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Intellectual Property Rights Series

Intellectual Property,
Competition and Development

Martin Khor

TWN
Third World Network

Intellectual Property,
Competition and Development

Martin Khor

TWN
Third World Network

Intellectual Property, Competition and Development
is published by
Third World Network
121-S. Jalan Utama
10450 Penang, Malaysia.

© Third World Network 2005

Printed by Jutaprint
2 Solok Sungei Pinang 3, Sg. Pinang
11600 Penang, Malaysia.

ISBN: 983-2729-51-3

CONTENTS
1

Introduction

/

2

IPRs, Monopoly and Competition, and the Public Interest

2

3

Shifting of the Balance Between IP, Monopoly and
Development

3

The Situation of Developing Countries and the
Development Context

7

Examples of Effects of IPRs on Competition and Welfare

13

4

5

(a)
(b)
(c)
(d)
(e)

6

Policies and Methods to Prioritize Competition Principles
in Relation to IP
(a)
(b)
(c)
(d)

7

Effects on competition and market structure
Effects on competition, prices and access to essential goods
Patenting of lifeforms
Agriculture, biological resources and traditional knowledge
Patents and the transfer and use of technology

27
Limit the granting of IP according to correct criteria
Providing for and making use of exceptions, exemptions and limitations
The proper design and implementation of flexibilities
Competition principles and legal provisions in laws relating to IP and
beyond

Conclusion

34

References

35

NOTE

This paper was originally presented at a session on competition policy during
an international seminar on “Intellectual Property and Development’’ held on 2
- 3 May 2005 at the World Intellectual Property Organization (WIPO), Geneva.
The two-day joint seminar was organized by WIPO with the UN Conference on
Trade and Development (UNCTAD), the UN Industrial Development Organi­
zation (UNIDO), the World Health Organization (WHO) and the World Trade
Organization (WTO).

1 Introduction
THIS paper outlines some of the issues relating to intellectual property, condi­
tions affecting competition, the public interest and the requirements of the de­
velopment objective and process.

It discusses the relation between IPRs, monopoly and competition and the pub­
lic interest (Chapter 2) and the shifting of the balance towards the IP right hold­
ers (Chapter 3) before examining the conditions and circumstances of develop­
ing countries (Chapter 4).
Examples are given in Chapter 5 on the effects of IPRs on competition and
development.
Chapter 6 discusses policies and methods to prioritize competition principles in
relation to IP.

A brief conclusion is found in Chapter 7.

2

IPRs, Monopoly and
Competition, and the
Public Interest

THERE are inherent tensions between IPRs and competition. In a market
economy, competition is seen by most as generally important and indeed essen­
tial to curb market distortions, induce efficiency in the use of resources, prevent
monopoly or oligopoly, maintain prices at fair levels or as low as possible,
prevent excessive or monopoly profits and promote consumer interests and
welfare.
An IPR is seen by many as a privilege granted in recognition of the need of the
holder to recoup costs incurred in the research and innovation process, so as to
maintain incentives for further innovation. Thus an IP entails an exclusive right
for a limited time, enabling the holder to charge a higher price than the mar­
ginal cost of production. That higher price reduces access of consumers to the
product, and access of other producers to production inputs and methods.

The monopoly granted prevents or deters competition from rivals that can sell
at lower prices. These are costs that are seen to be short-term (since the exclu­
sive right is of a limited duration), but which are supposed to be outweighed by
the long-term benefits brought about by the innovation which IPRs encourage.

As noted by CIPR (2002: p. 15), “the optimal degree of protection (where social
benefits are judged to exceed social costs) will also vary widely by product and
sector and will be linked to variations in demand, market structures, R&D costs
and the nature of the innovative process. In practice IPR regimes cannot be
tailored so precisely and therefore the level of protection afforded in practice is

necessarily a compromise. Striking the wrong compromise - whether too much
or too little - may be costly to society, especially in the longer term.”

There is thus a balancing required between the monopoly privilege granted to
the IP holder and the public interest (including consumer welfare, the competi­
tion from other producers, and national development prospects). The appropri­
ate balance requires the right policies that enable that IP be appropriately given
for correct reasons and to the correct parties, and that they be of an appropriate
period, and that flexibilities and exemptions and exclusions are provided to
safeguard vital public interests.

If the balance is tilted excessively to the IP holder, then one consequence is that
the IP facilitates a stream of monopoly profits beyond what is justified for re­
covering the costs of innovation, and society bears the costs unreasonably. These
may include prevention of access to goods and services (including essentials
such as medicines, food and information, and important inputs for production),
curbing of industrial development, an overall reduction in competition and its
benefits for resource allocation, and a monopolization in products, sectors or
the economy as a whole.
It is thus important, especially for developing countries, that the standards of IP
be appropriate, that there be adequate exclusions and flexibilities, and that the
framework enables IP to be awarded appropriately for the right inventions and
to the right parties, and that there be sufficient provisions policies and legal
provisions that counter the abuse of IP privileges when they occur.

3

3

Shifting of the Balance
between IP, Monopoly and
Development

THERE are benefits to be derived from an appropriately designed and imple­
mented IP policy geared to the public interest and to development needs, that
takes account of the factors requiring balancing, and that attains the right bal­
ance. However, when the policy is inappropriately designed, or when the proper
balance is not struck, there can be adverse effects of IP on competition, the
public welfare and development requirements.
Due to the TRIPS Agreement, several flexibilities that countries had in their IP
policies have been narrowed. For example, TRIPS mandates that national treat­
ment be provided for patents and patent applications; patents have to be given
for both products and processes, and there cannot be different treatment on a
sectoral basis. This has affected many developing countries that had previously
excluded from patentability certain sectors (such as medicines, food and chemi­
cals) or certain categories (especially product patents in medicines).

TRIPS sets minimum standards for a wide range of IP that are mandatory to
implement. Many analysts have concluded that TRIPS has very significantly
tilted the balance in favour of 1 PR holders, most of who arc in developed coun­
tries, vis-a-vis consumers and local producers in developing countries and visa-vis development interests.
Recent trends in major developed countries have shifted the balance further in
favour of IP rights holders. A recent study (Jaffe and Lerner 2004) analyses
recent developments in the US patent system and their effects. In the early
1980s, the judicial appeal system for patent cases in the federal courts was

changed so that the appeals are all heard by a specialized appeals court; and in
the early 1990s the structure of fees and financing of the US Patent and Trade­
mark Office was changed so that costs of operations are covered by patent ap­
plication fees.

These two developments resulted in US patent practice. The new appeals court
has interpreted patent law to make it easier to get patents, to enforce patents
against others and obtain large financial awards from such enforcement, and
harder for those accused of patent infringement to challenge the patents’ valid­
ity.

The results are that:
(i)

The new orientation of the patent office combined with the court’s legal
interpretations make it much easier to get patents. Patents on inventions
that are trivially obvious, such as the process of making a particular type
of sandwich, or a method for swinging on a swing, are being given.

(ii) Patents have become weapons for firms to harass its competitors.
(iii) Patents have enabled companies to win huge damages awards and put
rivals out of business.
(iv) Patent approvals are extended to new areas including puqjorted discover­
ies that arc actually familiar, such as patents on previously well-known
option pricing formulas. (Jaffe and Lerner 2004: pp.2-3). While some
innovators who obtain the patents are rewarded, the activities of many
others who are competitors are inhibited or even stopped, including their
potential innovation activities.
IP policy and practice in developed countries have been exported to the rest of
the world through international harmonization programmes and treaties. The
TRIPS is the best example of these. The agreement was mainly prompted by
and even designed by representatives of certain industries in developed coun­
5

tries, which succeeded in getting their governments to successfully advocate
their cause in the Uruguay Round, overcoming the initial strong resistance of
many developing countries. (This is well documented for example in Raghavan
1990, Drahos 2003 and Sell 2003.)
WIPO has also been an active forum for IP harmonization, for example through
its 1996 Copyright Treaty'. The present negotiations for possible new treaties
relating to patents and to broadcasting are other examples. In fact, WIPO has
become a more active forum for negotiations for new treaties aimed at harmo­
nization of IP systems and rules than the WTO.
If current patent harmonization negotiations proceed along the lines advocated
by the developed countries in the substantive patent law treaty process, there is
a strong possibility that the results of recent developments in the major coun­
tries (such as the relaxing of criteria of patentability and the much easier grant­
ing of patents) will be disseminated to the rest of the world. There is thus a
danger that what many analysts consider a dysfunctional system will be dis­
seminated to developing countries.

Bilateral and regional agreements that involve developed countries with devel­
oping countries, are other channels through which new aspects of IP arc being
transferred to developing countries. Many of these arrangements have TRIPSplus provisions, requiring the parties to undertake obligations that narrow their
policy space to choose between options. For example, they may contain condi­
tions for compulsory licensing that are more restrictive than permitted under
TRIPS, or that require parties to commit to a provision on data exclusivity pre­
venting the use of test data in the drug approval process relating to generic
drugs that is not required by TRIPS.

6

4

The Situation of Developing
Countries and the
Development Context

THE models and practices that serve as the basis for harmonization are gener­
ally tilted in favour of IP holders, with serious implications also for competi­
tion. When they are transferred to developing countries, so too are the imbal­
ances. However, the effects on developing countries are even more serious, as
there are systemic reasons why upward harmonization towards developed coun­
tries' IP standards are inappropriate and damaging for most developing coun­
tries.

The overwhelming share of patents in developing countries arc held by foreign­
ers, and thus most of the commercial benefits of IP accrue to these foreign
institutions. There are large and growing patent rents transferred from develop­
ing to developed countries. Since the patents are owned by foreigners, local
researchers and enterprises are blocked or restricted in their use of the patented
materials. Local industries will also find it difficult or impossible to produce
similar products as those patented.
In terms of effect on competition, the situation confers monopoly rights on
foreigners, and local enterprises are placed in a situation in which they face
high or even insurmountable obstacles to compete. The kind of reverse engi­
neering undertaken by today’s now-developed countries during their develop­
ment phase, or by industrially successful developing countries such as South
Korea, when they did not have to adhere to the TRIPS Agreement’s high IP
standards, will be extremely difficult or impossible to undertake today (see, for
example, H.J. Chang 2002 on this point).

Thus the problem is more serious for developing countries. The recent IP trends
in the US may make it harder for other US firms to compete with those US
firms owning IP; however the market concentration takes place within the same
country. But the developing countries have problems with a whole different
dimension: their local firms are unable to develop as the IP in their own terri­
tory are owned by foreigners.
For a developed country the issue is mainly the degree of concentration or mo­
nopoly among firms within the country, for a developing country the issue is the
very existence and viability or otherwise of local industries in sectors in which
patents proliferate and where most are owned by foreigners.
Moreover, whilst developed countries may have instruments within their IP
system or outside of it (for example in anti-trust regulation and competition
law) to curb anti-competitive practices and other abuses by IP holders, most
developing countries lack the capacity to have or use similar instruments.

In other words, the anti-competitive effects of high IP standards in developing
countries are serious, and may become even worse if they lose even policy
space for using existing flexibilities due to further “upward harmonization”
through new international treaties or through bilateral and regional trade and
economic agreements.
Recent studies show the high extent of costs incurred by developing countries.
The former chief of trade policy research in the World Bank, Michael Finger
(2002), estimates that the obligations on developing countries to implement
TRIPS will result in increased payments by them of USS60 billion a year.

A report by the World Bank (2002) estimates that the net annual increase in
patent rents resulting from TRIPS for the top six developed countries in this
field will be USS41 billion (with the top beneficiaries being the US with SI9
billion, Germany S6.8 billion, Japan S5.7 billion, France S3.3 billion, UK $3
billion and Switzerland $2 billion). Developing countries that will incur major

8

annual net losses include South Korea (S15.3 billion), China (S5.1 billion),
Mexico (S2.6 billion), India ($903 million) and Brazil (S530 million).
Weisbrot and Baker (2002) argue that the World Bank’s patent rents estimates,
already high enough, significantly understate the actual costs to developing
countries, as these only measure the direct outflow of patent rents from these
countries. In addition there are economic distortions as the IP protection causes
goods to sell at prices far above their marginal costs, thus giving rise to “dead­
weight costs”. Citing other studies, they estimate the deadweight costs to be
twice the size of the estimated patent rents.

In addition, there are costs for administering and enforcing IP laws and poli­
cies, requiring law reform, enforcement agencies and legal expertise. Accord­
ing to Finger (2002), World Bank project experience indicates that it will cost a
developing country $150 million to get up to speed on three new WTO areas
(IPRs, SPS and customs valuation). He notes that this amount is more than a
full year’s development budget in many LDCs.
Many analysts believe that the developing countries received a bad deal in ac­
cepting TRIPS in the Uruguay Round. “Through TRIPS developing countries
took on as legal obligation a cost of $60 billion per year, but there is no legal
obligation in the agreement on any Member to provide anything in exchange”
(Finger 2002: p. 11). Finger adds that the Uruguay Round “grand bargain” was
that developing countries would take on obligations in the new areas and in
exchange developed countries would provide better access to their markets,
particularly on agricultural products and on textiles and clothing.

Fie concludes that compared with the outcome of the market access negotia­
tions, the TRIPS amounts (i.e. net rents) are big money. The US obtained 13
times more benefit from annual patent rents arising from TRIPS than from lib­
eralization of industrial tariffs with Germany, France and UK gaining 3.6 times
more. Conversely, the loss from TRIPS obligation is 18 times greater for Korea
than gains from Uruguay Round tariff liberalization, and the costs outweigh
benefits 7 times for Mexico and 4.7 times for China.
9

Well known trade economists who advocate free trade have also written harshly
on the imbalances of TRIPS and the adverse effects on competition caused by
the upward harmonization of IP standards induced by TRIPS. Jagdish Bhagwati
(2001), the economics professor at Columbia University, in a letter to Financial
Times argued that the WTO must be about mutual gains in trade whereas IP
protection is a tax on poor countries' use of knowledge, constituting a wealth
transfer to the rich countries.

“We were turning the WTO, thanks to powerful lobbies, into a royalty-collect­
ing agency by pretending, through continuous propaganda that our media bought
into, that somehow the question was ‘trade related'.” He advocated that the
TRIPS Agreement be removed from the WTO.
T.N. Srinivasan (2000), economics professor at Yale University, also advocates
taking TRIPS out of WTO altogether or at least renegotiating some of its provi­
sions. The arguments put forward as benefits to developing countries of high IP
standards are that this would encourage local innovation, and foreign enter­
prises would be more willing to transfer technology and to invest.

“These a priori arguments are based on the premises that first IPR protection of
the type imposed by TRIPS is needed to encourage innovation and second that
foreign enterprises place a significant weight on the strength of IPR protection
regime. The theoretical justification for and even more importantly the empiri­
cal evidence in support of both these premises is not at all strong.... It would
appear that patent protection as a spur to innovation does not appear to be pow­
erful in the real world. And the cost to the general public of restricting access to
new technology through patenting may be high.”

In relation to balance of gains and losses and to the effect on competition,
Sreenivasan states: “Most of the gainers from TRIPS are in rich developed
countries and only a few, if any, in poor countries. This being the case, even if
gains outweigh losses, international transfers would be needed to compensate
losers. No such transfers from gainers to losers are envisaged as part of TRIPS.

10

Besides, TRIPS, unlike tariff reductions, involves the creation or strengthening
of the monopoly position of developed country producers in the markets of
poor countries. Thus, TRIPS creates a distortion of monopoly in developing
countries, the rents from which accrue to the rich. Besides, any acceleration of
innovative activity, which is the only rationale for granting monopoly rights, if
it comes about at all, will take place mostly in rich countries. Whether some of
the benefits from any acceleration of innovation in the rest of the world will
accrue to poor countries is arguable. In any case the benefits, if any, are uncer­
tain and in the future, but the costs to developing countries are concrete and at
the present.”

Another free-trade economist, Arvind Panagariya (1999) has argued that up­
ward patent harmonization, as carried out under TRIPS, resulted in reduced
welfare for developing countries and the world as a whole. His thesis is summa­
rized as follows:
“Suppose the world is divided into two regions, North and South. North is much
bigger than South in economic terms and has a comparative advantage in inno­
vations. Initially the patents are given a life of 20 years in North and 5 years in
South. This means that innovators are able to exercise monopoly power over
the product they innovate for 20 years in the North and 5 years in the South.

“The introduction of TRIPS which extends patent life in South from 5 to 20
years has two main effects. First, it extends the monopoly distortion in South on
all products innovated from 5 to 20 years. The resulting inefficiency lowers the
welfare of South as well as world. In addition, the extension of the patent trans­
fers a part of Southern consumers’ income to Northern innovators through higher
producer prices. This redistribution further lowers the income in South and
raises that in North. The loss to South is larger than to the world as a whole.”
“The second effect of the extension of the Northern patent system to South is
the generation of some additional innovations. Prospects of the monopoly power
in South for an extra 15 years may encourage some more products to be inno­

11

vated. Benefits from these innovations counteract the loss due to increased
monopoly distortion on products innovated under the old regime. But given the
small size of South, extra innovations generated are likely to be few. The loss
from monopoly distortion for additional 15 years is almost guaranteed to domi­
nate the benefit from the extra innovation.”

12

5

Examples of Effects of
IPRs on Competition and
Welfare

AS earlier stated, a proper balance is required between the monopoly granted to
IP holders and the needs of the public to use the inventions. The upward har­
monization of IP standards has shifted the balance adversely for the public in­
terest and for development needs in developing countries. Recent develop­
ments in developed countries have also tilted the balance much more towards
the IP holders. There have been adverse effects on competition as well as con­
sumer access. Below are examples.

(a) Effects on competition and market structure
The monopoly provided by patents enables the patent holder to block or other­
wise discourage rival firms entering the market, or even in some cases to under­
take research and innovation. This may be justified if the patents are given
correctly, and for the right duration, and moreover if the IP holder does not
abuse his right (for example by harassing competitors).

The trend in some developed countries in relaxing the criteria, standards or
practice of granting patents, and the practice of some companies owning pat­
ents in harassing rivals is increasing the anti-competitive effects of IP. The study
by Jaffe and Lerner (2004) provides useful insights. The number of patents
tripled from 1983 to 2002 (from 62,000 to 177,000), accompanied by a prolif­
eration of patent awards of dubious merit, for example “inventions” that are not
new or are trivially obvious.

There has also been a corresponding explosion in patent lawsuits. One recent
trend is that an established firm with many patents demands rivals to take out
licences to its patents and many of the rivals choose to settle rather than fight
(even if they do not believe they infringe) as they do not have the means to fight
expensive cases. Many large companies engage in this patent enforcement ac­
tivities as a line of business; for example. Texas Instruments is netting almost
SI billion annually from patent licences and court settlements due to an aggres­
sive enforcement policy, and in some years this source of revenue has exceeded
net income from product sales. Besides paying royalties, the small firms may
reduce their R and D investment, shying away from innovations in areas where
big firms have patents. Thus, the effect is the suppression of innovation by
younger and smaller firms, and the reduction of competition in the market.
A second trend is the emergence of individual inventors who hold up estab­
lished firms. The individuals have been granted patents of dubious validity,
with overly broad claims. The established firms often choose to settle rather
than face the uncertainty of a court case.

One example of a “trivial” patent affecting competition is the case of giant jam
and jelly maker J.M. Smucker (which holds a patent for a “sealed crustless
sandwich” with fillings in between pieces of bread) threatening to sue Albic’s
Food, a small grocery in Michigan state US for selling crustless peanut butter
and jelly sandwiches. The case went to federal court, with Albie arguing that
this type of sandwich had been popular in Michigan since the 19th century.
Eventually the two parties reached a settlement. Other examples of dubious
patents are “method for exercising a cat” and “method of swinging on a swing.”
According to Jaffe and Lerner (2004: pp.34-35), the US Patent Office has be­
come so overtaxed and its incentives so skewed to granting patents that the tests
for novelty and non-obviousness (to ensure only true inventors get patents) have
become largely non-operative. Simultaneously, changes in the court system have
made patents more powerful legal weapons than they used to be, with a paten­
tee more likely to win an infringement suit against a broader array of possible
infringers than before. “The result has been a dangerous and expensive arms
14

race, which now undermines rather than fosters the crucial process of techno­
logical innovation.”
Jaffe and Lerner propose that the way to get the system back on track is to
restructure the incentives of all the parties (patent office, potential applicants,
other inventors, and patentees) to reduce the flow of applications, improve the
rigor of examination and reduce the incentive to use patent litigation as a com­
petitive weapon.

(b) Effects on competition, prices and access to essential goods

The monopoly rights granted to patent holders enables them to restrict compe­
tition and charge monopoly prices. Proponents of IP point to the need for inno­
vators to recoup the cost of research, and thus a mark up on normal profits is
needed. However, critics claim that in some cases the balance is tilted in favour
of the patent holders, who make excessive or even exorbitant profits by over­
charging consumers excessively high prices, even after taking account of the
need to recoup research costs. In order for policy makers to be able to judge
whether the balance is struck, or how far it has been missed, it is important to be
able to obtain data on costs and prices from the companies that hold the patents.

In medicines, the effect of patent monopolies on prices is demonstrated by data
that compare prices of patented/branded and generic products; the prices of the
same product sold in different countries; and the prices of raw materials used in
producing medicines in the open competitive market and in transfer-pricing
practices of TNCs. The following are some conclusions.

(i)

Prices of branded or patented products are often far higher than prices of
generics. A comparison of H1V/AIDS medicines in 2001 show that the
US price of 3TC (lamivudine) by Glaxo was USS3,271 per patient per
year while the Indian generic producer Cipla’s price was S190. For viramune
(nevirapine), the branded product was sold in the US for S3,508 while the
Cipla generic price was S340 (Kavaljit 2001).

15

(ii) When generic competition is introduced, prices of the patented product
will fall. For example, the drug simvastatine was sold in branded version
in Malaysia (where there was no generic competitor) for SI050 per 100
units; in India the same brand was sold for SI8 as there was a generic
competitor which was sold for SI 1 (K. Balasubramaniam 2002). In Bra­
zil. when the government started producing generic versions of AIDS dings,
the prices of equivalent branded products dropped by 79% (Medicins
sans Fronticres 2001).
(iii) When a drug company sells the same product in different countries, it
differentiates the prices according to “what the market can bear”. Where
alternative or generic medicines are available, a branded product is usu­
ally priced lower; the same brand will sell at higher price levels in coun­
tries where there is no competition. The same brand zantac was sold cheaply
in India (S2 for 100 tablets) because it faced generics competition. It was
sold at S3 in Nepal, S9 in Bangladesh. S30 in Vietnam, S37 in Thailand,
S55 in Malaysia, S61 in Sri Lanka. S63 in Philippines and S183 in Mongolia.
It was also sold at $23 in Australia, S77 in Canada, SI96 in Chile, $132 in
El Salvador. SI50 in South Africa and S97 in Tanzania (Health Action
International 1998).
(iv) TNCs practice transfer pricing in the trade of raw materials used in the
drugs, raising the cost of medicines in developing countries. A study in
Pakistan found that TNCs exported raw materials to their subsidiaries in
Pakistan at much higher prices than the prices of the same raw materials if
purchased from the open international market at competitive rates. In the
case of a drug produced by a German company, the price for raw materials
charged to the company’s subsidiary in Pakistan was SI 1,092 per kg
whereas the competitive international price was S320, a price difference
of 3.360%. An Italian company charged its Pakistan subsidiary for raw
materials at a price 7,044% more than the international market price (Health
Action International 1994).

16

(v)

Some surveys show that drug companies can charge more in developing
countries than in developed countries for the same branded products. For
example, in 1998, retail prices of 10 out of 13 commonly used drugs were
higher in Tanzania than in Canada; the average retail prices of 20 com­
monly used drugs in 10 countries of Central and South America were all
higher than the average retail prices of the same drugs in 12 OCED coun­
tries (Health Action International 1998).

(c)

Patenting of lifeforms

An example of abuse of the patent system is in the patenting of biological re­
sources and the misappropriation of these resources and associated traditional
knowledge. The patenting of these resources can lead to monopolization of
these resources by corporations mainly of developed countries, thereby affect­
ing the competitiveness of developing countries.
Article 27.3(b) of TRIPS lacks clarity as to the rationale of differently treating
categories of life forms as to their possible exclusion from patentability. There
is an artificial distinction made between plants and animals (which may be
excluded) and micro-organisms (which may not be excluded); and also between
“essentially biological” processes for making plants and animals (which may
be excluded) and non-biological and microbiological processes (which may
not be excluded).

TRIPS thus obliges WTO members to grant patents for micro-organisms and
non-biological and micro-biological processes for the production of plants and
animals. There is no reason why these have been singled out for patentability,
whereas members are given the discretion to prohibit patents on plants and
animals, and on biological processes.
By stipulating compulsory patenting of micro-organisms (which are natural living
things) and microbiological processes (which are natural processes), the provi­
sions of Article 27.3 contravene the basic tenets on which patent laws are based:

17

that substances and processes that exist in nature are a discovery and not an
invention and thus arc not patentable. Moreover, by giving Members the option
whether or not to exclude the patentability of plants and animals, Article 27.3(b)
allows for life forms to be patented.

In recent years, there has been a great patent race among companies and institu­
tions (mainly in developed countries) to obtain patents for genes, microorgan­
isms and other biological substances. This “gene patent rush" was the subject
of an investigation by GcneWatch UK and The Guardian (London). The latter
published a special report on The Ethics of Genetics on 15 November 2000.
Using a comprehensive commercial database, its study covered the patents on
DNA sequences (partial and complete gene sequences) in 40 patent authorities
worldwide including the US. European, Japanese and German Patent Offices.
The investigation found that as of November 2000, patents were pending or had
been granted on more than 500,000 genes and partial gene sequences in living
organisms. Of these, there were over 9,000 patents pending or granted involv­
ing 161,195 whole or partial human genes in early November 2000. The re­
mainder of the genes where patents are pending or granted are related to plants,
animals and other organisms.

This “gene patent rush” indicates that the corporations believe they can make
substantial profits from owning patents to genes and micro-organisms. How­
ever, people in developing countries are adversely affected. Most of the patents
are to institutions in developed countries and they obtain the monopolies and
the benefits. The granting of patents prevents developing countries not having
the patents from making use of the patented materials. Moreover, many of the
genes and micro-organisms may originate in developing countries, and thus
“misappropriation” or biopiracy is taking place. Also, the genetic material may
be inserted via vectors such as bacteria into plants and animals, and all these
living things (the genetic material, the genetically-modified bacteria, and the
genetically-modified plants and animals) may then be patented. The result is a
concentration of ownership of patents and a concentration of the benefits from
owning the patents in a few people or institutions, with detrimental effects on
18

competition and on social and economic situation (including food security and
livelihood of farmers) especially in developing countries.
(d) Agriculture, biological resources and traditional knowledge

Before TRIPS, developing countries were able to deal with agriculture, food
and genetic resources in their own way. Several countries excluded agriculture
and food from IP protection. However, TRIPS Article 27.3(b) provides for
protection of plant varieties by either a patent, a sui generis system or a combi­
nation of both.
In several developed countries, patenting of plants, plant varieties and tradi­
tional knowledge associated with their use is already taking place. In that pro­
cess, “biopiracy” or the misappropriation of biological resources and traditional
knowledge is taking place, as plants and seeds originating in developing coun­
tries are being patented, usually without the knowledge or consent of these
countries of origin.
According to Action Aid (1999), between 1985 to 1999, about 11,000 patents
on plants had been registered in the US. In the European Union, patent law has
been extended to microorganisms and genes of plants, animals and humans.
Thus, if a company has a patent on a gene from a rice variety, it can obtain a
patent on new rice plants engineered with that gene.

The Action Aid study stated that techniques to decode and identify the best plant
genes are accelerating and the biotechnology industry is racing to map the ge­
nomes of the world’s staple food crops with a view to patenting the vital and
most interesting genes. The farmers of developing countries that developed
the world’s food crops would have no effective rights over the varieties, due to
the patenting being carried out by the transnational companies.

According to the study: “Only 10 per cent of seed is bought commercially in the
developing world and many poor fanners buy seed only once in five years...We
believe the right to livelihood - a basic human right - is threatened by patents on
19

life in food and agriculture. Our analysis is that these patents pose a threat to
fanners' livelihoods and global food security. They may decrease tanners’ ac­
cess to affordable seed, reduce efforts in public plant breeding, increase the loss
of genetic diversity and prevent traditional forms of seed and plant sharing.”
The study also found that companies were seeking patent protection on gene
sequences, proteins, plants and seeds. Three quarters of patents on plant genes
were by the private sector, and almost half of 601 patents on plant DNA were
filed by just 14 multinational companies. The study commented: “Although
patented plants and genes may have evolved in developing countries, there is
no system of informed consent to notify the communities involved of the inten­
tions of genetic collectors. This is the case even if the “invention” relies upon
the knowledge and insight of local people. This is characterised by countries in
the developing world as ‘theft’ of knowledge and natural living material.”
In assessing cases of patents involving “biopiracy”, the study lists in two tables
patents that have been claimed for naturally occurring compounds, genes or
gene sequences with a variety of functions. They include:
(i)

62 patents on genes or natural compounds from plants which are tradition­
ally grown in developing countries. The plants include rice (34 patents),
cocoa (7), cassava (2), millet (1), sorghum (1), sweet potato (2), jojoba
(3), nutmeg, camphor and cuphea (4), and rubber (8); and

(ii)

132 patents on genes in staple food crops which originated in developing
countries but which are now grown globally. The crops include maize (68
patents), potato (17), soybean (25) and wheat (22).

In some of those countries where there are patents on plant varieties, farmers
are being prosecuted for alleged violation of IPRs. These developments could
be reproduced in developing countries in the future.
A report by the Center of Food Safety (2005) based in Washington documents
how American farmers have been impacted by litigation arising from the use
20

of patented genetically engineered crops produced by Monsanto. The report
notes that, to date, Monsanto has filed lawsuits against 147 American farmers
and the company has a staff of 75 devoted solely to investigating and prosecut­
ing farmers.
The report expresses concern that in its quest to be the source for staple crop
seeds in the US and around the world, the company will overturn centuries-old
farming practices through lawsuits. The largest recorded judgment that was
found thus far in favor of Monsanto as a result of a farmer lawsuit is
USS3,052,800. Farmers have paid an average of US$412,259 for cases with
recorded judgments. Many farmers have to pay additional court and attorney
fees as well as costs of the company.

The study found that fanners even have been sued after their fields were con­
taminated by pollen or seed from someone else’s genetically engineered crop;
when seed from a previous year’s crop has sprouted, or “volunteered,” in fields
planted with non-genetically engineered varieties the following year; and when
they never signed Monsanto’s Technology Agreement but still planted the pat­
ented crop seed. In all of these cases, because of the way patent law has been
applied, farmers are technically liable. It does not appear to matter if the use
was unwitting or if a contract was never signed.

According to a press report (Inter Press Service 14 January 2004), a Tennessee
farmer named Kem Ralph spent four years in jail for saving and replanting
Monsanto’s Roundup Ready soy seed in 1998 and he also had to pay the com­
pany 1.8 million dollars in penalties. The report says that even if a fanner de­
cides to stop using Monsanto seeds, the GE plants self-seed and some will
spring up of their own accord the following year. These unwanted “volunteers”
can keep popping up for five or more years after a fanner stops using the pat­
ented seeds. Under US patent law, a farmer commits an offence even if they
unknowingly plant Monsanto’s seeds without purchasing them from the com­
pany. Other countries have similar laws.

In the ease of Canadian fanner Percy Schmeiser, pollen from a neighbour’s GE
canola fields and seeds that blew off trucks on their way to a processing plant
ended up contaminating his fields with Monsanto’s genetics. The trial court
mlcd that no matter how the GE plants got there, Schmeiser had infringed on
Monsanto’s legal rights when he harvested and sold his crop. After a six-year
legal battle, Canada's Supreme Court ruled that while Schmeiser had techni­
cally infringed on Monsanto’s patent, he did not have to pay any penalties.
Schmeiser says it cost 400,000 dollars to defend himself. Another North Da­
kota fanner, Tom Wiley, said: “Farmers are being sued for having GMOs on
their property that they did not buy, do not want, will not use and cannot sell.”
The reports above show a trend in developed countries that may be replicated in
other countries, including the developing countries, should these countries also
adopt particular systems of plant varieties protection.

Developing countries that do not want to allow patents for plant varieties may
wish to introduce their own version of sui generis protection, which provides
for the rights of fanners. However, there may be pressures placed on them to
accept a certain definition and model of a "'sui generis system” for plant variet­
ies protection. These pressures may be partly caused by the lack of clarification
as to the flexibility that Members, especially developing country Members, may
have in instituting their own sui generic system of protection.
(e)

Patents and the transfer and use of technology

It has been argued that higher standards of IP can lead to transfer of technology
as foreign firms would be encouraged to invest in developing countries and
make use of their technologies. However, there is also a counter-argument that
foreign firms that have obtained patents in developing countries are able to
make inroads and profits in these countries without having to produce the pat­
ented products there, as they can import the products and sell them at monopoly
prices.

22

On the other hand, there are several ways in which a strong IPR regime can
hinder access of developing countries to technology (see Khor 2002: pp.87101). Obstacles to technology transfer make it difficult for developing coun­
tries and their firms to upgrade productivity which is necessary for them to
compete successfully. They thus impede competition.

Firstly, a strict IPR regime can discourage research and innovation by locals in
a developing country. Where most patents in the country are held by foreign
inventors or corporations, local R&D can be stifled since the monopoly rights
conferred by patents could restrict the research by local researchers. Strict IPR
protection, by its apparent bias, may actually slow the pace of innovation in
developing countries, and increase the knowledge gap between industrial and
developing countries. In such situations, the IPR system favours those who are
producers of proprietary knowledge, vesting them with greater bargaining powers
over the users (Oh 2000). The C1PR report (2002: pp. 126-130) also provides
analysis and examples of how the patent system might inhibit research and
innovation.
As pointed out by Dr Gahuur Alam (1999): “The proposed changes to the IPR
policies of developing countries have raised a number of important issues. One
of the most important of these is the likely impact of these changes on a devel­
oping country’s ability to undertake research and development in agriculture.
We are particularly concerned about the impact of a strong IPR system on re­
search aimed at the development of new plant varieties and genetically engi­
neered plants.”

In relation to biotechnology research, Dr Gahuur states: “The research in this
area is completely dominated by firms in developed countries, while public
sector research institutions (both international and national) are very weak. The
adoption of an IPR system which includes patents for biotechnology based tech­
niques and products will be extremely detrimental to local research.

23

As our study of cotton and rice research in India has shown, most of the impor­
tant techniques and genes used in the development of genetically engineered
plants arc already owned by firms in developed countries. As these patent rights
are not applicable in developing countries, local researchers arc able to under­
take research on local problems. However, once these rights become appli­
cable in developing countries, research and its commercialisation will face se­
rious problems.”

Secondly, a strict 1PR regime makes it difficult for local firms or individual
researchers from developing or making use of patented technology.
Thirdly, should a local firm wish to “legally” make use of patented technology,
it would usually have to pay significant amounts in royalty or licence fees. As
pointed out earlier, TRIPS increases the leverage of technology-suppliers to
charge a higher price for their technology. Many firms in developing countries
may not afford the cost. Even if they could, the additional high cost could make
their products unviable. Moreover, there could be a large drain on a developing
country’s foreign exchange from having to pay foreign 1PR holders for the use
of their technology. Many developing countries with serious debt problems will
be unable to afford to pay the cost of using the technologies.
Fourthly, even if a local firm is willing to pay the commercial rate for the use of
patented technology, the patent holder can withhold permission to the firm, or
impose onerous conditions, thus making it impossible or extremely difficult for
the technology to be used by the firm. Patent holders can refuse to grant permis­
sion to companies in the South to use the technologies, even if they are willing
to pay market prices; or else the technologies may be made available at high
prices (due to the monopoly enjoyed by the patent holders). Companies in the
South may not afford to pay at such prices, and if they do their competitiveness
could be affected.

An example of IP hindering technology diffusion to developing countries was
the experience of some Indian firms in trying to produce substitutes for chlorof­
luorocarbons (CFCs), chemicals used in industrial processes as a coolant, that
24

damage the atmosphere’s ozone layer. Under the Montreal Protocol, countries
have committed to phase out the use of CFCs and other ozone-damaging sub­
stances by certain target dates.
Under the Montreal Protocol, developed countries originally agreed to elimi­
nate production and use of CFCs by the year 2000, whilst developing countries
are given a ten-year grace period to do the same. A fund was set up to help
developing countries meet the costs of implementing their phase-out. and the
protocol’s Article 10 provides for technology transfer to developing countries.
Each Party is obliged to take every practical step to ensure that the best avail­
able and environmentally safe substitutes and related technologies are expedi­
tiously transferred to developing countries, under fair and most favourable con­
ditions.
A study of the effect of IPRs on technology transfer in the case of India in the
context of the Montreal Protocol has been conducted by Watal (1998). She
points out that technology transfer provisions in the Montreal Protocol are par­
ticularly relevant for developing countries which are producers of ozone-de­
pleting substances (ODS), such as India, Brazil, China, South Korea and Mexico.
In India, Korea and China, such production is dominated by local-owned firms,
for which the access to zone friendly technology on affordable terms has be­
come a central issue of concern.

The study concludes that: “Efforts at acquiring substitute technology has not
been successful as the technologies are covered by IPRs and are inaccessible
either on account of the high price quoted by the technology suppliers and/or
due to the conditions laid down by the suppliers. This would require domesti­
cally owned firms to give up their majority equity holding through joint ven­
tures or to agree to export restrictions in order to gain access to the alternative
technology.” Moreover, financial assistance to acquire the technology was also
not effective.
The study also showed how the attempts by Indian companies to manufacture
Fl FC 134a (an approved substitute for CFCs, used as a coolant in the refrigera­
25

tors and air-conditioners (RAC) were blocked by the foreign holder of the pat­
ents. Only a few companies in the developed countries control the patents and
trade secrets related to HFC 134a, and thus developing countries either have to
pay high royalty fees to produce them locally or lose the local and international
markets for this alternative.

One of the Indian companies that sought to access the technology was quoted a
very high price of USS25 million by a transnational company that produces
HFC 134a and that holds a patent on the technology. The supplier also proposed
two alternatives to the sale, that the Indian Finn allow the supplier to take ma­
jority ownership in a joint venture to be set up, or that the Indian firm agree to
export restrictions on HFC 134a produced in India. Both options were unac­
ceptable to the Indian company, whilst the quoted price was also unrealistically
high as it was estimated that the technology fee should at most have been be­
tween USS2 to S8 million and not the quoted level.

26

6

Policies and Methods to
Prioritize Competition
Principles in Relation to IP

THERE are several measures that countries can take to give higher priority to
competition principles in relation to intellectual property. Below is a discussion
on some of them.
(a) Limit the granting of IP according to correct criteria
The wrong granting of IP extends monopoly rights needlessly or to the wrong
parties, and thus widens the extent of anti-competitive behaviour and market
distortions. Perhaps the most important measure to promote competition prin­
ciples vis-a-vis IP is that governments institute policies that enable or ensure
the appropriate granting of IPRs and that the proper conditions are set (for ex­
ample with regard to duration of patent, copyright, etc). The nature of appropri­
ateness of the grant should be in accordance with the need to attain the right
balance between the need for incentives for the right holder, and society’s need
for access and use of the inventions.
The examination and granting of patents should be in accordance with the prin­
ciple that they be provided for inventions and not discoveries, and that they
meet the criteria of inventive step, novelty and industrial applicability. Thus,
patents that do not meet these tests should not be given. An efficient system
should be in place to ensure this. For example, applications for trivial or frivo­
lous patents should not be treated favourably.
Patents should also not be given for biological materials that are naturally oc­
curring. Moreover, patents should not be given for genetic resources or associ-

atcd traditional knowledge that belong to other parties or that are in the public
domain. For that purpose, the patent regime nationally and internationally should
require that applications in this area should be accompanied by disclosure of
sources and countries of origin, evidence of prior informed consent of such
sources of origin, and evidence of adequate access and benefit-sharing arrange­
ments.
A usefill set of guidelines is provided in CIPR (2002: p.49, p.l 14) which states
that the underlying principle in developing country' legislation should be to aim
for strict standards of patentability and narrow scope of allowed claims, with
the objective of:
•

limiting the scope of subject matter than can be patented;

•

applying standards such that only patents which meet the requirements for
patentability are granted and that the breadth of each patent is commensu­
rate with the inventive contribution and the disclosure made;

•

facilitating competition by restricting the ability of the patentees to pro­
hibit others from building on or designing around patented inventions;

•

providing extensive safeguards to ensure that patent rights are not exploited
inappropriately; and

•

considering the suitability of other forms of protection to encourage local
innovation.

The CIPR report also provides details on the implementation of each of the
objectives.
The duration to be given to patents, copyright and other IP should be appropri­
ate in that it be sufficient to enable the innovator to recover the costs of research
and innovation but not so much as to enable excessive profits. Prices can be

28

regulated to ensure that the right of consumers to access to essential good and
services is respected.
(b) Providing for and making use of exceptions, exemptions and
limitations

There should be policy space, especially for developing countries to have ad­
equate provisions for exceptions, exemptions and limitations to IP in accor­
dance with development needs and requirements, and the rights to access of
essential goods and services.

Where such exceptions and limitations exist or are allowed in international
laws such as TRIPS, developing countries should make use of them. This would
reduce the extent of monopoly and increase the extent and scope of competition
in the economy, as well as catering to the fulfillment of rights and access to
essential goods and services.
Organizations like WTO, WIPO and other UN agencies should provide techni­
cal assistance to developing countries on how to make use of the exceptions,
exceptions and limitations allowed by international laws, by incorporating them
in domestic law and thereafter in practice.

Existing international laws should be examined for whether the exceptions,
exemptions and limitations are adequate in providing the necessary balance,
and to allow the fulfillment of rights and access to essential goods and services.
The review should then result in the appropriate clarifications and amendments.
Negotiations for new IP-related treaties or new provisions or amendments to
existing treaties should fully take these factors into account. Bilateral and re­
gional trade/economic arrangements should not have TRIPS-plus provisions.
(c)

The proper design and implementation of flexibilities

Besides exceptions, international frameworks should also contain adequate
flexibilities especially for (but not limited to) developing countries to enable or
29

even encourage them to take measures that may be required to offset IPRs that
are granted. Such measures are meant to uphold the principles of competition
and meeting the need of access to essential goods and services.

Among these safeguard measures are compulsory licensing, parallel importa­
tion and government and non-commercial use. Technical assistance should be
provided in (i) raising the knowledge of developing countries and their institu­
tions about their existence, rationale and use, (ii) instituting them in national
law and (iii) implementing these measures.
The existing international treaties should also be examined for their adequacy
in providing for these safeguard measures, and clarifications or amendments
made to strengthen these where needed. Negotiations for new treaties should
fully take into account the need for adequate safeguards. Bilateral and regional
trade and economic arrangements should not contain provisions that restrict the
flexibilities that are allowed by international treaties such as TRIPS.

At the national level, governments should review existing legislation to fully
incorporate the flexibilities that are allowed, and then institute policies and
mechanisms to implement them.
(d) Competition principles and legal provisions in laws relating to IP
and beyond
Pro-competition principles and measures that exist in IP-related international
treaties should be fully recognized and appreciated and technical assistance
should be provided to developing countries to enable them to be aware of these
and to incorporate them where possible in national legislation, policy and prac­
tice.

For example, Article 8.2 of TRIPS under general principles states that appro­
priate measures (consistent with the agreement’s provisions) may be needed to
prevent abuse of IPRs by right holders or the resort to practices which unrea­
sonably restrain trade or adversely affect technology transfer. As pointed out in
30

Roffe (1998), while licensing is a legitimate activity of IPR holders and in most
cases can be seen as pro-competitive in legitimizing access to technology to
third parties, these activities may also (as noted by the OECD) be “anti-competitive where they are a mere sham for a cartel arrangement, where they re­
strict competition between technologies that are economic substitutes for one
another or where they exclude new technologies from the market.”

Section 8 of TRIPS on “Control of anti-competitive practices in contractual
licenses” has an Article 40 that recognizes that some licensing practices or
conditions pertaining to IPRs which restrain competition may have adverse ef­
fects on trade and impede technology transfer and dissemination. Article 40.2
says that nothing in the agreement shall prevent members from specifying in
their legislation licensing practices or conditions that abuse IPRs, having ad­
verse effect on competition, and a member may adopt appropriate measures to
prevent or control such practices, including exclusive grantback conditions,
conditions preventing challenges to validity and coercive package licensing, in
light of relevant laws and regulations of that member. Article 40.3 also pro­
vides for consultations and cooperation among members (including through
supply of non-confidential information) to deal with IPR owners that are under­
taking anti-competitive practices in violation of a requesting member’s laws.
Several developed countries have laws or regulations that hold certain anti­
competitive practices as per se unlawful (see Watal 2001: pp.304-309). The
US Antitrust Guidelines for the Licensing and Acquisition of IPRs 1995 states
that among the restraints that have been held per se unlawful (by courts in the
past) are naked price-fixing, output restraints and market division among hori­
zontal competitors, as well as certain group boycotts and resale price mainte­
nance. To determine whether a particular restraint in a licensing arrangement is
given per se or rule of reason treatment, the agencies will assess whether the
restraint will contribute to an efficiency-enhancing integration of economic
activity.

The EC in its Technology Transfer Block Exemption Regulation, 240/96, (ef­
fective 1996) in general has 8 categories on its blacklist including restrictions

relating to price or output, competing markets, exports to territories within the
common market, customer allocations. R&D activities or full grantbacks of
licence improvements.
Japan’s Guidelines for Regulation of Unfair Trade Practices with respect to
Patent and Know How Licensing Agreements (introduced in 1989) treats 5
types of restrictions as unfair trade practices, unless specific justification can be
shown to the contrary; these are restrictions and domestic prices of patented
goods, prohibitions on handling or using competitors’ goods or technology or
requirements on payment of royalties after licence expiry. R&D restrictions
and exclusive grant back requirements.

Some Commonwealth countries, following the UK, have a provision in their
patent laws that certain anti-competitive practices in patent licences are auto­
matically deemed to be null and void. For example, Australia’s Patents Act
1990 hold invalid any conditions that restrict the licensee from purchasing or
using a product or process supplied by the licensor’s competitors or that re­
quires the licensee to acquire a product not protected by the patent from the
licensor; in addition the Australian Trade Practices Act 1974 specifically pro­
hibits 5 activities: anti-competitive agreements (including price fixing and ex­
clusionary provision), misuse of market power, exclusive dealing, resale price
maintenance, mergers and acquisitions with a substantial lessening of competi­
tion.

According to the above regulations, the mentioned features in contractual IP
licences are anti-competitive per sc and thus deemed unlawful in general; thus
it would not require a case-by-case examination to determine whether the men­
tioned activities are anti-competitive.
Following the example of developed countries, developing countries should
specify anti-competitive conditions in 1PR licences to be per se null and void.
As seen from the above examples, there is leeway for countries to determine
what licensing conditions can be considered to have anti-competitive effects
per se and this flexibility should be retained. However, as pointed out in Watal
32

(2002: p3O7), in many cases it is not the restrictive nature of IPR licences that
are a cause of concern but the outright refusal to transfer technology without
other cross licensing arrangements, to which developing country enterprises
may have no access. Also, the question as to whether refusal to deal or license
a patent by the right holder can be considered a patent misuse, has to be clari­
fied. Roffe (1998) provides a useful account of the evolution of international
negotiations in and outside the TRIPS Agreement, on restrictive practices, and
their implications for interpreting and implementing TRIPS.

There are other provisions in TRIPS that deal with competition issues. For ex­
ample, Article 31 on the use of patents without authorization of the right holder,
has a sub-paragraph (k) relating to anti-competitive practices. If a compulsory
licence is granted to remedy a practice determined after judicial or administra­
tive to be anti-competitive, the obligations in subpara (b) (that before a com­
pulsory licence can be given, efforts have to be made to obtain a voluntary
licence) and in subpara (f) (that a compulsory licence has to predominantly for
the supply of the domestic market) are waived. Moreover “the need to correct
anti-competitive practices may be taken into account in determining the amount
of remuneration in such cases” and authorities can refuse termination of autho­
rization if and when conditions which led to such authorization are likely to
recur. Developing countries should include this pro-competitive safeguard pro­
vision and measure in their national legislation and policy.
Generally, it would be important for developing countries to incorporate the
pro-competition principles and elements in their national laws and regulations
relating to IP. Moreover, they should establish provisions within national com­
petition law and regulations that prohibit anti-competitive practices in IP-re­
lated licences, as referred to above.

33

7 Conclusion
THE present IP system, international and national levels, should be evaluated
in light of the crucial need for “balances” in the IP system, to enable both inno­
vation and the meeting of the public interest and development needs.

In recent years, this balance has shifted worldwide too much to the side of IP
holders in both international IP frameworks and in national law or practice of
many countries.

This is of concern particularly for developing countries as the characteristics
and conditions of such countries make them especially susceptible to adverse
effects.

The global harmonization of IP laws (towards the standards and practices of
developed countries), especially through the WTO, WIPO and bilateral/rcgional
agreements, has contributed to the imbalances and the spread of conditions that
make it more difficult for developing countries and their enterprises and institu­
tions to compete.
Thus, a review of the international IP frameworks is required to determine the
sources of the imbalances, while a review of national frameworks are also re­
quired so that the existing flexibilities can be properly made use of.

Meanwhile, further harmonization initiatives at international level should be
reviewed in light of the need to regain balance.

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Chang, H.J. (2002). “Intellectual Property Rights and Economic Development: Historical
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CIPR (2002). “Integrating Intellectual Property Rights and Development Policy”. Commis­
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36

INTELLECTUAL PROPERTY, COMPETITION AND
DEVELOPMENT
A discussion on competition policy and intellectual property rights (IPRs) should take
into consideration whether IPRs affect the competitiveness of developing countries
and their enterprises, as well as the access of their consumers to essential goods and
services and the access of small enterprises to technology and production inputs.

The balance between both IPRs and development and IPR holders’ interests and the
public interest has significantly shifted against development and the public interest due
to inappropriate upward harmonization of IPR standards resulting from the TRIPS
Agreement of the World Trade Organization and some recent treaties of the World
Intellectual Property Organization.
The inappropriate application of IPRs has increased monopolization of industrial struc­
tures, increased drug prices, affected farmers’ rights and facilitated biopiracy in agri­
culture and led to wrongful patenting of naturally occurring genes and microorgan­
isms.

To control the anti-competitive effects of IPRs, systems are needed that prevent the
wrongful granting of patents. Exceptions, limitations and flexibilities in IPRs should
be expanded or strengthened in TRIPS and other global treaties, and technical assis­
tance should stress their significance and use in developing countries.
Also required is a review of existing global IPR treaties in light of development and
public interests, and the halting of further harmonization of IPR laws and practices
until there is a change in fundamental principles in the IPR framework that makes it
balanced.

MARTIN KHOR is the Director of the Third World Network. He is an economist

trained in Cambridge University and has authored several books and numerous ar­
ticles on trade, development and environment issues.

TWN INTELLECTUAL PROPERTY RIGHTS SERIES

is a series of papers published by the Third World Network to provide
a critical analysis of intellectual property rights protection from a Third
World perspective. A particular focus is given to the WTO Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS) and its
implications for developing countries.

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