Application of a Mechanism of Proportional Rewards towards Global Innovation

* Professor Católica del of International Agreements of Industrial Property, Pontificia Universidad Ecuador (PUCE), Law School, Quito, Ecuador. LL.M. Candidate, class of 2015, NEW YORK UNIVERSITY (NYU) SCHOOL OF LAW, New York, NY. Magister, 2009, Universidad Andina Simón Bolívar (UASB), Quito, Ecuador. Abogado (Esq.), 2006, Pontificia Universidad Católica del Ecuador (PUCE), Quito, Ecuador. I want to thank my friend Jorge Baez for his help with this article. He is not responsible for any error that it may have.

[1] For further discussion of the principal of proportional protection of inventions see Esteban Donoso, A Global Solution for the Protection of Inventions (2014); Esteban Donoso, Justicia, Vigencia y Eficacia del Régimen Internacional de Patentes de Invención (Univ. Andina Simón Bolívar – Ecuador & Corporación Editora Nacional, Serie Magíster No. 98, 2011), available at http://repositorio.uasb.edu.ec/bitstream/10644/3121/1/SM98-Donoso-Justicia.pdf.

[2] John Sulston, International Patent Law Harmonization 3 (Mar. 1, 2006), Presented at the WIPO Open Forum on the Draft Substantive Patent Law Treaty, available at http://www.wipo.int/export/sites/www/meetings/en/2006/scp_of_ge_06/presentations/scp_of_ge_06_sulston1.pdf. For a statistical analysis of the implication of patents on follow-on research, see generally Bhaven Sampat & Heidi L. Williams, How Do Patents Affect Follow-On Innovation? Evidence from the Human Genome (Oct. 26, 2014) (Preliminary Draft), available at http://economics.mit.edu/files/9778.

[3] See Donoso supra note 1.

[4] Proportionality may be introduced without upending the entire system, but through modification of article 33 of the TRIPS Agreement. This proposal does not seek to overrule the current global agreement. The political issue should be recognized with pragmatism, as it is further developed.

[5] Eventually, according to the TRIPS Agreement, countries will be able to activate the disputed settlement mechanisms in cases of deficient application of TRIPS’ regulation. The decision at the Bali Ministerial Conference of 2013, however, extended once again the “moratorium” on non-violation disputes regarding intellectual property. TRIPS: ‘Non-Violation’ Complaints–Background and the Current Situation, WTO, http://www.wto.org/english/tratop_e/trips_e/nonviolation_background_e.htm (last updated Dec.3, 2009). Proportionality could finally unlock the door of the “moratorium.” See Conclusion, infra.

[6] According to the TRIPS Agreement, a review was to take place four years after the entry into force of the WTO Agreements . Although the TRIPS Agreement was signed 20 years ago, no revisions have yet occurred. Overview: The Trips Agreement, WTO http://www.wto.org/english/tratop_e/trips_e/intel2_e.htm (last visited Nov. 19, 2014).

[7] “The TRIPS Agreement, which came into effect on January 1, 1995, is to date the most comprehensive multilateral agreement on intellectual property.” Overview: The Trips Agreement, supra note 6. Its worldwide, linked-to-commerce characteristics come as a consequence of the WTO. Its decentralized nature is commented in the next footnote and its one size-fits-all nature is commented in footnote 49.

[8] As per the decentralized nature of the current global system, it goes without saying there are ways to give incentives other than by patents, which have advantages and disadvantages. “Whereas wealthy benefactors and governments can indulge in basic science and curiosity-driven research, a research agenda driven by patents is hostage to the market and to consumer sovereignty. The consumers who are sovereign are those with resources.” Suzanne Scotchmer, Innovation and Incentives 2 (2006). Many could dream of a global prize system. In the case of pharmaceutical research, for example, Joseph Stiglitz has proposed a “guarantee fund” (developing countries extending a purchase guarantee) and an “innovation fund” (a global prize rewarding research for widespread, costly diseases of particular concern to developing countries). Joseph E. Stiglitz, Making Globalization Work 124 (2006). Different countries could and would still use prizes and incentives other than patents to spur innovation. This is not precluded by the current system, and of course would still happen under a proportionality scheme, which is without any doubt commendable.

[9] See William Samuelson & Richard Zeckhauser, Status Quo Bias in Decision Making, 1 J. Risk & Uncertainty 7, 45-46 (1988).

[10] “To the extent that property rights become established in the status quo, any attempt to move away will be blocked. … The status quo persists, and those who propose a change merely incur the wrath of others.” Id. at 46.

[11] Subcomm. on Patents, Trademarks, & Copyrights of the S. Comm. on the Judiciary, 85th Cong., 2d Sess, An Economic Review of the Patent System (Comm. Print 1958) (prepared by Fritz Machlup), available at http://mises.org/sites/default/files/An%20Economic%20Review%20of%20the%20Patent%20System_Vol_3_3.pdf (hereinafter, An Economic Review).

[12] On October 24-25, 2014, NYU Law’s Engelberg Center launched the Innovation Law & Policy Empirical Research Initiative. See Program, NYU Law Engelberg Ctr. on Innovation Law & Policy, Empirical IP Research Conference (Oct. 24-25, 2014), http://static.squarespace.com/static/540a9275e4b0cca5ad25c4a2/t/5447ea7ae4b07be3ba763ebc/1413999226088/empiricalprintagenda.pdf. The event started by quoting Fritz Machlup’s An Economic Review, supra note 11, and then asking: “In 1958, economist Fritz Machlup famously concluded that ‘none of the empirical evidence at our disposal’ either confirms or confutes the belief that the patent system has promoted the progress of the technical arts and the productivity of the economy.’ Can we say more than that today about the causal relationship between patenting and innovation? What can modern econometric and experimental approaches tell us about the effects that patenting has on the amount and direction of innovation?” Id.
at 2. The consensus of the participants (academics, economist, lawyers, and statisticians from around the world) was that, as in 1958, there is no irrefutable empirical evidence to reach to a conclusion. To quote Machlup, “Scholars must not lack the courage to admit freely that there are many questions to which definite answers are not possible, or not yet possible. They need not be ashamed of coming forth with a frank declaration of ignorance. And they may make a contribution to knowledge if they state the reasons why they do not know the answers, and what kind of objective information they would have to have for an approach toward the answers.” Id. at 79. This is exactly what the initiative comprises. The conference was the kick-off event of this ongoing initiative. The empirical initiative is commendable.

[13] Two poles of opinion have been generated. The current scheme rests on the assumption that exclusive rights over an invention spurs innovation. As Richard Epstein puts it, “[s]ocial progress in our technological age is intimately bound up with the creation and protection of intellectual property,” implying that technical progress is a product of the protection of intellectual property. Richard A. Epstein, Mfg. Inst., Intellectual Property for The Technological Age 7 (2006). Many others think that intellectual property appears as a consequence of the interest of those who first created new technologies and who wanted to exclude others form using it. Thus, they think that intellectual property comes as a consequence of technological progress, and not that technological progress came as a consequence of intellectual property. Some call for the “abolition of all forms of private property in ideas.” Eben Moglen, The dotCommunist Manifesto 6 (Jan. 2003), available at http://old.law.columbia.edu/publications/dcm.pdf. Many adhered to the patent paradox theory and think that the patent monopoly leads to the destruction of competition and ensures protection only for powerful companies. Many others think that without reward there is no chance of technical progress. There is no unequivocal answer. Proportionality could probably help answer this question in the future, in the sense that it could sincere the positions of the different countries (and those who, in the academic sphere, are influenced by nationalism).

[14] These rhetorical questions are posed as if one of the two extreme positions is right. Probably the correct view sits in the middle.

[15] The answers could probably come from, among many other angles, a contributor’s game perspective. It appears that public goods with lower thresholds and higher rewards are more likely to be provided. Current models apply for threshold public goods, which, due to the lack of certainty of a patentable result, most individually considered potential innovations are not. For an example of a threshold case study, see Scott Barrett, The Smallpox Eradication Game, 130 Pub. Choice 179 (2006). Regarding public good provision, see generally, Charles Cadsby & Elizabeth Maynes, Voluntary Provision of Threshold Public Goods with Continuous Contributions: Experimental Evidence, 71 J. Pub. Econ. 53 (1999); Ramzi Suleiman & Amnon Rapoport, Provision of Step-Level Public Goods with Continuous Contribution, 5 J. Behavioral Decision Making 133 (1992); Hans-Theo Normann & Holger A. Rau, Simultaneous & Sequential Contributions to Step-Level Public Goods: One vs. Two Provision Levels, J. Conflict Resolution (forthcoming, published online before print May 6, 2014), available at http://ssrn.com/abstract=1763442.

[16] In that sense, cold fusion is different that most research for innovation. A priori it is impossible to know if a specific research will render a patentable result. This is another fact that those in favor of the patent system invoke. “After the fact, patents are inconvenient because they restrict the use of valuable inventions. But before the fact they are necessary to create those same inventions. No one can assume that valuable inventions will pop up magically in the public domain if their inventors received no reward for their labor and capital. Most inventions are costly to design and fabricate.” Epstein, supra note 13, at 10.

[17] “ITER was first proposed in 1985, during a tense summit in Geneva between Ronald Reagan and Mikhail Gorbachev, who agreed to collaborate ‘in obtaining this source of energy, which is essentially inexhaustible, for the benefit for all mankind.’ Since then, the cooperation has expanded to include the European Union, China, Japan, South Korea, and India…. No one knows ITER’s true cost, which may be incalculable, but estimates have been rising steadily, and a conservative figure rests at twenty billion dollars—a sum that makes ITER the most expensive scientific instrument on Earth.” Raffi Khatchadourian, A Star in a Bottle, New Yorker, Mar. 3, 2014, available at http://www.newyorker.com/magazine/2014/03/03/a-star-in-a-bottle.

[18] This paper does not seek to establish the equilibrium or the optimal period of extension for a patent, just for an equitable reward. Proportionality could make it easier to obtain objective economic conclusions and consensus, if the patent monopoly is shouldered proportionally by the different countries or trade regions of the world.

[19] There is a lot of criticism regarding the linkage of intellectual property and international trade regulations. “Discussions over global standards for intellectual property should be taken out of the WTO and put back into a reformed WIPO, a World Intellectual Property Organization in which the voices of academia as well as corporations, consumers as well as producers, the developing as well as the developed countries, are all heard.” Stiglitz, supra note 8, at 128.

[20] Id. at 131. “The environment is the problem of the environmental minister, access to lifesaving medicines is the problem of the health minister, and the overall pace of innovation is a problem of the education, research, and technology ministers. So while trade agreements affect all of these areas, those who worry about them are not at the table.” Id.

[21] Gary S. Becker, “Get the FDA Out of the Way, and Drug Prices Will Drop,” BusinessWeek, Sep 16, 2002, at 16, available at http://www.businessweek.com/stories/2002-09-15/get-the-fda-out-of-the-way-and-drug-prices-will-drop.

[22] For a historical recount of developing countries’ perspective view, see Donoso, A Global Solution, supra note 1, at 8-44.

[23] A certain general tone of condemnation to patent holders, especially against pharmaceutical companies, has been present in the international arena since the late 1990s. “Pharmaceutical companies filed a lawsuit against the government of South Africa to contest the government’s ability to use WTO access provisions—in this case, compulsory licensing—to make HIV/AIDS drugs available there. The case was dropped in April 2001.” Stiglitz, supra note 8, at 316 n.40. From then on the trend has been the same. For instance, Stiglitz describes developing countries that do not act like Brazil, which used its bargaining power and compulsory licenses threats to get a deal from Abbott for an antiretroviral medicine, as “less astute.” Id. at 121. This letter of marque is even given to developed countries. “Myriad [Genetics] eventually developed a [cancer] screening technology, and asks $3,000 for a complete screen; it refuses to let other firms perform the screen. The province of Ontario is ignoring this, allowing its citizens to be screened for free.” Id. at 314 n.26.

[24] See Donoso, A Global Solution, supra note 1, at 117-119.

[25] For a complete review of the axiological justification of this proposal, taking in account the positions of developed and developing countries, see Donoso, A Global Solution, supra note 1. The analysis in that study was developed based upon a triple validation criterion of the examined regulation, intending to unravel the justice, validity (its applicability) and effectiveness (understood as the ability of the rule to achieve the intended result) of the global patent system. If all of these potential properties of the rule are present in a given regulation, the rule achieves an optimal impact on society. Italian philosopher and historian, Norberto Bobbio, championed this way of analyzing regulations in some of his academic production (his main works have not yet been translated to English). In a very basic explanation, he states that when facing any regulation we can establish a triple order of problems: 1) if it is fair or unfair; 2) if it is valid or invalid; 3) if it is effective or ineffective. Put differently, regulations pose three different problems: one of justice, one of validity, and one of effectiveness. Norberto Bobbio, Teoría de la Norma Juridíca at 45-55 (Jair L. Vieria ed., EDIPRO 2001) (1993), available at http://www.estig.ipbeja.pt/~ac_direito/BobbioNorma.pdf.

[26] From stage one of the application of this hypothetical system, firms that produce new technology will be better off due to the overall decrease in
deadweight loss (an intrinsic advantage of the proportionality system, that entails more sales), plus a smother “collection” of that reward since it will be increased, as a compensation for shorter periods in poorer countries, in countries in which enforcement is typically done properly (an exogenous advantage of the system). More should be done to generate a proper application of the regulation in a worldwide scale (stage two). The agreement not to use TRIPS non-violation cases in dispute or settlement cases should probably (gradually) end in the face of proportionality (Article 64.2 moratorium, see supra note 3). For example, an initiative by the World Customs Organization (WCO) and the World Intellectual Property Organization (WIPO) to permit customs authorities to resolve intellectual property issues in situ has been discussed in the past years (7th and 8th WCO Counterfeiting and Piracy (CAP) Group Meetings, Brussels, Belgium, October 23 and 24, 2012 and May 6 and 7, 2013. WIPO, Recent Activities of WIPO in the Field Of Building Respect For Intellectual Property, WIPO/ACE/9/2 (Jan. 22, 2014), at 9, http://www.wipo.int/edocs/mdocs/mdocs/en/wipo_ace_9/wipo_ace_9_2.pdf).

[27] A very interesting analysis comparing elasticity of public and private goods gives this paper a very applicable, almost ad-hoc, frame to argue for its feasibility. “I find that increases in price greatly diminish the proportion of people willing to pay for consumers goods, such as housing and hardback books; whereas the proportion willing to pay more in taxes to support a public good, such as environmental protection or shelter for homeless, is much less responsive to changes in price.” Donald P. Green, The Price Elasticity of Mass Preferences, 86 Am. Pol. Sci. Rev. 128, 128 (1992). “Thus, not only are economic and political decisions different in character, but the fact that these decisions take place in different environments helps to sustain the schism between the consumer and the consumer’s less price-conscious alter ego, the citizen.” Id. at 140.

[28] Countries with a higher GDP per capita will have longer periods of protection, thus increasing two problems that the patent system generates (deadweight loss and reduction of the consumer surplus).

[29] See Epstein, supra note 13, at 10. “The hard social question is whether the law should grant the exclusive right that raises the price above [the] marginal cost. The question would receive an easy affirmative answer if creating this monopoly carried no social price. But unfortunately the price paid comes in the form of dead-weight social losses.”Id.

[30] Scotchmer, supra note 8, at 36.

[31] Stiglitz, supra note 8, at 124.

[32] Epstein, supra note 13, at 10. “That … payment is not a social loss because any losses to purchasers are exactly offset by gains to the patent holder.” Id.

[33] “Because the invention goes into the public domain at the expiration of the patent, the deadweight losses are incurred only for a limited period of time.” Epstein, supra note 13, at 11.

[34] Another scholar has proposed a classification according to the economic capacity of the various countries in the patent system in terms of maintenance fees and annuities. See Lester C. Thurow, Needed: A New System of Intellectual Property Rights, 75 Harv. Bus. Rev. 94 (Sept. 1997), available at http://hbr.org/1997/09/needed-a-new-system-of-intellectual-property-rights/ar/5. This proportionality Thurow proposes is being applied to the international filing of patents under the Patent Cooperation Treaty (PCT). Under it, for example, citizens from certain developing countries are eligible for a 90% decrease of the PCT patent application fee (a few years prior, it was a 75% decrease). See also PCT FAQs – Question 9, World Intellectual Prop. Org., http://www.wipo.int/pct/en/faqs/faqs.html (last visited Nov. 19, 2014). (showing a link between the principle of proportionality and the patent system).

[35] “If the proposed corrective is introduced in the current regime of protection for inventions, the countries with better economic situation should extend the period of protection for inventions in their territorial constituencies while the poorest countries will see the periods of protection reduced. The insertion of the proportionality principle in the current regime of protection for inventions is a useful tool to correct the system taking into account the claims of both developed and developing countries, although the populations of developed countries will suffer more years of exclusivity than what they do nowadays and certainly more years of exclusivity than populations of developing countries. [If] more reward means more development … the key is to have that reward come in a way so that it can be afforded. That being reflected, not only would a proportional justice be achieved, but also an event of global generosity without precedent in the history of mankind would be witnessed. Hobbes’s [sic] theory would be proven wrong, and cohesion of humanity would be envisioned as global. The Achilles heel of the idea presented in this book is that it maybe utopian; it would not be surprising that once again it is proven that homo homini lupus.” Donoso, Global Solution, supra note 1, at 129-30.

[36] The area under the demand curve is the consumers’ surplus that would exist at a competitive price of 0. Marginal cost is represented by line xo, assuming 0 cost for reproducing all patented inventions, which is obviously not true (there is always a cost, which is typically much lower that the monopolistic price). This assumption in the chart certainly serves the analysis (if not we should establish a proportion–or percentage—of the marginal cost in relation to the per capita income of each country, that will complicate the graphic unnecessarily).

[37] From an aggregated point of view (demand for all technologies) the case in which the demand curve of the poorer country is more inelastic will be rarer since prices have bigger impact in persons with lower income.

[38] “The initial model stipulated falsely that every patent holder enjoys both a legal and economic monopoly in the relevant market. Functionally, that statement means that buyers have no close substitute for the patented goods. But new entry of rival technologies, patented and unpatented, frequently undermines that assumption.” Epstein, supra note 13, at 11. Nonetheless, the cases of “me-too drugs,” “follow-on drugs,” or “inventing around,” for instance, have been looked as an economic efficiency problem, since investment is directed where it is not needed. However, there have been examples of real technical improvements derived from these investments. “Drug companies expend huge amounts of money coming up with drugs that are similar to existing drugs but are not covered by existing patents; even though these drugs may be no better than the existing ones, the profits can be enormous.” Stiglitz, supra note 8, at 110. “In some cases, through better marketing, follow-on drugs have sometimes done as well or better than the original drug. For instance, Zantac was a ‘me-too’ anti-ulcer drug that followed on from the pathbreaking drug Tagamet (based on research that received the Nobel Prize). While some research suggests that Zantac did not, in general, outperform Tagamet, because of better marketing it out- sold it. (Its success may also be related to its having fewer side effects.)” Id. at 313 n.18. Consumers value functionality differences even within close substitutes. Moreover, if the market is worth it and the investment is done, this could generate technological competition, creating substitutes, that could tackle the consumer surplus issue.

[39] See Alan O. Sykes, TRIPs, Pharmaceuticals, Developing Countries, and the Doha ‘Solution,’ 13 (John M. Olin Program in Law & Economics, Working Paper No. 140 2002), available at http://chicagounbound.uchicago.edu/law_and_economics/597/.

[40] A close substitute for the patented product could appear and change the patent economic significance, any time before it expires in the country with a higher GDP per capita, which will give the longer period of exclusivity in the world within its circumscription.

[41] Scotchmer, supra note 8, at 36.

[42] The proportionality system presented in this paper aims to correct the fact that the scheme is currently imposing charges in an inequitable way to all contributors, thus creating resistance to the structure itself and ultimately hindering innovation. Even if price discrimination could be enabled, proportionality is needed. The overall purchasing power differences (the economic differences among countries) will still remain in the presence of price discrimination.

[43] The implementation of price discrimination is hard to instrument in local markets. “Our simplified model assumes that the patent holder charges all users an identical price, even if each has a different reservation price. But sometimes a patent holder knows enough about his customers to charge different prices to different classes of users. If the patentee knew the reservation price for each potential buyer, it could sell each buyer just the quantity it needed for a price just below that reservation price. That strategy, if it could be implemented, would eliminate all the deadweight loss (and, of course, any consumer surplus). […] Apart from any distributional concerns, the total output would equal that under pure competition. In practice, any metering device is likely to be imperfect, as when the sale of toner is used to monitor price differences for printing devices [he cites an example on this regard]. But the overall tendency is still clear”. Epstein, supra note 13, at 11.

[44] Parallel imports means foreign trade could be done outside the official network. This could be very problematic in the pharmaceutical field. Many countries subsidize pharmaceutical products or bargain special prices with drug manufacturers through their public social care provider. Nonetheless, regulated markets, like medicines, seem to be less vulnerable to circumvention. “There are already huge price differences around the world, and only limited circumvention, largely because this is a highly regulated industry [the pharmaceutical industry], with imports tightly controlled, and with most purchases paid by third parties.” Stiglitz, supra note 8, at 315.

[45] The developing countries are identified with the theory of international exhaustion, while developed countries have usually established in their legislation regional (European Union) or national exhaustion (with the exception of Japan that generally uses international exhaustion, with a caveat regarding grey market products in which contractual restrictions on importation may apply). “In Japan Tokyo High Court (in 1995) applyed the international exhaustion rule (BBS Kraftfahrzeug Technik AG v. Kabushiki Kaisha Racimex Japan and Kabushiki Kaisha JapAuto Prods). The sentence turned over the leading case Brunswick (1969, Osaka District Court). According to the Brunswick case parallel importation was unlawful if goods were already patented in Japan. Finally, in 1997, the Japanese Supreme Court didn’t use the international exhaustion principle, and decided that holder of a patent in Japan and in another country can’t oppose to importation in Japan of the same product, except demonstrating that the grey market was contractually prohibited (and there was evidence on the product). […] In the E.U. is in force the European Union exhaustion principle. Goods patented (or marked) traded for the first time in the European Union or in the European Economic Area can be freely traded inside European Union […] U.S. Government, instead, has been always adverse international exhaustion. During the negotiations of TRIPS agreement U.S. Government expressed his contrary view (with reference to patents and specially drugs). The U.S. Government opinion is founded on the need to defend the research’ possibility of enterprises that want to patent their inventions. Prof. V. Di Cataldo, Parallel importations, New perspectives, available here.

[46] The theory of exhaustion of rights is universally accepted. In regard with the scope of its application (the limit of its impact), whether territorial, regional, or international, different conceptions have been established. According to the conception chosen by each country, foreign trade acts that are allowed will be determined. If the limit of the exhaustion is territorial, any export/import of a patented product or a product produced by a patented process can be made only with the consent of the patent owner, as part of an official network. On the other hand, if applying the principle of international exhaustion, acts of foreign trade of the product of a patent may be made by anyone who has lawfully acquired a patented product. Hence, the application of the international exhaustion of rights paradigm is known with the term parallel imports.

[47] Moreover, territorial or regional exhaustion prevents competition that could arise between the patent owner and licensee, thus keeping intact the exclusive exploitation rights of the first. Otherwise licensees (or even those who legitimately purchased the product) could export the licensed product to the country of origin of the patent holder. This could mean that the patent holder has to compete freely in the market for a product on which he supposed to have exclusivity. For these reasons, it seems wise to establish a system of territorial or regional exhaustion. As all the conclusions in this publication, this recommendation is in order provided that the corrective this paper urges comes to be established. Proportionality is the answer for a global, effective, and just system.

[48] Article 6 of the TRIPS Agreement, despite its confusing wording, leaves the definition of the exhaustion system to the discretion of the different countries. In the absence of a consensus in 1994, the TRIPS Agreement gave countries freedom in regard to this determination in strict respect of the principles of National-Treatment and Most-Favoured-Nation. It is noteworthy that the exhaustion of intellectual property rights is an issue that applies to all intellectual property rights in general and not only for patents, which makes its impact even greater. The suggestions here stated are meant for the case of patents. The subject under discussion is not the right of the holder of a patent to import his product (importation is considered exploitation) or the theory of exhaustion of rights (universally accepted). What has been discussed is the limit of the application of the exhaustion paradigm.

[49] “If trading nations as a whole ban parallel imports, pharmaceutical patentholders should be willing to sell their products at a low price to nations where customers cannot afford to pay much for them as long as that price covers the marginal cost of making the drug and delivering it. They will be willing to do so because each sale yields some profit, and they need not fear that their low-priced sales in one market will be re- exported to undercut their prices elsewhere. When parallel imports are possible, by contrast, they will likely become unwilling to sell at low prices in markets where demand is weak. Poorer countries may then find themselves largely priced out of the market for particular medications.” Sykes, supra note 43, at 20.

[50] If there is an official network with the capacity to control the acts of foreign trade, the global distribution of the patented product will be done through licensing or self-representation. A product that is introduced as a result of a license or direct sale will better ensure consumer rights. It will mean there will be a local agent or representative of the patent holder, who could respond for the quality of the products.

[51] Paired with this information privilege, as a two ways road, the patent holder should inform the markets she is not attending. It is essential not to have any markets underserved by lack of interest of the patent holder. The information right or responsibility should be bestowed in all international producers alike, not only patent holders. If a given product is found at a market is not supposed to be found, corrections could then be prompted, or eventually sanctions against the producer could be established. It will be easier to control piracy and borders. This will be an important step toward a decentralized control system, which could aid governmental efforts at customs; a necessary step to enforce the varied patent periods between nations.

[52] One may argue that under the proportionality proposal there will be more cases of smuggling since there will be more products to smuggle available. It all is reduced to custom control, though. This is a key aspect of international trade, which not only pertains patents or intellectual property (efforts of a better customs system will be beneficial in many aspects, and they sure should continue).

[53] See Stiglitz, supra note 8, at 120, “One of the simplest ways for the developed countries to help developing countries is to ‘waive’ the tax, allowing them to use the intellectual property for their own citizens, so that their citizens can obtain the drug at cost. Critics might say: But then the developing countries are simply freeriding on the advanced industrial countries. To which the answer is: Yes, and they should. There is no additional cost imposed on the developed countries.” In the same line of thought, one interesting economic analysis has concluded that “under specified circumstances it is not optimal to extend patent protection to all countries of the world.” Alan V. Deardorff, Welfare Effects of Global Patent Protection, 59 Economica 35, 48 (1992). Based on his analysis, Deardorff argues that “extending this protection to other countries is very likely to be harmful to them, in spite of the fact that they will benefit from increased inventive activity…. a case can be made, in terms of world welfare, for limiting the coverage of a patent protection to less than the entire world.” Id. at 36. Ultimately, his research demonstrates that “the case for universal patent protection is not a clear one … and the concerns of some developing countries that they will be exploited by patent protection are not without foundation.” Id. This happens with the LDCs, which are exempted from the application of the TRIPS agreement provision (which does not give 20 years patents).

[54] There are currently 48 least-developed countries (LDCs) on the UN list (see http://www.un.org/en/development/desa/policy/cdp/ldc/ldc_list.pdf), 34 of which to date have become WTO members, that do not apply the 20 year TRIPS’ provisions. “WTO recognizes as least-developed countries … those countries which have been designated as such by the United Nations…. There are no WTO definitions of “developed” or “developing” countries. Developing countries in the WTO are designated on the basis of self-selection although this is not necessarily automatically accepted in all WTO bodies.” Understanding the WTO – Least Developed Countries, WTO, http://www.wto.org/english/thewto_e/whatis_e/tif_e/org7_e.htm (last visited Oct. 10, 2014).

[55] A recent empirical analysis on China’s patent applications at the U.S. Patent Office shows a trend that is common to those countries that have walked the path to development. Jay P. Kesan, Alan C. Marco & Richard Miller, Patenting — With Chinese Characteristics (Univ. Ill. Coll. Law, Working Paper Series July 22, 2014), available at http://ssrn.com/abstract=2469957. This study shows that Japan and South Korea’s increase in technological innovation is correlated with their development status (as well as benefits to their population). China is now following their footsteps. Brazil, India and others are, in a lesser way, following that path, but in a slower manner. From this kind of empirical analysis it seems that the world should continue to reward innovation, helping others to develop. India is an interesting case. There is a lot of innovative activity, but the mass of its population is extremely poor (in some years it has a per capita income smaller than many countries in the LDC list). It will enhance their chances of development if their inventions could get proper reward from the world, while their population rewards according to their capacity to do so (for instance, one of Hinduism’s main celebrations, Diwali, praises light and knowledge). Countries must contribute according to their capacity, but they should not stop contributing to the overall global retribution. This is not only because they have the aspiration to develop, but also because it will be correct for them to legitimately benefit from technological progress by contributing according to their capacity.

[56] Data: GDP Per Capita, World Bank, http://data.worldbank.org/indicator/NY.GDP.PCAP.CD (last visited Sept. 27, 2014) (data is in current U.S. dollars).

[57] In taxes to establish the measure of contribution of each citizen, there are many alternatives, (e.g., a distributive agenda, to promote investment, etc.). This paper does not seek to provide unequivocal answers. I will just try to provide a mechanism in order for this proposal to be feasible. Of course there will be many alternatives.

[58] The economic significance of each invention, as we have seen, depends on many factors. No invention will have the same reward as any other. Nonetheless, they all have a market from which they can extract their reward. A measure of the potential revenue must be established accordingly. I have used GDP per capita to establish the proportional reward, in order to take into account a variable that influences willingness to pay (as discussed in the previous segment). Many other variables could have been used, and no measure will be uncontested.

[59] This could be too little, especially for pharmaceutical products. According to the Pharmaceutical Research & Manufacturers of America (“PhRMA”), an organization representing biopharmaceutical researchers and biotechnology companies, the “the clinical trials process occurs in several phases and takes on average six to seven years.” What Are Clinical Trials?, PhRMA, http://www.phrma.org/innovation/clinical-trials#sthash.Jq3QCHj8.dpuf (last visited Nov. 5, 2014). It is an arbitrary determination. To start to compute the patent time from the moment of the first sale could be a proper solution. This is not part of the status quo, so it is presented as a simple annotation. As suggested in the conclusion, the solution to the problem of neglected diseases (those that are of primary concern to developing countries) could be to generate enough reward and legal certainty to attract investment toward researching new treatment options.

[60] I have chosen this mark, because around it LDCs start to appear when applying the formula to the database. And not only Equatorial Guinea and Vanuato, who are graduating (see note 64, infra), but other LDCs that are doing a little bit better than some that are not in that category (of course, at the end of the list most of the LDCs are piled up with what will be, according to the formula’s result, no more than 3 or 4 years of reward, which could go down to less than one year of reward). It is, in any case, an arbitrary determination. Although there are reasons to have such a minimum from the perspective of the producers, the real reason I have chosen to establish this minimum is to tackle the tropical disease and orphan diseases problem, as is discussed at the conclusion of this paper (this is based on the contested assumption that reward spurs innovation). From the producer’s perspective, it seem prudent to establish a minimum, since administrative procedures can create long delays before a patent is granted, and because to put a product in the market can also take considerable time (especially for drugs). Something that would be desirable from the producers’ point of view is that periods begin to count from the patent grant and not from the filing (as it is now), or even from the first sale (in this eventual system, such a provision could be analyzed, weighing the economic benefits and the patent term). If the duration of the exclusive rights is computed from the administrative decision granting the protection or even with the first sale, certain problems would be avoided (the reward could be really assessed, the data exclusivity issue over clinical trials could be properly evaluated, and unjustified delays in granting a patent would be avoided). Provided the application of a scheme as the one proposed in this paper, this could be considered (it could be weighed when analyzing the optimal patent duration).

[61] See Daniel L. Rubinfeld, Reference Guide on Multiple Regression, in Reference Manual on Sci. Evid. 303, 332 (3d ed., Fed. Judicial Ctr. 2011), available at http://www.fjc.gov/public/pdf.nsf/lookup/SciMan3D01.pdf/$file/SciMan3D01.pdf.

[62] Data: GDP Per Capita, supra note 56. There is no GDP data for Myanmar, Somalia (from 1991 thereon), or San Marino (none of which are WTO members), no GDP data for Nauru and the Holy See, and no GDP per capita data for Democratic Republic of Korea (which is also not a WTO member). There are some other countries which are missing data from 2007, 2008, and thereon (e.g., Andorra and Syria, which are also not WTO members). China is considered separately from Macao and Hong Kong.

[63] For a list of countries belonging to the European Union, see EU Member Countries, European Comm’n, http://europa.eu/about-eu/countries/member-countries/ (last visited Dec. 15, 2014).

[64] The data used for the calculations takes in account the date of entrance to the WTO of each country, and if countries are in the LDCs list (the date of entrance to this list is also considered). For European Union countries, when considered together for the calculations, the year of entrance to the union is also taken in account. This made it possible to obtain a result for different years and to make that result reliable. NOTE: The general transition periods explained next were not taken into account, since the figures and charts I present in this paper are based in the 2002-2012 time frame (not all countries used the transitional period to the fullest, so to do so would have required an arduous country-by-country analysis). For the 2002-2012 time frame, the following general transition periods have already expired (for developed and developing countries), while the exceptions for the LDCs are still in place. The implementation of the TRIPS Agreement in the different countries was not immediate in all cases, being gradual for developing countries and LDCs. These are categories included by the TRIPS Agreement, according to the developed condition of the member country based on articles 65 and 66 of the TRIPS Agreement. For all developed countries it was applied since January 1, 1996, but many applied it since 1995. Meanwhile, under the transitional provisions of the agreement, the developing countries were required to comply with the TRIPS Agreement from January 1, 2000, and even LDCs had an additional period of six years. Efforts have provided greater flexibility for LDCs with some concrete results. The decision of the Council for TRIPS of June 2002 established the extension of the transition period under article 66.1 of the TRIPS Agreement for least-developed country members until January 1, 2016, for certain obligations with respect to pharmaceutical products. Decision of the Council for TRIPS of November 2005, which established the extension of the transition period under article 66.1, by which LDC members shall not be required to apply the provisions of the agreement other than articles 3, 4, and 5 until July 1 2013. Just a few months ago came the decision of the Council for TRIPS of June 2013, which extended the transition period previously mentioned, until July 1, 2021. In both of the previously mentioned decisions, the extension period will only apply until the member cease to be an LDC. I have also chosen not to take into account those countries that joined the WTO after 1995, which have their particular transition periods, because their impact is negligible (as discussed in the following footnote).

[65] Particular transition periods and LDC list inclusions: Up next I present particular transition periods scenarios (sometimes related to the LDC status, thus already considered), which are meant as an annotation to this work. The Russian Federation, which recently joined the WTO (2012), would fully apply the provisions of TRIPs, including provisions for enforcement, without recourse to any transitional period. See Working Party Seals the Deal on Russia’s Membership Negotiations, WTO (Nov. 10, 2011), http://www.wto.org/english/news_e/news11_e/acc_rus_10nov11_e.htm. A similar situation is presented by the Ukraine, which joined in 2008. See
Trade Related Intellectual Property Regime, WTO, http://ecampus.wto.org/admin/files/ACC/E/M3/Comm/trips/trips.pdf (last visited Oct. 20, 2014) [hereinafter, “TRIPs Regime”], at 9-10. Additionally, Cambodia (2004), Nepal (2004), Lao (2013), and Yemen (2014), which recently joined the WTO (their years of entrance where annotated in parenthesis), are on the list LDCs; of course are given the exception to the application of the TRIPS described in this footnote. Another example is Cape Verde, which graduated as an LDC in 2007 and became part of the WTO in 2008. See UN Advocate Salutes Cape Verde’s Graduation, UN News Centre
(Jun. 14, 2007), http://www.un.org/apps/news/story.asp?NewsID=22918&Cr=cape&Cr1=verde. A special transition period was agreed upon for Cape Verde: “The representative of Cape Verde confirmed that Cape Verde would apply the Agreement on Trade­ Related Intellectual Property Rights by no later than January 1, 2013 according to the action plan in Table 12 with the understanding that for the obligations covered by Sections 5 and 7 of Part II of the TRIPS Agreement or to enforce rights provided for under these Sections, Cape Verde would apply the TRIPS Agreement in respect of these obligations no later than January 1, 2016, in light of paragraph 7 of the Doha Declaration on the TRIPS Agreement and Public Health.” TRIPs Regime, supra, at 8. Such provisions have been agreed upon for other countries as well, such as Tajikistan, Montenegro and the Maldives (which entered the WTO 1995 and graduated from the LDC list on 2011). The Maldives became the third and last country to graduate and be promoted to developing country status (January 1, 2011). Samoa was suppose to graduate on December 31, 2010, but due to the tsunami catastrophe of 2009, its graduations was deferred until January 2014 (General Assembly resolutions A/RES/59/209, A/RES/62/97 and A/RES/64/295. LDC Factsheet, Samoa, UN DESA, http://www.un.org/en/development/desa/policy/cdp/ldc/profile/country_164.shtml (last visited Oct. 20, 2014). These cases are simple not considered in the calculations, as their impact is negligible.

[66] For instance, the LDCs are not considered (the status quo excludes them). If you do include them (part of the proposal is that these countries should give a reward to tackle the orphan diseases issue, as commented in the conclusion of this paper), the difference is negligible in terms of the big picture (the total contribution from LDCs will be less than 0.4% of the total reward). The case of Equatorial Guinea is a peculiar one. Even though it is still an LDC, Equatorial Guinea now has a GDP per capita that puts it in the developed group (it is a special case). Equatorial Guinea recently discovered oil and gas reserves, and thus their per capita GDP rose enormously, to levels that situate it as a developed country. See Data: Equitorial Guinea, World Bank, http://data.worldbank.org/country/equatorial-guinea (last visited Dec. 15, 2014). However, they are still on the LDC list. General Assembly resolution 68/L.20, adopted on December 4, 2013, decided that Equatorial Guinea will graduate three and a half years after the adoption of the resolution, and that Vanuatu will graduate four years after the adoption of the resolution. Vanuatu, in contrast, is an example of a country who has seen a far more gradual improvement of their economy. Vanuatu is also an interesting case, though, for other reasons. It recently joined the WTO and is scheduled for graduation. Some think it got a better treatment that some previous members. “Vanuatu was allowed two years to adopt [TRIPS], while Cambodia and Nepal were allowed three years or more.” Daniel Gay, Vanuatu’s Suspended Accession Bid: Second Thoughts?, Managing the Challenges of WTO Participation: Case Study 43, WTO (2005), at n.40, http://www.wto.org/english/res_e/booksp_e/casestudies_e/case43_e.htm (last visited Oct. 20, 2014).

[67] For a more detailed overview, see Donoso, Global Solution, supra note 1, at 81-107.

[68] Id. at 83.

[69] Id. at 91. The availability of data probably will entail that the term of protection for a given year is determined by data of previous years. In the case of my analysis, 2012 has most of the data for every country. From then on the World Bank page does not provide complete information in its webpage.

[70] Id. at 92.

[71] “In any case, it can be said that once the term of protection that a country is required to provide is known (which may vary according to the frequency in which the reviews are determined by the rule), the status of a particular patent will be known (if the patent is enforceable or if it has become of public use in that particular country).” Id.

[72] Id.

[73] “[T]echnology transfer is an objective that the current regime has failed to achieve. Even though technology transfer is a value referred to in the statement of principles and objectives of the TRIPS Agreement, this goal is not met in a complete way by the current regime. It has even been argued [by some of the most forceful critics] that the currently conceived system perpetuates the differences or the technology gap between the developed and developing countries, ensuring access to the system only by the powerful… The tools that the agreement foresees to ensure the goal of technology transfer have proven to be ineffective. For example, article 66 of the TRIPS Agreement determines that developed members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least-developed countries (this is a category established by the TRIPS Agreement), to enable them to create a solid and viable technology base.… As a result of this, so far the principle of technology transfer has been merely declaratory, except for certain programs conducted by some industrialized countries to support other less fortunate ones. From the perspective of developed countries—if this hypothetical system came to be implemented—the resources destined to these programs (those of article 66 of TRIPS) could be better used to increase their own poor populations’ access to new technologies, especially regarding health. Technology transfer, as it is established, is a rule that aims to capture an important goal, but because of its poor axiological content (justice), it has become a mere romantic statement.” Id. at 95-98 (internal citations omitted). “If the proposed scheme came to be implemented, in which the exclusive exploitation of new technologies will last longer in the circumscriptions of developed counties, it is probable that the governments of those countries would chose to destine resources to aloud [sic] their less privileged population to have access to new technologies, especially when it comes to medicines. Resources could be those of article 66 of TRIPS.” Id. at 98 n.70.

[74] This is true only for that market, and those where the patent has expired; the key for this system to work properly is tight international trade control of protected products. Id. at 97-99.

[75] Thurow, supra note 36.

[76] In that sense, the last few paragraphs of segment III a addressing the exhaustion of rights, as well as a couple of footnotes throughout the article, tackled issues that were set outside the scope of this paper.

[77] For instance, to address the issue of patent thickets (an issue classically addressed by patent pools), some have called for a scheme where, for the case of technologies in which patents have proliferated (and thus created the thicket), preliminary injunctions are not used to prevent infringements (only to preserve evidence). This will create a system in which infringements are compensated after the fact, but the use of the technology is not hindered. For example, a proposal by Ecuador was presented in 2013 to the Council for the TRIPS, seeking technological transfer of “eco-technologies” by establishing exceptions and limits to the protection of such inventions. Although well intentioned, the proposed solution is incorrect. Less retribution for this kind of technology means less investment in research and development (and unequal share of the mistake among countries, in the case assumption of exclusivity does not spur innovation). More green or eco-technologies could only be further encouraged if the retribution is bigger. If proportionality came to be introduced, a different retribution (longer term of protection) could even be analyzed and established for this kind of technology. Many other issues have been addressed by the literature, such as efforts at evergreening, me-too drugs and patent races (see supra note 42), and lack of recognition of ancestral knowledge of indigenous peoples (the Brazilian position on the issue, which implies a requirement of disclosure in the patent application, is probably the way to address it), among others.

[78] This could bring a dramatic reduction on filing cost and fees (even litigations cost if the international authority could ventilate some patent disputes in a administrative sphere). The benefits would be enormous. Small innovators could in a better way access a global protection. Where could the dream take us? The World Health Organization doing the work that the Food and Drug Administration does in the United States, in regard to drug commercialization approvals, for the whole world? It is advisable to stop not to get carried away by an overdose of enthusiasm.

[79] “But there is another possibility, one which in my view better accords with what we know about the importance of patents to pharmaceutical research, and with the extraordinary value to consumers of medicines that successfully treat serious conditions. Developing nations have long had little intellectual property protection for pharmaceuticals, and we have concurrently witnessed an apparent dearth of research into the diseases of particular importance to them such as malaria and drug-resistant tuberculosis. The lack of patent protection may have resulted at least in part from an acute collective action problem—developing nations reap the full benefits from lower prices when they do not create pharmaceutical patents, yet the costs in terms of diminished research incentives are largely externalized to the rest of the developing world.” Sykes, supra note 43, at 3.

[80] The Patent Cooperation Treaty (PCT) of 1970, which was amended in 2001, and the Patent Law Treaty (PLT) of 2000 are examples of significant progress on harmonizing the procedures for the filing and granting of patents, but these are far from establishing a global registration procedure and do not further determine the definition of novelty, inventive step, and utility/applicability. Also, these agreements do not have the universal acceptance that the TRIPS Agreement has. Future efforts should aim to build a stronger international system for granting patents, which, unlike the PCT and PLT, is universal and definitely linked to the TRIPS Agreement. (This is not the case of the aforementioned international instruments.) “On June 2, 2000, the Patent Law Treaty (PLT) was signed by 43 countries, with the support of the United States and the European Patent Office. The PLT does not contain substantive provisions. It rather harmonizes procedural requirements and steps: what may be required to obtain a filing date (Article 5), what may be required relating to the form and content of an application (Article 6), representation before a patent office (Article 7), various issues regarding communications (Article 8), what constitutes sufficient notification (Article 9), validity of patents if not in compliance with certain formal requirements (Article 10), relief in respect of time limits (Article 11), reinstatement of rights (Article 12), correction or addition of priority rights (Article 13). The PLT provisions should help to reduce the risk of errors by patent offices, and the time and costs of procedures for patent applicants, thereby facilitating the acquisition of patent rights internationally. The PLT also provides a clear linkage to the PCT for current and any future patent law harmonization (Article 16).” Carlos M. Correa, An Agenda for Patent Amendment and Harmonization for Developing Countries (Sept. 24, 2005) (unpublished, prepared for the Int’l Ctr. for Trade & Sustainable Development’s Bellagio Dialogue), available at http://www.wipo.int/meetings/en/2006/scp_of_ge_06/presentations/scp_of_ge_06_correa.pdf.

[81] This could be illustrated by a hypothetical case. Imagine a new kind of technology at the moment unknown for human kind discovered in one of the traditionally inventive countries (where typically innovation take place), which opens the door for exponential technical development that will enormously benefit humanity. Suppose that this new kind of technology has certain characteristic that does not unambiguously determine its patentability under the TRIPS’ rules (almost always the developing countries bring up issues regarding the patentability of new kinds of technologies). Without proportionality, developing countries prefer to declare that this kind of technology is not patentable (they see that the benefits are not worth what they pay for it), and benefit from the innovation anyways, since the developed world is rewarding it (typically the developed do not apply exceptions and limitations). If proportionality is present in the international scheme as this paper argues, the interest of rewarding innovation in this new field (which arguably will entail benefits for the human kind), would not be constrained, as it is now, by economic considerations. The inverse will happen if the patentability of a technology field is not bringing much benefit to humanity. It would not be as easy for the developed world to urge for its protection, since the period of protection in their circumscription will be longer. With proportionality reward, all countries know that exclusivity over this technology will “hurt” all countries equally, in relation to their wealth. If the “burden” is shared, it is more likely it will be agreed upon. The TRIPS Agreement pertaining all the fields of intellectual property (not only patents) regulates “rights enumerated explicitly, which gives it a certain rigidity, that has been criticized by some who would have preferred it to cover not only all rights included under the term intellectual property, but to those not specifically mentioned.” Donoso, Global Solution, supra note 1, at 74 n.56 (citing Baldo Kresalja, El Sistema de Patentes Después del ADPIC: Comentarios y Reflexiones Sobre Su Futura Eficacia, 4 Temas de Derecho Industrial y De La Competencia 180, Propiedad Intelectual en Iberoamérica, Buenos Aires: Ediciones Ciudad Argentina (2001); Emery Simon, GATT & NAFTA Provisions on Intellectual Property, 4 Fordham Intell. Prop., Media & Ent. L.J., 267, 276-77 (1993)). Regarding patents, for instance, proportionality could be paired with such a provision, so to strengthen the principle by which patents should be granted in any field of technology (article 27.1 of the TRIPS Agreement), and to limit exceptions and limitations. An alternative that will be coherent with the proportionality proposal is to keep the system as it is in regard to exceptions and limitations, but to weigh them embedding in the proportionality formula an indicator for the exclusions and exceptions to the patentability. This, as explained in the introduction, will be a further step towards the implementation of the proportionality proposal, which is not engaged in this paper.

[82] A distinction is made by some countries between discoveries and innovations, prohibiting the patentability of the latter.