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Contents Preface ........................................................................................................................ iii Abbreviations..viii Acknowledgements ..................................................................................................... . xi Executive summary .................................................................................................. xiii Introduction ..............................................................................................................

xiii Main findings from past researc ............................................................................... xiv Intellectual property rig ts! foreign direct investment and international trade .................................................................................................. xiv Intellectual property rig ts! international tec nology transfer and domestic innovation........................................................................... xiv Intellectual property rig ts and public ealt .................................................... xv Intellectual property rig ts! genetic resources and traditional knowledge ......... xvi "uture researc directions ......................................................................................... xvii Intellectual property rig ts! foreign direct investment! trade and licensing ...... xvii Intellectual property rig ts! international tec nology transfer and domestic innovation......................................................................... xviii Intellectual property rig ts and public ealt ................................................. xviii Intellectual property rig ts! genetic resources and traditional knowledge ......... xix C#AP$E% & Introduction ..................................................................................... & C#AP$E% ' Intellectual property and foreign direct investment .......................... ( '.& Introduction ...................................................................................................... (

'.' Intellectual property and foreign direct investment) t e t eory .......................... * '.'.& $ e case for stronger intellectual property rig ts .................................. * '.'.' $ e case against stronger intellectual property rig ts ............................ + '.( Intellectual property and foreign direct investment) t e empirical evidence ............................................................................................................ + '.(.& Evidence from t e perspective of developed countries .......................... + '.(.' Evidence from t e perspective of developing countries ......................... , '.* Conclusions and future researc directions ........................................................ C#AP$E% ( Intellectual property and trade ....................................................... &. IP and /eveloping Countries %A0/ Europe vi (.& Introduction .................................................................................................... &. (.' Intellectual property and trade) t e t eory ....................................................... && (.'.& $ e case for stronger intellectual property rig ts ................................ && (.'.' $ e case against stronger intellectual property rig ts .......................... && (.( Intellectual property and trade) t e empirical evidence ..................................... &' (.(.& Evidence from t e perspective of developed countries ........................ &' (.(.' Evidence from t e perspective of developing countries ....................... &* (.* Conclusions and future researc directions ...................................................... &+ C#AP$E% * Intellectual property and innovation .............................................. &1 *.& Introduction .................................................................................................... &1 *.' Intellectual property rig ts and innovation) t e t eory ..................................... &1 *.'.& $ e case for stronger intellectual property rig ts ................................ &,

*.'.' $ e case against stronger intellectual property rig ts .......................... &, *.( Intellectual property and innovation) t e empirical evidence ............................ '. *.(.& Evidence on international tec nology transfer .................................... '. *.(.' Evidence on domestic innovation ....................................................... '& *.* Conclusions and future researc directions ...................................................... '' C#AP$E% + Intellectual property and public ealt .......................................... '+ +.& Introduction .................................................................................................... '+ +.' $ e importance of patents for p armaceutical innovation ............................... '2 +.( Intellectual property rig ts and access to innovations ....................................... '1 +.(.& Patents are taken out only in selected countries .................................. '1 +.(.' Accessing ealt care innovations by lowering prices ........................... '1 +.* Intellectual property rig ts and innovation for ealt ...................................... (. +.*.& 3imits in using intellectual property rig ts to address developing country problems ............................................................................... (. +.*.' Creating conditions for more effective intellectual property policy ................................................................................................. (' +.+ Conclusions and furt er researc directions ..................................................... (+ C#AP$E% 2 Intellectual property! genetic resources and traditional knowledge ...................................................................................... (, 2.& Introduction .................................................................................................... (, 2.' Intellectual property! traditional knowledge and genetic resources) t e t eory .............................................................................................................. (2.'.& An emerging field of researc ............................................................. (-

2.'.' Assumptions about t e nature of traditional knowledge ..................... *. 2.'.( #uman rig ts discourse ..................................................................... *. 2.( Intellectual property! genetic resources and traditional knowledge) t e empirical evidence ........................................................................................... *& 2.(.& Evidence from t e perspective of developed countries ........................ *' 2.(.' Evidence from t e perspective of developing countries ....................... *( vii 2.* Conclusions and furt er researc directions ..................................................... *1 C#AP$E% 1 Conclusion ..................................................................................... *, %eferences .......................................................................................... *%eferences .............................................................................................. +. Appendix) International patent protection 4 &-2.4'..+ .......................................... 2+ viii

Abbreviations AI/5 Ac6uired Immune /eficiency 5yndrome /fI/ /epartment for International /evelopment "A7 8nited 0ations "ood and Agriculture 7ffice "/I "oreign direct investment 9I 9eograp ical indication #I: #uman Immunodeficiency :irus IP Intellectual property IP7 Intellectual Property 7ffice IP%s Intellectual property rig ts P:P Plant variety protection

%;/ %esearc and development $%IP5 Agreement on $rade<%elated Aspects of Intellectual Property %ig ts 8P7: International 8nion for t e Protection of 0ew :arieties =$7 =orld $rade 7rgani>ation

Executive summary Introduction $ e debate concerning t e economic implications of intellectual property rig ts ?IP%s@ as gained considerable attention over t e past two decades in t e context of t e =orld $rade 7rgani>ationAs ?=$7@ Agreement on $rade<%elated Aspects of Intellectual Property %ig ts ?$%IP5@! and t e subse6uent increase of regional and bilateral free trade agreements in t e $%IP5<plus era. $%IP5 aims to narrow t e gaps in t e way t at IP%s are protected around t e world! and to bring t em under common international rules. It establis es minimum levels of protection t at eac =$7 Member 5tate must provide. $ e following rapid proliferation of regional and bilateral free trade agreements include elements of IP%s building on and raising minimum standards defined by $%IP5. $ ese agreements indeed integrate $%IP5<plus norms! including undertakings by developing countries not to use specific $%IP5 flexibilities. /eveloping countries are under increasing pressure to

strengt en t eir national intellectual property ?IP@ regimes! in order to armonise t em wit t ose of developed countries. $ e movement towards strengt ening IP%s in t e laws of developing countries was initiated by developed countries under t e belief t at t is would generate additional profits leading to more researc and development ?%;/@! and it would be necessary to fuel economic growt in t ose countries. #owever! suc belief attracted many critics! particularly researc ers! w o stressed t at t is movement was initiated against developing countries! underscoring t e absence of empirical evidence to Bustify t e socio< economic benefits for developing countries from strengt ening IP%s. Encouraged by t is controversy! researc ers ave undertaken growing work to better understand t e socio<economic effects of strengt ening IP%s in developing countries! bot from t eoretical and empirical perspectives. In particular! researc ers ave tried to assess t e effects of stronger IP%s on various economic variables! suc as foreign direct investment ?"/I@! trade and innovation! as well as key areas suc as public ealt and traditional knowledge. $ is report presents t e results of studies examining t e effects of strengt ening IP%s in developing countries. It reviews t e results of t e recent grey and sc olarly literature on t e positive and negative effects of stronger IP%s in developing countries! wit a focus on five areas) "/I! trade! innovation! public ealt ! genetic resources and traditional knowledge.

$ e report also suggests future researc directions. %A0/ Europe Executive 5ummary xiv Main findings from past researc $ e main findings from t e literature review are presented below. $ e empirical literature on t e effects of strengt ening IP%s in developing countries as grown substantially over t e past decades. #owever! it remains surprisingly scarce! despite t e passionate debate generated by t e implementation of $%IP5 and t e subse6uent development of bilateral and regional free agreements creating ig er standards for IP%s in developing countries. Conse6uently! t e main findings presented in t is report s ould be interpreted wit caution. Intellectual property rig ts! foreign direct investment and international trade Commonly! "/I and trade are seen as key determinants for economic development and poverty reduction in developing countries. Inward "/I can generate important spillovers for developing economies! resulting in t e upgrading of domestic innovative capacity! increased %;/ employment! better training and support to education. "or most developing countries! international trade allows t em to ac6uire ig value<added goods t roug importation t at are necessary for economic development! but w ic are not produced domestically. In turn! exports allow developing countries to transform under<

utilised natural resources and surplus labour into foreign exc ange! in order to pay for imports to support economic growt . Conse6uently! a central aim of t e literature as been to examine ow stronger IP%s in developing countries can give incentives to firms in developed countries to undertake cross<border investment in! and to export t eir goods to! t ese countries. %ecalling t e ambiguous relations ip between IP%s and t e individual strategies of single firms from a t eoretical point of view! researc ers ave investigated empirically t e effects of stronger IP%s on inward "/I in developing countries and exports from developed to developing countries. $ e empirical evidence suggests t at stronger IP%s may positively affect t e volume of "/I and exports! particularly in countries wit strong tec nical absorptive capabilities w ere t e risk of imitation is ig . = en suc risk is weak! particularly in t e poorest countries! firms in developed countries do not seem to be sensitive to t e level of protection in developing countries. 8sing disaggregated data on "/I and trade! t e empirical literature also s ows t at stronger IP%s impact on t e composition of "/I and trade. "irst! stronger IP%s seem to encourage "/I in production and %;/ rat er t an in sales and distribution. 5econd 4 and more surprisingly 4 stronger IP%s do not ave any effect on t e exports of ig < tec nology products. $ ere are at least two explanations for t is somew at surprising

result. Many ig <tec products are difficult to imitate! t ereby international trade for t ese products is less sensitive to t e level of protection t an for ot er products. "urt ermore! firms in developed countries may c oose to distribute t eir ig <tec products t roug "/I or licensing! instead of exporting t em directly. Intellectual property rig ts! international tec nology transfer and domestic innovation Increasingly! arnessing tec nological progress is viewed by policymakers as a key priority to boost economic growt and improve living standards. In an open economy! tec nological progress can be driven eit er by tec nology diffusion or tec nology creation. %A0/ Europe Executive 5ummary xv In less advanced economies! tec nology absorption can drive economic growt because countries at t e forefront of tec nology act as a driver for growt by expanding t e stock of scientific and tec nological knowledge! pulling ot er countries t roug a Ccatc < upA effect. #owever! t e strengt of t is Ccatc <upA effect at t e tec nology frontier decreases wit t e level of tec nological development! to t e benefit of tec nology creation. Indeed! tec nology creation by domestic firms becomes progressively more important as a country moves closer to t e tec nology frontier! because catc ing up wit t e frontier translates into increasingly smaller tec nological improvement. $ e empirical literature as examined t e effects of IP%s on tec nological progress t roug t ese two main c annels) tec nology absorption ?i.e. international tec nology

transfer@ and tec nology creation ?i.e. domestic innovation@. $ e empirical evidence suggests t at stronger IP%s in developing countries may encourage international tec nology transfer t roug market<based c annels! & particularly licensing! at least in countries wit strong tec nical absorptive capacities. In t e context of strong IP%s! firms in developed countries are more inclined to transfer t eir tec nologies to developing countries t roug licensing rat er t an t roug exports and "/I! since suc rig ts allow t em to retain control over t eir tec nologies. In t e presence of weak IP%s! multinationals in developed countries seem to prefer to retain control over t eir tec nologies t roug intra<firm trade wit t eir foreign affiliates in developing countries or "/I. 0evert eless! t e istorical evidence s ows t at many developing countries ave benefited from international tec nology transfer t roug non<market<based c annels! especially reverse engineering and imitation! t anks to weak IP% regimes. $ e empirical literature also s ows t at stronger IP%s can encourage domestic innovation! at least in emerging industrialised economies. 0evert eless! t e empirical literature suggests t e existence of a non<linear function ?i.e. a 8<s aped curve@ between IP%s and economic development! w ic initially falls as income rises! t en increases after t at. Intellectual property rig ts and public ealt 7ne<t ird of t e worldAs population does not ave access to essential medicines. $ e

proportion reac es +. per cent in t e poorest parts of Africa and Asia. In addition! p armaceutical %;/ on ealt problems specific to poor countries is often perceived as inade6uate. Moreover! fewer t an &. per cent of global ealt researc is directed towards diseases t at afflict -. per cent of t e worldAs population. IP%s in p armaceuticals ave two principal areas of impact w ic affect public ealt . "irst! t ere is t e issue of access! w ere discussion focuses on t e links between IP%s! t e exclusion of competitors! and t e availability and pricing of new medicines. 5econd! t ere is t e issue of incentivising innovation! w ere discussion focuses on t e role of IP%s in motivating t e discovery and development of new drugs! and t e effect of t ese rig ts on %;/ expenditure and its allocation across diseases! countries and organisations. $ ese two areas are at t e eart of t e empirical literature on t e effects of IP%s on public ealt in developing countries. 7verall! t e literature suggests t at strong IP%s can amper

& 7t er market c annels include trade and "/I. %A0/ Europe Executive 5ummary xvi access to medicines in developing countries and does not necessarily encourage p armaceutical innovation t at responds to developing country needs. 9eneric medicines are central to providing ealt care at prices affordable to developing countries. #owever! strong IP%s in only a select few countries t at export generic

medicines ave far<reac ing conse6uences for t e developing world. $ is is because countries t at rely eavily on imports of generic medicines may find t emselves wit a sudden s ortage of suppliers. 5ome ave suggested t at developing countries may benefit from differentiated prices! provided t at strong IP%s are allowed to set ig prices in t e developed world and measures are taken to minimise parallel importing from developing countries w ere prices will be lower. #owever! t e evidence suggests t at even under suc favourable IP and importing conditions! price differentiation is unlikely to be large 4 certainly not large enoug to be of benefit to t e very poor. $ e argument t at strong IP%s will benefit developing countries t roug future innovation is not borne out by t e evidence. 5trong IP%s are important for p armaceutical innovation! but only w ere t ere is a strong market! as is often t e case for ealt problems prevalent in t e developed world. #owever! p armaceutical industries in countries suc as India! w ic ave seen t eir IP% regimes strengt ened! are not

responding to developing country needs. Instead t ey too are focusing on developed country markets. 5o! for ealt issues of particular relevance to developing countries! IP%s are of value to commercial product and tec nology developers only if a viable market can be created ?for example! t roug an advanced market commitment@. Intellectual property rig ts! genetic resources and traditional knowledge

9enetic resources from plants! animals and micro<organisms are widespread in developing countries! amounting to -. per cent of t e worldAs genetic resources. Communities and individuals in developing countries ave exploited t ese genetic resources t roug t e generations. $ eir use is embodied in w at often is referred to as traditional knowledge. #owever! t e use of suc knowledge and resources is not limited to local contexts! and many innovations relate to and draw on t em. $ e broader use of traditional knowledge and genetic resources raises t e prospect t at t ey may play an important role in driving growt in developing countries. $ erefore! t e main issue is ow t is prospect mig t be best realised! particularly w en t e exploitation of traditional knowledge and genetic resources is coming increasingly under t e governance of various! and sometimes conflicting! IP% frameworks. $ e empirical evidence s ows t at IP%s can facilitate diversity in access to knowledge and benefit<s aring from innovation in developed countries. #owever! t e effectiveness of IP%s in t is regard depends on local capabilities in developing countries! in particular capabilities to engage in market production and exc ange! and negotiate and establis t e rig t legal infrastructure and enforcement. %A0/ Europe Executive 5ummary xvii $ailored IP laws are a necessary condition for knowledge protection systems to engage a

wider range of people in accessing and s aring t e benefits of knowledge in developing countries. Alt oug evidence about implementation is scarce! t is could be facilitated by using t e provisions in $%IP5 for sui generis protection and geograp ical indications. Empirical studies ave found t at sui generis IP systems can facilitate increased influence in innovation on t e part of local communities in developing countries. 9eograp ical indications can be used to protect diversity in access and benefit<s aring in developing countries by making provisions for a price premium for goods produced in a specific locality. "inally! in isolation! plant variety protection mig t impede diversity in access and benefit< s aringD owever! t ese measures could be combined wit provisions for farmersA rig ts! so as to promote diversity in knowledge systems in agriculture. #owever! at present! t e empirical evidence about t e impact of plant variety protection and farmersA rig ts in developing countries is t in. "uture researc directions $ roug out t e literature review! t e report identifies several knowledge gaps t at deserve attention for future researc . Intellectual property rig ts! foreign direct investment! trade and licensing $ e bulk of t e empirical literature on t e effects of IP%s on "/I! trade and licensing as relied on data covering t e period preceding t e establis ment of $%IP5 and subse6uent

development of increases in t e strengt of IP%s t roug regional and bilateral free trade agreements in t e $%IP5<plus era. %esearc is needed to assess t e effects of t ese agreements on economic development in developing countries. $ e maBority of empirical studies ave used indicators of IP protection constructed by researc ers to proxy t e level of protection in bot developed and developing countries. #owever! many studies do not consider explicitly t e effects of stronger IP%s in developing countries. Instead! t ey focus on examination of t e differentials of protection across countries! w et er developed or developing countries. "uture researc s ould concentrate explicitly on t e effects of stronger IP%s in developing countries! and even distinguis between different groups of developing countries ?e.g. fast<growing countries! least<developed countries@. Most of t e empirical evidence of t e effects of stronger IP%s on "/I! trade and licensing as been based on econometric met ods. Alt oug t ese met ods are useful to examine w et er t ere is a statistically significant relations ip between IP%s and development! t ey are not able to explain fully t e fundamental reasons be ind t e statistical results. "or example! t e limits of t ese met ods are striking w en t e focus of t e analysis is at industry level. Case study met ods can provide useful insig ts in order to explain t e different impacts of IP%s on economic variables suc as "/I and trade at industry level. %A0/ Europe Executive 5ummary

xviii Many studies using firm<level data to assess t e effects of stronger IP%s on "/I! trade and licensing ave used data on American ?85@ multinationals. More researc is needed on European and Asian multinationals. $ e empirical literature on t e impact of stronger IP%s as considered t e strategies of single firms in a partial<e6uilibrium framework wit out considering t e impact on t e w ole economy. It is important to consider broader efficiency aspects in a general< e6uilibrium setting! particularly from a 0ort 45out perspective. "uture researc s ould investigate ow IP%s impact on t e dynamic allocation of resources devoted to t e generation of knowledge and ow t e former influences t e international division of labour devoted to t e manufacture of protected goods. "urt ermore! it is not clear from a dynamic perspective w et er strong IP%s in developing countries encourage innovation in developed countries or w et er some benefits from innovation in developed countries accrue to developing countries. $ ese issues are of considerable importance and deserve furt er empirical researc . Intellectual property rig ts! international tec nology transfer and domestic innovation $ e empirical literature on IP%s and international tec nology transfer as concentrated mainly on market<based c annels of tec nology transfer! i.e. licensing. #owever! little is

known on t e effects of stronger IP%s on non<market c annels of international tec nology transfer! i.e. reverse engineering and imitation. "uture researc s ould examine in particular ow stronger and well<structured property rig ts regimes can foster t e diffusion of free tec nical information! and t ereby innovation. $ e empirical literature on IP%s and domestic innovation as establis ed t e existence of a 8<s aped relations ip between IP%s and economic development at t e country level! suggesting t at weak protection may ease economic development. "urt er researc s ould seek to better explain t e reasons be ind t is 8<s aped relations ip. Intellectual property rig ts and public ealt /ue to t e convergence of economies! it is possible t at IP%s may ave a more important role to play in t e future in dealing wit t e ealt problems common to bot developed and developing countries. $ ere is evidence t at many problems are converging. "uture researc s ould investigate ow t e convergence of economies 4 and t ereby t e growing similitude of ealt problems between nort ern and some sout ern countries 4 are likely to impact on IP% regimes. $ e review of t e literature also reveals a knowledge gap in understanding t e role of IP%s in public4private partners ips. 5ince t ese types of arrangements ave emerged as t e dominant paradigm for addressing neglected diseases! furt er researc on t is issue is

needed urgently. 5everal IP<related policy measures ?suc as government patent buy<outs! bifurcated patent systems! orp an drug legislature t at extends patents! and transferable IP%s@ ave been put forward! based on t eoretical grounds or indirect empirical evidence. $ ese re6uire careful policy analysis in order to determine t eir feasibility and implications wit more confidence. %A0/ Europe Executive 5ummary xix Intellectual property rig ts! genetic resources and traditional knowledge $ e review of t e literature on genetic resources and traditional knowledge as s own t at t ere is a need for furt er researc in order to assess t e relative impact of different tailored IP laws on diversity in access and benefit<s aring. 5pecifically! more empirical evidence is re6uired to better understand t e impact of existing national sui generis systems and specific measures in t e agricultural sector.

& C#AP$E% & Introduction 5ystems to govern intellectual property and promote social welfare t roug innovation and knowledge creation are not new. /espite t eir existence t roug t e past decades and centuries! intellectual property was relatively absent from t e public debate. %ecent

c anges in international legal and trade structures altered t is situation. $ e negotiations to ratify t e =orld $rade 7rgani>ationAs ?=$7@ Agreement on $rade<%elated Aspects of Intellectual Property %ig ts ?$%IP5@ acted as a catalyst to bring discussions of intellectual property ?IP@ to t e forefront of policy debates. 5igned in &--*! $%IP5 provides a minimum standard of protection for intellectual property and provides a dispute resolution system for entities to c allenge breac es of t ese standards. 5ubse6uently! new deals ave formed t roug bilateral! regional and international agreements to strengt en t ese minimum standards of protection. $ ese agreements are accompanied furt er by a growing number of institutions w ic refer to intellectual property 6uestions in t eir programmes! including! but not limited to! t e =orld #ealt 7rgani>ation ?=#7@! 8nited 0ations Educational! 5cientific and Cultural 7rgani>ation ?80E5C7@ and ot er 8nited 0ations ?80@ programmes. Amid t is plet ora of institutions and agreements discussing IP%s! debates ave ensued about t e influence of suc rig ts in diverse areas suc as trade and industrial policy! public ealt ! food and agriculture and biodiversity and biotec nology. $ ese debates ave become increasingly complex! involving arguments from t e perspectives of international law! uman rig ts and social and economic development. $ is complexity is coupled wit controversy! as critics c allenge t e existing intellectual property regimes based on t eir implications for developing countries! in particular t eir impact on a development agenda!

w et er positive or negative. $ e relations ip between IP%s and development is indeed 6uite complex from a t eoretical point of view. 7n one and! t ere are t eoretical arguments suggesting t at stronger IP%s can ave positive effects on development. 7n t e ot er and! t ere are t eoretical arguments against stronger IP%s in developing countries. Amid t is complexity and controversy about t e impact of intellectual property on developing countries! %A0/ Europe was commissioned to review t e empirical evidence about ow t e strengt of IP%s affects economic and social development in developing countries. As suc ! t is report reviews t e empirical evidence about t e relations ip between t e strengt of IP%s ?see Eox &@ and eac of t e following areas in developing countries) foreign direct investment ?"/I@! trade! innovation! public ealt ! and traditional knowledge and genetic resources. $ e empirical evidence of t e effects of IP%s on t ese areas varies considerably in terms of t e researc met ods used. $ e empirical literature on %A0/ Europe Introduction

' "/I! trade and innovation as used mainly econometric studies to test t eoretical assumptions based on economic arguments. Instead! t e empirical evidence on public ealt and traditional knowledge is based on more 6ualitative approac es and ot er disciplines t an economics. $ is explains w y t e approac followed by t e review varies across t ese areas.

$ e review finds t at! in fact! t e relations ip is viewed better from an alternate perspective! w ere t e broader levels of economic and social development ave a strong effect on ow IP%s affect developing countries. In t is way! t e report elps to reposition t e initial 6uestion on t e roles of IP%s in developing countries and to clarify its related evidence base. Eox &) C aracterising! measuring and comparing intellectual property rig ts Any attempt to 6uantify t e impact of IP%s needs to appreciate t e variable nature of t e legal framework t at supports IP%s. $ e enforcement of IP can turn on subtleties in t e language of IP statutes as interpreted by courts! administrative agencies and ot er participants in t e IP system. $ is variation as maBor implications for t e strengt of IP%s! suc t at IP protection is felt 6uite differently across different sectors of t e economy. $ us! t e context of IP%s is important) t ey are interwoven wit ot er domestic laws and institutions governing competition policy and anti<trust! international trade! labour relations! privacy and many ot er issues! as well as multilateral or bilateral agreements wit ot er countries. Clearly! t is makes c aracterising! measuring and comparing IP%s across countries and over time extremely difficult. Early efforts by 9adbaw and %ic ards ?&-,,@ and %app and %o>ek ?&--.@ to develop indices of national IP%s were based on analysing legislation in various countries. 3ee and Mansfield ?&--2@ and 5eyoum ?&--2@ developed similar indices! but based

t ese on 6uestionnaire results. A more ambitious and standard<setting study by 9inarte and Park ?&--1@ constructed an index of t e strengt of patent protection for &&. countries over t e period &-2.4&--.! now extended to '..+ ?Park! '..,@! by coding national patent laws according to t e extent of coverage of different tec nologies! members ip in international treaties! potential to lose protection! presence of enforcement mec anisms and duration. $ ese data ave been used widely in studies of growt ! development and IP%s. 0otwit standing t e very significant effort re6uired to construct suc indexes! t ey pose a number of problems. Composite indices tend to focus almost exclusively on patents! ignoring copyrig t! trade marks and ot er appropriability mec anisms suc as secrecy and speed to market. Composite ranking or rating sc emes often bury important features of t e IP regime! obscure important sectoral differences and do not control for t e complementary aspects of a countryAs legal regime ?3erner! '..'@. Per aps most significantly! t ese indices reflect t e formal status of patent protection as indicated by law! rat er t an an empirical assessment of t e conditions facing IP% olders ?or prospective olders@ at ground level ?7stergard! '...@. More compre ensive attempts ave been made to examine ot er factors t at affect t e strengt of IP%s ?5 erwood! &--1D Pugatc ! '..2@. $ ese include patent breadt and lengt ! w at obBects and processes can be patented! and t e obviousness of t e inventive step. #owever!

6uite understandably! t e colossal effort re6uired to collect data on all of t ese items means t at Pugatc ?'..2@ as computed is ''<factor index wit an assortment of weig tings for only eig t countries over five years. ( C#AP$E% ' Intellectual property and foreign direct investment '.& Introduction $raditionally! attracting "/I in general! and in %;/ in particular! as been ig on t e policy agenda of many countries! as inward flows of %;/ are believed to provide net benefits for t e ost country ?7rganisation for Economic Co<operation and /evelopment ?7EC/@! '..,@. ' Ac6uiring modern tec nology may generate important spillovers for t e ost country economy! w ic result in more and better competition! upgrade domestic innovative capacity! increase %;/ employment! give better training and support to education! and reverse Cbrain drainA effects ?Caves! &-1*D Eorens>tein et al.! &--,D :eugelers and Cassiman! '..*@. #owever! inward "/I may ave negative effects on t e ost country! suc as loss of control over domestic innovative capacity! potentially impacting t e tec nological competitiveness of domestic firms and leading to Bob loss. In addition! outward direct foreign investment as negative effects on t e ome country! suc as loss of Bobs and tec nological capacity ?7EC/! '..,@.

$ e impact of outward "/I in %;/ on t e ome country is an aspect of t e %;/ internationalisation process w ic literature on as been considered less fre6uently in t e

"/I! but continues to receive considerable policy attention. 5everal benefits of outward "/I for t e ome country ave been identified. 5uc investment allows foreign firms to tap into ot er sources of expertise! en ance t eir access to foreign markets and benefit from reverse tec nology transfer ?9riffit et al.! '..2D 7EC/! '..,@. In contrast! outward "/I may generate costs for t e ome country t roug loss of Bobs! loss of tec nical capability! deindustrialisation and loss of economic benefits! if results are exploited locally ?7EC/! '..,@. /espite t e possible costs of "/I for t e ome country and t e ost country! "/I is perceived often by policymakers to be an important engine for economic growt ! especially in developing countries. $ is perception as attracted increasing attention over t e past decades! especially during t e negotiations preceding t e ratification of t e $%IP5

' A foreign direct investment enterprise is an incorporated or unincorporated enterprise in w ic a direct investor resident in anot er economy owns &. per cent or more of t e ordinary s ares or voting power ?for an incorporated enterprise@ or t e e6uivalent ?for an unincorporated enterprise@. %A0/ Europe IP and "oreign /irect Investment

Agreement and subse6uent use of bilateral agreements on IP%s in t e $%IP5<plus era. $ is attention compels t e 6uestion) ow do agreements aimed at strengt ening IP%s in developing countries impact on "/I decisions by multinationalsF $ is c apter will elp to provide tentative answers to t is key 6uestion by looking at t e results of t e literature on t e relations ip between IP%s and "/I. $ e c apter is structured as follows) t e first section examines t e relations ip between IP%s and "/I from a t eoretical perspective. $ e second section reviews t e empirical literature on t e effects of strengt ening IP%s in developing countries on "/I decisions. "inally! t e c apter concludes by summarising t e key findings from t e empirical literature and suggesting future researc directions. '.' Intellectual property and foreign direct investment) t e t eory 7ver t e past two decades! t ere as been a growing sc olarly literature on t e relations ip between IP%s and "/I inflows in developing countries. "rom a t eoretical viewpoint! t e relations ip between IP%s and "/I decisions is complex. $ e following paragrap s briefly review t e t eoretical arguments for and against stronger IP%s in developing countries in t eir influence on "/I decisions. '.'.& $ e case for stronger intellectual property rig ts 5tronger intellectual property rig ts can create owners ip advantages Investment by firms can be more likely w en ost countries ave strong IP protection! as t is protection reduces t e risks of imitation and leads to a relatively larger net demand for

protected products ?Primo Eraga and "ink! &--,a@. $ erefore! IP%s positively affect t e volume of "/I by enabling foreign firms to compete effectively wit indigenous firms t at possess owners ip advantages ?5mar>ynska Gavorcik! '..*@. 5tronger intellectual property rig ts can create location advantages 0ot only can IP%s positively affect t e volume of "/I! but t ey can also influence w ere multinationals decide to locate t at investment. IP%s are territorial in nature and ence differ across national boundaries. In t is regard! stronger IP%s in some developing countries can be a location advantage t at will positively affect multinationalsA decisions ?Primo Eraga and "ink! &--,a@. 7n t e contrary! developing countries c aracterised by weak IP%s can be less attractive locations for foreign firms. #owever! in t e context of $%IP5! it is reasonable to t ink t at t e trend toward armonisation of IP%s wit in $%IP5 would offset suc location advantages. In t is sense! countries wit weaker protection can become more attractive as t ey strengt en t eir IP%s! and t e relative attractiveness of t ose wit strong IP%s already in existence can fall ?Maskus! '..*@. 5tronger intellectual property rig ts can increase 6uality of foreign direct investment IP%s affect t e composition of "/I. 5trong protection may encourage "/I in ig < tec nology sectors! w ere suc rig ts play an important role. In addition! it may s ift t e focus of "/I proBects from distribution to manufacturing ?5mar>ynska Gavorcik! '..*@. %A0/ Europe IP and "oreign /irect Investment

+ '.'.' $ e case against stronger intellectual property rig ts 5trengt ening intellectual property rig ts can increase market power 5trong IP%s negatively influence "/I by providing rig ts olders wit increased market power. As a result! strong IP%s! at least t eoretically! cause firms to divest and reduce t eir service to foreign countries ?Maskus and Penubarti! &--+D Primo Eraga and "ink! &--,a@. $ e market power effect can reduce t e elasticity of demand facing t e foreign firm! inducing t em to invest 4 or produce 4 less of its patentable product in t e ost country! or products made by a patentable process in t e market wit t e stronger IP%s. 5tronger IP%s can allow t e practice of ig er prices by foreign firms because IP%s reduce competition among firms. $ erefore! stronger prices can compensate for lower investment or production. 5tronger intellectual property rig ts can deter foreign direct investment by encouraging licensing 0ot only can strong IP%s increase t e market power of foreign firms! but t ey also can cause multinationals to switc t eir preferred mode of delivery from foreign production and %;/ to licensing ?Primo Eraga and "ink! &--,a@. "errantino ?&--(@ argues t at firms prefer "/I over licensing w en protection is weak! as firms are more able to maintain

direct control over t eir proprietary assets t roug internalised foreign production or in< ouse foreign %;/. In t is case! strengt ening IP%s diminis es t e incentive for "/I at t e margin for %;/<intensive industries ?Primo Eraga and "ink! &--1@. '.( Intellectual property and foreign direct investment) t e empirical evidence Empirical evidence comes from surveys of foreign investors in industrial countries! or from econometric work evaluating t e impact of different IP% regimes on a cross<section of countries. $ e empirical literature as intended to test t e somew at contradictory t eoretical assumptions on t e effects of IP%s on "/I. $ e bulk of t e empirical literature as concentrated on t e effects of IP%s on "/I from t e perspective of developed countries) only a small part of t e literature examines t e effects of t ese rig ts from t e perspective of developing countries. '.(.& Evidence from t e perspective of developed countries Intellectual property rig ts positively impact on foreign investment under certain circumstances Early studies focusing on t e decisions made by 85 multinational enterprises did not find any statistical significant relations ip between IP%s and "/I ?"errantino! &--(D Mansfield! &--(D Maskus and Honan! &--*@. #owever! as Maskus ?'..*@ noted! t ese studies suffer from met odological weaknesses! including poor measurement of t e strengt of IP%s. "urt er studies carried out in t e &--.s continue to present mixed conclusions. 3ee and

Mansfield ?&--2@ examined t e relations ip between a developing countryAs system of IP protection and t e volume and composition of 85 "/I in t at country! by using a new index of weakness of IP%s. $ is study was carried out in &* destination countries including several 5out American! 3atin American and Asian countries and one African %A0/ Europe IP and "oreign /irect Investment

2 country. ( Eased on data obtained from almost &.. 85 firms regarding t eir perceptions of t e strengt of suc protection in t e various countries! 3ee and Mansfield ?&--2@ found t at t e level of intellectual property protection influenced t e volume of 85 "/I. Maskus ?&--,@ furt er corroborated 3ee and MansfieldAs ?&--2@ results. Maskus investigated t e impact of IP%s on "/I decisions from 85 multinationals in a panel of *2 developing countries. 8sing t e index of patent strengt developed by Maskus and Penubarti ?&--+@! e found t at t e strengt of IP%s positively affected "/I decisions only for more developed countries. According to t e econometric results! w en ot er t ings were e6ual! a & per cent rise in t e extent of patent protection expanded t e stock of 85 investment in developing countries by ..*+ per cent. 0evert eless! empirical studies do not universally find t at IP%s positively affect "/I decisions. $ is is evident in a study by Primo Eraga and "ink ?&--1@! in w ic t e effects of IP%s on "/I decisions wit respect to manufacturing from 85 multinationals were

examined using a larger set of developing countries t an 3ee and Mansfield ?&--2@. $o proxy t e strengt of IP%s! t ey used t e index developed by %app and %o>ek ?&--.a@) t e %app<%o>ek index. $ e aut ors found a positive significant relations ip between t e strengt of IP%s and "/I for total manufacturing in developing countries. #owever! t eir results at t e sectoral level are less statistically robust. 7t er empirical studies ave disaggregated t ese previous findings so as to understand better t e effects of IP%s on "/I decisions according to t e level of development of recipient countries and t eir imitative abilities. "or example! 5mit ?'..&@ analysed ow IP%s affect 85 affiliate sales and licences in a sample of +. countries from Africa! Asia! Europe! 3atin America and t e Middle East! measuring t e strengt of IP%s by using t e %app<%o>ek index and t e index developed by 9inarte and Park ?&--1@) t e 9inarte< Park index. 5mit found t at strong IP%s increase bot 85 affiliate sales and licences! particularly among countries wit strong imitative abilities! as measured by %;/ and education statistics. 5imilar to t e 5mit ?'..&@ study! 0air<%eic ert and /uncan ?'..,@ used panel data from 85 multinationals over t e period &--'4'... to s ow t at affiliate sales are impacted negatively and significantly w en a ost country poses a risky environment for firms due to ig imitation abilities. 5trong IP%s increase affiliate sales in countries wit a ig ability to imitate! suggesting t at t e positive market expansion effect dominates t e

negative monopoly power effect. Park and 3ippoldt ?'..(@ confirmed t at t e effects of IP%s on "/I tend to vary by a countryAs level of economic development. "or example! t e aut ors found t at developing nations w ic are =$7 members generally ave greater inward stocks of "/I t an developing nations w ic are not. #owever! t ey found t at t is does not old true among t e least developed nations) among t ese countries! =$7 members do not ave significantly more "/I t an non<members. 0evert eless! Park and 3ippoldtAs econometric results suggest overall t at an increase in t e strengt of IP%s will tend to ave a significant

( Argentina! Era>il! C ile! #ong Hong! India! Indonesia! Mexico! 0igeria! P ilippines! 5ingapore! 5out Horea! $aiwan! $ ailand and :ene>uela. %A0/ Europe IP and "oreign /irect Investment

1 positive effect on t e inward and outward "/I of bot developing and least developed countries. More recently! Awokuse and Iin ?in press! '..-@ investigated t e role of IP% protection in t e surge in "/I in C ina. 8sing panel data from (, source countries! t ey found t at t e strengt ening of IP%s in C ina as ad a positive and significant effect on "/I. Elyde and Acea ?'..'@ empirically examined t e effects of IP%s and "/I in 3atin

American countries. $ eir results nuance t e influence of t e level of development of countries on "/I decisions! affirming a positive relations ip between IP%s and "/I. $ ey found t at IP%s affected bilateral inflows of investment from 7EC/ countries! even after controlling for variables suc as infrastructure and uman capital levels. Intellectual property rig ts affect t e composition of foreign direct investment Alt oug w ile t ey considered t e level of development of countries and t eir strong tec nical capabilities! t e previous studies on direct investment drew on aggregate "/I data rat er t an data disaggregated by industry. In contrast! a growing number of empirical studies ave begun to consider t e effects of IP%s on "/I by industry and by its composition. In t eir pioneer study 3ee and Mansfield ?&--2@ s ow empirically! t roug a sample of 85 c emical multinational firms! t at t e proportion of "/I devoted to final production of %;/ facilities was negatively and significantly associated wit weak IP protection. In anot er study comprising a survey on 85 manufacturing firms! Mansfield ?&--*@ determined t at t e importance of IP%s for investment depended on t e purpose of t e investment proBect. "or example! only a minor s are of t e respondents was concerned about IP%s for investment in sales and distribution. $ e s are of t ose concerned rose w en looking at investment in rudimentary production and assembly facilities. $ e s are

furt er increased for investment in manufacturing components! complete products and %;/ facilities ?Mansfield! &--*@. 5imilarly! Park and 3ippoldt ?'..(@ found t at t e importance of IP%s to "/I differed across industries. "or example! t e influence of t e strengt of foreign patent regimes was insignificant for 85 outward "/I in metals! mac inery! electronics! transportation and w olesale trade. In addition! patent rig ts were found to affect modestly 85 outward "/I in c emicals and p armaceuticals. * In contrast! t e strengt of foreign patent regimes significantly influenced 85 outward "/I in petroleum! finance and services ?including computer<related services@ industries in all countries. According to t e aut ors! t e sectors are sensitive to patent protection due to t e emergence of new energy<related tec nologies and t e complementarity between finance and tec nology. "inally! patent rig ts moderately affected 85 "/I in t ese same sectors in developing nations ?except in t e computer<related services industry! w ere t is depended strongly on patent rig ts@.

* $ e aut ors recognised t at t is result is surprising especially for p armaceuticals. 0evert eless! t ey stressed t at t eir sectoral study does not distinguis between c emicals and p armaceuticals! t e latter being a sub< category of t e former. Moreover! t ey pointed out t at t eir data on foreign direct investment do not include

only %;/ investment! but also ot er types of investment. %A0/ Europe IP and "oreign /irect Investment

, 3ooking specifically at investment proBects in Eastern Europe and t e former 5oviet 8nion by using uni6ue firm<level data from '* economies! 5mar>ynska Gavorcik ?'..*@ found t at investors in sectors relying eavily on IP protection were deterred by weak IP%s in a potential ost country. Moreover! weak rig ts deterred investors from undertaking local production and encouraged t em to focus on distribution of imported products. 8sing sectorally<disaggregated data on "/I for a large sample of ost countries! 0unnenkamp and 5pat> ?'..*@ concluded t at IP%s were a significant determinant of 85 outward "/I! particularly in developing countries. $ eir results also revealed t at weaker IP%s were associated wit lower 6uality of "/I! as Budged by t e small increases in local %;/! employment and added value t at accompany t e investment. '.(.' Evidence from t e perspective of developing countries "ollowing t e literature review from t e perspective of developed countries! t e 6uestion remains as to w at t e existing evidence s ows about t e effects of strengt ening IP%s on "/I in t e developing countries. In t is respect! t e empirical evidence is limited. Predominantly! t is literature as examined first! w et er increased "/I from developed countries as impacted economic development! and second! w et er IP%s affect t e

outward "/I of developing countries. Intellectual property rig ts seem to impact positively on economic development t roug foreign direct investment Eranstetter et al. ?'..1@ provide recent empirical insig ts about t e effects of increased "/I on industrial development. 8sing firm<level panel data on 85 multinational firms! t ey examined ow 85 firms responded to a series of intellectual property reforms undertaken in &2 countries in Asia! Europe! 3atin America and t e Middle East. +

$ eir findings s owed t at 85 multinationals expanded t e scale of t eir activities in countries after t ese countries implemented IP% reforms. $ e increase in use of inputs in t e ost countries was disproportionately ig er among multinationals t at made extensive use of IP%s. More importantly! industrial activity expanded overall after rig ts reform. $ is expansion of multinational activity more t an offset any decline in t e imitative activity of indigenous firms. Intellectual property rig ts positively affect outward foreign direct investment Concerning outward "/I from developing countries! Park and 3ippoldt ?'..(@ empirically s owed t at t at an increase in t e strengt of patent rig ts tended to significantly and positively affect t e outward "/I of developing and least developed countries! suggesting t at t e latter could gain from t e armonisation of IP%s ?Park and 3ippoldt! '..(@.

+ Argentina! Era>il! C ile! C ina! Colombia! Indonesia! Gapan! Mexico! P ilippines! Portugal! 5out Horea! 5pain! $aiwan! $ ailand! $urkey and :ene>uela. %A0/ Europe IP and "oreign /irect Investment

'.* Conclusions and future researc directions $ is c apter as examined t e relations ip between IP%s and "/I! and concludes t e following. $ ere are t eoretical arguments s owing t at strengt ening IP%s can ave positive effects on "/I. 5trong rig ts can create owners ip advantages t at allow firms to invest abroad. $ ey can also represent a location advantage! w ic can be used by developing countries to attract new cross<border investment. Moreover! stronger IP%s can provide incentives for multinationals to increase t e 6uality of t eir investment dedicated to developing countries. #owever! t ere are t eoretical arguments against strong IP%s. 5trong IP%s can increase t e market power of multinationals in developing countries! giving t em incentives to increase t e price of t eir products and to decrease t eir investment and sales abroad. Moreover! strengt ening IP%s can reduce "/I to t e benefit of licensing. Empirical evidence s ows t at stronger IP%s positively affect t e volume of inward "/I in developing countries! especially t ose wit strong tec nical absorptive capabilities. Additionally! t ey may influence t e composition of "/I by encouraging investment in production and %;/ rat er t an in sales and

distribution. $ e empirical literature suggests t at developing countries may benefit from t e international armonisation of IP% regimes. 5trong IP%s increase inward "/I and contribute furt er to industrial development. Moreover! international armonisation may impact positively on t e outward "/I of developing and least developed countries. Examination of t e empirical evidence of t e effects of IP%s on "/Is suggests several gaps in t e literature. Among t e most striking ones is t e need to extend researc on multinationals to ot ers t an t ose only in t e 8nited 5tates of America ?85A@! since multinationalsA decisions mig t differ across ome countries. E6ually important is a better understanding of t e extent to w ic IP%s affect "/I at t e industry level and! above all! t e type of cross<border investment ?e.g. sales versus %;/@.

&. C#AP$E% ( Intellectual property and trade (.& Introduction Increasing and en ancing trade flows t roug liberalisation remains a priority for policymakers in many countries! mainly industrialised ones ?5undaram and von Arnim! '..-@. A common view assumes t at trade liberalisation is an engine for economic development ?Hrueger! &--1@. Empirical evidence confirms t e importance of trade for economic growt ?9reenaway et al.! &--1D Edwards! &--,@! except in countries w ic ave suffered from political instability! adopted contractionary macroeconomic policies or

undertaken efforts to counteract trade reform ?=ac>iarg and =elc ! '..,@. More generally! international trade is viewed as an important instrument to reduce poverty in developing countries ?8nited 0ations Conference on $rade and /evelopment ?80C$A/@! '..*@ by facilitating a process of sustained economic growt ! developing productive capacities and expanding employment opportunities. "or most developing countries! exports allow t em to ac6uire goods t roug importation t at are necessary for economic growt and poverty reduction! but are not produced domestically. In turn! exports can make it possible to transform underutilised natural resources and surplus labour into foreign exc ange! in order to pay for imports to support economic growt . #owever! t is process re6uires speed and stability in export growt so as to meet growing import demand sufficiently. /espite t e results of t ese empirical studies s owing t e potential benefits of trade for developing countries! several prominent economists ?5tiglit>! '..(D 5amuelson! '..*@ ave argued t at! as guided by t e rules set out in recent multilateral and bilateral agreements! international trade remains unfair to developing countries! as t e maBority of gains from trade are accrued to developed countries. Moreover C ang ?'..'@ s ows t at many developed countries did not pursue trade liberalisation w en t ey were climbing t e economic ladder of success in t e nineteent century. $ e $%IP5 Agreement and increases in t e strengt of IP%s t roug bilateral agreements

in t e $%IP5<plus era ave raised concerns for policymakers about t e effect of IP%s on trade. $ is raises t e 6uestion) ow do agreements aimed at t e reinforcement of IP%s in developing countries affect trade between developed and developing countriesF Ey reviewing t e literature on t e relations ip between IP%s and international trade! t is c apter will address t is 6uestion! synt esising t e existing evidence. $ e c apter is structured as follows) first! it outlines t e main findings of t e t eoretical literature on t e %A0/ Europe IP and $rade && relations ip between IP%s and international trade. 5econd! it reviews t e empirical literature on t e effects of strengt ening IP%s in developing countries on international trade. "inally! t e c apter summarises t e key findings from t e empirical literature and suggests future researc directions. (.' Intellectual property and trade) t e t eory A growing body of sc olarly literature examining t e relations ip between IP%s and international trade developed t roug t e &--.s and '...s. #owever! wit in t is body of work! t e relations ip between IP%s and trade remains ambiguous from a t eoretical viewpoint. $ e following paragrap s briefly present t e main t eoretical arguments supporting and c allenging t e view t at stronger IP%s increase and en ance international trade. (.'.& $ e case for stronger intellectual property rig ts 5tronger intellectual property rig ts can create owners ip advantages

5tronger IP%s confer owners ip advantages to firms serving foreign markets by providing legal recourse against violation of t eir assets. In t is regard! stronger IP%s expand t e markets served by firms. In addition! strong IP%s can increase bilateral exc ange to foreign markets by reducing t e costs associated wit preventing loss of knowledge assets. 5uc costs consist of foregone revenues resulting from reduced bilateral exc ange andJor expenses incurred to make knowledge assets difficult to imitate. $ us! under market expansion conditions! strengt ening IP%s can positively affect trade ?Maskus and Penubarti! &--+@! especially w en t e destination country as strong imitative abilities ?5mit ! '..&@. International armonisation of intellectual property rig ts regimes can reduce t e transaction costs associated wit trade /iscrepancies among national IP% regimes create effects t at are comparable to non<tariff barriers ?Primo Eraga and "ink! &--1@. Exporting firms in developed countries face additional costs w en exporting to developing countries! w en t ey must engage in activities designed to in ibit local imitation. International armonisation of IP% regimes can diminis t e transaction costs of operating in different regulatory environments. In t is regard! it can represent a location advantage for t e participating countries. (.'.' $ e case against stronger intellectual property rig ts 5trengt ening intellectual property rig ts can increase market power

Alt oug strong IP%s en ance owners ip advantage! t is en anced owners ip can increase or decrease bilateral exc ange. $ e market power concept olds t at strong rig ts reduce bilateral exc ange by ensuring a temporary monopoly over t e protected knowledge. $ is market power is attributed to t e patent ?grant@ older! w et er domestic or foreign. %A0/ Europe IP and $rade

&' "irms t at secure strong patent protection in foreign markets can exercise t eir market power by restricting 6uantity and increasing t e unit price of bilateral exc ange to t at market ?Maskus and Penubarti! &--+D "ink and Primo Eraga! '..*@. "irmsA be aviour depends on a variety of conditions. "or example! market power can be generated by relatively modest strengt of IP%s w en markets are segmented! w en few close substitutes are available and tec nical absorption capacities are weak. Concomitantly! strong IP%s can reinforce market segmentation and reduce t e ability to substitute products. As a result! a negative relations ip can emerge between t e strengt of IP%s and bilateral flows under market power conditions! especially w en tec nical absorptive capacities are weak ?5mit ! '..&@. "irms are likely to reduce t e 6uantity supplied and increase t e protected productsA prices. 5tronger intellectual property rig ts can deter trade and encourage licensing

A furt er source of ambiguity stems from t e fact t at differing levels of IP%s can affect a firmAs decision about its preferred mode of serving a foreign market. In an environment c aracterised by strong rig ts! a firm may c oose to serve a foreign market by "/I! or by licensing its intellectual assets rat er t an t roug direct export. In t is respect! strengt ening intellectual property protection can ave negative effects on trade flows ?"ink and Primo Eraga! '..*@. (.( Intellectual property and trade) t e empirical evidence $ e empirical literature on t e effects of IP%s on trade as grown over t e past two decades. $ e empirical evidence comes mainly from econometric studies and! to a lesser extent! from case studies. $ e empirical evidence can be divided into two main bodies of work) first! examining t e impact of IP%s on trade flows from t e perspective of developed countriesD and second! investigating ow IP%s can affect economic growt in developing countries t roug trade. (.(.& Evidence from t e perspective of developed countries Intellectual property rig ts positively affect trade! at least wit countries wit tec nical absorptive capabilities Early studies based on aggregate trade data suggested t at firms in developed countries were influenced by t e strengt of importing countriesA IP regimes w en engaging in export activities. 8sing bilateral data for 85 exports from &-,- and covering (+ partner ig

countries! eit er developed or developing! Primo Eraga and "ink ?&--1@ estimated t e impact of t e strengt of IP%s as measured by t e %app<%o>ek index on armAs< lengt trade! intra<trade and establis ment trade for 85 companies. $ ey suggested t at market expansion dominates market power effects! after finding a positive! statistically significant relations ip between t e strengt of IP%s and armAs<lengt trade. Primo Eraga and "inkAs results were confirmed by Maskus and Penubarti ?&--+@. Ey using a dataset of '' 7EC/ countries and 11 additional developing countries from Africa! 3atin America and t e Middle East based on &-,* data! t e aut ors revealed t at increasing IP%s! as measured by t e %app<%o>ek index! ad a positive impact on bilateral %A0/ Europe IP and $rade &( manufacturing imports in bot small and large countries ?Maskus and Penubarti! &--+@. #owever! t is positive relations ip between trade flows and stronger IP%s was conditioned slig tly by a furt er study by Primo Eraga and "ink using a different dataset! w ic found t at t e impact of IP%s on trade flows was weaker in large developing countries and stronger in small developing countries ?Primo Eraga and "ink! &--1D "ink and Primo Eraga! '..*@. As wit "/I! more recent empirical researc t e as examined t e relations ip between

strengt of IP%s and trade flows according to t e level of development of countries and

t eir imitative abilities. "or example! 5mit ?&---@ examined t e sensitivity of 85 exports to t e strengt of national IP%s in countries! grouped by t reat of imitation. $ e measure for t reat of imitation reflected an importing countryAs ability to imitate t e tec nologies embodied in imported goods wit out penalty from patent law. $ e strengt of IP%s was measured using t e %app<%o>ek and 9inarte<Park indexes. 5mit found t at 85 exports were affected by IP protection in importing countries! but t e significance of t e relations ip depended on t e level of t reat of imitation. Indeed! weak patent rig ts were a barrier to 85 exports! but only to countries t at posed a strong t reat of imitation. $ ese countries tended to be t ose wit emerging economies! and unsurprisingly! countries t at experienced substantial 85 pressure to raise IP% standards. Moving on from t is work! 5mit ?'..&@ found in a later study t at international trade flows! especially in patent< sensitive industries! responded positively to increases in patent rig ts among middle< income and large developing countries. %afi6u>>aman ?'..'@ took t e exports of &. provinces in Canada to 12 countries in &--. as a sample in order to analyse t e relations ip between IP%s and exports. $ e findings s owed t at exports increase wit improvement in IP%s! no matter w at t e degree of development of t e importing country. %afi6u>>aman also found similar results to 5mit

?&---@! in t at w en IP%s improved! t e c ange in exports depended on t e importing countryAs type of imitative t reat. Park and 3ippoldt ?'..(@ determined t at IP%s played a significant role in attracting total imports in a sample of developed and developing countries during t e past decade. #owever! t is effect was not distributed evenly. IP%s tended to ave a modest role in attracting total imports to developing nations! and an insignificant role in bringing imports to t e least developed countries. Intellectual property rig ts affect trade differently across industries $ e previous studies mainly drew on aggregate trade data. #owever! a number of empirical studies ave investigated t e effects of IP%s on trade by industry. Maskus and Penubarti ?&--+@ analysed sector exports by clustering industries in t ree different categories of expected sensitivity to patent laws) ig sensitivity ?%;/< intensive industries and t ose industries t at ave reported significant damages from piracy@D low sensitivityD and ot er industries. $ ey found t at t e effects of IP%s were larger and more significant for t ose categorised as low sensitivity industries t an t ose clustered as ig sensitivity industries. $ ey interpreted t is result as related eit er to larger<market power effects or to t e interplay between trade and "/I decisions in ig ly sensitive industries. In addition! Maskus and Penubarti argued t at t e patent index t ey used may ave captured %A0/ Europe IP and $rade

&* ot er dimensions of t e IP% regime ?for example! copyrig t and trademark protection@ t at are relevant for t e low patent<sensitivity group. 8sing a sample of ,- countries in &-,-! "ink and Promo Eraga ?'..*@ found a positive relations ip between IP%s and trade flows for total non<fuel trade. #owever! t e strengt of t is relations ip differed by industry! and was found to be weak between IP%s and ig < tec trade suc as c emical! electrical and office mac inery and telecommunications apparatus. "ink and Promo Eraga give several explanations for t is surprising result. "irst! market power effects in t e case of ig <tec goods may offset positive market expansion effects caused by stronger IP%s. In addition! t e latter may encourage firms to service foreign markets t roug direct investment rat er t an trade. "inally! some ig < trade goods may not be sensitive to t e destination countryAs IP% regime! since ot er means may be used to appropriate returns on investment ?e.g. first<mover advantage! learning curve@. Park and 3ippoldt ?'..(@ examined t e role played by IP%s in attracting imports by industry in a large sample of developed and developing countries. "or example! t ey found t at patent rig ts are important to t e import of textiles! 2 drugs and industrial c emicals

for bot developed and developing countries. In addition! patent rig ts are important in t e textile imports of t e least developed countries. Computer and office e6uipment imports are affected modestly by patent rig ts! and insignificantly so in t e case of imports by developing and least developed nations. /eveloping country imports of drugs and industrial c emicals are affected moderately by patent rig ts! and least developed country imports ?ot er t an textile imports@ are affected insignificantly by patent rig ts. $ e previous section presented t e results of t e empirical literature on t e impact of IP%s on trade from t e perspective of developed countries. "rom t is follows t e 6uestion) w at is t e empirical evidence of t e effects of strengt ening IP%s on trade flows in t e developing countriesF (.(.' Evidence from t e perspective of developing countries $ e empirical literature as investigated w et er increased imports from developed countries affect economic development and w et er armonisation of IP%s as affected t eir export be aviour. #owever! even wit in t ese areas! t e empirical evidence from t e perspective of developing countries is rat er limited! especially regarding t e affect of imports from developed countries on economic development. International armonisation of intellectual property rig ts may encourage exports from emerging industrialised countries A small but growing empirical literature as investigated t e effects of IP%s on exports

from newly<industrialised countries and developing countries. 3iu and 3in ?'..+@ carried out a consecutive pooled data analysis from &-,- to '... in order to investigate t e relations ip between IP%s and t e exports of t ree ig <tec industries in $aiwan) semiconductor! information and communication e6uipment.

2 According to Park and 3ippoldt! patent rig ts are important to t e textile imports of least developed countries! w ere t e t reat of imitation of fabric patterns and ot er designs is ig and could discourage foreign producers from selling in t ese markets. %A0/ Europe IP and $rade &+ $ eir empirical results s owed t at improvement in IP%s ad a positive impact on $aiwanAs exports if t e importing country ad a stronger %;/ ability t an $aiwan. Moreover! 3iu and 3in found t at w en an importing country ex ibited a strong t reat of imitation! t e improvement in IP%s in t at country increased $aiwanAs exports t roug t e market expansion effect. $ ese results were corroborated furt er by Iang and #uang ?'..-@. #armonisation as not increased exports from ot er developing countries 5mit et al. ?'..-@ explored w et er $%IP5 generated gains for developing countries in t e form of increased p armaceutical exports. $ ey found t at $%IP5 ad not generated substantial gains for developing countries! but instead increased p armaceutical trade in

developed countries. In a more compre ensive econometric study! Park and 3ippoldt ?'..(@ analysed t e effects of IP%s on exports from a large set of developing and least developed countries. According to t eir results! patent rig ts tend to influence insignificantly t e total exports of developing and least developed countries. #owever! two industries in w ic exports in developing countries were moderately affected were p armaceuticals and computer and office e6uipment. In contrast! in t e case of t e least developed countries! exports were affected negatively and significantly by patent rig ts. (.* Conclusions and future researc directions $ is c apter as looked t e relations ip between IP%s and trade. Its main conclusions are as follows. $ ere are t eoretical cases s owing t at strengt ening IP%s can ave positive effects on international trade. As wit "/I! strong IP%s can t eoretically create owners ip advantages t at allow firms to compete effectively in foreign markets. Moreover! international armonisation of IP% regimes can reduce t e transaction costs associated wit international trade. #owever! t ere are t eoretical cases against strengt ening IP%s in developing countries. "rom a t eoretical point of view! strengt ening IP%s can increase t e market power of foreign firms in developing countries! giving t em incentives to increase t e price of t eir products and decrease t eir exports to developing countries. Moreover! strengt ening IP%s can reduce trade to t e benefit of licensing.

$ ere is empirical evidence suggesting t at IP%s can positively affect trade! at least wit countries wit ig tec nical absorptive capabilities. #owever! stronger IP%s

ave differential effects across industries. "indings in t e empirical literature s o w t at international armonisation of IP% regimes may encourage exports from emerging industrialised countries. #owever! t is armonisation does not seem to ave increased exports from ot er developing countries. %A0/ Europe IP and $rade

&2 $ e review in t is c apter of t e empirical evidence suggests furt er specific researc directions. In particular! t ere is a need to understand better t e effects of strengt ening IP%s on trade in ig <tec ! medium<tec and low<tec industries. It is likely t at different types of IP%s ?e.g. patents! copyrig t@ will affect industries differently. &1 C#AP$E% * Intellectual property and innovation *.& Introduction #arnessing %;/ and innovation as been a priority for policymakers in developed countries! particularly as tec nological progress is considered to be key driver for economic growt in t e long run ?5olow! &-+1D %omer! &--.D 9rossman and #elpman! &--&D Ag ion and #owitt! &--1@. Empirical evidence as supported t e view t at tec nological progress drives economic growt ?Gones! '..'D 7EC/! '..(D 7EC/! '..*D Ag ion and

#owitt! '..-@. In an open economy! tec nological progress can be driven eit er by tec nology creation! or tec nology diffusion and absorption. It is reasonable to assume t at t e respective contribution of creation and diffusion to tec nological progress depends on countriesA level of tec nological development ?Ag ion and #owitt! &--1D Acemoglu et al.! '..2@. In less advanced economies! diffusion and absorption can drive economic growt ! because countries at t e forefront of tec nology act as a driver for growt by expanding t e set of attainable knowledge! pulling ot ers t roug a Ccatc <upA effect. #owever! t e strengt of t e catc <up effect at t e tec nology frontier decreases wit t e level of tec nological development! to t e benefit of tec nology creation. Indeed! t e creation of more advanced tec nology becomes progressively more important as a country moves closer to t e tec nology frontier! because catc ing up translates into increasingly smaller tec nological improvements ?:andenbussc e et al.! '..2@. $ e purpose of t is c apter is to examine ow t e reinforcement of IP%s in developing countries affects tec nological progress in developing countries. *.' Intellectual property rig ts and innovation) t e t eory 7ver t e past two decades! t ere as been a growing academic literature investigating t e relations ip between IP%s and innovation. $ is relations ip can be examined t roug t e impact of IP%s on domestic innovation ?i.e. tec nology creation@ and IP%sA impact on

tec nology transfer ?i.e. tec nology absorption and diffusion@. $ e following sections review t e t eoretical arguments for and against stronger IP%s in developing countries! to influence tec nology transfer from developed countries and domestic innovation. %A0/ Europe IP and Innovation

&, *.'.& $ e case for stronger intellectual property rig ts Intellectual property rig ts can provide incentives for firms to invest in %;/ "irms do not ave t e rig t incentives to invest in %;/ and innovation if t e benefits of suc investment accrue to t eir competitors. $ is is t e traditional argument about private under<investment in %;/ due to market failure ?Maskus! '..*D "oray! '..-@. $ e production of new products and processes generates new knowledge. 0ew knowledge carries considerable economic value! but it as features t at make it problematic for t e market system to andle properly ?Arrow! &-2'@. 5pecifically! knowledge is seen as a public good! and public goods ave two basic attributes. "irst! t ey are non<rival in consumption! meaning t at a personAs use of a public good does not affect t e amount of it t at is available for ot ers. 5econd! t ey are Cnon<excludableA! meaning t at it is not possible to prevent individuals from enBoying t e public good once it is available. =it out IP%s! a free

market economy can fail to induce an optimal investment in %;/ and innovation! since investors would not be able to recoup t e full benefit from t eir investment. IP%s in general address t is problem by attacking t e Cnon<appropriabilityA of knowledge t at lies at t e eart of t is market failure. 5pecifically! by endowing innovators wit property rig ts on t eir discoveries! patents can be a legal means of affecting t e CexcludabilityA attributes of an ot erwise public good. 5tronger IP%s can give greater incentives to firms to invest in %;/. 5tronger intellectual property rig ts can create owners ip advantages 5tronger IP%s give strong owners ip advantages to firms in developed countries! w ic can encourage t em to transfer t eir tec nology to developing countries t roug market c annels) trade! "/I and licensing. 5tronger intellectual property rig ts can reduce asymmetric information in tec nology transfer IP%s can significantly reduce asymmetric information problems in contracting for international tec nology transfer ?Arora! &--+@.$ e owner of a tec nology may ave complete knowledge about its specifications! its effectiveness w en deployed under different circumstances! associated know< ow and t e like! w ile t e buyer as far less information about it. $ e buyer t en could be unwilling to offer a price t at would cover all of t ese claimed benefits before t ey are sure t at suc information is correct. #owever! t e seller could be unwilling to reveal t e information wit out a contract in place at an

acceptable price) to do so could alter t e negotiating terms in is disfavour at best! and immediately create a competitor based on t e revealed knowledge at worst. Accordingly! many ot erwise mutually beneficial tec nology transactions may break down. 5tronger IP%s can allow t e reduction of asymmetric information in contracting for tec nology transfer. *.'.' $ e case against stronger intellectual property rig ts Intellectual property rig ts are not t e only means to appropriate returns on %;/ IP%s are not t e only means for firms to reap t e benefits from t eir investment in %;/ and innovation. %A0/ Europe IP and Innovation &5everal surveys carried out in developed countries ave s own t at ot er factors are muc more effective t an patents in enabling firms to profit from inventive efforts) trade secrecy! first<mover advantages and associated brand loyalty! t e complexity of t e learning curve and establis ment of effective production! sales and marketing functions ?Mansfield! &-,2D 3evin et al.! &-,1D Arundel and Habla! &--,D Arundel! '..&@. 5tronger intellectual property rig ts can increase market power 5tronger IP%s are likely to raise t e costs of tec nology transfer! since t ey increase inventorsA market power. Inventors can be expected to sell tec nologies at a price ig er t an marginal cost! w ic is socially less t an optimal for t e recipient country! at least in a static sense.

5trengt ening intellectual property rig ts can be insufficient to reduce t e asymmetric information problem $ e argument developed by Arora ?&--+@ is based on t e transactional difficulties created by t e fact t at codified information and tacit knowledge are complementary and must be transferred toget er. #owever! t is argument overlooks a problem regarding t e recipient countryAs legal and tec nical capacities 4 it needs ig ly<skilled people w o are able to deal wit complex contract negotiations ?"oray! '..-@. Intellectual property rig ts systems can encourage diffusion of free tec nical information It is useful to recall t at patent systems do not necessarily inder t e diffusion of tec nical information. %at er! patent systems can even stimulate t e diffusion of tec nical information! since t e inventor must publicly divulge t e tec nical details of t e new tec nological knowledge in exc ange for patent rig ts. $ec nical description is an essential act. It is intended to provide sufficient CinstructionsA for a specialist in t at particular field! so as to be able to reproduce t e invention and improve it. 5trong IP%s may oblige investors to disclose t eir inventions fully. In t is sense! t e patent system can generate a uge repository of tec nical information in any tec nological area w ic can be freely used by anyone looking for information about a given tec nology ?"oray! '..-@. As noted by "oray ?'..-@! t is occurred in Et iopia!

w ere certain tec nologies were needed to develop earing aids powered by solar energy. A searc was conducted to identify relevant patents related to earing aids issued in developed countries. /etailed analysis of t e information contained in t ese patents s owed t at t e disclosed inventions were not protected in any African countriesD t erefore! suc information was used to create t e new tec nologies. =eak intellectual property rig ts can encourage international tec nology transfer t roug non<market c annels International tec nology transfer often occurs t roug non<market c annels) involuntary dissemination via copying and reverse engineering. /uring t e period of weak IP%s in developing countries! copying was certainly a maBor c annel for international tec nology transfer! in particular in t e newly<industrialised countries. #istorical cases s ow t at several developed countries ave used weak IP%s to boost t e development of t eir industries ?"oray! '..-@. 7ne can argue t at it is plausible t at IP%s may impede suc %A0/ Europe IP and Innovation

'. tec nology transfer w ile strengt ening Cmarket<basedA c annels! i.e. tec nology transfer t roug trade! foreign direct investment and licensing *.( Intellectual property and innovation) t e empirical evidence $ e empirical literature on t e impact of IP%s and innovation in a 0ort 45out context as increased significantly t roug out t e &--.s and '...s. $ e empirical evidence can be

divided into two main bodies of work) examining t e effects of IP%s on international tec nologyD and investigating ow IP%s can impact on domestic innovation in developing countries. *.(.& Evidence on international tec nology transfer Intellectual property rig ts tend to impact positively on licensing $ e bulk of t e empirical literature on t e impact of IP%s on international tec nology transfer as focused on t e market<based forms of tec nology transfer) trade! "/I and licensing. Previous c apters ave discussed t e empirical evidence on trade and "/I. $ e following paragrap s present t e results of t e empirical literature on licensingD owever! t ese studies are scarce. Iang and Maskus ?'..&@ regressed t e real volume of licence fees for industrial processes paid by unaffiliated foreign firms to 85 firms in '( developed and developing countries in t e &-,.s and &--.s on t e 9inarte<Park index. 1 $ ey discovered t at stronger patent rig ts attract larger armAs<lengt volumes of licensed tec nology! and t at a & per cent rise in t e index would increase licensing volumes by '.( per cent on average. 5mit ?'..&@ relates 85 export! sales of foreign affiliates and licensing fees to t e 9inarte< Park patent index in several developed and developing countries. In particular! 5mit finds significant evidence t at stronger IP%s increase licensing payments on average! at least for

countries wit strong imitative abilities. 8sing different indices of t e strengt of IP%s! Park and 3ippoldt ?'..+@ provide empirical support t at t e strengt ening of IP%s as ad a net positive effect on t e international licensing of tec nologies between unaffiliated parties during t e &--.s. $ e empirical evidence is based on t e licensing activities of 85 multinationals as well as on international licensing alliances between firms in developing or emerging and developed nations. Eranstetter et al. ?'..2@ analysed affiliate data from &-,' to &-,- on 85 multinationals operating in &, countries t at reformed t eir IP%s during t is period. Controlling for ost country c aracteristics! t ey s owed t at suc reforms substantially increased t e royalty payments collected by 85 firms from t eir affiliates for t e use or sale of intangible assets. Increases in royalty payments from t e affiliates of parent companies t at t emselves extensively registered patents prior to reforms were in excess of (. per cent.

1 Australia! Era>il! Canada! 9ermany! #ong Hong! Indonesia! Israel! Italy! Gapan! Horea! Malaysia! Mexico! 0ew Kealand! 0orway! P ilippines! 5ingapore! 5out Africa! 5pain! 5weden! 5wit>erland! t e 0et erlands! 8H and :ene>uela. %A0/ Europe IP and Innovation '& 8sing t e firm<data from Gapanese multinationals! Ito and =akasugi ?'..1@ found t at

stronger enforcement of IP%s accelerates t e intra<firm tec nology transfer measured by royalty payments from t e affiliate to its parent firms. Intellectual property rig ts affect t e c annels of tec nology transfer = en examining t e effects of IP%s on tec nology transfer! it is important to consider t e modes of delivery of tec nology transfer t roug t e different market c annels) trade! "/I and licensing. $ e decisions among t e different c annels of tec nology transfer depend on t e strengt of IP%s and owners ip advantage ?5mit ! '..&@. $ ese decisions concern w et er or not to transfer production! and t us knowledge! outside t e source country andJor t e source firm. "irms engaging in exports old t eir knowledge inside bot t e source country and firm. "irms t at establis affiliates abroad transfer knowledge outside t e source country! but old knowledge assets inside t e source firm. "irms t at license t eir knowledge assets to unaffiliated foreign firms transfer knowledge outside bot t e source country and firm. 5mit ?'..&@ finds t at strong IP%s ave a larger effect on 85 knowledge transferred outside t e country and firm! relative to knowledge located inside t e country and internalised in t e firm. In order words! strong IP%s give incentives to firms in developed countries to license t eir tec nologies to ot er firms in developing countries! since t e former will be able to control better t e knowledge transferred. Conversely! under weak

IP%s! multinationals may be encouraged to transfer t e knowledge only to t eir foreign affiliates in order to keep control of it. $ ese findings are corroborated furt er by subse6uent empirical studies. 0ic olson ?'..1@ used a large cross<country! cross<sector panel dataset for &--+ using counts of t e number of 85 firms engaging in "/I or licensing. , 0ic olson found t at firms in industries wit ig capital costs are more likely to maintain control over production knowledge in countries wit less intellectual property protection by engaging in "/I. Moreover! w en IP%s are strong! firms in industries wit enter ig investment in %;/ are more likely to

a market by licensing to an unaffiliated ost firm ?0ic olson! '..1@. *.(.' Evidence on domestic innovation Alt oug t ere are many empirical studies on t e relations ip between IP%s and domestic innovation ?i.e. tec nology creation@ in developed countries! t e empirical literature on developing countries is muc more limited. 5tronger intellectual property rig ts seem to encourage innovation in emerging industrialised economies 8sing panel data for 2* developing countries over t e period &-1+4'...! C en and Puttitanun ?'..+@ s owed t e positive impact of IP%s on innovations in developing countries. /utta and 5 arma ?'..,@ examined w et er IP%s in India ave increased innovation by

firms. 8sing panel data on Indian firms from &-,- to '..+! t ey found strong evidence

, $ e sample comprises a large set of developed and developing countries. %A0/ Europe IP and Innovation

'' t at Indian firms in more innovation<intensive industries increased t eir %;/ expenditure after $%IP5. $ e estimated wit in<firm increase in annual %;/ spending after $%IP5 was on average '. percentage points ig er in an industry wit a one standard< deviation ig er value of innovation intensity. =eak intellectual property rig ts seems nevert eless to favour economic development in ot er less developed countries 7ne s ould not conclude from t e preceding results t at strengt ening IP%s in developing countries necessarily encourages domestic innovation. $ e empirical literature as revealed t e existence of non<linear function ?i.e. a 8<s aped curve@ between IP%s and economic development! w ic initially falls as income rises! t en increases after t at ?Maskus! '...D Primo Eraga et al.! '...@. Moreover! 3all ?'..(@ stresses t at t at countries at different levels of industrial and tec nological development face very different economic costs and benefits from stronger IP%s.

"alvey et al. ?'..*@ investigate t e impact of IP%s on economic growt suing panel data for ,. countries. $ ey s ow t at w ile t e impact of IP%s on growt depends upon t e level of development! t e former are positively and significantly related to growt for low< and ig <income countries! but not for middle<income countries. $ is suggests t at w ile IP%s encourage innovation in ig <income countries and tec nology flows to low< income countries! middle<income countries may ave offset losses from reduced scope for imitation. C en and PuttitanumAs ?'..+@ results also confirm t e presence of a 8<s aped relations ip between IP%s and economic development. *.* Conclusions and future researc directions $ is c apter as examined t e link between IP%s and innovation in developed countries and concludes t e following. 5ome t eoretical arguments suggest t at stronger IP%s are needed in developing countries to encourage domestic innovation due to market failure and to facilitate international tec nology transfer from developed countries due to information asymmetries in contracting. #owever! t ere are t eoretical arguments against strong IP%s. $ e latter are not t e only means for firms to recoup t e benefits of t eir investment in %;/. "irst< mover advantages! t e complexity of t e learning curve and establis ment of effective production! sales and marketing functions can elp firms to appropriate t e benefits of t eir information. Ey increasing market power! strong IP%s can

increase t e costs of international tec nology transfer. Moreover! well<structured IP%s can encourage t e dissemination of free tec nical information in t e economy. "inally! weak IP%s can encourage international tec nology transfer t roug non<market c annels! i.e. imitation and reverse engineering. %A0/ Europe IP and Innovation '( $ e empirical evidence suggests t at stronger IP%s in developing countries may foster international tec nology transfer! at least to countries wit strong tec nological absorptive capabilities. $ e findings from t e empirical literature s ow t at stronger IP%s may amper innovation t roug tec nology diffusion and absorption in developing countries. $ e review of t e empirical evidence on international tec nology transfer t roug licensing reveals some future specific researc areas. 3ittle is known about t e effects of IP%s on international tec nology transfer t roug non<market c annels! mainly reverse engineering and imitation. More precisely! it would be interesting to investigate to w at extent t e free tec nical information divulged in t e exc ange of patent rig ts is used as a source for new inventions in developing countries. "urt ermore! little is known on t e relations ips between IP%s and economic development) is t is 8<s aped relations ip t e result of t e international context! or can it be used as a normative modelF Are stronger IP%s a condition or conse6uence of developmentF

'+

C#AP$E% + Intellectual property and public ealt +.& Introduction P armaceuticals ave broug t immense ealt benefits to developing countries! but one< t ird of t e worldAs population does not ave access to existing essential drugs ?=#7! '..'b@D t is estimate as remained unc anged since t e mid<&-,.s. $ e proportion reac es +. per cent in t e poorest parts of Africa and Asia ?=#7! '..'b@. Moreover! p armaceutical %;/ on ealt problems specific to poor countries is woefully inade6uate. $ e Commission on #ealt %esearc for /evelopment ?&--.@ s owed t at less t an &. per cent of global ealt researc is directed towards diseases t at afflict -. per cent of t e worldAs population 4 t e so called C&.J-. gapA. It is clear! t en! t at IP%s in p armaceuticals ave two principal areas of impact w ic affect public ealt . "irst! t ere is t e issue of access! w ere discussion focuses on t e links between IP%s! exclusion of competitors and t e availability and pricing of new medicines. 5econd! t ere is t e issue of incentivising innovation! w ere discussion focuses on t e role of IP%s in motivating %;/ and marketing of new drugs! and t e effect of IP%s on %;/ expenditure and its allocation across diseases! countries and organisations. Policies are re6uired to protect t e incentives for %;/ in addition to reducing gross ine6uities of access. #owever! reforming IP regimes to improve access or innovation in

developing countries involves making difficult assumptions! w ic

ave generated

sustained debates in t e context of t e $%IP5 Agreement. "irst! weakening IP%s to allow competition ?eit er domestic or international@ in order to improve access t roug lower prices assumes t at ot er ?less crucial! but significant@ barriers to ealt care access are being addressed. 5econd! strengt ening IP wit t e aim to encourage p armaceutical innovation assumes t at t ere is a market over w ic a monopoly can be granted. "or some diseases! almost all sufferers are too poor to make even a monopoly a sufficiently attractive incentive to invest in %;/. $ is c apter examines some empirical evidence be ind t ese assumptions and examines ow IP%s may improve access or innovation for developing countries!

$ e concept of essential drugs! as unanimously endorsed by t e =orld #ealt Assembly! consists of Lt ose t at satisfy t e ealt care needs of t e maBority of t e population and s ould t erefore be available at all times in ade6uate amounts and in appropriate dosage formsM. %A0/ Europe IP and Public #ealt

'2 +.' $ e importance of patents for p armaceutical innovation

"or more t an +. years! large empirical studies ave found consistently t at patents are extremely important for t e p armaceutical sector ?for example 5c erer! &-+-D Co en et al.! '..'@. As noted in C apter ( of t is report! t e evidence s ows t e sector is unusual in valuing patents so ig ly ?5c ankerman! &--,@. It estimated t at p armaceutical %;/ outlays would be reduced by 2* per cent in t e absence of patent protectionD w ile for ot er industries! t e corresponding reduction was only , per cent ?9rabowski! '..'@. $ e reason w y patents are so critical to p armaceutical firms in appropriating t e benefits from innovation lies principally in t e c aracteristics of t e p armaceutical %;/ process. 0ew drugs cost in t e region of 85N& billion to discover! develop and gain regulatory approval ?/iMasi et al.! '..(@. $ e reason w y %;/ is so costly in t e p armaceutical industry is t at most drug candidates fail to reac t e market. &. 0ormally! less t an & per cent of t e compounds examined in pre<clinical stages are cleared for testing on umans. 7nly '' per cent of t e compounds entering clinical trials endure t e development process and ac ieve 85 "ood and /rug Administration ?"/A@ approval ?/iMasi! &--+@. Moreover! t e complete %;/ process from synt esis to "/A approval involves undertaking successive trials of increasing

si>e and complexity. 9enerally! t e pre<clinical and clinical testing p ases take more t an a decade to complete ?Haitin and /iMasi! '...@. "urt ermore! manufacturing plants are expensive! costing between 85N+. million and 85N'.. million! and uni6ue manufacturing re6uirements usually mean t at t ey are suitable for only one product ?Pisano! &--2D /ouglas! '..*@. 7utlays for production plants need to be committed early on! four or five years before licensing! if t ere is to be no gap between product licensing and market launc . C oosing to commit suc large funds represents an uncertain decision wit large financial risk! w ic patents can mitigate. $ ese expensive %;/ costs are compensated for by patent<protected profits) profitability in t e p armaceutical industry and investment in %;/ was found to be strongly correlated ?5c erer! '..&D 9iaccotto et al.! '..+D :ernon! '..+@. &&

Per aps most significantly! in t e absence of patent protection! imitators can free< ride on t e innovatorAs regulatory approval and duplicate t e compound for a small fraction of t e originatorAs costs. Imitation costs in t e p armaceutical industry are exceptionally low! relative to t e innovatorAs costs for discovering and developing a new product. &' 9eneric compounds need only demonstrate t at t ey are bio<e6uivalent to t e pioneering brand in

order to receive market registration. $ is process only takes a few years and costs 85N& million to 85N' million ?%eiffen and =ard! '..+@. "urt ermore! t e prospect of success is

&. "ailure can be due to t e compoundAs toxicity or carcinogenicity! manufacturing difficulties! inade6uate efficacy! inconvenient dosage c aracteristics! economic and competitive factors and various ot er problems. && "rank ?'..&@ adds a more dynamic dimension to 5c ererAs observation t at %;/ outlays are affected significantly by c anges in profitability! by emp asising t at t e link is to do more specifically wit %;/ investment today and expected! but uncertain! future profits. &' = ile %;/ may cost in t e region of 85N& billion! imitation costs are around 85N&million. $ ere are few ot er comparable industries w ere t ere is suc a large disparity between t e costs of innovation and imitation. %A0/ Europe IP and Public #ealt

'1 very likely! as reflected by t e fact t at many generic firms typically receive "/A approval and enter t e market wit in a s ort time of t e patent expiration of t e pioneer brand. $ e case of Pra>i6uantel 4 w ic was discovered! developed and licensed by Eayer! t en immediately copied! improved and sold at a lower price by a Horean p armaceutical company 4 is illustrative of t is ?%eic and 9ovindaraB! &--,@.

+.( Intellectual property rig ts and access to innovations +.(.& Patents are taken out only in selected countries In most developing countries! patent protection for p armaceuticals is available but not used. 0evert eless! t ose countries remain affected! because t ey tend to rely on exports from countries w ere t ere is more patent protection. "irms may adopt t e view t at it is not wort t e expense of obtaining and maintaining protection in countries t at express small market demand and pose a limited t reat of imitation. In a study of +( African countries and &+ antiretroviral drugs! patenting prevalence was found to be only '&.2 per cent of t e possible total ?Attaran and 9illespie< = ite! '..&@. 7n t eir own! suc findings may suggest t at patenting does not constrain access. #owever! t e picture c anges w en one considers t at t ese countries import from ot ers t at may ave significant market demand of t eir own! and do ave t e tec nological capability to imitate. Patenting in t ose countries is muc more prevalent! suc t at &( out of t e &+ antiretroviral drugs are patent<protected in 5out Africa ?=#7! '..'a@. $ e ability of countries suc as 5out Africa to imitate and export to countries t at cannot do so for t emselves will be curtailed if strong patent rig ts are tig tly enforced t ere. $ us! even if $%IP5 is enforced selectively in only a few key countries! suc as 5out

Africa and ot er imitation ?generic@ exporters! t e immediate outlook is bleak for countries t at appear to rely on importing generic drugs as t eir principal means for addressing public ealt c allenges. $ ey will be forced to seek ot er c annels ?discussed below@ to reduce t e price of accessing medicines. +.(.' Accessing ealt care innovations by lowering prices Patents increase price! generics reduce price $ e price of antiretrovirals across (* countries was found to be ig er w ere t ere were product patents ?Eorrell! '..1@. Introducing generic manufacturers to t e market is one way to reduce t e cost of accessing medicines. It follows t at creating IP conditions t at are favourable for generic competition will reduce price! and t e empirical evidence seems to support t is. In t e 85A! w ere generic competition is strong and t ere is little price regulation! studies ave found a s arp price decrease and a rapid loss of market s are following patent expiry on a drug ?9rilic es and Cockburn! &--+D %eiffen and =ard! '..+@. #owever! it s ould be noted t at t e 85A as some features of its regulatory and competitive environment t at are specific. "or example! t e #atc <=axman Act of &-,* allows t e tail<end of patent terms to be infringed for t e purposes of testing and regulatory clearance! allowing %A0/ Europe IP and Public #ealt

', generic products to mount t e market as soon as patents expire ?9rabowski and :ernon! &--'! &--2@. In ot er countries wit different specificities! w ere t e market si>e may be smaller or governments exercise greater purc asing power! t e generic entry effects are less pronounced ?Pammolli et al.! '..'@. Compulsory licensing reduces price to varying extents Anot er source for lowering prices is to use compulsory licensing provisions in $%IP5) t is aut orises a t ird party to make! use or sell a patented invention wit out t e patent ownerAs consent. &( 9overnments ave used t is mec anism! or simply t e t reat of using it! to try and lower prices. = ile a reduction is likely! t e extent of reduction is difficult to gauge. Price declines can be as steep as -. per cent in a compulsory licensing regime! but if t e issuance of compulsory licences does not result in generic competition! t en t e price decrease is not as substantial ?=atal! '...@. 5c erer and =atal argue t at Lt e compulsory licensing opportunities opened up by $%IP5 s ould be sei>ed selectively and imaginativelyM ?'..') -(-@. #owever! pursuing t is option aggressively is subBect to significant power relations. "or example! t e 85 5ection (.& =atc 3ist in t e $rade Act of &-1* allows it to employ measures against any country t at it considers to be denying 85 companies or persons ade6uate and effective

protection of t eir IP rig ts ?Parliamentary 7ffice of 5cience and $ec nology! '..&@. AbbottAs ?'..+@ legal analysis of t e =$7 trade rules finds t at global institutions need to undertake regular c ecks and balances to t e $%IP5 framework! w ile ensuring t at t e 85A does not exert its power to alter =$7 rules in bilateral arrangements ?i.e. $%IP5< plus@. It is feasible t at t e conditions for engaging in compulsory licensing may be made more difficult for developing countries! for example! by tig tening definitions of w at constitutes a national emergency ?Correa! '..2@. #owever! w en compulsory licensing is engaged! royalties to p armaceutical companies tend to be too low to recoup %;/ investments. $ eoretical and empirical analyses s ow t at t e Cade6uate remunerationA t at is supposed to be afforded to t e patentee under $%IP5 as been muc lower t an would be establis ed under t e Cforegone profitsA standard of 85 patent law ?5c erer and =atal! '..'@. $o avoid total free<riding on t e %;/ efforts of p armaceutical companies! 5c erer and =atal ?'..'@ conclude t at differential pricing strategies s ould be pursued aggressively! in order to ensure access for t ose w o cannot afford to pay ade6uate remuneration. /ifferential pricing is limited and depends on parallel imports and political support 5ome aut ors ?5c erer and =atal! '..'D /an>on and $owse! '..(D /an>on! '..1@ find t at t e global pricing strategy t at best combines e6uity wit coverage of %;/ costs is

one w ere prices are muc lower in nations wit a low ability to pay! t an in wealt y countries. #owever! suc differential pricing faces two c allenges.

&( "or example! local p armaceutical companies may obtain compulsory licenses to produce generic versions of patented medicines! or to import generic versions of medicines from foreign manufacturers. %A0/ Europe IP and Public #ealt

'$ e first issue is in parallel importing! &* w ere differential pricing is t oug t to be undermined by low<priced drugs and devices being exported to countries w ere t ey are ig er priced. Alt oug arbitrage between differentiated markets is overstated ?7utterson! '..+@! t ere is some evidence on t e effects of arbitrage. Arbitrage lowers prices! but it does not drive down prices to levels of t e lowest priced market. $ is is principally because intermediaries and arbitrageurs are t e maBor beneficiaries! rat er t an t e final importing country ?9anslandt and Maskus! '..*D Hyle! '..1@. $ e second! per aps more intractable! issue is one of political resistance by populations in wealt y countries w o may make t e observation t at t e same product is available for substantially lower prices in ot er countries. $ e in ibition of parallel trade may turn on

t e nature of media coverage and t e efficacy of various advocacy and non< governmental organisations. 5c erer and =atal ?'..'@ suggest t at it may be more expedient politically to adBust tax law in way t at makes more extreme differentiation in prices! or maybe even outrig t drug donation by p armaceutical companies. $ eir 6uantitative analysis s ows t at w en t e marginal cost of production is low! donations actually can increase post<tax profits under 85 tax laws. Even if t ese c allenges could be overcome! would companies differentiate prices enoug to make medicines accessible to poor peopleF $ e empirical evidence suggests not 4 or at t e very least! t at ot er considerations ave a significant and possibly overriding effect on differential pricing ?5c erer and =atal! '..'@. =ong ?'..'@ found t at prices are not affected by countriesA per capita income! but rat er by t eir income ine6uality! suggesting t at companies are targeting well<off sub<populations in developing countries. 5o! price discounting occurs for public markets! but not for private markets. $o t e extent t at public provision of ealt care meets poor peopleAs needs! t is outcome is consistent wit notions of e6uitable access. #owever! poor people often are forced to purc ase t eir medicines in private markets. In s ort! relying on unregulated markets to provide differentiated prices will not be sufficient for poor people! w o need prices t at are lower even t an marginal production costs.

Access is not determined by price alone Price 4 specifically t e impact t at IP%s ave on it 4 is one factor among several t at affect poor peopleAs access to ealt care. =eaknesses in country<level p ysical! medical! financial and political infrastructures mean t at many existing products needed by people in developing countries are not being purc ased by patients! ealt care facilities! governments or non<governmental organisations. $ us! for example! t ere is t e prospect t at many patients wit AI/5 in Africa would not benefit automatically from antiretrovirals! even at dramatically lower! affordable prices. Antiretrovirals re6uire diagnosis! monitoring and long<term maintenance of demanding treatment regimens ?so as to minimise drug resistance@ t at are difficult to sustain wit out

&* Parallel import is t e import and resale of a patented product w ic legitimately on t e market as been put

of t e exporting country in anot er country wit out t e consent of t e patent older. $ is means t at drugs sold at a lower price in one country can be imported into anot er country w ere same drug is sold at a ig er price. %A0/ Europe IP and Public #ealt

(. ade6uate infrastructure and support. In many developing countries! access is a particularly

complex problem! re6uiring political will and commitment of new resources. +.* Intellectual property rig ts and innovation for ealt +.*.& 3imits in using intellectual property rig ts to address developing country problems 5ome infectious disease create markets in developing countries t at are not commercially viable at present &+ = ile developing countries benefit from products based on ot er countriesA %;/ efforts! few products are tailored to t e specific needs of t e developing world. Indeed! very few products are now developed for diseases t at primarily affect poor countries! so< called tropical or CneglectedA diseases. Most of t e current treatments and drugs for t ese diseases emerged from colonial re6uirements ?Ganssens et al.! &--'@. As western interests drifted away from t ese regions! tropical diseases ave become increasingly neglected. Eetween &-1' and &--1! &!*+. drugs were licensed worldwide. 7nly &( ?fewer t an & per cent@ of t ose were developed specifically for tropical diseases) five of w ic were designed for veterinary purposes! two were designed for t e 85 military! two were simply modifications of existing drugs ?same active ingredient but new formulation andJor novel use@! and one was derived from C inese medicine ?$rouiller et al.! '..'@. "or some diseases! at least -- per cent of cases are located in low and middle< income

countries ?3anBouw and Cockburn! '..&@. In &--, alone! t ese diseases were estimated to ave caused t e loss of almost '.. million /isability AdBusted 3ife Iears ?/A3Is@ and more t an + million lives! a large s are of t em c ildren ?3anBouw and Cockburn! '..&@. $ e A<strain of t e #I: virus is particularly widespread in poor countries but not in t e developed world. Infectious and parasitic diseases account for one<t ird of t e disease burden in low<income countries 4 nearly one< alf in Africa 4 but only ( per cent in ig < income countries ?=#7! '..'a@. "or t ese diseases! t ere is simply no free ride. Even for diseases t at affect developed countries as well as developing countries ?suc as cancer@! t e c aracteristics of poor countries make t e products designed for developed markets unsuitable. "or example! developing countries ave weak infrastructure and need vaccines t at can wit stand breaks in refrigerated distribution c ains and survive a long s elf<life. $ ey also need products t at do not re6uire intense supervision by medical personnel. = ile Europe as (- trained p ysicians per &.!... people and t e 85A as '1! sub<5a aran Africa as only one ?=orld Eank! '..,@. $ e c oice between vaccines and drug t erapies is suc an example. An #I:JAI/5 vaccine would be far easier to deliver in a poor country t an a combination of drug t erapy cocktails! but efforts to develop a vaccine ave been minimal in comparison to investment in treatment ?Ia6ub! '..-b@.

&+ $ is section concentrates mainly on infectious disease<related public ealt issues. %A0/ Europe IP and Public #ealt

(& "or t e p armaceutical manufacturer! t e key implication of t ese differences between developed and developing country disease environments is a reduction in available market si>e. $ is is important because! as Acemoglu and 3inn ?'..2@ find! market si>e can be directly related to innovation) La & per cent increase in t e potential market si>e for a drug category leads to approximately a * per cent growt in t e entry of new non< generic drugs and new molecular entitiesM ?'..2) &.,*@. $ e Europeans! Gapanese and 0ort Americans spend more t an 85N(&1 billion a year on prescription medicines for everyt ing from ig blood pressure to a dull mood 4 a powerful incentive for p armaceutical companies to keep t em supplied wit current remedies and concoct new ones ?Moyni an! '..*@. In contrast! t e market for p armaceuticals in t e poorest countries is tiny. $ e state of Connecticut in t e 85A spends more on ealt t an t e (, low<income countries of sub<5a aran Africa combined ?=orld Eank! '..,@. In &--,! 85 ealt spending constituted 85N*!... per person! w ereas sub<5a aran African nationsA spending constituted only 85N, per person! wit some countries reac ing as little as 85N' per person ?=orld Eank! '..,@.

Accumulated tec nical knowledge is weak $ e lack of understanding of some diseases! coupled wit t e complexity of t e science and tec nology involved! makes t e prospect of finding new medicines uncertain and risky. $ is lack of basic understanding limits t e investment t at it is prudent for industry to make. As noted forcefully below by %osenberg ?&-1*@! approac es t at seek to procure innovations by adBusting market incentives! suc as awarding IP%s! must be implemented wit an awareness of t e state of accumulated scientific and tec nical knowledge ?Ia6ub! '..-a@. As %osenberg states) $ e demand for ig er levels of food consumption! greater life expectancy! t e elimination of infectious disease and t e reduction of pain and discomfort! ave presumably existed indefinitely in t e past! but t ey ave been abundantly satisfied only in comparatively recent times. It seems reasonable to suppose t at t e explanation is to be found in terms of supply side considerations. It is unlikely t at any amount of money devoted to inventive activity in &,.. could ave produced modern! wide<spectrum antibiotics! any more t an vast sums of money at t at time could ave produced a satellite capable of orbiting t e moon. $ e supply of certain classes of inventions is! at some times! completely inelastic 4 >ero output at all levels of prices 7n t e ot er and! t e purely demand<oriented approac virtually assumes t e problem away. $ e interesting economic

situations surely lie in t at vast intermediate region of possibilities w ere supply elasticities are greater t an >ero but less t an infinityO ?&-1*) &.2@ $o explain investment decisions! one needs to examine t e tec nical problems faced by companies. If t ese problems are perceived by t e companies! w et er correctly or incorrectly! to be intractable! t e si>e of t e reward becomes irrelevant. 5imilarly! if t e perceived time to commercial revenue is far away! any rewards t at may accrue are discounted substantially! t us relegating market c aracteristics and policies w en considering investment. "or t e ealt problems facing developing countries! a c ronic lack of scientific and tec nical understanding suggests a severe state of under<investment in %;/ t at is only Bust beginning to be addressed. "or example! only & per cent of biomedical researc papers make reference to tropical diseases ?3anBouw and Cockburn! '..&@. %A0/ Europe IP and Public #ealt

(' Empirical impact of intellectual property rig ts on s ifting %;/ priorities In t e face of suc persuasive t eoretical arguments! w ere market demand is small and accumulated knowledge is weak! evidence on t e ability of IP measures to alter t e direction of innovation is difficult to find. 7ne maBor study finds t at t e effectiveness of IP%s in s ifting %;/ priorities as been limited. 3anBouw and Cockburn ?'..&@ ave looked at patent data! bibliometric data and

data from 0ational Institutes of #ealt grants for empirical evidence regarding w et er $%IP5 as increased %;/ for tropical diseases. $ eir researc s owed t at t ere was no evidence for an effect! except per aps a moderate improvement in t e case of malaria. Even t is particular effect is confounded by ot er factors suc as increased public concern and media exposure! and tec nical developments w ic able to ave allowed scientists to be

grow t e malaria parasite in vitro. A follow<up study conducted a decade after $%IP5 confirmed t at IP remains a relatively muted policy tool! s owing t at in '..(! %;/ priorities ad not c anged muc from &--, baseline levels ?3anBouw and Mac3eod! '..+@. +.*.' Creating conditions for more effective intellectual property policy "unding for %;/ into neglected diseases "unding for neglected diseases as increased in recent years! from 85N' billion in '..* ?Morel et al.! '..+@ to 85N'.+ billion in '..1 ?Moran et al.! '..-@. Attributing t is increase solely to stronger IP protection is difficult! because ot er ?possibly more significant@ factors are likely to ave played a role. If IP ad been a leading driver! one mig t expect funding to ave increased at bot t e researc and product development levels. #owever! t is is not t e case 4 most neglected disease %;/ activity as been focused on early<stage researc problems ?Hyle and Mc9a an! '..,@. Accordingly! one study found a strong increase in citations to publications on neglected diseases alongside a

small increase in patenting ?Morel et al.! '..+@. 7t er factors ave played a role in redressing t e neglect in funding. $ e &.J-. gap identified in &--. led to considerable media exposure and political momentum! particularly regarding a few ig <profile diseases. $ is instigated renewed activity! but t is was ig ly concentrated on researc for a few diseases. &2 Ey '..*! t ere were 2( neglected disease proBects and! w ile IP protection may ave improved! it was t oug t t at t is rise was due primarily to increased researc funding by t e p ilant ropic sector ?Moran! '..+@. In '..1! only - per cent of neglected disease %;/ funding was provided by t e private sector. 0eglected disease funding as increased! but t ese numbers suggest t at t ese increases ave been driven primarily by public and p ilant ropic efforts focused on a few diseases!

&2 In '..1! Bust over 85N'.+ billion was invested in neglected disease %;/ ?Moran et al. '..-@. $ e CEig $ reeA ?#I:JAI/5! tuberculosis and malaria@ commanded ,. per cent of t e funding! leaving many ot er important conditions suc as pneumonia and diarr oea still neglected ?Iamey! '..'bD Molyneux et al. '..+@. Moreover! --.2 per cent of t e funding was concentrated on product %;/! leaving diagnostics and delivery tec nologies severely neglected. %A0/ Europe IP and Public #ealt

(( rat er t an by a strengt ened IP environment w ic diseases evenly across various disease burdens. Private sectors in developing countries are not responding to domestic markets #owever! it would be wrong to conclude t at strengt ening IP protection does not ave an effect on p armaceutical industries in developing countries. "or example! t e Indian p armaceutical industry as been t e focus of considerable renewed discussion since India as strengt ened IP protection ?C ataway et al.! '..1b@. $ e problem is t at t e effect of stronger IP as not necessarily benefited poor people. 7ne mig t expect scientists working in India to ave a comparative advantage in developing drugs targeting developing country markets! and t us! t at new %;/ activity would be most apparent t ere. #owever! t e statistical survey results s ow a decline in %;/ expenditure directed towards products suited specifically to developing country markets! from &2 per cent in &--, to &. per cent in '..( ?3anBouw and Mac3eod! '..+@. $ is is despite a surge in total %;/ expenditure and stock market value ?3anBouw and Mac3eod! '..+D Arora et al.! '..,@. A better indication of t e sectorAs intentions can be found in its patenting be aviour. P armaceutical patenting by India<based inventors as grown rapidly as a s are of all patenting in t e 85A 4 to more t an ' per cent 4 wit a as increased funding for

similar trend in Europe ?3anBouw and Mac3eod! '..+@. $ eir principal market interests lie in developed countries. $ e notion t at nascent p armaceutical industries respond no differently to c anges in IP protection t an establis ed p armaceutical industries is supported by case study evidence. $%IP5 is not detrimental if seen from t e perspective of a growing Indian p armaceutical industry! but it does seem to be detrimental to consumer welfare in terms of availability and access ?C aud uri et al.! '..2@. $ e Indian p armaceutical industry provides us wit t e message t at strengt ening IP protection increases domestic %;/ expenditure significantly and patenting in developed economies ?/utta and 5 arma! '..,D 3iu and 3aCroix! '..,@. #owever! t is finding needs to be 6ualified. It is likely t at educational and broader economic development ave played an important part. = en t ese factors are controlled for! in a study across '2 countries over two decades! strengt ening IP protection in t e p armaceutical sector does not seem to increase significantly domestic %;/ expenditure! patenting and innovation ?Pian! '..1@. Indeed! t ere is a point in development at w ic IP regulation actually reduces innovative activities and simply serves to increase rents to establis ed companies ?Piu and Iu! '..1@. $ ese results raise t e prospect t at low and middle<income countries ave gained little in terms of domestic innovation! w ic could offset t e new and ig er

flows of royalty payments to foreign firms. 7ne alternative to t is scenario is to strengt en public sector capacities ?Iamey! '..'aD Elume! '..+D Elume and Kanders! '..2@. #owever! capacity building in t e public sector is unlikely to develop t e full range of competences needed to develop drugs persistently across a range of ealt needs. 5o! private sector engagement must be retained alongside t ese capacity<building efforts. Moreover! t ese efforts ave been most effective w en t ey are collaborative across developed and developing countries! or private and public sectors ?:el o! '..*@. %A0/ Europe IP and Public #ealt

(* Intellectual property rig ts facilitate increased trade in knowledge! but may stifle innovation IP%s play an important role in facilitating transactions in a market for knowledge w ic as come to play a muc <discussed role in p armaceutical innovation. = ile t is sector continues to be dominated by large integrated firms t at conduct muc of t eir innovative activity in< ouse! recent decades ave seen significant vertical restructuring of t e industry! and t ese firms increasingly rely on externally sourced %;/ ?%oiBakkers and #agedoorn! '..2@. Muc of t is industrial reorganisation as been due to underlying tec nological

discontinuities ?7rsenigo et al.! '..&@! but a significant factor as been t e role of small firms w ic ave ave been able to trade patented knowledge. In addition! ot er factors

included t e ease wit w ic small firms ave been able to gat er start<up capital and ac6uire ideas from universities w ic t emselves are patented. $ is is particularly important for developing countries! because small firms may be more open to risk<taking! less prone to organisational inertia! and better able to address neglected disease researc problems! as evidenced by responses to t e 85 7rp an /rug Act of &-,( ?Hettler! '...D Hettler and MarBanovic! '..*@. $ e ability to patent t eir ideas provides a tangible point of attention w ic can be advertised! and per aps traded. In drug discovery! t is active entrepreneurial sector! t at bridges universities and large firms! as become a very important supplier of drug candidates and tools for performing %;/ ?Powell et al.! &--2D 7wen<5mit and Powell! '..*@. 7ne conse6uence of t ese c anges is t at p armaceutical innovation now relies eavily on a complex network of contractual agreements linking a variety of actors at various stages of t e drug development process. Eetween &-2( and &---! more t an one<t ird of new drugs approved originated in industrial alliances ?/an>on et al.! '..+@. Empirical evidence on strategic tec nology alliances also s ows an explosion of collaborative activity in t e biomedical sector since t e early &--.s! wit many of t ese alliances spanning national boundaries.

= ile IP%s may support markets for knowledge! often a counter<argument is made t at proliferation of patents may stifle biomedical innovation by raising transaction costs ?#eller and Eisenberg! &--,@. 5ome studies ave s own patents to affect negatively researc ersA access to knowledge! as measured by citations ?Murray and 5tern! '..1@. In anot er counter<argument! some sc olars ave noted t at istorically! %;/ departments ave remained close to production and marketing departments! and t at t is is fundamental reflection of innovation process ?Pavitt! &---D 0elson! '..+@. 5eparating t ese functions across t e markets is likely to ave contributed to t e downturn in p armaceutical innovation and exacerbated t e myt of t e biotec nology revolution ?#opkins et al.! '..1@. 5o! IP%s facilitate and govern transactions in t e market for tec nology ?Arora et al.! '..&@. $ec nology licensing! collaborative %;/ and contract researc are very difficult to sustain on a commercial basis wit out well<defined and enforceable rig ts over researc results. $ erefore! it is widely believed t at strengt ening IP%s will not only promote domestic %;/ activity! but also stimulate trade in tec nology. #owever! introducing markets between researc and production is unprecedented and may arm innovation! and issuing patents of excessive scope may be c oking innovation by raising transaction costs. %A0/ Europe IP and Public #ealt

(+ 0ew institutional arrangements ave emergedD t e role of intellectual property rig ts is

unknown In an increasingly disaggregated and dispersed p armaceutical industry structure! public4 private partners ips ave become prevalent! particularly for t e researc problems affecting developing countries. As noted in t e previous sections! t is partly reconciles market failure by addressing neglected diseases! wit t e reality t at many %;/ competences reside in t e private sector. #owever! t e role t at IP%s may ave played in t eir emergence is unclear. Public4private partners ips may not be effective because t ey suffer bad management! political in<fig ting and turf wars! as evidenced by t e C ildrenAs :accine Initiative ?Muraskin! &--,@. #owever! recent detailed analyses t at go beyond anecdotal cases find no evidence t at t ey manage t eir portfolios less efficiently t an commercial firms ?Moran! '..+D Ia6ub! '..-a@. Indeed! t ey are likely to be more effective ?:el o! '..*@. $ ere are a variety of reasons for t e success of public4private partners ips. "or example! t ey are being created w ere public institutions drive researc and t e private sector assumes responsibility for production and delivery. Alternatively! private sector companies may undertake researc funded by t e public sector or c aritable donors. In anot er rationale! partners ips between researc institutions in t e nort and sout are attempting to draw toget er innovative science wit local experience of ow t at science can be best

applied. All of t ese arrangements are constructed in some way on t e basis t at t e public and private sectors are unable on t eir own to resolve t e deep<rooted and tragic ine6ualities of innovation discussed in t is section ?Euse and =axman! '..&D $owse and Hettler! '..'D =iddus! '..(@. 5ome recent studies ave focused on t e emergence of one specific public4private partners ip) t e International AI/5 :accine Initiative ?IA:I@. $ ese studies found t at IA:I may not ave developed a vaccine yet! but it as boosted developing country science and tec nology capacity significantly ?C ataway and 5mit ! '..2@. Moreover! IA:I may be acting as an important systems integrator or knowledge broker t at draws toget er diffuse and dispersed knowledge! to create a %;/ network t at it coordinates centrally ?C ataway et al.! '..1a@. =it in t ese two important functions t at IA:I serves! IP%s may be playing a crucial underlying role in providing a tangible focus for trade and a significant advertising role. It seems t at t e emergence of public4private partners ips could represent a new paradigm for addressing innovation needs for public ealt in developing countries! at least as t ey relate to infectious! neglected diseases. #owever! in t is discussion! t e role of IP%s is a substantial gap in t e literature. Public4private partners ips could be a way for private sectors to access public and p ilant ropic funding! or t ey could be a way of reconnecting

and reorienting supply and demand. IP%s could be a contractual nexus for eit er of t ese possibilities. +.+ Conclusions and furt er researc directions $ is c apter as examined t e effects of IP%s on public ealt from two perspectives) t e role of IP%s in access and t eir role in innovation. %A0/ Europe IP and Public #ealt

(2 "ive main conclusions can be drawn on t e role of IP%s in access. Patents are taken out only in selected countries w ere t ere is t reat of imitation or large market. #owever! countries w ere patents are not taken out remain affected because t ey rely on exports from countries w ere t ere is stronger IP protection. 9eneric competition tends to reduce price dramatically. $ is implies t at strengt ening IP protection in developing countries will reduce accessibility by arming generic competition! wit out necessarily improving incentives for innovation on developing country problems. Compulsory licensing reduces price dramatically! but only if generic competition is introduced. $ e issuance of a compulsory licence by a government does not necessarily result in immediate supply by a t ird<party company. $ e looming t reat t at a t ird party may begin to supply soon can reduce price! but t e price reduction is not as steep if generic competition is introduced to t e market immediately after t e licence is issued. /ifferential pricing depends on constraining parallel imports and gat ering

political support! but even wit t ese measures! differential pricing is limited. Access is not determined by price alone) broader infrastructure weaknesses can play a role. = ile it remains difficult to establis t e relative importance of t e two concerns! it is wort noting t at often! people in developing countries are more exposed to t e market w en seeking ealt care ?w ic makes price more important@ t an people in developed countries w o are insulated by extensive insurance and public ealt institutions. "ive main conclusions can be drawn on t e role of IP%s in innovation. IP for innovations targeted at ealt issues of particular relevance to developing countries is of value to commercial product and tec nology developers only if a viable market can be created. $ e degree of need ?and market si>e@ is ig ! but creating viable markets entails a concerted international effort! suc as t e one displayed in setting up an advanced purc ase commitment &1 for pneumococcal vaccines. "unding as improved! IP as been strengt ened and t e neglected disease landscape as c anged considerably since &--. in an effort to engage t e p armaceutical industry. #owever! p armaceutical industries! including t ose in countries suc as India! are responding imperfectly to developing country needs. Instead! t ey often focus on developed country markets. IP%s facilitate trade in knowledge but may stifle innov ation by reducing researc ersA access to knowledge and increasing t e costs of collaboration.

&1

"or more on advanced market commitments! see Hremer and 9lennerster ?'..*@. %A0/ Europe IP and Public #ealt

(1 Public4private partners ips ave emerged as a prevalent new institutional arrangement for addressing neglected diseases! but it is not clear w at significant roles! if any! IP%s ave in t eir formation. In future! IP may ave a bigger role to play in dealing wit t e ealt problems common to bot developed and developing countries. $ ere is evidence t at many of t eir problems are converging. &, $ e causes of t is convergence remain unclear! but t ere are likely to be important implications for IP systems in bot developed and developing countries. $ is c apter also noted a significant lack of understanding in t e role of IP in public4 private partners ips. 5ince t ese types of arrangements ave emerged as t e dominant paradigm for addressing neglected diseases! furt er researc on t is issue is needed urgently. A number of IP<related policy measures ?suc as government patent buy<outs! bifurcated patent systems! orp an drug legislature t at extends patents and transferable IP%s@ ave been suggested eit er on entirely t eoretical grounds or indirect empirical evidence. $ ese re6uire careful policy analysis in order to gauge t eir feasibility and implications wit more confidence.

&, 7f t e disease burden in ig <income countries! ,( per cent is made up of non< communicable conditions suc as cancer and cardiovascular disease ?=#7! '..2@. #owever! t ese diseases affect low and middle<income countries too! w ere cancer and cardiovascular disease are t e second and t ird largest causes of deat . In fact! nearly +. per cent of deat s worldwide were due to cancer! cardiovascular disease! diabetes and c ronic lung disease ?7utterson! '..+@. (, C#AP$E% 2 Intellectual property! genetic resources and traditional knowledge 2.& Introduction 9enetic resources from plants! animals and micro<organisms are widespread in developing countries! amounting to -. per cent of t e worldAs genetic resources ?/esai! '..1@. $ ese genetic resources ave been utilised by communities and individuals in developing countries t roug generations and as suc t eir use is embodied in w at is referred to often as traditional knowledge. #owever! t e use of suc knowledge and resources is not limited to local contexts and many innovations relate to and draw on t em ?=IP7! '..-@. "or example! *+ per cent of all &--2 erbal<based patents were osted in C ina alone in

?9upta! &--1@! and ,. per cent of modern plant<based medicines ave t e same function as t eir original use by Aboriginal peoples ?"arnswort and Haas! &-,&@.

$ e use of traditional knowledge and genetic resources! bot inside and outside of t eir local context! raises t e prospect t at t ey may play an important role in driving development. $ e issue for policymakers is ow t is prospect mig t be realised best! particularly w en t e use of traditional knowledge and genetic resources is becoming increasingly subBect to governance by various! and sometimes contradictory! IP systems ?3aks manan! '..,@. $%IP5 recognises t e issue by allowing for sui generis protection of genetic resources! specifically plants! animals and biological processes ?Commission on Intellectual Property %ig ts! '..'@. 5ui generis protection is a system of protection tailored to accommodate t e special c aracteristics of traditional knowledge ?Commission on Intellectual Property %ig ts! '..'@. 5ince $%IP5! t ere as been pressure for increased protection of knowledge linked to genetic resources from plants! animals and micro<organisms. Eilateral agreements encourage countries to Boin t e International 8nion for t e Protection of 0ew :arieties ?8P7:@ Convention. $ e 8P7: Convention! formed in &-2&! acknowledges breeders of new plant varieties t roug uniform and clearly defined principles for exclusive property rig ts! based on criteria t at t e variety is distinctive! uniform! stable and novel ?Commission on Intellectual Property %ig ts! '..'@. 5eparate from $%IP5 and t e 8P7: Convention! two international legal agreements ave

been formed t at emp asise t e knowledge and genetic resource rig ts of more marginalised stake olders. In &--'! t e Convention on Eiological /iversity was created as %A0/ Europe IP! 9enetic %esources and $raditional Hnowledge (a legally binding convention t at explicitly outlined principles of e6uitable access and benefit<s aring to govern t e use and preservation of traditional knowledge. 5imilarly! t e 80 "ood and Agriculture 7rgani>ation ?"A7@ introduced farmersA rig ts in &-,- to ensure e6uality between farmers and plant breeders. &-

Ey reviewing t e existing literature! t is c apter s ow t at access and benefit< s aring are maBor t emes beginning to emerge in t e assorted mixture of empirical evidence! as well as in t e disBointed t eoretical debates regarding IP! traditional knowledge and genetic resources. $ ese two t emes! concerned wit protecting t e existing diversity of genetic resources and ensuring t at a broad range of stake olders access and benefit from traditional knowledge! can be distilled into a narrative about diversity. $ is overarc ing concern wit t e diversity of people accessing and benefiting from traditional knowledge elps to clarify issues in t e literature for policymakers w o ave to make c oices. Modifying t e IP arrangements! as discussed in t is c apter! can be an opportunity for greater democratic agency and social e6uity in conBunction wit traditional knowledge and genetic resources. Adapting IP arrangements so as to promote diversity of engagement in

knowledge preservation and innovation can promote alternative pat ways to development! building upon local contexts. In t is sense! protecting traditional knowledge and genetic resources may empower marginalised stake olders to drive development from t e bottom< up! along multiple pat ways. 2.' Intellectual property! traditional knowledge and genetic resources) t e t eory 2.'.& An emerging field of researc 8nlike discussions about trade! "/I! innovation and public ealt ! academic debate about t e relations ip between traditional knowledge! genetic resources and IP law begins by 6uestioning t e very relevance and appropriateness of IP%s rat er t an investigating t e effects of suc legislation. /iscussions about t e role of IP%s in traditional knowledge and genetic resources are relatively recent! emerging in t e context of newly<formed legal agreements about traditional knowledge and genetic resources. $ ere appears to be contested efforts to set t e parameters and terms of debate in a largely emerging field. As suc ! for IP at least! t ere is a level of uncertainty in t e t eories about traditional knowledge and genetic resources t at sets it apart from t ose about "/I! trade! innovation and public ealt . A key difficulty begins wit a lack of common understanding about w at is meant by traditional knowledge. $raditional knowledge can serve different functions! ranging from

communication! utilitarian needs! sanctions and codes of conduct to rites of passage! religious and spiritual practices. 7ften! traditional knowledge takes t e form of literary! artistic or scientific works! dance! medical treatments! or agricultural tec nologies and

&"armersA rig ts ave been integrated into various countriesA regulatory frameworks! ranging from IndiaAs national legislation to being included in t e African 8nionAs African Model 3aw for t e Protection of t e %ig ts of 3ocal Communities! "armers and Ereeders and for t e %egulation of Access to Eiological %esources. %A0/ Europe IP! 9enetic %esources and $raditional Hnowledge

*. tec ni6ues! and can be eld by communities or individuals ?9upta! '..*@. Alt oug t e functions and forms of traditional knowledge may be diverse! t ere is a consistent notion t at its nature can be explored by focusing on its transmission and any tangible trails t at t is may leave. %egardless of its function or form! traditional knowledge is discussed as a knowledge t at develops overtime! cumulatively t roug generations! and is tied to establis ed lifestyles! often occurring t roug customary everyday practices ?Eerlin! &--'D Erus ! &--'D Eerlin and Eerlin! &--2D Ellen et al.! '...D Commission on Intellectual Property %ig ts! '..'@.

2.'.' Assumptions about t e nature of traditional knowledge Assumptions in t e IP system and about t e nature of traditional knowledge may not be congruent. $ e extremely incremental and often preserved nature of traditional knowledge contrasts wit models of persistent knowledge accumulation in innovation t eory t at are assumed in current IP protection regimes ?0elson! '..+D Ia6ub! '..-a@. $ e protection offered t roug IP law is directed at individual entities ?5imon! '..+@! for discrete advances in knowledge and typically prominent inventions wit clearly<defined inventors and owners of knowledge ?5c Qklenk and Hleinsmidt! '..2@. A well<known Bustification for awarding patents is to motivate t e allocation of ?often vast@ resources necessary for inventive activity ?Ma>>oleni and 0elson! &--,@. In contrast! traditional knowledge is eit er preserved or developed incrementally over long timeframes wit out t e need for suc motivations. Moreover! its dynamics are muc more communal! w ic results in it being embodied across communities rat er t an wit in individual entities. 5o! w ile t e evolution of traditional knowledge may be different from knowledge inputs for innovation processes! bot are governed by an IP system t at essentially is built around one set of assumptions about knowledge growt and attribution to individual entities. In addition to conceptual difficulties regarding t e growt of knowledge! t ere are legal

and uman rig ts issues t at affect traditional knowledge and IP%s. IP protection can be a means to protect t e olders of traditional knowledge! ensuring t at t ose responsible for its inception and development maintain owners ip and rig ts over t at knowledge ?/utfield! '..&@. #owever! many legal debates preclude discussion of t e benefits of IP protection in t e area of traditional knowledge! as t ey concern t e fundamental legality of protection and t e very rig t to owners ip of knowledge! regardless of w et er t ey benefit or not. Instead of discussing comparative benefits! debates surround t e legality of owners ip of traditional knowledge and genetic resources! and t e rig t of prior informed consent before providing IP%s to a creative entity ?9upta! &--1D Coombe! '..(@. 2.'.( #uman rig ts discourse #uman rig ts discourse is distinct from legal arguments in t at it tends to seek possibilities for access and benefits to be facilitated t roug IP law in t e area of traditional knowledge and genetic resources. "or example! accessibility is emp asised by arguing t at genetic resources and plant materials ave an important public rig ts nature! w ere t e universal rig t to access tec nologies for producing innovative goods as well as t e innovative goods t emselves must be maintained ?$rommetter! '..+@ $ is perception continues to inform t e International $reaty on Plant 9enetic %esources for "ood and Agriculture. %A0/ Europe IP! 9enetic %esources and $raditional Hnowledge *&

Increasingly wit IP law! particularly t at in plant variety protection ?P:P@! genetic resources are considered often as private goods to be owned by and protected for individual entities. '. As t is s ift towards privatising upstream elements in t e innovation process occurs! 6uestions arise about t e ability to access to tec ni6ues and genetic resources w ic ave been used over generations t roug traditional knowledge for subsistence in food and agriculture. Ey privatising t e owners ip of genetic resources! t e practices and tec nologies t at are fundamental to well<being and basic liveli ood could become inaccessible to poor communities! particularly t ose in developing countries. 7n benefit<s aring! some suggest t at IP%s can be a means to facilitate benefit< s aring by recognising t ose w o ave contributed to innovation. #owever! similar to legal critics! many argue t at IP protection is by its nature insufficient and inappropriate for protecting traditional knowledge and ensuring t e realisation of benefits! because traditional knowledge can be conceived to ave values t at are beyond economic and profitability values ?Posey and /utfield! &--2@. $raditional knowledge can be seen as in erently valuable because of its place in local communitiesA lifestyles! w ile IP can be seen as a mec anism t at operates exclusively t roug t e market w ere economic and profitability value is assumed ?Commission on Intellectual Property %ig ts! '..'@. As international law is fragmented into different areas! it cannot accommodate for t e various cultural! social!

economic and uman rig ts aspects of traditional knowledge in communities in developing countries ?9raber and Eurri<0enova! '..,@. $ e varied assumptions and positions about traditional knowledge and genetic resources make it difficult to find a unitary starting point for empirical evidence on traditional knowledge and IP%s. $ e lack of t eoretical guidance precludes any kind of systematic review or meta<analysis. 2.( Intellectual property! genetic resources and traditional knowledge) t e empirical evidence $ e empirical literature as not attempted to undertake any formal testing of ypot eses drawn from t e t eoretical literature. Instead! muc of it as been influenced! per aps instigated! by public allegations of misappropriation of traditional knowledge and genetic resources by firms and individuals in developed countries using t e current IP% framework. Conspicuous events involving IP law and traditional knowledge! as well as t eoretical debates! ave informed t e 6uestions asked in empirical studies ?7guamanam! '..,@. Empirical evidence as tended to take t e form of case studies t at emp asise contextual factors and caution against broad generalisations of findings. #owever! we find an unexpected bounty of empirical case studies t at are based directly on developing country contexts! and t at t e evidence routinely addresses t e 6uestion of diversity or uniformity in development.

'. $ ere are exceptions to t is trend. "or example! see t e 8H Eiobank! an arc ive facility for ig <tec blood and urine stores t at brings toget er specialist knowledge and systems) ttp)JJwww.ukbiobank.ac.ukJ. %A0/ Europe IP! 9enetic %esources and $raditional Hnowledge

*' Clearly! t e t eoretical literature on traditional knowledge! genetic resources and IP law is ambiguous and emergent! and t e parameters of debate continue to be in t eir formative stages. Correspondingly! t ere is a similar level of uncertainty and lack of clarity in empirical studies. Empirical studies seek to test t e validity of t eoretical ypot eses. As suc ! in t e empirical work on traditional knowledge and genetic resources! it is possible to see t e lines of empirical 6uestioning following legal and rig ts<based discourses about access! benefit<s aring and relevance of IP law to traditional knowledge and genetic resources. As will be deconstructed in t is section! t e empirical literature can be seen to follow issues of access! benefit<s aring and alternative! appropriate means for protecting traditional knowledge and genetic resources. #owever! t is review will emp asise also t e emergent and introductory nature of t is body of empirical work! in w ic t e streams of analysis continues to be weakly formed! at times overlapping and divergent.

2.(.& Evidence from t e perspective of developed countries In developed countries! empirical studies s ow t at profits and market power are concentrating among a few industries and firms. =rig t and Pardey ?'..2@ found t at soybeans! cotton! mai>e and canola in developed countries are t e main crops to benefit from IP protected innovations in genetic modification! generated mainly in 0ort America. Muc of t e literature from developed countries concerns t e use of geograp ical indications ?9Is@. Already included in $%IP5! 9Is protect products specific to a geograp ical area. $ ere are t ree levels of protection for 9Is in $%IP5) one for wines only! one for wine and spirits! and one for all products ?7AConnor! '..*@. '& As defined in Article ''.& of $%IP5! 9Is identify goods Loriginating in t e territory of a Member! or a region or locality in t at territory! w ere a given 6uality! reputation or ot er c aracteristic of t e good is essentially attributable to its geograp ical originM ?Eroude! '..+@. 9Is facilitate t e use of reputation in overcoming information asymmetries in markets. 8nlike IP%s! 9Is do not protect t e knowledge embodied in products ?/utfield! '...D %angnekar! '..*@D instead! protection is offered for t e association of a given 6uality wit a geograp ical location. As outlined by Pacciani et al. ?'..&@! 9Is can provide space for nic e markets! creating

collective monopolies and facilitating market access. $ roug t is space for market access! 9Is can enable communities or individuals to capture a market premium for a product ?$ iedig and 5ylvander! '...@. In turn! t e si>e of t is premium is dependent on market si>e! competition! consumer perceptions and elasticity of demand ?Correa! '..'@. $ is premium is not necessarily assured for developing countries enforcing 9Is. %at er! less well<known products wit smaller markets may not ave a price premium and countries wit out t e relative power to appropriate rents against external actors will not necessarily benefit from 9Is eit er ?3oureiro and McCluskey! '...D Pacciani et al.! '..&@. $ us! one consistent t eme w ic can be drawn from t e literature appears to be t at economic and

'& "or an overview of t e legal! economic and political issues surrounding 9Is in $%IP5! see 7AConnor ?'..*@. %A0/ Europe IP! 9enetic %esources and $raditional Hnowledge *( political contexts s ape t e benefits emerging from communities and countries t at promote and enforce 9Is. $ us! it is not surprising t at t e 85A and European 8nion ?E8@ ave been divided about t e value and use of 9Is. $ e 85A prefers to use trade marks to protect local knowledge! w ile E8 countries commonly invoke 9Is in t e food sector ?Gosling! '..2@.

European countries vary in t eir experiences of 9Is in protecting t e s are of market power eld by local communities. 5tudies find t at t e effectiveness of 9Is in protecting local communitiesA position in markets and production of local products depends on market conditions! and local capabilities to market and distribute products ?%angnekar! '..*@. Callois ?'..*@ determined t at 6uality labels do not necessarily ensure t e transfer of profits and rural developmentD rat er! if benefits occur! t ey are unlikely to benefit t e w ole rural region. =ilson et al. ?'...@ compared t e price premiums for two varieties of protected potatoes! finding t at premiums are ig er for bot protected products! but are significantly greater for t e product t at is protected t roug a ig ly coordinated and organised supply c ain. In contrast! Eelletti ?'...@ found t at une6ual capabilities can prevent premiums from being captured by local producers. In t e case of olive oil from $uscany! e found t at production was capitalised upon by areas outside of $uscany! and t at premiums were reallocated to favour bottling companies rat er t an producers ?Eelletti! '...@. $ us! t e case studies from Europe s ow t at local capabilities in developing market products! product! communication! marketing and distribution strategies determine t e effectiveness of 9Is for producers ?$regear! '..'@.

2.(.' Evidence from t e perspective of developing countries 8niform IP laws cannot ensure diversity of access and benefit<s aring As evident from developed countries! t e effectiveness of measures to protect diversity of knowledge depends on favourable market conditions and on communitiesA capabilities to appropriate a level of market power. $ is conclusion t at protection of diversity in innovation and production depends on local capabilities presents specific concerns for developing countries. 5ome studies find t at t ere are strong price premiums for ig <6uality biological products originating from developing countries! suc as coffee ?9rote! '..1D $regear et al.! '..1@. #owever! developing countries are t reatened by declining s ares of profits from economic activities. In t e coffee industry! primarily located in developing countries! export earnings more t an doubled between t e early &--.s and early '...s! w ile earnings to producers fell from a value of 85N(. billion to fewer t an 85N2 billion ?%angnekar! '..*@. More specifically relevant to IP%s! t e misappropriation of traditional knowledge from developing countries as occurred wit in t e current international IP infrastructure! w et er involving music! suc as t e soundtracks for /isney films! or 3oren Miller claiming IP protection for t e aya uasca drink in t e Ama>on ?$orremans et al.! '..1@. %einforcing t e findings from developed countries! studies of istorical experiences in developing countries also suggest t at une6ual influence is linked to a low capability to %A0/ Europe IP! 9enetic %esources and $raditional Hnowledge

** engage in market production and exc ange. /eveloping countries ost t e maBority of genetic resources but often lack t e tec nological capacity and capital to develop t ese resources sustainably. $rommetter ?'..+@ suggests! t roug reference to istorical case studies in p armaceuticals and agriculture! t at developing countriesA capacity to negotiate! t eir bargaining power and perceptions of t eir commitment to enforce agreements affect t e e6uitable benefit<s aring of genetic resources among t ose in developed and developing countries. %ic er> agen and #olm<MuellerAs ?'..+@ case study of Costa %ica sums up t e evidence well by illustrating t at! wit t e rig t legal infrastructure and enforcement! IP can facilitate benefit<s aring! bot wit local communities and at t e national level. $ailored IP laws may support diversity of access and benefit<s aring Cases w ere a clear lack of capability in developing countries to influence innovation processes correspond wit a growing literature investigating measures to provide for diversity of participation in knowledge protection regimes in developing countries. $ is section reviews t e empirical literature in eac of t ese areas in turn! emp asising t e evidence for t e effectiveness of t ese different measures possible t roug IP law to protect t e diversity of knowledge related to genetic resources in developing countries.

intellectual property $%IP5 allows for sui generis IP regimes in relation to genetic resources and traditional knowledge. Empirical studies ave found t at sui generis IP systems can facilitate increased influence on t e part of local communities in developing countries in innovation. $o investigate t e possibilities for sui generis protection to protect diversity! t e empirical studies examine attempts to integrate traditional knowledge and IP%s t roug regional and national legislation. Earlier studies describe ow different developing countries ave tailored national laws to facilitate continued access to traditional knowledge ?7guamanam! '..,@. $ ese studies refer to experiences in a range of developing countries! spanning 3atin America ?Era>il! Peru@! 5out and 5out <East Asia ?C ina! India! Gapan and P ilippines@ and Africa ?7rgani>ation of African 5tates@. #owever! w ile describing t e legal frameworks for sui generis protection! t ese studies do not provide evidence about t eir effectiveness in actually protecting diversity in access and benefit<s aring ?Hongolo! '..&D 0yika! '..1D 5under! '..1@. A few empirical studies ave begun to explore t e ability for sui generis systems to protect diversity in developing countries. 3ooking across developing countries! /utfield ?'...@ reviewed biodiversity registers! community IP%s and local databases! concluding t at t e existing international IP regime is relevant to ensuring e6uity in access and benefit< s aring.

5imilarly! t roug interviews wit companies in different economic sectors! ten Hate and 3aird ?'...@ found t at IP laws can allow for widespread involvement in innovation systems in developing countries! if policies involve relevant stake olders in bot t e public and private sectors ?ten Hate and =ells! '..&D 3aird and ten Hate! '..'@. Case studies in Africa provide some evidence of t e impact of sui generis systems in low< income developing countries. Hongolo ?'..&@ analysed p armaceutical patent protection in four African countries ?/emocratic %epublic of Congo! Morocco! 0igeria and 5out Africa@ ?Hongolo! '..&@. #e found t at a balance of interests was necessary to ensure e6ual %A0/ Europe IP! 9enetic %esources and $raditional Hnowledge *+ benefits from innovation! and determined t at t is could be ac ieved t roug a combination of IP law! certain provisions for parallel imports and compulsory licensing! and a sui generis system ?Hongolo! '..&@. 0gAetic ?'..+@ was more cautious! determining t at diversity in access and benefit<s aring in Henya could be ac ieved t roug sui generis IP regimes! but t at t is depended on t e outcome of debates on w at constitutes prior informed consent! and on ow local communities and governments negotiate owners ip of knowledge ?0gAetic ! '..+@. $ us! w ile t ere are various degrees to w ic studies suggest t at diversity can be facilitated t roug sui generis systems! t e trend in t e literature is to conclude t at IP law can facilitate diversity in access and benefit<s aring. #owever! t is

depends on actorsA ability to negotiate sui generis protection t at responds to specific concerns at t e country! sector and community levels. 9eograp ical indications 9Is are a second measure discussed in t e empirical literature about ow IP%s to be used to protect diversity in access and benefit<s aring in developing countries. =it 9Is! t is is ac ieved by making provision for a price premium for t e goods produced in a specific locality. Producers in developing countries ave begun to use certification marks to develop brands and protection for t eir products! suc as Gamaican Elue Mountain coffee or Guan :alde> and CafR de Colombia. In addition! as evident in t e 3ig t Iears proBect and in a recent =orld Eank report ?Earconcelli et al.! '..*@! rural communities in developing countries ave developed 6uality brands t roug interactions between local know< ow and particular environmental conditions. 9Is are distinct from trade marks in several ways. $rade marks differentiate one product from anot er! are offered to individual producers and are allocated in response to uman innovations. /istinct 9Is provide protection to all producers wit in a locality and are allocated in response to a recognised! distinct c aracteristic pertaining to a good produced wit in a particular locality. $ e 85A and E8 take very different stances on issues of 9Is and trade marks. $ e divide over 9Is and trade marks politically tends to be between Cold worldA and Cnew worldA countries! rat er t an developed and developing countries

?%austiala and Mun>er! '..1@. Amid discussions of developed countries! few studies attempt to measure t e impact of 9I on rural development in t e form of income! market access and employment. /ownes et al. ?&---@ suggest t at IP%s and traditional knowledge are in erently conflictual in t eir effects on cultural rig ts and customary practice ?ERrard and Marc enay! &--2D /ownes et al.! &---@. 9Is can elp to reconcile t is difference by protecting localised knowledge and allowing knowledge to remain in t e public domain wit in a specific community ?Moran! &--(D ERrard and Marc enay! &--2@. $ e actual effectiveness and impact of 9Is on economic and social development in developing countries remains largely unanalysed ?Earconcelli et al.! '..*@. /eveloping countries may ave even lower levels of influence in trade t an developed countries. As suc ! communities wit weak influence and low capabilities in market exc anges are less likely to benefit from 9Is. In addition! alt oug t e extent is not yet measured empirically! t e ig costs involved in ac6uiring and enforcing 9Is may be beyond t e scope of t e available resources in developing countries ?Commission on Intellectual Property %ig ts! '..'@. Currently! t ere is a lack of evidence as to t e actual impact of 9Is in communities in developing countries. As suc ! t ere is a need for empirical studies investigating t e real %A0/ Europe IP! 9enetic %esources and $raditional Hnowledge

*2 costs and benefits experienced in different developing countries! and ow local capabilities and market conditions affect t e profitability of 9Is for local producers in developing countries. Plant variety protection In t e agricultural industry! influence in innovation can be facilitated t roug P:P. $ eoretical arguments are ambiguous about t e effect on diversity in plant varieties in developing countries as a result of P:P. P:P can increase ine6uality in developing countries between t e breeders w o are protected by P:P! and farmers and agricultural workers w o do not receive any protection for t eir knowledge ?5rinivasan! '..+@. Conversely! P:P can provide incentives for %;/ in agriculture into tec nologies specifically relevant to developing countries. "or example! as Indian rice is a larger market t an 85 mai>e! t ere is substantial scope for profits for entities investing in innovations for agriculture in developing countries ?Commission on Intellectual Property %ig ts! '..'@. :an =iBk and Gaffe ?&--+@ found little evidence in 3atin American countries ?Argentina! C ile! Colombia! Mexico and 8ruguay@ t at P:P leads to increased innovation and an increased range of available plant materials. #owever! t ey do suggest t at P:P is likely to increase ine6uality between commercial farmers and t e seed industry! and poorer farmers. IP%s are granted more often to foreign t an domestic breeders in developing countries ?Primo Eraga and "ink! &--,b@. Moreover! concentration in t e agricultural sector

t roug mergers and ac6uisitions by multinational companies in developing countries ?Commission on Intellectual Property %ig ts! '..'@ suggests a concentration of influence in agricultural production. In contrast! w ile suggesting t at t e 8P7: model could concentrate influence among large<scale commercial breeders and biotec nology companies! %obinson ?'..1@ found t at t ere is t e potential for sui generis P:P regulatory frameworks to promote diversity in access and benefit<s aring. %ecently! India and $ ailand ave developed sui generis P:P regimes. Across 5out <East Asia! Indonesia! Malaysia and P ilippines ave implemented degrees of sui generis regimes to varying degrees! often pressured to standardise IP law by 8P7: and developed countries ?Hannia ! '..+@. Again! t ese are recent developments! and implementation is yet to be analysed. Evaluation of t ese regimes could provide insig t into t e conditions and capabilities affecting P:PAs ability to foster diversity in access and benefit<s aring in t e knowledge associated wit plant genetic resources ?%obinson! '..1D see also Era mi et al.! '..*@. "armersA rig ts "armersA rig ts ave been promoted as a means to limit breedersA rig ts ?"owler! &--*D Erus ! '..(@. $ e International $reaty on Plant 9enetic %esources includes provisions to recognise farmersA rig ts by providing a compensation mec anism for farmers Lw o

conserve and sustainably utilise plant genetic resources for food and agricultureM ?Maskus et al.! '..*@. "armersA rig ts can include t e rig t to participate in benefits from utilising genetic resources in agriculture or t e rig t to participate in decision<making about conserving and sustainably using suc resources. Modern agriculture in developing countries seems to be moving towards increasing integration and dependence on complex genetic resources from multiple sources and %A0/ Europe IP! 9enetic %esources and $raditional Hnowledge *1 breeds removed from traditional agricultural practices ?5male et al.! '..'D Erus ! '..(@. $ e evidence on t e impact of farmersA rig ts in innovation amid t ese processes is ambiguous. Currently! farmersA rig ts are often vague and lack t e status of legal rig ts! becoming domestic rat er t an international in nature. In analysing t e IP% environment in 5out <East Asian countries! 5ala>ar et al. ?'..2@ determine t at w ile currently IP%s do not protect farmersA knowledge! IP% regimes could be part of an infrastructure bringing farmers into systems of knowledge protection. #owever! t is depends on addressing c allenges of access! recognition of collective innovation! freely available materials and benefit<s aring ?5ala>ar et al.! '..2@. Among t e few case studies on farmersA rig ts in developing countries! Erus ?&--,@ determines t at recognising mai>e farmers in Mexico t roug contracts is unlikely to provide for e6uality between farmers and seed companiesD

rat er! efficient and effective benefit<s aring can occur t roug licensing agreements and institutions aimed at uman capital development ?Erus ! &--,@. $ us! empirical studies do not reBect a place for farmersA rig ts in facilitating diversity in access and benefit< s aring. $ ey affirm t at t e potential for IP%s to foster diversity depends on local contexts and capabilities. 2.* Conclusions and furt er researc directions After reviewing t e literature on t e impacts of IP%s on traditional knowledge and genetic resources! t is c apter concludes t e following. Evidence about t e relations ip between IP%s and traditional knowledge and genetic resources begins from varied t eoretical assumptions and debates. $ is lack of guidance in ibits t e implementation of systematic reviews or meta< analyses. Empirical evidence s ows t at IP%s can facilitate diversity in access to knowledge and benefit<s aring from innovation in developed countriesD owever! t is depends on individual! organisational and institutional capabilities. $ailored IP laws are a necessary prere6uisite for knowledge protection systems to engage a wider range of people in accessing and s aring t e benefits of knowledge in developing countries. Alt oug evidence about implementation is scarce! t is could be facilitated by using t e provisions in $%IP5 for sui generis protection and 9Is. In isolation! P:P could impede diversity in access and benefit<s aring! but t ese measures could be combined wit provisions for farmersA rig ts so as to promote diversity in knowledge systems in agriculture. #owever! at present! t e empirical

evidence about t e impact of P:P and farmersA rig ts in developing countries is t in. $ e review of t e literature on genetic resources! traditional knowledge and genetic resources also reveals a need for furt er researc to evaluate t e relative impact of different IP protection measures on diversity in access and benefit<s aring. 5pecifically! t ere is little evidence about t e impact of existing national sui generis systems and specific measures in t e agricultural sector. *, C#AP$E% 1 Conclusion $ is report reviewed t e evidence on t e effects of IP%s in developing countries in t e context of t e =$7 $%IP5 Agreement and t e development of $%IP5<plus standards. $%IP5 encouraged t e international armonisation of IP% regimes by providing a minimum standard of protection for IP! and a dispute resolution system for entities to c allenge breac es of t ese standards. 5ince t e establis ment of $%IP5! t ere as been an increase in t e number of new deals formed t roug bilateral and regional free trade agreements to strengt en t ese minimum standards of protection! t e so<called $%IP5< plus standards. $ is report as examined t e impact of strengt ening IP%s in developing countries in five main areas 4 "/I! trade! innovation! public ealt ! and genetic resources and traditional knowledge 4 t roug a review of t e most recent sc olarly and grey literature.

$ e empirical findings from t e report s ow t at stronger IP%s seem to influence t e decisions of individual firms in developed countries by encouraging t em to export! invest and transfer t eir tec nologies t roug licensing in developing countries! in particular t ose wit strong tec nical absorptive activities. It also found t at stronger IP%s can amper access to medicines in developing countries and do not necessarily encourage p armaceutical innovation t at responds to developing country needs. $ e report stressed t at uniform IP laws cannot ensure diversity of access and benefit<s aring from genetic resources and traditional knowledge. "inally! t e report revealed important knowledge gaps in t e empirical literature on t e effects of strengt ening IP%s in developing countries. $ erefore! its findings s ould be interpreted wit caution. "or t is reason! t e report suggested several future researc directions w ic s ould aim to provide furt er insig ts for policymakers on t e effects of stronger IP%s in developing countries.