Intellectual Property Rights in a Fair World Trade System: Proposals for Reform of Trips

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Author: Annette Kur | Marianne (CON) Levin

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Intellectual Property Rights in a Fair World Trade System

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Intellectual Property Rights in a Fair World Trade System Proposals for Reform of TRIPS

Edited by

Annette Kur Max Planck Institute for Intellectual Property and Competition Law, Munich, Germany

With the assistance of

Marianne Levin Institute for Intellectual Property and Market Law, University of Stockholm, Sweden

Edward Elgar Cheltenham, UK • Northampton, MA, USA

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© The Editor and Contributors Severally 2011 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2009941260

ISBN 978 1 84980 009 9

04

Typeset by Servis Filmsetting Ltd, Stockport, Cheshire Printed and bound by MPG Books Group, UK

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Contents List of contributors Preface List of abbreviations and acronyms PART I

vii viii x

BACKGROUND

1

The pendulum keeps swinging – present discussions on and around the TRIPS Agreement Marianne Levin 2 Spotlight on China: piracy, enforcement, and the balance dilemma in intellectual property law Andrea Wechsler 3 The WTO dispute settlement system and the evolution of international IP law: an institutional perspective Antonina Bakardjieva Engelbrekt 4 Assessing the need for a general public interest exception in the TRIPS Agreement Henning Grosse Ruse-Khan 5 Limitations and exceptions under the three-step test – how much room to walk the middle ground? Annette Kur 6 TRIPS and human rights Frantzeska Papadopoulou 7 Fire and water make steam – redefining the role of competition law in TRIPS Jens Schovsbo 8 Enough is enough – the notion of binding ceilings in international intellectual property protection Annette Kur and Henning Grosse Ruse-Khan 9 Expropriation or fair game for all? The gradual dismantling of the IP exclusivity paradigm Annette Kur and Jens Schovsbo

3

61

106

167

208 262

308

359

408

v

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vi

PART II

IP rights in a fair world trade system

PROPOSED AMENDMENTS TO TRIPS

Proposed amended text (synopsis) Explanatory memorandum

455 526

Index

607

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Contributors Antonina Bakardjieva Engelbrekt, Prof. Dr., University of Stockholm Henning Grosse Ruse-Khan, Dr., senior research fellow at the Max Planck Institute for Intellectual Property and Competition Law, Munich Annette Kur, Prof. Dr., senior research fellow and head of department, Max Planck Institute for Intellectual Property and Competition Law, Munich Marianne Levin, Prof. Dr., director, Institute for Intellectual Property and Market Law (IFIM), University of Stockholm Frantzeska Papadopoulou, LLM (Stockholm and Uppsala), legal counsel, Svensk Indstriförbundet, SINF Jens Schovsbo, Prof. Dr., University of Copenhagen Andrea Wechsler, research fellow at the Max Planck Institute for Intellectual Property and Competition Law and Coordinator of the International Max Planck Research School for Competition and Innovation (IMPRS-CI), Munich

vii

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Preface This project, which has been conducted since 2001 under the aegis of the Institute for Intellectual Property Law and Market Law (IFIM) at Stockholm University in cooperation with the Max Planck Institute for Intellectual Property and Competition Law (MPI) in Munich, took its cue from intense private discussions between the editors over dinners and coffees from the mid 1990s, exchanging views on actual developments and prognoses for the future of intellectual property (IP) matters. We soon observed that the tendency to apply a one-sided and inflexible approach to IP on the global as well as on the domestic level might distort the necessary equilibrium between the different interests involved, and thus become a source of systemic malfunctions and increasing discontent. The response to that, in our opinion, could only be found in promulgating an overarching “balancing instrument” to which all IP must conform. While the basic tenor of the message was clear even then, the task remained to cast it in a form which combined academic substance with communicative appeal. Elaborating the necessary groundwork called for institutionalization in the form of a project, which came to operate under the name Intellectual Property in Transition (IPT). External funding, without which the work would have been impossible, was received from the Swedish Research Council (“Vetenskapsrådet”) for three years from 2001. Initial plans to finish the work within that time period proved to be far too optimistic; it took more than twice as long. The reasons for such procrastination were many; academic work is not easily fitted into tight schedules. It was also not until we were in the midst of project activities that we realized that the most appropriate way of presenting and illustrating the impact of an IP balancing instrument would be to propose pertinent amendments to the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), so as to be heard and understood by a broader audience, and to provide a concrete impetus for the further development of international IP law. Apart from the two of us, the following persons participated in the working group: Professors Niklas Bruun (Helsinki), François Curchod (Strasbourg), Antonina Bakardjieva Engelbrekt (Stockholm) and Jens Schovsbo (Copenhagen). Dr. Henning Grosse Ruse-Khan (MPI), doctoral candidates Frantzeska Papadopoulou (Stockholm) and Andrea Wechsler viii

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Preface

ix

(MPI) were involved in the work as permanent or temporary project group members. Doctoral candidate Åsa Hellstadius (Stockholm) acted as the group’s secretary. Without them, the exploration of ways to re-establish the balance between different interests involved would never have matured into a book. Not least did François Curchod’s knowledge and experience, and his engaged participation in all group meetings and revisions of all draft texts, provide an invaluable resource. Others who have taken part in the work over time were Professors Bengt Domeij (Uppsala), Thomas Dreier (Karlsruhe), Ole Andreas Rognstad, Are Stenvik (both of Oslo), and Joseph Straus (MPI), as well as Dr. h.c. Henry Olsson (Stockholm). We are very thankful indeed for all their useful input! As has been stated, the project was originally generously funded by the Swedish Research Council (2001–2005). But since we had by no means completed the work in 2005, the participating institutions have kindly supported us with personal resources to enable the continuance of the project work. The Swedish Research Council also financed, in November 2005, a two-day “Friends of the Project Meeting” for some 30 participants from all over the world. A first draft version of our proposals was presented at this occasion, and valuable input was received which is reflected in a number of changes made to the original text. We gladly take this opportunity to finally thank all those attending the meeting for the many constructive, and sometimes harsh, comments, as well as for their encouragement! We also had the honour to present the framework of the IPT project at the ATRIP Meeting in Parma in September 2006, for which we are grateful to the organizer, Professor Gustavo Ghidini. Some early ideas of the project were also discussed at an MPI symposium in Schloss Elmau, Bavaria in early 2002. It is every academic’s aim to be read and discussed, and we are no different. So, it is our hope that by reaching, at last, the stage of publication, our work will stimulate further discussions on the development of international IP law, including its overlaps with areas such as Human Rights and Sustainable Development in their various facets, as well as regarding the IP-consumer interface, just to mention a few. In addition, we hope that the meetings, work and discussions that we have enjoyed so much over almost a decade are now revived and continued in what may be a second phase of the IPT project. Munich and Stockholm, July 2010 Annette Kur and Marianne Levin

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Abbreviations and acronyms A2K AB (Report) AIPPI Art., Arts ASCAP ATRIP BASCAP BGE BIAC BITs CBD Cf. CFI Ch. CISAC CISDL COM COP CRMO DESA DRM DSU EC ECHR ECJ ECOSOC ECR ECtHR EEC

Access to Knowledge (Report by the) Appellate Body (WTO) International Association for the Protection of Intellectual Property Article, Articles American Society for Composers, Authors and Publishers (US) International Association for the Advancement of Teaching and Research in Intellectual Property Business Action to Stop Counterfeiting And Piracy Entscheidungen des Schweizerischen Bundesgerichts (Decisions by the Swiss Supreme Court) Business and Industry Advisory Committee (OECD) Bilateral Investment Treaties Convention on Biodiversity Confer Court of First Instance (EU; now referred to as “General Court”) Chapter Confédération Internationale des Sociétés d’Auteurs et Compositeurs Centre for International Sustainable Development Law Working paper issued by the EU Commission Conference of Parties (CBD) Collective rights management organization Department of Economic and Social Affairs (UN) Digital rights management Dispute Settlement Understanding (WTO) European Community European Convention on Human Rights European Court of Justice (EU) Economic and Social Committee (EU; UN) European Court Reports European Court of Human Rights European Economic Community x

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Abbreviations and acronyms

EHHR

e.g. EPA EPC EPO EST et seq. et al FAO FDI ff fn. FRAND FTA FTC GAIA GATT GATS GI(s) GR(s) GRAIN GRUR ibid. ICESCR ICJ ICL ICT ICTSD id. i.e. IIC I.L.M. IP, IPR ISP JZ LDCs

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xi

Exposure and Human Health Committee (US Environmental Protection Agency Science Advisory Board) for instance Economic Partnership Agreement European Patent Convention European Patent Organisation; European Patent Office Environmentally sound technologies and following and others Food and Agriculture Organization (UN) Foreign direct investment and following footnote Fair, reasonable and non-discriminatory (licence terms) Free Trade Agreement Federal Trade Commission (US) GAIA foundation General Agreement on Tariffs and Trade General Agreement on Trade in Services Geographical Indication(s) Genetic Resources Genetic Resources Action International Gewerblicher Rechtsschutz und Urheberrecht (Law Journal, Germany) at the same place International Covenant on Economic, Social and Cultural Rights International Court of Justice International Law Commission Information and communications technology International Centre for Trade and Sustainable Development at the same place that is International Review of Intellectual Property and Competition Law (Law Journal, Germany) International Legal Materials Intellectual property, intellectual property right(s) Internet service provider JuristenZeitung (Law journal, Germany) Least developed countries

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L.J.I.L. LoR MFN MPI n., note NGO NJA NJW NT OECD OHIM OJ (C, L) op cit p., pp. para. PTO R&D RAND RBC SCCR SCP SCT Sec. STIM s., ss. 3D TFEU TK TPM TRIPS UDHR UK UN, UNO UNCTAD UNESCO

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Leiden Journal of International Law License(s) of Right Most Favoured Nation Treatment Max Planck Institute footnote Non-governmental organization Nytt Jurisidskt Arkiv (Law journal, Sweden) Neue Juristische Wochenschrift (Law Journal, Germany) National treatment Organisation for Economic Cooperation and development Office for the Harmonisation in the Internal Market (Trade Marks and Designs) Official Journal of the EU, series C or L work cited page, pages paragraph Patent and Trademark Office (UK) Research and development reasonable and non-discriminatory (license terms) Berne Convention (Revised) Standing Committee on Copyright and Related Rights (WIPO) Standing Committee on the Law of Patents (WIPO) Standing Committee on the Law of Trademarks, Industrial Designs and Geographical Indications (WIPO) Section Sveriges Tonsättares Internationella Musikbyrå (CMRO, Sweden) section, sections Trade – Human Rights – Equitable Economy Treaty on the Functioning of the European Union (also referred to as Lisbon Treaty) Traditional Knowledge Technical protection measures Trade Related Aspects of Intellectual Property Rights Universal Declaration of Human Rights United Kingdom United Nations, United Nations Organization United Nations Conference on Trade and Development United Nations Educational, Scientific and Cultural Organization

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Abbreviations and acronyms

UNFCCC UNHR U.N.T.S. UPOV US/USA USC USPTO USTR VCLT vs. WCT WHO WIPO WPPT WTO

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United Nations Framework Convention on Climate Change United Nations High Commissioner for Refugees (UN Refugee Agency) United Nations Treaty Series International Union for the Protection of New Varieties of Plants United States of America United States Code US Patent and Trademark Office US Trade Representative Vienna Convention on the Law of Treaties against WIPO Copyright Treaty World Health Organization World Intellectual Property Organization WIPO Performances and Phonograms Treaty World Trade Organization

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PART I

Background

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1.

The pendulum keeps swinging – present discussions on and around the TRIPS Agreement Marianne Levin

1.

INTRODUCTION

Intellectual property (IP) rights in some form are almost universally recognized as an essential policy tool for market economies. During the last two decades the system has been expanding with respect to objects of protection, scope of protection, period of protection, as well as in importance. Part of this obvious expansion has to do with modern technological developments. The greater appreciation seems to be a reflection of the increasing awareness of the value of intellectual assets in successful business enterprises, which in turn is reflected in politicians’ attitudes towards the importance of the IP system for the national and international economy. Lately, however, the global legitimacy of the system has been challenged and has become the object of intense discussions. There are good reasons to ask whether these challenges are really directly IP-related or rather a battle over political and economic powers in the world, where IP has become a symbol for developed countries’ hegemonial business interests. Nevertheless, depending on from which starting point the system is approached, the answer to what IP is, or should be, is inconclusive: a financial asset; a tool of national or international competitiveness; a moral issue; or a means to rapidly share technological solutions to complex problems?1 As can be seen from the title of this chapter, the aim here is merely to provide a brief introductory, overarching and fairly superficial summary of the many and intense discussions on a great number of issues that have taken place, to some extent already during the negotiations, but mainly after the conclusion in 1994 of the World Trade Organization (WTO)

1

Cf. EPO (2007), 106. 3


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Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).2 Section 2 thus focuses on the various rationales for IP rights and how the utilitarian approaches have become more pragmatic and investment orientated over time, which at least by some is connected to the present trade-related dimension of IP. Section 3 explores this shift more closely from the perspective of the negotiating powers. Not least have a number of new stakeholders entered the IP arena, whose focus is on the need for equality and common responsibilities in a globalized world. Section 4 therefore addresses some of these new interfaces with IP: human rights, access to information, sustainable development and the environmental crisis. Finally, Section 5 of this chapter returns to the basic idea of the project on Intellectual Property in Transition (IPT project), to investigate, support and substantiate what could be ‘user-friendly amendments’ to TRIPS. In light of the revealed imbalances of the present system, a more flexible approach may better serve the needs of a vital and sound market economy with open competition in a globalized setting where IP plays a partly new and more complex role. This is therefore followed up and supported by eight in-depth studies on various topical questions of the project, which over the years since 2001 are the results of mutual discussions and individual research under the auspices of the IPT project.

2.

TRANSFERRING KNOWLEDGE FROM THE PUBLIC GOOD TO THE PRIVATE GOOD

2.1.

Utilitarian Rationale

The basic concept of IP rights can be traced back as far as the fourth century BC. The argument for rewarding innovators is that the idea belongs to its creator, because the idea is a manifestation of the creator’s personality and that the unpleasantness of labour should be rewarded with property. Such thoughts were later part of Locke’s theory on labour and ownership.3 Individual property rights arise against the backdrop of

2

It should be emphasized that in view of the vast range of material that exists on these issues, the references cited in this text constitute only a small sample of the books, articles and websites and are mere examples of the information that is available on a certain issue. For example, at the SSRN alone (http://papers.ssrn. com/), over 200 articles have been published and a Google search on “Intellectual Property, TRIPS” gives approximately 31 000 hits. 3 Merges (2008c), 107–109, citing John Locke, Two Treatises on Government.


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Present discussions on and around the TRIPS Agreement

5

group rights and in turn have helped explain the transaction cost theory because at least some individual exclusive rights are necessary for people to make full use of resources.4 In Europe, IP rights have an offspring in the development of natural rights theories. During the Enlightenment, the emphasis was on the individual’s work as a blessed spark of God that should be rewarded, and later, at the time of the French Revolution, an element of human rights was added, thus giving grounds for private ownership. In the United States of America (USA), already in 1789, the federal Constitution shows a more utilitarian intent “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”.5 This was most certainly expressed in the interest of society as a whole,6 and to strike a balance between creators/innovators and the baseline competition.7 Along with the advances in technology, economic and entrepreneurial market- and business-related motivations have taken over. Today these dominate the objectives for upholding, strengthening and developing IP as private and personal rights to ownership in a more concrete sense,8 which sometimes is referred to as commodification.9 At least from a US perspective,10 “property” encapsulates an individualistic, almost libertarian, vision: “what is mine, no one can take away”.11 By denoting IP rights as private property, their limited reach and public benefit character are overridden, which has served well in the political discourse.12 This does not change, however, the fact that the original rationale for protecting IP

4

Merges, ibid. Art. I, § 8, cl. 8. 6 Cf. Anderson and Wager, 713, 721. 7 Lemley (2005), 1032. 8 The notion “IP” probably emanates from the 20th century; see Drahos (1999). 9 Cf. Landes and Posner, 12 et seq., who at 22 point out that: “Free-market ideology is friendly to property rights. In extreme versions of that ideology, the goal of economic liberalism is total commodification – everything of economic value owned by someone.” 10 From a Germanic-Nordic perspective the notion “Immaterailgüterrecht”, which translated into English becomes “intellectual property”, was meant to express an opposite idea to “real property”, as the basic idea was precisely to separate such intellectual property from other more concrete properties. 11 Cf. Netanel, 13. 12 Cf. Netanel, ibid. 5


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is essentially utilitarian,13 which highlights the dynamic interplay of rights and interests for overall welfare.14 While certain issues can be regarded as (generic) “global public goods” that should be freely accessible to everybody and must be addressed collectively on a multilateral basis because they are important to the whole international community,15 other issues can be decided by the individual states and put in private hands for a limited time. To the former belong for example, international economic stability, security (political stability), the environment, civil aviation and telecommunications, humanitarian assistance, and knowledge.16 The latter could be exemplified by the further development and refinement of new knowledge: if everyone were free to access evolutionary knowledge, inventors would have little incentive to commit resources to producing it. By transferring knowledge from the public good to the private good, creative minds and innovative firms have an incentive to engage in inventive activities and are guaranteed to recoup their expenditures by creating new knowledge and making a profit;17 only if some form of property right covers what one makes can the output confidently be sold on the mass market.18 Eventually, IP rights facilitate hedging against risk and provide creators with the opportunity to engage in some sort of commercial interaction19 which serves societal objectives such as economic growth.20 This need is seldom disputed and without it welfare distribution would be even more difficult. At any event the scope of exclusive rights – in terms of duration, technology, activities and geographical application – should be carefully defined to maximize the benefits to the public and strike the proper balance between incentives and fair returns to innovators on one hand,21 and the risk of market dominance, monopoly rents and loss of consumer

13

Netanel, at 12, points out that the “property” rhetoric stands in contrast to the US Supreme Court’s traditional characterization of copyright as “monopoly privileges that while ‘intended to motivate . . . creative activity . . . by provision of a special reward’, are limited in nature and must ultimately serve the public good” with references to case law in fn. 29. 14 Taubman, 3. 15 Cf. Balasubramaniam. “Information as a global public good: a right to knowledge and communication” was an unsuccessful proposal for an Oxfam International advocacy campaign, to run 2002 to 2004. 16 Cf. Balasubramaniam, ibid. 17 Africa-Europe Faith and Justice Network, 5. 18 Merges (2008b), 11. 19 Cf. Ghafele, 1. 20 Idris, Ch. 3. 21 Gibson, 5 with ref. to Art. 7 TRIPS.


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welfare on the other.22 However, in today’s market-based economies this balance seems to be at risk, where legislative measures tend to be initiated by industry and other big right holders and are frequently negotiated behind closed doors, thereby jeopardizing and downplaying the democratic procedure.23 If this is the case, the basic idea of inspiration to creation, or to investment in creation for the social benefit, has arguably been overridden in the name of private or national competitiveness in the global market place. 2.2.

Economic Rationale24

Increased recognition of the value of IP rights has not only led to stronger enforcement and growing policy actions focused on how IP rights should be manifested, but IP has also had a significant impact on how firms behave and interact with each other, and how countries behave with respect to the safekeeping of their respective IP portfolios.25 With the development of an “intellectual capitalism”,26 IP tends to be appreciated as a tool for protecting investments rather than as an incentive for cultural, including innovative, developments. When providing the basis for investors to place their resources at risk,27 IP rights are evaluated as (any other) commodity objects,28 or even regarded as “currency”.29 This can be seen especially

22

Downes and Stilwell, 3. Downes, 1. 24 For an extensive account of the economic rationale behind IP protection and the consequences this entails for the relationship between IP and competition law, see Ch. 7. 25 McAleer and Oxley, 490. 26 As defined by Granstrand (2000) as “an economic system with basic capitalist institutions (private property rights, private profit motives, competitive markets and free enterprises) in which productive assets and processes, as well as commercial transactions and products, are predominantly intellectual or non-material rather than physical in nature for instance”. 27 Cardullo, 1. 28 Even if the linkage between venture capital and IP may not be direct, it is an important element in the total system, see Cardullo, 2 (figure 1). The recorded rise in immaterial assets in bigger companies has been from 40 percent to 75 percent or more in a decade and is therefore the dominant asset in bigger companies. Cf. in another spirit GRAIN (2004), 16: “In order for anything to be covered by an intellectual property right, it must first be made into property, into a commodity, into something that can be bought and sold. This is where IP systems fundamentally clash with the notion of traditional knowledge as a community heritage, as something which by its nature cannot be sold or bought.” 29 Ghafele, 1. 23


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when a growing body of intellectual capitalists build up IP portfolios that will enable them to do research and development (R&D) in a certain direction, or integrate themselves into certain research networks or markets. Thus, behind the increased propensity of individual firms to patent is the fear of costs that might be incurred if they fail to take out patents while their competitors do.30 The expected “insurance value” in IP has been claimed to explain the ever increasing trends to patenting.31 Additional effects of such intellectual capitalism are the expansionist developments of IP legislation that tend to replace a pro-competitive IP system with a more “proprietary” system, protecting those who already own IP against new entrants in technology and knowledge-based markets.32 The importance of an IP-based economy is underlined and supported by the fact that, for example, in the USA alone, studies in the past decade have estimated that over 50 percent of US exports now depend on some form of IP protection, compared to less than 10 percent 50 years ago.33 Also the European Commission looks upon the IP system as the key framework condition for innovation, stimulating R&D investment and transfer of knowledge from the laboratory to the market place. Indeed, the IP system is a “condition . . . in making the ‘fifth freedom’, the free movement of knowledge a reality”. IP law should “act as a catalyst of innovation and contribute to the over all Lisbon strategy.”34 Although these are typical political statements, such declarations seem to somewhat exaggerate the true importance of IP and instead reinforce the not necessarily always fruitful property approach. Of course, the mere existence of IP rights does not make undertakings invest in R&D or other creativity.35 Even if the general purpose of IP law is to create incentives for innovation and creativity, empirical evidence on the role of IP protection in promoting innovation and growth in general remains limited and inconclusive.36 On the one hand, a historical analysis of the economic literature reveals that the IP system in general, and the patent system in particular, have been neither necessary nor sufficient

30 This is especially noticeable in the medical and electric communication technique sectors; cf. EPO Annual Report (2008), 24–5. 31 Granstrand (1999), 169. 32 Ullrich (2004), 424–5 and cf. Drexl, 18. 33 http://definitions.uslegal.com/i/intellectual-property/. See also Shapiro and Hassett. 34 COM(2008) 465/3, 3 and 5 respectively. Today we know that the Lisbon goals will not be achieved by 2010, which has fairly little to do with IP. 35 Drexl, ibid. 36 Meléndez-Ortiz,vi.


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for technical and/or economic progress at the state and company level.37 According to some renowned researchers, today’s patent system even stifles science and innovation.38 They argue that IP is about knowledge and – although often compared to physical property rights – a public good which presupposes the two attributes, “non-rivalrous competition” and “non-excludability”; both, of course, run counter to the whole idea and ideology of an IP system. On the other hand, a growing body of economic literature and empirical evidence, including the so-called OECD/BIAC patent survey,39 at least confirms the importance of the linkage between IP rights and contractual arrangements or other market-oriented mechanisms to propel innovation in industrialized economies.40 The property right approach is prevalent in Europe as well as in the USA, with respect not only to patents and other industrial property but also to copyright. Not least the latter could be disputed, especially with regard to information and other educational products that primarily belong to the (global) public goods.41 Where, as apparently done in for example the European Community (EC) Infosoc Directive,42 economic considerations have played an important part in the drafting of legislation by striving for certain economic policy goals, such as to enhance social welfare, under the conviction that broad exclusive rights in information products serve this interest, such legislation could – intentionally or hazardously – disproportionately favour the information industries.43 But “what is good for Sony is not necessarily good for the world of art”.44 Instead, there may be good reason to believe that copyright is asymmetric in its effects and favours the side of the creative industries rather than the creators and performers whose work they exploit.45 No doubt, the traditional allocation of IP law (and the collecting societies) constitutes

37

Granstrand (1999), 44. Joseph Stiglitz, a 2001 Nobel Laureate in Economics in the lecture “Who Owns Science?”, Manchester University’s new Institute for Science, Ethics and Innovation on 5 July 2008. 39 Sheehan et al., 89. 40 Business and Industry Advisory Committee to the OECD (2004), 13. 41 Koelman (2004), 615–16, with further reference to Stiglitz (fn. 40); draft version also available at http://ssrn.com/abstract=428480 or DOI: 10.2139/ ssrn.428480V. 42 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonization of certain aspects of copyright and related rights in the information society. 43 Koelman (2004), 637. 44 Towse (2006), 581. 45 Towse (2007), 760. 38


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an important feature of the music industry,46 which however is driven by shareholder interest rather than (national) cultural objectives.47 Several studies reveal however that what is left for authors is around 10 percent of the income of a work.48 Thus, there are good economic grounds to argue that copyright, or more precisely authors’ and performers’ rights as such, might not be fundamental to cultural production. At least, it could be argued that individuals’ artistic motivation and the incentive to produce works of art are not just due to financial rewards and economic rights. Moral rights remain vital however, and have been ignored too often.49 It could be concluded that too much IP protection may be bad for an economy.50 At least, there should be a robust balance between competition and monopoly in the service of dynamic efficiency. The mere fear of for example infringing another’s copyright may restrict free access to information,51 and self-imposed restraint has also been reported about patents.52 Only a strong party dares to question exclusivity.53 Such unfounded negative self-restraint could happen in all fields where IP rights are strong and infringements efficiently sanctioned, and the TRIPS enforcement mechanisms have arguably made it easier for IP holders to create claims against users, be they individuals, companies or countries.54 The traditional balance inherent and supposed to be guaranteed in IP law does not always suffice in practice, and should as a principle be supplemented by strong competition laws where IP laws are strong, and vice versa.55 However, this recommendation can only be a possible solution at the national level and in highly developed economies, and pursuing this solution at the international level remains, at least presently, a vain hope.56 Therefore, in recent years, it has repeatedly been asked whether a 46

Merges (2008b), 1 ff, 30 ff. Towse (2006), 570. 48 Cf. Towse (2006), 577–8 for ref. leaving aside for a number of superstars, this hardly provides a basis for living. 49 Towse (2006), 571, 581. 50 Cf. Mamudi, 28. 51 Ghafele, 25. 52 Fink (2009), 20 n. 3 refers to “anecdotical evidence” that firms in developed countries increasingly refrain from filing patents, fearing misappropriation of their technologies in foreign countries reported by Financial Times Deutschland, 2 January 2008 (“Firmen verzichten auf Patente”). 53 Finger, 10. 54 Cf. Finger, ibid., who notes that developing countries are more often users than vendors of IP and thus in a weak position. 55 Lemley (2007), 3. 56 Although the possibility of WTO negotiations on competition policy has been categorically ruled out for the duration of the Doha Round, the issue has 47


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liability rules approach instead of the traditional property rules approach would better suit IP,57 and especially patent, law.58 This would at least be relevant, where transactions costs are high and may even prevent a transaction from taking place.59 In such situations liability rules could probably also serve copyright well.60

3. 3.1.

THE TRIPS PARADIGM Making IP Trade-related

Gradual harmonization of IP rights in the world has since long been regarded as a tool for promoting trade and making the applicable rules more transparent. This in turn further enhances cooperation to the benefit of global understanding and trade. Not only do technological innovations inspire global solutions and harmonization but also trade marks and copyright items like music and movies have a global public and a global production, and trade agreements in general seem to have a positive effect on trade flows.61 Compared with previous phases of development,62 proportionately larger opportunities to expand the present globalized economy are likely to come from the application of IP, of which there is far more around than in the past.63 Also the size of the current demographic expansion is far larger than at any time before, meaning bigger economics of scale when exploiting IP.64 True, the IP system has never been more economically – and politically – important than today, which could be seen as a unifying force. But nor has it been more controversial.65 not been definitively dropped from the WTO work programme; see Anderson and Wager, 739–40. 57 Depoorter, 59; Sterk, 1297 et seq., 3018 et seq., 3031 et seq. 58 Cf. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) U.S. Supreme Court. 59 Lemley and Weiser, 784. 60 Cf. Koelman (2005); Crane, 24 et seq., equates PROs’ activities with liability rules. 61 Cf. Njinkeu et al., 5 et seq., 15–16, 18. 62 The previous phases being “bilateral” and “international”, see Drahos (1998). 63 Keating, 10–11. 64 Designer jeans are an example: every extra sample sold will mean a profit, but also every worker engaged in the production, e.g in China, will contribute to boosting the global GDP not only by their wage, but also by the mark-up on the goods they produce, representing IP, Keating, ibid. 65 Meléndez-Ortiz, vi.


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As is common knowledge, the same size or the same colour do not fit all,66 and there are considerable differences between countries and regions with quite disparate legal traditions that are not so easy to change. This makes real harmonization a difficult task, if it is possible at all. Therefore, the preciseness of IP harmonization at the national level may be questioned if more than a common textual approach is required.67 Historically, the Paris Convention for the Protection of Industrial Property and the Berne Convention on the Protection of Literary and Artistic Works, both administered by the World Intellectual Property Organization (WIPO), largely left discretion to regulate IP rights in the hands of each contracting party, leaving a margin for the domestic interests in question. There was never any strong pressure on states to adopt rules according to international, supra-national standards;68 instead a successive “cold harmonisation” took place.69 All this was dramatically changed in 1995 by the creation of the WTO and the entering into force of TRIPS as “to date . . . the most comprehensive multilateral agreement on intellectual property rights”.70 Indeed, TRIPS has taken away a great deal of internal regulatory discretion,71 and potentially shifted the pre-existing balance of domestic interests.72 Consistent with the two main objectives of TRIPS, to reduce distortions and impediments to trade and to protect private property rights under a mandatory minimum standard, Members may introduce stricter or other forms of protection not included in the Agreement, but these may not be more lenient.73 There is therefore a risk that instead of opening up for

66

Cf. Maskus (2000), 2221. This can be seen also in a comparatively homogeneous region such as Europe in e.g. the implementation of Directive 98/44/EC of the European Parliament and the Council of 6 July 1998 on biotechnological inventions, or the protection of applied art under copyright law. 68 On the pre-TRIPS regime and its much larger margin for national discretion in view of the standards adopted, see Ch. 8 below. 69 As described with regard to the European Patent Convention by Haertel, 719 et seq. 70 http://www.wto.org/english/tratop_e/TRIPS_e/TRIPS_e.htm. 71 TRIPS, together with some other WTO agreements, such as the Agreement in Trade-Related Investment Measures (TRIMs), the General Agreement on Trade in Services (GATS) and the Agreement on Agriculture (AoA), affect policy areas traditionally solely within a domestic government’s area of competence; see Dommen, 12. 72 UNCTAD-ICTSD, 119, where it is also stated that Arts. 7 and 8 may well be viewed as a means to establish a balancing of interests at the multilateral level to substitute for the balancing traditionally undertaken at the national level. 73 See e.g. Dommen, 25–6. 67


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free trade, TRIPS might fortify IP monopolies, which due to their character can be regarded as a hindrance.74 Furthermore, the Most Favoured Nation clause in Art. 4 TRIPS contains an inherent obstacle to spontaneous upgrading of IP rights and cumbersome Treaty revisions will be required for any changes. This shift in approach by TRIPS is possibly already apparent in the respective presentations of IP within WIPO and WTO. The IP definition formulated by WIPO could be characterized as “purely legal technical”: “Intellectual Property protects products of the human mind, such as inventions, literary and artistic works, symbols, names, images, and designs used in commerce” with possibly an idealistic spark, as in the same place reference is made to the protection of property contained in Art. 27 of the Universal Declaration of Human Rights (UDHR).75 WTO’s definition puts more emphasis on the private ownership aspect, with a certain policy orientation towards investment and development: “Intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/ her creation for a certain period of time . . .”, including their social purpose being “to provide protection for the results of investment in the development of new technology, thus giving the incentive and means to finance R&D activities”.76 According to WTO, a functioning IP regime should also facilitate the transfer of technology in the form of foreign direct investment (FDI), joint ventures and licensing. In addition, it is noted that “the exclusive rights given are generally subject to a number of limitations and exceptions, aimed at fine-tuning the balance that has to be found between the legitimate interests of right holders and of users.”77 The notion “trade-related” could at first sight seem to entail a new dimension – or a possible limitation.78 Some have argued that IP rights are not a “trade issue” as they stifle or inhibit a competitive environment79 and constrain the international transfer of technology, with institutionalized

74

Cf. Drexl, 18. http://www.wipo.int/export/sites/www/freepublications/en/general/450/wipo_ pub_l450faq.pdf. On the relationship between TRIPS and human rights, see Ch. 6 below. 76 http://www.wto.org/english/tratop_E/trips_e/intel1_e.htm. 77 Ibid. 78 Cf. Gervais (2005), 505, who seems to argue that trade rules, contrary to traditional IP rules, lack the element of human rights in their pure economic focus; in a similar vein, Rikowski, at 154, points out that TRIPS does not include any moral rights. 79 Rikowski, 153. 75


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monopoly privileges resulting in rentier incomes.80 No doubt, TRIPS aims to engender a competitive environment and is about the trading of IP, including new measures to combat the illegal trade in counterfeit and pirated goods as the starting point.81 This aim may not only explain the importance put on enforcement in the Treaty but also to some extent the strong property approach.82 However, the idea of linking IP to trade policy goes far back in history.83 The Paris and Berne Conventions both aim at simplifying cross-border trade with IP. The Paris Convention is expressly related to trade; and even if the word “trade” does not appear in the Berne Convention, this treaty followed in the footsteps of the Paris Convention with a similar legal construction so as to protect an original work published in, or authored by a national of, a Member State of the Berne Union against being copied and commercially explored in another part of the Union. Therefore, TRIPS’ new trade-related title was obviously more of a way of lifting IP negotiations from WIPO to WTO in an effort to advance the rules and get away from the deadlock in WIPO, where North–South conflicts and the requirement of unanimity in the Berne Convention,84 which until 1980 also applied to the Paris Convention, made progress impossible.85 To sum up, while the inclusion of TRIPS among the WTO treaties marked a visual re-conceptualization of IP as precisely trade-related, IP rights even before TRIPS gained international recognition primarily through their commercial and cross-border effects.86 It is another thing that the trade-related dimension on a global scale appears to have given a free rein to ever-greater démarches and jockeying for political power,87 which during the last decade has been a significant feature of the IP discus-

80

Khor. Cf. the negotiations in an anti-counterfeiting code during the Tokyo Round of the General Agreement on Tariffs and Trade (GATT) 1973–79. 82 Empirical evidence that would shed light on the economic impact of piracy and counterfeiting is scarce as such production and sales largely escape official statistical recording systems; see Fink (2009), xv, 13 et seq. 83 Granstrand (2004), 275. 84 As stated in Art. 18(3). 85 For the Paris Convention amendments to the Rules of Procedure in 1980 changed the previous unanimity rule to a 2/3 majority, provided that the number of states voting against the proposed revised text shall not exceed 12; see Rule 36(1). Despite these changes, the Diplomatic Conference for Revision of the Paris Convention in Nairobi, 1981, turned out to be a failure. 86 Little use can be made of the negatively formulated rights; their strength lies in positive application – including exceptions and limitations. 87 Cf. Francis Gurry, quoted in EPO (2007), 53. 81


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sions in WTO, as well as in WIPO.88 This development is to be regretted, as it has blurred a critical review and the needs of balancing material rules in a changing globalized world. At the present time of world economic crises, it is only to be hoped that national economic interests, of which “buy domestic campaigns” are one expression, will not totally dominate the IP scene. 3.2.

Northern Norms and Southern Hopes

Probably, the overarching force of TRIPS would have been far less potent but for the felt need on the part of the EC and the USA to affirm leadership on a global basis on which economic growth could be leveraged and sustained against the newly industrialized economies of Asia and Latin America.89 Even if the declared aim of the Uruguay Round (1986–94) was to narrow the gaps between IP laws in various parts of the world,90 the TRIPS text is in fact based on Northern norms, due to the fact that the Uruguay Round negotiations were driven by a USA-ECJapan-Swiss alliance.91 The intention presented was to serve the interests of the Southern Tier:92 strong IP regimes would generate benefits for developing countries,93 and not least would help developing countries to receive more trade and more FDI by encouraging well-developed protection systems.

88

See not least the discussions on a WIPO Development Agenda and on mandatory declaration in the patent applications of the source of any genetic material or indigenous knowledge used in developing a final product, which eventually would be a way of simplifying “benefit sharing” under the UN Convention on Biological Diversity (CBD). 89 Okediji (2007), 1329 n. 3. 90 Marinova and Raven, 597. 91 Negotiators came from an initial group of about 20 countries, increasing over time to about 30, of which about half came from industrialized countries. The negotiators from developing countries however had the disadvantage of not being familiar with IP or even law; see further Gervais (2005), 506. 92 The preamble of the WTO Agreement (Marrakesh Agreement Establishing the World Trade Organization) also recognizes that Members’ trade and economic relations: “should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development”. 93 See Abbott (2005), 80–81.


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True, from a macroeconomic standpoint, a well-functioning IP system may bring much-needed FDI to a developing country, creating new jobs, facilitating technology transfer, promoting indigenous industries and technologies, and generating considerable tax revenues.94 However, the general linkage between the strength of IP protection and the volume of FDI is not undisputed,95 which we will return to in Section 4.3.3. For instance, this is evident neither in transition economies with significant scientific and innovative capability such as China,96 nor, and particularly, in countries whose IP system is underdeveloped or out of balance.97 Also, it has been noted that the creation of new monopoly rights in developing countries may create considerable economic costs, which, if high enough, could eventually offset the overall benefits derived from the IP system in developing countries.98 In this spirit, it has also been questioned whether the extent of market penetration into developed country markets could be a factor in determining the extent to which rules might be relaxed to accommodate developing country interests.99 Despite the development-friendly language of TRIPS, the economic and sustainable development goals of developing countries are currently subsidiary to IP privileges.100 By and large, the North has forced its most advanced norms upon the South,101 and as an obvious consequence of the drafting powers, IP laws to a great extent were defined from the industrialized country perspective of promoting corporate interests by helping to expand corporate control over and corporate profits from new developments, including biotechnology and pharmaceuticals.102 However, the uncertain scope of flexibility under TRIPS may be a problem for both the developing and the developed world in bringing in new ideas and encouraging incumbent firms to maintain their innovation rate, especially against the fact that the progress of science depends on every innovator

94

Yu (2000), 192–3. Cf. Lesser, 11. 96 Barton (2004b), 323, who also points at more important factors being high education and a positive business climate. Cf. also Abbott (2005), 81–2. 97 Yu (2007), 176–80. 98 Among the documented costs are administrative and enforcement costs, adjustment costs due to labour displacement, social costs associated with monopoly pricing, higher imitation and innovation costs, and potential costs resulting from the abuse of IP rights, see Maskus et al., 302–6. 99 See Abbott (2005), 99 and Maskus et al., ibid. 100 Littleton, 21. 101 Gervais (2005), 509. 102 Downes and Stilwell, 3. 95


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standing on the shoulders of his or her predecessors.103 This is the other side of the coin of strengthening, for example, patent rights in developing countries,104 which of course also will probably limit technology transfer through imitation.105 3.3.

The Uncertain Scope of Flexibilities106

The strict minimum standard requirements and the flexibilities of the Treaty that apply equally to all Members107 have opened up a political debate on what flexibilities there are when individual state interests do not benefit from such standards.108 Developing countries have fought to revise the terms of TRIPS to defend and expand their options to pursue national development objectives, insisting upon particular interpretations of TRIPS and its flexibilities in international negotiations.109 It is still an open question how much freedom there remains for developing countries to use the flexibilities in the Treaty in determining national policies on IP, and national practices may always be challenged before

103

Depoorter, 65. Cf. the WTO statement on Pharmaceutical Patents and the TRIPS Agreement not being “about simply maximizing the level of protection for intellectual property”, but it rather emerged from a genuine negotiating process where the need for balance was very much to the fore, at http://www.wto.org/english/ tratop_e/TRIPs_e/pharma_ato186_e.htm. 105 Barton (2004b), 329. 106 The widespread use of the term “flexibilities” to refer to these safeguards and options emerged in the late 1990s in the context of the negotiations leading to the Doha Declaration on the TRIPS Agreement and Public Health, see Deere, 2 n. 12. 107 Cf. the preamble and all through the TRIPS text. However, developing countries were allowed extra time to implement the applicable changes to their national laws, in two tiers of transition according to their level of development. The transition period for developing countries expired in 2005. Following a decision reached by Member governments on 29 November 2005, least-developed countries were given an extension until 1 July 2013 to provide protection for trade marks, copyright, patents and other IP under the WTO’s agreement. The decision does not affect the transition period for patents for pharmaceutical products, which was agreed in 2002; least-developed countries will not have to protect these patents until 2016 and it could be extended beyond that; http://www.wto.org/ english/news_e/pres05_e/pr424_e.htm. 108 In 2001 the US government referred to the “emergency” clause in the TRIPS agreement and claimed that drugs manufacturer Bayer had to reduce the price of its anthrax antibiotic drug Cipro, or other companies should make copies of the drug. 109 Deere, 113. 104


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WTO tribunals.110 Arguably, there is a widespread lack of clarity of the options available, with a need for the guidance of a good policy, even in the context of public health,111 which we will return to in Section 4.3.1. The WTO Dispute Settlement Panel claimed, for example, that the three-step test in Art. 30 TRIPS for admissibility of exceptions to patent rights is “cumulative”,112 and that each of the separate and independent requirements must be satisfied. On the basis of that approach, “failure to comply with any one of the three conditions results in the Article 30 exception being disallowed”.113 The legal interpretation of the patent holders’ “legitimate interest” in this context, “must be defined in the way that it is often used in legal discourse – as a normative claim calling for protection of interests that are ‘justifiable’ in the sense that they are supported by relevant public policies or other social norms”.114 Part of the problem seems to be that although many countries share general public policy objectives, how to achieve them often varies from one country to another, and over time, as public policy considerations may be influenced by the socio-economic conditions and realities and the prioritized needs of the various countries.115 Another obvious problem with regard to the panel system is that even though in theory, panel and Appellate Body rulings, and the Dispute Settlement Body recommendations, create no new rights or obligations, in practice, they are increasingly cited and stretched by subsequent panels,116 which arguably has resulted in increasing the obligations of developing countries.117 Even if TRIPS was a developed counties’ manifestation, there was still dissatisfaction with the scope of TRIPS and the pace of IP reforms, which drove them to push for even stronger IP protection, including stronger TRIPS rules and new global treaties. In other words, developed countries wanted to maintain and bolster a “compliance-plus” agenda.118 This has resulted in special attention being been paid to the basic flexible approach of the Treaty in connection with certain free trade agreements (FTAs), 110 111 112 113

Correa (2000), 65. See Musungu and Oh, 68. On conditions for exceptions to copyright, see Dinwoodie (2001), 15 et seq. EC – Canada, Pharmaceutical Patents, WD/DS114, 17 March 2000, para.

7.20. 114

EC – Canada, Pharmaceutical Patents, op. cit., para. 7.69. For a critical evaluation of the WTO panel report, in particular with regard to the requirement for a separate and cumulative assessment of the three-step test, see Ch. 5 below. 115 Cf. WIPO STC, 8, 12. 116 See further in Ch. 3 below. 117 Raghavan, 4. 118 Deere, 113.


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which tend to take away the built-in flexibilities for developing countries forcing them to adopt a “TRIPS Plus” legislation.119 In other words, the flexibilities of TRIPS have also opened a way to diminish them. FTAs are permitted under Art. XXIV GATT for trade in goods,120 and accession to such regional agreements has been made a condition of benefiting from market access in for example the USA,121 and lately also the EU.122 Even if studies indicate that entering into such FTAs is not necessarily a reaction to perceived pressure from developed countries and the willingness as well as the ability among developing countries is quite divergent,123 it has been seriously questioned whether the renouncing of TRIPS flexibilities is consistent with the overall objectives for promoting international development and poverty reduction.124 It could be argued especially that one of the main reasons for developing countries to accept TRIPS during the Uruguay Round was the expectation of no longer being subject to bilateral pressures on IP rights by developed countries.125 Therefore, the more general explanation of the present situation should mainly be attributed to the lack of knowledge and negotiating power on the part of developing countries, and in particular among the least developed countries (LDCs),126 which was first to some extent remedied at the 2001 Ministerial Meeting in Doha.127 3.4.

New Actors Enter the Scene

Less than 20 years ago IP was more or less exclusively discussed at WIPO and by its Member States, and treated more or less as a legal technical 119 Cf. Musungu and Oh, ibid., who also go through health-related FTAs at 54 et seq. For a mapping of a vast number of such agreements, see Deere, 151 et seq. 120 Art. XXIV: “. . . the provisions of this Agreement should not prevent, as between the territories of contracting parties the formation of a customs union or of a free trade area . . . provided that . . .”. 121 Many of those involved in trade negotiations genuinely believe that strong IP is generally “a good thing” and that further strengthening will lead to an increased flow of royalties or profits in the entertainment and pharmaceutical areas. Therefore, there is a sense in the USA that if stronger IP cannot be negotiated at WTO or WIPO, it should be obtained bilaterally; see Barton (2007a), 14. 122 See Santa-Cruz (2007). 123 Deere, 315–16. 124 UK Commission on IPR, 162 f. 125 See Gibb, 22. 126 Meléndez-Ortiz (2004), v. ICTSD has given special emphasis to the use of TRIPS flexibilities, including helping (African) countries to incorporate flexibilities. 127 At that time with assistance from NGOs like the Quaker United Nations.


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matter.128 This was the natural domain of specialists and IP right holders. The TRIPS negotiations and the continued discussions, not least since TRIPS has entered into force, has triggered an explosion of interest in IP issues, including discussions in international forums not previously concerned with IP rights.129 These have also contributed to making the “outside world” aware of the economic importance and value of IP, as well as its political implications, which in turn have led to an ever increasing interest by politicians, NGOs and even the general public.130 Citizens’ groups in both the developed and developing world are concerned about the economic, social, environmental and ethical impacts of these developments. Many developing country governments are further concerned that control of the nature and distribution of new life forms by multinational corporations may affect their development prospects and food security.131 In this new polarized environment (of developed against developing countries and of right holders against users), “IP” is often apprehended as a hindrance to access to medicines and to downloading by the general public. Additional unhealthy side effects of WTO’s approach to free trade have been identified as: downsizing jobs, outsourcing capacities to less wealthy nations, exploitation of the poor and their resources, pressure on developed countries’ workforces, the erosion of the public health system and the social safety net, the prohibition of workers’ unions in emerging markets and the erosion of unions in developed countries.132 These allegations, as unfounded as they may seem to be to an intellectual property lawyer, also make it fairly clear that there are many new, or previously not much discussed, aspects of IP, and its appreciation and focus is very much dependent on from what or whose perspective the system is viewed.133 3.4.1. IP in the eyes of the public To the general public TRIPS has very much been identified with pharmaceutical patents from a public health perspective.134 Even though patenting of pharmaceuticals is far from being the single cause of lack of access

128 Also United Nations Educational, Scientific and Cultural Organization (UNESCO) played a certain role as the administrator or the Universal Copyright Convention. 129 Helfer (2004a), 5–6. 130 E.g. in the 2009 Swedish election to the European Parliament, the Pirate Party gained 7 percent of the votes. 131 Downes and Stilwell, 3. 132 Ghafele, 3. 133 Cf. Dinwoodie (2006), 211. 134 Abbott (2005), 86


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to medicines for the poor, TRIPS patent standards on pharmaceuticals patents may maintain the uneven direction of product R&D by limiting the type of drug therapies available to treat diseases of the poor, particularly of the poorest. Such negative consequences on public health in developing countries consist of increased patenting of medicines by leading manufacturers and limited drug portfolios of local firms,135 which is hard to overcome without international support.136 Since 1995 and onwards the Internet in principle has changed “everything”,137 and the business world has been eager to react to and exploit these changes to its advantage. The primary cry of the twentieth century has been for a stronger copyright regime due to the challenges posed by modern technologies.138 Not least has the era of digital networks given rise to new IP problems by new demands for easy access to copyrighted works. At the same time copyright legislation has changed its focus from commercial pirates to individuals acting in non-commercial private spheres,139 which has been identified as “a revolution in copyright law”.140 A central question is thus how the concept of IP can be adapted to the realities of the digital era; namely, to maintain a balance between the rights of authors and the larger public interest, particularly education, research and access to information as a basic and accepted principle worldwide,141 without becoming outdated and inefficient.142 This question includes how best to deal with the massive numbers of downloads of film, music and software via peer-to-peer (p2p) file sharing, as well as copyright issues arising out of the digitalization of entire libraries.143 Naturally, it scares copyright holders to lose control over their works, which for users of networks like the Internet seem to be free to common use.144

135

Cohen and Illingworth, 5. See suggestions on “banking” by Cohen and Illingworth, 5 et seq. and UNITAID’s new drug purchasing body, a patent pool for AIDS treatments on a trial basis, at www.unitaid.eu/fr/ACTUALITES/. 137 Seen from a developed country perspective; 80–90 percent of the world’s population has still never used the Internet. 138 Dutfield and Suthersanen, 236. 139 Haque, 257. 140 Koelman (2000), 274. 141 Cf. the preamble to the WIPO Copyright Treaty (1996), at http://www. wipo.int/treaties/en/ip/wct/trtdocs_wo033.html. 142 http://www.mediapolicy.org/news-events-on-media-policy-and-independence/ conference-the-future-of intellectual-property. 143 http://print.google.com/googleprint/library.html. 144 It has e.g. been suggested that p2p is one of the main targets in the negotiations on the (so far secret) Anti-Counterfeiting Trade Agreement (ACTA); see 136


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The p2p file sharing has already been called a “war”, taking place between copyright holders – especially the music industry – and users and their proponents, who want to retain the benefits of the new technology for themselves and for society at large.145 So far the market has not been able to solve the problem of uncontrolled use of copyrighted works, which in spite of stronger legislation146 has taken place as ever without generating previously expected revenues for right holders.147 But this should primarily be seen as a market adjustment problem, whereby the music industry has had to explore and invest in new innovative business models. This adjustment is currently taking place with a number of clearance contracts with providers of streamed music like Google, Microsoft, YouTube and mobile phone companies, which ought to solve the main music and video copying problems in due course.148 However this does not contradict the remaining more general problem: how can IP and digitalization make a happy marriage? Effective and radical legal solutions clash with obligations contained in international copyright law,149 of which part, the more special cases, might be solved by a balanced interpretation of Arts. 7 and 13 in TRIPS and its incorporation in national copyright laws.150 A partial solution might also be found in a more teleological interpretation of copyright law, which was never meant to deprive users of easy access to ideas, facts and other inputs to knowledge.151 The remaining questions seem to be who is going to finance the production of information of different kinds in the future,152 and whether it is acceptable that access to information depends upon financial resources.

http://www.michaelgeist.ca/content/view/3660/125/ and cf. http://www.ustr.gov/ trade-topics/intellectual-property/anti-counterfeiting-trade-agreement-acta. 145 Peukert, 3. 146 In Europe e.g. Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights. 147 Cf. Peukert, 9. According to the International Federation of the Phonographic Industry, in 2008, 40 billion music files were downloaded illegally, which corresponds to 95 percent of all music totally downloaded, at http://www. ifpi.com/content/library/DMR2009.pdf. But it has been pointed out that the methodology for arriving at this value estimate is not explained, see Fink (2009), 22 n. 31. 148 See further Ch. 9 below. 149 Peukert, 54. 150 Cf. MPI Declaration and Ch. 5 below. 151 Reichman et al., 1060. 152 E.g. on 15 July 2009, Financial Times editor, Lionel Barber, announced that most news websites will be charged within a year. In April this year it was also announced that since Google took over YouTube, users may have to pay where income from advertisement does not suffice.


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Unlike patent or copyright, the trade mark provisions of TRIPS or other instruments have received far less scholarly criticism, and the possible negative effects of too strong trade marks or privatization of cultural objects by trade mark rights is seldom treated as a problem,153 even if the decision of the ECJ in the L’Oréal v. Bellure case gives reason to doubt that this field is quite so unproblematic.154 3.4.2. IP in the NGOs IP is not as simple as one single legal notion, defined by WIPO and WTO, or by right holders, and less so than ever. Nor is IP only trade-related. The present discussions show that it is also education-related, health-related, nutrition-related, defence-related, environment-related, and energyrelated and so on. Many multilateral organizations have an important interest in the way rights granted are used with respect to inventions within the scope of their regulatory mission. It is therefore not remarkable that these organizations have sought to play a more significant role in the implementation of TRIPS and in the formulation of new rules.155 Indeed, in the aftermath of TRIPS, IP and the system as such have become a general object of discussion in almost any international forum. It has awoken a mass of critique throughout a host of international social movement concerns, including those focused on economic disparity between the global North and South, environmental issues, human rights issues and indigenous peoples’ issues.156 IP is now at or near the top of the agenda in intergovernmental organizations,157 such as the World Health Organization (WHO)158 and the Food and Agriculture Organization (FAO)159, in international 153

It could, indeed, seem somewhat strange that the effects of strong trade marks, which are not subject to any limitations, have not been further scrutinized. 154 Case C-487/07 of 18 June 2009. 155 Abbott (2005), 85. 156 Halbert, 6. 157 Helfer (2004a), 5. 158 The 61 session of the World Health Assembly adopted a number of resolutions on 24 May 2008 based on the WHO Report of the Commission on Public Health, Innovation and Intellectual Property Rights (2006), at http://www.who. int/intellectualproperty/documents/thereport/ENPublicHealthRweport.pdf. It remains to be seen how states can deal with these issues in practice. 159 As a follow-up to the FAO study in 2002, The State of Food Insecurity in the World, FAO has e.g. launched a program concerning origin-linked quality in order to address needs in this connection. Among IP rights especially discussed in this connection are geographical indications. Other studies and concerns relate to gene modification of plants. Cf. also the International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA) of 3 November 2001, at http://


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negotiating forums such as the Conference of the Parties (COP) to the (Convention on Biotechnological Diversity) CBD160 and the Commission on Genetic Resources for Food and Agriculture (CGRFA),161 and in expert and political bodies such as the UN Commission on Human Rights and its Sub-Commission on the Protection and Promotion of Human Rights,162 as well as in other global bodies such as the Canadian International Development Research Centre (IDRC), the ICTSD, the QUNO,163 Oxfam,164 Médecins Sans Frontières (MSF)165 and many, many more representing a self-interested public. This in turn has activated a great number of pro-IP business-related actors, often with close relations to the European, Japanese and US governments such as the International Chamber of Commerce, BUSINESSEUROPE, the International Intellectual Property Alliance, the International Anticounterfeiting Coalition, the Pharmaceutical and Research Manufacturers Association of America, the Business Software Alliance, the International Federation of Pharmaceutical Manufacturers and Associations, and the Biotechnology Industry Organization.166

www.fao.org/ag/cgfa, which entered into force on 29 June 2004 and provides for facilitated access to plant genetic resources for food and agriculture, including such that are protected by IPR; see Art. 12.3(d) and (f) and 13.2(b)(iii). 160 E.g. on promotion of the sharing of benefits derived from the use of genetic resources/biodiversity, and the granting of more favourable terms to promote transfer of biotechnology to developing countries. 161 See Options for Access to Plant Genetic Resources and the Equitable Sharing of the Benefits Arising from their Use, Doc. CGRFA-EX3/96/LIM/2 and ITPGRFA. 162 Helfer (2004a), 5, 6, 26 et seq. 163 With the view that extended high minimum standards for IP rights in WTO and in regional/bilateral agreements result in developing countries not have the same flexibility or policy options that developed countries had over the past 200 years in using IP to support what is appropriate for their level of national development. QUNO have e.g. been behind interventions on behalf of developing countries for better transitional terms in connection with the Doha negotiations in 2001. 164 Since 2001, Oxfam has engaged in a campaign to revise the global patent rules in TRIPS to favour health over company interests and to “put patients’ interests before profits”. 165 The Organization does not deny the problems with counterfeit medicine, taken up by the G8 Group, but believe that similar attention should be paid to the need for affordable, quality generic medicines upon which poor countries can rely, saying after the G8 meeting in 2007: “The G8 leaders’ agreement to demand higher levels of intellectual property protection in emerging economies is set to have a major negative impact on access to affordable medicines in all developing countries and fails to promote health innovation where it is most needed”. 166 Cf. Deere, 115–16.


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4.

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ADDRESSING THE NEW INTERFACES

TRIPS seems to have been a catalyst provoking a shift in perspective and marking a new form of discourse on IP, which is characterized by on the one hand, the power of companies and markets, and on the other, a number of moral and human rights issues such as globalization and public health,167 sustainable development and the environment. IP laws are now subject to a much wider public scrutiny than in the past, and it is likely they can no longer be developed under the radar of public consciousness.168 The recent and intense mapping of the previously uncharted intersections between IP law and human rights law in the broadest sense is pursued – and sometimes even fought over – by states and NGOs in forums such as WIPO, WTO, WHO and the COPCBD.169 The growing awareness of IP at all levels has not only challenged the system but also pressed forward some important statements during the last years, including a public health amendment to TRIPS,170 the progress of a WIPO Development Agenda,171 and the recent adoption by the WHO of a “Global Strategy on public health, innovation and intellectual property”.172 In other instances, challenges to TRIPS are framed through reinterpretation of existing agreements and the creation of nonbinding declarations, recommendations, and other forms of soft law.173 All these developments have been intensely ventilated in the academic discourse on TRIPS and IP. Present discussions also include strategic thinking on the

167 Ghafele, 31. At the same place it is also noted that while terms such as “innovation” and “progress” have positive connotations, IP, if known, seems to be associated with threat and danger by the general public. 168 Halbert, 7, who argues that the current resistance being staged by transnational activists will require a more serious consideration of issues of social justice and global equity within TRIPS. 169 Helfer (2004a), 6–7. 170 Cf. para. 6 of the Doha Declaration on the TRIPS Agreement and Public Health of November 14, 2001, and the following 2005 Ministerial Declaration. 171 The Development Agenda, formally adopted by WIPO’s General Assembly, 10 October 2007, with a set of 45 recommendations to enhance the development dimension of the Organization’s activities. The further work on the six clusters of recommendations is handled by a Committee on Development and Intellectual Property (WIPO CDIP). The further work on the six clusters of recommendations is handled by a Committee, CDIP 2/4/PROV of 22 August 2008. The third meeting CPD/3 was held 27 April–1 May 2009; details, at http://www.wipo.int/meetings/en/ details.jsp?meeting_id=17382. 172 Sixty-First World Health Assembly, 24 May 2008, at http://www.who.int/ mediacentre/events/2008/wha61/en/index.html. 173 Helfer (2004a), 6.


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role of IP to counteract existing asymmetries and gaps, a so-called public interest IP management.174 Tensions concern for example human rights as overarching structure; access to information; sustainable development; and respect for the environment. 4.1.

IP and Human Rights175

The relationship between IP and human rights has been an intriguing one ever since the French Revolution, and even more so after the creation of the WTO and TRIPS. In the past, international trade law and human rights law seldom interacted.176 After TRIPS, questions concern not only whether IP rights are related to human rights but whether the TRIPS and the human rights system are compatible.177 It is however an obvious starting point that the basic rights and freedoms to which all humans are entitled – whether civil and political rights, or economic, social and cultural rights and whether they belong to the first, second or third generation178 – deserve all possible respect, and more than they sometimes can get in real life. But this awareness gives no ground for one-sided approaches, neither pro nor contra IP as a fundamental human right. While on the one hand IP has been defined as a fundamental human right as any other

174 Cf. Ghafele, 17 with reference to NGOs such as MIHR (Centre for Management of Intellectual Property in Health Research and Development), PIIPA (Public Interest Intellectual Property Advisory Group), PIPRA (Public Interest Intellectual Property Resources for Agriculture) or SIPPI (Science and Intellectual Property in the Public Interest) that have sought to raise awareness and identify IP strategies that promote equitable access through humanitarian licensing, non-exclusive licensing or other public sector IP policies, http://www. mihr.org; http://www.pipra.org; http://www.sippi.aaas.org. 175 See further on this Chs. 6 and 9 below. 176 Dutfield and Suthersanen, 213, 222. 177 WIPO Panel discussion on Intellectual Property and Human Rights. 178 “First generation”: Arts. 3–21 of the UDHR adopted by UN General Assembly Resolution 217A(III) of 10 December 1948; “Second generation”: Arts 22–7 UDHR and the International Covenant on Economic, Social, and Cultural Rights, and the “Third generation” that remains largely unofficial, e.g. the Stockholm Declaration of the UN Conference on the Human Environment (1972) and the Rio Declaration on Environment and Development (1992), the UNESCO Universal Declaration on Cultural Diversity (2001), or the Declaration on the Rights of Indigenous Peoples (2007), see http://en.wikipedia.org/wiki/Three_ generations_of_human_rights with ref. to Vasak, Karel, “Human Rights: A Thirty-Year Struggle: The Sustained Efforts to Give Force of Law to the Universal Declaration of Human Rights”, UNESCO Courier, 30:11, Paris, November 1977.


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individual property right,179 not least so in Europe,180 NGOs on the other hand claim that IP negatively affects fundamental human rights in several areas such as access to knowledge, agriculture and public health.181 In recent years such conflicts have occurred for example with respect to copyright and database rights to prevent downloading of essential information or reliance on patents to restrict access to essential medicines. A further recent example is WIPO’s Standing Committee on Copyright and Related Rights (SCCR) consideration of whether there is a need for an international treaty to ensure that Member States’ laws adhere to a minimum standard of copyright exceptions and limitations to meet the needs of the visually impaired.182 While there exists an intense and very old discussion on the “paradox of property” in the context of human rights,183 at least here it seems meaningless to rank one human right above another or to evaluate how well the one or the other fits into the category of “fundamental”. It is more important and productive to support a continuous dialogue between the human rights community and the intellectual property community in order to achieve the best possible balance of private and public interests.184 Furthermore, even if fundamental, the categorization of IP as a human right does not guarantee commitment, respect or exclusivity in any

179

Cf. Art. 27.2 UDHR, which states that “Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author”, and Art. 15.1(c) of the International Covenant on Economic, Social, and Cultural Rights (ICESCR), cf. the proclamation in Art. 17 on a general right to property in para. 1, where on the other hand states have a right to regulate property rights of individuals, but only according to a rule of law, para. 2. 180 See Art. 17.2 of the Charter of Fundamental Rights of the European Union (2000/C 364/01, OJEC 18.12.2000 (at 12)), under which IP expressly is protected. 181 Cf. also the UN High Commissioner for Human Rights’ Sub-Commission expressed concern as to the impact of IP on human rights, in particular regarding health and food, at http://www.unhchr.ch/Huridocda/Huridoca.nsf/0/c462b62cf8a 07b13c12569700046704e?Opendocument. 182 Cf. WIPO (2007). The original draft from the World Blind Union was not admissible in the SCCR but had to be presented by Member States. The reactions to the proposal presented by Brazil, Ecuador and Paraguay were mixed. Developed countries found such a binding convention presently premature, and the supporting African group however concluded that the work on a convention should be continued in a global and inclusive framework. 183 Starting with John Locke in the 18th century. See for further modern references to this debate Drahos (1998) n. 42 et seq. and Dutfield and Suthersanen, 213 et seq. 184 Cf. Drahos (1998), in fine and Dutfield and Suthersanen (2008), 214.


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abstract and absolute manner.185 Nor can the focus ever be put exclusively on the interests of beneficiaries when rules for the protection of property should be guaranteed. As all the human rights instruments recognize rights that require access to the fruits of creativity,186 the right to IP can only be defined and is limited by its social purpose; the public interest, for example the interests of those who have to respect the IP of others, is an equally respectable fundamental right.187 Just as too little IP protection can impede the social benefits of innovation and trade, so can too much protection undermine other fundamental human rights.188 Furthermore, unlimited IP protection would arguably clash with the obligations following from TRIPS.189 This also makes it clear that the extent to which human rights interests should have priority over third party interests is dependent on the actual environment, including the legal system and the underlying public policy. In the present TRIPS context, it should also be remembered that TRIPS is an Agreement between Members, where any state190 or customs territory191 having full autonomy in the conduct of its trade policies, may join the WTO package, naturally under the condition that (other) WTO Members agree on the terms.192 Members shall accord the treatment provided for in TRIPS to the nationals of other Members.193 Individual

185

Cf. Hilty et al., 440. Dreyfuss, 1. 187 Cf. Art. 1.1 Additional protocol 1 to ECHR on Enforcement of certain Rights and Freedoms not included in Section I of the Convention. 188 See Sun, 197. 189 Hilty et al., ibid. 190 Political association with effective sovereignty over a geographic area and representing a population. 191 Whether the EC complied with this requirement has been questioned by the USA as far as uniform application is concerned and has been dealt with by the Appellate Body of the WTO; see European Communities – Selected Customs Matters, WT/DS315/AB/R (13 November 2006). Since January 1995, the EC has been a fully fledged WTO Member. TRIPS has been concluded by the EC alongside its Member States under joint competence, cf. Opinion 1/94 of the ECJ, [1994] ECR, I-5267. 192 All members have joined the system as a result of negotiation as a balance of rights and obligations. Members enjoy the privileges that other member countries give to them and the security that the trading rules provide. In return, commitments have to be made to open markets and to abide by the rules that were the result of the membership/accession negotiations. 193 See Art. 1.3 TRIPS. 186


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rights, human or other, are basically a matter for the Members to decide upon according to the national or regional legislation.194 For the Members of the European Convention on Human Rights (ECHR), states, associations and individuals have the possibility to challenge a national judgment at the European Court of Human Rights (ECtHR);195 in the case of individuals and associations after all domestic remedies have been exhausted.196 But such cases seldom concern IP,197 and so far no cases have concerned IP in a TRIPS context. However, three situations have been identified in connection with TRIPS and human rights, where for example the ECtHR might refer to TRIPS for its interpretation: (1) to establish “fair and equitable” procedures that permit effective action against any act of infringement; (2) when a state fails to provide one of the enforcement measures that TRIPS requires; and (3) wholesale failure to prevent private infringements of intellectual property.198 From the European legislatures, where human rights are integrated in the general legal framework, the message seems to be clear: as long as licences are made available under reasonable conditions, or statutory licences apply, there are limited chances to claim a human rights exception.199

194

It follows from the double membership in the WTO by the EC and its Member States, that where a case is brought before the ECJ in accordance with the provisions of the EC Treaty, the Court has jurisdiction to define the obligations which the Community has thereby assumed and, for that purpose, to interpret TRIPs; see Opinion 1/94, [1994] ECR I-5267, para. 105. For a further discussion on this division, see e.g. joint cases C-300/98 and C-392/98, Dior and Others, [2000] ECR I-11307, paras. 29 et seq. with ref. to the Court’s case law; the ECJ has jurisdiction e.g. to interpret a provision of the TRIPs Agreement if it may be applied both to situations falling within the scope of national law and to situations falling within the scope of Community law, as is the case in the field of trade marks. 195 Art. 34 ECHR. 196 Art. 35 ECHR. 197 Cf. however Smith Kline and French Laboratories Ltd. v. The Netherlands, App. No. 12633/87 (1990) 66 European Commission on Human Rights, Decisions and Reports, 70; judgment of the Grand Chamber in Anheuser-Busch Inc. v. Portugal, App. No. 73049/01, 45 Eur. H.R. Rep. 36 [830] (Grand Chamber (2007)) (registered trademarks protected by Article 1); and further Dima v. Romania, App. No. 58472/00 (2006) (copyrighted works protected by Article 6); Melnychuk v. Ukraine, App. No. 28743/03 (2005) (inadmissible, IP protected by Article 1). 198 Cf. Helfer (2008), 41 et seq. 199 See Smith Kline and French Laboratories, Ltd. v. the Netherlands, op. cit., 79 and further Hugenholtz (2001), 16, who opines that EC legislation is regarded more and more as a pan-European regulation, which makes it improbable that the ECtHR, in light of its deference to consensus, would be easily convinced to apply Article 10 to restore the equilibrium.


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4.2.

IP and Access to Information

While there seems to be a fairly broad consensus that TRIPS is here to stay,200 a broad spectrum of players argues in favour of IP rights being revisited for a number of different reasons and just not only in the interest of developing countries201 or increased global access to patented pharmaceuticals,202 but also from the standpoint that there must be other incentives to support innovation and dissemination of information without holding onto IP rights.203 Initiatives to rethink IP exclusivity appear in for example information and communications technology (ICT) areas, where a new openness arguably is required due to the special characteristics of the digital world based on common accessible platforms.204 The need for common platforms does not contradict the fact that patents in the ICT sector are extremely tight, and frequently cause competition problems for standard-setting organizations.205 But ICT firms often have incentives to reveal information necessary to enable others to build compatible technologies so that their platforms are more attractive to consumers. Consequently, many either do not assert IP in their interfaces or license such rights on open terms.206 The use of the digital commons by everyone does not necessarily exclude its use by anyone.207 This then contradicts the theory of the “tragedy of the commons”,208 which argued that the actions of a few could harm the interests of many and society as a whole, but it also has overtones of the so-called tragedy

200

Yu (2006), 371, 386. At the Hong Kong Ministerial Meeting of the WTO, developing countries proposed revision on four issues: Disclosure of source and country of origin of biological resource used in invention (Doc. IP/C/W/429); Evidence of prior informed consent under national regime (Doc. IP/C/W/438); Evidence of fair and equitable sharing of benefits from use of genetic resources (Doc. IP/C/W/442); and Preventing poor quality patents and biopiracy (Peru, Doc. IP/C/W/441). 202 http://www.cid.harvard.edu/cidtrade/issues/ipr.html and see Dutfield (2004), 2. 203 Boldrin and Levine. 204 E.g. the Open Source movement has established new behaviours and attitudes for the software industries, while music and film producers so far have not been able to adapt to the new market terms. Cf. also Creative Commons, of which one of the main proponents is Lessig; cf. http://www.lessig.org/blog. 205 See for a general problem inventory Lemley (2002). 206 Samuelson (2008), 54; the FRAND terms are however not without problems, cf. Lemley, op. cit. 207 http://www.consortiuminfo.org/metalibrary/detail.php?EID=1087&PID= 16&ID=62. 208 Hardin, 1243. 201


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of the anticommons.209 “To the extent that new information and communications technologies allow more and more people to contribute their own genius, the digital world offers new opportunities from the commons and for the commons. This does not mean that openness is an overriding moral value that must prevail in every circumstance. But it is a new opportunity.”210 IP exclusivity is an option, not a must, and should be treated as a “right to include” instead of a right to exclude.211 IP holders would be free to commit to openness, by waiving or dedicating IP rights to the public or to specific groups (e.g. users of a standard, noncommercial users of content, etc.) with an effective waiver mechanism. Indeed, there is no requirement that IP rights be enforced to be valid or legitimate.212 Another aspect of the digital world is access and general availability of information and data.213 This could indeed be seen as an overriding moral value, where overreliance on private market mechanisms for access to information and knowledge – or for the supply of public health goods – risks leaving the international community with unresolved collective action problems.214 The notion of preserving a “public domain”, such as the raw materials for innovations and cultural expressions and selfunderstanding,215 is relevant to the interrelation between IP and various facets of development and has been at the core of arguments by protagonists of alternative governance structures based on contract law, liabilitybased rules, open IP models and private ordering schemes as the Creative Commons.216 They argue that it ought to be possible to construct a new IP policy paradigm that has regard for the public domain and fair uses,217 whether that consists of open source, licensed commons or licence of rights 209

Cf. Hunter, 439, and Boyle (2003), 33. Maxwell, 44; Maxwell also points at new architecture for participation enabled by openness, such as: Linux, Wikipedia, SETI – the world’s fastest supercomputer, Napster, Flickr, Podcasting, blogs, Second Life, eBay listings, ratings, Amazon reviews and recommendations, and YouTube. 211 Merges (2008a), Part 5. 212 Cf. The EC Commission’s White Paper on Modernising ICT Standardisation in EU – The Way Forward of 13 July 2009, which argues that flexibility should remain, however, to permit undistorted competition between different business models, including open source model, whose use and implementation may be subject to conditions very different to the royalties encountered under the (F) RAND terms that the Commission prefers, at 9. 213 Cf. Reichman et al., 1060. 214 Abbott and Reichman, 981 et seq. 215 Boyle (2008), 39. 216 Suthersanen, 2. See also Ch. 9 below. 217 Samuelson (2003), 170. 210


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regimes, etc. Part of this argument relies on the suggestion that the widening of the public domain/intellectual commons will spur developments and promote a more equitable distribution of the world’s resources.218 To sum up, there is a vital need for innovation and knowledge dissemination at the same time as new technologies challenge copyright’s internal balance. Possibly an international agreement could help to sort out on a more or less mandatory scale, ranging from what should not be protected at all under copyright law, limits to economic rights and limitations and exceptions proper, both mandatory and optional, with due respect to the three-step test in the Berne Convention and Art. 13 TRIPS.219 In addition, for the international ICT sector, possible cooperation between TRIPS and the WTO Agreement on Technical Barriers to Trade seems like an interesting proposal.220 4.3.

IP and Sustainable Development

“Sustainable development”221 rests for the most part on three pillars: sound economic development, respect for the environment in the sense of future generations’ access to resources and the well-being of the peoples of the world.222 Consequently, the effects of IP protection on health, nutrition and food security,223 particularly in the context of their impact on developing countries, is one of the current issues of debate.224 (These issues are briefly treated in Sections 4.3.1 and 4.3.2 below.) In the framework of IP, the scope also concerns the impact of such rules on for example economic growth, including investment and environmental protection (which are further touched upon in Sections 4.3.3 and 4.3.4 below). These rela-

218

Suthersanen, ibid.; cf. also Boyle (2008), 198 et seq. Hugenholtz and Okediji, 3–4. 220 Dutfield and Suthersanen, 257. 221 First formulated in the Brundtland Report (1987) and boldly defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs; transmitted to the UN General Assembly as an Annex to document A/42/427 – Development and International Co-operation: Environment. 222 Pradel. 223 “Food security”: An adequate amount of food is cultivated or available through the market and people can afford to buy or cultivate enough food to satisfy their basic nutritional requirements, see MacDonald et al., 2. 224 COP-8 Biodiversity and Trade Briefings, 1. But nor should it be disregarded that despite decades of nutrition advocacy, most developing countries and development agencies still do not adequately recognize nutrition in their policies and strategies. 219


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tions are, at least by some, seen as controversial, whereby the patenting regime in particular is deemed to adversely affect the pursuit of sustainable development strategies.225 As is well known, divergent views persist on the relationship between TRIPS and the CBD.226 The three key elements of sustainable development are framed in Art. 8(j) CBD, which calls upon parties to conserve and sustainably use biological diversity, while equitably sharing the benefits of the use of genetic resources.227 A number of developing countries require primacy of the CBD over TRIPS in the area of biological resources and traditional knowledge systems.228 But there are also divergences among developing countries, which can be seen as part of the explanation as to why it is difficult for them to come up with a common position on the review of Art. 27.3(b) TRIPS.229 There is still no accepted package solution to the disclosure requirement,230 and even if an agreement were reached on the proposed Art. 29bis TRIPS,231 the problem partly remains as the required and expected result of the CBD drafters lies within the national legislations’ implementation of benefit sharing.232

225

Santa-Cruz, vii. Similar objectives as in CBD are found in other treaties, such as the ITPGRFA, which is the first legally binding agreement focusing specifically on the conservation of the “raw materials of nature”, their sustainable use and benefit sharing. It seeks to ensure such access to use, is necessary to provide food security in the foreseeable future. ITPGRFA restricts the patenting “in the form received” and will hardly conflict with TRIPS: see Schaffrin et al., 62. Furthermore, although Art. 9.2 of the ITPGRFA provides that “the responsibility for realizing Farmers’ Rights, as they relate to plant genetic resources for food and agriculture, rests with national governments”, this provision does not contain an international obligation like TRIPS. 227 Cf. Pronk, 5. 228 See e.g. GAIA/GRAIN (1998) and further on this issue, Helfer (2004b) and Tarasofsky and Sampath. 229 WTO Members are divided on whether to include a mandatory requirement to disclose the source of origin of genetic resources and associated traditional knowledge while applying for a patent. 230 The TRIPS/CBD and the geographical extension issues of the Doha Work Programme are presently strangely linked to negotiations on the creation of a multilateral register for geographical indications, for which there is a negotiating mandate under the Doha Round, WTO TN/C/W/52, 19 July 2008. 231 Cf. WT/GC/W/564 TN/C/W/41, 31 May 2006 (Communication from Brazil, India, Pakistan, Peru, Thailand and Tanzania: Art. 29bis “Disclosure of Origin of Biological Resources and/or Associated Traditional Knowledge”). 232 Straus, 284. 226


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4.3.1. Health Good health for all populations is a widely accepted international goal of sustainable development.233 A high attainable level of health constitutes a fundamental element of well-being,234 and the right to health is indispensable for the exercise of and closely related to and dependent upon the realization of other human rights,235 including the right to an adequate standard of living with regard to food, housing, work, education, human dignity, etc. Therefore, public health, and not least the impact of patents on public health policies with respect to access to medicines, has been one of the most debated WTO issues in recent years, where arguably some important policy results have been achieved.236 When TRIPS was adopted, the pharmaceutical industry was among its most powerful supporters. Up until then many developing countries did not provide patent protection for pharmaceutical and food-related products on the grounds that these fields were of critical social importance and that patent barriers would adversely affect the public interest.237 Indeed, the Agreement placed more emphasis on promoting innovation than on providing access to essential drugs.238 However, by 1996, serious concerns had been raised about the possible impact of IP on public health after TRIPS,239 not least in the light of the dramatic expansion of the HIV/ AIDS epidemic over the last few decades. Although one of the stated goals of TRIPS was to reduce tensions arising from IP protection,240 IP protection for pharmaceuticals, its effects on public health and access to drugs in particular have remained a highly controversial issue.241 Attempts by the pharmaceutical industry, backed by some governments, to block implementation of TRIPS-compatible measures by the South African Government in its fight against the HIV crisis in 1998, and the complaint brought by the USA against Brazil in relation to compulsory licences in

233

Sun, 197. Art. 12 of the ICESCR focuses on the right to health. Cf. also General Comment No. 14 (2000) to the ICESCR, para. 8, where it is emphasized that the right to health is not to be understood as a right to be healthy. 235 Art. 25.1 of the UDHR. 236 See, for a more critical view, de Carvalho, 146–7. 237 Abbott (2009). 238 Kim. 239 In 1996, South Africa adopted a new National Drugs Policy with the goal of “ensuring an adequate and reliable supply of safe, cost-effective drugs of acceptable quality to all citizens of South Africa”. 240 Cf. Arts. 7 and 8. 241 Correa (2002), 2. 234


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2001,242 were perceived as manifestations of a conflict between the recognition of IP rights and essential public health objectives.243 The Doha Ministerial Declaration on the TRIPS Agreement of 2001 confirmed that new considerations had to be taken into account when interpreting IP regulations, including a public health amendment to TRIPS,244 which was made permanent by Art. 31bis in 2005.245 As a result, the flexibilities of the Treaty can be utilized to give effect to certain health requirements. Arts. 7, 8, 31 and 40 TRIPS read together should today allow Members to exercise regulatory policies to promote public health, for example by issuing compulsory licences,246 although this interpretation is not unproblematic.247 Firstly, although Art. 31bis confirms that nothing in TRIPS will prevent Members from granting compulsory licences to supply foreign markets,248 progress towards providing equal access for drugs has been slow,249 and it is still uncertain whether more education and assistance in filing for compulsory licences or whether even TRIPS provisions can help developing countries overcome the intimidation factors of powerful governments.250 Secondly, prominent actors have voiced the concern that TRIPS-plus provisions in FTAs with powerful governments have a serious impact on countries’ public health policies and risk limiting the effects of the Doha amendment.251 Thirdly, a basic issue underlying the discussions leading 242

WT/DS224/1, 7 February 2001, which was not pursued. Correa (2002), ibid. 244 Cf. para. 6 of the Doha Ministerial Declaration on the TRIPS Agreement and Public Health of 14 November 2001 and cf. para. 4.1. 245 General Council decision of 6 December 2005 and WTO Ministerial Conference in Hong Kong, WT/MIN(05)/DEC, 22 December 2005, DOHA WORK PROGRAMME, WT/MIN(05)DEC, December 18, 2005. 246 Cf. also Art. 5 of the Paris Convention. 247 Harding et al., 189–90. See for a more thorough analysis Ch. 6 below. 248 http://www.twnside.org.sg/title/twr131e.htm. 249 Cf. Kim. 250 This first ever amendment to the TRIPS Agreement was circulated to WTO Members in 2005 for formal adoption, with a deadline of 1 December 2007, whereby two-thirds of the members should accept the permanent amendment for its entering into force. In 2008 a decision was made to extend the deadline for accepting the amendment until 31 December 2009, or such later date as may be decided by the Ministerial Conference. 251 Roffe and Spennemann (2006), 76, 79 et seq., where it is revealed that especially the FTAs between USA and a number of developing countries seem to be problematic, that it is uncertain what legal values possible “side letters” may have, and that post-Doha FTAs “have strengthened the position of large drug companies at the expense of risking the flexibilities recognised in the TRIPS Agreement, as confirmed by the Doha Ministerial Declaration”, at 86. 243


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to the Doha Declaration was to which extent the final proviso of Art. 8.1 (“. . . provided that such measures are consistent with the provisions of this Agreement”) would mean that IP can override public health. The consistency requirement contains possible problems in relation to the scope of the public health amendment.252 This issue touches on whether non-violation complaints also would be applicable to measures taken that are consistent with TRIPS’ exceptions under Art. 8. While it has been held that transplanting this GATT/ GATS remedy of exceptional character into the TRIPS environment is not suitable,253 no conclusive answers exist so far. WTO panels and the Appellate Body have not yet determined whether or not such measures could be challenged under Art. XXIII:1(b) GATT; the results of the few cases that have dealt with this question have been ambiguous.254 One possible interpretation is that, unlike Art. XXIII:1(b), Art. XX(b) GATT would permit Members to adopt measures on public health and other grounds enumerated in Art. 8.1 TRIPS,255 but not to derogate from obligations relating to the availability or enforcement of IP rights.256 Consequently, in the light of para. 4 of the Doha Declaration, Art. 8.1 would arguably not prevent derogation from certain obligations under the TRIPS Agreement if necessary to address public health needs.257 The WHO was largely absent during the TRIPS negotiations, even though it ought to have been apparent that the new obligations on patent protection would influence public health in developing countries.258 By 1996, however, the WHO Assembly decided to report on the impact of the work of the WTO with respect to national drug policies and essential drugs, and make recommendations for future collaboration between WTO and WHO,

252

Abbott (2002), 52. Sun, 182, 195. 254 Larouer, 120. 255 This would also correspond to the EC argumentation in the EC – Asbestos Panel, WT/DS135/R, 5 April 2001. In this case the Appellate Body dismissed the EC’s argument, but emphasized that it was an important aspect that a Member cannot have reasonable expectations of continued market access for products which are shown to pose a serious risk to human life or health. But the case concerned Art. XXIII:1(b) and while there may be “legitimate expectations” in connection with a purely commercial measure, there can be no such expectations with respect to a measure necessary to protect human health and which can therefore be justified under Article XX(b) GATT. 256 For a more extensive account of the relationship between Art. 8.1 and Art. XX GATT (as well as Art. 16 GATS), See Ch. 4 below. 257 Correa (2002), 11. 258 Abbott (2002), 474. 253


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as appropriate. Para. 6 of the Doha Declaration instructs the Council for TRIPS to find an expeditious solution to the problem faced by countries with insufficient pharmaceutical production capacity by making effective use of the compulsory licensing provisions in TRIPS, and in 2002, the WHO publicly stated its commitment to support WTO Members and the TRIPS Council in whatever way they wished in this regard.259 Today, the WHO is an established forum for IP and health-related discussions. Its Global Strategy on Public Health, Innovation and IP (2006) was finally adopted at the 2008 WHO Assembly after lengthy negotiations, particularly over IP issues.260 The adopted programme is very ambitious and very extensive. Its execution depends however, for example, on budget acceptance by the Members, where diverging financial approaches exist, and it is still uncertain how the organization will tackle this challenge in practice. Also in regard to “counterfeit medicines” the WHO Members have diverging views on whether and which measures should be taken, which somewhat mirrors the tensions between Member States.261 4.3.2. Nutrition and food security262 It is a sad fact that, apart from in China, the number of food insecure in the developing world has increased since 1990.263 In 2009, after the world economic crisis, the situation is worse than ever.264 There are of course many reasons for this, but part of the rising numbers of the food insecure could be explained by the following IP-related scenario: With increased urbanization and economic growth objectives, the global trend is toward nutrition through a market economy.265 With the 259

WTO Council for TRIPS, 5–7 March 2002. Sixty-first World Health Assembly, 24 May 2008, WHA61.21, at http:// apps.who.int/gb/ebwha/pdf_files/A61/A61_R21-en.pdf. 261 On 23 January 2009 Member States stressed the importance of protecting public health against risks caused by spurious medications, but some questioned whether the draft resolution of the WHO Executive Board of 18 December 2008 would protect the public interest, or instead focus undue attention on protecting the rights of IP holders. 262 Art. 11 ICESCR especially addresses the right to food as part of the broader human right to an adequate standard of living in Art. 26.1 UDHR, cf. para. 2. 263 Cf. UN General Assembly, Road Map towards the Implementation of the United Nations Millennium Declaration, report of the Secretary-General, New York, 2001 and the UN General Assembly President Miguel d’Escoto Brockmann at Columbia University in New York on 9 November 2008: “Without innovative and broad changes in our food policies, we will see hunger once again spread across the world like a mediaeval plague.” 264 FAO (2009), 9 ff. 265 Barton (2004a), 7 and 11. 260


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development of sophisticated agricultural biotechnologies during the 1980s, the patent system became an interesting means for breeders desiring to obtain stronger exclusive rights over the use and marketing of the resulting product or process than were available under sui generis type of laws.266 Patents made it more profitable for private businesses to invest in R&D on seeds with an orientation towards commercially profitable crops and farming methods,267 which do not necessarily take into account the needs of small farmers. There are still 1.4 billion small farmers in the world who depend on farm-saved seed, to whom genetic diversity is said to be the greatest source of protection against pests, pathogens and climate variations.268 So, if the traditionally diverse agro-ecosystem – with a wide range of traditional varieties – is replaced by a few varieties with significant commercial potential, a danger exists that the genetic resources stored in the farm-level varieties bred over centuries will be lost.269 This could in turn adversely affect the ability of resource-poor farmers to meet their nutritional needs, and undermining the conservation of biodiversity raises sustainability concerns and risks negatively affecting local food security, and decreasing nutrition.270 No doubt, modern biotechnology has tremendous potential for increasing food production and improving food processing. But these effects will differ from country to country. Where the application of this new technology aims to increase productivity in the export sectors, successes in some countries could be at the expense of the market position of others. In this way, international competition may endanger cooperation among developing countries, which seems necessary for the application of biotechnologies that are specifically suited to their interests.271 It has also been noticed that probably none of the existing forms of protection for biotechnological inventions will be useful in the developing nations for encouraging a national seed industry, but rather some sort of minimal approach to a UPOV-style system,272 which in most cases would be in conflict with TRIPS273 or acceded FTAs. 266

Cf. The International Union for the Protection of New Varieties of Plants (UPOV). 267 Barton (2004a), 11. 268 See e.g. 3D (2009). 269 COP-8 Biodiversity and Trade Briefings, ibid. 270 Verma, 6–7. 271 Junne. 272 Barton (2004a), 11. 273 WTO Members are to adopt a system to protect the IP in plant varieties “either by patents or by an effective sui generis system or by any combination” of the two, see Art. 27.3(b) TRIPS.


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To sum up, on the positive side is an explosion of private-sector agricultural research in the developed world,274 on the negative side is the increasing adoption of the improved seeds in developing countries that may have a detrimental impact on biodiversity.275 While agricultural biodiversity is crucial for the livelihood and nutritional security of the poor,276 the focus of the biotech industry is on producing commercially trans-genetic crops and not on the staple food. That the UPOV Agreement277 is often imposed through FTAs makes it additionally difficult for developing countries to enhance farmer rights and farmers’ exceptions that are not included under that Treaty.278 The effects of IP rights on nutrition are so far inconclusive,279 and a number of issues ought to be further investigated.280 It could, for example, be questioned whether Art. 8.1 TRIPS would be applicable in a situation where TRIPS leads to increased privatization of genetic resources and agricultural knowledge, including plant varieties; this increase of commercial breeding could negatively impact on the nutrition situation in poor countries. Even if full recognition of the human right to equality and adequate food is difficult to achieve, the concept should be borne in mind as the objective.281 According to Art. 8.1 TRIPS: “Members may . . . adopt measures necessary to protect public health and nutrition . . .” Art. 8, as affirmed by the Doha Declaration in the case of health, could possibly be extended to nutrition. However, under TRIPS this principle could not be interpreted as simply authorizing Members to override patent protection.282 As indicated above (in Section 4.3.1), Art. 8.1 is not a self-standing

274

Historically, agricultural R&D was dominated by governments. COP-8 Biodiversity and Trade Briefings, 2. 276 The huge range of seed varieties developed over centuries at the local level is crucial for the livelihood and nutritional security of the poor. The genetic diversity in agriculture enables poor farmers to select varieties of plants and animal breeds that are best adapted to changing environmental, economic and social pressures; see Tripathi. 277 Contrary to the 1978 UPOV text which implicitly allowed a farmers’ privilege, the 1991 text only allows this exception at the option of the Member State (within reasonable limits and subject to safeguarding the legitimate interests of the right holder). 278 The conclusion of FTAs is often perceived by developing country societies as a major political and economic achievement, while the impact of increased IP standards on domestic policies does not immediately become obvious; cf. Roffe and Spennemann (2006), 79. 279 Tarasofsky and Sampath, 24–5, 51 et seq. 280 Cf. Barton (2004a), 19. 281 Kent, 11–12. 282 See UNCTAD-ICTSD, 127. 275


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right to override individual TRIPS obligations, although it could still be questioned whether this different approach in practice would lead to any other consequences in TRIPS than under Art. XX GATT.283 Thus, the obligations relating to the availability or enforcement of IP rights would still remain.284 4.3.3. Economic growth and development Statements like “While IP may have an adverse effect in some areas of development, it can also be an important part of any solution”285 call for better knowledge of the effects of IP rights, where education and training and the development of national innovation systems that promote dynamic competition could constitute an important elements.286 To succeed in such endeavours states should cooperate in ensuring development and eliminating obstacles to development.287 One such example is WIPO’s special Office for Strategic Use of IP for Development, established in 2005,288 with the aim of assisting Member States, particularly in developing countries and countries in transition.289 It is still too early to assess any concrete results of this initiative on the efficient use of the IP system for promoting economic, social and cultural development. Aside from WIPO and ICTSD, the European Commission has engaged in a number of research projects, for example, aiming at identifying ways to design IP systems to encourage scientific and technological research to benefit farmers, consumers, the private sector and the public in developing countries.290 From this research it has been established that the problems facing developing countries concern, for example, their inferior potential to design an IP system to promote welfare enhancing innovation.291 But some of these problems also go in the other direction, and the answer

283

See further Ch. 4 below. Cf. the last part of the sentence in Art. 8.1. 285 Santa-Cruz (2009). 286 Cf. Maskus (2005), 41 et seq., esp. 70. 287 Cf. Art. 3.3 of the UN Declaration on the Right to Development Adopted by General Assembly Resolution 41/128 of 4 December 1986. 288 Cf. also WIPO Strategic Framework Revised 2008/2009, at http://www. wipo.int/about-wipo/en/budget/pdf/questionnaire_annex_2.pdf. 289 So far, two mainly health-related projects have been launched; see http:// www.wipo.int/ip-development/en/osuipd.html. 290 The Sixth Framework Programme IPDEV (The Impact of the IPR Rules on Sustainable Development), at http://www.istworld.org/ProjectDetails.aspx?Pr ojectId=a87f8d3eab954388b2bd84b57ed98bccandSourceDatabaseId=7cff9226e58 2440894200b751bab883f. 291 See Dutfield et al. 284


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does not seem to be to start by copying or introducing a Western-style IP system. Firstly, the lack of both an inventive tradition and high value production292 in practice means it is doubtful whether freedom to imitate in a non-wealthy environment would ensure the rapid diffusion and uptake of foreign technology or information.293 The sophistication of IP protection in general, and especially of the patent system, would probably make no difference, as the national technological knowledge is insufficient for reverse engineering.294 Especially in regard to modern developments such as biotechnology, the LDCs lack industries and a clear idea of how this technology can benefit their economies and improve the lives of their citizens. Thus, it is not to be expected that such businesses would spring up just because life-forms and micro- and non-biological processes can be patented.295 Secondly, as shown above, agriculture may be the most important sector to many LDCs. But even if agricultural copying might ensure that the agriculture of developing countries takes advantage of the advances of the developed countries without bearing the development costs and enduring control by the developed countries leading to better food security, copying is no answer either for the above mentioned reasons.296 Furthermore, the precise development of plants to suit the natural conditions of the country in question might require investments adapted to that country, development investments that most probably will not be made without protection in the recipient country.297 So, even if the IP system will not do much for the lack of capacity and infrastructure in a country, it might still be needed for transfer of technology reasons. There is no doubt that the IP system influences trade flows. But the simple fact that trade flows rise or fall in response to tighter IP rights is not sufficient for drawing conclusions regarding economic welfare,298 and conflicting views persist on the impact of IP law on development.299 That 292 Defined by: (i) product design; (ii), process engineering; (iii) quality control; (iv) management and maintenance routines; (v) knowledge about markets and investment opportunities; and (vi) skills and capabilities needed to undertake changes in products and processes, create networks, and sustain partnering activity; see Dutfield et al., 15. 293 Ibid., 13. 294 Fink and Primo Braga, 21 et seq. 295 Dutfield et al., 11–12. 296 Ibid. 13. 297 Ibid., 16. 298 Fink, Primo Braga. 299 Meléndez-Ortiz (2004), vii.


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developed countries are in favour of a strong IP system because it fosters economic growth has been dealt with above in Section 2.2. From this it also follows that foreign investors in developing countries with stronger IP regimes are more likely to engage in local production, rather than focus solely on setting up distribution networks.300 Some research results indicate that countries with high per capita incomes probably grow more rapidly with strong IP rights. On the other hand, there is no evidence that stronger IP protection reduces growth in poor countries, while middleincome countries may have offsetting losses from the reduced scope for imitation.301 The evidence is even less conclusive in the case of FDI.302 But empirical studies generally support an expectation that stronger IP protection enhances both FDI and imports, where more industrialized nations show a more pronounced response to the strength of IP rights, and more technologically advanced sectors are more IP dependent than less technical ones.303 However, an important component of any program to attract high-quality FDI and technology transfer seems to be the development of a competent indigenous technological capacity.304 If indigenous knowledge is perceived to be incapable of contributing to technological advancement,305 it risks being distanced from economic recognition and being made a victim of rent-seeking behaviour.306 4.4.

IP and the Environmental Crisis

Among the emerging issues concerning longer-term problems belongs the relationship between IP and environmental degradation, or climate change.307 As scientific projections suggest, we have only experienced the earliest stages of a growing and complex environmental crisis.308 As may be recalled, Agenda 21 agreed at the Rio Summit in 1992 concluded that a large body of useful technological knowledge lies in the public domain.309 But to the extent that this is not the case, the Agenda urged governments and international organizations to promote, and to encourage, the private

300 301 302 303 304 305 306 307 308 309


Smarzynska Javorcik, 151. See Falvey, Greenaway and Foster, 18–19. Maskus (2005), 41 et seq. Lesser, 11; Smarzynska Javorcik, 159. Maskus (2005), 70. Verspagen, 505. Marinova and Raven, 597. Cf. e.g. the Stern Report Part IV, 10 et seq.; and Copenhagen Economics. Intergovernmental Panel on Climate Change, http://www.ipcc.ch/. Para. 34.9.

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sector to promote effective modalities for the access and transfer of environmentally sound technologies (EST), in particular, to developing countries. This can be done by for example enhancing access to and transfer of patent-protected environmentally sound technologies, and purchasing patents and licences on commercial terms for transfer to developing countries on non-commercial terms, with the aim of sustainable development, taking into account the need to protect IP rights.310 Since then, there has been a particular focus on the role of IP as a barrier to the international diffusion of technologies,311 especially by developing countries.312 This may be an additional hurdle at the future negotiations of a revised text on the UN Framework Convention on Climate Change (UNFCCC),313 and this risks becoming the next big IP confrontation after medicines.314 While neither the UNFCCC nor the Kyoto Protocol mention anything about IP, the draft text for a revised UNFCCC contains a number of such provisions, albeit still in brackets, on free access to EST and the omission of such patents, gene patents and full flexibilities under TRIPS.315 Sharing knowledge, like minimizing CO2 emissions, is considered by many to be essential to achieving a fair balance between rich and poor countries, between industry and consumers and between large corporations and small and medium-sized enterprises (SMEs).316 But at least to date it is rather the level of tacit knowledge not covered by IP rights that may prevent effective transfer of EST. Notwithstanding the fact that examples of IP issues could be found with respect to specific technologies such as key existing mitigation technologies,317 where publicprivate partnerships could be less suitable for buying IP, so far no clarity 310

Para. 34.18e(ii) and (iii). Walker, 12. 312 Cf. de Boer, 4. 313 The UN Framework Convention on Climate Change (UNFCCC) encouraged developed countries to stabilize greenhouse gas emissions. UNFCCC entered into force on 21 March 1994 and has been ratified by 192 countries. The Kyoto Protocol, which has not been ratified by all parties to the UNFCCC, entered into force on 16 February 2005. But the Member States of the EU have, for instance, agreed to combine their individual emissions reduction targets and to redistribute those targets among them. For the period after 2012 EU sets the standard as at least 20 percent but this will probably not suffice. 314 The gravity of IP controversies in this new context lies e.g. in that many may need medicines, but everybody needs clean water and fresh air. 315 See revised negotiating text of 22 June 2009, at http://unfccc.int/2860.php with e.g. the alternatives to Arts. 17.2, 175, 181, 187–8, 190 and 196–8. 316 EPO (2007), 74. 317 See http://www.greenfacts.org/en/climate-change-ar4/figtableboxes/40. htm. 311


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exists on where IP may prevent access to EST and hinder the protection of a public good.318 The question whether special IP arrangements in the context of climate change are needed thus remains open.319 But it has been argued that increasing public attention and concerns for the relationship between IP and the transfer of EST call for measures and adjustments to TRIPS to support the post-Kyoto climate regime – to the extent that TRIPS flexibilities would not already be sufficient to allow international IP rules to support the rapid and widespread transfer of technologies needed for climate change mitigation and adaptation.320 According to the UN Department of Economic and Social Affairs (DESA), the climate change problem has the status of a global emergency in the vein of current epidemics, which is why the DESA claims that the Doha Declaration should apply analogously. True, with the goal of creating an IP regime that provides incentives for technological innovation and its global diffusion and usage, one could well argue that IP as a barrier to free competition must be tolerated only to the extent necessary to encourage technological progress.321 Thus, the encouragement of open-source models for the supply of a ‘global public good’ such as EST might merit special treatment under TRIPS and other trade agreements.322 However, TRIPS says little about environmental concerns,323 and in contrast to the field of health or nutrition, TRIPS does not provide for any special treatment or flexibilities for access to and dissemination of EST.324 In light of the long-winded procedures needed to reach a decision on health and the uncertain scope of the Doha flexibilities, any general “analogue application” does not seem probable. In practice it also seems somewhat difficult to more precisely identify those inventions that merit such special treatment if it is not at the initiative of the right holders.325 This does not contradict the fact that workable solutions are required if IP

318

de Boer, 5 et seq.; Stern Report Part IV, 10; Copenhagen Economics, 34 et

seq. 319

de Boer, 5. See ICTSD (2008), 7. 321 Cf. Littleton, 21 with ref. to Ullrich (2001), 363 et seq. 322 Littleton, ibid. 323 Cf. however, Art. 27.2, which allows Members to exclude the commercial exploitation of inventions: “of which is necessary . . . to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by their law”. 324 Barton (2007b), vii; and cf. Art. 8.1 TRIPS. 325 Cf. Eco Patent Commons, where big business since the 1990s make EST patents available to the public, at www.wbcsd.org/. 320


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turns out to be a hindrance to crucial technology transfer,326 and in such a scenario, IP rights should not be allowed unduly to hinder such transfers.327 But this is arguably not equal to free IP or a ban on patents, nor would this be consistent with the Rio Summit. It must also be acknowledged that the possible success of the climate change programme is very much dependent on big funding, including enhancing capacity building, as well as installing and improving EST in developing countries. Without IP being acknowledged and respected, such activities, as well as R&D, are likely to be low level and deprived of financial incentives from the (industrialized countries) governments and private investors,328 especially in times of financial crises. It is indeed difficult to envisage the EU, Japan and the USA “selling out” IP, even in this urgent context.329 Therefore, the active role of China and India in taking the lead among developing countries for free access to IP-protected EST and other earlier disputed TRIPS-related IP seems more of a new power game and a new opening for bargaining on IP in Copenhagen, this time in the UNFCCC. Once more IP is being used as a tool in big politics rather than really being the main focus.

5. 5.1.

POTENTIALS FOR SHIFTING ATTITUDES TO A MORE FLEXIBLE APPROACH The Scope for Limitations and Exceptions

Perceptions of the IP system have historically been cyclical – the pendulum has swung from demand for stronger monopoly protection to resistance to its impact on competition and free trade, and back again. During the latest protection upswing period, the strengthening of the IP regime made during the TRIPS negotiations in 1989–94 were from a Northern perspective successful and at the time seemingly needed.330 The above review has 326

One not unessential problem seems to be patenting by universities and university inventors with public funding and whether such inventions should not go back to the public with some other incentive for successful scientists than ownership. 327 Littleton, ibid. 328 Cf. Part C, Capacity building. 329 This is true not least for the USA, presently not a signee of the Tokyo Protocol, but together with China, the largest emitter of CO2 in the world. 330 At that time the global effects were hardly recognized or apprehended, especially not by developing countries that focused on the possible opening of new markets.


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demonstrated a growing realization that IP policies and rules in the long term have to support public policy objectives and that such challenges must find sustainable solutions. The more important IP has become, the more important it also becomes for IP rights to be implemented in such ways that the system serves its purposes for example to maximize the benefits to the public. Globalization gives this a new meaning. Globalization has the potential to make immense contributions to human prosperity by extending the benefits of markets across borders, but it also entails immense challenges with an increase in complexity and interdependence.331 Even if so far the WTO-TRIPS panels rather have confirmed the monopolistic strength of IP right holders with absolute powers in most respects,332 the assumption must be that the balancing of interests is required and that this is in the interest of all actors.333 Such requirements are neither new, nor peculiar to the WTO system.334 At the same time, TRIPS gives very limited possibilities to sufficiently balance excessive use of IP rights with national competition.335 Thus, outside the developed world even with a developed competition system, countries are likely to be left with an unbalanced system, resulting in a preference for IP protection mainly for foreign right holders, potentially to the detriment of competition on home markets.336 As it seems today to be a fact that limitations and exceptions tend to be optional rather than mandatory,337 one remedy could thus be to further analyse the corresponding needs for exceptions and limitations in a new setting. Limitations and exceptions to the exclusive rights are not only a matter of “fine-tuning the system”.338 The role of limitations and exceptions is extremely important and they are the main mechanisms for ensuring a fair balance between competing interests and to deal with a range

331

Anderson and Wager, 715. de Vuyst et al., para. 32, and Ch. 3 below. 333 MPI Declaration. 334 WTO Appellate Body Report on US: Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, 8 October 1998: meaning of the phrase “exhaustible natural resources” in Art. XX(g) GATT, which allows Members to impose exceptions to GATT’s free trade rules. See further Helfer (2004), 77 with ref. to paras. 129, 130 (citing Agenda 21 and the Resolution on Assistance to Developing Countries) and 168 (on soft law to support the need for multilateral action to protect natural resources such as Agenda 21 and Rio Declaration on Environment and Development). 335 See Cottier and Meitinger, 7; cf. Ullrich (2004), 9 et seq., and Ch. 7 below. 336 Cf. Ullrich, ibid. 337 Suthersanen, 2, and Chs. 8 and 9 below. 338 Cf. WTO, at http://www.wto.org/english/tratop_E/trips_e/intel1_e.htm. 332


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of built-in system failures.339 While these can be partly corrected under competition law, for developing countries, limitations and exceptions are indispensable strategic and doctrinal tools, facilitating economic development. Limitations and exceptions provide citizens with the basic means to engage in intellectual endeavours and to participate in the global knowledge economy by ensuring that creators and users have the necessary regulatory framework to realize the welfare goals for which the system was designed.340 Therefore, the role of the prescribed three-step test for exceptions and limitations in Arts. 13, 17, 26.2 and 30 TRIPS should arguably be broader in the TRIPS context than in the original environment of Art. 9(2) of the Berne Convention.341 This becomes even clearer considering that TRIPS may be the only international treaty that embraces all IP rights, but it is not alone. It is just one of a great number of international instruments which ought to lay out a total map of the international community,342 and should be in compliance for practical reasons.343 This should be true of the WTO package as such.344 Therefore it has been one of the major concerns within the IPT project to investigate, develop and suggest amendments to TRIPS, providing a good balance in the interests of all sorts of “users”.345 A TRIPS with more openness and flexibility to diverse national needs arguably corresponds to a good harmonization of IP rights in a complex world. 5.2.

Some Concluding Remarks

There are many pressures impacting on the IP system – historical, political, technological, economical, environmental, and societal, including health and welfare distribution. IP has also become a powerful weapon in the increasing competition between nations and cultures. All these old and new “conflict areas” are likely to result in further changes and adjustments to the new demands created by the globalized information age.346 Today it is meaningless to discuss whether the trade-relation and the new

339

See e.g. Nicholson and Schonwetter. See Okediji (2006), 35. 341 Cf. MPI Declaration and Ch. 5 below. 342 Helfer (2009), 39 et seq. 343 Cf. Arts. 33, 59(b) and 79(b) Vienna Convention on the Law of Treaties (1969); it can be presumed that two treaties relating to the same subject matter are compatible; and see further Ch. 8 below. 344 Dinwoodie and Dreyfuss, 114 et seq. 345 Cf. Dinwoodie (2006), 214. 346 http://definitions.uslegal.com/i/intellectual-property/. 340


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WTO environment was right or wrong for IP, or whether the format of adding onto the Paris and Berne conventions was ideal,347 or whether the whole idea of lifting the political discussions on IP from WIPO to WTO served the best interest.348 As has been stated above, TRIPS is here to stay in parallel with the WIPO conventions and other conventions neighbouring or partly dealing with IP. Experience has shown that by using IP as a political instrument in the striving for more political (world) power, little has been gained, but new deadlocks have been created. It is therefore to be hoped that statements like “nations – even the most great – are realizing that they cannot pursue their narrow national interests without invoking broader global values” also will come to be a reality.349 Added to the global economic and climate change problems, there ought to be more impetus for societal and general interdependence perspectives, where in addition new entrants to the group of leading economies, such as China and India, could possibly contribute to a vision of a more fragmented IP world in the future.350 While subject to distributive conflicts and to forum-shopping and inconsistency, multilateral regimes can still provide their traditional functions of lowering the transaction costs of negotiations, providing a common vocabulary for the parties, clarifying at least some of the mutual understandings and obligations of the parties, and, in addition, contributing to building regulatory capacity in less developed countries.351 Also TRIPS has indisputably served a number of such good purposes, including some developments with room for both hard law and soft law, and will continue to do so in the future. ●

The Doha Ministerial Declaration on the TRIPS Agreement of 2001 was the first sign that new considerations are being taken when interpreting IP regulation, including a public health amendment to TRIPS.352

347

See Beier and Schricker for detailed discussions of this regime-shifting strategy and its expected consequences. 348 Arguably, WIPO has regained part of its earlier position with the so far successful work on the Development Agenda and has been intensively active in various IP public policies and rules. 349 British Prime Minister Tony Blair at the World Economic Forum, Davos, Switzerland (27 January 2007), at http://www.weforum.org/en/media/Latest%20 Press%20Releases/BlairPress. 350 Cf. EPO (2007), 62, 63. 351 Shaffer and Pollack, 53. 352 Cf. para. 6 of the Doha Ministerial Declaration on the TRIPS Agreement and Public Health of 14 November 2001 and the following Ministerial Declaration of 6 December 2005.


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Present discussions on and around the TRIPS Agreement ●

●

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The progress of the WIPO Development Agenda353 and the recent adoption by the WHO of a Global Strategy on Public Health, Innovation and Intellectual Property.354 The WHO Report on innovation, intellectual property and public health set a new action program and confirms that TRIPS does not and should not prevent Members from taking measures to protect public health. This would also indicate that TRIPS commitments can and should be interpreted and implemented in a manner supportive of the rights of WTO Members to protect public health and nutrition and, in particular, to promote access to medicines for all.355 LDCs are now successively receiving tools to help them to benefit from the global IP system.356

All these recent actions and developments are of the greatest future importance and should be given a positive assessment by IP right holders. On a longer perspective, full acceptance and recognition of the system is vital for a sound market economy with open competition within countries as well as from abroad.

REFERENCES357 Abbott, F.M. (2002a), “Compulsory Licensing for Public Health Needs: The TRIPS Agenda at the WTO after the Doha Declaration on Public Health”, Occasional Paper 9, Quaker UN Office, February, at http://www.frederickabbott.com /uploads/OP9_20Abbott.pdf. Abbott, F.M. (2002b), “The Doha Declaration on the TRIPS Agreement and Public Health: Lighting a Dark Corner at the WTO”, Journal of International Economic Law, 469, at http://jiel.oxfordjournals.org/cgi/reprint/5/2/469. Abbott, F.M. (2005), “Toward a New Era of Objective Assessment in the Field of TRIPS and Variable Geometry for the Preservation of Multilateralism”, Journal of International Economic Law, 8(1), 77 (80–81), at DOI: 10.1093/jielaw/ jgi005.

353

Adopted by WIPO’s General Assembly, 10 October 2007. Sixty-first World Health Assembly, 24 May 2008. 355 WHA61.21, ANNEX to Global Strategy on Public Health, Innovation and Intellectual Property, Sixty-first WHO Assembly, 24 May 2008, para. 8. 356 See ICTSD’s expert meeting on Intellectual Property Strategies and Sustainable Development of 24 November 2008, at http//ictsd.org/i/events/dial ogues/33723/?view=documentation; cf. also WIPO’s IP and New Technologies Division. 357 Online resources were last accessed on 24–27 July 2009. 354


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Abbott, F.M. (2009), Review of Ellen F.M. ’t Hoen, The Global Politics of Pharmaceutical Monopoly Power, Drug Patents, Access, Innovation and the Application of the WTO Doha Declaration on TRIPS and Public Health, KEStudies, 3, at http://kestudies.org/ojs/index.php/kes/article/view/42/75. Abbott, F.M. and Reichman, J.H. (2007), “The Doha Round’s Public Health Legacy: Strategies for the Production and Diffusion of Patented Medicines under the Amended TRIPS Provisions”, Journal of International Economic Law, 10(4): 921–87; DOI: 10.1093/jiel/jgm040. Africa-Europe Faith and Justice Network (2002), Equitable Protection for Intellectual Property in Africa, The African Model Legislation for the Protection of the Rights of Local Communities, Farmers and Breeders and for the Regulation of Access to Biological Resources. Action Plan 2002. Anderson, R.D. and Wager, H. (2006), “Human Rights, Development, and the WTO: The Cases of Intellectual Property and Competition Policy”, Journal of International Economic Law (JEL), 9(3), 707, at DOI: 10.1093/jiel/jgl022. Balasubramaniam, T. (2008), A2K3 Conference, Geneva, 8–10 September 2008, at a2k3.org/wp-content/uploads/2008/09/thiru_7sep08_a2k3_presentation.ppt. Barton, J.H. (2004a), Nutrition and Technology Transfer Policies, ICTSD Issue Paper No. 6, at http://www.iprsonline.org/unctadictsd/docs/CS_Barton.pdf. Barton, J.H. (2004b), “Patents and the Transfer of Technology to Developing Countries”, in Patents, Innovation and Economic Performance, OECD Conference Proceedings, OECD Publishing, 321. Barton, J.H. (2007a), “The Future of the Intellectual Property System and Consequent Negotiation Topics”, in Views on the Future of the Intellectual Property System, ICTSD Programme on IPRs and Sustainable Development, Selected Issue Briefs No. 1 (June 2007), 13, at http://www.iprsonline.org/ictsd/ docs/Views%20Future%20IP%20System.pdf. Barton, J.H. (Barton 2007b), “Intellectual Property and Access to Clean Energy Technologies in Developing Countries: An Analysis of Solar Photovoltaic, Biofuel and Wind Technologies”, December, ICTSD Programme on Trade and Environment, at http://ictsd.net/i/events/dialogues/11251/. Beier, F.-K. and Schricker, G. (eds.) (1989), “GATT OR WIPO? New Ways in the International Protection of Intellectual Property”, IIC Studies, 11, Weinheim. Boldrin, M. and Levine, D.K. (2008), “Against Intellectual Monopoly”, at http:// www.dklevine.com/papers/imbookfinalall.pdf. Boyle, J. (2003), “The Second Enclosure Movement and the Construction of the Public Domain”, Law and Contemporary Problems, 66, 33, at SSRN: http://ssrn. com/abstract=470983 or DOI: 10.2139/ssrn.470983. Boyle, J. (2008), The Public Domain: Enclosing the Commons of the Mind, Yale University Press, at http://www.thepublicdomain.org/thepublicdomain1.pdf. Brundtland Report (1987), Our Common Future, transmitted to the UN General Assembly as an Annex to document A/42/427 – Development and International Co-operation: Environment, at http://www.un-documents.net/wced-ocf.htm. Business and Industry Advisory Committee to the OECD (2004), “Creativity, Innovation and Economic Growth in the 21st Century: An Affirmative Case for Intellectual Property Rights”, A BIAC Discussions Paper, January, at www. oecd.org/dataoecd/52/45/23375023.pdf. Cardullo, M.W. (2004), “Intellectual Property – The Basis for Venture Capital Investments”, WIPO, at http://www.wipo.int/sme/en/documents/venture_ capital_ investments.htm.


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Tarasofsky, R.G. and Sampath, P. (2002), Intellectual Property Rights Regimes and the Conservation of Genetic Resources, Prepared for the EC Commission Directorate-General, Environment, Final Report, at http://www.cbd.int/doc/ meetings /abs/abswg-02/information/abswg-02-inf-ext-en.pdf. Taubman, A. (2007), “TRIPS Jurisprudence in the Balance: Between the Realist Defense of Policy Space and a Shared Utilitarian Ethic”, in Ethics and Law of Intellectual Property: Current Problems in Politics, Science and Technology (Christian Lenk, Nils Hoppe and Roberto Andorno, eds.); ANU College of Law Research Paper No. 08-10, 3, at SSRN: http://ssrn.com/abstract=1130683. Towse, R. (2006), “Copyright and Artists: A View from Cultural Economics”, Journal of Economic Surveys, 20(4), September, 567, at http://ssrn.com/ abstract=927515 or DOI: 10.1111/j.1467-6419.2006.00256.x. Towse, R. (2007), “The Singer or the Song? Developments in Performers’ Rights from the Perspective of a Cultural Economist”, Review of Law and Economics, 3:3, at http://www.bepress.com/cgi/viewcontent.cgi?article=1158andcontext=rle, 745. 3D (2009), Trade – Human Rights – Equitable Economy, “Intellectual Property Protection on Seeds: Implications for Human Rights”, Open Space Session, ESCR-Net, Nairobi, 2 December, at http://www.3dthree.org/pdf_3D/ IPSeedsandHR.pdf. Tripathi, R. (2000), “Implications of TRIPs on Livelihoods of Farmers in Developing Countries”, at http://www.biotech.bioetica.org/docta46.htm. TRIPS flexibilities (2006), International Journal of Intellectual Property Management, 1(1/2), 75. UK Commission on Intellectual Property Rights (2002), Integrating Intellectual Property Rights and Development Policy, September. Ullrich, H. (2001), “Competition, Intellectual Property Rights and Transfer of Technology”, in International Technology Transfer: The Origins and Aftermath of the United Nations Negotiations on a Draft Code of Conduct (Surendra J. Patel, Yusef Abdulaqwi and Pedro Roffe, eds.), Kluwer International Law 363. Ullrich, H. (2004), “Expansionist Intellectual Property Protection and Reductionist Competition Rules: A TRIPS Perspective”, Journal of International Economic Law, 7(2), 401, at SSRN: http://ssrn.com/abstract=1093100; also in International Public Goods and Transfer of Technology under a Globalized Intellectual Property Regime, 9 (Keith E. Maskus and Jerome H. Reichman, eds.), Cambridge University Press, 2005, 726. UNCTAD-ICTSD (2005), Resource Book on TRIPS and Development: An Authoritative and Practical Guide to the TRIPS Agreement, at http://www. iprsonline.org/unctadictsd/ResourceBookIndex.htm. Verma, S.K. (2004), “Fitting Plant Variety Protection and Biotechnological Inventions in Agriculture Within the Intellectual Property Framework: Challenges for Developing Countries”, Intellectual Property Rights (IPRs), Innovation and Sustainable Development, UNCTAD/ICTSD/HKU/IDRC Regional Dialogue, 6–7, at http://ictsd.net/downloads/2008/09/verma_2004-11-08.pdf. Verspagen, B. (2004), “Intellectual Property Rights in the World Economy”, in Economics, Law, and Intellectual Property (Ove Granstrand, ed.), Springer, 489. Walker, S. (2001), “The TRIPS Agreement, Sustainable Development and the Public Interest”, IUCN, Environmental Policy and Law Paper No. 41, 12, at http://data.iucn.org/dbtw-wpd/edocs/EPLP-041.pdf. WIPO (2007), “Study on Copyright Limitations and Exceptions for the Visually


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Impaired”, by Judith Sullivan, at http://www.wipo.int/meetings/en/doc_details. jsp?doc_id=75696. WIPO Panel Discussion on Intellectual Property and Human Rights to commemorate the 50th anniversary of the proclamation of the 50th anniversary of the UDHR in 1998, at http://www.wipo.int/tk/en/hr/paneldiscussion/papers/ transcript1.html. WIPO STC, Standing Committee on the Law of Patents, Thirteenth Session, Geneva, 23–7 March 2009, “Exclusions from Patentable Subject Matter and Exceptions and Limitations to the Rights”, Document prepared by the Secretariat, 4 February 2009, at http://www.wipo.int/edocs/mdocs/scp/en/ scp_13/scp_13_3.pdf. Yu, P.K. (2000), “From Pirates to Partners: Protecting Intellectual Property in China in the Twenty-First Century”, American University Law Review, 50, 131, at SSRN: http://ssrn.com /abstract=245548 or DOI: 10.2139/ssrn.245548. Yu, P.K. (2006), “TRIPS and its Discontent”, Marquette Intellectual Property Law Review, 10:2, 369, at http://law.marquette.edu/ip/Yu.pdf. Yu, P.K. (2007), “Intellectual Property, Economic Development, and the China Puzzle”, in Intellectual Property, Trade and Development: Strategies to Optimize Economic Development in a TRIPS Plus Era (Daniel J. Gervais ed.), Oxford University Press, 173.


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Spotlight on China: piracy, enforcement, and the balance dilemma in intellectual property law Andrea Wechsler1

1.

INTRODUCTION: PIRACY AND THE SEARCH FOR BALANCE IN IP LAW

The aftermath of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)2 and the TRIPS-plus era3 has been marked by various schools of thoughts on reform of the international intellectual property (IP) law regime. The focus of these reform impetuses has, in particular, been on the impact of the TRIPS Agreement and TRIPSplus standards on the international community and on other areas such as health, environment, agriculture and education. The focus on these areas, however, has increasingly pressurized policymakers to preserve the objectives behind TRIPS whilst realizing sustainable development4 and

1 The author wishes to thank Annette Kur, Henning Grosse-Ruse Khan, Adolf Dietz, Frank Müller-Langer and all other members of the IP in Transition project for their comments on earlier drafts. 2 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299, 33 I.L.M. 1197 (1994). 3 See the website of the Office of the United States Trade Representative (USTR) for more information on Free Trade Agreements (FTAs): http://www. ustr.gov/Trade_Agreements/Section_Index.html. 4 “Sustainable development” is defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”, Bruntland (1987). The Center for International Sustainable Development Law (CISDL) requires “accommodation, reconciliation and integration between economic growth, social justice (including human rights) and environmental protection objectives towards participatory improvement in collective quality of life for the benefit of both present and future generations,” CISDL (2005), p. 1; see therein also the commitment to sustainable development in international policy (for example, Principle 27 of the 1992 Rio Declaration, UN Doc. A/CONF.151/26 (Vol. I), 31 I.L.M. 874 (1992)), in international law (for example,

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economic welfare goals.5 The multitude of objectives behind the TRIPS Agreement has also required policymakers to balance interests intrinsic in the IP law regime against a variety of interests that touch upon wider economic and societal issues. Based on these complex requirements, this chapter sets out to systematically contribute to the establishment of a balanced IP law regime by analyzing the role and relevance of piracy for such a balanced IP law regime. The starting point of this chapter is an analysis of the terminology and concept of “balance” in IP law and policy as well as in legal and economic theory. The phenomenon of piracy is then presented as indication and evidence that the current global IP law regime is out of balance. This line of argument is substantiated by reference to the development of the Chinese IP law system and to the losing battle against piracy in the Chinese market. The chapter then presents lessons from the piracy phenomenon in China before postulating a balanced approach to international IP law. The chapter concludes by offering suggestions as to how and to what extent an amendment of the international IP order can promote the interests of developing countries while realizing sustainable development and economic welfare goals.

2.

BALANCE: TERMINOLOGY AND CONCEPTS IN IP LAW

IP law has increasingly been connected to ideas of “balance” – a term from physics that describes a desirable equilibrium between at least two

International Court of Justice in Gabcikovo v Nagymaros, 11 L.J.I.L. (1998)), and in international treaties (for example, 1992 UN Convention on Biological Diversity, 1760 U.N.T.S. 79, 31 I.L.M. 818 (1992)). 5 Attempts at a definition of “economic welfare” go back to the early neoclassical economists Edgeworth, Sidgwick, Marshall, and Pigou; see Marshall [1890] 1997; Pigou (1932). Based on the principles of neoclassical welfare economists the sum of all individual utility functions constitutes the social welfare function; see Schäfer/Ott (2005), pp. 40-41. Triggered by Robbins (Robbins (1932)), this understanding of welfare economics was critized by the new welfare economics approach that is based on research conducted by Pareto, Hicks, and Kaldor. Questions of efficiency are addressed by the Pareto efficiency criterion and the Kaldor-Hicks compensation tests (Besanko/Braeutigam (2002), pp. 696–715), while questions of income distribution are dealt with using the social welfare function (see Schäfer/ Ott, supra, pp. 26–38). Though the new welfare economics approach is also criticized (for example, by the Austrian School; also: Eidenmüller (1998)), it is generally resorted to for social welfare maximization calculations.


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forces which is characterized by cancellation of all forces by equal opposing forces.6 The following section will analyze the term and concept of “balance” both in IP law and policy and in legal and economic theory before linking it to ideas of economic welfare and sustainable development. 2.1.

The Term “Balance” in IP Law and Policy

None of the three earliest treaties, the 1883 Paris Convention,7 the 1886 Berne Convention,8 or the 1891 Madrid Agreement,9 explicitly uses the term “balance”. The TRIPS Agreement is the first international treaty to mention the term “balance” in Article 7 in the context of objectives of IP protection: “The protection and enforcement of intellectual property rights (IPRs) should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, [ . . . ] in a manner conducive to a balance of rights and obligations.”10 Likewise, the 1996 World Intellectual Property Organization (WIPO) Copyright Treaty (WCT) recognizes “the need to maintain a balance between the rights of authors and the larger public interest.”11 In a similar vein, the 1996 WIPO Performances and Phonograms Treaty (WPPT) recognizes “the need to maintain a balance between the rights of performers and producers of phonograms and the larger public interest.”12 It is striking, however, that any explicit mention that has been made of balance in IP law refers to either rights and obligations or authors’ rights and the larger public interest. It follows that the concept of balance embodied in current IP legislation seems to be of a bipolar kind – with the rider that the larger public interest

6

Tipler (1998), p. 148. 21 U.S.T. 1583, 828 U.N.T.S. 305. 8 S. Treaty Doc. No. 99-27 (1986). 9 175 C.T.S. 57. 10 Article 7 of the TRIPS Agreement, n. 2 (emphasis added); note the connection to the overriding objective of a proper balance of rights and obligations of the World Trade Organization (WTO) system; see Art. 3.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (Dispute Settlement Understanding, DSU), Annex 2 of the WTO Agreement, adopted in Marrakesh on 15 April 1994, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994) which refers to the settlement of disputes as a means to preserve such a balance between WTO members, see Correa (2007), p. 92; Article 7 is usually read together with Article 8.1 TRIPS which, however, does not explicitly mention the term “balance.” 11 Preamble, S. Treaty Doc. No. 105-17 (1997); 36 I.L.M. 65 (1997) (emphasis added). 12 Preamble, S. Treaty Doc. No. 105-17 (1997); 36 I.L.M. 76 (1997) (emphasis added). 7


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is often regarded as comprising a variety of interests.13 Interests such as the economic interests of publishers or even the political interests of member states have not yet explicitly been mentioned in international IP legislation thereby disregarding the complex nature of IP interest perspectives.14 Court interpretations of said provisions, however, reflect a broader understanding of the balance stipulated in Article 7 TRIPS. In Canada – Patent Protection of Pharmaceutical Products, Canada and the European Union (EU) argued that “one of the key goals of the TRIPS Agreement was a balance between the intellectual property rights created by the Agreement and other important socio-economic policies in question.”15 The panel, however, acknowledged that there was a “basic balance” in the Agreement but reserved any further discussion of content and implications of Articles 7 and 8.1, thereby leaving room for further interpretation.16 Ensuing interpretations by developing countries have consistently focused on a broader understanding of Articles 7 and 8.1, and, thus, the objective to “benefit society as a whole” rather than aiming at “the mere protection of private rights.”17 The most recent WTO Panel report on the US complaint against China relating to “Measures affecting the Protection and Enforcement of Intellectual Property Rights”18 only once refers to “balance” but stresses that TRIPS provisions themselves can constitute “an important provision in the overall balance of rights and obligations in Part II of the TRIPS Agreement.”19 The idea of a balanced IP law regime has increasingly been resorted to in international IP law-making. The World Bank, for instance, recognizes the need for IP regimes to “balance the private incentives for creation of knowledge against the social benefits of dissemination,”20 though the 13

See Geiger (2004), p. 817. Note, however, that the general principles in Articles 7 and 8 of TRIPS are connected with the idea of balance: the ICTSD/UNCTAD (2005), p. 119 notes that “the elaboration of objectives and principles in Article 7 may well be viewed as a means to establish a balancing of interests at the multilateral level to substitute for the balancing traditionally undertaken at the national level” (emphasis added); note also that Article 7 is generally regarded as striking a balance between the interests of developed and developing countries, Correa, n. 10, p. 92. 15 WT/DS114/R, Report of the Panel (17 March 2000), para. 7.24. 16 N. 15, para. 7.62. 17 Submission to the Council of TRIPS by the African Group, Barbados, Bolivia, Brazil, Dominican Republic, Ecuador, Honduras, India, Indonesia, Jamaica, Pakistan, Paraguay, Philippines, Peru, Sri Lanka, Thailand and Venezuela, IP/C/W/296, 19 June 2001. 18 WT/DS362/R, Report of the Panel (26 January 2009). 19 WT/DS362/R, n. 18, para. 7.594 (emphasis added). 20 World Bank (1999), p. 146. 14


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concept of a balanced IP law regime is not represented in the World Bank’s Knowledge Assessment Methodology indices.21 Most noticeably, the original mandate of the Fourth Ministerial Conference in Doha demands “balanced rules”22 to ensure that “developing countries, and especially the least-developed among them, secure a share in the growth of world trade commensurate with the needs of their economic development.”23 These policy guidelines for balanced rules were also meant to find application in the context of the work program for trade-related aspects of IPRs. The Declaration on the TRIPS Agreement and Public Health (Doha Declaration),24 as the first concrete outcome of these policy guidelines, attempts to strike a balance between the need for access to medicines, on the one hand, and the importance of IP protection for the development of new medicines, on the other hand.25 The second concrete outcome of these policy guidelines is the 2005 permanent amendment of TRIPS that was based on a 2003 decision on patents and public health.26 For the first time in history, a core World Trade Organization (WTO) agreement was amended in order to achieve humanitarian and development goals. Even though it is unfortunate that the Doha Development Agenda has not fully been implemented yet in all its facets,27 it is laudable that at least the development agenda on trade-related aspects of IPRs has taken note of the need for balanced rules in IP law. 2.2.

Balance in the Legal and Economic Theory of IP Law

The idea of a balanced IP law regime has also been brought forward by legal theory, although the majority of lawyers is as of yet “unaccustomed

21 2008 KAM (Knowledge Assessment Methodology) of The World Bank, at http://web.worldbank.org/WBSITE/EXTERNAL/WBI/WBIPROGRAMS/ KFDLP/EXTUNIKAM/0,,menuPK:1414738~pagePK:64168427~piPK:6416843 5~theSitePK:1414721,00.html; Shaver (2008). 22 Paragraph 2 of the Doha Mandate, Ministerial Declaration on the TRIPS Agreement and Public Health, 14 November 2001, WT/MIN(01)/DEC/1. 23 Paragraph 2 of the Doha Mandate, n. 22. 24 Declaration on the TRIPS Agreement and Public Health, 14 November 2001, available at http://www.wto.org/english/thewto_e/minist_e/min01_e/ mindecl_trips_e.htm. 25 Paragraph 4 of the Doha Mandate, n. 22; see, however, also criticism of the Doha approach by Sykes (2002), p. 68, suggesting that “the Doha Declaration may be moving the global community in the wrong direction.” 26 See Amendment of the TRIPS Agreement, Decision of 6 December 2005, available at http://www.wto.org/english/tratop_e/trips_e/wtl641_e.htm. 27 As of 2008, talks have stalled; Ferguson (2008).


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to thinking about balance in the global intellectual property context.”28 If, however, balance is thought about in the global IP context, it is most frequently applied to issues of IP protection in the context of industrialized countries, while developing countries are associated with ideas of development.29 Moreover, balance was initially applied in a truly narrow context by connecting the idea of balance to very specific aspects of the IP law regime. There has, for instance, been extensive discussion on balancing exercises such as the “equitable sharing of benefits and costs,”30 “balancing profit maximization and public access to technology,”31 “the foundational balance in intellectual property between rights to exclude and access to a robust public domain,”32 and the “reconciliation of interests in copyright law.”33 In the area of protection of pharmaceutical innovations, WIPO also uses the expression “striking a balance,”34 thereby referring to the tension between patent protection and access to drugs and health care. It follows that the majority of legal theory has narrowed the concept of balance in IP law to very specific issues of IP protection. It is only the most recent legal research that has focused on the idea of a balanced IP law regime on a more systematic level.35 This most recent research is characterized by a normative approach that takes concepts of development and trade into account whilst acknowledging development as a function of innovation.36 The starting point for this research has been criticism of the imposition of strict IP rules throughout the world while disregarding wider societal interests, thereby ultimately leading to a dangerous “IP imbalance.”37 As opposed to this identification of imbalances, Dinwoodie recognizes three balances in the international IP context: first, a balance intrinsic to IP law, secondly, a balance between universal standards versus national autonomy, and thirdly, a balance of IPRs and other tools of economic development.38 Embracing the human rights dimension,

28

Barbosa/Chon/von Hase (2007), p. 47. European Patent Office (2007) (a forecast of four global scenarios of IP balance across countries with different levels of development). 30 Commission on IPRs (2002), p. 7. 31 Beckerman-Rodeau (2002), p. 1. 32 Barbosa/Chon/von Hase, n. 28, p. 75. 33 Hilty/Peukert (2004). 34 WIPO, Striking a Balance, available at http://www.wipo.int/freepublications/ en/patents/491/wipo_pub_491.pdf. 35 Gervais (2006), p. 251; Watal (1998), pp. 281–307 (emphasis added). 36 Barbosa/Chon/von Hase, n. 28, p. 74. 37 Stiglitz (2004), p. 28; Stiglitz (2005). 38 Dinwoodie, cited in: Barbosa/Chon/von Hase, n. 28, p. 90. 29


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Yu even develops a human rights framework for IP and argues for the consideration of a state’s human rights obligations in the development of a balanced IP system.39 Another human rights balancing exercise is undertaken by Laurence Helfer who has developed not only a tripartite framework to analyze the European Court of Human Rights (ECHR) IP case law under Article 1 of Protocol 1 of the 1950 Convention for the Protection of Human Rights and Fundamental Freedoms (European Convention),40 but also a recommendation for the resolution of future human rights disputes relating to IP.41 However, Bishop Shaver rightly concludes that – to date – there is very little academic research on what the criteria for an assessment of the balance in the international IP regime would be.42 It follows that criteria are needed to define the characteristics of a balanced IP regime in accordance with global human development goals while recognizing the human rights dimension of IPRs. 2.3.

Balance, Welfare Economics, and Sustainable Development

An application of the concept of balance to the IP law system describes the attempt to define a legal regime in which none of the opposing interests prevails over the other interests without viable justification. Viable justifications, however, depend on the objectives and social desirability that are attached to IP law and policy. IP law is intrinsically characterized by layers of objectives that have evolved over time43 while depending on the legal systems in which these developments have taken place. In brief, patent law was claimed to aim at the encouragement of the establishment of new forms of industry and commerce,44 at the prevention of unfair competition through a monopoly system,45 at the reward for inventors and investors for their time, work

39

Yu (2007b), p. 1123; Torremans (2008), and therein, in particular, Chapter 1, p. 13, Chapter 4, p. 104, Chapter 6 (Grosse Ruse-Khan), p. 169. 40 213 U.N.T.S. 222. 41 Helfer (2008), p. 46, analyzing the rule of law paradigm, the enforcement paradigm, and the intellectual property balancing paradigm. 42 Shaver, n. 21, p. 259. 43 Beier (1978), Dittrich (1991); see, however, also Silbey (2008) for a critical account of the origin of the IP law regime in view of the inherent uncertainty about the origins of human creation. 44 Goodman (2006), p. 300; Mossof (2001), p. 1255; Walterscheid (1995), p. 784; Walterscheid (1994a–b). 45 Bainbridge (2007), p. 346, who stipulates that the patent monopoly system developed in England during the reign of Elizabeth I.


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and risk of capital,46 at the diffusion of innovation through publication, and at the promotion of the individual’s right of property in their own ideas.47 These aims are conceptualized in the contract theory, the reward theory, the incentive theory and the prospect theory.48 Copyright law, by contrast, was justified with reference to the protection of authors, printers and publishers against copyright pirates, the encouragement of dissemination of information,49 the attainment of progress of science and useful arts50 and the protection of authors’ moral rights.51 Legal theory also provides for the objectives intrinsic to trademark law and other kinds of IPRs. In consequence, each kind of IP right needs to balance numerous objectives inherent in the respective legal system. With the increasing influence of the Anglo-American legal tradition as well as a more economic approach to IP protection the traditional rationales for IP law have been subjected to utilitarian pressures that emphasize the contribution of IP law to overall utility.52 In addition, economic justifications for IP law with wealth maximization and social welfare53 as the underlying ethical system for IP protection have increased since the early beginnings of the law and economics movement.54 The central

46 This utilitarian approach was supported by English philosophers such as Jeremy Bentham, and also John Stuart Mill, who strongly supported the patent system, Bainbridge, n. 45, p. 348. 47 Drahos (1996), p. 42; Walterscheid (1994b), p. 697; Bracha (2004), p. 177. 48 Bainbridge, n. 45, p. 349, Walterscheid, n. 44, Walterscheid (1994a); Meshbesher (1996), p. 594; Mossoff (2007), p. 953; Hestermeyer (2007), pp. 29–32, for rationales of patent law. 49 Birnhack (2001), p. 33. 50 Ibid., at 35, see the “Intellectual Property Clause” in the US Constitution, Article 1, Section 8, Clause 8; Oliar (2006), p. 94. 51 Geiger, n. 13, p. 816; Luf in: Dittrich (1988), p. 9; Ladd (1985), pp. 77–80; Leistner/Hansen (2008), 470–90; Stallberg (2006). 52 Ewing (1948) and Bernstein (1979) for an introduction to the concept of utilitarianism in a legal context; US Constitution, Article 1, Section 8, Clause 8, n. 50. 53 Social welfare is postulated to be an increasing function of individuals’ wellbeing (W(x) = F(U1(x), U2(x), . . . , Un(x)) with n individuals, the well-being or utility of the first individual denoted U1, that of the second U2 and so forth, x being an exhaustive description of a situation, interpreted as a state of the world that would prevail under a regime; Kaplow/Shavell (2001), n. 42 with each individual’s well-being affecting social welfare in a symmetric manner, thereby incorporating a basic notion of equal concern for all individuals; Dibadj (2006), pp. 1335–6. 54 Posner (1979) for the proposition of a clear distinction between utilitarianism and wealth maximization as normative analysis; Mercuro/Medema (2006); Backhaus (2005); Miceli (2004); Granstrand (2003); Posner (2001).


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concern of welfare economists55 is the attainment of socially efficient, or Pareto optimal,56 allocation of scarce resources within an economy or the attainment of aggregate welfare gains that exceed aggregate welfare losses according to the Kaldor-Hicks principle.57 It is well accepted by welfare economists that perfect competitive markets will provide such a socially efficient allocation of resources that maximizes social welfare.58 However, perfect competitive markets rarely exist due to the existence of externalities.59 It follows that policymakers need to initiate a process that incorporates components of well-being into the evaluation of legal policies that go beyond the gross domestic product (GDP) as a measure of social well-being.60 According to modern welfare economists,61 economic analysis for the evaluation of legal policies requires, first, a determination of the effects of a specific policy on the well-being of individuals in line with positive economics, and secondly, a normative analysis that evaluates the effects of that policy in order to determine its social desirability.62 The recognition of normative analysis is an important one, for a separation of positive economics from normative judgments is impossible.63 Although economic models are useful tools, their core rests on value judgments as Coase has rightly put forward.64 Nevertheless, it is submitted that the use of economics in analyzing the balance in IP law is justified as long as some 55 For an introduction to the economics of welfare see n. 5, see also for an introduction to institutional economics North (1990). 56 Note the following definition for a Pareto-optimal allocation of resources: “[a] situation is said to be Pareto efficient or Pareto optimal if there is no change from that situation that can make someone better off without making someone else worse off,” Polinsky (2003); Johansson (1991). 57 Jutlah (2001), p. 6; Bohm (1987); the Kaldor-Hicks efficiency test is also known as “Pareto improvement” or the “Pareto-superiority transaction”, Posner (1998), p. 15. 58 Jutlah, n. 57, p. 10. 59 An externality is an action by a consumer or producer that affects other consumers or producers, but is not reflected in the market price; Besanko/Braeutigam, n. 5, p. G-3. 60 Sunstein (1994), pp. 1303–5; Tata/Schultz (1988), p. 580 for the construction of a new index of development status. 61 Note that old welfare economists have focused on the social welfare function as an aggregation of utilities while new welfare economists question the feasibility of comparing utility among individuals, Dibadj, n. 53, pp. 1337–9. 62 Kaplow/Shavell, n. 53, p. 977, the well-being of an individual is also referred to by the term “utility” or “expected utility.” 63 Dibadj, n. 53, p. 1390; Hovenkamp (1990), p. 851, who argues that “welfare economics is a poor tool if it is the only one the legal policymaker uses.” 64 Coase (1960), p. 43; Chen (1995), p. 1289 (“[H]onestly practiced, economics is a branch of rhetoric rather than a precise science.”).


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aggregate measure linked to welfare plays a role in the evaluation of IP policies and as long as social welfare conceptions are well understood and useful for the IP policy at hand.65 The integration of IP law and policy into international economic law through international conventions has set IP law into a larger context of objectives – such as the TRIPS objectives.66 However, TRIPS – as Annex to the 1994 Marrakesh Agreement Establishing the World Trade Organization67 – is also subject to Article 3.1 DSU and, thus, needs to be interpreted “in accordance with customary rules of interpretation of public international law.”68 WTO jurisprudence requires a treaty interpretation in accordance with Articles 31 and 32 of the 1970 Vienna Convention on the Law of Treaties (VCLT)69 and, therefore, a good faith ordinary meaning analysis with regard to the context, object and purpose of the respective treaty.70 This reference requires resort to the larger social and economic interests of WTO members which connects back to sustainable development objectives. In consequence, IP property regulations need to be brought in balance with other economic development tools and development objectives.71 It follows that the introduction of IP law into the world trading system requires not only a balancing exercise intrinsic to the system but a balancing exercise that weighs the objectives of IP law against larger societal interests. In summary, it is submitted that a balanced approach to IP protection should recognize both the economic and the normative dimension of IP law and, thus, the necessity to balance traditional economic innovation

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Hovenkamp (2000), p. 862 for a plea for the careful employment of economics in legal theory. 66 Preamble, Articles 7 and 8 of TRIPS, n. 2; see on the interpretation of TRIPS also the conclusion of the first TRIPS panel decision, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products WT/DS50/R, WTO Panel and Appellate Body Report (5 September 1997), para. 7.22. See also the Appellate Body decision, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products WT/DS50/AB/R, Appellate Body Report (19 December 1997). 67 1867 U.N.T.S. 154; 33 I.L.M. 1144 (1994). 68 N. 10. 69 1155 U.N.T.S. 331; 8 I.L.M. 679 (1969). 70 United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from Germany WT/DS214/AB/R, Appellate Body Report (28 November 2002), paras. 61–2; WT/DS50/AB/R supra note 66, para. 46; United States – Standards for Reformulated and Conventional Gasoline WT/DS2/AB/R, Appellate Body Report (29 April 1996), 3 at 16, Grosse Ruse-Khan in: Torremans (2008), n. 39. 71 Petersmann (2007) for an attempt to define the “development objectives” of the World Trading System.


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rationales of IP protection against social welfare goals in order to attain overall global human and sustainable development goals.72

3.

PIRACY AS INDICATION OF IMBALANCES IN IP LAW

Piracy is a global problem that endangers the world economic order and, thus, does not only lead to disincentives for innovation but also jeopardizes economic and sustainable development. With the late twentieth century trade globalization, this endangerment has reached an unprecedented magnitude that calls for explanations. Out of all explanations, the following analysis will focus on the argument that the current global IP law regime is out of balance which in turn aids and abets piracy. The central argument in this paper will, thus, be the proposition that the existence of piracy constitutes clear evidence of the fact that the current global IP law regime does not adequately balance the interests of affected parties so as to realize sustainable development and economic welfare goals. 3.1.

The Piracy Phenomenon

Piracy has not only become a worldwide phenomenon but also a sophisticated international trade issue that calls for careful analysis. Therefore, the following section will provide a definition of piracy and counterfeiting before elaborating upon the extent, scale and economics of counterfeiting. This section will further propose some explanatory models for the global piracy phenomenon. 3.1.1. Defining piracy and counterfeiting The TRIPS Agreement both mentions and defines the terms piracy and counterfeiting. The Preamble recognizes “the need for a multilateral framework of principles, rules and disciplines dealing with international trade in counterfeit goods.”73 Based on this recognition, footnote 14a of TRIPS reads: “counterfeit trademark goods” shall mean any goods, including packaging, bearing without authorization a trademark which is identical to the trademark validly registered in respect of such goods, or which cannot be distinguished in its essential aspects from such a trademark, and which thereby infringes the rights of the owner of the

72 73

N. 4. Preamble TRIPS, n. 2.


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trademark in question under the law of the country of importation.”74 Comparably to this definition of counterfeit trademark goods, footnote 14b of the TRIPS Agreement defines “pirated copyright goods” as “any goods which are copies made without the consent of the right holder or person duly authorized by the right holder in the country of production and which are made directly or indirectly from an article where the making of that copy would have constituted an infringement of a copyright or a related right under the law of the country of importation.”75 From these provisions it follows that piracy and counterfeiting are only defined in relation to trademark goods and copyright goods, thereby omitting any reference to piracy in the context of patent law. In a similar vein, Article 2 of EU Council Regulation 1383/200376 defines as “counterfeit goods” goods bearing without authorization a trademark or trademark symbol identical to the trademark validly registered in respect of the same type of goods, or which cannot be distinguished in its essential aspects from such a trademark.77 “Pirated goods”, by contrast, are related to copyright or related rights and design rights, thereby expanding the term piracy to designs.78 However, patents, national plant variety rights, designations of origin or geographical indications and geographical designations are subsumed under the term “goods infringing intellectual property rights.”79 The EU Council Regulation 1383/200380 thus follows the terminology in English-speaking countries of using counterfeiting to denote the misappropriation of trademarks or trade dress, while piracy is used with reference to abuses of copyright.81 Therefore, neither the counterfeiting and piracy definitions of the TRIPS Agreement nor those of the EU Council Regulation 1383/200382 explicitly refer to the infringement of patents, thereby demonstrating the narrow character of the existing legal definitions of pirated or counterfeit goods. By contrast, Chinese terminology goes beyond the restrictions of the terminology in English-speaking countries by using the word ⲫ⠜ 74

N. 14 TRIPS, n. 2. Ibid. 76 Council Regulation (EC) No. 1383/2003 of 22 July 2003, concerning customs action against goods suspected of infringing certain intellectual property rights and the measures to be taken against goods found to have infringed such rights, Official Journal L 196, 02/08/2003 P. 0007–0014. 77 Article 2(1)(a)(i)–(iii), n. 76. 78 Article 2(1)(b), n. 76. 79 Article 2(1)(c)(i)–(v), n. 76. 80 N. 76. 81 Linder Lopez (1999), p. 74. 82 N. 76. 75


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(daoban, piracy) in relation to copyrights and by linking the words Ў䗴 or ‫( ݦ؛‬weizao, jiamao, counterfeiting) with trademarks and patents.83 Thus, the above-cited definitions demonstrate that there is no one universally accepted legal definition of either the term piracy or the term counterfeiting.84 In practice, however, the terms counterfeiting and piracy are broadly applied and meant to include various forms of IP infringement.85 The law attaches various sanctions to these practices that range from administrative remedies and civil remedies to criminal remedies depending on the severity of the infringement.86 At the same time, however, the boundaries of the definition have been extensively extended by rent-seeking IP rightholders to encompass legitimate forms of competition.87 Thus, the combat of piracy walks the fine line between the legitimate restraint of IP infringing activities and the rather substantial probability of restraining legitimate competitive activity.88 At the same time, however, the combat of piracy and counterfeiting needs to take into account the various forms of counterfeiting that depend on the mode of culpability of consumers. Counterfeiting in markets with imperfectly informed consumers can be labeled “deceptive counterfeiting”89 whilst counterfeiting in markets in which consumers know or strongly suspect that they are buying counterfeit goods is known as “nondeceptive counterfeiting.”90 There exist many more intricacies in relation to piracy and counterfeiting91 that demonstrate that piracy and counterfeiting is a complex phenomenon that defies straightforward characterization. In summary, international product piracy and counterfeiting lacks a universally accepted legal definition due to terminological differences in

83

Zhang (1996), pp. 275–6. Linder Lopez, n. 81, p. 74. 85 See for a broad range of practices: Globerman (1988), p. 498. 86 Coblenz (1999), p. 244 (detailed analysis of IP crimes in US law); Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, Official Journal L 157, 02/06/2004 P. 0016–0025, which includes industrial property in its application range. 87 Globerman, n. 85, at 499; see also Mothercare UK Ltd v Penguin Books Ltd [1988] RPC and Art. 8.2 of the Council Regulation (EC) No. 6/2002 of 12 December 2001, on Community Designs, Official Journal L 3, 01/05/2002 P. 0001–0024. 88 Mackenrodt (2005), pp. 113–26; Lehmann (1989), pp. 1–15. 89 Grossman/Shapiro (1988a), p. 80. 90 Ibid., at 81. 91 Nelson/Vizurraga/Chang (2006), p. 1069 on counterfeiting in the pharmaceutical industry. 84


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various languages and due to the changing nature of IP as the result of technological advancements. For the purposes of the present chapter, however, the terms counterfeiting and piracy are used as synonyms and broadly applied to all kinds of IPRs described in the TRIPS Agreement. 3.1.2. Piracy: extent, scale and economics With the ever-increasing economic globalization, trade in pirated goods is reaching epidemic proportions. Trade in fakes and pirated products comprises not only the traditionally forged luxury goods, but also highertechnology products, foods, pharmaceuticals and a wide range of industrial goods.92 The extent and scale of piracy is, thus, unprecedented in the history of mankind and has rightly been called “perhaps the world’s fastest growing and most profitable business.”93 At the same time, piracy is associated with macro- and microeconomic as well as social consequences that touch upon questions of welfare and welfare losses in both the host economies and adversely affected economies.94 In view of these developments, the following analysis will focus on the extent, scale and economics of piracy and counterfeiting. The markets primarily affected by piracy are characterized by products with high unit profitability while chances and challenges relating to the risks of discovery, the potential penalties, the size of the markets and the logistical and technological challenges in producing and distributing products are factored in.95 Another driving factor for pirate and counterfeit activities is the knowing demand for counterfeit or pirated products in “nondeceptive counterfeiting markets.”96 Both supply drivers and demand drivers for counterfeit activities have affected a growing number of products in virtually all economies though consumption patterns vary for different products. Sector-specific analyses have demonstrated that cigarettes appear in a broad range of markets, while Africa is the main destination for counterfeit pharmaceuticals and the Middle East for automotive parts.97 The European Union reported that cigarettes, 92

Givon/Mahajan/Muller (1995), pp. 29–37 and Conner/Rumelt (1991) and Declet (1997), p. 57 on software piracy; Nelson/Vizurraga/Chang, n. 91, and Moken (2003), p. 525 on the counterfeiting of pharmaceuticals; Wang (2003) and Priest (2006), p. 795 for film piracy; Raustiala/Sprigman (2006), p. 1687 on fashion design counterfeiting; and see the historical analysis of Stanford Law Review (1953) on the piracy of records in the 1950s. 93 Business Week, 16 December 1985, cited in: Grossman/Shapiro (1988b), p. 59. 94 Globerman, n. 85, at 500–501. 95 OECD (2007), pp. 9–10. 96 See n. 90. 97 OECD, n. 95, p. 50.


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clothing and clothing accessories have been and remain the main sector for substantial seizures of counterfeit goods.98 Cigarettes, clothing and clothing accessories are closely followed by cosmetics and personal care products, with 7.72% of the total number of articles seized, by toys and games with 5.92%, by medicines with 5.16%, electrical equipment with 4.61%, and CDs, DVDs and cassettes with 4.17% of the total number of articles seized.99 The European Union report also confirms the tendency of the widening of the scope of affected products that has also been tracked by the 2008 Special 301 report of the Office of the United States Trade Representative.100 In terms of economies, information gathered by the OECD substantiates that close to 150 economies have acted either as source economies or as intermediate shipping points, with Asia emerging as the largest source of counterfeit and pirated products, while China represents the single largest source economy.101 Both American and European customs statistics indicate that China is still the el dorado for counterfeiters since almost 60% of the total amount of articles seized in the European Union originated in China102 and 69% of the domestic values of seizures in the US originated in China.103 In terms of destinations, by contrast, the statistics are more difficult to compile since, first, pirated products are sold in virtually all economies, with varying patterns depending on the goods concerned104 and, second, declared losses depend on the mode of calculation and endeavours of customs authorities. The scale of piracy is daunting: Quantitative analyses by the OECD indicate an international trade volume of 200 billion US dollars (USD) in tangible pirated products.105 This figure does not only exclude the volume of products produced and consumed domestically but also pirated digital products. Digital piracy, however, is estimated to account for annual losses of 34 billion USD in the software industry, of 6.1 billion USD in

98

European Commission (2007), p. 8. Ibid., at 18. 100 USTR (2008), Special 301 – based on Special 301 of the 1974 Trade Act, Pub. L. No. 98-618, §182, as added by Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, §1303(b), 102 Stat. 1107. 101 OECD, n. 95, pp. 11–13, Asia accounts for 69.7% of all seizures of imported counterfeit and pirated products from the top 20 source economies. 102 European Commission, n. 98, p. 18. 103 Winkler/Wang (2007), p. 18; USTR (2008), n. 100, European Commission, n. 98, p. 10. 104 European Commission, n. 98, p. 13. 105 OECD, n. 95, p. 15. 99


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the film industry and of 4.6 billion USD in the music industry.106 Next to these overall statistics relating to trade volume and the losses in specific industries, industry groups attribute 15%–20% of total sales to counterfeiting.107 Based on these figures, it is estimated that the worldwide losses due to counterfeiting activities amount to up to 250 billion USD108 and some 750 000 jobs in the US.109 Yet, the total scale of piracy losses is impossible to determine for a number of reasons. First, counterfeiters do not operate within the reach of the law and public scrutiny; thus, estimations need to be based upon extrapolations of existing data.110 Secondly, there are different methods of determining the actual size of the counterfeiting problem: one method is the estimation of the total value of counterfeit products available; another method relies on more complicated calculations by determining the revenue losses while making assumptions as to the recovery of market share if counterfeits were no longer on the market.111 It follows that evaluations of piracy figures need to take account of the lack of a scientific method for determining the actual size of the counterfeiting problem. Apart from financial losses, however, there are a number of consequences attached to piracy: governments are concerned about consumer welfare,112 the negative impact of piracy on innovation and the substantial resources channelled towards organized crime.113 A number of studies have concluded that counterfeiting has ambiguous overall effects for affected economies, such as the US economy, while overall welfare effects on the world economy are even more uncertain.114 By contrast, industry is

106

Winkler/Wang, n. 103, p. 22. Chow (2000), p. 13 – measuring the additional amount of sales revenue that companies would have earned if counterfeits did not exist in the market; also the World Health Organization (WHO) estimates that, on average, 10% of worldwide pharmaceutical products are counterfeit, with this percentage reaching up to 60% in developing countries; Winkler/Wang, n. 103, p. 24. 108 BASCAP (2007), p. 3. 109 Olson/Graham/Maltbie/Epperson (2007), p. 107, see also BASCAP, n. 108, p. 3. 110 Chow, n. 107, p. 12. 111 Chow, n. 107, p. 11. 112 In health-related areas, see Nelson/Vizurraga/Chang, n. 91, p. 1072. Further examples are accidents and resulting fatalities due to counterfeit brake parts, counterfeit heart pumps, Boeing engine fire detection and control systems, bogus narcotics, and other vital components; see Rakoff/Wolff (1983), pp. 501–2 for an extensive list of examples. 113 OECD, n. 95, p. 8. 114 Globerman, n. 85, p. 499; Higgins/Rubin (1986), pp. 211–30; Grossman/ Shapiro, n. 89; Grossman/Shapiro, n. 93. 107


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concerned about threats to its sales and licensing volume, firm reputation and brand value and the ability to maximize returns on innovation investments.115 This is, inter alia, due to the fact that consumers of counterfeit high-quality and status goods impose a negative externality116 on other consumers who purchase original goods, thereby degrading the brand value of the respective goods.117 This is also due to the fact that counterfeiting forces firms to adjust the price and quality of the genuine products in order to remain competitive in a market in which they are subjected to competition from imitators.118 A final consequence attached to piracy is the reduction of incentives for innovators to invest in product innovation.119 It is, however, to be noted that the economics of piracy is rather complex and defies overall conclusions that are valid for all economies and industries. There are obvious benefits attached to piracy, such as an immediate increase in consumer surplus associated with lower priced imports as acceptable substitutes for original goods.120 Studies in the software industry have also demonstrated that shadow diffusion of software contributes to the generation of more than 80% of legal unit sales for certain software products.121 Furthermore, producers of goods that are complementary in use to counterfeits are likely to enjoy an increase of sales.122 A recent study authorized by the Dutch Ministry of Economic Affairs even found in relation to unpaid filesharing that losses of 125 million USD correspond to 250 million USD in national income gains.123 Nevertheless, there is no scientific evidence, as of yet, that justifies the conclusion that there will not be any long-run reductions in welfare associated with lower rates of product innovation and innovation activities due to piracy.124 There is also a lack of scientific analysis in relation to the economic impact of piracy on developing countries so that conclusions on net welfare effects remain tentative.125 It follows that the economics of piracy varies considerably across sectors and economies, which necessitates tailor-made trade policies that account for the specific characteristics of sectors and economies. 115 116 117 118 119 120 121 122 123 124 125

OECD, n. 95, p. 8. Besanko/Braeutigam, n. 5, p. G-3. Grossman/Shapiro, n. 89, at 98. Grossman/Shapiro, n. 93, at 72. Barnett (2005), p. 1384; Raustiala/Sprigman, n. 92, at 1175. Globerman, n. 85, p. 499. Givon/Mahajan/Muller, n. 92, p. 35. Globerman, n. 85, p. 499. TNO Report (2009). Globerman, n. 85, p. 499. Dunning (1985).


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In summary, the extent and scale of counterfeiting has reached epidemic proportions in relation both to the sectors and to the economies concerned. It has serious consequences upon societal welfare in both host economies and adversely affected economies. However, definite evidence is still lacking as to the effects of counterfeiting on worldwide sustainable development that would allow for informed policy decisions to curb the piracy phenomenon. Nevertheless, the effects of piracy on developed economies are more adverse than the effects of piracy on developing countries which tend to be more ambiguous. 3.1.3. Explaining piracy A number of explanations have been put forward to account for the above-described piracy phenomenon. These explanations relate, first, to organized crime, secondly, to underlying economic mechanisms, and thirdly, to country-specific cultural backgrounds. In addition, this chapter proposes yet another explanation for the piracy phenomenon that ties in with the balance and imbalances of the international IP law regime. First, a historical analysis of the piracy phenomenon demonstrates the increase in size and sophistication of commercial counterfeiting in recent years.126 This increase in sophistication translates into extensive division of labor, sophisticated organizational structures, and elaborate systems of distribution of modern commercial counterfeiters.127 This development is hardly surprising since economic factors, such as mass production, economies of scale128 and the benefits of national transportation networks not only benefit the distribution and sale of genuine products but similarly benefit the distribution and sale of counterfeit goods.129 The academic literature is in agreement upon the conclusion that the growing criminalization of IP infringement constitutes a clear response to the element of organized crime in IP industries.130 The proposed European Parliament and Council Directive on criminal measures aimed at ensuring the enforcement of IPRs131 explicitly refers to the increasing

126

Rakoff/Wolff, n. 112, pp. 488–98. Colon (1981), pp. 276–7. 128 A situation in which average cost decreases as output goes up, Besanko/ Braeutigam, n. 5, p. G-3. 129 Kaikati/LaGarce (1980), p. 24. 130 The Harvard Law Review Association (1999), pp. 1705–22. 131 Proposed European Parliament and Council Directive on Criminal Measures aimed at Ensuring the Enforcement of Intellectual Property Rights, COM(2005)276 final. 127


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link of the piracy phenomenon to organized crime as justification for the proposal.132 Secondly, traditional explanations focus on the underlying economic mechanisms of piracy and counterfeiting which build upon the fact that IP industries are characterized by low variable costs and high fixed costs133 which renders products expensive to create but very inexpensive to copy.134 This characterization is – in parts – due to the public goods character of IP.135 Thus, the pirate producer will be profitable as soon as he sells the counterfeit goods at a price barely greater than the cost of copying, while the original producer needs recoup not only the costs of copying but also the costs of creation.136 In addition to the recoupment of the costs of creation, producers are increasingly faced with the need to recoup rising amounts of marketing expenditures as endogenous sunk costs which were made in the hope of disproportionate gains as a result of promotional activities.137 While economic explanations for piracy that build upon the discrepancy between high fixed costs and low variable costs focus on the supply side of pirated goods, consumer demand has also been recognized as a driver of piracy.138 Research has identified perceived similarities in terms of quality and durability between originals and fakes as key drivers of the demand for pirated goods.139 Another economic mechanism at work is the fact that the distribution of pirated goods constitutes some form of technology and product diffusion in economies where many products are unaffordable for the average citizen.140 As such the distribution of pirated goods contributes to the overall economic welfare of the respective countries and its people.141 It follows that Chow has rightly linked the 132

Ibid., at Explanatory Memorandum. Besanko/Braeutigam, n. 5, p. 287: fixed costs do not vary depending on production or sales levels; marginal costs are subject to change in relation to the activity of a business. 134 Butterton (1996), p. 1116. 135 Arrow (1962), pp. 609–19; Chon (2006), p. 2878. The global public goods theory has roots dating back at least as far back as the Middle Ages in Europe; Desai (1999), p. 66. The economist Samuelson is widely credited with introducing the concept of “public goods” (non-rivalry, non-excludability) in 1954. Id. at 64, 76 (citing Samuelson (1954), pp. 387–9. 136 Butterton, n. 134, p. 1116. 137 Sutton (1991), pp. 263–82; Matraves (1999), pp. 169–94; Calfee (2002), pp. 77–85; Becker/Lillemark (2006), pp. 105–20; Snyder/King (2007). 138 Tom/Garibaldi/Zeng/Pilcher (1998), pp. 405–21. 139 Penz/Stöttinger (2008), pp. 352–81. 140 Fan (1999), p. 217, Ruppenthal (2001), p. 144. 141 Reichman/Lange (1998), p. 54, and Ruppenthal, n. 140, pp. 153–4, on the expansion of a country’s technology base through piracy. 133


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policy goal of modernization and industrialization to create higher living standards and enhance competitiveness in developing nations with the acceptance of high levels of piracy and counterfeiting.142 It is, however, to be noted that the literature also offers a more specific economic analysis of the effect of IP protection on welfare by differentiating between the different types of IPRs.143 Thirdly, it has been suggested that the scope and extent of counterfeiting varies depending on the cultural esteem that is attributed to IP and its protection.144 Especially in relation to China, it has been repeatedly argued that the Chinese culture does not lend itself to the enforcement of IPRs since it relies on notions of personal relationships and on Confucian perspectives as opposed to Western-style law.145 This argument was succinctly summarized by Alford: “laws premised on the values and institutions of an economically advanced capitalist democracy will not generate identical results when transplanted to a different setting. Rules that presume an independent judiciary, a professionalized bar, powerful interest groups and a rights-conscious populace fall chiefly on deaf ears in contemporary China.”146 In developing countries, such as China, these problems relating to the cultural esteem of IPRs are further exacerbated by the lack of legal infrastructure to support IP protection.147 It follows that culture may be a decisive element in the fostering of an environment in which piracy flourishes. In addition to these rather traditional explanations, this chapter proposes yet another explanation for the piracy phenomenon that focuses on imbalances in the international IP law regime. It, thus, constitutes an approach that looks for an explanation for the piracy phenomenon that relates to the failures and deficiencies of the current international IP protection system. The premise of the explanation is the claim for an IP protection regime that leads to maximum economic and societal welfare. The explanation is, thus, in line with a rising amount of literature that criticizes the focus of IP protection policy on the short-run profit-maximization goals of firms in view of the more desirable welfaremaximization goals.148

142

Chow (2006), p. 205. Fink in: ICTSD (2009), p. 10. 144 Jacobs/Samli/Jedlik (2001), p. 503; Husted (2000), p. 26. 145 Butterton, n. 134, pp. 1107–14. 146 Alford (1992), p. M2. 147 Deng/Townsend/Robert/Quesnel (1996), p. 45. 148 Dasgupta/David (1994), pp. 487–532; Arora/Gambardella (1997), pp. 63–75; Scotchmer in: Newman (1998), pp. 273–7. 143


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IP protection is inextricably interlinked with questions of access to IP.149 At the same time, access to IP, such as knowledge and medicine, has been presented as a central human development issue150 and even a “matter of life and death.”151 However, access to knowledge-based products is extensively restricted through the assignment of IPRs, i.e. legal monopolies that are designed to counterbalance perceived market failures152 the origin of which lies in the non-excludable and non-rivalrous nature of IP.153 While this assignment of legal monopolies allows for the creation of incentives, on the one hand, it also deprives society of the benefits from the use of the idea, thereby causing welfare losses, on the other hand.154 This is where the explanation for piracy proposed here comes in. The proposed explanation for piracy recognizes the ramifications and consequences of IP infringements and piracy. First of all, it is recognized that piracy affects the economic welfare of affected consumers and interest groups.155 The literature on the relationship between IP protection and economic welfare has shifted from stressing the negative consequences of IP protection for developing countries in a static welfare analysis156 to stressing the positive impact of IP protection on technology transfer decisions affecting developing countries in endogenous growth models.157 In the aftermath of the TRIPS Agreement, however, the literature has again turned against the harmonization of IP standards by stressing the adverse effects of IP protection for developing countries.158 These findings provoke the reverse conclusion that inroads into the strength of IP protection through piracy benefit consumer welfare in developing countries which will further be elaborated upon below. Secondly, it is recognized that piracy has important ramifications for rightholders through lost 149

Shaver, n. 21, for the interrelationship of IP protection and access to knowledge (A2K); Abbott (2005a), p. 317 on IP protection and public health. 150 Shaver, n. 21, for the presentation of access to knowledge (A2K) as a central human development issue. 151 Stiglitz (2006), p. 120, Hestermeyer, n. 48. 152 Market failures meaning that sellers cease to become passive price takers and are able to raise prices above what they would be in a competitive market, i.e. imperfect markets; Harrison (2007), p. 23. 153 The inability of markets to deal with intellectual property stems from the public good characteristics of IP, i.e. non-excludability and non-rivalry; Pigou, n. 5, who first considered the structure and nature of the public good problem. 154 Deardorff (1992), p. 50. 155 Giannakas (2002), p. 483. 156 Chin/Grossman (1991); Deardorff, n. 154. 157 Maskus (1998), p. 147; Helpman (1993), pp. 1247–80; Lai (1998), pp. 227–48; Yang/Maskus (2000), pp. 169–78. 158 Grossman/Lai (2004).


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sales,159 through the impact of shadow diffusion on legal diffusion of IP products,160 through the impact upon the pricing of IP products,161 and through the impact on the propensity to innovate.162 Lastly, it is recognized that piracy industries constitute an important factor in the economic power of some developing countries so that IP policy changes also impact upon the economic welfare of the respective communities. Based on a recognition of these ramifications of piracy, the piracy phenomenon is explained as follows: it is suggested that in those countries in which diffusion and exclusion of IP are out of balance since the marginal costs of dissemination are too high for the country’s economic welfare, piracy can lead to societal welfare gains.163 Even though the focus on the diffusion-exclusion dichotomy is admittedly rather simplistic,164 it is argued in relation to developing countries that the IP law system does not strike the right balance between dissemination, R&D incentives, and the share of social benefit appropriated by the inventor. Therefore, sub-optimal enforcement levels that allow for a high degree of piracy are apt to contribute to economic welfare in developing countries such as China.165 From the suggested explanation for piracy it follows that piracy can only be fought successfully through a correction of the imbalances in the IP law system itself. Such corrections of imbalances in the IP law system, however, require a delicate balancing of the interests of developed countries as IP holders and of developing countries as IP users, which reaches well beyond the diffusion-exclusion dichotomy. Applying the logic of Pareto optimality, an IP law system needs to strike a delicate balance that avoids a situation in which some individuals, such as rightholders, are being made better off, while some individuals, such as consumers in developing countries, are being made worse off. If the imposition of IPRs, however, is not Pareto efficient, there is a theoretical

159

Givon/Mahajan/Muller, n. 101. Ibid., at 33. 161 Cosovanu (2003), p. 210; Giannakas, n. 155, p. 484; Chellappa/Chen/ Venkataraman (forthcoming). 162 Hui and Png (2003), p. 1: specifically for the negative impact of piracy on the software industries see Gallegos (1999), pp. 34–56; Simon (1996), pp. 30–37. 163 This proposition is supported by Bezmen/Depken (2006), p. 356, finding that increases in per-capita income correlate with a reduction in piracy; Andrés (2003). 164 Ordover (1991), p. 43, for an analysis of the patent system along diffusionexclusion criteria. 165 Stigler (1970), p. 536, for the argument that variation in enforcement provides desirable flexibility in public policy. 160


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potential for a Pareto improvement through reallocation.166 If the current IP law regime inefficiently allocates IP, then piracy could be a way of finding an alternative allocation of IP by making consumers better off as compared with the initial allocation.167 However, it is submitted that such an alternative reallocation would make rightholders worse off, which necessitates resort to the Kaldor-Hicks effiency criterion.168 Under Kaldor-Hicks efficiency, an outcome is more efficient if those that are made better off could compensate those that are made worse off, so that a Pareto-improving outcome results. In fact, however, KaldorHicks efficiency does not require the actual payment of compensation but merely the possibility of compensation payments.169 Applied to the question of a balanced IP law system, the Kaldor-Hicks efficiency allows for an assessment of piracy as moving the economy towards a higher level of economic development, albeit at the cost of rightholders who could – in theory – be compensated for their losses. Piracy, however, will only move the economy towards a higher level of economic development if the economic gain of consumers is greater than the losses experienced by rightholders. If this condition is satisfied, piracy can be regarded as a market-based increase in Kaldor-Hicks efficiency which reallocates and improves the allocation of IP for the benefit of consumers. It is, however, to be noted that this increase in Kaldor-Hicks efficiency maximizes welfare in a given single period (static efficiency), while there is as yet insufficient evidence to predict the interrelationship between piracy and the maximization of welfare over time (dynamic efficiency).170 In any case, it is submitted that this market-based mechanism does not necessarily produce the same desired results as IP policy adjustments that could in practice offset the losses to monopolists through gains in efficiency. It follows that the piracy phenomenon allows consumers greater access to IP, while making monopolists worse off and possibly also affecting the maximization of welfare over time. This demonstrates the dire need for a balanced IP law regime in which policymakers rather than marketbased forces, such as pirates, decide upon a balanced IP law regime that does not work to the disadvantage of poor and developing countries.

166

Adler (2000), p. 252; Dibadj, n. 53, p. 1338; Gowdy (2004), p. 240. Besanko/Braeutigam, n. 5, p. 696, for an overview and definition of economic efficiency. It is, however, to be noted that such a conclusion is restricted to a given moment in time and does not fully take into account the long-term effects of IP protection. 168 N. 57. 169 Schäfer/Ott, n. 5, pp. 32–8. 170 Khan (2004), pp. 1790–920. 167


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In summary, this chapter presents piracy as an unavoidable consequence of the existing imbalances in the IP law system. This finding applies, in particular, to developing countries in which consumers are made particularly worse off by strong monopolies on the part of IP rightholders. It follows that to effectively combat piracy, recognition of the above-described mechanisms is required, while the objectives of the IP law system and how piracy interferes with these is acknowledged. 3.2.

Piracy and the Search for Balance in China

The phenomenon of piracy and China are inextricably interlinked. During the last 30 years of Chinese IP law reform, China came to be regarded as a paradise for IP pirates. At the same time, however, China has become the focal point of theoretical debates on IP protection revolving around questions of IP protection, economic development and TRIPS reform.171 Neither development is surprising given that China has undergone an overhaul of its judicial system – including its IP law system – that is unprecedented in legal history.172 Moreover, as a developing country, China epitomizes the larger policy issues of the impact of the TRIPS Agreement on least and less developed countries. It thus lends itself as a test case for the interrelationship between piracy and the search for balance in IP law. 3.2.1. Piracy and counterfeiting in the Chinese market: A losing battle? Due to its prominent role in international piracy, China has come to be regarded as a paradise for IP pirates. Building on the figures and statistics given above, this section highlights the development of piracy in China in order to find an answer to the question whether anti-piracy efforts are fighting a losing battle. According to the Development Research Center of the State Council (DRC),173 counterfeiting is a 16 billion USD industry in China.174 171 Maskus (2000c); Maskus in: Fink/Maskus (2005), p. 283, p. 54, p. 143; Maskus (2000b). 172 For an extensive overview of the history and current reform efforts and a discussion of the interrelationship between IP law in China and economic development, see Ganea/Pattloch/Heath (2005); Maskus/Dougherty/Mertha, in: Fink/ Maskus (2005), n. 171, p. 296; Clarke (2007), p. 5; Schiappacasse (2004), p. 164; Maskus, n. 157, at 147; Maskus/Doughterty/Mertha in: Fink/Maskus (2005), pp. 319–20; Maskus/Dougherty (1998), pp. 1–30; Liebig (2001); Dessler (1995); LaCroix/Konan (2002); Yu (2006); Kong (2008); Gabriel (2008); Ollier (2007); ICC, in: Comments on the Draft Amendment of the Patent Law in China (2007). 173 See http://www.drc.gov.cn/. 174 Jacobson (2008), p. 58.


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Yet, China does not only constitute the principal place of origin for counterfeited goods worldwide, China itself is a market in which counterfeiting accounts for as much as 15%–20% of total sales according to statistics presented by an industry group.175 Chinese government statistics from the State Administration of Industry and Commerce (SAIC)176 report the seizure of over 400 million counterfeit goods in raids in 1998.177 In 2007 it is reported that just one single crackdown by Chinese authorities supported by the Federal Bureau of Investigation (FBI) on software piracy led to the seizure of counterfeit software worth 500 million USD.178 The increasing threat of piracy resulting from goods originating in the Chinese market is addressed by anti-piracy efforts at various levels.179 In China, raids are a popular mechanism for IP enforcement,180 while both public enforcement through administrative entities and judicial enforcement in Chinese courts have strengthened, together with an increase in damages awards.181 The reaction of the international community to piracy stretches from the tightening of border measures,182 to the appointment of an EU IP expert in China,183 the negotiation of an Anti-Counterfeiting Trade Agreement (ACTA),184 and resort to the WTO dispute settlement mechanism.185 Multinational companies react by resorting to an overall IP protection strategy, to the avoidance of technology transfer, to product protection strategies, to employment policies, to the establishment of

175 Chow, n. 107, p. 13, i.e. the additional amount of sales revenue that companies would have earned in the absence of counterfeiting. 176 See http://www.saic.gov.cn/. 177 Chow, n. 107, p. 13. 178 FBI Press Release, 23 July 2007, available at http://losangeles.fbi.gov/ pressrel/2007/la072307.htm; Dicki (2007). 179 Correa (2009), Part II for a detailed analysis of the push for stronger enforcement rules. 180 Jacobson, n. 174, p. 61. 181 In 2007, Schneider Electric was ordered to pay 45 million USD damages in a patent infringement case; in 2009, Zhongwei Passenger Bus Co. Ltd. was ordered to pay 2.3 million USD damages to Jinhua Neoplan Vehicle Co. Ltd. in an IP infringement case; see Manager Magazin, “MAN gewinnt Plagiatsstreit in China”, 22 January 2009; Barboza, David (2008), New York Times, 31 December 2008. 182 The U.S. Customs and Border Protection, Press Release, U.S., China Customs Agree to Combat Global Trade in Counterfeit Goods, 23 May 2007. 183 EU Trade Issues, 2 June 2008, available at http://ec.europa.eu/trade/issues/ sectoral/intell_property/ipr_china_en.htm. 184 See http://ec.europa.eu/trade/issues/sectoral/intell_property/fs231007_en. htm. 185 China – Measures Affecting the Protection and Enforcement of Intellectual Property Rights, supra note 18.


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monitoring systems, to the registration of IPRs and to the administrative and judicial enforcement of IPRs.186 These anti-counterfeiting efforts raise the question of whether they are effective in curbing piracy in China. Statistics show that – in some sectors – piracy rates in China have decreased while losses have increased. The Business Software Alliance (BSA) reported in its 2007 global software piracy study a decrease in the software piracy rate from 92% in 2003 to 82% in 2007, while the losses increased from 3823 million USD in 2003 to 6664 million USD in 2007.187 For other sectors, data indicate that both the number of IPR seizures and the value of pirated goods are increasing.188 It follows that attempts to curb counterfeiting in China have proven indispensable, yet effective to a limited extent. In consequence, the data indicate that fighting counterfeiting is a losing battle in China since enforcement efforts have not yet translated into decreasing piracy rates. At the same time, however, it remains to be seen to what extent enforcement efforts will have long-term effects that are not yet predictable. This chapter suggests that piracy in the Chinese market will remain rampant until piracy stops generating societal welfare gains for the Chinese. 3.2.2. Explaining piracy in China Building on the explanations for piracy furnished above, this section will explain the piracy phenomenon in China with reference to traditional explanations for piracy as well as to the proposed explanation that ties in with the balance and imbalances of the international IP law regime. A number of traditional explanations have been put forward to account for enforcement issues in China.189 According to Yu, ideas of Confucianism, cultural practices190 and a socialist economic system did not lend themselves to strong protection for IPRs; the urge to attain independence and to strengthen China economically and politically has 186 Berger et al. (2005); Jacobs/Samli/Jedlik, n. 157; Olson/Graham/Maltbie/ Epperson, n. 119. 187 Business Software Alliance (2007); see, however, Png (2008) for criticism of BSA methodology and data. 188 US Customs and Border Protection, IPRs, Seizure Statistics 2008, available at http://cbp.gov/linkhandler/cgov/trade/priority_trade/ipr/seizure/fy08_final_stat. ctt/fy08_final_stat.pdf; EU Press Release MEMO/08/310, 19 May 2008, available at http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/310. 189 Butterton, n. 134 for cultural explanations, economic explanations; Priest, n. 92; Mertha (2005), p. 76. 190 Husted, n. 144, p. 26; Donaldson (1996), pp. 48–62; Swinyard/Rinne/Kau (1990), pp. 655–64 for analyses of how culture affects attitudes towards piracy.


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been the country’s first priority since the late nineteenth century, even if it meant unauthorized reproduction; in addition, censorship and information control policy rendered black market products the only available source of certain goods; and lastly, Chinese laws were often incomplete, incoherent and ideologically compromising, thus making enforcement a difficult undertaking.191 In addition, local protectionism192 and bureaucratic rivalries between parallel government entities193 are cited to promote piracy in China. The court system is also criticized for the substandard quality of judges and their inadequate training194 which ties in with more general concerns about the Chinese IP enforcement system.195 Another important factor is the relevance of production and trade in counterfeit goods for local economies in China.196 It has also been argued that most of the problem hinge on the willingness of the Chinese government. While it seemed powerful enough to protect the Olympics logo in 2008, the same determination was lacking in terms of foreign IP.197 Yet, in view of the sharp increase in the number of raids and seizures and other improvements in IP enforcement, such an argument is rather inappropriate.198 While a number of enforcement problems are deeply rooted in Chinese philosophy, culture, its political system and legal institutions, the determination of the central government to curb piracy cannot be disputed.199 However, regardless of these findings, it is suggested in this chapter that the explanation for piracy suggested above applies in particular to the Chinese market. This suggestion builds upon earlier explanations that trace the extent of the piracy problem in China to the early stage of China’s economic development.200 A number of studies on the interrelationship between IP protection and economic welfare have contributed to a preliminary assessment of the impact of IP protection on the Chinese market.201 On a general level, Straus concluded that the development of its IP protection played

191

Yu (2007a); note also the criticism of the Chinese Copyright Law in WT/ DS362/R, paras. 7.1–7144, n. 18. 192 Chow, n. 107, p. 26; Liu (2003), p. 1181. 193 Chow, n. 107, p. 31. 194 Miller (2000), p. 120. 195 Brinsmead and Winston (2007), p. 8. 196 Chow, n. 142, p. 220. 197 Donatuti (2007), p. 203; Dorgan (2008), The Hill, 3 March 2008. 198 Chow, n. 142, p. 213. 199 See National IP Strategy, in: Gazette of the State Council 2008, No. 17, pp. 12–18. 200 Fan, n. 140, p. 217. 201 Maskus/Dougherty/Mertha, n. 172, pp. 295–332; Samuelson (1998).


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a “decisive role”202 in China’s development. A more detailed study by Maskus, Dougherty and Mertha also supports a positive relationship between IPRs and development whilst recognizing three problems in relation to the Chinese market: first, the limitation of incentives to develop products and brand names due to inadequate enforcement; secondly, the structural difficulties of commercializing the results of inventions; thirdly, the insufficiency of stronger IPRs alone to establish effective conditions for further technological and economic development.203 Recognizing the role of other factors affecting information economy growth, Pamela Samuelson notes that “intellectual property law can help fulfill China’s further aspirations for growth of its economy,”204 thereby confirming the belief in a positive correlation between the introduction of IPRs and economic growth. Yet, a number of critical voices have questioned the contribution of IPRs to China’s economic growth. Some commentators have regarded China as the “proverbial exception”205 to the causal relationship between the strength of IP protection and economic development. However, Yu has explicitly rejected this position by stressing the ambiguity of the relationship between IP protection and economic development and by naming it “the China puzzle”.206 In essence, he argues for a more complex understanding of this relationship that includes socio-economic factors and sees China following the economic development path of countries such as Japan, Singapore and Taiwan, which at some point all reached a crossover point at which IP protection vastly improved and the overall benefits of such protection began to outweigh its overall costs.207 This finding ties in with the core argument of this chapter, i.e. the current IP law system with its provision of minimum standards does not strike the right balance for Chinese needs, thereby promoting high levels of piracy with piracy effectively alleviating the imbalances. The imbalances are particularly noticeable in China, a country in which 200 million people still live below the United Nations (UN) poverty threshold of 1 USD a day.208 Taking GDP at purchasing power parity (PPP) per capita, China ranks between 95th and 105th out of all coun-

202 203 204 205 206 207 208


Straus (2006), p. 7. Maskus/Dougherty/Mertha, n. 172, pp. 325–6. Samuelson, n. 201, pp. 1–2 (emphasis added). Yu in: Gervais (2007), p. 220. Ibid., at 175. Ibid., at 202. Erling, Johnny, “Armut in China”, Die Welt, 24 May 2006.

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tries, with a range of 5325 USD–5400 USD.209 Thus, China ranks well below the average world GDP at PPP per capita of 1038 USD.210 Taking nominal GDP per capita as a comparison, China still ranks at 107th, with a nominal GDP per capita of 2483 – again well below the nominal gross world product per capita of 8241 USD.211 Even though huge regional disparities exist in China, the majority of Chinese consumers are greatly restricted in their purchasing power.212 In fact, considering the purchasing power in developing countries and the average prices charged for pirated CDs, competitive prices for legal software packages would have to be set at least 95% lower than the current price level to make the product affordable for the majority of the Chinese.213 Prices are even more relevant in the area of public health. China – with an expected 10–15 million HIV cases in 2010214 – acts as a proxy for all those developing countries that are in dire need of essential medicines.215 The treatment of HIV in China amounts to about 350 USD, which is unaffordable for many Chinese – not to mention the price in 2000, when it still amounted to 10 000–12 000 USD.216 It follows that piracy can render affordable products that would otherwise remain out of the reach of the Chinese consumer. In fact, the economic literature demonstrates a negative correlation between the level of economic development and piracy. Schultz shows that a low probability of punishment in emerging economies makes commercial counterfeiting of all kinds more likely.217 Likewise Andrés shows that weak protection of IP products – such as may be the case with yet emerging Chinese enforcement mechanisms – might increase piracy.218 Traphagan

209

Depending on whether the International Monetary Fund (IMF), Worldbank or CIA data are relied upon, see IMF, World Economic Outlook Database (October 2008), available at http://imf.org/external/pubs/ft/weo/2008/02/ weodata/index.aspx; Worldbank, World Development Indicators Database 2007, available at http://siteresources.worldbank.org/DATASTATISTICS/Resources/ GDP_PPP.pdf; CIA World Factbook, available at https://www.cia.gov/library/ publications/the-world-factbook/rankorder/2004rank.html. 210 IMF, n. 209. 211 IMF, n. 209; CIA World Factbook, n. 209. 212 Ying (1999), pp. 59–70. 213 Cosovanu, n. 161, p. 210. 214 Festel/Kreimeyer/Oels/von Zedwitz (2005), p. 93. 215 See Brazil’s issuance of a patent compulsory licence, Concede licenciamento compulsório, por interesse público, de patentes referentes ao Efavirenz para fins de uso público não comercial. Decreto No. 6108, de 4 de Maio de 2007, D.O.U. de 07.04.2007 (Brazil), see Bird/Rahoy (2007), pp. 401–21. 216 Hestermeyer, n. 48, p. 10. 217 Schultz/Saporito (1996), pp. 30–37. 218 Andrés, n. 179.


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and Griffith demonstrate that differences in piracy rates are in part due to national wealth,219 while Fischer and Andrés also find that piracy may respond to economic differences across countries, with non-economic factors also coming into the equation.220 Husted’s research confirms the hypothesis that the higher the level of economic development, the lower the rate of piracy in the software market.221 Bezmen and Depken go even one step further by demonstrating that a 1% increase in per-capita income correlates with a 0.25% reduction in software piracy in the US, indicating that comparable results are to be expected in China.222 Historical studies on the US also indicate that the US benefited from copyright piracy in the nineteenth century and that its IP regime was endogenous to the level of economic development.223 Thus, it seems as if pirates in China copy the behaviour of their historic predecessors in the US, though international attention and outrage at this behaviour has increased tremendously. There are further studies that suggest that welfare losses to rightholders through piracy might be less significant than often claimed. First, rapid diffusion of knowledge through piracy fosters cumulative and complementary innovations, resulting in the rapid adoption of and large demand for new technologies.224 Secondly, Gu and Mahjan demonstrate that by removing the most price-sensitive consumers from the market, piracy reduces firms’ incentive to engage in self-destructing price competition. In consequence, piracy can increase the industry profit in markets with large variations in consumer price sensitivity.225 Thirdly, it might prove to be most profitable for a company to encourage illegal imitation where the size of the user base influences the perceived quality of the product, thereby leading to positive consumption or network externalities as a result of piracy.226 These studies correspond well with the finding of Hui who demonstrates that publishers of computer software and music lost no more than 6.6% of revenue to piracy in 1999, taking account of both demand losses and price adjustments.227 219

Traphagan/Griffith (1998), pp. 431–7. Fischer/Andrés (2005). 221 Husted, n. 144, p. 2201; Depken/Simmons (2005), pp. 97–100. 222 Bezmen/Depken, n. 163, p. 357. 223 Khan, n. 170. 224 Burke (2000), pp. 193–211. 225 Gu/Mahajan (2005). 226 Liebowitz (1985), pp. 945–57; Conner/Rumelt, n. 101; Takeyama (1994), pp. 155–66; Conner (1995), pp. 125–39; Katz/Shapiro (1985), pp. 424–40; Takeyama (1997), pp. 511–22; Shy/Thisse (1999), pp. 163–90; Givon/Mahajan/Muller, n. 92; Croxson (2007), pp. 13–15. 227 Hui/Png (2002), p. 1. 220


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Based on these findings, it is argued that there is a strong indication that at present piracy in China does contribute to economic welfare. Since both welfare losses of rightholders do not seem to be as substantial as often claimed and piracy significantly benefits Chinese consumers with little purchasing power, a net benefit to societal welfare is expected. Nevertheless, this chapter calls for further thorough economic analysis to corroborate this suggestion. In any case, it follows from these findings that – for the moment – China has little incentive to protect the IP rights of developed countries, but rather allows piracy to stimulate its economy.228 In consequence, the international community can wait until China has reached a state of economic development at which it is in its economic interest to do so229 or adjust the imbalances in the IP system so as to better account for Chinese needs.

4.

SOLUTIONS TO THE PIRACY PHENOMENON: THE POSTULATION OF A BALANCED IP LAW SYSTEM

The spotlight on China has exposed imbalances in the IP law regime that affect in particular developing countries in which the level of economic development depends on a high level of diffusion of IP. In the light of these findings, this chapter postulates a balanced IP law system that takes due care of the interests of both developed and developing countries while suggesting that a more systematic approach is needed. The starting point for a balanced IP law system, the TRIPS Agreement, constitutes a highly differentiated legal instrument that allows a broad, albeit not sufficient, range of flexibilities to WTO members. Building upon earlier proposals for TRIPS amendments,230 the Intellectual Property in Transition (IPT) project has set out to propose wide-ranging readjustments of the system which will now selectively be discussed as to their aptitude to address the imbalances exposed in this contribution. First, IPT suggests an amendment to Article 7 of TRIPS that would better take account of the question of “balance” while explaining in more detail where, why and how rightholders’ interests may have to give way 228

Van Kranenburg/Hogenbirk (2003). Butterton, n. 134, p. 1121. 230 See the IP in Transition Project itself; Abbott, n. 150; Abbott (2005b), pp. 77–100; Abbott (2000), pp. 165–79; Barbosa/Chon/von Hase, n. 28; Boyle (2004), pp. 9–21; Gerhart (2007), pp. 143–84; Gervais, n. 266; Hestermeyer, n. 48; Richards (2004); Segal (2006), pp. 523–57; Taubman (2007); See Doha Declaration, n. 24. 229


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to overriding public interests. Note should, in particular, be taken of the introduction of the objectives “access to information and knowledge for all” and “the promotion of competition and fairness in trade” in Article 7(a). Note should also be taken of the newly introduced requirement in Article 7(b) that the scope of protection needs to correspond to its contribution to society, thereby undermining the well-established practice by multinational companies of artificially extending the duration of protection and blocking legitimate competition in developing countries. It is suggested that this expansion of Article 7 with more up-to-date and precise contours is suitable to inform purposive treaty interpretation in litigation that could eventually promote social and economic welfare in developing countries. Secondly, the most radical and promising changes suggested by IPT are contained in the TRIPS principles in Article 8. The proposed amendments to Article 8 introduce a mandatory – as opposed to an optional – solution with regard to the abuse of IPRs by rightholders, while inserting the obligation to provide the necessary infrastructure an adequate and efficient IP system in accordance with a country’s level of development. The IPT proposal further inserts a new Article 8a “Balance of Interests” which imposes the obligation to ensure “a fair balance between private economic interests and the larger public interest as well as the interests of third parties” in their legislative procedures and Article 8b, which stipulates “a fair balance between intellectual property rights and free competition.” It is expected that the suggested amendments will further the eradication of imbalances through their function as a counterweight against the imposition of overly strong IPRs, as they allow members to place greater emphasis on measures safeguarding the public interest. The balancing clause will, thus, also assist members in resisting pressures from third parties concerning TRIPS-plus elements that are typically ill-adapted to a member’s individual situation. In relation to the enforcement obligations of TRIPS as such, IPT proposes the introduction of an obligation to adopt adequate measures for the control of anti-competitive licensing practices in Article 40. In Article 41a, it further imposes an obligation upon members to provide for “proportionate, efficient and deterrent remedies against mala fide use of intellectual property rights,” while the new Article 41b regulates jurisdiction and choice-of-law questions in transborder conflicts. It is, however, suggested that it is rather the amendments introduced in Articles 7 and 8 that will be best suited to addressing the imbalances discussed in this chapter and most conducive to economic welfare and sustainable development in both industrialized and developing countries. In addition to these changes suggested by IPT, this chapter calls


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attention to the need to carefully balance IP law with related international economic law systems, the overall framework of the WTO Agreement231 and the human rights framework for IP protection.232 This approach requires a definition of the policy space and flexibilities left to the international community to tailor their legal systems to their individual developmental and economic needs233 since history and research have both demonstrated that increases in technological and economic development hinge to a large extent upon tailor-made IP laws that respond to national needs.234 However, this chapter argues that the attainment of a balanced IP law system that addresses national needs and the issue of unequal bargaining power in international IP law-making235 requires further quantitative research that focuses on the definition of indices and the collection of data that allow for authoritative assertions about the IP law system. The first study to construct an IP measure was conducted in 1990236 and substantially extended by Ginarte and Park in 1997 with an index that covers 110 countries from 1960 to 1990 and focuses on the strength of patent protection.237 Yet another measuresment of IP protection was developed by Ostergard in 2000 which was based on the minimum criteria for IPR laws established by the US Chamber of Commerce.238 Further research has focused on the definition of policy levers so as to systemize the resort to policy levers for adjustments in IP law.239 In consequence, it is submitted that the IPT amendments, together with a careful balance of IP law with related international economic law systems, paired with additional quantitative research in IP law, could allow for an alleviation of the above-described IP imbalances.

231

Grosse Ruse-Khan, n. 39. Hestermeyer, n. 48, p. 298, nn. 39, 40, 41. 233 Grosse Ruse-Khan (2008), pp. 313–64. 234 Khan (2002), pp. 18–20; for the right to development, see UN General Assembly, Declaration on the Right to Development: resolution/adopted by the General Assembly, 4 December 1986, A/RES/41/128, Online UNHCR Refworld; Qerimi (2008). 235 Fandl (2007), pp. 36–46 on negotiation imbalances; Fernandez (1997), pp. 22–3 on bargaining power in bilateral trade negotiations; see also: Yu (2004), p. 386; Acemoglu/Robinson (2002), pp. 126–30 for the argument that tomorrow’s political losers are today’s barriers to economic development. 236 Rapp/Rozek (1990), pp. 75–102; Seyoum (1996), pp. 51–9; Sherwood (1997), pp. 261–370 for cross-national IP measurements. 237 Ginarte/Park (1997), pp. 283–301. 238 Ostergard (2002), p. 354. 239 Burk/Lemley (2003), pp. 1575–696. 232


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5. CONCLUSIONS This chapter has demonstrated that both IP law and IP policy have increasingly been conntected to ideas of balance. However, this chapter has also shown that – to date – there is very little academic research and even less of an international consensus, on what the criteria for an assessment of the balance in the international IP law regime should be. Based on this recognition, the chapter has set out to analyse the existing indications for imbalances in the system by focusing on piracy and counterfeiting in the Chinese market. The analysis has shown that the piracy phenomenon in China serves as proof of the argument that international IP standards do not strike the right balance between dissemination, R&D incentives and the share of social benefit appropriated by the inventor, thereby causing welfare losses in China. It is argued that the social welfare losses in China are balanced out by piracy which – given the state of Chinese economic development at this point in history – contributes to economic welfare in China. In recognition of the undesirability of piracy measured against global economic welfare objectives, the chapter both postulates a more balanced approach to IP policy and law-making and stresses the need for more in-depth research that contributes to an understanding of the economic mechanisms of IP law and the impact of IP protection on welfare maximization and sustainable development goals. In conclusion, this chapter is not to be misunderstood as a blunt plea for the interests of developing countries. Rather, it is intended to offer an explanation for some of the root causes of piracy and counterfeiting in order to set the foundations for the design of a more balanced IP law regime which contributes to global welfare maximization while taking due regard of global human and sustainable development goals.

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The WTO dispute settlement system and the evolution of international IP law: an institutional perspective Antonina Bakardjieva Engelbrekt

1. INTRODUCTION One of the major advances in the legal regime of international trade from the transition from GATT to the WTO was the constitution of a more sophisticated and efficient dispute settlement system (DSS). The institutional design of dispute settlement was the subject of intense negotiations during the Uruguay Round and was eventually set out in the Dispute Settlement Understanding (DSU) forming part of the Agreement Establishing the WTO.1 The dispute settlement procedure builds on the relevant provisions of the GATT, but is far more elaborate, moving in the direction of a quasi-judicial mechanism. By linking the international legal regime of intellectual property (IP) with that of international trade through the TRIPS Agreement, the DSU becomes applicable also to disputes based on alleged violations by Members of their obligations concerning IP rights as laid down in TRIPS.2 The WTO dispute settlement mechanism and its institutional design are therefore of the utmost significance for the interpretation of the TRIPS Agreement and eventually for the dynamics of IP law-making and for the fine-tuning of today’s complex multi-level system of IP governance.3

1 See Understanding on Rules and Procedures Governing the Settlement of Disputes (Dispute Settlement Understanding, DSU), Appendix I (B). 2 See Article 64 TRIPS with reference to Articles XXII and XXIII of GATT 1994 and the DSU. The possibility of using the WTO dispute settlement procedure to enhance treaty compliance was in fact a major incentive for integrating IP rights into the world trade system. See Lee and von Lewinski (1996); cf. Kunz-Hallstein (1989), discussing the mechanisms for enforcement of the Paris Convention through the International Court of Justice and their non-use by Parties to the Convention. 3 See Helfer (2004), at 23. Implied in the concept of multi-level governance

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This chapter provides as a first step a concise description of the evolution and main components of the WTO dispute settlement system. Taking a comparative institutional approach, it conceptualises the DSS as one among many interlocked arenas for decision-making on global IP policy issues. International adjudication thus presents an alternative to international and national political and administrative processes, but also to unfettered global markets for information goods. Each of these institutional alternatives displays advantages and disadvantages in terms of ensuring balanced participation of affected actors and interests, which ultimately is a prerequisite for the adaptive efficiency of global IP governance. The chapter looks more closely at the institutional modalities that condition participation of interested actors (private entities and states) in dispute settlement proceedings. It probes more specifically into the rules that govern the structure and composition of dispute settlement bodies, the access to and the transparency of the dispute settlement procedure, remedies and compliance. It then proceeds to critically discuss the governance design of the WTO dispute settlement system and the reform endeavours undertaken in the wake of the DOHA Ministerial Declaration. Finally, the participation modalities of the DSS are compared with those of the international administrative process as represented by the TRIPS Council. The chapter concludes with some pragmatic proposals that link issues of governance with the evolution of IP law at the international level. The IPT project aims ultimately at a more balanced IP system. In this chapter the argument is made first, that implicit in every discussion on substantive IP law and policy is the question of choosing the appropriate level and institution for IP decision-making in a multi-level system of IP governance.4 Secondly, it is argued that substantively just and efficient outcomes are intrinsically linked to and dependent on the institutional design of law and policy-making processes. Given the public good nature of information and knowledge, which is at the core of IP rights, the norms for attribution and enforcement of such rights are of relevance for the broad interests of citizens, researchers, and users of information goods. Hence, the capacity of IP institutions to ensure adequate representation and participation of affected actors and interests is decisive for

is that the powers and the resources for political action are shared by a multitude of public as well as private actors, operating at different mutually interconnected levels, not necessarily in a hierarchical relationship to each other; Scharpf (2002); Joerges and Petersmann (2006). 4 For a similar approach based on Neil Komesar’s comparative institutional analysis, see Shaffer (2005).


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accommodating new interests as they emerge and for facilitating change and regime flexibility. Any future reform of TRIPS should therefore not only deal with substantive rules but should also consider the need for change in procedural and institutional modalities.

2.

THE WTO DISPUTE SETTLEMENT SYSTEM: A BACKGROUND AND MAIN INSTITUTIONAL FEATURES

Under the GATT regime, dispute settlement was based on Articles XXII and XXIII GATT 1947. As is well known, the two provisions are far from elaborate. Article XXII GATT provides for consultations with respect to any matter affecting the Agreement’s operation upon the request of any party. According to Article XXIII (Nullification and Impairment), any controversy in respect to which no satisfactory adjustment is effected within a reasonable time may be referred to the Contracting Parties. These provisions give no indication as to how a controversy referred to the Contracting Parties is to be resolved. Article XXIII:2 only ensures that the Contracting Parties “shall promptly investigate and make appropriate recommendations . . . or give a ruling on the matter, as appropriate.” In particular, the reference to “ruling on the matter” suggests that a procedure with certain quasi-judicial elements was contemplated but no details as to the design of such a mechanism were provided. The procedure was to be triggered first and foremost in situations of failure by another contracting party to carry out its obligations under the Agreement, but also in other situations, provided that a benefit accruing to the complaining party under the Agreement was being nullified or impaired.5 In the early days of the GATT, dispute settlement was perceived as a diplomatic rather than a legal activity.6 Lowenfeld notes that the GATT Secretariat initially had no legal division or legal staff whatsoever.7 Disputes were rather resolved by the Chairman of the Contracting Parties and subsequently, by so-called working parties that had to report back to the Contracting Parties. The positions of the parties to the dispute were presented by diplomats and economists rather than lawyers. A move to “third-party” adjudication was arguably marked by the

5

Lowenfeld (2002), 129–40; Hudec (1993). Hudec (1970); Hudec (1993). 7 See the reflections on this by Ernst-Ulrich Petersmann, the first legal officer at GATT, in: Petersmann (1997), 84 et seq; Petersmann (2005), 5. 6


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complaint of Chile against Australia in 1949.8 The report prepared by the GATT Secretariat reflected the unanimous view of the “neutral” members of the working party who urged Australia to abandon the questionable measures. The practice of panels, as distinct from the parties to the dispute, was introduced through a decision of the Chairman of the Contracting Parties in 1952. Although the procedure followed by the panels was not like a judicial procedure (for instance the panel would discuss the draft report with the parties), the panels constituted a major step towards judicialisation of the GATT dispute settlement mechanism.9 The shift to more formal and stricter procedural rules continued through the following years with evolving practices of written submissions, motivation of panel reports, requirements of independence of the panellists, etc. Still, the system included no right to have a panel appointed and there were no timetables or deadlines for the panel’s work, meaning that important and sensitive disputes tended to be delayed. This is considered as evidence of the preserved prevalence of the diplomatic traits of the system.10 It was first in the aftermath of the DISCs case (Domestic International Sales Corporations),11 regarded by many as a major failure of the then existing panel system, that a legal division at the GATT Secretariat was established. In the course of the Tokyo Round, an Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance was agreed upon, featuring as an Annex an “Agreed Description of the Customary Practice of the GATT in the Field of Dispute Settlement (Art. XXIII:2)”. As the name of the document suggests, it codified the practices that had evolved spontaneously throughout a 30-year-long experience of dispute settlement in the absence of written guidance.12 The Agreement stopped short of recognising a right of parties to appointment of a panel, but such a right was envisaged in a number of Codes resulting from the Tokyo Round (e.g. Subsidies Code).13 Even following these changes, the panel reports continued to be adopted by consensus. In other words, there remained the possibility for any contracting party to block a report that was against its own interests. The 1980s witnessed an intensified recourse to the system of dispute settlement, partly as a result of the European Community changing strategy from slowing down and frustrating the system to using the system in an 8 9 10 11 12 13

Australia Subsidy on Ammonium Sulfate, quoted after Lowenfeld (2002), 141. Lowenfeld (2002), 141. Lowenfeld (2002), 145. Quoted after Lowenfeld (2002), 145. Lowenfeld (2002), 145. Hudec (1980), 145.


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activist manner to advance its own views and interests, mainly in opposition to the US. Such active invocation of the system also demonstrated its in-built flaws, leading to a period of “aggressive unilateralism” and a stalemate in multilateral trade regulation.14 A revised system of dispute settlement was put on the agenda of international trade negotiations as it became increasingly clear that a working dispute settlement mechanism would be essential to gain respect for the whole WTO project. The issue of dispute settlement was eventually addressed in a new Dispute Settlement Understanding annexed to the Marrakesh Agreement, establishing the World Trade Organization. 2.1.

Initiating Panel Proceedings

The new system of dispute settlement resulting from the Uruguay Round introduced a full-fledged right of contracting parties to panel proceedings. Panels are still preceded by a consultation phase (Art. 4 DSU). However, upon failure to reach agreement during the consultations, the complainant can request the constitution of a panel and individual contracting parties are not in a position to block this. According to Article 6 DSU, “if the complaining party so requests, a panel shall be established at the least at the Dispute Settlement Body meeting following that at which the request first appears as an item on the Dispute Settlement Body’s agenda.” The only possibility for preventing the establishment of a panel is by unanimous decision of the Dispute Settlement Body (DSB). Obviously this new approach dramatically changes the balance and marks a veritable paradigm shift in the history of dispute settlement in international trade.15 2.2.

Structure of the Dispute Settlement System

The DSS in its present institutional design is based on several institutional tiers. The first tier is the ad hoc panels, which issue the panel reports. When hearing cases, the panels are composed of three panellists unless the parties promptly agree to a panel composed of five panellists. The second tier is a standing Appellate Body (AB). The third tier is the DSB, which is actually the General Council of the WTO, consisting of representatives of all contracting parties, but sitting under a separate chair and having its own rules 14

See Lowenfeld (2002), 148 with reference to J. Bhagwati (1991), “Aggressive Unilateralism”, in: The World Trading System at Risk, Hemel Hempstead: Harvester Wheatsheaf. 15 On the significance of that change in philosophy, see Lowenfeld (2002), 145; Petersmann (1997).


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of procedure.16 Importantly, there are time limits set out for each phase in the DSU, whereby the total duration of the proceedings from the date of the establishment of the panel until the date when the report is considered for adoption shall not exceed nine months where no appeal is made and 12 months in cases with appeal.17 The possibility to appeal panel decisions constitutes one of the main achievements of the revised DSS introduced in 1995. The setting up of an AB with more permanent members and the introduction of a full-fledged two-instance procedure has certainly raised the authority and trustworthiness, and hence the acceptance of the system.18 The AB reviews the panel report only on issues of law. As noted by commentators, however, the distinction between issues of fact and issues of law is not always a very clearcut one and should not be overstated. Given the advantages of subjecting controversial issues to a second look, it has been argued that whenever mixed fact/law questions are at stake, the AB shall treat these as questions of legal interpretation and “should not deny its own competence.”19 Indeed, the AB has not been too formalistic in defining its own jurisdiction.20 The appeal procedure is one of the factors that account for the growing legalisation of dispute settlement within the WTO. As additional evidence of legalisation, international law scholars classify the increased importance of issues of procedure such as scope of review and mandate of the panels, burden of proof, terms of reference, etc. Some have dubbed this overall trend toward legalisation a trend toward “Americanization” of the WTO dispute settlement procedure.21 Although legalisation can be regarded as a positive development in the direction of a system abiding by rule of law principles, a less positive result in practical terms has been the decline in the use of good offices and arbitration as alternative means of dispute settlement.22 2.3.

Adoption and Effect of Reports

The WTO dispute settlement system is almost unique in that adoption of panel and AB reports is quasi-automatic under the so-called “reverse

16

See Article IV WTO Agreement; cf. Lowenfeld (2002), 153; Bartels (2004). Zimmerman (2006), 67. 18 Petersmann (1997); Dreyfuss and Lowenfeld (1997). 19 See Lowenfeld (2002), at 170, arguing that in case of doubt a dispute shall rather be taken on by the AB than jurisdiction denied. 20 Ibid. 21 Pauwelyn (2003b), 121–40. 22 Ibid. 17


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consensus rule”. The rule implies that a report is adopted by the whole DSB, i.e. by the representatives of all Members, unless there is a consensus that the report should not be adopted (Art. 16(4) DSU, cf. Art. 17 (14)).23 This means that reports are practically always adopted. The adoption of the report is followed by an implementation stage whereby the party found in violation of WTO obligations is expected to bring the violating measure in conformity with the respective agreement. The DSB is monitoring the compliance and keeps the dispute on its agenda until it is resolved (Art. 21 DSU). In case a secondary dispute arises concerning the defendant’s compliance with the recommendation, it can be handled by a so-called “compliance panel” in accordance with Article 21(5) DSU. Failure on the part of the defendant to implement the DSB recommendation gives the complainant the right to request authorisation to suspend the application to the defendant of concessions or other obligations (retaliation). It is worth noting, however, that the findings of non-compliance shall be made in accordance with multilateral rules and procedures and not unilaterally by the complainant (Art. 23 DSU).24

3.

THE WTO DISPUTE SETTLEMENT SYSTEM AND THE EVOLUTION OF INTERNATIONAL IP LAW AND POLICY: AN INSTITUTIONAL PERSPECTIVE

The above described WTO dispute settlement system can be approached from a number of theoretical perspectives. Below a possible approach for the analysis of the system is suggested, building on two particular strings of institutional theory, namely comparative institutional analysis as advanced by law and public policy scholar Neil Komesar, and historical institutionalism.25 3.1.

Comparative Institutional Analysis

Comparative institutional analysis as developed by Neil Komesar proceeds from the basic principles of comparative system analysis familiar

23

See Lowenfeld (2002), 145. See Zimmerman (2006), 69. 25 The presentation of the analytical approach in the following chapter builds on Bakardjieva Engelbrekt (2003), where the approach has been applied to the comparative cross-national study of fair trading law in Germany and Sweden. 24


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from the classical contributions of Ronald Coase.26 The market, the political process, but also the judicial process are conceived as alternative decision-making processes for dealing with law and public policy issues. However, Komesar goes further into the enterprise of comparing institutional alternatives, advancing as a main factor for comparative evaluation the participation of affected actors in the respective decision-making process (therefore “participation-centred” approach). Clearly, participation alters shape depending on the decision-making process. Thus, participation in markets occurs through transacting, in the political process – primarily through voting and lobbying and in adjudication – in the form of litigation. The focus is on the mass of participants, i.e. consumers and producers in the market process, voters and lobbyists in the political process and litigants in the judicial process.27 The use of the broad concept of “participation” facilitates the extension of the Coasean transaction cost approach from markets to politics and to adjudication. It brings the logic of economic theory closer to public policy and law. Studying the opportunities for participation (and representation) implies on the one hand analysis of the interests involved in a particular policy issue and, on the other hand, analysis of the characteristics of the alternative decision-making processes that enhance or reduce participation. Participation opportunities are weighed by assessing the costs incurred and the benefits expected from participation by the actors in the respective decision-making process. Participation costs are subdivided into two main categories, i.e. information and organisation costs. More specifically, the costs of participation depend “on the complexity or difficulty of understanding the issue in question, the number of people on one side or the other of the interest in question, and the formal barriers to access associated with institutional rules and procedures.”28 The benefits of participation are estimated through the per-capita stakes of affected interests. The stakes of potential participants differ both in terms of size and in terms of their distribution among the group. One can usefully distinguish between high stakes and low stakes and between concentrated and dispersed stakes. The balance of the stakes between potential participants in a decision-making process is decisive for the probability of successful participation. An even distribution of stakes on both sides and a relatively low number of parties involved are suggestive of high benefits and thus of a high probability of participation. In contrast, a

26 27 28

Coase (1960), 1 et seq. Komesar (1994), 7. Komesar (1994), 8. On organisational costs, see Olson (1965), 47.


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distribution with concentrated high stakes on one side and dispersed low stakes on the other reflects a problematic, non-optimal decision-making situation, due to notorious problems of collective action. In a classical analysis, Mancur Olson showed that in the case of collective and dispersed interests, actors would be disinclined to participate in collective action due to high costs of organisation and the risk of “free-riding”. His pessimistic prediction was that very large groups will normally not, “in the absence of coercion or separate, outside incentives, provide themselves with even minimal amounts of a collective good”.29 In general, comparative institutional analysis stresses that the dilemmas of institutional choice begin with large numbers. Small numbers of actors usually imply low transaction costs, where markets can be expected to cope endogenously with resource allocation through voluntary transactions.30 But if there are many actors on one side of the interests involved, transaction costs increase and at least potentially the question arises whether resorting to alternative institutions might increase allocative efficiency. Yet, comparative institutional analysis demonstrates convincingly that large numbers of affected parties constitute a problem in every setting. Similar interest constellations cause analogous problems of organisation and representation. Participation malfunctions in the market setting are reproduced in the political process and in adjudication. In other words, institutions tend to “move together”.31 So, rather than searching for the perfect decision-making process, legislators and policy makers should seek to identify the least imperfect alternative. Still, some categories of participation malfunction are linked to particular decision-making processes. When studying the political process, Komesar identifies two categories of situations that are particularly conducive to representative malfunction. The first is characterised by the dominance of small, concentrated interest groups, which is in conformity with well-established theories of public choice and interest group politics.32 Komesar labels this situation a case of “minoritarian bias”.33 The

29

Olson (1965), 48. Of course, even in small numbers situations, transaction costs can be high due to information uncertainty, strategic behaviour or other factors. 31 Komesar (1994), 23. 32 Stigler (1971); Buchanan/Tollison/Tullock (1980); Buchanan/Tullock (1967). 33 In contrast to influence, “bias” is described as a normative or prescriptive issue. “From the standpoint of resource allocation efficiency, minoritarian bias occurs when a concentrated high per capita minority prevails over the dormant low per capita majority even though the total social costs imposed on the 30


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theory predicts that, when public policy issues involve balancing between concentrated high-stake interests and dispersed small-stake interests, the former will prevail in the legislative process as well as in public agency decision-making. This is the result of free-riding and the low benefits of organisation associated with diffuse interest groups,34 but also due to the principal-agent problems characteristic of the political and the administrative process.35 Indeed, interest group theories of politics provide empirical evidence of overrepresentation of concentrated interests in the political process, along with the “capturing” of public agencies by the very interests they are set to regulate.36 Komesar, however, augments interest group theory with analysis of the role of majorities which allows him to identify a second category of malrepresentation, namely “the tyranny of the majority”. This second category of mal-representation is labelled “majoritarian bias”. All theorists of public choice accord some importance to the influence of the majority, but do not offer an explanation as to when and why such an influence may produce adverse effects. In order to come to a more satisfactory answer Komesar proceeds to analyse the character of the large group. He offers two explanatory factors that may be decisive for the success of collective action despite high numbers. In the first place, the average per capita stakes are important. This factor predicts that the greater the mean, the higher the probability that collective action will follow. The second factor is the variance and skewness of the stakes within the big group. Uneven distribution of the stakes brings the analysis of the large group closer to that of the small group, since a small subgroup with high stakes will then act as a driving force for collective action. The term “catalytic subgroup” nicely captures this phenomenon.37 Finally, there are better opportunities for mobilising dormant majorities if the issue concerned is simple and easy to communicate in powerful metaphoric terms. The framework proposed by Komesar requires a rigorous analysis of the characteristics of each of the institutional alternatives in terms of effects on participation costs and benefits (institutional design). To take one example, in contrast to the political process, participation in adjudication is typically a costly enterprise, involving litigation fees and requiring

losing majority are greater than the total social benefits gained by the successful minority.” Komesar (1994), 76. 34 See Olson (1965). 35 On the theory of agency and the principal-agent problem, see Eggertsson (1990), 40 ff. with further references 36 See Buchanan/Tullock (1967). 37 For a similar argument, see Stigler (1974).


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sophisticated expert advice. Access to the judicial process is highly formalised through rules on standing, jurisdiction, and choice of law.38 The judiciary operates on a very limited scale and possesses only limited expertise to decide on highly technical issues. At the same time, the judicial process has the advantages of ensuring direct access, careful and lengthy examination of the issue by a body principally isolated from political pressure and information manipulation. These aggregate characteristics of the judicial process make it particularly apt to deal with certain situations of skewed distribution of stakes, for instance where the political process suffers from severe majoritarian bias like the violation of ethnic minority rights. 3.2.

Historical Institutionalism

Historical institutionalism conceives of institutions in a slightly different way. It highlights the role of institutions as humanly devised constraints, whose main function is to reduce uncertainty by providing a structure to everyday life.39 Institutions thus include formal legal rules, but also informal constraints (such as ideologies and customs) and the enforcement characteristics of both.40 North highlights institutions’ propensity to persist over time. Institutional paths may be followed not because they are efficient but because changing them is costly. Moreover, institutions tend to produce incentives for the creation of organisations, which then depend on the institutional framework and contribute to the latter’s stability (institutional symbiosis). The historical institutional perspective demonstrates that institutional choice is contingent on a historical and institutional context that has been shaped through time and is generally resistant to change. The concerns underlying historical institutionalism and Komesar’s participation-centred approach may be said to converge in the category of adaptive efficiency, introduced by North. Adaptive efficiency is a benchmark that supposedly can be used for normative evaluations of a variety of institutional frameworks. According to North, adaptive efficiency “provides incentives to encourage the development of decentralized decisionmaking processes that will allow societies to maximize the efforts required to explore alternative ways of solving problems”.41 Arguably, by eliciting participation as a central factor in institutional choice Komesar suggests

38 39 40 41


Komesar (1994), 126. North (1991), 97. On institutions and institutional change generally, see North (1990). North (1993), 35.

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one way of encouraging such decentralised decision-making processes. Originally developed as a concept of economic theory, adaptive efficiency may equally well relate to established categories in constitutional theory, such as representative democracy and access to justice, providing a link between economic, political and legal theory. 3.3.

Institutional Choice in a Multi-level System of IP Governance

Institutional choice and historical institutional approaches have been developed chiefly for the analysis of decision-making processes within individual states. Evidently, the complexity grows exponentially when we move from the national system to the present multi-level system of IP governance.42 In this system, allocation of decision-making competences takes place not only on a horizontal plane, between national legislative, judicial, administrative and market processes, but also on a vertical plane between national, supranational and international institutions. The WTO represents one of the most advanced organisational structures today, called on to govern an ever more open and interconnected global economy. However, whereas the economic vision on which WTO builds is that of open markets without borders, the political and legal reality that forms the backdrop of the WTO agreements presents a far more fragmented landscape shaped by traditional conceptions of sovereignty and territoriality.43 Modern markets are extensively framed by an array of regulative policies, relating to health, labour, consumer protection and the environment, to name but a few. Yet the national political processes of the Member States of the WTO are only weakly interlocked, the traditional intergovernmental type of cooperation still being the rule. The same can be said of national judicial processes and the WTO dispute settlement proceedings. Whereas panel and AB reports inevitably inform national decision-making processes, there is no direct link between national courts and the WTO adjudicative bodies. In this respect, the WTO is manifestly different from the advanced form of economic, political and legal integration represented by the European Union.44 This only partial, skewed and imperfect interpenetration of alternative decision-making processes at the national and the international level, accounts for major institutional dilemmas in global economic governance in terms of both institutional choice and design. While the logic of

42 43 44

See Dinwoodie (2002); cf. Dinwoodie (2000). Buxbaum (1996). See Bakardjieva Engelbrekt (2003), 67.


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global markets seems to require greater reliance on international political processes for policy coordination and harmonisation, there are intrinsic difficulties in ensuring democratic participation in and accountability of such processes.45 Likewise, a global trade court may be attractive from the viewpoint of ensuring legality and compliance. Yet achieving a sufficient degree of legitimacy and trust in such global judiciary is an evasive enterprise. Given the persistent divergence in social and economic conditions as well as in political visions across the world, the WTO not surprisingly builds chiefly on a decentralised governance model based on non-discrimination.46 Intellectual property has only recently become part of the international regime of global trade governance. Whereas the trade-related aspects of intellectual property are stressed in the title of the TRIPS Agreement, the unique character of the agreement when compared with other WTO treaties is widely acknowledged.47 In contrast to the core provisions of GATT and of other free trade agreements, TRIPS does not aim at negative economic integration through eliminating trade barriers, but far more ambitiously seeks to set up common (albeit minimum) substantive standards for private IP rights. It can consequently be viewed as a measure of positive integration, of market-building, to borrow terminology from the Europeanisation debate,48 implying a stronger pull toward political coordination and toward common interpretation and enforcement policies. This twist toward legalisation and centralisation raises institutional issues that are specific to the domain of IP in the international regime of global trade governance. 3.4.

Interests, Stakes and Participation in the International Political Process

If viewed through the lens of institutional choice, the international political process offers varying incentives for alternative interests to participate and influence IP law and policy making, leading to particular decisionmaking dynamics. In an insightful analysis of the European political process, Miguel Maduro distinguishes between the interests of states and of non-state actors, qualifying the former as vertical and the latter as horizontal.49 Consequently he identifies instances of both vertical and 45 46 47 48 49


Dinwoodie and Dreyfuss (2004); Dreyfuss (2008). See Petersmann, acknowledging these dilemmas (2005). Abbott (1997); Dreyfuss and Lowenfeld (1997). See Scharpf (2002). Maduro Poiares (1998), at 118.

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of horizontal majoritarian and minoritarian bias, respectively. Indeed majoritarian and minoritarian bias can plague political processes not only at the domestic, but also at the international level. 3.4.1. Horizontal minoritarian bias Horizontal minoritarian bias in Maduro’s typology refers to the overrepresentation of transnational concentrated interest groups (typically industries) in supranational and international political processes. Such activism in the course of the negotiations around the TRIPS Agreement is well documented in the scholarly literature. Given the sophistication of drafting international agreements on complex technical issues such as intellectual property law, much work has been delegated to national and international bureaucrats. The latter in turn largely depend on the information input, and are indirectly exposed to the lobbying pressure of powerful interest groups from the affected industries.50 Susan Sell provides a convincing account of the disproportionate influence of the 12-member US-based Intellectual Property Committee, consisting of prominent executives from the pharmaceutical, entertainment and software industries, in the initiation, negotiation and crafting of the TRIPS Agreement.51 Andrea Menescal has studied the role of international business and specialised IP associations, notably the International Chamber of Commerce (ICC) and the International Association for the Protection of Intellectual Property (AIPPI) in the negotiations leading to a full-blown international regime of IP rights.52 According to this account, ICC and AIPPI participated directly (and intensely) in the negotiations on the Paris Convention. In addition their members were included in government delegations, the AIPPI having as many as 63 of its members on such delegations; a dynamic that was repeated in the drafting of the TRIPS Agreement.53 This confirms Drahos’ observation that “the development of intellectual property policy and law has been dominated by an epistemic community comprised largely of technically minded intellectual property law experts.”54 At the same time it is recognised that the global legal regime of intellectual property impinges on a number of public goods such as information, knowledge, but also public health and free trade.55 Global public goods affect the broad-based interests of citizens and information users. 50 51 52 53 54 55

Komesar (1994). Sell (2003), 1 et seq. Menescal (2005). Menescal (2005), 165. Drahos (1999), 369. See Maskus and Reichman (2005); Shaffer (2005a).


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Following interest group theory the representation of such groups in the political process suffers from a number of imperfections.56 Still, domestic law-making processes would normally be more prone to accommodate collective interests than international bargaining and decision-making. In particular, in Western-type democracies, the political process would be relatively responsive to disgruntled majorities since in a democratic society there is a plurality of channels for giving voice to the interests of such majorities, notably through the electoral process. International decision-making processes are by contrast relatively distanced from the democratic accountability of local electoral and parliamentary procedures. Being drafted as an international instrument for IP rights, the TRIPS Agreement’s self-identification is with the interests of rightholders. Buried in technocratic debates on complex IP issues, the costs of overprotective standards are typically lost on the broad but dormant group of IP users, spread across a multitude of jurisdictions. Given that the benefits of strong international IP standards accrue to a small but concentrated group of high-stake actors, whereas the costs are borne by a large and dispersed majority of users of knowledge goods, the risk of tilting the decision-making process in the direction of disproportionately favouring the interests of the concentrated minority is imminent.57 3.4.2. Horizontal majoritarian bias International law-making is, however, not immune to the opposite bias, namely horizontal majoritarian bias. This is defined as “the risk . . . that the interests of the many, evenly spread throughout the Community, will be satisfied at an unproportional cost to the interests of the few.”58 Particularly important for the mobilizing of the dormant majority is the type of the disadvantaged minority, the character of the majority group as well as the issue at stake. The more insular and visible the minority, the easier it is to limit the consequences of legislative decisions to the members of the minority. As to the issue at stake, metaphoric issues easily attracting media attention and drawing on “simple symbols, decrease the costs of communication, information and organization, thereby making it more likely that the majority will be active rather than dormant.”59 Amy Kapczynski has more recently captured this phenomenon under the concept of frame mobilisation.60 This proposition is confirmed by the 56 57 58 59 60


See above with reference to Olson (1965) and Komesar (1994). See Komesar (1994), above. In a similar sense, see Dreyfuss (2004), 26. Maduro Poiares (1998), at 119. Komesar (1988). Kapzynski (2008).

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massive international attention generated by and the interest mobilisation witnessed in the “patents on life” and “access to HIV medicines” debates. It is no accident that the only political controversy that has so far led to revision of the TRIPS is exactly the issue of access to medicines. No other IP issue has mobilised such massive public participation through NGO pressure and medial attention.61 3.4.3. Vertical minoritarian and majoritarian bias Separate from the dynamic of participation of non-state actors in international political processes, a parallel dynamic of state participation evolves. Here also different types of malfunctions are manifested. Consistent with the above categorisation, Maduro dubs these vertical minoritarian and majoritarian bias. To be sure, and as noted above, the design of the political process at the European Union level is manifestly different from that of international organisations, which like the WTO are based on the principle of intergovernmentalism, consensus and respect for national sovereignty. Nevertheless, as the history of TRIPS negotiations demonstrates, power leverage translating into vertical minoritarian bias can be exercised not only by voting, but also by being able to offer attractive concession packages due to economic and political supremacy. The role of the US as a driving force for the transfer of international IP law-making from WIPO to the GATT is undisputed.62 The active support received by the European Communities, Canada and other countries with high stakes in IP-intensive industries, is likewise easily explained in terms of vertical minoritarian influence in intergovernmental bargaining. As a result, the interests of a few technologically developed states and state blocs have been pushed forward at the expense of the interests of a majority of developing countries forced to accept a level of IP protection that may arguably negatively affect their chances of economic and technological advancement.63 Finally, vertical majoritarian bias is also possible, something demonstrated by the powerful influence exerted by a majority of developing states on law-making processes within the auspices of WIPO (vetoing further elaboration of IP standards) and possibly in forums such as UNCTAD,64 and more recently, WHO, UN Human Rights Commission, etc.65 It is also

61

See Ministerial Declaration on the TRIPS Agreement and Public Health, 14 November 2001, WT/MIN(01)/DEC/1. Love (2006). 62 Gervais (2002); Sell (2003). 63 Dreyfuss (2008). 64 See Menescal (2005), 173. 65 For an interesting analysis through the prism of regime theories in international relations, see Helfer (2004).


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worth noting that as the economic growth of some developing countries is intensifying, their stakes in access to information and knowledge, as well as their bargaining capacities, are visibly increasing. These countries may be expected to form catalytic subgroups within the broad group of developing countries that may lead the resistance against any attempts at expansion of IP protection to new levels, occasionally also despite possible efficiency gains from the proposed changes.66 3.5.

WTO Dispute Settlement System as a New Arena for IP Law and Policy Making

An important insight from comparative institutional analysis is that decision-making processes are interrelated and that the choice between alternative institutions is influenced by the comparative advantages and disadvantages the latter provide for participation of affected interests.67 Indeed, as demonstrated by Helfer, perceived malfunctions in decisionmaking processes within specific international fora, for example inadequate participation and representation of developing countries within WTO and TRIPS rule-making processes, may lead both private actors and governments to move to other political decision-making arenas (e.g. WHO, UN, to name but a few).68 Alternatively, efforts may be redirected from the international political process to international dispute settlement. The battles that have been lost in negotiations can be re-launched in the form of litigation trying to reshape through (quasi-) judicial interpretation the rules agreed on the political stage. Dispute settlement can thus be viewed as one among a number of alternative forums for IP decision-making. Of course the attractiveness of international adjudication as a decisionmaking arena is to a large extent preconditioned by the institutional design of the DSS. Factors such as standing, access to and transparency of procedure for third parties and citizens, but also the composition of the dispute settlement bodies and the remedies that are at their disposal, influence the costs and benefits of participation of affected interests and ultimately, the responsiveness and flexibility of the system.

66

For the potential blocking role of the so-called BRICS countries (Brazil, Russia, India, China and South Africa), or BICS countries considering that Russia is not a WTO country, see Yu (2008). 67 Shaffer (2005a); Shaffer (2008). 68 Helfer (2004). See also the insightful analysis of Dinwoodie on the complex architecture of the international IP system (2002) and of international copyright law (2000).


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Even before the TRIPS Agreement, intellectual property law was occasionally a bone of contention in the context of international trade. Thus in the 1980s the European Community succeeded in its complaint against the US regarding the so-called Manufacturing Clause in the United States Copyright Law.69 Another complaint by the European Community in the same period targeted a US law that enabled patent holders to bring an infringement proceeding against foreign products before an administrative agency at the point of importation.70 Both cases illustrate the pre-TRIPS reserved attitude to intellectual property laws as measures that create barriers to international trade rather than as part of the framework of and an enabling condition for such trade. The TRIPS Agreement, however, changed dramatically the status of IP rights within the context of the world trade system and respectively the role of international dispute settlement. The detailed substantive standards laid down in TRIPS partly through the incorporation of the Berne and Paris Conventions raise intricate questions of interpretation and compliance that bring the activity of WTO dispute settlement bodies closer to that of classical tribunals and, at least theoretically, seem to require more intense quasi-judicial guidance. Indeed, since the establishment of the WTO, the dispute settlement system has been invoked for the interpretation and enforcement of the TRIPS agreement in as many as 24 disputes. Seven of these disputes reached the stage of a panel report71 and three panel reports have been appealed and concluded with an AB report.72 As is well known, some of the panel and AB reports address crucial questions concerning for instance the scope of patent and copyright protection, the interpretation of the three-step test for allowing limitations in IP rights, the relation of IP rights to other public policy objectives and the room for manoeuvring left to national governments.73

69

United States’ Manufacturing Clause (EC v. US), GATT BISD, 31 Supp. 74 (1985); Lowenfeld (2002), 147. 70 European Community v. United States, Section 337 of the Tariff Act of 1930, GATT BISD, 36th Supp. 345 (1990). 71 Canada – Patent Term – DS170; Canada – Pharmaceutical Patents – DS114; China – Measures Affecting the Protection and Enforcement of Intellectual Property Rights – DS 362; EC – Trademarks and Geographical Indications – DS290; India – Patents (EC) – DS79; US – Section 110(5) Copyright Act – DS160; US – Section 211 Appropriations Act – DS176. 72 Canada – Patent Term – DS170; Canada – Pharmaceutical Patents – DS114; US – Section 211 Appropriations Act – DS176. 73 For a critical analysis of the reports on the three-step test, see Kur, Ch. 5 in this volume.


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Whereas DSB recommendations are formally only binding upon the parties, they inevitably affect the long-term evolution of international IP law, thereby impacting on interests of state and non-state actors far beyond the scope of the individual dispute.74 It has been convincingly argued that extensive interpretation of protection standards may impose considerable social cost on developing and least developed countries in terms of impeding access to knowledge and information, thus effectively locking in and perpetuating the already existing competitive advantage of developed countries.75 More unexpectedly, insisting on all too rigid international standards may prevent even developed countries from adapting the existing legal framework to new technological developments and to new majoritarian interests of users of information and technology.76 Given the vital role of the DSS for calibrating international and national IP law, it appears important to inquire as to whether the system has been accessible and has managed to accommodate the broad-based interests of developing countries and of users, both on a vertical and on a horizontal plane. In the light of the institutional perspectives outlined above, such an inquiry must address a number of pertinent questions. First, what are the main modalities for participation in the quasi-judicial process of dispute settlement? Secondly, what kind of participation dynamics does the present institutional design of the DSS generate in IP disputes? Thirdly, how would a reform of the design of the dispute settlement procedure influence international IP law-making?

4.

THE INSTITUTIONAL DESIGN OF THE WTO DISPUTE SETTLEMENT SYSTEM: THE MODALITIES OF PARTICIPATION

Whereas adjudicative processes have certain universal distinctive features, the minutiae of institutional design may be differently shaped and can prove decisive for mobilising the participation of affected actors and for ensuring the responsiveness of the system.

74

Lowenfeld (2002), 160; Dinwoodie and Dreyfuss (2004), (2007). See Dreyfuss (2004); Dreyfuss (2008). Dreyfuss calls this “a one-way ratchet”, see (2004), 22. 76 Dreyfuss (2004); Dreyfuss (2008), 7 et seq. 75


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125

Composition of the Panels

Clearly, respect for the DSS to a great extent depends on confidence vis-à-vis the bodies entrusted with handling disputes and their members. Ensuring the independence of panel members is therefore underlined as a guiding principle in the procedure for selection of panel members.77 The DSU explicitly provides that panellists shall serve in their individual capacities and not as government representatives, nor as representatives of any organisation. Members undertake to abstain from giving instructions or seeking to influence panel members with regard to matters before the panel (Art. 8(9) DSU). The panels are to be nominated by the Secretariat and the parties are expected to accept the proposed panel unless they have “compelling reasons” to oppose the Secretariat’s proposal (Art. 8(6) DSU). In case of disagreement, the composition of the panel shall be determined by the Director General, in consultation with the Chairman of the DSB and the Chairman of the relevant Council or Committee (Art. 8(7) DSU). To assist the Secretariat, an indicative list (roster) of eligible individuals is maintained by the Secretariat, being regularly updated and complemented, and indicating areas of expertise of the individuals on the list (Art. 8(4) DSU). In view of the intergovernmental character of the WTO Agreements, the nationality of panellists is regarded as important for guaranteeing their independence. Consequently, citizens of countries whose governments are parties to the dispute shall as a rule not sit as panellists in this dispute, unless the parties to the dispute agree otherwise (Art. 8(3) DSU). It is not exceptional that parties agree to include experts from countries involved in a dispute, especially if the parties consider the issue at hand requires good expertise in the law and the practice of these states. Remarkably, the restriction applies not only to citizens of Members whose governments are immediate parties to the dispute, but also to citizens of Members who step in as third parties in the dispute (Art. 8(3) DSU). This provision has had the effect of excessively shrinking the circle of possible candidates for panellists, disqualifying citizens of all EU countries and US citizens given that their governments are more often than not either parties or third parties to a WTO dispute.78 Following Article 8 DSU, “[p]anels shall be composed of well-qualified

77 See Article 8(2) “Panel members should be selected with a view to ensuring the independence of the members, a sufficiently diverse background and a wide spectrum of experience”. 78 Davey (2002), see below.


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governmental and/or non-governmental individuals.” These include “persons who have served on or presented a case to a panel, served as representative to the Council or Committee of any covered agreement or its predecessor agreement or in the Secretariat, taught or published on international trade law or policy or served as a senior trade policy official.” Apparently, by making special reference to qualifications and by making it possible for non-governmental individuals and for academics to sit on the panels, the drafters have sought to respond to criticism of the clublike character of the previous system. The provision explicitly mentions a broad field of expertise as a goal in the selection procedure. Nevertheless, as many critics of the system have pointed out, governmental officials and career diplomats still remain an overrepresented group among panel members.79 Despite the apparent advantages of professional specialisation, experts in intellectual property have only incidentally been represented on the panels handling TRIPS-related disputes so far.80 Indeed, in all seven IP disputes that have led to the establishment of a panel, there have been only a few panel members with documented IP expertise. Among these are two former WIPO deputy directors: the first, Mihàly Ficsor, who sat on the Canada Pharmaceuticals panel is a renowned IP expert, but within a different area of specialisation than that of the dispute, namely copyright law and not patent law.81 The other is Marino Porzio, a Member of the China Enforcement Measures panel, an advisor of the Chilean government on IP matters.82 Arumugamangalam Ganesan, who sat on the US Copyright Act panel (and on the Canada Term of Patent Protection AB), has been negotiating IP issues83 and François Dessemontet, sitting on the panel in the US Omnibus Appropriation Act dispute, is an academic with a broad IP background. Otherwise TRIPS panels have been, much like WTO disputes, dominated by career diplomats and international trade law experts. This is naturally in marked contrast to the experience of states where IP issues are treated by specialized courts. On the other hand, it should 79

Lowenfeld (2002). Dreier (2005); Dreyfuss (2008). 81 See Dreier (2005). 82 In the early days of the DSS it was discussed in the scholarly literature whether officials from the WIPO Secretariat would be constrained from serving on panels. The prevailing opinion seemed to be that the fact of being employed by an organisation with IP specialisation should not per se be a basis for disqualification. According to Abbott, this applied not only to WIPO, but also to officials and employees of other international and national IPR organisations. Abbott (1997), 416 et seq. 83 Dreier (2005), 52. 80


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be noted that IP matters, with the probable exception of patents, are not always concentrated in courts of special jurisdiction even in the national context. Moreover, approaching IP issues with the unprejudiced eye of a “generalist” may not necessarily be a disadvantage. To the contrary, it may add a refreshing perspective and contribute to seeing IP law and policy in a broader context. Interestingly, Fredrik Abbot who initially argued for the need for solid IP expertise in TRIPS-based disputes, has later on, in a tribute in memory of the respected professor of international trade law, Robert Hudec, made a passionate defence for the incorporation of more diversified expertise in IP-related disputes. Taking the example of the Canada Pharmaceutical Patents panel, where Robert Hudec was chairman, Abbot stresses the importance of having panel members with broad vision of trade policy and as in the specific case, competence in health policy issues, when interpreting the TRIPS agreement.84 Indeed, whereas emphasis on professional expertise is certainly warranted, one should nevertheless keep an open eye to the downside of specialisation, namely developing professional tunnel vision and professional cum industry bias. The principles of independence and objective selection on the basis of expertise and experience are to a certain extent in conflict with another guiding principle in the selection of panels, namely that of equitable geographic representation. In the appointment of panellists, the special interests of the developing countries are to be taken into consideration. In case a dispute involves a developing country, at least one of the panellists shall be from such a country (see Art. 8(10) DSU). In 2002, the following statistics over the distribution of nationalities of panellists in all categories of WTO disputes were reported by the first Director of Legal Affairs for the WTO Professor William J. Davey.85 Out of a total of 119 individuals who had filled 186 panellist positions between 1996 and 2002, the majority were from Switzerland (19 positions filled), New Zealand (17), Australia (12), Brazil (11), Hong Kong (11), South Africa (9) and Canada (7). Twenty-six positions were taken by EC countries and four by the US. Overall, 73 positions were filled by panellists from developing countries (39%).86 Obviously the system has led to underrepresentation of panellists from developing countries and least developed countries (LDC), as well as from the major WTO players, the latter arguably being best endowed to offer a pool of qualified panellists.

84

Abbott (2003). Davey (2002). 86 The number is even lower, 35%, in statistics presented by the EC in their contribution to the review of the DSS; see TN/DS/W/1 of 13 March 2002 (EC). 85


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With the growing number and complexity of disputes, the appointment of ad hoc panellist has become ever more problematic and time-consuming. According to statistical data submitted by the European Union in 2002, the average time for appointment of panellists has increased from about 30 days in 1996 to 61 days in 2001.87 Importantly, of 24 panels established in the period 2000 to April 2002, 14 were composed by the Director-General under Article 8(7) DSU (58%).88 Both the problem of uneven geographical representation and the delays in composing panels are given as grounds for considering a shift from ad hoc panels to a system with a more permanent roster of panellists as is the case with the AB.89 4.2.

Composition of the Appellate Body

The AB is composed of a total of seven persons, of whom one is elected chairman of the body by the members.90 Appeals are heard and decided by divisions consisting of three AB members. According to Rules (3)(1) and 4(4) of the Working Procedures for Appellate Review, decisions on an individual appeal case are taken solely by the assigned division of the AB and the division has full authority and freedom to hear and decide the appeal assigned to it. The procedure envisaged for the selection and appointment of the AB differs substantially from that for the panels. Members of the AB are appointed by the DSB, i.e. by the whole WTO membership, for a term of four years, with the possibility of one reappointment.91 The fixed term of appointment gives the AB the character of a standing tribunal. It is not required that the members are employed full-time, but this is often the case. The selection of AB members proceeds on the basis of expertise and integrity. Following Article 17(3), DSU, the AB “shall comprise persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally.” Members of the AB shall be unaffiliated with any government. 87

TN/DS/W/7 of 30 May 2002 (EC) replies to India’s questions. For fresh data confirming the trend, see TN/DS/W/90 of 16 July 2007, Diagnosis of The Problems Affecting the Dispute Settlement Mechanism, Some Ideas by Mexico. 88 TN/DS/W/7 (EC). 89 See TN/DS/W/1 (EC), below. 90 See Article 17(1) DSU Appellate Review. See Lowenfeld on the political difficulties of selecting and appointing the members of the AB; Lowenfeld (2002), 167. 91 To ensure a rotation, the mandate of three of the seven persons appointed immediately after the entry into force of the WTO Agreement expired at the end of two years. The three persons were determined by lot. See Article 17(2) DSU.


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Compared with the requirements for panellists, those for AB Members stress more emphatically professional competence. It has been critically noted, however, that there have been practically no AB Members with indepth expertise in IP.92 The DSU requires the AB to be “broadly representative” of WTO membership and in this pays tribute to demands for equitable geographic representation. However, the mere fact that a member belongs to a country that is involved in a particular dispute does not constitute a formal ground for “disqualification”. Certainly, members of the AB shall not participate in consideration of any disputes that would create a direct or indirect conflict of interest (Art. 17(3) in fine, cf. Rules of Conduct, II). Yet nationality is not automatically an indication of conflict of interest. The original DSU did not contain any specific rule on the question of nationality. However, when issuing its Working Procedures, the Chairman of the AB affirmed the principle that nationality should not be decisive and stated that to deal “with the issue of nationality in any other way would be both unnecessary and undesirable”.93 The Members who are to serve on an individual case are selected “on the basis of rotation while taking into account the principles of random selection, unpredictability and opportunity for all Members to serve regardless of their national origin” (see Rule 6(2) Working Procedures for Appellate Review). Clearly the principles of rotation and random selection aim at curbing any attempts to improperly influence the outcome of the appeal through targeted selection, as well as to appease misgivings as to possible geographical or nationality bias in the selection. At the time of conception of the design of the AB, it had been impossible to foresee the intensity of recourse to appeal in dispute settlement proceedings. Practice has demonstrated that such recourse surpassed expectations. The limited number of AB members has proven to be an obstacle to the efficient and speedy dealing with appeals. Parallel consideration by the AB of more than two appeals is not possible. Consequently, in a number of cases the AB has issued its reports within more than 90 days, which is the express requirement of Article 17(5) DSU.94 Of the 47 reports issued by the AB up to 2002, 45 or 96% were issued by a division having at least one

92

Dreyfuss (2008). Quoted after Lowenfeld (2002), 168. 94 See TN/DS/W/2, Communication from Thailand, referring to disputes DS26, DS48, DS122, DS135 and DS138 (reports being issued in more than 90 days), and DS122 and DS135, where a report was circulated 140 days after notice of appeal. 93


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member from a developing Member, and 24 or 51% were issued by a division having two of its three members from a developing country.95 Summing up, the principles guiding the composition and setting up of panels follow a mixed logic showing features of both arbitration and judicial bodies, whereas the AB is formed under principles bringing it closer to an independent tribunal. 4.3.

Standing

Article XXIII GATT provides that any WTO Member may start proceedings if it considers that “any benefit accruing to it directly or indirectly under [the GATT] is being nullified or impaired”.96 On the basis of this article, it can be inferred that a purely legal interest in receiving authoritative interpretation of a WTO Agreement by a panel would not be sufficient to ground a locus standi. At the same time, as noted by Pauwelyn, for a breach of WTO rules to be established, it is generally accepted in GATT/WTO case law that a complainant is not required to prove that actual trade flows have been diverted. What is required is an effect on potential trade, i.e. “proof of trade opportunities being affected.”97 The AB has applied the rules on standing in a generous manner. For instance in US – Section 211 Omnibus Appropriations Act, the AB upheld a claim made by the European Communities against the United States, based on discrimination that had no direct and even no potential effect on the EC. The alleged discrimination was between original owners of IP rights who were nationals of, on the one hand, Cuba and, on the other, the United States.98 A similar approach was earlier applied in the EC – bananas dispute.99 Still, commentators note that in all cases where complaints have

95

TN/DS/W/1 (EC). On the distinction between violation and non-violation complaints, see Petersmann (1997), 72 et seq. and Lowenfeld (2002), 176–9. It is noteworthy that according to Article 64.2 TRIPS, a memorandum on non-violation complaints in respect of TRIPS obligations has been introduced. Despite attempts to lift the memorandum (Ministerial Declaration, WT/MIN(05)/DEC, Art. 45, of 18 December 2005), no decision on this issue has been adopted yet. As a consequence of the memorandum, disputes concerning more subtle issues of interpretation of the TRIPS Agreement are made impossible. See Dreyfuss (2008), at 18, note 99. 97 Pauwelyn (2003a), at 943. 98 United States – Section 211 Omnibus Appropriations Act of 1998, WT/DS176/ AB/R, adopted 1 February 2002, paras. 273–96. See Pauwelyn (2003a), at 943. 99 AB Report on European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted on 25 September 1997. Cf. Pauwelyn (2003a), at 942. 96


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been filed in the absence of on immediate trade interest and on behalf of other Members, the defendants have not challenged the complainant’s standing. Therefore the AB cannot be considered to have taken an express stand on the issue.100 4.4.

Access of Third Parties

Significantly, the system envisages rights for participation of third parties at all stages of the dispute settlement process if the latter consider that their interests are affected by the dispute. Article 4(11) DSU concerns the role of third parties in consultations (informal third parties),101 whereas Article 10(2) DSU stipulates a right for third parties to make submissions in panel proceedings. Third party participation in consultation is conditioned on the ability to show “substantial trade interest” in the consultations.102 Participation in panel proceedings is more liberal and is open to Members that can show “substantial interest” (and not necessarily trade interest). Article 10(2) grants “[a]ny Member having a substantial interest in a matter before a panel and having notified its interest to the DSB . . . an opportunity to be heard by the panel and to make written submissions to the panel.” The submissions shall be given to the parties to the dispute and should be reflected in the panel report, but the panel is not obliged to address the arguments of the third parties. Following Article 17(4) DSU, third party Member States are even permitted to participate in proceedings before the AB, without however enjoying a full-fledged right of appeal.103 “Interest in a matter before the panel” is interpreted to mean not only an interest in the subject of a complaint but also in the issue at stake in a complaint. This means that participation is also allowed when a country may have legislation or regulation similar to that questioned by the complaint and wants to bring forward arguments in support of the defendant.104 Generally, panels and the AB have been quite generous in providing access for third parties even in the absence of evidence of immediate interest.

100

Pauwelyn (2003a), at 944. Busch and Reinhardt (2006). 102 See Dreyfuss and Lowenfeld (1997), 292, n. 41: “In each context, however, it is understood that third parties must have an actual and current trade interest in the dispute, and participation in the appeal proceedings appears to be limited to members that have participated in the proceeding before the panel.” But see Lowenfeld on the subsequent AB reports, infra. 103 Lowenfeld (2002), 170; Zimmerman (2006), 66. 104 Lowenfeld (2002), 174. 101


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According to empirical research based on all WTO disputes in 2002, only 19 out of 507 requests by non-disputants to join consultations have been rejected, while the approach has been even more open for third party participation in panel proceedings.105 Third party submissions in the case of TRIPS-related disputes have been often founded on so-called systemic interest in the dispute. In other words, Members have joined consultations and entered panel proceedings when they have considered that there is a common interest that the dispute results in satisfactory interpretation of important Treaty provisions. Thus, for instance, Brazil when intervening in the Section 110 US Copyright Act dispute stated that “what motivates Brazil to intervene in this dispute is essentially a systemic interest on [sic] the implications of the interpretation on the scope of exceptions contained in the WTO Agreement on Trade Related Aspects of Intellectual Property Rights [the TRIPS Agreement]”106 In its submission in Canada – Pharmaceutical Patents, Brazil inferred: “Whatever decision was taken on the matter, it would influence the manner in which the notion of balance, within the TRIPS Agreement, between public interest and trade commitments was perceived.”107 4.5.

Evidence Gathering and Information

According to Article 13 DSU, “each panel shall have the right to seek information and technical advice from any individual or body which it deems appropriate.” This provision certainly vests the initiative of gathering information and expertise in the hands of the panel. In TRIPS-related disputes, Article 13 DSU has been used by panels as a basis to request expert opinion and interpretative guidance by the WIPO.108 Given the limited expertise of panels in IP matters, these opinions may acquire considerable authoritative power. At the same time, the status and legitimate basis for these opinions can be questioned. As noted by Abbot, “the WIPO Secretariat is not empowered under any multilateral agreement or by WIPO custom to render official interpretations of WIPO-administered conventions” and “there can be no independent formal or official WIPO Secretariat position on a Paris or Berne Convention interpretation.”109

105

Busch and Reinhardt (2006), 451, n. 22. WT/DS/160/R, Brazil, oral statement at the third party hearing, p. 164. 107 WT/DS/114/R, Brazil, submission, p. 106; see also India, 119. 108 E.g. in the US Omnibus Appropriation Act, the panel requested factual information by the International Bureau of WIPO as to the interpretation of 2(1), 6, 6bis, 6quinquies, and 8 of the Paris Convention, DS/176/R, paras. 6.1 et seq. 109 Abbott (1997), 417. 106


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What has been unclear is how the panels should treat information submitted to them on the initiative of non-state parties external to the dispute, i.e. non-governmental organisations, international organisations or individuals. The AB stated in US Shrimps that “authority to seek information is not properly equated with a prohibition on accepting information which has been submitted without having been requested by a panel. A panel has discretionary authority to accept and consider or to reject information and advice submitted to it, whether requested by a panel or not. . . .”.110 This interpretation permits the panels to accept amicus curiae briefs by persons and organisations other than governments. The approach was confirmed in the Asbestos dispute.111 In this case the AB effectively advanced an ad hoc two-stage procedure, whereby in the first stage an application for leave has to be addressed to the panel and, in the second stage, after approval by the panel, an effective submission takes place. This practice proved, however, to be highly controversial.112 Nevertheless, it should be stressed that accepting amicus curiae briefs is left at the discretion of the panel and is not constituted as a procedural right of non-state actors. Interestingly, the TRIPS-related disputes have so far not attracted submissions on the part of NGOs and there are few, if any, documented attempts of filing amicus curiae briefs in such disputes.113 4.6.

Transparency

Panel and AB proceedings have for long been closed to the public. Support for the principle of confidentiality was derived from Article 14(1) DSU, which stipulates that panel deliberation shall be confidential, and from Article 17(10), stating that the proceedings of the Appellate Body shall be confidential. The rationale for this lack of transparency has been that it would facilitate the main objective of the dispute settlement procedure, namely to achieve resolution of the dispute. Confidentiality would allow parties to negotiate concessions, without being locked 110

This interpretation was first advanced in the AB Report on United States – Import Prohibition on Certain Shrimp and Shrimp Products, adopted on 6 November 1998, WT/DS58/AB/R, paras. 99–110, para. 108. 111 See European Communities – Measures Affecting Asbestos and AsbestosContaining Products, WT/DS/135/AB/R, adopted on 5 April 2001. See also WTO document WT/DS135/9 on submission of amicus curiae briefs. 112 See Bartels (2004). 113 In the US Copyright Act dispute, a letter to the USTR by a law firm representing the collective rights management organisation ASCAP was copied to the panel. The panel asserted its discretionary authority to accept and consider or to reject information and advice submitted to it, but did not rely on the letter in its report.


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into their positions. However, in 2005, in two parallel disputes US – Continued Suspension of Obligations and Canada – Continued Suspension of Obligations, the panels, upon the explicit request of the parties, decided to open the oral hearings with the parties to the public. To allow this, the panels interpreted the term “panel deliberation” in Art. 14(1) DSU narrowly, as referring only to the internal work and decision-making of the panel, and not as extending to the hearings.114 These first experiments with public access were followed by other panels and at present, it is claimed that as many as a quarter of WTO disputes are conducted with public hearings. Developing countries have opposed strongly such increased transparency and have insisted on closed sessions when they have been parties or when they have stepped as third parties into disputes. More recently, however, even developing countries have opted to make their submissions in open sessions.115 Concerning AB hearings, it was believed that no legal possibility for opening these to the public existed, given the explicit reference in Article 17(10) DSU to “confidential proceedings”. Nevertheless, in 2008, in the joint US/Canada – Continued Suspension of Obligations proceedings, where both parties again requested public hearings, the AB reached the conclusion that Article 17(10) cannot be interpreted to prevent parties from desisting from confidentiality protection. The public was consequently allowed to observe the hearings. This new practice is considered by some commentators to be a historic and irreversible shift, bringing the DSS closer to the standards of adjudication characteristic of national courts and full-fledged international tribunals and increasing the trust in and accountability of the system.116 The resulting panel reports are published and made available on the website of the WTO, though after a considerable delay.117 In a large number of cases, violation and non-violation complaints lead to settlement between the parties. If proceedings have been initiated on the basis of the complaint, they are terminated upon settlement. The settlements so achieved are not made public. There is no obligation on the parties to disclose the main points in the settlement.118

114

Ehring (2008), 1024 et seq. Ehring (2008), 1027. 116 Ehring (2008). 117 See Procedures for the Circulation and De-restriction of WTO Documents, adopted by the General Council on 18 July 1996, WT/L/160/Rev.1. 118 See Pauwelyn (2003a). 115


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Remedies and Compliance

An important factor influencing the incentives to use the WTO Dispute Settlement System is the credible prospect of remedying alleged violations. Theoretically, compliance with DSB recommendations should strengthen the confidence in multilateral rule-based trade governance and should intensify recourse to the DSS even on the part of actors in weaker economic and bargaining positions. However, remedies and compliance have turned out to be one of the weak spots in the system. Although a party that has been found in violation of a WTO Agreement, including TRIPS, is in principle bound to amend its legislation or measures accordingly, the remedies against non-compliance are imperfect. First, while a panel can establish a violation, it is not bound to, and will not always, suggest a way in which the violation shall be removed.119 Secondly, even if a panel prescribes the manner in which a state shall comply, failure of states to follow the panel’s recommendation can hardly be countered by immediate and effective sanctions. The system allows a number of ways for losing parties to “procrastinate” through deliberate delay strategies, like disputing the reasonable period of time for implementing the DSB recommendation (21.3 DSU), making half-hearted efforts to comply merely in order to preempt retaliation and to invoke a “compliance panel” under Article 21.5 DSU, in order to ascertain whether these efforts have been effective, etc.120 Infamously, the major players in the WTO system are often in default to comply, demonstrating disregard for the multilateral rule-based regime of international trade. Here the limits of a system that builds essentially on intergovernmental cooperation become apparent. Compared with other trade-related issues, compliance with DSB recommendations in the case of TRIPS violations may be an even more complex matter, difficult to monitor and administer. This is in particular so in the case of infringements of obligations concerning enforcement and procedural issues.121 Furthermore, the available remedies for non-compliance have proven particularly difficult to enforce. As is well-known, Article 22.1 DSU sets out the principle that the complaining party “should first seek to

119

Mavroidis (2000), 779; Zimmerman (2006), 67. See Mavroidis (2000), 794 et seq. See, however, the AB report in the US – Continued Suspension of Obligations in the EC – Hormones Dispute (DS 320). On the inflamed issue of sequencing, see Mavroidis (2000), 795 et seq.; Zimmerman (2006), 68. 121 Fukunaga has argued that this is one of the main reasons why the DSS is rarely used by developed states vis-à-vis developing countries with deficient enforcement standards (2008). 120


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suspend concessions or other obligations with respect to the same sector(s) as that in which the panel or AB has found a violation or other nullification or impairment.” In respect of trade-related IP rights, the term “sector” relates to each of the categories of IP rights covered in Section 1-7 of Part II, or the obligations under Part III (enforcement), or Part IV (procedural aspects) of the TRIPS Agreement.122 It is, however, exceedingly difficult to interpret what “suspension of concessions” with respect to IPRs in a specific IP sector would imply. Denying IP protection to enterprises in the violating state seems moreover to lead to unclear and complex consequences of broader reach than suspension of other trade concessions. The implementation and proportionality of such measures can be questioned.123 The problem of inadequate remedies and non-compliance became evident in the aftermath of the US Copyright Act dispute, which involved arbitration on determining a reasonable period of time for implementation of the recommendation under Article 21.3, arbitration pursuant to Article 25.2 of the DSU, in order to determine the level of nullification or impairment of benefits to the EC and a request by the EC before the DSB to suspend concessions or other obligations under Article 22.2 of the DSU. Instead of changing the violating legislation, the US proposed a settlement through payment of a specific sum.124 This option is indicated in Article 22.1 DSU, but is not accepted as a replacement for full implementation of a recommendation. Nevertheless, it was exactly compensation that was the only action that US undertook to comply with the AB’s Recommendation. Dreyfuss and Dinwoodie seem to see compensation as a viable remedy, but acknowledge that it creates imbalances since it can only be used by prosperous states and puts developing states at a disadvantage.125 Accepting compensation as a way to “buy oneself out of compliance” would be one more reminder of the drastic inequalities inherent in all levels of the present system. Non-compliance has also been the US reaction to the DSB Recommendation in the Section 211 US Omnibus Appropriation Act. After several modifications and extensions of the reasonable period of time for implementation of the recommendation agreed between the EC and the US, the last agreed on 17 December 2004

122

See Article 22(3)(f)(iii) DSU. Abbott (1997), 433. Alternative remedies set out in the DSU are suspending concessions in other sectors under the same agreement or under another WTO Agreement; Article 22(3)(b), respectively Article 22(3)(c) DSU. 124 The US agreed to make a lump-sum payment of $3.3 million to a fund to be set up by performing rights societies in the EC for the provision of general assistance to their members and the promotion of authors’ rights. 125 Dinwoodie and Dreyfuss (2004). 123


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and extending to 30 June 2005, the US has still not reported successful implementation. The reluctance of the US administration to follow the recommendations in the two major disputes that involved TRIPS violations on the part of the US obviously signals strong sentiments of dissatisfaction with the outcome of panel proceedings and with alleged judicial activism of the WTO adjudicative bodies, notably among members of US Congress. However, given the active and nearly aggressive use of the DSS by the US against other states, the flagrant disregard of the few recommendations that are to the US disadvantage reinforces the feeling of power asymmetry and can prove destructive for confidence in the system. As stated in a 2002 speech by Pascal Lamy, then EU Trade Commissioner, now Director General of the WTO, “. . . a rules-based system does not simply imply that rules are elaborated and adopted. It requires that all of us, and perhaps particularly the major players in the system, defer to the interpretation of the rules given to them by the Dispute Settlement Understanding. Without this, there can ultimately be no real security for economic operators.”126 From a participation perspective, the poor prospect of compliance is one additional factor reducing the incentives for developing countries and LDCs to use the DSS.127

5.

ANALYSING PARTICIPATION IN TRIPSRELATED DISPUTE SETTLEMENT

Following this review of the institutional design of the DSS, it is natural to enquire about its impact on the incentives for participation in IP dispute settlement of state and non-state actors. Such an enquiry will arguably improve our understanding as to the role that the WTO dispute settlement bodies play and can potentially play in the evolution of IP law-making. 5.1.

Representation of States in IP Dispute Settlement

In an early analysis, Dreyfuss and Lowenfeld prognosticated that the WTO Dispute Settlement System would be more accessible and attractive 126 Transatlantic Business Dialogue, 8 November 2002, speech 02/553, available at: http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/02/553 &format=HTML&aged=1&language=EN&guiLanguage=en. See Commission’s 2002 Report on US Trade Barriers entitled “US compliance with WTO Dispute Settlement Recommendations”. On remedies, see Mavroidis (2000). 127 See Sutherland report (2004), para. 243.


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for powerful states with serious stakes in IP-intensive industries. The authors conjectured that this would be so especially in areas requiring industry sophistication for IP interests to become appreciated in a national economy, such as computer programs. Consequently, they inferred that “states with less capabilities will not be respondents or complainants; nor will they be able to show ‘substantial trade interest’ necessary to support [third party] intervention.”128 An overview of the institutional design of the DSS and of the TRIPS-related disputes that have been filed so far corroborates these predictions. Indeed developed countries have been the most diligent users of the TRIPS Agreement and the related DSS. Of all 24 TRIPS-related disputes, the United States has been a complainant in 16 disputes, with Australia as a parallel complainant in one dispute. In six of the disputes, the complaint has been lodged by the EC. Moreover, the disputes have most often been confined to the major players of the world trade system. The complaints lodged by the US have been targeted at the European Communities and their Member States in eight cases (EC (3), Greece (1), Sweden (1), Denmark (1), and Portugal (1)), and at Japan and Canada (one case each). The European Communities has addressed one complaint against Canada and Japan and three against the US. Four of the disputes that have led to panel reports and seven of the overall number of disputes have involved contested compliance on the part of the two big IP actors – the US and the European Communities. In only one case has the complainant been a developing country (Brazil). Looking at the chronological development of IP disputes, one can identify an early stage (1996–2000) largely dominated by the US as complainant, with a number of claims filed by the US against developing countries (India and Pakistan) and other developed countries (Canada, EC countries: Portugal, Sweden, Denmark, Greece). This initial phase has, however, been followed by a period where the US’s own IP standards have been questioned (e.g. US Copyright Act and US Omnibus Appropriation Act). Whereas the dominance of developed countries with strong IP industries on the complainant side is hardly surprising, the fact that developing countries have not been so often on the defendant side may appear counterintuitive. Prima facie, it could be anticipated that there would be a number of developing countries where IP standards would be found wanting if compared with TRIPS requirements. As Lowenfeld and Dreyfuss put it “because the thrust of the TRIPS initiative was to induce developing countries to move toward effective protection of intellectual property, one may expect that much of the WTO litigation in this area will

128


Dreyfuss and Lowenfeld (1997).

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be between developed countries as complainants and developing countries as respondents.” Yet, of all the IP disputes only seven concern developing countries, and then these are countries that have recently been appropriately qualified as “The Middle” (or Newly Industrialized Countries, NIC), i.e. countries like Argentina, China, India and Brazil, in which economic growth is on the upsurge, but where access to knowledge and information are crucial for follow-on innovation and economic development.129 The complaints lodged by the US have been targeted at developing countries in six cases (India (1), Brazil (1), Argentina (2), Pakistan (1), China (1)), while within the disputes initiated by the EC only one has been addressed at a developing country (India). Why, then, have these countries not been summoned more often to compliance through dispute settlement? Scholars tend to find different explanations for this somewhat paradoxical result. According to Fukunaga, the real problem with TRIPS compliance on the part of developing countries has to do with implementation and application of rules in individual cases. However, the character of the TRIPS Agreement as a minimum standards agreement offers in his view limited support in resolving such disputes.130 Another explanation can be found in the continuing use of unilateral pressure by economically powerful actors (first and foremost the US), as well as pressure through bilateral TRIPS-plus agreements, which may be perceived as more efficient instruments than lengthy quasi-judicial procedures and deliberations.131 Yet another reason for the reluctance of developed countries to bring disputes against developing countries and LDCs may be that a more aggressive adjudicative policy would precipitate already existing sentiments about the power asymmetry in international IP governance and would consolidate a “David v. Goliath” public perception of the conflict. More generally, disputes against developing countries may result in activating the introductory provisions of Articles 7 and 8 TRIPS and may force the panels to take a more explicit stand on delicate issues about the balance between intellectual property and other vital public interest objectives, as well as about the tension between state autonomy and a strict view on compliance with international standards. Such development may not be in the longterm interest of the major players in the TRIPS-based IP system.132 One potential way to compensate for the limitations of the bi-partisan diplomatic character of the DSS is the right for states to participate as third 129

See Dreyfuss (2008); Reichman (2000). Fukunaga (2008). 131 Abbott (2005), 88 et seq. See Kur and Grosse Ruse-Khan, Ch. 8, 2.1.1, in this volume. 132 Reichman (2000). 130


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parties in dispute settlement procedures. The possibility to make submissions and communicate views to the panels and to the AB should theoretically present a welcome channel for developing countries and for LDCs to infuse alternative views into the decision-making process and highlight the effect of contested interpretations of TRIPS provisions on the constituencies and on the economic and social development in developing countries. Indeed, considerable engagement on the part of developing countries can be noticed in the Canada Pharmaceutical Patents (DS114) dispute, where Brazil, Columbia, Cuba, India and Thailand stepped into the proceedings. The EC Trademarks and Geographical Indications (DS290) dispute prompted Argentina, Brazil, China, Colombia, Mexico and Chinese Taipei to intervene as third parties. In the dispute concerning Section 110 US Copyright Act, Brazil made a submission and in the US Section 211 Omnibus Appropriation Act (DS176), Nicaragua was constituted as a third party. Similarly, the dispute between US and China on Measures Affecting the Protection and Enforcement of Intellectual Property Rights (DS362) provoked interest on the part of other developing countries like Argentina, Brazil, Korea, Mexico, Thailand and Chinese Taipei.133 The chronology of third party participation probably shows a growing self-confidence, and respectively activism, in particular on the part of Newly Industrialized Countries, arguably with an accumulation of experience from participation in the system.134 In their interventions, developing countries have systematically argued for seeking to establish a better balance in the TRIPS Agreement between the rights and obligations of producers of technical knowledge on the one hand and the users of that knowledge on the other. In Canada – Pharmaceutical Patents, Brazil and India supported as third parties Canada’s position for a broader margin of appreciation for Member States in the balancing between the interests of rights owners and the broader societal interest of ensuring an effective and accessible public health system and pointed to the TRIPS language that aimed to reconcile these two, sometimes conflicting, objectives.135 All in all, it can be safely stated that the institution of third party partici-

133

India and Turkey notified interest, but made no submissions. For instance in the early dispute, India – Patents (EC) – Complainant: European Communities DS79, only the US and no developing country was constituted as a third party. 135 India noted that “the Preamble of the TRIPS Agreement stressed the need to promote effective and adequate protection of intellectual property rights while, at the same time, underlining the need to ensure that measures and procedures to enforce intellectual property rights did not themselves become barriers to legitimate trade.” Canada Pharmaceutical Patents, p. 119. 134


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pation is by now a well-established and appreciated element in the system of IP dispute settlement, but its potential is far from fully exhausted, in particular when it comes to LDC. It may certainly be the case that developing countries and LDCs are dissuaded by the requirements of substantial (trade) interest in Articles 4(11) and 10(2) DSU. Yet, as already mentioned above, panels and the AB have not interpreted formalistically this requirement and have ensured a relatively broad access of third parties to consultations and panel proceedings. Arguably, a more substantial barrier to the participation of developing countries as parties and third parties in dispute settlement proceedings is presented by the considerable costs associated with international trade adjudication. Clearly, the repeat players in the system can rely on highly sophisticated and costly professional expertise of a legal, economic and other character. In contrast, developing countries and in particular LDCs have little incentive to spend their scarce resources on building up such capacity. To reinstate a balance in this respect many have called for targeted efforts toward information and capacity building in developing countries, and a number of practical initiatives have followed.136 The absence of developing countries from the WTO adjudicative stage reveals, however, an even deeper structural asymmetry, namely the lack of incentives to participate due to perceived low stakes in quasi-judicial IP law-making.137 To be sure, the only way to change this state of affairs and improve developing countries’ chances of participating in TRIPS-related decision-making, including the DSS, is the changing structure of their economies and domestic political processes. Ultimately, it is economic growth and technological advancement, coupled with enhanced democratic government, that can turn developing countries into equal players in the global system of IP governance. This is nowadays noticeable with the changing position of countries such as Brazil and India. The barriers to such transformation in the majority of developing countries are, however, multiple and complex. 5.2.

Private Actors in IP Dispute Settlement

If we turn to the horizontal distribution of interests and stakes, it is obvious that only states can have the capacity of parties in dispute settlement

136 See Reichman and Lange (1998–9); Shaffer (2006). Concerning the Advisory Centre on WTO Law, see TN/DS/W/90 (Mexico); cf. Nordström and Shaffer (2008). 137 Shaffer (2005a).


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procedures. This implies that the right to make submissions is likewise reserved to states and their governmental representatives. As discussed above, there is no possibility for private parties, individuals, corporations or non-governmental organisations to make submissions or to attend and participate in the proceedings. At the same time, it is widely recognised that behind the claims of complainant states in WTO dispute settlement proceedings often lie the interests of powerful and well-organized industries, and occasionally even of individual companies. Susan Sell tracks each of the first seven IP disputes filed by the US before the WTO Dispute Settlement Body to organized industry interests that had convinced the USTR to request consultations and constitution of panels. The US pharmaceutical industry, represented by PhRMA, emerges as one powerful actor, together with other business associations. Similarly, the challenged US legislation often represents the result of legislative bargaining between conflicting economic interests. Thus, it is no secret that Section 211 of the US Omnibus Appropriations Act of 1999 had been introduced as a result of the lobbying by Bacardi, Ltd., a Bermuda-based corporation, in order to prevent Havana Club Holdings (HCH) from protecting its trade mark Havana club in the US.138 In its turn, the European Communities involvement in the matter can be explained as an attempt to defend the interests of Pernod Ricard of France, a mighty liquor company that in 1993 founded Havana Club Holdings as a joint venture with Havana Rum and Liquors of Cuba. From a press release of the European Commission we learn that the joint venture currently sells Havana Club rum in more than 70 countries around the globe.139 In the US Copyright Act, the European Communities was prompted to lodge a WTO complaint by the Irish Music Rights Organisation.140 The dispute referred, as is well known, to the conformity with TRIPS of the so-called ‘home style’ and ‘business’ exemptions introduced through the Fairness in Music Licensing Act, enacted on 27 October 1998 and amending Section 110(5) US Copyright Act.141 A closer analysis of this case demonstrates that both interest groups involved, i.e. rights holders of musical works, and business establishments using music (restaurants,

138 Section 211 bars courts in the US from recognising trademarks of Cuban origin that are “the same as or substantially similar” to those used by businesses confiscated during the Castro regime, even if the former owners have abandoned their marks for decades. 139 See Commission press release IP/01/1188 of 6 August 2001. 140 See Brennan (2002). 141 For a convincing and detailed analysis of the background of this case, applying public choice theory and economic analysis of law, see Helfer (2000).


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bars etc.), had been well organized and vocal in the US legislative process.142 TRIPS litigation, however, provided rarely observed post factum leverage for the local IP right-holders, disregarding domestic political compromises.143 Apart from the general proclivity of governments to defend local economic interests, state activism in dispute settlement is often indicative of smooth and well-institutionalized avenues by which private economic interests may reach national governments. Gregory Shaffer describes and analyses the role of the Private-Public Partnerships in bringing US and EU trade claims to the fore in WTO consultations and dispute settlement. He argues convincingly that the early established Article 301 procedure in the US, which invites industry to communicate perceived trade barriers and potential trade claims to the US government, has been an important channel for advancing industry interests and partly explains US efficiency in WTO proceedings. In the EU, a similar attempt to translate private economic interests into public trade policy can be discerned in the adoption of the Trade Barriers Regulation.144 Also in this respect developing countries are at an obvious disadvantage, lacking the institutional sophistication developed through years-long practices of structuring political lobbying and participatory democracy. In contrast to concentrated and high-stake economic interests, the broad interests of users have only limited representation in TRIPS-related dispute settlement proceedings. One evident reason for this asymmetry is the self-identification of TRIPS with the interests of rights holders, which logically implies that alleged violations of the Agreement must be based on evidence of impairment of the interests of IP industries.145 While the structure of the TRIPS Agreement as it presently stands stipulates exceptions and limitations to IP rights, these are not raised to the status of user rights. Consequently, failures of states to secure such exceptions do not constitute violations of TRIPS obligations and respectively cannot provide a basis

142

The National Restaurant Association (NLBA) for the restaurant and retail business and the three main collective rights management organisations for performing rights for composers, lyricists and music publishers (ASCAP, the Broadcast Music, Inc. and SESAC, Inc.). It is evident from the case that the US legislator drew on data provided by these associations and basically reproduced a licensing agreement elaborated by the same groups. 143 Dinwoodie and Dreyfuss (2004). 144 OJ L349 of 31 December 1994, as modified by Council Regulation no. 365/95, OJ L41 of February 1995. Cf. Shaffer (2001); Zimmerman (2006), 60. On the earlier EEC Regulation no. 2641/84, see Petersmann (1997), 87. 145 See Fukunaga (2008), 887; Dreyfuss (2008).


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for dispute settlement proceedings.146 Furthermore, developing countries which could indirectly give voice to the interests of users are, due to a number of reasons as discussed above, rarely parties to such proceedings, even as defendants. Finally, direct participation by NGOs and individuals is not possible in the current institutional design of the DSS. Standing is limited to states and, although the possibility of submitting amicus curiae briefs has been cautiously accepted by the AB, TRIPS-related disputes have so far not attracted submissions on the part of NGOs. The visible influence of the concentrated and well-organized interests of the IP industries on states activism in lodging TRIPS-related complaints clearly reflects a symbiotic relationship between horizontal and vertical minoritarian interests in dispute settlement proceedings. This entails obvious risks panels interpreting TRIPS rules to a very large extent in the direction of increased levels of IP protection, arguably to the disadvantage of underrepresented majoritarian interests of developing countries and users of information and technology.147 In the discussion on the future of the WTO and on the reform of the dispute settlement architecture, many have therefore highlighted improved access of developing countries and NGOs as possible ways to rebalance the system and to at least partially compensate for participation asymmetries. As will be seen below, however, finding the appropriate institutional arrangement which would at the same time harness public participation, but would preserve the effectiveness and the insulation of the judicial process from political pressure, is a challenge.

6. REFORM ENDEAVOURS Already at the time of adopting the present DSU, Members agreed to review the working of the DSS in the near future. During the Doha Round of negotiations, Members of the WTO reaffirmed their agreement on the need to improve the DSS and to amend the DSU accordingly. In the Doha Declaration, the following paragraph was included: 30. We agree to negotiations on improvements and clarifications of the Dispute Settlement Understanding. The negotiations should be based on the work done thus far as well as any additional proposals by members, and aim to agree on improvements and clarifications not later than May 2003, at which time we

146 This is all the more so in view of the lack of direct effect of the TRIPS agreement vis-à-vis domestic users. See Kur and Grosse Ruse-Khan, Ch. 8, 2.2.1 in this volume; cf. Dreyfuss (2004), Dreyfuss (2008), 12. 147 Similar Dreyfuss (2008), 17.


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will take steps to ensure that the results enter into force as soon as possible thereafter.148

On the basis of this specific Ministerial mandate an intense exchange of opinions took place in the year that followed, with more than 300 submissions by Members and responses by the Secretariat.149 Nevertheless, no consensus was reached on the main issues within the required time period.150 Despite the fact that the deadline was postponed by one more year, even by May 2004 the negotiations had produced no visible result. In an attempt to spur new dynamics in the debate, the Director General of the WTO commissioned an independent expert report on the future of the WTO, in which additional proposals for institutional change were laid down.151 At present the discussion continues without, however, any new deadline being set.152 The failure to achieve agreement on the reform of the DSU can partly be explained by stagnation in political negotiations on other substantive issues as well as by tensions, in particular in transatlantic relations, around specific dispute settlement outcomes. In addition, given the broad range of subject matter that has been included in the review process and the incongruent positions of Members, coming to a workable compromise appears highly unlikely.153 6.1.

Main Proposals Affecting the Modalities of Participation

It should be pointed out that whatever its outcome, the reform process does not aim to change the main character and function of the DSS. Its main objective is still to enhance the amicable and speedy resolution of disputes at the earliest stage, if possible through consultation and good offices. In other words, the purpose is not to go over to a judicial body with precedent-setting and general interpretive, law-making functions. The diplomatic institutional frame is not to be abandoned. The main proposals for change in the DSS from a participation point of view concern: (a) the design of the dispute settlement panels and more specifically the question

148

Doha Ministerial Declaration of 20 November 2001, WT/MIN(01)/DEC/1. See official documents of the series TN/DS/W. 150 The Chairman of the negotiations, Ambassador Balás of Hungary submitted a text, which however did not gather sufficient support. TN/DS/W/9. See Zimmerman (2006), 122. 151 See Sutherland report, released in 2004. 152 For an extensive account of the DSU review negotiations see Zimmerman (2006), 93 et seq. 153 Zimmerman (2006), 123 et seq. 149


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of possible establishment of more permanent panellists; (b) the transparency of the procedure and (c) the question of access of third parties.154 6.1.1. Permanent panellists One of the main proposals for change in the design of the DSS is a transition from ad hoc panels to more permanent panellists in full-time employment. The arguments for change in this direction concern chiefly the speed and quality of panels’ work.155 Clearly, the appointment of ad hoc panels is a precarious job, where many elements such as competence, country belonging, availability of the panellist, to name but a few, have to fit. As mentioned above, the complexity of the appointment is one reason for frequent reference to the Director General of the WTO for appointment of panellists. With the number and complexity of disputes constantly increasing, continued reliance on ad hoc panels may seriously frustrate the functioning of the system. A transition to permanent panellists would provide a stable pool of panellists to be relied on in case of disputes arising, which would arguably also raise the quality of the decision-making process. The selection of panellists will be based on more solid grounds of professional expertise. Moreover the panellists will arguably enhance their competence by dealing with issues of international trade law on a recurrent basis. Other arguments in support of this proposal relate to increased legitimacy and credibility of the panel process due to elimination of conflict of interests.156 However, despite the advantages of a more permanent list of panellists, there are certain trade-offs that have to be taken into account. In particular, the principle of geographical representation and equity that has been the leading one so far and that is more typical of arbitration and international negotiations has to give in to a principle of objectivity, independence and professional ethics, characteristic of judicial proceedings. Clearly, under a system of a limited number (15 to 24 according to EC proposals) of permanent panellists, nationality cannot matter in the same way as it does at present. Instead, as in the case of the AB, the panellists should be trusted for their integrity and professional ethics and should be expected to declare conflict of interests only if such conflict is real and not automatically on grounds of nationality. The European Union has argued that a transition to a more permanent roster of panellists would ensure greater participation of developing countries in the panels drawing on statistics about representation of members

154 155 156


See TN/DS/W/1 (EC) of 13 March 2002. TN/DS/W/1 (EC). Zimmerman (2006), 133.

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sitting on the AB.157 Yet this proposition has been contested by India and a number of other developing countries.158 Developing countries and in particular LDCs have instead insisted on anchoring more firmly the principle of equitable representation on the basis of geographical, regional belonging and stage of development in the DSU.159 Whatever the effect of such transition on the participation of panellists from developing countries, a system with permanent panellists would undoubtedly mean opening up the possibility of greater representation on panels of citizens and experts from developed countries, chiefly the United States and EU, who have been disqualified by the present system (see above). In the particular context of IP disputes, one negative effect of permanent panellists may be the greater uncertainty whether experts on IP issues will be on the permanent log of panellists, given the predominance of trade issues.160 In this respect, it is interesting that in a joint submission by the US and Chile, a specific requirement is proposed that panel members have appropriate expertise to appreciate the issues presented in the dispute.161 6.1.2. Transparency Increased transparency figures as a general commitment for future reforms of the WTO. The Doha Ministerial Declaration makes a special statement concerning improved transparency, information and participation. 10. Recognizing the challenges posed by an expanding WTO membership, we confirm our collective responsibility to ensure internal transparency and the effective participation of all Members. While emphasizing the intergovernmental character of the organization, we are committed to making the WTO’s operations more transparent, including through more effective and prompt dissemination of information, and to improve dialogue with the public.

However, when discussing transparency in the particular context of dispute settlement, the double-sided nature of the panels creates a 157

TN/DS/W/1 (EC). TN/DS/W/5 (India); cf. TN/DS/W/7 (EC, reply to India). 159 See the proposal of the group of LDCs for amendment of Art. 8(10) DSU, introducing a mandatory requirement that the panel includes one panellist from a developing country in a dispute between a developing country Member and a developed country Member, unless the developing country Member agreed otherwise, and a second one if the developing country so desires. A similar provision is proposed in favour of LDCs for disputes between an LDC and a developed or developing country. TN/DS/W/17 (LDC Group) of 9 October 2002, para. 4; cf. TN/DS/9. 160 See Cottier (2003), 198, but see the discussion above, Section 4.1. 161 TN/DS/W/28 (US, Chile) and TN/DS/W/52 (US, Chile), cf. Zimmerman (2006), 136. 158


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dilemma. Whereas transparency can be beneficial for increased objectivity, independence and authority of the system, confidentiality is essential for settling disputes in an amicable way on the basis of compromise and concession. Therefore, most parties making contributions to the work on an improved DSU are careful not to overemphasise the need for transparency. The European Communities in their position statements stress the need “for sufficient flexibility for parties to decide whether certain parts of the proceeding before the panel or the Appellate Body should be open to the public for attendance.” Also third parties should in this view “have the right to decide whether their interventions should take place in open or closed sessions.” The EC insists furthermore that “the panel or the Appellate Body should be able to impose limited and justified restrictions on the opening of the proceedings, especially when dealing with business confidential information.”162 Developing and LDC are outright hostile to increased transparency, apparently fearing increased costs.163 Far more supportive of public access to panel proceedings appears to be the position of the US government. The first contribution by the US to the improvement of the DSU contains a passionate defence of the principles of openness and access. The US government notes that the recommendations of the DSB under the present system can “affect large sectors of civil society” and that with increased WTO membership “more governments and their citizens have an interest in those recommendations and rulings.” In its call for increased transparency the US government finds support in the principles governing other international tribunals, among others the International Court of Justice and the European Court of Human Rights. Transparency is seen as an important guarantee of fair and adequate process of dispute settlement. By enhancing the confidence in the system, transparency is conceived as a vehicle to facilitate implementation of the DSB recommendations and rulings.164 Proceeding from this principled support for public access, the US government has advanced a number of proposals, such as opening the panel proceedings to the public through the use of broadcasting, webcasting and other technical facilities (provided that confidentiality for business secrets and certain flexibility is ensured),165 timely access to all party submissions except portions dealing with confidential information and timely access to final reports.166 As discussed above, increasing the transparency of 162 163 164 165 166


TN/DS/W/1 (EC). See Zimmerman (2006). TN/DS/W/13 (US) of 22 August 2002. Ibid., see also TN/DS/W/79 (US and Chile) of 13 July 2005. See more recently TN/DS/W/86: Article 18 of the DSU is amended by

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proceedings has generally met with approval in the scholarly literature as well.167 6.1.3. Access to panel proceedings It appears that there is a large consensus in favour of a more generous right by access of third parties to panel proceedings. The European Communities, the US and also a number of developing countries (such as the African group) would like to see a right of access and third party submissions irrespective of being able to show a substantial trade interest in the dispute.168 In particular, the African group insists on a specially tailored rule for LDCs that would allow such participation at any event.169 As discussed above, the panels and the AB have interpreted the conditions for constituting third parties in a liberal manner. Nevertheless, a more unconditioned possibility for Members to make submissions and participate in panel proceedings as third parties would probably be beneficial from the perspective of participation in global IP governance.170 States are unlikely to abuse this right and to engage public resources in frivolous litigious activity. More generally, it is acknowledged that the transaction costs of participating in panel proceedings are excessively high for developing countries, a fact that is reflected in the low percentage of developing countries figuring as plaintiffs at WTO panels.171 Concerns about participation costs inform the proposal of China that developed countries should be obliged to bear the “litigation” costs of a developing country if in a dispute between such parties the developed country is on the losing side.172 Proposals for the setting up of a WTO fund on dispute settlement to allow developing countries and LDCs to make more efficient use of the system should be viewed in a similar light.173 At the same time, limited participation by developing countries and LDCs is clearly not only a function of institutional and

inserting the following new paragraph 3: “3.Each substantive meeting with the parties of a panel, the AB, or an arbitrator, and each meeting of a panel or arbitrator with an expert, shall be open for the public to observe except for any portion dealing with confidential information.”; cf. and earlier TN/DS/W/46. 167 Ehoring (2008). 168 TN/DS/W/1 (EC); TN/DS/W/13; TN/DS/W/15. 169 TN/DS/W/15 (African Group). 170 See most recently the proposal of Côte d’Ivoire, TN/DS/W/92. 171 TN/DS/W/29 of 22 January 2003, see para. 2(b). See Nordström and Shaffer (2008) on ideas for introduction of a sort of “small claims” procedure for the WTO dispute settlement. 172 TN/DS/W/51 (China) of 5 March 2003. 173 TN/DS/W2 (Côte d’Ivoire).


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procedural rules but reflects more fundamental structural asymmetries that would require a different type of effort.174 6.1.4. Information and amicus curiae briefs In the reform discussions, the panels’ practice of accepting amicus curiae briefs has been subject to particularly critical scrutiny. The EC, while supporting an extended right of access by third parties to the proceedings, seem sceptical about the prospect of broad recourse to amicus curiae briefs by non-state actors. In the contribution of the EC to the improvement of the DSU, it is stressed that amicus curiae briefs should not delay proceedings and should not make it more burdensome for the panels, the parties and in particular developing Members. The EC therefore supports a twostage procedure for sifting amicus curiae briefs of the sort defined by the AB in the Asbestos dispute and presently applied by the panels. Further on, the EC insists on clarification of the right to submit such briefs. “Amicus curiae submissions should be directly relevant for the factual and legal issues under consideration by the panel, or the legal issues raised in the appeal.”175 Likewise the United States has carefully expressed support for guidelines on acceptance of amicus curiae briefs.176 More unexpectedly, developing countries have shown outright hostility to all too expansive and liberal admission of amicus curiae briefs, basically on grounds that such briefs will complicate the proceedings and increase the workload and costs of developing countries’ staff involved in such cases.177 The African group has for instance levelled strong criticism at the AB for misinterpreting the DSU and supplanting the intergovernmental character of the WTO.178 However, as interjected by the Communities, in response to the questions by India, broader access of non-state actors to proceedings should on balance be positive for promoting developing countries’ interest, given that a number of non-governmental organisations in developed countries have engaged in a lively defence of the development agenda and taken the side of developing countries against their own governments.179 174

See above with reference to Shaffer (2006); Reichman and Lange (1998–9). TN/DS/W1 (EC). 176 TN/DS/W/13; more recently TN/DS/W/86 (US revised), 21 April 2006. 177 TN/DS/W/6 (India); TN/DS/W15 (African group); more recently TN/ DS/92 (Côte d’Ivoire). 178 “The right to seek information, conferred under Article 13 to panels, has been interpreted to mean an obligation to receive unrequested information. This has implications for the intergovernmental nature of the DS and the rights of Members when they seek participation in the DS as third parties.” TN/DS/W/15 (African group). 179 TN/DS/W/7 (EC). 175


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From a participation perspective, the practice of amicus curiae briefs seems attractive, at least at first sight. It can theoretically provide a channel for input of information and expertise and give voice to underrepresented interests through NGOs that specialise in public interest advocacy, such as environmental and human rights groups. For IP-related disputes it is conceivable that consumer rights and public health NGOs from both developed and developing countries could furnish panels with expertise and alternative visions on, for example, public health aspects of patent protection or the impact of extensive copyright protection on consumer access to culture in the digital environment. However, one should keep a careful eye on the potential perverse effects of too broad participation rights on the quasi-adjudicative process. First, there are obvious asymmetries in the degree of organisation of industry on the one hand, and of broad majoritarian interests, such as those of users and consumers of culture and technology, on the other. Providing generous access by nonprofit organisations to dispute settlement proceedings risks resulting in replicating and reinforcing these asymmetries in the quasi-judicial process. The horizontal distribution of stakes discussed above seems to suggest that the stage may again be dominated by representatives of the affected industries and of specialised IP associations. Secondly, following Mancur Olson’s analysis of collective action,180 the engagement of NGOs in public interest advocacy can often be driven by logic and incentives that do not necessarily coincide with the best interests of the represented group.181 Moreover, there may be disproportionate engagement with advocacy on issues that are simple, have metaphorical power and attract medial attention, while more complex technocratic issues with a significant impact on broad consumer majorities may remain overlooked and underrepresented. Importantly, opening for political participation may have the effect of depriving the judicial process of one of its typical institutional advantages, namely isolation from political pressure and adequate conditions for careful and impartial weighing of contested positions and interpretations. A look at the experience of international judicial bodies, where generous access of individuals and NGOs to proceedings has been granted, corroborates the need for a cautious approach.182 This suggests that amicus

180

Olson (1965). On the principal-agent problem in representation of broad-based interests in collective organisations, see Eggertsson (1990). 182 See Bakardjieva Engelbrekt (2009) on the possibility for third parties to make submissions in proceedings before the Opposition Division and the Board of Appeals of the EPO and its implications in the case of patenting of human embryonic stem cells. 181


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curiae briefs should not be seen as a solution to the participation imbalance diagnosed above. 6.2.

In Search of Common Ground

Generally, a tension can be traced in the positions of the different Members. Whereas the EC seems to support a reform in the direction of judicialisation, i.e. the DSB coming closer to a tribunal, developing countries seek stronger guarantees for their equitable representation on panels, insisting on curbing the interpretative authorities of the panels and relying instead on intergovernmental consultations within the auspices of the respective councils (for TRIPS the TRIPS Council), meaning a move away from judicialisation.183 The position of the United States is in itself fraught with contradictions. Whereas the US government has supported eloquently the opening of dispute settlement to public access and scrutiny, thus seeking to strengthen the judicialisation of the system, the same government has pleaded for greater flexibility to be given to the parties to a dispute and for greater restraint on the part of the dispute settlement panels and the AB in respect of questions that have not explicitly been raised by the parties.184 The United States has for instance proposed making provisions for interim reports at the AB stage, thus allowing parties to comment to strengthen the final report, as well as providing a mechanism for parties, after review of the interim report, to delete by mutual agreement findings in the report that are not necessary or helpful in resolving the dispute, thus continuing to allow the parties to retain control over the terms of reference.185 These tensions and controversies apparently have their origin in the undecided nature of the WTO Agreements and of the obligations of Members under these Agreements. The structure of the WTO panels as described above places the DSS in the grey zone between judicial and diplomatic decision-making processes. In an incisive analysis, Joost Pauwelyn observes that WTO obligations, also in view of the presently existing DSS, are more convincingly construed as “bundles of bilateral relations comparable to the domestic law analogue of a contract”, rather than having the nature of “collective” obligations.186 This analysis finds support also 183 See paras. 10, 11 TN/DS/W/15. “A balanced geographical representation will assist in promoting a balanced DS that reflects the various backgrounds and inherent concerns of the entire WTO membership.” 184 TN/DS/W/28 (US and Chile); cf. Zimmerman (2006), 116. 185 TN/DS/W/28 (US and Chile); see para. 6, lit. a and b. 186 Pauwelyn (2003a), 930 et seq.


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in the work of the panels. Several features of the system prompt such conclusions: the confidentiality of the proceedings, the right of parties to settle, without letting the rest of the Members know the terms of the settlement. Pauwelyn argues convincingly that the bilateral view should be abandoned in the future, in particular in relation to TRIPS and that the influence of panel interpretations of TRIPS obligations on broader public interests should be more readily acknowledged and incorporated into the institutional system. 6.3.

A Need for a Prosecutor?

One apparent deficiency of the adjudicative system of the WTO as it stands is the fact that there is no neutral party, in the form of a sort of prosecutor, to monitor the behaviour of Members and to bring claims for non-compliance that are based objectively, on the overarching common interest that the rules and principles of the multilateral trade system are being upheld. Comparisons with the European Union demonstrate that such an institution may be a major factor in overcoming problems of participation and ultimately of legitimacy. In the EU, the Commission plays the role of this neutral guardian of the treaties and of the EU Law system and is entrusted with wide-reaching prosecutorial functions.187 Following a similar logic, a strand of reform initiatives in the WTO seeks to identify an appropriate institution that can act as a “guardian of the treaties” or “guardian of the collective interest” of the WTO membership. Among the proposals feature granting the Director General of the WTO or respectively the WTO Secretariat an independent right of initiative in opening negotiations, but also in initiating legal proceedings against non-compliant Members.188 At the same time, the setting up of a system with prosecutorial functions against states implies a marked shift from intergovernmentalism to supranational governance and seems to require a higher degree of trust and shared values than can realistically be expected from the broad WTO system at the present stage.189 6.4.

Interim Conclusion

The analyses in this and other chapters in this volume suggest that the DSS, much as it was hailed as the new achievement of the Uruguay

187 188 189

Smith and Tallberg (2008). See Petersmann (2005), 651; in a similar vein, Sutherland Report (2004), 77. Smith and Tallberg (2008).


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Round in the area of IP, can have only a modest impact on the adaptation of the global IP system to the challenges of new technology and to a changing political economy. In its institutional design, the DSS reveals a number of limitations typical of an international quasi-judicial body. Although the TRIPS Agreement sets out the standards for acquiring and exercise of private rights, and imposes costs on the broad-based interests of information users, the DSS is open only to states. Moreover, given the identification of TRIPS with the interests of rights owners, the DSS continues to nurture the symbiotic relationships between economically and technologically advanced states and powerful creative industries, i.e. between horizontal and vertical minoritarian interests; the very same symbiosis that brought to life the TRIPS Agreement. As evidenced above, this accounts for a substantial bias in the dynamic of dispute settlement. The parties before the DSB will inevitably bring issues of trade relevance, normally connected with the aspirations of the IP industries to ever higher levels of protection. And, like national courts, dispute settlement bodies do not control the influx of disputes brought within their jurisdiction.190 The fact that disputes have so far often taken place between equals, i.e. typically technologically advanced developed countries, may optimistically imply that arguments in defense of limitations and exceptions from strong protection will be convincingly made by powerful defendants (for instance Canada in the Canada Pharmaceutical Patents or the USA in the US Copyright Act). However, it likewise means that repeat clients of the DSS will hardly bring up issues that go to the heart of the present imbalances that the TRIPS system allegedly enhances in areas such as access to medicines, technology transfer, barriers to follow-on innovation and access to knowledge and information in developing countries. The skewed distribution of stakes both horizontally (between IP industries and users) and vertically (between developed versus developing and least developed countries) and the substantial costs of participation in complex judicial deliberations give no hope of any major change in the future, unless radical steps are undertaken to improve the competence and advocacy capacity in developing countries, or to mobilise cross-border user interests. Importantly, there is a structural problem in the TRIPS Agreement that perpetuates the initial imbalance of interest representation.191 Despite the much discussed judicialisation, the proceedings and the institutional modalities of the dispute settlement bodies still retain many

190 191

Komesar (1994). See Kur and Grosse Russe-Kahn, ch. 8 in this volume; cf. Dreyfuss (2008),

17.


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features of voluntary dispute settlement. The composition of panels and the AB is not representative of the WTO membership and members of panels often have diplomatic rather than judicial training. Settlements can be kept confidential and parties can always decide to terminate proceedings. The parties again to a great extent control aspects such as access to information and publicity. Dinwoodie talks of insufficiently inclusive perspectives.192 Whereas some improvements can and should certainly be introduced in the course of the current reform process, most of the above limitations are inherent in the intergovernmental character of the WTO. In contrast to other regional tribunals such as the ECJ and the Andean countries,193 the panels are in no way linked to national courts and are therefore not embedded in a matrix of collegial communication with peer institutions. This may be another source of the lack of self-confidence and of uncertainty about the legitimacy and the status of this institution, which spills over to the method of interpretation and finally affects the substantive outcomes of dispute settlement. Given the limitations described above and the perceived legitimacy deficit of the DSU, it is not surprising that panels and the AB use predominantly narrow, textual interpretative techniques and eschew bold teleological approaches. This restraint is easily explained by the thin layer of common values on which the organisation builds and the only limited institutional interpenetration between Member States. Converting the DSS into a more powerful and independent world trade tribunal with competences to authoritatively interpret global IP standards, and ensuing enhanced law-making powers, would inevitably imply an even greater loss of sovereignty for Members in defining their IP and associated policies.194 Therefore caution is to be advised regarding reform proposals in this direction.

7.

CHECKS AND BALANCES

In a situation where adjudication appears to be an imperfect arena for balancing adverse interests due to the complexity of the policy issues at hand and due to problems of adequate representation, decision-making at the national level is often referred to as alternative decision-making processes. This may be an administrative agency or various forms of parliamentary oversight.

192 193 194

Dinwoodie (2000), 508. On this see more recently Helfer et al. (2009). Zimmerman (2006), 56.


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7.1.


The International Administrative Process

The very origin of administrative agencies can be understood as an attempt to offer an alterative institutional platform for policy decisions that defy the institutional constraints inherent in judicial bodies (e.g. limited size and lack of specialized expertise). At the supranational and international level, similar rule- and policy-making delegation to disinterested bureaucrats has been advocated,195 but has been met more critically due to fears of undermining fragile intergovernmental balances, and difficulties of ensuring the accountability of an international public service.196 Nevertheless, with the increasing shift of decision-making from the governmental to the supranational and international level, a tendency to delegate tasks of implementation and enforcement to international administrative bodies can be discerned. In the EU, the growing powers of the Commission and the setting up of new executive agencies are examples of this trend. In the context of global IP governance, the TRIPS Council has been seen by some to represent an institutional structure that would be in a better position to provide interpretation of the TRIPS Agreement or in any event to check and balance the interpretive activity of the DSB.197 Following the institutional analysis above, evaluating such options would require inspection of the institutional modalities that frame participation and decision-making within this body. The TRIPS Council was established by Article IV(5) WTO Agreement and is charged with monitoring the operation of the TRIPS Agreement.198 It is conceived as a body conducting transparent reviews of national compliance with TRIPS standards and as a forum for consultation and discussion of interpretational divergences.199 Among the tasks of the Council is ensuring opportunities for Members to consult on matters relating to trade-related aspects of IPR and assistance in the context of dispute resolution. The Council should sustain a cooperative arrangement with WIPO. It shall receive notifications from Members and shall conduct periodical review of implementation of TRIPS. New tasks have been added by the Doha Declaration such as the elaboration of the development agenda, accommodating public health concerns and traditional knowledge, to be guided by Articles 7 and 8 TRIPS. Arguably, Members

195 196 197 198 199


Majone (1996); Kingsbury et al. (2005). Joerges (2006), 521. Dreyfuss (2008). See Article 68 TRIPS. Helfer (2004), at 23.

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can also seek authoritative interpretation of TRIPS provisions through decision-making by the Council following Article 3.9 DSU.200 The TRIPS Council consists of representatives of Members. In this it provides a reverse link to national political and regulatory processes and partly evades the critique of law-making detached from democratic constituencies and lack of accountability that has been levelled at panel proceedings. It thus may serve as a forum for balancing between the logic of uniformity, on the one hand, and the logic of diversity and respect for national priorities and preferences, on the other.201 At the same time, it should be kept in mind that while the Council is open to all Members, not all have the financial possibilities to ensure meaningful attendance and participation in the debates. An overview of the minutes from the meetings of the Council (three to four meetings per year) reveals that some countries are systematically represented in deliberations, whereas others rely chiefly on regional and trade bloc representation. This is often the case for LDCs.202 The TRIPS Council applies mutatis mutandis the Rules of Procedure of the General Council.203 An important exception is the rule on decisionmaking. Unlike the General Council, the Council for TRIPS cannot take decisions by voting, but only by consensus. Upon failure to reach consensus, the TRIPS Council can defer a matter to the General Council, something that happened on the occasion of Paragraph 6 of the Doha Declaration. But even in the General Council, consensus is the main rule, which imposes obvious constraints on the capacity for change and adaptation. The possibility for majority voting under Article IX:2 of the WTO Agreement in order to provide authoritative interpretation of relevant agreements has been explored in the legal literature and a number of authors have suggested that it should be more frequently used in order to increase the adaptive quality and flexibility of the system.204 Participation in the TRIPS Council is limited to state representatives. Certain international organisations, such as the OECD, WIPO, UNCTAD, are accredited and have observer status.205 However, similar to 200

Ehlermann and Ehring (2006), 504. See Dreyfuss and Lowenfeld (1997); Dreyfuss (2008), 29. 202 Though individual developed states contribute to a WTO fund for securing broader participation from developing countries and LDCs. See the WTO website, on technical assistance. 203 See Rules of Procedure for the meetings of the Council for TRIPS, adopted on 21 September 1995, IP/C/1, 28 September 1995. Rules of Procedure for Sessions of the Ministerial Conference and Meetings of the General Council, adopted on 31 January 1995, WT/L/28, 7 February 1995; amended by WT/L/161, 25 July 1996. 204 Ehlermann and Ehring (2006), 504 et seq.; Dreyfuss (2008). 205 More recently, the granting of observer status to the Committee on 201


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the situation in the WTO as a whole, NGOs are not admitted to the work of the TRIPS Council.206 The WTO Secretariat makes conscious efforts to intensify the contacts with NGOs by organising workshops, providing training and technical assistance and annual conferences. Moreover the transparency of the work of the organisation has increased through increased access to the meetings of the General Council and improved procedures for the circulation and derestriction of WTO documents.207 However, there is to date no sign that the doors of the WTO will be open to the institutionalised participation of civil society any time soon. As stated in the Guidelines on relations with NGOs “[a]s a result of extensive discussions, there is currently a broadly held view that it would not be possible for NGOs to be directly involved in the work of the WTO or its meetings.”208 Of course providing unfettered access of NGOs to WTO political processes should not be seen as unproblematic. NGOs may give only imperfect and even distorted representation of broad-based collective and diffuse interests due to the notorious problems of collective action. The question of the accountability of such organisations has therefore been raised in a number of contexts.209 Moreover, as noted above, power asymmetries may be reproduced in the participation and representation of NGOs. A glimpse at the NGOs accredited to WIPO is at least to a certain extent prone to sober too high expectations about the contributions of NGOs in the IP governance debate. Certainly, some IP issues have attracted broad public attention and mobilised society groups. Religious organisations involved in the patent on life debate, green movements and consumer organisations have therefore sought accreditation. As a whole, however, the list is dominated by organisations with interests clearly aligned with those of IP right-holders. These are professional IP associations and industry organisations, typically in the pharmaceutical industry and the cultural industries.210

Biological Diversity (CBD) has become a controversial issue, obstructed among others by the US. 206 See Guidelines for arrangements on relations with non-governmental organisations, Decision adopted by the General Council on 18 July 1996, WT/L/162. 207 See Procedure for Circulation and Derestriction of WTO Documents WT/L/452 of 16 May 2002; cf. Sutherland Report (2004), Petersmann (2005). 208 Guidelines, WT/L/162, para. 6. For a critical analysis, see Van den Bosche (2008); Nanz (2006); Steffek and Kissling (2006); Nickel (2006). 209 See Bexell et al. (2008). 210 This may, however, be to some extent explained by the requirement that the organisation should be in the position to make a meaningful contribution and should be supportive of the objectives of WIPO.


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Nevertheless, it should be stressed that other international organisations such as the UN have developed sophisticated techniques for institutionalising the participation of civil society in their work, setting out carefully elaborated criteria for the accreditation of NGOs, and ensuring that only accountable, transparent and representative NGOs are admitted to the international law and policy-making process. For the WTO to adopt similar accreditation procedures could put the participation of civil society on a sound institutional basis and has to be seriously considered.211 On the whole, enhanced participation by NGOs is apt to improve the participation of affected interests and to increase the democratic and deliberative quality of international political and administrative decision-making processes, without the risk of adverse effects as in the case of the judicial process.212 In an analysis of the challenges facing developing countries to adequately participate in and influence global trade governance, Gregory Shaffer has suggested that building North-South alliances between developing countries and NGOs and constituencies in the powerful players of the global trade system may be productive in bridging the capacity gap that hinders adequate representation of these countries and in bringing their views forward.213 7.2.

Parliamentary Input

Less conventionally, some of the proposals that have been discussed in the course of the WTO institutional reform process, for instance in the Sutherland Report, envisage increased input by national parliaments in WTO negotiations and rule-making as well as, ambitiously, the setting up of a consultative parliamentary body for the WTO. Both solutions are, however, fraught with difficulties. Concerning parliamentary representation, the absence of a global demos poses pertinent questions about representation and accountability. In addition, there is strong resistance on the part of developing countries, mainly due to the increased costs such a system would imply.214 Yet, given the defects of technocratic international

211

Van den Bosche (2008) who compares the weak institutionalisation of NGO’s participation in the work of the WTO with the elaborate instruments within the UN. See Petersmann (2005), 655; cf. Bonzon (2008). 212 On amicus curiae briefs, see above 6.1.4; cf. Nanz (2006). 213 Shaffer gives as an example of a successful alliance the concerted action between North-based NGOs such as Médecins sans frontières and developing countries in the debate on patent protection for pharmaceuticals and access to AIDS drugs in the developing countries. Shaffer (2006), 325–6. 214 Petersmann (2005), 654. See, however, the analysis of Shaffer (2005). As


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IP rule-making described above, the idea of infusing parliamentary oversight into this process has a particular attraction and should be explored further. Finally, increasing the democratic governance of national involvement in international trade agreements has been highlighted as one way of improving the accountability and democratic legitimacy of the system.215 Despite the soundness of such proposals, one should not underestimate the path dependence of national institutional processes and the resistance against change that could be expected by incumbent actors.216

8. CONCLUDING REFLECTIONS During the almost 15 years of experience of dispute settlement under the DSU, the system has affirmed its significance for sustaining a multilateral and rule-based world trade regime.217 The superiority of such a multilateral regime over unilateral determination of rights and obligations, and over unilateral enforcement, is undisputable. In contrast, the contribution of dispute settlement to the evolution of a balanced IP law and policy has so far been more questionable. As discussed in this chapter, the TRIPS Agreement which forms the basis of international IP disputes exhibits a considerable structural bias in favour of the interests of IP right-holders and of technologically advanced countries with high stakes in IP-intensive industries. In its present institutional design, the DSS tends to reproduce and even exacerbate these biases of international IP law-making, pushing through the dynamics of international adjudication, to ever higher levels of protection. The role of developing countries and NGOs in the dispute settlement arena has been marginal. As a result, judicial decisions are systematically being taken in proceedings where only a limited part of the WTO membership is represented.218 The legitimacy deficits in such decision-making should indeed be a major source of concern.219 Some of the deficiencies identified in the institutional design of dispute

shown by Shaffer, costs are not an insurmountable obstacle and can be overcome, at least partially, by technical assistance and resource sharing on the part of developed countries, although the more intractable difficulties should not be underestimated. 215 Bacchus (2004); cf. Petersmann (2005), 653. 216 See North (1990). 217 Keohane et al. (2009). 218 Dreyfuss and Lowenfeld (1997), 293. 219 Dreyfuss and Lowenfeld (1997), 292.


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settlement can certainly be scaled down by a comprehensive institutional reform, which should have a sustained focus on improving participation opportunities for hitherto underrepresented state and non-state interests. At the same time, as demonstrated in this chapter, there are limits to the extent to which deeper structural imbalances in international IP law and policy can be compensated through fine-tuning of the institutional design of international IP adjudication. In any case, it appears that an institutional reform of the DSS should not be treated in isolation, but always in comparison with the possible involvement (and reform) of alternative institutional processes (e.g. the international political and administrative process). Although not discussed in this contribution, it should be borne in mind that, in line with theories of multi-level governance, the role of national institutional processes for the evolution of the international IP system should also be readily acknowledged. In an interdependent world, decisions by national legislatures increasingly affect interests beyond those of local constituencies. And as pointed out by Dinwoodie, national courts are increasingly acting as international tribunals creating global IP law.220 These bottom-up forms of international IP governance should be closely studied. More generally, it appears imperative to frame the debate on desirable changes in the substantive rules of international IP law not only in terms of normative values, but also in terms of institutional implications. The questions IP scholars at present are asking are mainly: what should be protected or exempted from protection, to what extent and why? Conversely, we approach only in passing the questions: who should decide on these important issues; in what type of decision-making processes and can these processes be improved. There is consequently a need to refocus the debate away from substance to process, paying due attention to questions of institutional choice and design.221 The IPT project proposes a more fine-meshed system of exceptions and limitations. It importantly advances a clearer and more detailed statement on principles and objectives in the TRIPS preamble. These proposals have a double institutional edge. On the one hand, they intend to shift the institutional balance toward the centralized international political process and thus lift part of the present burden of creative law-making from TRIPS adjudicative bodies. Panels and the AB would, following this proposal, be provided with a more stable legislative basis to carry out the

220 221

Dinwoodie (2000), (2002). Shaffer (2008).


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necessary balance of interests without being accused of judicial activism. On the other hand, adjudicative bodies would be authorized to allow a greater margin of appreciation for Members. In this, the proposal marks a step away from the “one size fits all” lock-in of the present TRIPS status quo and seeks to tilt the institutional design towards greater flexibility and pluralism of decision-making arenas. Arguably, in combination, these changes will have the effect of enhancing the adaptive efficiency of the global system of IP governance.222

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Maduro Poiares, M. (1998), We, the Court: The European Court of Justice and the European Economic Constitution, Oxford: Hart Publishing. Majone, G. (ed.) (1996), Regulating Europe, London: Routledge. Maskus, K. and Reichman, J.H. (eds) (2005), “The Globalization of Private Knowledge Goods and the Privatization of Global Public Goods”, in Maskus, K. and J.H. Reichman (eds), International Public Goods and Transfer of Technology under a Globalized Intellectual Property Regime, Cambridge: Cambridge University Press, 3–45. Mavroidis, P. (2000), “Remedies in the WTO Legal System: Between a Rock and a Hardplace”, European Journal of International Law, 11(4), 763–813. Menescal, A. (2005), “Those Behind the TRIPS Agreement: the Influence of the ICC and the AIPPI on International Intellectual Property Decisions”, Intellectual Property.Quaterly, 155–82. Nanz, P. (2006), “Democratic Legitimacy and Constitutionalisation of Transnational Trade Governance: A View from Political Theory”, in Joerges, C. and E.-U. Petersmann (eds), Constitutionalism, Multilevel Trade Governance and Social Regulation, Oxford and Portland, Ore: Hart Publishing, 59–82. Nickel, R. (2006), “Participatory Transnational Governance”, in C. Joerges and E.-U. Petersmann (eds), Constitutionalism, Multilevel Trade Governance and Social Regulation, Oxford and Portland, Ore: Hart Publishing, 157– 95. Nordström, H. and Shaffer, G. (2008), “Access to Justice in the WTO: The Case for a Small Claims Procedure”, World Trade Review, 7(4), 587–640. North, D. (1990), Institutions, Institutional Change and Economic Performance, Cambridge: Cambridge University Press. North, D. (1991), “Institutions”, Journal of Economic Perspectives, 5, 97–112. North, D. (1993), “Institutional Change: A Framework of Analysis”, in Sjöstrand, S.-E. (ed.), Institutional Change: Theory and Empirical Findings, New York: Sharpe, 35–46. Olson, M. (1965), The Logic of Collective Action: Public Goods and the Theory of the Group, New York: Schocken Books. Pauwelyn, J. (2003a), “Typology of Multilateral Treaty Obligations: Are WTO Obligations Bilateral or Collective in Nature?”, European Journal of International Law, 14, 907–51. Pauwelyn, J. (2003b), “The Limits of Litigation: ‘Americanization’ and Negotiation in the Dispute Settlement System of the WTO”, Ohio State Journal on Dispute Resolution, 19, 121–40. Petersmann, E.-U. (1997), The GATT/WTO Dispute Settlement System: International Law, International Organisations and Dispute Settlement, London, The Hague and Boston: Kluwer Law International. Petersmann, E.-U. (2005), “Addressing Institutional Challenges to the WTO in the New Millennium: A Longer-Term Perspective”, Journal of International Economic Law, 8, 647–65. Reichman, J.H. (2000), “The TRIPS Agreement Comes of Age: Conflict and Cooperation with the Developing Countries”, Case Western Reserve Journal International Law, 32, 442–70. Reichman, J.H. and Lange, D. (1998–9), “Bargaining around the TRIPS Agreement: The Case for Ongoing Public-Private Initiatives to Facilitate Worldwide Intellectual Property Transactions”, Duke Journal of Comparative and International Law, 9, 17–65.


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Scharpf, F. (2002), “Regieren im europäischen Mehrebenensystem – Ansätze zu eine Theorie”, Leviatan, 65. Sell, S. (1995), “Intellectual Property Protection and Antitrust in the Developing World: Crisis, Coercion, and Choice”, International Organization, 45(2), 315–49. Sell, S. (2003), Private Power, Public Law: The Globalisation of Intellectual Property Rights, Cambridge: Cambridge University Press. Shaffer, G. (2001), “The Blurring of the Intergovernmental: Public-Private Partnerships behind US and EC Trade Claims”, in Pollack, Mark and Gregory Shaffer (eds), Transatlantic Governance in the Global Economy, Lanham, Boulder, New York, Toronto and Oxford: Rowman & Littlefield Publishers, 97–123. Shaffer, G. (2005a), “Recognizing Public Goods in WTO Dispute Settlement: Who Participates? Who Decides? The Case of TRIPS and Pharmaceutical Protection”, in Maskus, Keith and Jerome Reichman (eds), International Public Goods and Transfer of Technology under a Globalized Intellectual Property Regime, Cambridge: Cambridge University Press, 884–908. Shaffer, G. (2005b), “Parliamentary Oversight of WTO Rule-Making: The Political, Normative, and Practical Contexts”, in Petersmann, E.-U. (ed.), Reforming the World Trade System, Oxford: Oxford University Press, 381–408. Shaffer, G. (2006), “Three Developing Country Challenges in WTO Dispute Settlement: Some Strategies for Adaptation”, in Dencho Georgiev and Kim van der Borght (eds), Reform and Development of the Dispute Settlement System, London: Cameron May, 2006, 309–30. Shaffer, G. (2008), “A Structural Theory of WTO Dispute Settlement: Why Institutional Choice Lies at the Center of the GMO Case”, New York University Journal of International Law and Politics, 1–102. Smith, J. and Tallberg, J. (2008), “Dispute Settlement in World Politics: States, Supranational Prosecutors and Compliance”, 16 October, 2008, Working Paper. Steffek, Jens and Kissling, C. (2006), “Why Co-operate? Civil Society at the WTO”, in Joerges, C. and E.-U. Petersmann (eds), Oxford: Hart Publishing, 135–56. Stigler, G. (1971), “The Theory of Economic Regulation”, Bell Journal of Economics & Management Science, 2, 3–21. Stigler, G. (1974), “Free Riders and Collective Action: An Appendix to the Theories of Economic Regulation”, Bell Journal of Economics & Management Science, 5, 359–65. Sutherland, P. et al. (2004), “The Future of the WTO: Addressing Institutional Challenges in the New Millennium”, Report by the Consultative Board to the Director General Supachai Panitchpakdi, WTO (Sutherland report). Van den Bosche, P. (2008), “NGO Involvement in the WTO: A Comparative Perspective”, Journal of International Economic Law, 11(4), 717–49. Yu, P. (2008), “Access to Medicines, BRICS Alliances, and Collective Action”, American Journal of Law and Medicine, 34, 345–94. Zimmerman, T. (2006), Negotiating the Review of the WTO Dispute Settlement Understanding, London: Cameron May.


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4.

Assessing the need for a general public interest exception in the TRIPS Agreement Henning Grosse Ruse-Khan*

This chapter examines the scope of the policy space to integrate other economic, social and environmental concerns under the World Trade Organization’s (WTO) Agreement on Trade Related Aspects of Intellectual Property Protection (TRIPS).1 It does this by comparing the amount of discretion available for domestic public interest measures in the two other core areas of WTO regulation: trade in goods and services. The chapter concludes that the notion of general exceptions under the General Agreement on Tariffs and Trade (GATT)2 and under the General Agreement on Trade in Services (GATS)3 finds no equivalence in TRIPS. Still, an equivalent amount of policy space can be achieved: by taking the TRIPS balancing objective and the WTO sustainable development objective seriously in the process of TRIPS interpretation and implementation. This opens significant room to integrate economic, social and environmental concerns in intellectual property (IP) regulation and decision-making. It coincides with the approach all WTO Members agreed to in para.4, 5 (a) of the Doha Declaration on the TRIPS Agreement and Public Health. As I have examined elsewhere, TRIPS, GATT and GATS can have an

* This chapter is a condensed version of a Research Paper prepared for the South Centre. I wish to thank Xuan Li, Hanns Ullrich, as well as Annette Kur, Marianne Levin and all other members of the IP in Transition project for their comments on earlier drafts. All errors remain mine. 1 World Trade Organization (WTO), Legal Texts – The Uruguay Round Agreements, Agreement on Trade Related Aspects of Intellectual Property Rights, available at http://www.wto.org/english/docs_e/legal_e/27-trips.pdf. 2 WTO, Legal Texts – The GATT 1947, General Agreement on Tariffs and Trade, available at http://www.wto.org/english/docs_e/legal_e/gatt47_e.pdf. 3 WTO, Legal Texts – The Uruguay Round Agreements, General Agreement on Trade in Services, available at http://www.wto.org/english/docs_e/legal_e/26-gats. pdf. 167


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equally strong impact on interests such as public health, the environment, food security and nutrition, public order and morals as well as various other societal aspects.4 In the absence of an explicit competence and any comprehensive positive regulation on public interests in the WTO legal system, sufficient deference to domestic public policy measures is decisive. Especially where individual TRIPS provisions fail to achieve effective integration of social, environmental concerns at the international level, the concept of sustainable development demands a balance of interests at the national level.5 Even if one does not agree that this principle has developed into customary international law,6 it appears in the form of the objective of sustainable development in the WTO preamble.7 In the words of the WTO Appellate Body, “it must add colour, texture and shading to our interpretation of the Agreements annexed to the WTO Agreement”.8 Against this background, Section 1 looks at the flexibilities TRIPS provides for domestic regulation of the public interest that may be affected by international obligations to protect IP. Section 2 compares and contrasts this with the policy space available for such measures under the two other core regimes in the WTO: the rules on trade in goods in the GATT 1994 and those on trade in services in GATS. In form of a conclusion, Section 3 proposes a way of achieving equivalent space to give effect to public interests in all three areas of WTO law.

4

See Grosse Ruse-Khan (2008a), at Section I. See Ch.8 of Agenda 21 (Environment and Development Agenda), a Plan for Action on the Implementation for the achievement of sustainable development worldwide – agreed at the 1992 Rio Earth Summit (United Nations Conference on Environment and Development (UNCED), Rio de Janeiro, 3–14 June 1992), available at http://www.unep.org/Documents.Multilingual/ Default.asp?DocumentID=52; para.7.2–7.3 of the ILA Declaration of Principles of International Law Related to Sustainable Development (see International Law Association, Resolution 3/2002 adopted at the 70th Conference of the International Law Association, held in New Delhi, India, 2–6 April 2002 (UN Doc. A/CONF.199/8, 9 August 2002)); further Jodoin (2005), at 4. 6 For the debate on the formal legal status, see Marong (2003–04), at 45–64. 7 According to the Appellate Body, the WTO treaties’ objective of sustainable development calls for “integrating economic and social development and environmental protection” (United States – Import Prohibition of Certain Shrimp and Shrimp Products (US – Shrimp), Appellate Body Report WT/DS58/AB/R (12 October 1998), at para.129 (fn.107)). For a detailed discussion of the Appellate Body’s reliance on the concept of sustainable development in US – Shrimp and other cases on trade and environment, see Marceau (1999). 8 US – Shrimp, as at note 7 above, at para.152. 5


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Assessing the need for a general public interest exception in TRIPS

1.

169

TRIPS FLEXIBILITIES FOR IMPLEMENTING PUBLIC INTEREST MEASURES

What is the scope of the policy space available under the TRIPS Agreement to integrate and give effect to public interests as they “intersect” with IP protection? Any detailed analysis on this topic would most likely have to take the form of a commentary on the TRIPS Agreement and in any case would go well beyond the scope of this chapter. Nevertheless, with its Art.8:1, TRIPS contains one horizontal provision addressing wider societal concerns such as public health and nutrition; and the public interest in sectors of vital importance to socio-economic and technological development in general. As Section 2 will show, the approach of Art.8:1 in part resembles the notion of general exceptions under GATT and GATS as well as the language used therein. At the same time, there are crucial differences which may prevent Art.8:1 from playing a relevant role. The other main provisions under TRIPS which further set out the policy space the agreement provides are those describing a right to foresee exceptions to specific IP rights addressed in TRIPS (Art.13, 17, 26:2, 30 and further Art.31). Here the chapter takes a bird’s-eye view and can build on other research findings9 which have addressed this issue extensively. 1.1.

Art.8:1 TRIPS – a General Exception to Override IP Protection?

Entitled ‘Principles’, Art.8:1 TRIPS is the only horizontal provision within TRIPS which addresses public interests affected by IP protection and their relation to interests and rights protected under individual TRIPS rules. In its final version, as embodied in the TRIPS Agreement, this provision reads: Art.8 (Principles) (1) Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.10

While a first brief look at Art.8:1 may leave the reader with the impression of a defence which allows to override TRIPS obligations, its language

9

See in particular the analysis on exceptions to exclusive rights under the different versions of the three-step test by Kur (2009). 10 Art.8:1 TRIPS (emphasis added).


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includes a clause which requires all measures adopted under Art.8:1 to be consistent with all other TRIPS provisions. The next section tracks the history of this provision. 1.1.1. The negotiating history of Art.8:1 TRIPS The idea of applying the concept of a general public policy exception to IP protection first appears in the form of treaty language11 in the original proposal by several developing countries on trade related aspects of IP within the GATT system.12 A. Yusuf notes that the main intention was to preserve sufficient flexibility to be able to regulate potentially conflicting public interests.13 In Section (2) of Art.2 on “Principles”, this text provided that: In formulating or amending their national laws and regulations on IPRs, Parties have the right to adopt appropriate measures to protect public morality, national security, public health and nutrition, or to promote public interest in sectors of vital importance to their socio-economic and technological development.14

This text reappeared unchanged in the first official version of the “Chairman’s Draft”15 (or “Compositive Draft Text”) prepared by the

11

An earlier submission by India already referred to the “primacy of public interest” under which “a state has the inherent right to take measures in public interest abridging the rights of holders of intellectual property rights”. Such measures may “in pursuance of vital concerns as security, public health, nutrition, agricultural development, poverty alleviation and the like”, see Uruguay Round of Multilateral Trade Negotiations – Communication from India, Applicability of the Basic Principles of the GATT and of Relevant International Intellectual Property Conventions (MTN.GNG/NG11/W/39), 5 September 1989. For a discussion on related submissions (again from India) which discuss the need to balance IP and public interests see ICTSD/UNCTAD, Resource Book on TRIPS and Development: An Authoritative and Practical Guide to the TRIPS Agreement (Geneva, 2005), Part One, Chapter 6, section 2, available at www.iprsonline.org/ unctadictsd/ResourceBookIndex.htm. 12 See Communication from Argentina, Brazil, Chile, China, Colombia, Cuba, Egypt, India, Nigeria, Peru, Tanzania and Uruguay, Applicability of the Basic Principles of the GATT and of Relevant International Intellectual Property Conventions (MTN.GNG/NG11/W/71), 14 May 1990. The text therein was later endorsed by two other developing countries, Pakistan and Zimbabwe. It became known as the “developing countries’ proposal” (see Gervais (2003), at 1.18). 13 Yusuf (1998), at 12–13. 14 Communication from Argentina, Brazil, Chile, China, Colombia, Cuba, Egypt, India, Nigeria, Peru, Tanzania and Uruguay, as at note 12 above, Art.2 (2) (emphasis added). 15 Chairman’s Report to the Group of Negotiation on Goods, Status of Work in the Negotiating Group, Negotiating Group on Trade-Related Aspects of


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chairman Lars Anell of the Negotiating Group on Trade-Related Aspects of Intellectual Property Rights in the summer of 1990 in order to identify conflicts and overlaps in the main proposals made so far.16 In the negotiations that followed, the delegations – with the active involvement of the chairman – tried to eliminate their differences mainly in small, informal sessions with the main actors which reported to the larger group of delegations involved. A commentator points out how time pressure to report results to higher authorities such as the Trade Negotiations Committee (TNC), comprised of the heads of delegations, led to very quick progress and “frantic work” during the last few weeks before a Ministerial Meeting was scheduled in Brussels in December 1990.17 It may have been this pressure of time, coupled with the need to compromise, that led developing country delegations to accept the essential weakening of “their” language on the right to implement public interest policies: While the so-called “Brussels Draft”18 which was submitted by the negotiating group on TRIPS retained most of the language of the initial developing countries’ proposal, it was now subjected to a very decisive further condition. Already in its current place, Art.8:1 stated: Provided that PARTIES do not derogate from the obligations arising under this agreement, they may, in formulating or amending their national laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socioeconomic and technological development.19

The Brussels Draft therefore represents the birth of the TRIPS consistency test in Art.8:1. In the further negotiations, this issue did not seem to

Intellectual Property Rights, including Trade in Counterfeit Goods, MTN.GNG/ NG11/W/76, 23 July 1990, Article 8 (Principles), section B.2 (the B indicating that the text originates from and represents the interests of developing countries – as opposed to A which indicated proposals from industrialised countries). 16 The draft was first circulated on 12 June 1990 under the chair’s sole responsibility; its official version (see note 15 above) then appeared in July 1990. On this and the overall TRIPS negotiating history and the pivotal role of this draft see Gervais (2003), at 1.20–1.30. 17 Ibid, at 1.25. 18 Trade Negotiations Committee, Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations (MTN.TNC/W/35/ REV.1), 3 December 1990. 19 Trade Negotiations Committee, as at note 18 above, Agreement on Trade Related Aspects of Intellectual Property Rights, Including Trade in Counterfeit Goods, Art.8:1 (Principles); at p. 200 (emphasis added).


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Table 4.1


The text of Art.8:1 – from the first Chairman’s Draft to the TRIPS Agreement

Art.8B (W/76 Draft)

Art.8 TRIPS

Principles (2) In formulating or amending their national laws and regulations on IPRs, PARTIES have the right to adopt appropriate measures to protect public morality, national security, public health and nutrition, or

Principles (1) Members may, in formulating or amending their laws and regulations, adopt measures

to promote public interest in sectors of vital importance to their socio-economic and technological development

necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.

play any major role.20 Even though its wording21 and position22 within Art.8:1 still differ slightly from the final version, its substance remained from now on unchanged.23 The Table 4.1 show the key similarities and differences between Art.8B.2 in the early W/76 “Chairman’s Draft”24 – juxtaposed with the final version of Art.8:1 in TRIPS.25

20

See Gervais (2003), at 1.27–1.32. The Brussels Draft uses “Provided that PARTIES do not derogate from the obligations arising under this agreement” instead of “provided that such measures are consistent with the provisions of this Agreement”, used in all later versions as well as in the final text of TRIPS. 22 In the Brussels Draft, it is the opening phrase of Art.8:1 (which might give it somewhat more weight or emphasis and resembles a little the chapeau of Art. XX GATT), whereas in the later versions, as well as the final text, it appears as a qualification of the “right” to adopt measures at the end of Art.8:1. 23 Both the so-called “Dunkel Draft” of 20 December 1991 (MTN.TNC/W/ FA) as well as the Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Marrakech, 15 April 1994 (i.e. the current version of TRIPS) retain the TRIPS consistency test. 24 Chairman’s Report to the Group of Negotiation on Goods, as at note 15 above. 25 The underlined text marks key similarities, whereas the text in italics indicates the main differences. 21


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1.1.2.

Diverging views on scope and application of Art.8:1 in light of the TRIPS consistency test The final version of Art.8:1 TRIPS addresses a rather broad range of measures which potentially fall under its scope: WTO Members may not only adopt measures “necessary to protect public health and nutrition”. In very general terms, the areas of policy goals pursued by the national measures are extended to cover anything which can “promote the public interest in sectors of vital importance to their socio-economic and technological development”. This places substantial discretion in the hand of WTO Members: what promotes the public interest and what is of vital importance will vary depending on regional, national or even local circumstances.26 The reference points of socio-economic or alternatively technological development thus do not impose any real restriction on the type of policies and aims WTO Members may pursue under Art.8:1. The broad range of measures therefore covered under Art.8:1 are then qualified in two respects: first, measures must be “necessary” to achieve the desired policy objective.27 Applying the more recent jurisprudence of the Appellate Body, measures are necessary when they represent the least (IP-) restrictive, reasonably available measure which is equally effective in achieving the desired policy objective.28 As Section 2 will show, the scope for domestic policy space is significant.29 Furthermore, WTO Members’ wide discretion to define their policy goals under Art.8:1 TRIPS also enlarges the discretion as to which measures are “necessary” to achieve them. Determining the policy objective (e.g. easy and cheap access to medication) and setting a specific threshold at which it should be achieved (e.g. a percentage of the population who should be provided with essential drugs at an affordable rate) certainly has great impact on whether implementing measures (e.g. price controls, compulsory licenses) are necessary; i.e. whether less (IP-) restrictive alternative measures are equally effective and reasonably available.30 In sum, the necessity test in Art.8:1 TRIPS 26 Compare Correa (2007), at 105–7; ICTSD/UNCTAD, as at note 11 above, part I, chapter 6, section 3. 27 This applies not only to the protection of public health or nutrition; but equally to the promotion of other vital public interests addressed in Art.8:1. The wording of Art.8:1 would support such an understanding where all the elements applicable to both sets of measures are named once. See also Yusuf (1998), at 13. 28 For details see Section 2 2. below. 29 Given the more recent decisions of the Appellate Body, the fear of transporting a narrow understanding of necessity (see Correa (2007), at 107) into TRIPS seems unwarranted. 30 Correa (2007), at 107, comes to a similar conclusion when he points to WTO


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leaves sufficient policy space and discretion to effectively pursue public interests outside IP rights on the domestic level. Secondly, any measure which a WTO Member wishes to enact in pursuit of its vital public interests must be consistent with the provisions of TRIPS. On its face, Art.8:1 therefore does not allow any measures which would conflict with other obligations in TRIPS. One then wonders what the scope of application and rationale of this provision is. Several commentators have grappled with the TRIPS consistency requirement and offered ways to give it (and thereby Art.8:1) a proper meaning. It would go beyond the scope of this chapter to discuss all the different proposals in detail, so this section looks at a selection indicative of the range of options discussed. For some, Art.8:1 is “essentially a policy statement” that explains the rationale for measures taken under the specific exceptions and limitations foreseen in, inter alia, Arts.30, 31 and 40.31 In light of the consistency test, it “would be difficult to justify an exception not foreseen under the Agreement”.32 One might however ask whether such an understanding really gives any effect to Art.8:1 TRIPS. This could be achieved only if the specific exceptions and limitations to IP rights recognised under TRIPS are interpreted and implemented in light of the broad language supporting domestic public interest policies in Art.8:1 TRIPS.33 The ICTSD/UNCTAD Resource Book on TRIPS takes a similar starting point when it explains the role of Art.8 TRIPS “as a statement of TRIPS’ interpretative principle”.34 It is argued that WTO Members have discretion to adopt internal measures which fall under the privileged policy objectives addressed in Art.8. Although not made explicit, this reasoning hints at an interpretation and implementation of TRIPS which gives WTO Members some leeway to balance IP rights with public interests and thereby indirectly affects the scope of obligations under TRIPS in general.35 In an attempt to give effect both to the TRIPS consistency

Members’ “significant room to define domestically the content and scope of the measures they can adopt.” 31 Gervais (2003), at 2.84. M. Blakeney understands Art.8 in the same way when he points to specific exceptions (such as Art.27:3 TRIPS on patentable subject matter) which “implement” the right to adopt health-related measures consistent with other TRIPS provisions; see Blakeney (1996), at 3.09 32 Gervais (2003), at 2.84. 33 Section 3 comes back to this interpretative role. 34 ICTSD/UNCTAD, as at note 11 above, part I, chapter 6, section 3.2. 35 On this linkage between objective-based treaty interpretation and the scope of international obligations, see also Section 3 below. On the matter of implementation policy space for balancing different interests based on the TRIPS objectives, see Grosse Ruse-Khan (2008b), at 175–6.


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test as well as to the right to adopt public interest measures, the authors advocate a presumption of TRIPS consistency for any measures falling under Art.8:1. Challengers should bear the burden of establishing that the discretion built into Art.8:1 has been abused.36 This amounts to reversing the burden of proof whenever the consistency of domestic measures with a specific limitation and exception, such as Arts.13, 17, 26:2, 27:3, 30, 31 or 40 TRIPS, is at stake. National measures, even if in conflict with an obligation to protect IP rights, would be presumed to be consistent with a specific exception in TRIPS and it would be for the complainant to show that the conditions, for example of the threestep test in Art.13 relating to copyright, are not met.37 However, operating this concept in practice might be difficult38 and WTO jurisprudence on TRIPS so far has not taken this approach.39 Yet another understanding of Art.8:1 and the consistency requirement leans on the original idea for a public interest exception forwarded by developing countries in the Uruguay Round,40 and views Art.8:1 as qualifying the scope of harmonisation required by TRIPS. Despite its limitation via the consistency test, “the public interest principle offers a considerable degree of legislative flexibility to member states”.41 From this follows a narrow interpretation of the consistency test requiring only consistency with “the provisions of the agreement as a whole, including its preamble, 36

ICTSD/UNCTAD, as at note 11 above, part I, chapter 6, section 3.2. Simply assuming consistency with TRIPS obligations in general would not really add anything to the burden of proof status quo under which the complainant needs to establish the facts which indicate that the defendant has violated a TRIPS obligation. This presumption takes on any real meaning only if applied to the consistency of national measurers with a specific exception that allows for deviation on from specific TRIPS obligations. 38 In order to trigger the reversed burden of proof, the defendant WTO Member would still have to show that its measure falls under Art.8:1 – i.e. it is necessary to protect public health, nutrition or to promote vital public interests. Whether this in the end would provide any real benefits to the defendant may be doubted; in particular if the claimant can present facts indicating that specific TRIPS exceptions are not being complied with. 39 See in particular the Panel decision in Canada – Patent Protection of Pharmaceutical Products (Canada – Patents) WT/DS114/R, Panel Report (17 March 2000), where the Panel discussed the role of Art.8 (and Art.7) in relation to Art.30 TRIPS. On this issue, compare Kur (2009); Grosse Ruse-Khan (2008b), at 187–91. 40 On the history of Art.8:1, see Section 1.1.1) above. 41 Yusuf (1998), at 13. This approach resembles to some extent the one expressed in the ICTSD/UNCTAD Resource Book (see note 11 above) as both affect the scope of TRIPS obligations and the discretion or policy space left to WTO Members in their implementation. 37


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objectives and principles.”42 This approach in effect allows offsetting some inconsistency with specific obligations (such as copyright exceptions beyond the three-step test requirements in Art.13) with, for example, adherence to the balancing objectives of Art.7 TRIPS. While it might be a desirable result in some instances, it does not correspond to the wording and ordinary meaning of the consistency test which refers to “the provisions” (plural) of TRIPS. Furthermore, judging overall or general TRIPS consistency appears a rather unclear and ambiguous test to operate.43 Finally, Art.8:1 is also understood as a right to override individual TRIPS provisions where “the ‘consistency’ requirement may not be deemed to outlaw any governmental action necessary to protect the interests mentioned in Art.8:1” – even “if such action required the adoption of TRIPS-inconsistent measures”.44 This is justified by comparison with other areas of WTO law which foresee a general safeguard clause giving, if necessary, preference to public interest concerns over obligations on trade in goods and services.45 Therefore, the TRIPS consistency requirement should not take away this basic balance in case of WTO IP regulation. While this certainly is a valid normative claim, it cannot argue away the existence of the consistency test and the general need to give effect to the meaning of all the terms of a treaty.46 It may just be the case that the political reality of negotiation tactics, reciprocal concessions and pressure by the key stakeholders in the Uruguay Round has led to a not justifiable (and thus “unjust”) discriminatory treatment of public interests in TRIPS as opposed to the other key areas of WTO regulation. This would call for

42

Ibid (emphasis added). How much and/or how many specific inconsistencies may be offset? Is there a quantitative and/or a qualitative measurement? And who decides – with what amount of discretion? Given all these ambiguities, it is unlikely that this test would actually achieve its purpose of providing a safe haven for enacting public interest measures. 44 Correa (2007), at 108. 45 Ibid: “If that were the case, IPRs would assume an overriding preponderance in national policies, far beyond what is actually possible under GATT, which allows for the derogation of Members’ obligation.” 46 See United States – Standards for Reformulated and Conventional Gasoline (US – Gasoline), Appellate Body Report (WT/DS24/AB/R), at 23: “( . . . ) interpretation must give effect to all the terms of the treaty. An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility.” This follows from the principle of effectiveness in treaty interpretation (as embodied in the good faith element in Art.31 of the Vienna Convention on the Law of Treaties; compare International Law Commission (1966), 219). 43


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the amending of TRIPS, but does not as such allow the modification of the rights and obligations set out in the WTO agreements.47 Before reaching this or similar conclusions, one must however exhaust all available “remedies” and tools of treaty interpretation – in this case focused on identifying the most appropriate meaning of the TRIPS consistency test. While several of the interpretations above do contain important elements for developing this understanding, the next section takes an approach is aligned to that adopted in WTO Dispute Settlement. By following “the customary rules of interpretation of public international law” which Art.3.2 of the WTO Dispute Settlement Understanding (DSU) calls for to guide WTO treaty interpretation, a pragmatic and realistic understanding of Art.8:1 TRIPS can be achieved. 1.1.3.

Assessing policy space under Art.8 – guidance from the rules of treaty interpretation and the Doha Declaration WTO judicial bodies and various scholars agree that the reference in Art.3.2 DSU to “the customary rules of interpretation of public international law” mainly calls for applying the Vienna Convention on the Law of Treaties48 (VCLT).49 The provisions of WTO Agreements, including TRIPS, thus are to be clarified by relying first and foremost on the Arts.31 and 32 VCLT.50 The starting point for the interpretative exercise on the 47

See Art.3:2 DSU (WTO, Legal Texts – The Uruguay Round Agreements, Understanding on Rules and Procedures Governing the Settlement of Disputes, available at http://www.wto.org/english/docs_e/legal_e/28-dsu.pdf), which limits the role of treaty interpretation (by WTO adjudicative bodies) “to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law” while it “cannot add to or diminish the rights and obligations provided in the covered agreements.” 48 Vienna Convention on the Law of Treaties (VCLT). 49 Lennard (2002), at 18. In the WTO context, Art.3.2 DSU requires the dispute settlement organs to clarify WTO treaty provisions accordingly; see US – Gasoline, (as at note 46 above), at 16; India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, (India – Patents) (WT/DS50/AB/R), Appellate Body Report (19 December 1997), at para.46; United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from Germany (WT/DS213/AB/R) Appellate Body Report (28 November 2002), paras.61–2. 50 See India – Patents, as at note 49 above, at para. 46. Due to the numerous references to the VCLT in WTO jurisprudence, the latter has been called the “gospel for interpretation”; see Qureshi, A. (2006), at 3. Art.31 VCLT incorporates the general rule of treaty interpretation, whereas Article 32 addresses supplementary means of interpretation and Article 33 deals with treaties drafted in different languages. According to Art.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”. Section 2 then defines


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consistency requirement in Art.8:1 TRIPS is the ordinary meaning of the relevant treaty terms in their context.51 The relevant wording of Art.8:1 is “provided that such measures are consistent with the provisions of this agreement”. In its dictionary meaning, consistent is understood as (1) conforming to a regular pattern; unchanging; and (2) in agreement (when used as “consistent with”).52 Measures taken under Art.8:1 need to conform, to be in agreement with the provisions of TRIPS. The ordinary meaning does not allow for a breach of individual obligations under TRIPS. Secondly, the context of the consistency requirement must be examined. This includes not only the whole text of TRIPS and its Annexes; but also the agreement of all WTO Members expressed in the Doha Declaration on the TRIPS Agreement and Public Health.53 In para.4 they declare: We agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health and, in particular, to promote access to medicines for all. In this connection, we reaffirm the right of WTO Members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.54

The first sentence of para.4 could be understood as a broad mandate for WTO Members to adopt public health-related measures – irrespective of their obligations to protect IP under TRIPS. Members seem to agree that TRIPS does not and should not stand in the way of taking “whatever step they consider appropriate to addressing public health concerns.”55 The latter therefore can override TRIPS obligations. But this broad underwhat constitutes context and section 3 mainly lists those subsequent agreements and practices that are as relevant as the agreements and instruments under section 2. According to the drafters of the Vienna Convention, all elements mentioned in Art.31 must be read as one general rule of interpretation with no legal hierarchy of norms among the elements in section 1 and those in later sections. See International Law Commission (1966), at 220. 51 See Sinclair (1984), at 121; International Law Commission (1966), at 220. 52 Compact Oxford English Dictionary of Current English, available at http:// www.askoxford.com/dictionaries/compact_oed/?view=uk. 53 The Doha Declaration constitutes the relevant interpretative context as an agreement under Art.31 (3) (a) VCLT; confirmed by Abbott (2002), at 491–2; ICTSD/UNCTAD, as at note 11 above, part one, chapter 6 (6.2.1), Grosse RuseKhan (2008b), at 184; See also Charnovitz (2002), at 211. 54 Ministerial Conference, Doha Declaration on the TRIPS Agreement and Public Health (WT/MIN(01)/DEC/2), 20 November 2001 (emphasis added). 55 ICTSD/UNCTAD, as at note 11 above, part I, chapter 6, section 6.


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standing conflicts with the explicit requirement for TRIPS consistency. The Doha Declaration, even though adopted by consensus and clearly stating an “agreement” of WTO Members,56 is not part of the WTO Agreements.57 It therefore can clarify the rights and obligations set out in WTO treaty law, but it cannot add or diminish any rights or obligations.58 Therefore, it cannot reduce or nullify the clearly expressed obligation to act in consistency with the TRIPS Agreement.59 This result finds strong support in the second and third sentences of para.4 of the Doha Declaration, qualifying the broad mandate of the opening sentence.60 They indicate how the right to protect public health and access to medication is to be given effect within TRIPS: by means of interpretation and implementation which avoids conflicts with these public interests (second sentence). This in turn should be achieved by the full use of TRIPS flexibilities – especially those listed in para.5 (a)–(d) of the Doha Declaration (third sentence).61 In other words: TRIPS does not and should not interfere with public health concerns – because it can and should be interpreted and implemented (by using its flexibilities) in a manner supportive of these concerns. In this understanding, no conflict exists as long as the recipe of proper interpretation and implementation is followed. It further underlines the notion of domestic policy space to integrate economic, social and environmental concerns which flows from the 56

See para.4 of the Doha Declaration (as at note 54 above) which opens with the phrase “We agree ( . . . )” (emphasis added). 57 Even though one could classify it as a “decision” under Art.IV:1 and Art. IX:1 of the WTO Agreement (compare Abbot (2002), at 491, Charnovitz (2002), at 210; ICTSD/UNCTAD, as at note 104 above, part one, chapter 6 section 6). One should note that this qualification is cumulative (not alternative) to the Declaration’s formal status in the interpretation process which follows from the rules of the VCLT. 58 Considering the formal hierarchy of the relevant norms, any form of interpretation of WTO law is subject to the general requirement expressed in Art.3:2 DSU that it “cannot add to or diminish the rights and obligations provided in the covered agreements”. 59 A similar argument follows from the last sentence in Art.IX:2 of the WTO Agreement relating to so-called authoritative interpretations adopted by and binding upon WTO Members. Even these types of interpretations with a formally higher status than any agreements under Art.31 (2), (3) VCLT cannot be applied to circumvent the provisions on amending WTO Agreements; ergo they are not of equivalent status with the text of the WTO Agreements itself. 60 See ICTSD/UNCTAD, as at note 11 above, part one, chapter 6, section 6. 61 Those listed include an interpretation based on the TRIPS objectives; the right to grant compulsory licences and to freely determine the underlying grounds for them; and the right to freely choose a regime of national, regional or international exhaustion.


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objective of sustainable development. On this basis, no right to override TRIPS obligations is necessary. In sum, the Doha Declaration’s para.4 testifies against a right to act that is inconsistent with specific TRIPS obligations. Instead, it indicates how pursuing the public interests mentioned in Art.8:1 can be aligned with the TRIPS consistency requirement. This in turn points to the main role Art.8:1 can play in public interest considerations within TRIPS, ensuring an interpretation and especially implementation which gives effect to these interests whenever necessary and as much as possible under the individual TRIPS obligation at stake. Para.5 (a) of the Doha Declaration confirms this by listing as the first major TRIPS flexibility the right to interpret and implement each TRIPS provision in light of the TRIPS objectives in Art.7 and of the principles of Art.8.62 The public interest principle of Art.8:1 therefore guides TRIPS interpretation and implementation. Especially in cases of ambiguity, of broad and open treaty language where more than one interpretation is possible, TRIPS provisions must be interpreted in accordance with the balancing objective of Art.7 and giving effect to the public interest concerns expressed in Art.8.63 As discussed further below, such an understanding of Art.8:1 draw additional support from consulting the object and purpose of both TRIPS and the WTO Agreement. 1.2.

Right to Foresee Exceptions and Limitations under Arts.13, 17, 26:2, 30 TRIPS

This section sketches the flexibilities which the individual TRIPS provisions allowing WTO Members to introduce exceptions and limitations in their national laws provide.64 Here, a concept deriving from Art.9 (2) of the revised Berne Convention for the Protection of Literary and Artistic

62 “In applying the customary rules of interpretation of public international law, each provision of the TRIPS Agreement shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles.” (emphasis added); see Doha Declaration on the TRIPS Agreement and Public Health, as at note 54 above, at para.5 (a). 63 Compare Correa (2007), at 109; ICTSD/UNCTAD, as at note 11 above, part one, chapter 6, section 6. For a detailed analysis of the TRIPS objective under Art.7, see Grosse Ruse-Khan (2008b), at 173–8. 64 Although it allows the use of patented subject matter without authorisation, the compulsory licensing authorisation in Art.31 TRIPS is also factored in below. In particular, in the area of public health and access to medicines, it certainly adds to the policy space available for WTO Members and has been recognised as such in para.5 (b) of the Doha Declaration. Under TRIPS, compulsory licensing however is not available for trademarks (Art.21).


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Works (RBC)65 takes centre stage since it served as a general template for constraining the domestic policy space relating to exceptions for most IP rights regulated in TRIPS.66 Three of the four different versions of the socalled three-step test have been subject to dispute settlement proceedings in the WTO – producing three panel reports where the respective TRIPS provisions played an important role. In Canada – Patents,67 two exceptions in the Canadian patent law relating to pharmaceutical patents and the market entry of generic competitors were scrutinised under Art.30 TRIPS which states that Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.68

Secondly, the dispute US – Copyright69 concerned two exceptions in US copyright law which allow some commercial establishments (like bars, restaurants) to play certain types of musical works on their premises without permission. The EC challenge the consistency of these exceptions with Art.13 TRIPS, which obliges WTO Members to confine limitations or exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder.70

The final dispute, EC – Geographical Indications,71 relates to the EC’s system of protecting geographical indications (GIs) and especially its 65 Art.9 (2) addresses the general conditions for national copyright exceptions on the right to reproduction. It provides: “It shall be a matter for legislation in the countries of the Union to permit the reproduction of such works in certain special cases, provided that such reproduction does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author.” (emphasis added). 66 On the so-called “three step test” with its origins in Art.9 (2) of the Berne Convention and which can be found in Art.13 TRIPS as well as – in modified forms – in Arts.17, 26:2 and 30 TRIPS, see Senftleben (2006). 67 Canada – Patents, as at note 39 above. 68 Art.30 TRIPS (emphasis added). 69 United States – Section 110(5) of US Copyright Act (US – copyright), Panel Report (WT/DS160/R), 15 June 2000. 70 Art.13 TRIPS (emphasis added). 71 European Communities – Geographical Indications (EC – GIs) Panel Report (WT/DS/174R), 15 March 2005.


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treatment of trademarks which coincided with a protected GI. Here, the US alleged that the duty of the holder of a prior trademark to tolerate the co-existence of a similar or identical GI registered after the trademark violated trademark protection under Art.16 TRIPS without being justified under the exceptions allowed by Art.17 TRIPS. The latter regulates that Members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties.72

Apart from these three versions of the three-step test, Art.26:2 relating to the protection of industrial designs also contains similar restrictions on the ability of WTO Members to regulate exceptions to IP protection in their domestic laws: Members may provide limited exceptions to the protection of industrial designs, provided that such exceptions do not unreasonably conflict with the normal exploitation of protected industrial designs and do not unreasonably prejudice the legitimate interests of the owner of the protected design, taking account of the legitimate interests of third parties.73

The literature on these different versions of the so-called three-step test in Arts.13, 17, 26:2, 30 TRIPS is immense and this chapter is not the place for an extensive discussion of the individual provisions or the way WTO Panels have interpreted them.74 Instead, this section builds on the existing analysis75 in order to determine the scope of the domestic policy space left for regulating public interests under these exception provisions in TRIPS. In a nutshell, both treaty language as well as the Panels’ interpretation point to the main conceptual defect of the three-step tests: all versions of the test in TRIPS take the perspective of right holders and their economic interests flowing from the market exclusivity provided by IP protection under TRIPS. It is the scope and degree of impact on these economic interests which serves as the reference point and baseline for judging the

72

Art.17 TRIPS (emphasis added). Art.26:2 TRIPS (emphasis added). 74 See for example Ginsburg (2001), 3–65; Ricketson (2003); for a review of several of the Panel Reports see Fiscor (2002), 111–251; Senftleben (2006). Several commentaries on TRIPS address all the provisions incorporating a three-step test – see Correa (2007); ICTSD/UNCTAD, as at note 11 above; Gervais (2003) and Beier and Schricker (1996). 75 See in particular Kur (2009). 73


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TRIPS consistency of domestic exceptions. Exceptions must be “limited” or confined to “certain special cases”; they may not (unreasonably) “conflict with a normal exploitation” of the protected subject matter and may not “unreasonably prejudice the legitimate interests of the right holder”. While Arts.17, 26:2 and 30 TRIPS at least add that the “legitimate interests of third parties” must also be taken into account, the Panel Reports so far have not made any relevant use of this option to engage in a discussion on the public policy objectives underlying the domestic exceptions.76 Moreover, given the cumulative nature of the three individual steps,77 merely taking into account public interests on the third, final level does not suffice. Exceptions which do not meet the requirements of the first or second step, for example by being qualified as not “limited” enough in the case of the Panel Report in Canada – Patents,78 are never examined against their underlying policy objective and its importance for protecting public interests. This conceptual deficit automatically leads to a crucial difference of the TRIPS approach as compared to the notion of general exceptions under GATT and GATS. Exceptions whose legality depend on not (significantly) harming the economic interests protected under TRIPS will always be subordinated to these interests and can – in case of conflict – never prevail over these interests. This however is the key feature of Art.XX GATT and Art.XIV GATS, where the individual exception clauses are designed to recognise public interests and allow WTO Members to give the effect to these interests – even if this conflicts with trade obligations under WTO rules.79 Judged against this background, the TRIPS treaty language used in the different versions of the three-step test, as well as its interpretation by WTO dispute settlement panels, so far does not offer anything close to the policy space available in Art.XX GATT and Art.XIV GATS. WTO Members therefore do not seem to have an equivalent option to regulate

76

Instead, the Panels’ main criterion for all three steps seems to be how much the exception at hand detracts from the enjoyment of the full exclusive right and so affects the economic interests of right holders; see Kur (2009). 77 The language used in all different versions of the test in TRIPS provides strong evidence that the conditions must be fulfilled cumulatively. A recent joint declaration by various academics, however, advocates a reading where the test constitutes an indivisible entirety and where the three steps are to be considered as a whole in a comprehensive overall assessment; see the text of the Declaration “On a Balanced Interpretation of the Three Step Test in Copyright Law”, printed in IIC, 39(6) (2008), 707–13; available at http://www.ip.mpg.de/ww/de/pub/aktuelles/ declaration_on_the_three_step_.cfm. 78 See Canada – Patents, as at note 39 above, at 7.30–7.36. 79 See Section 2.1 for details.


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public interests conflicting with the protection of IP as they have under the WTO rules on trade in goods and services. True, compulsory licensing under Art.31 TRIPS – and in particular the “freedom to determine the grounds upon which such licenses are granted”80 – certainly provides some further policy space relating to patent protection. However, the comprehensive procedural requirements set out in Art.31, the debate on lack of manufacturing capacities in poor countries, as well as the very poor record of practising the hailed ‘paragraph six solution’ show that the flexibilities under Art.31 TRIPS so far have a rather limited field of practical application.81 Furthermore, compulsory licensing is a conceptually more limited policy tool as it applies in specific cases to individual patents where all the procedural requirements imposed by Art.31 TRIPS must be met. Exceptions and limitations allow public interests to be regulated on a more general basis. An initial overall assessment of the TRIPS policy space’s capacity to give effect to other societal concerns and balance them with the interests of right holders therefore must acknowledge the dominance of the latter. While the distinct versions of the three-step tests tend to subordinate public policy concerns and provide no real option to override the right holders’ economic interests, the only horizontal exception in Art.8:1 also does not offer any meaningful defence in itself. It might however play an important role in combination with the WTO/TRIPS objectives in determining the scope of TRIPS obligations in general. This initial conclusion will be contrasted with the policy space available under the general exceptions in the two other core areas of WTO regulation.

2.

POLICY SPACE FOR A BALANCE OF INTERESTS UNDER GATT AND GATS

In the following, the chapter tries to set out the scope for policy space and flexibility for national legislators to give effect to non-trade societal

80

Doha Declaration on the TRIPS Agreement and Public Health, as at note 54 above (emphasis added). 81 The WTO General Council waiver decision of 30 August 2003 (see General Council, Decision of 30 August 2003 (WT/L/540 and Corr.1), 1 September 2003 and General Council, Decision of 6 December 2005 (WT/L/641), 8 December 2005) has so far resulted in only one request (by Rwanda) to produce patented medicines under a compulsory license abroad (in Canada) for export into the country without sufficient manufacturing capacities – see http://www.wto.org/ english/news_e/news07_e/trips_health_notif_oct07_e.htm.


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values and interests under the WTO regimes for trade in goods (GATT and other Annex 1A Agreements) and services (GATS). In doing so, it examines the two central provisions (Art.XX GATT and Art.XIV GATS) which allow WTO Members to depart from their WTO obligations as well as the related jurisprudence of the WTO judicial bodies. The aim is to draw a broad picture of the policy space available to national legislators in these areas82 which shall be compared with the flexibilities and room for manoeuvre under the TRIPS Agreement subsequently. The promotion and protection of societal interests and public goods, such as the environment, human, animal and plant health, public order, consumer safety and economic development, is a core task of government regulation. Obligations of international economic law, inter alia to liberalise trade and to protect IP, can conflict with measures taken to implement such policy objectives. The more comprehensive and inclusive the global trade regime becomes, the more it reaches “behind the border”, the more frequent and intense such conflicts can become. The WTO rules on trade in goods and services primarily address this conflict in the form of a general exception rule in GATT and in GATS. Apart from these two provisions, others exist which in one way or another allow for domestic policy space or recognise non-trade interests, in particular relating to health and the environment.83 However, they are not equally broad in scope and generally are limited to specific issues – relating for example to technical trade barriers, sanitary measures or subsidies. For these reasons and since the general exception clause continues to play the dominant role in conflicts between trade and societal interests, the chapter focuses on the concept of a general exception. This notion represents a familiar mechanism in trade law that is used to implement sustainable development concerns and the principle of integrating economic, social and environmental concerns.84 The most important common feature of these general exceptions in

82

A more detailed analysis of policy space under the WTO regimes on trade in goods and services can be found in Grosse Ruse-Khan (2008a), at section II. 83 See Art.2:2 of the WTO Agreement on Technical Barriers to Trade (TBT) allowing the introduction of (trade-restrictive) technical standards which are necessary to fulfil policy objectives such as the “protection of human health or safety, animal or plant life or health, or the environment”. In a similar fashion, Art.2:1 of the WTO Agreement on Sanitary and Phytosanitary Measures (SPS) allows for example necessary health protection measures. Further, Art.8:2 (c) of the WTO Agreement on Subsidies and Countervailing Measures (SCM) and Annex 2 No.12 to the Agreement on Agriculture (AA) contain provisions which address environmental concerns. 84 See Cordonier Segger (2005a), at 16, 20 and Cordonier Segger (2005b), at 152, 168.


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GATT and GATS is that they allow, under specific conditions, the adoption and maintainance of legislation and measures that protect important societal interests, even if this is inconsistent with other provisions of these agreements. As soon as the exceptions’ requirements are met, the interests pursued in these measures or laws therefore can prevail over conflicting trade interests embodied in WTO rules.85 In the areas of classic trade regulation, the WTO system thus allows policy space sufficient for non-trade interests to trump over trade interests. 2.1.

The Approach of General Exceptions

Stemming from the GATT 1947 origin of the WTO, Art.XX GATT entitled “General Exception” has been drafted as a justification for national laws and measures which are otherwise inconsistent with obligations deriving from any other GATT provision.86 Since all relevant jurisprudence of the GATT dispute resolution mechanism and most of the WTO jurisprudence87 relates to Art.XX GATT, this section focuses first on the general exception rule in GATT and then draws parallels to the equivalent general exception in Art.XIV GATS. Art.XX GATT provides: Article XX – General Exceptions Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: (a) necessary to protect public morals; (b) necessary to protect human, animal or plant life or health; (c) relating to the importations or exportations of gold or silver; (d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices; (e) relating to the products of prison labour;

85

Bossche (2005), at 598. This general scope of the exception, potentially covering all the obligations set out, follows from the language “nothing in this Agreement shall . . . prevent”; see Jackson (1969), at 744. 87 A comprehensive discussion of the relevant environmental or health related disputes from the GATT 1947 to the current WTO system can be found in Trebilcock and Howse (2005), at 515–45. On the GATT Panels’ history of dealing with Art.XX, see Klabbers (1992), at 66–88. 86


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(f)

imposed for the protection of national treasures of artistic, historic or archaeological value; (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; ( . . . )88

Drafted as a defense, Art.XX GATT comes into play only if a national measure has been found in violation of an obligation under the GATT. Even though Art.XX GATT constitutes exceptions to obligations in GATT, the Appellate Body has explicitly rejected the notion of an interpretation which constructs exceptions narrowly. Instead, the Appellate Body recognised the importance of the domestic public policies pursued via measures recognised under Art.XX GATT.89 By relying on, inter alia, contextual and objective-based interpretation in accordance with Art.31 (1) VCLT, it advocated a balance of the interests embodied in the applicable exception clause with those incorporated in the conflicting GATT provision.90 On this basis, an interpretation of the exceptions in Art.XX GATT which allow giving effect to these policies and interests must aim at an overall balance between trade liberalisation and other societal values.91 These general observations on the nature, function and structure of Art.XX GATT equally apply to the “General Exception” clause applicable to obligations on trade in services in the WTO. Using the Art.XX GATT approach as a template, general exceptions to obligations under the General Agreement on Trade in Services (GATS) have been foreseen in Art. XIV GATS in a very similar manner: Article XIV – General Exceptions Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures:

88 The further sections (h), (i), (j) relate to obligations under international commodities agreements, efforts to ensure essential quantities of materials necessary for the domestic processing industry and products in short supply. 89 US – Shrimp, as at note 7 above, at para.121: Paragraphs (a) to (j) comprise measures that are recognized as exceptions to substantive obligations established in the GATT 1994, because the domestic policies embodied in such measures have been recognized as important and legitimate in character. 90 US – Gasoline, as at note 46 above, at 16 (emphasis added). 91 Bossche (2005), at 600; compare also, Godt (2003), at 251–2, and Gerstetter (2006), at 120–24.


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IP rights in a fair world trade system necessary to protect public morals or to maintain public order;92 necessary to protect human, animal or plant life or health; necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to: (i) the prevention of deceptive and fraudulent practices or to deal with the effects of a default on services contracts; (ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts; (iii) safety; ( . . . )93

One may note that the general exception under GATS uses almost identical language in its chapeau. As to the individual exception clauses, they partly match those used in Art.XX GATT (see especially (b) on the protection of human, animal or plant health), while others rely on the same concept as in Art.XX GATT but are tailored to address specific interests more likely affected by trade in services (see for example (c), (a) and (b) on fraud, deception and default in service contracts and on data protection). Summing up, two of the three major regimes of global economic regulation in the WTO – the ones on trade in goods and trade in services – do include a general exception which allows WTO members to give effect to domestic non-trade interests. As a brief survey of the Appellate Body’s jurisprudence in WTO dispute settlement relating to Art.XX GATT (and Art.XIV GATS) will indicate, this system seems to function rather well. 2.2.

Necessity Test as Balancing Tool

This section shows how the so-called “necessity test” which can be found in various provisions of WTO Agreements94 functions as a central proportionality element in the most important individual exception clauses of 92 As per the original footnote to the GATS Agreement, “the public order exception may be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society”. 93 Subsections (d) and (e) further concern inconsistencies with specific GATS obligations due to the collection of direct taxes. 94 As the WTO Secretariat Note on Necessity Tests in the WTO describes, such tests can be found in, inter alia, “Articles XX and XI of the GATT; GATS Articles XIV and VI:4, paragraph 2(d) of Article XII and paragraph 5(e) of the Annex on Telecommunications; Articles 2.2 and 2.5 of the TBT Agreement; Articles 2.2 and 5.6 of the SPS Agreement; Articles 3.2, 8.1 and 27.2 of the TRIPS Agreement; and Article 23.2 of the Agreement on Government Procurement”. See WTO Secretariat, Necessity Tests in the WTO (S/WPDR/W/27) 2 December 2003.


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Art.XX GATT and Art.XIV GATS. It focuses on a prominent individual exception in Art.XX GATT and Art.XIV GATS allowing WTO Members to adopt measures (even if otherwise inconsistent with GATT or GATS) whenever they are “necessary to protect human, animal or plant life or health”. The individual exception clause at issue here requires two conditions to be met. First, the policy objective followed by the measure at issue must be the protection of human, animal or plant health. WTO jurisprudence so far has not set high thresholds here: It generally relates to both public health as well as environmental policies95 and effectively allows WTO Members broad discretion as to which measures fall within that scope.96 Secondly, the measure must be “necessary” to achieve this objective.97 This condition reflects the balance in WTO agreements between two important goals: preserving the freedom of Members to set and achieve regulatory objectives through measures of their own choosing, and discouraging Members from adopting or maintaining measures that unduly restrict trade. Necessity tests typically achieve this balance by requiring that measures, which restrict trade in some way (including by violating obligations of an agreement) are permissible only if they are “necessary” to achieve the Member’s policy objective. In so doing, the necessity tests confirm the right of Members to regulate and to pursue their policy objectives.98 The Appellate Body emphasised that judging necessity “involves in every case a process of weighing and balancing a series of factors” such as the contribution of the measure to the achievement of the policy goal, the importance of the common interests or values protected, and the impact of the measure on trade.99 Although the Panel and Appellate Body jurisprudence is dynamic and has over time taken distinct approaches to interpreting the necessity test, the following individual elements seem of constant relevance: Measures are only necessary when they consist of

95

See Bossche (2005) at 604. Schloemann, H. (2008); compare also Andenas and Zleptnig (2007), at 8. 97 See US – Gasoline, Panel Report WT/DS2/R (29 January 1996), para.6.20. 98 See WTO Secretariat, as at note 94 above, para.4. 99 Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef (Korea – Beef), Appellate Body Report WT/DS161/AB/R (11 December 2000), para.164 (emphasis added) and European Communities – Measures Affecting Asbestos and Products Containing Asbestos (EC – Asbestos), Appellate Body Report (WT/DS135/AB/R) (12 March 2001), at para.172: the more vital or important the societal value at issue, the easier it is to accept as ‘necessary’ measures designed to achieve this end. 96


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the least trade restrictive measure which is reasonably available to the Member State and is equally effective in achieving the desired policy objective.100

The Appellate Body further confirmed that WTO Members have the sovereign right to determine the level of protection of health or the environment autonomously – as they consider appropriate in a given situation.101 Finally, in determining whether an alternative measure is “reasonably available” to a WTO Member, difficulties in implementing the measure must be considered.102 More recent jurisprudence of the Appellate Body confirms that the individual weight given to these elements in an overall balancing process may vary from case to case. Against this dynamic background, a comment on the Appellate Bodies’ 2007 ruling in Brazil – Tyres103 sums up nicely the overall role of necessity tests in balancing trade obligations and domestic policy space for non-trade interests: The “necessity” analysis remains a rather flexible catch-all (or catch-nothing) piece of wax in the hands of the Appellate Body. The “weighing and balancing” test in particular is a thinly veiled proportionality test, miraculously operating rather well without an agreed value system (constitution) to rely on – probably because it comes along with utmost judicial restraint, if not deference to national policy choices. Perhaps “disproportionality” test would therefore be a better word for it.104

100 See Thailand – Cigarettes, Panel Report DS10/R – 37S/200 (7 November 1990), paras.73–8 and EC – Asbestos, as at note 99 above, at para.174. 101 Other Members cannot challenge the level of protection chosen as inappropriate or overreaching (EC – Asbestos, as at note 99 above, at para.168). Compare also US – Gasoline, as at note 46 above, at para.6.22: At stake is the necessity of the measure to achieve the policy objective – not the necessity of the policy objective. 102 See Bossche (2005), at 606. 103 Brazil – Measures Affecting Imports of Retreaded Tyres (Brazil – Tyres), Appellate Body Report WT/DS332/AR/R (17 December 2007). The dispute addressed Brazilian measures taken against the importation of retreaded (i.e recycled) tyres whose waste later posed environmental and health risks. A discussion of the Appellate Body Report (by I. Van Damme) can be found in ICLQ, 57, June 2008, 710–23. 104 Schloemann (2005), at 11. Compare also the conclusion reached by Andenas and Zleptnig (2007), at 10, which emphasises not only the flexible balancing approach adopted by the Appellate Body, but equally stresses “a certain degree of subjectivity on the part of the judiciary”.


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191

Preventing Abuse under the Chapeau

The justification for otherwise GATT- (or GATS-) inconsistent measures depends further on meeting the requirements of the introductory clause of Art.XX GATT (Art.XIV GATS) – the so called “chapeau”. In Art.XX GATT, it provides: Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures ( . . . )105

Bearing in mind the comparison with policy space and balancing under TRIPS, it is worth stressing that Art.8:1 TRIPS does not contain anything like the chapeau (but an overall TRIPS consistency test instead).106 The chapeau and its requirements imposed on WTO Members have been highly relevant in WTO dispute settlement. Several prominent decisions of the Appellate Body have addressed it and found national measures – while provisionally justified under the individual exceptions – in conflict with the chapeau.107 Since this results in the measure being not justified under Art.XX GATT (which is often equivalent to a finding of overall WTO inconsistency), it has led to the impression that trade interests have been given precedence over those of for example the environment or public health. Whether or not this perception is justified, evidence of an implicit structural bias in the world trading system shall not be addressed here. It is however worth noting that a measure failing to meet the conditions set out in the chapeau indicates its discriminatory

105

Art.XX GATT (emphasis added). The slightly different wording of Art. XIV GATS goes: “Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures” (differences highlighted). 106 Art.8:1 TRIPS states: “Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.” (consistency test highlighted). 107 See especially US – Gasoline (as at note 46 above); US – Shrimps (as at note 7 above); United States – Measures Affecting the Cross Border Supply of Gambling and Betting Services (US – Gambling), Appellate Body Report WT/DS285/AB/R (7 April 2005) – on Art.XIV GATS; and Brazil – Tyres (as at note 103 above).


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or disguised protective nature rather than necessarily serving as evidence of a trade bias in the WTO. In the following, I shall limit myself to a brief overview of the main characteristics of the chapeau as applied by the Appellate Body. The object and purpose of the chapeau is to prevent the abuse or misuse of the right to override GATT obligations for various public policy goals.108 It re-imposes the overall balance between rights (to exercise domestic policy space on public interests) and obligations (to adhere to international trade rules).109 Hence, the Appellate Body emphasised the need for a balanced interpretation and application of the chapeau – with due regard to the individual circumstances of the case at hand.110 The WTO jurisprudence shows that again proportionality and flexibility take centre stage. They dominate not only the first, but equally the second step of application of Art.XX GATT. With these important general insights in mind, in interpreting the terms “arbitrary or unjustifiable discrimination between countries where the same conditions prevail” as well as “disguised restriction on international trade”, the following elements are relevant for a comparison with the TRIPS policy space: (1) Since at issue is a justification of (otherwise) WTO-inconsistent measures (for example, infringing the national treatment (NT) or most favoured nation (MFN) obligations), discrimination prohibited under the chapeau must necessarily differ from that in NT, MFN provisions.111 (2) Discrimination which can be avoided and thus, in that sense is deliberate falls under the chapeau – so does insufficient regard to the individual circumstances (in specific importing countries), where different conditions are treated the same in a rigid and

108

In US – Gasoline, the Appellate Body related this to the need to give effect to the trade obligations contained under GATT (principle of effectiveness); see US – Gasoline, as at note 46 above, at 20. 109 US – Shrimp, as at note 7 above, para.156. In the same ruling, the Appellate Body further linked the chapeau to the principle of good faith as regards the exercise of rights by states in public international law. 110 It stated: The task of interpreting and applying the chapeau is, hence, essentially the delicate one of locating and marking out a line of equilibrium between the right of a Member to invoke an exception under Article XX and the rights of the other Members under varying substantive provisions (e.g. Article XI) of the GATT 1994, so that neither of the competing rights will cancel out the other and thereby distort and nullify or impair the balance of rights and obligations constructed by the Members themselves in that Agreement. The location of the line of equilibrium, as expressed in the chapeau, is not fixed and unchanging; the line moves as the kind and the shape of the measures at stake vary and as the facts making up specific cases differ. (US – Shrimp, as at note 7 above, at para.159 – emphasis added) 111 See US – Gasoline, as at note 46 above, at 21.


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inflexible manner.112 (3) Unilateral conduct – where multilateral solutions have been found with some and can be sought with others without great pains – equally amounts to arbitrary or unjustifiable discrimination between countries where the same conditions prevail.113 (4) Overall, as formulated in Brazil – Tyres, one must assess whether the discrimination is based on the same objective the protection measure relies on – all other justifications being irrelevant.114 2.4.

Summing up the Scope of Policy Space under GATT and GATS

For a comparative analysis of the respective room for balancing of interests and domestic policy space under the TRIPS Agreement, the following aspects set the main guiding principles of Art.XX GATT and Art.XIV GATS: ●

●

●

● ●

●

112 113 114

Non-trade interests can override trade interests under the WTO regulation in trade in goods and trade in services. But if Member States wish to give effect to domestic non-trade interests over trade obligations, they must fulfil certain conditions under WTO law which aim to balance these two poles overall. Exceptions to trade obligations which aim (and allow) to give effect to important societal values and interests on the domestic plane do not need to be interpreted narrowly. The list of non-trade interests recognised is limited and exhaustive – but seems to address the key areas of conflict and the language used allows a wide interpretation so that the actual policy space is vast. WTO Members can freely choose the extent to which they wish to pursue the (recognised) policy objective. The national measures taken to implement the chosen level of protection for the (recognised) non-trade interests must contribute to the protection. In the case of the “necessity” test, the national implementation measure must further be the least trade restrictive, reasonably available measure – alternatives must be equally effective. In an overall balancing exercise, the Appellate Body takes into account all the factors above. This includes weighing the importance of the non-trade interests against the amount of trade restriction of

US – Shrimp, as at note 7 above at paras.164, 165, 177. Ibid, paras.166–74. See Schloemann (2008), at 15.


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●

2.5.


the measure. The absence of an agreed set of (constitutional) values calls into question the legitimacy of such normative decisions on the importance of the interests pursued. Hence, general judicial restraint is necessary to place discretion in the hand of WTO Members to regulate non-trade interests for which the WTO (so far) lacks competence. Overall, the balancing exercise in Art.XX GATT is and should be more of a loose check on whether Members have sufficiently taken their trade obligations into account when pursuing public policies. It is and should be stringent when assessing whether these policies are actually a disguise for serving domestic protectionists agendas. This leads to a negative test which prohibits disproportionality instead of a positive one which requires proportionality – i.e. which imposes a specific form of balance on WTO Members. Comparing Flexibilities under TRIPS, GATT and GATS

Section 1 focussed on Art.8:1 as the only horizontal TRIPS provision which addresses the ability of WTO Members to adopt public interestbased measures. Contrasting this provision with the general exceptions in Art.XX GATT and Art.XIV GATS,115 one important similarity as well as one essential difference is apparent. On the one hand, all three regimes contain individual exceptions, inter alia relating to public health and require “necessity”. On the other hand, only the TRIPS version includes a clause which requires all measures adopted under Art.8:1 to be consistent with all other TRIPS provisions. On its face, Art.8:1 therefore does not allow measures which would conflict with other obligations in TRIPS and so appears rather useless as an exception which would allow public interests to prevail over those of IP right holders. This impression is confirmed by the detailed analysis of the scope and function of Art.8:1: The conclusion is that its TRIPS consistency test establishes a crucial difference as to the function of this public interest principle compared to the public interest exceptions in GATT and GATS. While Art.XX GATT and Art.XIV GATS recognise a self-standing right of WTO Members to override any individual obligation contained in the respective agreements, this is not the case with Art.8:1 TRIPS. Even though it does not positively address and integrate most public interests and their relation to IP protection, TRIPS does not contain a comparable

115 For a detailed analysis of the notion of general exceptions under GATT and GATS, see Section 1 above.


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general safeguard for domestic regulatory autonomy regarding public interests. Here WTO Members can only give effect to public interests conflicting with TRIPS obligations if their respective measures are covered by the specific TRIPS exception provisions on individual IP rights. The policy goals addressed in Art.8:1 therefore can only play a role in interpreting and implementing the specific conditions in Arts.13, 17, 26:2 30, 31 and 40 TRIPS. Whether this way of recognising public interests – especially those potentially clashing with the interests of right holders – is actually sufficient, remains to be seen.116 It largely depends on the interpretative policy space inherent in the individual TRIPS provisions; and probably even more on the ability of WTO Members to use this flexibility in their domestic implementation of TRIPS – as well as the willingness of WTO Panels and the Appellate Body to take this flexibility seriously when called upon to judge individual disputes. The latter may be doubted, especially when looking at the Panel Report in the Canada – Patents dispute117 where the Panel acknowledged some relevance of Art.8 and 7 TRIPS, but a priori significantly curtailed their role by the conditions set out in Art.30 as well as the non-discrimination test in Art.27, which it considered “a deliberate limitation rather than a frustration” of the TRIPS objective.118 This reasoning turns on the interaction of interpretative cause and effect between the treaty context and objectives expressed in Art.7 and 8 TRIPS and the individual terms of the agreement.119 One might hope that the judicial organs of the WTO charged with determining the role of public interest principles under TRIPS in a post-Doha environment would be willing to come to different conclusions on the scope of the (interpretative) policy space in TRIPS. The Table 4.2 below indicates the main similarities and differences between Art.8:1 TRIPS, its original version and Art.XX GATT. Summing up the comparison thus far, the starting point for this analysis is a common denominator in all areas of international economic 116

See Section 3 below. See Canada – Patents, as at note 39 above. 118 Canada – Patents, as at note 39 above, at 7.26 and 7.92 (emphasis added). For a critique of the panel’s argumentation, see Kur (2009); ICTSD/UNCTAD, as at note 11 above, part One, chapter 6, section 4; Shanker (2002), at 742 and Tekeste Biadleng (2008), at 102–4. 119 While it is correct that the limiting conditions in Art.30 (as well as those in Arts.13, 17, 26 (2) TRIPS) certainly have to be borne in mind when exercising the policy space Art.8 calls for, they in turn have to be interpreted in light of the object and purpose of TRIPS. Both Arts.7 and 8 as treaty objective and context determine (as far as possible under the VCLT) the meaning of individual terms – not the other way around. 117


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Table 4.2


Public interest exceptions in GATT and TRIPS

Art.XX GATT

Art.8B (W/76 Draft)

Art.8 TRIPS

General Exceptions Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:

Principles

Principles

(2) In formulating or amending their national laws and regulations on IPRs, PARTIES have the right to adopt appropriate measures to protect public morality, national security, public health and nutrition, or

(1) Members may, in formulating or amending their laws and regulations, adopt measures

(a) necessary to protect public morals; (b) necessary to protect human, animal or plant life or health; ( . . . ) (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption;

to promote public interest in sectors of vital importance to their socioeconomic and technological development

necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.

regulation and in particular those addressing trade in goods, services as well as the protection of IP: The structural bias of these specific regimes, along with the increasing tendency to “reach behind the border” in terms of density and scope of global rules, has led to an ever stronger impact on


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“non-trade” societal interests or individual rights.120 While this observation was equally valid for trade in goods and services as well as the protection of IP, Sections 1 and 2 have so far identified a clear difference in the WTO rules which are supposed to account for these non-trade interests and values: GATT and GATS contain a broad, general exception with relatively large policy space for domestic measures, giving preference to these policy goals over trade obligations. The corresponding TRIPS provision however does not accomplish this. However, if one takes the sustainable development objective applicable to all WTO Agreements seriously,121 TRIPS must offer a comparable amount of discretion to integrate economic, social and environmental concerns. Hence the question arises whether TRIPS needs a general exception conceptually similar to Art.XX GATT or Art.XIV GATS to achieve this. This, however, presupposes that the protection of IP and related international obligations under TRIPS have an equivalent impact on domestic public interests measures compared with obligations on trade in goods and services. The next section examines the main argument why this may not be the case. 2.6.

The Nature of IP Protection: Addressing the “Negative Rights” Justification

The argument stresses that the nature of IP protection is limited to a negative right to exclude others from exploitation.122 It does not grant a positive monopoly or guarantee to exploit the protected subject matter. Does this essential feature of IP rights a priori diminish or even exclude conflicts between IP protection and public interest measures? In the European Communities – Geographical Indications (EC – GIs) dispute,123 the Panel tried to provide a specific explanation as to why there is no need for a general exception (like Art.XX GATT) for public interests within the TRIPS, Agreement and why the principles in Art.8:1 TRIPS, with its consistency test, are sufficient. It stated:

120

See Grosse Ruse-Khan (2008a) at Section 1. See the Preamble to the WTO Agreement, its interpretation by the WTO Appellate Body in US – Shrimp (as at note 7 above, at para.152) and the discussion in Section 3 below. 122 See Recital 14 of the Directive 98/44/EC of the European Parliament and of the Council of July 1998 on the legal protection of biotechnological inventions. 123 EC – GIs (as at note 71 above). 121


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These principles reflect the fact that the TRIPS Agreement does not generally provide for the grant of positive rights to exploit or use certain subject matter, but rather provides for the grant of negative rights to prevent certain acts. This fundamental feature of intellectual property protection inherently grants Members freedom to pursue legitimate public policy objectives since many measures to attain those public policy objectives lie outside the scope of intellectual property rights and do not require an exception under the TRIPS Agreement.124

The Panel’s argument therefore is that there is no need for an Art.XX GATT-style exception under TRIPS because of the nature of IP rights as negative rights (instead of positive monopolies). For the Panel, this feature allows public policy objectives to be pursued without interference from these (negative) rights. While this argument sounds convincing at first and does provide an adequate safeguard for various public interest measures, it does however not resolve the full range of conflicts between the latter and IP protection: IP rights as negative rights allow a right holder to prevent anyone else from using the protected subject matter (and products or services containing or relying on such matter) in any commercially relevant way – without guaranteeing a positive (exclusive) right to exploit. This limitation on negative rights allows governments to impose further regulatory controls on utilisation and exploitation. For example, a copyrighted computer program containing sexually explicit or violent images may not be sold freely, but only to persons who have reached a certain age. Here, regulations protecting the interests of minors limit the free exploitation of the copyrighted work – arguably without interfering with the exclusive rights in the computer program since they do not grant a positive monopoly for exploitation. In a similar fashion, a patent for a new innovative technology incorporated in a firearm does not provide the right holder with a guarantee to commercialise the firearm without restrictions. Instead, rules on gun control and export or import prohibitions may significantly limit the trading of the patented product, while leaving the negative right to exclude others from using the patented invention untouched. However, the realisation of public policy objectives sometimes does require interference with the negative right to prevent others from exploiting the protected subject matter. Whenever there exists a public interest in making protected subject matter available to certain interest groups and/or for a specific purpose, this use of the IP-protected content will conflict with the concept that the right holder can prevent any (commercially relevant) use of the protected subject matter. For example, making

124


Ibid, at para.7.210.

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copyrighted (academic) literature available in libraries to students and/or within the research community interferes with the exclusive right to allow or prohibit such use. Furthermore, distributing to farmers patent- or plant variety-protected seeds which, for example, can better adapt to the changing climate in order to ensure local production and food security, generally conflicts with the exclusivity conferred by the patent or plant breeder rights. In sum, as soon as the public policy in question is not confined to a limitation of exploitation by the right holder but necessitates an authorisation of exploitation for state authorities, specific institutions or private third parties, the concept of negative rights in itself does not ensure the realisation of the public policies in question. In such situations, exceptions to and limitations on the exclusive (negative) rights are needed to guarantee a proper balance of interests. They curtail the right holder’s exclusive power to prevent exploitation by others via authorising a certain (limited) use of the protected subject matter by a (limited) group of beneficiaries. Therefore, Art.8 TRIPS as it stands is not sufficient to give effect to the public policy interests addressed in that provision. This is so because its requirement of TRIPS consistency does not allow measures adopted under Art.8 to give effect to public policies over the interests of right holders as set out, for example, in Arts.10, 11, 14, 16, 26 (1), 28, 36 or 39 TRIPS. The explanation of the consistency qualification as given by the Panel in EC – GIs thus neglects a very important aspect necessary for a true balance of interests as intended by the sustainable development objective in the WTO Preamble and Art.7 of TRIPS. In sum, the nature of IP protection as a negative right does not justify the absence of provisions which provide WTO Members with policy space to override IP obligations conflicting with public interests. Of course, TRIPS does contain specific provisions which allow WTO Members to curtail exclusive (negative) rights through domestic exceptions and limitations.125 As shown above, the dominant current application of these provisions does not, however, sufficiently integrate public interests demanding access to, use or exploitation of IP-protected material.

3.

AN ALTERNATIVE WAY TO ACHIEVE EQUIVALENT POLICY SPACE UNDER TRIPS

The analysis shows that neither the horizontal exception in Art.8:1 TRIPS nor the individual provisions regulating domestic exceptions and

125

Such as Arts.13, 17, 26:2, 30 and 31 TRIPS.


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limitations can compare with the general exceptions under GATT and GATS. Against this background, I propose an alternative route which still achieves equivalent policy space. This not only ensures coherence in the three main areas of WTO Law. It also takes the balancing objective in Art.7 TRIPS as well as the sustainable development objective in the WTO Preamble seriously. In para.5 (a) of the Doha Declaration on TRIPS and Public Health, WTO Members emphasised as one of the key flexibilities in TRIPS that all its provisions “shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles.”126 For once, the Doha Declaration therefore highlights the interpretative role of the objectives articulated in Art.7 TRIPS: The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.

In essence, this provision encourages WTO Members to implement the IP protection TRIPS provides for in a balanced, proportional manner contributing to both social and economic welfare.127 Next to the TRIPS objectives, para.5 (a) of the Doha Declaration refers to the public interest principles of Art.8:1. Section 11.3) above has already emphasised the impact of the Doha Declaration on the understanding of Art.8:1 TRIPS and its main role within the TRIPS Agreement. Together with the balancing objectives set out in Art.7 TRIPS, the public interest principles of Art.8:1 guide the interpretation of every individual TRIPS provision as much as the general rules of treaty interpretation, in particular the ordinary meaning of the individual treaty terms, allow. This means that especially in cases of ambiguity, of broad and open treaty language where more than interpretation is possible, TRIPS provisions can and should be interpreted in accordance with the balancing objective of Art.7 and giving effect to the public interest concerns expressed in Art.8.128 126

Doha Declaration, as at note 54 above (emphasis added). Art.7 calls for balancing (1) incentives for the “promotion of technological innovation” with measures for “the transfer and dissemination of technology”; (2) the interests of “producers and users of technological knowledge” and, more generally, (3) WTO Members’ “rights and obligations”. For a more detailed analysis on the TRIPS objective under Art.7, see Grosse Ruse-Khan (2008b), at 173–8. 128 Compare Correa (2007), at 109; ICTSD/UNCTAD, as at note 11 above, part one, chapter 6, section 6. 127


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Such an understanding finds additional support from the customary rules of interpretation of public international law.129 Relying on the object and purpose of a treaty is one central element in the process of interpretation. This not only reinforces the role of the Art.7 balancing objectives in TRIPS interpretation and implementation. Also the preamble to the Agreement Establishing the World Trade Organization further widens the scope of interpretative policy space to balance economic and public interests. That Agreement provides the overall framework for all other Agreements concluded during the Uruguay Round. Its objective is therefore also relevant and decisive for the interpretation of TRIPS.130 According to its first paragraph, the Parties concluded the WTO Agreements ( . . . ) allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development ( . . . )131

In the words of the Appellate Body, the WTO treaties’ objective of sustainable development calls for “integrating economic and social development and environmental protection”.132 As a tool for reconciling and balancing economic and public interests,133 “it must add colour, texture

129 See Art.31 (1) VCLT which lists the treaty objectives as one of the main sources of treaty interpretation next to ordinary meaning and context (further defined in Art.31 (2), (3) VCLT) as well as the principle of good faith. Art.3:2 DSU declares these principles of interpretation decisive for all WTO Agreements. 130 Compare the Appellate Body’s decision in US – Shrimp, as at note 7 above, at para.152. 131 Preamble to the WTO Agreement, first paragraph (emphasis added). This language differs significantly from the original GATT preamble that encouraged GATT contracting parties to engage in a “full use of the resources of the world”. 132 US – Shrimp, as at note 7 above, at para.129 (fn.107). For a detailed discussion of the Appellate Body’s reliance on the concept of sustainable development in US – Shrimp and other cases on trade and environment, see Marceau, as at note 7 above. 133 Several other international courts and institutions also recognised the conflict-resolution and balance of interest role of the concept of sustainable development. See the International Court of Justice (ICJ) Judgement in the Gabcikovo – Nagymaros Case (25 September 1997) at 78; Arbitral Award of the Permanent Court of Arbitration for the Arbitration Regarding the Iron Rhine (“Ijzeren Rijn”) Railway (Belgium v. Netherlands) (24 May 2005); and International Law Association, New Delhi Declaration on Principles of International Law Related to Sustainable Development (2002), principle of integration and interrelationship, in particular in relation to human rights and social, economic and environmental


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and shading to our interpretation of the Agreements annexed to the WTO Agreement”.134 Therefore, beyond the balancing and recognition of public interests that Art.7 and 8:1 TRIPS advocate, the objective of sustainable development influences the interpretation of TRIPS as one of the WTO Agreements. With its concept of integrating and reconciling economic, social and environmental interests, it further emphasises the need to interpret and implement TRIPS provisions in a way which not only reflects right holders’ interests but equally takes competing public interests into account. In this way, the overall objective embodied in the preamble to the WTO Agreement further increases the policy space WTO Members enjoy to give effect to public interests in the implementation of TRIPS. This aligns with the general role of sustainable development as the object and purpose of international agreements. Insofar as an international treaty like TRIPS does not contain provisions which perform the integration of economic, social and environmental concerns on the international plane, it must primarily take place on the domestic level.135 This in turn requires sufficient policy space in the implementation of TRIPS. Hence, the principle of integration as the core element of the sustainable development objective136 provides additional support for balancing all relevant economic, social and environmental concerns in the process of TRIPS implementation. However, giving effect to the objectives and principles of TRIPS as well as the general sustainable development aim of the WTO Preamble depends on the role of other sources for treaty interpretation. One cannot disregard or override unambiguous language in individual TRIPS provisions,137 for example on the scope of exclusive rights of copyright, trademark or patent holders in Arts.11, 16 and 28 TRIPS.138 The ordinary meaning of a

objectives, as at note 5 above. For further literature on the notion of sustainable development in international law, see Cordonier Segger and Khalfan (2004) and Cordonier Segger and Weeramantry (2004) and the website of the Centre for International Sustainable Development Law (CISDL), http://www.cisdl.org. 134 US – Shrimp, as at note 7 above, at para.152. 135 For a detailed analysis, see Grosse Ruse-Khan (2010). Compare Ch.8 of “Agenda 21” (as at note 5 above); paras.7.2–7.3 of the ILA Declaration (as at note 5 above); further Jodoin (2005), at 4. 136 International Law Association (2002), at 7; see also Sands (1994), at 336; Schrijver (2007), at 362. 137 Compare Pauwelyn (2005), at 828. 138 Even though one may find individual terms within these provisions which are open enough to an interpretation which – in appropriate scenarios – gives effect to public interest considerations – see e.g. “product obtained directly” by a patented process in Art.28:2 or “likelihood of confusion” in Art.16:1 TRIPS.


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treaty provision and its context139 are equally important; with the ordinary meaning serving as the logical starting point for any interpretative exercise.140 Adding “colour, texture and shading”141 via the treaties’ objectives then is a secondary, corrective step142 whose importance depends on the strength and concreteness of ordinary meaning and context. Therefore, an explicit and plain wording on how to protect the economic interests of right holders (e.g. the obligation to grant 20 years of patent protection, Art.33 TRIPS) cannot be overcome by the balancing principles in Arts.7, 8 TRIPS or the WTO Preamble – even if public health concerns might call for significantly shortening the protection (e.g. to 10 or 15 years in order to encourage generic competition).143 The decisive question then is how much weight can and should be attached to the objectives in the process of interpretation? Following on from the analysis above and of course subject to the individual circumstances at hand, the following general guiding principle applies: the more specific the ordinary meaning in the treaties’ context is, the less room there is for a significant impact of any modification by the treaties’ object and purpose. The more ambiguous, indefinite and multi-layered a provision’s common understanding in relation to the treaty is, the more it needs further determination and concretisation by the treaties’ objective. Therefore, provisions incorporating broad and open legal concepts which cannot rely on significant concretisation from their context will not only lend themselves to, but demand an interpretation which draws heavily on, the object and purpose of the international agreement at stake.144 Translating this general assessment of treaty interpretation into the scope 139 The context not only includes the complete treaty text including its preamble and annexes but also additional and subsequent agreements and agreed practice on the interpretation and application of treaty provisions; compare Art.31 (2) and (3) VCLT. 140 It is however “to be not determined in the abstract, but in the context of the treaty and in light of its objective and purpose”, see International Law Commission (1966), at 221; see also Lennard (2002), at 49. 141 US – Shrimp, as note 7 above, at para.152. 142 Sinclair (1984), at 130. 143 Compare Marceau (1999), at 138, who cites the Panel in EC – Hormones (para.8.157), stating that a general principle – even as part of the customary international law – cannot override explicit WTO treaty provisions. 144 With regard to TRIPS, see Canada – Patents, as at note 39 above, at 7.26; Compare also the commentary of the ILC (International Law Commission (1966), at 221) citing the Advisory Opinion of the International Court of Justice on the Competence of the General Assembly for the Admission of a State to the United Nations: “If the relevant words in their natural and ordinary meaning make sense in their context, that is the end of the matter.”


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for policy space under TRIPS, the above analysis confirms the conclusions reached on the role of Art.8:1 TRIPS. Giving effect to public interest considerations has to take place via broad and open terms in individual TRIPS provisions which allow for Arts.7 and 8:1 TRIPS as well as the WTO Preamble to unfold its balancing objective. One can therefore conclude that TRIPS can be interpreted and – more importantly – implemented in manner which should offer a similar amount of policy space for domestic regulation of public interests. This first calls on national implementation legislation (as well as technical assistance provided in this regard) to make use of this policy space. It also places an obligation on WTO Panels and the Appellate Body to take the relevant treaty objectives seriously. Given the rather disappointing TRIPS jurisprudence of Panels so far, one might nevertheless be better off with a comprehensive public interest exception integrated into TRIPS – for example by simply removing the consistency test in Art.8:1 TRIPS. Operating with a general exception in TRIPS, however, would call for a re-conceptualisation of a chapeau-like safeguard against the abuse of public interest exceptions in order to favour domestic industries.145 Several recent developments, initiatives or scholarly ideas further support the notion of a comprehensive general exception or other means to enlarge domestic policy space for public interests.146 Under the existing TRIPS regime, however, achieving a comparable 145

An example of such an abuse would be using public health and access to medicines arguments in order to boost the domestic generics industry. The problem however is to distinguish good faith public health measures (which might entail “positive” side effects for the generic industry) from using poor patients as a disguise for discriminatory industrial policies. Ideas could be to demand equal treatment for all (domestic and foreign) “like” subject matter protected by IP (insofar as borrowing from the notion of like products in Art.III GATT and the underlying rationale of preventing a modification in the conditions of competition) or require the WTO Member relying on the public interest exception to prove a good faith application of the domestic measure. 146 First of all, the IP in Transition Project whose results on re-drafting a more balanced version of TRIPS take such an approach in its version of Arts. 8, 8a, 13, 17, 26:2 and 30. Also, the Economic Partnership Agreement (EPA) between the EC and its Members and the group of CARIFORUM states contains in its Art.224 a general exception clause which from its systemic positioning and its language does not only apply to obligations relating to the trade in goods and services, but also applies to all other EPA provisions, including those relating to IP protection. Finally, several leading academics in the area of WTO law have recently called for extended policy space, inter alia to regulate public interests on the domestic level – see Pauwelyn (2008), at 569–70; Trachtmann (2008), at 18; compare also Wade (2008) and Hoekman (2005), at 410–11. Along similar lines, Chon (2007) (at 479, 502–3, 525–6) proposes a substantive equality principle which allows national law makers to have more policy space in the regulation of IP tailored to domestic


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degree of policy space in all three core areas of WTO regulation requires different implementation techniques. Under GATT and GATS, domestic measures to protect public interests are shielded under a broad exception clause with sufficient discretion to balance interests at the domestic level. Under TRIPS, a similar degree of delegating regulatory autonomy does not follow from an explicit right to override economic interests but must be developed from the overall WTO/TRIPS objectives and their role in interpreting and implementing TRIPS. This may imply a greater responsibility for national implementers and international adjudicators. More crucially, however, it limits the scope of international obligations under the TRIPS regime. We are not applying rigid rules – but rather flexible provisions with a relative amount of discretion to determine an appropriate balance of economic and public interests at the domestic level.

BIBLIOGRAPHY Abbott, F. (2002), “The Doha Declaration on the TRIPS Agreement and Public Health: Lighting a Dark Corner at the WTO”, Journal of International Economic Law (JIEL), 5(3), 491–2. Andenas, M. and Zleptnig, S. (2007), “Proportionality and Balancing in WTO Law: A Comparative Perspective”, Cambridge Review of International Affairs (CRIA), 20(1), 71–92. Beier, K.-F. and Schricker, G. (1996), From GATT to TRIPS – IIC Studies Vol.18, Weinheim: VCH Verlagsgesellschaft. Blakeney, M. (1996), Trade Related Aspects of Intellectual Property Rights: A Concise Guide to the TRIPS Agreement, London: Sweet & Maxwell. Bossche, P. Van der (2005), The Law and Policy of the World Trade Organization, Cambridge: Cambridge University Press. Charnovitz, S. (2002), “The Legal Status of the Doha Declarations”, JIEL, 5(2), 207–11. Chon, M. (2007), “Substantive Equality in International Intellectual Property Norm Setting and Interpretation”, in Gervais, D. (ed.), Intellectual Property, Trade and Development, Oxford: Oxford University Press, 475–526. Cordonier Segger, M.C. (2005a), “Introduction”, in Cordonier Segger, M.C. and Gehring, M. (eds.), Sustainable Development in World Trade Law, The Hague: Kluwer Law International. Cordonier Segger, M.C. (2005b), “Integrating Social and Economic Development and Environmental Protection in World Trade Law”, in Cordonier Segger, M.C. and Gehring, M. (eds.), Sustainable Development in World Trade Law, The Hague: Kluwer Law International.

development needs, inter alia to integrate public interest (embodied e.g. in the UN Millennium Development Goals) considerations in the protection of IP.


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Cordonier Segger, M.C. and Khalfan, A. (2004), Sustainable Development Law: Principles, Practices & Prospects, Oxford: Oxford University Press. Cordonier Segger, M.C. and Weeramantry, C.G. (2004) (eds.), Sustainable Justice: Reconciling Economic, Social and Environmental Law, Leiden: Martinus Nijhoff. Correa, C. (2007), Trade Related Aspects of Intellectual Property Rights, Oxford: Oxford University Press. Fiscor, M. (2002), “How Much of What? The Three Step Test and its Implications in Two Recent WTO Dispute Settlement Cases”, RIDA, 192, 111–251. Gerstetter, C. (2006), “The Appellate Body’s Response to the Tensions and Interdependencies between Transnational Trade Governance and Social Regulation”, in Joerges, C. and Petersmann, E.-U., Constitutionalism, Multilateral Trade Governance and Social Regulation, Oxford: Hart Publishing. Gervais, D. (2003), The TRIPS Agreement – Drafting History and Analysis, 2nd edition, London: Sweet & Maxwell. Ginsburg, J. (2001), “Toward Supranational Copyright Law? The WTO Panel Decision and the ‘Three Step Test’ for Copyright Exceptions”, RIDA, 187, 3–65. Godt, C. (2003), “International Economic and Environmental Law”, in Krämer, L. (ed.), Recht und Um-Welt – Essays in Honour of Prof. Dr Gerd Winter, Groningen: Europa Law Publishing, 237–52. Grosse Ruse-Khan, H. (2008a), “A Comparative Analysis of Policy Space in WTO Law”, Max Planck Institute for Intellectual Property, Competition & Tax Law Research Paper Series No. 08-02, available at http://ssrn.com/abstract=1309526. Grosse Ruse-Khan, H. (2008b), “Proportionality and Balancing within the Objectives of Intellectual Property Protection”, in Torremanns, P. (ed.), Intellectual Property and Human Rights, London: Kluwer, 161–94. Grosse Ruse-Khan, H. (2010), “A Real Partnership for Development? Sustainable Development as Treaty Objective in European Economic Partnership Agreements and beyond”, JIEL, 13(1), 139–80. Hoekman, B. (2005), “Operationalizing the Concept of Policy Space in the WTO: Beyond Special and Differential Treatment”, JIEL, 8(2), 405–24. International Law Association (2002), Searching for the Contours of International Law in the Field of Sustainable Development, Final Report – Committee on Legal Aspects of Sustainable Development, New Delhi. International Law Commission (1966), “The International Law Commission’s Commentary on Art. 27 to 29 of its Final Draft Articles on the Law of Treaties”, in Yearbook of the International Law Commission, Vol. II, New York: United Nations, 112–24. Jackson, J. (1969), World Trade Law and the GATT, Indianapolis: Bobbs-Merrill. Jodoin, S. (2005), “The Principle of Integration and Interrelationship in Relation to Human Rights and Social, Economic and Environmental Objectives”, CISDL Legal Working Papers, available at http://www.cisdl.org/pdf/sdl/SDL_ Integration.pdf. Klabbers, J. (1992), “Jurisprudence in International Trade Law – Art.XX GATT”, JWT, 26(2), pp. 63–88. Kur, A. (2009), “Of Oceans, Islands, and Inland Water – How Much Room for Exceptions and Limitations under the Three Step-Test?”, in Levin, M. and Kur, A. (eds.), Intellectual Property in Transition, available at http://ssrn.com/ abstract=1317707. Lennard, M. (2002), “Navigating by the Stars: Interpreting WTO Agreements”, JIEL, 5(1), 17–89.


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Marceau, G. (1999), “A Call for Coherence in International Law”, JWT, 33(5), 87–152. Marong, A. (2003–04), “From Rio to Johannesburg: Reflections on the Role of International Legal Norms in Sustainable Development”, Georgetown International Environment Law Review, 16, 21–76. Pauwelyn, J. (2005), “WTO Dispute Settlement: Of Sovereign Interests, Private Rights and Public Goods”, in Maskus, K. and Reichmann, J. (eds.), International Public Goods and Transfer of Technology, Cambridge: Cambridge University Press, 817–30. Pauwelyn, J. (2008), “New Trade Politics for the 21st Century”, JIEL, 11(3), 559–73. Qureshi A. (2006), Interpreting WTO Agreements, Cambridge: Cambridge University Press. Ricketson, S. (2003) “WIPO Study on Limitations and Exceptions of Copyright and Related Rights in the Digital Environment”, SCCR/9/7, Geneva. Sands, P. (1994), “International Law in the Field of Sustainable Development”, British Yearbook of International Law, 65, 303–81. Schloemann, H. (2008), “Brazil Tyres: Policy Space Confirmed under GATT Article XX”, Bridges Monthly Trade Review, 12(1), 13–15 (available at http:// ictsd.net/i/news/bridges/3141/). Schrijver, N. (2007), “The Evolution of Sustainable Development in International Law: Inception, Meaning and Status”, Recueil des Cours, 217–412. Senftleben, M. (2006), “Towards a Horizontal Standard for Limiting Intellectual Property Rights?”, IIC, 407–38. Shanker, D. (2002), “The Vienna Convention on the Law of Treaties, the Dispute Settlement of the WTO and the Doha Declaration on the TRIPS Agreement”, JWT, 36(4), 721–72. Sinclair, I. (1984), The Vienna Convention on the Law of Treaties, 2nd edition, Manchester: Manchester University Press. Tekeste Biadleng, E. (2008), “The Development-Balance of the TRIPS Agreement and Enforcement of Intellectual Property Rights”, in Malbon, J. and Lawson, C. (eds.), Interpreting and Implementing the TRIPS Agreement, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Trachtmann, J. (2008), “Ensuring a Development Friendly WTO”, Bridges, 12(1), available at http://ictsd.net/i/news/bridges/3144/. Trebilcock, M. and Howse, R. (2005), The Regulation of International Trade, 3rd Edition, London, Routledge. Wade, R. (2008), “The World Trade System”, The Economist, 24 July. Yusuf, A. (1998), “TRIPS: Background, Principles and General Provisions”, in C. Correa and A. Yusuf (eds.), Intellectual Property and International Trade, London: Kluwer Law International, 3–20.


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Limitations and exceptions under the three-step test – how much room to walk the middle ground? Annette Kur

1. INTRODUCTION This chapter will briefly outline the role and functions of limitations and exceptions within the system of intellectual property (IP) law. Furthermore, it will investigate the origins as well as the current interpretation of the three-step test, with a critical focus on the evaluation of the WTO panel decisions dealing with Art. 13 and Art. 30 (and, to some extent, Art. 17 TRIPS). In addition, it will be explained why and how the interpretation by the WTO panels is not doing full justice to the inherent flexibilities of the test, whose potential for a more balanced understanding in the context of TRIPS and other international instruments will be set out in the conclusion.

2.

DEFINITIONS AND SYSTEMATIC CONSIDERATIONS

2.1.

What are we Talking About?

There is no doubt that it lies in the very nature of IP rights to be “limited”.1 They have a beginning and an end, both in time2 and in the space occupied by them. The dimensions of the latter are determined by

1 See e.g. Ricketson & Ginsburg (2006) at 756 pointing out the fact that during the negotiations leading up to the Berne Convention, delegates were reminded by Numa Droz that “limits to absolute protection are rightly set by the public interest”. 2 With the notable exception of trademarks: although the duration of registration is typically limited to 10 or 20 years, it can be prolonged indefinitely.

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the extent to which the right-owner can enjoin others from exploiting the same or similar subject matter. This is typically done by proscribing certain modalities of use, for instance the reproduction of content protected by copyright. Further to those basic entitlements which are usually expressed in rather general terms, the exact contours of the right are sculptured by rules which, without questioning the existence of the right as such, nevertheless allow access to, and/or use of, the protected subject matter in certain situations and/or under certain circumstances. The classical example for such a situation is the quotation right: Whereas the right to prohibit the reproduction of the work remains basically unchallenged, the copyright holder cannot enjoin others from using parts of it for quotation purposes, to the extent this complies with the requirements set out in Art. 10.1 Berne Convention (RBC) or its counterparts in national law. From the perspective of the user, it can be said that the quotation right forms a defence against the right holder’s basically valid claim. It is primarily that type of provision which will be the focus of this chapter. An image shall be used in order to express this in a more concrete form. Intellectual property rights are often apostrophised as (partial) enclosures of the commons, that is, as fences locking in certain areas of what originally was an open pasture used by everyone.3 Remaining within the picture, limitations in the meaning pointed out above can be compared to thoroughfares allowing others to pass through, or to dwell transiently in, certain parts of the fenced-in area. Though the owner of that particular piece of land cannot prosecute such intruders for trespassing, entrance fees may be collected, or specific conditions may apply, like a prohibition on letting one’s own livestock graze during its passage (let alone building a shed for permanent use). On the other hand, depending on the situation, the passage may also be completely free. In particular, the latter scenario invites the question whether and how the limitations addressed above as defences (or as a kind of “thoroughfare”) are actually different from other legal rules, such as those excluding certain subject matter from protection ab initio. A typical example of the latter type of rule is the exclusion from copyright protection of ideas,4 or of news of the day,5 the same applies in (European) patent 3 The image may be linked to the influential essay by Hardin (1968) at 1243–8, in which he referred to overuse of publicly available resources as “tragedy of the commons”. 4 Art. 9.2 TRIPS. 5 Art. 2.8 Berne Convention for the Protection of Literary and Artistic Works (RBC).


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law to computer programs as such,6 or, in trademark law, to shapes of products that are necessary to fulfil a technical function.7 Furthermore, in a wider sense, all rules which, in one way or another, determine the existence, scope and duration of IP rights can be said to serve as “limitations” in the sense that they define the concrete place and extension of the enclosure. The issue becomes relevant in several respects. First, it can be asked whether and in which way a terminological distinction should be made between the quotation type of rule and other ways of delimiting the existence and scope of a right. Second,8 one may inquire whether there is a difference between the respective categories of rules regarding their ranking within the system9 and if so, whether and how that impacts their interpretation. 2.2.

Terminology

Concerning, first, the terminological aspect, it is possible in principle to understand the notion of “limitations” in a broad sense, comprising in particular provisions which exempt certain subject matter from protection in the first place. By way of distinction, rules granting immunity from basically valid claims – the defence type of rules – could then be referred to (solely) as “exception”.10 On the other hand, there does not seem to be

6

Art. 52 (2) (c), 52 (3) European Patent Convention (EPC). Art. 3 (1) (e) European Trade Mark Directive (95/2008/EC); Art. 7 (1) (e) (ii) Council Regulation (EC) No. 40/94 of 20 December 1993 on Community trade mark (CTMR); under US law, a corresponding result would follow from the doctrine of functionality, see also § 1052 (e) (5) 15 USC. 8 As is pointed out below, it may be argued that the two questions cannot be separated, meaning that using the term “exception” per se denotes a rule which is inferior with regard to the underlying objectives. See in particular Geiger (2008a), below. However, although the point certainly has some merits, it is not considered here as compelling one or the other terminological choice. 9 According to Christie (forthcoming), it is possible to distinguish a clear hierarchy of norms, consisting of the following levels: (1) general rule: free competition; (2) exception to the general rule: intellectual property right; (3) qualification to the exception: “exception”; (4) constraint of the qualification: TRIPS three-step test; (5) implementation of the qualification within the constraint: exception in national law. 10 That proposal is endorsed in particular by Ricketson, WIPO Study (2003). Another proposal is made by Ricketson & Ginsburg (2006) at 756–7, who distinguish between “subject matter limitations” and “use limitations” (with “use limitations requiring compensation” being listed as a third category). 7


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wide agreement or uniform practice in that regard,11 and neither TRIPS nor previous Conventions offer clear guidance.12 For instance, whereas Arts. 17, 26 (2) and 30 TRIPS refer to “(limited) exceptions”, Art. 13 uses the terms “exceptions and (or) limitations” together, seemingly treating them as synonyms.13 Furthermore, it has been argued14 that the terminological distinction between limitations and exceptions may have detrimental consequences, as it seems to imply the view that the latter rules are inferior in ranking as compared to the rules defining the existence and scope of protection in the first place, to the effect that modes of use declared admissible by virtue of exceptions are considered as “islands of freedom in an ocean of exclusivity”. By generally referring to “limitations” instead, it would become clearer that in reality, protection is to be regarded as “an island of exclusivity in an ocean of freedom”.15 Leaving colourful allegories aside,16 it seems that a crucial commonality exists between, on the one hand, the rules addressed in this chapter and those governing the general boundaries of IP rights on the other, insofar as both command freedom of access to, and use of, protected subject matter. Nevertheless, “quotation-type” limitations can regularly be distinguished

11 For instance, Reinbothe & von Lewinski (2002), at 128, suggest exactly the opposite from what is proposed by Ricketson, namely that “an exception to the right should be understood to be the farthest-reaching restriction, as it indicates that the right no longer applies or exists in the particular case in question”, whereas a “limitation would restrict the right without depriving it of all its content”. For the differences in terminology see also Spoor (1999) at 29; Gervais (2011). 12 Hugenholtz & Okediji (2008), at 19, note that the concept of limitations and exceptions has not been thoroughly explored on the international level. 13 See also Art. 5 “Exceptions and Limitations” of the Information Society Directive (2001/29/EC); moreover, Art. 5 (1) of the directive uses the term “exempted”. Senftleben (2004a), at 22, views the parallel use of both terms in Art. 13 TRIPS as a deliberate choice in order to encompass the two different copyright traditions, namely the natural rights-focused continental tradition (where “exception” would be considered as the more appropriate term), and the utilitarian approach of common law (which would prefer “limitation”); see also the text below. 14 Geiger (2004a) at 815, 818; similarly Spoor (1999); Guibault (2002) at 17 et seq. 15 Geiger (2004a) at 815, 818, 819; same author (2008a) at 192–4; Voorhoof (2002) at 639. 16 Staying with the image of oceans and islands, a previous version of this chapter has suggested that limitations and exceptions are neither the one nor the other, but rather conform to pools of inland water within the island: Whereas they are different from the ocean in that the water is (mostly) sweet, and they may be home to different kind of fish, the commonality exists between them that no houses can be built, and no crop can be harvested, on their surface.


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from general protection requirements or subject matter exclusions by their specific position within the system,17 where they are treated as defence rather than as part of the claim. Accordingly, it seems that no cogent reasons exist for insisting on one or the other terminological choice.18 It is therefore a matter of working convenience rather than expressing a political statement, if this chapter mainly, though not exclusively, uses the term “limitation” for the “quotation-type” of rules, while the term “exception” is treated as a basically valid synonym. For clarification purposes, provisions ab initio excluding from protection of certain subject matter, like computer programs or official works, will be addressed as “exclusions”. 2.3.

Structure and Hierarchy of Norms

Whereas the terminological aspect as such does not appear to be of major importance, the second aspect addressed above – the ranking of limitations in the internal structure of IP norms – links to a key aspect of IP policy. In essence, this concerns the question whether the policy objectives underlying limitations and exceptions are generally inferior to the property aspects motivating the grant of the right.19 For a closer analysis, a distinction must be made between the structural consequences resulting from the legal technique of formulating rules in the form of defences, and the normative assessment which may, or may not, be influenced thereby. Regarding the first-mentioned aspect, limitations and exceptions are typically identified and distinguished from requirements for (or exclusions from) protection by the way in which the burden of pleading is allocated to the parties of a conflict. In other words, if a particular element needs to be established by the plaintiff in order to make a valid claim, it forms part of the substantive requirements, whereas the burden to establish a defence against enforcement of a claim whose validity has been established in principle regularly rests with the defendant.20 If that scheme is accepted as a general basis, it follows that the party invoking a limitation is indeed faced with the disadvantage implied in

17

See below, 3. Likewise: Förster (2008) at 5. 19 Geiger (2004a) at 815, 818; same author (2004b) at 882; similarly Hilty (2007) at 107, 111, with reference to Cornish (2004) at 113 et seq. 20 Whether the rule belongs to one or the other category is decided by the way in which it is integrated in the legal syllabus. In civil law systems, that question would have to be answered with a view to the structure of the legal text and the position assigned to the relevant provision therein; in the common law system, the relevant indication would have to be found in jurisprudence. 18


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having to plead and, where that is of relevance, of adducing factual evidence sustaining the requirements under which the limitation operates. The practical importance of that effect should not be underestimated, although it is typically due to general considerations of procedural efficiency and convenience rather than expressing specific attitudes or policies, or even implying negative value judgments. However, beyond those purely procedural aspects, to conceive of a rule as a defence is often regarded as compelling a narrow interpretation of the latter based on the assumption that the regulatory scheme reflects a pattern of (normative) rule and exemption. If application of intellectual property law is strictly informed by that principle, it creates a tendency to lean, in critical cases, towards a preponderance of property concerns over conflicting policy objectives. Therefore, it is crucial for attempts to ensure a more balanced interpretation of intellectual property rights to refute the seeming logic of the rule/exemption argument.21 Indeed, if the legislative objectives underlying the regulation of intellectual property law are taken seriously, the complex body of rules determining the extent of protection must be given equal weight in each of its parts, meaning that each legal provision, whether constituting a claim or a defence, must be interpreted in accordance with the aim and purpose expressed therein.22 In other words, the interpretation of limitations must neither be narrow nor broad – it must simply be “correct”. For clarification purposes, it must be added that it is yet another matter whether in a particular legal system, superiority is generally and deliberately assigned to protection interests as compared to countervailing values. This is a legal policy choice that basically every legislature is entitled to make for itself; typically, this will depend on overarching concepts, frequently involving constitutional considerations.23 However,

21

Geiger (2008a) at 193–5; Hoeren (2002) at 583. See Förster (2008) at 107 with further references e.g. to Bydlinski (1991) at 81; Larenz & Canaris (2005) at 175 et seq.; Müller & Christensen (2004) at marginal no. 373. 23 For instance, in Germany the Constitutional Court (BVerfG) has declared that as a matter of principle, authors must be able to draw benefits from each and every exploitation of their work, BVerfGE 229 = GRUR 1972, 481 – Kirchen- und Schulgebrauch. As long as that decision stands as an authoritative interpretation of constitutional law, it can hardly be argued with regard to the German system that in case of doubt, aspects of free competition must regularly be given preference. Vice versa, in systems where IP protection is based on purely utilitarian considerations, with the aim of fostering dynamic competition being in the foreground, the postulate that free access and use should prevail unless a clear case can be made for the appropriateness of protection fits smoothly into the picture. The 22


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the point to be made here remains that it would be mistaken to claim that such policy decisions are per se implied in the systematic structure of legal norms.

3.

TYPES AND CONTENTS OF LIMITATIONS AND EXCEPTIONS

3.1.

Differences Associated with Particular Legal Systems

In the image of the “commons” used above, it was said that the passage through enclosed pastures may be subject to certain conditions. This corresponds to the fact that the rules granting limited access to protected subject matter can take very different forms – use may be free or against payment of fees, and the conditions under which it may take place can be more or less generous and detailed. Surveys show indeed a large variety of such rules, most conspicuously in copyright law. The most prominent differences to be found in that regard are associated with the two globally dominating systems, namely civil law systems on the one hand and common law systems on the other (as represented by European and American law respectively). Whereas civil law systems traditionally favour enumerative and conclusive catalogues of limitations, US copyright law contains an open “fair use” clause that is applied on a case by case basis by the courts.24 Second, whereas under US copyright law, to decide in favour of “fair use” regularly means that the use made is in fact free, civil law countries often choose a “middle route” by making use admissible against payment of remuneration – a technique also apostrophised as “licenses by law”.25 The virtues and drawbacks of a fair use clause in comparison with a

latter attitude largely complies with the American system; see Senftleben (2004a) at 14; Förster (2008) at 9 et seq. 24 Ricketson, WIPO study (2003), at 73, presents Australian copyright as a third model, which combines features of the other two: it includes many detailed exceptions, but also some rather broad provisions reflecting the US fair use-formula. As Ricketson puts it, the result “is a patchwork of exceptions and compulsory licenses that has come about by a steady process of accretion accommodation of conflicting interests, and it is not always easy to see a coherent set of principles that underlies the whole”. On the other hand, it is also stressed that the law becomes more transparent and easier to analyse. 25 In economic terms, limitations permitting access against remuneration belong to the category of liability rules (as opposed to property rules, which allow the exclusion of others). For more details, see Kur & Schovsbo (chapter 9).


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closed catalogue of limitations have often been examined.26 It is obvious that one has the advantage of flexibility, which becomes increasingly important in an age of rapid technological change, while the other is superior in terms of legal security and reliability. Interestingly, in spite of the prevailing conceptual differences, a gradual approximation of the two models is by no means an unrealistic prospect: under the certainty requirement of the three-step test in TRIPS, the present margin of flexibility under US law may have to be tightened somewhat,27 while growing dissatisfaction in Europe with the closed catalogue of limitations has incited proposals to complement the relevant provisions by “opening clauses” allowing for application in situations similar to those explicitly listed.28 Few indications for approximation of the systems exist with regard to the second distinguishing feature mentioned above, i.e. the question whether limitations allow for use that is free of charge, or whether, in certain cases, they only restrict the exclusive right in the sense that no permission by the right holder is needed, but obliging the user to pay a fair remuneration.29 It is true that US law, like many European legislations, has incorporated rules allowing certain types of home audio recording, with remuneration being paid to right holders on the basis of a levy scheme.30 On the whole, however, the US copyright system continues to be reluctant to implement such a solution, which is deemed to contravene the very notion of permitting uses which are considered as “fair”, and which

26

Inter alia in the study by Förster (2008). In a sceptical vein, see Ricketson, WIPO study (2003), at 68, 69, holding that it is quite possible that any specific judicial application of Sec. 107 will comply with the three-step test as a matter of fact, but that “the real problem . . . is with a provision framed in such a general and open-ended way”, and concluding that issues may be raised with regard to the first and third steps. See also Cohen Jehoram (2001) at 807, Bornkamm (2002) at 29 et seq. and the text under 4.2.1. 28 Förster (2008) at 211 et seq.; see also Sirinelli (1999) at 18 et seq.; Hoeren (1997) at 871; for a comparative discussion of US and UK law advocating a more flexible application of limitations, see Burrell & Coleman (2005) at 249. A bold step in the direction of a “European fair use clause” in copyright was taken by the Barcelona Appeal court, decision of 17 September 2008 (see below, 5.1, fn. 115). 29 The question has been posed by D. Gervais whether such “remuneration rights” can at all be considered as a type of “limitations and exceptions” falling under the three-step test; Gervais (2011) at 19, fn. 63, 50. However, to deny that question would hardly appear as a tenable position – even though the right holder is compensated, the right is stripped of its basically characteristic element of exclusivity. 30 See US Digital Home Recording Act. For more details cf. Crane (2009) 8–9; Kur & Schovsbo (chapter 9). 27


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also carries the stigma of being close to compulsory licensing.31 From a European point of view, on the other hand, it is regarded as given that to reduce the scope of exclusive rights does not (necessarily) mean that such use is free. Indeed, the argument that payment of remuneration fees may be more beneficial to the creators of protected content than an exclusive right which is usually contracted away features strongly in the arsenal of those who endorse a more pro-active approach by courts and legislatures towards the creation of new, or the broadening of existing, limitations.32 Of course, it is not ignored that administration of remuneration rights creates its own transaction costs. In a negative scenario, this could serve to nourish a self-endorsing layer of intermediaries rather than contributing to the benefit of authors and society as a whole. However, while such risks need to be taken seriously, they may be viewed as providing an incentive for improvement rather than as discrediting the system in its entirety. Developing sound and feasible schemes preserving the basic axiom of reward for creative achievements, while at the same time mitigating the effects of full exclusivity, certainly figures among the major challenges currently facing intellectual property. On a larger scale, this is not only true of copyright, but of other areas as well.33 3.2. 3.2.1.

Limitations and Exceptions in International Instruments (Overview) Copyright (including neighbouring rights)

3.2.1.1. The Berne Convention All international instruments in the field of IP are founded on the concept of minimum protection.34 They are therefore not, or at least not primarily,

31

Ricketson, WIPO study (2003) at 4, refers to “‘compulsory’ or ‘obligatory licenses’”. 32 Hilty (2007) at 107, 121, 123. The position is bolstered by the fact that, depending on the legal construction, such remuneration rights may be constructed as (unalienable) entitlements accruing directly to the original creators – the authors – thus proving more beneficial for their interests than a full exclusive right, which will often be transferred to derivative right holders (“exploiters”). This was emphasised in decisions by the German Federal Supreme Court (BGH), 11 July 2002 – elektronischer Pressespiegel, GRUR 963 (2002), and the Swiss Supreme Court (BG), 21 May 2007, BGE 133 III 473 (2007) = 39 IIC 990 (2008); cf. Geiger (2008b) at 943. See also Hilty (2009) at 633 et seq., who recently suggested a broadening of compulsory licences. 33 See chapter 8. 34 More explicitly on the concept of minimum rights and its implicit limitations, see chapter 8.


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concerned with the way in which those rights should be limited. This is basically also true for the Berne Convention; nevertheless – as a corollary of the rather specific character of the mandatory rules it contains – a number of optional and partly even mandatory limitations.35 To start with, the Berne Convention excludes, or allows to be excluded, certain subject matter ab initio from copyright protection. As a mandatory rule, Art. 2.8 sets out that protection “shall not apply to news of the day or to miscellaneous facts having the character of mere items of press information”.36 Furthermore, Arts. 2.2 and 2.4 respectively allow the restriction of copyright protection to works that have been fixed in a material form, and to exclude from protection official texts of a legislative, administrative and legal nature, as well as translations of such texts. As regards defences, one rare example of a mandatory provision is found in Art. 10.1 RBC, concerning the quotation right. The provision sets out that quotation from protected works shall be permissible if the further requirements set out in the article are fulfilled. Other limitations listed in the Berne Convention are of an optional character, among them Art. 9.2, the provision serving as a template for the three-step test in TRIPS. According to Art. 9.2 “(i)t shall be a matter for legislation in the countries of the Union to permit the reproduction of . . . works in certain special cases, provided that such reproduction does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author”. Further to that, Art. 10.2 permits the utilisation of literary or artistic works for teaching purposes to the extent this is compatible with fair practices.37 Art. 10bis 1 allows legislatures to permit reproduction of articles published in newspapers or periodicals on current events, in case that reproduction has not been expressly reserved, and that the source is cited; Art. 10bis 2 gives a basis for allowing reproduction and making available to the public for purposes of news reporting literary or artistic works seen or heard in the course of current events. Regarding the entitlements under the broadcasting right anchored in Art. 11bis 1, the Berne Convention even leaves it to member states to determine the conditions under which those rights can be exercised, thus leaving considerable freedom to

35

For a detailed account see Ricketson & Ginsburg (2006) at 759 et seq. This rule is considered by some as a clarification rather than a genuine exclusion, see Grosse Ruse-Khan & Kur, chapter 8. 37 Hugenholtz & Okediji (2008) emphasise that originally, the provision had been limited to “extracts” of protected works. By removing that word from the Berne text during the Paris Revision Conference, the scope of the provision was actually broadened. 36


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legislatures to introduce limitations applying within their own territory. However, the reservation is made that the moral rights of the author must be respected, and his right to obtain equitable remuneration shall not be prejudiced thereby. Furthermore, in Art. 11bis 3 it is stipulated that whereas the recording of broadcasts as a matter of principle is not implied in permission given for the broadcast as such, so-called ephemeral recordings are permissible if foreseen by national legislation. In addition, the socalled minor reservations doctrine may be mentioned here as a generally accepted basis for de minimis types of limitations that are not expressly mentioned in Art. 11bis.38 Finally, Art. 13.1 allows the introduction of reservations and conditions where the authors of music and lyrics have consented to the recording of the words and the music together, subject to the right to obtain equitable remuneration. In effect, countries may therefore set up non-voluntary licence schemes (remuneration rights) for the sound recordings of such works. 3.2.1.2. The Rome Convention The Rome Convention39 is less comprehensive than the Berne Convention with regard to the minimum rights to be granted to performing artists, producers and broadcasting companies. Accordingly, those rights may be limited ab initio in certain respects, for example concerning the broadcast or public performance of sound recordings that have been released on the market. In such cases, however, it is stipulated in Art. 12 Rome Convention that remuneration must be paid to the performer, the producer, or to both. Optional limitations and exceptions from the minimum rights provided by the Rome Convention are further found in Art. 15.1. This concerns the right to private use, use of brief excerpts in connection with news reporting, ephemeral fixations in connection with broadcasting, and use for teaching or scientific purposes. In addition, national legislatures are free to extend limitations that are admissible under the Berne Convention with regard to works of copyright also to the rights of performers, producers, and broadcasting organisations. 3.2.1.3. TRIPS and Post-TRIPS Treaties TRIPS as well as the subsequent WIPO Copyright Treaty (WCT) exclude certain subject matter from copyright protection, namely ideas, procedures, methods of operation and mathematical concepts as such (Art.

38

Below, 5.3.2. Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, 1961. 39


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9.2 TRIPS; Art. 2 WCT) as well as data per se (Art. 10.2 TRIPS; Art. 5 WCT). Concerning defences, TRIPS includes its own version of the three-step test (Art. 13). Whereas the wording of Art. 13 follows closely the pattern of Art. 9.2 Berne Convention, it is different in ways that have a conspicuous bearing on the breadth of the provision. First, while Art. 9.2 is formulated as an entitlement for Member States (“It shall be a matter for (national) legislation . . .”), Art. 13 applies a different perspective, in that it emphasises the constraints on members’ legislatures when permitting exceptions or limitations (“Members shall confine . . . .”). More importantly, while Art. 9.2 only concerns the reproduction right, Art. 13 applies to all rights conferred under copyright. Furthermore, Art. 9.2, in line with the objective and spirit underlying the Berne Convention, deals with protection of the interests of the author, i.e., according to traditional European thinking, it refers to the personal creator of a work. By contrast, Art. 13 refers to the interests of the right holder, i.e. to all those who have acquired a right, be it by creation or transfer. Another, slightly different version of the three-step test is contained in the WCT. Like the Berne Convention, it emphasises member states, entitlement to insert limitations and exceptions rather than the constraints (“Members may provide . . .”). It also refers to authors rather than to right holders. On the other hand, like TRIPS, it uses the three-step test as a general formula covering all (novel) rights encompassed by the WCT. Regarding limitations and exceptions for neighbouring rights, Art. 14.6 TRIPS refers to the Rome Convention and does not add any specific provisions. Contrary to that, the WIPO Performances and Phonograms Treaty (WPPT) reiterates the three-step test in the same version as the WCT, but with reference to the rights of performers and producers (Art. 16.2). 3.2.2.

Industrial property

3.2.2.1. The Paris Convention In contrast to the Berne Convention with its detailed canon of protected works and authors’ entitlements, the Paris Convention for the Protection of Industrial Property does not undertake to determine by way of definition which signs or inventions must be eligible for trademark or patent protection, nor does it specify the scope of the rights conferred. Hence, because and in as far as member states were free to define and regulate the conditions for protection as they saw fit, there was no pertinent need within the Convention to address the issue of mandatory or optional limitations.


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However, some exceptions from that rule can still be found. Most remarkably, this concerns Art. 5ter Paris Convention, which stipulates in a mandatory form that the use of patented devices on board of vessels, or the use of such devices in the construction or operation of aircraft and land vehicles shall not be considered as patent infringement if the vessel, aircraft or land vehicle is of another country and only temporarily or accidentally enters the territory of a country where the patent enjoys protection. This clause reflects the general opinion of the states represented in the Paris Assembly that to ensure free movement of vehicles is a more important goal than to enforce a protected patent in a situation which, after all, will hardly cause any significant harm to the patent holder.40 In addition to that, and with certain reservations, the exclusion from protection of trademarks conflicting with armorial bearings, flags, and other state emblems (Art. 6ter Paris Convention)41 can also be counted as a mandatory limitation in a larger sense.42 3.2.2.2. TRIPS Contrary to the Paris Convention, TRIPS contains definitions of protectable subject matter, and undertakes to determine the minimum level of rights conferred.43 It therefore appeared necessary also to define the conditions under which countries might derogate (partly) from the obligations thus imposed. As in copyright, provisions modelled on the three-step test anchored in Art. 9.2 RBC were hence inserted in the trademark, design,

40

Bodenhausen (1968) at 69 with reference to the minutes of the Revision Conference at Den Haag (1925) at 339 (French proposal); 577 (adoption). 41 The same applies with regard to the Olympic symbol, if a country is a member of the Nairobi Treaty. 42 Hugenholtz & Okediji (2008), Annex. The study also mentions Art. 6bis Paris Convention (invalidation and prohibition to use a sign in case of conflict with a well-known mark). However, in the last-mentioned case, the rule is rather about resolving a conflict between two distinct (private) parties claiming a right to the same item, and therefore does not fit into the scheme of limitations seeking to secure access for persons who do not claim to have a superior title in that very right. Only if the term “limitations” is understood very broadly, might protection of marks that are not “prior rights” in the usual sense figure in a scheme of limitations; see Kur & Grosse Ruse-Khan (chapter 8). Lastly, regarding exclusion ab initio, reference is made by Hugenholtz & Okediji (2008) to Art. 52 and 53 EPC that exclude certain types of inventions from protection. However, as the EPC is rather atypical regarding the dense texture of its provisions (resembling a piece of national legislation rather than an international text), it is left out of consideration here. 43 On the previous situation under the Paris Convention see above, 3.2.2.1.


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and patent sections of TRIPS, with the wording differing to a varying degree from each other and from the “original”.44 Among the different versions, Art. 17 bears the smallest resemblance to Art. 9.2 RBC as well as to the other variations of the three-step-test. It does not contain a “second step” addressing the conflict with a normal exploitation, and it only stipulates that the legitimate interests of the right holder are taken into account, as well as those of third parties. This appears to reflect the fact that notwithstanding their recognition as a full-fledged intellectual property right, the protection conferred on trademarks is nevertheless primarily determined by their function of indicating commercial origin. With trademarks being a communication tool par excellence, the right of third parties to use the sign in order to engage in basically correct commercial communication must be respected, even though to do so might cause some prejudice to the value possibly vested in the mark. No such particularities exist regarding the other IP rights. Nevertheless, different wording has been chosen for the provisions embedding the threestep test in copyright, industrial design and patent law. Whereas in copyright, Art. 13 echoes Art. 9.2 RBC by referring to “certain special cases” on the first step, and by omitting any mention of “unreasonableness” on the second, and the “interest of third parties” on the third step, both Arts. 26.2 (industrial designs) and 30 (patents) refer to “limited exceptions” on the first step, refer to an “unreasonable” conflict with normal exploitation on the second, and include third parties’ interests in the third step. No clue seems to be offered by the drafting history as to why these differences occurred and whether they were intended to have any specific meaning.45 As the wording of Art. 13 TRIPS was largely pre-determined by Art. 9.2 RBC with its background in the continental European copyright tradition permeating the Berne system, the question might be posed whether the patent and industrial design provisions were deliberately phrased so as to allow for a less rigid interpretation. Although an argument could be made in favour of that reading, it was not endorsed (nor expressly rejected) in the WTO panel reports interpreting Art. 13 and 30 respectively. Judging from the panel reports, the generally held opinion rather seems to be that while meriting attention, the differences of wording

44

Differences also exist with regard to the heading of each of these provisions: Limitations and Exceptions (Art. 13), Exceptions (Art. 17), Protection (Art. 26), Exceptions to Rights Conferred (Art. 30). 45 Canada – Patents (WT/DS114/R), 7.29. The negotiating records show only that the term “limited exceptions” was employed very early in the drafting process, well before the decision to adopt a text modelled on Berne Article 9.2, but do not indicate why it was retained in the later draft texts modelled on Berne Article 9 (2).


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should not be overestimated. On the contrary, the prevailing tendency seems to be that by way of “horizontal reading”, the requirements set out in the different wordings are held to inform each other. Unfortunately, until now this has rather served to reinforce the restrictive tendencies inherent in each of them, as will be shown in the following.

4.

THE INTERPRETATION OF THE THREE-STEP TEST BY THE WTO PANELS

4.1.

Background

Due to its anchoring in TRIPS as the overarching concept to be observed in the assessment of the compatibility of limitations and exceptions with international law, the interpretation of the three-step test has become of paramount importance. In that regard, much weight is attributed to the WTO panel reports addressing the implications of the three-step test in different areas. Indeed, the panels’ interpretation appears to be regarded worldwide as a quasi-canonical exegesis of the respective TRIPS articles. However, that view does not go unchallenged.46 Also in the following, an attempt is made to show that the way in which the three-step test has been interpreted by the WTO panels is by no means strictly warranted in light of the structural context and wording of the provisions. The three reports concerned patents (Canada – patents),47 copyright (USA – copyright),48 and trademark law in relation to protection of geographical indications (EU – GIs).49 Industrial design law has not been involved in dispute settlement proceedings so far, but the issue has become topical in the European discussion concerning the so-called repairs clause for spare parts.50

46

See e.g. Okediji (2000) at 123, 130 et seq.; Brennan (2002) at 213, 223; Koelman (2006) at 407; Geiger (2006) at 683; by the same author (2005) at 12; Ficsor (2002) at 110; see also the “Declaration on a Balanced Interpretation of the Three-Step Test”, elaborated by a joint working group under the aegis of Queen Mary College, London (Griffiths, Suthersanen) and the Max Planck Institute (Geiger, Hilty), available at: http://www.ip.mpg.de/shared/data/pdf/declaration_ three_step_test_final_english.pdf. 47 Presented on 17 March 2000, WTO Document WT/DS114/R. 48 Presented on 15 June 2000, WTO Document WT/DS160/R. 49 Presented on 15 March 2005, WTO Document WT/DS174/R. 50 Faced with the problem that if design rights are granted for parts of complex products, the maker of the original product will automatically obtain a monopoly on the repair market, the Commission has proposed to introduce a rule permitting


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The issues treated in the panel reports are only briefly summarised here; having been the object of worldwide attention, it is supposed they are familiar to most readers. Canada – Patents concerned two exceptions in Canadian patent law that allowed medication to be manufactured by competitors before the lapse of the patent covering them. The first exception (the so-called Bolar or regulatory exception) allowed generic manufacturers to put in place procedures with a view to obtaining marketing authorisation, and to deliver samples to a competent agency; according to the second (stockpiling exception), it was permitted to make even larger quantities of still protected medicaments in order to keep them in store for the time when the patent had lapsed. The first type of exception was found acceptable by the panel, whereas the second was considered as incompatible with TRIPS Art. 30. In USA – copyright, the panel examined the so-called homestyle and business exceptions set out in Sec. 110 (5) (A) and (B) Copyright Act. The first of these permits amplifying broadcast transmissions in commercial establishments provided that the equipment used does not go beyond a certain (“homestyle”) capacity.51 The second makes the exception dependent on the size of the establishment concerned. Again, the panel accepted the first and condemned the second type of exception. Finally, in EU – GIs, the primary concern is the compatibility of the requirements posed for protection of geographical indications relating to third countries under the EU GI protection regime with TRIPS, in particular the national treatment principle. In the same context, the question had also been posed whether the fact that a prior trademark must coexist with a subsequently protected GI instead of being entitled to claim an exclusive right was violating Art. 16 TRIPS. With regard to the latter question, the panel found that in this specific case, and under the precautions set out in the EU GI Regulation, coexistence constituted an acceptable solution in the light of Art. 17 and the special kind of three-step test it embraces. In the following, a comparative analysis of the argumentation employed in the three reports will be undertaken.52 The most interesting insights

the manufacture and sale of parts for repair purposes, to the extent this is necessary to restore the original appearance of the complex product (Commission proposal of 14 September 2004 to amend Directive 98/71/EC). The proposal was criticised for violating Art. 26 (2) TRIPS by Straus (2005) at 391, 397. Straus’ arguments are refuted by Kur (2008) at 313, 336 et seq. 51 Strangely enough, the panel seems to have (mis)understood the “homestyle” provisions so as to only apply to broadcasting of “big” musical works such as operas, musicals etc.; see below. 52 See also Senftleben (2006) at 413 et seq.; Dreier (2005) at 45.


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result from a comparison between the patent and the copyright panel report, which show clear signs of a close relationship and mutual influence. Accordingly, those reports will be at the centre of the following considerations. By contrast, the comparability of the trademark panel’s reasoning is somewhat reduced, due to the way in which the specific character of trademark law has influenced the wording of Art. 17. The trademark report will therefore only be addressed where this is of common interest also with regard to the other legal areas. 4.2.

The Main Lines of Arguments in the Panel Reports

4.2.1. General structure and first step As a starting point, all three panels emphasise that the test actually does consist of three (in trademark law: two) clearly discernible stages, which must be passed through cumulatively and in a strict order, with the criteria applied at each stage being specific in their meaning and separate from each other, so as to avoid redundancy.53 All panels relate to the Vienna Convention on the Law of Treaties (VCLT) as the basis for their interpretation.54 With regard to the first step, all three reports emphasise that in order to comply with it, the limitation at stake must be “narrow”. For the patent panel, this follows from the double qualification of a “limited exception” – as an exception is already something that is necessarily narrower than the right, the additional reference to “limited” must mean that it can only be referring to a “small diminution” of the right.55 The same interpretation 53 See e.g. the copyright panel: “The three conditions apply on a cumulative basis, each being a separate and independent requirement that must be satisfied.” (USA – copyright, 6.97); and the patent panel: “each of the three (steps) must be presumed to mean something different from the other two, or else there would be redundancy . . . an exception that complies with the first condition can nevertheless violate the second or third, and that one which complies with the first and second can still violate the third.” (Canada – patents, 7.21). 54 Vienna Convention on the Law of Treaties, signed at Vienna, 23 May 1969. Not all WTO members have adhered to the VCLT. However, its application appears justified according to Art. 3(2) 2nd sentence of the Understanding on Rules and Procedures Governing the Settlement of Disputes, the provisions (inter alia) of TRIPS are to be clarified “in accordance with customary rules of interpretation of public international law”, and the Vienna Convention, or at least its Arts. 31 and 32 are generally regarded as codified customary public international law; Ricketson, WIPO study (2003), at 5; for a more detailed examination see Netanel (1997). 55 Canada – patents, 7.30. Contrary to that, Canada had argued that “limited” was intended to mean “confined within definite limits”.


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was embraced by the trademark panel.56 The copyright panel marked in its interpretation that the term “certain” related to legal certainty, whereas “special” was supposed to mean narrow in a qualitative as well as a quantitative sense, i.e. that it must have “a narrow scope as well as an exceptional or distinctive objective”.57 For copyright law, the panel’s interpretation of the word “certain” has triggered an animated debate about the compatibility of the fair use clause in Sec. 107 US Copyright Act with the three-step test.58 Although doubts in that regard have been ventured, the majority opinion seems to hold that “fair use” after all does grant the necessary degree of legal security.59 For all the diversity and fragmentation necessarily implied in the strictly case-oriented approach taken by US jurisprudence,60 US courts do apply the pattern of factors set out in Sec. 107 in the manner developed in the leading cases, thereby offering a relatively stable basis for the parties to plead their case and structure their arguments. Furthermore, it has been pointed out that the signatories of TRIPS (and already those of the Berne Convention, when Art. 9.2 was inserted) were aware of the legal approach taken in US copyright, and deliberately aimed to draft a compromise between systems employing flexible clauses and those operating on the basis of closed catalogues.61 According to that argumentation, it would be a grave mistake if the compromise character of the three-step test were contorted by way of a rigid and formalistic interpretation.62 In US – copyright, Sec. 107 was not at issue anyhow. However, the aspect of certainty was of some relevance for the argument made by the EU, that the reference made in Sec. 110 (5) (A) to “homestyle equipment” was too vague, given that future technical developments might allow for a considerable extension of transmission capacities. However, according to the panel, the degree of clarity required under the first step had been met; it was not necessary to give “exceedingly detailed technical specifications”.63 Apart from that, all three panels concentrated on the issue whether the limitations were sufficiently narrow. The trademark panel was satisfied in 56

EU – GIs, 7.650. USA – copyright, 6.109. 58 See inter alia Cohen (1999) at 236; Cohen Jehoram (2001) at 807, 808; same author (2005) at 359; Ricketson, WIPO study (2003), at 68, 69. 59 Convincingly: Senftleben (2004a) at 126 et seq.; Förster (2008) at 191 et seq. 60 In a critical vein on US law and practice: Nimmer (2003); Crews (2001). 61 Cf. Senftleben (2004b) at 202, 203. 62 Senftleben (2004a) at 135. 63 USA – copyright, 6.108. The panel emphasizes in addition that at any rate, its “factual determinations are invariably limited to what currently is being perceived as homestyle equipment in the US market”. 57


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that regard, as the European GI Regulation did not result in a curtailment of trademark owners’ exclusive rights vis-à-vis every other sign, but only applied in regard to geographical indications meeting the specific requirements for protection.64 For the patent and copyright panels, on the other hand, the examination led to a split result: both panels dismissed one of the exceptions as failing the conditions in the first step, and accepted the other. With regard to the Canadian stockpiling exemption, the panel placed emphasis on the fact that during the last six months of patent protection, no quantitative restrictions existed as to the production of medicaments for stockpiling purposes, meaning that protection against “making” and “using” of drugs embodying the patent was entirely removed.65 The copyright panel based its evaluation mainly on a survey undertaken in 1995 which showed that rather high percentages – 65.2 per cent of all eating and 71.8 per cent of all drinking establishments – were potential beneficiaries of the business exemption, while the respective figures for the homestyle exception were supposed to be much lower. The latter conclusion was reached on the basis of an interpretation by the panel, on which the parties concurred, that the homestyle exception in Sec. 110 (5) (A) only applies to music that is part of an opera, operetta, or other similar dramatic work when performed in a dramatic content.66 Had it not been for that understanding, the provision may not have “survived” the test.67 As is remarked inter alia by Senftleben, all three panels decidedly avoided to embark on a discussion of normative elements, i.e. the motives on which the limitations are founded, and their justification in the light of the objectives underlying the intellectual property right concerned, and

64

EU – GIs, 7.655, 7.656. Canada – patents, 7.34, 7.37. 66 It seems that the interpretation suggested here is indeed what most Americans have assumed Sec. 110 (5) subparagraph (A) to mean before the panel report. 67 This conclusion was reached by using an e-contrario argument (based on the words “other than in subparagraph B”), placing subparagraph (A) in juxtaposition to subparagraph (B), which applies to the display of non-dramatic musical works. Although that understanding was not seriously challenged by the parties, it is highly doubtful whether this is indeed the meaning the legislature intended to express in subparagraph (a). The legal history of the provision, whose origin is traced back to Twentieth Century Music Corp. v. Aiken, 422 U.S. 151 (1975), rather suggests that no such restriction had been intended. The difference between the two subparagraphs indicated by the phrase “other than . . .” can be explained quite naturally by the fact that the type of business mentioned in subparagraph B was supposed to be covered by the exemption irrespective of the type of equipment used; there is no cogent reason why it should also embrace the kind of music to be exempted. 65


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the objectives and principles of TRIPS.68 This abstinence is not necessarily induced by the wording of the relevant provisions. For example, the reference to “special cases” in Art. 13, which, as the panel itself observes, addresses the “distinctive objective”, could very well furnish an inroad into consideration of normative aspects already at this stage. The reason for refraining from such an examination therefore seems to have been the attempt to keep the steps separate from each other, and to preserve the evaluation of policy aspects to a later stage. This point is strongly emphasised by Jane Ginsburg,69 who is supported in that regard by Sam Ricketson.70 While the argument appears convincing from a systematic point of view, it becomes highly questionable if an exception is already “sorted out” with the first step, and therefore never reaches a stage where policy considerations are included in the assessment.71 This is indeed what happened regarding the stockpiling exception in Canada – Patents. Moreover, even if the provision under examination is submitted to all three steps – like the business exception in USA – copyright – this does not help, if the principle is endorsed (as it was by both panels) that failure to meet any one of the three steps will necessarily result in failure to pass the test in its entirety. For such an approach to work properly, it must be possible to identify an absolute quantitative limit beyond which exceptions and limitations will necessarily violate international law, without any regard for the validity and urgency of their motivation. It is strongly doubted here that such an absolute limit does indeed exist. If at all, it would have to be defined with much caution, in order not to prematurely discard exceptions that may appear broad, but that are nevertheless founded on very sound and valuable grounds. Better than that, it ought to be acknowledged that in view of the task that the three-step test has to fulfil, it is definitely inappropriate that a purely quantitative assessment should become the sole parameter for deciding on the admissibility of an exception.72 Rather than determining whether a rule is “limited” (or “special”) in an absolute sense, it should 68

Senftleben (2006) at 421; see also Ficsor (2002) at 132. Ginsburg (2001). 70 Ricketson, WIPO study (2003), at 22; see also Ricketson & Ginsburg (2006) at 766, where the opposite view previously endorsed by Ricketson is expressly given up. 71 Jane Ginsburg’s argument that the exception will fall to be tested by the second and third steps in any event therefore is not necessarily correct, as the Canada–Patent panel has shown. The same thoughts as here are also expressed in the Hugenholtz & Okediji report (2008) at 21. 72 Senftleben (2004a) at 144–52; on the other hand, a “pure qualitative approach” is criticised by He (2009) at 290–92. 69


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be inquired how it is limited, i.e. what its limitations are. The decisive question to be asked in the light of further elements to be investigated on the following steps would then be whether the exception is limited enough in view of its purpose and potential impact. Drawing attention to this point appears noteworthy not least in view of the fact that in all three panel reports, the result reached on the basis of the assessment undertaken on the first step already anticipated the final conclusion of the report as a whole. At least in those cases, the first step seems to have been the essential test. It is uncertain whether this is a typical structure. If it were so, it might be taken as an indication that in spite of the emphasis placed on the cumulative character of the individual steps and their mutual independence, there is not much substance added in steps two or three – the dice may have been thrown before one gets there. If that is true, it is all the more important to ensure that policy considerations are not excluded from the deliberation. 4.2.2. The second step The central task for the second step is to determine what accounts for a (conflict with the) “normal exploitation” of an intellectual property right. While the term seems to suggest a clear, matter-of-fact type of analysis, it turns out to be most problematic on closer scrutiny.73 It seems clear, first, that the legal situation in a country where the rule under examination currently applies cannot form the yardstick for what is considered as normal, lest the test should lead to circular reasoning.74 Instead, “normal exploitation” is a fictitious scenario, with no secure basis in actual law.75 The WTO panels chose as their starting point the situation when full exclusivity is granted, minus insignificant detractions. For the patent panel, the normal practice of exploitation is to “exclude all forms of exploitation that could detract significantly from the economic returns anticipated from a patent’s grant of market exclusivity”.76 The discussion became relevant in view of 73

Geiger (2009) at 634, 635; He (2009) at 294 et seq. Goldstein (2001) at § 5.5, cited according to Ricketson & Ginsburg (2006) at 769. 75 As a matter of principle, a comparison of the legal situation abroad might give some indication as to what is grosso modo regarded as “normal” in other countries. However, that kind of reasoning – which the patent panel employed in the framework of the third step – might also be dangerous, as it leads to a de facto canonisation of foreign practice leading to a “freeze-plus” dynamism, without those standards having been prescribed by an international instrument. See on this aspect below. On the risks involved with a comparative approach in the three-step test see also Dinwoodie & Dreyfuss (2004a) at 431, 439. 76 Canada – patents, 7.35. 74


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the argument made by Canada that it was not “normal” in that sense when patent holders enjoyed an additional period of de facto market exclusivity after the lapse of pharmaceutical patents. However, the panel declared itself “unable to accept that as a categorical proposition”.77 While market exclusivity resulting from the enforcement of the sole right to production during the entire patent term was considered to be “normal”, a different position was taken with regard to the making of samples for regulatory authorisation. There, the panel argued, the additional period of market exclusivity is not a normal or natural consequence of enforcing patent rights, but “an unintended consequence of the conjunction of the patent laws with product-regulatory laws”.78 It would have been interesting to see how the panel, after having concluded its analysis as to what is regarded as normal exploitation, might have interpreted the second element in Art. 30, i.e. that the conflict with a normal exploitation should not be “unreasonable”. At least as a matter of principle, this appears to leave room for the possibility that in spite of conflicting with a normal exploitation, a limitation still does make sense for general policy reasons – for example, because it improves the supply of the population with useful medication. As it were, however, the panel did not find reason to embark on such an exercise – in case of the regulatory exemption there was no conflict with a normal exploitation to start with, and the stockpiling exemption (though indirectly addressed in the assessment of the “normalcy” of an additional exclusivity period resulting from enforcement of the production right) had been sorted out already at the first step. In the copyright context, the issue of what may be a “reasonable” conflict with normal exploitation is moot anyhow, because Art. 13 does not mention that criterion at all on the second step. The evaluation therefore turns exclusively on the definition of a normal exploitation. As the copyright panel points out, “normal” in its ordinary meaning has two connotations, one being of an empirical and the other of a “somewhat more normative, if not dynamic” character. While the empirical approach basically consists in an evaluation of the current practice (in the relevant member state and abroad), the normative element shall ensure that limitations are not regarded as non-interfering with a normal exploitation simply for the reason that they concern an option for revenues which for factual reasons until now is not, or is only scarcely, used.79 The issue was

77

Canada – patents, id. Canada – patents, 7.57. 79 Similar arguments had already been made in the context of inserting Art. 9.2 into the Berne Convention; Senftleben (2004a) at 43 et seq. 78


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of interest for the case at hand, because even before the new legislation was passed, the respective rights had not been exercised by the right owners of collective rights management organisations (CRMOs) to any substantive degree, so that the revenue derived thereby had been minimal in practice. However, the panel found that in such situations, current licensing practices could not be considered as decisive for assessing the impact of the limitation on normal exploitation.80 Another issue of major importance in the copyright context concerns the question whether in order to measure the normal exploitation of “a work” one needs to take into account the options for deriving revenue from the bulk of rights attached to a work in its entirety, or whether each exclusive right conferred by copyright must be evaluated as such, without any difference between rights of major or minor importance in view of the exploitation possibilities in their entirety. The panel clearly opted for the second approach.81 In the panellists’ view, all exclusive rights must be considered separately, so as not to undermine any one of them on the basis that sufficient revenue may be flowing from exploitation of the remaining rights.82 The combined approach chosen by the copyright panel – first, allocating all possible sources of revenue to the right holder, whether presently used or not; second, subjecting each and every exclusive position to a separate analysis, whether substantially contributing to the entire arsenal of rights or not – leans very strongly to the side of proprietary interests.83 On the basis of that analysis, it may be questionable whether there is any possibility left for a limitation not to conflict with a “normal exploitation”.84 In anticipation of such misgivings, the copyright panel pointed out that

80

USA – copyright, 6.188. USA – copyright, 6.173, 6.175. This is criticised in particular by Senftleben (2004a) at 189 et seq., arguing inter alia that the approach “tends to shelter small exclusive rights more effectively from erosion than smaller ones”, id. 191. 82 As an additional motivation for their approach, the panel pointed to the fact that the individual rights conferred on the copyright owner need not necessarily be in the possession of the same person. 83 This has been criticised repeatedly in the literature, see e.g. Dusollier (2005) at 217, 220; see also Senftleben (2004a) at 181, in particular with regard to the new possibilities of restricting use and thereby engendering new markets in the digital environment; likewise Heide (1999) at 105, 106. 84 Due to the fact that unlike in the patent and industrial design tests, Art. 13 does not require that the manner in which the use conflicts with a normal exploitation is “unreasonable” – according to the black letter, the finding of a conflict is as such sufficient to fall foul of the second step. See also Geiger (2009) at 634, 635, same author (2004c) at 268. 81


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“not every use of a work, which in principle is covered by the scope of exclusive rights and involves commercial gain, necessarily conflicts with a normal exploitation. If this were the case, hardly any exception or limitation would pass the test of the second condition and Art. 13 might be left devoid of meaning, because normal exploitation would be equated with full use of exclusive rights” (emphasis added).85 Therefore, they propose to limit the decisive test at the second step to situations when the use covered by the limitation “enters into economic competition with the ways in which right holders normally extract economic value from (the specific right at stake) and thereby deprive them of significant or tangible commercial gains.”86 Although confirming thereby that not every limitation will be outlawed per se, the concession thus made is rather poor in substance: it boils down to a hypothetical analysis of the economic loss sustained by the limitation as compared to a full exploitation of the right, i.e. to a test purely relying on financial arithmetic.87 Accordingly, no room is left in the assessment undertaken at the second step for consideration of policy aspects. Without criticising the copyright panel for its reasoning, Ricketson, in his analysis of the second step in Art. 9.2 Berne Convention, points out that it seems “logical to conclude that the scope of the inquiry undertaken required on the second step . . . does include consideration of noneconomic considerations, i.e. whether this particular kind of use is one that the copyright owner should control” (emphasis in the original).88 In other words, even though the three-step test in copyright does not make reference to a “reasonable” conflict with normal exploitation and therefore does not contain an explicit invitation to include policy considerations, it is nevertheless strongly advisable to embark on such an effort.89 85

USA – copyright, 6.182. USA – copyright, id. 87 One explanation for this may be found in the fact that the copyright panel obviously felt bound by the minor reservations doctrine applying in the framework of Art. 11bis Berne Convention; see also below, 5.3.2. 88 Ricketson, WIPO study (2003), at 25; likewise Ricketson & Ginsburg (2006) at 771; see also Ginsburg (2001) at 23; Oliver (2002) at 158. 89 The normative interests possibly justifying a conflict with “normal interpretation” are further qualified by Ricketson, WIPO study (2003), at 26 and Ricketson & Ginsburg (2006) at 773: They would need “a clear public interest that goes beyond the purely individual interest of copyright users”, meaning that they “should be of analogous significance to those already accepted as appropriate under other provisions of the Berne Convention, such as article 10 and 10bis.” From the approach chosen here, such qualifications are unnecessary at this stage: Under the proportionality test to be undertaken in the end (see below, 5.2.3), it will follow as a matter of course that “purely individual” interests of users will only be able to justify rather small encroachments. 86


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For patent law, of course, this should be mandatory anyhow – the total absence of any such discussion in the panel report due to the stockpiling exception’s dismissal already at the first step marks a serious loophole in the patent panel’s reasoning. Apart from that, one might ask why an inquiry for normalcy must necessarily take as its starting point the scenario of a right holder fully exploiting what actual or potential markets may yield.90 For a comprehensive picture, it would be equally important to explore what would constitute the minimum level of market exclusivity necessary to prevent market failure. Anything lying between those two extremes might arguably be considered as a kind of “normal exploitation”. From this perspective, “normalcy” becomes a relative notion stretching over a range of differentiated options. Instead of pinpointing one specific result, it establishes the general framework for a gradual measurement to be undertaken in light of the strength and urgency of the legal motives underlying the rule at stake. 4.2.3. The third step If not before, several opportunities for a discussion of policy issues are offered at the third step.91 First, in all the areas concerned, it must be considered whether the prejudice eventually caused by the limitation is “unreasonable”; second, the interests associated with it must be considered as “legitimate”, and third, in patent, design and trademark law, the interests of “third parties” must be taken into account. Of these potential inroads for policy considerations, the attention of the patent panel was practically exclusively focused on the “legitimacy” of the proprietors’ interests. It posed the question, first, whether “legitimate”

90

Several proposals have been made in the literature for applying a different yardstick than full exploitation (minus insignificant reductions): Senftleben (2004a), at 194, suggests that a conflict with normal exploitation (only) arises “when authors are divested of an actual or potential, typical major source of revenue that carries weight within the overall commercialisation of works of the relevant category”; Dusollier argues that normal exploitation “only covers the main avenues of the exploitation of the work, those that provide the author with his main sources of revenue”, (2005) at 217, 222; translation by Geiger (2006) at 697 fn. 59, fully endorsing Dusollier’s position. 91 For that reason, proposals have been made to “reverse” the three-step test; see Gervais (2005) at 1; likewise: Geiger (2006) at 683; Senftleben (2004a) at 193 points out that “the final decision on compliance can confidently be left to the three-step test”, which, not least because of the “possibility of factoring the payment of equitable remuneration into the equation . . . is better equipped for striking a better balance”.


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interests were to be understood in the same way as “legal” interests, i.e. all aspects of the right conferred in principle by the legal title of a patent, and, if not, how the two notions were to be distinguished from each other. Concerning the distinction between “legitimate” and “legal”, the panel emphasised that the former notion must be defined “in the way it is often used in legal discourse – as a normative claim calling for protection of interests that are ‘justifiable’ in the sense that they are supported by the relevant policies or social norms.”92 The following example is offered as an illustration: The objective of patent law is to facilitate the dissemination and advancement of technical knowledge. Those goals are also furthered by scientific experimentation. Therefore, a rule allowing for experimental use would not be encroaching upon the legitimate interests of the patent holder – on the contrary, the panel concludes that both the scientist and society have a “legitimate interest” in keeping such uses free from the exclusive right.93 Having followed the panel’s reasoning so far, one is interested to learn more about how that type of reasoning is applied to the regulatory exception which is at stake here. One possible line of argumentation might be that another objective for patent law, in particular in the area of pharmaceuticals, is to promote the invention of new drugs in order to optimise the public supply of useful medications. To enable others to add to the available stock of market supply, at the earliest point in time after the absolute right has ceased, might, in light of that objective, also appear as a “legitimate interests of (in this case) competitors and society”. However, whether the panel at least in internal debate has used that sort of reasoning (which it had suggested itself by its example drawn from the research exception) remains unknown – if it did, it has at least not left visible traces in the report itself. Instead, the panel turns to the possible economic losses incurred by the patent holder due to the regulatory exemption, whose effects are not mitigated under Canadian law by complementary measures such as, in the EU, the possibility of applying for a certificate to extend the time of protection. The case is finally closed after a comparative test – the panel is satisfied by the observation that while other countries do apply a regulatory exemption, not all of them provide for extensions of the kind available in the EU. This, they conclude, shows that interests of patent holders in abolishing the exception are not “legitimate” in the meaning of

92

Canada – patents, 7.69. Canada – patents, id. One might ask whether the panel thereby wants to suggest a kind of de facto obligation on Members to introduce a research exception. 93


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Art. 30.94 No other arguments are tested, and none of the other elements of which the third step consists is addressed. That way of reasoning appears somewhat odd. One might rather have expected the panel to say that although the interest of right holders in a de facto prolongation of the protection period is legitimate as such, the Canadian government nevertheless did not act unreasonably when granting the Bolar-type exception. As it is now, the argument is invited on the basis of the panel report that governments are (at least in a “moral” sense) obliged to introduce such limitations, lest patent holders should derive illegitimate profits from the fact that generic manufacturers must wait until the expiry of the patent before initiating the regulatory process. Contrary to that, the copyright panel’s analysis was concentrated on the “unreasonableness” of the prejudice caused, as the legitimacy of interests had not been questioned by the parties.95 First, the panel noted “that the ordinary meaning of ‘prejudice’ connotes damage, harm, or injury. ‘Not unreasonable’ connotes a slightly stricter threshold than ‘reasonable’.96 The latter term means ‘proportionate’, ‘within the limits of reason, not greatly less or more than might be thought likely or appropriate’ or ‘of a fair, average or considerable amount or size’”.97 With regard to the conflict at stake, the panel concludes that “legitimate interest” means the economic value of the exclusive rights conferred by copyright on the holders. Taking into consideration that under the third step, “a certain amount of prejudice to that interest has to be presumed justified as ‘not unreasonable’”, they contend that in their view “prejudice to the legitimate interests of right holders reaches an unreasonable level if an exception or limitation causes or has the potential to cause an unreasonable loss of income to the copyright owner”.98 This brings them back to the same kind of financial arithmetic they have already employed in the first and second step, and it leads to the same result as before: The prejudice caused by the business exception is unreasonable, whereas that caused by the homestyle exemp94

Canada – patents, 7.82. As a matter of principle, the copyright panel followed the patent panel in its definition of what was to be considered as legitimate interests. It held that in addition to “lawfulness from a legal positivist perspective”, the term also includes a more normative perspective, “calling for protection of interests that are justifiable in the light of the objectives that underlie exclusive right”. 96 USA – copyright, 6.225. With all due respect, that finding seems to contradict the “ordinary meaning” test to be applied pursuant to Art. 31 VCLT: “Not unreasonable” rather appears as the broader notion, comprising everything (just) above the threshold of what would have to be considered as “unreasonable”. 97 USA – copyright, id., with reference to Oxford English Dictionary at 2496. 98 USA – copyright, 6.229. 95


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tion continues to be within acceptable limits. It is not discussed in that context that the homestyle exception obviously creates a particular prejudice for a specific type of music and for those who create and perform it, inviting the question whether and which legislative motives may possibly account for that. Rather than embarking on such ground, the copyright panel, just like the patent panel, does not address policy issues at all.99 Some insights into the interpretation of the third step are offered by the trademark panel, which in the first two steps shows little to compare with copyright and patent law, due to the different structure of Art. 17 TRIPS. For the definition of “legitimate interests”, the trademark panel adopted literally the explanation given by the patent panel.100 For an identification of the relevant interests in that sense, the panel placed particular emphasis on the function of trademarks in distinguishing goods and services according to their commercial origin. It concluded that the basic legitimate interest of every trademark owner lies “in preserving the distinctiveness, or capacity to distinguish, of its trademark so that it can perform that function”.101 That way, account would also be taken of the trademark holder’s interest “in the economic value of its mark arising from the reputation it enjoys and the quality it denotes”.102 Furthermore, regarding the interests of third parties, the panel referred to the interest of consumers “in being able to distinguish goods and services of one undertaking from those of another, and to avoid confusion”.103 Hence, no diversity was found in that regard between trademark owners’ and consumers’ interests. Finally, the users of a geographical indication under the EU GI system were said to be figuring as “third parties” whose interests must be taken into account in the framework of the balancing exercise.104 In the case at hand, the coexistence between trademarks and subsequent geographical indications, which had been challenged as being incompatible with TRIPS, was found to be acceptable, in view of the fact that the rules were designed so as to reduce the risk for conflicts to a strict minimum, with the pertinent consequence that the actual number of conflicts was indeed extremely small. 99

An additional policy argument is made by Dinwoodie & Dreyfuss (2004b), pointing out that the US homestyle and business exceptions were part of the larger “package deal” introducing longer protection periods and thereby, in its entirety, strengthening the position of copyright holders. 100 I.e., as a “normative claim calling for protection of interests that are ‘justifiable’ in the sense that they are supported by social policies or other social norms”, EC – GIs, 7.663. 101 EC – GIs, 7.644; Senftleben (2004a) at 431. 102 EC – GIs, id. 103 EC – GIs, 7.677–7.678. 104 EC–GIs, 7.681.


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The trademark report is interesting because it expanded, as the first and only report so far, on the meaning of “third parties”, whose interests must be taken into account for the assessment of the third step (except for copyright). As was set out above, the panel assumed that the notion included the interests of the users of protected geographical designations. This has been criticised by Senftleben105 as construing the term too broadly. On the basis of the contention that “(t)hese persons are the very beneficiaries of the EC coexistence regime imposing certain limitations on prior trademark rights and accordingly, appear as the counterpart of trademark owners rather than third parties”, he concludes that the reference to third parties in Article 17 TRIPS, “apparently, refers to the concerns of those persons who could be affected detrimentally by the limitation in question, such as . . . consumers”. However, the attitude of the panel appears to comply with general legal parlance. “Third parties” usually connotes all those who, but for the existence of exceptions or limitations, would be excluded from making use of the subject matter protected by the right, i.e., who are neither holders of the IP right nor stand in contractual relations with them. The same view was brought forward by Canada in the patents case, stating that “‘third parties’ is a reference to those who are adverse in interest to the patent holder”. It is obvious that these persons will in many cases be exactly the same as those who directly benefit from the limitation. 4.3.

Summarising the Panels’ Approach

Having studied the panel reports to some extent, one is tempted to say that the most remarkable thing about them is what one does not find there. In particular, with the exception of the trademark report, nowhere do the panels venture into a discussion of the policies underlying the limitations at stake. This is especially noteworthy in the patent report – quite obviously, the Canadian legislature did have a distinct objective for inserting the regulatory as well as the stockpiling exemption. However, even though the panel itself seems to invite a discussion of policies and objectives on the third step, it prefers not to embark on such a debate with regard to the regulatory exemption, let alone the stockpiling exemption, which, after having been judged as failing the first step, is never taken up for consideration again. But also in the copyright case, where both exemptions are submitted to testing on all three steps, the evaluation is remarkably silent on points of policy. One may wonder why, as the argument had in fact been advanced by the US that the insertion of Sec. 110 (5) (A) and (B)

105


Senftleben (2006) at 433.

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was founded on considerations which, although not related to “cultural” values, at least were arguably sound. However, it seems that the panel rather leaned towards the opinion that the economic reasons accounting for the exemptions were not really “presentable” in the framework of the three-step test.106 Whatever the reasons were for the relative paucity of the reasoning, the fact remains that the many pages of written text can be summarised quite briefly. First, what counts in the first place is how much the limitation detracts from exploitation of a full right, both with regard to the individual elements of the rights conferred, and in terms of the potential revenues to be gained from full exploitation. These aspects, in particular the latter, are considered, embedded in varying wording but unchanged in their essence, on each and every one of the three steps. In spite of the rhetorical emphasis placed by the panels on the need for an interpretation that avoids redundancy, their argumentation covers exactly the same aspect several times over. The only additional clue, taken into account by the patent panel, was derived from a comparison with the legal situation abroad. This warrants the conclusion that exemptions of more than purely de minimis character stand a certain chance of being accepted only where it can be demonstrated that a similar rule also applies in a notable number of other countries. Contrary to that, new types of exemptions have the odds against them.

5. 5.1.

A FRESH APPROACH TO THE THREE-STEP TEST: OPTING FOR FLEXIBILITY Factual and Legal Effects of the Panel Reports

The amount of critical attention the WTO panel reports have attracted would hardly be explicable and justified, if it were not for the fear that

106 In the same vein see also Ricketson, WIPO study (2003), at 24, 25, noting that with regard to the provision at stake, there was “no real need to consider (underlying policy aspects), as the ‘pork and barrel’ exception in issue had none of the significant justifications that often underlie copyright exceptions, such as free speech, scholarship, education and so on”. However, this position fails to take account of the fact that in the end, also the interests of right holders to receive full revenues for whatever use is made of the protected subject matter is of an essentially economic (“pork and barrel”) character. Furthermore, the picture also changes when considering the larger legislative framework of which the homestyle exception formed part; see Dinwoodie & Dreyfuss (2004b).


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their impact will be massively felt as an obstacle to the freedom to espouse flexible solutions that seek to adapt intellectual property rights to the demands of an increasingly complex socio-economic environment. As limitations and exceptions figure as tools for fine-tuning the effects of intellectual property rights par excellence, the freezing or severe curtailing of legislative options in that regard will effectively hinder efforts to explore new paths between full exclusivity and total absence of protection. In a world where it becomes increasingly doubtful that a choice between those two extremes is able to render appropriate solutions, the foreclosure, or massive impediment, of the freedom to set foot on the middle ground appears to be both counterintuitive and counterproductive. In copyright law, the freedom to test such “middle ground” solutions could become relevant inter alia with regard to modulating the requirements for mass distribution of protected content via digital media – arguably, the insistence of right holders on full exclusivity might fail to yield satisfactory results in the longer run.107 In more general terms, the possibility of limiting to some extent and under certain conditions, the scope of exclusivity is of pertinent interest for what is generally labelled “transformative use” in its many different forms.108 Finally, specific problems such as the use of works whose authors are unknown or cannot be traced are also among the issues potentially compelling novel, in-between solutions.109 In patent law, the implications of the three-step test as an impediment to novel solutions could be of relevance in the context of legislative attempts

107 For a proposal discussing the three-step test see Peukert (2005a) and (2005b); Netanel (2003) at 2 et seq.; see also Senftleben (2004b). 108 The issue is primarily debated under the aspect of (US) fair use. For a wide notion of transformative use see e.g. Heymann (2008); for a very critical attitude: Goldstein (2008) at 216, 219 et seq. Under European copyright tradition, at least some forms of transformative uses which arguably fall under the fair use clause of Sec. 107 US Copyright Act would have to be regulated by express limitations, thus triggering scrutiny under the three-step test. Transformative use has been shortlisted as a potential limitation of (European) copyright law in the Gowers Review on Intellectual Property (2006), available at: http://www.mileproject. eu/asset_arena/document/TY/GOWERS_REVIEW_OF_INTELLECTUAL_ PROPERTY.PDF. For the discussion in Germany see e.g. Leistner & Hansen (2008) at 479, 486 et seq.; Leistner (2009). 109 See the controversial debates in the USA about legislation on “orphan works”; see Register of Copyright, Report on Orphan Works, January 2006, available at: http://www.copyright.gov/orphan/orphan-report.pdf; Ginsburg (2008). Similar issues, though not of a legislative nature, are raised by the Google book project; see e.g. Adolphsen & Mutz (2009), Hanratty (2005).


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to limit protection of inventions used as research tools.110 Questions might also arise with regard to reservations which are traditionally employed in certain countries, yet not universally accepted, such as prior users’ rights, or farmers’ privilege. Furthermore, repercussions may be felt where limitations are motivated by competition concerns, such as the repairs clause in industrial design111 and possibly also in (utility) patent law. Last but not least, the admissibility of stockpiling might remain – or re-appear – on the political agenda, based on the argument made in vain by Canada, namely that this will improve the supply to the population of affordable medication.112 In all of those cases, the interpretation endorsed by the WTO panels raises the risk that the freedom of legislatures to espouse the solution they consider as appropriate is put in jeopardy. Where legislators and courts rely on the panels’ narrow interpretation of “limited exception”, “(certain) special cases”, and “normalcy”, and where the view rules that legal objectives do not count in the assessment of what is acceptable, the stakes may become too high for limitations to be sustained, in particular where they venture into untested areas. In order to prevent the development of IP rights being thus deprived of a breathing space, an approach towards interpretation of the three-step test should be endorsed which is able to provide positive guidance instead of hampering the development and formulation of flexible solutions. Before expanding on the reasons for, and the details of, such an approach, it should be emphasised first that the panel reports, even after having been adopted by the Dispute Settlement Body,113 do not form part of international law in the sense that the reasoning used therein would have to be regarded as an authoritative interpretation of the respective articles. There is general agreement that the stare decisis doctrine does not apply in WTO proceedings; a subsequent panel assessing national measures under the test would be free to develop its own way of reasoning.114 Also, it is 110

See in particular Strandburg (2010). See above, footnote 48; for a proposal pending for US legislation on a repairs clause, see H.R. 5638. 112 It is important to note that the Canada – patent report is not binding beyond its effect on the parties to the dispute, and the issue may have to be reassessed anyhow in the light of the Doha Declaration; see the text below. 113 Art. 16 (4) Understanding on Rules and Procedures Concerning the Settlement of Disputes: A panel report is adopted unless it is rejected by consensus. After adoption by the DSB, the decision becomes binding upon the parties to the conflict. 114 Lennard (2002) at 33, pointing towards the WTO’s lack “of a formal system of binding precedent” – but also emphasising that, in practical terms, “prior decisions are not lightly departed from”; see also the text below. 111


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basically agreed that a binding effect cannot be derived from the argument that such reports after their adoption constitute a “subsequent agreement” or a “subsequent practice” in the meaning of Art. 31.3 lit. a and b VCLT respectively. However, it is certainly possible that panel reports furnish the basis for the development of subsequent practice in the member states which, in the longer run, might appear to reflect a common understanding as to what is the correct interpretation of a given provision.115 This is of interest not least because the process might involve a self-endorsing dynamism: If the authoritative quality of a panel report is basically taken for granted in the member states, this may result in a consolidated practice which appears to signal general agreement, without alternative interpretations ever having been put to the test. The risk is even enhanced in a situation when, as in EU law, provisions adopting the wording of the three-step test are included in legal instruments such as the copyright directive or national laws implementing it.116 It is exactly in view of that danger that it is crucially important to raise the general awareness concerning the possibility of taking a fresh approach instead of blindly reiterating what the panels have said. To make the point clear: the Canada – patents panel report would not pose a legal obstacle for another panel’s finding that after all, the stockpiling exception is based on sound policy grounds and is therefore acceptable under the three-step test. In particular after the Doha Declaration and

115

Lennard (2002) at 34. The wording of Art. 13 TRIPS was not only incorporated into Art. 5 (5) of the European Directive on Copyright and Related Rights in the Information Society (29/2001/EC), but has also become part of several EU member states’ copyright legislation. According to Hugenholtz & Okediji (2008) at 18, fn. 53, this includes the Czech Republic, France, Greece, Hungary, Italy, Luxembourg, Malta, Poland, Portugal and Slovakia. By explicitly referencing the three-step test on top of, and in addition to, the explicit catalogues of limitations set out in the law, there is a certain risk that a kind of “supra-legal” quality is assigned to the test, making it binding on the courts to observe the test even above the express limitations set out in the law. This also seemed to be the attitude reflected in the decision of the Cour de Cassation (French Supreme Court), First Civil Chamber, 28 February 2006 – Perquin and UFC Que Choisir v. SA Films Alain Sarde, Sté Universal Pictures vidéo France et al., “DVD Copy III”, English translation (edited) in 37 IIC (2006) at 760, with critical comment by Geiger (2006) at 683. On the other hand, the three-step test as a yardstick for assessing the admissibility of limitations in copyright may also be viewed as an enabling clause, as was demonstrated by the Barcelona Court of Appeals in its decision of 17 September 2008, where the court even referred to, and applied the criteria of, the fair use clause in the US Copyright Act, Sec. 107 U.S.C. 17. 116


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the emphasis it has placed on Art. 8.1 TRIPS,117 it is not at all unlikely that upon renewed assessment, the result might indeed diverge from that reached in the first conflict. However, if attempts are not even made by member states to challenge the panels’ findings and the attitude on which they were based, chances to return to a more evenly balanced view at some point may be lost. 5.2.

Interpretation of TRIPS

5.2.1. Art. 31 VCLT In accordance with the WTO panels, it is submitted that the basis for the interpretation of TRIPS provisions is to be found in the Vienna Convention on the Law of Treaties (VCLT). Pursuant to Art. 31 VCLT, treaties 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.

The WTO panels have taken pains to observe that rule with regard to identifying the “ordinary meaning” of the individual key terms used, in the three-step test, and they also reflected on the manner in which the three elements related to each other. The copyright panel concluded that the principle of effective treaty interpretation required it “to give a distinct meaning to each of the three conditions”.118 Likewise, the patent panel held that “(e)ach of the three (criteria) must be presumed to mean something different from the other two”.119 In addition, and seemingly as a logical consequence of that sentence, they pointed out that the requirements must be assessed separately from each other, and that failing one means failing the entire test. As expressed by the copyright panel: “The three conditions apply on a cumulative basis, each being a separate and independent requirement that must be satisfied. Failure to comply with any one of the three conditions results in the Article 13 exception being disallowed”.120 In the same vein, the patent panel had found that “(t)he

117

See below, 5.2.2.2. USA – copyright, 6.97. 119 Canada – patents, 7.21. 120 USA – copyright, id. As the panel also notes, that understanding had been agreed between the parties – which does not mean that it was actually correct. Christie (forthcoming) notes that it appears to follow from the legal history of Art. 9.2 that those drafting the final version of the provision were of the opinion that what is now the “second step” – conflict with a normal exploitation” – has no 118


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syntax of Article 30 supports the conclusion that an exception may be ‘limited’ and yet fail to satisfy one or both of the other two conditions. The ordering further suggests that an exception that does not ‘unreasonably conflict with normal exploitation’ could nonetheless ‘unreasonably prejudice the legitimate interests of the patent owner’”.121 However, such an understanding is not clearly warranted on the basis of the relevant provisions. It is true that three (in trademark law: two) aspects for assessing the admissibility of limitations and exceptions are listed which are distinct from each other. Furthermore, the criteria are certainly “cumulative” in the sense that none of those may be disregarded; all of them must be taken into account for the final decision. However, to contend that the “ordinary meaning” of a sentence enumerating those elements would necessarily be that they must be considered separately and independent from each other amounts to an over-interpretation. If it had been the intention to compel a strictly separate analysis of basically unrelated, cumulative requirements, this might have been expressed by different wording, such as “provided that each of the following requirements is fulfilled . . .”. Accordingly, the grammatical structure of the enumeration as such does not yield sufficient support for the panel’s basic hypothesis. In case an interpretation undertaken on the basis of Art. 31 does not lead to a clear result, Art. 32 VCLT exceptionally allows recourse to supplementary means of interpretation to be taken, including the preparatory work of the treaty and the circumstances of its conclusion. This might include the legal history of Art. 9.2 RBC, as the provision on which all three-step tests are modelled.122 However, it is already unclear whether the historic context, even if it were to be considered as relevant in the interpretation of Art. 9.2 RBC, could also be taken into account in the interpretation of TRIPS, without the issue having been addressed in the preparatory work for that Agreement. More importantly, supplementary means of interpretation have no place where the application of Art. 31 VCLT itself leads to sufficiently clear results. Before delving into legal history, it is therefore necessary to explore the meaning more thoroughly in the light of the object and purpose of TRIPS, as the treaty of which the provisions form part.

independent substance at all, but is just a subset of what might fall under the third step. 121 Canada – patents, 7.21. 122 For an account of the legal history of Art. 9.2 RBC see Ricketson & Ginsburg (2006) at 759; Senftleben (2004a) at 47 et seq.; see also Christie (forthcoming) pointing out that the legal history of Art. 9.2 RBC may yield evidence of treating the second step as irrelevant for the assessment.


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“Object and purpose” of TRIPS

5.2.2.1. The Preamble123 With TRIPS being an element of the WTO Agreement, its object and purpose are primarily trade-oriented. This is confirmed by the Preamble, which mentions in the first place the desire to reduce distortions and impediments to international trade. In addition and on the same level, the Preamble references the desire to promote effective and adequate protection of intellectual property rights, while emphasising that such rights should not themselves become barriers to trade. Furthermore, the Preamble expressly recognises that intellectual property rights are private rights;124 on the other hand, it also recognises the public policy system of national systems for intellectual property protection, including developmental and technological objectives, and the special needs of developing country members for maximum flexibility. It could be argued that the foundation of the WTO Agreement and TRIPS on interests of an essentially commercial character also governs the interpretation of individual TRIPS provisions, in the sense that commercial interests are generally prioritised vis-à-vis non-commercial values. In a similar vein, the point could be made that the Preamble pays express tribute to the fact that intellectual property rights are private rights, thereby impregnating the understanding of the provisions with a kind of “property logic”: once a right has come into existence and private property is vested therein, diminishments – especially when they are based on public policy objectives – are only acceptable in rare, exceptional cases.125 The panels’ reasoning that the three-step test only permits “small diminutions” of IP rights would find a basis there. However, neither the Preamble nor any other part of TRIPS does actually furnish a basis for such an understanding. Their capacity as private rights does not automatically grant intellectual property rights higher status than other interests and values. In particular, protection is not an aim in itself; it relies on the expectation that the effects, in their entirety, will be beneficial for society as a whole. For the same reasons, the rights remain subject to those limitations that are an expression of the proper

123

For an extensive consideration of the Preamble with regard to the purpose of TRIPS see Correa (2007) at 1 et seq., emphasising the importance of the Preamble for interpretation of TRIPS, id, at 17. 124 For the reasons that possibly motivate the inclusion of that statement, see Correa (2007) at 10; Gervais (2008) at 154. The main thrust seems to be that states are not, as a rule, obliged to take action ex officio against violations of IP rights. 125 Pires de Carvalho (2005) at 33; the argument is rejected by Correa (2007) at 11.


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role assigned to them by the objectives underlying the system within which they operate.126 In the framework of TRIPS, those objectives are spelled out in Art. 7, where it is emphasised that intellectual property rights are functional tools with regard to promotion of innovation and transfer of technology, as well as for the benefit of the public at large. Accordingly, in the light of Art. 7 as well as the Preamble itself, the level of mandatory protection exacted by TRIPS must be organised so as to foster international trade relations instead of creating distortions.127 From that perspective, it can hardly be contended that the object and purpose of TRIPS militate in favour of a property-biased approach. On the contrary, the particular, trade-related objectives underlying the TRIPS Agreement128 are more appropriately honoured by placing the accent on flexibility and enhanced opportunities for competition.129 5.2.2.2. Relevance of the Doha Declaration The importance of interpreting TRIPS provisions in the light not only of Art. 7, but also of the principles embedded in Art. 8 was raised beyond doubt in the framework of the Doha process, in particular by the Declaration on the TRIPS Agreement and Public Health.130 Inter alia, the Declaration spells out that members . . . agree that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health. . . . In this connection, . . . the right of WTO members (is reaffirmed) to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose. Accordingly . . . (i)n applying the customary rules of interpretation of public international law, each provision of the TRIPS Agreement shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles (emphasis added).

By referencing the wording of Art. 31 VCLT (“object and purpose”) and stipulating that in the case of TRIPS, these notions are expressed 126 This is supported by the reference in the Preamble to recognition of “underlying public policy objectives of national systems for the protection of intellectual property, including developmental and technological objectives”. 127 The Preamble is therefore essentially about “balance” and not about prioritising certain interests; Gervais (2008) at 155; Correa (2007) at 10. 128 See the reference made in the Preamble to “distortions and impediments of trade”. 129 It would probably be going too far, however, to derive from this the view that a general “reversal of proof” operates in favour of countries who want to make use of the flexibilities offered by the TRIPS objectives and principles, Art. 7 and 8. A different view is endorsed by Correa (2007) at 200. 130 WT/MIN(01)/DEC/2, adopted 14 November 2001.


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in the objectives and principles, the Doha Declaration appears to insist that Arts. 7 and 8 TRIPS have a direct impact on the interpretation of the treaty. The effects ensuing therefrom have been considered at length in the legal literature.131 Inter alia, it has been asked whether this would mean that for interpretation purposes, Arts. 7 and 8 are elevated above the Preamble.132 This might be of importance if the Preamble – different from the position endorsed above – is understood so as to place a somewhat greater weight on the interests of intellectual property owners than on public interests.133 Even more importantly for the issue considered here, it is pointed out by Daniel Gervais that after Arts. 7 and 8 have been singled out as having a special importance in the Doha Ministerial Declaration, “(a)n argument could be made that these provisions now have higher legal status . . . in the context of, for example, dispute-settlement proceedings.” Though the formal status of the provisions was not changed in the Doha process, “(t) he impact of the Doha Declaration . . . could convince a panel to take a longer look at how these provisions should be interpreted in the context of the Agreement as a whole . . .” (emphasis added).134 In brief, although the Doha Declaration has not given member states carte blanche to set aside the obligations under TRIPS in order to promote public policy concerns, it has unmistakably reaffirmed the freedom of members to give weight to non-proprietary interests in the framework of the flexibilities that the TRIPS agreement may offer. 5.2.3. Résumé and consequences The considerations made so far can be summarised as follows. First, it is neither mandatory nor appropriate in the context of TRIPS to apply a scheme of “property logic”, i.e. to consider intellectual property as a selfsufficient aim that must be safeguarded to the fullest degree possible and can only be limited in exceptional cases. Second, whenever the admissibility of limitations is at stake, it is crucial to pay attention to the object and purpose of the treaty, in particular the objectives and principles of TRIPS.

131

Grosse Ruse-Khan, chapter 4. UNCTAD/ICTSD (2005) at 132. 133 UNCTAD/ICTSD (2005) at 132, fn. 292. However, as was pointed out above, that statement must already be qualified in view of the objectives stated in the Preamble, and also taking into account the larger WTO context. 134 Gervais (2008), Art. 8, marginal note 2.87 (p. 211). In the previous (2nd) edition of Gervais’ book, it was further argued that Arts. 7 and 8 “serve as a basis for the interpretation of certain provisions of the Agreement”, like, e.g., the threestep test in Art. 13 TRIPS; 2nd ed., marginal note 2.85 (p. 122). 132


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On the basis of these findings, the interpretation of the three-step test by the WTO panels needs to be revisited. As was pointed out above, major problems result from the panels’ insistence that the three requirements are separate from each other and must be passed subsequently and cumulatively. It was also mentioned that this does not necessarily follow from the wording of the provision, which also warrants the understanding that the three steps form different elements, each of which must be included in a comprehensive analysis. Even after considering the object and purpose of the Agreement, that issue remains open. However, the above consideration has clarified that a mode of interpretation which forecloses any possibility for policy aspects being taken into account is not compatible with the object and purpose of TRIPS, as affirmed in the Doha Declaration. The same is true for an interpretation proceeding on the basis of a built-in prejudice against all but purely de minimis exceptions and limitations. It follows that the panels’ restrictive approach towards limitations and exceptions has no justification in TRIPS. Furthermore, it is not a tenable position to endorse a policy-blind assessment with regard to any part or element of the three-step test. In particular, it is mistaken to hold that limitations may fail the first step for purely quantitative reasons, without any account being taken of the legislative motives on which they are founded. As a matter of principle, the detrimental effects could already be avoided if the underlying policy objectives are explored and weighed against the scope and content of the limitation on each one of the three steps. However, this would necessarily create a high degree of redundancy. Instead, the second option pointed out above appears to be preferable, namely to proceed from the understanding that instead of constituting three separate units, the three steps are nothing but individual elements informing one overall assessment.135 It is submitted, however, that this point is not decisive: if the balancing exercise is carried out correctly, the results will not change, whichever of the two approaches is chosen. From a pragmatic point of view, it therefore becomes irrelevant whether the grammatical structure of the three-step test is understood in one or the other way. 5.2.4. The proportionality principle Having said that the three elements of the three-step test – whether separately or in a comprehensive analysis – must be evaluated in the light of

135

The same approach is promoted in the “Declaration on the Balanced Interpretation of the ‘Three-Step Test’ in Copyright Law”, Geiger et al. (2008); see also Geiger (2009) at 638, 639.


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underlying policy objectives, the principles governing the appraisal need to be identified. As TRIPS is part of the larger WTO framework, it appears appropriate to seek guidance in other parts of the overarching structure, where similar issues may arise.136 This leads to Art. XX GATT, and the principles developed for its application.137 The topic is treated extensively in another chapter and will only be summarised quite briefly here. To some extent, the structure of XX GATT bears a resemblance to Art. 8.1 TRIPS, which in turn impacts the interpretation of the three-step test. However, in the course of TRIPS negotiations, Art. 8.1 was deliberately formulated so as to make a difference vis-à-vis Art. XX GATT. Whereas the test embedded in the latter provision may even justify measures derogating from the obligations under the WTO Agreement,138 Art. 8.1 TRIPS has been “emasculated” so as to ensure that the mandatory character of the TRIPS provisions remains unchallenged. Nevertheless, the concept on which Art. XX GATT is founded and the way in which it has come to be interpreted in WTO disputes continue to be relevant where TRIPS does leave space for policy considerations. This is typically the case where provisions contain broad, “open” notions that must be filled and interpreted in the light of value-based judgments, such as for example terms like “unreasonable” or “legitimate”.139 In those instances, the balancing exercise undertaken in the framework of Art. XX GATT offers a model which is appropriate also for the TRIPS context.140 It is that capacity which makes it relevant also for the three-step test.

136 For the relationship between TRIPS and other parts of the WTO Agreement see Correa (2007) at 5 et seq., with reference inter alia to WT/DS50/R (India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, 1998), 7.19 and to USA – copyright, 6.185; see also below. 137 Grosse Ruse-Khan, (chapter 4). 138 Grosse Ruse-Khan, id., with reference inter alia to European Communities – Measures Affecting Asbestos and Products Containing Asbestos (EC – Asbestos), Appellate Body report WT/DS135/AB/R (12 March 2001); Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef (Korea – Beef), Appellate Body Report WT/DS161/AB/R (11 December 2000); United States – Import Prohibition of Certain Shrimp and Shrimp Product (US Shrimp) Appellate Body report WT/ DS26/AB/R (16 January 1998). 139 Grosse Ruse-Khan (chapter 4). 140 It has been held that although TRIPS is considered to have a “self contained”, sui generis status within the WTO, (see WT/DS50/R (India – Patent Protection for Pharmaceutical and Agricultural Chemical Products [1998]), 7.19), the fact that the agreements covered by the WTO form a single, integrated system makes it appropriate to draw inspiration from the interpretation of other agreement, where that is not incompatible with the specific character of TRIPS; see USA – copyright, 6.185.


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Under Art. XX GATT (and Art. XIV GATS), the test regularly evolves in a two-tier fashion. First, it is asked whether the measure at stake is “necessary” in view of the policy objective it is intended to serve.141 If the first step can be cleared, it is further asked whether the measure constitutes an abuse, for example because it unduly discriminates between members, or otherwise constitutes a disguised barrier to free trade.142 Both elements of the test essentially involve a weighing of different factors that are set in proportion to each other.143 As was pointed out by the Appellate Body in Korea – Beef, these factors regularly include (a) the contribution made by the measure at stake to the legal goal aspired to by the law or regulation at issue, (b) the importance of the common interest or values protected by that law or regulation, and (c) the ensuing impact of the law or regulation on the protected interests in free trade, i.e. on imports or exports.144 If a corresponding scheme is applied to the threestep test, this means that (a) the appropriateness of the limitation for achieving its purpose, (b) the importance of the policy concerns pursued thereby, and (c) the impact it produces on the interests of right holders need to be weighed and balanced against each other. The more vital or important the societal value at issue, the more likely that the measure will be considered as legitimate.145 Of course, it must be kept in mind that the TRIPS provisions continue to be binding, so that limitations will in any case fall afoul of the test if they cross the “red line” of the minimum protection level guaranteed by TRIPS provisions. Furthermore, just as under Art. XX GATT, limitations are inadmissible if they constitute abuse in the light of general trade policy, for example by unduly discriminating between member states.146 The need to interpret the three-step test in the light of proportionality

141

It is important to note in this context that “necessary” does not mean “indispensable”, but is interpreted with the aim of preserving members’ freedom to achieve their own regulatory objectives. Grosse Ruse-Khan, as fn. 137 above, with reference inter alia to WTO Secretariat, Necessity Tests in the WTO (S/ WPDR/W/27) as well as to WTO case law. 142 The second element of the test is informed by the “chapeau” of Art. XX GATT; see Grosse Ruse-Khan, id. 143 See Grosse Ruse-Khan, id. 144 Grosse Ruse-Khan, id. with reference to WT/DS/161/AB/R (Korea – Beef), para. 164. 145 Cf. Appellate Body, WTO (2001), EC – Asbestos, para. 174. 146 The latter requirement echoes the abuse clause regularly considered under the chapeau of Art. XX GATT; Grosse Ruse-Khan, id. It is open to discussion, without the issue being pursued here any further, whether the anti-discrimination safeguard is of practical importance also in this context.


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considerations cannot be emphasised strongly enough.147 Only in this way will it be possible to respect member states’ breathing space and the different conditions under which domestic IP systems are operating, while at the same time maintaining a sufficient level of minimum protection and legal security.148 It hardly needs to be emphasised that the proportionality approach stands in stark contrast to the WTO panels’ narrow focus on the economic impact of the limitations, as measured in absolute terms. While the deficiencies of the panels’ reasoning are particularly obvious with regard to clearly value-based notions like “unreasonable” and “legitimate”, the impact of the approach endorsed here goes further than that. As was pointed out above,149 the essential criteria addressed by the first and second steps (i.e. that exceptions must be of “limited extent” and must not be in conflict with “normal” exploitation) are of a gradual rather than of an absolute character – limitations and exceptions can be of a more or less limited content and impact, and “normal” exploitation of a right figures somewhere on a scale between full exclusivity and the grant of a market position which in spite of certain restrictions is sufficient to prevent market failure. Just like the reasonableness and legitimacy of measures taken, their normalcy and limited character need to be measured in relation to the interests and policies pursued, with the final test being to assess whether in view of the weight of those interests, the limitation is proportionate, i.e. does not go further than what is needed to achieve the purpose, while respecting the demarcations identifying the absolute minimum protection guaranteed by TRIPS. 5.2.5. The scheme proposed In the light of what was said above, the interpretation of the three-step test should proceed according to the following scheme: ●

●

On the first step, the situations covered by the limitation are identified. How broad or narrow is the rule, and how much legal certainty does it provide? On the second step, the economic consequences are analysed. In order to avoid a one-sided approach, the analysis should consider both extremes, i.e. to what extent the limitation restricts the fullest possible way of exploitation (taking account of actual as well as

147

Geiger (2009) at 638, 638; Ginsburg (2001) at 57; Johnson (2004) at 272. That a proportionality test should apply is also advocated strongly by Senftleben (2004a) at 226 et seq. 149 4.2.1; 4.2.2. 148


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●

●

5.3.


potential markets), but also whether it still leaves sufficient incentives for right holders (and the respective countries) to invest in innovative or creative activities, i.e. to prevent market failure on the national or international level. On the third step, the conflicting interests of the affected groups of right holders150 and those of third parties as well as of the public are identified and evaluated in the light of the policies on which they are based. In order to secure a truly balanced form of protection in accordance with the prime objective of TRIPS, such an exercise is mandatory in all fields of intellectual property, i.e. including copyright. Finally, deriving from the proportionality principle as an inherent feature of GATT/TRIPS, the general guideline commanding the overall assessment must be that a limitation is admissible where the same policy objective could not be achieved by lesser means (i.e. where a limitation is “limited enough” for its purpose, and does not restrict exploitation more than necessary151), provided that it does not result in discrimination or otherwise entail unacceptable effects. Remaining Issues – Will the Problems Persist outside TRIPS?

5.3.1. Background Reconsidering the structure and meaning of the three-step test in the framework of TRIPS may not necessarily resolve the problems accruing in other instruments embedding the same or similar provisions. Until now, the issue only concerns copyright and related rights: the Berne Convention contains the three-step test in its original form alongside its forerunner, the minor reservations doctrine, and other explicit limitations. Those provisions are also firmly linked to TRIPS, as the Berne acquis has become an integral part of that convention by virtue of Art. 9.1. In addition, the three-step test was incorporated in the two post-TRIPS instruments, WCT and WPPT. 150

Other than what might be suggested by the wording of the three-step test, the interests of right holders are not always homogeneous and necessarily opposed to those of the users. For instance, in copyright, it may occur in certain situations that the interests of authors, i.e. the personal creators, in an optimal dissemination of their works concur with the interests of users in getting access to those works, while they conflict with the interests of (derivative) right holders who want to secure their revenues by safeguarding exclusivity. In such situations, the interests of all parties involved have to be taken into account, instead of solely focussing on one group. This aspect is particularly emphasised in Geiger et al. (2008). 151 Guidance can be found in that regard in the jurisprudence on Art. XX GATT; see Grosse Ruse-Khan, chapter 4.


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The following sections do not undertake to examine the complex relations between those instruments in their entirety.152 It is only briefly considered to what extent the interpretation proposed above can be applied to variations of the three-step test (or to other limitations), where they appear in other instruments, or whether a stricter interpretation would be warranted in such cases. 5.3.2. The minor reservations doctrine According to a common understanding among the members of the Berne Convention, it was acceptable to derogate from minimum rights by way of introducing or maintaining “minor reservations”, even where no such limitations were explicitly mentioned in the Convention itself. The existence of that de minimis threshold was expressly acknowledged in the course of the Brussels Revision Conference, where it became topical with regard to the right to public performance, Art. 11bis.153 It is generally accepted that the minor reservations doctrine was not made become obsolete by adoption of the three-step test in TRIPS. As emphasised by the panel in USA – Copyright, nothing in the TRIPS negotiations suggests that members wanted to refrain from incorporating that specific part of the Berne acquis. The issue was of some relevance for the case at stake, which concerned an aspect of the broadcasting right that did not appear to be covered by the specific exceptions mentioned in Art. 11bis RBC. Confirming the applicability of the minor reservations doctrine in principle, the panel employed the three-step test as a way to clarify its meaning for the case at issue; i.e. it treated Art. 13 TRIPS as a concretisation of the older doctrine. Whereas reasons may have existed for making the connection in the case at hand,154 the question remains whether the minor reservations

152 For a more comprehensive picture see Ricketson, WIPO study (2003), at 46 et seq. 153 Senftleben (2004a) at 46, quoting a passage from the rapport général (delivered by Marcel Plaisant) of the Brussels Revision Conference (1948). See also Ricketson, WIPO study (2003), at 34; Ricketson & Ginsburg (2006), 13.79–13.82; von Lewinski (2008), 5.200–5.202. Extensive references to the material for the Brussels Revision conference are made in the copyright panel’s report, 6.48 et seq. 154 The conflict directly concerned the right of public performance addressed in Art. 11bis. The panel’s argumentation provided a way out of the problem that Art. 11bis only allows for a reduction of the right to control public performance under the condition that fair remuneration is paid (and moral rights are respected). As the US provision in question did not foresee anything like that, the only way to reconcile it with Art. 11bis was to invoke the minor reservations doctrine. By aligning the reach of the older doctrine with that of the three-step test, the panel avoided


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doctrine is to be regarded as the overarching concept which governs the possible reach of Art. 13 at least with regard to rights that had already been granted under the Berne system. Whereas some authority exists for that assumption, a more relaxed view is taken inter alia by Sam Ricketson, who declares that the copyright panel erred in considering itself bound by the minor reservations doctrine, arguing that the latter only represents a subset of what may be admissible under the three-step test.155 The practical relevance of the issue may be small anyhow, as it is rather unclear what the scope and contents of the minor reservations doctrine actually are.156 It seems plausible to argue that with regard to the public performance right, and insofar as no remuneration is paid, the room for manoeuvre under the three-step test for introducing limitations is indeed rather narrow. However, to conclude that every interpretation of the three-step test must necessarily adopt the same kind of de minimis approach would be to overstate the possible effects of the minor reservations doctrine. Even in its core area of application – public performances – and much more so in other areas of copyright,157 its contours were and are so vague that it cannot possibly furnish a distinct basis for interpreting, and possibly limiting, the ambit of the three-step test at large. In the documents for the Brussels Revision Conference, where the only explicit discussion of the minor reservations doctrine can be found, a number of examples are cited of admissible forms of public performance in various legislations. It is not suggested in any way that the list of examples should be exclusive, let alone that it should also be regarded as furnishing mandatory guidelines to be observed in other potential fields of application.158 The only conclusion to be derived from these considerations is that the minor reservations doctrine is an open-ended tool providing for some degree of flexibility, without thereby leaving IP rights at the disposal of domestic

a discussion of the consequences ensuing from the possibility that Art. 13 basically might allow for more than just de minimis exception. Against this backdrop, the reluctance of the copyright panel to accept anything but the most insignificant detraction from a full exploitation becomes more explicable. Unfortunately, however, by the panel’s reaction to the specific constellation in the case at hand, the minor reservations doctrine was effectively enthroned as the ultimate yardstick governing the three-step test in all areas of copyright. 155 Ricketson, WIPO study (2003), at 54. 156 Ricketson & Ginsburg (2006) at 833 et seq.; Senftleben (2004b) at 204. 157 As was remarked by M. Plaisant as the Rapporteur-Général for the Brussels revision Conference, the only area besides public performances that seemed to play a role at that time was the translation right, WIPO (1951), Documents de la Conférence réunie à Bruxelles, 1948, at 100. 158 Ricketson (1987) at 536; Ricketson & Ginsburg (2006) at 835.


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legislatures. Based on that reasoning, it follows that the doctrine as such cannot be considered as forming an institutional bar against a flexible interpretation of the three-step test. 5.3.3. The three-step test in the Berne Convention, WCT and WPPT The arguments set forth above in favour of a more user-friendly interpretation of the three-step test were at least partly founded on the object and purpose of TRIPS. Hence, they are specific to that Agreement and cannot be transposed tel quel to the three-step test in its original form, as enshrined in Art. 9.2 RBC. Furthermore, if it is submitted arguendo that Art. 9.2 must be read in a more restrictive manner than that which was previously endorsed with regard to Art. 13 TRIPS, that interpretation would be binding for TRIPS members, by virtue of Art. 9.1 TRIPS. Whether this also means that a WTO panel, if called upon to interpret Art. 9.2 RBC in the framework of dispute settlement proceedings, would be compelled to set aside considerations based on Arts. 7 and 8 TRIPS, and to reduce the scope of flexibilities otherwise existing, is yet another matter. It would depend on whether the Berne Convention in the relevant aspects has become part of TRIPS, hence sharing its object and purpose, or remains to be interpreted in its own context even when it is considered in the administrative and judicial framework of TRIPS. Not being able to pursue the issue any further, it may suffice to point out that even if the relevant context for interpreting Art. 9.2 is strictly confined to the Berne Convention, the fact that its ambit is much smaller than that of Art. 13 TRIPS – it only concerns reproduction and the right of authors – considerably reduces the risk of serious interferences with an, in general, more generous interpretation of the three-step test. Further variants of the three-step test are also included in the two WIPO treaties of 1996 on the protection of copyright (WCT159) and the protection of performing artists and phonogram producers (WPPT160), Art. 10 WCT and Art. 16 WPPT respectively. Art. 10 WCT refers to the rights of authors, and Art. 16 applies to the rights of performers and producers; in both cases, the provision covers the substantive rights granted by the treaty in their entirety. The treaties are technology-driven rather than trade-oriented, like TRIPS. In line with the spirit prevailing at the time when they were concluded, their basic attitude is unmistakably assertive. 159

WIPO Copyright Treaty, adopted in Geneva on 20 December 1996, available at: http://www.wipo.int/treaties/en/ip/wct/trtdocs_wo033.html. 160 WIPO Performances and Phonograms Treaty, adopted in Geneva on 20 December 1996, available at: http://www.wipo.int/treaties/en/ip/wppt/trtdocs_ wo034.html.


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Nevertheless, the need for a dynamic and flexible reading of the treaty also in respect of the limitations and exceptions is accentuated by the Agreed Statement to Art. 10 WCT,161 where it is stipulated that “the provisions of Art. 10 permit Contracting Parties to carry forward and appropriately extend into the digital environment limitations and exceptions . . . which have been considered legitimate under the Berne Convention (and) . . . to devise new limitations and exceptions that are appropriate in the digital network environment”. It is true that the clause remains to be closely linked to the spirit and confines of the Berne Convention and therefore cannot be understood as giving carte blanche to the introduction of novel and potentially far-reaching limitations.162 Nevertheless, it signals a certain openness, which is further underlined by the fifth and fourth recitals in the Preambles of the WCT and WPPT respectively, where reference is made (similar to TRIPS) to the “need to maintain a balance between the rights of authors’ (resp. performers and producers of phonograms) and the larger public interest, particularly education, research and access to information”.163 Hence, as was argued above with regard to Art. 13 TRIPS, the interpretation of the three-step test in both treaties cannot be policy-blind, but must include a comprehensive balancing of the various interests involved.164 This conclusion remains unaffected by the fact that, as emphasised in the literature, the terms “rights” and “interests” were explicitly chosen in the WCT Preamble so as to clearly mark a difference in the legal status of right holders as compared to the general public.165 Even if it should have

161

Art. 10 encompasses the three-step test in the WCT. See Reinbothe & von Lewinski (2002) at 132, who argue that the three-step test, when applied under Art. 10 (2) “does not by itself invite, or even create, new limitations and exceptions”. It is “a scrutiny test, but no enabling clause”. 163 In the WCT, the sentence continues “as reflected in the Berne Convention”. According to Reinbothe & von Lewinski (2002) at 22, the reference was inserted in order to soothe concerns regarding the fact that “access to information” might be understood in an overly broad manner: By referencing the Berne Convention, it should be clarified that “access to information” already is one of the justifications for limitations mentioned there, and should be understood accordingly. 164 The importance of the WCT Preamble for an appropriate interpretation of the three-step test in the digital environment is also emphasised by Senftleben (2004a) at 98. 165 Reinbothe & von Lewinski (2002) at 22: The original proposal made by India during the Diplomatic Conference to make reference to ensuring “a balance between the interest of authors and the larger public” was accepted only under the condition that that the word “interests” (of authors) was replaced by the word “rights” in order to state the difference between the status of authors and the general public; see also at 24, where the authors point out that the distinction made 162


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been the intention of that wording to imbue the balancing exercise with a certain prejudice in favour of right holders,166 this would influence the interpretation of the three-step test only insofar as it has found expression in the actual wording.167 However, in an ordinary understanding, the juxtaposition of “rights” and “interests” does not convey the message that the latter are generally inferior to the former. The use of different terms rather serves to denote the “technical” fact that the former are specifically regulated, while the latter notion is broader than that. Whether a more restrictive interpretation of the two WIPO treaties is nevertheless warranted in view of their specific aims and context is very difficult to ascertain. As the two treaties do not form an element of the WTO system and will therefore not be considered in panel proceedings, the topic will probably never be raised before an international body, and hence it may become moot in practice.

6.

CONCLUDING REMARKS

With the web of international IP protection becoming increasingly dense, it appears natural and necessary that more attention than previously is focused on limitations and exceptions. The major part of the interest is commanded by the three-step test, in particular Art. 13 TRIPS. In the publications and initiatives dealing with the three-step test, critical voices prevail.168 As in this chapter, the WTO-panels’ reasoning is frequently considered as dissatisfactory and one-sided. The misgivings are augmented by the fact that the test has been included in national and regional instruments. What is meant as an alert to courts and legislatures to the fact that international norms must be respected, could easily turn out to entail adverse effects if it is misunderstood so as to disallow anything but the smallest inroad into a right holder’s exclusive market

between rights (authors) and interests (the public at large) “reflects the relationship between them, i.e. the relationship of ‘rule and exceptions’”. 166 Another attempt to reduce the potential impact of the fifth preamble on the interpretation of the WCT was further made by inserting recital four, which emphasises the “outstanding significance of copyright protection as an incentive for literary and artistic creation”; Reinbothe & von Lewinski (2002), id. 167 According to Art. 31 VCLT; see Lennard (2002) at 17, 21: “. . . what is being sought is essentially . . . the ‘expressed intent’ rather than the ‘subjective intent’ of the parties”. 168 E.g. Senftleben (2006); Geiger (2006); Gervais (2005); Koelman (2006); He (2009); see above fn. 44.


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position. It should be the foremost aim of scientific studies undertaken in that field to prevent such understandings. Initiatives such as the Declaration on a Balanced Interpretation of the Three-Step Test in Copyright Law, which was elaborated in the framework of a project conducted jointly by the Max Planck Institute and Queen Mary College, London, undertake to offer concrete guidelines for a balanced interpretation of the three-step test.169 Most importantly, it is emphasised that the test must be considered as an indivisible entirety, meaning that the individual steps are not cumulative in the sense that each one must be passed separately, but that all of them need to be comprised in an overall evaluation. Apart from that, the Declaration, rather than giving a positive interpretation, points out in which way the individual criteria should not be understood. The approach endorsed in the IPT project reaches beyond that initiative in several respects. First, whereas the Declaration is only concerned with copyright, the present endeavour undertakes to identify a general scheme underlying the three-step test in all areas of IP alike. Second, instead of pointing out how the three-step test should not be interpreted, a positive approach is undertaken, in order to show how the interpretation should proceed. A basis for that, still closely following the structure and wording of the three-step test, was set out above; in Art. 8a of the proposed amendments to TRIPS, the same thoughts are expressed in a more concrete form and will be commented on in detail in the explanatory memorandum.

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Bydlinski, F. (1991), Juristische Methodenlehre und Rechtsbegriff, 2nd edition, Vienna: Springer. Cohen, J.E. (1999), “WIPO Copyright Treaty Implementation in the United States: Will Fair Use Survive?”, European Intellectual Property Review (EIPR), 21, 236–47. Christie, A. (forthcoming), “Finetuning the System: Conceptualising the Nature and Scope of Exceptions to Intellectual Property Rights”, in Kur, A. and Mizaras, V. (eds.), Can One Size Fit All?, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Cohen Jehoram, H. (2001), “Einige Grundsätze zu den Ausnahmen im Urheberrecht”, GRUR Int. 2001, 807–10. Cohen Jehoram, H. (2005), “Restrictions on Copyright and their Abuse”, European Intellectual Property Review (EIPR), 359–64. Cornish, W.R. (2004), Intellectual Property – Omnipresent, Distracting, Irrelevant?, Oxford: Oxford University Press. Correa, C. (2007), Trade Related Aspects of Intellectual Property Rights, Oxford: Oxford University Press. Crane, D.A. (2009), “Intellectual liability”, Texas Law Review, 88 at http://ssrn. com/absdtrct=1375031. Crews, K. (2001), “The Law of Fair Use and the Illusion of Fair Use Guidelines”, Ohio State Law Journal, 62, 602–700. Dinwoodie, G. and Dreyfuss, R. (2004a), “International Intellectual Property Law and the Public Domain of Science”, Journal of International Economic Law (JIEL), 7, 431–48. Dinwoodie, G. and Dreyfuss, R. (2004b), “TRIPS and the Dynamics of Intellectual Property Lawmaking”, Case Western Reserve Journal of International Law, 36, 95–122. Dreier, T. (2005), “Interpreting International IP Law – Some Observations Regarding WTO Dispute Resolution”, in: Kur, A., Luginbühl, S. and Waage, E. (eds.), “. . . und sie bewegt sich doch!” – Patent Law on the Move, Festschrift für Gert Kolle und Dieter Stauder, Cologne, Berlin and Munich: Carl Heymanns Verlag, 45–62. Dusollier, S. (2005), “L’encadrement des exceptions au droit d’auteur par le test des trois étapes”, Intellectuele Rechten – Droit Intellectuels (IRDI), 213– 23. Ficsor, M. (2002), “How much of that? The ‘Three-Step Test’ and its Application in Two Recent WTO Dispute Settlement Cases”, Revue Internationale du Droit d’Auteur (RIDA), 192, 110–251. Förster, A. (2008), Fair Use, Tübingen: Mohr Siebeck. Geiger, C. (2004a), “Der urheberrechtliche Interessenausgleich in der Informationsgesellschaft”, GRUR Int. 2004, 815–21. Geiger, C. (2004b), “De la nature juridique des limites au droit d’auteur”, Propriétés intellectuelles, 13, 882–91. Geiger, C. (2004c), “Fundamental Rights, a Safeguard for the Coherence of Intellectual Property Law?”, International Review of Intellectual Property and Competition Law (IIC), 268–80. Geiger, C. (2005), “Right to Copy v. Three-Step Test: ‘The Future of the Private Copy Exception in the Digital Environment’”, Computer Law Review International (Cri), No. 1, 7–13. Geiger, C. (2006), “The Three-Step Test, a Threat to a Balanced Copyright Law?”,


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Hilty, R.M. (2007), “Sündenbock Urheberrecht?”, in: Ohly, A. and Klippel, D. (eds.), Geistiges Eigentum und Gemeinfreiheit, Tübingen: Mohr Siebeck, 107–44. Hilty, R.M. (2009), “Renaissance der Zwangslizenzen im Urheberrecht? – Gedanken zu Ungereimtheiten auf der urheberrechtlichen Wertschöpfungskette”, GRUR 2009, 633–44. Hoeren, T. (1997), “Urheberrecht in der Informationsgesellschaft”, GRUR 1997, 866–75. Hoeren, T. (2003), “Copyright Dilemma: Access Right as a Postmodern Symbol of Copyright Deconstruction?”, in: Becker, E., Buhse, W., Günnewig, D., and Rump, N. (eds.), Digital Rights Management: Technological, Economic, Legal and Political Aspects, Berlin: Springer, 574–86. Hugenholtz, B. and Okediji, R. (2008), Conceiving an International Instrument on Limitations and Exceptions to Copyright, Final Report, 6 March 2008, available at: http://www.ivir.nl/publications/hugenholtz/limitations_exceptions_copyright.pdf. Johnson, P. (2004), “One Small Step or Giant Leap? – How has the WTO Panel Decision on Section 110(5) of the United States Copyright Act Changed our Understanding of the ‘Three-Step Test’?”, European Intellectual Property Review (EIPR), 265–72. Koelman, K.J. (2006), “Fixing the Three-Step Test”, European Intellectual Property Review (EIPR), 407–12. Kur, A. (2008), “Limiting Intellectual Property for Competition Policy Proposes – A Case Study Based on the EU Spare Parts Design Discussion”, in: Drexl, J. (ed.), Research Handbook on Intellectual Property and Competition Law, Cheltenham, UK and Northampton, MA, US: Edward Elgar Publishers, 313–35. Larenz, K. and Canaris, C.-W. (2005), Methodenlehre der Rechtswissenschaft, 4nd edition, Berlin: Springer. Leistner, M. (2009), “European Harmonisation in Copyright Law – Status Quo, Recent Case Law and Policy Perspectives”, Common Market Law Review (CMLR), 46, 847–84. Leistner, M. and Hansen, G. (2008), “Die Begründung des Urheberrechts im digitalen Zeitalter – Versuch einer Zusammenführung von individualistischen und utilitaristischen Rechtfertigungsbemühungen“, GRUR 2008, 479–90. Lennard, M. (2002), “Navigating by the Stars: Interpreting the WTO Agreements”, Journal of International Economic Law (JIEL), 5, 17–89. Lewinski, S. von (2008), International Copyright Law and Policy, Oxford: Oxford University Press. Müller, F. and Christensen, R. (2004), Juristische Methodik, Vol. 1: Grundlagen, Öffentliches Recht, 9th edition, Berlin: Dunckler & Humblot. Netanel, N. (1997), “The Next Round: The Impact of the WIPO Copyright Treaty on TRIPS Dispute Settlement”, Virginia Journal of International Law (VJIL), 37, 441–97. Netanel, N. (2003), “Impose a Noncommercial Use Levy to Allow Free Peer-toPeer File-Sharing”, Harvard Journal of Law & Technology, 17, 2–84. Nimmer, D. (2003), “‘Fairest of Them All’ and Other Fairy Tales of Fair Use”, Law & Contemporary Problems (LCP), 66, 263–87. Okediji, R. (2000), “Toward an International Fair Use Doctrine”, Columbia Journal of Transnational Law (2000–2001), 39, 75–176. Oliver, J. (2002), “Copyright in the WTO: The Panel Decision on the Three-Step Test”, Columbia Journal of Law and the Arts, 119, 128–33.


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Peukert A. (2005a), “A Bipolar Copyright System for the Digital Network Environment”, Hastings Communications and Entertainment Law Journal (Comm/Ent), 28, 1–80. Peukert, A. (2005b), “International Copyright Law and Proposals for NonVoluntary Licences Regarding P2P File Sharing”, in: Grosheide, F.W. and Brinkhof, J. (eds.), Intellectual Property Law 2004: Articles on Crossing Borders between Traditional and Actual, Oxford: Intersentia, 439–64. Pires de Carvalho, N. (2005), The TRIPS Regime of Patent Rights, 2nd edition, The Hague: Kluwer Law International. Reinbothe, J. and Lewinski, S. von (2002), The WIPO Treaties 1996, London: Butterworths. Ricketson, S. (1987), The Berne Convention for the Protection of Literary and Artistic Works: 1886–1986, Deventer: Kluwer. Ricketson, S. and Ginsburg, J. (2006), International Copyright and Neighbouring Rights, Vol. I, 2nd edition, Oxford and New York: Oxford University Press. Senftleben, M. (2004a), Copyright, Limitations and the Three-Step Test, The Hague: Kluwer Law International. Senftleben, M. (2004b), “Grundprobleme des urheberrechtlichen Dreistufentests”, GRUR Int. 2004, 200–11. Senftleben, M. (2006), “Towards a Horizontal Standard for Limiting Intellectual Property Rights? – WTO Panel Reports Shed Light on the Three-Step Test in Copyright Law and Related Tests in Patent and Trademark Law”, International Review of Intellectual Property and Competition Law (IIC), 407–38. Sirinelli, P. (1999), “Exceptions and Limits to Copyright and Neighbouring Rights”, WIPO Conference Paper, WCT-WPPT/IMP/1, December 1999, available at: http://www.wipo.int/edocs/mdocs/copyright/en/wct_wppt_imp/wct_ wppt_imp_1.doc. Spoor, J. (1999), “General Aspects of Exceptions and Limitations to Copyright: General Report”, in: Baulch, L., Green, M. and Wyburn, M. (eds.), The Boundaries of Copyright – Its Proper Limitations and Exceptions, ALAI Study days, Sydney: Australian Copyright Council, 27–41. Strandburg, K. (2010), “Sharing Research Tools and Materials: Homo Scientificus and User Innovator”, in: Dreyfuss, R., Zimmermann, D. and First, H. (eds.), Working within the Boundaries of Intellectual Property: Innovation Policy for the Knowledge Society, Oxford, UK: Oxford University Press, 85–110. Straus, J. (2005), “Design Protection for Spare Parts Gone in Europe? Proposed Changes to the EC Directive: The Commission’s Mandate and its Doubtful Execution”, European Intellectual Property Review (EIPR), 391–404. UNCTAD/ICTSD (2005), Resource Book on TRIPS and Development, Cambridge: Cambridge University Press, available at: http://www.iprsonline.org/unctadictsd/ ResourceBookIndex.htm. Voorhoof, D. (2002), “Freedom of Expression, Parody, Copyright and Trademarks”, in: Ginsburg, J. and, Besek, J. (eds.), Adjuncts and Alternatives to Copyright, Proceedings of the ALAI Congress 2001, New York: ALAI-USA. WIPO (1951), Documents de la conférence réunie à Bruxelles de 5 au 26 Juin 1948, Berne: BIRPI. WIPO (2003), Study on Limitations and Exceptions of Copyright and Related Rights in the Digital Environment, SCCR/9/7, prepared by Sam Ricketson, available at: http://www.wipo.int/edocs/mdocs/copyright/en/sccr_9/sccr_9_7.pdf. WTO (2000a), Canada Patent Protection of Pharmaceutical Products – Panel


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TRIPS and human rights Frantzeska Papadopoulou*

1. INTRODUCTION Though the trajectories between human rights and Intellectual Property Rights (IPR) have often been discussed,1 their relationship remains unclear.2 This concerns the IPR/human rights interface in general, but also and in particular the way in which the two systems interact in the context of international trade law. Whereas in principle, the objectives underlying IPR and human rights appear as reconcilable or even as congruent to some extent,3 a sceptical to fully negative view prevails on the WTO/ TRIPS Agreement. The report of the UN Commission on Human Rights goes as far as to state that the WTO is “a veritable nightmare” for certain sectors of humanity,4 in that TRIPS in some ways encourages, indirectly leads to or has as a side-effect human rights violations.5 Others posit that human rights principles are also fundamental for the WTO Agreement, meaning that human rights violations automatically constitute violations

* This chapter was substantially revised and partly re-written by Annette Kur. Thanks also to Felix Trumpke for his valuable assistance. 1 The literature on the topic is very rich and cannot be fully referenced here. For an overview, see e.g. Yu (2007). See also Okediji (2007). 2 Helfer (2003) at 47. 3 See e.g. Geiger (2006) at 371, 372; same author (2008) at 101 et seq. 4 UN – ECOSOC (2000), at para.15: “Since the implementation of the TRIPS Agreement does not adequately reflect the fundamental nature and indivisibility of all human rights, including the right of everyone to enjoy the benefits of scientific progress and its applications, the right to health, the right to food and the right to self-determination, there are apparent conflicts between the intellectual property rights embodied in the TRIPS Agreement, on the one hand, and international human rights law on the other”. See also UN – ECOSOC (2001), where it was stated that “Members should therefore implement the minimum standards of the TRIPS Agreement bearing in mind both their human rights obligations as well as the flexibility inherent in the TRIPS Agreement, and recognizing that ‘human rights are the first responsibility of Governments’”. 5 Ibid. 262


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of WTO rules.6 In a similar vein, it is postulated that human rights considerations ought to justify deviations from WTO rules or grant privileges conditional on the basis of respect for human rights principles.7 Whatever position is adopted, it is obvious that the human rights/IPR interface is of crucial relevance for any attempt to analyse and possibly re-adjust the balance struck in TRIPS between the interests of different stakeholders. All the potential trajectories between the two areas of law cannot possibly be addressed and investigated in this chapter. Instead, it will give an account of the existing human rights codices, highlighting those features which are of primary relevance as a possible counterweight to basically trade-oriented rules like those enshrined in TRIPS. As a model for the way in which those rules may interact in systems providing for the necessary legal structure to protect human rights principles against impairment by, inter alia, intellectual property rights, the chapter gives a brief survey of the situation in Europe, followed by a comparison with the international level. As a way to overcome the pertinent deficits concerning the latter, alternative forms of integration of human rights in the legal (trade) environment are considered, that is, integration either by means of interpretation of trade rules in the light of (external) human rights principles or by the amendment of trade rules to also accommodate human rights-related objectives.

2.

THE INTERNATIONAL FRAMEWORK OF HUMAN RIGHTS REGULATIONS

2.1.

Main Instruments

Human rights norms and principles have been set forth in a series of international and regional declarations and treaties in order to provide for minimal standards of decent social and governmental practice.8 The Universal Declaration of Human Rights (UDHR), adopted unanimously by the UN General Assembly in 1948, is the most authoritative statement of human rights.9 According to its preamble, the Declaration provides for

6

Sub-Commission on Human Rights Resolution 2000/7, “Intellectual Property and Human Rights”, E/CN.4/SUB.2/RES/2000/7, 17 August 2000. 7 Appleton (2000) at 415 et seq.; see also Cohn (2001), Petersmann (2000). 8 Neumayer (2005) at 926 et seq. 9 It is important to note that Declarations like the UDHR do not have binding effect. For a critique of the impact of Human Rights treaties, see Jinks & Goodman (2003) at 171 et seq.


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a common standard of achievements for all peoples and nations.10 The first 21 articles include a series of civil and political rights such as right to life, liberty and security of person, freedom from torture and cruel punishment, equality before law and non-discrimination, freedom of peaceful assembly and association, freedom of thought, conscience, and religion. In addition to the traditional political and civil rights, the UDHR also covers a series of economic and social rights. This second category encompasses the right to just and favourable conditions of work, the right to form trade unions, the right to a standard of living adequate for health and wellbeing, to education, to participate in the cultural life of the community, to share in the benefits of scientific achievement and finally to the protection of moral and material interests resulting from any scientific, literary or artistic production of which he is the author. These two major categories of human rights are recognized as being equal in status and interdependent in nature. According to the Vienna Declaration and Programme of Action of the 1993 World Conference on Human Rights, “all human rights are universal, indivisible, interdependent and interrelated”.11 However, in spite of their outstanding moral and political authority, the fact remains that the legal status of a declaration, in comparison with binding treaties, is relatively weak. In order to remedy that weakness12 in the status of the UDHR and to a certain extent the weakness of the international human rights system as a whole, the UN proceeded to the adoption of a series of specific human rights instruments refining and elaborating on the concepts introduced by the UDHR. Two major instruments emanated from this attempt, the International Covenant on Civil and Political Rights (ICCPR)13 and the International Covenant in Economic, Social and Cultural Rights (ICESCR).14 Together, the three global human rights instruments are apostrophized as the “International Bill of Rights”. In addition to those instruments with purported global reach, human rights may also become the object of regional agreements. Among those, 10

For an elaborate investigation of the drafting history of the UDHR, see Johnson & Symonides (1998) at 76–89. 11 Ibid. 12 See also Bradley & Goldsmith (2000), regarding mostly the flexibilities of the US Administration with regard to Human Rights Treaties. 13 International Covenant on Civil and Political Rights, GA res. 2200A (XXI), 21 UN GAOR Supp. (No. 16) at 52, UN Doc. A/6316 (1966), 999 UNTS 171, entered into force 23 March 1976. 14 International Covenant on Economic, Social and Cultural Rights (ICESCR), adopted 16 December 1966, Art. 15(1)(c), S. Exec. Doc. D, 95-2, at 13, (1997), 993 UNTS 3, 5, entered into force 3 January 1976.


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the European Convention on Human Rights (ECHR)15 is of particular weight and importance. It was adopted under the auspices of the Council of Europe in 1950, with the aim to promote human rights and fundamental freedoms, and it provides for a broad range of human rights norms. By establishing the European Court of Human Rights (ECtHR), to which individuals may appeal,16 it has created an unprecedented system of human rights protection. At present, the ECHR has 47 members, among them all Member States of the EU and the EEA as well as Switzerland, Russia and a large number of Central and Eastern European countries.17 For some time, the request has been voiced that the EC as such should also become a member, but that was no easy route. According to the ECJ,18 the EC Treaty in its original form did not provide any powers to lay down rules or to conclude international agreements on human rights. The deficiencies could only be amended after the obstacles to the Lisbon Treaty (TFEU) had been overcome: Art. 6 of the Lisbon Treaty lays down an obligation for the EC to become a member of the ECHR – in addition to the fact that binding obligations of substantial character are also set out in the EC’s own Charter of Fundamental Rights, which is incorporated in Part II of the Treaty. Both elements together provide a solid framework for protection of human rights in the EU legal order. It deserves to be noticed that even during the time when it was unclear whether and in which form the Lisbon Treaty would be adopted,19 the ECJ has invoked human rights as general principles of EU law in a number of cases,20 thereby guaranteeing that a certain level of compliance

15

European Convention on Human Rights (ECHR); for the full text see: http://www.echr.coe.int/nr/rdonlyres/d5cc24a7-dc13-4318-b457-5c9014916d7a/0/ englishanglais.pdf. 16 There is, however, no direct means of enforcing of ECHR judgments. Although ECHR member countries are committed under their treaty obligations to follow the rulings, no sanctions can be imposed if they don’t. 17 The list of countries that have ratified the ECHR is available at: http:// conventions.coe.int/Treaty/Commun/ListeTableauCourt.asp?MA=3&CM=16& CL=ENG. For more details, see Lawson (2005) at 27. 18 Opinion 2/94 of 28 March 1996 – Accession by the Community to the European Convention for the Protection of Human Rights and Fundamental Freedoms, [1996] ECR I-1759. 19 Apart from unanimous adoption in the Council (and the fact that some countries have made their consent dependent on a referendum), the EU accession to the ECHR requires the agreement of the Council of Europe and its 45 Member States. For details, see Lawson (2005). 20 Case 26/69, Stauder v. City of Ulm – Sozialamt (1969), was the first case where the ECJ made a direct reference to Human Rights. In this specific case a German citizen invoked a violation of the right to privacy, and though the ECJ


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with human rights was observed even without a formally binding obligation having been set in place. All in all, the existing network of regional as well as global instruments addressing human rights and seeking to ensure respect and consideration for fundamental human needs is quite impressive. Needless to say, however, it is a long way from issuing and signing declarations and covenants on human rights to actually attaining the goals such instruments want to achieve. One obvious problem is the weakness in efficient enforcement – being of merely declaratory character, human rights instruments lack proper binding force, and violations usually don’t give rise to sanctions.21 Also, one can hardly close one’s eyes to the fact that adherence to human rights instruments on the one hand and respect for the values promoted thereby on the other are two very different things. Indeed, empirical studies regarding the impact of treaty ratification on actual human rights violations reveal a very peculiar relationship between the two. It was shown that countries with relatively bad human rights records appear to ratify treaties at a higher rate than those with better records, and that treaty ratification is associated with worse human rights practices than expected. On the other hand, however, the studies have also shown that at least in full democracies, ratification is associated with better practices,22 and that enforcement procedures, where they exist, are capable of considerably reducing the degree of non-compliance.

did not consider that a violation of human rights occurred, it stated that it would protect the “fundamental rights enshrined in the general principles of (EU) law”. In the same line, Case 11/70, Internationale Handelsgesellschaft mbH v. Einfuhr und Vorratsstelle für Getreide (1970), Case C-4/73, Nold v. Commission (1974), where for the first time the ECHR was incorporated in EU law. Recently, the ECJ expanded its protection of human rights to also include actions regarding EU legislation, see in this regard C-5/88, Wachauf v. Federal Republic of Germany (1989) and Case C-260/89, Elliniki Radiophonia Tileorassi AE (ERT) v. Dimotiki Etairia Pliroforissis and Sotirios Kouvelas (1991), which concerned a case that while falling inside the scope of EU law did not however directly concern EU legislation. For the application of human rights principles with regard to IPR, see Case C-377/98, Netherlands v. European Parliament and Council of the European Union (2001), ECR I-7079, concerning the attempt by the Netherlands, supported by Italy and Norway, to halt the implementation of the biotechnology directive (98/44/EC) inter alia on the ground that it violated the principle of human dignity (addressed in more detail below, 4.4). 21 Of course, the UN does have the possibility to impose sanctions in certain cases, mostly in the form of embargoes. However, these do not follow from a preestablished catalogue of sanction mechanisms, but need to be based on a decision, in each individual case, of the General Assembly. 22 For the empirical study on the relationship between human rights treaties and respect for human rights principles, see: Hathaway (2002) at 1935.


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Although there is no reason therefore to be overly enthusiastic about the improvements to be achieved through human rights treaties, the findings referred to above still allow us to conclude that such instruments can become valuable assets if they are employed within basically stable, trustworthy environments. 2.2.

IP Rights in Human Rights Norms

IPR are recognized as enjoying human rights status.23 The first human rights’ inspired justification of IPR dates back to the French Revolution. The Declaration of the Rights of Man and of Citizen (1789) included “property” among the “natural and imprescriptible rights of man”. During the elaboration of the Law of 1791 providing a right of representation to authors, it was stated that “the property of the work which is born of the writer’s thought is the most sacred, the most legitimate, the most unassailable, and the most personal of all properties”.24 The human rights status of IPR is also confirmed in the UDHR and the ICESCR. Art. 27 of the UDHR of 1948 states that “Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author” as part of the list of fundamental liberties.25 This right to protection of one’s intellectual assets is linked also to the right to participate in the cultural life of the community and share in scientific advancement and its benefits.26 The ICESCR provides in a similar clause that authors should benefit from the moral and material interests resulting from their works.27 According to Art. 15.1(c) of the Covenant, Member States are required to recognize the right of everyone to benefit from the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author. The ICESCR links the rights of the creator to the rights of the users to participate and benefit from cultural and scientific achievements. The UN Committee on Economic, Social and Cultural Rights (adopted as of November 2005) adds yet another General

23

See also Giovanetti & Matthews (2005). See Ostergard (1999) at 156. 25 Universal Declaration of Human Rights (UDHR), G.A. res. 217A (III), U.N. Doc. A/810 at 71 (1948). 26 In the ECHR, relevant provisions are found in Protocol 1 on right to property. Intellectual property is incorporated in this provision of the ECHR. 27 International Covenant on Economic, Social and Cultural Rights (ICESCR), adopted 16 December 1966, Art. 15(1)(c), S. Exec. Doc. D, 95-2, at 13, (1997), 993 UNTS 3, 5, entered into force 3 January 1976. 24


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Comment to Art. 15.1(c) of the ICESCR in order to assist states parties to implement its provisions. The first point concerns the distinction between the human right in question and present IPR. The human right “derives from the inherent dignity and worth of all persons” and thus “this fact distinguishes it from most legal entitlements recognized in intellectual property systems”.28 In the Resolution of the UN Sub-Commission on the Promotion and Protection of Human Rights adopted in August 2000 (Resolution 2000/7), the human rights character of intellectual property is basically confirmed, but it is also juxtaposed with the adverse effects that may result when protection is asserted without proper regard to conflicting interests. Thus, the Resolution affirms that the right to protection of the moral and material interests resulting from any scientific, literary or artistic production of which one is the author is a human right, which is however subject to limitations in the public interest.29 With a view to TRIPS, the Resolution continues that “since the implementation of TRIPS does not adequately reflect the fundamental nature and indivisibility of all human rights, including the right of everyone to enjoy the benefits of scientific progress and its applications there are apparent conflicts between the intellectual property rights regime embodied in TRIPS, on the one hand, and international human rights law, on the other”.30 According to the SubCommission, human rights prevail over all economic rights and should be taken into account also in the drafting of economic rights policies.31 This complies with the Covenant, according to which a member state should take steps “to the maximum of its available resources,32 with a view to achieving progressively the full realization of the rights recognized 28

Green (2000). UN, Sub-Commission on Human Rights Resolution 2000/7, “Intellectual Property and Human Rights”, 17 August 2000. 30 UN, Sub-Commission Resolution 2000/7 at point 2 and Sub-Commission Resolution 2001/21 at point 7. 31 The Sub-Commission requests that international organizations but also Member States incorporate the human rights dimension into their policies. In the 2001/21 Resolution, the Sub-Commission notes the progress made since the last resolution and calls for an impact assessment of the implementation of the TRIPS Agreement from a human rights perspective. 32 See in this context, “Human Rights and Intellectual Property: Statement by the Committee on Economic, Social and Cultural Rights”, Follow-up to the day of general discussion on Article 15.1(c), 26 November 2001, E/C.12/2001/15, 14 December 2001, where it is pinpointed that states should consider how the negotiation and ratification of intellectual property rights treaties will affect their sovereignty over wealth and resources as well as over their capacity to ensure the rights recognized in the Covenant. 29


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in the present Covenant by all appropriate means”. Human rights norms imply duties for both individuals and governments. In fact, under international human rights law, states and their governments bear the primal responsibility to assure implementation. States need to respect the rights by refraining from undertaking legal or policy measures that would violate human rights provisions, to protect the provisions and, finally, to fulfil the right by implementing positive measures that will enable and assist individuals and communities to enjoy the rights in question. Against that background, it can be said that the need to balance the interests of IPR holders against those of other individuals or stakeholders invoking conflicting rights equally enjoying human rights status is an imminent feature of the international framework of human rights itself.33

3.

3.1.

THE RELATIONSHIP BETWEEN HUMAN RIGHTS AND INTERNATIONAL TRADE REGULATIONS Human Rights and the WTO Agreement

Both trade liberalization, initially under GATT, and subsequently under WTO, and international human rights are two fundamental ingredients of the post-World War II order.34 The founding of the GATT in 1947 and the UDHR on 10 December 1948 emerged during the same period. Both systems were conceived in order to guarantee keeping world peace stability in international relations.35 Establishing the fundamental boundaries of state action and prescribing positively what states should domestically achieve in order to comply with obligations originating in the two systems, has partly caused the removal of international law from its tradition of coexistence and co-operation to a law of integration, with common rules and standards.36 Indeed, the evolution of international human rights and international trade regulation has had a major impact on the nature of modern international law. By expressly recognizing international human rights, the concept of domestic and internal affairs was curtailed, making the treatment of individuals an international concern. In the same way, the

33 34 35 36

Helfer (2007) at 973. Vasquez (2003) at 797 et seq. Blume & Voigt (2007). Shelton (2007) at 22, 24.


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international trade regulation has brought considerable changes in domestic regimes, which are not limited to international transactions. The liberalization of trade in services, the protection of intellectual property as well as the support levels in agriculture are examples of international trade rules deeply affecting the application of domestic law.37 Nevertheless, it is obvious that the two systems present major differences with regard to their respective starting points and principal characteristics. International human rights were drafted and created in a comprehensive manner, while trade rules emerged gradually and only after a lengthy process of negotiations and trade-offs. Human rights are individual rights, that can (or should be possible to) be invoked by individuals vis-à-vis state authorities.38 Trade rules were conceived as rights of the state, which could be exercised on behalf of private operators. IPR are, in fact, the only formally recognized private rights within the international trade regime, though settlement of conflicts has remained a matter of intergovernmental disputes.39 Trade regulations are complemented by an effective dispute settlement resolution system ensuring compliance, whereas international human rights have remained weak in this regard.40 More important than the structural differences, however, is the fact that the values underpinning the two systems are distinct in a way which creates a very delicate balance between them. By putting IPR on a markedly expansive track, that balance may be distorted, thereby threatening the stability of the system as a whole. The harsh critique frequently voiced from a human rights perspective against TRIPS has its basis there.41 On the other hand, it is also possible to argue that instead of being opposed to each other, human rights principles and international trade norms might also be mutually reinforcing. Thus, enhancing international trade may contribute not only to the exchange of goods, but also to that of ideas and opinion, with the effect of supporting the implementation and realization of civil and political rights;42 conversely, where civil and politi37

Cottier (2002) at 111–32. The European Convention on Human Rights, the implied doctrine of human rights protection by the European Court of Justice, or even the voluntary complaint procedures under the Covenant are such examples. 39 Hence the importance of their express recognition as “private rights” in the Preamble of TRIPS. 40 Peerenboom (2005) at 32. 41 Yu (2006) at 369–410; see also Helfer (2004) at 1. 42 Obviously, this is a debatable issue since the question arises as to what extent trade measures can and should be used to impose the betterment of human rights conditions or to what extent such policies fail due to conflict with other and different societal values. 38


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cal rights are protected, open markets and non-discrimination principles will typically be respected and market access will be stable. A positive integration of the two sets of rules also seems warranted in view of the fact that the universal recognition of human rights in the post-World War II era, has, if as yet indirectly, subjected the legitimacy and legality of government measures, rules and decisions of intergovernmental organizations to an obligation to accord a higher degree of respect for human rights, as defined in national constitutions and international law.43 International trade law with its implementing bodies and institutions is not exempted from that rule, given also that all WTO Members have ratified one or more of the major UN Human Rights Conventions, and are bound by human rights obligations under the UN Charter and general international law. However, so far WTO bodies have avoided taking an official position on the proposals to adopt a “human rights approach to international trade”.44 Not even the Doha Declaration on Trade-Related Intellectual Property Rights and Public Health includes any direct reference to human rights. Contrary to that reluctant approach, NGOs, along with the human rights community, have claimed that the WTO could enhance its democratic legitimacy by explicitly recognizing the human rights obligations of WTO Members as the relevant “legal context” for the interpretation and application of WTO rules.45 To some extent, the conflict was also inherent in the previous international trade system. However, due to more flexible structures prevailing therein, its impact was less felt than today. Although the Preamble of the GATT 1947 referred solely to economic rights, the numerous safeguard clauses of the Agreement gave priority to national sovereignty in its task of pursuing non-economic policies. Notable examples of such provisions were the right to prevent “serious injury to domestic producers” (Art. XIX), the right to protect “public morals” (Art. XX (a)), “human, animal or plant life or health” (Art. XX (b))46 and “national security” (Art. XXI). In view of the flexibilities of the International Trade regulation at the time, 43

See also Ochoa (2003). Proposal presented by the UN High Commissioner for Human Rights, see: http://www2.ohchr.org/english/bodies/cescr/docs/info-ngos/access_to_medicines_ and_hr.pdf. 45 Anderson & Wager (2006) at 707–47. The proposals on the convergence of human rights and the WTO have gone as far as to include that the enforcement of human rights could be enforced under the WTO system, Petersmann (2002) at 624–5. Obviously, this view has been criticized; see Alston (2002) at 815. 46 That clause was of crucial importance in the Asbestos case: European Communities – Measures Affecting Asbestos and Products Containing Asbestos (EC – Asbestos), Appellate Body Report WT/DS135/AB/R (12 March 2001), adopted 44


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the lack of any direct reference to human rights was never perceived as a problem.47 Modern trade regulations have moved from the “negative integration” of the GATT framework to “positive integration law” promoted under the WTO umbrella. By imposing a higher degree of regulation, and by creating new far-reaching limitations on national sovereignty, the potential for creation of direct conflicts between IPR and human rights is raised considerably. However, as the WTO structure provides for “rights of governments”, and not “rights of citizens”, the enhanced risk for inconsistency with human rights objectives that it implies becomes less obvious. Apart from the differences existing between the underlying values, the structure of the international trade regime as such also creates particular risks for the implementation of human rights-based norms. The issue is considered more comprehensively in another chapter48 and shall only be addressed very briefly: the number of WTO dispute settlement proceedings to this day is proof of the need for further clarification and interpretation of WTO Agreements.49 It also shows a clear preference for the dispute settlement forum in further elaboration of WTO law, instead of taking recourse to the strict WTO rules of “authoritative interpretation” and amendments of the WTO treaty text. Given the lack of transparency and the risk of imbalances in the WTO dispute settlement policy, this may constitute a serious challenge for compliance of trade-related IP rules with the principles of transparent rule-making and public judicial review.50 The latter aspect connects to the “right to democratic governance”, which is one overarching concern with regard to the human rights-WTO trajectory. According to Art. 21 UDHR, “the will of the people shall be the basis of the authority of governments”. Although the specific right seems to be respected in the majority of national jurisdictions, the “democratic deficit” of intergovernmental rule-making in international organizations remains a central issue. These concerns become even more serious in organizations such as the WTO, where powerful interest groups (lobbies) have the possibility to influence negotiations, such as those preceding the entry into force of the TRIPS Agreement.51 However, the 1994

on 5 April 2001, paras.170 et seq. The case is discussed in more detail by H. Grosse Ruse-Khan (ch. 4). 47 See also Ochoa (2003) at 91–6. 48 Bakardijeva Engelbrekt (ch. 3). 49 See in this respect Horn & Mavroidis (2009) at 6–9. 50 These issues are addressed by Bakardjieva Engelbrekt (ch. 3). 51 Petersmann (2004) at 605 et seq. and 611–13; see also Bakardjieva Engelbrekt (ch. 3).


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WTO package deal with a set of international agreements can hardly be “re-opened”.52 Today, this democratic deficiency is not as inevitable. A number of remedies have been proposed stretching from more effective parliamentary oversight of national trade policies to NGO participation and new forms of consensus building and public participation. At the Fourth Ministerial Conference in Doha, Qatar in November 2001, the WTO indicated, for the first time, some response to calls for change in its policy. The Doha Development Agenda53 refocuses in fact the work of the WTO, bringing into the discussion the situation of the world’s poorest nations and people, and thus indirectly human rights considerations.54 3.2.

Provisions (indirectly) Addressing Human Rights in TRIPS

Despite the fact that TRIPS does not contain any direct reference to human rights obligations, hence contributing to the traditional isolation of the two areas of law, there are a number of provisions that lay the ground for future convergence.55 This concerns in particular, though not only, the provisions addressing the objectives and principles of the Agreement, Arts. 7 and 8.56 Art. 7 provides that “the protection of intellectual property rights shall contribute to ( . . . ) the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations”. The formulations relate to the fact that IP is not an end in itself, but must be tailored so as to achieve the human rightsrelated objectives on which it relies. Art. 8 is even more direct in its formulation. Member States “may adopt measures necessary to protect public health and nutrition and to promote the public interest in sectors of vital importance”. This provision employs human rights principles in a more direct way than the previous article. The 52

Ping (2007) at 887. WT/MIN(01)/DEC/2, adopted 14 November 2001, available at: http://www. wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm. 54 Another example is the WTO (2002), “Annual Report”, which acknowledges that “certain adjustments to the [WTO] rules [are] needed if the trading system is to reflect the social, economic and political conditions of a rapidly changing world.” 55 On that point, see below 5.4.2.2, with further references. 56 The key role of Arts. 7 and 8 for interpretation of the TRIPS Agreement is elucidated by A. Kur & H. Grosse Ruse-Khan (ch. 8) 4.3; therefore, the reference made to those provisions here is kept very brief. 53


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right to health, the right to food and other public interest sectors are introduced in the text of TRIPS, through a rather vague formulation. Apart from these two provisions, the trajectories can be traced also in other rules of the Agreement. Art. 31 implicitly fosters human rights’ considerations by stating that the requirement to obtain authorization from the right holder on reasonable commercial terms is waived in case of national emergency and other circumstances of extreme urgency (Art. 31 (b)). Furthermore, all exceptions and limitations to the exclusive rights, such as Art. 13 (limitations and exceptions to copyright) or Art. 17 (exceptions to trademarks), could be interpreted in the light of human rights norms.57 Nevertheless, due to the rather vague formulation of these provisions, the outcome of a concrete conflict essentially depends on the status human rights principles enjoy in the WTO dispute settlement resolution proceedings.

4.

THE IP/HUMAN RIGHTS INTERFACE IN ROBUST LEGAL SYSTEMS: EUROPEAN LAW AS AN EXAMPLE

4.1.

Preliminary Remarks

Unlike TRIPS and other international trade rules, neither the UDHR nor the two Covenants are binding in the sense of establishing a system of clearly defined, hard and fast rules with which signatories must abide.58 Furthermore – and partly related to the lack of legally binding character – human rights are not safeguarded on the international level by an efficient judicial or quasi-judicial body empowered to react swiftly and with authority in case of alleged violations. Both factors are often referred to as the main obstacles jeopardizing the position of human rights vis-à-vis the better organized interests in global trade flows, leading towards the oft-deplored dilemma that although being morally superior, human rights are weaker when it comes to legal recognition and effective enforcement.59

57

On this relationship, see Helfer (2007) at 973–1018. However, as far as they express fundamental principles that are considered to belong into the corpus of jus cogens, they are actually considered as binding, irrespective of whether the country invoking them or being accused of a violation has adhered to any of the conventions or not; see below, 5.4.1. 59 On the relationship between human rights and IPR, see Weissbrodt & Schoff (2003) at 15–16, claiming that the Resolution was both an expression of the concerns of the trade regulations’ impact on human rights as well as a way for 58


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Against that backdrop, it is of interest to consider the situation in systems where those structural deficiencies do not exist, that is, where human rights are cast into the form of binding legal rules ensuring their superiority vis-à-vis other, “ordinary” provisions, and where courts exist which are endowed with full authority to re-interpret or, if necessary, to declare invalid laws and practices that are found incompatible with those fundamental principles. Rather than being utopian, such conditions typically apply in all countries where charters of constitutional rights have been enacted that are founded on the concept of human rights, and where compliance with those rules is supervised by a Constitutional (or Supreme) Court. Such systems can be found in many states and regions in the world, including many or all EU Member States (with some variances in detail which are not of relevance for the general picture). In addition, this also applies, cum grano salis, to the Member States of the Council of Europe, with the competence for supervision of the European Convention being vested in the ECtHR.60 A survey of (available) case law by national constitutional courts in the EU61 as well as by the ECtHR shows indeed that constitutional principles and fundamental rights have been invoked in a number of intellectual property conflicts, although the topic does not arise very frequently. In a good number of those cases, the decisions are focused on the right to property, that is, the courts are asked to specify that and under which conditions the (potential) holders of IP rights have a constitutional claim to protection against measures interfering with their position. Apart from that, the decisions most frequently deal with freedom of speech against potential encroachment by copyright or trademark rights. By contrast, patent law and its implications on human health and dignity seems to be practically absent from the roster of cases treated. 4.2.

The Right to Property

In a comprehensive survey on the interface of IP and human rights in the jurisprudence of the ECtHR undertaken by Lawrence Helfer,62 it was

human rights to approach trade regulations. On the impact TRIPS might have on human rights, see also Gana (1996) at 315 et seq. In the said article, another approach to potential “conflict” is also presented, that of the conflict between the human right to development and the human right to intellectual property. 60 McGuinness (2006). 61 For detailed reports and analyses of national court cases involving IPR and constitutional law, see in particular Geiger (2006). 62 Helfer (2007) at 971 et seq.


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shown that all rulings handed down so far by that Court were concerned with different aspects of the property right vested in intellectual creations. Most prominent among those decisions is the ruling by the Grand Chamber in Anheuser Busch v. Portugal.63 Subsequent to the filing of an application for the trademark “Budweiser” in Portugal,64 the country had concluded a bilateral treaty with the Czech Republic which (re)instituted protection for the “Budweiser” sign as an indication of geographic origin, thereby precluding Anheuser Busch’s application from maturing into a trademark registration. One chamber of the ECtHR first ruled that although trademarks were to be considered as “property” in the sense of Art. 1 1st protocol to the ECHR, protection did not extend to mere applications. That finding was however overruled on appeal by the Grand Chamber, which stated that even applications took part in the right to property, meaning that registration could not be denied for other reasons than those present at the time of filing.65 Decisions dealing with the constitutional right to intellectual property can also be found on the national level. For instance, the German Constitutional Court has ruled on various occasions on the entitlement of IPR holders to invoke the property clause in the Constitution for their defence.66 The most well-known of these cases concerned the legislative proposal of a copyright limitation permitting the inclusion of substantive parts of published works into school books. No compensation for the right holders was foreseen in the act. The Constitutional Court found that this would violate the right to property, which in the case of copyright

63

Anheuser-Busch Inc. v. Portugal, App. No. 73049/01, 44 Eur. H.R. Rep. 42 [846], 855–6 (Chamber 2007) (judgment of 11 October 2005) (registered trademarks protected by Art. 1); Anheuser-Busch Inc. v. Portugal, App. No. 73049/01, 45 Eur. H.R. Rep. 36 [830] (Grand Chamber 2007); see also Helfer (2008) at 5–7. 64 When the application was filed, “Budweiser” was registered as an indication of geographical origin for the Czech brewery Budweiser Budvar. However, in the course of the registration proceedings, Anheuser Busch had successfully challenged that registration, meaning that in principle, the route to registration of its own mark would have been clear. After the treaty between Portugal und the Czech Republic had been concluded, however, Anheuser Busch’s trademark application was rejected in the last instance by the Portuguese Supreme Court. 65 Although that rule had obviously been violated by Portugal giving retroactive effect to the treaty concluded with the Czech Republic, the ECHR did not order reversal of the Supreme Court’s decision to reject Anheuser Busch’s application (see above), as they do not have a mandate to supervise the correct application of domestic law by national courts. 66 For protection of trademark rights under the property clause of German constitutional law, see German Federal Constitutional Court (BVerfG), GRUR 773 (1979) – Weinbergsrolle.


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means that authors must be able to benefit from any form of exploitation of their work which is not of a purely de minimis nature.67 4.3.

Freedom of Speech and Information

Measuring out the room to be left for freedom of speech and freedom of information vis-à-vis exclusive rights to control the use of signs and content is the hub of the IPR/human rights interface as reflected in European jurisprudence.68 In trademark law, this primarily concerns the use of distinctive signs in parodies or otherwise critical statements involving certain – in particular famous – brands.69 One case to which reference can be made here concerned the use of the sign “ESSO” in an advertising campaign by Greenpeace, targeting the way in which the firm went about the company’s climate policy. Whereas the advertisement was felled as infringing under French trademark law by the court of first instance, the appeal court declared the advert permissible in light of the constitutional right to free speech.70

67

German Federal Constitutional Court (BVerfG), GRUR 481 (1972) – Kirchen- und Schulgebrauch. The principle has been invoked in several subsequent decisions of the German Federal Supreme Court (BGH); see GRUR 485 (1972) – Bilbiotheksgroschen, GRUR 488 (1972) – Tonbandvervielfältigungen, GRUR 44 (1980) – Kirchenmusik, GRUR 687 (1988) – Zeitschriftenauslage, GRUR 193 (1989) – Vollzugsanstalten, GRUR 438 (1990) – Bob Dylan. 68 Until now, there has been no decision on IPR and freedom of speech by the ECtHR. However, the issue was addressed in connection with advertising regulations, see Markt Intern and Beerman v. Germany, (1990) 12 EHRR 161, para.34; Hertel v. Switzerland, (1999) 38 EHHR 534, para.47, and, in particular, Krone Verlag v. Austria (No.3), (2006) 42 EHHR 28 paras.30 et seq. (holding that the former ban on price comparison in Austrian law violated Art. 10 of the Convention). 69 Another aspect concerns the way in which trademarks may be used in order to identify, in commercial speech, another person’s product, for instance in comparative advertising. The ECJ recently had to deal with such a case – a trader was accused of having infringed trademarks of perfume companies by making illicit reference to the products in his claims that he was selling “smell-alikes”. The ECJ basically confirmed that this was infringing behaviour and did not expand on the possible conflict with free (commercial) speech; see Case C-487/07 – L’Oréal/ Bellure, decision of 18 June 2009, with critical comment by Kur, Bently & Ohly (2009). 70 Association Greenpeace France v. SA Société Esso, Paris Appeal Court, 14th chamber, section A, 26 February 2003; see also Sa Spcea Société des Participations du Commissariat à l’Energie Atomique/Association Greenpeace, Sa Société Internet Fr., Paris Appeal Court, 14th chamber, section A, 2 August 2003 (the campaign by Greenpeace had depicted the firm’s logo as casting a shadow in the form of a skull),


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Conflicts between copyright and freedom of speech often arise when the right holder uses his position to suppress any publication. Such issues were presented in lawsuits concerning the publication of internal documents of the Church of Scientology,71 as well as in litigation over the publication of “Mein Kampf”, Adolf Hitler’s notorious pamphlet, to which the state of Bavaria holds the copyright, using it to prevent any publishing.72 In a broader sense, constitutional issues are further regularly involved when courts need to assess the legitimacy of parodies or other forms of adaptations,73 or when they measure the exact realms of limitations.74 However, the latter issues in particular are most often simply resolved by the courts as “internal” matters, i.e. on the basis of interpreting the relevant copyright rules, without applying, or expressly referring to, possibly conflicting constitutional rights.75 An interesting investigation of the relationship between free speech and IPR is provided in the UK case Ashdown v. Telegraph Group Ltd.76 The case is special because it was handed down after the UK had enacted

and Olivier M., Réseau Voltaire/Compagnie Gervais Danone, Groupe Danone, Paris Appeal Court, 4th chamber, section A, 30 April 2003 (this was a campaign by Danone’s employees complaining about the firm’s internal policies). For a wellknown case from outside of Europe, see Constitutional Court of South Africa, 27 May 2005, Laugh It Off Promotions CC v. South African Breweries International (Finance) B.V. t/a Sabmark International, Case CCT 42/04, 36 IIC 868 (2005). 71 For Sweden, see NJA 1985 at 893, respectively NJA 1998 at 838. See also Bernitz (2000) at 340. For the Netherlands, see decision by The Hague Court of Appeals (Gerechtshof’s – Gravenhage), 4 September 2003, AMI 2003/6 at 222, with comment by Hugenholtz. 72 The issue of a balance between the freedom of expression and the exclusive right of the copyright holder has also been present in the Swedish case Alfons Åberg, Supreme Court of Sweden, NJA 2005 at 905. 73 For an example from Germany, see German Federal Constitutional Court (BVerfG), GRUR (2001) 149 Germania 3, reported by Geiger (2006) at 395 and 396. 74 Such as the limitation for news reporting; see the following case as well as cases from France, Belgium, Switzerland and Austria reported by Geiger (2006) at 391–4. 75 See Article 5 of the Infosoc Directive (Directive 2001/29/EC) providing for a variety of limitations on the exclusive right of the copyright holder based on the inherent balancing between human rights principles, such as the right to the freedom of expression and the copyright, for instance the right to parody. See also L122-5 IP Code (France), where parody is explicitly mentioned as one of the exceptions to copyright. Even in countries where such explicit exceptions do not exist (e.g. Germany), parodies are generally accepted as a form of art, and in view of the freedom of expression. 76 For a detailed analysis of the Ashdown case, see Birnhack (2003) at 24.


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the Human Rights Act (1998). Before that, British law at least formally had not been bound to the observation of human rights principles.77 In Ashdown, it was realized that the two sets of rules at stake in this and similar conflicts were actually juxtaposed to some extent. As Lord Phillips remarked, “copyright is antithetical to freedom of expression. It prevents all, save the owner of the copyright, from expressing information in the form of the literary work protected by the copyright”. The case in question concerned the memoirs of Mr Ashdown and in particular the minutes of a secret meeting Mr Ashdown had with the Prime Minister in October 1997, according to which the Prime Minister considered forming a coalition. In his attempt to find an appropriate publisher, Mr Ashdown presented his material to a number of publishers on a confidential basis. Before any contract was signed, the Sunday Telegraph published the exclusive story describing the minute as a “leaked document”. In the case in question, it was indisputable that the minute amounted to an original literary work that it enjoyed copyright protection and that parts thereof were reproduced without the author’s permission. The question was instead whether the use made by the Sunday Telegraph amounted to infringement or whether it fell under one of the exceptions provided by the Copyright Act. What makes this case interesting is the fact that the Telegraph did not only invoke the “traditional” copyright exceptions but also Art. 10 of the ECHR, stating that these defences be interpreted or applied in a manner to preserve the right of freedom of expression. Thus, in fact, the Telegraph required the recognition of a new “freedom of expression” exception. In the decision of the High Court, Art. 10 ECHR receives only peripheral attention. The Vice-Chancellor referred to no less than 42 situations in which copying does not amount to infringement of copyright, thereby trying to establish the fact that freedom of expression had already been considered and taken into account when the legislature had drafted the copyright law. The Court of Appeal delved more deeply into the matter. Copyright and freedom of expression were considered as constituting a different set of rights, each being qualified on its own specific terms.78 In support of the compatibility of the “freedom of expression” with copyright, the Court referred in the first place to the idea/expression dichotomy. However, the Court continued to point out that in some cases, the 77

British law strictly observes the principle that rules set out in international legal acts are not binding unless they have been transposed into domestic legislation. 78 ECtHR (2001) EMLR 44 (CA). The Court of Appeal affirmed the decision in Ashdown v. Telegraph Group Ltd. (2001) Ch. 685.


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form of expression is no less important than the information it conveys. Although this means that in spite of the idea/expression dichotomy, direct conflicts between copyright and the freedom of expression may occur, the circumstances where such conflicts will arise are very rare, according to the Court. But if they do, the Copyright Act is to be interpreted in a manner that also accommodates the right of freedom of expression.79 4.4.

Human Dignity and Gene Patenting80

As mentioned, little reported European case law seems to deal with the specific impact of patents on health issues. The only major case where human rights were invoked as an argument against patenting concerned the attempt by the Netherlands, supported by Italy and Norway, to halt the implementation of the biotechnology directive (98/44/EC) by instigating a claim for a declaration of invalidity before the ECJ.81 Their claim was founded on several grounds, contesting the competence of the legislature and asserting breach of various fundamental principles, among them the fundamental right to respect for human dignity. More specifically, it was submitted “that the patentability of isolated parts of the human body provided for by Art. 5(2) of the Directive reduce living human matter to a means to an end, undermining human dignity”, and that “the absence of a provision requiring verification of the consent of the donor or recipient of products obtained by biotechnological means undermines the right to selfdetermination”.82 In its response, the ECJ pointed to various elements in the Directive (Recitals no. 20 and 21, Arts. 5(1), 5(3) and 6, which, according to the ECJ, showed, “that the Directive frames the law on patents in a manner sufficiently rigorous to ensure that the human body effectively remains unavailable and inalienable and that human dignity is thus safeguarded”.83 Furthermore, as regards the right to self-determination, it was held that “reliance on this fundamental right is . . . clearly misplaced as against a directive which concerns only the grant of patents and whose scope does not therefore extend to activities before and after that grant, whether they involve research or the use of the patented products”.84

79

See also Joseph (2002) at 72. For a detailed account of the relationship between patenting and human dignity, see van Overwalle (2009). 81 Case C-377/98, Netherlands v. European Parliament and Council of the European Union (2001), ECR I-7079. 82 ECJ, Case C-377/98, at para.69. 83 ECJ, id., at para.77. 84 ECJ, id., at para.79. 80


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281

Preliminary Conclusions

4.5.1. Summarizing the European experience It remains to consider which general insights into the IPR/Human Rights interface might follow from this brief survey. First, it occurs relatively seldom that court decisions openly pit IPR protection interests and human rights against each other. Obviously, this is not due to lack of binding character and/or enforceability of the latter. The reason lies rather in the fact that, apart from some exceptional cases, the pertinent law already reflects the outcome of a balancing process in which human rights are (at least in principle) given full consideration. This, in turn, is a consequence of the rule of law permeating the legal system: Legislature, executive and judicative powers are likewise bound by the legal principles set forth in the constitution, leading to the “natural” result that the individual laws promulgated by the competent organs, and being passed through the regular democratic proceedings are, in all probability, in compliance with constitutional rights. As a rule, they are therefore also in accordance with the universally acknowledged human rights scheme. In other words, rather than having to be resolved ex post, potential conflicts are already addressed and regulated in the political and legal discourse preceding and accompanying the legislative process. It hardly needs to be emphasized that this does not only apply to IPR legislation but constitutes a general principle in democratic, human rights-respecting systems. For all its banality and self-evident character, this observation stands in contrast to the emphasis which is sometimes given to a “steering role” for human rights in IPR, and particularly in copyright law: at least in the domestic context, there is little need to press the issue. Nevertheless, shaping the law in an “internalized” fashion cannot guarantee that possible conflicts with constitutional rights are satisfactorily respected in the sense that they always can be resolved on the basis of an interpretation of the IPR only. In that regard, this survey has also confirmed the importance of constitutional law forming an equally relevant, or even superior, body of rules providing an “external” balancing mechanism, where the application of IPR provisions alone would lead to results that are incompatible with the core principles of fundamental rights. Apart from that, the examples of national (and regional) systems also illustrate the boundaries of what can possibly be achieved by granting to human rights the status of full-fledged legal entitlements: it will typically only compel courts and authorities to thoroughly appreciate the potentially conflicting interests on their own terms, without pre-determining the outcome of that balancing exercise. This implies that the freedom of the legislators to pursue their specific policy agendas is not substantially


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restrained thereby. It can even be said that the respect regularly paid by courts to the freedom of discretion enjoyed by legislative bodies, in the sense of a certain reluctance to “correct” the law on the basis of overriding constitutional considerations, is another fundamental feature of democratic, human rights-based systems.85 4.5.2. The international level – a different scenario When the perspective is widened towards the international level, several observations need to be made. First, and most importantly, in the absence of binding norms to be observed by the competent bodies, the application of international IPR lacks the external balancing mechanism regularly provided by constitutional law in a national context. The absence of a clear legal hierarchy in that regard gives even more reason for concern in view of the fact that the factors regularly guaranteeing a high degree of internalization of human rights aspects into pertinent IPR at national level are also less likely to prevail in an international scenario. The reasons for that have already been addressed, but will be recalled briefly. First, whereas it can be assumed that in spite of this asymmetries found in any legal environment, different groups of stakeholders usually have equal access to the political and legal discourse in the context of national lawmaking, such procedural guarantees exist to a much lesser degree when it comes to the promulgation of international agreements. Secondly, and related to that, there is an obvious risk that the balancing of interests performed in an international lawmaking process does not pay sufficient attention to the specific needs of countries where living conditions are clearly different from those which serve as the primary templates for the solution espoused by the proponents of the system. It is exactly the latter kind of objections that are frequently and rightly raised against TRIPS.86 Contrary to robust national systems, where the need for an ex-post adjustment of stakes by judicial means only seldom occurs, it can therefore be assumed that such an option would be of more immediate and urgent relevance at the international level. This places an even larger burden on those institutions responsible for steering and monitoring the application of international rules, and it is unclear to what extent they are actually equipped to meet that burden. 85

See in this respect Hugenholtz (2001) at 343. See Dinwoodie & Dreyfuss (2004) at 95, underlining that the usual “packaging” that is natural in democracies has been absent in the field of intellectual property rights. One explanation for this was that intellectual property right issues were considered too technical to be included in the general logic of “trade-offs”, and that their economic significance has turned them into “acutely controversial” issues. 86


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However, on the other hand, integrating human rights norms into the application of trade-oriented international IPR law is not a lost case per se. As under the national and regional systems considered above, the main theatre for value-based concepts to play out against purely right holderfocused interests are “internalized” rules that are open enough to leave room for normative judgments. Such rules can be found in TRIPS as well as in other international IPR agreements. True, for the reasons mentioned above this does not necessarily guarantee the same level of integration between the two sets of norms as can be observed at the national level. On the other hand, these flaws may be remedied to some extent if and where the IPR rules leave a wider margin for discretion – i.e. where they are more open to flexible, policy-based solutions – as would typically be the case within national legislation. If that is the case – and if that margin is realized and employed in an appropriate manner – the lack or weakness of external balancing mechanisms becomes less of a problem.

5.

HOW TO RECONCILE HUMAN RIGHTS AND INTERNATIONAL TRADE LAW

5.1.

Areas where Conflicts may Arise

Aspects of human rights can be found in all areas of social and economic life. The following overview will focus on those rights that are most likely to generate tensions in relation to IPR. This draws on the General Report issued by the Committee on Economic, Social and Cultural Rights in November 2001, which undertook to identify some of the key human rights principles deriving from the Covenant that are required to be taken into account in the development, interpretation and implementation of contemporary intellectual property regimes.87 These rights are: ●

The right to scientific progress and access to its benefits and the right to cultural participation.88 This specific right could be a first step towards a human rights approach to IPR. It requires in fact, that the

87

“Human Rights and Intellectual Property: Statement by the Committee on Economic, Social and Cultural Rights”, Follow-up to the day of general discussion on Article 15(1)(c), 26 November 2001, E/C.12/2001/15, 14 December 2001. According to the Statement, international trade and IPR protection – at national as well as international level – must respect and abide by international human rights norms. 88 Art. 15(1)(c) of the International Covenant on Economic, Social and Cultural Rights (ICESCR).


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type and level of protection afforded under any intellectual property regime must be tailored so as to facilitate and promote scientific progress,89 and to broadly benefit members of society. In the same way, Art. 15(1)(c) ICSCR provides for the right of individuals to cultural participation, thus potentially mandating the subordination of IPRs to this right.90 The right to food. The right to adequate food was recognized for the first time as a human right in Art. 26(1) of the 1 UDHR and was further elaborated in Art. 11 of the Covenant. “Adequate food” stands for a right beyond the minimum intake of calories for a human life to survive. Adequate food would cover culturally acceptable food, appropriate to physiological needs according to age, gender and occupation, and free from adverse substances.91 In order to fulfil the right to food, adequate food must be both available and accessible to everybody in sufficient quality and quantity. First, availability requires that food is either produced locally or transferred to the place of need. As has often been stated, total food production is able to cover the needs of all inhabitants on earth, the problem being not food production but rather food distribution. From a human rights perspective, it would follow that making food available to all needs to be prioritized vis-à-vis increasing the level of food production. Furthermore, when availability is satisfied, food accessibility must be provided. Accessibility entails economic accessibility – food needs to be accessible at appropriate prices – as well as physical accessibility – even the disabled, children, and people in isolated areas should have access to adequate food.92 All of this might arguably entail conflicts with the profit-maximizing philosophy underlying the market economy in general and IPR in particular.93

89 See also Claude (2002), at 250–52. Another important review of this particular right is “The right of everyone to benefit from the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he or she is the author”, UN – ECOSOC, General Comment, UN Doc. E/C.12/GC/17 (12 January, 2006), where it is explicitly stated that the right to the protection of interests in intellectual creations is intrinsically linked to the other rights recognized in Art. 15 of the Covenant. 90 See also Ziegler (2007) at 4–7. With regard to the protection of cultural rights, a very important discussion has been dedicated to the rights of indigenous peoples regarding their cultural heritage, see Coombe (1998) at 59–60. 91 Eide (1995) at 89 et seq. 92 See also Oloka-Onyango & Udagama (2001) at 12. 93 More extensively on the tensions between the right to food and patent law, see van Overwalle (2009) at 24.


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The right to self-determination. The right to self-determination, stipulated in Art. 11.2 of the Covenant, states that “in no case may a people be deprived of its own means of subsistence”. Also here, interferences might result if large-scale patenting of crops and other subsistence products leads to dependency of countries with traditional agricultural structures on imported, foreign-generated seeds.94 The right to health. The right to health has been included in the Covenant as the “right to the highest attainable standard of physical and mental health”. According to Art. 12 of the Covenant, in order to achieve this goal Member States need to (a) provide for the reduction of the stillbirth rate and of infant mortality and for the healthy development of the child, (b) improve all aspects of environmental and industrial hygiene, (c) prevent, treat and control epidemic, endemic, occupational and other diseases, and (d) to create conditions which would assure to all medical service and medical attention in the event of sickness.95 The potential conflicts with the current patent system resulting therefrom have frequently been addressed and need not be reiterated here.96 The right to freedom of expression and access to information. The right to freedom of expression and information has been embodied in all major human rights instruments. Art. 19 of the UDHR states that “everyone has the right to freedom of opinion and expression; . . . to . . . receive and impart information and ideas through any media and regardless of frontiers”. From a European perspective, the right to freedom of expression is stipulated in Art. 10 ECHR.97

94 Patents on biotechnological products, plants and genes have changed the agricultural landscape in developing but also in developed countries. A few agricultural and biotech companies control and monopolize crops. Furthermore, the patenting of genetic resources has a direct impact on the rights of indigenous peoples and traditional knowledge protection. One major argument for sustaining and extending the patenting possibilities for crops is that it would lead to the development of more resistant crops, crops richer in substances such as vitamins, that it would increase food production and gradually remedy hunger in the world. 95 Another aspect of the right to health concerns the elimination of discrimination against women in the field of health care. For the relationship between TRIPS and the human right to health, see Ranjan (2008) at 551. See also Morin (2006) at 37, discussing the post-TRIPS environment in relation to the right to public health. 96 See also below, on Art. 31(f) TRIPS and the Doha process, 5.4.2.2. 97 In general, freedom of expression is interpreted broadly. The choice of the term “information” encompasses all communication of facts, knowledge and scientific information. According to the ECJ case law, freedom of expression applies even to commercial speech, though to a lesser degree than to political speech. Freedom of expression “may be subject to such formalities, conditions, restrictions


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Attempts by right holders to override the right to freedom of expression are the most important illustration of the impact IPR could have on human rights even in the developed world.98 5.2.

The Notion of “Conflict”99

It is often considered obvious that the policies underlying the exigencies of IPR protection and those underpinning human rights are basically conflicting. However, it is less clear whether and under which circumstances a genuine “conflict” in the legal sense of the term may be found, forcing – or enabling – judicial bodies or other authorities to deploy specific mechanisms in order to reconcile or otherwise resolve such inconsistencies. Indeed, the fact that a state is in compliance with a TRIPS provision, while in violation of a human rights norm, does not automatically mean that the TRIPS provision in question is in conflict with the human rights instrument. In a “technical” legal sense, it would rather have to be shown that the TRIPS provision in fact mandates or prohibits an act that a human rights instrument conversely prohibits or mandates.100 According to the traditional approach, which has been reflected in several decisions of the Appellate Body,101 this would require proving that compliance with WTO obligations necessitates violation of a human rights treaty.102

or penalties as are prescribed by law and are necessary in a democratic society ( . . . ) for the protection of the ( . . . ) rights of others”. In the doctrine, as well as in the case law of the European Court of Human Rights, the “rights of others” includes a wide range of subjective rights and interests. 98 For the situation in Europe, see above, 4.3. Also in the USA, where freedom of expression is laid down in the First Amendment to the Constitution, this forms an important defence against overly broad claims for IP protection. 99 On the issue of what is to be seen as “conflict” in international law, and how conflicts should be resolved, see in particular Pauwelyn (2003) at 158 and 164. Pauwelyn’s approach is referenced in more detail below, 5.4.2.2. 100 Pauwelyn (2003) at 167, with reference to Jenks (1953). 101 In Indonesia – Certain Measures Affecting the Automobile Industry – Panel Report (1998), and in Guatemala – Anti-Dumping Investigation regarding Portland Cement from Mexico, WT/DS60/AB/R, 2 November 1998, the Appellate Body stated that “a special or additional provision should only be found to prevail over a provision of the Dispute Settlement Understanding (DSU) in a situation where adherence to the one provision will lead to a violation of the other provision, that is in case of a conflict between them”. This approach was further confirmed in the Appellate Body Report, United States – Anti-Dumping Measures on Certain HotRolled Steel Products from Japan, WT/DS184/AB/R, paras.55 and 62. 102 This principle of narrow definition of conflicts is favoured in the work of a number of legal scholars, see Karl (1984) at 425.


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Quite obviously, such situations would only rarely be found. For instance, regarding the obstacles posed by patent protection for the access of patients in poorer countries to essential medicines, the argument frequently made by the pharmaceutical industry – namely that access to medicines in those regions is equally insufficient regarding freely available substances such as basic cures for diarrhoea or banal infections – might militate against a finding of conflict in the strict sense, by inviting the conclusion that it is not because of patents, but rather because of other, largely home-made reasons that a country is unable to fulfil its obligations under the Covenant. Similar arguments could be made regarding a country’s ability to provide food, educational material or other necessary commodities. However, the narrow manner of defining conflicts between IP and human rights is arguably not the most appropriate way of dealing with the discontent evoked by the pertinent regime. Rather than insisting on the strict, traditional way of reasoning, it should be acknowledged that a conflict in the larger sense will already arise when two sets of norms dealing with the same or closely related matters are informed by fundamentally different values and objectives.103 Only when a comprehensive view is applied which recognizes and gives weight to such more subtle forms of inconsistency will it be possible to arrive at solutions which truly reflect the multifaceted nature of the international obligations to which countries have committed themselves. 5.3.

Specific Conflict Scenarios

Based on the previous considerations, the following, exemplary cases, which have given rise to tensions between patent law and the right to health, will serve as problem scenarios for illustrating and appreciating alternative ways of conflict resolution:104 (1)

Compulsory licences for export of essential medicines The most prominent and obvious example of a conflict (in the large sense pointed out above) between IPR and Human Rights is presented by the practical implications of Art. 31(f) TRIPS and its impact on the right to public health. According to Art. 27.1 TRIPS, patents shall

103

In accordance with Pauwelyn (2003) at 169. These scenarios have been chosen for this purpose simply because they are well-known, and able to illustrate different types and modalities of conflict resolution. It is not claimed thereby that they are the most important or current among contemporary conflicts between IPR and human rights. 104


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(2)

(3)


be granted in all fields of technology and thus also to pharmaceuticals, thereby forcing India – which previously had become known as the “pharmacy of the Third World” – to stop its unauthorized production of generic medicaments. Art. 31 allows countries to grant compulsory licences under certain conditions. However, as pursuant to Art. 31(f), the use of the patent shall be predominantly for the domestic market, many developing countries were unable to make use of that option, as they have limited or no manufacturing capacity. This concerns in particular the states of Sub-Saharan Africa, which are particularly affected by deadly pandemics such as HIV/ AIDS, malaria and tuberculosis. Grant of compulsory licences for domestic demands Apart from the specific problems caused by Art. 31(f) TRIPS, countries may also be confronted with misgivings if they make extensive use of the possibilities offered by Art. 31 for their own demands. For instance, Brazil has launched an ambitious health programme, including inter alia the production of generic pharmaceuticals to cover the needs of HIV/ AIDS patients.105 Another example is Taiwan, where a compulsory licence was issued for production of Tamiflu, in order to provide a cure against the threatened bird flu.106 The pharmaceutical industries and countries promoting their interests generally take a critical view of such initiatives.107 Assessment of the stockpiling exception under the three-step test (Art. 30 TRIPS) A third example can be found in provisions like the “stockpiling exception” previously anchored in Canadian patent law. The provision allowed generic manufacturers, in the six months preceding the expiry of pharmaceutical product patents, to produce, and keep in stock, samples of the medicament, so as to be in a position to supply the market as soon as possible, after the patent had lapsed.108 Upon a complaint brought by the European Union, the WTO panel

105 For the details of the Brazil AIDS Programme, see http://news.bbc.co.uk/2/ hi/business/1505163.stm. 106 See http://news.bbc.co.uk/2/hi/asia-pacific/4366514.stm. 107 It must be noted in the context that ironically, the USA, otherwise one of the strongest promoters of undimimished rights in pharmaceutical patents, has resorted to Art. 31 TRIPS when faced with the threat of terroristic attacks by use of anthrax poisoning. 108 In addition to the stockpiling exception, Canadian law also contained a regulatory exception, which permitted the making of samples in order to initiate the regulatory process (market permission) before expiry of the patent. That second exception was accepted by the panel as being in compliance with Art. 30 TRIPS.


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found that the exception did not meet the requirements of the threestep test in Art. 30 TRIPS.109 Arguably, however, the stockpiling exception too concerned a scenario in which the interests of patients as well as that of the state to provide efficient distribution of low-cost medicaments might militate against a purely IP-focused analysis. 5.4.

Conflict Resolution Models

5.4.1.

(Re)considering the hierarchy of international norms: the case of jus cogens It has been pointed out above that by contrast to the relationship between constitutional norms and “ordinary” law in the domestic (and partly also regional) context, no clear hierarchy exists at international level regarding human rights norms and trade regulations. Furthermore, it has been held that mandatory TRIPS provisions – not because of their superior value and ranking, but rather for structural reasons, concerning their “codification” and the system within which they are enforced – will regularly be given precedence over external, non-trade norms and principles. However, that rule must be qualified in so far as conflicts falling within the ambit of so-called jus cogens are concerned. The concept refers to peremptory international norms and principles in international law which derive their status from fundamental values held by the international community.110 Due to their outstanding dignity and status in the hierarchy of international norms, jus cogens principles are binding on all states irrespective of whether or not they have signed a treaty to that effect.111 Furthermore, it is generally recognized that jus cogens obligations are always erga omnes, meaning that any state can bring a claim based on disrespect of such rights by another state. Lastly, and most importantly in this context, in case of a direct conflict between jus cogens and (subsequent) treaty obligations, the latter are considered as null and void. That principle is expressly set out in Art. 53 VCLT,112 and its universal

109 Canada – Patents – Panel Report, WT/DS114/R, 17 March 2000. Further on the Canada – patents report, see Kur (ch. 5) at 4; same author (2008) at 20 et seq. 110 See Inter-American Commission on Human Rights, Report No. 62/02, Case 12.285 – Michael Domingeus/United States, 22 October 2002, available at: http:// www.internationaljusticeproject.org/pdfs/DominguesOverview.pdf. 111 Bianchi (2008) at 491–4. 112 Although the inclusion of Art. 53 in the VCLT was widely reported, it has created controversy in so far as it allows treaties to “create” jus cogens norms, whereas according to the traditional concept, such norms could only be developed by customary international norms.


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validity was confirmed inter alia in the report of the International Law Commission (ICL) Study Group on “Fragmentation of International Laws”.113 The same result – absolute prevalence of jus cogens norms – applies in case of conflict with a rule of ordinary customary international law, or with a resolution of an international organization, or in conflicts with a rule of ordinary international law relative to some specific case or state of affairs.114 There is no doubt that fundamental human rights constitute the core area of what jus cogens is all about. Indeed, jus cogens is sometimes referred to as comprising the “bulk of contemporary human rights prescriptions”. Also, the very concept of jus cogens can be explained by invoking the peremptory character of particular human rights obligations such as the prohibition of slavery, torture and genocide.115 Although those principles as well as their superiority over countervailing norms and obligations are uncontested as such, their effect in practice remains doubtful. The International Court of Justice (ICJ) has remained silent for many years on the applicability of the jus cogens principle.116 National courts have addressed the principle mainly with regard to jurisdictional immunities, questioning whether the breach of peremptory human rights norms by a state or one of its organs should lead to the lifting of immunities to which they are entitled under international law.117 However, in the majority of such cases, the courts did not limit their reasoning to the peremptory nature of the norms violated but embedded their reasoning in a much wider interpretative framework.118 The prevalence of jus cogens norms is mandatory also in the WTO 113 UN – Yearbook of the International Law Commission (1996), Vol. 2, at 248: “a treaty or a treaty provision will be deemed void when it is in conflict with a rule of jus cogens”. 114 Linderfalk (2007) at 853 et seq. 115 See also in this respect McDougal, Lasswell & Chen (1980) at 52. 116 However, the ICJ referred to the principle in its ruling on jurisdiction and admissibility of the application in the Case Concerning Armed Activities in the Territory of the Congo (New Application: 2002) (Democratic Republic of the Congo v. Rwanda), 2006, at paras.64 and 125, available at: http://www.unhcr.org/ refworld/docid/43fb2f784.html. 117 There are a number of national court decisions where the principle of jus cogens has been invoked, see Bouzari v. Islamic Republic of Iran (Superior Court of Ontario, Swinton J), 124 ILR 427, at 446, paras.72–3, and Bouzari v. Islamic Republic of Iran (Ontario Court of Appeal), 71 OR (rrd) 675, at 694–6. See also the German Supreme Court’s decision (BGH) in Greek Citizens v. Federal Republic of Germany (the “Distomo Massacre Case”), 48 NJW 3488 (2003). 118 See for instance the decision concerning the “Distomo Massacre”, from the Areios Pagos (Hellenic Supreme Court), Gavouneli & Bantekas (2001) at 198.


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context, as has been confirmed in the WTO panel decision Korea – Government Procurement.119 Before considering other modes of conflict resolution, it must therefore be asked whether and in which situations the application or implementation of TRIPS rules would entail a violation of fundamental principles falling within the ambit of jus cogens, to the extent that they have to yield in favour of the latter. For instance, the question could be posed whether Arts. 27 and 31 TRIPS in their original form,120 and the insistency of pharmaceutical companies on enforcing patent rights in a situation when poor countries are hit by pandemics (and people are dying for lack of treatment) are in conflict with jus cogens. However, the answer to that question would most likely be in the negative. The available case law on jus cogens seems to show that in practice, the concept is applied in a very restrictive manner. As a matter of principle, only such direct, physical actions as killing or torture appear to fall within its ambit. Conduct and omissions of a more indirect character are not concerned, even if these may lead to thousands of deaths per year – such as, for example, massive contributions to global climate change resulting in disastrous flooding or draught, or financial speculations involving basic foodstuffs that are likely to cause extreme poverty and famine in certain regions.121 Likewise, the existence of exclusive patent rights as such in the scenario referred to above can arguably not be considered as a breach of jus cogens. It is even more improbable that a conflict with jus cogens might evolve in consequence of any other IPR, for example copyright barring access to informational or cultural content. Hence, where conflicts occur, they will regularly not involve jus cogens, but rather concern the “softer” human rights norms anchored in international customary law. 5.4.2.

Internalisation of conflicts

5.4.2.1. Treaty re-adjustment as a means for conflict internalisation The impact on the right to health of patent rights to pharmaceutical products has received the widest public attention and is probably the sole

119

WTO (2000b), Korea – Measures Affecting Government Procurement – Panel Report, WT/DS163/R, 1 May 2000. It was pointed out that non-WTO law, specifically jus cogens, applies to WTO “treaties” as well as to the process of “treaty formation”. 120 I.e., without considering the insertion of Art. 31bis TRIPS and the waiver ensuring, until its enactment, that Art. 31(f) is not enforced. 121 At least, until now such conduct has only been accused of being ethically wrong – and possibly giving rise to claims for compensation – but not as violating jus cogens.


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conflict scenario that has been concretized in an amendment to a binding international instrument. The potential violations of the right to health have laid the ground for the Doha Declaration on the TRIPS Agreement and Public Health122 and the subsequent amendments to Art. 31 TRIPS. It is true that no express reference was made to human rights in the Doha Declaration. Nevertheless, the fact remains that the Declaration as well as the TRIPS amendments are to a certain extent reflections of human rights advocacy in the area of access to medicines. The inception of the movement leading up to the Doha Declaration can be traced back to a special session on intellectual property and access to medicines held by the TRIPS Council on 20 June 2001, at the request of the African Group. The session inter alia aimed to clarify the effects and possible interpretations of flexibilities that Members are entitled to make use of under the treaty.123 On this occasion, the draft presented by developing countries employed an extensive and direct reference to the human rights perspective. The draft contained a rather strong statement according to which “nothing in the TRIPS Agreement” shall prevent Members from taking measures to protect public health, and flexibilities incorporated in TRIPS, for example compulsory licensing, needed to become more accessible to developing countries. On the other hand, developed countries stressed the importance of strong patent rights for pharmaceutical products in their draft, and concluded that strong IPRs contribute to public health. The pressure exercised by the coherent group of developing countries finally led to the adoption of the Doha Ministerial Declaration on 14 November 2001. The Declaration was no more than the first step in the process of “adjusting” TRIPS to accommodate “public health” concerns. It states that TRIPS does not and should not prevent Members from taking measures to protect public health. By means of para.4 of the Declaration, the Members affirmed the right to promote public health and in particular to promote access to medicines for all. The final Decision of the TRIPS Council of 30 August 2003 brought a provisory solution,124 122

Doha Declaration on the TRIPS Agreement and Public Health, WT/ MIN(01)/DEC/2, adopted 14 November 2001, available at: http://www.wto.org/ english/thewto_e/minist_e/min01_e/mindecl_e.pdf. 123 The second discussion of the TRIPS Council held 19–21 September focused on the objectives and principles of the TRIPS Agreement (TRIPS Arts. 7 and 8), parallel imports (Art. 6), and compulsory licensing (Art. 31). The discussion broadened to cover other related issues on the basis of the draft texts presented by Member States. 124 Implementation of paragraph 6 of the Doha Declaration on TRIPS Agreement and Public Health, Decision of the General Council of 30 August 2003, WT/L/540, available at: http://www.wto.org/english/tratop_e/trips_e/implem_para6_e.htm.


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which though not as strong as the initial draft, provides for a rather broad regulatory framework to remedy the Art. 31(f) deficiency with regard to developing countries. Furthermore, it laid the ground for the insertion of a new Art. 31bis and thus for the amendment of the TRIPS text.125 The source of the amendment can be found in the – however tacit – recognition of the existence of a collision between IPR and human rights, and of the potentially superior weight attributed to the latter. 5.4.2.2. Interpretation of TRIPS provisions – potential and confinements Whereas the Doha process has shown that human rights-motivated amendments of TRIPS are possible when urgent ethical concerns generate sufficient political pressure, it cannot easily be assumed that such constellations will frequently arise in the near future.126 Therefore, the foremost way to achieve reconciliation of IPR and human rights is, and will most likely remain, the factoring into TRIPS of the values set out in the Covenant and other human rights instruments by way of interpretation. The basis for that approach is primarily furnished by the Preamble as well as by the Principles and Objectives, Arts. 7 and 8 TRIPS.127 Although Art. 8 in particular is more strictly bound to observance of the substantive rules in Part II of the Agreement than its counterpart in Art. XX GATT,128 both Arts. 7 and 8 can and should have a strong impact on the spirit in which the interpretation is undertaken, all the more so after their importance and relevance has been reinforced by the Doha Declaration. Making more and better use of the flexibilities offered through a conscious interpretation of TRIPS norms129 is therefore frequently advocated 125

See also Helfer (2004) at 1–14. However, a similar scenario to that posed by the public health debate might emerge in the wake of climate change. For proposals made in that regard, see Ad Hoc Working Group on Cooperative Long-term Action under the Convention, FCCC/AWGLCA/2009/INF.1, at 184–6; for more details see Kur & Grosse Ruse-Khan (ch. 8), 3.3. 127 See already above, 3.2. In addition, human rights-related considerations may impact the interpretation of TRIPS provisions where they include open, value-based notions, such as “unreasonable”. 128 For details, see Grosse Ruse-Khan (ch. 4). 129 According to Art. 31 of the Vienna Convention, the interpretation process starts from the plain meaning in its context. The meaning of the term “context” is further specified in clauses 2 and 3. Where the object and purpose of the treaty as stated in the text of the treaty is clear enough, there is no need for the interpreter to resort to supplementary material. However, when the pure text of the treaty is not sufficient in order to define the context of a treaty, the interpreter may use the preamble, annexes of the treaty as well as any agreement relating to the treaty but 126


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in the legal literature exploring the IPR/human rights interface.130 It is emphasized that the provisions of TRIPS should be interpreted in light of the treaty commitments as well in light of customary international law. Even before the Doha Declaration, it was clear that the human right to health is of major importance in the overall framework of international obligations, meaning that it should also be taken into account in the interpretation of TRIPS. More specifically, it was argued that with regard to health issues, Art. 31 TRIPS would have to be interpreted in light of Arts. 55 and 56 of the UN Charter, Arts. 25 and 27 of the UDHR, and Arts. 12 and 2 of the ICESCR (see also below).131 The same applies with regard to the Brazilian health programme mentioned as the second example in the conflict scenarios above.132 It could be contended that in addition to the Doha Declaration, pertinent human rights norms could be invoked, such as Art. 2 of the ICESCR, which requires states to take steps individually as well as with international assistance to achieve the full realization of the rights set out in the Covenant, including an adequate standard of food, health, etc.133 Finally, regarding the third example mentioned in the conflict scenarios – provisions corresponding to the “stockpiling exception” in Canadian law – it has been stated that the panel’s reluctance to even consider the public health objectives underlying the provision constitute a major flaw in the Canada – patents report, and that such policy blindness cannot be justified, in particular now, in the aftermath of the Doha process.134 Although treaty interpretation might therefore yield basically positive results, its restrictions must also be kept in mind. It is true that WTO panels and the Appellate Body cannot exceed the limits of the mandate granted to them, namely to interpret WTO law and determine whether a provision of the covered agreements has been violated. This means that WTO dispute settlement bodies can only interpret and apply WTO law and are not competent to interpret and decide upon the violation of

also any instrument, which was made by one or more of the parties in connection to the treaty, see Aust (1986) at 787 et seq. 130 See for example Petherbridge (2004) at 1147–9, as well as articles by Howse & Mutua (2000), and Dommen (2002) 1–50. 131 For a general assessment (pre-Doha) of the impact of those general rules on the interpretation of TRIPS, in particular regarding health-related issues, see Howse & Mutua (2000). 132 Above, 5.3. 133 Art. 2 ISR is also of importance with regard to national policies ensuring the food supply. In that regard, see Konandreas, Sharma & Greenfield (1999). See also WTO (2000c). See also Green & Priyadarshi (2001). 134 See Kur (ch.5), 5.2.2.2.


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other treaties or customary law. Consequently, they cannot enforce or award a direct effect status to human rights provisions (other than jus cogens135). This result is confirmed by Arts. 3(2) and 19(1) of the DSU, which provide that panels and the Appellate Body are prohibited from adding to or diminishing the rights and obligations of the WTO Agreement. Since human rights instruments are not part of the “covered agreements”, the panels and Appellate Body cannot enforce these to the extent that these could potentially add to or diminish WTO rights and obligations. Therefore, it is very doubtful whether a panel could have found a onesided neglect of the export restrictions following from Art. 31(f) TRIPS as being covered by a broad interpretation of the provision, even if the ultimate aim of the measure would have been to provide assistance in a serious health crisis in the importing country. Furthermore, the sole conclusion the WTO adjudicating bodies are allowed to reach is whether “a measure is inconsistent with a covered agreement”, in which case it shall be recommended “that the Member concerned bring the measure into conformity with that agreement”. Thus, a WTO panel report could not possibly require that a Member amend its legislation in order to be brought in conformity with non-WTO norms, unless these were associated with compliance with provisions of a covered agreement. In spite of those restrictions, however, it remains true that human rights, like any other non-WTO rule, may serve as informative rules of law, and as guidance in the process of the interpretation of a WTO Agreement.136 Another, more far-reaching model for conflict resolution is suggested by Pauwelyn in his book on conflict of laws in international public law.137 If dispute settlement resolution bodies find that norms are diverging with regard to the underlying objectives and aims, they may set aside, in case of direct conflict, one provision in favour of the exclusive application of

135

See above, where it was also pointed out that a conflict between TRIPS provisions and a human rights norm of jus cogens character is extremely unlikely to occur. 136 According to Art. 3.2 of the dispute Settlement, jurisdiction is only limited to the clarification of existing provisions of the WTO Agreements, which may be interpreted in accordance with customary rules of interpretation of international law. The application of other international law obligations by the panel is still questionable. In some cases, WTO Agreements explicitly allowed for the application of extra-WTO resources, for example the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) and the Agreement on Technical Barriers to Trade (TBT Agreement) apply the Codex Alimentarius, as a binding standard, though it is in principle a non-binding instrument. 137 Pauwelyn (2003) at 200.


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another which is regarded as “superseding” according to general rules.138 However, they would also be able to lean on the presumption against a direct conflict,139 thereby allowing both provisions to be applied in a manner which takes account of their specific objectives. The approach would in many cases be similar to that of treaty interpretation, but as it does not subject the effect of either provision to the restrictions of treaty interpretation, it allows for an even more balanced result. Consequently, if under this approach a human rights provision is invoked in a WTO dispute settlement proceeding, the panel should determine whether human rights are relevant in the case in question. If this is found to be the case, it should proceed to apply the TRIPS provision in a manner capable of avoiding a direct conflict, based on the understanding that the human rights norm applies as well. However, if (and only if) a direct clash between the two set of norms proves inevitable, the panel would have to conclude that human rights norms lack direct effect in WTO law, and that the panel is not competent to interpret and enforce them. It would then be left to the Members to potentially address such conflicts in their national legislation; otherwise – or in addition – the human rights issue will have to be placed on the political agenda for negotiation of further amendments to the TRIPS Agreement. In spite of the restrictions resulting from the limited mandate of the WTO dispute settlement bodies, the scheme set out above for internalization by way of interpretation appears to be a basically promising way to seek reconciliation of IPR and human rights interests in the TRIPS framework. However, there is no reason at present to be overly optimistic as to the practical implementation of that route. Caution is warranted not least in view of the narrow, restrictive approach that has been taken in previous panel decisions dealing with TRIPS. In order to restore confidence in the ability and willingness of the competent bodies in the WTO to arrive at solutions which, although remaining within the framework of binding TRIPS norms, take account of other values and obligations to be honoured by TRIPS members, and the human rights status in the interpretation of TRIPS should be clarified further.140

138

Rules for determining whether one norm is to be regarded as prevailing over the other are set out in the VCLT. Those rules include the principle of lex specialis and of lex posterior derogat legi priori. Furthermore, there is a presumption against a violation of jus cogens. 139 Pauwelyn (2003) at 240. This presumption is adopted as a corollary to the wide notion of conflicts endorsed by him; see already above, 5.2. 140 This would include answers to the following provisions: Are the human


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5.4.2. External solution mechanisms The lack of specific and binding obligations regarding human rights rules and the dependence on general recommendations and principles continue to be a major weakness whenever WTO dispute settlement bodies reach the boundaries of their competence and the possible ambit of flexibilities within the rules they have to apply. As was said above,141 it is hardly imaginable that a panel or Appellate Body would set aside a WTO rule in favour of another treaty or a customary provision under the present agreement. If, therefore, a WTO rule is in direct conflict with a human rights rule, both principles would be cumulatively binding in different jurisdictions and under different systems of state responsibility.142 An illustration of the tensions between potentially conflicting human rights obligations and other, basically trade-related rules that exist independent of the former,143 is provided by the parallel, unconnected structures of the legal and judicial systems within the European Union on the one hand and the ECHR on the other. As was said before, all EU Member States are also signatories to the ECHR and are hence required to fulfil the obligations stipulated therein.144 The EC, however, could not become a member of the ECHR before the enactment of the TFEU on 1 December 2009.145 Before that, its acts and decisions could not be challenged before the Strasbourg organs. It was an accepted fact that ECHR Member States could transfer their sovereignty to supranational organizations, such as the EC; nevertheless, they remained bound to their obligations stemming from the Convention. The issue was addressed in Matthews v. UK, when the ECtHR held the UK liable for breach of ECHR obligations, whereas the violations in

rights obligations of WTO Members to be considered a “relevant legal context” for the interpretation of “general exceptions” in WTO agreements, as well as with regard to the “measures necessary to protect human life or health” and “public morals” (Art. XXa, b, GATT)? Furthermore, are the “General Comments” adopted by the UN Committee on Economic, Social and Cultural Human Rights on the human rights to food and health the “relevant legal context” for interpreting the WTO Agreement? 141 Above, with reference to the (fictitious) situation that a pharma-exporting country had one-sidedly discarded the restrictions following from Art. 31(f). 142 Marceau (2002) at 759–61. Such a scenario is obviously illustrated with regard to ECHR-originating obligations. 143 The complexity of issues resulting from intersection of possibly conflicting international treaties is addressed in more detail by Kur & Grosse Ruse-Khan (ch. 8), at 4. 144 See in this respect Krüger & Polaciewicz (2001). 145 See above 2.1.


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question originated in the EC treaties. The UK had argued that states should not be held liable for such violations; they were not responsible for them. However, the ECtHR ruled that the UK could not escape liability, which arose in consequence of its accession to the EC, as this also meant that it participated in the EU legal order.146 The result has been welcomed because, if the EC could not be sued as it is not a contracting party to the ECHR, while Member States were not liable for secondary acts of the Union before the ECtHR, the ECHR rights can hardly be safeguarded following the transfer of sovereignty.147 The same question was raised with regard to the Bosphorus Airways case. The case in question dates back to the conflict of 1991–94, which followed the collapse of former Yugoslavia. At the time, UN economic sanctions that were implemented by Community law were interpreted by Irish authorities to entail the seizure of all Yugoslav assets, including the planes leased by the Yugoslav state airline to Bosphorus Airways, a Turkish charter airline.148 The case was referred to the ECJ, which stated that the property rights of Bosphorus had not been violated, since the fundamental rights invoked by Bosphorus Airways were not absolute and their exercise might be subject to restrictions justified by objectives of general interest pursued by the Community. In fact the objective of ending the conflict, also taking into account the massive violations of human rights, were to weigh heavier than the company’s rights. No reference was made in that decision to the ECHR or the jurisprudence of the ECtHR. The plaintiff then brought a complaint before the ECtHR, claiming non-compliance with Art. 1 of Protocol 1 to the ECHR. The ECtHR agreed that the measures taken by the Irish authorities raised an issue under the ECHR, as the decision to seize the aircrafts had been a “control of use” of those rights as protected under Art. 1 of Protocol 1. However, the ECtHR also declared that where EC Member States are obliged to act pursuant to Community law, and Community law provides for substantive and procedural protection for human rights equivalent to the protection offered by the ECHR, there is a presumption of compliance with ECHR principles, which may only be rebutted on a case-by-case basis.149

146 Matthews v. The United Kingdom, 1999-I ECHR paras.29 and 32–4; Prince Hans-Adam II of Liechtenstein v. Germany, 2001-VIII ECHR para.47. 147 See Peers (2006) at 446. 148 Council Regulation (EEC), Concerning Trade Between the European Economic Community and the Federal Republic of Yugoslavia (Serbia and Montenegro), No. 990/93 of 26 April 1993. 149 Bosphorus Hava Yollari Turizm v. Ireland, App. No. 45036/98 (ECtHR 30 June 2005); see also ECJ Case C-84/95 – Bosphorus [1996] ECR I-3953.


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Hypothetically, the case could be transposed to the international level. Suppose that human rights obligations were anchored in a binding Convention that also grants access to a Human Rights Court established for the purpose. In such a scenario, it might occur that a country desperately in need of access to (foreign) medicaments in order to rein in a devastating health crisis (e.g. a country from Sub-Saharan Africa) would file a complaint against another country (e.g. India), which would technically be in a position to deliver low-price, generic pharmaceuticals, but refuses to do so because it is bound by TRIPS. In that situation, the Human Rights Court would have to consider that (a) the international body imposing the relevant obligation is (by assumption) not a member and thus cannot be sued directly, and that (b) although the country can hardly be blamed for following its obligations, under TRIPS it must still be held accountable for human rights violations ensuing in consequence of its decision to adhere to TRIPS, thereby renouncing part of its sovereign powers. Unlike in the case related above, it seems hardly possible in that situation to establish a presumption in favour of the human rights compatibility of TRIPS obligations, given that TRIPS as of now does not contain a corresponding set of principles. But even if it were possible, the presumption might be rebutted in view of the severity of the emergency at stake. It follows that the respondent state will lose whatever it does. This shows that although the pragmatic solution endorsed by the ECtHR in the Bosphorus case may provide a paradigm that will lead to satisfactory results in many or most conflicts arising between obligations resulting from European Community law and the ECHR (or similar arrangements), the existence of parallel, incoherent judicial structures and obligations on the international level is bound to result in frictions that cannot be bridged. From a systemic point of view, the obvious solution would be to install an International Supreme Court with competence to adjudicate international instruments in their entirety, and with full powers to assert prevalence between conflicting treaty obligations, based on their relative importance and value rather than on formal aspects such as sequence in time. However, the vision of such a court is hardly likely to come to fruition in the near future.150

150 A less revolutionary, but probably already quite useful scenario would be provided by a gradual opening of WTO dispute settlement proceedings to representatives of stakeholders (NGOs), whenever non-trade-related issues are at stake; see Bakardjieva Engelbrekt (ch. 3) 6.3.


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6. CONCLUSIONS The above analysis of various aspects of the human rights/IPR interface in the WTO/TRIPS context allows us to conclude that the issue will without doubt continue to appear on the political and diplomatic agenda. Striking the proper balance between the two is a difficult and maybe utopian task. Tracking the impact of IPR on human rights and vice versa as well as proposing synergies will probably remain forever contentious. Nevertheless, when attempting to investigate the legal parameters of the interface and map the impact of the possible conflict, there is not much to debate about. In this respect, a simplified approach can be proposed: The way international law is currently structured, there is no possibility to resolve a direct external conflict between IPR and human rights in the framework of WTO dispute settlement proceedings. Apart from the situation when an IPR norm violates a jus cogens norm – which is extremely unlikely to occur – direct conflicts would result in the TRIPS norm taking precedence. While any direct “inclusion” of human rights norms and consequently their subsequent enforcement by means of the WTO dispute settlement resolution therefore is not a realistic option under present circumstances, employing human rights norms and terminology in the process of interpretation of relevant TRIPS provisions is a more promising scenario. The rules of treaty interpretation of the Vienna Convention leave room for such an approach, although until now, the WTO panels have shown little inclination for its adoption. Another alternative is adopted in the Doha Declaration on patent rights and public health, where the claims of an external conflict between the human right to health and the exclusive IRP was mechanically internalized by an amendment to TRIPS with the aim of re-balancing, in this case of Art. 31 TRIPS. A middle route between the two approaches might be found in internationally agreed instruments with non-binding character (soft law), in which the flexibilities inherent in TRIPS and the recommended method of interpretation are set out in the form of Joint Recommendations, protocols, etc. Suggestions for such interpretative sub-texts are contained in the IPT project – in particular as regards the “balancing clause” providing an overarching scheme replacing the individual three-step tests, and also in view of the “fleshing out” of Art. 7 – as well as in other similar proposals, such as the “Declaration for a Balanced Interpretation of the ThreeStep Test in Copyright”.151 Since resolution of external conflicts between

151


Geiger, Griffiths, Hilty & Suthersanen (2008).

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human rights and IPR is both difficult to administer and to enforce, an internalization, be it after an explicit amendment of TRIPS, or otherwise based on explicit statements ensuring a value-based judgment, would considerably enhance the chances, not only for acceptance of a balanced approach, but also of its enforcement within the established framework of the WTO. On the other hand, violations of human rights obligations could potentially also be brought before other courts. However, as long as that would lead to concurrent but incoherent judicial court structures existing parallel to each other, it would most likely lead to contradictory rulings putting Member States into basically insoluble conflicts. It adds to the dilemma that because and as long as TRIPS cannot be considered as providing for essentially equivalent substantive and procedural protection for human rights as is set out in the relevant instruments, a presumption of compliance like the one applied by the ECtHR with regard to obligations under EC law could hardly be established. This leads to the final conclusion that the most direct, secure and effective way of factoring human rights principles into the interpretation, elaboration and enforcement of TRIPS would be achieved if human rights were included, by express reference, in the TRIPS Preamble or otherwise, in the WTO framework. Whether that is a realistic scenario remains to be seen, but the Doha Declaration has shown that it is not totally out of reach.

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Johnson, G. and Symonides, J. (1998), The Universal Declaration of Human Rights: A History of its Creation and Implementation, 1948–1998, UNESCO SHS. Joseph, L. (2002), “Human Rights versus Copyright: The Paddy Ashdown Case”, Entertainment Law Review, 13(2), 72–4. Karl, W. (1984), “Conflicts between Treaties”, in: Bernhardt, R. (ed.), Encyclopedia of Public International Law, Vol. VII, Amsterdam: North-Holland, 468–73. Konandreas, P., Sharma, R. and Greenfield, J. (1999), “The Agreement on Agriculture: Some Preliminary Assessment from the Experience So Far”, paper presented at the conference, on The Uruguay Round Agreement on Agriculture: Taking Stock, sponsored by CIIR/UK Food Group, Westminster Hall, 28 January 1999. Krüger, H. and Polakiewicz, J. (2001), “Proposals for a Coherent Human Rights Protection System in Europe/The European Convention on Human Rights and the EU Charter of Fundamental Rights”, Human Rights Law Journal (HRLJ), 22, 1–13. Kur, A. (2008), “Of Oceans, Islands, and Inland Water – How Much Room for Exceptions and Limitations under the Three-Step Test?”, Max Planck Institute for Intellectual Property, Competition & Tax Law Research Paper Series No. 08-04, available at: http://ssrn.com/abstract=1317707. Kur, A., Bently, L and Ohly, A. (2009), “Sweet Smells and a Sour Taste”, Max Planck Institute for Intellectual Property, Competition & Tax Law Research Paper Series No. 08-0, available at http://papers.ssrn.com/sol3/papers. cfm?abstract_id=1492032. Lawson, R. (2005), “Human Rights. The Best is Yet to Come”, European Constitutional Law Review, 27–37. Linderfalk, U. (2007), “The Effect of Jus Cogens Norms: Whoever Opened Pandora’s Box, Did You Ever Think About The Consequences?”, European Journal of International Law (EJIL),18(5), 853–71. Marceau, G. (2002), “WTO Dispute Settlement and Human Rights”, European Journal of International Law (EIJL), 13, 753–814. McDougal, M., Lasswell, H. and Chen L. (1980), Human Rights and World Public Order: The Basic Policies of an International Law of Human Dignity, New Haven: Yale University Press. McGuinness, M. (2006), “Exploring the Limits of International Human Rights Law”, Georgia Journal of International and Comparative Law, 34, 393–422. Morin, J.-F. (2006), “Tripping up TRIPS Debates: IP and Health in Bilateral Agreements”, International Journal of Intellectual Property Management, 1, 37–53, available at: http://www.theinnovationpartnership.org/data/ieg/ documents/articles/JF_Morin_2006.pdf. Neumayer, E. (2005), “Do International Human Rights Treaties Improve Respect for Human Rights?”, Journal of Conflict Resolution, 49(6), 925–53, available at: http://ssrn.com/abstract=607681. Ochoa, C. (2003), “Advancing the Language of Human Rights in a Global Economic Order: An Analysis of a Discourse”, Boston College Third World Law Journal, 23(1), 57–114. Okediji, R. (2007), “The Limits of Development Strategies at the Intersection of Intellectual Property and Human Rights”, in: Gervais, D. (ed.), Intellectual Property, Trade and Development: Strategies to Optimize Economic Development in a TRIPS-Plus Era, Oxford: Oxford University Press, 355–84. Oloka-Onyango, J. and Deepika Udagama (2001), The Realization of Economic,


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Social and Cultural Rights: Globalization and its Impact on the Full Enjoyment of Human Rights, Preliminary Report, Doc. UN Press Release E/CN.4/ Sub.2/200/13, 15 June, 2000, available at: http://www.unhchr.ch/Huridocda/ Huridoca.nsf/(Symbol)/E.Cn.4.Sub.2.2000.13.En?Opendocument. Ostergard, R. (1999), “Intellectual Property: A Universal Human Right?”, Human Rights Quarterly, Vol.21, 156–178. Overwalle, G. van (2009), “‘Human Rights’ Limitations in Patent Law”, in: Grosheide, F. (ed.), Intellectual Property and Human Rights: A Paradox, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, Part III.2.2. Pauwelyn, J. (2003), Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law, Cambridge: Cambridge University Press. Peerenboom, R. (2005), “Human Rights and Rule of Law: What’s the Relationship?”, Georgetown Journal of International Law, 36, 809–945, available at: http://ssrn.com/abstract=816024. Peers, S. (2006), “Bosphorus: European Court of Human Rights”, European Constitutional Law Review, 2, 443–55. Petersmann, E.-U. (2000), “From ‘Negative’ to ‘Positive’ Integration in the WTO: Time for ‘Mainstreaming Human Rights’ into WTO Law?”, Common Market Law Review, 37, 1363–82. Petersmann, E.-U. (2002), “Time for a United Nations ‘Global Compact’ for Integrating Human Rights into the Law of Worldwide Organizations: Lessons from European Integration”, European Journal of International Law (EJIL), 621–50. Petersmann, E.-U. (2004), “The ‘Human Rights Approach’ Advocated by the UN High Commissioner for Human Rights and by the International Labour Organization: Is it relevant for WTO Law and Policy?”, Journal of International Economic Law, 7(3), 605–27. Petherbridge, L. (2004), “Intelligent TRIPS Implementation: A Strategy for Countries on the Cusp of Development”, University of Pennsylvania Journal of International Economic Law, 25, 1133–69. Ping, L. (2007), “Coverage of the WTO’s Agreement on Government Procurement: Challenges of Integrating China and other Countries with a Large State Sector into the Global Trading System”, Journal of International and Economic Law, 10(4), 887–920. Ranjan, P. (2008), “Understanding the Conflicts between the Trips Agreement and Human Right to Health”, Journal of World Investment and Trade, 9(6), 551–78. Shelton, D. (2007), “An Introduction to the History of International Human Rights Law”, GWU Legal Studies Research Paper No. 346, available at: http:// ssrn.com/abstract=1010489. UN – Yearbook of the International Law Commission (1996), Report of the Commission to the General Assembly on the work of its forty-eight session, Vol. 2, A/CN.4/SER.A/1996/ Add.l, United Nations: Geneva, available at: http://untreaty.un.org/ilc/publications/yearbooks/Ybkvolumes(e)/ILC_1996_ v2_p2_e.pdf. UN (2000), “Intellectual Property Rights and Human Rights”, Sub-Commission on Human Rights Resolution 2000/7, E/CN.4/SUB.2/RES/2000/7, 17 August 2000, available at: http://www.unhchr.ch/Huridocda/Huridoca.nsf/TestFrame/ c462b62cf8a07b13c12569700046704e?Opendocument. UN – ECOSOC (2000), Economic and Social Council, Preliminary Report on


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6 December 2002, available at: http://docsonline.wto.org/GEN_viewerwindow. asp? http://docsonline.wto.org:80/DDFDocuments/t/IP/C/27.doc. Yu, P. (2006), “TRIPs and its Discontents”, Marquette Intellectual Property Law Review, 10, 369–410. Yu, P. (2007), “Reconceptualizing Intellectual Property Interests in a Human Rights Framework”, U.C. Davis Law Review, 40, 1039–1149, available at: http:// ssrn.com/abstract=927335. Ziegler, K. (2007), “Cultural Heritage and Human Rights”, Oxford Legal Studies Research Paper No. 26/2007; Centro Internazionale di Studi Gentiliani Alberico Gentili: La Salvaguardia dei Beni Culturali Nel Diritto Internazionale, Milan: Giuffrè, (ed.), 2008, available at: http://ssrn.com/abstract=1002620.


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Fire and water make steam – redefining the role of competition law in TRIPS Jens Schovsbo1

1. INTRODUCTION This chapter points out the relevance of competition law2 to international issues of Intellectual Property Law (IPR). More concretely, it reflects and supports the IPT proposal for a new Article 8b on the Interface between Intellectual Property Rights and Competition Law. The perspective is international and focused on TRIPS. It is also inherently focused on competition law as seen from an IPR perspective. The examples given will mostly relate to copyright and patents but the perspective is generally “IPR” in its broad TRIPS sense, i.e., including trade marks, designs, plant variety protection, utility models, topographies, trade secrets and geographical indications. EU and US law will be used to provide a baseline for identifying substantive issues of competition law relating to the IPR interface. This approach raises some problems as the political, historical, and practical differences between the “interventionist” EU and the “minimalistic” US competition law approaches are major3 even though they are often also said to be converging (towards the US model).4 The two systems are, nonetheless,

1

The research underlying this chapter was supported by a grant from the Danish Agency for Science, Technology and Innovation. Thanks to my colleagues in the IPT project (especially M. Levin and A. Kur) for many stimulating discussions over the years and to Professor Lisa Ramsey, University of San Diego School of Law, and Professor Thomas Riis, University of Copenhagen, Centre for Information and Innovation Law, for comments on a draft of this chapter. 2 A note on terminology: In the following, the term “competition law” is used. In some countries (including the US), the normal term would be “antitrust” (law). 3 Hovenkamp, et al. (2008), § 45.3. simply point out that the differences between EU and US competition law “are more significant than the similarities.” 4 E.g. Langer (2007), p. 230. 308


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central in an international context and provide a rational starting point for the following. The systematic problems will be minimized by focusing on general problems and situations rather than on concrete rules or methodological issues which are particular to either system. After a brief introduction to the topic (Section 2), the chapter first describes and analyses the position in national competition law regarding IPR (Section 3) and the international legal framework (Section 4). On this basis, a number of challenges to the law are identified and analysed (Section 5). Finally, policy conclusions are drawn from the findings and recommendations are suggested (Section 6).

2.

IPR AND COMPETITION LAW

At first glance IPR and competition law are like fire and water. IPR provide for monopoly rights to make it possible for rightholders to exclude others from using their works, inventions, or commercial identifiers and may allow pricing above the competitive level. Competition law aims to prevent market foreclosure and “develops rules that encourage entry and duplication”.5 Anyone who has seen a steam engine, however, knows that water and fire combined in the right way can lead to positive results. It’s the same for IPR and competition. The heat of competition from a wellfunctioning market forces companies to invest in research and development (R&D) to invent new products or processes or to develop new means of selling or advertising: “Innovation is a market-driven concept”.6 Competition law accepts the basic IPR proposition that exclusivity provides a necessary incentive to companies to invest in knowledge and that the protection generally entails net social benefits. Competition law thus seeks to eliminate not only restrictions on competition which lead to higher prices and reduced output in the short run (static efficiency)7 but also restrictions which have adverse effects on innovation incentives and prevent companies from being constantly innovative in creating new

5

Hovenkamp (2005a), p. 2. Hovenkamp (2005a), p. 13. Also Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 US 141, 156 (1989) referring to “the baseline of free competition upon which the patent system’s incentive to creative effort depends.” 7 Static efficiency normally includes “allocative efficiency” (i.e. a situation where goods and services are allocated between consumers according to the prices they are willing to pay, and prices never exceed the marginal cost of production) and “productive efficiency” (i.e. a situation where goods and services will be produced at the lowest possible costs). 6


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products and services to gain new markets (dynamic efficiency).8 IPR and competition law thus serve the same goals and as two “complementary elements of a modern industrial policy”9 form part of the same superstructure aimed at furthering innovation and enhancing consumer welfare. Competition law also accepts the trade-off between dynamic and static efficiency gains and losses in the IPR legislation. The ex post competition law assessment does not substitute for the ex ante IPR assessment in connection with the grant of rights. It also falls outside competition law to micromanage or “fine-tune” IPRs. This task is generally left to the “limitations” and “exceptions” found in IPR.

3.

THE EXPERIENCE IN NATIONAL LAW

Competition law has not been internationally harmonized in the same way as IPR. Even though the prohibition model found in the US Sherman Act (1890) has been widely accepted as a standard model, this development has not been based on international treaties but on national/regional developments. Most legal systems in developed countries would also seem to have arrived at the same general conclusion regarding the IPR/competition law interface: Both legal systems share the same goals but there are tensions in the means applied. Courts have also generally but to different degrees been willing to allow competition law to intervene in the exclusive rights and to compel rightholders to license their IPR. The ground rules for the relationship are sometimes laid out in legislation10 and have sometimes been developed in case law.11 3.1.

General Trends

The intensity and also to some degree the direction of the influence of competition law on IPR have varied over time and often “the cyclical and political nature of the IP-antitrust interface”12 makes it difficult to describe the law in very precise terms. The present cycle would seem to be moving towards an increased awareness amongst courts, competition authorities,

8

E.g. Régibeau and Rockett (2007), p. 505. Anderman and Schmidt (2007), p. 37. 10 E.g. the Japanese Antimonopoly Act, section 21, the Canadian Competition Act, Article 32(1), (2) and (3), and the Australian Trade Practices Act, Section 51(1)(a) and 51(3). 11 E.g. EU and US law. 12 Hovenkamp et al. (2008), § 1.3. 9


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and policy makers of competition law and competition law thinking to the application and development of IPR. In the US, the Department of Justice and the Federal Trade Commission (FTC) in their 2007 Report thus explicitly recognized that “. . . both competition and intellectual property rights are crucial to a well-functioning market economy . . .”.13 In the same vein, the European Commission has recently proclaimed that as a matter of policy “strong protection of industrial property rights should be accompanied by rigorous application of competition rules”.14 On the political level, the trend would seem to have been fuelled by an increased scepticism about the IPR system or at least aspects of it. Part of this scepticism is related to the expansion by TRIPS of IPR to developing countries. The overall effect of TRIPS on developing countries remains the topic of much debate. According to Maskus and Fink, empirical evidence, however, points to a positive role for IPRs in stimulating technology transfer through direct foreign investments (FDI) in production and R&D facilities and through cross-border technology licensing.15 Maskus, however, also points out that any positive effects of IPR in developing countries is far more likely to occur if the implementation of those rules is accompanied by complementary policies that promote dynamic competition.16 Competition law may also provide for some “wriggling room”. Examples of this include the successful use by some developing countries of compulsory licences, for example by the Thai government relating to AIDS medicine in 2006 and anti-cancer drugs in 2008. In this way competition law has gained in political importance and issues such as compulsory licences are now regularly on the international agenda.17 The political interest and scepticism of the present IPR system is not limited to the development agenda. In the EU, the European Commission

13

US Department of Justice & Federal Trade Commission (2007), Antitrust Enforcement and Intellectual Property Rights Promoting Innovation and Competition, p. 3. 14 Rights Strategy for Europe (2008), Communication from the Commissions to the European Parliament, the Council and the European Economic and Social Committee – Brussels 16.7.2008, COM 465 final, p. 9. 15 Fink and Maskus (2005), p. 8. 16 Maskus (2005), p. 69. See also Maskus and Konan (1994), p. 411. A similar view is expressed by Gervais (2008), p. 545. 17 As a concrete result for the EU see Regulation (EC) No. 816/2006 of the European Parliament and of the Council of 17 May 2006 on Compulsory licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems. The Regulation follows the Doha Declaration on the TRIPS Agreement and Public Health (2001) and the subsequent amendment of TRIPS by Article 31bis.


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has expressly questioned the positive effects of the database directive from 1996.18 In the recent Green Paper on Copyright in the Knowledge Economy, the Commission intends to broaden – and possibly soften – both the discussion and the EU copyright rules to take into the account the perspective of various users such as publishers, libraries, researchers, people with a disability and “the public at large”.19 According to the Gowers Review from the UK, “a balanced IP framework must encourage user innovation while protecting the investment of firms”.20 The Review also recommends increasing cooperation between the UK Patent and Trademark Office (PTO) and the competition authorities to ensure that competition and IP policy together foster competitive and innovative markets to the benefits of consumers.21 In the US, the FTC, in its 2003 Report “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy”, explicitly mentions the decline in patent quality in certain areas22 and suggests that courts and the United States Patent and Trademark Office (USPTO) adopt measure to decrease the number of questionable patents.23 This trend arguably also sees competition law as having a prominent role to play as part of the legislative set-up surrounding innovation, even though large differences still remain and US courts in particular have been very reluctant to allow competition law on the scene. The European Commission on the other hand has recently recognized IPR both as a key element of the renewed Lisbon Strategy for Growth and Jobs24 and as an essential condition in making the “fifth freedom”, i.e. the

18 First evaluation of Directive 96/9/EC on the legal protection of databases, Brussels, 12 December 2005. 19 Green Paper – Copyright in the Knowledge Economy, Brussels, 17 July 2008, COM (2008) 466 final. 20 Gowers Review of intellectual property, 2006, p. 31. 21 Gowers Review of intellectual property, 2006, recommendation 34. Available at hm-treasury.gov.uk. 22 “A poor quality or questionable patent is one that is likely invalid or contains claims that are likely overly broad”, p. 5. In a footnote reference is made to software patents and “overly broad” biotech patents. The notion of “quality” is inherently difficult; see e.g. Guellec and van Pottelsberghe de la Potterie (2007), p. 115. 23 The recommendation to improve quality was supported by the Antitrust Modernization Commission’s Report and Recommendations, April 2007, available at http//govinfo.library.unt.edu/amc/report_recommendation/toc.htm. Similar recommendations have been made in a European context see Bedsted et.al (2007), p. 50. Both the European Patent Office and the US Patent Offices have taken steps to increase quality. See more Peritz (2007), p. 191 and Drexl (2008), p. 269. 24 Enhancing the patent system in Europe, Communication from the Commissions to the European Parliament and the Council, Brussels, 3 April 2007 COM (2007) 165 final, p. 2.


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free movement of knowledge, a reality25 and made clear that “strong IPR” is not a goal in itself but that that the development of IPR should move in parallel with competition law.26 A last and important international trend is the increased importance to the IPR system of national courts. As pointed out, for example by Dinwoodie, national courts played only a limited role in the classic IPR system in developing, interpreting and developing international norms.27 This has changed and courts now contribute more actively to shaping and forming national IPR within the international framework. A push towards national courts will help further to release the balancing potential of competition law in relation to IPR. 3.2.

The “Common Goals” of IPR and Competition Law

For IPR, exclusivity is not a goal in itself but merely a means towards greater societal ends associated with innovation. The ultimate goals of competition law do not follow from the concept of “competition” itself. They depend on public policy choices and rely on political decisions. It is, therefore, not possible to point to a universally acknowledged, single goal for competition law. Often, however, competition law would see consumer welfare as the central goal and “competition” as the means to achieve this. Also non-economic (“soft” or “populist”) objectives sometimes claim protection from competition law. Most systems seek to optimize the interests of their national consumers but in EU law the regional goals of market integration and protecting the EC consumer are also part of the purpose of competition law. It is now generally acknowledged that competition law and IPR share common goals: To promote innovation and enhance consumer welfare.28 As seen in a historical perspective, this represents the conclusion of a long and rather varied development. In the US, competition law had the upper hand in the 1970s but during the 1980s competition law intervention was 25

An Industrial Property Rights Strategy for Europe, Communication from the Commissions to the European Parliament, the Council and the European Economic and Social Committee – Brussels, 16 July 2008, COM (2008) 465 final, at p. 3. 26 Ibid. at p. 9. A similar point was recognized by the US Department of Justice & Federal Trade Commission in their 2007 Report (2007), Antitrust Enforcement and Intellectual Property Rights Promoting Innovation and Competition, p. 3. 27 Dinwoodie (2008), p. 63. In the same vein see Bakardjieva Engelbrekt (2008), pp. 65–98. 28 US Guidelines (1995), § 1.0 and EU Guidelines, point 7. Similarly in Japan, see the Japan Fair Trade Commission’s (2007), Guidelines for the Use of Intellectual Property under the Antimonopoly Act (tentative translation), p. 1.


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rolled back, leaving IPR and rightholders on top. The effects of the 1995 US Guidelines29 remain to be seen but they could arguably support a development in either direction.30 In EU law, a similar trend has been visible from a strict regime in the 1970s and 1980s to the present EU Group Exemption from 200431 with accompanying EU Guidelines.32 The same goals conclusion coincides with the latest and most impressive expansion of IPR to new areas (databases, computer programs, genes etc.), in time and territory. In the light of the controversy which has followed this expansion, it may come as a surprise that competition law would seem to have simultaneously drawn out its own teeth. Such a conclusion, however, would seem not to be warranted. Firstly, the scepticism which IPR have historically encountered from competition law would to some extent seem to be unfounded. IPR do not translate into market power and licensing agreements normally have pro competitive effects and constitute perfectly legitimate business transactions. Even in the situations where rightholders do have market power the lessons for competition law from Chicago School and post-Chicago School economists is that competition law should only intervene where market power has real damaging effects on markets. Secondly, the softening of the attitude to IPR is to some extent the result of a general deregulation of competition law and a shift in focus from an assessment which focused on formal aspects (e.g. various “black lists” or lists of “no-no’s”) towards an assessment which focuses on the real and economic effects of market power, cartel agreements etc. In this way, the combined expansion of IPR and the defusing of the tension should not be perceived as a general tendency to “immunize IPR” (just below). In fact, the present emphasis of the “consumer welfare” perspective in competition law up to a point represents an opposition to the expansion of IPR which may at the policy level – and in the words of Hovenkamp – “[counsel] against overly expansive interpretations of IP rights in the face of serious complaints of competitive harm”.33 To IPR the common goals perspective thus includes a caveat: “Beware of consumers’ interests and the efficient allocation of resources”. Finally, the point is also being made that the developments

29

US Guidelines (1995). Hovenkamp et al. (2008), § 1.3. 31 Commission Regulation (EC) No. 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements of 27 April 2004. 32 Commission Notice – Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements, OJ C 101, 27 April 2004. 33 Hovenkamp (2005a), p. 5. 30


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within the two areas of the laws are interconnected and parallel and that as a matter of policy “when IP laws are strong, antitrust should also be strong, and vice versa”.34 3.3.

Balancing Principles

It is competition law’s starting point that rightholders are free to exploit their IPR and to enjoy the benefits ascribed to them by law. However, it is also clear from practice that sometimes the reliance by rightholders on their exclusive rights may be considered as an illegal misuse of those rights. In order to identify such situations courts have developed a number of different conflict principles. 3.3.1. The legal hierarchy argument In some early cases, the relationship between IPR and competition law was seen as being of a formal, hierarchical character. According to this view, courts would have to decide which system to give precedence to. Cases would be decided according to the legal right with the highest rank. This would at times result in IPR having the upper hand and rightholders thus enjoying “immunity”. Under such a system, competition authorities would generally accept limitations in licensing agreements – including price fixing – as the minor “evil” arising out of the greater “evil”, i.e. the “monopoly” created by law. In other situations, competition would be considered as the supreme interest and courts would generally be very reluctant to accept restrictions in licensing agreements. The problem with such models is their disregard for the market effects of IPR and a lack of understanding for the rationale which drives the rightholders to act as they do. Normally, rightholders act rationally and on their best understanding of the market and courts should arguably be reluctant to seek to deduct concrete norms from legal principles. As will be seen in the following, some of the formalism of the early principle has survived to the present day, but generally courts and competition authorities now strive to base their findings on concrete facts and assessments based on market effects. It is a basic principle arising out of the common goals perspective (above) that competition law and IPR are considered as being of the same “rank”.

34 Lemley (2007), p. 2. This principle is recognized by both the European Commission and the US Department of Justice and FTC; see above 3.1.


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3.3.2. The property argument In the IPR debate, the property argument is often used to support claims that holders of IPR should be given “a priority ranking over other kinds of rights or interests”35 and enjoy an absolute and universal right similar to the owner of physical property. Used in this way, the property metaphor has proved to be a powerful but arguably also dangerous tool. For IPR, the argument is dangerous because it tends to push for a “strong” protection of rightholders but overlooks the fact that the object of IPR protection is special and that the purpose of protecting IPR differs from the purpose of protecting physical property. As a matter of principle, policy makers should arguably not pursue “strong” IPR rights but rights which work, i.e. which serve the interest of society in innovation and creativity. Sometimes, competition law may help achieve this end in situations where overly zealous caretakers of the IPR system have gone too far. This position is – at least to some extent – acknowledged in competition law. According to the 1995 US Guidelines § 2.1. the Agencies thus “apply the same general antitrust principles to conduct involving intellectual property that they apply to conduct involving any other form of tangible or intangible property.” The mere categorization of IPR as “property” does not provide any answers to the questions raised in the competition case (or elsewhere). If one looks at the practice in the both the US and the EU, commentators have reported a tendency to treat IPR differently from other property and to allow holders of IPR to engage in anticompetitive practices to a larger extent than holders of physical property.36 In EU law, the European Court of Justice (ECJ) has even developed a “special” principle for IPR cases in refusal to license situations.37 The guiding principle for the application of competition law should be to find the optimal balance as seen from a societal view between static and dynamic aspects of protection in the case at hand. Arguments based on the abstract nature of IPR should, therefore, be avoided together with any principles (such as those developed by the ECJ) which “immunize” holders of IPR or grant them any special treatment (be that any better or worse than the “standard” treatment”).38

35

Drahos (1996), p. 200 and also Lessig (2006), p. 180. On US law, e.g. Peritz (2007), p. 205. 37 Below at 3.5.3.1. 38 Régibeau and Rockett (2007), p. 505, point out that from an economic perspective there is “. . . no need to treat monopoly power based on IP as ‘special’ because of some supposedly unique characteristics such as its importance to innovation or the public good nature of information. This is taken into account already in the special types of property rights that apply to intellectual property”. 36


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3.3.3. The scope of the exclusive right-argument It is a common starting point that competition law “takes IPR as it finds it” and does not affect the “core” of the right or limit the “normal” exploitation of exclusivity.39 In this way, the argument makes the very central point that competition law does not imply an ex post reassessment of the right in question or of the IPR system as an institution. Even “bad quality” patents or aspects of IPR which obviously do not benefit society are accepted by competition law and rightholders are free to exercise such rights. The argument, however, also implies that practices which are not based in IPR but which stem from pure market power can be addressed by competition law without any restraints, i.e., without the presumption that static inefficiencies are offset by dynamic gains. In EU law, the principle has drawn a considerable amount of attention. As early as 1966 the ECJ made it clear that the rules of the Treaty do not affect the “existence” of national IPR but merely limit the rightholders’ “exercise” of these rights.40 This distinction, which is also known in national (e.g. German) law, has since been used by the ECJ in a long list of cases. The language has changed and instead of referring to the “existence” of the right, the Court has been using expressions such as “the specific subject matter”,41 “the essential function”,42 or “the legitimate exercise”.43 The underlying rational is the same: Each type of IPR has a “core” of rights which as a general rule is not influenced by the rules of the Treaty. Within this core rightholders are free to enjoy their rights. Applied in a formalistic manner, the distinction between the “existence” and the “exercise” of a right is clearly flawed because it makes no sense to respect the “existence” of a right without accepting its “exercise”. IPR – like any other property rights – “exist” only to the extent that the owner of the right can “exercise” them against the world. By requiring courts to make “metaphysical distinctions”44 based on “formalistic conceptions”,45

39

Classic US decisions include Motion Pictures Patents Co. v. Universal Films MFG. Co., 243 US 507 (1917) 517 and Zenithy Radio Corp. v. Hazeltine Research, Inc, 395 US 100 (1969) 140. See on US law, e.g. Kaplow (1984), p. 1845. The principle also applies in Japanese law; see Heath (2007), p. 255 and in Australian law, Hanks (2007), p. 322. 40 Joined cases 56 and 58-64, Établissements Consten S.à.R.L. and GrundigVerkaufs-GmbH v. Commission of the European Economic Community. 41 Case 102/77, Hoffmann-La Roche v. Centrafarm, para. 7 and also Case C-200/96, Metronome v. Music Point, para. 14. 42 Case 62/79, Coditel v. Ciné Vog, para. 14. 43 Case 144/81, Keurkoop v. Nancy Kean Gifts, para. 24. 44 Hanks (2007), p. 324 on the Australian equivalent. 45 Kaplow (1984), p. 1847.


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the distinction also implies a real danger of “Begriffsjurisprudenz” where courts seek to deduct rules of law on the basis of abstract ideas about the “existence” of rights etc. Such a formal approach would not be helpful. It is, therefore, important to notice that the principle does not set up any “absolute barriers”. Instead the references to “the specific subject matter” etc. serve as signposts for courts. As seen from this perspective, the methodology can be criticized for not offering much help to the courts as to which limitations should be allowed and which should fail. In the future, such difficulties may be even greater due to the development in IPR. As a matter of principle, it would seem that an IPR system which defines the rights in a clear and precise manner with clear limitations leaves less room for competition law intervention than a system which does not do so. This reasoning also seems to suggest that the primary field for competition law intervention is to be found at the “edges” of IPR or in situations where market conditions are not optimal or where rights are used in ways not anticipated in the IPR legislation, for example to exercise control over secondary markets or over non-protected goods or services. To such situations the “scope of the right” argument is particularly unhelpful. If the argument is being applied in a formalistic manner, it may lead to under-enforcement of competition law by courts that are overly respectful to the “existence” of an IPR. The principle, however, also implies a risk of an opposite development, where courts out of ignorance of the normal practices of rightholders seek to strike down practices which are merely “new” or “different” compared to known practices but do not harm competition. Patent pooling may be such an example; see below, 5.3.1.2. 3.4.

Competition Law and IPR in Practice

There are two basic forms of anticompetitive behaviour: unilateral behaviour (“misuse of a dominant position”/“monopolization”) and collusion (“cartels”). Generally, competition law is more restrictive towards cartels than unilateral behaviour and some actions which can be performed perfectly legitimately by companies acting unilaterally cannot be performed by companies acting together to perform “the supreme evil of antitrust: collusion”.46 The first behaviour – unilateral action – is reserved for situations where (typically) one undertaking uses its size to raise prices or restrict output.

46 Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 US 398 (2004) 408.


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This situation raises special concern to cases involving IPR, as it is the very purpose of IPR to create “legal monopolies”. As will be explained just below, however, it is the modern view that the IPR exclusivity (“the legal monopoly”) does not automatically imply market power in the competition law sense either in or of itself. Furthermore, market power is not in itself a problem to competition law. The second anticompetitive behaviour – cartels – requires some sort of collusion between two or more undertakings. Sometimes this takes the form of formal agreements but also mere concerted practices etc., which have as their purpose or effect the stifling of competition, for example by separating markets or fixing prices, violate competition law. To rightholders entering into licensing agreements, this prohibition also gives rise to special problems. This is so because it can be difficult to distinguish between anticompetitive effects of an agreement which are merely incidental to the exclusive right from any “extra” exclusivity which goes beyond the grant of the IPR. Whereas the latter behaviour is an obvious target for competition law scrutiny, the former is normally unproblematic. 3.4.1. Territorial scope: The “effects” test Competition law normally applies not only to behaviour of national companies aimed at national markets but to all forms of behaviour which have an effect on national (regional) markets and hurt competition there by raising prices, limiting choice or hampering innovation to the detriment of consumers.47 This includes agreements between national and foreign companies and between foreign companies. The effects doctrine is arguably supported by good policy considerations. Opening for the application of domestic competition law to wholly foreign cases would in the words of the US Supreme Court “unjustifiably permit [foreign] citizens to bypass their own less generous remedial schemes, thereby upsetting a balance of competing considerations that their own domestic antitrust laws embody”.48 A certain restraint is, therefore, called for to prevent “legal imperialism”.49 The effects doctrine may, however, also leave blind spots, for example in the case of export

47 US competition law applies to conduct which has a direct, substantial and reasonable foreseeable effect on US trade or commerce an agreement, Areeda and Hovenkamp (2006), § 272i.1. The effects doctrine is also recognized in EU law. Here the target, however, is “trade between Member States”; Faull and Nikpay (2007), § 3.358. 48 F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 US 155 5.Ct. 2359, 159 L. Ed.2d 226 (2004), at 167. 49 Empagran at 169.


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cartels, i.e., agreements between companies to limit competition in export markets, where competition authorities in the target country are either unable or unwilling to act. This is dealt with further below at 5.2.2. 3.4.2. Unilateral actions (dominance/monopolisation) The economic definition of “market power” is the ability to set prices above marginal costs (i.e. the cost of producing the last unit of output) of the most efficient producer.50 In a well-functioning market, any price above this level would attract competitors. If a single company can rely on its strength to prevent this from happening and is able to unilaterally maintain high prices over time or to reduce output, the company would be assumed to be “dominant” (“possess ‘monopoly power’”).51 Monopolization in many cases leads to a welfare loss (“deadweight loss”) because consumers pay an excessive price and income is transferred to the monopolist even though he does not supply the consumers with the products they really want. If dominance is acquired by a company which has outperformed its competitors “merely by virtue of [its] superior skill, foresight and industry”,52 competition law would normally not hold the success of the company against it. A company holding market power may well also use its power in ways which promote welfare, for example by producing more effectively than a small firm (“economy of scale”) or by investing in R&D to promote innovation. It is, therefore, important to bear in mind that competition law accepts both the existence of dominant companies and the natural consequences of monopolies. Competition law only prevents companies from exercising their market power in ways which involve some actual harm to competition, in the form of “anticompetitive conduct”53 or “misuse”54 which lower output, raise prices or reduce

50

The classic definition in EU law was given by the ECJ in Case 27/76, United Brands v. Commission, point 65. This can be contrasted with the US description, which relies on economic reasoning; see US Guidelines (1995), § 2.2. The practical difference is probably not very big. 51 In EU law, the threshold is normally around 40 to 50 per cent; DG Competition Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses, Brussels December 2005, point 31. In US law, a higher threshold is normally required; Areeda and Hovenkamp (2006), § 801a, require market shares exceeding 70 or 75 per cent for five years preceding the complaint. 52 Judge Hand in United States v. Aluminium Co, of America, 148 F.2d 416, 430 (2d Cir. 1945). 53 Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 US 398 (2004) 407. 54 A (non-exhaustive) list of typical examples of misuse can be found in TFEU Article 102.


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innovation.55 Under the EU system, a dominant company is supposed to have a “special responsibility” not to misuse its market power.56 Even though this does not imply a general obligation to “assist competitors”, the EU system is based on a certain amount of distrust in dominant companies which is not seen in US law.57 Companies which do not hold a dominant position could impose blatantly unfair trading conditions without any competition law restrictions. Competition law does not function as a general rule of “fair dealing”. 3.4.3.1. Refusal to licence cases The question whether or not the holder of IPR who has market power can unilaterally refuse to license its IPR lies at the heart of the tension between IPR and competition law. A broad application of competition law to force rightholders to license could be said to basically require them to give up exactly what the IPR legislation has allowed them to do: exclude.58 Such a description of the conflict misses a central point. The right granted to rightholders to exclude is not an “absolute” right. Exclusivity comes with strings attached and serves purposes outside IPR itself (above 3.3), i.e., to promote dynamic efficiency. The IPR system, therefore, cannot support any exercise of the exclusivity provided by legislation and the use of competition law to compel a rightholder to license protected information cannot be ruled out as a matter of principle. This is the very gist of the “common goals” description. It is, however, the clear starting point that the non-use of IPR does not in or by itself violate competition law. Normally, a valid though unused IPR can also be enforced against third parties and give rise to both damages and injunctive relief.59 In order for competition law to be triggered, some “extra” abusive element is required. Examples include situations where a rightholder refuses to deal only with certain customers (discrimination) or abusive termination of licensing agreements. If the right is invalid and this is known to the rightholder, the situation could also be different. Similarly, if the non-use is part of an

55

Areeda and Hovenkamp (2006), § 651d and TFEU Treaty Article 102. E.g. Case 322/81, NV Nederlandsche Baden-Industrie Michelin v. Commission, para. 57. 57 E.g. Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 US 398 (2004). 58 Areeda and Hovenkamp (2006), § 710b, “The whole point of the intellectual property grant is to create a right not to share the article, process, or expression protected by the grant . . .”. 59 Note however eBay Inc. et al., Petitioners v. Mercexchange, L.L.C., 547 US 388 (2006). 56


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anticompetitive scheme, for example if the right has been acquired and is being used to “suppress” rival technology through patenting or by raising rivals’ costs (below at 5.3.1.1). Situations involving secondary markets cause special concern. Normally, a rightholder would be present in all markets where gains are to be made and the IPR rules would allow him to rely on his exclusivity in any market. Even without any justifications, rightholders have the right not to use their right themselves or to grant licences in all or some markets. If, however, the refusal to license forecloses competition in a downstream market, where the rightholder is not active and where it has no legitimate reasons for not licensing, competition law may be triggered. In some systems, the so called “essential facilities doctrine” would be such a trigger.60 This rather nebulous “doctrine” is derived from cases where a vertically integrated company has exclusive control over some physical facility and uses that control to gain an advantage over competitors in an adjacent or downstream market. The archetypal cases from the “old economy” involve bridges and ports. According to the doctrine, owners of such facilities are under a duty to deal. The doctrine thus differs fundamentally from traditional competition law thinking by making the refusal to supply dependent on the status of the company (and not its (anticompetitive) conduct) and by compelling the monopolist to share the facility and thus his advantage with a competitor who would then be able to compete without having invested in a similar facility. Neither US courts nor the ECJ have applied the essential facilities doctrine as described above to cases involving IPR. The ECJ, however, has without making explicit references to the doctrine by name, embraced parts of its reasoning and conclusion to impose on rightholders an obligation to license IPR which are “indispensable” for carrying on a particular business provided that the following three cumulative conditions are satisfied: (1) that refusal is preventing the emergence of a new product for which there is a potential consumer demand, (2) that it is unjustified, and (3) such as to exclude any competition on a secondary market.61 On this point, EU

60

E.g. Lang (2005), p. 65 and Janis and Lemley (2005), p. 12. The US Supreme Court recently explicitly denied acknowledging (or denying) the existence of an “‘essential facilities’ doctrine” in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 US 398 (2004). 61 Case C-418/01, IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. KG, para. 38. The test was introduced in Joined cases C-241/91 and C-242/91, Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v. Commission of the European Communities. The latest case is the decision by the General Court (European Union) in T-201/04, Microsoft v. Commission.


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law differs from US law. The US Supreme Court has repeatedly stressed that the “freedom-not-to-deal” and the “nature” of IPR (i.e. exclusive right) are compelling reasons not to oblige a rightholder to license. In US law, the use of compulsory licenses has been limited to situations such as termination and discrimination cases where the rightholder has previously allowed access to the resource.62 3.4.4. Cartels If companies agree not to follow the rules of the market which would drive prices down towards marginal costs, but to follow their own rules, the result would normally reduce competition because the companies would leave room for an above-the-market profit to the participants. Modern competition law looks at the effects of agreements. Not all agreements between companies (even competitors) harm competition and competition law intervention is generally limited to situations where efficiency losses are not offset by advantages to society (consumers). Such advantages may result from the introduction of new technology which has only been profitable for the licensee because the licensor could grant it exclusivity or other advantages from a restriction of intra-brand competition. Generally (“horizontal”) agreements between competitors are considered as more harmful to competition than (“vertical”) agreements between non-competitors such as producers and retailers. Competition law is, therefore, more likely to accept the latter than the former. Agreements which affect only minor markets are normally accepted without any further ado.63 3.4.4.1. Licensing agreements The competition law scrutiny of patent licensing and other technology transfer agreements has varied considerably over time. Competition law has been especially insistent on preventing a rightholder from using a licensing agreement to “extend” its monopoly from the area covered by the patent to cover, for example, unprotected goods or services (“tying”) or to extend the term of protection beyond the time limit of the IPR. According to the “leverage theory”, such agreements would harm competition because rightholders would be able to raise prices and foreclose markets beyond the scope of the IPR. Licence agreements, however, generally increase competition and often 62

Aspen Skiing Co. v. Aspen Highlands Skiing Corp, 472 US 585 (1985). See for a comparison with EU law, Drexl (2004), pp. 788–808. 63 The safe haven in the US Guidelines (1995) is 20 per cent. In EU law, it’s 20 per cent to competing companies and 30 per cent to non-competing companies; see Article 3(1) and (2) in the EU Group Exemption.


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such agreement also promote innovation as they help the rightholder to reap his reward and make the introduction of new products/technologies possible. Licensing of technology is normally said to promote competition by: allowing innovators to earn returns to cover at least part of their research and development costs, leading to a dissemination of technologies, which may create value by reducing the production costs of the licensee or by enabling him to produce new or improved products, combining the licensor’s technology with the assets and technologies of the licensee, promoting the coordinated development of technologies that are in a blocking relationship, and removing obstacles to the sale of the licensee’s product.64

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4.

COMPETITION LAW AND THE IPR CONVENTIONS

The IPR system contains a number of internal balancing mechanisms. Some of these are more or less directly aimed at balancing the static and dynamic efficiency gains and losses and constitute the “first tier” of competition balancing norms in IPR. A number of the mechanisms relate to the object and substance of protection,65 others to duration,66 and some to procedural matter.67 Some deny and others limit protection.68 As will be demonstrated in the following, the IPR conventions, however, do not contain many rules which deal directly with competition law or with the relationship between national competition law and IPR. The historical reason for this is probably first and foremost that competition law has been considered as “something different” from IPR. As has been dem-

64

Based on EU Guidelines, point 17 and 1995 US Guidelines, point 2.3. E.g. TRIPS Articles 9(2) and 10(2) (copyright), 15 (trademarks), 27 (designs) and 27 (patents). 66 E.g. TRIPS Articles 12 (copyright) and 33 (patents). 67 E.g. TRIPS Article 29. 68 Competition policy concern can also be taken into consideration in the application of the more general rules and standards. E.g. the basic originality criterion of copyright, which to a large degree leaves it to courts to “find the bottom” of the system. Courts may also take competition policy aspects into consideration in assessing infringement to avoid overly “broad” protection. 65


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onstrated above, such a description of the relationship between IPR and competition law oversimplifies matters too much. It is the very crux of the common goals description of the relationship between IPR and competition law that the two legal areas neither can nor should be regarded in isolation from each other. 4.1.

The Paris and Berne Conventions

The Paris Convention from 1883 (as amended) establishes a Union for the protection of “industrial property” which includes the “repression of unfair competition” (Article 1(1)). The term “unfair competition” does not cover “competition law” (antitrust).69 The Paris convention addresses competition law issues regarding the use of compulsory licences. The Convention does not oblige member states to have specific rules on compulsory licences but allows such rules “to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work” (Article 5A(2)). Article 5A expressly mentions failure-to-work cases.70 It does not, however, limit the use of compulsory licensing to such instances. Members are also allowed to use compulsory licensing “in the public interest”, for example to deal with excessive prices or unreasonable terms in licence agreements or other restrictive measures which hamper industrial development.71 There is no doubt that the article was included in order to be used, but until now that has very rarely happened.72 After TRIPS, access to compulsory licence is subjected to the requirements found in that Convention, notably in Article 31, see below at 4.2. The Berne Convention from 1886 (as amended) does not contain rules that generally deal with competition law. However, it allows explicitly for compulsory licences in Article 11bis, for the right to broadcast and communicate to the public, by wire, rebroadcasting or loudspeaker or any other analogous instrument, the broadcast of the work, and in Article 13(1) for the right of recording musical works. The Berne Convention does not rule out the use of competition law

69 Article 10bis defines “acts of unfair competition” as those acts of competition “which are contrary to honest practices in industrial or commercial matters”. The lack of rules addressing issues of “International Trade Policy”, including competition law, was criticised already be Penrose, (1951), especially at p. 200. 70 Article 5A(3) and see Correa (2005), p. 227; and on the history of the provision, Penrose, (1951), p. 137. 71 WIPO Handbook on Intellectual Property point 5.44. 72 See generally Reichman and Hasenzahl (2003) and Penrose (1951).


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in copyright cases or of compulsory licensing as a remedy. Such uses are, however, subject to the general rules and principles found in the convention. 4.2.

TRIPS

TRIPS represents a broadening of the issues compared to the traditional IPR conventions and recognizes the importance of competition policy concerns for IPR.73 In the negotiations leading to TRIPS, the inclusion of competition rules was debated – and favoured by developing countries – but eventually none were adopted, save for the provisions mentioned just below.74 At present, TRIPS leaves it to member states to develop their own competition laws and policies regarding IPR. Such policies must be in conformity with the obligations imposed by the rules and principles of the TRIPS, including the Objectives and Principles in Articles 7 and 8.75 The competition rules constitute part of the flexibility mechanisms contained in TRIPS.76 The starting point is found in Article 8(2) which states that: Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by rightholders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.

This provision clearly recognizes the need for member states to take action towards rightholders who abuse their rights within the whole field of IPR be that by unilateral means or collusion. It does not impose any obligations on members to do so (“may”). The provision only allows for 73

E.g. Anderman (2007), p. 16 “[TRIPS] embodies a view of property rights that on its face combines IP rights with restrictions and responsibilities for IP rightholders”. 74 The Doha Ministerial Declaration anticipated negotiations on the “Interaction between trade and competition policy”, see paras. 23–5, Ministerial Declaration WT/MIN(01)/DEC/1, adopted on 14 November 2001. At the 2003 Cahun Ministerial Conference, negotiations on the issue failed and with the “July Decision” (2004), the WTO General Council decided that the issue of competition policy “will not form part of the Work Programme set out in that Declaration and therefore no work towards negotiations on any of these issues will take place within the WTO during the Doha Round”. 75 E.g. Cottier (2007), p. 189. 76 This was clearly recognized in the Doha Declaration on the TRIPS Agreement and Public Health, WT/MIN(01)/DEC/2, adopted on 14 November 2001, point 5.


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action against concrete “rightholders”. The mere possession and “exercise” of an IPR does not to amount to abuse. TRIPS does not preclude the use of compulsory licence as a remedy in specific situations (except for trademarks, see Article 21), but competition law cannot be used to deny protection in specific cases or to revoke rights. Nor can it be relied upon to limit or deny protection which is mandated by TRIPS. In cases involving subject matter which TRIPS does not require to be protected – e.g. non-original databases – members are under no TRIPS limitations. Article 27 would furthermore seem to prevent that certain classes of rightholders – for example, “holders of patents in foodstuffs or medicine” – are singled out. Abuse needs to be decided on a case-by-case basis. The three-step test principle found in TRIPS77 would seem not to have any importance in the application of competition law.78 Article 31 identifies the limits and procedures for rules on limitations and “other use of the subject matter of a patent without the authorization of the rightholder”.79 This includes compulsory licensing, non-voluntary licences or licences of right. Article 31 lays the conditions for the application of for example compulsory licences, but does not list or define cases where a licence may be granted.80 J.H. Reichman and C. Hasenzahl conclude that Article 31 leaves “considerable” – though not unrestricted – “leeway to policymakers and administrators in both developed and developing countries to impose non-voluntary licensing of patented inventions for any legitimate purpose and without undue constraints.”81 As far as licensing agreements are concerned, Article 40 provides that (1) Members agree that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology. (2) Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt,

77

Articles 13 (copyright), 17 (trademarks), 26(2) (designs), and 30 (patents). See from EU law the remarks by the CFI in T-201/04, Microsoft v. Commission, para. 1192. 79 National practices vary greatly; see Reichman and Hasenzahl (2003). 80 E.g. UNCTAD-ICTSD (2005), p. 460. Important clarifications on the interpretation of Article 31 are found in the Doha Declaration on the TRIPS Agreement and Public Health. As a consequence of the Resolution and to limit the effects of the requirement in Article 31, litra f that use should be “predominantly for the supply of the domestic market of the Member authorizing such use”, a decision was adopted on 6 December 2005 to amend TRIPS by inserting an Article 31b. 81 Reichman and Hasenzahl (2003), p. 15. 78


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consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member.

The provision is not very clear. The first part of Article 40 is obviously evidence of the view that licensing contracts may be used for anticompetitive purposes. The provision does not require any action on the part of members to deal with such activities. Nor does it prevent any such action. The second part of Article 40 deals with “abuse”. The provision would seem to be limited to “abuse” arising out of a licensing context. Unilateral abuse, which is covered by Article 8, falls outside. The reference to “appropriate” measure refers to a test of proportionality. Otherwise, the provision offers little concrete advice such as concrete examples of “abuse” or as to the practical application of competition law to cases involving IPR. The list contained in paragraph 2 is non-exhaustive but includes a number of particularly notorious clauses in licensing agreements.

5.

BALANCING EXCLUSIVITY, DEVELOPMENT, AND INNOVATION

5.1.

Introduction

A number of themes have been recurring in the debate on the competition law/IPR interface and TRIPS.82 These are arguably closely interrelated, but for the sake of clarity it is helpful to simplify: (1) (2)

The development perspective focuses on the ability of the competition rules to further the special interests of developing countries.83 The innovation perspective focuses on whether traditional competition law is relevant and adequate to deal with the challenges from new patterns of innovation, notably in the component industries (IT, biotech. etc.).84

82 The literature is vast. Two excellent and easily assessable sources are Maskus and Reichman (2005) and Anderman (2007). 83 Notably Maskus (2005), p. 69 and Maskus and Konan (1994), p. 411. See also Drexl (2005), p. 724 and Gervais (2008), p. 545. 84 E.g. Ullrich (2005), p. 754 and Reichman (2007), p. 29 with further references.


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The system perspective focuses on the interrelationship between the competition rules and the IPR rules and discusses whether competition law can be used to “soften up” the substantive IPR obligations in TRIPS.85

The first two points will be discussed in more detail in the following in order to determine whether or not the present competition rules in TRIPS are adequate and if not, how to amend the rules to better suit the needs. Regarding the system perspective, the experience in national law certainly points to the importance of having competition law as a “second tier” of balancing norms to deal with concrete cases of misuse and anticompetitive licensing practices. Experience, however, would also seem to suggest that an effective competition law system would not function to generally “weaken” the IPR system of protection. Nor would it serve to compartmentalize protection, for example, providing a special regime for the protection of “medicine” or “software”. Competition law does not – and arguably cannot nor should not – provide a mechanism for a general ex post “reassessment” of IPR rules or the micromanagement of individual rights. Instead, competition law should be considered as forming part of a broader array of remedies found in IPR to achieve an overall balance which benefits society. The most important element in this balancing act is substantive IPR rules and limitations which provide for clear rights and limitations which benefit society and which do not give rise to competition law problems because the dynamic benefits obviously outweigh the static term costs. As a general principle, the competition problems of IPR should be dealt with in IPR and effective competition rules should not be an “excuse” for bad IPR, i.e. an overly broad and imprecise exclusivity without a firm basis in any actual technical or other beneficial contribution to society. 5.2.

Development and Competition Law

Competition law in developing countries varies when it comes to the treatment of IPR.86 In this respect, developing countries are quite similar to developed countries (from whence the models have been imported). Nguyen, however, points out that as far as enforcement is concerned, developing countries face some special obstacles which in effect seriously limit the effectiveness of any competition law regimes which may be in

85 86

E.g. Fox (2005), pp. 758–69, Janis (2005), p. 774, and Ghosh (2005), p. 793. Nguyen (2008), p. 573 with references.


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place. The internal obstacles include lack of capacity (lack of skilled industrial organization and competition law experts), deficiency of legislation (vague rules or rules based too much on the experience of developed countries), absence of a competition culture (lack of public concern about anticompetitive practices), and lack of cooperation between competition and IPR authorities.87 The external obstacles mainly consist in pressure from developed countries not to intervene in the practices of their national companies.88 Initiatives aimed at improving the effect of competition law to balance IPR in developing countries, therefore, need to take these obstacles into account. Competition law would seem to be particularly important to developing countries for two reasons. Firstly, competition law may prevent clauses in concrete licensing agreements which limit technology diffusion. This is the traditional function of competition and the one which TRIPS Article 40(1) explicitly recognizes. Secondly, Maskus has pointed out that any positive effects of IPRs in developing countries may be offset by restrictions on competition. Competition law, therefore, is not only important because it provides the tools to decide concrete cases. It is also important from a system point of view and because the two legal fields constitute “complementary elements of a modern industrial policy”.89 In the same vein, Drexl and Kur and Grosse Ruse-Khan have pointed out that the lack of firm competition rules is especially worrying in the light of the principle of minimum protection in TRIPS.90 This results in a one-way-only flexibility which makes it possible for member states to use Bilateral or Regional Trade Agreements to increase protection and to reduce the flexibilities found in TRIPS, for example in Articles 31 and 40.91 Such practices could adversely affect the impact of IPR in developing countries. The lack of recognition of the structural importance of competition law

87

Ibid., p. 581. Ibid., p. 582. 89 Anderman and Schmidt (2007), p. 37. 90 Drexl (2005), p. 725 and Kur and Grosse Ruse-Khan (2008). 91 See the examples mentioned by Sanders (2008), p. 163 and Santa Cruz (2007). Sometimes, however, international agreements address competition law concerns; see the Economic Partnership Agreement between the CARIFORUM States, of the one part, and the European Community and its Member States, of the other part of 30 October 2008, Article 142(2): “The EC Party and the Signatory CARIFORUM States shall take measures, as appropriate, to prevent or control licensing practices or conditions pertaining to intellectual property rights which may adversely affect the international transfer of technology and that constitute an abuse of intellectual property rights by right holders or an abuse of obvious information asymmetries in the negotiation of licences.” 88


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to IPR is also reflected in the lack of interest TRIPS shows towards the institutional aspects of competition law. TRIPS imposes a number of obligations regarding the management of IPR in Part III but none on competition law. It has been suggested by Ricolfi that the technical cooperation clause in TRIPS Article 67 extends to the preparation on the prevention of abuse of IPR including anti-competitive clauses.92 This may help developing countries overcome the “internal obstacles” mentioned above. Apart from the failure of TRIPS to recognize the importance of competition law as a system to IPR and dynamic efficiency and the external and internal obstacles facing developing countries, the present rules also fall short on concrete points. 5.2.1. Technology transfer As has been pointed out, for example, by Kariyawasam the technology transfer process involving developing countries needs to be seen in a broad perspective which includes absorption and spillover of the technology in the receiving country.93 This concern has to some extent been recognized in the present rules. According to Article 8, “appropriate measures” thus “may be needed to prevent . . . practices which unreasonably restrain trade or adversely affect the international transfer of technology.” Similarly, the examples found in Article 40(2) include “exclusive grant back conditions, conditions preventing challenges to validity and coercive package licensing”. These clauses are particularly worrying as seen from the “spillover” perspective and competition authorities in developing countries would probably normally pay strict attention to such clauses. The protection provided by TRIPS is, however, very narrow and the little protection which exists can be waived by agreement. In order to strengthen protection to match the problems identified above it should, therefore, be considered to amend the present rules found in TRIPS (see more below at 6.2.1). 5.2.2. Export cartels Export cartels are normally defined as “agreements or arrangements between firms to charge a specified export price and/or to divide export markets [i.e. markets of the target state]”.94 The firms may come from the same country or from different countries. Empirical evidence on the effects of export cartels is scarce and no clear

92

Ricolfi, M. (2006), p. 313. In the same vein, Odman (2000), p. 343. Kariyawasam (2007), p. 466. 94 Becker (2007), p. 100. Agreements may of course contain other or no restrictions. They may also contain clauses which are harmless; Sokol (2007), p. 5. 93


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answers seem to have emerged.95 Generally export cartels may benefit competition by lowering costs, for example in advertising and administration. They may also help penetrate foreign markets. In the target country, cartels may benefit competition by introducing new products. The main concern, however, is that export cartels – like other cartels – may lead to monopolization and raise prices above the competitive level. It follows from the “effect doctrine” (above 3.4.1) that export cartels are normally only caught by the competition rules in the export country (or region) if the cartel has some negative spillover in that area. To further limit the scope of competition law, many96 countries have special rules or procedures which explicitly or implicitly exclude export cartels from competition law scrutiny.97 As a consequence of this export cartels would normally have to be dealt with according to the competition legislation in the “target” country (where the authorities would normally have jurisdiction under the effect doctrine). This is generally problematic as competition authorities and courts find it difficult to prosecute cartels based abroad. If the cartels have no assets (offices, goods etc.) in the importing countries, enforcement is practically impossible. Developing countries probably only rarely merit the attention of cartels. Should it happen, however, these countries are especially badly equipped to handle such cases because of the “internal obstacles” identified by Nguyen. As a result, export cartels targeting developing countries would often be beyond any competition law control. These difficulties have led some commentators to call for global legislative initiatives to regulate export cartels. Such an initiative could include international competition rules,98 or soft law initiatives such as capacity building aimed at lesser developed target states,99 or measures which create transparency.100 To overcome the lack of efficient enforcement mechanisms in such situations, Drexl has suggested “a ‘new’ non-discrimination principle . . . which obliges WTO Members to apply the same standards of competition law in IP-related cases irrespectively of whether the restraint affects the domestic market or only the market of another WTO Member”.101

95 96 97 98 99 100 101


Becker (2007), p. 114. Sokol (2007), p. 4. See Bhattacharjea (2004), p. 338 and Becker (2007), p. 101. Bhattacharjea (2004), p. 331 and Becker (2007), p. 97. Becker (2007), p. 97 (as the “second best solution”). Sokol (2007), p. 1. Drexl (2007), p. 22 and also Drexl (2008), p. 274.

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Innovation and Competition Law

As seen from an innovation perspective, the main difficulties in finding the right balance between competition law and IPR have mainly been reported in the component-based industries such as IT, biotech and semiconductor chips. Some commentators suggest that the problems may be evidence of systemic problems of IPR, which not only produce an ever increasing number of rights but also produce more and more overlapping and “abstract” rights, i.e. rights in broad principles which are at the same time far reaching and of an uncertain quality.102 Sometimes, patents are acquired as “bargaining chips”103 to buy access to necessary technology and not primarily to support the working of the invention by the patentholder. Sometimes, patents are acquired with the sole purpose of obtaining licensing fees (or by “trolls” to seek unjustified compensation for (alleged) patent violations). Innovation in component industries can be characterized as “an evolutionary process”104 involving “cumulative and sequential innovation”.105,106 To be able to compete, companies need to use competitors’ technologies both to develop new products but also to bring these to the market. This development challenges traditional IPR which can be described as being “based on the idea of functionally independent proprietary elements”.107 The patent system grants exclusive rights to inventors after long and careful considerations and expects these to “reward” its inventor for his innovative effort by forming the basis of its industrial use of the embodiment of the patent. In an environment characterized by cumulative and incremental inventions, however, the individual rights often do not make out the basis for real use and the “individualistic orientation”108 may serve as a brake. Instead patentholders need to form alliances with other rightholders to establish “bundles” of rights which can then be used to produce products etc.109 The need for companies to use competitors’ technology leads to

102

E.g. Bessen and Meurer (2008), notably p. 198. Cohen, Nelson and Walsh (2000). 104 Howarth and McMahon (2008), p. 134. 105 The issues have been raised and discussed notably by Reichman; see e.g. Reichman (2007), p. 29, for further references. 106 Also the Gowers Review 2006, p. 26. 107 Rahnasto (2003), p. 178. 108 Ullrich (2005). 109 Heller (1998). This line of criticism isn’t new, see Penrose (1951), p. 191, for further references to (even) older literature. 103


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complicated competition law problems. One set of problems relates to the obvious risks of market foreclosure resulting from refusals to license and non-cooperation. Another set of problems relates to the cooperation between competitors such as patent pooling. To organize the discussion, the following focuses on two clusters of cases. The first cluster is related to fragmentation problems.110 These problems occur when access is restricted because of a dense “web” of rights each of which represents only incremental innovative or creative efforts. The second cluster is related to monopolization problems. These problems occur when access is limited because of overly “broad” rights or because of a protection of interfaces and network effects. 5.3.1. Fragmentation problems The general problem of fragmentation is that access is blocked by a “tangled, twisted mass of IPRs, which criss-cross the established walkways of commerce”.111 Such “thickets”112 may create “anticommons”, i.e. situations where (1) use of protected technology is necessary, but (2) ownership of the IPR is vested in (a large) number of owners of rights which make it prohibitively difficult and costly to negotiate the conditions for use. The result is underuse of existing technology and limitations on innovation.113 Anticommons and thickets are difficult to prove and the seriousness of the problem remains the topic of some debate. Some commentators suggest that overlapping patents are a common feature of patent law and have not and should not be expected to give rise to special concern.114 Others – and increasingly more it would seem – argue that anticommons problems, even though they have not yet manifested themselves to any great extent, still pose a potential problem. The risks of thickets and anticommons problems have been reported in the literature in a broad variety of technical fields, especially relating to component technologies such as biotech,115 diagnostic testing,116 computer program,117 nano,118 and microprocessors.119 Recently, the European Commission has identified alleged thickets in the pharmaceutical sector as part of a strategy

110 111 112 113 114 115 116 117 118 119


Rahnasto (2003), p. 173. Mergers (1996), p. 1295. Or “legal kudzu”, see Reichman (2000), p. 1743. Generally Heller (1998). E.g. Jacob (2008). Heller and Eisenberg (1998), p. 698, and Hopkins et al. (2007). Verbeure et al. (2006), p. 115. Bessen and Meurer (2008), p. 190. E.g. Lemley (2005). Rubinfeld and Maness (2005), p. 88.

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(“evergreening”) to delay or block market entry for generic medicines in connection with the expiration of patents on chemical substances.120 In its “Scenarios for the Future”, 2007, the EPO describes thickets as being a consequence of an increase in the number of patents.121 The following focuses on two aspects of the fragmentation problem: (1) (2)

the strategic use of IPRs to control the behaviour of other firms and to foreclose markets by raising rivals’ costs; the possible response by rights holders to fragmentation problems by packaging rights in patent pooling and collecting societies.

5.3.1.1. Raising rivals’ costs Patents by their very nature control the behaviour of competitors and are acquired for “strategic” purposes to control the behaviour of competitors. Competition problems begin when patents are part of a strategy to force competitors out of business by merely raising their costs. This may drive competitors from the market even though they are able to produce better products or to produce in a more effective way (lower production costs) than the rightholder. Rubinfeld and Maness mention several examples of strategies to raise rivals’ costs: (i) litigation, (ii) threats of litigation, and (iii) “patent flooding”.122 The last-mentioned strategy involves the filing of a multitude of “small” patents that claim minor variations of a competitor’s technology. Apart from the damage associated with the raising of competitors’ costs (in identifying rights, inventing around etc.), the flooding strategy is anticompetitive because it prevents the exploitation of existing technology. The strategy, furthermore, increases the overall costs associated with the patent system as the total number of patent applications increases and the transparency falls. Flooding is also an example of a “strategic” use of patents which does not reward any innovative efforts on the part of the patent holder but merely seeks to restrain competitors. Patent flooding and other attempts to raise rival costs can only be controlled by competition law if the patenting company holds a dominant position and the activities are part of a strategy to foreclose markets or to undercut competitors. Competition law, therefore, is normally impotent to deal with the general problems relating to access in a thicket

120 Pharmaceutical Sector Inquiry – Preliminary Report, DG Competition Staff Working Paper, 28 November 2008. 121 At pp. 17 and 37. 122 Rubinfeld and Maness (2005), p. 85.


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environment. “Misuse” of the patent system also falls outside the scope of competition law.123 5.3.1.2. Patent pooling and collecting societies To overcome the anticommons problem, rightholders may seek to “package” their rights into bundles which can form the basis for rational exploitation. Patent pooling and collecting societies are two examples of “packaging” of rights and basically provide for “a regularized transactional mechanism that takes the place of the statutory property baseline requiring an individual bargaining for each transaction” to establish a system based on “private liability rules”.124 Patent pools have been known for a long time.125 Recently, pools have been formed voluntarily but mostly for technologies surrounding standards such as DVD, 3G and the MPEG-2 formats.126 Collecting societies are found in copyright where they manage the rights of composers and songwriters etc. Packaging rights generally benefits competition by lowering transactions costs and by providing transparency. Packaging may harm competition by closing markets to outsiders and by facilitating price fixing. The position of competition law in both the EU and the US towards patent pools was originally quite hostile but has evolved gradually to become more positive. It is now generally – although with some hesitation – recognized that pooling involving blocking and complementary (“essential”) patents benefit competition by allowing a one-stop licensing of technology. This benefits competition because it reduces transactions costs and opens up markets which would otherwise be closed and because it may also reduce the price of access to the package compared to a price based on individual rights.127 If a pool includes technology which is unnecessary to exploit the technology in question or supplementary technology or if the agreement imposes exclusivity restrictions on the participants (e.g. on grant back or prices) competition law would normally not permit the agreement. Collecting societies in the music business commit some of competition

123

The IPT Proposal addresses this problem in Article 41a. Mergers (1996), p. 1342. 125 Mergers (1996), p. 1341. 126 Pools have also been formed in biotechnology, see Gaulé (2006) p. 2, van Zimmeren (2006), p. 353, and van Overwalle (2006), p. 145. 127 See US Guidelines (1995), point 5.5. and Etten (2007). See on EU law, the EU Guidelines, points 213 and 214. The position in Japan is similar; see the Japan Fair Trade Commission’s Guidelines on Standardization and Patent Pool Arrangements (2005). 124


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law’s deadliest sins: horizontal price fixing agreements and blanket licensing. In the EU, the (national) societies have, furthermore, often limited their licensing to one member state and only offer access to music by members of other companies by way of reciprocal agreements with those companies. Collecting societies have, however, generally been accepted in competition law as a rational and generally pro competitive response to a marketplace characterized by “thousands of users, thousands of copyright holders and millions of compositions”.128 By limiting transaction cost, they enhance rather than limit competition. In both the EU and the US courts have, furthermore, regarded collecting societies as part of the copyright system.129 Without giving carte blanche to the collecting societies,130 the ECJ thus has taken as its starting point the “twofold purpose” of collecting societies: to make all protected musical works, whatever their origin, subject to the same conditions for all users in the same member state, in accordance with the principle laid down in the international conventions and to enable copyright-management societies to rely, for the protection of their repertoires in another state, on the organization established by the copyright-management society operating there, without being obliged to add to that organization their own network of contracts with users and their own local monitoring arrangements.131 The cases discussed above illustrate how the normal competition law principles are flexible enough to accommodate the special issues relating to the fragmentation problems in IPR and how courts in applying competition are often able to take into account the specific market realities of the specific cases. The acceptance in competition law of the efficiency gains relating to collecting societies and patent pooling should be welcome as

128

Broadcast Music Inc. v. CBS Inc. 441 US 1 (1979) 20. See from US law, e.g., Broadcast Music Inc. v. CBS Inc. 441 US 1 (1979) and from EU law Joined cases 110/88, 241/88 and 242/88, François Lucazeau and others v. Société des Auteurs, Compositeurs et Editeurs de Musique (SACEM) and others. 130 Joined cases 110/88, 241/88 and 242/88, François Lucazeau and others v. Société des Auteurs, Compositeurs et Editeurs de Musique (SACEM) and others, para. 14 on exclusivity clauses limiting direct access and para. 33 on pricing. See also Case 127-73, Belgische Radio en Televisie v. SV SABAM and NV Fonior (BRT-II) on the relationship between society and members. 131 Ibid., para. 14. See also C-395/87, Ministère public v. Jean-Louis Tournier, para. 31 and C-52/07, Kanal 5 Ltd. and TV AB v. STIM, paras. 34, 35, and 38. This positive basic attitude towards collecting societies has not, however, prevented the EU Commission from being sceptical towards clauses which restrict intra-EU licensing; see Commissions Decision of 16 July 2008, COMP/38698, CISAC. In US law, exclusivity clauses are not accepted. 129


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long as packaging represents a rational way for rightholders to overcome anticommons and other fragmentation problems. 5.3.2. Monopolization problems In the following, two examples will be discussed. The first example is of a situation where IPR by itself leads to a monopoly: “strong” rights. The second involves a situation where the monopolization is the result of a combination of special market conditions (spare parts and network effects) and IPR protection of interfaces. 5.3.2.1. “Strong” IPRs – databases It is extremely difficult to measure the “strength” of an individual IP right because the strength depends on a number of factors which are unrelated to the single right, such as the existence of substitute (also future) technologies/products. Sometimes, a “little copyright” can be used to control a “big market”.132 Sometimes, great scientific breakthroughs never make it in the market or else consumers for various reasons chose technically/ aesthetically inferior products to superior ones. The following deals with situations where IPR grants exclusive rights which contain or represent basic knowledge or information. Such protection is generally “strong” because it is difficult to invent around. The holder of such rights, therefore, would often be able to exercise strong market power, including control over secondary markets which rely on the protected knowledge/information. Such strong rights could occur in all IPRs such as upstream biotech inventions on basic techniques or research tools. The example to be used in the following, however, involves copyright and the EU protection of non-original databases.133 In traditional copyright, the idea/expression dichotomy fences in copyright protection to make sure that access to the “public domain” is free. Basically, a work of art is protected only if it is “original” in the sense that it is the author’s own intellectual creation. Copyright protects only (original) expressions and not “ideas, procedures, methods of operation or mathematical concepts as such”.134 Copyright, therefore, does not normally give rise to monopolization problems relating to individual rights. In some instances, however, the result may be different. Hugenholtz thus notes that the anticompetitive effect from the protection of sole

132

Merges (2000). Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases. 134 TRIPS Article 9(2). 133


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source databases by the European system is much greater that that of copyright and neighbouring rights (in other subject matter) combined.135 The European Database Directive explicitly states that protection does not extend to the “mere facts or data” contained in the database.136 It has, however, also been pointed out that the reality may be different and that the “sui generis” right may come “precariously close to protecting basic information”.137 The risks are further accentuated by the ability of the owners of databases to rely on contracts and/or technological measures to solidify their rights (e.g. by contracting out some of the limitations found in copyright law) or to include subject matter which normally falls outside the scope of copyright such as raw “data”. Such protection would seem to be loaded with potential competition problems and one would expect the Database Directive to provide for specific provisions. Indeed, the first proposal did contain a scheme of compulsory licensing to “prevent abusive practices by information monopolists”.138 These rules, however, did not survive the political process and the Directive is left with some general remarks in the preamble which only state the obvious that “the provisions of this Directive are without prejudice to the application of Community or national competition rules”.139 Without addressing the monopolization problems connected with this explicitly, the legislator has left competition law to strike a balance between access and incentives. The ECJ to a large extent did so in the Fixtures cases, which basically denied protection to “sole source” databases,140 but this has hardly solved the remaining competition law problems pertaining to databases. 5.3.2.2. Compatibility and interface information Sometimes a product must “fit” into another product in order for the product (sometimes both products) to work. Examples: a new ink cartridge must fit in the printer, the printer needs to communicate with the

135

Hugenholtz (2005). See also Kur et.al (2006). Database Directive, Recital 45. Similarly TRIPS, Article 10(2) in fine. 137 First evaluation of Directive 96/9/EC on the legal protection of databases, Brussels, 12 December 2005, p. 24. 138 COM (92) 24 final 13 May 1992; see Hugenholtz (2005), p. 209. 139 The Preamble, point 47. 140 Case C-46/02, Fixtures Marketing Ltd. v. Oy Veikkaus Ab, Case C-338/02, Fixtures Marketing Ltd. v. Svenska Spel AB., Case C-444/02, Fixtures Marketing Ltd. v. Organismos prognostikon agonon podosfairou AE (OPAP), and Case C-203/02, The British Horseracing Board Ltd. and Others v. William Hill Organization Ltd. “Sole source databases” consist of material which has been “created” rather than “obtained” in the process of making the database. Examples include fixtures lists, telephone directories, and TV guides. 136


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software on the PC, and the damaged fender of a car must match the existing one in order to restore the car to its original design. The degree of compatibility required varies but generally a company needs to be able to reproduce the interfaces of the existing products in order to be able to compete in any of these markets. Markets with compatibility characteristics give first-comers special advantages and raise special competition concerns. If the first-comer controls a general standard, it often enjoys a very strong market position and may be able to raise prices and to leverage monopoly power to foreclose not only imitations but also substitutions, improvements, and replacements to harm consumers. Also innovation could be harmed as newcomers will find it difficult to enter the market either with rival standards or with products or services to “fit” the existing market. In spare parts, the supplier of the car would have special market power because of the captive character of the market. The advantages of the first-comer depend on its ability to control interfaces. If neither computer programs nor car parts could be protected by IPR, the normal rules of competition would force prices towards marginal costs. Even if the interfaces were left unprotected, copying of the existing product would normally constitute an infringement. In this way, a separate protection of interfaces141 provides for an “extra layer” of protection which the rightholder may rely on to prevent not just copying of the interfaces but also the making of independently created products/services. In the following, two examples will be discussed: spare parts for automobiles and software. 5.3.2.2.1. spare parts for automobiles Design protection for spare parts for cars is possible in some countries.142 The argument for protecting such parts against copying is arguably weaker in the case of protecting spare parts than for main products (such as cars). The market for cars is characterized by a high level of inter-brand competition. In this market, good design serves to attract consumers who choose the design of their preference. Spare parts (“crash parts”), on the other hand, are not preferred because of their special design features but because they must match

141

I.e. a situation where the product/program contains features/information apart from the interface features/information and where the right owner can rely on the interfaces alone to prevent third parties from copying these. 142 In the EU, the Directive 98/71/EC of the European Parliament and of the Council of 13 October 1998 on the legal protection of designs contains “must fit” limitations (to allow for interoperability) but allow countries to continue to protect spare parts such as “must match” parts for cars.


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the original part. One may, therefore, argue that competition policy considerations should lead design law to reject protection of designs of spare parts of “complex products” or production for repair purposes.143 As seen, from a competition law point of view, the case is also complicated. On the one hand, the holder of the design right in the spare part can very easily misuse the special combination of compatibility and exclusivity for rent seeking.144 On the other hand, the main product and the spare parts could be regarded as forming a package where a high(er) price on spare parts would normally be offset by a low(er) price of the main product or vice versa. As seen from this perspective, the design protection would serve its purpose – to reward the rightholder for his innovative design – by broadening the pricing platform of the rightholder to include spare parts. In Volvo,145 the ECJ was asked whether refusal by a car manufacturer which was the proprietor of a design right covering car body panels to license third parties to supply products incorporating the protected design must be considered to be an abuse of a dominant position within the meaning of TFEU Article 102. In its judgment, the Court of Justice emphasized that the right of a proprietor of a protected design to prevent third parties from manufacturing and selling or importing without his consent products incorporating the design constitutes the very subject matter of his exclusive right. The Court first made it clear that an obligation imposed upon the rightholder to grant a licence to third parties – even in return for a reasonable royalty – for the supply of spare parts incorporating the design would deprive the rightholder “of the substance of his exclusive right, and that a refusal to grant such a licence cannot in itself constitute an abuse of a dominant position” (para. 8). This is no surprise: Competition law “takes IPR as it finds it”.146 The ECJ, however, added that

143

The EU debate on design protection for spare parts has been going on for a decade and has yet to be resolved; see Drexl et al. (2005), p. 448 and Straus, J. (2005), p. 391 about the latest initiative, i.e. the Proposal for a Directive of the European Parliament and of the Council amending Directive 98/71/EC on the legal protection of designs, COM (2004) 582. 144 E.g. Commission Staff Working Document, Proposal for a directive of the European Parliament and of the Council amending directive 98/71/EC on the legal protection of designs, extended impact assessment, COM (2004) 582 final. 145 Case 238/87, AB Volvo v. Erik Veng (UK) Ltd. See also the parallel Case 53/87, Consorzio italiano della componentistica di ricambio per autoveicoli and Maxicar v. Régie nationale des usines Renault. 146 This is further underlined in para. 7 which refers to Case 144/81, Keurkoop v. Nancy Kean Gifts.


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the exercise of an exclusive right by the proprietor of a registered design in respect of car body panels [might] be prohibited by Article [102 TFEU] if it involve[d], on the part of an undertaking holding a dominant position, certain abusive conduct such as the arbitrary refusal to supply spare parts to independent repairers, the fixing of prices for spare parts at an unfair level or a decision no longer to produce spare parts for a particular model even though many cars of that model [were] still in circulation, provided that such conduct [was] liable to affect trade between Member States. (para. 9)

The examples listed are narrowly defined (“arbitrary” refusal to license, “unfair level” and “many cars”) but shown that competition law does have a role to play in refusal to license cases (more below 5.3.2.3.). 5.3.2.2.2. computer software and “network effects” Network effects are found in markets “where purchasers find a good more valuable as additional purchasers buy the same [or compatible] goods”.147 Network effects are inherent to technologies based on the sharing of information but may be present in many areas and may vary in degrees. The market for computer software is a prime example of such a market.148 For a computer program, the value increases with more users of a specific (or compatible) program because this will allow the users, for example, to share files with other users. More users will also lead to the development of additional products (such as new compatible programs) or services (such as evening courses about specific word-processing programs) by third parties and this will increase the value of the network even more. The existence of IPR often have a great impact on the effects of network effects and the structure of IPR to a large extent determines the strength of networks.149 If IPR protect interfaces or control de facto standards, the result is a strengthening of the network. If, on the other hand, the protection does not extent to interfaces, allows for reverse engineering,150 or in other ways makes it possible for competitors to gain access to the network,151 the effects of the network will be limited. Network effects create special problems for competition law both in identifying anticompetitive behaviour and in finding the right remedies. One

147 Lemley and McGowan (1998), p. 483. See for an overview over the vast literature Page and Lopatka (2007), p. 91. 148 Lemley and McGowan (1998), p. 483. 149 Lemley and McGowan (1998), p. 603. 150 Such as the EU Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs, Article 6. 151 E.g. by denying protection of programs or of the “ideas” underlying interfaces.


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problem is that competition in network markets is normally a race to be first to define the standard. Once the market has tipped and a standard has been defined, the company which controls the standard will have considerable market power and new products or services which are not compatible with the standard face high access barriers even if they are better or cheaper compared with the existing ones. This will often not be possible because of the costs for consumers in switching to a new network: Fewer people to share files with and fewer additional products or services. This power can be misused to increase prices, to leverage a monopoly to other markets or to prevent the development of superior technology. Standardization, on the other hand, can be very beneficial to competition in the form of low transactions on the demand side and economies of scale on the supply side. In the EU Microsoft case, the General Court152 found that interoperability153 information was indispensable for suppliers to be able to compete with Microsoft in the market for work group server operating systems. The Court stressed the network character of computer programmes which “locked consumers into a homogeneous Windows solution”.154 This gave Microsoft an “artificial advantage” which Microsoft retained by its refusal [which] discouraged its competitors from developing and marketing work group server operating systems with innovative features, to the prejudice, notably, of consumers . . . That refusal has the consequence that those competitors are placed at a disadvantage by comparison with Microsoft so far as the merits of their products are concerned, particularly with regard to parameters such as security, reliability, ease of use or operating performance speed . . . .155

Microsoft’s refusal to supply the interoperability information to its competitors and to allow its use for the purpose of developing and distributing work group server operating systems amounted to misuse. The Court explicitly refused to decide whether Microsoft’s communication protocols or the specifications of those protocols were protected by IPR,156 but proceeded on the basis that such protection was present and applied the “special” principles developed in Magill157 and IMS Health (more just below). 152

Case T-201/04, Microsoft v. Commission. I.e. “. . . the capacity for [computer programs] to exchange information and to use that information mutually in order to allow each of those software products to function in all the ways envisaged . . .”, ibid., para. 225. 154 Ibid., para. 650. See also para. 383 and para. 392. 155 Ibid., para. 653. 156 Ibid., para. 283. 157 Joined cases C-241/91 and C-242/91, Radio Telefis Eireann (RTE) and 153


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Finally, the EU Microsoft decision is interesting because the EU Directive on the legal protection of computer programs contains a limitation in Article 6 on reverse engineering (decompilation). It is the purpose of this rule to deal with compatibility problems such as those which arose in the Microsoft case. The rule in this way represents an attempt to internalize (at least some of) the competition policy concerns which accompany the protection of computer programs. The rules did not deliver in the present situation. As seen from a competition law perspective, the rules are, however, an interesting example of an attempt by the legislator to internalize competition policy rules directly into the copyright system to target specific and well-defined problems.158 The Court explained that the existence of the specific rules did not pre-empt access to the competition rules. Even to a well-balanced and refined copyright system, access to competition law, therefore, may be relevant. 5.3.2.3. Refusal to licence IPR as an abuse? As already mentioned (3.5.3.1.) the question whether or not the holder of IPR who has market power can unilaterally refuse to license lies at the heart of the tension between IPR and competition law and no international consensus exists. Both EU and US law agree that, in principle, refusal to license may make it possible for competition authorities and courts to rely on competition law to compel rightholders to license. Whereas US courts have been very reluctant to turn this option into practice, the ECJ has been more willing to do so. In IMS Health,159 the ECJ laid down the criteria in the following way: 52. . . . the refusal by an undertaking which holds a dominant position and owns an intellectual property right in a brick structure indispensable to the presentation of regional sales data on pharmaceutical products in a Member State to grant a licence to use that structure to another undertaking which also wishes to provide such data in the same Member State, constitutes an abuse of a dominant position within the meaning of Article 82 EC where the following conditions are fulfilled: – the undertaking which requested the licence intends to offer, on the market for the supply of the data in question, new products or services not offered by the owner of the intellectual property right and for which there is a potential consumer demand;

Independent Television Publications Ltd (ITP) v. Commission of the European Communities. 158 Schovsbo (1998), p. 510. 159 Case C-418/01, IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. KG.


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– the refusal is not justified by objective considerations; – the refusal is such as to reserve to the owner of the intellectual property right the market for the supply of data on sales of pharmaceutical products in the Member State concerned by eliminating all competition on that market.

IMS Health limits the obligation to deal to upstream/downstream market situations, where access to the upstream input is “indispensable” and where the refusal prevents downstream companies from bringing “new products” for which there are consumer demand on the market.160 The last-mentioned requirement constitutes an extra requirement which is only applicable to cases involving IPR and is evidence of the “extraordinary circumstances” test which applies to competition law intervention in IPR cases in EU law.161 The precise implications of the decision are presently not entirely clear. It would seem that the reference to a “new product or service” should be construed in a rather broad sense to include also products or services which are presently unknown. In this way, limiting access to upstream technology which is indispensable to follow-on innovation (and not just concrete “new products”) would also to be considered as abuse.162 As seen from such a perspective, the reference to “new product” would make sense as it generally directs companies not to imitate but to be innovative.163 If one accepts competition law intervention to compel licensing in order to further dynamic competition (innovation), “the new products” requirement, therefore, points in the right direction (the ability to produce substitutes, improvements etc.). The criterion does not, however, deliver the decisive factor. Sometimes, it may arguably lead to over-enforcement because “relying only on legal form often leads to incorrect conclusions because negative effects are too easily assumed and efficiencies are underestimated or even ignored”.164 This risk would seem to be particularly pertinent to cases involving IPR which require a difficult trade-off involving

160 The decision does not embrace the “essential facility” doctrine in the original (US) understanding of this; see above, 3.4.3.1. 161 DG Competition discussion paper on the application of Article 82 of the Treaty to exclusionary abuses, Brussels, December 2005, point 239 and Case T-201/04, Microsoft v. Commission, para. 334. 162 DG Competition discussion paper on the application of Article 82 of the Treaty to exclusionary abuses, Brussels, December 2005, point 240. This reading would seem to find support in the decision of the General Court in Case T-201/04, Microsoft v. Commission, para. 665. 163 Cottier (2007), p. 191. 164 Langer (2007), p. xviii (on the general problem in EU law from the focus on the form of abusive practices rather than on its effects).


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actual (static) losses and only hypothetical (dynamic) gains. Sometimes, the criterion may also lead to under-enforcement. Drexl, thus, points out that there is not the slightest argument that IMS Health would use its excessive royalty to be innovative. In fact, due to lock-in-effects, the company would have very little incentive to be so. In such a situation, where the static inefficiency (price) is unlikely to be offset by dynamic gains (innovation), economic analysis may well suggest that competition law should intervene to open up access to the resource even to imitate. The reference to the “new product” would presently seem to prevent such intervention.165 In this way, the “new products” criterion may lead analysis astray in a search for “new products” where the task should have been to assess the overall effects on dynamic efficiency of the refusal to license.166 Defining the precise boundaries to direct courts is a very difficult task. The difficulties have been highlighted in US law, which is generally very reluctant to compel companies to share “the source of their advantage” since this “may lessen the incentive for the monopolist, the rival, or both to invest in those beneficial facilities” and require antitrust courts to act as “central planners”, a role which courts are not fit to undertake and which would not benefit competition.167 Whereas these warnings are important to bear in mind, the discussion above on monopolization problems would seem to clearly suggest that competition law sometimes has a role to play in opening up access to indispensable facilities in order to secure innovation. Such a conclusion is not only supported by clear competition policy concerns. It is also supported by a reasoning based on IPR which does not grant exclusive rights to be used in all situations but only in ways which serves the interests of society in innovation. Not to acknowledge courts a practical role in refusal to license cases would, therefore, seem to be counterproductive as seen from both a static (competition) and a dynamic (IPR) efficiency perspective. 5.3.2.4. Conclusion To the extent that the fragmentation problems are the product of “excessive” protection, they should be dealt with by IPR ex ante and not by

165 Drexl (2004), p. 802 also points out that the “new product” criterion is “totally ineffective” at protecting consumers’ monopoly prices. 166 See also Drexl et al. (2006); see points 20–24. The authors propose an alternative test to the one developed in IMS. 167 Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 US 398 (2004) 407–8. The US Supreme Court decision in eBay Inc. et al. v. MercExchange, 547 US 388 (2009) may indicate a new direction see more infra chapter 9, 3.2.3.2.


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competition law. IPR could respond in a number of ways to overprotection, for example by “raising the bar” to reduce the number of rights.168 Another and more radical solution might be to devaluate the present exclusivity afforded for “grain-sized innovation” (e.g. computer programs) to “liability rules”, i.e. a right only to receive remuneration for the use of the right but not to rely on injunctions.169 To the extent, however, that the fragmentation problems merely reflect the need of companies in the component industry to have access to competitors’ technology, competition law should probably be careful not to prevent companies from entering into pooling or other “private ordering solutions”170 to overcome anticommons problems.171,172 The monopolization problems clearly demonstrate the second-tier function of competition law, serving as an emergency brake. In all the cases discussed above – spare parts, computer programs and databases – the arguments for IPR were weak. Spare parts are normally mundane creations and the copyright protection of interfaces would arguably often come as “precariously close” to being mere “information” (“ideas”) as would the protection of sole source databases. At the same time, the competition arguments for intervening were strong: very strong market power and obvious risks of misuse. The cases in this way confirm the general starting point that IPR rarely gives rise to competition law problems. At the same time they indicate that the checks-and-balance function of competition law has its main field at the “fringes” of IPR, where the internal

168

On patents and EU, see e.g. Bedsted et al. (2007), and for the US e.g. the 2003 FTC Report, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy. The classic US example of copyright protection being “reined in” by courts is Feist Publications, Inc. v. Rural Telephone Services Co. Inc., 499 US 340 (1991) (denying protection under copyright for a mundane collection of telephone listings). See from EU law the database decisions Case C-46/02, Fixtures Marketing Ltd v. Oy Veikkaus Ab, Case C-338/02, Fixtures Marketing Ltd. v. Svenska Spel AB., Case C-444/02, Fixtures Marketing Ltd. v. Organismos prognostikon agonon podosfairou AE. (OPAP) and Case C-203/02, The British Horseracing Board Ltd. and Others v. William Hill Organization Ltd. (limiting protection of “sole source databases”). 169 Notably Reichman (2000), p. 1743 and infra chapter 9. 170 Kieff and Paredes (2006). 171 See e.g. Verbeure et al. (2006), p. 119 (recommending pooling arrangements for disorders for which complex genetic associations are being discovered) and Gaulé (2006) (highlighting the usefulness of patent pools, especially for patents on research tools). 172 In fact it should probably be considered how to make IPR more supportive of such models, e.g. Schovsbo (2009).


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balancing mechanisms are weak, and the exclusivity has effects which go beyond the expectations of the legislator.173

6.

CLOSING REMARKS AND POLICY RECOMMENDATIONS

6.1.

Closing Remarks

Competition law and IPR are both part of the broad array of remedies which national legislators can and should use to promote innovation and enhance consumer welfare. The lesson from US and EU law is that both IPR and competition law should be present at the same time and allowed to work in parallel. Based on the experience in national law in the developed countries, it is clearly a mistake that TRIPS does not provide for any harmonization of competition law to match the effect of the far-reaching harmonization of IPR. The lack of clear and precise competition rules in TRIPS which address the problems associated with both developing countries and innovation and explain where to draw the line between permissible and non-permissible behaviour is not just a problem because it may lead to concrete examples of misuse. It is also a problem because IPR needs a well-functioning market to produce the dynamic benefits which are the purpose of the system. If rightholders were able to use their exclusive rights in an excessive way to block innovation or to claim rewards which do not correspond to their contribution to society, this would furthermore not only harm competition and consumers. It would also in the long run undermine the public and political trust in the IPR system. To international lawmaking it will make it more difficult to obtain the effective and harmonized international protection which is necessary for companies to continue being innovative and creative and for wealth to spread to developing countries. Competition law, therefore, is important to IPR not just because it helps calibrate protection to avoid excesses but also because a well-functioning market is a prerequisite for the IPR system: a steam engine needs both fire and water to function. The discussions above have demonstrated the close relationship between the two legal systems and stressed how the “communality” now recognized in competition law goes both ways: competition law should acknowledge

173

Also Hovenkamp (2005b), who notes signs of a “growing scepticism” toward acquired patents, especially when they are not used and when the company has market power.


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the dynamic efficiency gains from IPR in its analysis and IPR should also acknowledge the static deficiencies (i.e. the consumer-welfare perspective) in its rules and principles.174 To the IPR competition law interface, this conclusion calls for better legal tools in the form of clear, international rules. The solution should arguably be found in TRIPS, which is the central, international instrument for IPR harmonization. One cannot expect TRIPS to deal with all competition law problems (e.g. those relating to mergers) and any attempts to improve on the interface in TRIPS should obviously not stand in the way of further international cooperation towards international competition rules. An initiative in TRIPS may even be a first step in such a direction. Clear competition rules in TRIPS are, however, central to balance IPR and the issues relating to the IPR/competition law interface, therefore, could well be dealt with independently of more general initiatives. Rulemaking in this area should arguably not seek to place IPR “inside competition policy” (as the EU model has been accused of doing175). Nor should it seek to place competition law “inside IPR” (as the US approach can be criticized for doing). Instead a new legal regime should seek to place both IPR and competition law within the same framework, viz. dynamic efficiency or – to put it even more generally – the “concept of ‘dynamic’ competition as a global public good” which has been advanced by Drexl.176 As part of such an endeavour, the new system would have to acknowledge that competition law and IPR are “equals”177 and should move in parallel. Strong protection of industrial property rights should as a matter of principle be accompanied by rigorous application of competition rules and vice versa. As a matter of policy, legislators should not be asked to choose between dynamic and static efficiency. The ideal system recognizes both. An expansion of IPR which would inherently put increased emphasis on the dynamic aspects should, therefore, be matched by an emphasis by competition law on the static perspectives and the impact of IPR on consumer welfare. Similarly, any decrease in protection (e.g. arising out of prohibitive transaction costs) should be matched by a clear recognition of the virtues of dynamic efficiency, for example, in the form of liberal guidelines on licensing agreements or patent pooling. Ideally, the balancing act is therefore a never-ending dynamic process which takes into account 174 In the same direction, Ghidini (2006), p. 115 (about the “dialectic exchange between the two systems”). 175 First (2006), p. 1411. Such a description of EU is open to criticism, see 5.3.2.3. 176 Drexl (2007), p. 23. 177 Lemley (2007), p. 19.


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not only developments in the law (e.g. more robust limitations on patent law), but also the special conditions in the market and the various socioeconomic circumstances of the economy in question. 6.2.

Policy Recommendations

The discussions above call for legal initiatives in two directions: on the general level, it is suggested to include references to the role of competition law as an indispensable instrument to balance IPR in the general provisions in TRIPS. The effect of this would be to generally direct national legislators to take into account the market effects of the IPR legislation.178 On the concrete level, it is suggested to amend the present rules in TRIPS in order to (1) (2)

further technology transfer, and to promote innovation.

6.2.1. Promote technology transfer To further technology transfer the following changes of the present rules may be considered: ● ● ●

recognize the importance of competition to development and the common goals perspective in the general principles of TRIPS, broaden the scope of Article 40 and make it mandatory, and use the existing possibilities under Article 67 to strengthen competition institutions in developing countries.

As a concrete example, to strengthen the present rule the IPT Proposal suggests reinforcing Article 40 by amending subparagraph 2 to give it the following wording: Members shall adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of the Member concerned. Members may specify in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market.

178 See the reference in IPT Proposal, Article 7(a)(iii) to “the promotion of competition”.


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The rule is binding on the purpose but flexible on the national execution. Because of its mandatory character, it cannot be waived by FTAs etc. It is not proposed to consider the specifically mentioned clauses as being “per se” anticompetitive. Competition authorities should generally focus on the effects of clauses rather than on their formal character. 6.2.2. Promote innovation To promote innovation, the suggestion is to change and expand the present Article 8. Article 8 is not mandatory but only allows for national rules to prevent abuse. The examples above clearly suggest that this is too weak. The monopolization problems are at the centre of the interface between competition law and IPR and the problems would seem likely only to grow in the future. It is, therefore, submitted that Article 8 should be mandatory for members of TRIPS. A mandatory rule would need to be more precise than at present in order to avoid legal uncertainty. It should be the purpose of such a rule to make it possible for competition authorities and courts to compel rightholders to provide access to protected information in situations where access is indispensable and the refusal to license has a negative impact on dynamic efficiency and limits innovation. On this issue there is no international consensus.179 The US Supreme court is right to point out that the “cost of false positives”180 (to innovation by lowering incentives to invest in “indispensable” facilities) may be high. The discussion above of the monopolization problems would seem, however, to indicate that non-intervention also may come at a high cost to society. The obvious starting point for new initiatives is the indispensability test developed in EU law.181 The criterion should be understood in a narrow sense and would not include technology which is only “superior” to or more “popular” than the alternatives. The effect of the rule should only prevent rightholder from relying on a combination of exclusivity and market circumstances, such as interface protection or an overly strong protection from misusing excessive market power. This places the proposed rule squarely within the “second tier” function of competition law identified in national law. Such a rule would also be in full conformity with the “common goals” conclusion. Courts should only decide cases after a very careful examination of all the facts before them. If rightholders

179

Above at 5.3.2.3. and Fox (2006), p. 725. Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 US 398 (2004) 414. 181 Drexl (2008), p. 278. 180


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could point to circumstances which clearly suggest that they had relied on the exclusive access to the broader market of substitutes and improvements as part of their decision to invest in providing the resource, then access should not be permitted. Such instances may be present in markets characterized by network effects or standards which are the result of large investments. On this basis, it is suggested to amend the present Article 8 in order to ● ● ●

make it mandatory for member states to prevent the abuse of intellectual property rights by rightholders, make it clear that normally a refusal to license does not amount to misuse, but also to include a rule whereby abuse includes the misuse by a dominant company of IPR to prevent access to information which is indispensable for third parties to develop and market value-added goods or services such as substitutes or improvements, unless such use unreasonably harms the legitimate interests of the rightholder in innovation and development.

A concrete example of a rule which would effectively meet these criteria is found in the IPT Proposal which includes the following proposal for a new TRIPS Article 8b: Interface Between Intellectual Property Rights and Competition Law. 1. For the purposes of maintaining a fair balance between intellectual property rights and free competition, Members shall provide for adequate remedies in the form of statutory or compulsory licences, or other forms of statutory limitations, if: (a) the use of the product protected by an intellectual property right is indispensable for competition in the relevant market, unless the application of such remedies would have a significantly negative effect on the incentives to invest in research and development; or (b) the use of an intellectual property right results in the abuse of a dominant position on the relevant market.’

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K.E. (eds.), Intellectual Property and Development – Lessons from Recent Economic Research, Washington, DC: World Bank, pp. 41–73. Maskus, K.E. and Konan, D.E. (1994), “Trade-related Intellectual Property Rights: Issues and Exploratory Results”, in Deardorff, A.V. and Stern, R.M. (eds.), Analytical and Negotiating Issues in the Global Trading System, Ann Arbor, MI: University of Michigan Press, pp. 401–46. Maskus, K.E. and Reichman, J.H. (eds.) (2005), International Public Goods and Transfer of Technology – Under a Globalized Intellectual Property Regime, Cambridge: Cambridge University Press. Mergers, R.P. (1996), “Contracting into Liability Rules: Intellectual Property Rights and Collective Rights Organisations”, California Law Review, 84, 1293–393. Merges, R.P. (2000), “Who Owns the Charles River Bridge? Intellectual Property and Competition in the Software Industry”, UC Berkeley Public Law and Legal Theory Working Paper No. 15 (SSRN abstract 208089). Nguyen, T.T. (2008), “Competition Rules in the TRIPS Agreement – The CFI’s Ruling in Microsoft v. Commission and Implications for Developing Countries”, International Review for Intellectual Property and Competition, 558, 584–85. Odman, N.A. (2000), “Using TRIPS to Make the Innovation Process Work”, Journal of World Intellectual Property, 3(3), May, 343–73. Overwalle, G. van, Verbeure, B., Matthijs, G. (2006), “Models for Facilitating Access to Patents on Genetic Inventions”, Nature Reviews Genetics, 7, 143–8. Page, W.H. and Lopatka, J.E. (2007), The Microsoft Case: Antitrust, High Technology, and Consumer Welfare, Chicago University of Chicago Press. Penrose, E.T. (1951), The Economics of the International Patent System, Baltimore: the John Hopkins Press. Peritz, R. (2007), “Competition Policy and its Implications for Intellectual Property in the USA”, in Anderman S.D. (ed.), The Interface between Intellectual Property Rights and Competition Policy, Cambridge, UK and New York: Cambridge University Press, pp. 125–249. Rahnasto, I. (2003), Intellectual Property Rights, External Effects, and Anti-trust Law, Oxford: Oxford University Press. Régibeau, P. and Rockett, T. (2007), “IP Law and Competition Law: An Economic Approach”, in Anderman, S.D. (ed.), The Interface between Intellectual Property Rights and Competition Policy, Cambridge, UK and New York: Cambridge University Press, pp. 505–52. Reichman, J.H. (2000), “Of Green Tulips and Legal Kudzu: Repacking Rights in Subpatentable Inventions”, Vanderbilt Law Review, 53, 1743–98. Reichman, J.H. (2007), “Nurturing a Transnational System of Innovation”, in I. Govaere and H. Ullrich (eds.), Intellectual Property, Public Policy, and International Trade, Bruxelles, Bern, Berlin, Frankfurt am Main, New York, Oxford, Wien: Peter Lang Publishing Group, pp. 17–41. Reichman, J.H., Dinwoodie, G.B. and Samuelson, P. (2007), “A Reverse Notice and Takedown Regime to Enable Public Interest Uses of Technically Protected Copyrighted Works”, Berkeley Technology Law Journal, 22, 981–1060. Reichman, J.H. and Hasenzahl, C. (2003), “Non-voluntary Licensing of Patented Inventions”, ICTSD Issue Paper No. 5. Ricolfi, M. (2006), “Is there an Antitrust Antidote against IP Overprotection within TRIPS?”, Marquette Intellectual Property Review, 10(2), 305–67. Rubinfeld, D.L. and Maness, R. (2005), “The Strategic Use of Patents: Implication for Antitrust”, in Lévêque, F. and Shelanski, H. (eds.), Antitrust, Patents and


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Copyright – EU and US Perspectives, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 85–102. Sanders, A. Kamperman (2008), “Intellectual Property Treaties and Development”, in Gervais, D.J. (ed.), Intellectual Property, Trade and Development, Oxford: Oxford University Press, pp. 157–70. Santa Cruz, M.S. (2007), “Intellectual Property Provisions in European Union Trade Agreements – Implications for Developing Countries”, ICTSD Issue Paper No. 20. Schovsbo, J. (1998), “As If Made for Each Other – Intellectual Property Rights and Protection of Compatible Products”, International Review for Intellectual Property and Competition, 510–34. Schovsbo. J. (2009), “Increasing Access to Patented Inventions”, Science and Public Policy, 36(8), October, 609–18. Sokol, D.D. (2007), “What do we really know about export cartels and what is the Appropriate Solution?”, Journal of Competition Law and Economics, 1–16. Straus, J. (2005), “Design Protection for Spare Parts Gone in Europe? Proposed Changes to the EC Directive: The Commission’s Mandate and its Doubtful Execution”, European Intellectual Property Review, 391–404. Ullrich, H. (2005), “Expansionist Intellectual Property Protection and Reductionist Competition Rules: A TRIPS Perspective”, in Maskus, K.E. and Reichman, J.H. (eds.), International Public Goods and Transfer of Technology – Under a Globalized Intellectual Property Regime, Cambridge: Cambridge University Press, pp. 726–57. UNCTAD–ICTDS (2005), Resource Book on TRIPS and Development, Cambridge: Cambridge University Press. US Guidelines (1995), US Antitrust Guidelines for the Licensing of Intellectual Property issued by the US Department of Justice and the Federal Trade Commission, 6 April 1995. Verbeure, B., Zimmeren, E. van, Matthijs, G. and Overwalle, G. van (2006), “Patent Pools and Diagnostic Testing”, Trends in Biotechnology, 24(3), March, 115–20. Zimmeren, E., van, Verbeure, B., Matthijs, G. and Overwalle, G. van (2006), “A Clearing House for Diagnostic Testing: The Solution to Ensure Access to and Use of Patented Genetic Inventions?”, Bulletin of the World Health Organization, 84, 352–9.


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8.

Enough is enough – the notion of binding ceilings in international intellectual property protection Annette Kur and Henning Grosse Ruse-Khan

1.

INTRODUCTION

This chapter discusses the concept of “ceiling rules”, “maximum standards” or “substantive maxima” in international intellectual property (IP) regulation,1 thereby addressing the appropriateness and possible scope of mandatory limitations to the level of protection for IP. For the purposes of this chapter, the concept of “limitations” is understood in a broad sense, meaning that it will not necessarily be in the form of “defence-type” exceptions to exclusive rights.2 The concept includes binding obligations – inside or outside the IP framework – to give effect to interests distinct from those of IP right holders and their exploitation of protected subject matter (such as competitive markets, dissemination of technology, access to information, protection of the environment, public health, cultural selfdetermination, to name a few). The chapter proceeds as follows: in section 2, the context and rationales for ceiling rules are described and appreciated in regard to their positive potential as well as concerning possible drawbacks. Section 3 moves on to assess TRIPS and other international IP treaties for potential maximum standards or ceilings de lege lata, as well as proposals for maximum rules currently debated in various international fora. Section 4 considers the intersection between ceiling rules and (domestic or international) norms granting more extensive protection. Finally, section 5 briefly summarises

1 For the term “substantive maxima” see Dreyfuss (2004) at 27, Dinwoodie (2006) at 214; for the terms “ceilings” and “maximum standards” see Kur (2009) and Grosse Ruse-Khan (2009). 2 I.e., the term is used in a wider sense than in the analysis on exceptions to exclusive rights under the different versions of the three-step test by Kur (ch. 5).

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the contents of the chapter and explains the background to the approach taken towards international ceilings in the IPT project.

2.

EXPLORING THE RATIONALES FOR CEILINGS IN INTERNATIONAL IP LAW

2.1.

Background and Motivations for Embarking on a Ceiling Approach

2.1.1. Ceilings as reaction to ever-increasing minimum standards Traditionally, the substantive rules set out in the two major treaties on intellectual property (IP) rights – the Paris and Berne Conventions3 – basically consisted of two distinct elements: the principle of national treatment, which bans discrimination against foreign right holders, and a set of minimum standards to be guaranteed in favour of persons entitled to the benefits of the Conventions.4 Only rarely – and primarily in the area of copyright – did the treaties also address the way in which rights granted on the basis of the Conventions might or should be limited as to their substance.5 The term minimum standards (or minimum rights) which is commonly used to describe the regulatory structure of traditional IP conventions6 3

Paris Convention for the Protection of Industrial Property (1883) and Berne Convention for the protection of Artistic and Literary Works (1886), as revised in Rome, 1928 (RBC). 4 I.e. in the context of the Paris Convention: persons who are nationals of another Member State, or who have a permanent business establishment there; in the context of the Berne Convention: authors who are nationals of another Member State or who claim rights in a work which was first published in a Berne member country. 5 For an overview, see Hugenholtz and Okediji (2008). See also Kur (ch. 5 in this volume), where the difference existing in that regard between the Berne Convention and its counterpart in the field of industrial property, the Paris Convention, is explained by the fact that the Berne Convention is more explicit in defining minimum rights and their scope than is the Paris Convention in regard to patent and trademark law. 6 While neither the Berne not the Paris Convention, nor the more recent WIPO internet treaties (WCT and WPPT) use this terminology, TRIPS refers to “Standards concerning the Availability, Scope and Use of Intellectual Property Rights” (emphasis added) as the title for its Part II which addresses the substantive protection of IP rights which WTO Members have to introduce in their national laws. In its preamble, WTO Members further recognise the need to introduce “adequate standards and principles concerning the availability, scope and use of traderelated intellectual property rights” (emphasis added). The Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting


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implies that countries are free to provide additional, more extensive protection. In other words, it is assumed that international IP agreements create a “floor”,7 while countries are free and welcome to elevate the actual level of protection to a much higher threshold. It is characteristic of that attitude that the development of international IP protection in the past has proceeded in one direction. Revision conferences (with only a few remarkable exceptions)8 have regularly served the purpose of further strengthening the position of right holders; hardly ever has there been any attempt to question or curtail incumbent rules. The dominant view of a “freeze-plus” mechanism also extends to subsequent agreements that have been concluded between Paris and Berne Member States. The wording of the Berne Convention in this regard is quite instructive when it requires further agreements to “grant to authors more extensive rights than those granted by the Convention”.9 Overall, the TRIPS Agreement follows the same pattern as its predecessors: it incorporates the Berne and Paris Conventions in their latest versions,10 thereby turning compliance with those treaties into a mandatory requirement for accession to the WTO. In addition to that, it contains provisions which extend the existing minimum standards of protection beyond the obligations under the Paris and Berne Conventions (the socalled “Paris” and “Berne-plus” approach). Here TRIPS also secures that its obligations themselves are not understood as overriding or limiting in

Organisations (Rome Convention) however makes frequent use of the term by referring to “minimum protection” for the right holders (see Art.7) , “minimum rights” (see Art.13) and “minimum duration” of rights (see Art.14); see Grosse Ruse-Khan (2009). 7 Taubmann (2008) at 944; Raustiala (2006) at fn.20. 8 See the Revision of the Berne Convention 1971, when an annex was created regarding the possibility of developing countries to grant compulsory licences mainly for translation purposes; see also the proposed amendment of the TRIPS Agreement in the course of the “Doha” process (General Council, Decision of 30 August 2003 (WT/L/540 and Corr.1), 1 September 2003 and General Council, Decision of 6 December 2005 (WT/L/641) 8 December 2005). 9 Art.20 of the Berne Convention (emphasis added). This is however not an absolute requirement but applies alternatively to the condition that provisions in further Agreements are “not contrary to this Convention”. 10 See Art.2.1 TRIPS which states “In respect of Parts II, III and IV of this Agreement, Members shall comply with Articles 1 through 12, and Article 19, of the Paris Convention (1967).” On copyright, Art.9.1 TRIPS provides “Members shall comply with Articles 1 through 21 of the Berne Convention (1971) and the Appendix thereto. However, Members shall not have rights or obligations under this Agreement in respect of the rights conferred under Article 6bis of that Convention or of the rights derived therefrom.”


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any way the pre-existing protection available under the Berne and Paris regimes.11 Next to freezing the pre-TRIPS status quo of IP protection, TRIPS finally regulates post-TRIPS international IP protection. In this regard, Art.1.1 TRIPS expressly allows Members to grant more extensive protection than is prescribed in the Agreement – however, with the important reservation that this applies only if such additional protection does not contravene the provisions of TRIPS.12 Interestingly, the “freeze-plus approach” found in the Paris and Berne Conventions as well as in TRIPS is rather atypical in international law and treaty-making in general and WTO law in particular. With regard to both the general question of prevailing treaty regimes where two obligations from different treaties come into conflict as well as for the more specific issue of inter se agreements13 on the same subject matter, international law and practice recognise also the option of restricting existing rights and obligations.14 While WTO law as such does not contain a general conflict rule,15 the GATT 1994 limits the ability of inter se agreements to offer 11

See Art.2.2 TRIPS: “Nothing in Parts I to IV of this Agreement shall derogate from existing obligations that Members may have to each other under the Paris Convention, the Berne Convention, the Rome Convention and the Treaty on Intellectual Property in Respect of Integrated Circuits.” 12 Art.1.1 2nd sentence states “Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement” (emphasis added). On the qualification of “non-contradiction” and its role for ceilings in international IP law see section 4.2.2 below. 13 Inter se agreements or modifications refer to situations where some of the parties to a multilateral treaty conclude an agreement which modifies the treaty amongst themselves. Under general international (treaty) law, Art.42.1 of the Vienna Convention on the Law of Treaties (VCLT) allows two or more of the parties to a multilateral treaty to “conclude an agreement to modify the treaty as between themselves alone if: (a) the possibility of such a modification is provided for by the treaty; or (b) the modification in question is not prohibited by the treaty and: (i) does not affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations; (ii) does not relate to a provision, derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole.” 14 Compare Pauwelyn (2001) at 540–52. Relevant rules on resolving the conflict between two distinct norms in public international law as well as rules on the admissibility of inter se agreements and their relation to the original treaty can derive from either of the two treaties or from general international law (such as the principles lex superior (ius cogens and Art.103 of the UN Charter), lex posterior (Art.30 VCLT), lex specialis and Art.41 VCLT on inter se agreements); see section 4.4 below. 15 Which means that – depending on the specific conflict rules of a later treaty or on general conflict rules in international law – post-WTO treaties may prevail over WTO law and curtail or modify its rights and obligations.


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additional trade liberalisation;16 but does not restrain WTO Members from concluding inter se agreements imposing new (e.g. environmentally motivated) restrictions on the trade in goods amongst them.17 International IP treaties including TRIPS however seem to take the opposite approach – an approach which resembles the “accumulation only” principle in international human rights law.18 The discrepancy between different branches of WTO law warrants is an explanation which may well lie in the historical context of international IP regulation: when the Paris and Berne Conventions were concluded at the end of the nineteenth century, the concept of minimum rights appeared as a natural and compelling reaction to the situation which the treaties sought to amend, namely that many or most countries showed a blatant disregard for the interests of foreign creators and inventors whose achievements were exploited in their territory. And also during the larger part of the following century, most efforts were directed towards improving the “safety net” for right holders. Instead of reflecting on the possibly negative effects of an ever-increasing level of international protection, this trend was nearly unanimously regarded as a basically logical and welcome development in view of the growing size and importance of international communication and trade. The one-way character of the amendments made in the course of those years was also less of a problem, as the Berne Convention and in particular the Paris Convention, for all the efforts made to enhance the level and breadth of protection, did not attempt to create an all-encompassing type of substantive regulation, but left a considerable degree of policy space to be implemented by national legislatures.19 In addition, if countries adhering to an international convention deemed a revised text to be too

16 Art.1 and XXIV GATT only allow some WTO Members to go ahead and liberalise trade in goods beyond the WTO concessions if this is either extended to all other WTO Members (most favoured nation treatment, MFN) or if these Members form a regional trade agreement (RTA). 17 In the latter case, the general requirements of Art.41 VCLT thus come into play – but due to the reciprocal nature of trade concessions these should rarely operate to restrict the ability of WTO Members to limit free trade; see Pauwelyn (2001) at 547–9. 18 In international human rights law, a successive treaty can only grant the individual additional protection (compare e.g. Art.60 of the European Convention on Human Rights). This approach can be explained by the fact that individuals are the main beneficiaries of protection. International IP regimes adopting such an approach points to the bias these regimes have traditionally shown for the interests of right holders. 19 For the differences in that regard between the Berne Convention and TRIPS, see in particular Geiger (2007a) at 486.


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“advanced” for their own purposes, they were free to decide that they wanted to remain bound only by an earlier, less demanding version. In the post-TRIPS world, the picture has changed. Not only has the available policy space been limited by a dense texture of legal rules; in addition, certain actors from the industrialised world – in particular the USA, the EU and Japan – have started to build on the concept of minimum standards by further enhancing the level of IP protection. In an increasing number of bilateral Free Trade Agreements (FTAs),20 so-called “TRIPS-plus” protection is at the core of controversies over undue limitations of national sovereignty in areas such as public health, technological advancement, promotion of domestic industries and access to knowledge.21 Flexibilities and policy space left open under the TRIPS Agreement22 are increasingly made meaningless because of such bilateral obligations. For example, a conspicuous number of countries have “voluntarily” renounced the transition periods granted under Arts.65, 66 TRIPS.23 It is noteworthy in that context that the extension of the transition period for least developed countries to July 2013 (from, originally, 1 January 2006)24 also contains a freeze-plus clause according to which it is forbidden to reverse current laws already granting a more favourable status to right holders.25 Countries will therefore not profit from the 20 For an enumeration and description of the various types of agreements concluded in particular by the USA with actual or potential trading partners see von Lewinski (2008) at 349 et seq. 21 E.g. Musungu and Dutfield (2004); see also Maskus and Reichman (2004). For a sceptical evaluation of such criticism, see Straus (2005). 22 For examples of such policy space (as pointed out and emphasised by WTO Members), see the Doha Declaration on the TRIPS Agreement and Public Health (2001), especially paras.4, 5. For a comparative analysis of policy space under TRIPS and other core areas of WTO regulation, namely trade in goods and services, see Grosse Ruse-Khan (2008a). 23 Developing countries and countries in transition from centrally regulated to market economy (Art. 65); least developed countries (Art. 66). 24 Decision by the Council for TRIPS of 29 November 2005, IP/C/40. By decision of 27 June 2002 (IP/C/25), the transition period for least developed countries with regard to the introduction of patent protection for pharmaceutical and agricultural products had already been extended to 2016. 25 See Part III, 5 of decision IP/C/40: “Least developed country Members will ensure that any changes in their laws, regulations and practice made during the additional transition period do not result in a lesser degree of consistency with the TRIPS agreement”. While this arguably does not prevent these countries from scaling back on any protection outside TRIPS or from introducing limitations covered by the flexibilities of TRIPS, such action may be prohibited under TRIPSplus FTAs, which often include a dispute settlement system with relatively effective enforcement mechanisms.


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extension, if such laws were introduced in the framework of FTAs or in anticipation of the approaching lapse of the transition period.26 Another aspect contributing to the problematic character of TRIPSplus protection becomes evident in a further comparison with the other main branches of WTO law. While all three core areas of WTO regulation – trade in goods, services and the protection of IP – are building on the principle of most favoured nation (MFN) as well as national treatment (NT), the rules in GATT and GATS allow significant exceptions to extending further trade liberalisation commitments to all other WTO Members. Under the provisions of Art.XXIV GATT and Art.V GATS, WTO Members can limit the benefits of further liberalisation to partners in regional trade agreements. TRIPS does not contain any relevant exception from MFN or NT principles which would limit TRIPS-plus protection to the FTA trading partner.27 The (arguably intended) result is that any TRIPS-plus protection secured by one trading partner via an FTA or other type of bilateral or regional agreement is automatically and unconditionally available to right holders from all other WTO Members. While this is a sound result if judged against the core principles of non-discrimination which have always been a cornerstone of international IP regulation,28 it amplifies and “globalises” the effect of each and every TRIPS-plus FTA concluded with any of the (150 something) WTO Members. Right holders from any WTO Member can exploit these (often public interest-conflicting) extra layers of protection – thereby multiplying the quantitative negative impact such protection may have on public interests or individual fundamental rights.29 26 One must bear in mind in this regard that the decision by the Council for TRIPS was taken only about one month before the lapse of the transition period. Many countries will therefore already have tried – and possibly succeeded – in implementing new, TRIPS-compliant laws, which must remain in force. 27 Compare Arts.3 and 4 TRIPS which do provide for some limitations on MFN and NT. These however generally do not apply to post-TRIPS agreements which provide additional IP protection (compare Arts.3.2 and 4a)–d) TRIPS). 28 National treatment obligations have for good reason – i.e. the need to counter intentional discriminatory treatment of foreign right holders – always formed a core part of international IP Agreements. Beyond this, MFN obligations were not deemed necessary before TRIPS since only preferential treatment not equally granted to one’s own nationals would “escape” the NT obligation. As the rise of FTAs became apparent during TRIPS negotiations, an MFN obligation was included to also capture TRIPS-plus FTAs whose protection only applies to foreign nationals. 29 TRIPS-plus test data exclusivity clearly has a grave impact on the availability of generic medication if all right holders from any WTO Members can rely on it instead of merely those from the FTA trading partner. In the end, many


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Lastly, apart from the possibly detrimental effects for individual countries ensuing from FTAs with TRIPS-plus effect, the sheer number of countries where the protection level is ratcheted up in the manner described can critically affect domestic lawmaking in industrialized and developing countries as well as multilateral negotiations on future flexibilities in the area of IP. It is easy to imagine that once a substantial portion of trading partners have agreed to observe the same standards as those enshrined in present US/EU legislation, there is no way back to a meaningful lessening of what appears to be widely accepted rules. The next step could then be to top even those elevated standards – first, by introducing new and stronger laws domestically, arguing that one must do an even better job at home in order to protect trade-sensitive interests, and then by urging others to adopt the same rules, thereby creating a spiral endlessly moving upwards.30 In this situation, embarking on an attempt to identify certain absolute boundaries for IP rights that must be respected internationally appears to be a basically sensible antidote – an attempt to find a feasible way of reversing or at least halting a trend which, though originally born out of sound concerns, has developed a dangerous spin in recent decades. Ideally, such an approach would have a dampening influence on national legislation becoming prey to powerful lobbying groups (“internal safeguard”), and it would help to make countries immune in sensitive areas from pressure exerted against them in the framework of bilateral trade negotiations (“external safeguard”).

more (previously) patented drugs will escape generic competition that brings down prices. 30 Regarding TRIPS and the implementation of TRIPS-plus standards, an example for that self-enforcing mechanism can be found in the European directive on enforcement of intellectual property rights (2004/48/EC). First, it was declared by the EU Commission that simply to comply with TRIPS-standards would not sufficiently meet the interests of right holders in EU countries, meaning that it was considered a political “must” to elevate the national enforcement regimes to a TRIPS-plus level. After rushing the directive through the legislative stages, and at a time when the large majority of EU members were still struggling with the intricacies of implementing the new legislation, the Commission already announced as its official trade policy that it will pay special attention to the enforcement activities of potential trading partners, whose domestic rules must “at least” live up to TRIPS standards, with explicit references being made in that context to the new EU enforcement directive. That announcement was later-on implemented in the enforcement part of the EC–CARIFORUM Economic Partnership Agreement (EPA), signed in Bridgetown, Barbados on 15 October 2008.


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2.1.2. Ceilings as a means to improve legal security In addition to their main aim of calling a halt to the upward movement of IP protection levels, ceilings might also help to improve the ability of TRIPS Members to appreciate the room available under international law for legislative measures limiting the availability and scope of IP protection. Until now, international Conventions have paid relatively little attention to limitations and exceptions. It is true that under TRIPS, the situation has changed insofar as the three-step test has been installed as the general scheme for assessing the admissibility of limitations and exceptions in relation to copyright (Art.13), trademarks (Art.17), industrial design (Art.26.2) and patent law (Art.30). However, for several reasons, the situation remains unsatisfactory. As is pointed out in another chapter of this volume, the provisions have been interpreted by WTO panels in a manner which is likely to favour right holders’ interests in undiminished preservation of options for commercial exploitation over countervailing policy objectives.31 Whereas those holdings are not binding, and valid reasons exist for endorsing a different approach, the restrictive attitude displayed in the panel decision has exacerbated the difficulties for national authorities and legislatures in deciding exactly how far they are allowed to go under the three-step test without violating international obligations. Apart from one example given in Art.17,32 the provisions themselves do not offer any guidance as to which exceptions may qualify as meeting the relevant conditions. While this may cause certain problems even for countries with a (long) history of legislating IP exceptions, the ambiguity and restrictiveness of the approach to exceptions and limitations under TRIPS certainly has a deterrent effect on those (developing) countries which aim to devise new exceptions corresponding to their individual economic, cultural and technological level of development.33 This is another source of the demand to draft international

31

For a detailed analysis see Kur (ch. 5). Art.17 mentions “fair use of descriptive terms” as an example of a limited exception to trademarks (but is then further conditioned by the phrase “provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties”). 33 This applies also to countries with more experience in drafting exceptions when confronted with new technologies, modes of exploitation and business models relating to the utilisation of IP protected subject matter. One can compare the effect of the three-step test to what is referred to as “regulatory chill” or “freeze” effects in international investment law where certain investment protection standards in Bilateral Investment Treaties (BITs) may prevent the host country from introducing environmental or other public interests measures, fearing that they 32


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rules which provide a clearer and more concrete picture of what can (or even must) be accepted as an exception in international IP law. 2.1.3. Ceilings as safeguards in a contractual context A further aspect of possible relevance in the discussion concerns the way in which mandatory ceilings might affect the possibility to derogate from existing limitations on a contractual basis. Provisions containing limits to IP protection, especially when codified as exceptions and limitations to exclusive rights within IP regimes, seldom are mandatory in the sense of non-derogatory contract law. Instead, provisions in IP licences often override these exceptions and thereby define their own (inter-partes) exclusivity. In the digital copyright context, this problem is intensified by the use of digital rights management and technical protection measures which sometimes enjoy unqualified legal protection against circumvention. The protection is unqualified since it enforces technical exclusivity determined solely by the right holder and often contrary to what exceptions allow. In order to contravene such effects, substantive ceilings might be accompanied by rules stipulating that exceptions are mandatory in the sense that they may not be contracted away,34 and/or by denying legal protection for any technical protection measures which expand technological exclusivity beyond IP laws or do not recognise statutory limitations to IP protection.35 Beyond denying legal protection, ceilings could positively oblige

might be challenged by investors as conflicting with these investment protection standards. 34 Examples of such mandatory exceptions which can override contractual limitations are Art.5 secs.2, 3 (making of back-up copies; idea–expression dichotomy) and Art.6 (decompilation), both in connection with Art.9 sec.1 of the EC Directive 91/250/EEC on the legal protection of computer programs as well as Art.5 sec.1 (certain temporary acts of reproduction) of the Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society (EC Copyright Directive) and further Art.6 sec.1, Arts.8 & 15 of the EC Directive 96/9/EC on the legal protection of databases. Also the EU Commission’s 2008 Green Paper on Copyright in the knowledge society, COM(2008) 466/3 available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52008DC046 6:EN:HTML, raises the issue of making certain categories of exceptions from the 2001 Information Society Directive (29/2001/EC) mandatory for all EU states. 35 Art.6 sec.4 of the EC Copyright Directive (see note 34 above) adopts a rather controversial approach which contains an obligation for EC Member States to ensure that beneficiaries of certain exceptions to copyright must be enabled to exercise these exceptions even in cases where right holders limit access or use by technological protection measures. This obligation is, however, subject to


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right holders to ensure that beneficiaries can exercise “their” exceptions in spite of technical protection measures being used. Though the concept of non-derogatory rules in the form of (unalienable) “users’ rights” until now has been largely unexplored at international level,36 there is good reason to take it into account. As Graeme Dinwoodie has pointed out, there is a pertinent risk that by using the same kind of technical bars on contents distributed internationally, firms actually impose uniform “standard contracts” worldwide, which might translate into a de facto creation of international norms. And he continues: “Whether such norm creation by a mix of technology and contract should have a broader geographical remit should ideally be determined by the set of structural international copyright norms that guided the historical balance between ( . . . ) national autonomy and universality”.37 2.2.

Possible Drawbacks of a Ceilings Approach

2.2.1. How to enforce ceilings? In the debates triggered by the concept of ceilings on the international level, the accent is primarily placed on the positive potential inherent in the novel approach. However, for a realistic analysis, it is likewise necessary to address and consider those implications of a ceiling approach which might have negative effects, or which might otherwise dampen the expectations raised with regard to the attainable benefits. In particular, the chances need to be investigated for effectively enforcing ceilings within a global economic framework such as the WTO. It has to be noted, first, that the introduction of ceilings – even if inserted into the TRIPS Agreement – would not, by itself, necessarily impact the legal situation in Member States, given that TRIPS, according to an almost unanimous and universally held opinion,38 does not have

“voluntary measures taken by right holders” and does not apply to works made available over the internet (where right holders thus remain free to effectively invalidate exceptions and the underlying public policies by technological measures). 36 See, however, the proposal by the World Blind Union (23 October 2008) for a WIPO Treaty for Improved Access for Blind, Visually Impaired and other Reading Disabled Persons, which prescribes in Art.7 that “any contractual provisions contrary to the exception provided in Art.4 shall be null and void”. Also in Hugenholtz and Okediji (2008) at 38, it is emphasized that the new instrument on limitations and exceptions to be conceived within the framework of WIPO should address contractual matters as well. 37 Dinwoodie (2007) at 111. 38 ECJ Case C-146/96, Portugal v. Council, [1999] ECR I-8395, paragraphs 42–8; Joined cases 300/98 and 392/98, Dior and Others, [2000] ECR I-11307,


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a direct effect (even in countries where such an effect might in principle accrue according to constitutional law39). It is true that the existence of mandatory ceilings in an international instrument to which a country has adhered will entail considerable political momentum, encouraging domestic legislature to comply with those obligations. However, if that pressure is ignored for reasons of internal policy, or if the way in which the obligation has been implemented appears to be insufficient, individual users would lack the opportunity to defend themselves before domestic courts by directly invoking the international maximum standard. Hence it is only in a situation where another Member is willing to bring proceedings under the WTO dispute settlement mechanism that ‘teeth’ would be added to mandatory ceiling rules. The existing dispute settlement system functions on the basis of trade interests being nullified or impaired.40 WTO Members are therefore unlikely to initiate a dispute in order to ensure compliance with, for example, a public policy-based exception to copyright protection in another Member unless they have a commercial interest in these exceptions being implemented fully. However, on the basis of convincing arguments that such exceptions also secure further creations and innovations,41 it is not far-fetched to assume that certain industries do have vital commercial interests in preserving the public domain. Depending on further technological development and the expansion of markets, such tendencies may even be likely to increase. In the patent context, this is obvious for example for the producers of generic medications and follow-up innovators in general. In the case of copyright, software producers wishing to develop interoperable value-added computer programs and internet services providers wishing to utilise new business models and technologies to store and provide tailored access to information depend on the ability to utilise potentially copyrighted material.42 Generally speaking,

paragraphs 44–5; Case C-345/02, Anheuser Busch [2004] ECR I-10989, paragraph 54; Case C-238/06 P Develey v. OHIM, [2007] ECR I-9375, paragraph 39. 39 Some countries, like the UK and the Nordic countries, do not accept at all that an international treaty becomes directly binding, whereas that effect is generally permitted in other countries like e.g. Germany, France and also the USA. 40 See Art.XXIII GATT as well as Art.3 (8) of the DSU (under the current DSU however, a violation of WTO provisions is a prima facie indication that trade benefits are impaired/nullified and it is therefore for the responding Member to rebut this). On the difficulties of enforcing ceilings in a WTO institutional setting, see also Drexl (2008) at 276. 41 See Okediji (2006), at x–xi, 4–8. Geiger (2007b) and Geiger (2008). 42 This tension between copyright protection for all forms of content and the need for new technologies which develop some form of new uses for this content


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any commercial entity wishing to develop new, value-added products or services necessarily relies on the ability to build on existing innovations, creations and knowledge. Or to put it in more poetic terms: everyone who wishes to create and invent must be able to “stand on the shoulders of giants” – whereas no-one wishes to be forced to “reinvent the wheel”. Indeed, the move towards a knowledge-based economy implies not only an effective protection of certain investment-bearing knowledge products and services, but even more the free availability and easy accessibility of the relevant “raw materials” – such as knowledge, information, concepts and technical standards. The problem remains that the negative effects on certain industries would not as such provide a lever for efficient enforcement of ceilings, but only where they are powerful enough to move their governments into action. This means that again, it would be the strong players whose interests form the basis for action, and this is not necessarily a guarantee of the enforcement of those limitations that rank highest in the public interest. Of course, in an optimistic scenario, one may hope that, as negative effects of overprotection become more and more visible for various industries,43 governments will in general perceive a robust public domain not only in their own territory but also in export markets abroad to be in their primary commercial interest. Although on this basis, enforcing minimum standards which safeguard access to and dissemination of knowledge even within the trade- and commerce-oriented context of the WTO does not seem unrealistic, it is nevertheless not a very likely prospect. From a more general perspective, it should be added that awareness of the limitations on the effective enforcement of ceilings under the present system provides additional input for discussions concerning the institutional aspects of the WTO policy making and dispute settlement regime, which is addressed in another chapter in this volume. Proposals ventilated

has always existed and is well exemplified in the US Supreme Court case on the copyright-legality of introducing technology which allows consumers to record copyrighted television shows, movies, etc. See Sony Corp. of America v. Universal City Studios, Inc., 464 US 417 (1984). Compare also Google’s new approach of looking at internet restrictions as trade barriers, see Globe and Mail, “Google Seeks Help”, 26 June 2007 – available at http://www.theglobeandmail.com/servlet/ story/RTGAM.20070622.wgtcensor0622/BNStory/Technology (visited 25 March 2008). 43 Dutfield (2008) 188; Reichmann (2007); see also the US Supreme Court decision in eBay Inc. v. MerchExchange, LLC, 547 US 388 (2006); (indicating the detrimental effect of overly protective injunctive relief); for an analysis of the ‘posteBay’ treatment of injunctive relief and the further implications of the decision, see Petersen (2008) and Ohly (2008).


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in that context include strengthening the position of NGOs representing public interest concerns; another model might be found in systems employing a “guardian of the treaties”,44 such as monitoring the effective enforcement of ceilings being motivated by common public goods rather than by purely commercial interests. Whereas those discussions are still in a state of infancy, their very existence can be taken as an encouraging signal also for the prospect of interest here, namely that in the longer run, the efficient enforcement of ceilings might become a more realistic prospect than today. 2.2.2. Flexibility concerns Drafting and enacting ceilings as defined above involves setting mandatory rules. This in turn by itself is a limitation on the policy space and flexibility of the countries bound by such a regime. If one takes the concept of “one size does not fit all” seriously,45 this must equally apply to exceptions and limitations, and to balancing the interests of right holders with those of other stakeholders or public goods: depending on whether a country’s comparative advantage lies more in (R&D-based) innovation or imitation, and considering the importance of other societal values and public goods beyond commercial interests, countries may need distinct types of rules governing the extent and conditions of users’ access to protected subject matter. One must therefore take on the difficult task of balancing sufficient flexibility with providing for meaningful rules limiting the maximum protection available. In particular, it would be counterproductive and detrimental if ceilings were drafted in an overly ambitious way, striving to capture the “best possible way” of balancing protection and public domain interests. If at all, this would only be feasible on the basis of a global consensus on the public interests serving as ceilings and the way in which they should be balanced against countervailing protection objectives. Given the economic, technological, cultural, social and religious diversity on our planet, this is no realistic scenario. Rather than being beneficial, ambitious and detailed ceilings may – perhaps even more than detailed rules on (purely) commercial interests – seriously harm the objectives they are supposed to serve, by imposing one value-system over various equally valid alternatives. On the other hand, if the ambition is set at a very low level, this would 44

In the context of the European Union, the EC Commission is often considered to be such a guardian since it may initiate proceedings against any EC Member State whenever it believes the latter to be acting inconsistently with Community laws. 45 UNCTAD (2007) at 105–107; World Bank (2001) at 129.


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mean that mandatory ceilings are only imposed where limitations are internationally accepted anyhow, and hence, little is added to improve the present situation. Another risk combined with a markedly “modest” approach is that if only the most essential limitations are set out as mandatory in international instruments, some countries might be motivated, either on their own motion – in order to be on the “safe side” – or under pressure from trading partners, to implement exactly that catalogue in their laws, thereby renouncing other legislative options that would (legitimately) provide for better access or more freedom. An option to consider therefore may be to draft ceilings in a broad and open fashion, so as to leave sufficient policy space for distinct domestic implementations, but nevertheless covering all important public interests. In this way, countries would be hindered from implementing policies (on their own account or in the framework of bilateral trade agreements) which potentially conflict with the ceiling in question, but would nevertheless enjoy sufficient policy space to define the exact scope of the ceiling in accordance with domestic needs. As an example, one may refer to the patent and public health interface: in order to add weight to the concerns addressed in the Doha Declaration,46 Art. 8.1 TRIPS might be re-formulated so as to stipulate that Members shall take measures necessary to give effect to public health and access to medication.47 This would entail a binding obligation to act in the public interest, however, without prescribing the measures to be taken. Instead, it would provide policy space and discretion for national legislators to define the conflict as well as measures for the purposes of public health and/or access to medicine. Finally, the necessity requirement can ensure that only those measures would have to be taken which involve the least negative impact on IP protection while being reasonably available and equally effective to obtain the chosen level of public health protection. The assessment of such a rule in the framework of dispute settlement proceedings might then follow a scheme similar to the existing jurisprudence of the WTO Appellate Body on Art. XX GATT, by focusing on the good faith exercise of policy space

46

See para.4 of the Doha Declaration, where it is held that Member States “agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health”. 47 The arguments for and against the insertion of such a clause have formed the object of intense debates in the IPT group. In the end, it was determined that considering the present institutional framework of TRIPS, such a proposal should not be endorsed; instead, it is proposed to change the present wording of Art. 8 (“may”) into “should”. See also the explanatory memorandum to the IPT proposal, in Part II of this volume.


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provided by the provision.48 In cases of domestic regulations or actions with significant evidence of negative impact on access to medication (and keeping in mind the discretion to determine the amount of public health protection a country wishes to offer), the panel would have to declare the relevant conduct inconsistent with the multilateral ceiling. A relevant conflict might occur when a country without domestic manufacturing capacities for pharmaceuticals is hit by a serious pandemic: if in spite of such an emergency, no effort is undertaken by the government to secure import of (affordable) medication by invoking the mechanism of Art. 31bis TRIPS, this would arguably amount to a case where dispute settlement procedures could be initiated by a country with strong generic manufacturers,49 claiming that the country violates its obligations under an Art.8.1 TRIPS as modified above.50 However, the scenario also shows how difficult it would be for a WTO panel to arrive at a sensible conclusion in such a case. The country might argue that the medication, even when fabricated under a compulsory licence abroad, will be too expensive anyhow, or it might claim that it lacks sufficient infrastructure to ensure the distribution of the drugs as well as their correct administering, or that, again for infrastructural reasons, it is not capable of complying with the safeguards ensuring that no re-import into other countries will take place. It is hard to imagine how a panel would deal with such arguments which would in principle demand a full screening of a country’s administrative and health protection system, and thus go far beyond the trade policy issues that panels are equipped for and used to evaluate. Another, more general reservation against the notion of “open ceilings” concerns the fact that the term is something like an oxymoron.51 As was set out above, one important purpose and virtue of ceilings would be to formulate standards offering clear guidance as to what a country can, and what it cannot do.52 That specific quality is diluted if ceilings are deliberately formulated in an open manner which makes room for encompassing diverging national policies, thereby possibly inviting highly varying modes

48 On the jurisprudence concerning Art.XX GATT, see Grosse Ruse-Khan (2008a). 49 Another imaginable scenario might involve a country’s move (on its own decision or in the framework of a bilateral agreement) to grant exorbitant, e.g. 20-year-long protection for pharmaceutical test data. 50 Submitting, for the sake of the example, that the obligation in Art.8 (1) TRIPS were re-formulated as a mandatory rule. 51 This would become even clearer if instead of “flexible ceiling”, one used the term “open ceiling” – because there is no other open ceiling than the sky. 52 See above, 2.1.2.


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of implementation. It might therefore be asked, whether instead of drafting open ceilings, one should rather settle for “strong recommendations” – as this seems to be what they are in reality. Of course, however, the drawback of such an approach would be that they could not be invoked for the purpose of initiating dispute settlement proceedings, which would at the same time impair their potential for political impact. 2.2.3. Efficient “immunisation” of states in bilateral negotiations? Finally, qualifications must also be made regarding the expectation that ceiling rules might assist WTO Members in resisting pressure from third parties urging them, on a bilateral basis, to introduce TRIPS-plus elements in their legislation (“external safeguard”). Generally speaking, the problem with most TRIPS-plus elements currently under debate in the context of Free Trade Agreements is not that the provisions as such are excessive or scandalous. For instance, it is not necessarily wrong to prolong the duration of copyright protection, or to accede to treaties such as the Madrid Protocol or the WIPO copyright treaties, or to protect plant varieties by patent law in addition to or instead of the sui generis plant variety protection regime, or to apply the WIPO Recommendations regarding trademark law, to name just a few typical examples. To prevent such commitments altogether by introducing mandatory rules therefore is not a sensible solution. Nevertheless, such commitments are of serious concern because, and insofar as, they are ill-adapted to a Member’s individual situation, create conspicuous legislative and administrative burdens, and are accepted in rushed procedures without proper consideration of their economic impact and political consequences. Thus, it is not uncommon for countries to be forced, in the framework of FTAs, to implement rules clashing with the provisions of regional agreements to which they adhere,53 or that they are forced into particular “camps” by accepting schemes that are characteristic only of specific legislations, but are highly contentious at the international level, like the “work made for hire” doctrine of US copyright54, or the EU regime for GI protection.55 Here again, the insight that IP

53 Uscategui (2007), inter alia with reference to Art.16.2 (12) of the Agreement (prohibition of requiring recording of licences as condition for the validity of the licence, which contradicts Art.162 of Decision 486 of the Andean Pact). Another example is the Dominican Republic which is now bound by potentially contravening obligations as to GIs and TMs under the EPA and CAFTA. 54 Examples to be found in von Lewinski (2008), at 362 et seq. 55 See Art.145 EC – CARIFORUM EPA. In the context of TRIPS, the second sentence in its Art.1(1) states that WTO members “may, but shall not be obliged


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protection should be tailored to the domestic environment is decisive. The problem often is not the (additional or stronger) IP protection as such, but the fact that it has been transplanted into an environment where it does not fit and causes irritants and side effects. There is no doubt that these problems are rampant and need to be addressed on the international level. However, a ceiling approach has little to offer in that regard. Rather than being vested in the standards as such, the roots of the problem lie in deficiencies of procedural fairness and equal standing of the negotiating parties. This is first and foremost a political, and not a legal problem. However, at least in the longer run and in view of the growing density and complexity of international lawmaking, the time may be ripe for embarking on an attempt to address the issue also from a legal point of view. One possibility would be to broaden the scope of the law of international treaties, as presently enshrined in the Vienna Convention (VCLT). Though it appears to be an ambitious task, one might try to build an international agreement about rules addressing the validity and reach of, for example, “unconscionable clauses” or similar phenomena due to the manifestly unequal bargaining power of countries, in particular where an agreement establishes a tradeoff between basically unrelated matters.56 Another approach, which is closer to the topic considered here, would be to create a type of limitation which is not absolute, but which only sets out that countries may not “be obliged” towards another contracting party to introduce additional protection. 2.3.

Finding the Appropriate Institutional Framework

Before ceiling rules are actually drafted, it must be decided where they should be located within the international system. Should they be integrated into the TRIPS Agreement itself, or would it be a preferable strategy to bolster the ranking of other (non-trade) rules in the hierarchy of international norms, so as to provide for an efficient external counterweight to TRIPS? The question is linked to the general debate on fragmen-

to, implement in their laws more extensive protection” of IP rights. While this may serve as a legal shield against unilateral pressure to implement TRIPS-plus IP protection, its application in the context of TRIPS-plus FTAs where both parties formally consent to the trade agreement remains doubtful. 56 For now, the VCLT only contains provisions on invalidation of treaties due to error, fraud, corruption of a representative, coercion, or conflict with ius cogens (Arts.48–53 VCLT).


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tation and coherence in public international law.57 As the International Law Commission observed in its Fragmentation Report, the diversity and heterogeneity caused by increasing specialisation in international law have resulted in a pluralistic environment of specialised rules and rule-systems, with the effect that “answers to legal questions depend on whom you ask, what rule-system is your focus on”.58 From that perspective, internalising non-trade concerns into TRIPS appears to be a sensible way of ensuring greater coherence, security and predictability in the process of applying IP rules. It may also provide more tailored solutions to potential conflicts and leave fewer open questions on how to resolve them. Also militating in favour of internalisation is the fact that according to experience, interests which have to be imported from other (external) rule-systems to become part of the recognised context for interpretation cannot compete effectively with detailed “codifications” of IP right holders’ (or more generally: trade) interests.59 If properly drafted and implemented, internalisation of ceilings could thus lead to a more balanced international system of economic regulation, and would support synchronisation between distinct areas of public international law. Furthermore, integration into TRIPS would ensure the best possible result also insofar as the provisions would be binding on the maximum number of countries, and problems would be avoided that might otherwise emerge with regard to the relationship between TRIPS minimum standards and external ceilings.60 On the other hand, caution is warranted because of the fact that the regulatory and judicial forum administering such internalised rules would still be a trade-focused forum. The key issue therefore is whether an internalisation in the form of ceiling rules incorporated into the IP (or other economic rule-) system can truly remove the structural bias of that system towards the concerns and interests which it is institutionally programmed to prioritise.61 This in turn leads back to the institutional issues considered elsewhere in this volume. 62 It is clear, however, that the issue of localisation of ceiling rules is of 57

See International Law Commission (2006); Koskienniemi and Leino (2002); Teubner and Fischer-Lescano (2006). 58 International Law Commission (2006), para.483. 59 This is the natural consequence of the observation that each rule-system “has its experts and its ethos, its priorities and preferences and its structural bias” (International Law Commission (2006), para.488, emphasis added). Each one is institutionally programmed to prioritise particular concerns over others. 60 See on that issue below 4.3. 61 International Law Commission (2006), Koskienniemi (2009) at 9. 62 For a comprehensive analysis of institutional aspects, see BakardjievaEngelbrekt (ch. 3).


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major interest (only) as long as the observation of public policy concerns and their integration into the WTO/TRIPS system continue to be basically contentious. If a balance is achieved in the values the rule-system is willing to address – especially by taking into account external interests affected by the system’s rules – the issue of internalising these concerns via concrete ceilings or taking them into account as external rules becomes rather a matter of secondary importance.

3.

A SURVEY OF CEILINGS IN THE EXISTING INTERNATIONAL FRAMEWORK

This section offers an overview of potential maximum standards or ceilings within the existing international legal order. It takes a broad approach that considers not only provisions from IP treaties, but also other sources of international law outside the regulation of IP protection. The overview provided is not exhaustive, however. It rather gives examples of potential ceiling rules which relate to different elements of the IP protection regime (such as subject matter, scope, limitations and exceptions). Next to these internal limits, more indirect and subtle limits can emanate from obligations external to the IP system to give effect to interests interfering or conflicting with those of IP right holders. 3.1.

Internal Ceilings

3.1.1. Limits of protected subject matter and scope of protection In the area of international copyright law, examples of potential maximum standards exist in relation to the subject matter protected by copyright and the scope of copyright protection: First, Art.2 (8) Berne Convention (RBC) states that “The protection of this Convention shall not apply to news of the day or to miscellaneous facts having the character of mere items of press information.” Further, by incorporating the so-called idea – expression dichotomy, Art.9 (1) TRIPS provides that “copyright protection shall extend to expressions and not to ideas, procedures, methods of operation or mathematical concepts as such”. Finally, Art.10.2 TRIPS, in relation to copyright protection for compilations of data makes clear that the right “shall not extend to the data or material itself”.63 Taken

63

Emphasis added. As to databases, copyright protection instead is limited to collections, which “by reason of the selection or arrangement of their contents constitute intellectual creations” (Art.10.2 TRIPS).


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together, these provisions establish an important dividing line between copyright protection and the public domain.64 Access to and utilisation of ideas, concepts and also information – plain facts – cannot be exclusive to anyone. These limits to copyright protection enable others to build on the underlying ideas, concepts or plain facts – even if they are embodied in a protected work – and allow them to be re-utilised without restriction.65 Not only do education and scientific research rely on such limits: they also have a huge (economic) potential for the development and production of new innovative and creative goods and services by allowing these to build upon the existing abstract body of knowledge of mankind.66 While this basic paradigm hence is vital for access to and dissemination of knowledge, the substance of these rules may be too ambiguous and abstract to function as a concrete and specific ceiling.67 Another example of a binding limit on the scope of protection can be found in Art.5ter of the Paris Convention, relating to patent protection. That provision declares that patent rights may not be considered as infringed by the temporary or accidental entrance of ships or aircrafts with inventive technology (pertaining to that ship or aircraft) into the territory of countries of the Paris Union where such technology is protected by a patent.68 An equivalent provision is Art.27 of the Convention on International Civil Aviation of 7 December 1944, which aims at promoting 64

Correa (2007) at 120; ICTSD/UNCTAD (2005), Part Two, Chapter 7 (1.2); Okediji (2006) at 10. 65 For example, copyright protection available for a scientific article or textbook applies to the way the author elaborates and describes scientific concepts and his ideas as well as how she/he presents information. It does not prevent anyone from using these ideas, concepts or information as such. 66 Geiger (2007b); see also Consumer’s International (2009) at 4 citing studies by Pollock (2006) and Rogers and Szamosszegi (2007) that the economic value of the public domain and the fair use exception in US copyright law is extremely high – contributing US$ 4.5 trillion to the US economy in annual revenue. For an analysis of ceilings to safeguard the free movement of knowledge in a “knowledge economy” see Grosse Ruse-Khan (2009). 67 Commentators have observed that “[i]t is an illusion that simply adhering to the idea-expression dichotomy doctrine in traditional copyright theory would guarantee that fundamental ideas and research findings are freely accessible. Although not copyright protected, the fundamental ideas and concepts are clustered in scholarly works or databases, which need to be distributed and read in order to gain access to the ideas and findings they convey. The freedom of fundamental ideas and knowledge is best served in a copyright framework providing effective exceptions or limitations privileging uses necessary to get access to embedded information and knowledge.” See Hilty, et al. (2008) at 10. 68 Art.5ter provides: “In any country of the Union the following shall not be considered as infringements of the rights of a patentee:


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and securing unimpeded international air traffic.69 Because of Art.5ter as an internal ceiling within an IP treaty, there is no need to resolve a potential conflict between international obligations regarding patent protection for aircraft (parts) and unimpeded air travel. 3.1.2. Limitations and exceptions An obvious and important mode for implementing ceilings is to draft mandatory exceptions to the exclusive rights granted to the right holders of IP protected subject matter and thereby curtail their (economic) interests in pursuit of distinct (public policy) objectives. The RBC offers one example: under Art.10 (1) “it shall be permissible to make quotations from a work which has already been lawfully made available to the public, provided that their making is compatible with fair practice, and their extent does not exceed that justified by the purpose, including quotations from newspaper articles and periodicals in the form of press summaries.”70 None of the other limitations and exceptions found in the RBC is clad in such mandatory language. Instead, for example the teaching exception which is found in Art.10 (2) RBC only provides for an optional limitation, though the public policy objectives it pursues are hardly inferior to those of quotation.

1. the use on board vessels of other countries of the Union of devices forming the subject of his patent in the body of the vessel, in the machinery, tackle, gear and other accessories, when such vessels temporarily or accidentally enter the waters of the said country, provided that such devices are used there exclusively for the needs of the vessel; 2. the use of devices forming the subject of the patent in the construction or operation of aircraft or land vehicles of other countries of the Union, or of accessories of such aircraft or land vehicles, when those aircraft or land vehicles temporarily or accidentally enter the said country. 69 In its Art.27, the Convention equally prescribes that the operation or repair of foreign aircrafts in transit in another country may not be hindered on the basis of patent rights pertaining to the aircraft or its parts in that country. 70 In spite of the seemingly unequivocal wording of Art.10 (1), doubts have been articulated in the literature whether national legislatures are actually under a binding obligation to grant a quotation right. Against such an understanding, the argument was raised that to conceive of mandatory limitations in the framework of the RBC would be incompatible with the very character of the Convention as an instrument providing for minimum protection. However, the “ordinary meaning” of the wording, which according to Art.31 VCLT constitutes the primary source of interpretation, does not lend itself to any other understanding than that it is meant to be binding. See Ricketson and Ginsburg (2006) at 330–31, and Ginsburg (2008), with ample references to the historic background, in particular the discussions at the Rome Revision Conference.


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3.1.3. IP Enforcement Further examples of norms containing binding obligations that potentially limit the exercise of IP protection and that curtail the interests of right holders can be found in the TRIPS chapter on IP enforcement. Several provisions contain binding language which sets out general principles upholding procedural guarantees for the defendant or preventing the creation of trade barriers, as well as specific obligations limiting enforcement measures.71 One general and one more specific example shall suffice here. In Art.41, TRIPS obliges WTO Members to provide in their national law general procedural principles and guarantees with respect to the enforcement of IP. Such “procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse”; they “shall be fair and equitable”;72 “[d]ecisions on the merits of a case shall preferably be in writing and reasoned”, they “shall be made available at least to the parties to the proceeding without undue delay” and “shall be based only on evidence in respect of which parties were offered the opportunity to be heard”. Furthermore, [p]arties to a proceeding shall have an opportunity for review by a judicial authority of final administrative decisions and, subject to jurisdictional provisions in a Member’s law concerning the importance of a case, of at least the legal aspects of initial judicial decisions on the merits of a case.

While these procedural guarantees are of a general nature and usually available to both right holders as well as alleged infringers, they nevertheless include binding minimum levels of protection for alleged infringers. Under Art.48 TRIPS concerning “Indemnification of the Defendant”, paragraph one provides that judicial authorities shall have the authority to order a party at whose request measures were taken and who has abused enforcement procedures to provide to a party wrongfully enjoined or restrained adequate compensation for the injury suffered because of such abuse. The judicial authorities shall also have the authority to order the applicant to pay the defendant expenses, which may include appropriate attorney’s fees.

Addressing principally the interests of defendants, Art.48 TRIPS hence contains binding obligations for WTO Members which must allow its 71

See especially Art.41.1–4, 42 2nd sentence, 46 3rd sentence, 48.1, 50.3, 4, 6 TRIPS. 72 In Art.42, this is further defined as to entail an obligation whereas, inter alia, “[d]efendants shall have the right to written notice which is timely and contains sufficient detail, including the basis of the claims.”


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judicial authorities to order the right holder to pay compensation, including the defendant’s expenses, in cases of abuse. While neither this nor the more general procedural guarantees are limits on the scope of substantive IP protection, they nevertheless impose restraints on the exercise of IP rights via IP enforcement procedures. In this regard, they can also be viewed as ceilings. Especially for border measures against IP infringements under Arts.51– 60 TRIPS, the strong linkage between TRIPS, global trade and the traditional WTO/GATT approach towards further trade liberalisation provides another rationale which explains binding language safeguarding the interests of traders. From several provisions which provide binding protection of free trade principles and the respective actors,73 the following examples shall suffice here. First, Art.52 1st sentence obliges WTO Members to require from right holders initiating the procedures under Article 51 “adequate evidence to satisfy the competent authorities that, under the laws of the country of importation, there is prima facie an infringement of the right holder’s intellectual property right”. Border measures hence must be based on adequate evidence of a prima facie IP infringement – based on the law of the country of importation. Second, Art.54 demands a notice of suspension. The importer and the applicant shall be promptly notified of any suspension of the release of goods on the basis of border measures. Insofar as this obliges customs to inform the importer, Art.54 contains another binding requirement safeguarding the interests of traders. Finally and similarly to Art.48.1 discussed above, under the indemnification provision in Art.56 TRIPS, national border measure regimes must foresee the option to order the applicant to pay the importer, the consignee and the owner of the goods appropriate compensation for any injury caused to them through the wrongful detention of goods or through the detention of goods released pursuant to Article 55.

This objective liability of the right holder/applicant again can be understood as a ceiling on IP enforcement as it contains the mandatory protection of free trade interests.74

73 See especially Art.52 1st sentence, Art.53.1 & 2 1st sentence, Art.54, Art.55 1st sentence, Art.56, Art.57 2nd sentence, Art.58 and Art.59 1st sentence TRIPS. For an analysis of ceilings within Arts.51–60 TRIPS and their application to EC border measures (detention and seizures) against generics in transit through EU ports, see Jaeger and Grosse Ruse-Khan (2009). 74 Compare Busche and Stoll (2007) at 679 who describe this liability as an


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3.1.4 IP – Competition Interfaces Finally, concrete provisions within IP laws addressing potential conflicts of interest can function as ceilings which safeguard free competition. An example of a mandatory provision within IP law which safeguards the public good of free competition75 and its particular aspect of the international transfer of technology can be found in Art.142 (2) of the IP section in the EC–CARIFORUM Economic Partnership Agreement (EPA): “The EC Party and the Signatory CARIFORUM States shall take measures, as appropriate, to prevent or control licensing practices or conditions pertaining to intellectual property rights which may adversely affect the international transfer of technology and that constitute an abuse of intellectual property rights by right holders or an abuse of obvious information asymmetries in the negotiation of licences.”76 In a nutshell, Art.142 (2) seems to require the contracting parties to prevent/control licensing practices and conditions “pertaining to” (= relevant for) IP rights as soon as they (1) have the potential to affect international technology transfer and (2) either constitute an abuse of IP rights by right holders or an abuse of obvious information asymmetries in the negotiation of licences. With its link to international technology transfer, Art.142 is not only of specific interest from the competition law perspective but a particularly effective tool to counter the inhibiting effects of extensive IP protection for technology transfer.77 It could be interpreted as requiring EC competition authorities to monitor the technology transfer impact in the CARIFORUM states of IP licensing practices and other IP strategies of EC companies.

effective tool to safeguard against the abusive reliance on border measures and as effective implementation of the aims of Art.41.1 last sentence (to prevent barriers against legitimate trade). 75 Another good example – albeit within the European context where there is a relatively higher degree of harmonisation and common rules on certain public goods (such as competition) – is Art.8 in the early drafts of the Database Directive of the EC which included a (competition law-motivated) provision on so-called sole source databases. 76 EC–CARIFORUM EPA, Art.142.2. 77 Another potential ceiling provision on technology transfer, similar to Art.66 (2) TRIPS, is Art.4 (3) which obliges (“shall”) the EC to “facilitate and promote the use of incentives granted to institutions and enterprises in their territories for the transfer of technology to institutions and enterprises of the CARIFORUM States in order to enable the CARIFORUM States to establish a viable technological base. The EC Party shall endeavour to bring any known measures to the attention of the CARIFORUM EC Trade and Development Committee for discussion and review.”


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3.2.


External Limitations

Various international treaties may confer rights or otherwise protect the interests of individuals or certain groupings within a society in a way which may necessitate, imply or at least allow limits on IP protection. Such treaties can relate to diverse fields such as the protection of human rights, to biological or cultural diversity, access to knowledge and information as well as to environmental protection or climate change. One example is the human right to health78 and the corresponding state duty to offer or at least facilitate access to medication.79 It is sometimes perceived as conflicting with, and imposing limits on, patent protection for essential drugs under TRIPS.80 Depending on whether one attempts to reconcile the two norms to achieve coherence in international law or alternatively to resolve a perceived norm conflict by establishing a formal hierarchy between the two norms,81 the right to health might be considered as trumping patent protection. Although one has to consider the Doha Declaration on the TRIPS Agreement and Public Health82 as well as the 2003 and 2005 decisions83 on a waiver of Art.31 f) TRIPS as the WTO response to the access to essential drugs issue, this “solution” arguably neither fully resolves any potential conflict nor does TRIPS treaty language address human rights issues expressly. Another example concerns the rights of holders of traditional knowledge (TK) in relation to the exploitation of their TK and related genetic resources (GRs) as articulated in Art.8 j), 15, 16 of the Convention on

78 The right to health is expressed in Art.25 of the Universal Declaration of Human Rights (UDHR), adopted and proclaimed by the UN General Assembly in Resolution 217 A (III) of 10 December 1948 at Paris. It is further incorporated in Art.12 of the International Covenant on Economic Social Cultural Rights (ICESCR) where states recognise the “right of everyone to the enjoyment of the highest attainable standard of physical and mental health.” 79 The entitlements of inter alia availability, accessibility and affordability of essential medication flowing from the right to health as expressed in the ICESCR are further defined in UN – Committee on Economic Social and Cultural Rights (2000). For a more comprehensive discussion on the right to health implications for ceilings to IP rights see Grosse Ruse-Khan (2009). 80 For a more detailed discussion on the relation between various human rights and IP protection see further Papadopoulou (ch. 6). For a human rights perspective on TRIPS, see UN – Economic and Social Council (2001). 81 On the issue of achieving coherence and resolving conflict between distinct international norms, see section 4 below. 82 World Trade Organization (2001). 83 World Trade Organization (2003) and (2005).


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Biological Diversity (CBD) and the respective Bonn Guidelines84 on access and benefit sharing. It is commonly argued by TK holders and bio-diverse countries that TRIPS allows patent protection and exploitation for inventions which misappropriate TK or related GRs.85 Hence some consider TRIPS as conflicting with the rights under the CBD. The conflict finds expression in the ongoing debate in the TRIPS Council on the consistency of TRIPS patent provisions with the CBD and whether an obligation to submit information on the origin of GR in patent applications should be inserted into TRIPS.86 In case the violation of such a requirement led to consequences within IP law, for example in the form of a suspension of the further processing of the patent application or even its rejection, the incorporation of the interests of TK holders would serve as a mandatory limitation on IP protection. 3.3.

Ceilings Currently under Debate

In recent years, the issue of (mandatory) limitations and exceptions has made its appearance on the agenda of international norm-setting fora such as WIPO and the WTO. This is a reaction to the impression prevailing in developing countries, that the high level of intellectual property protection imposed by TRIPS and TRIPS-plus FTAs risks impeding their efforts to accommodate their own policy objectives, including protection of underprivileged groups of stakeholders. In an attempt to accommodate the specific need for debate about these issues, WIPO has launched its Development Agenda.87 Inter alia, the clusters of proposals regarding future activities in that framework comprise norm-setting activities trying to achieve a more balanced approach which takes into account, and makes best use of, existing flexibilities. Furthermore, measures shall be taken to safeguard a “robust public domain”. It is within the range of that mandate to consider binding ceilings as a way to achieve those aims.88

84 Bonn Guidelines on access to genetic resources and the fair and equitable sharing of the benefits arising from their utilization (Decision VI/24 of the VIth Conference of the Parties to the CBD), April 2002. 85 Commission on Intellectual Property Rights (2002), ch. 4: Traditional Knowledge, Access and Benefit Sharing. 86 See World Trade Organization (2006). 87 WIPO General Assembly (2007) at para.334 and Annex A. 88 For how the WIPO Development Agenda can be utilised in order to introduce binding minimum exceptions and limitations for educational purposes, see also Rens (2008).


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Further to that, the topic became part of the working programme undertaken by the WIPO Standing Committee on Copyright and Related Rights (SCCR), through a proposal made by Brazil, Chile, Nicaragua and Uruguay.89 The proposal stresses the vital importance of exceptions and limitations90 and asks the SCCR to begin work on prescribing a minimum framework of public policy exceptions which must be available in all national laws. Even before the proposal was made in its present form, WIPO had reacted by commissioning extensive studies mapping existing limitations and exceptions in specific areas of copyright worldwide.91 At the same time, a specific proposal was launched by the World Blind Union for a WIPO Treaty for Improved Access for Blind, Visually Impaired and other Reading Disabled Persons.92 The core approach of the proposal is to demand that the contracting parties must undertake measures to enable full and equal access to information and communication for persons who are visually impaired or have other disabilities in accessing copyrighted works (Art.2 (a)). The measures envisioned are primarily “Limitations and Exceptions to Exclusive Rights Under Copyright”.93 The proposal is interesting also insofar as it contains a binding obligation to ensure that beneficiaries of exceptions can enjoy them even if technical protection measures are used (Art.6) and further obliges states to consider contractual provisions contrary to the exceptions proposed as null and void (Art.7). The initiative was endorsed and submitted to the WIPO

89

See WIPO Secretariat (2008). The Proposal states that “exceptions and limitations to copyright are important instruments for defining and protecting a heritage of public property and areas of freedom for the use of knowledge and products of human creativity, which are necessary not only to guarantee the right of humankind to participate in cultural activity and scientific and economic progress, but also to facilitate and promote the creative activity of authors and cultural industries which require those exceptions to carry out a part of their activities.” See WIPO Secretariat (2008) at 1. 91 Also the 2008 Green Paper of the EC Commission on Copyright in the Knowledge Economy raises the issue of making certain categories of exceptions from the 2001 Copyright in the Information Society Directive (CISD) mandatory for all EC Member States COM(2008) 466/3 – available at http://ec.europa. eu/internal_market/copyright/docs/copyright-infso/greenpaper_en.pdf (visited 5 November 2008). Under Art.5.2 and 3 CISD, EC Member States can choose which of the exceptions listed they wish to implement. The Commission enquires whether for reasons of legal security and certainty in the internal market as well as for better protection of the beneficiaries, certain provisions, in particular exceptions on teaching and research and for people with a disability, should be made mandatory. 92 WIPO (2009). 93 See WIPO (2009), at Art.4 of the proposal. 90


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SCCR in May 2009 by Brazil, Ecuador and Paraguay;94 it was decided that the issue would be taken up for further discussion.95 A more far-reaching approach is endorsed in the draft Treaty on Access to Knowledge (A2K).96 Apart from instituting a right to access to knowledge irrespective of disabilities (Art.3-3), the draft treaty contains a general catalogue of mandatory limitations and exceptions to copyright (Art. 3-1: “Members agree that the exclusive economic rights of copyright holders . . . shall not apply to . . .”), as well as specific provisions dealing with distance education, (limited) liability of ISPs, prohibition of retroactive extension of copyright terms prescribed in international instruments, and transformation of TRIPS-plus extensions of the copyright term undertaken into sui generis regimes that are subject to a registration requirement.97 However, probably in view of its rather far-reaching character, the A2K draft treaty has until now not found sufficient support to become part of the WIPO agenda.98 Within the WTO context, aspects of interest in the context of ceilings are ventilated in the framework of the Doha Development Round of Negotiations. In particular, there have been extensive discussions in these processes on the introduction into the TRIPS Agreement of a mandatory requirement for the disclosure of the origin of biological resources and/or associated traditional knowledge used in inventions for which IP rights (especially patents) are applied for. Although no ceilings are

94

WIPO (2009). See press information by WIPO on the SCCR meeting, http://www.wipo.int/ pressroom/en/articles/2009/article_0012.html. 96 The draft is available at http://www.cptech.org/a2k/a2k_treaty_may9.pdf, visited on 6 July 2009. 97 Like the World Blind Union proposal, the draft A2K treaty would oblige members to ensure that enjoyment of the access rights is neither impaired by technical protection measures nor by individual contract. 98 Last but not least, the concept of implementing ceilings in international intellectual property norms meets with increasing interest in the academic debate. Apart from the IPT project and its early publications suggesting and debating ceiling norms, the issue has figured prominently in the study by Ruth Okediji and Bernt Hugenholtz, see Hugenholtz and Okediji (2008). The study results in a catalogue of mandatory rules as well as a number of additional limitations and exceptions which are recommended for optional implementation. Beyond the norms already existing in international instruments on the exclusion of specific subject matter, the authors propose to make exclusion from protection of official works mandatory; they further suggest stipulating binding limitations and exceptions for certain modalities of use, such as incidental copying and reverse engineering, private copying, use by disabled persons as for personal and non-profit educational use. 95


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foreseen in the sense of protection being limited or excluded as such, the proposal contains rules which would make it mandatory to take certain elements into account in the registration proceedings, and hence might indirectly impinge on the possibility of obtaining a valid patent. The proposed Art.29bis TRIPS states inter alia that where the subject matter of a patent application concerns, is derived from or developed with biological resources and/or associated traditional knowledge, Members shall require applicants to disclose the country providing the resources and/or associated traditional knowledge, from whom in the providing country they were obtained, and, as known after reasonable inquiry, the country of origin. Members shall also require that applicants provide information including evidence of compliance with the applicable legal requirements in the providing country for prior informed consent for access and fair and equitable benefit sharing arising from the commercial or other utilisation of such resources and/or associated traditional knowledge.99 The proposal appears to be endorsed by a large majority of WTO Members, without its final acceptance being taken for granted.100 Furthermore, the ongoing negotiations for a new global agreement on climate change within the context of the UN Framework Convention on Climate Change (UNFCCC) contain several proposals for binding limitations on IP protection. The negotiations focus not only on binding emissions targets, but also on ways to facilitate the transfer of “green” technology – in particular to developing and least developed countries. Such technology concerns both innovative technology which reduces greenhouse gas (GHG) emissions (so-called mitigation technologies), as well as technology to adapt to changing climate and resulting natural disasters (adaptation technologies). Developing countries in particular have made several proposals to facilitate the transfer of such technologies by imposing binding limits on IP rights otherwise available for such technology. In general, they aim to limit in scope or reduce in time patent protection for climate-friendly technology or exclude these technologies from patent protection altogether. More

99 Brazil et al. – Communication on a Proposal to Amend TRIPS (WT/ GC/W/564), 31 May 2006. 100 See the proposed modalities for text-based negotiations in Trade Negotiations Committee, Draft Modalities for TRIPS Related Issues – Communication from Albania, Brazil, China, Colombia, Ecuador, the European Communities, Iceland, India, Indonesia, the Kyrgyz Republic, Liechtenstein, the Former Yugoslav Republic of Macedonia, Pakistan, Peru, Sri Lanka, Switzerland, Thailand, Turkey, the ACP Group and the African Group, TN/C/W/52 (19 July 2008), available at http://trade.ec.europa.eu/doclib/docs/2008/september/ tradoc_140562.pdf.


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specific proposals state that “[b]iological resources including microorganisms, plant and animal species and varieties, and parts thereof that are used for adaptation and mitigation of climate change shall not be patented”101 or that “[a]ll necessary steps shall be immediately taken in all relevant fora to mandatorily exclude from patenting environmentally sound technologies which can be used to adapt to or mitigate climate change” and further call “to take all steps necessary in all fora to revoke in developing countries all existing patents on essential/urgent environmentally sound technologies to adapt to or mitigate climate change”.102 Were these proposals to become binding treaty law, they would serve as the most far-reaching ceilings on existing IP protection currently under discussion.

4.

LEGAL EFFECT OF CEILING RULES

The declared aim of ceilings is to put an end to the upward spiral of IP protection. For that goal to be achieved, it needs to be considered how such rules are positioned in the wider context of international law, and which factors are decisive for assessing the legal effects they entail for other international norms. 4.1.

Ceilings, Coherence and Norm Conflict

The issues raised here are manifold and diverse. And those raised below are not meant to be an exhaustive assessment: (1)

(2)

To start with, the issues concern the limiting effect of existing internal ceiling rules in IP conventions on additional protection beyond the ceiling imposed by way of subsequent international agreements or by a country’s own legislative decision. An example would be the effect a TRIPS ceiling has on a “TRIPS-plus” obligation in an FTA or national law. They also concern the effect of external norms which (may) function as a limit or ceiling on existing international IP protection. An example would be the effect the human right to health has on patent protection for pharmaceuticals.

101 Alternative language states: genetic resources, including germplasms of plant and animal species and varieties that are essential for adaptation in agriculture, shall not be patented by multinational or any other corporations. 102 See UNFCCC (2009) at 184–6.


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(3)


Lastly, it might be asked what the potential effect of future international agreements seeking to introduce express ceiling rules would be on and within the existing international IP system. Here, one can point to the treaty for exceptions and limitations to copyright for visually impaired persons negotiated in the WIPO SCCR, the more far-reaching proposal for a treaty on “Access to Knowledge” or the proposals for limiting patent protection for green technology in the UNFCCC context.

In all of those cases, the following would have to be assessed: first, whether any perceived “conflict” between the ceiling rule and the provision offering additional IP protection can be accommodated by way of mutually coherent and harmonious treaty interpretation. If mutual coherence cannot be established, there may be a true conflict between the two norms. Next, where a conflict is inevitable, it needs to be established whether one rule – and if so, which – takes precedence over the other,103 or whether both continue to be legally binding within their own context. Related to this, yet conceptually distinct, is the question whether a country incurring such obligations is in breach of one or both treaties, and could therefore be subject to sanctions set out in the relevant framework. In view of the many different questions and situations involved, and also due to the fact that it is linked to complex issues of public international law, the topic can only be addressed in a sketchy and indicative manner, focusing on specific questions instead of embarking on a comprehensive analysis. Using different scenarios from the first part of this chapter as a backdrop, the following questions will be highlighted in turn: ●

●

●

Would it amount to treaty violation, if a contracting party either on its own motion within domestic law, or in the framework of a subsequent international agreement disregards ceilings anchored in TRIPS or in other international Conventions, in particular the Berne Convention (RBC)? To what extent is it possible to overcome, by way of harmonious interpretation, potential conflicts resulting from diverging obligations anchored in international treaties? How is it determined, in case of conflict, whether the subsequent diverging obligation has been validly incurred, and if so, whether

103

This includes an assessment of whether the subsequent agreement can validly modify existing treaty obligations between some of the parties to the original treaty under Art.41 VCLT; see in particular Mitchell and Voon (2009).


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and which of the conflicting obligations takes precedence over the other? 4.2.

Inconsistencies with Ceilings in existing International IP Agreements

The first scenario examines whether additional IP protection beyond a ceiling in existing international IP law constitutes an infringement of the ceiling treaty. Examples relate to ceilings in the Berne Convention and TRIPS. 4.2.1 Ceilings in the Berne Convention The first and basic question to be posed with regard to the legal effects of ceilings is whether they matter at all. Would a country be liable for treaty violation if ceilings in TRIPS or the RBC are disrespected?104 As an example, it will be assumed that a country decides, in its own legislation, to exclude any possibility for making quotations from published works.105 Based on the understanding that Art.10.1 RBC is a substantive ceiling under which Berne Union countries must foresee a quotation exception,106 such a rule would deviate from the international maximum standard set out therein. On the other hand, pursuant to Art.5.1 RBC, Berne Members are only obliged to grant the specific rights set out therein vis-à-vis the beneficiaries of the Convention, namely authors of works originating from another Member State. It is therefore no violation of the RBC if US copyright law makes enforcement of domestic US works dependent on registration. As the article only refers to rights, it might be questioned whether the same result would also apply to limitations which are enshrined in the RBC in a mandatory form. Absent any indications to the contrary, such a result would appear logically consistent with the structure of the Convention, which is only concerned with the protection

104

Ginsburg (2008) examines that question with regard to its relevance for private ordering. Would contracts going beyond Berne-TRIPS maxima – e.g. by granting protection for mere data, or news of the day – have to be invalidated? The issue is not addressed in any detail here; however, it is submitted that in general, ceiling rules do not have an effect per se on private contract law, unless it is expressly stated in the international text that the ceiling also affects private law party autonomy aims – that is to invalidate any contract which offers protection beyond the ceiling rule. On this point, see above. 105 It must be added here that this is an extremely unlikely scenario, as the quotation right not only curtails the right of authors, but benefits them at the same time. 106 See already above; see also chapter on limitations and exceptions; furthermore Ginsburg (2008) 7.


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granted to foreign works, and does not interfere with rules affecting domestic creations.107 In other words, as long as it is clear that the hypothetical prohibition to quote from a published work would only be effective vis-à-vis domestic works (while the citation right remains available for foreign authors), the rule would in all probability not be in direct conflict with the RBC’s system of minimum rights and limitations. Nevertheless, such a conflict would regularly result from the operation of the national treatment principle: according to Art.5.1 RBC, authors of foreign works are entitled to claim the same level of protection as is provided under domestic law, and Art.19 RBC confirms that the RBC does not preclude claims to the benefit of any greater protection than that resulting from the Convention itself. Authors of foreign works hence could demand national treatment insofar as they too want their works to be free from the citation ceiling. Further, it seems highly impracticable if not impossible to operate an exception only for foreign works. In practice, several right holders might hold copyrights with regard to a product or service being produced, developed or offered in and from various jurisdictions. Differential legal treatment between domestic and foreign right holders seems an impossible task in a globalised world. Therefore, additional protection which may have intended to apply to domestic works only must de jure and de facto operate as the general rule, thereby provoking an open clash with the relevant ceiling norm.108 The situation would be different anyhow, if the rule prohibiting quotations were introduced not on a country’s own motion, but on the basis of an international agreement – be it bilateral, pluri- or multilateral. According to Art.20 RBC, such agreements may only be concluded between Berne Union members109 so far as authors are either granted more extensive rights, or when the provisions contained therein are not contrary to the RBC. It follows that a bilateral agreement in which both partners oblige themselves to make copyright enforcement for works originating 107 See Art.5 (3) RBC which states that protection in the country of origin of a work is principally governed by domestic law. 108 The aspect is also discussed by Ginsburg (2008) at 11–12, who concludes, however, that it would be “too much of a stretch of the text to make a persuasive case for mandatory interpretation of Berne-TRIPS maxima into domestic member State law.” However, she argues that because of Art.10.1 RBC, contracts concluded with co-contractants from other jurisdictions may have to be invalidated, if they disallow quotations. 109 The wording of Art.20 only refers to agreements between Berne Members – so called “inter se” agreements. However, beyond that, it appears to contain a general rule that Berne Members must not enter into agreements which would diminish or contravene the level of protection granted under the RBC.


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from both countries dependent on registration would in all likelihood be considered as inconsistent with the RBC.110 However, bilateral agreements stipulating that the quotation right is excluded for domestic works as well as for works originating from the contracting party or parties would be contrary to the quotation right under Art.10, but might be considered as granting more extensive protection to authors.111 Hence they could be subsumed to meet the 1st alternative of Art.20 RBC and thus as a type of the inter se agreement that the RBC allows. On the other hand, one could understand the relevant wording in Art.20 1st alternative112 in a more limited way: as merely covering agreements which literally extend the scope of authors’ exclusive rights or add new exclusive rights – hence excluding de facto extensions of protection by curtailing of exceptions.113 4.2.2 TRIPS Ceilings Moving towards TRIPS, the situation is again different. Art.20 RBC – similar to Art.19 of the Paris Convention – only addresses the relationship with subsequent agreements. In Art.1.1 2nd sentence, TRIPS addresses the issue of additional protection in relation not to (subsequent) international agreements, but to the domestic IP laws of WTO Member States. Art.1.1 TRIPS authorises members to grant more extensive protection than is required by TRIPS – however with the qualification that such protection “does not contravene the provisions of the Agreement.” Commentators tend to focus on the first part of that sentence as they emphasise the “minimum obligations” established by TRIPS and the right to introduce more extensive protection.114 Some, however, recognise the potential of 110 Such a registration requirement would not grant more extensive rights to authors and would also be contrary to Art.5 (2) RBC – hence under no alternative of Art.20 could it form an inter se agreement allowed by the RBC. 111 This is a matter of perspective: abolishing the quotation exception might be viewed as more extensive protection by authors whose works are now not subject to quotations anymore. But for authors wishing to utilise this quotation exception as a “right” to quote others in their own works, abolishing this “quotation right” might amount to less, not more protection. 112 The 1st alternative condition for subsequent inter se agreements to be considered as consistent with the RBC is that these agreements must “grant to authors more extensive rights than those granted by the Convention”. 113 The fact that the quotation right had been introduced in the 1948 revision conference and hence subsequent to Art.20 could – under the principle of effectiveness (good faith, Art.31 (1) VCLT) and the notion of lex posterior (Art.30 VCLT) – support such a narrow meaning of Art.20 in order to give effect to the mandatory character of the quotation right. 114 See Gervais (2008) at 2.19 who argues that Art.1.1 2nd sentence indirectly emphasises the fact that some (industrialised) countries had not achieved the


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the above qualification as a limit on TRIPS-plus protection – especially in relation to the TRIPS non-discrimination obligations115 as well as those relating to IP enforcement.116 In the context addressed here, the main importance of this qualification lies in its capacity to establish a condition on the ability to introduce more extensive IP protection: also TRIPS-plus protection must not contravene TRIPS. However, the understanding endorsed here is not unanimous. On the basis of the minimum standards concept, one might argue that Art.1.1 2nd sentence merely extends fundamental TRIPS rules and principles to TRIPS-plus protection. This could be relevant for instance to prevent discriminatory TRIPS-plus laws potentially infringing the national treatment or most favoured nation (MFN) obligations in Arts.3 and 4 TRIPS. On the other hand, the prohibition of discrimination already follows from Art.3 and 4 itself and is confined to the scope of application of those provisions.117 Beyond discrimination, Art.1.1 2nd sentence may also apply so as to extend certain TRIPS minimum standards to TRIPS-plus laws: for example by requiring patent protection extensions to 25 or 30 years to continue to grant all the (minimum) rights of Art.28 TRIPS – and vice versa requiring any additional patent rights to be granted to the full (minimum) period of 20 years under Art.33 TRIPS. But it would hardly be compatible with a “good faith” interpretation118 to argue that this is the only application of Art.1.1 2nd sentence: in order to give effect to those treaty norms in TRIPS which impose limits on IP protection, Art.1.1 must be understood as to sanction additional IP protection. It follows therefore that if and to the extent that ceilings are found in TRIPS, it would amount to a violation of treaty obligations to grant more extensive protection in domestic IP law. What appears clear in principle may prove more difficult to determine in an individual case: how can one assess whether additional protection actually “contravenes” any TRIPS provisions? Decisive will be the

amount of protection they had aimed for in TRIPS. See further Raustiala (2006) at note 20 who rejects the idea that TRIPS-plus accords may conflict with TRIPS towards more stringent rules because TRIPS had been “negotiated as a floor – with minimum standards – rather than as a ceiling”. Compare also ICTSD/UNCTAD (2005), at 24. 115 Correa (2007) at 25–6. 116 ICTSD/UNCTAD (2005) at 25 whose authors give the example of the due process rights established in Art.42 TRIPS and argue that any TRIPS-plus rule which diminishes these rights contravenes TRIPS. 117 See in particular the exceptions to NT and MFN, the definition of protection in fn.3 to Art.3 TRIPS and the definition of intellectual property in Art.1.2 TRIPS. 118 See Art. 31.1 VCLT.


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understanding of the relevant TRIPS ceiling, of the additional protection in national law and of course the notion of “contravening”. For instance, if a national IP law grants copyright protection for mere compilations of data, this may “contravene” the idea-expression dichotomy (Art.9.2 TRIPS) and the prohibition on protecting mere facts and data per se (Art.10.2 TRIPS and Arts.2.8 RBC, 9.1 TRIPS).119 However, in reality, inconsistencies or conflicts will hardly ever be as straightforward as that. The situation is more complicated when copyright is granted on the basis of the so-called “sweat of the brow” doctrine; or when the investment in the production of compilations of data, texts or websites is protected by a sui generis right, as in the EU.120 To be sure, though not openly clashing with TRIPS provisions, such forms of protection may have the potential to effectively protect plain data or facts.121 Whether or not a WTO dispute settlement panel might find reason to intervene in such and similar cases will therefore depend inter alia on the understanding of the term “contravene” which the online Oxford Dictionary explains as: 1. 2.

commit an act that is not in accordance with (a law, treaty, etc.) .122 conflict with (a right, principle, etc.).123

119

Another example might be extensive protection for the “look and feel” of software: one could argue that granting exclusivity under copyright protection for central functions available in software user-interfaces (protecting drop-down menus, etc.) amounts to extending copyright protection to methods of operation, concepts and ideas. 120 Here one may argue that protecting anything (within the literary and artistic domain) merely because of the money or labour invested in its production and extending this protection also to prohibit extractions or re-utilisations of non-original portions of that laborious work (“if it is worth copying, it is worth protecting”) effectively amounts to a protection of ideas, concepts or information as such if they are embodied in the non-original elements. 121 See in particular Art.7 (1), (5) of the EC Database Directive (96/6/EC) and the issue of so-called “sole source” databases where a protected database amounts to the sole source for the data incorporated; see Grosse Ruse-Khan (2004) 329–33. 122 It is noteworthy in that context that the panel in Canada – Patents (WT/ DS114/R, para. 7.82) emphasised that it would not be “legitimate” in view of the purpose and objectives of patent protection for the patent holder to prohibit experimentation, or to prohibit the use of the patented invention, before the expiry date, in order to initiate the regulatory process needed for obtain marketing permission (so called regulatory or Bolar exception). On the basis of a very broad understanding of Art.1.1 2nd sentence TRIPS, it might therefore even be argued that limitations for regulatory purposes and experimental use are mandatory insofar as full and unlimited rights would not be “legitimate” under the objectives of patent protection and hence would contravene the Agreement. 123 See Oxford University Press (2008).


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At least under the first of these meanings, it appears arguable that a provision is “not in accordance” with TRIPS if, although respecting the black letter law as such, the results entailed by its application appear to contradict the spirit and purpose of the regulations. By contrast, the second meaning is considerably narrower. No further guidance from other TRIPS provisions such as relevant context124 appears to enlighten the determination of the “ordinary meaning” (in the sense of Art.31 VCLT) of the term.125 However, an interpretation in light of the TRIPS balancing objectives and public interest principles126 suggests that findings of conflict are more likely wherever the TRIPS-plus norm is focusing solely on the interests of right holders and neglecting the interests of users127 or prevents measures to promote public interests such as public health and nutrition.128 4.3.

Reconciliation of Conflicting Norms by Coherent and Harmonious Interpretation

For a country bound by two or more potentially conflicting norms, the question arises whether one obligation needs to yield in favour of the other – or whether reconciliation between them is possible. For once, the issue becomes relevant when a ceiling within the international IP system intersects with another IP treaty norm that demands additional protection:

124

According to Art.31 VCLT, the treaty context (comprising its complete text including preamble and annexes as well as further agreements (on interpretation) between the parties under paras.2 and 3) is one of the key sources for treaty interpretation. On the Art.31 VCLT, see generally Sinclair (1984) and International Law Commission (1966). 125 Art.19 of the Paris Convention contains the same language in the equivalent case of subsequent agreements affecting the IP protection under the Paris regime. While this provision arguably constitutes treaty context under Art.31 VCLT (as it is explicitly incorporated into TRIPS via the reference in Art.2.2 TRIPS), it does not offer any further guidance on how the term “contravening” is to be understood. 126 As advocated by Art.31 VCLT and further emphasised by WTO Members in para.5 a) of the Doha Declaration on the TRIPS Agreement and Public Health (as note 22 above). 127 The objectives under Art.7 inter alia call for IP protection to be supportive “to the mutual advantage of producers and users of technological knowledge” (emphasis added). 128 The principles contained in Art.8 TRIPS inter alia allow Members to adopt measures necessary to achieve these goals and to “promote the public interest in sectors of vital importance to their socio-economic and technological development”.


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for example, TRIPS ceilings on border measures and FTA provisions demanding TRIPS-plus border controls for transiting goods. Second, at stake are tensions between international minimum standards of IP protection and norms from other international law regimes potentially imposing an external ceiling. To use a common example, such situations may arise when the patent protection under TRIPS applied to essential pharmaceuticals is juxtaposed with the right to health and the corresponding state duty to ensure access to medicines.129 Can the right to health form a binding limitation on the protection offered by international IP treaties such as TRIPS? In order to perceive (internal or external) treaty norms as a potential ceiling on the scope and modalities of international IP protection, it is important to realise that no international treaty operates in a vacuum, but is born into a world of international law containing various special regimes and general (including customary) rules of public international law. Indeed, the WTO Appellate Body confirmed in its first decision also that WTO law as a specific rule-system cannot be understood in “clinical isolation from public international law”.130 Instead, “international law applies to the extent that the WTO treaty agreements do not contract out from it”.131 Generally speaking, any treaty must be applied with a presumption in favour of continuity and against conflict in the sense that all pre-existing international rules continue to apply unless there is clear evidence that the parties to the treaty wished to depart from a specific preexisting rule.132 This presumption points to the further need to achieve, if possible, harmony and mutual coherence between the two potentially conflicting norms by means of treaty interpretation of the respective provisions.133 For the example above, the relevant patent provisions of TRIPS as well as the UDHR provisions on the right to health must be given a meaning which recognises, takes into account, and gives effect to the other. Of 129

More extensively on the issue see Papadopoulou (ch. 6). United States – Standards for Reformulated and Conventional Gasoline (US – Gasoline), Appellate Body Report WT/DS24/AB/R, p. 16. 131 Korea – Measures Affecting Government Procurement, Panel Report WT/ DS163/R (19 June 2000), para.7.96. 132 See Pauwelyn (2001) at 541–3, who emphasises that it is assumed that the later rule builds on and follows what the earlier rule has said. 133 A prominent example here is Art.31 (3) c) VCLT which requires the interpreter to take into account “any relevant rules of international law applicable in the relations between the parties”. This (and other VCLT) rules of interpretation do not only apply by virtue of the general continuity principle described above, but also by explicit reference in Art.3.2 of the Dispute Settlement Understanding. 130


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course, this harmonious interpretation must take place within the general rules of treaty interpretation, in particular be consistent with the ordinary meaning, relevant context as well as object and purpose of the treaties in question.134 Only if the relevant norms are not sufficiently open to allow such a mutual supportive understanding, has the conflict to be resolved by means of the relevant conflict norms of either treaty (if any) or those of general international law.135 For the issue of ceilings stemming from international norms external to IP treaties, this means that countries bound by both regimes must also attempt to take into account the external norm when implementing the IP treaty and its obligations. Here, Art.31 (3) c) VCLT is frequently referred to as a general tool for taking account of external norms by means of their interpretative integration.136 In this way, TRIPS provisions could be understood in light of external norms on human rights, the environment or food security. Hence, the external norm – for example, the right to health – can function as a ceiling by shaping the interpretation of the potentially conflicting TRIPS provisions towards mutual coherence. If the latter approach stretches the boundaries of interpretation too far, a conflict rule may determine whether the external norm prevails and therefore operates as a ceiling to the IP protection rule. 4.4.

Resolution of Genuine Conflicts

In case that treaty obligations are found to conflict137 in a manner that cannot be overcome by interpretation and systemic integration,138 it must be established (1) whether the subsequent agreement is a valid amendment

134

See Art.31 VCLT which incorporates inter alia these core elements of treaty interpretation. 135 Such general conflict norms are contained inter alia in Arts.30 and 42 of the VCLT; compare also section 3 below. 136 See for example Marceau (1999); Young (2007); International Law Commission (2006); McLachlan (2005). 137 Of course, the quantity of such potential conflicts of norms depends largely on what is perceived as a conflict: In a strict sense, some may only consider direct incompatibilities where complying with one treaty obligation necessitates the violation of another as a conflict (see Guatemala – Antidumping Investigation Regarding Portland Cement from Mexico (Guatemala – Cement), Appellate Body Report WT/DS60/AB/R (5 November 1998), para.65). A wider understanding also takes into account (optional) rights given by treaties and finds conflicts also when one treaty obligation limits or prevents the exercise of a right another treaty provides for; compare Pauwelyn (2001) at 551. On the notion of conflict between IP protection and human rights in particular, see Papadopoulou (ch. 6). 138 See McLachlan (2005); International Law Commission (2006).


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or modification of the pre-existing agreement;139 and (2) whether either of the two takes precedence in application.140 This issue of norm conflicts in international law certainly cannot be addressed in full here – instead, the intention is only to sketch the structures and principles of international law informing the assessment of the legal effect a ceiling rule has. As a first principle, contracting parties may have indicated their intentions by inserting conflict clauses in one or both treaties. Examples in multilateral IP agreements are Art.20 RBC or Art.19 PC which concern the ability to enter into subsequent inter se agreements discussed above.141 If no such indications as to the parties’ intentions exist, resort must be made to general rules of public international law, like lex posterior,142 lex superior143 or lex specialis.144 In case it should not be possible on the basis of those rules to establish a clear hierarchy,145 it may happen that a country arguably remains under both obligations, each being valid in its own context. In that situation – and submitting that the obligations are mutually exclusive in their contents – countries are faced with the dilemma that their efforts to abide by one treaty will necessarily lead to violation of the other.146 As an illustration, the following example is suggested. It shall be submitted arguendo that a treaty guaranteeing unrestricted access to knowledge (“A2K.02”) disregards the minimum rights as well as the three-step test set

139 Compare Art.40 and especially 41 VCLT – on the application of the latter in a TRIPS–TRIPS-plus FTA relation see Mitchell and Voon (2009) who argue convincingly that undermining TRIPS flexibilities in TRIPS plus FTAs can be a form of modification of TRIPS which is not consistent with the default rule of Art.41 VCLT. 140 For example under Art.30 VCLT. 141 Within TRIPS, Art.2.2 and – at least in an indirect fashion – also Art.1.1 2nd sentence constitute conflict norms. Several TRIPS-plus FTAs contain clauses which indicate that the contracting parties do not intend to deviate from or act inconsistently with their WTO/TRIPS obligations. 142 See Art.30 (3), (4) and Art.41 VCLT. 143 See Art.20 (1) VCLT which refers to Art.103 of the UN Charter – under which obligations under the Charter prevail; and Art.53 VCLT on ius cogens. 144 On the lex specialis rule, see in particular International Law Commission (2006). 145 Whether such a hierarchy can be established or not, is an issue to be decided on the basis of the circumstances in individual cases and cannot be evaluated here. 146 For a (theoretical) example of such a situation, see Papadopoulou (ch. 6) (on the hypothetical case that it would be mandatory under an international treaty on human rights for a country to allow delivery of patented medicaments to a country stricken by deadly epidemics, while the same is prohibited under a trade treaty).


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out in the copyright part of TRIPS. Submitting that such an A2K.02 treaty is no inter se “agreement to modify” TRIPS, it cannot fail under Art.41 VCLT. If nothing is said in that treaty about its relationship to TRIPS – while TRIPS demands of WTO Members to respect the minimum standards set out therein – WTO Members adhering and implementing that treaty would be in violation of TRIPS. A different appraisal of the situation would most likely be warranted if the fictitious A2K.02 treaty did contain a clause according to which “nothing in this treaty shall derogate from existing obligations under (inter alia) TRIPS”. In that case, the TRIPS obligations would prevail, and the three-step test would continue to limit A2K.02-motivated copyright exceptions – also in the context of the new treaty. In the actually proposed A2K treaty, yet another approach was chosen. According to the proposal, “it shall be presumed” that the mandatory limitations it contains are in compliance with the three-step test.147 The treaty further prescribes a particularly wide understanding of that test.148 This shows that the A2K drafters are aware of possible conflicts, but that they consider them avoidable on the basis of a (generous) interpretation of the existing provisions. Depending on the specifics of the case, this may also influence a WTO panel’s evaluation, without being legally binding in a strict sense.149 It remains to conclude that until now, (too) little has been known about these and other complex conflict scenarios. However, it seems clear that major frictions could best be avoided if ceiling rules were not anchored in separate, independent treaties, but if they were integrated into TRIPS itself, by utilizing the procedures foreseen for amendments of WTO agreements. If WTO Members were to agree on introducing (more) ceilings into TRIPS, they would have to be aligned with other (pre-existing) TRIPS provisions, and Art.1.1 TRIPS would offer a clear conflicts rule militating against more far-reaching protection than what would be allowed under

147

Art.3.1 a) of the A2K draft sets out examples of uses of information to which copyright does not extend. Under Art.3.1 b), “it shall be presumed that these uses constitute special cases that do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right-holder.” 148 Art.3.1 c) provides that “in determining whether applying any limitation or exception to exclusive rights to a particular use of a work would conflict with its normal exploitation or unreasonably prejudices the legitimate interests of the right holder, the extent to which the use benefits the larger public interest shall be taken into account.” 149 At least in disputes involving (only) A2K treaty parties, the wide understanding of the three-step test flowing from the A2K norms would arguably have to be taken into account under Art.31 (3) c) VCLT.


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the ceilings. However, even then, problems of coherence and conflict could not be avoided: they might still arise in the relationship between an amended version of TRIPS (“TRIPS 2.0”) and other bilateral or multilateral IP treaty systems; as well as between other international minimum IP protection standards (for which a TRIPS 2.0 would not set out any internal ceilings) and potential external ceilings.

5. 5.1.

CONCLUSIONS Summarising the Pros and Cons of International Ceilings

This chapter has shown how the concept of “minimum rights” has developed into a spiral of ever stronger levels of protection which interfere more and more with the ability of national legislators to devise appropriate exceptions and limitations to exclusive IP rights. However, a closer look at the existing international IP acquis, in particular the TRIPS Agreement, reveals a basic principle on which the notion of ceilings to IP protection can be based: Both the Paris Convention and TRIPS subject additional protection to the condition that it does not contravene the provisions of the respective Agreement. TRIPS therefore does not only create a “floor”150 of minimum protection, but makes possible ceilings which place a binding maximum level on the protection of IP. Whereas that potential has largely been dormant so far, it has come to be the focus of international debates not least in the context of the patent law/public health interface. In addition, several recent initiatives within WIPO and the WTO do contain elements of a ceiling approach, being intensely observed and supported by the academic community. However, as has been pointed out in this chapter, the difficulties in operationalising the approach within the existing body of international (IP) law should not be underestimated. In particular, the existing institutional setting in the WTO, focused on enforcing economic interests, brings into question the chances of implementing any form of binding maximum rules. Furthermore, it is doubtful to what extent they can actually form an efficient remedy against countries obliged to observe TRIPS-plus levels of protection in the framework of bilateral agreements. A basic dilemma is also created by the fact that setting and enforcing strict and detailed ceilings would inevitably reduce national autonomy and policy space at the domestic level, whereas strategies aimed at reducing those risks, in

150

Taubmann (2008) at 944.


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particular by formulating ceilings in an “open” manner, are likely to jeopardise their capacity to provide national legislatures and authorities with secure and clear guidelines. Finally, the manner in which actual or potential ceilings affect rules granting more extensive protection under national legislation, or imposed by other bi- or multilateral treaties, may give rise to a number of intricate problems, where such conflicts cannot be solved by harmonious interpretation. The topic definitely calls for more attention and research than has been undertaken up till now. 5.2

The Approach Taken by the IPT Project

In the IPT project, the issue of users’ access to protected subject matter, including the pros and cons of instituting “users’ rights” in the form of mandatory ceilings, has been of crucial importance. In contrast to other, primarily copyright-centred projects and studies, the deliberations were not limited to one particular area, but concerned all fields of IP rights. As a result, the proposed “Amendments to TRIPS” contain express and mandatory limitations for each IP right in the individual sections of TRIPS Part II. The provisions do not aspire to an overly ambitious level, but basically aim to reflect what is considered already to date as the standard to which most countries adhere in their substantive laws. In addition, it is clarified that Member States are free to introduce even more far-reaching limitations, as may be suitable to their individual situation. As a guideline for those additional – optional – limitations, account must be taken of the “balancing clause” anchored in (the proposed) Art.8a, which, while building on the structure of the present three-step test, re-formulates the factors to be considered in the assessment in a more user-friendly way. Furthermore, the objectives and principles set forth in (amended) Arts.7 and 8 TRIPS are referenced as providing the foundation on which the balancing exercise must be undertaken.151 Apart from that, the proposal sets out mandatory provisions ensuring control, under competition law or equivalent rules, of abusive practices involving IP rights, subject only to a Member’s financial and organisational capacity to introduce the necessary infrastructure.152 In contrast to that, no attempt has been made at the present stage to propose formulations ensuring immunity of limitations against abrogation

151 It must be added here that the IPT proposal also stipulates certain amendments to be undertaken in the substantive provisions of TRIPS, in particular with regard to patent rights. 152 See Schovsbo (ch. 7).


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by private contract, or regarding the admissibility of breaking technical locks in order to get access to protected content. The regulation of such aspects under the proposal would therefore remain a task for the national legislature, which must deal with the issue under substantive law, contract law or, as the case may be, competition law. Likewise, no proposal has been made so far to introduce ceilings or other rules specifically addressing the validity of obligations imposed in the framework of (bilateral) trade agreements concluded between states of unequal bargaining power.

BIBLIOGRAPHY Abbott, F. (2002), “The Doha Declaration on the TRIPS Agreement and Public Health: Lighting a Dark Corner at the WTO”, Journal of International Economic Law (JIEL), 5(2), 469–505. Busche, J. and Stoll, P. (2007), TRIPs – Internationales und Europäisches Recht Geistigen Eigentums, Cologne: Karl-Heymanns Verlag. Charnovitz, S. (2002), “The Legal Status of the Doha Declarations”, JIEL, 5(1), 207–11. Commission on Intellectual Property Rights (2002), “Integrating Intellectual Property and Development Policy”, London – available at http://www. iprcommission.org/graphic/documents/final_report.htm. Consumer’s International (2009), “IP Watchlist 2009”, London – available at http://a2knetwork.org/watchlist. Correa, C. (2007), Trade Related Aspects of Intellectual Property Rights, Oxford: Oxford University Press. Dinwoodie, G.B. (2006), “The International Intellectual Property Law System: New Actors, New Institutions, New Sources”, Marquette Intellectual Property Law Review, 205, available at SSRN: http://ssrn.com/abstract=749349. Dinwoodie, G.B. (2007), “The International Intellectual Property System: Treaties, Norms, National Courts, and Private Ordering”, in Gervais, D. (ed.), Intellectual Property, Trade and Development – Strategies to Optimize Development in a TRIPS-Plus Era, Oxford: Oxford University Press, 61– 114. Drexl, J. (2008), “Intellectual Property and Competition: Sketching a Competitionoriented Reform of TRIPS”, in Engelbrekt, A., Bernitz, U., Domeij, B., Kur, A. and Nordell, P. (eds.), Festskrift till Marianne Levin, Stockholm: Nordstedts Juridik, 261–80. Dreyfuss, R. (2004), “TRIPS – Round II: Should Users Strike Back”, 71 University of Chicago Law Review, 21–35. Dutfield, G. (2008), “North/South: An Asymmetric Global Market?”, in Ghidini, G. and Genovesi, M. (eds.), Intellectual Property and Market Power – ATRIP Papers 2006–2007, Buenos Aires: Eudeba, 179–88. Gangjee, D.S. (2007), “Quibbling Siblings – Conflicts between Trademarks and Geographical Indications”, Chicago-Kent Law Review, 82(2), available at SSRN: http://ssrn.com/abstract=1000467. Geiger, C. (2007a), “From Berne to National Law, via the Copyright Directive:


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The Dangerous Mutations of the Three-Step Test’, European Intellectual Property Review (EIPR), 486–91. Geiger, C. (2007b), “Copyright and the Freedom to Create – A Fragile Balance”, International Review of Intellectual Property and Competition Law (IIC), 38(6), 707–22. Geiger, C. (2008), “Rethinking Copyright Limitations in the Information Society: The Swiss Supreme Court Leads the Way”, IIC, 39(8), 943–50. Gervais, M. (2008), The TRIPS Agreement – Drafting History and Analysis, 3rd edition, London: Sweet & Maxwell. Ginsburg, J. (2008), “Recent Developments in US Copyright Law: Part I – ‘Orphan’ Works”, Revue Internationale du Droit d’Auteur (RIDA), available at: http://lsr.nellco.org/cgi/viewcontent.cgi?article=1044&context=columbia_ pllt. Grosse Ruse-Khan, H. (2004), Der Europäische Investitionsschutz für Datenbanken vor dem Hintergrund Internationaler Abkommen, Frankfurt am Main: Peter Lang International. Grosse Ruse-Khan, H. (2008a), “A Comparative Analysis of Policy Space in WTO Law”, Max Planck Papers on Intellectual Property, Competition & Tax Law Research Paper No. 08-02, available at SSRN: http://ssrn.com/ abstract=1309526. Grosse Ruse-Khan, H. (2008b), “Proportionality and Balancing within the Objectives of Intellectual Property Protection”, in Torremanns, P. (ed.), Intellectual Property and Human Rights, London: Kluwer, 161–94. Grosse Ruse-Khan, H. (2009), “Time for a Paradigm Shift? Exploring Maximum Standards in International Intellectual Property Protection”, Journal of Trade, Law and Development, 1(1), 56–102. Hilty, R., Krujatz, S., Bajon, B., Frueh, A., Kur, A., Drexl, J., Geiger, C. and Klass, N. (2008), “European Commission – Green Paper: Copyright in the Knowledge Economy – Comments by the Max Planck Institute for Intellectual Property, Competition and Tax Law”, Max Planck Institute for Intellectual Property, Competition & Tax Law Research Paper Series No. 08-05, 3 December 2008, available at: http://ssrn.com/abstract=1317730 (last visited 21 June 2009). Hugenholtz, B. and Okediji, R. (2008), Conceiving an International Instrument on Limitations and Exceptions to Copyright, Final – Report, 6 March 2008, available at http://www.ivir.nl/publicaties/hugenholtz/finalreport2008.pdf. ICTSD/UNCTAD (2005), Resource Book on TRIPS and Development: An Authoritative and Practical Guide to the TRIPS Agreement, Cambridge: Cambridge University Press – available at www.iprsonline.org/unctadictsd/ ResourceBookIndex.htm. International Law Commission (1966), “The International Law Commission’s Commentary on Art. 27 to 29 of its Final Draft Articles on the Law of Treaties”, Yearbook of the International Law Commission, Vol. II. International Law Commission (2006), “Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law” (UN Doc A/CN.4/L.682), 13 April 2006. Jaeger, T. and Grosse Ruse-Khan, H. (2009), “Policing Patents Worldwide? EC Border Measures against Transiting Generic Drugs under EC and WTO Intellectual Property Regimes”, IIC, 40(5), 502–38. Koskienniemi M. (2009), “The Politics of International Law – 20 Years Later”, European Journal of International Law (EJIL), 20(1), 7–19.


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Koskienniemi, M. and Leino, P. (2002), “Fragmentation of International Law?”, Leiden Journal of International Law (IJIL), 15, 553–79. Kur, A. (2007), “Comment to Dev Gangjee’s Presentation”, Chicago-Kent Law Review, 82(3). Kur, A. (2009), “International Norm-Making in the Field of Intellectual Property – A Shift towards Maximum Rules” The WIPO Journal, 1, 27–34. Lewinski, S. von (2008), International Copyright Law and Policy, Oxford: Oxford University Press. Marceau, G. (1999), “A Call for Coherence in International Law”, Journal of World Trade (JWT), 33(5), 87–152. Maskus, K. and Reichmann, J.H. (2004), “The Globalization of Private Knowledge Goods and the Privatization of Global Public Goods”, JIEL, 7, 279–320. McLachlan, C. (2005), “The Principle of Systemic Integration and Article 31(1) (c) of the Vienna Convention”, International and Comparative Law Quarterly (ICLQ), 54(2), 279–320. Mitchell, A. and Voon, T. (2009), “Patents and Public Health in the WTO, FTAs and Beyond: Tension and Conflict in International Law”, JWT, 43(3), 571–601. Musungu, S. and Dutfield, G. (2004), Multilateral Agreements in a TRIPS-plus World: The World Intellectual Property Organisation, Geneva: Quaker United Nations Office (QUNO). Ohly, A. (2008), ‘“Patenttrolle” oder: Der Patentrechtliche Unterlassungsanspruch unter Verhältnismäßigkeitsvorbehalt?’, Gewerblicher Rechtsschutz und Urheberrecht International (GRUR Int.), No. 10, 787–98. Okediji, R. (2006), “The International Copyright System”, ICTSD Issue Paper No. 15, Geneva: ICTSD. Oxford University Press (2008), Compact Oxford English Dictionary, Oxford: Oxford University Press – available at http://www.askoxford.com/?view=uk. Pauwelyn, J. (2001), “The Role of Public International Law in the WTO: How far can we go?”, American Journal of International Law (AJIL), 95, 535– 78. Petersen, B. (2008), “Injunctive Relief in a Post-eBay World”, Berkeley Technology Law Journal, 23, 193–218. Pollock, R. (2006), “The Value of the Public Domain” – available at http://www. ippr.org.uk/publicationsandreports/publication.asp?id=482. Raustiala, K. (2006), “Density and Conflict in International Intellectual Property Law”, UCLA School of Law, Public Law & Legal Theory Research Paper No. 06-31, available at http://ssrn.com/abstract=914606. Reichman, J.H. (2007), “Nurturing a Transnational System of Innovation”, in Govaere, I. and Ullrich, H. (eds.), Intellectual Property, Public Policy, and International Trade, Brussells: Peter Lang International, 17–42. Reinbothe, J. and Lewinski, S. von (2002), The WIPO Treaties 1996, London: Butterworths. Rens, A. (2008), “Implementing the WIPO Development Agenda: Treaty Provisions on Minimum Exceptions and Limitations for Education”, Shuttleworth Foundation Working Paper 2008, available at http://www. shuttleworthfoundation.org/sites/shuttleworthfoundation.org/files/Shuttleworth Foundation_Exceptions_Working_Paper_October_2008.pdf. Ricketson, S. (1987), The Berne Convention for the Protection of Literary and Artistic Works: 1886–1986, Deventer: Kluwer.


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Ricketson, S. and Ginsburg, J. (2006), International Copyright and Neighbouring Rights,Vol. I, 2nd. edition, Oxford and New York: Oxford University Press. Rogers, T. and Szamosszegi, A. (2007), Fair Use in the US Economy: Economic Contribution of Industries Relying on Fair Use, available at http://www.ccianet. org/CCIA/files/ccLibraryFiles/Filename/000000000085/FairUseStudy-Sep12. pdf. Shaffer, G. (2004), “Recognising Public Goods in WTO Dispute Settlement: Who Participates? Who Decides?”, JIEL, 7(2), 459–82. Sinclair, I. (1984), The Vienna Convention on the Law of Treaties, (2nd edition), Manchester: Manchester University Press. Straus, J. (2005), “TRIPS, TRIPS-plus oder TRIPS-minus”, in Perspektiven des geistigen Eigentums und Wettbewerbsrechts (writings in honour of G. Schricker), Munich: Beck, 197–212. Taubmann, A. (2008), “Rethinking TRIPS: Adequate Remuneration for NonVoluntary Patent Licensing”, JIEL, 11(4), 927–70. Teubner, G. and Fischer-Lescano, A. (2006), Regime-Kollisionen: Zur Fragmentierung des Weltrechts, Frankfurt am Main: Suhrkamp – an English version is available as Regime Collisions: The Vain Search for Legal Unity in the Fragmentation of Global Law at http://www.jura.unifrankfurt.de/ifawz1/ teubner/dokumente/regimecollisions.pdf. UN – Committee on Economic Social and Cultural Rights (2000), General Comment No. 14 (2000): The Right to the Highest Attainable Standard of Health, Geneva: United Nations. UNCTAD (2007), The Least Developed Country Report 2007 – Knowledge, Technological Learning and Innovation for Development, Geneva: United Nations. UN – Economic and Social Council (2001), The Impact of the Agreement on Trade Related Aspects of Intellectual Property Rights on Human Rights (E/CN.4/ Sub.2/2001/13), 27 June 2001. UNFCCC (2009), Ad Hoc Working Group on Cooperative Long-term Action under the Convention (FCCC/AWGLCA/2009/INF.1), 22 June 2009. Uscategui, A.R. (2007), Intellectual Property in the Colombia – US Trade Promotion Agreement (master’s thesis, MIPLC 2007), Munich (on file with the authors). WIPO (2007), General Report – Forty-Third Series of Meetings, (A/43/16) 12 November 2007. WIPO (2008), Proposal by Brazil (et al) for Work Related to Exceptions and Limitations (SCCR/16/2), 17 July 2008, available at http://www.wipo.int/edocs/ mdocs/copyright/en/sccr_16/sccr_16_2.pdf. WIPO (2009), Proposal by Brazil (et al) Relating to Limitations and Exceptions: Treaty Proposed by the World Blind Union (WBU) (SCCR/18/5), 25 May 2009, available at http://www.wipo.int/edocs/mdocs/copyright/en/sccr_18/sccr_18_5. pdf. World Bank (2001), Global Economic Prospects and the Developing Countries 2002, Washington, DC: World Bank Publications. World Trade Organization (2001), Doha Declaration on the TRIPS Agreement and Public Health (WT/MIN(01)/DEC/2), 20 November 2001. World Trade Organization (2003), Decision of 30 August 2003 (WT/L/540 and Corr.1), 1 September 2003. World Trade Organization (2005), Decision of 6 December 2005 (WT/L/641), 8 December 2005.


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Expropriation or fair game for all? The gradual dismantling of the IP exclusivity paradigm Annette Kur and Jens Schovsbo*

1. INTRODUCTION By characterising intellectual property rights (IPR) as exclusive rights, it is submitted by definition that they confer on their proprietor the entitlement to exclude others from making unauthorised use of the protected subject matter. As it is also widely recognised that IPR enjoy protection under the title of property in the meaning of constitutional laws and even human rights instruments, any encroachment on that entitlement may appear to be a form of expropriation. On the other hand, it is also acknowledged that for many reasons, it would be basically flawed to posit that IPR and tangible property should be treated equally in all respects. Furthermore, in spite of their canonisation as a special type of human rights, and irrespective of the strong flavour of personal rights permeating copyright law, IPR in the first place have been created to “do a job” – namely to foster creativity and innovation. This means that exclusivity should be the dominant regulatory model only where and to the extent that other, non-exclusive schemes cannot achieve the same or even better results, and/or generate more beneficial effects for society as a whole. This does not necessarily mean that access or use must be free whenever exclusivity entails suboptimal effects. Instead, the proprietary element may persist in the sense that the user is obliged to pay for the privilege of unrestricted access. In economic terms, this means that the exclusivity paradigm is transformed into a liability rule. In this chapter, an overview will be given on the theoretical background and practical functioning of liability regimes as an alternative to the often favoured property rule approach in IPR. Section 2 addresses the basic * This chapter is partly based on substantial input provided by Marianne Levin. 408


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tenets of the two alternative models, and will report on their evaluation in the intellectual property debate. Section 3 describes already existing liability regimes, based on statutory provisions or on private ordering, in the various areas of IP. The chapter ends with some brief conclusions in Section 4.

2.

PROPERTY RIGHTS AND LIABILITY REGIMES – VARIOUS VIEWS OF THE CATHEDRAL

2.1.

The Unifying Approach Presented by Calabresi and Melamed

In economic theory, the term “liability rules” is used to denote a legal structure permitting third parties to undertake certain actions without prior permission, provided that they pay compensation for the trespass.1 Property rules, by contrast, are defined as legal entitlements which cannot be removed without prior bargaining with the right holder.2 In legal practice, a typical consequence – and arguably even a defining element3 – of a property rule would be that the owner is entitled to claim for an injunction – an approach termed “rights trump utility” by Dworkin4 – whereas liability regimes only provide for monetary relief5 – an approach known as “breach and pay damages”.6 The distinction between the two regulatory models, their flaws and merits with regard to specific constellations as well as their complex interactions, has become a mainstay of legal and economic debate ever since the seminal article by Calabresi and Melamed, “Property Rules, Liability Rules, and Inalienability: One View of the Cathedral” (1972). For the first time, Calabresi and Melamed undertook to apply a unifying approach to property and tort law. The questions posed were essentially (1) In what circumstances should a particular entitlement be granted, and (2) In what circumstances should a property, liability or inalienability rule be used to protect an entitlement? 7 The answer to question (1) depends in the first 1

I.e. compensated involuntary transfers, cf. Wittman (2000). Calabresi & Melamed (1972) at 1092. 3 As far as can be seen, there is no general, internationally agreed understanding of the term “property” and its correspondences in other languages. In that situation, any author, and any legal discipline or system, is free to determine its own nomenclature. As to the term “intellectual property”, see below. 4 Dworkin (1978). 5 Calabresi & Melamed (1972) at 1106–07; Lemley & Weiser (2007) at 783. 6 Blair & Cotter (2005) at 39. 7 Calabresi & Melamed (1972) at 1093. 2


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place on basic legal choices – what kind of behaviour does a society accept or encourage?8 Furthermore, the decision as to whom of two parties an entitlement shall be attributed depends on a set of factors determining the (economic) efficiency of allocation;9 in addition, societal preferences concerning the distribution of wealth and merit goods are taken into account.10 After those decisions have been made, the choice of legal regime, as addressed in question (2), becomes the focus. The basic rule established by Calabresi and Melamed holds that the most common reason for employing a liability rule rather than a property rule to protect an entitlement is “that market evaluation of the entitlement is deemed inefficient, that is, it is either unavailable or too expensive compared to a collective evaluation.”11 While “efficiency” in that sense is primarily a function of the transaction costs involved,12 distributive reasons are likewise held to be of relevance; it is pointed out that “the choice of a liability rule is often made because it facilitates a combination of efficiency and distributive results which would be difficult to achieve under a property rule”.13 2.2.

Reception in the Intellectual Property Debate

The property/liability paradigm was primarily developed in order to provide an analytical tool in the various areas of tort law.14 Its relevance for intellectual property has only gradually been realised.15 This may be due to the fact that the area gave few reasons to question the entitlement as such – the basic legislative decision to foster innovation and creation (as well as, with a view to trademarks, information for consumers), is widely accepted,16 and there is generally not much doubt that to allocate the 8

Examples mentioned by Calabresi & Melamed (1972) at 1090, concern the right to make noise vs. the entitlement to have silence, the right to pollute vs. the right to breathe clean air, the entitlement to have children vs. the entitlement to forbid them. 9 Calabresi & Melamed (1972) at 1093. 10 Calabresi & Melamed (1972) at 1098. 11 Calabresi & Melamed (1972) at 1110. 12 The seminal importance of transaction costs for the foundation of legal rules had previously been established by Coase (1960). For a detailed account of transaction costs in aspects in IP dealings, see Blair & Cotter (2005) at 38 et seq. 13 Calabresi & Melamed (1972) at 1110. 14 By now insights from the seminal article by Calabresi & Melamed have, however, also been implemented in other areas of law, such as contract law; cf. Kronman (1978). 15 Lewis & Reichman (2005) at 338. 16 There is of course some questioning in the economic literature also with regard to those basic decisions. Hence, it is pointed out that instead of granting


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entitlement to the person providing the achievement is in line with considerations of efficiency and distributive aspects.17 However, when it comes to choices regarding the regime best suited to protect those entitlements, debates are more frequent and more controversial, although in general, most law and economics scholars have argued in favour of property rules for IP protection rather than liability rules.18 Likewise, the preferred choice by legislatures worldwide has been to rely on property rules, as is already indicated by the fact that those rights nowadays are generally apostrophised as “intellectual property”.19 In spite of that, the system is not monolithic in its structure.20 Throughout the history of IPRs, liability rules have been instrumental, albeit only in specific situations.21 Most conspicuously, liability rules have been, and continue to be, used as a tool for the accommodation of mass uses where individual dealings would imply

entitlements to innovators, governments could also invest directly in innovation or creation through grants, contracts or prizes, or indirectly subsidise innovation through tax policy; Carroll (2011), with reference to Fisher (2004) at 200–201. 17 Scotchmer (1996), at 324 et seq., with focus on patent licensing; Maskus (2000) at 146 in the context of international investments; under the aspect of game theory: Ramanujam (2006) and basically Schumpeter (1997) at 100–102. While some accounts emphasise reward theory by seeing the appropriability of economic returns from investment as the driving force behind technological innovation, cf. Oddi (1996), others have emphasised more sophisticated distributive theories of IP law for the promotion of social welfare, cf. Dam (1994). 18 Merges (1994a) at 75, 78. 19 The growing tendency to make use of this term is by no means self-evident. See Lemley (2005) at 1033–4, pointing out that “patent and copyright have been around in the United States since its origin, but only recently has the term ‘intellectual property’ come into vogue”, marking also the “almost exponential growth in the use of the term” in court language between 1943 and 2003. The terms “intellectual property (propriété intellectuelle)” for copyright and “industrial property (propriété industrielle)” for patents, trademarks, designs and certain areas of unfair competition (as well as geographical indications) are traditional in France and hence have left a trace in the terminology used in international conventions. In traditional German and Nordic nomenclature, however, the term “property” was considered inadequate; instead, the notion of “immaterial rights” (Immaterialgüterrechte; immaterialrättigheter) was employed in order to mark the intangible nature of such rights as opposed to property in tangible goods or in land. 20 Burk (2009) points out at 295 that it is extremely rare anyhow to find pure property regimes in the sense of exclusivity. Crane (2009), at 2, suggests than one should speak of “intellectual rights” instead, which consist in part of intellectual property rights and in part of intellectual liability rights. 21 Compulsory licensing, for instance, is understood as one of the situations in which liability rules are preferred over property rules; cf. Kitch (1977).


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prohibitive transaction costs.22 In addition, liability rules are of interest where accumulation of IP-based market power is likely to lead to market failure and distortions, such as holdups and impasses.23 Apart from such “classical” situations that potentially call for liability rules, regime choice is at issue wherever IPR or related forms of entitlements are extended to novel areas, leading to enclosure of what might be considered as part of the public domain24 and/or where societal interests cause a shift in formerly established distributive considerations. 2.3.

Issues Informing the Choice of Regime in IP Law

As recurrent themes in discussions about liability systems, the following issues can be distinguished: (1) Justification: What is the impact of one or the other regime on transaction costs; more precisely: would the change from a system of individual bargaining to a pre-established payment scheme lead to a comparative reduction, or to an increase, of such costs? Furthermore, if there is an increase – would that be justified in view of higher distributive goals? (2) Implementation: By whom – if not by individual bargaining – shall the amount due for the trespass be established? Is it possible at all to arrive at reasonable and adequate compensation without relying on market mechanisms? And is it possible to optimize the result of such estimations without generating excessive transaction costs? (3) Consequences: Will the denial of individual bargaining options lead to substantial underinvestment in innovative or creative activities, thereby entailing welfare losses?25 The answers to all those questions are far from clear. They depend very much on the details of the constellation with regard to which they are being examined as well as on the assumptions on which the argumentation is based. As can be expected, the discussion on each of those issues is very rich, and cannot possibly be reviewed here in any detail. The following thus attempts only to give a general overview.

22

This situation matches exactly the scenario favouring liability rules described by Calabresi & Melamed. Another reason for a high level of transaction costs in IP law lies in the frequently uncertain boundaries of the right; see on that point below. 23 Depoorter (2008) at 60–61; see also below. 24 Or as “semicommons”; Lewis & Reichman (2005) at 345. 25 This division may of course appear somewhat arbitrary, and there are certainly overlaps between the issues, which are all interlinked: The institutional choices will influence transaction costs and thereby have a bearing on justification, and of course, the anticipated consequences are also an element of the justification, and they are heavily impacted by the institutional choices. It appears impossible to avoid such overlaps completely.


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2.3.1.

Transaction costs, efficiency, and distributive aspects (“justification”) It is generally highlighted that (apart from cases posing impediments to bargaining,26 such as in basically uncontrollable mass uses that are typically to be found in copyright27), individual right holders are in the best position to negotiate for themselves.28 Accordingly, transaction costs are said to be lower under a property rule than when compensation is measured out by a court or agency.29 It has also been remarked that if supported by a property right, innovators and improvers are less vulnerable to bargaining breakdown, strategic behaviour, or valuation error, thereby stimulating licensing, which, in turn, will boost the economy.30 However, as is emphasised inter alia by Depoorter, the conventional wisdom of an innovator easily engaging in individual bargaining over the “prix juste” may well be outdated. Estimating the value of innovations is burdened by many insecurities, while even more uncertainties result from the fact that it is often difficult or impossible to define the exact boundaries of a patent.31 Furthermore, patent licence agreements frequently involve a multitude of single patents to be acquired from different owners, thereby raising the costs of such dealings.32 Hence, even in patent law, transaction costs in

26

Coase (1960) at 2–8. Most articles on liability vs. property rules deal with one field of law only – in most cases, with patent law. See however Lemley & Weiser (2007) and Crane (2009), addressing constellations of patent law as well as copyright law. Also in this overview, an integrated approach is employed. 28 Lemley & Weiser (2007) at 832 with reference to Epstein (2006) at 16–17. This concept goes back to a concept known as rational expectations, a theory originally introduced by John Muth in 1961 according to which individuals and firms make decisions optimally, using all available information; cf. Krugman, Wells & Graddy (2008) at 898. 29 As an additional argument, it is posited that courts and agencies are generally ill-equipped to solve the task of measuring out adequate compensation; Krier & Schwab (1995) at 453 et seq. 30 Pugatch (2006) at 44 et seq. On the other hand, it is argued by Ayres & Talley (1995) at 1031–33 that liability rules serve as a basis for negotiating in low transaction cost contexts, and serve as a check on strategic behaviour where negotiations are unlikely to be effective; referred to by Lemley & Weiser (2007) at 832. 31 It is true and is repeatedly highlighted in the literature that the pro-property arguments developed by Calabresi & Melamed make sense in particular where entitlements are clearly defined, such as rights in land, whereas that is not the case with regard to IPR, in particular patents; Lemley & Weiser (2007) at 793; Landes & Posner (2003) at 16; Depoorter (2008) at 73; Sterk (2008) at 3, 12 et seq. 32 The fact that, typically, new technology is based on a multitude of patents for which bargaining is necessary, associates patent law more closely with the phenomenon of mass uses, which were heretofore primarily known from copyright. 27


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private bargaining might be higher than what is regularly assumed, and they might also be less reliable as an indicator of the actual utility of the achievement.33 The argument that transaction costs in patent bargaining can be quite substantial is not lost on proponents of strong property rules either. However, as is posited by Merges, this does not, by itself, give a reason for the state to intervene. Being faced with over-complex and expensive individual bargaining schemes, right holders will have an incentive to invest in institutions that lower the costs of IPR exchanges, for instance by establishing licensing platforms, clearinghouses, or patent pools.34 However, even in the presence of such liability systems established by private ordering, some of the problems perceived in connection with property rules will remain, most notably where right holders are not willing to cooperate.35 Furthermore, irrespective of transaction costs, individual bargaining would not be the preferred choice under the approach suggested by Calabresi and Melamed, if availability of the goods at stake is seriously impaired thereby, or if liability regimes yield a better combination of efficiency and distributive results.36 Such situations occur where a property rule encourages excessive claims, thereby blocking the development of other technology or content, or inhibiting legitimate activities. A typical example concerns the case that patents or other protected subject matter provide essential infrastructural input or crucial components needed for development of other products or for access to derivative markets. This may give rise to misuse, in particular if the patent owner is not willing or able to work the patent himself, but is only interested in extorting exorbitant license fees.37 As argued by Lemley and Weiser, problems may Apart from raising transaction costs, this is also a scenario likely to encourage certain actors to engage in excessive rent-seeking; Lemley & Weiser (2007) at 797 et seq. 33 Depoorter (2008) at 67 et seq. 34 Merges (1994b) at 2655; same author (1996) at 1303–9. 35 And of course, as is pointed out by Lemley & Weiser (2007), private ordering schemes would also work under liability rules. 36 Crane (2009) at 4, 22 et seq. emphasises the aspect that apart from the potential benefits to society, also right holders might benefit if the “exclude stick” is removed from the bundle of rights, because it will give them more opportunities to act, without being subject to restraints under competition law. 37 Usually characterised as “holdup”; Lemley & Weiser (2007) at 793; Crane (2009) at 4; Bohannan & Hovenkamp (2009) at 48. The plaintiff in such situations is frequently apostrophised as “patent troll”; see EPO (2007) at 113: “Patent troll (is) a patent owner who does not intend to exploit a patent, but who enforces his patent rights against purported infringers”. The term was first used, by a counsel for Intel, in the course of a lawsuit filed against Intel by Techsearch (see Techsearch


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also arise where the difficulty of defining the exact boundaries of the entitlement, in combination with the propensity of courts to grant broadly tailored injunctions,38 results in judgments prohibiting lawful as well as unlawful conduct. According to Lemley and Weiser, such tendencies are particularly virulent in the telecommunication market and Internetrelated conflicts, where technology itself makes it nearly impossible to tailor injunctions exactly so as to enjoin only infringing conduct without also inhibiting legitimate activities.39 2.3.2. Institutional aspects (“implementation”) It has been argued that information costs for judges (or the jury) who determine damage awards can be rather high,40 i.e. courts or agencies will typically meet difficulties when they must play the role of an arbiter determining the value of entitlements – a function which is usually performed by the market.41 It is indeed true that compensation which is measured out by institutional actors instead of being established by individual bargaining will often or even regularly involve an element of “rough justice”. However, as was pointed out before, market prices do not necessarily reflect a correct picture of the inherent value or utility of an achievement. Moreover, reliance on the “invisible hand of the market”42 is a flawed approach where market conditions – characterised by competition between several substitutable commodities – do not exist, as in the situation when monopolists in possession of bottleneck technologies or necessary components pose excessive claims based on their unrivalled position.43 All that can be done in such a situation is to make an attempt at figuring out a “fair” price which necessarily involves a certain amount of guessing and tends to systematically neglect a patent’s idiosyncratic value or consumer surplus.44

Llc v. Intel Corporation, 286 F3d 1360; Techsearch v. Intel Corp. 537 US 995 (2002)) in order to describe Techsearch’s behaviour. 38 Although courts may not be generally inclined to grant injunctions, they will be less concerned about tailoring once they have found that (some) infringement has in fact occurred; Lemley & Weiser (2007) at 794. 39 Lemley &Weiser (2007), id. 40 Polinsky (1980). 41 On institutional aspects, see in particular Krier & Schwab (1995): in testing the Calabresi & Melamed model, they stumble on additional complexities, cf. their conclusions at 480 et seq.; Koelman (2004), at 5, argues that it is because of those difficulties that most economists prefer property rules. 42 Smith (1759) at IV.I.10. 43 See above. 44 Krauss (2000) at 788.


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The level of transaction costs engendered by such forms of price-setting will depend on the type of payment scheme, and on the structure of agencies charged with its administration. As a matter of principle, costs rise with the sophistication of the system, meaning that systems dispensing remuneration in the form of gross fees will be relatively cheap and easy to administer. However, such advantages must be balanced against the social costs and distributive shortcomings which will ensue if little or no room is left for computation on an individual basis. A range of options exists in that regard between the two extremes (i.e., “one price for all” vs. “best mode of individual calculation”). In order to establish the system best suited for the challenge, each regulator must check its advantages and disadvantages in view of the specific task which is to be solved.45 However, as a general statement, it is important to emphasise that the choice of regulatory and administrative structures is a crucial feature in the groundwork of a functioning liability system.46 2.3.3. Impact on investment (“consequences”) Turning to the impact on future investments, there is a general belief that investments in innovation would not occur if those investing did not have a reasonable basis for the expectation that they would be able to recoup the sums spent, and to earn a certain premium.47 While this explains why entitlements should exist in the first place, it does not furnish a reason why liability systems should not be able to achieve the same result as property rules. An additional explanation for that lies in the general assumption that such systems (apart from being considered as cumbersome and costly) would tend towards chronic undercompensation.48 Moreover, it is argued that liability systems would encourage free-riding: companies would regularly prefer to

45

Flat rates or levy-based remuneration systems in copyright law usually provide examples of relatively unsophisticated, and therefore comparatively cheap systems which involve a rather large degree of “rough justice”; courts dealing out compulsory licence fees in patent law, on the other hand, will and must engage in a much closer scrutiny of the economic implications and are therefore necessarily more expensive. Both systems may be adequate for their purpose (which does not mean that there is no room for optimisation). For different types of remuneration schemes applied in US copyright, see Crane (2009) at 10. 46 Lemley & Weiser (2007), at 839, point out that the importance of engaging in an assessment of comparative institutional competence until now has largely been neglected (with the exception of Krier & Schwab (1995)). 47 See supra notes 16, 17. 48 Crane (2009) at 3, with reference to Epstein (2007) at 52, 62; Depoorter (2008) at 63, with reference to Epstein (1997) (arguing that would-be purchasers of a property right would invariably prefer a liability rule).


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profit from new developments which are accessible at pre-established prices, instead of taking the risk to invest in the pursuit of new, untested ideas and concepts.49 However, whether free-riding would actually become the dominant model of economic behaviour in the absence of strong property rules is difficult to verify. Empirical evidence is seldom found, and where it exists, it is often inconclusive.50 Quite obviously, the decision whether to invest or not depends on a whole range of factors, of which the legal regime applying is only one, and not necessarily the most decisive. Also, a robust and reliable liability system rendering fair returns may be preferable, also under investment aspects, to a weak and insecure regime of property rules. Not unimportantly, this may depend on the position a person assumes within the hierarchy of right holders: If her internal bargaining position is weak, an individual right holder may be better off, and hence could be more strongly motivated to contribute to further innovation or creation, if guaranteed a revenue based on fixed fees, instead of having to rely on her (insufficient) capacity to make a better bargain by herself.51 Furthermore, the assessment also needs to take account of the specific nature of the right to which a liability system shall apply. The investment argument appears to be strongest in (traditional) patent law, in particular in the pharmaceutical sector, where R&D costs are typically very high, and the rate of failed attempts as compared to successful development of marketable products is extreme.52 Also, it needs to be considered that if innovators have reason to fear that applying for a patent will subject them to a liability system marked by chronic undercompensation, they may prefer to keep their knowledge secret, instead of divulging the technical teaching embodied in the invention to the interested public. Vice versa, 49

For a critical discussion of the free-riding aspect dominating the structure of IPR, see Lemley (2005). 50 One such example is provided by the European Commission’s evaluation report on the database directive (2005), available at: http://ec.europa.eu/internal_ market/copyright/docs/databases/evaluation_report_en.pdf. The authors of the report stated that no evidence was found to confirm that the directive had had a positive effect, or any effect at all. Hence, they concluded that “with respect to ‘non-original’ databases, the assumption that more and more layers of IP protection means more innovation and growth appears not to hold up” (at 24). 51 For a further expansion on that argument with regard to copyright, see below. 52 At least, this has traditionally been the case. However, with the advancement of biotechnology the possibility of making secure prognoses might improve. Also, the question has been posed, whether medical research has become so expensive that it can no longer be entirely financed by the market; see the study by Baker & Chatani (2002), available at: http://www.cepr.net/documents/publications/ Promoting_Good_Ideas_on_Drugs.pdf.


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as was pointed out by Reichman, no such reservations exist where new products “bear incremental innovation on their face”, which makes them a more suitable object for liability rules.53 And of course, even in traditional patent law as well as in copyright, the axiom that strong property rules are best capable of fostering innovation or creation is counteracted where a freezing effect on further innovation or creative efforts is imposed, be it because of the sheer strength and breadth of rights, or due to frustration over the complex steering manoeuvres newcomers must perform in order to find a secure path through the thicket of multiple, fragmented rights. Finally, regarding copyright, it must also be observed that in addition to being interested in financial returns, an author will want to see herself recognised for what she has created, and to protect her work against distortions. Although typically associated with property rules, such concerns can be taken care of by separate provisions, which could continue to be applicable also under a liability system. 2.3.4. Preliminary conclusions To conclude, where a decision is made in favour of one or the other system, it needs to involve a multitude of factors, trying to find the most favourable ratio between (economic and social) costs and incentives. It also follows that an answer cannot be given once and for all, but must be considered in each individual case. This implies, finally, that IPR, for all the emphasis frequently placed on property aspects, will continue to embrace both types of rules – or combine features of both54 – with the relation between them being dynamic and responsive to changes in the legal and factual environment, rather than remaining fixed for all time.55

3.

TRACKING LIABILITY RULES IN IP LAW

3.1.

Copyright Law

For copyright law, at least in its continental European version, exclusivity is an essential feature firmly anchored in the “natural right” character

53

Reichman (1994); see also below. For instance, if a liability rule allows the owner of an entitlement to obtain payment and/or exclude others from access and use for a limited period of time; Lewis & Reichman (2005) at 349. Note also that – in theory – a third option is also inalienability rules which are, however, usually reserved for other entitlements such as corporeal entitlements, cf. Krauss (2000). 55 This phenomenon has been dubbed “muddy rules” by Burk (1999). 54


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of an author’s claim to her work. That same concept also furnishes the ground for a rather broad design of the author’s exclusive position both in time and in scope. Nevertheless, in spite of, or as a reaction to, the basic breadth of that exclusive position, copyright also provides for the majority of examples of ways in which exclusivity can be modified into various forms of conditioned accessibility, by law or various ways of private ordering. In this section, an overview is given of a number of such modifications, without attempting to attain a complete picture. 3.1.1. The beginnings – compulsory licences in the Berne Convention An early example of an intermediate solution is provided by the way in which the opposing interests of the recording industry and those of authors (composers, lyricists) were accommodated with regard to the right in mechanical recordings. When the recording technique gained ground in the early years of the last century, the exclusive character of copyright seemed to give authors a natural claim to authorise or prohibit that novel type of use. However, while those claims were only gradually acknowledged at the national and international levels,56 the recording industries were already flourishing and were unwilling to give up what they considered to be their free commercial activities. Hence, as Ricketson notes, the proponents of authors’ rights had to compete with “an important interest group with powerful arguments to deploy in defence of their free copying activities”.57 As a compromise solution, German58 as well as US copyright law,59 together with the formal recognition of authors’ rights to mechanical recordings, introduced a system of compulsory licences.60 Furthermore, attempts were made by the German government to anchor the same system in the Berne Convention.61 However, the proposal made to that effect at the revision conference in Berlin (1908) was only accepted to the extent that Member States were declared free to introduce such regimes, with the

56

Ricketson (1987), at 513, with reference to the national survey of laws in [1907] Droit d’Auteur 107. 57 Ricketson, id. 58 German Copyright Act (1910). 59 US Copyright Act (1909) ss. 1 (e), 25 (2). 60 In the USA, the introduction of the rule was a reaction to the Supreme Court’s decision in White-Smith Music Publishing v. Apollo Co, 209 US 1 (1908), holding that perforated piano music rolls allowing pianos to play music mechanically, did not violate sheet music copyrights; Crane (2009) at 7. The scheme was extended in the 1976 Copyright Act to operators of jukeboxes and, more importantly, to cable re-transmission of broadcast television signals, and later on also to re-transmission of satellite transmissions; Crane (2009) at 8. 61 WIPO (1908), Actes de Berlin, at 51–2.


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express proviso being added that such “conditions and reservations shall be strictly limited to the country which has put them into force”. Even in that limited form, the concession made to the interests of the recording industry remained contentious. From a strictly author-centred perspective, it appeared as a basically impermissible derogation from authors’ rights,62 which might open the door for other interest groups to demand similar privileges. Nevertheless, in spite of continuing opposition during subsequent revision conferences, the provision was upheld in its core. However, by clarifying that compulsory licensing is only permitted if the first recording has been authorised by the right holder, its potential ambit was somewhat diminished (see Article 13.1, 2 RBC). A similar situation as regards sound recordings then arose in respect of the broadcasting right: here too, the scope of authors’ rights had been unclear at first, and broadcasting companies were reluctant to give up the position they had assumed in the meantime.63 Accordingly, when copyright in broadcasting became part of the Berne Convention at the Rome revision conference (1928), a similar pattern was adopted to resolve conflicts between both groups of stakeholders: countries should remain free to decide, with effect for their own territory and with some caveats, on the conditions under which the right can be exercised. The scheme was basically maintained also during the Brussels revision conference (1948), where the Berne Convention was expanded so as to expressly recognise the right to re-transmission of broadcasted works, wire diffusion, and public communication by means of loudspeakers. 3.1.2.

Remuneration rights

3.1.2.1. The advent of reprography and the “German model” The mechanical reproduction right as well as the broadcasting right in its various forms are special in so far as they concern modes of secondary use. This means that although exclusivity is curtailed to some extent with regard to those “remote” acts, the basic entitlements such as the (first) act of reproduction and/or distribution of the original remain intact and undiminished. However, early in the second half of the last century, it became apparent that the reproduction right itself could not safely be defended against encroachment, and might have to be subjected to certain qualifications in order to retain, if not its full integrity, then at least its

62

Ricketson (1987) at 514 n. 192 with reference to WIPO (1908), Actes de Berlin, at 261 (report of Renault). 63 Ricketson (1987) at 522 et seq.


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capacity to serve as a source procuring income for authors. The challenge resulted from the development of reprography, which turned copying of printed matter (and of sound recordings) from a tedious chore into a fast and easy task, thereby posing a serious threat to traditional ways of producing and marketing protected content. Not unlike the present situation, right holders and those acting in their interest tried to stem the tide by laying claims on those who contributed to mass infringement by providing the technical equipment necessary for such allegedly illicit conduct.64 In Germany, this led to a series of decisions by the Federal Supreme Court, culminating in a landmark case in 1964.65 A collective rights management organisation had tried to obtain an order against a large manufacturer of sound recording equipment to disclose the personal data of persons buying the equipment, so as to enable the organisation to pursue its claims against those – presumed – direct infringers. The court found that although a certain basis existed for assuming contributory liability, it would go too far to order disclosure of personal data, or even enjoin the sales as such. Rather than interfering with sales of equipment that was also, primarily, capable of perfectly legitimate use, and/or intruding into the protected realm of the buyers’ private sphere,66 the court reasoned that an equitable solution might be found in payment of a gross fee by the manufacturer, thereby satisfying possible claims of right holders against direct users at a time when the equipment was sold and the profit was made. The German legislature reacted by embodying the very solution suggested by the court in the copyright act in the reform of 1965. That regulation became the prototype of “levy systems”, which today represent a fairly widespread regulatory model in European copyright legislation (see below).67 64

It was never quite clear whether use in the private sphere is (or should be) exempted per se from copyright, or, even more pronouncedly, whether the right to use a work for private purposes is a genuine “user’s right”. In Germany, reproductions undertaken for private, non-commercial purposes – like private study – had been exempted from copyright protection from 1907 onwards. However, with the advent of reprography, the problem reached another dimension, and it was asserted from the side of the right holders – presumably correctly – that the amount of private copying undertaken with the help of the new techniques went far beyond what was considered acceptable under the previous system. 65 German Federal Supreme Court (BGH), 29 May 1965, GRUR 1965, at 104 – Personalausweise; See also BGH, GRUR 1955, at 546 – Grundig Reporter. 66 Art. 13 of the German Constitution institutes the principle of inviolability of private homes. According to the court, that constitutional right would be encroached upon by right holders conducting random controls of the recording practices of buyers in their private environment. 67 The history of levy systems rooted in the advent of reprography techniques is depicted in Hugenholtz, Guibault & van Geffen (2003) at 3.


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3.1.2.2. Remuneration rights and Article 9.2 RBC The risk of unlimited copying made possible by sophisticated machinery also figured as one of the main topics at the Berne revision conference in Stockholm (1967), which led to the “official” acknowledgement of the reproduction right (Article 9 RBC), and to its qualification by the threestep test (Article 9.2 RBC). At least indirectly, the “German model” of exacting payment from those who profit instead of insisting on full exclusivity was also referenced during the negotiations in Stockholm: Eugen Ulmer, who acted as chairman of Committee I, put forward the argument that the answer to the question, whether a particular use constituted “unreasonable prejudice” to authors,68 depended inter alia on the remuneration which might (or might not) be offered in return.69 Though this position was later criticised as an “unjustified interpolation” into Article 9.2 Berne Convention,70 it is pointed out by Ricketson and Ginsburg that Ulmer’s statement remained without objection and was adopted as part of the Committee’s report, which constitutes an “authentic supplementary aid to interpretation”.71 3.1.2.3. Levy schemes as a way to procure remuneration If payment of remuneration is accepted as a basically sound and feasible way to compensate authors for otherwise unacceptable diminishments of their rights, it becomes crucial to ensure safe and efficient mechanisms for procurement of fees. The levy system first installed in the German Copyright Act of 1965 has proven quite successful in that regard. Being limited initially to tape recording equipment only, the system was extended in 1985 to blank tapes and photocopying machines, and presently covers all types of equipment, data storing devices and accessories that are used, alone or in combination with others, for the purpose of copying. Similar schemes have been introduced, during the 1980s and 1990s, in a number of European countries (Austria, Belgium, Denmark, Finland, France, Greece, Italy, Netherlands, Portugal, Spain and Sweden).72 Levy systems are also applied, in one form or another, in non-European countries

68

The answer to that question becomes relevant on the third of the three

steps. 69 Ulmer, in: WIPO (1967), Records of the Stockholm Revision Conference 1967, Vol. I, 1145–6; cited according to Ricketson & Ginsburg (2006) at 775. 70 Desbois, Françon & Kéréver (1976) at 207; cited according to Ricketson & Ginsburg (2006) at 774. 71 Ricketson & Ginsburg (2006) at 775, referring to Art. 32 VCLT (1969). 72 Hugenholtz, Guibault & van Geffen (2003) at 12.


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such as the United States,73 Canada74 and Japan.75 However, not all EU member countries have accepted the scheme,76 and the extent of its acceptance at the international level is even lower.77 Indeed, although the basic efficiency of the levy system can hardly be doubted, misgivings about it have never been silenced, and they have found new grounds in recent developments. Most importantly, digital rights management (DRM) techniques have made it possible for right holders to employ pay-per-use business models, arguably without encroaching upon the private sphere of users – thereby changing the very foundations on which levy systems were first built. If levies are nevertheless extended to digital uses, this may result in double payment, given that consumers will already contribute to the remuneration owed by paying a higher price for the equipment, enabling uses for which they are then charged once more.78 Also, the fact that national rules within a common market like Europe continue to be quite diverse – some countries do not apply levy schemes at all, and even where they do, the differences in detail are conspicuous – is liable to create difficulties for competition among manufacturers and sellers of copying devices. Against that backdrop, levies have come under close scrutiny,79 and according to the EU Commission’s (not uncontested) opinion, they should be “phased out” in the digital environment.80

73 See US Digital Home Recording Act, which requires payment on digital recording devices and media; for more details: Crane (2009) at 8–9. 74 The Canadian regime on private copying applies the levy scheme to blank audio recording media. 75 Levies are payable in Japan on digital audio recorders, digital compact cassettes and mini discs. 76 In particular, the United Kingdom and Ireland have been reluctant to accept levies as the governing model, and the differences between other European countries appear too diverse to be easily bridged; see Hugenholtz, Guibault & van Geffen (2003). 77 According to a report published by the Australian Copyright Council in 2001, (at least) 42 countries do apply levy systems, mentioning in addition to the (then) 12 EU member countries also 15 countries from East and Central Europe, seven African countries, and Ecuador, Paraguay, Iceland, Israel and Switzerland. 78 The dilemma is addressed in Art. 5.2 (b) of the Copyright Directive (29/2001/EC). 79 On the “Future of Levies in a Digital Environment”, see Hugenholtz, Guibault & van Geffen (2003). 80 See e.g. von Lewinski (2007); Koelman (2004) at 6 et seq.


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3.1.2.4.


Collective rights management

3.1.2.4.1 institutional aspects Another essential factor in the functioning of remuneration schemes concerns the institutions that are entrusted with the collection and administration of fees. That task is usually performed by collective rights management organisations (CRMOs). From a right holder’s perspective, CRMOs’ function is to reduce cost and acquire market power through cooperative price-setting.81 Although their structures and modes of operation vary from country to country, the model most commonly found in practice stipulates that the organisation entrusted with collective rights management in a specific sector of copyright exercises and enforces all claims arising in its national territory and resulting from certain specified types of use. The remuneration collected is then distributed to individual right holders82 as well as for social purposes or other common aims in the interests of the group represented by the organisation. Because and in as far as CRMOs typically assume a (de facto) monopoly position in their respective territory, they are often subject to specific (government) supervision and under an obligation to license. Traditionally, CRMOs occupy a strong position in (continental) European copyright law and are viewed as indispensable elements in a thriving cultural environment.83 However, that picture is not without flaws. Whereas CRMOs tend to present themselves as strongholds of cultural diversity and social responsibility, critical comments have complained about rigid structures and a lack of transparency in dealings with authors and users.84 Nevertheless, and in spite of the fact that technology might render the service of intermediaries largely superfluous in theory,

81

Bessen, Kirby & Salop (1992). This may lead to rather bizarre results in certain cases. As reported by Grassmuck, the German GEMA forces musicians who offer their music for free on their own website to pay fees for the display, only for the sum to be sent back to them after two years, minus an administration fee of 14%; Grassmuck (2009) at 9. 83 The paramount importance of collective rights management organisations in this context is reflected inter alia in the fact that for some remuneration rights, collective management is mandatory according to domestic copyright law. The question whether this modality of exercise falls under the three-step test is examined and denied by von Lewinski (2004). 84 Commission’s Recommendations of 18 October 2005 on Collective CrossBorder Management of Copyright and Related Rights for Legitimate Online Services (2005/737/EC) OJ L 276, 21/10/2005; see also Commission decision of 16 July 2008 prohibiting contractual practices of 24 collecting societies allegedly violating Art. 81 EC (now: Art. 101 TFEU). 82


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collective rights management, in one form or another, will most probably continue to play an important role in the context of administering and enforcing remuneration rights. The involvement of CRMOs is particularly important in two exemplary models of remuneration schemes, which are addressed below. 3.1.2.4.2 extended collective licences In the Nordic countries, a licensing scheme known as “extended collective licensing” has been developed at the crossroads between exclusive rights and remuneration claims.85 Extended collective licences were first introduced with regard to reprography of teaching material in schools, and have spread from there to other areas. In contrast to levy systems, the exclusive right remains with the author, but copying (or, as the case may be, other kinds of use) is (are) declared permissible to the extent and under the conditions set out in an agreement between the users and an organisation representing a major part of the right holders. Where such an agreement exists, it will also cover the use of works whose authors are not members of the organisation and hence are not represented by it. In order to ensure compliance with international obligations, non-members are regularly entitled to express their reservations against the deal, and are then free to exercise their right to its full extent. Whereas the Nordic model has been successful in its own environment, it does not seem to have been adopted until now in other countries within or beyond Europe.86 It is important to note, however, that its validity as a possible model for collective bargaining schemes has been expressly acknowledged in Recitals no. 18 and 30 of the Copyright Directive (29/2001/EC). Interestingly, it was also re-discovered and promoted as a feasible approach towards resolving the file-sharing dilemma and other challenges presently facing the copyright community.87 On the other hand, its future in a pan-European, borderless licensing system as recommended by the Commission in 2005 may be doubted.88

85

See generally Karnell (1985). But see from Canada the study by Gervais (2003). 87 See in particular NEXA Study (2009); Aigrain (2008); see also European Communities (2008), where extended collective licences are discussed with a view to use of works whose authors are unknown or non-locatable, available at: http://ec.europa.eu/information_society/newsroom/cf/document.cfm?action= display&doc_id=295. 88 Recommendation by the European Commission of 18 October 2005 (above, n. 84). 86


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3.1.2.4.3 mandatory collective management A crucial role is attributed to CRMOs, in particular when the exercise of rights by authors or other right holders is subject to mandatory collective administration, as is often the case with regard to statutory remuneration rights. A prime example of such regulation can be found in Article 4 of the European Rental and Lending Directive (92/100/EC) and its implementation in national law(s). It is stipulated in that article that authors and performers, after having transferred the rental right to the producer, retain a nonwaivable right to fair remuneration for the renting out of their works. Although the directive itself does not prescribe mandatory collective administration of the remuneration right,89 a number of legislatures, inter alia the German, have opted for that route in their national laws,90 based on the argument that the interests of both sides in ensuring fair and efficient exercise of the right could best be served that way. Mandatory collective administration assumes yet another dimension when it is prescribed with a view to the exercise of exclusive rights. The issue has come under discussion inter alia with regard to legislation in Hungary, which had decreed that the exclusive rights to terrestrial and satellite broadcasting, transmission of cable-originated programs and of making available works to the public other than by broadcasting or cableoriginated programs can only be exercised through collective administration.91 Also, mandatory collective administration of the “making available” right has been tested and was basically approved in a study commissioned by French CRMOs.92 It is argued in favour of such a solution that by entrusting the exercise of the right to collective management, the position of authors and other right holders is strengthened, without impinging on the exclusive character of the right. However, the latter argument needs to be viewed with some caution, because, as said before, CRMOs are often under an obligation to license, as a corollary to their strong position on the market (which regularly amounts to a monopoly de facto or even de iure), so that exclusivity would become illusionary, at least in practice.93 While

89 Proposals to that effect had been made during the negotiations, but were rejected due to opposition by certain producers’ organisations; von Lewinski (2004) at 8; Reinbothe & von Lewinski (2002) at 43. 90 See also Art. 4.3 of the Rental and Lending Directive (92/100/EC), where it is stated that “the remuneration right may be entrusted to collecting societies of authors and performers”. 91 Sec. 26.2, 26.7 and 26.8 of the Hungarian Act; von Lewinski (2004) at 3. 92 Bernault, Lebois & Lucas (2005). 93 This might change, however, if CRMOs were forced to enter into more efficient competition with each other, as was required, with regard to online rights,


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this does not dispense with the model’s tenable potential to provide feasible and author-friendly solutions to current challenges, in particular regarding mass use of protected content on the Internet, mandatory collective management of the “making available” right would not be fully immune either against arguments like those raised against proposals suggesting “culture flat rates” or other remuneration schemes resulting in payment en gros. 3.1.2.5. Evaluation of remuneration rights – current tendencies In spite of all the differences in the current discussions, a common trend can be discerned in so far as the transformation of authors’ rights (and neighbouring rights) into remuneration claims in one form or another is increasingly viewed in a positive light. Indeed, it is emphasised in the literature94 as well as in court decisions95 that those who actually generate creative content may be better off with a claim for remuneration than with an exclusive right. The latter may yield a better position in theory; however, in practice, it is often of little use to individual creators, who regularly transfer the right to others, such as publishers or producers of films and phonograms, etc., who are able to exploit it on the market. And due to the typically weak bargaining position of individuals vis-à-vis those commercial players, what they receive in return for the transfer may be less favourable than what might accrue from a statutory remuneration right generating a direct cash flow.96 Quite symptomatically, therefore, proposals to broaden the ambit of statutory remuneration rights or similar schemes meet with resistance from the copyright industries rather than from the creative community itself. As was mentioned above, the debates concerning different forms of remuneration rights have become particularly acute in connection with peer-to-peer file-sharing on the Internet and the “copyright wars” ignited thereby. It has been observed that the pronounced leverage of right

by the European Commission in its Recommendation of 18 October 2005 (above, n. 84). 94 von Lewinski (2004); Hilty (2007) at 107, 121, 123. 95 German Federal Supreme Court (BGH), 11 July 2002 – elektronischer Pressespiegel, GRUR 963 (2002), and the Swiss Supreme Court (BG), 21 May 2007, BGE 133 III 473 (2007) = 39 IIC 990 (2008); see also Geiger (2008). 96 A qualification needs to be made here in so far as the argument is based on the situation under continental European copyright which only acknowledges authorship of the personal creator, and not of the producer. By contrast, in US law the producer herself would be the author; hence a transfer of the right would usually not occur.


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holders on the dissuasive power of criminal and other sanctions97 has not achieved the desired results, and is unlikely to do so in the future.98 Furthermore, it seems obvious that the quest for more deterrent sanctions99 and perfection of surveillance mechanisms and obligations are likely to generate clashes with fundamental rights, such as the right to information and to privacy.100 This makes it urgent indeed to find appropriate solutions encompassing the justified interests of all sides involved. As a matter of principle, general consent seems to be forming at least on the basic tenets of that analysis. However, there is still a long way to go before the many legal and practical problems connected with the issue are resolved and practically feasible solutions have been implemented. For instance, in Europe, the question would have to be addressed whether the Copyright Directive with its closed catalogue of limitations would have to be amended in order to embrace an express clause replacing the exclusive making available right by a right to statutory remuneration, or whether schemes can be devised which achieve similar results without requiring

97

Much attention has been raised by the decision by the Stockholm District Court of 17 April 2009 (DOM B 13301-06) sentencing the persons responsible for managing the online platform “Pirate Bay” to one year in prison and high damage payment. The case has had considerable repercussions, not least by boosting the newly founded “Pirate Party”, which managed to win 7% of the votes in the Swedish elections for the European Parliament (and c 2% in the general elections in Germany, September 2009). 98 For instance, in a blog comment on the Swedish “Pirate Bay” case, the Norwegian Minister of Education, Bård Vegar Solhjell, argues for a remuneration system by pointing out that “there is no future in fighting the availability of music on the internet. The adversaries of new technologies have little success to show. However, it is important to fight for the best possible way of using that technology in the interest of artists and users”; see http://www.bardvegar.no/2009/02/ lovleg-fildeling-med-tono-avgift/. 99 One much discussed example for the enhancement of sanctions is the French legislation on Illegal Filesharing, known under the acronym HADOPI (High Authority of Diffusion of the Art Works and Protection of the (Copy)Rights on Internet). The core of the proposal lies in the “three-steps procedure”: a person found to be illegally sharing files will first be warned by email, then by registered letter, and after that, she will be barred from Internet use for a certain period of between two months and a year. After the first craft had been found unconstitutional (mainly because the sanction could be imposed without a court or judge being involved), it was adopted, in an amended form, by the second chamber of the French Parliament on 15 September 2009. 100 The need to find an appropriate balance between the enforcement interests of right holders and interests in (data) privacy was emphasised by the ECJ inter alia in C-275/06 – Promusicae/Telefónica de España.


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such changes.101 On the international level – and also in Europe, in addition to the question posed above – the compliance of such models with the three-step test (Articles 10 WCT; 16 WPPT) would have to be investigated.102 Whereas that norm, if applied correctly, should not form an insurmountable obstacle to solutions based on a flat rate model or similar schemes, the concrete assessment of such regulations would most likely depend on the efficiency and reliability of the systems for procurement of remuneration.103 This links to the practical side of the matter, which appears to raise even more intricate questions than the legal aspect. In particular, this concerns the coordination of differently structured national or regional models in a multinational or global setting. 3.1.3.

Private ordering

3.1.3.1. Creative commons Digital technology has made it easier than ever before to partake of the wealth of information and ideas generated worldwide. The dawning of the digital age therefore appeared to herald an era of unlimited freedom for scientific research and dissemination of knowledge. On the other hand, realisation of the vast potential inherent in the new technologies came as a shock to most commercial copyright holders, and as a reaction, copyright policy and lawmaking from the mid-1990s onwards took a pointedly expansive course. Furthermore, protection of proprietary content against unauthorised use was underpinned by devices built into the technical structure of media (“code”), which itself became the object of protection against circumvention. Being faced with that enclosure movement,104 “creative commons” were formed as a grassroots initiative within the scientific community. The basic idea is that because technology makes publishing easy, and makes sources retrievable for everyone, those freedoms should be used in a proactive 101 See Grassmuck (2009) with reference to the suggestions by Rossnagel, Jandt, Schnabel & Yliniva-Hoffmann (2009), EML Study. According to von Lewinski (2004) and Bernault, Lebois & Lucas (2005), changes would not be necessary if the making available right were instead subjected to mandatory collective administration. The NEXA Study (2009) endorses a similar result, based however on the model of extended collective licences. 102 See e.g. Peukert (2005). 103 For a comprehensive overview on different models for procurement of fees, see Fisher (2004), chapter 6. 104 The expression is frequently used in connection with broadening IP protection with reference to articles by Yu (2007a, 2007b) who employs it in connection with the TRIPS-plus obligations set out in Free Trade Agreements (FTAs).


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manner by the authors themselves instead of being handed over to commercial enterprises, sealing off pieces of knowledge from the common domain to which they belong. In its philosophy and structure, creative commons largely resembles the “open source” movement in the field of software development. As in the case of open source, creative commons continues to be based on the concept of exclusive rights – it is for each individual author to determine whether and in what way her work may be used by others. However, if the author opts for publication under a creative commons licence, she thereby consents to free reproduction and distribution of her work, on condition that the work is correctly attributed to her. Further details depend on the specific type of licence chosen for the publication: again, similar to open source, an author may consent to the original being used for creation of derivative works, on condition that those derivatives are also published under a creative commons licence. Furthermore, an author may add a reservation against any form of commercial use. Whereas the creative commons movement has received widespread attention and basic support within the scientific community, it has never achieved the level of impact and importance that would have installed it as a genuine counterweight to commercial forms of publishing. However, the idea of making information in the form of scientific articles and scholarly papers widely available to one’s peers through digital technology has gained ground in so far as new and influential forms of basically free and easily accessible web-publications have emerged that exist in parallel to traditional, commercial publishing structures, and provide for a differentiated range of presentation modes and conditions.105 3.1.3.2. “Flat rates” as commercial business models Apart from repeated attempts to quench the smouldering fire of illegal filesharing, the copyright industries – in particular the music industry – have also reacted to the demand for more flexible forms of music “consumption” by developing new business models. Legal downloads are possible from many sources, and to an increasing extent, companies are offering content for what might be called a “flat rate”. The market in this field is vibrant and under constant development. While technical protection measures (TPM) and DRM still form part of most business models, such restrictions are given up by others, as user acceptance is considered as more important than inhibiting further distribution.

105 Most important and influential among those in the field of social sciences, including legal research, is the Social Science Research Network (SSRN).


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It could be argued that the economic result of such models developed by private ordering may not differ much from what might be achieved by a “culture flat-rate”. However, the legal differences are conspicuous in so far as the conditions presently found on the market are “dictated” by the companies, and may vary widely, making it difficult for consumers to assess their value and choose among them. On the other hand, as long as the conditions offered are formed under competitive market conditions, consumers might also profit from their diversity and the variety of options they entail. The question remains nevertheless whether those business models would be available at all, and whether they would continue to exist, without the threat being imminent that in the absence of such alternatives, users would switch to the “zero payment” option offered by illegal file-sharing. From that perspective, it might be a wise move to ensure that file-sharing remains available as a (legal) alternative to commercial offers,106 leaving businesses the chance to develop competing “add-on” service packages optimizing the quality and accessibility of the content required. 3.1.4. Compulsory licences as a remedy under competition law Like other IPR, copyright may be subject to compulsory licences granted under competition law, where the conditions set out in the relevant legal system(s) are fulfilled.107 In Europe, this has been confirmed by the ECJ’s decisions in Magill108 and IMS Health,109 as well as by the CFI in Microsoft.110 However, the exact scope and contents of the prerequisites for compulsory licensing remain unclear and contentious, and will only be found in exceptional cases. 3.1.5. From exclusivity to a liability system with “opt out” clauses? In addition to what was considered above – remuneration schemes in their various forms, and “private ordering” solutions that are based on party autonomy rather than on explicit legal rules – tokens of a gradual change or modification of the traditional copyright paradigm have also become visible in a number of basically unconnected, yet (to some extent) similarly

106

For the basis of flat-rate or similar schemes, see above. See also below, on compulsory licensing in patent law. 108 Joined cases C-241/91 P and C-242/91 – Radio Telefis Eireann (RTE) and Independent Television Publications Ltd. (ITP) v. Commission of the European Communities [1995] ECR I-00743. 109 Case C-418/01 – IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. KG, [2004] ECR I-05039. 110 Case T-201/04 – Microsoft v. European Commission, [2007] ECR II-03601. 107


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structured developments reversing the rule of exclusivity. As one element in that scenario, the US Supreme Court’s decision in eBay v. MercExchange111 can be mentioned, where it was held that the owner of an IP right (in that case: a patent) is not automatically entitled to an injunction in case of infringement (for more details see below, 3.2.3.2). Although the conflict at stake concerned a specific situation – usually referred to as “patent trolling”112 – which until now has not become virulent in the field of copyright,113 the decision remains remarkable (and disturbing to those defending the exclusivity paradigm), because after all, injunctions are the one and only way to safely and definitively prohibit unauthorised use of protected subject matter, which is meant to be the very core of intellectual property right. Whereas eBay v. MercExchange appears to deny full protection of exclusivity in (very) exceptional cases, broader consequences (might) result from a settlement under discussion between the search engine Google and a number of right holders’ organisations in a class action case filed by the latter in the Southern District Court of New York.114 If accepted, the settlement would allow Google to make digital copies of, and provide access to, printed material protected under copyright in the USA, against a onetime fee plus a certain percentage of the revenues earned, both payable to a registry to be set up for the purpose. Due to the legal mechanism of class actions, the settlement would become binding also on “class members” not represented by the claimants, unless a right holder expressly chooses to “opt out” of the deal.115 Although the settlement will only affect the copyright claims under US law and does not have legal effect in other countries (from which access shall be barred by TPM in order to prevent, as much as possible, the “leaking out” of content), it appears as a fundamental change in the rules

111

eBay Inc. v. MercExchange, LLC, 547 US 388 (2006). For the term “patent troll” see above, footnote 37. 113 It is worth noticing, however, that the Supreme Court referred to a previous dictum made in a copyright case in order to motivate its decision not to grant an injunction; see Fox Film Corp. v. Doyal, 286 US 123, 127 (1932). 114 The Authors Guild, Inc., Ass’n of American Publishers et al. v. Google, Case No. 05 CV 8136-JES. The text of the settlement is available at: www.googlebooksettlement.com. 115 Granting the possibility to opt out can arguably serve as a basis for the assumption that those who don’t make use of that option consent to be bound by the settlement. However, a problem remains at least in so far as authors have no information about the settlement and their possibility to opt out, because they cannot be located (meaning that their works are “orphaned”, and will be included in the Google project without the author even appearing to consent). See Picker (2009). 112


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of the game, and its repercussions will arguably be felt also outside its proper ambit. A kind of “opt out” solution also figures as an important element in current debates concerning use of copyrighted material whose authors (or other right holders) are unknown or non-locatable (“orphan works”).116 A legislative proposal addressing the issue is pending in the USA,117 and also in the EU, the topic is under consideration.118 Inter alia, the US proposal provides that if reasonably diligent bone fide efforts to trace the author have been in vain, the work may be used without permission, and the author is only entitled to reasonable remuneration for the time during which the work has been used on that basis.119 As a practical result of such legislation, authors will be strongly motivated to document their authorship, preferably by way of registration in a database, and keeping the information updated as long as the right exists, or as long as an interest prevails to secure its undiminished exercise and enforcement. In the longer run, and for certain sectors,120 this may amount to a de facto re-instalment of formalities, which were expressly banned in the Berne Convention as a legal requirement for copyright protection. Without breaching that rule in its literal meaning, the result of such regimes would again amount to a reversal of the basic paradigm – instead of simply relying on the exclusivity of her right, the author would have to take positive steps to assert it, so as not to be restricted to mere liability claims.121

116

Ginsburg (2010). In its present form (July 2009), the bill was introduced on 24 April 2008; HR 5889, S. 2913, 110th Cong., 2d Session. For a comprehensive account of the contents and history of the bill and the problems it entails see in particular Ginsburg (2008); see also Statement of Marybeth Peters, Register of Copyrights, before the Subcommittee on Courts, the Internet, and Intellectual Property, Committee on the Judiciary, United States House of Representatives, 110th Congress, 2nd Session, March 13, 2008, available at: http://www.copyright.gov/ docs/regstat031308.html. 118 See European Communities (2008) (above footnote 87); see also van Gompel (2007). 119 Injunctive relief remains available when the author reappears and objects to the unauthorised use. However, reasonable remuneration remains the sole relief available if the innocent infringer “has prepared or commenced preparation of a work that recasts, transforms, adapts, or integrates the infringed work with a significant amount of the infringer’s original expression”, proposed § 514(c)(2)(B). 120 Most likely in the area of pictorial works, which will typically be included in anthologies or other works of derivative character, hence restricting the relief available to non-locatable owners (in case of reappearance) to reasonable remuneration. 121 In Denmark, the problem of orphan works was solved in 2008 by an extended collective licensing rule which does not require any efforts to trace 117


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3.2.


Patent Law

3.2.1. Exclusivity and markets Patent holders can use injunctions to prevent not only the copying of their invention but also the emergence of independently created products, compounds, or processes which are identical/similar to the invention. Not only substitutes but also improvements and even secondary (“downstream”) uses of inventions can typically be prevented by the patent holder. Normally patent holders can also prevent third parties from using technologies which they do not themselves use (or intend to use) actively, and they may also set prices freely. It is the standard economic rationale behind patent law that this “absolute permission rule” leads to innovation and that innovation leads to public welfare.122 The patent system relies on the market and the individual transactions by patent holders and technology users to incentivise inventors. For the present discussion it has mainly two basic implications: firstly, in order to function the patent system must contain the necessary elements to sustain the patent holder as a market participant so as to avoid a general problem of undercompensation. This presupposes the existence of both efficient rules on compensation for infringement etc., but also relevant institutions for the grant of rights and for their enforcement. Secondly, the system must contain mechanisms which control the exercise of their rights by patent holders and make sure they do not rely on special market conditions to be overcompensated. 3.2.2. Limits to exclusivity Patents should boost efficiency. Occasionally, however, they do not. Sometimes, this is because of a misuse of a dominant position created by or with a patent. In other cases, the inefficiency is caused by a combination of market structures and patent exclusivity. Examples of the latter situation have been reported, especially in the component industries where “thickets” of patents may hamper innovation and lead to underuse of existing technologies.123 Different legal tools have been developed to deal with these situations to give third parties access to use patented technology without the (individual) consent of the right holder. Some of these

authors but presupposes an agreement between users and organisation representing authors; Sec. 50(2) of the Danish Copyright Act. This provision is not even limited to orphan works but provides a general possibility for collective agreements in situations involving the use of a multitude of works. 122 Merges (1996). 123 See generally Heller (1998), and for more, Schovsbo (2009).


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– such as compulsory licences and legal licences – are based on statutory measures, whereas other tools are based on private ordering solutions – such as patent pools – or combinations of legal and private measures – such as licences-of-rights schemes. It is a common feature for these measures that through varying means and with varying intensity they change the effects of the involved patents from a rule of exclusivity to a liability rule. In all situations, the patent holder thus retains the right to receive compensation but loses the ability to decide ex ante on access to the right and to have injunctions at its disposal. In the case of compulsory licensing, the liability rule is the result of public intervention to decrease the incentives of the patent holder. In the two other cases, liability rules serve to increase incentives by reducing transaction costs. 3.2.3. Compulsory licensing Rules on compulsory licensing can be found in either patent law and/or competition law.124 3.2.3.1. Rules in the Paris Convention and the TRIPS Agreement The Paris Convention does not oblige Member States to have specific rules on compulsory licences but allows such rules “to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work” (Article 5A (2)). Article 5A expressly mentions failure-to-work cases. It does not, however, limit the use of compulsory licensing to such instances. TRIPS permits compulsory licences “to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology” (Article 8.2). The convention sets up procedures for rules on limitations and “other use of the subject matter of a patent without the authorization of the right holder” (Article 31) but does not specify under which circumstances compulsory licensing may be used. Nor does it require member countries to operate specific rules on compulsory licensing in the patent legislation and for example, the US Patent Act does not contain any such rules. Traditionally, the failure to work a patent has been relied upon as a reason for granting a compulsory licence.125 Other 124

Unlike IPR, no firm and detailed international standards for competition law have been developed; Schovsbo (ch. 7). 125 The Paris Convention for the Protection of Industrial Property, 1883 (as amended), Art. 5A expressly mentions failure to work as an example of a situation which may trigger compulsory licensing.


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examples include dependency or situations where access is required by “the public interest”, for example to combat excessive prices or unreasonable terms for contractual licences or other restrictive measures which hamper industrial development. Article 31 and the Doha Declaration126 of the WTO have provided for the use of compulsory licensing to serve the special needs of developing countries in “access to medicine”, which in turn has lead to the adoption of Article 31bis. This development has not only revitalised the whole institution of compulsory licensing but also underlines the function of competition-law thinking to make “wiggle room” within the TRIPS obligations. Provisions allowing for compulsory licensing of patents form part of a substantial number of patent laws worldwide; however, it seems that they are very seldom applied in practice. It is claimed, however, that the mere existence of such provisions does have a “warning effect”, and that the mere existence of such rules may induce parties to enter into agreements which they would not have entered into otherwise. 3.2.3.2. Competition law and similar forms of intervention The use of competition law to compel patent holders to grant licences varies greatly internationally.127 In the EU, the European Court of Justice has relied on Article 102 TFEU (banning the “abuse” of a “dominant position”) to impose an obligation on right holders to license IPR which is “indispensable” for carrying on a particular business provided that the following three cumulative conditions are satisfied: (1) that the refusal is preventing the emergence of a new product for which there is a potential consumer demand, (2) that it is unjustified, and (3) that it is such as to exclude any competition on a secondary market.128 US courts on the other hand have traditionally been very reluctant to rely on competition law to function as “central planners”.129 There are signs, however, that this may be changing and that US courts in the future may be more willing to intervene in markets. The most prominent sign of this is the eBay decision by the US Supreme Court mentioned above, (3.1.5),130 where the Court

126

Doha Ministerial Declaration of 20 November 2001, WT/MIN(01)/DEC/1, available at: http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e. htm. 127 Schovsbo (ch. 7). 128 Case C-418/01, IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. KG, para. 38. 129 Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 US 398 (2004) 407–08. 130 eBay Inc. et al. v. MercExchange, LLC, 547 US 388 (2006). See also


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declared that according to “well-established principles of equity” a fourfactor test must be satisfied for a plaintiff to obtain an injunction: (1) it must have suffered an irreparable injury; (2) remedies available at law, such as monetary damages, must be found inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity must be warranted; and (4) the public interest should not be disserved by a permanent injunction. However, although the test may be well established in general,131 the requirement to apply it regularly before an injunction is granted might have the effect of treating the entitlement of a right holder to exclude, and hence the very core of the property right, as a privilege rather than as the usual sanction for IPR infringement. It is little wonder therefore that the decision has provoked much debate.132 However, most commentators assume that eBay will not lead to massive changes for present practice in “normal” infringement cases. Indeed, the Court’s main reason for insisting on the four-factor test lay in the fact that the case at stake arguably concerned misuse frequently apostrophised as “patent trolling”.133 This was addressed by Justice Kennedy in his concurring opinion, which singled out patent holders who do not use patents “. . . as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees”. To those, the Justice explains, “legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest”. However, even without having worked profound systemic changes within patent law, the reasoning employed in eBay, and particularly the line of argumentation used by Justice Kennedy, if taken further, may greatly influence the practice of US courts in competition law cases,134 as it may signal the willingness of courts to intervene in markets in ways which affect the exclusivity of right holders. According to the EPO, the eBay decision therefore is “the first pointer in the direction of a mandatory – injunction-free – licence of right regime”.135 Even though this Medimmune, Inc. v. Genetech, Inc. et al., 549 US 118 (2007) (making it easier for a licensee to challenge the licensor’s patent(s)). 131 The application of the four-factor test results from the historical distinction between “law” and “equity”, with injunctions only being available under the latter. 132 Lemley & Weiser (2007) at 799; Depoorter (2008) at 63, with further references. 133 The term “patent troll“ is widely used for persons who have no intention to work a patent, but use it only or mainly to extort overcharged licence fees; see statement by Justice Kennedy in his concurring opinion in eBay. 134 Hovenkamp (2004). 135 EPO (2007) at 96.


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description would seem to overstate the effect of the decision (at least till now), it certainly indicates an interesting direction, perhaps even towards a broader endorsement of liability rules by US courts. As a possible vehicle for such tendencies, resort could be taken to the doctrine of patent misuse, which would prevent patent holders from enforcing their rights in certain cases of mischievous conduct. Such situations may include fraud in connection with patent procedures, or practices of “patent ambush”, which may arise in connection with standard-setting where because of the fraud of a participant, standards are defined in ways which include the patents of the participant.136 In such instances, the participant may be liable under competition law, or he may be unable to fully enforce his patent right vis-à-vis the users of the standard. In both cases, the typical remedy would be an obligation to grant licences on reasonable and non-discriminatory terms (RAND) to all interested parties, thereby replacing property by a liability rule. 3.2.3.3. Legal licences Apart from the Doha Declaration, which has fuelled the interest in Article 31 TRIPS in cases of access to medicine, signs of a renaissance for compulsory licensing have also emerged from the expansion of patent law into some of the more contentious fields such as biotechnology. In some countries, this has led to a parallel expansion of competition law. One example of this is Switzerland where an amendment of the Patent Act in July 2008 introduced a rule on “automatic” compulsory licensing (i.e. without proving “abuse” or any other special circumstances) regarding inventions on “research tools”.137 This rule allows for the use of such patents provided only that a reasonable fee is paid to the patent holder. The effect of this is to basically protect patents on research tools with a liability rule only (not exclusivity). This venue may be valuable in other areas of special public interest and where access to patent technology is crucial either because of the potential hold-up effects on innovation or because of a manifest public interest in easy access to use the technology, such as essential climate technologies.

136

See Chronopoulos (2009) for an extensive analysis of the (US) Rambus cases (FTC decision In the Matter of Rambus, Inc., Docket No. 9302, public record version available at: http://www.ftc.gov/os/adjpro/d9302/060802commissionopinion.pdf, and Rambus, Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008)). 137 Art. 40b Swiss Patent Act (Law on Patent and Inventions).


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Private Ordering

3.2.3.4.1 patent pools Patent pools are agreements between patent holders who license their respective patents to each other and to third parties collectively. Pools have mainly been established around technical standards such as DVD, 3G and the MPEG-2 formats.138 Pools often benefit competition by lowering transactions costs and by providing transparency. They may harm competition, for example, by closing markets to outsiders and by facilitating price fixing. The position in competition law in both the EU and the US has gradually become positive. It is now recognised that pools involving only complementary patents (i.e. patents covering separate aspects of a given technology that do not compete with each other) benefit competition by allowing for a one-stop licensing of technology. This reduces transactions costs and opens up markets which would otherwise be closed and may also reduce the price of access to the package compared to a price based on the individual rights.139 Pools which include patents which are unnecessary to exploit the technology in question or pure substitute patents (i.e. patents covering technologies that compete with each other and that licensees can choose among) are more likely to harm competition. By taking part in a pooling arrangement, the patent holder agrees to submit the use of its patent to the rules of the pool. These rules would often allow for the use of the patent by third parties and in this way patent pooling is typically an example of a system based on “private liability rules”.140 Here the liability rule is preferred because the patent holders find that it increases incentives compared to the traditional and individualistic patents approach and makes exploitation profitable for patents which would otherwise not have been used. 3.2.3.4.2 licences of right (LoR) LoR are rules in the patent legislation whereby a patent holder may declare its intention to enter into agreements for the use of the patent with anyone who is prepared to accept the

138

Pools have also been formed in biotechnology; see e.g. van Overwalle, van Zimmeren, Verbeure & Matthijs (2006) at 143–8. 139 See US Department of Justice & Federal Trade Commission (1995), Antitrust Guidelines for the Licensing of Intellectual Property, at point 5.5. and US Department of Justice & Federal Trade Commission (2007), Antitrust Enforcement and Intellectual Property Rights Promoting Innovation and Competition, at chapter 3. See on EU law European Commission (2004), Guidelines on the application of Art. 81 of the EC Treaty to technology transfer agreements, at points 213 and 214. 140 Merges (1996).


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conditions, including payment of an “appropriate return”.141 The determination of the return is left to a public institution. In return for such a declaration the maintenance fee is reduced. Apart from losing the ability to pick his licensee and set the fee, the patent holder may also lose the ability to enter into exclusive licences. The effect of a declaration is thus to turn the exclusivity-based patents into liability rules. LoR schemes are found in some national patent systems (e.g. Germany and UK). At the EU level they are included in the pending Proposal for a Council Regulation on the Community patent.142 LoR may increase dynamic efficiency by generating revenue for “hidden” patents and lowering maintenance costs. LoR also benefit competition by lowering transaction costs and opening access to third parties to compete in areas covered by the patent. On the other hand, LoR may reduce competition by encouraging strategic behaviour such as evergreening of patents. The practical effects of LoR models have not matched their principal significance. According to the Gowers Review, the take-up of such licences in the UK is only about 0.5% of patent renewals.143 Despite this, LoR have attracted some attention in the debate144 and have been recommended inter alia by IBM as an important tool.145 3.3.

Other Fields of IP

3.3.1. Industrial design Industrial design rights have many features in common with both copyright and patent law. However, when it comes to modes of use permitted without the authorisation of the right owner, design rights show more resemblance to patent the latter than to copyright law. The Paris Convention neither prohibits nor expressly permits compulsory licensing of design rights,146 and TRIPS too remains silent in

141

E.g. Schovsbo (2009a). Interinstitutional File: 2000/0177 (CNS) of 21 November 2003, Art. 20. 143 Gowers Review on Intellectual Property (2006), available at: http:// www.mileproject.eu/asset_arena/document/TY/GOWERS_REVIEW_OF_ INTELLECTUAL_PROPERTY.PDF. See further Schovsbo (2009a). 144 E.g. the STOA Report (2007) at 54 and EPO (2007) at 96 (as part of the “Blue Skies Scenario”). 145 “The European Community Patent revisited” (undated) Discussion Paper from IBM. Copy on record with the authors. 146 Art. 5 B Paris Convention only clarifies that designs may not be declared invalid for non-use or importation of products corresponding to the protected design. It is generally acknowledged that this does not interfere with the possibility of countries granting compulsory licences; Bodenhausen (1968) at 61, 62. 142


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that regard. Countries may therefore impose compulsory licences under general terms – be it in the form of special rules anchored in design law or as a remedy under competition law – and they may also apply LoR schemes (as e.g. in the UK). However, it appears that compulsory licences are of less practical relevance than in patent law. This is due to the fact that unlike technological inventions, the obstacles for efficient competition ensuing from protection of the appearance of products (to the extent it is not dictated by its technical function147) are usually minimal. This is different, however, where others must offer exact replications of the design in order to compete on specific markets, as is typically the case with regard to exchange parts of complex products. In the EU,148 the issue has triggered a controversial and as yet unfinished debate about the appropriateness or necessity of steps being taken to curtail the exclusive design right to spare parts, in order to allow for meaningful competition on the aftermarket.149 In early rulings,150 the ECJ has proclaimed that refusal of licensing in such situations does not amount to abuse per se, but that such abuse may be found in certain circumstances, such as an arbitrary refusal to deliver spare parts to independent repairers, the fixing of prices at an unfair level or the decision no longer to produce spare parts for a particular car model even though many cars of that model remain in circulation. Proposals by the Commission to insert a specific clause into design legislations allowing for replication of spare parts to the extent this is necessary to restore the original appearance of a complex product have not succeeded so far.151 Earlier proposals trying to strike a compromise included a solution based on a remuneration scheme: reproduction of parts for repair purposes should be declared admissible, with right holders being entitled to fair remuneration. The proposal found insufficient support, however, mainly because of the practical difficulties involved in the implementation of such a scheme. Whereas practical examples of “non-exclusive” rules in design law 147 It is a common feature of design laws that features remain excluded which are entirely due to the function the product is intended to perform; see e.g. Art. 8 of the Community Design Regulation (6/2002). 148 In the USA as well, the issue has been the subject of prolonged debate. See Fitzpatrick (1990), and more recently, Bill H.R. 5638 (110th Congress). 149 For an account of that debate see Kur (2008). 150 Case C-238/87, AB Volvo/Eric Veng, [1988] ECR I- 6211 and Case C53/87, CICRA and Maxicar/Régie nationale des usines Renault, [1988] ECR, 6039. 151 Proposal for a Directive of the European Parliament and of the Council amending Directive 98/71/EC on the legal protection of designs {SEC(2004) 1097} COM/2004/0582 final – COD 2004/0203. For a positive evaluation of the proposal see Drexl, Hilty & Kur (2005).


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remain rare, the area has served as a template for Reichman’s proposal to apply the liability scheme to “legal hybrids”, which fit neither the copyright nor the patent paradigm, such as computer programs,152 databases, and incremental innovation usually protected by industrial design (“design patents” in US parlance), or utility models.153 3.3.2. Trademarks Trademarks are distinct in their structure and objectives from other IPR, and they are definitely the least receptive to liability rules.154 This is marked inter alia by the fact that in contrast to patents, copyright and industrial design, compulsory licences are expressly forbidden under Article 21 TRIPS. The reason for this lies in the fact that it would openly clash with the essential function of trademarks, and would lead to serious distortions on the market, if marks could be used to distinguish and identify goods of different commercial origin, without authorisation or control by the right holder. Of course, even in trademark law, it may be, and it is basically tolerated by the law, that very similar or even identical signs coexist on the market – typically under the requirement that the difference of commercial origin is disclosed to the public by some additional means. However, that situation cannot be compared in any manner to the types of non-authorised use which have been discussed above. To a certain extent, however, parallels can be found in trademark law with certain schemes of private ordering. In particular, most trademark laws provide for the possibility of registering collective marks, to be used by a plurality of enterprises. The same applies to certification marks, which

152 Regarding computer programs, see also the proposal made by Hilty & Geiger (2005). 153 Reichman (1994). 154 On the other hand, trademarks bear the least resemblance to “genuine” property rights in land or in tangibles, as they do not entitle their owner to full exclusive enjoyment of the sign, but basically confer exclusivity only to the extent necessary to avoid consumer confusion. This means that others can use the sign for their own purposes, e.g. in comparative advertising or other (critical) statements made in commercial communication, if and to the extent that no likelihood of confusion is caused. By the same token, and unlike in other areas of IP, there is no need to ensure, e.g. with the help of liability regimes, that such kinds of access remain possible. However, that basically unproblematic paradigm has become somewhat distorted by extending trademark rights to situations when likelihood of confusion does not exist, such as dilution or abuse of reputation. In those cases, the interest of others not to be excluded from use of the mark may become acute, and needs to be taken into account, however, without resort to liability rules.


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aim to signal and certify to the public the existence of certain properties of the goods or services in which they appear. Typically, the authorisation to use such marks will depend on the statutes established by the association or other entity which is registered as the right holder. It is a matter of national law to decide whether such an association will have to grant access to use to every enterprise fulfilling the objective criteria posed, or whether the association which is registered as the owner retains an option to use discretion on that point. A strictly objective approach will regularly be warranted where denial of authorisation to use a collective mark would lead to substantial and unjustified disadvantages. For instance, where a collective mark certifies a specific geographic origin, use must regularly be open to all entrepreneurs in the region concerned. In that regard, a direct link exists between collective marks indicating geographic origin and geographical indications protected under sui generis regimes, such as EU Regulation 510/2006, which by definition are non-exclusive in the sense that their use cannot be prohibited vis-à-vis persons fulfilling the criteria in the specification. 3.3.3. Sui generis rights Apart from their application in various areas of traditional IPR, liability rules are of specific interest for newly established forms of protection, when – unlike the established forms of protection enshrined in patent, copyright, trademark and industrial design law – a “regime choice” in the most fundamental sense of the word is still possible. It is also here that the first part of the analytical tool presented by Calabresi and Melamed – whether an entitlement should be created at all, and to whom it shall be allocated – becomes topical.155 In the area of intangible assets, few such examples have materialised in recent years. One of these concerned protection of integrated circuits, which have become the object of specific protection systematically ranging between patent and industrial design law. In practice, this form of protection has remained without much relevance. More practical importance is commanded by the sui generis protection of non-original databases, which was created by EU legislation in the mid-1990s.156 Although the area shows signs of being qualified as a suitable object of liability rules, the directive follows a strict property approach. Initial proposals to accommodate potential risks for access to information and unimpeded competition

155 The issue is presently of specific relevance for traditional knowledge (see also below). Another potential candidate for the creation of a new type of entitlement is the right to (sports) events. 156 On the basis of Art. 7 of the database directive, 9/96/EC.


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in case of “sole-source” databases by providing for involuntary licences have not been taken on board in the final text. However, according to the EU Commission’s own findings, the expectations connected with the introduction of database protection – that it would boost the development of databases in the EU – were largely disappointed; it turned out that the ratio of database production during the relevant period was even slightly inferior to that in the USA, where no such protection exists.157 Liability rules, possibly in combination with restricted power to exclude, have also been promoted as a feasible and adequate tool to protect incremental innovation based on traditional knowledge in developing countries.158 In addition, regulatory models based on the liability paradigm meet with increasing attention from the scientific community in highly developed areas of cutting-edge technology, where free access to basic elements of information may be jeopardised by excessive costs of publications,159 or by tendencies to “propertise” research results by storing them in internal databases, with access being restricted to members of one’s own research institution, or to selected partners.160 Indeed, it appears that more than ever before, research progress in the knowledge economy will depend on the deliberately tailored deployment of legal instruments encouraging and facilitating large-scale dissemination and sharing of knowledge rather than its seclusion in favour of a happy few – a goal which might better be attained by liability rules than on the basis of the property paradigm.

4. CONCLUSIONS From a practical point of view the present overview has confirmed that liability rules are already part of the known IPR fabric161 – most conspicuously in copyright, but also in patent law, where they function both as “sanctions” to control misuse and as incentivisers to increase access to patented technology. Despite this, liability rules remain a contentious issue. From

157

Evaluation by the Commission; see above, footnote 50. Lewis & Reichman (2005). 159 On that point, see Bajon, Drexl, Früh, Geiger, Hilty, Klass, Krujatz and Kur (2009). 160 For such tendencies in essential microbial research, and proposals to create “microbial commons” to avoid such effects, see Dedeurwaerdere (2005); for further elaboration of that concept, see Designing the Microbial Research Commons: An International Symposium, Duke University, Center for the Study of the Commons, 8–9 October 2009, at http://sites.nationalacademies.org/PGA/brdi/PGA_050859. 161 With the notable exception of trademark law, for the reasons stated above. 158


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a principal point of view, this is unfounded. Although liability rules may pose specific concerns with regard to administration and efficiency, their fundamental rejection as a regulatory model in certain areas of intellectual property – in particular patent law – would have no rational basis. The choice between the traditional system based on exclusivity and an alternative system based on liability rules should be founded on a comparison of the benefits and costs involved in both models. The IPR system (in spite of the name, which is a term of convenience rather than enunciating a truth cast in stone) does not, by itself, favour one approach as opposed to the other. As was shown above, the importance of liability rules might increase in view of the challenges posed by new forms of mass uses of protected content, and by growing sophistication of technology, which makes the traditional image of bilateral, informed bargaining between independent parties of equal standing largely illusory. Of course, there is also no reason to be overly sanguine with regard to the advantages achievable by liability rules. Rather than furnishing a “ready to use” toolkit, liability rules do no more than identify the basic tenets of the system, which must then be implemented with much care and caution so as to devise a practically feasible and legally sustainable body of regulations. It would be hazardous to underestimate the many pitfalls encountered in that process. However, it is to be hoped that growing experience with different forms of liability rules established in various areas will improve the informational basis of regime choice and implementation. It is all the more important for that reason that legislative experimentation with regime shifts is not overly encumbered by a rigid understanding of international norms, in the sense that property rules are officially canonised as the only regulatory model permitted. Even if it is true that under TRIPS, IPR must principally be granted in the form of exclusive rights, this should not preclude the introduction of liability rules, most adequately in the form of statutory limitations. For that purpose, it is of crucial importance that the relevance of liability rules in the form of remuneration paid on the basis of levy systems, statutory licences, or similar regulations is positively factored into the evaluation under the three-step test governing the admissibility of limitations in copyright, patent and industrial design law.162 This is why it was considered important in the IPT project to expressly include that principle in the proposal for amendment

162 See also Geiger, Griffiths, Hilty & Suthersanen (2008). Unfortunately, the Declaration in its present wording aims at copyright only. However, the basic thoughts to be found therein are applicable also in other areas of IP law, where the three-step test likewise applies.


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of TRIPS, as one important element informing the “balancing clause” set forth in the proposed (new) Article 8a.

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Kronman, A. (1978), “Specific Performance”, University of Chicago Law Review, 45, 351–82. Krugman, P., Wells, R. and Graddy, K. (2008), Economics, European Edition, New York: Worth. Kur, A. (2008), “Limiting Intellectual Property for Competition Policy Purposes – A Case Study Based on the EU Spare Parts Design Discussion”, in: Drexl, J. (ed.), Research Handbook on Intellectual Property and Competition Law, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, 313–35. Landes, W. and Posner, R. (2003), The Economic Structure of Intellectual Property Law, Cambridge, MA: Belknap Press of Harvard University Press. Lemley, M. (2005), “Property, Intellectual Property, and Free Riding”, Texas Law Review, 83, 1031–75, available at: http://www.utexas.edu/law/journals/tlr/assets/ archive/v83/issue4/lemley.pdf, and in a condensed version Discovery, Fall 2005, 34–9, available at: http://www.law.stanford.edu/publications/stanford_lawyer/ issues/73/sl73_Property.pdf. Lemley, M. and Weiser, P. (2007), “Should Property or Liability Rules Govern Information?”, Texas Law Review, 85, 783–841. Lewinski, S. von (2004), ‘Mandatory Collective Administration of Exclusive Rights – A Case Study on its Compatibility with International and EC Copyright Law”, UNESCO eCopyright Bulletin, January–March 2004, available at: http:// portal.unesco.org/culture/en/files/19552/11515904771svl_e.pdf/svl_e.pdf. Lewinski, S. von (2007), “Stakeholder Consultation on Copyright Levies in a Converging World”, International Review of Intellectual Property and Competition Law (IIC), 38, 65–93. Lewis, T. and Reichman, J. (2005), “Using Liability Rules for Stimulating Local Innovation in Developing Countries – Application to Traditional Knowledge”, in: Maskus, J. and Reichman, J. (eds.), International Public Goods and Transfer of Technology: Under a Globalized Intellectual Property Regime, Cambridge: Cambridge University Press, 337–67. Maskus, K. (2000), Intellectual Property Rights in the Global Economy, Washington: The Peterson Institute for International Economics, available at: http://bookstore.piie.com/book-store/99.html. Merges, R. (1994a), “Intellectual Property Rights and Bargaining Breakdown: The Case of Blocking Patents”, Tennessee Law Review, 62, 75–106. Merges, R. (1994b), “Of Property Rules, Coase, and Intellectual Property”, Columbia Law Review, 94, 2655–73. Merges, R. (1996), “Contracting into Liability Rules: Intellectual Property Rights and Collective Rights Organizations”, California Law Review, 84, 1293–386, available at: http://www.law.berkeley.edu/institutes/bclt/pubs/merges/contract. htm. Merges, R. (2007), “Locke Remixed”, available at: http://www.law.berkeley.edu/ institutes/bclt/pubs/merges/Locke%20Remixed%20;%20).pdf. Merges, R. (2008), “IP Rights and Technological Platforms”, UC Berkeley School of Law, revised version: December 2008, available at: http://ssrn.com/ abstract=1315522. Netanel, N. (2003), “Impose a Noncommercial Use Levy to Allow Free Peer-toPeer File-Sharing”, Harvard Journal of Law & Technology, 17, 2–84. NEXA (2009), Center for Internet and Society – Politecnico di Torino, Remunerating Creativity, Freeing Knowledge: File-Sharing and Extended


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Collective Licenses, available at: http://nexa.polito.it/nexafiles/NEXACenterExtendedCollectiveLicenses-EnglishVersion-June2009.pdf. Oddi, S. (1996), “Un-Unified Economic Theories of Patents – The Not-Quite-Holy Grail”, Notre Dame Law Review, 71, 175–277. Overwalle, G. van, Zimmeren, E. van, Verbeure, B. and Matthijs, G. (2006), “Models for facilitating access to patents on genetic inventions”, Nature Reviews Genetics, 7, 143–54. Peukert, A. (2005), “A Bipolar Copyright System for the Digital Network Environment”, Hastings Communications and Entertainment Law Journal (Comm/Ent), 28, 1–80. Picker, R. (2009), “The Google Book Search Settlement: A New Orphan-Works Monopoly?”, Journal of Competition Law and Economics, 5(3), 383–409. Polinsky, M. (1980), “Resolving Nuisance Disputes: The Simple Economics of Injunctive and Damage Remedies”, Stanford Law Review, 32, 1075–112. Pugatch, M.P. (2006), The Intellectual Property Debate, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Ramanujam, P. (2006), “Justification of Intellectual Property Rights: A Game Theory Perspective”, Icfai Journal of Intellectual Property Rights, 6, 8–17, available at: http://ssrn.com/abstract=980509. Reichman, J. (1994), “Legal Hybrids between the Patent and Copyright Paradigm”, Columbia Law Review, 94, 2432–558. Reinbothe, J. and Lewinski, J. von (2002), The WIPO Treaties 1996, London et al.: Butterworths. Ricketson, S. (1987), The Berne Convention for the Protection of Literary and Artistic Works: 1886–1986, Deventer: Kluwer. Ricketson, S. and Ginsburg, J. (2006), International Copyright and Neighbouring Rights, Vol. I, 2nd edition, Oxford and New York: Oxford University Press. Rossnagel, A., Jandt, S., Schnabel, C. and Yliniva-Hoffmann, A. (2009), “Die Zulässigkeit einer Kulturflatrate nach nationalem und europäischem Recht”, Insitute of European Media Law, 13 March 2009, available at: http://www. gruene-bundestag.de/cms/netzpolitik/dokbin/278/278059.kurzgutachten_zur_ kulturflatrate.pdf. Schovsbo, J. (2009), “Increasing Access to Patented Inventions”, Science and Public Policy, 36(8), 609–18. Schumpeter, J. (1997), Capitalism, Socialism and Democracy, 7th edition, London: Routledge. Scotchmer, S. (1996), “Protecting Early Innovators: Should Second-Generation Products be Patentable?”, The RAND Journal of Economics, 27, 322–31. Smith, A. (1759), The Theory of Moral Sentiments, London: A. Millar, available at: http://www.adamsmith.org/smith/tms/tms-index.htm. Sterk, S. (2008), “Property Rules, Liability Rules, and Uncertainty about Property Rights”, Michigan Law Review, 106, Cardozo Legal Studies Research Paper No. 205, 1285–336, available at SSRN: http://ssrn.com/abstract=1016168. STOA (Scientific Technology Options Assessment), Policy Options for the Improvement of the European Patent System, European Parliament, 2007, available at: http://www.europarl.europa.eu/stoa/publications/studies/stoa16_ en.pdf. WIPO (1908), Actes de la Conférence réunie à Berlin du 14 Octobre au 14 Novembre 1908 avec les Actes de Ratification, 1910, Berne: Bureau de l’Union Internationale Littéraire et Artistique.


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PART II

Proposed amendments to TRIPS


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Proposed amended text (synopsis) AGREEMENT ON TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS PART I

GENERAL PROVISIONS AND BASIC PRINCIPLES

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PART II

STANDARDS CONCERNING THE AVAILABILITY, SCOPE AND USE OF INTELLECTUAL PROPERTY RIGHTS

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1. 2. 3. 4. 5. 6. 7. 8.

Copyright and Related Rights Trademarks Geographical Indications Industrial Designs Patents Layout-Designs (Topographies) of Integrated Circuits Protection of Undisclosed Information Control of Anti-Competitive Practices in Contractual Licences

468 474 480 487 490 502 505 507

PART III ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS

509

1. General Obligations . . . Annex to the TRIPS Agreement Appendix to the Annex to the TRIPS Agreement

509 517 524 455


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Members, Desiring to reduce distortions and impediments to international trade, and taking into account the need to promote effective and adequate protection of intellectual property rights, and to ensure that measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade; Recognizing, to this end, the need for new rules and disciplines concerning: (a)

the applicability of the basic principles of GATT 1994 and of relevant international intellectual property agreements or conventions; (b) the provision of adequate standards and principles concerning the availability, scope and use of trade-related intellectual property rights; (c) the provision of effective and appropriate means for the enforcement of trade-related intellectual property rights, taking into account differences in national legal systems; (d) the provision of effective and expeditious procedures for the multilateral prevention and settlement of disputes between governments; and (e) transitional arrangements aiming at the fullest participation in the results of the negotiations;


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Proposed amended text (synopsis)

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Recognizing the need for a multilateral framework of principles, rules and disciplines dealing with international trade in counterfeit goods; Recognizing that intellectual property rights are private rights; Recognizing the underlying public policy objectives of national systems for the protection of intellectual property, including developmental and technological objectives; Recognizing also the special needs of the least-developed country Members in respect of maximum flexibility in the domestic implementation of laws and regulations in order to enable them to create a sound and viable technological base; Emphasizing the importance of reducing tensions by reaching strengthened commitments to resolve disputes on trade-related intellectual property issues through multilateral procedures; Desiring to establish a mutually supportive relationship between the WTO and the World Intellectual Property Organization (referred to in this Agreement as “WIPO”) as well as other relevant international organizations; Hereby agree as follows:


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PART I GENERAL PROVISIONS AND BASIC PRINCIPLES Article 1 Nature and Scope of Obligations 1. Members shall give effect to the provisions of this Agreement. Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement. Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice. 2. For the purposes of this Agreement, the term “intellectual property” refers to all categories of intellectual property that are the subject of Sections 1 through 7 of Part II. 3. Members shall accord the treatment provided for in this Agreement to the nationals of other Members.1 In respect of the relevant intellectual property right, the nationals of

1 When “nationals” are referred to in this Agreement, they shall be deemed, in the case of a separate customs territory Member of the WTO, to mean persons, natural or legal, who are domiciled or who have a real and effective industrial or commercial establishment in that customs territory.


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other Members shall be understood as those natural or legal persons that would meet the criteria for eligibility for protection provided for in the Paris Convention (1967), the Berne Convention (1971), the Rome Convention and the Treaty on Intellectual Property in Respect of Integrated Circuits, were all Members of the WTO members of those conventions.2 Any Member availing itself of the possibilities provided in paragraph 3 of Article 5 or paragraph 2 of Article 6 of the Rome Convention shall make a notification as foreseen in those provisions to the Council for TradeRelated Aspects of Intellectual Property Rights (the “Council for TRIPS”). 2 In this Agreement, “Paris Convention” refers to the Paris Convention for the Protection of Industrial Property; “Paris Convention (1967)” refers to the Stockholm Act of this Convention of 14 July 1967. “Berne Convention” refers to the Berne Convention for the Protection of Literary and Artistic Works; “Berne Convention (1971)” refers to the Paris Act of this Convention of 24 July 1971. “Rome Convention” refers to the International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, adopted at Rome on 26 October 1961. “Treaty on Intellectual Property in Respect of Integrated Circuits” (IPIC Treaty) refers to the Treaty on Intellectual Property in Respect of Integrated Circuits, adopted at Washington on 26 May 1989. “WTO Agreement” refers to the Agreement Establishing the WTO.


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Article 2

Article 2 [AMENDED]

Intellectual Property Conventions

Intellectual Property Conventions

1. In respect of Parts II, III and IV of this Agreement, Members shall comply with Articles 1 through 12, and Article 19, of the Paris Convention (1967).

1. [ . . . ] Members shall comply with Articles 1 through 12, and Article 19, of the Paris Convention (1967) and Articles 1 through 6, Articles 7 through 21 of the Berne Convention (1971) and the Appendix thereto. 2. Nothing in Parts I to IV of this Agreement shall derogate from existing obligations that Members may have to each other under the Paris Convention, the Berne Convention, the Rome Convention and the Treaty on Intellectual Property in Respect of Integrated Circuits.

2. Nothing in Parts I to IV of this Agreement shall derogate from existing obligations that Members may have to each other under the Paris Convention, the Berne Convention, the Rome Convention and the Treaty on Intellectual Property in Respect of Integrated Circuits. Article 3 National Treatment 1. Each Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals with regard to the protection3 of intellectual property, subject to the exceptions already provided in, respectively, the Paris Convention (1967), the Berne Convention (1971), the Rome Convention or 3 For the purposes of Articles 3 and 4, “protection” shall include matters affecting the availability, acquisition, scope, maintenance and enforcement of intellectual property rights as well as those matters affecting the use of intellectual property rights specifically addressed in this Agreement.


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the Treaty on Intellectual Property in Respect of Integrated Circuits. In respect of performers, producers of phonograms and broadcasting organizations, this obligation only applies in respect of the rights provided under this Agreement. Any Member availing itself of the possibilities provided in Article 6 of the Berne Convention (1971) or paragraph 1(b) of Article 16 of the Rome Convention shall make a notification as foreseen in those provisions to the Council for TRIPS. 2. Members may avail themselves of the exceptions permitted under paragraph 1 in relation to judicial and administrative procedures, including the designation of an address for service or the appointment of an agent within the jurisdiction of a Member, only where such exceptions are necessary to secure compliance with laws and regulations which are not inconsistent with the provisions of this Agreement and where such practices are not applied in a manner which would constitute a disguised restriction on trade. Article 4 Most-Favoured-Nation Treatment With regard to the protection of intellectual property, any advantage, favour, privilege or immunity granted by a Member to the nationals of any other country shall be accorded immediately and


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unconditionally to the nationals of all other Members. Exempted from this obligation are any advantage, favour, privilege or immunity accorded by a Member: (a)

deriving from international agreements on judicial assistance or law enforcement of a general nature and not particularly confined to the protection of intellectual property; (b) granted in accordance with the provisions of the Berne Convention (1971) or the Rome Convention authorizing that the treatment accorded be a function not of national treatment but of the treatment accorded in another country; (c) in respect of the rights of performers, producers of phonograms and broadcasting organizations not provided under this Agreement; (d) deriving from international agreements related to the protection of intellectual property which entered into force prior to the entry into force of the WTO Agreement, provided that such agreements are notified to the Council for TRIPS and do not constitute an arbitrary or unjustifiable discrimination against nationals of other Members.


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Article 5 Multilateral Agreements on Acquisition or Maintenance of Protection The obligations under Articles 3 and 4 do not apply to procedures provided in multilateral agreements concluded under the auspices of WIPO relating to the acquisition or maintenance of intellectual property rights. Article 6 Exhaustion For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights. Article 7

Article 7 [AMENDED]

Objectives

Objectives

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

The protection and enforcement of intellectual property rights should:


(a)

contribute, in a manner conducive to social and economic welfare: (i) to cultural development and the enhancement of creativity, taking due account of the larger public interest,

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particularly in education, research and access to information and knowledge for all; (ii) to the promotion of innovation and technological progress, to the transfer of technology and to the dissemination of technology, information and knowledge; (iii) to the promotion of competition and fairness in trade in the interests of creators, authors, inventors and other producers, traders and consumers; (b) ensure, to the advantage of society as a whole, a balance of rights and obligations so that, in particular, the scope of the protection conferred by an intellectual property right corresponds to the contribution made to creativity and innovation. Article 8

Article 8 [AMENDED]

Principles

Principles

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

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


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2. Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.

465

2. Members shall take appropriate measures, unless they are inconsistent with the provisions of this Agreement, [ . . . ] to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. 3. Members shall provide for the necessary infrastructure for adequate and efficient systems for acquisition and maintenance as well as for opposition, revocation and declaration of invalidity of intellectual property rights, taking into account their economic, financial and administrative constraints and their respective level of development, unless the procedures applied are inconsistent with the provisions of this Agreement. Article 8a [NEW] Balance of Interests 1. Members shall take due account of the objectives and principles set out in Articles 7 and 8 when formulating or amending their laws and regulations. In doing so, they shall ensure that the protection granted reflects a fair balance between private economic interests and the larger public interest as well as the interests of third parties. 2. Members shall ensure that users may, without the consent of the right holder, use protected subject matter, provided that such use


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does not unreasonably prejudice the legitimate interests of the right holder, taking into due consideration the normal exploitation of the right. (a) In particular, the following factors shall be taken into account for the admissibility of such use: (i) whether it contributes to the exchange of ideas and opinions; (ii) whether it contributes to the dissemination of information; (iii) whether it concerns the private sphere of the user; (iv) whether it results in the creation of value-added products and services; (v) whether it is justified by serious cultural or social considerations. (b) The following factors shall also be taken into account: (i) to which extent the right holders and/or original creators are granted equitable and appropriate compensation under efficient and practicable mechanisms; (ii) whether the use recognizes the dignity, the achievement and all the other personal interests of the original creator, be they moral or financial. (c) In balancing the different factors, account shall be taken


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of the extent and intensity of the use, and whether it is proportionate to its objectives. Article 8b [NEW] Interface Between Intellectual Property Rights and Competition Law 1. For the purposes of maintaining a fair balance between intellectual property rights and free competition: (a) Members shall provide for legislative or administrative measures, in particular, in the form of limitations of the rights or in the form of compulsory licences, if the use of the product protected by an intellectual property right is indispensable for competition in the relevant market, unless the application of such measures would have a significantly negative effect on the incentives to invest in research and development; (b) Members should further provide for remedies if the use of an intellectual property right results in the abuse of a dominant position on the relevant market or in behaviour violating anti-trust principles. 2. To the extent that compliance with paragraph 1 depends on the establishment of an efficient system for control of competition, Article 8.3 shall apply mutatis mutandis.


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PART II

PART II



SECTION 1: COPYRIGHT AND RELATED RIGHTS

SECTION 1: COPYRIGHT AND RELATED RIGHTS

Article 9

Article 9 [AMENDED]

Relation to the Berne Convention

Protected Subject Matter

1. Members shall comply with Articles 1 through 21 of the Berne Convention (1971) and the Appendix thereto. However, Members shall not have rights or obligations under this Agreement in respect of the rights conferred under Article 6bis of that Convention or of the rights derived therefrom. 2. Copyright protection shall extend to expressions and not to ideas, procedures, methods of operation or mathematical concepts as such.


1. [Deleted]

2. Copyright protection shall extend to expressions and not to ideas, procedures, methods of operation or mathematical concepts as such. 3. Copyright protection shall not extend to official texts of a legislative, administrative or legal nature, and to official translations of such texts.

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Article 10 Computer Programs and Compilations of Data 1. Computer programs, whether in source or object code, shall be protected as literary works under the Berne Convention (1971). 2. Compilations of data or other material, whether in machine readable or other form, which by reason of the selection or arrangement of their contents constitute intellectual creations shall be protected as such. Such protection, which shall not extend to the data or material itself, shall be without prejudice to any copyright subsisting in the data or material itself. Article 11 Rental Rights In respect of at least computer programs and cinematographic works, a Member shall provide authors and their successors in title the right to authorize or to prohibit the commercial rental to the public of originals or copies of their copyright works. A Member shall be excepted from this obligation in respect of cinematographic works unless such rental has led to widespread copying of such works which is materially impairing the exclusive right of reproduction conferred in that Member on authors and their successors in title. In respect of computer programs, this


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obligation does not apply to rentals where the program itself is not the essential object of the rental. Article 12 Term of Protection Whenever the term of protection of a work, other than a photographic work or a work of applied art, is calculated on a basis other than the life of a natural person, such term shall be no less than 50 years from the end of the calendar year of authorized publication, or, failing such authorized publication within 50 years from the making of the work, 50 years from the end of the calendar year of making. Article 13

Article 13 [AMENDED]

Limitations and Exceptions

Limitations

Members shall confine limitations or exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder.

1. In accordance with Articles 7 to 8b, the protection conferred by copyright shall not extend to: (a) reproduction for purely technical purposes, to the extent that this is necessary to enable communication and/or legitimate use; (b) reverse engineering, where this is indispensable for obtaining the information necessary to achieve interoperability; (c) use made for the purpose of: (i) quotation from a work which has already been lawfully made available to the public;


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(ii)

illustration for teaching and/or scientific research; (iii) news reporting; (iv) illustration in order to provide information in connection with sales of goods that are legitimately commercialized on the market concerned; (v) parody; to the extent that this is necessary for the relevant purpose, and notwithstanding the rights of the personal creator to have the work attributed to him or her and to oppose use that amounts to a massive and manifest mutilation of the work in its original form. In connection with such use, reference must be made to the source, unless that is impossible or manifestly inappropriate in view of the circumstances; (d) acts of reproduction made by publicly accessible libraries, educational establishments, museums or archives which are necessary for these institutions to perform their tasks, provided that the use is not for direct or indirect economic or commercial advantage. Members may make reproduction dependent on payment of fair remuneration to the right holders. 2. Furthermore, the protection conferred by copyright shall not


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extend to personal use made in privacy, except for certain special cases where denial of protection would manifestly conflict with the principles set out in Article 8a.2, first sentence. 3. Members may further restrict the protection conferred by copyright subject to the provisions of Articles 7 to 8b. Article 14


Protection of Performers, Producers of Phonograms

Protection of Performers, Producers of Phonograms

(Sound Recordings) and Broadcasting Organizations

(Sound Recordings) and Broadcasting Organizations

1. In respect of a fixation of their performance on a phonogram, performers shall have the possibility of preventing the following acts when undertaken without their authorization: the fixation of their unfixed performance and the reproduction of such fixation. Performers shall also have the possibility of preventing the following acts when undertaken without their authorization: the broadcasting by wireless means and the communication to the public of their live performance. 2. Producers of phonograms shall enjoy the right to authorize or prohibit the direct or indirect reproduction of their phonograms. 3. Broadcasting organizations shall have the right to prohibit the following acts when undertaken without their authorization: the fixation, the reproduction of fixations,

1. In respect of a fixation of their performance on a phonogram, performers shall have the possibility of preventing the following acts when undertaken without their authorization: the fixation of their unfixed performance and the reproduction of such fixation. Performers shall also have the possibility of preventing the following acts when undertaken without their authorization: the broadcasting by wireless means and the communication to the public of their live performance. 2. Producers of phonograms shall enjoy the right to authorize or prohibit the direct or indirect reproduction of their phonograms. 3. Broadcasting organizations shall have the right to prohibit the following acts when undertaken without their authorization: the fixation, the reproduction of fixations,


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and the rebroadcasting by wireless means of broadcasts, as well as the communication to the public of television broadcasts of the same. Where Members do not grant such rights to broadcasting organizations, they shall provide owners of copyright in the subject matter of broadcasts with the possibility of preventing the above acts, subject to the provisions of the Berne Convention (1971). 4. The provisions of Article 11 in respect of computer programs shall apply mutatis mutandis to producers of phonograms and any other right holders in phonograms as determined in a Member’s law. If on 15 April 1994 a Member has in force a system of equitable remuneration of right holders in respect of the rental of phonograms, it may maintain such system provided that the commercial rental of phonograms is not giving rise to the material impairment of the exclusive rights of reproduction of right holders. 5. The term of the protection available under this Agreement to performers and producers of phonograms shall last at least until the end of a period of 50 years computed from the end of the calendar year in which the fixation was made or the performance took place. The term of protection granted pursuant to paragraph 3 shall last for at least 20 years from the end of the calendar year in which the broadcast took place. 6. Any Member may, in relation


473

and the rebroadcasting by wireless means of broadcasts, as well as the communication to the public of television broadcasts of the same. Where Members do not grant such rights to broadcasting organizations, they shall provide owners of copyright in the subject matter of broadcasts with the possibility of preventing the above acts, subject to the provisions of the Berne Convention (1971). 4. The provisions of Article 11 in respect of computer programs shall apply mutatis mutandis to producers of phonograms and any other right holders in phonograms as determined in a Member’s law. If on 15 April 1994 a Member has in force a system of equitable remuneration of right holders in respect of the rental of phonograms, it may maintain such system provided that the commercial rental of phonograms is not giving rise to the material impairment of the exclusive rights of reproduction of right holders. 5. The term of the protection available under this Agreement to performers and producers of phonograms shall last at least until the end of a period of 50 years computed from the end of the calendar year in which the fixation was made or the performance took place. The term of protection granted pursuant to paragraph 3 shall last for at least 20 years from the end of the calendar year in which the broadcast took place. 6. Article 13 shall apply mutatis

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to the rights conferred under paragraphs 1, 2 and 3, provide for conditions, limitations, exceptions and reservations to the extent permitted by the Rome Convention. However, the provisions of Article 18 of the Berne Convention (1971) shall also apply, mutatis mutandis, to the rights of performers and producers of phonograms in phonograms.

mutandis in relation to the rights conferred under paragraphs 1, 2 and 3. Reservations to the extent permitted by the Rome Convention are consistent with this Agreement. However, the provisions of Article 18 of the Berne Convention (1971) shall also apply, mutatis mutandis, to the rights of performers and producers of phonograms in phonograms.

SECTION 2: TRADEMARKS

SECTION 2: TRADEMARKS

Article 15 Protectable Subject Matter 1. Any sign, or any combination of signs, capable of distinguishing the goods or services of one undertaking from those of other undertakings, shall be capable of constituting a trademark. Such signs, in particular words including personal names, letters, numerals, figurative elements and combinations of colours as well as any combination of such signs, shall be eligible for registration as trademarks. Where signs are not inherently capable of distinguishing the relevant goods or services, Members may make registrability depend on distinctiveness acquired through use. Members may require, as a condition of registration, that signs be visually perceptible. 2. Paragraph 1 shall not be understood to prevent a Member from


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denying registration of a trademark on other grounds, provided that they do not derogate from the provisions of the Paris Convention (1967). 3. Members may make registrability depend on use. However, actual use of a trademark shall not be a condition for filing an application for registration. An application shall not be refused solely on the ground that intended use has not taken place before the expiry of a period of three years from the date of application. 4. The nature of the goods or services to which a trademark is to be applied shall in no case form an obstacle to registration of the trademark. 5. Members shall publish each trademark either before it is registered or promptly after it is registered and shall afford a reasonable opportunity for petitions to cancel the registration. In addition, Members may afford an opportunity for the registration of a trademark to be opposed. Article 16 Rights Conferred 1. The owner of a registered trademark shall have the exclusive right to prevent all third parties not having the owner’s consent from using in the course of trade identical or similar signs for goods or services which are identical or similar to those in respect of which


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the trademark is registered where such use would result in a likelihood of confusion. In case of the use of an identical sign for identical goods or services, a likelihood of confusion shall be presumed. The rights described above shall not prejudice any existing prior rights, nor shall they affect the possibility of Members making rights available on the basis of use. 2. Article 6bis of the Paris Convention (1967) shall apply, mutatis mutandis, to services. In determining whether a trademark is well-known, Members shall take account of the knowledge of the trademark in the relevant sector of the public, including knowledge in the Member concerned which has been obtained as a result of the promotion of the trademark. 3. Article 6bis of the Paris Convention (1967) shall apply, mutatis mutandis, to goods or services which are not similar to those in respect of which a trademark is registered, provided that use of that trademark in relation to those goods or services would indicate a connection between those goods or services and the owner of the registered trademark and provided that the interests of the owner of the registered trademark are likely to be damaged by such use.


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Article 17


Exceptions

Limitations

Members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties.

1. In accordance with Articles 7 to 8b, the protection conferred by a trademark shall not extend to: (a) strictly non-commercial use; (b) use in the course of trade: (i) for descriptive purposes, like indications concerning the kind, quality, quantity, intended purpose, value, geographical origin, the time of production of goods or of rendering of the service, or other characteristics of goods or services; (ii) in order to provide information in connection with sales of goods or services that are legitimately commercialized on the market concerned; (iii) for other marketing purposes providing relevant information, in particular comparative advertising; (iv) in a satirical or parodist manner, or in other modes of use covered by rules applying to freedom of speech and/ or freedom of art in the Member concerned; (v) of a natural person’s own name, in order to designate the goods


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or services originating from the business carried out by, or in cooperation with, that person, or to identify that business; provided that such use is in accordance with honest practices in industrial or commercial matters. In particular, use shall be deemed inadmissible that is likely to mislead the average consumer about the existence of a commercial link between the holder of the trademark and a third party. 2. Members may further restrict the protection conferred by trademarks subject to the provisions of Articles 7 to 8b, provided that this does not impair the capability of trademarks to convey correct and reliable information as to the commercial origin of goods or services.

Article 18 Term of Protection Initial registration, and each renewal of registration, of a trademark shall be for a term of no less than seven years. The registration of a trademark shall be renewable indefinitely. Article 19 Requirement of Use 1. If use is required to maintain a registration, the registration


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may be cancelled only after an uninterrupted period of at least three years of non-use, unless valid reasons based on the existence of obstacles to such use are shown by the trademark owner. Circumstances arising independently of the will of the owner of the trademark which constitute an obstacle to the use of the trademark, such as import restrictions on or other government requirements for goods or services protected by the trademark, shall be recognized as valid reasons for non-use. 2. When subject to the control of its owner, use of a trademark by another person shall be recognized as use of the trademark for the purpose of maintaining the registration. Article 20 Other Requirements The use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as use with another trademark, use in a special form or use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings. This will not preclude a requirement prescribing the use of the trademark identifying the undertaking producing the goods or services along with, but without linking it to, the trademark distinguishing


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the specific goods or services in question of that undertaking. Article 21 Licensing and Assignment Members may determine conditions on the licensing and assignment of trademarks, it being understood that the compulsory licensing of trademarks shall not be permitted and that the owner of a registered trademark shall have the right to assign the trademark with or without the transfer of the business to which the trademark belongs.

SECTION 3: GEOGRAPHICAL INDICATIONS Article 22 Protection of Geographical Indications 1. Geographical indications are, for the purposes of this Agreement, indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin. 2. In respect of geographical indications, Members shall provide the


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legal means for interested parties to prevent: (a) the use of any means in the designation or presentation of a good that indicates or suggests that the good in question originates in a geographical area other than the true place of origin in a manner which misleads the public as to the geographical origin of the good; (b) any use which constitutes an act of unfair competition within the meaning of Article 10bis of the Paris Convention (1967). 3. A Member shall, ex officio if its legislation so permits or at the request of an interested party, refuse or invalidate the registration of a trademark which contains or consists of a geographical indication with respect to goods not originating in the territory indicated, if use of the indication in the trademark for such goods in that Member is of such a nature as to mislead the public as to the true place of origin. 4. The protection under paragraphs 1, 2 and 3 shall be applicable against a geographical indication which, although literally true as to the territory, region or locality in which the goods originate, falsely represents to the public that the goods originate in another territory.


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Article 23 Additional Protection for Geographical Indications for Wines and Spirits 1. Each Member shall provide the legal means for interested parties to prevent use of a geographical indication identifying wines for wines not originating in the place indicated by the geographical indication in question or identifying spirits for spirits not originating in the place indicated by the geographical indication in question, even where the true origin of the goods is indicated or the geographical indication is used in translation or accompanied by expressions such as “kind”, “type”, “style”, “imitation” or the like.4 2. The registration of a trademark for wines which contains or consists of a geographical indication identifying wines or for spirits which contains or consists of a geographical indication identifying spirits shall be refused or invalidated, ex officio if a Member’s legislation so permits or at the request of an interested party, with respect to such wines or spirits not having this origin. 3. In the case of homonymous geographical indications for wines, protection shall be accorded to each 4

Notwithstanding the first sentence of Article 42, Members may, with respect to these obligations, instead provide for enforcement by administrative action.


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indication, subject to the provisions of paragraph 4 of Article 22. Each Member shall determine the practical conditions under which the homonymous indications in question will be differentiated from each other, taking into account the need to ensure equitable treatment of the producers concerned and that consumers are not misled. 4. In order to facilitate the protection of geographical indications for wines, negotiations shall be undertaken in the Council for TRIPS concerning the establishment of a multilateral system of notification and registration of geographical indications for wines eligible for protection in those Members participating in the system. Article 24 International Negotiations; Exceptions 1. Members agree to enter into negotiations aimed at increasing the protection of individual geographical indications under Article 23. The provisions of paragraphs 4 through 8 below shall not be used by a Member to refuse to conduct negotiations or to conclude bilateral or multilateral agreements. In the context of such negotiations, Members shall be willing to consider the continued applicability of these provisions to individual geographical indications whose use was the subject of such negotiations.


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2. The Council for TRIPS shall keep under review the application of the provisions of this Section; the first such review shall take place within two years of the entry into force of the WTO Agreement. Any matter affecting the compliance with the obligations under these provisions may be drawn to the attention of the Council, which, at the request of a Member, shall consult with any Member or Members in respect of such matter in respect of which it has not been possible to find a satisfactory solution through bilateral or plurilateral consultations between the Members concerned. The Council shall take such action as may be agreed to facilitate the operation and further the objectives of this Section. 3. In implementing this Section, a Member shall not diminish the protection of geographical indications that existed in that Member immediately prior to the date of entry into force of the WTO Agreement. 4. Nothing in this Section shall require a Member to prevent continued and similar use of a particular geographical indication of another Member identifying wines or spirits in connection with goods or services by any of its nationals or domiciliaries who have used that geographical indication in a continuous manner with regard to the same or related goods or services in the territory of that Member either (a) for at least 10 years preceding


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15 April 1994 or (b) in good faith preceding that date. 5. Where a trademark has been applied for or registered in good faith, or where rights to a trademark have been acquired through use in good faith either: (a) before the date of application of these provisions in that Member as defined in Part VI; or (b) before the geographical indication is protected in its country of origin; measures adopted to implement this Section shall not prejudice eligibility for or the validity of the registration of a trademark, or the right to use a trademark, on the basis that such a trademark is identical with, or similar to, a geographical indication. 6. Nothing in this Section shall require a Member to apply its provisions in respect of a geographical indication of any other Member with respect to goods or services for which the relevant indication is identical with the term customary in common language as the common name for such goods or services in the territory of that Member. Nothing in this Section shall require a Member to apply its provisions in respect of a geographical indication of any other Member with respect to products of the vine for which the relevant indication is identical with the customary name of a grape variety existing in the territory of that Member as


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of the date of entry into force of the WTO Agreement. 7. A Member may provide that any request made under this Section in connection with the use or registration of a trademark must be presented within five years after the adverse use of the protected indication has become generally known in that Member or after the date of registration of the trademark in that Member provided that the trademark has been published by that date, if such date is earlier than the date on which the adverse use became generally known in that Member, provided that the geographical indication is not used or registered in bad faith. 8. The provisions of this Section shall in no way prejudice the right of any person to use, in the course of trade, that person’s name or the name of that person’s predecessor in business, except where such name is used in such a manner as to mislead the public. 9. There shall be no obligation under this Agreement to protect geographical indications which are not or cease to be protected in their country of origin, or which have fallen into disuse in that country.


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SECTION 4: INDUSTRIAL DESIGNS

487

SECTION 4: INDUSTRIAL DESIGNS

Article 25 Requirements for Protection 1. Members shall provide for the protection of independently created industrial designs that are new or original. Members may provide that designs are not new or original if they do not significantly differ from known designs or combinations of known design features. Members may provide that such protection shall not extend to designs dictated essentially by technical or functional considerations. 2. Each Member shall ensure that requirements for securing protection for textile designs, in particular in regard to any cost, examination or publication, do not unreasonably impair the opportunity to seek and obtain such protection. Members shall be free to meet this obligation through industrial design law or through copyright law. Article 26


Protection

Protection

1. The owner of a protected industrial design shall have the right to prevent third parties not having the owner’s consent from making, selling or importing articles bearing or embodying a design which is a copy, or substantially a copy, of the protected design, when such

1. The owner of a protected industrial design shall have the right to prevent third parties not having the owner’s consent from making, selling or importing articles bearing or embodying a design which is a copy, or substantially a copy, of the protected design, when such


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acts are undertaken for commercial purposes. 2. Members may provide limited exceptions to the protection of industrial designs, provided that such exceptions do not unreasonably conflict with the normal exploitation of protected industrial designs and do not unreasonably prejudice the legitimate interests of the owner of the protected design, taking account of the legitimate interests of third parties.

acts are undertaken for commercial purposes. 2. In accordance with Articles 7 to 8b, the protection conferred by industrial design rights shall not extend to: (a) private acts for noncommercial purposes; (b) acts of reproduction: (i) for the purposes of making citations or parodies, of teaching or of scientific research; (ii) in order to provide information in connection with sales of goods or services that are legitimately commercialized on the market concerned; provided that such acts are compatible with honest practices in industrial or commercial matters and that reference is made to the source; (c) acts referred to in Article 5ter of the Paris Convention (1967), which shall apply mutatis mutandis to industrial design rights, as well as acts referred to in Article 27 (b) of the Convention on International Civil Aviation of 7 December, 1944.* Those acts shall be permitted with regard to vehicles qualifying under Article 5ter (1) and (2) of the Paris Convention. 2a. Members may further restrict the protection conferred by * Article 27 Exemption from seizure on patent claims


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industrial design rights subject to the provisions of Articles 7 to 8b.

(a) While engaged in international air navigation, any authorized entry of aircraft of a contracting State into the territory of another contracting State or authorized transit across the territory of such State with or without landings shall not entail any seizure or detention of the aircraft or any claim against the owner or operator thereof or any other interference therewith by or on behalf of such State or any person therein, on the ground that the construction, mechanism, parts, accessories or operation of the aircraft is an infringement of any patent, design, or model duly granted or registered in the State whose territory is entered by the aircraft, it being agreed that no deposit of security in connection with the foregoing exemption from seizure or detention of the aircraft shall in any case be required in the State entered by such aircraft. (b) The provisions of paragraph (a) of this Article shall also be applicable to the storage of spare parts and spare equipment for the aircraft and the right to use and install the same in the repair of an aircraft of a contracting State in the territory of any other contracting State, provided that any patented part or equipment so stored shall not be sold or distributed internally in or exported commercially from the contracting State entered by the aircraft. (c) The benefits of this Article shall apply only to such States, parties to this Convention, as either (1) are parties to the International Convention for the Protection of Industrial Property and to any amendments thereof; or (2) have enacted patent laws which recognize and give adequate protection to inventions made by the nationals of the other States parties to this Convention.


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3. The duration of protection available shall amount to at least 10 years.

3. The duration of protection available shall amount to at least 10 years.

SECTION 5: PATENTS

SECTION 5: PATENTS

Article 27


Patentable Subject Matter

Patentable Subject Matter

1. Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.5 Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced. 2. Members may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect

1. Subject to the provisions of paragraphs 2 and 3, patents shall be available, and patent rights shall be enjoyable without discrimination as to the place of invention, for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.

2. Members may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect

5 For the purposes of this Article, the terms “inventive step” and “capable of industrial application” may be deemed by a Member to be synonymous with the terms “non-obvious” and “useful” respectively.


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human, animal or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by their law. 3. Members may also exclude from patentability: (a) diagnostic, therapeutic and surgical methods for the treatment of humans or animals; (b) plants and animals other than micro-organisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes. However, Members shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof. The provisions of this subparagraph shall be reviewed four years after the date of entry into force of the WTO Agreement.

491

human, animal or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by their law. 3. Members may also exclude from patentability: (a) diagnostic, therapeutic and surgical methods for the treatment of humans or animals; (b) plants and animals other than micro-organisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes. However, Members shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof. The provisions of this subparagraph shall be reviewed four years after the date of entry into force of the WTO Agreement.

Article 28 Rights Conferred 1. A patent shall confer on its owner the following exclusive rights: (a) where the subject matter of a patent is a product, to prevent third parties not having the owner’s consent from the acts of: making, using, offering for


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sale, selling, or importing6 for these purposes that product; (b) where the subject matter of a patent is a process, to prevent third parties not having the owner’s consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process. 2. Patent owners shall also have the right to assign, or transfer by succession, the patent and to conclude licensing contracts. Article 29 Conditions on Patent Applicants 1. Members shall require that an applicant for a patent shall disclose the invention in a manner sufficiently clear and complete for the invention to be carried out by a person skilled in the art and may require the applicant to indicate the best mode for carrying out the invention known to the inventor at the filing date or, where priority is claimed, at the priority date of the application. 2. Members may require an applicant for a patent to provide information concerning the applicant’s corresponding foreign applications and grants. 6

This right, like all other rights conferred under this Agreement in respect of the use, sale, importation or other distribution of goods, is subject to the provisions of Article 6.


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Article 30


Exceptions to Rights Conferred

Limitations

Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.

1. In accordance with Articles 7 to 8b, the protection conferred by a patent shall not extend to: (a) private acts for noncommercial purposes; (b) use to the extent necessary to study or test the functioning of the invention (reverse engineering) or experimentation on the invention to test or improve on it; (c) experiments during the patent term made for purposes of seeking regulatory approval for the marketing of a product after the expiration of the patent; (d) use of the invention for educational purposes; (e) the extemporaneous preparation for individual cases in a pharmacy of a medicine in accordance with a medical (or dental) prescription or acts concerning the medicine so prepared; (f) continued use of the invention by a third party that had used it bona fide, or had made serious preparations for that purpose, before the priority or filing date of the patent application; (g) within reasonable limits and subject to the safeguarding of the legitimate interests of the patent owner, use by farmers for propagating purposes,


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on their own holdings, of the product of the harvest which they have obtained by planting, on their own holdings, the protected variety; (h) use of the invention to the extent necessary to repair an article, unless this amounts to reproduction of the patented invention; (i) acts permitted under Article 27 (b) of the Convention of Civil Aviation of 7 December 1944,* with regard to vehicles qualifying under Article 5ter(1) and (2) of the Paris Convention. 2. In accordance with Articles 7 to 8b, the protection conferred by a patent shall not extend to use of the invention with respect to functions not disclosed in the patent. 3. Members may further restrict the protection conferred by patents subject to the provisions of Articles 7 to 8b. Article 31 Other Use Without Authorization of the Right Holder Where the law of a Member allows for other use7 of the subject matter of a patent without the authorization of the right holder, including use by the government or third parties authorized by the gov-

7

“Other use” refers to use other than that allowed under Article 30.


* For the text of Article 27 of that Convention see above, footnote to Article 26.2.

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ernment, the following provisions shall be respected: (a) authorization of such use shall be considered on its individual merits; (b) such use may only be permitted if, prior to such use, the proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time. This requirement may be waived by a Member in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. In situations of national emergency or other circumstances of extreme urgency, the right holder shall, nevertheless, be notified as soon as reasonably practicable. In the case of public non-commercial use, where the government or contractor, without making a patent search, knows or has demonstrable grounds to know that a valid patent is or will be used by or for the government, the right holder shall be informed promptly; (c) the scope and duration of such use shall be limited to the purpose for which it was authorized, and in the case of semi-conductor technology shall only be for public noncommercial use or to remedy a


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practice determined after judicial or administrative process to be anti-competitive; (d) such use shall be non-exclusive; (e) such use shall be nonassignable, except with that part of the enterprise or goodwill which enjoys such use; (f) any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use; (g) authorization for such use shall be liable, subject to adequate protection of the legitimate interests of the persons so authorized, to be terminated if and when the circumstances which led to it cease to exist and are unlikely to recur. The competent authority shall have the authority to review, upon motivated request, the continued existence of these circumstances; (h) the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization; (i) the legal validity of any decision relating to the authorization of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member; (j) any decision relating to the remuneration provided in respect of such use shall be


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subject to judicial review or other independent review by a distinct higher authority in that Member; (k) Members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) where such use is permitted to remedy a practice determined after judicial or administrative process to be anti-competitive. The need to correct anticompetitive practices may be taken into account in determining the amount of remuneration in such cases. Competent authorities shall have the authority to refuse termination of authorization if and when the conditions which led to such authorization are likely to recur; (l) where such use is authorized to permit the exploitation of a patent (“the second patent”) which cannot be exploited without infringing another patent (“the first patent”), the following additional conditions shall apply: (i) the invention claimed in the second patent shall involve an important technical advance of considerable economic significance in relation to the invention claimed in the first patent; (ii) the owner of the first patent shall be entitled to a cross-licence on reasonable terms to use the


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invention claimed in the second patent; and (iii) the use authorized in respect of the first patent shall be non-assignable except with the assignment of the second patent. Article 31bis* 1. The obligations of an exporting Member under Article 31(f) shall not apply with respect to the grant by it of a compulsory licence to the extent necessary for the purposes of production of a pharmaceutical product(s) and its export to an eligible importing Member(s) in accordance with the terms set out in paragraph 2 of the Annex** to this Agreement. 2. Where a compulsory licence is granted by an exporting Member under the system set out in this Article and the Annex to this Agreement, adequate remuneration pursuant to Article 31(h) shall be paid in that Member taking into account the economic value to the importing Member of the use that has been authorized in the exporting Member. Where a

* Article 31bis has been inserted by the “Protocol Amending the TRIPS Agreement” concluded on 6 December 2005, which is not yet in force. For information on the status of the Protocol, see WTO’s website at http://www.wto.int. ** The Annex appears after Article 73.


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compulsory licence is granted for the same products in the eligible importing Member, the obligation of that Member under Article 31(h) shall not apply in respect of those products for which remuneration in accordance with the first sentence of this paragraph is paid in the exporting Member. 3. With a view to harnessing economies of scale for the purposes of enhancing purchasing power for, and facilitating the local production of, pharmaceutical products: where a developing or least developed country WTO Member is a party to a regional trade agreement within the meaning of Article XXIV of the GATT 1994 and the Decision of 28 November 1979 on Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries (L/4903), at least half of the current membership of which is made up of countries presently on the United Nations list of least developed countries, the obligation of that Member under Article 31(f) shall not apply to the extent necessary to enable a pharmaceutical product produced or imported under a compulsory licence in that Member to be exported to the markets of those other developing or least developed country parties to the regional trade agreement that share the health problem in question. It is understood that this will not prejudice the territorial nature of the patent rights in question.


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4. Members shall not challenge any measures taken in conformity with the provisions of this Article and the Annex to this Agreement under subparagraphs 1(b) and 1(c) of Article XXIII of GATT 1994. 5. This Article and the Annex to this Agreement are without prejudice to the rights, obligations and flexibilities that Members have under the provisions of this Agreement other than paragraphs (f) and (h) of Article 31, including those reaffirmed by the Declaration on the TRIPS Agreement and Public Health (WT/MIN(01)/ DEC/2), and to their interpretation. They are also without prejudice to the extent to which pharmaceutical products produced under a compulsory licence can be exported under the provisions of Article 31(f). Article 32 Revocation/Forfeiture An opportunity for judicial review of any decision to revoke or forfeit a patent shall be available.


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Article 33 Term of Protection The term of protection available shall not end before the expiration of a period of twenty years counted from the filing date.8 Article 34 Process Patents: Burden of Proof 1. For the purposes of civil proceedings in respect of the infringement of the rights of the owner referred to in paragraph 1(b) of Article 28, if the subject matter of a patent is a process for obtaining a product, the judicial authorities shall have the authority to order the defendant to prove that the process to obtain an identical product is different from the patented process. Therefore, Members shall provide, in at least one of the following circumstances, that any identical product when produced without the consent of the patent owner shall, in the absence of proof to the contrary, be deemed to have been obtained by the patented process: (a) if the product obtained by the patented process is new;

8 It is understood that those Members which do not have a system of original grant may provide that the term of protection shall be computed from the filing date in the system of original grant.


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(b) if there is a substantial likelihood that the identical product was made by the process and the owner of the patent has been unable through reasonable efforts to determine the process actually used; 2. Any Member shall be free to provide that the burden of proof indicated in paragraph 1 shall be on the alleged infringer only if the condition referred to in subparagraph (a) is fulfilled or only if the condition referred to in subparagraph (b) is fulfilled. 3. In the adduction of proof to the contrary, the legitimate interests of defendants in protecting their manufacturing and business secrets shall be taken into account.

SECTION 6: LAYOUT-DESIGNS (TOPOGRAPHIES) OF INTEGRATED CIRCUITS Article 35 Relation to the IPIC Treaty Members agree to provide protection to the layout-designs (topographies) of integrated circuits (referred to in this Agreement as “layout-designs”) in accordance with Articles 2 through 7 (other than paragraph 3 of Article 6), Article 12 and paragraph 3 of Article 16 of the Treaty on Intellectual Property in Respect of Integrated Circuits and,


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in addition, to comply with the following provisions. Article 36 Scope of the Protection Subject to the provisions of paragraph 1 of Article 37, Members shall consider unlawful the following acts if performed without the authorization of the right holder:9 importing, selling, or otherwise distributing for commercial purposes a protected layout-design, an integrated circuit in which a protected layout-design is incorporated, or an article incorporating such an integrated circuit only in so far as it continues to contain an unlawfully reproduced layout-design. Article 37 Acts Not Requiring the Authorization of the Right Holder 1. Notwithstanding Article 36, no Member shall consider unlawful the performance of any of the acts referred to in that Article in respect of an integrated circuit incorporating an unlawfully reproduced layout-design or any article incorporating such an integrated circuit where the person performing or ordering such acts did not know 9 The term “right holder” in this Section shall be understood as having the same meaning as the term “holder of the right” in the IPIC Treaty.


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and had no reasonable ground to know, when acquiring the integrated circuit or article incorporating such an integrated circuit, that it incorporated an unlawfully reproduced layout-design. Members shall provide that, after the time that such person has received sufficient notice that the layout-design was unlawfully reproduced, that person may perform any of the acts with respect to the stock on hand or ordered before such time, but shall be liable to pay to the right holder a sum equivalent to a reasonable royalty such as would be payable under a freely negotiated licence in respect of such a layout-design. 2. The conditions set out in subparagraphs (a) through (k) of Article 31 shall apply mutatis mutandis in the event of any nonvoluntary licensing of a layoutdesign or of its use by or for the government without the authorization of the right holder. Article 38 Term of Protection 1. In Members requiring registration as a condition of protection, the term of protection of layoutdesigns shall not end before the expiration of a period of 10 years counted from the date of filing an application for registration or from the first commercial exploitation wherever in the world it occurs. 2. In Members not requiring registration as a condition for


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protection, layout-designs shall be protected for a term of no less than 10 years from the date of the first commercial exploitation wherever in the world it occurs. 3. Notwithstanding paragraphs 1 and 2, a Member may provide that protection shall lapse 15 years after the creation of the layout-design.

SECTION 7: PROTECTION OF UNDISCLOSED INFORMATION Article 39 1. In the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention (1967), Members shall protect undisclosed information in accordance with paragraph 2 and data submitted to governments or governmental agencies in accordance with paragraph 3. 2. Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices10 so long as such information:

10 For the purpose of this provision, “a manner contrary to honest commercial practices” shall mean at


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(a)

is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) has commercial value because it is secret; and (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret. 3. Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.

least practices such as breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition.


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SECTION 8: CONTROL OF ANTI-COMPETITIVE PRACTICES IN CONTRACTUAL LICENCES

SECTION 8: CONTROL OF ANTI-COMPETITIVE PRACTICES IN CONTRACTUAL LICENCES

Article 40


1. Members agree that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology. 2. Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member. 3. Each Member shall enter, upon request, into consultations with any other Member which has cause to believe that an intellectual property right owner that is a national or domiciliary of the Member to which the request for consultations has been addressed is undertaking

1. Members agree that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology. 2. Members shall adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of the Member concerned. Members may specify in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market.


3. Each Member shall enter, upon request, into consultations with any other Member which has cause to believe that an intellectual property right owner that is a national or domiciliary of the Member to which the request for consultations has been addressed is undertaking

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practices in violation of the requesting Member’s laws and regulations on the subject matter of this Section, and which wishes to secure compliance with such legislation, without prejudice to any action under the law and to the full freedom of an ultimate decision of either Member. The Member addressed shall accord full and sympathetic consideration to, and shall afford adequate opportunity for, consultations with the requesting Member, and shall cooperate through supply of publicly available non-confidential information of relevance to the matter in question and of other information available to the Member, subject to domestic law and to the conclusion of mutually satisfactory agreements concerning the safeguarding of its confidentiality by the requesting Member. 4. A Member whose nationals or domiciliaries are subject to proceedings in another Member concerning alleged violation of that other Member’s laws and regulations on the subject matter of this Section shall, upon request, be granted an opportunity for consultations by the other Member under the same conditions as those foreseen in paragraph 3.


practices in violation of the requesting Member’s laws and regulations on the subject matter of this Section, and which wishes to secure compliance with such legislation, without prejudice to any action under the law and to the full freedom of an ultimate decision of either Member. The Member addressed shall accord full and sympathetic consideration to, and shall afford adequate opportunity for, consultations with the requesting Member, and shall cooperate through supply of publicly available non-confidential information of relevance to the matter in question and of other information available to the Member, subject to domestic law and to the conclusion of mutually satisfactory agreements concerning the safeguarding of its confidentiality by the requesting Member. 4. A Member whose nationals or domiciliaries are subject to proceedings in another Member concerning alleged violation of that other Member’s laws and regulations on the subject matter of this Section shall, upon request, be granted an opportunity for consultations by the other Member under the same conditions as those foreseen in paragraph 3.

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PART III

PART III

ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS

ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS

SECTION 1: GENERAL OBLIGATIONS

SECTION 1: GENERAL OBLIGATIONS

Article 41

Article 41 Enforcement Procedures [HEADLINE ADDED]

1. Members shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements. These procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse. 2. Procedures concerning the enforcement of intellectual property rights shall be fair and equitable. They shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays. 3. Decisions on the merits of a case shall preferably be in writing and reasoned. They shall be made available at least to the parties to the proceeding without undue delay. Decisions on the merits of a


1. Members shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements. These procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse. 2. Procedures concerning the enforcement of intellectual property rights shall be fair and equitable. They shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays. 3. Decisions on the merits of a case shall preferably be in writing and reasoned. They shall be made available at least to the parties to the proceeding without undue delay. Decisions on the merits of a

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case shall be based only on evidence in respect of which parties were offered the opportunity to be heard. 4. Parties to a proceeding shall have an opportunity for review by a judicial authority of final administrative decisions and, subject to jurisdictional provisions in a Member’s law concerning the importance of a case, of at least the legal aspects of initial judicial decisions on the merits of a case. However, there shall be no obligation to provide an opportunity for review of acquittals in criminal cases. 5. It is understood that this Part does not create any obligation to put in place a judicial system for the enforcement of intellectual property rights distinct from that for the enforcement of law in general, nor does it affect the capacity of Members to enforce their law in general. Nothing in this Part creates any obligation with respect to the distribution of resources as between enforcement of intellectual property rights and the enforcement of law in general.

case shall be based only on evidence in respect of which parties were offered the opportunity to be heard. 4. Parties to a proceeding shall have an opportunity for review by a judicial authority of final administrative decisions and, subject to jurisdictional provisions in a Member’s law concerning the importance of a case, of at least the legal aspects of initial judicial decisions on the merits of a case. However, there shall be no obligation to provide an opportunity for review of acquittals in criminal cases. 5. It is understood that this Part does not create any obligation to put in place a judicial system for the enforcement of intellectual property rights distinct from that for the enforcement of law in general, nor does it affect the capacity of Members to enforce their law in general. Nothing in this Part creates any obligation with respect to the distribution of resources as between enforcement of intellectual property rights and the enforcement of law in general. Article 41a [NEW] Remedies Against Mala Fide Use of Intellectual Property Rights Members shall provide for proportionate, efficient and deterrent remedies against mala fide use of intellectual property rights, in particular the making of unjustified threats.


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Article 41b [NEW] Jurisdiction and Choice of Law in Transborder Conflicts in Intellectual Property Matters 1. Members shall ensure that, subject to compliance with principles of due process and of fair balance between the interests of the parties, the rules applied with regard to jurisdiction in transborder conflicts in intellectual property matters do not unduly hamper an efficient pursuit of justice. 2. Members shall ensure that the rules applied with regard to choice of law in transborder conflicts in intellectual property matters pay due respect to the territoriality principle, thereby acknowledging the sovereign power of other Members to regulate, within the boundaries of obligations resulting from international agreements, the law governing acquisition, scope and content of intellectual property rights with regard to their respective territories. As a matter of principle, this results in the application of the law of the country for which protection is sought (lex protectionis). 3. Derogation from lex protectionis shall only be permitted: (a) on the basis of an agreement between the parties, to the extent acceptable in view of the specific nature of intellectual property rights; (b) to the extent that, due to the ubiquitous nature of an infringement, the application


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of lex protectionis would seriously impede a fair and efficient enforcement of intellectual property rights. Article 70


Protection of Existing Subject Matter

Protection of Existing Subject Matter

1. This Agreement does not give rise to obligations in respect of acts which occurred before the date of application of the Agreement for the Member in question. 2. Except as otherwise provided for in this Agreement, this Agreement gives rise to obligations in respect of all subject matter existing at the date of application of this Agreement for the Member in question, and which is protected in that Member on the said date, or which meets or comes subsequently to meet the criteria for protection under the terms of this Agreement. In respect of this paragraph and paragraphs 3 and 4, copyright obligations with respect to existing works shall be solely determined under Article 18 of the Berne Convention (1971), and obligations with respect to the rights of producers of phonograms and performers in existing phonograms shall be determined solely under Article 18 of the Berne Convention (1971) as made applicable under paragraph 6 of Article 14 of this Agreement. 3. There shall be no obligation to restore protection to subject matter

1. This Agreement does not give rise to obligations in respect of acts which occurred before the date of application of the Agreement for the Member in question. 2. Except as otherwise provided for in this Agreement, this Agreement gives rise to obligations in respect of all subject matter existing at the date of application of this Agreement for the Member in question, and which is protected in that Member on the said date, or which meets or comes subsequently to meet the criteria for protection under the terms of this Agreement. In respect of this paragraph and paragraphs 3 and 4, copyright obligations with respect to existing works shall be solely determined under Article 18 of the Berne Convention (1971), and obligations with respect to the rights of producers of phonograms and performers in existing phonograms shall be determined solely under Article 18 of the Berne Convention (1971) as made applicable under paragraph 6 of Article 14 of this Agreement. 3. There shall be no obligation to restore protection to subject matter


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which on the date of application of this Agreement for the Member in question has fallen into the public domain. 4. In respect of any acts in respect of specific objects embodying protected subject matter which become infringing under the terms of legislation in conformity with this Agreement, and which were commenced, or in respect of which a significant investment was made, before the date of acceptance of the WTO Agreement by that Member, any Member may provide for a limitation of the remedies available to the right holder as to the continued performance of such acts after the date of application of this Agreement for that Member. In such cases the Member shall, however, at least provide for the payment of equitable remuneration. 5. A Member is not obliged to apply the provisions of Article 11 and of paragraph 4 of Article 14 with respect to originals or copies purchased prior to the date of application of this Agreement for that Member. 6. Members shall not be required to apply Article 31, or the requirement in paragraph 1 of Article 27 that patent rights shall be enjoyable without discrimination as to the field of technology, to use without the authorization of the right holder where authorization for such use was granted by the government before the date this Agreement became known.


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which on the date of application of this Agreement for the Member in question has fallen into the public domain. 4. In respect of any acts in respect of specific objects embodying protected subject matter which become infringing under the terms of legislation in conformity with this Agreement, and which were commenced, or in respect of which a significant investment was made, before the date of acceptance of the WTO Agreement by that Member, any Member may provide for a limitation of the remedies available to the right holder as to the continued performance of such acts after the date of application of this Agreement for that Member. In such cases the Member shall, however, at least provide for the payment of equitable remuneration. 5. A Member is not obliged to apply the provisions of Article 11 and of paragraph 4 of Article 14 with respect to originals or copies purchased prior to the date of application of this Agreement for that Member. 6. Members shall not be required to apply Article 31 to use without the authorization of the right holder where authorization for such use was granted by the government before the date this Agreement became known.

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7. In the case of intellectual property rights for which protection is conditional upon registration, applications for protection which are pending on the date of application of this Agreement for the Member in question shall be permitted to be amended to claim any enhanced protection provided under the provisions of this Agreement. Such amendments shall not include new matter. 8. Where a Member does not make available as of the date of entry into force of the WTO Agreement patent protection for pharmaceutical and agricultural chemical products commensurate with its obligations under Article 27, that Member shall: (a) notwithstanding the provisions of Part VI, provide as from the date of entry into force of the WTO Agreement a means by which applications for patents for such inventions can be filed; (b) apply to these applications, as of the date of application of this Agreement, the criteria for patentability as laid down in this Agreement as if those criteria were being applied on the date of filing in that Member or, where priority is available and claimed, the priority date of the application; and (c) provide patent protection in accordance with this Agreement as from the grant of the patent and for the


7. In the case of intellectual property rights for which protection is conditional upon registration, applications for protection which are pending on the date of application of this Agreement for the Member in question shall be permitted to be amended to claim any enhanced protection provided under the provisions of this Agreement. Such amendments shall not include new matter. 8. Where a Member does not make available as of the date of entry into force of the WTO Agreement patent protection for pharmaceutical and agricultural chemical products commensurate with its obligations under Article 27, that Member shall: (a) notwithstanding the provisions of Part VI, provide as from the date of entry into force of the WTO Agreement a means by which applications for patents for such inventions can be filed; (b) apply to these applications, as of the date of application of this Agreement, the criteria for patentability as laid down in this Agreement as if those criteria were being applied on the date of filing in that Member or, where priority is available and claimed, the priority date of the application; and (c) provide patent protection in accordance with this Agreement as from the grant of the patent and for the

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remainder of the patent term, counted from the filing date in accordance with Article 33 of this Agreement, for those of these applications that meet the criteria for protection referred to in subparagraph (b). 9. Where a product is the subject of a patent application in a Member in accordance with paragraph 8(a), exclusive marketing rights shall be granted, notwithstanding the provisions of Part VI, for a period of five years after obtaining marketing approval in that Member or until a product patent is granted or rejected in that Member, whichever period is shorter, provided that, subsequent to the entry into force of the WTO Agreement, a patent application has been filed and a patent granted for that product in another Member and marketing approval obtained in such other Member.

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remainder of the patent term, counted from the filing date in accordance with Article 33 of this Agreement, for those of these applications that meet the criteria for protection referred to in subparagraph (b). 9. Where a product is the subject of a patent application in a Member in accordance with paragraph 8(a), exclusive marketing rights shall be granted, notwithstanding the provisions of Part VI, for a period of five years after obtaining marketing approval in that Member or until a product patent is granted or rejected in that Member, whichever period is shorter, provided that, subsequent to the entry into force of the WTO Agreement, a patent application has been filed and a patent granted for that product in another Member and marketing approval obtained in such other Member.

Article 71 Review and Amendment 1. The Council for TRIPS shall review the implementation of this Agreement after the expiration of the transitional period referred to in paragraph 2 of Article 65. The Council shall, having regard to the experience gained in its implementation, review it two years after that date, and at identical intervals thereafter. The Council may also undertake reviews in the light


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of any relevant new developments which might warrant modification or amendment of this Agreement. 2. Amendments merely serving the purpose of adjusting to higher levels of protection of intellectual property rights achieved, and in force, in other multilateral agreements and accepted under those agreements by all Members of the WTO may be referred to the Ministerial Conference for action in accordance with paragraph 6 of Article X of the WTO Agreement on the basis of a consensus proposal from the Council for TRIPS. Article 72 Reservations Reservations may not be entered in respect of any of the provisions of this Agreement without the consent of the other Members. Article 73 Security Exceptions Nothing in this Agreement shall be construed: (a)

to require a Member to furnish any information the disclosure of which it considers contrary to its essential security interests; or (b) to prevent a Member from taking any action which it considers necessary for the


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(c)

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protection of its essential security interests; (i) relating to fissionable materials or the materials from which they are derived; (ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment; (iii) taken in time of war or other emergency in international relations; or to prevent a Member from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

ANNEX TO THE TRIPS AGREEMENT 1. For the purposes of Article 31bis and this Annex: (a) “pharmaceutical product” means any patented product, or product manufactured through a patented process, of the pharmaceutical sector needed to address the public health problems as recognized in paragraph 1 of the Declaration on the TRIPS


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Agreement and Public Health (WT/MIN(01)/DEC/2). It is understood that active ingredients necessary for its manufacture and diagnostic kits needed for its use would be included1; (b) “eligible importing Member” means any least-developed country Member, and any other Member that has made a notification2 to the Council for TRIPS of its intention to use the system set out in Article 31bis and this Annex (“system”) as an importer, it being understood that a Member may notify at any time that it will use the system in whole or in a limited way, for example only in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. It is noted that some Members will not use the system as importing Members3 and that some other Members have stated that, if they use the system, it would be in no more than 1

This subparagraph is without prejudice to subparagraph 1(b). 2 It is understood that this notification does not need to be approved by a WTO body in order to use the system. 3 Australia, Canada, the European Communities with, for the purposes of Article 31bis and this Annex, its Member States, Iceland, Japan, New Zealand, Norway, Switzerland, and the United States.


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situations of national emergency or other circumstances of extreme urgency; (c) “exporting Member” means a Member using the system to produce pharmaceutical products for, and export them to, an eligible importing Member. 2. The terms referred to in paragraph 1 of Article 31bis are that: (a) the eligible importing Member(s)4 has made a notification2 to the Council for TRIPS, that: (i) specifies the names and expected quantities of the product(s) needed5; (ii) confirms that the eligible importing Member in question, other than a least developed country Member, has established that it has insufficient or no manufacturing capacities in the pharmaceutical sector for the product(s) in question in one of the ways set out

4 Joint notifications providing the information required under this subparagraph may be made by the regional organizations referred to in paragraph 3 of Article 31bis on behalf of eligible importing Members using the system that are parties to them, with the agreement of those parties. 5 The notification will be made available publicly by the WTO Secretariat through a page on the WTO website dedicated to the system.


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in the Appendix to this Annex; and (iii) confirms that, where a pharmaceutical product is patented in its territory, it has granted or intends to grant a compulsory licence in accordance with Articles 31 and 31bis of this Agreement and the provisions of this Annex6; (b) the compulsory licence issued by the exporting Member under the system shall contain the following conditions: (i) only the amount necessary to meet the needs of the eligible importing Member(s) may be manufactured under the licence and the entirety of this production shall be exported to the Member(s) which has notified its needs to the Council for TRIPS; (ii) products produced under the licence shall be clearly identified as being produced under the system through specific labelling or marking. Suppliers should distinguish such products through special packaging and/ 6

This subparagraph is without prejudice to Article 66.1 of this Agreement.


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(c)

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or special colouring/ shaping of the products themselves, provided that such distinction is feasible and does not have a significant impact on price; and (iii) before shipment begins, the licensee shall post on a website7 the following information: – the quantities being supplied to each destination as referred to in indent (i) above; and – the distinguishing features of the product(s) referred to in indent (ii) above; the exporting Member shall notify8 the Council for TRIPS of the grant of the licence, including the conditions attached to it.9 The information provided shall include the name and address of the licensee, the product(s) for which the licence has been

7 The licensee may use for this purpose its own website or, with the assistance of the WTO Secretariat, the page on the WTO website dedicated to the system. 8 It is understood that this notification does not need to be approved by a WTO body in order to use the system. 9 The notification will be made available publicly by the WTO Secretariat through a page on the WTO website dedicated to the system.


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granted, the quantity(ies) for which it has been granted, the country(ies) to which the product(s) is (are) to be supplied and the duration of the licence. The notification shall also indicate the address of the website referred to in subparagraph (b)(iii) above. 3. In order to ensure that the products imported under the system are used for the public health purposes underlying their importation, eligible importing Members shall take reasonable measures within their means, proportionate to their administrative capacities and to the risk of trade diversion to prevent re-exportation of the products that have actually been imported into their territories under the system. In the event that an eligible importing Member that is a developing country Member or a least-developed country Member experiences difficulty in implementing this provision, developed country Members shall provide, on request and on mutually agreed terms and conditions, technical and financial cooperation in order to facilitate its implementation. 4. Members shall ensure the availability of effective legal means to prevent the importation into, and sale in, their territories of products produced under the system and diverted to their markets inconsistently with its provisions, using the means already required to be available under this Agreement. If any Member considers that such


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measures are proving insufficient for this purpose, the matter may be reviewed in the Council for TRIPS at the request of that Member. 5. With a view to harnessing economies of scale for the purposes of enhancing purchasing power for, and facilitating the local production of, pharmaceutical products, it is recognized that the development of systems providing for the grant of regional patents to be applicable in the Members described in paragraph 3 of Article 31bis should be promoted. To this end, developed country Members undertake to provide technical cooperation in accordance with Article 67 of this Agreement, including in conjunction with other relevant intergovernmental organizations. 6. Members recognize the desirability of promoting the transfer of technology and capacity building in the pharmaceutical sector in order to overcome the problem faced by Members with insufficient or no manufacturing capacities in the pharmaceutical sector. To this end, eligible importing Members and exporting Members are encouraged to use the system in a way which would promote this objective. Members undertake to cooperate in paying special attention to the transfer of technology and capacity building in the pharmaceutical sector in the work to be undertaken pursuant to Article 66.2 of this Agreement, paragraph 7 of the Declaration on the TRIPS Agreement and Public Health and


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any other relevant work of the Council for TRIPS. 6. The Council for TRIPS shall review annually the functioning of the system with a view to ensuring its effective operation and shall annually report on its operation to the General Council.

APPENDIX TO THE ANNEX TO THE TRIPS AGREEMENT Assessment of Manufacturing Capacities in the Pharmaceutical Sector Least-developed country Members are deemed to have insufficient or no manufacturing capacities in the pharmaceutical sector. For other eligible importing Members insufficient or no manufacturing capacities for the product(s) in question may be established in either of the following ways: (i) the Member in question has established that it has no manufacturing capacity in the pharmaceutical sector; or (ii) where the Member has some manufacturing capacity in this sector, it has examined this capacity and found that, excluding any capacity owned or controlled by the patent owner, it is currently insufficient for the purposes of meeting its needs. When it is


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established that such capacity has become sufficient to meet the Member’s needs, the system shall no longer apply.


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Explanatory memorandum PART I

INTRODUCTORY REMARKS

The proposed amendments to TRIPS are the fruit of a project launched under the title “Intellectual Property Rights in Transition” (IPT) under the aegis of the Institute for Intellectual Property and Market Law (Institut för Immaterialrätt och Marknadsrätt, IFIM) at the University of Stockholm, in cooperation with the Max Planck Institute for Intellectual Property, Competition and Tax Law, Munich, the Institute for Civil Law at the University of Copenhagen, and IPR University Center in Helsinki. The project was initiated and led by IFIM’s director, Marianne Levin, who was joined in her function as the group’s chairperson by Annette Kur. Niklas Bruun, François Curchod, Jens Schovsbo, Antonina Engelbrekt Bakardjieva, Frantzeska Papadopoulou, Henning Grosse Ruse-Khan and Andrea Wechsler were involved in the work as permanent or temporary project group members; Åsa Hellstadius acted as the group’s secretary. The project took its cue from the growing discontent with the development of Intellectual Property (IP) in the post-TRIPS era. Indeed, what appeared to be the ultimate breakthrough of IP-oriented law and policy-making on a global level also marked a culmination point in the sense that the broad public esteem commanded by IP lost ground. Fuelled by frustration of expectations raised with regard to the impact of IP on economic welfare, and resenting the restrictions imposed on communication and exchange of technology, deep scepticism towards the functioning of the system nowadays governs the perception of IP by large sections of the public, in particular when it comes to sensitive issues such as public health, nutrition, and dissemination of knowledge. IP is often seen as a mere tool for securing the economic dominance of a few over a world of many, and as impeding rather than promoting sound and sustainable socio-economic development. Against that backdrop, the IPT project sets out to explore ways to reestablish a balance between the different interests involved, where it may have been distorted by a one-sided, inflexible approach towards IP at the global as well as at the domestic level. That goal is shared with many others working on comparable projects or adding to the impressive wealth of contributions to the debate on contemporary challenges of IP. However,

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in an effort not to remain confined to the ivory tower of academic discussion, the project has taken further steps by formulating concrete proposals for the amendment of TRIPS. The political prospects of that approach are not overrated, nor is it ignored that the world has moved on since 1994, and more “hot spots” have emerged on the IP trouble chart than those ensuing from TRIPS in its present form. Nevertheless, given its genesis and contents, the TRIPS Agreement still offers an obvious and prominent target for the vocal criticism of the intellectual property system as it exists today. Furthermore, even without an immediate chance of political implementation, consideration of amendments to TRIPS offers a welcome opportunity to address at least some of the urgently felt and widely articulated needs for re-adjustment of the system, and to highlight, in a concise form, possible ways to overcome the perceived deficiencies.

PART II 1.

COMMENTS

Article 2.1 (Amended) – Intellectual Property Conventions

1.1 General remarks By virtue of the TRIPS Agreement, WTO Members are obliged to comply with the substantive rules of the Berne1 (1971) and Paris (1967) Conventions.2 Whereas with regard to the Paris Convention, that obligation is set forth in Part I, Art. 2.1, the corresponding requirement regarding the Berne Convention is enunciated in Part II, Art. 9.1. In addition, both articles differ insofar as Art. 2.1 stipulates that Members shall comply with the relevant articles of the Paris Convention “in respect of Parts II, III and IV of this Agreement”, while Art. 9.1 does not contain any such qualification. It is true that explanations exist for those differences: first, the Paris Convention covers several IP rights regulated in Part II – meaning that the obligation to comply with the relevant provisions would have had to be split up into several sections, had it not been stated in the form of an overarching principle in Part I – whereas for the Berne Convention, which only deals with copyright, it was sufficient to address the requirement of compliance solely in the copyright section of Part II. Second, in contrast to the Paris Convention,3 the Berne Convention does

1 In the following text, the terms “Berne Convention”, “Berne” and “RBC” are used interchangeably. 2 This does not apply to Art. 6bis RBC; see below. 3 See Art. 10, 10ter (2) Paris Convention.


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not contain rules on enforcement (as are addressed in TRIPS Part III); and as copyright under the RBC is acquired without formalities, references to TRIPS Part IV (“Acquisition and Maintenance of IPR and Related Inter Partes Procedures”) may have appeared meaningless. Nevertheless, for reasons of structural consistency, and in order to highlight the paramount importance of both “classical” Conventions in the field of IP, it is considered preferable to include the Berne Convention in Art. 2.1, together with the Paris Convention. An additional reason lies in the fact that Art. 2.2, according to which the TRIPS provisions shall not derogate from existing treaty obligations, makes reference to Members’ contractual duties under the Paris and Berne Conventions.4 However, it must be emphasized that the proposed amendment is only of structural and editorial relevance, and does not result in changes of substance. 1.2 No changes regarding exclusion of Art. 6bis RBC Art. 6bis RBC, the provision on droit moral, is presently excluded by virtue of Art. 9.1 TRIPS from being incorporated into the Agreement. Several motives account for the exclusion,5 the most viable explanation being that to preserve the moral rights of authors does not constitute a traderelated issue. On the other hand, it is a fact that TRIPS provisions extend far beyond strictly trade-related subject matter anyhow. Furthermore, in practice, claims based on moral rights usually translate into claims for injunction and/or (extra) payment,6 and are thus equal in their effects to “ordinary” copyright claims. Nevertheless, the proposal abstains from changing the pertinent rule, mainly because the actual relevance of the issue for the aims pursued here is considered to be clearly inferior to the (nearly) ideological fervour of debates it is likely to provoke. Hence, instead of insisting on an inclusion of Art. 6bis RBC, the specific interests of authors safeguarded by the provision are taken into consideration elsewhere, and in a different systemic context for the proposal, namely in the 4 As well as those under the Rome Convention and the Treaty on Intellectual Property in Respect of Integrated Circuits; see Art. 1.2 TRIPS. 5 One of them arguably being that the United States, in spite of being a Member of the Berne Convention, has never undertaken serious steps towards implementing Art. 6bis RBC, and is openly opposed to granting such a strong position to authors interfering with the exploitation of the right: see e.g. Samuelson (2006), 164, 166, 167 for further references. 6 See e.g. Cour de Cassation (French Supreme Court), 28.5.1991, RIDA 19091 No. 194, at 197 – John Huston (colouring of films shot in black and white); Østre Landsret (Court of Appeals, Copenhagen), 4.4.1997, B-0192-92 – Three days of the Condor (“panscanning”); Högsta Domstolen (Swedish Supreme Court), 18.3.2008, T-2117/06 – TV4 (interruption of films for advertising breaks).


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“balancing clause” contained in proposed Art. 8a, and in the mandatory limitation clause, Art. 13.1 (b). 2.

Art. 7 (Amended) – Objectives

2.1 General remarks: structure of the provision As has been pointed out repeatedly in this volume,7 the objectives and principles enshrined in Arts. 7 and 8 TRIPS – together with the preamble – are of seminal importance for an appropriate understanding of the Agreement. Already in their present wording, Arts. 7 and 8 provide a solid basis for interpreting TRIPS in the light of the broader public interest, taking account also of non-trade-related objectives, such as, in particular, human rights. In an indirect manner,8 this was confirmed in the Doha Declaration of 2001. The proposed amendments elaborate upon the pertinent function and structure of Art. 7. Rather than suggesting particular changes in substance, the foremost aim of those changes is to encompass the full range of objectives underlying the legal areas for which TRIPS provides a normative framework. Hence, while the present text in its first part only makes reference to innovation and transfer of technology,9 the wording proposed here reflects the entire spectrum of policy goals to be aspired to by a sound and thriving IP system, none of which should be regarded as per se inferior to others. Also, by referring expressly to public policy objectives typically countervailing the proprietary interest of right holders, it is intended to place even stronger emphasis than at present on the need to take those objectives into account in interpreting the scope and limitations of IP rights. Furthermore, the last part of the sentence in the present text is turned into a separate paragraph, spelling out the overall societal aim to achieve a balance between rights and obligations. 2.2 Art. 7 (a) – Fleshing out the objectives By referring to the contribution IP rights are expected to make to innovation and transfer of technology, Art. 7 enunciates (some of) the principles

7 See Grosse Ruse-Khan (ch. 4), 1, 1.3; Kur (ch. 5), 5.5.2; Papadopoulou (ch. 6), 3.2, 5.4.2.2; Kur & Grosse Ruse-Khan (ch. 8), 4.3. 8 See in particular Papadopoulou (ch. 6), 5.3. 9 It seems to be accepted that this does not exclude the recognition of other policy goals; see e.g. Gervais (2008) 2.76, who contends that the explicit references in Art. 7 are to be understood as a “summary” of particularly well-established principles of IPR, all of which are of importance for an assessment of the desired balance between rights and obligations.


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generally considered as motivating and justifying the attribution of exclusive rights, and the restriction of free trade and entrepreneurship this implies.10 At the same time, if taken seriously, those objectives may also be understood as limiting IP protection in case those objectives for certain reasons are not, and/or cannot be, fulfilled in practice. Although, in the framework of TRIPS, such considerations may not lead to the result that protection is denied where it is imposed by mandatory provisions under Part II, they may be of interest where TRIPS leaves a certain margin for interpretation – as, typically, in the context of provisions containing open legal notions such as “reasonable” or “justifiable”.11 The proposed wording of Art. 7 (a) attempts to identify and enumerate, in a more comprehensive form than the present text, well-established principles of IP that govern that assessment. Roughly speaking, the three subparagraphs of Art. 7 (a) each address one of the three main areas of intellectual property, namely copyright, patent and trademark law/unfair competition. However, that distinction only serves as a general guideline; it is not to be understood as denoting a strict separation between the individual areas. Art. 7 (a) (i) concerns cultural development and enhancement of creativity; it is therefore primarily concerned with copyright. The wording echoes the preamble to the WIPO Copyright Treaty (WCT),12 which likewise refers to the public interest in education, research and access to information. The clause proposed here adds “access to knowledge”, which is also considered as crucial.13 Subparagraph (ii) deals with the promotion of innovation and technological progress, and basically reiterates the present wording of Art. 7, apart from the fact that in addition to “dissemination of technology”, the proposed wording also refers to dissemination of information and knowledge, following, in that regard, the pattern of proposed subparagraph (i). Whereas the objectives listed in the first two subparagraphs would appear to be basically uncontroversial, the relevance of the competitionoriented goals addressed under (iii) may be less obvious. The reason why

10

Cf. Schovsbo (ch. 7), 3.2. See Grosse Ruse-Khan (ch. 4), 1.1.3; Kur & Grosse Ruse-Khan (ch. 8, ), 4.3. 12 The preamble to the WCT refers to “the need to maintain a balance between the rights of authors and the larger public interest, particularly education, research and access to information, as reflected in the Berne Convention”. 13 It must be duly noted here that to endorse the public policy goal of “access to knowledge” does not purport to mean that access (or copying) must be free; it could likewise be safeguarded by a liability rule. For examples see Kur & Schovsbo (ch.9), 3.1. 11


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those aspects are nevertheless included is two-fold. First, all IP rights are indeed expected to promote dynamic competition:14 by preventing competitors from making use of the protected subject matter in their business activities, an incentive is given to compete on a “higher level” by bringing forth new creations and innovations.15 (The same concept forms the basis for proposed Art. 8b, where it will be treated in more detail.) Second, in a slightly different sense, the provision enunciates the specific policy objectives underlying trademark law and unfair competition, and it thereby provides a guideline for interpreting not only the provisions in the trademark section, but also for such rules as Article 39 (protection of undisclosed information) or other provisions rooted in considerations of fair and free trade. 2.3 Art. 7 (b) – Calibrating IP protection While paragraph (a) fleshes out the present version of Art. 7 without changing its basic contents, paragraph (b) introduces a novel element. It expresses a rule which is considered as instrumental for a well-calibrated IP system – namely that the protection granted under the system should ideally be measured according to the contribution made to society.16 The grant of broad and strong rights for innovations or creations that are of merely incremental character should avoided; on the other hand, it would have detrimental effects in the longer run if highly valuable achievements were to remain without sufficient compensation. Whereas overcompensation is likely to freeze sound and efficient competition and to produce high transaction costs, insufficient compensation may result in disincentives for others to engage in similar efforts, and might thus lead to what is often apostrophized as the “tragedy of the commons”.17 Hence, the rule reflects the understanding that any kind of inadequate compensation is likely to create imbalances and will hamper the well-functioning of the system. Again, it is submitted that the principle as such is uncontroversial. 14 For details, see Schovsbo (ch. 7), 3.2, who refers to that dynamism by using the metaphor that “fire and water make steam”. 15 Or, regarding trademark law, more differentiated business offers. 16 In a previous version of the proposed amendments, the rule had been formulated in an even broader fashion, including also the contribution made to the “well-functioning of markets”. With regard to trademarks, this would have meant that broad trademark protection – e.g. protection against dilution – would have had to be questioned, where it becomes an impediment for competition rather than a tool for minimizing consumers’ search costs. However, after internal discussions, the group decided to delete that part of the phrase. 17 The phrase refers to the article by Garrett Hardin (1968), where overuse of publicly available resources is described as “tragedy of the commons”.


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However, it cannot be ignored that to implement such a rule in practice gives rise to a plethora of intricate questions. How should the contribution to innovation and creativity be measured? Can it even be said that those elements form the appropriate yardstick, or should protection rather be granted in proportion to the investment made? And how is it possible to reconcile the requested appraisal of the individual merits of a protected achievement with the dynamics of a system that must be able to deal, for practical reasons as well as for the sake of legal security, with the processing and evaluation of rights on a more general scale? How much differentiation is possible without jeopardizing the efficiency of the system? The latter question is linked to the evolving debate18 about the desirability and feasibility of stronger differentiation in IPR.19 It is increasingly realized that the phrase “one size does not fit all” is not only true with regard to the situation in different countries and different parts of the world – the same can also be said about the way in which copyright and patent law20 are operating in different areas and industry sectors with widely varying working conditions and needs for protection. A rule like the one proposed here would basically underpin claims for introduction of more differentiated regimes, where appropriate – however, without making their introduction mandatory.21 Another issue for debate concerns the relevant yardstick. In particular, it might be questioned whether it would not be more realistic and appropriate to measure the scope of protection in proportion to the size of investment needed to bring forth the protected subject matter, instead of focusing on the contribution to innovation and creativity. It is true that from an economic viewpoint, the former approach might be preferable and more feasible, as it lends itself more easily to objective measurement. It is also true that the investment required for producing new achievements for which there is a demand on the market should not be neglected as one (important) factor in considerations about whether, and which kind of, protection should be granted for creative and innovative achievements. 18

This does not mean to say that discussions about differentiation are something totally new; it is true that concerns about the inappropriateness of a uniform approach have always been articulated. However, the discussion appears to have become broader and more influential in recent times, with the ambit of IPR becoming broader in general, and the conditions in different areas and industry sectors drifting further apart. 19 See also below (comments on Art. 27.1), with references. 20 To a lesser extent, and in a different manner, this may be true also for trademark law. 21 This follows from the fact that Art. 7 is a principled guideline rather than a hard and fast rule; see the text below.


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However, ultimately, the scale of investment alone cannot and should not provide the decisive element for the justification and measurement of IP rights. More important than the sheer amount of money spent continues to be the societal benefit resulting from it, and to refer to creativity and innovation is found to be the most adequate way to reflect that principle. Finally, it needs to be recalled in this context that the impact of Art. 7 is not the same as that of a hard and fast rule of law, like the minimum requirements for protection enshrined in TRIPS Part II. Due to its position in Part I, and as an expression of the objectives underlying the Agreement and steering its application, the provision rather provides for a principled guideline – an overarching concept towards which the IP system should be geared. Its impact will primarily be felt when decisions on the legislative or adjudicative level are allowed a margin of discretion, as, for instance, when the threshold for protection is determined,22 or when limitations are formed, or their ambit is explored in a given case.23 Lastly, it needs to be emphasized that, as in the current text, the objectives and principles in Arts. 7 and 8 serve to inform interpretation of the Agreement, and do not furnish a basis for re-negotiating its contents.24 The mandatory requirements set out in the Agreement therefore remain conclusive.

22 For instance, this could be of importance in the context of “evergreening” patents. For a much-discussed approach to that issue, see Sec. 3 (d) of the Indian Patents Act, which became relevant in the Glivec case; see Basheer & Reddy, (2008). 23 For instance, if a rule like the one proposed here had formed part of TRIPS, it could have influenced the WTO panel’s reasoning in USA – copyright (WT/ DS/160R) in two different ways. First, submitting that the “homestyle” exception in Sec. 110 (5) (a) US Copyright Act only concerned “dramatic” musical works (which is rather doubtful, but which formed the basis for the panel’s reasoning), and given that the composers of such works (operas, operettas, musicals) usually make rather a strong contribution to the wealth of creations in comparison to the composers of pop songs, it might appear doubtful whether to deny them the possibility to fully exercise their rights to broadcasting via loudspeaker complies with the three-step test. On the other hand, the fact that the right to communicate broadcasted music to the public via loudspeaker arguably makes a very small contribution to the overall compensation received by the authors of musical works, would rather weigh in favour of accepting the limitation – whether or not it is restricted to a specific type of works or not. For a more detailed discussion of the USA – copyright report, see Kur (ch. 5), 4. 24 On that aspect see in particular Grosse Ruse-Khan (ch. 4), 1.1.3.


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3.


Article 8 (Amended) – Principles

3.1 Structure of the provision; burden of proof The proposed amendments to Art. 8 are less conspicuous than those in Art. 7. Nevertheless, they touch upon quite fundamental and sensitive issues. In particular, they concern the question whether the public healthand competition-oriented principles enunciated in paragraphs 1 and 2 should be cast in a mandatory form, so as to emphasize their seminal importance. In that regard, different solutions are proposed for the two paragraphs, which will be explained in the following. Apart from that, changes are proposed which affect to some extent the interaction between Art. 8 on the one hand and the substantive provisions in Part II et seq. on the other. In the present text, paragraphs 1 and 2 are qualified by the phrase “provided that such measures are consistent with this Agreement”. It has been emphasized that this structure was chosen in deliberate contrast to Art. XX GATT, which, under the conditions set out in the provision, even allows to derogate from the obligations incurred under the GATT acquis.25 One critique has even argued that by placing the TRIPS principles under the prerogatives of the other provisions in the Agreement, Art. 8 would become meaningless in practice.26 Although such fears have been soothed by the Doha Declaration, it is still true that TRIPS Members remain bound to the standards determined by mandatory rules.27 Furthermore, in case of conflict, the country invoking Art. 8 in order to justify specific regulations bears the burden of establishing that to do so is consistent with TRIPS. That consequence appears to follow from the present wording of Art. 8: according to usual legal parlance,28 the words “provided that” regularly indicate that the elements marked by them have to be established by the party whose position they sustain.29 In order to alleviate that burden, it is proposed to amend the text so as to reverse the structure: according to the proposed wording of paragraphs 1 and 2, it is the party contesting the compatibility of a certain measure with TRIPS that must establish its claim. However, the system is not changed insofar as it is still not possible on the basis of Art. 8 to deviate from substantive TRIPS provisions. As has been said above with regard to Art. 7, Art. 8 remains an interpretative tool, and does not provide a trigger for re-negotiating TRIPS.30 25 26 27 28 29 30


Grosse Ruse-Khan (ch. 4), 2.1, with ample references. Gervais (2008), at 2.84. This aspect is not changed; see already above. Which forms the basis of an interpretation pursuant to Art. 31 VCLT. For a different opinion, see Correa (2007), 11. Above.

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Lastly, a new paragraph is proposed (8.3) which addresses the infrastructural aspects of intellectual property rights. 3.2 Art. 8.1 – public policy concerns Art. 8.1 TRIPS addresses crucial issues of public concern, such as public health and nutrition, and other sectors of vital importance to a country’s socio-economic and technological development. Given the outstanding position of those concerns in the hierarchy of values, there is reason to pose the question whether instead of giving Members an option to pursue them (“Members may . . . adopt measures”), they should rather be obliged to observe those objectives. There is no doubt that to impose such an obligation would change the very character of TRIPS.31 It would also fundamentally deviate from comparable clauses in other trade-oriented treaties, such as Art. XX GATT.32 On the other hand, the arguments in favour of such a step cannot be easily discarded. If the purpose and ambition of the proposed amendments to TRIPS should be to outline an ideal and perfectly balanced system of IP, how could it then be justified that such undeniably important aspects as those addressed in Article 8.1 are not attributed more weight than at present? Also, whereas binding obligations to implement measures protecting public health and nutrition are alien so far to trade-oriented treaty systems, they do already form part of other international instruments to which a considerable number of TRIPS Member States adhere, in particular the International Covenant on Economic, Social and Cultural Rights (Arts. 11 and 12 ICESCR). Being bound to those principles (also) by virtue of TRIPS would therefore not confront Members with something totally new.33 On the other hand, an obligation of that kind would appear misplaced in TRIPS, given that the Agreement does not deal with human needs and interests in general, but concerns a specific legal field that is dominated by private commercial interests.34 Most importantly, it is submitted that 31 The change would be even more strongly emphasized if the objectives embedded in Art. 7 TRIPS were also turned into a binding obligation, i.e. if it were set out that IP rights “shall” contribute to the aims mentioned in that article. Although such a change is certainly debatable, for the time being, no such steps are proposed, for the same reasons as are set out in the text above. 32 See also XIV GATS; Arts. 28, 30 EC. 33 Further on the ICESCR and its meaning for TRIPS, see Papadopoulou (ch. 6), 2.1. 34 This does not, of course, mean that human rights in general, and ESC rights in particular, do not have a place in TRIPS. As was pointed out in more detail in ch. 6, human rights can and should have an important impact on the interpretation of TRIPS provisions. However, this is different from what was considered here,


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within the pertinent institutional framework,35 WTO panels would find it difficult if not impossible, in case of conflict, to deal with relevant concepts in an adequate manner.36 Indeed, if an attempt were made to include binding obligations relating to health, nutrition and other economic, social and cultural rights in TRIPS, this would have to proceed on a much broader scale, comprising inter alia certain alterations of the dispute settlement regime (e.g. concerning the right to file complaints, rights of participation, constitution of panels, etc.).37 The present proposal does not embark on such a far-reaching endeavour. Instead, the importance of the principles set out in Art. 8.1 TRIPS – not only in the sense that they guarantee Members’ (relative) freedom to pursue those aims, but also in the sense of a “moral duty” of governments vis-à-vis their own population – is marked by exchanging the word “may” appearing in the present text by the somewhat stronger “should”. In addition to this, repeated and express reference made to the principles (and objectives, Art. 7) in the provisions dealing with limitations of IP rights is intended to make clear that Members’ rights and obligations set out in Part II need to be interpreted in the light of those basic rules (and not vice versa, as might be argued to date). 3.3 Art. 8.2 – competition concerns Regarding the competition aspects addressed in Art. 8.2, a different result is proposed. Without doubting the superior position of fundamental human rights, such as the right to health and nutrition, the interest in wellfunctioning, unimpeded competition also figures as an objective of primary importance for the establishment and maintenance of a sound IP system. Indeed, it is found that to provide for control measures, under competition

namely to introduce a binding obligation on Members to adopt (legal) measures with regard to IPR that are deemed necessary to protect public health and nutrition etc., thereby considerably expanding WTO panels’ competence to supervise Members’ internal health policy. 35 On institutional aspects, see Bakardjieva Engelbrekt (ch. 3). 36 For a more detailed discussion on this issue, see Kur & Grosse Ruse-Khan (ch. 8), 2.2.1. Apart from the problems facing the panel – which might have to scrutinize a member’s entire health policy, for which it is hardly equipped – it is already doubtful whether and which conflicts would lead to the instigation of panel proceedings. If at all, enforcement would only occur selectively, with the motives for that selection typically not being of an altruistic kind, but rather relating to a country’s own trade interests (e.g. a country with strong generic industries complaining about another country without its own manufacturing capacities not reacting to an imminent health crisis). For a discussion of that scenario, see ch. 8. 37 Bakardjieva Engelbrekt (ch. 3), 6.


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law or equivalent rules, of abusive practices involving IP rights constitutes an obvious and important corollary to the mandatory protection of such rights. In the absence of such an “antitrust antidote”,38 there is a risk that intellectual property rights themselves become “barriers to legitimate trade”, thereby falling foul of the general aims announced in the preamble to TRIPS.39 It is therefore proposed to change the wording of paragraph 2 so as to impose a mandatory obligation (“Members shall take appropriate measures”). Other than with regard to the policy issues addressed in the first paragraph, it is estimated that the surveillance of such measures, or rather of the failure to provide them, by WTO panels should pose relatively few problems, and would not demand major changes within the institutional framework. It must be clarified in this context, however, that the intention would not be to prescribe in any detail which type of conduct should be regarded as falling under Art. 8.2. In that regard, the discretion left to Members should not be curtailed to any substantive degree. Rather than imposing a strict rule, Art. 8.2 in its amended form rather constitutes a kind of “open ceiling”.40 It is of interest to note in this context that similar wording to that proposed here is employed in a free trade agreement concluded between the European Union and the CARIFORUM States (Economic Partnership Agreement, EPA).41 Unlike the EPA, which establishes competition control as an unconditional requirement, however, the present proposal includes a reservation linking the fulfilment of the obligation to the respective Member’s financial and organizational capacity to introduce the necessary infrastructure (see below, Art. 8b). 3.4 Art. 8.3 – infrastructural concerns The third paragraph refers in a general manner to Members’ obligation to establish an efficient and adequate IP system, details of which are currently (only) addressed in Part IV, Art. 62 TRIPS. The introduction of 38

Ricolfi (2006). Recital no. 1: “Desiring . . . to ensure that measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade”. 40 On the notion of open ceilings, its “oxymoronic” structure and its advantages and drawbacks, see Kur & Grosse Ruse-Khan (ch. 8), 2.2.2. 41 Cf. Art. 142.2 CARIFORUM EPA: “The EC Party and the Signatory CARIFORUM States shall take measures, as appropriate, to prevent or control licensing practices or conditions pertaining to intellectual property rights which may adversely affect the international transfer of technology and that constitute an abuse of intellectual property rights by right holders or an abuse of obvious information asymmetries in the negotiation of licences.” 39


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a general provision with in the framework of Art. 8 serves to emphasize the importance of the infrastructural aspects of IP. It further pursues two specific objectives: first, it is clarified that the standard against which the obligation to establish a functioning IP system must be measured should correspond to the individual Member’s state of development. Although that might appear to be self-evident, it is considered useful to insert such an express provision in order to avoid any misunderstandings created by interest groups focusing exclusively on the possible shortcomings of a country’s registration system etc., without realizing that in view of the general state of development, such deficiencies are just the normal symptoms of a generally ailing administrative infrastructure. Second, by making express reference not only to the acquisition, but also to the revocation etc. of rights, the provision is meant to indicate that an efficiently functioning IP system must also place importance on the means available to scrutinize the (in)validity of IP rights, and to ensure that invalid rights are securely barred or removed from the register. 4.

Art. 8a (New) – Balance of Interests

4.1 General remarks Art. 8a contains the “balancing clause”, which constitutes a core element in the proposal. Elaborating on the structure and wording of the threestep test, it is intended to operate as guidelines for legislatures and the courts concerning the introduction or interpretation of limitations to intellectual property rights. Those guidelines are to be employed to measure the “wiggle room” that remains between the “floor” and the “ceiling” established by the mandatory provisions proposed to be included in TRIPS Part II. Furthermore, it is a distinct and important feature of Art. 8a that it develops a scheme of general validity, and does not distinguish between the different categories of IP rights. This reflects the “One Right Approach” that forms one of the basic hypotheses of the IPT project.42 By outlining the architecture for a sound and efficient balancing process which is capable of producing adequate results in all areas of IP alike, it is intended to uncover the general matrix to which those areas basically conform. However, the unitary approach endorsed here requires that the constitutive features of the groundwork must be rather broad and robust – this is no place for fine-grained carvings. Accordingly, the general structure as well as the factors presented in the following are of a fairly general and

42


Levin (2002).

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abstract nature; they do not address very specific concerns arising solely in individual areas. To the extent that such concerns are urgent and important enough to warrant the introduction of mandatory limitations, they are encompassed by the respective provisions in Part II, and will be commented on there. However, in the structure espoused here, there is no proper place for limitations that are specific to certain areas, but in respect of which it would seem too demanding (and too much of a restriction on flexibility) to conceive of them as internationally mandatory rules. As a result, a certain gap may be left where other instruments43 and proposals44 contain more detailed catalogues of optional provisions. However, it is submitted that most or all of those optional limitations could easily be fitted under the general balancing clause, or, more particularly, under the “umbrella factor” set out in Art. 8a.2 (a) (v). 4.2 Art. 8a.1 – Linking to objectives and principles In a summary form, the first paragraph reiterates the objectives and principles set forth in Arts. 7 and 8. The reason why this is not entirely redundant lies in the fact that by referring back to the two previous articles in the first paragraph of the “balancing clause” (which, in its turn, governs the concrete assessment of non-mandatory limitations, see above), a solid link is built between the general principles and objectives enunciated in Part I, and the individual standards concerning the availability, scope and use of intellectual property rights that are found in Part II.45 By using mandatory language (“Members shall ensure”), it is further clarified that to achieve a fair balance between rights and obligations is not merely an option that Members might renounce, but that it forms an integral and indispensable part of the “construction plan” for IP rights systems to be established in the framework of TRIPS.46

43

For instance European directives with their usually rather detailed catalogue of (optional or mandatory) limitations. 44 For instance, the proposal for a “European Copyright Code” elaborated by a group of European academics under the name of “Wittem project”, April 2010, available at www.copyrightcode.eu; Second Draft Consolidated Version of 9/10 November (unpublished; manuscript with the authors); on the contents of the Wittem project see Dreier (2007), 232. 45 It is submitted that such a link already exists at present. However, by highlighting the manner in which the provisions in Part I and those in Part II et seq. shall interact, it is intended to ensure that no misunderstandings about the relevance of the objectives and principles for interpretation of concrete rules will occur in the future. 46 This is another example of an “open ceiling”; (see above).


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4.3


Art. 8a.2 – Establishing the balance

4.3.1 The chapeau The chapeau of paragraph 2 recalls the wording and structure of the threestep test in the current TRIPS provisions. The provision was indeed conceived on that basis; however, it deviates from the model provided by the three-step test in a number of aspects. First, whereas the three-step test in Art. 9.2 RBC (“It shall be a matter for (national) legislation to permit . . .”) and in TRIPS (“Members may provide limited exceptions . . .”47/“Members shall confine limitations and exceptions to certain special cases . . .”48) is formulated as a (restricted) option, proposed Art. 8a takes the opposite approach by obliging Members to ensure that protected subject matter may be used without authorization of the right holder whenever the relevant conditions are fulfilled. Similar to what was pointed out above in connection with Art. 8, the effect is to reverse the burden of pleading – unless it can be established, on the basis of the factors outlined in the article, that to grant such use would unreasonably prejudice the interests of right holders, free access should prevail. Paraphrasing the popular metaphor often used in this context, the structure of the chapeau reflects the concept that limitations are not an island in an ocean of exclusivity, but that vice versa, freedom of access and use constitute the general rule, meaning that exclusive IP rights resemble an island in an ocean of freedom. Second, whereas the three-step test demands that exceptions and limitations are confined to “certain special cases” (copyright) or “limited exceptions” (other IP rights), no such requirement is mentioned in the chapeau of proposed Art. 8a.2. It is considered that such quasi-quantitative restriction which, according to its understanding by the WTO panels, does not leave room for a normative assessment, is incompatible with the aim of undertaking a full and comprehensive appraisal. It is more than just unfortunate – indeed, it is a major flaw in the structure of the three-step test as the panels have interpreted it – that it invites the dismissal of limitations as incompatible with TRIPS, without prior evaluation of the policy objectives motivating them.49 That being said, it must be emphasized that the scope of limitations – their breadth and contents – is not regarded as irrelevant for the analysis under the present proposal. However, rather

47 Art. 17, 26.2 and 30 TRIPS; similarly: Art. 10 WCT and Art. 16 WPPT (“Contracting Parties may . . . provide”). 48 Art. 13 TRIPS. 49 Cf. Kur (ch. 5), 4.2.1.


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than treating the potential reach of a limitation as an initial requirement to be appraised in isolation before entering into a normative evaluation, this is an element to be considered within the balancing process itself, as one factor informing the overall assessment of the appropriateness and proportionality of the contested measure in relation to the envisaged legal aims. In other words, rather than asking whether a provision is “limited” (or “special”) in an absolute sense, the question is posed whether it is sufficiently limited for its purpose.50 Next, the proposed amendment transforms the second part of the threestep test by stipulating that when the admissibility of access and/or use is assessed, account must be taken of the normal exploitation of the right. Unlike the present wording of the test, it is therefore not suggested that incompatibility with TRIPS will (quasi-51) automatically result if a limitation conflicts with the normal exploitation of the right. By espousing such automatism, the clause in its present form is likely to become a source of immobility, rendering impossible any major changes in the ways and means by which IP rights are, or may be,52 currently exploited. In contrast, the proposal only obligates legislatures to assess and measure the extent to which normal forms of exploitation would become obstructed if certain modes of unauthorized use were declared admissible. The analysis then forms part of the overall evaluation process: decisions allowing access to protected subject matter must be taken, and must be justifiable, in full awareness of the way in which they affect modes of use that are considered “normal”. Finally, as its most important element, the chapeau stipulates that the law or regulation at stake must not unreasonably prejudice the legitimate interests of the right holder. Unlike Arts. 30 and 26.2 (and, in a slightly different formulation, also Art. 17), but in accordance with Art. 13 TRIPS, no express reference is made to the interest of third parties. However, this does not mean that those interests are regarded as negligible. On the contrary, the position is endorsed that third party interests are to be recognized as a balancing factor in connection with all IP rights, including

50

Kur (ch. 5), 5.2.4. At least for copyright, the wording of Art. 13 suggests that the finding of a conflict is indeed tantamount to incompatibility with TRIPS. The situation is somewhat different for patent and industrial design law, as incompatibility will only be found if the limitation at stake is found to be “unreasonably” conflicting. In trademark law, the second step is missing altogether. 52 According to the copyright panel’s interpretation, “normal exploitation” also encompasses forms of exploitation that are legally possible, without being presently used by the right holders. Kur (ch. 5), 4.2.2. 51


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copyright.53 However, it is considered redundant to reiterate reference to those interests at this juncture, given that it is already included in the overarching balancing paradigm set out in the first paragraph. 4.3.2

The balancing factors – Art. 8a.2 (a) and (b)

4.3.2.1 structure of the provision The listing of factors in paragraph 2 (a) and (b) is structured as follows: the list under (a) contains general principles to be weighed in favour of users’ entitlement to get access to protected content. The policy issues addressed therein are largely congruent with those reflected in the mandatory limitations set out in the various sections of Part II. Their listing under Art. 8a.2 (a) serves to highlight the fact that they may also furnish a motivation for limitations going beyond those which, according to this proposal, are considered to denote the internationally mandatory maximum level of protection conferred by the individual IP rights (i.e. limitations falling into the “wiggle room” between ceiling and floor). In formulating such limitations, Members are further guided by the additional factors listed under (b). Contrary to (a), the first two factors under (b) do not primarily focus on policy principles weighing in favour of users, but rather add elements that are intended to encompass the interests of right holders as well, with the aim of avoiding an all-or-nothing solution, and rather to fashion appropriate solutions on the basis of a differentiated approach. 4.3.2.2 art. 8a.2 (a) (i), (ii) – free speech and dissemination of knowledge Factors (i) and (ii) concern modes of use that constitute essential assets in a democratic, knowledge-based society. Most legislations already embrace provisions that take care of such objectives. This is particularly visible in copyright, where countries regularly impose limitations with regard to news reporting or satire and parody, etc. In part, such limitations are, or should be, internationally mandatory, and will therefore be addressed below (Art. 13). However, in assessing the admissibility of limitations below the prescribed maximum, the extent to which they contribute to the general discourse of ideas of opinions, or to the dissemination of information, may be of crucial relevance. Such limitations – in copyright54

53

Kur, id. See also Art. 5.2 of the EU directive 29/2001/EC (“Infosoc directive”): “Uses for the purpose of freedom of expression and information”; see also the factors listed in 17 USC 107. 54


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– may include, but are not confined to, limitations on the use of political speeches as well as use of extracts from public speeches or similar works55 or the making available, under certain conditions, of published articles on current economic, political or religious topics56 and they may also comprise such mundane issues as publication of works in exhibition or auction catalogues.57 Furthermore, of particular importance in this context are limitations for teaching and research. The potential area of application of the latter type of limitations is growing fast, as was highlighted inter alia in the European Commission’s Green Paper on the Knowledge Economy58 and in the reactions it has evoked.59 Lastly, the two factors – in interaction with others, and always provided that the overall balance seems positive – could weigh in favour of specific regulations for use of “orphan works”, which contribute to making otherwise irretrievable content available to a larger public,60 and they may add to the acceptability of such market-driven projects as the Google book search and similar efforts to render the existing wealth of information more accessible for everyone.61 Limitations based on the factors mentioned in (i) and (ii) are of prime importance also in trademark law, as a barrier against impediments on free speech in general, and on informative commercial communication in particular. It follows from Art. 8a.2 (a) (i) and (ii) that to allow such communication can be deemed admissible even where this is not covered by the proposed maximum rule in Art. 17, for instance because advantage is taken of the reputation of another mark (without thereby misleading the public).62 In patent law, the first factor – use furthering the democratic discourse – may be less relevant in practice; however, factor (ii) – dissemination of knowledge – is key, as in copyright, when it comes to limitations creating certain privileges for use serving teaching and research purposes. To some extent, such activities should even be excluded from patent law on a mandatory basis. This will be commented on below (Art. 30).

55

Cf. Art. 5.3 (f) Infosoc directive. Cf. Art. 5.3 (c) Infosoc directive. 57 Cf. § 58 German Copyright Act. 58 Commission of the European Communities, Green Paper on Copyright in the Knowledge Economy (2008). 59 Hilty et al. (2009), also available at www.ip.mpg.de; Geiger et al. (2009), with further references to statements from academia in footnote 1. 60 Kur & Schovsbo (ch.9), 3.1.5. 61 Kur & Schovsbo (ch.9), 3.1.5. 62 See on that point below, Art. 17.2. 56


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4.3.2.3 art. 8a.2 (a) (iii) – private use Factor (iii) addresses use made in the private sphere of the user. As strictly private use is proposed to be encompassed by mandatory limitations in the respective sections of TRIPS63 (under the conditions set out therein64), this factor is only of relevance for use which is not entirely private, but which primarily serves purposes of private interest (for instance, communications of a personal nature vis-à-vis a larger public). Also, the factor obliges to take account of the actual conditions under which the monitoring and enforcement of the right at stake are carried out. If such measures are not feasible without intruding into the private sphere of users, this would basically furnish a tenable motive for inserting a limitation – provided, again, that such a solution is not counter-indicated by other elements included in the overall assessment. 4.3.2.4 art. 8a.2 (a) (iv) – value-added products (“transformative use”) Factor (iv) clarifies that a privileged position may be granted to value-added products and services, thereby taking into account to what extent those products are, or are not, in direct competition with the protected subject matter on which they are based. The factor links to the debate about transformative use,65 which is (again) most vocally conducted in copyright, but which is also of particular interest in patent law. In copyright, the relevant uses would concern, for instance, the production and distribution of press clippings,66 publication of “thumbnail” images by search engines,67 and compilations using extracts from existing works to produce new content. In patent law, the clause would be of foremost relevance for dependent patents. The variety of transformative uses and/or derivative creations and inventions is very broad, and it is not possible to evaluate the admissibility of such uses in an abstract manner. Factor (iv) constitutes therefore only a general guideline stating that to add value to an existing creation or invention ought to be taken into account in the legitimacy of limitations addressing that kind of use. Of particular relevance in that context is the 63

See below, for trademark, industrial design, and patent law. This concerns in particular copyright, where a reservation from mandatory application is made in case that private use would be manifestly incompatible with the principles and objectives set out in Arts. 7–8b. 65 Transformative use is usually debated as a category of “fair use” under 17 USC 107; for a European view on transformative use see the Gowers Review on Intellectual Property (2006), 66 et seq. 66 German Federal Supreme Court (BGH), 11 July 2002 – elektronischer Pressespiegel, (2003) JZ 473 and the Swiss Supreme Court (BG), 21 May 2007, BGE 133 III 473 (2007) = 39 IIC 990 (2008); see also C. Geiger (2008). 67 See e.g. Perfect 10 v. Google, Inc., et al., 416 F. Supp. 2d 828 (C.D. Cal. 2006). 64


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“closeness” of the two creations or inventions, in view of their substantive content, but also regarding the market sector to which they are directed. Whereas it should not be excluded per se that limitations are admissible even where they allow value-added products to compete on the same market as the subject matter on which they are based, it might arguably constitute an appropriate rule of thumb to hold that the greater the distance between the two markets is found to be, the less of a problem should it be to introduce a limitation, with or possibly even without an obligation to pay fair remuneration. 4.3.2.5 art. 8a.2 (a) (v) – other public concerns Factor (v) serves a sort of “umbrella clause” for the list of factors provided by Art. 8a.2 (a). This is a consequence of the fact that it does not seem feasible to formulate a conclusive list of factors to be taken into account for the purpose of balancing right holders’ vs. users’ interests. It is necessary therefore to provide for a certain amount of built-in flexibility. Of course, this does not mean that Members’ discretion with regard to limitations should be so broad that the obligations under TRIPS Part II become basically void. Rather, legislation resulting in limitations of rights to be conferred under Part II can only be deemed to be justified, if the general objectives of the Agreement – as set forth in Art. 7 – are at stake. The reference made in factor (v) to serious social or cultural considerations should therefore be understood and interpreted in the light of those objectives. Examples of the application of factor (v) are found in limitations enabling access in copyright to protected content for disabled groups, like the blind or visually impaired,68 or limitations furthering the preservation of the cultural heritage, or provisions permitting the use of music in religious ceremonies, etc. In patent law, this concerns in particular limitations improving access to medicaments for the poor, and for providing a better calibration of research efforts into fields where new medication is actually needed. It is worth emphasizing at this point that in addition to the fact that the objectives on which the right to unauthorized use is based must correspond to those mentioned in Art. 7, the right to use must also be subjected to the proportionality test which is set out in Art. 8a.2 (c).

68 See Treaty Proposed by the World Blind Union (WBU), available at http:// www.wipo.int/meetings/en/doc_details.jsp?doc_id=122732, where that rule is proposed to be included on a mandatory basis; the proposal is presented in more detail by Kur & Grosse Ruse-Khan (ch. 6), 3.3.


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4.3.2.6 art. 8a.2 (b) (i) – access against remuneration (liability rules) Paragraph 2 (b) (i) refers to an aspect of fundamental importance – it goes to the centre of discussions juxtaposing the exclusivity paradigm with that for liability rules, i.e., access against payment of remuneration. Briefly speaking, it refers to the fact that to impose limitations on an exclusive right does not necessarily mean that access to, and use of, protected subject matter are actually free. Particularly in the area of copyright and related rights, it became clear at a rather early point in time69 that under certain circumstances, to insist on a fully exclusive right does not provide satisfactory and feasible solutions, while on the other hand, right holders should not be deprived of fair and equitable remuneration. Such considerations have in many European countries led to schemes administered by collecting rights management organizations or other right holders’ associations, with revenues being generated primarily by way of levies imposed upon hardware.70 In patent law, such schemes are not frequently imposed by law, but they have found a certain (distant) echo in different forms of private ordering.71 It is unclear at the moment whether and to what extent workable schemes based on liability rules will play a major role in the future. Whereas one scenario rather anticipates the gradual phasing-out of such models, at least with regard to digital uses, others entertain the vision of even more robust types of liability regimes being applied in copyright as well as in other areas. The proposal made here does not attempt to advance the development of such novel structures, nor does it preclude them. Art. 8a.2 (b) (i) remains neutral in that regard. However, it is of crucial importance that as a matter of principle, TRIPS Members should enjoy a certain leeway for exploring such schemes. Art. 8a.2 (b) (i) is therefore inserted in order to clarify that if statutory limitations are accompanied by remuneration schemes, this must be taken into account in assessing the admissibility, and will basically weigh in favour of such rules.72 Although the provision only addresses remuneration schemes in the usual sense of the word, i.e. in particular collectively administrated payment and distribution of gross fees and levies, the idea underlying factor (i) could also become relevant in situations when right holders are de facto capable of sealing off their products from access by others without payment, in particular by deploying technical protection measures. It is 69

See discussions on compulsory licences for the recording industry, which were already debated at the Berne revision conference in Berlin, 1908. 70 For details, see Kur & Schovsbo (ch. 9), 3.1.2.3. 71 For details, Kur & Schovsbo, id. 72 In the same vein, see Declaration on the Three-Step Test (2008).


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possible to argue that in such situations too, the need that perhaps otherwise exists under international law to grant full exclusivity with regard to certain modes of use may become less stringent, thereby making way for more differentiated regulation schemes.73 It is self-evident that it cannot suffice that equitable remuneration is foreseen in the legal framework established by a Member’s legislation, if it does not work efficiently in practice. The practical relevance of this point needs to be emphasized strongly, and is therefore highlighted in the wording of Art. 8a.2 (b) (i). Especially in areas where remuneration schemes have been until now unexplored and practical experience is therefore lacking, their possible introduction needs to be monitored closely. Safeguards may be necessary in case the envisaged compensation models do not perform adequately, if necessary with the option that exclusivity is re-established. 4.3.2.7 art. 8a.2 (b) (ii) – interests of personal creators Factor (ii) reflects the fact that one of the main reasons for the growing discontent with copyright in its present form results from the fact that the traditional image of bipolar interests – copyright holders vs. users – no longer corresponds to reality (if it in fact ever did). The interests involved can be better expressed in a tripolar fashion: Those who deliver the protected content – the original creators, those who exploit and market that content – the right holders, and those that require access to the protected content – the general public (users).74 These distinctions are often blurred by the fact that the right holders, in order to justify their demands for (additional) protection, claim for themselves the position of the original creators. However (and irrespective of the differences in legal systems), there is growing awareness and concern about the fact that the interests of original authors and (other) right holders do not always coincide but may indeed be quite diverse in certain respects, and that in the end it is only the former who are procreating new works so that their interests merit specific attention. As a consequence of the distinction made above, factor (ii) attributes special importance to the personal interests of the original creators (as opposed to right holders), be they of a moral or financial nature. This concerns of course the interests traditionally protected by Article 6bis of the Berne Convention (droit moral), i.e. the paternity right and the right to prevent and prohibit mutilation and distortion of the work. The

73 74

See the argument made by Peukert (2005). Declaration on the Three-Step Test (2008).


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formulation also pays tribute to the rights acknowledged in the Universal Declaration of Human Rights.75 In addition to that, it embraces other interests, including interests of a financial nature. For instance, the obstacles to free access to protected subject matter for third parties could be higher in a situation where the financial benefits to be derived from exclusivity or otherwise restricted access accrue directly to the original creators than in the opposite case, i.e. when the additional gains contribute solely to the purse of derivative right holders. Further to that, the emphasis placed on the personal interests of original creators would become topical where authors are interested in a broad dissemination of their works, without necessarily being interested in payment (e.g. authors of scientific papers), whereas those holding the right to publication are eager to maintain full exclusivity.76 In that case, factor (ii) would allow to consider separately the interest of the authors, this time coinciding with the interest of users, and to balance both against the interests of the right holders. Factor (ii) also contains a novel element insofar as it does not only apply to original creators of works protected under copyright, but also to creators of other personal achievements, be they protected by industrial design or patent or by any other intellectual property law. Although it is submitted that cases where this would be of practical relevance are extremely rare, it is nevertheless considered that there is no cogent reason why consideration of original creators’ personal interests should be restricted to copyright only. 4.3.2.8 art. 8a.2 (c) – proportionality test As the last item to be mentioned here, Art. 8a.2 (c) obliges Members to carry out a proportionality test, measuring the extent and intensity of the use in relation to the protected right, and assessing it against the weight and priority to be given to the objectives to be pursued. This test corresponds to the exercise undertaken by WTO adjudicating bodies when interpreting Art. XX GATT:77 for an evaluation of the question whether the contested measure is “necessary” for its aim78 as well as for the subsequent assessment of

75

See Art. 27 (2) UDHR: “Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.” 76 See Hilty et al. (2009). 77 Grosse Ruse-Khan (ch. 4), 2. 78 On the meaning of “necessary”, which is not to be understood as “indispensable”, see Grosse Ruse-Khan (ch. 4), with ample references to WTO jurisprudence.


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whether the measure constitutes an abuse,79 the Appellate Body regularly weighs the relevant factors in proportion to each other.80 Only if the extent to which the measures found to derogate from GATT obligations are proportionate to the envisaged aims, are they considered reconcilable with the Agreement. Similarly, a proportionality test is also applied by the European Court of Justice, when assessing the justifiability of obstacles to the free movement of goods: if such obstacles are found to be grounded on objectives which, as such, are capable of furnishing an acceptable motive for certain trade barriers, it must still be established that the same goal could not have been achieved by measures having less restrictive effects on cross-border trade.81 Basically the same scheme is also suggested here: even when a particular measure appears justifiable on the basis of one or several factors listed in Art. 8a.2, the right to use protected subject matter should basically be limited to what is proportionate to the aspired goal.82 Rather than expressing a novel rule, it is submitted that such a test is inherent in any sound and efficient balancing exercise.83 4.3.3

Relationship of Art. 8a with the three-step test in TRIPS and other international instruments Finally, it remains to explore to what extent the proposed Art. 8a actually deviates from the current versions of the three-step test as embedded in TRIPS, and from similarly structured provisions in the Berne Convention and the two WIPO treaties of 1996, the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT). The answer to this depends not least on the attitude assumed with regard to the interpretation of the current wording of the TRIPS provisions. If it is taken for granted that the WTO panels’ understanding of

79 Abuse would be found where a measure amounts to a (disguised) restriction of trade, or is unduly discriminatory vis-à-vis other WTO Members; Grosse RuseKhan, id. 80 H. Grosse Ruse-Khan, id. 81 For a seminal case, see ECJ decision C-120/79 –Rewe/Bundesmonopolverwal tung für Branntwein (Cassis de Dijon), 1979 ECR 6349. 82 See Kur (ch. 5), 5.4.2, where the same rule and its operation in the context of the three-step test have already been explained. 83 See for instance Art. 3-1 (c) of the proposal for a Treaty on Access to Knowledge (text available at http://www.cptech.org/a2k/a2k_treaty_may9.pdf): “In determining whether applying any limitation or exception to exclusive rights would conflict with its normal exploitation or unreasonable prejudices the legitimate interest of the right holder, the extent to which the use benefits the larger public shall be taken into account” (emphasis added).


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Art. 13 and Art. 30 TRIPS is a correct interpretation in the light of Art. 31 of the Vienna Convention on the Law of Treaties (VCLT), the differences – not only in the wording, but also in the spirit of the provisions – vis-àvis this proposal are quite conspicuous. However, if a different opinion is endorsed, namely that the panels’ interpretation is misguided to some extent, and that – at least now, in the light of the Doha Declaration – a policy-blind understanding of the three-step test is unacceptable, compelling either a consideration of policies underlying each tier of the step, or, preferably, a comprehensive assessment of all three steps in the light of a proportionality test, the divergences are much lesser. However, even if it is basically accepted that the three-step test in its present form is already more flexible than what the two panel decisions seem to imply, the task becomes all the more urgent to render that potential visible in order to achieve a more secure and transparent framework for future interpretation. It is submitted that the best way to achieve that aim would be to amend the wording in the manner proposed here. As a less ambitious, but possibly efficient intermediate solution, proposals embracing similar ideas to those expressed here could be adopted, for example, in the form of a Joint Recommendation under the aegis of WIPO, as a nonbinding guideline for understanding the three-step test.84 It is further submitted that the proposed amendments to TRIPS would leave the “original version” of the three-step test in Art. 9.2 Berne Convention unchanged. As a result, Art. 9.2 RBC would still constitute the relevant yardstick for measuring compatibility with international law of limitations concerning authors’ rights85 to the reproduction of their works. However, no serious frictions are expected to result from that obligation. Due to the fact that Art. 8a (2) (b) (ii) gives special consideration to the specific interests of personal creators, it is assumed that in the large majority of cases, the solutions resulting from Art. 9.2 would coincide anyhow with those under (the proposed version of) TRIPS.86 The situation may be more problematic with regard to Arts. 10 WCT and 16 WPPT. However, there too, the differences would be lessened if a flexible, policy-oriented approach is taken towards the interpretation of

84

For a promising effort in that regard, see the Declaration on a balanced interpretation of the three-step test (2008), (which is however – unfortunately – limited just to copyright law.) See Geiger (2009). 85 In contrast to TRIPS, Art. 9.2 RBC only applies to “authors”, and not, like Art. 13 TRIPS, to “right holders”. 86 See also below, 6. (comments on amended Art. 9), on the possible impact of Art. 20 RBC.


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those provisions in their present wording.87 Also, from a practical point of view, it could be argued that potential differences would not have much of a (political) impact, because controversies relating to the 1996 WIPO treaties – unlike TRIPS and the Berne Convention, to the extent that the latter has been incorporated into TRIPS – are not included in the dispute settlement regime of the WTO. However, a preferable solution to that would be to also amend the relevant provisions in the 1996 WIPO treaties (and possibly also Art. 9.2 RBC), so as to express the same kind of comprehensive, factor-guided analysis as is proposed here. 5.

Art. 8b (New) – Interface between Intellectual Property Rights and Competition Law

5.1 General remarks The relationship between antitrust/competition law and IP has given rise to controversies over the years. Most developed countries, however, would seem to have arrived at the same general conclusion: both legal systems share the same goals of furthering public welfare but there are tensions in the means applied.88 Many countries also acknowledge that competition law serves as a “second tier” of balancing norms which together with IP are parts of the broad array of remedies which national legislators can and should use to promote innovation and enhance consumer welfare, the “first tier” being the limitations and other rules in IP which delimit protection. Even though the degree to which competition law is used to “interfere” with the exclusivity provided by IP varies from one country to another, most legal systems, at least amongst the developed countries, now recognize that IP and competition law should be present at the same time and be allowed to work in parallel. Based on the experience in national law, it is clearly a mistake that TRIPS does not provide for any harmonization of competition law to match the effect of the far-reaching harmonization of IP rights and to deal effectively with situations where IP is being misused to charge monopoly profits which cannot be justified by reference to the pro-competitive effects on innovation of such profits. If right holders are generally able to use their exclusive rights in excessive ways to block innovation or to claim rewards which do not correspond to their contribution to society, this would furthermore not only harm competition and consumers, it would also in the long run undermine public and political trust in the IP system.

87 88

For a more detailed consideration of that aspect, see ch. 5. Schovsbo (ch. 7), 3.2.


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In terms of international lawmaking, it will make it more difficult to obtain the effective and harmonized international protection which is necessary for companies to continue to be innovative and creative and for wealth to spread to developing countries. Competition law, therefore, is important to IP not just because it helps calibrate protection to avoid excesses but also because a well-functioning market is a prerequisite for the IP system.89 Rulemaking in this area should not seek to place IP “inside competition policy” (as the EU model has been accused of doing90). Nor should it seek to place competition law “inside IP” (as the US approach can be criticized for doing). Instead a new legal regime should seek to place both IP and competition law within the same framework, namely dynamic efficiency or – to put it even more generally – the “concept of ‘dynamic’ competition as a global public good”.91 As part of such an endeavour, the proposed system acknowledges that competition law and IP are “equals”92 and should move in parallel. Strong protection of intellectual property rights should as a matter of principle be accompanied by rigorous application of competition rules and vice versa. As a matter of policy, legislators should not be asked to choose between dynamic and static efficiency. The ideal system recognizes both and TRIPS cannot fully claim to be “the comprehensive” international treaty on IP without having clear provisions to deal with the IP/competition law interface. As was already pointed out in the introduction, the problem of whether the amendments should include mandatory provisions is also of importance for the competition rules. As explained above, it is considered that in view of its paramount importance for the smooth functioning of IP law, these rules should indeed be of a mandatory character. 5.2 Art. 8b.1 – General concept The main rule in Art. 8b paragraph 1 stipulates that Members are not only free, but also obliged, to take action by imposing either individual remedies in the form of compulsory licences, or by enacting legislation, if the following conditions are met: (a) use of a product protected by an IP right is indispensable for competition on the relevant market (unless the application of remedies would lead to clearly undesirable results); (b) the exercise of an intellectual property right constitutes an abuse of a dominant position on the relevant market.

89 90 91 92


Schovsbo (ch. 7), 6.2. Schovsbo (ch. 7), 6.1. Drexl (2007), 23. Lemley, (2007), 19.

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The principle must be seen in the light of Art. 7 (a) (iii) and the reference there to “the promotion of competition”, which makes it clear that IP is generally expected to promote dynamic competition. As seen from a competition law point of view, this stresses the point that the (ex post) assessment by competition law does not replace the ex ante IP assessment in connection with the grant of rights. It falls outside the ambit of competition law to micromanage or “fine-tune” IP rights. This task is generally left to the “the first tier” of balancing norms which are found in the IP rules proper, notably in the rules on “limitations” and “exceptions”. In a well-balanced IP system where rights are defined in clear ways and where clear and relevant limitations are in place, competition law would only serve as an emergency brake to be applied in those very rare circumstances where IP right holders because of special market conditions (such as the protection of interfaces) acquire a perverse market power, for example, to control all downstream uses including uses which do not in any way compete with the use by the right holder. Art. 8b.1 thus fleshes out the “promotion of competition” part of IP’s positive effects. At the same time, the reference to Art. 7 makes it clear that the application of competition law should take due account of the procompetitive benefits associated with IP protection in general. To use terminology from national law (especially EU law),93 competition law affects the “exercise” of IP and not the “existence” of IP. Therefore, competition law cannot be used to generally “soften up” or surpass substantive obligations arising out of TRIPS. 5.2.1 Art. 8b.1 (a) – Measures where use of IP is indispensable The first provision, (a), is based on a situation where use of the IP is “indispensable” in order to carry out certain economic activities. In such cases, the market power of the IP holder is extremely strong. It is also much stronger than the normal market power which arises out of IP protection. Indeed one could well argue that IP rights lose their justification in a situation when there is no competition at all, i.e. when the right holder has full control over the relevant market, with no substitutable goods (or services) being available. Such instances are very rare but not impractical, as case law from the EU has shown. It should be clear that Members are entitled, and may be even obliged, to remedy such a situation by reacting through legislative or administrative measures, without additional conditions having to be fulfilled. One basic difficulty arising in that context is that in many cases it will be

93

Schovsbo (ch. 7).


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problematic to define the “relevant market”, and to determine whether the absence of effective competition on that market is actually due to the existence of an intellectual property right. A clear ground for reaction will only be found in specific situations, like blocking of aftermarkets by IP rights covering spare parts, or controlling the interface between interoperable goods. Although the rule may lead to legal uncertainties in other than such clear-cut cases, it is submitted that these difficulties are not insurmountable; indeed, the issues that are brought to the fore in this context – such as, in particular, the definition of the relevant market – are mostly familiar to those dealing with competition law, which is well equipped to tackle those tasks. The conclusions to be drawn from the situation addressed under subparagraph (a) are qualified to some extent, as it is stipulated in the provision that even in view of a total blocking of competition, no administrative or legislative measures should be applied if this would be contrary to the overall aim of enhancing innovative activities. Such a situation might arise, for example, when a patented invention does convey, at least for a certain period of time, a true monopoly in the sense that no substitutable products are available on the market, but when there is reason to assume that if competition law were immediately to intervene, with the result that price margins were substantially reduced, this would have a conspicuous chilling effect on further research activities and investments. In markets characterized by high entrance costs, such as markets with network effects, the application of competition law is particularly complicated so as not to discourage competition generally in these areas. The provision does not attempt to define in more detail the criteria on which the assessment should be based; these considerations are deemed to rest within the discretion and responsibility of the individual Members. As seen, from a technical point of view, the rule is based on the indispensability test developed in EU law.94 Compared to this, the wording of the present article is at the same time broader and more narrow. It is broader by not requiring that the use by the third party of the IP right results in a “new product”. It is more narrow by excluding access to competition law where this would have a “significantly negative effect on the incentives to invest in research and development”. In this way, it is the intention to focus the application of the principle to situations where a refusal to license or other misuse harms dynamic competition. Generally, the criteria should be understood in a narrow sense and would not include access to technology which is only “superior” to or

94


Schovsbo (ch. 7).

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more “popular” than the alternatives. Normally, only situations where use is “indispensable” from a technical perspective would be covered. 5.2.2 Art. 8b.1 (b) – Abuse of dominant position Subparagraph (b) reflects typical EU competition law terminology and thinking. It may have to be reformulated so as to be understandable also to those used to a different system with its own particular parlance. Nevertheless, it is submitted that the principle encapsuled therein should be one which is basically capable of communicating, and of finding general acceptance as, a valid reason for competition authorities to intervene. It follows from this caveat that no attempt is made here to define the criteria for finding abuse of a dominant position any further. The proposed provision contents itself with stating the general principle. This is deemed sufficient for the purpose of this proposal to highlight the general rule, in order for example to counter any attempts to persuade Members, in the framework of bilateral agreements or otherwise, to introduce provisions granting immunity status to IP rights against interferences on the basis of competition law. 5.3 Art. 8b.2 – Infrastructural concerns By making Art. 8b mandatory, Members would be under an obligation to establish a functioning system enabling them to monitor the effects of intellectual property on competition and to provide for adequate remedies in case of distortions. Although ultimately favourable to Members’ genuine economic interests, this might lead to an additional financial and organizational burden. In that regard, the same considerations apply as with a view to the establishment and maintenance of the system for acquisition and control of IP rights. Paragraph 2 therefore stipulates that the (new) rule set out in Art. 8.3 (i.e. that the obligation of Members to set up an efficient system for acquisition and cancellation of rights must respond to their respective state of development) should apply, mutatis mutandis, also with regard to the competition law system. 6.

Art. 9 (Amended) – Copyright: Protected Subject Matter

As explained above, it is proposed to transfer the text of Art. 9.1 of the present version of TRIPS to Art. 2.1, so as to achieve more consistency. Accordingly, the first paragraph is deleted in the amended version of Art. 9. No changes are proposed with regard to the exclusion of certain subject matter in paragraph 2. However, a third paragraph is proposed to be added, which excludes from copyright protection official texts of a


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legislative, administrative or legal nature, and official translations of such texts. The wording is adapted from Art. 2.4 RBC, where the same exclusion is found as an optional rule.95 The following reasons account for transforming Art. 2.4 RBC into a mandatory exclusion clause: the promulgation of official texts is essentially a task under public law, which must be fulfilled irrespective of the grant of an exclusive right. The utilitarian motive for granting copyright protection is therefore void – there is no need to offer (additional) incentives for promoting creativity. Even from the natural rights perspective, the connection between the personal author or authors and the work is regularly strongly attenuated by the public purpose it is intended to serve. And finally, the idea that official texts prepared in the course of legislation, administration, and administration of justice should become “property rights” of the persons producing such documents appears to clash with the very aim and function of such works. If some countries nevertheless choose to protect official texts against unauthorized reproduction, this has little to do with the interests of the personal authors in the usual sense. Rather, it protects the interests of the state, or the enterprises commissioned by it, to be able to control and/or derive revenues from such copying. Given the fact that the production and making available of such materials in an easily accessible form may indeed be cost-intensive, such interests cannot be discarded as totally irrelevant. However, it is considered that such interests do not have to be encompassed by a full-fledged copyright, which in all respects appears ill-fitting to such needs. As the provision deals with copyright only, it would in principle leave open the possibility for Member States to resort instead to sui generis rights granted to the entity producing official texts.96 This would take care of the financial aspects addressed above. On the other hand, that option is not without risk: in practice, sui generis forms of protection might have the same (or an even stronger) barring effect than copyright, if and to the extent they are granted in the form of exclusive rights instead of liability

95

The wording in the English text of Art. 2.4 RBC is slightly different, as it refers to “legislative . . . and legal texts”. However, it was found that the wording is not logical; furthermore, the French text, which is considered as prevailing in case of discrepancy, uses the word “ou” instead of “et”. 96 However, a caveat needs to be made here insofar as the possibility to “circumvent” mandatory TRIPS provisions by granting sui generis rights which in effect protect subject matter which should remain free might be considered as “contravening” TRIPS, in the meaning of Art. 1.1 TRIPS, depending on the meaning of “contravene”. See Kur & Grosse Ruse-Khan (ch. 8), 4.1, 4.4.


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rules,97 and unless they are subject to appropriate limitations. While the group was aware of those risks, the reasons for making the exclusion mandatory were found to prevail. The transformation of Art. 2.4 RBC into a mandatory exclusion clause raises an issue which is of importance also for the mandatory limitations in proposed Art. 13. The Berne Convention stipulates in Art. 20 that Berne Members may only enter into special agreements among themselves if authors are granted more extensive rights than under the RBC, or if the special agreements “contain other provisions not contrary” to the Convention. It is obvious that an agreement turning optional limitations into mandatory rules does not grant “more extensive rights” than at present. If it should follow that Berne Members cannot enter into any agreements introducing ceiling rules in the area of copyright, this would not only render precarious the present proposals, but it would mean that all drafts and discussions involving ceiling rules are in vain,98 unless and until changes are effected in the Berne Convention itself. However, such a consequence is not warranted if Art. 20 is understood as involving two alternative elements, meaning that Berne Members can also conclude valid agreements if these include other provisions which are not contrary to what is guaranteed under Berne.99 On the basis of that understanding – which appears to be the more plausible interpretation – it would be decisive whether the exclusion from protection of official texts stands in contradiction with Art. 2 RBC. However, as exclusion of such texts is expressly permitted by Art. 2.4, such contradiction cannot be found. 7.

Art. 13 (Amended) – Limitations

7.1 General remarks Art. 13 replaces the current version of the three-step test in copyright with a provision stipulating a number of mandatory limitations. The same scheme is followed in the sections on trademark, industrial design and patent law. In accordance with the basic considerations underlying this proposal,

97

It might be possible to argue, also in the light of what was said in the preceding footnote, that sui generis protection would indeed “contravene” the exclusion clause unless protection was restricted to a liability rule, i.e. access against payment. 98 For an account of those endeavours, see Kur & Grosse Ruse-Khan (ch. 8), 3.3; see also below. 99 Kur & Grosse Ruse-Khan (ch. 8), 4.2.1.


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the range of mandatory limitations has been kept to a minimum. The clause therefore only comprises those limitations that are regarded as absolute “must-haves”. It follows that to implement those limitations alone would usually not be sufficient for an optimal calibration of protection versus user interests. The relatively narrow catalogue of mandatory rules reflects the philosophy that an overly paternalistic attitude should be avoided, and that countries should take upon themselves the primary responsibility for devising a comprehensive body of adequate rules (see Art. 13.3). 7.2

Art. 13.1 – Mandatory list of permissible uses

7.2.1 Art. 13.1 (a) – Technically mandatory limitations Art. 13 paragraph 1 (a) is a response to the fact that any meaningful communication under contemporary conditions demands some amount of copying as a technically necessary step in the process. To allow for such copying to be performed in the manner necessary to enable communication is therefore an indispensable requirement to enable the free flow of information and other substantive content, which should not be obstructed for reasons of private wealth-maximization.100 This has been recognized for instance in Article 5.1 of the Infosoc EU Directive (29/2001/ EC), which constitutes the only mandatory limitation within the directive.101 The proposed limitation shall apply without conditions, that is, it shall not be subject to remuneration or other requirements, such as those spelled out at the end of the first sentence of subparagraph (b). However, the notion of “purely technical purposes” leaves some space for members to regulate, for example, that the limitation only applies to incidental and transient copies, or that only such copying is privileged which does not have an independent economic significance. Both requirements would be regarded as clarifications rather than as genuine qualifications affecting the substance.

100

At least indirectly, this follows from the human rights-based request to safeguard the basic tenets of free speech and freedom of information; see also below. 101 Cf. Art. 5.1 of the Infosoc Directive (29/2001/EC): “Temporary acts of reproduction . . . which are transient or incidental [and] an integral part of a technological process and whose sole purpose is to enable: (a) transmission in a network between third parties by an intermediary, or (b) a lawful use of a work or subject-matter to be made, and which have no independent economic significance, shall be exempted from the reproduction right . . .”.


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7.2.2 Art. 13.1 (b) – Reverse engineering Reproduction for technical purposes might arguably already extend to decompilation of computer programs, which is necessary to achieve interoperability between different types of software. However, in order to disperse doubts in that regard, Art. 13.1 (b) lists reverse engineering expressly as a mandatory limitation. The wording is modeled on Art. 6.1 of the EU software directive (91/250/EEC). As it does not specifically relate to software, the thought expressed therein might also apply to other fields, where this becomes relevant. 7.2.3

Art. 13.1 (c) – Limitations in favour of free speech and information

7.2.3.1 aim and structure of the provision Subparagraph (c) addresses aspects of prime importance for the well-functioning of copyright regimes in the interest of users and society as a whole. To implement such rules appears as an indisputable command ensuing from the observation of fundamental Human Rights, such as the right to free speech, information, and education.102 Further to that, account must also be taken of the basic interests of the authors, which are likewise protected as fundamental rights.103 The exercise of the limitations is therefore conditioned to some extent by certain substantive requirements set out in the second part of the provision. 7.2.3.2 art. 13.1 (c) (i) –(iii) – citation, teaching and news reporting There is reason to assume that basically all limitations listed in subparagraph (c) (i)–(iv) already form part of Members’ copyright laws. It is not expected therefore that in those regards, the mandatory limitation clause proposed here would entail substantial changes to the present status quo. To some extent, this is an effect of the Berne Convention, where the same considerations have already inspired certain provisions, some of which are of a mandatory character. Thus, regarding quotations, a mandatory limitation is set out in Art. 10.1 RBC.104 Likewise, the Berne Convention acknowledges the privileged character of use for illustrative purposes in teaching, albeit only in an optional form (Art. 10.2 RBC). Regarding news reporting, the Berne Convention marks an important axiom by excluding news of the day from protection (Art. 2.8 RBC). 102

Arts. 19, 26 UDHR. Art. 27 UDHR. 104 The mandatory character of Art. 10.1 RBC has been contested; however, the arguments brought forward to that effect are unconvincing. See Kur (ch. 5), 3.2.1. 103


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Specific limitations are further found, albeit only in an optional form, in the two paragraphs of Art. 10bis RBC, concerning reproduction of reports on current events, and the inclusion of works in the report itself. The related aspect of access to documents of public interest is addressed in Art. 2bis RBC. On the basis of the wording in proposed Art. 13.1 (c) (i)–(iv), all those limitations would have to be regarded as mandatory. 7.2.3.3 art. 13.1 (c) (iv) – illustration in connection with legitimate sales The rule expressed in Art. 13.1 (c) (iv) is closely connected to the principle of exhaustion. Although exhaustion in its international dimensions does not form part of the TRIPS package, it is basically uncontested that the proprietor of IP rights vested in tangible goods cannot control their further commercialization once they have been put on the market by her or with her consent. In that situation, it should likewise not be possible to prohibit the announcement of such products for sale, and to accompany such announcements by illustrations showing the product which is offered. Here too, free speech is at issue, albeit in the form of advertising and other commercial speech. It is important to note that the rule is strictly accessory to domestic law, insofar as the latter determines whether commercialization as such is legal or not. Only if no legal obstacles exist with regard to offering the goods on the market concerned, does the proposed clause make it mandatory to permit reproduction for illustration purposes, within the limits prescribed by Art. 13.1 (c) 2nd part (below). 7.2.3.4 art. 13.1 (c) (v) – parody In contrast to the limitations comprised by items (i)–(iii), the limitation in favour of parodies, which is addressed in item (v), does not have a pertinent basis in international law. Nevertheless, it is also submitted that the legitimacy of parodying a protected work is basically universally accepted. This also concerns countries which do not have a specific provision on parodies; there too, courts usually pay attention to the fact that parody is a firmly established and valuable kind of artistic expression, and that the admissibility of such forms of communication is an element of critical relevance for a free and open public discourse.105 Although, again, it is therefore not expected that to cast that principle in the form of an internationally binding limitation would lead to substantial changes in practice, to do so nevertheless

105

As an example from German jurisprudence (where no explicit limitation with regard to parodies is contained in the copyright act), see German Federal Supreme Court (BGH), GRUR 2000, 703, 706 – Mattscheibe.


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appears important as a way of marking the outstanding importance of the specific facet of the free speech paradigm underlying the provision. 7.2.3.5 safeguarding the author’s interest – qualifications contained in art. 13.1 (c) In the second half of Art. 13.1 (c), the ambit of the mandatory limitation is restricted to the extent this appears necessary to safeguard the interests of authors and other right holders. First, the provision does not give carte blanche to any kind of (extended) use, but only requires that the exclusive right be restricted to the extent necessary for the relevant purpose. The same qualification is found in Art. 10.1 RBC, and corresponding principles are reflected in numerous national codifications. The maxim that curtailments of rights should be restricted to measures entailing the lowest intensity of adverse effects also complies with the proportionality principle, which forms a kind of general lodestar for balancing exercises performed under the Agreement. Second, as an additional protective element, reservation is made for the right of the personal creator to have the work attributed to him or her and to oppose use that amounts to a massive and manifest mutilation of the work in its original form. This part of the sentence paraphrases the objectives underlying Art. 6bis RBC.106 Whereas the insertion of that clause only states the obvious for countries which are bound by the Berne Convention, it may nevertheless be felt to be problematic insofar as it could be viewed as “introducing through the backdoor” a provision which, by virtue of Art. 9.1, was deliberately excluded from incorporation into TRIPS. In particular, problems might be perceived in countries where – as in the USA – the opinion prevails that to attribute moral rights to authors is basically inimical to legitimate forms of expression necessarily involving a certain degree of alteration, such as parody. Qualifying the mandatory limitation for parody by reference to droit moral might therefore appear as devaluing the provision in its substance. However, such an impression would hardly be justified. It is undisputed that even in countries that fully observe authors’ moral rights, parody does have its place, and cannot be declared inadmissible simply because in the eyes of the author every use in a satirical or parodist context may amount to mutilation.107 Precautions are also taken in proposed Art. 13.1 (b) 106 Unlike Art. 6bis, the term “personal creator” is used instead of “author”. The wording is intended to clarify that corporate authors are not included in that part of the reservation clause. The interest of such authors to be named is taken care of, however, by the third element in the reservation (reference to the source). 107 For an overview on law and jurisprudence in the Nordic countries, see Rosén (1994).


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against such misunderstandings by restricting the reservation to “massive and manifest” mutilations. Furthermore, according to the structure of Art. 13, the provision only enunciates the maximum level of protection which may be granted. Members may therefore grant less protection, that is, they may allow for parodies even where this would not comply with Art. 13 (1) (b). It is true that if Members allow for parodies or other privileged uses in spite of moral rights being violated thereby, this will constitute a breach of the Berne Convention. However, because Art. 6bis RBC is, and continues to be, excluded from TRIPS, this would not furnish a reason for a WTO panel to intervene. The third qualification in the second part of Art. 13.1 (b) concerns references to the source. To some extent, the requirement parallels the right of attribution, or “paternity right”, forming part of the droit moral. However, whereas the paternity right only regards the personal interests of the author – who, according to this proposal, can only be the personal creator of the work at stake – the obligation to indicate the source is broader, and encompasses also the interest of corporate right owners.108 A corresponding obligation is enshrined in Art. 10.3 and Art. 10bis.1 RBC. Whereas in those instances, the obligation is imposed in a peremptory manner, the clause proposed here allows for derogation in certain cases, where to insist on the indication of source would be impossible or inappropriate. This concerns in particular parodies, where it would be contrary to the whole concept of parodying if an obligation existed to indicate the object of persiflage. Also, in certain instances of news reporting incidentally involving protected content, it might arguably go too far to demand full indication of the source. 7.2.4 Art. 13.1 (d) – Reproduction by public institutions Subparagraph (d) addresses specific acts of reproduction of works in public institutions for non-profit and non-commercial purposes. This is based on the consideration that those institutions likewise play an indispensable part in the information society by preserving, and contributing to, the commonwealth of knowledge, and that their activities must therefore also be privileged to some degree. Indeed, a recent survey examining the law of all WIPO Member States109 has shown that only 21 out of 184 countries do not include one or several limitations with regard to library

108 This concerns corporations figuring as original authors in countries recognizing initial copyright ownership of legal persons, and it also applies to derivative right holders (“exploiters”). 109 Crews (2008).


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activities. Of course, the study also shows that the type and contents of limitations vary widely – and again, the proposed provision only intends to capture their core elements. The wording of Art. 13.1 (c) is modelled on Art. 5.2 (c) of EU Directive 2001/29, where it is one of several optional limitations. In spite of its optional character, it has been implemented in all 27 Member States, albeit in different ways and breadth. For the purpose pursued here, the wording was slightly changed so as to identify the baseline triggering mandatory regulation.110 By referring to acts of reproduction which are necessary for the institutions to perform their tasks, it is basically intended to encompass two types of reproduction: first, copies made for purposes of preservation, format-shifting and (where applicable111) for replacement,112 and second, copies for research or study, where that is part of the tasks attributed to the institution at stake.113 By contrast to the provisions under (a) and (b), Members may make the reproduction of works under this clause dependent on payment of remuneration, if and to the extent they consider this as appropriate in view of their own domestic situation. 7.3 Art. 13.2 – Private copying Paragraph 2 contains a mandatory limitation for private copying. This complies with the legal situation in most countries, which usually allow (at least) certain forms of reproduction made for private purposes. However, contrary to what may be suggested by that practice,114 most countries do not recognize private copying as a genuine user’s right.115 Instead, it is only regarded as an exception from exclusivity which is subject to specific conditions. Hence, private copying may be subjected to payment of gross

110 In Art. 5.2 (c) of the Infosoc Directive, the provision refers to “specific acts of reproduction”, leaving it for Member States to define which specific acts they want to privilege. 111 As the limitation only applies to activities from which no direct or indirect commercial or economic advantage is derived, reproduction for replacement would not fall under the clause if the item can be retrieved on the market. 112 According to Crews (2008), 72 WIPO Member States to date already provide for limitations allowing preservation measures, and in 67 WIPO Member States, replacement is permitted. 113 According to Crews (2008), 74 WIPO Member States provide for such limitations. 114 See Hugenholtz & Okediji (2008), where private copying is listed as a limitation based on “fundamental freedom”. 115 Geiger (2005).


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(licence) fees, or it may be prohibited entirely under certain circumstances, for instance by digital means. The proposed provision reverses the current paradigm treating private copying as a privilege which can be withdrawn at any time, and establishes the general principle of free private copying for personal purposes,116 without further conditions, and without extra payment being due to the right holder. This would cover in particular copies made for purposes of time-shifting and preservation or security. On the other hand, this is not to ignore that to implement such a principle on the international level might actually entail a quite substantial erosion of the right vested in a protected work. This would be the case, for instance, where the extent of private copying, and the circumstances under which it takes place, are uncontrollable in practice, as in a situation where private copying forms an essential element of a larger pattern of file-sharing, part of which continues to be (in principle) illegal. In that event, the freedom of private copying could be restricted, under the premise that to retain that freedom to its full extent would manifestly clash with the principles set out in Art. 8a.2, first sentence (i.e. that it would unreasonably prejudice the legitimate interests of the right holder). By adding the term “manifestly”, it is made clear that the yardstick to be applied is even somewhat stricter than what follows from Art. 8a.2, first sentence, as such. Further to that, it needs to be recalled that Art. 8a.2 is structured so as to adopt the user’s perspective as the starting point for the assessment, thereby placing the burden to establish the necessity and appropriateness of enclosures on the right holders. This means that even if private copying for certain reasons is excepted from the general principle established in Art. 13.2, legislatures would still have to opt for the least obtrusive measure. In view of the factors listed under Art. 8a.2 (a) (iii) and (b) (i), Members would therefore have to give serious thought to establishing a remuneration system, before full exclusivity could be re-established. Similar considerations would also apply to forms of private copying which are not covered by the rather narrow wording of Art. 13.2, such as copies made for distribution within one’s closer circle of friends and family, or copies made with the help of an intermediary.

116 The rule would therefore not cover copying for the purpose of uploading contents in the context of peer-to-peer file-sharing (apart from the fact that in such case, also the “making available” right would be involved, which needs to be appraised separately from the act of reproduction it involves; see also below.


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7.4 Art. 13.3 – Further limitations The third paragraph serves as a reminder of the fact that countries remain free – or are even expected – to adopt more detailed and far-reaching limitations than those contained in the mandatory catalogue. Although this follows already from Art. 8a, the reiteration of that principle in the last paragraph of Art. 13 was motivated by the perceived risk that to propose a number of mandatory limitations might be (mis)understood as providing a full and exhaustive list of such clauses, thereby reducing Member’s internal flexibility (the “wiggle room”) to practically zero. Examples for limitations which do not fall under Art. 13, yet which would most likely be sustainable under the general balancing clause, are given in the comments to Art. 8a. Of course, however, the range of such limitations is much broader than what can possibly be related here. To obtain a better and more comprehensive picture of the areas where such provisions are of practical relevance, and of the way in which they may be drafted, it is of use, first, to engage in comparative, worldwide studies of existing limitations such as those conducted in copyright under the aegis of the WIPO Standing Committee on Copyright and Related Rights (SCCR), with the possible aim of formulating model rules or other softlaw instruments capable of providing (additional) guidelines. Eventually, such efforts can also take the form of internationally binding instruments, such as the Treaty proposed by the World Blind Union117 (see also below). 7.5 Comparison with other projects As was pointed out in more detail in this volume, several proposals are currently under discussion which contain at least partly mandatory copyright limitations.118 The most advanced of those initiatives is the World Blind Union proposal for a WIPO Treaty for Improved Access for Blind, Visually Impaired and other Reading Disabled Persons;119 of further interest in this context are the project of a Treaty on Access to Knowledge (A2K)120 as well as the Hugenholtz and Okediji study in preparation for 117

Proposal by Brazil, Ecuador and Paraguay, Relating to Limitations and Exceptions: Treaty Proposed by the World Blind Union (WBU), available at http://www.wipo.int/meetings/en/doc_details.jsp?doc_id=122732. 118 See Kur & Grosse Ruse-Khan (ch. 8). 119 Above (footnote 118). 120 The driving force behind the A2K Treaty proposal is CPTech (Consumer project on Technology), an initiative formed and directed by James Love. The text is available at http://www.cptech.org/a2k/a2k_treaty_may9.pdf. As far as can be seen, the draft has remained unfinished and, for the time being, is no longer pursued proactively. However, with its far-reaching and partly quite innovative proposals, it continues to be interesting and inspiring.


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an international instrument on limitations and exceptions in copyright.121 Although the proposals are quite diverse with regard to context, aims, degree of specificity and maturity, it can be observed that they tend to coincide with each other as well as with the present proposal in certain core areas – quotation, parody, use for educational purposes, private copying, and certain uses by libraries and archives. However, some divergences do remain, which are not (only) explained by the different level of detailed regulation. This regards in particular the mandatory limitation in favour of persons with (visual) impairments or other disabilities, which lies at the centre of the WBU proposal, but which also forms part of the other proposals mentioned above. Contrary to that, the amendments proposed here only regard limitations in favour of disabled persons as an example for an optional rule based on serious cultural or social considerations (Art. 8a.2 (a) (v)). Two reasons account for this: first, it was found too difficult to formulate such a provision without going into too much detail. Furthermore, it was considered that this would typically be a field where countries should retain full freedom to develop their own social policies. These may not necessarily have to include copyright-related measures, but they might also be implemented in a more indirect manner, like subsidizing the making of copies accessible to the blind or visually impaired, or providing for other forms of facilitated access to protected works. The less ambitious approach endorsed here with regard to TRIPS would then leave room for specific treaties such as the treaty proposed by the WBU. Finally, unlike other initiatives, the proposal presented here does not address the impact of binding limitations on the validity of contracts derogating from the prescribed standards, or the possibility to circumvent technical protection measures in case that access should be blocked which is permitted by virtue of a mandatory limitation. To regulate any or both of these elements would have meant to introduce features into TRIPS which at present are not included therein. 122 As the intention with the IPT project has been to propose amendments which would still fit into the

121

Hugenholtz & Okediji (2008). It is not entirely clear whether even in the absence of explicit rules on the effect of mandatory ceilings on contractual provisions and TPMs, superiority visà-vis measures of private ordering would follow automatically from the binding nature of such provisions; see Ginsburg (forthcoming). On the basis of that opinion, the explicit provisions included in the WBU proposal and the draft A2K treaty requiring that contractual agreements should be declared invalid, and that circumvention of technical protection measures do not lead to sanctions if they are necessary to secure access to uses which are permitted under mandatory international law, would only have the effect of clarification. 122


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pertinent structure and ambit of TRIPS, no such additional endeavours were undertaken. 8.

Art. 14.6 (Amended) – Related rights

Article 14.6 mainly reiterates the limitations set out in Art. 13, by making the provision applicable mutatis mutandis with regard to related rights. This means that in contrast to the present text, which only grants an option, the limitations set out in Art. 13 must be applied on a mandatory basis also concerning the rights of performers, phonogram producers, and broadcasting organizations listed in Art. 14.1, 2 and 3 TRIPS respectively. In addition, and in partial overlap therewith, it is stipulated that rules modelled on the (other) limitations mentioned in the Rome Convention are generally considered to be in compliance with TRIPS. The limitations permitted under the Rome Convention are spelled out in Art. 15 of that Convention. According to the first paragraph, this concerns private use, use of short excerpts in connection with the reporting of current events, ephemeral fixation by broadcasting organizations and use solely for the purpose of teaching or scientific research. At least in part, those limitations are already covered by the limitations enunciated in Art. 13. The additional rule is therefore only of interest where it is more permissive than the prescribed ceiling. In Art. 15.2 Rome Convention, it is further declared that Contracting States may in their domestic laws provide for the same limitations as are applied in connection with works protected under copyright. Under the proposed wording, the effect would be maintained, meaning that the admissibility of limitations applying to the rights of performers, phonogram producers and broadcasting organizations would automatically follow if the same limitations can be validly promulgated and upheld in the area of copyright. Finally, the last sentence of Art. 15.2 Rome Convention stipulates that compulsory licences may only be provided for to the extent to which they are compatible with the Rome Convention. Art. 14.6 transposes the same rule into TRIPS, meaning that even countries which have not adhered to the Rome Convention are bound by its regime of compulsory licensing, which, at least for certain countries,123 is somewhat stricter than that 123

This concerns primarily the possibility for developing countries to grant compulsory licences for translations, which is regulated in the Annex to the Berne Convention. However, that part of the Berne Convention is of little relevance in practice anyhow, and it may be even less so for the kind of protected subject matter addressed by the Rome Convention and in Art. 14 TRIPS.


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applying under the Berne Convention. That system would be slightly changed by the proposal insofar as unlike the present wording of Art. 14.6, the proposed wording only refers to the Rome Convention in the sense that the limitations and exceptions set out therein are declared to be (automatically) admissible, without thereby restricting the range of permissible limitations to the same sample. It is therefore possible, and would have to be assessed under the other provisions of the Agreement – in particular Art. 8a – that the grant of compulsory licences in other cases than those allowed by the Rome Convention might also be in compliance with TRIPS. However, that possibility would only be of practical interest for countries which have not adhered to the Rome Convention (and which are entitled to make use of the system established by the Appendix to the Berne Convention for compulsory licensing), because otherwise those other norms would remain binding. 9.

Article 17 (amended) – Limitations

9.1 General remarks; structure of the provision Compared to copyright and patent law, trademark law is a relatively uncontroversial area of IP. There is wide consensus that trademark protection as a matter of principle is beneficial to any society. Most importantly, trademarks reduce consumers’ search costs by providing information on the commercial origin and hence about quality and other characteristics of products and services. It is also acknowledged that trade in counterfeit goods may seriously distort international trade, and may hurt national economies as well as right holders’ and consumers’ interests. As trademarks constitute an essential tool for commercial communication, it is particularly important to ensure that the attribution of exclusive rights does not unduly restrict the possibilities of other market actors to commercialize their own products or services, or to exchange views and/or convey factual information about the products or services designated by the mark. The limitations set out for that purpose are presently enshrined in Art. 17 TRIPS, which, as in the other sections of TRIPS Part II, is replaced in this proposal by a catalogue of mandatory rules. Before commenting on those rules in detail, the following must be observed. The number and type of limitations which trademark law needs to include in order to minimize adverse effects on commercial communication depend inter alia on the breadth of the rights conferred. If protection under trademark law is limited per se to situations when the origin function of a mark is actually jeopardized – i.e. when the same or similar mark is used as a sign indicating the commercial origin of another person’s product or service, and consumers are likely to be misled thereby – the scope of


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protection will usually not go beyond what is necessary to protect the interests of right holders as well as those of consumers and honest trade. There will hardly be much need to provide for further explicit limitations in such situations. Vice versa, if a broad approach is taken towards trademark law, meaning that basically all modes of unauthorized use are considered to fall within the ambit of the proprietor’s exclusive right, the need for the law to encompass adequately tailored limitations becomes more urgent. Accordingly, the question whether the proposed limitations must be implemented in an explicit form will depend on the actual breadth of national trademark law. If it results already from the structure of the law itself that purely referential uses – uses referring to the mark, without employing it as a sign of indicating the origin of one’s own products or services – will not be considered as trademark infringements, it would be redundant to implement limitations specifically addressing that situation. However, that scenario may give rise to related problems insofar as the respective conduct is adjudicated under adjacent regulations, such as marketing practices acts or similar codifications, which may warrant an equally strict or even stricter assessment than broadly measured trademark laws. Although, strictly speaking, the provision proposed here would not apply to such “external” rules, it would nevertheless be expected that Members do take account of, and basically try to follow, the spirit of the mandatory limitations also in the context of adjacent regulations.124 9.2


9.2.1 Art. 17.1 (a) – Non-commercial use As a general rule, Art. 17.1 (a) exempts from trademark protection any use which is made for non-commercial purposes. This appears to reflect a principle currently applying in a large majority of countries, where use “in the course of trade” or use “in commerce” is required as a prerequisite for raising claims against other parties’ use of a mark. In practice, this means that to “embellish” one’s privately owned property by a well-known trademark – for instance, by stitching a crocodile on one’s shirt, or painting a Mercedes star on one’s car – would not as such constitute objectionable conduct under trademark law. However, in present times, the “safe haven” provided by the traditional exception in favour of non-commercial activities is gradually eroding. This concerns, first, basically private conduct which is carried out through

124 This applies all the more to limitations which are based on the fundamental right to freedom of speech and information; see below.


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ubiquitous media such as the internet: although one-time sales or auctioning of (used) fake products may arguably be considered as “private” in the sense that it does not involve professional commercial activities, trademark holders’ interests will be more acutely affected than if such sales had occurred in the “real world”. The same is true also for essentially private communication which is spread through global media, and which involves protected names and symbols as domain names, or in the message itself. Such actions regularly fall into a “grey zone”, and may be considered as infringing irrespective of their (at least partly) private character. Second, some countries (like e.g. France125, Italy) have taken steps under criminal or administrative law to prohibit and impose sanctions for private use and possession of counterfeit goods, with the aim of laying waste the market for such merchandise. In view of those developments, the validity of the principle exempting non-commercial conduct from the ambit of the trademark holder’s exclusive rights might become precarious. In this situation, it was considered important to anchor that rule in the form of a mandatory limitation in Art. 17. However, even under such a mandatory provision, it would still be left to national law and jurisprudence to decide under which circumstances certain types of conduct are considered as “commercial”. Thus, it would still be compatible with the limitation if it were considered as prima facie infringing to offer privately owned replicas of well-known brands for internet sales or auctions, because and as long as the impression is created thereby that the sale forms part of regular, gain-oriented activities. Furthermore, the clause would not preclude the possibility for Members to implement criminal or administrative sanctions as a part of their anticounterfeiting strategies, as such measures and the policies underlying them are anchored in a different context and operate on a different level than the provision on infringement.126 It follows that Art. 17.1 (a), instead of changing the present situation to a substantial degree, rather forms an attempt to stem the tide which might otherwise lead to further erosion, and finally to annihilation, of the principle that private use of trademarks is essentially free.

125 L. 716-10 Code de la propriété intellectuelle. For the application of the provision in practice, see Cass. crim., 30 March 1994, Bull. crim. no. 128. 126 The same issue may arise in design and patent law, in case of horizontal IP legislation concerning anti-piracy measures and private behaviour.


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Art. 17.1 (b) – Other privileged modes of use

9.2.2.1 art. 17.1 (b) (i)–(iii) – descriptive and informative use; comparative advertising Items (i) to (iii) in subparagraph (b) concern different ways of using protected marks for informative purposes. The first of these clauses, item (i), addresses the classical case of “fair use” being made of descriptive terms, and it conforms with the example explicitly mentioned as an optional limitation in the present text of Art. 17 TRIPS. The provision proposed here turns that option into a mandatory requirement. The wording is modelled on Art. 6.1 (b) of the European Trademark Directive (95/2008/EC), which spells out, in an exemplary, non-exclusive manner, different aspects of product characteristics which may be described by a mark. The most important of those aspects concerns the geographical origin as well as the kind and quality of goods. The former element was addressed in the EC – GIs panel report (WT/DS/174), where it was found compatible with Art. 17 TRIPS that in certain cases trademarks must coexist with geographical indications, irrespective of precedence in time. Under (ii), the situation is addressed that an entrepreneur uses a trademark in order to provide information in connection with goods or services which are legitimately commercialized on the market. First and foremost, the clause is meant to safeguard the possibility to convey information about the availability of products which are legitimately offered for sale, even where such goods have been obtained through “grey channels” or by way of parallel import. The provision thereby confirms the principle that a right holder’s claim to prohibit advertisement shall not go any further than the right to oppose the sales as such. In other words, only if and to the extent that a country applies the principle of national or regional exhaustion, it would be illegal to announce the availability of goods that were imported without the right holder’s authorization. Another typical field of application would concern use of another person’s trademark for the purpose of rendering information to consumers and/or relevant trade circles about the possibility of using goods in connection with others, such as accessories or exchange parts (see e.g. Art. 6.1 (c) of Directive 95/2008/ EC). In partial overlap with (ii), the range of informational uses which shall remain exempted from trademark protection under Art. 17 is slightly extended by the next item, (iii), which makes reference to “other marketing purposes providing relevant information”. Comparative advertisement is mentioned as one specific example of situations covered by the clause. In generalized terms, the constellations addressed here can be referred to as “referential” or “nominal”


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use.127 They are characterized by the fact that the person engaging in that kind of use designates the goods or services without claiming to be, or to be linked to, the commercial source from which they originate. Apart from comparative advertisement in its different forms, this typically concerns critical statements or other kinds of comments, use in the title of publications or other documentaries dealing with the topic, or similar forms of use. Depending on the legal system, such cases may already be exempted from protection because by definition they do not interfere with the trademark’s origin function. The relevance of the provision is therefore primarily acute where the ambit of trademark law is not confined accordingly (see already above). 9.2.2.2 art. 17.1 (b) (iv) – parody, satire and other free speech issues Use of trademarks in parody or satire is another form of use which should regularly remain permitted. Also here, exclusion from trademark protection may follow already from other reasons, like the fact that, typically, no likelihood of confusion will result from such use. However, in particular where trademark laws prohibit any form of blurring or tarnishment, or the taking of unfair advantage of a mark, the kind of distortion forming a characteristic element of parodies might motivate a prima facie finding of infringement. As was set out already with regard to Art. 13, it is therefore necessary to highlight, in an internationally mandatory form, the principle that communication of a parodist and/or satirical nature is an important element of fundamental freedoms which must be tolerated to some extent.128 The same would certainly be true with regard to other forms of use which are covered by fundamental rights, such as the freedom of art. Andy Warhol’s iconic pictures of Campbell’s tomato soup and other artworks are not to be considered, in the first place, under the aspect of trademark infringement – it should be clear that such use is to be judged by a different yardstick. 9.2.2.3 art. 17.1 (b) (v) – use of one’s own name Apart from informational issues and other free speech-related forms of use, it is also widely accepted that a person must remain free to use her own name in order to identify her business and/or the goods or services offered by her, without thereby running the risk of being held liable for infringement. Also here, aspects of fundamental rights are involved to some extent – the possibility to identify the nucleus of one’s business activities by one’s own name can

127

The term was coined by Judge Kozinski, in New Kids on the Block v. News Am. Publ’g Inc., 971 F. 2d 302 (9th Cir. 1992). 128 See above, 7.2.3.4.


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be understood as a manifestation of basically universally valid personality rights. Item (v) pays tribute to that principle.129 However, it also contains certain qualifications so as to confine the ambit of the mandatory limitation to those cases for which it is actually needed: it only applies to natural persons’ own (personal) names, and it only covers use for goods or services originating from businesses which are carried out by, or in cooperation with, that person, or use of the name to identify the business itself. 9.2.2.4 art. 17.1 (b) 2nd part – qualification of admissible use Similar to the structure of proposed Art. 13, the uses permitted by Art. 17.1 are qualified to some extent by the second part of the provision, which refers to “honest practices in industrial and commercial matters”. The qualification is indispensable insofar as it relates to the risk that by using the mark for the purposes under (i) to (v), it would be possible for a person to escape liability for misleading consumers about the commercial origin of the goods or services. If the limitations were binding even in spite of such consequences, they would be clashing with the very purpose of trademark protection under TRIPS.130 It is therefore emphasized in the last sentence of subsection (b) that misleading use must be considered as inadmissible. By its wording – which refers to the risk that a commercial link is deemed to exist between the holder of the mark and the person using it –the provision further clarifies that the relevant risk may not only materialize in the case where consumers are misled into thinking that the other person’s product or service originates from the trademark holder, but that it is sufficient if consumers believe that legal or economic ties exist between the two.131 However, a substantial number of countries go beyond that level and also consider conduct as inadmissible which indicates no such links, but which is likely to damage, or to take advantage of, the distinctive character or reputation of a trademark. Usually such extended protection is granted (only) to marks which are well known or even famous. As the provision proposed here intends to mark the ceiling up to which trademark protection may be granted, without evoking substantial frictions with Members’ freedom to legislate in areas which they consider as important from their own policy perspectives, it is submitted that to safeguard the reputation or distinctive character of marks against deterioration or abuse concerns an 129

See also Resolution (Q 195) by the AIPPI Exco, Singapore 2007. EC – GIs, WT/DS174/R ¶ 7.644. 131 In that vein, see also Art. 16.3 TRIPS, stipulating that in case of wellknown marks, the rights conferred by such marks must extend to cases when use of the mark for dissimilar products appears to indicate the existence of a connection between the right holder and the sign. 130


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aspect which is likewise covered by Art. 17.1 (b), second part, by virtue of the reference made to “honest business practices”.132 On the other hand, it must be ensured that protection granted under the label of “honest business practices” does not render the limitations enshrined in Art. 17.1 (b) practically void. For instance, if infringement were regularly found because of the fact that by including a well-known or famous trademark in comparative advertisement, the reputation of that mark might be jeopardized or used for one’s own advantage, this would be irreconcilable with the obligation under Art. 17.1 (b) (iii) to allow for informative use. The same would be true of legal rules or judicial practice prohibiting any indication in advertising that the characteristics of a product or service have been lawfully modelled after those of another,133 unless it can be shown that to allow such practices would involve specific detriment which clearly outweighs the informational aspect, which otherwise should be considered as dominant. 9.3 Art. 17.2 – Additional limitations As usual, the second paragraph of Art. 17 refers to other or more farreaching limitations than those mentioned in the first paragraph. For instance, this could be of interest for provisions extending the privilege granted to personal names also to other designations and business identifiers, like (arbitrary) trade names.134 Other limitations of a non-mandatory character would concern modes of coexistence between trademarks and other signs, for instance on the basis of honest concurrent use, prior user’s rights,135 or in consequence of laches or forfeiture, etc. Also in those cases, it continues to be a mandatory requirement that the use must not be such

132 The term was deliberately chosen as it is wide (and imprecise) enough to cover a large array of policy aspects which Members deem to be important from their own perspective. 133 To introduce such a rule would cast doubt on the current situation under EU law, where – according to the ECJ’s interpretation of Directive 95/2008 in connection with Art. 3a.1 (h) of the comparative advertisement directive – to indicate in a direct or indirect manner that a product is a (legitimate) “imitation” of another product would regularly amount to trademark infringement; see ECJ case C-487/07 – L’Oréal/Bellure. That line of jurisprudence (as well as the relevant provision in the trademark directive) possibly clashes with the fundamental right to free speech under Art. 10 ECHR anyhow; see Kur, Bently & Ohly (2009). 134 This is the situation in the EU; see ECJ decision C-245/02 – Anheuser Busch/Budejovicky Budvar; ECR 2004 I-10989. 135 To introduce such a right has been recommended in the AIPPI Resolution on Q 195 (2007).


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as to mislead consumers about commercial origin.136 This is expressed by stipulating that the capability of trademarks to provide correct and reliable information as to the commercial origin of goods or services must not be impaired. In addition to establishing a barrier against misleading use, the clause is also of relevance for regulations subjecting the use of marks to certain requirements, like use in connection with another sign, or with generic terms (see Art. 20 TRIPS). Proposed Art. 17.2 reinforces the principle that if – and only if – the essential function of a trademark would be substantially jeopardized thereby, such measures would be irreconcilable with TRIPS. 10.

Art. 26.2 and 2a (Amended/new) – Industrial Designs

The mandatory limitations proposed for industrial design law largely follow similar patterns to those discussed in connection with copyright and trademark law respectively. First, Art. 26.2 (a) stipulates that private use of industrial designs should be admissible. Again, this does not preclude the possibility for Members to react, in certain cases, against broadly publicized sales or placement in auctions of privately owned products incorporating a counterfeit design, or to introduce sanctions against private purchase of such products on the basis of administrative or criminal law, if that is considered to constitute an appropriate or necessary step in the framework of national anti-piracy strategies.137 The limitations contained in subparagraph (b) run parallel to those in copyright law, to the extent this appears as relevant for industrial design law. The provision also echoes the relevant parts of the qualifications contained in Arts. 13 and 17, namely the reference to honest commercial practices and the obligation to indicate source. Subparagraph (c) refers to Art. 5ter of the Paris Convention, which shall apply mutatis mutandis to industrial design rights. This concerns the mandatory rule according to which Paris Union Members shall not 136

Unlike what was said above, Members are basically free in this context to establish that likelihood of confusion under trademark law will only be found if the public actually believes that the products or services are offered by the trademark holder herself. A certain exemption from that rule must be made with regard to Art. 16.3 TRIPS pursuant to which a certain degree of extended protection for well-known marks is mandatory. It is important to note here, however, that Art. 16.3 TRIPS makes reference to the likelihood of confusion in the sense that consumers must assume a connection between the sign and the trademark holder. The provision therefore does not compel Members to protect well-known trademarks against “pure” dilution or abuse of reputation. 137 See above, 9.2.1.


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consider patents as being infringed by the use of devices on vessels, aircraft or land vehicles of other Union countries if such vessels temporarily or accidentally enter the territory of country where the devices are protected by a patent. The reasons for applying such an exception are equally compelling with regard to devices protected by a design right. In addition, reference is made to Art. 27 (b) of the Convention on International Civil Aviation December 1944 (Chicago Convention), which extends the exception in Art. 5ter, with regard to subject matter protected by patent, design or model, to storage of spare parts and spare equipment, and the use of such parts or equipment in repair of the aircraft. According to the wording of proposed Art. 26.2, the same shall apply with regard to parts needed for the repair of vessels and land vehicles. It needs to be highlighted in this context that Art. 27 (b) of the Chicago Convention declares that such spare parts or equipment may only be used for repair purposes, and may not be sold or distributed internally in or exported commercially from the country entered by the aircraft, vessel or vehicle. As in the other provisions commented above, proposed Art. 26.2a emphasizes the option for Members to introduce more far-reaching limitations subject to Arts. 7 to 8b. In case of industrial design law, that possibility is of relevance inter alia for the introduction of a “repairs clause” allowing independent manufacturers to produce and sell protected parts of complex products for the purpose of repair, in order to restore the exact function and appearance of the original. 11.

Art. 27 Patentable Subject Matter

11.1

Art. 27.1 (amended) – Allowing for differentiation

11.1.1 General remarks Secondary (possibly) only to Art. 31, Art. 27 is among the most contentious provisions in the TRIPS Agreement. In the first place, this is due to the fact that it obliges TRIPS Members to grant patents “whether products or processes, in all fields of technology”, thereby making it mandatory to introduce product patents in such sensitive fields as pharmaceuticals and agricultural products.138 The provision was, and is, at the heart of discussions blaming TRIPS for disrespecting the specific needs of countries like India with its strong generic industries, and of those countries relying on India’s capacity to operate as the “pharmacy of the Third World”.

138 With the exception of plants, which, at the option of TRIPS Members, may only be subject to protection by a sui generis regime; Art. 27.3 (b).


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Furthermore, it was argued that in spite of the fact that transition periods were granted to developing and least developed countries (and were subsequently extended for the latter139), the obligation to grant product patents in all areas of technology basically denies developing countries the possibility to “learn and grow by copying” during a certain phase of their development, thereby depriving them of a privilege which all industrialized countries have made ample use of in their own history.140 Before that background, it might be considered whether a revised form of TRIPS should remove the exigencies of Art. 27.1, first sentence, leaving it to Members themselves to choose the right time to extend the patent regime to areas such as pharmaceutical products or other subject matter with specific importance for their own socio-economic development. However, for several reasons it is considered not advisable to take such a radical step. First, it seems too late for attempts to “turn the clock back” – most of the countries concerned have already brought their laws into line with Art. 27.1, and for others, the present (or further) extension(s) of the transition period may be sufficient to take account of their specific needs. Second, there is indeed some substance to the argument that unlike in previous times, when countries had full freedom to measure the size and speed of their own steps from pre-industrial to industrialized economy, the interference with international trade that perhaps results from countries indulging in intense and prolonged “learning by copying” phases are much stronger in the world of today, with its interlinked markets, where goods can travel much easier and faster than ever before in history. Rather than abandoning the basic principle set out in Art. 27.1, first sentence, the present proposal therefore settles for amendments in the second sentence which are less far-reaching, but which may nevertheless have some importance in practice. By deleting the references found in the second sentence of the pertinent text to fields of technology and to the aspect of whether goods are imported or produced locally, the proposed text gives broader discretion to TRIPS Members to differentiate between technological sectors, and to require that patents must be worked locally. Before commenting in more detail on those two aspects, the question must be posed whether it is necessary at all for those purposes to change the present wording of TRIPS. One argument against that could be that the wording already now allows for bona fide differentiation, in particular 139

See the remarks made in that connection in the ceilings chapter: the effect of that extension was lost on the (substantial) number of WTO Members which had already previously renounced, on a “voluntary” basis, to making full use of the transition period. 140 For a more detailed account of that, see ch. 1.


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where health or other concerns mentioned in the Doha Declaration are at stake. The argument finds some support in the WTO panel report Canada – Patents.141 Inter alia, the question had been posed whether the limitations contained in Canadian patent law with regard to stockpiling and regulatory control were of relevance only for pharmaceuticals, and thereby constituted “discrimination” as to field of technology in the meaning of Art. 27.1, second sentence. The panel held, first, that Art. 27.1, second sentence was applicable also in the framework of Art. 30 (which had been contested by Canada).142 Second, the panel expanded on the meaning and nature of the term “discrimination”, which “is a term to be interpreted with caution, and with care to add no more precision than the concept contains”.143 It then continued to observe that “not all differential treatment is ‘discrimination’”,144 Instead, the issue of whether a de jure non-discriminative rule (such as the one at issue in the conflict at stake) was de facto discriminatory and therefore incompatible with Art. 27.1 should be decided in the light of the actual effect and the purpose of the provision, evaluating whether it is particularly and purposefully disadvantageous to a specific field.145 The conclusion has been drawn from the panel’s decision that differential treatment on justified bona fide grounds is generally in compliance with Article 27.1.146 However, that conclusion must be regarded with some caution. First, the panel only had to comment on the specific case posed here, namely whether the fact that a limitation nominally applying to all fields of technology was de facto discriminating because of its practical restriction to pharmaceuticals. No comment was made on the implications of Art. 27.1 in general. Second, and possibly more importantly, the provision at stake in the actual case was non-discriminatory de jure, i.e., the panel did not have to comment on a rule which is explicitly targeted only at one specific field of technology. It is true, of course, that even such openly differential treatment may be found compatible with TRIPS, in particular in the “post-Doha” era. Indeed, the Doha Declaration might even be understood as suggesting that public health-related patents should be treated differently from other

141

WT/DS114/R, 17 March 2000. For a discussion of the case, see Kur (ch. 5), sub 4. 142 Canada – patents, ¶ 7.93. 143 Canada – patents, ¶ 7.94. 144 Canada – patents, ¶ 7.100. 145 Canada – patents, ¶ 7.100. 146 UNCTAD/ICTSD (2005), 370–71.


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patents.147 Furthermore, it is a fact that the patent laws in many countries currently allow for differentiation based on the field of technology. Some are neutral in their formulation, like Art. 54.5 of the European Patent Convention (EPC 2000) – usually referred to as the “second medical indication” – but are of relevance only for specific fields.148 Others are even expressly tailored for certain sectors of technology, like supplementary protection conferred upon pharmaceutical patents in Europe, Japan and the USA in order to compensate for the period required to obtain the marketing approval. These examples are supposedly acceptable under TRIPS. Nevertheless, it is far from certain how much support this may yield, if dispute settlement proceedings are actually installed in contentious cases. Furthermore, whereas the support would arguably be the strongest where fields are concerned, and effects are envisaged, which are in the focus of the Doha Declaration, the argument would be less convincing where differentiation is not due to health or nutrition concerns, but rather to considerations of a technical or economic character. An express amendment of Art. 27.1, second sentence therefore appears preferable to reliance on tendencies to interpret the provision in a not-sorestrictive manner. However, it needs to be asked whether to skip the reference altogether is not going too far. Instead of just allowing for bona fide differentiation, this might even invite open discrimination. For instance, on the basis of the proposed wording, it would arguably be possible for a country to introduce different protection periods for, say, software-related inventions on the one hand and chemical patents on the other, without so much as having to give a reason for that.149 However, the risks possibly created by allowing for such leeway are rather small. It can hardly be expected that legislatures act irrationally and purely arbitrarily in such matters – and if they do, it is primarily a task for the domestic circles to set them straight about that. International authorities should only become involved where arbitrary law-making leads to discrimination on the basis of nationality, or where specific (foreign) national interests are given preference in relation to others. Both aspects are already reflected in Arts. 3 and 4, which remain applicable and might arguably gain in importance after the proposed amendment. The proposed version of Art. 27.1 therefore only retains the prohibition to discriminate with regard to place of invention, which is generally 147

UNCTAD/ICTSD (2005), 374. This is the same situation as was addressed by the panel in Canada – patents, above. 149 Of course, it would be necessary that the minimum term prescribed in TRIPS is respected; see also the text below. 148


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considered to constitute an important principle of international patent law.150 Further amendments in the wording of Art. 27.1 are of an editorial character only and are not intended to change the contents of the provision. In particular, it is proposed to merge the two sentences of the present text of Art. 27.1 into a single sentence. 11.2

Amendments in detail

11.2.1 Differentiation as to field of technology By omitting the reference to field of technology, the amended version of Art. 27.1 would definitely terminate discussions about the TRIPScompatibility of provisions like those at stake in the Canada – patents case, or supplementary protection regimes for pharmaceutical or agrochemical patents, or other examples previously mentioned. However, as indicated above, the changes proposed here would even allow to go further than that. As a matter of principle, it would even be possible for legislatures to develop patent legislation “à la carte”, with provisions being tailor-made for individual areas of technology, as long as the minimum requirements for protection under TRIPS are met with regard to all of them. Indeed, the argument that patent law is in need of more technologyspecific regulation appears to be gaining ground. Biotechnology and computer-related inventions151 are often mentioned as areas which are egregious in terms of the specificity of issues posed, and where the truth inherent in the maxim that “one size does not fit all” becomes most clearly visible. Of course, even in view of quite pronounced differences between technical fields, legislatures may prefer to resort to methods of law-making that level rather than stress the discrepancies, for instance by formulating rules in a rather open and abstract manner, leaving the implementation, including differentiating treatment, to courts and authorities. It is also unclear whether stronger legal differentiation in certain areas would actually be a wise move, or whether it would only lead to fragmentation and increased uncertainty, particularly since the borderline between different fields is not always easy to determine. On the other hand, it should not be for TRIPS to hinder any such experimentation with new forms and ways to react to the plurality and variance of challenges posed in presently known and/or upcoming fields of technology. 150

See e.g. Art. 52 of EPC 2000. The first to invent principle in the USA resulted in a discriminatory application to this extent, which was however adjusted to comply with TRIPS in 1994, cf. 35 USC sec. 104. 151 For a differentiation of that area from “normal” patent law see Hilty & Geiger (2005).


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As was highlighted above, the freedom of legislatures to differentiate between technological fields should meet its borders where it “discriminates” in the sense which is relevant under international trade law, i.e. where it is aimed at putting foreign right holders in an unfavourable position vis-à-vis national proprietors, or where foreign interests are given precedence over others in a one-sided, and non-justifiable manner. Admittedly, it may be difficult in a given case to draw the borderline between the area of permitted differentiation under new Art. 27.1 and inadmissible forms of discrimination. However, it is submitted that the panels would be able to deal with that, based on the experience with, inter alia, Art. XX GATT, in particular its chapeau.152 Like in the cases decided under that article – and unlike the pertinent version of Art. 27 TRIPS – the burden to establish that a contested measure does amount to impermissible discrimination would lie with the party claiming non-compatibility with TRIPS. 11.2.2 The local working requirement It is generally accepted that the Paris Convention poses no obstacle for countries requiring that a patent must be worked locally.153 In contrast to that, TRIPS appears to rule out such a possibility by expressly prohibiting any discrimination between products which have been locally produced and those which have been imported.154 As a reason for that rule, it may be pointed out that in the WTO trade-related context, a local working requirement can be considered as forming an obstacle to trade.155 Indeed, it appears consistent with the general aims of an Agreement intended to boost international trade and access to foreign markets, that imported goods must be treated in principle as domestically manufactured goods, and discriminatory measures are not acceptable.156 The same aim is

152

For details, see Grosse Ruse-Khan (ch. 4), sub 2. Art. 5(2)(A): “Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licences to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work.” 154 As patents were originally granted to promote the domestic application of foreign technologies, with little protection for the rights of the original foreign patentees, the basic principles of the Paris Convention were non-discrimination, national treatment, and the right of priority. Non-discrimination meant no barriers to entry for a foreign inventor to a Member State’s domestic market. 155 Cf. for a similar attitude the EC, ECJ cases C-235/89 (Italy) and C-30/90 (United Kingdom) with regard to national working provisions, as long as the needs can be satisfied from somewhere in the Community. 156 Cf. GATT (1947) panel on the United States Manufacturing Clause, 15–16 May 1984 (L/5609-31S/74). 153


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reflected in the principle of national treatment of goods, as set forth in Art. III.4 GATT: WTO Members may not discriminate against imported goods. Whereas those trade-oriented arguments do make sense as such, they fail to recognize the outstanding importance and value of a local working requirement, not least in developing countries. From their perspective, an obligation of right holders to exploit their patents locally constitutes a useful tool of domestic industrial policy. First, to require local working is the most obvious way to attract foreign direct investment, and/or to generate foreign/domestic partnerships in the relevant fields of technology, with all the benefits this will entail for local employment rates and economic growth. Second, by working patented technology in the local environment, the “teaching effect” of the patent is typically deeper and more effective than what can possibly be achieved by the sole publication of the patent documents. In this way, patents can be beneficial not only for serving and inspiring industry, but also to society as a whole. In other words, by increasing publicized technical knowledge, local working of patents offers an in-built element of knowledge dissemination and technology transfer.157 It thereby complies exactly with the principles enshrined in Art. 7. In light of that, it seems inappropriate to prohibit any such requirements simply on the basis that they necessarily imply, in a very specific, limited type of cases, an element of discrimination vis-à-vis imported goods. Although different consequences of a local working requirement are conceivable,158 the primary sanction would be the issuance of a compulsory licence in favour of local producers. In addition to the hurdle posed by Art. 27.1, such licences must also meet the yardstick of the relevant international provisions. Historically, a local working requirement was motivated by two anticipated risks in the patent field: the risk of patent blocking and the risk of suppression. Patent blocking by a foreign company that takes out patents on inventions which are not worked in the country poses a problem for development, because it hinders technology transfer. Patent suppression by a capital-rich company that buys up patents in a country in order to protect its position in the market is a potential problem from a development perspective, because the pace of technological development may be slowed down. Whereas real-life examples of patent suppression are difficult to find and do not pose a

157

Cf. Bodenhausen (1968), 70. For instance, by regulating that prolongation of the patent (after the expiry of the minimum period) is not possible if the patent is not worked locally. 158


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problem in practice, patent blocking may pose a genuine problem. The issue is indirectly addressed in Art. 5A of the Paris Convention, which allows for the grant of compulsory licences in case of abuse,159 including failure to work,160 and thereby strikes a balance between the interests of the patent holder and those of local industrial policy and competition concerns.161 Under TRIPS, the additional requirements for compulsory licences listed in Art. 31 need to be taken into account. Inter alia, Art. 31 (a) stipulates that authorization to use patented subject matter must be considered “on its individual merits”. This appears to militate against a clause stipulating that compulsory licences will regularly be granted if the patent is not worked locally (after expiry of the relevant waiting period). Instead, it will have to be shown that non-working in a particular case amounts to abuse, or is otherwise deemed to run contrary to the public interest. Until now, there has been no WTO case law addressing the issue. However, the local working requirement was at stake in the Brazil – Measure Affecting Patent Protection case. Brazilian industrial property law162 had established a working requirement, which could only be satisfied by the local production – and not the importation – of the patented subject matter. The USA filed a complaint, arguing that Brazil was violating its obligations under Arts. 27 and 28 TRIPS as well as Art. III GATT. The matter was settled amicably, not least because Brazil had also filed a complaint against the USA in regard of provisions in chapter 18 of the US Patent Act which likewise showed elements of discrimination against imported products (United States – US Patent Code163). As neither case 159 Pursuant to Art. 5A (4) such compulsory licences may not be applied for before the expiration of a period of four years from the date of filing of the patent application or three years from the date of the grant of the patent, whichever period expires last. 160 If, and only if, compulsory licences are not sufficient, the patent may be declared forfeited, Art. 5A (3). 161 According to the Paris Convention, the Member States are free to define what they understand by ‘failure to work’. Normally, working a patent will be understood to mean working it industrially, namely, by manufacture of the patented product, or industrial application of a patented process. Thus, importation or sale of the patented article, or of the article manufactured by a patented process, will as a principle not fulfil the “working” of the patent; see Bodenhausen (1968), 71. 162 Law 5772 of 1971. 163 Doc. WT/DS/199/1, 8 June 2000 and WT/DS224/1, 7 February 2001, respectively. In the first case, the controversy was overcome by mutual understanding before the panel’s decision. The USA withdrew its complaint on 25 June 2001. Brazil committed to inform the US government whenever it wanted to apply a


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went to trial, there is no guidance as yet as to how a WTO panel might look upon the matter. However, an important indication can be found in the WTO Ministers’ Doha Declaration, which in paragraph 5 b. states that WTO Members have “the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted”. This may help to sustain the issuance of compulsory licences for non-working in particular in the health and nutrition sector. However, it remains unclear to what extent the Declaration would help in other technical fields, and how the grant of compulsory licences would be assessed in a situation when patented products are imported in sufficient numbers and sold at an affordable price level. In particular in the latter situation, countries insisting on a local working requirement may face difficulties. Although there is some authoritative support for the view that local working requirements compliant with the Paris Convention are also permitted under TRIPS,164 the exact scope of both provisions still has to be explored. The proposed amendment to Art. 27.1 does not suggest a specific solution for the issue. In particular, it is not stipulated as a hard and fast rule that countries are always entitled to apply a regime of compulsory licensing if patents are not actually worked in the country of grant. As at present, the issue is left to be dealt with on a case-by-case basis. However, deleting the reference to importation vs. local production at least ensures that Art. 27.1 will not constitute a major “stumbling block” for countries applying local working requirements in their national patent laws. 12.

Article 30 (Amended) – Limitations

12.1


12.1.1 General remarks Consistent with the scheme observed with regard to copyright, trademark and industrial design law, new Article 30.1 contains a catalogue of mandatory limitations which are considered to represent the minimum rules which every country must have. Furthermore, in accordance with the structure of the provisions in other legal fields, Article 30.3 reiterates the principle that in addition to those rules, countries are free to devise other,

compulsory licence on grounds of non-working against an American company. For further comments on these cases, see Pires de Carvalho (2005), 201. 164 Cf. Attaran & Champ (2002).


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more far-reaching provisions, under the conditions set forth in the general principles, in particular in Art. 8a. Whereas the objectives and structure of Art. 30 concur with those of the provisions in (amended) Arts. 13, 17 and 26.2, patent law poses specific problems. For copyright and trademark law, it was pointed out above that the proposed mandatory rules are basically meant to encapsulate those limitations that are uncontroversial, and already to date form part of a large majority of intellectual property regimes. Thus, trademark use for descriptive purposes, or for honest commercial communication, is practically universally permissible.165 Also, in addition to the mandatory citation right, most copyright laws make allowance for teaching and news reporting, etc. For patent law, however, the situation is different – it is much harder to draw up a catalogue of limitations which are basically uncontroversial at the international level.166 In view of that diagnosis, the question might be posed whether the attempt to formulate a catalogue of mandatory limitations is too ambitious and premature, even for a scientific project like this. However, it is considered that the advantages for transparency and legal security typically ensuing from such “ceiling rules”167 are of relevance not least for patent law, and provide sufficient justification for embarking on such a challenging endeavour. On the other hand, it also needs to be emphasized that the risk always inherent in the drafting of mandatory ceiling rules, namely that a “one size fits all” approach to limitations may lead to inappropriate results,168 is particularly virulent in patent law, hence warranting a very careful approach, also respecting the margin of interpretation which must necessarily be left to courts and authorities. Regarding the content of the mandatory rules proposed here, valuable guidance was found in the first (Anell) TRIPS draft of 23 July 1990, which compiled a non-exhaustive list of the most common limitations in patent law.169 These were identified as: prior use, private acts and non165 This only applies to the principle as such; the extent to which those limitations may be used in practice may of course vary considerably. 166 See also below, on the first (Anell) draft of TRIPS, which was later replaced by the three-step test. 167 For a more detailed argument on this point, see Kur & Grosse Ruse-Khan (ch. 8). 168 See Ruse-Khan (ch. 4); Kur & Grosse Ruse-Khan (ch. 8). 169 UNCTAD/ICTSD (2005), 432. At the time of the negotiation and adoption of TRIPS, existing national exceptions included e.g. the following limitations in patent laws: use of the invention for teaching and research (to a limited extent in the USA); commercial experimentation on the invention to test or improve on it (various European countries with somewhat different


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commercial purposes, experimental purposes, and preparation in a pharmacy in individual cases of a medicine in accordance with a prescription, or acts carried out with a medicine so prepared.170 Although the list was later replaced by the three-step test – and although it was never meant to be mandatory in the sense that TRIPS Members would have to implement those rules in their own laws – the draft remains of interest as a compilation of limitations which, if not uncontroversial, are at least the “least controversial” among WTO Members. Furthermore, inspiration for the present proposal was drawn from resolutions by AIPPI, as well as – last but not least – from the WTO panel report Canada – patents.171 For all the critical aspects involved,172 the panel report is instrumental for the exercise undertaken here. In particular, the panel has expanded on the notion of “legitimate interests” in a manner which gives substantial backing to the concept of mandatory limitations with regard to specific uses of protected subject matter, as will be explained below. 12.1.2 Art. 30.1 (a) – Private acts for non-commercial purposes Subparagraph (a) is founded on the principle that as a rule (and with some reservations concerning copyright173), IP rights should not be extended to activities that are performed in the strictly private sphere or for noncommercial purposes. Even though the exception of such de minimis activities does not seem to be universally accepted, the exclusion makes sense not least because the practical and economic relevance of such uses is obviously very small and should therefore not be counted as patent infringement.

scopes), and; experiments made for the purposes of seeking regulatory approval for marketing of a product after the expiration of a patent (the so-called Bolar exception in the USA); preparation of medicines under individual prescriptions (which is a classical exception); use of the invention by a third party that had used it bona fide before the date of application of the patent (“prior use”); and in connection with “parallel imports” after the patent right had been exhausted (e.g. within the EC). 170 The draft also contained an exception for acts done in reliance upon them not being prohibited by a valid claim present in a patent as initially granted, but subsequently becoming prohibited by a valid claim of that patent changed in accordance with procedures for effecting changes to patents after grant and finally acts done by government for purposes merely of its own use, which later became part of Art. 31. 171 WT/DS114/R, 17 March 2000. 172 For a detailed discussion, see Kur (ch. 5). 173 On the exception for private use in copyright, see above, Art. 13.


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12.1.3 30.1 (b) – Experimental use The experimental use exception is probably the limitation of the greatest practical importance. This does not contradict the fact that its importance will vary depending on a country’s level of scientific and technological development.174 Various types of activities might be considered to fall within an experimental use exception. The most “basic” type of experimental use concerns experimenting on an invention to see how it works (reverse engineering) and for mere academic interest. In addition, experimentation might also be done for purposes of testing the invention against the disclosure that the patent holder made in the patent application, or in order to “design around” the invention, in order to develop a functional equivalent which does not infringe the patent, and/or for improving upon the patented invention. With respect to reverse engineering, it is well established that mere use to the extent necessary to study or test the functioning of the invention for private use or non-commercial purposes belongs to the classic limitations in patent law. Apart from such acts being more or less impossible to detect, they regularly do not conflict with the patent owner’s commercial interests. And also experimentation on the invention to test or improve upon it is generally accepted in view of its capability to “contribute to the development of new technologies which is precisely one of the objectives of the patent system”.175 This is also underlined by the EC – Canada panel:176 “under the policy of the patent laws, both society and the scientist have a ‘legitimate interest’ in using the patent disclosure to support the advance of science and technology”.177 Against that backdrop, experimental use is an obvious candidate for rules forming part of a list of mandatory limitations. On the other hand, it should also not go further than what is actually needed for an internationally binding rule. Among other aspects which will be addressed below, this raises the issue of whether the minimum rule prescribed here should be restricted to activities undertaken (solely) for non-commercial purposes. However, it is considered that such a restriction would neither be

174

Garrison (2006), 49. WIPO SCP/13/3, at 102. 176 WT/ WT/DS114/R, ¶ 7.69. One might wonder whether the panel, by the use of this wording, wanted to suggest a kind of de facto obligation on the Members to introduce a research exception; see Kur (ch. 5). 177 In a similar vein, Q105 AIPPI in 1992 came out in favour of the authorization of the experimental use of a patented invention by third parties because of the potential importance of such use for technical progress; AIPPI Resolution Q105, p. 2. 175


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necessary nor adequate for the aims of this proposal. Application and scope of the limitation should not be dependent upon the status of the experimental user as a non-profit entity, but rather upon how far-reaching the experimental activities are.178 While it is notable that at present, different views prevail on that point in the EU179 and the USA,180 there appears to be growing acceptance in the international patent community of an experimental use exception which is not limited to non-commercial activities as long as the experimental character of the use prevails.181 Although, for the reasons stated above, proposed Art. 30.1 (b) does encompass activities which are not entirely non-commercial, its ambit continues to be quite narrow. First, acts done on the invention must be for a genuine “experimental purpose”, for example, use merely to obtain the advantage of the invention disclosed by the patent is not an experimental purpose in that sense. However, under certain circumstances, it may be necessary under the mandatory exception to allow for clinical trials made in order to explore possible new indications for a medical product.182 As was explained above,

178

This raises questions concerning how far commercial elements or acts of a commercial nature should be permitted along with the non-commercial experimental acts. 179 Under Art. 31 (b) of the Community Patent Convention (CPC), “acts done for experimental purposes relating to the subject matter of the patented invention” are not part of the exclusive right, and the provision is not limited to noncommercial purposes. Thus, from a European perspective, the term “experimental purposes” generally is taken to cover commercial activities as long as an element of true experimentation is involved. 180 .The same exception so far has been more narrowly interpreted in US case law; cf. Madey v. Duke University, 307 F.3d 1351, 1352 (Fed. Cir. 2002) concerning a design patent, where the Court of Appeals for the Federal Circuit stated that the “very narrow and strictly limited experimental use defense” applied only if use of the patented invention is “solely for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry”. On the other hand, the US Bolar exception, cf. below, has a somewhat wider scope than the similar European provision. 181 In its Tokyo Resolution on Q105, AIPPI emphasized that each country should except from the exclusive rights of the patentee, acts done for experimental purposes, not only any use of the patented invention performed for academic purposes and of a purely non-commercial nature, but also acts to test and evaluate the teaching and the validity of the patent and any use of the patented invention to an extent appropriate for experimentation (as opposed to commercial use) which is for the purpose of improving the invention or making an advance over the invention or finding an alternative to the invention, but not the commercial exploitation of the subject of any improvement or advance. See AIPPI Resolution Q105, p. 3, 3.1–3.3. 182 German Supreme Federal Court (BGH) 11 July 1995, IIC 1997, 103.


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collateral purpose would not prevent true experimentation from falling within the scope of the limitation, nor would the mere existence of a commercial aim exclude its applicability.183 Second, and no less importantly, there is an essential difference between experiments on the patented subject matter and with it. The experimental use must be “on the invention”. In other words, the work has to relate to the subject matter of the patented invention. The proposed rule only covers “on”-experimentation. Members wishing to allow also for “with”- experimentation may do so under Art. 30.3 (see below). Whereas broad limitations for research would arguably often be warranted (notably regarding biotechnological inventions and e.g. research tools), it was not found that there was solid enough evidence to propose a rule which would oblige all TRIPS Members to include rules permitting “with”-experimentation in their domestic laws. In conclusion, the proposed mandatory rule only applies when the object of the experimentation is the protected invention, as opposed to experimentation “with” the invention, or by “use” of the invention. The distinction is fundamental as it defines the direct scope of application for the proposed limitation, and the use of a protected invention within the framework of an experiment relating to different subject-matter would not be permitted. For instance, if a patented substance is investigated for new properties in drug discovery, or is used in comparison with other substances with unknown qualities, this would probably still correspond to being both experimental and in relation to the subject matter of the invention. On the other hand, use of a patented invention as a tool for testing potential drugs, for example, the use of patented cells to test the toxicity of a new drug, would not fall under the double criteria, as the experiment is being conducted with (the help of), and not on, the patented subject matter.184 12.1.4 Art. 30.1 (c) – Regulatory exception Because competition between patented medicines and generic medicines must be enabled as swiftly as possible after the expiry of the medicine patent, exceptions for experiments (development and testing) performed during the patent term made for purposes of seeking regulatory approval for the marketing of a product after the expiration of the patent are well founded from a societal viewpoint. Such exceptions, of which the exact formulation in national laws varies,185 are today frequently found as a

183 184 185

Hellstadius (2009), 331. Hellstadius (2009), 335. See WIPO SCP/13/3 of 4 February 2009, 33 et seq. and see for the EU Art.


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separate exception to the patentee’s rights,186 a so-called Bolar exception.187 With further delays, there is a greater risk that society bears a higher cost for medicines, and further delays are contrary to the idea of a fixed patent term. Thanks to this exception, products can be ready for sale as soon as the patent (or the possible extension) ends, instead of going through the lengthy preparatory process only after all rights have expired. A different solution would probably add, in practice, another one to three years to the patent owner’s exclusive right and without due cause,188 with corresponding monopolistic prices. Under the Bolar-type exception, generic manufacturers are allowed to prepare to seek regulatory approval and for production even before the patent expires. As long as the aim of the experimentation is further information, as well as serving the purpose of technological development, this exception corresponds to the general research exception.189 Notably, the frequently found Bolar exception that results in an early introduction of (cheaper) competitive (pharmaceutical) products is reported to increase static efficiency and to have welfare implications.190 An additional argument for including the Bolar-type exception in the catalogue of mandatory limitations can be found in the fact that the WTO panel in Canada – patents declared that the interest of patent holders to enjoy the post-lapse extension of protection resulting from the regulatory approval requirement could not be considered as “legitimate” in the meaning of the three-step test. This could invite the e contrario conclusion that countries are under a de facto obligation to introduce exceptions of the Bolar type, so as not to further “illegitimate” profits being made by the patentee.191 12.1.5 Art. 30.1 (d) – Educational purposes Use of inventions for educational purposes basically belongs to the noncommercial uses, which do not conflict with the interests of the patent

9 of the proposal for a Community Patent Regulation of 8 March 2004 and Art. 27 of the Agreement relating to Community patents (89/695/EEC) of 15 December 1989, which never went into force. 186 In 1992, AIPPI noted that some countries allowed for this type of exception, this use was not to be accepted as experimental use; Resolution Q105, p. 4. 187 After Roche Products v. Bolar Pharmaceuticals, 733 F.2d., 858 (Fed. Cir. 1984). 188 Cf. the Canada – patents panel, ¶ 7.48. 189 Hellstadius (2009), 331. 190 Viscusi, Vernon & Harrington (2005), 853 et seq. 191 See Kur (ch.5).


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owner.192 But in order to avoid any confusion on this point with regard to tutorial fees, etc., it seems preferable and uncontroversial to have a separate and explicit exception on the issue. Such an exception has been highlighted as beneficial for developing countries.193 While to date only a few developing countries provide freedom to use patented inventions for teaching purposes,194 it could be argued that not least with the growing expansion of patents into areas that previously were the sole domain of copyright, for example computer programs, the relevance of an exception for educational purposes in the patent field may also increase.195 12.1.6 Art. 30.1 (e) – Individual preparation of prescribed medicines The proposed text has the same wording as Art. 302 (3) (iv) of the WIPO 1989 Draft Treaty for substantive harmonization in patent law, which however at the time was not undisputed.196 Its underlying social content is that pharmacists should be free to make medicines for supply to patients on the basis of individual medical prescriptions submitted to them by doctors or dentists without risk of patent infringement. The need for an explicit exception of on-demand preparation acts lies in the fact that without an explicit exception in this case it would be an infringement to make the product, as the exclusive rights to a patent cover any acts resulting in the production of the product, including by manufacturing and

192 See WIPO paper on patent limitations (2009), SCP/13/3 at 101, where “acts for teaching” are listed together with private acts and non-commercial use. 193 UK IPR Commission, Report Ch.6, 118–19. 194 This seems to be an expression of the (until now) small practical relevance of such uses. However, good examples of such exceptions are found in e.g. Art. 36 the Argentinean Act concerning “a third party who privately or in an academic environment and without gainful intent, conducts scientific or technological research activities for purely experimental, testing or teaching purposes, and to that end manufactures or uses a product or applies a process identical to the one patented”; in the Indian Act S. 47(3) in that “any machine, apparatus or other article in respect of which the patent is granted or any article made by the use of the process in respect of which the patent is granted, may be made or used, and any process in respect of which the patent is granted may be used, by any person, for the purpose merely of experiment or research including the imparting of instructions to pupils . . .”, or in Art. 43 (ii) of the Brazilian Act, which does not apply to “Acts practiced by unauthorized third parties for experimental purposes, regarding studies or to scientific or technological research”. 195 Cf. UK IPR Commission, Study Paper 7 by Phil Thorpe, 15, 22. 196 E.g. the US delegation pressed for limiting the provision to emergency cases, while WIPO pointed out that this was an exception found in many countries; see Fryer (1990), 309 et seq., 333. The Diplomatic Conference at The Hague was never brought to an end.


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other methods. Nor does it matter in which quantity the making takes place. This has in a number of countries traditionally resulted in an exception for the preparation for individual cases in a pharmacy of a medicine in accordance with a medical prescription or acts concerning the medicine so prepared. Economic considerations are usually of minor importance in these situations.197 The idea is precisely to serve single and individual cases, for example, special doses for children of already existing medicines. Stockpiling would not fall within the reach of the so formulated limitation. Today, when most medicines are distributed ready-packed by the producers, individual preparations seldom have any important function. However, the exception could regain importance in the future with possibly genetically tailor-made individual medicines.198 On the other hand, such individual medications could hardly be considered as “extemporaneous”, and would also not be prepared by “pharmacies” in the traditional sense of the word. Nevertheless, depending on the direction and massiveness of such developments, the provision might have to be reconsidered. But as even the less developed countries are under an obligation to uphold strong patent laws, the exception may still constitute a counterweight guaranteeing access to medicine, and therefore deserves a place among the mandatory limitations. 12.1.7 Art. 30.1 (f) – Prior user’s right Modern research often occurs in multiple firms engaging in a simultaneous search for solutions to the same or similar problems.199 Scientific development, as any other, proceeds in cluster trends. This means that many people are looking for solutions to the same problems at the same time. Along with the present race for patents and the redundancy in science and technological activities, two or more firms or researchers may well come to substantially similar results. A right to use the invention by a third party that had used it bona fide, or had made serious preparations for that purpose, before the filing date (or the priority date) of the patent appli-

197 “Should it ever happen that hospital pharmacies systematically, but still for individual patients, and for economic – that is not medical – reasons, choose to manufacture patented medicinal products under their own auspices, a teleological interpretation of the provision suggests that such action must be regarded as patent infringement, because the provision implies only sporadic, improvised and medically prompted use of patented medicinal products”; see Domeij (2000), 310. 198 Garrison (2006), 8. 199 This is nothing new. Famous examples include the light bulb (Edison and Swan), the telephone (Bell and Gray), and the integrated circuit (Kilby and Noyce), cited from Shapiro (2005), 1.


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cation therefore constitutes a sort of fairness exception found in many countries; prior users should be treated fairly vis-à-vis patent holders. Prior use was recognized as valid ground for an exception in the context of the WIPO draft treaty for the harmonization of patent law in 1991 (Art. 20).200 Such an exception can be made in different modes, for example so that continued prior use complying with the conditions laid down in the applicable law is excluded from infringement actions, or the law can provide prior users with the possibility to continue the use of the patented invention for the purpose of their business through the grant of a statutory non-exclusive licence.201 Either way, this exception reflects the fact that society does not want serious investments to be made in vain. The underlying consideration is that the grant of a patent to a later inventor should not take away all the rights of the earlier inventors who already possessed the invention secretly. From a legal viewpoint, it can be argued that before a patent was granted to someone else, the first inventor had an “inventor’s right”. This is a right to personal possession, which the owner can dispose of and use in commercial transactions, for instance, to grant licences for the working of the invention. When the (secret) invention has been patented in good faith by someone else, the “prior user” should therefore still have the right to work the invention personally but not transfer it, except together with the business in connection with which he uses the invention. In essence, when nearly simultaneous, independent invention occurs, awarding one inventor a patent and the other the right to use the invention has very attractive properties.202 In addition, prior user rights enhance competition, reduce joint profits, and increase total welfare.203 It has been questioned whether the prior user’s right – being a reward to a prior user and a “punishment” of the patent owner – is compliant with Arts. 28.1 and 70.4 TRIPS.204 Although this is a very formalistic and hardly tenable approach, it furnishes an additional reason to anchor the rule firmly and unmistakably in the catalogue of mandatory limitations. Of course, again, as an internationally binding exception, the prior user’s right is limited by a number of restrictions. Most importantly, only bona fide uses, or serious preparations for such use, will fall within its ambit. Also, the mandatory rule only refers to “continued use”, that is, it does not imply licensing, transfer or other, substantially different modes of exploitation. 200 201 202 203 204

Sixth session of the SCP between 5–9 November 2001. See for further details WIPO SCP/13/3 of 4 February 2009. Shapiro (2005), 8. Shapiro (2005), 2. Pires de Carvalho (2005), 228.


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12.1.8 Art. 30.1 (g) – Farmer’s privilege With the growth of patents on genes and microbiological processes, plants including seed may also be the object of patent rights. The use of saved seed is important from an economical and nutritional perspective, not least for farmers in developing countries. Under the 1978 UPOV treaty, there is an unconditional farmer’s right, while under the 1991 UPOV treaty, this is an option which is left to the discretion of the national legislator.205 Pursuant to Art. 15 UPOV 1991, re-use of seeds is allowed in principle, while farmer-to-farmer seed exchange is forbidden, as is the multiplication of fruits, berries and vegetables. Art. 30 TRIPS only concerns exceptions to patent rights. So where a farmer’s exemption follows in the national legislation, and is allowed under UPOV, access to farm-saved seed would still be a problem without an equivalent exception from possible patent rights on the seed in question. This problem has been recognized in for example EU law, where an UPOV type of exception exists in Art. 14 Regulation (EC) No. 2100/94 on Plant Variety Rights206 and makes an exception for farmers’ rights that applies to listed agricultural plant species of: fodder plants, cereals, potatoes, oil and fibre plants. Under this Regulation, small farmers are not required to pay any remuneration to the holder of the plant rights, while other farmers may be required to pay an equitable remuneration to the holder, which however shall be sensibly lower than the amount charged for the licensed production of propagating material of the same variety in the same area.207 For the further application of a farmer’s right, Directive 98/44/EC on the legal protection of biotechnological inventions208 works reciprocally and establishes that the sale or other form of commercialization of plant propagating material to a farmer by the owner of the patent or with his consent for agricultural use implies authorization for the farmer to use the product of his harvest for propagation or multiplication by him on his own farm; the extent and conditions of this exception correspond to those under Art. 14 of the Plant 205 Each Contracting Party may, within the reasonable limits and subject to safeguarding the legitimate interest of the breeder, restrict the breeder’s right in relation to any variety in order to permit farmers to use for propagating purposes, on their own holdings, the product of the harvest which they have obtained by planting, on their own holdings, the protected variety. 206 Regulation of the Council of 27 July 1994. 207 The actual level of this equitable remuneration may be subject to variation. Is decided by national law and differentiates between European countries; for example, there is no payment in Italy, Austria (and Switzerland), payment only for soft wheat when selling the crop in France but payment for all listed species at farm level in Germany. 208 By the European Parliament and the Council of 6 July 1998.


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Variety Rights Regulation. Equitable remuneration should be on reasonable terms which are to be decided under the national laws of the respective Member States.209 The limitation in proposed Art. 30 (g) TRIPS has taken its inspiration from this system, and means that use for propagation purposes, on small farmers’ own holdings, of the product of the harvest which they have obtained by planting on their own holding would be exempted from patent rights. Notwithstanding that there is no special mention in the provision of this exception being limited to “small farmers”, it follows from the general framework of this paragraph that only this would fulfil the general terms of the exception: being within “reasonable limits” and “subject to safeguarding of the legitimate interests of the patent owner”. 12.1.9 Art. 30.1 (h) – Repair In patent law, it is normally understood that use of the invention is allowed to the extent necessary to repair an article to its original shape and function, also by a third party. This is regularly seen as an effect of the exhaustion of patent rights when the product in question has been legally put on the market. However, theoretically under the rule of exhaustion (or the “first sales” doctrine), the argument might still be made that a repaired product is “not the same” as the one which has been sold or otherwise released in commerce. By providing for an explicit mandatory limitation, it is clarified that acts cannot be prohibited which, from the perspective of a person using an article incorporating a patented invention, are necessary to allow “normal use” during the product’s prospective lifecycle. Again as this is meant to be an internationally mandatory rule, its scope is fairly narrow. ‘Necessary’ to repair means that the limitation only covers “conventional repair” of the product, i.e. measures that the patent owner will have reckoned with at the time of marketing the product. This depends inter alia on the condition of the product to be repaired. Restoration of products with scrap value would not have to be permitted under the mandatory rule. The borderline should not only be drawn quantitatively: the question at issue is rather whether the product in question is still the one originally sold or is equal to a “new product”. While countries are basically able to go beyond the prescribed minimum rule on the basis of Art. 30.3 (see below), countries should not be subject to a mandatory rule allowing for repair even where this amounts to

209

See Art. 11(1) and (3) and cf. Art. 12 of Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions.


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reconstructing the patented invention. This may become acute when a patented device forming part of a complex product becomes defective and needs to be replaced: while the replacement may be “necessary” for repairing the article in its entirety, countries should nevertheless not be obliged to extend the limitation so far as to allow such acts to be performed by third parties. Whether or not countries want to insert a “repair clause” for such purposes should be a matter of national legislation, and must be judged under Art. 30.3. 12.1.10 Art. 30.1 (i) – Special limitation with regard to vessels, aircraft and land vehicles Finally, Art. 30.1 contains a binding limitation which connects to Art. 5ter of the Paris Convention. That provision already forms part of the TRIPS acquis by virtue of Art. 2 TRIPS and therefore does not have to be reiterated in its substance. However, while Art. 5ter is restricted to use of patented devices on or in vessels, aircraft or land vehicles temporarily or accidentally entering the territory of the protecting country, Art. 27 (b) of the 1994 Chicago Convention210 also grants immunity with regard to the storage of spare parts and spare equipment for the aircraft, and the right to use and install such devices in the repair of an aircraft. This rule goes further than the mandatory limitation proposed for repair purposes in general (see above, Art. 30.1 (h)). Nevertheless, there is no doubt concerning its appropriateness for ensuring unimpeded international traffic. Hence it is proposed that the rule should become binding for all TRIPS Members, and that the privilege set forth therein with regard to aircraft should apply to all types of vehicles mentioned in Art. 5ter Paris Convention (comprising also vessels and land vehicles).211 It is submitted that this will not lead to substantial changes in practice. The exceptions, which in part already today constitute mandatory elements of international patent law, are sometimes quite broadly interpreted.212 The national authorities have broad discretion to interpret the meaning of “vessels”,

210 Art. 27 of the Convention on International Civil Aviation of 7 December 1944 done in Chicago. 211 Some countries also provide similar exceptions for spacecrafts and satellites, since these may need to temporarily cross foreign territories for the purpose of being launched into space or upon return from space. 212 Stena Rederi Aktiebolag v. Irish Ferries Ltd [2003] RPC 36; Anthony J. Cali v. Japan Airlines Inc 380 F. Supp. 1120 (1974), affirmed on appeal but not reported; National Steel Car, Ltd v. Canadian Pacific Railway, Ltd. 2004 US App LEXIS 1346, 03-1256 (Fed. Cir., 29 January 2004); “Pflanzen-Transportwagen” (1990) 21 IIC 99.


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“aircraft” and “land vehicles”.213 However, it is also important to note that the relevant provisions only allow the use, or storage for repair purposes, of patented devices and not their manufacture or commercial sales or exports. 12.2 Art. 30.2 (new) – Purpose-bound protection Patent protection has always been related to concrete results. Art. 30.2 placed among the limitations of patent rights confirms this classical and obvious limitation on a patent holder’s presumed scope of protection. While from a general patent law perspective, this limitation goes deep into the developments over the last 40 years concerning the principles of protection for product patents, the economic bases for deviating from this fundamental principle in patent law seem to have lost their weight in present times. Thus, it seems adequate and proportionate that the inventor’s exclusive right should be limited by his performance at the time of the patent application.214 Encompassing future developments within the scope of the protection is a matter for the courts to decide, taking into due account factors such as the grade of inventiveness or the amount of investment, while striking a balance between two parties. While special mention of this principle in the present context is inspired by the last decade’s discussions on biotechnological inventions and their scope, the rule is nevertheless presented in general terms. This principle of limiting the scope of the patent to what has been disclosed in the patent does not only concern the protection of biotechnological patents. With special regard to biotechnological patents, and even if views are diverging also in this field, the provision ought to be a welcome clarification. Obviously biotechnological inventions of the kind and importance we know today did not exist when TRIPS was negotiated and concluded, and the special problems later raised by patents on biotechnological inventions were not considered at that time. Since then, the crucial question whether patents on DNA (gene sequences) should be allowed under the classical patent claim model has been intensely debated: should the first inventor be able to claim an invention which covers possible future uses of that sequence, or should the patent be restricted to the specific use disclosed in the patent application (“purpose-bound protection”)?215 As far as biotechnological patents are concerned, and irrespective of ethical grounds, 213

Bodenhausen (1968), 83, 84. The fact that the invention relates to a chemical compound does not imply that a specified use must be disclosed in the patent claim. 215 In the EU, the legislator probably had intended to at least raise the possibility of a limited scope of protection covering only the specific industrial application 214


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the proposed limitation to “purpose-bound protection” seems especially well founded.216 The question whether it is fair or unfair, or economically inefficient not to give the first inventor of a gene sequence a broad scope of protection will probably no longer occur, since the problem seems to have a much broader relevance. Other contentious issues involve patents on “up stream” technologies such as patents on research tools or patents containing “reach through” claims. Such patents imply risks of overprotecting the incumbent patent holder and of limiting downstream innovation. The relationship between contribution and reward is fundamental to modern IP law and goes to the heart of the balancing problem. Therefore, the more general question should be raised: why should a patent owner/ inventor get more protection than that which was actually invented, i.e. more than the contribution made to society at the time of the application? The background to this basic standpoint has already been discussed in relation to Art. 7 (b). Very detailed and precise guidance relating to the technical implementation of the limitation is not proposed and it is therefore left to national legislators to find ways to achieve the goal, i.e. a legal system which makes sure that the exclusivity given to patent holders corresponds to their contribution to society. Whereas some countries would want to achieve this by (ex ante) rules which limit protection to cover only the uses indicated in the patent (“purpose-bound protection”), other countries may rely on ex post measures such as rules directing courts to take into account the purpose disclosed in the patent or having specific rules, for example, on patents on research tools. 12.3 Art. 30.3 (new) – Further limitations This provision allows Members to restrict the protection conferred even further than the mandatory limitations contained in Art. 30.1. The ability

identified in the patent, as far as gene sequence inventions are concerned; cf. Art. 5(3) and Recitals 22 and 25 of the Directive 98/44/EC. 216 The fact that under EU law, the scope of patents is limited by the function(s) which have been patented was confirmed by the ECJ in C-428/18 – Monsanto/ Cefetra. The same decision held that such an interpretation is not impacted by Art. 27 and/or 30 TRIPS. Already in the course of implementation of Directive 98/44/ EC, the question has been raised on ethical grounds whether the fact that human gene sequences have been isolated from the human body leads to the conclusion that they should be given different treatment from (other) chemical substances. Such ethical considerations have led to the transposition of the Directive in French and German national law with purpose-bound protection for inventions concerning material isolated from the human body and human/primate gene sequences, respectively. The Swiss legislator has adopted a similar attitude.


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of Members to do so is, however, limited by the provisions of Arts. 7 to 8b. The overall purpose of the limitations should therefore be to make sure that the patent protection contributes to social and economic welfare (cf. Art. 7 (a)) and that a balance of rights and obligations is assured so that in particular the scope of the protection conferred by an intellectual property right corresponds to the contribution made to creativity and innovation (cf. Art. 7 (b)). In doing so, Members must make sure that the protection granted reflects a fair balance between private economic interests and the larger public interest as well as the interests of third parties (cf. Art. 8a (1)). In particular, Members are invited to take into account whether the use allowed for results in the creation of value-added products and services (Art. 8a.2 (a) (iv)). Whereas the purpose of Art. 30.3 is clear, i.e. to allow Members to strike the right balance between exclusivity and access to the protected subject, the precise effect of the rule on national patent legislation remains to be seen. Experience from national patent law, which already shows signs of the diversity which Art. 30.3 encourages, would seem to suggest, however, that issues to be dealt with would include broader rules on research exemptions (allowing for use “with” the invention) and specific limitations on research tools. In addition, as was pointed out above, “repairs clauses” might be inserted if it is found that even the reproduction of a patented invention should be allowed where this is necessary to repair an article. Also, Art. 30.3 in connection with Art. 8a would arguably allow for “stockpiling” exceptions like the one in Canadian legislation which was struck down by the Canada – patents panel. 13.

Art. 40 (Amended) – Control of Anti-competitive Practices in Contractual Licences

The technology transfer process involving developing countries needs to be seen in a broad perspective which includes absorption and spillover of the technology in the receiving country.217 This concern has to some extent been recognized by the present Art. 40.2 which includes “exclusive grant back conditions, conditions preventing challenges to validity and coercive package licensing”. The protection provided by this rule, however, is rather narrow and the little protection which exists can be waived by bilateral or regional free trade agreements (FTAs). In order to strengthen protection to match the specific external problems developing countries face and to further technology transfer and the use of technology

217

Kariyawasam (2007), 466 and Schovsbo (ch. 7).


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in receiving countries it is proposed to reinforce Art. 40 by amending its paragraph 2. The proposed rule is binding (“Members shall . . .”) as to the goal to be attained (i.e. the control of the restrictive licensing practices mentioned in Article 40.1) but flexible on the national execution. Because of its mandatory character it cannot be waived by FTAs etc. It is not proposed to consider the specifically mentioned clauses as being “per se” anti-competitive. Competition authorities should generally focus on the effects of clauses rather than on their formal character. The adoption of a binding rule will require Members, including developing countries, to put in place and enforce effective competition rules. It is recognized that a build-up of both effective rules and institutions is complicated and will require investments in developing countries and that such a development will require massive assistance from developed countries. Art. 67 is important in this regard but one should realize that effective administration of competition rules in developing countries would benefit greatly by extended international cooperation between competition authorities (and courts) in developed and developing countries.218 The development of such cooperation falls outside the scope of the present project and the issue therefore has not been investigated in detail. 14.

Art. 41a (New) – Remedies Against Mala Fide Use of Intellectual Property Rights

In accordance with the leitmotiv of “balance” followed in the IPT project, Art. 41a was inserted into the enforcement part of TRIPS in order to emphasize that Members are not only under an obligation to provide for efficient and deterrent sanctions with regard to the infringement of IP rights, but must likewise monitor and, as much as possible, deter right holders from unfairly harassing others, in particular by raising unjustified claims. A similar thought is already expressed in Art. 41.1, third sentence, where it is stipulated that enforcement measures must be applied “in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse”. In proposed Art. 41a, that principle is reinforced by stating in a positive manner that remedies must be available against mala fide instrumentalization of IP rights, in particular by raising unjustified claims. Art. 41.1, third sentence as well as its proposed complement in Art.

218


E.g. Drexl (2005).

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41a, are addressed to the legislature as well as to courts and authorities. The following considerations are of relevance here: first, it is often and rightfully emphasized that to grant a right without providing for efficient enforcement is useless. However, the other side of the coin must not be neglected either. If the law imposes particularly strict and severe sanctions for infringement – including infringement by negligence – this will typically entail a chilling effect in the sense that in order to avoid liability, cautious actors will tend to respect a broader security margin in areas where an infringement appears at least possible. This means that a de facto expansion of IP rights will occur in areas where doubts exist as to the scope of protection, with the effect increasing in proportion with the difficulties of making a safe ex-ante assessment of whether a certain item, or a specific mode of use, may be found to be infringing another person’s IP right. Furthermore, if in such a system right holders have much to win and little to lose,219 this may provide an incentive to overstate one’s claims, testing and trying to push the very limits of the right. In combination with the freezing effect related above, this could work profound changes in the law as it applies in practice, thereby alienating it from the legislative intentions defining the rules when they were originally enacted. Arts. 41.1, third sentence, together with proposed Art. 41a, provide an alert to the legislature with regard to those risks. Their message is that as a matter of principle, sanctions should be tailored so that “equality in arms” exists between right holders and alleged infringers: the option to explore the limits of a right should be granted on equal terms to both sides. It would lead to distortions if only one side is regularly “deterred” from testing and using the full radius of commercial activities which are actually permitted by the law. Moreover, even in a principally balanced system, there is always a risk that unfounded threats or exaggerated claims form part of the arsenal deployed by market actors who, because of their economic strength or their strategic advantage as holders of key assets, are able to “persuade” others to yield their position without much arguing or scrutiny.220 In most legal systems, such conduct is basically prohibited under pertinent law – depending on the situation and on the specifics of the system concerned, it may give rise to claims under antitrust or unfair competition law. It is not expected that the insertion of Art. 41a would lead to substantive changes in that regard; the intention is rather to confirm the appropriateness or 219

For instance, if they have the chance to be awarded statutory or punitive damages clearly surpassing the actual harm caused, and have nothing to fear but to lose in court. 220 Such phenomena are much discussed in patent law under the labels of “patent trolling”, “holdup” or “patent ambush”; Kur & Schovsbo (ch. 9).


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even necessity of such rules. Also, the provision remains neutral with regard to the means and place of implementation, and is meant to refer to antitrust as well as to unfair competition, or special rules embedded in IP laws. It therefore refers to “mala fide use” instead of opting for (one of) the more specific terms “misuse” or “abuse”. 15.

Article 41b (New) – Jurisdiction and Choice of Law in Transborder Conflicts in Intellectual Property Matters

As a matter of principle, jurisdiction and applicable law do not form part of international trade law. No reason was found therefore to address those issues in the TRIPS framework. However, not least as a consequence of the exponential growth of global communication conveyed through the internet (which was not yet a part of daily life when TRIPS was drafted), the size and frequency of conflicts extending beyond the borders of one single territory have increased. Pursuing such claims – or having to answer them – may create impediments to the efficient and equitable enforcement of IP rights which also call for attention. Of course, the issues involved are so complex that it is impossible to incorporate into TRIPS a full-fledged system determining jurisdiction and applicable law, and facilitating enforcement, of transborder IP conflicts. To devise such rules remains the task of separate projects entirely dedicated to matters of international law. One of those, the American Law Institute’s project “Intellectual Property – Principles Governing Jurisdiction, Choice of Law, and Judgments in Transnational Disputes” (“ALI Principles”), was concluded in 2007.221 The second project, which has adopted the acronym “CLIP”,222 has been undertaken under the aegis of the Max Planck Institutes in Munich and Hamburg in cooperation with other European scholars and will publish its results in 2011.223 Art. 41b is inserted in order to mark the link to those projects and thereby to an area 221 The results of the project – led by Jane Ginsburg, Rochelle Dreyfuss and François Dessemontet as reporters – have been published by the American Law Institute, 2008. 222 European Max Planck Group for Conflict of Laws in Intellectual Property; for details see www.cl-ip.eu. 223 In its beginnings, the initiative out of which the CLIP project was conceived can be traced back to early discussions within the IPT project, when it was diagnosed that the two elementary pillars of the IPR system – exclusivity and territoriality – had come under pressure and needed closer scrutiny. Whereas the IPT project then continued to study the exclusivity aspects, territoriality became the object of a separate project, which afterwards led to the founding of the CLIP group.


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which, together with substantive law and the availability of enforcement measures, is also crucial for the well-functioning of intellectual property law in an international environment. The provision addresses some basic guidelines governing jurisdiction and choice of law on a global scale. Those rules are of a principle character rather than providing for ready-made solutions. Thus, paragraph 1 stipulates that determination of the competent forum in transborder IP conflicts must respect the principles of due process and a fair balance of interests, and should not unduly hamper the efficient pursuit of justice, whereas paragraph 2 reflects the widely accepted dominance of lex protectionis with regard to applicable law.224 Paragraph 3, finally, identifies those cases where, exceptionally, the lex protectionis rule may be deviated from. First, provision is made in that context for agreements between the parties, insofar as this is acceptable in view of the specific nature of intellectual property rights, meaning that a choice of law between the parties should be excluded where it clashes with the sovereign power of countries to define the contours of the right itself.225 Second, courts should not be bound by a strict application of lex protectionis when an infringement is “ubiquitous” in the sense that it is arguably committed on a global scale (like infringing content transmitted over the internet). If right holders were obliged to plead and establish the law of all countries where the infringement occurs in order to obtain an injunction with worldwide effect, the efficient pursuit of justice would be seriously hampered. However, even in such extraordinary situations, efficiency must not become the only goal pursued; a balance must still be struck between efficiency and fairness. For instance, in the ALI Principles, as well as in the CLIP proposal,226 it is foreseen that in cases of ubiquitous infringement, courts may apply one single law – the law with the closest connection – but that the alleged infringer remains entitled to plead such law or laws under which the conduct is permissible, thereby obliging the court to consider both laws when fashioning the remedy.227 224

It is widely contested whether that rule already follows from international law, e.g. from the principle of national treatment, or – with regard to copyright – from Art. 5.2, 2nd sentence, RBC. And although those arguments are inconclusive, lex protectionis has become the principle actually followed practically worldwide. (For the EU, see Art. 8 Rome II Regulation.) 225 It remains for the countries themselves to define the exact point where that borderline would be passed; the wording of Art. 41b deliberately leaves the issue open to countries’ own discretion. 226 Second preliminary draft, available at www.cl-ip.eu. 227 See § 321 (2) of the ALI Principles; Art. 3:603 (3) CLIP Principles (2nd prel. draft).


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15.


Art. 70 (Amended) – Protection of Existing Subject Matter

Art. 70 concerns the effect of obligations under TRIPS with regard to acts or subject matter which have occurred or have come into existence prior to TRIPS. Paragraph 6 of Art. 70 makes reference to Members’ obligations with regard to use without the authorization by the right holder, which does not meet the requirements in Art. 31, or the requirement in Art. 27 that patent rights must be enjoyable without discrimination as to field of technology. As the latter sentence is deleted from TRIPS in the proposal made in this text, the corresponding reference is also deleted from Art. 70.6, to the effect that the provision in its amended form only refers to use without the right holder’s authorization when such use has been authorized prior to the time when TRIPS became known.

BIBLIOGRAPHY AIPPI, Resolution (Q195), Singapore (2007). AIPPI, Resolution (Q105), Tokyo (1992). American Law Institute (2008), “Intellectual Property – Principles Governing Jurisdiction, Choice of Law, and Judgments in Transnational Disputes” (ALI Principles); Rochelle Dreyfuss, Jane Ginsburg and François Dessemontet (reporters), ALI. Attaran, A. and Champ, P. (2002), “Patent Rights and Local Working Under the WTO TRIPS Agreement: An Analysis of the U.S.-Brazil Patent Dispute”, Yale Journal of International Law, 27, 365–93. Basheer, S. and Reddy, P. (2008), “Ducking” TRIPS in India: A Saga Involving Novartis and the Legality of Section 3 (d), National Law School of India Review, 20(2), 131–55. Bodenhausen, G.H.C. (1968), Guide to the application of the Paris Convention for the Protection of Industrial Property, Berne: BIRPI. Commission of the European Communities, Green Paper on Copyright in the Knowledge Economy, 2008 COM 466/3 final. Correa, C. (2007), Trade Related Aspects of Intellectual Property Rights, Oxford: Oxford University Press. Crews, K. (2008), “Study on Copyright Limitations and Exceptions for Libraries and Archives”, prepared for WIPO http://www.wipo.int/edocs/mdocs/copyright/ en/sccr_17/sccr_17_2.pdf. Domeij, B. (2000), Pharmaceutical Patents in Europe, Stockholm: Norstedts Förlag. Dreier, T. (2007), “Regulating Competition by Copyright Limitations and Exceptions”, in P. Torremans (ed.), Copyright Law – A Handbook on Contemporary Research, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Drexl, J. (2005), “Public Goods in Conflict with Intellectual Property Rights”, in K.E. Maskus and J.H. Reichman (ed.), International Public Goods and Transfer


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of Technology – Under a Globalized Intellectual Property Regime, Cambridge: Cambridge University Press, 709–25. Drexl, J. (2007), “Responding to the Challenges for Development with a Competition-Oriented Approach”, in J.H. Barton, F.M. Abbott, C.M. Correa, D. Foray and R. Marchant (eds), Views on the Future of the Intellectual Property System, ICTSD Selected Issue Briefs No. 1, 17–24. Drexl, J. (2008), “Intellectual Property and Competition: Sketching a CompetitionOriented Reform of TRIPS”, in A. Bakardjieva-Engelbrekt, U. Bernitz, B. Domeji, A. Kur and P.J. Nordell (eds.), Festskrift till Marianne Levin, Norstedts Förlag Stockholm, 261–80. Fryer, III, W.T. (1990), “Patent Law Harmonisation Treaty Decision is Not Far Off – What Course Should the U.S. Take?: A Review of the Current Situation and Alternatives Available”, IDEA: The Journal of Law and Technology, 309–54. Garrison, C. (2006), “Exceptions to Patent Rights in Developing Countries”, UNCTAD-ICTSD Project on IPRs and Sustainable Development, August. Geiger, C. (2005), “Right to Copy v. Three-step Test: The Future of the Private Copy Exception in the Digital Environment”, CRi (Computer Law Review International), 7–13. Geiger, C. (2008), “Rethinking Copyright Limitations in the Information Society – The Swiss Supreme Court Leads the Way”, ILC, 39, 943–50. Geiger, C. (2009), “Implementing an International Instrument for Interpreting Copyright Limitations and Exceptions”, IIC, 40, 627–42. Geiger, C., Macrez, F., Bouvel, A., Carre, S., Hassler, T. and Schmidt-Szalewski, J. (2009), “What Limitations to Copyright in the Information Society? A Comment on the European Commission’s Green Paper ‘Copyright in the Knowledge Economy’”, IIC, 40, 412–33. Gervais, D. (2008), The TRIPS Agreement – Drafting History and Analysis, 3rd edition, London: Sweet & Maxwell. Ginsburg, J. (forthcoming 2010), “Contracts, Orphan Works, and Copyright Norms: What Role for Berne and TRIPs?”, in R. Dreyfuss, D. Zimmermann and H. First (eds.), Working Within the Boundaries of Intellectual Property: Innovation Policy for the Knowledge Society, available at: http://papers.ssrn. com/sol3/papers.cfm?abstract_id=1357503. Gowers Review on Intellectual Property, (2006), available at http://webarchive. nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/d/pbr06_gowers_ report_755.pdf. Hardin, G. (1968), “The Tragedy of the Commons”, Science, 162, 1243–8. Hellstadius, Å. (2009), “The Research Exemption in Patent Law and its Application to HESC Research”, in A. Plomer and P. Torremans (eds.), Embryonic Stem Cell Patents – European Patent Law and Ethics, Oxford: Oxford University Press 2009, 323–42. Hilty, R.M. and Geiger, C. (2005), “Patenting Software? A Judicial and SocioEconomic Analysis”, IIC, 36, 615–46. Hilty, R.M., Geiger, C. and Griffiths, J. (2008), “Declaration on a Balanced Interpretation of the Three-Step Test in Copyright Law”, IIC, 39, 707–13 (cited as: Declaration on the Three-Step Test). Hilty, R.M., Krujatz, S., Bajon, B., Früh, A., Kur, A., Drexl, J., Geiger, C. and Klass, N. (2009), “European Commission Green Paper: Copyright in the Knowledge Economy, Comments by the Max Planck Institute for Intellectual Property, Competition and Tax Law”, IIC, 40, 309–27.


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Hugenholtz, B. and Okediji, R. (2008), “Conceiving an International Instrument on Limitations and Exceptions to Copyright”, Final Report, 6 March. Kariyawasam, R. (2007), “Technology Transfer”, in S. Anderman (ed.), The Interface Between Property Rights and Competition Policy, Cambridge, UK and New York: Cambridge University Press, 466–504. Kur, A., Bently, L. and Ohly, A. (2009), “Sweet Smells and a Sour Taste”, Max Planck Research Paper Series No. 09/12. Lemley, M.A. (2007), “A New Balance Between IP and Antitrust”, SSRN Working Paper 980045. Levin, M. (2002), “Intellectual Property Rights in Transition: Legal Structures and Concepts in Adaption to Technological Challenges Towards an Intellectual Property System for the 21st Century – A Nordic-European Research Programme”, Scandinavian Studies in Law, 42, 83–95. Peukert, A. (2005), “International Copyright Law and Proposals for Nonvoluntary Licences regarding P2P File Sharing”, in F.W. Grosheide and J. Brinkhof (eds.), Intellectual Property Law 2004: Articles on Crossing Borders between Traditional and Actual, Oxford: Intersentia, 439–64. Pires de Carvalho, N. (2005), The TRIPS Regime of Patent Law, 2nd edition, The Hauge: Kluwer Law International. Ricolfi, M. (2006), “Is There an Antitrust Antidote Against IP Overprotection Within TRIPS?”, Marquette International Property Law Review, Special Issue, 10, 305–67. Rosén, J. (1994), “Moral Rights in Nordic Law – Statutory Rules and Relevant Court Practice”, Juridisk Tidskrift (JT), 1993–94, 761–71. Samuelson, P. (2006), “Economic and Constitutional Influences on Copyright Law in the United States”, in H.C. Hansen (ed.), US Intellectual Property Law and Policy, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, 164–204. Shapiro, C. (2005), “Prior User Rights”, 1 December, Competition Policy Center: Paper CPC05-055, available at http://repositories.cdlib.org/iber/cpc/CPC05-055. UK IPR Commission (2002a), “Report Integrating Intellectual Property Policy and Development Policy”, Final report Chapter 6, http://www.iprcommission. org/papers/word/final_report/chapter6wordfinal.doc. UK IPR Commission (2002b), Study Paper no. 7, author: Phil Thorpe, available at http://www.iprcommission.org/graphic/documents/study_papers.htm. UNCTAD/ICTSD (2005) Resource Book on TRIPS and Development, New York: Cambridge University Press. Viscusi, W.K., Harrington, J.E. and Vernon, J.M. (2005), Economics of Regulation and Antitrust, 4th edition, Cambridge, MA: MIT Press. WIPO Document (2009), “Exclusions from Patentable Subject Matter and Exceptions and Limitations to the Rights”, SCP/13/3, 4 February.


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Index A2K see access to knowledge AIPPI (International Association for the Protection of Intellectual Property) 119, 586 abuse of a dominant position 341, 344, 352 see also dominant position access of third parties 131, 141, 146, 149 access to information 30–32, 155, 254, 285, 291, 352, 370, 386, 443, 530 access to information and knowledge for all 92, 122 access to knowledge 27, 81, 124, 139, 154, 364, 384, 387, 390, 399, 530, 549, 565 access to medicines 20, 34, 49, 65, 121, 154, 178–80, 204, 271, 287–9, 292, 373, 397, 436, 438, 592 accountability 118, 120, 134, 156–60 accreditation procedures 159 adaptive efficiency 107, 116–17, 162 ALI Principles 602–3 amicus curiae briefs see WTO Panel anticommons 334, 336–8, 347 tragedy of 30–31 see also tragedy of the commons anticompetitive conduct 318–22, 335, 338, 342 licensing practices 316, 328–9, 351 antitrust see competition law Appellate Body see WTO Appellate Body Art. 301 procedure 143 balance 4–7, 10, 12–17, 21–2, 46–7, 61–71, 80–86, 91–4, 139–44, 155–62, 174, 176, 180, 184–205, 246–50, 256, 270, 281–2, 300–301, 315–18, 324, 328–31, 348–52,

372–3, 402, 538–51, 553, 561, 565, 598–603 bargaining power 93, 120–22, 135, 333, 336, 376, 403, 412–18, 427, 444–6 biotechnology 38–9, 280, 285, 438, 594, 597 blurring or tarnishment 572 Bolar exception 223, 234, 395, 586, 590 border measures 85, 382, 397 BRIC countries 122 broadcasting right 217–18, 223, 251, 325, 419–20, 426, 533, 567 burden of pleading 212 business exception 223, 227, 234–5 Calabresi and Melamed 409–10, 414, 443 cartels 318–20, 323–4 export 331–2 climate change 42–5, 48, 199, 291, 384, 388–9, 438 clinical trials 588 CLIP (European Max Planck Group for Conflict of Laws in Intellectual Property) 602–3 Coase theorem 69, 113, 413–15 collective action 31, 114–15, 151, 158 collective rights management organizations 230, 421, 424–7, 546 commons 30–32, 209, 214 Creative 31, 429–30 tragedy of see tragedy of the commons comparative institutional approach 107 competent forum 603 competition law 9–10, 30, 38, 45–9, 90–93, 239, 308–58, 346, 383, 431, 435–46, 537, 551–7, 583, 589, 593, 600–602

607


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608


antitrust 308, 316, 319, 537, 602 perfect competitive markets 69 compulsory licence 34–5, 37, 173, 180, 184, 287–8, 292, 311, 323, 325–7, 339, 361, 374, 411, 416, 419–20, 431, 435–6, 438, 440–42, 552, 567–8, 582–4 computer program 90, 198, 210, 212, 314, 334, 340, 342–4, 370, 442, 559, 580, 591 confidentiality 133–4, 148, 153 Confucianism 86 consistency test 171–7, 191, 194, 197, 204 consumer surplus 77, 415 welfare 76, 81, 310, 313–14, 348–9, 551 contract law 31, 368 counterfeit goods 14, 37, 71–86, 89, 568–70 see also piracy Creative commons see commons creator 4–6, 216, 267, 363, 427 original 547–8 personal 219, 250, 427, 547, 550, 561–2 cultural heritage 284, 545 customary law 70, 168, 177–80, 201, 289–97, 397 database 338–9, 347, 378–9, 443–4 sui generis protection 443 sole source 338, 347, 383, 395, 444 decompilation 344, 368, 559 developing countries 15–20, 32–6, 38–47, 62–6, 76–8, 80–84, 89–94, 121–4, 127, 130, 134, 137–44, 146–7, 149–52, 160, 170–71, 243, 288, 292–3, 311, 326–32, 348–52, 367, 388–9, 436, 552, 577, 582, 591, 599–600 Development Agenda see WIPO Development Agenda digital rights management 368, 423 direct effect 295–6, 370 discrimination 130, 192–6, 250, 321–3, 360, 394, 578–83, 604 see also non-discrimination


Doha Development Agenda 65, 144, 273, 387 dominant position 318–21, 335, 341, 344, 434–6, 552, 555 see also abuse of a dominant position droit moral 13, 68, 218, 528, 547, 561–2 paternity rights 547, 562 DSU see Dispute Settlement Understanding dynamic competition 311, 345, 349, 531, 552–4 economic rationale 7–11 ECtHR (European Court of Human Rights) 29, 265, 275–9, 297–301 efficiency adaptive 107, 116–17, 162 dynamic 10, 83, 310, 321, 324, 331, 346, 349, 351, 440, 552 Kaldor-Hicks 62, 69, 83 static 83, 309–10, 349, 552, 590 enforcement 85–9, 92, 135–6, 160, 266, 300–301, 329, 332, 381–2, 391–4, 600–603 environment 23–6, 42–5, 168, 185–6, 201–2 environmental crisis 42–5 environmental policies 189 EST (environmentally sound technologies) 43–4, 389 ephemeral recordings 218, 567 equity 146, 437 essential facilities 322 essential medicines 34–6, 89, 287, 384, 397 European Court of Human Rights see ECtHR European Patent Convention see International Treaties European Union Legislative Acts Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs 342, 344, 368, 559 Council Directive 92/100/EEC of 19 November 1992 on rental right and lending right and on certain

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Index rights related to copyright in the field of intellectual property 426 Council Regulation (EC) No. 1383/2003 of 22 July 2003 concerning customs action against goods suspected of infringing certain intellectual property rights and the measures to be taken against goods found to have infringed such rights 72 Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases 338–9, 368, 383, 395, 417, 443 Directive 98/44/EC of the European Parliament and the Council of 6 July 1998 on the legal protection of biotechnological inventions 12, 197, 266, 280, 594, 598 Directive 98/71/EC of the European Parliament and of the Council of 13 October 1998 on the legal protection of designs 340–341, 441 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society 9, 211, 240, 278, 368, 386, 423, 425, 428, 542–3, 558, 563 Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights 22, 73, 366 Directive 2008/95/EC of the European Parliament and of the Council of 22 October 2008 to approximate the laws of the Member States relating to trade marks 210, 571, 574 exceptions see limitations and exceptions exhaustion 560, 571, 595 experimental use 233, 395, 587–90 externalities 69, 90


609

failure to work a patent see patent fair remuneration see remuneration rights fair use 214–15, 225, 571 Fairness in Music Licensing Act 142 FAO (Food and Agriculture Organization of the United Nations) 23 farmer’s privilege 39, 239, 594–5 FDI (foreign direct investment) 15–16, 42, 311 file sharing 21–2, 425, 427, 431, 564 fixed costs 79 flexibilities 17–19, 169–84, 194–6, 237–56, 372–5 fragmentation of international laws 290, 377 free competition see competition free speech 277–8, 542–3, 559–61, 572 free-riding 114–15, 416–17 FTAs (Free Trade Agreements) 18–19, 35, 38–9, 364–6, 375–6, 599–600 GATT see International Treaties geographical indications 223, 226, 235, 443, 571 Google settlement 432, 543 governance 107, 153, 272 global trade 135 IP 106–7, 117–18, 141, 149, 156–9 multi-level 161 health see public health historical institutionalism 112, 116 homestyle exception 223, 225–6, 234–5 human rights 26–9, 262–301 ICC (International Chamber of Commerce) 119 ICJ (International Court of Justice) 290 ICT (information and communications technology) 30–32 IDRC (International Development Research Centre) 24 incidental and transient copies 558 indispensability 322, 343–6, 351–2, 436, 539, 552–5 information costs 415 informative use 571, 574

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institutional choice 114, 116–18 institutional design 106–7, 110, 115, 122, 124–37, 154, 160–62 integrated circuits 443 intellectual capitalists 8 international administrative process 156–9 International Treaties ACTA (Anti-Counterfeiting Trade Agreement) 21, 85 Agreement Establishing the World Trade Organization 15, 61, 70, 110, 201 Agreement on Trade-Related Aspects of Intellectual Property Rights see TRIPS Berne Convention for the Protection of Literary and Artistic Works 12, 14, 63, 180, 208–9, 216–18, 250–55, 325–6, 360–64, 378, 391–3, 418–22, 527–8, 549–51, 556–7, 559–62 Convention on Biological Diversity 33, 384–5 Convention on International Civil Aviation (Chicago Convention) 576, 596 Doha Declaration on the TRIPS Agreement and Public Health 36–9, 65, 156–7, 177–80, 200, 244–6, 271, 292–4, 436–8, 578–9, 584 DSU (Dispute Settlement Understanding) 106, 110–12, 125–37, 144–50, 160, 177, 295 ECHR (European Convention for the Protection of Human Rights and Fundamental Freedoms) 29, 67, 265–6, 279, 285, 297–9 EPA (Economic Partnership Agreement) 204, 366, 375, 383, 537 EPC (European Patent Convention 2000) 220, 579–80 GATT (General Agreement on Tariffs and Trade) 36, 108–9, 169–72, 184–99, 247–50, 269–72, 362–3, 365, 534–5, 548–9


Art. III GATT 583 Art. III.4 GATT 582 Art. XX GATT 36, 40, 172, 183–99, 247–9, 271, 293, 373, 534–5, 548, 581 Art. XXII GATT 108 Art. XXIII GATT 36, 108–9, 130 Art. XXIII.2 108–9 GATS (General Agreement on Trade in Services) 36, 184–99, 248, 365 Art. XIV GATS 183–97, 284, 535 ICCPR (International Covenant on Civil and Political Rights) 264 ICESCR (International Covenant on Economic, Social and Cultural Rights) 27, 34, 37, 264, 267–8, 294, 535 Madrid Agreement Concerning the International Registration of Marks 63 Madrid Protocol (Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks) 375 Paris Convention for the Protection of Industrial Property 12, 14, 48, 63, 119, 123, 132, 219–20, 325–6, 360–63, 379, 393, 401, 435–6, 440, 527–8, 575, 581, 583–4, 596 Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations 218–19, 567–8 Treaty of Lisbon, amending the Treaty on European Union and the Treaty establishing the European Community 265, 297 TRIPS (Agreement on TradeRelated Aspects of Intellectual Property Rights) Art. 2.1 TRIPS 527–9 Art. 7 TRIPS 63–4, 91–2, 176, 180, 195, 199–202, 244, 273, 300, 529–33 Art. 8 TRIPS 36, 39, 63, 92, 169–80, 184, 191, 194–7, 199–205, 241, 244, 247, 273, 293, 326, 328, 331, 351–2, 373–4, 435, 534–8

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Index Art. 8a TRIPS 256, 402, 446, 529, 538–51 Art. 8b TRIPS 308, 531, 551–7 Art. 13 TRIPS 32, 47, 169, 175–6, 181, 211, 219, 221, 227, 229, 231, 251–5, 274, 367, 529, 541–2, 557–67 Art. 14.6 TRIPS 219, 567–8 Art. 17 TRIPS 47, 182, 208, 221, 223–4, 235–6, 274, 367, 541, 543, 568–75 Art. 26.2 and 2a TRIPS 47, 221, 367, 541, 575–6 Art. 27 TRIPS 33, 44, 195, 327, 287, 576–84, 598 Art. 30 TRIPS 47, 578, 584–99 Art. 40 TRIPS 92, 327–8, 330–31, 350, 599–600 Art. 41a TRIPS 92, 600–602 Art. 41b TRIPS 92, 602–3 Art. 70 TRIPS 604 UDHR (Universal Declaration of Human Rights) 13, 34, 263–4, 267, 269, 272, 274, 284–5, 294, 397, 548 UNFCCC (United Nations Framework Convention on Climate Change) 43, 388–90 UPOV Convention (International Convention for the Protection of New Varieties of Plants) 38–9, 594 VCLT (Vienna Convention on the Law of Treaties) 47, 70, 176–8, 224, 241–2, 244, 293, 376, 396–400, 550 WCT (WIPO Copyright Treaty) 21, 63, 218–19, 250, 253–5, 429, 530, 540, 549–50 WPPT (WIPO Performances and Phonograms Treaty) 63, 219, 250, 253–5, 429, 540–50 interoperability 343, 559 interpretation supplementary means 177, 242 three-step test 47, 180–84, 208–56, 288–9, 367, 399–402, 538–51 treaty 70, 92, 177, 200–204, 241–56, 293–6, 389–403 TRIPS 167–205, 208–56, 393–403


611

Vienna Convention see International Treaties investment 7–8, 311–12, 371, 395, 416–18, 532–3 jus cogens 274, 289–91, 295, 300 justification theories 67–8 Kaldor-Hicks efficiency see efficiency knowledge economy 47, 312 LDCs (Least developed countries) 19, 41, 49, 127, 137, 139–41, 147–9, 157 levy systems 421–3, 425, 445 licences of right 439–40 limitations and exceptions 45–9, 180–88, 194–6, 208–56, 380–90, 401–3, 526, 604 local working requirement 581–4 mala fide use 600–602 mandatory exceptions 359–403, 368, 380, 588 mandatory limitations 217, 220, 359–403, 539, 544, 557–99 margin of appreciation 140, 162 market economy 4, 37, 49, 311 market power 314, 317–24, 338–40, 343–52, 412, 424, 553 medicines 20–21, 327, 329, 335, 586 counterfeit 37, 75 genetically tailor–made individual 591–2 see also access to medicines; Bolar exception minimum protection 216, 248–9, 330, 401 minimum rights 218, 251, 359–403 misleading use 573, 575 monopolization 318, 320, 338–52 monopoly 197–8, 315, 319–20, 323, 338–52, 424, 426, 551, 554 moral rights see droit moral most favoured nation 13, 192, 365, 394 mutual coherence 390, 397–8 national treatment 192, 223, 360, 365, 392, 394, 582 necessity test 173, 188–90, 193 negative rights 197–99

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612


negligence 601 network effects 334, 338, 342–4, 352, 554 NGO see non–governmental organization NICs (Newly Industrialized Countries) 139–40 non-discrimination 118, 195, 264, 271, 332, 365, 394, 438, 578 see also discrimination non-governmental organization 20, 23, 25–7, 121, 133, 144, 151, 158–60, 271–3, 299, 372 non-state actors 118, 121, 124, 133, 137, 150 nutrition and food security see public health One Right Approach 538 open ceilings 374–5 organized crime 76, 78–9 orphan works 238, 433, 543 Pareto optimality 69, 82–3 patent ambush 438 dependent 544 failure to work 325, 425, 583 flooding 335 gene 280 pools 334–8, 414, 435, 439 product 576–7, 597 purpose–bound protection 597–8 second medical indication 579, 588 SPC (supplementary protection certificate) 579–80 thicket 334–5, 418, 434 troll 333, 414, 432, 437 paternity right see droit moral piracy 71–94 see also counterfeit goods positive integration 118, 271–2 power asymmetry 137, 139 prior user’s right 574, 592–3 private ordering 31, 347, 391, 409, 414, 419, 429–31, 435, 439–40, 442, 546 private use 544, 567, 570, 575, 587 private copying 563–4, 566 Private–Public Partnerships 143 product patent see patent


property logic 243, 245 property, right to 275–7 property rule 11, 409–18, 444–6 proportionality test 190, 545, 548–50 public access 66, 134, 148, 152 public domain 31–2, 66, 338, 370–72, 379, 385, 412 public good 4–11, 44, 79, 107, 119, 185, 349, 372, 383, 552 public health 34–40, 48–9, 89, 119, 140, 169–80, 194–6, 199–205, 244, 273, 291–2, 373–4, 534–6, 578 public interest 21, 26–8, 91–4, 132, 139, 151, 153, 167–205, 245, 254, 268, 274, 325, 371–3, 396, 436–8, 529–30, 560, 583, 599 public welfare see welfare purchasing power 88–9, 91 quotations 209–12, 217, 380, 391–3, 559, 566 remuneration rights 215–18, 347, 416, 420–29, 545–7, 563–4, 594–5 R&D (research and development) 8, 13, 21, 38, 45, 82, 94, 309, 311, 320, 372, 417 reach-through claims 598 refusal to licence 316, 321–3, 342, 344–8, 351–2, 554 relevant market 552–4 rental right 426 repair 341, 441, 576, 595–7, 599 clause 222, 239, 576, 596, 599 reproduction right 219, 420, 422 research exemption 599 research tool 239, 338, 438, 589, 598–9 retaliation 112, 135 reverse consensus rule 111–12 reverse engineering 41, 342, 559, 587 right of attribution see droit moral rule of law 111, 281, 533 secondary markets 318, 322, 338, 436 software see computer program sole source database see database spare parts 222, 340–42, 347, 441, 554, 576, 596 SPC (supplementary protection certificate) see patent

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Index stakeholders 4, 176, 263, 269, 282, 372, 385, 420 standard-setting 30, 438 stare decisis doctrine 239 static efficiency see efficiency stockpiling 223, 226–7, 229, 232, 236, 239–40, 288–9, 294, 578, 592, 599 structural bias 160, 191, 196, 377 majoritarian bias 115–16, 120–21 minoritarian bias 114, 119, 121 sui generis right 38, 339, 375, 387, 395, 443–4, 556 sustainable development 32–45, 61, 67–71, 78, 92, 94, 168, 180, 185, 197, 199–202 teaching purposes 217, 591 technical protection measures 368–9, 386, 430, 546, 566 technology transfer 16–17, 42, 45, 81, 85, 154, 311, 323, 331, 350, 383, 582, 599 three-step test 18, 32, 47, 175–6, 181–4, 208–56, 288, 327, 367, 399–402, 422, 429, 445, 538, 540–41, 549–51, 557, 586, 590 thumbnail images 544 TK (traditional knowledge) 33, 156, 384–5, 387–8, 444 tragedy of the anticommons see anticommons tragedy of the commons 30, 209, 531 see also anticommons transaction costs 48, 114, 149, 216, 349, 410, 412–16, 435, 440, 531 transformative use 238, 544 transit, goods in 397 transition period 364–5, 577 treaty interpretation see interpretation TRIPS see International Treaties TRIPS Council 156–9 TRIPS paradigm 11–25 TRIPS-plus 19, 35, 61, 92, 139, 364–6, 375–6, 385–9, 393–8, 401–2 use non–commercial 31, 421, 562, 569–70, 586–8, 590–91 private see private use utilitarian rationale 4–7


613

WBU (World Blind Union) 27, 369, 386–7, 545, 565–6 welfare consumer 76, 81, 310, 313–14, 348–9, 551 economic 41, 62–3, 67–71, 79–82, 87, 91–4, 599 maximization 68, 80, 83, 94, 558 public 434, 551 social 9, 68–71, 94 WHO (World Health Organization) 23, 25, 36–7, 49, 76, 121–2 WIPO Development Agenda 25, 38, 49 WTO (World Trade Organization) 3, 12–15, 28–9 WTO Appellate Body 18, 110, 128–37, 144–55 composition of 128–30, 155 Working Procedures for Appellate Review 128–9 WTO Dispute Settlement System 106–62 see also WTO Appellate Body; WTO Panel; WTO Dispute Settlement Decisions WTO Panel 18, 109, 111, 130, 160–62 adoption 109, 112 amicus curiae briefs 133, 144, 150–51, 159 composition of 110, 125–8 establishment of 110 expertise 126–7 independence 109, 113–15, 155 information 150–52 initiation of and access to proceedings 130–32, 140–44, 149–50 mandate 18, 123, 135–7, 139 permanent panellists 128, 146–7 reports 111–12, 117 transparency 147–9 WTO Dispute Settlement Reports Brazil – Tyres (Brazil – Measures Affecting Imports of Retreaded Tyres, Appellate Body Report WT/DS332/AB/R, 17 December 2007) 190 Canada – Patents (Canada – Patent Protection of Pharmaceutical Products, Panel Report WT/

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614


DS114/R, 17 March 2000) 18, 64, 140, 181–3, 195, 222–4, 226–9, 233–6, 239–42, 288–9, 294, 578, 586–7, 590, 599 EC – Asbestos (European Communities – Measures Affecting Asbestos and Asbestos Containing Products, Panel Report WT/DS135/R, as modified by Appellate Body Report WT/DS135/AB/R, 5 April 2001) 36, 133, 150, 189 EC – Bananas (European Communities – Regime for the Importation, Sale and Distribution of Bananas, Appellate Body Report WT/ DS27/AB/R, 25 September 1997) 130 EC – Geographical Indications (European Communities – Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs – Complaint by the United States – Panel Report WT/DS174/R, 15 March 2005) 181, 197, 222–3, 234–6 EC – Geographical Indications (European Communities – Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs, Complaint by Australia, Panel Report WT/ DS290/R, 20 April 2005) 123, 140 Korea – Various Measures on Beef (Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, Appellate Body Report WT/DS161/AB/R, 11 December 2000) 189, 247–8 Thailand – Cigarettes (Thailand – Restrictions on Importation


of and Internal Taxes on Cigarettes, Panel Report DS10/R – 37S/200, 7 November 1990) 190 US – Continued Suspension of Obligations in the EC – Hormones Dispute (United States – Continued Suspension of Obligations in the EC – Hormones Dispute, Panel Report WT/DS320/R, as modified by Appellate Body Report WT/DS320/AB/R, 14 November 2008) 134–5 US – Copyright (United States – Section 110(5) of US Copyright Act, Panel Report WT/ DS160/R, 15 June 2000) 126, 132–3, 136, 140, 142, 154, 181 US – Gambling (United States – Measures Affecting the Cross Border Supply of Gambling and Betting Services, Appellate Body Report WT/DS285/AB/R, 7 April 2005) 191 US– Gasoline (United States – Standards for Reformulated and Conventional Gasoline, Appellate Body Report WT/ DS2/AB/R, 29 April 1996) 70, 176–7, 187, 189–92, 397 US – Shrimp (United States – Import Prohibition of Certain Shrimp and Shrimp Products, Appellate Body Report WT/DS58/AB/R, 8 October 1998) 46, 133, 168, 187, 191–3, 197, 201–3, 247 US – Section 211 Appropriations Act (United States – Section 211 Omnibus Appropriations Act of 1998, Panel Report WT/DS176/R, as modified by Appellate Body Report WT/ DS176/AB/R, 1 February 2002) 126, 130, 132, 136, 138, 140

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