US Special 301 Process Acclaimed By Industry, Assailed By Public Interest Groups

While heralded by patent- and copyright-based industries as a welcome step, the annual report on alleged inadequate protection of US intellectual property rights released by the Office of the US Trade Representative this week is being blasted by some civil society groups.

The yearly Special 301 report unilaterally evaluates US trading partners on the effectiveness and adequacy of their intellectual property rights protections to combat counterfeiting, internet and digital piracy, or intellectual property as it relates to health policy. The report is broken out into a priority watch list and a lower-level watch list, and can ultimately lead to trade sanctions against offenders.

This year, USTR put 12 countries on the priority watch list – including the new additions of Canada, Algeria and Indonesia – and 33 countries on the lower list.

“In this time of economic uncertainty, we need to redouble our efforts to work with all of our trading partners – even our closest allies and neighbours such as Canada – to enhance protection and enforcement of intellectual property rights in the context of a rules-based system,” said US Trade Representative Ron Kirk, who has been on the job just a few weeks.

Canada’s position is due, the United States said, to it not following through on recent commitments to implement stronger copyright reform. The US also has “serious concerns” with Canada’s failure to accede to and implement the World Intellectual Property Organization “internet” treaties, and with the volume of infringing products shipped into the country.

“Canada’s weak border measures continue to be a serious concern for IP owners,” the report said. Canada has previously said it does not recognise the 301 process as it is entirely industry-driven, according to Canadian law professor Michael Geist.

Algeria was elevated to the priority list because of a 1 January law that bans some imported drugs and medical devices in favour of locally-made ones, while US concerns that landed Indonesia on the priority list include lack of implementation of optical disc regulations, ineffective prosecution of IPR crimes, counterfeit medicines and an ineffective national IP task force.

The United States historically uses the Special 301 list for political pressure, and both Algeria and Indonesia have been on opposite sides from the US on intellectual property policy issues at the World Health Organization and WIPO.

Link to 30 April Special 301 report page here.

Two other countries on the priority watch list are Russia and China. Russia was cited for slow implementation of 2006 agreements that include cracking down on optical disc and internet piracy, unfair commercial use of data, and border enforcement. The US also blasted Russia’s rogue “collecting societies” that negotiate licences with unauthorised websites. China is raising eyebrows in the US for internet piracy and reports that officials are urging more lenient enforcement of IPR laws to protect jobs in a flailing economy.

Dominant rightsholding nations, such as the US and Europe, have been heightening their focus on enforcement and protection in response to the economic downturn.

On a more positive note, for the first time since the Section 301 report has been released, Korea is not on any watch list. It was removed after improvements made to its IPR regime within the past year, although internet piracy is still a concern, USTR said.

Organisations like the Business Software Alliance, Motion Picture Association of America, and US Chamber of Commerce hailed the report as a sign the Obama administration will be sympathetic to their concerns. IP-intensive industries employ nearly 18 million workers and account for more than $5 trillion of the US gross domestic product, the Chamber claimed. In the software industry alone, industry says the estimated global value of unlicensed PC software was $48 billion in 2007, though industry’s estimates are often challenged.

“For every $1 of software sold in a country, there is another $3 to $4 of revenues for local service and distribution firms,” said BSA President Robert Holleyman. “This means improving IP protection will directly benefit the economies of our trading partners. In fact, countries with moderate and high piracy rates stand to gain the most in terms of stimulating local innovation, job growth, and tax revenues.”

The International Intellectual Property Alliance (IIPA), a coalition of seven copyright-based trade associations like the BSA and MPAA, said it will work with the Obama administration “to secure the adequate and effective copyright protection and enforcement mandated by Congress in our trade laws.” “Committed and effective action by government is essential to stemming the massive global theft of US copyrighted works in physical form and on the internet,” said IIPA President Eric Smith.

Link to IIPA’s response and analysis here [pdf].

The US Chamber of Commerce lamented that there is still not enough enforcement follow-up action required by the USTR to force changes in watch-listed countries. The “Pro-IP” Act passed last autumn is supposed to provide more enforcement tools.

“Moving forward, Congress should work with USTR to provide more effective enforcement tools to ensure that violator countries develop comprehensive, behaviour-changing plans that will protect the rights of American innovators and creators in these countries,” said Mark Esper, executive vice president of the Chamber’s Global Intellectual Property Center.

What About ‘Change?’

But civil society groups like Knowledge Ecology International, Oxfam America and the Forum on Democracy and Trade are lambasting the report as one that continues the Bush administration tradition of penalising developing countries for providing access to low-cost generic drugs, even though they are still within the realms of the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Essentially framing this aspect of the debate as Big Pharma versus countries practising “pro-health policies,” these organisations hope this year’s 301 report is the last leftover from the Bush era, and that Obama’s team will recognise the rights of countries to increase greater access to medicines.

Essential Action took issue with Thailand’s placement on the priority watch list, in particular, saying that country’s TRIPS-compliant compulsory licensing practise has lowered drug prices and expanded access to lifesaving medicine.

This is “a deeply embarrassing action by an administration that says it aims to repair America’s reputation in the world,” said Essential Action Director Robert Weissman.

The US says it is encouraged, however, by Thailand’s intent to reduce the “uncertainty” created by past issuance of compulsory licenses on patented drugs, and wants it to ensure its patent system promotes the development of valuable medicines. Thailand is also under scrutiny by the US for “large-scale entertainment and business software piracy, cable and signal theft, and organized book piracy,” and delays in granting patents.

KEI, meanwhile, called the 301 report a “deceptive unilateral trade tool that largely serves the interests of US corporations,” while Health GAP also said it’s a “cut and paste job” from industries’ submissions.

Sean Flynn, associate director of information justice and intellectual property at American University’s Washington School of Law, said there needs to be a better way for countries to respond to the accusations on the Section 301 list. The report’s information is “highly contested,” he told Intellectual Property Watch, yet “there’s no ability to challenge” it. There should be an open, on-the-record hearing for governments and civil societies to participate in, as well as investigations into some accusations, he said. Given the unilateral nature of the report, Flynn said, “it’s really dubious whether this report would pass muster” at the WTO.

“My impression is, this is the final 301 report of the Bush administration,” Flynn said. “I don’t want to believe this is the way intellectual property is going to be in this administration. … I think the 301 process stands in stark contrast to the kind of norms of government transparency the Obama administration has embraced. But it’s going to take some time to trickle down.”

In response to the USTR report, Consumers International released its own IP watch list of which copyright laws serve or subvert consumer interests. It says IP laws in 16 countries demonstrate that copyright legislation in transitional economies such as India, South Korea and Indonesia were amongst the most favourable to consumers. The United Kingdom ranked low because of “an almost total lack of consumer flexibility, despite a 500-year history of copyright legislation,” while the US ranked fourth from the top, as the consumer group said Americans enjoy a relatively liberal copyright regime.

“Fair use in US copyright law has contributed an estimated $4.5 trillion to the US economy, by allowing the use of copyrighted material by educational institutions, internet innovators, and sellers of devices like the iPod and TiVo,” said programme coordinator Jeremy Malcolm. “Yet the US government is actively stopping other countries from having the same opportunities. CI wants to see an end to this hypocrisy.”

Link to CI watchlist here [pdf].

USTR said it solicited input from the public and foreign governments, and that it worked in “close consultation” with stakeholders, foreign governments, congressional leaders, and among US agencies on the 301 report. It also said it respects countries’ rights to grant compulsory licences in a manner consistent with TRIPS.

As to criticism that the process is too unilateral, one USTR official told Intellectual Property Watch: “It is important to engage with our trading partners to promote adequate and effective protection and enforcement of IPR through a variety of mechanisms, including multilateral ones. The Special 301 report recognises this.”

Other 301 highlights include:

-Pharmaceuticals: Proliferation of the manufacturing of counterfeit pharmaceuticals in Brazil, China, India, Indonesia, and Russia, and the sale and distribution of counterfeit drugs is of concern in many countries. Canada, France, Germany, Italy, Japan, New Zealand, Taiwan and Poland are also being eyed for innovation or pricing in the pharmaceutical sector, and other health-care service concerns.

-Internet and digital piracy: Canada, China, Greece, Hungary, Korea, Poland, Romania, Russia, Spain, Taiwan, Ukraine and Vietnam are under special scrutiny for internet piracy, particularly the retransmission of live sports telecasts over the internet. China, India, Indonesia, Malaysia and the Philippines were cited for piracy of movies, film, ring tones, games and scanned books in mobile devices like cell phones or flash drives, as were Bangladesh, China, India, Russia and Thailand for needing to combat illegal optical disc production.

-Belarus, China, Peru, Saudi Arabia and Ukraine were cited for continued government use of illegal software.

-Countries that made positive moves on IPR protection and enforcement include: Taiwan (for the creation of a specialised IP court and work in the peer-to-peer copyright violation arena), China (for work done to crack down on illegal retransmission of the 2008 Olympic Games), Russia (for combating software, video and music piracy), Chile (For its specialized IPR police brigade), India (for battling counterfeit medicines and establishing an e-filing system for trademark and patent applications), and Sweden (for the recent conviction of those behind the Pirate Bay website).