Compulsory Licensing of Clean Technology

Transcription

1 Compulsory Licensing of Clean Technology Saving the Environment or Stifl ing Innovation? David K.S. Cornwell and Alyssa K. Sandrowitz

2 Compulsory Licensing of Clean Technology Saving the Environment or Stifling Innovation? ALYSSA K. SANDROWITZ and DAVID K.S. CORNWELL Abstract Technology innovation along with the widespread transfer and implementation of clean energy technologies are critical to combating the global climate problems. Currently, governments are negotiating a post-2012 climate issues agreement and much debate centers on the role of intellectual property rights ( IPRs ) in the transfer of technology. On one side of the debate are developing countries and others arguing in support of compulsory licensing of clean technologies. On the other side are developed countries and many corporations. They argue that weakening IPRs with compulsory licensing will hinder innovation and adoption of new clean energy technologies. The common factor that overrides the opposing arguments is that collaboration will be the key to solving global climate problems. I. Introduction If a deteriorating environment is one of the world s greatest challenges, the way to address it is through technology innovation, transfer of clean energy technologies and implementation of them on a global scale. Similarly, if natural resources are being depleted, it is only through global solutions that these resources can be preserved. Broad dissemination of current technologies and transition to new ones are expected to improve energy efficiency, introduce less carbon-intensive sources of energy and further develop renewable energy sources. Indeed, technological innovation will drive the transition to a low-carbon economy. To date, however, industrialized countries have largely failed to transfer environmentally sound technologies to developing countries, as envisioned under the United Nations Framework Convention on Climate Change ( UNFCCC ) and the Kyoto Protocol. This failure was a main point of contention in December 2007 during the Bali Conference of the Parties ( COP-13 ), which moved technology transfer to the top of the agenda in the UNFCCC process as one of the four pillars of the post-kyoto framework. i As such, further action on technology development and transfer of technology will be central in enabling the full and effective implementation of the UNFCCC beyond 2012 and solving global climate problems. Currently, governments are negotiating a post-2012 agreement under the UNFCCC for the approaching Conference of the Parties to take place December 2009 in Copenhagen. As the negotiations proceed, much debate centers on the need to balance incentives to encourage innovation and investment in clean Alyssa K. Sandrowitz (asandrow@skgf.com) is an associate with Washington, DC-based intellectual property specialty firm Sterne, Kessler, Goldstein & Fox P.L.L.C. David K. S. Cornwell (davidc@skgf.com) is a director with Washington, DC-based intellectual property specialty firm Sterne, Kessler, Goldstein & Fox P.L.L.C. 1

3 technologies, while not preventing widespread access to the technologies. ii Particular disagreement remains on the obstacles to the transfer of clean technologies and the types of measures that should be taken to overcome them. A significant part of the debate concerns the issue of intellectual property rights ( IPRs ) as a potential barrier. The need to balance widespread transfer of clean energy technologies and incentives to encourage innovation has thus become a hot topic in the ongoing debate between developed and developing nations. II. The Current Technology Transfer Provisions of Climate Agreements Based on the discussions of the Bali Action Plan, the Parties of the UNFCCC disagree on whether such a balance exists within the current legal and policy framework governing technology transfer and IPRs. Current international climate agreements provide for generalized objectives and commitments on the transfer of technology under the UNFCCC and the Kyoto Protocol. Specifically, Article 4.1(c) of the UNFCCC requires parties to promote and cooperate in the development, application and diffusion including transfer of technologies that control, reduce or prevent anthropogenic emissions of greenhouse gases in all relevant sectors, such as energy, transport, industry, agriculture, forestry and waste management sectors. iii Article 10(c) of the Kyoto Protocol reaffirmed these commitments of the parties by stating that developed countries shall take all practicable steps to promote, facilitate and finance, as appropriate, the transfer of, or access to, environmentally sound technologies, know-how, practices and processes pertinent to climate issues, in particular to developing countries. iv But neither the UNFCCC nor the Kyoto Protocol expressly mentions IPRs, so there are concerns about the exact role of IPRs in the transfer of clean technologies. III. The Role of Intellectual Property Rights The role of IPRs has proven to be particularly contentious in the complex process of technology transfer. As a legal instrument and policy measure, IPRs may be both an incentive and obstacle to the transfer of technology. It can be difficult for a company to justify taking huge risks and making a costly investment to achieve technological advances, only to see its competitors exploit the resulting innovation at no risk. Given this possibility, IPRs have been established as a private right to encourage innovation and to promote the dissemination of knowledge. Effective intellectual property ( IP ) protection allows innovators to capture the value of research and development activities, stimulate investment in innovation and provide a means for private companies to distinguish their products from those of their competitors. The U.S. and most other countries have created national IP laws to enable inventors, authors, and other developers to enjoy certain exclusive rights in their creations in exchange for sharing the knowledge with the public. By offering protection against a loss of control of information in technology-related transactions, IPRs aim to facilitate the transfer of technology. They also give legal clarity to the dissemination of technology and provide a framework for collaborative development. In addition, they encourage innovation by providing the means to generate a commercial return on investment in the development of new technologies. The existence of IPRs does not guarantee effective transfer of technology, and there may be circumstances in which IPRs do not creative incentives. Some critics of IPRs argue that that these instruments can provide an excessive scope of protection that might stifle innovation or make access to knowledge more costly or difficult. v Along this line of thought, there are growing concerns that IPRs in clean technologies will make them too costly for developing nations to employ and may present a barrier to the transfer of technology to developing nations. vi The market power provided by patents and other IPRs allowing owners exclusive rights and limiting 2

4 the availability, use or development of a process or product may also result in increased transaction costs and hamper the transfer of clean technologies. IV. Intellectual Property Rights and Technology Transfer in the UN Climate Change Negotiations Given the tension between IPRs and the transfer of technology, a balancing act is necessary. vii In the most basic terms, developing nations need assistance from developed countries to accelerate their transition to low carbon economies, and developed nations may be reluctant to share their new clean technologies on terms they fear will lead to a loss of IPRs. As such, there have been significant calls to expressly address the role of IPRs on the transfer of clean technologies. Moreover, the debate about the role of IPRs in technology transfer intensified with the approach of the United Nations Climate Change Conference in Copenhagen in December It was widely considered the IP battle of the year. viii 1. Proponents for Lessening IPRs Barriers On one side of the debate, there are those who have taken the position that IPRs should not stand in the way of international cooperation on combating climate issues. ix During global climate negotiations, some developing countries and various observers have drawn an analogy between the public health crisis and the potential of IPRs to bar access to clean technologies. They have argued for the inclusion of Trade-Related Aspects of Intellectual Property Rights ( TRIPS )-type flexibilities, specifically compulsory licensing in future climate-related agreements. A. TRIPS Flexibilities A central aspect of TRIPS is that it established minimum standards of intellectual property protection and incorporated certain flexibilities, allowing countries to position IPRs in the context of their public policy objectives and priorities. x TRIPS offer World Trade Organization ( WTO ) members a number of flexibilities that could aid in addressing the concerns of developing countries regarding IPRs as a barrier to the transfer of clean energy technologies. xi Much of the attention has focused on compulsory licensing and section 31(b) of TRIPS, which allows for compulsory licensing of patented technologies in cases of national emergency or other circumstances of extreme urgency or cases of public non-commercial use. xii In particular, some developing countries and nongovernmental organizations ( NGOs ) are advocating for amendments to TRIPS agreement and for compulsory licenses to be included in the next UNFCCC agreement. xiii For example, the United Nations Conference on Trade and Development said in a recent report that WTO agreements should be interpreted to allow compulsory licensing of patents for the production of climate-friendly equipment and goods that embed climatefriendly technology. xiv B. Arguments for Compulsory Licensing of Clean Technologies in Climate-Change Agreements Critics of IPRs and the rights to exclude normally associated with IPRs, argue that compulsory licensing will facilitate the transfer of clean energy technologies to developing countries. They have noted that compulsory licensing of patents is a means for getting technology into use where the patentee refuses to deal, sits on rights, or asks too high of a price. xv Further, advocates for compulsory licensing argue that patents awarded for clean technologies increase the price of the technologies beyond the means of developing countries and thereby inhibit diffusion of essential technologies. xvi As a result, developing countries are unable to 3

5 access technologies that would reduce their greenhouse gas emissions. To remedy this, some contend that compulsory licenses introduce competition into the markets and have the effect of making relevant goods more affordable. xvii Proponents of compulsory licensing for clean technologies are relying on analogues to the compulsory licenses granted in other industries particularly the pharmaceutical industry for essential medicines to advocate for the need to incorporate compulsory licenses in future climate issue agreements. For example, India, Braziland other developing countries have asked for explicit recognition that compulsory licensing can be used in the interest of climate problems under WTO IP rules and have drawn parallels with a 2001 WTO declaration relating IP and public health. xviii 2. Proponents of IPRs/ Opponents to Compulsory Licensing On the other side of the debate, there are those that argue IPRs are not a barrier to the transfer of technology and that compulsory licensing would actually hinder innovation. xix For example, Mark Esper, vice president of the Global Intellectual Property Center recently said in an interview: Cooperation and property rights are not mutually exclusive. Indeed, property rights are the solution, not the problem. If property rights become secondary, then we lose the incentive for innovators to pursue their ideas, and the world loses the opportunity to learn and build upon their innovation. xx Further, the International Chamber of Commerce ( ICC ) has said that IPRs assure necessary private sector investment in the invention, development and deployment of environmentally sound technologies needed to reduce greenhouse gas emissions. xxi The ICC has even gone so far as to advocate that governments should avoid measures that compromise the role of IPRs when considering mechanisms to foster technology transfer in the UNFCCC post-2012 framework. xxii V. Debunking the Comparison of Clean Technologies to Pharmaceuticals Critics have debunked the analogy of clean technologies to pharmaceuticals as a rationale for compulsory licensing of clean technologies. The comparison does not make sense as a result of major differences between the two fields. xxiii First, opponents of compulsory licensing note that compulsory licenses came to the pharmaceutical industry after the industry had reached a certain level of maturity, but the clean technology industry is still an emerging growth industry that could not sustain compulsory licenses. Another major difference is that compulsory licensing in the case of pharmaceuticals generally relates to drugs that are protected by patents in both developed and developing countries and for which there is no substitute in many cases. xxiv Because of the lack of competitive substitutes, IPRs in the pharmaceutical industry typically affect prices. By contrast, clean technologies are often not unique solutions since there are many renewable energy technologies for reducing greenhouse gas emissions. xxv Competition exists between companies within a given clean energy sector for example, within solar power, biofuels and wind power sectors, respectively and among the sectors (solar vs. wind, wind vs. biofuels, etc.). This competition helps to keep prices less a function of market power arising from IPRs and more a function of market supply and demand. Further, internal competition may vary from one sector to another. Even if compulsory licensing is considered useful for correcting monopolistic markets by removing barriers to IPRs to allow competition, the justification for compulsory licensing may need to be made on a sector-by-sector basis and not for the industry as a whole. 4

6 1. IPRs Do Not Provide A Barrier to Transfer of Clean Technologies Further, clean technologies are often not cutting-edge advances to existing technologies. Instead, they are generally alternative solutions and improvements that are unprotected by patents. To the extent that there are patents on the relevant technologies in developed countries, they usually cover add-on technologies, and a variety of companies offer similar products. xxvi Experts have commented that there is no single technical fix, as is the case for some diseases, which will result in massive reductions of greenhouse gas emissions. xxvii Rather, there is a family of diverse clean energy technologies and other actions that businesses; and people will need to take to reduce their greenhouse gas emissions. xxviii There are three principal ways of reducing greenhouse gas emissions or concentrations: (1) improving energy efficiency, (2) clean energy production and (3) carbon sequestration. Energy efficiency is usually not a high-tech proposition. Rather, it can be typically achieved by adopting behaviors that conserve energy or by installing more efficient appliances, windows, heating and cooling equipment and the like, or by installing insulation and repairing energy sinks. Few, if any, of these activities require IP licenses. Nor, do the prices of the relevant products reflect substantial IP components. The second way of reducing greenhouse gas emissions clean energy production likewise has been judged not to be significantly confined by IPRs. xxix Many companies in many different countries compete to offer the equipment needed to generate energy using clean technologies (e.g., solar photovoltaics, wind turbines, biofuels and geothermal). For example, recent market studies have found that at least 20 different companies in many countries compete to sell wind turbines, and 47 different companies manufacture solar panels. xxx The third tool carbon sequestrating in plants or soil similarly appears to pose few IP constraints. Therefore, opponents of compulsory licensing argue that IPRs are not a significant barrier to the transfer and adoption of clean technologies in developing nations. These critics have argued that the competitive atmosphere in the industry and the large number of innovative companies make it likely that developing countries will be able to procure licenses on reasonable terms. Further, opponents argue that compulsory licenses may help in the short term, but that the long term effects of a compulsory licensing regime will ultimately undermine innovation. xxxi 2. The Problem of Weak IPRs Some argue that IPRs do not deter successful transfer of clean technologies to developing countries. Instead, the key barrier is the lack of strong IP protection in some developing countries. xxxii Critics of compulsory licensing have said that weak IP rules undermine both incentives to innovate and discourage technology transfer. xxxiii Owners and inventors will be reluctant to transfer technology or otherwise partner with companies in countries where compulsory licensing undermines IPRs it sends a message to foreign investors that their investments are not safe and may not be welcome. xxxiv Further, compulsory licensing could stifle innovation in clean technologies since the incentives of market share and commercial return that IPRs usually offer would be nonexistent. In addition, if there are only one or two companies in a developing country that are willing and capable of putting a compulsory license to use, granting compulsory licenses can foster monopolies and make it more difficult in the future for others to enter the industry. VI. Other Barriers to Technology Transfers Some critics of compulsory licenses have dismissed advocating for compulsory licensing as a distraction and pointed out obstacles to technology transfer that should be addressed. xxxv Key 5

7 barriers to technology transfer that are not IP related include tariffs and trade restrictions imposed by governments of developing countries on clean energy technologies. xxxvi Some governments may feel tariffs are needed to allow their countries to develop technology internally and enter the clean energy industry as producers. Many developing countries lack the infrastructure, money and knowledge base to successfully develop and commercialize these technologies alone. xxxvii Further, much fundamental engineering underlying clean energy technologies is not described in patents. This includes years of research, trade secret knowledge and industry expertise that may be needed to achieve successful and superior commercial products. Skeptics of a compulsory licensing regime have also noted that developed countries, under the UNFCCC, are obligated to make available funds and mechanisms to ensure access, distribution and implementation of environmentally sound technologies in developing countries, regardless of IPRs. This means that unilateral measures like compulsory licenses should not be needed if developed countries fulfill their obligations. xxxviii VII. Collaboration Must Be Part of the Solution Regardless of the arguments put forth by either side of the debate, successful technology transfer is not just about access to IPRs. It is about fostering an environment in developing countries that spurs private investment and providing the technical assistance needed for the adoption of clean energy technologies. xxxix Collaboration will be necessary. Some commentators have even suggested that companies taking a collaborative approach to innovation such as cross-licensing and open source platforms may be the most successful. xl Clean technology companies can leverage their patent portfolios to share in the technical innovations of others via cross-licensing deals. xli Collaborative patent portfolios will have a greater freedom to operate and innovate, while remaining competitors will be left trying to design around a pool of crosslicensed patent portfolios. xlii In addition, it has been suggested that small clean energy start-ups should consider licensing arrangements with larger companies, especially if the enterprise is in a foreign market that the start-up wants to enter. xliii In these arrangements, smaller companies can benefit from the larger company having greater financial, marketing, distribution and manufacturing resources and often more extensive regulatory knowledge. Such licensing arrangements give the larger company a financial incentive to protect the invention. Meanwhile, larger companies can generate house revenues from the licensing agreement. VIII. Conclusion All parties must work together to address global climate issues, regardless of the different arguments put forth and the compromises struck to balance IPRs and technology transfer in future climate agreements. The issue of technology transfer is critical to resolving negotiations on global climate issues, and it is vital to effectively reducing greenhouse gas emissions. Disagreements on how to address the role of IPRs in relation to technology transfer has potential to significantly impede, even derail, the negotiations. Successful technology transfer is not just about access to IPRs. It is also about fostering an environment in developing countries that spurs private investment and providing the technical assistance needed for clean energy technologies to be adopted. Collaborative agreements will be necessary to achieve this goal. i CONFERENCE OF THE PARTIES TO THE CLIMATE CHANGE CONVENTION, BALI ACTION PLAN, DECISION /CP.13 1(D) (2007), available at (last visited March 26, 2010). 6

8 ii See, e.g., U.N. Dept. of Econ. & and Social Affairs, UN_DESA Policy Brief No. 19, Technology Transfer and Climate Change: Beyond TRIPS, Aug. 2009, available at (last visited March 26, 2010). iii U.N. Framework Convention on Climate Change, May 9, 1992, 31 I.L.M. 849 (1992), Art 4.1(c) [hereinafter UNFCCC ]. (The UNFCCC was part of the package of instruments negotiated at the UN Conference on Environment and Development. It was ratified in 1992 and entered into force on March 21, 1994). iv Kyoto Protocol to the Framework Convention on Climate Change, Dec. 10, 1997, 37 I.L.M. 22 (1998), Art. 10(c) [hereinafter Kyoto Protocol]. v INT L CTR. FOR TRADE & SUSTAINABLE DEVELOPMENT ( ICTSD ), CLIMATE CHANGE, TECHNOLOGY TRANSFER AND INTELLECTUAL PROPERTY RIGHTS (Aug. 2008) 2 2, available at (last visited March 26, 2010). vi Id. (noting that IPRs may make clean technologies too costly for developing countries to employ). vii ICTSD, supra note 5, at 3. viii The Next Climate Deal: How Big is the Battle for Cleantech IP?, REUTERS.COM, June 5, 2009, (last visited Sept. 18, 2009). ix See Cyrus Frelinghuysen, Countdown to Copenhagen: The Debate over Technology Transfers and the Protection of Intellectual Property, Global Climate Law Blog, July 13, 2009, property/countdown tocopenhagen the debate over technology transfers and the protection of intellectual property/ (last visited March 26, 2010(noting that even Secretary of Energy Stephen Chu has suggested that intellectual property should be shared as much as possible). x Agreement on Trade Related Aspects of Intellectual Property Rights (Apr ), Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations 320 (1999), 1869 U.N.T.S. 299 [hereinafter TRIPS Agreement ] available at (last visited March 26, 2010). xi WTO Secretariat, Fact Sheet: TRIPS and Pharmaceutical Patents (2006) available at (last visited March 26, 2010) (TRIPS is intended to provide flexibility to nations to protect intellectual property rights in light of their social goals.). xii Trips Agreement, supra note 10, at art 31. xiii See generally, Proposal by the G77 & China for a Technology Mechanism under the UNFCCC (2008) available at g77 8.pdf (last visited March 26, 2010). xiv See U.N. CONF. ON TRADE & DEVELOPMENT, TRADE AND DEVELOPMENT REPORT (2009) available at (last visited March 26, 2010). xv Peter Buxbaum, Climate Change, Patent Pending (2009) available at (last visited March 26, 2010). xvi Jason R. Wiener, Sharing Potential and the Potential for Sharing: Open Source Licensing as a Legal and Economic Modality for Dissemination of Renewable Energy Technology, 18 GEO. INT L ENVTL. L. REV. 7

9 277, 278 (2006) (some speculate that propriety licensing schemes are preventing developing countries from taking advantage of available renewable energy technologies). xvii See, Nitya Nanda, Diffusion of Climate Friendly Technologies: Can Compulsory Licensing Help?, 14 J INTELLEC PROP RIGHTS 241 (MAY 2009) (noting that compulsory licenses should be considered when a patent holder is unwilling to voluntarily share technology with others). xviii Frances Williams, Patent Spat Looms at Climate Change Meeting, THE FINANCIAL TIMES, July 12, 2009, available at 6ef5 11de feabdc0.html?nclick_check=1 (last visited March 26, 2010). xix See generally, Jennifer A. Haverkamp, Environmental Defense Fund, Climate for Innovation: Technology and Intellectual Property in Global Climate Solutions, July 29, 2009, available at and Copenhagen Economics A/S and the IPR Company Aps, Are IPR a Barrier to the Transfer of Climate Change Technology? (commissioned by the European Commission), available at zvqkka3yse2xsqfj6kuzkaodcek5qoagvzitfd/areiprabarriertothetransferofclimatechangetechnology. pdf (last visited March 26, 2010). xx Andre C. Revkin, Will Energy Ideas Be Private or Public?, N. Y. TIMES, May 21, 2009, available at energy ideas be private orpublic/?scp=1&sq=will%20energy%20ideas%20be%20private%20or%20public?&st=cse (last visited March 26, 2010). xxi International Chamber of Commerce (ICC), Discussion Paper, Climate Change and Intellectual Property, September 10, 2009, pgs 1 8, 8, available at r%20climate%20change%20and%20ip_10%2009%2009.pdf?terms=climate+change+and+intellect ual+property (last visited March 26, 2010). xxii Id. xxiii See generally, Haverkamp, supra note 19, at xxiv See Id. and Haverkamp, supra note 19, at 9. xxv See S. Pacala & R. Socolow, Stabilization Wedges: Solving the Climate Problem for the Next 50 Years with Current Technologies, 305 Science 968 (2004). xxvi See Haverkamp, supra note 19, at 9. xxvii See Pacala et al., supra note 25, at 968. xxviii Id. xxix Haverkamp, supra note 19 xxx See Wind Turbine Market Share Revealed, Environmental Leader, March 5, 2009, turbine market share revealed (last visited Oct. 7, 2009) and U.S. Account s for 55 Firms in Global Cleantech 100 Ranking, Environmental Leader, September 14, 2009, s accounts for 55 firms inglobal cleantech 100 ranking (last visited Cot. 7, 2009). xxxi Tim Wilson, Undermining mitigation technology Compulsory licencing, patents and tariffs, Institute of Public Affairs, IPA Backgrounder, August 2008, 21, 8. xxxii See Alexander Adam, Technology Transfer to Combat Climate Change: Opportunities and Obligations under TRIPS and Kyoto, 9 J. HIGH TECH L. 1, 14 (2009) (noting the fear that IPRs may not be protected has been cited a major barrier to the transfer of clean technologies). 8

10 xxxiii Brian A. Rosenthal & Cyrus Frelinghusen, Green Patents: The Patent System s Fuel of Interest and the Promotion of Technological Innovation, Global Climate Law Blog, (2009) available at property/green patents thepatent systems fuel of interest and the promotion of technological innovation/print.html (last visited March 26, 2010). xxxiv Id. (commenting that private parties or the governments of developed countries will balk at devoting resources to the research and development of technology that may be expropriated or subject to a compulsory license ). xxxv See Wilson, supra note 31, at 7. xxxvi WORLD BANK, INTERNATIONAL TRADE AND CLIMATE CHANGE: ECONOMIC, LEGAL AND INSTITUTIONAL PERSPECTIVES (2007) 13. xxxvii World Bank, supra note 36, at 59. xxxviii Dalindyebo Shabalala, Cooperation Not Compulsion on Clean Technology Transfer, June 3, 2009 available at not compulsion on cleantechnology tra.html (last visited March 26, 2010) (unilateral measures to access clean energy technologies should only be needed if developed nations fail to meet their technology transfer and financing commitments under the UNFCCC). xxxix Id. See also, Matthew Littleton, UN DESA, Working Paper No. 71, The Trips Agreement and Transfer of Climate Change Related Technologies to Developing Countries (Oct. 2008) (noting that there are both soppy side and demand side barriers. On the supply side, trade and investment policy barriers, limited market size, high transaction costs, and fear of losing control over proprietary technologies discourages transfer of technology abroad. On the demand side, low human capital, lack of physical capital, weak domestic environmental laws, and poor credit access can hinder opportunities for the transfer of clean technologies). xl See Josie Garthwaite, The Clean Energy Revolution Must be Collaborative, BUSINESSWEEK, June 18, 2009, available at (last visited March 26, 2010) and Rodger Andrew Sadler et al., Strategies for Developing and Protecting IP in the New Clean Energy Economy, ASIA IP, June 2009, at , 25 available at (last visited March 26, 2010). xli Sadler, supra note 40 at 25. xlii xliii Id. Id. 9