Further works To overcome the above-mentioned objections and for by kzgpwtxtim

VIEWS: 1 PAGES: 61

									                                                           Volume I




                                       INTERNATIONAL BANK
                                           FOR INNOVATION
                                                     A Paradigm Shift
                           in Global Intellectual Property Legitimacy




Green Intellectual Property Project
Geneva, Switzerland
www.greenip.org
September, 2010

Contents

List of Abbreviations                                                                            3


Volume I
CHAPTER 1
OVERVIEW: Summarizing Questions and a Way to Tackle them                                         4
       1.1. A Signal for Change                                                                  4
       1.2. Review and Model                                                                     5
       1.3. International Bank for Innovation (IBI)                                              5
       1.4. Patent Assurance                                                                     6
       1.5. Operation                                                                            7
       1.6. Institution                                                                          8
       1.7. Translation Waiver and Reduced Price of Official Fee                                 9
       1.8. Knowledge Liberalization                                                             9

CHAPTER 2
ECONOMIC MODEL: Knowledge Production, Allocation and Liberalization                              12
      2.1. Knowledge Production:
            Statical Microeconomic Equilibrium between Private and Public Interests              12
      2.2. System Failure                                                                        14
         (a) Real Economic Market and Knowledge Allocation                                       14
         (b) Globalization                                                                       16
         (c) Externalities                                                                       16
         (d) Limited Variety of Escape Provisions                                                17
         (e) Doha Declaration and the Necessity of Financial Measure for Knowledge Allocation    18
      2.3. Knowledge Allocation: Dynamic Macroeconomics                                          19
      2.4. Knowledge liberalization: Financial Driver of Funding                                 21
      2.5. Dismal Consequences without Change                                                    22
         (a) Medicines                                                                           22
         (b) Patent Erosion                                                                      23
         (c) Alternatives                                                                        24
         (d) Substitution of Players                                                             25
         (e) Placing a Price on Environmental Degradation for Developed or Developing nations?   26
         (f) LDCs                                                                                27
      2.6. Concluding Remarks for This Chapter                                                   28

CHAPTER 3
LEGAL MODEL: A Proactive Instrument to Underpin an International Entitlement                     32
       3.1. Patent Assurance                                                                     32
       3.2. Bridge between Property and Liability Rules                                          33
       3.3. TRIPS Agreement: A Role Model for the Property Rule                                  33
          (a) Property Rule                                                                      33
          (b) Inalienability                                                                     34
          (c) Liability Rule                                                                     35
       3.4. Proportionate Compensation Underpinning and Self-Compliance                          36
          (a) Proportionate Compensation Underpinning for the TRIPS Agreement                    36
          (b) High Rate of Compliance                                                            38
       3.5. Self-Compliance and Assurance: Remarkable Synergy Effects                            39
          (a) Accelerated Consent and Accession                                                  39
          (b) Beyond Exceptions and Remedies                                                     39
          (c) Beyond Retaliations and Sanctions                                                  40
          (d) Assurance as a Proactive Countermeasure                                            40
       3.6. Proportional Awarding                                                                41

                                                   -1-
September, 2010

             (a) Assurance as a Countermeasure with Proportional Compensation   41
             (b) Investment Insurance                                           42

CHAPTER 4
OPERATIONAL MODEL: Embodiment of Knowledge Allocation                           45
       4.1. Revenue Phase                                                       46
       4.2. Appraisal Phase                                                     46
          (a) Requestor                                                         47
          (b) Observer                                                          47
          (c) Standing to Request the Financial Assistance                      47
          (d) Protection of Capital in IBI                                      48
          (e) Proportionate Compensation                                        48
          (f) Moral Harard and Adverse Selection                                49
          (g) Non-Violation-Based Request                                       50
          (h) Situation-Based Request                                           50
          (i) Criteria for Claim of Patent Assurance                            51
          (j) Proof and Review                                                  51
          (k) Flexibilities                                                     52
          (l) Consultation                                                      53
          (m) Rebalance Benefits                                                53
       4.3. Adoption and Disbursement Phases                                    53

CHAPTER 5
INSTITUTIONAL MODEL                                                             57
       5.1. Governance of the World Bank/MIGA and WTO                           57
       5.2. Driving                                                             57
       5.3. Decision Making                                                     58
       5.4. WTO Dispute Settlement Mechanism                                    58
       5.5. WIPO                                                                59


Volume II
CHAPTER 6
TRANSLATION WAIVER AND REDUCED OFFICIAL FEE

CHAPTER 7
ECONOMIC FEASIBILITY

CHAPTER 8
CONCLUSION




                                                    -2-
September, 2010



Abbreviations


          AD                Agreement on Implementation of Article VI of GATT 1994 (Anti Dumping)
          BRICS             Brazil, Russia, India, China and South Africa
          CBD               Convention on Biological Diversity
          CVD               Agreement on Subsidies and Countervailing Measures
          DSB               WTO Dispute Settlement Body
          DSU               Understanding on Rules and Procedures Governing the Settlement of Disputes
          EPO               European Patent Office
          GATT              General Agreement on Tariffs and Trade
          GEF               Global Environment Facility
          HIV/AIDS          Human Immunodeficiency Virus / Acquired Immune Deficiency Syndrome
          IBI               International Bank for Innovation
          ICTSD             International Centre for Trade and Sustainable Development
          ILC               International Law Commission
          ILC Articles      ILC's Articles on Responsibility of States for Internationally Wrongful Acts
          IP                Intellectual Property
          JPO               Japan Patent Office
          LDC               Least Developed Countries
          MIGA              Multilateral Investment Guarantee Agency
          MIGA Convention   Convention Establishing MIGA
          NAFTA             North American Free Trade Agreement
          PCT               Patent Cooperation Treaty
          SG                Agreement on Safeguards
          SPS               Agreement on the Application of Sanitary and Phytosanitary Measures
          TBT               Agreement on Technical Barriers to Trade
          TRIPS             Agreement on Trade-Related Aspects of Intellectual Property Rights
          UNCSD             United Nations Commission for Sustainable Development
          UNCTAD            United Nations Conference on Trade and Development
          UNDP              United Nations Development Program
          UNEP              United Nations Environment Programme
          USPTO             United States Patent and Trademark Office
          WHO               World Health Organization
          WIPO              World Intellectual Property Organization
          WTO               World Trade Organization
          18 USC            Title 18 of the United States Code (Federal Crimes and Criminal Procedure)
          35 USC            Title 35 of the United States Code (Patent Law)




                                                    -3-
September, 2010

CHAPTER 1
OVERVIEW:
Summarizing Questions and a Way to Tackle them

The quest for knowledge has always been an aspect of humanity, and in all likelihood, such conduct
accommodates the wish of our Creator because it gifted us with the power to exploit knowledge regardless of the
naturalistic fallacy (Moore, 1903) or extreme naturalism denying any exploitation by humankind. Since in
reality, we cannot live in the Stone Age anymore, there is no other option for us but to develop further knowledge
for the sake of building more sophisticated society with authentic prosperity. A number of difficulties facing us
nowadays and arising from earlier exploitation of knowledge, e.g., pollution diseases,
dichlorodiphenyltrichloroethane (DDT), the ozone hole made with chlorofluorocarbon (CFC), the asbestos-related
lung disease, bovine spongiform encephalopathy (BSE), climate change and global warming, are not blunders but
all the evidence of our progress, and such obstacles are just those to be overcome with more knowledge.

1.1. A Signal for Change
Today, such production of knowledge expands with the highest pace in volume, scope and geographical extent
over the course of human history (e.g., Wuchty, 2007). This ever-increasing production of knowledge impacts
every way we live our lives and shape our society, e.g., knowledge in medicine, life science, genetics,
environmental technology, hydrogen economy, space photolytic power generation, nuclear fusion energy
production, space science, spacecraft, nanotechnology, computer, information technology, artificial intelligence,
business model, financial engineering, education, art, and as well scientific, technological cultural, artistic,
academic, social and any other creations. Some of these creations have raised serious economic and political
frictions as well as security and ethical concerns, and as a result they would likely force us to question our rules
and moral code to govern our production of knowledge in the foreseeable future, or even now.

Indeed, such questioning has already emerged, or even reached almost full force for patent. It grants territorial
and temporary exclusive privilege in return for public disclosure, which enables others to build on earlier
innovations by their predecessors. In this way, patent has established its unique position to underpin scientific
and technological advancement, and consequently to enrich society because society's practices generally depend
on its affluence and level of science and technology. Today, however, we observe numerous signals indicating
patent would have to change (e.g., WSJ, 2009) so that it could cope with relentless expansion of knowledge as
long as we held out for patent as the best tool ever devised to facilitate knowledge production. Such expansion
of knowledge brings with patent complex and dynamic pressures, which has already made a significant impact on
the ability of the existing regime to respond to predictable, and even unpredictable future change. Change is the
sole certainty in our uncertain world.

Long before today's torrential waves of knowledge production, Abraham Lincoln once said "[t]he patent system
added the fuel of interest to the fire of genius." These words are one of the best representations of a classical
view over patent, which are inscribed in stone at the entrance of the US Department of Commerce, once home to
the United States Patent Office. Throughout the five hundred years of patent history since the first enactment in
Venice (e.g., Molà, 2000), people have focused on the role of patent in driving economic growth (e.g., Bugbee,
1967; Dobyns, 1994). This economic growth-oriented policy is based on the traditional economic conviction
that continuous development driven by constant economic growth makes a positive contribution to human welfare.
However, air pollution, resource depletion, deforestation, overfishing, global warming, ozone depletion,
bio-diversity loss, environmental hormones, genetically-modified organisms, as well as other forms of
environmental degradation, have shown the negative side of economic growth. As a central connection between
economic growth and environmental degradation, patent should change so that it would play a significant role in
ensuring that future development is sustainable.

Another signal for change in patent also flashes on essential medicines. To protect drug innovations, a US report,
known as the Young Report in 1985 (Young, 1985), argued pro-patent policy not only in the country but also
worldwide for the first time. This report cautioned that without a global standard of patent protection, America's
profits in high-tech industries would be plundered by innovation pirates and it would no longer enjoy a successful
modern economy. In the wake of this report, pro-patentists have gone for the tone that patent allows for the
enriching our society through scientific and technological progresses accelerated by an increase in capital
intensity for patentees. However, patent has also provoked a wide variety of disputes when it impeded access to

                                                         -4-
September, 2010

necessary technologies such as essential medicines (e.g., Maskus, 2000). Presumably, the fiercest attack by
society to patent is around life sciences, e.g., extended patent over genes and living organisms, and as well the
failure to provide affordable medicines in large numbers to vulnerable populations. In the face of growing
criticism over the patent protection of medicines, and resultantly diminishing societal trust over the patent regime,
the biggest challenge of patent policymaking is to address the global concerns about accessibility to patented
products.

These movements have been called the public access to knowledge, or "A2K." Formally, the A2K movement
was born in 2004, Geneva around two key events: a co-proposal from the Brazilian and Argentinean governments
for a development agenda in WIPO and the Geneva Declaration on the future of WIPO (Intellectual Property
Watch, 2005). Since then Yale University has repeatedly hosted the A2K Conference in Geneva, and at the first
meeting in April 2006: "[Our] first goal is to come up with a new analytic framework for the possibly distortive
effects of public policies relying exclusively on intellectual property rights," said the organisers. "The A2K
initiative seeks to support the adoption and development of alternative ways to foster greater access to knowledge
in the digitally connected environment."(EPO, 2007, page 42)

Again this summer, a crowd of patent opponents and proponents descend on Geneva when international
organizations in the city convene a series of meetings to explore future legitimacy for the global regime of patent
protection. The participants address a wide variety of increasing patent disputes, but they seem to amount to one
of the most primitive questions -- do we truly need patent? If so, how should we develop its regime for the
future? What global legitimacy would be conferred on such regime?

1.2. Review and Model
To answer these questions, this writing starts in Chapter 2 by spotlighting various phenomenological behaviors of
patent, and from these behaviors, common factors are extracted, which underlie a range of favorable and harmful
phenomena patent has expressed in society. Such factors are described in a descriptive economic model with
three novel concepts: "knowledge production," "allocation" and "liberalization," which are a generic language
integrating numerous studies done thus far (e.g., Bessen, 2009; Landes, 2003; Merges 2004) for patent and other
forms of intellectual property. This economic model allows us to universally understand intrinsic functions of
protecting knowledge, and more importantly what is fundamental drawback of the current regime for knowledge
protection and a guidance for possible improvement of it. In the latter half of Chapter 2, this economic model is
applied to some of actual phenomena specifically selected in environmental technologies and essential medicines
in order to develop several possible scenarios for the future with dismal consequences if we left patent as it is.

In short, such economic model concludes that patents are widely believed to be indispensable for promoting
innovations, or knowledge production. Once, however, innovation is protected, patents leave up to the market
the dissemination of patented technologies, or knowledge allocation, which is the common culprit of various
patent frictions, including the accessibility to essential medicines, the transfer of environmental technologies and
the biased incentives of research toward commercial profitability rather than the most necessary public interest,
for example, the "neglected diseases." (WHO, 2006)

1.3. International Bank for Innovation (IBI)
Based on this conclusion, Chapter 2 proposes a straightforward solution to set off the lack of measure for
knowledge allocation, which would introduce a financial mechanism into the present framework of patent in order
to distribute knowledge with the best allocation in society for public benefit rather than profit motive. This idea
could be achieved in several ways and one of them would be the establishment of an appropriate funding
institution, which this writing calls an International Bank for Innovation or IBI (Nitta, 2005a; 2005b; 2006;
2007a; 2007b). IBI is designed to impose an extra official fee on patent applicants and holders besides the
existing official fee for granting and maintaining patent. From this additional levy, IBI would create a trust fund
and provide a wide variety of assistance financing knowledge allocation over both producers and users.

The knowledge allocation over producers of an innovation would be one target to be promoted by the finance
assistance from IBI, including fostering true innovations for the most necessary public interest such as neglected
diseases and environmental technologies, and various 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 (WHO, 2010). The allocation over producers would furthermore encompass

                                                        -5-
September, 2010

patentability and subject matter over biological and cultural diversities, specifically financial supports to exploit
and protect genetic resources, traditional knowledge and folklore.

Another target of IBI would be the knowledge allocation over users of an innovation, which would contain
ensuring unimpeded access to essential innovations, in particular the compensation of technology transfer costs,
e.g., 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.

            ● Revenue: guarantee premium
            ● Expenditure: financial measures to facilitate knowledge allocation
                      For producers, e.g., needed research, exploiting and protecting biological and
                                        cultural diversities
                      For users, e.g., unimpeded accessibility, profit sharing over the protected
                                        diversities

          Box : Monetary flow through IBI.



The extra levy would be an additional weight for patentees in the traditional balance of public interest (innovation
disclosure) and private right (patent monopoly as a reward for the disclosure) in the patent legitimacy. In the
sense of economics, such levy would serve as a combination of the "Tobin taxation (e.g., Johannes, 2007)" and
"Pigovian taxation (e.g., New York Times, 2006)." From the Tobin's perspective, the levy is an international
taxation imposed at a border when a knowledge asset is crossing. The Pigovian aspect of the levy is to facilitate
the market incorporating its failure that patent protection generates in society because the system lacks an
appropriate mechanism to allocate knowledge over both producers and users of it.

1.4. Patent Assurance
IBI would collect the extra levy from patent applicants and owners in the name of "premium" because the
financial assistance from IBI would serve as "assuring patent (cf. Austin Business Journal, 1998)." This
financial assistance for knowledge allocation would be offered to people who are suffered from patent in order to
enable them to acquire a patented product, and as a result, to deter them from defaulting patent protection. Such
deterrent would allow for keeping patent intact, and at the same time, such acquisition would convince society of
the wisdom of patent, and consequently, calm growing criticism over patent and uphold societal trust over it.
This situation means that the financial aid from IBI would function as "awarding assurance of patent." In other
words, the additionally-imposed fee would be a kind of premium for defending patent against risk of its erosion
such as compulsory licensing and other safeguard flexibilities recognized in the present regime of patent.

In addition, assuring of patent would accomplish a dual benefit not only for users of innovation in the form of
financial aid, but also for owners of patent in ensuring patent, which would readily build consensus by applicants
and patentees on their burden of paying the assurance premium. This dual benefit would attract not only
corporations facing predicaments in patent protection, such as pharmaceutical industries, but also any
research-oriented sectors in developed countries because they all need ensured patents.

Chapter 3 further delves into the concept of assuring patent and resultant dual benefit for both users and producers
of innovation. This chapter constructs a legal model, in which patent is accorded as an entitlement in general
international law, and assurance would be an instrument to underpin an international entitlement. Indeed,
assuring an entitlement would be a kind of countermeasure in response to encountering the risk of injury in an
entitlement. In the face of an obstacle to compliance with an entitlement, awarding assurance would eliminate
such obstacle and allow for still observing an entitlement and circumventing prospective breach of it.
Importantly, assurance would differ from traditional countermeasures such as remedies, sanction and retaliation,
and even as well regular insurance, in that most of these conventional measures focus on reacting to
circumstances after an incident happened whereas assurance this writing devises would be a proactive planning
for possible future outcomes, i.e., prevention of breach.

This proactive nature of assurance would confer on it excellent compatibility with the basic structure inherent in
general international law. In this structure, an international entitlement is firmly accorded with the so-called

                                                         -6-
September, 2010

property rule whereas it is merely underpinned to the extent of proportionate compensation without punitive
actions (Pauwelyn, 2008). Such inconsistent structure compels international law to rest heavily on
self-compliance behavior of individual contracting parties in order to uphold an entitlement because most
international settings lack a collective authority to invoke punitiveness in the event of violation. Due to such
importance of self-compliance in international law, assurance would have a high feasibility of a novel proactive
instrument to backup an entitlement in international law. This is because assuring an entitlement would enhance
the stability of an entitlement through avoidance of violating an entitlement by awarding assurance. Such
stabilized entitlement would attract contracting parties and strongly encourage them to respect it with their
voluntary incentive.

1.5. Operation
Following broad conceptional arguments about IBI and patent assurance from economic and legal views, Chapter
4 draws a blueprint for specific procedures to operate IBI overall such as collecting premium, receiving a claim
for assurance, reviewing it, approving it and awarding assurance as well as negotiating and deciding the price of
premium, eligibility for assurance, its coverage and other requirements. Although some of these factors look
like detailed, they are of importance in running IBI well and yet reflected back to the fundamental principle of
patent assurance.

The patent assurance would be payable to any eligible governments, including both developing and developed
countries, and as well qualified companies and nongovernmental organizations in public and private sectors in
response to their requests for financial assistance, i.e., claims for assurance. Such requests would be deliberated
to assess the feasibility of facilitating knowledge allocation during an international quasi-judicial process,
modeled after, for instance, the MIGA (Bishop, 2005) affiliated with the World Bank and the WTO dispute
settlement mechanism (WTO, 2004). One of the principal criteria for granting a financial assistance would be
solid foreseeing that the requested assistance would surely accelerate to knowledge allocation over users or
producers, or both for the largest public benefit possible rather than profits in market.

    ● Knowledge allocation mechanism in the WTO dispute settlement system
      Since the financial mechanism to assist knowledge allocation, or the "knowledge allocation mechanism" in
      short, could be regarded as one of the procedures to settle disputes over patent, it is a possible option to
      design deliberation of a claim for assurance in the mechanism by staring in reference to the quasi-judicial
      process in the WTO dispute settlement system (WTO, 2004). In this case, another major criterion for
      awarding assurance should be highlighted: the fact that full compliance with patent protection has raised an
      adverse situation. Since the knowledge allocation mechanism would exclude violation of patent
      protection and the mechanism would defer such violation to the regular violation complaint in the WTO
      dispute settlement system, the criterion of full compliance in the quasi-judicial deliberation over a claim for
      assurance might require new discussions over TRIPS 64.3 (non-violation and situation complaints).

    ● Patent assurance in MIGA
      Besides a similarity to the WTO dispute settlement system, the operation of IBI would also share several
      practices with MIGA (World Bank, 2007, page 20). First, IBI would grant the payment of assurance for a
      predefined coverage and amount to the extent equivalent to or less than proportionate compensation for
      predictable injury in value of patent once it was violated. This proper ceiling on assurance payment would
      intend to avoid two major drawbacks well recognized for regular insurances: moral hazard and adverse
      selection. Such restriction would also contemplate the actuarial equivalence principle, and as a result,
      protection of capital in IBI and sound management of it. Second, IBI would learn practical skills from a
      wide variety of experiences of MIGA for investment dispute mediation services. Third, IBI would also
      embrace at least a part of four guiding principles MIGA has well established: focus on clients, engage in
      partnerships, promote developmental impact and ensure financial soundness.

In addition to these deliberations in a quasi-judicial process, it is important that when the request for financial
assistance were rejected, IBI would have to ensure opportunities for the rejected country to consider an alternative
action, including the traditional flexibilities in patent such as compulsory licensing, parallel importing, generic
production and the Bolar exemption. These safeguard measures of the TRIPS flexibility in the event of denial of
assurance payment must be affirmed in conformity with the spirit and scope of the Doha Declaration, its relevant
decisions and historical background, and TRIPS 30 (exception), 31 (use without authorization) and 31bis (Abbott,

                                                        -7-
September, 2010

2002).

1.6. Institution
Besides an operational model built in the foregoing chapter, Chapter 5 provides an institutional model of IBI in an
attempt to envision its organizational image. To this end, the chapter starts with a comparison of three leading
institutions in global funding and intellectual properties: the World Bank/MIGA, WTO and WIPO. The World
Bank/MIGA share functional similarity with IBI in that the Bank provides financial assistances to developing
countries and MIGA (e.g., Baker, 1999; Shihata, 1988) guarantees the investments that developed countries have
thrown into developing countries while IBI would offer financial assistances to allocate patented knowledge and
products in favor of developing countries and, at the same time, ensure patent rights that developed countries
invested and established in territories of developing countries. On the other hand, WTO (e.g.,Bossche, 2008) is
heavily involved in intellectual property issues through the TRIPS Agreement and WIPO specializes in them, yet
the latter is more like a rather neutral administrative bureau with less policy and advanced operations to
collectively maintain 23 treaties regarding intellectual property at the moment (e.g.,WIPO, 2004). Although this
sort of comparative studies have been repeatedly conducted elsewhere (e.g., Coffey, 2006; Buira 2005; Alexander,
2005), this chapter particularly takes the implementation of IBI into consideration, which turns out a prototype of
IBI.

    ● WTO
      WTO would likely have eligibility in underlying or even affiliating IBI due to the WTO's characteristics of
      a member-driven, equally-represented and rule-based organization. This eligibility is also supported by
      the fact that the financial assistances as assurance awarding from IBI would be indeed one of the financial
      measures to settle disputes over patent, which the WTO dispute settlement mechanism would potentially
      encompass. However, WTO's susceptibility to slow and cumbersome operation has been of concern and
      sometimes become a reality due to consensus decision-making (e.g.,Bossche, 2008), which might adversely
      affect a quasi-judicial process in IBI. In addition, WTO has no experience at all in funding and any other
      financial actions including assurance.

    ● World Bank/MIGA
      By contrast, the World Bank/MIGA specializes in funding, global financial assistance and guaranteeing
      foreign investments, and its structure has an executive board to direct the executive officers of the
      organization. However, such structure rests on a power-based principle with permanent participation by
      the major industrial countries and weighted voting, which has been sometimes far from equitable
      representation by each party.

      Since the MIGA shares many conceptual and structural similarities with the World Bank, their guarantee
      coverage and its issues as well as insurance payments are regulated by the scope of industrialized Members
      with a similar fashion to the World Bank (e.g., Baker, 1999; Shihata, 1988). This leadership by developed
      countries has functioned well so far in the operation of the MIGA because, in that institution, major
      Members of both capital subscribers (fund donors) and guarantee beneficiaries (fund acceptors) are
      developed countries whereas lenders (fund donors) and borrowers (fund acceptors) in the World Bank are
      developed and developing Members, respectively. That is to say, major customers of the MIGA are
      developed nationals and developing countries merely provide place where such actors play, implying that
      the MIGA has no experience in acting with developing nationals and it is totally uncertain that the
      framework of the MIGA is applicable to the actions of developing nationals.

    ● WIPO
      WIPO is excellent in administrating international registrations of intellectual properties while retaining the
      original mission of BIRPI (les Bureaux Internationaux Reunis pour la Protection de la Propiete
      Intellectuelle) or the international secretariats for the Paris and Berne Conventions. In other words, WIPO
      is rather a politically-inexperienced institution in comparison with the World Bank/MIGA and WTO, and
      therefore, it is expected to lay a technical groundwork for procedures in IBI.

      Actually, the principal function of WIPO is to facilitate constructing various infrastructures for intellectual
      property management in both developed and developing countries (e.g.,WIPO, 2004). Although WIPO
      has significantly considered and influenced a wide range of intellectual property politics, its arguments

                                                        -8-
September, 2010

      heavily relate to practices in management and thus provoke few disputes. In order to address emerging
      issues such as traditional knowledge, folklore, biological diversity, genetic resources, environmental
      protection and digital technology, WIPO has established several internal bodies, including the
      Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and
      Folklore and the Committee on Development and Intellectual Property to elaborate the WIPO Development
      Agenda. However, these bodies aim not at engaging in debates but at only providing a platform for
      debates, developing methods and accelerating processes.

IBI would be possibly established in a form of an entity as a financial institution affiliated with at least one of
these organizations, an assembled institution with several organizations or a separated institution incorporating
advantages each of them has. In any of these cases, IBI would engage in close cooperation with WIPO, WTO
and the World Bank/MIGA, and as well a wide range of other relevant organizations such as UNCTAD, WHO,
UNEP and ICTSD.

1.7. Translation Waiver and Reduced Price of Official Fee
Even if the precedent chapters successfully answered all questions indispensable to actual creation of IBI, there
still remains one problem to be resolved: how to prevent burden of the premium from inflating the price of
patented products, e.g., increased price of medicine. This raised price means an intolerable fact that premium
obligation was shifted from an assurance beneficiary, i.e., a patentee to users of a patented product. To avoid this
situation, Chapter 6 in Volume II indicates a possible solution, i.e., IBI would additionally equip two measures:
translation waiver and reduced price of the official fee.

    ● Translation waiver
      Once a patent applicant has paid the premium under the translation waiver, she or he would no longer need
      to file an application translation with a local patent office while the 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 assurance 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
      (Cavalier, 2001), 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).

    ● Reduced price
      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 (EPO, 2007, pp. 86-101).

In addition to the original functionalities of the patent assurance, these financial advantages of the translation
waiver and discounted official fee would further encourage patentees to agree with the assurance premium.
These technical aspects must be investigated in consultation with leading patent offices, including the WIPO, EPO,
USPTO and the JPO.

1.8. Knowledge Liberalization
The bottom line in this writing is, an expected function of patent protection is to enhance the total welfare in
society through the knowledge liberalization. It might surprise readers to know that, as discussed in Chapter 2,
an unexploited but genuine essence of patent is not the protection but liberalization of knowledge, which is a
macroeconomic model containing knowledge production and allocation as constituents to describe the dynamics
of patent. Such liberalization would be acheived in IBI by incorporating into patent the financial mechanism to
drive knowledge allocation.

Since IBI would be embedded in the existing patent system, the institution would enjoy a substantive and
sustainable financial scale (with a possible annual revenue of up to several tens of billions of US dollars, cf. Nitta,

                                                         -9-
September, 2010

2005) due to enormous amounts of both filing numbers and subject matters in patent worldwide even during a
time of challenging economic conditions. This economic feasibility would be of importance in breathing real
life into IBI, and its demonstration is performed in Chapter 7 of Volume II in depth.

The concept of knowledge liberalization would no longer regard patent as a mere innovation protector, but rather
as more like a proactive financial driver of funding for the largest overall benefit in society. This view ushers in
a paradigm shift of the global patent legitimacy. To prove such discovery, this writing would hopefully be the
specification of an innovation today for innovations tomorrow.


Bibliographies as General References
WTO
Andrew Guzman and Joost H.B. Pauwelyn, International Trade Law; Aspen Publishers (June, 2009)

Peter Van den Bossche, The Law and Policy of the World Trade Organization: Text, Cases and Materials; Cambridge University
  Press, 2nd ed. (September, 2008)

World Trade Organization, A Handbook on the WTO Dispute Settlement System: A WTO Secretariat Publication; Cambridge
 University Press (August, 2004)

World Trade Organization, Understanding the WTO; World Trade Organization, 3rd ed. (February, 2007)

TRIPS and Intellectual Property
Nuno Pires de Carvalho, The TRIPS Regime of Patent Rights: With an Introduction on the History and the Economic Function of
  Patents; Kluwer Law International, 2nd ed. (January, 2005)

Daniel J. Gervais, The TRIPS Agreement: Drafting History and Analysis; Sweet & Maxwell, 3rd ed. (2008)

Carsten Fink and Keith E. Maskus, Intellectual Property and Development: Lessons from Recent Economic Research; World Bank
  Publications (March, 2005)

World Intellectual Property Organization, WIPO Intellectual Property Handbook: Policy, Law and Use; World Intellectual Property
 Organization, 2nd ed. (2004)

European Patent Office, Scenarios for the Future: How Might IP Regimes Evolve by 2025? - What Global Legitimacy Might Such
  Regimes Have?; European Patent Organization (2007)

UN Conference on Trade and Development - International Centre for Trade and Sustainable Development, Resource Book on TRIPS
 and Development; Cambridge University Press (April, 2005)

World Bank and MIGA
World Bank, A Guide to the World Bank; World Bank Publications, 2nd ed. (October, 2007)

R. Doak Bishop, James Crawford and W. Michael Reisman, Foreign Investment Disputes: Cases, Materials and Commentary;
  Kluwer Law International (July, 2005), Chapter 5 (Political Risk Insurance)
Environmental Affairs and Public Health
World Health Organization, Public Health: Innovation and Intellectual Property Rights; World Health Organization (May, 2006)

ibid, Research and Development - Coordination and Financing: Report of the World Health Organization Expert Working Group on
   Research and Development Financing; World Health Organization (January, 2010)

David Hunter, James Salzman and Durwood Zaelke, International Environmental Law and Policy; Foundation Press, 3rd ed.
  (December, 2006)

Economics
Herman E. Daly and Joshua Farley, Ecological Economics: Principles and Applications; Island Press (November, 2003)


References and Notes
Abbott FM, 2002, "The Doha Declaration on the TRIPS Agreement and Public Health: Lighting a Dark Corner at the WTO," 5 J.
  Int'l Econ. L., 469-505

Alexander K, Dhumale R and Eatwell J, 2005, "Global Governance of Financial Systems: The International Regulation of Systemic
  Risk," Oxford University Press

Austin Business Journal, 1998, "Patent Insurance can Guard Intellectual Capital" on June 12. The term "patent assurance" in this
  writing differs from the conventional "patent insurance," which usually covers business activities for the legal cost of pursuing
  infringement or patent theft. It also pays to defend policyholders against allegations of infringement.

Baker JC, 1999, "Foreign Direct Investment in Less Developed Countries: The Role of ICSID and MIGA," Praeger
Bessen J and Meurer JM, 2009, "Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk," Princeton
  University Press

Bugbee BW, 1967, "Genesis of American Patent and Copyright Law," Public Affairs Press

                                                               - 10 -
September, 2010


Buira A, 2005, "Reforming the Governance of the IMF and the World Bank," Anthem Press

Coffey P, 2006, "Reform of the International Institutions: The IMF, World Bank And the WTO," Edward Elgar Publishing

Cavalier T, 2001, "Perspectives on Machine Translation of Patent Information," World Patent Information 23(4), 367-371

Dobyns KW, 1994, "The Patent Office Pony; A History of the Early Patent Office," Sergeant Kirkland's Press

EPO, 2007, "Scenarios for the Future: How might IP regimes evolve by 2025? What global legitimacy might such regimes have?"

Intellectual Property Watch, 2005, "Experts Debate Access To Knowledge," on February 15

Johannes K, Thorsten C and Thomas P, 2007, "The Tobin Tax - A Game, Theoretical and an Experimental Approach," Social Science
  Electronic Publishing at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=936924

Landes WM, 2003, "The Economic Structure of Intellectual Property Law," Harvard University Press

Maskus K, 2000, "Intellectual Property Rights in the Global Economy," Institute for International Economics

Merges RP, 2004, "Foundations of Intellectual Property" Foundation Press

Molà L, 2000, "The Silk Industry of Renaissance Venice," Chapter 8, Johns Hopkins University Press

Moore GE, 1903, "Principia Ethica"

New York Times, 2006, "Raise the Gasoline Tax? Funny, It Doesn’t Sound Republican," on October 8

Nitta I, 2005a, "Patents and Essential Medicines: an Application of the Green Intellectual Property Project," Commission on
  Intellectual Property Rights, Innovation and Public Health (CIPIH) World Health Organization at
  http://www.who.int/intellectualproperty/submissions/ITARUNITTA.pdf

ibid., 2005b, "Proposal for a Green Patent System: Implications for Sustainable Development and Climate Change," Sustainable
   Development Law & Policy, pp.61-65, 2005, Washington College of Law, American University, Washington, D.C., USA

ibid., 2006, "Intellectual Properties and Photovoltaics: Light from the Green Intellectual Property Rights," European Photovoltaic
   Industry Association at http://www2.epia.org/documents/NL_0603_015.pdf

ibid., 2007a, "Green Intellectual Property Scheme: A Blueprint for the Eco-/Socio-Friendly Patent Framework," Intellectual
   Property: Legal Framework, Veena (ed.), pp.72-93, 2007, Icfai University Press, Hyderabad, India

ibid., 2007b, "Green Intellectual Property: a Tool for Greening a Society" Intellectual Property Rights: An Overview, Veena (ed.),
   pp.139-160, 2007, Icfai University Press, Hyderabad, India

Pauwelyn JHB, 2008, "Optimal Protection of International Law: Navigating between European Absolutism and American
  Voluntarism," Cambridge University Press

Shihata I, 1988, "Miga and Foreign Investment: Origins, Operations, Policies and Basic Documents of the Multilateral Investment
  Guarantee Agency," Springer

Wall Street Journal, 2009, "Proposed Change in Patent Policy Pits Big Firms vs. Small," on November 4.

WIPO, 2004, "WIPO Intellectual Property Handbook," WIPO Publication

Wuchty S, Jones BF and Uzzi1 B, 2007, "The Increasing Dominance of Teams in Production of Knowledge," Science 316, 1036 -
 1039

Young JA, 1985, "Global Competition - The New Reality: Results of the President's Commission on Indusial Competitiveness"




                                                               - 11 -
September, 2010

CHAPTER 2
ECONOMIC MODEL:
Knowledge Production, Allocation and Liberalization

Although empirical evidence suggests remarkable achievements of patent in promoting technological progress,
nowadays, a wide variety of patent disputes are increasingly escalating worldwide (as a profound review, see EPO,
2007, pp. 68-83). This situation forces us to question a long-held belief about the wisdom of patent and the
meaning of its existence. To answer such question, this chapter will construct an economic model describing
patent, or more generally knowledge protection, which embraces knowledge production and its allocation as
microeconomic and macroeconomic functions, respectively (as an excellent introduction to
"knowledge-economics," see Foray, 2006). This model would well explain advantages and underlying
drawbacks in the current regime for protecting knowledge, and furthermore conclude the necessity of installing
allocation mechanism as a new financial measure in order to achieve the liberalization of knowledge.

This chapter will start in the following sections by introducing the idea of microeconomic equilibrium between
private and public interests, which drives knowledge production in the present framework. Section 2.2 will
show multiple deficiencies of this framework and the need for knowledge allocation to remedy such deficiencies.
Sections 2.3 and 2.4 will argue the knowledge allocation by sketching it as a macroeconomic instrument for the
liberalization of knowledge. Section 2.5 will predict several dismal consequences (see also EPO, 2007, p. 81) as
likely as not unless the ongoing frame of knowledge protection includes knowledge allocation.

2.1. Knowledge Production: Statical Microeconomic Equilibrium between Private and Public Interests
Since the first enactment of patent law in Venice on March 19, 1474 (for more detail, see Molà, 2000), the form of
its legislation has varied depending on the needs of society it served while evolving over several centuries
throughout Europe to the US and other parts of the globe (for more detail, see Bugbee, 1967; Dobyns, 1994; EPO,
2007, pp. 14-21; MacLeod, 1988; Rockman, 2004). However, the fundamental concept behind patent has
remained the same: it is a monopoly privilege, or legally an exclusive and absolute right, granted by an authority
within its territory for a finite length of period after deliberation on patentability including novelty,
nonobviousness, usefulness and subject matter, in return for the public dissemination of knowledge (EPO, 2007, p
14).

This classical legitimacy of patent embraces the successful functionality to enhance knowledge production.
Namely, patent has made a considerable contribution to amplify the total amount of knowledge in society (yet,
sometimes not for its welfare or rather adversely as discussed in detail later) by promoting the diffusion of both
innovated technology and its knowledge, which spurs further innovations. This positive spiral relies on a
balance of two countervailing powers in society: one is public interest in sharing and benefiting from discovered
knowledge in the widest possible span, and the other is the private right to protect and exclusively exploit owned
knowledge for the maximum profit from it. Such public interest is satisfied with innovation disclosure and less
impeded access to innovated technologies, and the disclosure legitimates the private right to protect knowledge as
a reward for its publicity in accordance with one of the most recognized views as the "reward doctrine" (e.g.,
Miller and Davis, 2000; Carvalho, 2002; Gervais, 2008). Once the patent right is justified, resultant patent
monopoly provides a patentee with a competitive advantage in commercial conditions, which facilitates faster
concentration of capital on a patentee and consequently next innovations as argued well in the "prospect theory"
(e.g., Carvalho, 2002; Kitch, 1977).

These traditional concepts, the reward doctrine and prospect theory, identify two major functions of patent for the
knowledge production: innovation disclosure and capital concentration. The innovation disclosure not merely
disseminates knowledge (cf. controversies among European Patent Abolitionism in the late nineteenth century, see
Janis, 2002, pp. 933-935) but also suppresses corporate secrecy (e.g., Nitta, 2008) and avoids duplicate (e.g.,
Machlup, 1958, p. 50) research by different institutions. The capital concentration (as the best example, the
function of Statute of Monopolies in UK's Industrial Revolution, see e.g., MacLeod 1988; Dutton, 1984) ensures
inventors to collect the earlier investments (e.g., Machlup, 1958, p. 19) for research and reasonable benefits as
well as facilitates the commercialization (cf. the history of penicillin, see Taylor, 1973) of their innovation,
resulting in the actual availability of an innovated product for the public. In addition, firm protection of patent is
sometimes proven (as a fair analysis, see Commission IPR, 2002) to be efficacious for encouraging international
trades (e.g., Maskus, 1997; Smith, 1999), capital flows (cf. Venetian success in the Renaissance, see Sufian,

                                                        - 12 -
September, 2010

2006) and foreign investments (e.g., Maskus, 2000b; Mansfield, 1994, as a typical case, see also Businessweek,
2009). All these factors of the capital concentration foster further incremental and resulting radical innovations,
and strongly drive the knowledge production forward.


                  ● Innovation disclosure:
                                Knowledge dissemination, Corporate secrecy, Duplicate research
                  ● Capital concentration:
                                Investment, Benefit, Commercialization,
                                International trade, Capital flows, Foreign investments


        Box. Knowledge Production: The traditional balance of public interest (innovation disclosure) and private right
        (capital concentration) stimulates the production of knowledge in the existing patent regime.



These functions of patent in the form of the innovation disclosure and capital concentration can be descriptively
modelled with the primitive perceptions of microeconomics in order to illustrate the mechanism for patent to
promote the knowledge production. This descriptive model pictures the "Pareto-type (as recent comprehensive
work, e.g., Chinchuluun, 2008; Peters, 2008)" maximization of knowledge production as a static equilibrium
between the private and public interests. According to this model, a society contains a number of micromarkets
of knowledge each involving a certain cluster of relevant knowledge. Respective knowledge markets are
canonical ensembles where two opposing forces compete toward knowledge in question: one is public force
desiring more opened availability for the knowledge, and the other is private force favoring more restricted
accessibility to the knowledge. The intensities of these forces are determined by the magnitude of benefit that
knowledge in question generates within its market, namely the higher benefit, the stronger forces of both the
public and private. Individual manners of these forces in each knowledge market all together configurate the
total behavior of society as a whole, which can be described in its entirety by means of an ensemble average over
the micromarkets of all knowledge in society.




                                   Benefit

                                                                Total (T)
                                             Public (Pu)                       Private (Pr)




                                                                               Extent of Protection
                                                              Best Extent

            Box. Knowledge Market: The best extent of knowledge protection is determined by balancing two benefits in
            knowledge market: private benefit (Pr) i.e., owner's gain from knowledge which is protected at a certain extent
            and public benefit (Pu) i.e., society's intake from such knowledge. The total benefit is the summation of private
            and public benefits, which is maximized at the best extent of knowledge protection.




The public and private forces in knowledge market are caused by the benefit from the knowledge engaged in the
market because a desire to enjoy such benefit as much as possible is the fundamental source of attraction force to
knowledge. This benefit from knowledge varies depending on the extent of knowledge protection in society as
shown in a diagram above. On the private benefit curve (Pr) in the diagram, an owner of knowledge gains more

                                                             - 13 -
September, 2010

benefits from it as the extent of knowledge protection increases. The extent of protection includes, in the case of
patent, patentability such as subject matter regarding national security, health and ethical concerns and public
order and morality; the scope of patent over whether products, methods or both; rights conferred over its
production, sales, import, export or all of them; and patent term. The higher values of these parameters provide
an owner with the larger amount of benefits, which corresponds to the classical supply schedule of good in the
original microeconomic market. By contrast, the public benefit curve (Pu), alike the demand schedule in the
authentic microeconomics, is denoted as downward-sloping, meaning that as the extent of protection expands, the
accessibility to knowledge narrows and as a result, the public benefit deceases.

The total benefit that certain knowledge produces in its market is obtained by summing the private and public
benefits, which is depicted as the total benefit curve (T) in the diagram. The total benefit curve reaches its peak
in the sense of the Pareto's optimality between the private and public benefits when both benefits are equal.
Since in this state, the private and public forces also have the same intensity, the statical equilibrium between
private and public interests is established and the stable maximization of the total benefit is achieved. In the
diagram, such statical microeconomic equilibrium occurs at the best extent of protection where the private benefit
is equal to the public one and in turn, their total benefits is maximized, as represented by the intersection of the
public and private curves in a diagram. In this situation, an equilibrium state of the public and private interests
most efficiently enhances the benefit from knowledge, which enables sufficient investment to create further
knowledge such as next innovations. This self-growth cycle of knowledge corresponds to the Schumpeter's
endogenous mode (as a reader-friendly writing, e.g., Idris, 2003) in a static phase of technology progress in that
equilibrium state of the public and private interests spontaneously induces the self-growth of knowledge in its
market. Consequently, the best extent of protection over knowledge allows society to maximize knowledge
production through the equilibrium of public and private interests, or more simply saying, an appropriate
protection of knowledge efficiently increases the pie of knowledge in society. However as discussed in the
subsequent sections, such maximized production of knowledge does not necessarily imply that protection of
knowledge also enriches genuine welfare in society at large because the existent framework of protection over
knowledge excludes the optimization of knowledge allocation and the distribution of resultant benefit in society.

2.2. System Failure
Although the section above demonstrates the excellent ability of knowledge protection to promote knowledge
production, it has a high possibility of failure for lack of mechanism to promote knowledge allocation under the
today's setting of globalization. The sections below will show several factors in such failure and the necessity of
introducing knowledge allocation to overcome such drawbacks.

(a) Real Economic Market and Knowledge Allocation
Although the traditional legitimacy of knowledge protection has an excellent capability to maximize the
production of knowledge, this legitimacy does not always serve well for any society. In some societies,
protection of knowledge makes no contribution at all for enhancement in authentic welfare, or rather exerts
deleterious effects on society as the whole because the current legitimacy of knowledge protection has been built
on a premise: the existence of a substantial market where there are minimum or more users desiring a certain type
of protected knowledge and they have enough financial means to acquire such knowledge. When society
possesses no real market having a sufficient economic scale both for a producer to create knowledge and for users
to pay fare for accessing to it, the concept of protecting knowledge does not make sense to such society.

The presence of commercial market, which embodies the knowledge market in real economy, is a determinant for
success in protecting knowledge. It is actually a common factor shared among societies in history in which the
framework of knowledge protection has successfully functioned e.g., Venice in the days of Renaissance, Britain in
the era of the Industrial Revolution and US under the current propatentism (see the footnotes indicated in Section
2.1). In all these societies, users of knowledge have been capable of affording to purchase needed knowledge
even with a raised price due to a knowledge monopoly and pay a necessary cost for knowledge transfer such as a
royalty fee. Thanks to this monopoly, an owner has gained sufficient returns on earlier investments for creating
knowledge, which have allowed her or him to exploit further commercialization of the knowledge, explore its
derivatives and foster next knowledge, associated international trades, capital flows and foreign investments.
For granting of a monopoly, owners have graciously disclosed the detailed substance of their knowledge, which
has facilitated the emergence of new producers and the development of novel knowledge. In this way, the
production of knowledge has been maximized with the balanced interests of the public and private, and

                                                       - 14 -
September, 2010

consequently an enough volume of knowledge has been generated, disseminated and automatically allocated with
an appropriate distribution over users needing the knowledge in accordance with the rule of economic market.
Concurrently with this knowledge allocation over users, knowledge has been also allocated over producers with
an appropriate distribution in that knowledge meeting public needs has been available to producers and their
incentives for research have correctly targeted demands in society as a whole.

In by contrast the absence of commercial market with enough scale of economy, the majority of users lack even
minimal financial means to access to needed knowledge and they cannot acquire protected knowledge even when
it is absolutely imperative. Only a limited number of affluent users can enjoy benefit from knowledge because
the basic idea of protecting knowledge aims at producing it and the idea excludes functionality to allocate even
essential knowledge over its users. Since the knowledge market discussed in the foregoing sections concentrates
on effective producing knowledge and that market defers to real economic market on the allocation of knowledge,
the existing framework of knowledge protection encompasses no measure to induce an appropriate allocation of
knowledge with external force from outside market apart from its rule. For a similar reason to users, knowledge
allocation over producers is neither accorded in the current framework of knowledge protection in that producers'
incentive for research and development centers on lucrative knowledge and particular interests of wealthy users.
Since most users in society do not have economic capacity and there is no measure to cause an appropriate
allocation of knowledge over producers, their knowledge and incentive remain undistributed and unjustified
toward the public interests at large due to less prospects both of collecting earlier investments and reasonable
benefits for next research and of promoting the commercialization of their knowledge.

In various forms of their own words, a number of scholars have also argued drawbacks in the present protection of
knowledge; however, most of their conclusions can eventuate in one proposal: the need to introduce new measure
for knowledge allocation into the present system for the sake of the better distribution of knowledge over users,
producers or both. Such measures include the open source/open science scheme, the license of right (liability)
regime and the push and pull system, which all are external forcing from outside market regardless of its rule in
order to induce an appropriate allocation of knowledge (as a concise review over proposed mechanisms fostering
innovation other than patent, e.g., ICTSD, 2007).

    ● Open source/Open technology
      Open source, especially free software, relies on an intellectual property right, e.g., copyright to enforce
      licence conditions set by its owners. In the open technology model, including monopoly with unified
      standard, no patent protection is claimed; yet reward comes from peer recognition and comprehensive
      patent protections over secondary innovations with high rate of market penetration. Open source is a
      collective process, so diffusion of technology is enhanced while profits are reduced as they are shared by
      many participants. By nature, the open source model is of insufficiency for capital concentration, and
      consequently commercialization and intensive investment for further innovations, and therefore, Windows
      has retained its market supremacy over Linux since its launch in 1998. In addition, the open model hardly
      functions for researching in material-based industries needing vast investment such as pharmaceuticals far
      beyond model-based industries, including software. Furthermore, a dominator frequently continues to rule
      a market for a longer period than patent term once a monopoly has been established by penetration power.

    ● Licence of right (liability regime)
      The liability regime replaces the monopoly conferred by patents (effectively an exclusion right) with a
      remuneration right. Although information diffusion and public knowledge gain will be higher than under
      a patent regime, profits might fall as technology has to be shared with third parties, and thus, this regime is
      designed based on a firmer market than that patent needs. Examples of the liability regime are advance
      market commitments and market exclusivities (orphan drug schemes).

    ● Push and pull systems
      There have been proposals for several alternative models to finance drug research. They all try to close
      the gap between the price and marginal costs of drugs by using push or pull mechanisms to foster
      innovation in fields considered to be relevant to public health. The push mechanism subsidizes research
      and development to push the upstream provision of medicines from their producers whereas the pull
      mechanism is subsidy for purchase to pull the downstream provision toward users. These mechanisms
      include prizes, treaties, public-private partnerships, tax credits, patent pool promotion, patent buy-outs,

                                                        - 15 -
September, 2010

      patent extensions and fast tracking regulatory review.

Some of these proposals intend more enhanced accessibility of users to needed knowledge, which leads to better
allocation of knowledge over users in society. Others attempt more balanced incentive of producers toward the
public needs at large, which results in sound distribution of knowledge over producers and their incentive to
develop new knowledge. In short, most of a wide variety of previous arguments by a considerable number of
scholars can amount to knowledge allocation.

(b) Globalization
Without commercial market having sufficient scale of economy, the existent framework of knowledge protection
never functions well unless it contains knowledge allocation. The reason for this heavy reliance of the
framework on commercial market and the lack of knowledge allocation in it is obvious. Such failure arises from
the history of the regime of knowledge protection: the classical regime has not been required to introduce any
allocation mechanism to distribute knowledge because the framework has been shaped in wealthy societies of
developed nations having fertile market. The developed countries have possessed substantial market with
enough scale of economy and the rule of market has spontaneously achieved an 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 both the production and allocation of needed
knowledge, the traditional regime has not needed to contain its own measure to allocate knowledge.

However, the lack of measure to allocate knowledge for both users and producers is dramatically becoming a
major failure within the current framework of knowledge protection in the face of ongoing globalization of
today's world. For instance, the link of global trade with knowledge protection through the TRIPS Agreement
has led to striking territorial expansion of the frame from the developed world to the developing one. This
expansion means widened involvement with not only wealthy societies accompanied by fertile market but also
poor countries merely associated with impoverished market. While such expansion is the first event ever in the
history of knowledge protection over five centuries, the basic structure of protection still remains in the old style,
which rests on commercial market and is not equipped with knowledge allocation. Since the developing world
possesses no market and the current regime of knowledge protection excludes allocation mechanisms, the regime
will never operate in today's globalized setting until it is modified to embrace functionalities to allocate
knowledge. This simple fact is the underlying cause of a diversity of many frictions regarding knowledge
protection we are encountering right now.

(c) Externalities
Inherently, knowledge protection is in a unique position as an economic instrument to enhance the total welfare in
society because society’s practices generally depend on its affluence and level of knowledge and knowledge
protection is one of the legal mechanisms involved in increasing wealth and developing knowledge. As
previously argued, such system allows for the expanded production of knowledge through the statical
microeconomic equilibrium between private and public interests; however, at the same time the present system,
which ignores knowledge allocation, also has negative impacts on society. Especially without a substantial
market, knowledge protection induces significant degradations in society by promoting only lucrative knowledge,
neglecting unprofitable social necessity and heightening a barrier against accessing needed knowledge. The
system neglects the costs to remedy such degradations and to internalize resulting externalities.

With progress in the globalization of knowledge protection, those degradations and externalities are increasingly
becoming prevalent among developing countries where many crucial products of knowledge are owned and
blocked by owners in developed countries. Owners in these countries earn a tidy profit from their knowledge by
sacrificing the developing nations owing to the fact that knowledge protection confounds these nations and
consequently generate relevant externalities by restricting access to protected products in spite of poor financial
means of local users. Even ethical perspective over this situation would likely justify that the developed world
has to carry at least somewhat responsibility to pay the cost both for recovering such degradations and preventing
these degradations in the developing world. Developed nations are required to place the cost on externalities and
shift it back to themselves because they have expanded the frame of knowledge protection to developing nations
and developed nations have predominately and disproportionately benefited from the global ruling of knowledge.

In order to internalize externalities intrinsic to knowledge protection, the knowledge allocation is a feasible

                                                        - 16 -
September, 2010

instrument through a request on owners to pay for such inherent externalities out of the profits gained by
protecting their knowledge. This new instrument would allow the global community to answer the demands of
developing nations to shift the burden of their sound development onto developed countries. In practice, such
financial instrument for knowledge allocation would put a portion of knowledge-related money (e.g., granting
fees, license royalties, and patent infringement compensations) into a trust fund. This fund would be employed
for e.g., transaction costs associated with knowledge transfer, such as payment of licensing fees or acquisition of
tangible assets needed to implement essential technologies. In the future, these funds could also be used to
increase the capacity of developing countries to generate innovative solutions locally. Simply put, if a country or
an industry desires indispensable technology but either does not have enough money to invest in or create the
technology, the knowledge allocation instrument would provide such country or industry the necessary financial
support.

In response to demand among not only developing but also developed nations for enhanced knowledge allocation,
its awards would be not limited to developing countries but also available for developed countries because
externalities due to patent occur everywhere without discrimination in the absence of a solid market. Such
awarding would be based upon principles of equity and an impact assessment of the technology desired, which
would be performed under recognized standards as discussed with detail in later chapters.

(d) Limited Variety of Escape Provisions
The externalities knowledge protection has been generated would be best internalized by means of installing an
instrument for knowledge allocation into the present regime of protection. Apart from such instrument, the
concept of protecting knowledge contains few provisions to flexibilize it in the first place, or limited clauses to
authorize a contracting party to escape from a difficult situation by specific performance such as suspension of
protection when a party has difficulty upholding the protection of knowledge. However, especially compared
with another global legislation ruling economic laws such as GATT or WTO law, the current framework of
knowledge protection is poor in diversity of escape measures.

As common flexibilities among patent systems at international and each domestic level, the Bolar exemption for
research tools (TRIPS 30) as well as generic production (TRIPS 31(f)) and parallel importation (TRIPS 31bis.1)
under compulsory licensing (TRIPS 31) have been recognized in the TRIPS Agreement.

    ● Bolar exemption
      The Bolar exemption is an exemption to the rights conferred by patents, which is particularly relevant to
      medicines. In accordance with this exemption, performing research and tests for preparing regulatory
      approval does not constitute infringement even before the end of patent term. However, the Bolar
      exemption, only for this purpose, allows generic manufacturing in advance of the patent expiration for a
      very limited term. Some scholars compare such exemption to the exceptional measures in GATT (e.g.,
      Ranson, 2002, as a relevant conclusion by the WTO Panel see WT/DS114/R).

    ● Compulsory licensing
      In a compulsory license, a government authorizes someone else to perform at least one of production, sales
      and trade without the consent of patentee. However, such licensing must meet a number of requirements
      (TRIPS 31): "national emergencies", "other circumstances of extreme urgency", "public non-commercial
      use" (or "government use") and anti-competitive practices. In addition, a party applying for a compulsory
      license has to have tried to negotiate a voluntary license with a patentee on reasonable commercial terms.
      Only if that fails can a compulsory license be issued, and even when a compulsory license has been issued,
      an owner has to receive an adequate remuneration. Some scholars (e.g., Stewart, 1999) view compulsory
      licensing as an equivalent for the remedial measures, in particular, safeguard in the GATT.

Although the TRIPS Agreement contains these two escape clauses as its flexibility, such flexibility is very low
because only these two are all the Agreement has and they are limited with excessive restrictions for range, scope
and contents as described above. Furthermore, TRIPS 31bis prescribes that compulsory license for trading a
generic product must be applied only to pharmaceutical products, and the Annex inserted after TRIPS 73
stipulates strictly the range of such pharmaceutical products and as well the eligibility of importing and exporting
countries.


                                                        - 17 -
September, 2010

On the other hand, a wide variety of multiple measures with rich contents exists in GATT, inter alia its exceptions
(GATT XX (General Exception) and SPS (Sanitary and Phytosanitary) / TBT (Technical Barriers to Trade)) and
trade remedies (AD (Anti-Dumping), CVD (Subsidies and Countervailing Duties) and SG (Safeguards)). The
scarcity of such measure in the TRIPS Agreement arises from still short history of the Agreement compared to the
long period of GATT and negotiations over trading even before the adoption of GATT. During such period, a
number of exceptional and remedial instruments have been innovated for trading goods. This large gap in
flexibilities between GATT and the TRIPS Agreement becomes instantly noticeable by a counterpoint of these
systems as shown in Table below.


   Table: Comparison of escape clauses in GATT and the TRIPS Agreement.
                                 Exceptions                                          Remedies
   GATT       ● GATT   XX (General Exception)                      ● AD (Anti-Dumping)
              ● SPS (Sanitary and Phytosanitary)                   ● CVD (Subsidies and Countervailing Duties)
              ● TBT (Technical Barriers to Trade)                  ● SG (Safeguards)
   TRIPS      ● Bolar exemption for research tools (TRIPS 30)      ● Compulsory licensing (TRIPS 31)
                                                                       Generic production (TRIPS 31(f))
                                                                       Parallel importation (TRIPS 31bis.1)



The TRIPS Agreement contains flexibilities to some extent; yet, they are too insufficient to respond to various
disputes caused by expansion of the regime of knowledge protection from developed countries to developing ones.
In other words, the low flexibility in the TRIPS Agreement becomes increasingly an obstacle to promoting
knowledge allocation and consequently its conformity with TRIPS 7 (objectives), 8 (principles), 66.2 (technology
transfer to least-developed countries) and 67 (technical and financial cooperation). To cope with such situation,
the regime of knowledge protection would best encompass knowledge allocation as a new instrument.

(e) Doha Declaration and the Necessity of Financial Measure for Knowledge Allocation
Since the creation of the WTO in 1995, the regime of knowledge protection, i.e., the TRIPS Agreement which
bears limited flexibility, has been increasingly compelled to contain its own allocator of knowledge due to
expansion of the regime from developed to developing nations. This is an inevitable consequence from the
heavy-handed inclusion of knowledge affairs 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 countries (as a excellent historical review of
negotiations over the TRIPS Agreement, see Gervais, 2008). Developed nations pursued knowledge protections
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 knowledge. For these demands,
developing countries eventually accepted the TRIPS agreement under the single undertaking of the WTO treaties
(WTO Agreement, Article II) 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, would be the "White Elephant" merely blocking users from
accessing to necessary products of knowledge because the agreement does not contain any measure to distribute
knowledge. In such setting, the current regime by no means promotes appropriate allocation of knowledge
irrespective of commercial profitability, resulting in adverse effects on society's welfare. This failure is a
common root cause of a wide variety of knowledge frictions and resultantly growing criticism and diminishing
societal trust over the regime, relating to accessibility to protected essential knowledge, typically innovations over
medicines and green technologies, need-based research incentive such as 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).

Such growing criticism over patent protection on essential medicines resulted in the Doha Declaration on the
TRIPS Agreement and public health in 2001 and subsequent decisions. These resolutions led eventually to the
insertion of TRIPS 31bis after TRIPS 31 and Annex after TRIPS 73, the first and only amendment so far adopted

                                                        - 18 -
September, 2010

in the WTO treaties pursuant to Article X:1 of the WTO Agreement, one of the most complicated processes of the
WTO's consensus building procedures (as a excellent historical review of negotiations over the Doha Declaration,
see Abbott, 2002).

However, even such historic resolution has failed to dispel the global concerns about accessibility to patented
products and need-based research incentive for public benefit rather than profit motive. To resolve these
concerns, a wide variety of ongoing elaboration in the WHO's patent and public health programmes and recent
discussions under the WIPO's development agenda increasingly imply the necessity of major overhaul in the
current patent regime and the TRIPS Agreement (WHO's official reports, see WHO, 2006 and 2010).

Numerous studies in the WHO, the WIPO and interested groups evince, as the most significant defect among the
present framework of patent, the lack of financial measure to promote the accessibility and essential research, or
knowledge distribution in a broader sense (e.g., WHO, 2006 and 2010). According to these studies, patent is
widely believed to be indispensable for accelerating innovations, or knowledge production. Once, however,
innovation is protected, patent leaves up to the market the dissemination of patented technologies, or knowledge
allocation, which is the common culprit of various patent disputes, including the accessibility to essential
medicines, the transfer of environmental technologies and the biased incentives of research toward commercial
profitability rather than the most necessary public interest, e.g., the neglected diseases.

If the patent regime included the financial mechanism to drive knowledge allocation besides the existing function
of knowledge production, such regime, as revealed in the following sections, would enhance the total welfare in
society through knowledge liberalization. It might surprise readers to know that an unexploited but genuine
essence of patent is not the protection but liberalization of knowledge, which is a macroeconomic model
containing knowledge production and allocation as constituents to describe the dynamics of patent. This model
would consolidate the spirit set forth in TRIPS 7 (objectives), TRIPS 8 (principles), TRIPS 66.2 (technology
transfer to least-developed countries), TRIPS 67 (technical and financial cooperation), as well as the WTO
primary concept in the end, i.e., the "liberalization" of trade in conformity to the Ricardian principle of
comparative advantage (as a modern introduction, see Maneschi, 1999).

2.3. Knowledge Allocation: Dynamic Macroeconomics
All facts revealed in the previous section suggest that the current regime of knowledge protection would be best
renovated to embrace the financial measure for knowledge allocation as a new instrument. Such instrument is
regarded as a dynamical macroeconomic function whereas the statical microeconomic equilibrium describes the
successful function for knowledge production in the classical patent regime (see Section 2.1). The knowledge
allocation mechanism, like the conventional macroeconomic measures, is an external force as recognized in the
Schumpeter's exogenous/forced mode (as a reader-friendly writing, e.g., Idris, 2003), which affects the knowledge
market to financially drive a dynamic migration of knowledge equilibrium so as to achieve the best allocation of
knowledge. Specifically, such mechanism is designed to assist financially both in ensuring unimpeded
accessibility to knowledge (its distribution over users of an innovation, e.g., who can access to patented
medicines) and in stimulating balanced incentive to knowledge in conformity with the total interest of society
(knowledge distribution over producers of an innovation, e.g., no pharmaceutical industry is interested in
neglected diseases).

The knowledge allocation over producers of an innovation is one target to be promoted by the finance assistance,
including fostering true innovations for the most necessary public interest such as neglected diseases and
environmental technologies, and various 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 (as a concise review over proposed mechanisms fostering innovation other than patent, e.g.,
ICTSD, 2007; WHO, 2006 and 2010). The allocation over producers furthermore encompasses patentability and
subject matter over biological and cultural diversities, specifically financial supports to exploit and protect genetic
resources, traditional knowledge and folklore.

Another target is the knowledge allocation over users of an innovation, which contains ensuring unimpeded
access to essential innovations, in particular the compensation of technology transfer costs, e.g., royalty
assumption, and other subsidies for purchasing patented products. The allocation over users also includes
financial assistances for profit sharing and asset management over patented life and culture.

                                                        - 19 -
September, 2010




            Financial measures to facilitate knowledge allocation
                       For producers, e.g., needed research, exploiting and protecting biological and
                                          cultural diversities
                       For users, e.g., unimpeded accessibility, profit sharing over the protected
                                          diversities


          Box: Targets of knowledge allocation.



All these targets of the financial measures are excluded from the current regime of patent, which has entirely left
knowledge allocation to the market. Although the flexibilities in the patent system can serve as a knowledge
allocator for its users, these are all enforced to a limited extent. As discussed Section 2.2(d), such flexibilities or
safeguard measures include compulsory licensing, parallel importing and generic producing under a certain
condition (TRIPS 31 and 31bis) as well as the Bolar exemption for research tools (TRIPS 30), allowing
unfavorable users to access to patented products of knowledge. However, the traditional patent regime never
interferes the knowledge distribution such as accessibility and research incentive, which obeys the market rule.

In addition to those 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" and "secrecy order for national
security," influences the incentive and orientation of research. However, all these distributors for producers are
nonfinancial factors whereas knowledge allocation over producers would be best a financial instrument in more
dynamic manner than patentability and subject matter.

In fact, the patent regime would potentially contain a financial instrument to cope with knowledge allocation by
forcing patent beneficiaries to provide compensation for patent-related adverse impacts in line with
macroeconomics, in particular a combination of the "Tobin taxation (e.g., Johannes, 2007)" and "Pigovian
taxation (e.g., New York Times, 2006)". From the Tobin's perspective, the knowledge allocation would be
financed by imposing very small levy on an enormous number of patent applicants and holders at a border when a
knowledge asset is crossing. The Pigovian aspect of the knowledge allocation would allow the knowledge
market to incorporating externalities which patent protection and its inhibition of knowledge allocation have
generated in society owing to market failure (See Section 2.2(c)). This failure arises from unconsciousness of
patent beneficiaries about adverse affects caused by their patent due to "discounting by distance" and "discounting
the future" (as a reader-friendly writing, e.g., McKinney, 2003, p. 23)," i.e., such negative phenomenon often
occurs far away from beneficiaries and influences their later generations.

As a form to realize knowledge allocation in light of the Tobin and Pigovian taxation, this writing crafts a novel
instrument, which would impose a nominal fee for patent applicants and holders, in the form of an "assurance
premium (see Austin Business Journal, 1998)," almost negligible relative to application and maintenance fees
imposed by patent granting authorities, which would create a trust fund to finance knowledge allocation (see Nitta,
2005a, 2005b, 2006, 2007a and 2007b). The availability of these funds would minimize the likelihood that
developing countries would be forced to resort to compulsory licensing to access technologies, thereby
maintaining the incentive for inventors to continue to invest in technologies that are most needed in developing
countries. In other words, the "assurance premium" would serve as an assurance premium over the risk of
compulsory licensing, and could help to depolarize the growing global concern over international patent laws.

Thus, the "assurance premium" holds a dual-benefit: developing countries would have increased access to
essential technologies without fear of retaliatory measures that can result from the use of compulsory licensing,
while innovators in industrialized countries would continue to research and invest in issues of global concern.
The availability of these funds could also incentivize innovators to conduct research on issues that
disproportionately affect developing country populations.

In addition to such feature of the assurance premium, its fund would be of sufficient scale and economic
downturns would not significantly affect the availability of funds unlike other financial resources proposed

                                                        - 20 -
September, 2010

because the premium is coupled to the global patent system. Empirical observation on historical trends have
shown that patent applications levels do not drop even in times of economic contraction, but rather remain
relatively constant during such periods (see Chapter 7 in Volume II for further discussion). From this substantial
and stable fund created in the patent system, the system would provide a considerable amount of various financial
supports for knowledge allocation in developing and developed nations as well through e.g., a soft loan with low
interest or a grant to assist a government or industry in purchasing existing indispensable technology, researching
new needed technology, maturing fledgling technology, importing and exporting essential technology, and also
royalty assumption for transferring such technology.

2.4. Knowledge liberalization: Financial Driver of Funding
The combination of knowledge production and allocation as argued thus far would conclude a new concept i.e.,
knowledge liberalization. In other words, the authentic function expected for patent is not to protect knowledge,
yet to promote knowledge liberalization. This hypothesis is founded on a descriptive model of economics 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 patent 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.

The knowledge liberalization is a macroeconomic model proposed to answer the most fundamental question for
patent policymaking: "do we need patent?" This challenging model draws a sharp contrast between two phases
in enhancement of knowledge: increasing the pie of human's knowledge on a microeconomic balance of private
benefit with public interest (knowledge production), and allocating the increased knowledge with an appropriate
distribution in a macroeconomic picture (knowledge allocation). 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 (knowledge allocation over users) and incentive to knowledge (knowledge
allocation over producers). Both the production and allocation of knowledge should be promoted by wisely
designing an optimal framework of patent protection to accelerate the knowledge liberalization and consequently
build up wealthy society.




                  Knowledge liberalization
                          = ƒ [Knowledge production, Knowledge allocation (Producers, Users)]

     Box: An expected role of the patent regime is to enhance wealth in society through the liberalization of knowledge,
     which is a function of knowledge production as well as its allocation over producers and users. One of the major
     defects in the current regime is lack of financial measures to promote the knowledge allocation over both producers of an
     innovation (e.g., research incentive) and users of an innovation (e.g., the TRIPS flexibilities).




Actually, knowledge liberalization is not a new concept and it already indwells in the TRIPS Agreement.
Specifically, the view of knowledge liberalization conforms to the scope and spirit of TRIPS 7 (Objectives).
This article stipulates that the "protection and enforcement of intellectual property rights" must contribute to not
only the "promotion of technological innovation" (corresponding to the knowledge production in this writing) but
also the "transfer and dissemination of technology" (i.e., knowledge allocation). Such objective can be
accomplished on the "mutual advantage of producers and users of technological knowledge" by balancing the
public and private interests in knowledge market in a "manner conducive to social and economic welfare."

Pursuant to this provision and the negotiation history over the TRIPS Agreement during the Uruguay Round
(Gervais, 2008), the TRIPS Members would no longer regard patent as a mere innovation protector, but rather as
more like a pro-active financial driver of funding for the largest overall benefit in society. This concept also
accords with examinations over patent's functionalities thus far by several scholars focusing on a relationship
between patent and public funding (e.g., Carvalho, 2005, pp. 8-14), which indicate a similarity among patent and
public funding in that both instruments render to a knowledge producer a privilege to promote knowledge
production. Scholars furthermore emphasize a superiority of patent over public funding in soundly determining

                                                             - 21 -
September, 2010

or "metering" the value of technology to be funded regardless of an imbalanced political decision (e.g., Carvalho,
2005, pp. 20-22). The bottom line is that the true value of patent is the macroeconomic source of public funding
for knowledge liberalization, which heralds a paradigm shift in the global patent legitimacy.

2.5. Dismal Consequences without Change
The concept of knowledge liberalization would bring reform in the current regime of knowledge protection.
Indeed, change is the sole certainty in our uncertain world and the constant change is driven by conflicts and
compels us to change. In the face of today's conflicts surrounding knowledge protection and signals of its
change, there are two choices for our future: reacting to follow up what did happen or proactively planning for
what would happen. The inclusion of the knowledge allocation instrument in knowledge protection is one
possible proposal among proactive plans for a distant outcome of the current framework.

Many conflicts surround and affect the patent framework, which cause the framework to become increasingly
uncertain and emit strong signals of necessity for its change beyond the prediction of participants and
stakeholders. Otherwise, what the system might end up with is extinction behind the times as crafted in dismal
scenarios for the futures below.

(a) Medicines
In spite of such high potentiality for patent as a financial driver for knowledge liberalization, it has spawned fierce
disputes when patent interfered with access to necessary technologies, especially essential medicines. Since the
Doha Declaration in 2001, particularly, the worldwide anti-patent protest has successfully justified the flexibility
in the patent regime for impoverished nations, which have now begun actually invoking the public health
safeguard measures, specifically raising number of compulsory licenses (as an excellent collection, see CPTech).


                        JAN 1995:     Creation of WTO and entry into force of TRIPS
                       MAY 1998:      South Africa AIDS trial
                       MAY 2000:      US/WTO dispute panel against Brazil
                       NOV 2001:      Doha declaration
                       Since 2001:    Brazil, repeated warning of compulsory licenses for negotiating
                                      lower prices
                       MAY 2002:      Zimbabwe, among developing countries first invoking
                                      compulsory license
                       AUG 2003:      August 30th decision (Paragraph VI scheme)
                        APR 2004:     Mozambique, compulsory licence for generic manufacturing
                        SEP 2004:     Zambia, compulsory licence for generic manufacturing
                        SEP 2004:     Malaysia, compulsory licence for generic importation from India
                        OCT 2004:     Indonesia, compulsory licence for generic manufacturing
                       MAY 2006:      Novartis case in India
                       MAR 2006:      Pfizer case in Philippines
                       NOV 2006:      Thailand, compulsory licence for generic importation from India
                        JAN 2007:     Thailand, subsequently invoking two compulsory licenses
                       MAY 2007:      Brazil, compulsory licence for generic manufacturing
                        SEP 2007:     Canada, generic exportation to Rwanda as the first enforcement of
                                      the Paragraph VI scheme
                        OCT 2009:     Ecuador, compulsory licence decree


                        Box: Fierce battles over drug patents.



After the Doha Declaration, in May 2002 Zimbabwe enforced a compulsory license for government use and
begun local production of antiretrovirals though a private generic company. This enforcement was the first

                                                               - 22 -
September, 2010

compulsory license among developing countries since the creation of WTO and entry into force of the TRIPS
Agreement in 1995. In 2004, Malaysia, Indonesia, Zambia and Mozambique issued a cascade of compulsory
licences for HIV/AIDS drugs, and Malaysia started to import generic medicines from India (see Intellectual
Property Watch, 2009). In 2006 and 2007, the Thailand issued three compulsory licenses in succession:
HIV/AIDS drug in November, 2006 and heart disease drug and HIV/AIDS drug in January, 2007 (see Intellectual
Property Watch, 2006). In 2007, Brazil also issued a compulsory licence for HIV/AIDS drug, and in 2009,
Ecuador decreed allowing for compulsory licences (see Intellectual Property Watch, 2009).

Following the adoption of Paragraph VI in the Doha Declaration (see WTO, 2003), Canada was the first country
to amend its patent law and as such created Canada's Access to Medicines Regime (see Cohen-Kohler, 2007).
Passed in 2004, the Regime allows for generic production and exportation to developing countries without the
requisite pharmaceutical manufacturing capacity to undertake a domestic compulsory license. In July 2007,
Rwanda became the first country to utilize the Paragraph VI scheme by notifying WTO of its intention to import a
triple fixed-dose antiretroviral drug from Apotex, a Canadian generic drug manufacturer. In September, the
Canadian patent commissioner granted Apotex a compulsory license to produce and export this drug, which is
held under patents by three different companies, GlaxoSmithKline, Shire, and Boehringer-Ingelheim.

These facts indeed are hard-won gains in the short term, but they usher in unfortunate consequences in the long
run: the ultimate demise of not merely patent but also financial drivers for research and development. Namely,
diminishing societal trust and growing criticism of patents would induce their erosion involved in more frequent
and widened safeguard measures if the system included no appropriate mechanism for knowledge allocation.
The degradation of reliance on patents would result in the reduced number of applications and resultant
fomentation of corporate secrets to avoid invention disclosure as if to turn our clock back to the days of secrecy
before successful existence of patent. Many innovations had been kept confidential by innovators and people in
power, without driver authorized to disseminate knowledge for generic sources society needed, and incremental
and genuine innovations as well.

(b) Patent Erosion
Actually, some data indicate patent erosion leads to the deterioration of pharmaceutical companies' incentives to
further develop HIV/AIDS medicines. If patent erosion more rapidly progressed in developing countries, (e.g.,
if ADCs and LDCs issued much more compulsory licenses and traded a large quantity of generic medicines for
the diseases from which they are suffering), research-intensive pharmaceutical enterprises would cut their ties
with such poverty-related diseases including HIV/AIDS. Pharmaceutical firms would shift their emphasis of
research and development to higher-profit medicines for affluence-related diseases such as rheumatism.

In fact, Figure below shows a recent decelerating trend in the number of HIV/AIDS-related patent applications in
the US by American and foreign applicants. As is shown, the applications for rheumatic medicines, a typical
example of high-profit goods related to affluence-related diseases, have been continuously increasing. However,
the applications for HIV/AIDS medicines have been gradually decreasing since 2001, the year of the Doha
Declaration. For example, 171 patents for HIV/AIDS medicines were granted after the USPTO's examination in
two or three years from their applications in 2000 (Figure, open circle at the year 2000). In contrast, only 133
patents were granted among the applications filed in 2001 (Figure, open circle at the year 2001). These facts
suggest that HIV/AIDS-related applications decreased from 2000 to 2001. In addition, 319 applications were
filed for HIV/AIDS in 2002 (Figure, filled circle at the year 2002), whereas only 276 applications were filed in
2003 (Figure, filled circle at the year 2003), which means a 14% decrease of applications in 2003. Since the
number of patent applications often reflects the level of research and development activities, the downward trend
in HIV/AIDS-related applications would indicate the deterioration of pharmaceutical companies' incentives to
develop new HIV/AIDS medicines though there might be other factors. In addition, such downward patent
activity seems to correlate with the progress of patent threat and erosion since 2001. Therefore, we could
conclude that threat and erosion of patent rights in developing countries actually have an adverse affect on the
research and development for HIV/AIDS medicines in developed countries. Companies' incentives for research
and development of new medicines require adequate patent protections, which enable companies both to collect
earlier investment for development of new medicines and to assure allowable profits as a price of their efforts for
developing those medicines.



                                                      - 23 -
September, 2010




                          700                                                                                  1948 2000
                                                                                 Rheu./Ap.Pub.
                          600
                                                                                                     1493                 1500
                          500




                                                                                                                                   Rheumatism
               HIV/AIDS

                          400
                                                 Rheu./Patent                                                             1000
                          300                                                              914       319
                                                                                  844                     276
                                                                        760
                                                                                                  HIV/Ap.Pub.
                          200                       548       560
                                          439                             171                                             500
                                                    122       129 145                      133
                          100             95                     HIV/Patent
                            0                                                                                             0
                                   1996 1997 1998 1999 2000 2001 2002 2003
                                              Year of Applications

        Figure: A downward trend of the number of patent applications for HIV/AIDS medicines in and toward the
        US since 2001.
        Since the Doha Declaration in 2001, the number of patent applications for HIV/AIDS has been decreasing in contrast to a continued
        increase in medicines for rheumatic medicines, a typical example of high-profit goods related with affluence-related diseases. The
        horizontal axis of the figure represents the year when a patent application was filed with the US Patent and Trademark Office
        (USPTO) by an American or foreign applicant. The left and right vertical axes represent the number of granted patents for
        HIV/AIDS and rheumatism, respectively when an application was filed in 2001 or earlier. In the middle of the figure, the left
        solid line (marker: open circle) and left dashed line (marker: open triangle) correspond to HIV/AIDS and rheumatism, respectively.
        For example, among HIV/AIDS-related applications filed in 2001, 133 patents were issued after examinations in usually two or
        three years from their application. However, when an application was filed in 2002 or 2003, a major percentage of applications is
        still under examination and not issued yet. For these later applications, two vertical axes indicate the number of application
        publications before examination, instead of the number of granted patents. In the figure, the right solid line (marker: filled circle)
        shows application publications for HIV/AIDS medicines and the right dashed line (marker: filled triangle) shows those for
        rheumatism medicines. The patent applications filed on or after November 29, 2000 have been disclosed in the form of
        application publications by the amended US patent law (35 U.S.C. §122(b)). For example, 319 applications for HIV/AIDS
        medicines were filed in 2002 and they are now available from application publications.
        Methodology: These data for HIV/AIDS were obtained by a retrieval formula, (SPEC/((((AIDS OR HIV) OR ((acquired AND
        immunodeficiency) AND syndrome)) OR ((human AND immunodeficiency) AND virus)) AND (retroviruses OR retrovirus)) AND
        (ICL/A61K031/$ OR ICL/A61K047/$)) AND APD/year$$, from the USPTO databases. The retrieval formula for rheumatism
        was (SPEC/((rheumatic OR rheumatism) OR rheumatoid) AND (ICL/A61K031/$ OR ICL/A61K047/$)) AND APD/year$$.



(c) Alternatives
While there is an indication for undermining of patent regime, several alternatives to it, such as the open
source/open technology, the license of right (liability regime) and the push and pull systems (see Section 2.2(a)),
have been proposed, which can also promote innovations. These proposals seek to inspire companies to develop
medicines even if their users do not have enough financial power to purchase them. Namely, the financial aid in
these proposals aims to enable developing nations to purchase essential medicines with patent-protected prices,
which would prevent compulsory licenses and trade in generic copies. However, these proposed ideas are based
on financial resources outside the patent system, such as an international fund managed and funded by the Joint
United Nations Program on HIV/AIDS (UNAIDS) or the World Health Organization (WHO) (see Ganslandt,
2005), even though the objective of those ideas is to rectify the problems in the patent system. In other words, to
address the problems of the patent system, these proposals advocate appropriating financial resources from other
organizations rather than from the patent system. Since these organizations are financially over-burdened with
their own responsibilities, this financial burden shift from the patent system to other organization thwarts previous
proposals. The reality seems to be that in many international fora, there is nowhere else to find a resource with
sufficient and stable economic scale comparable to the present system of patent.

If moreover, research priorities were politically driven in line with resolution of a certain authority such as an
international fund mentioned above, society would likely live with the ever-present danger of capture, e.g., strong


                                                                     - 24 -
September, 2010

lobbying by the research-focused industries for state hand-outs would be having an effect on the neutrality of
authorities and politicians. And yet, rather authorities and politicians than patent, i.e., a social instrument
dealing with research are not always successful in planning and directing research (quoting and modified from
EPO, 2007, pp. 80 and 81).

If not for patent, nevertheless, the absence of a profit motive would reduce innovation levels in certain domains
(particularly biotechnology, where social concerns would also limit the availability of governmental incentives)
(quoting and modified from EPO, 2007, pp. 80 and 81). Increased use of secrecy to protect innovation would
slow the rate of cumulative innovation in areas where open source has proven impossible, a major disadvantage
for small, highly innovative companies (quoting and modified from EPO, 2007, pp. 80 and 81), likely
retrogression to the "patent anarchy" and its resulting disappearance of research and development drivers. Since
in such a world, most of the proposed funding to stimulate incentives over neglected needs would not serve due to
the absence of financial resources comparable to the earnings by patent monopolies. In other words, society
would lose all the promoters of innovations, including not only patents but also the proposed alternative
mechanisms unless it fundamentally reviews the present framework, i.e., installing a new financial instrument for
knowledge allocation having sufficient scale and stability regardless economic downturns.

(d) Substitution of Players
In addition to criticisms over patent worldwide, substitution of players in the global economy would likely
become another factor forcing the patent system to include knowledge allocation. In the West, for instance, the
current downturn of economy and tightening budgets, especially for healthcare, signal that their impregnable
protection of patents would likely unravel on several fronts before long (quoting and modified from EPO, 2007,
pp. 62 and 63). Lack of the financial measure for knowledge allocation in the patent system would cause serious
inaccessibility of low income earners to patented brand medicines with elevated prices and generics, which would
raise shortsighted criticism and hysterical reaction even among domestic national. Pharmaceutical industries
would place more and more emphasis on higher profitable targets including luxury-related conditions and there
would be no inventor focusing on the most important areas relevant to public health without economic incentives
because the patent system excludes an appropriate means for knowledge allocation. In this phase, opportunistic
politicians would devise alternative protection mechanisms, adapted to different innovation fields. Since there
would be still a strong demand for Western-styled luxury consumption goods, music, movies and design, the West
would uphold a global protection regime with strong enforcement at least in these fields (quoting and modified
from EPO, 2007, pp. 62 and 63). However, they would lose substantial drivers to promote technologies
indispensable for enhanced true welfare.

In contrast to the global economic downturn in the West, an underlying upward trend in their growth promises the
emerging BRICS countries the next presidency of the global patent framework. While in this stage, some
BRICS countries would maintain a state-controlled research and development, they would increasingly rely on
patents to obtain royalties and impose their enforcement and standards elsewhere, with which once they had been
landed from the West (quoting and modified from EPO, 2007, pp. 62 and 63). Although other BRICS
governments would still employ the open source scheme somewhat to develop their infrastructures, they would
uphold, alike the today's West, a strong global patent regime to defend their growing research base and innovative
industries (quoting and modified from EPO, 2007, pp. 62 and 63). Thanks to inexpensive and ample labor
resource, these industries in the BRICS countries would make a major breakthrough; however, even such
breakthrough would provide as ever no solution for accessibility to necessary but monopolized innovations or
research incentive to technologies society needs regardless of economic profits unless the patent regime embraced
the financial mechanism to achieve the best allocation of knowledge with dynamic macroeconomical functions.

Eventually the West would no longer adhere to the current "one size fits all" and inflexible system, which would
effectively marginalize the existing global regime for patents, including the TRIPS agreement (quoting and
modified from EPO, 2007, pp. 62 and 63). Since in addition, pandemics, e.g., repeated plague of new flu and the
SARS would politicize health and traditional patent administrators such as the WTO and WIPO would be
weakened because of diminishing social trust on them due to their lack of functionality for knowledge allocation,
the WHO would undertake the control of public health-related patents and data protections, and as well research
funds for the neglected diseases (quoting and modified from EPO, 2007, pp. 80 and 81). However, the WHO
would always have to struggle to find a sufficient and stable resource for such funds and make a consensus of
stakeholders on the policies of protections apart from the WTO mechanism, i.e., consensus by concession with

                                                      - 25 -
September, 2010

single undertaking. Although otherwise different financial measures alternative to patents would be established
in different regions to cover their particular needs in pharmaceuticals, they would also suffer from a lack of
funding.

(e) Placing a Price on Environmental Degradation for Developed or Developing nations?
Besides global responses to medicines argued above, access to environmentally sound technologies, e.g., for
combating climate change, is also increasingly implicated in patent affairs. Inherently, patent is in a unique
position to address environmental issues and promote sustainable development. A society’s environmental
practices generally depend on its affluence and level of technology and patent is one of the legal mechanisms
involved in increasing wealth and developing technology. Patent also allows for innovantion and production of
eco-friendly technologies, which enable a society to increase its wealth while reducing its consumption of energy
and materials. In practice, however, the existing patent system also has negative environmental impacts. It
contributes to global environmental degradation by promoting resource consumption in developed countries and
poverty in developing countries.

Due to lack of regulations, the tendency towards minimizing prices, and the difficulty in measuring actual
environmental impacts, the market rarely factors environmental externalities into the market price of a transaction.
Every product and service in any market is ultimately derived from natural resources, yet the market price of all
technology excludes some environmental externalities. If the market prices of natural resources fully reflected
or internalized environmental externalities, developing countries would be able to obtain the same amount of
foreign currency by exporting fewer natural resources at higher prices. In this way, internalizing environmental
externalities could curb environmental degradation. For example, the "true cost" of gasoline in US is at least
$5.60 per gallon when all environmental costs, including compensation and treatment fees for global warming and
air pollutants, are internalized (McKinney, 2003, p.21; Dabelko, 1995). Similarly, the prices of timber and
electricity do not reflect the true environmental costs, such as the treatment fees for global warming due to coal
combustion. However, if resource prices increase to their true values, including hidden and future costs,
economists predict that market turmoil would occur. For example, a rise in gasoline prices to their true cost of
$5.60 per gallon would undoubtedly shock the US economy.

The current patent system also ignores the costs of environmental degradation. While it promotes human
welfare through the progress of technology by building wealth for a patentee by protecting products and services,
the system generates environmental externalities that cause environmental degradation. Namely, the current
patent system encourages further consumption of environmental resources by increasing a patentee's capital
intensity, which in turn encourages more investment. In addition to increasing capital intensity, a patentee is
guaranteed to collect the investment made for developing the new product. This guarantee of financial rewards
stimulates further investment to develop further technologies. As a result of the patent system, these further
technologies result in further environmental externalities. To internalize these additional environmental
externalities, the patent system should demand that a patentee pay for them.

Developing countries continue to demand exemptions from the efforts to protect the global environment because
their priorities are for economic growth rather than environmental protection. These countries argue that
developed countries have profited from environmental degradation and therefore have a greater share of the
responsibility to protect the global environment. Developing countries further argue that developed countries
disproportionately enjoy the benefits resulting from environment degradation and therefore should pay
compensation to developing countries. Thus, developing countries contend that developed countries have
exploited the global environment for a long time on the path to achieve their wealth, and it is now the developing
countries’ turn to follow the same path.

Developing countries can make arguments that the patent system promotes further environmental degradation, yet
it is predominately developed countries that benefit from the patent system. Developed countries entirely
dominate the patent system. Some nations have had patent systems for over five hundred years, allowing their
system to mature with economic growth. Conversely, the economies of many developing countries are still too
weak to support a system that encourages invention.

Instead of merely asserting that developed countries should be responsible for all environmental costs, developing
countries would be better served by asserting that global environmental protections should be incorporated into

                                                       - 26 -
September, 2010

the patent system. Developed countries have profited from the patent system and environmental degradation,
while developing countries have rarely benefited from the patent system and their growth often hindered by the
needs for environmental protection. By tying environmental protection and the patent system together, the
burden of responsibility for the environment’s protection will remain with developed countries.

However, this trading of blame on environmental protections has caused actual frictions surrounding patent, e.g.,
for carbon-dioxide emission due to lack of a knowledge allocation mechanism in the current system. In 2007,
China overtook US as the largest emitter of carbon dioxide at about 44% of the world's total emissions. (Guardian,
2007) A principle reason for China's emission rate is the use of heavy coal combustion in outdated and
inefficient facilities to support the country’s rapid economic growth and rush to industrialize (JODA, 2002).
Even though the Chinese government offered initiatives to expand eco-friendly technologies (Foster, 2000), it
lacked the capability and capital necessary to effectively decrease carbon dioxide emission. In order for China to
properly introduce eco-friendly technologies, they must rely on financial and technological aid from developed
countries, such as Japan, amounting to several hundred million dollars per year (JODA, 2002).

While foreign aid has achieved progress in China's environmental protection, there are still obstacles for
introducing eco-friendly technologies into China. Since 2002, the Japanese International Cooperation Agency
(JICA) has undertaken the Project for Improvement of Environmental Protection Technology for Metallurgical
Combustion at Beijing in order to transfer eco-friendly technology to the Chinese steel industry (JICA Report,
2005). The program's goal has been to improve China's energy efficiency in coal combustion by constructing a
piole plant in the State Steel Research Institute of China. JICA also has also deployed equipment provisions,
conducted joint exercises, invited experts, and held workshops in China in order to improve their existing
technologies.

However, several critics predict that applying these eco-friendly technologies on a widespread scale to factories in
China will run into difficulties (JICA Project Report, 2005). Since the technologies were developed by the
Japanese steel industry, virtually all of them are protected by patents. This protection means that Chinese
industries will be forced to pay higher, patent-protected monopoly prices. Similarly, Chinese industries will pay
high royalties when they import or produce these Japanese patent-protected products. Japan is not able to
merely lower its prices or the royalty fees because doing so would not allow it to collect development costs for
their technologies.

Patent-related obstacles to the reduction of carbon dioxide emissions are potential targets for the knowledge
allocation mechanism. Such mechanism would encourage the Chinese industry to import the products for high
efficiency coal combustion by financing a portion of patent-related prices. If the mechanism reduced the burden
of royalties on Chinese industries, the mechanism also would encourage the Japanese industry to develop further
eco-friendly technologies, which would increase the revenue of the patent system. Increased patent revenues
would therefore enable patent to spread more eco-friendly technologies.

(f) LDCs
In contrast to economic success of the BRICS members argued above in recent globalization, it has by no means
benefited the least developed countries. This absurdity is typically represented by a well-known fact that
distribution of per capita income between countries has become more unequal: in 1960, the average per capita
GDP in the richest 20 countries was 15 times that of the poorest; by 2010 the gap has widened to 37 times (OECD,
2010).

The global rules of patent protection, more specifically the TRIPS Agreement has neither contributed to the
reduction of poverty in the least developed countries because the agreement does not contain any financial
measure to assist knowledge allocation and activate technology transfers, which allows the LDCs to imitate
technologies followed by incremental and genuine innovations. Generally, the firmer protection of intellectual
properties facilitates the higher volume of international trade, capital flows and foreign investments; however, the
TRIPS Agreement has failed to stimulate such investment into the LDCs due to too low both quantity and quality
in their labor force and infrastructures. In addition, fora surrounding the TRIPS Agreement remains far from
satisfied with subject matter favorable to LDCs, including traditional knowledge, folklore, biodiversity and
genetic resources (as a comprehensive overview, see Van Overwalle, 2005). Although these subject matters
surely deserve intellectual properties, there is still no linkage between the TRIPS Agreement and the Convention

                                                       - 27 -
September, 2010

on Biological Diversity (CBD, 1992). To end this stalemate against LDCs, fresh thinking might be needed for a
potential solution, e.g., the inclusion of a financial mechanism for knowledge allocation into the global patent
system, which would be also a lot valuable to developed countries.

2.6. Concluding Remarks for This Chapter
Today, the nature, volume, role and value of knowledge and its protection are rapidly changing. Research and
development as well as use of its results are increasingly implicated in a complicative and global undertaking
which is in stark contrast to the past where only small and discerning communities were involved. Patent has
evolved to become the global incentive for innovators to ensure that successful innovations produce sufficient
returns on investment. However, criticism of the global patent regime, which encompasses no instrument for
knowledge allocation, has been steadily mounting on issues of global concern, particularly with respect to the
inability of developing countries to access patented essential technologies. Even international declarations
taking exception to patent laws and a variety of North-South joint movements have failed to dispel concerns over
accessibility to patented products and need-based research incentives for public welfare.

International trade laws have tried to account for such concerns by allowing for "compulsory licensing" of
patented technologies under a specific set of circumstances. Compulsory licensing is when a government allows
a third-party to produce a patented product or use a patented process, without the consent of the patent owner.
However, this solution has not been viewed either as satisfactory by developing countries in need of technologies,
or sustainable by industrial innovators. Industrial innovators have been strongly discouraging the use of
compulsory licensing, arguing that the use of compulsory licensing dangerously reduces the incentive for future
innovation. This desperate dilemma cannot be ignored anymore due to increasing number of compulsory
licenses among developing countries though they have historically faced considerable resistance in issuing
compulsory licenses, in terms of both economic and political pressure.

In response to these facts, there are many questions being asked about today’s patent legitimacy, but one of the
most focal questions is whether it is and can remain "fit for purpose" by encouraging innovations for the benefit
of society at large in a post-industrial era. If not, its legitimacy must be open to question.


References and Notes
Abbott FM, 2002, "The Doha Declaration on the TRIPS Agreement and Public Health: Lighting a Dark Corner at the WTO," 5 J.
  Int'l Econ. L., 469-505

Austin Business Journal, 1998, "Patent Insurance can Guard Intellectual Capital" on June 12. The term "patent assurance" in this
  writing differs from the conventional "patent insurance," which usually covers business activities for the legal cost of pursuing
  infringement or patent theft. It also pays to defend policyholders against allegations of infringement.

Businessweek, 2009, "Why China's Chip Industry Won't Catch America's" on September 3. According to this article, most Chinese
  chip companies remain unprofitable. Why? A number of interlocking reasons that provide clues as to why training lots of
  engineers and spending money to subsidize companies and build facilities is not enough to create a successful industry. Because
  of China's poor reputation for protecting intellectual property, multinationals have limited technology transfer to China. For
  instance, chip giant Intel is now building a plant in northeastern China but has long delayed locating its most cutting-edge
  fabrication facilities in China, even though this increases the cost of logistics to supply China-based electronics factories, which
  are among the biggest consumers of Intel processors.

Bugbee BW, 1967, "Genesis of American Patent and Copyright Law," Public Affairs Press

Carvalho NP, 2002, "The TRIPS Regime of Patent Rights," pp. 2-7, Kluwer Law International

CBD, 1992. The Convention on Biological Diversity (CBD) places value on traditional knowledge and genetic resources for
 protecting species, ecosystems and landscapes, and it incorporates language for regulating access to it and its use. Interpretation
 of the Convention's provisions would immediately indicate the necessity of revising the current regime over patent so that the
 regime would accommodate traditional knowledge and genetic resources. For instance, CBD 8(j) reads "[s]ubject to its national
 legislation, respect, preserve and maintain knowledge, innovations and practices of indigenous and local communities embodying
 traditional lifestyles relevant for the conservation and sustainable use of biological diversity and promote their wider application
 with the approval and involvement of the holders of such knowledge, innovations and practices and encourage the equitable
 sharing of the benefits arising from the utilization of such knowledge, innovations and practices ---."

Chinchuluun A, Pardalos PM, Migdalas A, 2008, "Pareto Optimality, Game Theory and Equilibria," Springer

Cohen-Kohler JC, Esmail LC and Cosio AP,2007, "Canada's implementation of the Paragraph 6 Decision: is it sustainable public
  policy?" Globalization and Health 3, 12

Commission IPR (UK Commission on Intellectual Property Rights), 2002, "Integrating Intellectual Property Rights and
  Development Policy." On page 23 of this report, some studies show that stronger patent rights in developing countries would
  significantly increase imports from developed countries (or indeed other developing countries). The argument is that some

                                                                - 28 -
September, 2010

  imports are a form of technology transfer (for example, high technology machinery imports have an independent impact on
  productivity). But strengthening IPRs is also particularly effective in increasing imports of low technology consumer items and is
  associated with the decline of indigenous industries based on imitation. This effect is clearly a mixed blessing for a developing
  country. On the same page, there is some evidence that for particular industries (such as chemicals) and for particular activities
  (such as R&D) IPRs may be a significant factor in the decision by firms to invest. But the investment decision is contingent on
  many factors. For most low technology industries, of the kind that less technologically advanced developing countries are likely to
  attract, IPRs are unlikely to be a relevant factor in the investment decision.

CPTech, "Examples of Health-Related Compulsory Licenses" available at http://www.cptech.org/ip/health/cl/recent-examples.html

Dabelko G and Dabelko D, 1995, "Environmental Security: Issues of Conflict and Redefinition, Environmental Change and Security
  Project Report," available at http://wwics.si.edu/topics/pubs/ECSP1.pdf

Dobyns KW, 1994, "The Patent Office Pony; A History of the Early Patent Office," Sergeant Kirkland's Press

Dutton HI, 1984, "The patent system and inventive activity during the Industrial Revolution, 1750-1852," Manchester Univ. Press

EPO, 2007, "Scenarios for the Future: How might IP regimes evolve by 2025? What global legitimacy might such regimes have?"
  Especially, Sections 3.5 (c) and (d) refer to "Trees of Knowledge Scenario" and "Whose Game? Scenario," respectively.

Foray D, 2006, "The Economics of Knowledge," MIT Press

Foster G and Wise L, 2000, "China, The Environmental Dragon: The Environmental Security Implications of China's Rise to
  Great-Power Status," Industrial College of The Armed Forces, Fort Lesley J. Since the early 1980s, Beijing and Chinese
  municipal governments have advanced environmental protection policies including the reduction of carbon dioxide emission.
  These policies have been implemented by amendment of the constitution and the Basic Law on Environmental Protection (BLEP),
  enactment of 6 subsequent national environmental laws, over 20 national environmental regulations, nearly 400 pollutant
  discharge standards, approximately 600 municipal environmental regulations, and establishment of the State Environmental
  Protection Administration (SEPA) as a governmental pledge of environmental protection.

Ganslandt M., Maskus KE and Wong EV, 2005, "Developing and distributing essential medicines to poor countries: the DEFEND
  proposal," in Fink C and Maskus KE (Eds.), "Intellectual Property and Development: Lessons from Recent Economic Research,"
  World Bank pp. 207-223

Gervais D, 2008, "The Trips Agreement: Drafting History and Analysis," p. 65, Sweet & Maxwell

Guardian, 2007, "China Overtakes US as World's Biggest CO2 Emitter," on June 19

ICTSD, 2007, "Fostering R&D and Promoting Access to Medicines: An ICTSD Series on New Opportunities Through Innovation,"
  available at http://www.iprsonline.org/ictsd/Dialogues/2007-10-22/BELLAGIO%20REPORT%202007FINAL.pdf

Idris K, 2003, "Intellectual Property - A Power Tool for Economic Growth," Chapter 2, WIPO

Intellectual Property Watch, 2006, "Thailand Compulsory License On AIDS Drug Prompts Policy Debate," on December 22

Intellectual Property Watch, 2009, "Ecuador To Define Its Compulsory Licence Legislation," on November 23

Janis MD, 2002, "Patent Abolitionism," 17 Berkeley Technology Law Journal 899-953. In this article, the author cited a record of
  dialogues in debates in the UK National Association for the Promotion of Social Science in the patent abolitionism movement of
  the early nineteenth century between two leading figures: Robert Macfie, an ardent abolitionist and Thomas Webster, a patent
  lawyer who supported reform but opposed abolition. "Webster employed the disclosure function of the patent system: "but as an
  inventor might, if he liked, keep his invention to himself, or practice it in secret, the object was to induce him to disclose it. If that
  system were done away with, the, instead of disclosure, we should have secret tribunals, of which we had now forgotten the
  history." Webster furthermore elaborated: "the power of secrecy must be limited, I think, to chemical patents in this day. I do
  not think people can work much in closed rooms nowadays, and we should scarcely ever have such a case as that of Crumpton of
  Nottingham making lace in a closed room, and people getting up to the windows to find out the process ---."

JICA Report, 2005 (Japanese), available at http://www.jica.go.jp/china/cooperation/steel/index.html

JICA Project Report, 2005 (Japanese), available at http://www.jica.go.jp/evaluation/end/files/13_1_60.html

JODA (Japan's Official Development Assistance White Paper), 2002, "Strategy and Reform: Japan's ODA Disbursements to China,"
  The Ministry of Foreign Affairs of Japan, available at http://www.mofa.go.jp/policy/oda/white/2002/01ap_ea01.html#CHINA

Johannes K, Thorsten C and Thomas P, 2007, "The Tobin Tax - A Game, Theoretical and an Experimental Approach," Social Science
  Electronic Publishing at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=936924

Kitch EW, 1977, "The Nature and Function of the Patent System," 20 J. L. & Ecom. 265-90.

Machlup F, 1958, "An Economic Review of the Patent System. Study of the Subcommittee on Patents, Trademarks, and Copyrights of
 the Committee on the Judiciary," US Senate, 85th Congress, Washington, DC Government Printing Office available at
 http://mises.org/etexts/patentsystem.pdf. On the page 19 of this article, [t]he English classical economists accepted the
 traditional view that, in the words of Adam Smith (1776), monopoly was "necessarily hurtful to society, but a temporary monopoly
 granted to an inventor was a good way of rewarding his risk and expense." Jeremy Bentham (1785), comparing rewards by
 bonus payments with rewards by "exclusive privileges," held that the latter method was "best proportioned, most natural, and least
 burdensome"; "it produces an intinite effect and costs nothing." The "protection against hitators" is necessary because "he who
 has no hope that he shall reap will not take the trouble to sow." John Stuart Mill (1848) urged that "the condemnation of
 monopolies ought not to extend to patents." The inventor "ought to be both compcnsated and rewarded"; not to reward him
 would be "a gross immorality." The temporary "exclusive privilege" mas preferable to a governmental bonus because it avoided
 "discretion" and secured a reward proportional to the "usefuhess" of the invention, a reward paid by the consumer who benefits


                                                                  - 29 -
September, 2010

  from it. On the page 50, [t]his needs to be mentioned chiefly because in recent years another concept of "competitive research"
  has received increased attention: different firms and different research teams competing with one another in finding solutions to
  the same research problem in the same field.

MacLeod C, 1988, "Inventing the Industrial Revolution: The English Patent System 1660-1800," Cambridge University Press

Maneschi A, 1999, "Comparative Advantage in International Trade: A Historical Perspective," Edward Elgar Publishing

Mansfield, E, 1994, "Intellectual Property Protection, Foreign Direct Investment, and Technology Transfer", International Finance
 Corporation Discussion Paper 19, IFC

Maskus K and Penubarti M, 1997, "How Trade-Related Are Intellectual Property Rights?" 39 J. Int'l Econ. 227-248

Maskus K, 2000a, "Intellectual Property Rights in the Global Economy," Institute for International Economics

Maskus K, 2000b, "Intellectual Property Rights and Foreign Direct Investment," Policy Discussion Paper No. 0022, University of
 Adelaide

McKinney ML and Schoch RM, 2003, "Environmental Science: Systems And Solutions (Third Edition)," Jones & Bartlett Learning

Miller AR and Davis MH, 2000, "Intellectual property: Patents, Trademarks, and Copyright in a Nutshell," pp. 14 and 15, West
 Group Publishing

Molà L, 2000, "The silk industry of Renaissance Venice," Chapter 8, JHU Press

New York Times, 2006, "Raise the Gasoline Tax? Funny, It Doesn’t Sound Republican," on October 8

Nitta I, 2005a, "Patents and Essential Medicines: an Application of the Green Intellectual Property Project," Commission on
  Intellectual Property Rights, Innovation and Public Health (CIPIH) World Health Organization at
  http://www.who.int/intellectualproperty/submissions/ITARUNITTA.pdf

ibid., 2005b, "Proposal for a Green Patent System: Implications for Sustainable Development and Climate Change," Sustainable
   Development Law & Policy, pp.61-65, 2005, Washington College of Law, American University, Washington, D.C., USA

ibid., 2006, "Intellectual Properties and Photovoltaics: Light from the Green Intellectual Property Rights," European Photovoltaic
   Industry Association at http://www2.epia.org/documents/NL_0603_015.pdf

ibid., 2007a, "Green Intellectual Property Scheme: A Blueprint for the Eco-/Socio-Friendly Patent Framework," Intellectual
   Property: Legal Framework, Veena (ed.), pp.72-93, 2007, Icfai University Press, Hyderabad, India

ibid., 2007b, "Green Intellectual Property: a Tool for Greening a Society" Intellectual Property Rights: An Overview, Veena (ed.),
   pp.139-160, 2007, Icfai University Press, Hyderabad, India

ibid., 2008, "Green Intellectual Property Scheme: An Innovation Today for Innovations Tomorrow," a briefing distributed in the
   European Patent Forum 2008, available at http://www.greenip.org/files/EPO.GIP.F.doc. In this briefing, "[t]he degradation of
   reliance on patents would result in the reduced number of applications and resultant fomentation of corporate secrets to avoid
   invention disclosure. This situation would lead to vanishment of the assistance for generic sources as well as incremental and
   genuine innovations. In such a world, --- most of the proposed funding to stimulate incentives over neglected needs would not
   serve due to the absence of financial resources comparable to the earnings by patent monopolies. In other words, society would
   lose all the promoters of innovations, including not only patents but also the proposed alternative mechanisms unless it
   fundamentally reviews the present framework. --- To prevent such likely retrogression to the "IP anarchy" and its resulting
   disappearance of R&D drivers, ---."

OECD, 2010, "OECD Factbook 2010: Economic, Environmental and Social Statistics," OECD

Peters H, 2008, "Game Theory: A Multi-Leveled Approach," Springer

Ranson MK, Beaglehole R, Correa CM, Mirza Z, Buse K and Drager N, 2002, "The Public Health Implication of Multilateral Trade
  Agreements," in Lee K, Buse K and Fustukian S (Eds.), 2002, "Health Policy in a Globalising World," Cambridge University Press

Rockman HB, 2004, "Intellectual Property law for Engineers and Scientists," pp. 51-58, IEEE Press

Smith P, 1999, "Are Weak Patent Rights a Barrier to US Exports?" 48 J. Int'l Econ., 151-177

Stewart TP, 1999, "The GATT Uruguay Round: A Negotiating History (1993-1994) The End Game (Part I)," p. 493 and footnote 206,
  Kluwer Law International

Sufian J, 2006, "Is Intellectual Property a Catalyst for Development? - The case of biotechnology sector in Malaysia and Singapore,"
  ATDF J. 3(3), pp. 38-49. According to this paper, Venetian Patent Law --- confirms the early recognition of the importance of
  foreign experts in bringing knowledge and investment to “benefit to the State”. --- The law was introduced to attract inventors and
  investors to Venice to generate new economic activities. Prior to the patent law, the guilds in Venice, especially those trading
  lucrative Venetian glass, had their own restrictions; however, the city's Council was desiring to attract foreign inventors and
  industries as well. This fact is worth noting because as devising the first modern form of patent five hundred years ago, the
  Venetian Council already recognized the function of protecting innovation as a booster of capital inflows.

Taylor CT and Silberston ZA, 1973, "The economic impact of the patent system: a study of the British experience," pp. 231-266,
  Cambridge University Press. According to the footnote 1 at page 232, Alexander Fleming, who first discovered penicillin, said
  that he was very disappointed at delayed commercial development of the drug due to reluctance of industries for the lack of patent
  protection. Fleming did not apply for patents on the early penicillins because he was an academic researcher and not involved in
  commercial exploitation.


                                                               - 30 -
September, 2010


Van Overwalle G, 2005, "Protecting and Sharing Biodiversity and Traditional Knowledge: Holder and User Tools," Ecological
  Economics 53, 585 - 607

WHO, 2006, "Public Health, Innovation and Intellectual Property Rights: "Report of the Commission on Intellectual Property Rights,
 Innovation and Public Health (CIPIH)," WHO

ibid., 2010, "Research and Development - Coordination and Financing: Report of the World Health Organization Expert Working
   Group on Research and Development Financing," WHO

WT/DS114/R on March 17, 2000 (Canada - Pharmaceutical Patents) In this report, the WTO Dispute Settlement Panel concluded
 Canada was not in violation of the TRIPS Agreement by invoking the Bolar exception. However, Canada was found to be
 inconsistent with the Agreement in allowing for generic manufacture during six months immediately prior to the expiry of patent
 term.

WTO 2003, "Intellectual Property - Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public
 Health," available at http://www.wto.org/english/tratop_e/trips_e/implem_para6_e.htm. WTO Members wishing to make use of
 the Paragraph VI system are required to make notifications both by importing Member (WTO Member of its intention to use the
 system n to effect specific import) and by exporting Member (WTO Member of its intention to grant a compulsory licenses for
 export)




                                                             - 31 -
September, 2010

CHAPTER 3
LEGAL MODEL:
A Proactive Instrument to Underpin an International Entitlement

Through an economic model, the previous chapter argues the necessity of a financial measure for knowledge
allocation, which would be realized by assuring patent. In an attempt both to lay a legislative formulation of
such patent assurance and to forecast its excellent functionalities in international law, this chapter will explore a
generic legal model for assuring patent. In this model, patent right is regarded as an international entitlement,
which is protected on the basis of the property rule (for the property rule, see Section 3.2) and breach of such
entitlement would be prevented by means of assuring it at a level proportionate to liability of patent right (for the
liability rule, see Section 3.2). This mechanism views assurance as a compensation-based backup to facilitate
states' observance of the property rule in international statute. In other words, patent assurance is a resort newly
devised apart from the conventional hardship clauses by "evading" (exception and remedy) and those by
"chasing" (retaliation and sanction). While invoking these traditional measures more or less undermines the
stability of an entitlement, which adversely affects self-compliance behavior of contracting states, assuring an
international entitlement would effectively drive self-compliance of states forward due to enhancement in the
stability of an entitlement. This enhanced self-compliance by assuring an entitlement would be of importance in
international setting because generally, an international entitlement is strongly protected by the property rule
whereas it is weakly underpinned by merely proportionate compensation without punitiveness owing to the lack
of centralized governance structure to enforce it (see Pauwelyn, 2008, chapters 5 and 6), and in this situation,
respecting an international entitlement heavily rests on self-compliance behavior of contracting states.

This chapter will start in the subsequent sections by sketching assurance and briefly reviewing the conventional
theories of the property and liability rules to protect an entitlement in international law. While Section 3.3 will
evince that intellectual properties in the TRIPS Agreement are strongly protected by the property rule as an
international entitlement, Section 3.4 will demonstrate the Agreement is weakly underpinned with only
proportional compensation and, therefore, its performance heavily relies on self-compliance behavior of
contracting states. The rest of this chapter will argue that assurance would have a remarkable capability of
encouraging self-compliance of states, which would provide a more desirable measure to underpin an
international entitlement than other traditional ones.

3.1. Patent Assurance
The essence of patent assurance is very simple: it would assure patent as granted. When assured patent
encountered a risk of damage, e.g., warning of compulsory license, due to difficulty upholding patent protection,
the assurance would award a payment in an amount proportional to the value of threatened patent for the sake of
removing such difficulty and as a result, deferring a warned action.

In view of international law, granting patent can be considered as international entitling of innovation and
assuring it would be a proactive countermeasure in response to possible difficulty respecting an entitlement, i.e.,
patent right. On the occasion of granting patent, states would pay a "premium" for "assuring" the entitlement,
which would serve as a maintenance fee thereof. As discussed in detail later, this maintenance fee would
function so as to compensate the costs of self-compliance by states to uphold an entitlement, or rather to enhance
the reliability of it. This is because awarding assurance would allow states to circumvent the inevitable default
of an entitlement and the invocation of a hardship measure in the event of force majeure, meaning that the
premium for assuring an entitlement would be credited to its stability. Such enhanced stability is a key element
of self-compliance behavior of contracting states, and it is particularly of importance in international statute
because international setting usually has no centralized institution to compel compliance.

The premium fee would be collected to establish a trust fund, which would finance a remedy in the form of
awarding assurance when not only at least one contracting state, by respecting an entitlement, but also third party,
as a result of contracting states' behavior, suffered from an injury exceeding a predetermined extent. Such
financial remedy would "guarantee" an entitlement by means of deterring states from not merely violating an
entitlement as mentioned above yet also withdrawing from an agreement. This remedial measure would increase
the stability of an entitlement and as well its reputation due to less criticism by both states and third party, and
consequently make it more attractive to further states. Moreover, the rate of the premium would become
accountable in line with risk dispersion for traditional assurance when contracting states imposed a nominal fare

                                                        - 32 -
September, 2010

almost negligible relative to the gain from securing an entitlement on multiple beneficiaries national in each state.

3.2. Bridge between Property and Liability Rules
From the perspective of justice studies, patent and assurance can be pictured as a legal form resting on the
property and liability rules, respectively. This implies that patent assurance would provide a new back up tool
based on compensation proportionate to liability and designed to reinforce the legitimacy of patent, which is
based on the property rule. The property and liability rules plus inalienability are prevalent legal concepts how
to uphold an entitlement, which were first devised by Judge Guido Calabresi and A. Douglas Melamed in 1972
(Calabresi, 1972), and have been widely argued (e.g., as a collection of essays, see Wittman, 2002; as a
monograph, see Shavell, 2004) since their publication. In these concepts, a certain entitlement immutable or
untransferable, e.g., deemed human right, is inalienable as such. On the other hand, the assignment and abandon
of a transferable entitlement are legitimately allowed under the property rule, yet such surrender of an entitlement
requires license with an entitlement owner. Further, the liability rule more readily permits the alienation and
desertion of an entitlement even without license as long as a violator paid compensation for unraveling an
entitlement, like pollution taxations for a typical example.

In this view, patent indeed operates on the property rule as the term of "intellectual property" suggests because
license from a patentee is indispensable to cession of an entitlement, i.e., a patent right granted. By contrast,
assurance can be regarded as a countermeasure on the basis of the liability rule owing to the traditional description
of assurance as a defensive strategy against "liability (see, Shavell, 2004)." Not only in this wording but also in
reality, the liability rule is applicable to assurance in that the surrender of assured capital or asset (i.e., entitlement)
happens normally regardless of its owner's consent in the form of contingent liability of an entitlement, including
its cesser (e.g., accidental loss) and cession (e.g., robbery). In these contingent events, assurance is awarded to a
beneficiary (i.e., owner of entitlement) as compensation for liability (i.e., damage of entitlement), which is a
major feature of the liability rule in the discipline of law. These legal views will be confirmed in the following
sections.

3.3. TRIPS Agreement: A Role Model for the Property Rule
As a preeminent legitimacy of the global regimes disciplining intellectual properties, the TRIPS Agreement
dutifully obeys the property rule. Arguments below manifest that the property rule is a legal model for
describing the TRIPS Agreement more appropriate than both pictures of inalienability and the liability rule.

(a) Property Rule
As indicated by its terminology of "intellectual property," patent relies on the property rule regardless of whether
domestic or international levels in that an entitlement, i.e., a patent right granted is alienable and its transfer
requires a license with an entitlement holder. Due to the fact that modern legislations of patent have been shaped
in mimicry of traditional laws ruling absolute properties (general property law) from the first place (e.g., Dratler,
1991; Shavell, 2004, Chapter 7), the TRIPS Agreement adheres to the property rule more inherently than any
other international laws (see Carvalho, 2002). As a result of such mimic, TRIPS 28.2 (Right Conferred) reads
"[p]atent owners shall also have the right to assign, or transfer by succession, the patent and to conclude
licensing contracts," which contains the typical rights of owners well recognized in traditional legislative
regulations over the transfer of a tangible property. Moreover, the TRIPS Part III stipulates both civil and
criminal enforcements in detail to protect an intellectual property, which are comparable to usual domestic
procedures to ensure the property rule.

The civil stipulations in the TRIPS Agreement well conform with the aspects of the property rule appearing in
general international law, e.g., as distilled into the International Law Commission's Articles on Responsibility of
States for Internationally Wrongful Acts (ILC Articles). As an obvious requirement in the property rule, ILC
30(a) (Cessation) obligates the "State responsible for the internationally wrongful act" to "cease that act, if it is
continuing," and even after violation an entitlement per se must remain intact pursuant to ILC 29 (Continued duty
of performance), reading "[t]he legal consequences of an internationally wrongful act --- do not affect the
continued duty of the responsible State to perform the obligation breached." In concert with these articles to
uphold an existing entitlement and to defend it against an ongoing infringement, the TRIPS 41 (General
Obligations) demands of Members domestic legislations "to permit effective action against any act of
infringement of intellectual property rights," specifically including injunctions of infringing products (TRIPS 44),
and other provisional (TRIPS PART III, Section 3) and border measures (ibid., Section 4). Even in the event of

                                                          - 33 -
September, 2010

such infringement, an intellectual property still exists during the term of protection until its expiration except
administrative cesseres of property by opposition, invalidation, revocation or cancellation (TRIPS PART V).

Once an infringement has ceased, then "the full reparation for the injury" (ILC 31 (Reparation)) caused by a past
violation over an entitlement is another indispensable element in the property rule. Although such retrospective
reparation for damages with a ceased breach includes "restitution, compensation and satisfaction, either singly or
in combination" (ILC 34 (Forms of reparation)), as the property rule, not compensation or satisfaction but
restitution is an absolute prerequisite in principle for "re-establish[ing] the situation which existed before the
wrongful act was committed (ILC 35 (Restitution))." This principal of restitution would be absolved only when
restitution (a) is "materially impossible" or (b) "involve[s] a burden out of all proportion to the benefit deriving
from restitution instead of compensation (ILC 35)." In accordance with ILC 36 (Compensation), compensation
would be only applicable and to the extent "damage is not made good by restitution (ILC 36)," and satisfaction is
the last resort "insofar as injury cannot be made good by restitution or compensation (ILC 37 (Satisfaction))."

A restitutive measure unique to the TRIPS Agreement is the extermination of infringing products to restore an
entitlement, i.e. intellectual property protection. For this measure, TRIPS 46 (Other Remedies) reads "the
judicial authorities shall have the authority to order that goods that they have found to be infringing be, without
compensation of any sort, disposed of outside the channels of commerce in such a manner as to avoid any harm
caused to the right holder, or, unless this would be contrary to existing constitutional requirements, destroyed."

In addition to restitution, TRIPS 45 (Damages) prescribes compensation. However, in contrast to a fallback
position of such measure in the ILC Articles, compensation in the TRIPS Agreement is deemed equivalent to
restitution because, by nature, intellectual properties is intangible assets without physical substance and then an
entitlement as a whole of an intellectual property is compatible with economic values. To maximize this
restitutive function of compensation as a countermeasure for an intellectual property injured, not only intentional
infringement but also negligent one are subject to such compensation "by an infringer who knowingly, or with
reasonable grounds to know, engaged in infringing activity (TRIPS 45)."

After the completion of recovering an injured entitlement, the prevention of prospective violation is of importance
in ensuring the property rule. To this end, ILC 30(b) (Non-repetition) sets out the obligation "to offer
appropriate assurances and guarantees of non-repetition, if circumstances so require" under the "continued duty
of performance (ILC 29)." The preventive measure peculiar to the TRIPS Agreement requests the elimination of
facilities to manufacture infringing products in addition to extermination thereof (TRIPS 46). This article reads
"[t]he judicial authorities shall also have the authority to order that materials and implements the predominant
use of which has been in the creation of the infringing goods be, without compensation of any sort, disposed of
outside the channels of commerce in such a manner as to minimize the risks of further infringements." More
generally, TRIPS 41.1 defines preventive measures as "expeditious remedies to prevent infringements and
remedies which constitute a deterrent to further infringements."

(b) Inalienability
In addition to the strong aspects of the property rule, the TRIPS Agreement takes on a certain feature of
inalienative entitlements through both jus cogens and the so-called collective obligation; yet these inalienabilities
are limited in the extreme. An entitlement jus cogens is based on peremptory norms in general international law,
which primarily include crimes against humanity and are spelled out in e.g., the Vienna Convention on the Law of
Treaties by "a norm from which no derogation is permitted." The entitlements jus cogens in the TRIPS
Agreement correspond to its provisions with security, morality, and public order and health (TRIPS 73 (Security
Exceptions) for intellectual properties generally and TRIPS 27.2 and 27.3 (Patentable Subject Matter) for patent
specifically. In order to uphold these entitlements, TRIPS 27.2 and 27.3 allows Members to exclude particular
inventions from patentability; however, almost no applications have been rejected from granting as a harmful
subject matter in the practice of examination over numerous applications of patent.

Besides jus cogens, the TRIPS Agreement has a possible aspect of another inalienability obligated collectively as
a constituent of the WTO system, which was adopted by single undertaking of treaties in a set and has run on a
consensus among all Members. Once, in such multilateral assembly of cross-interrelated treaties, Members
established a "collective interest" (ILC 48.1(a)) as an entitlement, it would seem impossible to modify or abolish
the entitlement through an amendment by consent of all participants owing to high and increasing number of

                                                         - 34 -
September, 2010

participants and wide and expanding range of their interests. However, it was actually achieved in the TRIPS
Agreement. The growing criticism over patent protection on essential innovations, especially medicines, and
resultantly diminishing societal trust over patent resulted in the Doha Declaration on the TRIPS Agreement and
public health in 2001 and subsequent decisions (Abbott, 2002). These resolutions led eventually to the insertion
of TRIPS 31bis after TRIPS 31 and Annex after TRIPS 73, the first and only amendment so far adopted in the
WTO treaties pursuant to Article X:1 of the WTO Agreement, the most complicated process of the WTO's
consensus building procedures. This historic landmark evinces the alienability within the TRIPS Agreement.

As a more profound scarcity of inalienative entitling, the TRIPS Agreement encompasses no criterion for
inalienability. This lack is well argued by Pauwelyn (see Pauwelyn, 2008, pp. 50-55) for general international
law and he attributes such absence of inalienative norms to the externalities caused with inalienability,
incommensurability making it difficult and limitation of paternalism to justify it in view of enhancing welfare in
society as a whole, presumably the ultimate entitlement jus cogens for all legislations.

This ultimate entitlement is explicitly stipulated in TRIPS 7 (Objectives) as follows:

        The 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.

However, this provision has no function to render the Agreement inalienabile due to the same reasons as three
those recognized in general international law: externalities, incommensurability and paternalism. Since, in terms
of externalities, innovated technologies and resultant knowledge are global commons whereas the TRIPS
Agreement recognizes intellectual property rights themselves as private rights in its preamble (Carvalho, 2002),
unilateral and simplistic restrictions of accessing to innovations would generate a considerable extent of
externalities. In addition, a collective obligation and condescending paternalism by major participants would
raise not small conflicts of incommensurability among parties because they have own interests, priorities and
circumstances, which are different each other and even opposite in some instances. The bottom line, therefore,
is that the TRIPS Agreement would rather not resort to inalienability.

(c) Liability Rule
A compulsory license is deemed to obey the liability rule in the sense that Members can exercise such license
without the consent of a patentee, who "shall be paid adequate remuneration in the circumstances of each case,
taking into account the economic value of the authorization (TRIPS 31 (h))." However, such licensing is
extremely limited with the strict provisions of TRIPS 31 and serves as rather a mere exception than a rule. This
exceptional function of the liability rule in general international law is also argued by Pauwelyn in his words, (see
Pauwelyn, 2008, p. 128) "property protection [for an entitlement] is the rule, liability protection the exception."

TRIPS 31 (Other Use Without Authorization of the Right Holder) sets out specific conditions in very detail for
issuing a compulsory license. As a principal requirement for it, a compulsory license may be only granted to the
extent that "prior to such [licensing], the proposed user has made efforts to obtain authorization from the right
holder on reasonable commercial terms and conditions and that such efforts have not been successful within a
reasonable period of time (TRIPS 31 (a))." TRIPS 31 (a) also provides exemption from these efforts "in the case
of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use."

TRIPS 31 (f) was one of the most controversial provisions in the TRIPS Agreement before its amendment
(insertion of TRIPS 31bis after TRIPS 31 and Annex after TRIPS 73) as a consequence of the Doha Declaration,
and yet it remains disputable even after such historic event. The original TRIPS 31 (f) reads "any such
[licensing] shall be authorized predominantly for the supply of the domestic market of the Member authorizing
[licensing]," which disallows Members without facilities for manufacturing e.g., essential medicines to import
such patented medicines even under compulsory licensing. By contrast, TRIPS 31bis.1 permits compulsory
license to be granted in developed Members for the manufacture of "a pharmaceutical product(s)" patented
insofar as they are exported to "an eligible importing Member(s) in accordance with the terms set out in
paragraph 2 of the Annex" (predominantly, least-developed country Members). Although this amendment is a
cornerstone, sole pharmaceutical products for only least-developed countries are subject to the exception for

                                                       - 35 -
September, 2010

compulsory licensing, meaning that overall the TRIPS Agreement merely comprises very limited features of the
liability rule.

3.4. Proportionate Compensation Underpinning and Self-Compliance
Now that discussions have thus far revealed the strong consistency of the TRIPS Agreement with the property rule,
the next question is to be made on underpinning enforcements for fulfillment of such strong obligations in the
Agreement. Since the entirety of the TRIPS Agreement insists on the property rule, its instruments for
underpinning are expected to be commensurate with the level of the property rule. In reality, however, the strong
obligations of the property rule in the Agreement are merely sustained by weak instruments (see discussions
below in Section (a)) to the extent of just compensation and proportional countermeasures without penalty or
other punitive measures. While this weakness unique to international law is attributed to the lack of central
authority to invoke punitive measures in contrast to domestic setting, experience surprisingly shows that most
international agreements have been better respected by states in general than domestic legislations by national
(see below in Section (b)).

This fact of remarkable compliance with an international entitlement means that the true intent of the above
question over underpinning enforcements lies in uncovering a hidden force in international statute, which drives
states to uphold a strong entitlement protected on the property rule in spite of the only presence of forceless
underpinning with proportional compensation. As a such driver, several scholars have been identified
self-compliance behavior of contracting states, which is driven by collective obtrusion upon each state, including
"reputation" for compliance, "fear" on emulation of breach done once, feeling of solidarity, trust conferred on an
entitlement, "the normative pull of ideas and values" and "an urge to protect a particular institution or the
international legal system more generally," (see Pauwelyn, 2008, p165) and other economic, political, social,
moral humanitarian and ethical norms (Levitt, 2005). Collective obtrusion are informal and allusive, but a major
driver for states to voluntarily observe their agreement.

(a) Proportionate Compensation Underpinning for the TRIPS Agreement
Pauwelyn emphasizes (see Pauwelyn, 2008, p. 150) "whereas many entitlements in domestic law are protected by
a mere liability rule, international entitlements are, by default, protected by a property rule," and despite this firm
protection through international law in comparison with domestic law, he furthermore stresses (see Pauwelyn,
2008, p. 149) "back-up enforcement [for the international protection] in case this protection is not respected
corresponds rather to what we would expect under a liability rule." In other words, the strong protection of
international entitlements by means of the property rule is supported merely with weak countermeasures at the
level of proportional compensation. This contradictory phenomenon holds true with the TRIPS Agreement. As
confirmed by foregoing discussions, the TRIPS Agreement precisely complies with the property rule whereas it is
backed up in a manner of proportional compensation and remedies without punitiveness.

The underpinning measures in the TRIPS Agreement are set out in its PART III entitled "ENFORCEMENT OF
INTELLECTUAL PROPERTY RIGHTS." Like many domestic versions of patent law in most developed
countries, the enforcement clause of the TRIPS Agreement is fundamentally composed of two major elements:
civil remedies (PART III, Sections 1 to 4) and criminal sanctions (PART III, Sections 1 and 5). The civil
remedies are applicable both at a border (PART III, Sections 3 and 4) and in internal channels of commerce
(PART III, Section 2), and they contain injunction (TRIPS 44 for internal commerce, TRIPS 50 and 51 for border)
and compensation for damage (TRIPS 45 for internal commerce, TRIPS 56 for border), including restitution of
unjust enrichment and confidence recovery, and as well "expeditious remedies to prevent infringements and
remedies which constitute a deterrent to further infringements (TRIPS 41 (General Obligations))". All these
provisions intend not punishment but merely remedy as succinctly expressed in a term of the Agreement's text,
"the need for proportionality between the seriousness of the infringement and the remedies ordered --- shall be
taken into account." (TRIPS 46 (Other Remedies))

The criminal sanctions of the TRIPS Agreement are stipulated in its Article 61 (Criminal Procedures) as
"imprisonment and/or monetary fines sufficient to provide a deterrent, consistently with the level of penalties
applied for crimes of a corresponding gravity." Apparently, this criminal clause obligates punishments and
disproportionate punitive actions against violation of intellectual properties as a deterrent. In reality, however,
these actions are very limited and virtually at the same level as proportional compensation and remedies,
especially in comparison with standard domestic law of intellectual properties in many developed countries on the

                                                        - 36 -
September, 2010

following perspective.

    ● The TRIPS Agreement penalizes violations only "in cases of willful trademark counterfeiting or copyright
      piracy on a commercial scale (TRIPS 61)" whereas domestic law usually imposes criminal penalties on not
      only intentional but also negligent infringements in a broad range of intellectual properties, including
      trademark and copyright as well as patent, in scales from small to large.

    ● Even "the level of penalties applied for crimes of a corresponding gravity (TRIPS 61)" is insufficient to
      deter infringements of intellectual properties because such penalties are frequently nothing compared to
      unfair profits of infringers, who disregard huge amount of costs and efforts invested to develop new
      products. In most cases, the penalties corresponding to apparently similar crimes are less than even
      minimum compensation for damages of an intellectual property because the real significance of intellectual
      property infringements extends far beyond apparent one for the lack of awareness of precise costs and
      efforts invested and profits expected to be obtained without infringements. As a result, intellectual
      property infringements have a high recidivism rate, as reported e.g., in a Japanese survey in China, which
      has provoked the TRIPS-plus movement in developed members (e.g., JMETI, 2007).

      For better deterrence, a number of developed countries and even developing members legislate much
      severer sanctions in their domestic law of patent than the requirements of the TRIPS Agreement. This
      behavior means that members think the criminal provisions of the Agreement is not enough because,
      members think, they are virtually supported by merely compensation within the limitation of proportional
      or less for the true damages of patent. For instance, legal practices for patent infringements in the US
      allow compensatory compensation and as well punitive compensation (Title 18 of the United States Code
      (Crimes and Criminal Procedure), 18 USC §2520 (Recovery of Civil Damages Authorized)) whereas the
      American patent law (35 USC) prescribes that "[a] patentee shall have remedy by civil action for
      infringement of his patent" without any criminal actions (35 USC §281 (Remedy for infringement of
      patent)). In litigations of patent, this punitive compensation is a harsh criminal penalty rather than civil
      remedy, which has ranged from three to 17 times (see Nitta) higher than the compensatory compensation in
      precedent cases. In other words, the punitive compensation serves as a strong countermeasure to uphold
      patent in a manner of the property rule. A comparison of the TRIPS Agreement with this strong
      underpinning in domestic legislation reveals that the real performances of the criminal clause in the
      Agreement operate on a backup merely with proportional compensation and remedies.

In addition, the implementation of the TRIPS Agreement in its own right as a whole resorts to not punitive
countermeasures yet proportional compensation and remedies for underpinning the mechanism as an essential
entitlement prior to civil remedies and criminal sanctions in its framework. This legal picture arises from the
fact that frictions over the obligations under the TRIPS Agreement are subject to the WTO dispute settlement
procedures (TRIPS 64 (Dispute Settlement)) and that the decisions of the TRIPS dispute settlements, like so
traditional disputes over trade goods, rested on proportional compensation and remedies. These decisions are
also enforced by the same rule, which especially includes cross-retaliation between trade goods or services and
intellectual properties in the following respect.

    ● As of this writing, there have been over thirty cases decided by WTO panels and the Appellate Body, or
      once or still pending to them under the terms of the TRIPS Agreement (as a review, see Abbott, 2003;
      Pauwelyn, 2010). Some of notable issues are India - Patent Protection for Pharmaceutical and
      Agricultural Chemical Products, WT/DS50, September 5, 1997 (India - Mailbox); Canada - Patent
      Protection of Pharmaceutical Products, WT/DS114, March 17, 2000 (Canada - Generic Pharmaceuticals);
      United States - Section 110(5) of the US Copyright Act, WT/DS160, June 15, 2000 (US - Copyright
      Exemption); Canada - Term of Patent Protection, WT/DS170, September 18, 2000 (Canada - Patent Term);
      United States - Section 211 Omnibus Appropriations Act of 1998, WT/DS176/AB/R, January 2, 2002 (US -
      Havana Club); European Communities - Protection of Trademarks and Geographical Indications for
      Agricultural Products and Foodstuffs (EC - GIs), the United States (WT/DS174/R, March 15, 2005) and
      Australia (WT/DS290/R, March 15, 2005). In all these cases, no respondent has been asked for any
      "enforceable specific performance-type remedies" or "penalty for their violation beyond the potential
      authorization of withdrawal of equivalent concessions" by the wording of Trachtman (Trachtman, 2007).
      He also concluded, "in terms of the WTO's dispute settlement mechanism overall, that as a matter of fact

                                                      - 37 -
September, 2010

      and practice, if not as a matter of legal doctrine, the WTO legal system is best characterized as employing
      a liability rule, rather than a property rule."

    ● After conclusion of the Dispute Settlement Body (DSB), possible countermeasures by a prevailing party are
      also limited to a liability level, i.e., proportional compensations in the event of failure for a losing party to
      obey the DSB's conclusion. If an implementing party cannot achieve full compliance in the reasonable
      period of time, it must enter into negotiations with a complainant in order to agree a mutually acceptable
      compensation (DSU 22.2 (Compensation and the Suspension of Concessions)). This compensation has to
      be equivalent to the benefit, which a defendant has nullified or impaired by applying its measure. When
      parties fail to reach an agreement on satisfactory compensation, a plaintiff can ask the DSB for permission
      to impose trade sanctions or retaliations against a respondent (DSU 22.2). The level of these
      countermeasures should again be equivalent to the level of nullification or impairment (DSU 22.4).

    ● If a plaintiff considers it impracticable or ineffective to remain within the same sector for countermeasures,
      trade sanctions or retaliations can be invoked on a different sector under the same case (DSU 22.3(b)).
      This cross-retaliation means e.g., that a violation regarding GATT or GATS could be countered in the area
      of the TRIPS Agreement. In fact, three cases have been thus far requested for DSB's authorization to
      cross-retaliate, involving intellectual property: European Communities - Regime for the Importation, Sale
      and Distribution of Bananas (EC - Bananas III, DS 27); United States - Measures Affecting the
      Cross-Border Supply of Gambling and Betting Services (US - Gambling, DS 285) and United States -
      Subsidies on Upland Cotton (US - Upland Cotton, DS 267). In all these cases, the scale and volume of the
      countermeasures notified has been within a range of proportional compensation.

(b) High Rate of Compliance
In spite of limited underpinning by means of only proportional compensation as discussed above, many surveys
and empirical facts evince remarkable success in compliance with international entitlements. For instance as
pointed out by Pauwelyn (see Pauwelyn, 2008, p. 164), "after ten years of [WTO's] operation and more than 350
disputes, in only a handful of cases did violators fail to perform and each of those cases pitted the US against the
EC (not a small developing country against a powerful nation that could be unmoved by the threat of mere
tit-for-tat retaliation)."

This recognition is also true for the TRIPS Agreement having a typical structure of international law, i.e., entitling
with the property rule and upholding with proportional compensation as argued in the foregoing sections. A
recent research on 107 countries conducted by Deere-Birkbeck (see Deere-Birkbeck, 2008, also WTO) shows that
presumably beyond expectation of most readers, not only most developed countries but also a significant number
of developing members have already introduced their domestic legislation even with a higher standard of
intellectual properties than the obligation of the TRIPS Agreement (see also Intellectual Property Watch, 2007).
Although such TRIPS-plus countries in the developing world have strong concerns about the Agreement, they
range from Mali and Cambodia to the Dominican Republic, Mexico and Peru, including 14 least-developed
countries and some of them are the poorest countries in the world, like Niger.

Since the TRIPS Agreement is upheld merely with proportional compensation, self-compliance is a key driver of
such high implementation in the developing world. Deere-Birkbeck indicates a wide variety of reasons for their
self-compliance in that e.g., "developing countries are influenced by the degree of pressure applied by
international donors such as WIPO, investors and trading partners (see Deere-Birkbeck, 2008, also Intellectual
Property Watch, 2007)." According to her conclusion, at least three elements exert such behavior. The first
element is "coercive pressures such as trade deals and threats, WTO disputes and diplomatic demands." The
second and third ones are the "power of ideas, turning to the media, public outreach, research, monitoring and
capacity building," and the "ideational” power, including for example by running campaigns for TRIPS-plus
pressures."

These factors directly influence politics at the national level and strongly contribute to states' attitudes of
self-compliance with an international entitlement. Such self-compliance arises from a voluntary incentive of
each state to respect an international entitlement even without strong underpinnings, and such incentive is
sometimes undermined rather than enhanced if the backup of an entitlement by means of countermeasures is too
sever, e.g., disproportionate retaliation and sanction as well as unilateral safeguard. This seemingly

                                                        - 38 -
September, 2010

contradictory framework shares the same view with most international law in that proportional countermeasures
are sufficient to support the protection of an international entitlement created on the basis of a stronger rule, i.e.,
the property rule. Thanks to the power of self-compliance, this apparent paradox surprisingly functions, or
rather derives distinctive advantages from an intrinsic mechanism of international statute.

3.5. Self-Compliance and Assurance: Remarkable Synergy Effects
While the international regime of patent is built on the strong protection of an entitlement in accordance with the
property rule, its underpinning is merely at the weak level of proportional compensation and remedies without
punitiveness. Since this imbalance compels the regime to rely heavily on self-compliance behavior of
contracting states, a conceivable measure as an effective backup for the regime would be augmentation of the
ability in self-compliance. One of measures competent for such augmentation would be assurance because
assuring an entitlement would directly expand the merits of self-compliance in international statute as proved
below. Moreover, assurance as such is by nature an instrument to underpin an entitlement by compensating the
liability of an entitlement and it has no intention of retribution as if it were designed to coincide with proportional
underpinning in international law. Given that assets subject to assurance were considered corresponding to an
entitlement to be protected in international law, assurance would be a countermeasure at proportional level in
response to the default of an international entitlement. This aspect will be further argued afterward (Section 3.6)
in view of proportional underpinning in international statute.

(a) Accelerated Consent and Accession
Assuring an international entitlement would encourage states to build a consensus and to accede to an agreement
because assurance would allow a provident leeway while maintaining the integrity of an entitlement if compliance
were difficult. Financial support through assurance awarding in response to difficulty complying would lower
political barriers caused by the limitation in foreseeing future circumstances surrounding states. This lowered
barrier would be of importance in attracting further states because any international entitlement is created by
voluntary consent of states in principle.

Moreover, assurance would allow a state to cope with an adverse situation without detriment to the perfection of
an entitlement whereas most traditional respondencies to hardship, including exceptions and remedies, are
measures to suspend or nullify an entitlement. This maintenance of an entitlement would also attract states
because it would enhance the reliability and resultant predictability of an entitlement, which is one of key factors
for self-compliance behavior of contracting states.

(b) Beyond Exceptions and Remedies
Owing to an indispensable role of self-compliance by states, the assurance scheme would have a considerable
advantage over traditional exceptions and remedies in international statute. Assuring an international entitlement
would stabilize it, resulting in direct stimulation of self-compliance by contracting states. For instance, an
assured entitlement would elevate the fear with emulation of violating it due to less room for international
community to tolerate the breach of an ensured entitlement as a last resort. These effects would be prominent
because in the absence of centralized governance over international law, self-compliance plays a central role in
respecting an international entitlement, which is founded upon the property rule and upheld to the extent of only
proportional compensation.

By contrast, most exceptions and remedies devised so far in international law have more or less brought about
failure of self-compliance due to their negative impacts on an entitlement. These exceptional measures are
sometimes dubbed "flexibilities" in the TRIPS Agreement, explicitly including compulsory licensing for essential
medicines (TRIPS 31, 31bis and its Annex) and Bolar exemption for research tools (TRIPS 30). Several surveys
for these flexibilities indicate that repeated warning of compulsory license from 2001 to 2006 by Brazil and India
and as well actual first invoking in 2006 by Thailand and subsequent enforcements by other countries have led to
erosion of morale to respect the TRIPS Agreement especially among developing countries (see Section 3.5(b)).

Exceptional and remedial provisions are obviously of importance in rendering an international entitlement flexible,
which promotes consent of states with less reserve for unforeseeable circumstances beyond state's control because
many entitlements are strictly prescribed in international statute on the bases of the property rule. However,
most of such provisions potentially undermine the reliance on an entitlement, in other words any loophole in law
is at least the first step down to erosion within the entire entitlement. On the contrary, assurance would

                                                         - 39 -
September, 2010

contribute to enhanced credibility and resultant predictability of an entitlement through a form of guarantee. As
an evolved measure in international statute, assuring an entitlement on the basis of proportional compensation
would likely be a new hedge against breaches in the property rule international law heavily relies on.

(c) Beyond Retaliations and Sanctions
Besides exceptions and remedies, there is another category which international law has legitimated as
respondence to failure in compliance with an entitlement, i.e., retaliations and sanctions. Although these
respondences share the same ultimate objective, i.e. compliance, with the assurance scheme, they have a serious
defect quite alien to assurance.

As well argued in the foregoing sections, retaliatory respondences in international statute are only permitted to the
extent of proportional compensation, whereas domestic administration often invokes disproportionate penalty and
punishment. Despite this difference between domestic and international law, both their function truly expected
for retaliatory measures is not punitive but to prevent breach by means of generating deterrent force. Even in the
case of economic sanction aiming at security, it intends not to inflict suffering but to cease violation of an
entitlement, e.g., disarmament. In an attempt to achieve better complience with an international entitlement,
retaliations and sanctions must resort to self-compliance by states, in particular by deterrent force, because it is
major and sometimes sole source of incentive for states to observance due to lack of centralized governance
structure in international setting and limited semblance of effects with proportional countermeasures.

In reality, however, traditional retaliation itself has repeatedly nullified self-compliance all the more ironically
because such measures heavily depend on self-compliance by contracting states. In other words, retaliations and
sanctions are seemingly straightforward and consequently effective deterrent to violation of an entitlement owing
to fear of reprisal against the violation. Once however, such measures have been actually invoked, fear turns
into indignation, and deterrent force disappears and instead resistance and vengeance forces emerge. Since
self-compliance, on which retaliation used to solely rely, are no longer present, a new provision for stronger
retaliation is needed to reestablish self-compliance demanding observance, which finally poses the security
dilemma. If alternatively, compensation for a breach were nothing compared to gain from it, states would
possibly commit repeated violations without reservation and readily pay reparations each time. This situation
means the death of self-compliance and the replacement of the property rule with the liability rule.

While conventional retaliatory measures have a possible affect adverse on self-compliance behavior, assurance
has no such possibility, but it rather enhances performance and functionality of self-compliance. Even before
actual awarding, assured entitlements would reassure states and drive their compliance forward as a consequence.
Once awarded moreover, states would witness assurance payment and be satisfied with the credibility of an
entitlement, leading up to a favorable spiral of further activation of self-compliance and higher observance of
states. As a bottom line, policymakers would be encouraged to weigh assurance against yet stronger measures
proposed in line with the conventional retaliatory, such as longstanding advocacy and movements for the
TRIPS-plus policy and retaliations crossing between the TRIPS Agreement and other WTO jurisdictions.

(d) Assurance as a Proactive Countermeasure
A potential accomplishment of assurance would be an extension of an entitlement to situations of uncertainty if
international law embraced such functionality. Through paying assurance premium, contracting parties would
share a risk of encountering prospective difficulty in maintaining their consent. Once such difficulty became a
reality, a subsidy in the form of assurance awarding would deter a party from violating an international
entitlement and consequently uphold it. If an appropriate risk-sharing arrangement existed among contracting
parties as a proactive countermeasure in response to possible breach, the traditional arguments in favor of
protecting intellectual properties would remain intact. In such situation, intellectual property protection would
constitute optimal economic policy (cf. classical arguments over economic similarly of tariff and insurance, see
e.g., Eaton, 1985).

Assurance would share two indispensable advantages with traditional countermeasures e.g., trade remedies in the
form of anti-dumping, countervailing and safeguard measure, and retaliation and sanction. First, these escape
provisions have adequate capacity to offer a shelter from an inalienable entitlement due to collective obligations
in response to surge an international entitlement has generated. Second, these measures tolerate a transition
period so that a country can temporarily inactivate an entitlement for adjustment of country's structure by

                                                       - 40 -
September, 2010

reforming it. This transition period enables both sound rate of such adjustment and resultant reduction in the
total amount of adjustment costs.

Both of these advantages contribute to enhancing the efficiency of self-compliance, resulting in heightened
performance of an international entitlement. This is the essence of what political debates have emphasized in a
wide variety of different forms: the escape provisions, including assurance, decrease obstacles to an entitlement,
and then increase both attractions to it and average level of its performance through higher acceptance and
consent in a country. After international negotiations, governments often come under pressure from certain
industries to protect them. The escape provisions allow governments to give ground to such pressure, and thus
to circumvent political setbacks if participating in an entitlement. Such latent ability of the escape provisions to
avoid political setbacks functions as a crucial motive for governments to engage in an entitlement. This public
choice approach in which "governments are driven at least partly by motives other than social welfare
maximization" (the same argument for the traditional WTO dispute settlements, see, Horn, 2001, in particular pp.
74-81) was well discussed by Sykes (Sykes, 1991), and Kaempfer and Willett (Kaempfer, 1989).

Besides these advantages common to the escape provisions, assurance would have its own virtues: no rebalancing
of mutual benefits and no potential drawback. The conventional escape provisions such as exceptions and
remedies as well as retaliations and sanctions, or more generally, any other measures to suspend an entitlement
result in, as well recognized, reestablishing of mutual compromise and rebalancing of reciprocal benefits (see e.g.,
WTO, 2004, p. 81) once agreed among contracting parties. By contrast, assurance would be unaccompanied
with such actions because it would uphold an entitlement, which would not induce such reestablishing or
rebalancing in theory. Even if the practical performance of assurance reestablished compromise and rebalanced
benefits to some extent, the costs for reestablishing and rebalancing would be marginal because granting
assurance would be decided in accordance with a pre-agreed rule and such decision would not need extra efforts
or costs to reach it. On the other hand, the compromise-reestablishing and benefit-rebalancing through the
conventional escape provisions have to pay the enormous costs for renegotiation among parties over an
entitlement once established.

In addition, the actual exercise of assurance would be no longer associated with potential drawbacks of the
conventional escape provisions. Such drawbacks include abuse of a measure, disguised reasoning to invoke it,
never-ending cycle of retribution and unilateral rationalization to justify an action. Although in theory both
assurance and the conventional provisions run on only proportional compensation for injury of an entitlement, the
practical exercise of assurance would be much less beset with such drawbacks. This is because the proportional
compensations through assurance would be an acceptable amount yet far from the fullest satisfaction of a right
holder due to enormous benefits from the original intellectual property and its derivatives beyond prediction of a
right holder. Since right holders well know such possibility of breakthrough in their intellectual property, they
usually show reluctance to relinquish their intellectual property and come forward with negotiations, e.g., reduced
royalties in return for mass sale. As a result, fair application of assurance would be ensured and it would be
utilized only in the event of true needs.

3.6. Proportional Awarding
As thus far described, the scheme of assuring patent would advance self-compliance by members with the TRIPS
Agreement. However, the voluntary compliance of members would be crippled if the scheme awarded too
handsome assurance because it would discourage even fairly standard efforts of members to overcome trivial
inaccessibility due to patent protections and members would readily resort to patent assurance. These standard
efforts include negotiations for bulk discount, infrastructure improvement to attract and nurture a patentee foreign
corporation, in particular to lure foreign investments coupled with technology transfer, which would be sometimes
ignored because of excessive aids from the patent assurance scheme. To make matters worse, such excessive aid
would induce flimsy requests for rescue form disputes disguised as intractable conflicts and succumb to moral
hazard or insurance fraud. To prevent these moral hazards, patent assurance would offer limited award
proportional to damages caused by patent, which has been well established and accepted as countermeasures with
proportional compensation, especially most of the classic insurances and investment insurances such as MIGA
(see Section (b) below).

(a) Assurance as a Countermeasure with Proportional Compensation
As an evidence that assuring patent coincides with the auxiliary enforcement, the scheme would provide a

                                                       - 41 -
September, 2010

requestor member with financial assistance in a scale equivalent to proportionally compensating an adverse
situation caused by patent protection. Namely, such financial aid would intend no further assist than remedy,
including commercial exploitation, in a fashion comparable to the enforcement measures with proportional
compensation in general international law, which allows for only proportional countermeasures and excludes
punitive actions against breach. If patent assurance embraced financial supports beyond remedy, the scheme
would need an increase in its revenue, resulting in a raised price of the premium, i.e., an expanded burden over
patentees far exceeding the payment of reparations for damages with patent protection. In this view, patentees
would be all considered as violators of TRIPS 7 (Objectives) prescribing "a manner conducive to social and
economic welfare" and the premium would be regarded as an indemnity for a requestor member, i.e. a victim of
such violation. Therefore, a massive price of the premium would be the same as to impose disproportionate
fines or punitive sanctions on patentees against negative externalities their patents have generated.

Likewise, such disproportionate punishments are proscribed in general international law. For instance, the
countermeasures in the ILC Articles are limited to the extent of the liability rule, i.e., proportionate
countermeasures whereas the Articles adopt the property rule to protect an international entitlement as explored in
the foregoing sections. More specifically, ILC 49 (Object and limits of countermeasures) reads "[a]n injured
State may only take countermeasures against a State which is responsible for an internationally wrongful act in
order to induce that State to comply with its obligations," and ILC 51 (Proportionality) furthermore does
"(c)ountermeasures must be commensurate with the injury suffered, taking into account the gravity of the
internationally wrongful act and the rights in question."

In addition to these provisions, the traditional settlement of trade disputes in WTO also prohibits punitive actions
as a countermeasure. For instance, DSU 22.4 reads "[t]he level of the suspension of concessions or other
obligations authorized by the DSB shall be equivalent to the level of the nullification or impairment" In
accordance with the explanations to this article in the WTO handbook (see WTO, 2004, page 82), "[t]his [clause]
means that the complainant's retaliatory response may not go beyond the level of the harm caused by the
respondent. At the same time, the suspension of obligations is prospective rather than retroactive; it covers only
the time-period after the DSB has granted authorization, not the whole period during which the measure in
question was applied or the entire period of the dispute."

(b) Investment Insurance
The proportionality of countermeasures can also be observed in other international law, in particular investment
treaties, than the ILC Articles. Such treaties, including most bilateral forms and the North American Free Trade
Agreement (NAFTA), allow a contracting government to expropriate foreign investments without discrimination
for a public purpose as long as the government pays full compensation. This payment is limited within a range
of proportional remedies for investors and excludes punitive palimony and penalty (see, e.g., NAFTA, Chapter 11).
Another example more closely resembling patent assurance is investment insurances against noncommercial (in
many cases, political) risks associated with projects in developing countries. Political risk insurances are
available from a growing number of private insurance companies, national programs in most developed countries,
and as well the Multilateral Investment Guarantee Agency (MIGA), which was established in1988 as the fourth
entity affiliated with the World Back Group (see also, Bishop, 2005; World Bank, 2003). MIGA provides or
complements eligible foreign companies with investment guarantees against certain noncommercial risks when
investor's government has no or insufficient national program covering such risks. The coverage of MIGA's
guarantees includes currency transfer, expropriation, breach of contract, and war and civil disturbance (MIGA
Establishing Convention, Article 11 (MIGA Convention 11) (Covered Risks)).

Since in MIGA and other investment insurances as well as patent assurance, limited payment of claim is identical
to a proportional countermeasure in the event of investment loss, such limited payment can be referred to as
"proportional payment" in a sense of the proportionality ILC 51 (Proportionality) explicitly prescribes not to
penalize but indemnify violation. Such proportional payment, indeed, is stipulated in several provisions of the
MIGA Convention and the Commentary thereon as well discussed in Chapter 4.


References and Notes
Abbott FM, 2002, "The Doha Declaration on the TRIPS Agreement and Public Health: Lighting a Dark Corner at the WTO," 5 J.
  Int'l Econ. L., 469-505


                                                           - 42 -
September, 2010

ibid., 2003, "WTO Dispute Settlement Practice Relating to the Agreement on Trade-Related Aspects of Intellectual Property Rights,"
   in THE WTO DISPUTE SETTLEMENT SYSTEM 1995-2003, at 421 (F. Ortino & E.-U. Petersmann, ed.). The discussion in this
   section of the chapter first appeared in Chapter 3.14, TRIPS—United Nations Conference on Trade and Development (UNCTAD)
   in COURSE ON DISPUTE SETTLEMENT IN INTERNATIONAL TRADE, INVESTMENT AND INTELLECTUAL
   PROPERTY (United Nations Publication 2003)

Bishop RD, Crawford J and Reisman WM, 2005, "Foreign Investment Disputes: Cases, Materials and Commentary," Kluwer Law
  International, Chapter 5 (Political Risk Insurance)

Calabresi JG and Melamed AD, 1972, "Property Rules, Liability Rules and Inalienability: Over View of the Cathedral," 85 Harv. L.
  Rev. 1089

Carvalho NP, 2002, "The TRIPS Regime of Patent Rights," Kluwer Law International. On page 37, "[t]he second objective of the
  TRIPS Agreement: to protect private property rights. Under paragraph four of the Preamble, WTO Members recognize "that
  intellectual property rights are private rights." This language was adopted having in view the concerns of some Parties that, in
  spite of the measures taken to empower intellectual property right owners to enforce their rights, governments might be charged of
  non-compliance in the event right owners failed to do so. ---"

Deere-Birkbeck C, 2008, "The Implementation Game: The TRIPS Agreement and the Global Politics of Intellectual Property Reform
  in Developing Countries," Oxford University Press

Dratler J and McJohn S, 1991, "Intellectual Property Law: Commercial, Creative and Industrial Property," Law Journal Seminars
  Press. On pages 1-2 to 1-3, "[i]n general, a right of "property" is the power to exclude. The owner of an automobile, for
  example, has the power to exclude others from entering it or driving it. Similarly, the owner of real property may build a fence
  around it and exclude others from entering it or using it. Intellectual property operates under much the same principles.
  Although intellectual property rights control intangible products of the mind apart from their physical embodiment, they give the
  owner the same sort of rights as owners of other kinds of property have: the rights to exclude others from access to or use of
  protected subject matter."

Eaton J and Grossman GM, 1985, "Tariffs as insurance: optimal commercial policy when domestic markets are incomplete,"
  Canadian Journal of Economics 18(2), 258-72. On page 258, "[a]n important accomplishment of international economics in the
  past decade has been an extension of theory of international trade to situations of uncertainty. A major result has been that, if
  appropriate risk-sharing arrangements exist among domestic consumers and producers, the traditional arguments in favour of
  free trade remain intact."

Horn H and Mavroidis PC, 2001, "US-Lamb (United States - Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat
  from New Zealand and Australia): What Should be Required of a Safeguard Investigation?" in Horn H and Mavroidis PC (Eds.),
  "The WTO case law of 2001," Cambridge University Press

Intellectual Property Watch, 2007, "Disparities Seen In Developing Countries’ TRIPS Implementation," on December 11 available at
   http://www.ip-watch.org/weblog/2007/12/11/disparities-seen-in-developing-countries-trips-implementation/

JMETI (Japan Ministry of Economy, Trade and Industry), 2007, "Field Survey of Intellectual Property Rights Infringement in
  China," News Release on June 27, 2007 available at
  http://www.meti.go.jp/press/20070627002/20070627press-release-Englishi.pdf.

Kaempfer WH and Willett TD, 1989, "Combining rent-seeking and public choice theory in the analysis of tariffs versus quotas,"
  Public Choice 63, pp. 79-86

Levitt S and Dubner S, 2005, "Freakonomics: A Rogue Economist Explores the Hidden Side of Everything," William Morrow. On
  page 21, "[t]here are three basic flavors of incentive: economic, social, and moral. Very often a single incentive scheme will
  include all three varieties."

Nitta I, by private communications of the author with several experienced attorneys of patent in US.

Pauwelyn JHB, 2008, "Optimal Protection of International Law: Navigating between European Absolutism and American
  Voluntarism," Cambridge University Press

ibid., 2010, "The Dog That Barked But Didn’t Bite: 15 Years of Intellectual Property Disputes at the WTO," J Int. Disp. Settlement
   first published online on May 26, 2010.

Shavell S, 2004, "Foundations of Economic Analysis of Law," Harvard University Press. In this book, the author explores the
  liability rule as a part of "accident law." On page 4, "Calabresi published an extended treatment of liability rules and the
  accident problem ---." In the chapter 7, the author "discuss[es] the generation and the subsequent use of information, as well as
  the extent to which each is promoted in a socially desirable way by property rights in information."

Sykes AO, 1991, "Protectionism as a Safeguard: A Positive Analysis of the GATT Escape Clause with Normative Speculations," 58
  U. Chi. L. Rev. 255

Trachtman JP, 2007, "The WTO Cathedral," 43 Stanford J. Int. Law 127, Section III.B

Wittman DA (Ed.), 2002, "Economic Analysis of the Law: Selected Readings." Wiley-Blackwell According to the editor's
 introduction on page 21, "[a]n entitlement can be protected by a property right (the person may give up the right voluntarily, but
 presumably this will occur only if the price paid compensates for the loss of the right), by a liability rule (the right can be
 involuntarily taken away, but a third party determines the value of the loss), or by inalienability (the right cannot be taken away).
 In the absence of transaction costs, the "Coase theorem" suggests that it would not make any difference whether an entitlement
 was protected by a property right or a liability rule or which side had the entitlement in the first place. Guido Calabresi and
 Douglas Melamed take the opposite perspective - the high transaction cost case. They first show how the relative costs of
 markets and courts determine whether a liability rule, property right, or rule of inalienability is used to protect an entitlement.
 Essentially, property rights are preferred over liability rules when market transaction costs are low in comparison to court


                                                                - 43 -
September, 2010

  transaction costs; the reverse holds when market transaction costs are relatively high. ---"

World Bank, 2003, "A Guide to the World Bank," World Bank Publications, pp. 20 and 21

WTO, "TRIPS: Review of the Implementing Legislation," available at http://www.wto.org/english/tratop_e/trips_e/intel8_e.htm.
 On this page, "Article 63.2 of the TRIPS Agreement requires Members to notify the laws and regulations made effective by that
 Member pertaining to the subject-matter of the Agreement to the Council for TRIPS in order to assist the Council in its review of
 the operation of the Agreement. These notifications are the basis for reviews of implementing legislation carried out by the
 Council."

WTO, 2004, "A Handbook on the WTO Dispute Settlement System," WTO




                                                                - 44 -
September, 2010

CHAPTER 4
OPERATIONAL MODEL:
Embodiment of Knowledge Allocation

The foregoing chapters contemplate a financial mechanism to drive knowledge allocation, or the "knowledge
allocation mechanism" in short, which would serve as a preemptive measure to uphold an entitlement accorded in
international law, particularly in the form of assuring patent. If the present framework of patent incorporated the
knowledge allocation mechanism, the mechanism would become a new backbone within the evolved framework.
Such mechanism would rely on the conviction that the knowledge allocation would effectively facilitate the
settlement of patent disputes, and would consequently ensure the respect and enforcement of carefully negotiated
rules to discipline patent. This enhanced stability of patent and promoted allocation of knowledge would benefit
both owners and users of patent in any industrial fields of all states through mitigation of the imbalance between
stronger and weaker states, and circumvention of detrimental effects on unresolved disputes of patent.

The real achievement of such mechanism would necessitate a precise picture of its operation in an appropriate
financial institution e.g., IBI as called in this writing. This picture is also of importance not only in running the
institution with a satisfactory performance but also in faithfully embodying the concepts developed in the
previous chapters. In accordance with this understanding, Chapter 5 explores practical procedures of each
process in IBI to manage the knowledge allocation mechanism.

Potential work of IBI would include far-ranging operations: e.g., collecting the extra official fees in the form of
"patent assurance premium" (revenue phase); creating and administrating trust fund; receiving and reviewing the
request for a financial support under the name of a "claim for assurance" (appraisal phase); approving and
disbursing the financial support as "awarding assurance" (disbursement phase); and monitoring and reporting the
employment of the financial support and the implementation of knowledge allocation. Each process of these
phases would share functional similarities with operations established in other existent organizations, and
therefore, IBI would work in close conjunction with relevant organizations as follows.

    ● Assurance premium
      In the revenue phase, assurance premium would be collected in parallel with the original official fees
      through each country's patent office and the WIPO International Bureau, or even IBI would rather consign
      such collection to these offices.

    ● Claim for assurance
      The appraisal phase over a claim for assurance is designed from two perspectives: dispute settlement and
      proportionate compensation. Since the financial aid for knowledge allocation would be looked on as a
      solution to settle disputes surrounding patent, the mechanism is superstructed upon the quasi-judicial
      process in the WTO dispute settlement system, in particular the non-violation and situation complaints.
      Besides this WTO's system, the basic principle of the MIGA's policy for assurance coverage, i.e.,
      proportionate compensation for liability, would be also applicable to the knowledge allocation mechanism
      in an attempt to prevent two major drawbacks well recognized for regular insurances: moral hazard and
      adverse selection.

    ● Awarding assurance
      The disbursement phase of assurance envisages two forms of financial aid. In the first form, assurance
      would be granted to knowledge producers, e.g., innovators working with neglected diseases for public
      welfare rather than profit motive. In this case, the immediate beneficiary from patent assurance would be
      knowledge producers, which would be an embodiment of the concept of knowledge allocation over its
      producers. In another form, patent assurance would be also awarded to knowledge users, e.g.,
      impoverished patients needing essential medicines, which would correspond to knowledge allocation over
      its users. In both cases, unlike regular insurances, the immediate beneficiary of assurance would not be a
      patentee of assured patent or policyholder who paid premium. However, the policyholder would be the
      ultimate beneficiary by indirectly benefiting e.g., from licensing or selling patented knowledge, for which
      awarded assurance would allow the immediate beneficiary to pay.

      For both producers and users of knowledge, assurance awarding would be considered as funding for

                                                        - 45 -
September, 2010

      knowledge allocation. In this light, the disbursement phase of assurance would be potentially modeled
      after the operations of the World Bank and other multilateral development banks. Furthermore through
      possible partnerships with these organizations, IBI would learn from extensive consultations and
      professional advice about funding for knowledge allocation, and as well conduct cofinancing for
      knowledge allocation with such organizations in response to their requests.

In addition to these connections with WIPO, WTO MIGA and the World Bank, IBI would possibly cooperate with
a wide variety of relevant organizations such as WHO, UNEP, GEF, UNDP, UNCSD and UNCTAD as well as
non-governmental institutions such as the ICTSD.

4.1. Revenue Phase
As a realistic manner for its revennue, IBI would impose the patent assurance premium as a mandatory fee on
patent applicants and patentees whenever, like regular taxation, they pay the existing official fees to seek patent
right in other territories than their homeland, including fees for application, examination, response to office
actions during prosecution, issuing and maintenance of patent. Through the Patent Cooperation Treaty (see the
footnote for PCT) route, for instance, the WIPO International Bureau and local patent offices would collect the
premium during the international and national phases, respectively, and they would transmit collected premium to
IBI. When an applicant chose one of direct routes such as the Paris Convention and bi/multi-agreements (see
also the footnote for PCT), a local office would be solely responsible to collect the assurance premium and send
the collected premium to IBI.

While the patent assurance premium would be chargeable to any actions for nationals of one contracting state to
create patent and to uphold it within area under sovereignty of other contracting states, the same actions by the
nationals in their own territory would not be subject to the premium because a majority of potential beneficiaries
for the financial supports from IBI would be assumed to be users in developing states whereas major defrayers of
the guarantee premium would be inventers in developed states. Since the primary beneficiaries would likely be
developing nationals, legitimacy would be barely established in levy on patent of developed nationals in their own
territories, resulting in that imposition of the assurance premium on only foreign nationals' patent, as well as the
translation waiver and reduced price of official fee accompanied by the patent assurance premium, would form
the exceptions of the national treatment (see TRIPS 3).

4.2. Appraisal Phase
It is not surprising that the deliberation process over a request for financial assistance (claim for patent assurance)
would resemble the WTO's dispute settlement system in order to decide whether to accept or deny the request
because the financial mechanism to assist knowledge allocation would be one of the procedures to settle
international disputes over patent. The subsequent sections, therefore, design the process as a prototype in
analogy to the quasi judicial framework of the WTO's dispute settlement system though several key aspects are
completely different.

In this process for deliberation, not only government (as a similarity to WTO) but also qualified companies and
nongovernmental organizations (in analogy with MIGA) in public and private sectors of requestor Member who
needs the financial assistance would submit a request (claim for assurance) to a deliberation unit in IBI. Such
deliberation unit would possibly consist of the first instance (hereinafter referred to as the "Appraisal Panel") and
the appellate instance (hereinafter referred to as the "Appellate Commission"), which would correspond to the
trade dispute settlement Panel and the Appellate Body in the WTO system (see WTO, 2004a), respectively. In
contrast to the WTO's system, however, these appraisal authorities in IBI might be either an ad-hocracy or
standing body depending on the volume of claims for patent assurance, the budget scale for personnel in IBI and
the form of its creation, i.e., an entity affiliated with an existing organization or newly- and separately-established
institution.

The similarity of the IBI's deliberation process to the WTO's dispute settlement system would allow the process to
share the system's nature of promptness, compulsion and coherence with a strict time-line, which has performance
proven to make a decision based on rules rather than power diplomacy (see WTO, 2004b). Since the
deliberation process in IBI would run on rules, these rules must be carefully formulated in an objective and fair
manner. In addition to these features similar to the original dispute settlement system in WTO, the deliberation
process in IBI would bear its own provisions as discussed below.

                                                         - 46 -
September, 2010



(a) Requestor
In contrast to the "state-to-state" policy in the traditional dispute settlement mechanism of the WTO (see WTO,
2004c), not only one or more Member governments but also one or more regional and local governments,
qualified international organizations, their consortium and nongovernmental organizations as well as, if they were
most involved, private individuals, industries and sectors would be entitled to file a request for the financial
support (claim for assurance), including cofinacing of IBI with another international organization. This widened
eligibility would accord with the fact that, unlike the ordinary trade disputes, the deliberation process for
knowledge allocation would contain no defendant because this process is not genuine settlement of dispute,
meaning that a request by any parties for the financial support would create no obligation of response on any
Member states.

In light of divergent opinions among the WTO Members on attendance with the wider range of participants, in
particular non-governmental organizations (see WTO 2004d), at the current dispute settlement proceedings, other
requestors than Member governments might be hardly approved to broach a request in IBI. If however, IBI
allowed mostly-concerned people to directly request and receive financial supports, there would be no longer any
danger of embezzlement and corruption by government.

In addition to filing a request, Members would be encouraged to allow such newcomer actors to exert direct and
indirect influence through an appropriate procedure such as a petition. In a similar version to the US Trade Act
of 1974 §301 and the Trade Barriers Regulation of the EC, for instance, international organizations,
non-governmental organizations and private parties would be able to petition a Member government to bring their
request for the knowledge allocation toward IBI.

(b) Observer
Like eligibility opened for a broad range of requestors, any interested parties would be able to observe progress in
deliberation over financial support as long as they were qualified. This far broadened spectrum of observers
would conform with a similar reason to the eligibility of requestors, and it would furthermore enhance
transparency and fairness in the process. These observers would be able to file a "friend of the court" or "amicus
curiae brief (see WTO 2004d, in particular pp. 98-100)" to IBI whereas its deliberation unit has the discretion to
accept or reject it without obligation to consider it.

(c) Standing to Request the Financial Assistance
One of possible ways to formulate the conditions for a requestor to invoke the knowledge allocation mechanism is
integration of the concept for knowledge allocation into the so-called "dispute settlement provisions" of GATT
XXIII:1, which sets out the specific circumstances for three alternative complaints in its subparagraphs (a) the
violation complaint, (b) the non-violation complaint and (c) the situation complaint (see WTO 2004e).

As a consequence from this integration, a request for the financial measure to assist knowledge allocation would
take place when any eligible parties recognized that "any benefit accruing to one or more parties directly or
indirectly under international agreement for patent is being nullified or impaired or that the attainment of
knowledge liberalization is being impeded as the result of" blocked, obstructed, unpromoted or underpromoted
allocation of knowledge (GATT XXIII:1 with modification). The "blocked or obstructed allocation of
knowledge" would include any conditions where patent protection determinately or adversely affects distribution
of knowledge through compliance with the obligations of agreement for patent. The "unpromoted or
underpromoted allocation of knowledge" would cover any conditions where patent protection produces no or
unsatisfactory effect on accelerating knowledge dissemination.

In such conditions, any eligible parties would have the standing to file a request of financial support for
knowledge allocation over producers or users, or both. The requestor would be guaranteed a rules-based process
in which the merits of its request would be deliberate by the Appraisal Panel/Appellate Commission as long as the
requestor government, or a major beneficiary government when an international organization were a requestor,
complied with the obligations of international agreement for patent in good faith and imposed the patent
assurance premium on patent applicants and owners of its nationals.

Such deliberation process in the knowledge allocation mechanism would differ from the original dispute

                                                       - 47 -
September, 2010

settlement system of WTO in at least three aspects below.

Since, firstly, the process would not be authentic arbitration among conflicting parties such as the WTO's dispute
settlement, but be the appraisal of a request, it would contain no respondent or defendant whereas the requestor in
the deliberation process would correspond to a complainant in the traditional trade dispute settlement. It is
worthy of note that patent conflicts between a certain complainant and respondent, in particular a violation
complaint (GATT XXIII.1(a)) covered by the existing dispute settlement system in the WTO, must be out of the
scope of the knowledge allocation mechanism.

Secondly, the deliberation over knowledge allocation would rely on an analogy to the non-violation or situation
complaint pursuant to GATT XXIII.1(b) or (c) whereas the most common trade disputes have arisen from the
violation complaint (GATT XXIII.1(a)) because domestic legitimacy in conformity with the stipulations of
international agreement for patent would constitute a valid ground for the request of financial assistance. Since
the non-violation and situation complaints are not involved in a breach, the attribution of the knowledge allocation
to these complaints would allow the knowledge allocation mechanism to embrace a broader scope than other
public international law regarding an actual breach such as the ILC Articles (see e.g., ILC 12). At the same time,
the knowledge allocation mechanism would be narrower than such legislations in the sense that the obligations
and stipulations of international agreement for patent must result in the nullification, impairment or impediment
on the benefits or objectives of agreement.

Thirdly, very different from the existing process to settle trade disputes, the Appraisal Panel/Appellate Commission
in the knowledge allocation mechanism would have to consider the severity level or extent of the nullification,
impairment or impediment on the benefits or objectives of the TRIPS Agreement, and the Appraisal
Panel/Appellate Commission would furthermore have to carefully evaluate the assessment over anticipated amount
of requested assistance as well as the efficacy prediction and feasibility for the requested financial support to
successfully promote knowledge allocation over producers or users, or both, resulting in approaching the
achievement of the benefits or objectives of knowledge liberalization (further discussions see, Sections (g), (h)
and (i) below).

(d) Protection of Capital in IBI
These evaluations must be conducted in view of the balance of revenue and expenditure of IBI because its budget
would be limited and it might not be able to offer financial support to all requestors. In the event of deficiency
in its budget, the Appraisal Panel/Appellate Commission would advise that IBI would raise the patent assurance
premium. Alternatively, the Appraisal Panel/Appellate Commission would set priority on requests depending on
their levels of severity and grant the requests in order of the established priority, meaning that IBI would have to
assimilate advanced technologies of insurance engineering in cooperation with experienced institutions such as
the MIGA. Nevertheless, a rejected request must be rendered preferable to the flexibilities in the current frame
of patent protection if such request fulfilled all the requirements for financial support and its rejection were due
solely to lower priority (further discussions see, Section (k) below).

(e) Proportionate Compensation
As briefly discussed in the last section of Chapter 3, limited payment for assurance is stipulated in several
provisions of the MIGA Convention and the Commentary thereon as follows (citing these documents and MIGA's
Investment Guarantee Guide with modifications).

    ● MIGA Convention 16 (Terms and Conditions) states that "the Agency shall not cover the total loss of the
      guaranteed investment." Moreover, its Commentary 10 explains that "the Agency cannot cover under a
      contract of guarantee the total loss sustained by an investor. This provision is designed to discourage
      possible irresponsible conduct by investors relying on total loss cover (commonly referred to as "moral
      hazard"). In determining the appropriate percentage of possible indemnification, the Agency may find
      some guidance in the rules of national investment guarantee schemes which typically indemnify between
      70 and 95 percent of a loss." In order to avoid both moral hazard and default in effort, MIGA Convention
      17 (Payment of Claims) "require[s] holders of guarantees to seek, before a payment is made by the Agency,
      such administrative remedies as may be appropriate under the circumstances."

    ● In accordance with proportional payment of claims, the Investment Guarantee Guide details the amount of

                                                       - 48 -
September, 2010

      coverage. "For equity investments, MIGA can guarantee up to 90 percent of the investment, plus up to an
      additional 50 percent of the investment contribution to cover earnings attributable to and retained in the
      project. For loans and loan guaranties, MIGA generally offers up to 95 percent of the principal (or higher as
      determined on a case-by-case basis), plus up to an additional 150 percent of the principal to cover interest
      that accrues over the term of the loan. For technical assistance contracts and other contractual agreements,
      MIGA can insure up to 90 percent of the total value of payments due under the insured agreement (up to 95
      percent in exceptional circumstances)."

    ● In addition to the concept of proportional payment, the limits of guarantee is of importance in protecting
      capital of MIGA. From this perspective, Commentary 38 annotates "[u]nder accepted principles of
      insurance and banking, the incurring of aggregate liabilities in excess of the insurer's or bank's equity is
      permitted. The basis for this principle is that it cannot reasonably be expected that all guaranteed or insured
      risks will become losses. Under the Convention, this principle is applied to the Agency. Article22 (a)
      provides that the maximum aggregate amount of contingent liability which may be assumed by the Agency
      may not exceed one hundred and fifty percent of its subscribed capital and reserves as well as, possibly, a
      portion of reinsurance cover, unless the Council determines otherwise by special majority. Since the
      Agency is expected to build up its portfolio over time, the Board is called upon to review from time to time
      the actual spread of risks and the loss potential with a view to determining whether a higher riskasset ratio
      should be recommended to the Council."

    ● As another reason for setting the maximum in payment from MIGA, Commentary 39 elucidates "Article22
      (b)(i) provides that the Board may prescribe the maximum amount of contingent liability for all guarantees
      issued to investors of individual members. The objective of this provision is to maintain an equilibrium
      between the relative contributions of a member to the Agency and the benefits from the Agency accruing to
      its investors. In setting limits, the Board is required to give "due consideration" to a member's capital
      subscription; however, "due consideration" is also to be given to the need of applying these limits more
      liberally to developing member countries when they or their nationals invest in other developing members."

    ● Furthermore, Commentary 40 expounds "[another] category of limits may be established by the Board in
      order to achieve a viable overall spread of risk and to avoid undue concentrations of risk. Thus limits may
      be placed on the Agency's exposure with respect to the size of individual projects, total investments in
      individual host countries, types of investment or risk or other factors (Article22 (b)(ii)). Since these limits
      serve solely to diversify risk, any limit on investments in individual host countries is not to be affected by
      such countries' relative capital subscriptions.

These concepts observed above in MIGA would provide patent assurance with a model provision for limited or
proportional payment of claims. For instance, patent assurance would cover only primary value of patent to be
licensed and exclude its derivative ones in the case of royalty assumption for patent licensing. In assessing
liability in losing patent and determining a fair amount of assumption as compensation for deprivation of patent, a
price of royalty would not exceed the direct contribution of patent to commercial profits undoubtedly expected for
patented products. This contribution would not include indirect or unforeseeable profits from e.g., further
technical progresses the technology patented originally has induced. Moreover, the principal of right exhaustion
would be applied to calculating the amount of royalty assumption. From ordinary practices for contracting
technology transfer, such royalty would range from five percent to fifteen percent of net profits of products patent
protects (Nitta).

(f) Moral Harard and Adverse Selection
These requirements for patent assurance could be thought equivalent to coverage contracts in regular insurances
in an attempt to avoid two major drawbacks well recognized for them: moral hazard and adverse selection. As
with regular insurance contracts intending prevention of these drawbacks through restrictions on coverage, patent
assurance would need several clauses for granting assurance to condition proportional compensation for the
liabilities that intellectual property protection has caused.

A fundamental problem of regular insurances lies in the conflict between risk-sharing and compensatory benefit.
It is desirable to reduce the risk to that risk-averse parties are exposed by means of letting less risk-averse parties
carry more of the risk. The fact that this is efficiency-enhancing is evidenced by the insured parties' willingness

                                                         - 49 -
September, 2010

to pay insurance premium to be relieved of the risk. However, such efficiency-enhancing may have an influence
on the insured parties' incentives to avoid risk, which may cause the moral hazard. At the same time, the
higher-risk parties are generally motivated with the more keenness to subscribe insurance, resulting in too high
percentage of high-risk parties among subscribers at an unsound level, i.e., the adverse selection.

Like regular insurances, it is easy to foresee the moral hazard problems in the context of patent assurance.
Assured parties could be tempted to refrain from undertaking measures to prepare for possible impacts caused by
patent protection with expectation of availability of assurance when the impacts indeed surged. To avoid this
moral hazard, the scheme would have to encompass appropriate provisions for granting assurance. For instance,
assurance would be granted only when injury inter alia stemmed from patent protection in spite of exertions with
substantial preparation for possible impacts and effortful negotiation with a right holder. An optimal contract
without the moral hazard would likely restrict the coverage of assurance within a certain definite range of injuries
associated with patent protection. If however, any negative impacts were passed on domestic industries to a
significant extent, incentive for a country to pursue reasonable policies would be diminished. When in addition,
a disturbance emanated from abroad, it would less likely to be result from negligence by the country. Therefore,
the optimal contract should be determined well after a wide variety of profound discussions. In any case, a
prospective beneficiary has to establish causality of injury and patent protection in order to verify that it is really
the source of such injury. These requirements for granting assurance will be furthermore argued in the next
sections.

(g) Non-Violation-Based Request
The non-violation-based request would be a derivative from the non-violation complaint in the original trade
disputes (see WTO, 2004e). This type of request would be initiated when, due to compliance with the
obligations of international agreement for patent protection, one Member, possibly the Member requestor itself,
has adopted an measure for patent protection or several Members, possibly including the Member requestor itself,
have done an equivalent or similar measure in their individual territories, which at least one Member or
international organization requestor considered to conform with the agreement but to nullify, impair or impede
any benefits or objectives of the agreement (or disfavored benefits or objectives in short) as the result of blocked,
obstructed, unpromoted or underpromoted allocation of knowledge (or disfavored allocation in short) over
producers or users, or both. An exemplary target of the non-violation-based request to facilitate knowledge
allocation over users would be accessibility to patented medicines impeded with enforcement of patent protection.

Like the original non-violation complaints in trade disputes, submission of the non-violation-based financial
assistance would require its requestor to "present a detailed justification in support of any request relating to a
measure which does not conflict with international agreement for patent" (DSU 26.1 with modification). In
addition, the requestor would be obliged to prove the existence of disfavored allocation of knowledge and
resultant disfavored benefit or objective of the agreement, which would not be presumed in the
non-violation-based request while such prima facie presumption has been applied in the past violation complaints
as evolved in the GATT jurisprudence (Panel Report, Uruguay - Recourse to Article XXIII, para. 15) and today
codified in DSU 3.8.

(h) Situation-Based Request
The situation-based request would arise when, regardless of adopting a specific measure conforming with
international agreement for patent, at least one Member or qualified international organization felt that situation
surrounding patent affairs nullifies, impairs or impedes any benefits or objectives of the agreement (or disfavored
benefits or objectives in short) as the result of blocked, obstructed, unpromoted or underpromoted allocation of
knowledge (or disfavored allocation in short) over producers or users, or both even though the Member respected
the obligations complying with the agreement in good faith. Instead of causal relationship of a certain measure
in the non-violation-based request, a requestor for the situation-based financial assistance must focus on situation
revolving around intellectual properties.

As indicated in the negotiating history for the original situation complaints in trade disputes (see WTO, 2004e),
the situation-based request would allow for salvaging acute or chronic macroeconomic situation, which did not
improve disfavored allocation of knowledge or ameliorate disfavored benefit or objective of international
agreement for patent in a satisfactory manner. When, therefore, Members adopted measures obeying the
obligations of the agreement, which provided no or insufficient incentive for research over, e.g., the neglected

                                                        - 50 -
September, 2010

diseases due to difficult economic situation, any Member needing the medicines for these diseases or a relevant
international organization such as the WHO would be entitled to submit the situation-based request to promote
knowledge allocation over producers.

Given that international agreement for patent is the TRIPS Agreement, these requests for the non-violation-based
and situation-based financial measures could raise a new controversy over TRIPS 64.3, which mandated the
TRIPS Council to examine the scope and modalities for the non-violation and situation complaints in the TRIPS
Agreement during a moratorium of the first five years from the entry into force of the WTO Agreement (see WTO
2004f). Until this five-year deadline on the end of 1999, however, the TRIPS Council had failed to make any
progress. At their fourth ministerial session in 2001, the ministers of the WTO Members renewed the
moratorium and directed the Council to make a recommendation for the fifth session of the Ministerial
Conference, on which the fifth session was concluded without any action. This prolonged moratorium would be
terminated to realize the non-violation-based and situation-based financial assistance from IBI.

(i) Criteria for Claim of Patent Assurance
In accordance with what this writing has explored thus far, a requestor must evince, for a successful result with
claim for patent assurance;
     (1) full compliance with international agreement for patent protection and collecting patent assurance
          premium,
     (2) existence of disfavored allocation of knowledge over producers or users, or both and disfavored benefit or
          objective of the agreement which the disfavored allocation has caused,
     (3) causality between patent protection and the disfavored allocation of knowledge over producers or users, or
          both as well as the resulting disfavored benefit or objective of the agreement, and
     (4) prior to filing a request, a substantive effort to achieve knowledge allocation via the usual methods such as
          volume discount and cross licensing, and sufficient preparation for prospective impacts by patent
          protection.

In addition to these criteria, a requestor would have to clarify in a convincing manner;
    (5) sound assessment for the severity level or extent of damage over disfavored allocation of knowledge over
         producers or users, or both and the resulting disfavored benefit or objective of the agreement,
    (6) reasonable estimation for the duration and scale over the requested financial assistance in order to
         sufficiently improve the disfavored allocation of knowledge over producers or users, or both, and as a
         result to ameliorate the disfavored benefit or objective of the agreement in a satisfactory manner,
    (7) the total amount of financial assistance equivalent to or less than compensation proportional to liability in
         the direct value of patent, and
    (8) solid efficacy prediction and feasibility for the requested support to accomplish improvement and
         amelioration with best-achieved allocation of knowledge over producers or users, or both for the largest
         public benefit possible rather than profits in market.

These proofs over existence of disfavor, causality of disfavor and law, assessment for disfavor, estimation for
financial assistance and feasibility could be accomplished in an established manner for respective agreements in
the WTO Agreement Annex 1A regarding exceptions (GATT XX and SPS/TBT) and trade remedies (AD, CVD
and SG).

The minimum level of these improvement and amelioration would be defined so as to achieve the benefits and
objectives accruing to the requestor directly or indirectly under international agreement for patent with
satisfaction of the requestor. The estimation over the needed financial assistance would be assessed
prospectively rather than retroactively in accordance with a general rule for not a public international law for
breach (e.g., ILC 35) but trade dispute cases in the WTO system (see WTO, 2004g). In this rule, in order to
avoid an extortionate volume of financial assistance, the estimation would usually cover only the time-period after
the beginning of financial assistance, not the whole period during which the disfavored allocation of knowledge
has taken place.

(j) Proof and Review
Burden of Proof: As stated in the Appellate Body Report, US - Wool Shirts and Blouses (WT/DS33/AB/R) (see
also, WTO, 2004h) for the ordinary trade-relating complaints, the burden of proof "would rest upon the party,

                                                        - 51 -
September, 2010

whether a complainant or defendant, who asserts the affirmative of a particular claim or defence in line with the
practice of various international tribunals." This text suggests that, in the deliberation process for the
knowledge allocation mechanism, the party claiming the request, i.e., the requestor, would have to assert and
prove its claim before the Appraisal Panel/Appellate Commission of IBI. Unlike trade-relating complaints,
however, the deliberation process would exclude a defendant. Therefore, the burden of proof would not be
transferred from the requestor to a defendant.

Level of Proof: This absence of a defendant would allow the deliberation in the knowledge allocation mechanism
to embrace its unique procedure for the level of proof. The Appraisal Panel/Appellate Commission would compel
the party bearing the burden of proof, i.e., the requestor, to put forward evidence sufficient to make a prima facie
case for the request submitted. In turn, onus probandi would shift to not a defendant but the Appraisal
Panel/Appellate Commission when such prima facie case were established. Unless the Appraisal Panel/Appellate
Commission presented sufficient evidence to disprove the evidence and rebut the presumption, the
Panel/Commission would fail to deny the request and have to accept it. This transfer of onus of proof from the
requestor to the Appraisal Panel/Appellate Commission would entitle it to seek further information from any
appropriate source in order to explore the evidence (see DSU 13, also WTO 2004i). Such ex-officio right of the
Appraisal Panel/Appellate Commission would be broad and comprehensive and its exercise would be left to the
discretion of the Panel/Commission, which would be supported by the conventional trade dispute precedents, e.g.,
the Appellate Body Report, US - Shrimp (WT/DS58/AB/R).

Standard of Review: In line with DSU 11, the Appraisal Panel/Appellate Commission would be mandated not de
novo review (i.e., the complete repetition over evidences placed by a requestor, used mainly in criminal trials) or
"total deference" (i.e., the simple acceptance over results by a requestor, used mainly in civil trials), but the
"objective assessment" over evidences of the criteria for a request (see also, WTO, 2004j). This standard would
mean that the Panel/Commission must assess whether a requestor had fair examined all the relevant evidences and
provided a reasoned explanations of how the evidences support the request. The Appraisal Panel/Appellate
Commission would have to critically examine the requestor's explanation as to whether it fully addressed the
nature and the complexities of the evidences, and responded to other plausible interpretation of the evidences.

Once the Appraisal Panel/Appellate Commission failed to demolish the prima facie evidences convincing the
Panel/Commission that given evidence is true, the request for financial support would be granted as a "tentative
decision endorsed." However, this decision would be possibly reversed owing to limitation over budget in IBI as
already discussed in Section (d) above. If the endorsed request were revoked solely for budgetary reason, a
requestor Member would be accorded priority to invoke the flexibilities legitimated with the current international
framework for patent protection. For this priority, the Appraisal Panel/Appellate Commission would be able to
issue a written admonition suggesting an appropriate measure among the flexibilities for the rejected Member.
Although this admonition would neither be mandatory for the Panel/Commission nor binding on the Member,
such admonition would be preferred if the Appraisal Panel/Appellate Commission were able to develop it.

(k) Flexibilities
Since the absolute objective of the knowledge allocation mechanism is not to make a decision on a request for
financial assistance but to improve circumstances unfavorable for a requester who has not benefited sufficiently or
at al with the current international framework for patent protection, the mechanism would have to allow the
requestor to resort to the traditional flexibilities recognized in patent regime when the request were denied. One
of such flexibilities stipulated in the TRIPS Agreement is the remedy measure under TRIPS 31 and 31bis and
relevant decisions following the Doha Declaration, which is temporary and typically includes generic producing
and its importing under compulsory licensing. Another flexibility appearing in the TRIPS Agreement is the
exception under TRIPS 30, which is a standing action such as the Bolar exemption for research tools.

These remedy and exception in the TRIPS Agreement would both be applicable at all times, i.e., even before or at
the same time of a request for financial assistance as long as the requirements in the Agreement were fulfilled, in
particular "in the case of a national emergency or other circumstances of extreme urgency" (TRIPS 31(b)) and
"provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not
unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of
third parties" (TRIPS 30). However, the application of these TRIPS remedy and exemption would have to be
revoked once the request were granted for the financial assistance.

                                                       - 52 -
September, 2010



(l) Consultation
Although a rejected request could be modified during the appellate process, the appeal would be limited to legal
questions in order to prevent duplicative work by the Appraisal Panel and the Appellate Commission (see DSU 17.6).
Since the Appellate Commission would not review the facts and evidences discovered by the Appraisal Panel, it
would be of importance both to satisfactorily evaluate the existences, causalities, assessments, estimations and
feasibilities of a request in question and to modify the request in the event of necessity throughout repeated
consultations with the Appraisal Panel/Appellate Commission, which a higher body supervising IBI would mediate
before the final decision of the Panel/Commission, especially including consideration over the financial scale of
the request in light of the budgetary limitation in the IBI.

Such consultations would be encouraged during deliberating and even before submitting the request in accordance
with one of the major tasks expected for a higher body supervising IBI in a similar fashion to the present TRIPS
Council as well as the original objective of the consultation stage in the conventional dispute settlement
mechanism. Namely, TRIPS 68 stipulates its Council to "afford Members the opportunity of consulting on
matters relating to the trade-related aspects of intellectual property rights" and to "provide any assistance
requested by Members in the context of dispute settlement procedures." The same concept would legitimate the
consultation in IBI with a requestor over the financial support it needs in the knowledge allocation mechanism.

A higher body supervising IBI, ex facto, would discharge its function of the consultation to the Appraisal Panel
when it were formed or otherwise the Appellate Commission of IBI. In the WTO's system, DSU 4.5 provides
Members an opportunity for mandatory consultations of complainant and defendant Members before establishing
a panel and such opportunity remains at any later stage. This stipulation would alike justify the consultation in
the knowledge allocation mechanism where a requestor and the Appraisal Panel/Appellate Commission would talk
together in order to adjust and modulate the request of financial support before filing the request or later any time.
The actors in this consultation would be the requestor and the Appraisal Panel/Appellate Commission instead of a
defendant because the knowledge allocation mechanism would exclude a defendant and the Panel/Commission
would serve as a defendant.

(m) Rebalance Benefits
Arguments above design the knowledge allocation mechanism, including the deliberation process for a request of
financial assistance, by making an analogy to the quasi judicial framework in the WTO dispute settlement system.
Some of characteristics well recognized in this framework are its compulsory and automatic nature, in particular
by "reverse" or "negative" consensus with specific time-frames, which is a result from the history of diplomatic
negotiations during the Uruguay Round, i.e., the concession of the US on its unilateral trade sanction under the
Trade Act §301 and that of the EC on the veto in the settlement system. Such result also includes the mechanism
to "rebalance benefits" based on interests and priorities of individual Members, which has been reaffirmed in
several reports Panel/Appellate Body issued (e.g., Panel Report for EEC - Oilseeds I, para. 144). These results
would be handed down to the TRIPS Agreement by possible second amendment of it to create the knowledge
allocation mechanism, following the Doha Declaration in 2001 leading to the first amendment of the Agreement
and even the solo amendment ever adopted in the WTO treaties as a whole.

4.3. Adoption and Disbursement Phases
Although the Appraisal Panel/Appellate Commission reached a decision, presumably one of three options: approval
on a request of financial support, approval tentatively endorsed but finally revoked due to the budget limitation in
IBI, or rejection based on the substance of a request, any decision would only become binding when a political
higher body supervising IBI adopted it. During a definite period after circulating a decision by the Appraisal
Panel/Appellate Commission, such higher body would adopt it in any event unless the decision were thrown out in
a manner of negative (or reverse) consensus, or a requestor could not accept the decision and formally notified an
appeal. This procedure of adoption by negative consensus would be without prejudice to the right of Members
to express their views on the decision of the Appraisal Panel/Appellate Commission (see DSU 16.4 and 17.14).

In contrast with these similarities in adoption, the knowledge allocation and dispute settlement mechanisms would
differ from one another at least in two features. Firstly, the decision by the Appraisal Panel/Appellate Commission
of IBI in the knowledge allocation mechanism would be adopted by negative consensus though the mechanism
would heavily rely on the original situation complaints over trading, in which a rule of positive consensus applies

                                                        - 53 -
September, 2010

at the stage of adopting a panel report (BISD 36S/61-67) and DSU 26.2 implicitly excludes the possibility of an
appeal against a panel report. Secondly, a higher body supervising IBI would adopt only the Panel/Commission's
ruling over a request for financial assistance but not the written admonition issued by the Panel/Commission to
suggest flexibility because the admonition would have to be indeed respected but it would merely be a voluntary
indication by the Panel/Commission without any binding and obligation over Members whereas in the traditional
dispute settlement, all relevant documents are adopted together.

Once a higher body supervising IBI approved and authorized a financial assistance, IBI would inaugurate
disbursement of the financial assistance to a requestor government or international organization. Such
disbursement would include two forms. In the first form, the financial assistance would be offered to knowledge
producers, e.g., innovators working with neglected diseases for public welfare rather than profit motive. In this
case, the immediate beneficiary of financial aid would be knowledge producers, which would be an embodiment
of the concept of knowledge allocation over its producers. In the second form, financial aid would be provided
to knowledge users, e.g., impoverished patients needing essential medicines, which would correspond to
knowledge allocation over its users. In both cases, the immediate beneficiary of financial aid would be different
from a patentee who paid premium. However, the patentee would be the ultimate beneficiary by indirectly
benefiting from the license of patented knowledge, for which the immediate beneficiary would pay from the
financial assistance IBI disbursed.

Following the disbursement, the requestor would be obligated to supervise and ensure the implementation of
knowledge allocation whereas IBI would be responsible for monitoring how the financial assistance is used and
whether the stipulations of granting are fulfilled. On a predetermined date during the implementation and after
its completion, IBI would issue an interim and final report on the progress and accomplishment of knowledge
allocation as well as its advantages and disadvantages, problems caused and lessons learned. Such monitoring is
an analogy to one of the most predominant ongoing tasks of the TRIPS Council, which is the monitoring of
Members' compliance with the TRIPS' obligations pursuant to TRIPS 68. In particular, TRIPS 63.2 obliges
Members to notify to the Council their domestic legislation in conformity with the TRIPS Agreement.


References and Notes
BISD 36S/61-67 see Decision of 12 April 1989 on Improvements to the GATT Dispute Settlement Rules and Procedures

DSU 4.5 (Consultations) reads "[i]n the course of consultations in accordance with the provisions of a covered agreement, before
  resorting to further action under this Understanding, Members should attempt to obtain satisfactory adjustment of the matter."

DSU 11 (Function of Panels) reads "[t]he function of panels is to assist the DSB in discharging its responsibilities under this
  Understanding and the covered agreements. Accordingly, a panel should make an objective assessment of the matter before it,
  including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered
  agreements, and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided
  for in the covered agreements. Panels should consult regularly with the parties to the dispute and give them adequate
  opportunity to develop a mutually satisfactory solution."

DSU 13.1 (Right to Seek Information) reads "(e)ach panel shall have the right to seek information and technical advice from any
  individual or body which it deems appropriate. However, before a panel seeks such information or advice from any individual or
  body within the jurisdiction of a Member it shall inform the authorities of that Member. A Member should respond promptly and
  fully to any request by a panel for such information as the panel considers necessary and appropriate. Confidential information
  which is provided shall not be revealed without formal authorization from the individual, body, or authorities of the Member
  providing the information."

ILC 12 (Existence of a Breach of an International Obligation) reads "[t]here is a breach of an international obligation by a State
  when an act of that State is not in conformity with what is required of it by that obligation, regardless of its origin or character."
  In addition, the commentary (2) to this article reads "the breach of an international obligation consists in the disconformity
  between the conduct required of the State by that obligation and the conduct actually adopted by the State - i.e. between the
  requirements of international law and the facts of the matter."

DSU 16.4 (Adoption of Panel Reports) reads "[w]ithin 60 days after the date of circulation of a panel report to the Members, the
  report shall be adopted at a DSB meeting unless a party to the dispute formally notifies the DSB of its decision to appeal or the
  DSB decides by consensus not to adopt the report. If a party has notified its decision to appeal, the report by the panel shall not
  be considered for adoption by the DSB until after completion of the appeal. This adoption procedure is without prejudice to the
  right of Members to express their views on a panel report."

DSU 17.14 (Appellate Review) reads "[a]n Appellate Body report shall be adopted by the DSB and unconditionally accepted by the
  parties to the dispute unless the DSB decides by consensus not to adopt the Appellate Body report within 30 days following its
  circulation to the Members. This adoption procedure is without prejudice to the right of Members to express their views on an
  Appellate Body report."

DSU 26.2 (Complaints of the Type Described in Paragraph 1(c) of Article XXIII of GATT 1994) reads "[w]here the provisions of
  paragraph 1(c) of Article XXIII of GATT 1994 are applicable to a covered agreement, a panel may only make rulings and

                                                                  - 54 -
September, 2010

  recommendations where a party considers that any benefit accruing to it directly or indirectly under the relevant covered
  agreement is being nullified or impaired or the attainment of any objective of that Agreement is being impeded as a result of the
  existence of any situation other than those to which the provisions of paragraphs 1(a) and 1(b) of Article XXIII of GATT 1994 are
  applicable. Where and to the extent that such party considers and a panel determines that the matter is covered by this
  paragraph, the procedures of this Understanding shall apply only up to and including the point in the proceedings where the panel
  report has been circulated to the Members. The dispute settlement rules and procedures contained in the Decision of 12 April
  1989 (BISD 36S/61-67) shall apply to consideration for adoption, and surveillance and implementation of recommendations and
  rulings. ---"

ILC 17.6 (Appellate Review) reads "[a]n appeal shall be limited to issues of law covered in the panel report and legal interpretations
  developed by the panel."

ILC 35 (Restitution) reads "[a] State responsible for an internationally wrongful act is under an obligation to make restitution, that is,
  to re-establish the situation which existed before the wrongful act was committed, provided and to the extent that restitution: (a) is
  not materially impossible; (b) does not involve a burden out of all proportion to the benefit deriving from restitution instead of
  compensation." In addition, the commentary (1) to this article reads "[r]estitution involves the re-establishment as far as possible
  of the situation which existed prior to the commission of the internationally wrongful act, to the extent that any changes that have
  occurred in that situation may be traced to that act. In its simplest form, this involves such conduct as the release of persons
  wrongly detained or the return of property wrongly seized. In other cases, restitution may be a more complex act."

MIGA's Investment Guarantee Guide available at http://www.miga.org/documents/IGGenglish.pdf

Nitta, in accordance with practical experiences by the author

PCT (Patent Cooperation Treaty) is administrated by WIPO, which provides a uniform route for innovators to seek patent in different
  countries other than their homeland. Through the PCT route, at first innovators file an application with a local patent office in
  their country, and then the application migrates into the "international phase" by international filing with a competent patent office.
  The competent office sends to the WIPO International Bureau the international application, which is subjected to an international
  search. All theses steps in the international phase are organized by the International Bureau under the centralized and
  standardized procedures. Following the international phase, the application enters into the "national phase" by filing translation
  thereof in language of each country where innovators designate and desire to establish a patent right. Based on such translation,
  the application in the national phase is separately ruled by individual patent offices in each designated country. In spite of the
  international search report and the international preliminary examination report, each country's patent office conducts a search and
  exams patentability of the application and makes their own decision pursuant to their patent laws and practice. In addition to this
  PCT route, there are two other routes to establish a patent right outside innovator's homeland: the Paris Convention and
  bi/multi-agreement routes. Through these routes, innovators file a patent application directly and separately in all of individual
  countries by their languages while maintaining the priority of filing date in homeland.

TRIPS 63.2 (Transparency) reads "Members shall notify the laws and regulations referred to in paragraph 1 to the Council for
  TRIPS in order to assist that Council in its review of the operation of this Agreement. ---"

TRIPS 68 (Council for Trade-Related Aspects of Intellectual Property Rights) reads "[t]he Council for TRIPS shall monitor the
  operation of this Agreement and, in particular, Members' compliance with their obligations hereunder, and shall afford Members
  the opportunity of consulting on matters relating to the trade-related aspects of intellectual property rights. It shall carry out
  such other responsibilities as assigned to it by the Members, and it shall, in particular, provide any assistance requested by them in
  the context of dispute settlement procedures. In carrying out its functions, the Council for TRIPS may consult with and seek
  information from any source it deems appropriate. In consultation with WIPO, the Council shall seek to establish, within one
  year of its first meeting, appropriate arrangements for cooperation with bodies of that Organization."

WTO, 2004a, "A Handbook on the WTO Dispute Settlement System," WTO, pp. 17-27 (WTO Bodies Involved in the Dispute
 Settlement Process)

ibid., 2004b, "A Handbook on the WTO Dispute Settlement System," WTO, pp. 2-8 (Functions, Objectives and Key Features of the
   Dispute Settlement System)

ibid., 2004c, "A Handbook on the WTO Dispute Settlement System," WTO, p. 9 (Participants in the Dispute Settlement System)

ibid., 2004d, "A Handbook on the WTO Dispute Settlement System," WTO, pp. 97-100 (Participation in Dispute Settlement
   Proceedings)

ibid., 2004e, "A Handbook on the WTO Dispute Settlement System," WTO, pp. 29-35 (Types of Complaints and Required Allegations
   in GATT 1994)

ibid., 2004f, "A Handbook on the WTO Dispute Settlement System," WTO, p. 36 (Types of Dispute in the TRIPS Agreement)

ibid., 2004g, "A Handbook on the WTO Dispute Settlement System," WTO. On page 82, "[t]he level of suspension of obligations
   authorized by the DSB must be "equivalent" to the level of nullification or impairment (Article 22.4 of the DSU). This means that
   the complainant's retaliatory response may not go beyond the level of the harm caused by the respondent. At the same time, the
   suspension of obligations is prospective rather than retroactive; it covers only the time-period after the DSB has granted
   authorization, not the whole period during which the measure in question was applied or the entire period of the dispute."

ibid., 2004h, "A Handbook on the WTO Dispute Settlement System," WTO, pp. 105 and 106 (Burden of Proof)

ibid., 2004i, "A Handbook on the WTO Dispute Settlement System," WTO. On page 106, "Article 13 of the DSU entitles panels to
   seek information from any appropriate source for the exploration and establishment of the facts necessary to adjudicate in a
   dispute. This right is broad and comprehensive and its exercise is left to the discretion of the panel. One aspect of Article 13 is
   the panel's right to resort to experts. In addition, Article 13 has been understood as an unconditional right which includes the
   panels' right to request and obtain information from the Members who are party to the dispute."

ibid., 2004j, "A Handbook on the WTO Dispute Settlement System," WTO.          On pages 103 and 104, "[a]s to the establishment of the


                                                                 - 55 -
September, 2010

  facts in a case, this "objective assessment" has been understood as mandating neither a de novo review (i.e. the complete
  repetition of the fact-finding conducted by national authorities) nor "total deference" to domestic authorities (i.e. the simple
  acceptance of their determination)."

WT/DS33/AB/R, p. 335

WT/DS58/AB/R, paras. 104 and 106




                                                                 - 56 -
September, 2010

CHAPTER 5
INSTITUTIONAL MODEL

To envision IBI in this chapter, three leading institutions: the World Bank/MIGA, WTO and WIPO could be
conceived as a prototype. The World Bank/MIGA share functional similarity with IBI in that the Bank provides
financial assistances to developing countries and MIGA guarantees the investments that developed countries have
thrown into developing countries while IBI would offer financial assistances to allocate patented knowledge and
products in favor of developing countries and, at the same time, ensure the patent rights that developed countries
invested and established in territories of developing countries. Furthermore, WTO is heavily involved in IP
issues through the TRIPS Agreement, and WIPO is more like a rather neutral administrative bureau with less
policy and advanced operations to collectively maintain 23 treaties regarding IP at the moment.

As a result of below exploring these three institutions, WTO would likely have higher eligibility in affiliating IBI
due to WTO's characteristics of a member-driven, equally-represented and rule-based organization. This result is
also supported by the fact that the financial assistances from IBI would be indeed one of the financial measures to
settle disputes over patent, which the WTO dispute settlement mechanism would potentially encompass. More
specifically, IBI would be possibly created in a form of a separated institution based on WTO, an affiliated
institution in WTO or an assembled institution with several organizations primarily including WTO, which would
be associated with strong technical backups by WIPO and close cooperation with the World Bank/MIGA, and a
wide range of other relevant organizations such as the UNCTAD, the WHO and the UNEP.

5.1. Governance of the World Bank/MIGA and WTO
As a common form of sovereignty among international economic institutions, the World Bank, and the MIGA
alike as an affiliated entity of the World Bank Group, rest on a power-based structure. These institutions are
owned by their Members or shareholders through capital subscription. The power of each Member is delegated
to a board of directors, on which a small number of major stockholders, i.e., leading developed countries are
directly represented by their own directors whereas a majority of all other countries are grouped and collectively
represented by one director for each group.

WTO has different governance from the World Bank Group, i.e., a negotiations-based structure, which is
equivalent to uniform representation by all Members and more democratic than the Bank Group at least in theory.
In other words, WTO is essentially a forum, in which Members are equally represented in its conference, councils
and bodies, and which would be potentially preferable to developing nations, in turn IBI, rather than the World
Bank Group.

5.2. Driving
Based on the project-lending model, the World Bank intrinsically engages in policy-driven financing. The Bank
is also illustrated as a staff-driven institution because such financing is identified, designed, appraised and
monitored on the initiative of Bank staffs. These drivers are manipulated by the vision of major shareholders in
the Bank, i.e., developed Members through decision making by weighted voting. In addition, approval of all
projects staff designed is conducted by the Board of Executive Directors, which also has weighted appointment.
Obviously, these drivers in the World Bank would be unfavorable to IBI because most of potential beneficiaries
form IBI would be developing Members.

Since the MIGA shares many conceptual and structural similarities with the World Bank, their guarantee coverage
and its issues as well as insurance payments are regulated by the scope of industrialized Members with a similar
fashion to the World Bank. This leadership by developed countries has functioned well so far in the operation of
the MIGA because, in that institution, major Members of both capital subscribers (fund donors) and guarantee
beneficiaries (fund acceptors) are developed countries whereas lenders (fund donors) and borrowers (fund
acceptors) in the World Bank are developed and developing Members, respectively. That is to say, the actors of
the MIGA are solely developed nationals and developing countries merely provide place where such actors play,
meaning that the MIGA has no experience in acting with developing nationals and it is totally uncertain that the
framework of the MIGA is applicable to the actions of developing nationals.

On the other hand, WTO is sometimes described as a "member-driven" institution in the sense that Members
negotiate and ratify trade agreements among themselves while leaving secretariats to provide administrative and

                                                       - 57 -
September, 2010

technical supports. This structure is more directly represented by Members than the World Bank Group because,
at least in principle, all Members are equally involved in making a decision at any levels. Such initiative by
Members, in IBI, would be indispensable in the quasi-judicial deliberation of requests for financial assistance
because those requests would be broached by not secretariats but Members, who would themselves conceive of,
appraise and grant the requests.

5.3. Decision Making
The World Bank, and the MIGA also, make a decision principally by weighted voting, which cannot be farther
away from equitable representation by each Members. Specifically, the voting power of each director is
determined by the shares of capital subscriptions held by the Member that the director represents. Although the
weighted voting plays little role in making a decision to continue day-to-day management of the institution, such
system affects overall the operations of project lending in many tangible and intangible forms.

In contrast, WTO runs by consensus among all Members, not their voting. The main advantage of such process
is that the decisions made by consensus are theoretically a product of equitable representation by Members and
rather acceptable to them though reaching decisions by consensus among all Members can be difficult. To
circumvent this difficulty, informal consultations or meetings in the "Green Room" prior to formally making a
decision play a vital role in bringing a vastly diverse membership round to an agreement. In the past, however,
these informal meetings have provoked much criticism that the reality in the WTO decision-making has differed
so much from democratic, transparent and accountable process because, in the Green Room, the "Quad" countries
with strong economic power have dominated negotiations and enjoyed significant input and influence over
decisions.

However, the recent way of negotiations in WTO is becoming rather democratic because weaker Members
sometimes form a coalition to enhance their bargaining power. All Members in such coalition can be
represented when a coordinating country and other leading countries are present, meaning that this process has
sufficient transparency and inclusiveness as long as the coordinating country keeps its coalition informed,
continues to talk with all participants and takes the position decided within its alliance. One of the most
successful antecedents of such alliance is the Doha Declaration on the TRIPS Agreement and public health where
weaker Members established a coalition with coordination by Zimbabwe (IP/C/M/30, page 67), and they
maintained it throughout negotiation and eventually outmaneuvered stronger Members. Although those stronger
Members remain influential in WTO, a transformation processes gradually but steadily.

5.4. WTO Dispute Settlement Mechanism
As argued above, the features in governing, driving and decision making in WTO evince its feasibility that the
institution would lend itself better to the affiliation of IBI rather than the World Bank/MIGA. In particular, the
dispute settlement mechanism in WTO would deserve to serve as a review section in IBI for appraisal or
deliberation over the request or application of a financial support from IBI due to the nature of the mechanism
with a prompt and binding process to reach consensus.

WTO operates upon the belief that a decision made by consensus, i.e., a decision taken collectively through
equitable representation by Members, achieves more acceptable, implementable and thus stable legitimacy than a
decision made by majority voting, especially weighted voting. At the same time, no less important is the fact
that consensus inherently makes an institution susceptible to paralysis. The real issue, however, is not consensus
itself but difficulty in creating a process with enough promptness and transparency to lead to consensus
accountable to Members.

The WTO dispute settlement mechanism is an example of such process, in which quasi-judicial deliberation is
conducted by an appraisal section to make a decision by consensus of a small number of committees justly
appointed regardless of Member affiliation. This appraisal section should be independent from any Members,
and their appraisal should rely not on the power of Members but on solely a rule, which, together with its
interpretations and precedents well elaborated, is formulated with exquisite analysis of present state and rational
future vision, and is democratically amendable in response to demands and changes in society. Under such a
rule, a decision should be made swiftly and accountably by an appropriate procedure, including, e.g., the negative
consensus.


                                                       - 58 -
September, 2010

The ruling of the WTO dispute settlement mechanism has thus far drawn continuous criticism, which has arisen in
large part from humanitarian and environmental concerns without intent, as a noteworthy fact, to defend
developing countries against developed ones. In other words, the past ruling in the WTO dispute settlement has
not always favored developed countries such as the United States, which has faced a series of lost cases. This
fact attests that the decisions in the WTO dispute settlement mechanism have been made in accordance without
power of Members but with the rule they agreed with. This "ruling by a rule" has been repeatedly underscored
in several leading cases such as the tuna-dolphin and shrimp-turtle cases, which the United States lost against
Mexico, and India, Malaysia, Pakistan and Thailand, respectively. Although these rulings remain divisive over
humanitarian and environmental issues, such controversies derive from the premise of ruling, e.g., jurisdiction,
applicable law and its interpretation, rather than defect or flaw of the process itself in the WTO dispute
settlements. This means that the WTO dispute settlement mechanism would likely provide an institutional
blueprint to design IBI if the premise of the mechanism coincided with the demands of society and coped with
their change.

5.5. WIPO
In comparison with the World Bank/MIGA and WTO, WIPO is rather a politically-inexperienced institution,
which as a result has scarcely encountered political disputes and would have less advantage in laying the
groundwork for IBI. Although WIPO has significantly considered and influenced a wide range of IP politics, its
arguments heavily relate to practices in IP management and thus provoke few disputes whereas the World
Bank/MIGA and WTO have developed policies regarding more fundamental and sensitive principle having a
profound impact on society. Because of its little experience in ruling disputes over substantive policies rippling
across the economy of Members, WIPO would not be good enough to resolve a conflict when Members were at
odds over the running of IBI on its policy matters and more specifically, e.g., the grant of a request for financial
assistance.

The principal function of WIPO is to facilitate constructing various infrastructures for IP management in both
developed and developing countries. For developed countries, WIPO provides international service of IP
registrations, streamlines such service and creates advanced mechanisms competent for a remarkably increased
volume of applications while retaining the original mission of BIRPI (les Bureaux Internationaux Reunis pour la
Protection de la Propiete Intellectuelle) or the international secretariats for the Paris and Berne Conventions.
For developing countries, WIPO assists them in consolidating IP legislation, institutions, administrative structures
and personnel, with in particular the aim of implementing the TRIPS Agreement in close cooperation with WTO.
In this cooperation WIPO has expanded methodologies to support the execution of the TRIPS agreement in
developing countries; however, the institution has hardly investigated sa raison d'être of the agreement, or more
generally the IP protection itself for the developing world. Since WIPO takes the protecting of IP for granted
and skips controversial discussions over the IP regime, the organization has few chances of involving and settling
disputes over divisive IP issues.

In order to address emerging issues such as traditional knowledge, folklore, biological diversity, genetic resources,
environmental protection and digital technology, WIPO has established several internal bodies. Such bodies
include the Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge
and Folklore and the Committee on Development and Intellectual Property to elaborate the WIPO Development
Agenda. Another example is the Arbitration and Mediation Center, which covers the misuse of domain names
on internets. However, these bodies aim not at engaging in debates but at only providing a platform for debates,
developing methods and accelerating processes. In addition, the Standing Committee on the Law of Patents, one
of three highest standing committees in WIPO, and most of other bodies focus on IP legislation and procedure as
well as the structural reform of WIPO. Since these bodies do not have the capacity to reconcile conflicting
interests of different Members, WIPO would be required to contain such capacity if the organization incorporated
IBI.




                                                       - 59 -
September, 2010




                                                       Ministerial Conference


                        Trade Policy Review Body           General Council         Dispute Settlement Body


                                                                Result of Deliberation    - Appellate Commission
 GATT Council         GATS Council                                                          (Appellate Body)
                                              TRIPS Council           Adoption            - Appraisal Panel
                                                                                            (Dispute Settlement Panel)
                                                                    Consultation

                                                 WIPO International Bureau                Submission     Consultation
                                                                                             of
                                                       World Bank                          Request
                                                                                                              IBI
                                         Premium         Financial Assistance

                                              Members                                    Requestor

                                                              Consultation

Box 4:
International Bank for Innovation (IBI): Knowledge Allocation Mechanism in the WTO Framework.

IBI would be an entity managing the financial mechanism to promote the knowledge allocation, which would be newly
introduced into the WTO system. This knowledge allocation mechanism would operate through a dual structure in WTO:
IBI would be supervised by the TRIPS Council as a political body and its practical operation would be executed by the
existing trade-dispute settlement Panel and Appellate Body as non-political and quasi-judicial bodies for the deliberation
over a request of financial assistance. Such dual structure would conform with the fact that the financial assistance for the
knowledge allocation would be viewed as a process to settle disputes regarding the TRIPS Agreement.

In this dual structure, a request for financial assistance would be reviewed by the Appraisal Panel and the Appellate
Commission in the event of an appeal by a requestor Member, which are alter ego of the traditional Panel and the
Appellate Body for the trade dispute settlements, respectively when these traditional bodies administrate the request of
financial assistance for knowledge allocation. In the form of the Appraisal Panel and Appellate Commission, the original
Panel and Appellate Body would serve as a non-political and quasi-judicial executive board in IBI to oversee the
deliberations for granting a financial assistance In contrast to the ordinary settlement process in trade disputes, however,
not the Dispute Settlement Body (DSB) but the TRIPS Council would adopt a conclusion of these deliberation bodies in a
reverse-consensus manner because the political and supervision body of IBI would be not the DSB but the TRIPS Council.
Due to the same reason, the Appraisal Panel and Appellate Commission would be expected to examine interpretation of the
provisions for granting a financial assistance, but not to exercise their authority to adopt authoritative interpretation of the
provision or yet not to develop or amend it per se, on which only the Ministerial Conference is empowered based on an
advice from the TRIPS Council.

For the sake of a successful result from the deliberation over a financial assistance, a requestor Member would be
encouraged to consult with the TRIPS Council in order to modify or adjust the contents in the request, including the
financial scale of assistance, as necessary so that the request would fulfill the criteria of granting a financial assistance
during its deliberation or even before submitting it. The TRIPS 68 (Council for TRIPS) explicitly confers on the TRIPS
Council to ensure this consultation for Member states. In practice of such consultation, the TRIPS Council would entrust
the Appraisal Panel in the event of its establishment or otherwise the Appellate Commission to issue a non-binding
recommendation, which would facilitate a requester Member to reach a favorable consequence for their request. In view
of such mandate, these deliberation bodies in the knowledge allocation mechanism would function as consultative boards
for IBI.

Since IBI would be a subordinate entity affiliated with WTO, a limited size of secretariats would run the knowledge
allocation mechanism due to the fact that WTO itself has the smallest secretariats among any major international
organizations. This small capacity would compel IBI to discharge a part of their technical duties, in particular pecuniary
procedures such as collecting the guarantee premium and disbursing the financial assistance, on an external unit of another
appropriate organization with expertise in handling money, including the WIPO International Bureau and the World Bank.



                                                           - 60 -

								
To top