Cross-border intellectual property rights: contract enforcement and absorptive capacity

This paper studies cross-border intellectual property rights (IPR) as a North-South contract using a Nash bargaining approach and distinguishes between the outcome and its actual enforcement. The absorptive capacity of the Southern country to exploit technology transfer plays a key role in the negotiated level of IPRs and its post-treaty enforcement. The optimal level of IPR protection relates positively to absorptive capacity. This provides a rationale for the longer time-frame provided to least developed countries in Article 66 of TRIPS to implement its provisions. In addition, monitoring is only effective in preventing contract violation up to a critical level of absorptive capacity. We relate this to the US Trade Representative Special 301 report, which flags countries that deny adequate IPR protection as priority watch list . While disputes with less developed economies are promptly resolved, emerging economies, where most losses from copyright piracy originates from, continue to remain on the list.