Compulsory licensing of copyright under Article 44.2 of the TRIPS, in light of eBay

May 28th, 2007 by James Love

KEI Research Note 2007:5

When the the Supreme Court issued its May 15, 2006 decision in eBay Inc. v. MercExchange, LLC, 126 S. Ct. 1837, it eliminated the notion that a patent or copyright would be automatically enforceable as an exclusive right. The decision concerned not the putative rights under a patent or another intellectual property right, but rather the ability of the owner to obtain remedies, in cases involving infringement.

To be sure, the Patent Act also declares that “patents shall have the attributes of personal property,” §261, including “the right to exclude others from making, using, offering for sale, or selling the invention,” §154(a)(1). According to the Court of Appeals, this statutory right to exclude alone justifies its general rule in favor of permanent injunctive relief. 401 F. 3d, at 1338. But the creation of a right is distinct from the provision of remedies for violations of that right. Indeed, the Patent Act itself indicates that patents shall have the attributes of personal property “[s]ubject to the provisions of this title,” 35 U. S. C. §261, including, presumably, the provision that injunctive relief “may” issue only “in accordance with the principles of equity,” §283.

This approach is consistent with our treatment of injunctions under the Copyright Act. Like a patent owner, a copyright holder possesses “the right to exclude others from using his property.” Fox Film Corp. v. Doyal, 286 U. S. 123, 127 (1932) ; see also id., at 127–128 (“A copyright, like a patent, is at once the equivalent given by the public for benefits bestowed by the genius and meditations and skill of individuals, and the incentive to further efforts for the same important objects” (internal quotation marks omitted)). Like the Patent Act, the Copyright Act provides that courts “may” grant injunctive relief “on such terms as it may deem reasonable to prevent or restrain infringement of a copyright.” 17 U. S. C. §502(a). And as in our decision today, this Court has consistently rejected invitations to replace traditional equitable considerations with a rule that an injunction automatically follows a determination that a copyright has been infringed. See, e.g., New York Times Co. v. Tasini, 533 U. S. 483, 505 (2001) (citing Campbell v. Acuff-Rose Music, Inc., 510 U. S. 569, 578, n. 10 (1994) ); Dun v. Lumbermen’s Credit Assn., 209 U. S. 20, 23–24 (1908) .

The Court said “the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.”

The Court noted that under “well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief.”

A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

Subsequent to the eBay decision, U.S. courts have rejected a number of requests for temporary and permanent injunctions in cases involving patents, and at least one case involving a permanent injunction for copyright infringement.

In Christopher Phelps & Assocs. v. Galloway, 477 F.3d 128 (4th Cir. Feb. 12, 2007) an architect (Phelps) sought an injunction to remedy an infringement of architectual plans by a home owner (Galloway), who had obtained a copy of the plans from a builder. Galloway was ordered to pay money for his use of the plans, but the architect’s efforts to obtain an injunction preventing the resale or leasing of the house was denied.[1]

Injunctive relief under the TRIPS

The eBay decision is widely understood to give judges the flexibility to effectively grant non-voluntary authorizations to use patents or copyrights, as an alternative to the enforcement of the exclusive right. This raises an interesting question. How does this flexibility relate to the TRIPS?

With regard to copyright, the relevant provisions in the TRIPS start with the sections on the minimum rights for copyright owners, set out in Part II – Standards Concerning The Availability, Scope And Use Of Intellectual Property Rights, specifically Section one, Articles 9 through 14. These are implemented in light of the rest of the TRIPS, including in particular Articles 1, 6, 7, 8 and 40. This is where most of the scholarship on the TRIPS focuses — the rights and normal limitations and exceptions to those rights. However, the eBay decision draws our attention to another important part of the TRIPS — Part III, on the Enforcement of Intellectual Property Rights, and specifically, Articles 44 and 45.

The last sentence of Article 44, regarding injunctions, is particularly important. It reads: “In other cases, the remedies under this Part shall apply or, where these remedies are inconsistent with a Member’s law, declaratory judgments and adequate compensation shall be available.” Thus, regardless of the existence of “exclusive rights” in Part II of the TRIPS, courts can decline to enforce the exclusive rights, in return for “adequate compensation.”

The TRIPS does not provide rules on how to define “adequate compensation.” Members are not required to offer lost profits or other specific approaches, and like everything else in the TRIPS, Articles 1, 7, 8 and 40 provide members considerable flexibility to consider consumer protection and public interest objectives.

Interestingly, under Article 45 of the TRIPS, “In appropriate cases, Members may authorize the judicial authorities to order recovery of profits and/or payment of pre-established damages even where the infringer did not knowingly, or with reasonable grounds to know, engage in infringing activity.” One can read this as:

Members may authorize judicial authorities to order payment of pre-established damages

Taken together, these provisions can be used for systems of compensatory liability to use copyrighted works.

There are examples of just such approaches. In the United States, 28 U.S.C. 1498 provides for the elimination of injunctive relief for cases involving (a) patents, (b) copyright and (d) plant varieties. The copyright provision reads as follows:

Whenever the copyright in any work protected under the copyright laws of the United States shall be infringed by the United States, by a corporation owned or controlled by the United States, or by a contractor, subcontractor, or any person, firm, or corporation acting for the Government and with the authorization or consent of the Government, the exclusive action which may be brought for such infringement shall be an action by the copyright owner against the United States in the Court of Federal Claims for the recovery of his reasonable and entire compensation as damages for such infringement, including the minimum statutory damages as set forth in section 504 (c) of title 17, United States Code; [Emphasis added]

It is interesting to note the ways that patents and copyright are treated differently in the TRIPS.

  • The Article 13 three-step test under copyright and related rights is arguable more restrictive than the similar provisions for trademarks (Article 17) and patents (Article 30), because it fails to mention the legitimate interests of “third parities.”
  • In addition to the three step-test for patents, Article 31 provides for a special set of provisions for non-voluntary authorizations for uses of patents. In the area of copyrights, the nature of rights under the Part II, Section One of the TRIPS include a number of other special provisions for copyright and related rights, including for example, mandatory exceptions for quotations, specific limitations on the use of compulsory licenses for some instances, and the extensive and complex [and often criticized] provisions of the Berne Appendix, a part of the Berne system that is only available to developing countries.
  • The provisions in TRIPS Article 44 on injunctions has a special rule for patents. When the uses of a patent are authorized by a government (as opposed to a judicial authority resolving a dispute between private parties), remedies for infringement can be limited to “adequate remuneration” under Article 31.h of the TRIPS. But “in other cases,” including those involving copyright, when injunctions “are inconsistent with a Member’s law, declaratory judgments and adequate compensation shall be available.” Thus for copyright cases, the term “compensation” is used, rather than “remuneration,” a choice that seems to reflect the differences between a government authorization to use a work, and a remedy for infringement.
  • In the case of an Article 31 non-voluntary use of a patent, there is normally an obligation for the right owner to have a prior negotiation with the right holder “on reasonable commercial terms and conditions.” This obligation is only waived in cases of emergencies (31.b), non-commercial public use (31.b) and when the authorization is a remedy to anticompetitive practices (31.k). The only similar obligation in the TRIPS for copyright concerns uses under the Berne Appendix.
  • In the case of patents, right owners have to be “informed promptly” when the case of “public non-commercial use,” if the government or contractor knows or has demonstrable grounds to know that a valid patent is or will be used by or for the government. There is no such general obligation in the area of copyright.

In U.S. law, the ability to infringe a copyright without fear of an injunction is available for anyone “acting for” and “with the authorization or consent” of the government, regardless of what that use is for.

Following NAFTA and TRIPS, U.S. regulations now provide that:

the patent owner must be notified whenever the agency or its contractor, without making a patent search, knows or has demonstrable reasonable grounds to know that an invention described in and covered by a valid United States patent is or will be used or manufactured without a license;

There is no such requirement with respect to copyrighted works. A tour of any office of the federal government will illustrate the importance of the lack of a notice requirement. Most copyright owners have no information that their works are being infringed by the federal government.

Orphan Works

More recently, governments have began to explore ways to address the problems of access to “orphan” works.

Canada was created a system of compulsory licensing of works, with fees paid to the government, in return for use of the orphaned works.

The United States is considering a different approach, which would limit the liability of the users. In its 2006 analysis of the issue,[2] the U.S. Copyright Office compared different approaches, including those involving limitations and exceptions to rights, under Article 13 of the TRIPS, and different strategies that focus on remedies. Mary Beth Peters, the Register of Copyright, favored an approach dealing with remedies. She notes that the Berne Convention provides few rules on remedies[3], other than an implied standard of whether the the lack of remedy “significantly undermines any of the minimum required rights, and, if it does, whether it comes within one of the acceptable exceptions.” [4]

The 2006 proposal by the U.S. copyright office was a system of compensatory liability that exploited the opportunities offered in Articles 44 and 45 of the TRIPS.

(a) Notwithstanding sections 502 through 505, where the infringer:
(1) prior to the commencement of the infringement, performed a good faith, reasonably diligent search to locate the owner of the infringed copyright and the infringer did not locate that owner, and
(2) throughout the course of the infringement, provided attribution to the author and copyright owner of the work, if possible and as appropriate under the circumstances, the remedies for the infringement shall be limited as set forth in subsection (b).
(A) no award for monetary damages (including actual damages, statutory damages, costs or attorney’s fees) shall be made other than an order requiring the infringer to pay reasonable compensation for the use of the infringed work; provided, however, that where the infringement is performed without any purpose of direct or indirect commercial advantage, such as through the sale of copies or phonorecords of the infringed work, and the infringer ceases the infringement expeditiously after receiving notice of the claim for infringement, no award of monetary relief shall be made.
(A) in the case where the infringer has prepared or commenced preparation of a derivative work that recasts, transforms or adapts the infringed work with a significant amount of the infringer’s expression, any injunctive or equitable relief granted by the court shall not restrain the infringer’s continued preparation and use of the derivative work, provided that the infringer makes payment of reasonable compensation to the copyright owner for such preparation and ongoing use and provides attribution to the author and copyright owner in a manner determined by the court as reasonable under the circumstances; and
(B) in all other cases, the court may impose injunctive relief to prevent or restrain the infringement in its entirety, but the relief shall to the extent practicable account for any harm that the relief would cause the infringer due to the infringer’s reliance on this section in making the infringing use.
(c) Nothing in this section shall affect rights, limitations or defenses to copyright infringement, including fair use, under this title.
(d) This section shall not apply to any infringement occurring after the date that is ten years from date of enactment of this Act.

It remains to be seen how other countries will implement this important flexibility in the area of remedies and the enforcement of injunctions. It may be possible to go far beyond the approaches taken by U.S. government in 28 USC 1498(d) and the Orphan Works proposal, or the case by case evaluations over injunctions called for in the eBay decision.

WTO Members may usefully rely upon limitations on damages and injunctions to address a variety of public interest and access to knowledge issues.

Appendix – Selected TRIPS Provisions

Article 44- Injunctions

1. The judicial authorities shall have the authority to order a party to desist from an infringement, inter alia to prevent the entry into the channels of commerce in their jurisdiction of imported goods that involve the infringement of an intellectual property right, immediately after customs clearance of such goods. Members are not obliged to accord such authority in respect of protected subject matter acquired or ordered by a person prior to knowing or having reasonable grounds to know that dealing in such subject matter would entail the infringement of an intellectual property right.

2. Notwithstanding the other provisions of this Part and provided that the provisions of Part II specifically addressing use by governments, or by third parties authorized by a government, without the authorization of the right holder are complied with, Members may limit the remedies available against such use to payment of remuneration in accordance with subparagraph (h) of Article 31. In other cases, the remedies under this Part shall apply or, where these remedies are inconsistent with a Member’s law, declaratory judgments and adequate compensation shall be available.

Article 45 – Damages

1. The judicial authorities shall have the authority to order the infringer to pay the right holder damages adequate to compensate for the injury the right holder has suffered because of an infringement of that person’s intellectual property right by an infringer who knowingly, or with reasonable grounds to know, engaged in infringing activity.

2. The judicial authorities shall also have the authority to order the infringer to pay the right holder expenses, which may include appropriate attorney’s fees. In appropriate cases, Members may authorize the judicial authorities to order recovery of profits and/or payment of pre-established damages even where the infringer did not knowingly, or with reasonable grounds to know, engage in infringing activity.

[1]”After R. Wayne Galloway began construction of his retirement home on Lake Wylie, near Charlotte, North Carolina, using architectural plans designed and copyrighted by Christopher Phelps & Associates, LLC (”Phelps & Associates”), without permission, Phelps & Associates commenced this action against Galloway for copyright infringement. Phelps & Associates sought damages, disgorgement of profits, and injunctive relief. A jury found that Galloway infringed Phelps & Associates’ copyright and awarded it $20,000 in damages, the fee that Phelps & Associates traditionally charged for such plans. The jury also found that Galloway had realized no profits to disgorge. The district court thereafter declined to enter an injunction, finding that the jury verdict had made Phelps & Associates “whole,” and entered judgment in favor of Phelps & Associates for $20,000. From that judgment, Phelps & Associates appeals, requesting a new trial on damages and the entry of an injunction prohibiting the future lease or sale of the infringing house and mandating the destruction or return of the infringing plans.”

[2] Report on Orphan Works, A Report of the Register of Copyrights · January 2006

[3] There is little in the Berne Convention that deals with standards for enforcement of rights. Article 5, on “Rights Guarnteed,” simply says “the means of redress afforded to the author to protect his rights, shall be governed exclusively by the laws of the country where protection is claimed.”

[4] Page 66, Report on Orphan Works.