Ecuador: The Adaptive Approach To Intellectual Property From A Developing Country

Last Updated: 25 June 2018
Article by Byron Robayo
Most Read Contributor in Ecuador, November 2018

Summary

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) brought with it the promise an increased development which never materialized. In the same way, the strategies that developing countries adopted have not been effective enough to change reality. However, we should realize that weakening the intellectual property system is not the correct alternative. To the contrary, a strong and balanced intellectual property system could reduce the implicit risk in the transactional cost of allocate or transfer intangible assets of intellectual property in other countries, as well as encourage local innovation. The solution is much closer than we can imagine; it is inside the intellectual property system itself. However, in order to take advantage of it, it is necessary to understand all the benefits provided by the global system of intellectual property, and urgently improve the educational system to achieve the kind of technology transfer sought by developing countries.

Keywords

TRIPS / Technology Transfer / Intellectual Property / Development / Absorptive Capacity.

1. Introduction

After 21 years of experience under the Agreement on Aspects of Intellectual Property Rights related to Trade (hereinafter TRIPS), we see that the developed countries that promoted the signing of this WTO document were committed to provide incentives to companies and institutions in their territories, in order to encourage and promote the transfer of technology to lesser-developed member countries so that they could create a solid1 and viable technological base1. It was a transfer that never materialized; and that failure was blamed on the intellectual property system. However, in our opinion, the real cause was our ignorance about how the intellectual property system actually worked, and our failure to recognize that the promised transferable technology was from the begining at our disposal. Therefore, the developing countries did not benefit from that actual, but unknown availability of access to the transferable technology.

Not having used intellectual property as an inducement to create and innovate, and disregarding the functioning of the incentives promoted by the intellectual property system itself, many developing countries turned to minimizing the enforcement of WTO-promoted property rights protection in their local legislation.. Other countries made inroads to establish higher protection standards (considered as TRIPS PLUS) in their legislation, granting greater temporary protection and extending the scope of enforceability for intellectual property rights through criminal proceedings, in the expectation that, under stronger protection of intellectual property rights, their markets would be more attractive for foreign direct investment (FDI) with that component of technology transfer promised by the TRIPS Agreement.

However, an economic study conducted in 2005 revealed that after the signing of the TRIPS Agreement, the net transfers that the United States received as a result of the gains associated with trade liberalization increased by 40%, but the most important thing in this study was that developing countries paid 64% of those profits (Watson, 2011, p 271), which shows the real economic result, derived from the internationalization of intellectual property.

The present article analyzes: the strategies of the developing countries against the TRIPS standards; intellectual property, as a necessary mechanism in the innovation process; the transfer of technology as a public policy decision; and intellectual property as a tool for development.

2. The strategies of developing countries confronting TRIPS

Based on the economic performance of the 21 years applying TRIPS in developing countries, some of the alternatives proposed have been: (a) not to adopt the minimum standards established in the TRIPS Agreement; (b) promote a TRIPS reform; or, (c) to radically apply the mandatory licensing regime. However, none of these alternatives tends to change the dependency structure of developing countries. Following, we proceed to examine the effects of each of the aforementioned alternatives.

(a) The most extreme and unrealistic proposal to stop adopting the minimum standards established in the TRIPS in their national legislation, option that could even lead to expulsion from the WTO, presently an unthinkable alternative: Currently, 164 countries are members of the World Trade Organization; if any of them decided to leave, their local industry would be very affected, no matter how small and incipient, because it would not have the tax benefits that accompany WTO membership.

(b) Promoting a reform of TRIPS was an alternative that led to the Doha Round (Qatar) held in 2001 and whose only achievement has been to facilitate the protection of drinks like wines and spirits (WTO, 2013). As much as they have tried, the promoters of the Doha Round have not been able to achieve even the amendments relating to the effective treatment of the importation of products under the cover of mandatory licenses between member countries2; the determination regarding the management and legitimate use of genetic resources; or, at least, the protection of traditional knowledge related to the development of biotechnology (Oñate, 2010, pp. 135-137).

(c) Regarding the strategy of excessive use of mandatory licenses, it has been said, "mandatory licenses are important governmental tools that governments can use to ensure access to affordable medications" (Correa, 2011, p.23). However, such an affirmation cannot be considered as an axiom to reach a radical change in the model. In the first place, because it is focused solely on medications and, although these correspond to a large part of patentable inventions, the patent system was not created exclusively for its protection. And second, because 95% of essential medicines on the WHO Model List of Essential Medicines are patent-free (Beal and Attaran, 2013, p.25), so it would not be appropriate to outline a public policy based on the exaggerated concession of mandatory licenses as, even in the best of cases, it could be applied in only 5% of essential drugs (that is, 20 of 375); and, if it were focused on applying to all types of medications or to all kinds of patentable results, we would be abusing a flexibility that was only conceived for specific circumstances and for more "fairness" than it it was intended to be. This lead to industries not transfering new inventions or technical solutions in or into developing countries; or losing interest in finding solutions to the problems faced by those countries; or, worse, create increas2ingly sophisticated mechanisms for the protection of their inventions through business secrets. So far and from what is publicly known, Ecuador is the country that has granted the most mandatory licenses in the world. Since 2009, 10 mandatory licenses have been granted, of which only one pharmaceutical product was able to be reproduced in the country3. This measure has certainly contributed to a vulnerable group having access to an essential drug, but the savings achieved with this policy has distanced Ecuador from the final goal of its public policy: the change in the productive matrix resulting from the transfer of acquired technology.

3. Intellectual property, a necessary mechanism in the innovation process

The artificial incentive of legal recognition of intellectual property should be conceived of as a tool to identify those positive actors in the social group, who are investing their resources (not only monetary) to solve the problems we all face or to improve our quality of life; this goes from identifying a product with a brand to optimize the efficiency in the decisions of acquisition of goods or services of consumers, to enjoy ourselves in at musical or theatrical entertainment, or find the medication capable of curing a disease. This artificial incentive also establishes an individual model to be followed in society, based on the social and market value that intangible potential of intellectual property can have. Those who attack the existence of intellectual property as an institution determine, because of its intangible nature, by which thee is no rivalry for its consumption; that is, there is no material need (scarcity) to exclude others from its use, since several users can use them simultaneously, without diminishing the enjoyment of others (Andrews and de Serres, 2012, p.10). Although intellectual property assets have no rivalry in their consumption, the resources of people who dedicate their efforts to create intangible intellectual property assets do have rivalry in their work and, without an incentive such as intellectual property, these resources can be intended for the production of activities without a considerable creative effort. For this reason, "if the protection of intellectual property begins to disappear, the creative companies will disappear as well, or they will not be born" (Isaacson, 2011, p 158).

To stimulate and receive value from innovation, every society needs the artificial incentive of intellectual property. However, over time, a local intellectual property system cannot survive, solely by recognizing and protecting intellectual property rights to benefit foreign companies, since the investment capital of these companies tends to enter, take the benefits generated by their intangible assets in the local economy and leave again (commonly called "hot capital"). As a consequence, governments that must face these economic impasses take hasty and ill-advised public policy measures to halt this process, such as weakening the local intellectual property system by exacerbating the regime of mandatory licenses; or postpone the acknowledgement of intellectual property rights to foreigners so that they can not obtain economic benefits that will later leave the country. But this only reduces foreign investment and does not achieve the ultimate goal that every developing country seeks, which is to encourage foreign direct investment that brings technology transfer and at the same time boosts the local innovation system. The formula for achieving these goals is not simple, since economic studies conducted reveal that strong intellectual property laws may limit opportunities to encourage productivity based on reverse engineering in developing countries (Maskus, 2012, p.1430) and, in this way, they prevent their capacity for local abstraction and, therefore, their innovation system from improving. As a result, weakening the local intellectual property system or implementing strong intellectual property rights protection laws are not solutions to achieve the desired objectives.3

Footnotes

1 As set in Article 66.2 of TRIPS

2 Regarding the ratification by Member States of the Amendment of the TRIPS Agreement of December 6, 2005, Article 31 (WTO, 2005).

3 The only drug that could be reproduced is lamivudine plus abacavir, patented by Glaxo Group Limited, to treat HIV/AIDS, enabled by the companies Oxialfarm and Ginsberg Ecuador, S.A.

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