trade related intellectual property rights. topics agreement on trade related aspects of...

Trade Related Intellectual Property Rights

Topics

• Agreement on Trade Related Aspects of Intellectual Property Rights

• Theory of Intellectual Property Rights

• Co-evolution of Property Rights System and Human Nature

• Problems with TRIPS

• Drug industry: A recent case

• Medicine for developing countries

Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)• It was negotiated at the end of Uruguay Round of GATT

in 1994.• It contains requirements that nations’ laws must meet

for: copyright rights, patents, trademarks,…• It introduced intellectual property law into the

international trade system for the first time.• Prior to it, intellectual property rights was enforced by

other agreements, treaties, etc, unrelated to GATT nor WTO.

• Even many advocates of trade liberalization also regard TRIPS as bad policy.

Theory of Intellectual Property Rights

– Trademarks• I cannot sell my computer I made at home using

the IBM trademark

– Copyrights• applies to creative, intellectual, or artistic forms

such as poems, plays, movies, musical composition, etc.

• Gives the copyright holder the right to be credited for the work, to determine who may adapt the work to other forms, who may financially benefit from it

• It protects the “expression” of an idea, but not the “idea” itself.


• An example: Although the Dalai Lama owns the copyrights for books that he wrote, Premier Wen Jiabo can still use the principles developed there to improve his well being.

– Patent• Patent gives the holder the monopoly power to

make use of the protected idea for a period of time

• A drug: a patent restricts others from making the same drug without a license


• Benefits and Costs in IPR

• Benefits:– protection is needed to encourage creative

work and innovation– The stricter the more innovative activities—not

clear


• Costs:– IPR creates monopolists, who charge P>MC and

creates deadweight losses– for products that exhibit positive externality (e.g.

drug), they are already under provided even if P=MC.

– Detriments to innovation• In case multiple patents covering various ideas that go

into an innovation,…• Difficulty of defining an invention. How novel should it

be?


– Costly enforcement of IRP• Again, difficulty of defining an invention. • Terminator seed: a new seed is not introduced to

the market under a fertile version is made• “Guard service” by companies and also by

governments—a music company hires spying agents to monitor activities in internet, the government hires more law enforcement agents


• Strong protection needs not be good• No protection at all may be optimal• Bessen and Maskin (2007 Nobel laureate )

wrote:– “We argue that when discoveries are “sequential”

(so that each successive invention builds in an essential way on its predecessors) patent protection is not as useful for encouraging innovation as in a static setting.

– Society and even inventors themselves may be better off without such protection”


• Kenneth Arrow (Nobel laureate 1973) wrote in 1999:– “…information is a fugitive resource…[W]e are just

beginning to face the contradictions between the systems of private property and of information acquisation and dissemination… [We may see] an increasing tension between legal relations and fundamental economic determinants”

• Increasing tension because of the increasing importance of creation of ideas


• Who said this? And when?– “At a certain stage of their development, the

material productive forces of society [its technologies] come in conflict with … the property relations within which they have been at work before. From forms of development of the productive forces these relations turn into their fetters. Then begins an epoch of social revolution.”

Co-evolution of Property Rights System and Human Nature

• Eric Raymond (1999) said,– “The culture’s “big men” and tribal elders are

required to talk softly and humorously deprecate themselves at every turn in order to maintain their status …[a person in this culture] consciously distrusts and despises egotism and ego-based motivations; self-promotion tends to be mercilessly criticized.”

– commenting on the open source movement

• A new kind of property rights institution is being created


• Samuel Bowles takes a longer view that human nature and property rights institution are co-evolved.

• Even in the present, people are by no means purely selfish

• Survival of fitness.– Selfishness not optimal in a world where property rights are

not easily defined and enforced.– Equalitarianism and non-selfishness people will survive and

flourish• Three pillars of a modern society: state, market, and

community • Emergence of communities in which people share their

output.


Type of economy Property rights institution

Human Nature

private shared

Gather-hunters economy

small articles of art work

Food Equalitarian, humble leader

Grain and steel economy

Almost everything

Selfish, leader with big ego

Weightless economy (speculation only!)

Cars, Houses,

Creation of ideas

Increasing degree of equalitarianism

Problems with TRIPS

• Intellectual property does not really belong in a trade agreement.

• The US Council of Economic Advisors, of which Stiglitz was a member, was against the adoption of TRIPs during its negotiations in 1993.

• The World Intellectual Property Organization (WIPO), a United Nations agency, was established in 1970.

• TRIPs attempts to impose a single standard for intellectual property law on the world.

Problems with TRIPS

• One-size-fit-all problematic!– Developing countries benefit from lax

property rights protection than strict one.

• Trade and Value

• Bio-piracy by developed countries

• Causing acute problems in fighting disease in developing countries

Problems with TRIPS

• One-size-fit-all problematic– Developing countries do perform much

innovation activities. Allowing them less restricted imitation promotes development and growth, benefiting developed countries in the long run

– Should push for separate intellectual property regimes for the least developed, the middle-income, and the advanced industrial countries.

Problems with TRIPS

• Europeans have strong feelings against genetically modified (GM) foods. Under WTO rules, it may not be possible to bar them (scientific evidence does not showing hazardous effects).

• Europeans ask: why should they be forced by an international trade agreement to accept the risk, if the majority believes that it is a risk not worth taking?

• The US is against full disclosure of the GM content of these foods because it says it is a trade barrier!

• The US tried (unsuccessfully) in the Uruguay Round to force the elimination of government subsidies for cinema production. (France and Morocco have them.)

Problems with TRIPS

• Chapter 11 of NAFTA stipulates that a government is liable to the loss of a foreign firm that it incurs due to any regulations (however righteous it is) the government has passed.

• A village in Mexico tried to force Metaclad, a US waste disposal company, to close a toxic waste site that was contaminating the local water supply, the Mexican government was forced to pay $16.7 million in compensation.

Problems with TRIPS

• Bio-piracy – Foreign companies take away developing countries’

traditional knowledge and their native plants without compensation—”bio-piracy”.

– An international biodiversity agreement was signed in June 1992 at an UN conference. While recognizing the right to compensation, the agreement has not been ratified by the US.

– Almost half of the 4,000 plant patents granted in recent years by the US pertain to traditional knowledge obtained from developing countries

Problems with TRIPS

• Turmeric (姜黄 )—– It is a spice used in South Asia with its healing

properties long well known there. – The US issued a patent for the medical use of

turmeric in 1993. – The patent was eventually overthrown, but not

without expensive litigation• Basmati rice—

– It has been eaten in India for hundreds, perhaps thousands, of years.

– In 1997 an American company, RiceTec Inc., was granted patents on basmati rice. But India fought back and won.

Problems with TRIPS

• TRIPS agreement & Bio-privacy– TRIPS enables the western firm to legally

obtain enforceable patent even in the country where the traditional knowledge originates from.

– Indian would no longer be able to plant basmati rice because of the agreement (should the patent had not been overthrown)

Problems with TRIPS

• Drug industry– Prior to TRIPs, developing countries could

produce generic medicine as they pleased to do so. No restrictions from western patent holders

– Now, they are subject to the restrictions, paying huge amount for expensive medicine, or facing sanctions and complaints via WTO

– Unclear rights: compulsory license

Problems with TRIPS

– compulsory license allows a country to produce or buy patented drugs without consent from patent holders “when they decide there is urgent need to broaden access to technology or medicines”

– Rights granted in TRIPS agreement—that was why developing countries would sign it

– problems: • it does not allow a country to buy such without-

consent patented drugs from another country,• compulsory license or breaking patents?

Problems with TRIPS

• Developing countries have been demanding a revision of TRIPs, a “TRIPs minus” agreement. (But the US has insisted on “TRIP plus” in recent bilateral trade agreements and succeeded in some cases.)

• In Oct 2004, the WIPO General Assembly adopted a resolution put forward by Argentina and Brazil for a development-oriented intellectual property regime.

Drug industry: A recent case

• In 2007, Thailand announced that it was “breaking patents” on drugs to treat HIV and heart disease.

• Abbot, the marker of the AIDS drug Kaletra, withdrew from Thailand all its new products—for rheumatoid arthritis, kidney disease, heart disease, and high blood pressure.

• “Thailand has chosen to break patents on numerous medicines, ignoring the patent system…As such, we’ve elected not to introduce new medicines there,” said a spokeswoman.


• On April 10, 2007, Abbot announced that it would slash the price of Kaletra in low and medium-income countries, including Thailand that to 55 percent less than the current price.

• The Swiss drug company Novartis had offered an effective 75 percent price reduction in its leukemia medicine, Glivec—after Thai officials said they were studying a compulsory license on the drug.

• Merck, the US drug maker, had also offered to cut the price of its HIV drug, which Thai government announced it would break its patent in November 2006.


• An industry lobby group urged the US government to put Thailand on its list of the worst violators of intellectual property, an annual classification issued by the US Trade Representative’s Office.

• “Compulsory licensing should be the last resort, when there is no other alternative. The minister of public health is using compulsory licensing as a tool to force the companies to reduce the price,” complained the lobby group.

• A proposal to reform the drug industry: “Medicines at cost to developing countries” (see, Stiglitz MGW)

Medicine for developing countries

• Most drug companies spend far more on advertising than on research, more on research for lifestyle drugs (e.g., hair growth) than for disease-related drugs.

• A commonly cited estimate: Half of all global health R&D in 1992 was undertaken by private industry, but that less than 5% of that was spent on diseases specific to poor countries

• Not only too expansive, but also too few medicines

Medicine for developing countries

• Vaccination may be a better way to combat a disease such as malaria for a developing country

• No private drug company has incentive to develop new vaccine though!

• “Advance purchase commitment” is proposed to solve the problem (Michael Kremer of Harvard University)

• Sponsors commit to purchase a certain quantity if a new vaccine is found; they don’t need to pay if not found.

• The committed price and quantity are calculated in such a way to create a market size for an average new medicine

Medicine for developing countriesAdvance market commitment Example for malaria vaccine

Legally binding contracts Offer made by a group of sponsors

Total market value appro. Equal to sales revenues earned by average new medicines

Total market size of $3B.

Sponsors under-write a specific price $15 per treatment

Price guarantee applies to a maximum number of treatments

Guarantee for first 200 million treatments

Treatments sold in eligible countries Vaccine fund eligible countries

In return, the developer guarantees to sell subsequent treatments at a low price

$1 per treatment

Recipient country makes a co-payment for the products they buy

$1 paid by recipient

$14 paid by sponsors

Successful developers receive $15 per treatment sold.

Subsequent products are also eligible for the guarantee price, if superior to existing products—as developing countries can switch their demand to these subsequent, superior products

An independent adjudication committee oversees the arrangement.

Further Readings

• Stiglitz: MGW, chapter 4 (required)• On the compulsory licensing related to the Thailand

case, see April 26, 2007: http://www.democracynow.org/ (required)

• Samuel Bowles’s idea can be found in an article linked in the course page (in Chinese, optional only)

• For papers on advance purchase commitment, see Michael Kremer’s work, and in particular his 2006 paper in Innovations: http://www.economics.harvard.edu/faculty/kremer/files/innovationsFinal.pdf (required)

http://www.democracynow.org/

http://www.economics.harvard.edu/faculty/kremer/files/innovationsFinal.pdf

http://www.economics.harvard.edu/faculty/kremer/files/innovationsFinal.pdf

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