Over the years, Royal Philips Electronics has been responsible for an impressive series of breakthrough inventions, such as compact audio cassettes and compact discs. What is less well-known is that the company was set up in 1891 to exploit somebody else’s invention—Thomas Edison and Joseph Swan’s carbon filament lamp. Commercial success generated considerable revenues that enabled the firm to produce its own inventions and eventually become one of the world’s most innovative corporations. How could Philips get such a good head start? From 1869 until 1912, Holland had no patent law. This meant that local entrepreneurs could copy foreign inventions for their own profit, as long as they could figure out how the inventions worked.

Ericsson, the well-known Swedish phone company, was formed in 1876, the same year Alexander Graham Bell made his first phone call. After it received some of the new devices to repair, Ericsson figured out how to make them, and by 1878 the company was selling its own phones to the Swedish public. Bell had neglected to file a patent on his invention in Sweden. The rest, as they say, is business history.

In 1960, Texas Instruments filed a patent in Japan on the integrated circuit, arguably one of the most important inventions of the second half of the 20th century. The Japan Patent Office took 29 years to grant the patent, by which time Japanese companies, free to read the patent specification 18 months after filing, acquired the technology, improved it, and came to control 80 percent of the US market for computer semiconductors.

A little further back in time, Richard Arkwright’s cotton spinning machine, patented in England a few years before the independence of the United States, was copied by entrepreneurs in the United States who did not have to worry about patents because there was no patent law until 1790. Intriguingly, the machine’s obvious lack of novelty by 1791 did not stop a businessman from receiving a US patent for it. Once again, in a world of highly varied national patent laws—or in some cases, no laws at all—one country’s invention was also another country’s economic gain.

Setting aside the rights and wrongs of such “borrowings,” the point is that such behavior, of which many more examples could be given, broke no international rules. Furthermore, the freedom to use such technologies often benefitted not only the imitator companies, but also the national economies in which they were based. Indeed, none of the benefiting countries remained copiers for long; eventually, they became some of the world’s most technologically advanced manufacturers.

Might it be that the freedom to imitate was, and continues to be, an essential step toward real innovation? Evidence suggests that this was probably true in the past for Holland, Sweden, Japan, the United States, and more recently, the Asian tiger economies. If so, it might also be true for today’s developing countries. In 1970, India weakened its patent system in order to achieve greater national self-reliance. This period of protection from foreign competition allowed the country’s pharmaceutical sector to grow and prosper into the largest in the developing world, with a growing capacity to perform cutting-edge research.

Tripping over Agreements

The above question is timely because current international patent rules make it very difficult, if not impossible, for states to repeat the kinds of behavior described. Until recently, international law permitted national and regional patent systems to vary widely. Efforts on the global level by the wealthier countries to iron out these differences began in the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). The result was the 1994 Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS), whose main effect was to make the intellectual property (IP) systems of developing countries more like those of developed ones.

TRIPS, which is administered by the World Trade Organization (WTO), sets minimum standards of availability, scope, use, and enforcement of IP rights, including not only patents but also copyright and related rights, trademarks, geographical indications, industrial designs, layout designs of integrated circuits, and protection of undisclosed information. These standards are essentially based on those of the United States and the EU member states. Consequently, WTO members must, in accordance with Article 27 of TRIPS, make patents available “for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.” Moreover, patents must be available and patent rights enjoyable “without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.”

Nonetheless, important differences among nations remain. For example, different jurisdictions are permitted to apply the novelty, inventive step, and industrial applicability tests in various ways. They also differ in how much their laws permit non-infringing activity relating to a patented invention. Such activities commonly include non-commercial research and experimental use of another’s invention. In the United States, for example, the research/experimental use exception is extremely narrow compared to many other countries’ regulations. There are also variations in the range of circumstances that make unauthorized uses of a patented invention permissible for such reasons as responses to a public health emergency, and in the necessary conditions that users are required to meet to invoke such justifications. There is no single reason why these variations exist. Interest group politics are bound to be an important factor. But perhaps most importantly, these variations reflect divergent perceptions on how patent policy should promote national economic development and public policy priorities. Such perceptions are bound to vary with the divergent social and economic circumstances countries face.

Prospects for Harmonization

TRIPS is unfinished business. Some developing countries accept the agreement as it is and seek to construe its rules as creatively as possible. But others would prefer to revise TRIPS to lower the standards. Many developed countries would like to raise the standards, but they have encountered resistance from the poor countries, making reform difficult to achieve through the WTO. Consequently, these developed nations are circumventing the WTO forum, using means other than multilateral trade negotiations to encourage developing countries to raise their IP standards beyond those required by TRIPS. Their main strategy is to approach developing countries and propose bilateral treaties offering improved market access for their goods in exchange for the adoption of US or European IP standards. One example of such a bilateral pact is the agreement made between the United States and Jordan in 2000 that established a free trade area. The agreement requires patents to be available for any invention in all fields of technology without some of the exceptions TRIPS expressly allows. In addition, a supplementary memorandum requires Jordan to allow the patenting of business methods and computer-related inventions. While one must assume that the Jordanian government felt it was a good agreement for the country, such patents are highly controversial in the United States, and also in Europe, where they are not officially allowed. In addition, the United States and the European Community threaten to remove trade concessions in order to pressure countries to improve IP standards they deem inadequate, even if they are technically TRIPS-compatible.