SIPLA

Projects

COMPETITION, PATENTS
Innovation in Sustainable Technologies

There is a capacity for innovation in sustainable technologies in Latin America, given its rich natural and human resources. Some of the new technologies will play a strategic role in solving fundamental challenges facing humanity. This innovation should be focused on the production of cutting-edge technologies or environmentally sustainable processes. However, economic, institutional and legal factors impede the accelerated advancement of innovation. 

a.    SUSTAINABILITY AND PATENT LAW 
Patent law aims to correct market failures that may hinder innovation. Its suitability to support sustainable technologies, however, varies according to the type of market failure. 
It is proposed to consider three possible market failures, where the first is the absence or insufficiency of a market for such technologies. In this case, there is little incentive to invest in R&D, as there is no expected payback or benefits. Patent protection as such is ineffective, as it does not in itself create markets. 
The second market failure is characterised by the existence of the market, but the absence of incentives to invest due to the risk of not achieving a payback or expected benefits. This is especially the case when third parties can cheaply imitate products on the market without substantial investments on their part ("free-riding"). Exclusivity rights on a patent may effectively solve this problem in general. However, it is questionable whether patent law could be improved to support sustainable inventions more effectively. 
The third failure occurs when innovations that would be possible a priori are hindered. This may be due, for example, to the over-protection of an invention by patent rights. In this case, the question arises as to what mechanisms can be used to counteract these dysfunctional effects of patent law and whether they should be adapted to cases of sustainable technologies. 
In this framework, questions were elaborated under the different types of market failure: 
b.    SUSTAINABILITY AND TECHNOLOGY TRANSFER 

Technology transfer (TT) means that one or more parties gain access to the technology of one or more other parties. Especially with regard to sustainable innovations, TT is crucial, for two reasons. First, gaining access in terms of using a technology to develop a product or process; this is especially important in the case of sustainable technologies if they have a direct environmental impact, e.g. climate-friendly technologies in countries with extreme weather conditions. Secondly, access to a technology is sought in order to develop it incrementally.
An essential aspect of TT concerns intangible assets, especially patents, but also know-how, whereby licensing agreements or other forms of transfer of rights are a decisive element. However, depending on the purpose of TT, many other elements may be added, such as R&D, manufacturing and distribution joint-venture or other types of agreements. 
In general, the applicable contract law plays a central role for TT, but other regulatory frameworks may be important: antitrust law, law protecting trade secrets or law against unfair competition. These legal bases are national in character and sometimes differ greatly from each other, also in Latin America; however, the applicable law can have a significant influence on the functioning of TT. 
Relevant technology in areas where sustainability is important is often owned by multinational companies. Their incentives are not always aligned with the interests of developing countries (DCs). Consequently, in the absence of adequate legislation in host countries, these companies may often use the following strategies to maximise their profits: (i) refusing to negotiate, (ii) refusing to grant licenses, (iii) charging excessive prices for transferred technology - which may occur in the case of very sensitive technologies for which the elasticity of demand is very low - or (iv) incorporating anti-competitive restrictions in TT agreements. 
These practices hinder the efforts of developing country firms seeking access to sustainable technologies. While developed countries (DCs) have adapted their competition law to cover IPRs in general - and TT in particular - competition law is rather new and not sufficiently mature in DCs. Moreover, even if certain anti-competitive conduct related to IPRs could be addressed in their jurisdiction, developing countries often do not enforce these laws. 

c. SUSTAINABILITY AND COMPETITION LAW.
 
With respect to the interface between competition law and sustainable socio-economic development, it is questionable whether the current paradigm of analysis prevailing in most Latin American countries - which focuses on consumer welfare - is appropriate for a competition policy that seeks to contribute to a country's sustainable development. The current framework of analysis is believed to work well when studying the effects of business behaviour on prices. However, there is a growing literature that points to its limitations when analysing the effects of quality and innovation, both of which are essential variables for achieving sustainability goals. 
Focusing on consumer welfare through price effects can also lead to misguided incentives for firms to invent or implement technologies that lead to more efficient use of natural resources, such as clean air. Dominant firms can achieve lower prices by reducing the costs associated with environmental protection. Related to this, market power may also lead to the ability to influence the government to paralyse the adoption of regulations that increase the cost of production by imposing environmental standards. This may have an indirect effect on innovation in sustainable technologies, as firms do not have the incentive to reduce their environmental footprint by not having to internalise it in the first place. 
Finally, it is traditionally thought that competition authorities are not key actors in achieving sustainable development objectives and therefore their enforcement priorities may be distant from this objective. However, given the dynamics explained above, their role is by no means negligible. Raising the profile of environmental protection could lead authorities to uncover more damaging behaviour, such as the German car cartel, which was an agreement to paralyse innovation in technologies that would reduce pollution from car emissions. 
 

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