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INTELLECTUAL PROPERTY RIGHTS,PLANT GENETIC RESOURCES AND

TRADITIONAL KNOWLEDGEPhilippe Cullet, Christophe Germann, Andrea Nascimento & Gloria Pasadilla

Published in: S. Biber-Klemm & T. Cottier eds, Rights to Plant Genetic Resources and TraditionalKnowledge: Basic Issues and Perspectives (Wallingford: CABI, 2006) p. 112-154.

International EnvironmentalLaw Research Centre

International Environmental Law Research [email protected]

3.1 Introduction2

3.1.1 Overview

This chapter addresses in its first part theeconomic rationale of forms of protectionthat are granted under intellectual propertylaws and policies. In its second part, thischapter will discuss patent protection,plant breeders’ rights (PBR) and sui generisforms of protection. It shall in particularexplore the impact of these forms of protec-tion on traditional knowledge related toplant genetic resources and, more broadly,on biodiversity and equity (benefit sharing).This assessment under existing laws (delege lata) shall be completed by brief casestudies to illustrate the legal issues at stakeand shall propose solutions. The last part ofthis chapter outlines the impact of intellec-tual property rights on competition lawsand policies. It describes certain contrac-tual practices (licensing, patent pools,

mergers and acquisitions) that can reducecompetition. It also includes a casestudy pertaining to the seed sector to illus-trate consequences of concentrationsamong economic players that are detrimen-tal to public policies such as the promotionof biodiversity and equity. This analysis isrelevant for our purposes as favourableimpacts of intellectual property rights onbiodiversity may be jeopardized by anti-competitive behaviours without appropri-ate safeguards.

The question of intellectual propertyrights is relevant both to promote TKrelated to plant genetic resources (theirfunction as ‘positive rights’), and to preventmisappropriation of these intangible valuesby third parties to the disadvantage of localcommunities and individuals (their func-tion as ‘defensive rights’). As positiverights, IPR may be used as complementaryor alternative instruments with respect tosubsidies in order to promote the sustain-

3 Intellectual Property Rights, Plant GeneticResources and Traditional Knowledge1

Philippe Cullet,a Christophe Germann,b Andrea Nascimento Müllerc

and Gloria PasadilladaSchool of Law, School of Oriental and African Studies, University of London, Thorn-

haugh Street, Russell Square, London WC1 0XG, UK; bInstitute of European andInternational Economic Law, University of Berne, Hallerstrasse 6, CH 3012 Berne,

Switzerland; cLegal Advisor, Rue de Lyon 48, CH 1203 Geneva, Switzerland;dPhilippine Institute for Development Studies, NEDA Building, Amorsolo Street,

Makati City, Philippines

© The Swiss Agency for Development and Cooperation 2006. Rights to Plant Genetic Resourcesand Traditional Knowledge (eds S. Biber-Klemm and T. Cottier, assoc. ed. D. Szymura Berglas)

112

1 The authors would like to thank Martin Girsberger and Marie Wollheim for their comments on thischapter.2 Author: Christophe Germann.

able maintenance and further developmentof TK. As defensive rights, IPRs, as adaptedto the needs of TK holders and in line withapplicable public policy goals, may serve toprevent abusive use of classical IPR in thecontext of TK related to plant geneticresources. Both approaches require anunderstanding of the rationale underlyingthe grant of IPR and a stocktaking of thescope of existing forms of protection. Thepurpose of this chapter shall therefore con-sist of the provision of a basis in order toelaborate ideas and concepts that wouldallow the use of IPR for the benefit of thesustainable promotion of TK related toplant genetic resources.

3.1.2 Forms of intellectual propertyprotection

The term ‘intellectual property’ refers to aset of intangible products of human activitythat are legally defined. Sources of lawaddressing intellectual property can belocated on the national, regional and globallevels of jurisdiction.3 The legal compe-tence among national, regional and interna-tional jurisdictions to define, grant andenforce intellectual property rights consti-tutes the international component of intel-lectual property law. One of the maincharacteristic features of this system lies inthe principle of territoriality: the geograph-ical scope of application of intellectualproperty laws is the territory of the state orcommunity of states that has generated thecorresponding rights and obligations. How-ever, because the protection granted underintellectual property laws intrinsicallyrequires a cross-border extension, the inter-national law component of intellectual

property has been essential since the begin-ning. This international law componentwas originally based upon reciprocity con-siderations, and more recently has obeyedthe rationale underlying international traderules. It is materialized by way of bilateralas well as multilateral agreements such asthe Berne, Paris and Madrid conventionsand, since 1995, the Agreement on Trade-Related Aspects of Intellectual PropertyRights (TRIPS) that forms Annex 1c of theAgreement Establishing the World TradeOrganization (WTO).4

Intellectual property laws provide so-called exclusive or erga omnes rights, i.e. abundle of legally enforceable interestsvested with their owner, who can opposethem against any third party. Based on law,the holder of intellectual property rightshas the capacity to authorize or preventothers from acting in certain ways withrespect to these specific rights. As regardsthe economic aspects, the holder has theright to perform activities enabling him orher to commercially exploit the results oftheir research and development efforts onan exclusive (‘erga omnes’) basis that pro-vides for a competitive advantage. In addi-tion, the holder may be grantednon-economic rights in certain jurisdic-tions, such as inalienable moral rights tooppose mutilations of the work underauthor’s rights laws (e.g. Article 6bis of theBerne Convention) or, more generally, theright to be named as author or inventorunder the copyright or patent laws of mostEuropean countries (see for example Article62 of the European Patent Convention‘EPC’).

Intellectual property laws usually con-tain provisions concerning their scope ofprotection, the exclusive rights granted, the

IPR, PGR and Traditional Knowledge 113

3 Plant variety protection for example is addressed nationally by plant variety legislation such as the SwissAct on Plant Variety Protection of 20 March 1975, regionally by supra-national rules such as the CouncilRegulation EC No 2100/94 of 27 July 1994 on Community Plant Variety Rights, and globally by the UPOVConvention and Article 27.3(b) TRIPS. See also infra-sections II. C. and D. on Plant Breeders’ Rights and suigeneris protection systems.4 See the TRIPS Agreement under http://www.wto.org/english/docs_e/legal_e/legal_e.htm. For a detailedcommentary on the TRIPS Agreement, see Cottier (2004). For the texts of international treaties administeredby the World Intellectual Property Organization (WIPO), see http://www.wipo.int/treaties/index.html;national legislations on intellectual property in English may be downloaded from the Collection of Laws forElectronic Access (CLEA) under http://clea.wipo.int/clea/lpext.dll?f=templates&fn=main-h.htm&2.0

http://www.wto.org/english/docs_e/legal_e/legal_e.htm

http://clea.wipo.int/clea/lpext.dll?f=templates&fn=main-h.htm&2.0

http://www.wipo.int/treaties/index.html

limitations to such rights, the duration ofprotection, the enforcement mechanismsand the sanctions for infringement. Oncethe period of protection has expired, intel-lectual property falls into the so-calledpublic domain. Intellectual property isubiquitous as opposed to property on tangi-ble property (real estate, movables). Thismeans that this form of property cannot belimited to a particular physical body incor-porating the right: it is attached to all mate-rial or virtual occurrences of the protectedwork. Major forms of intellectual propertyprotection include:

● Patent and related industrial design.● Copyright and related neighbouring

rights.● Integrated circuit layout.● Geographical indications of origin.● Trademarks.● Plant variety.● Trade secrets (confidential information).

Within these main forms there are var-ious sub-forms.5 The relationship betweenthese forms and sub-forms may vary overtime, and different forms of protection maybe available for the same intangible value.In this sense, protection can be assured bysequentially using different forms. Forexample, a pharmaceutical product mayfirst be protected by patent and, after theexpiration of the statutory protection term,6

enjoy trademark protection for an indefiniteduration of time, since the terms of trade-mark protection can be renewed indefi-nitely.

3.1.3 The functions of intellectual propertyrights

The various forms of protection are gener-ally tailored to fulfil various legal, eco-nomic and social functions. Whilecreativity or innovation requiring qualified

individual efforts is to be encouraged forthe benefit of society in a market economy,private actors typically need incentives toinvest material resources in such efforts.These incentives may take the form of sub-sidies, or other advantages such as privateproperty titles. In the latter case, the stategrants intellectual property rights (IPR) tocreators or innovators upon the fulfilmentof certain conditions. These competitiveprivileges are usually limited in time, i.e.they last for the duration of the statutoryterms of protection. They may take the formof patents for technical innovation or copy-right for creative achievements related tocontent (such as text, music, films and,more recently, software, etc). The owner ofa patent or a copyright has, subject to cer-tain exceptions (e.g. compulsory licensingor fair use), the exclusive right to use, repro-duce, disseminate, market, etc., the pro-tected invention and content, respectively,for a given period of time. These terms ofprotection can vary from one jurisdiction toanother, so long as they comply with theminimum duration set forth in interna-tional agreements such as the TRIPS agree-ment at the global or the EU directive at theregional level.

The World Intellectual Property Orga-nization (WIPO) summarizes the rationaleunderlying the grant of IPR as follows:

The primary purpose of most branches ofthe IP system (excluding trademarks andgeographical indications) is to promote andprotect human intellectual creativity andinnovation. IP law and policy does so bystriking a careful balance between therights and interests of innovators and cre-ators, on the one hand, and of the public atlarge, on the other. Thus, by granting exclu-sive rights in an invention, for example, theIP system encourages further innovation,rewards creative effort, and protects the(often substantial) investment necessary tomake and commercialise the invention.The patent system also encourages people

114 P. Cullet et al.

5 For an introduction to these various forms of protection, see WIPO, Intellectual Property Reading Material(status: August 2003), on http://www.wipo.org/news/en/index.html?wipo_content_frame=/news/en/documents.html6 The minimum duration of patent protection for Members of the WTO is 20 years according to Article 33TRIPS.

http://www.wipo.org/news/en/index.html?wipo_content_frame=/news/en/documents.html


to disclose inventions, rather than retainthem as trade secrets, thus enriching thestore of publicly available knowledge andpromoting further innovation by otherinventors. Thus, public dissemination is animportant IP objective. Copyright and otherIP brands work in a similar way. Theprogress and well-being of humanity restson its capacity for new creations in areas oftechnology and culture. The promotion andprotection of IP can also spur economicgrowth, create new jobs and industries, andenhance the quality and enjoyment of life.However, the IP system also responds tothe needs of the public at large. Most IPrights are of limited duration, after whichthe protected creations falls into the publicdomain (only trademarks may be renewedindefinitely, and geographical indicationscan subsist indefinitely).7

Intellectual property is a form ofknowledge that societies have decided canbe assigned specific property rights. Theyhave some resemblance to ownership rightsover physical property and land. Intellec-tual property creates a legal mean to appro-priate knowledge. A characteristic ofknowledge is that one person’s use does notdiminish another’s use of it (e.g. reading atext). Moreover, the extra cost of extendinguse to another person is often very low ornil (e.g. copying an electronic file). Fromthe point of view of society, the morepeople who use knowledge the better,because each user gains something from itat low or no cost, and society is in somesense better off. Economists therefore saythat knowledge has the character of a non-rival public good. The other relevant fea-ture of knowledge, or product embodyingknowledge, is the difficulty of preventingothers from using or copying it. Most prod-ucts can be copied at a fraction of the cost ittook to invent and market them. Econo-mists refer to this characteristic as con-tributing to market failure. If a producttakes considerable effort, ingenuity and

research, but can be copied easily, there isunlikely to be a sufficient financial incen-tive from society’s point of view to devoteresources to invention (CIPR, 2002, pp.11–14).

In short, IPR are thus entitlementsgranted under law to reward creative orinnovative intellectual efforts. IPR protectintangible wealth, which can often be easilyappropriated and reproduced. One of thecharacteristics of intellectual creativity isthat it can be used and reproduced withoutdepriving the creator of possession, asopposed to tangible wealth, which is usu-ally subject to finite limitations of owner-ship and/or use. Furthermore, the productsof intellectual creativity can often be repro-duced at very limited marginal costs. Inno-vators and investors in innovation havetherefore called for the development of amechanism to protect the intangible wealthassociated with intellectual creativity.

3.2 The Protection of TK Related toPlant Genetic Resources8

3.2.1 Definitions9

During the second half of the 19th century,the first modern patent laws were adoptedin several European countries – in Britainin 1874, Germany in 1877 and Switzerlandin 1887, whereas The Netherlands onlyreintroduced a patent system in 1910,which became effective in 1912; as well asin the USA (the initial Act of 1793 wasrevised in 1836, 1870 and 1874) and inJapan (1885).10 At that time patent legisla-tion was essentially designed to protectmechanical and conventional chemicalinventions within industrialized countries.With the passage of time a number of newtechnologies emerged for which patentabil-ity was affirmed, most recently for biotech-nology and, at least in certain jurisdictions,


7 WIPO, Intellectual Property Reading Material, see note 5. http://www.wipo.org/news/en/index.html?wipo_content_frame=/news/en/documents.html8 Author: Christophe Germann.9 See also Chapter 1.10 For an historical survey, see Machlup (1999, p. 224 ff.).



for computer programs. Genetic engineer-ing is part of biotechnology, which gener-ally addresses the technical use ofbiological processes. Modern genetic tech-nology is considered to have started in1973, when scientists were first able to bindgenetic material in vitro and to plant it intobacteria as well as to reproduce it for thefirst time. Biotechnology includesin vitro culture, rhizobium technology,fermentation and more advanced tech-niques that involve genetic engineering.11

We shall confine our analysis to theprotection of plant genetic resources (PGR)and their related know-how. Article 2 CBDdefines ‘genetic resources’ as ‘genetic mate-rial of actual or potential value’. The Con-vention does not further clarify themeaning of value. According to this samearticle, ‘genetic material’ includes ‘anymaterial of plant, animal, microbial or otherorigin containing functional units of hered-ity’. Genetic resources therefore comprisegenetic material of actual or potential valueof plant, animal, microbial or anotherorigin. One can distinguish between geneticresources of wild species, cultivated ordomesticated species and their relatives,and man-made genetic resources.12

Girsberger proposes the making of anadditional distinction between PGR andPGR used in the production of food andagricultural products (PGRFA), and offers adefinition for a ‘traditional’ PGRFA, i.e. theresult of informal plant breeding activities.He further defines ‘formal’ and ‘informal’plant breeding, the former type meaningplant breeding performed by private seedcompanies and public research institutions,and the latter type meaning plant breedingperformed by individual farmers andindigenous and other rural communities,involving their traditional knowledge andknow-how. A distinctive characteristic ofinformal plant breeding is that the breedingprocess usually proceeds over a long timeperiod, sometimes over several human gen-

erations. Furthermore, the results of infor-mal plan breeding are generally freelyaccessible to others, for example otherinformal plant breeders, collectors ofPGRFA, or the remainder of the community(Girsberger, 1998, p. 1022).

Accordingly, the analysis will encom-pass traditional knowledge related to PGRin general and to traditional PGRFA, and totraditional PGRFA themselves, subsumedunder the term ‘traditional knowledgerelated to PGR’.

3.2.2 Patent protection

Introduction

In this section we shall outline the scope ofpatent protection in general, and specifi-cally explore the extent to which patentprotection is suitable for traditional knowl-edge related to plant genetic resources.There is little doubt that patents are appro-priate for formal plant breeders’ innova-tions. However, the advancement ofbiotechnology has focused attention on theintellectual property situation of holders oftraditional knowledge and traditionalPGRFA. As a matter of fact, certain biotech-nological innovations draw substantialvalue from these sources. It is thereforeuseful to assess the scope of patent protec-tion for innovations related to traditionalknowledge and traditional PGRFA in orderto better understand the various issues atstake and discuss the corresponding solu-tions in later chapters. Relevant questionsinclude: What are the problems at the inter-face between IPR and TK related to plantgenetic resources (see Chapter 7)? Whatsolution can patent protection provide totraditional knowledge holders and holdersof traditional PGRFA? What are alternativeforms of protection that could contribute toreaching the relevant policy goals? Howmust patent protection be better adapted to


11 For detailed definitions of ‘genetic engineering’ and ‘biotechnology’ and further relevant terms, see Girs-berger (1998, p. 1023); and Girsberger (1999, p. 329 ff.) quoting ‘Legal Environment’.12 Man-made genetic elements are the genetic resources of cultivated species that are characterized by a highdegree of human intervention; see Heitz, Buenos Aires, November 1991, pp. 114 and 118.

fit with the interests of traditional knowl-edge holders?

With the advancement of biotechnol-ogy, the question of patenting life formsbecame a central topic in the intellectualproperty law and policy agenda of industri-alized countries. In turn, this agenda had,and still has, a significant impact on devel-oping countries, where arguably most valu-able sources of traditional knowledgerelated to plant genetic resources reside.This discussion can be characterized bythree main issues. First, there is thedichotomy of discovery versus invention;secondly, the question of novelty and theassessment of prior art and of the inventivestep related thereto; and last, but not least,the debate on ethics and morality of patent-ing life forms. The track chosen in this areaby the USA was quite straightforward. Itwas driven by strong business interests, andcomparably weak opposition from otherconcerned parties. In contrast, the legisla-tive process in the EU tended to considernon-business concerns, such as moralityand equity, with more emphasis, mostrecently in the context of the elaborationand adoption of the Biotech Directive.13

With respect to the qualification ofpatentable ‘invention’ as opposed to non-patentable ‘discovery’, the landmark USSupreme Court case Diamond vsChakrabarty in 1980 stated that the relevantcriterion is human involvement in natureand not the distinction between inanimateand living material. In a nutshell, if anachievement can be shown to be humanrather than natural, it should be open topatent protection, since human ingenuityshould receive encouragement. A compara-ble approach also eventually prevailed inEurope and other industrialized regionsand countries.14

The assessment of novelty remains ahighly sensitive ongoing issue, both in theNorth and in the South. In industrializedcountries the trial and error process, driven

by patent registration-related administra-tive practices and case law, mainly focusedon the balance pertaining to the appropriatelevel required for the criterion of inventive-ness to be fulfilled. If the required inventivestep is insufficient, there is concern for effi-ciency induced by competition. In contrast,if the required inventive step is prohibitive,patent protection no longer works as anincentive for research and development. Innew technological fields, patent officescommonly tend to adopt a lax registrationpractice during the first stage, by requiringa relatively low inventive step. At a secondstage, this practice is usually challenged bycompetitors through judicial review. Even-tually, the resulting case law typically leadspatent offices to be stricter and, thus,request a higher degree of inventiveness.This trial and error approach means that theinitial broad scope of protection is subse-quently fine-tuned in order to reduce it to alevel where ideally the incentive functionthat is underlying the grant of the exclusiverights preserves sound competition amongmarket actors.

The main concern of developing coun-tries resides in opposing their prior artachievements against foreign corporationsthat take undue advantage of them. This isgenerally the case when companies want toregister patents for inventions that drawfrom traditional knowledge related to plantgenetic resources.15 Concurrent to this con-cern is the legitimate aspiration of certaintraditional knowledge holders to takeadvantage of the intellectual propertysystem for equity as well as other policyconsiderations. In this context, the criterionof novelty can preclude protection for suchknowledge that is by definition traditionalor incremental. The insufficiencies of thecurrent system, which is based uponnational and regional legislations, may leadto a situation where certain parties canobtain patent protection for elements of tra-ditional knowledge as inventions in their


13 See Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protec-tion of biotechnological inventions, OJ L 213, 30 July 1998, pp. 13–21.14 For more detailed references, see text accompanying note 30.15 See the case studies below, in particular the turmeric case study, p. 135.

jurisdiction because of an insufficient priorart search, although these parties did notgenerate the knowledge, whereas the tradi-tional holders of such knowledge may notbe granted exclusive rights in other juris-dictions because of the lack of novelty thatis inherent in this type of intellectual valueachieved over generations. Although this isprimarily an issue with respect to the USpatent law and its definition of prior art, itmay inspire legislators in other jurisdic-tions, and therefore cause a run to thebottom. Additionally, the difficulty toaccede to existing TK when carrying outprior art search may be prohibitive if thisTK is not documented in writing or in lan-guages the patent authorities are familiarwith. Therefore, even though such searchesare carried out correctly, access to TK maynot be possible in practice along the classi-cal route. As of today, existing laws do notsufficiently address this issue, either on thenational level, or on the international level.Some major industrialized countries arereluctant to introduce anti-biopiracy mech-anisms to oblige patent applicants to pro-vide relevant information pertaining to theuse and sources of traditional knowledge orgenetic material for their invention. Thesemechanisms could take the form of moreefficient novelty-destroying internationalprior art searches and procedures to assessprior informed consent (‘defensive rights’).Switzerland, for example, proposed severalmeasures to combat ‘biopiracy’, e.g. toestablish an international gateway (or inter-net portal) for traditional knowledge thatwould link local and national databases,improving access to existing traditionalknowledge by patent authorities and thusfacilitating prior art searches. Switzerlandfurthermore recommended amending thePCT abbreviation to explicitly enable thenational legislator to require patent appli-cants to disclose the source of geneticresources/traditional knowledge in patentapplications.

Finally, the ethical and moral ques-tions respectively divide proponents andopponents of patent protection for livingforms, both in the North and in the South.

According to Dunleavy and Vinnola (1999,p. C11), the morality-based provisions inArticle 6 of the EU Biotech Directive couldarguably be considered to represent themost significant difference between futureEuropean practice and established US prac-tice. However, these authors perceive thatthe USA appears to be moving towards anapproach that is similar to that of the EUregarding the patentability of these types ofinventions. In addition to the ‘morality’ orethical questions that specifically refer tointellectual property rights in connectionwith living things, the very concept of pri-vate ownership, as opposed to publicdomain or collective ownership withrespect to intellectual achievements, lackslegitimacy in certain Southern cultures.The intellectual property system itself islargely accepted in industrialized coun-tries, and divergences of opinion mainlyfocus upon the appropriate standards ofprotection. In contrast, the ability to grantprivate rights to individuals or collectivesfor works of mind remains contested, oreven rejected, by many local communitiesin developing countries for moral or ethicalreasons.

To summarize, the debate concerningthe patentability of TK related to PGRaddresses not merely technical issues, butpresents a remarkable conceptual complex-ity: it is about the legal meaning of ‘inven-tion’, ‘novelty’ and ‘property’, and beyondthat, about the legitimacy and acceptance ofthe entire system.

The following section aims to provide abrief stock take of the patentability of lifeforms in general, and specifically focus onlegal aspects that are relevant to traditionalknowledge related to plant geneticresources. It will furthermore outline theissues at stake in order to prepare theground for reflection throughout later sec-tions of this book concerning theapproaches that can be utilized to adapt thecurrent intellectual property system, and inparticular patent protection, for the pur-poses of maintaining and further develop-ing traditional knowledge related to plantgenetic resources.


The rationale of patent protection

Patents offer protection for inventions, i.e.for solutions to specific problems in thefield of technology. Patents define theirowners’ exclusive rights pertaining toinventions. They are statutory privilegesthat take the form of competitive advan-tages that are granted by governments toinventors for a specified period of time.Patents provide, at least in certain respects,the most extensive exclusive rights amongstthe major forms of intellectual propertyprotection. Patents have gained increasedprominence with the development ofgenetic engineering, which is reliant onPGR to some extent. As a result of theincreased activity by individuals and theprivate sector in this field, the scope ofpatentability has steadily increased overthe past couple of decades. Calls for furtherexpansion of the scope of patentability havebeen countered in recent years by counter-claims that patenting elements which arecommonly used by researchers for furtherinnovations, such as those used in genetechnology, may end up hindering ratherthan promoting innovation.

The rationale underlying the grant ofpatents is based on equity as well as onpragmatic considerations. Equity consider-ations materialize the concepts of ‘justice’or ‘natural rights’, whereas the pragmaticjustifications refer to the promotion of thepublic interest. The so-called ‘natural-law’thesis assumes that humans have a naturalproperty right to their own ideas. Under the‘exchange-for-secrets’ or the ‘monopoly-profit-incentive’ concepts, an inventor dis-closes the results of his or her efforts to thepublic. In exchange, the inventor is granteda monopoly-like privilege for a limitedperiod of time, with respect to the commer-cial use of the invention. In this way, thestate provides the inventor with a competi-tive advantage in consideration of the dis-closure of the inventor’s intellectualachievement. This disclosure allows thirdparties to perform further research anddevelopment based on the invention. It fur-ther enables them to work freely and usethe invention after the expiration of its

terms of protection. Thus, technologicalprogress is promoted through a legal incen-tive, the patent, to diffuse the knowledgerelevant to the invention that the inventorcould otherwise keep secret. By this line ofreasoning, the competitive privilegesgranted to the inventor may also be consid-ered as an award for the investment in qual-ified inventive efforts that were alreadyperformed, and as an incentive to proceedto future inventive efforts. As a matterof fact, it allows the patent owner to derivea material benefit that compensates himor her for the research and develop-ment cost the invention has entailed(Machlup, 1999, p. 231 ff.). In the case ofviolation of this exclusive rights by anotherperson, who exploits the protectedinvention without authorization, the patentowner can require the courts to orderthat the infringement ceases as well asawarding civil, administrative and criminalremedies.

The balance that patent laws try toachieve is, on the one hand, to encourageinventive and innovating efforts on an indi-vidual basis and, on the other hand, to dis-seminate knowledge and the resultingtechnological achievements for the generaleconomic and social welfare of society as awhole. When investing in research anddevelopment, companies usually face whateconomists have labelled the ‘incompleteappropriability of knowledge’ (Arrow, 1962,p. 609). According to this concept, theinvestment in the production of knowledgewill be difficult, if not impossible, to protectcompletely, since part of the newly gener-ated knowledge will diffuse to competitorsand into the public domain. For firmsinvesting in the production of knowledge,patent protection provides only a partialsolution. It allows the investing firm toappropriate a return on its investment inresearch and development by protecting itsinvention against unauthorized duplication.However, since the patentee must discloseher/his new knowledge, this enables com-peting firms to build upon such knowledgeto create other inventions that can be simi-lar, but not identical, to the protected one. Itmay require costly litigation to determine


infringement in such circumstances. Thecost of substantially imitating an existingproduct, with or without improvement,is usually lower and less risky than theoriginator’s cost of creating, developingand marketing the new product. Sucha competitor can act in a shorter timethan was needed by the patentee, andundercut the return to the patentee.Because of the diminished risk-weightedincentive to the originator, some authorshave concluded that ‘total welfare, but notthe welfare of consumers, would beincreased by making it more difficult toproduce close substitutes for existingproducts’.16

It may be argued that the grant of apatent encourages investment in the pro-duction and distribution of an invention,since the patent monopoly assists theinvestor in penetration and defence of themarket. On the other hand, the neutral-ization of competition during the termsof protection may trigger a rent in formof a high rate of return in favour of theinventor, inhibiting him from furtherinnovation.

In the seed sector, for example,research and development initially weremainly performed by state-owned entitiessuch as government agencies and universi-ties. These efforts were thus funded bypublic money. For this reason, there was nodemand for IPR protection until the privatesector started to gain an interest in thisbusiness. As described later under Section3.2.3, this development began with legisla-tive action in the field of plant variety pro-tection in the USA. In contrast to the legalsolutions eventually adopted in Europe,innovators in the USA may claim protec-tion both under plant variety and patentlaw. Subsequently, with the further growthof biotechnology, the private industryrequired intellectual protection for lifeforms and microorganisms. Once this sectorbegan to attract private industry, the protec-tion of intellectual property rights in these

fields was put onto the legislative agenda ofindustrialized countries and regions. Pri-vate actors argued that effective protectionwas required in order to secure a return onlarge private investments performed forresearch and development into biotechno-logical innovations. Patents and otherforms of protection grant an advantage overcompetitors who did not make the sameinvestments into innovation. Furthermore,the industry required that this competitiveadvantage was to be extended vis-à-vis theusers, because the relevant inventions weretypically life forms that could reproducenaturally, and consequently, they did notneed repeated purchases by farmers. In thecase of genetically modified rape, for exam-ple, the results of this law-making processin the USA eventually raised a polemic,when farmers became aware of theirincreased dependency upon major produc-ers and distributors. Since biotechnologyallows the transformation of genes acrossspecies boundaries, the genetic modifica-tion of organisms raises not only merelyeconomic questions, but also substantialethical, environmental and social issuesthat the relevant laws also have to addressas part of an ongoing process.

Whereas certain cultures oppose theconcept of granting exclusive rights overliving forms, other cultures accept thisapproach under clearly defined conditionsin order to fulfil certain policy goals that arein the public interest. The latter culturesargue that intellectual property rights are acost-efficient alternative to publicly fundedinnovation because they function as incen-tives for privately performed research anddevelopment.

Even if one accepts that the intellectualproperty system should be extended toapply to life forms, one can question theappropriate levels of protection. The incen-tive rationale primarily covers investmentsinto research and development by grantinglegally secured competitive advantagesduring the marketing phase. However, too


16 See Hilton Davis Chemicals Co. vs Warner-Jenkinson Company, Inc., United States Court of Appeals forthe Federal Circuit, 62 F.3d 1512; 1995 U.S. App. LEXIS 21069, 8 August 1995, quoting Besen and Raskind(1991).

much protection can cause a situation wheremajor producers and distributors are able tocontrol the market. In this case, undertakingshaving a dominant position can drive theirsmaller and, as the case may be, more inno-vative competitors out of business. Eventu-ally, in the worst-case scenario, theconsumers’ choice becomes restricted to theproducts and services that are most power-fully marketed to the exclusion of the mostinnovative ones. This development under-mines the incentive effect of intellectualproperty rights in contributing to the techno-logical progress for general welfare.17

The allocation of IPR is premised onthe notion that innovation is driven byprofit. From a societal point of view, IPRstrive to balance the private interests of cre-ators, by ensuring that they still have anincentive to create, against those of societyat large to have the information availablefor its use. Even though information doesnot diminish once it is shared, the role ofIPR is to ensure that information providersdo not lose rights to the information by dis-closing it, since such information can beused by an infinite number of personssimultaneously (Landes and Posner, 1989;Baer, 1995). Indeed, one of the perceivedphilosophic underpinnings of IPR is toensure disclosure of the information whilemaintaining exclusive rights for the creator.It is significant, however, that there is stillno consensus, even in developed countries,concerning the social or economic utility ofgranting intellectual property rights. In fact,there have not been any significant empiri-cal studies demonstrating the beneficialimpact of the grant of patents on economicor social development (Abbott, 1989).

The concepts of invention and the protectionof plant varieties

On the global level, the TRIPS agreement iscurrently the most detailed international

instrument addressing substantive patentprotection. This agreement, that is part ofthe WTO body of rules resulting from theUruguay round, entered into force in Janu-ary 1996 for industrialized countries, and,subject to the transitional arrangements inArticles 65 and 66 TRIPS, 4 years after-wards for developing countries and, if cer-tain additional conditions are fulfilled, topreviously centrally planned economies. Inthe area of patent protection, section 5 ofthe second part of the TRIPS agreementrefers to, and further completes, the ParisConvention in the Stockholm version of 14July 1967. From the perspective of industri-alized countries, the Paris Conventionneeded updating and the addition of extra,as well as more detailed, rules concerningmany aspects of patent protection. In par-ticular, the scope of patent protection washighly controversial during the TRIPSnegotiations (Cottier, 2004). Article 27TRIPS provides that patents shall, subjectto certain conditions, be available for anyinvention, whether a product or process, inall fields of technology, provided that theyare new, involve an inventive step and arecapable of industrial application. TheTRIPS Agreement does not define the term‘invention’.

Article 53(b) of the European PatentConvention of 5 October 1973 (EPC)18

excludes plant and animal varieties orprocesses that are essentially biological forthe production of plants or animals frompatent protection, while not extending thisexclusion to microbiological processes orthe products thereof. In contrast, Article27(3)(b) TRIPS provides that Members mayexclude plants and animals other thanmicroorganisms from patentability, as wellas essentially biological processes for theproduction of plants or animals other thannon-biological and microbiological pro-cesses. This latter exception serves as crite-rion that enables a more concrete


17 Compare Germann (2003), on the detrimental effect of excessive copyright and trade mark protection oncultural diversity in the audiovisual sector.18 Version as amended by the Act revising Article 63 EPC of 17 December 1991 and by the decisions of theAdministrative Council of the European Patent Organisation of 21 December 1978, 13 December 1994, 20October 1995, 5 December 1996 and 10 December 1998.

distinction between discoveries and inven-tions. Members must provide legal tools forthe protection of plant varieties, either bypatents or by an effective sui generissystem, or by any combination thereof. Inother words, the TRIPS agreement distin-guishes between the protection of plantsand animals on the one hand, and the pro-tection of plant varieties on the other.Whereas plant varieties must be protectedby way of patents or through equivalentmeans, plants may be excluded from patentprotection. At the European level, the EPCexcludes plant varieties from patent protec-tion. The TRIPS agreement contains neithera definition of a ‘plant variety’ nor of a‘plant’. This term is defined in Article 1(vi)of the UPOV Convention 1991:

‘variety’ means a plant grouping within asingle botanical taxon of the lowest knownrank, which grouping, irrespective ofwhether the conditions for the grant of abreeder’s right are fully met, can be• defined by the expression of the charac-

teristics resulting from a given genotypeor combination of genotypes;

• distinguished from any other plantgrouping by the expression of at leastone of the said characteristics; and

• considered as a unit with regard to itssuitability for being propagatedunchanged.

The EPO Board of Appeal discussedthe definition of ‘plant variety’ as set forthunder Article 53(b) EPC in the decisions T49/83,19 T 320/87,20 and, with reference tothe above-quoted definition contained inthe UPOV Convention 1991, in T 356/93,21

as well as in T 1054/96.22 According to theapproach adopted under the EPC, plantvarieties shall be protected under plantbreeders’ rights, which are specificallydesigned for this purpose. This form of pro-tection can therefore be considered as a lexspecialis vis-à-vis patent protection. Thepurpose and objective of these rights, as

defined by the UPOV Convention, are topromote plant-breeding activities, i.e. thecreation of new and improved plant vari-eties. Another rationale behind plant vari-ety protection is the promotion of the seedtrade (Girsberger, 1998, p. 1024, with indi-cation of further sources). As Girsbergerstresses, the general perception was deci-sive for concluding the UPOV Conventionthat protecting plant varieties by patentsdid not provide effective incentives forinvestment in plant breeding activities(Girsberger, 1998, p. 1027). This explainsthe reason why the form of protection ofplant varieties is left open in Article27(3)(b) TRIPS, and why a sui generis formof protection for plant varieties was consid-ered to be more appropriate under the EPC.

In the USA, patent protection for asex-ually reproduced plant varieties was pro-vided as early as 1930 under the PlantPatent Act. In 1970, the US Congressenacted the Plant Variety Protection Act(PVPA), which provided protection to newvarieties of ‘sexually’ reproduced plants inaddition to the Act of 1930. Under this leg-islation, the developer of a novel variety ofplant can apply for protection, based onwhich he or she can exclude others fromselling, reproducing, exporting and import-ing the protected variety for a period of 18years.

The case law pertaining to the EPC thataddresses the concepts of ‘invention’, ‘nov-elty’ and ‘morality’ in relation to plantgenetic resources provides an insight intothe current state of patent practice regard-ing patentability and scope of protectioninto the area of biotechnology in Europe.According to decision T 49/83 (OJ 1984,112) that referred to Article 52(1), Article53(b), R. 28 and R. 28a, no general exclu-sion of inventions in the sphere of animatenature can be inferred from the EPC. Thelandmark T 356/93 defined the concepts of‘ordre public’, ‘morality’, ‘plant varieties’,


19 OJ 1984, 112.20 OJ 1990, 71.21 OJ 1995, 545.22 See summary of these cases at http://www.european-patent-office.org/legal/case_law/e/I_B_3.htm (status:August 2003).

http://www.european-patent-office.org/legal/case_law/e/I_B_3.htm

‘essentially biological processes for the pro-duction of plants’, ‘microorganisms’,‘microbiological processes’ and ‘the prod-ucts thereof’.23 The meaning of the term‘plant varieties’ was discussed in T 49/83(OJ 1984, 112) and held to mean a multi-plicity of plants, which were largely thesame in their characteristics and remainedthe same within specific tolerances afterevery propagation cycle. The board addedthat plant varieties in this sense were allcultivated varieties, clones, lines, strainsand hybrids, which could be grown in sucha way as to be clearly distinguishable fromother varieties, sufficiently homogeneous,and stable in their essential characteristics.The legislator did not wish to afford patentprotection under the EPC to plant varietiesof this kind, whether in the form of propa-gating material or of the plant itself. Theboard further observed that Article 53(b)only prohibited the patenting of plants ortheir propagating material in the geneticallyfixed form of the plant variety. Following T320/87, the board addressed the meaning ofa process that, as a whole, was not ‘essen-tially biological’ within the meaning ofArticle 53(b). It highlighted that the trans-formation step at stake in this case, re-gardless of whether or not its perform-ance depended on chance, was an ‘essentialtechnical step’ (i.e. as opposed to an‘essentially biological’ one), which had adecisive impact on the desired final resultand could not occur without human inter-vention.24

Article 28 TRIPS determines the exclu-sive rights conferred by a patent. This pro-vision distinguishes between patents forproducts and patents for processes. Wherethe subject matter of a patent is a product,the owner is entitled to prevent third par-

ties who do not have their consent fromperforming the acts of making, using, offer-ing for sale, selling or importing for thesepurposes, the protected product. The samerights are granted for process patents thatcover the process itself and the productobtained directly by such process.25 Thisobviously extends the breadth of patentprotection, since one may obtain a title fora new process that leads to a product that isitself already protected or in the publicdomain. Furthermore, patent owners shallalso have the right to assign, or transfer bysuccession, the patent and to concludelicensing contracts.

Pursuant to Article 64 EPC, the Euro-pean patent confers the same rights aswould be conferred by a national patentgranted in that state on its proprietor ineach Contracting State in respect of whichit is granted. This provision therefore refersto the exclusive rights as defined in the sub-stantial patent laws of the Contracting Par-ties, except that it specifies within itssecond paragraph that the protection con-ferred by a patent on a process shall extendto the products directly obtained by suchprocess. In comparison, under breeders’rights such as those provided by Article 14of the UPOV Convention 1991, the produc-tion or reproduction (multiplication), con-ditioning for the purpose of propagation,offering for sale, selling or other marketing,exporting, importing, and stocking for thepurposes of the previously listed acts, of thepropagating material of the protected vari-ety can only be performed with the rightholder’s authorization.26

Whereas breeders’ rights address plantvarieties, rights conferred by patent protec-tion cover inventions. Article 52(2) EPCgives a negative definition of the latter term,


23 This decision analysed Article 53 by taking into account the historical documentation (‘travaux prépara-toires’) relating to the EPC, and substantially confirmed the findings of T 49/83, T 320/87 and T 19/90.24 See note 22. Case law summaries by the EPO may be found under http://www.european-patent-office.org/legal/case_law/e/I_B.htm25 Article 28.1(b) TRIPS sets forth: ‘A patent shall confer on its owner the following exclusive rights wherethe subject matter of a patent is a process, to prevent third parties not having the owner’s consent from theact of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposesat least the product obtained directly by that process’. Article 34 TRIPS contains a special rule addressing theburden of proof of process patent containing presumptions that are in favour of the process patent owner.26 For a more detailed analysis of the UPOV Convention, see Chapter 2, Section 2.3.4.

http://www.european-patentoffice.org/legal/case_law/e/I_B.htm

http://www.european-patentoffice.org/legal/case_law/e/I_B.htm

according to which discoveries, scientifictheories and mathematical methods, aes-thetic creations, schemes, rules and meth-ods for performing mental acts, playinggames or doing business, and programs forcomputers, as well as presentations ofinformation, shall not be considered asinventions. The items on this list, which isnot exhaustive, are commented upon in theEPO Guidelines27 and are further clarifiedthrough case law.28 The exclusions on thislist are either abstract (e.g. discoveries, sci-entific theories, etc.) or non-technical (e.g.aesthetic creations or presentations ofinformation). Article 52(4) provides thatmethods for treatment of the humanor animal body by surgery or therapy,and diagnostic methods practised on thehuman or animal body, shall not beregarded as inventions which are suscepti-ble to industrial application. In contrast tothe EPC, the TRIPS agreement does not con-tain a definition of invention. AlthoughArticle 27(3)(a) TRIPS allows Members toexclude diagnostic, therapeutic and surgi-cal methods for the treatment of humans oranimals from patentability, this provisiondoes not state that these methods are notinventions. Pursuant to Black’s Law Dictio-nary, the term ‘invention’ can be definedas:

… the act or operation of finding out some-thing new; the process of contriving andproducing something not previouslyknown or existing, by the exercise or inde-pendent investigation and experiment.Also the article or contrivance or composi-tion so invented … Invention is … not arevelation of something which exists andwas unknown, but is creation of somethingwhich did not exist before, possessing ele-ments of novelty and utility in kind andmeasure different from and greater thanwhat the art might expect from skilled

workers … The finding out – the contriv-ing, the creating of something which didnot exist, and was not known before, andwhich can be made useful and advanta-geous in the pursuits of life, or which canadd to the enjoyment of mankind. Notevery improvement is invention; but toentitle a thing to protection it must be theproduct of some exercise of the inventivefaculties and it must involve somethingmore than what is obvious to personsskilled in the art to which it relates.29

In the light of this definition of aninvention and for the purposes of assess-ing the patentability of PGR, it is interest-ing to note that under US patent lawthe relevant distinction is not madebetween living and inanimate things, butrather it is between natural products,whether living or not, and human-madeinventions. As mentioned above, the USSupreme Court decision Diamond vsChakrabarty of 1980 addressed the questionof whether an artificially created life form –a new form of bacterium obtained bygenetic alteration – is a patentable subjectmatter. The Court quoted excerpts from theCongress report issued in the course of theenactment of the Plant Patent Act of 1930 asfollows:

There is a clear and logical distinctionbetween the discovery of a new variety ofplant and of certain inanimate things, such,for example, as a new and useful mineral.The mineral is created wholly by natureunassisted by man … On the other hand, aplant discovery resulting from cultivationis unique, isolated, and is not repeated bynature, nor can it be reproduced by natureunaided by man.30

According to this approach, the rele-vant criterion centres around the humaninvolvement in nature: if an achievement isnot nature’s but human handiwork, it


27 See Guidelines for Examination in the European Patent Office, Part C, Chapter IV on Patentability, versionof October 2001, p. 50 ff.28 For an overview of the relevant case law, see http://www.european-patent-office.org/legal/case_law/e/I_A_1.htm.29 Black’s Law Dictionary (1990), p. 824.30 S. Rep. No. 315, 71st Cong., 2d Sess., at 6 (1930); H.R. Rep. No. 1129, 71st Cong., 2d Sess., at 7 (1930);quoted in: Diamond, Commissioner of Patents and Trademark vs Chakrabarty, Supreme Court of the UnitedStates 447 U.S. 303; 1980 U.S. LEXIS 112 (1980) relevant excerpts in: Abbott et al. (1999, p. 36).

http://www.european-patent-office.org/legal/case_law/e/I_A_1.htm

http://www.european-patent-office.org/legal/case_law/e/I_A_1.htm

should be open to patent protection sincehuman ingenuity should receive encourage-ment. In the case at stake, the SupremeCourt considered that the patentee had pro-duced a new bacterium with markedly dif-ferent characteristics from any found innature and one having the potential for sig-nificant utility.

The distinction between ‘discovery’and ‘invention’ led, in particular, todetailed case law under the EPC withrespect to the interpretation of ‘essentiallybiological’ within the meaning of Article53(b). According to decision T 320/87 (OJ1990, 71), whether or not a (non-microbio-logical) process was to be considered as‘essentially biological’ within the meaningof Article 53(b) had to be judged on thebasis of the essence of the invention, takinginto account the totality of human inter-vention and its impact on the resultachieved. The necessity for human in-tervention alone was not a sufficientcriterion for its not being ‘essentially bio-logical’. Human interference might onlymean that the process was not a ‘purely bio-logical’ process, without contributing any-thing beyond a trivial level. Furthermore, itwas not simply a matter of whether suchintervention was of a quantitative or quali-tative character. In this particular case, itwas concluded that the claimed processesfor the preparation of hybrid plants did notconstitute an exception to patentability,because they represented an essentialmodification of known biological andclassical breeders’ processes, and the effi-ciency and high yield associated with theproduct showed important technologicalcharacter.

Protective criteria

As mentioned, in order to enjoy legal pro-tection, an invention must fulfil certainconditions as set forth by national, regionalor international rules. Based on the patent,both the inventor and subsequent assigneeor licensee are entitled to produce andmarket the invention on an exclusive basis

for a determined period of time.31 Theowner of the patent thus has the right toprevent third parties from manufacturingand commercially exploiting the inventionwithout his authorization. The inventionmay relate either to a product or to aprocess. Patent laws generally rely uponfour essential criteria for the grant of exclu-sive rights.

NOVELTY

According to the first criterion, the inven-tion must be new or novel. This means thatthe invention has not been disclosed ordescribed before the date of filling in thepatent application. For the purpose ofassessing the novelty condition, the patentexaminer will perform a so-called ‘prior artsearch’. A patent application will generallybe defeated by an anticipating disclosure.There may be a controversy between aninventor and a patent examiner overwhether a particular prior art disclosuredoes in fact anticipate an invention, forinstance if a prior inventor described adevice that is similar, but not identical, tothe subsequent inventor’s device.

UTILITY

Pursuant to the second criterion, the inven-tion must be useful or capable of industrialapplication. This condition is particularlyrelevant within the fields of biotechnologyand chemistry, where it is possible forresearchers to develop new compoundswith relative ease, yet without, at least ini-tially, any immediate practical applicationin mind. The criterion of utility againbecame critical in the evaluation of claimsfor inventions in the area of biotechnology,in order to prevent ‘speculative booking’ ofexclusive rights.

INVENTIVE STEP

As a third condition, the invention mustinvolve an inventive step or, in otherwords, it should not be obvious. This


31 See note 6.

means that the invention must not simplybe novel, but must result from a qualifiedintellectual effort that makes it non-obvi-ous. This criterion thus requires a higherstandard of novelty through an inventivestep. Strong protection leading to a compet-itive advantage shall only be granted toinventions that would be an apparentimprovement to prior art to a person who isreasonably skilled in the art practised bythe invention. This requirement is justifiedby the ‘monopoly-profit-incentive’ ration-ale, according to which strong protectionshall only be granted to substantial contri-butions to the technological progress.

ENABLING DISCLOSURE

Finally, the fourth criterion obliges theinventor to disclose in the patent applica-tion either a means for enabling the practiceof the invention (generally for Europe), orthe best known means for practising theinvention (for the USA). One of the reasonsfor this condition is based on the exchangetheory of the award of the patent: the patentapplicant is awarded exclusive rights inreturn for the disclosure to society of a new,useful and non-obvious invention. Withouta disclosure that enables other persons tobenefit from the invention for their ownresearch and development work, thisexchange between the inventor and thesociety would not make sense. This condi-tion also performs the function of filteringout speculative applications, since it con-stitutes a reliable assessment of the useful-ness of the invention for the purpose of itsindustrial application. The applicant willtypically try to disclose to his competitorsas little as possible about the secrets of hisinvention, and obtain as much protection aspossible in return. This behaviour, whichoften leads to tensions between patentexaminers and inventors, is obviously notin the public interest since healthy compe-tition promotes innovation to the benefit ofsociety.

PROTECTIVE CRITERIA ACCORDING TO TRIPS AND EPC

As mentioned, pursuant to Article 27(1) of

TRIPS, patents shall be available for anyinventions, whether products or processes,in all fields of technology, provided thatthey are new, involve an inventive step andare capable of industrial application. Afootnote to this paragraph states that theWTO Members may interpret the terms‘inventive step’ and ‘capable of industrialapplication’ as being synonymous with theterms ‘non-obvious’ and ‘useful’, respec-tively. However, the TRIPS agreementdoes not further define any of these protec-tive criteria. For the time being, there is noWTO case law about the meaning of thesecriteria either. The Members thus have con-siderable discretion when implement-ing Article 27(1) TRIPS in their nationallaws.

In comparison, Article 52(1) EPCaddresses patentable inventions, and pro-vides that European patents shall begranted for any inventions which are sus-ceptible to industrial application, whichare new and which involve an inventivestep. As regards the criteria of novelty,Article 54(1) EPC states that an inventionshall be considered to be new if it does notform part of the state of the Article. Thus,the reference to the state of the art is pivotalin the determination of whether the criter-ion of novelty is fulfilled or not. Paragraph2 of this provision clarifies that the state ofthe art shall be held to comprise everythingmade available to the public by means of awritten or oral description, by use, or in anyother way, before the filing date of theEuropean patent application. In compari-son, for the purposes of Article 15.1 of PCT,relevant prior art includes everythingthat has been made available to the publicanywhere in the world by means ofwritten disclosure, and which can be ofassistance in determining that a claimedinvention is novel or non-obvious. UnderUS patent law it is fairly easy to obtainpatent protection for inventions that arebased on traditional knowledge, because itdoes not consider that the ‘novelty’ require-ment has been lost if the knowledge isdivulged outside the USA by means ofpublic use and sale. The essential require-ment of ‘novelty’ can be destroyed only


through publication.32 Unlike US patentlaw, in Europe and most countries in theworld, novelty is lost by any type of divul-gation in a foreign country, whether it isoral or written. In the USA, indigenouscommunities in developing countries havelittle opportunity to bring attention tounwritten knowledge, practices and inno-vations that demonstrate lack of novelty ornon-obviousness. To illustrate this issue,one can quote the neem case as an exampleof a patent that was allegedly based uponmisappropriation of non-published tradi-tional knowledge (see p. 136).

PROTECTION OF TRADITIONAL KNOWLEDGE UNDER

THE EPC

In the specific context pertaining to the pro-tection of plant genetic resources and tradi-tional knowledge referring thereto, it isinteresting to analyse the meaning of para-graph 5 of Article 54 EPC, which states thatits previous paragraphs shall not excludethe patentability of any substance or com-position comprised in the state of the art,for use in a method referred to in Article52(4) EPC, provided that its use for anymethod referred to in that paragraph is notcomprised in the state of the Article. Article52(4) EPC requires that methods for treat-ment of the human or animal body by sur-gery or therapy and diagnostic methodspractised on the human or animal body,shall not be considered as inventions thatare susceptible to industrial applicationwithin the meaning of paragraph 1, i.e. theyare not patentable. However, this latterrestriction shall not apply to products, andspecifically to substances or compositions,for use in any of these methods. For exam-ple, if a traditional healing method uses a

substance or composition that containsplant genetic resources the composition ofwhich is part of the state of the art, while thehealing method is not, patent protectionarguably should be granted to such a combi-nation of method and substance or composi-tion. This interpretation is relevant forpatent protection of plant genetic resourcesin connection with traditional knowledge inthe absence of the ability to protect suchresources. This may be because of theabsence of genetic engineering, or because itis already part of the state of the art, sincetraditional knowledge alone may not bepatentable pursuant to Article 52 paragraph2, letters c and d, which excludes schemes,rules and methods for performing mentalacts, as well as presentations of information,respectively, from patent protection. Thus,the novel aspect would essentially be vestedwith the combination of traditional knowl-edge and plant-related genetic resources.

Scope and limitations of patent protection

The scope of protection for patents is deter-mined by the terms of so-called ‘claims’ inthe patent application that are eventuallyaccepted by the patent office. The technicaldescription of the process or product in thepatent application usually serves to con-strue the claims. The scope of protection islimited by statutory provisions such as com-pulsory licensing and exhaustion rules.33

Rules limiting protection aim to ensurethat the public interest remains preservedwhen granting exclusive rights over a givenperiod of time. Public health (e.g. to pro-vide access to essential medicine to poorerparts of the population) or education (fairuse limitations) are typical grounds onwhich to restrain protection.34


32 Section 102 of the Patent Act, 35 U.S.C. § 102: ‘A person shall be entitled to a patent unless (a) the inven-tion was known or used by others in this country, or patented or described in a printed publication in this ora foreign country, before the invention thereof by the applicant for patent, or (b) the invention was patentedor described in a printed publication in this or a foreign country or in public use or on sale in this country,more than one year prior to the date of the application for patent in the United States’.33 See, for example, Articles 6, 7, 8 and 40 of TRIPS for general limitations and Articles 30 and 31of TRIPSspecifically for patents.34 For the discussion on patents for pharmaceuticals and non-trade concerns, see http://www.wto.org/english/tratop_e/TRIPS_e/pharmpatent_e.htm and http://www.cptech.org/

http://www.wto.org/english/tratop_e/TRIPS_e/pharmpatent_e.htm

http://www.wto.org/english/tratop_e/TRIPS_e/pharmpatent_e.htm

http://www.cptech.org/

More fundamentally, the scope of protec-tion is conditioned upon the quest of theintellectual to find a balance that addressesboth Garrett Hardin’s influential ‘tragedy ofthe commons’ and also the ‘tragedy of theanti-commons’. According to the theory of thetragedy of the commons (or ‘the tragedy ofopen access’), the absence of property rightsor access regulations over resources will leadto their depletion. While individuals accruebenefits as they exploit resources, the costs ofeverybody’s exploitation of the resources atunsustainable levels will have to be met bythe community as a whole. In economicterms, resource depletion is a negative exter-nality that results from the absence of indi-vidual property rights. As an example,Dutfield (2001) quotes the overexploitation ofhigh seas fishing stocks. On the other hand,the tragedy of the anti-commons is the resultof excessive intellectual property protectionthat hinders further innovation and creativity.

As mentioned above, patents aregranted in order to provide an incentive forinnovations and for the diffusion (disclo-sure) of these innovations. Without the pro-tection provided by the patent system,inventors would have no incentive to dis-close their inventions, and to keep themsecret in order to preserve their economicbenefits. With disclosure, patents helpavoid the wasteful duplication of innova-tion efforts, and instead channel resourcestowards unexplored areas of technology.Furthermore, patents are instrumental forthe commercialization of innovative prod-ucts and processes.

However, patents impose a short-runefficiency cost, because of the deadweightloss corresponding to the grant of quasi-monopoly rights. In standard economicparlance, anything that is not perfect com-petition pays an inefficiency trade-off, inthat the use of the innovation is less thanoptimal. Moreover, just as patents can helpto promote innovations, they can alsoadversely affect the flow of future inven-tions, by stunting incentives for relatedinnovation or further improvements, espe-cially where the patents have broad scopeand the licensing arrangements for theinnovation are prohibitive.

Thus, patent policy is not an optimalsolution, but rather a second-best solutionto a market failure problem in innovationproduction. The market failure stems fromthe fact that knowledge is a public good,which, once available, has zero marginalcost if used by others. From the economicperspective, innovations are non-rival inconsumption, which means that the use ofthe knowledge by others does not affect theamount that is available to the inventor.Conversely, if knowledge were a publicgood, then its producer who bore the cost ofinnovation would lose out from ‘freeriders’, thus providing no incentive to pro-duce the knowledge in the first place. Theresult would be an underproduction ofknowledge or dearth in innovation.

To summarize, patents that provide thelegal means of affecting the excludabilityattributes of an otherwise public good,solve the market failure problem of the non-appropriability of knowledge. Society paysfor this by the economic inefficiency associ-ated with monopolies. That is, the ‘staticinefficiency’ (from a monopoly) is the trade-off for the ‘dynamic efficiency’ resultingfrom greater innovation.

Preliminary conclusions on patent protectionfor holders of traditional knowledge

The progress in the biotechnology fieldcaused the meaning of fundamental notionsof patent protection to be questioned. Theconcepts of ‘invention’, ‘novelty’, ‘inven-tive step/non-obviousness’ and, last but notleast, ‘morality’, are at the heart of the dis-cussion about patenting life forms. Criticalobservers argue that accommodating thewishes of certain biotechnology sectors hasseriously blurred the distinction between‘discovery’ and ‘invention’ in patent law.They focus on many instances where theactual substance resides mainly in nature ortraditional practice, to which biotechnologyadds only minor changes (Nijar, 1996, p. 4).The question of an inventive step or non-obviousness is closely connected to thisissue. Granting property titles for littleadded intellectual value lacks legitimacyand runs counter to the public policy goals


underlying the whole system. Once oneaccepts that there is an invention, the ques-tions concerning novelty, and more particu-larly the inventive step, are dealt with inthe course of the examination procedure, aswell as through subsequent judicial reviewmechanisms. Current systemic insufficien-cies of law and practice pertaining to inter-national prior art searches are causing ashift from prior ex officio patent examina-tion to subsequent party-initiated judicialreview procedures. From the perspective ofholders of traditional knowledge related toplant genetic resources, challenging apatent because it does not fulfil the noveltyor non-obviousness requirements may turnout to be a very costly undertaking, whichis beyond the means of most individuals orlocal communities. Traditional knowledgeholders are usually at a disadvantage incases where patent offices are lax during theinternational prior art check and when, inpractice, the effective test only takes placeafter examination through judicial reviewon the initiative of a concerned party.As a matter of fact, for the time being,the patent system is mainly tailoredtowards those corporations that enjoy sub-stantial human and financial resources thatenable them to register their own inven-tions, to administer the rights and, as thecase may be, to challenge the registration oftheir competitors’ inventions. Withoutappropriate institutional infrastructures,such as adapted rights management sys-tems including databases, or collectingsocieties as flanking measures (see Chapter7), today’s patent system will remain agame for bigger corporations, and one thathardly provides any genuine level playingfield for individuals and local communitiesholding traditional knowledge related toplant genetic resources. These flankingmeasures cannot be of a merely technicalnature, but also need to address com-plex interactions between different legalcultures.

If traditional knowledge holders arenot able to participate in the intellectual

property system on a fair basis, this couldcontribute to the depletion of this knowl-edge within this system. In this case, hold-ers of traditional knowledge will missincentives to maintain and develop theintellectual achievements of their commu-nities that may be misappropriated by otherparties in stronger positions. When localcommunities cannot enjoy returns from, orare even precluded from free access to,inventions based on their traditionalknowledge because third parties havebecome right holders, the rationale ofequity underlying the grant of intellectualproperty rights does no longer work. More-over, it leads to a perverse result of thesystem when excessive standards of protec-tion start to hinder innovation because theymainly serve to attract capital for marketingefforts that eventually drive competitorsout of business, even if they are more inno-vative.35 This negative occurrence typicallystrikes marginal players such as traditionalknowledge holders first, and at the endoften leads to heavy concentrations amongmajor producers and distributors that aredetrimental to welfare. The term ‘morality’can be used to express the third main issueto be addressed in this context. In thepublic debate within industrialized coun-tries it covers the question of patenting lifeforms.36 We extend the meaning of ‘moral-ity’ in order to encompass the complexinterface between various legal orders,where one order rejects a body of rules thatanother tries to bring to application acrossthe formal limits of its own jurisdiction.There are several legal cultures that rejectthe very idea of private ownership for intel-lectual works that are based upon philo-sophical or religious traditions. How areclashes of legal cultures to be settled? Onthe one hand, the intellectual propertysystem needs to overcome national barriersin order to be effective. On the other hand,there is no legitimacy behind the imposi-tion of this system upon people who do notaccept it because it runs contrary to theirbasic principles. Both ‘morality’ issues


35 See Germann (2003).36 See text accompanying note 52.

exhibit at least one common feature:they challenge the intellectual propertysystem for philosophical or religiousreasons rather than for practical ones.The qualities and disadvantages of thesystem can no longer be discussed in apurely rational way. As is the case concern-ing questions about the death penaltyor abortion, one could even contest thedemocratic decision-making process thatleads to the adoption of an intellectualproperty system in which the opponents tothe system are defeated simply becausethey are in the minority. The task to find aconsensus concerning ‘morality’ considera-tions on the international level is more dif-ficult by far than the reaching of across-border understanding over the moretechnical concepts of ‘invention’ and‘inventive step’. Nevertheless, these twolatter concepts also pose substantial diffi-culties in their adaptation for the purposesof holders of traditional knowledge. Thesetasks include the determination of appro-priate forms of protection, specific protec-tive criteria, ownership, transfer of rightsmodalities, prior informed consent safe-guards and efficient international imple-mentation mechanisms. We will explorethe corresponding solutions in the chaptersbelow.

3.2.3 Plant breeders’ rights37

Patents are not the only form of protectionto encourage innovation. Several additionalforms of IPR are available, such as tradesecrets,38 plant breeders’ rights and suigeneris protection for plant varieties.

Background

Traditionally, patents did not cover naturalproducts. Over time, the scope of the excep-tion relating to nature has been significantlyreduced, but international intellectualproperty rights treaties have never yet goneso far as imposing patent protection forplant varieties. An alternative form of intel-lectual right protection for plant varietieshas developed progressively.

Various factors have contributed to thedifficulties of providing IP protection forplant varieties. One of these is that the notionof inventiveness, which characterizedpatents, would be diluted if plant varietieswere brought on board, because a new plantvariety was seen more as an improvement ofan existing natural product rather than as a‘scientific’ invention (Rangnekar, 2000). Fur-thermore, seeds had always been deemed tobe part of the common heritage ofhumankind and were freely exchangedamong farmers and farming communities(Shiva, 1994).39 However, it was increasinglyrecognised that a form of intellectual prop-erty rights was necessary in the seed sector inorder to encourage private investment.

Partly as a result of the progressivecommercialization of the agricultural sector,and partly because of the push for the intro-duction of some form of IPR protection,plant breeders’ rights (PBRs) evolved. Thesegave breeders specific legal rights to thevarieties they developed, in a bid to fosterthe development of varieties that could, oth-erwise, easily be reproduced by other farm-ers or competing breeders. Because theimpetus behind this measure came fromlarge commercialized farming systems,PBRs, as they exist today, have been devel-oped for the specific contexts and needs of


37 Author: Philippe Cullet.38 The rationale behind trade secrets, in contrast to patents, is based upon property theory or the doctrinesof tort, contract and trust, rather than being motivated by providing an incentive for innovation or creativity(Besen and Raskind, 1991). Its subject matter can be any formula, pattern, etc., which provides a businessadvantage over others who do not possess the information. Trade secret protection is not limited in time.39 The different positions expressed with regard to the introduction of plant breeders’ rights have taken onadded significance in the wake of the adoption of the TRIPS Agreement. Indeed, while a number of OECDcountries had progressively adopted a form of PBR before 1994 to foster the development of their privateseed industries, most developing countries had not introduced any form of intellectual property right pro-tection in the agricultural sector.

developed countries. The legal regime forPBRs is quite uniform; thanks to the fact thatmost countries that have introduced PBRshave either joined the International Unionfor the Protection of New Varieties of Plants(UPOV) regime, or have modelled their leg-islation on the UPOV regime (on UPOV, seeSection 2.3.4). The following paragraphsconsequently analyse PBRs as they havedeveloped in the UPOV context.

What are PBRs?

PBRs can generally be described as patentrights with some missing attributes. PBRsshare a number of characteristics withpatent rights: they provide exclusive com-mercial rights to the holder, reward aninventive process and are granted for a lim-ited period of time.

To be more specific, PBRs protect plantvarieties. Plant varieties can only be pro-tected by PBRs if they fulfil the four basiccriteria of: novelty, distinctness, stabilityand uniformity or homogeneity. Each ofthese characteristics is given further con-tent by the UPOV Convention. The conceptof novelty requires further elaborationbecause it differs from its acceptance underpatent law. Under UPOV, a variety is novelif it has not been sold or otherwise disposedof to others, by or with the consent of thebreeder, for the purposes of exploitation ofthe variety.40 Novelty is thus entirelydefined by the issue of commercializationand not by the fact that the variety did notexist previously. UPOV gives a specifictime frame for the application of novelty. Inorder to fulfil the requirement for novelty, avariety must not have been commercializedin the country where the application is filedfor more than a year before the application,or for more than 4 years in other membercountries (6 years in the case of trees and

vines). The criterion of distinctnessrequires that the protected variety shouldbe clearly distinguishable from any othervariety whose existence is a matter ofcommon knowledge at the time of the filingof the application.41 The requirement of sta-bility is satisfied if the variety remains trueto its description after repeated reproduc-tion or propagation.42 Finally, uniformityimplies that the variety remains true to theoriginal in its relevant characteristics whenpropagated.43

Over time, the definition of protectedvariety has evolved, insofar as so-called‘essentially derived varieties’ were not pro-tected during the early days of plant varietyprotection. The latest revision of UPOV hasintroduced protection for such varieties.44

Protection as an ‘essentially derived vari-ety’ is obtained if the variety is predomi-nantly derived from the initial variety andretains its essential characteristics.

Content and limitation of PBRs

The rights conferred upon plant breedersdiffer from patent rights insofar as they pro-vide much more extensive exceptions to therights they confer than patents. Breedershave exclusive rights to produce or repro-duce protected varieties, to condition themfor the purposes of propagation, to offerthem for sale, to commercialize them,including exporting and importing them,and to stock them in view of production orcommercialization.45 These rights arerestricted by a number of exceptions thatare compulsory in the UPOV context. Therights of breeders do not extend to acts doneprivately and for non-commercial purposes;to acts done for experimental purposes; tothe use of the protected variety for the pur-pose of breeding other varieties; or to theright to commercialize such other varieties


40 Article 6 of the International Convention for the Protection of New Varieties of Plants, Paris, 2 December1961, as revised in Geneva on 10 November 1972, 23 October 1978 and 19 March 1991 (Geneva, UPOV,Doc. 221(E), 1996) [hereafter UPOV-1991].41 Article 7 UPOV-1991, see note 40.42 Article 9 UPOV-1991, see note 40.43 Article 8 UPOV-1991, see note 40.44 Article 14.5 UPOV-1991, see note 40.45 Article 14 UPOV-1991, see note 40.

as long as they are not essentially derivedfrom the protected variety. While the previ-ous exceptions are compulsory, a set of fur-ther exceptions exists that has beenprogressively reduced over time. The so-called ‘farmer’s privilege’ falls into this cat-egory. Under UPOV-1978 the rights ofbreeders were circumscribed in such a waythat PBR did not interfere with farmers’ useof the legally obtained protected variety forpropagating purposes on their own hold-ings. Under UPOV-1991, the rights ofbreeders have been extended to the har-vested material of the protected variety andthe farmer’s privilege has been madeoptional.

With regard to the duration of PBR,their first characteristic is that they are lim-ited in time. The period of protection hasevolved over time, but always with the ideain mind that the rights conferred expire atthe end of a specific period of protection.Under UPOV-1978, the period of protectionis for a minimum of 15 years. For vines,forest trees, fruit trees and ornamental trees,the minimum is 18 years.46 UPOV-1991extends the minimum period from 15 to 20years. For trees and vines, the minimum isof 25 years.47

At first, PBRs were conceived as analternative to patent rights, and it wasaccepted that the two kinds of intellectualproperty rights should be kept separate.Thus, under UPOV-1978, member statescan only offer protection through one formof intellectual property rights.48 The grantof a PBR pertaining to a given varietyimplies that no other intellectual propertyright can be granted to the same variety.Under UPOV-1991 this restriction has beeneliminated and double protection is nowallowed.

3.2.4 Sui generis protection systems49

Rationale of sui generis protection

The question of sui generis intellectualproperty right protection for plant varietieshas become a matter of great importancefollowing the adoption of the TRIPS Agree-ment. As a result of a negotiating compro-mise, TRIPS requires the introduction ofplant variety protection in all memberstates, but it does not impose the introduc-tion of patents. Article 27.3.b specificallyrequires all member states to ‘provide forthe protection of plant varieties either bypatents or by an effective sui generis systemor by any combination thereof’.50 The intro-duction of the sui generis concept reflectstwo broad elements. First, a number ofcountries in the North and the South haverejected the compulsory introduction ofplant patents. Second, negotiators did notmanage to agree on one specific alternativeto patents. As a result, TRIPS gives memberstates a wide margin of appreciation indetermining how to implement their obliga-tion to introduce plant variety protection.

The question of the introduction ofplant variety protection is one that mostlyconcerns developing countries. Indeed,most developed countries had alreadyintroduced either plant patents or PBRsbefore the adoption of TRIPS. Developingcountries that are members of the WTOwere left with the choice of either adoptingthe existing regime proposed in UPOV or ofdevising their own plant variety protectionsystem adapted to their specific situation. Afew countries have joined UPOV since1994, but the majority have decided toadopt their own plant variety protectionlaws. In a number of cases, these laws drawdirectly and significantly from the UPOVregime and generally most existing propos-als introduce PBRs. In cases where PBRs are


46 Article 8 of the International Convention for the Protection of New Varieties of Plants, Paris, 23 October1978 [hereafter UPOV-1978].47 Article 19 UPOV-1991, see note 40.48 Article 2 UPOV-1978, see note 46.49 Author: Philippe Cullet.50 Agreement on Trade-Related Aspects of Intellectual Property Rights, Marrakesh, 15 April 1994, reprintedin 33 I.L.M. 1125 (1994) [hereafter TRIPS Agreement].

adopted only as one part of the regime, theregime is completed by the introduction ofa form of farmers’ rights. In fact, existing suigeneris options can be generally defined asregimes introducing PBRs and farmers’rights.

Country examples of sui generis protection

The prominence of the UPOV Conventionin the debates concerning sui generis plantvariety protection is partly linked to the factthat the interpretation of the concept of an‘effective’ sui generis system in Article27.3.b TRIPS remains problematic. Theonly generally agreed-upon interpretationis that UPOV is an effective sui generis pro-tection regime under TRIPS. This has led tosome countries, such as the member statesof the African Intellectual Property Organi-zation, simply adopting a regime modelledafter UPOV-1991 and at the same time com-mitting themselves to joining the UPOVConvention.51

Some countries, such as, India havedecided to implement plant variety protec-tion regimes that seek to provide protectionto commercial plant breeders and to farm-ers. Thus, the Indian plant variety protec-tion regime introduces both PBRs andfarmers’ rights. While a number of coun-tries have attempted to draw up their ownsui generis plant variety protection regimes,African states have taken a unique initiativein adopting a Model Legislation for the Pro-tection of the Rights of Local Communities,Farmers and Breeders, and for the Regula-tion of Access to Biological Resources at thelevel of the Organization of African Unity(OAU).52

The African Model Legislation ispremised on the rejection of patents on lifeor the exclusive appropriation of any lifeform, including derivatives. Its provisionsrelating to access to biological resourcesmake it clear that the recipients of biologi-

cal resources or related knowledge cannotapply for any intellectual property right ofexclusionary nature. The model legislationmainly focuses on the definition of therights of communities, farmers and breed-ers. The community rights that were recog-nized include rights over their biologicalresources, and rights to their innovations,practices, knowledge and technology, andthe right to benefit collectively from theirutilization. In practice, these allow commu-nities the right to prohibit access to theirresources and knowledge, but only in caseswhere access would be detrimental to theintegrity of their natural or cultural her-itage.53 Furthermore, the state must ensurethat at least 50% of the benefits derivedfrom the utilization of their resources orknowledge are channelled back into thecommunities.

In this legislation, the rights of farmersare slightly more precisely defined. Theyinclude the protection of their traditionalknowledge that is relevant to plant andanimal genetic resources, the right to anequitable share in the benefits arising fromthe use of plant and animal geneticresources, the right to participate in makingdecisions on matters related to the conser-vation and sustainable use of plant andanimal genetic resources, the right to save,use, exchange and sell farm-saved seed orpropagating materials, and the right to use acommercial breeder’s variety to developother varieties. The breeders’ rights definedunder the model legislation generallyfollow the definition given in the UPOVconvention and the duration of the rights is,for instance, modelled after UPOV-1991.

One specific feature of the plant breed-ers’ rights regime under the model legisla-tion is the rather broad scope of theexemptions granted. Exemptions to therights of breeders include the right to use aprotected variety for purposes other thancommerce, the right to sell plant or propa-


51 See Agreement to Revise the Bangui Agreement on the Creation of an African Intellectual Property Orga-nization of 2 March 1977, Bangui, 24 February 1999.52 African Model Legislation for the Protection of the Rights of Local Communities, Farmers and Breeders,and for the Regulation of Access to Biological Resources (2000). 53 Article 20 of the African Model Legislation, see note 52.

gating material as food, the right to sellwithin the place where the variety is grownand the use of the variety as an initialsource of variation for developing anothervariety.54

In summary, the development of suigeneris plant variety protection is still in itsinfancy. Until now, efforts have been madeby developing countries to balance theirobligations under Article 27.3.b of TRIPSwith their specific needs and conditions.Since UPOV is the only model that is gen-erally recognized as fulfilling the criteria ofan ‘effective’ sui generis plant variety pro-tection regime, a number of states that havenot had the time or resources to devise acompletely separate sui generis protectionregime have decided to take this as a basisfor a plant variety protection regime. On topof the PBR system, there seems to be agrowing trend towards recognizing farmers’rights and providing for different compen-sation mechanisms (benefit-sharing). Othersui generis protection regimes will probablybe developed in future years, particularlyby least developed countries, who have haduntil 2005 to implement their plant varietyprotection regimes. Furthermore, evencountries that are classified as developingcountries may amend their legislation overtime, as further sui generis models evolve.Sui generis protection is evolving and sig-nificant innovations can be expected inyears to come.

3.3 Impacts on Existing PGR, Landracesand TK55

The progressive strengthening of intellec-tual property rights has already had signifi-cant repercussions in a number of countrieson the management of existing PGR and TK.A number of ‘problems’ have surfacedbetween developed and developing coun-tries, mostly linked to the different levels ofintellectual property protection in thesecountries. These different levels of protec-tion have led to a number of instances of

appropriation of PGRFA and/or knowledgewithout compensation. These unidirec-tional flows of plant resources and knowl-edge are today often referred to as‘biopiracy’, a concept that does not haverecognition in international law, but con-veys the sense of frustration of a number ofdeveloping countries with referenceto existing legal arrangements (Odek,1994).

The cases of appropriation withoutcompensation must be understood withinthe context of the evolving internationallegal framework in the field of PGR. First,the appropriation of biological resources isgoverned by the principle of statesovereignty. The case of PGR is slightlymore complicated: for several decades,PGR were considered as a common herit-age of humankind and were thereforefreely shared and distributed to allactors seeking access. At the interna-tional level, the CGIAR and its Centresconstituted the vehicles for the imple-mentation of this principle, and inparticular with a view to fostering foodsecurity at all levels within developingcountries. Over time, there has beenincreasing recognition of countries’ rightsover their PGR, and the ITPGRFA nowsanctions states’ sovereign rights over thePGRFA (ITPGRFA, preamble, 2001; seeSection 2.3.2).

Secondly, the TRIPS Agreement nowprovides the minimum standards of intel-lectual property right protection that allWTO member states must introduce. How-ever, TRIPS is implemented in each WTOmember country through domestic intellec-tual property laws, which may differ signif-icantly between countries. Divergences maystem from the different use of flexibilityclauses provided in TRIPS. They may alsobe linked to the fact that countries candecide to provide standards of protectionthat go beyond the minimum levelsrequired in TRIPS. There is therefore amplescope for divergences in levels of protectionbetween different WTO member countries.


54 Article 43 of the African Model Legislation, see note 52.55 Author: Philippe Cullet.

Further, there remain a number of countriesthat are not members of the WTO and aretherefore not bound by the TRIPS Agree-ment. The differences in levels of intellec-tual property rights protection and otherdifferences between domestic intellectualproperty laws provide the background tosome of the problem cases highlighted inthis section.

Thirdly, as noted above, the interna-tional legal system has already reacted tothe problem of uncompensated appropria-tion by progressively developing the con-cept of benefit-sharing. Benefit-sharing isclearly a response to the existence of differ-ent levels of intellectual property protec-tion in different countries and the fact thatPGR-rich countries lost control over thegermplasm they contributed to the CGIARsystem.

3.3.1 Case studies

The turmeric patent

In this case, Suman K. Das and Hari Har P.Cohly, two researchers based at theUniversity of Mississippi Medical Centerin Jackson, Mississippi, USA, appliedfor a US patent on the use of turmeric inwound healing (US Patent No. 5,401,504).More specifically, the application relatedto the use of turmeric to augment thehealing process of chronic and acutewounds. The inventors claimed to ‘havefound that the use of turmeric at the site ofan injury by topical application and/or oralintake of turmeric will promote healing ofwounds’. This was based on experimentalevidence that showed that turmeric causesendothelial cells to proliferate, indicatingthat this molecule can be used to augmentwound healing. The patent applicationacknowledged that ‘turmeric has long beenused in India as a traditional medicine forthe treatment of various sprains and inflam-matory conditions’.

The specific claims of the inventorswere:

1. A method of promoting healing of awound in a patient, which consists essen-

tially of administering a wound-healingagent consisting of an effective amount ofturmeric powder to said patient.2. The method according to claim 1,wherein said turmeric is orally adminis-tered to said patient.3. The method according to claim 1,wherein said turmeric is topically adminis-tered to said patient.4. The method according to claim 1,wherein said turmeric is both orally andtopically administered to said patient.5. The method according to claim 1,wherein said wound is a surgical wound.6. The method according to claim 1,wherein said wound is a body ulcer.

Turmeric is one of the most basic ingre-dients found in Indian households and,besides its use in cooking, its anti-septic properties are widely known. TheIndian Council of Scientific and Indus-trial Research (CSIR) therefore challengedthe patent on the ground that the allegedinvention was actually part of publicdomain knowledge in India. The patentwas re-examined and all the claimscancelled.

The turmeric patent is noteworthy fortwo reasons. First, the turmeric patent high-lighted one specific limitation of US patentlaw, in an era where inventions patented inthe US can originate in any of the five con-tinents. This relates to the interpretation ofprior art in US law. 35 USC § 102 makes adistinction between anticipation in the USand in other countries. Thus, traditionally,prior art in foreign countries has only beenrecognized if it is described in a printedpublication (Hurlbut vs Schillinger). In thiscase, printed materials were available butmay not have been presented to the patentsofficer. Secondly, the turmeric patent pro-vides important lessons in the context ofthe development of access regulations andTK documentation. This case provided aclear example of how difficult it can be tocontest a patent abroad even for a largeinstitution like the CSIR. As a result, therehas been increased awareness of the need todocument knowledge that is in the publicdomain and make it sufficiently available


so that patent offices around the worldcheck claimed inventions against existingsources of information.

The neem patents

The neem tree, which is a widely plantedtree in India, has various uses in Indianhouseholds and in agriculture. In particu-lar, farmers have long used leaves from theneem tree to make effective pesticides. Inrecent decades, the properties of the neemtree have been the object of substantialattention and large-scale research has beencarried out to turn some of the neem’sproperties into commercially viableproducts (National Research Council,1992).

Attention has focused specifically onthe uses of neem as a biopesticide, becauseof the commercial potential in this area.The challenge has generally been for manu-facturers to extract the active properties ofthe neem and to find a way to increase theshelf life of the product. Indeed, one of thecharacteristics of the natural formulation isthat the preparation lasts only a few days,thus making commercialization of the leafextract an impossibility.

A number of neem-related patents havebeen filed in the US and in Europe byIndian and foreign companies and inven-tors. Their common characteristic is thatthe patents generally claim novel processesfor making a neem-based or neem-derivedpesticide and the resulting product (e.g. USPatents 5,827,521 and 5,885,600). Eventhough a number of patents have been filed,one patent claiming a method for long-termstorage of the active pesticidal ingredient(azadirachtin) became the centre of vigor-ous debates. In the early 1990s, the UnitedStates Patent and Trademark Office issued apatent to W.R. Grace, which covers amethod of creating a stabilized azadi-rachtin in solution and the stabilizedazadirachtin solution itself (US Patent5,124,349). Subsequently, the US Environ-mental Protection Agency registeredGrace’s stabilized azadirachtin solution foruse on food crops under the name of

Neemix (Wolfgang, 1995). W.R. Grace alsofiled a patent for neem for its use as an anti-fungal product with the EPO (EuropeanPatent 0436 257). This patent claimedthe invention of a novel insecticide andfoliar fungicide derived from a neemseed extract and the processes used toobtain the neem oil. This pesticide wasalleged to have the ability to repel insectsfrom plant surfaces, prevent fungal growth,and kill insect and fungal pests at variouslife stages. This patent was challenged byIndian NGOs and the Indian Government.Eventually, in 2000, the Opposition Divi-sion of the EPO revoked the patents after itwas shown conclusively that the claimsdid not fulfil the requirement for noveltyin view of their prior public use inIndia.

A number of interesting lessons can belearnt from the neem patent cases. First,while one specific patent was revoked inEurope, this has not affected the standing ofother similar patents, since each and everypatent must be opposed separately. Sec-ondly, the neem patents constitute muchless direct cases of appropriation of knowl-edge than do the turmeric patent. This isdue to the fact that it is impossible to com-mercialize the solution that has tradition-ally been used as a pesticide in India.Drawing a line between appropriation ofTK and novelty in the context of existingpatent laws becomes a very difficult exer-cise. Thirdly, some of the neem patentsmay have practical implications in India,since the patented solutions require neemtree seeds as their primary material. Theneed for vast quantities of neem seedsmay constitute a positive commercialopportunity for some people. Fourthly,it is striking that a number of neem-related patents have been filed by Indiancitizens or companies. This clearly showsthat the question of the appropriation of TKthrough patents is not exclusively aNorth–South issue nor one determined bypolitical boundaries. From the point ofview of TK, it is in fact immaterial whetherthe application is filed by an Indian or aforeign company.


The kava case56

Kava (Piper methysticum) is an indigenousplant from islands in the South Pacific,where it is commonly used to prepare a tra-ditional drink for both ceremonial andmedicinal purposes.

The kava plant is a large shrub that canreach heights of up to 15 feet. It has green,heart-shaped leaves with stems that can begreen, red-and-black striped or spotted.Kava is cultivated in the South Pacific,including the Federal States of Micronesia(Lebot and Lévesque, 1989).

People started to use a wild form (P.wichmanii) of the kava plant about 3000years ago, which was later domesticated inthe Pacific Islands of Vanuatu. Later on, theplant spread to other islands in the Pacific.

Traditionally kava has been used intwo different ways, one of which is relatedto a ritual that uses kava as a relaxant. Sev-eral nations in the Pacific islands follow aritual in which kava is used as a ceremonialand social drink (WIPO, 1998–99). Kava hasalso been used traditionally as a medicinalplant in the region (Lebot et al., 1992). It hasbeen used to treat stress, anxiety, insomnia,muscle and back pain, tension headaches,menstrual pain, asthma, the common cold,urinary infections, stomach problems andother maladies. Once planted, the cultiva-tion of kava requires little labour or capitalinvestment. The kava roots continue togrow perennially, and gardens and planta-tions are usually passed down through thegenerations.

The protection of kava has not beenachieved through patents. Kava does nothave the inventive character required bypatents. Furthermore, it cannot be consid-ered patentable if it is already well known tothe public. Presently, no Pacific island coun-try has plant patent laws, but even if suchlaws were to become available, no variety ofkava could be patented (Clark, 1999).

Despite patents not being sufficient forthe protection of the kava plant and relatedtraditional knowledge, patents have been

granted to some companies in order toexplore kava. An example in the USA is thepatent granted to Natrol, Inc., a US-basedcompany that obtained a US patent for‘Kavatrol’, a dietary supplement that servesas a general relaxant, composed of kava,chamomile, hops and schizandra. (Downesand Laird, 1999). In Europe, two Germancompanies, William Schwabe and Krewel-Werke, have patented kava as a prescriptiondrug for treating strokes, insomnia,Alzheimer’s disease, and so on. In France,L’Oreal has patented the use of kava for hairloss and to stimulate hair growth.

The existence of patents based on kavaraises concerns about the conservation andprotection of traditional knowledge relatedto kava. First, the commercialization ofkava-based products has had a negativeimpact on its conservation. In particular,the increasing exploitation of the plant hasled to the harvesting of immature kava, thusjeopardizing the quality of the medicinalproduct and reducing its resource base(Puri, 2002). Secondly, patents grantedwhich exploit medicine that has alreadybeen developed and used for generations bylocal communities constitute a case ofappropriation of traditional knowledge.

In the kava case, patents cannot pro-vide protection for traditional knowledge.In this regard, the need remains to examineother potential instruments of intellectualproperty rights as tools to protect tradi-tional knowledge, such as geographicalindications and trademarks.

3.3.2 Proposed solutions57

Biodiversity registers

The progressive appropriation of TKthrough patents has fostered concerns insource countries over their possible lossof control over plant genetic resourcesand related knowledge. One of the reac-tions to cases like the turmeric, neemand kava cases has been the development


56 Author: Andrea Nascimento Müller.57 Author: Philippe Cullet.

of biodiversity registers. Such registersgenerally seek to document existing knowl-edge in order to prevent unwarrantedpatent claims from being accepted bypatent offices around the world becausethey do not have access to TK databases.The registers also provide a tool for assert-ing benefit-sharing claims in situationswhere a patented invention is directlyderived from TK (Rangachari and Subbarav,1998).

Most biodiversity registers have beenconceived as open documents that aremeant to foster better access to existing TK.This may encourage the sharing of knowl-edge amongst different unrelated communi-ties, which may be beneficial from the pointof view of the sustainable management oflocal resources. In cases where knowledgeis directly attributable to an individual orcommunity, the registers provide a tool toestablish claims of original ownership. Theregisters also indirectly constitute an attrac-tive source of information for researchersseeking to build on TK. They therefore pro-vide an incentive for commercial researchinto TK and at the same time a means toascertain public domain knowledge and atool for holders of TK wanting to claim ben-efit-sharing (Gadgil, 1997).

The approach that seeks to make biodi-versity registers open to all and to fosteroutsiders’ use of the registered knowledgeis not always accepted. In some situations,individuals or communities may eitherdecide not to register their knowledge in awritten form, or may register it but not giveaccess to outsiders. The village of Pattuvamin the south-west state of Kerala in Indiatook the latter approach when it decided todocument all its biological resources andTK but decided not to make the resultsavailable to outsiders. In this case, the pro-moters of the register wanted to providedocumentation of public domain knowl-edge but did not consider that this knowl-edge should be freely offered to the outsideworld for further use. Interestingly, the reg-ister is closed so as to avoid appropriationby outsiders, but the possibility of sharingknowledge with other local communities isrecognized.

Benefit-sharing

The notion of benefit-sharing has largelybeen developed as a consequence of thedevelopment of genetic engineering and itsincreasingly frequent use of TK for thedevelopment of other products. In fact,there is increasing recognition that the com-mercial use of TK in a direct or derivedform should be compensated in one form oranother. In practice, benefit-sharing cangive rise to a number of important ques-tions, as illustrated in the case of Jeevanimedicine.

Jeevani was developed after the Kanipeople of southern Kerala were persuadedby biologists from the Tropical BotanicGarden and Research Institute (TBGRI) toshare some of their knowledge concerning aplant called Aarogyappacha (Anuradha,1998). The biologists were intrigued by thestrong anti-fatigue properties of the plant’sleaves. Though widely used by localpeople, the plant itself seems to have beenunknown to outsiders until 1987. TheTBGRI carried out research on the plantand, after identifying the active ingredientsof the plant, developed a drug with anti-fatigue properties. The rights to manufac-ture Jeevani were transferred to a privatemanufacturer for a licence fee of aboutUS$21,000 (at today’s exchange rate) for 7years and a 2% royalty on sales for 10 years(TBGRI – Arya Vaidya, 1995). TBGRIdecided to give 50% of the fee and royaltyto the Kanis (Ministry of Environment andForests, 1998). It is significant that whilepatent applications were made by TBGRI,no patent was granted in India, because theIndian Patents Act did not allow suchpatents at the time.

This benefit-sharing arrangement isvery progressive from a financial point ofview. However, it has not been immune tocriticism. First, while the section of theKani tribe that had had significant interac-tions with the outsiders – including thespecific individuals who passed on theinformation to the scientists and wererewarded with special financial rewards –were generally happy with the benefit-shar-ing arrangement, other segments opposed


it. This is partly due to the fact that somefactions of the tribe felt that they were notinvolved in the negotiating process andwere handed down a decision withoutproper consultation. This raises an issueconcerning the prior informed consent ofthe providers of knowledge. Secondly, ben-efit-sharing in the form of money may notbe the most desirable form of contributionto the local economy. This aspect is high-lighted in this case, because the Jeevanimedicine can only be produced from leavesof the tree if it is grown in the area wherethe Kanis live, and not elsewhere. TheKanis could therefore have been given astake in the production of the raw materialfor the medicine, a much more stable andsubstantial form of benefit-sharing (Gupta,2001a).

The Jeevani case study highlights issuesof broader relevance for benefit-sharing. First,benefit-sharing is not limited to transfers ofknowledge between different countries. Sec-ondly, the trigger for benefit-sharing is notnecessarily the appropriation of knowledgethrough intellectual property rights, but isgenerally the commercialization of TK prod-ucts or products derived from TK. Thirdly,monetary compensation, however attractiveit may be as a form of compensation, may nei-ther be the most effective nor the most appro-priate way to reward the contribution ofspecific knowledge to the commercializationof a new product.

Local innovation

The increasing appropriation of knowledge– whether based on TK or not – throughintellectual property rights has often led toattempts to preserve existing rights and toavoid or regulate transfers. In some cases,however, there have been initiatives aimedat using the existing intellectual propertyright system for the benefit of TK holders.The basic idea behind this is to provide aform of recognition for inventions and cre-ativity that may not qualify for patent pro-tection, but which constitute advances inthe specific field of activity.

One such experiment is that of the

Honey Bee Network in the state of Gujarat,India (Gupta, 2001b). Honey Bee seeks tofoster knowledge dissemination amonglocal communities and in the wider world.The specific approach behind this experi-ment is that rather than putting sharedknowledge into the public domain, theinformation is clearly titled to the individ-ual holder or inventor. In other words,Honey Bee seeks to provide incentives andbenefits to innovators to foster informationdissemination. Institutionally, this has beenachieved through the Society for Researchand Initiatives for Sustainable Technologiesand Institutions (SRISTI; for general infor-mation on SRISTI, see http://www.sristi.org).

Honey Bee’s work comprises a varietyof different components. An important partof its work is the documentation of innova-tions, either of contemporary origin orbased on traditional knowledge. The data-bases now include about 10,000 innova-tions. Since 1997, Honey Bee databaseshave also formed the basis for the commer-cial use of documented innovations. TheGujarat Grassroots Innovation Augmenta-tion Network (GIAN) has been set up specif-ically to provide an interface betweeninnovations, investment and entrepreneur-ship. The GIAN has helped to file patentson behalf of grassroots innovators andhelped with the transformation of innova-tions into products that can be commercial-ized.

More recently, the Honey Bee modelhas been expanded and a National Innova-tion Foundation (NIF) has been set up bythe Department of Science and Technologyof the Government of India (for generalinformation on NIF, see http://www.nifindia.org). The main goal of the NIF is toprovide institutional support in the scout-ing, spawning, sustaining and scaling up ofgrassroots innovations and to assist in theirtransition to self-supporting activities. Fur-thermore, the NIF seeks to strengthen R&Dlinkages between excellence in formal andinformal knowledge systems in a bid tohelp India become a global leader in sus-tainable technologies.


http://www.sristi.org

http://www.nifindia.org

http://www.sristi.org

http://www.nifindia.org

3.3.3 Problem analysis

The progressive interest in the exploitationof PGR and related changes in intellectualproperty laws have important practical andpolicy implications in a number of devel-oping countries. The development of com-mercial products based on TK can havebeneficial impacts for different actors in dif-ferent countries depending on the specificsituation and the legal framework in place.The Jeevani case illustrates a situationwhere TK is appropriated by a governmen-tal body and then sold on to a private com-pany of the same country. In this case, thecommercialization of the medicine has thepotential to benefit the national economywithout any international implications.Concerns related to the control of TK andbenefit-sharing are, however, similar,whether the situation is one where all thetransactions happen within a given countryor involves an international element. Inboth cases, there is a need for a legal andpolicy framework to regulate the appropria-tion and use of TK outside its area of origin.

The use of TK in commercial applica-tions by outsiders raises even more compli-cated issues when intellectual propertyprotection is sought for products derivedfrom TK. In this situation, a number of spe-cific problems arise. Even in the TRIPS era,different countries have different levels ofintellectual property protection and, for theforeseeable future, it is likely that the levelof patent protection in recipient countriessuch as the USA and Western Europeancountries will remain much higher than inmost developing countries. This impliesthat it will remain ‘easier’ to apply for sometypes of patents in the USA than in India,even when the latter introduces productpatents on biotechnological inventions inall fields of technology. One of the conse-quences of this asymmetry is that an oppo-sition to such a patent can be filed onlyfrom outside the country of origin, as in thecase of the turmeric patent outlined above.Further, in the case of the US patent system,there is the added difficulty concerning theproof of prior Article. This difficulty will

slowly reduce over time as the number ofregisters of TK increases around the worldand as an increasing number of registers areuploaded onto the Internet.

The patentability of products derivedfrom TK raises complicated policy issues atthe international level. One of the problemsis that appropriation does not follow asingle path. In fact, as is illustrated in thecase of the neem patents, while a majorityof patents in Europe and the USA on TK-derived products may be owned by compa-nies from the North, applications from thecountries of origin are also prominent. Inother words, the problem of ‘biopiracy’ isnot limited to a North–South issue, but isalso replicated at the national level or inrelations between different developingcountries. The international communityhas started to address two specific problemslinked to the appropriation of TK throughintellectual property rights. The question ofprior informed consent (PIC) comes first inline. Article 15.5 CBD and the guidelinesadopted at COP 6 clearly recognize the needfor PIC, but this has not yet been imple-mented, either at the international level orwithin the national legislation of donorcountries. The second issue is that ofbenefit-sharing, which is addressed inthe CBD guidelines and in the ITPGRFA;however, both at the international andnational levels, the scope and impact ofthese provisions is yet to be established inpractice.

One of the most common reactions toTK appropriation in developing countrieshas been the fostering of the development ofbiodiversity registers comprising records ofPGR, PGRFA and knowledge related to theseresources. This remains on the whole a reac-tion to international trends, which seeks toprove the existence of knowledge already inexistence, but does not provide an avenuefor asserting claims of ownership over theresources or knowledge. Some initiatives,such as the one taken by the Honey BeeNework, indicate that there can be otherways for developing countries to react to theexpanding scope of intellectual propertyrights at the international level.



3.3.4 Impacts on PGR diversity

The direct impacts of intellectual propertyrights on PGR diversity are difficult to esti-mate since in most cases there is no directimpact. At the outset, the distinctionbetween the impacts on PGR diversity andthe impacts on TK must be clearly delin-eated. The latter relates to the impacts ofintellectual property rights on the use ofPGR and ownership of TK, while the formerfocuses on PGR conservation and manage-ment.

Intellectual property rights do not havedirect impacts on PGR conservation andmanagement because they do not directlydeal with the issue of biodiversity conser-vation and do not address the question ofthe ownership of biological resources them-selves. However, they are relevant in PGRmanagement because the introduction ofpatents in agricultural biotechnology has,for instance, important impacts for agricul-tural management, and hence agro-biodi-versity conservation.

The experience of developed countriesthat introduced plant breeders’ rightsand/or plant patents earlier does not pro-vide many useful analogies, insofar as theirsocio-economic conditions were vastly dif-ferent from the conditions under which avast majority of developing countries oper-ate today. However, it is possible to get ageneral idea of some of the possible impactsof the introduction of intellectual propertyrights in agricultural biotechnology bylooking at the experience of the Green Rev-olution in Asian countries.

In effect, the practical impacts ofhybrid varieties of the past and the geneti-cally modified seeds of the present arelargely similar if one excludes the specificbiosafety concerns linked to the latter. Bothseek to provide yield increases and bothoften require agricultural management tech-niques that largely differ from traditionalpractices by necessitating a number ofexternal inputs, such as irrigation or chem-ical fertilizers.

A general assessment of the GreenRevolution indicates that areas where high-yielding varieties were introduced wit-

nessed significant yield increases (in thecase of India see, for example, Sharma andPoleman, 1994). However, despite thesegains, the Green Revolution package hascome under increasing criticism since thebeginning of the 1990s. First, over the longterm, the Green Revolution has come to beassociated with significant environmentalcosts. These include falling water tablesdue to the overuse of tubewells (Bavadam,2000), waterlogged and saline soils frommany large irrigation schemes, decliningsoil fertility with excessive chemical fertil-izer use and water pollution with pesticides(Dhaliwal and Dilawari, 1991; Agarwal,1995). The Green Revolution has also beenassociated with the spread of monoculture,which leads to a homogenization of species,greater vulnerability to insect pests and dis-eases, and to a loss of agro-biodiversity(Thrupp, 2000). Secondly, the sustainabil-ity of yield increases has been questionedin view of evidence of diminishing returnsin intensive production with new varieties(Conway and Barbier, 1990). Thirdly, theapplication of the new technique necessi-tates important investments in seeds, fertil-izers, pesticides and irrigation, which arebeyond the reach of all but the largest farm-ers (Joshi, 1992). Indeed, new varieties per-form well only when all the necessaryinputs are available in sufficient quantities(Conway and Barbier, 1990). Thus, irriga-tion is often necessary, given that cropsmay fail if water is not provided in suffi-cient quantity at the opportune time. Uni-formly produced seeds may also not be aswell adapted to local conditions as farm-produced seeds. Furthermore, new seedstend to be much more expensive than farm-saved seeds (Kahama, 1995).

The long-term implications of theGreen Revolution for PGR diversity haveonly been moderately positive, since uni-formity or monoculture generally leads to aloss of agricultural biodiversity. It is likelythat this situation will be repeated withgenetically modified varieties, with theadded concerns about unwanted dissemi-nation and contamination of biodiversityby the latter varieties. In both cases, abroader assessment of the impacts of the

introduction of new varieties must take intoaccount not only the increased yields, butalso the sustainability of the increases andthe negative impacts on diversity. The maindistinction is that in the case of the GMOs,the legal incentive for their development isprovided in large part by IPRs.

3.3.5 Impacts on TK

Intellectual property rights undeniablyhave important impacts on TK. First, theyfoster a more commercial approach to thequestion of TK use. In other words, theyfoster a new outlook on TK that mainlyfocuses on the uses of TK that have com-mercial potential. Secondly, intellectualproperty rights provide an incentive for reg-istering TK. This is becoming increasinglynecessary in view of broader economicchanges at the national and internationallevels which lead to the progressive erosionof TK. Thirdly, the direct and indirectappropriation of TK has increasingly led tothe realization that procedures for accessare imperative, given the important com-mercial stakes. As a result, there has beenincreasing pressure at the international andnational levels for the development of alegal regime to regulate access to TK and toallocate the benefits accruing from productsderived from TK.

The progressive appropriation of TKthrough intellectual property rights also hasan impact on the ownership of TK. In fact,this is probably the most crucial aspect froma legal point of view. The main impact of theintroduction of IPR over TK-related inven-tions is that TK itself cannot be protectedthrough IPR and is therefore in the publicdomain. Further, TK generally does notqualify for patent protection because TKitself is not deemed to be ‘state-of-the-art’. Ingeneral, intellectual property rights overTK-related inventions foster a shift in con-trol from TK holders towards intellectualproperty rights holders. In fact, it is this shiftin property rights in favour of new holdersthat has led individuals, organizations andgovernments to challenge patents, such asthe turmeric patent (Anuradha, 2001). It is

noteworthy that the practical consequencesof the turmeric or neem patents for originalTK holders are likely to be insignificant, atleast in some cases. Thus, in the case of theturmeric patent, the existence of a patent inthe USA would not have had any practicalconsequences for everyday users of turmericas a healing agent throughout India, where itwas not recognized.

3.3.6 Tension between IPR and competition

This section shall introduce the interrela-tionship between IPR and competition lawsand policies. This interaction is relevantwhen it comes to assessing the scope of pro-tection of IPR in the light of public policiesaimed at promoting economic efficiencyand the diversity of supply of protectedgoods and services. Intellectual propertyforms of protection grant exclusive rightsthat come close to monopoly rights. Thiscan trigger tensions with competition lawsand policies. The interactions between com-petition and IPR become even more com-plex on the international level. Asillustrated in the case studies above, legalissues concerning TK related to PGR presentin general strong cross-border characteris-tics. It is therefore necessary to deal withthese issues not only at the national butalso at the regional and global levels. Thereare a variety of different legal approachestowards competition, ranging from anabsence of specific legislation via lax law tovery strict and incisive rules with effectivesanction mechanisms. In comparison tocompetition laws and policies, the interna-tional intellectual property system appearsto be much more harmonized, in particularthrough the set of TRIPS rules that ensuresminimum standards of protection. Thishigher degree of harmonization of intellec-tual property rights does not only concernprocedural and substantive rules, but alsothe institutional design that serves to imple-ment them such as public registries, special-ized courts and collecting societies. Incontrast, procedural and substantive compe-tition rules are mainly national or, as in thecase of the European Community,


regional.58 The same applies for the institu-tional framework.59 There are initiatives topromote multilateral cooperation in the fieldof competition in the OECD, the UNCTAD(United Nations Commission for Trade andDevelopment), and more recently in theWorld Trade Organization (WTO).60 A stronglink between international competition andinternational trade laws and policies is obvi-ous when anti-competitive private businesspractices have the effect of replacing tradi-tional tariff and other non-tariff barriers toforeign markets after they have been removedby international trade rules (Kennedy, 2001).Possible approaches in the WTO consist ofelaborating harmonized minimum competi-tion policy standards (e.g. the TRIPSapproach) or an agreement on core competi-tion principles.61 However, for the timebeing, there is no consensus on the questionof whether the WTO should deal with thismatter, and, if so, in what manner.

As described above, in the long term theGreen Revolution has been detrimental toPGR diversity, as it has, in many instances,caused uniformity and monoculture and,thus, a loss of agricultural biodiversity. Thisdevelopment was partly caused by theabsence of appropriate competition lawsand policies. To address this risk, theimpact on the competitive environmentmust be carefully taken into considerationwhen new forms of IPR are introduced.Lawmakers are therefore well advised toadapt also the competition laws when usingintellectual property to achieve policy goals.Patent laws, for example, trigger contractualpractices among the concerned economicplayers. These contractual arrangementsmay be reasonable and legitimate for private

business purposes, but can be problematicfor the achievement of policy goals in thepublic interest. Concretely, there are con-tractual practices that are necessary to copewith constraints induced by IPR that canqualify as anti-competitive behaviours. Inthe case of sequential inventions, for exam-ple, patent licence agreements help to over-come certain deadlock situations bystructuring the relationship between pri-mary and secondary innovators. The follow-ing section will discuss the questions ofcontractual arrangements that are based onIPR and their impacts on competition.62 Thelast section will illustrate in further detailthe issues at stake in the light of the exam-ple of the seed industry, where the intro-duction of IPR to promote private invest-ments eventually contributed to buildingup a highly concentrated industrial sectordominated by a few big players. This exam-ple outlines how the instrument of intellec-tual property forms of protection may fail toreach public policy goals in the absence ofappropriate competition laws and policies.

Contract arrangement among sequentialinnovators63

Overly broad patent protection can stunt orslow the pace of future innovation. Thescope of patent protection refers to bothbreadth and height. The breadth of a patentdefines the range of products that areencompassed by the patent claims, whichprotect the patent holder against potentialimitators or closely similar inventions. Theheight of the patent confers protectionagainst improvements or applications thatare easy or trivial. The broader the scope of


58 For a summary on different national and regional approaches in the area of competition law and policy,see Kennedy (2001, p. 22 ff.).59 With respect to the institutional design of US competition institutions and the complexities of their inter-actions, see Peters (1999, pp. 40–67).60 See Kennedy (2001) at p. 97 (overview of OECD guidelines); p. 110 (Draft International Antitrust Code); p.118 (UNCTAD principles on restrictive business practices). This author outlines the arguments in favour ofand against the integration of competition rules into WTO law, and comes to the conclusion that the WTOis not the appropriate forum to deal with this matter, in view of the very different legal approaches that existbetween the countries in this field, for the time being.61 For further references, see the WTO website: http://www.wto.org/english/tratop_e/comp_e/comp_e.htm62 For an overview on policies that may be pursued by antitrust legislation, see First (2002, pp. 175–194).63 Author: Gloria Pasadilla.

http://www.wto.org/english/tratop_e/comp_e/comp_e.htm

the patent protection, the higher the degreeof monopoly power; but conversely, thenarrower the patent, the lower the incentivefor the innovator. The question is, what isthe optimal level of scope for society? Theissue is how to balance the incentives, par-ticularly in the case of sequential innova-tions, between the primary innovator andsecondary inventor (those who introduceimprovements that may have better indus-trial applications). The same issue appliesto related inventions that somehow infringeupon an initial discovery. Clearly, bothdeserve some rewards because, forinstance, without the initial invention,without its disclosure and knowledgespillover, the secondary innovation wouldnot come about. Conversely, there are pri-mary innovations that initially do not havesignificant applications, and whose valueactually derives from the values of the sec-ondary innovations built upon them. Theproblem concerns how to design an optimalcontract that provides incentives for both.

This is an important issue because alltechnological advancement is the result of acombination of both primary and subsequentimprovements of initial discoveries: henceall innovations require some form of encour-agement and incentive at different stages.Having too broad or too narrow a protectioncan therefore stunt the growth of knowledge,either at subsequent stages or at the very fontof discoveries itself. Consider a very broadprotection of primary inventions. Barton(1997a) takes the example of a biologicalreceptor, a research tool that is important forthe study of schizophrenia, but may not bemarketable in itself. If given a broad patent,the inventor of the receptor will have amonopoly over the entire research area, evenwithout necessarily defining any marketableproduct that is of benefit to the public. Froman economic efficiency standpoint, societydoes not lose out if the initial innovator alsohas a comparative advantage in the develop-ment of all related applications. However, ifother innovators exist who have a bettercapacity to bring about the perfection of its

application, then the broad patent thatexcludes better research companies impliesan efficiency loss to society.

Obtaining a licence from the originalinnovator is one option for secondary inno-vators. The question arises as to when is thebest time to negotiate. If ex-post, that is,after the secondary innovator has alreadyinvested in research, then his bargainingposition is weak, because all his invest-ments are already sunk (i.e. non-recover-able), while the original innovator has theoption of refusing to grant any licence. This‘hold-up’ problem, where all of the bargain-ing is on the side of the original innovator,can be solved through the imposition ofcompulsory licensing, perhaps invoking the‘essential facility doctrine’.64

If negotiations instead occur ex-ante,that is, before the secondary innovator hasincurred sunk investment costs, then there isgreater scope for a more balanced outcome.The secondary innovator’s bargaining poweris improved, making him less susceptible toa hold-up problem. But the nature of thesecontracts remains subject to possible compe-tition challenges, as will be discussed below.

The joint venture agreement helps inthe pooling and sharing of risks. Throughjoint ventures, researchers are allowed toproceed, and (if successful), rents areshared and divided up accordingly amongstthe inventors. However, there is also thedanger that joint ventures can functionmuch like a cartel, deterring the entry ofthird-party innovators.

A ‘dependency licence’ for follow-oninventors is another possible arrangement(Barton, 1997b). This is akin to the situationpertaining to cross-licensing and grant-backs,whereby the follow-on inventor patentrequires the authorization of the holder of theprior patent, and the original holder may notapply the same improvement without author-ization by the holder of the follow-on inven-tor patent. This dependency licenceessentially gives the follow-on innovator theright to obtain licences from the holder of theinitial patent. It might require that a royalty is


64 For an overview on the ‘essential facility’ doctrine under US and EC law, see Meinhardt (1996, pp.137–160).

paid, but at least it significantly improves thesecondary inventor’s bargaining power andincentive. The royalties can either be deter-mined in court or through negotiation.

Some basic principles for IPR andcompetition policy

Considering the number of possible contrac-tual arrangements related to IPRs, not onlybetween primary and secondary innovators,it is worthwhile gaining an overview ofcompetition or antitrust aspects of thesearrangements.65 IPR can be viewed as con-ferring monopoly rights, whereas competi-tion policy is concerned with the promotionof competition in the market; or it can beseen that competition policy is about short-run allocative efficiency and IPR about long-run dynamic efficiency. This fact appears tocreate an inherent conflict between govern-ments’ IPR and competition policies. It istrue that competition policies may at timesimpose limits on market power of IPRs, butthis conflict seems to be more apparent thanreal. In fact, the two instruments reinforceeach other, because innovation is a spur tocompetition, and competition also acts as aspur to innovation.

Several market arrangements, includ-ing a variety of licensing techniques, helpdefray the short-run misallocations, e.g.from less than optimal use of the innova-tion, derived from exclusive IPR rights.They play an important role in further dis-semination and utilization of the innova-tion. However, these arrangements can alsobe made into a front for anti-market activi-ties, i.e. cartel activities. Such activities areexamined briefly in the following section.

LICENSING

The granting of a licence allows the utiliza-tion of IPR by a non-patentee and promotes

further innovation. A patentee may refuseto license, but if the IPR satisfies the ‘essen-tial facility doctrine’, or if competition isseverely threatened (for instance as is thecase with mergers or abuse of dominantposition), the patentee can be forced togrant a compulsory licence. In most casesthe terms of the licence agreement dependupon the relative bargaining positions ofthe licensor and licensee. In general, licens-ing poses a greater competition risk if licen-sors and licensees are actual or potentialcompetitors, or are in a horizontal relation-ship. Vertical relationships, on the otherhand, or when a patent is an input to theproduction of another product, normallyreceive a more tolerant treatment by thecompetition authorities. However, somerelated agreements tied to licensing agree-ments have often fallen under competitionscrutiny. Examples include licensee pricerestrictions, exclusive territories, exclusivedealing, grant-backs, reach-through royal-ties and tying arrangements.66

In most jurisdictions, the treatment ofmany licensing agreements has changedfrom being per se unlawful to one thatmerits a rule of reason approach. Forinstance, exclusive territories – where thelicensor grants the licensee a monopoly overa particular territory by agreeing not to sellin the same territory, nor license anyoneelse who would operate in the same geo-graphical market – may at times be anti-competitive, because this carves out marketsamong competitors. Yet often it may not benecessary for there to be any production ofthe licensed product at all. For example, inthe Maize Seed case, the European courtruled that such an agreement between theINRA research institute in France and theNungesser company in Germany was indis-pensable in order for the investment by theGerman firm to introduce the seed varietyin Germany to be economically viable.67


65 See OECD (1998) and Anderson and Gallini (1998).66 See OECD (1989) for more detailed discussion on the different IPR and competition policy interaction.67 The contract was between Kurt Eisele, a German citizen, and INRA, but he transferred his rights under theagreement to his firm, Nungesser. Eisele agreed to register the varieties and arrange for their marketing inGermany. To encourage his investment, INRA promised Eisele that it would endeavour to prevent exports toWest Germany from France (Korah, 1983).

Otherwise, their investment into the intro-duction and development of the seed vari-ety would not have been worthwhile, ifothers could free ride on those initial costsby competing in the same market.

Exclusive dealing provides anotherexample. This licensing agreement eitherprevents the innovator from transferring theinnovation to the licensee’s competitors, orprevents the licensee from purchasing itssupplies from the licensor’s competitors.The first can create a problem if the licenceis transferred exclusively to a horizontalcompetitor in a concentrated market, par-ticularly if this eliminates competition.Exclusive transfer to a firm that is verticallyrelated to the innovator,68 however, maycreate less of a competition problem. Thesecond scenario has the effect of denyingrivals sufficient outlets for exploiting theirtechnologies, and thus has an adverse effecton competition. However, at the same time,this type of exclusive dealing may be theonly way for the licensor to have controlover the licensees, especially where it isdifficult to determine how much a licenseeuses up the technology vis-à-vis rival tech-nologies. Noting that competition problemscan arise on a case-by-case basis, exclusivedealing, like exclusive territories, isanalysed under a rule of reason approach,rather than being considered to be a viola-tion per se.

In an ordinary competition policysense, price restriction tends to be viewedper se as being unlawful. Yet, in the contextof IPR, licensee price restrictions may pro-vide the incentive necessary for the innova-tor to license and thus permit the diffusionof the technology. The idea is that if theprofit made through licensing would be lessthan the innovator’s profit if he were to pro-duce the product alone, then he would haveno incentive to license. Hence, price restric-tions may be considered to be one of theallowable restrictions that reasonably givethe patentee the reward he is entitled to

secure. But this again is scrutinized on acase-by-case basis, because not all licensingwith price restriction is better than nolicensing at all. In some cases, the negativeallocative effects of price restriction mayimpose a greater economic cost than thepositive benefits of diffusion.69

Grant-backs provide a method bywhich licensors seek to protect them-selves against the possibility that licensingwill foster the emergence and growth offuture competitors. They allow the patenteesome rights over improvements made byothers upon his innovation. The economicjustification behind allowing boundedgrant backs, i.e. where the original licensoris not given an exclusive licence for anyimprovements to his innovation, is to givethe original innovator an incentive tolicense. Bounded grant backs strike amiddle course that ensures that the originallicensor is not displaced from themarket, while still leaving licensees with asignificant motivation to innovate (OECD,1998).

Reach-through royalties are royaltiesbased on total sales. This is administra-tively simple, but is effectively similar toexclusive dealing arrangements in that itacts as a disincentive for using competingtechnology. Just like exclusive dealing, it isapproached on a rule of reason basis. Tying,or linking the sale of patented products tothe purchase of other goods (includinggoods whose patent protection may havelapsed), also has both pro- and anti-compet-itive effects. Tying has pro-competitiveeffects if it is necessary to secure the overallquality of the product, in the same way thatcar maintenance services tied to car salescan ensure a certain level of quality prom-ised by the manufacturer. Hence, normalcompetition law applies a rule of reasonstandard in analysing such cases, but thismay be prohibited if tying unnecessarilyraises barriers to entry (similar to exclusivedealing agreements).


68 A relationship is vertical when the IPR are complementary inputs (even if the licensor and licensee are oth-erwise competitors in manufacturing products covered by the IPR).69 See Gallini and Trebilcock (1998, p. 43).

MERGERS, ACQUISITIONS, PATENT POOL

Analysis of mergers of firms with signifi-cant IPR is carried out using standardmerger analysis, i.e. the competitionauthorities consider dominant market posi-tions and the potential impact on competi-tion in the product market. But, in addition,they use the innovation market approach,which means that if mergers threaten to sig-nificantly reduce competition in the R&Dmarket itself, then the mergers are in dangerof being disapproved. This is the case, forinstance, if the merged entities have lessincentive to proceed quickly with innova-tion and R&D than is the case if they wereseparate entities. Some solutions caninclude compulsory licensing of one or theother of the IPRs, or the forcible spin-off ofone R&D group in order to maintain compe-tition in innovation.

Patent acquisitions are sometimes usedto avoid costly licensing transactions. But ifused to accumulate a ‘killer patent portfolio’to preclude any innovation around the mainproduct, then there is scope for competitionauthorities to intervene. This is particularlytrue when firms monopolize a technologyby not only obtaining patents on productsand process which they intend to use andsell, but also patents which they intend toleave idle, thereby amassing a portfolio thatit is difficult for competitors to innovatearound. The usual solution for this type ofacquisition is compulsory licensing.

Patent pooling is another usefularrangement, particularly if it puts into thesame pool blocking patents. It helps in theefficient utilization of IPR and avoids costlyinfringement litigations. However, it canalso function as a cartel-like arrangementfor existing IPR holders, making it difficultfor new entrants to innovate around anyone existing patent in the pool. Per-use roy-alty of an IPR package from a patent poolcan also increase the marginal cost of pro-duction. Patent pools can also act as a dis-incentive to future research, especially ifany improvements to the existing IPR pack-age are automatically shared between all ofthe patent pool members, thus giving rise toa free-riding problem. The useful rule ofthumb to check whether patent pooling is

efficiency enhancing is whether cross-licensing implicit in patent-pooling is nec-essary to compete at maximum efficiency(i.e. one firm cannot use its own technologyunless it has a licence to use another IPR incombination with his own). Otherwise, thenegative effects of patent pool may out-weigh its positive effects.

IPR AND COMPETITION: THE CASE OF THE SEED

INDUSTRY

This case study shall illustrate how intel-lectual property protection plays a role inaffecting the market structure of an industryand derives competition implications fromthe changed competitive structure.

The seed industry market structure. There areabout 1500 seed companies (RabobankInternational, 2001); however, power isconcentrated in only a few, with the top tenseed firms accounting for more than 30% ofthe roughly US$30 billion dollar commer-cial seed market. These seed companiesspecialize in the breeding and productionof hybrid and improved crop seeds. Tradi-tionally they have mostly been ‘stand-alone’ or independent firms, but with theadvent of biotechnology, seed sales havebecome a crucial direct link for biotechfirms, as they embody the input of geneticmaterial into the agricultural productionprocess. This is a fundamental reasonbehind biotech firms’ vertical integrationwith the seed industry, as discussed below.

Prior to the merger frenzy in the mid-1990s, there was a wave of acquisitionsapproximately a decade earlier. The1978–1980 period of mergers coincided withthe strengthening of amendments to the USPlant Variety Protection Act. At that time, anumber of observers identified a directcausal relationship between the strengthen-ing of intellectual property rights and mergeractivity, as the IPR triggered expectations ofincreased earnings in the seed sector. How-ever, whereas many of the acquiring firms inthe 1980s’ merger round were new entrantsto the sector, the 1990s’ round involvedexisting participants and high-profile multi-national firms (Lesser, 1998).



This wave of consolidation has beenthoroughly discussed elsewhere,70 but whatwe shall provide here is a summary of theresults of this series of acquisitions. Itshould be noted, however, that some ofthose acquisitions have been spun off a fewyears afterwards for a variety of reasons: (i)anticipated synergies might have failed tomaterialize; (ii) concerns over consumeracceptance of genetically modified organ-isms and thus, the underperformance of thebiotech firms relative to pharmaceuticals,may have led to an increase in pressurefrom shareholders; and (iii) antitrustscrutiny of mergers might have had a deter-rent effect.

Some of the basic features of the 1990s’merger round can, however, be highlighted.First, several large chemical and pharmaceu-tical firms moved into plant biotechnology,making huge investments in life sciences,and acquiring all of the large national seedfirms (e.g. Pioneer, DeKalb, Agracetus,Mycogen, etc.). Some chemical and pharma-ceutical firms merged horizontally (e.g.Rhône-Poulenc and Hoechst to form Aven-tis), then integrated vertically to seed breed-ing and marketing. The impact of this uponthe seed industry is that the large set of smallstart-up firms which appeared in the 1980shad, by the end of the 1990s, either folded orbeen acquired by the new agronomicsystem’s giants (Graff et al., 2001).

Thus, in contrast to the diffuse struc-

ture in existence during the 1980s, theemergent industry structure now consistsof a relatively small number of tightlywoven alliances among pharmaceuticalfirms, biotech research firms and the seedindustry. The life sciences industry hassolidified to five–seven major firms that arehighly vertically integrated and organizedaround a major life science firm (Table 3.1).These five major gene giants that dominatethe life science industry are: Du Pont, Phar-macia (Monsanto), Syngenta, Aventis, andDow. Together, they account for 60% ofglobal pesticide market, 23% of commercialseed market and virtually 100% of thetransgenic seed market (RAFI, September1999).

As the seed industry became more con-centrated, the share of biotechnologypatents likewise consolidated on the fewmajor companies. As a result of the wave ofbuyouts, the purchased firms’ intellectualproperty rights came to be held by its‘mother firm’. Graff et al. (2001) found thatthe top seven seed firms own more than80% of the total patents in agriculturalbiotechnology, whilst the three major onesheld 55% of the total patents. DuPont andPharmacia own a majority of all major typesof patents: 38% of transformation technol-ogy patents, 31% of gene patents and 81%of germplasm patents, the latter merelyreflecting the aggressive buyout strategies ofthese two firms in the seed industry. This

Table 3.1. Key global players and their positioning in the seed market (RabobankInternational, 2001).

Big league Minor league Niche players

DuPont (Pioneer) Limagrain Cebeco, Pau Euralis Pharmacia (Monsanto) Grupo Pulsar Ball, Pennington Novartis (Syngenta) Sakata DLF, Svalof Weibul

Advanta (AstraZeneca) Saaten Union, SigmaKWS Ragt, DSV, MaisadourDelta & Pine Land BarenbrugDow AgroAventis

70 See for instance, Barton (1998), Hayenga and Kalaitzandonakes (1999), Fulton and Giannakas (2001).

pattern raises concerns regarding potentialentry difficulties for new firms in the agri-cultural biotechnology industry, as anyonetrying to get in runs the risk of beingblocked or considered to be infringing uponany of the biotech patents held by the majorfirms.

Thus, in both the product and innova-tion markets, the major firms have cornereda majority share, raising concerns of possi-ble anti-competitive behaviour in the seedmarket and potential slowdown in the rateof agricultural biotechnology innovations.

Reasons for industry restructuring and the roleof IPR. Noting that industry consolidationhas led not only to concentration in theproduct market share (i.e. seeds) but also toconcentration in the patents and specializedassets used for research and development inbiotech, what was the motivation of giantfirms in moving into the seed business?What role did intellectual property rightsplay in the seed industry transformation?

There are several competing reasonsthat may explain the restructuring of theindustry. Some are unrelated (or only mar-ginally related) to IPR, while others are cen-tred on the intellectual property issue.

Non-IPR reasons. Strong demand comple-mentarily between chemical and biotechnol-ogy products is one reason that might havemotivated the amalgamation of seed andchemical companies. Consider a single firmproducing both insecticides and pesticidesand transgenic crops. Such a firm will bemore profitable because it can price its prod-ucts so that the use of the complementaryproduct is encouraged. For instance, Mon-santo tried a product-tying strategy whenselling Roundup™ (a dominant herbicidewith glyphosate as an active ingredient),with Roundup Ready™ crops which areglyphosate tolerant, to maintain their con-siderable market power in the glyphosatemarket (Hennessy and Hayes, 2000).

Innovation life cycle is another possi-ble explanation for the consolidation exhib-ited by the agricultural biotechnologyindustry (Kalaitzandonakes and Hayenga,2000). The idea is that it is typical that at

the early phase of innovation – the fluidphase – that new entrants gain access, thetotal number of firms increases, and all ofthem engage in innovation and experimen-tation with product designs and operationalcharacteristics. Over time, a specific prod-uct becomes the standard, and productinnovation subsides, while process innova-tion may continue at lower cost. Finally,the rate of both product and process inno-vation dwindles. At each stage of the inno-vation life cycle, there is a correspondingchange in the market structure. The numberof firms peaks during the fluid phase andthen eventually drops off to a few centralplayers as the dominant design becomesestablished. The remaining firms emulatethe features of the dominant product con-cept and compete on efficiency.

When applied to the agriculturalbiotechnology industry, Kalaitzandonakesand Hayenga (2000) note that the number offirms peaked in the early 1980s, as theycompeted in product innovation and vari-ous product forms, including transgenicplants and genetically engineered microor-ganisms. The dominant design emerged inthe early 1990s – transgenic plants with apesticide action – and consolidation beganshortly thereafter.

Yet while the innovation life cycleappears to explain horizontal integrationamong firms engaged in biotechnologyR&D, it does not sufficiently explain thevertical integration of pharmaceutical/chemical firms with seed companies.

IPR-related reasons. While non-IPR-relatedreasons may provide a partial explanationfor the restructuring of the agriculturalbiotechnology industry, they raise suffi-cient questions to prompt a search foranswers elsewhere. For instance, even asthe innovation life cycle can explain hori-zontal mergers of R&D firms, it falls short ofexplaining the vertical integration in thelife science industry. Thus, others haveoffered other explanations for the emergentmarket structure, which are directly relatedto intellectual property rights.

First, since IPR create monopoly powerto its owner, a firm may want to erect barri-


ers to entry for potential competitors. Thiscan be done by leveraging control over keyintellectual properties to block potentialimitation or minor innovation improve-ments (Lesser, 1998). By accumulating suchblocking patents, the patent owner main-tains its monopoly rents within a specificmarket and for a specific period of time.Thus, industry concentration can be moti-vated by the desire to control IPR, whichresults in the maintenance of a firm’smonopoly power, and therefore provides anexplanation for the industry consolidation.

Another reason why firms may want toaccumulate patents by buying companieswith IPR is to be able to use them as bar-gaining chips in negotiations with otherfirms. That is, knowing the high propensityof patent infringement in the biotechnologyindustry, having a number of patents givefirms the necessary leverage or threat to sueback if they, in turn, are sued for infringe-ment. Patent ownership then protects firmsfrom rival patents or enables them to nego-tiate for the utilization of certain key tech-nologies on an equitable basis (Joly and deLooze, 1996). Thus, what happens in a con-centrated market structure where a fewfirms own most of the patents is an implicitcross-licensing among the firms (Barton,1998). Without a sufficient number ofpotentially infringeable patents, a firm ismore vulnerable to being sued for infringe-ment by other companies.

A third IPR-related explanation forindustry consolidation is the economies ofscope in research or the desire to exploitcomplementarities in the use of specializedassets in biotech R&D. Graff et al. (2001)argue that the mere desire to accumulatepatents to block entry would have led to anincrease in the sheer number of ownedpatents, rather than in an increased diver-sity of patents. Since the increased industryconcentration shows that major firms haveaccumulated not only a greater number ofpatents but also a more diverse one, anexplanation can be found in the mutualcomplementarities of these assets. Forexample, the isolation of a gene leading to agene patent will have a greater value if thereare enabling technologies to use these

genes; or if the firm owns a large array ofelite germplasm into which those genes canbe inserted. This explains the vertical inte-gration of many biotechnology firms intothe seed sector, as superior germplasm wereessential complementary assets for agro-biotechnology.

The question is: why were so manymergers necessary for the exploitation ofcomplementarities, when other possiblecontractual arrangements, such as licensingor joint ventures with the seed companies,exist? The fourth IP-related explanationrelies upon the low appropriability of intel-lectual property rights in biotechnologyand high transaction costs in contractualarrangements to provide an explanation forindustrial consolidation in the agro-biotechnology industry.

The high transaction costs in licensingarrangements are due to the value alloca-tion problem from these arrangements.Since firms do not know completely the fullpotential utilization of the resulting innova-tion, it is difficult to establish the correctcost and benefit sharing arrangement.Because of the difficulty of arriving at opti-mal licensing contracts, an acquisitionalternative is thus often preferred.

Low appropriability of intellectualproperty rights and significant patent over-lap comes about when firms have similartechnology profiles. The weak differentia-tion of profiles is, in turn, due to the largesize of a common knowledge base from aca-demic research and publicly fundedresearch programmes. Thus, it happensmany times that different patents aremerely based upon different proceduresthat are aimed at the same applications, e.g.gene insertion on different crops using genegun technology or microprojectile methods.Consequently, in the face of similar patents,the probability of litigation is strong, and sois the incentive to merge or enter into cross-licensing agreements.

But why integrate vertically into theseed sector? Since crop biotechnologiesdemonstrate a significant degree of techni-cal imitation and high-quality proprietarygermplasm, being a key complementaryasset for commercialization, this facilitates


a stronger market position than biotechnol-ogy know-how and IPR on specific genes.This strategy of vertical integration into theseed business and ownership of germplasmhas become an almost necessary strategy fortechnology firms in the face of contestedintellectual property rights (Joly and deLooze, 1996; Hayenga and Kalaitzandon-akes, 1999).

To summarize, demand complemen-tary between chemicals and seed, as well asthe innovation life cycle, offers possibleexplanations for the trend of consolidationin the agrochemical/agrobiotech industry.But the existence of intellectual propertyrights appears to have had much to do withthe vertical integration. In particular, firmshave had incentives to buy firms with IPR:(i) to block entry of potential competitors;(ii) as a bargaining chip for an equitable useof rival technologies; (iii) because of com-plementarities of key intellectual assets liketransformation technologies, genes andgermplasm; or (iv) because of high transac-tion costs in licensing agreements alongwith low level of technology differentiationand intellectual property appropriability.

3.4 Conclusions71

The intellectual property system as it isreflected in the TRIPS agreement has beendeveloped over centuries, predominantlyby, and for the purposes of, industrialized

countries. Arguably, most forms of protec-tion are not adapted to the needs of TKholders. This is particularly true for patentprotection, which constitutes a complexand costly legal tool, especially withrespect to its international component. Itrequires considerable expertise and finan-cial resources to acquire and manage theseintellectual property rights, as well as thewill and capacity to commercialize the pro-tected products and processes. Appropriatecorporate, institutional and contractualstructures are necessary to take full advan-tage of this system. Furthermore, whenpatent protection shall contribute to reachcertain policy goals such as biodiversityand equity, it needs the implementation ofcorresponding competition laws and poli-cies. This type of IPR must therefore be rad-ically adapted in order to satisfy theaspirations of TK holders that go beyondthe grant of mere ‘defensive rights’ to pre-vent the most visible dysfunctions of thesystem. The same is true, however to alesser degree, for Plant Breeders’ Rights andsui generis protection systems. It is there-fore questionable whether classical forms ofIPR are appropriate for the purposes of TKholders in the light of the economic andnon-economic concerns at stake. One mayrather explore new concepts such as the‘domaine public payant’ to address both thedemand from TK holders and from societyat large in order to fulfil policies that areable to balance private and public interests.


71 Author: Christophe Germann.

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