H.R. COLLEGE OF COMMERCE & ECONOMICS

123, Dinshaw Wachha Road, Churchgate, Mumbai - 400020

A PROJECT

ON

“CONTENTIOUS ISSUES OF THE WTO”

INTELLECTUAL PROPERTY RIGHTS

in the subject of

ECONOMICS

SUBMITTED TO

UNIVERSITY OF MUMBAI

FOR (SEM-I ) OF

MASTER OF COMMERCE

BY

Name: RADHIKA. GOHIL

Roll No: 28

UNDER THE GUIDANCE OF

Prof. GEETA. NAIR

YEAR 2013-14

1

H.R. COLLEGE OF COMMERCE & ECONOMICSINTERNAL ASSESSMENT

PROJECT (40 Marks)

Name of the Student Class R. No.

First name : RADHIKA

Father’s Name : MUKESH

Surname : GOHIL

MCOM

PART- I

ACCOUNTS 28

Subject: ECONOMICS

Topic for the Project: CONTENTIOUS ISSUES OF THE WTO

INTELLECTUAL PROPERTY RIGHTS

Marks Awarded Signature

DocumentationInternal Examiner(10 Marks)External Examiner(10 Marks)Presentation(10 Marks)Viva and Interaction(10 Marks)

TOTAL MARKS (40 Marks)

2

H.R. COLLEGE OF COMMERCE & ECONOMICS123, Dinshaw Wachha Road, Churchgate, Mumbai - 400020

DECLARATION BY THE STUDENT

I, RADHIKA MUKESH GOHIL student of M Com Part-I Roll Number 28 hereby

declare that the project for the Paper ECONOMICS

titled,

“CONTENTIOUS ISSUES OF THE WTO” INTELLCTUAL PROPERTY

RIGHTS submitted by me for Semester-I during the academic year 2013-14, is

based on actual work carried out by me.

I further state that this work is original and not submitted anywhere else for any

examination.

Signature of Student

3

H.R. COLLEGE OF COMMERCE & ECONOMICS

TO BE FILLED IN BY STUDENTS WHO DEFAULT

LATE SUBMISSION

I hereby understand that I have submitted the Project late, on

_________________at ____________ a.m.

The date of submission announced by the college was

_________________at ______________ a.m.

Signature of Student--------------------------------------------------------------------------------------------

INTERNAL VIVAS

I declare that I was not present at the time of Internal Viva arranged by the

College.

This has been a serious lapse on my part.

Signature of Student--------------------------------------------------------------------------------------------

EXTERNAL VIVAS

I declare that I was not present at the time of External Viva arranged by the

College.

This has been a serious lapse on my part

Signature of Student

4

INDEX

1. WORLD TRADE ORGANISATION.

What Is World Trade Organization?

Principles Of Trading System.

A Closer Look On These Principles.

2. NATIONAL TRADE.

3. FREER TRADE.

4. PROMOTING FAIR COMPITION.

5. TRIP’S.

Introduction.

What Are Intellectual Property Rights?

Literature Review.

Intellectual Property.

The Economics Of Intellectual Property Protection.

6. STANDARDS CONCERNING THE AVAILABILITY, SCOPE AND USE OF

INTELLECTUAL PROPERTY RIGHTS.

Patents, Copy-Rights And Related Rights.

Trademarks And Geographic Indications.

Industrial Design.

Patents.

Layout Design Of Integrated Circuits.

Protection Of Undisclosed Information.

7. THE TRIPS AGREEMENT.

Economic Benefits And Costs Of TRIP’S

8. ENFORCEMENT OF INDUSTRIAL PROPERTY RIGHTS, COPY-RIGHTS

AND RELATED RIGHTS.

9. ENFORCEMENT OF INDUSTRIAL PROPERTY RIGHTS IN GENERAL.

10. CRITICISM OF TRIP’S.

11. BIBLOGRAPHY.

WORLD TRADE ORGANISATION

5

The first step is to talk. Essentially, the WTO is a place where member governments go,

to try to sort out the trade problems they face with each other. At its heart are WTO

agreements, negotiated and signed by the bulk of the world’s trading nations. But the

WTO is not just about liberalizing trade, and in some circumstances its rules support

maintaining trade barriers —for example to protect consumers, prevent the spread of

disease or protect the environment. The “table” in action: WTO Trade Negotiations

Committee, meeting in Geneva, 14 September 2005.

The WTO was formed on 1st January 1995 and was established in Centre William

Rappard, Geneva, Switzerland. There are 159 member States in all. The official

languages spoke are English, French, Spanish. The approximate budget of the

organization was 196 million Swiss francs (approx. 209 million US$) in 2011.It has the

staff capacity of around 640. The WTO was born out of negotiations; everything the

WTO does is the result of negotiations.

What is the World Trade Organization?

Simply put: the World Trade Organization (WTO) deals with the rules of trade between

nations at a global or near-global level. But there is more to it than that. Is it a bird, is it a

plane? There are a number of ways of looking at the WTO. It’s an organization for

liberalizing trade. It’s a forum for governments to negotiate trade agreements. It’s a place

for them to settle trade disputes. It operates a system of trade rules. (But it’s not

Superman, just in case anyone thought it could solve — or cause — all the world’s

problems!) Above all, it’s a negotiating forum. Essentially, the WTO is a place where

member governments go, to try to sort out the trade problems they face with each other.

The first step is to talk. The WTO was born out of negotiations, and everything the WTO

does is the result of negotiations. The bulk of the WTO’s current work comes from the

1986–94 negotiations called the Uruguay Round and earlier negotiations under the

General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new

negotiations, under the “Doha Development Agenda” launched in 2001.

6

Where countries have faced trade barriers and wanted them lowered, the negotiations

have helped to liberalize trade. But the WTO is not just about liberalizing trade, and in

some circumstances its rules support maintaining trade barriers — for example to protect

consumers or prevent the spread of disease. It’s a set of rules … At its heart are the WTO

agreements, negotiated and signed by the bulk of the world’s trading nations. These

documents provide the legal ground-rules for international commerce. They are

essentially contracts, binding Governments to keep their trade policies within agreed

limits. Although negotiated and signed by governments, the goal is to help producers of

goods and services, exporters, and importers conduct their business, while allowing

governments to meet social and environmental objectives.

The system’s overriding purpose is to help trade flow as freely as possible — so long as

there are no undesirable side-effects — because this is important for economic

development and well-being. That partly means removing obstacles. It also means

ensuring that individuals, companies and governments know what the trade rules are

around the world, and giving them the confidence that there will be no sudden changes of

policy. In other words, the rules have to be “transparent” and predictable. And it helps to

settle disputes … This is a third important side to the WTO’s work. Trade relations often

involve conflicting interests. Agreements, including those painstakingly negotiated in the

WTO system, often need interpreting. The most harmonious way to settle these

differences is through some neutral procedure based on an agreed legal foundation. That

is the purpose behind the dispute settlement process written into the WTO agreements.

Born in 1995, but not so young.

The WTO began life on 1 January 1995, but its trading system is half a century older.

Since 1948, the General Agreement on Tariffs and Trade (GATT) had provided the rules

for the system. (The second WTO ministerial meeting, held in Geneva in May 1998

included a celebration of the 50th anniversary of the system.) It did not take long for the

General Agreement to give birth to an unofficial, de facto international organization, also

known informally as GATT. Over the years GATT evolved through several rounds of

negotiations. The last and largest GATT round, was the Uruguay Round which lasted

7

from 1986 to 1994 and led to the WTO’s creation. Whereas GATT had mainly dealt with

trade in goods, the WTO and its agreements now cover trade in services, and in traded

inventions, creations and designs (intellectual property).

Principles of the trading system

The WTO agreements are lengthy and complex because they are legal texts covering a

wide range of activities. They deal with: agriculture, textiles and clothing, banking,

telecommunications, government purchases, industrial standards and product safety, food

sanitation regulations, intellectual property, and much more. But a number of simple,

fundamental principles run throughout all of these documents. These principles are the

foundation of the multilateral trading system.

A closer look at these principles:

Trade without discrimination

1. Most-favored-nation (MFN): treating other people equally Under the WTO

agreements, countries cannot normally discriminate between their trading partners. Grant

someone a special favor (such as a lower customs duty rate for one of their products) and

you have to do the same for all other WTO members. This principle is known as most-

favored-nation (MFN) treatment it is so important that it is the first article of the General

Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a

priority in the General Agreement on Trade in Services (GATS) and the Agreement on

Trade- Related Aspects of Intellectual Property Rights (TRIPS), although in each

agreement the principle is handled slightly differently. Together, those three agreements

cover all three main areas of trade handled by the WTO. ‘Multilateral’ trading system .i.e.

the system operated by the WTO. Most nations — including almost all the main trading

nations — are members of the system. But some are not, so “multilateral” is used to

describe the system instead of “global” or “world”. In WTO affairs, “multilateral” also

8

contrasts with actions taken regionally or by other smaller groups of countries. (This is

different from the word’s use in other areas of international relations where, for example,

a “multilateral” security arrangement can be regional.)

NATIONAL TREATMENT:

Treating foreigners and locals equally imported and locally produced goods should be

treated equally — at least after the foreign goods have entered the market. The same

should apply to foreign and domestic services, and to foreign and local trademarks,

copyrights and patents. This principle of “national treatment” (giving others the same

treatment as one’s own nationals) is also found in all the three main WTO agreements

(Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS), although once again

the principle is handled slightly differently in each of these. National treatment only

applies once a product, service or item of intellectual property has entered the market.

Therefore, charging customs duty on an import is not a violation of national treatment

even if locally-produced products are not charged an equivalent tax.

FREER TRADE:

Gradually, through negotiation lowering trade barriers is one of the most obvious means

of encouraging trade. The barriers concerned include customs duties (or tariffs) and

measures such as import bans or quotas that restrict quantities selectively. From time to

time other issues such as red tape and exchange rate policies have also been discussed.

Since GATT’s creation in 1947–48 there have been eight rounds of trade negotiations.

A ninth round, under the Doha Development Agenda, is now underway. At first these

focused on lowering tariffs (customs duties) on imported goods. As a result of the

negotiations, by the mid-1990s industrial countries’ tariff rates on industrial goods had

fallen steadily to less than 4% But by the 1980s, the negotiations had expanded to cover

non-tariff barriers on goods, and to the new areas such as services and intellectual

property. Opening markets can be beneficial, but it also requires adjustment. The WTO

9

agreements allow countries to introduce changes gradually, through “progressive

liberalization”. Developing countries are usually given longer to fulfill their obligations.

Predictability: through binding and transparency sometimes, promising not to raise a

trade barrier can be as important as lowering one, because the promise gives businesses a

clearer view of their future opportunities. With stability and predictability, investment is

encouraged, jobs are created and consumers can fully enjoy the benefits of competition

— choice and lower prices. The multilateral trading system is an attempt by governments

to make the business environment stable and predictable.

In the WTO, when countries agree to open their markets for goods or services, they

“bind” their commitments. For goods, these bindings amount to ceilings on customs tariff

rates. Sometimes countries tax imports at rates that are lower than the bound rates.

Frequently this is the case in developing countries. In developed countries the rates

actually charged and the bound rates tend to be the same. A country can change its

bindings, but only after negotiating with its trading partners, which could mean

compensating them for loss of trade. One of the achievements of the Uruguay Round of

multilateral trade talks was to increase the amount of trade under binding commitments.

In agriculture, 100% of products now have bound tariffs. The result of all this: a

substantially higher degree of market security for traders and investors. The system tries

to improve predictability and stability in other ways as well. One way is to discourage the

use of quotas and other measures used to set limits on quantities of imports —

administering quotas can lead to more red-tape and accusations of unfair play. Another is

to make countries’ trade rules as clear and public (“transparent”) as possible. Many WTO

agreements require governments to disclose their policies and practices publicly within

the country or by notifying the WTO. The regular surveillance of national trade policies

through the Trade Policy Review Mechanism provides a further means of encouraging

transparency both domestically and at the multilateral level.

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PROMOTING FAIR COMPETITION

The WTO is sometimes described as a “free trade” institution, but that is not entirely

accurate. The system does allow tariffs and, in limited circumstances, other forms of

protection. More accurately, it is a system of rules dedicated to open, fair and undistorted

competition. The rules on non-discrimination — MFN and national treatment — are

designed to secure fair conditions of trade. So too are those on dumping (exporting at

below cost to gain market share) and subsidies. The issues are complex, and the rules try

to establish what is fair or unfair, and how governments can respond, in particular by

charging additional import duties calculated to compensate for damage caused by unfair

trade. Many of the other WTO agreements aim to support fair competition: in agriculture,

intellectual property, services, for example. The agreement on government procurement

(a “plurilateral” agreement because it is signed by only a few WTO members) extends

competition rules to purchases by thousands of government entities in many countries.

And so on. Encouraging development and economic reform the WTO system contributes

to development. On the other hand, developing countries need flexibility in the time they

take to implement the system’s agreements. And the agreements themselves inherit the

earlier provisions of GATT that allow for special assistance and trade concessions for

developing countries. Over three quarters of WTO members are developing countries and

countries in transition to market economies. During the seven and a half years of the

Uruguay Round, over 60 of these countries implemented trade liberalization programmes

autonomously. At the same time, developing countries and transition economies were

much more active and influential in the Uruguay Round negotiations than in any previous

round, and they are even more so in the current Doha Development Agenda.

The Uruguay Round increased bindings Percentages of tariffs bound before and after the

1986–94 talks Before After

Developed countries 78 99

Developing countries 21 73

Transition economies 73 98

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(These are tariff lines, so percentages are not weighted according to trade volume or

value) At the end of the Uruguay Round, developing countries were prepared to take on

most of the obligations that are required of developed countries. But the agreements did

give them transition periods to adjust to the more unfamiliar and, perhaps, difficult WTO

provisions — particularly so for the poorest, “least-developed” countries. A ministerial

decision adopted at the end of the round says better-off countries should accelerate

implementing market access commitments on goods exported by the least-developed

countries, and it seeks increased technical assistance for them. More recently, developed

countries have started to allow duty-free and quota-free imports for almost all products

from least-developed countries. On all of this, the WTO and its members are still going

through a learning process. The current Doha Development Agenda includes developing

countries’ concerns about the difficulties they face in implementing the Uruguay Round

agreements.

12

TRIPS

INTRODUCTION

One of the most significant developments of the Uruguay Round of Trade Negotiations

(1986-94) was the inclusion of intellectual property rights (IPRs) issues on the agenda of

the multilateral trading system. The resulting Agreement on Trade-Related Intellectual

Property Rights (TRIPS) is one of three pillar agreements, setting out the legal

framework in which the World Trade Organization (WTO) has operated since the end of

the Uruguay Round. (The other two pillar agreements are the Multilateral Agreement on

Trade in Goods and the General Agreement on Trade in Services (GATS).

For the multilateral trading system, TRIPS marked the departure from narrow

negotiations on border measures such as tariffs and quotas toward the establishment of

multilateral rules for trade-affecting measures beyond borders. This move reflected

underlying trends in international commerce. Due to the growth of trade in knowledge

and information-intensive goods, the economic implications of imitation, copying, and

counterfeiting had in many industries become at least as relevant for international

commerce as conventional border restrictions to trade.

Yet the TRIPS negotiations on intellectual property were marked by significant North-

South differences. Developed countries, which host the world’s largest intellectual

property-producing industries, were the key advocates for comprehensive minimum

standards of protection and enforcement of IPRs. By contrast, many developing

countries, which see themselves mostly as a consumer of intellectual property, felt that

stronger standards of protection would serve to limit access to new technologies and

products, thereby undermining poor countries’ development prospects. Not surprisingly,

the TRIPS Agreement remains one of the most controversial agreements of the WTO.

13

This short paper seeks to provide an introduction to the main instruments used to protect

intellectual property (Section II), the key economic trade-offs of stronger IPRs (Section

III), the basic provisions of the TRIPS Agreement (Section IV), and recent TRIPS

developments affecting access to medicines in developing countries (Section V). The

paper draws heavily from Primo Braga, Fink, and Sepulveda (2000), Fink and Primo

Braga (2001), and Fink (2003). A more extensive treatment of many issues raised here

can be found in these papers, as well as in Maskus (2000) and World Bank (2001).

What are intellectual property rights?

Intellectual property broadly refers to creations which result from intellectual activity in

the industrial, scientific, literary, and artistic fields. Over the course of history, different

legal instruments for protecting intellectual property have emerged. These instruments

differ in their subject matter, extent of protection, and field of application, reflecting

society’s objective to balance the interests of creators and consumers for different types

of intellectual works. Table 1 provides an overview of the different IPRs instruments.

Patents are legal titles granting the owner the exclusive right to make commercial use of

an invention. To qualify for patent protection, inventions must be new, non-obvious, and

commercially applicable. The term of protection is usually limited to 20 years, after

which the invention moves into public domain. The patent system is one of the oldest

and most traditional forms of IPRs protection. Almost all manufacturing industries make

use of the patent system to protect inventions from being copied by competing firms.

Since the early 1980s, patents have also been granted for agricultural biotechnology

products and processes and for certain aspects of computer software.

As an adjunct to the patent system, some countries have introduced utility models (or

petty patents). The novelty criteria for utility models are less stringent and are typically

granted for small, incremental innovations. Their term of protection is far shorter than

for “regular” invention patents (typically four to seven years). Similarly, industrial

14

designs protect the ornamental features of consumer goods such as shoes or cars. To be

eligible for protection, designs must be original or new. They are generally conferred for

a period of five to fifteen years.

Trademarks are words, signs, or symbols that identify a certain product or company.

They seek to offer consumers the assurance of purchasing what they intend to purchase.

Trademarks can endure virtually indefinitely provided they remain in use. Almost all

industries use trademarks to identify their goods and services. The use of trademarks has

turned out to be of high significance in certain consumer goods industries, such as

clothing and watches. Similar to trademarks, geographical indications identify a product

(e.g., wine or olive oil) with a certain city or region.

Copyright protects original works of authorship. Copyright protection differs from patent

protection in that copyright solely protects the expression of an intellectual creation,

whereas the ideas or methods advanced in the title can be freely copied. Copyright

protection typically lasts for the life of the author plus 50 to 70 years. It is applicable to

literary, artistic, and scientific works. During the past decade, copyright protection has

also developed as the main form of protection for computer software. Rights related to

copyright—often referred to as neighboring rights—are accorded to phonogram

producers, performers, and broadcasting organizations. Limits to exclusive copyrights

and neighboring rights exist in certain “fair use” exemptions, such as educational or

library use or for purposes of criticism and scholarship.

Besides these traditional forms of IPRs, ongoing technological change and the unique

characteristics of certain industries and products have led to additional, so-called sui

generis forms of protection. Layout designs for integrated circuits protect producers of

semiconductors. Protection is limited to the design of an integrated circuit and does not

restrict reverse engineering of a semiconductor. In this regard, protection of layout

designs is similar to copyright. However, the term of protection is shorter than under

copyright—typically ten years. Title holders have the right to prevent unauthorized

reproduction, importation, sale or other distribution of the layout design for commercial

15

purposes. Exclusive rights to test data submitted to regulatory agencies have been

granted in the pharmaceutical and chemical industries. Companies that first submit these

data can prevent competing firms from using the same data to obtain own marketing

approval.

Plant breeders’ rights (PBRs) protect new plant varieties that are distinct from existing

varieties, uniform, and stable. Exclusive rights, in principle, include the sale and

distribution of the propagating materials for a minimum of 15 years. Exclusive rights are

typically subject to two general exemptions: the “research exemption,” which permits the

use of a protected variety as a basis for the development of a new variety; and the

“farmers’ privilege,” which gives farmers the right to re-use seeds obtained from their

own harvests. With the advent of biotechnology, however, many breeders in industrial

countries are increasingly using the regular patent system for protecting agricultural

products and processes. Breeders enjoying patent protection can not only prevent their

competitors from using their protected material for breeding purposes, but also prevent

farmers from reusing harvested seed.

Finally, the protection of trade secrets is part of many countries’ IPRs systems. Trade-

secret protection differs from other forms of protection in that it does not grant an explicit

title to the creator of an original work. Instead, it protects businesses from the

unauthorized disclosure or use of confidential information. Such confidential

information includes inventions not yet at the patenting stage, ways of organizing

business, client lists, purchasing specifications, and so on. In agriculture, breeders rely

on trade secrets to protect hybrid plant varieties, if they can be kept secret. Copying

through reverse-engineering does not infringe trade-secret laws. In essence, all industries

possessing secret business information rely on trade-secret protection to safeguard their

intangible assets.

These legal instruments are just one of the pieces that form a national system of

intellectual property protection. Also crucial to the system’s overall effectiveness are the

16

institutions administering these instruments, the mechanisms available for enforcing

IPRs, and the rules regarding the treatment of non-nationals.

The administration of IPRs is most significant in the area of patents, industrial designs,

trademarks, and plant breeders’ rights. To obtain protection for these types of intellectual

property, applicants have to submit their intellectual creations to a national IPRs office,

which examines their eligibility for protection. Copyright and neighboring rights

protection typically applies automatically upon creation of the intellectual work, although

for evidentiary purposes authors may choose to register their works at copyright offices.

The enforcement of intellectual property rights relies on a country’s judicial system.

Title holders fight infringement of their exclusive rights in front of courts. To

immediately stop infringing activities, they can request seizures or preliminary

injunctions. If the claim of infringement is verified by trial, courts can demand the

payment of punitive charges to the infringed title holder (or secret holder in the case of

trade secrets).

IPRs are created by national laws and therefore apply at the level of each jurisdiction,

independent of such rights granted elsewhere. Accordingly, nations must reach

accommodation as their residents seek protection for their intellectual works abroad.

Numerous international treaties to promote cooperation among states in the protection of

intellectual property have been negotiated over the last 100 years (see Table 1). These

treaties are administered by a specialized agency of the United Nations—the World

Intellectual Property Organization (WIPO). They typically require their signatories to

follow national treatment in the protection of IPRs (equal treatment of nationals and non-

nationals) and facilitate the registration of intellectual property titles in foreign

jurisdictions. But for the most part they do not promote harmonized standards of

protection.

17

Literature Review

US-China intellectual property dispute—A comment on the interpretation of the

TRIPS enforcement provisions,

Watal Jayashree, the Journal of World Intellectual Property, 13 (5) (2010) 605-619.

This article focuses on the significance of the US China intellectual property panel report

in terms of the light it shed on the interpretation of certain provisions on domestic

enforcement contained in part III of the Agreement on Trade-Related Aspects of

Intellectual Property Rights (TRIPS). The panel made several important observations in

respect of certain TRIPS domestic enforcement provisions either reinforcing views

previously held, adding further meaning or shedding new light on these provisions,

explaining its reasoning, and including, on several occasions, an examination of the

negotiating history of TRIPS. This article picks out certain key points of interpretation by

way of illustrating the significant contribution made by the panel to TRIPS jurisprudence.

Intellectual property:

Starkey Louise, Corbett Susan, Bondy Ann and Davidson Susan, International

Journal of Technology and Design Education, 20 (3) (2010) 333-344.

As society changes from an industrial to a knowledge era, increasing importance and

value is being placed on intellectual property rights. Technology teachers need to have

pedagogical content knowledge of intellectual property if they are to incorporate it into

their learning programmes to enable students to consider how to respect others’

intellectual property rights, how to protect their own ideas and how they can legitimately

make use of others’ intellectual property. A survey of technology teachers and a small

sample of students was undertaken to ascertain their knowledge of intellectual property

and any misconceptions which may exist. The findings reflect an awareness of relevant

concepts but confusion between key terms such as patent, copyright and registered

design.

18

Patent reform in the US: What's at stake for Pharmaceutical Innovation? Yancey Amy and Stewart Charles Neal Jr, Expert Opinion on Therapeutic Patents, 20

(5) (2010) 603-608.

The current patent landscape in the US has not undergone major legislative reform since

1952. The US Senate version of the most recently proposed patent reform legislation puts

forward a number of rule changes that could impact the pharmaceutical industry. Among

the bill’s major provisions are moving to a first-to-file system, changes to post-grant

review and reexamination procedures, and damages reform. Various industries with a

stake in patent reform have responded to the proposed changes. The need for balanced

reform makes the stakes particularly high for the pharmaceutical industry which must

invest a significant amount of time and money in the research and development process

in exchange for already abbreviated patent lifetimes due

to the lengthy clinical trial process.

Are patents with multiple inventors from different countries a good indicator of

international R&D collaboration?

The case of ABB, Anna Bergek and Maria Bruzelius, Research Policy, 39 (10) (2010),

1321-1334.

Based on the critical case of ABB, this paper questions the relevance of using patents

with multiple inventors from different countries (‘cross-country patents’) as an indicator

of international R&D collaboration. The study shows that less than half of ABB's cross-

country patents are the result of international R&D collaboration as described by one

of the more inclusive definitions found in previous literature. Only a third of the patents

are the result of joint R&D activities between different MNC subsidiaries or firms. The

implications of the study for the assignment of patents to countries based on inventor

addresses are also discussed.

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The economics of intellectual property protection

Why do governments extend legal protection to intellectual property? One can broadly

classify the various forms of IPRs into two categories: IPRs that stimulate inventive and

creative activities (patents, utility models, industrial designs, copyright, plant breeders’

rights and layout designs for integrated circuits) and IPRs that offer information to

consumers (trademarks and geographical indications). IPRs in both categories seek to

address certain failures of private markets to provide for an efficient allocation of

resources.

20

21

Standards Concerning the Availability, Scope and Use of Intellectual

Property Rights

1. PATENTS, COPYRIGHT AND RELATED RIGHTS

IPRs in the first category resolve inefficiencies in markets for information and

knowledge. As opposed to, say, an automobile, information and knowledge can be

copied easily once it has been put on the market. This characteristic is inherent in what

economists refer to as ‘public goods’. As the name suggests, public goods are usually not

provided by private markets. Profit-oriented firms have little incentive to invest in the

production of public goods, as third parties can free ride on the good once it is first

produced. In the specific case of information and knowledge, if creators of intellectual

works cannot protect themselves against imitation and copying, they do not have an

incentive to engage in inventive or creative activities, as they cannot recoup any

expenditure incurred in the process of creating new information and knowledge.

Patents and copyrights offer a solution around this dilemma, as they prevent free-riding

on intellectual assets by third parties and thereby create an incentive to invest in research

and development (R&D) and related activities. Because the fruits of inventive and

creative activities—in the form of new technologies and new products—push the

productivity frontiers of firms in an economy, patents and related instruments are often

seen as important policy tools to promote economic growth.

At the same time, IPRs in this first category are considered as only “second best”

instruments of economic policy. This is because the exclusive rights of patents and

copyrights confer market power in the supply of the protected good to the title holder,

which poses a cost to society in that firms can charge prices above marginal production

costs. In theory, governments can adjust the length and breadth of protection such as to

maximize the net benefit that accrues to society from new knowledge and literary and

artistic creations, while taking into account the distortion that arises from imperfectly

competitive markets. In practice, such a welfare maximization exercise is complicated by

22

the fact that the societal value of new intellectual creations is typically not known in

advance and different sectors may require different levels of protection. Actual patent

and copyright regimes are typically the outcome of history, rules of thumb, and the

influence of vested interests.

Even though patents and copyright are only considered second-best, policymakers see

these instruments as superior to government-funded research and artistic creation, as

decisions about inventive and creative activities are decentralized and market driven.

Government bureaucrats are only imperfectly informed about society’s technology needs,

whereas such information is conveyed by market signals. Notwithstanding these

considerations, the public sector in middle and high income countries does finance and

conduct R&D in areas ignored or neglected by private markets. In particular, this is the

case for basic scientific research and areas of technology to which societies attach special

importance despite the lack of private demand (for example, aerospace, defense, or

neglected diseases).

Patents and copyrights also impact on the diffusion of new knowledge and information.

On the one hand, patent and copyright protection has a negative effect on diffusion to the

extent that third parties are prevented from using proprietary knowledge. For example,

some commentators argue that companies with strong intellectual property portfolios in

the electronics and biotechnology industry may stifle follow-on research, as competing

innovators cannot—or only at a high cost—access key technologies and fundamental

research tools.

At the same time, IPRs can play a positive role in diffusion. Patents are granted in

exchange for the publication of the patent claim. In return for temporary exclusive rights,

inventors have an incentive to disclose knowledge to the public that might otherwise

remain secret. Although other agents may not directly copy the original claim until the

patent expires, they can use the information in the patent to further develop innovations

and to apply for patents on their own. Moreover, an IPRs title defines a legal tool on

which the trade and licensing of a technology can be based. Protection can facilitate

23

technology disclosure in anticipation of outsourcing, licensing, and joint-venture

arrangements. The IPRs system can thus reduce transaction costs and help create markets

for information and knowledge.

Governments and academics have long thought to assess how effective the patent system

really is in promoting industrial innovation and technology diffusion. In 1958, an

economist named Fritz Machlup conducted an investigation on behalf of the United

States Congress into the functioning of America’s patent system and concluded:

“If we did not have a patent system, it would be irresponsible, on the basis of our

present knowledge of its economic consequences, to recommend instituting one.

But since we have had a patent system for a long time, it would be irresponsible,

on the basis of our present knowledge, to recommend abolishing it.”

The effectiveness of the patent system remains a controversial topic to date. Few

academics would disagree that the patent system has been a stimulus to innovation over

the past decade. At the same time, few academics would say with confidence that

today’s patent system strikes the optimum balance between innovation incentives and

competitive access to new products and technologies.

2. TRADEMARKS AND GEOGRAPHIC INDICATIONS

Trademarks and geographic indications resolve inefficiencies that result from a mismatch

of information between buyers and sellers on certain attributes of goods and services.

Nobel prize-winning economist George Akerl of first pointed out that markets may fail

when consumers have less information about the quality of goods than producers.

Uncertainty about quality will make consumers reluctant to pay for high quality goods,

eroding incentives for companies to invest in quality. Trademarks can help reduce—

though not completely eliminate—this uncertainty. They identify a product with its

producer and his reputation for quality, generated through repeat purchases and word of

mouth. Trademarks thus create an incentive for firms to invest in maintaining and

24

improving the quality of their products. Trademarks can be considered as first-best tools

of economic policy, in the sense that they do not confer any direct market power and can

co-exist with competitive markets. The presence of a trademark does not restrict

imitation or copying of protected goods as long as they are sold under a different brand

name.

Advertising-intensive consumer products, or so called status goods, constitute a special

group within products bearing trademarks. For these types of goods, the mere use or

display of a particular branded product confers prestige on their owners, apart from any

utility derived from their function and physical characteristic. Since in this case the

brand name plays a central role in firms’ product differentiation strategies, it is no

surprise to find that owners of well-known brands often register up to 40 or more

different trademarks to deter competing firms from entering their ‘brand space.’ Market

research reports regularly put the value of well-known brands at billions of dollars. For

instance, the Mercedes brand is estimated to be worth about 22 billion dollars. Status

value is also associated with certain agricultural products protected by geographic

indications, such as sparkling wine from the French Champagne region or ham from the

Italian city of Parma.

In the case of status goods, brands can confer substantial market power to producers. In

contrast to patents and copyrights, however, market power is not created by trademark

ownership per se, but rather by heavy investments in marketing and sales promotion. In

addition, firms with valuable brands may not necessarily generate ‘supernormal’ profits.

Even though prices may be above marginal production costs, firms have to bear the costs

of fixed market investments. Typically, the resulting market structure for many status

goods industries can be characterized as monopolistically competitive: firms have a

monopoly within their brand space, but have to compete with the brands of close

substitute products.

The welfare consequences of status value associated with certain goods are complex and

few generalizations can be made. For example, status value may stem from exclusive

25

consumption, or, in other words, from the fact that only a selected group of consumers

enjoys them. This interdependency between consumers inside and outside the exclusive

group suggests that firms’ marketing activities can make some consumers better off and

others worse off (Grossman and Shapiro, 1988).

3. INDUSTRIAL DESIGN

The Australian Design Act grants protection to the visual appearance or design of a

manufactured article, if it is new or original. In this context, design refers to the

ornamental aspect of an article that is produced in quantity. This ornamental aspect may

be constituted by elements that are three-dimensional (the shape of the article) or two-

dimensional (lines, designs, colours) but must not be dictated solely or essentially by

technical or functional considerations. Protection of an industrial design means that third

parties not having the consent of the owner may not make, sell, or import articles bearing

or embodying a design that is a copy, or substantially a copy, of the protected design,

when such acts are undertaken for commercial purposes. The purpose of design

protection is to provide an economic incentive for improving the visual appearance of

manufactured products.

Protection is based on a system of registrations and can last for up to 16 years.

Applications for registration must be accompanied by photographs and other graphics if

necessary, and describe the product on which the design is applied. Approval for

registration depends on satisfying the criteria of novelty or originality (but not necessarily

both).

Novelty means that the same or very similar design must be not known or previously

registered in Australia.

Originality means that the design has never been applied to the particular product

specified in the claim, although it may have been applied to another type of product.

26

The protection is only for the appearance of the article and not how it works. As for

patents, detailed examination guidelines are based partly on common law (that is,

previous decisions by the courts). In the absence of relevant legal precedents, the

guidelines are determined by the Registrar of Designs. Design protection excludes non-

visible internal parts, but does not exclude visible spare parts such as exterior panels,

bumpers or wheel trims. Removing the design protection on currently protected spare

parts was recommended in the IC (1995) report on vehicle and recreational marine craft

repair. The BIE (1995) report noted that there is a degree of uncertainty about the

protection provided to spare parts by the current legislation. Design registration is

intended to protect designs that are applied industrially, rather than a single artistic work,

where copyright protection would automatically apply. When artistic work can be applied

on or to commercial articles, protection under both the Copyright Act or the Design Act

may be available (AGD 1997). However, the Copyright Act will not provide protection to

a design that, when applied to an article, results in a reproduction in three-dimensions of

that design (so called ‘corresponding design’). In most cases where dual protection is

available, registered design provides a stronger legal protection than copyright, by virtue

of having satisfied for registration the screening criteria regarding novelty or originality.

4. PATENTS

A patent confers the right to secure the enforcement power of the State to exclude

unauthorized persons from making commercial use of a clearly identified, novel and

useful invention. This protection enables patentees to stop others from manufacturing,

using or selling the invention without their consent. The Australian system of granting

patents to inventors is based upon British law, which can be traced back to the English

Statute of Monopolies of 1624. In fact, the granting of monopoly rights in exchange for

new technologies started in England in the 14th century, initially for the purpose of

attracting skilled craftsmen from abroad. Knowledge of the flourishing patent systems in

Venice and Antwerp led England to adopt the practice of patents for inventions in the

16th century (David 1993; AIPO 1993).

27

The granting of monopoly rights appeared an attractive option to rulers in the

Renaissance period for importing new crafts and skills and for stimulating new

inventions, at the time that scarce public revenue was used mainly to finance the military

and the elite. Whether this ancient instrument is well suited to foster innovation in

modern times is a subject that is taken up in chapter 3. The fact that early patents were

used mainly to attract technology transfer from abroad highlights the fact that from the

very start, the patent system had a strong international dimension, a subject that is the

main focus of attention in this paper.

Under the Australian Patent Act, a patented invention must satisfy a number of criteria.

It must be a clearly defined product or process, rather than just an idea or

concept.

The invention must be novel. The Australian patent law requires universal test

of novelty, that is, the invention must be novel compared with previous patents

filed in other countries and not just in Australia.

The criterion of obviousness is applied to test the inventiveness of the patent. If

the solution to the problem answered by the patent is deemed to be obvious to

technical experts in the field, then the invention is not patentable.

The invention must be useful for what it purports to do. Only inventions are

patentable — scientific discoveries and works of art are not patentable.

The patent application must present a clear description of the invention.

Patent examination is to a large extent a bibliographic search of prior art, using patent

disclosures and the technical literature, to assess novelty and no obviousness. The

examination does not involve testing whether the invention works the way the inventor

claims it does. That issue would be examined during litigation about alleged patent

infringements. The examination of novelty and inventiveness is carried out using

technology-specific public guidelines based partly on common law (that is, previous

28

decisions by the courts). In the absence of relevant legal precedents, the guidelines are

determined by the Commissioner of Patents. Currently the maximum duration of patent

protection is 20 years. Patents are subject to annual renewal fees starting from the third

anniversary. If the invention is not commercially successful, the patentee can terminate

protection any time after three years by not paying the renewal fee.

A standard application must provide a complete description defining the invention,

including the principles and methods used by the inventor to carry out the invention. The

original element(s) in the invention represent the claim(s). The date of application for the

patent is used as the priority date of the claim. Put simply, the priority date of a claim is

the date on which the novelty of the claim in assessed by the Patent Office (currently a

division of IP Australia). It is the date on which patent protection comes into effect if the

application is accepted.

It is possible to establish an earlier priority date by filing a provisional application, which

describes the nature of the invention in broad terms. The date of the provisional

application will be accepted as the priority date, provided a standard application with full

specifications is filed within 12 months after the provisional application.

The Patent Office publishes all complete applications for standard patents 18 months

after the priority date, which means that the patent application becomes open for public

inspection. The public is informed about the new application through a notification in the

Official Journal of the Patent Offic1e .The crucial point to note from an economic

perspective is that patents are granted in exchange for the public disclosure of

information by the patentee about the nature and working of the invention. Australia has

a two-tiered system of standard and petty patents. The term of a petty patent is 6 years —

less than a third that for standard patents. Petty patents are restricted to a single claim

whereas standard patents can combine a number of claims. The processing of petty patent

applications is usually much quicker than for standard patents. Although the inventive

threshold for petty patents is determined against the base of domestically registered prior

art, it is broadly equivalent to the inventive height of the standard patent, since prior art

registered in Australia parallels the international prior art (BIE 1995). Given similar

29

screening criteria and much shorter length of protection, petty patents are not much used

in Australia. Some reform options currently under consideration by the Government are

reviewed later.

The Australian patent law resembles not only the British patent law on which it is

founded, but also the patent laws in most other developed countries. While strictly

speaking the Paris Convention and TRIPS do not require harmonisation of patent

legislation, the similarity in broad patenting concepts across countries has been partly

driven by international contacts and partly by the universal nature of technology.

PATENTS AND TRIPS

The introduction of TRIPS has made a significant contribution to patent law

harmonization, by setting the standard patent terms to at least 20 years. TRIPS also

require all products and processes to be patentable (including pharmaceuticals, food and

agricultural chemicals). Exceptions include medical and surgical methods and inventions

that can be dangerous to life and therefore should be prohibited from commercial

exploitation. The most significant exception to patentability is new life forms above the

micro-organism level.

By and large, TRIPS does not deal with procedural details, but an unusual operational

clause requires that in the context of civil litigation, the reversal of the burden of proof

should be available under certain circumstances. For example, it should be upon the

defendant to prove that the process to obtain a chemical product is different from the

patented process. This clause was included in recognition of difficulties experienced in

many places in prosecuting infringements against process patents, given that

manufacturing processes are usually not observable by outsiders. Apart from extending

patent terms and standardizing the coverage of patentable subject matter, TRIPS also sets

new guidelines in respect to compulsory licensing and government use without

authorization. While these measures are still allowed, TRIPS tightens the respective

provisions in the Paris Convention by requiring adequate remuneration be paid according

30

to the circumstances of each case, taking into account the economic value of the license.

Moreover, the decision about compulsory licensing should be subject to judicial or other

independent review by a distinct higher authority. Australia could not be a member of the

WTO without agreeing to TRIPS. Some amendments had to be made to the Australian

patent law in order to bring it into conformity with TRIPS. These amendments were

included in the Patent (World Trade Organization Amendment) Act 1994.

The standard patent term was increased from 16 to 20 years.

Pharmaceuticals were already protected for up to 20 years, in recognition of

the long time lags involved in obtaining approval from drug safety authorities.

In certain infringement proceedings, it is upon defendants to prove that their

product was obtained by a process other than the patented process.

The conditions for compulsory licensing have been tightened in line with the

requirements of TRIPS.

The extension of the standard patent term from 16 to 20 years was a significant change in

economic terms. Its economic impact on Australia has been analyzed by Gruen, Bruce

and Prior (1996).

5. LAYOUT DESIGN OF INTREGATED CIRCUITS

A new form of IPR protection is represented by the legislation protecting the layout

design (topographies) of integrated circuits (commonly known as semiconductor chips).

Integrated circuit layouts are usually highly complex and may be of considerable value.

An integrated circuit made by photolithographic or similar electrochemical techniques,

using masks based on visible layout designs, is the key for all kinds of electronic devices,

ranging from heart pacemakers to personal computers.

31

Circuit layout rights automatically protect original layout designs for integrated circuits

and computer chips. While these rights are based on copyright law, they are a separate,

unique form of protection. Like the plant variety rights discussed earlier, this legislation

provides a specially designed (sui generis) form of IPR protection for the layout design

and the chips manufactured from it. As with copyrights, there is no requirement for

registration. The owner has the exclusive right to duplicate the layout design,

manufacture integrated circuits from it and/or exploit it commercially in Australia.

The need to provide special protection to integrated circuit layouts has arisen partly from

the availability of new ‘peeling-off’ reverse engineering techniques that can be used to

reveal layer-by-layer the circuit layout(s) used to produce the chip. The original ‘sui

generis’ legislation in this field was introduced in the United States in 1984. In 1989, an

international treaty was formulated under the auspices of the WIPO — the Washington

Treaty in Respect to Integrated Circuits. The Washington Treaty never actually entered

into force, because the minimum number of five countries did not ratify it or accede to it.

Nevertheless, the Washington Treaty has been incorporated by reference in the

TRIPS agreement subject to the following modifications: the term of protection is

10 years rather than eight years and the exclusive rights also extend to articles

incorporating integrated circuits based on the protected layout design.

The Australian Circuit Layout Act (1989) is based largely on the Washington Treaty.

Under the Australian Act, rights in an original layout subsist for 10 years from the first

commercial exploitation, provided this occurs within 10 years from the creation of the

layout. The accession to TRIPS did not require modifications to the circuit layout

legislation that was already in force.

6. PROTECTION OF UNDISCLOSED INFORMATION

One of the novel features of TRIPS compared with earlier international IPR agreements

is the explicit requirement to protect undisclosed information. This protection must apply

to information that is secret that has commercial value because it is secret and has been

32

subject to reasonable steps to keep it secret. In broad terms, a trade secret (a term not

used in the TRIPS agreement) can be characterized as any technological, marketing or

other business information that is controlled as a secret, and that provides a competitive

advantage to its owner. In technical fields, a large proportion of secretive undisclosed

information is in the form of unmodified know-how. As discussed in section 3.3, in many

industries keeping new knowledge and know-how secret is a more effective way to reap

commercial benefits from inventions than by taking out patent protection

Countries protect trade secrets in different ways: as legal property (United States); under

contract law (Switzerland); or in the context of ethical business practices (France,

Germany). In Australia, confidential information disclosed by one person to another may

be protected legally through contract, or by the equitable action known as ‘breach of

confidence’. This protection is based on common law, that is, judgment dictated by legal

precedents. Needless to say, there are inherent difficulties in proving the unethical

disclosure of confidential information, which is usually carried out in unrecorded

personal conversations. Moreover, some widely used techniques for acquiring

undisclosed information, such as the hiring of a person possessing secret

knowledge/know-how, are difficult to prevent legally in a democratic society.

Despite the availability of some protection for confidential information in most

developed countries, this item did not enter explicitly into WIPO agreements. Its

incorporation into TRIPS has led to heated debates, with developing countries opposing

the treatment of trade secrets as an IPR. This opposition relied in part on the argument

that disclosure is a necessary counterpart of the social bargain associated with the

granting of IPR protection. Moreover, it is difficult to protect legally something that has a

secret content (Primo Braga 1995).

The approach adopted in TRIPS was to identify undisclosed information as something to

be protected (not necessarily as a property) and to link its protection to practices against

unfair competition identified in the Paris Convention. No exclusive rights are given to the

holder of the trade secret by TRIPS. Confidential information that is voluntarily revealed,

33

insufficiently guarded or has been reverse-engineered loses all protection. Only the

acquisition of confidential information in a manner contrary to honest commercial

practices can lead to action against the infringer. TRIPS also requires that test data

submitted to public agencies for the purpose of drug and chemical tests should be treated

as confidential information.

The common law coverage in Australia of confidential information, while representing a

rather weak form of protection, is sufficient to satisfy the requirement of TRIPS to

provide some (unspecified) legal protection for secretive information and know-how. The

government has introduced specific forms of protection for test data, essentially for

reasons of domestic policy but also to eliminate any doubt about our compliance with

TRIPS. In some developing countries, legal protection of confidential technical and

commercial information did not exist in the past.

34

THE TRIPS AGREEMENT

The TRIPS Agreement is a multilateral WTO agreement and, as such, applicable to all

147 members of the WTO. It is also binding for every country that accedes to the WTO.

The Agreement’s general obligations require countries to apply the principles of national

treatment (same treatment of foreign title holders and domestic title holders) and most

favored nation treatment (same treatment of foreign title holders regardless of their

country of origin).

Unlike most other international agreements on intellectual property, TRIPS sets

minimum standards of protection with respect to all forms of intellectual property:

copyright, trademarks and service marks, geographical indications, industrial designs,

patents, layout designs of integrated circuits, and trade secrets. In respect of each of these

areas of intellectual property, the Agreement defines the main elements of protection,

namely, the subject-matter to be protected, the rights to be conferred, and permissible

exception to those rights.

For the first time in an international agreement on intellectual property, TRIPS addresses

the enforcement of IPRs by establishing basic measures designed to ensure that legal

remedies will be available to title holders to defend their rights. The approach taken by

the Agreement is to set general standards on, among other things, enforcement

procedures, the treatment of evidence, injunctive relief, damages, and provisional and

border measures.

In principle, the provisions of TRIPS became applicable to all signatories by the

beginning of 1996 and are binding to each WTO member. However, developing

countries and economies in transition were entitled to a four-year transition period except

for obligations pertaining to national and MFN treatment. Developing countries were

also entitled to an additional five-year transitional period for product patents in fields of

technology that were not protected at the date of application of the Agreement. For

pharmaceuticals and agricultural chemicals, however, developing countries have had to

35

accept applications for product patents and grant exclusive marketing rights for five years

or until the patent is granted or rejected, whichever is shorter. Least-developed countries

were entitled to a 10-year transitional period to comply with the obligations of the

Agreement (again, except for national and MFN treatment), which can be extended upon

request.

Many developing countries (e.g., Mexico, South Korea) strengthened their intellectual

property regimes before the coming into force of the TRIPS Agreement, such that no or

only few adjustments were necessary to comply with its provisions. For others (e.g.,

Brazil, India) certain changes to intellectual property laws have been made since 1996, as

these countries have faced the end of the transition periods outlined above.

TRIPS has made disputes between WTO members with respect to the Agreement’s

obligations subject to the WTO’s integrated dispute settlement procedures. WTO

disputes are always state-to-state disputes. In other words, disputes are not about

individual IPRs infringement cases, but are about disagreements between governments on

whether a country’s laws and regulations meet the TRIPS requirements. In case a WTO

member is found to violate its obligations, complaining governments obtain the right to

impose trade sanctions in the form of punitive tariffs. Since 1996, there have indeed been

more than 20 TRIPS-related disputes between WTO members. Interestingly, only a

minority share of these disputes involved a defendant from a developing country. Most

disputes are between developed country members, specifically between the United States

and countries of the European Union.

Finally, negotiations during the Uruguay Round left several issues unresolved. For

example, the Agreement calls for the establishment of a multilateral system of

notification and registration of geographical indications for wines and spirits. Moreover,

some members would like to see the higher level of protection for geographic indications

currently granted to wines and spirits applied to other products as well. Little progress

has been made on both these issues, however. This reflects to a large degree divisions

between the European Communities, the trading block that hosts the largest number of

36

geographical indications, and so-called new world producers (e.g., Argentina, Australia,

Chile, the United States), which prefer relatively weaker levels of protection. During the

TRIPS negotiations, this focused mostly on wines and spirits, most developing countries

showed little interest in establishing strong provisions on geographical indications. Since

then, a few developing countries (e.g., Bulgaria, Hungary, Sri Lanka) have taken a more

pro-active stance, supporting the demands of the European Union.

A second area of unresolved rule-making concerns the patentability of biotechnology

inventions. Currently, TRIPS foresees patent protection for microorganisms and non-

biological and microbiological processes, but allows for the exclusion of patent coverage

for plants and animals as well as essentially biological processes for the production of

plants and animals. The Agreement calls for a review of these provisions. Moreover,

some WTO members have linked discussions in this area to clarifying the relationship

between TRIPS and the Convention on Biodiversity, as well as to establishing disciplines

on the protection of traditional knowledge and folklore. However, little progress has

been made on any of these issues.

Economic benefits and costs of TRIPS

As mentioned at the outset, the signing of TRIPS has generated much controversy about

its economic implications for developing countries. Proponents of the Agreement have

argued that stronger IPRs will stimulate creative industries in developing countries and

promote foreign direct investment, with an overall positive development outcome.

Opponents of TRIPS have claimed that the Agreement will forestall developing

countries’ access to new technologies, lead to higher prices and rent transfers from poor

to rich countries, and impose high implementation costs in resource-constrained

environments. As always, the truth lies somewhere in between these two polar views.

Developing countries indeed host inventive and creative industries that stand to benefit

from stronger IPRs. However, these industries can mostly be found in middle income

countries, rather than low income countries. The empirical evidence discussed above on

37

the link between FDI and IPRs, suggests that the mere strengthening of an intellectual

property regime is unlikely to result in a dramatic increase in inflows of foreign

investment. At the same time, past reform experiences suggest that stronger IPRs can

positively impact on domestic enterprise development and foreign investment, if they are

complemented by improvements in other aspects of the investment climate. By signaling

a country’s commitment to internationally binding rules, TRIPS can make a positive

contribution in this regard—though it is difficult to assess the quantitative importance of

this contribution.

Turning to the costs of TRIPS, it is first important to point out that the Agreement did not

require to extend IPRs protection to products and technologies already invented.

Information and knowledge that were in the public domain at the time the Agreement

came into force will continue to be in the public domain. The implementation of the

Agreement will therefore not lead to actual prices rises of existing products and related

rent transfers, because IPRs protection will only apply to new products and technologies

entering the market. Still, as the market share of newly protected products and

technologies increases over time, prices above marginal production costs and associated

rent transfer are a cause for concern—especially in the case of pharmaceutical products,

as will be further explained in the next section.

As for the implementation of the Agreement, a number of commentators have argued that

TRIPS poses significant institutional and financial challenges for developing countries.

For example, based on figures from World Bank assistance projects, Finger and Schuler

(1999) put the cost of upgrading intellectual property laws and enforcement in Mexico at

$30 million. For many resource constrained governments in poor countries,

implementation costs of this magnitude would likely impose a significant burden on

public sector budgets and draw away resources available for other development priorities.

At the same time, it can be questioned whether the $30 million figure from Mexico is a

realistic estimate of TRIPS-related implementation costs. The underlying World Bank

project in Mexico was not aimed at implementing the TRIPS Agreement (the project was

38

completed before the coming into force of TRIPS) and mostly consisted of activities not

directly mandate by TRIPS, such as staff training, computerization of the patent and

trademark office, and the creation of a specialized intellectual property court. Indeed, it

is important to point out that the institutional obligations of TRIPS accommodate the

weaker institutional capacities of developing countries. For example, while TRIPS does

set certain principles on rights enforcement, it does not require members to make

available more resources to the enforcement of IPRs than the enforcement of law in

general. Similarly, in the area of rights administration, TRIPS only requires that IPRs are

administered such as to avoid “unwarranted delays” in the grant or registration of an IPR.

More burdensome institutional obligations are more likely to emerge from other sources.

The United States has in recent years negotiated bilateral free trade agreements (FTAs)

with a number of developing countries that include intellectual property obligations

beyond what is required under TRIPS. In particular, these FTA’s require governments to

put in place more stringent measures for the enforcement of IPR’s and remove some of

the institutional flexibility embedded in TRIPS. Similar obligations may be placed on

countries that are currently negotiating accession to the WTO (e.g., Ukraine and Russia).

Even though TRIPS is the primary WTO benchmark on IPR’s, existing members of the

WTO have demanded in the past so-called WTO-plus commitments as a condition of

entry into the WTO. These WTO-plus commitments can take the form of additional

obligations on IPR’s enforcement.

39

Enforcement of Industrial Property Rights, Copyright and Related

Rights

GENERAL

Accessible, sufficient and adequately funded arrangements for the protection of rights are

crucial in any worthwhile intellectual property system. There is no point in establishing a

detailed and comprehensive system for protecting intellectual property rights and

disseminating information concerning them, if it is not possible for the right-owners to

enforce their rights effectively in a world where expanding technologies have facilitated

infringement of protected rights to a hitherto unprecedented extent. They must be able to

take action against infringers in order to prevent further infringement and recover the

losses incurred from any actual infringement. They must also be able to call on the state

authorities to deal with counterfeits.

All intellectual property systems need to be underpinned by a strong judicial system for

dealing with both civil and criminal offenses, staffed by an adequate number of judges

with suitable background and experience. Intellectual property disputes are in the main

matters to be decided under civil law and the judicial system should make every effort to

deal with them not only fairly but also expeditiously. Without a proper system for both

enforcing rights and also enabling the grant of rights to others to be resisted, an

intellectual property system will have no value. Avoiding Litigation

A competitor whose operations are obstructed by earlier rights will usually seek to avoid

or overcome the problem in a legitimate way, e.g. by inventing around the protected area

in the case of an earlier patent. Another approach is to seek a license or to negotiate some

other agreement in a friendly way. In coming to agreements with competitors, of course,

companies must be careful not to contravene competition policy rules aimed at avoiding

distortion of competition. This normally means that the terms of any license must not

contain anti-competitive or unreasonable provisions.

40

A company affected by another’s right will carefully assess what its scope is and whether

or not it is valid. This highlights a point of particular importance to the owners of patents,

namely that claims must be well drafted and properly supported by the disclosure of the

invention. They must clearly distinguish the protected subject matter from the prior art

and must be neither over covetous nor too modest. A well drafted patent will often be

enough in itself to deter potential infringers. Similar arguments can apply to other rights

such as trademarks and designs.

It is up to a right-owner to act as his own policeman. He must keep an eye on the

industrial and commercial markets in which he sells his products, or provides his

services, or in which his processes might be used. He must keep abreast of his

competitor’s activities. If he becomes aware of an apparent infringement he should not

necessarily assume that the infringement is deliberate (though if the infringing item is an

exact copy or counterfeit, infringement will almost certainly have been deliberate). He

should first contact the competitor to point out the existence of his right. Laws in a

number of countries concerning patents, designs and trademarks, provide that a right

owner may not make groundless threats against competitors or their distributors, for

example threatening a court action when there is no ground for alleging infringement or

when the right relied upon has expired, but he can send a simple letter drawing attention

to the right so that the infringer cannot subsequently argue ignorance.

Negotiation is an important aspect of protecting and enforcing rights. In negotiation, an

infringer might well be persuaded to change what he is doing. During the attempts to

negotiate, the supposed infringer may claim that he is not infringing; or he may allege

that the right is of little value and does not justify significant royalties; or he may argue

against the proposed license terms. It may well be worth suggesting that the services of a

mediator be used or that the issue should be decided by arbitration. Of course, both sides

need to agree to accept an arbitrator’s decision and a contract to that effect may be

needed.

41

Enforcement of Industrial Property Rights in General

Action Before an Industrial Property Office

Industrial property offices frequently have quasi-judicial functions in the administration

of industrial property systems, and provide a forum for procedures for contesting rights

under consideration or granted by the office. Those procedures are often referred to as

opposition procedures.

The expression “opposition” may be construed widely, as referring to all possibilities

open to third parties to intervene before the industrial property office both in proceedings

leading to the grant of a right and in proceedings for contesting the grant after it has

occurred. The possibilities for opposition arise particularly in relation to registrable rights

such as patents and trademarks, because the registration can be disputed. The possibility

of opposition rarely arises in relation to copyright and related rights, since these rights in

the great majority of jurisdictions arise automatically on the creation of the protected

work.

Why do States provide for opposition? With even the most rigorous examination system,

the State cannot guarantee that the rights which it grants are valid — there is always the

possibility that a prior right has been overlooked or a specification misunderstood. Many

systems are not particularly rigorous, which makes it all the more likely that rights might

be granted in conflict with earlier rights. Thus the owners of earlier rights must be able to

object at some stage. This could of course be before a court. However, in everyone’s

interests, opposition should be a relatively straightforward, speedy and inexpensive

matter, handled as early as possible in the life of the right. Thus many systems provide

that opposition can be considered by the national industrial property office acting in a

quasi-judicial role, as well as by courts. Pre-grant opposition is invariably before the

office.

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The first opportunity that others, for example competitor enterprises producing goods of

the same character as those covered by the patent application, have to become aware than

a patent which could affect their business is being applied for, is at the first publication

stage, 18 months after the priority date. Enterprises, particularly those which own patents,

should keep their eye on the activities of competitors and what is happening in the

marketplace, and in particular on patent applications made in their areas of interest, for

instance by scrutinizing patent office journals and published applications. Not only is it

important to know if competitors are seeking to protect developments which come within

the scope of one’s own patents, but it is also important to be warned if they are seeking to

protect known technology or technology patented by others. One can also learn from the

search report, published with the application, of the prior art which will be considered at

the examination stage.

Some systems allow for formal opposition before the grant of the patent or an opportunity

for third parties to become a party in arguments about whether or not the patent should or

should not be granted. The problem with such pre-grant opposition is that there is often

very considerable delay in achieving a grant. Delay means that a patentee who needs a

granted patent in order to pursue an infringement could not settle an action against the

infringer quickly.

It can be important to bring post-grant opposition proceedings in good time. If too long a

delay occurs, the user of the later patent might argue that the owner of the earlier one has

acquiesced in the grant of the later one and as a result should not be allowed to take

action. This might make it difficult to enforce the earlier patent against products or

processes covered by the later one.

In some countries, such as the United States, there is no provision for opposition.

However, third parties concerned about a granted patent can ask for it to be re-examined

by the patent office. Such parties do not become direct parties to the procedure, but may

draw prior art, which may have been overlooked in the first examination, to the attention

of the examiner. Reexamination may result in refusal or in a more tightly drafted patent.

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In many countries there is no provision at all for opposition because the industrial

property office lacks the expertise. This can be the case in those countries, such as

France, where no substantive examination is carried out. In such situations, revocation

before the courts is the only possibility for securing cancellation or amendment of a

competitor’s patent.

Many countries provide for pre-registration opposition to trademark registration.

Trademarks are published in the form in which they are to be registered, and a short

period is allowed for opposition. In general, considerations are much more

straightforward than those for patents and procedures can be much more rapid. In the

United Kingdom, there are little opposition of trademarks, probably because there is a

rigorous examination involving search of earlier rights. In other countries, for example

Germany, there are more opposition because there is no official search against prior

rights during examination; so opposition is the only way in which the owner of an earlier

trademark can induce the industrial property office to take account of this earlier right.

After registration of a trademark, in many countries it is possible for an aggrieved party

to apply to the office for removal of the mark from the register, or to seek its

modification. One of the main grounds for this would be non-use of the mark. As for

registered designs, where there is no provision for pre-registration opposition, interested

parties may seek cancellation of registrations by the office.

Civil Court Procedures

Despite efforts to achieve friendly settlement, circumstances can and do arise where the

owner of a right feels that he must take action against an infringer in order to protect his

markets, present or future. In most jurisdictions this will be handled in the civil courts. In

most situations, there will be considerable dispute as to whether for example the claims in

a patent to be enforced should be of the scope claimed, and as to whether the alleged

infringement actually falls within the valid scope. With trademarks, arguments also

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concern the scope of the registration and whether the allegedly infringing mark is

confusingly similar to the earlier mark. Infringers may genuinely believe that they have a

plausible case on such aspects. Most patent infringements are not slavish imitations but,

arguably, take advantage of the protected inventive concepts of the patent and will have

to be resolved on the basis of expert opinion.

In an action for patent infringement in common-law countries (the procedure and

terminology in civil-law countries differs to some extent), the patent owner, acting

through his immediate lawyers (solicitors), arranges for a writ or complaint to be served

on the alleged infringer. In the writ the patent owner, as plaintiff, will specify the nature

of the alleged infringement and the remedy sought. Almost always, an injunction

restraining the alleged infringer, the defendant, from continuing with what he has been

doing, will be requested, as well as damages. The defendant will usually acknowledge the

writ and give notice that he intends to defend. If he does not, the plaintiff may be entitled

to a final or interlocutory ruling (one which decides the issue but leaves open the question

of damages, etc.) forthwith. If the defendant does defend, and the issue is not settled out

of court or dealt with summarily, pleadings will be exchanged, on the one hand stating

the material facts of the claim and on the other the defenses or counterclaims. The

purpose of pleadings is to define precisely the issues in dispute and eliminate agreed or

irrelevant matters. They go back and forth and can take several months. A counterclaim

may be an allegation that the patent is invalid; this will have to be defended by the patent

owner. Once the pleadings have been completed the plaintiff will issue a summons for

directions. Such directions, given by the judge, will deal with discovery and inspection of

documents and in general with the trial preparations. Notice to inspect documents may be

served on the other side by leave of the court. So may interrogatories, which take the

form of written questions which the other side must answer under oath, e.g. by sworn

affidavit, before the trial. It is noteworthy that only a small minority of cases actually get

to the trial stage, and the rest are settled along the way, for reasons of time, effort and

expense.

Cases involving complex technology can take a very long time in court with expert

witnesses being called and subjected to examination and cross-examination by both sides.

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In issuing his reasoned decision, the judge can make various awards. In addition to

injunctions, the court may also award damages in respect of the infringement, namely

compensation for sales and markets lost as a result of the infringing activity. As an

alternative to damages, the owner of the patent can be awarded an account of profits. All

the profits derived by the defendant as a result of the infringement may be surrendered to

the patent owner. An order requiring the defendant to deliver up to the patent owner, or to

destroy, any products or articles incorporating the patented invention can also be made.

Finally, the patent owner can secure a declaration that the patent is valid and infringed.

Criminal Actions: Counterfeiting

As already mentioned, patent actions are essentially civil actions for infringement. In the

case of trademarks and copyright, much of what has been explained about procedures in

relation to civil actions applies to ordinary actions for infringement, but the serious

criminal offenses of counterfeiting and piracy can also arise. A trader may knowingly

manufacture, distribute or sell goods marked with a trademark where the marking has

been done without the permission of the owner or where the goods have been illicitly

copied.

There are several ways that counterfeits can come to the attention of the authorities. Right

owners themselves may become aware of distributors or retailers trading in counterfeit

goods and bring the trade to the attention of the police. Also counterfeits may be detected

by law enforcement officers who are specifically empowered under trademark legislation

to take action against traders in counterfeit goods. Their powers may be extended to

enable them to deal with copyright offenses. On conviction, traders in counterfeit goods

can face stiff penalties, and seizure of all offending products is normal. In respect of

items protected by copyright, such as sound recordings on tape or compact disk, the

police are the normal enforcement authority and will take action on the basis of a

complaint by the lawful right-owner. They often need little more than 24 hours’ warning

in order to secure warrants and make checks.

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Another way in which action against counterfeit goods can be taken occurs at ports of

entry of imports. If a mark owner becomes aware that consignments of counterfeit goods

are on their way to the country, he can alert the customs authorities, who will keep watch

for the goods and impound them when they arrive. Action can then be taken against the

importer.

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CRITICISM FOR TRIPS

Since TRIPS came into force it has received a growing level of criticism from developing

countries, academics, and non-governmental organizations. Some of this criticism is

against the WTO as a whole, but many advocates of trade liberalization also regard

TRIPS as bad policy. TRIPS's wealth redistribution effects (moving money from people

in developing countries to copyright and patent owners in developed countries) and its

imposition of artificial scarcity on the citizens of countries that would otherwise have had

weaker intellectual property laws, are common bases for such criticisms.

Peter Drahos writes that "It was an accepted part of international commercial morality

that states would design domestic intellectual property law to suit their own economic

circumstances. States made sure that existing international intellectual property

agreements gave them plenty of latitude to do so.

Danielle Archibugi and Andrea Filippetti argue that the importance of TRIPS in the

process of generation and diffusion of knowledge and innovation has been overestimated

by both their supporters and their detractors. Claude Henry and Joseph E. Stiglitz argue

that the current intellectual property global regime may impede both innovation and

dissemination, and suggest reforms to foster the global dissemination of innovation

and sustainable development.

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