PFF On Cooling The World By Misappropriating Patent Rights

By Sidney A. Rosenzweig, visiting fellow, The Progress & Freedom Foundation

The latest United Nations conference on climate kicked off this week in Bonn, Germany. And once again, the issue of compulsory patent licences is on the agenda.

A compulsory licence occurs when a government decides that it “needs” a product; it then authorizes others to breach any patent rights associated with that product. A compulsory licence, then, is really not a licence, but it is compulsory. Most famously, these licences occur when a government deems certain drugs necessary to combat an epidemic such as HIV/AIDS. Because these licences are government takings, trade treaties such as the World Trade Organization’s TRIPS agreement restrict their use.

Compulsory licensing comes up in the climate-change context because certain countries – including China and India – want to take advantage of new technologies that mitigate or remedy environmental problems without having to pay. In November 2008, President Evo Morales of Bolivia advocated the use of climate-change-related compulsory licences “so that all countries can access products already patented and free of cost.” Compulsory licensing, however, is hardly free of cost.

One problem with these compulsory licensing proposals is that it is not at all clear what a climate-change-related technology actually is. Many, and maybe most, patents cover such “green” technologies. Any patent that ekes out a little more efficiency from an industrial process or a longer lifespan for a product can be thought to be green. Every generation of semiconductors, for instance, is greener than the last. The prospect of compulsory licences should cause all US industries to be gravely concerned.

When we speak of green technologies, though, we intuitively think of something narrower: wind farms, photovoltaics, and the like. The Obama administration has positioned these industries as a linchpin for the renewal of the US economy. Governor Schwarzenegger has done the same in California. Yet these are the industries that need patent rights the most. Like their biotechnology predecessors before them, these firms – many of which are small startups – have enormous capital expenses. Their principal lifeline is venture capital and their principal collateral is their intellectual property. Their patents are the foundation of their existence. Weaken that foundation and the house quickly crumbles.

Beyond the effects on domestic industry, compulsory licensing is inappropriate in the climate-change context. There will not be any one technology that will be necessary or sufficient on its own to solve climate change. Different solutions will have to compete in the marketplace. There is no reason to believe that the marketplace for these technologies is flawed. To the contrary, the very problem that has bedevilled drug pricing globally, causing some compulsory licences, is absent here.

Pharmaceutical companies have been loathe to sell their products at significant discounts in poor countries for fear of “reimportation.” The fear is that cheap drugs sold in poor countries will end up back in rich countries. That fear is misplaced for green technologies: The solar farm installed in India will not be put on a midnight barge to the United States. Accordingly, the market can adjust to the available resources of each nation. That is quite different from a bottle of pills sold from an Indian pharmacy online to a US consumer.

Under these circumstances, it is terrible policy to advocate for compulsory licences. Alternative methods exist to finance the deployment of green technologies, such as tax incentives and public subsidies. These alternatives ensure that the very entities upon which we rely to solve the world’s problems do not also bear the world’s burdens. Hopefully, the UN will recognise that.

Sidney Rosenzweig is a Visiting Fellow at The Progress & Freedom Foundation. Rosenzweig has over a decade of expertise in intellectual property law, with a focus on patent and copyright litigation, as well as electronic surveillance and computer fraud counseling.