galeras de administración

María Lorena Gutiérrez Botero

DecanaFacultad de Administración

Universidad de los Andes

Comité de PublicacionesComité de PublicacionesComité de PublicacionesComité de PublicacionesComité de Publicaciones

Fernando Cepeda UlloaCarlos Dávila L. de Guevara

Manuel Rodríguez BecerraElvira Salgado Consuegra

Piedad Salgado Camacho

[email protected]

Primera ediciónPrimera ediciónPrimera ediciónPrimera ediciónPrimera ediciónBogotá, Agosto de 2005

ISSN: ISSN: ISSN: ISSN: ISSN: 1900-1606

DiseñoDiseñoDiseñoDiseñoDiseño

Adriana Bermúdez

Diagramación e impresiónDiagramación e impresiónDiagramación e impresiónDiagramación e impresiónDiagramación e impresiónGuías de Impresión

Facultad de AdministraciónFacultad de AdministraciónFacultad de AdministraciónFacultad de AdministraciónFacultad de Administración

Cra. 1 No. 18 A 10 Ed.RGCTeléfono (571) 3324555

Fax (571) 3324551Bogotá, D.C., Colombia

AdministraciónGaleras de

Comité de InvestigacionesComité de InvestigacionesComité de InvestigacionesComité de InvestigacionesComité de InvestigacionesFrancisco Azuero Zúñiga

Carlos Dávila L. de GuevaraPaula Durán Fernández

Clemente Forero PinedaRoberto Gutiérrez Poveda

Daniella Laureiro MartínezAndrés Robledo Anzola

Elvira Salgado Consuegra

[email protected]

Con esta serie de documentos de tra-bajo se pretende difundir los resulta-dos de investigaciones que están enproceso de elaboración. Busca estimu-lar el intercambio de ideas y contribuira un diálogo que enriquezca el resul-tado final de la investigación. En talesartículos se reflejan solamente los pun-tos de vista de su autor y pueden citar-se conforme a las reglas académicas.

This series of working papers presentsthe results of ongoing research. Itintends to stimulate the exchange ofideas and contribute to dialogue thatmay improve the quality of research.These documents solely reflect thepoint of view of the author and maybe cited in accordance to academicrules.


1A Model of Guarantees under High MoralHazardUn modelo de garantías bajo condiciones dealto riesgo moral

Rafael J. Bautista-Mena, profesor asociadoFacultad de Administración, Universidad de los AndesMayo de 2005

2Vulnerabilidades de la economía colombiana:Un examen de los balances sectorialesColombian Economy Vulnerabilities: ABalance-sheet ApproachFrancisco Azuero Zúñiga, profesor asociadoFacultad de Administración, Universidad de los AndesJunio de 2005

3The Impact of Stronger Intellectual PropertyRights on Science and Technology in DevelopingCountriesEl impacto del fortalecimiento de los derechos depropiedad intelectual sobre la ciencia y la tecnologíade los países en desarrolloClemente Forero-PinedaSchool of Management, Universidad de los AndesJuly 2005

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AbstractThis paper identifies some effects of the global trendtowards stronger protection of intellectual propertyrights on developing countries, and traces relateddebates. Pharmaceutics, biodiversity and ethnicknowledge are critical areas of impact. "Trade-relating" intellectual property might allowcompensating developing countries, but incentiveimplementation of optimal compensation in thelegislatures seems infeasible. Scientific communitiesin developing countries are particularly vulnerableto l imitations of cooperation and access toinformation, resulting from stronger IPR, as theirefforts to obtain normal science results must beconsiderable. Consequences of Bayh-Dole andresearch tool patenting on international scientificcooperation are analyzed in this context.

Keywords:Patents, development, access, intellectual property,scientific cooperation.

JEL Classification Numbers:

O 34, intellectual property rights, national andinternational issues

O 31, innovation and invention: processes andincentives

O 19, international linkages to development

O 38, Government policy

The Impact of Stronger IntellectualProperty Rights on Science and Technologyin Developing Countries

Clemente Forero-Pineda*


* Clemente Forero-Pineda - Cra. 1 # 18 A-10 RGC – 403 - Telephone and fax: 57-1-3324555E- mail: [email protected] - Bogotá - Colombia.

ResumenEste artículo identifica algunos efectos de la tenden-cia mundial hacia derechos de propiedad intelectual(DPI) cada vez más fuertes y hace el recuento de al-gunos debates relacionados con el tema. Los pro-ductos farmacéuticos, la biodiversidad y elconocimiento étnico son áreas críticas de impacto.Colocar sobre las mesas de negociación Norte-Surla propiedad intelectual al lado del comercio podríapermitir compensar a los países en desarrollo, quese ven afectados por la elevación de los niveles deDPI. Sin embargo, no parece viable crear incentivospara que los legisladores de países industrializadosaprueben estos acuerdos. Las comunidades científi-cas de los países en desarrollo son especialmentevulnerables a las limitaciones de cooperación y ac-ceso a la información que resultan de esta tenden-cia, porque los esfuerzos que requieren para producirresultados científicos son mayores. Las consecuen-cias del Acto Bayh-Dole y del patentamiento de he-rramientas de investigación sobre la cooperacióncientífica internacional se analizan en este contexto.

El impacto del fortalecimiento de losderechos de propiedad intelectual so-

bre la ciencia y la tecnología de lospaíses en desarrollo

Clemente Forero PinedaUniversidad de los Andes

2 The Impact of Stronger Intellectual Property Rights on Science and Technology in Developing Countries

* This paper is being prepared for the Virtual Simposium on Intellectual Property Rights and Scientific Collaboration, whose editors arePaul A. David and Bronwyn H. Hall. The author is grateful for valuable comments, suggestions and references from the co-editor Paul A.David, and from Luis Fajardo, Álvaro Zerda, Hernán Jaramillo, Abelardo Duarte and members of the CTS-Colombia project. Theresearch assistantship of Carlos Cañón is acknowledged. Financial support was received from the Stanford Institute for Economic PolicyResearch and Colciencias. Part of the research for this paper was carried out while the author had a part time appointment at Universidaddel Rosario. Notwithstanding, the author bears sole responsibility for views and errors.1 Byström, Einarsson and Nycander (1999). Chakravarthi (1999).2 Bayh Dole Act: Public Law 96-517, 6 (a), 94 Stat. 3015, 3019-27 (1980).3 David (2000).4 Lerner (2000).5 Bubert and Buening (2001).6 Lerner (1994).7 David (2000).8 Oh (2001).9 Maskus (1997).

The global trend towards stronger intellectual propertyrights that has taken place in the past two decades hasprogressed in different dimensions. Protection has ex-tended from invention to discovery; from mechanicaldevices to living organisms1 ; from privately fundedresearch and development to publicly funded scientificand technological results2 ; from information abouttechnology to information about scientific information3

; from industrial products and technological processesto services and financial and administrative methods4 ,and from brick to click trademarks5 . Certain concep-tual borders have moved accordingly. Such is the caseof borders between invention and discovery, andbetween natural and artificial phenomena. Someequilibria have also shifted: research that was usuallypublished is now patented; patenting research hasyielded to protection under trade secret6 , and the worldof open science has shrunk in favor of appropriabletechnology7.

Geographically, the trend towards stronger protectionof intellectual property rights has extended fromdeveloped to developing countries, affecting evenpharmaceuticals and medical devices where, for severaldecades, many developing countries had imposedrestrictions on patenting or simply refused to allow it.In some countries where pharmaceutical patentspreviously were granted, international firms are nowpressing for stronger protection schemes, sometimesinvolving extraordinary trade secret protection and

The Impact of Stronger Intellectual Property Rights onScience and Technology in Developing Countries

Clemente Forero-Pineda*

additional enforcement provisions. Both traditional in-dustrial products and high technology goods have beenthe target of efforts to strengthen the rights of intellectualproperty holders.

These legal framework reforms and a rapid evolutionof customary government practices have beenencouraged by a variety of developments in theeconomic and political environment of thesecountries. These include shifts in the internationaldivision of labor resulting from the increasingimportance of high technology products in tradeflows; the rules following the creation of the WorldTrade Organization, especially those agreed uponunder the Uruguay round; and external pressuresconnected to the Latin American debt crisis in thenineteen eighties and to financial reform in SouthEast Asian countries in the nineteen nineties8 . Amajor focus of these pressures has been on SoutheastAsian countries9, but their effects have been felt moreglobally. Even specific national laws of developedcountries, like the 1980 Bayh-Dole Act in the UnitedStates, allowing universities to appropriate publiclyfunded research results, have had an impact on theway science is carried out worldwide. The impact isparticularly visible in international researchcollaborations involving academic institutions. Atone extreme, specific research contracts in areas suchas agriculture are having a wide social impact ondeveloping countries. At the other, the effects of the

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1. Old debates over IPR in developing countries

new IPR environment may be felt by projects linkingscientists and teams in high-income countries withtheir peers in low-income countries, technologytransfers, and joint ventures between universities,firms and research labs in these countries. This impacton scientific activities is amplified by the specificmanner in which science is carried out in developingcountries. As explained below, the effort ofdeveloping country scientists to do "normal science"at the international level resembles in many respectsthat of "exploratory research" being done indeveloped countries, and this makes developing

country scientific communities highly sensitive toaccess limitations.

This paper identifies some actual and potential impactsof the trend towards a stronger protection ofintellectual property rights on developing countries,and reviews some of the debates that have taken placein developing countries concerning these changes. Itdiscusses some observations from recent LatinAmerican experience, as illustrative of the new scenariothat is emerging in regard to developing countries'participation in international collaborative research inthe areas of science and technology.

Developing countries’ policies and academic debateon intellectual property have followed a pendulum-like movement. Soon after the Second World War, anew perspective on the importance of technology intrade and development was created by the work ofUnited Nations programs (such as the EconomicCommission for Latin America) and independenteconomists from developing countries. Theseanalyses, centered on technology transfer issues,concluded that developed and developing countriesshould take a different stance concerning theprotection of intellectual property. They oftenstressed that situations of monopoly and oligopolyin world technology markets prevented developingcountries from having fair access to technology10 .

Some leading economists from industrializedcountries argued in the same direction. The worksof Edith Penrose, Fritz Machlup and others con-verged in these policy recommendations. Penrose(1951) maintained that developing countriescould not expect any advantage from protectingintel lectual property rights, for these wereconcentrated in the hands of residents ofdeveloped countries. From the point of view ofglobal welfare, they argued, industr ia l izedcountries would not lose much from the lack ofprotection in those countries and overall welfarewould improve with low protection.

In 1970, an analysis of the Chilean experienceconcluded that “the legal system, in matters related topatents, is, in one way or another, favoring theinhibition of local technological development”11 .Vaitsos (1973) followed Penrose in stressing that theproblem with the international intellectual propertyregime was that patents registered in developingcountries were concentrated in the hands of residentsof developed countries. He was also aware ofmonopoly and restrictive practices on the part offoreign patent-holders in developing countries. Forthis author, it was a confusion to equate patent-registration with technology transfers.

Between the 1950’s and the middle of the 1980’s,developing countries succeeded in maintaining a specialstatus in the international intellectual property system(David 1993, p. 19). Regional organizations such as theLatin America Free Trade Association (LAFTA), theAndean Pact and others advanced common intellectualproperty policies along these lines. In 1970, Indiaadopted a patent law with considerable restrictions onpatent holders. The choice of this country in favor ofprocess patents rather than product patents allowed lo-cal production of imported products whenever the useof a different process was demonstrated12 . Thislegislation was viewed as a model by other developingcountries13 , and had the largest impact on thepharmaceutical sector. According to Cruz (1998), when

10 Cruz (1998).11 CORFO (1970), p. 13.12 See for instance Ragavan (2001).13 Suns/Ips (1995).


2. The new, global debates

some of those regulations began to be avoidedthrough know-how contracts, many among thelarger developing countries (such as India, Braziland Argentina) set up national offices in charge ofcontrolling technology transfers and contracting.Initiatives to implement regional and sub regio-nal offices dealing with intellectual property andtechnology transfer were discussed, following thel ines of comparable pol ic ies of Europeancountries, but they never were consolidated14.

In the mid-1980’s, a shift of this scenario beganto occur on the initiative of the United States

Government. Responding to the concerns of U.S. - based firms, and sometimes in agreement withother advanced countries, the United Statespursued what David (1993) views as “a direct,unilateral course of action”, that was choseninstead of renegotiating international intellectualproperty agreements (Paris or Berne Conventions).First introduced in bilateral agreements, this shiftin intellectual property regulation was finallyenacted multilaterally in the Uruguay Round ofthe nineteen nineties, as part of the conditions tojoin the World Trade Organization.

Within developing countries, the terms of the debatechanged beyond what could be expected from sim-ple U.S. pressures. Local interests in favor of enforcingstronger intellectual property protection had emerged,in association with the commercialization of importedgoods and, to a lesser extent, with the developmentof local technology. Products such as software, videofilms and music are easier to copy than traditionalindustrial products are to imitate. For this reason,copyright has been the focus of conflict in the lessindustrialized countries, whereas in the newlyindustrialized countries, both in Asia and LatinAmerica, patents and trademarks are also at issue.

In both cases, besides government-to-governmentpressures, producers in the developed world haveformed alliances with local merchants in thedeveloping countries to exert influence over localgovernments in the direction of a stronger stand onintellectual property, covering both legislation andenforcement. Associations of pharmaceutical firms,software and video importers, backed by producersabroad, as well as domestic musician and authorassociations have played an important role in IPRpolicy formation.15

The emergence of a small or medium-size scientific andtechnological capacity in these countries has been afrequent argument in favor of higher protection standards.

Nonetheless, statistical time-series on domestic patentingrates in the larger among the developing countries, wherea positive reaction would be more likely, do notsystematically reflect greater inventive activity in years ofhigher protection in all countries where legal andenforcement changes have occurred, as is clear in the caseof Mexico, referred to below.

On the intellectual debate scene, a similar trend couldbe observed. Penrose’s statement was a gooddescription of the dominant paradigm of thinkingabout intellectual property in developing countriesbetween the 1950’s and the mid-1980’s. Since then,however, her ideas have become part of a marginal,though still evolving, paradigm.

The publication of more sophisticated modelsexplaining the global welfare gains resulting from aspecial IPR status for developing countries reviewedbelow has not been sufficient to stem the tide favoringan internationally differentiated IPR regime. Nor havethe conclusions of van den Klundert and Smulders(1996) who, based on the empirical studies byBaumol and Wolff, and Soete, show that no automa-tism may be assumed for a developing country tocatch up in technology and productivity.

Discussions in the context of the Uruguay round ofGATT (1986-1994) prompted academic work

14 Cruz (1998) p.4.15 The role of interest groups and trade associations in policies and enforcement of property rights has been developed in detail for the caseof France and the USA by Bessy and Brousseau (1997). These groups play a similar role in developing countries.

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evaluating the global welfare effects of extending patentprotection worldwide. The policy issue at stake wasglobal unification of IPR protection standards. Asexpressed by Barton (2003), “the risk that intellectualproperty rights slow the movement of technologicalcapability to developing nations, suggests thatharmonization efforts might most wisely consider onecommon standard for developed nations and adifferent one for developing nations”.

Chin and Grossman (1990) were among the first toaddress this question. They developed a model andstated conditions for a possible global welfare loss tooccur as a consequence of geographically extendingpatent protection. The style of N-S modeling for whichthis paper was the paradigm has been used to providea global welfare rationale for resisting globalunification of IPR regimes. But the characterization ofR&D and diffusion processes has been criticized asinsufficiently grounded on empirical information, andtherefore misleading in critical policy implications thatcan be drawn from the models16 .

Deardorff (1992) follows the same line ofquestioning a universal standard for IPR, with asimple static two-country model, where allinventions take place in one of them. His mainconclusion is that, for a wide set of circumstances,it is not optimal to extend patent protection to allcountries in the world. His argument is based onthe analysis of the tradeoff between higher incentivesto invention and the distortion of consumer choiceby monopoly pricing. At some point the incentivesto generate new inventions are offset by the costsof monopoly pricing over existing technologies.

Helpman (1993) analyzes the impact of tighteningintellectual property rights on terms of trade,production composition, available products andintertemporal allocation of consumption. For that, hedevelops a two-region general equilibrium frameworkpartly based on Krugman (1979)17 , and usesalternatively exogenous and endogenous rates ofinnovation. He limits the technological activity of theless developed region to imitation. Also, as the authorexplicitly recognizes, the two-region division is not

adequate to deal with the heterogeneity of lessdeveloped countries18 , but he claims it deals best withnewly industrialized countries interacting withdeveloped countries. In different ways, Helpman showsthat, in the absence of foreign investment, “southern”countries tightening intellectual property rights do notobtain benefits. Even when the rate of innovation isresponsive to IPR, its initial rise is temporary and doesnot compensate for the ensuing decline. With foreigninvestment by multinationals, Helpman showsconditions for which the reallocation of manufacturing,resulting on higher prices for larger fractions ofproducts, brings welfare losses to the less developedregion; and he identifies circumstances (no foreigninvestment and low rate of imitation) where bothregions may benefit from relaxation of IPR’s.

Lai and Qiu (2001) address the issue asking compa-rable questions in a setting with both innovation andimitation. They measure the level of protection bythe length of patents, and compare two stylizedsituations that are assimilated to those standing beforeand after the Trade-Related Intellectual PropertyAgreements (TRIPs). In a two-region, stationary-state,partial-equilibrium setting, they calculate the Nashequilibrium before the agreement, and analyze theimpact of increasing the level of protection of southerncountries on north, south and global welfare. Theypropose a way of relating tariff barriers in the northwith technological and industrial development in thesouthern region. One result they obtain is that thehigher the protection in the north, the lower theoptimal protection in the south.

Other conclusions advanced by Lai and Qiu are notlikely to be so robust. Despite some assumptionsensuring the asymmetry of the two regions, the modeldepicts trade and technology relations between a largeand a small developed countries, rather than betweenone developed country and one developing country.Their results depend critically on this structuralsimilarity between the two regions. One surprising andquestionable conclusion (due perhaps to the extremepartial equilibrium restrictions they impose) is that,though the south loses when it unilaterally increasesits level of protection, global welfare is enhanced, even

16 For one such critique, see David (1997).17 Krugman (1979) analyzed a north-south situation where the north led in technology development, but the issue of IPR was not addresseddirectly.18 Helpman (1993), p. 1250.


3. Changes in the IPR regime and their impacts

when the south adopts a level of protection higher thanthe north’s. Assumptions on market size and elasticityof innovation in the south are also critical to obtainthis result. Lai and Qiu also address north-southdistributional issues of TRIPs in the context of trade.They are discussed below.

Grossman and Lai (2002) follow the same line ofdiscussion, focusing on the incentives of north andsouth to extend the protection of IPRs, in a non-cooperative scenario. They assume that human ca-pital and labor are the factors of production of

inventions. Also, the production function for newinventions is homogenous of degree one and thesame in north and south. This would imply that thephysical marginal productivity of human capital islarger in the developing country, where there is lesshuman capital. Externalities and scale economies areexcluded from the production of knowledge. Sincethey do not make assumptions assuming structuraldifferences between the two innovation systems,besides a plausible assumption of a larger humancapital stock in the north, they require an ad-hocmarket-size assumption to predict longer protection

Four major changes in the global regime of intellectualproperty rights and trends related to it appear to beaffecting the ways scientific and technological researchis conducted in developing countries: (1) The alreadymentioned Uruguay Round of the General Agreementon Tariffs and Trade, that resulted in the 1994agreement on trade-related aspects of intellectualproperty rights (TRIPs) and in the establishment ofspecific conditions for access to the World TradeOrganization; (2) The extension of patent protectionto the pharmaceutical sector in most developingcountries, following the TRIPs agreement; (3) The1980 Bayh Dole and Stevenson-Wydler Acts in theUSA, permitting universities, non-profit organizationsin general and SMEs to appropriate knowledgeresulting from research financed with public Federalfunds, and the more recent 1999 Research andInnovation Law in France which seeks the samepurpose; and (4) the patenting of research tools anddatabases. On the other side, many communities and

some governments in developing countries arepressing for an increased protection of intellectualproperty of traditional ethnic knowledge and forindications of origin and the protection of propertyrelated to the biodiversity of tropical forests.

The description and economic analysis of these changeshas given rise to a vast and still-growing literature oneach topic. An array of impacts on the developingcountries has been studied, including the implicationsfor their technological research activities. But acomprehensive examination of the effects on the conductof science and technological research, both within thedeveloping countries and in collaboration with externalpartners in the public as well as the private sector, isseldom attempted. Although this would be an imposingtask were it to be carried out exhaustively, an overviewof the emerging picture, and some brief analysis of criticalaspects of the new IPR scenario in the developingcountries, is undertaken in the following sections.

19 Article 27.1 of the TRIPs agreement states that “patents shall be available and patent rights enjoyable without discrimination as to theplace of invention, the field of technology and whether products are imported or locally produced

Intellectual property was one of the areas whereimportant agreements were reached during the Uru-guay Round of the General Agreement on Tariffs andTrade. The “trade-related” label given to intellectualproperty matters actually became a mechanism bywhich concessions in the IPR area could be

4. TRIPs and WTO

compensated by gains in the trade area. Also, as Khor(2001) puts it, “The linking of issues to the possibilityof sanctions under the device of attaching a “traderelated” prefix to the chosen topics was successfullyused in the Uruguay Round to inject IPRs… andinvestment issues… into the GATT/WTO system”

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(p.1). Others have viewed the possibility of “trade-relating” additional issues like copyright as anadvantage, since negotiations take place in a widerenvironment where concessions and gains may bebalanced across issues and sectors (Correa, 2000).

The African group of countries has tried to put limitsto the patenting of living organisms and Venezuelahas brought the issue of exempting essential drugsfrom patenting. Nonetheless, initiatives on the partof developing countries in the WTO negotiations overTRIPs have been scarce. Some of these initiatives re-late to biodiversity and geographical origin and,paradoxically, are in favor of strengthening theprotection of intellectual property rights20 .

The most important effect of the TRIPs agreement ondeveloping countries has certainly been the mandateto accept the patenting of pharmaceuticals. Somedeveloped countries such as Italy, and manydeveloping countries, like Brazil, Argentina, India andthe Andean countries, had various restrictions on thepatenting of drugs. These limitations were justifiedon the grounds of allowing a national pharmaceuticalindustry to develop, but the TRIPs agreement forceddismantling them. The extension of patents to 20years, the restriction of conditions under which a

Government can decide compulsory licensing21 , andthe unification of criteria for non-obviousness andutility testing are other important changes affectingdeveloping countries (Jaffe, 2000). Despite the delayedimplementation of certain clauses of the TRIPsagreement, small countries like Dominican Republicand Honduras have protested against “selective uni-lateral pressures” on the part of some developedcountries, forcing smaller nations to immediateimplementation (Correa, 2000, p.3).

The U.S. made certain concessions in the TRIPsAgreement, as pointed out by Jaffe (2000). Changesin the U.S. national patent statutes are beingconsidered, specifically to switch from the “first toinvent” priority rule to the “first to file” rule prevalentin Europe, Japan and many other countries, and tomandate the publication of patent applications after18 months, rather than the current practice of waitinguntil the patent has been issued22 . These changes,however useful in harmonizing the laws among theindustrialized countries, do not seem to have asufficient compensatory effect for developingcountries. The situation could be viewed as a three-person game, where an alliance of the two strongestwould result in exchange of concessions betweenthese two agents, in detriment of the third.

Intellectual property rights were “trade-related” in theUruguay Round of GATT that led to the creation ofthe World Trade Organization. “Trade-relating” IPRhas a double effect. On one hand, there is astrengthening of IPR that favors industrializedcountries. On the other, there are some internationaltrade compensations favorable to developingcountries.

The situation may be analyzed considering a simple,stylized model where there is exchange between asmall, developing and open economy and the rest ofthe world. It is centered on analyzing the impact of

5. Trade-relating IPR and the international division of labor

stronger IPR protection in exchange for tradeconcessions to the small country.

Production in the small country is composed oftraditional, manufactured and technology goods.Without losing generality, one can assume that thereare exports and imports of all goods. Themanufacturing sector makes use of “technology goods”that have been created by investments to carry outR&D. A large proportion of technology is producedin the rest of the world and it may be assumed thatthere are spillovers of knowledge so that in ahypothetical situation with no trade related intellectual

20 Correa (2000) p.1-2.21 Based on the experience of some developed countries, Correa (1999) argues there are important advantages for developing countries togrant compulsory licenses.22 The de facto situation, however, is that in order to provide inventors with the protection of European national patent laws, U.S.patentees also file (‘first’) in the latter countries, so that at least the disclosure conditions do not afford them a differential advantage.


property rights, the small country is not paying fullroyalties for the technology it uses in manufacturingactivities23 . The traditional sector is assumed toemploy little and low-level technology. Manufacturesand traditional goods are assumed substitutes.

This hypothetical situation is now compared withanother where intellectual property rights are strongerand enforced. The cost of production of manufacturedgoods in the small country is larger: in the firstsituation industry was not paying full royalties, buttrade-relating intellectual property implies theenforcement of that full payment. The income of therest of the world, which produces most of thetechnology used in the small country, will increase.

In contrast, the income of the small country will decrease;but even if this reduction is not significant or is partiallycompensated by trade advantages, the increase in theprice of manufactured goods will induce a switch indomestic consumption from manufactured to traditionalor imported goods. Domestically produced manufactu-res will become relatively more expensive than importedmanufactures. This will induce a reallocation of resourcesdetrimental to the production of domestic manufactu-res. These two effects will combine to induce aspecialization of the small country in traditional goods.

The sector producing technology goods will be affectedaccordingly. Domestic research oriented towards theimprovement of technology production in the smallcountry is stimulated when the production of localtechnology is flourishing and there is no interest offoreign R&D investing entities in this activity. However,as most of technology is being imported in developingcountries, the substitution of imported for domestictechnology will be small. Besides, in the short run,there is an income effect related to paying more expensivetechnology imports, and in some cases this might re-duce the demand for domestic technology. The globalimpact on specialization of the small country in theproduction of traditional goods and away from the

production of technology could become permanent, ifthe technology sector follows a dynamics of learning-by-doing, if local technology producers cannot survivethe short-run fall in demand for domestic technologyor if the contraction in this sector induces emigrationof researchers and technology developers.

Trade compensations, granted by developed countriesin exchange for more protection of IPR in thedeveloping countries, may compensate for thedeveloping-country welfare losses24 . Nonetheless, theymay exacerbate those two negative, long run effects ondomestic research. First, there is an additional stimulusto allocate investment resources to goods receivingincentives (traditional goods). Their technology contentis low25 , and this will reorient resources away fromdomestic technology production. If manufacturedgoods also receive these incentives, the effect willdepend on the domestic technology content ofmanufactured goods and on the elasticity of domestictechnology to an increase in the demand for domesticmanufactured goods.

Under the assumptions made, and provided theinnovation system of the small country fits withinthem, trade-relating intellectual property will have twomain consequences: (a) a deeper international divisionof labor and, (b) depending upon the reaction capacityof local technology producers of the developingcountry, there will be either an increase or decrease ofthe technology sector of this country.

The decrease in domestic patenting activity by Mexicanresidents in the period immediately after the tighteningof intellectual property rights (after the patent lawreforms of 1994)26 is quite consistent with the latterprediction of the model, although it is also related tothe decline in the growth rate of the Mexican economyin those years.

Lai and Qiu (2001) analyze the impact of trade-relatingIPR protection on global welfare. In their partial-

23 This was the case of pharmaceuticals in some developed and many developing countries until the implementation of the TRIPs Agreement.24 Lai and Qiu (2001) point this out as well.25 One could think of a strategy to reorient technology developers towards the improvement of traditional goods. But these changesdemand long-run efforts and an institutional environment that is not common in most developing countries.26 Albuquerque et al. (2003). Domestic patents filed by residents fell from 343 to 148 between 1993 and 1995 in Mexico. In Mexico,patent law was reformed in 1992 and 1994 (Bancomext 2000). In a deeper study on the Mexican IPRs experience, Aboites and Cimoli(2002) conclude that “In general, it is argued that the new IPR’s framework and the economic reforms do not provide incentives for theupgrading of technological capabilities in the Mexican system”. The authors attribute their observation to the fact that existing networks inthat country are not stimulated to diffuse technological information towards national agents (p. 21).

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6. Patents and trade secrets in the pharmaceutical sector

equilibrium steady-state framework, they obtain theconclusion that if the north’s level of protection is anupper bound for the south’s own level, “…the TRIPsAgreement can be regarded as maximizing global welfareby requiring the south to adopt the north’s pre-TRIPsstandard… It is in this sense that the TRIPs agreementis optimal” (p.15). But this result is critically dependenton assumptions concerning magnitudes, on ignoringthe cost of enforcement and on the very specific use ofpartial equilibrium conditions they envisage. Lai andQiu also ask for the incentive compatibility of thatagreement with the expected behavior of the south. Toobtain incentive compatibility, they assume that thesouth’s market for the traditional good is larger thanthe north’s, an ad-hoc assumption which is notnecessarily true unless a restrictive and biased definitionof traditional good is adopted. Nonetheless, even ifthose conditions were met, the long-term consequencesof a deeper international division of labor, where the“south” would specialize in traditional goods, oughtto be considered in the analysis. On the other hand,the internal politics of the developing country shouldbe examined. A costly incentive-compatible formula

guaranteeing the acceptance of the shift away from themodern sector and towards traditional production isto be devised as a condition for the adoption of a unifiedIPR standard to be viable and sustainable. Incentivecompatibility in the north should also be examined.In fact, there is no guarantee that the legislature of thedeveloped country is willing to grant trade concessionsthat affect local interest groups, such as agriculture27 .

Based on similar assumptions, Grossman and Lai(2002) analyze the impact of adopting one patent-lengthregime for both countries. They show that “Theharmonization of patent policies is neither necessarynor sufficient for the efficiency of the global patentregime” (p. 38). If compensations in other areas (suchas trade) are possible, their analysis shows that anefficient patent regime is one providing optimal aggregateincentives for innovation to inventors throughout theworld. But many efficient solutions are then possible,and “Among combinations of policies that give the sameoverall incentives for global research, the North faresbetter, and the South worse, the longer are patents inthe South” (p. 4).

27 Cañón and Forero-Pineda (2004).28 Lanjouw (1998) p. 1.29 Correa (1996).

The most important impact of TRIPs on developingcountries has taken place in pharmaceutics. FollowingIndia's legislation of 1970, many developing countrieseither refused patenting pharmaceutical products orpatented processes instead of products in this sector.At the time of the GATT Uruguay round, almost 50developing countries did not grant pharmaceuticalpatents28. The approval of TRIPs has reversed thistendency and changes have occurred in mostdeveloping countries. Member countries of the WTOare required to grant both product and process patentsin the pharmaceutical sector29. These changes are stilldebated in several countries, and less-advancedcountries have until 2005 to implement intellectualproperty protection laws for the pharmaceutical sec-tor. The advantages and disadvantages of grantingpatents for pharmaceuticals, from the point of view

of consumers, are well analyzed by Lanjouw (1998)in a study about India. This author cautiouslypostpones a definite conclusion on this issue untilthe "weakness of the empirical foundations for theseclaims" is overcome.

One can go one step further in some aspects of thedebate. In those countries where change has operatedfollowing the TRIPs agreement, granting trade-secretprotection parallel to patent protection is the issue atstake. Trade secret would not cover the product, sincethe patent is granted in exchange for revelation ofknowledge. Instead, trade secret protection wouldcover the clinical research that is deemed necessary toobtain the approval of sanitary authorities before mar-keting the product. The debate over the convenienceof granting this parallel protection is equally complex.


The analysis in terms of constructing a balance betweenincentives and diffusion has to take into accountadditional considerations. First, there is a lag betweenthe sale of the product in developed countries and indeveloping countries. For this reason, multinationalcompanies are usually asking for secret protection offive years instead of ten years, as they usually expectthe protection to be in developed countries. Second,keeping under secrecy clinical studies and notpermitting their use for further research implies anadditional, important cost to society. Pharmaceuticalcompanies from developed countries fear theproliferation of small laboratories in developingcountries dedicated to the production of no-patent andpost-patent generics. If one takes into account that thesesmall laboratories produce drugs for illnesses endemicto inter-tropical regions, and that there are economiesof scope when these two lines of production arecombined, there might be negative effects on publichealth in the developing country.

At this point, some other aspects of the debate overIPR of pharmaceuticals may be settled through simpleanalysis, but further institutional background is requiredto set the stage. One of the most recent developmentsin international regulation of the pharmaceutical sectoris the agreement between the World Trade Organization(WTO) and the World Health Organization (WHO)about the principle of price differentiation. The"common thinking" of these two organizations is that"differential pricing could, and should, play animportant role in ensuring access to existing essentialdrugs at affordable prices, especially in poor countries,while allowing the patent system to continue to playits role of providing incentives for research anddevelopment into new drugs"30.

This agreement is viewed as an important advance inthe consensus between the two internationalorganizations and their member countries.

Nonetheless, the question remains whether, in termsof the health of poorer populations and in terms ofscientific and technological development and theadvancement of their own industrial production, thismakes a difference for developing countries.

First, the firm that has developed and patented a drug isgranted a monopoly. In the international scene and in theabsence of regulation, it usually acts as a discriminatingmonopoly. As a consequence, the price of the drug in thedeveloping country will tend to a lower level with orwithout international regulations, guidelines or consensus,simply because this means maximizing the extraction ofconsumer surplus by the discriminating monopoly, whenno leakage from one market to the other is possible31.The case of Mexico is a good illustration. In the absenceof price regulation, and despite an observed leakage ofMexican medications through the U.S. border, Mexicantrademark drugs are significantly cheaper than in theneighboring USA32.

The model presented in the previous section allowsanalysis of the second issue. The impacts of loweringthe price of essential drugs researched and developedin advanced countries and sold in developingcountries are manifold. Whether this price differentialis the result of regulation or the result of maximizingbehavior on the part of discriminating monopolies,local pharmaceutical firms will be affected by strongerIPR, since their own incentives to develop substitutesare diminished. Though some of these local firmscould manufacture the drug under a license or anothertype of agreement33, the threat point of negotiationbetween the monopolistic owner of the patent andmultiple local firms competing for the license favorsthe patentee. The income effect of the reduction in thecountry's expense on drugs is insufficient to counterthe negative impact on local research anddevelopment. It is not easy to think of mechanismschanneling these savings towards financing local

30 World Health Organization and World Trade Organization (2001), p.131 The WHO-WTO agreement precisely commits both organizations to oppose leakage of drugs between countries. This guarantees thetextbook condition for monopoly profit maximization under no price regulation. Situations where the price of drugs is higher in a developingthan in the developed country of origin may occur, but should be associated with institutional barriers, costly distribution of the product,strategic pressures or other reasons, rather than with profit maximizing32 Bancomext (2000).33 Correa (1996) argues that there are incentives for manufacturers of drugs to replace local production in their own plants or throughlicenses by imports of finished products (p. 20). Mossighoff (1999) on the contrary cites the example of Brazil where IPR protection forpharmaceuticals, previously inexistent and adopted in May 1996, would explain an increase in investment plans by foreign pharmaceuticalcompanies. The effect actually should depend critically upon the local investment effort, as is apparent in the strategy followed by Italy wherethe introduction of pharmaceutical patents was coupled with a very aggressive and expensive reconversion of the local pharmaceutical industry.

11

research. In the longer run, as no competition for theproduction of drugs has much chance to enter themarket, any incentive to voluntarily lower the price isdepleted, and lobby or scarcity pressures intended toinduce the removal of price regulations might increase.

The case of Mexico cited above also illustrates thatthe situation envisaged by the model is actuallypossible. A standard Patent and Trademark lawprotects pharmaceutical products since 1994 andforeign investment in the sector has increased.Nonetheless, there are "few developments of newmolecules or new technologies"34 and though localindustry is efficient in the production of generics, it"has no research or development of new products"35.

An alternative solution in line with the quotedstatement of Barton (2003) would envisage differentialintellectual property protection. An implication ofDeardorff (1992) is that differential IPR protection,and the ensuing development of local manufacturingand R&D sectors, fosters (imperfect) competitionamong brand-differentiated products that will set theequilibrium price (in this case of drugs) to levels lowerthan those set by a discriminating monopoly. Besides,

differential IPR protection would diminish the impactof the global strengthening of property rights on theinternational division of labor and, as shown below,on publicly funded research in developing countries.

Recent debates about the price of pharmaceuticals andabout the role of MNCs in research, development andtesting of new medications seem to be putting too muchof a burden on market mechanisms to solve certain healthproblems. Private firms often impute the deceleration ofworld investments in HIV/AIDS research to insufficientIPR incentives granted by many governments in theworld. On the other hand, developing-countrygovernments, international organizations and NGO's arecritical of the excessive profits that companies seek.Beyond the conflict of interests, the dispute may be asign that market mechanisms, such as IPR, are reachingtheir limits. Perhaps the conflict between health in thetropics and the incentives necessary to elicit researchmight not find a complete solution within the bordersof market incentives and intellectual property rightsprotection. Alternative solutions, where internationalscientific cooperation plays a leading role should perhapsbe envisaged following the experience of other globalresearch networks36.

The relationship between technology and science ina national context depends critically on the volumeof scientific activity reached by each country.Albuquerque and Bernardes (2003) studied therelationship between scientific publications andpatenting activity for 120 countries in different stagesof development. Based on a cross-section statisticalanalysis, they hypothesize “the existence of thresholdsof scientific production that must be overcome totrigger new channels of interactions between thescientific and technological infrastructure”37 . Theelasticity of patenting to changes in the scientificpublication activity increases dramatically once acertain level of scientific publications is reached. This

7. International scientific collaboration and the Bayh-Dole Act

empirical and conclusive observation is not at oddswith theoretical work stressing the importance ofinterfaces between science and technology for theconsolidation of a national innovation system.

For this reason, the access of scientists from developingcountries to frontier knowledge is critical for their countriesto prosper, and for modernization and developmentstrategies to be successful. Conversely, internationalcollaboration with developing-country scientists hasyielded valuable results for the advancement of humanknowledge38. Scientists in developing countries mighthave regular access to scientific knowledge throughpublications and through free electronic networks, but

34 Bancomext (2000).35 Bancomext (2000).36 Jaramillo et al. (2002). One example of international collaboration for research related to developing countries is presented in CGIAR(2001).37 Albuquerque and Bernardes (2003) p.1.38 Forero-Pineda (1997).


this is not sufficient. Database access, permanent two-wayexchange, validation of results, periodic in-site trainingand co-authorships are deemed necessary to ensure anadequate transfer of both codified and tacit knowledge,and to ensure the effective contribution of all partners tocommon scientific endeavors.

Both economic and institutional obstacles prevent thisaccess. The governance structures of scientificcommunities, incentive rules and confidentialityprovisions in labs increasingly limit the free flow ofscientific knowledge. The readiness and ability of thereceptor of this knowledge is also a strong limitationto its transfer. Besides recently tightened nationalsecurity measures, secrecy and exclusivenesssurrounding scientific knowledge are in strikingcontrast with economic and sociological wisdomcalling for a free flow of scientific knowledge.

Recent changes in intellectual property institutionsgoverning the exchange of technology affect internationalscientific collaboration through the close connectionexisting between scientific and R&D activities. Theextension of intellectual property into the realm ofscientific knowledge and production activities has a directimpact into this collaboration. The new scenario ofresearch laboratories in the developed world has definitelychanged with regulations and incentives favoring theappropriation of scientific knowledge39 .

Two major legal changes took place in the USA in 1980.One was the Stevenson-Wydler Technology InnovationAct40 . The central purpose of this Act was to commitagencies to the full use of the results of research anddevelopment being financed by the U. S. FederalGovernment. It also required public labs and agenciesto establish Offices of Research and Technology forthis purpose41. The other was the Bayh-Dole Act. It“enables small businesses and non profit organizations,

including universities, to retain title materials andproducts they invent under federal funding”42 . “Bayh-Dole effectively shifted federal policy from a positionof putting the result of government-sponsored researchdirectly into the public domain for use by all, to a pro-patent position that stressed the need for exclusive rightsas an incentive to industry to undertake the costlyinvestment necessary to bring new products tomarket”43.

With an almost identical purpose, France approvedan Innovation and Research Law in 199944 . Its statedpurpose is the “transfer of technology from publicresearch to the economy and innovative firms”45.

The new academic and public research-lab scenariocreated in the developed countries by these legislativeinitiatives has potential consequences for internationalscientific collaboration that are easy to infer. The workenvironment in the labs of the developed world haschanged46 . In many university research labs holdingcommercial relations with industry, special secrecyprovisions are being implemented. Interest in hostingforeign research scholars is affected by the newenvironment of secrecy, aimed at protecting thepatentability of research under progress. Sharing thelatest techniques and results with temporary, visitingscientists is more likely to be restricted. This will beparticularly the case where it is found that the exchangevisit is sponsored, directly or indirectly by acommercial firm operating in the developing country– although such sponsorship has historically been asignificant means of transferring scientific expertise.

Many of the most successful science policies ofdeveloping countries are based on internationalscientific exchanges where a two-way contribution tothe advance of knowledge is expected47 . Importantexternalities to local scientific communities and society

39 Bayh Dole in the United States and the Innovation and Research Law in France are examples of these new regulations.40 Public Law 96-517, 6(a), 94 Stat. 3015, 3019-27 (1980).41 National Academy of Sciences (1997) p. 3.42 Rautiainen (2001). Subsequent to the 1980 Act, the limitations on licensing publicly funded university inventions to large businesses wereremoved, first by Presidential Executive Memorandum from the Reagan Administration, and later (in 1984) by amendment of the language ofthe Bayh-Dole Act. See Sampat (2004) in this issue of Research Policy.43 National Academy of Sciences (1997) p. 3.44 La loi sur l’innovation et la recherche, 12 juillet 1999.45 Ministère de la Recherche (2000).46 Owen-Smith and Powell (2001) analyze these changes. Exclusive licensing appears to be particularly controversial in the laboratoryenvironment of the United States.47 The experience of one such network, the Red Caldas, is analyzed in Forero-Pineda (1997).

13

are associated with these exchanges. Mistrust and certaintrade secret provisions on the part of developed-countrypublic or academic laboratories directly affect thefeasibility of these policies.

Opportunities for scientific networking betweenscientists in developed and developing countriesare narrowed. A climate of suspicion within thelabs of developed countries affects the presence offoreign researchers in those teams. Both symmetricuncertainty and asymmetric information on theeventual distribution of benefits in case of acommercial exploitation increase the transactioncosts of reaching scientific cooperation agreements.International scientific cooperation is particularlyaffected, and small developing countries areespecially fragile, since they do not have alternativeoptions they can run on their own to developfrontier scientific activities.

Comparable effects should be expected fromcontracts between private corporations and publicor university labs in developing countries. Thesecontracts might be substituting the traditionalpublic financing of research oriented within “acollegiate reputation reward system” based on anethics of disclosure and on priority in thepublication of scientific results48 , that madeinternational cooperation more feasible.

An additional effect of Bayh-Dole and its Europeanequivalents on international research cooperationshould be mentioned. When a university’sinternational research activity is extensive and itsreputation in the scientific or technological field isstrong, there is a temptation for the institution toadopt aggressive across-the-board negotiatingpolicies concerning the claims to intellectualproperty arising from research with (supposedly‘weaker’) partners in developing countries. Such wasthe case in at least one unfortunate incident,involving a U.S. public university’s participation

48 Dasgupta and David (1994), p. 291.49 Zerda-Sarmiento and Forero-Pineda (2002).50 See Sampat (2004).

in an agricultural R&D project with an Andeancountry: due to the insistence of the university’sTechnology Licensing Office on the worldwiderights on all patents being assigned to thatinstitution, the proposed cooperative researchagreement was not signed.

Other U.S. universities, with a thinner record ofinternational research, tend to have more flexibleintellectual property schemes, and have accepted toshare the potential commercial benefits of researchwith countries or ethnic groups49. This might beexplained by transaction costs. When a Universityof the developed world has few but strategicinternational contracts, specific negotiations takeplace for each contract. When this activity involvesa large number of contracts where none has astrategic value for the University, across-the-boardrules may be implemented to reduce information andnegotiation costs, even if interesting projects aresacrificed. Making exceptions might require settingup a costly procedure to determine when anegotiation is or is not exceptional.

The effectiveness of the Bayh-Dole Act coupledwith the Technology Innovation Act in promotingtechnology transfer from scienti f ic publiclaboratories to private industry in the U.S. is amatter of debate50 . The track record of the FrenchInnovation and Research Law is perhaps too shortto make an empirical evaluation. Governments ofall industrialized and developing countries mighttend to imitate those policies, with the expectationof gaining diffusion and efficient commercial useof publicly funded research. At best, very muchas in a Prisoner’s Dilemma, if there were gains tothis policy when applied in one country, theywould tend to deplete as more countries adopt it.In either case, global scientific cooperation suffers,and countries having few resources to substitutethe loss of international scientific links areparticularly affected.


51 National Academy of Sciences (1997), p. 45.

Basic science research in developing countries has beentouched in other forms by the trend towards strongerprotection of intellectual property rights. One of themis related to the increasing cost of research tools anddatabases.

Scientific communities in developing countries areparticularly vulnerable to limitations of access toinformation and to increasing costs of laboratoryequipment and materials. In developing countries, thereplication of common experiments considered as “nor-mal science” demands important investments in newequipment, research tools, information, training andscientific networking. These efforts resemble those of“exploratory research” of industrialized countries in thatthe setup costs, and uncertainties (of being able toreplicate results) with local resources are very significant.The proportion of information, equipment andnetworking expenses (travel and exchange) are generallyhigher in the budgets of typical research projects ofdeveloping countries. Accordingly, high costs ofresearch tools and information may considerably affectscientific activities in these countries. On the other hand,the expected results of scientific projects in developingcountries are almost exclusively “normal science”propositions conforming to dominant paradigms orquestioning these paradigms marginally.

The rise in costs of access to scientific techniques maynot be a significant proportion of total costs of carryingout research in large companies or universities in thedeveloped world. But their incidence in reducing theoptions of scientific collaboration may be too costlyfor small firms worldwide, and for universities andfirms in developing countries. Many transfers oftechnology and scientific collaboration projects mayfail to take place when partners in low-incomecountries do not have access to these techniques.

Exclusive licensing, under certain pricing policies bythe licensee (for instance, with entry fees), may bespecially harmful for industries using the techniquein small countries, for the same reasons that they affect

8. Patenting of Research Tools and Database Protection

small industries in developed countries. “What is theeffect of the Cetus-Roche licensing policy on smallcompanies? Tom Gallegos, intellectual propertycounsel for OncoPharm, a small biotechnologycompany, stated that most small companies cannotafford the fees charged by Roche. He noted that theentry fee for a company that wants to sell PCR-basedproducts for certain fields other than diagnosticsranges from $100,000 to $500,000, with a royaltyrate of 15%. By comparison, a company pays about$10,000 per year and a royalty fee of 0.5-10% for theCohen-Boyer license. The effect is an inhibition ofthe development of PCR-related research tools, withconsequent reductions or delays in the total royaltystream and possibly litigation”51.

In the case of the now expired Cohen-Boyer restrictionenzymes patent in the developing countries, thesituation was not as clearly favorable. When the use ofresearch technologies based on this patent began, theimpact of even the comparatively modest licensing feeson research possibilities of developing countries wasvery important and raised the costs of engaging inbiotechnological research. The cost of equipmentnecessary for the use of this technology was accordinglylarge for laboratories in these nations. Over the years,both equipment and enzymes became considerablycheaper in real terms, for two reasons. First, theproduction of both became more competitive with theworldwide appearance of many companies providingthe market with slightly or substantially modifiedalternatives. Second, the restriction enzyme technologywas not patented in many developing countries.Networks of public, university and small privatelaboratories were formed in the developing world,producing substitute enzymes that were exchanged atconsiderably lower prices. Some of these laboratoriesin developing countries are currently producing theirown enzymes or selling them locally, in use of the factthat the patents were never registered there. In someinstances, important immunology and biotechnologyproducts have been developed using these non-patentedsubstitutes of Cohen-Boyer. Despite what seems to be

15

a large potential international demand for innovationsbased on alternative enzymes, these products often donot reach international markets. Laboratories producingthem argue they fear being sued if they reach the largermarkets where the basic research technology is patented.These researchers have faced difficulties in negotiationswith the owners of some of those licenses. The resultingsituation is the worst of all worlds.

In the case of other research technologies, the impactof their cost over research activities of developingcountries is larger and has been maintained over theyears. Medical researchers involved in epidemiologicalstudies have expressed their concern over the high costsof reagents and kits. They can often lease equipments

at low rates, but these equipments are designed to usea specific brand of supplies and the cost of kits becomesa strong limitation for this type of medical researchwhen it is carried out on a large scale.

For similar reasons, database costs are an important fac-tor limiting the access of developing-country researchersto international science. As shown elsewhere, the trendtowards granting IPR protection to non-originaldatabases entails increases in the cost of informationresources, and affects the more cost-sensitive scientificactivities of developing countries52 , while the lack ofsui-generis protection for databases does not seem tohave affected the development of a local database industryin the Latin America and Caribbean region53.

One or two decades ago, pharmaceutical MNCs hadgreat interest in using molecules present in plantsreputed of being useful in traditional medicine inhumid tropical forests of Latin America and elsewhere.A process of bargaining between MNCs and countriesof Central and Northern South America ended in thesigning of a few “biodiversity” contracts. The clausesof these contracts have been kept in secret in countrieslike Costa Rica. Other countries intending to sign si-milar contracts do not have a basis to negotiate.

Agreements for similar purposes have been signed by LatinAmerican universities and by ethnic groups with U.S. andEuropean universities and research organizations. Partnersfrom high-income countries would have a larger set ofpossible matches than governments or institutions ofdeveloping countries. As a result, the threat point of theformer is increased, and the bargained outcome shouldbe giving them a larger share than they would obtainotherwise. On the other hand, many of those contractswere discussed but never signed, because both partsapplied inflexible policies that raised transaction costsbeyond the value of the projects.

From the standpoint of science and technologypolicies of developing countries, bargaining is more

9. Biodiversity

complex. The interest shown by some developingcountries in joint ventures for the research ofbiodiversity goes well beyond that of obtaining fairshares in the royalties stemming from the exploitationof these results. As the national research program inbiotechnology of one Latin American country puts it,“Besides the incentives to the (local) development ofknowledge, the impact over the balance of paymentsof intellectual property rights that are recognized (bydeveloping countries) and compensatory schemes thatshould be accorded, for instance by eliminating traderestrictions to their exports, the principle of fosteringthe participation of national talent and researchcapacities in generating knowledge is introduced, inthe conviction that the (developing country) derivesmore benefit from this participation than from savingsome currency if this right (to participate) is notrecognized”54 .

For many developing countries, building a scientificcommunity and international networks withscientists in frontier labs and universities is of greaterimportance than obtaining regular flows of royalties.Biodiversity is seen by these countries as a uniqueopportunity to pursue the first objective. There isawareness that asymmetries of information play a

52 Forero-Pineda (2004).53 As shown in the analysis of López (2002).54 Colciencias (1993), p. 141.


determinant role in the outcome of negotiationsconcerning biodiversity. And the view that transfersof knowledge and specific technologies are possibleonly when receptors are peers of scientiststransmitting this knowledge is invoked at the policy-making levels. Policies consistent with thisperspective give priority to placing local scientistsin the leading committees of research projects andprograms, rather than to obtaining a larger share inroyalties.

Nonetheless, these policies are difficult to implement.The case of local researchers directly contacted byinternational companies or universities to act as herbcollectors is common, and the enforcement of legalregulations prohibiting this practice is extremelydifficult and costly to enforce. Traditional biologistsin these countries have signed research agreements,where their only role is to provide biological materialto their foreign partners, without any participationon their part in the intelligence of the project, mostoften based on molecular biology and orientedtowards structure analysis. And even if nationalsources have denied funds for this kind of proposals,they have obtained financial resources from theirforeign counterpart. More advanced local labs resentthis competition from foreign labs and universitiesthat they consider unfair.

A related issue has developed in the context ofdiscussions concerning compatibility of theConvention on Biological Diversity and the TradeRelated Intellectual Property agreements of the WorldTrade Organization. Costa Rica, the five AndeanCommunity countries and Brazil are among thecountries where national or regional patentlegislations demand the revelation of origin, andsometimes verification of licit origin, of the vegetalmaterial used in a product or process to be patented.India is also considering the approval of a similarregulation55 . These countries and others, including

a few developed countries, have presented proposalsfor the TRIPs to make explicit the acceptance of these“revelation of origin” provisions in nationallegislation and a commitment on the part of allmembers to a clause demanding previous informedconsent of the countries of origin. These clauses havebeen agreed in Articles 15.1, 15.5 and 15.7 of theConvention on Biological Diversity. The U.S., theEuropean Union, Canada, Japan and Australia havepresented objections to the proposal of includingthese provisions in the TRIPs56 . The debate hastaken place in relation to the revision of Article 27.3bof TRIPs, which presently allows member countriesto refuse the patenting of plants and animals, withthe exception of microorganisms and biologicalprocesses for the production of plants or animals.

The position of these developing countries could beinterpreted in terms of the model presented in the lastpart of section 5 above. It showed how trade-relatingintellectual property rights induced an internationalspecialization, likely to deepen the knowledge-production gap. Reforms introducing revelation oforigin and demonstration of licit origin could be seenas institutional devices allowing developing countriesto counter the general trend towards a specializationin traditional goods induced by trade-relating IPR.Revelation-of-origin and licit-origin clauses areassociated with prior consent of the country or ethnicgroup having title to the genetic material used in theresearch leading to a patent, according to theConvention on Biological Diversity (Articles 15.1 and15.5 of CBD). Prior consent implies a fair distributionof benefits between developer and country of origin(Article 15.7). In the presence of learning-by-doingor other externalities related to knowledge production,an excessive specialization of developing countriesaway from the production of knowledge could becountered if the agreement goes beyond the paymentof royalties to the country of origin and if it involveslocal scientific communities in research.

55 Vivas (2001), p. 4.56 Ibidem, p. 7.

17

Traditional knowledge developed over centuries byethnic groups is increasingly being used forcommercial purposes, mostly in agriculture andpharmacy. This use has been the object of abundantlitigation and conflict, a trend that has closelyfollowed the interest by companies to appropriateknowledge and the strengthening of intellectualproperty rights.

The explanation of conflict relating to ethnicknowledge is manifold57. The institutions ofintellectual property in the modern world are orientedtowards ownership by the individual, whileknowledge in those ancestral societies is sociallyconstructed and shared. There are informationasymmetries concerning the cultural environment, thevalue standard and negotiation practices of the otherbargaining side. The classic information asymmetryabout the effectiveness of this knowledge is a fortioripresent in these exchanges. There is anotherinformation asymmetry affecting commitments andthe viability of enforcement of agreements reached.These asymmetries of information significantlyincrease transaction costs, when a regular marketexchange is envisioned.

The additional transaction costs related to mistrustresult from unsettled past conflicts between potentialusers and ethnic groups. Many cases have beendocumented where there has been an appropriationof the ancestral knowledge of ethnic groups throughpatenting. Protests have resulted in either reversal ofpatenting decisions, or self-restraint from using thepatent after the protest of ethnic groups and ongoingconflicts58 . These situations may be interpreted asthe result of strong information asymmetries, andvery high transaction costs of closing a contract whencultural distances are long. In some cases, agreementsmay simply not be possible. Some ethnic groups

10. Ethnic knowledge

may be outside of any value exchange system. Inothers, even when international firms or universitiesdeal with ethnic groups where exchange is feasible,the magnitude of these costs exceeds the potentialcommercial value of the products that are to beproduced on the basis of that knowledge. As aconsequence, valuable knowledge is neither accessedby open science nor used in industry.

The existence of worldwide regulations backed byagreements involving a large number of ethnic groupscould lower the transaction costs stemming from thoseinformation asymmetries, at least in those cases whereexchange may be envisioned.

From an economic point of view, the protection ofcommunal rights over ethnic knowledge couldhardly be justified as a marginal stimulus to indi-vidual invention. But there are other reasons thatwould advice such a policy: in some cases thiscould stimulate the commercial use of thisknowledge; in others, well-defined property rightswould avoid practices identified with “bio-piracy”and costly judicial reversals as those that have beendocumented. Beyond these easily computablevalues, three more solid principles could beinvoked for the recognition of intellectual propertyrights over knowledge that was created bygenerations of community members: (1) theconservation of living social-knowledge sources;(2) the maintenance of a wide diversity ofknowledge-creating systems and (3) the establish-ment of sustainable relationships between thesecommunities and the rest of the world. Of course,the traditional framework of intellectual propertyrights in any of its forms would prove inadequateto satisfy these requirements and new forms ofintellectual property institutions ought to bedevised.

57 See Zerda-Sarmiento and Forero-Pineda (2002) and Zerda-Sarmiento (2002).58 Zerda-Sarmiento and Forero-Pineda (2002), p. 107.


59 See Albuquerque (2000) who compares the Brazilian “immature innovation system” with Korea and Taiwan’s “catching-up systems”; orAboites and Cimoli (2002) who express: “the Mexican economy is some kind of paradox: while sharing several macroeconomic featureswith Korea (dynamism in exports with a high technological content, economic growth etc.) its innovative performance is weak” andcharacterize fundamental asymmetries between Korea and Mexico.60 David (1997) further asks about north-south models: “How informative is the characterization of the processes of technologicalinnovation and diffusion (‘transfer’) in these models, and of the way those processes may be affected by policies concerned with intellectualproperty protection and other, infrastructural conditions?” p. 18.

Two final remarks should be made. First, thecontribution of the reviewed theoretical work tounderstanding the impact of stronger IPRs ondeveloping countries should be appraised. Thoughthese models have been useful to analyze the issuesof intellectual property in an international context,future work modeling the impact of IPRs ondeveloping countries should consider the dimensionson which developed and developing countriesradically differ. Network or local externalities shouldbe accounted for. Economic and institutional barrierspreventing a high elasticity of technological activitiesto IPR protection in developing countries should bemade explicit and, ideally, explained. Differences inaccess to scientific knowledge on the part oftechnology developers in the two regions should alsobe directly addressed.

In some of the north-south models, authors remedythe structural inadequacies of their models with theassumption that innovation takes place only in thenorth, thereby precluding a dynamics of change anddevelopment. In other models, technology is producedin both regions but differences are centered on marketsize, price levels and numbers of patented productsper year, while the significant efforts associated with“normal science” or routine R&D which are necessaryin developing countries, and were mentioned above,are ignored. The conclusions of the north-south modelshere reviewed do not distinguish between countries indifferent stages of their development or withdifferentiated innovation systems, in contrast with thework of Brazilian and Mexican authors, who haveanalyzed empirically the sharp differences betweentechnological development processes in their owncountries and in Korea or Taiwan59 .

But perhaps the main criticism that can be made to theseries of north-south models is their focus on an

11. IPRs, north-south models and development policies: concluding remarks

additive welfare function (allowing them to proposetrade compensations for welfare losses of the South,ensuing their adoption of tighter IPR protectionregimes), and their disregard for other specific effectsthat are critical when developing countries attemptbuilding innovation systems as their main developmentstrategy. Understanding the importance of thesealternative objectives requires models allowingconsideration of structural differences in technologyproduction, path dependence, phases and qualitativechange60 .

The second remark addresses science and technologypolicy-making in developing countries, in face ofinternational changes in IPR. Parallel to the trendtowards a stronger appropriation of knowledge, achange in the attitude of developing countries hastaken place. Certain apparently unsuccessfulexperiences such as the market reserve policy adoptedin the nineteen eighties by Brazil, showed the limitsof this type of nationalist economic developmentpolicies. A variety of pressures, most of themconnected with debt or with the possibility of tradesanctions by WTO, and difficulties encountered inbuilding coalitions during international negotiationrounds, prompted a shift from proactive technologicaland development oriented intellectual propertypolicies towards the implicit or explicit acceptance ofstronger intellectual property rights in these countries.

In some cases, the negative effects of that trend onthe development of the less advanced anddeveloping countries have become more apparentand understandable. But there is no doubt thatcertain science and technology policies ofdeveloping countries have the potential to counterthe perverse effects of a tighter appropriation ofknowledge worldwide. A few examples show thata favorable insertion of their industries in this new

19

international context is possible. The re-conversionof the pharmaceutical sector of Italy is often citedas an example of successful adaptation to changesin intellectual property rules. Brazil is trying tofollow a similar path with some discontinuities andvarying degrees of success. But local institutionalproblems in developing countries61 often lead to alow-level equilibrium trap, where the interests ofgovernment, industrialists and researchers do notconverge in effective modernization and innovationsystem building.

In view of these limitations, niche science andtechnology strategies62 might appear to be interesting

options. But those may be considered self-limitingdevelopment strategies by large and medium-sizedeveloping countries. Alternatively, they might bestpursue more concerted changes aimed at overcomingthe added disabilities of the new IPR regime for theirdevelopment of greater scientific capabilities and theability to generate technologies best suited to theirspecial economic and ecological situations. For thelatter strategy to succeed, however, will requireinstitutional reforms allowing the allocation of largerhuman and financial resources to science andtechnology activities, and a greater capacity forinternational collaborative actions to preserve thedomain of public knowledge.

61 Forero-Pineda and Jaramillo-Salazar (2002) describe the dynamics leading to a low efficiency trap of science and technology activities indeveloping countries.62 Such as those proposed by Davenport and Bibby (1999).


Aboites J. and M. Cimoli, 2002, Intellectual propertyrights and national innovation systems, some lessonsfrom the Mexican experience, Revue d’ÉconomieIndustrielle #99, 215-232.

Albuquerque, E., 2000, Domestic patents and developingcountries: arguments for their study and data from Brazil(1980-1995), Research Policy 29, 1047-1060.

Albuquerque, E. and A. Bernardes, 2003, “Cross-over,thresholds and interactions between science andtechnology: a tentative simplified model and initialnotes about statistics from 120 countries, ResearchPolicy 32, 867-887.

Bancomext, 2000, The Pharmaceutical Industry inMexico, http://mexico.businessline. gob.mx/espa/sectorial_i/farmaceutica_ingles.html, 02/08/2000.

Barton, J., 2003, Intellectual property, biotechnology,and international trade. Two examples, in T. Cottier& P. Mavroidis (Editors), Intellectual Property: Trade,Competition, and Sustainable Development (U.Michigan Press) 3, 215.

Bessy, C. and E. Brousseau, 1997, The governance ofintellectual property rights: patents and copyrights inFrance and the US, working paper, ATOM, Universitéde Paris I, September.

Bubert, I. and M. Büning, Trademark law: domainname issues, in I. Walden & J. Hörnle (Editors), E-commerce Law and Practice in Europe, (Woodhead,2001, loose-leaf).

Byström, M., P. Einarsson, G. Nycander, 1999, Fairand Equitable: Sharing the Benefits from Use ofGenetic Resources and Traditional Knowledge,Swedish Scientific Council on Biological Diversity.

Cañón, C. and C. Forero-Pineda, 2004, La propie-dad intelectual en la negociación de los acuerdos co-merciales, Economía Colombiana, January.

CGIAR – Consultative Group in InternationalAgricultural Research (2001). What is CGIAR?. http://www.cgiar.org/whatis.htm 26/04/2001.

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21

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Este número de la serieGaleras de Administración

se terminó de imprimir en Agosto de 2005.El texto está compuesto en fuente

Berkeley Book 11 puntos.Impresión y diagramación: Guías de Impresión.

María Lorena Gutiérrez Botero

DecanaFacultad de Administración


Comité de PublicacionesComité de PublicacionesComité de PublicacionesComité de PublicacionesComité de Publicaciones

Fernando Cepeda UlloaCarlos Dávila L. de Guevara

Manuel Rodríguez BecerraElvira Salgado Consuegra

Piedad Salgado Camacho

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Primera ediciónPrimera ediciónPrimera ediciónPrimera ediciónPrimera ediciónBogotá, Agosto de 2005

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Comité de InvestigacionesComité de InvestigacionesComité de InvestigacionesComité de InvestigacionesComité de InvestigacionesFrancisco Azuero Zúñiga

Carlos Dávila L. de GuevaraPaula Durán Fernández

Clemente Forero PinedaRoberto Gutiérrez Poveda

Daniella Laureiro MartínezAndrés Robledo Anzola

Elvira Salgado Consuegra

[email protected]

Con esta serie de documentos de tra-bajo se pretende difundir los resulta-dos de investigaciones que están enproceso de elaboración. Busca estimu-lar el intercambio de ideas y contribuira un diálogo que enriquezca el resul-tado final de la investigación. En talesartículos se reflejan solamente los pun-tos de vista de su autor y pueden citar-se conforme a las reglas académicas.

This series of working papers presentsthe results of ongoing research. Itintends to stimulate the exchange ofideas and contribute to dialogue thatmay improve the quality of research.These documents solely reflect thepoint of view of the author and maybe cited in accordance to academicrules.


1A Model of Guarantees under High MoralHazardUn modelo de garantías bajo condiciones dealto riesgo moral

Rafael J. Bautista-Mena, profesor asociadoFacultad de Administración, Universidad de los AndesMayo de 2005

2Vulnerabilidades de la economía colombiana:Un examen de los balances sectorialesColombian Economy Vulnerabilities: ABalance-sheet ApproachFrancisco Azuero Zúñiga, profesor asociadoFacultad de Administración, Universidad de los AndesJunio de 2005

3The Impact of Stronger Intellectual PropertyRights on Science and Technology in DevelopingCountriesEl impacto del fortalecimiento de los derechos depropiedad intelectual sobre la ciencia y la tecnologíade los países en desarrolloClemente Forero-PinedaSchool of Management, Universidad de los AndesJuly 2005

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