INTERNATIONAL ANNUAL WTO FORUM KALININGRAD25 – 27th of March 2015

The TRIPS Agreement and technology transfer

Anna Caroline Müller,Legal Affairs Officer

Intellectual Property Division, WTO

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TECHNOLOGY TRANSFER & THE TRIPS AGREEMENT

Part I

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What is technology transfer?

o Transfer of technology mainly refers to any process by which the technical information of one party is acquired or learned by another and successfully incorporated into the latter’s production structure.

o This information may be embodied in products and inputs or disembodied as knowledge codified in blueprints and formulas or know-how. Or TT may simply involve purchasing an input or service and placing it into production without acquiring know-how.

o Full TT generally requires absorbing knowledge about how a process works. – No formal transaction in cases where a technology is easily imitated or copied,

such as software and pharmaceuticals. Complex machinery, processes and financial services may not be so easy to copy without the co-operation of the right owner.

– Absorption of knowledge presumes an initial level of knowledge – the higher the initial level the quicker and more effective the absorption.

(This section adapted from SCP Document and Maskus 2012)

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How does technology flow across borders?

o Trade in goods and serviceso Foreign direct investment (FDI) through multinational enterprises (MNEs) – mergers and

acquisitions – acquiring tangible and intangible assets, technology spillovers (but not automatic).

o Technology licensing, either within firms (where MNE retains proprietary control of the intellectual property and know-how) or between unrelated firms at arm's-length – permission to use the technology in a specific way within specific jurisdictions.o Mixed form of licensing and FDI - joint ventures

o Technology services -cross-border movement of technical and managerial personnel – formal- through contracts , informal -through technology spillovers of tacit knowledge

o Non-market channels such as imitation, where technology is in the public domain o through product inspection, reverse engineering, de-compilation of software, and even simple trial and erroro studying patent applications, technical publications, documentso temporary migration of students and scientists to universities, laboratories, and conferences

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Trade, the TRIPS Agreement and Technology Transfer

o Weak IPRs constitute significant barriers to manufacturing tradeo Strengthening IPRs leads to more imports of IP-sensitive goods

(Maskus and Penubarti, 1997; Smith, 1999)o Effects more in countries with effective imitation threats, weak imitation

countries suffer negative market power effects (Maskus, 2000).

o Ivus (2010): high-tech exports to reforming countries (GP-index wise) higher than low-tech exports post-1994.o Addition of $34 billion in OECD countries = 8.6% higher quantitative

imports in non-colonial developing countries

o Maskus, Yang 2012: patent reform has significant impact on exports in both developed and developing countries, esp. post-1995 and in high tech areas

Patents and global inventive activityo Lerner 2002: Foreign patent applications, especially from high

income countries and large populations, increase with strengthened patent protection:o Not so much from countries with already high levels of protectiono Thus, countries with large populations and growing incomes and initial

weak patent protection could benefit in the long run

o Moser 2005: historically, countries with patents produced more innovation in certain sectors such as machinery but not so in food processing, textiles

o Branstetter et al, 2006: significant increase in foreign applications

o Skeptic: Yi Qian, 2007: No significant impact of drug patents on innovation even 10 years after introduction but interaction with income, education levels and economic freedom

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TRIPS and inventive activity

o Arora et al, 2011: Indian pharmaceutical firms increased R&D/sales ratio from 0.23 in 1990 to 8.5 in 2005, largest growth after 2000; patents in US also increased 10 fold to 600 in 2005.

o Hu and Jefferson, 2009: Inter alia, Chinese firms significantly increased propensity to patent in 2000-1, patent revisions, WTO?

o Earlier studies of La Croix et al showed this for Japan but not for Korea.

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IP and technology transfer - some prevailing ideas on solutions

o A legal view: legislate to directly access patented technology, e.g. technology transfer regulations, patent exclusion, revocation, compulsory licensing or government use orders

o An administrative view: construct mechanisms to facilitate technology pooling or placing in the public domain o all proprietary technologies/ just publicly funded/just public domain o voluntary/compulsory

o non-exclusive/exclusiveo royalty-free/reasonable royalties

o Facilitate patenting and licensingo Patent fast track; o licences of right

o An information view: improve the flow of information about public domain/patented technologies (patent landscapes) and about licensing interests and opportunities

o An economic view: work on market incentives for both innovation and technology diffusion; real barriers are poor trade and investment policies, inadequate infrastructure and skill levels to absorb technologies. o Need more than IPRs e.g. public investment to incentivise more innovation.

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How much technology transfer is taking place?

o Hard to quantify how much generated and how much transferred – patent counts and RLF one common proxy – problematic

o Not like any other commodity – depends on many factors, for instance, the size of the market, anticipated growth of the relevant market, geographical location of the market (such as proximity to a large market), competition in the market, available labour skills and costs, physical and telecommunication infrastructure, availability of financial services, political and economic stability and transparent governance structure. absorptive capacity..

o International RLF receipts for IP increased from USD 2.8 billion in 1970 to USD 27 billion in 1990 (almost 10-fold in 20 years),and to approximately USD 180 billion in 2009 (six-fold more in next 20 years).

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Where is the technology transfer taking place?

o The global flow of RLF payments largely occurs among the industrially more advanced countries of North America, Europe and East Asia. In 2009, high-income countries accounted for around 98% of the global RLF receipts, which was unchanged from ten years earlier.

o Picture changing – With respect to RLF payments, however, the share of high-income countries decreased from 91% in 1999 to 83% in 2009, while the share of middle income countries increased from 9% in 1999 to17% in 2009.

o Globalisation – global value chains – MIWI

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Do IPRs help or hinder technology transfer?

o What is clear is that stronger IPRs lead to more trade (imports), more FDI and through this to more technology transfer

o Intra-firm data shows royalty payments for technology transferred to affiliates increase at the time of patent reforms, as do affiliate R&D expenditures and total levels of foreign patent applications - Branstetter et al (2006. 2011) – not clear if applicable to small countries.

o Some say stronger IPRs blocks learning by imitation – anecdotal evidence

o Difference between sectors – debate about green technologies

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Article 66.2

o Developed country Members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least-developed country Members in order to enable them to create a sound and viable technological base.

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IMPLEMENTATION OF ARTICLE 66.2 OF THE TRIPS AGREEMENT

Decision of 19 February 2003

o Developed country Members shall submit annual reports on actions taken or planned

o They shall provide new detailed reports every third year and,

o In the intervening years, provide updateso These reports shall be submitted prior to the last

Council meeting scheduled for the year in question.

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Reports to contain the following information:

a) an overview of the incentives regime put in place to fulfil the obligations of Article 66.2, including any specific legislative, policy and regulatory framework;

b) identification of the type of incentive and the government agency or other entity making it available;

c) eligible enterprises and other institutions in the territory of the Member providing the incentives; and

d) any information available on the functioning in practice of these incentives

o These arrangements shall be subject to review, with a view to improving them, after three years by the Council in the light of the experience.

o LDC delegations have not engaged in a dialogue with developed countries so far.

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Differences of view on definition of technology transfer

o LDC view:o Physical capital and goods; skills and know-how; information and data i.e.

the supply of hardware, such plant machinery, and the supply of software, such as research, training and education.

o Developed countries:o This broad definition of technology transfer is very similar to the one

provided by New Zealand (IP/C/W/594/Add.1) and Switzerland (IP/C/W/594/Add.5), which is based on a UN definition. It includes four key modes of technology transfer: (i) physical objects or equipment; (ii) skills and human aspects of technology management and learning; (iii) designs and blueprints which constitute the document-embodied knowledge on information and technology; (iv) and production arrangement linkages within which technology is operated.

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SOME COMPARATIVE DATAPart 2

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Concluding remarks

o Link between trade, IP protection and technology transfer.

o What measures are needed to increase transfer of technology?

o Importance of investment in R&D, functioning IP system to increase inflow of technology, export of technology-intensive goods and services.

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