Queen Mary University of London, School of Law

Legal Studies Research Paper No. 70/2010

Six Minutes to Midnight – Can Intellectual

Property Save the World?

Peter D.

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 Six Minutes to Midnight – Can Intellectual Property Save the World?

Peter Drahos

Queen Mary, London University and Australian National University

(Forthcoming in Kathy Bowrey, Michael Handler and Dianne Nicol (eds.), Emerging Issues in Intellectual
Property, Oxford University Press, Australia, 2011)

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1. Introduction

“Little Boy” was dropped on Hiroshima on August 6 1945 and “Fat Man” on Nagasaki
on August 9 1945. The scientists who had built these atom bombs as part of the
Manhattan Project realized that they had placed in the hands of political and military
leaders the means to humanity’s extinction. In 1945 a group them formed an
organization called the Atomic Scientists of Chicago.1 Through a publication called the
Bulletin of the Atomic Scientists of Chicago they began to inform the public of the
dangers of nuclear energy. In 1947 the Bulletin showed on its front cover a clock set at
seven minutes to midnight, with midnight being the moment of apocalypse.2 Since 1947
the Bulletin has warned of two other riders of the apocalypse – carbon technologies
leading to climate change and biological developments that threaten biosecurity. Climate
change was, in 2007, partly responsible for shifting what has come to be known as the
Doomsday Clock to five minutes to midnight. The Clock is currently set at six minutes
to midnight.

What is the connection between the sources of catastrophic global change and intellectual
property? Intellectual property, after all, is a generic term used to refer to independent
statutory or non-statutory systems such as patents, copyright, trade marks and trade
secrets. Surely these systems, which are thick with the fine-grained rules so beloved by
lawyers on the make, cannot possibly be deep drivers of change. How can the technical
rules around continuations in the US patent system, to take one example of thousands,
have any relationship to the climate system?

Clearly, patent continuation rules are not deep drivers of change. But is there a
relationship between the global problem of climate change and intellectual property when
we shift our attention from intellectual property at the level of fine-grained rules to the
level of institutions or systems? As we will see in Section 2 there is economic analysis
claiming that institutions matter to the long term economic success of a country,
especially the institutions of private property. Intellectual property rights are usually
depicted as improving social welfare by providing incentives for technological creativity
and innovation (Section 3 presents this standard optimization view). Can we harness
intellectual property institutions for the purpose of innovating to save the world from the
worst climate change scenarios? As Section 5 makes clear our future capacity to avoid
the storms of change has become heavily invention and innovation dependent, as well as
time short. Sections 4 and 5 discuss the likelihood of intellectual property riding to the
rescue.

Before moving on we need to put in place some qualifying remarks and definitions. The
argument that follows will largely focus on examples taken from patents. A technology
is rarely protected by one form of intellectual property alone but, for new areas of
technology, patents remain a core part of a commercial strategy. The patent institution

1
For the history see http://www.thebulletin.org/.
2
The Bulletin is available at http://www.thebulletin.org/.

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has globalized (more countries have the institution than at any point in human history)
and the use of patents is pervasive. For the meaning of institution we draw on Douglas
North’s approach – “[i]nstitutions include any form of constraint that human beings
devise to shape human interaction”.3 These constraints include informal constraints such
as customs, conventions and traditions. The patent institution is made up of patent rules
along with the business practices that surround the use of these rules. A system, for our
purposes, is made up of a set of institutions that interact to produce a function.4 So, for
example, the patent institution along with other institutions such as finance and
government contribute to the function of innovative performance. Institutions, like
individuals, go through vicissitudes of uncertain or unplanned origin. Systems can have a
function without functioning well.

Two more elements need to be injected into our sparse definition of system. Systems are
nested phenomena. The innovation system of a country is nested within its economic
system of production and consumption. More importantly, systems made up of social
norms are nested within physical systems such as the climate system. For ecologists this
is blindingly obvious: “We exist in linked social and ecological systems. This should be a
self-evident truth”.5 Yet as the authors of this quote make clear disciplines such as
economics have tended to build models ignoring this basic truth. Mainstream economics
has given very little recognition, for example, to the problems of natural resource
constraints in devising production functions.6 Our second element follows on from the
first. Under conditions of regulatory globalization national systems and institutions are
increasingly nested within global systems. The Australian patent institution, for example,
is constrained by the Agreement on the Trade-Related Aspects of Intellectual Property
Rights (TRIPS). For systems globalization creates increasingly nested complexity.
Under conditions of nested complexity, systems may have their potential for adaptation
limited. So, for example, even if Australian policy makers decide at some future point
that Australia would be better off with standards that conflict with TRIPS they could not
implement those standards unless they were prepared to withdraw from the World Trade
Organization (WTO).

2. The property rights-economic growth thesis

The key idea here is that institutions set a country upon the path to rags or riches.7
Property rights, especially private property rights, are generally the heroes in this story.
Institutions that provide individuals with the opportunity to make secure investment

3
D. C. North, Institutions, Institutional Change and Economic Performance, Cambridge University Press,
Cambridge, 1990, 5.
4
This follows Richard R. Nelson, ‘National Innovation Systems: A Retrospective on a Study’, (1992), 1,
Industrial and Corporate Change, 347, 349.
5
Brian Walker and David Salt, Resilience Thinking: Sustaining Ecosystems and People in a Changing
World, Island Press, Washington, 2006, 32.
6
Herman E Daly, Ecological Economics and the Ecology of Economics, Edward Elgar, Cheltenham, UK,
1999, 77-78.
7
For examples of this line of argument see D.C. North, Growth & Welfare in the American Past, 2nd edn.,
Prentice Hall, Englewood Cliffs, N.J., 1974; D.C. North, D. C. and R.T. Thomas, The Rise of the Western
World, Cambridge University Press, London, 1973.

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decisions at the micro level lead to the macro success of a country. Institutions can also
be the villains in the story. Some institutional arrangements concentrate power in the
hands of an elite few and allow them to prey on the economic efforts of the larger
population. Termed ‘extractive institutions’ by Acemolgu et al they generally reduce the
growth prospects of a country.8 Acemolgu and his co-authors use the distinction between
secure property institutions and extractive institutions as part of a larger analysis aimed at
explaining why countries formerly linked to the flourishing economies of the Aztecs,
Incas and Mughals experienced a decline in economic prosperity while countries that
began as colonies (for example, Australia, Canada, United States and New Zealand)
became much richer. The concept of extractive institutions links up with another concept
relevant to explaining the incentive effects of intellectual property, namely that of rent-
seeking (see Section 4).

The property rights-economic growth thesis reveals property rights to be powerful tools
of governance. The thesis raises the possibility that intellectual property rights might
have a key role to play in helping the world to avoid catastrophic climate change. But
there is also another possibility. Extractive intellectual property rights might impede us
from innovating to save ourselves from the coming storms. In any case we have a
possibility worth investigating. The next section begins this investigation by
summarizing the conventional optimization view of intellectual property rights.

Before moving on, some further qualifications are in order. Importantly, we are not
endorsing the property rights-economic growth thesis. Rather we are simply using it to
show that there is some evidence and argument for why property institutions might
matter in an institutional response to climate change. It is an influential thesis, but it has
critics who see geography as being more important than institutions in the explanation of
economic success.9 Similarly, it might be tempting to conclude that, because the
institution of private property is essential to economic growth, so are patents. But no
such inference can be made. The security of property is an emergent phenomenon of a
number of institutions and systems in which the patent institution may not be important.
Economists who have looked at the relationship between intellectual property and
economic growth have struggled to find clear evidence of stronger intellectual property
rights delivering more economic growth.10

Finally, we need to mention the emerging critique of post-industrial capitalism in which

economic growth is seen as the very thing that has placed us on the road to ecological
ruin.11 According to this critique, property rights are part of the problem. They allow
owners of those rights to escape the true costs of the negative externalities generated by

8
Daron Acemoglu, Simon Johnson and James A. Robinson, ‘Reversal of Fortune: Geography and
Institutions in the Making of the Modern World Income Distribution’, (2002), 117, Quarterly Journal of
Economics, 1231, 1235.
9
For an overview of the debate see Sambit Bhattacharyya, ‘Institutions, Diseases and Economic Progress:
A Unified Framework’, (2009) 5, Journal of Institutional Economics, 65.
10
For a discussion of the literature see Christine Greenhalgh and Mark Rogers, Innovation, Intellectual
Property, and Economic Growth, Princeton University Press, Princeton and Oxford, 2010, 330-334.
11
For an overview of the different intellectual strands that have contributed to this critique see Peter Hay,
Main Currents in Western Environmental Thought, UNSW Press, Sydney, 2002.

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various production processes. For example, while mining companies operate under many
environmental obligations, the true costs of the exercise of their mining rights in terms of
atmospheric pollution and biodiversity loss are still not being met. Even if we devise
property-based schemes to help internalize the externalities (for example, emission
trading schemes), all models of economic growth underpinned by property rights
eventually hit the wall of natural resource finitude. Property rights do not save us from
the tragedy of the commons. Instead under the cover of a false dawn of natural resource
management they unleash in owners of the means of production a much deeper and more
aggressive assault upon the biospheric commons. If conventional property-based
economic growth is not sustainable, what is the alternative? Those who support the
critique often end up exploring low or no-growth economic scenarios.12

This critique is relevant to the present analysis in the following way. One answer to the
critique might be that technological innovation enables us to change the factors of
production. The invention of plastic, for example, lessened the demand for mother-of-
pearl in making buttons. As we bump up against the constraints on one resource,
technology will help us to find substitutes or at the very least to make more efficient use
of those resources. So, for example, even if we cannot do without coal we will find more
efficient methods of burning it and develop carbon capture storage to store the emissions.
When market-based economies hit a resource obstruction they will invent around it. If
this line of analysis is right (clearly a very big ‘if’), then intellectual property rights
seemingly have a crucial role to play in helping society to adapt to climate change. They
provide potential inventors and investors with the means to gain privately from investing
in renewable energy and improvements to existing fossil fuel technologies.

3. The optimization approach

The conventional micro-economics of intellectual property has been described often

enough. 13 In this short section we simply offer a short summary and a diagram. For
present purposes there are two important things to note about the conventional
optimization view. Firstly, this view simply points to the possibility of optimal points of
protection. It does not say anything about how one might actually arrive at such points or
how in practice societies settle on standards of protection. Secondly, as Diagram 1 makes
clear, once intellectual property protection is available to individual firms that are the
early beneficiaries of such protection, those firms have incentives to push for even more
protection (see Point B in Diagram 1 below). Intellectual property rules have a twin
incentive effect. They provide incentives for innovation and, for those who benefit from
the rules, with incentives to campaign for an extension to those rules. This twin incentive
effect is understudied empirically, a point taken up for further discussion in the next
section.

12
For a recent analysis along these lines see Peter A. Victor, Managing Without Growth: Slower by
Design, Not Disaster, Edward Elgar; Cheltenham, UK, 2008.
13
See, for example, William M. Landes and Richard A Posner, The Economic Structure of Intellectual
Property Law, Cambridge, Mass. and London, Belknap Press of Harvard University Press, 2003.

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On the optimization view, a rational agent will only bear the R&D costs necessary for
product or process innovation if it can lock up the R&D information. If it cannot do so
the risk is that competitors move in, acquire the information and produce the innovative
product at a price below that at which the first agent did so (primarily because the
competitors save on the R&D cost). In a market without protection for R&D
information, it is rational for agents to free-ride on the R&D efforts of others but not
rational for them to undertake their own R&D. Society suffers overall because not
enough resources are being allocated to invention.

Intellectual property rights, on the face of it, provide a solution to this problem.
Economic agents are given monopoly rights over the R&D information embodied in the
new product or process. However, the strength of this monopoly is limited in various
ways (for example, by limiting the duration of the right), so that others will eventually be
able to compete in the making of the same product. Essentially, all intellectual property
rights have a combination of limits and diffusion mechanisms built into them so that the
information can return to the market in one way or another. Intellectual property is, as
Diagram 1 shows, a delicate balancing act between restricting some free-riding and
encouraging the diffusion of information without which competition would not be
possible.

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Diagram 1. The optimization view of intellectual property.

At point B increasing IPR strength

increases a firm’s profit but leads to
social welfare losses.

Social
Welfare B

Strength of IPR protection

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4. Opportunistic protectionism – an alternative to the optimization view of
intellectual property

“In effect, twelve corporations made public law for the world”.14 In Susan Sell’s
gripping account of the origins of TRIPS she explains how in the 1980s a group of twelve
corporate executives formed the Intellectual Property Committee and successfully steered
through the Uruguay Round of Trade Negotiations the single most important multilateral
treaty on intellectual property of the twentieth century. A number of studies provide us
with a detailed picture of how a group of multinationals through a globally networked
campaign pulled off TRIPS.15 At the time of the negotiations there was very little
understanding let alone analysis of global intellectual property standards. After TRIPS
came into operation in 1995 some independent analysis of its provisions began to take
place. The UK government in 2001 established the Commission on Intellectual Property
Rights to report on the development effects of intellectual property rights. One of its
conclusions was that “[t]oo often the interests of the ‘producer’ dominate in the evolution
of IP policy”.16 The World Bank produced data showing benefits from TRIPS going to a
very small number of already rich countries and that the effects of TRIPS, at least in the
short term (in the long term Keynes reminds us we are all dead), would likely be
“asymmetric”, with low income countries made worse off.17

The details of the TRIPS story are not of concern here. What is of concern is that it
provides us with an example of the twin incentive effect of intellectual property rights, an
effect we noted in the previous section. TRIPS has laid the foundation for the further
extension of intellectual property rules using the vehicle of free trade agreements.18 At
this point we want to draw together some economic concepts in order to show why the
institution of intellectual property is unlikely to be helpful in managing the risk of
catastrophic change and may possibly even make the task harder. To remind ourselves,
the twin incentive effect consists of the incentive to invest in innovation (the innovation
incentive), along with the incentive to invest in changing the rule to gain even more
protection (the protectionist incentive). Diagram 1 illustrates the effect of the
protectionist incentive. A firm individually gains from stronger rules, but the rules
themselves cause social welfare losses.

14
Susan Sell, Private Power, Public Law: The Globalization of Intellectual Property Rights, Cambridge
University Press, Cambridge, 2003, 96.
15
See, for example, P. Drahos, 'Global Property Rights in Information: The Story of TRIPS at the GATT'
(1995) 13, Prometheus 6; S.K. Sell, ‘Intellectual property protection and antitrust in the developing world:
crisis, coercion, and choice’, (1995) 49, International Organization, 315; Michael Ryan, Knowledge
Diplomacy: Global Competition and the Politics of Intellectual Property, The Brookings Institution,
Washington, 1998; Peter Drahos with John Braithwaite, Information Feudalism: Who Owns the
Knowledge Economy?, Earthscan, London, 2002; Duncan Matthews, Globalising Intellectual Property
Rights: The TRIPs Agreement, Routledge, London and New York, 2002.
16
Integrating Intellectual Property Rights and Development Policy, Report of the Commission on
Intellectual Property Rights, London, 2002, 7.
17
See Global Economic Prospects and the Developing Countries, World Bank, Washington DC, 2002, 133
and 148.
18
See Peter Drahos, ‘BITS and BIPS: Bilateralism in Intellectual Property’, (2001) 4, The Journal of World
Intellectual Property, 791.

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The protectionist incentive effect converges with the economic theory of rent seeking, a
theory which perhaps could be much more usefully applied to intellectual property than it
has been to date. The basic theme of those public choice theorists most closely linked
with the theory of rent seeking has been that governments by interfering in markets
(essentially by creating barriers to entry by imposing quotas, tariffs, licence requirements,
permit conditions and so on) create rents that, because they are entrenched by
government regulation, cannot be eroded by market competition.19 Intellectual property
rights like patents are a form of government interference in the market. A government, in
setting patent rules, creates barriers to entry. Somewhat appositely, Buchanan’s example
of a rent-seeking activity is an old historical example drawn from medieval England, a
patent monopoly in the sale of playing cards. Resources spent on competing for this
monopoly “must”, he says, “generate social waste”.20 The standard objection to a
monopoly is that it does not satisfy the preferences of consumers who would have paid
the competitive price for the product. The theory of rent seeking is targeting another
socially wasteful expenditure. Where political institutions create monopoly profits,
resources are devoted to a transference game in which actors invest resources in order to
get their hands on a monopoly income stream. This resource expenditure is economically
unproductive.

The twin incentive effect and rent seeking help to explain why intellectual property rules
become the target of change, but they do not explain how the costs of a global rent-
seeking exercise like TRIPS are met, especially if there is opposition, as there was for a
while from developing countries. Here the logic of collective action provides an
explanation.21 Concentrated interests are more likely to bear the costs of organizing to
press for rules of their choosing because they face lower costs of organization and greater
individual gains. It was easier for a small group of multinationals to pool resources to
push for TRIPS than it was to organize millions of consumers around the world to resist.
The logic of collective action also has implications for the link between bargaining and
the efficiency of property. If we assume rational, fully informed actors unimpeded by
transaction costs and threats of coercion then bargaining over a property rights
distribution will produce an efficient result.22 But these assumptions are a world away
from the political economy in which poor information, unequal power, threats and
coercion are endemic. The efficiency of property presupposes uncoerced bargaining
amongst equals, but the logic of collective action points to the possibility of dominant
interest groups and unequal contests.

So far our analytical framework for understanding intellectual property has in it the twin
incentive effect, rent seeking and the logic of collective action. To this we need to add
the idea of gaming behaviour. An actor can be said to be gaming a system of rules when

19
See James M. Buchanan, Robert D. Tollison and Gordon Tulloch (eds.), Toward a Theory of the Rent-
Seeking Society, Texas A&M University Press, College Station, 1980.
20
James M. Buchanan, ‘Rent Seeking and Profit Seeking’ in James M. Buchanan, Robert D. Tollison and
Gordon Tulloch (eds.), Toward a Theory of the Rent-Seeking Society, Texas A&M University Press,
College Station, 1980, 3, 8.
21
M. Olson, The Logic of Collective Action, Cambridge, Mass., Harvard University Press, 1965.
22
This theory has its origins in the Coase theorem. See R.H. Coase, ‘The problem of social cost’, 3 (1960)
Journal of Law and Economics, 1.

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it acts to thwart the overall purpose of the system. The actor fails to keep faith with the
rules in order to maximize its gain. Gaming behaviour using the patent system is enabled
by its rule complexity. Gaming behaviour needs to be distinguished from the twin
incentive effect. The former is about the abuse of rules and the latter about changing the
rules to one’s advantage.

Examples of gaming behaviour are not hard to find in the field of pharmaceutical
patenting. As a matter of juridical theory, the patent represents a social contract between
society and the inventor in which the inventor discloses the invention in exchange for a
temporary monopoly.23 At the end of the monopoly other competitors enter the market
and society gains from a competitive market. In practice, opportunistic companies game
the existing rules to obtain a de facto extension of the monopoly. For example, the
European Commission in a recent inquiry found that a single blockbuster medicine could
have up to 1,300 patents or patent applications surrounding it and that many of these
patents are applied for towards the end of the period in which the first patent expires.24 It
is also clear that many of these patents are in fact “junk” patents (of doubtful validity)
expressly generated for the purpose of delaying or deterring generic entry or creating the
opportunity for the patent owner to collude with the generic company. The Australian
Parliament has tried to deter this kind of practice by imposing a maximum penalty of $10
million on companies found using patents of doubtful validity.25

The concepts outlined in this section - the twin incentive effect, rent seeking, the logic of
collective action and gaming behaviour - form an analytical framework for understanding
how the behavioural incentives set by the institution of intellectual property impact on
owners of intellectual property and how the institution in turn is changed by their
responses. The twin incentive effect explains why the rules of intellectual property
become the targets of change; rent seeking helps to explain how political institutions
under the guise of intellectual property law reform add to the social cost of intellectual
property; the logic of collective action explains why rent seekers organize to meet the
costs of rent seeking and gaming behaviour suggests that the real world costs of
intellectual property are likely to be much higher than is posited by the economic theory
of monopoly.

These four concepts suggest that intellectual property is more about opportunistic
protectionism than it is about innovation. Empirically we have evidence that the patent
system really only benefits a comparatively small number of multinationals which own a
disproportionate number of the world’s patents.26

23
For a discussion of the theory see Peter Drahos, The Global Governance of Knowledge: Patent Offices
and Their Clients, Cambridge University Press, Cambridge, 2010, 27-32.
24
European Commission, Pharmaceutical Sector Inquiry: Preliminary Report 28 November 2008, 150,
available at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/preliminary_report.pdf.
25
See Section 26C of the Therapeutic Goods Act 1989.
26
For a rare and revealing empirical analysis see Hazel V.J. Moir, ‘Who benefits? An empirical analysis of
Australian and US patent ownership’ in Sebastian Haunss and Kenneth C. Shadlen (eds.), Politics of
Intellectual Property: Contestation over the Ownership, Use, and Control of Knowledge and Information,
Edward Elgar, Cheltenham, UK, 2009, 182.

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The intellectual property landscape of the 21st century is very different to the 19th century
one. Members of the WTO are locked into TRIPS standards, standards which are being
built upon by preferential trade agreements. Countries are obliged by treaty to have the
patent institution as part of their national innovation system. The administration of
national patent offices is in reality being led by a small number of offices that constitute
the global level of patent office governance.27 This global command structure for patents
means states have less freedom to use patent rules adaptively.

It might be said that this loss of adaptiveness at the national level will be compensated for
by a gain in world innovation as a result of global patent standards. Multinational
intellectual property producers, having extracted these standards from states, will now
respond with more innovation. Perhaps, but the present analysis reveals another
possibility. Global intellectual property standards are not set by an independent
regulatory authority operating under a charter empowering it to improve global welfare.
Rather they emerge out of the shadows of geo-political contests in which threat, coercion,
ignorance and financial inducements all play a role. There is no reason to assume that the
current global standards of intellectual property are efficient. Opportunistic
protectionism would suggest they are very likely inefficient.

The efficiency or inefficiency of present intellectual property standards is not something

we can settle here. It depends on many empirical studies carried out over time. As we
will see in the next section, when it comes to climate change time is, however, a depleted
non-renewable resource. We also have to consider the possibility that not only might the
patent institution not help but also it may well trigger fresh opportunistic behaviour
around climate change technology. Great crises have not in the past detered
multinational patent elites from pursuing profit-maximizing strategies. During World
War II, US pharmaceutical companies spent a lot of time trying to corner patents on
penicillin.28 There was a direct risk to the lives of US soldiers. Some of those same
companies were in the 1950s involved in a global cartel around the pricing of broad
spectrum antibiotics.29 A more recent example of opportunistic behaviour in the context
of global risk comes from the patents over oseltamivir (Tamiflu). The increasing number
of deaths from human avian influenza in 2004 and 2005 resulted in countries scrambling
to acquire or increase their stockpiles of antiviral neurominidase inhibitors. Tamiflu was
in high demand. During the rush Roche, which was the exclusive patent licensee of
Tamiflu, followed a profit-maximizing strategy.30 The result was much lower stockpiles
than were forecast to be needed. More broadly, a study showed that the patent control of
antivirals had led to a situation where the option of stockpiling had been made
unaffordable for the Asian countries in which the risk of pandemic outbreak was the

27
For the empirical story see Peter Drahos, The Global Governance of Knowledge: Patent Offices and
Their Clients, Cambridge University Press, Cambridge, 2010.
28
John Braithwaite, Corporate Crime in the Pharmaceutical Industry, Routledge & Kegan Paul, London,
Boston, Melbourne and Henley, 1984, 164.
29
See John Braithwaite, Corporate Crime in the Pharmaceutical Industry, Routledge & Kegan Paul,
London, Boston, Melbourne and Henley, 1984, 175-190.
30
For a detailed study see Buddhima Lokuge, Managing Pandemics: Patents and Risks, Unpublished PhD
thesis, Australian National University, 2008.

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greatest.31 All countries would have benefited from these few high risk countries having
larger stockpiles because antivirals reduce the risk of transmission. As a tool of
pandemic risk management, the patent system on this occasion utterly failed.

In a way we should not be surprised by the opportunistic behaviour of multinational

patent elites when we understand the riches to be extracted from the public by means of
patents. The US prescription drug market is worth about US$200 billion. The incentives
for opportunistic protectionism are massive and so, not surprisingly, the US Federal
Trade Commission spends much of its time fighting the misuse of patents in this
market.32

Obviously the argument in this section questions the likelihood of a society cleverly
landing on the optimal point suggested by the optimization view of intellectual property.
Much more likely is the society being outsmarted by predatory multinational patent
elites, leaving it with, to borrow Acemolgu’s term, ‘extractive’ intellectual property
institutions. Is there any role for the institutions of intellectual property when it comes to
mounting a response to climate change? The next section suggests an answer.

5. Innovating to save the world – what can intellectual property do?

Probably the worst risks of climate change could be avoided if the global average rise in
temperature can be kept to no more than 2˚C above the 1990 level. 33 However, even
this 2˚C guardrail carries considerable risks. 34 The sooner global emissions peak the
better, with 2020 being something of deadline if we are to avoid the climate change
scenarios characterized by large increases in extreme weather events and risks to many
ecological systems upon which we depend.35

The invention and innovation implications of this climate change clock are somewhat
staggering. The world remains heavily dependent upon fossil fuel. A little more than
80% of the world’s primary energy supply comes from coal, oil and gas while only 0.7%
comes from sources such as wind, solar and geothermal.36 World electricity generation is
also dependent upon fossil fuels, with some 68% (coal is responsible for 41%) coming
from such sources compared to a little less than 3% from renewable sources.37 The
electrification of an economy is fundamental to existing models of economic growth.

31
Buddhima Lokuge, Peter Drahos and Warwick Neville, ‘Pandemics, antiviral stockpiles and biosecurity
in Australia: what about the generic option?’, (2006) 18, Medical Journal of Australia, 16.
32
For a summary of the FTC’s s efforts see http://www.ftc.gov/speeches/majoras/051607ACI_Pharma.pdf
33
James J. McCarthy et al (eds), Climate Change 2001: Impact, Adaptation and Vulnerability. Contribution
of Working Group II to the Third Assessment Report of the Intergovernmental Panel on Climate Change.
Cambridge University Press, Cambridge, 2001, 5.
34
See the Synthesis Report from Climate Change, Global Risks, Challenges & Decisions, Copenhagen
2009, 10-12 March, 16. Available at http://climatecongress.ku.dk/pdf/synthesisreport/.
35
See the Synthesis Report from Climate Change, Global Risks, Challenges & Decisions, Copenhagen
2009, 18 March, 16. Available at http://climatecongress.ku.dk/pdf/synthesisreport/.
36
Key World Energy Statistics 2010, IEA, Paris, 2010, 6.
37
Key World Energy Statistics 2010, IEA, Paris, 2010, 24.

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Worth remembering here is that in the US most urban households obtained access to
electricity between 1910 and 1930 and without that access the US economy could not
have grown in the way that it did.38 In using its coal reserves China is following an
energy economic growth path that the US followed not so long ago.

The emission reduction scenario work done by International Energy Agency shows that
we have to do something about coal-based emissions in the next decade if we are to avoid
the freefall scenarios that follow once we go over the 2˚C guardrail.39 While no
government has been prepared to admit to it publicly, our capacity not to breach the 2˚C
guardrail is now probably ‘big science’ dependent. Essentially, rather than minor
incremental improvements to existing technologies, we will have to invent radically new
technologies. The key sector in which radical invention is needed is the energy sector.
What role can intellectual property rights play in stimulating the big science the world
needs in the energy sector?

One option for governments might be to offer much stronger patent rights (say a 50 year
patent term) in the hope that this will cause companies to invest in energy research.
Before discussing this further we should note why a global standard-setting system for
intellectual property that reduces the flexibility of states is a bad idea. In the past some
states had different patent terms for different technologies.40 Even if one believes that 50
year patents are needed for energy technologies, one might not want to offer this term to
pharmaceutical companies or computer software companies. This kind of discrimination
strategy now runs into potential problems because of the TRIPS obligation not
discriminate amongst fields of technology when it comes to patent rights.41 Discussing
this further is not necessary here, but the point is that states which have to manage the
nested systems complexity of the world should be increasing their control over
intellectual property standards and not decreasing them through TRIPS and other trade
agreements.

Would dramatic increases in the patent term lead to the big energy science the world
needs? Probably not. The economics of basic scientific research has been studied for a
long time by economists and the theory is fairly well developed.42 Big science is also
risky science. There is a limit to how much even the largest investors are prepared to risk
in chasing a payoff that may never eventuate. Corporations are much more likely to
invest in improving successful product lines than they are in chasing the possibility of a
paradigm-changing scientific breakthrough. It is one thing to invest in developing
odourless fish oil and entirely another in developing ‘emissionless’ coal. Aside from the

38
David C. Mowery & Nathan Rosenberg, Paths of Innovation: Technological Change in 20th-Century
America, Cambridge University Press, Cambridge, 1999, 105.
39
See World Energy Outlook 2007, International Energy Agency, Paris, 207.
40
For example India offered seven year terms for process patents in the medicines area. See Peter Drahos,
The Global Governance of Knowledge: Patent Offices and Their Clients, Cambridge University Press,
Cambridge, 2010, 204.
41
See Article 27.1.
42
One of the pioneering works is Kenneth J. Arrow, ‘Economic Welfare and the Allocation of Resources
for Invention’, in The Rate and Direction of Inventive Activity, National Bureau of Economic Research,
Princeton University Press, Princeton, NJ, 1962, 609.

Electronic copy available at: https://ssrn.com/abstract=1723774

uncertainty of basic science, there is the uncertainty of being able to appropriate the value
of the technology using the patent system. Knowledge is inherently fuzzy and where a
company’s rights start and stop can be difficult and expensive to work out. If a company
really did produce a breakthrough technology, there is the possibility that some
governments might choose to compulsorily licence the technology on public interest
grounds. The returns to a company under a compulsory licence would likely be less than
what it could obtain as a monopolist. The possibility of such a government licensing
strategy might, in the eyes of some companies, reduce the value of a longer patent term.
The evidence from the use of compulsory licences over patents in the US as part of
antitrust proceedings suggests the negative incentive effects of compulsory licences are
not great.43 But even if corporations continue to invest in R&D, they may be less
inclined to invest in the kind of blue skies research that characterized Bell Telephone
Laboratories in the 1930s and 1940s, a period in which the Laboratories discovered the
possibility of radio astronomy and the transistor.

These kinds of problems have led economists to conclude that, even where patents are
introduced into the market, there is a real risk of underinvestment in basic scientific
research. In the US the coal industry is looking to government to fund research around
capture carbon and storage technologies. The aim of the FutureGen program, which was
announced by the US Department of Energy in 2003, was to build the world’s first zero
emissions coal-fired power plant.44 About 76% of the costs were to be met by the
Department of Energy and the rest by a consortium of coal producers and power
companies. Worried by cost blowouts, the Department of Energy decided not to continue
its arrangement with the Alliance and moved to restructure the FutureGen program.
Importantly, the companies involved in the original FutureGen project had agreed “to
forgo all rights to intellectual property and revenue sharing” because this would have
enabled “the Alliance to share important findings from the project with the nation and
world, which will foster rapid, widespread commercial deployment of the technology”.45

If private patent dollars are not likely to produce the big science we need in the energy
sector, this leaves government dollars to do the work. The US history of science funding
is instructive on the role of government. The single event which most transformed US
Federal R&D expenditure was World War II. Federal R&D spending skyrocketed from
about $83 million in 1940 to $1313 million in 1945.46 It was not just a question of
money but also organizational innovation. A civilian agency, the Office of Scientific
Research and Development (OSRD), was established to create networks of researchers

43
For a discussion of the evidence see F. M. Scherer, ‘Antitrust, efficiency and progress’, (1987) 62 New
York University Law Review, 998.
44
Details of the FutureGen project are to be found in the following report: Clean Coal: DOE’s Decision to
Restructure FutureGen Should Be Based on a Comprehensive Analysis of Costs, Benefits, and Risks, US
Government Accountability Office, February 2009.
45
See Opening Remarks and Summary of Testimony, Paul Thompson, Chairman of the Board, FutureGen
Alliance, Before the U.S. Senate Appropriations Committee, Subcommittee on Energy and Water
Development, May 8, 2008 available at http://www.futuregenalliance.org/.
46
These sums represent 1930 dollar values. See David C. Mowery & Nathan Rosenberg, Paths of
Innovation: Technological Change In 20th-Century America, Cambridge University Press, Cambridge,
1998, 28.

Electronic copy available at: https://ssrn.com/abstract=1723774

and coordinate (but not manage) the work of independent national laboratories on
military weapons and technology research.47 The Manhattan Project laboratories such as
the facility at Los Alamos where the atom bomb was designed and built were part of the
OSRD’s network and coordination efforts. Out of World War II was born a system that
President Dwight Eisenhower in 1961 labelled the ‘military industrial complex’. Inspired
by the success of wartime big science, successive US governments committed to
financing national R&D and especially military R&D: “The military services have
dominated the federal R&D budget for the past 30 years, falling below 50% of federal
R&D obligations in only three years”.48 Government spending and organization is
central to large scale systems development of the kind we have seen in weapons, space
and nuclear power technologies.49

Does the history of Manhattan Project have any relevance for the climate change
problem? It does show that when a nation rapidly needs major scientific breakthroughs
in order to deal with a global emergency government investment and organizational
leadership matters. No one was arguing during World War II that patents would save the
day. Oddly enough, the ORSD was worried about patents being used to interfere in the
work of the scientists involved in the Manhattan Project.50 It hired William Shurcliff, a
physicist with patent experience to track patent applications related to atomic technology.
Shurcliff had the power to stop the patent office from processing patent applications
through secrecy orders. Some 131 patent applications were “put to sleep” in this way.51

As we saw a little earlier, the world’s energy supply continues to be massively dependent
upon fossil fuels and at 0.7% the supply from renewables is disappointingly low. One
option is to consider a Manhattan-style project on renewable energy technologies. Many
scientists would take the view we are either in or close to a global climate emergency.
Relying on a patent-driven private sector to do foundational work on renewable energy
sources is not a policy backed by theory or the historical experience with patents. If the
argument of this Chapter about opportunistic protectionism is right, then patents are more
likely to serve as a major impediment to the diffusion of needed climate change
technologies. The US experience after World War II suggests that managing the patent
system in ways that promote diffusion of knowledge will be crucial to the diffusion of
climate change technologies. Between 1941 and 1959 some 40 to 50 thousand patents
were the subject of compulsory licences in the US.52 A number of high technology
industries benefited during this diffusion-oriented period of the patent regime, especially

47
Suzanne Scotchmer, Innovation and Incentives, The MIT Press, Cambridge, Mass., London, England,
2004, 18.
48
David C. Mowery & Nathan Rosenberg, Paths of Innovation: Technological Change In 20th-Century
America, Cambridge University Press, Cambridge, 1998, 32.
49
Richard R. Nelson, ‘National Innovation Systems: A Retrospective on a Study’, 1 (1992), Industrial and
Corporate Change, 347, 362.
50
For the history see Alex Wellerstein, ‘Inside the atomic patent office’, 64 (2008), Bulletin of the Atomic
Scientist, 27.
51
Alex Wellerstein, ‘Inside the atomic patent office’, (2008) 64, Bulletin of the Atomic Scientist, 27. 30.
52
F. M. Scherer, ‘Antitrust, efficiency and progress’, (1987) 62 New York University Law Review, 998,
1017.

Electronic copy available at: https://ssrn.com/abstract=1723774

the microelectronics and computer industries.53 No policy makers have the perfect
information to be able to land birdlike on precisely the optimal point of protection that
Diagram 1 suggests is in theory possible. Rather policy makers will have to make a
decision about the tilt of the patent system. If countries decide to fund a Manhattan
project on clean energy, the tilt of the patent system should be in the direction of
diffusion of clean energy technologies rather than stronger exclusion. Irrespective of
whether or not such a project eventuates, all countries still need to focus on the question
of the tilt of the patent system in an age of climate crises.

This section of the paper has opened up many more questions than there is space to
answer, not the least of which is whether any government will make the big investments
in big science. Can we realistically expect the US to fund the deep science of renewable
energy as a public good for the world? This seems an unlikely prospect. The one thing
to say is that more than ever the world needs US leadership on climate change, for the US
better than any other state understands the craft of global governance. TRIPS is a bad
agreement, but it is also a remarkable example of this governance craft.

6. Conclusion

A single sentence conclusion would be that the patent institution will do little to drive the
big science that is needed, especially in the energy sector, to avoid the worst climate
change scenarios. Drawing on the lessons of the Manhattan Project, massive government
investment is needed to set the world upon a renewable energy innovation path.
Coordinating this R&D investment amongst countries will require organizational
innovation, just as the Manhattan project depended on organizational innovation.
Because it provides multinational patent elites with incentives for opportunistic
protectionism the patent institution will have to be much more carefully managed by
governments than it has been to date. It is a bad idea for states when confronted by the
nested complexity of a changing climate system to sign trade agreements containing
intellectual property standards that limit their capacity to respond flexibly. The world
should not enter its longest night of crisis with globally extractive intellectual property
institutions.

53
See David C. Mowery & Nathan Rosenberg, Paths of Innovation: Technological Change In 20th-Century
America, Cambridge University Press, Cambridge, 1998, 43.

Electronic copy available at: https://ssrn.com/abstract=1723774