A. Notion
1 Technology transfer concerns the efficient and equitable allocation of existing technology in the world. Such a transfer differs from the creation of new technology, even though it may enable further technological developments. The term technology transfer entered international law in the 1960s (UNGA Res 1713 [XVI] ‘The Role of Patents in the Transfer of Technology to Under-developed Countries’ [19 December 1961]), though its precise definition remains contentious. The Intergovernmental Panel on Climate Change, for instance, defines technology transfer as ‘a broad set of processes covering the flows of know-how, experience and equipment for mitigating and adapting to climate change’ (Metz 3).
2 Technology transfer has two dimensions. The first is technology as a catalyst for economic development. Technology transfer is widely believed to lead to higher economic growth. In the 1970s and 1980s, dependence theory—the view that integration into the world economy on capitalist terms would gradually worsen the balance of trade for developing countries—had many followers. This model of development emphasized political and economic independence through control of trade, capital, and technology flows. The second dimension concerned the policing of technology licences by competition authorities, and the coordination of national competition policies relating to technology (paras 31–32 below). Technology transfer differs from technical assistance; economic assistance; financial assistance; scientific cooperation; and foreign aid (Foreign Aid Agreements).
3 Technology transfer has been high on the international agenda since the 1960s and has at times been a major source of North–South friction. In the 1970s in particular, a broad coalition of developing countries rallied around calls to alleviate the unequal distribution of technology in the world. Technology transfer became a central demand of the New International Economic Order (NIEO), calling for an alternative model of development, with terms more favourable to developing countries. The existing structures for trading and sharing technology across borders were seen as inadequate. The aim was to equip all countries with a sound technological base to enable them to participate fully in the global economy and to respond to the basic needs of their populations. Large-scale technology transfer to the developing world was regarded by some as a catalyst for local innovation and a prerequisite for sustained economic growth.
4 At the time, many countries regarded technology as a part of the common heritage of mankind. It was argued that technology is a global public good, whose two characteristics are non-rivalness and non-excludability. As such, technology is often seen as an essential tool for solving challenges confronting humanity as a whole, such as, at present, climate change and the transition to a low-carbon economy. The idea was that technology should benefit all peoples (cf Art. 15 (1) International Covenant on Economic, Social and Cultural Rights: ‘the right of everyone … (b) [t]o enjoy the benefits of scientific progress and its application’)—a view that resurfaced in the debate on access to life-saving medicines in the 2000s, but conflicts with the idea of proprietary rights in technology. According to a prominent view at the time, one way of re-balancing the Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPS’) in order to allow sufficient policy space to combat public health crises was to strengthen the TRIPS’s regime of compulsory licences (Public Health, International Co-operation). The view that technology transfer is a human rights issue continues to have currency (eg the Working Group on the Right to Development).
5 Since the 1970s, technology transfer has only grown in importance because knowledge-intensive industries account for an increasing share of economic activity, and because technology is a central determinant of international competetiveness. The diffusion of the world’s stock of technology is incomplete and highly concentrated. A small number of countries account for most of the stock and the creation of new technology (World Bank [2008]). The wide dispersion in technology endowments accounts for different preferences on intellectual property right (‘IPR’) policies across countries.
6 Both governments and companies are important players in technology transfer. The channels for technology transfer are diverse, and increasingly so (Keller [2004]). They include licensing; the operation of firms abroad; imports of technology embedded in goods or services; investment; exchange between experts; publication of research; patent documentation; copying; joint ventures; and mergers and acquisitions. Middle-income countries increasingly enjoy access to frontier technology through foreign direct investment (‘FDI’) and trade. Least developed countries (‘LDC’) recipients, by contrast, often lack exposure to advanced technology through these channels or may be unable to pay for technology licences on commercial terms. The receiving country may lack the capacity to absorb technology or its market size may be too small to be attractive to potential transferors. Reliance on global technology markets alone may fail to generate sufficient technology transfer and complementary or concessional technology transfer mechanisms may be needed.
7 The early literature assumed that technology transfer occurs almost automatically. Experience suggests that the transfer of technology faces many obstacles, only some of which are of a legal nature. Even under optimal conditions for accessing and transferring technology, the recipient may lack education, labour, materials, time, or entrepreneurial spirit to take advantage of technology. Complementary investments may thus be needed. Geography plays a role too. Technology diffusion on average drops by 50% for every additional 1,200 kilometres of distance (Keller [2004] 4). Since 1990, however, the impact of distance on technology diffusion has declined markedly with the rise of information technologies.
8 Technology importing countries tend to prefer joint ventures over FDI and other forms of close collaboration. With joint ventures, technologies cannot be kept secret easily, given that production occurs within a single organizational unit. Under these conditions, involuntary technology transfer is likely. Trade, FDI, and licensing account for the bulk of international technology transfer. The institutional frameworks for encouraging technology transfers need to take this new paradigm into account. A better understanding of the different channels through which technology diffuses across borders has important implications for designing institutional frameworks to facilitate technology transfer, and to prevent legal institutions from impeding desirable forms of technology diffusion.
9 The transfer of technology may be the primary object of a transaction, such as with technology licences. Often, however, technology transfer is the by-product of another transaction, in which case it is often not subject to legal rules. By-product technology transfer is by an order of magnitude larger than direct technology transfer (Keller [2008]). A good example is the clean development mechanism (‘CDM’) that allows the trading of reductions in carbon emissions (Emissions Trading). Even though the Kyoto Protocol does not require technology transfer in CDM projects, some countries evaluate their technology transfer potential. Chinese guidelines prescribe that ‘CDM project activities should promote the transfer of environmentally sound technology to China’ (Art. 10 Measures for Operation and Management of Clean Development Mechanism Projects in China [2005]).
B. Intellectual Property Rights as Catalyst for and Barrier to Technology Transfer
10 Technology may be proprietary—protected by IPRs (Intellectual Property, International Protection) or in the public domain. Technology is non-rival, and thus displays at least one feature of a public good. Consumption by one economic agent does not decrease consumption possibilities of all other economic agents. By contrast, excludability, the second criterion for a public good, is a function of IPRs. IPRs are a central legal institution for technology transfer because they grant rights in technology, and make technology excludable. They calibrate the trade-off between access and innovation. It is increasingly recognized that IPR regimes need to provide room for technology transfer.
11 IPRs seek to ensure that innovators receive adequate consideration for their contribution to social and economic progress. It is seen to be in society’s interest to encourage innovation whenever social benefits, which often differ from private benefits, exceed private costs of development. The power of IPRs to exclude other users reduces consumer welfare in the present, by increasing prices and restricting access. IPRs redistribute welfare between technology producers and users. Net importers of technology could face a net welfare loss when IPRs are strengthened, though some countries may experience mixed effects, with considerable local innovation in some sectors. IPRs raise the costs of technology transfer without the consent of the right holder through damages, confiscation of counterfeited goods, and criminal penalties.
12 From the perspective of static efficiency, the cost of using technology needs to equal the marginal cost, which equals zero once the technology is developed. Dynamic efficiency requires non-zero cost to incentivize innovation. When IPRs make technology excludable, the holder of the right may be able to recoup the costs of development by selling the technology. When technology is in the public domain, by contrast, other economic agents cannot be denied enjoyment of the technology. Technology itself may also be used to deny access to other technology. In jurisdictions where IPR enforcement remains patchy, rights holders increasingly look to such technological solutions to protect their technology or ideas from copying (eg music software).
13 The Uruguay Round ushered in a new era in the relationship between trade and intellectual property law: the Agreement on Trade-Related Aspects of Intellectual Property Rights (1994). In creating the possibility for countries to lawfully restrict access to their markets for goods coming from countries that failed to meet the new international minimum standards set out in the TRIPS, and by providing an international floor for IPR protection, the TRIPS sought to ratchet up IPR protection to internationally agreed-upon standards.
14 The main impetus behind the strengthening of IPRs over the last two decades has been the view that IPRs provide critical incentives for innovation, though recognition of the moral rights of the creator has also played a role. Many developing countries did not subscribe to the view that IPRs are critical for innovation, but accepted the TRIPS in the WTO negotiations in exchange for a promise of increased market access for textiles and agricultural goods (see Deere-Birbeck). Well-calibrated IPRs incentivize IPR holders to voluntarily transfer technology for profit.
1. The Effect of IPRs on Technology Transfer
15 The effect of IPRs on international technology flows is ambiguous—another emanation of the access-innovation trade-off. On the one hand, IPRs restrict access to technology by increasing prices. On the other hand, they open up opportunities to commercialize technology for profit, which could stimulate international technology flows. The volume of technology transfer also depends on a range of other factors, including the recipient country’s capacity to absorb, the attractiveness of the local market, and perceived imitation threats. IPRs also affect the incentives to create new technology, which in turn expands the range of technologies that could potentially be transferred. Incentives to innovate differ by sector and technology. For pharmaceuticals, patents play a crucial role for innovation, but innovation in other sectors may not require excludability by virtue of IPRs. Other incentives for innovation include a desire to shape consumer brand preferences, the desire to create a trend, and the first mover advantage.
16 In the 1970s and 1980s, the belief was widespread that lenient IPR protection would increase international technology flows. However, there is little evidence that policies aimed at technological autonomy, which were prominent at that time, did substantially and broadly accelerate technology transfers. Developing countries in particular used a range of national regulatory and administrative measures to encourage, and at times coerce, technology transfer. Conversely, lenient IPR regimes permitted the emergence of generic drugs industries through reverse engineering in Japan and the Asian tigers. These countries were the recipients of voluminous involuntary technology transfer in the 1970s and 1980s. Whether strict or lenient IPR regimes allow more technology to flow across borders, and what their respective distributive consequences are, remain controversial questions.
17 Prior to TRIPS, IPR legislation, and especially enforcement in many middle-income countries and LDCs, tended to be weak. The twin pillars of IPR protection internationally—the Berne Convention for the Protection of Literary and Artistic Works ([concluded 9 September 1886] 1161 UNTS 3) and the Paris Convention for the Protection of Industrial Property ([signed 20 March 1883, entered into force 6 July 1884] 828 UNTS 107)—were widely seen as toothless, as evidenced by the increasing volume worldwide of counterfeited goods (see Avery). A country could have world class legislation but enforcement might still be structurally and institutionally weak. The strength of any given IPR regime reflects a country’s status as a technology exporter or importer and its position in the cycle of development, though there appears to be considerable variation across countries, linked to institutional development, civil society, colonial legacy, and capacity to implement IPRs (see Alford; Deere-Birbeck).
2. The TRIPS Agreement and Technology Transfer
18 The TRIPS agreement represents the most important milestone in international intellectual property protection in the 20th century. It transformed the conditions for access to technology, in particular in the developing countries and LDCs. Its strong emphasis on IPR protection stands in stark contrast to the thought underpinning the NIEO debate in the 1970s. Developing countries made significant concessions that paved the way for TRIPS. Some proponents of TRIPS thought that market incentives could boost technology transfer. This shift is also apparent in a number of bilateral agreements concluded between developing and developed countries, which affect technology transfer. The harmonization of patent law was seen as particularly sensitive, given wide divergences in national legislation and the important differences reflected in core national policies. Art. 27 TRIPS establishes a uniform patent term of 20 years. Patents must be granted in a non-discriminatory fashion, irrespective of the place of invention, the field of technology, or the place of production.
19 TRIPS will tend to reduce knowledge spillovers by increasing the excludability of new technology. Traditionally, much knowledge and technology, especially in the developing world, was copied. As a system for recognizing previously existing proprietary rights internationally, TRIPS focuses on market channels as the most viable method of technology transfer. Some claim that TRIPS thus substantially curtails the traditional space for technology transfer by restricting non-market channels via the creation of effective individual rights in technology. Today, some push for even stronger IP protection (see the discussion of TRIPS-plus obligations below). Such efforts may be misguided. Even longer periods of protection than under TRIPS are believed by some scholars to have high social cost and negligible benefits for creators (eg Gowers Review).
20 LDCs benefit from limited differential treatment under TRIPS. The Preamble and Art. 8 (1) recognize a need for differential treatment to allow LDCs to create a sound technological base. Developing countries benefited from a four year transitional period. As far as technologies not covered at the entry into force are concerned, an additional transition period until 1 January 2005 was available, with the caveat that IP protection must not diminish during the transitional period. LDCs benefit from a transition period until 1 July 2013 for TRIPS in general, and until 1 January 2016 for pharmaceutical-related patents. Compulsory licences (see para. 23 below) are another balancing instrument.
21 Even though TRIPS does not define technology transfer, it contains three important provisions on technology transfer: Arts 7; 8; and 66 (2). Arts 7 and 8 TRIPS respond to a primary demand of developing countries for a balance between the rights of creators and technology users. TRIPS recognizes that competition law may have some limited role to play in policing technology transfer. The protection and enforcement of IPRs should contribute to the promotion of technological innovation and to the transfer and dissemination of technology. It is unclear whether this provision represents a mandatory rule that may be used to limit obligations to protect IPRs when the recipient country proves that no technology transfer occurred. As a treaty objective, it also plays a primary role in the interpretation of other TRIPS provisions (para. 5 (a) Doha Declaration on the TRIPS Agreement and Public Health [‘Doha Declaration’]). It is uncertain how effective these provisions are. The Doha Ministerial Conference charged a working group on trade and technology transfer with studying how to augment technology transfer (para. 37 Declaration on the Doha Round of Multilateral Negotiations [‘Doha Ministerial’] and Ministerial Decision on Trade and Transfer of Technology; see also Doha Round).
22 Art. 7 TRIPS provides that IPR protection ‘should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations’. Art. 8 (2) TRIPS allows ‘appropriate measures’ to be taken to ‘prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology’. The interpretation of the undefined terms ‘abuse’, ‘unreasonably restrain’, and ‘adversely affect’ is crucial. Some limit the notion of abuse to anticompetitive practices that violate competition law. Others advocate a broader view of abuse, including but not limited to failure to work the patent, refusal to grant a licence on commercially reasonable terms, excessive pricing, or failure to supply sufficient quantities. Inspired by the Code of Conduct, Art. 40 TRIPS recognizes that IPRs may ‘impede the transfer and dissemination of technology’, and recognizes that WTO members have some leeway to control anti-competitive practices in technology licences.
23 Art. 31 TRIPS on compulsory licences is a second relevant provision for technology transfer. Compulsory licences are conditioned on an individual evaluation and efforts to obtain authorization from the IPR holder on reasonable commercial terms within a reasonable period of time, except in cases of national emergency, other circumstance of extreme urgency, for public non-commercial use, or in cases of anticompetitive practices. Compulsory licences need to be time-limited and predominantly for the supply of the domestic market. They are non-exclusive and non-assignable. The IPR holder must be given adequate remuneration, which need not necessarily be equal to the monopoly rent for a voluntary licence. The definition of adequate will depend on the particular technology (see further Taubman). Finally, some argue that the required disclosure of the invention under Art. 29 TRIPS in return for patent protection is another important channel for the transfer of technology.
24 Starting in the late 1990s, concerns grew that TRIPS could hinder access to life-saving medicines by requiring countries to begin granting patents on pharmaceutical products which had not previously enjoyed such protection in many developing countries, causing a backlash against TRIPS. Member States contemplated three mechanisms for ensuring access to essential medicines, including an amendment of TRIPS (Art. X Marrakesh Agreement Establishing the World Trade Organization [adopted 15 April 1994, entered into force 1 January 1995] 1867 UNTS 154 [‘WTO Agreement’]), an authoritative interpretation (Art. IX (2) WTO Agreement), and a Ministerial Declaration. They opted for a declaration. The 2001 Doha Declaration on the TRIPS Agreement and Public Health clarified that Members had ‘the freedom to determine the ground upon which [compulsory] licences are granted’ and ‘the right to determine what constitutes a national emergency or other circumstances of extreme urgency’. The language on technology transfer is weak, as members only ‘undertake to cooperate in paying special attention to the transfer of technology and capacity building in the pharmaceutical sector’. The Declaration provides for a transition period until 1 January 2016 for patents on pharmaceutical products.
25 Art. 66 (2) TRIPS calls on developed countries to provide appropriate incentives to institutions operating in their territories to encourage technology transfer to LDC Members: ‘Developed country Members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least-developed country Members in order to enable them to create a sound and viable technological base’. Para. 7 Doha Declaration reiterates this commitment. This reaffirmation resulted from concerns that developed countries by and large failed to live up to their technology transfer obligations, which in practice seemed to be merely hortatory. Para. 11 (2) of the Declaration sets up a mechanism for ensuring the monitoring and full implementation of technology transfer obligations. Worries about slow and patchy implementation remain (Decision on Implementation-Related Issues and Concerns, 2001). From 2002 onwards, detailed annual reports on incentives provided to domestic firms for encouraging technology transfer became mandatory. However, assessing compliance is difficult, due to ambiguity around the definitions of ‘technology transfer’ and the lack of a uniform reporting format across countries (see Moon).
C. Augmenting Technology Transfer: A North–South Divide
26 The broader international context framed the early technology transfer debate. In the 1960s and 1970s, many former colonies insisted not only on sovereignty and sovereign equality (States, Sovereign Equality), but also on sovereignty over their own economic resources (Natural Resources, Permanent Sovereignty over), including the exercise of national jurisdiction over technology transfer transactions connected with the national territory. The creation of an independent, modern technological base was a central aspect of that endeavour. Such autonomy required importing advanced technology from abroad without onerous restrictions on its use.
1. Evolution of Legal Framework
27 Rulemaking on technology transfer at the national level preceded international efforts. Typically, these rules are either related to competition rules or contained in direct control statutes. The next step was the ambitious, yet ultimately unsuccessful Draft International Code on Technology Transfer of the United Nations Conference on Trade and Development (UNCTAD), the subject of energetic debates in the 1970s.Over the last two decades, the use of multilateral, regional, and bilateral standard-setting on technology transfer increased. Since the end of the 1990s, some bilateral treaties include TRIPS-plus standards.
28 In the 1970s and 1980s, the debate on international economic law in general, and on technology transfer in particular, centred on how to take due account of the special needs of developing countries. The implications of technology transfer transactions on the balance of payments were a focal concern, captured in the term ‘technological balance of payments’. Over time, the discussion became more polarized. Some countries, especially former colonies, increasingly insisted on large-scale technology transfer, to compensate for colonialism and economic exploitation. A similar bargain is mooted in the current climate change negotiations, where transfer of environmentally clean technologies is advocated as an offset for past environmental pollution by today’s advanced economies.
29 In the 1980s, the dynamics of the discussion changed, and ultimately led to the emergence of TRIPS in the early 1990s. As a wave of economic liberalization swept many parts of the world, countries were increasingly competing as business destinations to attract foreign investment. It had become apparent that economic autarky, rather than encouraging economic development, perpetuated underdevelopment. Some countries in East Asia rapidly caught up with advanced technology, especially in electronics and computing. They leap-frogged several rungs in the technological ladder, and engaged in direct competition with technological leaders in the United States and Europe. As a result, competition in technology-intensive goods increased. In parallel to their growing self-interest to protect home-grown technology, pressure on other developing countries to strengthen IPR regimes intensified. The coalition of countries in favour of improving the terms of international technology transfer in favour of developing countries fractured.
2. National Transfer of Technology Rules
30 Many technology-importing countries, such as Brazil and Argentina, adopted national transfer of technology rules. They had their heydays in the 1970s and 1980s, and were precursors to the Draft Code on Technology Transfer elaborated under the auspices of UNCTAD. They took two principal forms: competition rules and direct control statutes. Both types of rules are typically addressed to the holders of IPRs and generally applicable only to technology licences and similar transactions.
31 Competition rules prohibit a set of restrictive licence practices because of their adverse effect on competition and because the IPR holder abuses control over the technology (Antitrust or Competition Law, International). IPRs enable their holder to set the terms of technology licences and often impose vertical restraints on competition. Technology importers have been particularly concerned about anticompetitive practices by multinational enterprises (eg intra-firm technology transfer)—a concern that was first reflected in the Set of Mutually Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices (UNGA Res 35/63).
32 Three stylized approaches to dealing with technology licences under competition law may be distinguished. First, some competition laws include specific rules on restrictive practices involving technology transfer transactions (some developing countries). Second, courts, as the final arbiter, evaluate challenges to restrictive practices in technology licences (eg the United States).The third model involves detailed regulations on how to consider various types of technology transfer transactions under competition law (eg the European Union).
33 Direct control statutes attempt to directly police the terms of technology transfer transactions for restrictive practices and onerous terms. Control over intra-firm technology transfer was typically more stringent than over arm’s length transactions. Factors considered in a global evaluation included the availability of similar technology in the recipient country; minimum warranties; training to enable effective use of the technology; the technology’s half-life; and the likely effect on local innovation and research. Competition authorities were given broad powers to change the terms of the contract, subject to the agreement of both parties. Restrictive provisions deemed abusive were banned altogether. Direct control statutes often limited the maximum duration of the contract; restricted the transferee’s obligations after termination; proscribed performance or production requirements; contained a Calvo Clause type (Calvo Doctrine/Calvo Clause) provision mandating the application of local law; and provided for jurisdiction of domestic courts over technology transfer transactions. Unregistered transactions were often deemed to be unenforceable. These measures, taken together, aimed at improving the bargaining position of technology importing firms, to protect the balance of payments from costly licence fees in foreign currency, and to encourage local innovation. The goal of preserving competition in technology markets is only secondary.
34 Typical of direct control statutes were the Antimonopoly Act Guidelines for International Licensing Agreements of the Japan Fair Trade Commission ([May 1968] reprinted in M Nakagawa [ed] Antimonopoly Legislation of Japan [Kosei Tokyo 1984]), widely regarded as an effective set of national transfer of technology rules in furtherance of industrialization and development in steel and electronics. The Japanese case also illustrates the potential dangers of direct administrative control over technology transfer. In 1953, Sony, then an unknown Japanese start-up company, sought permission to import transistor technology for US$25,000. The Japanese government was reluctant to grant permission, citing a shortage of foreign currency and the company’s lack of a track record.
35 A second example of a comprehensive attempt to regulate technology transfer is the Andean Code in the Andean Common Market (1970), established by the Cartagena Agreement on Andean Subregional Integration ([signed 26 May 1969, entered into force 16 October 1969] [1969] 8 ILM 910) between Bolivia, Chile, Colombia, Ecuador, and Peru (Venezuela joined in 1973). Decision No 24 of 1970 adopted a restrictive approach to technology imports; an emanation of import-substitution policies which provided for national agencies to register and review all technology transfer transactions; prohibited a range of restrictive clauses contracts; and gave preference to regional technology. The decision was largely unsuccessful at forging a common foreign investment and technology transfer policy, because Member States of the Andean Community had little incentive to keep to its prescriptions following the onset of the Latin American debt crisis in the 1980s and resulting efforts to attract investment (Sell). Nevertheless, its principles inspired national control statutes. The Andean Group substantially liberalized its technology importation regime in Decision No 220 ‘Decision replacing Decision 24, the Common Foreign Investment and Technology Licensing Code’ ([11 May 1987] [1988] 17 ILM 974) and Decision No 291 ‘Common Code for the Treatment of Foreign Capital and on Trademarks, Patents, Licenses and Royalties’ ([21 March 1991] [1991] 30 ILM 1283). The only two mandatory provisions on technology transfer that remained were a registration requirement for technology licences and a provision that technology licences may not interdict the exportation of goods produced on the basis of the technology.
36 Export controls on technology are a variant of direct control statutes and persist in many developed economies with high endowments of advanced technology. The focus is on military and dual-use technology. Such statutes restrain international flows of technology for strategic and foreign policy reasons. Many countries encourage local development of technology as a means to ensure their technological security, for fear that global technology markets will dry up and advanced technology will not be available, even at high prices. If the country has other advanced technology to offer in return, its bargaining position on world markets improves. In wartime, customary international rules on contraband also establish a strict regime of control that affects technology transfer.
37 The demise of direct control statutes came as many economies liberalized trade, investment, and foreign exchange regimes starting in the 1970s, and gaining steam in the 1980s. Their effectiveness, which hinges on a close control of trade, investment, and capital flows, decreased markedly. With liberalization, the focus shifted to regulating technology flows internationally. But international technology transfer rules developed only gradually. Today, the law on technology transfer remains characterized by a paucity of international rules and a patchwork of national legal rules that are highly fragmented by type of technology.
3. The UNCTAD Draft Code on Technology Transfer
38 A series of background studies by UNCTAD in the 1970s permanently influenced the debate on technology transfer. The objective was to increase access to know-how and technology through favourable financing and access to technology on preferential terms in order to stimulate economic growth in developing countries. The culmination of UNCTAD’s efforts was the Draft Code of Conduct on Technology Transfer (Codes of Conduct), the first multilateral, albeit non-binding attempt at forging an agreement on broad principles on technology transfer.
39 The Draft Code, elaborated between 1976 and 1978, defined technology transfer transactions broadly, provided the transactions were international in nature. Its definition of technology included industrial property; know-how; technical expertise and knowledge for the operation of plants; equipment; intermediate goods; and raw materials. The aim was to create a comprehensive regime for technology transfer. Technology was seen as humanity’s common heritage that should be as widely shared as possible. Some of its principles apply to States, and others concern private parties. As regards States, the Code called for intergovernmental cooperation in technological matters and a commitment to effective implementation of the Code. The Code drew a distinction between privately and publicly controlled technologies. As regards the former, States were called upon to facilitate access by developing countries. The situation was different for technology in the public domain, where developed countries were committed to providing free and full access.
40 The most significant part of the Code contains uniform, directly applicable rules on commercial technology transfer transactions. The overarching aim was to rebalance the relationship between rights holders and technology importers by removing the terms of such transactions from the vagaries of national private international law and by levelling the playing field, including with respect to dispute settlement and applicable law. At the core of this attempt was an extensive list of restrictive practices that incorporated elements of competition law into international technology transactions. Measures include grant-backs of technological improvements; restrictions on local research; exclusive dealing; sales; and representation clauses.
41 Ultimately, the Code failed to win widespread acceptance for three main reasons. First, developed countries regarded many of the restrictive practices as unjustifiable. Second, they also opposed the inclusion of intra-firm transactions which make up the bulk of technology transfer. Third, views on the law applicable to technology transfer transactions differed. Technology importing countries desired the application of their own law and dispute resolution in their own courts. Technology exporters insisted on applying general principles of private international law, and in particular the principle of party autonomy. In practice, that principle led almost invariably to the application of the law of the technology exporting country. After the failure of the Draft Code at the international level standard setting on comprehensive multilateral rules for technology transfer, outside narrow and specialized treaties examined below, remained elusive. Yet despite the Code’s demise, it influenced the formulation of national and international instruments, including elements of TRIPS. To a large extent, technology transfer became the exclusive domain of agreements between private parties. Faced with the infeasibility of international rules, private parties which export and import technology developed common contracting practices.
D. Trends in International Rule-Making
42 With the demise of the NIEO, attempts to create uniform and general rules on technology transfer drew to a close. There is, at present, no comprehensive international framework for technology transfer. Ancillary technology transfer provisions in treaties became increasingly common, for instance in international environmental law or the law of the sea. Typically, these technology transfer obligations incumbent on governments, aim to build capacity and ensure effective implementation of the treaty by transferring technologies related to the treaty aims. Such provisions are found in foreign aid agreements, agreements on intergovernmental scientific cooperation, and in double taxation agreements. The latter often contain rules on transfer pricing. For instance, Section 482 of the US tax code aims to prevent tax shifting related to technology transfer transactions. Transfers need to be valued as if they were arm’s length transactions. In outer space law, technology transfer also plays an important role.
43 The remit of international law on technology transfer is tightly circumscribed. At present, international law plays only a complementary role. Mandatory rules on technology transfer are rare; best effort commitments are much more common, and these remain difficult to monitor and evaluate to ensure proper implementation. To the extent that technology transfer occurs between private firms—and all indications are that this is the most important form in volume terms—the regulation of these transactions is governed by domestic contract, competition, and property law. National administrative, tax, and IP law all impact the attractiveness of transferring technology. International competition law exists only in a rudimentary form. In these conditions, governments bear primary responsibility for creating an enabling framework for technology transfer.
44 The United Nations Convention on the Law of the Sea ([concluded 10 December 1982, entered into force 16 November 1994] 1833 UNTS 397 [‘UNCLOS’]) contains several technology transfer provisions that were a cornerstone in the Law of the Sea negotiations (see Stoll [1995] ‘Transfer of Technology’ para. 31), and influenced later rule-making. These provisions can be found in Art. 144 UNCLOS (transfer of technology); Art. 202 UNCLOS (scientific and technical assistance to protect and preserve the environment); Art. 244 UNCLOS (publication and dissemination of information and knowledge); Part XIV UNCLOS (development and transfer of marine technology); and Art. 273 UNCLOS (transfer to developing States). In particular, Art. 266 in Part XIV UNCLOS calls on States to cooperate to actively transfer marine technology on ‘fair and reasonable terms and conditions’, subject to the existing proprietary rights, and exhorts States to ‘foster favourable economic and legal conditions for the transfer of marine technology for the benefit of all parties concerned on an equitable basis’, balancing the rights and duties of holders, suppliers, and recipients of marine technology (Art. 267 UNCLOS).
45 The institutionalized system of technology transfer in relation to deep sea-bed mining (Part X and Annex III UNCLOS) reflects the philosophy of the NIEO that was prominent in the 1970s. Many States were concerned about access to sea bed mining technology in view of the participation of private companies. To counter fears over exclusive control of such technology, the Sea-Bed Authority is charged with ensuring access to such mining technology and encouraging the transfer of such technology to developing countries. According to Art. 5 (3) (c) UNCLOS, all contractors are required to undertake transfer of technology to the Enterprise, the organ charged with mineral administration in the area, unless such technology is available in the open market on reasonable commercial terms. The Convention deeming the sea bed and technology for its exploitation to be a common heritage of mankind prompted several countries not to ratify UNCLOS. In response, UN General Assembly Resolution 48/263 ‘Agreement relating to the Implementation of Part XI of the United Nations Convention on the Law of the Sea of 10 December 1982’ ([28 July 1994] GAOR 48th Session Supp 49 vol 2, 7) significantly changed the sea-bed mining regime and provided for the inapplicability of Art. 5.
46 Art. 8 (1) Energy Charter Treaty, a multilateral instrument to protect energy-related investments, contains a hortatory technology transfer provision replicated in a range of other international instruments. Such soft law commitments to increase technology transfer are common. The parties agree to promote access to energy technology and its transfer on a non-discriminatory and commercial basis, subject to existing IP legislation (European Energy Charter Conference ‘Final Act, Energy Charter Treaty, Decisions and Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects’ [17 December 1994] [1995] 34 ILM 360). The provision calls upon parties to eliminate obstacles to technology transfer related to energy products and equipment. Art. 19 (h) refers to such transfers in ‘favourable conditions’. The Common Market for Eastern and Southern Africa is a good example of regional coordination of technology transfer policies. Member States commit to develop a common approach to technology transfer (Art. 103 (2) Treaty Establishing the Common Market for Eastern and Southern Africa [adopted 5 November 1993, entered into force 8 December 1994] [1994] 33 ILM 1072), a provision with doubtful practical value.
47 The Draft Multilateral Agreement on Investment of 22 April 1998 (‘MAI’), an attempt to fashion multilateral rules for cross-border investment by the member countries of the Organization for Economic Co-operation and Development (OECD), contained a performance requirement. Art. 1 (f) MAI provided that no requirement to transfer technology may be imposed, maintained, or enforced in connection with investments, unless the requirement results from adjudication of domestic competition law and is consistent with TRIPS. Investment regulations in many countries, in particular in the developing world, traditionally contain performance requirements, such as an obligation to conduct research and development in the host country. This provision was particularly controversial in the negotiations, and contributed to the downfall of negotiations on the MAI in 1998.
48 The preamble of the Multilateral Investment Guarantee Agency (MIGA) refers to the desire ‘to enhance the flow to developing countries of capital and technology’ but it has no binding force. In 2003, in order to bridge the growing digital divide, the World Summit on the Information Society called on States to enhance national capabilities, to establish partnerships between developed and developing countries, and to create an environment conducive to technology transfer.
1. TRIPS-plus Obligations in Bilateral and Regional Agreements
49 Bilateral and regional treaties, especially bilateral investment treaties (‘BITs’), increasingly contain particularized intellectual property rules. They tend to go beyond TRIPS in terms of protection and harmonization of substantive standards (TRIPS-plus). While these agreements do not regulate technology transfer explicitly, they often have an indirect impact. The typical definition of investment in BITs includes intellectual property rights, thereby strengthening intellectual property rights. Conversely, foreign investment is one of the most important channels for technology transfer. These two factors will tend to work in opposite directions, and it is unclear whether the volume of technology transfer increases as a result of the proliferation of BITs.
50 The latest generation of BITs commonly contains the type of prohibitions on performance requirements that direct control statutes often included. A good example of prohibitions on performance requirements is the 2004 US Model BIT: ‘Neither Party may, in connection with the establishment, acquisition, expansion, management, conduct, operation, or sale or other disposition of an investment of an investor of a Party or of a non-Party in its territory, impose or enforce any requirement or enforce any commitment or undertaking … to transfer a particular technology, a production process, or other proprietary knowledge to a person in its territory’. Neither TRIPS nor the WTO’s Agreement on Trade-Related Measures on Investment ([signed 15 April 1994, entered into force 1 January 1995] 1868 UNTS 186 [‘TRIMS’]) covers performance requirements. Their inclusion represents a TRIPS-plus standard.
2. Technology Transfer and the Environment
51 In the environmental field we find some of the most comprehensive and far-reaching technology transfer provisions, in recognition of the cross boundary nature of environmental pollution and the global public good of mitigating environmental harms. No authoritative definition of climate change mitigation technology currently exists (Dechezleprêtre and others). One benefit of technology transfer is that a large number of countries could be put in a position to grow with a reduced environmental footprint. The emphasis is on ensuring that all countries have the capacity to deal with urgent environmental needs. Technology transfer is seen as an essential ingredient of successful implementation, in particular in countries that lack home-grown technologies. For instance, transferring environmentally sound technologies (‘ESTs’) to developing countries is part of the fabric of the United Nations Framework Convention on Climate Change ([adopted 9 May 1992, entered into force 21 March 1994] 1771 UNTS 107 [‘UNFCCC’]). However, even though there is some abstract willingness to share environmental technology because of a growing recognition that increased technology transfer in this area would be beneficial from a public policy point of view, and even though many environmental treaties include technology transfer clauses, implementation has been far from satisfactory. Firms are reluctant to share technology, unless publicly-funded and properly structured incentives are in place.
52 Principle 9 Stockholm Declaration of the United Nations Conference on the Human Environment ([16 June 1972] UN Doc A/CONF 48/14/Rev 1, 3 [‘UNCED’]) recognized that environmental protection requires substantial sharing and transfer of technology. Art. 10A London Agreement to the Protocol calls on States Parties to ensure that the best available technologies are transferred expeditiously ‘under fair and most favourable conditions’ (Adjustments and Amendments to the Montreal Protocol on Substances That Deplete the Ozone Layer [29 June 1990] [1991] 30 ILM 537). Principle 9 Rio Declaration on Environment and Development ([14 June 1992] UN Doc A/CONF 151/26/Rev 1 vol I, 3) reaffirms the importance of the link between effective international environmental policies and technology transfer (Stockholm Declaration (1972) and Rio Declaration [1992]). The Agenda 21 of 1992 regards technology transfer as a crucial element of compliance assistance. In 1997, the United Nations General Assembly recommended regional centres for transfer of technology, followed up by a general call to accelerate technology transfer by the Commission on Sustainable Development (UN ECOSOC ‘Capacity-building, Education and Public Awareness, Science and Transfer of Environmentally Sound Technology’). Public-private partnerships using a wide range of tools, including FDI; joint ventures; licensing; coproduction; intra-firm transfers; and strategic alliances are seen as the best method of ensuring effective technology transfer.
53 Technology transfer provisions are also found in Art. 4 (2) Vienna Convention for the Protection of the Ozone Layer ([adopted 22 March 1985, entered into force 22 September 1988] 1513 UNTS 324), which calls for necessary equipment for research and training of scientific personnel (see Andersen and others). The Montreal Protocol on Substances that Deplete the Ozone Layer ([adopted 16 September 1987, entered into force 1 January 1989] 1522 UNTS 3) provides in Art. 10A that each party ‘shall take every practicable step … that the best available, environmentally safe substitutes and related technologies are expeditiously transferred’, ‘under fair and most favourable conditions’. This reference to ‘fair and most favourable conditions’ is repeated in a number of international environmental conventions. In Decision VII/26 ‘Technology Transfer’, the parties to the Ozone Convention decided to ‘establish a mechanism specifically for the transfer of technology and the technical know-how at fair and most favourable conditions necessary to phase-out ozone-depleting substances’.
54 The Convention on Biological Diversity ([concluded 5 June 1992, entered into force 29 December 1993] 1760 UNTS 79) contains an ancillary technology transfer provision that provides that each party undertakes ‘to facilitate access for and transfer to other Contracting parties of technologies that are relevant to the conservation and sustainable use of biological diversity or make use of genetic resources that do not cause significant damage to the environment’. In the Convention on Biological Diversity, the bargaining element is particularly obvious. Developing countries are granted access to genetic resources in return for technology transfer and a share of the profits from exploitation. The Convention distinguishes two types of technology transfer: first, technology for conserving biodiversity; and second, technology transfer to countries using genetic resources. The terms of access for the first type of technology are remarkable. Developing countries had a strong bargaining position due to their control over resources. First access ought to be provided on ‘fair and most favourable terms, including on concessional and preferential terms where mutually agreed’, with due regard for IPR rights on technology to be transferred. Second, the transfer obligation includes technologies covered by IPRs. The scope of this transfer obligation and who the obliged party is are unclear.
55 Art. 4 (5) UNFCCC calls on ‘developed country parties and other developed Parties included in Annex II all practicable steps to promote, facilitate and finance, as appropriate, the transfer of, or access to, environmentally sound technologies and know-how to other Parties, particularly developing country Parties, to enable them to implement the provisions of the Convention’. As a framework agreement, the Convention does not include details on how technology transfer ought to be financed, or on the terms of transfers, other than taking account of the special needs of developing countries and LDCs. An Expert Group on Technology Transfer is charged with finding ways of implementing technology transfer. The Kyoto Protocol to the United Nations Framework Convention on Climate Change ([adopted 10 December 1997, entered into force 16 February 2005] [1998] 37 ILM 32) lists technology transfer in Art. 3 (13). Art. 11 Kyoto Protocol calls for funding to finance technology transfer. The United Nations Convention to Combat Desertification in Those Countries Experiencing Serious Drought and/or Desertification, particularly in Africa ([opened for signature 14 October 1994, entered into force 26 December 1996] 1954 UNTS 3) charges the Global Environmental Facility with mobilizing substantial financial resources for technology transfer. Technology transfer is ‘on favourable terms, including on concessional and preferential terms, as mutually agreed’ (Arts 12, 16, and 18). In 2001, the parties to the UNFCCC established an Expert Group on Technology Transfer to monitor and advance the transfer of climate-mitigation technologies. Technology transfer is also regarded as one of four pillars of the successor agreement to the Kyoto Protocol, besides adaptation, finance, and mitigation (Bali Action Plan [3–15 December 2007] UN Doc FCCC/CP/2007/6/Add.1). As a complementary measure, the 2009 UN Climate Change Conference in Copenhagen established the Copenhagen Green Climate Fund with $100 billion per year to fund mitigation and adaption projects in developing countries.
56 At the 16th Conference of the UNFCCC in Cancun in 2010, the UNFCCC’s Ad Hoc Working Group on Long-term Cooperative Action established a Technology Mechanism that consisted of a Technology Executive Committee (‘TEC’) and Climate Technology Centre and Network (‘CTCN’). The TEC is designed to enhance the implementation of Art. 4 (5) UNFCCC. The CTCN’s purpose is to facilitate a network of national, regional, sectoral and international technology networks, organizations, and initiatives. The 2012 Rio+20 Outcome Document (paras 70–72) reiterates the importance of technology transfer to developing countries, especially with respect to research and development and transfer of clean technology, including offshore renewable energy.
E. Lessons for Effective Modes of Technology Transfer
57 The obligated parties under international law are generally States, rather than proprietors of technology. The challenge lies in devising new mechanisms to ensure that technology-owning private actors are properly incentivized to transfer technology even without expected profits. Companies remain extremely reluctant to share their technology as they seek to maintain their competitiveness, especially with respect to frontier technology that promises high profits. Public-private partnerships, where a third party links the technology donor to the technology recipient, hold some promise in this respect. Appropriate incentives to participate in technology transfer operations until their successful conclusion are crucial. Governments could provide the incentives, as they undertook in Art. 66 (2) TRIPS. For instance, governments in technology exporting countries could provide tax incentives to private companies to transfer technology to developing countries.
58 Traditionally, developing countries are only seen as technology recipients. Technology flows are increasingly two-way—that is many countries export some technologies, even as they import others, underscoring the need to disaggregate the nation for purposes of analysis. Technology transfer mechanisms need to shift away from the recent focus on IPRs as the sole incentive mechanism for innovation. In the last decade, a greater heterogeneity of sources and producers of innovation can be observed. This trend will only accelerate. Other, perhaps equally powerful structures of motivation, need to be taken into account. Good examples are collaborative systems, such as open-source software and cross-border networks. The idea of creative commons and associated methods of diffusing technology may have promise.
59 Standard-setting on technology transfer, at both the national and international levels, continues to lag behind technological developments. The old, ideological-laden debate on the NIEO has largely been left behind. TRIPS in particular popularized the competition law approach, enriched by technology transfer provisions. The direct control approach that regarded all restrictions in technology transfer transactions as suspect has largely disappeared. Still, underneath, there is no consensus on a desirable set of multilateral rules. Beyond isolated provisions in the TRIPS agreement, whose effectiveness is doubtful, comprehensive multilateral legal rules on technology transfer remain a distant prospect.
60 Technology transfer can be expected to feature prominently in future multilateral, regional, and bilateral rule-making, for example in the context of fighting terrorism and money laundering. Two directions of change will be important. The first concerns greater consistency. The second direction comprehends a shift to more comprehensive technology transfer provisions in treaties, rather than ancillary provisions focused on the treaty’s specific purpose. Compliance assistance, often the rationale for including ancillary technology transfer provisions in multilateral treaties, is one thing. Technology transfer that enlarges the technological base of recipient countries is of a different character. Technology transfer will keep re-surfacing, chameleon-like, in different shapes and forms, on the international agenda.
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