By Linchang Shen
It is well understood that economic growth results either from accumulation of factors of
Production or from improvements in technology or both. (Kamal Saggi, May 2000,) what is more, in the past half century, technology has become more and more important to the economic development. It is estimated, for example, that the knowledge component of the output of manufactured goods has risen from20 percent in the 1950s to 70 percent in 1995(Pedro Roffe ﹠Taffere Tesfachew, 2002). Industrialized countries conduct majority of the world's research and development (Kamal Saggi, May 2000); due to the backward economies and poor research infrastructure, the acquisition of technology of developing countries has to rely heavily on the technology transfers from developed countries. However, technology licenses, the most common way of acquiring and exploiting technology (Michael Blakeney; 1989, P.34), will include clauses that seek to preserve the competitive advantage of the technology owner against abusive exploitation by the technology recipient. Such restrictive terms inevitably exert some competitive impact on the technology recipients, Undoubtedly; it is quite meaningful to study the competitive impact of agreements for the transfer of technology in the context of the development needs of developing countries. This essay will first assess the competitive impact over the developing countries; and then retrospect how the developing countries dealt with the negative effects of the agreements for the transfer of technology; afterwards, the essay will study the effect of the TRIPs Agreement on the technology transfer to developing countries.
Ⅱ. The negative effects of the agreements for the transfer of technology on the developing countries
According to professor P.T.Muchlinski (P.T.Muchlinski; 1994, p.433), restrictive terms in technology transactions may be conveniently classified into two main categories: those that restrict the recipient’s commercial policy in respect of the conduct of business involving the transferred technology and those that seek to preserve the exclusive ownership and use of the technology by the transferor. Below, the competitive impact on development of developing countries will be discussed correspondingly in the two categories of restrictive measures.
A. Restrictions on the commercial policy of the technology recipient
At the level of purchasing policy, the transferor may ask the transferee to buy raw material, machinery and other goods or services from the transferor. In general, such a restriction could act as a means to extract monopolistic profits from the developing countries. As for as the competitive impact is concerned, such an arrangement could hide the true cost of the technology package. In addition, tying arrangements might further prevent backward economic integration through the growth of local suppliers. Consequently, the local economic development may be inhibited.
The recipient may be restricted further by clauses requiring the production of minimum quantities of product and by clauses setting the duration of the agreement. Where the agreement is of excessive duration this may force the recipient to acquire obsolete technology and prevent it from obtaining technology from alternative suppliers. The agreement may also contain field-of-use restrictions, which limit the application of the technology to specified fields only. For a developing country, field-of-use restriction may prevent the full exploration of the technology in all the areas where it may be of value as a stimulus to economic development.
As for the marketing policy, the transferor could restrict the export market of the recipient. Evidently, such restrictions will simply inhibit the ability of developing countries to earn foreign exchanges through exports, which is of great value to the development of developing countries. Alternatively, the transferor could restrain the recipient’s commercial freedom through price fixing provisions. Where such price controls are imposed on a plant operating in a developing country, the opportunity to earn foreign exchange from exports to higher price areas will be lost.
B. Restriction on the use of technology on the part of the recipient
It is common to find the confidentiality clauses in technology transfer agreements. These are generally unobjectionable, if they are not of excessive duration. However, the restriction could restrain the developing economies from gaining experience in the field where the technology is used. Additionally, Technology transfer agreements usually prohibit the recipient from using the technology transferred after the expiry of the agreement, or permit use upon the continued payment of a royalty. This is justifiable where the intellectual property rights have not yet expired or the relevant know-how has not entered the public domain. However, where the rights have expired, or the trade secret has become public, such a general prohibition may be unduly exploitative. Besides, the technology transferor could prohibit the recipient from conducting its own research and development work on the transferred technology, or, if without such restriction, the right holder could request the transferee to transfer any improvement to them on a non-reciprocal basis. However, such grant-back clauses would inevitably inhibit the learning process of developing economies, and lessen the likelihood of adoption to local need.
Ⅲ. How the developing countries responded to such restriction before TRIPs
As regards dealing with the restriction terms in technology transfer transaction, the developing countries, different from industrial countries, who handle the issue involved by competition law, had sought to create technology transfer laws to control technology transfers in the interest of development (P.T.Muchlinski; 1994,p.436-438). This model is characterized by a reserved attitude to the protection of intellectual property rights coupled with the adoption of specialized technology transfer law.
Unlike the technologically advanced countries, the developing countries were less willing to accept uncritically the assumptions underlying the international system of intellectual property system. Since 1961, the developing countries have been seeking reform of that system. The process started when, in 1961, Brazil introduced a draft resolution in the Second Committee of UN General Assembly calling for a study of the effect of patents on the transfer of technology. (P.T.Muchlinski; 1994, p.438). By the 1970s. UNCTAD took up the issue of technology transfer (Michael Blakeney; 1989, P.21-24). Furthermore, in 1974 negotiation were underway to reform the Paris Convention for the protection of industrial property under the auspices of the World Intellectual Property Organization. (P.T.Muchlinski; 1994, p.439). This development resulted in the formulation of a comprehensive critique as to the appropriateness of traditional intellectual laws as instruments for the transfer of technology to the developing countries. However, the argument concerning reform of the international system of protection did not lead to the hoped for reform. Given the relatively weak bargaining position of the developing countries this is not surprising, the technologically advanced countries have few incentives to modify a system that suit their need. Actually, the technology has been increasingly essential to the competitive capacity and economic development, and the technology is the most important and substantial competitive advantage of developed countries over the developing countries. It is definitely impossible for developed countries to make substantial concession on this crucial issue. What is more, the developed countries successfully incorporated the TRIPs Agreement into WTO through Uruguay Round negotiation of GATT, which substantially strengthen the international intellectual property protection system.
At the level of domestic laws, numerous developing countries began, in 1970s, to experiment with specialized technology transfer laws. The main thrust for this development came from Latin America with the adoption in 1969 of the Andean Foreign Investment Code under Decision 24 of the Cartagena Agreement, and the passing of several national laws between 1971 and 1981. Other developing countries from Africa and Asia followed suit. (P.T.Muchlinski; 1994, p.442). The essence of technology transfer laws is the screening of international technology transaction by a national authority with the aim of ensuring that the technology transferred is of use to the national economy and that the terms and conditions of transfer do not amount to an abuse of the transferor’s superior bargaining power. The normal procedure is for the parties to submit either a draft or an executed contract for approval. Failure to register the agreement for approval may lead to its been nullified. Other sanctions may include fines for the performance of approved transactions, prohibition of payment in favor of the transferor and denial of fiscal benefits. Technology transfer law poses a clear challenge to the logic of intellectual property law.
Besides enacting the domestic laws, the developing countries sought to adopt an international code on technology transfer. This has been done under the auspices of UNCTAD. However, such a TOT code failed by the reason of that the developed countries models and developing countries models couldn’t converge. The first of these did concern the regulation of restrictive business practices in technology transfer agreements. (P.T.Muchlinski; 1994, p.445).
Ⅳ.Whether the TRIPs could enhance the technology transfer to developing countries
Although the TRIPs Agreement was enacted mainly according to the opinion of developed countries, however, it is not necessarily harmless to developing countries. As regards the technology transfer, taking into account the incentive of technology owners and the empirical experience of developing countries about the technology transfer, In general, the TRIPs Agreement is a positive factor to the developing countries.
It is also argued that the TRIPs Agreement is likely to have the effect of weakening the technology transfer policies of developing host states. (P.T.Muchlinski; 1994, p.256). Some having introduced specialized technology transfer laws may have to modify in the light of the new Agreement. According to article 40(1), the TRIPs Agreement acknowledges that some licensing practices or conditions pertaining to intellectually property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology. By article 40(2), members are permitted to regulate licensing practices or conditions that may constitute an anti-competitive abuse of intellectual property rights. However, there is no mention of the regulation of such practices or conditions where they may not be anti-competitive but may be viewed as undesirable in the light of national economic policies. Furthermore, under article 67, developed countries are encouraged cooperate with developing countries in the preparation of domestic intellectual property rights legislation. There is no mention of specialized technology transfer laws.
Indeed, the TRIPs Agreement does not introduce its own rules of competition law, but instead authorizes Members to establish or maintain such rules. This reservation in favor of Members' sovereign competition policy represents a concession that the industrialized countries made in response to an earlier effort by developing countries to enact a Code of Conduct for the Transfer of Technology (Hanns Ullrich, June, 2004). In fact, the TRIPs Agreement intentionally keeps silent on these controversial issues. What is more, Articles 7 (""Objectives") and 8 (""Principles") provide a framework for the interpretation and implementation of the Agreement. In accordance with Article 7, the protection of intellectual property rights is not only intended to promote ""technological innovation", but the ‘transfer and dissemination’ of technology, which is of particular importance for developing countries. According to Article 8.2, member states may adopt necessary measures to avoid the abuse of IP rights and the practices unreasonably restrictive of international technology trade ( Marie-Helene Polo.1996). Therefore, developing countries are still entitled to enact regulations dealing with the restrictive practices in technology transfer transactions provide that they are not in breach of the principles and objectives of the TRIPs Agreement. In fact, in the past several decades, specialized technology transfer laws have not delivered the hoped for improvements in access to modern productive technology. For example, in Nigeria the system of technology transfer regulation set up under the national office of industrial property act 1979 has been largely ignored by foreign and Nigeria businessmen when entering agreements involving the licensing of technology, thus contracts often contain restrictive clauses that are prohibited under the law (P.T.Muchlinski; 1994,p.447). The technology transfer is, in essence, a kind of commercial transaction, the market participant in technology market (transferor and transferee) should be allowed to make decision based on commercial judgment, and only when the transaction infringe the public interest in the recipient countries can the government intervene the transaction. Indeed, the existence of controls over technology transfer agreements may simply act as a deterrent to the importation of technology in that the incentive for the technology owner to exploit its competitive advantages in the recipient state is reduced (P.T.Muchlinski; 1994,p.447). In a sense, such regulations could be regarded as bad law.
It is also argued that while there is some recognition in the TRIPs Agreement of the need to ensure adequate technology transfer, whereas such stipulation is just a so-called ‘best effort provision’. However, at the WTO Ministerial Conference at Doha in November 2001, Members agreed, inter alias, on a Decision concerning implementation-related issues and concerns. This Decision addresses several developing Members’ preoccupations about the implementation of the WTO agreements into their domestic laws. As to TRIPS, paragraph 11.2 of the Decision provides that:
“Reaffirming that the provisions of Article 66.2 of the TRIPS Agreement are mandatory, it is agreed that the TRIPs Council shall put in place a mechanism for ensuring the monitoring and full implementation of the obligations in question .To this end, developed-country Members shall submit prior to the end of 2002 detailed reports on the functioning in practice of the incentives provided to their enterprises for the transfer of technology in pursuance of their commitments under Article 66.2. These submissions shall be subject to a review in the TRIPs Council and information shall be updated by Members annually.”
The Decision reaffirms that the provisions of Article 66.2 of the TRIPS Agreement are mandatory, what is more, the Decision commits developed country Members to establish an incentives regime that actually promotes successful technology transfer.
Additionally, the TRIPs Agreement could encourage the technology owner to transfer the technology to developing countries. It is well known that the technology is increasingly essential to the competitive capacity and the economic development. However, developing new technology needs substantial amount of invest, in addition, such investment on the research and development of technology bear enormous commercial risks? On the other hand, the new technology enable the owner earn great profit. Naturally, the technology owners always pay much attention to their own technology. Undoubtedly, the deficient protection of intellectual property is in all probability an impediment for technology owner to transfer technology to such countries. Similarly, over intervention of the government in developing countries in the technology transfer transaction usually discourage the technology owners to transfer the technology.
The TRIPs Agreement, on the one hand, obligates the developing countries to give the intellectual property a high standard protection, on the other hand, the Agreement has not included the technology transaction laws dealing with restrictive practices in some developing countries into the treaty, essentially speaking, the Agreement does not support the over intervention to the technology transfer transaction, which contains restrictive clauses. Therefore, the TRIPs Agreement could act as a catalyst to stimulate the incentive of the technology owner to transfer the technology to developing countries.
Besides, TRIPs Agreement enables developing countries to attract more foreign direct investment, which usually is accompanied with the technology transfer. Trips agreement stipulates the minimum standard of intellectual property protection; the member states should enact or revise corresponding law according to trips agreement and give intellectual property high standard protection. In general, the state of protection of intellectual property rights in a countries is one of the most important consideration when the multinational enterprises, especially some high technology companies, making the investment decisions. Naturally, the poor state of intellectual property protection is usually an impediment for the MNEs to decide to invest in such a country. So the trips agreement may enhance the capacity of developing countries to attract foreign direct investment and consequently have more opportunity to import needed technology.
Due to special nature of technology, the technology transfer transaction generally contains some restrictive terms. In the past decades, many developing countries enacted specialized technology transfer law to cope with such a situation, however, such trial did not attract wanted technology as hoped. On the other hand, just contrary to the opinions of many people, the TRIPs Agreement may serve to help developing countries to attract more technology, by reason of stimulating the incentive of technology owner to transfer the technology and encouraging a mature commercial technology transaction market without undue government intervention.
1.Carlos M. Correa. 1997, Implementation of the TRIPS Agreement in Latin America and the Caribbean, European Intellectual Property Review, E.I.P.R. 1997, 19(8), 435-443.
2.Hanns Ullrich, 2004, Expansion Intellectual Property Protection and Reductionist Competition Rules: a TRIPS Perspective, Journal of International Economic Law.
3.Kamal Saggi, May 2000, Trade, Foreign Direct and Investment, and International Technology Transfer, The World Bank Development Research Group.
4.Marie-Helene Polo.1996, Intellectual Property After GATT: The TRIPS Agreement, International Company and Commercial Law Review, I.C.C.L.R. 1996, 7(6), 230-234.
5.Michael Blakeney, 1989, Legal Aspects of Transfer of Technology to Developing Countries,
6.Pedro Roffe ﹠Taffere Tesfachew, 2002,Revisiting the Technology Transfer Debate: Lessons for the New WTO Working Group, BRIDGES, ICTSD, Vol.6, N°2.
7.P.T.Muchlinski, 1994, Multinational Enterprises and the Law, Blackwell Publishing.
This part mainly references to chapter 12 of Multinational Enterprises and the Law and chapter 3 of Legal Aspects of Transfer of Technology to Developing Countries.
Article 40(1). Members agree that some licensing practices or conditions pertaining to intellectual property
Rights, which restrain competition, may have adverse effects on trade and may impede the transfer and dissemination of technology.
Article 40(2). Nothing in this Agreement shall prevent Members from specifying in their legislation licensing
Practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grant back conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member.
In order to facilitate the implementation of this Agreement, developed country Members shall provide, on request and on mutually agreed terms and conditions, technical and financial cooperation in favor of developing and least-developed country Members. Such cooperation shall include assistance in the preparation of laws and regulations on the protection and enforcement of intellectual property rights as well as on the prevention of their abuse, and shall include support regarding the establishment or reinforcement of domestic offices and agencies relevant to these matters, including the training of personnel.
Article 7ObjectivesThe protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.
1. Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.
2. Appropriate measures, provided that they are consistent with the provisions of this Agreement,
may be needed to prevent the abuse of intellectual property rights by right holders or the resort to
Practices, which unreasonably restrain trade or adversely affect the international transfer of technology.