1. IPR, Markets For Technology, and Developing Countries
Ashish Arora Carnegie Mellon University WIPO-WTO Joint Workshop
17 November 2003

2. Roadmap Markets for technology
Knowledge Economy – Knowledge as a tradable good
Impact of MFT for developing countries: Evidence from the chemical industry
Upstream, specialist technology suppliers
Role of IPR in MFT
Direct impact via efficiency of licensing transactions
Supply of know-how and tacit knowledge in licensing transactions
Indirect impact via entry of specialist suppliers
Whose IPR regime?
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Arora, "IPRs, MFT & DC"

3. Markets for Technology: A Simple Typology
Existing
Future
Technology
Technology
or component
Horizontal (with
Union Carbide
licensing polyeth.
technology to BP
Sun licensing Java to
actual or
IBM; R&D joint ventures
between rivals
potential rivals)
DOJ distinction between markets for technology and markets for innovation, roughly corresponds to columns.
Strategic concerns also make it important to understand whether licensing to competitors or complementors
Vertical
Licensing of IP
Affymax licensing
combinatorial technology to
Pharmaceutical firms
(Licensing to
cores in
non riv
als)
semiconductors
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Arora, "IPRs, MFT & DC"

4. Markets for Technology
Increasing licensing and tech trades in 1990s
Active or emerging tech markets in
Chemical processes
Biotechnology
Semiconductors
Estimated size of market for technology
$50 billion per year (royalty flows)
$20-35 billion per year (licensing plus R&D)
10-15% of civilian R&D
ITTIAM in India is developing semiconductor IP; Indian firms licensing drugs to major pharma;
Israeli firms in pharma, medical instruments,
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Arora, "IPRs, MFT & DC"

5. MFT have facilitated the diffusion of chemical technology to developing countries Share in world exports of chemicals, , by country of origin
Data from CMA (now Am chem Council) shows much lower shares for “others”, because they define “business of chemistry”, which is different from SIC 28. But even for them, the share of others has increased from 13% to 20% between 1990 and Clearly, there are many causes. Demand; raw materials, esp. oil.
One key is the role of SEFs. Provide plant design and engineering; sometimes affiliated with contractors. Critical role in diffusing technology. Sometimes even radical process innovation. Usually incremental innovation and improvement; also act as agents for technology sellers. Reduce transaction cost. Also bundle required IP.
Huge impact – cutting edge technology to developing countries; world capital markets for equipment; if you know what you are doing, -- several sources of ammonia-urea plant. (Haldor Topsoe; Kellog; ICI; Snamprogetti)
Source: Table 2 in Eichengreen, in Arora, Landau, and Rosenberg (eds), 1998

6. Developing Countries and Small Firms Benefit the Most from a MFT Buyers of chemical process technologies, by source of technology,
Critical role of independent suppliers – this points to why division of labor is important, and specialist technology suppliers. UOP was supplier of refining technology to independent refiners
How SEFs Fuelled Growth of 3rd World Chemical Industry
Not have to rely solely on incumbent producers in the West.
Technology and engineering services made available, due to competition among SEFs, at MC, not AC.
More SEFs imply greater technology variety and quality choices.
SEFs are an alternative (not perfect substitute for MNC but ..)
Source: Arora and Fosfuri, 1998

7. Impact of an additional SEF: Estimated additional investment per process, $ mill., 1981-90
Key: For TW as a whole, one additional SEF in the typical market would imply additional investment of $120 m over 10 yrs ~ one chem plant. Not a huge deal but this is marginal impact with about 10 SEFs already.
Research Design: Data
Dataset: Population of 2081 processes comprising chemical plants constructed or under construction in world, About 50% are in non-OECD countries. Source of technology and engineering observed for about 50%.
Sample: 139 chemical processes in 38 non-OECD countries. (Account for nearly 80% of all investment outside OECD.)
Unit of observation: Process-Country pair.
Relate variations in number of SEFs operating in 1st World (KFW) to variation in investment in chemical plant in 3rd world (SIZE) across different process
Dependent Variable: $ invested in process i in country j.
Key Challenges: How to control for
a) demand side factors
b) for technological maturity
c) possible endogeneity of the number of 1st World SEFs
For developing countries as a whole, in a typical market, an additional SEF implies ~ 1 additional plant. (Arora, Fosfuri and Gambardella, 2000)

8. Patents and Markets for Technology
Direct: Incentives for codification
Easier to search
Cheaper to transfer
Indirect (but possibly most important): MFT
Encourage upstream technology specialists
Biotech (Arora and Merges)
Semiconductors (Hall and Ziedonis)
Chemicals
Direct: Can mitigate a key problem – transferring tacit knowledge
Arora, 1995 & 1996
Patents can be held as “credible hostages” in technology transactions when non-protected, complementary know-how and services have to be provided.
Technical services more likely to be included in licensing contracts when bundled with patents and as part of “turn-key” arrangements.
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Arora, "IPRs, MFT & DC"

9. Whose IPR Regime Matters for What?
Developed country IPR
Enhance incentives to codify
Facilitate market for technology
Encourage technology specialists (SEFs)
Encourage licensing by incumbent producers which spills over
Enhance innovation by developing countries for developed markets
Developing country IPR
enhance technology licensing, know-how transfer
Increase tech holder bargaining power; may raise cost of technology
Modest impact on innovation by developing country  mostly for innovations specific to developing countries
Modest impact on market for technology
12/4/2018
Arora, "IPRs, MFT & DC"