Transfer of technology and IPRs: A development perspective

Fifty years of discourse on technology transfer at various international fora has resulted in a more robust understanding of the concept. Over the same period transnational corporations and the rich countries from which they originate have sought to erect a wall of intellectual property rights (IPRs) to prevent any real transfer. KM Gopakumar considers the problem from a development perspective.

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EFFORTS to establish an international regime for technology transfer on fair and equitable terms are still in progress even after 50 years. Three main efforts in this regard, viz., International Code of Conduct on Technology Transfer, Code of Conduct on Transnational Corporations and renegotiation of the Paris Convention, did not reach their logical conclusion. However, provisions on technology transfer have been incorporated into various legally binding and non-binding instruments including multilateral and bilateral instruments. The United Nations Conference on Trade and Development (UNCTAD) published a compendium of instruments on technology transfer. It lists 40 multilateral instruments containing technology transfer provisions, which include the UN Convention on the Law of the Sea (UNCLOS), the Convention on Biological Diversity (CBD) and the UN Framework Convention on Climate Change (UNFCCC). However, there is little progress in translating these legal provisions into practice. Currently, negotiations on technology transfer issues are in progress in various international forums, especially at the UNFCCC, World Intellectual Property Organisation (WIPO), World Trade Organisation (WTO), etc.

Fifty years of discourses on technology transfer at various international forums have brought a robust understanding on the concept of technology transfer. It is no longer understood in a narrower sense, for instance, the importation of hardware such as plants and machinery to developing countries. Technology transfer now includes 'not only the purchase and acquisition of equipment but includes the transfer of skills and knowhow to use, operate, maintain as well as to understand the technology hardware so that further independent innovation is possible by recipient firms' (cited in Shashikant and Khor, 2010).

Generally speaking, technological development capabilities are achieved in three phases: '(1) initiation stage, where technology as capital goods is imported, (2) internalisation stage, where local firms learn through imitation under a flexible IPRs [intellectual property rights] regime, and (3) generation stage, where local firms and institutions innovate through their own R&D [research and development]' (Khor, 2011). In other words, domestic technological development capabilities start with the accession and emulation of existing technologies from the developed countries. Later, firms innovate on the existing technologies. After achieving a certain level of experience in innovation, firms invent their own technology. The process of accession and emulation of existing technology is commonly described as catching up, which is important in moving up the ladder to develop inventive capacities. 

An enabling policy framework is necessary at both national and international levels to facilitate the catching-up process. However, the success of such an enabling policy depends on the existing capabilities of a country in many areas such as infrastructure, educational and R&D institutions, laws and regulations, human resources, finance and entrepreneur development. The enabling policy framework should, therefore, aim at building capabilities in the abovementioned areas as well as aligning other policies on trade, investment and IPRs with the overall framework for enabling industrial development including technology development capabilities.

A technology-transfer-friendly IPR legal and policy framework alone cannot bring about technology transfer. Developed countries and transnational corporations (TNCs) advocate for a strong IPR regime at the national and international levels as a precondition for the transfer of technology. However, there is ample evidence to show that a strong IPR regime can act as an impediment to the transfer of technology.

IPRs and technology transfer

IPRs refer to a set of negative rights which prevent others from using the protected intellectual property (IP) without the authorisation of its owner. These exclusive rights are often abused by the owner of the rights and prevent the transfer of technology on fair and equitable terms. In other words, the existence of IP itself creates an asymmetrical relation between the technology seller and technology buyer, because IP protection in general, and patents in particular, prevent the use of protected IP on technology without the permission of the IP owner.

Apart from this, enhanced IP protection also impedes transfer of technology in many other ways, including: IP holders may simply refuse to license the technologies to firms in developing countries; patent holders may charge exorbitantly for the protected technologies; and IP holders while transferring the technologies may impose onerous conditions which prevent further innovation on the technologies. Strong IPRs also have a chilling effect on R&D on IP-protected technologies, especially related to reverse engineering. Hence, it is important that the IP regime at national and international levels should have safeguards to prevent the abuse of exclusive rights. Apart from the safeguards, there is a need to incorporate provisions to facilitate the transfer of technology.

In the absence of such safeguards and facilitative provisions, IPRs would scuttle or slow down the catching-up process in developing countries. During the catching-up process, the efforts are mainly to reverse-engineer existing foreign technologies but IPRs prevent the freedom to reverse-engineer. TNCs and their home developed countries advocate for a strong IP regime tilted towards protection of IPRs with little room for technology transfer facilitating provisions and public interest safeguards, because the majority of IP is owned by the corporations or individuals based in the Northern countries. A slowing down of the catching-up process would delay competition in technology-intensive manufacturing, services and agriculture and thus protect the market monopoly of TNCs.

Broadly there are eight types of IPRs: patents, copyright, trade secrets, trademarks, geographical indications, protection of plant varieties, industrial designs, and protection of designs of integrated circuits. Some of these IPRs, viz., patents, copyright, trade secrets, plant variety protection, industrial designs and protection of designs of integrated circuits, have direct implications on technology transfer. Patents, copyright and trade secrets impact all sectors of technology transfer. However, the protections on plant varieties and integrated circuit designs have sector-specific implications, i.e., on agriculture and the semiconductor industry.

A copyright protection regime without adequate flexibilities (limitations and exceptions) would impede the free flow of knowledge. This in turn would affect the quality of higher education, especially the quality of human resources. A lack of quality technical human resources compromises technological absorption capacity, which in turn affects adaptation and reverse-engineering capabilities. Similarly, protection of trade secrets covers all the tacit knowledge attached to technology. Most technologies have a tacit element which is critical for the smooth functioning as well as further adaptation and reverse engineering. Trade secret protection provides the legal cover to keep this from the public domain perpetually.

As far as patents are concerned, there is enough evidence to show the adverse effects of patent protection on technology transfer. For instance, a study by the UN Industrial Development Organisation (UNIDO) states that 'Based on the experience of the Republic of Korea, it is argued that strong IPR protection will hinder rather than facilitate technology transfer and indigenous learning activities in the early stages of industrialisation...'. Further, it states that 'Research findings indicate that the static effects of stronger IPR protection on prices, employment and output are likely to be negative for most industries in Lebanon'. On middle-income countries, the study concludes, 'the beneficial impact of stronger IPR protection on domestic innovation and technology diffusion is to a certain extent offsetting the growth-enhancing benefits otherwise obtained from imitation and now precluded by the stronger IPR regime'. Further, Khor (2011) compiled nearly 10 studies documenting difficulties in obtaining environmentally sustainable technologies from their patent holders.

The role of patents has been identified as one of the critical issues affecting technology transfer from the very beginning of the international discourse on technology transfer. A study has been undertaken on behalf of the UN General Assembly on patents and technology transfer. UNCTAD and WIPO further updated the same study in 1975. Three major international initiatives in the late 1970s and the 1980s, mentioned earlier, attempted to address the issue of abuses of patent monopoly with regard to transfer of technology. Developing countries demanded the renegotiation of the Paris Convention mainly to address concerns related to the local working requirement under it through its successive revision. Many newly independent countries in Asia and Africa redrafted their domestic patent laws and refused to accede to the Paris Convention. Another major issue of concern at that time was the anti-competitive provisions in technology licensing agreements, especially in relation to patent licences.

However, the second half of the 1980s witnessed a reversal of approaches to IP due to pressure from developed countries. The conclusion of the Uruguay Round trade negotiations resulted in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) under the aegis of the WTO. The TRIPS Agreement sets minimum standards for all the abovementioned IPRs. However, the most onerous standards are related to patent protection. TRIPS standards on patenting include: expansion of patent protection to all technology areas, expansion of the duration of patent protection to a minimum of 20 years, inclusion of importation as part of the exclusive right of the patentee, national treatment for IP protection, regulation of compulsory licensing, etc. These standards curtail the policy space for developing countries to craft national patent laws to facilitate technology transfer and prevent abuse of patent monopolies. Thus the TRIPS Agreement virtually kicked away the ladder which had been used by many developed countries in their catching-up period before they developed their technology development capabilities.

Article 27 of the TRIPS Agreement obligates WTO member states to provide patent protection to all types of technologies, thereby virtually covering everything under the sun. This took away the policy space to exclude certain types of technologies from patent protection as had been done by many developed and developing countries. For instance, India had legislated a Patents Act in 1970 which excluded product patent protection for pharmaceutical inventions. Brazil excluded pharmaceutical inventions from patent protection altogether. Developed countries like Switzerland, Italy and Spain provided patent protection only in the post-World War II period. 

The TRIPS Agreement obligates a minimum 20 years of patent protection. This long duration keeps the patented invention from the public domain for 20 years, which would seriously slow down the catching-up process. In the past, countries like India provided only seven years of process patent protection for pharmaceutical inventions.

Inclusion of importation as part of the exclusive patent right enhances the monopoly power of the patent holder considerably and virtually took away almost all compulsions for the local working of the patent. This provision allows the patent holder to import the patented article instead of making it locally and hampers technology transfer.

The TRIPS Agreement also places certain restrictions on the granting of compulsory licences. Except in cases of national emergency, extreme urgency or public non-commercial use or as a remedy for anti-competitive practices, the potential licensee, before seeking a compulsory licence, is required to make an effort to obtain a voluntary licence from the patent holder. This in a way delays the issuance of the compulsory licence. Further, 17 years of experience since the conclusion of the TRIPS Agreement show that political pressure is often exerted on developing countries against the use of compulsory licensing.

Expansion of IP protection beyond the level set by the TRIPS Agreement, through what are known as 'TRIPS-plus' standards pushed mainly through bilateral and regional free trade agreements (FTAs), has further narrowed the policy space for developing countries to pursue the catching-up process. Under these TRIPS-plus standards, 'the important flexibilities, including transitional adjustment periods, policy space in implementation and the underlying public policy objectives of national systems, including developmental and technological objectives, are now largely foregone in different ways' (Gehl Sampath and Roffe, 2012).

The accession of the majority of developing countries to treaties like the Patent Cooperation Treaty (PCT) leads to the increased flow of foreign patent applications in developing countries. The PCT allows a patent application to be filed in multiple jurisdictions, enabling TNCs to file patent applications in a large number of developing countries in a cost-effective way.

The lack of capacity in many developing countries to check abuses of patent protection, such as multiple patent protections secured on the same invention (popularly known as 'evergreening of patents') and 'patent thickets', has created further barriers to technology development capabilities.

The ongoing negotiations at the TRIPS Council or the Working Group on Trade and Transfer of Technology within the WTO have not resulted in any concrete outcomes. Technology transfer discussions within WIPO are taking place within three committees, the Standing Committee on Patents, Committee on Development and Intellectual Property and Working Group on Patent Cooperation Treaty. However, these discussions have not resulted in any norm setting to take forward the existing legal commitments on technology transfer. The Technology Executive Committee, established by the Conference of the Parties (COP) to the UNFCCC, has identified IPRs as one of the issues to be addressed.

IP protection is also enhanced by linking IP to the international investment protection regime through bilateral investment treaties (BITs). As the definition of 'investment' in BITs includes IP, investment protection remedies under these treaties, including investor-state dispute provisions, extend to IP. This threatens the use of flexibilities to facilitate transfer of technology such as compulsory licensing. Recently, pharmaceutical TNC Eli Lilly sent a legal notice to the Canadian government to initiate an investor-state arbitration procedure, citing the expropriation clause in the investment chapter of the North American Free Trade Agreement (NAFTA). Eli Lilly is disturbed by the Canadian courts' interpretation and application of patentability standards (utility requirements) which has resulted in the invalidation of some of its patents on drugs like atomoxetine and olazapine. BITs also contain certain provisions like banning of performance requirements. Historically, performance requirements like requirements for local manufacturing or local sourcing of products played a crucial role in technology transfer.

Way forward

The above discussion clearly shows that IP protection and its enforcement has been moving towards a maximalist position over the last 50 years and erected a great wall of IP against transfer of technology. The complex web of IP, trade and investment has vitiated the efforts of developing countries to develop an international regime on technology transfer on fair and equitable terms. According to Gehl Sampath and Roffe (2012), 'the deeper specialisation patterns created by trade opportunities into primary commodities, weak systems of innovation and the knowledge economy have led to a wider technological gap between countries than ever before'. Therefore, it is important to interrogate the status quo to make qualitative changes. Some non-exhaustive ideas in this regard are discussed below.

Firstly, it is important to question the TRIPS Agreement and its implications on the development policy space of developing countries. Towards this end, it is important for developing countries to set up an international process to take stock of the TRIPS Agreement to assess how far its substantive provisions contribute to the achievement of its objectives mentioned in Article 7. According to Article 7 of the Agreement, 'The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.'

In July 2012, the Global Commission on HIV and the Law, which consists of 14 eminent individuals acting in their individual capacity and is supported by the UN Development Programme (UNDP), recommended suspension of the TRIPS Agreement. In the pharmaceutical context, the Commission recommended that 'The UN Secretary-General must convene a neutral, high-level body to review and assess proposals and recommend a new intellectual property regime for pharmaceutical products. Such a regime should be consistent with international human rights law and public health requirements, while safeguarding the justifiable rights of inventors. Such a body should include representation from the High Commissioner on Human Rights, WHO, WTO, UNDP, UNAIDS and WIPO, as well as the Special Rapporteur on the Right to Health, key technical agencies and experts, and private sector and civil society representatives, including people living with HIV. This re-evaluation, based on human rights, should take into account and build on efforts underway at WHO, such as its Global Strategy and Plan of Action on Public Health, Innovation, and Intellectual Property and the work of its Consultative Expert Working Group'.

Secondly, developing countries should either abrogate BITs or renegotiate the existing obligations in BITs, especially to exclude IP from the scope of the definition of 'investment' and also to regain policy space on performance requirements.

Thirdly, developing countries should negotiate as a collective group and in a coordinated way in the ongoing negotiations on transfer of technology in various international forums like the UNFCCC, WIPO and WTO.

Fourthly, least developed countries (LDCs) should pursue their request for extension of their transition period to implement the TRIPS Agreement, which clearly states (in Article 66.1) that 'The [WTO] Council for TRIPS shall, upon duly motivated request by a least-developed country Member, accord extensions of this period'.

Fifthly, LDCs should demand a comprehensive stocktaking of technology transfer obligations of developed countries under Article 66.2 of the TRIPS Agreement with a view to strengthening the effective implementation. According to Article 66.2, 'Developed 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.' A study states that 'there was almost no evidence of additionality - that is, that new incentives had been put in place as a result of Article 66.2' (Moon, 2011).

Sixthly, developing countries including LDCs should not accept any more TRIPS-plus obligations thorough FTAs or other international legal instruments. However, certain developing countries have already entered into FTAs which contain TRIPS-plus provisions. Political pressure needs to be built to renegotiate such obligations.

Seventhly, at the national level, there is a need to develop an IP strategy with an objective to facilitate the emulation, innovation and invention of technologies by using the flexibilities within the TRIPS Agreement. However, the utility of flexibilities is mainly for the purposes of damage control and does not bring back the policy space of pre-TRIPS days. Towards this end, the IP strategy should incorporate the following elements:

* Implement a high threshold level of IP protection, especially for patent protection, to avoid patenting of incremental innovations as well as the extension of patent monopolies through evergreening or patent thicket strategies.

* Develop and implement guidelines for the disclosure of the invention through the patent specification in order to emulate the technology after the expiry of the patent or through a compulsory licence or government-use provision.

* Provide the policy and institutional framework to make use of TRIPS flexibilities such as compulsory licensing or government use to facilitate technology transfer.

* Facilitate the flow of technology information contained in the patent application in order to enable catching up and further innovation.

Eighthly, at the national level, policy incentives should be provided for R&D and commercialisation models not based on IP protection, such as open-source models.                         

KM Gopakumar is a legal adviser and senior researcher with the Third World Network.

References

Correa, Carlos (2005), 'Can the TRIPS Agreement Foster Technology Transfer to Developing Countries?', in International Public Goods and Transfer of Technology under a Globalized Intellectual Property Regime, Keith E Maskus and Jerome H Reichman (editors), Cambridge University Press.

Gehl Sampath, Padmashree and Pedro Roffe (2012), 'Unpacking the International Technology Transfer Debate: Fifty Years and Beyond', Issue Paper No. 36, International Centre for Trade and Sustainable Development.

Khor, Martin (2011), 'Climate Change, Technology and IPR', in Technological Cooperation and Climate Change, United Nations Development Programme.

Moon, Suerie (2011), 'Meaningful Technology Transfer to the LDCs: A Proposal for a Monitoring Mechanism for TRIPS Article 66.2', Policy Brief No. 9, International Centre for Trade and Sustainable Development.

Shashikant, Sangeeta and Martin Khor (2010), 'Intellectual Property and Technology Transfer Issues in the Context of Climate Change', Intellectual Property Rights Series No. 14, Third World Network.

UNCTAD (2001), 'Compendium of International Arrangements on Transfer of Technology: Selected Instruments', United Nations Conference on Trade and Development.

UNIDO (2006), 'The Role of Intellectual Property Rights in Technology Transfer and Economic Growth: Theory and Evidence', United Nations Industrial Development Organisation.

*Third World Resurgence No. 269/270, Jan/Feb 2013, pp 6-10