Those spooky patents on Genes

By Joaquín Morales*, La Paz, 2 July 2007.

The recent Cumbre Andina de Naciones held in Tarija brought controversy about the particular conditions that Bolivia put forward to negotiate conditions of a free trade agreement with the European Union. One of the arguments held by the Bolivian government to distrust the agreement was that special clauses where required to protect genetic patrimony and ancient knowledge concerning the use of medicinal plants.

This subject is highly controversial, and since the government is so close to Anti-globalisation movements and several NGOs, we couldn’t expect any different posture. But one thing is political posture and another one is reality.

Is the government right to fear the EU’s intellectual property regime of genes?

The directive 98/44 of the European Council (1) regarding protection of innovations in Biotechnologies restraints the gene patenting scope to non-agricultural activities or to plants which genetic code has been modified by the introduction of external sequences trough genetic engineering (i.e. GMOs). Concerning GMOs, the Cartagena Protocol promoted by the UE applies a strict control over the use and diffusion of GMO crops, applying very strictly the precaution principle, meaning having very strict rules concerning the possible consequences of using GMO in open fields and for consumption. Few European States’ internal norms are as strict as the EU directive. Mr. José Bové, fervent French anti-GMO activist and friend of Evo Morales, was surprised to discover than when razing GM corn fields, he was strictly applying the European directive.

On the contrary, Bolivia has one of the most flexible laws concerning patenting of genes (2) , their extraction and the use of GMOs. There is no particular disposition about patents on genes, which are protected by the patent dispositions of Codigo de Comercio, and the Cartagena agreement signed by Bolivia creates a commission that has a discretionary power to allow or not extraction of genetic patrimony, but has no legal specifications of how the contract and breath of the patents should be. In few words, we are very protective of things oddly defined and generally unknown. It is quite bizarre that the Bolivian government put forward such a defensive argument, since EU should feel unprotected related to Bolivian norms on GMOs.

But I indeed believe that some very important inefficiencies could kick due to the international patent regime on genes, even if I don’t believe to be following the same line of thought than the government’s.

The issue of value uncertainty

The length of a patent is a critical factor determining its value, but concerning biotech several hazards might modify the value of a patent in time. If physical secondary effects appear, new innovations are made (other GMOs replace them), legislation changes or simply consumer preferences are modified; the value of a patent could drop.

Another important determinant of a patent value is its breath, namely how wide its application is. The wider the patent is the most valuable it becomes, because it confers considerable monopoly power. Indeed, the legal description of the innovation could be too vague (3) , which means that several processes could be protected by this property right. This phenomenon is more important in new industrial areas, where knowledge of the scientific community remains vague; hence it is difficult to define the exact nature of what is protected. Genes are no exception, because not all potentialities of a gene segment are known, and worse, the gene could contain undiscovered properties that are nevertheless protected. This is contradictory with the definition of a patent, because we are protecting something unknown. When a specific function of a gene is protected, no competitors can get access freely to the decryption, so other applications remain untouched. The more upstream the patenting is done, the wider the protection is and the more information is uncertain.

Patents diverted from their original purpose

Contrary to the tragedy of the commons, where lack of definition of property rights over a common exhaustible good induces over-extraction and free riding, the tragedy of the anti-commons (4) applies to inexhaustible goods underexploited because of excessive fragmentation of property rights. We might think of patents on GM organisms as a form of under-provision of externalities. Indeed, an innovation in biotechnologies, like the decryption of a genetic code, could by becoming a public good be used by several researchers to continue their own work. But as we need incentives to allow this innovation to happen in the first place, a system of intellectual property rights has to be established. If the second researcher has to pay only one licence to continue his research, the trade-off between incentives to innovate and allowing knowledge externalities could reach an equilibrium trough easy negotiation. But has we have seen, property rights definition is blurry and it’s probable that the researcher will be confronted to a “patent thicket” were the accumulation of red tape required to break trough a licence makes the cost of continuing the research higher than the expected benefits. There is an under-provision of the knowledge externality that works in the symmetrically opposed way of the tragedy of the commons. This is a translation of the Coase theorem: there is no market efficiency concerning the patents on genes because valuation and negotiation is too costly, assets value is uncertain, information incomplete and knowledge externalities are underprovided.

This has lead to the concentration of patents by few corporations and to use patents not as a way to protect innovation, which is too risky, but to make private benefits trough legal procedures, which seems less uncertain, given the lawyer capacities and lobbying power (5). Indeed, it is more rational for corporations to patent the biggest amount of genes, justifying some made-up utility, and then letting these patents rest to avoid competition from starting research on those genes. It is also interesting for the company to wait for the gene to be developed by other researchers or corporations without knowing it, and afterwards charge fees or intend trials for patent infringement. This is called “patent mining” and is a technique used in several research sectors, but it seems especially profitable concerning biotechnologies, as the content of the patent is not specifically defined.

Again, I’m not sure that those are the reasons for the government to believe that EU intellectual property regime on genes is a bad thing, but I agree that the current legal frame applied to gene protection is too old and inefficient.

(*) Researcher at the Institute for Advanced Development Studies, La Paz, Bolivia. The author happily receives comments at the following e-mail: jsmoralesb@gmail.com .

(1) Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions.

(2) Reglamento sobre Bioseguridad, promulgado por Decreto Supremo 24676 del 21 de junio de1997

(3) Lévêque, François, Ménière, Yann, The Economics of Patents and Copyright, Berkeley

Electronic Press, Paris, 2004.

(4) Jaffe, Adam B. and Lerner, Josh: Innovation and Its Discontents Princeton University Press, september 2004.

(5) Koons Garcia, Deborah, The future of food, Lily films, 2004.

Ó Institute for Advanced Development Studies 2007.
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