Intellectual Property

The WTO Agreement on Trade Related Intellectual Property Rights (TRIPs) will harmonize a variety of national standards for the protection of intellectual property rights worldwide. The basis for the harmonization is found in the existing treaties of the World Intellectual Property Organization (WIPO) covering matters such as Patents, Trademarks, Copyright and related rights. With the exception of the obligation to protect pharmaceutical products, harmonization will be achieved by 2000 when the transitional period for the implementation of the Agreement by developing and transitional economies comes to an end.

The inclusion of minimum standards - such as duration of patent protection - in the TRIPS agreement, and the specific requirements for national remedies, makes the TRIPS agreement different from most other WTO agreements. The emphasis of the Agreement on enforcement will result in stricter application at the national level of intellectual property rights both in domestic markets and at the border. Governments are now required to provide specific facilities for intercepting traded goods that may infringe an intellectual property right and for remedies for firms or persons whose IP rights are abused.

Firms in developing countries exploit intellectual property in the same way as firms in industrialized countries and are likely to derive similar benefits from the new system of rules. This does not mean that every firm will be better off: for example, firms which had formerly been exploiting an intellectual property right without fully compensating the owner will now have to pay a royalty.

But the better definition of intellectual property in trade should assist the operation of markets for products and services that embody intellectual property. In turn, this improvement should benefit all market participants.

Challenges

For the developing and transitional economy businesses, the Agreement offers both challenges and advantages. Developing country firms are typically concerned about three factors

Extensive changes in national regulatory regimes

The Agreement requires several changes to the nature of IP rights in many developing countries as well as to the level and methods of enforcement. Import competing businesses, in particular, will be affected. Firms should prepare for these changes and seek to participate in the changes to laws and regulations.

Patents: A 1995 World Bank study found that among 98 developing and transition economies, twenty-five did not provide patents for pharmaceutical products and thirteen did not provided patents for chemical products in 1994. Many of the developing and transition economies reviewed provided terms of patent protection that were shorter than the twenty-year term mandated by the TRIPS agreement. Many also allowed for exceptions or used a different date for the start of protection - such as the date of publication, or of grant, rather than the date of filing.

Copyright: As of early 1984, fifty-seven (of ninety-eight) developing country members did not have any protection for computer software.

Plant varieties: About one-third (34) of developing country members excluded plant varieties from patent protection in 1994. Few developing countries offered plant breeders rights (under the UPOV Convention) although some provided their own sui generis form of protection for breeders’ rights.

Restrictions on ’informal’ access to technology

Stronger protection by national authorities under the terms of the Agreement will make it more difficult for firms to acquire technology by copying or ’reverse engineering’ products or software or other copyright works for which foreign companies hold patent rights, or copyright or registered designs. However, developing country firms are also expected to benefit - as IP owners or licensees - from reinforcement of IP rights.

Higher royalties and license fee payments

Developing countries have been concerned about the possibility of larger royalty income transfers because of the TRIPS agreement. Non-residents account for the majority of patents granted in developing countries and that the extension of patent regimes to pharmaceutical products is likely to increase the proportion of off-shore rights holders. Recent evaluation of the rent-transfer effect has shown, however, that estimates of the transfers are sensitive to the structure of the market before implementation of the TRIPS obligations. The additional transfers may be much less than first feared if the number of local imitators of the patented product was small. Also, where rent transfers take place as a result of the grant of new patents for pharmaceutical products, it is likely that the impact will be delayed. It will probably be more than a decade after the date on which developing countries that did not formerly do so must start to grant pharmaceutical patents (2005) before the royalty transfers would begin.

Benefits

Strengthened IPR rules will also have a positive impact on import and export businesses and on investment opportunities in developing countries.

Trade flows

Because stronger, uniform protection of IP rights will reduce the transaction costs of trade - such as the need to protect against imitation - the TRIPS agreement is likely to lead to higher volumes of trade. Two sectors in which developing countries will participate directly in the benefits of these increased flows are the IP-intensive ’high technology’ trade and trade in the goods and services of entertainment industries. These sectors comprise rapidly growing and very valuable international trades: for example, over the period 1965-1992, for example, high-tech products increased their share of world trade from 11 to approximately 23 percent, or $740 billion (Braga, 1995).

Information technology (IT) trade alone was estimated to be worth more than $500 billion in 1995. According to WTO data, developing country exporters accounted for almost 40 percent of the exports of the world’s top ten IT exporters in 1995.

Foreign Direct Investment

Increased protection of TRIPs will improve the opportunities for companies in developing countries to enter into joint ventures and other collaboration for the transfer of technology on commercial terms. Surveys of investors in developed countries typically show that the overall investment climate is a much more important factor in a decision to invest in a developing country market than the IP regime as such. But there is some evidence that IPR protection in host countries is an important element in decisions of companies in developed countries to invest in developing countries. TRIPs protection plays a major role in investment decisions in the chemical and pharmaceutical industries. Recent studies indicate that it is also a significant variable in other industries, particularly those manufacturing products that are prone to imitation such as electronic and computer products.

Improved access to technology on commercial terms

First, effective protection of IPRs will increase the number of patents registered in developing countries. A patent is a public record of an invention that must fully disclose the product or process before protection is available. Access to such information is likely to stimulate innovation elsewhere in the economy.

Second, increased protection to IPRS will encourage foreign partners in joint ventures to undertake greater research and development work in the host developing country allowing local partners to influence the content and the priorities of research work.

Third, the Agreement provides for governments to take action against the abuse of intellectual property protection in the form of anti-competitive licensing provisions

The Agreement tightly circumscribes the conditions under which a patent which the owner refuses to license may be compulsorily made available to domestic firms. The procedure is sanctioned, however, in specific circumstances to minimize the abuse of the market power that a patent confers.

Benefits of controlling counterfeit goods

The emphasis of the Agreement on the enforcement of its provisions is also expected to help bring under control production and trade in, counterfeit and pirated goods. In the coming years the WTO consultation and dispute settlement mechanism will put increasing pressure to bear on countries with a significant output of such goods to improve the enforcement of their trademark and copyright laws. It is also in the long-term interest of domestic industries to see that these laws are enforced. The occurrence of counterfeiting is often due to ignorance of the legal implications of using trademarks without authorization from their owners. There is some evidence to show that pirates and counterfeiters are often able to switch to legitimate activities once the legal environment changes.

Counterfeiting also adversely affects the export interests of small domestic producers who produce under licence for manufacturers in outside countries. Owners of global brand names frequently license the manufacture of their product or parts of their product to firms in developing countries to take advantage of lower production costs. The brand-owners, however, expect to find their product protected from un-authorized copying or resale by enforcement of the international standards now embodied in the WTO Agreement.

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