5:59 AM Feb 9, 1994


Geneva Jan (Chakravarthi Raghavan) -- In the post-Uruguay Round Trips environment, while developing countries would have to work harder to acquire technological innovation and compete, but they can adopt some strategies to cope with the new challenges, according to a US academic, Prof. J.H.Reichman.

Reichman, who is Professor of Law at Vanderbilt University in Tennessey USA, has put forward this view in an UNCTAD discussion paper, "Implications of the Draft Trips Agreement for Developing Countries as Competitors in an Integrated World Market".

The paper, written and published before the conclusion of the Round, is based on the text of the draft Trips Agreement (in the Dec 1991 Dunkel text). But that text was adopted with very few changes. These related to compulsory licensing of semi-conductors and for a five-year moratorium on raising non-violation disputes (GATT Art. XXIII.1.b.) in TRIPs.

In the area of patents the TRIPs accord mandates extension of patentability to virtually all fields of technology, uniform patent protection for 20 years, legal recognition of a patentee's exclusive rights to import relevant products, extending process patents to products obtained and requiring countries, like India, who have not adhered to the Paris convention nevertheless to respect its substantial provisions.

The negative effects, he adds, include increased royalty payments and corresponding loss of investment opportunities in domestic R and D, higher prices for consumer products subject to monopoly rights and greater dependence on imports in general.

However, he argues, policy-makers in the developing world should not automatically assume that since stronger norms benefit developed countries, they would harm developing countries to a comparable degree.

Patents, Reichman notes, retard imitation, but don't eliminate it; and developing countries could adopt several measures to safeguard their position including legal means of narrowing the scope of foreign patent monopolies and encouraging local entrepreneurs either to work around the claimed inventions or develop novel improvements to suit local conditions.

Local authorities, he argues, would be entitled to exercise all of the claims limitations practised abroad and to know the results of prior invalidation proceedings at administrative or judicial levels. Patent administrations under Art. 29 of TRIPs, can require an applicant "to provide information concerning his corresponding foreign applications and grants".

Though the Paris Convention makes each country's patent-grant process independent of similar processes elsewhere, there is nothing to prevent developing country administrators from exercising their own judgements based on all available evidence, according to Reichman.

Countries such as Japan and Germany have recognized only a narrow range of equivalents in order to stimulate local efforts to work around issued patents. The scope for this is largely unaffected by the TRIPs, except for some limitations on dependent patents, though literal infringement of patent rights would fall within scope of Art 28.

Courts in developing countries, by strict interpretation of equivalents, could thus encourage local adaptations and improvements within limits.

Developing countries can also enact utility model laws or other hybrid regimes to stimulate local adaptation of foreign technology -- a tactic that Japan exploited with success. They can also incorporate a broad experimental use exception in their domestic laws (as is the case in Japan), thus preventing patentees from impeding non-commercial reverse engineering for purpose of advancing scientific research.

Again, the international patent system requires disclosure of issued patents and an explanation of the best mode for practising an invention known to the inventor at the time of filing. Under the first-to-file system used everywhere except in the US and Philippines, all patent applications are published after 18 months, whether or not patents are granted.

Developing countries are not required under the Trips to recognize a novelty grace period, as distinct from the priority period required under the Paris Convention. Alert entrepreneurs in countries where no timely application has been filed can thus exploit technical disclosures published in other countries.

As a result of the elimination of the local working requirements and the tariff reductions resulting from the Uruguay Round, competitors in developing countries will no doubt suffer from the foreign patentees' exclusive right to import the patented products. But several factors attenuate these concerns.

TRIPs has no agreed international norms governing the principle of exhaustion. National laws may therefore continue to allow parallel imports of genuine goods, and such parallel imports would lower prices and encourage foreign patentees to establish themselves locally.

The compulsory licensing provisions could also be used, but in ways consistent with both the TRIPs Agreement and the Paris Convention, to combat unreasonably priced imports and other abuses.

Art. 30 asks States to provide only "limited exceptions to exclusive rights" of patents, but acknowledges that domestic laws allow "for other use ...without authorization of the right holder" and spells out the bases for government-imposed 'other use'. These provide considerable leeway in interpretation, particularly when read with Art 7 and Art 8.2., according to Reichman.

According to Art 7, Objectives, protection and enforcement of IPRs "should contribute to the promotion of technological innovation and transfer and dissemination of technology...and in a manner conducive to social and economic welfare, and to a balance of rights and obligations."

Art 8.2. says "appropriate measures, provided they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of IPRs by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology".

Together, these two articles preserve and expand the exceptions long recognized in Art. 5A of the Paris Convention, and "explicitly entitle developing countries to assimilate concerns about economic development into these exceptions", Reichman argues.

Even forfeiture or revocation of the offending patents becomes technically feasible under Art 32 of TRIPs, subject to an opportunity for judicial review and the limitations of Art 5A of the Paris Convention. But the standard remedial action remains "compulsory licensing", subject to important refinements under Art 31.

In principle both public interest exception and measures to prevent abuse would justify resort to compulsory licensing, he notes.

(Under the Paris Convention) while some developed countries like the US limit the concept of 'abuse' to anti-competitive practices bordering on anti-trust violations, most others consider the doctrine applicable where a patentee fails to work the patent locally or "refuses to grant licenses on reasonable terms and thereby hampers industrial development, or does not supply national markets with sufficient quantities of the patented product or demands excessive price for such products".

TRIPs, according to Reichman, merges this broader concept of abuse with the public interest exception of compulsory licensing, though considerable effort has been made to discredit non-working of foreign patents locally as a sufficient basis.

But TRIPs also requires equitable compensation for all compulsory licenses and imposes reasonable restrictions on exports of resulting products.

However, it allows countries to address primary concern underlying the local working requirement, namely monopolistic pricing. Art 31 (b) allows compulsory licensing when, despite negotiations, rights holders have not provided licenses on "reasonable commercial terms and conditions". It exempts from these limitations compulsory licenses to correct "anti-competitive practices" provided a judicial or administrative body has verified that the practice in question is in fact anti-competitive.

The US and EC have different legal frameworks, and developing countries are free to pick and chose among these to fashion a set of anti-competitive practices that reflect their own needs and national development strategies.

The issue of adequate licensing regulations affects all areas covered by TRIPs -- including patents, trademarks, knowhow and copyright -- and to the extent developing countries, in concert, formulate appropriate licensing norms, they will find it easier to resist countervailing pressures of either a unilateral or multilateral nature, Reichman adds.

In the area of Trade Secrets, TRIPs (by Art 39) has sought to incorporate the US model into Art. 10bis of the Paris Convention (unfair competition). But Third World fears about trade secrets law being used to create long-lasting barriers are based on the old view of innovation by single inventors not disclosing technological breakthroughs.

In trade secret law, third party acquisition becomes actionable only when it is obtained by improper means (ways excluded in private contracts, or violate a confidential relationship or otherwise offend public policy). Trade secrets voluntarily revealed, insufficiently guarded or reverse-engineered lose all protection and are subject to free competition. Thus trade secrets law, while discouraging industrial espionage, unethical behaviour and corruption, provides incentive to develop incremental innovation not meeting non-obvious standard of patent law.

The trade secrets law has some practical limitations that investors ignore at their peril. Apart from lawful reverse engineering risks, measures to maintain legal secrecy can be costly and burdensome over time, and could hinder authorized third parties from efficiently exploiting the innovation.

In likely disputes between developed and developing countries arising out of TRIPs, Reichman suggests that developing countries could invoke Art. 7 and 8 and thinks it is unlikely that GATT panels could ignore the special circumstances of any developing country.

For these and other reasons, he adds, the path of wisdom for all sides might lie in settling a dispute by negotiated compromises based on the twin notions that developed countries must pay adequate compensation for social costs of IPR regimes they are imposing and that the special circumstances of the developing countries must be taken into account.

In Biotechnology, the US extends patent protection to all forms, including plants and animal varieties, while TRIPs follows the European Patent Convention -- which recognizes patenting of microbiological processes but not macro-biological.

Under TRIPs, countries have to provide patents for non-biological and microbiological processes, but not for higher organisms, with those excluding plants from patenting providing a sui generis system of protection.

Since micro-biological advances routinely affect changes in higher plant and animal (macrobiological) world, and unsound legal distinctions between the two have not been implemented with consistent or persuasive results nor is there any firm consensus on application of patents in this field, Reichmann notes.

The present lack of international consensus in this area, Reichman argues, gives developing countries considerable leeway in adjusting their levels of protection for biogenetic innovation, particularly through the UPOV option of sui generis system of protection.

Some experts believe that greater use of (WIPO administered) UPOV framework to stimulate commercial exploitation of their botanical endowments would give developing countries unique competitive opportunities, while others fear hidden costs could adversely affect domestic agricultural developments, Reichman notes.

While the original UPOV Convention provided a narrow scope of protection, the 1991 revision has broadened the scope and given it a more patent-like character. The Breeder's exclusive rights over a protected variety now include not only commercial production, sale and marketing, but also reproduction, propagation or conditioning, export, import or stocking of material for any of these purposes. It also extends the rights to products made directly from harvested material and recognizes only a narrow exception for farmers who use products of their own harvests and a broad exception for research purposes.

Besides evaluating the mix of proprietary rights that best suits their individual needs, developing countries interested in promoting biotechnological pursuits need to conserve their natural genetic endowments for future exploitation and regulate the manner in which foreigners obtain supplies of local germ plasm with a view to sharing in the proceeds of commercial exploitation.

Much of biotechnological innovation, especially processes for end-products, Reichman says, will fail to meet the "non-obvious standard" of domestic patent law. Such innovation gets protection in the industrial countries only as know-how in trade secrets law, on a par with much software innovation.

The self-reproductive properties characteristic of both natural and genetically refined organisms thus enhances possibilities for reverse engineering.

In the area of computer programmes and programme-related inventions, (where copyright and trade secret law is mostly used to repress copying), in the US and Japan there has been increase in grant of patents. In the US, patents are issued for computer programme-related inventions which are described as a series of functional steps carried out by a computer (a process) or a system capable of performing some functions (as an apparatus), but not for programme code as such.

But US Courts treat the subject matter as statutory for patenting only if a claimed invention consists of "non-statutory mathematical algorithm". This involves legal tests to exclude scientific principles, abstract ideas and mathematical formulae or discoveries. If a mathematical algorithm is present, courts test to see whether they have been sufficiently applied to an utilitarian objective -- as when a computer is used as part of a process or apparatus for transforming a physical substance into a different state.

But the line between mathematical algorithms and other types of programme functions is hard to draw and not really consonant with tenets of computer science. And European Courts applying these tests might reach different and more restrictive results on facts establishing eligibility elsewhere.

In terms of copyright, some recent US federal appeals court decisions have significantly reduced range of programme elements likely to qualify as copyrightable expression while others permit analytical use of functional matter even when this involves making intermediate copies.

TRIPs opts for copyright protection of programmes as literary works, with ancillary relief in trade secret law. As a result, beyond formal recognition of marginal inventions, legal barriers to patentability which are well established in US and EC would, if broadly construed, authorize patent authorities in developing countries to reject bulk of all programme-related patent applications on the ground of subject-matter alone.

The difficulties of satisfying novelty and non-obviousness criteria and the uncertain scope of protection attending issued patents in this area could further restrict patenting of computer-related inventions to tolerable levels. And given the lack of consensus at international levels, developing countries appear free to emulate the most restrictive practices recognized by developed legal systems without fear that some GATT panel could challenge the consistency of their actions with the letter of the TRIPs agreement.

The TRIPs agreement in Reichman's view leaves developed and developing countries free to determine the level of protection to be afforded to programme-related inventions within their respective jurisdictions, but not free to impose their individual decisions on others.

Those allowing extensive patenting of programmes could exclude infringing imports, but can't prevent developing country firms from ignoring these patents at home or exporting competing products not violating copyright, trademark and trade secret laws to third country markets where such patents are not available.

Art. 10 of TRIPs requires protection of computer programmes in any form "as literary works under the Berne Convention" and also to protect compilations of data that "constitute intellectual creations".

While these premature attempts to set high international standards might distort international trade, countervailing judicial trends in the US indicate that the full copyright approach in the TRIPs may not give the ICs the level of protection they desire, Reichman says.

This is more so since the TRIPs has not addressed protection of applied scientific know-how "where the true commercial value of electronic information tools usually resides".

In the US, the Supreme Court recently found routine compilations of data, such as a telephone directory, may fail to meet the standard of "original work of authorship". The Court denied copyright protection to all literary productions based merely on "sweat of the brow" labour and effort -- since only "creative authorship" effort satisfied the Constitutional provisions governing patents and copyright.

An immediate challenge for developing countries is how to obtain digitalized information needed for economic development at prices users can afford when electronic information publishers condition "access" to data on payment of high subscription fees, user charges, searchtime charges, downloading fees and document retrieval fees -- not to mention telephone charges when relevant.

Besides charging high access fees, publishers of electronic databases also bolster their market power by imposing harsh conditions in two-way contractual agreements that fall outside copy right laws.

To tackle these and other problems, each developing country must formulate overriding public policy limitations on both the legal protection of computerized databases and abusive two-party licensing deals -- irrespective of technical norms and limits of copyright law.

While toleration of wholesale duplication of data by free-riding local publishers will certainly trigger disputes under TRIPs, developing countries may have to take the lead to regulate providers of databases and other electronic information tools in order to promote the "balance of rights and obligations" required by Art. 7.

Since copyright law prohibits only copying of an author's creative expression, not use of his ideas, independent creation is a perfect defense. Beyond slavish duplication or imitation, courts and commentators in developed countries disagree on how to distinguish protectable expressions of a computer programme from its unprotectable ideas. No consensus has emerged either on proper scope of protection in cases of non-literal copying.

The copyright paradigm for protection of computer programmes has also limitations. It only protects the authors creative expression, not the use of ideas or of functionally determined matter in general.

While earlier judicial decisions protected ideas, processes, systems and other functional matter, more recent decisions in the US have begun to narrow the scope of protection for computer programmes and decline to treat a second comer's attainment of functional equivalence as infringement simply because of non-literal similarities in "structure, sequence and organization". These recent decisions have greatly expanded both scope of non-copyrightable components that second comers can freely use and their ability to make intermediate copies for reverse engineering, despite protection of computer programmes in copyright law.

Nothing in TRIPs prohibits developing-country tribunals from following the more restrictive lines of foreign decisions on copyright protection of computer programmes.

Developing country entrepreneurs, while carefully avoiding cloning stylistically determined elements of a foreign user interface, given appropriate judicial support, need not refrain from cloning unpatented, functionally determined components. In appropriate circumstances, they may reuse individual commands or even conventions for communications with other programmes.