Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer are considering actions to phase down hydrofluorocarbons (HFCs) because of their contributions to climate change. One important issue raised by Article 5 Parties is the concern that patents on recently developed low-global warming alternatives could restrict access to or increase the costs of transitioning to these substitutes. This paper looks at how issues related to patents have previously impacted the phase-out of ozone-depleting substances by Article 5 Parties with a focus on the role played by the Protocol’s Multilateral Fund. Key conclusions are:
- The funding mandate (Article 10) of the Montreal Protocol establishing the Multilateral Fund includes explicit provisions making clear that the incremental costs of patents and royalty fees associated with shifting to alternatives are eligible for funding.
- Several of the sector specific technology guidelines adopted by the Multilateral Fund’s Executive Committee, which are used as the basis for reviewing investment projects, have included the costs associated with licenses and technology transfer fees.
- A review of past investment projects under the Fund shows that only a relatively few cases included the explicit payment for licenses or technology transfer fees, but in other cases such costs are likely to have been incorporated into the costs of the technology itself.
- Because patents are applicable only in the specific countries in which they are filed, projects in most Article 5 Parties are not directly impacted. Other factors which limited the number of past investment projects where payment for licenses or fees was required included: technologies employed were no longer covered by patents (e.g., patents had expired) or the technologies were never covered by patents (e.g., certain not-in-kind alternatives).
- In considering an HFC phasedown, the Multilateral Fund should continue to play a role in paying, both directly and indirectly (as part of the costs of technology), for patents and royalty fees based on future decisions and guidelines, where necessary, as adopted by the Executive Committee. While some of the low global warming alternatives will not be covered by patents, others, particularly those that have only recently been introduced into commerce, are more likely to be subject to patent rights. Any estimates of the funding requirements for replenishing the Multilateral Fund should continue to include the potential need to pay for the costs associated with licensing and technology transfer fees.