On March 2, the interagency Special 301 Subcommittee held a hearing to solicit input for this year’s report. Assistant USTR for Intellectual Property Stan McCoy opened the hearing, saying that it is the subcommittee’s job to make recommendations for what countries to include in the report, and that they would accept post-hearing comments until March 9 (submit them electronically via regulations.gov docket #ustr-2010-0037). He noted their statutory mandate to identify countries that deny adequate and effective intellectual property protection, or that discriminate against industries that rely on IP protection. This year the Special 301 Report will have two changes from last year:
– The 2011 Special 301 Report won’t include a section on Notorious Markets, like last years. Instead, the review of Notorious Markets will be done through a separate Out of Cycle Review, and there will be a separate chance for parties to provide comments for it.
– Pursuant to the IP Enforcement Coordinator’s Joint Strategic Plan, the Administration will use the 2011 Special 301 report to highlight best practices by trading partners in the area of IP enforcement.
Stan McCoy said that unlike last year’s hearing, where witnesses made five minute statements and then had five minutes to answer questions for the panel, this year questions would be asked up front, and each witness will have ten minutes to address the questions and also to deliver prepared comments. In general, the committee is interested in hearing testimony on country-specific policies both good and bad.
The first four witnesses were representatives from Thailand, the Czech Republic, Italy and Mexico. All of the witnesses described their growing efforts to fight piracy and counterfeiting in their countries, citing statistics for seizures, raids, and arrests. They also described various legislation to toughen sanctions and mechanisms they created to foster cooperation between the government and rightholder groups.
Dr. Kajit Sukhum, Assistant Director General of the Thai Ministry of Commerce’s Department of Intellectual Property Major described legislative reforms including an anti-camcording bill; landlord liability; modernizing law for digital rights under international WIPO norms; and greater ex officio authority for transshipment, which are being carried out while the country complies with the Doha Declaration on TRIPS and Health. He noted a disconnect between rightholder groups in Thailand, who praise the Thai government’s efforts to fight piracy, and rightholder groups in the US, which criticize them.
Daniel Kostoval, Embassy of Czech Republic said that his country is fighting IPR infringement because of their own interests, not because of the United States. Efforts include legislation with tougher criminal sanctions and the establishment of a new controlling body being formed with help from the MPAA to fight digital piracy he complained that people in the US supply the original copies of content that winds up pirated in the Czech Republic, but that their efforts to work with people in the US to halt this suffer from a lack of cooperation on the US side.
Fabrizio Mazza, Italian Ministry of Foreign Affairs listed enforcement activities in Italy, and noted that they are expanding the scope of anti-mafia laws in order to increase the severity of penalties for those engaged in counterfeiting and piracy. He said that it would help a lot if ISPs would be more involved in enforcement efforts – greater disclosure on their part is needed.
Salvador Behar, the Mexican Embassy’s Legal Counsel for International Trade described many examples of cooperation between Mexico and US enforcement agencies. The two cooperate on many initiatives because they share a border.
Sean Flynn testified on behalf of a coalition of global health groups which have filed written comments, to USTR for Special 301. Stan McCoy asked him to clarify how some the comments’ content on the role of Special 301 in trade policy fit in with USTR’s statutory obligation to identify countries that deny adequate and effective IP protection. McCoy also asked him to clarify the assertion in the comments that the 2010 Special 301 Report encouraged ex officio action by border guards.
Flynn’s prepared remarks focused on the basic issue of how IP and patents are (contrary to USTR assertions) real barriers to access to medicines. Therefore, seeking TRIPS Plus IP is inconsistent with obligations to uphold the Doha Declaration.
Proponents of strong IP protection assert that stronger IP is good for foreign countries, because it leads to more R&D for more medicines. However, intellectual property has a different impact middle income countries than it does in high income ones because income distribution in middle income countries tends to be highly unequal. In developed countries with more equal wealth distribution, pharmaceutical companies can maximize profits by selling at a price affordable to large segments of the population. In middle income markets, pharmaceutical firms with patent monopolies will maximize profits by selling at very high prices to only the wealthiest segments of the population. Strong intellectual property promotes incentives to price to the elite. All of the specific IP policies attacked by USTR like data exclusivity, compulsory licensing, etc) are motivate by this. If the Special 301 Committee cares about access to medicines, it should not attack policy tools that promote access in middle income countries. For instance, it should not attack Section 3(d) of India’s patent law. There are best practices to deal with this problem. If you want global monopolies supported by tough IP worldwide, then you need to think about what practices you will promote to ensure access.
There is a similar problem in the copyright field. If you adjust for local purchasing power, the Dark Knight costs about $700 in many middle income countries. This causes rampant piracy.
Sean Flynn then switch the topic of his talk to pricing and reimbursement strategies, and PIJIP’s work with US state governments that are concerned trade policy will harm their efforts to negotiate drug prices.
Monopoly rights on essential medicines cause problems in the US too. We spend over twice the OECD average on medicines, and our expenditures on medicines grow faster than inflation. The exception is within government purchasing, where we negotiate prices and/or reimbursements. In Medicaid, state governments use the same tools as foreign countries to negotiate prices through pooled purchasing and formularies. They look at the price and effectiveness of different products and create preferred lists of the best ones. These are the same tools targeted by the Special 301 Report, and by PhRMA in their comments this year. These tools are also targeted in FTAs – including the Korea FTA and the upcoming Trans Pacific Partnership. US trade policy should not push standards abroad that we don’t live according to at home.
McCoy asked Flynn to keep his comments on the topic of the Special 301 Report, and Sean referred him to page 14 of the 2010 Report. He asked McCoy to clarify what USTR meant when it accused France of having unfair, un-transparent pricing negotiations. He read all of the other countries mentioned for having vaguely described problems with their systems of price negotiations, and he asked McCoy if he could explain what USTR is alleging in the report. Is there discrimination against US industries? Is a trade principle being violated? If not, then inclusion of these policies in the Special 301 is outside of USTR’s statutory mandate.
The next witness was Jonathan Congdon from Beach Body LLC, a company that sells fitness DVDs. Beach Body sells its products through infomercials, peer to peer distribution networks and the internet, and that piracy sites – especially Chinese ones – are harming its business. It has an in-house team to combat online piracy which has tripled in size, and that it is a considerable expense for a small business such as his, but the piracy is growing. Foreign companies will register domain names that imply their website is associated with us, like P90Xstore.com, and sometimes they replicate our entire website. It takes us weeks to get a foreign government to take down one site, during which they’re still selling. Once the site is taken down, it springs back up with a different name almost instantly. And pirate operations will have 10-20 websites working in tandem. Chinese auction sites like Ali Baba are also very problematic – they are where most illegitimate copies of their DVDs are traded. (eBay on the other hand, has been helpful in anti-piracy efforts.)
When a consumer unknowingly buys a defective counterfeit Beach Body product, it harms our reputation. Consumers will contact us complaining that the product is defective, and this is hard for a small company to deal with… do you send them a legit product for free? Do you make it a learning experience? What do you do if the counterfeit has harmed the consumer’s hardware? The company is constantly trying to figure out the correct response, but it is hard.
Jonathan Congdon gave the following recommendations to USTR: increase use of criminal enforcement tools for greater deterrents (the current penalties are an acceptable cost of doing business for pirates); improve coordination among US government bodies; have customs and other authorities share more information with industry to help companies be better private-sector actors. When he finished his testimony, McCoy said that a Post Hearing Comments that explained their experiences in trying to work with Chinese authorities would be very helpful to the Special 301 Committee.
Jay Taylor from PhRMA gave the next testimony, and McCoy asked him for a response to Sean Flynn’s testimony on pricing and reimbursement. Taylor opened his testimony by saying that they invest over $64 billion a year and developing new medicines, and that their industry is one of the key drivers of innovation, competitiveness and job growth. IP is what fuels all of this, but many countries have failed to protect it, falling short of their commitments in TRIPS and in various FTAs. The US should help countries fully implement their trade obligations, and it should also engage on price controls.
PhRMA believes that the issue of pricing and reimbursement falls within USTR’s mandate for the Special 301 Report, because the Trade Act instructs the government should secure market access for companies “that rely on intellectual property protection.” In reference pricing schemes, we find our firms getting lumped into baskets with generic products, which is a problem because we need to recoup our R&D costs. It costs $1.7 billion to bring a drug to market.
To address Medicaid and the TPP, the pharmaceutical provisions in the trade agreements with Australia and Korea only apply to central levels of government. In the Korea agreement, Medicaid was specifically carved out. We think Korea is the model to follow.
Rashmi Rangnath from Public Knowledge testified that the Special 301 Report is a powerful tool that could be used to advance policies that matter to the US public. However, USTR ignores the interests of consumers and technology companies when it compiles the report. It needs to do a better job of protecting the balance between interests in US society. Many American industries rely on limitations and exceptions to copyright, and USTR advances policies that would cut down on limitations and exceptions abroad. Furthermore, countries should not be forced to accede to agreements like the WIPO treaties through the Special 301 process. They may find the conditions too onerous for local condition.
Rangnath called for more transparency in the Special 301 process and more clarity in the Report. USTR should explain what it is saying when it makes vague references in the Report to countries’ need to improve IP enforcement. It should explain policies get countries on the list, and what gets them off. USTR should not rely on unverified industry input and discredited methods of measuring losses. It should arrange for independent verification of claims in the report.
Stan McCoy acknowledged that USTR has wrestled with the question of setting criteria for listing decisions. He said that the 2010 Report includes a section on page 2 that addresses the Special 301 Committee’s process and legislative mandate.
Rangnath closed by pointing out that USTR never says limitations and exceptions to copyright constitute a trade barrier, but it still cites countries that have or use limitations and exceptions. And it often does so in a vague way that makes it hard for observers to point to specific examples in the Report of areas where USTR is overreaching.
James Love from Knowledge Ecology International was next to testify, and he thanked the panel for being open to input. He argued that the Special 301 Report has been used over the years has in ways that do not promote US interests. The drive to extend the term of copyright protection, for instance, doesn’t benefit anyone who is alive, and doesn’t belong in 301 report.
Love also objected to the reference in the 2010 Report on the lack of patents for heat-stabilized drugs in India. Getting appropriate delivery mechanisms for medicines is really important in developing countries, and the US claims to be concerned with safety and quality of drugs. Strong patent protection for delivery mechanisms conflicts with this.
McCoy replied that there must be incentive to invent things that serve the need for developing countries. Love acknowledged that there is an incentive effect with patents, but it is not significant in this case, and leads to harmful health outcomes. A historical example of IP providing little incentive for development but harmful health outcomes was the Thai patent on didanosine that was not even granted in the US, and which led Thailand to provide didanosine in powder (not tablet) form – and inferior product that leads to poorer patient compliance. It cannot be a core US interest to promote bad health outcomes.
Data exclusivity can also lead to bad health outcomes because there is no compulsory license for it, making it a stronger barrier to access than patents. Data exclusivity leads to situations where countries just don’t register drugs, so there’s no health regulation. It also presents an ethical problem because it calls on generic companies to repeat trials on humans. The US government should look into alternative ways to protect the interests of drug companies.
Love suggested that USTR establish an income level below which the US government does not engage countries on IP and medicines. If income rises above the threshold, they should contribute to R&D in some way. The Least Developed Country definition used by WTO is welcome, but it is limited. Only one country in the western hemisphere (Haiti) meets the definition. Many countries in Africa do not, like Kenya. McCoy mentioned that USTR has no submissions this year nominating sub-Saharan African countries for the list. David Drinkard (State Department) noted that the US Embassy in Kenya and a group in Nigeria are doing anti-counterfeiting work. Love noted that the Kenyan anticounterfeiting legislation is very controversial.
Judit Rius from Médecins Sans Frontières (MSF) opened her testimony and noted that the Special 301 Committee Member from the Department of Health and Human Services was not at the hearing. Last year, the DHHS representative was also missing from the hearing, and MSF regrets that they do not come. US health officials should hear what we have to say. MSF seeks increased access in developing countries to medicines and diagnostic tools. The patent system has not provided incentives for what poor people need.
The problem of access to medicines is not limited to HIV/AIDS, but HIV/AIDS has highlighted the problems in access and the importance of generic competition. MSF couldn’t provide treatment without generics. The President’s Emergency Plan for AIDS Relief (PEPFAR) has reported huge savings from generics. As people currently receiving medicines through our programs and PEPFAR’s develop resistant to first-line therapies, they will need to switch to second line drugs. Our data shows that second line treatment is far more expensive, and the medicines needed for third line treatment in developing countries cost over $2200 per patient per year.
By promoting IP policies that block access to generic medicines, USTR undermines PEPFAR and the Global Fund. The Special 301 Report undermines the interests of the US government and also conducts our international obligations. It undermines the WHO plans for promoting medical innovation that the US has supported. The US is trying to drive international norms above what is required by international law. There are better ways for the US to promote innovation and also access. Work through multilateral institutions. Rather than use 301 report to push strong IP, the government should use its resources to promote innovation.
MSF’s written submission highlights various particular policies that harm access to medicines, including restrictions on compulsory licenses, data exclusivity, etc. We provide the examples of Brazil India, and Thailand as nations that are improperly listed in the Special 301 Report. We are particularly troubled by criticisms of section 3D of India’s patent law. Today more than 3000 people are rallying in India to protest TRIPS-Plus measures in EU-India FTA. If the same TRIPS-Plus policies are promoted by the upcoming Special 301 report, this is problematic.
McCoy thanked Rius for bringing up specific examples instead of generalities, and asked her about MSF’s comments regarding India’s Section 3(d). The comments say that the US is supporting the patentability of known substances, but that is not the goal. USTR wants countries to adopt international standards of patentability. Shouldn’t patent system create incentives for health innovations relevant to developing countries?
Rius answered that it is very difficult to use specifics when discussing the Special 301 Report because it uses such vague language to criticize other countries. The language is completely unclear and general. The entry for Thailand, in particular, seems to be “saying things between the lines.” If this is not the case, USTR ought to clearly say so in the text of the report.
MSF believes that IP has a role in promoting innovation, but pushing countries like India to patent things like new means of delivery is not a real driver of innovation. If something doesn’t have a new therapeutic benefit, it doesn’t need to be patented. It would be a good idea for USTR to think about other kinds of incentives.
Joe Karaganis from the Social Science Research Council testified on procedural reform of the Special 301 process, the organization of software markets, and the role of piracy within them.
The Special 301 process has changed over the past 20 years, but the hearings are a very good start in responding in to the expansion of the range of stakeholders who are involved in the process. The Special 301 should take into account the views of non-industry stakeholders. For example, we have never seen consumer issues in the 301 report. We have never seen calls for greater access to government produced research, nor calls for expansion of US-style limitations and exceptions to copyright. Why are there no consumer groups on the advisory committees? There’s nothing in the statute saying that the committees need to be all industry.
The issue of software piracy repeatedly comes up in the Special 301 report, and the language is driven by industry claims. Assumptions underlying the claims of magnitude of losses have been widely criticized, especially when it comes to estimating losses in developing countries. The software industry recently stopped issuing loss claims altogether. Yet the Special 301 is still framed by assumptions of massive losses and it suggests much stronger efforts to criminalize software piracy. The push for the criminalization of end user piracy is a poor policy objective for the US and should not be in the report. The penalization of government efforts to use open source software (saying it is a restraint on trade) is also something that ought to be taken out of future Special 301 Reports.
Piracy is part of the software industry in developing countries. Companies allow it to exist in consumer markets in order to get people using it, then they sell software to large institutions where people work. Calling software piracy in developing countries a dead loss or a theft just doesn’t acknowledge how the market works. It should not be the business of USTR to get involved with this. It is a poor use of government resources.
Rohit Malpani from Oxfam also noted that the Committee representatives present at the panel did not include the Members from DHHS. Also missing were the members from USAID and the FDA. The FDA has done really good work on drug safety, and they understand the difference between counterfeits and substandards medicines. It would be advantageous to have them on the panel.
Oxfam had hoped that the 2010 report would pull in public health principles. They recognize that it had good language in the introduction, but the Report still included vaguely worded attacks against countries carrying out good public health policies. The entry on Thailand in 2010 complained of a lack of transparency in the issuance of compulsory licenses, but the Thai government has released more than one white paper explaining its actions. This makes one doubt that anything will be considered transparent enough to avoid criticism around the issuance of a compulsory license.
Malpani said that contrary to assumptions guiding the Special 301 process, TRIPS-Plus intellectual property rules don’t necessarily lead to innovation for patients in poor countries. Oxfam research shows that stricter IP rules have not improved innovation in local markets, or led to other benefits promised by proponents of strong IP. Oxfam’s report on the effect of the US-Jordan FTA showed that after Jordan increased IP protection, there was no subsequent raise in foreign investment. However, there was further investment in neighboring Egypt, despite that country’s relatively weak IP protection.
Malpani said that TRIPS-Plus has bad health impact for people in middle income countries, which have high income disparities and therefore still have many people living in poverty. Most people in middle income countries rely on public sector and high prices limit medicines available. When generic competition is delayed in middle income countries, access in low income countries suffers as well. Poor countries buy their medicines mostly from middle income ones.
Pharmaceutical company programs to increase access to their products are unsustainable. The World Health Organization and the US State Department agree. Differential pricing and voluntary pricing have been inadequate to increase access to medicines, especially compared to generic competition. Strategies are often restricted to high profile diseases, are often limited in scope, and rely on charity. They rarely involve treatments for non-communicable diseases like cancer.
Finally, USTR should not pressure developing countries to adopt TRIPS-Plus intellectual property protection. Trade policy should not be used to expand or confuse the definition of counterfeit medicines.
Brendan Hudson from the Balanced IPR Organization testified next. He used to work on international IP enforcement for the movie industry, but is no longer employed by them. When working on IP enforcement, the Special 301 Report was always helpful to industry efforts.
Hudson noted that corruption, counterfeiting and piracy are closely associated with each other. Anti-corruption is a part of trade policy, and it should integrated into IP enforcement policy. USTR can have an immediate impact on improving IPR enforcement simply by highlighting this issue. It would help the US companies that do 75-80% of all IP enforcement work abroad. When you are overseas, you rarely see USG official doing hands on work on IP enforcement.
Special 301 can leverage the IP enforcement efforts of people in other countries. From US point of view, Special 301 is silly, but overseas it is not because it impacts public opinion and gives credibility to local efforts by foreign agents that work for US companies. USTR should work with US IP Enforcement Coordinator(who Hudson noted was not present at the hearing) to action plans, including one that deals with anticorruption efforts.
McCoy asked Hudson if there are particular countries where corruption needs to be addressed, and specifically asked if it is a problem in China. Hudson said that corruption is a problem in all countries.
Michael Schlesinger from the International Intellectual Property Alliance (IIPA) was next to speak. He noted that IIPA has identified 40 countries, and that its companies face large costs related to piracy, especially online piracy. There is a need for deterrent responses to piracy, and countries need to have WIPO-treaty-compatible laws. The problem is very large a recent Envisional study found that 24% of all internet traffic is infringing.
TPMs are used to foster new models for distributing content, and are therefore very important. We need to combat producers of devices that get around TPPs, whose business models are to help others steal our products. Other priorities should be to fight camcording ( 90% of pirated movies can be traced to camcorders); piracy of online educational materials; and piracy of TV content. More of our specific priorities actions are highlighted in our written comments. They include suggestions for actions that would have real impact right away.
McCoy asked for specific country examples, suggesting Saudi Arabia. Schlesinger answered that Saudi Arabia is largest potential market in the Gulf. Most other countries have addressed their IP concerns, but not them. IIPA had expected to see gains in criminal enforcement in 2010 but the gains did materialize.
Schlesinger asked USTR to elevate the Philippines to the Priority Watch List. The Philippines have not implemented their anti-camcording law, and their court systems is unreliable when it comes to getting warrants. He said that Costa Rica rolled back copyright protections for photographs and performers. He said Vietnam has allowed a rapid increase in online piracy, and that they rely on administrative enforcement where they need criminal penalties.
Peter Maybarduk from Public Citizen testified on the situation regarding a compulsory license in Ecuador that landed the country on the Special 301 Report last year. The 2010 Special 301 Report says on page 13 that USTR supports efforts of countries to issue compulsory licenses consistent with their TRIPS obligations. Ecuador’s compulsory license is consistent, so it shouldn’t be listed in the Special 301 Report.
In 2009 Decree 118 declared AIDS drug access to be a matter of public interest, which under local law allowed the Minister of Health to receive compulsory license requests, case by case. In April 2010, a compulsory license was issued for public use of ritonavir, one of the two antiretrovirals in the important combination-drug Kaletra. There is now bidding between Abbott and Cipla to supply the Ecuadorian public sector. Ecuador has met with the drug industry and with the US embassy in Qito. Ecuador’s compulsory license includes royalties to the patent holders. During the compulsory licensing debate, there was a submission to USG from industry that was untrue, claiming that compulsory licenses are only for heath emergencies, and misrepresenting the individual-only compulsory licensing requirement in TRIPS.
Last year’s Special 301 report brings up the compulsory license on page 31. This year, USTR should not cite Ecuador for the compulsory license, and it should not make indirect, vague statements about concerns with IP in Ecuador that could be taken to mean that there is a problem with the compulsory license. This is a good opportunity for USTR to demonstrate the truth of its statements that it supports the use of TRIPS-compliant compulsory licenses.
Mike Mellis from MLB Advanced Media, which is Major League Baseball’s interactive media and internet arm, was the final witness. MLB Advanced Media’s TV- and internet-on-demand service is very popular but it is seriously affected by telecast piracy and by unauthorized internet streaming. Live sport piracy is very significant, especially through offshore sites including p2p sites based in China. StreamTorrent is in China. Immigration and Customs Enforcement has built up its efforts to combat online piracy, but since piracy is global, it often is outside the reach of our courts. We applaud USTR’s inclusion of TV piracy in past Special 301 Reports, and hope to see more of it in this year’s report.
MLB has an in-house team that monitors internet for incidents of live game piracy, and it’s a big task to monitor. MLB documents what we see to create a dataset, and it issues cease and desist notices. In the US, there are real-time takedown tools which we use whenever possible to and are then able to take things down fast. But when it’s hosted overseas, our requests are just ignored. We have not yet litigated this matter. There are lawsuits in Scotland, Netherlands, Israel, etc. Since most nations are both exporters and importers of TV programs we hope that governments can find common ground on fighting TV piracy.
McCoy asked Mellis to describe the situation in Israel. Mellis said that the premier league started lawsuits years ago against a service that persistently pirates their soccer matches. The league still do not know who is behind they pirated games. A court said the matches were not subject to copyright under local law, but that was struck down. Then a higher court ruled that it was fair use to broadcast a full match. It is in appeal to the Supreme Court of Israel, and there will be a case next month.
