Economist Leader Article

Technology Innovation and Intellectual Property
Summary by F.M Scherer
(Harvard and Princeton Universities)

This remarkable report is the product of a six-member commission created in May, 2001, by the U.K. Department of International Development. The commission was convened under an initiative by Secretary of State Clare Short, who was lauded by The Economist (May 17, 2003, p. 51) for making it her priority to "help the poorest people in the poorest countries, [standing] up to both bad governments and commercial interests." The commission was chaired by John Barton of the Stanford Law School. Two other members of the commission were also from outside of the United Kingdom.

The commission's formation was evidently prompted by implementation of the World Trade Organization's TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreements, which began to take effect on January 1, 1995. Under TRIPS, all members of the World Trade Organization are expected by 2006 to offer a bundle of intellectual property rights equivalent to those accepted in fully-developed industrial nations. The committee's report questions the rationale for this expectation, concluding that although "some IP protection is likely to be appropriate at some stage for developing countries …incentives work differently according to whether there is a capacity to respond to them" (p. 5). In many developing countries, the authors argue, "IP rights do little to stimulate innovation … because the necessary human and technical capacity may be absent." On the contrary, "rapid growth is more often associated with weaker IP protection" (p. 22). The report acknowledges (p. 8) the complaint that in signing on to TRIPS, the world's developing nations may have accepted a bad bargain, since developed nations have not honored their TRIPS commitments to liberalize agriculture and textiles and to reduce tariffs.

The commission reached these and many other conclusions after reading virtually everything written on the subject and listening to everyone with a relevant viewpoint. Members visited at least seven countries, four of them less-developed. No new data sets were assembled, no formal theoretical models deployed.

The report's compass is best gauged by recapitulating some of its principal findings:

* At the Doha Round of WTO deliberations, a decision was made to delay the compliance deadline regarding pharmaceutical products for the least-developed nations to the year 2016. This delay should be extended to the implementation of TRIPS as a whole, with flexible implementation by less-developed countries after that date.

* The evidence on the impact of economic research on innovation is inconclusive. More research is needed.

* The small potential size of the market for treatments of diseases prevalent mainly in the third world means that little R&D is done, and granting patent protection is unlikely to induce major changes. However, patenting of pharmaceutical products in the third world is likely to increase prices appreciably.

* The threat and actuality of compulsory patent licensing, authorized under the TRIPS agreement, can be and should be used by less-developed nations to procure drugs at modest prices.

* Less-developed nations should be able to procure drugs under compulsory licensing from the most competitive sources in the world, despite the mandate of TRIPS Article 31 that licensing be "predominantly for the supply of the domestic market." Implicitly, the TRIPS Council should go back to work seeking a strong compromise agreed to by most member nations but blocked in 2002 by the United States.

* Third-world farmers should have the right to make whatever use they wish from the hybrid seeds they have purchased, including regeneration of new seeds.

* Less-developed nations should be compensated for the use of their traditional knowledge in the development of pharmaceutical and other products.

* Strengthened copyright protection could impede the education needed to spur growth in less-developed nations. Copyright fees should be lower in those parts of the world. Less-developed nations should have the right to use technological measures to read materials encoded using technical algorithms.

* Genome patents should be issued only when strict and narrowly-defined utility criteria are satisfied.

* Business methods and computer program inventions should be excluded from patentability in the third world.

* Less-developed nations should receive outside help, e.g., from organizations such as WIPO and the European Patent Office, in designing and administering their intellectual property systems, including the implementation of compulsory licensing regimes. The financing of IP systems should be covered by fees, the bulk of which will fall upon applicants from developed nations.

* WIPO, which has tended to preach the gospel of IP-rich nations, should be more sensitive to the special circumstances and needs of less-developed nations.

* The developing nations should have full-time representation in Geneva concerning intellectual property matters. The necessary personnel would best be installed under the mandate of the United Nations Conference on Trade and Development.

Commission members endorsed these and other conclusions and recommendations unanimously. What I find most remarkable about the report is that one member of the commission was senior director of science policy and scientific affairs at Pfizer's laboratories in Sandwich, England. During the early 1980s, the initiatives that led to unilateral U.S. Section 301 trade sanctions against nations lacking "adequate" patent systems and to the subsequent organization of a powerful coalition that put IP questions on the Uruguay Round treaty agenda were spurred by Edward Pratt, chief executive office of Pfizer at the time. How a high-ranking Pfizer official was able to endorse the commission's findings and hence reject the philosophical viewpoints that led to TRIPS deserves explanation. My tentative hypothesis is that, to attract the first-rate scientific talent responsible for its continuing success in world pharmaceutical markets, Pfizer recognizes that substantial freedom of inquiry and expression must be accorded. That, at least, has been my own experience working on several occasions as a consultant for the company.

I conclude with a query that will soon be answered: could a body commissioned in the United States to investigate the rationale and consequences of intellectual property rights come up with an analysis as broad and well-balanced, one that reaches beyond special interests and takes into account, among other things, the needs of less-developed nations' citizens, as the U.K. Commission on Intellectual Property Rights did? A parallel committee operating since early 2000 under the auspices of the U.S. National Academy of Sciences has missed several publication deadlines and seems to be having a hard time reaching closure. Closure will eventually come, so we shall see.

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© 2003. Verbatim copying and distribution of this entire article for noncommerical use are permitted provided this notice is preserved.

COMMISSION ON INTELLECTUAL PROPERTY RIGHTS

		Technology Innovation and Intellectual Property Summary by F.M Scherer (Harvard and Princeton Universities) This remarkable report is the product of a six-member commission created in May, 2001, by the U.K. Department of International Development. The commission was convened under an initiative by Secretary of State Clare Short, who was lauded by The Economist (May 17, 2003, p. 51) for making it her priority to "help the poorest people in the poorest countries, [standing] up to both bad governments and commercial interests." The commission was chaired by John Barton of the Stanford Law School. Two other members of the commission were also from outside of the United Kingdom. The commission's formation was evidently prompted by implementation of the World Trade Organization's TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreements, which began to take effect on January 1, 1995. Under TRIPS, all members of the World Trade Organization are expected by 2006 to offer a bundle of intellectual property rights equivalent to those accepted in fully-developed industrial nations. The committee's report questions the rationale for this expectation, concluding that although "some IP protection is likely to be appropriate at some stage for developing countries …incentives work differently according to whether there is a capacity to respond to them" (p. 5). In many developing countries, the authors argue, "IP rights do little to stimulate innovation … because the necessary human and technical capacity may be absent." On the contrary, "rapid growth is more often associated with weaker IP protection" (p. 22). The report acknowledges (p. 8) the complaint that in signing on to TRIPS, the world's developing nations may have accepted a bad bargain, since developed nations have not honored their TRIPS commitments to liberalize agriculture and textiles and to reduce tariffs. The commission reached these and many other conclusions after reading virtually everything written on the subject and listening to everyone with a relevant viewpoint. Members visited at least seven countries, four of them less-developed. No new data sets were assembled, no formal theoretical models deployed. The report's compass is best gauged by recapitulating some of its principal findings: * At the Doha Round of WTO deliberations, a decision was made to delay the compliance deadline regarding pharmaceutical products for the least-developed nations to the year 2016. This delay should be extended to the implementation of TRIPS as a whole, with flexible implementation by less-developed countries after that date. * The evidence on the impact of economic research on innovation is inconclusive. More research is needed. * The small potential size of the market for treatments of diseases prevalent mainly in the third world means that little R&D is done, and granting patent protection is unlikely to induce major changes. However, patenting of pharmaceutical products in the third world is likely to increase prices appreciably. * The threat and actuality of compulsory patent licensing, authorized under the TRIPS agreement, can be and should be used by less-developed nations to procure drugs at modest prices. * Less-developed nations should be able to procure drugs under compulsory licensing from the most competitive sources in the world, despite the mandate of TRIPS Article 31 that licensing be "predominantly for the supply of the domestic market." Implicitly, the TRIPS Council should go back to work seeking a strong compromise agreed to by most member nations but blocked in 2002 by the United States. * Third-world farmers should have the right to make whatever use they wish from the hybrid seeds they have purchased, including regeneration of new seeds. * Less-developed nations should be compensated for the use of their traditional knowledge in the development of pharmaceutical and other products. * Strengthened copyright protection could impede the education needed to spur growth in less-developed nations. Copyright fees should be lower in those parts of the world. Less-developed nations should have the right to use technological measures to read materials encoded using technical algorithms. * Genome patents should be issued only when strict and narrowly-defined utility criteria are satisfied. * Business methods and computer program inventions should be excluded from patentability in the third world. * Less-developed nations should receive outside help, e.g., from organizations such as WIPO and the European Patent Office, in designing and administering their intellectual property systems, including the implementation of compulsory licensing regimes. The financing of IP systems should be covered by fees, the bulk of which will fall upon applicants from developed nations. * WIPO, which has tended to preach the gospel of IP-rich nations, should be more sensitive to the special circumstances and needs of less-developed nations. * The developing nations should have full-time representation in Geneva concerning intellectual property matters. The necessary personnel would best be installed under the mandate of the United Nations Conference on Trade and Development. Commission members endorsed these and other conclusions and recommendations unanimously. What I find most remarkable about the report is that one member of the commission was senior director of science policy and scientific affairs at Pfizer's laboratories in Sandwich, England. During the early 1980s, the initiatives that led to unilateral U.S. Section 301 trade sanctions against nations lacking "adequate" patent systems and to the subsequent organization of a powerful coalition that put IP questions on the Uruguay Round treaty agenda were spurred by Edward Pratt, chief executive office of Pfizer at the time. How a high-ranking Pfizer official was able to endorse the commission's findings and hence reject the philosophical viewpoints that led to TRIPS deserves explanation. My tentative hypothesis is that, to attract the first-rate scientific talent responsible for its continuing success in world pharmaceutical markets, Pfizer recognizes that substantial freedom of inquiry and expression must be accorded. That, at least, has been my own experience working on several occasions as a consultant for the company. I conclude with a query that will soon be answered: could a body commissioned in the United States to investigate the rationale and consequences of intellectual property rights come up with an analysis as broad and well-balanced, one that reaches beyond special interests and takes into account, among other things, the needs of less-developed nations' citizens, as the U.K. Commission on Intellectual Property Rights did? A parallel committee operating since early 2000 under the auspices of the U.S. National Academy of Sciences has missed several publication deadlines and seems to be having a hard time reaching closure. Closure will eventually come, so we shall see. ------------------------------------------------------------------------------ © 2003. Verbatim copying and distribution of this entire article for noncommerical use are permitted provided this notice is preserved.