UNDP on IPR & innovation

"The relentless march of intellectual property rights needs to be stopped and questioned." -- UNDP, Human Development Report 1999

[Excerpt from Chapter 2]

PRIVATIZATION OF RESEARCH

The knowledge sector is a fast-growing area of the global economy: between 1980 and 1994 the share of high-technology products in international trade doubled, from 12% to 24%. Yet in the 1990s, with many governments facing a squeeze on budgets, the proportion of public funding for research and development in science and technology has fallen around the world, to be replaced by private industry. Research and development has also shifted away from developing countries. Their share in the global total dropped from 6% in the mid-1980s to 4% in the mid-1990s.

The trend has been particularly strong in agriculture and biotechnology. In the early 1980s most crop and seed development in the United States was under public research. Patents were rarely sought and rarely enforced; saving and trading of seed was commonplace. This changed when new legislation encouraged closer cooperation with the private sector, enabling companies to profit from products developed largely with public funds. The intellectual property of public and university research was increasingly passed over to private industry: the portion of public sector patents in biotechnology sold under exclusive licence to the private sector rose from just 6% in 1981 to more than 40% by 1990.

With increasing privatization of research and rising costs for risky innovations, the 1990s have seen a boom in the number and value of mergers and acquisitions. The biggest year ever was 1998, especially for biotechnology, telecommunications and computing industries. As a result economic power has consolidated among a very few players. By 1995 the world?s top 20 information and communications corporations had combined revenue of more than $1 trillion -- equivalent to the GDP of the United Kingdom.

In biotechnology genetic engineering underlies the new direction of pharmaceuticals, food, chemicals, cosmetics, energy and seeds. This is blurring the boundaries between the sectors, creating mega ?life sciences? corporations. Indeed, across all knowledge-intensive industries, a select group of corporations controls ever-growing shares of the global market. In 1998, how much of the global market did the top 10 corporations in each industry control? In commercial seed, 32% of a $23 billion industry; in pharmaceuticals, 35% of $297 billion; in veterinary medicine, 60% of $17 billion; in computers, almost 70% of $334 billion; in pesticides, 85% of $31 billion; and in telecommunications, more than 86% of $262 billion. The lesson is clear: privatization does not automatically lead to competition.

TIGHTER INTELLECTUAL PROPERTY RIGHTS

At the creation of the World Trade Organization in 1994, the most far-reaching multilateral agreement on intellectual property was drawn up: Trade-Related Aspects of Intellectual Property Rights, or TRIPS.

The past two decades have seen a huge rise in patent claims. The World Intellectual Property Organization?s Patent Cooperation Treaty accepts a single international application valid in many countries. The number of applications made annually soared from less than 3,000 in 1979 to more than 54,000 in 1997 -- and those applications in 1997 were equivalent to nearly 3.5 million individual national applications. According to the director of research and development at one of the largest biotechnology corporations, ?the most important publications for our researchers are not chemistry journals but patent office journals around the world.?

Yet the claims to intellectual property are concentrated among very few countries.

Industrial countries hold 97% of all patents worldwide. In 1995 more than half of global royalties and licensing fees were paid to the United States, mostly from Japan, the United Kingdom, France, Germany and the Netherlands. Indeed, in 1993 just 10 countries accounted for 84% of global research and development, controlled 95% of the US patents of the past two decades and captured more than 90% of cross-border royalties and licensing fees -- and 70% of global royalty and licensing fee payments were between parent and affiliate in multinational corporations. By contrast, the use of intellectual property rights is alien to many developing countries. More than 80% of the patents that have been granted in developing countries belong to residents of industrial countries.

IMPACTS ON PEOPLE

These new rules of globalization -- privatization, liberalization and tighter intellectual property rights -- are shaping the path of technology, creating new risks of marginalization and vulnerability:

* In defining research agendas, money talks louder than need -- cosmetic drugs and slow-ripening tomatoes come higher on the list than a vaccine against malaria or drought-resistant crops for marginal lands. Tighter control of innovation in the hands of multinational corporations ignores the needs of millions. From new drugs to better seeds for food crops, the best of the new technologies are designed and priced for those who can pay. For poor people, the technological progress remains far out of reach.

* Tighter intellectual property rights raise the price of technology transfer, and risk blocking developing countries out of the dynamic knowledge sector in areas such as computer software and generic drugs.

* New patent laws pay scant attention to the knowledge of indigenous people, leaving it vulnerable to claim by others. These laws ignore cultural diversity in creating and sharing innovations -- and diversity in views on what can and should be owned, from plant varieties to human life. The result is a silent theft of centuries of knowledge from developing to developed countries.

* Despite the risks of genetic engineering, the rush and push of commercial interests are putting profits before people.

PRIVATE RESEARCH AGENDAS -- MONEY TALKS LOUDER THAN NEED

Genetic engineering is largely the product of private commercial research in industrial countries. The top five biotechnology firms, based in the United States and Europe, control more than 95% of gene transfer patents. It can take 10 years and $300 million to create a new commercial product -- so, not surprisingly, companies want to protect their innovations and ensure that they reap profits. But this approach focuses research on high-income markets. In 1998, of the 27 million hectares of land under transgenic -- genetically altered -- crops, more than 95% was in North America and Europe. Research has focused on the wants of rich farmers and consumers: tomatoes with longer shelf lives or herbicide-resistant soya beans and yellow maize to be used mainly for poultry feed. Seed varieties are engineered to be suitable for mechanized mass production with labour-saving techniques, designed for industrial and intensive farming conditions.

Far less time and money have been given to the needs of farmers in developing countries: increasing nutritional value, disease resistance and robustness. Similarly, research is lacking on water-saving plant varieties for smallholders. Instead, many major corporations are seeking patents for the innovation of linking genetic characteristics to chemical triggers. What for? One likely use is to create seeds that will germinate and bear fruit only when used with the company?s brand of fertilizers or herbicides -- increasing sales through dependency on inputs. With agrochemical, plant breeding and seed distribution companies merging into mega-corporations, farming communities risk becoming caught in a chain of biological and licensing controls.

Local plant breeding is essential for adapting seeds to the ecosystem and maintaining biodiversity. The 1.4 billion rural people relying on farm-saved seed could see their interests marginalized. With increasing control and homogenization of the market by major agri-businesses, the competitiveness of alternative varieties and the scope for producing alternative crops will most likely decline, depleting local genetic diversity.

In the pharmaceutical industry private interests cannot be expected to meet all public needs. Almost all research on diseases in developing countries has been done by international organizations or the military in industrial countries. Of the annual health-related research and development worldwide, only 0.2% goes for pneumonia, diarrhoeal diseases and tuberculosis -- yet these account for 18% of the global disease burden. In the United States between 1981 and 1991, less than 5% of drugs introduced by the top 25 companies were therapeutic advances. Some 70% of drugs with therapeutic gain were produced with government involvement. Vaccines are the most cost-effective technologies known in health care, preventing illness in a one-time dose. But they generate smaller profits and have higher potential liabilities than treatments used repeatedly. As a result a consortium of US pharmaceutical companies has united to develop antiviral agents against HIV, but not to produce a vaccine against AIDS.

TIGHTER INTELLECTUAL PROPERTY RIGHTS ARE BLOCKING DEVELOPING COUNTRIES FROM THE KNOWLEDGE SECTOR

The costs of industrial catch-up for Japan and the first-tier newly industrializing economies in East Asia were greatly reduced by the weak enforcement of intellectual property rights in the region before the mid-1980s. Tighter control under the TRIPS agreement has closed off old opportunities and increased the costs of access to new technologies.

In the pharmaceutical industry, prior to the TRIPS agreement, countries such as China, Egypt and India allowed patents on pharmaceutical processes but not final products. This approach supported the development of domestic industries using different methods to produce mainly generic drugs, similar to but far cheaper than the original brand names. The difference is highlighted by contrasting drug prices in Pakistan, where there are patents, to India, where there are none.

When Glaxo Wellcome launched AZT as an inhibitor of AIDS, it cost $10,000 per patient each year. As sales increased, the price fell to $3,000 -- still far out of reach for most people in developing countries. An Indian company then produced a generic -- Zidovir 100 -- and exported it to Belgium, Tanzania and Uganda at less than half the price. The TRIPS agreement requires 20-year patents on both processes and products, so India and others must change national patent laws, making such opportunities impossible in the future. As gene therapy comes to dominate the pharmaceutical industry, this will significantly limit the industry?s potential in developing countries.

Countries can choose to require patent holders to give licences to competitors -- but the process is long and the fees may be prohibitive. Imposing price controls on industry, calculated as a mark-up on costs, is another option, but multinationals often avoid low prices by using loopholes in transfer pricing -- artificially inflating the cost of inputs transferred from country to country within the multinational?s domain. In India multinational companies have sometimes charged 2, 4 or even 10 times the prices they would charge for inputs in Europe and the United States in order to avoid controlled low prices. They have little interest in pricing drugs for the market in developing countries because they are maximizing global, not national, profits and do not want to set a low-price precedent.

In the computer industry, software is one of the fastest-growing areas and can be a way for new countries to get into producing for the knowledge sector. In 1994 the global market for final, packaged software was $79 billion, of which OECD countries accounted for 94%. With a small but growing number of developing countries entering the competition, it is not surprising that the battle over intellectual property rights for software is a fierce one. Protection is certainly needed: programmes are expensive to develop, while pirating them is cheap and easy. Even before Microsoft launched Windows 95 at $100, it was on sale on the streets of Beijing for $9. Many firms have lost billions of dollars of trade in this way. At the same time excessively tight intellectual property rights would eliminate competition and innovation in this industry underlying global communications. A careful balance needs to be struck.

The TRIPS agreement followed the United States in placing software, like music and novels, under copyright law, with strong and universal protection. The United States has started to grant patents on software in addition to copyright, creating stronger control over programme interfaces and tightening control over the industry. But there is leeway. The TRIPS agreement does not prohibit making copies for reverse engineering -- a process of unravelling computer programmes to see how they work, generating ideas and innovation. With programmes such as Word and Excel becoming computing standards, reverse engineering is essential for smaller producers to create software that is compatible and competitive, and it must be protected in future reviews of the agreement. If it were forbidden, the development of competitive products would be drastically limited. And different computers around the world would not be able to interact with one another -- defeating the aim of connecting the network society.

PATENT LAWS DO NOT RECOGNIZE TRADITIONAL KNOWLEDGE AND SYSTEMS OF OWNERSHIP

Biodiversity is of great importance to drug development, and developing countries are the source of an estimated 90% of the world?s store of biological resources. More than half of the world?s most frequently prescribed drugs are derived from plants or synthetic copies of plant chemicals -- and this trend is growing. Plant-based drugs are part of standard medical treatment for heart conditions, childhood leukaemia, lymphatic cancer and glaucoma, with a global value over the counter of more than $40 billion a year. In the same way that many Arab states benefited from industrialization?s thirst for the petroleum that lay beneath their land, so now biorich countries could have the chance to benefit from biotechnology?s demand for the rare germplasm found on their land. Many indigenous communities have a further claim to biotechnology?s bounty because they have been the cultivators, researchers and protectors of their plants -- indeed, it is their long-acquired knowledge of nature?s potential that is valuable to pharmaceutical companies today. Bioprospectors have for many years taken samples of plant material and documented their traditional medicinal uses. Without the consent of local people, this knowledge has been used to develop highly profitable drugs. In any other situation this would be called industrial espionage -- theft of both the genetic materials and the long-acquired knowledge of using them to develop medicines. The rosy periwinkle found in Madagascar, for example, contains anti-cancer properties, and drugs developed from it give $100 million in annual sales to a US-based multinational pharmaceutical company, Eli Lilly -- but virtually nothing for Madagascar.

Plant material was once treated as common property, but a landmark US legal case in 1980 awarded a patent on a genetically altered organism, launching the first step in the race to patent life. Yet patent laws were drawn up in 19th-century Europe during the industrial revolution; their legal frameworks have been extended to cover global markets during the information revolution. Three fundamental concerns:

* The inventions born of genetic engineering bring radically new characteristics. Can a framework of property rights first designed to protect industrial machinery really cope fairly and effectively with the complexities of genetically manipulated organisms?

* Scientific research now takes place under a regime based on ownership and control. It rewards research according to short-term profitability, not according to the needs to protect biodiversity, ensure sustainable and ethical use of genetic resources or meet the essential needs of people.

* The attempt to create a global market in property rights imposes one conception of ownership and innovation on a culturally diverse reality, benefiting private industrial research but not public institutes or farming communities.

In 1995 two researchers at the University of Mississippi Medical Center were granted the US patent for using turmeric to heal wounds. But in India this was a long-standing art, common knowledge and practice for thousands of years. To get the patent repealed, the claim had to be backed by written evidence -- an ancient Sanskrit text was eventually presented as proof and the patent removed -- but this only highlighted the absurd imposition of one culture?s systems on another culture?s traditions.

As a result of these problems, there has been increasing recognition of the need to protect the knowledge of indigenous people. The Convention on Biological Diversity of 1992 recognizes the need to protect property rights but also the need for companies to gain prior informed consent before conducting research -- but this convention is not legally binding until countries translate it into national law, and indigenous communities have often received little attention or protection under national law.

In the absence of legislation, more and more strategic alliances are being struck between pharmaceutical firms and governments or indigenous groups in resource-rich countries. Merck Pharmaceuticals has an agreement with the non-profit National Institute of Biodiversity, INBio, in Costa Rica to pay $1.1 million for access to 10,000 plant and insect samples. If any leads to a successful drug, Costa Rica would receive a 23% royalty share, yielding a possible $20-30 million each year.

>From Australia and Ecuador to Thailand and Uganda, bioprospectors have made agreements with local communities, taking out patents based on local knowledge in exchange for a share of profits. Royalties promised are commonly 12%, though sometimes as low as 0.1% and as high as 34%. Even if just a 2% royalty were charged on genetic resources that had been developed by local innovators in the South, it is estimated that the North would owe more than $300 million in unpaid royalties for farmers? crop seeds and more than $5 billion in unpaid royalties for medicinal plants. But this rate is low because negotiations are on an uneven footing. When one company wanted to bioprospect in Yellowstone National Park, the United States Park Service secured a 10% royalty share. Negotiating power is everything.

THE RUSH AND PUSH OF COMMERCIAL INTERESTS PROTECT PROFITS, NOT PEOPLE -- DESPITE THE RISKS IN THE NEW TECHNOLOGIES

Genetically modified foods come from plants to which extra genes have been introduced to add qualities such as resistance to pests or frost. The genes are taken from other plants, animals or micro-organisms and are often introduced by attaching them to a virus. There are several risks in this process. Genes introduced to make plants tolerant to herbicides and insecticides could escape in pollen and create highly resilient weeds that displace other wild plants and change the balance of the ecosystem. Similarly, over time powerful new strains of insects and weeds resistant to herbicides and insecticides could develop. New toxins could have damaging effects in the food chain, and viruses could escape from virus-containing crops. The impacts could be particularly serious in developing countries where biodiversity is high and essential for sustainable agriculture. Yet it can take 10-15 years before environmental damage becomes evident. Despite the promised commercial gains, many developing countries are extremely concerned about the potential impact.

The growing use of transgenic crops raises important issues -- about the safety of transferring organisms into new environments, questions of liability for damage that are not covered under international law and the need for far more transparency in information. Responses to these issues have varied dramatically.

The United States, exporting $50 billion of agricultural products a year and planting transgenic varieties for 25-45% of its major crops, claims that strict safety rules will impede billions of dollars of global exports annually in seed, grains and even products like breakfast cereals and cotton clothing. But consumer movements and farmers have often reacted strongly to transgenic crops, pulling them out of fields and rejecting them in shops. Ten years ago the risk of humans being infected by bovine spongiform encephalopathy (BSE, or mad cow disease) was said to be negligible -- but it happened. Once bitten, twice shy, European consumers especially are now questioning altered foods. Science is moving so fast and so little information has been shared, it is not surprising that people fear that technology is out of control.

With new technologies, profits should not come first -- but nor should panic. Precaution is needed, and this was the motivation for the Biosafety Protocol under the Convention on Biological Diversity. The protocol would require exports of genetically manipulated organisms to be approved in advance by the importing country. The negotiations collapsed in February 1999 after the main exporting countries -- the United States, Canada, Australia, Argentina, Uruguay and Chile -- fell into open disagreement with the European Union and many developing countries. Biosafety is still critical -- all the more so as transgenic crops become more widespread.

THE NEED TO RESHAPE TECHNOLOGY?S PATH

Policies are urgently needed to turn the advances in the new technologies into advances for all of humankind -- and to prevent the rules of globalization from blocking poor people and poor countries out of the knowledge economy.

THE NEED TO BROADEN GOVERNANCE

Intellectual property rights were first raised in GATT in 1986 to crack down on counterfeit goods. Their reach has gone far beyond that into the ownership of life itself. As trade and intellectual property law increasingly come to determine the path of nations -- and the path of technology -- questioning present arrangements is not just about economic flows. It is about preserving biodiversity, carefully considering the ethics of patents on life, ensuring access to health care, respecting other cultures? forms of ownership and preventing a widening of the technological gap between the knowledge-driven global economy and the rest trapped in its shadows.

At a time of such dramatic breakthroughs in new technologies, it is indefensible that human poverty should persist as it does. What is more startling is that the current path could be leading to greater marginalization and vulnerability of poor people. The relentless march of intellectual property rights needs to be stopped and questioned. Developments in the new technologies are running far ahead of the ethical, legal, regulatory and policy frameworks needed to govern their use. More understanding is needed -- in every country -- of the economic and social consequences of the TRIPS agreement. Many people have started to question the relationship between knowledge ownership and innovation. Alternative approaches to innovation, based on sharing, open access and communal innovation, are flourishing, disproving the claim that innovation necessarily requires patents.

Broader governance is also needed in the communications industry. Governance of the Internet has until recently been ad hoc and largely biased towards the needs of high-tech countries. Debates over taxing electronic commerce, allocating domain names and creating privacy laws need to be opened up to include the needs and concerns of developing countries, which have an equal interest in the evolution of this tremendous tool.

Participation in the governance of technology must also be widened. Race car drivers would not be the best advisers on public transport, and scientists at the cutting edge of the technological revolution cannot alone decide its path. This calls for collaboration -- in national and global forums -- between industry, independent scientists and technicians, governments, regulators, civil society organizations and the mass media.

PUBLIC INVESTMENT IN TECHNOLOGIES FOR DEVELOPMENT

The path of technology must be reshaped if developing countries are to see an advance in sustainable agriculture, wide access to global communications and improvements in the health of their populations. The new structure of science requires new initiatives. New technologies promise many advances for human development, but public institutions cannot afford them alone and private industry will not develop them alone. Jointly they can. Innovative policy is needed to ensure that much-needed solutions for human development are pursued. Incentives are needed to turn research towards the pressing needs of the world, not just of those who pay. One proposal is for the Consultative Group on International Agricultural Research (CGIAR) to reroute genetic research to wider needs.

A representative group of independent scientists is needed to identify the critically important technological challenges -- those that, if solved, would substantially improve the human development of the world?s poorest people and address the global challenges to human security faced by all. Every five years the group could offer financial incentives and public recognition to researchers, public and private alike, for innovations that would be used for global public interests. What would be high on the list? In agriculture, sustainable, robust and biosafe crops. In medical research, vaccines for malaria and HIV. In communications technology, personal computers powered by solar strips and wind-up or dynamo drives, resistant to sand and humidity; software for touch screens; and prepaid chip card software for electronic commerce without credit cards. In environmental science, diverse sources of renewable energy. What would fund such initiatives? A levy on patents registered under the World Intellectual Property Organization is one possibility. A levy of just $100 on each patent would have raised $350 million in 1998 alone, equivalent to the annual budget of the world?s largest international research organization in agriculture, the CGIAR. Alternatively, funding could be reallocated from the research subsidies, grants and tax breaks now given to industry.

PUSHING FOR CHANGE IN MULTILATERAL AGREEMENTS

The WTO is planning a review of the TRIPS agreement. But these discussions must not simply push into new issues. Intellectual property rights agreements were signed before most governments and people understood the social and economic implications of patents on life. They were also negotiated with far too little participation from many developing countries now feeling the impact of their conditions. There is a clear need for a full and broad review of existing legislation, not an additional, unsustainable burden of new conditions.

The choice is not between patents on everything or on nothing. Rather, the question is, how much should be patentable? How can the system be structured to take into account diverse interests and diverse needs?

The review needs to ensure that the room for manoeuvre granted in the TRIPS agreement is respected in practice. Interpretation of the agreement is obviously not a unilateral matter, and proposals by developing countries have often been rejected by G-7 countries keen to maintain their industrial interests. In the event of disagreement, dispute resolution mechanisms involve intense negotiating among lawyers -- expensive and complex. The advantage in costs and expertise clearly does not lie with developing countries.

To strengthen their bargaining positions in pushing for change, countries need to present frameworks that provide alternatives to the provisions of the TRIPS agreement. Work is already well under way. Many countries are exploring possible sui generis legislation for plant varieties to protect farmers? rights. The difficulty is the need for legislation to meet many diverse interests within each country. One strong and coordinated international proposal is the Convention of Farmers and Breeders (CoFaB). It offers developing countries an alternative to following European legislation by focusing legislation on needs to protect farmers? rights to save and reuse seed and to fulfil the food and nutritional security goals of their people.

For indigenous people?s interests, too, open debate is needed across countries to bring together the most up-to-date thinking for use by negotiators and policy-makers. The framework needs to consider collective rights to knowledge and resources, the need for prior informed consent for use of materials and knowledge -- not just the consent of the government but also of the indigenous groups concerned -- and the need for transparency in the findings of research. Some initiatives have already been taken. Indigenous people?s organizations around the world such as the Indigenous Peoples Biodiversity Network are seeking guidelines for legal recognition of their intellectual property. Thailand, the Philippines and Australian aboriginal groups have all taken steps to protect indigenous knowledge.

Developing countries facing similar challenges can benefit from consultation and cooperation to create model laws, collaborate in training public officials and devise strategies to help industries adversely affected by the new regime. Spreading awareness of the issues at stake is important in building coalitions among national interest groups, regional organizations and international civil society campaigns. Presenting counter-proposals as a united negotiating bloc would greatly strengthen the possibility for change. In March 1999 the International South Group Network drew together representatives from 17 southern and East African countries to discuss a joint position on the upcoming World Trade Organization round and the review of the TRIPS agreement, greatly strengthening the clarity and force of the message to be delivered from countries in the region.

The TRIPS agreement was drawn up with remarkably little analysis of its expected economic impacts. The costs of implementation -- revising laws, training officers, testing and enforcing patents -- are high, yet the benefits are unclear. If the agreement is to be reviewed, then let it be a review in everyone?s interests. A transparent cost