India: Fuelling A Developing Nation's Growth-Engine Through Stringent Patent-Protection

Last Updated: 11 March 2016
Article by Rahul Sharma

For developing countries vying for a 'developed nation' spot, substantial reformation in patent laws is a vital ingredient. In an example, reformation of existing patent laws has been pursued by various countries through being signatory to TRIPS agreement and harmonizing local patent laws substantially in line with the treaties such as Paris convention and Patent Cooperation Treaty, while incorporating reasonable exceptions. As has been illustrated in the present article, a stringent patent protection system in developing countries is the need of the hour to spur socio-economic growth and accordingly expedite its march towards being referred as a developed' nation.

As has been historically evident, 'developed' nations have successfully utilized the benefits of stronger patent protection in fostering their economies. However, developing countries usually remain wary of employing strong patent protection, since the same requires a prior existence of legal, economic, and political structures associated with free‐trade systems, which may not be welcomed by certain sections of the population. In respect of least developed countries, stringent patent protection may not at all prove beneficiary owing to ever mounting challenges in meeting the basic necessities of life. For example, in respect of Bangladesh having only 40.1% literacy rate, a more pressing concern is to reduce unemployment and provide education to its population. However, a developing country owing to its substantially skilled and educated workforce can afford to be pragmatic and adopt such measures that may not yield immediate results, but do lie in the interest of economy in the long term.

Having a strong patent regime is one of such pragmatic measure recommended for a developing country. Stronger patent-protection systems are known to play a pivotal role in executing technological information transfer from one country to another. Technology transfer serves an important tool for closing the gap created by 'technological apartheid', and remains crucial to the socio-economic development of any nation. Providing strong patent protection for cutting-edge technologies at a particular jurisdiction paves way for the exposure of technology to its citizens. This leads to not just economic benefits, but social development at large through providing a better standard of life.

In fact, stringent patent protection can be a main pillar of modern economic policy for a developing nation, as 'keeping abreast with the technological development' is an important tool for establishing competitiveness in the world market. In order to adapt to emerging technologies brought into a country through a stringent patent protection, developing countries feel motivated to create new educational hubs so as to increase the skills of the workforces, thereby generating numerous types of employment avenues.

In fact, a patent protected by a developed country into a developing country also leads to conduction of skilled-training programs sponsored by the developed countries, as a part of marketing of the patented technologies in the developing countries. This in turn leads to infusion of creativity within the minds of the scientists and researchers in the developing countries, thereby further motivating them to undertake research and development activities over the patented technology and improvise upon the same, e.g. through reverse engineering.

Nevertheless, strict patent regime also spurs innovation by indigenous people in their homeland. The more is the extent of innovation in a country, more are the possibilities of securing patents internationally, thereby fuelling exports of patented products from the developing countries and a more inflow of foreign currency. Further, patent licensing agreements between the developed and developing countries also create new employment opportunities within the developing economies. Specifically, providing strong patent protection encourages patent holders in developed countries to enter into licensing agreements owing to lower production costs in most developing countries, thereby triggering FDI from the developed countries.

Considering an example, a pharmaceutical industry has always been beneficiary of strong patent‐protection regimes, because of high cost of developing a new pharmaceutical product and the ease with which the new product can be replicated after its launch. In an example, development of a typical new drug may cost as much as $800 million. Accordingly, pharmaceutical companies of developed countries usually feel wary of expanding R&D in non-developed countries as patent protection is known to be generally weak therein. This leads to many developing countries lagging behind in attracting foreign investment into pharmaceutical R&D sector.

Yet, the fact remains that most transnational corporations ("TNCs") based in developed countries that operate in pharmaceuticals are still known to have extensive international production systems spread across developing countries. For example, U.S. pharmaceutical TNCs have, on average, 33.8 foreign affiliates per original company – more than any other U.S. manufacturing industry. Accordingly, for a developing country to showcase its candidature as a profitable foreign affiliate to any pharmaceutical giant of the developed country, a strict patent protection is a key. Moreover, a strong patent protection increases the growth of domestic pharmaceutical industries as well in the developing country through licensing.

Further, a weak patent protection makes inventors or researchers in developing countries lose interest in investing their efforts towards research and innovation in their homeland and look for research and business opportunities abroad, such as in U.S., Great Britain, Australia, and Canada, wherein the rewards for creativity in pharmaceutical or other inventions are greater. Developing countries can prevent such brain-exodus by creating ample employment and research opportunities within the homeland itself, through reforming patent laws and prompting foreign and domestic industries to increase investments in R&D.

Overall, stringent patent protection in developing countries fosters ties with developed economies economically as well as socially and leads to deep rooted and long term business relations. The same leads to increased exports to developed countries, thereby aiding the government's efforts to lower a current account deficit due to more inflow of foreign currency. Further, employment opportunities facilitated through burgeoning R&D sector and FDI from developed nations through patent licensing in turn helps the government in lowering the fiscal/revenue deficits and accordingly leaves more room for the government to contribute towards nation's development. Accordingly, there is no denying fact that there exists a directional proportionality between stringent patent laws and a developing nation's economic growth and eventually it's GDP. A robust economy is turn is a gateway to being referred as a prospective 'developed' nation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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