U.S. Trade Representative Issues 2012 Special 301 Report

by McDonnell Boehnen Hulbert & Berghoff LLP

[author: Kevin E. Noonan]

U.S. Trade RepresentativeOn Monday, the U.S. Trade Representative (USTR), Ronald Kirk, issued the 2012 Special 301 Report.  According to the USTR website, the Report "reflects the Administration's resolve to encourage and maintain effective IPR protection and enforcement worldwide."  This effort is "more significant than ever in light of recent U.S. Government data showing that IP intensive industries support as many as 40 million American jobs and up to 60 percent of U.S. exports."  "When trading partners don't protect IPR, they threaten those critical jobs and exports," according to USTR Kirk.  The USTR Report "provides a means for the United States to promote the protection and enforcement of IPR," according to the website announcement, and hails Malaysia and Spain for being removed from the Watch for their efforts to strengthen copyright protection and combating piracy over the Internet, respectively.  On the other hand, the press release noted that the Ukraine was moved to the Priority Watch List "in light of serious and growing concerns relating to counterfeiting and rampant piracy."

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."

2012 Special 301 ReportThis report, on the state of intellectual property rights worldwide, identifies thirteen countries on a "Priority Watch List" and another 28 countries on the "Watch List," all relating to deficiencies in intellectual property protection in these countries.  The Priority Watch List in the Report lists China, Russia, Algeria, Argentina, Canada, Chile, India, Indonesia, Israel, Pakistan, Thailand, Ukraine, and Venezuela, the same countries that were on this list in last year's Report with the addition of Ukraine.  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 Belarus, Bolivia, Brazil, Brunei, Columbia, Costa Rica, Dominican Republic, Ecuador, Egypt, Finland, Greece, Guatemala, Italy, Jamaica, Kuwait, Lebanon, Mexico, Norway, Peru, Philippines, Romania, Tajikstan, Turkey, Turkmenistan, Ukraine, Uzbekistan, and Vietnam; compared to last year, Malaysia and Spain have been removed from the list and Lebanon and Ukraine are on the list this year.  The Report "identifies a wide range of concerns, including troubling 'indigenous innovation' policies that may unfairly disadvantage U.S. rights holders in China, the continuing challenges of copyright piracy over the Internet in countries such as Canada, Italy, and Russia, and other ongoing, systemic IPR enforcement issues presented in many trading partners around the world."  Despite these concerns, the Report evinces a desire to "work[] closely with the governments of [U.S.] trading partners [identified in the Report] to address both emerging and continuing concerns, and to build on the positive results many of these governments have achieved."

The Report notes that public response to a Federal Register Notice used to prepare the Report continued the "enhanced approach to public engagement" instituted last year, with the USTR receiving 42 comments (access to these comments is provided at www.regulations.gov, docket number USTR-2011-0021).  In addition, 12 witnesses provided testimony at a public hearing on February 23, 2012; these witnesses included "representatives of foreign governments, industry, and non-governmental organizations" (available on the USTR website).

The Report notes some "positive developments" in the past year, including copyright amendments that "significantly strengthen[ed] protection of copyrights" in Malaysia.  Also noted were the efforts by the Spanish government to enact the "Ley Sinde," described in the Report as "a law to combat copyright piracy over the Internet."  The Report states that the situation in Spain will continue to be monitored, particularly the "decriminalization [of] peer-to-peer sharing of infringing materials."  Israel was mentioned for enacting a law that protects pharmaceutical companies from "unfair commercial use" of data "generated to obtain marketing approval" of new drugs.  In the Philippines, the Report notes as a positive step promulgation of specialized procedural rules for enforcing intellectual property rights, and Russia was cited for enacting legislation creating a specialized IPR court and to "revise" criminal liability for copyright piracy.  In an "Out-of-Cycle" review, the Report removed the Savelovskiy Market from the "Notorious Markets List" resulting from a plan for stopping distribution of infringing goods.  China was mentioned in this section of the Report for establishing a "State Council-level leadership structure" for coordinating IPR enforcement in China, and states that "China's leadership committed to increased political accountability, as the performance of provincial level officials will be measured based on enforcement of IPR in their regions."  Finally, separate "free trade" agreements between the U.S. and Korea and the U.S. and Columbia were noted for "includ[ing] strong standards for the protection and enforcement of IPR rights."

Several initiatives were also mentioned.  These included the Trans-Pacific Partnership Agreement, between the U.S. and Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam; the Anti-Counterfeiting Trade Agreement (ACTA) between the U.S. and Australia, Canada, the European Union, Japan, Korea, Mexico, Morocco, New Zealand, Singapore, and Switzerland; actions by the World Trade Organization in support of IP rights; bilateral and regional initiatives, including free trade agreements and Trade and Investment Framework Agreements; and the USTR Trade Preference Program Reviews such as the Generalized System of Preferences (GSP) program relating to Russia, Lebanon, and Uzbekistan, and regional programs including the Caribbean Basin Economic Recovery Act (CBERA).  Finally, the Representative "looks forward to continuing engagement with trading partners in bilateral, regional, and multilateral fora to improve the global IPR environment"; including the U.S.-EU Summit, and in the Asia Pacific Economic Cooperation (APEC) forum, and the Organization for Economic Cooperation and Development (OECD).

The Report contains a section on "best practices" among U.S. trading partners, which include reports that "foreign governments are open and transparent in bringing about legislative or regulatory change, and where such governments ensure that there is open dialogue between government officials and affected parties"; the Czech Republic was called out specifically in this regard for its efforts, as were Hong Kong Customs officials.  Cooperation between governments is also mentioned, specifically with regard to efforts in Russia to "combat counterfeit medicines" and "innovative mechanisms" for encouraging IP rights holders to donate or license their IP were also contained in this section of the Report (specifically, the Medicines Patent Pool under the auspices of the World Health Organization and the WIPO Re:Search Consortium among the U.S., Brazil and South Africa).

There is a section of the Report this year regarding "capacity building efforts" that relate to "opportunities for the U.S. Government to work closely with trading partners to address [IPR] concerns."  These efforts are described in the Report as being directed to "building stronger, more streamlined, and more effective systems for the protection and enforcement of IPR," which seems to include an effort to encourage U.S. trading partners to enact criminal penalties for IPR infringement.  The Report documents the efforts of the USPTO's Global Intellectual Property Academy (GIPA) to provide training ("over 5,300 foreign IP officials from 138 countries through 149 separate programs") as well as programs administered by other U.S. government agencies (including the USPTO's Office of Policy and External Affairs; the International Trade Administration; the Bureau of Customs and Border Protection; the Commercial Law Development Program and programs in law enforcement administered by the Departments of Justice and Homeland Security).

A significant part of the Report focuses on "trends" in counterfeiting and copyright piracy, as it has in other years.  This area has "evolved," according to the Report, "into a sophisticated global business involving the mass production and far-reaching sales of a vast array of fake goods, including items such as counterfeit medicines, health care products, food and beverages, automobile and airplane parts, toothpaste, shampoos, razors, electronics, batteries, chemicals, sporting goods, motion pictures and music."  The Report recites a "[s]ustained growth in piracy of copyrighted products in virtually all formats," which "offer enormous profits and little risk."  Online sales of counterfeit goods "will soon surpass the volume of such goods sold" in physical markets, which raise "difficulties" for IPR enforcement.  Also noted is an increase in legitimate businesses, such as courier services, enlisted to deliver infringing goods, as well as the practice of producing the goods and the counterfeit labels separately, specifically mentioning Russia and Paraguay in this regard.  There is also an increase in the difficulty encountered by IPR holders in collecting royalties for public performances of musical works and others, particularly in the Caribbean.  The Report calls for "[s]tronger and more effective criminal and border enforcement" to reverse these trends.  Another "growing" problem is counterfeit pharmaceuticals, either final drug product or active pharmaceutical ingredients (API); Brazil, China, India, Indonesia, Lebanon, Peru, and Russia are cited as countries where the former type of counterfeiting is a problem and China is cited as being a "major source" of counterfeit APIs.

Another section of the Report is concerned with digital piracy, particularly over the Internet, which is "a significant concern in many U.S. trading partners."  "[T]his phenomenon has also made the Internet an extremely efficient vehicle for disseminating copyright-infringing products, replacing legitimate markets for rights holders."  So-called "hybrid" websites offer both pirated and counterfeit goods, creating a "one-stop-shop" for "cheap or free content or goods."  The Report asserts that the U.S. will "will work with its trading partners to combat these growing problems," and urges U.S. trading partners to "adequately implement the WIPO Internet Treaties."  The Report specifically recites a list of trading partners that includes Argentina, Belarus, Brazil, Brunei Darussalam, Canada, Chile, China, Colombia, India, Italy, Mexico, Philippines, Romania, Russia, Spain, Switzerland, Thailand, Turkey, Ukraine, Venezuela, and Vietnam in this regard, and Switzerland is "strongly encourage[d] . . . to combat online piracy vigorously."

Trade secrets and forced technology transfer are identified as problems in "a wide variety of industry sectors" that include "information and communication technologies, services, biopharmaceuticals, manufacturing, and environmental technologies."  Governments are the "problem" with forced technology transfer, which are cited for being used as a quid pro quo for access to markets, requiring the use of products or services where the IPR were locally developed or owned, or requiring disclosure of "confidential business information" in order to obtain regulatory approval.  "The United States urges its trading partners to reject such policies, says the Report, and further urges it trading partners to "take account of the increasingly cross-border nature of commercial research and development, and of the importance of voluntary and mutually agreed-upon commercial partnerships."  Strong IPR protection can "provide incentive for the voluntary transfer of critical green goods and services," providing another and timely rationale for the IPR regime.

As it has for the past few years, the Report contains a section 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 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."  Accordingly, the Report states that the U.S. "respects our trading partners' rights to grant compulsory licenses 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 intellectual property systems that promote investment, research, and innovation."  On the other hand, the Report contains a section relating to the USTR's efforts to "reduce market access barriers faced by U.S. pharmaceutical and medical device companies in many countries," specifically calling out Algeria, Finland, Germany, Greece, Indonesia, Japan, Korea, New Zealand, Poland, Turkey, and Taiwan as countries of particular concern in this regard.  In specific examples, Poland is cited for healthcare reform legislation that "would alter Poland's pricing, reimbursement, and clinical trials policies"; New Zealand, for the "policies and operation of the Pharmaceutical Management Agency; and Turkey with "the lack of fairness and the slow pace of pharmaceutical manufacturing inspections."

The Report contains in a final section a review of U.S. activities in the WTO to resolve disputes with countries such as China and the EU over trade issues.

Section II of 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 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.  In contrast with last year's Report, which included an invitation to U.S. trading partners for coordinated efforts in enforcing IPR, this year the Report contains a discussion of the WTO and dispute resolution under GATT/TRIPS, including mention of President Obama's creation of the Interagency Trade Enforcement Center (ITEC) by Executive Order.  The ITEC "will serve as the primary forum within the federal government for USTR and other agencies to coordinate enforcement of obligations under international trade agreements, which can include the identification of unfair trade practices and barriers that involve IPR."  Hardly a "warm and fuzzy" approach to intellectual property rights enforcement, and one that is in stark contrast with the attitude of cooperation against a common enemy (i.e., counterfeiters) evident in last year's Report.  Perhaps the cooperative approach has not worked, but the Report does not contain any strong evidence that the cooperative approach has been given enough time to work.  The Report seems to revert to earlier attempts, generally no more than partially successful, by the U.S. and other Western governments to implement international trade treaties designed to increase IP rights protection.  It remains to be seen if that approach is continued in next year's Report, or if U.S. trade policy will continue to swing through the pendulum of the carrot or the stick regarding international intellectual property rights enforcement.

For additional information regarding this and other related topics, please see:

• "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


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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