Trade Related Intellectual Property Rights (TRIPs):
A Primer


By

Dr. G Bharathi Kamath
Asst. Professor-Economics
ICFAI Business School
Nirlon Complex, Goregaon (East), Mumbai
 


Abstract:

The World Trade Organization (WTO), which was established in 1995 as a successor to the General Agreement on Tariffs and Trade-1947 (GATT 1947), is the principal international organization governing multilateral trade among Members. The WTO administers the implementation of a set of agreements, which include the General Agreement on Tariffs and Trade, other agreements in the goods sector and in addition, agreements in two other areas, viz., trade in services, and Trade Related Intellectual Property Rights (TRIPs). The TRIPs agreement is a special agreement which introduced intellectual property law into the international trading system for the first time, and it remains the most comprehensive and all inclusive international agreement on intellectual property to date.

This article is intended to bring out the meaning of intellectual property and its component and the details of the Agreement on TRIPs and finally would discuss in brief the possible impact of it on various sectors in developing countries with specific reference to India.

Introduction:

The World Trade Organization (WTO), which was established in 1995 as a successor to the General Agreement on Tariffs and Trade-1947 (GATT 1947), is the principal international organization governing multilateral trade among Members. The WTO embraces the principle of non-discrimination, based on the twin concepts of Most Favoured Nation (MFN) and national treatment between Members.

The WTO administers the implementation of a set of agreements, which include the General Agreement on Tariffs and Trade, other agreements in the goods sector (e.g., agriculture, textiles, sanitary and psycho-sanitary measures, Trade Related Investment Measures-TRIMs, anti-dumping, etc.), and in addition, agreements in two other areas, viz., trade in services, and Trade Related Intellectual Property Rights (TRIPs).

Trade Related Intellectual Property Rights (TRIPs) was added to the General Agreement on Tariffs and Trade (GATT) treaty at the end of the Uruguay Round of trade negotiations in 1994. After the Uruguay round, the GATT became the basis for the establishment of the World Trade Organization. Therefore, when GATT was succeeded by WTO in 1995, and all the members of WTO had to sign an agreement related to Intellectual Property Rights if it was interested in multi-lateral trading and also enact mandatorily some regulations related to it in the domestic system. The TRIPs agreement is a special agreement which introduced intellectual property law into the international trading system for the first time, and it remains the most comprehensive and all inclusive international agreement on intellectual property to date.

The TRIPs Agreement tries to bring in uniformity in the standards of intellectual property rights among the WTO irrespective of their development status. While this is expected to result in technology transfer and flow of investment among the Members, the extent of benefits accruing will depend on domestic industries and the status of development of the countries.

This article is intended to bring out the meaning of intellectual property and its component and the details of the Agreement on TRIPs under the aegis of WTO and finally would discuss in brief the possible impact of it on various sectors in developing countries with specific reference to India.

What is IPR?

Intellectual Property Rights (IPRs) refers to the legal ownership of by a person or business of an invention/ discovery attached to a particular product/ process which protects the owner against unauthorized copying or limitation.

Intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time. Therefore, one important feature that requires note is that the right is not perpetual1.

The World Trade Organization classifies the IP broadly into two main parts namely copyright and rights related to copyright and industrial property. Let us understand each one in greater detail.

(i) Copyright and rights related to copyright:

The rights of authors of literary and artistic works (such as books and other writings, musical compositions, paintings, sculpture, computer programs and films) are protected by copyright, for a minimum period of 50 years after the death of the author.

Also protected through copyright and related (sometimes referred to as "neighbouring") rights are the rights of performers (e.g. actors, singers and musicians), producers of phonograms (sound recordings) and broadcasting organizations. The main social purpose of protection of copyright and related rights is to encourage and reward creative work.

(ii) Industrial property: 

Industrial property can usefully be divided into two main areas:

  • One area can be characterized as the protection of distinctive signs, in particular Trademarks (which distinguish the goods or services of one undertaking from those of other undertakings) and Geographical Indications (which identify a good as originating in a place where a given characteristic of the good is essentially attributable to its geographical origin).

According to WTO, the protection of such distinctive signs aims to stimulate and ensure fair competition and to protect consumers, by enabling  them to make informed choices between various goods and services. The protection may last indefinitely, provided the sign in question continues to be distinctive.

  • Other types of industrial property are protected primarily to stimulate innovation, design and the creation of technology. In this category fall inventions (protected by Patents), Industrial Designs and Trade secrets.

The social purpose is to provide protection for the results of investment in the development of new technology, thus giving the incentive and means to finance research and development activities.

A functioning intellectual property regime should also facilitate the transfer of technology in the form of foreign direct investment, joint ventures and licensing.

The protection is usually given for a finite term (typically 20 years in the case of patents).

WTO claims that the exclusive rights given are generally subject to a number of limitations and exceptions, aimed at fine-tuning the balance that has to be found between the legitimate interests of right holders and of users, such that the social objectives are kept in mind besides the economic interests.

What is TRIPs?

Having defined and classified IP, let us now look at TRIPs: The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) is an international treaty administered by the World Trade Organization (WTO) which sets down minimum standards for most forms of intellectual property (IP) regulation within all member countries of the World Trade Organization.

TRIPs deals with the following IPRs

  • Copyright and related rights;
  • Patents;
  • Trademarks;
  • Geographical indications, including appellations of origin;
  • Industrial designs;
  • Integrated circuit layout-designs;
  • Protection of undisclosed information
  • Control of anti-competitive practices in contractual licenses

TRIPs also specifies enforcement procedures, remedies, and dispute resolution procedures.

WTO specifies the three main features of the Agreement as;

  • Standards: In respect of each of the main areas of intellectual property covered by the TRIPS Agreement, the Agreement sets out the minimum standards of protection to be provided by each Member. Each of the main elements of protection is defined, namely the subject-matter to be protected, the rights to be conferred and permissible exceptions to those rights, and the minimum duration of protection.
  • Enforcement: The second main set of provisions deals with domestic procedures and remedies for the enforcement of intellectual property rights. The Agreement lays down certain general principles applicable to all IPR enforcement procedures.
  • Dispute settlement: The Agreement makes disputes between WTO Members about the respect of the TRIPS obligations subject to the WTO's dispute settlement procedures.

Under TRIPs, all countries have to provide for protection of product patents from January 1, 1995. But developing countries like India, which did not have a regime of product patents, had a transition period of ten years-until January 1, 2005, to affect the switch over. During this transition period, it was decided that these economies would accept applications for patents (which would be considered and granted after January 2005) and provide EMR (Exclusive Marketing Rights) for the producers of patented drugs (in the pharmaceutical industry) and agrochemicals.

The transition period for least developed countries was extended to 2016, and could be extended beyond that.

The TRIPS Agreement is a minimum standards agreement, which allows members to provide more extensive protection of intellectual property if they so wish. Members are left free to determine the appropriate method of implementing the provisions of the Agreement within their own legal system and practice.

Why TRIPs?

  • Art.7 defines the main objectives and principles, which mentions that Intellectual Property Rights should contribute to social and economic welfare and to a balance of rights and obligations of the members.
  • Art.8 stipulates prevention of abuse of IPR that will restrain trade or adversely affect international transfer of technology. A liberal and permissible interpretation of these Articles will ensure equity in the application of TRIPS to the benefit of the country's economy and social welfare.
  • A weak IPR regime in developing countries leads to losses from "re-engineered products" for the original innovators, namely the Western multinationals and lowers the incentives for local developing country firms to undertake basic R&D themselves. Thus, the countries of the triad, the U.S.A., Europe and Japan, have been working towards the global harmonization of IPR regimes since the last two decades. TRIPs is one of the culminations of their efforts.
  • The countries initiating TRIPS based their actions on the presumption that a strong IPR regime is a critical pre-condition for private investment in research and development, and hence economic growth.
  • It is contended that an expanded and strengthened protection of IPRs would bring about increased flows of foreign direct investment and technology transfer to developing countries. It would also stimulate local innovation.
  • Finally, it would also enable the multinationals of the developed countries to recuperate markets from local imitators. The developing world is, on the other hand, not so confident about reaping benefits from this global IPR regime, since having access to technological knowledge is perceived as being crucial for economic growth.

The Controversy:

Since TRIPs came into force it has received a growing level of criticism from developing countries, academics, and Non-governmental organizations. Some of this criticism is against the WTO as a whole, but many advocates of trade liberalisation also regard TRIPS as bad policy. TRIPS' wealth redistribution effects (moving money from people in developing countries to copyright and patent owners in developed countries) and its imposition of artificial scarcity on the citizens of countries that would otherwise have had weaker intellectual property laws, are a common basis for such criticisms2.

There exists an extensive literature on the possible impact of TRIPs on developing countries. They deal with this problem along different lines, examining the impact on: R&D, foreign direct investment, technology transfer, market demand and prices that consumers would be paying.

Indian Scenario:

As a signatory to the Uruguay round of GATT, and the founder member of the WTO, India was obliged to meet all provisions of the Trade Related Aspects of Intellectual Property Rights (TRIPs). A transition period was accorded to developing countries depending on their state of development. India has completed the complete term of this transition period i.e. 10 years, to set up an IPR system in compliance with TRIPS. The main elements of change in the Indian patent system are:

  • Enforcement of product patent protection in all branches of technology, including drugs.
  • 20 years of protection instead of 14 or 7 in the case of the Indian patent Act.
  • No discrimination between imported and domestic products.
  • Accommodate compulsory licensing (though no country south of the equator has yet used this clause).

A brief comparison is given in Table 1 indicating the main changes that are warranted in the Indian patents Act of 19703.

Table 1

Comparison of India's Patent Act and TRIPs

Indian Patent Act of 1970

 TRIPs

Only process not product patents in food, medicines, chemicals

Process and product patents in almost all fields of technology

Term of patents 14 years; 5-7 in chemicals, drugs

Term of patents 20 years

Compulsory licensing and license of right

Limited compulsory licensing, no license of right

Several areas excluded from patents (method of agriculture, any process for medicinal surgical or other treatment of humans, or similar treatment of animals and plants to render them free of disease or increase economic value of products)

Almost all fields of technology patentable. Only area conclusively excluded from patentability is plant varieties; debate regarding some areas in agriculture and biotechnology

Government allowed to use patented invention to prevent scarcity

Very limited scope for governments to use patented inventions


Source: Adapted from Patent Office Technical Society, Indian Patent Act, 1970 and Rules, 1991 and MVIRDC, GATT Agreements: Results of the Uruguay Round, World Trade Centre, January 1995

Impact on Major Sectors:

The Major sectors and industries that would be affected with the TRIPs agreement would be Ariculture, Pharmaceutical and Biotechnology Industries.

The greatest impact is expected to be on the Pharmaceutical industry as it's a knowledge based and research oriented industry. Here are some challenges and opportunities that can be noted specifically arising out of this agreement. India today has become one of the major exporters of cheap drugs not only to developed countries but also to other developing countries, the advantage India has is lower prices due to low labour costs and comparatively lower expenditure on Research and development. With the significant change in the IPR regime, there are concerns regarding the export earnings diminishing. Another concern is that compliance with the TRIPs is expected to create a monopoly of the patented drugs and lead to a crisis in the public health issues.

On the other hand, some feel that it is equally plausible that the Indian national system of innovative has evolved sufficiently to take advantage of the strengthening of the IPR system. This view is particularly supported by the clear success of India, in market based, high-tech domains, such as generics and software.

However the protagonists claim that "The fear that prices of medicines will spiral are unfounded....We must realize the fact that 97% of all drugs manufactured in India are off-patent, and so will remain unaffected." On the other hand, protection of innovation through patents is also justified on the front that patent protection will stimulate investment into R&D that will benefit Indian consumers and will reward India with increased foreign investment.

The worst impact of TRIPS that the pharmaceutical industry expects is the end of the reverse engineering; the industry now has to emphasize and concentrate on basic research. It is also feared that number of units in the industry may close down and only few hundreds may survive this onslaught of imposition of conditions by the TRIPS. This may result in unemployment on large scale.

To put it in a nut-shell, the prescription by TRIPS for product patent implies the following for the industry:

  • The industry has to now emphasis on basic research. The days of core competence of the industry in reverse engineering seems to move towards natural death. The firms in the industry now have to offer newer drugs to the customers to break the competitive forces.
  • Huge investments are required by the pharmaceutical industries on Research and development infrastructure.
  • Every industry has to develop a strategic outlook and have a internal policy for innovation if it is looking for sustainability in the long run.
  • IPR system requires further strengthening for encouraging real outputs in innovation and creativity.

Overall, the industry feels that the TRIPS in its present form, is bent in favor of developed nations and its MNC's and that there is nothing trade related about TRIPS and that the right to trade is being exploited by developed countries. Besides these, the imports are expected to increase leading to a serious question on self-reliance of these industries and overall it may have a dampening impact on the growth of this industry.

However, there is a light at the end of every tunnel, and there is an opportunity hidden in the agreement. The first opportunity is using the off patent drugs to capture markets across the globe. The strong process re-engineering skills and lower cost of development is another competitive advantage. As predicted by the different analysts, the out sourcing by MNCs would mean serious strategic alliances, contract manufacturing and bringing in of foreign exchange. The industry would use its technical and man power skills for research and innovation. However the industry would still be able to market older drugs which are not included in the patents list.

Impact on biotech: Most of the research orients towards the impact of TRIPs on pharmaceutical industry and agriculture. However, little research that has been conducted has concluded that the impact of TRIPs will be restricted to an elimination of the production of patented products. It will not have a deleterious or a positive impact on their levels of inventive activity. Even more importantly, TRIPs is not likely to create any incentive to increase technological knowledge or create innovations other than that provided by the national system of innovation. TRIPs is not going to have a significant impact on biotech in India or on the other preoccupations of Indian pharmaceutical firms. Hence, the major effect of TRIPS would seem to be to force Indian firms to put their re-engineered products on the market only when they get off patent4.

Impact on Agriculture: The TRIPS Agreement of the WTO includes three items related to agriculture: Geographical indications (Art 22-24); Patent protection of agricultural chemical products (Arts. 70.8 and 70.9); Plant Variety Protection (Art 27.3(b)). Out of which the plant variety protection is of great importance for the current scenario.

TRIPS is a clearly anti-developing country agreement contend the critics. Its provisions seriously threaten self reliance in agriculture and the livelihoods of farmers, by seeking to establish a monopoly because it embodies the philosophy of the industrialized nations where it was developed and where the primary goal is to protect their interests.

Therefore, when a question is raised as to what would be the impact of compliance to agreement TRIPs on developing economies like India, a reply pops up that would be a clear compromise with national security. Food security, as we are all aware, is a critically important part of national security. A nation that does not produce its own seed and its own food can not be a secure nation. The agriculture remains a crucial as well as a controversial subject in WTO negotiations. No clear negotiations have worked out so far, as the developing countries are trying to push their interests in these negotiations to which the developed countries have serious objections to implementing them as it would have adverse impact on their agricultural sector.

Concluding Remarks:

It is generally observed that a strong patent regime has often been found detrimental to the process of industrial development in particular and scientific advancement in general. TRIPS may prove to be a breeding ground for cost inefficient process technologies. The possible solutions suggested by experts in the field to this problem are:

  • Simplify and streamline India's compulsory licensing procedure.
  • Retain the pre-grant opposition procedure in its original form. This permits opposition to potentially frivolous patent applications, protecting consumers against high prices on non-innovative pharmaceutical products under consideration for patent protection.
  • Remove provisions for the granting of new-use or second-use patents,
  • Immediately implement the clause which allows compulsory licensing and importation if the domestic production facility is in-sufficient.

It is thus advised by the group of experts, that the Indian government should, instead of fulfilling its obligation in haste, shall make such amendments in the act which adequately safeguard and protect the interests of the domestic industries and market, taking advantage of the concessions given in the TRIPs agreement.

References:

1. http://www.wto.org/english/tratop_e/trips_e/intel2_e, accessed in August 2006.

2. The Impact of India's Amended Patents Act on Access to Affordable HIV Treatment www.healthgap.org/press_releases/05/020105_HGAP_FS_INDIA_IPR.pdf, accessed in August 2006.

3. Ashok Ram Kumar, Impact of TRIPS on Indian Pharma, Thursday, December 02, 2004 http://www.pharmabiz.com/article/SectionWiseArchiveNews.asp?id=50, accessed in August 2006.

4. Swati Gola, The Patent Bill 2005: Impact on Agriculture, www.biotech.indymedia.org, accessed in August 2006.
 


Dr. G Bharathi Kamath
Asst. Professor-Economics
ICFAI Business School
Nirlon Complex, Goregaon (East), Mumbai
 

Source: E-mail March 12, 2007

       

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