By Kevin E. Noonan --
On April 27th, Ambassador Michael B.G. Froman, U.S. Trade Representative (USTR), issued the 2016 Special 301 Report. According to the USTR website, "[i]ntellectual property is a critical source of economic growth and high-quality jobs for the United States, and it is more important than ever to prevent foreign governments and competitors from ripping off United States innovators who are trying to support high-paying jobs by exporting their goods and services to consumers around the world," language much more assertive and less conciliatory than the USTR has used in recent years. Noting that this is the final Special 301 Report of the Obama Administration, Ambassador Froman states that this Report "underlines the great value that unique American creativity and innovation have for millions of families -- ranging from small businesses owners to medical researchers to employees of the recording and motion picture industries -- as well as the efforts of the executive branch, our bipartisan partners in Congress, and the United States business community to vigilantly monitor abuses of American intellectual property rights anywhere they exist in the world." He backs up these assertions with dollars and cents logic: 1.9 million American jobs and $121 billion in total wages from the U.S. film and television industries, for example, and $16.3 billion in exports created by 89,000 small businesses, figures submitted by the Motion Picture Association of America's CEO, former Senator Chris Dodd. The aggressive stance taken by Ambassador Froman is echoed (and applauded) by Cary Sherman, CEO of the Recording Industry Association of America (RIAA), who cites the Report as "an actionable moment for named countries to step up and address these problems."
As it did last year, the Report highlights China as a country that, although still on the Priority Watch List has made "wide-ranging intellectual property law reform efforts" as well as "certain positive enforcement initiatives" but notes that there are both "new and longstanding concerns about IPR protection and enforcement," especially with regard to "trade secret theft, rampant online piracy and counterfeiting, continued high levels of physical pirated and counterfeit goods, and localization requirements that condition market access on use of IPR developed in or transferred to China." The USTR also cites India for what he calls "lack of sufficient measurable improvements to its IPR framework," despite "robust engagement and positive steps forward on IPR protection and enforcement" by the Indian government. The Report also promises -- or threatens -- to undertake "out-of-cycle review [(OCR)] should either positive or negative developments warrant (and it remains to be seen whether the latest pronouncements regarding compulsory licensing of pharmaceuticals in India rise to a level to so warrant).
(In this regard the Report also announced that the USTR will conduct OCRs for Colombia, Pakistan, Tajikistan, and Spain, seemingly as an incentive, "to promote engagement and progress on specific IPR opportunities and challenges identified in this year's review.")
The Report does mention some positive developments, in Pakistan, Ecuador, Tajikstan, Belarus, and Trinidad & Tabago, but has added Switzerland to the Priority Watch List due to diminished protection of copyrighted works online.
The Report is promulgated pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994). The Trade Representative is required under the Act to "identify those countries that deny adequate and effective protection for IPR or deny fair and equitable market access for persons that rely on intellectual property protection." The Trade Representative has implemented these provisions by creating a "Priority Watch List" and "Watch List." Placing a country on the Priority Watch List or Watch List is used to indicate that the country exhibits "particular problems . . . with respect to IPR protection, enforcement, or market access for persons relying on intellectual property." These watch lists are reserved for countries having "the most onerous or egregious acts, policies, or practices and whose acts, policies, or practices have the greatest adverse impact (actual or potential) on the relevant U.S. products." New this year is implementation of the Trade Facilitation and Trade Enforcement Act of 2015, signed into law by President Obama on February 24, 2016. The Act amended the statute to require the USTR "to develop action plans for each country that USTR identifies as a Priority Watch List country and that has been on the Priority Watch List for at least one year," as well as to "consider whether foreign countries provide adequate and effective means for U.S. persons to secure, exercise and enforce their rights relating to trade secrets."
The USTR reviewed 73 of this country's trading partners and identified eleven countries on a "Priority Watch List" (down from thirteen last year) and another 23 countries on the "Watch List" (down by one compared with last year), all relating to deficiencies in intellectual property protection in these countries. The Priority Watch List in the 2016 Report cites Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Thailand, Ukraine, and Venezuela, all countries that were also on the list last year; leaving the list this year is Pakistan. Countries on this list "do not provide an adequate level of IPR protection or enforcement, or market access to persons relying on intellectual property protection." On the Watch List this year are Barbados, Bolivia, Brazil, Bulgaria, Canada, Columbia, Costa Rica, Dominican Republic, Ecuador (back on the list this year), Egypt, Greece, Guatemala, Jamaica, Lebanon, Mexico, Pakistan (back on the list this year but removed from the Priority Watch List), Peru, Romania, Switzerland (new to the list this year), Turkey, Turkmenistan, Uzbekistan, and Vietnam. Belarus, Paraguay, Tajikstan and Trinidad & Tobago have left the list compared to last year.
The Report lists a "wide range of concerns, including "(a) the deterioration in IPR protection and enforcement in a number of trading partners; (b) reported inadequacies in trade secret protection in China, India, and elsewhere; (c) troubling "indigenous innovation" policies that may unfairly disadvantage U.S. right holders in markets abroad; (d) the continuing challenges of online copyright piracy; (e) measures that impede market access for U.S. products embodying IPR and U.S. entities that rely upon IPR protection; and (f) other ongoing, systemic IPR enforcement issues in many trading partners around the world."
The Report notes the USTR's continued efforts to enhance public engagement. In addition to written comments (from 62 interested parties, including 16 trading partner governments), there was a public hearing on March 2, 2016 that heard testimony from "representatives of foreign governments, industry, and non-governmental organizations" (where the comments, video, and transcript of the hearing are available on the USTR website).
The Report contains two Sections (on "Developments in Intellectual Property Rights Protection and Enforcement" and "Country Reports") and two Annexes on particular issues (the statutory bases of the Report, and government technical assistance and capacity building efforts). In Section I, the Report reiterates its purpose, "to support and implement the Administration's commitment to protect vigorously the interests of American holders of IPR in other countries while preserving the incentives that ensure access to, and widespread dissemination of, the fruits of innovation and creativity." Infringement can result in "significant financial losses," undermines the advantages of American competitiveness in the global marketplace stemming from U.S. innovation and creativity, and could even be a public danger (citing counterfeit medicines, car parts, and semiconductors). Despite these ominous beginnings, the Report notes some "positive developments" in the past year, including a broad-ranging overhaul of  intellectual property-related laws and regulations" in the PRC, at least some of which "appear to be consistent with recommendations offered by the United States and statements by the Government of China expressing a commitment to protect and enforce IPR." In addition, the Report cites an agreement by the General Administration of Customs in China and the U.S. National Intellectual Property Rights Coordination Center regarding collaboration on customs law enforcement (expanding on an earlier agreement). In Honduras, the Report cites "significant actions to improve IPR protection and enforcement." Honduras had been the subject of a 2015 OCR and pursuant to an agreement developed an "Intellectual Property Work Plan" that strengthened criminal penalties for IPR violations, among other things. These efforts kept Honduras off the Watch List for 2016 and called Honduras's approach to IPR protection "a model for similarly situated countries in Central America" (indeed, Costa Rica is developing a similar plan with U.S. assistance).
The Report calls out Paraguay for its efforts to improve IPR protections, which resulted in the country being removed from the Watch List this year. After an OCR, Paraguay signed a Memorandum of Understanding with the U.S. where it committed to "take specific steps to improve its IPR protection and enforcement environment" as well as participate in bilateral efforts with the U.S. to strengthen its IPR protection and rights enforcement regime.
The Report notes a "global trend" for improving copyright protection, evidenced by actions by Canada, Jamaica and Italy. And in Africa, Kenya was mentioned for taking steps towards reducing counterfeiting.
Two international agreements were mentioned in this section of the Report. The 1991 Act of the International Union for the Protection of New Varieties of Plants Convention, which "requires member countries to grant IPR protection to breeders of new plant varieties," now has 55 members, including Canada, Montenegro, and Tanzania, which joined this year. Also mentioned are the WIPO Internet Treaties (the World Intellectual Property Organization (WIPO) Performances and Phonograms Treaty (WPPT) and the WIPO Copyright Treaty (WCT)), each of which has 94 parties including Burundi (April 12, 2016).
The Report contains once again this year a subsection on "best practices" among U.S. trading partners, including "predictability, transparency, and meaningful engagement between governments and stakeholders" in developing IPR law, regulations and practices (emphasis in the Report). These characteristics are important not because the USTR thinks so, but the Report states that "[s]takeholders report that such transparency and participation allow governments to avoid unintended consequences and facilitate stakeholder compliance with legislative and regulatory changes. In this regard the Report cites India, for issuing for public comment a draft of its proposed amendments to its IPR regulations. A second point highlighted in the Report is cooperation among various government agencies having an interest in IPR, which the Report states the U.S. has implemented and it encourages our trading partners to join in those efforts; Paraguay, Mexico, and Malaysia are reported to have made strides in this area. Specialized IPR enforcement units in Brazil and Malaysia are also mentioned for fighting counterfeiting and IPR piracy.
As in last year's Report, this Report highlights the development and participation in "innovative mechanisms that enable government and private sector rights holders to donate or license pharmaceutical patents voluntarily and on mutually-agreed terms and conditions" (emphasis in the Report). Some of the benefits of such programs again this year cited in the Report are "to facilitate the diffusion of technology in support of public policy goals," citing the U.S. government's participation in the Medicines Patent Pool under the auspices of the World Health Organization and participation of the U.S., Brazil, and South Africa in the WIPO Re:Search Consortium, which the Report characterized as "a voluntary mechanism for making IPR and know-how available on mutually-agreed terms and conditions to the global health research community to find cures or treatments for neglected tropical diseases, malaria, and tuberculosis."
The Report includes this year a best practice of raising awareness about IPR protection, citing the Brand Protection Group in Lebanon and the Business Action to Stop Counterfeiting and Piracy (BASCAP) in the Philippines. The Report also opines that "use and procurement of licensed software by government agencies sets the right example for private enterprises, exemplifying Mexico for obtaining Verafirm certification of software used by the Ministry of Economy, the Tax Administration (SAT) and the Mexico Institute of Industrial Property (IMPI)" (emphasis in the Report). Finally in the "best practices" section the Report cites the information in Annex 2 regarding "active participation of government officials in technical assistance and capacity building" as a best practice (emphasis in the Report).
Several multilateral and "plurilateral" initiatives were also mentioned in the Report. As in the Reports from the last several years, these included the Trans-Pacific Partnership (TPP) Agreement, between the U.S. and Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam, going into considerably more detail on the provisions of the treaty regarding copyright, trademark and geographical indications, trade secrets, patents, pharmaceuticals, and enforcement provisions than in earlier Reports (no doubt because the final version of the treaty has been signed by the parties). Also mentioned again this year is the Transatlantic Trade and Investment Partnership (T-TIP) between the U.S. and the EU; and actions by the World Trade Organization in support of IP rights. The latter discussion includes initiatives like the TRIPS Council initiative "IP and Innovation: Education and Diffusion" between the United States, Australia, the EU, Hong Kong, Japan, Peru, Russia, Singapore, and Taiwan. Bilateral and regional initiatives cited in the Report include the U.S.-China Joint Commission on Commerce and Trade (JCCT) and the U.S.-China Strategic and Economic Dialogue (S&ED) and free trade agreements and Trade and Investment Framework Agreements (TIFAs), including ones between the U.S. and Argentina, Armenia, and Laos, respectively.
Regional cooperation efforts cited in the Report include the Asia-Pacific Economic Cooperation (APEC) Intellectual Property Experts Group (IPEG) regarding a U.S. proposal to "identify best practices in trade secret protection" and "enhance protection and enforcement of trade secrets"; USTR Trade Preference Program Reviews; and efforts to engage with "members of the Caribbean Community and Common Market (CARICOM)."
The Report then notes that the U.S. "remains seriously concerned by reports that U.S. songwriters, composers, and music publishers are reportedly not compensated or undercompensated for the public performance of their musical works on TV and radio broadcasts and via cable transmissions in Antigua & Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St. Lucia, St. Vincent & the Grenadines, and Trinidad & Tobago."
The Report then discusses IPR protection and enforcement, including border enforcement against counterfeiting. This problem persists "on a global scale," according to the Report, and counterfeited goods include "semiconductors and other electronics, chemicals, automotive and aircraft parts, medicines, food and beverages, household consumer products, personal care products, apparel and footwear, toys, and sporting goods." The Report cites China as a source, with these counterfeit goods passing through Indonesia and the United Arab Emirates to countries including Brazil, Nigeria, and Thailand. The Report goes on the assert that:
Trademark counterfeiting harms consumers, legitimate producers, and governments. Consumers may be harmed by fraudulent and potentially dangerous counterfeit products, particularly medicines, automotive and airplane parts, and food and beverages that may not be subjected to the rigorous "good manufacturing practices" used for legitimate products. Producers and their employees face diminished revenue and investment incentives, an adverse employment impact, and loss of reputation when consumers purchase fake products. Governments may lose tax revenue and find it more difficult to attract investment because infringers generally do not pay taxes or appropriate duties and often disregard product quality and performance.
The Report voices "particular concern" by the U.S. over counterfeit pharmaceuticals distributed by China, Brazil, Guatemala, India, Indonesia, Lebanon, Peru, and Russia, with a best estimate that "up to 20 percent" of drugs sold in India being counterfeit, and reports that 97% of the counterfeit drugs seized at the U.S. border in 2015 were from China, Hong Kong, India, and Singapore (although the Report goes on to commend efforts by Hong Kong and Singapore to increase efforts against counterfeit drugs). This section of the Report ends with a recitation of efforts the U.S. has made to encourage and assist our trading partners to reduce or eliminate counterfeit goods entering the stream of global commerce from their countries.
The Report then examines trends in trademark protection, asserting that "[t]rademarks help consumers distinguish providers of products and services from each other and thereby serve a critical source identification role." Despite their importance, the Report cites "legal and procedural obstacles" in many countries (such as China) in securing trademark rights, or in challenging trademark appropriation (Argentina, Brazil, India, Malaysia, Mexico, Panama, the Philippines, and Russia).
Trademark issues and Internet domain name disputes are also mentioned in the Report, due to the importance of these IPRs in distinguishing the source of products and services. China, Denmark, Germany, The Netherlands, Spain, Sweden, and Switzerland are named as countries where protection is ineffective or governments are uncooperative.
Turning to software and digital piracy, the Report notes that governments can be the biggest "bad actors" in unauthorized use of software programs, citing a 2014 study by BSA | The Software Alliance, that "the commercial value of unlicensed software globally is at least $62 billion." "Further work" in ensuring that governments abide by and respect software licensing is needed with "certain trading partners," including China, Macedonia, Pakistan, Panama, Paraguay, South Korea, Taiwan, Tajikistan, Thailand, Turkmenistan, Ukraine, and Vietnam.
For piracy based on broadband access, the Report cited Brazil, Canada, China, India, Russia, Switzerland, and Ukraine as countries having "commercial-scale IPR counterfeiting and piracy," and China, India, Paraguay, and Vietnam for optical disk piracy. Additional examples of Internet-based piracy cited in the Report include pirated retransmission of sports programming; "camcorded" copies of first-run movies; "'pirate servers' or 'grey shards' that allow users to play unauthorized versions of cloud-based entertainment software; online distribution of software and devices that allow for the circumvention of TPMs, including "game copiers" and mod chips that allow users to play pirated games on physical consoles; and set-top or media boxes preloaded with large volumes of pirated content or configured with apps to facilitate access to infringing websites."
Once again this year the Report contains a subsection on trade secrets and forced technology transfer. Trade secret theft (the Report eschewing the more genteel "misappropriation" moniker) " threatens to diminish U.S. competitiveness around the globe, and puts U.S. jobs at risk." The U.S. Office of the National Counterintelligence Executive (ON-CIX) cites China as an example of "specific gaps in trade secret protection and enforcement" in a publication entitled "Foreign Spies Stealing U.S. Economic Secrets in Cyberspace," which states expressly that "Chinese actors are the world's most active and persistent perpetrators of economic espionage." China and India are cited as countries where effective remedies for trade secret misappropriate are "difficult to obtain" and trade secret theft was cited as involving "departing employees . . ., failed joint ventures, cyber intrusion and hacking, and misuse of information submitted to government entities for purposes of complying with regulatory obligations." The Report also cites a publication by the U.S. Intellectual Property Enforcement Coordinator on February 20, 2013 of "Administration Strategy on Mitigating the Theft of U.S. Trade Secrets," which "highlights U.S. efforts to combat the theft of trade secrets that could be used by foreign governments or companies to gain an unfair commercial and economic advantage."
The Report also notes an increase in foreign government efforts "touted as means to incentivize domestic 'indigenous innovation,' but that, in practice, can disadvantage U.S. companies, such as by requiring foreign companies to give up their IPR as the price of market entry." These practices can raise barriers to market entry and discourage foreign investment into "'local' manufacturers, distributors, and retailers."
Certain foreign governments, under the guise of promoting "indigenous innovation" can adopt "trade-distortive policies," the Report citing as examples:
• Requiring the transfer of technology as a condition for obtaining regulatory approvals or otherwise securing access to a market, or for allowing a company to continue to do business in the market;
• Directing SOEs in innovative sectors to seek non-commercial terms from their foreign business partners, including with respect to the acquisition and use or licensing of IPR;
• Providing national firms with a competitive advantage by failing to effectively enforce foreign-held IPR, including patents, trademarks, trade secrets, and copyrights;
• Failing to take meaningful measures to prevent or deter cyber intrusions and other unauthorized activities;
• Requiring use of, or providing preferences to, products or services that contain locally-developed or owned IPR or that are produced by local manufactures or service providers, including with respect to government procurements;
• Manipulating the standards development process to create unfair advantages for national firms, including with respect to the terms on which IPR is licensed; and
• Requiring the (often unnecessary) submission of excessive confidential business information for regulatory approval purposes and failing to protect such information appropriately.
China, India, Indonesia, and Nigeria are specifically identified as countries having policies that amount to such enforced technology transfer.
Next the Report contains a section on "Market Access and Pharmaceutical and Medical Device Innovation." Algeria, India, and Indonesia are noted as being of particular concern regarding the latter category of IPR, as well as Algeria, Austria, Belgium, China, Colombia, Czech Republic, Ecuador, Hungary, Italy, Korea, Lithuania, New Zealand, Portugal, Romania, Taiwan, and Turkey as countries having "issues" related to "pharmaceutical innovation and market access," with specific examples set forth in the Report for several countries.
New this year is a section in the Report on geographical indications, by which is meant the practice of distinguishing local from imported products based on geographical naming conventions. The European Union is cited as being a particular concern because it comprises an organized agenda that "raises concerns regarding the extent to which it impairs the scope of trademark protection, which remains among the most effective ways for companies, including SMEs, to create value, promote their goods and services, and protect their brands, including with respect to food and beverage products covered by the EU GI system." This has negative economic effects, for example there being "a significant trade deficit" between the U.S. and Europe, citing "the case of cheese [where] the EU exports nearly $1 billion of cheese to the United States each year [and] the United States exports only about $6 million to the EU." The U.S. is engaged in bilateral negotiations with Canada, China, Costa Rica, El Salvador, Japan, Jordan, Morocco, the Philippines, South Africa, and Vietnam with the goals of:
• Ensuring that the grant of GI protection does not violate prior rights (for example, in cases in which a U.S. company has a trademark that includes a place name);
• Ensuring that the grant of GI protection does not deprive interested parties of the ability to use common names, such as parmesan or feta;
• Ensuring that interested persons have notice of, and opportunity to oppose or to seek cancellation of, any GI protection that is sought or granted;
• Ensuring that notices issued when granting a GI consisting of compound terms identify its common name components; and
• Opposing efforts to extend the protection given to GIs for wines and spirits to other products.
Once again the Report contains a subsection on IPR and the environment, the Report stating that "[s]trong IPR protection and enforcement are essential to promoting investment in innovation in the environmental sector" with innovation "not only promot[ing] economic growth and support[ing] jobs, but also [being] critical to responding to environmental challenges." On the other hand, "[c]ertain national policies and practices advanced domestically and in multilateral fora may have the effect of undermining innovation needed to address serious environmental challenges." India's National Manufacturing Policy, which "promotes the compulsory licensing of patented technologies as a means of effectuating technology transfer with respect to green technologies," is cited as an example of a policy that "will discourage, rather than promote, investment in and dissemination of green technology innovation, including those technologies that contribute to climate change adaptation and mitigation." On the other hand, UN Framework Convention on Climate Change (UNFCCC) "succeeded in enshrining the critical role of technological innovation in the context of climate change" as part of the Paris Agreement.
As it has for the past few years, the Report contains a subsection on "Intellectual Property and Health Policy," again specifically mentioning the 2001 Doha Declaration on the TRIPS Agreement. The Report states that the Declaration "recognized the gravity of the public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria, and other epidemics," and that the U.S. "respects [our] trading partners' right to protect public health and, in particular, to promote access to medicines for all." The U.S. "strongly supports" the WTO General Council Decision on the Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health.
Section I of the Report closes with a discussion of the WTO and particularly its dispute resolution provisions as ways to address issues raised in this and earlier Reports. This portion of the Report contains a synopsis of U.S. efforts to address issues between its trading partners using these mechanisms. Finally, the Report contains a section on dispute settlement and enforcement under the auspices of the WTO.
Section II of the Report is a detailed, country-by-country discussion for each country on the Priority Watch List and the Watch List, relating to the activities (or lack thereof) of each country that results in placement of that country on these lists.
As it has for the past several years (and across otherwise very different Administrations), the U.S. Trade Representative Special 301 Report provides insights into both the concerns of U.S. IP rights holders and the Administration's intentions to work with, cajole, coerce, or threaten other countries to increase protection for IP rights of U.S. IP rights holders. By including subsections on the importance of IPR for the environment, and the negative effects of piracy in the pharmaceutical and other areas, the Report seems less focused on mere threats of enforcement and more on developing a global consensus that protection of IPR is an important component of world economic progress for all. However, the tone and tenor of this final Report from the Obama Administration is more assertive regarding IP rights and America's intention to negotiate international agreements that protect American innovation and commercial interests.
For additional information regarding this and other related topics, please see:
• "U.S. Trade Representative Issues 2015 Special 301 Report," April 30, 2015
• "U.S. Trade Representative Issues 2014 Special 301 Report," May 19, 2014
• "U.S. Trade Representative Issues 2013 Special 301 Report," May 30, 2013
• "U.S. Trade Representative Issues 2012 Special 301 Report," May 1, 2012
• "U.S. Trade Representative Releases Special 301 Report on Global IPR," May 4, 2011
• "U.S. Trade Representative Releases Special 301 Report on Global IPR," May 19, 2010
• "New Administration, Same Result: U.S. Trade Representative's Section 301 Report," May 6, 2009
• "Congressmen Criticize U.S. Trade Representative over Special 301 Report," July 1, 2008
• "U.S. Continues Efforts to Protect Patent Rights Abroad," April 29, 2008