Pirates on the High Seas: The TRIPs Agreement and Beyond

Pirates on the High Seas

The United States and Global Intellectual Property Rights

Bénédicte Callan

1998

The TRIPs Agreement and Beyond

Bilateral Tools Have been successful in raising IP standards abroad, but they are, in the long run, inefficient. They target one country at a time, work best only in the countries that are most dependent on access to U.S. markets, and result in a patchwork of agreements. ₂₈ The GATT Uruguay Round negotiations, which opened in 1986, presented a golden opportunity to turn intellectual property rights into a multilateral trade issue. With the Trade Related Intellectual Property Rights Agreement, the United States cast its net wider, in one swoop intensifying and harmonizing the IP regulations of all WTO countries. ₂₉ The agreement was a fantastic success, achieving far more than its backers initially expected, but it has not ushered in an extended era of multilateralism for intellectual property. To the contrary, TRIPs has given the United States new tools with which to badger recalcitrant countries, especially in the developing world.

Among the less-developed countries (LDCs), the TRIPs accord was highly controversial. The LDCs initially opposed the uniform IP standards proposed in TRIPs, much preferring the World Intellectual Property Organization’s position that countries should set standards according to their level of development—a solution unacceptable to the United States. India and Argentina, among others, argued that stronger rules would impose heavy costs and a loss of control over technology diffusion. Over time, however, a reluctant consensus formed around TRIPs, aided by the unpopularity of U.S. unilateral pressure, the use of cross-issue bargaining, and changing attitudes in the Souths—especially Latin America—toward the benefits of trade and IP rights. Essentially, the developing world came to endorse TRIPs as the lesser of two evils. In exchange for binding minimum standards and a dispute-settlement mechanism, developing countries hoped TRIPs would rein in the aggressive unilateralism of American IP diplomacy.

The NAFTA Background

The North American Free Trade Agreement, completed two years before the conclusion of the GATT Uruguay Round, also helped the ratification of TRIPs enormously by raising the stakes. ₃₀ Article 17 of NAFTA stipulated high and uniform standards of protection for Canada, Mexico, and the United States, setting the terms for TRIPs negotiations.

First, NAFTA established a long patent term and stated that inventions—product or process—in all fields should be patentable. (Exceptions were made for inventions that threaten public safety or morality, as well as for biotechnological, therapeutic, and surgical inventions.) The broad scope of patent protection benefits, most notably, the pharmaceutical and agrochemical industries, whose products were often excluded from patent protection in developing countries (including Italy and Japan up to the I 970s). Second, NAFTA extended copyright protection to new technologies such as encrypted satellite signals, software databases, and sound recordings. Third, NAFTA limited the conditions under which compulsory licensing is permissible, strengthened the contractual rights in copyrights, and constrained parallel importation Finally, NAFTA stipulated that the IP agreement would enter into force almost immediately and member countries would have to establish procedures expeditiously for the enforcement of property rights.

Because NAFTA could theoretically be broadened to include other Latin American countries, it set a standard for future trade liberalization. And therein lies its importance for the TRIPs Agreement. Because new entrants will have to have equivalent standards, NAFTA is credited with accelerating substantial changes in the Southern Cone’s IP laws—notably in Chile, Brazil, and even Argentina. ₃₁ Indeed, Latin American intellectual property regimes look more and more promising, with MERCOSUR and the Free Trade Association of the Americas (FTAA) seriously discussing IP standards. ₃₂ And while data is still scarce, the experience of Mexico and other countries is beginning to confirm liberal economic theories that stronger intellectual property rights have positive effects on trade, investment, and domestic innovativeness. ₃₃ The prospect of firmly anchoring the Southern Cone in a liberal trading system with a strong IP component is very real, and will be a boon for developers of intellectual property.

With major Latin American countries on board the IP bandwagon, developing countries elsewhere saw the writing on the wall. Stronger intellectual property rights have become a signal of commitment to economic liberalization and integration into the international trading system. Politicians and the public in many—though not all—developing countries now believe that stronger intellectual property rights can be an aid to development, and consequently their opposition to the TRIPs agreement has weakened.

TRIPs’ Strengths

In April 1994 a truly new framework for global intellectual property rights emerged with the successful conclusion of the Uruguay Round. Like NAFTA, TRIPs established a minimum standard of protection for a broad range of intellectual property devices, including patents, copyright, trademarks, and trade secrets. ₃₄ For the first time in history, all the disparate intellectual property types were brought under one pan-national convention. Furthermore, the minimum standards of protection demanded from the 120 WTO signatories broke an old tradition in which a diversity of IP systems was accepted as long as each country granted national treatment to foreigners. WTO members thus gave up a degree of freedom in setting domestic IP laws in exchange for greater international uniformity. A new twist was added to the national treatment clause: countries must also extend (in the majority of cases) most favored-nation treatment for intellectual property rights, meaning that any advantage granted to one country has to be extended to all other WTO countries.

A broad range of areas is covered in TRIPs. The highlights of the requirement for each type of protection follow ₃₅

Patents—granted for 20 years from the date of filing. Obligations based on the Paris Convention for the Protection of Industrial Property (1967). The only products or processes that are not necessarily eligible for patent protection are those that endanger the public order or morality; diagnostic, therapeutic, or surgical methods; (non-micro-biologic) plants and animals; and biological processes. "Pipeline" protection will temporarily be granted to pharmaceutical and agricultural products in countries that are allowed to delay implementing full patent protection.
Copyrights—obligations based on the Berne Convention for the Protection of Literary and Artistic Works (1971) and the Rome Convention (1961). Computer programs, databases, sound recordings, movies, and performances are protected for 50 years. Broadcasts receive 20 years of protection. Rental rights—the right to authorize or prohibit commercial renting—is provided for software and sound recordings. Neighboring rights—protecting the performances of copyrighted works—are protected for performers, producers, and broadcasting companies. National treatment is not required for Rome Convention signatories.
Trademarks—registered for 7 years initially, and can be renewed indefinitely. Governments may require that the trademark be used within the country. Prohibits the compulsory licensing of trademarks.
Semiconductor Layouts— 0-year protection for layout designs. Compulsory licensing is not allowed. Based on the Treaty on Intellectual Property in Respect of Integrated Circuits (1989).
Geographic Indications—prohibits use of indications that can mislead consumers as to the true origin of the product. Further negotiations mandated for a multilateral system of registration and notification.
Industrial Designs—10-year protection "against unauthorized making, selling, or importing copies of new or original industrial designs. ₃₆
Trade Secrets—include internally derived documents or processes. Companies are granted protection from misappropriation and unauthorized use as long as they take reasonable steps to keep information private.

Thus the TRIPs agreement covers, though to a lesser degree than NAFTA, new fields and technologies. Semiconductor layouts are protected, and biotechnology-derived microorganisms and processes are patentable. Other genetically altered life forms, or parts thereof, are left to the discretion of the member countries. Plants must be included in the International Union for the Protection of New Varieties of Plants (UPOV) even if a country decides not to extend patent protection. ₃₇ However, many information technologies—including information on the Internet and satellite signals—are left out of the TRIPs agreement entirely.

A major innovation not found in NAFTA is the establishment of a formal WTO enforcement and dispute-settlement mechanism to adjudicate complaints of member nations. In theory, countries must first take IP disputes to the WTO’s Dispute Settlement Body (DSB), rather than resorting to unilateral threats or sanctions. An impartial panel is then set up to judge whether the agreements have been reasonably interpreted and carried out. If not, possible remedies include orders to stop the infringing practice, the destruction of infringing goods, or the assessment of monetary damages.

Another innovation that makes TRIPs unique is the obligation countries have under it to enforce intellectual property rights both within the domestic markets and at their borders. TRIPs makes nations responsible for preventing the export of infringing goods from their territories.

Ratification of the NAFTA and TRIPs agreements was a victory for American innovators. The two put in place a framework for the international management of intellectual property that comes very close to the standards of protection advocated by the advanced industrialized countries. IP thus metamorphosed from a purely national policy for promoting investments in new ideas and technologies into a mechanism for spreading the cost of research and development over all economies. These agreements made intellectual property rights a multilateral trade issue. It is a mistake, however, to assume that American IP battles are over.

TRIPs’ Weaknesses

TRIPs has numerous weaknesses and loopholes that are unacceptable to the United States. ₃₈ The most objectionable are the long transition periods granted to developing countries: some products will not receive IP protection in the least-developed countries until the year 2010. Worse, countries self-select whether they are developed, developing, or least developed, and so decide at what pace they will institute changes to their IP regimes. The developed countries had to implement changes one year after the WTO’s inception (by January 1, 1996), while developing countries were granted a five-year transition period, and the least developed a ten-year transition. The benefits of a strong global IP system will thus not be fully realized until after the millennium.

Other complaints focus on the exceptions and derogations from the TRIPs standards of protection, such as the exclusion of recombinant DNA technologies and Internet publications, which the United States would like to see eliminated. Many U.S. companies are also disappointed that TRIPs still permits some compulsory licensing of intellectual property. Finally, TRIPs leaves unresolved such complicated questions as what constitutes international exhaustion of intellectual property rights and how "nullification and impairment" cases will be handled. ₃₉

Intellectual property disputes would not disappear from the trade scene even if the United States were satisfied with the level of protection afforded by TRIPs. We are living through an era of rapid technological evolution that fundamentally influences how we understand products, processes, and ideas. ₄₀ Twenty years ago nobody thought of genotype as property; electrical signals were not the equivalent of paper copies; software was considered text, not invention. ₄₁ Now countries and interest groups within countries fight over the definition of ownership in these slippery fields. ₄₂ The number of court cases dealing with software patents and biotechnology indicates that, domestically, the United States has not fully resolved how to protect the newest technologies. At the international level, where different values and traditions are added to the uncertainty over how to treat novel technologies, one can expect a consensus to form even more slowly.

The interests of developing countries also militate against a quick resolution of international IP tensions. For the advanced industrialized countries, there is little controversy over the notion that stronger global rights will help firms recoup investments in research and development. In the developing world, however, the welfare effects of stronger intellectual property rights need much more study. Recent studies are beginning to confirm the U.S. position that stronger IP systems increase trade flows and attract foreign direct investment. ₄₃ Empirical evidence should soon emerge from Mexico, Chile, and Brazil—the newly industrializing countries that have recently enacted stronger IP laws. ₄₄ But in less-developed countries where the main policy objective is often economic growth, a faster rate of diffusion of new ideas is probably more important than a strong IP system that fosters domestic innovation. ₄₅ A more socialist tradition of government intervention on behalf of consumers works against aligning IP systems with the standards of the First World in countries like India, Indonesia, and Egypt.

One theory holds that as countries develop, the level of intellectual property rights protection also rises. The Latin American experience seems to lend credence to the belief that time and wealth lead to robust IPRs. Yet the transition is not automatic, and many contend that external pressure is necessary to push IPRs onto the trade agenda in the first place. ₄₆ For example, without U.S. insistence, IPRs would not have been an important part of the Uruguay Round, and China would have waited far longer to upgrade its IP laws. The tension between the domestic desire for stronger IP and the catalyzing role of foreign pressure suggests that disputes will continue to flare up. They may even get worse. As the market power and political clout of China and India continue to expand, for example, their autonomy with respect to the United States may make them less sensitive to U.S. demands. The eventual decline of American influence gives the United States great incentive to insist strongly on changes in these two economies as soon as possible.

Because TRIPs is incomplete, technology continues to change, and important developing countries remain unconvinced of the value of a strong IP system, the United States should expect repeated rounds of IP negotiations in the future. The TRIPs agreement was a successful solution for problems faced in the 1 980s, but it is not a permanent panacea for global IP disputes. It built a multilateral framework, but did not remove the incentives to unilateral and bilateral solutions that the United States finds so tempting. With a panoply of unilateral, plurilateral, and multilateral tools at its disposal, the United States will continue to push countries beyond TRIPs commitments. The achievements of TRIPs are considerable, and the United States should try first and foremost to build on them and expand the multilateral IP system. However, the relevant policy question here is what the United States wants to achieve and what the best means are to those ends.

But before turning to policy options, the United States needs to understand who the modern pirates are and why separating them from their booty will not be an easy task. Only then can it sketch realistic blueprints for the construction of the next stage in global IP protection.

Endnotes

Note 28: Susan K. Sell, "Intellectual Property Protection and Antitrust in the Developing World." Back.

Note 29: TRIPs was initially drafted through the efforts of the "Intellectual Property Rights Committee," a private group of U.S. industrialists called together by the USTR, and by two top industrial organizations in Europe and Japan, the Union of Industries of the European Community and Keidanren. Back.

Note 30: Negotiations for the Uruguay Round opened in 1986. The TRIPs agreement was signed in Marrakesh in April 1994 and went into force January 1, 1996. The NAFTA agreement was signed in December 1992 and approved by the U.S. Congress in November 1993, and entered into force January 1994. Back.

Note 31: See Carlos Alberto Primo Braga, "Chile and NAFTA: The Services and Intellectual Property Rights Dimensions," unpublished paper for the Chile NAFTA Seminar of the World Bank and the Ministry of Finance of Chile, Santiago, June 20, 1994. Back.

Note 32: Robert M. Sherwood and Carios A. Primo Braga, "IntellectualProperty, Trade and Economic Development: A Road Map for FTAA Negotiations,"unpublished paper, 1996. Back.

Note 33: For articles on the trade and investment effects of stronger IPRs seeMaskus, "Regionalism and the Protection of IPRs," and Edwin Mansfield,"Intellectual Property Protection, Foreign Direct Investment, and TechnologyTransfer," Discussion Paper 19, Washington, D.C.: International FinanceCorporation, 1994. It is interesting to note, however, that the data ontechnology transfer remain inconclusive. Back.

Note 34: Jacques J. Gorlin elaborates on the strengths and weaknesses of the TRIPsagreement in "U.S. Intellectual Property Policy after TRIPs," unpublished paperfor the Council on Foreign Relations study group American IPR Policy after theTRIPs Agreement, June 1996. Back.

Note 35: Based in part on the description of the TRIPs agreement in Jeffrey Schott, The Uruguay Round: An Assessment, Washington D.C.: Institute for International Economics, 1994,pp. 115–23 and 168–70. Back.

Note 36: Schott, "The Uruguay Round: An Assessment." Back.

Note 37: The UPOV Convention provides a sui generis form of protection for plant varieties. Protection is granted for a minimum of 15 years to plant varieties that are stable, homogenous, and clearly distinguishable from other varieties. Farmer’s and research exemptions apply, allowing farmers to harvest and replant seeds and researchers to experiment with and improve the new varieties. Back.

Note 38: For a fuller description of industry’s reservations, see the Industry Functional Advisory Committee on Intellectual Property Rights, "Report to the Congress Or’ the Uruguay Round," January 10, 1994. Back.

Note 39: Geographic exhaustion refers to the ability of a title holder to prevent the impontation of a product that is based on his or her intellectual property. TRIPs leaves the decision of whether a title holder has the ability to block importation to the individual nations. There has been much heated debate on this issue, even arnong the advanced industrialized countries. There is a five-year moratorium on "nullification and impairment" cases, in which a country that has abided by the letter of the law is nevertheless accused of nullifying or impeding the rights holder’s ability to benefit from his intellectual property through behaviors not covered by the WTO. Back.

Note 40: For an excellent discussion of the attempts made by the U.S. IP system to adapt to new technologies, see John H. Barton, "Adapting the Intellectual Property System to New Technologies," in National Research Council, Global Dimensions of Intellectual Property Rights in Science and Technology, Washington, D.C., National Academy Press, 1993. Back.

Note 41: Information technology is especially problematic. The Clinton administration report "Intellectual Property and the National Information Infrastructure" represents one attempt to create "a domestic and international norms for intellectual property protection" on the Internet. How to define ownership on the Internet and for databases is a highly contested national problem. In biology the patentability of gene fragments is a similarly contested topic. And while surgical and medical procedures are patentable, recent attempts to collect fees for such patented procedures have caused an uproar. Back.

Note 42: For a discussion of the difficulty of protection in pharmaceuticals, see Bale, "Regionalism and the Protection of IPRs," and in biotechnology see Kate Murashige, "Industrial Policy and Biotechnology—Can Intellectual Property Protection Systems Catch Up?" unpublished paper for the Council on Foreign Relations study group American IPR Policy after the TRIPs Agreement, March 1996. Back.

Note 43: See Mansfield, "Intellectual Property Protection, Foreign Direct Investment, and Technology Transfer," and Maskus, "Regionalism and Protection of IPRs." Back.

Note 44: For an interesting perspective from Mexico, see Antonio Medina Mora Icaza, "The Mexican Software Industry," in the National Research Council, Global Dimensions of Intellectual Property Rights in Science and Technology ,Washington, D.C.: National Academy Press, 1992. Back.

Note 45: For a discussion of the importance of ideas and technologies to growth in developing countries, see Paul Romer, "Two Strategies for Economic Development: Using Ideas and Producing Ideas," Proceedings of the World Bank Annual Conference on Development Economics 1992, Washington, D.C.: World Bank, 1993, pp. 63–91 Back.

Note 46: Carlos Primo Braga made this argument for Brazil, and Harvey Bale for pharmaceutical protection. Back.