Intellectual Property Rights and ESG: Does ESG affect IPRs Value?

By: Dr. Nida’ N. Goussous
Senior Legal Counsel

In an era where the movement of Technology Transfer controls the international society, various environmental, social and governance (ESG) concerns were lately raised by international communities.

Maintaining the balance between the need for technology on one hand and the need to preserve the natural resources –the nerve of the industry - for sustainability purposes on the other hand, became an insistence international requirement from an environmental perspective.
Social responsibility affects the process as well, where the need to establish clear criterions for investors to keep the balance during the process, between the business ambition and the social responsibilities towards their employees and communities is fostered.
On top of that, the need for good governance appeared to play a main role in shaping frames and standards for investors in making decisions and managing their internal and external business relations and regimes.

Standing for Environmental, Social and Governance, ESG is simply defined as a set of standards and limitations in the said axes. Practicing business within these standards would assess a certain company as a decent member in both; global and local communities, supported by  recent surveys, which revealed that companies meeting the ESG requirements are the potential for more income than those companies, which do not. 

Crossing borders all over the world, Technology Transfer raised the international need for unified legal regimes to protect Intellectual Property Rights (IPRs), the core of technology investments. In response to this need, the TRIPS Agreement, one of the WTO’s main agreements, involved in Annex 1C of the Marrakesh Agreement, which established the WTO, signed on April 15, 1994, has settled a bundle of unified standards for IPRs protection, whereby member countries have to comply their domestic legislations with these standards.

Does ESG affect the value of IPRs? 
IPRs are vital tools in the process of Technology Transfer. Complying with ESG would reduce the moral hazard of investors in the market and enlighten their exposure to their markets and communities. 

Serving as business identifiers, IPRs are the final tools end-users have in hand to identify owners of products and services in the market. In other words, the practices of an investor will reach the market through their IPRs. Based on that, a trademark will be the investor’s tool to deliver to the market and community any environmental or social activity, which might benefit their reputation and renown. 
The overlapping between IPRs and ESG appears during the management of IPRs in terms of related practices. In other words, methods and practices followed by investors in achieving and managing their IPRs are the accountable factors in measuring the level of compliance with ESG.

Businesses in industrial fields address the standards of unrenewable natural resources sustainability, pollution and climate changes, which are the current environmental global concerns, by supporting inventions in green techs, besides trademarks that incorporate indications encouraging environmental protection. 

Licensing of IPRs is also another example of the intersection between IPRs and ESG. While drafting a franchise agreement –the most popular type of IPRs licensing agreements- that usually covers a variety of IPRs, the franchisor can impose on the franchisee ESG standards to comply with, during the performance of the franchise agreement. Examples of franchise agreements are those granted in the fields of fast-food restaurants and cosmetics. Meeting the imposed ESG standards in operating the franchise agreement by the franchisee would eventually enhance the value of IPRs involved in the subject franchise agreement.

Compulsory licensing is the case where the government allows a third party to exploit a patented invention or process in emergency circumstances. The advocacy of social needs in special cases, such as granting pharmaceutical companies to produce a patented medicine in pandemic cases, is a clear overlapping between IPRs and ESG, through which the IP holder abandons temporarily his exclusive rights to exploit the IPRs attached to the patented invention against his social responsibility. This situation contradicts with the main aim of granting an IPR, i.e. the right of exclusivity in exploitation temporarily by the IPR holder. 

Protecting data and know-how shared by other investors during the course of business complies with the standards of good governance and profession standards. In other words, keeping the business practices within the good governance standards internally and externally will keep the good image and enhance the reputation and goodwill of a business.

It is obvious that the relationship between IPRs and ESG is a reciprocal relation: the more a business complies with the ESG standards, the more IPRs’ value increases. It is about tuning the exploitation of IPRs along with ESG standards during the performance of a business, which will eventually benefit the goodwill of the IPRs and eventually increase the financial value thereof.