Let a thousand technologies bloom

By Frederick M. Abbott, April 6, 2015

In his third roundtable essay, Carlos Correa reiterated his belief that patents are an obstacle to developing countries as they seek access to technological solutions needed for addressing climate change. He stressed the need for concrete action to address this problem, and referred to negotiations ongoing within the UN Framework Convention on Climate Change, specifically proposals for a "technology facilitation mechanism."

Such proposals have been discussed within the UN Framework Convention for many years. The results to date are rather limited. Many people, myself included, would welcome some form of global technology development fund that could be used to incentivize research, along with a plan for distributing technical solutions equitably. But even if such a mechanism were established, I would be disinclined to abandon market incentives (such as patents) that can function as alternative policy approaches. The dynamism of market-driven systems may (or may not!) produce better solutions, more quickly, for the problems associated with climate change. (I am reminded of the race to sequence the human genome, in which a large government-subsidized effort was pitted against a private effort.)

Focus on competition. Correa also correctly noted the difficulty of proving that patents act as an obstacle to technology transfer. How does one identify the climate mitigation or adaptation efforts in developing countries that are abandoned in the face of intellectual property obstacles? It is difficult to do so in the absence of a counterfactual world that lacks patents—or a world with both patents and an automatic system for licensing them. So Correa's thesis that patents are an obstacle to climate initiatives in developing countries is not "proven." Neither is Ahmed Abdel Latif's thesis that patents may not be an obstacle. But both authors would likely agree that the world shouldn't wait to confront climate change until one thesis or another is proven.

One analytic approach for addressing the apparent conflict between Correa and Abdel Latif may be gleaned from the competition (or antitrust) policies applicable to intellectual property licensing in the United States and the European Union. In both jurisdictions, government licensing guidelines acknowledge that patents (and other forms of intellectual property) are property rights that, by definition, exclude competitors from making or using covered technologies. This is inherently anticompetitive. However, guidelines in each jurisdiction also observe that patents, by encouraging investment in innovation, may facilitate the entry of new products into the market. This creates new competition for existing products, benefits consumers, and is inherently procompetitive.

From the standpoint of competition law enforcement, these effects are generally viewed (and assessed) through the lens of a balancing test (a so-called “rule of reason”). Are the anticompetitive or procompetitive effects predominant? Also, and perhaps more important, competition authorities in both the United States and the European Union lay out minimum levels of market concentration that must be reached before licensing deals may be subject to government scrutiny under the rule of reason, a kind of “safe harbor.” These generally stipulate that if a patent licensor and licensee together control 20 percent or less of the market for the products, technologies, or research and development covered by a licensing arrangement, they are presumed to lack the power to suppress competition or maintain prices above competitive market prices over a sustained period. From the standpoint of competition law enforcement, they will be left alone (unless the arrangements include certain provisions that are deemed unlawful on their face per se, for example, price-fixing between horizontal competitors.)

Transposing US and EU competition standards to technology transfers among countries at different points on the development spectrum is not a linear matter. In different technology markets, the levels of concentration or control that give rise to anticompetitive concerns may well differ. Nevertheless, the basic theory used by US and EU competition authorities would seem to remain valid—that in technology markets with multiple competitors, the possibilities for blocking access and suppressing competition tend to be limited.

With respect to climate change mitigation and alternative energy technologies, an active market for these technologies may be established if there is sufficient competition among privately developed technological solutions. This should limit opportunities for suppression or excessive pricing. If things seem to be otherwise, it's important to ensure that competition law enforcement is robust enough to address the situation—and this includes ensuring that developing countries have sufficient resources to police against anticompetitive abuse.

In the end, the optimal approach may be for competitive private markets to operate alongside a publicly funded system for research, development, and technology transfer. Let a thousand technologies bloom.


Topics: Climate Change