Why Do Nations Obey International IP Law?

by Daniel Hemel — Wednesday, Oct. 3, 2018

The wealth of nations lies largely in intangible form. The World Bank estimated in a 2011 report that intangible capital constituted more than three quarters of the world’s wealth. And the distribution of intangible capital is highly uneven. Estimates from the same World Bank report indicate that high-income OECD countries, which account for approximately 14% of the world’s population, hold more than 86% of the world’s intangible capital. Compared to the distribution of physical assets, the distribution of intangible capital is markedly more skewed toward a select group of high-income countries.

Sam Halabi’s ambitious new book, Intellectual Property and the New International Economic Order, examines the forces driving the unequal distribution of intangible wealth and the forces pushing back. The stark facts set out in the first paragraph of this post present something of a puzzle: Why do lower and middle income countries abide by an international IP regime that concentrates intangible wealth in the hands of a few? Why, for example, do they pay American and European pharmaceutical firms for patented drugs rather than manufacturing those drugs themselves and then distributing the drugs to their own citizens at low prices or for free? Why do they pay Monsanto and DuPont for patent-protected seeds and pay publishers for copyrighted works when they could—in effect—appropriate much of the world’s intangible wealth for themselves?

Halabi’s book emphasizes a handful of instances in which low- and middle-income countries do not pay monopoly prices to first-world firms for access to intangible assets—instances that Halabi refers to as “international intellectual property shelters.” His examples include HIV/AIDS treatments, influenza vaccines, traditionally cultivated seed varieties, and alternative-format books for the blind and visually impaired. But perhaps less surprising than these exceptions are the regularities from which these exceptions deviate. Why, for instance, don’t developing countries manufacture and distribute generic versions of patented heart disease drugs? To be sure, Thailand—as Halabi notes—essentially did this in 2007, approving a copycat version of Bristol-Myers Squibb’s blood thinner Plavix. But considering that coronary heart disease kills more people in low- and middle-income countries than HIV/AIDS, why aren’t there many more cases like the Thailand/Plavix episode?

A partial answer is that a large portion of the world’s intangible wealth is not so easy to appropriate. Much of it, as a more recent World Bank report emphasizes, is in fact human capital: the skills, knowledge, and experience possessed by the populations of high-income nations. Manufacturing clopidogrel (the generic name for Plavix) turns out not to be so simple; Thailand, for example, has had to rely on imports from generic manufacturers elsewhere. More generally, international IP law is just one of many obstacles that prevent low- and middle-income countries from producing patented goods themselves. The unequal distribution of scientific and technical expertise may matter as much as the unequal distribution of patents and other IP rights.

But that partial answer is only partial. Surely if North Korea can develop the expertise to build a nuclear bomb, then many low- and middle-income countries can develop the expertise to build their own generic pharmaceutical manufacturing facilities (and, moreover, all it takes is one or two countries that can then export the drugs more broadly). Something, beyond lack of knowhow, is stopping low- and middle-income countries from upending the international IP regime. But what?

Theories of international relations generate a number of plausible hypotheses. The four leading theoretical approaches in contemporary IR are realism, institutionalism, liberalism, and constructivism. A gross oversimplification of all four is to say that realism focuses on power, institutionalism emphasizes institutions (no surprise there), liberalism stresses the individual characteristics of nation-states (in particular, domestic politics), and constructivism centers its attention on ideas and norms.

Realists (or neorealists), who seek to explain geopolitical outcomes based on the distribution of economic and military capabilities across states, might suggest that low- and middle-income countries generally abide by international IP law because high-income countries make them. For example, the United States is the number two destination of Thai exports and the number three source of Thai imports. Thailand also historically has relied on U.S. military assistance and weapons systems purchased from U.S firms. The United States responded to Thailand’s Plavix announcement by threatening to impose economic sanctions, with the specter of defense-related consequences also looming in the background. Thus, one reason why Thailand might not have followed the Plavix announcement with further compulsory licenses is that Thailand feared economic and military retaliation from the United States (by military retaliation, I mean a withholding of military assistance and weapons sales rather than an outright attack).

Institutionalists would take a different tack. They see international institutions (including treaties and intergovernmental organizations) as potential solutions to collective action problems among nation-states. The production of knowledge goods (including medical, agricultural, and other technological innovations as well as creative works) presents a classic collective action problem: each nation-state can free-ride off others’ investments in knowledge production, and so no state has an incentive to invest the socially optimal amount itself. Institutionalists might cast international IP laws (such as the 1995 Agreement on Trade-Related Aspects of Intellectual Property Rights) as well as issue linkages across policy domains as solutions (though not necessarily perfect ones) to the collective action problem of global knowledge production. For them, the fact that most nations obey international IP law most of the time would be a function of the incentives that these international institutions create. (Lisa Larrimore Ouellette and I have sketched out a theory of international IP law that proceeds largely along institutionalist lines.)

Liberals would break open the black box of the nation-state and look inside. They would shift our focus to actors at the domestic level whose preferences determine the behavior of nation-states in international fora. For them, the question might be: Who are the interest groups within low- and middle-income countries that benefit when those countries obey international IP law? For example, it might be that powerful firms, factions, and families within those countries gain from trade with high-income OECD countries but bear only a small portion of the cost of IP. The decision of low- and middle-income countries to abide by international IP law most of the time may reflect a privileging of some interest groups over others—a privileging that can be explained only by examining domestic political institutions and alignments.

Last but not least, constructivists highlight the ways in which the international system promulgates ideas and expectations that shape states’ self-understandings. For example, Martha Finnemore’s now-classic account of the United Nations Educational, Scientific, and Cultural Organization’s influence over science policy in developing countries shows how international institutions can spark and spread norms that come to define appropriate state behavior. In that case, UNESCO officials and consultants spread the belief that the promotion of science through a national-level bureaucracy was part of what it means to be a responsible nation-state. By the mid-1960s, UNESCO had succeeded in catalyzing the creation of national-level science bureaucracies across Africa and the Middle East—sometimes in very low-income countries where the existence of such a body was difficult to justify on purely functional grounds. (Harold Hongju Koh’s influential Yale Law Journal book review from which this post takes its title builds upon and enriches the constructivist account of norm transmission.)

A constructivist account of obedience to international IP law might draw attention to the ways in which the international community has socialized state actors into believing that compliance with international IP law is appropriate and/or obligatory. Like the realist account, the constructivist narrative might be a story of hegemony—but it would be a hegemony of ideas rather than a hegemony of economic and military might. Like the institutionalist account, the constructivist narrative might emphasize the role of the TRIPS agreement and the World Intellectual Property Organization, but the focus would be on the expectations that these institutions propagate rather than the incentives that they generate.

How might we adjudicate among these competing theories. Halabi’s book helps us see how. Halabi draws our attention to contexts across which the strength of the international IP regime varies. Such variation on the dependent variable makes hypothesis testing possible.

Realists might hypothesize that a low- or middle-income country will pay less heed to the IP claims of a firm in an advanced economy when the home state of that firm exerts limited military and economic influence over the low- or middle-income nation. Institutionalists might posit that international IP shelters spring up either where the international IP regime generates weak incentives for compliance or where international IP law explicitly accommodates the needs of poorer nations. Liberals would seek to identify reasons why interest groups in Thailand might be (or have been) more supportive of compulsory licensing for Plavix than for the countless other drugs with respect to which Thailand has not issued compulsory licenses (and why the coalition that supported compulsory licensing in the Thailand/Plavix case failed to coalesce in other countries). Constructivists might emphasize the role of norm entrepreneurs (including South African AIDS activist Zackie Achmat and allies in South Africa and abroad) who have changed the conception of appropriate state behavior so that providing access to HIV/AIDS medicine outranks compliance with the international IP regime.

Of course, it is doubtful that any one theory will fully explain the pattern of international IP shelters that Halabi has observed. But much rides on which of these various theories carries the greatest explanatory power. If, for example, the realist account seems approximately accurate, then advocates for greater global access to knowledge goods might do well to tamp down their optimism about the possibility of transformative change through legal or institutional reform. If the institutionalist account proves most persuasive, then international law and intergovernmental organizations are more likely to be levers of progress. If the liberal account bears more weight, then perhaps the focus should shift to domestic-level political reforms in low- and middle-income countries. If the constructivist account carries the day, then reshaping beliefs and discourses regarding IP and access-to-knowledge claims may matter as much or more than formal legal and institutional reforms.

A full evaluation of these hypotheses and their implications lies beyond the scope of this short post—and probably beyond the scope of any single monograph. The realist account fails to explain the apparent fact that low- and middle-income countries generally respect (or, at least, do not flagrantly flout) the IP claims of pharmaceutical firms from nations with which they have limited military and economic ties (e.g., Thailand does not seem to be any more likely to issue compulsory licenses for pharmaceuticals patented by Irish firms than by U.S. firms). Meanwhile, both the institutionalist and constructivist account derive some strength from the fact that low- and middle-income countries have labored to justify international IP shelters in both legal and normative terms. Whether it is law or norms or some third factor (e.g., domestic politics) that ultimately drives outcomes will require much more study, thought, and debate.

But while Halabi’s book does not resolve these issues, it certainly helps to set the table. By identifying international IP shelters as an important phenomenon and enumerating a range of examples, Halabi lays a foundation for future work that seeks to explain (1) why international IP shelters arise where they do and (2) why compliance with the international IP regime remains a regularity across other contexts. The next step (and one that will need to be a collective effort) is to formulate and test more precise causal claims. Hopefully then, those of us who seek to promote broader global access to knowledge goods will have a clearer sense of what strategies might advance that objective and what structural features of the international system might get in the way.

Daniel Hemel is an assistant professor at the University of Chicago Law School (SSRN; Twitter).

This post is part of a symposium reviewing Intellectual Property and the New International Economic Order: Oligopoly, Regulation, and Wealth Redistribution in the Global Knowledge Economy, a new book by Sam Halabi, Associate Professor at the University of Missouri School of Law and Scholar at the O’Neill Institute for National and Global Health Law at Georgetown University. All of the posts can be read here.

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