Theory of Industrial Property Rights

The economic justification for IPRs is to stimulate innovation through the legal protection of intellectual property. IPRs, including patents, trademarks and design rights, grant exclusive rights to inventors or creators for a period of time, which enables them to access the commercial benefits of their creations. This article will primarily focus on patents, as they are most commonly used to protect technological innovations or processes. Patent protection typically lasts twenty years and the monopoly rights over an innovation serve as a significant incentive for investors. Investors will allocate large sums of money into the research and development (R&D) required to place a new technology on the market.

Investors can also benefit from strategic patenting, which legally prevents competition from entering the market for the duration of the patent. Numerous empirical studies have illustrated the tangible impact of strong IPR regimes on innovation across various industries. As such, there appears to be a consensus that IPRs contribute positively to economic growth and the development of new technological innovations, leading to important advancements in society. However, there has equally been widespread speculation about the potential negative impacts patents can have on technology transfer, diffusion and commercialisation.

The adverse effects of climate change pose a significant and urgent threat, demanding a global response.

The Role of IPRs in Climate Change

The International Energy Agency (IEA) has acknowledged that while there is no “single or simple solution” to reaching net-zero emissions, there will be no possibility of achieving this goal “without a major acceleration in clean energy innovation”. Similarly, the International Panel on Climate Change (IPCC) has emphasised the need for developing new, innovative climate technologies. The United Nations Environment Programme (UNEP) and United Nations Framework Convention on Climate Change (UNFCCC) define these technologies as tools and methods that aid in both mitigating GHG and adapting to the harmful impacts of climate change.

These include clean energy generation methods such as wind, solar, and hydropower, as well as technologies designed to mitigate climate change effects, like drought-resistant crops and sea walls. IPRs, particularly patents, play a dual role in promoting innovation and facilitating the advancement and transfer of climate technologies. As noted by Derclaye, there is an intrinsic link between technology and the environment. Essentially, pollution and GHG emissions are consequential to industrial activity, which is driven by the financial incentive of formal IPRs. Therefore, patent laws are accountable for the environmental impact of patented inventions.

Challenges for Developing Countries

It is crucial to recognise that IPRs affect countries differently based on their level of economic development and complexity. Consequently, innovation and distribution alone will never guarantee the successful implementation of new climate technologies. A ‘pre-condition’ for the effective implementation of new and foreign technologies is that a country must have a sufficient level of ‘absorptive capacity’. Essentially, in order for a country to reap the benefits of innovation, it must be able to ‘access’ the relevant technology.

In this context, ‘access’ goes beyond physical availability and instead focuses on a nation’s capacity to utilise and integrate the technology effectively. Absorptive capacity can be enhanced through indigenous innovation, which depends on the support of an effective national system of innovation (NSI). Unsurprisingly, the Organization for Economic Cooperation and Development (OECD) countries, such as the UK and USA, possess the strongest systems of innovation. These robust NSIs are characterised by several key factors: substantial investment in R&D, well-established educational institutions, collaboration between public and private sectors, and supportive government policies and infrastructure. These elements collectively create an environment that fosters technological advancement and innovation.

Conversely, developing countries need to enhance their absorptive capacity through adaptive and imitative research. High costs and strict IPRs can further deter these countries from accessing crucial climate technologies. For instance, Denmark’s dominance in wind energy patents illustrates how quickly an emerging market can become monopolised. In 2021, Denmark recorded 551 green patents with the European Patent Office, with three wind energy companies owning over half (51%) of the total patents. This high concentration of patents within a few corporations exemplifies how strict IPRs can lead to market monopolisation and excessive patenting, which can be intimidating for smaller organisations or individual patent applicants.

Patents and Innovation

According to Burrell, there are two mechanisms in which IPRs interact with innovation: (i) adaptive and imitative innovation and (ii) country-specific, indigenous innovation. Adaptive innovation refers to the process of modifying and improving existing technologies to better fit local conditions or needs. On the other hand, indigenous innovations are novel and distinct from the existing technologies of developed nations.

The OECD countries account for more than 80% of patent applications in clean energy generation technology. This is problematic because these solutions are designed to resolve climate difficulties in developed rather than developing countries. This is wildly disproportionate with the reality that 3.6 billion people live in vulnerable regions severely impacted by climate change. In his research, Burell examined the relationship between the IPR system and its impact on developing countries. He found that the current IPR framework does not promote significant levels of local, climate-friendly innovation in these regions. This can be attributed to the fact that developing countries face an inherent dilemma in their inability to use IPRs to encourage innovation, as research has shown that a certain level of economic and technological development is needed for IPRs to effectively promote innovation.

Additionally, the cost of obtaining formal patents is a significant deterrent. For instance, in the UK, a professionally drafted patent application can range from £4,000 to £10,000, and it has been estimated that securing patent protection for most European countries and the USA can cost £40,000 over six years. In countries like Kenya or Bangladesh, where the current IPR registration system is paper-based and the public is generally unaware of the existence of these protections, it is understandable why climate innovation is not necessarily at the top of their priority list. In contrast, countries with established IPR systems, such as the UK, are better positioned to benefit from the economic incentives of formal IPRs.

Patents and Technology Transfer

Arguably, the most significant impact patents have on climate change development pertains to technology transfers. Technology transfer is a collaborative process that permits scientific discoveries, knowledge, and intellectual property to be transferred from the inventor to public and private users. Perot claims that developed countries, responsible for 79% of global carbon emissions between 1850 and 2011, possess a technological advantage over developing nations.

Despite possessing crucial mitigation technology, she argues that without effective and enforceable mechanisms to facilitate technology transfer, it will be impossible to address the climate crisis. Expensive licensing and exclusive patent rights not only hinder adaptive innovation but also act as barriers to international technology transfer. These disproportionate fees are exacerbated by market monopolisation, further disadvantaging poorer nations that have contributed minimally to the current climate crisis but are most affected by its impacts.

Hutchison’s research revealed that companies exhibit reluctance in granting licences for patented technologies with inadequate IPR enforcement. Their apprehension stems from the concern that these innovations might be replicated without facing any consequences which would threaten their competitive position within the market. As such, it can be asserted that countries with stronger NSIs are favoured over countries without established IPR systems. As identified by Perot, an enforceable mechanism would significantly improve the situation by holding developed countries accountable. Therefore, while patents can facilitate technology transfers, developing nations face numerous obstacles in accessing this process.

Overall, while IPRs have an important function in society and can inspire innovation, it is clear that they must be reformed in order to support the urgent need for sustainable and accessible technology.

© Kyara Sewell 2024