Trademarks in Developing Countries

Trademarks in Developing CountriesAuthor(s): Peter O'BrienSource: The Journal of Modern African Studies, Vol. 14, No. 2 (Jun., 1976), pp. 297-309Published by: Cambridge University PressStable URL: http://www.jstor.org/stable/160061 .

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The Journal of Modern African Studies, 14, 2 (1976), pp. 297-309

Trademarks in Developing Countries

by PETER O'BRIEN*

The concern with the impact of industrial property legislation and practices on the developing countries, at both the national and international levels, has so far been confined almost entirely to patents and patent-related transactions.1 This focus on the protection of knowledge concerning production processes reflects, on the one hand, a preoccupa- tion with the terms and conditions which owners of technology may be able to obtain for its sale or lease, when their proprietary position is reinforced by legal instruments; and on the other hand, a recognition that unless the developing countries can themselves control the generation of a significant proportion of the technology they employ, it is unlikely either that appropriate technology will be produced, or that good use will be made of what is already available and relevant.2

Little attention has been devoted to the elements of industrial property which influence the demand for either consumer goods or intermediate products.3 There are, however, several subjects of industrial property which identify, in one sense or other, the source of a particular item and, through so doing, contribute to the differentiation of one product from another - even though they may be generically the same. Of these, trademarks are the best known and commercially the most important.4

A trademark can fulfil various functions. By its very nature it serves

*A Staff Member of the United Nations Conference on Trade and Development, Geneva. The views expressed in this article are not necessarily those of this organisation.

1 See, in particular, U.N.C.T.A.D. document TD/B/AC.Ir /19, 'The Role of the Patent System in the Transfer of Technology to Developing Countries', Geneva, April I974.

2 This does not mean that mastery of a patented process is a necessary or sufficient condition for domestic control of the generation of technology; what is patented may not be appropriate, and in any case a great deal of existing technology is retained through industrial secrecy.

3 Perhaps the best known study is Guido di Tella, 'La Manipulacion de la Demanda: el problema de las marcas', in Revista de la Integracidn (Buenos Aires), 1973, published in English as 'The Manipulation of Demand: the problem of trademarks', in WorldDevelopment (Oxford), i, ii, November I973, pp. 91-IOI. Thomaz Thedim Lobo, 'A Empresa e A Marca', an undated mimeographed study in Portuguese, also contains an analysis of trademarks, with particular reference to Brazil.

4 The other subjects of industrial property which indicate source are service marks, trade names, indications of source per se, and appellations of origin.



to distinguish one product from another so that the producer and the consumer both have legal defence against fraud; by the same token it can be a guarantee of quality,l though this can be assured through various other means - for example, by certificates from institutes of standards - which do not involve the grant of industrial privileges. At the same time the trademark provides a recognisable and legally protected basis on which advertising and publicity expenditures can be made with a view to creating and maintaining a demand for the brand- name product, rather than for the generic item. These a priori considerations suggest that trademarks are likely to be important in all those industries, whether they manufacture consumer or producer goods, where differentiated oligopoly is the dominant market form, and where the principal enterprises are all producing articles which serve similar purposes.2

In the past two decades the worldwide spread of these very industries has been one of the principal features of international economic relations;3 and numerous studies have been made of the effects of this spread on both industrial structures and consumption patterns in developing countries.4 The present article does not seek to analyse these broader questions; it is confined to an examination of some of the statistical, economic, and legal aspects of trademarks, with particular emphasis on the situation of developing countries. As such it is a first attempt to show to what extent industrial property may strengthen control over marketing and distribution.

1 This has been forcefully illustrated, in a somewhat perverse way, by recent experience in Pakistan where the Government has forbidden the use of trademarks in the pharmaceutical industry. The Pfizer Company published an advertisement showing two bottles of pills, neither

carrying a trademark, with the caption 'they may look alike... but Pfizer knows the differ- ence. One of them does not live up to Pfizer's quality standard. And because Pfizer takes no chance all products undergo strict quality control before they reach you. That's why when a doctor recommends a Pfizer product you know he is doing the best for you.' Pakistan Economist

(Karachi), 20-26 April I974, p. 323. 2 On the approach to consumption goods as satisfying certain 'bundles' of wants, see

Kelvin J. Lancaster, 'Change and Innovation in the Technology of Consumption', in The American Economic Review (Providence, R.I.), 56, 2, May I966, pp. I4-23.

3 See R. E. Caves, 'International Corporations: the industrial economics of foreign invest- ments', in Economica (London), 38, February I97 , pp. I-28.

4 A vivid picture has been painted by Stephen Hymer. See, in particular, his written and oral remarks in U.N. Department of Economic and Social Affairs, Summary of the Hearings Before the Group of Eminent Persons to Study the Impact of Multinational Corporations on Development and on International Relations (New York, 1974), ST/ESA/I5, pp. 215-54.

298 PETER O'BRIEN



TRADEMARKS IN DEVELOPING COUNTRIES

THE STATISTICAL PICTURE

At the end of I973 there were approximately 3'9 million registered trademarks in force in the world,1 a figure somewhat higher than the corresponding total of 3*5 million patents reported in an earlier study.2 Slightly more than one million trademarks, or about 26 per cent of the total, were registered in developing countries,3 by far the most important being Argentina, with over 263,000, Brazil, with over 108,000, and India, with over 60,000. The largest single country from the viewpoint of this registration is Japan, with about 692,000 trademarks, equal to approximately I8 per cent of the world stock.

Although the details of trademark laws and practices differ from country to country, it is usual for the initial registration to be for a given number of years, and thereafter for the trademark to be renewable at specified intervals. Unless there are legal proceedings successfully chal- lenging the validity of a trademark, or the owner voluntarily allows the registration to lapse, it can remain in force for an unlimited duration. It is not possible, unfortunately, to estimate with any precision the age distribution of the existing world stock of trademarks. Examination of the 1973 data suggests that new registrations equal roughly 5 per cent of the outstanding stock, and that renewals of existing trademarks account for somewhat less, about 3 per cent.4 Since these two ' ends' of the overall spread are fairly similar, there is perhaps some justification for supposing that the distribution is quite even, in the sense that the total number of trademarks of different ages is roughly equal; nevertheless, more detailed statistics than are currently available would be necessary to verify this hypothesis.

As with patents, so it is possible to register what is essentially the same trademark in several countries - the actual details as to duration, cost, and so on, varying from state to state, in accordance with differences of law and practice.5 The preceding totals of trademarks for the world, and

1 The aggregate figures given in this and subsequent paragraphs were calculated from the World Intellectual Property Organisation document, 'Industrial Property, Statistics for I973', I December 1974. The figure for the world somewhat underestimates the true total since, although more than Ioo governments provided data, a few important developing countries, such as Mexico and Nigeria, are not included in the total. Territorial extensions requested under the Madrid Agreement Concerning the International Registration of Marks are included in the total.

2 'The Role of the Patent System...', para. 247. a As contrasted with about 6 per cent of world patent grants registered in developing

countries; ibid. para. 257. 4 Some of these renewals could be for the second time or more. 6 This is established formally in The Paris Convention for the Protection of Industrial Property

299



for groups of countries, thus do not indicate the number of genuinely distinct trademarks currently in existence - that figure will, of course, be smaller than the total of 3.9 million given earlier.'

Available information distinguishes trademarks according to whether they are in national or foreign ownership. A foreign trademark is one registered in a country by a physical or juridical person whose legal status is that of a foreigner. This definition, which does not differ fundamentally from that used for foreign investment and for patents, creates problems which have already been described elsewhere,2 the effect of which is to underestimate the degree of foreign ownership. The figures which follow should be interpreted with this qualification in mind.

The ratio of foreign to total trademarks varies enormously from region to region. It is highest in Africa, with 83 per cent; the developing countries of Asia, and Australia and New Zealand, both have 62 per cent of the stock under foreign ownership; next, but with markedly less, comes Latin America, with 38 per cent; foreign ownership is still smaller in Europe (32 per cent) and North America (19 per cent); and of but minimal significance, with 5 per cent, in Japan which is, as noted earlier, the largest single country for trademark registration.

It is not surprising that the proportion of foreign ownership in the

developing countries is smaller for trademarks (56 per cent) than for

patents (84 per cent).3 There are intrinsically fewer obstacles to the creation of a trademark since novelty requirements are far less severe, and the registration presumably involves, on the average, much lower

expenses than those associated with a patent. What may be more

significant, though on this there is little evidence as yet, concerns the utilisation of foreign-owned trademarks.

While itis, at least in the developing countries, very common to register patents without using them for domestic production,4 there seems, a

(Geneva, 1974), World Intellectual Property Organisation document. Article 4 C(I) indicates that the right of priority for registering trademarks in countries other than that of initial

registration shall be 6 months. 1 With regard to the same phenomenon in the patent field, it has been noted that 'in recent

years the number of patents granted in the world has been a little more than three times the number of separate inventions, and that slightly more than one-fourth of the total number of inventions are protected in more than one country, the average number of countries being about seven.' 'The Role of the Patent System...', para. 250.

2 Ibid. para. 25I. 3 Ibid. para. 262. Assuming that developing-country ownership of trademarks abroad is

small, the text figure, coupled with the 26 per cent of the world stock of trademarks registered in developing countries, implies that they own about one-seventh of the trademarks in the world.

4 See 'The Role of the Patent System...', para. 279: 'the use in production of patents held

by foreigners in developing countries could hardly be above 5 to Io per cent of the total'.

PETER, O'BRIEN 3oo00




priori, less reason to do this with trademarks. The value of a mark is not inherent in the name; it is developed through publicity and advertising expenditures to promote the sale of the branded product. Without active selling methods the trademark serves no purpose, for its existence can be bypassed extremely easily through employing another name

(something which is generally much more complicated to do in the case of a patent).l It is true that the trademark can acquire its value in a market whether the foreign owner exports to that market, sets up a

subsidiary there, or concludes a licensing contract with a domestic

enterprise. All three channels incur costs of developing the market for the branded product but, since a trademark can (unlike a patent) generally remain the property of its owner for an indefinite duration, the licensing method has the great advantage of shifting part or all of the market development costs on to the licensee, whilst the licensor can retain the long-term benefits and control of the market.

The advantages of using the 'local distributor' technique of establish-

ing a market for a branded product first developed elsewhere have been

cogently stated in a recent analysis by Gerald Helleiner:

Except for that small part of the market which may have encountered the mark abroad or in foreign publications, or in those countries where tourist demands may be a significant input into the pattern of 'local' demand, it carries no meaning to local purchasers and therefore little value to potential owners. Any goodwill accruing to the trademark in a country in which it is new will be the product of the performance of the trademarked product in that particular market, and therefore should be the property of the local developer of that market who has thereby earned it. Whether it eventually carries local value or not will depend upon its local success. Yet under present conventions not only are payments made for the use of the mark from the first day of its use but goodwill is also considered to belong to the owner, not the user, of the mark; when the user's licence expires, he must either renew it - at a price - or acquire a new mark.2

The foregoing argument indicates that the use and value of foreign- held trademarks may be still more significant than is suggested by the

56 per cent ownership figure. A preliminary quantitative impression can be obtained from some evidence concerning licensing contracts.

Trademarks do not involve any transfer of technology. It often hap- pens, however, that they are included in packaged agreements which involve patents, know-how, and other kinds of technical information, the trademarks covering the marketing and distribution side. This con-

1 A complication enhanced by the practice of 'patenting around' an original invention. 2 G. K. Helleiner, 'The Role of Multinational Corporations in the Less Developed Coun-

tries' Trade in Technology', in World Development, III, 4, April 1975, p. I64.

30I



sideration was paramount when, in several of the recent legislative initiatives concerning transfer-of-technology agreements, registration requirements for trademark contracts were introduced.1 The information generated by the registration procedures constitutes a fertile ground from which to harvest relevant data.

From I February I973, when it began operation, to 31 March 1975, the Mexican National Register for Transfer of Technology had received 6,268 contracts for examination. Of these, 6,050 were analysed with regard to the object of the agreement, for example, lease of industrial property, and technical assistance; 2,923 or 48*3 per cent involved trademarks, and these totalled 16,759, an average of more than 5 per contract. Analysis of a random sample of 6I8 of these agreements showed that slightly more than half pertained to trademarks alone, and another

30 per cent to trademarks in conjunction with technical assistance. Almost one-third of the sample contracts were in the food and drink sector, with a further I9 per cent in metal-working, nearly Io per cent in pharmaceuticals, and slightly more than 8 per cent in other chemicals.

The sample results for Mexico in this respect differ somewhat from

corresponding information for Argentina where the National Register of Contracts for the Licence and Transfer of Technology has analysed data pertaining to I972.3 In that year, 1,454 contracts gave relevant details, and of these 845 or 58 per cent included trademarks. Only 35 contracts, however, referred to trademarks alone. The industry distribution showed the most important sectors to be pharmaceuticals, food and drink, vehicles, electrical machinery, and other chemicals; in

Argentina, as in Mexico, the foreign trademarks are important in

producer- as well as consumer-goods industries. It is well known that royalty payments represent only a part of the

total payments made by a licensee in contracts relating to the commercialisation of technology, and to the use of foreign-owned brand names.4 Hence the available data, which refer to royalty payments

1 The more important of these legislative provisions are contained in 'Preparation of a Draft Outline of a Code of Conduct on the Transfer of Technology. Selected Principal Provisions in National Laws, Regulations and Policy Guidelines', U.N.C.T.A.D. document TD/B/C.6/AC.i/2/Supp.I/Add.I, February 1975. Of particular interest are sections i

(Argentina), Io (Mexico), 13 and 14 (Spain), and 27 and 29 (Andean Group). 2 Here and later, the figures for Mexico are calculated from information given in Jaime

Alvarez Soberanis, 'La Funci6n Econ6mica de Los Acuerdos de Licencia de Uso de Marcas en Los Paises en Desarrollo: el caso de Mxico', mimeographed, April 1975.

3 Instituto Nacional de Tecnologia Industrial, Aspectos Econdmicos de la Importacidn de Tecnologia en la Argentina en 1972 (Buenos Aires, I974).

4 See 'Major Issues Arising from the Transfer of Technology: a case study of Spain', U.N.C.T.A.D. document TD/B/AC. I I/ 7, I974, para. 66.

PETER O'BRIEN 302



TRADEMARKS IN DEVELOPING COUNTRIES 303

only, give but a rough impression of total costs; moreover, the part of the costs attributable to trademarks cannot be separated from the other contractual elements. Subject to these limitations it has been found that the principal sectors for royalty payments in Argentina and in Mexico were similar, viz. pharmaceuticals, food and drink, metal- working, and electrical machinery. At the level of the product market, about one-half of the sales realised under licence in both countries were associated with trademarks, either totally or in part.

The connection between powerful trademarks and transnational enterprises is beginning to receive attention. In the words of a recent U.N.C.T.A.D. document:

most of what are considered the powerful trade marks belong to such corporations and... they play a pivotal r61e in the marketing of the products of these corporations, especially in the processed food, pharmaceutical and toiletry and consumer durable industries.1

The study further noted, by way of example, that Unilever alone has over Ioo,ooo registered trademarks throughout the world.2 No direct evidence on this subject is available for the two countries mentioned here, but the data on Argentina does indicate that trademarks occured in 6I per cent of the contracts involving transnationals, and that such contracts accounted for 43*5 per cent of the royalties paid by the licensee firms. Mexico has implicitly recognised the possible impact of these arrangements by insisting that, if the Mexican-based enterprise is a 0oo per cent subsidiary (equity wise) of the foreign trademark owner, then the use of the trademark must be free.3 Since 42 per cent of the 618 sample contracts indicated that there was no royalty charge for the use of trademarks, the implication is that quite a few contracts were in fact between enterprises with equity links.

The preceding sketch of empirical evidence suggests some of the issues involved in assessing the rl6e of trademarks. We must turn now to the economic motivations of the owners, and the legal framework in which trademark protection is provided.

1 'Restrictive Business Practices', U.N.C.T.A.D. document TD/B/C.2/159, I975, para. 28. 2 Ibid. p. I , fn. 45. 3 This is not a formal requirement but a criterion used by the Mexican National Register

in its work of evaluating contracts; in the same vein, the Register does not admit royalty payments in excess of I per cent of net sales of trademarked products when the licence agreement is between firms which have no equity capital relation. See Soberanis, op. cit. p. 36.



PETER O'BRIEN

THE ECONOMIC CONTEXT

A trademark provides a legal basis, secured at low direct cost, for a firm to distinguish its product from that of other firms. Consumers are encou aged - via the advertising and publicity expenditures to promote sales of the brand-name product - to purchase that particular item rather than others which fulfil the same functions. The focus thus switches from generic to brand-name products, and competition tends to be among firms in sectors where the market structure is oligopolistic.1 It is, as noted earlier, precisely in these industries that direct foreign investment has been significant in recent years.

The value of a trademark to its owner depends on the market which can be generated for the brand-name product, and this in turn is increased through promotional expenditures. It is not necessary that the firm always directly undertakes the advertising itself, since specialist agencies can be hired, or the trademark can be licensed to a local firm which will have to devote part of its budget to these expenses, and which will pay a licence fee or royalty to the owner. However the promotion is done, the returns will always accrue, in whole or in part, to the trademark owner irrespective of whether or not he pays any of the costs of market development.

There may be spillover effects for a multi-product firm which successfully sells one of its brand-name items in a given market. Consumers are likely to associate the product with the firm and, provided they are satisfied with what they have bought, will more readily purchase other articles bearing that name. Hence the long-run costs of market expansion are lowered and the firm's overall position in that market is reinforced.

Concentration on brand-name rather than generic item increases the apparent range of choice available to the consumer while leaving his effective choice unaltered (the 'generic' remains the same). Approxi- mate figures relating to chemically-distinct pharmaceutical products and corresponding brand-names in a series of countries for the mid- I96os showed that, on the average, there were nearly six brand-names for every one product in Argentina, more than two for every product in

1 It may be occasionally difficult to decide what is generic and what is not. In an article entitled 'Champagne Name Dispute before Courts Again', in The Financial Times (London), 25 February I975, it was reported that 'Bulmer and Showerings are suing J. Bollinger and Champagne Lanson Pere et Fils, of Rheims, representing all champagne makers, who claim that they alone can use the word 'champagne'. Mr David Hirst, Q.C. for the English com- panies, said the descriptions 'champagne perry' and 'champagne cider' had been used for so long that the champagne houses could no longer complain about the usage. Altogether Bulmer has used the word 'champagne' for Ioo years and Showerings for 35 years'.

304




Columbia and Canada, more than three for every product in Spain, and so on.' From the social point of view, these numbers imply considerable waste of resources on advertising, which in no sense improves the information available to the consumer, nor allows him, at least in theory, to make a better choice.2 Indeed, the situation as far as pharmaceuticals are concerned is actually worse, as Sanjaya Lall has pointed out:

the very speed of introduction of new products and the profusion of brands (there are, for instance, about 700 drugs sold under 20,000 names in the US), coupled with a virtual absence of official provision of systematic information in the field, has made the medical profession heavily dependent on the firms themselves for information about new treatments. The industry can therefore claim to be serving a social function by its promotion, when in fact the purely informational content is low relative to the commercial content but can be most profitably blended with it.3

For the Third World, and indeed for all countries whose patterns of consumption are strongly oriented towards those of the leading industrial nations, the international spread of brand-name products con- trolled by transnational enterprises implies that their consumption is powerfully biased towards external sources. Hence similar questions to those which have been raised concerning the appropriateness of the pro-

1 Computed from data in Daniel Chudnovsky, Empresas Multinacionales y Ganancias Mono- polisticas (Buenos Aires), October 1974, p. 113. A still more striking example is the following: 'The sectorial study...identified about I5,000 different presentations of pharmaceutical products in the Colombian market. Yet research for the study in the hospital of San Juan de Dios in Bogota indicated that I20 generic products used were sufficient to cover most of the needs of the hospital in general medicine'. Constantine V. Vaitsos, Intercountry Income Distribu- tion and Transnational Enterprises (London, 1974), p. 38.

2 The 'at least in theory' is especially important in the pharmaceutical field, where it is usually the doctor, and not the patient, who prescribes what the latter is to consume. Even then the doctor's choice is itself likely to be more apparent than real due to the flood of brand- name preparations.

Doctor Maria Dolores Torres Pons has described the situation in Spain as follows: 'From the discovery of penicillin to the present day, an infinite number of antibiotic products have been isolated and synthesized even though many of them have had to be rejected because they are toxic or ineffective. Nevertheless, this great proliferation of substances has brought with it such a confusion that the utilisation of antibiotics, at least in hospitals, may not be adequate, sometimes because they are administered in excess and on other occasions because their use is unjustified... To all qualified personnel, but most especially to doctors, propaganda concerning the distinct pharmaceutical preparations and forms that invade the market arrive constantly. Most of the time this does not refer to recent discoveries or new molecules but to those which already exist, expressed with different nomenclatures or related in a distinct fashion.' Cited in Oscar Caballero, Las Multinacionales del Dolor (Madrid, 1974), p. xo, my translation. A similar point is expressed in general terms in the subsequent quotation given in the text.

3 Sanjaya Lall, 'The International Pharmaceutical Industry and Less Developed Coun- tries, with Special Reference to India', in Oxford Bulletin of Economics and Statistics (Oxford), August 1974, p. I51.

305



duction technology are likewise germane at the consumption level. Whereas in production the external technologies may be ill-suited to the resource availabilities and development objectives of a country,l in consumption the external technologies may simply serve to create demands for products which only a minimal fraction of the population can afford. If the products are directed towards mass consumption, it is likely as not that they will seek to replace local items which hitherto have been perfectly satisfactory.2

Repeated emphasis has been given to the role of advertising in pro- moting the brand-name product; it is, of course, of major significance in reinforcing the changes in consumption technology as a whole. Helleiner has commented as follows:

the multinational firms' proportion of the total messages conveyed through the media in many less developed countries is overwhelming. One of the few studies of this kind uncovered the facts that in Kenya, multinational firms sponsored over 80 per cent of radio advertising in the Swahili language, over 75 per cent of all newspaper advertising in Swahili and English, and owned the two major local advertising agencies which, by themselves, accounted for 45 per cent of all advertising placed in the country and which constituted a major source of marketing influence and advice to locally-owned firms. Advertising played a particularly great role (over 6 per cent of sales) in these multinational firms catering to brand-differentiated consumer demands- pharmaceuticals, soaps and detergents, toiletries, etc.3

The impact on consumption patterns through advertising of foreign brand-name items in developing countries is but one aspect of the 'disadvantage of the latecomers' - that is to say, the eradication of local products and capabilities due to external pressures, supported in part by a moulding of the taste patterns of local elite groups. In the longer-term this effect may be much more serious for the Third World than that of the patent monopoly currently held by the developed countries. Judi- cious bargaining backed by legislative reforms can lead to some improve- ments on the side of production technology - yet these will always remain of second-order importance as long as the consumption dynam- ics of the system continuously push demand away from indigenous products towards standardised, brand-name goods which are in the hands of transnational firms.

There are several aspects of the spread of foreign trade-marks which,

1 See, for example, Frances Stewart, 'Choice of Technique in Developing Countries', in The Journal of Development Studies (London), ix, I, October I972, pp. 99-12I.

2 A well-known case is the use of artificial baby milk. 8 Helleiner, loc. cit. p. 174.

306 PETER 0 BRIEN



TRADEMARKS IN DEVELOPING COUNTRIES 307

although of lesser significance than the long-term effects just described, nevertheless merit some mention, especially as they have tended to be the focus of recent legislation in developing countries.

First, as noted earlier in this article, the licensing of foreign trademarks creates, in general, a favourable position for the owner of the mark. To begin with, the user normally has to pay the publicity costs in addition to the royalties. When, as is frequently the case, the royalties are fixed as a proportion of sales (gross or net), the more successful the local licensee, the more he will have to pay for using the trademark.1 If the contract also stipulates that intermediate goods must be purchased from the trademark owner, or a third party specified by him, these purchases too will increase with sales. The 'cost of being successful' is one aspect of the licensee's difficulties. Another, which is more serious in the long-term, is that the prevailing industrial property legislation effec- tively gives the owner legal protection and control for an unlimited period. Hence, even if the licensing contract is of fixed duration, the domestic firm, which may have borne all the risksofmarket development and learning-by-doing, is highly vulnerable to non-continuance of the contract, and possibly to takeover by the foreign firm.2

Secondly, licence contracts usually contain quality control clauses. It is understandable that a firm may wish to protect a reputation for high standards for fear of eventual repercussions on sales in third countries, yet these clauses do allow a continuing supervision of the activities of licensee enterprises, and this cannot but be detrimental to their prospects of fully controlling their own operations and developing a reputation as independent producers.

Thirdly, it may be that concern about the possibility of losing control over trademarks discourages foreign firms from adapting products to domestic requirements in a developing country; put another way, from the firm's perspective it may be better to try and alter the pattern of domestic demand rather than its own product.

Fourthly, when an affiliate exists it is still normally the parent company which retains the trademark in its name. This is presumably done

1 A lump-sum payment for the use of a trademark during a specified period probably would not help, since the figure would tend to reflect the expected discounted value of future sales of the branded item. If the local licensor were buying the trademark outright the situation would, of course, be different - but in that case the price should be greater than zero only if the trademark owner had actually amassed some reputation in that market.

2 Without attempting to attribute reasons for takeovers, U.N.C.T.A.D. document TD/B/C.2/I59, p. 9, states that 'it has been estimated that about 57 per cent of the manufac- turing subsidiaries of transnational corporations established in developing countries were formed by way of acquisitions'.



as both a disincentive to, and protection against, a sudden or gradual takeover of the affiliate; under this arrangement the parent at least increases its chances to stay in the market via a licence of its trademark to its former subsidiary.

LEGISLATIVE CONSIDERATIONS

The limited attention paid to trademarks from the economic view-

point is mirrored in the relative scarcity, in the developing countries, of detailed legislative measures providing for an evaluation of the costs and benefits of alternative arrangements. In terms of investigating various legal and administrative options, work is still at an early stage.

The registration of a trademark gives an owner exclusive marketing privileges in that particular country. These can be exploited through use by the owner, by an enterprise affiliated with the owner company, or through licensing to a local company which will distribute the product.' Existing trademark laws recognise in principle that an owner can

prevent unauthorised imports of products bearing his trademark, though in the context of the industrial property regulations of the Andean Group this does not apply to the entry or import of goods originating in member countries.2

The distinctive feature of the few initiatives which have been taken is that- with the exception of Pakistan which has abolished pharmaceutical trademarks - all of them have focused on the direct investment/ licensing implications, and have tackled the problems in the framework of bargaining over contractual terms and conditions, rather than through extensive modifications of trademark law itself.3 This focus

implies that the emphasis has been on the distinction between foreign and nationally-owned trademarks - the rationale of the grants themselves has not been questioned.

1 Of course, the owner retains the option of not selling the brand-name product at all in the country concerned. Leaving aside temporary delays between registration and the com- mencement of sales, the only reasons for not selling through one channel or another would seem to be a genuine inability to create demand, and the possibility that the enterprise holds several trademarks for very similar products, and has decided to promote only part of its

product range during a given period. 2 See 'Control of Restrictive Business Practices in Latin America', U.N.C.T.A.D. docu-

ment ST/MD/4, I975, para. 170. 8 Some changes in industrial property laws have occurred; e.g. in Brazil, Law 5772 of 1971

establishing a Code of Industrial Property, and Decision 85 of the Commission of the Cartagena Agreement relating to Regulations for the Application of the Rules concerning Industrial

Property. Nevertheless, they are essentially modifications to fit in with an overall negotiating posture rather than attempts to alter drastically trademark law as such.

308 PETER O BRIEN




All of the measures taken by developing countries - with the exception, referred to above, of Pakistan - have occurred in Latin America, where Argentina, Brazil, Mexico, and the Andean Pact countries have adopted fresh approaches during the present decade.

Perhaps the most far-reaching measure is the most recent one, taken by Argentina in its Law 20,794 of 28 October I974 on the transfer of technology. Article 9 says that the competent authority - the National Registry, established earlier in I97I - shall refuse to approve the exclusive purchase of a trademark right or licence, except under two conditions. First, the licensee must undertake to devise his own trademark within a period not exceeding five years. Secondly, as an alternative to the first, the trademark is licensed free of charges in any form. In any case, the law states, the contracts cannot go beyond 31 December I979.

Under this control, the position at the beginning of the next decade would be the elimination of trademark-only contracts (save where they seem to be free); but the difficulty, of course, is that these are but a

negligible part of the total - more than 50 per cent of all contracts in

1972 embraced various combinations of items where trademarks were one element. In short, while the Argentinian measure is a new device, it has not surmounted the major obstacle confronting all legislation pertaining to foreign commercialisation of the investment/licensing pack- age. In other words, what can be done when the contract includes multiple components?

All four legislative regimes control the presence of restrictive clauses in licensing agreements which include trademarks, and seek to eliminate as many constraints as possible on the freedom of domestic decision- making. This is just a manifestation of what has been the underlying presumption in this field, viz. that domestic negotiating strength is very much circumscribed, and needs to be supplemented by state interven- tion, whether direct or indirect. A logical consequence for the inter- vention to have effect is that the legislation is buttressed by sanctions on firms which do not comply with the stipulations.

It is clear that a handful of countries have adopted tentative responses to a phenomenon which has not been thoroughly investigated, but the possible implications of which are very wide-reaching. As further analysis is undeitaken, the developing countries may be able to move away from the dominant situation of trademarks treated as a separate arcane world, towards a full treatment of them in their true context as a legal support for the expansion of oligopolistically-structured industries.

MOA

309

21I



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Trademarks in Developing Countries

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