Thursday, March 12, 2009 - The Progress & Freedom Foundation Blog

Compulsory Licenses & Green Technology

I just wrote a lengthy article that covered, among other things, compulsory licensing in the public-health context.  (article at pages 20-24).  A compulsory license occurs when a government decides that it "needs" a product; it then authorizes others to breach any intellectual-property rights associated with that product.  Thus, in the public-health context, a developing nation may conclude that it needs a particular drug.

I noted that in the public-health area, people like Joseph Stiglitz at Columbia University recommend illusory limitations on such licensing.  Thus, he advocated the forfeiture of intellectual-property rights covering anything that could be deemed "lifesaving."  I argued in response that virtually any medicine can be used in a lifesaving capacity.

That got me thinking, in what contexts other than medicine are bureaucrats or commentators actually advocating compulsory licenses?  The answer seems to be "green" technologies, i.e., technologies that, for instance, result in increased energy efficiency.  Tim Wilson, at the Institute of Public Affairs (Australia), wrote a helpful short report on the subject last summer.  Tom Giovanetti at IPI noted the issue in his blog last month.

There are a number of dangers in advocating compulsory licenses for green technologies.

One is definitional. Many, and maybe most, patents could be called green.  For example, every time Intel brings out a new microprocessor that is smaller and faster than its predecessor, but uses the same amount of electricity, we're dealing with something green.  Whenever a company figures out how to make its products last longer, we're dealing with something green.  You get the point.

When we speak of "green" technologies, though, I think that we intuitively think of things like wind farms, battery technologies, and the like.  Yet, circumscribed as such, we have another problem because those are the types of industries that need patent rights the most.  William Landes and Richard Posner in their book The Economic Structure of Intellectual Property Law, have observed that the biotechnology industry "would not have come into existence without the prospect of a patent" because patent protection is needed "to make their profits, and to attract capital."  It would be hard to argue that green technologies are any different:  these firms have large capital expenses and are drawing gobs of VC funding as their principal lifeline (as their biotech predecessors did before them).  Intellectual-property protection is the foundation of their existence.

Compulsory licensing in the "green" context is even less explicable than compulsory licensing in the public-health context.  That's because there won't be one technology that will be necessary or sufficient on its own to solve climate change or any other environmental problem.  So we would not expect any technology to obtain market power in the market for "green" technologies. Rather, the solutions will have to compete in the marketplace.

Moreover, it will be easier for green-technology firms to price their products in a way that accounts for the needs and wealth of each nation.  That's because of lessened risk of reimportation:  The wind farm or smokestack scrubber installed in China won't likely be put on a barge headed for the United States. That's quite different from a bottle of Plavix pills distributed in Bangkok (or Toronto).

Under these circumstances, it's terrible policy to advocate for compulsory licenses for green technologies.  Given the state of the industry and the nature of the problem, such advocates should be called out for what they are:  hopelessly naive or foolishly greedy.

posted by Sidney Rosenzweig @ 4:35 PM | IP