The Adapting Approach to Intellectual Property from a Developing Country

Summary

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) brought with it the promise to achieve the development, which never materialized. In the same way, the strategies that developing countries have adopted have not been effective enough to change reality. We should understand that weakening the intellectual property system is not the correct alternative, on the contrary, a strong and balanced intellectual property system could reduce the implicit risk in the transactional cost of allocate or transfer intangible assets of intellectual property in other country, as well as encourage local innovation. The solution is much closer than we can imagine; it is inside the intellectual property system itself. However, in order to take advantage of it, it is necessary to understand all the benefits provided by the global system of intellectual property, and urgently improve the educational system to achieve the kind of technology transfer that all developing countries are looking for.

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Keywords

TRIPS / Technology Transfer / Intellectual Property / Development / Absorptive Capacity.

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1. Introduction

After 21 years of validity of the Agreement on Aspects of Intellectual Property Rights related to Trade (hereinafter TRIPS), and looking back then, the developed countries that promoted the signing of this document within the WTO were committed to provide incentives to companies and institutions in their territories, in order to encourage and promote the transfer of technology to less developed member countries so that, in this way, they could create a solid and viable technological base¹, a transfer that never materialized and which is the reason why the intellectual property system has been blamed. However, in our opinion, the cause was that we did not understand enough how the intellectual property system actually worked to recognize that such promised technology transfer was at our disposal, but unfortunately the developing countries did not benefit from it.

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Not having used intellectual property as an inducement to create and innovate, and disregarding the functioning of the incentives promoted by the intellectual property system itself, many developing countries adopted minimum standards of protection to property rights in their local legislation that the WTO promoted. Other countries made inroads to establish higher protection standards (considered as TRIPS PLUS) in their legislation, granting greater temporary protection and extending the scope of enforceability for intellectual property rights through criminal proceedings, in the expectation that, under stronger protection of intellectual property rights, their markets would be more attractive for foreign direct investment (FDI) with that component of technology transfer promised by the TRIPS Agreement. However, an economic study conducted in 2005 revealed that after the signing of the TRIPS Agreement, the net transfers that the United States received as a result of the gains associated with trade liberalization increased by 40%, but the most important thing in this study was that developing countries paid 64% of those profits (Watson, 2011, p 271), which shows the real economic result, derived from the internationalization of intellectual property. The present article analyzes: the strategies of the developing countries against the TRIPS; intellectual property, a necessary mechanism in the innovation process; the transfer of technology as a public policy decision; and intellectual property as a tool for development.

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2. The strategies of developing countries before TRIPS

Based on the economic performance of the 21 years applying TRIPS in developing countries, some of the alternatives proposed have been: (a) not to adopt the minimum standards established in the TRIPS Agreement; (b) promote a TRIPS reform; or, (c) to exacerbatedly apply the mandatory licensing regime. However, none of these alternatives tends to change the dependency structure of developing countries. Following, we proceed to examine the effect of each of the aforementioned alternatives.

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(a) The most extreme and unrealistic proposal to stop adopting the minimum standards established in the TRIPS in their national legislation, option that could cost to stop being part of the WTO, which, today, is an unthinkable alternative: Currently, 164 countries are members of the World Trade Organization; if any of them decided to leave, their local industry would be very affected, no matter how small and incipient, because it would not have the tax benefits as those member countries of said Organization.

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(b) Promoting a reform of TRIPS was an alternative that led to the Doha Round (Qatar) held in 2001 and whose only achievement has been to facilitate the protection of drinks like wines and spirits (WTO, 2013). As much as they have tried, the promoters of the Doha Round have not been able to achieve even the amendments relating to the effective treatment of the importation of products under the cover of mandatory licenses between member countries²; the determination regarding the management and legitimate use of genetic resources; or, at least, the protection of traditional knowledge related to the development of biotechnology (Oñate, 2010, pp. 135-137).

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(c) Regarding the strategy of excessive use of mandatory licenses, it has been said, "mandatory licenses are important governmental tools that governments can use to ensure access to affordable medications" (Correa, 2011, p.23). However, such an affirmation cannot be considered as an axiom to reach a radical change in the model. In the first place, because it is focused solely on medications and, although these correspond to a large part of patentable inventions, the patent system was not created exclusively for its protection. And second, because 95% of essential medicines on the WHO Model List of Essential Medicines are patent-free (Beal and Attaran, 2013, p.25), so it would not be appropriate to outline a public policy based on the exaggerated concession of mandatory licenses because, in the best of cases, it could be applied in only 5% of essential drugs (that is, 20 of 375); and, if it were focused on applying to all types of medications or to all kinds of patentable results, we would be abusing a flexibility that was only conceived for specific circumstances and for more "fair" that it pretends to be, this can mean that companies do not implement new inventions or technical solutions in developing countries, stop inspecting about problems that especially affect those countries or, worse, create increasingly sophisticated mechanisms for the protection of their inventions through business secrets. So far and what is known, Ecuador is the country that has granted the most mandatory licenses in the world. Since 2009, 10 mandatory licenses have been granted, of which only one drug could be reproduced in the country³. This measure has certainly contributed to a vulnerable group having access to an essential drug, but the average savings achieved with this policy may have increased the final goal in which the public policy of all developing countries should focus, that is, the change in the productive matrix, resulting from the transfer of acquired technology.

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3. Intellectual property, necessary mechanism in the innovation process

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The artificial incentive of legal recognition of intellectual property should be conceived as a tool to identify those positive actors of the social group, who are investing their resources (not only monetary) to solve the problems we all face or to improve our quality of life; this goes from identifying a product with a brand to optimize the efficiency in the decisions of acquisition of goods or services of consumers, to enjoy ourselves in a musical or play, or find the medication capable of curing a disease. This artificial incentive also establishes an individual model to be followed in society, based on the social and market value that can have the intangible potential of intellectual property. Detractors of the existence of intellectual property as an institution determine that it, because of its intangible characteristic, has no rivalry in its consumption; that is, there is no material need (scarcity) to exclude others from its use, since several users can use them simultaneously, without diminishing the enjoyment of others (Andrews and de Serres, 2012, p.10). Although intellectual property assets have no rivalry in their consumption, the resources of people who dedicate their efforts to create intangible intellectual property assets do have rivalry in their work and, without an incentive such as intellectual property, these resources can be intended for the production of activities without a considerable creative effort. For this reason, "if the protection of intellectual property begins to disappear, the creative companies will disappear as well, or they will not be born" (Isaacson, 2011, p 158).

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Undoubtedly, every society needs the artificial incentive of intellectual property to stimulate its innovation system. However, a local intellectual property system can not survive in time only by recognizing and protecting intellectual property rights to benefit foreign companies, since the investment capital of these companies tend to enter, take the benefits generated by their intangible assets in the local economy and leave again (commonly called "hot capitals"). As a consequence, governments that must face these economic impasses take hasty and ill-advised public policy measures to halt this process, such as weakening the local intellectual property system by exacerbating the regime of mandatory licenses; or postpone the acknowledgement of intellectual property rights to foreigners so that they can not obtain economic benefits that will later leave the country. But this only reduces foreign investment and does not achieve the ultimate goal that every developing country seeks. This is: encourage foreign direct investment that brings technology transfer and at the same time boost the local innovation system. The formula for achieving these goals is not simple, since economic studies conducted reveal that strong intellectual property laws may limit opportunities to encourage productivity based on reverse engineering in developing countries (Maskus, 2012, p.1430) and, in this way, they prevent their capacity for local abstraction and, therefore, their innovation system from improving. As a result, weakening the local intellectual property system or implementing strong intellectual property rights protection laws are not solutions to achieve the desired objectives.

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4. Technology transfer, a public policy decision

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The function of technology transfer is to connect "existing knowledge with necessity" and is defined as the displacement of know-how, whether material or immaterial, from one organization to another (Biagini, Kuhl, Sims and Ortiz, 2014, p. 830). However, the concept of technology transfer expected by developing countries is materialized in that one established in the TRIPS⁴ in which developed countries must encourage their local companies to invest and transfer their know-how to less-developed countries, only because they are in an unfavorable condition, which is very far from reality and is also unlikely to happen.

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On the other hand, public policies framed in forcing multinationals to transfer technology with local companies may be counterproductive in small developing countries, because, if the local market is not large enough, multinationals tend to withdraw or not to invest, and because of that reason to be separated from the fundamental chains of production and innovation (Maskus and Saggi, 2014, p.2). Moreover, additional factors such as information asymmetry between companies located in different countries, unfavorable economic and governance conditions in host countries, lack of enforcement of intellectual property rights and the inability to absorb and assimilate foreign technologies are indirect barriers that hinder the transfer of technology internationally (p.2). However, the transfer of technology does not depend on the strength or weakness of intellectual property laws, since economic studies have determined that foreign direct investment can flow in the same way in countries with weak or strong intellectual property laws (Park and Lippoldt, 2008, p.4). On the other hand, studies have been able to establish that the determining factor to decide to host or transfer technology is closely related to the abstraction capacity of foreign technologies or their consequent possibility of imitation of foreign technologies (p.8). The capacity for abstraction is the key to generate direct foreign investment, which brings with it technology transfer, either because of the implicit risk of imitation or because of the high probability of creating further solutions to what exists in the state of the art. At the same time, the capacity for abstraction is also capable of generating that transfer of technology based on the assimilation of local companies to improve their competitiveness with foreign technologies and additionally to boost the local innovation system to also create further solutions. Achieving this duality of objectives will result in both nationals and foreigners accessing the local intellectual property system so that their rights are recognized. By having this balance of protection of intellectual property rights the expected consequence is the strengthening of the local system of intellectual property.

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A strong intellectual property system reduces the risk implied in the transaction costs of housing or transferring intangible assets of intellectual property in another territory, since it reduces the asymmetry of information, as the law responds to the logic of observance of these rights at international scale, which is always the product of an adequate structure of governance and respect for established institutions (Baldía, 2013, p.8). Therefore, the public policy to achieve technology transfers to developing countries must be based on the exhaustive use of the benefits that the same world intellectual property system implicitly provides to generate local abstraction capacities of foreign technologies.

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5. Intellectual property as a tool for development

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For the transfer of technology to flow in a developing country it is necessary, first of all, to understand how the patent system works and its benefits; and, secondly, to encourage the academy to improve national capacities for the abstraction of foreign technologies. The lack of knowledge in developing countries about the functioning of the intellectual property system and, in particular, about the patent system is the result of not having developed such legal institutions, by virtue of the incentives created by the State to protect local inventors against espionage attacks or to attract foreign technologies, as happened in medieval times by the founders of patent law (Long, 2001, pp. 94-95). To clarify the above, when certain developing countries adopted TRIPS and other TRIPS PLUS in their domestic legislation, they understood intellectual property solely as a purpose that focused on protecting and respecting the intellectual property rights of multinational companies belonging to the world powers, thinking that with FDI coming from these companies, development was going to be achieved. To accentuate the problem, multinational companies were not interested in understanding how the system worked.

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An example of this distortion of how the Global Intellectual Property System works is the discourse in the headlines about patent rights, which encourage the protection and respect of patents based on the huge investment they make in research and development (Pfizer, 2016), and try to confuse the right of intellectual property with a purely economic right, which originates from the investment made to accomplish the invention, which is totally distant from reality, because an invention is not obtained in terms of investment to materialize it, nor is investment a decisive factor for its concession. However, this purely economic conception of patent law has led to the stigmatization of intellectual property in developing countries, such as the right to "privatization of knowledge" (El Ciudadano, 2009), that knowledge that is prohibited to access because of the consequences, including criminal, that could be faced - when intellectual property and temporary and limited right on a patent are the furthest thing to that conception.

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The patent system involves a negotiation carefully designed to encourage the creation and dissemination of new and useful advances in science and technology, in exchange for an exclusive monopoly for a limited period of time (Merges and Duffy, 2013, p. 526). The logic behind this conception has mainly a root of economic efficiency, based on the reason that it is not efficient for many people to engage their resources trying to solve problems that were already solved by someone else, "reinventing the wheel". Therefore, protection and respect for patents should be encouraged, not because of the investment made in obtaining it, but because the inventors or the owners of said inventions, contrary to protecting their invention as a business secret to which society could not access, have decided, through a patent document, fully disclose their invention in a manner "sufficiently clear and complete, so that those skilled in the art can carry out the invention"⁵, and thus, make available to society the knowledge immersed in the invention, optimizing and directing research resources in those technical barriers that have not yet been resolved.

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From the above logic, the need to improve the local education system takes place, which constitutes a "necessary precondition for the effectiveness of technology transfer at an international scale" (Maskus and Saggi, 2012, p.6). However, in developing countries, it is directly reflected the lack of knowledge and little or no use of the patent system, both to improve education levels and to carry out effective research (Dutta, Lanvin and Wunsch-Vincent, 2016). This is demonstrated by the fact that the vast majority of university professors - "8 out of 10" - consider that the information protected by a patent is secret, and a larger number - "9 out of 10" - assume that it is illegal to investigate, enable, reproduce or question a patent (IEPI, 2010), without considering whether it has been requested or not in Ecuador, or if the purposes of reproduction are experimental, academic, scientific or exploratory, all of which is due to little knowledge of the patent system. This fact has an enormous impact on the product of research carried out in developing countries, because, despite the limited resources that the academy has in these countries, research is aimed at "reinventing" what has been achieved by developed countries, due to the ignorance of the importance in which lies the search for the state of the art, prior to proposing even any investigation (SENESCYT, 2016).

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It is taken for granted that academia is the fundamental axis of change for developing countries and it is essential that it be understood that "access to information, including the information contained in patents, is the main agent of an innovation process" (Clarl and Kowalski, 2012, pp. 427-435). The access, in a sufficiently clear and complete way to this information (Merges and Duffy, 2013, page 526) is a right that we have all those countries that acknowledged and adopted the TRIPS in our legislations. For this reason, it is essential for a developing country to recognize and use intellectual property as a tool to access the most valuable information in the world, that is, the information behind patents. Making this available to students, researchers or professors, as well as entrepreneurs, will be the key to generate the necessary local capacities to make viable the transfer of technology according to a model of national innovation and development.

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6. Conclusions

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TRIPS did not prove to be the direct formula for leaving behind underdevelopment; however, ignoring the obligations acquired by States in TRIPS, or restricting the exercise of intellectual property rights through the use of mandatory licenses, are not options directed to reduce the impact of the existing technological gap and thus stop relying on the knowledge developed by the world powers.

On the other hand, promoting a strong intellectual property system, understood as a balanced mechanism that seeks to protect the advances of art, science and technology, which are carried out by both nationals and foreigners, encourages confidence in that foreign direct investment that transfers technology, but the main factor for building a strong intellectual property system is based on the ability to absorb and assimilate foreign technologies.

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To accomplish this absorption capacity, the fundamental thing is to understand that patents are not secret or that their reproduction or authorization is illegal, since it is the information contained in patents that the society receives in consideration of the commercial, temporary and geographically limited monopoly States grant the holder of the patent rights. In that sense, the academy must be the first interested in using the information contained in patents, in order to manage education and research strategies. Therefore, the public policy aimed at promoting the protection and respect of intellectual property rights and, at the same time, the efficient use of the information contained in patents in the academy are the fundamental pillars to achieve the development that all the developing countries expect.

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Bibliographical References

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International agreements

Amendment of the TRIPS Agreement. December 6, 2005.<https://www.wto.org/spanish/tratop_s/trips_s/wtl641_s.htm>.

— (1994). Agreement on the Aspects of Intellectual Property Rights related to the Commerce (TRIPS). April 15, 1944.

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