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Turning TRIPS on its Head: Cross Retaliation at the WTO


Many of you may have heard of the Antigua gambling dispute at the WTO. A classic David vs Goliath story. Antigua, a very tiny island nation complained about a US law that restricted Antiguan internet gambling and betting companies from offering their services to US consumers. The WTO ruled that this law violated GATS (General Agreement on Trade in Services). It therefore authorised Antigua to retaliate. However, what was unique about the authorisation was that Antigua could suspend it’s TRIPS obligations to the US (Both TRIPS and GATS are part of the WTO framework).

In other words, Antigua could legally and legitimately sell copies of Hollywood DVD’s, without paying any royalties!! However, one is not sure how “valuation” will work here. In other words, Antigua’s suspension of US IP rights must enable it to recover only that amount which it lost out as a result of the US breach of a WTO norm (the WTO arbitrator ruled that such loss was only USD 21 million).

How will Antigua work out an IP suspension model that will enable this “equivalence” in retaliation? I propose a model in this article, that I have just posted on SSRN. This model law is of particular importance to India, since it is at the receiving end of WTO non compliance by developed countries, notably the US. The Byrd Amendment Case, where the US has not withdrawn illegal subsidies to it’s steel industry (despite complaints by 11 WTO members, including India) is an excellent example in this regard.

It is not fair that India gets hauled up to the WTO on account of TRIPS violations (recall the Mailbox case) and is forced to change its patent regime, whereas the US gets away with WTO violations, despite the WTO panel and appellate body ruling against them. Might is certainly right here… but, thankfully, countries like Antigua and India now have a weapon to even out things a bit….

I am copying both the introduction and the highlights of the proposed IP Suspension model below. I also discuss a novel IP-Tax Model. I would greatly appreciate any comments you have and will gladly acknowledge the same in the final version of the article.

“TURNING TRIPS ON IT’S HEAD: “CROSS RETALIATION” AT THE WTO

“With a sling and a stone young David smote the Philistine giant (1 Samuel 17:40, 49).

INTRODUCTION

The biblical David vs Goliath paradigm plays out very frequently in international trade disputes. In 2003, a tiny island state, Antigua and Barbuda (hereafter “Antigua”) took on the United States (hereafter “US”) in a WTO (World Trade Organisation) dispute, alleging that the US violated GATS (General Agreement on Trade in Services) obligations by effectively foreclosing their borders to overseas internet gambling services. It won at both the panel and the appellate levels. However, to this date, it has been unable to secure compliance by the US.

It’s best option now is to “retaliate” against the US—something that the WTO system permits, as a means of securing compliance. Under traditional norms, Antigua is expected to retaliate in the same sector—for instance, by suspending its GATS obligations to open up it’s various service sectors to US businesses. However, given the highly disparate value of trade between Antigua and the US and the relatively “lower” value that the US places on its service exports to Antigua, such a form of retaliation would not prove a serious enough disincentive to force the US to comply. Besides, given the much “higher” relative value that Antigua places on “US services”, such a retaliation may tantamount to Antigua shooting itself in the foot.

This story is the same one for a number of developing countries, who find that traditional retaliation is more a bane than a boon. The Byrd Amendment case is an excellent example in this regard, where a group of 11 WTO members jointly filed an action against a US law. While eight of these counties sought and were granted the right to retaliate, the only countries that exercised this right by imposing duties were the “developed” countries i.e. the EU, Canada and Japan. The developing countries, namely India, Brazil, Chile and Mexico shied away from exercising their right to retaliate. One can hazard a guess that a part of the reason must have been a lack of confidence in the enforcement machinery i.e. the inefficacy of traditional retaliatory techniques.

In order to achieve a true win, the “David” in our dispute (India, Brazil or Antigua) has to get creative and identify the right “retaliatory” sling that will hurl the stone with enough force to hurt Goliath (US or EU). For developing countries, one such optimal sling would be the suspension of “intellectual property rights” (hereafter IPR) of US or EU entities. The WTO framework contains a number of agreements—one such agreement, TRIPS (Trade Related Intellectual Property Rights) obliges member states to guarantee a minimum level of intellectual property rights protection.

A number of developing countries see the imposition of such minimum standards in intellectual property (hereafter “IP”) as harmful to their national interest and are likely to jump at the opportunity to suspend them, particularly in relation to foreign entities. The DSB (Dispute Settlement Body) of the WTO recently granted permission to Antigua to deploy this “TRIPS suspension” sling. Since the retaliation is not under the same agreement which is the subject matter of the dispute (“traditional retaliation”), it is often referred to as “cross retaliation”.

This is not without precedent. In the Bananas dispute, the WTO arbitrator permitted Ecuador to cross-retaliate by suspending obligations under TRIPS (hereafter “TRIPS suspension” model). However, Ecuador settled the case with the EU and never acted upon this authorization. We are therefore devoid of any effective precedent to see what kind of TRIPS suspension model would work well. This paper evaluates some potential models that might work optimally in these circumstances.

Absent some clarity on how a “TRIPS suspension” model would be implemented, developing countries may be reluctant to adopt such strategies. Indeed, this is a great worry in the Antigua case, with Antigua not specifying how it intends to work the “TRIPS suspension” model and recover only that which is due and no more. Indeed, at this stage, Antigua has not put in place any domestic legislation/executive order under which it can suspend the intellectual property rights (IPR) of US entities. Such uncertainty is likely to be exploited by the scofflaw state i.e. the US. Developing countries need to therefore think through some of these models and implement them domestically, so that an effective suspension can be achieved as soon as the DSB authorizes cross retaliation.

Apart from the normal models that have already been alluded to in the literature, this paper discusses a potentially new “IP-tax” model. In essence, such a cross retaliatory model would entail India or Antigua imposing a special tax on IP goods from the US, along with a price control mechanism that would ensure that the added taxes are not passed on to the consumer.

As one can appreciate, fashioning effective remedies that compel the scofflaw state to comply is of critical importance for the fairness of the world trading system—particularly when the complaining member state is an economically weaker “developing” country. Some cross retaliation models recommended in this paper fit well within the current framework of the WTO. For others to be deployed, amendments need to be effectuated. Given the current politics at the WTO and uncertainties involved with cross retaliation, one is not certain if these proposed amendments are achievable in the near future. Nonetheless, such amendments will go a long way towards making the WTO framework more meaningful to a large number of developing countries that continue to see it as representing an inequitable bargain.

This paper also highlights a paradox, albeit an obvious one. Cross retaliation is often treated as an exception to the standard “retaliatory” mechanism, wherein the complainant lists a range of products or services originating from the scofflaw state on which it intends to impose prohibitively high tariffs or other restrictions until compliance by the latter is secured. In other words, a complaining member has to first “retaliate” in relation to the same agreement which is the subject matter of dispute. If this is not likely to secure compliance, it can retaliate vis a vis other WTO Agreements, which have nothing to do with the dispute at hand. Indeed, such a hierarchy wherein cross retaliation is conferred a secondary status is mandated by the express wording of the Dispute Settlement Understanding.

In most cases where developing countries fight against market barriers erected by developed countries, cross retaliation by suspending intellectual property rights of developed country companies is a more effective remedy, in that it is more likely to secure compliance by the scofflaw state. As will be shown in this paper, it also fits conceptually better within the world trading system and what it stands for. To this extent, it needs to be positioned as the primary retaliatory mechanism for developing countries and not just a secondary resort. Since developing countries constitute the majority at the WTO, such a paradigmatic shift will go a long way towards preserving the “fairness” and legitimacy of the WTO.

Although this paper specifically names the US, EU, Antigua, Brazil and India in its various examples, one could very well substitute the name of any other WTO member. In other words, the models/strategies enunciated in this paper could apply to any WTO member state, though they are more likely to be used by developing country members against developed country members that erect WTO inconsistent market barriers.”

OPTIMAL MODEL

All of the above models need to be domestically legislated upon to become applicable. Indeed, as noted earlier, Brazil is considering amending its law to provide for a cross retaliatory mechanism. It is advisable that developing countries begin the process of working through these models and legislating appropriately. This will help reduce uncertainties associated with using cross retaliatory techniques. Also, it will help countries immediately deploy such strategies, after they have secured an order to this effect from the WTO. Although Antigua has secured an order to cross retaliate, nothing in its domestic regime permits it to do so at this moment. This will no doubt delay its deployment of cross retaliation.

Based on the above discussions, an optimal model in the context of the Antigua-US dispute would be as follows. Antigua introduces a domestic legislation titled “TRIPS Suspension”. This legislation would stipulate as below:

1. In the event of a WTO ruling permitting Antigua to cross retaliate by suspending TRIPS obligations against any member state, all categories of IP rights (patents, copyrights, designs, semiconductors, regulatory data protection, plant varieties) belonging to such member state shall stand suspended. This is notwithstanding the guaranteed protection of rights under the various IP legislations in Antigua.

2. Any new rights that are subsequently registered stand suspended from the date of commencement till the date of removal of the inconsistent laws or till the time that the parties settle. Such determination of dates shall be made exclusively by a designated government office/person. Owing to issues of consumer confusion, trademarks and geographical indications are not included within the category of “suspended IP rights” at this initial stage.

3. Provided however that any Antiguan entity shall ensure that it does not sell the product/service using the suspended IP rights to a WTO member state where the concerned IP right is in active force. Any transgression in this regard shall entail a cause of action only against such violator and not against the government of Antigua.

4. Provided also that any rights under any of the other international conventions (e.g. Berne Convention, Paris Convention) that are not incorporated into TRIPS or any bilateral treaty that are still in force and for whose breach independent causes of action can be maintained by the scofflaw state, shall not stand suspended. Any breach of such other conventions shall entitle the IP rights owner of the scofflaw state to take action against the Antiguan entity that uses its IP right in contravention of such other international convention.

5. Subsequent to a WTO ruling granting Antigua the right to cross-retaliate, any domestic or foreign entity or individual can register with a designated government office (Patent Office, Copyright Office etc) and declare its intention of working the suspended IP rights. Such entities would then have to file statements each month or quarter of how they have used the “suspended” IP and the amount of profits that are made from the sales of goods/services made using the “suspended” IP, notwithstanding the fact that such IP may only constitute a small part of the overall product/service. Provided however that if the entity using the suspended IP is a foreign entity, then none of the profits shall be repatriable, but have to spent within Antigua. A government office/person shall be entitled to audit accounts etc of the said entities to ensure that their filings are accurate.

6. The government office/person mentioned above shall issue a notification when Antigua reaches an agreement with the member state or if the scofflaw state withdraws the offending measures. A determination in this regard shall be the sole prerogative of such government office/official. Upon such notification, any Antiguan entity using suspended IP shall be entitled to an automatic compulsory license to work the suspended IP in question for the remainder of the term of the IP i.e. till the IP right would have naturally terminated under Antigua’s domestic IP laws. The royalty rates shall be fixed at the sole discretion of designated Antiguan officials.

7. This government office/person shall also issue a notification when the profits by all entities using the suspended IP (whether Antiguan or foreign) match up to the level of nullification i.e. USD 21 million in Antigua’s case. Upon such notification, an automatic compulsory license shall be issued to all Antiguan entities using such suspended IP. Here again, the royalty rates shall be prescribed at the sole discretion of designated Antiguan officials. If the year (one year of cross retaliation) comes to an end and the scofflaw state has still not withdrawn the offending measures or reached a settlement with Antigua (to be determined at the sole discretion of Antigua), the compulsory license terminates. And the Antiguan entity in question is entitled to use the IP for free i.e. the position reverts to the pre-compulsory licensing days.

8. If working the above model does not yield satisfactory results within a year (because domestic companies cannot work patented technologies/semiconductors/plant varieties and/or the copyright/design markets are very small), then trademarks and/or geographical indications belonging to the scofflaw state may be suspended. However, in such a case, strict labeling requirements must be insisted upon to safeguard against potential consumer confusion.

9. The law ought to clearly state that the ownership of any “suspended IP right” cannot be transferred. If cross retaliation becomes a credible threat, an IP owner from the scofflaw state (such as the US) may have the IP transferred in the name of one of its subsidiaries in another country. Therefore, any transfers of IP ownership ought to be prohibited, starting from the date when the member state obtains a favourable order from the WTO stating that the scofflaw state is in breach of a WTO commitment.

10. If there is a conflict between this “TRIPS suspension Act” and any of the existing IP legislations, this Act shall prevail.

Shamnad Basheer

Shamnad Basheer

Prof (Dr) Shamnad Basheer founded SpicyIP in 2005. He is currently the Honorary Research Chair of IP Law at Nirma University and a visiting professor of law at the National Law School (NLS), Bangalore. He is also the Founder of IDIA, a project to train underprivileged students for admissions to the leading law schools. He served for two years as an expert on the IP global advisory council (GAC) of the World Economic Forum (WEF). In 2015, he received the Infosys Prize in Humanities in 2015 for his work on legal education and on democratising the discourse around intellectual property law and policy. The jury was headed by Nobel laureate, Prof Amartya Sen. Professional History: After graduating from the NLS, Bangalore Professor Basheer joinedAnand and Anand, one of India’s leading IP firms. He went on to head their telecommunication and technology practice and was rated by the IFLR as a leading technology lawyer. He left for the University of Oxford to pursue post-graduate studies, completing the BCL, MPhil and DPhil as a Wellcome Trust scholar. His first academic appointment was at the George Washington University Law School, where he served as the Frank H Marks Visiting Associate Professor of IP Law. He then relocated to India in 2008 to take up the MHRD Chaired Professorship in IP Law at WB NUJS, a leading Indian law school. Prof Basheer has published widely and his articles have won awards, including those instituted by ATRIP and the Stanford Technology Law Review. He is consulted widely by the government, industry, international organisations and civil society on a variety of IP issues. He also serves on several government committees.

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