Friday, November 6, 2009

Thoughts on Philippine IPR Rights Week

world intellectual property organizationImage by mk30 via Flickr
Intellectual Property Office of the Philippines (IPOPhil)
What Is There To Celebrate About Intellectual Property ?
By Atty. Elpidio Peria

The Intellectual Property Office of the Philippines (IPOPhil) celebrated Intellectual Property Rights (IPR) Week this last week of October, ostensibly as a mandate of Presidential Proclamation 79 (1992), which, as pointed out by IPOPhil Director General Cristobal, is an expression of the fundamental policy that “recognition and adequate protection of the rights of inventors, authors and trademarks owners would enhance the economic environment needed to attract foreign investments.”
First off, is there evidence worldwide that increasing recognition and protection of the rights of inventors, authors and trademark owners would attract foreign investments?

The answer is not as straightforward as it seems. Ha-Joon Chang of Cambridge University asserts there is little evidence that protection of IPRs plays any role in foreign direct investment (FDI) decisions. Indeed, according to him, Switzerland’s experience suggests the opposite: the absence of patent laws made the country attractive to foreign investors. Much the same has been shown for historical flows of FDI to Canada and Italy and he even cites some analysts like Vaitsos who also noted that patents are often a substitute (and not a prerequisite) for FDI.

More recently, however, Keith Maskus of the University of Colorado in a 2000 study said that “while there are indications that strengthening IPRs can be an effective incentive for inward foreign direct investment, it is only a component of a broader set of factors”.

He noted that there are complementarities among IPRs, market liberalization and deregulation, technology development policies and competition regimes which lead to complicated trade-offs for various market participants.

He also noted data problems in analyzing the relationship between IPRs and foreign direct investment that it might be useful to study these further rather than to state uncritically that there is such correlation. These problems are : one, data on international FDI flows remain scarce; two, there are inherent measurement problems as it is difficult to capture the economic incentives generated by an IPR system, as they form part of a broader business framework which may have variable impacts in different situations, and three, current econometric models are inadequate in delving deeply into the relationship between foreign direct investment and IPRs.

In a 2004 study, Rod Falvey, Neil Foster and David Greenaway of the University of Nottingham and University of Vienna, reviewed 80 countries including the Philippines, to assess the impact of IPR protection on economic growth. They found that for low and high income countries stronger IPR protection significantly improves growth but for middle income countries no such relationship is found.

Perhaps the IPOPhil may want to ask the study authors in what category they placed the Philippines, but it can be assumed that the Philippines is one such middle income country. These study authors note that these middle income countries do not engage in innovative activities to any extent, but may well rely on imitative activities. They also say that the lack of a relationship between economic growth and IPRs may well be the result of opposing forces that cancel each other out : the positive impact of IPR protection on growth that works indirectly through trade and foreign direct investment is offset by the negative impact of IPRs that slows knowledge diffusion and discourages imitation.

That economic growth has been facilitated not because of strong IPRs may well be borne out by the economic history of the developed countries themselves as studied by Ha-Joon Chang of Cambridge University. According to Chang, Switzerland introduced a patent law that protected mechanical inventions in 1888, but a comprehensive patent law was introduced only in 1907. The Netherlands first introduced a patent law in 1817, but then abolished it in 1869 because patents were seen to create a monopoly that was inconsistent with the country’s commitment to free trade and free markets. Patent law was reintroduced in the Netherlands only in 1912. Interestingly, the 19th-century economists that were most committed to free trade and free markets rejected patents because of the monopoly argument.

Ha Joon Chang continues: other industrialized countries had patent laws by the mid-19th century. But until well into the 20th century these laws fell well short of the stringent standards now demanded of developing countries through the TRIPS agreement. For instance, in the 19th century many countries granted patents to inventions that were imported from abroad, and generally did not check for originality prior to issuing a patent. Japan, Switzerland and Italy did not recognize patents on chemical and pharmaceutical substances (as opposed to the processes of creating them) until the 1970s. Canada and Spain did not recognise these types of patents until the early 1990s. Up until quite recently, India took the same approach to patents on chemical and pharmaceutical substances.

What is it about intellectual property that we are celebrating given that there is no clear link between IPRs and foreign direct investment and it is not even clear that IPRs will contribute to a country’s economic development, especially so when that country is middle-income?

Perhaps the celebration is on the part of the holders of intellectual property, as now, with the help of the IPOPhil and its drive towards enforcement of their property rights, they can be assured of a steady stream of royalties which is guaranteed income for them for the duration of the said intellectual property.

But shouldn’t the IPOPhil be concerned more about the developmental aspects of IPR, including the notion of whether it promotes the right kinds of incentives to foster creativity and innovation ?

An academic from the University of Hawaii at Manoa, Debora Halbert did a case study on Chad and Mali, two countries in Africa, to assess whether the activities of the World Intellectual Property Organization or WIPO, the United Nations body that promotes intellectual property, had been beneficial to the two countries. She found that while WIPO has contributed to institution building of the two countries, their economic, social, cultural and political development have not been substantially enhanced, notwithstanding the almost four decades of meetings and educational activities facilitated or organized by WIPO with the local authorities.
If our own IPOPhil will put emphasis on the enforcement of intellectual property rights, rather than on the developmental aspects or concerns of the greater populace, then perhaps, the Philippines may end up like the two African countries.

Take the case, for example, about the recent suit of Pfizer against UNILAB for the alleged infringement of the latter’s patent on Lipitor, an anti-cholesterol drug. This is an occasion for the newly-enacted law, the Cheap Medicines Act (Republic Act 9502) to be tested, whether its provisions on the flexibilities in the way patent law is exercised can apply in this case.

Flexibilities in the patent laws are recognized even by the World Trade Organization, to take into account a country’s level of development in the way drug patents are enforced.

This brings to mind also what the IPOPhil is supposed to do under the Cheap Medicines Act, which is to develop a Manual for Patent Examiners, which are supposed to tighten the rules on what are patentable, in order to prevent “evergreening” – a bad practice of pharmaceutical companies where they seek to extend the lifetime of existing drug patents in order to continue monopolizing a market for a particular kind of drug.

Along with the promotion of greater access to medicines with the enforcement of the above-mentioned Cheap Medicines Act, the IPOPhil has to show more efforts that it is more concerned about the broader development of the Filipino nation, culturally, economically, technologically rather than on the narrow aspects of strong enforcement of intellectual property, which only benefits the few rights holders.
If IPOPhil Director-General Cristobal really believes that more economic incentives are in order for one to really work hard for something, then does this mean that he needs more economic incentives now? If he says “yes”, then he is not working as hard as he should be and if he says “no” then it means he is not well-compensated for his efforts. Or does it mean that there are reasons for people to do what they are doing, and incentives fostered by intellectual property do not give the proper incentives ? But that last question deserves another discussion for another occasion.
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