By William New
The annual United States government report aimed at boosting global protection of US intellectual property rights and discouraging investment in errant nations this year again took sharpest aim at China and Russia, but also raised the alert on Thailand in part for its use of permitted compulsory licensing for public health, on health and safety risks of counterfeit products such as medicines, on internet piracy, and on a global treaty against counterfeiting.

The report shows the “expanding importance from year to year” of IP rights, and the “growing significance” of IP rights infringement, to the US economy, Stan McCoy, assistant US trade representative for intellectual property and innovation, told reporters on 25 April. He said it also shows the increased importance for developing economies as well.

Other areas of greater emphasis this year include internet piracy and piracy on emerging technologies such as mobile telephones, palm devices, flash drives, and other mobile technologies, the report said.

In the US Trade Representative’s annual Special 301 report (pdf) mandated by the US Congress, nine countries are on this year’s priority watch list, the worst ranking in the report before possible trade sanctions including loss of unilateral benefits for shipping to the US market. In addition to China and Russia, they include Argentina, Chile, India, Israel, Pakistan, Thailand, and Venezuela.

A total of 78 nations were reviewed this year, and 46 landed on one or another type of watch list, which mainly leads to bilateral discussions and attempted discouragement of investment. Another 36 nations were placed on the watch list. Russia was subjected to an “out-of-cycle” review which resulted in its placement on the priority watch list. Out of cycle reviews were called for this year for Israel and Taiwan.

Several countries improved in USTR’s eyes. Egypt, Lebanon, Turkey, and Ukraine moved from the priority watch list to the watch list, which USTR said reflected improvements in each country’s IPR regime. Belize and Lithuania were removed from the Special 301 report altogether.

Mentioned for the first time in a Special 301 context was the Anti-Counterfeiting Trade Agreement (ACTA) under negotiation by leading developed nations (who also are the holders the vast majority of the world’s IP rights). USTR, in its news release, called ACTA a “new and dynamic effort to combat the challenges of counterfeiting and piracy today.” It added that “the ACTA is envisioned as a leadership effort among trading partners that will raise the international standard for IPR enforcement.” Announced last October, ACTA will not be concluded by the time of the next summit of the Group of Eight industrialised nations in Japan in July, McCoy said.

USTR also took up the industry call and heightened its focus this year on trade in counterfeit pharmaceuticals, which it said “continues to be a particularly grave concern in light of the risks to human health and safety.” The United States “continues to be actively engaged in addressing this serious problem,” it said. In an extensive section on the issue in the report, USTR reinforces support for the existing patent-based R&D model for innovation of new drugs and medical devices, and describes its engagement with other governments to promote this view.

USTR also stressed the importance of preventing the export of infringing products, which may reflect the continued increase attention paid by developed countries to customs and border activities related to piracy and counterfeiting.

USTR also highlighted the benefit to protection of US intellectual property in the recently concluded bilateral agreements such as Colombia, Panama and Korea. US bilateral agreements typically extend a country’s commitments beyond those of the 1994 World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which is the global IP policy standard for protection.

On Thailand, McCoy said there was concern about an “overall deterioration” in Thailand on IP rights protection, including of optical media such as CDs and DVDs, but also involving the use of compulsory licenses, which are permitted at the discretion of any government under the TRIPS agreement to produce cheaper versions of patented medicines. Compulsory licences are common in the United States for other types of products, but USTR is reflecting developed-nation pharmaceutical industry concerns that the spread of the use of such licences in mid-sized economies such as Thailand could inflict economic harm on the industry and its ability to carry out research and development. The report urges Thailand to respect the viability of the existing patent system, McCoy said.

Essential Action, a Washington-based nongovernmental organisation monitoring trade policy, reacted strongly to the announcement on Thailand, calling it for the second year in a row, “outrageous, cynical, shameful.”

“Thailand has led the way in using TRIPS flexibilities - reaffirmed in the Doha Declaration on the TRIPS Agreement and Public Health, a declaration to which the United States is a party - to lower the prices of medicines and make important drugs available to people without regard to income,” said Robert Weissman, director of Essential Action. “Instead of congratulating Thailand, the United States denounces and sabre-rattles.”

On China, McCoy highlighted that the two WTO cases brought by the United States against China for IP-related matters shows that the US is willing to exercise its rights at that multilateral body when problems remain after extended bilateral discussions. He said a decision could come by next autumn on the copyright case against China.

Of the 51 total pages of the report, 14 pages specifically detail the situation in China (more than 27 percent).

On Russia, McCoy said “the ball is in Russia’s court” to deliver improvements on TRIPS compliance, as well as with the 2006 US bilateral agreement with Russia. Both Russia and China were also cited for progress made in the past year.

Nations mentioned in the report are given an opportunity to provide their views in the public comment process, McCoy said. Much of the information appears to come from US industry and government sources (such as the increasing presence of IP specialists at embassies around the world), though McCoy also cited foreign governments and foreign business.

The report did not appear to mention the emerging issue of “cross-retaliation,” in which nations who win a WTO case may choose to retaliate under a different WTO agreement than the one in which the violation occurred. This phenomenon, permitted under WTO rules, became known in the recent decision involving gambling services brought by the Caribbean nation of Antigua, which found the United States in violation for failing to allow gambling services. Antigua was permitted to seek retaliation under the TRIPS agreement instead of the WTO agreement on services.

The International Intellectual Property Alliance (IIPA), which represents the leading US trade associations across all of the copyright industries, echoed USTR by calling China and Russia the biggest problem countries. IIPA also praised USTR for including Spain and Greece on the watch list. But it showed dissatisfaction with the choice not to elevate Canada to the priority watch list for its alleged copyright violations, as IIPA had urged. But USTR said it looks forward to the implementation of new policies by Canada to address concerns in the coming months.

The Motion Picture Association of America (MPAA) hailed the increased focus on IP protection on the internet. MPAA Chairman and CEO Dan Glickman in a statement used the argument that strong IP protection is necessary for his industry to find innovative ways to deliver content to users, including online.

William New may be reached at wnew@ip-watch.ch.