TITLE: Negotiating Intellectual Property Rights: Between Coercion and Dialogue AUTHOR: Dr Peter Drahos PUBLICATION: Unpublished draft circulated on BIO-IPR with the permission of the author. DATE: April 2001
NOTE: Numerous observers have analysed and categorised international IPR negotatiations as a process of coercion. Drahos illustrates this anew in the context of the WTO TRIPS Agreement, but also with respect to bilateral "TRIPS-plus" treaties. He argues that civil society should get more involved in national standard-setting on IPR to help correct the imbalances that multilateral and bilateral coercion reinforce.
NEGOTIATING INTELLECTUAL PROPERTY RIGHTS: BETWEEN COERCION AND DIALOGUE
Peter Drahos, Queen Mary Intellectual Property Institute, London
Paper presented at the Oxfam-International seminar on "Intellectual Property and Development: What Future for the WTO TRIPs Agreement?", Brussels, 20 March 2001.
DRAFT ONLY: comments to author at p.f.drahos(at)qmw.ac.uk
Why did England in the 17th century begin a journey that would lead it to economic growth and empire while Spain began one that would lead to its economic contraction? One suggestion is that the long run performance of economies has much to do with efficiently defined property rights (North, 1990). Designed in the right way property rights will reduce negative externalities, allow for bargaining and avoid tragedies of the commons. Naturally, this gives rise to the question of how a society arrives at a set of efficient property rights. The economist Douglass North (1990) suggests that it probably has something to do with democratic institutions.
The claim that democracy and efficiency are linked is a claim worth taking seriously. The next section of this paper suggests that the link between the two has much to do with bargaining under conditions of non-domination. The paper then proceeds to examine the conditions under which international intellectual property regimes have emerged, including the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). Intellectual property regimes are an example of regulatory globalisation. If the connection between efficiency and democracy holds at the national level it may also hold at the international level. The global welfare effects of these regimes may be dependent upon democratic processes of international bargaining. In sections 2 and 3 the paper shows that, to date, international standard-setting in intellectual property has proceeded under conditions that do not correspond to the ideal of bargaining amongst equally well informed and resourced international actors. The final section of the paper draws a distinction between webs of coercion and webs of dialogue. It argues that dialogic webs offer the best way forward for international standard-setting in intellectual property.
1. DEMOCRACY, EFFICIENCY AND PROPERTY RIGHTS
Efficiency in the case of intellectual property rights is generally thought to involve a balance between rules of appropriation and rules of diffusion (Easterbrook,1981). Overly strong intellectual property protection leads to the problem of excessive monopoly costs of intellectual property rights while weak protection leads to the problem of excessive free-riding and therefore under-investment in innovation. The difficult trick for any legislature is to find a balance between the rules of appropriation and the rules of diffusion in the case of intellectual property rights.
Are there reasons to think that in democracies this balance is likely to be struck in ways that produce efficiency? Economic theory suggests that bargaining amongst self-interested and rational actors can produce efficient outcomes by allowing resources to go to those actors who value them most (Cooter and Ulen, 1997: ch. 4). The link between bargaining and democracy probably lies in the fact that democracies are better at supplying those networks of institutions that allow for all kinds of bargaining amongst citizens to take place. These institution include contract, property, and the rule of law. Even more important though is the fact that a rights-based democratic culture allows for the formation of interest groups which bargain over resources that matter to them. This is one explanation for why democracies have proven to be better than communist societies at moving towards environmental regimes that to some extent reflect the true costs of using environmental resources. One can imagine an interest group model of democracy in which bargaining takes place amongst equally well-resourced and informed groups. In a democracy where producer and consumer interests in the production of information were equally well represented and where those interests had roughly equal powers of influence one might expect an efficient set of intellectual property rules to develop. Consumers would concede that some level of intellectual property was necessary in order to secure dynamic efficiency, but would not agree to rules that unduly restricted the diffusion of information or competition in markets.
There are also reasons why democracies might fail to arrive at efficient definitions of intellectual property rights. For example, Mancur Olson's (1965) theory that diffuse public interests will go unrepresented because the costs to individuals of organising large groups will be outweighed by the small gains to each individual might lead to the prediction that small numbers of intellectual property producers are more likely to organise than large numbers of consumers of intellectual property. And then even if producer and consumer interest groups are equally well represented inequalities of power might destroy the efficient balance of intellectual property rules that bargaining might otherwise deliver. Both health care consumers and pharmaceutical companies lobby in Congress, but it is only the Pharmaceutical Research and Manufacturers Association that has 297 lobbyists working for it -- one for every two Congressional representatives.[1]
The same tensions that exist between producers and consumers of intellectual property at the national level also exist at the international level amongst the community of states (Subramanian, 1991). Most states are in the position of being net importers of intellectual property rights. Certainly all developing countries are in this category. For countries which are importers of intellectual property the temptation is not to recognise the intellectual property rights of foreigners, thereby allowing for the possibility that their nationals will be able to free-ride on the research and development activities of foreigners. For exporters of intellectual property rights the aim is to extend the length and breadth of intellectual property rights in order to gain the maximum return from the trade in intellectual property rights and the goods and services to which they relate.
At least some of the tensions between intellectual property exporters and importers may be resolved through a process of negotiation. A state which had industries that engaged in free-riding on the R&D of another state's industries might agree not to export copied products to the former state's markets in exchange for that state doing nothing about the free-riding. In order for co-operative solutions to emerge amongst states, conditions of democratic bargaining have to obtain. This allows genuine bargaining to take place. Domination by either producer or consumer states is less likely to produce international standards of intellectual property that promote efficiency gains.
In order for democratic bargaining to take place amongst sovereign states at least three conditions need to obtain. First, all relevant interests have to be represented in the negotiating process (the condition of representation). (This condition, however, does not entail the participation of all at all stages or equality of outcome for all interests.) Secondly, all those involved in the negotiation must have full information about the consequences of various possible outcomes (the condition of full information). Thirdly, one party must not coerce the others (the condition of non-domination). The use of coercion to overcome the will of another is the very antithesis of negotiation. If robbed by a gunman, most of us would not say that we had been the victims of a negotiation, but rather the victims of a robbery. In the two sections that follow we ask to what extent international intellectual property standard-setting has met the three conditions that characterise democratic bargaining.
2. EMPIRES AND COERCION: INTELLECTUAL PROPERTY'S PAST
The international movement of intellectual property rights has been from developed to developing countries. It has largely been a spread from key western states with strong intellectual property exporting lobbies to developing countries. There are some exceptions to this. Prior to the beginning of liberalisation in Vietnam in 1986 its intellectual property laws were modelled on those of the former Soviet Union.
In most cases the transplant of intellectual property laws to developing countries has been the outcome of processes of empire-building and colonisation. For example, in parts of pre-independent Malaysia it was English copyright law that applied. When in 1911 the United Kingdom enacted the Copyright Act of 1911 its operation was extended to include 'his Majesty's dominions'. In the case of pre-independent Malaysia the 1911 Act was restricted to the Straits Settlement. Later when British collecting societies began to worry about copying, representations were made to the Colonial Office and to the Board of Trade to have the Federated Malay States, North Borneo and Sarawak enact copyright law based on the 1911 Act (Khaw Lake Tee, 1994: 2-5). These states in the 1930s passed copyright laws based on the 1911 Act. Copyright policy was firmly in the grip of London, especially London publishers.
Patent law in the Philippines also reveals the forces of empire at work. While the Philippines remained a Spanish colony, it was Spanish patent law that applied. After December 1898 when the US took over the running of the Philippines, patent applications from the Philippines went to the US Patent and Trademark Office and were assessed under US law (Astudillo, 1999). Until 1947 when the Philippines created an independent patent system it largely followed US patent law, adopting, for example, the first-to-invent rule. In 1997 the Philippine Congress passed the Intellectual Property Code of the Philippines in order to comply with TRIPs.
The case of the Philippines illustrates that for many developing countries TRIPs does not represent a loss of sovereignty, because these countries for most of their history have never exercised a meaningful sovereignty over the setting of intellectual property standards in the first place. The direction of Korean patent law was affected by military conflict. In 1910 the Japanese replaced Korean patent law with their own. In 1946 Korea acquired another patent law as a consequence of US military administration. In the 1980s South Korea was amongst the first to have its intellectual property laws targetted by the US under US trade laws. India had a patent law before many European countries, having acquired one in 1856 while under British colonial rule.
Colonialism had a profound impact on the expansion of copyright. Four major colonial powers ratified the Berne Convention for the Protection of Literary and Artistic Works (Berne Convention) in 1887, the year in which it came into force: France, Germany, Spain and the UK. Under Article 19 of the Berne Act for the Convention these states had the right to accede to the Convention "at any time for their Colonies or foreign possessions". Each of these colonial powers took advantage of Article 19 to include their territories, colonies and protectorates in their accession to the Convention. The UK accession, for example, included "the United Kingdom of Great Britain and Ireland and all the colonies and possessions of Her Britannic Majesty" (Ricketson, 1987: 791). More and more colonies were drawn into the Berne system, especially after another two colonial powers, the Netherlands and Portugal, joined it in 1914.
The Berne system was run to suit the interests of copyright exporters. Each successive revision of the Berne brought with it a higher set of copyright standards. By the time many countries shed their colonial status, they were confronted by a Berne system that was run by an Old World club of former or diminished colonial powers to suit their economic interests. Beneath the dissembling rhetoric about the need to protect authors and the need to provide an incentive to create lay a harsh global economic reality of a cartelised publishing industry, price fixing and world market sharing agreements. Former colonial powers continued to watch over their former colonies. When eleven Sub-Saharan states joined Berne they were "so totally dependent economically and culturally upon France (and Belgium) and so inexperienced in copyright matters that their adherence was, in effect, politically dictated by the 'mother country' during the aftermath of reaching independence" (Lazar, 1971: 14).
After World War II many developing countries that had been colonies became independent states. Some of them began to review the operation of the intellectual property systems that had been left to them by their colonisers. So, for example, after India's independence two expert committees conducted a review of the Indian patent system. They concluded that the Indian patent system had failed "to stimulate inventions among Indians and to encourage the development and exploitation of new inventions" (Vedaraman, 1972: 43). Interestingly, India did not choose to abandon patent law as a tool of regulatory policy, but instead to redesign it to suit hre own national circumstances -- a country with a low R&D base, with a large population of poor people and having some of the highest drug prices in the world. Passed in 1970 India's new patent law followed the German system of allowing the patenting of methods or processes that led to drugs, but not allowing the patenting of the drugs themselves. Patent protection for pharmaceuticals was only granted for seven years as opposed to 14 years for other inventions. This law became the foundation stone for a highly successful Indian generics industry. It also earned India the label of pirate.
India was not the only country that began to reform its patent law. During the 1970s Brazil, Argentina, Mexico and the Andean Pact countries all passed laws that saw patent rights in the pharmaceutical area weakened. Developing country generic manufacturers also became a threat to the western pharmaceutical cartels that had dominated the international pharmaceutical industry. Mexico's entry into the manufacture of steroids in the 1960s, for example, contributed to the end of the European cartel that had dominated production until then (Gereffi, 1983). Developing countries, in adjusting their intellectual property laws to suit their national interests, were only doing what they had observed developed countries doing. So, for example, fearing the might of the German chemical industry the UK changed its patent law in 1919 to prevent the patentability of chemical compounds. A study undertaken by the World Intellectual Property Organisation (WIPO) in 1988 for the negotiating group that was dealing with TRIPs in the Uruguay Trade Round revealed that of the 98 members of the Paris Convention for the Protection of Industrial Property (Paris Convention), 49 excluded pharmaceutical products from protection, 45 excluded animal varieties, 44 excluded methods of treatment, 44 excluded plant varieties, 42 excluded biological processes for producing animal or plant varieties, 35 excluded food products, 32 excluded computer programs and 22 excluded chemical products (WIPO, 1988). These numbers include developed as well as developing countries. They also show the Paris Convention did not stand in the way of states adopting quite different standards of industrial property protection. They also put paid to any claim that TRIPs principles reflect a harmonisation that had already occurred at the national level.
During the 1960s and 1970s developing countries began to ask questions about the international standards of intellectual property that had emerged in previous decades, particularly in relation to the two main conventions, the Paris Convention and the Berne Convention. The theme of these questions was always the same. Were the international standards tilted too far towards the appropriation of knowledge rather than its diffusion? Developing countries sought adjustments to both the international copyright regime and the international patent regime. In both cases they were unsuccessful. Their attempts to adjust copyright rules to meet their needs in mass education precipitated a crisis in international copyright in the 1960s (Johnson, 1970-71). Western publishing cartels led by London publishers were simply not interested in liberalising international copyright standards. Similarly, the attempts to revise the Paris Convention broke down. The Paris Union, once a quiet club devoted to the elevation of the international patent regime, became a battle ground. Developing countries began to push a reform agenda that would enable them gain access to the technology of multinationals on favourable terms. The fiercest debates took place over the revision of compulsory licensing of patented technology (Mills, 1985). For the US, developing country proposals for exclusive compulsory licensing amounted to little more than expropriation of US intellectual property rights. The revision of the Paris Convention that had begun in 1980 was never completed. In the eyes of key industry players like Pfizer, WIPO had failed to secure the higher patent standards that the large pharmaceuticals players wanted. Even more dangerously, countries like India, Brazil, Argentina and Mexico had shown that developing countries could lower standards of patent protection and still have a thriving generics industry. The large industry players that dominated the intellectual property based cartels in chemicals, pharmaceuticals and publishing came to understood the real price of the end of colonialism - the loss of power to frame the rules that would regulate the capacity of others to compete in knowledge-based industries.
The disappointments of the 1970s in intellectual property standard-setting led the US in the 1980s to adopt a strategy of forum-shifting (Braithwaite and Drahos, 2000: ch. 24). In fora such as WIPO, UNCTAD and UNESCO, the US faced the problem that developing country blocs could defeat its proposals on intellectual property or advance their own. The US began to argue the issue of intellectual property protection should become the subject of a multilateral trade negotiation within the General Agreement on Tariffs and Trade (GATT). The GATT was a forum in which the US was the single most influential player. Largely due to the efforts of the US and the US big business community the Ministerial Declaration, which in 1986 launched the Uruguay Trade Round, listed the trade-related aspects of intellectual property rights as a subject for negotiation. When in 1994 Ministers met to sign the Final Act of the Round, TRIPs was there as a multilateral trade agreement binding on all members of the future World Trade Organization (WTO).
3. TRIPS AND DEMOCRATIC BARGAINING
Of the many agreements that the WTO administers, TRIPs has attracted its fair share of criticism. For a variety of reasons, including the links between patents and drug prices and the impact of patents on developing country economies, its section on patents has come in for particular attention. The scope of the agreement, however, is far broader than just patents.
Someone who was interested in defending TRIPs might argue that it was an agreement that was produced as a result of bargaining amongst sovereign and equal states all having the capacity to conclude treaties and which agreed to TRIPs as part of a larger package of trade-offs in which there were gains for all. This line of defence becomes stronger if one can show that some form of democratic bargaining did take place amongst states on TRIPs. Conversely, if TRIPs does not meet the minimal conditions of democratic bargaining this raises questions about its efficiency, as well as its legitimacy.
The first condition of democratic bargaining requires that developing country interests were represented at the TRIPs negotiations. On the face of it this condition seems to be met. Not all developing states participated in the TRIPs negotiations, but key developing country leaders on intellectual property, most notably India and Brazil, did send negotiators. Lying behind representation in democratic bargaining is the idea that the representatives have some continuity of voice in the process. In other words, exclusion must not be practised. Here the track record of the GATT was not very good from a developing country perspective. This was one of the reasons why the US had chosen it as a forum for intellectual property. In the Tokyo Round, the EEC, US, Japan, Switzerland, NZ, Canada, the Nordic Countries and Austria on 13 July 1978 released a 'Framework of Understanding' setting out what they believed to be the principal elements of a deal. Developing countries reacted angrily pointing out that they had been left out of a process that was laying the foundations for a final agreement. The then Director-General of the GATT Oliver Long in his report recognised the problem of exclusion, but defended this behaviour as a practical necessity (GATT, 1979). The deeper problem with this process was that it involved a strategy in which a non-representational inner circle of consensus was expanded to create larger circles until the goals of those in the inner circle had been met.
The TRIPs negotiations saw the use of circles of consensus reach new heights. GATT negotiations had developed a traditional pattern, known as the "Green Room" process:
In the 'Green Room' process, negotiators from all engaged countries face each other across the table (traditionally in the Green Room on the main floor of the WTO Building) and negotiate. Drafts are exchanged and progress is noted as differences are narrowed and brackets are removed in successive drafts (Gorlin, 1999: 4).
This Green Room process had, in the case of TRIPs, been profoundly shaped by the consensus-building exercise that the private sector had undertaken outside of the Green Room. The European Commission was brought around to the US view on the importance of securing a code on intellectual property. The Quad states (US, EC, Japan and Canada) were all enrolled in support of the US business agenda, as were the business communities of the other Quad states. Then there were the meetings of the Friends of Intellectual Property Group in places like Washington where the US circulated draft texts of a possible agreement. After the negotiations on the detail of TRIPs began in 1990 and especially after the breakdown of the Uruguay Round talks in Brussels over agriculture in 1991 further groups were created within the TRIPs negotiations to move the process towards a final deal, most notably the "10+10" Group which consisted of a mix of developed and developing countries. As the TRIPs negotiations descended into higher levels of informality the "10+10" was contracted or expanded to "3+3" or "5+5" or a group of 25 depending on the issue. It was in these informal groupings that much of the real negotiating was done and where the consensus and agreement that mattered was obtained. A list of these groups in roughly in their order of importance would be:
1. US and Europe
2. US, Europe, Japan
3. US, Europe, Japan, Canada (Quad)
4. Quad 'plus' (membership depended on issue, but Switzerland and Australia were regulars in this group)
5. Friends of Intellectual Property (a larger group that included the Quad, Australia, and Switzerland)
6. 10+10 (and the variants thereof such as 5+5, 3+3). The US and the European Community were always part of any such group if the issue was important. Other active members were Japan, Nordics, Canada, Argentina, Australia, Brazil, Hong Kong, India, Malaysia, Switzerland and Thailand.
7. Developing country groups (for example, the Andean Group: Bolivia, Colombia, Peru and Venezuela; Argentina, Brazil, Chile, China, Colombia, Cuba, Egypt, Nigeria, Peru, Tanzania and Uruguay combined to submit a developing countries draft text in 1990).
8. Group 11 (the entire TRIPs negotiating group -- about 40 countries were active in this group)
It was the first three circles of consensus that really mattered in the TRIPs negotiations. Through the use of these circles of consensus the TRIPs process became one of hierarchical rather than democratic management. Those in the inner circle of groups knew what TRIPs had to contain. They worked on those in the outer circle until the agreement of all groups to a text had been obtained. TRIPs was much more the product of the first three groups than it was of the last six.
The use of circles of consensus also makes it difficult to claim that the second condition of democratic bargaining, namely full information, was fulfilled. It can be seen from the list of groups that the US and Europe could move amongst all the key groups. This allowed them to soak up more information than anyone else about the overall negotiations. Whenever they needed higher levels of secrecy they could reform into a smaller negotiating globule. The claim that the TRIPs negotiations were a model of transparency is difficult to defend. In truth it was the transparency of a one-way mirror. This arrangement of groups also allowed the US and the EC the fluidity to build a consensus when and where it was required. For certain issues such as how royalties from collective licensing were to be divided they retreated to the bilaterals. Even though they were not able to always secure an agreement between themselves their disagreement did not derail the TRIPs process itself. Developing country negotiators knew that the bilaterals were going on. Progressively they came to feel that they were wasting their time in the TRIPs negotiations.
It is also worth observing that all states were in ignorance about the likely effects of TRIPs in information markets. That there would be trade gains for the US was beyond doubt, but the real world costs of extending intellectual property rights and their effects on barriers to entry in markets were not at all clear. Multinationals had better information about the strategic use of intellectual property portfolios in various markets around the world than did most governments.
It is the third condition of democratic bargaining, the absence of coercion, on which TRIPs lies most exposed. The US in its Trade and Tariff Act of 1984 had begun adapting section 301 of its 1974 Trade Act to its objectives on intellectual property, as well as linking its negotiating objectives on the protection of high technology to intellectual property trade barriers.[2] (Section 301 is a national trade enforcement tool that allows the US to withdraw the benefits of trade agreements or impose duties on goods from foreign countries). In 1988 there were further significant changes to the US Trade Act of 1974 in the form of what came to be known as the 'Special 301' provisions. These require the USTR to identify foreign countries that deny adequate and effective protection of intellectual property rights or deny fair and equitable market access to US intellectual property holders.[3] Also significant were the changes to the system of Generalized Special Preferences (GSP) that the 1984 Act had wrought. The President in deciding whether a developing country's products were to gain preferential treatment under the GSP system had to give 'great weight' to its protection of foreign intellectual property rights.[4] For many developing countries gaining access to the closed and subsidised agricultural markets of developed countries was the main game. The whole point of the GSP system was to improve this access. At a meeting of the GATT Committee on Trade and Development in November 1985 some developing country representatives had suggested that the US was using its GSP system in a way that was "quite alien to the spirit and purpose of the generalized system of trade preferences in favour of developing countries" (Report of Committee on Trade and Development, 1984-85: 26).
When the US began to push for the inclusion of intellectual property in a new round of multilateral trade negotiations at the beginning of the 1980s, developing countries resisted the proposal. Their line of argument was that the GATT was primarily concerned with trade in goods and not personal rights of property in intangibles. Such rights fell within WIPO's brief. The countries that were the most active in their opposition to the US agenda were India, Brazil, Argentina, Cuba, Egypt, Nicaragua, Nigeria, Peru, Tanzania and Yugoslavia (Bradley, 1987: 81). After the Ministerial Declaration of 1986 these countries continued to argue for a narrow interpretation of the Ministerial mandate on the negotiation of intellectual property. Breaking the resistance of these 'hard liners' was fundamental to achieving the outcome that the US wanted. Special 301 was swung into action in the beginning of 1989. When the USTR announced the targets of Special 301, five of the ten developing countries that were members of the hard line group in the GATT that were opposing the US agenda found themselves listed for bilateral attention. Brazil and India, the two leaders, were placed in the more serious category of Priority Watch List, while Argentina, Egypt and Yugoslavia were put on the Watch List (Abbott, 1989: 708-709). US bilateralism was not confined to these countries. By 1989 USTR fact sheets were reporting other successes: copyright agreements with Indonesia and Taiwan, Saudia Arabia's adoption of a patent law and Colombia including computer software in its copyright law.
TRIPs was less a negotiation and more a "convergence of processes" in the words of a someone who was an US trade negotiator at the time. Opposition to the US GATT agenda was being diluted through the bilaterals. Each bilateral the US concluded with a developing country brought that country that much closer to TRIPs, "so that accepting TRIPs was no big deal" (1994 interview, US trade negotiator).