Intellectual Property Rights and Social Development: Issues and Evidence Keith E. Maskus Professor of Economics, U of Colorado Boulder International Conference on IPR and Development WIPO, Geneva, April 2016

Defining social development and role of IPRs A broad and all-encompassing concept but here let’s take it to mean: Establishment and sustainable growth of markets and institutional structures to facilitate and foster sustained improvements in living standards. Increasing abilities of society (governments, firms, educational institutions, health authorities, etc.) to meet the needs of citizens for physical well-being and fruitful social interactions. Intellectual property rights (IPRs) can have multiple and cross-cutting impacts on these capabilities. How effective or costly IPRs may be depends on a large set of socioeconomic factors. IPRs properly need to be embedded in broader social and economic systems to promote development: Innovation, adaptation, creativity and growth; Competition and regulation; Education, public health, and access to knowledge. Today I hope to offer a bit of structure and evidence-based observations to some of this complexity.

What are the promised gains of a globalized IPRs system? Improve international and national innovation incentives. Encourage R&D in technologies and products needed in poor countries. Expand trade and investment in high-technology goods and networks. Support markets for international knowledge transfer and diffusion. Improve consumer guarantees of product origin. Build and support domestic and global markets for creativity. Facilitate beneficial price differentiation. Offer more scope for protecting and developing traditional knowledge.

And some potential costs? IPRs carry administrative and enforcement costs. They may support market power in presence of weak competition. There is a potential for licensing abuses. Unbalanced patent and trade-secrets rules may block follow-on innovation and restrict imitative competition. IPRs may raise costs of medicines, agricultural inputs, and needed environmental technologies. Rigorous copyrights and database protection may restrict fair-use access to educational, scientific, and cultural materials.

Evidence from economic research Caveats: Research is difficult due to data scarcity, measurement problems, causation issues, and confounding factors. “Public goods” questions in particular are hard to study. Much of the research to date analyzes periods prior to effective TRIPS implementation in developing countries. Almost no serious research asks about impacts of IPRs in combination with other important conditions and policies. Following is a brief overview of available evidence in 3 areas. Unfortunately we have little systematic evidence in other areas of “public goods” and development: environmental technologies, agriculture, genetic resources, and others.

IPR reforms and innovation It’s remarkable how little is known about this fundamental question. Casual evidence since TRIPS: Developed economies have not become more innovative (R&D productivity) relative to trend rates. Emerging economies are engaging in more innovation and technology exports. But this change is heavily concentrated in a few countries and industries. Econometric studies are mixed but support 2 conclusions: Patent reforms can stimulate more innovation and exports in middle-income emerging economies with human capital and competitive markets. There is little evidence to date of such effects in poor countries. Trademark protection can help build product markets in developing economies. We know very little about the sources of creativity in poor countries and informal sectors.

IPR reforms and cross-border technology diffusion There seems to be a positive causal impact of IPR reforms on inward technology transfer through market channels. But not in the poorest countries. In middle-income and emerging economies there are threshold and complementarity effects: Education and human capital; Effective domestic competition; Adequate governance and infrastructure. We do not have yet a good understanding of the microeconomic mechanisms that explain these findings. And we have not studied well the impacts on “non-market” channels: imitation and copying.

Patents and pharmaceuticals: R&D Cross-country evidence about drug patent reforms: Strengthened laws in developed countries do expand R&D. Reforms in most developing countries do not expand local or global R&D. Since TRIPS there have not been noticeable increases in private R&D aimed at treatments for diseases most prevalent in poor countries. Since TRIPS and 2005 patent law the larger and export-oriented Indian firms have raised R&D investments sharply. But not in original drugs for Indian or DC markets. Patents can support efficient licensing in private-public drug development partnerships and distribution of essential medicines.

Patents and pharmaceuticals: prices and availability The obvious concern: what will happen to drug prices as generic competition is diminished? An important simulation study using pre-patent law market structure: prices of quinolones in India could rise by 100 to 300% with substantial welfare losses. A post-2005 study econometrically analyzing detailed price impacts found fairly modest effects in India (3% to 20%, depending on local competition). New evidence across countries finds similarly modest price effects in developing countries with stronger post-TRIPS patent laws. Why the modest effects? Price regulation? Threats of compulsory licensing? It’s not yet clear and we need more research. Patents and launches: availability of new drugs is delayed significantly by the absence of patents and/or presence of strong price controls. There is anecdotal evidence of declining amounts of dangerous counterfeit medicines.

IPRs and access to knowledge This is a vastly understudied area of global development policy. Among the most important contributors to social and economic development is access to international knowledge and information: Increasing and sustainable technology transfer in medicines, green technologies, and bio-engineered agricultural varieties. Knowledge is needed to adapt technologies to local conditions. Building a domestic S&T capacity is important for linking to innovation networks. Educational needs for access to learning materials.

IPRs and access to knowledge Patents, trade secrets and copyrights can play useful roles in facilitating rights sharing and technology diffusion. But the international patenting system is not sufficient to incentivize the needed R&D investments and transfers of quasi-public goods. Nor will it pay for localized adaptation investments in poor countries. Rigorous copyright protection does raise costs of access to published materials.

Policy lessons for developing countries? Policy makers can take steps to help their economies benefit from IPRs at least cost. Strive for transparency and certainty in administration and enforcement of the IPRs system. Take advantage where needed of available limitations and exceptions on the scope of rights: Patents: rigorous standards, opposition procedures, development-oriented fees structure, research exemption, compulsory licensing, etc. Trade secrets: narrowly defined as possible. Copyrights: transparent but robust limitations and exceptions. Take steps to encourage and protect domestic knowledge development and use: benefit sharing.

Policy lessons for developing countries? IPRs should be conceived of as a component of broader development strategy. Key factors suggested by research: Take further steps to improve domestic investment climates. Build R&D capacities in domestic firms. Invest in science and technology education. Subsidize research into localized adaptation, including with international teams of researchers. Competition maintenance and (in medicines at least) price regulation. Openness to trade and investment to encourage international network linkages.

Global policy lessons? How can useful technology transfer of public goods be optimized? There are many possibilities but here are two with large potential payoffs. International investments in knowledge pools into which publicly funded scientific research results and applications would be placed for licensing on concessional terms. Increases in medium-term “mobility visas” for skilled technical workers.