-border cooperation between firms of developing countries is problematic and that the intervention of bridging institutions may be insufficient to create the conditions for such cooperation to take place. In fact, firms prefer to establish linkages with companies in more advanced countries that can offer up-to-date technologies, access to markets and other advantages, rather than to link with firms with the same level of knowledge. Although there are strong political and strategic arguments in some cases to promote cooperation at the regional level, they are not sufficient to promote inter-firm cooperation if the potential partners do not perceive the advantages such cooperation may effectively offer. Thus,

among entities that would have been actual or likely potential competitors in a relevant market in the absence of the license (entities in a ‘horizontal relationship’)” (para.3.1.). It is to be noted in this regard, that according to the Guidelines, ‘technology markets’ can exist separately from ‘product markets’. A similar approach is adopted under the European Communities’ law. 81 For this reason it has been suggested that the disclosure requirement should be set in developing countries in accordance with the average knowledge of a skilled person in such countries (UNCTAD, 1996, 33). 82 Some developed countries’ programs reported Ander article 66.2 of the TRIPS Agreement include the promotion of joint ventures. NORAD, for instance, supports feasibility studies for establishing joint ventures or foreign subsidiaries, training in order to strengthen the local management of joint ventures or companies that are owned wholly or partially by one or more foreign companies and investments in basic environmental infrastructure (IP/C/W/480/Add.4, 13 October 2006, para. 4).

the ‘Bolivar Program’ launched in 1992 with the support of the Interamerican Development Bank and UNESCO, failed in promoting the establishment of production and technological inter-firm partnerships in Latin America. This was the case despite the substantial resources devoted over the years to the Program, the presence of Program’s staff in several countries to identify candidate projects, a wide network of financial institutions prepared to fund initiatives, the availability of support services and the initial involvement of high level political authorities83. In the case of LDCs the same problems, probably aggravated by the low technological capacity of the majority of the firms operating there, are likely to arise. H. Conclusions and recommendations

The knowledge systems in the LDCS are very weak. Initiating a sustainable process of knowledge accumulation that could accelerate the development of productive capacities in the LDCs is not a simple task, but it is not impossible either. Several initiatives may alleviate the constraints that the LDCs face to integrate into the global knowledge economy. Such initiatives crucially depend on the articulation and upgrading of the capabilities of different domestic actors, with a strong input of development-oriented technical assistance and foreign cooperation.

The enterprise is the locus where technology learning and innovation takes place. A process of technological upgrading is not conceivable without the strengthening of the entrepreneurial capacity in the LDCs. This objective cannot be achieved relying only on technology policies. Even if there were no restrictions to get access to production knowledge, such process will not kick off if the firms lacked the financial, managerial and technical capabilities necessary to incorporate new technologies and innovate thereon, and if there were no institutions to provide technical support and establish linkages with possible providers of technology.

A number of questions arise regarding the possible role of IPRs in the LDCs. Economists have found notoriously difficult to measure the costs and benefits of IPRs, particularly at different stages of development. It seems clear, however, that IPRs do not automatically lead to development, but may jeopardize it, and that, as put by the World Bank, in the area of IPRs ‘one size does not fit all’, that is the design and implementation of IPRs policies need to take different levels of development into account (World Bank, 2001: 147). IPRs protection has historically followed and not preceded economic and technological development.

Developing countries were subject under the TRIPS Agreement to the same standards of protection applicable to developed countries, subject only to transitional periods that have already expired84. The same treatment was conferred to the LDCs; only longer transitional periods, renewable upon request, were allowed. As a result,

83 See e.g. Programa Bolivar, ‘Qué servicios brinda el Programa Bolívar? http://www.tplaplata.com.ar/bolivar/SERVI.HTM. 84 See article 65 of the TRIPS Agreement.

LDCs are assumed to apply the same standards of IPRs as soon as the transitional periods expire or they graduate as developing countries.

However, article 66.1 recognizes that LDCs need a flexible approach to IPRs, including the total lack of protection, in order to develop a viable technological base. LDCs are given the opportunity to undertake an imitative path of technological development, as developed countries did in the past. A major difference, however, is that such window of opportunity may close in a period shorter than that enjoyed by the majority of developed countries, and that although LDCs may have freedom to imitate, foreign markets will be closed to their products, as higher standards of IPRs protection have almost became universalized with the implementation of the TRIPS Agreement in developed and developing countries.

It is hence recommended that the transitional period for LDCs should not be subject to an arbitrarily predetermined deadline, but be enforceable until these countries have reached, as measured by objective indicators, a viable technological system.

Article 66.2 requires, as discussed above, the granting of incentives to promote transfer of technology to the LDCs. The Decision of February 19, 2003 and the Doha Declaration are steps forward for the implementation of this provision, but concrete measures to facilitate access to technologies by LDCs are still inexistent or insufficient. It is also unclear the extent to which the measures to be eventually adopted by developed countries will effectively contribute to mobilize technology transfer by their enterprises and institutions to LDCs. As required by article 66.2, incentives should be directly accorded to enterprises and institutions, since technologies are overwhelmingly in their hands. The obligation set out by article 66.2 will not be discharged merely through cooperation provided by governmental agencies, whatever their positive contribution to other developmental objectives may be.

Based on the previous analysis, it is recommended that the concept of ‘transfer of technology’ for the purposes of compliance with article 66.2 be clarified by WTO, so as to make clear that developed countries’ governments must provide incentives for the transmission of IPRs and non-IPRs protected technology, and that ‘technology’ is to be understood as manufacturing methods, formulae, designs, basic and detailed engineering, etc., that is, knowledge that may be effectively applied to upgrade the technological capacity of LDCs’ recipients, and not merely general training and technical assistance or scientific cooperation. Projects and programs that do not facilitate technological learning by LDCs’ firms should not be deemed as implementing the obligations under article 66.2. It is also recommended that developed countries effectively implement their obligations under article 66.2 of the TRIPS Agreement by adopting special incentives, such as tax breaks and subsidies, for the transfer of technology, including machinery and equipment to LDCs. In order to avoid any potential inconsistency with WTO rules and avoid any uncertainty for prospective technology suppliers, wording specifically allowing for the grant of such

incentives should be incorporated into the Agreement on Subsidies and Countervailing Measures.

An approach consistent with the concept underlying article 66.2 should not be

limited to the grant of incentives of doubtful materialization and impact. LDCs’ exports have been given duty free access in developed countries and in developing countries wishing to do so85. However, IPRs conferred in these countries –which need not be enforced in the LDCs- can be used to ban imports from LDCs in case such rights are infringed. A generalized system of IPRs-free access to the markets of developed countries (and developing countries willing to take the same approach) may constitute an incentive much stronger and concrete than those foreseen under article 66.2.

Although LDCs can delay the grant of patents, as discussed above, this only permits LDCs’ firms to exploit in their own markets inventions patented abroad. Hence, the exemption is likely to have limited impact in terms of setting up competitive production facilities in LDCs, as they would not be able to reach economies of scale. Despite the fact that IPRs are ‘private rights’86, WTO Members have no limitation to adopt, in the context of the WTO Special and Differential Treatment, measures exempting exports originating from LDCs from patent infringement actions in their jurisdictions87. Such exemption may only benefit, in practice, a narrow range of products manufactured in LDCs, but may provide a strong incentive for investment and technological learning in particular areas with spill-over effects in other sectors of LDCs’ economies.

It is, hence, recommended that developed countries exempt imports of products originating in LDCs from patent infringement suits. Such an exemption would be coherent with the spirit and purpose of article 66 of the TRIPS Agreement, as the right not to recognize IPRs in the small LDCs markets has no economic impact if, at the same time, exports made using that freedom are excluded from the rich markets.

85 At the 6th WTO Ministerial Conference, building upon the commitment in the Doha Ministerial Declaration, developed-country Members, and developing-country Members declaring themselves in a position to do so, agreed to implement duty-free and quota-free market access for products originating from LDCs as provided for in Annex F to the Hong Kong Ministerial Declaration. Furthermore, ‘Members shall take additional measures to provide effective market access, both at the border and otherwise, including simplified and transparent rules of origin so as to facilitate exports from LDCs’ (para. 47). In accordance with Annex F, para. 23(a)(i), developed-country Members shall, and developing-country Members declaring themselves in a position to do so should ‘[P]rovide duty-free and quota-free market access on a lasting basis, for all products originating from all LDCs by 2008 or no later than the start of the implementation period in a manner that ensures stability, security and predictability’. 86 See Preamble of the TRIPS Agreement. 87 The details of such an exemption should be carefully worked out in order to avoid fraud in its implementation as well as legal challenges based on eventual limitations imposed on the exercise of pre-existing rights.

Technical assistance to LDCs in relation to IPRs should be based on the premise that the introduction of patents may entail considerable costs and little or no benefits at their current level of development.

It is recommended that the supply of technical assistance by WIPO and other organizations be, inter alia, development focused and inform LDCs about all the flexibilities allowed by the TRIPS Agreement. The content and forms of delivery of IPRs-related technical assistance should be defined by the recipient government, in accordance with its own priorities and development objectives. Independent organizations, including public-interest oriented NGOs88, may help to structure technical assistance demands, so as to enable the requesting government to89:

Determine the objectives pursued (e.g. scientific development, innovation and technology transfer, enactment of TRIPS compliant legislation, promotion of innovation and investment, avoiding misappropriation of traditional knowledge, etc.)

Identify technical cooperation priorities, in terms of categories of intellectual property to be covered (e.g., patents, trademarks, etc,), the substantive or procedural nature of issues to be considered, and the sectors involved (e.g., agriculture, mechanical industry, health, etc)

Identify the groups (e.g., farmers, consumers, authors, small and medium-size enterprises, universities, musicians, artists, scientists) potentially affected by the outcomes of technical assistance.

Involve representatives of all relevant ministries/departments in the determination of the TOR for the technical cooperation, through a structured consultative process,

Seek the active participation of relevant stakeholders in the assessment of technical assistance priorities and needs and in discussions of the appropriate design, delivery, outcomes and evaluation of TC, and give due consideration to the possible absence of adequate representation of stakeholders, for instance, patients and small farmers.

Assess how the possible outcome of technical assistance can contribute to the

fulfilment of the development goals of the recipient country (e.g., increase employment and domestic value added, promote local and foreign investment, expand exports, foster innovation, support SMEs, etc.)

As mentioned, LDCs already recognize and enforce, despite the WTO

exemption, different kinds of IPRs, including patents also granted and enforceable in other jurisdictions. Patent pools may be organized in relevant sectors to facilitate access by LDCs’ firms to protected technologies and markets.

88 It should be borne in mind that in the context of WIPO activities, NGOs are deemed to include IPRs lawyers and business associations which articulate the interests of technology and other right holders. These organizations actively promote the expansion and international harmonization of IPRs standards. 89 The following is substantially based on Correa and Deere (2005).

It is recommended that patent pools be organized to the benefit of LDCs on a free or preferential royalty base for products that can be manufactured in such countries, so as to reduce transaction costs and foster access to technology. Such pools should allow exports to other jurisdictions in order to reach economies of scale. The setting-up of patent pools should be supplemented with the transfer of know how not disclosed in the patent specifications.

Moreover, LDCs acceding to the WTO have been demanded to forego the

transitional periods enjoyed by the original LDC Members and to provide TRIPS-plus protection in several areas. There is no legal or economic justification for such demands. It seems unfair and dysfunctional to impose on acceding LDCs such burden in view of the recognition –as contained in article 66.1 of the TRIPS Agreement- that IPRs may constrain rather than accelerate the development of a viable technological base.

It is recommended that the LDCs that are currently in the process of accession to the WTO resist the demands made by developed countries in such processes for accelerated implementation of the TRIPS Agreement and for TRIPS-plus protection, and be recognized the same transitional periods allowed to LDC Members and the right not to implement in their law more extensive protection than is required by this Agreement90.

At the expiry of the TRIPS transitional periods, or before that date by virtue of

already applicable national laws and ratified international treaties, LDCs must in any case recognize IPRs. An important question is, hence, how the international and national regimes could be improved with a view to making IPRs protection a tool, rather than an obstacle to economic development in LDCs.

It is recommended that LDCs use to the fullest extent possible the flexibilities allowed by the TRIPS Agreement (parallel imports, compulsory licences, permissible exceptions to exclusive rights, etc.) and avoid the erosion of such flexibilities through RTAs or in the context of accession to the WTO.

It is also recommended that LDCs experiment with utility models or other forms of IPRs that can promote incremental innovations, so as to use IPRs as a tool for the industrial transformation of their economies. The impact of such titles will crucially depend, however, on the development of managerial practices about IPRs and on the availability of low cost and simple procedures to register innovations and enforce the rights conferred.

90 See article 1.1. of the TRIPS Agreement.

REFERENCES

Abbott, F. and Correa, C. (forthcoming), Intellectual Property Issues in WTO

Accession Negotiations, QUNO Occasional Paper, Geneva. Aboites, Jaime (2003), ‘Innovación, patentes y globalización’, in J Aboites and G

Dutrénit (Eds.) Innovación, aprendizaje y creación de capacidades tecnológicas, UAM, México.

Bhalla, A (1996), Facing the technological challenge, Macmillan Press, New York. Blockburn (2000), Intellectual property and the Smal and Medium Enterprise (based

upon the final report to ESRC), available at info.sm.umist.ac.uk/esrcip/Projects/L5253004

Blyde, Juan (2006), Assessing the impacts of intellectual property rights on trade flows

in Latin America, Occasional Paper 34, INTAL-BID, Buenos Aires. Bodenhausen, G (1968), Guide to the Paris Convention for the Protection of Industrial

Property, BIRPI, Geneva. Boyle, J. (2004) ‘A Manifesto on WIPO and the future of intellectual property’, Duke

Law & Technology Review No. 9, available at http://www.law.duke.edu/journals/dltr/articles/PDF/2004DLTR0009.pdf

Chamarik, S. and Goonatilake, S, (editors) (1994), Technological Independence. The

Asian experience, United Nations University Press, Tokyo. Chaudhuri, S. (2005), The WTO and India’s pharmaceuticals industry. Patent

protection, TRIPS and Developing countries, Oxford University Press, New Delhi.

Commission of the European Communities, (1995), Green Paper. The Protection of

Utility Models in the Single Market, COM (95) 370 final, Brussels. Commission on Intellectual Property Rights (2002), Integrating Intellectual Property

Rights and Development Policy, available at www.iprcommission.org. Commission on Intellectual Property Rights, Innovation and Public Health (2006),

Public Health, Innovation and Intellectual Property Rights, World Health Organization (available at www.who.int).

Correa, Carlos (1995), ‘Innovation and technology transfer in Latin America: a review of

recent trends and policies’, International Journal of Technology Management, Vol.10, No.7/8, London, 1995.

Correa, Carlos (2000), ‘Emerging trends: new patterns of technology transfer’, in Patel, S., Roffe: and Yusf, A. (editores), The international transfer of technology. The origins and aftermath of the United Nations negotiations on a Draft Code of Conduct, Kluwer Law International, The Hague, 2000.

Correa, Carlos (2003) “Do small and medium enterprises benefit from patent

protection?”, in Carlo Pietrobelli and Árni Sverrisson (eds.), Linking Local and Global Economies. Organisation, Technology and Export Opportunities for SMEs, Routledge, London and New York.

Correa, Carlos (2006), ‘Implications of bilateral free trade agreements on access to medicines’, Bulletin of the World Health Organization, Volume 84, Number 5, May. Correa, C. and Deere, C. (2005), Principles and guidelines for the provision of

technical. cooperation on intellectual property:. elements for consideration, available at www.iprsonline.org/ictsd/docs/2005-07-11_Correa_Deere.pdf.

Crespo, Nuno (2007), ‘Determinant factors of FDI spillovers –What do we really

know?’, World Development, vol. 35, No. 3, pp. 410-425. Elias, L.A. (2004), ‘Transferência de tecnologia: indicadores recentes sobre a indústria

farmacêutica’ paper submitted to the conference ‘10 anos do TRIPS: democratização do acesso à saúde’, São Paulo, (mimeo).

Foray, Dominique (2004), The economics of knowledge, The MIT Press, Cambridge. Glass, A and Saggi, K (2002), ‘Intellectual property rights and foreign direct

investment’, Journal of International Economics No. 57, pp. 323-350 (quoted in Maskus, 2005: 61).

Granstrand, Ove, (1999), The economics and management of intellectual property.

Towards intellectual capitalism, EE, Northampton. Hart, Michael, (1994), “Getting back to basics: reinventing patent law for economics

efficiency”, Intellectual Property Journal, vol.8, No.2.

Helpman, Elhanan (1993), ‘Innovation, imitation and intellectual property rights’, Econometrics 61(6), pp. 1247-1280 (quoted in Maskus, 2005: 61).

Jaffe, Adam B. and Lerner, Josh (2004), Innovation and Its Discontents: How Our

Broken Patent System is Endangering Innovation and Progress and What to Do about It, Princeton University Press.

Kim, Linsu (1997), Imitation to innovation. The dynamics of Korea’s technological

learning, Harvard Business School Press, Boston.

Kim, L. and Dahlman, C, (1992) "Technology policy for industrialization: an integrative framework and Korea's experience", Research Policy, N 21.

Lee, Z., Bae, Z. and Choi, D. (1988), "Technology development processes: a model for

a developing country with a global persepctive", R&D Management, vol. 18, N 3.

Levin, R.C.; Klevorick, A.K.; Nelson, R.R. and Winter, S.G., (1987), Appropriating the

Returns from Industrial Research and Development, Brookings Papers on Economic Activity, No.3.

Leith, Philip, (2000), “Software utility models and SMEs”, Journal of Information, Law and Technology, June. Maskus, Keith (2005), ‘The role of intellectual property rights in encouraging foreign

direct investment and technology transfer’, in C Fink and K Maskus, Intellectual property and development. Lessons from recent economic research, Washington D. C., World Bank and Oxford University Press.

OECD (1992), Technology and the Economy. The key relationships, Paris. OECD (2005), Intellectual property rights, DIRECTORATE FOR FINANCIAL AND

ENTERPRISE AFFAIRS. COMPETITION COMMITTEE, DAF/COMP(2004)24, Paris.

on IPRs and Sustainable Development, available at www.unctad.org/en/docs/iteipc200610_en.pdf.

Orange, John (2002), Costs-an Issue for Whom?, Paper submitted to the Conference on

the International Paten System, World Intellectual Property Organization, Geneva, Mar. 25-27.

Pérez, C., (1993), Technology and competitiveness in Latin America: Beyond the

legacy of import substitution policies, SPRU, University of Sussex, England and Instituto de Ingenieria, Caracas, Venezuela.

Radosevic, S. (1999), International technology transfer and catch-up in economic

development, Edward Elgar, Cheltenham. Richards, John (1998), ‘Petty patent protection’, in Hansen, H. (editor), International

intellectual property law & policy, Juris Publishing-Sweet & Maxwell, vol. 2. Scotchmer (2004), Innovation and incentives, The MIT Press, Cambridge. Suthersanen, Uma (2006), Utility Models and Innovation in Developing Countries,

UNCTAD-ICTSD Project on IPRs and Sustainable Development, available at http://www.iprsonline.org/unctadictsd/docs/uma%20suthersanen%207.pdf

UNCTAD (1996), The TRIPS Agreement and Developing Countries, Geneva and New York.

UNCTAD (2006), The Least Developed Countries Report 2006, Geneva. UNCTAD-ICTSD Project on IPRs and Sustainable Development (2003), Intellectual

Property Rights: Implications for Development, Policy Discussion Paper, available at www.ictsd.org/pubs/ictsd_series/iprs/PP.htm.

UNCTAD-ICTSD Project on IPRs and Sustainable Development (2005), Resource

Book on TRIPS and Development: New York, Cambridge University Press. Van Duzer, Tony (2003), TRIPS and the Pharmaceutical Industry in Bangladesh:

Towards a National Strategy, Centre for Policy Dialogue, Occasional Paper 24, Dhaka.

World Bank, (2001), Global Economic Prospects and the Developing Countries 2002,

Washington, D.C. Yang, G. and K Maskus, K (2005), ‘Intellectual property rights and licensing: an

econometric investigation’, in in C Fink and K Maskus, Intellectual property and development. Lessons from recent economic research, Washington D. C., World Bank and Oxford University Press.

UNCTAD The Least Developed Countries Report 2007...

Documents

Transcript of UNCTAD The Least Developed Countries Report 2007...

INDUSTRIAL DEVELOPMENT IN LEAST DEVELOPED COUNTRIES

Least Developed Countries Expert Group - UN CC:Learn

THE LEAST DEVELOPED COUNTRIES EXPERT GROUP (LEG)

The Least Developed Countries Report 2012

LEAST DEVELOPED COUNTRIES, LANDLOCKED DEVELOPING ...

the least developed countries - Sida...Fifty different countries all over the world have been designated as Least Developed Countries (ldcs) by the United Nations. This study examines

UNCTAD TOOLBOX FOR LEAST DEVELOPED COUNTRIES

THE 49 LEAST DEVELOPED COUNTRIES - UN-OHRLLS€¦ · THE 49 LEAST DEVELOPED COUNTRIES STATE OF THE LEAST DEVELOPED COUNTRIES 2013 Follow up of the Implementation of the Istanbul Programme

Effective Market Access for Least Developed Countries ...

report on the Least Developed Countries-2015 - UNCTADunctad.org/en/PublicationsLibrary/ldc2015_en.pdf · United nations ConferenCe on trade and development THE LEAST DEVELOPED COUNTRIES

STATE OF THE LEAST DEVELOPED COUNTRIES 2016

Canada and the World Community Global Village Developed Countries Newly Industrializing Countries Developing Countries Least Developed Countries HDI.

THE LEAST DEVELOPED COUNTRIES - UN-OHRLLS

Promoting Export in Least Developed Countries - Artisan … · Promoting Export in Least Developed Countries: ... SWOT analysis of handloom weaving sector ... textile industry has

The Least Developed Countries (LDCs)

INTEGRATED FINANCIAL MANAGEMENT IN LEAST DEVELOPED COUNTRIES

Voices Of The Least Developed Countries

The Least Developed Countries Report 2016: Overview

UNCTAD The Least Developed Countries Report 2007 ...unctad.org/sections/ldc_dir/docs/ldcr2007_Shree_en.pdf · thank Dr. Andy Hall, UNU-MERIT, Prof. Graham Dutfield, University of

Measuring Progress in Least Developed Countries a ... in LDCs.pdf4 Measuring progress in least developed countries ACKNOWLEDGEMENTS Measuring Progress in Least Developed Countries: