Christoph Spennemann, Legal Expert The Interface between IPRs, Foreign Investment and Technology Transfer Development Dimensions of Intellectual Property Rights Hanoi Foreign Trade University, 15 & 16 December 2008 Christoph Spennemann, Legal Expert Intellectual Property Team Division on Investment and Enterprise UNCTAD

Overview of presentation Transfer of technology (TOT) and investment are IP-related The role of IP in the transfer and dissemination of foreign technology The role of IP in the attraction of foreign investment Conclusions

TOT and investment are IP-related Article 7 TRIPS: “Transfer and dissemination of technology” as one objective of IP protection Article 66.2 TRIPS: Obligation on developed WTO Members to “provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer” to LDCs All modern bilateral investment treaties (BITs) have a broad definition of « investment » that encompasses IPRs

The role of IP in the transfer of foreign technology (1) Traditional assumption: higher levels of IP protection are conducive to investors’ willingness to transfer technologies through licensing agreements through foreign direct investment (FDI) Technology is disclosed in patent application, may be studied & applied

The role of IP in the transfer of foreign technology (2) Developing country (DC) reality check: Limited financial means to license technologies Lack of absorptive capacity  inability to use foreign technologies or to understand patent applications Need for technological learning through imitation and reverse engineering: more difficult under IPRs FDI alone will not transfer technology if local workers lack know-how: UNCTAD study of Thai electronics industry UNCTAD, « A Case Study of the Electronics Industry in Thailand » Transfer of Technology for Successful Integration into the Global Economy Series, New York and Geneva, 2005.

The role of IP in the transfer of foreign technology (3) UNCTAD-ICTSD research on Korean experience (Professor Linsu Kim) At early stage of technological development, when technological learning takes place through imitation & reverse engineering, strong IPRs will hinder rather than facilitate TOT IP protection becomes important element in TOT only after countries have reached sufficient level of domestic expertise to engage in creative imitation & adaptation UNCTAD-ICTSD, « Technology Transfer & Intellectual Property Rights. The Korean Experience », Issue Paper No. 2, by Linsu Kim, Geneva, 2003.

The role of IP in the transfer of foreign technology (4) The Indian experience: development of a domestic pharmaceutical industry 1970 – 2005: no patent protection for pharmaceutical products in India This enabled reverse engineering of foreign pharmaceutical products (difference product patents vs process patent) Today, India is home to large generic drug producers, who engage in considerable patenting activities in OECD markets

The role of IP in the transfer of foreign technology (5) The European experience: exclusion of pharmaceutical product patents France until 1960 Germany until 1968 Japan until 1976 Switzerland until 1977 Italy & Sweden until 1978 Spain until 1992

The role of IP in the transfer of foreign technology (6) Lesson from DC and OECD experience: in order to promote TOT, domestic IP system needs to be adapted to a country’s level of development TRIPS contains flexibilities allowing such adaptations (next sessions on copyright and patents) Core importance: public domain as source of information for technological learning

The multilateral debate on IP & technology transfer Concerns expressed by DCs and especially LDCs about low acquisition of new technologies despite TRIPS compliance WTO Working Group on Trade & Transfer of Technology ineffective 2007 WIPO Development Agenda recommends WIPO to promote DCs’ understanding of use of IP policies & TRIPS flexibilities to foster TOT  ongoing work 2008 WHO Resolution on Global Strategy & Plan of Action on Public Health, Innovation and Intellectual Property recommends WHO and Members States to promote public health-related TOT to DCs, in particular to encourage local production of pharmaceuticals  initiation of work

The role of IP in the attraction of foreign investment (1) Traditional assumption: higher levels of IP protection are likely to attract foreign investment into DCs US – Vietnam Trade and Investment Framework Agreement (TIFA), 2007, recognizes importance of adequate & effective protection & enforcement of IPRs

The role of IP in the attraction of foreign investment (2) DC reality check (2005 study by Professor Keith Maskus) Foreign investors attach much importance to IP protection in research & development (R&D)-intensive technologies that are expensive to develop & easy to copy (e.g. pharmaceuticals, chemicals, but also R&D activities in low-tech areas, e.g. transport equipment) IP is relatively unimportant in R&D-poor activities, (e.g. sales & distribution, even in chemicals sector) Keith E. Maskus, « The Role of Intellectual Property Rights in Encouraging Foreign Direct Investment and Technology Transfer » in : Intellectual Property and Development. Lessons from Recent Economic Research (editors C. Fink and K.E. Maskus), The World Bank, 2005, pp. 41-75 (57, 60).

The role of IP in the attraction of foreign investment (3) UNCTAD research and DC stakeholder feedback: despite relevance of IP protection in some areas, investment decisions are mainly based on non-IP factors, such as Financial incentives Market size Supply structure Infrastructure Political & macro-economic stability Government transparency UNCTAD-ICTSD, « Intellectual Property Rights: Implications for Development », Policy Discussion Paper, Geneva, 2003, p. 89.

The role of IP in the attraction of foreign investment (4) Depending on the investor, higher IP protection may even be an investment disincentive E.g. generic pharmaceutical producers prefer limited IPRs environment (example: CIPLA investment in Uganda) Overall, recent economic research & evidence recommend that Countries with low technological know-how maintain IP protection limited (IP alone will not attract investors) Moving up « technology ladder », higher IP protection (in conjunction with improved technology environment) is likely to attract foreign investment & technologies This shows linkage between IP, TOT and investment Maskus, p. 60.

Conclusions IP, TOT and investment are closely interrelated Domestic IP regimes need to reflect level of technological development to enable technological learning Promotion of domestic absorptive capacity is at least as important as promotion of foreign investment As countries move up the « technology ladder », stronger IPRs become more important to attract R&D-intensive technologies. Important to control IP abuses and to prevent restrictive technology licensing IP only one among many factors in investment decisions

Contact Christoph Spennemann Legal Expert Intellectual Property Team Division on Investment and Enterprise (DIAE) UNCTAD E-mail: Christoph.Spennemann@unctad.org Tel: ++41 (0) 22 917 59 99 Fax: ++41 (0) 22 917 01 94 http://www.unctad.org/tot-ip