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The Interface between IPRs, Foreign Investment and

Technology Transfer

Development Dimensions of Intellectual Property Rights

Hanoi Foreign Trade University, 15 & 16 December

2008

Christoph Spennemann, Legal Expert Intellectual Property Team

Division on Investment and EnterpriseUNCTAD

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Overview of presentation

• Transfer of technology (TOT) and investment are IP-related

• The role of IP in the transfer and dissemination of foreign technology

• The role of IP in the attraction of foreign investment

• Conclusions

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TOT and investment are IP-related

• Article 7 TRIPS: “Transfer and dissemination of technology” as one objective of IP protection

• Article 66.2 TRIPS: Obligation on developed WTO Members to “provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer” to LDCs

• All modern bilateral investment treaties (BITs) have a broad definition of « investment » that encompasses IPRs

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The role of IP in the transfer of foreign technology (1)

• Traditional assumption: higher levels of IP protection are conducive to investors’ willingness to transfer technologies • through licensing agreements • through foreign direct investment (FDI)• Technology is disclosed in patent

application, may be studied & applied

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The role of IP in the transfer of foreign technology (2)

• Developing country (DC) reality check:• Limited financial means to license technologies• Lack of absorptive capacity inability to use

foreign technologies or to understand patent applications

• Need for technological learning through imitation and reverse engineering: more difficult under IPRs

• FDI alone will not transfer technology if local workers lack know-how: UNCTAD study of Thai electronics industry

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The role of IP in the transfer of foreign technology (3)

• UNCTAD-ICTSD research on Korean experience (Professor Linsu Kim)• At early stage of technological development,

when technological learning takes place through imitation & reverse engineering, strong IPRs will hinder rather than facilitate TOT

• IP protection becomes important element in TOT only after countries have reached sufficient level of domestic expertise to engage in creative imitation & adaptation

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The role of IP in the transfer of foreign technology (4)

• The Indian experience: development of a domestic pharmaceutical industry• 1970 – 2005: no patent protection for

pharmaceutical products in India • This enabled reverse engineering of foreign

pharmaceutical products (difference product patents vs process patent)

• Today, India is home to large generic drug producers, who engage in considerable patenting activities in OECD markets

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The role of IP in the transfer of foreign technology (5)

• The European experience: exclusion of pharmaceutical product patents• France until 1960• Germany until 1968• Japan until 1976• Switzerland until 1977• Italy & Sweden until 1978• Spain until 1992

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The role of IP in the transfer of foreign technology (6)

• Lesson from DC and OECD experience: in order to promote TOT, domestic IP system needs to be adapted to a country’s level of development

• TRIPS contains flexibilities allowing such adaptations (next sessions on copyright and patents)

• Core importance: public domain as source of information for technological learning

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The multilateral debate on IP & technology transfer

• Concerns expressed by DCs and especially LDCs about low acquisition of new technologies despite TRIPS compliance

• WTO Working Group on Trade & Transfer of Technology ineffective

• 2007 WIPO Development Agenda recommends WIPO to promote DCs’ understanding of use of IP policies & TRIPS flexibilities to foster TOT ongoing work

• 2008 WHO Resolution on Global Strategy & Plan of Action on Public Health, Innovation and Intellectual Property recommends WHO and Members States to promote public health-related TOT to DCs, in particular to encourage local production of pharmaceuticals initiation of work

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The role of IP in the attraction of foreign investment (1)

• Traditional assumption: higher levels of IP protection are likely to attract foreign investment into DCs

• US – Vietnam Trade and Investment Framework Agreement (TIFA), 2007, recognizes importance of adequate & effective protection & enforcement of IPRs

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The role of IP in the attraction of foreign investment (2)

• DC reality check (2005 study by Professor Keith Maskus)• Foreign investors attach much importance to

IP protection in research & development (R&D)-intensive technologies that are expensive to develop & easy to copy (e.g. pharmaceuticals, chemicals, but also R&D activities in low-tech areas, e.g. transport equipment)

• IP is relatively unimportant in R&D-poor activities, (e.g. sales & distribution, even in chemicals sector)

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The role of IP in the attraction of foreign investment (3)

• UNCTAD research and DC stakeholder feedback: despite relevance of IP protection in some areas, investment decisions are mainly based on non-IP factors, such as • Financial incentives• Market size • Supply structure• Infrastructure• Political & macro-economic stability• Government transparency

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The role of IP in the attraction of foreign investment (4)

• Depending on the investor, higher IP protection may even be an investment disincentive• E.g. generic pharmaceutical producers prefer limited

IPRs environment (example: CIPLA investment in Uganda)

• Overall, recent economic research & evidence recommend that • Countries with low technological know-how maintain IP

protection limited (IP alone will not attract investors)• Moving up « technology ladder », higher IP protection

(in conjunction with improved technology environment) is likely to attract foreign investment & technologies

• This shows linkage between IP, TOT and investment

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Conclusions

• IP, TOT and investment are closely interrelated

• Domestic IP regimes need to reflect level of technological development to enable technological learning

• Promotion of domestic absorptive capacity is at least as important as promotion of foreign investment

• As countries move up the « technology ladder », stronger IPRs become more important to attract R&D-intensive technologies. Important to control IP abuses and to prevent restrictive technology licensing

• IP only one among many factors in investment decisions

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Contact

Christoph SpennemannLegal ExpertIntellectual Property TeamDivision on Investment and Enterprise (DIAE)UNCTADE-mail: Christoph.Spennemann@unctad.orgTel: ++41 (0) 22 917 59 99Fax: ++41 (0) 22 917 01 94http://www.unctad.org/tot-ip