Issues of valuation and economics are expressed indirectly in the CBD, through the requirement that the level of benefit sharing should be “fair and equitable.” In general, the details concerning valuation and equity in ABS are determined individually at the contractual level, in cases where a contract has been obtained. Systemically, however, the obligation of fair and equitable sharing goes beyond that – it is one of the three primary objectives of the CBD. “Equity” is a sweeping concept, but is clearly derived from and connected to the concept of “value” (not only monetary value but other value as well). From the user side, questions regarding the “equitable share of benefits” involve four issues:
Valuing the “benefits arising from the utilization of genetic resources” and the contribution that the genetic resources have made to the creation of that benefit, including a variety of approaches to valuation (discussed at 5.1–5.3);
The fairness issues – balancing the equities of the transaction (discussed at 5.4);
Broader equity and public interest issues (discussed at 5.5); and
The interconnection between valuation, equity and the public interest (discussed at 5.6).
Each of these issues must be considered in determining what constitutes an “equitable share” for the provider of the genetic resources. Non-transparency regarding value as applied in ABS, coupled with the long delay between most ABS transactions and any direct benefit sharing, has led to a situation in which negotiations are fairly random in setting the specific amounts to be paid as “benefit sharing” under ABS contracts. From the user side, another challenge is determination of an “equitable benefit share” where no ABS contract has been obtained. In addition, of course, a contract can be challenged for lack of fairness, as well as for procedural and substantive deficiencies.
This chapter considers the need to understand value factors as another layer of complexity in the process of creating and administering benefit-sharing legislation. In addition to the Chapter 4 tasks of (i) determining what “genetic resources” and “benefits arising” are, and (ii) integrating that concept into a system for triggering the benefit-sharing obligation, it still remains necessary to have some idea about the value they represent and to integrate that understanding into the difficult process of equitably sharing the benefits arising from utilization of genetic resources. This issue of valuation and equity forms a critical link to the other objectives of the CBD – conservation and sustainable use – without which there is no justification for an ABS system.
The primary determinant of the benefit-sharing obligation is the creation of a benefit through genetic resource utilization. Even after one solves the immediate problems (What is a benefit? and when does it arise?), the notion of “equitable benefit sharing” suggests that the system must have a dependable system for valuing the benefit arising from genetic-resource utilization. After this issue is addressed, the second step is determining an appropriate and equitable share of those benefits attributable to the genetic resources.
As a practical matter, value of the benefits addressed in ABS contracts and legislation occurs in one of two steps – either by pre-estimating (leading to an agreed amount for benefit sharing, which can be paid early in the ABS relationship), or by waiting and valuing each benefit, as it is received. In general, the pre-estimation and pre-payment process can happen only where there is an ABS contract or other agreement – currently, there is no basis in the CBD or elsewhere for unilaterally choosing and imposing a set value on either Party. Consent to a specified payment as full or partial satisfaction of the benefit-sharing obligations must be reflected in MAT.
Usually, one or both parties to an ABS contract will prefer to use such pre-agreed estimates as a method of concretizing the benefit-sharing element of the ABS contract. Even where the parties agree to wait for results before determining how benefits shall be shared, the means of computing that share will be decided in advance, through either negotiation or the source country's law.
On the user side, where there is a contract and it was fairly negotiated, the contractual result will usually be controlling. Legislation will be needed address economic valuation of the benefit received, only (or primarily) in situations in which the user did not obtain an ABS contract. These tools will also be used where it appears that either the user or the source did not participate fairly in the negotiation process.
Given the variety of different kinds of results, outcomes and outputs that may be “benefits arising” from genetic-resource utilization, the valuation question can be difficult. The particular source of that benefit may be a specific genetic resource, which has value to a particular country or community based entirely on its potential to produce ABS benefit sharing. In those cases, an altruistic researcher who blithely publishes and shares his results will have effectively converted the value of that genetic resource from ownership (or potential value) held by the source country to global ownership benefiting the entire planet at the expense of that source country.287 If he has done this without the approval of the source country, he may earn their wrath, in the form of a claim based on the value of the lost benefit-sharing opportunity. Thus, the determination of the source country's fair and equitable benefit share may, in many cases, be closely linked to perceived value of the genetic resource.
The valuation process in ABS is very complex. To understand it, we must begin from the premise that “genetic resources” are something more than simply the raw materials of biotechnology.288 Within the CBD, the specialised legal right to utilize genetic resources was created as a mechanism for integrating a variety of linked objectives and rights (ABS), through a legislative and contractual system.
Analysis of this valuation question must begin very basically, by considering how genetic-resource value differs from the traditional kinds of value accorded to “biological resources” throughout history. Variations in “genetic value” of such resources was traditionally thought to depend primarily on the physical “quality” of the particular material being transferred – the value of one kilo of grapes is much higher when the grapes are of the type, quality and condition that enable them to be used to produce champagne – much lower when they can only be sold for consumption as “table grapes.” Economic advantage in regard to grapes was sought by improving relevant qualities (breeding new varieties, choosing vineyard sites, developing soil treatments to improve the quality and amount of the harvest, etc.). Value to the vineyard owner or other dealer was based on a combination of factors – primarily, the amount of material produced and sold, and the price obtained.
By contrast, the use of a grape variety's “genetic resources” may depend on none of these qualities. Particular genetic or biochemical data or material may be valuable as “genetic resources” where it is linked to properties that can be used or replicated in other ways. Their value may depend on either or both of the elements described in 4.1 – the micro-physical genetic material and the genetic information it contains. Whether these components are utilized individually or together, the “utilization of genetic material” is recognized to confer a different or additional value beyond the “bulk value” of the particular biological resources, and does not depend on the ripeness or other physical condition of the vineyard's entire production.
The value of “genetic resources” must be discussed in the perspective of both drawing benefits from using the units of heredity (micro-physical material) and utilization of the genetic information that they contain. Valuation must target the new resource value, separating the bulk value of the biological resource from the value of its tangible and intangible genetic resources. This would include, for example, DNA sequences and biochemical formulas, whether contained in whole specimens, prepared samples, extracts, or written scientific notation or descriptions.
In order to understand value of “genetic resources” it might be useful to look to economics and pose the question of what type of “goods” a genetic resource is. Economic theory establishes a distinction between excludable and non-excludable goods.289 An excludable good cannot be used by more than one person at a time.290 Most physical goods are excludable, for example, no one else can eat the apple you have just eaten, and in normal circumstances only one person can effectively use a laptop at any given time. A non-excludable good can normally be used or consumed by several people at the same point of time. This is often illustrated by the following quote from Thomas Jefferson: “[h]e who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me”.291 Other people's access to an idea or innovation does not reduce the original holder's use of it. For instance, one person's reading a novel does not limit the ability of others to read and fully enjoy the same story. However, each physical copy of the book is distinctly excludable as only one person at a time can read that copy.
Whether a genetic resource is excludable or non-excludable depends in part on how easy it is to utilize it and/or exercise a legal right to it. This is an important construct to help understand how national legal systems can be designed to enable source countries to capture an equitable share of their value. Systems for capturing the value of specific physical goods are generally simpler and more easily regulated than those which govern non-excludable goods, such as ideas and non-patented innovations. It will be easier to transform the value of non-excludable goods into a commercial return if there is a legal institution making them valuable.
Physical goods, for example, are excludable, in the sense that they have a finite level of usability. As a practical matter, they can be considered either owned or un-owned. An owned resource's excludability is linked to a particular person or entity – its owner. If the resource is movable, its excludability is protected by the owner physically – locking it or storing it in a location under his control or supervision. Non-moveable resources (real estate) are protected by registration or other systems to secure the property right. Legal ownership does not prevent others from using the resource, but it does provide a legal right to do so. An owner may use legal process to recover moveable property that has been taken from him, even if that property is in the control of another person; he may also use the law to remove one who is occupying physical property that he owns. Un-owned physical goods are excludable by either (i) being converted to individual ownership, or (ii) being used. Thus, the air we breathe is generally un-owned; however, only one person may breathe a specific volume of air at a time. Companies which fill and rent air tanks for SCUBA divers temporarily convert some air into an owned resource, by taking it to fill pressurized tanks.
National law may have the deciding impact on whether a particular good is owned or un-owned. The clearest example of this is fresh water. In some countries, freshwater resources are un-owned. Where surface-and ground-waters are plentiful, for example, they are usually un-owned – any person may take and use them. Water companies may convert unowned water to an owned good, by distributing it through drinking water systems, or selling it in bottles as mineral, filtered or purified water. Where water resources are less abundant, however, rights to use water may be subject to restrictions – they may be, in effect, owned (controlled) by government until private entities obtain a right to own some of it, by complying with relevant controls. This enables government control of water use to ensure that critical water needs (irrigation, energy production, etc.) have priority over new residential developments or other land/water uses.292
As noted in the Jefferson quotation above, ideas are a classic example of a non-excludable resource, but only after they are shared. Shared ideas and knowledge can be applied by many persons simultaneously without reducing the use by others. Consequently, the primary way that ideas can be protected (and others excluded from them) is by keeping them secret. However, to encourage the development of ideas, it has been necessary to provide a means by which they may be made excludable even after they are shared with the public. Through this type of exclusion, research and development can be an economically desirable choice, giving the holder an (excludable) right to reap the initial value from his intellectual products. The intellectual property regime, particularly the patent system, was originally designed to establish exclusive rights to certain non-tangible products of intellectual work, as a means of encouraging intellectual development and enabling it to be shared and developed while still providing valuable rights to the creator of the idea.
Functionally, this system works as follows: The inventor describes his invention in a formal written application and by the grant of a patent that invention receives a time-limited property-right protection with regard to the invention, as described. During the term of the patent, the inventor has a specific legal right to exclude other uses of his innovation and/or to control such uses in a way that earns him a return on his work.
All of this raises the primary question for this book – Are genetic resources excludable or non-excludable? This question may have different answers depending on which of the two aspects of the genetic-resource concept (micro-physical or intangible/informational) are primary in each situation.
When considering the micro-physical genetic material, the excludability discussion should be considered at different levels. In order of specificity those levels are:
Expressed characteristic (enzyme, protein, etc.);
Genome (variety or subspecies);
Shared characteristics (within a higher taxon).
At the level of an individual gene, excludability would seem to depend on how the gene is linked to the characteristics of the biological specimen from which it was isolated. Each gene is linked to a variety of different characteristics. In some cases, the particular gene will be interesting because it comes from an extraordinary specimen of the species/variety. For example, genes may be taken from a particular sheep which has a natural immunity or susceptibility to malaria. The value of an isolated gene linked to that immunity/susceptibility will be based on the quality of the specific animal. At the beginning of the research, this gene will probably be a completely excludable good, since the owner of the animal will have absolute control over its utilization. Over time, however, the researcher may multiply the genetic material or reproduce it in another animal, raising questions about the continuing excludability of the good.
Genetic research, however, focuses on genes based on the species/subspecies/variety of the source specimens. A gene present in the entire taxon would seem non-excludable unless a single owner, government, or other entity has control over all members of that taxon.
This is not a “bright line test” however – there is no clear distinction between shared genes and completely individual genes. Typically, there will be a gradual transition between the genes that exist in many organisms and are completely non-excludable, for instance the gene that codes the color green in spruce trees, to the genes that are excludable because they are more limited, such as genes in a species that is threatened by extinction, or those linked to a particular characteristic (i.e., particular birch trees that despite wind and weather have remained standing and over time have genetically adapted themselves to the climatic conditions of even the most windswept fishing villages in Norway). In other cases, specific mutations might exist in only a smaller number of organisms, increasing the chance that the gene itself will be an excludable good.
A significant amount of the work that is considered to be the “utilization of genetic resources” involves direct utilization of extracts of materials such as enzymes and proteins that are expressed by a particular species. Analysis of the biophysical properties of the poison in a tropical frog is essentially study of a higher level of microphysical material linked to the hereditary characteristics of the species.
At the level of least specificity, many genetic-resource uses are posited on the qualities shared by the entire genome, or the inheritable qualities of an entire organism (the particular plant, animal, fungus, etc.). This type of research, again, may be excludable or non-excludable, based on whether the particular objective is to utilize an individual specimen's uniqueness (breeding one's mare to a famous racehorse, for example, in hope of replicating the stallion's special characteristics) or to harness the qualities of the entire variety. The genetic resources of the stallion are essentially an excludable good, controlled by its owner(s). The use of the genome is more commonly considered under ABS principles, however, with regard to variety development and the use of traditionally developed or locally isolated varieties. In these cases, the excludability will depend on how widely the rights to particular kinds of use of those gene resources are held. If all in the community have the right to breed or authorize the use of the variety, then it may not be excludable unless the community has agreed to control such uses by others. The more broadly these rights are disseminated, the less chance that sufficient control will be possible to render the genome to be an excludable genetic resource.
Another aspect of the excludability of genetic resources relates to the intangible element – the information contained within the species. This information must be generated or decoded through human action. Given that several persons can possess the same knowledge without excluding others from it, knowledge about genetic information is typically a non-excludable good. In general, if non-excludability does not discourage people from working on the species, the chance for a more rapid development may be higher for non-excludable goods than for excludable goods. The information element of genetic resources may possess “effective” excludability in certain instances, depending on the accessibility of the information or the ability to un-code or identify that information.
Generally, genetic information is manifested in many ways. One aspect is the genome and species data, when rendered in informational form (as gene sequence, biochemical formula or other document or image). Much of this type of information is only excludable to the extent that (i) the biological source material is difficult to obtain, (ii) the scientific process is prohibitively costly, or (iii) the analysis can only be done in a special laboratory, to which access is limited. In any species, each gene or combination is linked to many different characteristics of the specimen,293 or coded to particular enzymes or proteins. Identifying the particular gene linked to particular characteristics is a more specialized study. Increasingly, the capacity to identify and decode genetic information is common, found in laboratories around the world. This suggests that most kinds of genetic data can be obtained by anyone ready to do the work and expend the necessary resources. Hence, isolation of a gene or its linked characteristics may not be a basis for excludability.
Intangible genetic resources are more excludable when they require more than standard analysis. For example, analysis may focus on questions about how genes work together to bring out various abilities in an organism. When seen as biophysical commodities, genes might be more excludable, both in fact and in law.
Another kind of knowledge that is often very important in bioprospecting is information about the physical properties of the organism. For example, it is common to screen plants, insects and other organisms for pharmacological properties. Other kinds of analysis may focus on the particular way in which those properties function or are manifested in the species. The excludability of these analyses again depends on the accessibility of specimens, on access to necessary processes and facilities and on the fact that there are many such potential inquiries. It is not common for two researchers working independently to focus on the same questions about the same species, using the same analytic processes.
The objective of extending patentability to living matter, including genes and entire varieties, can be understood in light of these excludability questions, to provide a system by which users can capture the value of their discoveries and innovations, rather than depending on possession (or similar physical control) and secrecy. Through patents, users seek to establish exclusive rights. In many cases, this exclusivity itself is the primary benefit arising from the user's activities. For the ABS system, however, it is also notable that the patent system's ability to provide exclusivity may increase the attractiveness of genetic research and development, offering the user time to recoup his costs before others begin using his innovation.
The ABS mechanism under the CBD is meant to create a value for genetic resources, by sharing benefits arising from the utilization of this mostly non-excludable resource. The task of the ABS system is to create a manner in which to give value to the genetic resource and share it appropriately so that source countries do not feel a need to block access or limit the exchange of genetic resources in an attempt to make them excludable and thus valuable.
The uncertainty of valuation in the ABS process has generally caused CBD Parties to avoid the valuation discussion, possibly to protect their position in future negotiations of individual ABS arrangements. At the same time, however, the lack of transparency regarding valuation of genetic resources, in general and in specific contracts, has been a major factor contributing to the complexity and difficulty of ABS negotiations and documentation in developing countries. Clear standards for valuation and sharing would serve two primary purposes:
to alleviate misunderstandings and unrealistic expectations of both providers and users; and
to provide a concrete basis for the implementation of user-side measures, including especially in determining the obligations of a user who has not obtained an ABS contract with the source country.
This section considers two approaches to assessing the value of genetic resources: “similar contracts” and “alternative value.” It also considers the challenge of valuation timing, another issue in genetic-resource-based relationships.
At present, most processes for valuation of genetic material occur in the context of contractual negotiations between the user and the source country (or the agency, community or individual given the authority to engage in these negotiations). Although some commenters have strongly stated that private contracts are the only solution needed to address and solve all ABS issues and problems, without any need for national legislation,294 practical evidence and analysis have indicated that this is not the case. Even apart from the obvious commercial legislation needed to clarify and enforce each ABS contract, both in user and provider countries, ABS must also provide tools for contractual valuation. The need for accepted methods of appraising the value of genetic resources for contractual purposes becomes obvious when one remembers that, in most countries, genetic resources are considered to be public goods, managed under the oversight of the national government. Consequently, some mechanism is necessary to assure the negotiating government official that he is getting fair value for a public resource which he is sworn to preserve and use in the best interests of the country and its citizens.
One traditional method of value appraisal applies directly in contractual negotiations. This method is derived from comparison of the values of similar property in similar transactions. Professional appraisal standards295 governing this type of valuation system use special characteristics of these “similar transactions” to provide a market-comparison estimate (range) to help guide negotiations and expectations regarding the contractual price for this resource.296
To create and apply an appraisal system in ABS, it will be necessary first, to develop or adjust appraisal standards so that they can be applied to this specialized category of goods. Most important, however, the use of this mechanism for valuation would require, as an essential element, a high level of market transparency. A large percentage of ABS contracts negotiated to date are confidential despite the fact that the genetic resources that are the subject of the agreement are a public resource, administered by a government official. Sometimes, although other contents of the contract may be disclosed, the Parties are not permitted to disclose the financial elements. The resulting market opacity has several obvious results:
Source countries and their negotiators often have unrealistic expectations of the value that they can realize through the ABS transactions;
Parties with limited experience of other ABS transactions may be encouraged to accept inappropriate (too high or too low) payment as the user's benefit-sharing obligation.297
The current lack of market transparency may appear to some users as an opportunity, but will also continue to foster unrealistic expectations and ultimately contribute to the high level of legislative and negotiation complexity for those seeking ABS contracts.
Transparency about prices and financial terms will enable the development of professional appraisal standards, which can ease contractual negotiations. This will not be an easy task, of course, given the many different types of genetic resources, categories of uses, objectives of users, and situations of source countries. According to economic theories, price setting in a free market is based on identification of a specific set of common assumptions that are not easily found in the context of genetic diversity. Few generalizations can be made about the “consumers” (users) and “providers” (sources). Principles of supply and demand suggest that users may find it easier to walk away from the negotiation, given the non-exclusivity of the resource – a situation which may create price competition (coined a “race to the bottom”298) among sources. It has been noted that the “[c]urrent form of contractual approach is leading to low value of individual transactions and not to full valuation of environmental services provided by biodiversity.”299
Perhaps most important, where public goods (genetic resources) are disposed of through private contracts, equity and CBD objectives will not be supported by commercial practices. Private negotiations rarely, if ever, reflect the interests, needs and values of the society or community.
Another approach to understanding the value of the genetic resource, which may be particularly useful, is the question of alternative value – that is, building valuation on the basis of the value of the currently-used resources and processes, which the genetic resources will replace. In essence, this process builds the evaluation of one component of the final product by starting at the end – with the ultimate market price of that product. From this price, the user subtracts the value of other inputs (ingredients, research, processes and development, etc.), as well as a reasonable return on the investment, leaving the value of the input. This value is then used to determine the source country's “equitable share” of the total profit.
This approach can be rephrased in the form of a question asked at the point at which a final product or result is obtained: What would the value of the product have been, without the genetic resources? This question emphasizes the need to link valuation to the results derived from the utilization of genetic resources rather than to access.
This approach determines the value of the genetic resource at a much later point in the utilization process. As a result, it alters the composition of the value formula. Where value is determined at the point of bioprospecting, a very large percentage of that value is speculative – potential value.300 After screening, the balance between “potential” and “apparent value” shifts, with those specimens which do not display the sought-after characteristic dropping in potential value, without increasing apparent value. For genetic resources that pass the screening, however, the apparent value increases, becoming a higher proportion of the resource's total value. At the time the product is developed, the value of its genetic resources will have almost completely shifted to the “apparent value” side. Taken as a whole, however, it is not clear whether this shift (from many specimens with an estimated potential value to the final value of the one genetic resource which has been sifted out) will increase or decrease the “value of the genetic resources” in a particular ABS transaction.
One difficulty with any recognition of the alternative value approach, however, is the tacit acceptance of current approaches to the “relative value” of biodiversity as compared with technology. Unlike genetic resources, the contributions of technology and industrial development have been well recognized, and the recognition is reflected in the financial value and monetary return. Methods exist for estimating value of technology, whereas no means of valuing biodiversity has been generally accepted. In today's society, technology is highly appreciated and has been given a high valuation estimate. A low estimated or perceived value of genetic material removes the punch from the arguments in favor of ABS, suggesting that there will be few (or no) potential benefits to be shared. Overall, there are repeated claims that the value of genetic resources is insignificant.301 These low estimates become the ammunition for the biotech industry's arguments against regulation of rights to genetic material and benefit sharing.302 Conversely, some of the same commentators present figures illustrating that value created from biotechnology is high, to justify their claim that developed countries should refrain from imposing benefit-sharing obligations.303
Legal and practical institutions and mechanisms must recognize that value-creation in sectors using genetic resources is substantial and increasing.304 On the other hand, the “alternative value” method generally fails to adequately reflect social, environmental and equitable elements of the value of the genetic resource – factors that are critical to the determination of the source country's “equitable share” of benefits.
Beyond these rather theoretical discussions, there is need from a practical point of view to develop more specific methods for calculating a fair and equitable benefit share.
The primary user-side obligations in Article 15 are directed at a specific result – “the aim of sharing in a fair and equitable way the results of research and development, and the benefits arising from the commercial and other utilization of genetic resources...”305 This mandate highlights the two equitable aspects of the benefit-sharing concept – fair sharing and equity. While all the issues discussed in the first five chapters of this book are essential for the functioning of the ABS framework, that framework can achieve its true objective only through this “fairness and equity” element.
ABS was not created with the objective of establishing a well-functioning international market for the negotiation and sale of resources based on commercial contracts. If that had been the negotiators' intention, it would have been created under the global trade regime, perhaps as part of the WTO family of instruments and processes. Moreover, if that had been the intention, the problems, costs and obstacles that have prevented ABS from full and effective operation through the past 15 years would probably have caused the abandonment of the concept, rather than a redoubling of efforts to make the system become functional.
Rather, the goal of ABS is the creation of a system by which countries which have conserved and provided access to their genetic resources and the ecosystems that foster them can receive a share in the value that is derived from those resources, and a lingering incentive for continuing to conserve their resources and use them sustainably. By utilizing a commercial tool (contracts between source countries and users) the Parties sought to make this sharing direct. However, in this choice, the Parties also created a need for legal provisions and standards to enable all users (and providers/sources) to know what is required – and especially to know when the arrangements they make will meet the required standard of “fair and equitable” sharing. The CBD assigns the responsibility for oversight of this standard to the country with jurisdiction over a user – to ensure that such a user behaves in a fair and equitable way, and to seek to promote an equitable and balanced approach by other (source) countries in dealing with users.
The following sections consider the practical and legal questions relevant to developing user measures that embody and promote –
fair sharing – determination or evaluation of the fair share that should be paid to source countries under ABS legislation;
equity – reflection of the contribution and needs of source countries; and
practical application of these concepts – balancing of equities, objectives, benefits and responsibilities.
As described in earlier sections of this chapter, the task of valuing the benefits arising and the contribution of genetic resources to those benefits is not a simple matter of applying a formula. Even after these values are understood, it is necessary to develop and apply two additional steps – the process of determining the “fair share” that should be paid to the source country, and the process of determining how (in what form) that share should be paid.
The “fair share” concept has not been well examined in commercial, scientific, contractual or legal terms. In most cases, in addition to the genetic resources, the activities that utilize genetic resources involve a great many other kinds of inputs, including the other ingredients and properties that are combined with the resources, the processes that are applied, the investments of capital and time, and especially the technical development and innovative work. In addition, many products of genetic-resource utilization actually involve more than one genetic resource. As a matter of law and administrative practice, it would be difficult to develop a mechanism that weights all of these different types of contributions and determines what share of the profits or other results is attributable to any one input.
Legislation can provide some standards and other bases for evaluating the concept of fair sharing. Given the multitude of possible inputs, however, any such standard will probably be a simplification to provide a guide for courts and agencies dealing with users who do not meet their basic ABS requirements through an agreement with the source country. In practice, fair-share provisions will usually depend on the concrete situation between the parties, often expressed in a contractual agreement. It is important to remember one other aspect of the equity principles – their usefulness as guidance for courts, arbitrators, officials and others seeking to determine a “fair share” where there is no agreement among the parties, or where that agreement was not fairly entered into.
One issue of concern with regard to the establishment and application of standards governing the sharing of “benefits arising from...the utilization of genetic resources” derives from the fact that some of those benefits – the results of research and analysis – may be non-commercial and intangible. Like the genetic resources themselves, once they have been shared outside of the research institute in which they are developed, research results and analytical conclusions are non-excludable. Thus, there may be no way to partially share these results – unless the parties (directly or through the development and application of legislative/equitable standards) can either (1) define a way of valuing sub-components of research or of determining what level of information is a sufficient “share” to compensate the source country or (2) set limits on what the party receiving a share in the research results may do with those results.
One way of looking at this concept would be to approach it in stages, determining the source country's share at each stage, according to two factors:
the relative contribution of the genetic resource as compared with other inputs at this stage of the process or activity; and
the difficulty or risk involved in sharing results or conclusions.
This approach is built on the view that the source country's right to information can be restricted as necessary to ensure that both user and source receive a fair balance of value, in accordance with their contribution. It recognizes that, at the collection and initial analytical stages, the source country's inputs constitute a much higher percentage of the total of all inputs, than at later stages in the R&D process. Under this thinking, the user can restrict the sharing of later-stage research results, either by placing restrictions on the use of shared information, or by communicating only particular portions of those results.
This approach breaks down in some cases, due to two other factors – the importance of the genetic resource, and the interests of the source country. In some applications, the genetic resource and the research results it generates constitute only one part of a product development process. It may contribute one means of solving a particular R&D problem. In those situations, the “relative contribution” approach would provide a clear basis for determining the user's rights. In other situations, however, the entire process only exists because of the genetic resource. For example, research examining the peculiar characteristics of the poison in the skin of the Tricolor frog would not have been undertaken, but for that particular genetic resource. Although the user contributed significant effort to the development of the information, one cannot at any stage consider the contribution of the genetic resources to be minor, given their importance to the entire work, even at the point at which the research focused on synthesis of a new chemical that possessed the special properties identified by the research. Looking at the contractual situation, if the frog had not been available, there would not be any prince (product) from it.
Beyond this, when fair-sharing principles are applied to informational components of the research, those principles sometimes make “standard assumptions” regarding the interests of the user and the source country, because the nature of the user and his objectives may differ widely across cases. A commercial user engaged in R&D may have a strong interest in maintaining confidentiality of the research results, analysis and other information, in order to ensure that competitors are “excluded” from use of this data. In this case, the interests of the source country and the user are very similar. If the source country has a right to receive a “benefit share” in the profits from the new innovation, it will want to ensure and maximize those profits, including by excluding others from using the information. In these cases, the justification for delaying the sharing of data is practical – the fewer individuals who have access to the data, the less likely that one individual will “leak” the data to another user (valuing his own interests ahead of the organization's or the company's).
Where research is undertaken or used with no commercial purpose, however, the researcher's altruistic motives may be at odds with the country's perceived “best interests.” The user who publishes data for no commercial gain306 has decided to give the information about the particular genetic resources to the world. In effect, his action eliminates any possibility that the source country may receive a benefit-share, other than its microscopic share in the benefit given to the world. While a particular country may agree to this choice, many may feel that the best interests of the country will be better served by finding a commercial user who can convert the source-country's interest into a larger share of more concrete benefits.307
The other element that affects the fair-share question is the form of payment. In practice, up to the date of this writing, relatively few benefit-sharing contracts call for payment a specific share in the user's profits, patents and other benefits. This type of payment (called a “royalty” in publishing and other industries) can be relatively difficult for users, who will be required to undertake very strict accounting processes, in order to provide accurate and auditable records of all of the factors that must be considered in determining the share to be paid. Such limits may restrict the ability of the user to engage in other contracts.
Similarly, larger user companies and institutions are often willing to postpone results – where for example the research results create a usable/patentable discovery or innovation, but the company feels that other technical innovations in future will improve the profitability or effectiveness of its practical application. In those cases, although a patent may be filed, little or nothing may be done to utilize the patented concept for many years (if ever).
As a consequence, it is common for ABS contracts to “liquidate” the benefit share, by identifying other forms of payment which, when made, will constitute a current substitute for the direct sharing of benefits which would otherwise come over a long and unpredictable term, might not be sharable at all, or might be delayed by the company's strategic decision-making. The Bonn Guidelines identify a long list of possible forms that such payment may take,308 including
Payments of money often occur in the form of up-front payments, milestone payments, royalties (as described above), license fees,309 “special fees to be paid to trust funds supporting conservation and sustainable use of biodiversity” (a limited form of monetary payment), research funding;
other forms of concrete, documented payment based on commercial value310
A number of specific rights may have specifically determinable commercial value – for example, the right of participation in joint ventures;311 “joint ownership of relevant intellectual property rights,” transfers of knowledge and technology and other such legally binding relationships may be given instead of direct share of money or property;
A number of benefits are entirely outside of the monetary commercial analysis. For example, a contract might simply require direct sharing of research and development results; other access to scientific information; “collaboration, cooperation and contribution in scientific research and development programs;” a general right to “participate in product development, education and training, access to genetic-resource facilities and databases;” capacity building of various types;312
less direct or tangible benefits313
A number of conditions (general improvement of the source country's situation) may be counted among the means of paying for access or liquidating genetic resources, including
contributions to the local economy;
research directed towards priority needs, such as health and food security, taking into account domestic uses of genetic resources in provider countries;
institutional and professional relationships that can arise from an access and benefit-sharing agreement and subsequent collaborative activities;
food and livelihood security benefits; and
The acceptability of these types of payments in satisfaction of the benefit-sharing obligation is usually determined by contractual agreement (MAT). Under normal contract law, such agreement is presumed to be a fair share, so long as the contractual negotiations were fair, and all parties have complied with their responsibilities. These concepts are integrated into Article 15 through two requirements – that source countries must give their “prior informed consent” to access,314 and that the parties to the ABS arrangement must mutually agree to the terms on which access will be granted and benefits shared. Together, these provisions incorporate the full range of legal principles for fair contract practices, since a country's consent or acceptance of a contract will not be binding if the user concealed information or misinformed the source country representatives in the course of the negotiations.
So long as the negotiations were fair, reliance on the parties' agreement to determine the specific payments and manner of payment is considered to be the best approach to satisfy the benefit-sharing obligation, because it eliminates the need to determine the particular needs, interests, plans and other factors that comprise the source country's perspective on the value of the various kinds of payment.
In legislation and other user-side measures, valuation questions arise primarily where there was no ABS contract or where it was unfairly obtained or where one of the parties has not complied with that agreement. In these situations, the law will have to develop standards, not only for determining the value of the source country's share, but the manner in which it should (or can) be paid.315 Such standards also form one critical basis for evaluating the fairness and substance of the ABS contracts themselves in some legal systems.
In some ways, the concept of equity may provide the most useful guidance on the sharing and benefit aspects of ABS. “Equity” is a concept with many meanings, and with a very specific meaning in law. In some countries based on Common Law principles, special legal rules called “equitable principles” or “equity” exist to ensure that laws are fair, as well as rigorous. It has been argued that by including the reference to equity (a well-known concept in legal circles) in the text of the CBD, the negotiators intended to apply these principles. However, it is also clear that the CBD's general reference would not be sufficient to incorporate the principles from a single legal system or category of legal systems. Rather, the term must be viewed as an indicator of international principles. Hence, in some legal systems, the term “equity” refers to a well defined form of governmental action, in others, it refers to a concept of social fairness, and in some, it is seen as a branch of morality or even divine justice. In an international legal instrument, its application is less specific but “connotes an aspect of law and legal reasoning.”316
Equity provides an adaptive legal basis for addressing novel concepts, especially those that are more complex, less specific or less concrete than the comparable legal principles. This is possible because equity focuses on fairness rather than specific valuation formulas. In applying equity, it is necessary to move beyond “providing fair value in return for goods provided.” One must also consider the factors involved in calculating and compensating formal and informal contributions, disgorging unfair profits, equalizing access to the benefits of collectively owned (or developed or provided) resources, ensuring fairness in common-resource distribution, and other aspects of “real justice.”
In the opening sections of this chapter, we have seen that it is nearly impossible to value “genetic resources” as specific exclusively-owned property. Consequently, it would be very difficult to speak of a “fair return” on genetic resources. However, the CBD does not call for a “fair return” on genetic resources, but a fair and equitable share of benefits arising from them. This suggests different ways of evaluating benefit sharing, beyond the vain attempt to assign a specific value to a specific genetic resource. Equitable principles might address the sharing question in other ways:
In some cases, equity might call for a fair return on the historical contribution of a country or community which has, through many decades and centuries, followed practices which, although financially rewarding, resulted in a higher level of conservation and the preservation of traditional varieties.
Similarly, equity might look at the extent to which a particular product or innovation would have been developed without the genetic resource. If the existence and properties of the genetic resource are the reason that the innovation or product was developed, then its contribution to the final product may deserve a higher share.
Finally, equity may look at the wider biological contribution that enabled the particular genetic resources to exist – at the need to protect the entire ecosystem over a long time, against many threats, in order for the genetic resources to be available today. This is one of the apparent theoretical underpinnings of the entire CBD framework, and a major justification for its inclusion of ABS.
Within the CBD, the use of the term “equitable” cannot be guided solely by one country's legal tradition or even one category of legal systems. Rather, it must be guided by a broader standard, beginning with the Convention's terms, the Bonn Guidelines, and principles of international law.317 In the Convention itself, however, the requirement of equity is encompassed primarily through the use of the word “equitable” in describing the overall objective of the Convention, and in specific description of the benefit-sharing and technology-transfer requirements.318
The equity concept also appears in the Bonn Guidelines, but only in the context of a source-country question – how benefits should be distributed. Although this is a matter solely within the source country's discretion, the Guidelines recognize the larger equitable objective of the Convention, where they note that –
benefits should be shared fairly and equitably with all those who have been identified as having contributed to the resource management, scientific and/or commercial process, including governmental, non-governmental or academic institutions and indigenous and local communities. Benefits should be directed so as to promote conservation and sustainable use of biological diversity.319
For purposes of national and multinational implementation, these two references give little guidance on how the term “equitable” affects the ABS system. However, equitable principles that have already been accepted as principles of international law can provide a partial guide. The following sections briefly summarize those principles and consider the specific ways that “equity” should be applied in user-side implementation of Article 15.
The linkage between the term “equitable” in Article 15.7 and the recognized “principles of equity” familiar to English-speakers320 is much less clear in translation to languages other than English, as countries operating under Roman or Code Napoléon systems do not use this term in the same way (or collect the same mix of principles under a single conceptual grouping).321 In international law, many principles of equity have been formally recognized, through an ongoing process that considers the relevance of legal concepts across the range of countries, and identifies “general principles of international law.”322
It is clear that international practice includes the application of equity,323 particularly where it is specifically incorporated into the text of an international instrument. The capacity of equity to recognize conditions and situations that are not already protected by established legal rights, as recognized by international law, is uniquely relevant to ABS and to the CBD as a whole. Although not protected by legal rights, some countries have arguably contributed more than others to the preservation of biological diversity – which is now recognized to be a valuable commodity. Equity would recognize this contribution in the form of a right to share, when the commodity is sold or when someone obtains financial benefit from it.
For purposes of applying the “equity” component of ABS, it is useful to consider the following examples of equitable principles applicable to individual actions that have been recognized in international law,324 in terms of their application to ABS:325
[a] Historic contribution
One aspect of equity is the recognition of historic contribution: Legal and contractual practices should recognize and recompense one who has engaged in a long pattern of actions that have contributed to the value of a property, right or other good. In the ABS context, this principle suggests that States that have historically succeeded in preserving their biodiversity are recognized as having achieved something concrete. Many states that are highly biodiverse or that are sources of large numbers of endemic species326 find that their industrial and commercial structures and other tools of financial development are less developed than those of the country of the user. Arguably, these two conditions are linked – a country with well developed industrial structures may have created them at significant cost to the country's biological richness. A country that could not (or has chosen not to) develop in this way, has not received a benefit that could have enhanced incomes and livelihoods. Its biological diversity was attained at a historic cost that can now be recognized and compensated under equitable principles.
Therefore, when conserved biological and genetic resources are converted to individual commercial benefit, ABS concepts and equity may suggest a basis for recompense of that historical contribution.327 Most important, this contribution was not focused on the preservation of an individual species, but rather on the preservation of the entire ecosystem and the physical factors that allowed it to thrive. This suggests that equitable principles must consider the conservation of the entire ecosystem, in evaluating the equity side of benefit sharing. This may necessitate a broader scope of valuation of the source country's contribution (as a basis for evaluating the level of “sharing” that would be equitable in circumstances).
[b] Unjust enrichment – quantum meruit
This principle says that one person should not be able to unfairly take advantage of another's situation to earn a benefit that should belong, at least in part, to that other person. As an example, consider a farmer who, mistaking the location of the boundary between his farm and the next, plants, tends and harvests a crop in a field that actually belongs to his neighbor. On the basis of a law which says that the owner of the farm owns the crops that are harvested from it, the neighbor takes the harvested crop and sells it. Although the law is not broken, the result is unfair – the farmer incurred all of the costs and should not pay such a bitter price for his mistake. Equity would either split the profits from the crop, or give all the profits to the farmer and require him to pay a reasonable sum as rental for the field.
Increasingly in the area of genetic resources, arguments of fairness are based on the idea that companies should not be allowed to profit from products based on resources derived from developing countries and local communities without paying or providing other recognition of this contribution.
[c] “Clean hands”
The “clean hands” doctrine states that a person who has failed to “do equity” cannot use equity as a basis for a claim against another.328 In the ABS context, this concept raises an interesting possibility – that the access country's compliance with the “access” side of ABS might be conditioned, either legally or equitably, on other conditions necessary to support access, in addition to specific commitments of the specific user. For example, the ABS contract might include a condition that the user must use the resources only in a country that has fully complied with its ABS obligations – i.e., a country that has adopted user-side measures.
The only legal standard expressed in the ABS context is the obligation that benefit sharing must be “fair and equitable,” yet interpretation of even this standard remains in doubt. One approach to this standard is to conclude that it has no present meaning, and call for the adoption of new and specific legal principles and mechanisms.329 A second option is to recognize the existing body of laws and principles applying and explaining these standards, which has been developing over many centuries, and has been integrated into international law, through specific legal decisions and international agreements.
Simply stated, the “fairness” standard has existed in law for more than 3000 years.330 National courts, arbitrators and other legal processes were founded on the basic principle of fairness as an objective and over the years have developed a body of laws and principles to clarify and implement that standard. These legislative developments enable those who might be judged under fairness standards to predict with reasonable certainty how those judgments will be decided, and to forestall any action or claim of unfairness (or piracy) by acting in a way that will be recognized as fair. The concept of “equity” constitutes a further set of such principles, which provide a conceptual framework through which the court can determine what amounts are owed to a successful claimant. These principles are designed to meet the goal of “remedying” the injured party – providing value that makes him “whole.” For example, if a user has utilized genetic resources without entering into an ABS contract, principles of equity may assist the courts in creating this relationship post facto.
In most countries, the general principles of fairness and equity exist as a background to all legal action. In addition, however, most countries' laws include specific provisions describing how the basic principles of fairness and equity can be applied to certain situations – particularly to new and/or unique situations. One important result of the “codification” of basic legal principles is legal certainty. Where a person or entity seeks to develop a commercial relationship (whether contractual, legislative or otherwise) on which he can rely, he needs to be able to depend on that relationship and will take steps to ensure its validity. In general, he does this by complying with the rules of law and with principles that assure enforceability.
On the question of legal certainty, ABS presents a number of challenges that can be addressed primarily through accepting some shared understanding of the concepts of fairness and equity. Unless national law clearly delineates some principles and norms on which all ABS parties can rely, the chance that the agreement will be overturned as “unfair” or “inequitable” will be a disincentive to users until reliable standards are adopted. Although ABS discussions of legal certainty have focused on negotiations and regulatory measures of developing countries, standards are also necessary on the user side. Norwegian law, for example, specifically provides that any contract can be invalidated if a court finds it to be unfair, even if the contract meets all standards of an enforceable contract (fair and mutual consent, full disclosure, no fraud, neither party under a disability, etc.). Unless countries agree to certain internationally accepted principles of fairness in the ABS context, both source countries and users will suffer from a lack of legal certainty, should they seek remedies or other legal rights in the user country.
More perplexing challenges arise where the specific source is unknown or does not consent to utilization.331 Agreed principles of fairness and equity in ABS must provide a basis for determining how benefits shall be collected and used or distributed. They must also consider the rights of the source who does not consent to the particular use.
The valuation/equity analysis also raises a broader concern – the interests of the local, national or world communities. These broader equities are sometimes referred to as “the public interest.” They constitute two of the most important building blocks on which the CBD is based – Article 1's listing of the three objectives of the CBD; and Article 3's express recognition of each State's “sovereign right to exploit their own resources [including genetic resources] pursuant to their own environmental policies.”332 Together, these provisions underscore the public's interest in the long-term existence of biological diversity for all purposes333 as part of each State's responsibility to conserve and sustainably use biological diversity. ABS would not exist if it were not for these objectives; consequently, any consideration of the operation of the ABS regime must take into account the broader public interests and how they are potentially impacted by the access to, use of and sharing of benefits from genetic resources. In recognizing the value of genetic resources and providing a mechanism for countries to obtain a share of that value, the CBD seeks to create or enhance incentives to conserve biodiversity – as a means of keeping that value intact.334 The precise incentive mechanism by which this is accomplished needs to be developed and made functional in a practical way.
No contract or negotiator, even a government agency charged with working in the public interest, can balance the global interest in issues like biodiversity, food security and health – for the simple reason that no one country can support these objectives alone. Few countries (and virtually no communities or individuals) will be willing to give up a right to a commercial or other valuable share in the benefits of utilization of genetic resources, when all other countries (communities, individuals) are receiving shares. As long as ABS processes are commercial/financial negotiations, they will be generally unable to recognize the broader public interests solely by depending on contracts, or on other action at local and national levels. Even at the global level, it is difficult to recognize and balance all types of interests.
This implies a need to rethink the value added to society by the utilization of genetic resources. When uses are guided by broader needs, biotechnology contributes added value to society.335 The potential social value created by agricultural, pharmaceutical and other activities that may be considered to “utilize genetic resources” is substantial, and can be of inestimable importance to developing countries, and to the CBD's objectives, if it can be mobilized to enable conservation of biological diversity.
The CBD intended the Third Objective of Article 1 to be a support and incentive to the other two objectives (“conservation of biological diversity and the sustainable use of its components”). The nature of that support and incentive is not yet clearly understood and expressed. At a minimum, it seems clear that ABS cannot achieve this objective through an economic or commercial approach alone, nor through established mechanisms of individual equity.
Much of the value of any given genetic resource rests in its unique qualities, rather than the amount of biological material sold. In many types of utilization, only a very small amount of biological material may be required to explore and exploit a species' genetic resources.336 Clearly, the value of the genetic resource is not reflected in the commodity cost of buying or acquiring the biological material from which it is extracted or identified.337 Thus, the value element that is often ignored is uniqueness. Samples are obtained not for purposes of individual ownership, but to take advantage of the unique characteristics of the species. In essence, the genetic resource user utilizes not only the purchased flower, but the entire species or variety – the functional units of heredity shared by all.
The ultimate issue and basis for the genetic resource's true value is much greater than this. Preservation of a wide diversity of species at the local, national and global levels is a primary objective of the CBD. This must also be a major objective of the users of genetic resources, whose efforts depend on the continued existence of the greatest possible selection of individually unique resources.
In a very important sense, then, the value of the genetic resource is calculated by the value of the diversity of biological resources – the continued taxonomic diversity of species on the planet. The resource utilized in a particular biotechnological process or research activity is not a single specimen, nor even the single species, but the diversity of species, genes and alleles from which it was selected, whether available through direct collection from the wild or by accessing ex-situ collections. The loss of an ecosystem may cause or contribute to the extinction of the one useful specimen or genetic sequence that might someday be the source of a vitally important discovery. The expectation in the negotiations of the CBD was that this value could be maintained by a contribution from the beneficiaries of the utilization of genetic resources, through the mechanism of benefit sharing. The valuation of genetic resources should reflect not only the preservation of the ecosystem from which it was obtained, but the integration of the costs of ecosystem conservation more generally.
Considering the cost and efforts involved in creating the ABS system, it is clear that the value of that system is more than its ability to enable a new kind of financial transaction. The challenge is finding a way to integrate the recognition of the value of biological diversity into the valuation system of benefit sharing. In essence, to answer a key question: How can the value of diversity be assessed?
In the original CBD negotiations, the ABS element assumed that users in developed countries had the technologies, infrastructure and capacity needed to benefit from the biodiverse genetic resources of less-developed countries. These benefits were taken without providing any return to the source countries whose conservation practices or less-developed status prevented them from obtaining these same advantages. ABS was linked to social welfare and to the fact that less developed countries include some of the most biodiverse (per capita or per hectare) on the planet, countries that thus bear a very high percentage of the direct responsibility for conservation and sustainable use of resources.
For practical and equitable reasons, ABS must be seen not only as a commitment to create ABS, but also as an obligation to make it profitable for developing countries. Hence, if the experiential data on ABS to date indicates that it has not been financially beneficial to developing countries, the Contracting Parties have an obligation to make it beneficial, rather than to drop it as an unpromising concept.
This view is recognized, at the inter-governmental level, by at least some developed countries. For example, the EC has noted the following, as one of the reasons for adopting legislation to implement the Bonn Guidelines:
The above mentioned CBD objective reflects the need felt by the negotiators of the Convention to ensure that companies and research institutes, located in industrialized countries, are obliged to share the gains derived from the use of genetic resources.... this is an issue of equity: the EC should take action because it is fair to do so.338
One challenge to the international community is how this can be done from a practical point of view.
The ABS concept finds its justification and basis in three often-opposing concepts: equity, valuation and the public interest. In order to build the foundation for the ABS system, it is essential to examine the nexus of these three principles. Together they pose a legislative challenge – to design a commercial or contractual legal system that can function while still serving the public interest. Stated alternatively, countries need to create public interest legislation that is implemented through commercial concepts based on valuation, while reflecting equitable principles.
Although our discussion of the issues of valuation, equity and public interest are somewhat theoretical or academic, these concepts have a very concrete and functional relevance. Significant costs and efforts are being expended to enable ABS to function as a commercial system. Yet neither the market nor national law have yet provided any reason for that system to exist.
If the ABS system does not meet expectations, it will have to be either reconsidered and reformed (in fulfillment of the mandate of Article 15.7) or eliminated, with the consequent failure to contribute to a very important objective. Hence, ABS cannot be left on its own, to develop organically through normal commercial means. Normal mechanisms of commercial contracting cannot reflect or create equitable and public interest benefits. Laws, policies and other governmental actions, required by Article 15.7, are necessary, as well. On the user side, these laws are conceptually difficult in one respect – they function indirectly. The system for implementing separate private contracts does not (cannot) create the terms of a contract between another sovereign nation and a private user. The user-side legislation must find a way to “sculpt” this legal relationship, without directly dictating it.
How can national legislation apply the understandings provided above regarding the valuation of genetic resources, the application of equitable principles, and need to ensure that ABS serves the public interest? The national legislative draftsmen seeking to implement the obligations of Article 15.7, as well as the user governed by those provisions and the source country entering into a contract, all have an interest in this question.
The creation of user-side measures is not a simple task (as discussed in Chapter 3). As the system is currently envisioned, national user-side legislation would not impose specific requirements or percentages on users. Rather, it would enable and encourage each user to engage in contractual negotiations and it would require compliance with the resulting instrument (MAT). The user and provider enter into specific negotiations and produce a specific agreement.
Although not selecting the subjects and contents of contractual negotiations, national contract law provides a framework. It normally focuses on placing limits to ensure that both sides deal fairly with one another, and creates a legal requirement that parties bound to a contract must comply with it, and ensure that where a contract is required one will be obtained. So long as the private contract meets these basic standards of fairness, the law provides a platform for interpretation, application and enforcement.
In that regard, user-side ABS measures must serve a variety of objectives. At the commercial/economic level, they must require and enforce compliance with the ABS contract; but also create mechanisms, motivations and incentives to encourage users who have not obtained such an agreement. In terms of equity, the measures must create a framework that ensures that ABS is applied on the basis of equitable principles. They must also enable or ensure that the system compensates source countries and providers not only for the specific value of the genetic resource, but for its role in the ecosystem and for their historic and current contributions and rights. In the international public interest, the measures must attempt to ensure the link between the ABS system and the objectives of promoting conservation and sustainable use, as well as integrating with national and international efforts to achieve Millennium Development Goals. None of these objectives can be considered without integrating the others.
When a country is adopting provider-side legislation, its commercial ABS provisions can be concrete – enabling, guiding and facilitating the development and negotiation of ABS contracts.339 In empowering a government agency to grant rights in natural resources or other national interests, a country may specify all of the terms of the contract if it chooses. User-side measures, however, cannot do this, since user-side country is not usually a party to that ABS contract. Consequently, the legislation must have a very different role – providing a basis of rationality, legality and equity on which to define and limit the application of foreign law and to control domestic users.
On the user side, valuation, equity and public interest issues can be promoted by ABS legislation in five practical ways:
First, these same process provisions can provide the legal basis of enforceability, by which the courts and agencies can determine whether and how to apply source-country law or to interpret an ABS contract.
Second, the user government can provide a basis of rational and transparent valuation in ABS contracts, indirectly, through its regulation of users who have not obtained ABS contracts from the source country. In essence, by stating how ABS requirements will be calculated and applied to this group of users, the law can provide a “baseline” that can serve as guidance to users in negotiating benefit-sharing contracts.
Third, these provisions can clarify the key difference between users who have obtained ABS contracts and those that have not. For the latter group, the government will decide what benefit-sharing measures are required. This may be a very important incentive for users to comply with ABS requirements and negotiate ABS contracts at an early stage in their activities.
Fourth, overall user-side measures demonstrate how the laws from source countries and contracts negotiated under those laws will be applied in user countries.
Fifth, over time, the cumulative force of all national user-side measures could help define the common international bases that can be used in ABS processes (PIC and MAT) and their application worldwide. Where the users are governmental (government-sponsored research institutes, projects and other activities), they can adopt these principles directly in procurement and other policies required of all persons negotiating with a source country on behalf of the user government.
At any time during the years since the Convention was adopted, user measures could have played all of these roles. If these steps had been taken more immediately, a rational and functional ABS system might already exist, eliminating the need for the current negotiations.
User-side national legislation is challenged to provide the maximum level of guidance to users, source countries, agencies, institutions and courts, to increase their ability to come to conclusions that are generally similar – sufficiently uniform that users and source countries can have some certainty about what rules and guidance will be applied and how. The three key issues discussed in this chapter – economics, equity and the public interest – are the tools of this guidance, but their use poses the following challenges:
Valuation and economic application: Genetic resources (except where patented by a user able to defend the patent) are almost entirely non-exclusive resources, apart from the fact that source countries claim sovereign rights to control their “access” and/or to obtain a share of benefits arising from utilization. This non-excludability in the practical sense means that national legislation and international negotiations are focused on finding ways to make them excludable legislatively. The work on ABS presents many parallels to IPRs, where a legal system has been developed to give innovators the ability to convert their ideas and innovations (not practically excludable) into IPRs over which they have the powers of exclusion of other users. As to their genetic resources, each country theoretically possesses that sovereign right with regard to any species that originated (was found in in-situ conditions) in their country. All countries then have an interest in reaching some legally consistent view regarding the excludability of their own genetic resources – an interest that can only be met by user-side measures.
A key practical challenge in this respect is timing. A genetic resource can only be truly understood and valued at the end of the resource utilization and R&D processes – something that may happen over a very long period of time. The negotiation of the ABS transaction, however, happens at a very early stage, and in general all parties have an interest in moving the benefit-sharing payments to the “front-end” of that process – as close as possible to the time and conditions of the negotiations. The result of these motivations, frequently, is a trade-off between basing the agreement on the speculative potential value of a large number of genetic resources at the collection stage, or tying it to a percentage of actual benefits obtained at some point in the relatively distant future.
Equity and the public interest: Another valuation challenge relates to the need in some cases to determine the source country's “fair share” of benefits arising from the utilization of genetic resources. This computation will involve determining a single standard for weighing the potential contributions of many very different types of inputs into the product or other result. Additional issues arise when developing the comparison of value between the source country's “fair and equitable share” of benefits, and the actual form of payment made, e.g., receiving laboratory equipment as payment of a benefit share.
Finally, equity poses an even murkier challenge. Although directly arising from the wording of Articles 1 and 15, the nature and application of equitable principles in determining the source country's benefit share has received little attention. For example, in a recent publication on the subject “benefit sharing,” it is dealt with as follows:
The adjectives “fair” and “equitable” remain unclear. This is probably due to the fact that the adequacy of the benefits depends on the circumstances of the individual case. Generally, conditions shall be fair and practical for both the provider and the user.340
Obviously, significant work is needed at the international political and analytical levels to raise expert awareness of the nature of primary legal concepts. The other main justification for current efforts to make ABS work is contractual fairness. ABS was created as a quid pro quo forming the basis for developing country participation in the CBD. It is a firm and binding commitment made by all countries. Consequently, it is incumbent upon all countries to either bring it into functional existence or renegotiate the CBD entirely.
In the application of these principles, one must recognize the role of benefit sharing as a goal in conjunction with the other objectives of the CBD: the conservation and sustainable use of biological diversity. It is also closely tied to international types of equity, including intergenerational equity, poverty alleviation, food security and health. In the context of these objectives, a strict contractual approach to the ABS process and the valuation and sharing principles it applies does not necessarily lead to a fair and equitable result.
287 See, Mgbeoji, 2006, discussed in more detail in 4.2 and 4.3, above, especially footnotes 261, 266, 277 and 281.
288 McAfee, 1999, p. 146, with further references.
289 See for instance, Waldron, 1993, printed in Chisum, 1998, 48–49, where the terminology “crowdable” and “non-crowdable” is used.
291 Thomas Jefferson, quoted in Chisum, 1998, 6. It is notable that “ideas” are not “goods” for these purposes, unless/until they become innovations or otherwise capable of being transferred and/or made excludable.
292 FAO, 1995, “Forest Management Legislative Development in Tonga” (FAO) (control needed to prevent negative environmental impacts to the island hydrological system, caused by unrestrained water use). Similarly, current discussions of “payments for environmental services” focus on the use of incentive measures to minimize up-gradient water use in countries whose laws consider water to be an un-owned resource. See Perrot-Maître, and Davis, 2001, “Case Studies of Markets and Innovative Financial Mechanisms for Water Services from Forests” (Forest Trends).
293 One of the most important results of the Human Genome Project was the discovery that there are not sufficient number of genes or gene combinations to reflect all of the characteristics of Homo sapiens. One of the ineluctable conclusions drawn was that each gene is linked to multiple factors, and that other factors (besides) genes may also be involved. Commoner, 2002.
294 See, e.g., Scott, 2005.
295 There are many levels of professional standards addressing financial appraisal of various kinds of properties in various contexts. One example that is currently widely available is Parnham and Rispin, 2000, Residential Property Appraisal (Spon Press).
296 Tosh and Rayburn, 2006.
297 One example of this was an offer to Namibia – the user offered to pay the country US$ 5,000 for the right to inventory and take samples of all wildlife in the country. Wynberg, 2002.
298 Vogel, 2007.
299 Fernández Ugalde, 2005.
300 In bioprospecting the chance of a hit in random screening may be low. Estimates of the “hit-rate” vary. The probability for finding the useful gene undertaking random screening for pharmaceutical use has been estimated to be between 1/6000 and 1/30000. Lesser, 1998, page 71, with further references. All sources generally agree, however, that industry needs to screen, test and research a large number of samples in order to get one hit. This low probability is often used as a main argument for concluding that genetic material is valueless or of very low value. Lesser (1998) has suggested that the value of genetic resources could correspond to the probability of finding a useful gene.
301 Hirsch (2005), for example, argues that: “We need to get past the green gold expectation.” One of his points is that “Perhaps there will be a few blockbuster drugs created that will make fortunes for the lucky country of origin of the original substance, but most new products are not the results of a single gene expression.”
302 Hirsch, 2005.
303 See Wolfe and Zycher, 2005; and Finston, 2005 (with further references).
304 Hodges (2005) refers to sales of only marine biotech products, estimated at some US$ 100 million in 2000 (with further references). Wolfe and Zycher (2005) also presents figures that value created in biotechnology is high.
305 CBD Article 15.7, italics added.
306 In many cases, the particular researcher will gain notoriety, points toward academic tenure, or other non-sharable benefits from the publication.
307 The Tricolor frog case (Mgbeoji, 2006) particularly illustrates this principle, since the information that was published with no commercial return was later used by a number of pharmaceutical companies in patented synthetics. This also illustrates the value and impact that the patent system might bring to source countries. In essence, the user's patent constitutes a way of preserving value for the purpose of maximizing the source country's share, however, it must be noted that the system only operates this way when it does not prevent the country from utilizing, or having a say in the utilization of, its own resources.
308 Bonn Guidelines, adopted by CBD-COP Decision VII-24.A, at Appendix II.
309 This item (“license fees in case of commercialization”) is not clearly stated or explained within the Bonn Guidelines. Presumably either it means that the source country will receive a share of license fees paid to the user for use of the genetic resource or innovation based on the genetic resource (a subcategory of “royalties”), or else it means that the source country will have the right to license the innovation directly or to receive a rebate of license fees for it.
310 These are included under the heading of monetary payment, but are different legislatively, contractually and practically.
311 This item is simply listed as “joint ventures” but is assumed to refer to a participatory interest for the source country.
312 The CBD objectives underlying these activities are discussed in detail in the CODA to this book.
313 These benefits are separated as it is not generally possible to apply them as benefits in this form. Particular concrete benefits may be developed under any of these categories by, for example, (i) specifying a particular activity or payment to contribute to the local economy, (ii) committing to undertake a specific research project; (iii) committing to specific labeling or other actions to provide public recognition of the source's contribution, etc.
314 The adjective phrase “prior informed” connotes the main principle of contract law – that the source country should have access to all relevant information before making its decisions. These issues are detailed in Bhatti et al., 2007, Book 4 in this Series, at Part I.
315 Negotiations often focus on finding combinations of benefits which increase the value to the source country, while decreasing the cost to the user. For example, a user might agree to pay $100. In the course of negotiations, the user suggests that it could instead give $ 50 in cash, plus equipment valued at $ 65. This raises the value of the payment received by the source country. At the same time, the user may be able to obtain the equipment for $ 35. This would mean that, effectively, the user pays $85 and the source country receives $ 115 – everybody is better off. Obviously, the commercial effectiveness of this kind of substitution depends on the actual value of the substitute goods to the parties.
316 Todd and Watte, 2005, Equity and Trusts, at p. 1. (The entire quote reads “The term ‘equity’ can be used to describe a form of social fairness or branch of morality or even an aspect of divine justice but in the context of modern legal studies the term ‘equity’ simply connotes an aspect of law and legal reasoning.”)
317 The Vienna Convention on the Law of the Treaties notes this progression, beginning with article 31.1: “A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.” Articles 31.3 and 32 clarify that subsequent practices and international law are also applied, where the text is not clear on a particular point.
318 CBD, Articles 1 and 15.7. Article 19.2 calls on Parties to “promote and advance priority access on a fair and equitable basis.” The term “equitable sharing” also appears concerning traditional knowledge (see 12th Preambular paragraph; Article 8.j), although expressed in hortatory rather than mandatory terms.
319 Bonn Guidelines, Art 48.
320 Like nearly all global negotiations, the CBD negotiations were conducted primarily in the English language. While plenary discussions and those in formal subcommittees (“working groups”) were simultaneously interpreted, English was the primary language (without interpretation) for the work in many “Contact Groups”, “Friends of the Chair” groups and other smaller negotiating bodies in which much of the terminology was developed. In addition, in many instances, interim drafts of various documents and proposals were circulated in English only.
321 Generally, the same basic principles exist in civil and Roman law countries and other kinds of legal systems, but they are expressed differently and not unified as a separate body of legal thought.
322 The Statutes of the International Court of Justice refer to “the general principles of law recognized by civilized nations” as one of the most relevant sources of law. Article 38 (1) c.
323 Although the application of equitable principles in international law is not as well interpreted as in national and domestic law, they are clearly so applied, without the need for adoption. See, e.g., North Sea Continental Shelf Cases, ICJ Reports (1969) 3 at 48–50 (developing equitable principles to address issues of maritime delimitation, having ruled that no existing rule of treaty or customary law would apply fairly).
324 The following discussion focuses on equitable principles of private action, which have been addressed in international cases. There are, in addition, a number of other kinds of international principles (those governing the relationship between countries under international agreements – so called “public international law” – which are also decidedly focused on equitable objectives. For example, international law generally recognizes a principle of ex injuria non oritur jus – that no benefit can be received from an illegal act – as well as a principle called ex aequo et bono - that decisions should be made “according to the right and good.” ICJ, Article 38(2) sets this as the primary right and mandate of the court in making its decisions. Finally, it is common in international jurisprudence to discuss or support decisions de lege ferenda – that is, relating to the law as it should be if the rules were changed to accord with good policy. All of these are in essence, equitable principles, as the term “equity” is used in domestic law in most Anglophone countries.
325 Other concepts of common law equity that may be relevant to ABS, and might be applied in future, include the recognition of a commercial responsibility of one party to a transaction. A person may be deemed “de facto (or quasi) fiduciary” if he undertakes certain activities based on another's trust in him. In those cases, he will be held responsible to protect the rights and interests of that other party, particularly where the other party is legally or practically incapable of protecting his interests himself.
326 Countries that notably do not possess large numbers of species (those that consist primarily of desert and tundra ecosystems) may have an extraordinary share of the rarest of them. See, Windberg, 2004.
327 This view was reflected by the CBD's Expert Group on ABS, which noted that “benefits should be shared fairly and equitably with all those who have been identified as having contributed to resource management, scientific and/or commercial process.” Report of the Second Meeting of the Expert Panel, Document UNEP/CBD/WG-ABS/1/2 (2001), para 110. This language was specifically intended to reflect that both current and historical contributions are relevant.
328 See Diversion of water from the River Meuse (1937) PCIJ, Ser. A/B, no. 70 p. 77.
329 See, e.g., Dross and Wolff, 2005, quoted in 5.6.2. or a recent statement in a workshop entitled “Promoting social justice and equity in conservation within the framework of the CBD” (World Conservation Forum, 18 Nov. 2004) that “we have no idea what ‘equitable’ means. It is a meaningless concept until the international regime negotiations provide clarification.”
330 In fact, the provision of standards of fair transactions, to apply when one party uses or causes the loss of the property of another party, is the basis of most of the earliest codes. See, e.g., the Code of Hammurabi, the full text of which in translation to English can be viewed online at http://www.wsu.edu/˜dee/MESO/CODE.HTM.
331 The CBD specifically provides that the source country's obligation to provide access extends only to access that is obtained for “environmentally sound uses.” It is not clear whether or how this provision will apply to utilization and benefit-sharing requirements, however, the nature of the utilization is presumably one element that may be a part of MAT. See, Bonn Guidelines at 44.b.
332 Article 3 provides in full that “States have, in accordance with the Charter of the United Nations and the principles of international law, the sovereign right to exploit their own resources pursuant to their own environmental policies, and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other States or of areas beyond the limits of national jurisdiction.” It is supplemented in Article 15.1: “Recognizing the sovereign rights of States over their natural resources, the authority to determine access to genetic resources rests with the national governments and is subject to national legislation.”
333 The CBD specifically recognizes the long-term nature of these interests in the 22nd preambular paragraph which notes that the Parties are “[d]etermined to conserve and sustainably use biological diversity for the benefit of present and future generations.”
334 This connection is particularly recognized by the US Government through the National Institutes of Health's International Cooperative Biodiversity Groups: “The popular conception of modern bioprospecting efforts is based on the notion that success toward conservation is dependent on major commercial success in drug discovery. In that model, discovery of an important and profit-making drug will generate economic benefits that will in turn make conservation a viable economic action.” Rosenthal et al., at 7.
335 Hodges, 2005; Osman, 2005.
336 Although sometimes stated universally, this claim is not always true. Some genetic resources have up to now proven difficult or impossible to breed, cultivate or otherwise multiply. Such resources may only be used by bulk collection of biological samples. Meliane, I., “Process Analysis, prospecting for and using marine GR for pharmaceutical purposes” (2003, unpublished).
337 A classic example is given where a buyer purchases a sack of beans in a commodity market in a developing country, but later utilizes their genetic material without obtaining any other permission or paying any benefit share. (This scenario describes an actual case in which the purchaser planted the beans and then patented the progeny of the original beans as a new variety. See, Young, 2006a. Clearly, under ABS concepts, the purchase or other acquisition of samples of the physical commodity does not automatically confer the right to utilize its genetic resources. If the potential right to utilize genetic resources were included in the value of every transaction involving bulk biological material, the resulting high cost and the difficulty in assessing it would put a burden of transaction costs on trade in commodities that these markets could hardly be prepared for.
338 EC, 2003, under the heading “Why Should the EC Implement the Bonn Guidelines?”
339 This concept is outside of the mandate of this legislation, but many aspects of it can be inferred from the prior discussions.
340 Dross and Wolff, 2005, pp. 56–59 (with further references).
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