TOWARDS A PRO-DEVELOPMENT AND BALANCED INTELLECTUAL PROPERTY REGIME

1. TOWARDS A PRO-DEVELOPMENT AND BALANCED INTELLECTUAL PROPERTY REGIME Presented to a Conference on Intellectual Property at Columbia June, 2005 Joseph E. Stiglitz Columbia University and the Initiative for Policy Dialogue

2. THE GOAL TO ENSURE THAT THE WORLD’S INTELLECTUAL PROPERTY REGIME PROMOTES DEVELOPMENT, ACCESS TO KNOWLEDGE, THE ADVANCEMENT OF KNOWLEDGE, AND OVERALL HEALTH AND WELL BEING • TO IMPLEMENT THE DECISION MADE AT WIPO GENERAL ASSEMBLY IN GENEVA ON OCTOBER 4 • TO GUIDE THINKING CONCERNING REVISING TRIPS AGREEMENT AS PART OF THE DEVELOPMENT ROUND

3. Knowledge and development • WHAT SEPARATES DEVELOPED AND LESS DEVELOPED COUNTRIES IS NOT JUST A GAP IN RESOURCES • A VIEW PREVALENT IN THE DECADES FOLLOWING WORLD WAR II • MOTIVATED THE CREATION OF THE WORLD BANK • BUT A GAP IN KNOWLEDGE AND TECHNOLOGY • Important not just for increasing GDP • But for improvement in health and other dimensions of living standards • Reflected in 1998 World Bank WDR ‘Knowledge for Development’

4. SUCCESSFUL DEVELOPMENT • NEEDS TO OVERCOME THAT GAP • Historically, reverse engineering, copying, and compulsory licensing played an important role • Most successful countries developed explicit strategies to do so • AND TO DEVELOP TECHNOLOGIES APPROPRIATE FOR THE CONDITIONS OF DEVELOPING COUNTRIES • Need to have incentives

5. The role of intellectual property Knowledge, however, is not costless. • Intellectual property provides incentives • Long recognized • But there are other ways in which knowledge can be created

6. Intellectual property rights are different from other forms of property rights • They create a distortion—a (temporary) monopoly power • Particularly problematic since reward under patent not directly related to social value of contribution • Evident in bio-piracy (patents on traditional knowledge) • Some of returns on patents related to “enclosure of commons” • Even apart from that, not directly related to marginal contribution • Social value related to knowledge being available earlier than otherwise • Social costs of distortion especially high in the case of life-saving drugs

7. Ordinarily, property rights are argued for as a means of achieving economic efficiency • Intellectual property rights, by contrast, result in a static inefficiency, justified by the dynamic incentives • Any method of raising funds has a social cost, but patent system is not “optimal” way of raising money (not optimal tax) • Recent advances in industrial organization suggest that costs may be far higher than previously thought • Schumpeter was wrong about temporary nature of monopoly • Monopoly power once established can easily be perpetuated • Particularly evident in case of network externalities, switching costs (including “learning”) • And that benefits may be lower than previously thought • Incentives for R & D may be less • Distortions in the direction of research

8. Key question: what is best way of organizing and financing research? • Efficiency of public, private, not-for-profit production • Problem of “selection”—which projects to finance • Problem of “incentives” • Answer clearly will be a mixed system • Policy Question: “balance”, nature of IPR protections • Many dimensions—what can be protected, duration, scope, novelty standards, etc. • Circumstances of compulsory licensing • Drug companies want easier access to University research, less protection for bio-diversity, more protection for their drugs

9. Knowledge as a public good • Fundamental problem is that knowledge is a public good • In fact, it’s a global public good • no marginal cost associated with use • intellectual property circumscribes its use and thus necessarily causes an inefficiency • Key policy issue--Balancing static inefficiencies and dynamic gains • unbalanced intellectual property regime—say with an excessively long patent life—leads to overall inefficiency • In TRIPS agreement careful balancing was totally missing. • The argument was essentially, the stronger the intellectual property rights, the better • But this is wrong.

10. Assessing costs • Not just loss of static efficiency • But static efficiency is important • Patents used to create cartels (automobile) • Losses of lives • Losses of dynamic efficiency—if intellectual property rights are unbalanced

11. Losses of dynamic efficiency • Knowledge is the most important input into the production of knowledge • Especially of concern when patents involve ‘enclosing the commons’ • Intellectual property rights restrict access to knowledge • Incentives for innovation with monopoly less than in more competitive market place • Patent conflict can impede innovation • Development of the commercial airplane • Much of R &D activity directed at circumventing or strengthening monopoly • Not at creating new products and lowering costs which enhance welfare IMPLICATION: STRONGER INTELLECTUAL PROPERTY RIGHTS MAY NOT LEAD EVEN TO FASTER PACE OF INNOVATION

12. Towards A More Balanced Intellectual Property Rights Regime • Intellectual property only one of several mechanisms for providing incentives and supporting research • Trade secrets • First mover advantage • Public support • Research produced by government laboratories and universities • Large fraction of most important innovations • Most knowledge creation not protected or protectable by intellectual property rights • Basic mathematical insights • Open source movement • Especially true of much of knowledge which is relevant for development • Which products will work well in this environment • Who are good entrepreneurs • What products are demanded in market

13. BALANCE • ALL PROPERTY RIGHTS ARE ‘CIRCUMSCRIBED’ IN INTERESTS OF PUBLIC GOOD • Endangered species act • Zoning • Represent ‘balancing’ • ESPECIALLY IMPORTANT IN INTELLECTUAL PROPERTY RIGHTS • Compulsory licensing • Restrictions arising from concerns about excessive monopolization • Monopolies are restricted in their right to engage in discriminatory pricing • And in leveraging monopoly in one area into another • Inevitable because one has to decide on standards • What is protectable • Business practices, genes • Scope • Novelty standards • To increase likelihood of dynamic benefits traditionally has been a disclosure requirement • In recent cases, there has been an attempt to suppress disclosure

14. IPR IS AN INEFFICIENT WAY OF PROVIDING FINANCE • REVENUES FOR RESEARCH PROVIDED BY MONOPOLY PROFITS • DIFFERENCE BETWEEN PRICE AND MARGINAL COST CAN BE VIEWED AS A ‘TAX’ • ONE DESIRABLE PROPERTY: ‘BENEFIT TAX’ • BUT IN MOST OTHER ARENAS, ONLY LIMITED RELIANCE ON BENEFIT TAXES • INEFFICIENCY AND INEQUALITY

15. INEQUITIES ASSOCIATED WITH IPR • KNOWLEDGE AS A GLOBAL PUBLIC GOOD • SHOULD BE FINANCED BY THOSE MOST ABLE TO PAY • IPR DOES NOT RECOGNIZE DIFFERENCES IN CIRCUMSTANCES—OTHER THAN EXTENT TO WHICH PROFITS CAN BE EXTRACTED

16. IPR AND TRIPS • INTELLECTUAL PROPERTY SHOULD NOT HAVE BEEN INCLUDED IN URUGUAY ROUND • NOT REALLY TRADE ISSUE • AND IN FACT SOME ENFORCEMENT PROVISIONS ACTUAL RESTRICT TRADE • E.G. ON COMPULSORY LICENSING • MOREOVER TRADE MINISTERS NOT APPROPRIATE FORUM FOR ‘BALANCING’ WHICH IS AT CENTER OF AN EFFICIENT AND EQUITABLE IPR REGIME • LET ALONE ONE WHICH IS PRO-DEVELOPMENT • EVIDENCED BY THE FAILURES OF DOHA • DEVELOPMENT ROUND NOT TRUE DEVELOPMENT ROUND—IPD/COMMONWEALTH REPORT • AND EVEN RENEGED ON PROMISE OF DOHA

17. LEGAL SYSTEM CAN LEAD TO UNFAIR OUTCOMES • HIGH COSTS OF IMPLEMENTING IPR • INCLUDING HIGH COSTS OF CHALLENGING PATENTS • PUTS DEVELOPING COUNTRIES AT A DISADVANTAGE • EXACERBATING RISKS OF BIO-PIRACY • PRESSURE NOT TO ISSUE COMPULSORY LICENSES AND TO HAVE STRONG IPR REGIMES REINFORCED BY INTERNATIONAL ECONOMIC INSTITUTIONS AND ‘MARKET’

18. TOWARDS AN IPR REGIME WHICH PROMOTES DEVELOPMENT • It is in the interests of the international community to have an IPR regime which promotes development and the well being of those in the developing world • It is necessary to do so if the divide between the developed and less developed countries is to be reduced • And if the aspirations reflected in the millennium development goals are to be achieved • This will require revision of TRIPs • And that WIPO, not WTO, take on a greater role in defining the appropriate IPR regime

19. TOWARDS AN IPR REGIME WHICH PROMOTES DEVELOPMENT • IPR is a means, not an end in itself • Transfers associated with IPR regime impede development • Especial problem when associated with setting of standards

20. The IPR regime which is appropriate for the most advanced industrial countries will be different from that which is appropriate for developing world • Nature of ‘balance’ will be different • Dictum that the stronger IPR rights the better is never true • But weighing costs and benefits is especially important for developing countries • Must be careful about single standards • What is rationale behind ‘single standard’? Is there a need? • Consistent with “conservative principle” of Commonwealth Report on a “True Development Round” • Recognizing the asymmetries in bargaining • Reflected so strongly in Uruguay Round • Especially when the standards reflect those of special interests in advanced industrial countries • As was the case in TRIPs

21. TOWARDS AN IPR REGIME WHICH PROMOTES DEVELOPMENT • Will be relevant in determining every aspect of IPR regime • Scope • What can be patented • Standards for novelty • Exceptions and limitations

22. TOWARDS AN IPR REGIME WHICH PROMOTES DEVELOPMENT • Importance of ensuring effective competition • Greater risk in smaller developing countries • Importance of ensuring access to life-saving medicines • Importance of ensuring the transfer of technology • Importance of ensuring protection of traditional knowledge • Recognizing special problems in creating patents • And the dangers of ‘fencing in the commons’ • Importance of incentives for preserving bio-diversity • Importance of the need for impartial technical assistance, financial assistance in creating an appropriate IPR regime within each country and in establishing any international standards • And legal assistance (financial and technical) to challenge patent applications and to obtain patents in more advanced industrial countries • Without which, de jure there cannot be fairness

23. TOWARDS AN IPR REGIME WHICH PROMOTES DEVELOPMENT • A NEW LENS THROUGH WHICH TO APPRAISE EVERY ASPECT OF THE INTELLECTUAL PROPERTY REGIME • NEED TO HAVE GREATER VOICE TO THE CONCERNS OF THE DEVELOPING WORLD • A MATTER OF BOTH EFFICIENCY AND EQUITY • UNLESS THIS IS DONE, THERE IS THE PROSPECT OF AN EVER INCREASING GULF BETWEEN THE DEVELOPED AND LESS DEVELOPED WORLD— • Between the owners of intellectual property • And the users