So far, the patent system has been utilised by foreigners more than Thai nationals. Moreover, the number of patents issued to local scientists each year does not show any sign of substantial increase. The high degree of foreign domination implies that local inventors have low technological capability to develop inventions that meet the basic requirements of novelty, inventive step and industrial application. While Thailand's technological capabilities are still in the embryonic stage, the main purpose of the patent system--the encouragement of local R&D--seems unlikely to be fulfilled. The foreign control of patents in Thailand seems likely to increase in line with the higher level of patent protection, especially if Thailand adopts the new patent rules that protect high-tech inventions.⁷⁹

Although there are no official records, a survey by the Thailand Development Research Institute (TDRI) found that only a small number of patents granted by DIP are being used for production in the country.⁸⁰ The non-working of patents means that foreign patent-owners have deliberately and effectively used Thailand as an export market. It also means that foreign patent owners have not modified patented inventions that were initially conceived to satisfy markets in developed countries, to suit Thai conditions. The possibility to use compulsory licensing and other mechanisms to force local working of patents would be limited if Thailand adopts the new IP rules under the proposed US FTA, which prohibits the use of compulsory licensing and patent revocations.

Transfer of technology

Technology transfer by means of purchasing technology from abroad is acknowledged as being important and may be the most efficient method for enterprises in developing countries to acquire technology.⁸¹ It is argued by some that without a sound patent system, the technology owners are not willing to license their technology and this will impede the technology acquisition process of the developing country.⁸²

However, from a practical point of view, it can be argued that patents do not actually promote technology transfer.⁸³ The value of patent protection is that it allows the patent holder to earn profits from the invention, whether in the form of direct production or licensing agreements. The patent holder will license his or her patented or proprietary information only when the level of profits obtainable through direct exploitation of the invention is not higher than royalties.⁸⁴ Where the foreign patent holder (e.g. a *209 multinational pharmaceutical company) can effectively use patent rights to monopolise the developing country's market and earns high profits there, one can safely assume that the patentee is not going to transfer the valuable technology to anyone. ⁸⁵

A 1999 survey reveals that the majority of top executives in Thailand were of the opinion that there has been no transfer of technology to the Thai pharmaceutical industry since the Thai patent law was amended in 1992 to comply with the TRIPS Agreement. ⁸⁶ This is consistent with the experiences of many other developing countries. Countries like Nigeria and Ghana have operated a strong patent system since the colonial period, but to date these countries have been unable to establish a self-reliant domestic pharmaceutical industry.⁸⁷ By contrast, the developing nations that have no pharmaceutical patents or have weak patent protection such as Argentina, Brazil, China, India and Turkey, have been able to set up relatively large local pharmaceutical industries and all these countries have successfully transformed themselves into strong contenders in the world pharmaceutical market. ⁸⁸

Although FDI could contribute to the host country's economy in acquiring technology, the foreign investment policy of the Thai Government has only emphasised the inflow of capital funds. No attempts have been made and no concrete measures have been adopted to absorb modern technologies from investing firms.⁸⁹

With regard to licensing contracts, it was found that the drug companies in Thailand pay high prices for technology, despite the fact that the technologies purchased are relatively simple and unsophisticated for formulating and packaging drugs. A joint study of the Economic and Social Commission for Asia and the Pacific, and the United Nations Centre on Transnational Corporations, reveals that in 1981 the Thai pharmaceutical industry paid as much as 20 per cent of the industry's gross sales for technology on the formulation of a simple and well-known analgesic and paid 28 per cent of annual sales revenue for anaesthetics.⁹⁰ These exorbitant royalty payments provide a clear insight into the problems of transfer pricing in Thailand.

It should be noted that technology transfers are a kind of commercial transaction in which terms and conditions are subject to bargaining between the parties concerned.⁹¹ In addition, the technology market is generally regarded as having market imperfections, in which the technology owners are in a "quasi-monopolistic" position and have more bargaining powers than the buyers.⁹² The dominant position of TNCs and the high demand for technology enable the global firms to impose a variety of restrictions when dealing with the recipients from developing countries.

Restrictive terms and conditions relating to price, quantity, territory, duration, field of use and so on are found in licensing contracts. A study carried out by Santikarn⁹³ found that "export prohibition" ⁹⁴ and "tie-ins" ⁹⁵ were the most common restrictive clauses in transfer of technology transactions in Thailand. Other conditions which affect technological development and pricing policies of the recipients such as "pricefixing" ⁹⁶ and "grant-back" ⁹⁷ clauses were also found. A later study, which examined 275 licensing contracts concluded during the 1980s, revealed that numerous limiting conditions, including export bans, tie-ins, and grant-backs, were imposed by foreign TNCs on Thai licensees.⁹⁸

These restrictive business practices have negative effects on the Thai economy. The clauses prevent the recipient from having full access to technology, debase the value of the technology purchased, inhibit industrial growth, and restrain the export ability of the licensee. Although this paper does not intend to examine the restrictive business practices in patent licensing, the implications of tie-in clauses, one of the most common clauses in the licensing of patented technology, are briefly discussed as an example.⁹⁹

While tie-in clauses allow the technology seller to maximise profits by controlling the supply of raw materials, the economic effects on the licensee and the recipient country are enormous. First, the licensor can charge unreasonably high prices on the tied products. Although substitutable goods are available from alternate sources at cheaper prices, the licensee cannot turn to buy such products. Secondly, the use of the over-priced products as inputs will no doubt affect production costs of the licensee.¹⁰⁰ Thirdly, in cases of licensing agreement with related parties, tie-in arrangement can be exploited as a conduit for transfer-pricing from subsidiary to parent company.¹⁰¹

Footnotes

79. The extent of the discussion on the relationship between protection of IP and R&D capability in developing countries, see M. Kang, Trade Policy Mix under the WTO: Protection of TRIPS and R&D Subsidies (Korea Institute for International Economic Policy, Seoul, 2000).

80. TDRI, cited above fn.67, p.20.

81. Technology contracts may appear in various forms including licensing agreements, technical assistance contracts, management contracts, trade mark contracts and turn-key contracts involving the construction and installation of industrial plants.

82. C.T. Taylor and Z.A. Silberston, The Economic Impact of the Patent System: A Study of the British Experience (Cambridge University Press, Cambridge, 1973), p.214; G. Albrechtskirchinger, "Characteristics of a Patent Policy Aimed at Industrial and Economic Development" in WIPO, The Importance of the Patent System to Developing Countries (World Symposium at Colombo, Sri Lanka, 1977); K.E. Maskus, cited above fn.61, pp.143-160.

83. See Penrose, cited above fn.62, pp.773-774; and S. Lall, "The Patent System and the Transfer of Technology to Less-Developed Countries", J.W.T.L., Vol.10, 1976, p.9.

84. G. Cabanellas, Antitrust and Direct Regulation of International Transfer of Technology Transactions (VCH, Weinheim, 1984), p.60.

85. North-South technology transfers do occasionally take place, but this situation is still an exception rather than the norm. A success case on North-South technology transfer is a partnership arrangement between Eli Lilly and WHO and the Gates Foundation whereby the former agreed to transfer technology to help companies in China, India, South Africa and Russia to produce two off-patent TB medicines. "HIV/AIDS Report", Wall Street Journal, June 5, 2003.

86. Supakankunti et al., cited above fn.28, pp.29-35.

87. See G.S. Yankey, International Patents and Technology Transfer to Less Developed Countries (Gower, Aldershot, 1987).

88. See Gereffi, cited above fn.13, p.182 and Table 6.5; and UNIDO, TheWorld's Pharmaceutical Industries: An International Perspective on Innovation, Competition and Policy (Edward Elgar, Hants, 1992), pp.24-25.

89. A. Rattakul, "Pharmaceutical Patents and National Interest", A Thesis Submitted to the National Security College, Bangkok, 1990, p.68 (in Thai).

90. United Nations, "Costs and Conditions of Technology Transfer through Transnational Corporations", ESCAP/UNCTC, Pub. Series B, No.3, 1984, p.210.

91. OECD, "Transfer of technology for Pharmaceutical Chemicals", Paris, 1975, p.56.

92. ibid.; and see also G.K. Helleiner, "Transnational Enterprises in the Manufacturing Sector of the Less Developed Countries", World Development, Vol.3, No.9, 1975, p.648.

93. M. Santikarn, Technology Transfer: A Case Study (Singapore University Press, Singapore, 1981), pp.131-135 and Table 29.

94. The "export prohibition" clause prohibits the licensee to produce and export to territory and country specified.

95. "Tie-in" is the clause that requires the licensee to buy raw materials or other non-patented goods from the licensor only.

96. The "price-fixing" clause is included in order to allow the licensor to set the sale price of products produced by the licensed technology.

97. "Grant-back" is a clause that obliges the licensee to transfer to the licensor the right over any improvement developed from the licensed technology by the licensee.

98. United Nations, cited above fn.90, pp.217-226 and Tables 20-24.

99. For further discussions, see Yankey, cited above fn.87, pp.24-38; Cabanellas, cited above fn.84; O.T. Adikibi, "The Multinational Corporation and Monopoly of Patents in Nigeria", World Development, Vol.16, No.4, 1988, pp.518-520; A. Otten, "The Implications of the TRIPS Agreement for the Protection of Pharmaceutical Inventions", Presentation at the International Conference of Drug Regulatory Authorities, World Drug Information, Bahrain, November 10-13, 1997.

100. UNCTAD, Major Issues Arising from the Transfer of Technology to Developing Countries, TD/B/AC.11/10, 1972, p.29 cited in Yankey, p.31; K.E. Maskus, "Price Effects and Competition Aspects of Intellectual Property Rights in Developing Countries", World Development Report, World Bank, Washington DC, 1998.

101. UNCTAD, cited above fn.100, p.27.