D. Summary and General Conclusions
II. INTERNATIONAL TECHNOLOGY TRANSFER AND PROMOTION AS A BARGAINING PROBLEM A BARGAINING PROBLEM A BARGAINING PROBLEM
A. Elements of Technology Transfer Negotiation 1. Introduction
Chapter one reviewed the basic problems of the current institutional framework of technology. General aspects of the problem generated by the definition of property rights in technology were mentioned. In this chapter the problem of technology protection and diffusion will be defined and analyzed as a bargaining or negotiation problem. The main goal is determining the basic problems that have hampered the definition of an institutional framework for technology transfer at an international level.
Chapter one also introduced the position of developing countries regarding the reciprocal recognition of intellectual rights provided by the Paris Convention.
Developing countries have questioned whether intellectual property rights bring them a positive balance151. Nationals of developing countries generally produce very few technological discoveries that could be valuable at an international level.
In the case of a valuable discovery, they always have the option to register their patents directly in industrialized countries. Additionally, the recognition of intellectual rights originating in developed countries implies renouncing their free use152.
Because this system centers on the warranty of intellectual rights rather than in the creation of a commercialization system of technology, developing countries have criticized this system for responding mainly to the interests and needs of developed countries and have traditionally considered that the costs-benefits relation of this system is negative for them153. They have perceived the system as contributing to the perpetuation of the technology imbalance between North and South, and the
151 See Penrose, E.T., The Economics of the International Patent System, Baltimore 1951, 226, 233, and Oddi, Samuel, The International Patent System and Third World Development: Reality or Myth?, [1987]Duke Law Journal 831, 877.
152 See Fikentscher, the Draft International Code, at 6.
153 See Penrose, E.T at 233, and Oddiat 877.
industrialized countries’ exploitation of developing countries154. This situation has also been interpreted as an element of economic colonialism. The critique goes to the extreme of comparing this system with a colonialist chain155. As a result, many developing countries have refused to recognize intellectual property rights, or have restricted them through conditions that make their protection difficult.
Since technology today is the main source of development, it is clear that the achievement of technology transfer constitutes one of the key elements of development156. This gives a vital importance to the bargaining of technology transfer. The newly developed countries of Asia are a clear example of this situation. These countries managed to acquire large technology transfers and large investments, which allowed them to industrialize in a relatively short period of time157, while Latin America and Africa have relative low development rates158. This situation may be explained by the following example: Brazil spends $17 billion each year paying the interest on its national debt and $ 3 million in royalties for foreign technology, while Japan has no foreign debt but pays about $ 2 billion each year in royalties for foreign technology159.
Mutual beneficial technology transfer is dependent on the bargaining capacities of its parties. A good example of this is given by the bargaining strategies used by Korea: “When the Japanese refused to license peroxide technology to Korea in fear of losing its market in the country (Korea imported 100 percent of its peroxide from Japan), Koreans turned to the US, who was willing to license the technology to enter the new market. When large semiconductor firms in Japan and the US were reluctant to transfer semiconductor technologies to Korea, Korean firms were able to negotiate one dozen licensing agreements with small semiconductor firms in the US between 1983 and 1985. These small firms were
154 See Pacón at 330.
155 See Oddiat 877. He affirms that "Developing countries, many only in this century, have been freed from the political chains of colonialism; nonetheless, in many instances, economic chains of colonialism still remain. The international patent system is one of the links in these chains ".
156 See Fikentscher, the Draft International Code, at 39. See also Aggarwal, Raj, Technology Transfer and Economic Growth: A Historical Perspective on Current Developments, in Agmon Tamir and Von Glinow, Maria Ann, (eds.), Technology Transfer in International Business, Oxford, 1991, at 56, 57-60.
157 See UNCTAD, The Visible Hand and the Industrialization of the East Asia, in UNCTAD, Trade and Development Report, 1994, at 51.
158 See Brown, Richard, The Little Recognized Connection between Intellectual Property and Economic Development in Latin America, in 22 IIC 348 (1991).
159 Dr. Karl Jorda of the Franklin Pierce Law Center, cited by Brown at 352.
willing to sell the technology for a quick infusion of cash during the business slump in semiconductors. When the Japanese refused to license video cassette recorder (VCR) technology to Korea, Korean enterprises employed reverse engineering of Japanese products, augmented by technical consultancy provided by foreign engineers recruited on a short-term basis by the Korean firms”160.
In order to analyze any bargaining process it is necessary to understand the context in which it takes place and the main attitudes of the parties involved. The first section of this chapter explores the possibilities for technology owners and developing countries of obtaining mutual profit by technology transfer. It shows that there is a scope of mutual gain for both sides, which leads to the prediction that both parties will negotiate. Our main concern is to determine how technology negotiation can allow both parties to exploit all opportunities available, i.e., that the outcome constitutes a pareto optimum equilibrium, whereby all the possibilities of mutual beneficial trade are exploited and no party can obtain benefits without creating sacrifices for the other party.
It is typical that negotiation processes do not reach a pareto optimum. Normally, parties cannot see all the negotiation opportunities and have prejudices about the position and needs of the other party, thereby not measuring correctly their true positionand opportunities161. Negotiation is a dynamic process where each party learns about the attitudes of the other and about its own possibilities. The strategy of each party will conform to the dynamics of negotiation, creating a system in which the reactions of each party are partially due to the perceived attitude of the other side. The exploitation of all the opportunities of trade depends on how the parties are able to determine exactly their alternatives and costs, and conceive of the best possibilities of mutual gains. It also depends on how each party is able to convince the other about the objective frontiers of negotiation, and the costs and benefits of the presented alternatives, so that a final solution corresponding to the actual available potential is found.
This chapter will focus on the dynamic elements of negotiation, the interest of the parties, the context of negotiations that they confront, their bargaining strategy and the solution they reach. The chapter will conclude with recommendations on
160 See Kim, Linsu, Pros and Cons of International Technology Transfer, at 232-233.
how to focus on the bargaining problem of technology transfer in order to optimize the gains for all parties involved.
2. Technology Transfer as a Collaboration Relationship a) Traditional Perspective of Negotiation
Since developing countries are net importers of technology and developed countries net exporters of technology, at first sight, the conflict of interests between both sides appears to be the general conflict of interests between the buyer and seller of a good. In general, technology transfer takes place between two enterprises. The supplier is usually a multinational corporation that is able to expand its activities to foreign markets, normally having only commercial interests in the transfer of technology. Its typical interests are to sell its product in a new market (export), increase its production facilities in new environments, take advantage of favorable economic conditions (cheaper labor, etc.), or just profit the possession of knowledge and technology that could be sold or licensed. On the other hand, the main interest of the enterprise that acquires technology is to exploit this technology. Thereby technology acquisitions improve an enterprise’s advantages over competitors as they increase its productivity, or give it the capacity to offer new products. Technology transfer represents a negotiation between enterprises sharing mutual main goals, namely to increase their actual or potential profits. Technology transfer definitely brings benefits to recipient and supplier countries162.
The traditional perspective of negotiation will argue that technology suppliers are interested in obtaining maximum profit (highest price) at minimum costs, while technology buyers are interested in obtaining the maximum amount of technology paying the minimum price. This traditional perspective regards the problem of technology transfer as a one-shoot bargain problem: each party tries to exploit the
161 Pruitt and Carnevale, Negotiation in Social Conflict, Open University Press, Buckingham, 1993. 81-103.
162 The net return from technology transfer by developed countries has been positive overall in terms of trade, employment and consumer benefits in developed countries. See Kim, Linsu, Pros and Cons of International Technology Transfer, at 235, who quoted Organization of Economic Cooperation and Development (OECD), North/South Technology Transfer: The Adjustment Ahead, Paris, 1981.
other to the maximum, using all tools available to increase its short-term profit without caring if the other part is satisfied with the transaction.
Markets provide a solution to this conflict of interest. One of the advantages of the market transactions is that no party can permanently take advantage of the other’s lack of information. Markets will make it difficult for parties to obtain a rent or a benefit additional to what the party will be disposed to pay when having full information. The knowledge that the market will score the relevant information in order to adjust its reaction in the next negotiation will urge the parties to try to achieve long-term stable relationships based on the evaluation of the transaction in an objective way. In this case, parties will tend to take into account the general situation of the market and not the partial ignorance of one party about the relative scarcity or the advantages of each product. This situation will be normal when a technology market develops.
b) Technology Transfer Requires a Collaborative Relationship
Dominant management literatur states that informal sharing of information among enterprises reduces firms capabilities to profit from their R & D. It has considered that profits can be only protected when the important information is keep in the firm excluiding competitors163. This position explains why transfer of technology has not bee very popular among firms. Thus, the fact that parties are not aware of the possibilities of mutually beneficial exchange of information has hindered the development of an institutional framework facilitating technologietransfer.
Technology transfer usually requires a certain duration and stability. It normally integrates a sequence of commercial deals which usually embrace some of the transactions and procedures required to get a plant into industrial production164. These activities have traditionally encompass: identification of technological needs with the objectives of economic and social development, acquisition of information about alternative sources of technology, evaluation and selection of the most appropriate technology; evaluation in terms of suitability, cost and conditions of the components of technology packages; the negotiating of the best terms and
163 See Schrader, Stephan and Stattler, Henrik, Zwischenbetriebliche Kooperation: Informaler Informaionsaustausch in den USA and Deutschland, 53 DBW 589,591 (1993).
164 Blakeney at 3.
conditions, the adaptation and absorption of imported technology; and the optimal exploitation and utilization of the imported technology within all sectors of the recipient economy165.
The collaborative nature of technology transfer contracts can be better understood if we analyze their content. Technology transfer implies more than the negotiation and performance of the grant or assignment of knowledge incorporated in an intellectual property right. It also includes the transfer of unprotected technical knowledge (know-how) in the form of documents or services. Only a part of the technology can be easily transferred through the intangible process in which any body of knowledge is diffused, for example, by studying the text of the registered patent, or by reading documents in which the know-how is explained, or by analyzing the product created with the technology (reverse engineering).
Normally, technology use requires mastering a know-how that cannot be easily imitated or acquired without the collaboration of the enterprise that mastered it.
Know-how also includes assistance in the commissioning of an industrial plant; the sale or lease of machinery or the provision of services in relation to the sale or lease of machinery, as well as the provision of services to assist in the recruitment and training of staff and the institution of managerial and accounting procedures.
Additionally, it can embrace services in relation to the marketing and distribution of the plant’s products166.
Therefore, technology transfer can only be successfully achieved under a stable collaborative framework. A confidential relationship is required, particularly since the protection of know-how is achieved by keeping it secret. In addition, during the negotiation, parties require the definition of objective criteria of fairness in order to consolidate a stable relationship. In the time, the sequential and stable nature of these contracts enable parties to collect all the necessary information to check the accuracy of the information they received at the first negotiations.
Thus, the ultimate success of the licensing venture depends on the success of the licensee. This success depends on the ability of both parties to establish and
165 See WIPO, Licensing Guide For Developing Countries, 1977, 17.
166 Blakeney at 3.
nurture a productive relationship developed over time167 for mutual benefit168. These elements lead to the conclusion that technology transfer should be considered a relationship rather than an act 169. When both parties frame the negotiation problems of technology transfer as a one-shoot deal, obtaining concessions that will later be considered abusive by the other, the relationship of trust could deteriorate, in detriment to both parties. Therefore, each party should be concerned with the perception of the negotiation that the other side has and to try to ensure that the general context of negotiation is objectively valued as just. If the licensee, for example, perceives the payment as too high, then there is a strong incentive to find ways of avoiding it170. Thus, the interest of both sides should be to focus on obtaining the maximal long-term gains from the technology negotiation, in terms so that the function “long-term income minus long-term costs of all transactions involved”, be maximized.
Technology transfer requires a collaboration culture, whereby parties are willing to exchange information. Transfer of information is mainly based on the expectation that given relevant information to competitors will improve their willing to cooperate and sharing the important information they have171. As a result, both parties increase their know-how and the whole system improves its efficiency on a mutual beneficial basis. Thus a sense fairness, whereby parties do not seek to enrich without given something in return constitutes a central aspect of technology transfer. Technology transfer is favored by a system that propitiates sharing information and simultaneously succeeds in developing a culture and a institutional framework preventing unjust enrichment.
167 See Welch, Lawerence S., The International Marketing of Technology: An Interaction Perspective, in Understanding Business Markets: Interaction, Relationships and Networks, Ford, David (ed.), London, 1990 at 373, 373.
168 See Weidersheim-Paul, F. , Licensing as a Long Run Relation. Working Paper 1981/2. Centre for International Business Studies, University of Uppsala, Sweden (1982/2), 20. This study confirmed that the reason for success or failure of Swedish firms licensing to foreign companies depends little on the licensing object itself but rather on the patience of the parties in building a long-term mutual beneficial relationship.
169 Contractor, F. J. The Composition of Licensing Fees and Arrangements as a Function of Economic Development of Technology Recipient Nations, in 11 Journal of International Business Studies No. 3, at 47 (1980), 47.
170 See Carstairs, R.T. and Welch, L.S., A Study of Outward Foreign Licensing of Technology by Australian Companies. Report prepared for the Licensing Executives Society and Industrial Property Advisory Committee of Australia, revised ed., December 1981.
171 See Schrader, Stephan and Stattler, Henrik, Zwischenbetriebliche Kooperation: Informaler
Informationsaustausch in den USA und Deutschland, 53 DBW 589, 603 (1993). The willingness to share relevant information is higher in the US than in Germany. Id.
The price of each transfer is not the only relevant variable for both sides. For the acquirer, more important is the profit resulting from his increased competitiveness and the reduction, by an adequate assessment, in the production and marketing risks that the introduction of a new product or process technology implies. The quality of the transfer of technology and the ability of the transferee to learn will determine the costs for both sides of the transfer. Since the degree of collaboration among the parties determines the level of the mutual gains, technology transfer can be described as an exercise in relationship management172.
The same effects produced by a stable collaboration between parties can be created by defining a suitable institutional framework promoting the development of technology markets. This institutional framework facilitates firm’s engaging in licensing, since participants may presume that the institutional framework guarantees good faith and provides of suitable rules to harmonize their interests.
Thus, there is a relation between the economic success of an enterprise and the disposition of its employees to informally exchange important information173. Therefore, in addition to the payment for the transferred technology there are other sources of mutual gain for the provider of technology which can constitute a solid basis for profit recovery. For example, it may be possible to look for complementary means of generating income from relationships such as cross-licensing or associated exports174. This situation stresses the fact that the technology transfer implies more than simply selling a technology, it is choosing a partner for a mutual beneficial relationship.
The development of technology markets allows firms to increase their profit possibilities175. Thus, the existence of a suitable institutional framework facilitating negotiation of technology, and the development of a culture of mutual beneficial exchange of information may allow the development of technology markets. This institutional framework allows firms to assume that participants are framing the transfer of technology as a collaborative relationship. This makes firms willing to sell of license their protected information and enter in mutual beneficial exchange of information.
172 See Welch, L, S., The International Marketing of Technology, at 375.
173 See Schrader and Stattler at 604.
174 See Welch, L, S., The International Marketing of Technology, at 373.
In conclusion, since the efficiency of transfer of technology is depending on the ability of participants to create a collaborative framework, a legal framework capable to harmonize the interests of participants is absolutely necessary to promote this transfer. Prevention of unjust enrichment while promoting sharing of information are key elements of the institutional framework for transfer of technology.
c) Collaboration Possibilities at International Level
At the international level the situation is similar to that presented at the level of the negotiation among enterprises. Furthermore, there are global considerations which increase the reasons for interest in technology transfer to developing countries.
Industrialized countries are also interested in the development of markets in the Third World. This maximizes the amount of possible stable transactions with
Industrialized countries are also interested in the development of markets in the Third World. This maximizes the amount of possible stable transactions with