VI. Conclusion--Brazil's conduct compromises its ability to acquire the tools of innovation.

• Author: Kogan, Lawrence A.

1. WHAT OTHER COUNTRIES ARE DOING TO STRENGTHEN IPRs AND THEIR ABILITY TO INNOVATE

   In the words of one Ugandan-born American bioscientist,

   "The key to economic development is the presence of the institutions of a free society: property rights, the rule of law, free markets and limited government ... Strong intellectual property rights, administered and enforced in an impartial manner, have been an important part of this framework. As a result ... countries ... which have [put this] ... institutional framework [] in place have experienced the growth of 'knowledge-based' industries--to the benefit of all" (emphasis added). (1092)

   An increasing number of developing countries have discovered the important role that IPRs can play in establishing the proper enabling environment for innovation and economic development, and have stepped forward to increase protection of IPRs.

   Patents

   China

   Just recently, the World Intellectual Property Organization announced that China had tiled 44 percent more patent applications (2,452) under the WIPO Patent Cooperation Treaty (1093) during 2005 than it had during the previous year.

   "The Patent Cooperation Treaty ... allows inventors to use a single registration to seek patents in many countries simultaneously. This ... 44 per cent increase ... means China has overtaken Australia, Canada and Italy to become the tenth biggest user of the treaty, adopted in 2000 ... The number of patents filed by developing countries grew by 20 per cent between 2004 and 2005, and now represent 6.7 per cent of the total [number of patents filed globally]. Leading this growth are China (with 2,452 patents in 2005), India (648), South Africa (336), Brazil (283) and Mexico (136)" (emphasis added). (1094)

   This seems to reflect the growing awareness within Chinese government and industry circles that legal protection of their indigenous intellectual property assets, including patent (and even copyrights) will actually help rather than hinder the technological advancement and global competitiveness of Chinese companies. (1095) Yet, one must remain circumspect about whether this rash of patent applications actually reflects innovations that are made by rather than simply in China--i.e., whether they were merely the result of reverse-engineered products coupled with newly synthesized processes of manufacture. The importance of intellectual property was discussed during a recent interview conducted by the Xinhua news agency with the Commissioner of China's State Intellectual Property Office (SIPO).

   "'Improvement of China's existing intellectual property system will stimulate innovation-based competitiveness', said Tian Lipu, commissioner of the State Intellectual Property Office (SIPO), on Wednesday, In an interview with Xinhua, Tian said his office began drafting a national intellectual property strategy aimed at helping build an innovative nation in 2005. 'The government should create a favorable environment for breeding technological innovations by working out new policies and adopting incentive measures. The system of intellectual property right protection is also targeted at spurring innovative activities of individuals', Tian said. 'As the backbone of international market competition', Tian said, 'enterprises should be encouraged to invest more in research and development and should have more technologies with intellectual property (emphasis added). (1096)

   Nevertheless, only the passage of time will determine whether the entire Chinese government will see the virtue of stepping up their national protection of foreign intellectual property fights. In this regard, China's cooperation with the U.S. on intellectual property enforcement matters, particularly, its willingness to promptly provide the U.S. with details about Chinese IPR enforcement activities is essential to diffusing the current tensions. In fact, earlier this year, certain information delays prompted some American politicians and advocacy groups to call for WTO retaliation. (1097) Indeed, on February 15, 2006, the U.S. Trade Representative announced that it was "setting up an enforcement office to ensure China complies with international trade rules, the fast time such a targeted mechanism has been aimed at a specific country." (1098)

   Notwithstanding this announcement, however, it should be recalled that, although China possessed the opportunity, at one point, to declare a national health emergency for the purpose of issuing compulsory licenses on foreign patented HIV/AIDS drugs, it did not, like Brazil, threaten to do so. Rather, unlike Brazil, which had originally been outraged by suggestions that it promote HIV/AIDS prevention through use and distribution of condoms (1099) and later relented, (1100) China suffered no such umbrage at all, and sought pragmatic ways to encourage these practices. (1101)

   And, China ultimately decided not to issue a compulsory license for valid and principled reasons.

   "'Theoretically, China can declare that the country is in an emergency situation and impose compulsory licensing to allow it to make generic drugs,' says Wen Xikai, an official with the patent bureau of the State Intellectual Property Office. 'But we have to take some economic factors into consideration.' she adds. 'Imposing compulsory licensing reduces but does not eliminate costs. We should offer satisfactory compensation to the drug makers who own the patents,' Wen says. 'Moreover, simply reducing prices is not the root solution. Even if drug prices are cheaper, most farmer[s] will still not be able to afford them.' Some experts say that compulsory licensing also has its negative side. If the quality of the drugs so produced is poor, they will bring no benefit to the patients. Moreover, the practice will encourage mainland pharmaceutical manufacturers to produce the generic drugs rather than develop new ones and thus become less competitive in the world market" (emphasis added). (1102 1103)

   Hopefully, such reasoning will continue to prevail following China's recent enactment of a national compulsory licensing law. The law requires payment, in most instances, of 'just (reasonable) compensation' to foreign owners of patented medicines. (1104)

   It must be remembered that, despite their different stages of development and cultural idiosyncrasies, Brazil and China arguably face a similar domestic innovation conundrum that, if not managed properly, can impair their respective long-term economic growth prospects. Like Brazil, China has had significant difficulties in translating its know-how into market-relevant innovations.

   "Although Chinese science is developing rapidly, as reflected in growing numbers of patent filings, the country's efforts, to translate ideas into commercially successful innovations have so far been disappointing. Many structural barriers stand in the way. They include[:] [1] an ivory tower approach to engineering education; [2] weak links between universities and business; [3] academic corruption; [4] ineffective intellectual property protection; [5] state-owned industries' domination of large markets[;] and [6] scarcity of venture capital funding. Many of those handicaps are deep-seated and will require bold action to dislodge" (emphasis added). (1105)

   Therefore, the Chinese government should act prudently when adopting and implementing its new compulsory licensing and information technology laws. If it does not, it could inadvertently extinguish the primary incentive for foreign life sciences and IT companies to enter into joint venture agreements with local Chinese companies in the first place. This could, in turn, prevent the types of knowledge spillovers that can lead to indigenous innovations from which Chinese companies and citizens might otherwise benefit. Hopefully, Chinese President Hu Jintao's recent pledge to uphold foreign private intellectual property rights indicates that, China remains determined to continue down its present economic development path towards innovation...