The Multinational Monitor

November 1990 - VOLUME 11 - NUMBER 11


Patent Plunder

TRIPping the Third World

by Robert Weissman

Charging that Third World "pirates" are stealing tens of billions of dollars worth of their goods each year, multinational corporations involved in high technology have lobbied governments in the industrialized countries to push for strong intellectual property provisions in the Third World. Ever accommodating to big business, the Northern governments have used negotiations over the General Agreement on Tariffs and Trade (GATT) as a forum in which to demand that Third World countries enact strict patent, copyright and trademark laws.

Developing countries have put up some resistance to this campaign. They argue that loose patent laws speed their industrialization and development by enabling them to copy state-of-the-art technologies. They have refused to make concessions in the area of trade-related intellectual property (TRIPS) unless the industrialized countries guarantee them greater access to Northern markets for goods like textiles and agricultural products.

But the Third World may be selling itself short. Critics fear that the adoption of the industrialized countries' intellectual property proposals will seal multinational companies' control over valuable Third World resources and cement their dominance of high technology.

Claims of piracy

The essence of the industrialized countries' position regarding intellectual property is simple. The United States wants to strengthen intellectual property protection and establish an obligation for countries to enforce those stronger standards, according to Emery Simon, director for intellectual property at the Office of the U.S. Trade Representative (USTR). These goals involve lengthening patents' lifespans, making inventions of all products patentable, sharply limiting restrictions on patents (such as requirements that an invention be produced domestically to preserve a patent's validity) and ensuring that countries prohibit copies of items ranging from movies to Gucci bags to Rolex watches.

The strongest proponent of strengthened intellectual property provisions in GATT is the United States; not coincidentally, the companies most concerned about intellectual property are U.S.- based. Individual companies, as well as industry groups like the Pharmaceutical Manufacturers Association (PMA) and the Intellectual Property Committee (IPC), a coalition of 13 major U.S. companies, including IBM, DuPont, General Motors, Merck and Co. and Pfizer, have strongly lobbied the Reagan and Bush administrations on intellectual property issues. The IPC claims to have "played a key advisory role, at USTR's request, in developing the official U.S. proposal on intellectual property that the U.S. Government tabled before the GATT TRIPS working groups in October 1987." The industry lobby group adds that its "close relationship with USTR and Commerce has permitted the IPC to shape the U.S. proposals and negotiating positions during the course of the negotiations."

The United States developed its proposal in response to company claims that they are losing billions of dollars in revenue to "pirates" who counterfeit their goods and infringe on their patents. A joint report of the IPC and business associations in Japan and Europe asserts that "losses to worldwide industry as a result of inadequate and ineffective protection of intellectual property have been extensive and are growing."

A study by the U.S. International Trade Commission places the cost to U.S. industry of inadequate intellectual property protection at between $43 billion and $61 billion. The findings of the much quoted study--one of the only to attempt to quantify the losses due to inadequate intellectual property protection-- may be biased, however. It was based on a survey which asked companies to estimate their own losses from counterfeit goods and patent infringements.

The negotiations

GATT, an international agreement which regulates most of the world's trade and has not traditionally addressed intellectual property issues, was not the obvious forum in which to debate intellectual property protection. Third World countries were distrustful of GATT, which was largely constructed, and has been dominated, by industrialized countries. Developing countries favored discussing intellectual property protection in United Nations-affiliated organizations, such as the World Intellectual Property Organization (WIPO), where the Third World exerts greater influence. WIPO oversees two existing international agreements on intellectual property: the Berne Convention, which establishes standards regulating copyrights, and the Paris Convention, which governs patents.

When GATT signatories negotiated the mandate for the current round of negotiations (known as the Uruguay Round) prior to its start in 1986, the developing countries strongly resisted the industrialized countries efforts to include intellectual property. Eventually, a compromise was forged which the developing countries understood to mean that the intellectual property discussions which would take place in GATT would be strictly limited.

In the negotiations, Third World countries have emphasized that GATT is only supposed to address the trade-related aspects of intellectual property protection, which they assert are minimal. Chile argued in early 1990 that intellectual property standards themselves are trade-neutral and that all substantive proposals on intellectual property made in GATT should be forwarded to WIPO. Chile urged GATT to limit itself to developing sanctions which could be imposed on countries whose failure to adequately protect intellectual property has demonstrable trade consequences.

The developing countries have sought to address directly the Northern concerns about counterfeit goods, which they generally agree are legitimate. Third World countries have proposed that separate agreements be negotiated for counterfeit goods (involving copyrights and trademarks) and patents. The proposal to divide the two areas has met with hostility in the industrialized countries. Simon says the United States has "no interest" in that proposal and that it wants "to improve the intellectual property regime overall." Jacques Gorlin, the Washington, D.C. representative of the IPC, calls the proposal to divide counterfeit goods from patents a "non-starter for the private sector."

The industrialized countries have instead introduced proposals in the TRIPS negotiations which cover all aspects of intellectual property protection. U.S. Trade Representative Carla Hills said the May 1990 U.S. proposal is so comprehensive that it amounts to a "bill of rights" for intellectual property.

How close the industrialized and developing countries have come to hammering out a final TRIPS agreement is unclear. The GATT negotiations were scheduled to conclude in early December 1990, but stalled, largely over agricultural issues. According to Simon, many Third World countries, expecting their concessions on TRIPS to be offset by gains in the agriculture negotiations, refused to reveal their TRIPS positions until they were convinced an agreement would be reached on agriculture.

The real pirates

The industrialized countries' denunciations of "Third World pirates" has set the tone for the TRIPS debate. But critics charge that claims of piracy obscure the important issue of how strengthened and expanded intellectual property protections will tighten multinationals' hold on Third World genetic resources.

One important thrust of the United States' TRIPS proposal is the plan to extend patents to "all products and processes, which are new, useful and unobvious." Of most interest to the multinational food chemical and pharmaceutical companies are the world's genetic resources, most of which are embedded in seeds and herbs in Third World countries.

Multinationals hope to gather information from the genetically rich Third World, manipulate it through rapidly evolving biotechnology techniques and then patent the new seeds, pharmaceuticals and other products they develop. The Third World will receive nothing in the bargain because the "naturally occurring organisms" that they provide are not patentable. Genetic resources are not valued and are not considered the province of the nation in which they occur (as minerals, for example, are) due to a campaign by industrialized countries to have them classified as "a universal common heritage."

But the companies take more than genetic resources from Third World countries. When botanists for multinational corporations go to the Third World to gather plants, says Pat Mooney of the Rural Advancement Fund International (RAFI), "they do not just collect plants, they collect the knowledge of [local] people; the botanists don't have the slightest idea" which plants are valuable. The botanists gather the plants that local farmers and herbalists have cultivated and breeded and which they unsuspectingly report as useful to the multinational's representatives.

This process is already underway, according to RAFI, since the United States and some other countries have already extended patent coverage to genetically altered organisms. For example, a gene isolated from an African cowpea, when inserted into crops ranging from soybeans and maize, has been found to provide excellent resistance to insect pests. IC Industries and Pioneer Hi-Bred are now seeking licensing rights to insert the cowpea gene in their own patented varieties, and industry observers believe the gene will be worth hundreds of millions of dollars to its inventors. "The question is," RAFI notes, "who are the inventors? [The scientists] who isolated the gene? Or West African farmers who identified the value of the plant holding the gene and then developed and protected it?"

If the industrialized countries' patent proposals are implemented, RAFI's question will be answered. The scientists will be the legal owners of the gene, and the African farmers will receive nothing.

The United States dismisses the argument that the African farmers deserve compensation as illogical. If indigenous plant varieties are naturally occurring, they are not patentable, Simon told Multinational Monitor. If Third World farmers have done work on a plant, then they have the right to make a patent claim as innovators.

In addition to ignoring the obvious fact that most Third World farmers do not have the resources to pursue patent claims, Simon ignores the farmers' non-patentable contributions in identifying, cultivating and protecting plant varieties. Jack Kloppenburg, Jr., a rural sociologist at the University of Wisconsin, points out the asymmetry of assigning value to genetic information when it is processed in corporate laboratories but not when it is developed by Third World farmers and indigenous people.

RAFI hopes that the corrective to GATT lies in a little-noticed model law passed by WIPO and the United Nations Education, Science and Cultural Organization (UNESCO). The UNESCO/WIPO model law, which has been supported by the United States, was designed to protect folklore. The model law recognizes that innovations can be developed by communities rather than individuals and assigns ownership of the innovations to communities as long as they continue to innovate. RAFI believes folklore includes "folkseed," or farmers' seeds bred outside the formal innovation system, and folk medicinal plants.

If the model law is adopted by member states and determined to cover seeds and plants, it would ensure that the Third World would be compensated for the genetic resources it has cultivated and preserved. If multinationals were required to compensate the Third World for the genetic resources which they use as industrial inputs, RAFI claims that they would owe the Third World approximately the same amount they claim to be losing to pirated goods. Using standard royalty rates, RAFI calculates that multinationals would owe at least $ 302 million annually for crop chemicals which use farmers' seeds and over $5 billion each year for products derived from medicinal plants.

The likelihood of the model law being applied in the intellectual property area, however, is not great. If current trends continue unabated and the industrialized countries' TRIPS proposal are enacted, the consequences for the Third World will be severe. An international roundtable discussion held in 1990 which included representatives from Third World governments, Third World and Northern non-governmental groups, UN agencies, the U.S. government, industry and academia concluded that "the twin dangers of expansion of the scope of formal patent rights on the one hand, and non-recognition of informal innovation systems on the other, will lead to a widening of the economic gap between industrialized and poor nations."

Drug wars

The flip side of how the industrialized countries' TRIPS proposals devalue Third World knowledge is that it makes private sector patents virtually sacrosanct. By requiring Third World countries to adopt US-style patent laws, the industrialized countries' TRIPS proposals will strengthen the monopoly power of multinational pharmaceutical companies, drive up the prices of drugs for Third World consumers and devastate fledgling Third World pharmaceutical companies.

The Argentinean pharmaceutical manufacturers association placed an advertisement in U.S. newspapers in November 1990 which illustrated how GATT would raise pharmaceutical prices for Argentine consumers. The advertisement pointed out that an anti- arthritis drug which sells in the United States for $169.84 costs only $35.08 in Argentina. Argentina's lax patent laws enable other companies to compete with the drug's patent holder, Pfizer. Were the United States' TRIPS proposal accepted, Argentinean companies would not be able to undersell Pfizer.

India provides another example of how lax patent laws have benefitted Third World pharmaceutical consumers and producers. In 1970, the country revised its patent law, which previously had guaranteed strict patent protection. The 1970 Indian Patents Act sought to encourage domestic production of patented inventions and ensure that the products were available at a reasonable price. It allows patents for manufacturing processes only, not products. Thus a company is legally allowed to produce a patented pharmaceutical if it develops a new process to create it. The 1970 Act also allows the government to require a company to license its patent to another company if it is not manufacturing its product in India and making it available in sufficient quantities at a reasonable price within three years after a patent is granted.

The 1970 Indian Patents Act has been extraordinarily successful at accomplishing its goals, according to B.K. Keayla, the convenor of the Indian National Working Group on Patent Laws. Keayla reports that: drug prices in India, among the highest in the world before the 1970 law, are now among the lowest; the Indian pharmaceutical industry has flourished due to the process patent system; and India is nearly self-sufficient in the production of bulk drugs.

Despite its beneficial effect in India, the Indian patent law is exactly the sort targeted by the U.S. Pharmaceutical Manufacturers Association. Roger Brooks, assistant vice president in the PMA's international division, says that an acceptable TRIPS agreement must guarantee the protection of pharmaceutical products as well as processes, have "reasonable working requirements" which do not require domestic production of patented pharmaceuticals, and prohibit compulsory licensing requirements except in cases of "national emergency."

Controlling technology

The industrialized and developing countries' conflict over intellectual property protection of pharmaceuticals mirrors the broader conflict over protection for high technology. High technology multinationals, citing the figures developed by the U.S. International Trade Commission, claim imitation goods, many emanating from the Third World, cause them to suffer large losses. The industrial countries do not say, however, that in order for the multinationals' to recover those "losses" a massive transfer of income from the poor countries to the rich would be required, even if the ITC figures are inflated.

Yet the industrialized countries and high technology multinationals claim that stronger intellectual property laws will not hurt the developing countries. "Improved protection will lead to increased investment, innovation and technology transfer to [developing] countries," the USTR's Simon says. He states that foreign companies will invest and domestic companies will innovate only when afforded strong intellectual property protection.

Third World countries dispute these claims. They point to the historical record of the industrialized countries, most of which did not have strong intellectual property laws when they were developing. For example, the United States in the nineteenth century and Japan through most of the twentieth engaged in exactly the sort of activities the United States now labels piracy. More recently, the "four tigers" of East Asia--Taiwan, South Korea, Hong Kong and Singapore--industrialized with the help of weak intellectual property protections.

Now, with the emergence of high technology, copying inventions seems especially beneficial to Third World countries. While high technology in areas such as pharmaceuticals, chemicals and computers requires significant investment to develop new products, the inventions themselves--drug or chemical compounds and computer software--are easy and cheap to copy. Perhaps more importantly, because high technology is knowledge, rather than capital, intensive, copying can enable countries to accumulate the vital inputs for industrialization quickly. Surendra Patel, a senior adviser at the UN University in Helsinki, argues that "once the skill level in any country has reached a critical mass, the opportunities for benefitting from [the skills] are considerable. They offer the developing countries unparalleled opportunities of short-circuiting the development process, of leapfrogging over several phases of technological evolution."

Given this sort of perspective, Third World activists make exactly the opposite arguments of representatives of the Northern countries. The key to technology transfer is to have a patented item produced ("worked") in Third World countries, either by the patentee, licensee or imitator. C. Niranjan Rao explains in the Indian Economic and Political Weekly that "technological development or technology transfer will be possible only if the patent is worked in the patent-granting country. If it is used only as an import monopoly [with the product imported by the patentee and not produced in the country at all], then it will have adverse effects on industrialization and innovation in these countries."

This points to an important contradiction in the position of industrialized countries. Gorlin, for example, argues that genuine technology transfer, involving the development of infrastructure and an educated workforce, follows from foreign investment in Third World countries, which is in turn contingent on the Third World having strong intellectual property laws. Yet these proposed strong laws guarantee companies the right not to produce in the Third World by eliminating developing countries' ability to require patents to be worked domestically. Simon says the United States strongly rejects provisions which allow countries to require patents be worked locally, calling them "as antithetical to trade as you can get."

But for Third World countries, the technological consequences of the industrialized countries's TRIPS proposals are antithetical to development. Certainly they would undermine successes like those achieved under India's 1970 patent law. Keayla states that "the consequences will be disastrous to the Indian economy" if GATT adopts the Northern countries' TRIPS proposals, which would overturn all of the significant provisions of India's patent law. Martin Kohr, vice president of the Malaysia-based Third World Network, asserts that the Northern countries TRIPs proposals will lead to "the greater monopolization of technology in the hands of a few multinational companies" and the elimination of possibilities for "developing countries to develop their own industries based on technology which already exists."

An ominous future

Even if the GATT talks are not resuscitated and the Northern countries' TRIPS proposals are not adopted, strong intellectual property laws may yet be imposed on the Third World.

The greatest threat comes from the United States. The "Special 301" section of the 1988 Trade Act requires the USTR to impose tariffs on countries which it determines are engaging in unfair trade practices by not offering strong enough intellectual property protection. In July 1988, after strong lobbying from the PMA, the Reagan administration imposed trade sanctions against Brazil for its failure to provide patent protection to U.S. pharmaceutical firms. The United States lifted the sanctions in June 1990, after Brazil pledged to adopt strong patent protection legislation. In April 1990, the USTR identified 23 countries with whom it planned to negotiate over intellectual property standards. If those countries do not show signs of "improvement," they will face the same type of sanctions the United States imposed on Brazil.

For Third World countries, the aggressive U.S. intellectual property initiatives in GATT and in bilateral negotiations are ominous. A successful U.S. campaign will lock the developing countries into a technologically dependent state and usurp the Third World's control over its own genetic resources.

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