7:12 AM Dec 7, 1995

SOUTH WILL FACE CONTINUING IPR PRESSURES, WARNS EXPERT

Geneva 7 Dec (Chakravarthi Raghavan) -- The process of integrating intellectual property law into international economic law (through the WTO) imposed short and medium-term social costs on developing countries, who would also be facing in the period ahead pressures from developed countries seeking to elevate the international minimum standards even after TRIPs becomes effective.

In presenting this assessment in the Summer 1995 issue (Vol. 29 No 2) of the American publication 'The International Lawyer', the US expert Prof. Jeremy Reichman has advocated close and constant attention to the way the World Trade Organization and its dispute settlement panels deal with the many protracted disputes pitting developed and developing countries that will come up before them.

Reichman, Professor at the Vanderbilt Law School in Nashville, is extremely sceptic that, given the protectionist bias driving the international IPR relations and ability of oligopolists to capture their trade agencies, the WTO panels and machinery would overly concern themselves with public interests of the international community as a whole in limiting barriers to entry and other anti-competitive effects of TRIPs and calls for constant attention by all economic actors on the WTO dispute settlement process, on a case-by-case basis.

Reichman who with some other experts participated in a recent UNCTAD consultations told the SUNS that in the space available to them where there is some leeway in the type of protection regime and the details, developing countries would do well to cooperate and coordinate their positions and views and act to defend themselves at the WTO.

In some areas of evolving views and different approaches -- computer programmes, data-base protection, biotech, particularly patenting of life-forms and new areas -- he suggests that countries might do well to look at and use what he calls "default liability regime" in a general purpose innovation law that would encourage innovation, provide lead time for innovators to establish themselves in the market, but provide fair and equitable licensing of registered compilations of knowhow to help spread of knowledge and promote further innovations.

Reichman and some other experts (Pamela Samuelson, Randall Davis and Mitchell Kapoor) have outlined some ideas in this area in the Colombia Law Review (Vol 94) in a "Manifesto concerning the legal protection of computer programs" where they have explained the inadequacies and over-protection involved under a patent or copyright system where there mere incremental improvements on existing knowledge in the public domain.

In a detailed analysis in the International Lawyer on TRIPs and the primary IPR regime in patents, trademarks and copyright and the space for developing country firms to exploit disclosed information in order to work claimed inventions as well as unpatented knowhow (whether disclosed or not) which they fairly obtain and the room for manoeuvre they have due to the lack of international standards defining the doctrine of equivalents, Reichman says: "The extent to which developing countries will themselves benefit from strong patent systems, depends in part on willingness of firms in developed countries either to increase direct investments in developing countries or license more of their advanced technology to local firms..."

"Neverthless," he adds, "the value of a patent system to developing countries remains controversial and single developing countries could suffer hardship because of a growing dependence on foreign patents with few countervailing benefits..."

In explaining the limits to a patentee's exclusive rights under TRIPs, Reichman notes that Art 30 of Trips declares that states should tolerate only 'limited exceptions to the exclusive rights' that Art. 28 confers. But other articles, he points out, permit exceptions to exclusive rights when needed "to protect public health and nutrition, and to promote the public interest in sectors of vital importance" to economic development; to prevent "abuse" of IPRS including imposition of unreasonable commercial terms; and to counteract unreasonable trade restraints and practices that "adversely affect the international transfer of technology".

Governments, in Reichman's view, may also attempt to invoke the language in Art. 7 that envisions the effective transfer and dissemination of technology among member countries and maintenance of social and economic welfare as further grounds for regulatory action limiting grants of exclusive rights in appropriate circumstances.

These and other articles, in his view, preserve and may even expand preexisting grounds for limiting a patentee's exclusive rights under Art. 5A of the Paris Convention which some developed countries had hoped to abrogate.

The standard forms of remedial action, namely compulsory licensing, provided under Art 5A of the Paris Convention has been subject to important refinements and conditions in TRIPs Art 31. In principle both public interest exceptions and measures to prevent abuse, respectively stipulated in Art. 8 (1) and 8 (2) could justify resort to compulsory licensing, he says.

While in the past there has been considerable controversy over the concept of "abuse", Trips has merged the broader concept of abuse with public interest exceptions for compulsory licensing. It has made considerable effort to discredit non-working of foreign patents locally as a sufficient basis for triggering licensing and subjects all non-exclusive compulsory licenses to the conditions of Art 31.

But so long as grounds for triggering a non-exclusive compulsory license are rooted in the broad notion of "abuse" under Art. 8 (1) -- because of public interest considerations or the patentee's refusal to authorize the desired use on 'reasonable commercial terms and conditions' -- Art. 312 requires a would-be licensee to seek a negotiated licence from the right holder and failing that pay equitable compensation. The licensee would not be able to export the products nor prevent the foreign patentee from subsequently working the patent locally.

But a complainant seeking a compulsory license under Art. 8 (2) to rectify abuse of patent, there will be no duty to negotiate nor any restraint on exports, provided some judicial or administrative authority hold the patentee's conduct anti-competitive. On balance, Reichman says, Art 31 insulates foreign patentees from confiscatory practices, but affords developing countries broad grounds for curbing conduct that seriously compromises their national development strategies.

Also, beyond the traditional notions of 'public interest' and 'abuse', TRIPs has introduced new and more expansive concepts whose outer limits have yet to be delineated at the international level. Art. 7 stresses the "promotion of technological innovation and ... transfer and dissemination of technology .. in a manner conducive to social and economic welfare" while Art. 8 (1) expands potential public-interest exceptions to sectors other than public health or nutrition that are "of vital importance to ... socio-economic and technological development", while Art. 8 (2) seeks to ensure "international transfer of technology". In addition, Art 66 underscores the "need for flexibility to create a viable technological base" for the Least Developed Countries.

The principal weakness of TRIPs stems from the "drafters' technical inability and political reluctance" to address problems facing innovators and investors in important new technologies in the Age of Information and these particularly affect biotechnology and computer programs.

In the area of patentability of biogenetically engineered products, the TRIPs follows the European Patent Convention of 1973, and not the "more protectionist" approach of US law.

As a result, adherents to TRIPs are required to provide patent protection for micro-organisms and for non-biological and micro-biological processes, "on the doubtful premise that patenting of micro-organisms and micro-biological processes does not entail the protection of life forms".

In the same vein, he notes, states need not allow patenting of higher organisms, whether plant or animal, nor must they protect "essentially biological processes for the production of plants or animals." But a state, excluding plants from domestic patent laws, must protect plant varieties under a sui generis system.

But the line of demarcation between micro- and macro-biological advances, Reichman notes, is technically unsound and the application of standard patent-law doctrines to biogenetic engineering has proved unsatisfactory. Even when patents become available, the scope of protection remains uncertain and the now universal standard of non-obviousness could leave investors unprotected. Given the lack of consensus, the TRIPs agreement has left the field pretty much as it stands, with a built-in promise to revisit the topic in four years.

"These ambiguities", Reichman points out, "allow states to exclude the most controversial biogenetic subject matter if they so desire, and also to opt for sui generis protection of plant varieties."

In the UNCTAD consultations, Reichman and other experts, said that developing countries need not follow what has been done in the advanced countries and automatically grant patents on the basis of its grant elsewhere. They could (and should) apply for themselves whether the products or processes in all fields of technology "are new, involve an inventive step and are capable of industrial application".

This would need patent offices equipped with needed expertise with, perhaps an individual country or groups of them, having expert scientific advisors (within a country or anywhere in the world) whose advise in individual cases can be sought.

On computer programs, the TRIPs has opted for copyright (and trade secret) protection, not patent protection, the availability of which remains unsettled and controversial in most developed countries.

While domestic laws, it could be argued, must recognize some program-related inventions if they satisfy other criteria, including the non-obviousness standard, there is less consensus (than in area of biogenetic engineering) regarding proper application of patent law doctrines to computer programs. Any developed or developing country disfavouring patent protection for computer software, may allow its judicial or administrative authorities to emulate the many restrictive doctrines and practices recognized by developed country regimes.

It leaves both developed and developing countries free to determine level of patent protection for program-related inventions within their domestic jurisdiction, but not free to impose their decisions on others.

This situation, he suggests, creates unusual strategic opportunities for alert entrepreneurs.

The adoption of the 'Berne plus' (copyright convention plus) formula for computer programmes and electronic information tools, according to Reichman raise more questions than answers. For e.g. it incorporates the exclusion of "ideas, procedures and methods of operation or mathematical concepts as such" into international copyright law. The application of this principle to computer programs remains extremely controversial and has led US federal appeal courts to limit copyright protection to wholesale duplication of the computer programs, lest they inadvertently protect functional components.

TRIPs can effectively impede wholesale duplication of computer software, and especially code, much like unfair competition law did in some European countries prior to the EU directive on computer programs. But neither copyright law nor trade secret laws as reinforced by TRIPs prevent re-implementation of functionally equivalent behaviour nor impede second comers from using components that are functionally determined or that constitute either standards of efficiency in the trade or market-determined standards that consumers require.

And since Art. 10 of TRIPs, specifically requires computer programs to be protected as "literary works", it allows developing countries to invoke the compulsory license provisions in the appendix to the Berne Convention for certain educational and research purposes.

Referring to the future course, Reichman says that the process of integrating intellectual property laws into international economic law necessarily involves short- and medium-term social costs on developing countries. These costs are to varying degrees offset by prospects of enhanced market access, of technical cooperation to implement the TRIPs and of relief from unilateral trade sanctions in future discussions of IPR protection issues.

But developed countries, he warns, are unlikely to relax their efforts to elevate international minimum standards for IPR protection even after TRIPs becomes effectively. In particular they will press developing nations with regard to scope of protection issues not expressly covered in TRIPs, under the theory that both non-violatory state actions and changing circumstances can nullify and impair benefits otherwise conferred.

Also, the higher minimum standards that developed countries espouse in the course of harmonization exercises in other forums (WIPO's proposed Patent Law treaty and proposed protocol to the Berne convention) will add to pressure on developing countries on the ground that the emerging new standards make it necessary further to reduce trade-distorting IPR practices.

While the periodic review exercises of the TRIPs Council could substitute for unilateral policy reviews undertaken by trade representatives of major developed countries, Reichman expresses doubts on the extent to which the developed countries would unilaterally forego pressures such as under S. 301 of the US Trade Law.

The US Uruguay Round Agreement Act of 1994, amending S.301 ostensibly to conform to the WTO, neverthless continues to regard failure to provide adequate and effective protection of IPRs as an unreasonable act, policy or practice "notwithstanding the fact that the foreign country may be in compliance with the specific obligations of the TRIPs Agreement", Reichman notes.

The developing countries, he notes, have got themselves a five-year moratorium against non-violation complaints. In the long run developed countries pressing for higher IPR protection should expect to be presented by developing countries with counterclaims for the higher social costs that such standards entail.

By shifting international IPR protection to the framework of multilateral trade negotiations, the developed countries have implicitly acknowledged that compensation has become the new master principle.

Referring to the uncertainties of the new dispute settlement process of the WTO, Reichman notes that it is now likely that states will lodge actions against other states before the international bodies for vindicating the privately owned IPRs of their citizens against unauthorized uses outside their domestic jurisdiction.

If the appropriate WTO panels ultimately uphold such complaints, and the offending state fails to remove the underlying causes, there will be cross-retaliatory sanctions to offset the economic losses suffered.

But before IPR owners begin dancing on the streets, several negative factors must enter the calculus of social costs and benefits deriving from these provisions. Apart from the special provisions for LDCs, developing countries and former socialist countries hauled up before panels (who cannot please differential and more favourable treatment other than those specifically imbedded in TRIPs), would have ample opportunity to show excusing circumstances requiring consideration of their particular economic problems, Reichman contents.

These include the objectives set out in Art 7 and the pubic-interest exceptions in Art 8.

Predicting the outcome of litigation between a developed and developing country, he says, would be risky under best of circumstances and the likelihood of a WTO panel ignoring the special circumstances of any developing country would be speculative. For this and other reasons, the path of wisdom for all sides would be to settle disputes under TRIPs by negotiated compromises that take into account a developing country's good faith efforts to implement its obligations. But if past practice is a reliable indicator, many protracted disputes under TRIPs would pit developed countries against other developing countries and in such cases no defense sounding in hardship or need for preferential treatment would lie.

In this respect, the US professor and patent law expert says: "The developed countries seem to have embarked upon a bold new journey of discovery without any clear idea of where it will carry them in the end. For example, policy makers in states traditionally allergic to even the loose constraints of public international law seem unaware of the extent to which their trade negotiators have exposed them to decisions about intellectual property matters by beefed-up WTO panels, decisions that "could become binding internationally, whether or not consistent with the domestic laws of the litigating states, and whether or not palatable to their respective Chambers of Commerce or to their legislative or administrative authorities..."

"There is reason to fear (or hope, depending on one's perspective) that these WTO panels will find it necessary (or merely tempting) to fill well-known gaps in international intellectual property law that could affect the domestic systems in ways that local legislatures and administrators might regret.

"Given the protectionist bias currently driving international intellectual property relations and the ability of oligopolists to capture their respective trade agencies, one has little confidence that the WTO panels summoned to adjudicate intellectual property disputes will overly concern themselves with the public interest of the international community as a whole in limiting barriers to entry and other anti-competitive effects likely to flow from the TRIPs Agreement. "The evolution of this revised dispute resolution machinery through case-by-case decisions will thus merit constant attention by all those economic actors - in developed and developing countries alike - whose long-term fortunes depend on a proper balance between incentives to create and free competition."