The Breeding Exception to Patent Rights: Analysis of Compliance with Article 30 of the TRIPS Agreement

In the panel’s view, a ‘limited exception’ is an exception that makes only a small diminution of the rights of the patent holder under article 28 of TRIPS.¹⁹ The panel explicitly indicated that the legal text should be read literally, focusing on the extent to which legal rights have been restricted. Considerations such as the degree of the economic impact or the number of the curtailed rights were explicitly excluded with respect to the ‘limited exception’ requirement (para. 7.31). Only the level of impairment caused to patent rights in legal terms was deemed relevant for determining the ‘narrowness’ of patent exceptions.²⁰ The term ‘limited’, however, may lend itself to a vague interpretation. Dictionaries may help us to further shed light on the term.²¹ Although ‘limited’ may have several definitions, the one that indicates a restriction on ‘size, amount or extent’²² seems to be the most appropriate in this context. The online Merriam Webster dictionary further clarifies this term by offering an understanding of ‘limited’ as ‘confined within limits’.²³ This last definition better helps us to comprehend scholars’ interpretation of ‘limited exceptions’. Prof. Correa, for example, argues that exceptions are limited when their boundaries are specifically set. In his view, boundaries can be defined by the purpose of the exception (research exception), the purpose of the use (private or commercial), the acts involved (importation, exportation) etc.²⁴

In terms of the issue at hand, the rights of the patent holder should be first identified in order to assess the ‘narrowness’ of the breeding exception. The TRIPS Agreement lists patentees’ rights in its article 28. The first part of paragraph one provides for rights on patented products.²⁵ It allows the patentee to exclude third parties from making, using, offering for sale, selling, or importing patented products without his consent. In this respect, the breeding exception curtails the right of the patentee to authorize the use of protected products. The second paragraph of the same article grants to patent holders the ‘right to assign, or transfer by succession, the patent and to conclude licensing contracts’. The breeding exception does not limit these rights, but it might limit the revenues accruing from the exercise of such rights. Based on the panel’s argumentation, the issue here is the extent of the curtailment, not the number of rights and their economic impact. Thus, the limited breeding exception does not impair the right of the patentee to commercialize or license its products for commercial goals. This means that it is confined only to ‘breeding’ purposes. Further commercialization of varieties bred with patented elements necessarily requires the consent of the patent holder.

The limits posed by the breeding exception can be further qualified by the acts involved: ‘breeding’ and ‘discovering or developing’ a new variety. The first activity refers to the process of changing the genetic of plants by crossing and selecting, or using new techniques to obtain improved varieties, while the second contemplates those situations when one simply ‘finds’ a deviant plant in a variety. For example, a deviant plant may differ in color but retain all the other characteristics of the variety. The change of color is due to genetic mutations normally occurring in nature. The breeding exception, thus, authorizes breeders to use the discovered mutant for further developing a new plant variety. Whoever makes use of patented genetic material in order to carry out the above described activities falls under the breeding exception.

The ‘limited’ nature of the breeding exception may, however, be arguable when it is employed by companies for breeding varieties that are subsequently commercialized in the market. The use of the patented material in this case is limited to breeding activities, but the original intent of these activities is the commercialization of the final products. The free use and exploitation of patented biological material permits breeders to better identify the economic value and potential markets for their new varieties. In this way, they can create actual or potential competitive products. In this regard, the panel recalled that the analysis of the first step should focus only on the legal effects of the patent exceptions. Therefore, the above economic considerations should be ignored. Even if we take the commercial intent into consideration, a limited breeding exception allows only for a ‘breeding’ use. Further commercialization of varieties would require an explicit authorization from the patent holder.

Therefore, based on an understanding of ‘limited’ as proffered by the panel, the dictionary, and scholars’ proposals, the breeding exception should be deemed a limited exception since its boundaries are specifically set by breeding purposes and the acts involved.

The interpretation of this condition firstly requires an assessment of the term ‘normal exploitation’. If the exception is found to be conflicting with the ‘normal exploitation’ of the patent, the further examination of ‘unreasonableness’ would be necessary.²⁶ The panel explained ‘normal exploitation’ but did not offer any indication on the meaning of the term ‘unreasonably’ since it found that the exceptions of Canadian patent law were not in conflict with the normal exploitation of the patent.

In the Panel’s view, ‘normal exploitation’ combines an empirical approach about ‘what is common within a relevant community’ with a normative understanding of what is accepted by community’s values. The panel did not further clarify these concepts, but we may find some guidance in the literature. Senftleben, for example, sustains that exploitation is common within a relevant community if most patent owners use this area to extract value from their patents. If this type of exploitation is also essential to the achievement of goals of patent policy, then the exploitation should be considered as normal.²⁷ In addition, the panel argued that ‘the normal practice of exploitation by patent owners, as with owners of any other intellectual property right, is to exclude all forms of competition that could detract significantly from the economic returns anticipated from a patent’s grant of exclusivity’.²⁸ As Prof. Correa notes, the normal exploitation of patent rights consists of ‘the acts of making, using or commercializing the inventions without third parties’ competition.’ This means that the exclusion of competition is not a form of exploitation of the patent, ‘but a legal power established by law that may be exercised or not.’²⁹ Prof. Correa further questions the exclusion of ‘all forms of competition’ since improved patented products may legitimately compete with the original ones. In terms of the issue at hand, this reasoning can be better understood by referring to the concept of essentially derived varieties (EDVs) explained in Chap. 4. UPOV 1991 requires a minimum genetic distance between EDVs and the original variety in order to grant protection to EDVs. The distinction between original varieties and EDVs is therefore based on genetic differences. When the genetic differences³⁰ satisfy the requirements set by UPOV, the improved variety (EDV) legitimately competes with the original one. Patent rights, on the other hand, may exclude improved products from competition. This is because the scope of patent rights often covers all material where the patented element is incorporated or where it performs its function. With regard to plant breeding, patent rights extend to all those varieties that contain a patented genetic construct. Patented biological material may be used (and crossed out in the breeding process) for creating varieties with different traits from the patented material. In this case, the new variety does not enter into direct competition with the first innovator. The commercialization of these improved varieties would foster two main objectives of competition law: consumer welfare and the opportunity of breeders to legitimately compete in the market. Undoubtedly, new and improved varieties increase consumer welfare. The opportunity to compete in the plant breeding market is equally relevant since competition motivates breeders to invest in plant variety creation. This reasoning implies that excluding all forms of competition from ‘normal exploitation’ does not respond to the rationale of patent law to foster innovation and diffusion of knowledge.

In the panel’s view, however, ‘normal exploitation’ should be in line with the changing forms of competition due to technological progress and evolution of marketing practices. It is unclear whether this reasoning refers to actual or potential exploitations of patented inventions. If the latter is considered as prevalent, patent exceptions risk losing their effectiveness. As one author reasonably argues, new technical findings open up new possibilities for exploiting the patented invention.³¹ It is opinion of the author of this book that only the profit derived from the actual application of patents as ordinarily employed by patent holders, should qualify as ‘normal’. An ordinary use of patents involves acts such as, making, using, selling, offering for sale, importing and licensing patented products.³² The interpretation issue here is whether the breeding exception conflicts with the normal understanding of such exploitation. Building upon Senftleben’s reasoning, it is argued that exploitation is common within a relevant community if most patent owners use this area to extract value from their patents. If this type of exploitation is also essential to the achievement of goals of patent policy, then the exploitation should be considered as normal. Thus, the following paragraphs first look at how inventors generate profits and then assess the public policy pursued by national laws.

With regard to the empirical element, the normal practice of deriving value from patent rights is that of selling patented products or rights, or licensing patent rights. The breeding exception does not detract the profits obtained by commercializing patented products, but it diminishes the profits that patentees might obtain by licensing their rights for breeding purposes. Here the matter is that of defining if profit detraction is significant so as to impede investments on innovative products. Considering that patentees maintain the right to commercial licensing, they might increase the licensing fee and still capture a high profit if this is deemed necessary for recouping the incurred R&D costs. Hence there is no reason to see the breeding exception as a significant detractor of patentee’s profit. With regard to the normative aspect, the goals of national patent policies come under scrutiny. Dutch, German, French, and Swiss laws grant a temporal right of 20 years to exclude competitors, but at the same time they establish maintenance fees for patents.³³ When fees are not paid, patent protection lapses. As a consequence, protected knowledge becomes publicly accessible before the expiry term. This reasoning seems to recognize the fact that patents are a cost on the society. Indeed, studies have shown that not all patents make it through their entire term. In Germany, for example, the average patent life is less than 8 years.³⁴ Moreover, if the patentee declares his willingness to grant licenses, maintenance fees are halved in Germany. Considering that licenses allow other parties to improve the original invention, this provision shows the intention of the German legislator to promote follow-on innovations.

All these considerations indicate that the public policy goal followed by the concerned countries is that of enabling follow-on innovations. An exception to patent rights for breeding purposes fully supports this objective.

In the EC-Canada case, the panel also clarified whether the market exclusivity following the expiry of a patent was ‘normal’. Adopting a flexible approach, the panel stated that:

Some of the basic rights granted to all patent owners, and routinely exercised by all patent owners, will typically produce a certain period of market exclusivity after the expiration of a patent. For example, the separate right to prevent ‘making’ the patented product during the term of the patent often prevents competitors from building an inventory needed to enter the market immediately upon expiration of a patent. There is nothing abnormal about that more or less brief period of market exclusivity after the patent has expired.³⁵

The interpretation of ‘more or less brief’ further complicates drawing a clear line between ‘normal’ and ‘abnormal’. The panel, however, neglected the definition of the relevant ‘normal’ period. It solved this problem by determining that the additional period of de facto market exclusivity is:

an unintended consequence of the conjunction of the patent laws with product regulatory laws, where the combination of patent rights with the time demands of the regulatory process gives a greater than normal period of market exclusivity to the enforcement of certain patent rights.³⁶

This greater period of protection was considered to be not normally employed by most patent owners. An accurate examination of the breeding exception further requires an investigation of the erosion of patentee’s market exclusivity. Patent holders enjoy de jure market exclusivity during the 20 years of the patent term and a de facto exclusivity after patent expiry. We can define the period of de facto exclusivity by looking at the development time of plant varieties. Breeding is a lengthy process that may take from 7 to 15 years.³⁷ This means that in absence of a breeding exception, the de facto market exclusivity may range from 27 to 35 years. The exclusive protection is further extended in case of varieties containing or resulting from genetically modified organisms. Commercializing new genetically modified varieties may take several years since an assessment of compliance with biosafety regulations is required under national and international regulations.³⁸ This procedure can significantly delay the entry of plant varieties in the market. In this case, the ex post monopoly may exceed 20 years by doubling the normal patent life.

In terms of the issue at hand, it is worth drawing the attention of the reader to the fact that the first patentee faces the same hurdles. Long regulatory approvals reduce his market exclusivity. If competitors put varieties containing the patented element into the market, patent exclusivity could be even more significantly limited. The problem, however, might emerge only when competitors commercialize varieties containing patented elements that significantly deprive patent holders from recouping the initial R&D costs.³⁹ R&D investments may be recovered by selling the products and licensing. But depending on the market conditions (free entry, high competition), products sales and licensing fees might not be sufficient for compensating R&D costs. Economic theory considers the recoup of R&D costs as a basic element for the patents to work as an incentive for innovations.⁴⁰ In this view, optimal patent term should be long enough to compensate the innovator for the R&D expenditures. But the definition of the optimal length is still an open question.⁴¹ The optimal patent term might vary for different technological sectors and for different type of patents (processes or products). Hence it is difficult to assess whether the introduction of the breeding exception will undermine the returns on R&D. Some innovations might require a patent term of 5 years, others 10, 15 or 20 years, while others might not necessitate patents to recoup the initial R&D investments (e.g. the lead-time gained by the innovator may be sufficient, as it is often the case).⁴² If patents were not relevant for recovering R&D costs for some innovations, the deadweight loss for the society would be significant. The society would not have access to new information and follow-on innovators would not be able to build upon the patented invention. In this case, the breeding exception would compensate some of the negative effects of these types of patents. The same logic applies in cases where the patent term is longer than the term required to recoup R&D investments. Problematic aspects will arise when a 20-years patent term will be necessary for recovering the initial investments. If this were the case, biotechnological companies would speak up against the breeding exception. To the author’s knowledge, this has not yet happened. Ten years have passed since the first breeder’s exception was adopted by the French parliament in 2004. If the exception had had significantly deprived patent holders from recouping the initial R&D costs, concerns would had already been voiced by biotechnological companies. Therefore, introducing an exception to patent rights might not necessarily undermine the incentive to invent.⁴³

In order to determine whether the exception prejudices the interests of patent owners and third parties, it is first important to clarify the meaning of ‘legitimate interests’. In order to take account of interests of both parties—those of right holders and third parties—the panel adopted a broad interpretation of ‘legitimate interest’.⁴⁴ It dismissed the European Communities’ understanding of ‘legitimate interests’ as strictly defined within the legal meaning of article 28.1 of TRIPS. The WTO judges stated that this term ‘must be defined in the way that it is often used in legal discourse – as a normative claim calling for protection of interests that are ‘justifiable’ in the sense that they are supported by relevant public policies or other social norms’. For illustrative purposes, the panel brought the attention to the experimental use exception already established in most of national patent laws. In this respect, it argued that the absence of such an exception would frustrate part of the nature that the invention be disclosed to the public. Disclosing patented knowledge for further supporting the advance of science and technology is considered to be a ‘legitimate interest’ of both society and the scientists.⁴⁵ Third parties, indeed, are parties who do not have a legal claim with respect to the patented invention. Only a broad interpretation of ‘legitimate interests’ allows us to take their interests into consideration.

In addition to article 30, the panel argued in the EC-Canada case, that patent exceptions are TRIPS-compliant when they satisfy the non-discrimination clause of article 27.1. Thus, the breeding exception is TRIPS-compliant when it does not discriminate ‘as to the place of invention, the field of technology and whether products are imported or locally produced’. Considering that the breeding exception is specifically conceived for the plant breeding industry, it seems plausible to raise a conflict with the non-discrimination clause. The use of ‘biological material’ for plant breeding, in particular, may discriminate against other industrial sectors. ‘Biological material’ involves the use of plant material as well as additional material such as bacteria, viruses etc.⁵⁸ These types of materials are used in other industries as well (for example, some bacteria used to produce antibiotics can be used in plant breeding). An explicit use of such material for the purpose of creating other plant innovations may create discrimination with regard to other sectors such as pharmaceuticals and biofuels.

The first question to ask in this regard is that of the meaning of ‘non-discrimination’. Given the broadness of the term, the panel explicitly refrained from giving a definition,⁵⁹ but it distinguished between de jure and de facto discrimination. With regard to the de jure discrimination, it examined whether the patent exception was legally available to every product that was subject to marketing approval requirements.⁶⁰ In the case of de facto discrimination, it explained that it occurs when the actual effect of the norm is to impose differentially disadvantageous consequences on certain parties, and because those differential effects are found to be wrong or unjustifiable.⁶¹ Additionally, the panel clarified that the word ‘discrimination’ is to be distinguished from ‘differentiation’ and that the WTO Members can adopt different rules for particular product areas, provided that the differences are adopted for bona fide purposes.⁶² Third parties in the proceeding also suggested that not all differential treatment is ‘discrimination’.⁶³ It appears, thus, that a key issue for understanding the meaning of ‘discrimination’ is defining the term ‘differentiation’. The terms used by the panel ‘differentially disadvantageous consequences’ which are ‘wrong or unjustifiable’ are important in order to distinguish ‘discrimination’ from ‘differentiation’. The above terms denote a value of judgment about the consequences of the exception. Thus, ‘discrimination’ arises whenever it produces unjustifiable negative effects. ‘Differentiation’, on the other hand, seems to have a neutral meaning because it simply refers to the act of recognizing or ascertaining differences. Dictionaries, for example, always relate one of the definitions of ‘discrimination’ with prejudice, but suggest no similar connection with regard to ‘differentiation’.⁶⁴ This suggests that ‘discrimination’ arises when there is ‘differentiation’ without justification. In terms of the issue at hand, the question to be posed is whether there is a justification for a differential treatment of the plant breeding sector.

To this purpose, article 27.1 itself can help us to shed light on the issue. The second sentence of article 27.1 restricts the applicability of the non-discrimination clause to the provisions of paragraph 3. In the context of the breeding exception, the second sentence of paragraph 3.b is extremely relevant. Here, TRIPS allows for patents or a sui generis ⁶⁵ system or a combination thereof for the protection of plant varieties. This paragraph seems to be designed for the plant breeding industry. Taking into account the characteristics of plant breeding, TRIPS recognizes the peculiarities in the economic development of countries in this sector and provides for a special protection. Therefore, the justification for differentiating the plant breeding sector can be found in the body of TRIPS.

To further support the reasoning of the panel, the exception should be issued on good purposes. Thus, the question becomes whether the breeding exception is a bona fide exception that deals with problems that may exist in plant breeding.⁶⁶ The answer is affirmative. As already explained in the beginning of this chapter, the very purpose of the breeding exception is that of overcoming the difficulties of accessing patent material relevant for plant breeding purposes. The need to overcome this problem is particularly compelling given the crucial role of plant breeding in food supply.

However, questions may arise as to the extent to which bona fide may justify exceptions to patent rights. Some guidelines can be found in the Doha Declaration on the TRIPS Agreement and Public Health which advises a differential treatment for public health-related patents.⁶⁷ The rationale of this special treatment is linked to the importance of health for human life. This choice can be better understood if we keep in mind that law is an instrument at the service of our society and it could never take precedence over basic principles that protect human life. Therefore, superior principles that guide the adoption of the law should motivate the bona fide of patent exceptions. The same logic can be applied in plant breeding. Given the renowned importance of these activities in food security, it appears reasonable to differentiate in the treatment of patent rights in the plant breeding sector. In order to better comprehend the role of plant breeding in this regard, it appears necessary to clarify the concept of food security. ‘Food security’ was first coined during the 1996 World Food Summit. It was explicitly stated that ‘food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life.’ It is widely accepted that this concept of ‘food security’ involves four dimensions: food availability, food access, utilization, and stability.⁶⁸ Plant breeding plays a direct or indirect role in all of these dimensions. With regard to food availability and stability, it ensures the basis for sufficient quantities of food resources at all times. A sufficient quantity of food indirectly facilitates access and utilization of food. Undoubtedly, the full realization of these dimensions of food security requires an adequate socio-economic environment.⁶⁹ But the role of the breeding exception should not be underestimated. The breeding exception can represent an important legal instrument for implementing the policy concept of food security. The importance of the exception is inherent in its capacity of providing a constant and sufficient source of food supply. This role of the breeding exception is particularly relevant given the interdependence of countries on genetic resources for food and agriculture (GRFA). Climate change is envisaged as a decisive factor in increasing countries’ interdependence on GRFA. Local self-sufficiency might not be possible in view of climate changes impact on the suitability of currently adapted landraces and varieties.⁷⁰ Therefore, the breeding exception plays a crucial role in realizing the abovementioned dimensions of food security in the present and in the future. The role of the exception in the future is inevitably linked to the concept of ‘intergenerational equity’ explained in Chap. 3 of this study. A comprehensive approach to ‘intergenerational equity’ should take account of the breeding exception as a means for achieving food security.

Turning to the analysis of article 27.1, it should be further noted that the option to combine patent protection with a sui generis system opens up opportunities for countries to adapt the patent regime to their specific needs of food security.⁷¹ As already illustrated in Chap. 4 of this study, some Asian countries have adopted plant variety protection regimes that differ from UPOV. The Indian legislation, for example, provides for specific rights for farmers. In this case, the combination of patent rights with the Indian sui generis regime might support the introduction of other amendments to patent law that allow farmers to save, use, exchange and sell farm saved seed. A similar provision is foreseen under article 11 of the EU directive on the legal protection of biotechnological inventions, which combines patent rights with the farmers’ privilege envisaged in article 15.2 of the UPOV.

The last two conditions of article 30 require the interpreter to assess whether the breeding exception is reasonable if it were found in conflict with the normal exploitation of the patent or with the legitimate interests of the patent holder and the interests of third parties. The panel did not offer any indication on the meaning of this requirement since it found that the Bolar exception was not in conflict with the requirements of article 30.⁷² The literature suggests that a conflictual exception is reasonable when it is proportionate to the objective that it intends to achieve.⁷³ The achievement of such an objective should produce social benefits capable of overcoming the harm to patentees and third parties’ interests. For example, providing more innovative plant varieties creates social benefits that go beyond the economic loss of all economic actors. With these important considerations in mind, this chapter elaborates a broader legal framework for analyzing ‘reasonable exceptions’.

It first starts with a textual interpretation based on a literal reading of terms. The Oxford dictionary defines ‘reasonable’ as ‘having sound judgment; fair and sensible’; ‘not as much as is appropriate or fair; moderate’. In these terms, a reasonable exception is the one that is fair and appropriate, that does not excessively impair the rights of the patent holder. Applying these general terms to the breeding exception is, however, not an easy task. It requires a judgment of balance based on TRIPS goals and principles. The preamble of TRIPS gives indication of these goals and principles, which further serve as a source of interpretation.⁷⁴ The fifth paragraph of the preamble, for instance, recognizes ‘the underlying public policy objectives of national systems for the protection of intellectual property, including developmental and technological objectives’. This paragraph has been incorporated in articles 7 and 8 of the TRIPS Agreement. Article 7, jointly with article 8 and the preamble are considered of particular importance for interpreting the rights enshrined in the body of TRIPS.⁷⁵ In addition, the panel in the EC-Canada case, affirmed that ‘both the goals and limitations stated in articles 7 and 8.1 must obviously be borne in mind when doing so as well as those of other provisions of the TRIPS Agreement which indicate its object and purposes’.⁷⁶

An understanding of ‘reasonable exceptions’, therefore, should take these articles into consideration. In addition, article 1.1 which allows WTO Members to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice is relevant. Article 1.1 provides some flexibility for complying with the obligations stemming from TRIPS. The qualification of a ‘reasonable’ or ‘unreasonable’ measure would, thus, require an investigation of ‘the conceptual framework that underpins the granting of patents in a given jurisdiction and at a certain point in time’.⁷⁷ This necessitates a weighing of different interests involved in the light of the proportionality principle. The limit that a ‘reasonable’ exception should face in this respect is its scope.⁷⁸ Only exceptions that restrict patent rights as much as necessary as to achieve their objectives may be admissible. The following paragraphs will deepen these considerations in relation to the breeding exception. If the breeding exception satisfies the requirements of the above provisions, it will be deemed a ‘reasonable’ measure even if it conflicts with the normal exploitation of the patent.

Article 7 (Objectives)

The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.

Although the vague language of this article reflects developing countries’ concerns about the impact of IPRs on their economic and social development, it may serve as a fertile ground for identifying its role in several areas. One role of article 7, for example, may be that of facilitating the development of future exceptions and limitations.⁷⁹ The applicability of this provision on patents can be deducted from its explicit reference to ‘technology’ and ‘innovation’ on patent protection.⁸⁰

While defining the objectives of TRIPS,⁸¹ article 7 highlights the promotion of technological innovation and the transfer and dissemination of technology as the guidelines for protecting intellectual property rights. ‘Technological innovation’ is a term broader than ‘technical invention’. The latter refers only to technical knowledge, while the former covers the whole period of R&D up to implementation, leading to commercial maturity.⁸² Article 7, thus, promotes innovation beyond simple inventions. If we look at the breeding exception, we see that its main purpose is that of enabling ‘technological innovation’ by facilitating access to patented knowledge. With a breeding exception, breeders develop new products which further commercialize into the market. Besides, the breeding exception furthers the ‘transfer and dissemination of technology’ defined in general terms as availability of technical knowledge. Indeed, the breeding exception makes freely available the use of patented technical knowledge in the breeding process. If the breeding exception were not adopted, breeders would be forced to enter into long and costly licensing negotiations which would delay (or prohibit in case of license denial) the transfer and dissemination of technology. This reasoning implies an inherent economic trade-off in patent law between the interest to incentivize and ensure access to innovations. The breeding exception weakens patent rights to counterbalance the negative effects of patents on the transfer and dissemination of technology and therefore, facilitate access to innovation. The exception, on the other hand, should not undermine the incentive to invest in new technology. Indeed, article 7 of the TRIPS Agreement explicitly requires that IP protection should lead to the ‘mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations’. These broad and general terms reflect a compromise between the diverging opinions of developed and developing countries.⁸³ The balance of rights and obligations, therefore, should be understood in a large social context, disregarding their legal meaning. In these terms, the balance would lay in reconciling the economic interests embedded in patent rights with the moral obligation of disclosing the patented invention for the larger benefit of the society. But the ‘balance between rights and obligations’ is understood by some as relevant for promoting individual interests as well.⁸⁴ In these terms, the quest for ‘balance’ may require to strengthen the position of follow-on innovators (breeders) who build on earlier patented inventions.

The term ‘balance’ has been traditionally associated to a ‘desirable equilibrium between at least two forces that is characterized by cancellation of all forces by equal opposing forces’.⁸⁵ Within this definition, the term ‘equilibrium’ as used by economists promotes ‘efficiency’ matters. This means that policymakers focus on providing the right incentives to economic actors rather than on the distributive values of the patent system. This is mainly due to the complexities and the inaptness of the present institutional design to achieve a balance through distributive decisions. Legal scholars, on the other hand, offer a more comprehensive approach of ‘balance’ that takes account of weak parties’ interests in view of development objectives.⁸⁶

The introduction of the breeding exception supports both understandings of ‘balance’. From an efficiency point of view, the exception provides incentives to newcomers to enter the plant breeding market and innovate. At the same time, it preserves the incentives to innovate of patent holders since it maintains their right to sell the protected subject matter and to grant commercial licenses, and thus, the recoup of their investment cost. In view of the development objectives perspective, the breeding exception brings about more innovation into the market by making biological material freely available. In addition, it supports the interests of ‘weak’ breeders who do not have the necessary financial resources to identify the relevant infringing patents and ask for a patent license. This undoubtedly increases the benefits for the society. A balance of rights and obligations, though, should be imposed on both parties since both patent holders and breeders can be producers and users of technological knowledge. The balance resides in the obligation of patent holders to inhibit the exercise of their rights with regard to the use of the invention for breeding activities, combined with their right to prevent the use of the invention for commercializing final breeding products.

Article 8.1 (Principles)

1. Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.

This provision does not clearly state rights and obligations, but adopts an open and all-comprehensive language. This allows a large margin of discretion for its interpretation. Commentators, indeed, argue that article 8.1 may have several interpretative functions.⁸⁷ Among these, its role in the interpretation of TRIPS is relevant for the purpose of this analysis. As already argued above, the panel stated that both the goals and the limitations of Article 8.​1 must obviously be borne in mind when interpreting the words of the conditions in art. 30.⁸⁸