This chapter is adapted from a chapter published in B. Hoekman and J. Zarrouk, eds., Catching Up with the Competition: Trade Opportunities and Challenges for Arab Countries, Studies in International Economics (Ann Arbor: University of Michigan Press, 2000).
An issue of great concern to decisionmakers in many developing countries is the effect of strengthening the protection of intellectual property rights (IPRs). In this chapter, simple partial equilibrium models are used to analyze and discuss the likely economic effects of introducing stronger IPR protection in Lebanon. Such strengthening will be required by virtue of Lebanon's future accession to the World Trade Organization (WTO) and the consequent requirement that it adhere to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).1
The chapter is structured as follows. It begins with a brief description of the IPR system in Lebanon as of 1996. This discussion is followed by a summary of a survey of Lebanese manufacturing and service firms in key sectors that provided information on industrial structure and the use of IPRs, along with anticipated effects of a new intellectual property regime. I then discuss the economic effects that could emerge in a small economy such as Lebanon in response to strengthened IPRs. In the next section, illustrative calculations are undertaken of the possible static effects of stronger IPRs on key sectors. The final section concludes.
Legislation in Lebanon covers patents, industrial designs, trademarks, copyrights, unfair competition, and penalties for infringement. The provisions of the law stem directly from related French intellectual property law developed in the 19th century. The law rests on two foundations. First, Lebanese IPR officials undertake no substantive examinations of applications for industrial property protection (patents, designs, trademarks) for novelty but rather inspect applications solely for their satisfaction of formal requirements. Opportunities are provided for private opposition to grants. Second, enforcement of IPRs is left largely to private actions, in which firms assemble evidence of infringement and use the police and courts to achieve its elimination or deterrence. Those principles are commonly followed in developing countries. Lebanon is unusual primarily in having an enforcement system that provides effective disciplinary action against infringement in some circumstances. As in many developing countries, in a variety of respects existing IPR protection is inconsistent with requirements under TRIPS. Although Lebanon is not a WTO member, these inconsistencies will have to be removed if the government decides to seek accession.
As an illustration, patents are awarded in Lebanon without substantive examination for novelty relative to prior art in the field; the applicant need fulfill only certain formalities in the application. Any interested party can file an opposition claim in the courts (not with the Intellectual Property Office), arguing that the invention is not sufficiently novel, that the claim is misleading, or that the technical specifications in the application are inadequate to reveal the nature of the invention to skilled practitioners. Patents are awarded for 15 years from the filing date. Patents are not awarded for pharmaceutical compositions (drug products), an exclusion that is standard in developing countries but would have to be removed under TRIPS. Approximately 10 to 15 percent of patent applications are denied by patent officials during initial review, largely because the technical specifications are inadequate. Patentees have exclusive rights to exploit their inventions through production, importation, and licensing, subject to revocation for not working the patent, which means failing to produce the good in Lebanon.
Industrial designs and models are protected upon filing, subject to a requirement of novelty and originality, again enforced through potential opposition claims in the courts. Protection implies the exclusive right to sell or otherwise work the design or model. The initial period of protection is 25 years, with an automatic renewal upon application of a further 25 years. This duration far exceeds standard international practice. An industrial design patent lapses if the applicant does not publicize the design or actively request maintenance of its protection within 5 years.
Trademarks are protected upon filing, subject to certain formalities and basic exclusions relating to government symbols and public morality. There is no protection for geographical indications and no explicit protection of well-known marks that are not registered in Lebanon. Filings are subject to opposition within 5 years in the courts if other firms have written proof of first use. Trademarks provide exclusive rights to market products using the names and marks and to prevent use of confusingly similar names and marks. Protection of registered marks lasts 15 years and is indefinitely renewable. Approximately 20 percent of trademark applications are denied on the basis of inadequate satisfaction of formalities or because of prior registry of marks.
The Lebanese copyright law protects all types of literary, artistic, and musical creation without explicit exclusions. Copyrights are provided for the life of the author plus 50 years and for 50 years in the case of corporate copyrights. Those periods are fully consistent with international norms under TRIPS. Copyrights provide exclusive rights to produce and sell copies of literary and artistic creation and are fully transferable by creators.
As in most developing economies, Lebanon's Intellectual Property Office is woefully understaffed, and the officials are not specifically trained in intellectual property issues. A small reorganization is contemplated currently, with a slight increase in staff and a split of the office into branches for industrial property and for literary and artistic property. This change will help the technical situation only marginally. The limited resources and expertise of the intellectual property officials will continue to act as a drag on the exploitation of IPRs in Lebanon for the foreseeable future.
The simulation analysis that follows is based on a survey of 117 Lebanese manufacturing and service firms that have some potentially important relation to IPRs, using a questionnaire developed by the author and administered by a consulting firm in Beirut in July 1996. The industries are basic chemicals and metals; clothing and textiles; cosmetics; food products; furniture; leather products; films, publishing, and broadcasting; pharmaceuticals; plastics, paper, and glass; and software. Selected firms in each category provided information on sales, employment, trade patterns, and cost structures.
The use of IPRs in Lebanese business is limited. In several industries (basic metals, clothing, furniture, leather products, and plastics, paper, and glass), IPRs were seen as relatively unimportant in setting business strategies. Patents are infrequently applied for (and the number is falling, according to private intellectual property experts); they are typically requested for minor improvements inPage 262 inventions; and the disclosure requirements provide little effective technology transfer. Firms rarely try to enforce their patents or designs against infringement, both because of the limited penalties available (suggesting a small deterrent effect) and because court procedures in patent cases can be quite lengthy and costly. Indeed, deficiencies in technical expertise relating to patents within the administrative and judicial systems is probably a strong factor contributing to the limited use of patents. In the absence of effective patent protection, Lebanon suffers from limited indigenous technological development and technology transfer.
Trademarks are more heavily registered and used than patents and designs. Several consumer goods firms have developed distinctive trademarks or work to protect their rights relative to foreign trademarks for which they have a licensing agreement and that they register in Lebanon. In part, this greater use of trademarks may be attributed to Lebanon's reasonably effective (according to trademark lawyers) private enforcement mechanism, which is backed up by powers of police seizure, customs measures at the border, and judicial relief. These procedures are already largely consistent with TRIPS standards. However, numerous industrialists complain about trademark piracy in nearby countries. Complaints also arise about the high cost of legal enforcement of trademarks in Lebanon and neighboring countries, a cost that is viewed as a disincentive to product development.
Counterfeiting should be of special concern to a country such as Lebanon, in which consumer products firms, service firms, and others bear great potential to build recognizable brand loyalty in the region and even in European markets. To date, such firms have had limited incentives to invest in such market building in the Middle East, which points to the need for pursuing effective trademark protection in the region as well.
Firms tend to focus their research and development (R&D) functions on local market research. The larger firms tend to believe that they will benefit from stronger IPRs as the smaller firms, which are more prone to undertake infringing activity, come under greater pressure to reduce...