How The TRIPS Agreement Will Affect The Food Industry

At late July’s International Food Technologists Annual Meeting and Food Expo in Chicago, Nerac Analyst Scott Lloyd gave a short presentation on the TRIPs agreement, a multi-national trade agreement, and how its provisions impact the food industry. TRIPs has been the subject of some controversy in the food industry, especially where the advent of genetically modified plants and seeds and related intellectual property enforcement threaten the economic well-being of farmers in undeveloped countries. In this Q&A, Mr. Lloyd highlights some of the key sources of controversy.

Q: What is the TRIPs agreement?

A: TRIPs is an acronym for Trade Related Aspects of Intellectual Property Rights. It is a multinational agreement adopted by the World Trade Organization (WTO) to promote global protection of IP, while simultaneously preventing the use of IP rights to create barriers to legitimate international trade, or what’s called “IP abuse.”

Q: How does the TRIPs agreement promote IP rights?

A: The way the TRIPs agreement works is relatively discretionary. WTO members are required to ensure “fair and equitable” enforcement of IP rights. The WTO also provides a Dispute Settlement Understanding under TRIPs that is designed to offer an administrative alternative to judicial enforcement of IP rights. But ultimately, the most the WTO can do to enforce TRIPs is impose trade sanctions against a member that fails to comply with a dispute resolution. Thus, it is at the discretion of that member to decide whether the sanction imposed makes compliance worthwhile from a political or economic standpoint.

Q: How does the TRIPs agreement prevent IP abuse?

A: One of TRIPs’ provisions is that member countries may require compulsory licensing of some IP rights in exchange for a “commercially reasonable” royalty rate, but the WTO does not provide any guidance on what is commercially reasonable. However, if the owner of IP rights is unwilling to offer a foreign party a commercially reasonable rate so it can export goods into that country without infringing on the IP, the government may authorize importing those goods without a license. Of course, this concept runs counter to the goals of national IP systems of promoting scientific and artistic progress and the protection of economic good will. As a result, the extent to which governments have blocked IP rights under TRIPs appears to be limited. However, the food industry may be a key economic sector where governments exercise this authority, because the notion of allowing IP rights to block the free importation of food products raises a public policy concern that is likely more significant than the policy served by protecting IP rights.

Q: What are some TRIPs-related issues of concern to the food industry?

A: TRIPs recognizes breeders’ rights and other rights associated with genetically modified crops. In the U.S. and many other countries with sophisticated IP systems, the rights to novel plant varieties are often the subjects of patents. In addition, the U.S. Supreme Court has held that genetically modified seed technologies may be properly claimed in utility patents. This raised a question of how IP rights in one country can affect farmers’ rights in another. For example, suppose someone in the U.S. has a utility patent on a genetically modified strain of corn resistant to common pests due to a gene deletion. And suppose that the patent claims are drafted in a way that deems corn imported from Eastern Europe for the past 50 years, also pest-resistant, as infringing on the patent. The TRIPs agreement would potentially ensure a commercially reasonable license for the Eastern European farmers. But if an agreement cannot be reached, imports into the U.S. could be blocked for a long time while the dispute was being resolved, costing the farmers economically. Conversely, suppose the patentee sold the rights to use his seeds to the Chinese government, which then started producing pest-free corn in such volume that its own farmers were slowly driven out of business. These are the types of scenarios that have been raised as possibilities under TRIPs, and their resolution is unclear.

Q: What is being done to prevent the enforcement of IP rights from interfering with the international food trade in this way?

A: The United Nations Food and Agricultural Organization (FAO) has cited enforcement of these types of IP rights under TRIPs as an ethical concern because it interferes with the “food sovereignty” of some countries. That is to say that any policy that creates an unnecessary burden on any country’s ability to produce food domestically will be disfavored, including enforcement of IP rights where it interferes with food sovereignty. There also is a growing concern about the potential for transferring public knowledge into the private domain through patenting. While there are mechanisms for challenging enforcement, they may not be realistic for people in less developed nations. The FAO also has received complaints that undue pressure has been applied to developing countries to comply with TRIPs, despite the fact that some do not formally recognize or have the infrastructure to provide for IP rights. Also, the International Treaty on Plant Genetic Resources for Food and Agriculture, which is binding on several countries, precludes any claims to IP rights that limit access to plant genetic resources for food and agriculture. This is obviously in tension with some of the IP rights discussed above, and TRIPs will likely remain a topic of great political controversy.