Patent Insurance:
A future legitimacy to protect intellectual property for knowledge liberalization
Itaru Nitta
Chair, Green Intellectual Property Project (www.greenip.org)
48, rue Liotard, room 21, 1202 Geneva, Switzerland
Introduction
The expected function of protecting intellectual property (IP) is to enhance the total welfare in society through "knowledge liberalization." It might surprise readers to know that the unexploited but genuine essence of the IP regime is not protection but liberalization of knowledge. This hypothesis is founded on a descriptive model of macroeconomics in that the knowledge liberalization contains two steps needed to be separately considered: the production and allocation of knowledge. Such model reveals that the current IP regime lacks the step of the knowledge allocation whereas the regime strongly accelerates the production of knowledge, which is the causation commonly underlying of enormous difficulties the current regime is encountering.
Based on such macroeconomic model for the knowledge liberalization, this article argues that the difficulties surrounding IP protection would be overcome by the "Green IP" scheme or more explicitly the "Patent Insurance" scheme,1-5) which has been proposed by Geneva-based IP consulting group Green IP Project to embed financial functionality of the knowledge allocation into the IP framework. Legitimacy of such framework is examined in both economic and legal aspects, particularly in conformity with the World Trade Organization (WTO) law, concluding that the patent insurance would serve as a "preferred tariff" and "preferred remedy" in analogy with the traditional tariff and trade remedies yet superior to these because the patent insurance would drive the knowledge liberalization while the traditional measures oppose free trade in the General Agreement on Tariffs and Trade (GATT).
These functions of the patent insurance would justify its introduction of a financial measure into the flexibilities of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which would compensate inefficiency in the TRIPS flexibilities in contrast to the existence of multiple financial measures in the GATT remedies. The resultant IP regime embracing the knowledge allocation with financial measures would successfully promote the knowledge liberalization and consequently expand society's welfare.
Knowledge liberalization
The knowledge liberalization is a macroeconomic model proposed to answer the most fundamental question for IP policymaking: "do we need to protect IP?" This challenging model would draw a sharp contrast between two phases of progress in knowledge: increasing the pie of human's knowledge and allocating the increased knowledge with an appropriate distribution.6) The increase in knowledge, i.e., its production is concerned with creating, inventing and discovering anything by human kind. The knowledge allocation is involved in accessibility to knowledge (its distribution over users, e.g., who can access to patented medicines) and incentive to knowledge (its distribution over producers, e.g., no pharma industry is interested in neglected diseases). Both the production and allocation of knowledge should be promoted by wisely designing an ideal framework of IP protection to accelerate the knowledge liberalization and consequently build up wealthy society.
Knowledge production
The current IP regime, more specifically patent, has stimulated the knowledge production through innovation disclosure and capital concentration. These functionalities are two weights on the balance of public interest (innovation disclosure) and private right (capital concentration by patent monopoly as a reward for the disclosure) in the traditional patent legitimacy. The innovation disclosure not merely disseminates knowledge but also suppresses corporate secrecy and avoids duplicate research by different institutions. The capital concentration ensures inventors to collect the investment for research and reasonable benefit as well as facilitates the commercialization of their innovation, leading to further incremental and resulting radical innovations.
Knowledge allocation
In contrast to the successful functions in the traditional IP regime to enhance the productivity of knowledge, the regime has entirely left the allocation of such enhanced knowledge to market. In other words, the knowledge distribution such as accessibility and research incentive obeys the market rule, with which the IP regime never interferes. Although the "flexibilities" in the patent system can serve as a knowledge allocator for its users, these are all enforced to a limited extent and still more nonfinancial measures, as explored later in depth. Such nonfinancial flexibilities include compulsory licensing, parallel importing and generic producing under a certain condition (TRIPS 31) as well as the Bolar exemption for research tools (TRIPS 30), allowing unfavorable users to access to patented products of knowledge.
In addition to these distributors for users, patentability (TRIPS 27.1) and the scope of subject matter (TRIPS 27.2 and 27.3) can function as an allocator of knowledge for its producers (and eventually for users) because the range of patentable subject matter, typically including "order public or morality," influences the incentive and orientation of research. However, all these distributors for producers are again nonfinancial factors in the IP framework.
The lack of financial measures to allocate knowledge for both users and producers is dramatically becoming a major failure in the current IP framework. Such failure arises from the history of the IP regime: the traditional regime has not been required to introduce any financial mechanism to distribute knowledge because the framework has been shaped in wealthy societies of developed nations. The developed countries have possessed substantial market with enough scale of economy for the appropriate allocation of knowledge. Since, in such fertile market, users have had sufficient financial means to access to necessary products of knowledge, and resultant monetary flow has stimulated the production of needed knowledge, the traditional IP regime has not needed to contain its own allocator of knowledge with a financial measure.
Since, however, the creation of WTO in 1995, the IP regime has been increasingly compelled to contain its own financial allocator of knowledge due to expansion of the regime from developed to developing nations. This is an inevitable consequence from the integration of IP affairs, or the TRIPS agreement, into the WTO system despite the absence of sufficient market in developing countries. The TRIPS agreement is a result of strong demands by developed nations during the Uruguay Round, which was originally objected by developing nations.7) Developed nations pursued IP protection in developing countries by means of the dispute settlement mechanism in the WTO system and possible cross-retaliation over goods or services in the case of insufficient protection of IP. For these demands, developing countries eventually accepted the TRIPS agreement under the single undertaking of the WTO treaties in return for other agreements in favor of developing nations to reduce tariff and non-tariff barriers against textiles and agricultural products, which were of particular interest to developing countries.
The TRIPS agreement, unless effective market exists, is the "White Elephant" merely blocking users from assessing to necessary products of knowledge because the agreement does not contain any financial measure to distribute knowledge. In such setting, the current IP regime by no means promotes appropriate allocation of knowledge irrespective of commercial profitability, resulting in adverse effects on increasing in society's welfare. This failure is a common root cause of a wide variety of the IP frictions and resultantly growing criticism and diminishing societal trust over the IP regime, relating to accessibility to patented essential innovations, typically medicines and green technologies, need-based research incentive, e.g., "neglected" diseases, and patenting life and culture, including patentability, profit sharing and asset management over biological and cultural diversities (e.g., genetic resources, traditional knowledge and folklore).
Patent Insurance scheme1-5, 9)
One of the most straightforward solutions to address the global concerns about IP protection is the introduction of a financial measure into the framework in order to distribute knowledge with the best allocation in society for public benefit rather than profit motive. This idea would likely be realized by means of the "Patent Insurance" scheme, which is designed to impose an extra official fee on patent applicants and holders as a form of "insurance premium," and to establish a trust fund that would finance the knowledge allocation over both producers and users.
The allocation over users would include fostering true innovations for the most necessary public interest such as neglected diseases and environmental technologies, and a wide variety of funding proposed for needed research such as medical grants, prizes, treaties, public-private partnerships, advance market commitments, market exclusivities (orphan drug schemes) and tax credits. The knowledge allocation over users would furthermore encompass patentability and subject matter over biological and cultural diversities, specifically financial supports to exploit and protect genetic resources, traditional knowledge and folklore.
The knowledge allocation over users would contain ensuring unimpeded access to essential innovations, in particular the compensation of technology transfer costs, in particular royalty assumption, and other subsidies for purchasing patented products. The allocation over users would also include financial assistances for profit sharing and asset management over patented life and culture.
These financial measures to distribute knowledge would convince society of the wisdom of the IP regime, resulting in upholding the efficiency of the regime. In other words, the extra fee would serve as an "insurance premium" for defending patent rights against the risk of compulsory license and other safeguard flexibilities which the worldwide anti-patent protest has increasingly justified, and resultant erosion of the entire patent system. Consequently, the dual benefit of the premium not only for users in the financial aids but also for patentees in ensuring patent rights would readily build consensus by the patentees on their burden of paying the insurance premium.
Such premium would be an additional weight for patentees in the traditional balance of public interest and private right in the patent legitimacy. In the sense of economics, the patent premium would serve as a combination of the "Tobin taxation" and "Pigovian taxation." From the Tobin's perspective, the premium is an international taxation imposed at a border when a commodity, service or asset is crossing. The Pigovian aspect of the patent premium is to facilitate market incorporating its failure that patent protections generate in society.
The scheme would also equip to prevent the burden of paying the premium from inflating the price of patented products by two measures: the translation waiver and reduced price of official fees.
● Translation waiver: Once patent applicants pay the premium, they would no longer need to file an application translation with a local patent office when their application enters a designated country or region, unless the office needs a faithful translation for a trial or litigation. This waiver of translation would compensate or even outweigh the financial load of the patent premium because application translation accounts for a significant proportion in the costs of obtaining a foreign patent (roughly speaking, the total cost for a single foreign application is US$10,000 and its translation costs usually US$3,000 or more). The translation waiver would be supported by considerable improvement in computer translation, allowing a patent office to examine an application without a human-conducted translation or even by utilizing such translation of limited portions (e.g., only claims and relevant descriptions in a specification).
● Discounted fee: Another technical progress in examination of patent applications would offer a discounted price in official fees for those who have already paid the premium. This lowering would be brought about by streamlining examination by means of emerging technologies for identifying and measuring innovations. These tools would include information & communication technologies, highly-evolved patent-mappings and other intelligent methodologies.
Besides the scheme's original functionality of insuring patents, the financial advantage of the translation waiver and discounted official fees would further facilitate an agreement by patentees and industries on paying the patent insurance premium.
Since the Patent Insurance scheme would be embedded in the existing patent system, the scheme would possess a substantive and sustainable financial scale (possible annual revenue: up to several tens of billions in US dollars) due to enormous amount of both quantity (e.g., filing number) and quality (e.g., subject matter) in the present patent system worldwide.
Patent insurance premium as preferred tariff
The descriptive model of macroeconomics, which the foregoing introduced to illustrate the production and allocation of knowledge for its liberalization, enables exploring over legitimacy of the patent insurance in three WTO pillars, i.e., GATT for products, the General Agreement on Trade in Services (GATS) for services and TRIPS for knowledge assets. A comparison of these treaties, as further discussed later, allows us to regard several factors of TRIPS as analogous to the border measures of GATT. For instance, the delimitation of patentable scope, including subject matter (TRIPS 27.2 and 27.3) and patentability (novelty and nonobviousness, TRIPS 27.1), and yet payment of the patent insurance premium have a similar function to the nonfinancial and financial border measures in GATT, respectively.
These views of the subject matter/patentability as "pseudo quota" and the insurance premium as "preferred tariff," as termed later, arise from a commonality of TRIPS and GATT, or knowledge assets and products, in that they are both tangible once knowledge asset becomes property by granting an intellectual property right to the knowledge.
In contrast to this commonality, however, the patent insurance premium in TRIPS differs very from the traditional tariff in GATT in that the premium is preferable in economics due to its functionality for promoting the knowledge liberalization while the tariff is an obstacle against the trade liberalization and reluctantly agreed as a tentative tool for peaceful transition to free trade. The advantage of the premium as the preferred tariff would strongly support inclusion of the patent insurance into TRIPS rather than the existing tariff in GATT, which has considerably diminished in a schedule and would be eventually abolished.
GATT
In the simplest description,8) GATT is a floodgate that is built by internal nationals for restricting the flow of inward products to protect internal industries. On the border gate, the volume of entering products is regulated by two measures: quota/ban (GATT XI) and tariff (GATT II) under the most favored nation (MFN) provision. The quota/ban is a nonfinancial determinant directly limiting the product flow, whereas the tariff is a financial burden imposed on external nationals to favor internal industries, which indirectly affects the product flow.
Once the products underwent these border measures, they are equally disciplined by internal measures (GATT III) under the principles of both the national treatment (NT) and MFN. These concepts of no-discrimination in internal measures are also applied to GATS (GATS XVII) and TRIPS (TRIPS 3).
GATS
While GATT exclusively deals with products, GATS is the floodgate of services to protect internal industries. Since services are not subject for tariff due to their intangibility and impossibility of regulation by tariff-type measures, GATS contains no financial measure on a border corresponding to tariff in GATT. The intangibility of services compels GATS to adopt its distinctive nonfinancial regulation, called market accessibility (MA, GATS XVI) under the MFN concept. The MA is the commitments in the GATS schedule, which is a matrix consisting of eleven different sectors and four modes for delivering services in the form of positive lists for each country to assume specific commitments relating to MA and NT (GATS XVII) in designated sectors. GATS NT is more limited in scope by the possible limitations than GATT NT, and the limitation of GATS NT is reduced by expanding the positive commitments, corresponding to decrease in tariff bound rates in GATT.
TRIPS
While the gates of both GATT and GATS are built by internal national, TRIPS is a floodgate built by external nationals to protect their knowledge, which restricts inward flow of knowledge assets to prevent internal nationals from acquising the assets without permission. On a border, the TRIPS gate contains nonfinancial and financial measures here termed "pseudo quota" and "preferred tariff," respectively. The pseudo quota for patent is the subject matter and patentability (TRIPS 27) because these factors define the range of intellectual properties to be protected and consequently affect the volume of knowledge crossing the border as if by the ordinary quota in GATT without financial means.
Since the subject matter/patentability, however, has a more complex role than the traditional quota in GATT, such TRIPS version of quota is distinguished by wording of "pseudo." If the subject matter, for example, delimitated the broader scope over product/method innovations, medical procedures and secrecy-ordered technologies, the production of knowledge would be enhanced with the wider extent whereas its allocation would be reduced, resulting in undetermined effects on the liberalization of knowledge as total. If the patentability, likewise, stipulated the stricter requirements, the knowledge allocation would be accelerated at the higher rate whereas the knowledge production would possibly be encouraged or discouraged.
Besides the subject matter/patentability in a form of the pseudo quota, TRIPS would be able to contain the patent insurance premium as a financial measure on a border, which would influence the flow of knowledge. Since the premium would act in a manner similar to the tariff in GATT, the patent insurance premium would be regarded as a certain tariff. Namely, the premium is the financial burden imposed on external nationals to favor internal nationals because the patent insurance would finance the knowledge allocation within a territory, which would provide economical advantages to internal nationals with correspondence to the traditional tariff in GATT.
In contrast to this correspondency, however, the patent insurance would prevail over the tariff because the insurance would encourage the knowledge liberalization whereas the tariff discourages the trade liberalization. Since, in addition, the patent insurance would financially boost the knowledge allocation and not adversely affect the knowledge production, the insurance would have more straightforward and definitive effect on the knowledge liberalization than the subject matter/patentability with the uncertainty mentioned above. To focus on these proactive effects of the patent insurance, its premium would be named the "preferred" tariff in TRIPS.
Table 1: Common features in the border measures.
| | GATT | GATS | TRIPS | |
| Non-financial | Favoring internal nationals | Quota/Ban | MA | Subject matter/patentability (pseudo quota) |
| Financial burden on external nationals | Tariff | no | Patent premium (preferred tariff) | |
The capability of understanding the subject matter/patentability as the pseudo quota and the patent insurance premium as the preferred tariff would derives from the tangibility of intellectual property because this tangibility eliminates the necessity of classifying the knowledge flow in some modes like GATS and enables the financial measures on a border like GATT. This illustration would be one of the major sources for the advantages above mentioned over the patent insurance and legitimacy of its premium as a financial border measure in TRIPS.
Patent insurance payment as preferred remedy
As with appreciation of the patent insurance premium in a sense of the preferred tariff, the payment of the patent insurance would be understood as "preferred remedy" in TRIPS, corresponding to the traditional "trade remedies" in GATT as generally recognized: the safeguard measure (GATT XIX and the Agreement on Safeguard (SG)), the countervailing duties for subsidies (GATT III.8(b), VI and XVI, and the Agreement on Subsidies and Countervailing Measures (SCM)) and the anti-dumping measurement (GATT VI and the agreement of its implementation (AD)).
These remedies in GATT are to narrow or close a gate in flood of influent products by financial (e.g., raising tariffs and extra duties) and nonfinancial (e.g., quota, ban and non-tariff barriers) means providing economic advantage to internal nationals on a temporary basis. In drought of knowledge, on the other hand, the patent insurance would open a gate in TRIPS more widely to irrigate a territory with the knowledge internal users need. This irrigation would be achieved by promoting the allocation of needed knowledge through a wide variety of financial assistances. Since such assistances would lead to the economic advantage of internal nationals, the payment of patent insurance would be regarded as a financial "remedy" in TRIPS.
The patent insurance, however, would have superiority over the traditional trade remedies of GATT in that the insurance would contribute to the knowledge liberalization by financially driving the knowledge allocation whereas the remedies of GATT go against the global efforts toward the trade liberalization. Such superiority of the patent insurance would be emphasized by call it the "preferred" in TRIPS rather than the original remedies in GATT.
In contrast to the possible aspect over financial measures in the patent insurance, such measurements are outside the current outline of the existing remedies in TRIPS, or its flexibilities. More precisely, the design of TRIPS as a whole bears less financial flexibility even supposing that the flexibility includes the subject matter/patentability (TRIPS 27), which are equivalent to the exceptions in GATT XX and the separate agreements of Sanitary and Phytosanitary (SPS), and Technical Barriers to Trade (TBT) because these factors determine the scope of subjects both in TRIPS and GATT.
The scarcity of financial measure in the TRIPS flexibilities arises from still short history of TRIPS compared to the long period of GATT and negotiations over trading even before the GATT, during which a number of financial measures have formed. In other words, TRIPS contains several flexibilities; however, they are not sufficient, even after the creation of Article 31bis as only amendment so far adopted in the WTO treaties, to respond to various disputes caused by expansion of IP protections in geographical area, i.e., from north to south, and subjects because the TRIPS flexibilities are limited within nonfinancial means.
Table 2: Internal measures and remedies in GATT and TRIPS.
| | Treaties | ||||
| Reason | Usual duration | Mode | Basic procedure | GATT | TRIPS |
| Non- economic | Long | Exemption, standard and regulation | Non- financial | XX (SPS and TBT) and other non-tariff barriers | Patentability and subject matter |
| Economic | Temporary | Remedy | Financial included | SG | Four flexibilities |
| AD and SCM | Patent insurance payment for knowledge allocation | ||||
This immatureness in TRIPS would ripen with the financial measures by the patent insurance in the form of the preferred tariff and remedies, approaching the full compliance with the distinct principle over "balanced protections" in TRIPS 7, quoting
[t]he protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.
In particular, the stipulation of "the mutual advantage of producers and users" in TRIPS 7 would be financially implemented with the dual benefit of the patent insurance scheme not only for users in the financial assistances but also for patentees in ensuring patent rights.
The patent insurance scheme would no longer regard the IP regime as a mere IP protector, but rather as more like a pro-active financial driver of funding for the largest overall benefit in society through financing the knowledge liberalization irrespective of commercial profitability.
REFERENCE
1 N Nitta, "Patent Insurance: A future legitimacy for fostering true innovations and ensuring access to them" (2009) Patent World, March, in editing
2 N Nitta, "Green Intellectual Property Scheme: A Blueprint for the Eco-/Socio-Friendly Patent Framework" in Veena (ed), Intellectual Property: Legal Framework, Icfai University Press (2007) 72 - 93 at
http://www.who.int/phi/public_hearings/second/contributions_section2/Section2_NittaItaru-GreenIntellectualPropertyProject.pdf
3 N Nitta, "Green Intellectual Property: A Tool for Greening a Society" in Veena (ed), Intellectual Property Rights: An Overview, Icfai University Press (2006) 139 - 160
4 N Nitta, "Proposal for a Green Patent System: Implications for Sustainable Development and Climate Change" (2005) 5 Sustainable Development Law & Policy, 61 - 65
5 N Nitta, "Patents and Essential Medicines: An Application of the Green Intellectual Property Project," WHO-CIPIH (2005) at
http://www.who.int/intellectualproperty/submissions/ITARUNITTA.pdf
6 basics of economics, see, e.g., J Pauwelyn and A Guzman, Case Book on International Trade Law, Aspen Publishers, forthcoming, chapter 1
7 ibid., chapter 19
8 basics of GATT, GATS and TRIPS, see, e.g., ibid., chapters 3 - 19
9 The contents of this section are based on the reference 1.
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