On April 30, the United States Trade Representative released the 2014 Special 301 Report, which fulfills its mandate under the Trade Act (19 U.S.C. § 2242) to identify countries that “deny adequate and effective protection of intellectual property rights, or deny fair and equitable market access to United States persons that rely upon intellectual property protection.” The report is based partially on input including the public comments and hearing statements that are available on regulations.gov, and partially on other inputs such as meetings with other government agencies. Below are six observations:
1. USTR shows it is continuing to open the process, and offers a little bit of a description of its listing decision process
We at PIJIP frequently criticize the Special 301 Report and the process by which it is made, so here I’ll give credit where it is due. This year USTR took another step in the gradual opening of the Special 301 process. The Report states
For the first time, USTR recorded and posted on its website the testimony at the Special 301 hearing, and also offered a two-week post-hearing comment period during which hearing participants and interested parties could submit additional information in support of, or in response to, hearing testimony. [page 7]
Civil society groups in the past had criticized the Special 301 process for (among other things) establishing deadlines that prevented interested parties from responding to claims made by rightholders. At the beginning of the Obama Administration, there was one deadline for the filing of comments, no hearing and no opportunity to address comments made by rightholders that accuse countries of various IPR deficiencies. In 2008, the process was changed to allow countries time to respond to accusations against them . In 2010, the first open hearing was held, which gave other observers a chance to respond to written comments. Recording the testimony and allowing the public to comment on it is another step towards opening the process.
The Report also tries to explain the process by which it determines which it makes its listing decisions.
This assessment is necessarily conducted on a case-by-case basis, taking into account diverse factors such as a trading partner’s level of development, its international obligations and commitments, the concerns of rights holders and other interested parties, and the trade and investment policies of the United States. It is informed by the various cross-cutting issues and trends identified below in Section I – Developments in Intellectual Property Rights Protection and Enforcement. Each assessment is based upon the specific facts and circumstances that shape IPR protection and enforcement regimes in a particular trading partner. [page 7]
2. The 2014 Special 301 listings are very similar to the 2013 Special 301 listings
In a general sense, this is no surprise, because there are many countries (i.e. – India, China) that are always included in the Special 301 Report. (James Love has noted that the six countries that have been in every Special 301 Report since 1989 have all had greater per capita income growth that the U.S.)
Still, the similarity of the lists is striking. The 10 countries on the Priority Watch List this year are the same 10 countries that were on the list last year. Israel, Italy and the Philippines were taken off the Watch List, but the rest of the countries placed on the Watch List last year remain on it. Last year, Ukraine was a Priority Foreign Country – the designation for the worst offenders. This year’s report says that all of USTR’s concerns remain, but they didn’t designate Ukraine due to its “current political situation.”
3. The China section tries to describes the impact of IPR infringement without relying on questionable damage estimates
Industry estimates of damages overseas caused by intellectual property have long been criticized. For instance, a 2010 GAO report warned that Software Industry estimates were based on “assumptions that have raised concerns among experts we interviewed, including the assumption of a one-to-one rate of substitution.” For a while, Special 301 Reports stopped mentioning figures generated by IP industries due to such concerns.
In this year’s Report, USTR cites industry figures in a different way in order to show alleged impacts of weak intellectual property protection in China. Instead of estimating losses, it shows comparisons of rightholder experiences in other countries. Here are two examples:
industry reports that in 2013 the revenues from digital music sales in China were $65.4 million, compared to $108.3 million in South Korea, and $32.0 million in Thailand – a country with less than five percent of China’s population and a roughly equivalent per capita GDP. [Page 33]
sales of IPR-intensive goods and services in China remain disproportionately low when compared to sales in similar, or even less developed, markets that provide a stronger environment for IPR protection and market access. [Page 31]
4. No PFC listing for India, but continued bilateral pressure
USTR states that many of the comments they received “sought the strongest censure of India’s IP environment available under Special 301.” Indeed, many groups such as PhRMA, BIO, the Chamber of Commerce and Pfizer asked to have India identified as a Priority Foreign Country (PFC) in the report. Under the Trade Act provisions that provide the legal direction for Special 301, a PFC designation would have triggered the start of an investigation that could lead to unilateral sanctions or the withdrawal of preferential trade benefits. The U.S. and India are both Members of the WTO, and are therefore obliged to use the WTO’s dispute settlement body for disputes related to the TRIPS agreement, so a PFC designation for India would have been problematic. As Sean Flynn points out, India was ready to file a complaint at the WTO against the U.S. if the Special 301 Report designated India a PFC.
In the end, USTR declined to list India as a PFC, but India remains on the Priority Watch List, and USTR will launch an out-of-cycle review against India in the fall. Ambassador Froman describes this as an “enhanced discussion of a broad range of trade and innovation policies” in a blog on the USTR site. The out-of-cycle review will coincide with an ongoing International Trade Commission (ITC) investigation over many of the same intellectual property issues. The ITC’s hearings cover a wider scope of topics than the Special 301, but much of the investigation has focused on intellectual property issues such as Section 3(d) and compulsory licenses. (My notes from the hearings are here, here, and here). So even though USTR declined to use the PFC listing against India, intense bilateral trade pressure over intellectual property continues.
5. India is criticized for discussing compulsory licensing in multilateral negotiations
In its censure of compulsory licenses, the Special 301 Report notes that “only one” compulsory license has been issued under Art 84 of the Indian Patents Act. However, the U.S. government is concerned that compulsory licenses could be used more in the future, and it objects to the fact that India has promoted the wider use of compulsory licensing at the United Nations.
India has promoted compulsory licensing in its National Manufacturing Policy as a mechanism available for government entities to effectuate technology transfer in the clean energy sector. India similarly has sought to multilateralize this approach in ongoing negotiations under the UNFCCC [United Nations Framework Convention on Climate Change]. [Page 41]
It is unclear how India’s negotiating position at a UN body fits into the Special 301 mandate to” identify countries that deny adequate and effect protection of intellectual property.” It also seems relevant to point out that the World Trade Organization, World Health Organization, and World Intellectual Property Organization have promoted compulsory licenses as policy tools available to all nations.
6. Canada attacked for patent utility standards
American companies object to Canada’s application of the “promise doctrine” to patent utility standards. A relatively neutral description of the doctrine is found in this blog by Jennifer Marles, which defines it this way: “The promise doctrine essentially states that in order to constitute a useful (and therefore patentable) invention, an invention must not only be useful for some purpose, but it must also deliver any utility promised in the patent specification.” The application of the promise doctrine has led to patent invalidation in recent court cases, including the patents for two Eli Lilly drugs, Strattera and Zyprexa . In response, Eli Lilly has launched an Investor-State Dispute filed under NAFTA in which it is seeking $500 million from the Canadian government.
PhRMA asked Canada to be included in the Priority Watch List for a number of reasons, but first among them was Canada’s “heightened utility requirements.” USTR placed Canada on the less-severe Watch List, but it did cite address the promise doctrine:
The United States also has serious concerns about the lack of clarity and the impact of the heightened utility requirements for patents that Canadian courts have applied recently. Under this amorphous and evolving standard, courts can invalidate a patent on utility grounds by construing the “promise of a patent” years after the patent has been granted, leading to uncertainty for patent holders and applicants and undermining incentives for investment in the pharmaceutical sector. In applying this standard, courts have invalidated a number of patents held by U.S. pharmaceutical companies, finding now that those products lack utility (i.e., not capable of industrial application), even though such products have been in the market and benefiting patients for years. [Page 49]
(Canada’s use of the doctrine, and the Eli Lilly Investor-State dispute under NAFTA was the subject of a recent Cato Institute event. Southern Illinois University Prof. Mark Shultz argued that the promise doctrine is inconsistent with international norms and unreasonably burdensome for firms ,and Public Citizen’s Burcu Kilic argued that it is compliant with international agreements, including NAFTA, and that the promise doctrine is found in many other legal systems. The video is available here.)
