TWN Info Service on WTO and Trade Issues (June08/23)
30 June 2008
Third World Network

WIPO: Meeting on patent law, as Secretariat issues report
Published in SUNS #6501 Monday 23 June 2008

Geneva, 20 Jun (Sangeeta Shashikant) -- After a long break, WIPO's Standing Committee on Patents (SCP) meets next week starting 23 June to discuss how the SCP should continue its work.

Before the SCP is "Report on the International Patent System" prepared by the WIPO Secretariat (SCP/12/3) as tasked by the 2007 WIPO General Assembly (GA).

The GA agreed to the Secretariat preparing a report on issues relating to the international patent system covering the different needs and interests of all Member States and contextualizing the existing situation of the international patent system, including references to the WIPO Development Agenda process. An outline of the report was also agreed to by member states. The report, which would not contain any conclusions, would be the working document for the upcoming SCP meeting.

There is a deadlock in the SCP negotiations due to strong disagreements in recent years largely along North-South lines, as to how SCP should continue its work with regards to the draft Substantive Patent Law Treaty (SPLT).

Developed countries (US, Japan and the European Patent Office (EPO) wish to continue discussion only on 4 issues (prior art, grace period, novelty and non obviousness/ inventive step) while most developing countries led by the Group of Friends of Development (GFOD) would like any discussion on SPLT to also address 9 other issues: development and policy space for flexibilities; exclusion from patentability; exceptions to patent rights; anti-competitive practices; disclosure of origin, prior informed consent and benefit-sharing; effective mechanisms to challenge the validity of patents; sufficiency of disclosure; transfer of technology; and alternative models to promote innovation.

No formal SCP session has taken place since June 2005. Next week's meeting is supposed to result in an agreed work programme.

Initial reactions to the Secretariat's Report are mixed. Some delegates and NGOs told SUNS that the Report does discuss key elements of the patent system, but several felt that there is a distinct bias that looks too favourably at the current patent system throughout the document.

For example, despite the lack of concrete evidence acknowledged by the Report itself, it tries hard to establish a positive link between patents and transfer of technology as well as foreign direct investment (FDI).

Also, the Report argues strongly in favor of harmonization of patents regimes, while making only passing reference to the current global debate and public scrutiny of the patent system and its ability to meet development and public policy objectives.

"Efficiency" of the patent system seems to be the theme of the Report as it pushes for an international patent system. In doing so it focuses discussion on reducing the burden of national patent offices without sufficiently addressing the loss of policy space for developing countries (which are not users of the system) to design the patent system according to their needs.

For example, there is little discussion on how an international patent system could increase the number of (mostly foreign owned) patents in a country, and what are the economic and social implications.

In any case, reading the Report does not add to any argument that the SPLT negotiations should now re-start.

If nothing else the Report shows that the issues are many, complex and inter-linked and that there are diverse and contrasting interests among stakeholders and countries.

It is thus more useful if the report is first discussed widely, including by inviting inputs from all stakeholders, and for it to be then revised if it is to be used for any future SCP discussions.

Mr. Guilherme Patriota from the Brazil Mission told SUNS that members should be prepared for a technical discussion, adding that channels should be open for input from all stakeholders. He also cautioned against trade-offs between outcomes of the SCP and with other WIPO committees, i. e. the Committee on Development and IP (CDIP) and the Intergovernmental Committee on Genetic Resources, Traditional Knowledge and Folklore (IGC).

At the centre of the impasse at the WIPO patents committee are North-South disputes on the nature of the SPLT negotiations, including whether there is a need for it and if so what it should contain. The developed countries want to use the SPLT to further harmonise national patent law standards; they are the beneficiaries as most patents worldwide are owned by them.

This would then become a third pillar of an international patent system that would be the international legal framework for a "universal patent". The first two pillars are the Patent Cooperation Treaty (PCT) and the Patent Law Treaty (PLT).

From a development perspective, the main criticism against the SPLT is that it would establish new binding international standards in critical areas of patent law so far left to the discretion of national legislation. This would further erode the policy space of developing countries (whose space was already limited by the WTO's TRIPS agreement) to formulate IP policies according to their own developmental needs.

There is much concern among many developing countries that the SPLT will substantially reduce the hard-fought flexibilities in the TRIPS Agreement. And that this will take place even as developing countries are already feeling the adverse social and economic effects of implementing TRIPS.

In the context of this debate and impasse comes the Secretariat report, which is in 10 Chapters.

In Chapter II on the Economic Rationale for Patents and Different Interests and Needs in the International Patent System, the Report acknowledges that there is inconclusive empirical evidence on the role of the patent systems to encourage R&D and technology transfer and thus it is difficult to draw any clear cut conclusion about the effectiveness of the patent system for economic development (para 3).

Data in the report also clearly show that the players that have most to gain from a harmonized patent system are applicants from the developed countries. In 2006, 18 countries were considered intensive users, (i. e. had more than 1000 PCT filings) making up 94.8% of the filings. Aside from Korea and China, these are developed countries. In 2007, more than 60% of the PCT filings originated from the US, Japan and Germany.

This chapter makes some general sweeping statements. For example, para 22 states that "Important changes in the patent system have taken place across the world and the general view is that the world has moved towards strengthening and harmonization of the patent system".

This fails to capture the intense debate on the functioning and effects of the current patent system by policy makers, academics, legal experts and NGOs globally and within countries, including severe criticisms on the adoption of higher patent standards, especially in developing countries.

Another sweeping statement in the Report is: "In the absence of a patent system, firms will be reluctant to share technology, know-how when there is a high risk of imitation by the prospective buyer or a third party" (para 41). The reality is that even in countries where there is a functioning patent system, patent-owning firms are reluctant to share technology. In fact, the report itself concludes in para 3 there is inconclusive empirical data that shows that patents leads to technology transfer.

Further assertions made in para 41-45 on a positive relationship between IP, technology transfer and FDI, should be seen in the context of para 3, 36 and para 99 which state that there is inconclusive evidence to that effect.

Chapter III discusses the importance of technical information contained in patent applications in various sectors as well as difficulties in accessing information regarding the legal patent status and of linguistic diversity in prior art, which makes it difficult for offices to conduct prior art searches and for users to access the information.

It however fails to point out that to benefit from the technical information made available, developing countries would need to have a sufficiently mature technological base and R&D capacity. Since most countries do not have these, they cannot benefit from this information.

Most developing countries are at the stage of "initiation" and "internationalization", wherein they would have to innovate based on existing inventions, while making minor adaptations, rather than "leapfrogging" over known technology (para 71) as mentioned by the Report. On the contrary, patents (especially if they are foreign owned) are a barrier to reverse engineering and local innovation.

The Report also assumes the willingness of patent holders to licence patented technology on fair terms, which is rarely the case especially where the potential licensee could become a competitor.

Chapter IV of the report focuses on technology diffusion and the patent system, including how licensing agreements play an important role in the transfer of technology.

In an attempt to try and justify patents encouraging technology transfer and FDI, the Report states in a convoluted manner that although "there is not much evidence", research says that patents and enforcement measures "encourage technology transfer but that it is only one among many other factors influencing such a transfer, which include the size of the market, the faculty to absorb technology, financial incentives and the existing infrastructure, among others." (para 99).

If there is no hard evidence making a positive link between patents and technology transfer and FDI, and if "patents" is only one of the many factors, then the link between patents and technology transfer and FDI is either weak or non-existent.

The report also assumes that FDI is automatically beneficial, while recent research shows that FDI has in many cases failed to bring about "knowledge spillovers" that build the skill and technological capacities of local firms and catalyse broad-based economic growth.

The Report does recognize that too strong patent protection in particular in the early stage of industrialization when learning takes place through reverse engineering and duplicative imitation, or an abuse of such rights, may also hinder technology transfer and increase the cost of licences. The Report would benefit from a further elaboration on this point, of which there is growing evidence.

For instance, a review of 23 empirical studies by Boldrin and Levine found weak or no evidence that strengthening patent protection increased innovation. In Nordic countries the general opinion among managers of high-tech firms is "that intellectual property rights is not a crucial issue since in this area since firms cannot succeed in the market by stealing other firms' ideas as the products will always be outdated and obsolete", according to this review. India became a global producer of pharmaceuticals in the absence of patents which were only introduced in January 2005.

The report also focuses on voluntary licensing agreements as one means of transferring technology, although often such agreements are difficult to conclude particularly where the licensee is seen as a potential competitor. In addition most developing countries do not have anti-competitive structures to deal with abuses of patent rights.

The Chapter also avoids discussion on the role of compulsory license in promoting technology transfer, especially when a patent holder refuses to license the use of a technology on fair and reasonable terms.

The Chapter discusses the issue of "Standards" and the need to balance the interests of patent holders whose inventions are essential for the implementation of standards and other producers who need access to the patented invention and the public, which seeks a wide choice of interoperable products. It further addresses collaborative research projects, open source, R&D Medical Treaty, public-private collaboration.

Chapter VI looks at elements of the patent system. It appears to argue in favor of harmonization of some patent standards on the basis that applicants find it cumbersome and costly to prepare and file applications in different territories and how it would resolve the difficulties of search and examination and reduce burden of resource constrained national patent offices. It also says that harmonization improves the quality of patents.

It fails to mention that the main users of the patent system are largely from the developed countries, thus harmonization would largely serve their interests by making it easier to obtain patents immediately in all countries.

Whether quality of patents is improved by having an international patent system depends significantly on the patentability criteria and other contents adopted by the system. If harmonization moves towards adopting of broad criteria and practices of the US, the system is likely to see an increase only in numbers of patents granted and not in patent quality.

If a stricter criterion is adopted, this could also work against the interests of developing countries with some R&D capacity, as minor inventions may not achieve the standards set. Thus, there is need for developing countries to retain policy space to formulate and apply standards including patentability criteria according to their level of development.

On the other hand, harmonization will remove the right and space of national authorities to determine inventions that should and should not be protected in the country (an important policy tool for developing countries) and centralize authority in WIPO.

The paper also argues that there are duplicative efforts at the national level particularly in relation to the examination of an application and thus countries may benefit from cooperating at the international level.

However, the patent application and granting system is not just guided by patentability criteria. It is also affected by other aspects of the system, including exclusions from patentability and opposition to applications, which vary significantly among countries depending on factors such as the values of the society, mechanisms to challenge validity of patents; disclosure of origin, prior informed consent and benefit sharing.

For example, India has an active pre-grant opposition system, and the submissions by opponents often determine the issues of novelty and inventiveness. Also, if an applicant fails to comply with disclosure of origin requirements it may not be able to obtain a patent. Moreover, as a country develops its own technological base, it may wish to adapt accordingly the scope of "novelty" and "inventive step" for the benefit of its own nationals.

All these strongly argues in favor of not limiting discussion on the draft SPLT to a limited package, but engaging in a more comprehensive and holistic manner as suggested by the Friends of Development group in WIPO.

With regard to translation, in exchange for granting a patent, there is to be disclosure. But if this disclosure is not made in the official languages of a country, the country is unlikely to benefit from the disclosure in the patent applications.

Chapter IX on the innovation incentives in the context of public policy objectives highlights the paradox within the patent system, that it is supposed to promote the production of public goods and yet it does this by creating exclusions from the public domain. This leads to tensions between the patent system and its interactions with other regulatory mechanisms for example in the area of healthcare, biological diversity and traditional knowledge.

On the issue of health, the Report fails to document adequately the tensions that have arisen since the TRIPS Agreement as countries have had to put in place patent protection for pharmaceuticals. The report should have honestly portrayed the situation before and since the TRIPS Agreement and the impact of patents on prices of medicines, local production and effects on generic companies and drugs and their availability.

Further the use of various flexibilities to access affordable medicines and the politics surrounding the use of the flexibilities should also be raised. The above should be analysed in the context of needs and interests of developed, developing and least developed countries.

The report should have discussed whether the patent system has really been promoting innovation (as it assumes), in the area of pharmaceuticals. A recent Canadian study by K. Morgan shows that in British Columbia, 80% of the increase in drug expenditure between 1996 and 2003 was explained by the use of new, patented drugs that did not offer substantial improvements over less expensive alternatives available before 1990.

With regard to biodiversity and traditional knowledge, the report recognizes that the challenge for the patent system is to recognize genuine innovation while operating consistent with the principles of prior informed consent and equitable benefit sharing.

The Report also highlights that there are ethical concerns with regard to the use of patents for life sciences research and adds that such questions are by their very nature dependent on the cultural and social values of different communities and societies.

In Chapter X on development related concerns, the Report recognizes development as one of the most urgent challenges and mentions that a fundamental concern with respect the international patent system is that it runs counter to, rather than complementary to national development efforts (para 305).

It acknowledges large innovation capacity gaps among countries in terms of technological activity and human capital and states that there are concerns about the costs incurred vis-a-vis the benefits flowing from the international patent system; that the system does not sufficiently allow countries to tailor their national patent system in a way such as to respond to national development and other policy objectives and how to implement in the national laws, the public policy flexibilities that best fit the needs of each country.

Responding to these concerns, the Report approaches it from an "efficiency" point of view i. e. that it would reduce a range of administrative costs for developing countries and assumes without concrete evidence an increase of applications from developing countries should the system be harmonized. It also places the onus on enterprises to persist and governments to put in place policies to attract, absorb and adapt technologies on the assumption that patent holders will transfer technology.

It also relies on an amendment of the TRIPS Agreement (to waive certain conditions in TRIPS for the export of pharmaceuticals), that has been criticized by several public health organizations, as an example as to how an international patent system could be compatible with national policy objectives.

There are presently many challenges to the current workings of the patent system posed by many public interest groups and by many developing country governments, including in WIPO itself (in the Development Agenda process and also within the SCP). However, the report does not treat the reasons for these challenges in an adequate manner. +