Notes on USTR’s 2013 Special 301 Report

On 1 May 2013, USTR released its 2013 Special 301 Report. Ukraine was put on the Priority Foreign Country list this year, a designation not used by USTR for several years. USTR’s 2013 report spends more than six pages discussing China and two full pages on India. Below are some comments regarding this year’s report.

Least Developed Countries
The report also discusses implementation of the TRIPS Agreement and the extension requested by least developed countries. Currently, LDCs have until July 2013 to implement the TRIPS Agreement (2016 for pharmaceuticals), but there has been a request by Haiti, on behalf of LDCs, to grant an extension to all least-developed countries.

In the 2012 Special 301 Report, USTR stated

In December 2011, WTO Ministers decided to invite the TRIPS Council to give full consideration to a duly motivated request from LDC members for an extension of the TRIPS Agreement transition period. The U.S. supports this decision and looks forward to continuing to work with LDCs and other WTO members in this regard.

The 2013 Special 301 report states that

In December 2011, WTO Ministers decided to invite the TRIPS Council to give full consideration to a duly motivated request from LDC members for an extension of the TRIPS Agreement transition period. The United States looks forward to continuing to work on a mutually agreeable solution with LDC and other WTO Members on these issues, including at the June 2103 meeting of the WTO TRIPS Council.

Public Health
This year’s report includes a section on public health and claims that “the United States will work to ensure that the provisions of its bilateral and regional trade agreements . . . are consistent with U.S Government policies concerning IPR and health policy and do not impede its trading partners from taking necessary measures necessary to protect public health.” We note, however, that in the leaked TPP text, there are several areas that would impede a country’s ability to protect public health, including broad scope of patentability, mandating evergreening of patents, prohibiting pre-grant opposition, requiring patent term extensions, data exclusivity and patent linkage, and potentially limiting the scope of the Doha Declaration. It is concerning and inconsistent to claim that it is supportive of the Doha Declaration and “respects a trading partner’s right to protect public health and, in particular to promote access to medicines for all” while simultaneously proposing text in the TPP that would ultimately hamper a country’s ability to promote public health.

Pharmaceutical Test Data
As in past years, the Special 301 report cites concerns regarding a number of countries’ methods of implementing data protection and claims that the countries on the watch list have a “lack of protection against the unfair commercial use, as well as unauthorized disclosure, of test and other data generated to obtain marketing approval for pharmaceutical products” or that they need to clarify their systems. Although USTR uses the word “protection,” the use of the Special 301 report is likely designed to put pressure on countries to provide for exclusive rights over test data rather than more ethical forms of protection, such as cost-sharing models.

On the 2013 list, the following countries were put on the Priority Watch List for concerns regarding protection of pharmaceutical test data: Algeria, Argentina, Chile, China, India, Indonesia, Pakistan, Thailand, and Venezuela (nine of the ten countries on the Priority Watch List).

The following countries were put on the Watch List with cited concerns over test data: Brazil, Canada, Dominican Republic, Ecuador, Lebanon, Paraguay, Philippines, Turkey and Vietnam. The Report noted that Israel submitted legislation on pharmaceutical test data and “urges Israel to pass the final bill so that, pursuant to the Understanding, Israel will be removed from the Watch List.” Mexico’s adoption of guidelines regarding test data was marked as a “positive development”

Patent Linkage
Patent linkage, which exists in the United States, but not in most European countries is a controversial measure. It has been abused, including in several cases where weak or non-germane patents were asserted in the linkage process. Additionally, drug regulatory authorities are often not equipped to make patent determinations; the FDA has even stated that it “does not have the expertise to review patent information. The agency believes that its resources would be better utilized in reviewing applications rather than reviewing patent claims.” The United States continues to pressure countries to implement patent linkage, however, by citing countries in the Special 301 report for the need to “provide an effective system to address patent issues expeditiously in connection with applications to market pharmaceutical products.” The following countries were on this year’s priority watch list for issues related to patent linkage: Argentina, Chile, China, Dominican Republic, and Ecuador. Mexico’s clarification of its system regarding patent linkage was noted as a “positive development.”

Several countries (Argentina, China, Chile, Dominican Republic, Ecuador, Egypt, Mexico and Pakistan) are cited for issues related to the linkage of drug registration and patent status. Patent linkage, which exists in the United States but not in several European countries, is controversial, in part due to the extensive evidence of abuse, including several cases where weak or non-germaine patents have been asserted in the linkage process. The alternative to regulatory linkage is for patent owners to enforce their private rights in patents, and to not ask the regulatory bodies to interfere with normal patent enforcement actions.

Compulsory Licenses
This year’s report asserts that “As affirmed in the Doha Declaration on TRIPS and Public Health, the United States respects a trading partner’s right to protect public health and, in particular, to promote access to medicines for all and supports the vital role of the patent system in promoting the development and creation of new and innovative lifesaving medicines. . . Consistent with this view, the United States respects its trading partners’ right to grant compulsory license in a manner consistent with the provisions of the TRIPS agreement, and encourages its trading partners to consider ways to address their public health challenges while maintaining IPR systems that promote innovation.” Despite this assertion, the Special 301 report cites concerns and effectively criticizes recent compulsory licenses issued by India and Indonesia.

With regard to India, the Special 301 report criticizes the recent IPAB decision upholding the grant of the compulsory license over sorafenib:

The United States will also continue to monitor closely developments concerning compulsory licensing of patents in India, particularly following the broad interpretation of Indian law in a recent decision by the Indian Intellectual Property Appellate Board (IPAB), while also bearing in mind the Doha Declaration on TRIPS and Public Health, discussed in the Intellectual Property and Health Policy section of this Report. In particular, India’s decision in this case to restrict patent rights of an innovator based, in part, on the innovator’s decision to import its products rather than manufacture them in India, establishes a troubling precedent. Unless overturned, the decision could potentially compel innovators outside India–including those in sectors well beyond pharmaceuticals, such as green technology and information and communications technology, to manufacture in India in order to avoid being forced to license an invention to third parties.

Similarly, the report places Indonesia on the Priority Watch List in part because of its issuance of compulsory licenses:

The United States notes with concern statements in Indonesia’s Special 301 submission indicating that Indonesia failed to abide by its procedures in issuing a compulsory license decree in 2012, and that its patent law does not require individual merit review in connection with the grant of compulsory licenses.

While the report claims to respect the Doha Declaration, it is clearly critical when a country exercises its rights under the TRIPS Agreement and issues a compulsory license.

Pre-Grant Opposition
As in last year’s report, USTR “urges India to continue its recent efforts to address its patent application backlog and to streamline its patent opposition proceedings.” It is likely that this comment could be an attack on India’s pre-grant opposition system. USTR has already shown hostility to pre-grant oppositions, including a proposal in the TPP to ban TPP countries from using pre-grant opposition.

Evergreening Patents
USTR cites India and the Philippines for not permitting evergreening patents. It notes that it has concerns regarding India’s Supreme Court’s decision in the Novartis case, “with respect to India’s prohibition on patents for certain chemical forms absent a showing of ‘enhanced efficacy’ may have the effect of limting the patentability of potentially beneficial innovations.” USTR claims that this decision “could preclude issuance of a patent even if the applicant demonstrates that the invention is new, involves an inventive step, and is capable of industrial application.

Similarly, with respect to the Philippines, “The United States also remains concerned about amendments to the Patent Law that limit the patentability of certain chemical forms unless the applicant demonstrates increased efficacy.”

Despite USTR’s claim, that not permitting evergreening patents denies the issuance of what would be an otherwise valid patent (i.e., that it fulfills the requirements of novelty, inventive step and industrial application), even the U.S. Federal Trade Commission has noted a problem with evergreening patents. In a 2003 report, the FTC noted that a number of antitrust issues actually arise from inadequate standards in the granting of a patent and that a number of patents approved by USPTO fail to satisfy the non-obviousness requirement (inventive step). As a result, anti-competitive behavior has arisen resulting in the controversial pay-for-delay settlements where a branded pharmaceutical will pay a generic firm in order to keep that generic from continuing its patent litigation; most pay-for-delay cases involve evergreening patents. The FTC has also noted that 73% of all patent dispute claims that reach a final decision on the merits result in a favorable outcome for the generic challenger.

WIPO Internet Treaties, TPMs and ISP liability
One area repeatedly cited in the 2013 report involves either pressure on countries to join the WIPO Internet Treaties, or criticisms of the way in which a country has implemented anti-circumvention rules or ISP liability. The 2013 report pressures the following countries to join the WIPO Internet Treaties or “fully implement” these treaties: Belarus, Egypt, India, Israel, Lebanon, Mexico, Philippines, Thailand, Turkey, and Uzbekistan. The report further notes that it

encourage[s] strong action against piracy over the Internet, the United States will seek to work with the following trading partners to strengthen legal regimes and enhance enforcement: Argentina, Belarus, Brazil, Brunei Darussalam, Canada, Chile, China, Colombia, India, Italy, Mexico, Philippines, Romania, Russia, Spain, Switzerland, Thailand, Turkey, Ukraine, Venezuela, and Vietnam

Chile, India, the Philippines and Russia were urged to implement protections against circumvention of TPMs. Chile, Greece and Russia were encouraged to amend their ISP liability regime.

The references to TPMs and ISP liability likely pressure countries to go well beyond the requirements of the WIPO Internet Treaties, and encourage countries to adopt U.S.-style systems (such as what has been proposed for the TPP). Chile was referenced with respect to both inadequate protections against circumvention of TPMs and ISP liability, however Chile does provide for protection of TPMs through civil remedies. It does not appear that Chile has broken international obligations or even its bilateral obligations contained in the U.S.-Chile FTA with respect to TPMs. Chile does require underlying copyright infringement to be found liable for circumvention of a TPM and it appears that USTR wants greater availability of criminal sanctions and for circumvention to be a separate cause of action (both of which have been proposed in the TPP)–something that the U.S. Court of Appeals for the Federal Circuit has considered to be an absurd result–independent of copyright infringement. Similarly, Chile has instituted a notice-and-takedown system, but requires a court order for a takedown in an attempt to provide safeguards and due process against potential abuses by right holders. When countries are put on watch lists in USTR’s annual Special 301 reports, it may because of their failure to implement the same system that exists in the United States, not because of any failure to comply with international obligations.

Ex-Officio Action
The 2013 report repeatedly cites concerns regarding the enforcement of intellectual property rights, despite the fact that ex-officio action is not mandatory under TRIPS or other international obligations such as the WIPO Internet Treaties. Countries urged to provide for ex-officio action in the 2013 Special 301 Report include: Belarus, Costa Rica, Egypt, Lebanon, Mexico, Turkey, Turkmenistan, Pakistan, and Thailand. Again, the United States has sought to require that parties provide customs officials with ex officio authority in the TPP, thus seeking to change global norms and pushing for TRIPS-plus provisions.

Criminal Enforcement
In addition to pressuring countries to provide authorities with ex-officio power, the 2013 Report repeatedly makes specific complaints about the need for increased resources for criminal enforcement of intellectual property or complaints that the number of prosecutions or convictions have declined, despite the fact that intellectual property rights are private rights. The following countries were called to strengthen criminal enforcement efforts or prioritize enforcement of intellectual property rights: Bolivia, Costa Rica, Greece, Guatemala, India, Mexico, Paraguay, Peru, the Philippines, Romania, Russia, Tajikstan, Ukraine, Vietnam. In citing these countries for failure to provide adequate criminal enforcement and encouraging prioritization of enforcement, USTR ignores the numerous competing areas where a country may need to invest resources, such as public health, sanitation, reduction of child mortality, elimination of hunger, education, relief of poverty, reductions of violent crimes, promotion of public security, generation of power or building of basic infrastructure, among others.

Statutory (Pre-Established) Damages
The 2013 report again “encourages Israel to amend its copyright law to provide for statutory damages.” Notably, ACTA rejected a mandatory requirement that countries provide for statutory damages, instead making statutory damages one among other options and some high-income countries do not provide for pre-established damages in their copyright law. Israel appears to be singled out for failure to provide statutory damages, despite the fact that statutory damages are not required and have not been adopted under international standards.

Deterrent Level Penalties
The United States calls for implementation of deterrent level penalties or increased penalties for IPR violations in the following countries: Argentina, Brazil, Bulgaria, Chile, Costa Rica, Egypt, India, Indonensia, Kuwait, Mexico, Pakistan, Romania, Thailand, Turkey, Uzbekistan and Vietnam.

The 2013 report calls for “stronger and more effective criminal and border enforcement to stop the manufacture, import, export, transit, and distribution of pirated and counterfeit goods.” The TRIPS Agreement requires only that countries use border measures with respect to imported goods, but the United States has made efforts to include export and in-transit merchandise (including in its proposal for the TPP). The requirement that border or customs officials monitor in-transit merchandise is highly controversial because border officials are often not equipped and do not have sufficient training or expertise to determine whether a good is infringing. Furthermore, the in-transit merchandise may be entirely lawful and non-infringing in both the country of import as well as the country of export, illustrating that in-transit seizures can be inappropriate. In several well publicized incidents, customs officials in the Netherlands seized generic medicines that were non-infringing in both the country of export (India) as well as the country of import (Brazil and Nigeria), delaying shipments of legitimate generic drugs.

Note on the TPP
In several areas, both for countries on this year’s watchlists as well as those that are not on the watch list but mentioned in the start of the report, USTR notes that it will work closely with countries to ensure progress or to ensure that concerns are addressed, “including through the Trans-Pacific Partnership negotiations.” The leaked text of the U.S. proposal for the TPP highlights that the U.S. is seeking very high protections for right holders, including through substantive increases in rights for patents and copyrights, but also through heightened enforcement requirements. The references to the TPP throughout the report could signal an effort by USTR to use the Special 301 report as some sort of leverage to encourage countries to accept the U.S. proposals.