The TPP’s Reckless Proposals For Damages Will Have Negative Impact On Future Reform Of IPR Regimes

By James Love, Director, Knowledge Ecology International

This week negotiators from a dozen countries are meeting to finalize the rules for the Trans Pacific Partnership (TPP) trade agreement. When or if concluded, this massive regional trade agreement will set new standards for the grant of property rights in knowledge, and the enforcement of those rights.

The TPP chapter on intellectual property covers all intellectual property types included in Part II of the WTO’s TRIPS agreement, plus some others, including not only patents, copyrights and trademarks, but also “undisclosed information”, test data for the registration of drugs, industrial designs, layout-designs of integrated circuits.  The rules in the TPP are intended by the United States to become global norms, effectively replacing TRIPS.

While there are plenty of issues in the TPP IP Chapter, this note only addresses one set of issues — those relating to the remedies for the infringement of intellectual property rights.  The remedies include such topics as injunctions, damages, and the seizure or destruction of infringing goods.

In the TPP talks, the United States, led by the Office of the United States Trade Representative (USTR), is the proponent of the most aggressive and tough rules for remedies.  The US wants the standards for damages to be very high, and to go beyond TRIPS obligations for injunctions and the destruction of infringing goods. For an “an infringer who knowingly” or even “with reasonable grounds to know, engaged in infringing activity,” the standards are very tough.

The US proposals reflect an unwillingness to acknowledge the obvious —  there are reasons to differentiate, and in some cases limit remedies, to achieve policy objectives.

Some TPP members have general rules for the infringement of patents, trademarks, copyrights and other types of intellectual property rights, but also exceptions to those general rules.

For example, Canada does not grant injunctions for the infringement of copyrighted architectural plans.  In an article titled, No injunction in case of a building, the Canadian copyright provides that:

“Where the construction of a building or other structure that infringes or that, if completed, would infringe the copyright in some other work has been commenced, the owner of the copyright is not entitled to obtain an injunction in respect of the construction of that building or structure or to order its demolition.”

The provision in the Canadian copyright law is designed to protect investors in the construction of building, by removing the power of the copyright holder to stop construction, or demand a building be torn down.

The United States has more limitations and exceptions to remedies for infringement than any other TPP member, and is considering new ones.

For the enforcement of intellectual property rights, context is important. Sometimes the point is to both stop and deter infringements. For these situations, injunctions, seizures of infringing goods, and high, even punitive damages may be appropriate. For other cases, the government may want to compensate a right holder for an infringement, but not as aggressively. For example, when Research in Motion infringed patents held by NTP, the US government invoked 28 USC 1498(a) to block injunctions so that the infringing services could continue.  There are also cases where the government wants to eliminate the possibility of injunctions or seizures of infringing goods, and also limit the damages, ensuring that royalties are “reasonable” in light of fairly detailed and specific policy objectives and economic considerations.

For example, as part of the 2010 Affordable Care Act, the Biologics Price Competition and Innovation Act (BPCIA) created very specific limits to the remedies for the  infringement of a patent on biologic drug. In cases where patents are not disclosed in a timely manner to biosimilar competitors, there are no injunctions and either no damages, or damages limited to a reasonable royalty [35 USC 271(e)(6)(B)].

There is a reason for the these limits on remedies.  It is not obvious which patents one might infringe in manufacturing a biologic drug.  If the company selling a biologic drug does not make timely and constructive disclosures to competitors, a potential competitor will face the risk of investing millions in the development of a biosimilar product, and then be blocked by a patent from selling the drug. This uncertainty chills investment in biosimilar drugs, and reduces competition. By limiting remedies for infringement when patents are not disclosed, there is an incentive to disclose.

Similar cases arise when there are so-called “standards essential patents (SEPs).  In January 2013, the US Department of Justice (DOJ) and the US Federal Trade Commission (FTC) published a joint “Policy Statement on Remedies for Standards-Essential Patents” calling upon courts to limit damages and avoid injunctions when companies have not made adequate disclosures of patents when standards are set. This soft guidance could become codified by statute, as it has for biologic drugs.

A somewhat different case involves orphaned copyrighted works. In June 2015, the Register of Copyrights recommended changes in copyright law to expand access to copyrighted works.  The legislative proposal put forth by the Register (Orphan Works and Mass Digitization, http://copyright.gov/orphan), proposed to limit the availability of all sorts of remedies, including injunctions, damages, statutory damages, attorney fees and the seizures or destruction of goods.

The Register’s proposed orphan works legislation was similar to a bill that passed the US Senate in 2008.  The Register is recommending differential remedies that depend how the work is used, and who the infringer is.  If the infringer “prepared or commenced preparation of a new work of authorship that recasts, transforms, adapts, or integrates the infringed work with a significant amount of original expression,” injunctions preventing future infringements were eliminated.  There were more limits on remedies if the infringer was “a nonprofit educational institution, museum, library, archives, or a public broadcasting entity,” and if the “infringement was performed without any purpose of direct or indirect commercial advantage,” and/or “the infringement was primarily educational, religious, or charitable in nature.”  In some cases, damages were set at zero, and in other cases reasonable compensation was defined as the amount reflecting a hypothetical agreement between the parties “with respect to the infringing use of the work immediately before the infringement began,” which for orphaned works, often forgotten and abandoned by the right holders, would be a small amount of money.

A zero rate for damages is also used in some other federal statutes.  For example, damages for infringements by a “medical practitioner” or a “related health care entity” for patent infringement relating to the “performance of a medical or surgical procedure” would be set at zero rate in the US.

For patents on nuclear power, the United States can declare injunctions are not available in cases of infringement, and set different standard for damages.  Among other things, 42 USC 2187 requires consideration of the extent to which an inventor has recovered its R&D costs, and the federal government subsidized the research.

More recently the Senate Committee on Veterans’ Affairs has been considering a proposal by Senator Bernie Sanders to limit damages on patent infringement by the Veterans Affairs (VA), when the infringing patents are used to provide a drug or other medical technology for treatment and care for veterans.  The proposal by Sanders includes a definition for a reasonably affordable royalty, that took into account the Veterans Affairs budget resources.  Sanders is trying to address a crisis in access to treatments for the hepatitis C virus (HCV) that are so expensive the VA had to cut off enrollment in treatment, and propose taking money from another VA health program, just to pay for more drugs. The proposal to limit damages came after the VA identified the current standard in 28 USC 1498 as potentially too costly.  The suggested retail price (a standard for damages referenced in the TPP) for this treatment is $95,000 per patient.

One way to understand the importance of the damages issue is to understand the logic of the liability rule approach in intellectual property.

There are cases where a patent or copyright holder cannot exclude a use, and damages are zero, such as when fair use or another exception to the right applies.  There are also cases where the patent or copyright holder has strong exclusive rights, and damages are a significant deterrent to unauthorized use. A liability rule is something in between.  Users have the freedom to use a patent or a copyrighted work, but, if they do, the holder of the right gets paid. The issue of access and use is settled, but at what price?  For a liability rule to work well, the rules on the amount of money have to make sense.

The TPP proposes to ban all caps on damages for infringement, and to allow right holders to ask courts for “any legitimate measure of value the right holder submits, which may include lost profits, the value of the infringed goods or service measured by the market price, or the suggested retail price.”  This is a radical proposal, and one that may have a profound and negative impact on future efforts to reform intellectual property right regimes.

If you cannot have rules that ensure reasonable outcomes for damages, liability rules became irrelevant, and policy makers are left with the more extreme cases of all or nothing regarding the patent and copyright holder rights.

Knowledge Ecology International (KEI) is maintaining a webpage on this week’s TPP minister’s negotiating meeting in Maui, Hawaii, available here: http://keionline.org/tpp/maui.