Relation of patents to trade secrets
International agreements on IPRs
Americans pride themselves on their ingenuity; it is an integral part of the mythology of the United States. US statesman Thomas Jefferson remarked, "Ingenuity should receive a liberal encouragement" (quoted in OTA 1991: 201). Jefferson introduced the first patent bill to the US Congress in 1790. It became the Patent Act, upon which US patent and trademark law is built (OTA: 203). His comment sums up a popular notion of intellectual property rights, one that is promulgated to a large extent by industries. Discoverers and inventors are thought to deserve special reward or privilege because of the benefit of their discoveries or inventions to society (Belcher and Hawtin 1991). Benefitting society is not considered a reward in itself, and, true to classical economic theory, certain incentives are needed to encourage invention or innovation.
Intellectual property rights (IPRs) come in five varieties: patents, plant breeders' rights, copyrights, trademarks and trade secrets (Belcher and Hawtin; Lesser 1990a). We will focus on the first two here because they are the most contentious, and in the case of patents, the most powerful and widely applied.
Relation of patents to trade secrets
Trade secrets are the simplest form of intellectual property right. They consist of the option not to divulge information or material that could make one's business vulnerable. They are usually protected by physical measures or restrictive contracts with employees. However, once a trade secret is revealed, no protection is available, unless it can be shown that the information was somehow improperly obtained (Belcher and Hawtin).
Patents permit their holders to forbid the use, sale or manufacture of a product or process for a limited time (generally seventeen to twenty years) in the countries in which the patents are granted. A patent can only be awarded to an object that is novel, useful and not obvious (Belcher and Hawtin; OTA 1991). In theory, patents are more advantageous for both the patent holder (presumably an inventor) and society, since intellectual property protection is considered society's payment for the full disclosure of information about the patented object (Belcher and Hawtin). "Full disclosure" usually means providing enough detail for a "person skilled in the same or the most clearly related area of technology to construct and operate" the patented object (OTA 1991: 203, citing 35 USC 112; see also Crucible Group 1994, Lesser 1990a). Thus, if properly negotiated, they are apparently more beneficial to all parties than trade secrets.
In the US since the 1930s, patents have been extended first to plants and plant parts, and eventually to other living organisms (Fowler 1994; Kimbrell 1993). In practice this has not resulted in the complete public information about products or processes that patents are supposed to entail. Firstly, because of the high costs of biotechnological development and industrial competition, research tends to be surrounded by secrecy, such that a product may be patented and on the market before many have any knowledge of it (Juma 1989; Shiva 1993). Secondly, many recent patents in biotechnology have been exceedingly general: for example the NIH-Incyte application for genes whose function is not clear, the sweeping W.R. Grace patent on genetically engineered soy beans and cotton (Crucible Group 1994), or the patent awarded to Systemix, Inc., for naturally occurring human bone marrow stem cells (Kimbrell 1993). The last of these patent awards is legally dubious.
Moreover, the criterion of "utility" in the patents is becoming more vague. In the case Nelson v. Bowler the Supreme Court defined "practical utility" in patent application meant that the "invention" must have "some immediate value to the public" or "real-world value." The latter term has been interpreted loosely when applied to the products of biotechnology. A US Federal District Court ruled In re Iizuka it was not necessary to demonstrate therapeutic value to prove utility. In the case In re Krimmel a federal court decided that an applicant did not have to prove in vivo utility of a genetically engineered compound in humans. Rather use in standard laboratory animals was sufficient (Linck and Chambers 1995). The PTO supports such decisions, especially as the relate to biotechnology. Referring to In re Krimmel, it declares,
The new PTO guidelines address this issue specifically, by stating that a qualified expert's affidavit evidence can substitute for human test data.... Under the new guidelines, an examiner who doubts the affidavit's truth is under a burden to provide well-documented evidence and a well-reasoned explanation to fully support his or her conclusion (964).Obviously, this opens the way for industries to present their own "experts" and shift the burden of proof off themselves and onto public regulators. The PTO continues, "The PTO does onto want to hamper the biotechnology field by making utility threshold too high, unnecessarily burdening this leading-edge industry (964)."
Not all in industry leaders think that this trend is wise. C. Thomas Caskey, president of the Human Genome Organisation and vice president for research of Merck and Company, foresees a rapid quelling of competition. He notes that if utility requirements for patentability are minimized, the race to patent genes will be short. He recommends "core patents," broadly available to research, as a compromise between the increasingly broad interpretation of "utility" and a prohibition of patents on genetic material (Caskey 1995). However, his suggested compromise would still represent a distortion in the supposed mutually beneficial relationship between the public and the inventor in favor of the "leading-edge technology."
Biotechnology--the very term was invented on Wall Street--is a set of techniques, or tools, not a pure science like much of academic biology.--Robert Teitelman, author of Gene Dreams (quoted in OTA 1991: 1)
Closer examination reveals that intellectual property rights have no necessary relation to invention, innovation or ingenuity. It is widely recognized in industrial circles that IPRs exist to gain advantage over economic competitors, create monopolies and recoup the costs of R&D. Patents, the strongest form of IPRs, are especially significant. Steven Price states: "It is generally appreciated that some form of monopolistic control has been found necessary to propel western economic development for the last 2000 years: the progression of industrial society has coevolved with the development of the patent system" (1992: 54). This assumption is borne out in current economic and political literature. Analyzing pharmaceutical biotechnology, the OTA suggests intellectual property protection in the form of patents is appropriate because "it can provide the temporary market monopoly necessary to recoup the high costs of R&D," and "drugs with new therapeutic values depend on patent protection in order to capture and hold a significant market share" (1991: 91). The Committee on a National Strategy for Biotechnology in Agriculture of the US National Research Council also has a vision apparently less munificent than that of Jefferson:
Although American culture generally frowns upon monopolies, it makes an exception for new inventions, because the prospect of monopoly profits spurs innovation.... It may seem to contradict the public interest to invest public resources in generating new technology, then restrict its use through patents and limit its benefits through licensing agreements, but such a policy is justifiable for technologies in areas in which product development involves significant capital assumption of risk (CNSBA 1987: 130).It seems that patents are linked less with invention, innovation and ingenuity per se, than with industrial applications and regulation of the market.
Moreover, the theory that incentive is responsible for innovation is typically found in economic systems based on competition, where people are thought to gain and lose at each other's expense, and reward is associated with advantage. Hence statistical studies of the correlation between the establishment and enforcement of intellectual property rights and the appearance of new products ("innovation") seem to reveal exactly this causation. (See Price 1992; Lesser 1990b.) However, prominent economists do not think that this sort of prompted "ingenuity" should be rewarded too often and too liberally, since "there has been growing concern with the possibility that too much protection may create overinvestment in the production of knowledge" (Braga 1990: 32). That is to say, genius need only be rewarded if it fits a market niche. It is interesting to note in this context that in a survey in 1979 and 1980 of 2,000 Japanese companies 29.7 percent, the highest proportion, said the patent system was the most important incentive for innovation, as opposed to 11.6 percent of individual researchers, ranking behind "competition" and "academic and technical interest" (Watanabe 1985, cited in Evenson 1990).
Fritz Machlup's famous study of patents showed that as the US economy has grown, there has been a marked logistical curve--i.e. a rapid increase and gradual decline--in the rate of patenting (1962). He and others interpreted these data as commensurate with the declining productivity of patentable material. It should come as no surprise then that there are relatively large upswings in the curve when new technologies are developed. Patents coupled with new technologies would appear to be a means of increasing the productivity--the yield and the profit--of these technologies for those who control the patents and the patent system. Calestous Juma has recognized the diminishing marginal productivity (or "diminishing returns") of previous technologies:
The evolution of conventional plant breeding methods in conjunction with advances in chemical technology helped shape the current picture of world agriculture, but this model is already reaching its limits.... Like microelectronics, biotechnology has the potential to reorganize large sections of the industrial and agricultural sector (1989: 108).In this sense, at least, biotechnology is revolutionary: it is one of a series of circumventions of the recurring diminishing returns that characterize any intensive, centralized system. The more such a system expands, the more it must invest simply in self-coherence, resulting in less output.
Indeed, governments use patents in exactly this manner. In the US, Japan and other industrialized countries biotechnology and intellectual property are two elements of an industrial policy to increase each nation's overall productivity (growth, technological development and capital formation) in various sectors of the economy and give it a competitive advantage over others. According to the OTA, "[t]he competitiveness of U.S.-developed biotechnology products and processes may ultimately depend on broad issues, e.g. fair trade practices, protection of intellectual property, regulatory climate, and tax policies" (1991: 45).
Industrial policy has been a consideration of the US government since at least the Great Depression of the 1930s (147). It is a form of welfare payment to industrial companies among a suite of other security measures. In fiscal year 1990 alone, the US government spent more than $3.4 billion to support the R&D of biotechnological applications, most of it disbursed through the National Institutes of Health (NIH--$2.9 billion), followed in declining order by the National Science Foundation ($168 million), the Department of Agriculture (USDA--$116 million), the Department of Defense ($98 million), the Department of Energy ($82.2 million), the Agency for International Development (USAID--$28.7 million), the Food and Drug Administration (FDA--$19.4 million), the Environmental Protection Agency EPA --$8.3 million) and several others (19-20).
Industrial policies vary in detail from country to country, but all serve essentially the same purpose: to increase productivity and competitiveness. Whereas promotion of industrial technology in the US is usually "indirect"--through tax and trade policies, and intellectual property protection--rarely targeting a specific industry, Japanese industrial policy is considerably more focused and deliberate (147-8). Japan's Ministry of International Trade and Industry (MITI) announced in 1981 that biotechnology, as well as microelectronics and new industrial materials, were a key technologies (153). (Note that two of these technologies are those that Juma considers capable of helping overcome the structural limits of contemporary industrial and agricultural production.) The MITI laid out $58 million for biotechnology in 1990, including several public-private research projects (154).
The monopoly use of IPRs, especially as part of an industrial policy, belies the "free market" rhetoric of many politicians in Northern industrialized countries. An analyst has noted one economic effect on the Third World of US industrial policy:
[The] sad irony is that the United States government lectures [developing] countries about the need to get their economic houses in order and to strengthen their export sectors ... only to have their efforts to do this wiped out by [competition from] the same country that is lecturing them so severely (Shuh in Hollander 1988: 3)."Productivity" is the current buzzword in US business. Many corporate executives, economists and policy-makers are counting on it to propel America's economic hegemony. A recent Business Week cover story stated,
The world's strongest economy, the U.S. has been a magnet for imports. Still, exports are up by more than 11% compared to a year ago, after adjusting for inflation. "Considering differences in business cycles, if we hadn't seen strong productivity growth and increased global competitiveness, the trade deficit would be much worse," says Mark Zandi, economist at Regional Financial Associates, Inc. Over the next several years, assuming world growth rates pick up, the trade deficit could fall sharply (Farrell 1995: 137).As it will become clearer through this essay, many industrial countries consider biotechnology--promoted by IPRs and unhindered by health and environmental regulation--a means of increasing productivity and competing for foreign markets, especially in the Third World.
There are three forms of IPRs pertinent to biotechnology in the US: utility patents, patents on plants, and plant variety protection.
Utility patents conform to the general description of patents given above, corresponding to patent rights in most countries (OTA 1991). In 1984 the US Congress passed the Drug Price Competition and Patent Term Extension Act, which allowed pharmaceutical products a five-year extension on the usual seventeen-year period of protection, because of the time taken for Federal approval and clinical trial of new drugs (OTA). As mentioned above, the US courts have recently extended utility patent protection to all living organisms, except humans, in cases that are often troublingly vague and legally disputable.
The US Congress passed the Plant Patent Act (PPA) in 1930. This act extended patent protection to new and distinct asexually propagated varieties (OTA; Fowler 1994). Since then nearly 7,000 plant patents have been issued, covering flowering plants, ornamental trees and vegetable crops (OTA). The passage of the PPA marked the gradual separation of the farmer from control of seed and the making of seed a commodity. Those who first took advantage of the law were not for the most part farmers and occasional breeders, but nurseries and seed companies (Fowler).
The Plant Variety Protection Act (PVPA) of 1970 extended to "plant breeders" certain monopoly rights to new varieties of sexually reproducing plants (Anonymous 1994a; Fowler 1994; OTA 1991). In this context "plant breeders" generally means seed companies, not individual farmers; the American Seed Trade Association drafted the law (Fowler 1994). In fact the passage of the PVPA was facilitated by the growth of agri-business and the concomitant disappearance of the small, seed-saving farmer (Fowler). An amendment to the PVPA, passed in 1994, no longer has a clause permitting farmers to save seed for future harvests or to trade varieties among themselves (Anonymous 1994a). It also removes the exclusion from protection of first-generation hybrids and extends the period of protection from eighteen to twenty years (Anonymous). The amendment brings US law on plant breeders' rights in line with the International Convention for the Protection of New Varieties of Plants--the UPOV Convention. (See below.)
International agreements on IPRs
The completion of the Uruguay Round of the General Agreement on Trade and Tariffs (GATT) in April 1994 was both widely celebrated and protested. It is a legally binding trade convention of unprecedented broad scope, and it contains provisions for Trade-Related Aspects of Intellectual Property--TRIPs (Crucible Group 1994; McDougall 1995). The TRIPs agreements establish new multilateral rules on IPRs, based on uniform minimum standards for their scope, availability and enforcement (McDougall 1995). Under the new rules of the GATT signatory countries are required to provide patent protection for microorganisms, and either patent protection or some "effective sui generis" system of IPRs for plants (Crucible Group 1994). Individual governments are to decide whether to allow animals to be covered by patents (Crucible Group). "Effective sui generis" in the context of IPRs for plants is widely understood to mean the UPOV Convention, the terms of which are not acceptable to many countries (McDougall; see below). Peter Sutherland, Director General of the GATT, commented,
Countries have thus been left greater flexibility in meeting their obligations in this area than would have been entailed by a specific reference to UPOV.... In practice, many countries will, nonetheless, wish to profit from the experience that has been gained under UPOV and tailor their system to it (quoted in McDougall: 17).The conclusion of Uruguay Round of the GATT is also the first occasion that IPRs are explicitly linked to trade (Crucible Group). The Uruguay Round established the World Trade Organisation (WTO), which will implement the agreement and act as its secretariat.
Of special importance to the subject of this paper is article 27.1 of the recent GATT, which stipulates that "patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step, and are capable of industrial application." (quoted in McDougall: 32). The linkage of "inventive step" to "industrial application" confirms the economic regulatory function ascribed above to IPRs.
The UPOV Convention is a binding, international agreement that attempted in 1961 to harmonize rules governing plant breeders' rights (McDougall). In its original form, the Convention differed from patent law in that it contained a "breeders' exemption," permitting the use of a protected variety to breed and sell other, new ("essentially derived") varieties, and an allowance for farmers to save protected varieties' seed for future crops (McDougall). Until 1978 the Convention was restricted to European countries (Belcher and Hawtin 1991).
The Convention was substantially revised in 1991. It now allows right holders to prohibit the multiplying, selling and export of both reproductive and harvested materials, including processed goods, such as wine and flour (Belcher and Hawtin). The 1991 amendment also extends protection to essentially derived varieties and makes the farmers' privilege to save seed optional and subject to challenge on grounds that a right holder's "legitimate interest" is at stake (Belcher and Hawtin; Crucible Group 1994). Because of its implications for farmers' rights, Third World governments have stayed away from becoming members of the UPOV, but there is growing pressure from industrialized parties to the GATT to sign the agreement, lest failure to do so be taken as a "trade barrier" (Belcher and Hawtin; Crucible Group). Few Third World countries have analogous legislation (Belcher and Hawtin).
The Convention on Biological Diversity (CBD) was the result of a decade of negotiations on the conservation and sustainable use of ecosystems, species and genetic material, addressing inter alia issues of resource exploitation, technology transfer, IPRs, regulation, liability and redress for environmental damage, and the eradication of poverty. (See Glowka, Burhenne-Guilmin and Synge 1994.) Articles 15, 16 and 19 are of special relevance to IPRs. These articles were the cause of the US government's hesitation in signing the CBD (which it has still not ratified).
Article 15 concerns access to genetic resources. Part 15.1 recognizes the "sovereign rights of States over their natural resources," a notion that challenges the major international agreements on IPR protection of plants, animals and microorganisms. Furthermore, part 15.7 states that
[e]ach Contracting Party shall take legislative, administrative and policy measures ... with the aim of sharing in a fair and equitable way the results of research and development and the benefits arising from the commercial and other utilization of genetic resources with the Contracting Party providing such resources. Such sharing shall be upon mutually agreed terms (ISCBD 1994: 13).The implications for international IPR should be obvious.
Article 16 concerns access to and transfer of technology. Part 16.1 recognizes that the transfer of technology--including biotechnology--is an essential element to the "attainment of the objectives of this Convention" (14), viz. "the conservation of biological diversity, the sustainable use of its components and the fair and equitable sharing of the benefits arising out of the utilization of genetic resources ..." (4). Part 16.3, like 15.7, has implications for IPRs:
Each Contracting Party shall take legislative, administrative or policy measures, as appropriate, with the aim that Contracting Parties, in particular those that are developing countries, which provide genetic resources are provided access to and transfer of technology which makes use of those resources on mutually agreed terms, including technology protected by patents and other intellectual property rights ... [emphasis added] (14).Part 16.5 states,
The Contracting Parties, recognizing that patents and other intellectual property rights may have an influence on the implementation of this Convention, shall cooperate in this regard subject to national legislation and international law in order to ensure that such rights are supportive of and do not run counter to its objectives (14).The US government has responded preemptively to this article by declaring the GATT TRIPs agreement the only acceptable, adequate and effective standard of international IPR protection.
Likewise, article 19--Handling of Biotechnology and Distribution of its Benefits--part 1 stipulates that each Party shall take similar institutional measures to "provide for the effective participation in biotechnological research activities by those Contracting Parties, especially developing countries, which provide the genetic resources for such research, and where feasible in such Contracting Parties" (16). Part 19.3 calls upon Parties to consider a binding protocol to the Convention on the safe transfer, handling and use of biotechnological products, an issue which we will address further. IUCN legal experts remark,
The obligations under articles 15(7), 16(3) and 19(2) leave considerable discretion to the Party. In addition, the identification of material from which the benefit derives is not a simple matter, especially as it may be a decade or more before the benefit is realized and as the genetic material used may have been gathered from several sources (Glowka, Burhenne-Guilmin and Synge 1994: 5).The commodity value of biodiversity is implicit in this statement.
Despite its challenges to multilateral trade agreements, the CBD is clearly an international agreement which industries supported by Northern governments think that they may be able to use to increase their economic standing. In a letter to conservative US Senator Jesse Helms, Carl Feldbaum, President of BIO, commented,
The use of recombinant DNA technology to produce improvements in food and agriculture products depends in large part on access to germplasm which originates in foreign countries.... Such access will be governed by the Convention on Biological Diversity and as a Party, the U.S. will be able to work to improve it to the decided advantage of our domestic plant breeding programs (August 4, 1994).
Finally, there is the Third World's answer to the issue of access to genetic resources. In 1983 Southern country members of the United Nations Food and Agriculture Organisation (FAO) initiated the International Undertaking on Plant Genetic Resources (IUPGR). This agreement--which is not binding--has the aim of promoting the proper conservation and use of all plant genetic resources, including those produced by modern techniques, and ensuring access to them without undue restriction (Glowka, Burhenne-Guilmin and Synge 1994; McDougall 1995). Moreover, it seeks to enable "all countries to make full use of their plant genetic resources for the benefit of their agricultural development" (quoted in McDougall: 9). One hundred states are party to it. Two resolutions in 1989 changed the substance of the IUPGR (Glowka, Burhenne-Guilmin and Synge). The first, insisted upon by industrialized members of the FAO, states that the Undertaking should be consistent with existing plant breeders' rights. The second counterbalances the first by recognizing the "rights arising from the past, present, and future contributions of farmers in conserving, improving and making available plant genetic resources" (McDougall: 9), without granting farmers actual ownership. After the establishment of the CBD, member states agreed to renegotiate the Undertaking in order to harmonize it with the Convention and to implement its content further.
There is a movement to make the renegotiated IUPGR a legally binding instrument, possibly a protocol to the CBD. Such an instrument would help protect small farmers in local and indigenous communities from claims laid to their traditional varieties by transnational corporations, including seed and biotechnology companies. A legally binding IUPGR would provide an alternative acceptable to most Third World countries to the 1991 UPOV Convention.
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