WIPO International Seminar on the Strategic Use of Intellectual Property for Economic and Social Development Promoting a Balanced IP System: Economic Issues and Perspectives Rio de Janeiro May 21 to 25, 2007

Global Economic Scenario 5.2 bn DevelopingIndustrialized 1 bn trln 6.02 trln PopulationNational Income (US$) 80 20

Per Capita Incomes $ 430 (40%) $ 1,860 (40%) $ 26,510 (20%)

Challenges Sustained economic growth, creation of wealth and expansion of prosperity depend on creativity and innovation IP plays a critical role in fostering creativity and innovation Challenge for WIPO >>> To ensure that IP policies and systems are formulated and structured in a balanced manner so as to promote innovation and creativity in all Member States

Strategic Goals 1.Promoting a balanced IP system and realizing its development potential 2. Strengthening IP infrastructure, institutions and human resources 3.Progressive development of international IP law 4.Delivery of quality service in global IP protection systems 5.Greater efficiency of management and administrative support processes

Main Focus Developing tools for policy makers to enable them to have a deeper understanding of the role and impact of IP on development Assisting countries to take into account flexibilities and public interest objectives Enhancing the understanding of the IP system by innovators, creators, research institutions, SMEs and creative industries Developing policy-oriented economic research in order to enable policy-makers to take evidence-based decisions in the field of IP Why ?

Because... Theories of Economic Development amenable only to econometric modeling and analysis Difficult to inject IP factor into the model due to the following reasons: –IP has various elements –for each element, varying parameters –for each parameter, different standards in different countries Hence propensity to simplify or link IP with creativity/innovativeness – emphasizing the importance of the knowledge market

Mantra: Protecting the Market for Knowledge Goods Imperative for State to intervene due to two characteristics –Non-rivalrousness: simultaneous use by multiple entities no bottlenecks or capacity constraints –Non-excludability: use without authorization cannot be prevented Ensure dynamic benefits at the expense of static costs Reduce uncertainty of investments vs certainty of profits (before vs after) Protection promotes innovation but….

Does it catalyze the development process ? Perceptions vary, hence the debate on a WIPO Development Agenda..….. Economic Studies, based on scientific research and empirical analysis are now looking into these issues

Economic Issues Patents : How different elements of the patent system affect innovation in different sectors/countries? Is there any evidence of patents blocking, rather than promoting innovation? What complementary policies are necessary to ensure that patents act as an adequate incentive to innovate? Is there any empirical evidence on the impact of recent changes in patent protection in developing countries on innovation?

Copyrights: Review of economic findings on the economics of copyright (e.g. on scope of protection, length of protection, fair use, collective management, exceptions and limitations, digital rights management, etc.). How to strike a balance between access to works and incentives to create new works? Analysis of empirical evidence from different countries and policy implications

Trademarks/GIs: Economic rationale for protection Conclusions of recent economic research about the role of trademarks/GIs in the marketplace Overview of economic research on use of trademark/GIs in developing countries Traditional Knowledge: The economic rationale for/against the protection of TK Analysis of different approaches to the protection of TK and the potential economic implications

Other Strategic Issues: Economic analysis of the interface between IP and competition policy –How to balance exclusive rights granted by the IP system and the objectives of competition policy? –What is the experience of developed and developing countries in the field of IP and competition policy? –How can competition policy help to ensure that the IP system meets its objectives ? Economic evidence on the impact of the IP system on the ability of governments to meet public health objectives Similarly, issues relating to –technology transfer –commercialization of R&D and academic research results –economics of research, innovation and intellectual property rights in the agriculture/biotech/software/pharma/music industry

Imperative to examine these issues in depth and reach conclusions only after analyzing empirical evidence an example…

Patent Protection, Technology Licensing and the Tragedy of the Anti-Commons

Patenting - Benefits and Costs Patent protection provides safeguards against misappropriation of proprietary technology and opportunistic behavior However, ‘strong patent protection’ entails costs by potentially creating market power in downstream product markets Do patents inhibit subsequent inventions and their commercialization …...…. the Anti-Commons problem ?

Commons and the Anti-Commons “ Tragedy of the Commons”: People overuse resources owned in common as no incentive to conserve - overpopulation, air pollution, species extinction (Garrett Hardin 1968) Proliferation of IPRs, leads to underuse of scarce resources, as people block each other - thereby creating an “anti- commons” (Heller and Eisenberg)* * Can Patents Deter Innovation? The Anticommons in Biomedical Research - Michael Heller et al, Science 280 (1998)

Bio-medical research and innovations susceptible –numerous right holders – licensing/transactions costs higher than ultimate value –heterogeneity in goals/norms/practices increases difficulty in reaching agreement –uncertainty over the value of rights Conditions ripe to create an “anti-commons” problem - but empirical evidence lacking Study by Walsh, Arora, Cohen (2003) to assess whether commercialization of biotech innovations are hampered by multiple patent rights Conducted interviews with IP lawyers, scientists and biz managers in drug/biotech firms, universities and government research organizations

Questions: –Has there been a proliferation and fragmentation of patent rights? –Has this lead to a failure to realize mutually beneficial trades, as stated in the theory of “anti- commons”? –Has restricted access to upstream discoveries impeded subsequent research? Conclusions: –Pre-conditions exist for “anti-commons” number of patent holders per innovation has risen in recent years and patent landscape has become more complex universities/research Institutions have patented aggressively –in 3 key bio-med utility classes, univ share in total patents increased from 8 % (early 70s) to 25 % by mid 90s –gross licensing revenues increased – US $ 186 mn (130 univs) in 1991 to US $ 862 mn in 1999 (190 univs) –univ technology licensing offices – 8 times increase from 1980 to Emphasis on licensing of univ discoveries

–But consequences as hypothesized not reported –Though a large number of patents may be potentially relevant to a given project, the actual number needed to conduct a drug development project is often substantially smaller (adrenergic receptor; maize) –No instance of breakdown in negotiations over rights leading to suspension of R&D projects (eg.,GoldenRice TM ) –Royalty stacking did not present a threat to on-going R&D projects

Thank you Gracias Obrigado