USTR Special 301 Report, 2007 – Beyond the Ostensible!

The annual Special 301 report, issued by the US Trade Representative’s Office has placed 12 countries on a special ‘priority watch list’ that will be monitored to ‘encourage and maintain’ effective intellectual property rights protection, Thailand being the only new addition to this list. Apart from this, 31 countries have been put on lower levels of monitoring.

Arguably, the ‘priority watch list’ is based on the level of protection and enforcement of intellectual property rights in the respective countries. According to the US Trade Representative’s Office, the rampant piracy and weak criminal enforcement mechanism is the reason why India is included in the list. The Report mentions that the United States remains concerned about inadequate IPR protection and enforcement in India. As per the report, expeditious judicial disposition of copyright and trademark infringement cases, border enforcement against counterfeit and pirated goods, police action against pirates and counterfeiters, and imposition of deterrent sentences for IPR infringers are few of the areas India needs to improve upon.

Indian intellectual property laws have provisions, which if properly implemented, could effectively deal with these issues. The Intellectual Property Appellate Board has been constituted for expeditious disposition of IPR cases, specifically cases pertaining to trademarks, geographical indication and patents. The Board was set up at Chennai in September 2003 to hear appeals against the decisions of the Registrar under the Trade Marks Act, 1999 and the Geographical Indications of Goods (Registration and Protection) Act, 1999. Recently, the Ministry of Commerce, Government of India by a notification dated 2/4/2007 notified that all patent litigations filed in various courts in the country after notification of the amended Patent Act have been transferred to the Intellectual Property Appellate Board. The ministry also appointed the technical member to the Board for operationalization of the Board for patents. Pursuant to this, the Chennai High Court has transferred the Novartis matter to the IPAB. Furthermore, while dealing with issue of counterfeiting and piracy of trademarked goods through parallel import, Delhi High Court in the recent case of Samsung Electronics Company Ltd. v. Mr. Choudhary, 2006(33) PTC 425 (Del.) granted an injunction in favor of the plaintiff stating that parallel import is not allowed in India protecting the trademark owner against such activities. Apart form this, in case of IPR infringement, essentially in case of trademark infringement and data theft, a criminal action may be instituted by filing an FIR (First Information Report). Moreover, a number of intellectual property statutes provide for criminal action and criminal remedy against the accused.

The ongoing litigation on section 3(d) of Patents Act, 1970 also appears to be a matter of concern for the US. In PhRma’s response to the 2007 Special 301 Report, it submits, “Particularly as Indian companies increasingly patent incremental innovations in the United States, the lack of reciprocity is unacceptable. Despite India’s clear potential as a hub for pharmaceutical innovation, these deficiencies in its IP regime hinder the business climate and undermine that potential.”

Similarly, “an overall deterioration in the protection and enforcement of IPR in the Thailand” led to its inclusion in the ‘priority watch list’. Furthermore, according to the report, in Thailand, there is rampant piracy of trademarked products, insufficient penalties for violations, and there were indications of a further ‘weakening of respect’ for patents on pharmaceutical products.

United States derives its authority to prepare the annual special 301 report and to impose sanctions on the basis of the report, from its domestic legislation the U.S. Trade Act of 1974, Section 301. The Act gives statutory authority to the Government of the United States to impose trade sanctions against countries seen as violating U.S. trading rights. The Special 301 report is issued 30 days after the release of the annual report on foreign trade barriers faced by U.S. companies. It is not unusual for countries to have laws aimed at protecting domestic industries. However, in relation to international intellectual property protection, it seems inappropriate to have such a law and list. Most of the countries on the special 301 are members of TRIPs. Under TRIPs, there are detailed dispute resolution procedures. If any member country fails to fulfill its obligations under TRIPs, other members can institute a panel under the WTO Dispute Resolution Understanding that can then decide the matter and if appropriate, compel the non-conforming member to amend its laws.

Section 301 of the U.S. Trade Act, 1974 gives the USTR authority to retaliate against foreign countries but generally, instead of retaliatory measure, the USTR negotiates with the foreign country and enters into free trade agreements with them. Section 301 provides for mandatory as well discretionary action. Mandatory retaliation measures are taken, firstly, when the rights of the United States under any trade agreement have been denied; secondly, when a foreign practice otherwise denies likely benefits to the United States under any trade agreements; and thirdly, when an unjustifiable act of a foreign government burdens or restricts U.S. commerce. On the other hand, where the USTR determines that a particular act, policy or practice of a foreign country is unreasonable or discriminatory and burdens or restricts U.S. commerce, it has discretion as to whether to take retaliatory action. Brazil has been subjected to Section 301 actions in 1985 and 1987 for its drug patents. USTR imposed heavy trade sanctions over Brazil, which were lifted in 1990 after the Brazilian president assured US that Brazil would amend its IP laws. Argentina and China have also been subjected to such actions. In the past, the WTO dispute resolution mechanism has proved effective in compelling India to amend its laws to conform with the TRIPs mandates [See for example India EMR case – soon after the panel decision in the India EMR case, India introduced EMRs under its Patent Laws] However, despite being on the Special 301 for many years now, there is little or no change in the intellectual property laws of most countries on the list. A country wise analysis of countries in United States Trade Representative (USTR) Section 301 Annual Reports (2004-2006) shows that most of the countries do not bother about their inclusion in the report. Except few, most of the countries of Special 301 report, since 2004 have not amended their laws to bring them in conformity with the interests of United States. Not all of the real reasons why the countries that are on the ‘priority watch list’ are expressly mentioned in the report. However, it is clear that the reasons are not purely based on failure to abide by minimum obligations under multilateral treaties such as TRIPs. For example, as per a former US trade official, the US decision to put Thailand on its ‘priority watch list” was prompted by failed talks on a free trade agreement, as well as the decision to grant compulsory licenses on US-made pharmaceuticals. Ashley Wills, a former Assistant United States Trade Representative stated that the decision of United States not to move Thailand to the priority watch list previously was because there was a feeling that Thailand and the United States would be entering a free trade agreement. One wonders whether the aim of the Special 301 is to coerce nations into entering into free trade TRIPs+ agreements with USA, and if so, whether the same is contrary to the mandates of the TRIPs as well as DSU.

Art. 1 of TRIPS states that “Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement…” In such a case, any TRIPs abiding country can’t be accused of inadequate intellectual property protection and enforcement laws. For the implementation and compliance of this agreement the Council for the Trade-Related Aspects of Intellectual Property Rights (TRIPs Council), which operates under the WTO’s General Council has been established. The General Council has the responsibility to settle disputes among WTO members that involve TRIPS, which means that intellectual property disputes are settled via a system comparable to that of the rest of the WTO as a whole. Art. 23.1 of the DSU, concerned with the strengthening of Multilateral Trading System of WTO, establishes a positive obligation on the members. Those parties that seek redress for a violation of obligations “or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements,” must abide by the DSU procedures and rules. Thus, the United States, a member of the WTO, must use the procedure envisaged under DSU when dealing with an action charged as a violation, nullification, or impairment of its rights or benefits as derived from the WTO covered agreements. Furthermore, Art. 23.2(a) of DSU prohibits members from making any determination to the effect that a violation has occurred or any benefit covered under the Agreement has impaired except through recourse to dispute settlement in accordance with the rules and procedure of the Understanding.

As per Robin Gross, IP Justice Executive Director, the Special 301 report is a dictation of domestic policies on intellectual property to foreign nations. The report itself sates that “However, even where a country’s IPR regime is adequate, price controls and regulatory and other market access barriers can discourage the development of new drugs”, this clearly shows that instead of focussing on adequate IP regimes, the US Trade Office focuses on barriers in the market and regulatory mechanisms, which are specific to each country in terms of their market, economy and administration. In this regard, it is interesting to note that the Uruguay Round Agreement on Technical Barriers to Trade also provides flexibility to the member states in framing technical regulation and standards, and their testing and certification process.

Article 12.2 of Agreement on Technical Barriers provides that “Members shall give particular attention to the provisions of this Agreement concerning developing country Members’ rights and obligations and shall take into account the special development, financial and trade needs of developing country Members in the implementation of this Agreement, both nationally and in the operation of this Agreement’s institutional arrangements.”

Moreover, the agreement only encourages countries to use international standards but does not mandate the use of such standards. It also gives oppurtunity to countries to follow their own standards when international standards are ineffective or inappropriate means for the fulfillment of the legitimate objective being pursued. The agreement recognizes countries’ rights to adopt the standards they consider appropriate.

Most importantly, the report does not evaluate whether or not foreign countries meet their obligations under international intellectual property treaties such as TRIPS — many of the targeted countries do – such as India, Canada, Brazil, and Italy. According to Frederick Abbott, law professor at Florida State University, “there are places in the latest Special 301 report that push countries beyond TRIPS.” For instance, Canada, Germany and others are cited for pharmaceutical price a control, which is not prohibited by TRIPS.

United States’ ability, by virtue of its domestic legislation, to bring actions against countries even if they are in compliance with TRIPS, seems to be contrary to the spirit of TRIPs. In this regard, it is interesting that Thailand has been put on the ‘priority watch list’ on the grounds that there is a “further indications of a weakening of respect for patents” by issuing the compulsory licenses, and yet, there is no case made out that in doing so, it has violated any treaty obligations.

It is clear that there are numerous dissenters to the US practice of imposing sanctions on the basis of its Special 301 list. According to David Vivas-Eugui, an attorney and program manager at the International Centre for Trade and Sustainable Development, “it is not legal in international law to unilaterally sanction another country and not provide due process” The finding of the USTR report on counterfeiting and pirated goods has also been questioned in an article in Financial Times. It was stated that “International trade losses due to product counterfeiting and piracy are much lower than estimated by business lobby groups, according to the most detailed global study to date.”

The process of removing a country from the watch list is also unclear. This year, Brazil and Bulgaria have been removed from the watch list “due to improvements in IPR enforcement and passage of IPR legislation in response to heightened engagement with the United States”.

IPR abuse is undoubtedly a serious problem. However, US strategy of putting all its political capital into creating legal penalties and sanctions on developing countries without following the mechanisms agreed to internationally is questionable. John Evans, head of OECD Advisory Committee, pointed out that improved labour conditions and corporate government standards in developing countries would help in fighting against IPR infringements.

Irrespective of the USTR Special 301 Report, an analysis of present Indian intellectual property law regime shows that WIPO Internet Treaties, law regarding optical disc piracy, border enforcement against counterfeit and pirated goods are the areas on which India needs to further work upon and strengthen its intellectual property laws.

* The author would like to thank Ms. Mrinalini Kochupillai for editing and commenting on various drafts of this note.