School of Law
University of the South Pacific
The arithmetic rate of progression of industrial development in a number of capital importing countries is partly attributable to the absence of an appropriate technological base.
This problem is further compounded when viewed against the background of the patent systems both at the national and international levels.
The focus of this paper is to briefly examine the relevance of technology to development in general. But, in particular, it is to address the point as to whether by offering legal protection to pharmaceutical technology, Vanuatu will substantially benefit from the outcome of such protection system. The relevance of this could be better understood against the background of Vanuatu’s claim of belonging to the United Nation’s classification of a least developing country.
As a caveat however, it is important to stress from the outset that the paper does not intend to venture into theories of development relating to patents. Nor does repeat long debates on the legal concept of technology. This has been extensively considered elsewhere.i
The point that the paper seeks to establish is, the extent to which Vanuatu’s accession to the WTOii, WIPOiii, and its local patent system are capable of fostering research, development and production of pharmaceuticals locally.
To start with, a short discourse on the geo-economic indicators of the country would help in explaining the nature of the economy and how this might impact on the country’s subsequent accession to the WTO.
Vanuatu became an independent nation in 1980. It is a republic and a member of the Commonwealth. Vanuatu is a scattered archipelago comprising of 80 islands. It is located between 12 and 21 degree South latitude and 166 and 171 degree East longitude. The population was estimated to be 150,864 in 1991. There are about 105 different languages spoken throughout the country.iv
The total land area is 11,880 square kilometres and the land tenure system is based on customary ownership. The population is mainly rural-based and about 80% depend on agriculture. The country has rich forest reserves and abundant supply of fresh water. The economy is mainly import-oriented with some exports of cocoa, beef, coffee and kavav. Coconuts account for 33% of the country’s export earnings while gross receipts in tourism in 1991 amounted to US$25.1 million. The per capita income is about Vatu 121,358 (A$1379). The country has a fledging off-shore finance centre which was established in 1986, the first in the South Pacific.vi
CURRENT DEBATE ON WTO AND WIPO
Vanuatu is a signatory to SPARTECA giving her preferential access to Australian and New Zealand markets. She is also a member of the LOME Convention.vii As a member of the ACP block Vanuatu also enjoys preferential treatment in her trade with the European Union.
In spite of the nation’s participation in regional trading arrangements there has been very little comment on Vanuatu’s accession to the WTO and subsequently the WIPO. viii The full impact of the accession and the expected benefits might only be felt when the current economic liberalisation and public sector restructuring policies have been fully accomplished.
Under the guidance of the Asian Development Bank, the government has embarked upon a restructuring drive which is expected to usher in a reformed and accountable civil service machinery. The reform is also expected to improve the Government’s revenue base as well as to prepare the economy for active participation in international and global trading activities.
To be able to appreciate the central point in this paper, it would also be imperative to provide a definition of patent, as well as, explain the basic steps in pharmaceutical production.
A patent is defined as: "… a statutory privilege granted by a government to investors for a fixed period of years to exclude other persons from manufacturing, using or selling patented product or process". ix
This involves the following processes;
- production (or import) of the chemical intermediaries required by the pharmaceutical industry;
- Production of raw materials (active ingredients, bulk drugs) synthethised by single or multiple stage batch from chemical intermediaries.
- The production of raw materials of the final dosage forms, which may contain one or more active ingredients;
- Packaging. x
SCOPE OF PATENT PROTECTION
The increasing globalisation of trade in goods and services has now created a matrix of relationship between technology and the aspects of law that are required to protect it. Increasing pressure by capital exporting countries has resulted in a direct link between the sale of a product and the embodied technology in the goods.xi The effect of this alliance has been to extend the scope of legal protection of patents to cover both the product and the process involved in the production of the goods, or the supply of the service.
The implication of this extension is that all countries, regardless of their level of technological advancement, are now expected to offer the same degree of protection to all patented goods or processes, whether manufactured locally or imported from overseas.
Article 27(1) of the GATT TRIPS Agreement of 1994xii supports this assertion. It provides:
"1.Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products of processes, in all fields of technology , provided that they are new, involve an inventive step and are capable of industrial application. Subject to paragraph 3 of Article 65, paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patents rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced."
The Article is intended to grant a reasonable measure of legal protection to investments in patented technology, whether in the form of product or process. But what the article has failed to address is whether a host country, (where the patented technology is sought to be utilised), stands to gain anything in terms of the diffusion of the technology to local enterprises.
This prompts the question as to whether, in acceding to the WTO and WIPO, Vanuatu is mandated to provide any protection to patented pharmaceutical products or processes. This will, later in the paper, bring into perspective the possible use of derogatory provisions of the GATT TRIPS Agreement of 1994, as a means of ensuring the effective operation of the local patent legislation in Vanuatu.
EXTANT PATENT LEGISLATION
The applicable patent law in Vanuatu is the Registration of United Kingdom Patent Act. xiii
Excluding the schedule, the statute consists of 13 sections. It is interesting to observe that the statute is only concerned with offering protection (in Vanuatu), to patents already granted in the United Kingdom. There is nothing covering locally generated innovations by residents or nationals of Vanuatu. It seems also that no protection will be offered to any invention that has not been patented in the United Kingdom. This practice could have been understandable prior to 1980, but cannot have any credible justification at present.
Section 4 provides;
"Upon such application being received in accordance with section 3, the Registrar may file the same in his office and upon so doing issue a certificate of registration to the applicant."
Section 5 further provides:
"Such Certificate of Registration shall confer on the applicant the same privileges and rights in so far as may be applicable to Vanuatu as he is entitled to in the United Kingdom and as though the patent had been issued in the United kingdom with an extension to Vanuatu."
It is to be pointed out that the two sections have the combined effect of slowing down innovations in some areas of patented technology. This is because except, a patent-holder in the United Kingdom decides to obtain registration in Vanuatu, no other person could patent or use similar or identical technology in Vanuatu. xiv The current patent law therefore excludes the rights of prospective patent holders from New Zealand, Australia or the Pacific Community who may have a lot to contribute to the development of technology in Vanuatu, by registering a patent. This is something that any new patent law in Vanuatu may have to re-examine.
The limited scope of protection offered by the present patent statute is certainly a disincentive to non-United Kingdom based transnational companies xv from investing in the development of technology, (especially pharmaceuticals), in Vanuatu. The huge capital layout required in the research and development of pharmaceuticals will not be fully protected given the limitations of the patent statute. Also, the current patent statute will no doubt fall out of tune with the stance of the WTO and WIPO, whose approach to global patent issues is based on the most favoured nation’s treatment.
PATENTS AND INVESTMENTS
In general terms, pharmaceutical firms find patent to be a more effective system of protecting their innovations than firms in other industries. The implication of this is that the withdrawal of patent protection will consequently mean a reduction in research and development and thus the production of new drugs. xvi Thus, (although some will dispute it) the fewer there are new drugs the lower the quality of health of the citizens will be.
It has also been argued that lack of patent protection amounts to a carte blanche licence to unscrupulous persons and companies to duplicate existing drugs without regard to quality control and to the effectiveness of the counterfeits. xvii
Furthermore, it is also to be noticed that research and development in the pharmaceutical industry is more pronounced in countries that offer protection to intellectual property rights. The reason is that substantial research and development revenues accrue to the pharmaceutical company if it’s innovation is protected. xviii
While the foregoing might truly reflect the relationship between patent protection and research and development in pharmaceuticals in the capital exporting countries, what is left to be seen is whether Vanuatu’s accession to WTO and WIPO would significantly attract foreign investments from pharmaceutical companies. Moreover, it is still to be seen whether there will also be any significant improvement in the development and transfer of technology to local enterprises.
SELECTIVE ENTRY AND MORATORIUM
One can anticipate that Vanuatu’s formal accession to WTO and WIPO in the not too distant future, witness an influx of applications for registration of overseas patented technology more particularly, in the field of pharmaceutical technology. The special status of Vanuatu as a tax haven and offshore centre may encourage non-resident companies to establish subsidiaries or branch offices. The sole aim will be to claim substantial tax credits or with-holding tax concessions on payments for royalties, or research and development expenses on locally registered patents. To this end, it is therefore important that the country’s patent system is placed in a position to compel the local working of patented technology where non-resident companies move in this direction.
Vanuatu’s accession to the WTO and WIPO will also very likely result in the introduction of a variety of technology licensing agreements between parent companies and their locally registered subsidiaries. This may be a move in the right direction especially, with the current initiative in the country to encourage foreign investments. However, a framework, (may be a national investment board), should be endowed with the power to regulate and standardise the nature or format of any such licensing agreements. This would provide a filtering mechanism which would ensure that only functional and relevant technology licensing agreements are introduced, especially in the area of pharmaceutical technology.
FORMAT OF LICENSING AGREEMENTS
The degree to which the nation’s patent law, as well as the diffusion of protected technology, will engender the development of the nation may be of utmost priority. There is no doubt that by granting patent protection to pharmaceutical products and processes, the nation will significantly attract the registration of local patents by foreign investors. xix However, it would certainly be better if at the end of the day, the protected technology is worked locally. The best way to ensure this is by carefully vetting licensing agreements for the sale or transfer of technology. By so doing, restrictive clauses in technology transfer agreements will be carefully scrutinised and isolated. This would assist in removing some of the legal impediments to researching and developing locally patented pharmaceutical technology.
RESTRICTIVE CLAUSES xx
The relevance of highlighting the nature of these clauses is to show the extent to which internationalisation of licensing agreements by transnational pharmaceutical companies may affect Vanuatu’s ability substantially to benefit from the transfer of technology. This is because licensing contracts are the principal conduits through which investment funds and technology may be accessed. Just like other capital importing countries, Vanuatu may have no other way out except to accede to the stipulations of transnational companies in return for an inflow of foreign investments.
The usual clauses found in a typical licensing contract include such matters as: the duration of agreement, restriction of exports, and grant-back. Other clauses include: post-expiry restrictions, non-competition, price-fixing, tying and restriction on research and development.
These clauses have the effect of limiting the ability of a country to develop and nurture a viable technological capacity especially in a high technology area like pharmaceuticals. xxi
An investment board (with special legal expertise), might be needed to assist local entrepreneurs in negotiating some modifications to these stringent clauses. xxii However, if the derogatory provisions of the GATT TRIPS Agreement are properly utilised, the country will have the breathing space required to develop the necessary expertise in managing some of the crucial legal aspects of pharmaceutical technology.
USE OF DEROGATORY PROVISIONS xxiii
The relevant authorities in Vanuatu might want to derive maximum benefits by acceding to WTO and WIPO. It may at the same time want to develop its own local technology base. Achieving the two objectives is possible if the advantages provided by the derogatory provisions of the GATT TRIPS Agreement are fully utilised.
The derogatory provisions provide a safety outlet for countries that are not in a position to fully offer protection to cover all aspects of patent rights. Such countries can technically delay the implementation of national treatment and most favoured nation rules for patents.
Article 65 (2) provides:
"2. A developing country Member is entitled to delay for a further period of four years the date of application, as defined in paragraph 1, of the provisions of this Agreement other than Articles 3, 4 and 5."
By Sub-Article (4), a country may deny product patent protection to any technology for an additional period of up to five years. However, a country may utilise the derogation provisions only after a year from the coming into effect of the WTO Agreement.
In essence, if Vanuatu were to rely on the derogation provisions, it would have nine years of technology-free protection, whether in product or process patents. This is certainly an opportunity that should not be missed. The period is good enough to allow for a fine-tuning of the patent laws so that they will be able to cushion the negative effects of the Paris Convention, xxiv when the 9-year moratorium is eventually lifted.
Interestingly, Article 66 of the Agreement also makes a special case for the least developing country members. Just like some capital importing country, Vanuatu can justifiable claim this status in order to benefit from the derogatory concessions. To be able to benefit from the concession in Article 66, the country will be expected to make a formal request for a waiver.
For any country, the health of its’ people is a matter that deserves utmost consideration if the productive workforce is to maintain a reasonable degree of vitality. If properly maintained, the workforce provides the key to prosperity and economic development. These cannot be achieved if the patent system does not encourage investments in the area of pharmaceutical technology.
Patent protection is today both a political as well a legal issue. In this era of economic globalisation, Vanuatu’s accession to the WTO and WIPO will certainly bring with it far reaching benefits in terms of the in flow of investment capital. It may also bring about an increase in the number of locally registered patents. For these benefits to be realised, the current patent law has to be replaced with one that will attune itself to the objectives of the WTO and WIPO.
The limited scope of protection offered by the present patent system, may have been responsible for the low level of direct foreign investment from transnational pharmaceutical companies. This is because of the fear that their innovations may not be fully protected by the legal system.
To this end, for any new patent system to succeed in stimulating the development of a pharmaceutical-industrial-complex in Vanuatu, it has to direct itself to the attraction of foreign investment, which would in turn develop the appropriate pharmaceutical technology that is needed.
Lastly, if any technology is to be patented, it should demonstrate that it is capable of complimenting the attainment of the short, medium and long term objectives of Vanuatu’s pharmaceutical and technological policies.
* Mohammed L. Ahmadu, LLM, ACIS (UK), Barrister, Lecturer in Law, University of the South Pacific.
i. See the conflicting views as represented by four school of thoughts contending: (1). The links between the patent system and industrialisation: Machlup, F: (1962) The Production and Distribution of Knowledge in the United States, (New Jersey: Princeton University Press): Penrose, E: (1951), The Economics of the International Patent System, (Baltimore: The John Hopkins Press): Vaitsos, C: "Patents Revisited: Their Function in Developing Countries", Journal of Development Studies, reproduced in Cooper, C: (ed), (1973), Science, Technology and Development: The Political Economy of Technology in Under-Developed Countries, (London: Frank Class), UNCTAD 1981 e.t.c. (2). Patents as indicators of scientific and technological development: Kamien, M.I. and Schwartz, N.L: (1982),"Market Structure and Innovation", in Cambridge Surveys of Economic Literature (Cambridge and London: Cambridge University Press), e.t.c. (3). Patents in the context of welfare economics and resource allocation theory, and the divergence between social and private costs: Dasgupta, P: "Patents, Priority and Imitation, or Economics of Races and Waiting Games", Economic Journal, Vol., 90: (4). Patents in the context of the theory of appropriability: Teece, D. J: "Profiting from technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy" published in (1987), The Competitive Challenge: Strategies for Industrial Innovation and Renewal, (Cambridge, Mass., Ballinger Publishing Co.,) e.tc.,. For more details on this see, Bifani, P: The New Mercantilism and the International Appropriation of Technology, UNCTAD/ITP/23, pp., 151
ii. "The World Trade Organisation (WTO) is the legal and institutional foundation of the multilateral trading system. It provides the contractual obligations determining how governments frame and implement domestic trade legislation and regulations. And it is the platform on which trade relations among countries evolve through collective debate, negotiation and adjudication. The WTO was established on 1 January 199." For further discussion on the structure of the WTO see The World Trade Organisation, published by the WTO Information and Media relations Division, 1995, p. 1.
iii. The acronym stands for the World Intellectual Property Organisation. This is the global regulatory body on the administration of property rights in patents, trade marks and copyright. It is based in Geneva.
iv. Pacific Islands Yearbook, 1994, Fiji Times, pp., 689.
v. A local drink made from the extracts of a root crop. It acts as a depressant on the nervous system. It is a traditionally honoured drink in Vanuatu.
vi. Ibid at pp., 692 et. seq.
vii. Pacific Islands Yearbook, op. cit pp., 700.
viii. See the Trading Post 29th July (Issue No., 367), 1998, P5 , where in a letter to the editor, titled; "Joining the World Trade Organisation", Wari, B; expressed some concerns on Vanuatu’s move to join the WTO. In fact, he cautions about the negative consequences of signing on to the Treaty.
ix. Technology Indicators and Developing Countries, UNCTAD/1/TP/TEC 19, pp., 16.
x. Technological Policies and Planning for the Pharmaceutical Sector in the Developing Countries, UNCTAD/TD/B/C/56, pp., 17.
xi. The pressure to put TRIPS on the agenda at the Tokyo and Uruguay Rounds was a case in point.
xii. 11 EIPR  pp., 5
xiii. Cap 80, found in the Laws of the Republic of Vanuatu, Revised Edition, 1988; See also a discussion paper on; Intellectual Property Protection in Vanuatu, presented at the Sub-Regional Seminar on Copyright and Trademarks for the South Pacific, organised by WIPO, AG Fiji & Agency for Cultural Affairs, Japan, at Suva, March 27-30, 1995.
xiv. The patent registration system does not allow the duplication of a registered patent in more than one member country at a time. However, in order to overcome this problem, a licensing agreement could permit the exploitation of a patented technology by a non-holder in Vanuatu.
xv. For a definition of transnational companies see, Ossman, G: "The Rights and Duties of Transnational Corporations under International Economic Law",  ICCLR, pp., 139, where transnational corporation is defined by Article 1(a) of the Draft United Nations Code of Conduct as ‘an enterprise whether of public, private or mixed ownership, comprising entities in two or more countries, regardless of the legal form and fields of activities of these entities, which operates under a system of decision making, permitting coherent policies and a common strategy through one or more decision making centres, in which the entities are linked, by ownership or otherwise, that one or more of them may be able to exercise a significant influence over the activities of others, and, particular to share knowledge, resources and responsibilities with others’.
xvi. Rozek, R.P et. al: "Benefits and Costs of Intellectual Property Protection in Developing Countries", Journal of World Trade Law, Vol., 24, No., 5, pp., 95; It has been also stated that patent protection ought to be granted if cure is to be developed for ailments as, according to the World Health Organisation, tropical diseases cause about one-half of the illnesses in the world- Rozek, op. cit., pp., 98. See also Okie, S: "500 Million Infected with Tropical Ills; Research Control Efforts Lagging ", Washington Post (28th March 1990).
xvii. The Bangladesh pharmaceutical industry is a case in point. See; WHO, DANIDA and SIDA, Report of a Project Preparation Mission on Essential Drugs for Primary Health Care in Bangladesh, (1984), pp., 12, in Jayasuriya, D.C; "Pharmaceuticals: Patents and the Third World", Journal of World Trade, Vol., 22, No., 6, pp., 118 at pp., 120; In the case of Mexico it was also observed that "...there is the growing perception that strong patents...and other intellectual property protection is needed in Mexico in order to protect its own industry from counterfeiters' infringement of innovations and the artistic creations as more imports are introduced."-Rozek, op. cit. pp., 98; A recent study has revealed that due to Indonesia's neglect of intellectual property many of the manufacturing establishments that existed in 1975 are no longer there-Behrman, J and Deolakikar, A: "…Of the Fittest? Duration of Survival of Manufacturing Establishments in a Developing Country", 38 Journal of Industrial Economics, pp., 215.
xviii. Pharmaceutical Manufacturers Association, Annual Survey Report, in Chazournes, L.B et.al: "Trade Related Aspects of Intellectual Property Rights (TRIPS): Objectives, Approaches, and Basic Principles of GATT and Intellectual Property Conventions", Journal of World Trade, Vol., 24, No., 5, pp., 89 -The discussion shows that the bulk of R & D especially by United States firms is concentrated in Western European Nations the majority of which offer patent protection to pharmaceuticals. Cf. Kasozi, W.K.L: "Transnational Corporations and their Role in the Transfer of Technology to Developing Countries: Consideration of Some Legal Issues", Lesotho Law Journal, Vol., 5, No., 1, pp., 97-125
xix. Today the influx of direct foreign investment into the host state may also bring with it the technology that is required to support the investment. For a fuller discussion on this relationship, see Pritchard, R: "The Transformation in foreign Investment Law-More Than a Pendulum Swing?",  7 ICCLR 234.
xx. For a fuller discussion on restrictive trade practices especially as it concerns transnational companies, see Ossman, op cit, at pp., 145-146.
xxi. The extent of this domination is illustrated by the fact that "the world's fifty largest pharmaceutical companies account for nearly two-thirds of total pharmaceutical sales..."- Cieslik, J: "Restrictive Clauses in Licensing Agreements: The Pharmaceutical Industry in Developing Countries", Journal of World Trade Law, Vol., 18, No., 1, pp., 415.
xxii. Though it is possible for countries to insist on a modification of some of the clauses, it is impossible for them to do away with all restrictive clauses. This is because of their being dependent on the metropolitan companies for capital and technology. For a discussion on control of restrictive clauses see generally; Oserheimen, A.O: "Law and Policy on the Registration of Technology Transfer Transactions…", Journal of World Trade Law, Vol., 21, No., 5, pp., 13-30.
xxiii. This is a cardinal feature in the practice of international conventions and treaties. Countries may lighten their treaty or convention obligations by relying on derogation provisions in-built in the instrument. For instance, see Appendix 9 of the SPARTECA, Reference Handbook of Forum Island Country Exporters, Forum Secretariat, 1996, pp., 47-50.
xxiv. For some criticisms of the Paris Convention, see; Ahmadu, et.al: "The International Patent System: A Critique