Controversies over intellectual property, royalties and innovation in agriculture

The central axis of the book Intellectual Property, Royalties and Innovation in Agriculture, recently released by IdeaD, is innovation, without which there is no development, and the controversies related to the role of intellectual property in the development of Brazilian agriculture. In it we address the conditions, incentives, risks and rules of the innovation game, the beneficiaries and the distribution of the benefits of innovation among stakeholders, as well as the difficulties faced by innovative companies and producers who use new technologies. 

These are relevant topics that provoke controversy, in part because they are complex, as actors have different interests and views on the problems and propose alternative ways to face them. Some are fueled by ideological biases, which distort the analysis of the dynamics of development and lead to propositions that often reveal a profound misunderstanding of the issues covered, in addition to being able to cause harm and harm to people, companies and society in general. This is the case with many of the controversies surrounding patents, the collection of royalties and the role of biotechnological innovation in agriculture.

We seek to be didactic, but without concessions to simplifications that often contribute to spreading mistaken views about intellectual property, the price of protected technologies and royalty payments. We also try to make controversies clear, and in many cases we take sides and explain the line of reasoning that justifies our point of view, always leaving space for the reader to form their own opinion.

A common simplification is that the patent grants the inventor a monopoly for the economic exploitation of the protected asset. From there to the confusion that patents lead to abuse by companies that sell innovative products is a quick leap.

In the book we argue that patents do not confer any special market power, much less the power to impose abusive prices, that innovations are rarely formed by a single patent and that they generally include a set of assets, some protected by IP rights, such as the company's brand, secrets and know-how, and others that, even though they are not legally protected, are valuable and can be essential to enable a successful innovation in the market.

In this context, the asset protected by the patent is just one of the components of an innovation, whose commercial success depends on many other factors and variables. In any case, the possibility of distortions practiced by companies that have achieved leadership positions in highly innovative markets is not denied, and we indicate that, if and when abuse occurs, it is necessary to intervene by the bodies responsible for regulating competition to identify the causes, and not ad hoc interventions that may compromise IP rights.

Another aspect addressed refers to the importance of IP to stimulate and enable research and development (R&D). Innovations require large investments in R&D that are increasingly complex, have high risk rates and carry many uncertainties, including institutional ones, associated with the growing demands that guide cutting-edge scientific research and the diffusion of new products in highly regulated markets.

Contrary to popular belief, IP does not guarantee profits for innovative companies, but it is necessary to guarantee the incentive and the possibility of taking risks with the uncertain prospect of success in some projects. Some studies indicate that total or partial failure of innovation projects varies between 40 and 90% of the cases identified in the literature (references in the book, p. 87) and that the costs of failure are extremely high, in the range of hundreds of billions of dollars , responsible for the bankruptcy of several companies in recent decades.

We are unconditional fans and defenders of Embrapa and we think it is essential to strengthen the research capacity of public institutions, not only in agriculture and health, but in all areas of science. But the book focuses on the strategic importance of private companies, in particular those responsible for the technological innovations embedded in seeds and bio-inputs, and the controversies surrounding the charging of royalties by these companies.

Brazilian legislation is quite balanced in regulating and protecting the rights of inventors (Industrial Property Law), breeders (Cultivar Protection Law) and producers (reserving seeds for their own use). Controversies have focused on the issue of patent validity periods and royalty amounts.

In the book we expand further on the formation of prices for innovative technologies and argue that the value of royalties is defined by the holder of the technology, based on estimates of benefits that the technology brings to the user, the conditions in force in the relevant markets, investments in R&D, production costs and the companies' own market strategy.

Producers are extremely efficient, as demonstrated by the success of agriculture, and would not make choices or pay for a technology if it did not offer tangible benefits. We are unable to estimate how the benefits will be distributed, but the speed at which biotechnological seeds have spread in Brazil indicates that the game has been a win-win game and that maintaining incentives for everyone to continue investing and earning is strategic for the continuity of the development of Brazilian agriculture.

*Per Antonio Márcio Buainain, Professor at the Unicamp Institute of Economics and researcher at the National Institute of Science and Technology in Public Policies, Strategies and Development (INCT/PPED), Adriana Carvalho de Pinto Vieira, Researcher at INCT/PPED, and Roney Fraga Souza, Professor at the Faculty of Economics at UFMT