Intellectual Property Law and Policy VOLUME 10 Edited by
Professor Hugh C Hansen Professor of Law and Director, Fordham University School of Law, International Intellectual Property Law and Policy Institute
OXFORD AND PORTLAND, OREGON 2008
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Foreword This volume is an edited version of the formal presentations and colloquies from the Fordham University School of Law Fifteenth Annual Conference on Intellectual Property Law and Policy held at Fordham April 12th and 13th, 2007. With this volume we have resumed the practice of our first nine years of publishing the conference proceedings. We expect to publish the proceedings from the tenth through the fourteenth conferences to make the printed record complete. In light of the eminence of conference participants, the importance of the subject matter, and astonishing candor of the exchanges, we hope and expect that the ideas and analyses presented in this volume will make a valuable contribution to worldwide discussions of intellectual property law and policy. The entire series provides an exceptional record of the development of this vital area; pinpointing the issues, ideas, and personalities behind new legal and policy initiatives. For both practitioners and scholars, we have strived to make the conference and these volumes an accessible, comprehensive, and unbiased forum for the best thinking and analysis in this important and often contentious area. Hugh C. Hansen Editor
ACKNOWLEDGEMENTS ACKNOWLEDGEMENTS
Acknowledgements Many people and organizations have helped make the Conference and this volume possible. First and foremost are our conference sponsors. The support of over thirty organizations, listed at the beginning of this volume, has been crucial to the conference’s success and continued existence. We have benefited as much from their active interest in, and profound knowledge of intellectual property law, as from their generosity. In this regard, we wish to thank in particular Brad Smith, Microsoft Senior Vice President and General Counsel, for his personal and professional support, as well as the Microsoft Corporation itself, which has provided particularly generous support for the conference and for the publication of this volume. We are also grateful to the many representatives of our sponsors, as well as friends of the conference, who participated in the numerous group teleconferences and individual telephone calls that helped us determine which topics would be of most interest and relevance as we put together the program. Of course, any conference is only as good as its faculty. Our distinguished speakers were from the private sector, government and academia; from across town and across the globe, in fact numbering 139 from 19 countries. They are truly the crème de la crème. They came together in a lively, collegial spirit to offer presentations, discussion and commentary of the highest caliber. Also, as will be apparent to even the most casual reader of this volume, those attending the conference asked some of the most incisive questions, and made some of the most telling observations. I have often said that we could switch the speakers and the audience without any diminution in the quality of the proceedings. William M. Treanor, Dean of the Fordham University School of Law, has from the very start of his eight-year tenure given the conference and intellectual property law at Fordham his full support, for which we are very grateful. Darin Neely, International Director of our Office of Academic Programs, was instrumental in every step of the long arduous task from August through April of organizing this conference which, with its three concurrent sessions, is equivalent to a five-day conference. Also, Darin, David Quiles and the staff of the Academic Programs office worked tirelessly for the weeks immediately before the conference and nonstop for the two days of the conference to efficiently manage the herculean tasks involved in administering the conference. In this regard, members of Fordham’s Intellectual Property, Media and Entertainment Law Journal provided indispensable support throughout the two days of the conference, as well as assistance with various manuscripts co-published here and in the Journal. Sandra Sherman, Assistant Director of our new Fordham Intellectual Property Law Institute, oversaw every aspect of producing this volume, from helping to negotiate our new relationship with Hart Publishing to editing individual sessions. Her meticulous attention to detail and exceptional organizational focus kept this immense project on course. Sharon Hammer, President of Verbatim Transeedings, Inc., managed the recording, transcribing and assembling of this volume’s material. Her ability to track down a missing presentation or a stray but crucial submission is extraordinary, and often saved the day when we had nowhere else to turn. The accuracy and attention to detail of Verbatim’s transcription and manuscript services are second to none. Research assistants
viii A CK N OWL E D GE M E N T S Anthony Rizzo and Jason Lunardi, both second-year Fordham Law students, provided expert review of the manuscript including very valuable bluebooking. They were able to locate even the most obscure citations and correct the array of errors that always creep into the citations of every manuscript. Finally, we are very pleased with our association with our new publishing partner, Hart Publishing of Oxford, England. Richard Hart and his colleagues have done a wonderful job in putting this volume together. In particular, Richard, Mel Hamill, Rachel Turner, and Tom Adams have been very professional, agreeable, patient and supportive in a way that I do not think any other publisher could be, or even would want to be. Hart Publishing is in a class by itself. H.C.H.
List of Sponsors Berwin Leighton Paisner Clarke, Modet & Co. Cleary, Gottlieb, Steen & Hamilton LLP Covington & Burling LLP Cooper & Dunham LLP Darby & Darby P.C. Entertainment Software Association Frommer Lawrence & Haug LLP FTI Consulting Gómez-Acebo & Pombo, Abogados, S.L. Jones Day Kenyon & Kenyon LLP Ladas & Parry LLP McDermott, Will & Emery LLP Microsoft Corporation Milbank, Tweed, Hadley & McCloy LLP Morgan & Finnegan, LLP Morgan, Lewis & Bockius LLP Nokia Corporation Qualcomm Incorporated Ropes & Gray LLP Smith, Strong & Schlesinger LLP Thomson CompuMark Time Warner Inc. Vossius & Partner Weil, Gotshal & Manges LLP White & Case LLP Winston & Strawn LLP
CONTENTS CONTENTS
Contents Foreword
v
Acknowledgements
vii
List of Sponsors
ix
Welcoming Remarks
xxi
SESSION I: PLENARY SESSION The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen? Part A: The Next Ten Years in WIPO and WTO Overview Michael S. Keplinger, The Next Ten Years in WIPO Hannu Wager, The Next Ten years in WTO Panel Discussion Prof. Hugh C. Hansen, Moderator Mihály Ficsor, Bruce A. Lehman, James Love, Eric H. Smith, Fred von Lohmann
1 2 3 5 9
Part B: The Next Ten Years in Trademarks Prof. Graeme Dinwoodie Panel Discussion Prof. Hugh C. Hansen, Moderator Prof. Graeme Dinwoodie, Prof. Jane Ginsburg, Prof. Sir Hugh Laddie, Prof. Marshall Leaffer, David Llewelyn, Paul Maier, Erik Nooteboom
17 18 20
Part C: The Next Ten Years in Copyright Panel Discussion Prof. Hugh C. Hansen, Moderator Prof. Jane Ginsburg, Prof. P. Bernt Hugenholtz, Fred von Lohmann, Tilman Lueder, Prof. John G. Palfrey Jr., Shira Perlmutter, Marybeth Peters, Thomas C. Rubin
29 30
Part D: The Next Ten Years in Patents Lord Hoffmann Panel Discussion Prof. Hugh C. Hansen, Moderator Lord Hoffmann, Charles Eloshway, Hon. Roger Hughes, Rt. Hon. Lord Justice Jacob, Ron Marchant, Hon. Pauline Newman, Erik Nooteboom, Prof. Tetsuya Obuchi, Hon. Randall Rader
37 38 40
Part E: The Next Ten Years of IP Law in the U.S. Supreme Court Panel Discussion Prof. Hugh C. Hansen, Moderator Dimitrios Drivas, Prof. Graeme Dinwoodie, Lord Hoffmann, Prof. Jay Thomas, Hon. Pauline Newman, Harold C. Wegner, Prof. Timothy Wu
49 49
xii CONTE NTS Part F: The Next Ten Years of IP Law in the European Court of Justice William Robinson, Overview of ECJ Cases Panel Discussion Prof. Hugh C. Hansen, Moderator Prof. Graeme Dinwoodie, Lord Hoffmann, Prof. Sir Hugh Laddie, Hon. Klaus Grabinski, Prof. Alain Strowel, Rt. Hon. Lord Justice Jacob
59 60 61
SESSION II: COPYRIGHT Unauthorized Use of Works on the Web: What Can Be Done? What Should Be Done? Part A: Legality of Unauthorized Use Prof. John G. Palfrey Jr. Donald B. Verrilli Jr. Alexander Macgillivray Panel Discussion Morton David Goldberg, Moderator Sandra Astairs, Michael A. Einhorn, Prof. Brian Fitzgerald, Thomas C. Rubin
67 68 71 73 76
Part B: Non-Copyright Legal Solutions Sandra Astairs Michael Schlesinger Panel Discussion: Morton David Goldberg, Moderator Michael A. Einhorn, Prof. Brian Fitzgerald, Alexander Macgillivray, John G. Palfrey Jr., Thomas C. Rubin, Donald B. Verrilli Jr.
85 86 88 90
Part C: Copyright Issues in Online Music Zoltán Bácsi Panel Discussion Prof. Silke Von Lewinski, Moderator Zoltán Bácsi, Tilman Lueder Jacqueline Charlesworth Elliot Peters Howard P. Knopf, Online Music 2007 Panel Discussion Eric J. Schwartz, Moderator David O. Carson, David Jones, Elliot Peters
97 99 101
105 108 110 131
SESSION III: PATENT Part A: Non-Obviousness and Inventive Step: A Comparative View John Richards Panel Discussion Norman Zivin, Moderator Hon. Klaus Grabinski, Rt. Hon. Lord Justice Jacob, Eiji Katayama, Steven J. Lee, Hon. Randall R. Rader Herbert F. Schwartz
139 140 143
CONTE NTS
Part B: Extraterritoriality and Related Principles: To What Extent Have and Should National Courts Apply their Domestic Patent Laws and Policies to Activities in Other Countries? Prof. John R. Thomas, Voda v. Cordis Hon. Roger Hughes, Jurisdiction of the State: Respecting the Incorporeal Dr. Johann Pitz, Extraterritoriality of German Patents Nicholas Groombridge Panel Discussion John Richards, Moderator Hon. Klaus Grabinski, Rt. Hon. Lord Justice Jacob, David Perkins Part C: Patentable Subject Matter: The Road Ahead for Software and Business Method Patents Bart Eppenauer David J. Kappos Ron Marchant Panel Discussion Prof. Martin J. Adelman, Moderator Dr. Anne Fitzgerald, Prof. John R. Thomas Robert Hart, Patentable Subject Matter: The Road Ahead for Software and Business Method Inventions in Europe and the U.K.
xiii
151 152 163 176 179 181
189 190 193 195 198
206
SESSION IV: ANTITRUST/COMPETITION LAW & INTELLECTUAL PROPERTY Part A: Standard Setting and Competition Issues Nicholas Banasevic John Temple Lang, Licensing, Antitrust and Innovation Under European Competition Law Roy Hoffinger Discussion/Q&A Geoff Oliver, The Rambus Case Panel Discussion Andreas P. Reindl, Moderator Victoria A. Espinel, David J. Kappos, Rondal Moore Michael Einhorn, Competition Policy and the European Commission: CDMA Standards and Qualcomm
215 216 219 224 229 235 237
240
Part B: Refusals to License Daryl Lim, Beyond Microsoft: Rethinking the Future of Refusals to License Panel Discussion: Prof. Hugh C. Hansen, Moderator Heinz Goddar, Prof. Valentine Korah, Susan Manning, John Temple Lang John Temple Lang, European Competition Law and Refusals to Licence Intellectual Property Rights
247 248 271
Part C: Intellectual Property and Competition Policy on Parallel Trade Thomas Heide, Overview of Parallel Trade Christopher Stothers
297 297 299
282
xiv CONTE NTS James B. Kobak Jr. & Ramsey Chamie, An Update On the Law, Politics and the Re-Importation of Pharmaceuticals in the United States Panel Discussion Thomas Heide, Moderator Thomas Cheng, Prof. Valentine Korah, Susan Manning, John Temple Lang
304 312
SESSION V: PATENT Part A: Japanese IP Developments Tsuyoshi Isozumi, Mutual Utilization & Enhanced Work Sharing: Patent Prosecution Highway and New-Route Proposal Hon. Koichi Tanaka, Speedy and High-Quality Disposition IP High Court Eiji Katayama, Japanese Patent Recent Developments: View from Industry and Attorney Prof. Tetsuya Obuchi, Japanese Patent and Copyright Law Developments Panel Discussion John Richards, Moderator Souichiro Kozuka, Harold C. Wegner Part B: EU Legislative and Related Developments Harrie Temmink Hon. Klaus Grabinski Panel Discussion David Perkins, Moderator Erik Nooteboom, Prof. Alain Strowel Part C: Courthouse Relationships: The Federal Circuit and the Supreme Court, The Court of Appeal and the House of Lords, Member State Courts and the Court of Justice Prof Martin J. Adelman, Introduction Lord Hoffmann Prof. John Duffy Panel Discussion Prof. Martin J. Adelman, Moderator Hon. Klaus Grabinski, Prof. Sir Hugh Laddie, Hon. Pauline Newman, Hon. Randall R. Rader, Harold C. Wegner
321 322 324 327 329 333
337 338 343 346
353 353 355 357 360
SESSION VI: HUMAN RIGHTS & INTELLECTUAL PROPERTY Prof. Martin J. Adelman, Introduction Prof. F. Willem Grosheide, The Human Rights Paradox Orit Fischman Afori, Copyright and Human Rights: External Balance for Internal Benefit Prof. Geertrui Von Overwalle, Human Rights’ Limitations in Patent Law Prof. Laurence R. Helfer, Human Rights and Intellectual Property Hannu Wager
369 370 372 375 379 382
CONTE NTS
Panel Discussion Prof. Martin J. Adelman, Moderator Hannu Wager, Prof. Peter K. Yu Orit Fischman Afori, Human Rights and Copyright: The Introduction of Natural Law Considerations into American Copyright Law Laurence R. Helfer, The New Innovation Frontier? Intellectual Property and the European Court of Human Rights
xv 384
390 430
SESSION VII: TRADEMARK Part A: Trademark Law Developments in the European Union William Robinson, Trademark Developments Gail E. Evans, Recent Developments in the Protection of Trade Names in the European Union Prof. Spyros Maniatis, Opel: What Will it Mean for the Future? Panel Discussion Claus Köhler, Moderator Prof. Annette Kur, Prof. Sit Hugh Laddie, David Llewelyn, Paul Maier Appendix: William Robinson et al., Tables: Community Trade Mark Jurisprudence of the European Community Courts, 1 January 2006 to 31 March 2007
473 474 478 502 511
521
Part B: Third-Party Uses of Trademarks: Search Engines and Key Words John Richardson, Introduction Prof. Graeme Dinwoodie Dr. Peter Ruess Panel Discussion John Richardson, Moderator Jeffrey Butler, Prof. Susy Frankel, Paul W. Garrity, Prof. Marshall Leaffer, Ilanah Simon
541 541 542 546 549
Part C: Dilution: A Review of Recent Developments Prof. Coenraad Visser, Introduction Prof. Barton Beebe, Trademark Dilution Revision Act Kenneth A. Plevan Ilanah Simon David Llewelyn Panel Discussion Prof. Coenraad Visser, Moderator Prof. Veronica Barresi, Andrew Bridges, Susan Progoff
559 559 560 563 566 570 571
Part D: Functionality and Protection of Product Configuration Marks Paul Maier Jonathan Moskin Panel Discussion Paul W. Garrity, Moderator Prof. Graeme Dinwoodie, Prof. Kenneth L. Port, Susan Progoff, Prof. Susan Scafidi
577 577 585 587
xvi CONTE NTS
SESSION VIII: COPYRIGHT Part A: Canada, Australia and New Zealand Prof. Brian Fitzgerald, Introduction Prof. Robert Burrell Howard P. Knopf, Recent Copyright Activity and Inactivity in Canada Prof. Susy Frankel Panel Discussion Prof. Brian Fitzgerald, Moderator Prof. Christoph Antons, Prof. Anne Fitzgerald, Prof. Daniel J. Gervais, Hon. Roger Hughes Part B: The Recasting of Copyright and Related Rights in the European Union — What Should the EU Do? What Will the EU Do? Prof. P. Bernt Hugenholtz, IViR Report Barbara Norcross-Amilhat Panel Discussion Prof. Lionel Bently, Moderator Mihály Ficsor, Thomas Heide, Andreas P. Reindl, Prof. Silke von Lewinski
591 591 592 595 612 613
621 621 627 631
Part C: WIPO Broadcasting Treaty and the Politics of Intellectual Property Michael S. Keplinger James Love Julie Samnadda Panel Discussion David O. Carson, Moderator Ann Chaitovitz, Shira Perlmutter, Tom Rivers
637 638 640 642 644
Part D: Exclusive Rights v. Global Remuneration Ted Shapiro Panel Discussion Mihály Ficsor, Moderator Prof. Daniel J. Gervais, Fred von Lohmann, Shira Perlmutter
651 652 659
Part E: Developments in the Copyright Office and Congress Marybeth Peters David O. Carson
663 664 667
SESSION IX: PATENT Part A: A View From the Trenches Charles Fish, Introduction Brian W. Nolan, The Real-World Effect of eBay, Inc. v. MercExchange, L.L.C. Basil Imburgia Hon. Jed S. Rakoff Panel Discussion Charles Fish, Moderator Hon. Klaus Grabinski, Brian Murphy, Hon. Koichi Tanaka, Tony Yeo
673 673 675 683 685 688
CONTE NTS
Part B: MedImmune: What Is a Case or Controversy Without Reasonable Apprehension? Implications for Licensors, Licensees and the Rest of Us John R. Lane, Introduction Steven J. Lee, MedImmune: What is a Case or Controversy Without Reasonable Apprehension? Implications for Licensors, Licensees and the Rest of Us Harold C. Wegner & Lynn E. Eccleeston, MedImmune: The Federal Circuit Fills in the Blanks Panel Discussion John R. Lane, Moderator Charles Fish, Herbert F. Schwartz Part C: Patent Law Reform John R. Lane Bruce A. Lehman Panel Discussion John R. Lane, Moderator Charles Fish, Steven J. Lee, Herbert F. Schwartz, John A. Squires Bruce A. Lehman, Bracing for the Impact of Patent Reform: Prospects for Legislation in the 110th Congress
xvii
697 697 699 709 726
731 731 734 737
748
SESSION X: COPYRIGHT Part A: Intellectual Property Law and Design Jack B. Hicks Alain Coblence, The Design Piracy Prohibition Act Harrie Temmink Paul Maier, Design Law: An Update on Decisions in the OHIM Panel Discussion Prof. Susan Scafidi, Moderator Prof. Kenneth L. Port, Mark Traphagen
759 760 773 777 780 794
Part B: The Three-Step Test: Is It Out of Step? Hoachen Sun, Overcoming the Achilles’ Heel of Copyright Law: The Case for the Creative Destruction of the Three-Step Test Panel Discussion Prof. Hugh C. Hansen, Moderator Prof. Jane Ginsburg, Prof. P. Bernt Hugenholtz, Prof. Annette Kur, Ted Shapiro, Prof. Coenraad Visser, Prof. Mary W.S. Wong
799
Part C: Copyright Law in the 21st Century: Some Empirical and Theoretical Considerations Concerning Fair Use, Tolerated Use, Indeterminate Protection, and Compulsory Licensing Prof. Barton Beebe Empirical Study of U.S. Copyright Fair Use Opinions 1978–2005 Discussion of Beebe Presentation Prof. Tim Wu, Tolerated Use Discussion of Wu Presentation Michael Einhorn, Alternatives to Fair Use Discussion of Einhorn Presentation
800 856
863 864 868 871 873 875 878
xviii CONTE NTS Michael S. Shapiro, Copyright’s Winter of Discontent? Some Thoughts on the International Public Policy Process Discussion of Shapiro Presentation Prof. Souoichirou Kozuka, Copyright Law and the Digital Agenda in Japan: Some Thoughts About Change Discussion of Kozuka Presentation Panel Discussion Prof. Hugh C. Hansen, Moderator Prof. Lionel Bently, Prof. Jane Ginsburg, Stanley Pierre-Louis Michael E. Einhorn, Alternatives to Fair Use: Can Kozinski Replace Posner?
880 887 889 894 894
899
SESSION XI: TRADEMARK From Communication to Thing: When Were Trademarks First Conceptualized and Treated as Property. Does it Matter? Prof. Lionel Bently, From Communication to Thing: Historical Aspects of the Conceptualisation of Trade Marks as Property Panel Discussion Prof. Marshall Leaffer, Moderator Andrew P. Bridges, Prof. Justin Hughes
915 916 941
SESSION XII: TRADE Part A: Thailand and Compulsory Licenses Prof. Susy Frankel, Introduction James Love Jeffrey P. Kushan Richard Kjeldgaard Panel Discussion Prof. Susy Frankel, Moderator Prof. Sir Hugh Laddie Part B: Trade Policy in Intellectual Property: Policy, Priorities, and Emerging Issues Victoria A. Espinel Questions & Answers
947 947 949 951 953 955
963 963 968
Part C: India, IP Developments and TRIPs Prof. Shamnad Basheer Victoria A. Espinel Panel Discussion Prof. Sir Hugh Laddie, Moderator James Love, Mustafa Safiyuddin, Eric H. Smith, Howard Zucker
971 972 976 978
Part D: TRIPs and China: Should a Case be Brought? — Will it be Brought? Justin Hughes, Introduction Victoria A. Espinel Eric H. Smith, The Case for TRIPs Violations
983 983 984 988
CONTE NTS
Prof. Peter Yu, Intellectual Property, Economic Development, and the China Puzzle Panel Discussion Prof. Justin Hughes, Moderator Mark Traphagen, Prof. Sir Hugh Laddie, Prof. Qian Wang
xix
990 1024
Appendix: The Next Ten Years in EU Copyright: Making Markets Work Dr. Tilman Lueder
1031
Index
1065
WELCOMING WELCOMING REMARKS REMARKS
FORDHAM UNIVERSITY SCHOOL OF LAW FIFTEENTH ANNUAL CONFERENCE INTERNATIONAL INTELLECTUAL PROPERTY LAW & POLICY New York, April 12–13, 2007 WELCOMING REMARKS PROF. HUGH C. HANSEN DEAN WILLIAM TREANOR
Fordham University School of Law
PROF. HANSEN: Good morning. Welcome to the Fifteenth Annual Fordham Conference. It is my great pleasure and honor to introduce the Dean of Fordham Law School, William Treanor, for welcoming remarks. DEAN TREANOR: Thanks very much, Hugh. Welcome. This is an incredibly exciting event for us at Fordham Law School. Today we have, for the fifteenth year, our International Intellectual Property Law & Policy Conference. As our alumni and students know, really pretty much every day we have a conference of some kind that meets here. But this is really a high point for us in the year. What it does is bring together really two of the great focuses of our Law School. Fordham Law School is one of the leading schools — certainly in the United States, I think in the world — in the areas of intellectual property and information law. Professor Hansen really is a pioneer in the field of intellectual property in the United States, and now we have Professor Sonya Katyal, Professor Mark Patterson, Professor Andy Sims, and Professor Joel Reidenberg. Joining us next year we have Professor Jeannie Fromer, who is a former U.S. Supreme Court Clerk, who also has a Masters in Computer Science from MIT. We also have two exciting visitors coming, Brett Frischmann and Kathy Strandburg. Fordham Law School has a profound commitment to intellectual property and realizes how much it is at the core of legal practice today. It is also profoundly committed to international law and has one of the preeminent international law programs in the United States. This Conference brings the two together. It started in 1993. Professor Hansen had the idea of bringing the leading figures in European intellectual property law and the leading U.S. figures together in one conference. Over fifteen years, it has expanded to what it is today. I think we have roughly 350 people here. We have people from six continents, which I think is basically all you can reasonably expect. It is a level of discussion that is really unparalleled. Professor Hansen’s motto for the conference is: Learn something; engage in the debate; have fun. That is what this Conference is about. It is about a top-level discussion, but it is done in a way that is fun and fascinating and that focuses on the debate.
xxii WE LCOMING R E MA R KS We started yesterday with a program in conjunction with the Intellectual Property Academy of Singapore, which we began in 2004, on Asian intellectual property law. It was a fabulous beginning. Now we have the program today and tomorrow. I want to thank all the sponsors who make this possible. As a dean, I am very grateful for sponsors. I want to thank them for their financial support. I want to thank all of you for coming here and bringing so much excitement to this. I want to thank Helen Herman in our Office of Academic Programs for doing such a great job in putting this together, and particularly Darin Neely, who is really a genius of logistics. And finally, before I turn things over to Professor Hansen, I want to acknowledge him again. He really is a visionary. In 1993 he thought this was what we had to do. He really reached. At a time in which intellectual property in the United States in the academy was really in its infancy, he realized both its importance and the importance of its international dimension. I think all of us who know him prize his pithy aphorisms and his sense of humor. In an increasingly soundbite-driven culture, as we have in the United States, if ever there is an IP talk show, I know who will be the host. In addition to his great wit and his vision, he has the most extraordinary intelligence and vision about intellectual property. All of us are very grateful to Professor Hansen for what he has done. It is my pleasure now to turn things over to Professor Hansen. PROF. HANSEN: Thank you very much, Bill. Wow, thanks. That was a great introduction. I have never had an introduction like that.
SESSION I: PLENARY SESSION PART A: THE NEXT TEN YEARS IN WIPO AND WTO
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part A: The Next Ten Years in WIPO and WTO
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Speakers MICHAEL S. KEPLINGER
HANNU WAGER
Deputy Director General World Intellectual Property Organization (Geneva)
Counsellor Intellectual Property Division World Trade Organization (Geneva)
Panelists MIHÁLY FICSOR
JAMES LOVE
President, Hungarian Copyright Council; Former Assistant Director General WIPO (Budapest)
Director, Knowledge Ecology International (Washington, D.C.)
BRUCE A. LEHMAN
ERIC H. SMITH
Akin, Bump Strauss Hauer & Feld LLP (Washington, D.C.)
Smith, Strong & Schlesinger LLP (Washington, D.C.)
FRED VON LOHMANN
Senior Intellectual Property Counsel, Electronic Frontier Foundation (San Francisco)
2 S E S S I O N I : P L E N A R Y SE S S I O N Overview The last ten years have seen major changes in intellectual property (IP) developments at both the national and international levels. Creators, inventors, and content providers are facing difficult times on two fronts. One is the never-ending growth of technological developments that make unauthorized copying even easier. The second is more vocal opposition to intellectual property protection. Developing nations, consumers, library associations, open source advocates, nongovernmental organizations (NGOs), Internet service providers (ISPs), digital manufacturers, and others have advocated less protection for IP. This opposition has resulted in new multilateral treaties and legislation that extends IP protection being stalled or killed. The low-protection advocates, however, have been only partially successful. Courts globally continue to provide strong IP protection, and legislatures have resisted calls to cut back existing protection. This might change since a number of government-sponsored studies have weighed in to varying degrees on the side lessening IP protection. Such studies included the Gowers Review in the United Kingdom,1 the Final Report of the U.K. Commission on IP rights (CIPR),2 and the European Commission’s reports on Databases and the Copyright Acquis.3 And, of course, it now has become almost de rigueur for academics throughout the world to question previously long-held assumptions about the scope of IP protection. This Plenary Session will address what these developments mean over the next ten years. Some of the issues to be discussed are: 앫 What is causing these calls for decreased protection? Are they driven by economic self-interest and/or ideological views that, perhaps unstated, are for redistribution of wealth and against market-driven economies and capitalism in general? Or are calls for less protection the reaction to a digital world that produces new roles for all market players, the democratization of creativity, and/or the growth of non-proprietary networks and mass creative collaboration? 앫 Are both sides in the IP debate too ideologically rigid to produce a workable compromise? 앫 Will multinational organizations become irrelevant or more important? 앫 Are treaties and EU and national legislation possible in this fractured environment? If so, what approaches toward IP will they take? Will “soft law” replace enacted law? 앫 Will courts, by default or design, play the central role in the intellectual property debate? If so, can courts globally produce a consistent, or at least somewhat harmonized, approach to the protection of IP? 1 U.K. Treasury, Gowers Review of Intellectual Property (December 2006), available at http://www.hmtreasury.gov.uk/media/6/E/pbr06_gowers_report_755.pdf. 2 U.K. Commission on Intellectual Property Rights [CIPR], Integrating Intellectual Property Rights and Development Policy (September 2002), available at http:// www.iprcommission.org/graphic/documents/ final_report.htm. 3 European Commission, First Evaluation of Directive 96/9/EC on the Legal Protection of Databases (Dec. 12, 2005) (Final Report), 2004 O.J. (L 195) 16, available at http://ec.europa.eu/internal_market/copyright/ documents/documents_en.htm#reports; European Commission, Report from the Commission on the Coordination of Certain Rules Concerning Copyright and Related Rights Related to Copyright Applicable to Satellite Broadcasting and Cable Transmission (July 26, 2002), available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=CELEX:52002DC0430:EN:NOT; European Commission, Report from the Commission to the Council, the European Parliament and the Economic and Social Committee on the Implementation and Effects of Directive 91/250/EEC on the Legal Protection of Computer Programs (Oct. 14, 2000); European Commission, Consultation on the Review of EU Legislation on Copyright and Related Rights (Working Document), available at http://eur-lex.europa.eu/internal_market/copyright/review/ consultation_en.htm.
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앫 What will copyright, patent, and trademark laws look like in ten years time? 앫 Will technology make all of the above irrelevant? The speakers and panelists in this Session will address these issues as well as some of their own. The session will consist almost entirely of discussion, with a major portion of time allocated for audience participation. * * * I think this morning’s program is very exciting. Normally, in this session review what happened in the last year. Our focus today is to look prospectively at the next ten years. Without further ado, we have two speakers addressing respectively the World Trade Organization (“WTO”) and the World Intellectual Property Organization (“WIPO”) in the future. The first speaker is Michael Keplinger. Mike a new Deputy Director of WIPO. His specialty is copyright. He has a long history in copyright in the U.S. Patent and Trademark Office (PTO). We are very, very pleased to have Mike here. MR. KEPLINGER: When I was asked to talk about the next ten years in WIPO, I thought this was quite a challenge. As Hugh said, my specialty is copyright. My new position is that of the Deputy Director General in charge of the Copyright Sector. I began by casting around the Organization to talk to the other Deputy Directors to see what their perceptions were about their respective areas. I wound up with a ten-minute talk with six pages of notes, which would let me talk for two hours about what the next ten years in WIPO are likely to bring. Let me just try to hit some of the highlights. In the next ten years, it is going to be incumbent on WIPO to work hard to maintain its leadership position in the area of intellectual property. In the area of intellectual property, we are experiencing some new trends. Some describe the “democratization” of intellectual property. It is no longer a “boutique” area but it is now one that touches almost every area of society. Certainly within the UN system, intellectual property comes up in the programs of most specialized agencies. We work in a more contested, a more multi-stakeholder environment, and one in which a wide variety of organizations are struggling hard to make their positions known. So what are we working to do at WIPO? We want to work to continue to maintain the balance of the intellectual property system. We need to look at the balance between private rights and the public good, between right holders’ needs for protection and users’ expectation for access. We need to make access to the IP system more equitable for individual creators and for those developing new business models, and for those in developed and developing countries alike. This applies across the board to all areas of intellectual property — not just patents, but to trademarks and to copyrights — and here I highlight some of the work we are doing at WIPO with regard to the Patent Cooperation Treaty (PCT)4 system. We need in WIPO to strengthen our technical capabilities in order to be able to focus discussions on the important areas. The IP system is changing. There is more emphasis these days on the management of IP, commercialization of IP, securitization, financing, and the use of IP as collateral. Today, IP is of incredible importance, and represents up to 80 percent of the value of the PROF. HANSEN:
4 World Intellectual Property Organization Patent Cooperation Treaty, Apr. 1, 2002, available at http://www.wipo.int/pct/en/texts/articles/atoc.htm.
4 S E S S I O N I : P L E N A R Y SE S S I O N top 500 Standard & Poor’s (S&P) companies, whose wealth is represented by their intangible investment in intellectual property. Technological changes are also impacting the way in which IP thinking is developing. New business models emerge constantly. Recent developments, such as Apple’s decision to release music without technological protection measures (TPMs) in certain areas, will change the way we think about the distribution of works in the future. We have at WIPO seen increasing pressure from developing countries to look at issues of concern to them. There has been pressure in WIPO to look at the Development Agenda;5 that is, what WIPO is doing to foster development among its developing country Members. This has been a very useful discussion in many ways for WIPO, because it has helped us focus our thinking, to explain and clarify how much WIPO actually does to foster development, and to also focus on the important role of intellectual property as a tool for economic development. We are doing some very important work in the area of development. In the field of copyright, we have been working with countries to establish economic models to determine the contribution of the copyright industries to national economies. The results have been surprising. The copyright industries are some of the most significant industries in many countries. I have seen a change in the perception of some of those countries where these studies have been done as to the way they approach copyright issues in WIPO. When they discover that copyright contributes some 6–8 percent of their gross domestic product (GDP) and somewhere around 8 percent of national employment, their attitude really changes. They begin to see that intellectual property offers something tangible for them. I think this is an area where WIPO’s work is going to intensify in the future. I think we will try to expand this work to examine other areas of intellectual property, and also to link this with a study that we are working on regarding the impact of piracy on national economies. WIPO has other projects. We are trying to increase our efforts towards a new treaty to protect the interests of broadcasting organizations.6 The General Assembly of WIPO in September 2006 directed the Standing Committee on Copyright and Related Rights to develop a new approach to the treaty that had been under discussion for some nine years on the protection of broadcasting organizations and to pursue a signal-based approach in looking at this treaty. We have interpreted this to mean focusing on protection of the broadcast signal and reducing emphasis on the protection of post-fixation rights. We have already had one special meeting of the Standing Committee, and in June we will have another. A new proposal has been posted for comments7 on the WIPO Web site prepared by the Chairman of the Standing Committee that focuses on this signal-based approach. The Chairman will revise this draft and release it as a basis for discussion. It is a draft that no one is completely happy with, which perhaps means it is a good approach because there is a little bit of pain in it for everyone.8 In the area of patents, we are focusing on our role as a service provider by working to increase the efficiency of our filings and our processing of works under the Patent Cooperation Treaty, and are devoting significant resources to that. Just to briefly mention other WIPO developments. We are working progressively in the 5
See http://www.cptech.org/ip/wipo/da.html. For latest developments and related documents regarding the Proposed WIPO Treaty on the Protection of Broadcasting Organizations, see http://www.cptech.org/ip/wipo/bt/ latest_docs.html. 7 See http://www.wipo.int/edocs/mdocs/copyright/en/sccr_9/sccr_9_3_rev.pdf. 8 See infra Session VIII, Part C, WIPO Broadcasting Treaty and the Politics of Intellectual Property. 6
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area of traditional knowledge and genetic resources. In trademarks, we are working on a new Trademark Treaty. WIPO’s Arbitration and Mediation Center has been very successful in resolving disputes, particularly in the area of domain name dispute resolution. We are also working strongly in the field of enforcement. WIPO recently conducted a very successful conference on enforcement, a World Congress, in cooperation with the World Customs Organization and the INTERPOL, to look at the practical effects and what we can do to combat piracy in the future. I have mentioned just some of the things that WIPO is and will be doing in the short time I’ve had. Thank you very much for your attention. PROF. HANSEN: Thank, you, Mike. Now, Hannu Wager. MR. WAGER: Thank you. Given the nature of the WTO as a member-led organization, what the next ten years will have in store for it very much depends on what issues the WTO Member governments choose to bring into its policy and rule-making processes and before the dispute settlement system. One thing is of course clear — namely, that it is not for the Secretariat to decide. Therefore, what I will say are very much only my own personal reflections on the matter. It should be borne in mind that at the WTO IP matters are handled as part of a broader trade framework. How IP matters will be treated will depend in substantial part on what happens in the WTO as a whole. It has been the experience of the WTO and GATT9 that significant changes to trade rules can only be accomplished in the context of a comprehensive round that allow trade-offs across areas of interest to different participants in negotiations. As regards the present Doha Round, there are some IP issues on the table.10 However, unlike during the Uruguay Round, they are not at the core of the Round. Perhaps it could be added that neither are they at the core of IP policy in general. Judging from past practice, WTO Members are unlikely to launch and complete new negotiating round after Doha within the next ten years. As you know, the Doha Round was launched in 2001. The negotiations have not moved forward as had been hoped. Given the failure to reach sufficient progress, the Round was suspended last July in order to allow Members time to reflect on the situation. Since February, the negotiations have resumed in full mode in all negotiating groups. Members are also working bilaterally and there is engagement and support at the highest political level. Three issues are at the forefront of the discussions at this moment: agricultural subsidies, agricultural tariffs, and industrial tariffs. However, a breakthrough in these key areas is still awaited. The main TRIPs11 issues being discussed in this context are those related to geographical indications (GIs) and a so-called “disclosure proposal” (a proposal on the disclosure of origin of biological resources and/or associated traditional knowledge12), although 9 General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, T.I.A.S. 1700, 55 U.N.T.S. 194; General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations 17 (1999), 1867 U.N.T.S. 187, 33 I.L.M. 1153 (1994). 10 Information and documents are available at http://www.wipo.int/activities/en/. 11 Agreement on Trade-Related Aspects of Intellectual Property Rights, 33 I.L.M. 1197, in General Agreement
6 S E S S I O N I : P L E N A R Y SE S S I O N there are different views on whether GI extension and the disclosure proposal form part of the agreed negotiating package for the Round. The introduction to this plenary session refers to a number of important questions concerning the balance in IP systems. I believe that these questions are likely to continue to be key issues in domestic and international policy discussions over the next ten years, including in the WTO. In the past few years, such questions have arisen in the WTO, particularly in the context of TRIPs and health. The work done in this area is likely to form part of the underlying consideration of future matters. The question posed in the Conference program that is most specific to the WTO is whether multilateral organizations will become irrelevant or more important. I don’t think that, due to the ongoing debate, the WTO is likely to become less important. However, it should be noted that much of the debate concerns matters such as the term of protection for copyright, the patentability of computer software and business methods, and more generally quality and scope of patents and the availability and strength of injunctive relief. In general, these types of questions are often matters that are not regulated in detail in TRIPs or go beyond its minimum requirements. Hence, this debate has taken place at the national level, and sometimes at the bilateral or regional level, and I would guess that this will continue to be the situation. Consequently, I would not expect the WTO to be the first port of call for such matters. But, in a sense, the ongoing debate at the national level, and sometimes at the bilateral or regional level, has underlined the fact that the TRIPs Agreement does contain important elements of balance and flexibility, allowing both developed and developing countries to seek their own responses to these evolving questions. Going back to the IP matters on the Doha agenda, it would appear that any significant progress on matters addressed by the disclosure proposal would be unlikely in the near future in the absence of major progress with the Round. And even with a successful conclusion of the Round, it is difficult to predict at this point what the outcome might be in this area. As regards discussions on any sui generis protection of traditional knowledge or folklore, although both of them have been standing items on the TRIPs Council’s agenda, Member governments have preferred, at least until now, to discuss them in the WIPO Intergovernmental Committee. The issues of traditional knowledge and folklore do not fit well into the bigger picture outlined in the Conference program, in the sense that in these areas a number of developing countries are in fact calling for new, additional forms of protection rather than less protection. Another area of debate in regard to the evolution of the balance in the TRIPs Agreement concerns the issue of so-called “GI extension,” the proposals for extending the higher level of protection, which presently only has to be given to GIs for wines and spirits, to other product areas. Also this issue does not fit well into the broader outline of the Conference program, since there is a mixed group of both developing and developed countries calling for more protection in this area, not less. on Tariffs and Trade: Multilateral Trade Negotiations Final Act Embodying the Results of the Uruguay Round of Trade Negotiations, Apr. 15, 1994 (333 I.L.M. 1125, Annex C) [hereinafter TRIPs Agreement], contained in an Annex to the WTO Agreement, available at http://www.wto.org/english/tratop_e/ trips_e/trips_e.htm. 12 WIPO/GRTKF/IC/5/10, World Intellectual Property Organization, Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore, Draft Technical Study on Disclosure Requirements Related to Genetic Resources and Traditional Knowledge (May 2, 2003), available at http://www.wipo.int/edocs/mdocs/tk/en/wipo_grtkf_ic_5/wipo_grtkf _ic_5_10.doc.
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As regards the negotiations on the establishment of a registry for GIs for wines and spirits, which is a part of the single undertaking of the Doha Round, the objective is not to readjust the balance under the Agreement, but rather to facilitate the protection of GIs. As I mentioned earlier, questions about a proper balance have been debated in the WTO particularly in relation to TRIPs and public health. The issue raised around the year 2000 was whether the flexibility in the TRIPs Agreement was sufficient to ensure that it was supportive of public health, especially in permitting affordable access to existing medicines in poor countries, while also promoting research and development into new ones. The work resulted in the 2001 Doha Declaration on the TRIPs Agreement and Public Health,13 which provides a number of important clarifications of some of the healthrelated flexibilities contained in the Agreement, and the so-called “Paragraph 6” system designed to make it easier for poorer countries to obtain cheaper generic versions of patented medicines. This system was put in place in 2003 in the form of a set of waivers, and in 2005 it was agreed to incorporate it into the TRIPs Agreement in the form of an amendment. The amendment will enter into force once two-thirds of the WTO Members have accepted it. So far, it has been accepted by seven Members — El Salvador, India, Korea, Norway, the Philippines, Switzerland, and the United States. In the meantime, the waivers remain in force. These three legal instruments have demonstrated the WTO’s ability to react to important developments, including humanitarian causes. In the coming years, the focus in the TRIPs Council will be on implementation of these instruments, including the ratification process of the Amendment. Any post-Doha work program would be likely to cover any unfinished business from the Doha Round. What other issues might come up in future discussions? 앫 Recently, there has been increasing attention to counterfeiting and piracy. Some Members have indicated in the TRIPs Council that they remain concerned about the increasing level of counterfeiting and piracy and have requested the TRIPs Council to discuss this matter. However, some other Members are not convinced that it would be appropriate for the Council to take up this matter at this stage, and argue that the Agreement leaves it to Members to determine the appropriate method of implementing enforcement measures. At this point it is not clear whether there will be work on enforcement in the TRIPs Council. 앫 Competition policy was one of the so-called “Singapore issues” that were initially examined in the context of the Doha Round. However, in 2004 it was decided to initiate negotiations only in one of these areas, namely trade facilitation. Presently, there appears to be increased interest in the interface between IP and competition law, and some recent cases have highlighted the international dimension of the issue. While competition policy has been on the back burner during the Round, it cannot be excluded that in the course of the next ten years some Members would wish to bring the international dimension of this question back to the WTO. 앫 As regards the least-developed countries (LDCs), their general transition period under TRIPs was recently extended until July 2013. Helping LDCs to implement and 13 Doha WTO Ministerial Declaration on the TRIPs Agreement and Public Health, WT/MIN(01)/Dec/2, adopted Nov. 14, 2001, available at http://www.wto.org/English/ thewto_e/minist_e/min01_e/mindecl_trips_e. htm.
8 S E S S I O N I : P L E N A R Y SE S S I O N use the IP system for their development will be an important area of work for the WTO. 앫 Also, discussions on transfer of technology will be continued, in particular in relation to LDCs. 앫 Currently the WTO has 150 members. The accession of countries, such as China, and most recently Saudi Arabia and Vietnam, have led to important developments concerning the IP regimes of these countries. Currently, there are some thirty countries in the process of accession. The negotiations with, for example, Russia and Ukraine are well advanced. IP matters are an important element in the accession negotiations of these countries. Let me close by saying a few words about dispute settlement. One of the questions posed in the Conference program is whether courts, by default or design, will play the central role in the IP debate. The number of TRIPs disputes has been relatively low. In particular, we have not seen so far any large-scale recourse to dispute settlement against developing countries. In general, I would not expect the dispute settlement system to play a major role in settling some of the key evolving policy issues that I mentioned earlier, given that they are issues that are either not regulated in detail under TRIPs or go beyond the minimum requirements under it. However, there may be issues about the interpretation and implementation of the current TRIPs provisions that Members may wish to bring to the WTO. As you know, one such case was just filed by the United States two days ago.14 PROF. HANSEN: Before our discussion the panel. I’ve mentioned Mike Kepplinger already. I should say a little more about Hannu Wager. He is a Counsellor in the Intellectual Property Division of WTO. That is actually a small shop. They also have some power as do the civil service in many governments. Panel decisions are heavily influenced by their assistance. So if you have complaints about any of the IP decisions, you can go straight to Hannu. Mihály Ficsor, who used to be the number two person for many years at the WIPO, the power behind the throne, is a world figure, now an IP and also the President of the Hungarian Copyright Council. Bruce Lehman is another world figure, head of the U.S. Patent and Trademark Office (PTO) for many years. He was a moving force certainly in the WIPO Copyright Treaties15 and is now in private practice with Akin, Gump in Washington, D.C. Jamie Love is Director of Knowledge Ecology International, which is a new name. Jamie, of course, is an international figure as well. 14 On Apr. 10, 2007, the U.S. Trade Representative requested consultations with China at the WTO over protection of IP rights and barriers to trade in copyrighted items. For information on subsequent developments, see Press Release, Office of the U.S. Trade Representative, United States Requests WTO Panel in Case Challenging Deficiencies in China’s Intellectual Property Rights Laws (Aug. 13, 2007), available at http://www.ustr.gov/Document_Library/Press_Releases/2007/August/United_States_Requests_WTO_Panel_ in_ Case_Challenging_Deficiencies_ in_Chinas_Intellectual_Property_Rights_Laws.html. See also WTO Dispute DS362, filed by the United States Apr. 10, 2007: China — Measures Affecting the Protection and Enforcement of IP Rights, available at http://www.wto.org/ english/tratop_e/dispu_e/cases_e/ds362_e.htm; WTO Dispute DS363, filed by the United States Apr. 10, 2007: China — Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, http://www.wto.org/ english/tratop_e/ dispu_e/cases_e/ds363_e.htm. See also infra Session XII, Part D, TRIPs and China. 15 World Intellectual Property Organization: Copyright Treaty [adopted in Geneva, Dec. 20, 1996], 36 I.L.M. 65 (1997) [hereinafter WCT], and World Intellectual Property Organization Performances and Phonograms Treaty [adopted in Geneva, Dec. 20, 1996], 36 I.L.M. 76 (1997) [hereinafter WPPT], available at http://www.wipo.org.
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Eric Smith has been in the forefront of bilateral and multilateral IP matters for many years. He almost created the international IP field from within the private sector. He is partner in a new firm of Smith, Strong & Schlesinger. Finally, Fred von Lohmann, Senior Intellectual Property Counsel, Electronic Frontier Foundation. Fred is also an international figure and a national figure as well. Everyone knows him in this area. PROF. HANSEN: Opening up the discussion, Mihály, why don’t you start off the discussion. Having been within the WIPO for many years and the second in power, what does the future of the WIPO look like to you? MR. FICSOR: It is difficult to speak about the future. There is only one thing about which we can be sure — namely, that ten years from now, in 2017, the Fordham Conference will take place on April 20 and 21. I have checked this, and this will be definitely so, because these dates will be the Thursday and Friday after Easter in that year. As far as WIPO and WTO are concerned, my answer to the question whether these multilateral organizations will survive is definitely “yes.” They will, they should, they must. In the globalizing world this is indispensable. For the time being, the atmosphere is not very good for new treaty-making activities. I wish all the best to Michael Keplinger, who in a way is also my successor. I think the chances for the Broadcasting Treaty are quite good; certainly much better than, let us say, the chance for Arnold Schwarzenegger being elected Miss France next year. But then, even if we succeed with the Broadcasting Treaty, I think WIPO should start a new “guided development” period, which was the case during the 1970s and the 1980s, and with a certain success. This meant the working out of guiding principles, recommendations, and model laws, instead of new binding norms. For example, there was a breakthrough for the copyright protection of computer programs, on the basis of Michael Keplinger’s excellent study, at a WIPO meeting in Geneva in 1985. It was confirmed later by the TRIPs Agreement and the WCT. As regards WTO, I wish — of course, not only I, but everybody wishes — that the Doha Round ends somehow with a reasonable compromise. But, then again, I think there will be not too many new norms, and attention should be paid rather to the appropriate interpretation of the TRIPs Agreement, including Part III on enforcement, which has been a little bit neglected until now. I hope that the dispute settlement bodies will be used more frequently, that their decisions, their findings, will be granted fuller respect, and that, through this, one of the basic principles of law that the WTO dispute settlement system is supposed to serve — pacta sunt servanda16 — will better prevail in the international IP relations. We badly need this. Thank you. PROF. HANSEN: Jamie, do you have any thoughts? MR. LOVE: I am not sure if I share the optimism about our prospects for the Broadcasting Treaty. But I think the general point that WIPO has to rethink its mission is an important one, because the international multilateral system has come through a period where the idea of raising norms for intellectual property seemed like the most urgent and important thing — the TRIPs initiative and all the efforts on patent harmonization and things like that. I think that today we are in the middle of a debate — not the first time, but it is really happening now — about the relationship between strong exclusive rights regimes and 16
Pacta sunt servanda is a basic principle of international law and civil law (“pacts must be respected”).
10 S E S S I O N I : P L E N A R Y SE S S I O N innovation. We are having that debate in the United States in the patent area, with the eBay decision17 and discussions about patents and standards. We are having a serious discussion about access and the relationship between prices of products and access, and prices and enforcement as a practical matter too. People want to have all this enforcement. There are huge differences in incomes. They are not very realistic about the prices that actually get buy-in on the enforcement front. There is also, I think, a lot of new thinking about the idea of trade-related aspects of public goods. WIPO itself has got this proposal for a treaty on access to knowledge that they will be debating at the June meeting at the Development Agenda18 discussions. There are quite a few countries that have supported the idea of something like this and, to my knowledge, none that have actually opposed it. There is a discussion in the World Health Organization (WHO) about the Medical Research and Development Treaty.19 Some of the ideas of this are that not all the ideas about innovation are about strengthening a monopoly. Sometimes it is about sharing the cost of providing public goods or providing the infrastructure and environment for that. So where does WIPO fit into this? Where does WTO fit into this? I think there has been a lot of movement at WIPO in the delegates. I think the decision in the WIPO Development Agenda in February surprised everybody — it surprised me and I think it surprised all the participants — because it was a stronger agreement than anybody anticipated and it had more universal support. It was not just wrung out of the North from the South, but it was a genuine meeting of minds between the North and South on issues about norm setting for WIPO, about the role of the public domain, the control of anticompetitive practices, and things like that. So I think that actually there are more possibilities that it becomes less and less of a North/ South fight and more of a mature, and I think intellectually interesting, discussion about how to manage IP. I think that the new phase should be, not just bringing IP to the ignorant savages of the world, but it should be more how do you do something really difficult, which is manage an IP system. I think that is the challenge for WIPO. I think there has been progress. PROF. HANSEN: There seem to be some forum shopping among competing multinational organizations. You mentioned WHO as one. Do you think that the debate will be diffused among a number of organizations, other independent organizations in the United Nations, as well as the WIPO, or do you think that effectively it is going to be in WIPO where things are going to happen? MR. LOVE: I think the most interesting debates are at WIPO today. I think part of the reason for that is that the U.S. government has more or less dismantled the capacity of the WHO to deal with intellectual property organizations. There has been a reduction in the number of people in the agency that know anything about the topic, and there has been an intimidation of the people who work for the agency to deal with these kinds of issues. I think that the same is true with United Nations on Trade and Development (UNCTAD) and the United Nations Development Program (UNDP). I think, particularly led by the American government, there has been an effort to reduce the role of those agencies in intellectual property disputes. PROF. HANSEN: Has the United States ever done anything right in your view? 17
eBay Inc v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006). See http://www.cptech.org/ip/wipo/da.html. 19 World Health Organization, Medical Research and Development Treaty (MRDT) (currently under discussion at the WHO Intergovernmental Working Group (IGWG) on Public Health, Innovation and Intellectual Property); see http://www.cptech.org/workingdrafts/rndtreaty.html. 18
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MR. LOVE: I think the United States did a very good job in the Broadcasting Treaty discussions in the last twelve months, and I think they did a really good job on the Development Agenda. They really exceeded everybody’s expectations. They have also done, I think, a very good job in the WHO discussions about new business models for financing R&D. So I think that the second Bush Administration has surprised everybody in the WHO discussions. They changed their position from being opposed to things, like discussions of R&D treaties or price systems or different ways of stimulating R&D in medicine, to the point where now they are supporting these conversations going forward. I think it is complicated. It is a big federal government, and there are different parts of the bureaucracy, but there have been some pretty positive things that have come out of this Administration. I think the Office of the U.S. Trade Representative so far has not gone too far in the Thailand case,20 which I think is good. PROF. HANSEN: Which we will be discussing later. Anyone else have a thought on WIPO now? We’ll go to WTO later. Bruce? MR. LEHMAN: I’m glad you clarified that. My view is that the future of WIPO in the next ten years is very cloudy. I certainly do not think WIPO will go out of existence; the treaties will not be dismantled. But certainly, unless there is very substantial change in the nature of U.S. leadership in diplomacy in general, not just simply with regard to intellectual property, I think that you are going to see in any significant norm-making activity at WIPO the kind of gridlock that we have seen on the Broadcasting Treaty, which is a very minor treaty.21 I cannot imagine that we will have any significant new international norm-making unless there is a very radical and substantial change in Washington. If we do have a change in Washington — and you are already seeing that on Capitol Hill, where we have had a change, and where we are seeing a distinct tilt against intellectual property rights I would say — I think you are going to see a big emphasis on environmental concerns and labor concerns, which are also going to be felt in the WTO. That is important, because I think intellectual property rights are less likely to be a high priority of future U.S. administrations, and that has big implications for WIPO, frankly. I would have to say, as a person who was a leading intellectual property diplomat in the 1990s, that the results of our efforts — and I have not changed my views one bit on the justice and importance of the things we did — but the results have been, frankly, quite disappointing. We are now bringing the case against China,22 but we are twelve years or so into the new TRIPs regime, and I do not think we have much to show for it when you look at the piracy rates around the world and so on and so forth. PROF. HANSEN: Fred? MR. VON LOHMANN: I agree with a lot of things that have been said. Looking ten years ahead to 2017, I think one interesting development that will be felt at WIPO is the growth of new constituencies that feel that they have an interest there. Obviously, the Development Agenda has played an important role, but I think increasingly you will find that innovation industries are interested as well. The innovation industries have shared interests both in the developed and developing world. I think that to the extent new innovators feel that the existing IP system is a hindrance or something that slows their ability to 20
See infra Session XII, Part A, Thailand and Compulsory Licenses. See infra Session VIII, Part C, WIPO Broadcasting Treaty and the Politics of Intellectual Property. 22 See supra note 13; see also infra Session XII, Part D, TRIPs and China: Should a Case Be Brought? Will It Be Brought? 21
12 S E S S I O N I : P L E N A R Y SE S S I O N bring new products to market, to grow new digital business, to grow new digital technologies, you may see those industries going to the U.S. Congress, for example, to say that the norms that are being pressed at WIPO need to be informed by issues of innovation and competition. So I think you may see some connection between the agendas of the developing world and the innovation industries. The controversies surrounding the WIPO Broadcasting Treaty have been a good example of that, where innovators in Europe and in the United States realized that they had a certain common bond with countries in the developing world. PROF. HANSEN: I think we saw what effect industries that transmitted or used copyright works can have when they, AT&T for instance, descended upon Geneva at the last minute at the WIPO diplomatic conference in 1996 on what some now call the Internet treaties. They had a dramatic effect on the level of copyright protection in the final treaties. . As Bruce and everyone has acknowledged, those treaties even as limited as they were, could not be adopted today. Now even more industries are mobilized against strong protection. So will the future hold any hope for new treaties? Or will there be a continuing stalemate leaving any new developments to “soft law” and judicial case law? Fred? MR. VON LOHMANN: That is the big question. I think it is too soon to make that prediction. It will depend on what happens in the domestic context in individual countries, which will have an echo at WIPO. PROF. HANSEN: Eric, you had your hand up. MR. SMITH: Yes. I want to echo what was said about WIPO. I do not think there are going to be any significant new norms in the next ten years. If I could limit my remarks to the copyright side, the norms are already there. Among the Berne Convention,23 TRIPs Agreement, and the Internet Treaties, the basic structure is there. I do not see in the next ten years any significant diminution in the levels of protection. If anything, I think you will see some small shifts at the margin of protection in many countries around the world, in part as a result of WIPO’s ongoing hoped-for guided development, plus all of these studies that Mike mentioned about the importance of copyright protection to domestic economies. But remember that things that are very controversial today, like technological protection measures, have already been implemented in 100 countries around the world. Terms of protection, very controversial; you already have ninety countries with terms of protection greater than fifty years, which is the international standard in TRIPs. I do not see any significant diminution there. PROF. HANSEN: That all came from free trade agreements (FTAs), right, bilateral agreements? MR. SMITH: No. I think the FTAs are part of the implementation process of the existing norms around the world. I think, even in the WTO context, where you have two cases24 that have looked at the three-step test,25 which is a key to the exceptions to protec23 Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, as last revised, Paris, July 24, 1971, 828 U.N.T.S. 221. 24 The “three-step test” applied to patents: Case No. WT/DS114. Decided Aug. 18, 2000. A Dispute Settlement Body (DSB) interpreted the “three-step test” under TRIPs Art. 30. The case was brought before a WTO Panel by a complaint by the European Commission against Canada. The EC argued that there was lack of protection of patents in Canada in the area of pharmaceuticals, and that the Canadian legislation was not compatible with the obligations under TRIPs in that it did not provide for the full protection of patented pharmaceutical inventions for the entire duration of the term of protection as provided by TRIPs. See http://www.murdoch.edu.au/elaw/ issues/v10n4/meyer104_text.html. 25 See infra Session X, Part B, The Three-Step Test: Is It Out of Step? — Overcoming the Achilles’ Heel of Copyright Law: The Case for the Creative Destruction of the Three-Step Test.
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tion, you have some pretty sophisticated reasoning. I think any attempt to significantly undermine that could very well be brought up again in the WTO. I see more dispute settlement in the WTO, more emphasis on the enforcement side. That may be a little bit optimistic, but I just want to throw that out, because I think, in contrast to what has been said here — PROF. HANSEN: You said “what has been said here.” Are you ever going to mention anyone’s name? MR. SMITH: I think Jamie and Fred have taken the view — and maybe they are talking on the patent side — but certainly on the copyright side, a lot of the sturm und drang around all of these issues is just that, it’s sturm und drang. Country policymakers are seeing that they need to protect these important economic assets, and they will continue to do so. If there is any change, it is going to be at the margins. PROF. HANSEN: It’s interesting, because really when this all started out after TRIPs, it was the people in favor of IP who were more on the offensive and wanted to use the WTO to amend TRIPs and the WIPO to amend Berne to require higher protection. Now those in favor of strong IP protection seem to be more on the defensive. Are we going to see things happening around world that limit IP? Perhaps WTO most important role will to provide panels will be used defensively to stop retrenchment of IP in countries, such as by applying the three-step test.. MR. SMITH: I don’t feel on the defensive at all. I think globally we are moving forward, implementing the treaties, all the issues. China just joined the WIPO Treaties; they have access controls, they protect against trafficking in devices. There are always little areas of debate in my area, but I think ultimately, if you look at the FTAs, you look at the thrust of everything that is going on, there is progress. Enforcement is a different matter. I think, there are some real problems there. But even there, I think — and I totally disagree with Bruce on this — I don’t see any diminution in the U.S. government’s efforts, certainly in the copyright area. I think they are going to move hard and fast to keep and protect and nurture copyright industries in the United States and work with other countries to protect their own industries. PROF. HANSEN: Let me get Hannu in this now. Do you basically see WTO as sitting on the sidelines? Letting others fight it out either in the WIPO, bilaterally or individual countries’ legislatures? Will the WTO just be the referee who steps in at the end when there a dispute settlement procedure is instituted? That would still be an important role. MR. WAGER: It is a bit speculative to think about what is going to happen in the next ten
The so-called “three-step test,” a general exception concerning reproduction rights of authors, was introduced in the Berne Convention during revision at the Stockholm Conference in 1967. Revised Art. 9.2 requires that three distinct and cumulative conditions must be complied with before an exception relating to author’s reproduction rights can be justified: (1) the reproduction must be for a specific purpose: it is only allowed “in certain special cases”; (2) the reproduction must “not conflict with a normal exploitation of the work”; (3) the reproduction should “not unreasonably prejudice the legitimate interests of the author.” This “three-step test” is also contained in TRIPs Art. 30. Comparing the “three-step test” as provided in TRIPs Art. 30 to the same test under Berne Art. 9.2 and TRIPs Art. 13, the first condition of TRIPs Art. 30 is that exceptions provided under national law must be “limited exceptions,” which differs from Berne Art. 9.2 and TRIPs Art. 13, which cover only “special cases.” The second step, exceptions may “not unreasonably conflict with a normal exploitation of the patent,” does not differ in substance from Berne Art. 9.2 in TRIPs Art. 30. The third step under TRIPs Art. 30 is similar to the third condition in Berne Art. 9.2 and TRIPs Art. 13. The WCT extends the application of the “three-step test” to all economic rights provided in the Berne Convention. Art. 16(1) of the WPPT provides that Contracting States may introduce “the same kinds of limitations and exceptions with regard to the protection of performers and producers of phonograms as they provide for, in their national legislation, in connection with the protection of copyright in literary and artistic works.”
14 S E S S I O N I : P L E N A R Y SE S S I O N years. As I said at the outset, it very much depends on what governments themselves decide to bring to the WTO. There is plenty of potential work in the interpretation and implementation of the current rules. If countries wish to bring issues to the dispute settlement process, then they will be dealt with. What I said about the policy work was that we have certain issues on the Doha agenda, and what happens with them depends to a very large extent on what happens with the Doha Round as a whole. But I do not really see any new negotiating round being started and completed within the next ten years, so I would not expect major changes in the rules. On the other hand, we have the example of TRIPs and health, where a specific problem was identified and then there was a consensus to address it. So it remains to be seen if any issues of this type will be brought to the WTO. PROF. HANSEN: Okay. Assuming, we get no new treaties or amendments of TRIPs. And people realize that WTO panels and courts will have more influence and look to the policies embedded in those decisions. Do you see the WTO panels being influenced by approaches advocated by Jamie or Fred portrayed as promoting innovation? Do you see these views seeping into panel decisions, or are they immune from pretty much what is going on around them? Since you are writing them, we might as well ask you. MR. WAGER: It is not exactly like that. I often hear from scholars that the role of the WTO dispute settlement system is either to maximize the “wiggle room” or to fill in the gaps in the TRIPs Agreement. But, in fact, the Appellate Body applies the Vienna Convention on the Law of Treaties26 in interpreting the TRIPs Agreement. That is, you take the terms of a treaty and interpret them in accordance with their ordinary meaning in their context and in the light of the object and purpose of the treaty. So I would say that the current debate does not influence the way panels and the Appellate Body interpret the TRIPs Agreement. PROF. HANSEN: That’s your story and you’re sticking to it. Good. I think Jamie wants to say something. MR. LOVE: Yes. In terms of the WTO, I think the interpretation of Article 27 of TRIPs, the provision that has to do with patents, and whether you can discriminate by field of technology, is going to be an area where there is going to be a lot of discussion, because officially there is not supposed to be discrimination. There are a lot of differences in the way national patent laws treat patents in different fields of technology, and I think there is going to be more and more of that. So I think a potential issue is, to what extent do people try to resolve those issues through TRIPs disputes about what Article 27 means as it relates to software, as it relates to different treatment of compulsory licensing in different fields and things like that, and exceptions. And then, in the area of copyright, I think digital rights management (DRM) is really in play right now in terms of what the long-run outcome of DRM will be. I don’t think it is as well received as Eric would suggest. It is true that it is on the books everywhere, but if you go on the Internet and you go to YouTube and different things, you certainly see a lot of unauthorized sharing of information. Empirically, there seem to be a lot more people doing that now than ever before. I think the fact that France now has someone who is going to be deliberately regulating very deep aspects of DRM in the music field is just the first of the measures you are going to see of governments trying to regulate. PROF. HANSEN: Mike wanted to say something. 26 Vienna Convention on the Law of Treaties 1969, Vienna, May 23, 1969, effective Jan. 27, 1980. 1155 U.N.T.S. 331, available at http://untreaty.un.org/ ilc/texts/instruments/ english/conventions/1_1_1969.pdf.
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MR. KEPLINGER: Thanks. I’ll be brief, Hugh. Since WIPO has been spoken of a great deal, I think I need to say a few words. As Hannu said, WIPO is guided by the will of its Member States and we will do what our Member States direct. In that regard, I would like to mention one further thing concerning enforcement. In January 2007, WIPO hosted a Global Congress on IP Enforcement.27 We expected to receive some 600 participants. We had 1,200. Not one negative voice was raised in the Congress questioning the importance of enforcing intellectual property rights. And this was true across the spectrum of developed and developing countries. I think that is an area where we are seeing a greater consensus and recognition that enforcement is a problem and that IP infringement is something that hurts national economies. It also is becoming of increasing concern that fakes are finding their way into the stream of legitimate commerce. Fake drugs have been found in the distribution system here in the United States, let alone in countries that do not regulate their drug distribution system as well as the United States does. So it poses a real problem, and is attracting more attention. It is an area that I believe will be of great importance in the next ten years. Contrary to Bruce’s view, I think that — and here I’m not now speaking as a WIPO official, but as a senior U.S. official at WIPO — the diplomatic leadership of the United States has been absolutely crucial in reaching some of the goals we have achieved, and I think it will continue to be. This Administration has been a real force for the good in the development of intellectual property policy. PROF. HANSEN: Thank you. Thank you very much to the panel.
27 WIPO Third Global Congress on Combating Counterfeiting and Piracy, Geneva, Jan. 30–31, 2007. Post-Congress Press Release available at http://www.ccapcongress.net/archives/Geneva/Files/Keplinger_wipo.pdf. Suggestions extending from the Congress are available at http://www.wipo.int/enforcement/en/global_congress/ suggestions.html.
SESSION PLENARY PART B: THE NEXTI:TEN YEARSSESSION IN TRADEMARKS
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part B: The Next Ten Years in Trademarks
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Panelists PROF. GRAEME DINWOODIE
PROF. MARSHALL LEAFFER
Chicago-Kent College of Law
University of Indiana School of Law (Bloomington, IN)
PROF. JANE GINSBURG
DAVID LLEWELYN
Columbia Law School (New York)
IP Academy, Singapore; White & Case LLP (London)
PROF. SIR HUGH LADDIE
PAUL MAIER
Rouse & Co. International; University College London
President, Boards of Appeal, Office of Harmonization for the Internal Market (Alicante)
ERIK NOOTEBOOM
Head of Unit, Industrial Property Unit, DG Internal Market, European Commission (Brussels) PROF. HANSEN: Now we will focus on “The Next Ten Years in Trademarks,” looking at it from the U.S./European/Asian level. Let me introduce this panel. They are all very well known in the IP world. Graeme Dinwoodie from at Chicago-Kent College of Law and Queen Mary, London University; Jane Ginsburg from Columbia Law School; Sir Hugh Laddie, now at Rouse & Co. International and University College of London; Marshall Leaffer from the University of Indiana School of Law; David Llewelyn from White & Case, IP Academy, Kings College London; Paul Maier, President, Boards of Appeal, Office of Harmonization for the
18 S E S S I O N I : P L E N A R Y SE S S I O N Internal Market (OHIM); and Erik Nooteboom, Head of the Industrial Property Unit at DG Internal Market of the European Commission, who has been there for many years and is doing a great job, who has been actually been involved on the Trade Mark Directive1 and Regulation2 from an early stage. Graeme Dinwoodie will give us some talking points for the panel to address, and then we will move into the panel discussion. PROF. DINWOODIE: Thanks, Hugh. The narrative for the morning session has asked us to look forward, and Hugh has asked me to briefly frame the questions for the panel and identify challenges that might arise in the next ten years of trademark law. If you look at the different studies that are referenced in the program narrative, you may find there is actually very little reference in any of those studies to trademark law, which may make you think that all is quiet and stable on the trademark front. But trademark law has always got to adapt and deal with changes in commerce, and that is going to inevitably raise new questions over the next ten years. I want to start by putting on the table two sets of questions that reflect two changes in commerce, one of which is perhaps very obvious and the other a little more speculative. The obvious one first. Producers are increasingly looking to sell goods internationally, and thus to extend their brands and their trademark protection internationally. So the general question is: Is there room for further modification of the territorial nature of trademark law to reflect less nationally defined markets; or will trademark law resist the global nature of commerce? To make that question a bit more concrete, by what legal or policy devices will any such modification occur? Let me raise at least three possibilities. First, the adoption of substantive international norms. The adoption of the Uniform Domain-Name Dispute Resolution Policy (UDRP)3 effectively pursued this approach, developing an international cybersquatting norm without regard to territorial limits. But U.S. courts have in the recent past not been consistently hospitable even to existing international exceptions to territoriality. For example, the Federal Circuit in In re Rath4 says that it wasn’t all that concerned with whether U.S. law complied with Article 6 of the Paris Convention;5 and ten days ago the Second Circuit held that there was not a well-known marks rule in U.S. federal law, despite international provision on the subject.6 So, is there work to be done with international substantive norms that create exceptions to territoriality? A second way to modify the territorial model is in the acquisition of registered rights. We have the Community Trade Mark (CTM) and we have the Madrid Protocol.7 Are there improvements that can be made to make those systems more attractive to producers 1 First Council Directive 89/104 (EC), Dec. 21, 1988, 1989 O.J. (L 40) 1 (to approximate the laws of the Member States in relation to trademarks), available at http://eur-lex.europa.eu/LexUriServ/site/en/consleg/ 1989/L/01989L010419911223en.pdf. 2 Council Regulation (EC) 40/94, Dec. 20, 1993, 1994 O.J. (L 11) 1 (on Community Trademark), amended by Council Regulation (EC) 422/2004, Feb. 19, 2004, 2004 O.J. (L 070) 1, available at http://oami.europa.eu/ en/mark/aspects/reg.htm. 3 ICANN Uniform DomainName Dispute Resolution Policy, available at http://www. icann.org/udrp. 4 In re Rath, 402 F.3d 1207 (Fed. Cir. 2005). 5 Paris Convention for the Protection of Industrial Property, July 14, 1967, 21 U.S.T. 1583, 828 U.N.T.S. 305, available at http://www.wipo.int/treaties/en/ip/paris/trtdocs_wo 020.html. 6 ITC, Ltd. & ITC Hotels, Ltd. v. Punchgini, Inc., 482 F.3d 135 (2d Cir. 2007), available at http://www.kenyon. com/files/tbl_s10News/FileUpload44/10074/Opinion%20(US%20Court%20of%20Appeals%20for%20The% 20Second%20Circuit).pdf. 7 Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks, June 27, 1989, WIPO Doc. MM/DC/27 Rev. (1989), available at http://www. wipo.int/madrid/en.
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selling internationally? My sense is the large U.S. mark owners are not presently making as much use of Madrid as we might have expected. A third way of ameliorating the costs and challenges of territoriality would be to make enforcement less burdensome. This was, of course, one of the other achievements of the UDRP. We technically already have CTM courts, but will the proposed change in cross-border patent litigation offer any models for similar developments in trademark law, or are such innovations simply not needed for trademark law? A second change in commerce — and this time I’m being much more speculative — is that many innovators are seeking to generate profits not by asserting rights in the primary content that they generate and distribute, but by offering content free and instead building business models around the provision of complementary or affiliated goods and services. In this climate, the ability of competitors to reference the mark affixed to primary products, and thus compete in the complementary and service markets, will depend, on the one hand, upon whether the scope of trademark rights will extend to preclude even very loose senses of affiliation that consumers might develop between the different goods; and, on the other hand, whether trademark law will directly and expressly privilege certain referential uses that enable competition in the complementary markets. Question: Does current trademark law adequately preserve the ability for competitors to make such referential uses, whether through Article 6 in the EU Trademark Directive or through fair use in the United States? If not, should it in order to keep those kind of markets competitive? Trademark law has not seen much clamor for the mandatory limits on rights that is now the rage in copyright law. Maybe this is the place where we might see some of that in trademark law. Hugh also asked us to address the political climate. On this point, I want to suggest that representatives of user groups are becoming much more visible in commenting on the development of trademark law. Will the political battles that we have seen in copyright over the last decade, and to some extent in patents, define the next decade of trademark lawmaking? If that is the case, what exactly is the political economy of trademark law? Just as some large technology companies have fought against content providers in copyright battles over the last few years, so too there are big players on both sides of trademark issues. Google may like to protect its own trademark, but its advertising business model may depend to some extent upon the capacity to make certain unauthorized uses of the marks of others. The recent Dilution Act,8 just passed in October in the United States, contains a somewhat odd provision — that I think is actually completely unnecessary, which is why I think it is odd — that is inserted to expressly limit the liability of intermediaries, which I think reflects some of the complex interests that are now at play in trademark law. And then, how does that political economy then transfer to the international level? Since TRIPs,9 we in the trademark side have had the Trademark Law Treaty10 and the 8 Trademark Dilution Revision Act of 2006 (TDRA), Pub. L. 109-312, 120 Stat. 1730, 15 U.S.C. § 1051 (Oct. 6, 2006), available at www.informationtechnologylaw.com/mate rials/tmda.pdf. 9 Agreement on Trade-Related Aspects of Intellectual Property Rights, 33 I.L.M. 1197, in General Agreement on Tariffs and Trade: Multilateral Trade Negotiations Final Act Embodying the Results of the Uruguay Round of Trade Negotiations, Apr. 15, 1994 (333 I.L.M. 1125, Annex C) [hereinafter TRIPs Agreement], contained in an Annex to the WTO Agreement, available at http://www.wto.org/english/tratop_e/trips_e/trips_e.htm. 10 World Intellectual Property Organization Trademark Law Treaty, adopted at Geneva Oct. 27, 1994, available at http://www.wipo.int/treaties/en/ip/tlt/trtdocs_wo027.html.
20 S E S S I O N I : P L E N A R Y SE S S I O N Singapore Revised Trademark Law Treaty.11 But both of these were procedural treaties about formalities. Is there any prospect for substantive trademark treaties, and is there any need for substantive trademark treaties; or is trademark law sufficiently harmonized already? To the extent that harmonization of substantive norms is desirable but hard to achieve because of a harder political climate, might “soft law” be an option? The UDRP and the non-binding recommendations that came out of the Standing Committee on Trademarks in the late 1990s12 may turn out to have been the greatest, if a little quieter, achievement of substantive harmonization during the last decade. Indeed, it is kind of ironic when you read the Second Circuit decision from ten days ago,13 saying that it is not really relevant what the Paris Convention or the TRIPs Agreement say on the subject of well-known marks, that they then reference and send a reference to the New York State Court of Appeals to define the meaning of “fame” under New York state law, saying, “Why don’t you take a look at the Joint Recommendation on Well-known Marks?”14 So is soft law the way to go actually to achieve harmonization? On the subject of devices that seem to fly under the radar, is there a trademark bilateral agenda? Do we need really to be ensuring that Korea protects scent marks, as we do in the recent bilateral agreement?15 Finally, can trademark harmonization be achieved through the courts? I have already mentioned the strange inconsistency in the U.S. courts’ attitude to treaties. Of course, the greater role for ensuring harmonization really is the European Union, where the European Court of Justice (ECJ) has that as one of its explicit duties. But is the ECJ getting so involved in the details of trademark law under the rubric of harmonization that we are simply getting a mass of very unhelpful doctrinal detail? Is there not an argument that the core trademark norms need to play out in national courts for a while before we get intervention from a supervisory court trying to harmonize? PROF. HANSEN: That was an excellent introduction. One issue Graeme raised concerned harmonization and some of the problems in achieving it. What is the need for harmonization? Of course, in Europe that is a form of harmonization in the Directive and the Regulation. As Graeme mentioned one of the roles of the European Court of Justice is to achieve harmonization in construction of directives and regulations. He indicated he thought the ECJ might be falling short on this. But even if they were doing a perfect job, would the Member State courts follow it or interpret the ECJ decisions through the prism of their own trademark culture? Would there remain disparity between the ECJ and the EU Court of First Instance, and the Community trademark office–OHIM’s Boards of Appeal, and OHIM’s examinging division? To what degree is harmonization working now in the EU? Anyone from Europe want to address that? Sir Hugh? 11 World Intellectual Property Organization Singapore Treaty on the Law of Trademarks, adopted at Geneva Mar. 27, 2007, available at http://www.wipo.int/treaties/en/ ip/singapore/singapore_treaty.html. 12 World Intellectual Property Organization Standing Committee on the Law of Trade-marks, Joint Recommendations, available at http://www.wipo.int/trademarks/en/sct.html. 13 ITC, Ltd. & ITC Hotels, Ltd. v. Punchgini, Inc., 482 F.3d 135 (2d Cir. 2007), available at http://www. kenyon.com/files/tbl_s10News/FileUpload44/10074/Opinion%20(US%20Court%20of%20Appeals%20for%20 The%20Second%20Circuit).pdf. 14 World Intellectual Property Organization Joint Recommendation Concerning Provisions on the Protection of Well-Known Marks, adopted September 1999, available at http:// www.wipo.int/about-ip/en/development_ iplaw/pub833.htm. 15 U.S.-Korea Free Trade Agreement, Apr. 1, 2007, available at http://www.bilaterals. org/article.php3?id_ article=7757.
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PROF. LADDIE: Well, after a fashion, yes, there is harmonization. My view is, of course, that harmonization makes sense, because if you have a uniform system of IP law, whether it is trademark, copyright, or anything else, amongst different states, you don’t have artificial barriers to the flow of goods and services between countries, and so obviously having the same system in different countries makes sense. That is what we have aimed for in Europe. After a fashion we have achieved harmonization through the ECJ, in particular on very contentious areas, like how similar marks have to be before one could be said to infringe another. There have been really profound differences, for example, between the common law approach and the civil law approach, particularly reflected in differences expressed by the judges in The Netherlands and the United Kingdom. That has been harmonized by court decision, or at least that is what we are told. The trouble with harmonization through the courts is the courts have to be competent. There are differing views as to whether or not the ECJ is competent to do the job that it has been given under our Trademark Directive and Regulation. Personally, I think it is incompetent. I feel sorry for it, insofar as one can feel sorry for a court. I feel sorry for it because most national trademark systems have grown up over a long period, and so there is an accumulated body of understanding. PROF. HANSEN: Hugh, let me just say we do have a session on the Court of Justice at which you can address your ECJ concerns.16 PROF. LADDIE: Fine. It’s a good idea, but I’m not sure it is being done. PROF. HANSEN: Okay. Let me ask this question. You are a trademark owner. Your trademark is being infringed in the United States as well as all over Europe. Just as a practical matter, which forum would you choose that would be most hospitable to you winning the case? MR. LLEWELYN: How much money do you have? PROF. HANSEN: All right. Do it first as if money doesn’t count. PROF. LADDIE: Well, if you want to get the correct decision, you of course go to the High Court in London. If you want it this decade, then you go to certain courts. If you don’t, you go to Greece. If you want a quick decision, which may be right, may be wrong, you go to Holland. I mean it depends. It is a very, very complicated question. PROF. HANSEN: No, it is not complicated. PROF. LADDIE: It is. PROF. HANSEN: If you are a trademark owner, you don’t go to the United Kingdom; you have a relatively low-protection view of trademarks. You go to The Netherlands; it has an expansive view. That’s the short answer. PROF. LADDIE: You are quite wrong, Hugh. Let me give you an example of the great thing about going to the United Kingdom. If you get an injunction in the United Kingdom and then somebody breaches it, you can cart them off to jail. That’s pretty good. PROF. HANSEN: You have to win to get the injunction. PROF. LADDIE: I know, Hugh, you have a rather off view of what happens in the U.K. courts. If you’ve got a good enough case, it is a very good court to be in. But David is right. I know you’re a purist, Hugh, and that you think that all rights owners are good and all alleged infringers are really pirates and bad. But there are occasionally people who have rights that are not very strong. If you have rights that are not 16
See infra Session I, Part F, Next Ten Years in IP Law at the European Court of Justice.
22 S E S S I O N I : P L E N A R Y SE S S I O N very strong, the last place you want to go to litigate is where they will look at your rights carefully. So you choose a country where either you will not get to a trial for ten years, or where you will get to a trial but it is like Russian roulette as to whether or not you win. So you choose: If you have lousy rights, go to a slow, unpredictable court; if you have good rights, go to a fast, predictable court. It is quite simple. It’s pure economics. What outcome do you want, and you choose your court accordingly. The fact that Europe allows this is a disgrace, but there we are. We live in a disgraceful environment. PROF. HANSEN: Anyone else want to comment? Erik? MR. NOOTEBOOM: Well, I do agree with some of the things Hugh [Laddie] said. I also think that everybody is happy about the situation in Europe, except Hugh [Laddie] maybe. We have not received any complaints, as far as I’m aware of, about the functioning of the litigation process in Europe with regard to trademarks. That was basically what I intended to say at the very start of my intervention. I do not see any major new developments coming up to deal with trademarks in Europe because everything seems to be pretty well under control. Moreover, as you know, Hugh [Hansen], with regard to new legislation in Europe, the tendency nowadays in Europe is not to legislate, rather to withdraw legislation that appears to be unhelpful. So also in that respect it is a better regulation program in Europe. There is very little to be expected, I think, from the legislature, unless there are really burning problems popping up in the internal market that need to be urgently tackled. But in the field of trademarks, contrary to patents, I don’t think there is any major political issue coming up in the next ten years. So we will rather focus, I think, on three issues in the field of trademarks: The costs of acquiring trademarks and enforcing trademarks; the efficiency of the trademark system; and the quality of the trademarks granted. I have some comments on each of these three issues. On costs, as many of you know, in Europe we have considerably reduced costs for applicants recently by a very significant fee reduction, in the order of 30 percent. And we haven’t yet reached the bottom. It has appeared that the management by OHIM of the European Trademark system has been very efficient and highly appreciated by business. That will allow us probably to deliver Community Trademarks at a much lower price in the future than we are doing already today. We are about to launch yet another exercise in Europe to further lower prices. Now, this may sound good for businesses and for IP departments around the globe if they seek protection in Europe, but it also raises, of course, an issue about how cheap can we offer trademarks to business and is there not a bottom line which we should not cross in order to make acquisition of trademarks too cheap for just anybody. On efficiency, we witness ever more use of software, of computers, to examine trademarks. They assist examiners to a large extent. It has been suggested to me recently that maybe in the next ten years, let’s say in 2015, the whole trademark process might be automated, not only examination, but even also maybe opposition. For sure, these computers and software tools may to a large extent come into the trademark examination process and litigation. The last point is very important, about quality. Some concerns have been expressed recently about the quality of the trademark system. Because the process is so simple to handle, because in many EU Member States there is no opposition procedure available under the national trademark system (contrary to the Community Trademark system in Alicante), the question has been raised whether we should not have a closer look at
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quality, for example by allowing competitors to come in at an early stage to prevent the Registration of frivolously applied trademarks. On the litigation, as I said, I think everybody is happy for the time being with the litigation system on trademarks, which would certainly not be the case if we were talking about patents. We have a patent session later on and I will comment on patents in that session.17 But on trademark litigation I don’t see any major changes coming either in Europe. So we will have to do it with the system as we have it. Note, however, that Paul Maier and his Boards of Appeal at Alicante will create very important jurisprudence in Europe on trademark law, I think. PROF. HANSEN: Paul Maier, you are Head of the Boards of Appeal. You are making decisions about trademark law constantly in appeals from the examining division. What do you look to? Are you looking to Member State law? Obviously, you’re looking at the ECJ and CFI. Or are you really just in charge — basically, you’re the man; they’re not the experts, you’re the experts? I know it is hard for you to say these things. But I think there is a tendency of people who do it day-in and day-out to think the rest are dilettantes. They maybe will say something about it, but we are really the core. With all that, Paul, just a “yes” or “no” answer to that question. [Laughter] MR. MAIER: Usually questions that are asked with the request to be answered by “yes” or “no” require very long replies! I will try to be short. Last year, the Boards of Appeal of OHIM made 1,657 decisions on trademark registration, opposition or cancellation cases as well as designs. These decisions have ended up in 142 appeals to the CFI. In other words, the Boards of Appeal of OHIM are a major filter for trademark and design registration in the EU system. The Boards of Appeal, even if they are a part of the OHIM (from an administrative and organizational point of view), decide independently. The President of OHIM cannot give instructions to the Boards or their individual members and the Boards are not bound by decisions of the President (e.g., the Boards are not obliged to apply the examination guidelines). What do we look at and what are the “precedents” or the “jurisprudence” that we follow? Well, we look at our own decisions or “jurisprudence.” In their ten-year history, the Boards have taken more than 8,000 decisions. We also look, of course, at the CFI and the ECJ. Their decisions are binding on us. It is true to say, however, that the CFI case law is not always easy to reconcile with earlier decisions. It is true that there is a general perception that we have a problem of coherence in trademark decisions in Europe. There is no doubt about that. This applies to all decision-making bodies, and I think even judges of the CFI recognize that and would acknowledge that if you asked them. Is this “coherence” or “perceived coherence” problem due to the fact that a number of the judges are not really trademark law specialists? Yes, there is no doubt about that. However, I think that Supreme Court judges do not have to be trademark law specialists. Their role is too broad for that. Furthermore, I think that the work is going in the right direction even if occasionally there are contradictory judgments. Remember that ten years ago we did not really have European trademark law. The progress achieved in this relatively short time is not bad. So there are some contradictory decisions, there is no doubt about that. However, if you ask the lawyers, they say, on the one hand, “You need more coherence in the system”; but on the other hand, they also say, “But you need a real second chance when you go to the CFI.” This means that they are really happy to see decisions being overturned there as well, even if this may mean less global coherence! 17
See infra Session I, Part D, The Next Ten Years in Patents.
24 S E S S I O N I : P L E N A R Y SE S S I O N The answer to this coherence question is not an easy one. However, the statistical reality is that 80 percent of the OHIM Boards of Appeal decisions are confirmed in Luxembourg. That shows that the so-called incoherence is not that blatant, frankly. I mean you know where you go when you file a Community Trademark application in terms of absolute grounds, and to a large extent this applies to opposition cases too. This can be demonstrated by the fact that the Boards of Appeal confirm more than 80 percent of First Instance decisions taken by the examiners in the office refusing a trademark on absolute grounds. And in inter partes proceedings more than 62 percent are confirmed. So the system as such works, but I am ready to admit that a lot of progress still needs to be made. What I want to say here on the Boards of Appeal is that we also need to be more efficient. I want to come back on what Erik said before, because we feel part of this as well as a part of the OHIM. We need to be faster in the decisions we make, and we have actually quite substantially reduced the time before the Boards already (less than five months to take a decision once the file is ready). We need to require less means to do the same sort of work too. In the Office actually we have multiplied by two the volume of work that we did over the years with the same number of people. I think that was not to the detriment of quality. Quite to the contrary. I think you simply cannot be good if you don’t work enough to start with. The second thing is that in the huge volume of decisions that we take and that push things forward, we still need to improve on quality. I think the level that we have reached in the Office, the level of professionalism, is good. But I am ready to listen to people who say this is not true at all. You will always find wrong decisions. In more than 1,600 decisions some have to be wrong decisions. But we hope to get it more harmonized and are actually working on it. One of the answers is in the use of the Grand Board. It is composed of nine persons (the Chairperson and five Members of the Boards). We make decisions that bind the Ordinary Boards of OHIM. We have taken three decisions until now. This may seem a small number, but not so many subjects actually qualify for this procedure. PROF. HANSEN: Let me just say one thing that ties into the United States. I think the difference between the United Kingdom and The Netherlands — and especially Hugh, and David for that matter — is the United Kingdom has a view of trademarks as just an indication of source. In the United States, in The Netherlands, and in other places, they are also very concerned about protection of goodwill, however it is used, even if there is not confusion. Depending on how you go at it, you are going to have two different results. The Arsenal case I think is a very good example: Hugh Laddie with one view,18 the ECJ with another,19 and then, actually surprisingly, the U.K. Court of Appeal,20 which seems to be moving in that direction. Bringing that to the United States, since we are also discussing the United States. Unlike copyright and patents, where it is difficult to get anything substantive, it seems 18
Arsenal Football League plc v. Matthew Reed, [2001] R.P.C. 922 (Laddie J.) (finding no infringement). Case 206/01, Arsenal Football Club plc v. Matthew Reed, 2002 O.J. (C 333) 22 (suggesting that only use that jeopardizes the essential function of a trademark is an infringing use. Reference made in a preliminary ruling by the High Court of Justice (England & Wales), Chancery Division, by order of that court, May 4, 2001). 20 Arsenal Football League plc v. Matthew Reed, [2003] EWCA (Civ) 696 (May 21, 2003); [2003] E.T.M.R. 73 (CA) (on remand from ECJ) (reversing Laddie J. and finding infringement), available at http://www.hmcourtsservice.gov.uk/judgmentsfiles/j1751/ arsenal_v_reed.htm. 19
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that trademark legislation on a substantive level, with very strong protection — although now some amelioration of that —seems to be able to move through Congress when nothing else is going through. For example, the TDRA revisions.21 Why do you think there is a difference in trademarks from copyright and patents, or do you think there is? Anyone, one of the U.S. panelists? PROF. LEAFFER: I think that there is more of a consensus on trademarks than the kinds of politically charged issues that arise in copyright. In trademark law, you have nothing analogous to the kinds of battles that have taken place in copyright, such as the Digital Millennium Copyright Act (DMCA),22 term extension, and file sharing. These copyright issues become front-page stories in newspaper because they are perceived as affecting a large number of people. I also think that also the participants in the political process, at least for trademark issues, are skewed in favor of the big trade-mark owners who have the ear of Congress. In the trademark context, you have no analogue to the vigorous activity of user groups and content owners who are locked in mortal combat in the political arena, even though in the end content owners have been effective in protecting their interests. PROF. HANSEN: Sounds right. Jane? PROF. GINSBURG: I would like to get back to some of Graeme’s points, if you will permit me to depart from your question. I identify three issues in recent U.S. developments that may continue to percolate for the next ten years: one of them is domestic and relates to your question about legislation; the second is international; the third is comparative. The first one is the TDRA, which incorporates — indeed, codifies — copyright-like fair use in trademark law. As a result, the legacy of the TDRA may not be strengthened protection against non-confusing use of trademarks, but rather protection for the persons or entities making the kinds of referential uses that Graeme is referring to. The consecration of a copyrightesque fair use doctrine in trademark law is an important development and something that is likely to grow in importance in the next ten years. The international development, which Graeme also referred to, is the incoherence in the federal courts about famous marks. Graeme referred to the Second Circuit’s unfortunate decision in the Bukhara Grill case.23 The Second Circuit is not the only court to think that the Paris Convention doesn’t actually apply in the United States. It is just a rather gross iteration of that claim. The suggestion that we can fulfill our obligation to protect famous marks by referring the matter to the state courts strikes me as highly undesirable. If the state courts all adopt World Intellectual Property Organization (WIPO) norms or other “soft law,” that’s great. But to remit the interpretation of terms used in international intellectual property treaties and trade agreements to the fifty separate states makes very little sense. Some of the famous marks problem might be overcome by reference to a different development in the federal courts, the Fourth Circuit’s decision in the Monte Carlo Casino case,24 in which the Fourth Circuit came up with a somewhat inventive and very extensive 21
See TDRA, supra note 8. Digital Millennium Copyright Act of 1998, Pub. L. No. 105-314 (codified at 17 U.S.C. § 512, Oct. 28, 1998) (DMCA), available at http://www.copyright.gov/title17. 23 ITC, Ltd. & ITC Hotels, Ltd. v. Punchgini, Inc., 482 F.3d 135 (2d Cir. 2007), available at http://www. kenyon. com/files/tbl_s10News/FileUpload44/10074/Opinion%20(US%20Court%20of%20Appeals%20for%20The%20 Second%20Circuit).pdf. 24 International Bancorp, LLC v. Société des Bains de Mer et du Cercle des Etrangers à Monaco, 329 F.3d 359 (4th Cir. 2003). 22
26 S E S S I O N I : P L E N A R Y SE S S I O N notion of what it means to “use” a trademark in “commerce.” The famous marks doctrine would have protected a famous foreign mark that is not used in the United States. But if we don’t have the famous foreign marks doctrine, maybe we can decide that all those well-known marks have actually been “used” in United States commerce anyway (at least if U.S. citizens purchased goods or services under those marks abroad), and protect the marks that way. Finally, on the comparative law development, the disparity between the treatment in the United States and in Europe of such entrepreneurial advances as the Google AdSense program, which in effect is not a classic trademark-infringing use but may be a kind of free riding off of trademark goodwill — I disagree with you, Hugh, about protecting against free riding. I think our courts so far have been, outside of dilution, pretty scrupulous about not protecting against free riding. PROF. HANSEN: Oh, you can’t be serious about that, Jane. PROF. GINSBURG: Yes, I am serious. Most of those ad cases have not favored the plaintiff trademark owners. Admittedly not unanimous, but I think that it is at least half, if not more.25 By contrast, if you look at what has been happening in France with the very same sorts of controversies over Google AdSense and similar sorts of referential uses of trademarks for advertising and commercial purposes, there the French courts are holding either that the uses are trademark infringement, or at least that the ad placements are unfair competition (under a notion of unfair competition far broader than anything we have in the United States).26 This divergent approach is setting up a conflict on the global commercial scale because, even if Google complies and doesn’t engage in those sorts of practices on Google.fr, it will continue to do it on Google.com, which is of course accessible in every country that might have a more restrictive notion of what is permissible competition. Then I think we are going to have an interesting clash. PROF. HANSEN: Let me respond to your saying that courts in the U.S. don’t protect goodwill as such. We obviously protect goodwill when there is no confusion. Initial interest confusion, secondary confusion, subliminal confusion — all these are doctrinal devices to protect goodwill when there is no confusion. Moreover, we have courts, especially in the promotional products or, what they call in England, badge of allegiance cases, find likelihood of confusion where there is none. They do this purely to protect goodwill in trademarks that others borrow, use or take without payment or authorization when the purpose is to benefit from the goodwill of the trademark owner. 25 Compare 1-800 Contacts, Inc. v. WhenU.com, 414 F.3d 400 (2d Cir. 2005); U-Haul Int’l, Inc. v. WhenU.com, Inc., 279 F. Supp.2d 723, 727 (E.D. Va. 2003); Wells Fargo & Co. v. WhenU.com, Inc., 293 F. Supp.2d 734, 762 (E.D. Mich. 2003) (all finding no actionable trademark use by defendant Internet service provider or its advertising customers), with 800-JR Cigar, Inc. v. GoTo.Com, Inc., 437 F. Supp. 2d 273 (D.N.J. 2006); Playboy Enters., Inc. v. Netscape Commc’ns Corp., 354 F.3d 1020, 1024 (9th Cir. 2004); GEICO v. Google, 330 F. Supp. 2d 700 (E.D. Va. 2004) (finding actionable use when Google linked trademark to advertisements for competitors); see also J.G. Wentworth, S.S.C. Ltd. P’ship v. Settlement Funding, LLC, 2007 U.S. Dist. LEXIS 288 (E.D. Pa. 2007) (finding no actionable use,and granting motion to dismiss). 26 See, e.g., Tribunal de grande instance [T.G.I.] [ordinary court of original jurisdiction] Paris, October 11, 2006, Citadines/Google, Inc & Google France, available at http://www.legalis.net/jurisprudence-decision. php3?id_article=1765 (unfair competition); Tribunal de grande instance [T.G.I.] (3e ch.) Paris, July 12, 2006, Gifam et autres/Google France, available at http://www.legalis.net/jurisprudence-decision.php3?id_article=1712 (unfair competition); Cour d’appel [CA] (4e ch.) Paris , June 28, 2006, Google France/Louis Vuitton Malletier, available at http://www.legalis.net/jurisprudence-decision.php3?id_article =1661 (trademark infringement); Cour d’appel [CA] (12e ch.) Versailles, March 23, 2006 Google/Cnrrh, available at http://www.legalis.net/jurisprudence-decision.php3?id_article =1613 (trademark infringement).
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I agree with you that there is a difference in the digital setting. As for interest–initial confusion, some courts have not found it I think because there are no transaction costs in switching to the right website after realizing the true source. As for the ad use cases, I think it is too early to make broad statements. The Second Circuit has gone one way. I am not sure how much that will be followed. But in the non-digital agenda the United States protects goodwill without confusion in many contexts. The badge of allegiance cases are a prime example of finding likelihood of confusion where there isn’t any. If someone buys a tee shirt with Yankees on it, they are doing so because they want to be associated with the goodwill of the team. If you want to see source or maker of the shirt, everyone knows that you look at the tag on the neck inside the shirt. If you want to actually see the source, you’ll look for the tag. Nine out of ten courts in the United States find likelihood of confusion when it is clear from the tag or otherwise that the shirt is not authorized by the trademark owner.27 That’s also the result in the English Arsenal case. Even the English are moving to protect goodwill when there isn’t confusion. The analysis is as simple as that in misappropriation cases. A team, for instance, has built up tremendous amount of goodwill in its product or organization. A tee shirt with the Yankees on it is sold for $20.00. The shirt would cost around $3.00. Should someone who had nothing to do with building up the goodwill be able to sell $17.00 of the Yankees’ goodwill or should it only be the Yankees? Misappropriation is not a favored doctrine, especially among academics. Courts avoid the problem by finding likelihood of confusion. In the digital arena, I think you are right, they are rethinking that, but only on the fringes. The Yankees case would go the same way analogue or digital. I am not surprised that France ruled the way it did in the Google case. They are high protection and probably technophobic and anti-Google to boot. I would like Graeme to address some of the issues on the substance, and then we will go to other panelists. PROF. DINWOODIE: First of all, Jane is right and you are wrong on that last point. I think there certainly was a period where I think your view would be correct, but I think if you look at the last couple of years, there has been a retrenchment on a bunch of issues, both in the definition of what confusion is actionable and in the trademark use cases in the Second Circuit. You even see it in traditional confusion cases. KP Permanent28 is not a digital case; it’s about quasi-permanent make-up. That is a case where the court actually goes so far as to say “we can even live with some confusion and we are not willing to protect the goodwill.” So I do think Jane is right. PROF. HANSEN: Are you talking about the Supreme Court? PROF. DINWOODIE: Yes, the Supreme Court. PROF. HANSEN: I think the Court did not make any strong statement and punted in that case. Moreover, there was no freeriding by the defendant. In any case, lower courts don’t traditionally follow the Supreme Court in trademark cases. PROF. DINWOODIE: They are. The Ninth Circuit. They largely are. The only comment I want to quickly make was actually to ask a question of Sir Hugh. When you were going through the forum-shopping options and you said it’s a disgrace, do you think it is a disgrace because there is such choice in terms of forum shopping, and therefore there are procedural reforms in terms of jurisdiction that are needed; or is it the differential treatment by national courts of common norms that actually is the problem? 27
See Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003). KP Permanent Make-Up, Inc. v. Lastingimpression I, Inc., No. 04-409, 543 U.S. 111 (2004), vacated and remanded, 328 F.3d 1061 (Slip op.), available at http://www.law.cornell.edu/supct/html/03-409.ZS.html. 28
28 S E S S I O N I : P L E N A R Y SE S S I O N PROF. LADDIE: Oh no, it’s procedural. I happen to believe that it is not flattering of the European system that you can have very, very slow and unpredictable litigation in one country over the same dispute where you get a fast and predictable outcome in another. It is more procedural. But I must tell you, listening particularly to Jane and to you, it seems to me that there is really quite an important point that comes out of the title for this session. Most of you were not here yesterday for a wonderful talk given by Eiji Katayama on patent trolls.29 There was some suggestion that patent trolls are a problem in jurisdictions where there are more and more patents over more and more areas, more pro-patent courts, greater awards of damages, and so on and so forth. You end up with vast numbers of rights that can be used to hinder competition. I have a concern about trademarks. It may be that the United States is retrenching, but still in Europe we are in a phase of widening the number of trademarks that can be obtained. I heard Erik’s talk about reducing the cost of getting trademarks in Europe. You are going to get more and more and more trademarks with wider and wider protection. What you are allowed to do in comparative advertising gets narrower and narrower. The worry is that we are going to have a proliferation of rights that will hinder business. I think that’s a bad thing. PROF. HANSEN: Marshall, are you raising your hand? PROF. LEAFFER: I would like to elaborate on a critical issue concerning the development of a more harmonized trademark system, one that has a centralized international trademark registration system by the use of international and regional agreements, such as Madrid and the Community Trademark, as well as technological developments, such as electronic filing. Certainly, legal and technological mechanisms made life render the multinational filing of trademark applications less costly. But there is a downside to these obvious efficiencies, the major one of which is the ever-increasing burden in clearing rights for new trademarks. The uncomfortable fact is that good trademarks for products are scarce resources. As anyone who has tried to find an appropriate trademark for a given product will tell you, the process gets harder all the time. One reason for this is that trademark rights have constantly expanded in recent times. With the widening of those rights, you create tension on the system that can only be alleviated by allowing a wider ambit of third-party use of trademarks. Unless you do that, the efficiencies that allow larger and faster filings will be offset by the ever-greater costs of finding good trademarks and clearing trademark rights. I am somewhat pessimistic about a solution because there seems to be no movement to curtail expansion of trademark rights by developing doctrines to allow more third-party use. In fact, the opposite has occurred. Thus, trademark practitioners must be forewarned: Those of you who wish to make an international launch will have your work cut out for them. PROF. HANSEN: I see people still raising their hands, and that shows the great interest in these issues. But unfortunately, our time is up. Thank you very much for a great panel.
29 Eiji Katayama, Partner, Abe, Ikubo & Katayama, Japan, Patent Trolls – Have Patents Will Sue: Using Patent Litigation as a Strategic Tool, Presentation Before Fourth Annual Asian IP Law and Policy Day: The Future of IP in Asia — Bridging the East-West Divide, Fordham Univ. School of Law (Apr. 11, 2007).
SESSION I: TEN PLENARY SESSION PART C: THE NEXT YEARS IN COPYRIGHT
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part C: The Next Ten Years in Copyright
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Panelists PROF. JANE GINSBURG
Columbia Law School (New York)
Prof. John G. Palfrey Jr. Executive Director The Berkman Center for Internet and Society, Harvard Law School (Cambridge, MA)
PROF. P. BERNT HUGENHOLTZ
SHIRA PERLMUTTER
Director, Institute for Information Law, University of Amsterdam
Executive Vice President, Global Legal Policy, IFPI (London)
FRED VON LOHMANN
MARYBETH PETERS
Senior Intellectual Property Counsel, Electronic Frontier Foundation (San Francisco)
Register of Copyrights, U.S. Copyright Office (Washington)
TILMAN LUEDER
THOMAS C. RUBIN
Head of Unit, Copyright and Knowledge-based Economy, DG Internal Market (Brussels)
Associate General Counsel, Copyright, Trademark and Trade Secrets, Microsoft Corp. (Redmond, WA)
30 S E S S I O N I : P L E N A R Y SE S S I O N PROF. HANSEN: We are now going to discuss the next ten years in copyright. Let me briefly introduce the panelists. We all know Jane Ginsburg from Columbia. Bernt Hugenholtz is a tremendous leader in the European Union in intellectual property, especially copyright. Fred von Lohmann you saw in the first panel. Tilman Lueder is the head of copyright for the European Commission. John Palfrey is a Professor at Harvard and the Executive Director of The Berkman Center for Internet and Society. Shira Perlmutter, who previously was at the Copyright Office and Time Warner, is now Executive Vice President of Global Legal Policy at IFPI in London. Marybeth Peters, as we all know, is the Register of Copyrights. Tom Rubin is Associate General Counsel for Copyright, Trademark, and Trade Secrets at Microsoft. In terms of giving us some talking points for discussion, we are going to start with Jane Ginsburg. PROF. GINSBURG: Good morning. My assignment is to produce talking points for the next ten years of copyright — what should it be, what will it be? I am going to invert those, what will it be, what should it be? I brought my crystal ball here (formerly a vase) so we can look into its empty future and figure out where we are going to go from here. I have identified three possible futures. I am sure there are many more, but it will give me an opportunity to group things into gross overstatements. The first two address what will the future be, and the third addresses what should the future be. One possible view of the future is that copyright in the next ten years will be increasingly consumer-oriented, so that we will see the maximization of consumer interests, both politically and translated into either legislation or court decisions, or simply just de facto pressures by virtue of consumers availing themselves of technologies which may resist effective policing. As a result of that, we may be drifting towards a future in which compulsory licenses or, since compulsory licenses are limited by international treaties, “voluntary” global licenses will predominate. Since I believe in moral rights, I have to credit Tilman Lueder with that particular vision, and I think he may say a little more about that. So that is one view of the future. Another view of the future is its equally extreme opposite, which is that in fact we will see a tremendous amount of corporate concentration and dominance, with the effective, as opposed to ineffective, wielding of technologies in a way that will give greater control, rather than lesser control, over works. Now, I just want to take a small parenthesis from the overstatement to make a, I think, slightly more reasonable statement about digital rights management (DRM) and the future. In the apocalyptic view, we will have digital lock-up. In the non-apocalyptic view, and one which may be slightly more representative, I think one can imagine that some kinds of DRM, particularly the type that everybody loves to hate, like the self-destructing DRM on Sony CDs and DRM on pre-retention downloads, may well be in the way of extinction. On the other hand, copy protection, whether you call it DRM or something else, when we are talking about digital delivery of works in various forms of streaming, I think will be very much present, and probably proliferating, in the future. The final vision, what the copyright world should look like in the next ten years, is one in which copyrights are owned and exploited by authors and performers, by creators, rather than by corporate entities, or for that matter by consumers. One can hope that in the future much of this digital technology will be distributed not only among corporate entities, but among authors who will be able to use it effectively, and while intermediaries will not disappear, we may come to see different types of intermediaries who will be less grasping of authors’ copyrights in the future. That’s the Utopian vision.
PART C: THE NEXT TEN YEARS IN COPYRIGHT 31 To articulate these visions, I have unilaterally, and without prior consultation, grouped our speakers into the following categories: first, the Olympian view of our distinguished representatives from government, Tilman Lueder from the European Union and Marybeth Peters from the Copyright Office; then the representatives of the consumer maximalists, here in the guise of Fred von Lohmann and John Palfrey; the representatives of the corporate technological world, Shira Perlmutter for IFPI, Tom Rubin for Microsoft; and finally, in the most Olympian role of all, Bernt Hugenholtz, who I think is sui generis. They are, of course, absolutely free to resist, reject, discredit, and spit upon these characterizations PROF. HANSEN: Thank you. That’s interesting. Jane certainly took the bull by the horns and the panelists are all now in their little boxes there. You will be allowed out after the panel, apparently. Let me just ask you. The first question is: Do you agree with Jane’s characterization of what the choices are for the future? Marybeth? MS. PETERS: I think those are the three top categories. I was not looking at it this way, but I have been reprogrammed. I am okay with it for this session. PROF. HANSEN: If you weren’t reprogrammed, would you agree with that? MS. PETERS: I’m not sure. PROF. HANSEN: Let me just ask if there is someone who does agree with it and then we’ll move from there. MR. LUEDER: I agree with the first version. PROF. HANSEN: What about the first version? MR. LUEDER: I agree with the first prediction because it’s my own, and I have to show a minimum of consistency, as opposed to ten minutes ago. So yes, I agree with what I said ten minutes ago to Jane. The first prediction is that ten years from now copyright will be a part of social policy. It will be artists’ and performing artists’ and authors’ social security schemes that will prevail. I think that we will move away from dealing with copyright as a property right, as an intellectual property right, or as any form of property. It will be social policy and not intellectual property in the future. PROF. HANSEN: That is driven, in part, by the people who run the collecting societies, which have a pot of money to distribute to whomever they want, but are not necessarily actually getting it to creators whose works had been performed or copied in any organized, systematic fashion. MS. PETERS: That is the dark side. I am on the light side. That’s my nightmare scenario, and so I am not going to go there. I think in the United States in the next ten years there will be a fight, and it probably is exclusive rights versus compulsory licenses and schemes of equitable remuneration. I think that, from my perspective, the fight should be about exclusive rights and authors. I am more like the Utopian, with Jane. As I have tried to get rid of compulsory licenses in the United States, what basically came and hit me over the head was when the songwriters said, “But without them we wouldn’t get any money.” Then I realized that authors in this country really were not empowered and they really did not exploit their rights themselves. They went through other means and they signed contracts that later they regretted. I would hope that in the next ten years that one of the things that we could do in the online environment is reinvigorate authorship. Basically, I think it is going to take a commitment to teach authors about their rights and to come up with schemes that allow them to be in the driver’s seat.
32 S E S S I O N I : P L E N A R Y SE S S I O N There will always be corporations that have a function, and a very large function. There will always be consumer expectations. But I would leave with the fact that if we do not have creative energy in this country, if we do not have creators and they are not incentivized, and if they do not feel part of the system, I think that we lose substantially. I do not want that to happen in the next ten years. So I certainly am going to do everything I can to make sure we do not have my nightmare vision come into play here. PROF. HANSEN: Fred. MR. VON LOHMANN: I think I am far more optimistic than Register Peters regarding this future. I agree that we need to reinvigorate the author sector. What I see, though, empirically is that new technologies, like MySpace and YouTube, are doing far more to bring the benefits of authorship to more people than ever before than the old copyright system has or is accomplishing. So I think there is great hope there. It is in that area that we are going to see the flowering of new modes of remuneration, new business models. We will not have just one model. We will not have a world where song-writers have to depend on a unitary compulsory license. Instead, we will have many different kinds of business models that small authors will pursue. You are already seeing that happen thanks to new technologies — not thanks to DRM, not thanks to the kinds of exclusive rights that have been passed in the last ten years. But I think the upside here extends beyond just the citizen creators. I think that ten years from now, certainly in the music space, we will have a collective licensing solution, not a compulsory license solution. I agree with Register Peters that compulsories have a number of very serious downsides. But in the United States you see collectives, like BMI and ASCAP and SESAC, that have developed competitively on a nonexclusive basis and have been able to harness revenue from distributed, otherwise-very-difficult-to-enforce user communities, including bars, restaurants, performance halls — you name it. It is no accident that, at a time when the record labels have seen their revenues decline, BMI and ASCAP have enjoyed record revenues every single year since the Napster phenomenon began. I think the record labels will recognize that and will organize collectives. You will have a situation where you will pay a fee, perhaps through your ISP, perhaps through a software vendor, perhaps through other methods you choose. In that environment, I think ten years from now we will be struggling with very different questions: How do we have collectives that are transparent, that are competitive, that are responsive to the authors that they represent, rather than collectives that are opaque and not accountable? Fortunately, I think in the United States we have a pretty good set of examples in our performing rights organizations (PROs), a set of examples that may not be perfect, but are much better than the sorts of entities that Europe has traditionally had. Of course, Europe has some encouraging new initiatives in this area as well. I think that ten years from now there will be a lot of attention there. However, I do not think DRM is going away — not because DRM is going to be used to empower the kinds of business models and anti-piracy goals that we were promised, but because it will be increasingly used by technology companies and by major incumbent entertainment industries to control innovation. You will have to sign a license in order to access the content. That license will dictate how your technology can work and what features it can offer. Those terms will be set by a cartel that is empowered to do that, thanks to the combination of legal protection of technological protection measures (TPMs) and relatively lax anticompetitive norms, especially in the United States. I hope that Europe does not fall into that trap. I am hopeful that Europe’s rather more
PART C: THE NEXT TEN YEARS IN COPYRIGHT 33 vigorous antitrust enforcement will contain those anti-competitive and anti-innovation implications of DRM. But I do think those will be the two issues that will be foremost ten years from now: How do we get a good collective licensing system that fairly pays authors; and how do we prevent DRM from being used in anticompetitive ways? PROF. HANSEN: A couple of things. One is, in terms of antitrust systems, it is the U.S. antitrust system that brought ASCAP into line to be transparent.1 The European competition system has done very little with the collecting societies, for political and other reasons. So I do not think it is as simplistic as their having a better system than the United States. In this area I think they have a weaker system. MR. VON LOHMANN: Antitrust enforcement has changed since the days of the ASCAP antitrust litigation. PROF. HANSEN: But not in a way that would affect that result. One other thing is that your vision helps those who remix and do other things like that, or perhaps write and perform their own works. But someone like a country music composer relies very much, not just on performance rights and BMI, but also on record sales and other things. So under your vision maybe a certain group will be well off, but the other group is pretty much ignored. MR. VON LOHMANN: No. I am not proposing that we have collec-tives only for performance rights. I think historically that is where we have been. But I think the future envisions a world where you have collectives that administer the full range of range of rights — reproduction, performance — because, frankly, I think we can all see ten years from now compact disks and unit sales of product will not be the dominant segment of the music industry. People will be downloading. Hard-drive manufacturers will tell you that ten years from now you should be able to hold all the world’s recorded music — all of it — in the palm of your hand in a device that will probably cost less than $200 or $300. PROF. HANSEN: Okay, Fred, thanks. Shira, let me call on you to respond. MS. PERLMUTTER: Where I definitely agree with Fred is in his vision that we are just at the outset of a phenomenal explosion and flourishing of diverse models and exciting creativity. I think there is no question about it. Where I differ from him is in the idea that that might require rethinking existing copyright and the idea of exclusive rights enabled by DRM. I think the answer is you need to have freedom of choice and the ability to put out every possible option anyone can think of to disseminate content to consumers, to let people create new content and then disseminate it. That will include things like YouTube. That will include models that do not involve the use of DRM. That will also include some models that build on DRM protection used in flexible ways that are acceptable to the public. We are at the infancy of this explosion of change and development. What we are seeing is a huge amount of experimentation. But we have a copyright system in place that in its basic framework has served creators very well for a very long time and is continuing to enable this vast variety of new creativity. There will be those who choose to use it in different ways, who choose to manage their rights collectively, because that will make sense for them. There will be a role for DRM because many business models will depend on the use of DRM. DRM has been used as a code word generally, including this morning, to mean 1
See Broadcast Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1 (1979).
34 S E S S I O N I : P L E N A R Y SE S S I O N some sort of restrictive lock-up, but in essence digital rights management just means technologies that are used to implement terms and conditions for use and may also be used to allow for royalty payments to be made appropriately. So it is a very broad term, and in its broadest sense it is an enabler of different business models, including streaming models as well as all kinds of subscription services and many things that no one has thought of yet. It is true that everyone is exploring different revenue streams. It is important that individual creators be empowered, and all of this technology holds tremendous promise for that. But we should not be rushing to make major changes in a system that has been very effective as a seed bed for change and creativity, and instead focusing on how to get past the glitches in this period of experimentation and work toward finding solutions that consumers will be happy with and that will reward creators. I think it is a bit of a red herring to focus too much on what it is that corporations do, in the sense that corporations should be there to provide what value they can provide in this new world. I believe there will be value that can be provided in terms of selection, marketing, promotion, dissemination. There are many things that corporations can do. Their value will consist of continuing to do that. But again, we will see a tremendous variety and diversity. PROF. HANSEN: Thank you, Shira. Tom? MR. RUBIN: I agree with a lot of what Shira said. I frankly agree with a fair amount of what Fred and others have said. I think what I disagree with more than anything is just at the very beginning, respectfully, Jane, pigeon-holing people into these categories, because I think that we are going to see, and we are seeing, a very heterogeneous world right now, where authors are being empowered as never before, where original content is being created, and where content providers are able to control their content in a way that actually provides tremendous benefits to consumers. I think that is the world that we are in and that world is going to accelerate. In order to think about where we are going to go, I think you have to look at where we are and where we have been and why we are here. There has been, obviously, a tremendous pressure on the system, in part because of widespread digital piracy that has led to all kinds of reactions, some good, some not good. But I think we are really at a point where the promise of technology is allowing us to realize these new business models that are making available high-quality content at very affordable prices from legitimate sources, and those are going to ultimately be something that consumers are going to want. They are going to be a great alternative to the piracy that we have seen. That being said, there is a very important role that technology is playing, and is going to play in the future, to create new business models that are not just the result of what large companies want to do. The ability of technology to identify works and automate rights management, including rights freedoms, is actually an area that has received a lot of investment lately, and there are a lot of technologies that are on the market or will soon be on the market that will empower everyone from individual creators to companies to decide how their content should be seen and redistributed on the Internet. PROF. HANSEN: Tom, let me move on so we get to everybody here. Bernt, do you have any thoughts on this? PROF. HUGENHOLTZ: Sure. Some of them already have been expressed. I believe the democratization of authorship, as it is sometimes called, will actually lead to a reappraisal of copyright, or actually of authors’ rights, which I would really like. That is Utopian, but possibly realistic at the same time.
PART C: THE NEXT TEN YEARS IN COPYRIGHT 35 Look at the enormous success of Creative Commons, and the main license applied by the hundreds of millions of users of Creative Commons licenses. The main license type reflects that, no modification and attribution. These are moral rights reconstructed through private ordering. So I think authors’ rights are up. Consumers’ rights are also up. That may be worrying for some in the copyright industries, but I believe it is not a bad thing to have consumers given some protection against oppressive end-user terms in boilerplate language. Certain freedoms to copy I think are also a good thing. In fact, that does in the end increase confidence in the copyright industries. PROF. HANSEN: Is that like thieves breaking in and stealing things having increased confidence in the property? PROF. HUGENHOLTZ: Yes, sure. It’s exactly the same. PROF. HANSEN: So they have confidence that the property protection becauuse people are fooled into thinking it will be protected? PROF. HUGENTHOLTZ: I think it is more like people buying a car and expecting a certain speed to be attained, not just have the car stuck in first gear. But anyway, we will see it either in copyright or outside. I think there may be a difference here between the European and U.S. approaches. In the United States, you see an attempt to fit the consumers’ interests into the copyright framework. I think that is understandable in light of the constitutional mandate here. In Europe, you see it more develop outside copyright. In fact, you see a string of cases in France and other countries where consumer unions have quite successfully demanded certain basic functionalities in information products and services. That is not particularly bad. I think it is actually a good thing. Third point: There is also one type of rights that will definitely be on the decline in the next ten years, at least — and that is wishful thinking, I must admit — intermediaries’ rights, or possibly neighboring rights if you look at it through the European lens. I think the political climate is increasingly hostile to demands for increased protection of investment, as opposed to true creation. As the costs of production and distribution decline thanks to the Internet, so does the economic justification for such rights. So what we shall not see, I hope, is an extension of the term of sound recordings. I do not think we will see a WIPO Broadcasting Treaty either, at least not a treaty that will amount of anything. Is that really bad? I don’t think so. I actually think intermediaries can do a lot of good business, as has been said before, without foolproof protection. I think EMI dropping DRM is actually a very good example of that. There can be more confidence in a world without perfect IP. PROF. HANSEN: Good. Thanks. John? MR. PALFREY: Thank you, Hugh. I should start with a confession, which is I am really bad at predictions. I remember teaching the Napster case2 in 2001, which was recorded, unfortunately for me. I made a prediction that said the recording industry will never be dumb enough to sue its consumers directly; they will just sue the intermediaries. Of course, the next year I was teaching the same class, and I had a co-teacher who went back and looked at that recording and called me on it. I said, “Ha, ha, ha, yes, I was wrong,” because, obviously, we know how history went. I said, “But the European 2
A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896 (N.D. Cal. 2000).
36 S E S S I O N I : P L E N A R Y SE S S I O N recording industry won’t be so dumb as to sue.” So take this with a grain of salt, that I am probably wrong. I am most focused for the next ten years on the generation of young people who are learning to use technology in a really different way right now, good and bad. Kids now are born digital in a way that we have learned to be digital. I think that brings with it social norms that are really quite different. I think that the area of focus for the law and for law reform is going to be dealing with what is a global generation of digital natives and how they interact with information. I think one of the primary trends is the blurring of lines across these different types of media. Talking now about music, as most of this panel has, I think music and movies and text and gaming and second lifing, whatever you want to call it, all sort of get blurred, which is one sort of difficulty/ opportunity. The second one is, of course, it is so easy to do over international lines. I think that the stovepiping of rights is going to come under pressure in that zone. I think that the challenge from a legal reform perspective is to say: How do we continue to ensure that authorship is rewarded, but also rethink what authorship means? I respectfully disagree with the Register of Copyright about what that sense of the author is and how that is going to play out moving forward. But I certainly agree with some of the suggestions for how to handle it. I think that some of the suggestions for collective licensing, not compulsory licensing, of the sort that my colleague Terry Fisher has proposed,3 in an entertainment co-op type mode, is a very strong suggestion. I think focusing on how derivative works get thought about, and particularly across international lines, is a very important area. I think that building on top of the Creative Commons system ways of private ordering to convey rights very simply by consumers, one to the next without transaction cost, is super important. I think coming all around that is really one thing that Jane Ginsburg has focused on importantly for a long time, which is: How do you think about moral rights in this context when it really is a different environment and people are interacting with rights in such a different way in a digital age? I am concerned. PROF. HANSEN: Moral rights are dead, aren’t they, John? You can be frank. They kill all the nuanced compromises that might be made in the digital environment between copyright owners and users to make these wonderful knew social and technical advances work?. MR. PALFREY: I think there is a better expert on this in Jane Ginsburg. PROF. HANSEN: Unfortunately, we are out of time for this session. Jane, thanks for setting up the discussion. That was great. And thank you very much to the panel.
3
William W. Fisher III, Promises to Keep: Technology, Law, and the Future of Entertainment (2004).
SESSION I: PLENARY SESSION PART D: THE NEXT TEN YEARS IN PATENTS
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part D: The Next Ten Years in Patents
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Panelists LORD HOFFMANN
RON MARCHANT
Law Lord, House of Lords, Parliament (London)
Former CEO, UK Patent Office (London)
CHARLES ELOSHWAY
HON. PAULINE NEWMAN
Attorney-Advisor, Office of International Relations, U.S. Patent & Trademark Office (Alexandria, VA)
Judge, U.S. Court of Appeals, Federal Circuit
HON. ROGER HUGHES
ERIK NOOTEBOOM
Judge, Federal Court of Canada (Ottawa)
Head of Unit, Industrial Property Unit, DG Internal Market, European Commission (Brussels)
RT. HON. LORD JUSTICE JACOB
PROF. TETSUYA OBUCHI
Court of Appeal, Royal Courts of Justice (London)
Faculty and School of Law, University of Tokyo
HON. RANDALL R. RADER
Judge, U.S. Court of Appeals, Federal Circuit
38 S E S S I O N I : P L E N A R Y SE S S I O N PROF. HANSEN: Now we will move on to “The Next Ten Years in Patents.” Let me briefly introduce our very distinguished panel. Lord Hoffmann is considered by many, if not all, as the leading Law Lord in the U.K. Of course, the House of Lords in Parliament is considered the supreme court on all civil cases in the United Kingdom and in criminal cases in England and Wales. Charles Eloshway is Attorney-Advisor for the Office of International Relations at the U.S. Patent and Trademark Office. Judge Roger Hughes, prior to becoming a Federal Court judge in Canada, was a patent and IP practitioner. The Rt. Hon. Lord Justice Jacob is on the Court of Appeal (England and Wales) at the Royal Courts of Justice in London. Ron Marchant is the former CEO of the U.K. Patent Office. Judge Pauline Newman is one of the stars of the Federal Circuit. Erik Nooteboom is Head of the Industrial Property Unit at the European Commission. Professor Tetsuya Obuchi is a former judge and a very well-respected professor at the University of Tokyo. He is a tremendous leading light in the Japanese intellectual property scene. Finally, Judge Randall Rader, is well known by all, teaches patent law and,of course,is on the Court of Appeals for the Federal Circuit. We are very lucky to have Lord Hoffmann start us off with some thoughts on the future of patent protection. LORD HOFFMAN: I have a rather distant view of patents. It is like one of these comets that swoons into my sight about once every two years or so. So, therefore, it may be very different from those on the panel who come across it more frequently. My impression is that over the next ten years or so there isn’t going to be a great deal of movement on what one might call the substantive law of patents. Roughly speaking, I think it has settled down in a way which is pretty well okay. I know that there are, for example, pressures from the pharmaceutical industry over the twenty-year term. They say that, what with having to develop the product and having to go through all the clinical trials and so forth, they aren’t left with enough to make them money. Whether they get enough political sympathy for that I really don’t know. It is a pragmatic issue on which I am not in a position to express a view. As to the requirements, the validity of patents, I know that there is a certain amount of disquiet in the United States about the level of inventive step, which is the present requirement. To some extent, that may be a resources matter for examination within the Patent Office, rather than any difference in principle. It may be that it needs to be ratcheted up a bit, but again I leave that for others to discuss. On the question of the scope of patents, there are certain differences at the moment between the United States and Europe in the way we approach these questions. There are even possibly differences within Europe. But again, I had the impression that when we are talking about the scope of patents, the interpretation of what the patent covers, when it comes down to it, these are intuitive matters of impression on the part of the tribunal that is deciding the matter, and they then think of the reasons for them afterwards. So whether you have a doctrine of simply trying to find out what the patent means, or whether you have a doctrine of equivalents, such as they have in the United States, which I think is their problem, that is something which I think is ex post facto, after the initial judgment on whether there is actual infringement. So leaving the substantive part aside, clearly there is an enormous problem of resources for patent examination. It seems to be obvious that there is going to have to be among the various patent offices — the European Patent Office (EPO), the Japanese Patent Office (JPO), and the Patent Office of the United States (PTO) — greater cooperation in being able more efficiently to employ the resources that they do have for examination. Again, that is something I leave people like Ron Marchant to tell you about.
PA R T D : T H E NE X T TE N Y E A R S I N PA T E N T S
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The real problem that I foresee for Europe is the question of jurisdiction. That is really a serious matter, because everybody agrees that something has to be done. Nobody can agree on what it is that has to be done. The reason why something has to be done is because, while it is very nice to have the EPO in Munich, where you can take your application and have a patent issued for whichever number of the Convention states you nominate, and it is the same patent in each of them; then, when you actually come to enforce it, you have to bring separate proceedings in each country, and you may get different results. That is on the face of it a ridiculous situation. Well, what can be done about it? Originally, the idea was — and it seemed perfectly fine in theory — that we would have a Community Patent. That proposal, as far as I can see, has run into the sand. The latest Communication that we have had from the Commission makes virtually no mention of it. It is not really on the table. It is not on the table because we cannot get agreement among the Member States on two matters. One is how many translations there ought to be into the various European languages (I think we are now up to about twenty-three). Secondly, we cannot get agreement on what tribunals ought to be able to deal with the validity and infringement of European patents. The notion that you could have a domestic court in, say, Romania or some Member State revoking an important patent for the entire European Community is simply not acceptable to industry. So it fails on that ground as well. There is a lot of talk about political will and so forth, but from the point of view of a small country that does not have a lot of patent business, on this language question I rather sympathize with them. If you are the government of, say, Bulgaria, do you want a headline in the Bulgarian Sunday news papers saying “here you have this Bulgarian who has been held liable for an enormous sum of damages brought by a court which consists of a British, a Dutch, and a German judge for infringement of a patent that he could not possibly have read because it was published only in French, German, and English?” It doesn’t make good headlines. For that reason, I rather sympathize with their not going along with it. The same applies to the idea of having a specialized patent court. Now, having got to that position, and seeing that the prospect of a European Community Patent is pretty well dead, the Member States of the European Patent Convention had the idea of what is called the European Patent Litigation Agreement (EPLA). Forget about having a Community Patent, but at least let’s have a Convention court to which you can go and receive decisions that will be binding on all those members who belong to it. That made some progress. A Draft Convention was produced.1 In fact, some patent judges got together and produced a framework set of rules as to how that court might operate.2 That is running into two difficulties. One is there is a European feeling, emanating from the European Parliament and the Commission, that it is contrary to the rules for the Member States of the European Patent Convention, which are not exactly the same as the European Union — at any rate, don’t fall into the mechanism of the European Union — that it is wrong for them to set up any kind of international jurisdiction on their own. 1 European Patent Organisation, Working Party on Litigation, Draft Agreement on the Establishment of a European Patent Litigation System (EPLA) (2004), available at http:// www.european-patent-office.org/epo/ epla/pdf/agreement_draft.pdf. 2 In November 2006, an informal panel of judges from several European countries met in San Servolo, Italy, and adopted rules of procedures for the EPLA court. They signed a Resolution, the so-called “Second Venice Resolution.” See IPEG, European Patent Judges Agree on Rules and Procedures for New EU Patent Court (Nov. 7, 2006), available at http://ipgeek.blogspot.com/2006/11/european-patent-judges-agree-on-rules.html.
40 S E S S I O N I : P L E N A R Y SE S S I O N They have gotten a legal opinion of amazing pedantry that says this is the case; it simply cannot be done.3 The other objection is that some of the Members even of the European Patent Convention do not like it. They have reasons of their own. Although we seem to be getting along quite nicely with the Germans and the Dutch, the French, as I understand it, are unhappy about the arrangement and they want to pull out of it. The latest view of the Commission, which was published only within the last fortnight or so,4 is that we should compromise by getting an equivalent set up within the Community organization and have an appeal to the Court of First Instance, and then set up under that, roughly speaking, the kind of setup which the European Patent Litigation Agreement was trying to do, but within the general embrace of the European Union. That will require agreement from everybody to go along with that. The Commission says, “As long as there is the political will, then we can do it.” Well, that’s a big “if.” For the reasons I have already given, I do not really see that coming along. The Commission reminds me of the generals in the First World War who said, “If only we just have one more push, start a battle on the Somme, then we will win and we’ll get through.” I think what we need, if I can just stick to the military metaphor for the moment, is what the President of the United States would call “a coalition of the willing.” What we want is that those countries that want it should go ahead and do it. Now, if one looks at the Commission document’s statistics, 90 percent of the patent litigation in Europe takes place in the United Kingdom, Germany, The Netherlands, and France (I am not sure that France makes up an enormous number of that 90 percent). If we could get a single patent court for, let’s say — leave out the French — Germany, The Netherlands, and the United Kingdom, which I would have thought was perfectly feasible, wouldn’t that be an enormous advance? But we are told, “No, this is not communautaire, and therefore not allowed.” Well, we have a proverb, “The best is the enemy of the good.” I feel that is what is holding us back now. That is the point I want to throw open for discussion. PROF. HANSEN: Thank you very much. There is certainly a lot of food for thought there. Let’s go through some of the points. One that I want to start out with is patent quality. Let’s just talk about that. We have both the U.S. Patent and Trademark Office and the U.K. Patent Office represented. Just quickly, does low patent quality exist; and (2) is it harming competition and innovation? MR. MARCHANT: I’ll come in first. I think it does exist, but it is not as widespread as people often think. There are confusing thoughts about what is low patent quality. Some people say low quality is related to the scope or the nature of patentability, particularly as applied to the United States. Many people say it is the flood of vague business method and software patents that is damaging competition. Others say that in fact it is the quality of the stuff coming across all of the technology — insufficiently searched inadequate examiner expertise. And certainly on the latter you do get instances where we all could have done better. But I think it is fair to say that certainly nationally offices are taking big steps to look at regimes of ensuring and improving patent quality. 3 Interim Legal Opinion SJ-0844/06 D(2006)6511, Interim Legal Opinion (Feb. 1, 2007), available at http:// www.ipeg.com/_UPLOAD%20BLOG/Interim%20Legal%20Opinions%20Legal%20Service%20EP%20Feb% 201%202007.pdf. 4 Communication from the Commission to the European Parliament and the Council, Enhancing the patent system in Europe, COM (2007) 165 final (Brussels, Apr. 3, 2007), available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=COM:2007:0165:FIN: EN:PDF.
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With the Patent Cooperation Treaty (PCT)5 quality initiative two years ago or thereabouts, and the current European initiative to set up a quality regime in Europe, we are taking active steps to mange and ensure quality. Discussions between the EPO, the PTO, and the JPO in relation to work sharing, which comes back to resources, which I’ll come to later, has an implication for quality. So all of these activities are working roughly in the right direction. There are difficult points at leading-edge technologies, where people who go into government service in patent offices probably cannot stay at the leading edge in terms of their expertise. That is why the Gowers Review,6 amongst other things, said there needs to be a greater scope for third-party intervention, modifying the U.K. Section 21 observations, also following the PTO initiative of the Community Patent Review, which is an unfortunate phrase to use in the European context. The United Kingdom will be implementing a pilot program on this in the light of the Gowers Review’s recommendation. So it is an issue. I think there is evidence that poor patents will hinder innovation, but it is not as widespread as people say. PROF. HANSEN: Thank you. Did you want to say anything about anything? MR. ELOSHWAY: From the PTO perspective, as Ron mentioned, quality is often in the eyes of the beholder. Sometimes the debate gets clouded in terms of issues, not so much regarding quality, but things like subject matter eligibility. In other words, the debate gets shifted from “was the patent issued properly?” to “should the patent have been issued at all in view of the subject matter involved?” That is, again, a debate that needs to be argued on different grounds. In terms of some of the other issues that the PTO is confronting, I think, as Ron mentioned, all offices believe that we can do a better job in terms of search and examination. Some of the main problems that the offices are facing are: The ever-expanding volume of prior art that has to be searched, making sure that the search tools that the examiners have available to them keep up with the volume of material to be searched; and then, particularly for the PTO, we have a very acute problem in terms of staffing. As most of you know, we have significantly increased the examining corps over the past couple of years. We are hiring at a pace of about 1,000 examiners a year. That raises all sorts of questions, not the least of which is proper training and quality review for the thousands and thousands of additional pieces of work that are going out the door. To confront some of these issues, the PTO is looking at a number of different approaches. One is we have instituted multiple layers of quality review. Second, we are looking at ways to increase the quality of output by increasing the quality of input. Many of you have seen some proposed rules from the PTO on claims and continuations, among other things. These are just some of the ideas that have been circulating. Third, as Ron touched upon, is the idea of expanded work sharing, the idea that an office can capitalize and exploit work done by another office on a corresponding application. I think we’ll talk about that in a bit more detail later. I will leave it at that. 5 WIPO Patent Cooperation Treaty, Done at Washington on June 19, 1970, amended Sept. 28, 1979, modified Feb. 3, 1984 and Oct. 3, 2001 (effective Apr. 1, 2002), available at http://www.wipo.int/pct/en/texts/articles/atoc.htm. 6 U.K. Treasury, Gowers Review of Intellectual Property (December 2006), available at http://www. hm-treasury.gov.uk/media/6/E/pbr06_gowers_report_755.pdf [hereinafter Gowers Review].
42 S E S S I O N I : P L E N A R Y SE S S I O N PROF. HANSEN: One of the issues you raised was subject matter, which gets merged sometimes with the quality. Perhaps the most controversial issue here is business method patents. Some are against, Others say they might be okay if there had been accessible prior art for examiners to make reasoned judgments on patentability. Others think matters are fine as they are. But compared to new subject matters decisions in the past, these are much more controversial. For instance, the early 1980s Supreme Court decisions in Diamond v. Diehr7 for software and Diamond v. Chakrabarty8 for biotechnology, in effect, created new patentable subject matter. There was generally favorable reaction and had impact not only in the United States but in the JPO and in the EPO. Business method patents have not had the same reaction in the U.S. and certainly not abroad. What do you think the future is for business method patents, especially if the Supreme Court gets to a case? For our panelists from Japan and from Europe, do you think there is any chance of business method patents having any resonance over there? Do you want to first address that, Charles? MR. ELOSHWAY: Yes. In terms of the PTO, we are in a reactive position, where whatever Congress and the courts determine are the boundaries of subject matter eligibility, we have to examine on that basis. Certainly, business methods have created a number of difficult issues for the PTO to address, not the least of which is: What exactly is the landscape for subject matter eligibility; what are the outer boundaries between an abstract idea and something that falls within subject matter eligibility? Then again, in terms of quality in examining, the problem that we have been battling over the last several years is how to get the best prior art in front of the examiner. Now, that presents issues in terms of work sharing, because the United States is practically the only jurisdiction that is granting patents on business methods, so it is very hard to capitalize on non-existent work from another office. But I do not see that business method patents are going to go away any time soon. I think that the Office has done a commendable job in terms of improving the tools and access to the appropriate prior art. PROF. HANSEN: Anyone else from a different jurisdiction have a view on that? LORD JUSTICE JACOB: As many of you know, Albert Einstein was a Patent Office examiner for a time. I have always wondered what happened as he looked at the files — “obvious,” “obvious.” PROF. HANSEN: Have you ever used that before, Robin? I’m just curious. LORD JUSTICE JACOB: No. I made it up on the way up from Virginia. PROF. HANSEN: That’s good. I like that. LORD JUSTICE JACOB: It is fairly evident that today’s Patent Office examiners are not Einsteins. PROF. HANSEN: Well, few of us are actually. LORD JUSTICE JACOB: The problem sometimes described as low quality is, I think, not going to go away. It is going to get bigger. The level of patenting around the world is getting bigger. The Chinese are now going to go in for it in a big way. One of the interesting questions for the next ten years is: What is the reaction to that going to be? There will be a lot of “duffy” patents out there. I think the answer is going to be that the courts are going to respond by saying: “Well, these patents are no good.” I think you will find various responses in various ways. In the 7 8
450 U.S. 175 (1981). 447 U.S. 303 (1980).
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United States, the presumption of validity will weaken. In a number of places people will start saying, “We need courts with greater expertise. We cannot leave this, in effect, to the old German system, where you could rely pretty well on the patent office and just use the courts for enforcement.” You are now going to have to have the courts looking much more at validity. So I think one of the developments over the next ten–fifteen years is going to be dealing with the inescapable fact that quite a lot of patents are not very good. I will not respond yet to Lord Hoffmann’s “little European problem.” This problem I think will be a worldwide problem. You can see it sometimes in the courts. For example, the Australians are struggling like mad with obviousness, and making a fine old mess of it, if I may say so, deciding to follow the Americans, when the Americans might be changing directions. You see it in the recent Supreme Court case, KSR, re-looking at the standard of obviousness.9 All of which I think is expressing a concern that the pendulum of protection, which seems to be a very regular thing going one way and the other, has now swung so far and is going to swing back a bit. PROF. HANSEN: Roger? JUDGE HUGHES: Hugh, can I take a run at a couple of the points you have made? It’s not the quality, it’s the quantity. From Canada’s point of view, 95 percent or so of the patents issued are issued to foreigners — Fortress America, Fortress Europe, Fortress Asia. So anybody with an innovative spark has got to face 95 percent of patents owned by somebody else and cannot really get into the business. So what do they do? They take a run at it, they go underneath it, they go around it, or they do something. But the real problem is to try and figure out how, in effect, to limit the number of patents that are issued for trivial stuff — I think people have used words like “patent thicket” and things like that. The ones that end up in court, as Sir Robin said, are sort of the marginal ones, the trivial ones, and so on, and those are the ones we have to deal with. You are going to find reactions. We find reactions already in our drug industry, people fighting patents on yet another form of a drug and so on. And you will find the courts are now reacting to that when people bring patents that are marginal. PROF. HANSEN: So basically it’s Fortress Canada protecting its businesses from outside competitive forces. JUDGE HUGHES: Yes. PROF. HANSEN: Okay. Professor Obuchi, what do you think? PROF. OBUCHI: According to current Japanese patent law,10 even a computer program as such can be patentable subject matter, and a so-called business method can be 9 KSR Int’l v. Teleflex, Inc., 127 S. Ct. 1727 (2007). [Note: After the conclusion on the Conference, the Supreme Court decision was handed down Apr. 30, 2007 (holding that Graham v. John Deere Co., 383 U.S. 1 (1966), controls obviousness; that “the results of ordinary innovation are not the subject of exclusive rights under the patent laws”; and warning that a rigid application of the teaching/ suggestion/motivation (TSM) test as a litmus test for obviousness is inconsistent with the Graham framework, but stopped short of rejecting the TSM test outright. Simply put, the TSM shortcut for an obviousness analysis is no longer available. The Court’s decision focuses the obviousness spotlight back onto the framework that has controlled the issue for more than forty years, forcing everyone who has grown comfortable with the TSM litmus test shortcut (including the Federal Circuit, the PTO, and the patent bar) to return to full Graham analyses when assessing the obvious-ness of patent claims. The Court’s opinion also touches on several other issues, including the roles of “hindsight bias” and common sense in an obviousness inquiry, a question about the rationale for affording a presumption of validity to the patent-in-suit, which avoided a Graham analysis during prosecution, and a rejection of the rigid rule that “obvious to try” is per se insufficient to show obviousness. Decision available at http://w w w.supremecourtus. gov/opinions/06pdf/04-1350.pdf.] 10 Patent Act of Japan, Law No. 121 of Apr. 13, 1959, as amended. WIPO English version available at http://www.wipo.int/clea/docs_new/pdf/en/jp/jp006en.pdf.
44 S E S S I O N I : P L E N A R Y SE S S I O N patentable as a “computer program related invention,” while a so-called pure business method without using computer programs and so forth cannot be patentable because it is not a computer program-related invention. I am very much interested in the question of whether more patent protection for programs in places such as the United States and Japan, or less patent protection in places like Europe, will really better serve the promotion of innovation for programs. PROF. HANSEN: Let me ask both of you. You have a case before you. To what extent do you look at law outside of your jurisdiction — U.S. EU, EPO — at all in deciding your cases? JUDGE HUGHES: The United Kingdom yes, the United States yes, the EPO no. PROF. HANSEN: Professor Obuchi? PROF. OBUCHI: We are always very much interested in the law all over the world, especially the U.S. and European law. LORD HOFFMANN: If the Canadians look at the United Kingdom but not at the EPO, they are getting the EPO second-hand, because we pay a lot of attention to the EPO. JUDGE HUGHES: Well, I’ve kept my Eighth Edition of Copinger,11 because all the rest of the editions after that go Belgian or something. PROF. HANSEN: One thing on harmonization of litigation that Lord Hoffmann raised is that it is crazy to have to be suing in all the different places. What about the “coalition of the willing,” of harmonizing? We do have trilateral harmonization talks between Japan, the European Union and the EPO, and the United States on issues, because it is impossible to get effective harmonization through the multinational organizations. What about on that level, or a “coalition of the willing” on the litigation level? Erik? MR. NOOTEBOOM: I thought you were hinting at a “coalition of the willing” within Europe to create a uniform patent jurisdiction. It was not explicitly mentioned in our recent Communication on how to restructure the patent landscape in Europe, but it is clearly in our mind, given that we all know very well that the chance that Europe will move forwards on a unanimous basis is quite small. As you know, the current text of the European Treaty provides the possibility to work on reinforced cooperation, and that is basically cooperation between the willing. The problem that we will be facing is what the subject of that “coalition of the willing” should be. Evidently, under reinforced cooperation, one will have to define the subject of that project. Since we have very opposed views within Europe, even within the group of highly patent-minded countries, it is at this time very difficult to predict what the direction would be that this coalition would take. We have the German views, which clearly plead for an EPLA construction, a court that would work under the aegis of the European Patent Office basically. And there is the French coalition, so to say, which very much insists upon a Community jurisdiction. The main purpose of our paper is to launch this debate, to filter out all these different positions, and to see whether there is common ground to make progress. As always, we at the Commission try to develop good compromises that can, if necessary, be interpreted by anybody as he likes, but mostly at the end of it we come to a conclusion. Now, if you ask me what is going to happen in the next ten years, I think we will probably be discussing this issue for the next ten years. Whether we will achieve results remains to be seen. Whether that is dramatic, I don’t know. I think there is a much bigger threat to the patent system as a whole, which is very close 11
W.W. Copinger & F.E. Skone James, Law of Copyright (8th ed. 1948).
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to us and which has not yet been tackled, and that is the perception of the patent system by the politicians in Europe and by the public, plus the immense workload, the hundreds of thousands of patent applications that are pending all around the globe — in Washington, in Tokyo, in Beijing, and also in Munich — which all are a threat to those who want to innovate further on existing inventions. That is what we need to tackle. That is, I really think, a very, very important issue. On that issue, the next ten years will be crucial for the patent system. It may very well implode under the existing weight of all these hundreds of thousands of patents that are pending, patent applications that can very often not even be understood by examiners because they are so complex and so lengthy and so cumbersome to read through that they hardly have any clue whether they are patentable subject matter or not. We need to work on that. In that respect, the coalition also refers, I think, to global collaboration between the Japanese, the U.S., and the European patent offices in order to do away with duplication of examination work and search work. We should work very hard to come up with a united approach to patenting on a global scale. Last but not least, we should not forget about the Chinese and the Koreans, who in the meantime have to cope with many more patent applications than our own European Patent Office. They will be big players — they are already big players — and they should also be brought on-board in this coalition. PROF. HANSEN: Polly, do you have something to say? JUDGE NEWMAN: I always have something to say. I’ll be glad to comment. I was thinking as I was listening to these comments that what we need to have in mind is something that everyone in this room takes for granted and most everyone else doesn’t really stop and think about. The criticism, for instance, of the quality of patents is not so much the quality of the examination; it is the kinds of patents that are being granted — for instance, the big joke in the press of a peanut butter sandwich.12 What needs to be understood by all of us, and particularly by the lawmakers and by the judges, is the role of incremental change in the advancement of science and technology. As compared with even twenty years ago when the Federal Circuit was formed, today economists tell us that over half of the domestic and international product of the world is based on advances of technology, many of it on new technologies but also advances in existing technologies, as compared with 10 or 15 percent twenty years ago. This is a dramatic difference. This is certainly a contribution to the overload of the Patent Office, and certainly a contribution to all of the concerns that we are wrestling with here. It raises the fundamental question: What in fact is the kind of technological advance that the patent system can protect? We all know that almost every invention proceeds in small incremental steps, each one building on what has come before, until ultimately there is a breakthrough to commercial use and public benefit. So many of the advances of biotechnology, nanotechnology, and the information and knowledge industries have been developed in very small steps, such steps that might be excluded from today’s view of subject matter that is appropriate for a patentable invention. We need to understand what that means for the economy, for the advance of science and technology. This is what worries me about the popular noise about a broken patent system. Perhaps we have not modernized the law as rapidly as needed to adjust to changes in technology, 12 In December 1999, two independent inventors, Len Kretchman and David Geske, were granted U.S. Patent 6,004,596, “Sealed Crustless Sandwich,” for an improved peanut butter sandwich that would have a long shelf life. 13 eBay Inc v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006).
46 S E S S I O N I : P L E N A R Y SE S S I O N although a great strength of the law, particularly the common law, is that it moves pedantically, slowly, methodically, not in a rush. What I want to encourage us to do, as in the panel’s comments, is to think about what these changes mean and what in fact it means to the society and the economy. PROF. HANSEN: Thank you. Randy? JUDGE RADER: I think we are missing three of the major directions of the next ten years. One big direction will be a panel here at the Fordham Conference in 2017 that will entirely consist of international trade commission administrative judges. That will be a growing area of litigation. You get a sure injunction post-eBay,13 and it will be available for any international corporation with a U.S. patent. Regardless of whether they are from Japan or the United States, they can get an exclusive grasp of the entire U.S. market. The second big panel that will be here at the Fordham Conference that is not here today will be an entire panel of Chinese and Indian officials, both of them recognizing that their competition with each other, which is going to control the international marketplace of the next decade, is probably going to be decided by intellectual property. I have been to both countries three times in the last six months. They each want a Federal Circuit. They need institutions to improve their ability to beat the other in the intellectual property game. The third panel that you will have here in 2017 will be an entire panel of FDA lawyers telling you that the interface between drug policy and patent policy needs rewriting; there needs to be a revision and reexamination of the Hatch-Waxman Act;14 and that that interface is the key. Meantime, we Federal Circuit judges will be here saying, “With all the policy shifts, we are just trying to maintain some continuity.” PROF. HANSEN: Very good. Let me turn to our Canadian and Japanese panelists again. Looking at non-obviousness and an inventive step, our Supreme Court is going to be dealing with it15 and everyone is interested in it. Looking from afar, how would you characterize your law? What is it, and is it closer to the United States or the European Union on this issue? PROF. OBUCHI: I should say that our basic point is almost the same as in terms of inventive step. But I think that on this issue application on each concrete case is important. Such applications could be different in the States or in Europe or in Japan. Actually, in Japan some argue that the Japanese inventive step generally is too strict, the U.S. non-obviousness is too lenient, and the European inventive step stands in-between. That is a rather common perception among some Japanese patent lawyers. I am not quite sure whether this general statement is right or not, but it is really difficult to generalize the issue of inventive step because the issue is very fact-specific and may vary according to each technological area, even each case. Application is very, very important. PROF. HANSEN: That’s good. Roger? JUDGE HUGHES: I tend to agree with Lord Hoffmann that obviousness or inventiveness is really a matter of individual impression to the trial judge. While we do have a set of rules that are not different from the U.S. or the U.K. set of rules, it really boils down to 14 Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585 (codified as amended at 21 U.S.C. § 355 and 35 U.S.C. §§ 156, 271, 282 (1984)) (also known as the Hatch-Waxman Bill for Patent Restoration). 15 For a discussion of the KSR International decision, see supra note 9.
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the judge sitting on the original panel. Courts of appeal can take a second look at it and the House of Lords can take a third look at it, but this sort of gut instinct that you have sitting as a trial judge is what seems to drive the day. PROF. HANSEN: So what does that mean actually, that everything is a crap shoot? JUDGE HUGHES: No. You do it on a principled basis. I mean you just don’t sit down there and do it. PROF. HANSEN: A principled crap shoot. And, of course, then when you throw in juries, it just really goes all amok, doesn’t it? JUDGE HUGHES: We have no juries. PROF. HANSEN: I know. The United States does, though. MR. ELOSHWAY: I wanted to jump in here on one point. This gets back to the discussion that we were having earlier about substantive harmonization and this question of inventive step. It is true that across the major jurisdictions the notion of what constitutes an inventive step is pretty similar. The methodology may be somewhat different, though. In the studies that we have done, the results that we have seen have indicated that there is not a great degree of difference even in the methodology. However, one objective difference as far as inventive step is applied in different jurisdictions, and one that I think ought to be taken, which policymakers in these respective jurisdictions ought to take a closer look at, is this question about the use of inventive step and secret prior art. Secret prior art refers to the earlier filed conflicting applications published later. In the United States that’s called “Section 102(e) prior art.” In most of the rest of the world, those conflicting applications are used for novelty only. Now, it seems to us that if a problem or a policy concern that is being expressed is patent thickets, the lack of an inventive step approach for secret prior art necessarily would create patent thickets. Yet, in our harmonization discussions nobody has seemed willing to seriously investigate that question. We have just been told, “Oh well, it’s not a problem in our jurisdiction because people just cross-license and things like that.” Well, they do that in the United States too, but I think that the concern is more widespread and needs to be more broadly addressed. PROF. HANSEN: Thank you very much. We have one minute. I want to ask the panelists to pick one of three answers. In the next ten years is the patent system going to improve, remain the same, or get worse? JUDGE RADER: Improve. PROF. OBUCHI: Slightly improve. MR. NOOTEBOOM: Improve. JUDGE NEWMAN: Slightly improve. MR. MARCHANT: Stagnate. LORD JUSTICE JACOB: I think it will look much the same. JUDGE HUGHES: I’m going to say get worse because the United States is going to feel the hot breath of China and India and they are going to start finding patents obvious. MR. ELOSHWAY: Maybe that’s an improvement. I would say improve. LORD HOFFMANN: No change. PROF. HANSEN: Thank you very much. A great panel.
SESSION PLENARY SESSION PART E: THE NEXT TEN YEARSI:OF IP LAW IN THE U.S. SUPREME COURT
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part E: The Next Ten Years of IP Law in the U.S. Supreme Court
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Panelists DIMITRIOS DRIVAS
PROF. JAY THOMAS
White & Case LLP (New York)
Georgetown University Law Center (Washington)
PROF. GRAEME DINWOODIE
HON. PAULINE NEWMAN
Chicago-Kent College of Law (Chicago)
Judge, U.S. Court of Appeals, Federal Circuit (Washington)
LORD HOFFMANN
HAROLD C. WEGNER
Law Lord, House of Lords Parliament (London)
Foley & Lardner LLP (Washington)
PROF. TIMOTHY WU
Columbia University (New York) PROF. HANSEN: We will now look at intellectual property law in the U.S. Supreme Court. Let me introduce our panel. You all know Graeme Dinwoodie, an important and productive professor from Chicago-Kent College of Law. Tim Wu, from Columbia Law School, previously clerked for Justice Breyer. Dimitrios Drivas is at White & Case. I heard him give a review of Supreme Court cases in David Llewelyn’s IP Academy conference in Singapore, which was a fantastic talk. Lord Hoffmann of the House of Lords and Judge Pauline Newman of the Federal Circuit return from the previous session. Jay Thomas, a patent professor at Georgetown, is a real star in the firmament. Hal Wegner, now at Foley
50 S E S S I O N I : P L E N A R Y SE S S I O N & Lardner, previously at George Washington University, has an incredibly useful blog that keeps people informed. Hal usually doesn’t have strong opinions, but he might today. One overriding issue, which we will address at the end: Does it really matter what the Supreme Court says? In reality, does anyone follow it? What do we foresee that Supreme Court jurisprudence will bring us on copyrights, patents, and trademarks in the next ten years? We will then discuss the institutional issues, the extent of the impact of Supreme Court decisions, then anything else anyone wants to discuss. Let’s look at copyright first. Tim, do you want to tell us what you see in your crystal ball? PROF. WU: I looked at how often the Supreme Court takes these cases. Over the last fifteen years, it has taken about eight cases, which suggests about one every two years. So we should be due for a couple. I will give you my guess as to what might be the most likely kinds of cases running through the system that might get up to the Court. The Supreme Court, in my experience — and that is limited to clerking there for a year and reading hundreds of cert. petitions — has formal criteria for why it takes cases. There are 10,000 cases. Obviously, it chooses about eighty to a hundred, so it is not going to take every case. It tends to take cases where it feels that there has been some disturbance in the force. In an area like copyright, which is not a bread-and-butter Supreme Court case, it takes a case because it thinks (a) there is something strange going on here, and (b) it thinks it might be a fun, or even a sexy, case to get involved in, in some way or another, that it might be exciting. That’s my guess as to why the Supreme Court wants to get involved in a particular case. Now, that is based on the old Rehnquist Court, and maybe this Court is different. But you can only extrapolate from what you know. Based on those criteria, I would guess the leading candidate, if we look at the current cases, if it makes it through appeal, would be Google Book Search,1 a case of which everyone in this room is no doubt aware. It seems to have all these elements that make the Supreme Court interested in a case. The Supreme Court has become more interested in technology. Some of the Justices have computers now, or actually most of them. A few of them have that email or something that they can coordinate with basketball games. So there is now the idea that maybe this whole computer revolution thing might be important. Obviously, in Grokster2 they were excited about that. Google Book Search has these kinds of classic elements: authors and publishers, the virtual library, the start-up company. It has the narrative elements that excite the Supreme Court, in my experience. So I would put that near the top. Other likely cases: Some kind of Section 512 case, if they survive appeal and non-settlement. We have one ongoing litigation case, Viacom v. YouTube,3 but that is not the only ongoing Section 512 case. The Supreme Court has not looked at that part of the Digital Millennium Copyright Act (DMCA)4 yet, so I imagine there is some interest in trying to leave its own stamp on what Section 512 means. Another case, which may seem a little less likely to some people in the audience, is I can imagine the Supreme Court might eventually get involved in the Bridgeport sampling cases.5 I say that because in my experience one way in which a court is more likely to be 1 See Author’s Guild v. Google Inc., No. 05-CV-8136 (S.D.N.Y. Nov. 30, 2005); McGraw-Hill Cos. v. Google Inc., No. 05-CV-8881 (S.D.N.Y. Nov. 8, 2005). 2 MGM Studios v. Grokster, Ltd., 545 U.S. 913 (2005). 3 Viacom Int’l, Inc. v. YouTube, Inc., Case No. 07-CV-2103 (S.D.N.Y. Mar. 13, 2005). 4 Digital Millennium Copyright Act (DMCA) of 1998, Pub. L. No. 105-314 (codified at 17 U.S.C. § 512 (1998)), available at http://www.copyright.gov/title17. 5 Bridgeport Music, Inc. v. Dimension Films, 383 F.3d 390 (6th Cir. 2004).
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noticed by the Supreme Court is when it says, “We are going to do something different than the rest of the law.” In Bridgeport they basically say that “the de minimis rule for sampling is going to be different here than it is in the rest of, not only copyright law, but even the rest of law at large.” As we have seen in a lot of cases, the Supreme Court is interested when a court says, “We think this law or this statute is going to work different than the rest of common law.” That is something that piques their interest. They may have something to say about that. I will end here with less likely things but possible things. I think it is possible that the Supreme Court will take some kind of preemption case. If you look carefully, there is a lot of strange state law floating around that is vaguely copyright-related, often written for a single author or for one work. If you get pushed into it, there is a lot of funny state law that is around, and maybe related to telecom or whatever. The Supreme Court likes preemption cases, because it is all about the federal courts and state courts. They love that stuff. Then, finally, there is a remote chance that a DMCA Section 1201 case having to do with protection of digital rights management (DRM) would get up to the Court, although I think, after garage doors and print cartridges, those questions seem to have fizzled and they do not seem as exciting. That’s all I am going to say. PROF. HANSEN: Their age group is such that they are not very digitally adept. To what extent in a digital copyright case would they rely more on a clerk? PROF. WU: That is a good question. I think they rely a little bit on the clerks to tell them the facts, but they definitely have their opinions, even when it is a digital case. The way a clerk might make a difference is if the clerk knows a lot, he will maybe convince the Court that the facts are different than the way the parties are seeing them, or something like that. They have had enough Internet cases. Justice Stevens, who was around and active before radio, is the man who wrote ACLU v. Reno.6 Particularly he, and also Breyer, felt quite comfortable. Souter, of course, wrote Grokster.7 So once they’ve done one, I think they feel they are competent to do more. PROF. HANSEN: Now that you’ve mentioned some individuals, how would you assess the Justices in terms of — I know this is very broad, but this is all we have time for — pro IP, neutral, or anti IP? I know that’s not a sophisticated analysis. PROF. WU: I think there are a couple people who are anti. I will just use the terms you used. On the vaguely anti-IP front, you would have most clearly Breyer and Stevens, occasionally joined by Scalia. Neutral, I would guess Thomas. Kennedy is an unknown element because he loves the First Amendment and he loves big First Amendment cases, and some of these fair use cases tend to have a First Amendment aspect, and you can talk about pamphleteering and the early republic. So you don’t know where he is going to end up. I don’t know anything about Roberts, although I know he likes P.G. Wodehouse, so he might have a taste for the absurdity of the fair use doctrine. PROF. HANSEN: Very interesting. Thank you. Let’s move to trademarks. Graeme? PROF. DINWOODIE: I think that the most revealing thing to do in looking at the Rehnquist Court in trademarks is to look at the cases they took and the issues that were 6 7
Reno v. ACLU, 521 U.S. 844, 117 S. Ct. 2329, 138 L. Ed. 2d 874 (1997). MGM Studios v. Grokster, Ltd., 545 U.S. 913 (2005).
52 S E S S I O N I : P L E N A R Y SE S S I O N raised, and then compare the way those cases were decided. In a lot of cases, constitutional or quasi-constitutional issues were raised, to be sure, in part, because many of them were trade dress cases, with which the Court has been fascinated for a while. But you also had Dastar.8 In every single one, they ducked the constitutional issue. The Court did not want, in my view, to be making large pronouncements about where it wanted trademark law to go. It was essentially resolving circuit splits in almost every single case. They came out with a relatively narrow statutory interpretation, a pretty minimalist approach to the way of resolving trademark cases. In fact, the main values that informed the Rehnquist Court, and I assume will still inform the Roberts Court because the changes I don’t think are that significant — in fact, Roberts argued TrafFix9 successfully — were prudential values. They were values such as certainty, which you see stressed in almost every single case; values ensuring that defendants are able to get rid of cases that are nuisance cases with summary judgment where the standards are clear enough. These are pretty small. I don’t mean they are unimportant, but there is not grand vision for what they want to do with trademark law. But the signal, to the extent there is a signal that the lower courts have taken, is that the Court is skeptical of overprotection. This is particularly true on trade dress, but I think you can see it more generally. You see it even in what I think was the tortured statutory interpretation in Victoria’s Secret.10 The signals that they were sending, and have been consistently sending, are likely to continue for a while: a caution against overextension of trademark law, but not based upon some real grand vision of what trademark should be doing; more based upon pretty small lower-order set of values, such as certainty, certainty for competitors in particular. PROF. HANSEN: Excellent. Thank you Who wants to start off on the next ten years in patents? Hal? MR. WEGNER: I would like to echo what Tim Wu said. First, I would like to touch on which is pro business and which is pro patent. First of all, Breyer and Stevens are very anti-patent, however you slice it. I had a debate with Rob Merges in Dennis Crough’s blog a while ago and he was pointing out how pro business the current Court is. I said, “Well, that might be anti patent in the classic sense, because if you don’t need an injunction, maybe you don’t want strong patents.” I think that is a matter that is open for discussion. I have three points. First, patents have become very important in the economy, and they are perceived as important in the economy. I think if you turn the clock back to 1982 and ask if patents were as important then as they are now, I do not think the Supreme Court would have tolerated the creation of a Federal Circuit for patents; they would have wanted to have it all for themselves. That is just my offhand remark. They are going to take patent cases from time to time. They get very visible press. I have no connection to the Vonage case,11 but this whole field of technology might get shut down. It is in the newspapers every day.
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Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003). TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23 (2001). 10 Moseley v. Secret Catalogue, Inc., 537 U.S. 418 (2003). 11 Verizon Servs. Corp. et al. v. Vonage Holdings Corp. et al., No. 06-CV-0682 (E.D. Va. June 12, 2006); Verizon Servs. Corp. et al. v. Vonage Holdings Corp. et al., No. 07-1240 (Fed. Cir. Apr. 25, 2007), available at http://www.ll.georgetown.edu/Federal/ 9
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KSR,12 the problem of bad patents. The previous panel talked about bad patents. It is not a question of how many hours examiners spend. If you have a few hundred thousand patents that go through the Patent Office every year, you are going to get a handful of really bad stinkers, things that should be weeded out. Until the United States gets a good, solid, post-grant administrative revocation system to weed out the KSRs of the world, the Federal Circuit and the Patent Office are both going to be blamed for having a bad standard of patentability, which has nothing to do with why these patents are out there. We need to have that. I am not optimistic we will get that. PROF. HANSEN: What is the Supreme Court going to do in KSR? MR. WEGNER: They are going to reverse. PROF. HANSEN: And do what? MR. WEGNER: I don’t know. They are troubled by it. There will be at least two opinions. PROF. HANSEN: They just want to slap around the Federal Circuit a little bit. MR. WEGNER: No, I don’t think they want to do that. They are going to probably say that motivation is one of the factors to consider. PROF. HANSEN: It’s hard to tell. MR. WEGNER: That’s what’s fun. For people who enjoy chaos and making new predictions, this is the Hal Wegner Full Employment Act of 2007. Another area — I don’t see in the near future — is that we get a Federal Circuit of the future that has a diversity of judges, Last week, Don Dunner defended the Federal Circuit — he didn’t have to — at the twenty-fifth anniversary celebration of the court. He said, “The judges are all extraordinarily qualified.” Well, that’s a non sequitur. Sure they are qualified, but there is no diversity at that court. There are only two trial judges, both from the Court of Claims, and there has never been a single federal district court judge elevated to the Federal Circuit. There is virtually no patent litigation experience there. You are going to get wildcard rulings that go here, there, and everywhere. And above all, the biggest problem right now at the Federal Circuit is its failure to resolve its balkanized precedents through en banc review. PROF. HANSEN: Hold on, Hal. Let’s not focus too much Federal Circuit. There is going to be a whole session on Federal Circuit.13 Let’s stick to the Supreme Court. MR. WEGNER: That is where the Supreme Court is going to be going, wiping the behinds of the Federal Circuit for failure to clean up their act. PROF. HANSEN: Jay, what do you think?
12 KSR Int’l v. Teleflex, Inc. et al., 550 U.S. ____, 127 S. Ct. 1727 (2007). [Note: After the conclusion of the Conference, the Supreme Court decision was handed down Apr. 30, 2007 (holding that Graham v. John Deere Co., 383 U.S. 1 (1966), controls obviousness; that “the results of ordinary innovation are not the subject of exclusive rights under the patent laws”; and warning that a rigid application of the teaching/suggestion/motivation (TSM) test as a litmus test for obviousness is inconsistent with the Graham framework, but stopped short of rejecting the TSM test outright. Simply put, the TSM shortcut for an obviousness analysis is no longer available. The Court’s decision focuses the obviousness spotlight back onto the framework that has controlled the issue for more than forty years, forcing everyone who has grown comfortable with the shortcut TSM test (including the Federal Circuit, the PTO, and the patent bar) to return to full Graham analyses when assessing the obviousness of patent claims. Importantly, the Court’s opinion touches on several other issues, including the roles of “hindsight bias” and common sense in an obviousness inquiry, a question about the rationale for affording a presumption of validity to the patent-in-suit, which avoided a Graham analysis during prosecution, and a rejection of the rigid rule that “obvious to try” is per se insufficient to show obviousness. Decision available at http:// www.supremecourtus. gov/opinions/06pdf/04-1350.pdf. 13 See, infra this issue, Session V, Part C, Courthouse Relationships: The Federal Circuit and the Supreme Court; the Court of Appeal and the House of Lords; and Member State courts and the Court of Justice.
54 S E S S I O N I : P L E N A R Y SE S S I O N PROF. THOMAS: Following Hal is always a challenge, but I will try to match his eloquence of expression. There is no doubt about it that if you are having a panel on intellectual property in the Supreme Court, plainly patents is where the action is, Hugh. Thanks for saving the best for last. There is no question the Supreme Court is taking more patent cases. From 1950–1982, the Court took about one case per term. With the advent of the Federal Circuit — again, that is our court of second instance, which has mostly exclusive jurisdiction over patent cases — they took five patent cases from 1983–1994, with only one actually involving a core patent law issue. From 1995–2005, there were twelve patent cases in eleven terms, with seven of those involving core patent law issues. Now we are seeing two, three, four patent cases per term, with two or three of those involving core patent law issues. I think that trend will continue. I think the era of a patent specialist or a patent lawyer arguing cases before the Supreme Court is over. We have seen that already, and I think it is basically done. So we will see general Supreme Court specialists arguing before the Supreme Court. The sense is that arguing before the Federal Circuit and the Supreme Court are two different tribunals, and you need different skills and different kinds of briefs. One upshot of that is if you read a transcript of the argument and you consider yourself steeped in patent law, it is best not to eat or drink during that experience because you may be choking or spitting things out, during that period of time. PROF. HANSEN: I agree. So you think this is not a good trend, I’m sensing, Jay? PROF. THOMAS: I think it will change the voice of progressive patent policy and the ability of the Supreme Court to act in that capacity. Two other quick trends. The Solicitor General is playing a powerful role. The United States runs a big law firm, called the Department of Justice, and one of the entities in that law firm is the Solicitor General. That person argues before the Supreme Court. The Supreme Court will often ask the opinion of the Solicitor General about whether a case should be heard. In patent cases, it seems that the opinion of the Solicitor General is given great weight. So one thing that private industry is trying to do is recruit the Solicitor General, essentially to act like a fourteenth circuit, an alternative voice of patent law that can be compared to the Federal Circuit rulings. The last point, quickly, is we have a Chief Justice who likes unanimous opinions. So I think reading Supreme Court opinions for the United States is going to be more like reading European Court of Justice opinions. They will be unanimous, opaque, and ultimately unsatisfactory. PROF. HANSEN: Yes, I think there is a trend. It is true in copyright and trademarks too. If you read the oral argument transcripts, it’s the blind leading the blind. But it is a basic policy approach rather than any sophisticated, innovative policy that you get out of that trend, I think. Judge Newman? JUDGE NEWMAN: I hadn’t thought that I would be here disagreeing with three of the people whom I admire so much, who have been stalwarts in our business. Let’s look at a bit of the reality of what has been happening in the Supreme Court. The Supreme Court just took another case from our court, a tax case. The Supreme Court has taken as many tax cases from the Federal Circuit as patent cases. There has been in the last year or two a spike — I call it a spike — in the absolute number of patent
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cases that have been taken by the Court from the Federal Circuit, following several years where no cases were taken. In contrast, last year and the year before, the Court took more Native American appeals from our court than they did patent cases, or in fact than they did tax cases. Now, what are we to make of that? Is there something dramatic happening in the American Indian community that has the attention of the Court? Cases come before the courts in the fullness of the evolution of the issues. I mentioned in the prior panel that about half of the nation’s economy involves intellectual property of various sorts. That is very new. The Supreme Court Justices are, despite most of them being younger than I, still not unaware of what is happening in the world and what is happening with the development of national and international economies. At the same time, a few of the issues which have been before the Federal Circuit have been percolating up and down, still in our court, but with majority and dissenting opinions airing and exposing some of the most difficult questions in our field that have come to the courts. We had one a year or two ago, where a panel of our court thought that the Supreme Court’s holding about the presumption of monopoly was binding upon us and was probably wrong. The Supreme Court took that at the urging of our court to liberate the courts and the public from their own precedent going back over the years. So it is interesting to see what happens. The Court is, it seems to me, affected by the amount of attention, by how much they are told of the implications of a particular decision. The Court may have been reading in the press — and I won’t get into who is behind all of this press exposure — that there is something wrong with the patent system, that patents in certain fields shouldn’t exist. As someone said earlier, there are statutes, there is precedent; if changes are to be made, they need to be made either by the Supreme Court — they cannot be made by us; we are bound by Supreme Court decisions — or by the legislature. It is notorious that our Congress has not reached consensus, any more than the business communities have reached consensus, in many of the areas that we have been talking about. So I for one, and I think my entire court, very much welcome the attention that patents and other areas of intellectual property have been getting from the Supreme Court. We don’t see it as an attempt to straighten us out, correct us, slap us down, or anything else. These are issues that are extremely important to the nation and that benefit very much from the attention that a case gets when it reaches the Supreme Court — the amicus briefs, the vested interests, the powerful public exposure. It is what this field of law at this stage in time in the evolution of science and technology needs. PROF. HANSEN: Polly, how many Supreme Court decisions in patents have you agreed with? JUDGE NEWMAN: Well, of course, there have been those that have adopted my dissent. That’s most of them. PROF. HANSEN: That is probably all of them really, isn’t it, frankly? JUDGE NEWMAN: I agree with all of them. I agree with the MedImmune decision,14 for instance, although the implications are going to be extremely difficult. I have always felt it should be easier to challenge patents, that patents should not be treated differently than any other commercial asset. I don’t know of any that I disagree with. I don’t know what is going to happen in KSR.15 It is extremely difficult. I know how 14 Medimmune, Inc. v. Genentech, Inc., 427 F.3d 958 (2005), vacated and remanded, 127 S. Ct. 764 (Jan. 9, 2007), available at http://www.supremecourtus.gov/opinions/06pdf/ 15 See KSR, supra note 12.
56 S E S S I O N I : P L E N A R Y SE S S I O N hard my court wrestled to try and find objective standards for obviousness. I hope the Supreme Court can do better. PROF. HANSEN: Thanks. Dimitrios, do you want to hold forth here a little bit? MR. DRIVAS: Yes, thank you. I think in the last twenty years we have seen a strengthening of the patent system in the United States, and uniformity, and a lot of that has to do with the Federal Circuit. At the same time, we have seen a transformation of the industries that really are important to our economy — financial services, information, biotechnology, and the like. With that change, I think there is a reaction, first in the business community, then in the public at large, and the Supreme Court takes note of that. There is some measure to bring things back to some middle point that pleases everyone. I think that is what has happened in the last two terms. We have seen seven cases, one appeal dismissed, LabCorp.16 We are awaiting two more important decisions. What I expect after KSR and Microsoft v. AT&T 17 is that the Supreme Court will probably step back and see what happens, see how everything falls back into place, especially with the decision on obviousness out of KSR. Maybe they will look to see if that solves the business method problems they seem to be having. If you look at the dissent in the dismissal of LabCorp and Justice Kennedy’s concurrence in eBay,18 you will see there are a lot of troubling aspects to the business method expansion on the Supreme Court. Now, even the greatest advocates of business method patents will say that there are some business method patents that just should not be issued; we just don’t understand why they are there. But they are also very important to our new economy because they protect some sort of innovation that needs patent-type protection. What that balance is I don’t know. So that is where I expect that the Supreme Court may have an interest. But otherwise I think things will somewhat slacken. PROF. HANSEN: Lord Hoffmann, do you have any comments from afar, from across the pond as we say? LORD HOFFMANN: I was listening with fascination to this discussion of the Supreme Court, mostly about what kinds of cases is it likely to take, what its agenda is, what are the views of the individual Justices, and so forth. The European Court of Justice you cannot sensibly ask any of those questions. It has a great deal in common with the Delphic Sybil. For one thing, the Delphic Sybil had no control over her docket, so she had to answer the question if you sent it. The rule in Europe is that if we have any question that is in the slightest bit of doubt and that involves a question of European law, like the Trademark Regulation, we have to bundle it up and send the question to Luxembourg. No further dispute about the matter. PROF. HANSEN: How many have you sent to Luxembourg? LORD HOFFMANN: Oh, quite a few personally. I sent one about a week ago about arbitration. PROF. HANSEN: In IP how many have you sent? LORD HOFFMAN: Two on trademarks. Then, like the Delphic Sybil, it takes a long time to get an answer. 16 Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc. et al., 548 U.S. ___; 126 S. Ct. 2921, slip op. (June 22, 2006) (Breyer, Souter, and Stevens, J. dissenting), available at http://www.supremecourtus.gov/opinions/ 05pdf/04-607.pdf. 17 Microsoft Corp. v. AT&T Corp., 550 U.S. ____ (2007) [Note: Subsequent to the Conference, the case was decided Apr. 30, 2007, available at http://www.supremecourtus.] 18 eBay Inc. v. MercExchange, LLC, 126 S. Ct. 1837 (2006).
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PROF. HANSEN: We are doing a whole half-hour on the European Court of Justice later in this session.19 My thesis on the Supreme Court is that, to the extent that people actually listen to or follow it, stare decisis is dead, if it ever existed. It is really what respect they have for that institution, and also whether the institution actually polices its decisions. The Supreme Court has not policed its IP decisions up until recently. By that I mean if something goes wrong, if they say one thing and all the lower courts say something else, they do not grant cert. and correct it. Constitutional law they would do in a second. But they haven’t done that for IP law. They are starting to police their patent decisions. A judge on a circuit court, other than the Federal Circuit, would realize that only one IP case out of a million gets granted cert. by the Supreme Court. Even then it would only be for an issue they haven’t addressed before. So, I am pretty free to do whatever I want and not have to worry about being reviewed, let alone reversed, by the Supreme Court. So if I want to reach what I consider the right decision in the case, if the Supreme Court precedent leads in that direction, then fine, if not, then I go my own way discretely. For example, the 1964 decisions in Sears20 and Comco21, two companion cases concerning trademarks and unfair competition, were never followed by lower courts, or for that matter, by the Supreme Court thereafter. So, in terms of the future, to what extent does it matter as a practitioner, on the ground, what the Supreme Court says in an IP case? MR. WEGNER: I think the big impact is there are so few Supreme Court decisions — like let’s take KSR.22 It will be a reversal and it won’t be understood at the lowest levels, at the Patent Office, at the examiner level. But it will be taken as a message, “We are not being tough enough.” It will have a reaction that way. I do not think it will have much impact at the trial level, but it will have a huge impact at the Patent Office level. It will take them a dozen years to figure out what is said. PROF. HANSEN: Tim, I can see you are upset over this. PROF. WU: No. I am not upset about that. I was going to say I don’t see that trend you are talking about as much in copyright. It seems to me the trend — and I’m not a patent person — is strongest in patent and trademark, where courts, like the Federal Circuit, who take more ownership over patent, are slowly, quietly moving away from Supreme Court precedent, in software for example. I just don’t see it in copyright, but maybe you see things that I don’t see. PROF. HANSEN: Which particular case are you thinking of ? PROF. WU: Let’s say Feist.23 PROF. HANSEN: Feist is an example where the Court at least in one case directly on point was not followed. Feist was in 1991. At the same time, the Fourth Circuit was hearing an appeal in the Payphone case.24 They specifically delayed their decision until Feist was decided because both were sweat of the brow cases. By the way , Lewis Powell, retired Supreme Court Justice, was on the panel. After Feist came down and the Fourth Circuit decided Payphone. It was a per curiam, unpublished decision, that was not to be cited. It then became a sweat-of-the-brow case in selection and arrangement clothing. One one page for each state the plaintiff listed all the requirements to operate a payphone. There was no selection as everything was included. There was no arrangement other than 19 20 21 22 23 24
See, supra this issue, Session I, Part F, The Next Ten Years of IP Law in the European Court of Justice. Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (1964). Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234 (1964). See KSR, supra note 12. Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., Inc., 111 S. Ct. 1282 (1991). U.S. Payphone, Inc. v. Executives Unlimited of Durham, Inc., 18 U.S.P.Q. 2d 2049 (4th Cir. 1991).
58 S E S S I O N I : P L E N A R Y SE S S I O N a simple listing on the page, no particular or even minimally creative arrangement. The 4th Circuit nevertheless found copyrightable selection and arrangement. It emphasized the amount of effort even when discussing selection and arrangement. In one conclusory sentence it said that the evidence suggested an original selection and arrangement without detailing in any way why that was so. And they only said that the evidence “suggested” an original selection and arrangement. Of course, the civil law standard is proof by a preponderance of the evidence not that the evidence suggests something. In short, despite Feist the Fourth Circuit protected sweat of the brow. And Lewis Powell was on the panel! Part of the problem is that Feist was a sweat of the brow case where there was neither sweat of the brow nor free riding. Compiling of white pages phone directories used to require sweat of the brow but now the computer does all the work when the person signs up. Moreover, the defendant offered to pay for the listings and, in fact, paid other phone companies for their listings. So it was an easy case for the Supreme Court on the facts. Where you have cases with tremendous effort and free riding, it is much more difficult and I think courts have and will find a way to find a violation. The misappropriation underpinnings of the sweat of the brow doctrine I think still controls. Keep in mind that in Feist, Justice O’Connor said twice you could look to state unfair competition law to protect sweat of the brow. What effect Feist did have was to remove the more extreme versions of sweat of the brow doctrine such as not being able to take any facts from a compilation. But this is because courts agreed with that part of it. PROF. WU: I don’t think people will be asking for a database protection law — which obviously they haven’t been asking for too strongly lately — if people thought Feist had no impact or they could get what they wanted anyways. I think the Copyright Office will not give you the registration and the pure set of facts that you might have wanted. My sense is that the trend you are talking about feels a lot stronger in the patent context, and maybe in trademarks. And software is the one I think about. MR. DRIVAS: I wouldn’t say that. I mean take the MedImmune decision,25 which on a declaratory judgment criticized the Federal Circuit’s “reasonable apprehension” test in a footnote.26 I did not read that as overturning. I did not see any other proposed test in the MedImmune opinion. But the Federal Circuit now in Sandoz27 has totally thrown it out. So somebody took notice of a footnote. PROF. THOMAS: I had the same comment in mind. I agree. I believe the Federal Circuit has responded to Supreme Court rulings. But I also agree with Hal that we have to be realistic about whether a Supreme Court non-obviousness standard will actually have any effect on patent grants. The Patent Office examining corps is a very transient population, 1,000–1,200 people hired every year, and increasingly working out of home offices. PROF. HANSEN: First of all, I am not saying the Federal Circuit, or other circuits, never reaches the same result as the Supreme Court. I am saying these courts when they reaches the same results do so probably because they agree with the Supreme Court, rather than because it is precedent. And more recently, the Federal Circuit might also be following the Supreme Court as a way of laying low to get the Supreme Court off its back. Unfortunately, we actually are out of time. I want to thank our panel for a great session. 25 Medimmune, Inc. v. Genentech, Inc., 427 F.3d 958 (2005), vacated and remanded, 127 S. Ct. 764 (Jan. 9, 2007), available at http://www.supremecourtus.gov/opinions/06pdf/ 26 Id. n.11. 27 Savient Pharms. v. Sandoz, No. 07-1081 (Fed. Cir. Dec. 28, 2006).
I: PLENARY PART F: THESESSION NEXT TEN YEARS OFSESSION IP LAW IN THE ECJ
SESSION I: PLENARY SESSION
The Next Ten Years in Intellectual Property Law: What Should Happen? What Will Happen?
Part F: The Next Ten Years of IP Law in the European Court of Justice
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Panelists PROF. GRAEME DINWOODIE
WILLIAM ROBINSON
Chicago-Kent College of Law (Chicago)
Freshfields Bruckhaus Deringer (London)
LORD HOFFMANN
HON. KLAUS GRABINSKI
Law Lord, House of Lords, Parliament (London)
Presiding Judge, District Court (Düsseldorf)
PROF. SIR HUGH LADDIE
PROF. ALAIN STROWEL
Rouse & Co. International; University College London
Covington & Burling LLP St. Louis University (Brussels)
RT. HON. LORD JUSTICE JACOB
Court of Appeal, Royal Courts of Justice (London) PROF. HANSEN: Now we are going to look at the future of IP law in the European Court of Justice (ECJ). Let me introduce the panel. We have William Robinson from Freshfields Bruckhaus Deringer in London; Graeme Dinwoodie who seems to be on every panel of this conference, and I am glad of it; The Honorable Klaus Grabinski, Presiding Judge at the District Court of Düsseldorf; Lord Hoffmann; Lord Justice Robin Jacob; Professor Sir Hugh Laddie; Alain Strowel, a practitioner at Covington & Burling and a professor at St. Louis University in Brussels. We will start off with William Robinson, who worked for the UK Judge on the ECJ, Judge Edward, who was one of the best judges on the Court. William spent four years at
60 S E S S I O N I : P L E N A R Y SE S S I O N the Court. We are lucky to have someone who has seen it all from the inside. William will give us some talking points for the ECJ discussion. MR. ROBINSON: Top-line points. I think the Court of Justice has and will continue to struggle with IP and its role within the EC legal system in the next ten years. I don’t think it should come as much of a surprise that the ECJ is trying to forge, whether with legislation or without legislation, a more harmonized EC IP system. That is part of its mission. That is what it is asked to do by the EC Treaty.1 At the same time, it should not come as any surprise that that has created tensions throughout the system, particularly with national courts. Now, given that it is in its infancy, let me look back over the last ten years and try to find some pointers for the next ten years. I am going to give you the top four points and then see how far I can get into the detail. 앫 Point 1: Making European Community legislation work is going to be a major task in the next ten years, in particular in respect of the Enforcement Directive.2 앫 Point 2: Resolving the tension between the ECJ and national courts in the IP arena. There has to be some sort of way of working this out. 앫 Point 3: I believe there are a whole series of institutional issues that will arise for the ECJ in the next ten years. I will go into those in a little more detail. 앫 Point 4: The fourth area where I see enormous developments over the next ten years is in respect of the IP/antitrust overlap. It seems to me that that is an area that is bound to develop for a number of reasons. Let me take these in order. As to making Community legislation work, the ECJ has not been blessed with the legislation it has to interpret. It has been passed a series of hospital passes by the Community legislators, which has pitted it against various national interests over the last ten years. One only has to look at the phrase “likelihood of confusion,” including “likelihood of association,” in the Trade Mark Directive,3 to see that the Court was bound to run into problems. To my mind, the Enforcement Directive is going to create similar types of problems. I think it is a fantastic attempt by the Community legislature to try to harmonize enforcement. There have been a number of references this morning about the importance of enforcement. The problem is that national judges, if they are wedded to national IP substance, will be even more wedded to their national procedures. Whereas you have substantive forum shopping, on the one hand, you are now going to have claims that the IP Enforcement Directive provides a counterpoint to national procedure. Whereas a claimant might choose a “slow” jurisdiction because they particularly want to make use of the procedures in that country, the defendant will argue some sort of direct effect or interpretation of the 1 Treaty Establishing the European Economic Community, Mar. 25, 1957, 198 U.N.T.S. 11, 1973 Gr. Brit. T.S. No. 1 (Cmd. 5179-II) [hereinafter EC Treaty], amended by Single European Act, 1987 O.J. (L 169) 1, [1987] 2 C.M.L.R. 741, in Treaties Establishing the European Communities (EC Off’l Pub. Off. 1987). 2 Directive 2004/48/EC of the European Parliament and of the Council of 29 Apr. 2004 on the enforcement of intellectual property rights, 2004 O.J. (L 195) 32–36, available at http://europa.eu.int/eur-lex/pri/en/oj/dat/2004/ l_157/l_15720040430en00450086.pdf. 3 First Council Directive 89/104 (EEC) of 21 Dec. 1988 to approximate the laws of the Member States in relation to trademarks, 1989 O.J. (L 40) 1, available at http://eur-lex.europa.eu/LexUriServ/site/en/consleg/1989/L/ 01989L0104-19911223-en.pdf.
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Enforcement Directive to try and speed things up. And that extends to injunctions, to evidence, and to costs of the proceeding. This is an area fertile for debate between national courts and the ECJ. That brings me on to my second point: What can be done about the difficult relationship between national courts and the ECJ? Having worked within the ECJ, I believe it is fair to say that the IP area has been particularly problematic in terms of this relationship. Other areas of Community law have not been so heavily imbued with conflict between national courts and the Community Court, or at least “creative tension” at its highest. To my mind, there is going to have to be some sort of redefinition of these roles. There has already been reference earlier to the Article 234 process, national courts making references, and the instances within which they should be making references. Secondly, Advocate General Sharpston in her recent opinion in Boehringer,4 yet another repackaging case, has talked about the need for national courts to get on and apply high-level principles, and not to allow clever national lawyers to force more questions into the ECJ, thereby essentially turning a generalist court into a minutiae-dealing IP court. So there is a real need to work out that relationship. Where does the ECJ see itself ? Is it just going to set the high-level principles, or does it want to be a proper, fully-fledged IP court? My third concern, institutional issues. The ECJ has suffered with its internal inconsistency in IP cases. This has been both within the ECJ’s own case law and between the various chambers of the Court of First Instance (CFI). The ECJ is going to have to find a way of trying to get the answer right the first time, rather than going round and round the issues until it gets to a decision that it is in fact comfortable with. Linked to that is whether or not the proposal for a specialist IP tribunal should be taken forward. The CFI put forward that suggestion back in 1998, on the back of an estimation of between 200 and 400 IP cases coming from Alicante every year. That has not happened. They are at about 140 cases a year. But it still makes up 25 percent of the CFI’s caseload. Is there a reason, on the back of that and on the back of the consistency issues, to look at the development of a third level of jurisdiction — that is to say, an IP tribunal? Turning very, very quickly to the Community and European Patent jurisdiction that was mentioned earlier, there may be a concurrence of wills, but is it possible legally? If it is within the Community framework, is the ECJ going to take a robust position, as it did in respect of the European Convention on Human Rights accession proposal? Lastly, in antitrust there is a whole series of unresolved issues. National courts are playing a greater role in antitrust enforcement in the European Union. They are required to do so under the modernization rules. There is a Community Green Paper to try and improve the role of national courts in enforcement through damages actions.5 PROF. HANSEN: Thank you very much, William. Whatever you have to say further we can do in the discussion. I know that sounds brutal. That was fantastic. You have given us more food for thought than maybe we can even chew on in this. 4 Case C-348/04, Boehringer Ingelheim and Others v. Swingard; Boehringer Ingelheim and Others v. Dowelhurst, E.C.J. (Opinion of Advocate General Sharpston, Apr. 6, 2006), available at http://curia.europa.eu/jurisp/ cgi-bin/form.pl?lang=EN&Submit=Rechercher$docrequire=alldocs&numaff=C-348/04&datefs=&datefe=&no musuel=&domaine=& mots=&resmax=100. 5 European Commission, Green Paper on Damages Actions for Breach of EC Treaty Antitrust Rules, COM(2005) 672 (Final) (Dec. 19, 2005), available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri= CELEX:52005DC0672:EN:NOT.
62 S E S S I O N I : P L E N A R Y SE S S I O N The first thing I will ask you is: What about enlargement? Doesn’t that make the ECJ almost unworkable? MR. ROBINSON: No, I don’t think it does make it unworkable. The ECJ has reorganized itself into chambers in a way that it can still manage its caseload, it can still manage the language issue, and it can still manage the consistency issues. PROF. HANSEN: By the way, enlargement has gone to twenty-seven members of the European Union and they each have a judge on the Court. That is a massive number of people. They have no legal or judicial background. And they have to speak French. Isn’t that a nightmare. MR. ROBINSON: The language issue is difficult. French is the internal working language. The ECJ still essentially works in an hourglass system: everything comes in the twentythree languages, gets channeled through French, and then comes out in twenty-three languages. It is about as efficient in the middle as it can be. It is now moving towards English and French in the middle part. But the language issue is not an overriding issue for the Court. There isn’t the issue of cross-translation that you get in the political institutions. So that is one point. The second point is you would hope that with more personnel they could create more specialist chambers. I am sure there will be a strong drive for an IP specialist chamber. Now, that partly goes back to the power of the President of the Court in deciding which judge should be the Judge Rapporteur for a particular case. The Judge Rapporteur is the lead judge on the case, and it is that choice that will often focus the direction of the case. PROF. HANSEN: Of course, the Court did that informally, because it chose both Judge Gulman for a great number of IP cases (he didn’t start with IP expertise, but he developed it) and Francis Jacobs as the Advocate General. They worked as a team, creating a fairly consistent body of law. Do you agree with that? MR. ROBINSON: I agree with that. LORD JUSTICE JACOB: I don’t. I agree they worked together and I agree they produced a body of law. I just don’t agree with the word “consistent.” PROF. HANSEN: Well, actually you just disagree with the results, don’t you, Robin? LORD JUSTICE JACOB: No, I don’t. I think it is inconsistent. PROF. HANSEN: Okay, then you disagree. We can discuss that. I think the European Bar Association just filed a letter with the Court in which they say that they are arguing before five-judge panels and two or three of them are sleeping through the entire argument. I just spoke with someone who argued before the Court of Justice and said that two of the judges slept through the entire argument. I’m not sure why that should happen. PROF. LADDIE: They don’t do any damage that way. PROF. HANSEN: By the way, these were judges from the new Members. Actually it doesn’t matter, because the oral arguments don’t count anyway, do they? Isn’t that true? MR. ROBINSON: A smaller role. PROF. HANSEN: I like that. MR. ROBINSON: The book-dropping tradition in the middle of oral pleadings isn’t limited to the ECJ. PROF. HANSEN: William raised a number of interesting issues. Anyone want to speak to any of those? Hugh? PROF. LADDIE: I would like to say something. There has been talk about the tension between the ECJ and national courts. I know that there certainly was some tension between the ECJ and me when I was a national judge. I think one of the things that is not really properly appreciated is the really difficult job
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the ECJ has. In most judicial systems — but there is an exception here in the States — the supreme court consists of judges who have risen through the ranks and are the best and most experienced judges in the system, so they really know their stuff. What happened in Europe, of course, because of its political structure, is that each country appointed somebody to the ECJ. Lots of them were not judges at all. They were then presented with an extraordinary job of trying to make a cohesive legal system from zero. Poor dears. It would have been difficult even if they had all been judges. So it is not surprising that there are some problems created by this. That is why I think actually one of the most encouraging things about the ECJ is the creation of the CFI and its expansion and the possibility of creating specialist tribunals. That way you will end up, perhaps belatedly, getting some courts who understand what they are talking about. I feel very sorry for the ECJ particularly in the field of trademarks. Trademarks is a horrendously difficult area of IP law. It is made all the worse in Europe by having legislation that is internally inconsistent. Resolving those inconsistencies is the sort of job that needs the best and most competent IP-savvy court, and the ECJ does not fit that description. They are not good enough for the job. PROF. HANSEN: So would you say you are neutral in this issue, Hugh? PROF. LADDIE: Yes, sure. PROF. HANSEN: Judge Grabinski? JUDGE GRABINSKI: I would like to add this is not only true with trademark law. At the moment, trademark law is in the domain of Community law; therefore, the ECJ has competence to decide on these matters. At the moment, this is not the case with regard to patent law. Patent law is still national law or law under the European Patent Convention,6 and therefore not Community law. But just imagine for a second that patent law would be also in the domain of Community law. At the moment, as long as it is national law, we have in Germany on all three levels — on the level of the district court, on the level of the court of appeal, on the level of the supreme court — judges that practiced patent law for a long time, who are experienced, who know what they are doing, at least most of them. If the ECJ would have competence to decide on these matters, there is none of all the twenty-five judges who has any experience at dealing with patent law. Just imagine that this would be the last instance, the court that would finally decide, for example, how to interpret the scope of protection, what is equivalence, what is obviousness, and so on. Probably it will come down that they have a certain référendaire, who will be perhaps a specialist in patent law, and he will then decide and determine how to, for example, define equivalence. I think this perspective is not very promising. Therefore, I am quite content in this respect with the situation as it is right now. LORD JUSTICE JACOB: I agree with every word of that. The Community Patent, if it includes proposals for these judges to be deciding patent cases, will die because industry will simply say no. Their record in trademarks — and I agree they had a terrible piece of legislation to start with — is that they have had at least seventy trademark cases in the last ten or eleven years go to the ECJ, and trademark law is now more uncertain than it was when they started. If they got hold of patents, there is no reason to suppose that exactly the same thing would not happen. For that reason, I remain utterly opposed to the ECJ being involved in 6 Convention on the Grant of European Patents, signed at the Munich Diplomatic Conference for the Setting up of a European System for the Grant of Patents on Oct. 5, 1973, 13 I.L.M. 270 (1974), 1160 U.N.T.S. 231.
64 S E S S I O N I : P L E N A R Y SE S S I O N patent law. I see no useful purpose in it being involved in patent law. The European Patent Litigation Agreement (EPLA) proposal,7 where you borrow national judges and create a supernational patent court, is the way forward. As far as I can see, it is perfectly lawful, providing it is gone about in the right way. By way of an advance notice, the next edition of European Intellectual Property Review (EIPR) will contain an article mainly written by Tony Arnull, with a few additions by me, saying exactly why it will be lawful and that the European Parliament’s little provisional opinion that came out saying EPLA is not lawful can be bypassed readily.8 PROF. HANSEN: I think there has been inconsistency on trademark matters in the ECJ. Just to clarify, when Francis Jacobs and Claus Gulmann were both on a case, I don’t think there was inconsistency. You may disagree with it, but I think the decisions were consistent. LORD JUSTICE JACOB: The man who thinks that BABY-DRY and DOUBLEMINT 9 are consistent one with the other has got very special vision. They were guilty on both of them. PROF. HANSEN: I don’t think those cases were consistent. But Claus Gulmann was not the judge rapporteur on either case. And my point was that when he was the judge rapporteur and Francis Jacobs was the Advocate General, the case law was consistent. In any case, Baby-Dry and Doublemint were more the exception than the rule. Finally, I think the furor over the Baby-Dry case was ridiculous and hysterical. Professor Strowel. PROF. STROWEL: I don’t think that the ECJ will be one day a fully-fledged IP court, because it does not have the possibility to rule on many substantive IP issues, except in the trademark field. Many core IP issues, such as subject matter and conditions of protection and infringement in the fields of copyright or patent, largely remain outside the ECJ’s competence. Last year, eight out of the ten cases for referrals to the ECJ concerned trademark. This focus on trademark will continue. We might expect some fine-tuning of the trademark case law and some inconsistencies will probably disappear. It is quite surprising that we do not have that much case law in the copyright field. So far, although there is a very substantial legislative body, with seven copyright directives, we mainly have decisions on the exhaustion issue. That is not much. Sometimes the ECJ is too prudent, and that limits the impact of its decisions. The ECJ was very prudent on the interpretation of the communication to the public right, for instance. But that changed recently. The kind of U-turn from the decision in EGEDA v. HOASA10 to SGAE v. Rafael Hoteles11 is a very interesting development. In the SGAE v. Rafael Hoteles case, decided last December, the Court decided what “communication to the public” means, while it had previously considered it as a matter for national law. I think the ECJ will remain a court on “IP versus other bodies of law.” On the interface with other bodies of law, the ECJ will bring something substantial. For instance, the relationship between IP and competition will be a hot issue this year.
7 European Patent Organisation, Working Party on Litigation, Draft European Patent Litigation Agreement (EPLA), Draft Agreement on the Establishment of a European Patent Litigation System (2004), available at http://www.european-patent-office.org/epo/epla/pdf/agreement_draft.pdf. 8 Anthony Arnull & Robin Jacob, European Patent Litigation: Out of the Impasse?, 2007 Eur. Intell. Prop. Rev. 209 (2007), EIPR 2007, 29(6), 209-214. 9 Case C-383/99 P, Procter & Gamble v. OHIM (Baby-Dry), [2001] E.R.R. I-6251; Case T-193/99 Wrigley v. OHIM (DOUBLEMINT), [2001] E.C.R. II-417. 10 Case C-293/98, EGEDA v. HOASA, [2000] E.C.R. I-629. 11 Case C-306/05, SGAE v. Rafael Hoteles SL, E.C.J. (Third Chamber) (Dec. 7, 2006), 2006 O.J. (C 331) 3.
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The CFI decision in the Microsoft case will be issued before the Fall.12 There are other forthcoming decisions in the pharmaceutical field, on the relation between IP and patents, and those decisions will have an important impact. There are other areas of the law that will be considered by the ECJ. The interface between, for instance, copyright and privacy, or data protection, is as well in the pipeline of the ECJ, with the Promusicae case.13 So the ECJ case law is quite important, but not as much for ruling on the standard IP issues as for delineating the relation between IP and other bodies of the law. PROF. HANSEN: Lord Hoffmann. LORD HOFFMANN: I agree entirely with what Klaus Grabinski said about the horrors of the thought of the ECJ dealing with patent cases for the whole of Europe. I think there is an institutional problem, and that is the reference under Article 234 of the Treaty, the way in which cases get to the ECJ, which is that if there is doubt you have to refer it to the ECJ, and they then deal with it and they give an answer to the question. It would be much more acceptable if the ECJ were a supreme court for Europe, in which, if they wanted to give leave to appeal because they thought we were getting out of line with the Germans or the Italians or something like that, they could. The cases would come up through the system. National courts would deal with questions of European law. At the moment, we do not deal with any European law because we send it off to the ECJ to deal with. They, in turn, never refer to what the national courts say. So there is no European jurisprudence being built up in the national courts, where there is a certain amount of judicial expertise that you might think the ECJ could avail itself of. Therefore, it is the institutional change that I think is necessary. I would also take away their law clerks so that you could actually see what they were like when they wrote their opinions. You would then have a system under which occasionally we could even bear the possibility of the ECJ being a supreme court for patent matters because then they wouldn’t have to deal with them all the time. They could decide whether they were going to intervene or not. They could be like the House of Lords during the Napoleonic Wars, who in the song did nothing in particular and did it very well indeed. PROF. HANSEN: Graeme has not spoken yet. PROF. DINWOODIE : I am actually intrigued by Advocate General Sharpston’s comments about the minutiae that she sees at the national court level. One of the intriguing things, at least in trademark cases, is that the Court is feeling the need to intrude upon a lot of issues that I think properly should be treated as fact issues. This is perhaps because it has a harmonization impulse, and, of course, when you make them fact issues, it is quite natural in some instances for one national court to reach a different factual conclusion from another. I think, in fact, one of the lessons the ECJ probably has to learn is to live with is fact issues. We do not have a uniform European trademark law. Notwithstanding the Regulation and notwithstanding the Directive that harmonizes national law, you have discrete national markets with discrete national rights. I think the ECJ has to learn to live with the 12 Case T-201/04, EC Commission v. Microsoft [2004]; all case documents available at http://curia.eu.int/ jurisp/cgi-bin/form.pl?lang=EN&Submit=Rechercher$docrequire=all docs&numaff; decision available at http://ec.europa.eu/comm/competition/antitrust/cases/decisions/37792/en.pdf. 13 Case C-275/06, Productores de Música de España Promusicae v. Telefónica de España SAU, E.C.J. (Opinion of Advocate General Kokott, July 18, 2007), available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri= CELEX:62006C0275:EN:NOT.
66 S E S S I O N I : P L E N A R Y SE S S I O N fact that certain issues are fact issues and a lot of the national courts make determinations on those, and not feel the need to try to turn them into rules into law, but instead allow them to make a sort of European override of the national court determination. PROF. HANSEN: I see we have two seconds. Thank you to the panel for a lively and frank discussion. And thank you, William, for that great introduction.
SESSION II: PART A: LEGALITY OFCOPYRIGHT UNAUTHORIZED USE
SESSION II: COPYRIGHT
Unauthorized Use of Works on the Web: What Can Be Done? What Should Be Done?
Part A: Legality of Unauthorized Use
Moderator MORTON DAVID GOLDBERG
Cowan, Liebowitz & Latman, P.C. (New York) Speakers ALEXANDER MACGILLIVRAY
PROF. JOHN G. PALFREY JR.
Senior Product and Intellectual Property Counsel Google, Inc. (Mountain View, CA)
Executive Director, The Berkman Center for Internet and Society, Harvard Law School (Cambridge, MA)
DONALD B. VERRILLI JR.
Jenner & Block LLP (Washington, D.C.) Panelists SANDRA ASTAIRS
PROF. BRIAN FITZGERALD
Assistant General Counsel Time Warner, Inc. (New York)
Queensland University of Technology (Brisbane)
MICHAEL A. EINHORN
THOMAS C. RUBIN
Ph.D., Senior Consultant; Advisor, CONSOR Intellectual Asset Management (New York)
Associate General Counsel, Copyright, Trademark and Trade Secrets Microsoft Corp. (Redmond, WA)
MICHAEL SCHLESINGER
Smith, Strong & Schlesinger LLP (Washington, D.C.)
68 SESSION II: COPYRIGHT MR. GOLDBERG: Good afternoon. If you are looking for the panel on “Unauthorized Use of Works on the Web: What Can be Done? What Should be Done?” you are in the right place. The first segment will be “Legality of Unauthorized Use.” Let me first introduce everybody. I am Mort Goldberg of Cowan, Liebowitz & Latman in New York. I am your moderator. As I have had occasion to say in the past, the moderator is like the body at the Irish wake: you are needed for the thing to take place but you are not supposed to say very much. I do not plan to say to say very much. My primary job is to enforce brevity on both those on the dais and those in the audience. As Henry VIII said to each of his wives, “I won’t keep you long.” Let me now introduce you to the dais. They are, from left to right: John Palfrey, Professor at Harvard Law School and Executive Director of The Berkman Center; Don Verrilli, a partner at Jenner & Block in Washington; Alexander Macgillivray, Senior Product and Intellectual Property Counsel at Google. We then have the panelists who will participate in a panel discussion at the end of each segment of the presentation: Michael Einhorn, Senior Consultant, Advisor to CONSOR Intellectual Asset Management; Professor Brian Fitzgerald, Queensland University of Technology in Brisbane; Tom Rubin, Associate General Counsel, Copyright, Trademark and Trade Secrets, Microsoft. The speakers who are in the segment that will follow this are Sandra Aistars, who is Assistant General Counsel at Time Warner, and Michael Schlesinger, of Smith, Strong & Schlesinger in Washington. We will now start with John Palfrey talking about legality of unauthorized use. MR. PALFREY: Thank you so much, Mr. Goldberg. That was an impressive quick introduction. I will try to cede some time back also, given the quality of the panel. This is obviously a huge topic. In the context of an intellectual property conference that has many people in the audience who are also panelists, I thought I would just tee up what I think are the key issues and then Mr. Verrilli and Alex Macgillivray no doubt will take it on, and probably spar a little bit at that point. The title of this session is Unauthorized Use of Works on the Web and what could or should be done about it. It seems to me that the first thing is to take issue, of course, as you do in law school, with the topic. There is a whole lot that is in unauthorized use of works that is just fine and, in fact, that we want to encourage. In the last panel about copyright in the future, there was a lot of discussion about the value of democratization of creativity and so forth. I think we should bear in mind that many, many uses of works that are not copyrighted are great. There are uses of copyrighted works that, in fact, are unauthorized but also are great. Those are the classic limitations like fair use and implied license, things that the Technology, Education, and Copyright Harmonization Act (TEACH)1 protects in the United States. Just as an opening salvo, I would say it is critical, with any legal reform or any business reform, to note that we do not want to chill those kinds of unauthorized uses of works that are lawful — a “do no harm” starting point. Then I would say there are three categories from there in terms of issues that we might take up here. One is the set of probably not-all-that-controversial changes or approaches that might get us to a better place, as well as another set of approaches that are relatively
1 Technology, Education, and Copyright Harmonization Act of 2001 (TEACH), Pub. L. No. 107-273, 116 Stat. §§ 1758, 1912 (amending §§ 110(2) and 112 of the Copyright Act), available at http://www.copyright.gov/legislation/pl107-273.html.
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controversial. I will end with one that I think probably is the most controversial, to tee up the speakers to follow. In terms of the least controversial, I think one key thing that ought to happen and that we all — sort of the collective “all of us” — agree we should to have is better education of individuals. I think we have gotten to a place where the Internet overall is, in some quarters and by some people, thought of as an unlawful place where you can do anything; you can break the law and not be held accountable for it. The effort that we all make toward making the Internet just as accountable as the real space is important. I think we give lip service to this as a global community and then nobody really does anything about it. More responsibility should fall to schools or to parents to think about copyright education as a relevant part of what a young person learns today, not only because they might become a defendant if a case is brought, but also because, as you think about the democratization of creativity, young people are also the rights holders at the point at which they create something that is meaningful. So I would point to education as something that may be simply lip service and overlooked, but is actually super-important. Related to that, of course, in the accountability zone, people who are direct infringers and who clearly infringe copyright ought to be held liable for it. Efforts to enforce the existing laws make a lot of sense. This seems uncontroversial, but important. A second issue is the conversation around improving licensing schemes. I think one of the undisputed successes — or at least, I hope, undisputed successes — of the copyright space has been Creative Commons and the extent to which 150 million people deciding to license their works in specific ways to other people have taken some of the uncertainty out of the equation. There is a chance to build on top of this — perhaps a commercial set of licenses on top of the Creative Commons zone, or perhaps just the continued addition of this licensing scheme. Related to the licensing scheme are new business models. I understand that Sandra Astairs, our colleague from Time Warner, and others will be discussing this later in the panel. There is a ton of innovation that can be done by the private sector that would reduce the amount of unauthorized use of copyrighted materials that is going on. The third approach that I would say is in the “not that controversial” zone is to work towards developing further best practices, in terms of how people can reuse works, helping to define where the line falls between authorized and unauthorized. Peter Jaszi and Pat Aufderheide have done great work on this in the context of filmmaking.2 I think the articulation of what is a best practice for the creative reuse of materials by different sectors could be an extremely helpful approach to preventing more unauthorized works from occurring. So I would put those three forward as not controversial. Moving on to the more controversial proposals, the first is related to the conversations we had this morning about new licensing regimes. One is the notion of a collective form of licensing based on a subscription model that is voluntary — I know Tilman Lueder talked about this. There have been some concerns expressed about that resulting in a collecting society model in which this potentially competitive set of compulsory licensing is done on a non-compulsory basis, as in what Terry Fisher has proposed in his book,
2 See Pat Aufderheide & Peter Jasza, The Good, the Bad, and the Confusing: User-Generated Video Creators on Copyright, (Center for Social Media, Apr. 3, 2007), available at http://www.centerforsocialmedia.org/files/pdf/ good_bad_confusing.pdf.
70 SESSION II: COPYRIGHT Promises To Keep,3 in the last chapter, the entertainment cooperative and so forth. There is a lot in that zone that might be helpful. A second proposal that might be more controversial and might be helpful is further articulation of the exceptions and limitations, making clear what the rights are, the unarticulated rights, which are on the other side of the equation and which could well give greater clarity, and therefore reduce the incidence of the unauthorized uses. This is something that the non-governmental organization (NGO) community is very much in favor of in the international context The third one that I would say is in this category of somewhat controversial is technological protection measures (TPMs). Much of this will be discussed in the next panel.4 But it does intersect with the legal regime. Clearly, the way in which digital rights management (DRM) is put in place is clearly relevant. This has a lot to do with the legal background, in our context in the United States in Section 1201 of the Digital Millennium Copyright Act (DMCA),5 as well as its analogues elsewhere. But the most controversial, and the key one I think, that we will talk about here is the nature of secondary liability in copyright on the Internet. There are two classes of issues, obviously tightly related: One, relatively settled, the class of cases of Napster 6 and Grokster,7 which Mr. Verrilli and others have been instrumental in clarifying; but more recently, and more on the table, the interpretation of secondary liability on the Internet in the context of DMCA Section 512 — the YouTube-Viacom case8 being but one of many examples, DailyMotion in France,9 and so forth. The question is: How much liability do we place on the intermediaries that are providing the service? A lot hinges on the definition of these services. But where a third party does an unauthorized use of a copyrighted work online, I think this is where most of the action falls. I think the big question in the United States is: How will we interpret the DMCA, which was passed, roughly speaking, ten years ago? What did the Congress mean? How will it apply on a going-forward basis? There are lots of ways to look at this. One of the things that I would urge us to think about is: What will be the effect on further innovation after this interpretation? What are the effects of requiring the intermediaries to have some amount of liability if they are following what they perceive to be the letter of the law? I take this to be the position of most of the intermediaries who seek Section 512 protection, which is to say: “If every time we get a cease-and-desist letter, we in fact take it down, and we are honest about the process by which we do this, and if someone is a repeat infringer we kick them off the service, and we follow various rules — even if there are things that remain on the server, we get the safe harbor altogether.” On the other side, there is a complaint about this, which basically says, “You ought to know that there are lots of other ones up there and you have some further affirmative 3
William W. Fisher III, Promises to Keep: Technology, Law, and the Future of Entertainment (2004). See, infra this issue, Session II, Part B, Unauthorized Use of Works on the Web: What Can Be Done? What Should be Done? Non-Copyright Legal Solutions; Session II, Part C, Copyright Issues in Online Music. 5 Digital Millennium Copyright Act of 1998, 1998), Pub. L. 105-314, codified at 17 U.S.C. § 512 (Oct. 28, 1998) (DMCA), available at www.copyright.gov/title17. 6 A&M Records, Inc. v. Napster, Inc., 114 F. Supp.2d 896 (N.D. Cal. 2000). 7 MGM Studios v. Grokster, Ltd., 545 U.S. 913 (2005). 8 Viacom Int’l, Inc. et al. v. YouTube, Inc. et al., Case 1:2007cv02103 (S.D.N.Y. filed Mar. 13, 2007). 9 Christian C, Nord-Ouest Production c/ SA DailyMotion, SA UGC Images, Tribunal de Grande Instance de Paris, 3ème chambre, 2ème section, 13 July 2007, available at http:// www.juriscom.net/documents/tgiparis 20070713.pdf; see also http://www.juriscom.net/actu/ visu.php?ID=949. 4
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obligation.” Variants of the argument say, “If you are making some money from it somehow in the service, there should be a parallel to the vicarious infringement standard.” DMCA tracks this to some extent. A great deal hinges on this. Clearly, the extent to which you can provide services of the sort that are being challenged now hangs in the balance. But I think also we should think about what kinds of services have been able to go forward. GeoCities is the classic example, with ads and so forth, which clearly has infringing material, and where they have survived on the basis of the safe harbor. But what about things like email? What about things like the Amazon model? What are other models? If we restrict the meaning that, at least in the GeoCities model, one has ascribed, what will the effect on innovation be? So as we try to solve the copyright issue, we need to think about what the concerns are at a broader society level that also be implicated. MR. GOLDBERG: Thank you very much. I neglected to mention that, although I gave you the IDs for the various people in the dais, their impressive credentials are in the binders that you have. I urge you to look at them. Our next speaker will be Don Verrilli. MR. VERRILLI: Thank you, Mort. John made this all sound so calm and reasonable. I live in the part of the space that he described as more controversial, so probably it will seem less calm and reasonable ten minutes from now than it does now. I should say at the outset — because I don’t think the biographical materials make this clear, and I think it is only fair that you know this to evaluate my comments — I am representing Viacom in the current litigation against Google and YouTube,10 and did work on the Grokster case in the Supreme Court,11 and I have done other work for content companies. In the interest of full disclosure, that is where I am coming from on this. Obviously, as John said, there are lots of types of unauthorized use, including lots of different types of unauthorized use of copyrighted works. The unauthorized use that, as a practical matter, is problematic for content owners is not the creative or transformative unauthorized use. It is, from the perspective of the content owner, the unauthorized acquisition of digital copies and the unauthorized distribution of digital copies of copyrighted works and, more recently, the unauthorized acquisition of access to performances of copyrighted works through businesses like YouTube. As this breaks out, there have been efforts in the academic community, which I quite applaud actually for their honesty, to try to defend those types of unauthorized use as being beyond the reach of the copyright laws. I vigorously disagree with them, but I think they confront the problem honestly — in a way, frankly, that I think a lot of the litigation posturing hasn’t so far. You have that form of unauthorized use. And then you have business models that are designed to, and effectively do, generate very significant profits by exploiting the ability of digital technology to make those forms of unauthorized personal use available and occurring on a massive scale. There really are, when you think about it, three ways to defend that regime. They are all going to be implicated, I think, in the YouTube/Google litigation: 10 11
Viacom Int’l, Inc. et al. v. YouTube, Inc. et al., Case 1:2007cv02103 (S.D.N.Y. filed Mar. 13, 2007). MGM Studios v. Grokster, Ltd., 545 U.S. 913 (2005).
72 SESSION II: COPYRIGHT 앫 One is to follow the lead of the academic work and say the underlying use ought to be deemed to be beyond the reach of copyright. 앫 The second, as John mentioned, is to think about this in terms of the liability of the businesses and the business models, and to then defend on the ground that whatever the users of this technology are or are not responsible for, we, as the people running the businesses with this technology, should not be on the hook. 앫 The third is the other point that John made about the DMCA and whether the safe-harbor provisions of the DMCA allow people who run these kinds of businesses to say, “Yes, it might be infringement, and yes, we might otherwise be responsible for it, but so long as we abide by the terms of this statutory safe harbor, we are off the hook for any damages liability.” All three of those issues, I think, are going to be fought through in the litigation between Google and YouTube on the one hand, and Viacom on the other. I think, in the time I have, I would like to focus on the third one, because it is an important question. John identified it correctly as a controversial question. I think it is one that merits some attention. Some of what we have seen so far — I am certainly not trying to put any words in Alex’s mouth — from Prof. Lessig on the op-ed page in The New York Times12 and in some of the other rhetoric we have seen coming out as a result of the lawsuit13 has been the notion that there was a compromise cut in the DMCA in 1998, where content owners got certain protections (i.e., in particular, anti-circumvention protections) and, on the other hand, Internet service providers got very broad safe harbors, and that the point of this litigation was to try to recut that deal. I want to talk about the statutory basis for that argument in a minute, but before I do I would like to see if we could step back and think about that. If that is right, if the DMCA really does provide that kind of safe harbor, conditioned only upon a business responding promptly and effectively to a valid takedown notice, then you have a situation in which a company like YouTube — not YouTube, but a company like YouTube — could have on its Web site a banner across the top that says, “We are endeavoring to assemble a complete set of The O.C. episodes for this year. Please upload them to this site.” Then the next line could say, “And we really think you will enjoy this year’s O.C. Please view all of the uploaded episodes.” You could surround all that with advertising and generate revenue from the advertising. Someone could then sue you for copyright infringement. Your defense would be: “Well, as soon as the person who owns the copyright in The O.C. tells me to take it down, I will take it down. Until then, no damages liability.” It doesn’t seem possible that Congress actually could have intended to enact a statute like that in 1998. Yet that is the statute, according to what we have heard so far, that our friends on the other side are suggesting Congress did enact. When you actually go and look at the statute, I think it is not a surprise to see that the statute itself and the safe-harbor provisions themselves in Section 512 of the DMCA embody a balance within the provisions between the interest of the copyright owner, on the one hand, and the interest of the Internet service provider, on the other. It is not the case, for example, that the sole means by which a company would lose the benefit of the 12 Lawrence Lessig, Make Way for Copyright Chaos, N.Y. Times, Mar. 18, 2007, available at http://www. nytimes.com/2007/03/18/opinion/18lessig.html?ex=1331870400 &en=a376e7886d4bcf62&ei=5088&partner= rssnyt. 13 Viacom Int’l, Inc. et al. v. YouTube, Inc. et al., Case 1:2007cv02103 (S.D.N.Y. filed Mar. 13, 2007).
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damages safe harbor is by failing to respond to a valid takedown notice. There is an entirely separate subsection of the provision which says that if you have knowledge of infringing works on your service, or there are facts and circumstances from which that knowledge should be readily apparent, or that knowledge can be fairly imputed to you, you have an obligation to remove or disable access to the infringing works to sustain your entitlement to the safe harbor. That is completely apart from whether you get a takedown notice. So it seems obvious from that provision in the statute that Congress did more than just say, “You guys are fine unless you don’t respond to takedown notices.” There is another subsection in the same provision that says: if you achieve a direct financial benefit as a result of the infringing works and you have the right and ability to control their presence, you lose the benefit of the safe harbor. So, once again, Congress seemed quite concerned with the notion that there would be business models that would exploit the presence of infringing works and do nothing about them. It seems to me quite clear that Congress said that in that circumstance safe harbor does not apply. There is an even more basic point, I think, which is that, the way the statute is written, Internet service providers don’t get safe harbors. There are four specifically defined safe harbors for specific functions that an Internet service provider can provide: (1) routing and transmission; (2) caching; (3) linking; and (4) storage. It is only when you are sued for infringement by reason of one of those functions that you can claim entitlement to the safe harbor under the statute. None of these terms are very well defined in the courts. Google is going to have a view of how they ought to be defined. We have a view of how they ought to be defined. But one thing that I hope is clear from what I am saying so far is that the notion that there was a deal cut in 1998 that said, “You guys get anti-circumvention and you guys get an expansive safe harbor that keeps you protected under any circumstances, so long as you comply with takedown notices,” is just not what the statute says. As I tried to suggest earlier, it cannot really be what the statute was intended to say, because it would then become a shield for the most flagrant kinds of intentional infringing activities. When you get to a situation where you have a business and the business is about providing content to consumers — when it is a consumer media business — it seems to me the right answer here is going to have to be that you have certain responsibilities. Just to go back to John’s point, when you are running a consumer media business and you are making money from providing access to content, the responsibility ought to lie with you; that it ought to be your cost of doing business to prevent the infringement; that it ought not be that the cost of preventing the infringement, which can be a massive cost, gets shifted to the copyright owner. MR. GOLDBERG: Thank you, Don. Now we will hear from Alex Macgillivray, who I’m sure agrees with everything Mr. Verrilli has just said. MR. MACGILLIVRAY: It is always easy to agree with someone who is talking about hypotheticals, as opposed to the person that he actually sued. First and foremost, I want to get to something that happened this morning that I thought was quite a good thing and a relatively optimistic thing to me as a copyright lawyer. We had Marybeth Peters up here with Fred von Lohmann, and they were agreeing about something.14 The thing that they were agreeing about was the potential in the next ten years to really have a space where authors are empowered and where we could take 14
See infra Session I, Part C, The Next Ten Years in Copyright.
74 SESSION II: COPYRIGHT creativity and the ability of authors to actually get their material out there to the next level, and authors having the power to get their material out there, to get it seen by lots and lots and lots of people, to have the media companies be involved when it’s a good idea for the media companies to be involved, and yet to have a space for the creation of lots of different types of content and to make content creation be a part of everyday life. I want to show some videos. One of the reasons I want to show the videos is to talk specifically to Mr. Verrilli’s point about knowledge. I think, jumping into that third point — not the first, whether some things are just beyond the law; or the second, whether there is any liability there to begin with — the question is: If there is some liability there to begin with, does the DMCA provide what certainly everybody in the tech world thinks it provides, which is a safe harbor for the fact that some of your users may use your tools to in fact infringe, to put stuff up there that nobody really wants up there but that is infringing? Does that safe harbor actually apply the way we think it does, the way it has led to a bunch of different innovations in this space, and the way it lets us have somebody who is an author or a creator upload their material, without having to worry about Viacom turning around and saying, “Hey, the fact that you provided this ability for people to upload material means that you are now subject to a $1 billion lawsuit?” I am going to show a few videos. What I would like to do is, with your permission, play a little game about whether the particular videos are unauthorized use or not. Imagine that these videos are complete and that they are appearing on YouTube. My question for you is whether that appearance would be unauthorized. Here is the first one. [A video was shown.] Now I will switch to another one. Again, imagine that we have the whole thing there. [A video was shown.] Finally, this is the Clinton Fox News interview. Again, imagine that we have the whole thing there. [A video was shown.] I have shown you three videos. I just want a show of hands as to whether the first video was authorized or unauthorized. If you think it was unauthorized, please put up your hand. Absolutely nobody believes the first one was unauthorized, not even anybody on the panel. PARTICIPANT: Why don’t you ask if people thought it was authorized? MR. MACGILLIVRAY: That’s what I was asking, whether it is authorized or not. PARTICIPANT: There is another alternative, which is that you can’t tell. MR. MACGILLIVRAY: That’s a great point. I love this audience. I really enjoy coming to Fordham because I can just stop talking and let the audience get to the punch line for me. So let’s jump right to that. The question is, can you tell? Who can tell? The first was a video by Brooker. She knows whether it was authorized or not. But we the audience, we Google, do not know. The second video was the “Stop the Falsiness” video. This is a video in the Viacom lawsuit. I am not sure if Mr. Verrilli is representing them for this as well. The argument by MoveOn is that it is fair use. Mr. Verrilli said that fair use and transformative are not something they are trying to catch. But again, there is a question that maybe, even if you are the copyright holder, you don’t know. The third one was the Fox clip, which looks like a pretty professionally produced clip. It turns out that that one, in fact, was something that Fox uploaded, not under some sort of separate content deal with Google, but just that there was a user, who was Fox, who uploaded it. So there is an authorized use. The question of what you know is really central to this case, as Mr. Verrilli said. One of the things that I think these three videos, and also the response of this extremely intelli-
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gence audience, show is that there was a reason why Congress made the decision that the copyright holders themselves would be responsible for telling you what is theirs, what is infringing, and what they would like taken down. I want to shift gears a little bit and talk about YouTube specifically, and not just these general notions. I think a lot of people maybe don’t understand why we created YouTube or don’t understand what we do in terms of notice and takedown or what we are doing in terms of working with copyright holders. PARTICIPANT: Didn’t you buy it, Alex? MR. MACGILLIVRAY: Yes, we did buy it. Sorry. We are like the Borg: When we assimilate, we talk of “we.” When YouTube was created, what they were trying to do was to have a place to be able to host and pass around videos to friends. The videos that they were thinking of were like Steve Chen’s first video, a video of his cat playing. He wanted a way to share that with people. Email apparently was too much of a problem; it was too difficult for the people he was trying to share videos with. The question was: How would you create such a service? They did a whole bunch of things. One of the things that you can easily point to is the ten-minute limit. There were things you would do if you were trying to create a service that was good for sharing short, homemade clips, and less good for sharing things like television shows. They also did some things early on that you wouldn’t necessarily do if you were, as Mr. Verrilli has accused, trying to go out there and make a business based on copyright infringement. First of all, the DMCA process that they instituted is among the best and the fastest of any company that I know of. We get DMCA notices. We are very quick to take them down. We have built up an automated process — not required by the DMCA — that allows copyright holders to send us DMCA notices in a more efficient manner. There is a whole industry now that has built up around monitoring copyright holder content, again with the copyright holder being able to tell which is authorized and which is not authorized, and then telling the technology industry, the different companies, what content is the copyright owner’s and what is not. We also developed a hashing technology. When a user uploads a video and then it is taken down by the copyright holder and then the exact same video is uploaded by another user, we have this technology that we have been able to develop that matches that exact same video. We are now doing research and working with a bunch of different companies to try to come up with better ways to help the content industry search for their videos and to mark them as theirs and to take them down. This is all within the context of a tool, this original DMCA tool, that was part of YouTube from the beginning and was very much part of the way they were thinking about their part of the Web. Of course it is knowledge. Part of what is interesting in these debates is the actual allegations of knowledge are. One of the issues that was in the Viacom complaint, and one of the questions really, is whether merely making private videos available to people in private would be enough to not only qualify you as having induced copyright infringement, but also to make you lose your protection under the safe harbor. That is one of the issues that is in the complaint. Another interesting one would be whether paying $1.65 billion is enough, in and of itself. But getting back to the private videos question, if that is the case, then it seems like every single email provider would be guilty. The email providers do not make the contents of your email readily searchable by the content industry to make sure that there are no
76 SESSION II: COPYRIGHT copyrighted videos in those emails. They host them. They put them in repositories. They show them to people. They certainly distribute them. We, in fact, do also have an email product. I should be clear. But you don’t have the idea, in the way this was characterized by Mr. Verrilli, that you are trying to build your business on copyright infringement. There are two things I want to say about that. First of all, that is not the standard under the DMCA. It is not that this is a law that has never been brought into court before. There are plenty of companies — eBay,15 Amazon,16 Google,17 CCBill in a recent case18 — that have been shown to have been doing the things required under the DMCA. It is not a brand-new wild frontier where we can just theorize about it. There is precedent, and we are comfortable with that precedent. Second, even if there was some sort of test, as Mr. Verrilli explains, where you were trying to build your business on copyright infringement, he would not be able to meet that test either, because that is not what we are trying to do. What we are trying to do is make a place where people can upload content that they have created and share it with the world for free. It is true that when you let people do things sometimes they do the wrong thing. But that doesn’t mean that you should shut down the system entirely. MR. GOLDBERG: On the logistics of what we are about, we will now have a discussion with regard to the first topic, “Legality of Unauthorized Use.” After the discussion, we will have the presentations on “Non-Copyright Legal Solutions” by Sandra Aistars and Michael Schlesinger, and then we will have discussion of that subject matter after those presentations. Let me first ask our panelists, Michael Einhorn, Brian Fitzgerald, and Tom Rubin, if you have any comments on what you have heard so far. I am asking for very brief comments, please. MR. EINHORN: I would focus on the relationship between monitoring costs and uses of copyrighted works. I would make a distinction here between the costs of detecting personal reproductions on a computer drive, which in and of themselves are often very difficult to determine, and the costs related to public performances, which are easily monitored for digital applications. With present technology, we can observe whenever works are being performed on a digital network, or even if they have been uploaded to a netork. The question is: Can we then design a license that makes it possible to use online works at a reasonable cost? And the answer is clearly yes. This is because the performance rights for online works, as well as the associated reproduction rights for uploads to a network, entails monitoring costs that are considerably below those of reproductions made for personal uses. MR. GOLDBERG: Let me see if Tom Rubin and Brian Fitzgerald have any comments at this point. No comment at this point is not a waiver. Go ahead. PROF. FITZGERALD: In preparing for this panel my thoughts focused on three questions — which John has covered in large part : (1) What is the role for new licensing models, such as Creative Commons? (2) How do we draw the boundary between authorized and non- authorized — and how will this continue to change? What do we do with highly transformative derivatives? Is fair use the exception, the benchmark, or the starting point? 15
eBay Inc v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006). Corbis Corp. v. Amazon.com, Inc., 2004 WL 3092244 (W.D. Wash. 2004). 17 Parker v. Google, Inc., 422 F. Supp.2d 492 (E.D. Pa. 2006). 18 Perfect 10 Inc. v. CCBill. L.L.C., 481 F.3d 751 (9th Cir. 2007 Mar. 29, 2007), available at http://www.scribd. com/doc/267076/Perfect-10-v-CCBill-488-F3d-1102-9th-Cir-2007. 16
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(3) To what extent should the technology makers, Web site hosts, or intermediaries take responsibility? In the context of today’s discussion, may I add this very short comment? There has been some discussion around transformative use, and I think that is an issue that key people seem to be agreeing upon. It is an area that we need to consider more closely. In different jurisdictions, transformative use is still a significant legal issue in terms of copyright infringement. In the United States, you might have a more developed doctrine on transformative use than we do in other jurisdictions. The other point I would make is that the value of the social networking, the social value in what has been going on in this unauthorized space, is something that we need to assess more fully, and how we balance that with copyright enforcement is a critical issue in this debate. MR. GOLDBERG: Tom? MR. RUBIN: This is following up on some of the discussion earlier this morning. I think that what we are going to see is a world that is very heterogeneous, where there will be video uploaded sites, like YouTube, that have truly homegrown material or truly fair use content, which could indeed include the Stephen Colbert clip that we saw here. But the issue really is whether the user video sites should be homes for the showing of infringing content. There are means — and I didn’t hear this discussed so far in the panel — that content owners have and that they are pursuing to try to identify, for the sake of the technology company that is running the site, content that is infringing. I am talking about fingerprinting and the filtering that could accompany it. There are lots of ways that technology companies and content companies are working together now to ensure that the user sites are truly havens for users and other noninfringing material, and that commercial sites, which have much higher quality commercial content than even YouTube has, is the right place to have commercial content. I think that is the world where consumers and society benefit the most. MR. GOLDBERG: Thanks, Tom. I’m sure that there are no questions whatsoever in the audience. MR. MACGILLIVRAY: May I respond to Tom for one second? MR. GOLDBERG: I was being facetious. Go ahead. MR. MACGILLIVRAY: The only thing I would say is I completely agree with Tom. It is one of the things that we are doing in lots of deals with major content industry players. BBC, CBS, and others are using our service to get their professionally generated content out there. The only thing I would disagree with Tom on is that those need to be a totally separate service. I’m sure he didn’t mean that. MR. RUBIN: I didn’t mean that. MR. VERRILLI: Tom, let me follow up on that. I think it casts in a different light some of what we heard earlier from Alex. YouTube will filter for you now if you sign a licensing agreement with them. They have the technology. They will do it now. They will say, “Sure, we’ll filter, just sign the deal. If you don’t sign the deal, we won’t filter.” MR. MACGILLIVRAY: That’s just not true, though. MR. VERRILLI: So it is just not a matter of being in this world in which there is nothing that they can do. That is just not the reality that we face in this case. MR. MACGILLIVRAY: That’s just not true. What we are doing is working with a lot of people to try to figure out whether there are new search technologies that we can apply here, including fingerprinting, which Tom brought up. But we have never restricted our DMCA or any of our takedown tools to a deal or having some sort of partnership. We
78 SESSION II: COPYRIGHT will continue to not make those restrictions. I understand why that is a rhetorically interesting thing to say, but it is just not accurate. MR. GOLDBERG: Comments, questions? No comments? No questions? What you have heard is crystal clear and nothing has to be clarified and you agree with everything that you have heard? My God, this is a first! If there are no comments or questions from the audience, I’m sure, with a modest bit of encouragement, the people on the dais could force themselves to produce a few more comments. John? MR. PALFREY: Sure. One thing that seems interesting is: How do you think about the financial benefit issue? Does much hinge on whether or not you are making money generally on the service, versus making money individually on a clip that has been uploaded in some fashion? And how, if at all — not to get too much into statutory interpretation — does that relate to the vicarious liability standard? MR. VERRILLI: Obviously we are going to have a different view about that. One of the statutory safe harbor exits is if you achieve a direct financial benefit and have the right and ability to control the use. The notion of direct financial benefit, although Alex may feel it is very well-defined in the DMCA law, I think is something that the court in this case is going to have to decide, without a whole lot of precedent under the DMCA to guide it. But it does seem to me a matter of common sense that when you run an advertising-driven business, as YouTube is, that the ability to attract more users to your site drives up your advertising revenue. To the extent that the availability of copyrighted content is a driver of that traffic, it brings more people to your site than you would have at your site without the copyrighted material being so freely available, then I think it ought to be pretty clear that that is the kind of financial benefit that Congress is talking about, because it is not a matter of indifference. If the copyrighted material isn’t there, the traffic is not going to be as high and the financial benefit is not going to be as great. That is our take on that issue. MR. GOLDBERG: Michael? MR. EINHORN: By that standard, would you make any distinction between YouTube being a social networking site and Google being a search engine? MR. VERRILLI: I think in either situation, where the copyrighted material is making a significant difference in the level of traffic, that is a direct financial benefit. MR. EINHORN: By that standard, would search engines be liable for acts of infringement committed by Web sites or visitors ? MR. VERRILLI: It is very hard to think that it would make a significant difference. That is also only one part of the equation. MR. EINHORN: I understand. Should search engines be treated the same as social networking sites? MR. VERRILLI: You cannot answer that with respect to this question alone. There is a whole set of issues, things you have to answer to make that decision. You just cannot answer that in the abstract. But with respect to direct financial benefit, it seems to me more traffic equals more revenue; and if copyrighted material drives more traffic, it increases revenue. MR. MACGILLIVRAY: It is interesting that actually there is some legislative history talking about this point. I think that is the test that Mr. Verrilli just explained: if you are getting more revenue, in part, because there is some infringement there. That test is something that is discussed in the legislative history in an example that they use of something that would be not a financial benefit directly attributable. You will notice that they
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actually in the statute use different words than the words generally used in the vicarious liability test, the test that Don would like to adopt. The comment that they make is that if a particular Web site (they were thinking about Web hosts here) is hosting and charging for that hosting, then even the charging for the hosting of an infringing file — clearly, when you are hosting that file you are making some money from it — would not meet the DMCA’s test of financial benefit directly attributable. The reason is there are a whole bunch of hosting companies out there that were actually hosting material, a lot of it noninfringing, some of it infringing, and Congress meant to protect those companies. MR. GOLDBERG: Let me ask Sandra Aistars and Michael Schlesinger if they have any comments on what we are discussing now. MS. AISTARS: I am happy to comment generally on the discussion. I think there are a couple of points that were particularly interesting to me and relate somewhat to what I was planning to speak about in the next panel. I agree with the first point that John made, which was that he thinks it would be interesting to have a Creative Commons license expanded to commercial uses or adopted to cover commercial uses. I think it is an interesting thing to explore. It relates very closely to some of the issues that we have been discussing here, and also to some of the technology issues. Alex showed us a number of clips and asked can you tell which of these are infringing and which of these are not infringing. Of course, many of us sitting in the audience couldn’t immediately tell. But there are technologies that you can employ as an aid to tell whether they are infringing or not infringing. There are fingerprinting technologies so that you can identify a piece of content that has been uploaded to a Web site. If you combine that with some form of authorization, some sort of rules associated with how that content is authorized to be distributed by the content owner, I think you get a very interesting proposition. It is no longer a binary decision of take down or leave up, but it is a much more creative and engaging process, and one that I think is beneficial to consumers and beneficial to the companies involved on both sides. MR. SCHLESINGER: I would just add that it is clear that Google is in a process of riskmanagement in its approach to content. We are seeing the problems of an opt-out approach to copyright. The questions are myriad. Many of them are going to be answered in the lawsuit. One of the questions is: Why ten minutes? Why not five minutes? Why not one minute? If it’s Martin Luther King’s “I Have a Dream” speech, why not twenty seconds? Where is the nut of the copyright protection and why is it up to Google to decide how long or how short is acceptable to allow people to upload? I think that is one of the big issues. MR. GOLDBERG: I have seen some raised eyebrows in the audience at various times in the last half-hour. Hearing no comment, other than the rude interruption that I made and Dick Rudick followed up on during Alex Macgillivray’s presentation — MR. MACGILLIVRAY: That wasn’t rude at all. That was helpful. MR. GOLDBERG: In any event, are there any comments or questions? Fred. QUESTION [Fred von Lohmann, Electronic Frontier Foundation, San Francisco]: I have a question. It seems to me that there is a middle ground. Despite your valiant efforts to bicker, I actually think you have a lot more in common here than perhaps everyone is ready to admit. I hear, on the one hand, that there is no interest in attacking the kinds of new creative fair uses that these technologies allow, that the goal here is not to kill remix culture; the
80 SESSION II: COPYRIGHT goal here is to prevent the kind of piracy that undermines existing business arrangements. Okay, that’s very reassuring. On the other side, I hear Google and others, Tom as well, say, “We can do additional things. The tools are improving. We can create search tools that will allow rights holders to more accurately find and take things down faster.” Now, there is a big fight about whether that is required by the statute or not required by the statute, but it seems to me if there is this common ground, whether it is required by the statute or not, there are some private ordering opportunities here for Google and Microsoft and other players to roll out tools that go beyond what Section 512 requires. Presumably, some money may have to change hands in the course of finding the middle ground, as well. But I just do not see a fundamental difference here. I see content owners want to be able to take things down accurately, quickly, and make sure they do not go back up. The technology companies are saying, “We probably can get there and we want to get there.” On the other hand, I hear content owners saying, “And we don’t want to stop the creative stuff.” So is it just a matter of time until this is solved? MR. EINHORN: The devil is in the details here, and the details are the transaction costs of doing everything that you suggest could be done by users and content owners. It is not enough to say that the use is being used for commercial purposes. We know that in Campbell v. Acuff-Rose19 you did have a fair use for something that was used for commercial purposes. The next thing to do is to consider other factors besides the commercial purposes. I still make a crucial distinction between YouTube and Google. YouTube is allowing users to put works up on their server and then has immediate control and responsibility over the material. This is different from the Google search engine, which does not control the Web site that may infringe or to which infringers may link. Both Google and YouTube are, of course, commercial enterprises To find the devil in the details you must here focus on where the transaction takes place and who can monitor the system at lowest cost. Now, it seems very clear to me that you can make YouTube responsible for cleaning up material on its servers. But we have a different problem when we talk about finding stuff on the third-party Web site that the Google search engine links to QUESTIONER [Fred von Lohmann]: Alex is right. I don’t see any rational way you can claim that the service provider should know in advance every copyrighted work. So there needs to be an identification obligation. MR. EINHORN: Apparently, concerning a search engine. MR. GOLDBERG: We will come back to this. John Palfrey had a comment or a question. MR. PALFREY: I just wanted to not lose the issue that Brian Fitzgerald brought up, which I thought was intriguing, about transformative use. I didn’t mean to take it out of order, but it seems you left something out. MR. FITZGERALD: It was simply to echo what Fred has been talking about. To me one of the things we are going to do in ten years’ time is look back upon this great debate we are having and say, “Why did it take so long to get this solved?” On another front, one of the big problems we have in my jurisdiction is over transformative use. A fair amount of the content that is up on the Internet is transformative. 19 Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994), available at http:// supct.law.cornell.edu/ supct/html/92-1292.ZS.html.
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So why can’t we clarify its legality with some certainty? It seems to me, as Fred highlights, that there is not a hell of a lot of distance to go on that one. I suppose the other thing that I would like to say, though, is that this compact around the DMCA, which we have a version of in Australia, which has been expanded under the Australia-U.S. Free Trade Agreement,20 is very much about the dynamic technology that is the Internet. We just can’t lose sight of that fact either. It is incredibly important to have an Internet that actually works in a very dynamic fashion. I think if we lose sight of the compact that we’ve got in the DMCA being related to that concept, then we might as well forget the dynamic nature of the Internet. MR. GOLDBERG: The lady over there has a comment. QUESTION [Maren Christensen, Universal Studios, Universal City]: We are obviously interested in this debate, although we are not a plaintiff in it, so I don’t have first-hand knowledge of it. I have tried to keep up on this in the press. Alex, I believe the press is reporting that you are treating differently the content owners who will enter into licenses with you from the content owners who will not when it comes to how you deal with the infringing content. But I understood you here to say that is not correct. I just wanted to be sure I understood what you were saying. There is no difference in the way you treat content owners who enter into licenses and those who do not? MR. MACGILLIVRAY: Our current technological solution that we have in terms of the DMCA is the notice and takedown process. The people who are partners versus the people who are not partners are not treated any differently. We are working, as Tom suggested, on experimenting with other ways of doing content identification. We are at the very beginning stages there. We are starting with some people with whom we have relationships. That is not something that is fully baked. We do not even know actually whether it will work. Nobody has done it in a large-scale way yet. But we are trying to make progress there, and we are trying to make progress because, as Fred says, it requires the content holders to help us with the identification. We are trying to make progress with some content holders that we already have relationships with and who already trust us. MR. GOLDBERG: Tom Rubin wanted to comment. MR. RUBIN: Just very briefly, I do want to make clear where there is a difference right now between Google’s approach and Microsoft’s, although, as Alex said, there is some common ground there. Microsoft has committed for our user-uploaded sites to institute filtering. That is something that we have committed to. We have also committed that when we do that it will be applied equally to people with whom we have commercial agreements and people with whom we do not have commercial agreements. There is an obligation on the content provider, of course, to use the database that is used as the match. That is a tool that is intended to be, and will be, open to all content owners. MR. GOLDBERG: Don, do you have a quick comment? MR. VERRILLI: Yes. Despite the denunciation of my position before on this issue, I think, in response to the question, Alex said that they are implementing technologies with their partners that they do not implement with people who are not their partners. MR. MACGILLIVRAY: No, that is not true. You probably do the same thing, right? You 20 See Australia-United States Free Trade Agreement (Jan. 1, 2005), art. 17, available at http://www.dfat. gov.au/trade/negotiations/us.html.
82 SESSION II: COPYRIGHT do tests with people that you know, and then after you get out of the testing phase you do other things. MR. GOLDBERG: We’ll go to Dick Rudick, who has a very brief question or comment. QUESTION [Richard Rudick, John Wiley & Sons, New York]: My comment follows on Fred’s version of a brave new world. You do need an identification mechanism, and you need it no matter where the responsibility lies, if we are going to have an efficient world. But you need a second thing besides an identification process, which you need regardless of where the responsibility lies. That is, you need something that facilitates efficient licensing. I know that is the topic of the next panel. Sandra alluded to it. There is the Automated Content Access Protocol (ACAP), which is an effort to develop an efficient way of processing licenses. That is the second thing you need to make this brave new world work. It is the kind of thing we should work on, and there is opportunity for collaboration. MR. GOLDBERG: Thank you. Andrew Bridges is next and then we will go to Bruce Lehman. QUESTION [Andrew Bridges, Winston & Strawn, San Francisco]: First of all, I should disclose that I represent Google in Perfect 10 v. Google 21 and MasterCard in Perfect 10 v. Visa and MasterCard.22 I would like to ask Mr. Verrilli about Perfect 10 v. CCBill,23 which was mentioned by Mr. Macgillivray. Recently, the Ninth Circuit held in a DMCA case that just because a Web site says it has stolen materials or just because it has passwords does not mean that the service provider definitely has knowledge, because it may be, as the Ninth Circuit pointed out, a salacious claim or a hoax and the like. The Ninth Circuit said the burden is not on the service provider but is on the complainant to police these types of sites. In your view, was the Ninth Circuit’s decision in Perfect 10 v. CCBill wrong? MR. VERRILLI: Well, the Ninth Circuit said a lot of things. QUESTIONER [Mr. Bridges]: On that point. MR. VERRILLI: I will get to that point in a second. One thing it said, though, was that the DMCA did actually adopt the common law test of vicarious liability. But on that point, it seems to me that this is another situation where the devil is in the details. You are talking about the situation in CCBill and comparing it to the situation we have here. I understand the strategy of going atomistic on the videos and looking at these three particular ones, but to draw from that the conclusion that there is a lack of knowledge is a little bit like being “shocked, shocked” that there is gambling going on in Rick’s Place. I just think that there is a practical, commonsense way in which you have to understand the term “knowledge.” When you have a situation like this, it is very hard in a practical, commonsense way to say there is knowledge. MR. GOLDBERG: One more question. QUESTIONER [Andrew Bridges]: Could I ask one very quick follow-up, please? Don, you mentioned an atomistic approach. The other approach is a constructive knowledge 21 Perfect 10 v. Google, Inc. et al., Case No. CV 04-9484 AHM (SHx) (C.D. Cal. 2007) (finding no infringement). District court ruling of May 16, 2007 available at http://www.cacd.uscourts.gov/CACD/Recent PubOp.nsf/0/3fdcaed8913a22018825711c005055a5/$FILE/ CV04-9484AHM.pdf. 22 Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, First Data Corp., Cardservice Int’l, Inc., Humboldt Opinion Bank, Mastercard Int’l, Inc., No. 05-15170, D.C. No. 05-00371-JW (9th Cir. July 3, 2007), available at http://www.ca9. uscourts.gov/ca9/newopinions.nsf/ EF5B069 AA425BC38825730D00579E8C/$file/0515170.pdf?openelement. 23 Perfect 10, Inc. v. CCBill L.L.C., 481 F.3d 751 (9th Cir. Mar. 29, 2007), available at http://www.scribd.com/ doc/267076/Perfect-10-v-CCBill-488-F3d-1102-9th-Cir-2007.
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approach based on statistics. Was Betamax 24 wrong, and should it be overturned on that point? MR. GOLDBERG: Thank you, Andrew. Bruce? QUESTION [Bruce Lehman, Akin, Gump, Strauss Hauer & Feld, Washington, D.C.]: There has been a lot of discussion about notice and takedown. Of course, that implies that once notice is given the work will not be used at all. But it seems to me, just off the top of my head, that is not always in everyone’s best interest. The thing that has puzzled me about this from the beginning is these uses. We saw examples that were not whole works. In fact, there are serious questions about whether some of these uses might even be fair uses. So isn’t this made to order for collective licensing? I think Duck Rudick was suggesting that. Sandra Aistars would probably be able to answer that. Have you had discussions about collective licensing mechanisms? MR. EINHORN: Regarding fair use, let me suggest that the criteria for fair use should be independent of whether the medium is analog or digital. MR. GOLDBERG: The court holds time is up.
24
Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417 (1984).
SESSION II: COPYRIGHT PART B: NON-COPYRIGHT LEGAL SOLUTIONS
SESSION II: COPYRIGHT
Unauthorized Use of Works on the Web: What Can Be Done? What Should Be Done?
Part B: Non-Copyright Legal Solutions
Moderator MORTON DAVID GOLDBERG
Cowan, Liebowitz & Latman, P.C. (New York)
Speakers SANDRA AISTARS
MICHAEL SCHLESINGER
Assistant General Counsel Time Warner, Inc. (New York)
Smith, Strong & Schlesinger (Washington, D.C.)
Panelists MICHAEL A. EINHORN
JOHN G. PALFREY JR.
Ph.D., Senior Consultant; Advisor, CONSOR
Executive Director, The Berkman Center for Internet and Society, Harvard Law School (Cambridge, MA)
PROF. BRIAN FITZGERALD
THOMAS C. RUBIN
Queensland University of Technology (Brisbane)
Associate General Counsel, Copyright, Trademark and Trade Secrets, Microsoft Corp. (Redmond, WA)
ALEXANDER MACGILLIVRAY
DONALD B. VERRILLI JR.
Senior Product & Intellectual Property Counsel, Google, Inc. (Mountain View, CA)
Jenner & Block LLP (Washington, D.C.)
86 SESSION II: COPYRIGHT MR. GOLDBERG: Now we will move into the next part of this session. In the previous panel we talked about unauthorized use and some solutions. We will now turn to noncopyright solutions, to be defined by the speakers. MS. AISTARS: I have foreshadowed what I am planning to speak about today by my comments in the previous panel. The title of our session is “Non-Copyright Solutions to the Unauthorized Use of Works on the Web.” I think that it was left to us to define for ourselves what is meant by that. Since this heading is broad enough to accommodate a variety of topics, what I have chosen to talk about is how, other than through copyright infringement lawsuits, content owners are dealing with unauthorized uses of content on the Internet. While I think it is true that we certainly do not stand idly by while others build commercial businesses on the backs of our copyrighted works, it is also true that we authorize, by way of license arrangements — or might be willing to authorize, subject to license arrangements — a far wider range of uses of our works than people commonly expect. At Time Warner, we take a multifaceted approach towards digital distribution and towards combating piracy and copyright infringement of our works on the Web. That consists of, I would say, three principal approaches.
앫 One is education and public awareness. John referred to educating users as something that is rather noncontroversial and something all of us should do. I agree; it is certainly something all of us should do, and something that each of us, whether in the academic community, or in copyright-driven businesses, should take seriously. Why is it important? I believe that most consumers do not intend to be copyright infringers. As new technologies emerge and expand a user’s technical ability to access and make use of works, it is partially our responsibility to put those uses in the proper context. While we embrace new technologies, we also need to combat the conditioning that sometimes occurs and that leads users to believe that any sort of use that one might be able to make of a work by using technology that is available in the marketplace is legal or fair or should be authorized. The only way we can do that is by educating consumers as to what the copyright law allows and does not allow. And, by the way, as services for exploiting and distributing user-generated content are becoming more and more popular, these education initiatives should include educating users about their rights as creators of works. 앫 Technology, which is the second approach we employ to deal with unauthorized uses of our works on the Internet, plays a part in that. The goal when we employ technologies to help distribute works digitally is not to lock up content, but rather to authorize the greatest and widest variety of uses of content that we can imagine, and to use Digital Rights Management (DRM) and other related distribution technologies to establish guideposts for consumers that allow them to understand the differences between the various options that they are being offered for a particular piece of content. My view on DRM systems is that they need not be perfect or impenetrable to work and to be useful. If part of the goal is to establish guideposts for consumers who want to use content legitimately, then what we first need to do is to ensure that the sorts of systems that we are implementing, the sorts of uses that we are authorizing, are ones that consumers are interested in taking advantage of. There is a lot of discussion in the media, and among critics of DRM systems, about the “cat and mouse” game that those deploying DRM solutions sometimes play with hackers. One way of limiting the damage a hacker can do to a DRM system is by seeking to meet
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legitimate consumer interests in deploying systems in the first place. Although it is probably true that every technology is hackable, and that those which are deployed by big companies are particularly attractive targets to hackers because of the mischief hackers can create and the publicity they can generate in hacking them, I think consumers conduct a cost/benefit analysis when they are determining whether or not to use a particular hack that might be available on the Internet. Even though a technology might have been compromised in some way, it still carries some value, to the degree that a consumer finds that it is not worth the added expense or added trouble to employ that hack in order to get access to the work in totally unprotected form. That argues for more transparent and more flexible protection measures being developed. I think those are being developed and are being deployed. I think some DRM systems will succeed better than others. Those are likely to be ones that are deployed with a broad amount of discussion among industries, so that there is a greater understanding of the types of technologies that are likely to be offered in the future by our colleagues in other Industries, and the technological landscape in which the DRM or other distribution technology will have to operate. 앫 I think all of these approaches are important, but equally important is to offer compelling and legal content offerings to consumers. This is the third prong of our approach towards battling infringement on the Internet. We at Time Warner have been, I think, at the forefront of offering some very interesting and compelling offerings to consumers. Everyone is familiar with Video on Demand (VOD) and Subscription Video on Demand (SVOD). That has been an enormously popular digital distribution method for consumers, whether it is delivered via cable or via the Internet. Roughly half a million buys of Warner Home Video content alone on services like CinemaNow and Movielink illustrate that consumers are not always interested in a permanent copy of a show or movie, and that they are willing to pay a different price to watch it once and not retain a copy for future watching. Those sorts of demarcations on DRM systems are valuable and useful to have. But we are not stopping with these sorts of basic offerings. We are exploring various other options and various other means of distributing content, including bundling e-copies of content with DVDs when they are sold as physical goods, at some incremental cost. We are doing a variety of electronic sell-through deals. Many of those deals allow for additional copies to be made of the content so that it can be moved to portable devices or moved to other devices in your home, so that you can take the content with you or view it in different rooms, at your convenience. We have done a variety of deals with technology providers, like BitTorrent and with mobile technology providers, which I think is important on a variety of levels. One, I think it illustrates that we, as well as our colleagues across the industry, recognize that technology is an opportunity for us and that a variety of technology platforms may serve our interests in distributing content. Even those technologies that in the past were associated primarily with infringing content. Warner Brothers was, I believe, the first company to partner with BitTorrent in developing the now-legal BitTorrent service, which offers both VOD and download models to consumers employing peer-to-peer technology on a day-and-date basis with the DVD release of the content. The offering that we are presenting allows the consumer to make a permanent copy plus three backups. It allows you to burn a disk that can be played on the PC to which you
88 SESSION II: COPYRIGHT downloaded it. You can stream the content around your house to watch it on other devices in your home. The pricing on certain of the offerings is as low as $0.99. A comparable deal is one that we did in Europe with In2Movies, which was a joint venture with Arvato Mobile, that also employs peer-to-peer technology to distribute the content. The model that we are using there allows the consumer to download, to own the content, and to obtain four additional copies for their PCs and for portable devices that they use. Again, it is available day-and-date with the DVD release. These are all models that we are exploring, and they are all models that rely heavily on the availability of DRM systems —first, to give us sufficient comfort to release content in digital form into the marketplace; and second, to distinguish for consumers the differences between the offerings that are made to them. I was going to close with a quick discussion on user-uploaded content sites and how we are viewing those, but I think that is something that was well handled already by the earlier panel, so I will cede the last minute and thirty-five seconds of my time back to Mort. MR. GOLDBERG: Michael Schlesinger. MR. SCHLESINGER: I have come to view copyright as an economic and social pie that can grow. It does not seem to me that it is a zero-sum game. That is why I think the economic studies that have been done over the years, both in the United States and in many other countries, and the ones now being conducted by the World Intellectual Property Organization (WIPO), are replete with data showing that strong copyright protection results in increased contributions from creative industries to national GDP, job creation, tax revenue growth, foreign sales and exports — all the positive commercial benefits. That is why legitimate right-holders are often in the best position to bring to market more culturally diverse materials and expand protection and promotion of great literary, artistic, cinema, and music software from around the world. We are also seeing that the copyright pie can shrink or become tainted. The starkest way to look at this is what I do every day. Those who espouse illegal uses of copyright I try to fight. We call it piracy. They view it, in many countries, as a legitimate business model. Again, it is risk management for them: The profits are far higher than any risk of ever getting caught. Of course, here I speak not of people in this room, but the commercial actors and markets around the world. They simply find the profits from unauthorized use of copyright so desirable, and such profits so outweigh the risks of getting caught, that it is an easy business decision. Ethics never really enters into it. But there are other ways that the pie can shrink. We heard this morning a discussion about democratization of creativity. I am the first to say that I love Google and I love to use Google for search. I love to see collaborative efforts that are authorized. But the question is: Can those who democratize collaborative works make a living at it, or do they work nine to five and then “communitize” or democratize after work? Does the communitization or democratization of creativity have the potential to shrink the pie? I do not have answers today; I am just asking the questions. I have seen all the economic studies on copyright. I just am noting it. Does the pie become tainted by unauthorized uses of copyright — for example, unauthorized adaptations? Mash-up culture is great, if everybody agrees and no one is hurt. What happens when not everyone agrees or when there are modifications made to content that can distort or mutilate it? I was very glad to hear John mention education in the schools in the previous panel. I think that is one of the most important things that our generation of teachers and
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lawyers need to do. WIPO will hold an Intellectual Property Day event on April 26, in which young high-schoolers will participate. One of the high schools that is featured, which I work with on a yearly basis, just completed a Concerto for Guitar and Orchestra that was performed by the Northern Virginia Community College Orchestra. I spend as much pro bono time as I can on copyright awareness. I believe that it is an extremely important part of what we are talking about here today. I think Thomas Rubin is also right, that the surround is more heterogeneous and that it is possible that all of these can coexist, that you can have a pie that both grows in terms of content owners and also is richer in terms of the number of people who are engaging in creativity. The heterogeneous surround requires heterogeneous approaches or solutions. Fred has mentioned some approaches; others at this table have mentioned others. There is even a place for litigation to deal with it when we cannot figure it all out, such as an opt-out approach to copyright, rather than an approach to copyright that views the rights as default rules, where the right-holder has the ability to decide whether to authorize or prohibit uses of copyright. I think that is at the crux of what this litigation is about. I applaud Fred’s attempt in his comments to try to bring the gap closer together. I think, in fact, that may be the case. On the other hand, I do think that there are fundamental issues involved in the litigation. I would like to point to a couple of examples of copyright and non-copyright approaches that seem to be working — or not working, in some cases. First, with copyright, I want to talk a little about the encouraging recognition that I see in the international decisions dealing with secondary liability. Commercial actors that generally exhibit more or less respect for copyright and who take steps to foster, or fail to take steps to prevent, infringement are being held accountable in these cases, whether or not they are infringers themselves. The clarification of secondary liability in the United States, in Australia, in Korea, in Japan, and in Taiwan demonstrates this trend. I think Australia KaZaA is a very good example of a reasonable approach to the issue. Of course, it led to litigation.1 If the Australia KaZaA folks had decided to engage in the kind of filtering that was available at the time, perhaps it would not have led to the end result, which is that the court said: “You, commercial actor, have the technology in front of you to help consumers do the right thing. Now do it. If you do not, we, the government, with an interest to protect authors and right-holders, not just those who have the capacity or wherewithal to step forward, will stop you.” I think the point in that parenthetical is very important. There are right-holders who are not in this room, and who do not have the capacity to come forward to a Google or to another service, but deserve to be protected just as much as the larger right-holders. Then there are non-copyright approaches to the issue of unauthorized use. I will just speak to the physical realm, which is the realm that I deal with most of the time. I suppose, just as a rhetorical question, I would pose this: Are there approaches in the online space that are similar? I deal with CD, DVD, and CD-ROM piracy on an everyday basis. I think the example is instructive, since, as in the online environment, it involves relatively finite legitimate demand — in this case, for disks — around the world, but rapidly increasing production capacity, and indeed massive overproduction. In order to protect those that have applied a roadmap to respectability, those plants that license and that produce legal disks, and do a great and important service, in fact, to 1 Universal Music Aust. Pty, Ltd. v. Sharman License Holdings, Ltd., [2005] F.C.A. 1242 (KaZaA), available at http://www.austlii.edu.au/au/cases/cth/federal_ct/2005/1242.html.
90 SESSION II: COPYRIGHT right-holders all over the world — not just right-holders that request that their rights be upheld, but all the time, as a default — mechanisms such as source identification and things similar to what we would view as a Rights Management Information (RMI) or a DRM approach have been introduced. Source identification is not a copyright concept, in a sense, because it is a relatively basic forensic tool. Like a DRM, it provides information: Where was the disk produced? Can it be matched to a legitimate license? What are the terms of the license? There are also cruder forms of identification, such as microscopic examination of evidence on disks. The point is that Source Identification Code (SID Code) works remarkably well at identifying plants producing unauthorized copies of copyrighted material. In addition, there are now measures in place to prohibit wrongful tampering with the SID Code. Again, all of these things in the physical realm look very similar to some of the DRMs. When I was asked to talk about non-copyright systems, I wanted to speak with you about something I know that possibly is applicable in the online environment. I think the optical disk area is one way to look at it. There are other forms of non-copyright approaches to protecting copyright, such as authenticity of labeling, the authenticity of holograms used by legitimate right-holders. There are also some other systems, like government-mandated holograms or stickers, which simply do not work quite as well. So as we work through these processes in the online environment, maybe it is instructive to take a look at the physical environment and see how some of these systems and approaches have worked. MR. GOLDBERG: Thank you, Michael. Before we go to the experts in our audience, what about the experts on the dais? Any comments, questions? Do you agree with everything you have heard? PROF. FITZGERALD: I would like to make a short comment. There is a certain theory by Joseph Schumpeter, who was an economist who wrote in the 1940s, which suggests our economies grow by being challenged by new ways of doing things.2 The whole theme of this panel to some extent — unauthorized use in the form of seamless access, someone sitting in front of a screen and with the click of a button being able to access content and reutilize it — is one of those challenges for our economy and asks us to consider how such a new way of disseminating knowledge and culture will be integrated into our business and legal frameworks. One of the critical things from a legal perspective is that we need to put in place appropriate and workable licensing models from the very commercial end to the very open end. One of the great challenges for us is to see how we can accommodate this new technology. In the next ten years we will no doubt see a completely different business and legal environment. And Schumpeter may well be right, that the innovation that we are being challenged with now will be the new business model of the future. A lot of the things that have been mentioned by Time Warner are things that five years ago we would have thought, “Why aren’t big businesses doing these things? Everyone one else wants them to do it.” Now they have actually started moving on a lot of those things. I just wonder what the next five years will show us in that space? MR. GOLDBERG: Sandra? MS. AISTARS: I would comment that one of the core reasons for us being able to do the 2 See, e.g., Joseph A. Schumpeter, The Creative Response in Economic History, Journal of Economic History 7 (1947); Joseph A. Schumpeter, Business Cycles: A theoretical, historical and statistical analysis of the capitalist process (McGraw-Hill Book Company) (1939).
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things that we are doing in the digital environment is the Digital Millennium Copyright Act (DMCA),3 as much criticized as it is by participants in this forum sometimes, and the support that it gives to DRM. I think people like to point to the DMCA and point to DRM technologies and say, “Look, it’s going to be a horrible world where all content is locked up,” and “The DMCA hasn’t served us well,” and “We haven’t rolled out the promised new opportunities.” I think that is not the case. Time Warner is not alone in this. Look at our colleagues in the movie industry. Look at our colleagues in the recording industry. Everyone is experimenting with new business models. MR. PALFREY: Just to be clear, Sandra, are you referring to Section 1201 in that context? MS. AISTARS: Yes, I’m talking about Section 1201. MR. GOLDBERG: Michael Einhorn? MR. EINHORN: The only thing I would add on this point is that law does not have to solve all the problems at the immediate moment. Markets have a way of working things out. For example, if we consider since 1914 how much infrastructure has developed to protect the performing right, we are tempted to ask: What made it possible for all that to happen? The law only did one thing to facilitate all this: it simply recognized the right of public performance. After that, everything was handled by private institutions — ASCAP, BMI, SESAC — as well as some licensing organizations formed by the users, such as the Radio Music Licensing Committee and the Television Music Licensing Committee. All this infrastructure arose because the law says “a performance rights exist,” end of story. The same thing here in connection with business models and collecting societies. A lot of work has to be done. A lot of it has to form, congeal, work things out. The important thing for Congress is to define the laws very clearly and establish the standards that can be used. MR. GOLDBERG: Is there a comment or a question from the audience?? QUESTION [Ed Lee, Moritz College of Law, Columbus, OH]: I wanted to push back a little bit on this. There seems to be a sentiment, especially in terms of the education, that in the online video space there is an easily definable category of infringing unauthorized uses of what we might call time-shifted clips. I do not think that category is actually that easy to determine. So, for instance, the CEO of CBS is on record basically saying that CBS wants to promote the mash-up culture and being able to use clips of CBS shows.4 CBS is in a partnership with YouTube and putting clips of CBS shows online. So that is one case where it is not clear that even the copyright holder has a problem with what people are doing on YouTube. The other case is involves Viacom’s “Comedy Central” shows.5 Stephen Colbert made several jokes about having his shows on YouTube. The producer of “The Daily Show” made a joke about it as well, and he specifically stated in an interview that they wanted to have a compromise where some of their shows would be okay to be put on YouTube. So I don’t know if the category of time-shifted shows or clips of shows is actually that easily condemnable. MR. GOLDBERG: Let’s see if we have some comments here. John? 3 Digital Millennium Copyright Act (DMCA) of 1998, Pub. L. No. 105-314, (codified at 17 U.S.C. § 512 (1998)), available at http://www.copyright.gov/title17. 4 See Leslie Moonves, Chief Executive Officer, CBS, Keynote Address Before Con-sumer Electronics Show (Jan. 9, 2007), available at http://www.cbscorporation.com/media/ pdf/CBS_CES_Moonves_speech_FINAL.pdf. 5 Viacom Int’l, Inc. v. YouTube, Inc., 2007 WL 775611 (S.D.N.Y. filed Mar. 13, 2007).
92 SESSION II: COPYRIGHT MR. PALFREY: Just to be clear, the point of raising the education issue was not that we can teach everybody to be really good copyright lawyers who all can analyze Section 107 perfectly. That’s not the point. There is clearly going to be a zone in which it is going to be tricky to know. I totally credit Les Moonves and others for what they are doing in that respect. What I was thinking about is a really simple idea. School kids, these digital natives, are all the time creating new stuff. Put them in the curriculum in that position of a creator. They will see the rights coming in, the shoulders of giants they are standing on, and then they will also be in the position of a rights holder and realize somebody else might reuse this at some point. I think introducing the tension and the basic facts could get us a long, long way, but not to perfection, in terms of understanding. To Alex’s point, the knowledge thing is going to be really tricky. MR. GOLDBERG: Alex? MR. MACGILLIVRAY: One thing that I would add is something that is somewhat underplayed in the DMCA. That is the flexibility that it gives content holders to figure out whether they want to have something up at a particular time, or a particular day, or from day to day. I think it really builds on that example. We have had lots of occasions where we have had a DMCA notice over something and then found out that the same company that sent us the DMCA notice was actually the user that posted it, that the DMCA notice was a mistake, that they didn’t mean to take down their own video that they had uploaded themselves. There are just as many examples of companies that believe, at least for the time being, that having this stuff up is a good idea. Again, one of the nice things about the DMCA is it gives the content holder that ability to give it a try for a little while, see what the results are; and if they don’t like it, they can always send a DMCA notice and get it removed quickly. MR. GOLDBERG: Don? MR. VERRILLI: I have two points in response. First, that is not the flexibility in the DMCA. That is just what any right-holder has, which is the option to enforce or not to enforce your rights. I don’t really think that has anything to do with the DMCA itself. It is just your option to decide what is in your interests as a right-holder. Second, going back to Professor Lee’s point — and what I think is troubling and does not really confront the issue — yes, you are right, there is some risk of the category being over-determined. But it seems to me that then you have to confront the issue that what that means is that, because of that fact, you are going to allow all of the other non-over-determined illustrations to go on and all of that infringement to occur. It is really not hard when you see the latest episode of a particular television show chopped up into three pieces on there in sequence. The fact that there may be some difficulty at the margin seems to me not to be a good enough answer to the question about “What about all that stuff that’s not at the margin?” MR. GOLDBERG: Sandra? MS. AISTARS: I think Don has pretty much made the points that I would have made. MR. GOLDBERG: Bruce Lehman? QUESTION [Bruce Lehman, Akin, Gump, Strauss Hauer & Feld, Washington, D.C.]: Is now the time for me to ask my question to Alex and Sandra? I think they represent the two sides of this issue. We hear all about DRM, and certainly I understand that, but certainly in the YouTube situation, the examples that we saw in the earlier panel, we are basically dealing with amateur video makers who want to assemble various kinds of
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content, some that they make, some that may be in the public domain, and some that may be under copyright. We certainly have seen the very effective use of collective licensing in other areas of copyright. Indeed, in the music business now, with regard to the new performing rights for sound recordings, we see the development of sound exchange and so on and so forth. Let me ask you, Alex, if that is something that you have looked into. Would you be willing to tolerate some kind of collective license, where maybe you would pay some kind of blanket fee that would be distributed among content owners according to the basis of use? MR. MACGILLIVRAY: We are not even waiting for the collective rights society to magically emerge. We are out there every day doing deals with content holders to get their content up and to have them also be able to authorize and get payment for the material that they believe is theirs but is uploaded by users. It is something that we are doing every day. We keep getting new partnerships there, and we have a whole fleet of lawyers that do that. QUESTIONER [Mr. Lehman]: Obviously, that is content owner by content owner. You still have holdouts. You still have a problem then, because you still have infringing material. Is there any discussion of a collecting society on either side or not, or is this something you are not interested in? MR. MACGILLIVRAY: Bruce, let me just segue to push it to the content owners. I think that the idea of forcing content owners into a deal is not something that we are typically concerned with. If the content owners want to do collective licensing, great. If the content owners want to do one-off deals, we’ve got the resources to help them with that. If they want to not have any of their content available on YouTube, that’s okay too. We really leave up to the content holder and what they want to do. MS. AISTARS: From the content owners’ side, we have been focusing on direct deals with companies, rather than on a collective licensing approach. The thing that is important to understand when we are thinking about user-uploaded content sites — and Fred alluded to this — is the fact that maybe there is a middle ground, maybe we can work things out; we’ve got technology that we can rely on. If you are talking about administering any sort of a licensing approach, there is a kind of two-step process. The first is identifying what is out there and whose it is so that you can deal directly with that person, or deal directly with the agent that they have authorized, whether it is a collective licensing agency or otherwise, to handle the approach to the content. The second part of the puzzle that is necessary is some effective form of actually having that license, or having information about the content attached to the content, such that the decision can be made on a technology basis and not by either the user-uploaded content side or the content owner employing huge staffs of people to sit and review clips that are appearing on a site on a daily/hourly/minute-by-minute basis. What that seems to require, at least from my perspective, is that, as a baseline, sites that are doing user-uploaded content employ some form of technology at the front end to be able to identify what is going up. Is it my video of my cat, or is it my favorite clip of something from “Adult Swim?” Once that technology is employed, then you can determine: Okay, if it is the “Adult Swim” content, does Turner authorize that content to stay up so long as whatever advertising that is associated with it is no removed? MR. GOLDBERG: We have another question. Fred? QUESTION [Fred von Lohmann, Electronic Frontier Foundation, San Francisco]: I want to add a little more context to Bruce’s point and sound another note of optimism. I
94 SESSION II: COPYRIGHT think we have the beginnings of a collective approach, de facto, already. You see the music industry licenses that were struck with YouTube, where Universal and EMI both essentially said, “When things go up that are ours, we will have the option to either send the takedown or participate in ad revenue that may be yielded.” Now, I know as a legal matter that is not a direct license to end-users, but as a practical matter it essentially sends the message to end-users that you can use their music in any way you like and, at least in many circumstances, they will happily accept payment. I think there is hope that some of these new original licensing approaches may yield what will operate very much like a blanket license. I think for many rights-holders the payment would be sufficient. Now, Sandra raised this issue, so I have to ask her: When you suggest front-end filtering, you say, “Sure, my ‘Adult Swim’ clip maybe shouldn’t go up.” But what if that “Adult Swim” clip is embedded in a parody, a satire, a mash-up, a who knows what? Are you suggesting that the kind of front-end filtering you are talking about would do more than simply block verbatim copies? MS. AISTARS: I am not suggesting one way or the other what the outcome should be once you’ve identified that it is ”Adult Swim” content. I think that is up to each individual. QUESTIONER [Mr. von Lohmann]: That it is that content or that it merely contains that content? MS. AISTARS: I think it is actually the same question ultimately, because the only way you are going to get to the question as to whether it is an authorized or an unauthorized use, whether it is something that is arguably a fair use, is to first identify what piece of content we are looking at. Also, do I need to look at it as Turner, for instance, with “Adult Swim?” Do I need to even review that clip to determine whether I am licensing it or not licensing it? I don’t want to throw cold water on this coming together of thinking on the topic here, but I think there is a very important question that we have been brushing under the table: Whose obligation is it to take the initial step to do the screening? Alex and Don discussed it. Alex was saying, “We don’t treat anybody who is not our partner differently in terms of the takedown tools we offer them, and the ‘claim your content’ tools.” I’m sure that is right, but that is not really what the debate is about. The debate is about whether something needs to happen on the front end, at Google or at YouTube, or whether the obligation is being shifted somehow to the content owner to monitor the site and to take things down. MR. GOLDBERG: John Palfrey has a comment or question, after which we will go to Dick Rudick. MR. PALFREY: Actually it turns out to be on roughly the same topic. I would be curious what those who are in the content-owning industry think about the collateral damage of the takedown process. I am troubled by this. I am not sure how to feel about it exactly, and Fred has done more work on it than I have. When Viacom sent 100,000 notices to Alex and YouTube saying “these things need to be taken down,” as I understand it, Google took them all down. I was told that in that mix at least sixty were found to be non-infringing. One of them was a close friend of mine in a ribs joint near here. It was really boring. It was thirty seconds of a couple of guys talking about OPML, some obscure technology. I don’t know why, but it got caught up in this. There certainly were many others of that sort. There is currently a back-and-forth with the NFL about a clip that Wendy Seltzer, who
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is a Fellow at our Center has put up, which has been up and down a few times, which she is using in her teaching as an example of a fair use case, for instance. So there are things that are sort of the collateral damage getting caught up in the cease-and-desist process. I wonder how we think about that. MR. GOLDBERG: Don? MR. VERRILLI: I’ll address that. You know, sixty out of 160,000 is pretty good. Remember that we are doing this approach because this is what YouTube told us we had to do to protect our copyrights. The whole point here is that YouTube says to us and the other copyright owners: “It is staying up there until you send a takedown notice.” When you are talking about the volumes of works that we are talking about hundreds and hundreds of thousands of them, you are talking about a very daunting endeavor. My sense of it is somewhat more optimistic in terms of the collateral damage. It really was a pretty small percentage of the overall activity, and it was, as I hope events will demonstrate going forward, something that Viacom had no intention of inflicting, and has tried to act responsibly once it has learned about it to try to get that material back up. MR. GOLDBERG: Thanks, Don. Dick Rudick? QUESTION [Richard Rudick, John Wiley & Sons, New York]: As the Director of the Copyright Clearing Center, I am very pleased at all the excitement and interest in collective licensing, which I think has to be part of the brave new world. I would like to take it to another place because it is as important for the efficient operation of search engines as it is for the efficient operation of operations like YouTube. I want to tie it in with something Marybeth Peters said this earlier morning. She talked about focusing on authors and on what I’ll call small producers (could be small publishers). It is not enough that Time Warner and Google can get together. For copyright to work in the interests of readers and society and the creative community, you have to have efficient mechanisms that work not only for large corporations, for their content, but for small providers, not all of whom are individuals — small companies, producers of documentaries. So I think we do need this universe of content collecting societies. I think, out of fairness to Google, if we want them to pay — and we have disagreements about what they should pay for and how it should all work — and if we want them to respect our vision as content owners of copyright, we need to provide efficient mechanisms and we need to cover the content of the small producers. MR. GOLDBERG: Very good. One last question or comment. We are running out of time. QUESTION [David Brennan, University of Melbourne]: I was just wondering how YouTube places obscene material on its site and whether that process is entirely complaint-reactive? MR. GOLDBERG: Who wants to respond to that? Alex? MR. MACGILLIVRAY: Very quickly, we do it in a similar way to the DMCA, where our users actually tell us when something is pornographic, as opposed to in copyright, where you cannot tell whether it is unauthorized or not on the face of it. If there happens to be naked genitalia, that is something that we mark as pornographic. But it is after the fact. Just be glad I didn’t say “ass.” MR. GOLDBERG: On that note, I want to thank very much the experts on our dais. Thank you very much.
SESSION II: COPYRIGHT PART C: COPYRIGHT ISSUES IN ONLINE MUSIC
SESSION II: COPYRIGHT
Part C: Copyright Issues in Online Music
Moderators ERIC J. SCHWARTZ
Mitchell Silberberg & Knupp, LLP (Washington, D.C.) PROF. SILKE VON LEWINSKI
Max Planck Institute for Intellectual Property (Munich)
Speakers ZOLTÁN BÁCSI
HOWARD P. KNOPF
Legal Advisor, European Parliament (Budapest)
Macera & Jarzyna LLP (Ottawa)
JACQUELINE CHARLESWORTH
TILMAN LUEDER
General Counsel, National Music Publishers Association (Washington, D.C.)
DG Internal Market, European Commission (Brussels)
ELLIOT PETERS
Vice President, Senior Counsel & Head of Digital Legal Affairs, Warner Music Group (New York)
Panelists DAVID O. CARSON
DAVID JONES
Associate Register for Policy & International Affairs, United States Copyright Office (Washington, D.C.)
Principal Program Manager Microsoft Corporation (Alexandria, VA)
98 SESSION II: COPYRIGHT MR. SCHWARTZ: We will continue the copyright issues, focusing now on digital music issues. Good afternoon. My name is Eric Schwartz, from the law firm of Mitchell Silberberg & Knupp. I will provide a brief introduction and an overview of the U.S. digital music copyright issues. First, let me briefly describe the setup of this panel. Silke von Lewinski from the Max Planck Institute, my co-moderator, will begin with an introduction of the European Union digital music issues. Then we will have Tilman Lueder, who needs no introduction, and Zoltán Bácsi from the European Parliament, speak on digital music and collective administrative issues in the European Union. We will then do a quick stage change and have three speakers speaking on the United States: Jacqueline Charlesworth from the Music Publishers Association; Elliot Peters from Warner Music Group; David Carson from the U.S. Patent and Copyright Office; and David Jones from Microsoft. Then, last and certainly not least, Howard Knopf will speak on Canadian issues. Todd Larson, who was going to represent Digital Media Association (DiMA) and the webcasters, was taken ill and is unable to be here this afternoon. Let me now turn the program over to Silke. PROF. VON LEWINSKI: Thank you very much. Good afternoon, everybody. One year ago we talked about the European Commission’s recommendation on online music licensing.1 Tilman Lüder presented the recommendation, and we had some panelists with controversial views about its possible consequences — since it is a non-binding instrument, one cannot easily know what the outcome will be. At the time, as has become usual at Fordham, we held our crystal balls in our hands and tried to predict what would happen. The only thing we were really sure of was that we would come back here one year later and know more. This year we know a little bit more, indeed — at least about what happened as a consequence of the recommendation. The recommendation aims at promoting competition between collecting societies as regards online music licensing in favor of the right owners, who are now enabled to choose one or several European collecting societies for online music licensing instead of having to address all of each country individually. I am very glad Tilman is here to tell us about the outcome of the recommendation to date from the European Commission’s point of view. MR. LUEDER: [Remarks here and throughout the following discussion deleted at request of Mr. Lueder. Please see related paper by Mr. Lueder in the Appendix at p 1031.] PROF. VON LEWINSKI: You know that, apart from the European Commission, we have other institutions in the European Union that dislike this instrument for many reasons, namely, the Member States, the Council, and the European Parliament. I am glad that we are able to have on this panel a representative of the European Parliament, Dr. Zoltán Bácsi, who is Legal Advisor to Mme. Lévai, the Member of Parliament who was responsible for a report on the recommendation of the Commission that was adopted by the Plenary of the European Parliament just in time for the Fordham Conference, namely on March 13th.2 1 Commission Recommendation of 18 May 2005 on Collective Cross-Border Management of Copyright and Related Rights for Legitimate Online Music Services (2005/737/EC), available at http://ec.europa.eu/internal_ market/copyright/management/ 2 European Parliament, Legal Affairs Committee, Report on the Commission Recom-mendation of 18 October 2005 on Collective Cross-Border Management of Copyright and Related Rights for Legitimate Online Music Services (2005/737/EC) (2006/2008(INI)), DOC A6-0053/2007 (Mar. 5, 2007), adopted at first reading, Mar. 13, 2007, available at http://www.europarl.europa.eu/sides/getDoc.do?Type=REPORT&Reference=A62007-0053&language=EN.
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This report takes a quite different approach. It focuses on issues that would probably not at all be issues in the United States, such as the consequences of the recommendation on cultural diversity and on the individual author, the importance of the cultural and social role of collecting societies, the importance of the work of smaller collecting societies, right owners, and of local repertoire, the solidarity function of these societies; and the unwanted effect of the recommendation, namely, to strengthen mainly the most profitable right owners. Even if the report is not legally binding, it has a political weight that should not be underestimated, all the more because the report was adopted by unanimity. After all, the European Parliament represents the voice of the people, so to speak, with this report. With this short introduction, I pass on the floor to Dr. Bácsi. DR. BÁCSI: Thank you very much. It is a great privilege to be here and to describe, I can say now, the position of the European Parliament. It was adopted by unanimous vote, not only in the plenary session, but in the Committee on Cultural Affairs and Committee on Legal Affairs as well. So there is strong support. I do not believe that the European Commission has the one and only solution, and not even the European Parliament, but we should avoid the threat of the wrong answer. I will talk about the resolution of the European Parliament and say a few words about the importance of the copyright sector in the European Union, not only its huge representation in the EU GDP, but the importance of making sure that the copyright and neighboring rights in this growing digital domain are managed properly to benefit all involved, not only for a few. You know the present license scheme, so I can skip it. You know the current system of music rights licensing, the flow of rights from the right-holders to the collecting rights managers, and the commercial users as well. It is typically European. You have the acquisition of local repertoire, on a basically national basis, and then, under step two, the acquisition of worldwide repertoire. It is a network of representation agreements, so-called reciprocal agreements. There are two main models in the new licensing sector. Actually, the difference is that the Commission advocates in its recommendations Model D with the so-called Option 3, while the Parliament has indicated a preference for Model E, not Option 2. It is a modified compromise between Option 2 and Option 3.3 I would like to stress just one aspect of the recommendation. The recommendation carries no force of law. It is a so-called “soft law.” It does not need the consent of the European Parliament or the Council. Nevertheless, this recommendation is having a very tangible impact in the market, equivalent to that of binding legislation. Theoretically, it is non-binding legislation; however, in practice it acts like binding legislation, but without the consent of the Parliament and the Council, the so-called “legislative triangle” of the European Union. As was mentioned, there are three options under the Commission’s recommendation. My first problem with the recommendation is with its impact assessment. I think it is a wrong simplification of this very important and very complex area of the copyright 3 The EC Study on a Community Initiative on the Cross-Border Collective Man-agement of Copyright, released in July 2005, proposed three options for the improvement of the current situation: (1) do nothing; (2) suggest ways in which cross-border cooperation between national collective rights managers in the 25 Member States can be improved; (3) give right-holders the additional choice of authorizing a collective rights manager for the online use of their musical works across the entire EU. European Commission, Commission Staff Working Document (2005): Study on a Community Initiative on the Cross-border Collective Management of Copyright (July 2005), available at http://europa.eu.int/comm/ internal_market/copyright/management/management_ en.htm.
100 SESSION II: COPYRIGHT sector. Ladies and gentlemen, you are the best experts of the copyright sector, so you know it is not easy to simplify this area and this very fast-developing domain. So I think it is a wrong simplification of this area. We do not support forcing one business model on the market. We would like to see that all the stakeholders are able to determine the best solutions in the different areas, find the best solutions for the different sectors of the digital online copyright area. I think that these are two conflicting concepts. Basically, we have to say that the European Parliament does not support Option 2. With the controlled and moderated competition, it is supported among societies, on the basis of the rights administration service, not underlying right royalties, and because it avoids a downward spiral of the royalties. The EMI Music Publishing approach could illustrate this. For example, EMI Publishing has rights from all existing European CRMs. I think it may be the first bad sign that these myths are not only myths but real dangers. Just a few words on the “soft law” approach. The European Union is unhappy with the “soft law” approach. By failing the Parliament and the Council, we think the Commission has bypassed the democratic process. Yet the recommendation is impacting the market as if it were binding law. Theoretically, as I mentioned, it is a non-binding act, but in practice it has the effect of binding law. The European Parliament’s report sent a strong signal to the Commission that it is unacceptable to ignore the legislative triangle on highly relevant issues such as this and calls for a framework directive, which is a legislative act, instead of the “soft law” approach. Some words on cultural diversity, which I do not think is only a myth. You know that it is a very important question in Europe. The motto of the European Union is “Unity in Diversity.” The European Parliament believes that the introduction of competition among collecting societies in the Internet and digital age is necessary and is compatible with the cultural diversity, but not in the rather rude manner proposed by the Commission. Our objective was to find a good balance. I think we found a good compromise between Option 2 and Option 3. This compromise aims to provide guarantees to rightholders and one-stop shops for the users of music, as well as to promote cultural diversity through introduction of controlled competition. The main elements of the European Parliament’s proposal: 앫 Prefers the reciprocal system of the collecting society in Europe. 앫 Encourages introduction of competition among collecting societies for the right-holders in a controlled manner — this is very important — and not the “big bang” approach of the Commission. 앫 Guarantees that individual right-holders can continue to join the collecting society of their choice. 앫 Promotes availability of the world repertoire — this is important — for all collecting societies, large and small. 앫 Argues for solidarity — this is important — and equal treatment between authors and publishers affiliated with collecting societies, important European issues. 앫 Prevents exclusive agreements between major publishers and a few large collecting societies, thereby creating an oligopoly situation in Europe. (I do not think this is only a myth.)
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앫 Introduces competition on the quality and efficiency of services provided, but prevents forcing down the level of the royalties. 앫 More important, the one-stop shop for users seeking to obtain a pan-European license. 앫 Calls for a directive reflecting these objectives to demonstrate the European Parliament’s support for strong cultural diversity in Europe. I think all these elements are important. PROF. VON LEWINSKI: Thank you very much. I believe that the last-mentioned element is probably the most important one, which directly leads me to a question for Tilman Lueder. The actual proposal by the European Parliament is that the European Commission should propose a legislative act — instead of a non-binding unilateral measure, such as the recommendation — in the form of a framework directive, setting some common standards on the operation of collecting societies in the European Union, in order to enable them to work under common conditions and, accordingly, to allow for preconditions of fair competition. This is the ball thrown from the Parliament to the Commission, which is the only body with the right to initiate directives and other legislative measures, followed later by the participation of the European Parliament and the Member States. MR. BACSI: Actually, I cannot answer your question about the legislative act. Is it possible that the European Commission will prepare or launch a directive with the participation of the stakeholders, and the European Parliament counsel as well? I think that was one of the main elements of the question. Mr. McGreevey has chosen, instead of launching a legislative act, the same old “wait and see.” But I am afraid it is time to have a legislative act in this important area, not only a “soft law” approach. Just some remarks on diversity. I do not think diversity is equal to inefficiency. I think European diversity is an important value. Different national values could add additional value to the common European values. I am afraid I cannot agree with this definition of diversity, that it is the main reason for inefficiency. On the other hand, competition is very important. But the subject of this competition is not simply Hoovers or freezers or some simple things. It is subjective — for example, “the art of Europe.” I think some regulation in the case of this intellectual property is necessary. So I do not agree to competition without any regulation. Those are the main points. PROF. VON LEWINSKI: Thank you very much. Very good points, indeed. Julie? QUESTION [Julie Samnadda, European Commission Legal Service, Brussels]: Can I comment briefly on the concept of controlled competition? There is nothing in EC competition law and there is nothing in the EC Treaty4 that would prevent collecting societies from applying the full force of competition law to collecting societies. There is no argument to date that has been successfully made that would say that collecting societies have some sort of special-interest undertaking within the meaning of the Treaty. The 2005 recommendation was based largely on one of the Four Freedoms of the EC Treaty, which was the provision of services. It was an attempt to enforce decisions that were taken several years ago in the area of competition law that had to do with 4 Treaty on European Union, Feb. 7, 1992, 1992 O.J. (C 224) 1, [1992] 1 C.M.L.R. 719, 31 I.L.M. 247, amending Treaty Establishing the European Economic Community, Mar. 25, 1957, 298 U.N.T.S. 11, 1973 Gr. Brit. T.S. No. 1 (Cmd. 5179-II) [hereinafter EEC Treaty], as amended by Single European Act, 1987 O.J. (L 169) 1, [1987] 2 C.M.L.R. 741.
102 SESSION II: COPYRIGHT rights-holders being able to choose their service provider. I refer to the GEMA decisions of the late-1970s/early-1980s,5 where rights-holders wanted to leave their collecting society in relation to the administration of certain rights. You may have read in the press recently about one or two high-profile competition cases that have to do with iTunes and CISAC.6 Whilst I can only refer to what has been said in the press about these cases, both cases have underlying them market integration and the way rights managers in the European Union administer rights. As you will see from those cases as they play out over the next few years, what is at stake is the crossborder provision of services between rights-holders in the entire chain. The idea that there could be controlled competition in this area is something that has no legal basis. PROF. VON LEWINSKI: So we are back to competition law. Maybe someone else wants to focus on a different issue? The recommendation touches upon so many different issues. QUESTION [Sarah Faulder, MCPS-PRS Alliance Ltd., London]: MCPS-PRS Alliance in the United Kingdom is one of the co-venturers of GEMA in the CELAS Project. I am just curious, Mr. Bácsi, as to how you believe that the value of music, of copyright, can be maintained in a situation where you are encouraging societies to compete against each other for users. That seems to be one of the things that comes through from the report. I know you say in the report that the value should be maintained, and yet there are other contradictory statements that it seems to me make that impossible to achieve. MR. BACSI: That is why I mentioned that some regulation is necessary, because we have to avoid the situation you have mentioned, a cost spiral in the royalties. So we have some proposals in our report, for example, to use different and fixed tariffs in each country that is the location of the download, which can prevent the competition for the users and for the cost spiral of the royalties. So I think a model of some regulation, some mixture of the so-called Option 2 and Option 3, could prevent these dangers and could save the limits of the royalties, and the value of the music as well. PROF. VON LEWINSKI: I call upon the public. I know that some of you here are insiders. QUESTION [Cees Van Rij, Buma/Stemra, The Netherlands]: I made a comment last year in the same context. I would like to reiterate part of that comment. The reality is that for the small and medium-sized societies in Europe — and I am not here to defend the system overall; I know there are flaws in the system — the reality is that five of the major publishers have written letters to all of the European societies withdrawing their repertoire for online exploitation. Fact. This is not a myth, this is a fact. Now, what does that mean? That means that between 70 and 80 percent of the repertoire currently available to those societies will not be available to those societies for online licensing. That is a fact. The reality is that then the cost base for those societies does not diminish by the same proportion, clearly, so the right-holders that remain with those societies will have to bear a larger burden of the costs of operating the society. In addition, you split up the repertoire no longer according to territorial boundaries; 5 See Joined Cases 55/80 & 57/80, Musik-Vertrieb Membran GmbH and K-tel Int’l v. GEMA (Gesellschaft für musikalische Aufführungs — und mechanische Vervielfälti-gungs-rechte), [1981] E.C.R. 147, 2 C.M.L.R. 44. 6 See, e.g., European Commission, Press Release, Commission sends Statement of Objections to the International Confederation of Societies of Authors and Composers (CISAC) and its EEA members, Memo/06/63 (Feb. 7, 2006), available at http:// europa.eu/rapid/pressReleasesAction.do?reference=MEMO/06/63&format= HTML&aged =0&language=EN&guiLanguage=en; Press Release, European Commission, Competition: European Commission confirms sending a Statement of Objections against alleged territorial restrictions in on-line music sales to major record companies and Apple, Memo/07/126 (Apr. 3, 2007), available at http://www. europa.eu/rapid/pressReleasesAction.do?reference=MEMO/07/126&format=HTML&aged=1&language= EN&guiLanguage=en.
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you split up the repertoire according to who owns the repertoire and which society has the exclusive mandate. Now, isn’t there something about exclusivity in competition law? That is just in brackets. By splitting up the repertoire in that way, you create a system that is similar to the system that you say you dislike, which is having to obtain licenses from a variety of sources in order to create the world repertoire. Now, those societies — which, by the way, according to a 2004 study, contribute many times more to the preservation of musical diversity than the European Commission spends on its entire culture budget — need the Anglo-American repertoire. There is no myth about this. This is reality. Those societies need the Anglo-American repertoire in order to make ends meet for the right-holders of the Anglo-American repertoire as well as for their local right-holders. If you take away 60, 70, 80 percent of their repertoire, that part of what we call cultural diversity will not survive. Now, what does the Parliament mean by “controlled competition?” Probably what it means is, as DG Competition said it would accept in the CISAC case,7 that we can apply the rates in the country of destination. Thereby you do not get a race to the bottom with respect to tariffs, but you allow societies to compete with each other with respect to their own margins, their own commissions. That will create the drive towards efficiency for these smaller and medium-sized societies. I am not sitting here today saying that in ten years’ time we will still be left with twenty-four or twenty-five musical societies for authors’ rights in Europe. But what we have always argued is that the basis of competition law is that you should start out with a much-coined phrase, a level playing field. You should allow each of these societies to come to the starting line and enter into competition with each other on a level playing field. Then there will be some small societies that will survive. I would even venture to say that there will be some big societies that will not survive because, funnily enough, some of those big societies take bigger margins than some of the small societies. Some of the smaller societies are actually more efficient than some of the big societies. That is another reality, not a myth. We are not here to discuss myths. We are here to talk about the facts of life. These are the facts that we are currently dealing with in the European environment. PROF. VON LEWINSKI: Thank you very much for this very useful comment from practice, from real life. I believe that the concept of cultural diversity, which may be somewhat nebulous for some of you, certainly has now become clearer to everybody. PROF. VON LEWINSKI: Do you have something to add, Zoltán? MR. BACSI: Yes, just two comments. Unfortunately, as you can see the controlled competition, I can see the possibility of preventing the “one-stop shop” for a worldwide repertoire in the model of the recommendation of the Commission. On the other hand, I would like to hear something about the proposed legislative act, which was proposed by a huge majority of the European Parliament. PROF. VON LEWINSKI: Thank you very much. I guess the controversy will go on. It is not yet finished. A big round of applause for both of the speakers! I now pass it on to you, Eric. MR. SCHWARTZ: Thank you. Let me now invite Jacqueline, Elliot, Howard, David Carson, and David Jones from Microsoft to the podium. 7
See id.
104 SESSION II: COPYRIGHT While we are resetting the panel, I would just say that, having had a similar panel last year on EU issues and being only an observer, I had a great sense of déja vu on the sharpness of the issues that remain unresolved on territoriality, cultural diversity, and collecting rights societies. Let me provide a three-minute overview of music licensing issues in the United States. There are really four fundamental, overarching issues – all very different from those in the European Union. There are also some issues that equally pertain to rights-holders in the European Union. 앫 The first issue entails a deciphering of rights — what has become known as “rights clarity.” The fact is that music licensing and online music services are currently in operation without an understanding of when in a particular instance only the reproduction right and/or the public performance right is/are implicated. For example, currently at issue in the ASCAP Rate Court is the matter of whether or not downloaded music services are public performances. Absent private contracts, or so-called “all in” agreements, it is difficult to know in any instance whether users and licensees need to pay for reproductions, public performances, or both. And yet these systems are operating. 앫 Deciphering rights leads to the second issue: namely, the application and distinctions between types of musical services. The vernacular of digital music uses terms such as permanent copying, downloading, subscription streaming services, non-subscription services, and hybrids of this terminology, like conditional downloads. These activities may or may not correspond directly to the rights that need to be licensed in each instance, such as the reproduction, distribution, and/or public performance rights. 앫 The various payment options are overarching issue number three. These include: questions about whether or not payments should be a percentage of the service or fees collected or made on a per-unit basis; whether or not and when there should be collective management; and the development of new business models. It was interesting listening this morning to the predictions of what will happen in the next ten years. I think if you had backed up the clock three years ago and said to this audience that one of the fastest-growing markets in the music industry would be poorquality, $4.00-each, partial copies of a song — we know them as ringtones — everyone would have laughed. And yet, ringtones have gone from zero three years ago to, I believe, $2 billion a year in the United States last year, and something like zero to $6 billion worldwide in that same period, according to a recent article in Billboard.8 앫 The fourth issue is public policy. Who is going to resolve issues one, two, and three — the Copyright Office; the Copyright Royalty Board, the new entity; the courts; or Congress? That is, who will resolve the questions of deciphering rights, and, where necessary, altering or reforming rights, especially as they pertain to the mechanical license and other reproductions of music? If you have not seen Marybeth Peters’ testimony before Congress that she delivered in March, I urge you to take a look at it. It is on the Copyright Office Web site.9 8 See Billboard PostPlay, Ringtone Popularity Soaring (June 17, 2005), http://billboard.blogs.com/billboard postplay/2005/06/ringtone_popula.html. 9 Reforming Section 115 of the Copyright Act for the Digital Age: Hearing Before the Subcomm. on Courts, the Internet, and Intellectual Property of the H. Comm. on the Judiciary, 110th Cong. 1st Sess. (2007) (statement of Marybeth Peters, The Register of Copyrights), available at http://www.copyright.gov/docs/regstat032207-1.html; see also Music Licensing Reform: Subcommittee on Courts, the Internet, and Intellectual Property, 109th Cong., 1st Sess. (2005), (statement of Marybeth Peters, The Register of Copyrights), available at http://www.copyright.gov/ docs/regstat062105.html.
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앫 Last, and certainly not least, is the matter of enforcement of rights, which, alas, we have no time today to discuss. Let me now turn to our two speakers: first Jacqueline talking from the music publishers’ point of view; then Elliot talking from the label point of view. MS. CHARLESWORTH: Good afternoon. I represent the National Music Publishers’ Association (NMPA). Given the time limitations, I decided to discuss the top five issues facing music publishers in the online world. The first issue is our rates. We have never had a rate-setting proceeding to set any rates in the online world. Eric mentioned that we recently began a new system for determining rights, the Copyright Royalty Board (CRB). We have a rate-setting proceeding, which commenced in February 2006, to determine rates for physical uses and the full spectrum of digital uses, full downloads and uses by subscription services. I think it is fair to say that there is a fairly large spread between where the music publishers are in terms of what our proposed rates are and where DiMA, on the other hand, and the labels, on the third hand, think their rates should be. A major issue that will be litigated in that proceeding is whether we will move, as the labels want, to a percentage-based rate structure. This makes publishers very nervous, at least in the physical world, because we do not, obviously, control the pricing decisions of the labels. So that is something that will be debated and that will play out during the course of this proceeding. Another very significant issue is the subscription service rates. There is a statutory rate for full digital downloads, which is currently the same as the physical rate, which is 9.1 cents. So publishers are paid for an Apple-style download. But for services like Napster, Rhapsody, and so forth, publishers have never been paid because no rate has been set. This is a problem that dates back to the launch of those services in 2001. At that time, publishers entered into an agreement, first with the record labels, and then with individual services. It is a use-now/pay-later agreement. In exchange for recognizing the publisher’s right to collect a mechanical fee for limited downloads and on-demand streams, under Section 115 of the Copyright Act, we agreed to grant a license. At the time, I think we thought we were operating on a horizon where rates would be set within two years. Now we are looking at late 2008 as the probable date before the CRB will issue its decision. So those services will have operated seven years without a rate, which is a long time. I will now move on to licensing reform. There are many in the room who have an interest in this. Eric mentioned Marybeth’s congressional testimony. I think the NMPA, music publishers, and songwriters fully agree that it is time to fix Section 115 and improve the licensing system for digital uses. It is how you do it where I think there is some difference of opinion. We believe that a collective or a blanket-style licensing system would be a good idea. Unfortunately, the DiMA representative is not here. I think there is a lot of sympathy and understanding on the part of the music publishers that it would be nice to file a piece of paper and have access to all repertoire. With that in mind, last year DiMA and NMPA took the lead in framing proposed legislation, which became known as the Section 115 Reform Act, (SIRA),10 which, 10 H.R. 5533, 109th Cong., Section 115 Reform Act of 2006 (SIRA), available at http://thomas.loc.gov/ cgi-bin/bdquery/z?d109:H.R.5553; see also U.S. Copyright Office Statement, available at http://www.copyright. gov/docs/regstat051606.html.
106 SESSION II: COPYRIGHT frankly, got pretty far in Congress. Insofar as the publishers and DiMA were concerned, there were large areas of agreement. It would have set up a general designated agent and, potentially, other designated agents to take blanket-license requests and issue licenses. As the legislative process moved on, various issues arose. There were governance issues, in terms of who would oversee the general agent. There were issues raised by the labels concerning how to continue to effectuate controlled composition clauses. The satellite radio services, which have devices on the market that are reproducing works, got into the mix. It was a typical sort of “Christmas tree” experience: we started out with what was already a somewhat complicated idea and it got heavier and heavier. Although it passed the House Subcommittee, it did not get through the full Committee. I think everyone learned a lot from that experience. I think there were large pieces of that that were breakthrough and would have helped solve many problems. I think we are somewhat back at the drawing board in terms of thinking about how to move forward with that. But there is a commitment to try to solve that problem. It is a very important problem to solve. Eric mentioned licensing clarity. In my outline, that is mechanical versus performance. The issues relating to services — say, streaming services, where copies are being made at the server level and then along the way, and they are being transmitted to users — are issues which have been long debated, really back to the late 1990s and early 2000s, when we entered into the agreement with the Recording Industry Association of America (RIAA). We believe that in passing the amendments to Section 115 in the 1990s, based on the actual text of the statute and the legislative history, on-demand streaming or interaction streaming is an activity that should be covered under Section 115.11 It is very clear that there are reproductions needed to stream works, including, as I mentioned, a server copy. That issue has been litigated. It is clear that you need a license for a server copy. It makes sense, in our view and, I think, in the view of DiMA — if I can speak for them — to include the server copy and all the incidental copies that are used in streaming in a license and to make sure that the users have everything they need to operate such a service. Similarly, with limited downloads and full download services, server copies are an issue. This was one of the issues that was addressed and resolved in the SIRA legislation. We hope that we can achieve a similar or the same result through a judicial process, or perhaps somehow solve the problem in the context of the CRB proceeding. So that is an issue that is out there. Eric mentioned the ASCAP proceeding regarding performance rights. In the United States, of course, we have separate institutions and separate ways that mechanical rights are licensed versus performance rights. DiMA has sought summary judgment on the issue of whether there is a performance in a download. The performance rights societies (PROs), as well as NMPA, have taken the position in an amicus brief in the ASCAP case that that right needs to be recognized.12 11 17 U.S.C. § 115(a)(1). Mirroring the statutory language, the provision’s legislative history states that the Section 115 license is “available to anyone as soon as ‘phonorecords of a nondramatic musical work have been distributed to the public in the United States under the authority of the copyright owner.’” See H.R. REP. NO. 94-1476 (1976). 12 See Press Release, DiMA, Digital Media Association Asks Court to Deny Music Publisher Double-Dip on Music, Movie and Television Downloads (Feb. 28, 2007), available at http://www.digmedia.org/content/ release.cfm?content=pr&id=7216; Amicus Brief in United States v. American Soc’y of Composers, Authors and Publishers (ASCAP), In the Matter of the Application of AOL, LLC, Yahoo! Inc., and RealNetworks, Inc. for the Determination of Reasonable License Fees, Civil Action No. 41-1395 (WCC) (S.D.N.Y. filed Feb. 28, 2007), available at http://www.digmedia.org/docs/DiMA%20AMICUS%20BRIEF% 2002-28-2007.pdf.
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I think there is a separate question of what the value is, but I believe that that is another decision. It will take a while, but probably within the next year we will at least have some federal case law on that issue. I think there is a lot of anxiety right now about how this is all going to play out. I wasn’t asked to predict the future, but three or four years from now we will probably have a much better sense and a much better system for dealing with these issues in law, and there will be much more clarity. Very quickly, we also have an issue regarding ringtones. There was a recent administrative ruling before the Copyright Office, where the publishers took the position that ringtones should be out of the compulsory license.13 We believe they are derivative works. We think that it is inappropriate to add more uses under the compulsory license. It is an unlevel playing field when we are under a compulsory license. Unfortunately, the Copyright Office disagreed with our view. That issue is on appeal. Just to give you an idea of the economics there, under the current rates, ringtone use would come under the compulsory 9.1 cents. But under the voluntary licenses that were negotiated prior to this decision, the publisher was getting 10 percent or more of, say, a $2.50 ringtone. That amounts to twenty-five cents. So this is a very big economic issue for publishers, given the numbers. Also there is a matter of principle. I will close by saying my fifth issue was enforcement, which was dealt with earlier. I will turn it back over to Eric. MR. SCHWARTZ: Thank you. Elliot, the floor is yours. MR. PETERS: I will respond to that. First of all, I think we always end up on these panels together where I am pitted as the label representative. But I work at Warner Music Group, which today has the second-largest music publisher catalogue in the world. MS. CHARLESWORTH: Feel free to agree with me. MR. PETERS: And I do, on a number of things. Let me comment quickly. You covered a lot of ground, some of which I was going to cover, so I thank you for that. On subscription, there should be a rate. One will come out of the rate-setting proceeding. I agree, it is long overdue. Copyright holders should be paid for uses of their works. In terms of SIRA and licensing reform, I think it would have accomplished a lot of good things. There were a lot of other constituents, like the Electronic Frontier Foundation (EFF). There was a lot of administrative complexity. I am not sure that everybody has abandoned hope. Clearly reform is necessary, and clearly we need to get subscription services launched, with clarity, so that they can be licensed for all uses, including streams. I found your comment on the performance versus download interesting, especially your comment about value. I understand there is subtext in the complaint. But I do think that will be one of the interesting ultimate determinations, not necessarily decided by the court. On Section 115 and whether ringtones are in or out, from the label perspective, clearly we do not feel that there is a fundamental change in the nature of a work just by truncating it. The Register of Copyrights agreed. And 9.1 cents versus the marketplace deals is the rate for the next year or so, but it isn’t the rate forever. The CRB will decide, and 13 See Docket No. RF 2006-1, In the Matter of Mechanical and Digital Phonorecord Delivery Rate Adjustment Proceeding, U.S. Copyright Office, Memorandum Opinion (Oct. 16, 2006), available at http://www.copyright.gov/ docs/ringtone-decision.pdf; Mechanical and Digital Phonorecord Delivery Rate Adjustment Proceeding, Order Granting in Part the Request for Referral of a Novel Question of Law, Docket No. 2006-3 CRB DPRA (Aug. 18, 2006).
108 SESSION II: COPYRIGHT they will take into account a number of factors, including the marketplace dynamics. So I wouldn’t cast it in such a negative way. The Register of Copyrights has spoken. But again, I wear two hats. MS. CHARLESWORTH: That she has. So either way you will win and either way you will lose on that issue. MR. PETERS: Exactly, which is nice. My name is Elliot Peters. I am head of Digital Legal Affairs at Warner Music Group. We are a music-based content company. We are working hard to innovate, using new technologies, to create new, rich musical experiences so fans can get closer to the music they like and the artists they love. Our goal is to make music a ubiquitous experience, so it can be experienced in the car, in the home, through home entertainment networks, gaming consoles, PCs, through the television, including Internet Protocol for Television (IPTV); interactive TV through fixed lines; on the go through cell phones; PDAs; MP3 players — through all kinds of transmission protocols, whether it’s Internet-based or extensions of the Internet, WiFi, WiMAX, digital broadcast. We really want music to be consumed everywhere. The record today, I think, enabled by new technology, is different than the record of years gone by. In years gone by, you put the record on a player, it played, you leaned back, you flipped through liner notes, and that was your musical experience. Today you can lean forward. You can be online. You can be in a virtual world. You can be in a Second Life type of environment. Your avatar self can be trolling around meeting people. You can set background music. You can invite people to go dance with you. You can personalize your cell phone. When my phone rings, I hear Dani California, and I know that I am identifying myself with the Red Hot Chili Peppers. When my wife calls me, I set the ringback tone so that she hears You’re Beautiful, James Blunt, and she gets a nice little welcome there. So we are looking to put music into every aspect of everybody’s life. But the legal landscape today poses some challenges. I will just speak quickly to a couple of those. One is the legal ambiguity. We already talked a little about the ASCAP proceeding before the Southern District of New York.14 Does the distribution of a download also implicate the performance right? ASCAP would argue that of course it does, because there is language in the statute that says that a work publicly performed includes the transmission of a performance, whether or not it is received. They would say: “Of course there is a transmission and the performance is the recorded performance. Artists went into the studio and recorded the song; that is the performance. So the conditions are met.” They feel that the language is clear and unambiguous. Opponents of their position would say, “Hang on a minute. You have to look at the definition of ‘perform.’ ‘Perform’ is to play or render. That’s very clear.” They would go further and say, “Look at the audiovisual definition. It has a further qualifier, the further qualifier being that it has to be capable of being heard.” I think there is some legislative history and reason that that same clause is not applied to the audio portion, which I, sadly, do not have time to get into. But I think opponents would also say that the “capable of being received” really is better understood in the context of terrestrial radio: Z100 in New York transmits its broadcast. If Elliot Peters does not have his radio turned on, that does not mean that it is not a public performance. 14
See id.
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So reasonable minds do differ on this issue. It will be resolved soon. We will hopefully have more clarity on that issue. By the way, the record of the case is fascinating. The amicus briefs are very well done. I invite folks to take a look at them. It is good reading and a good history lesson. The second thing I will note is that there are certain business models that seem to be beset with controversy. Let me just give you one example. At Warner Music we looked at the YouTube business model. We have licensed YouTube. We did our homework. We worked hard with YouTube to make sure that our business model respected intellectual property rights and returned value to creators of works. At Warner Music we are keen on innovating, rather than litigating, while at all times defending the rights of our authors, the artists, and defending our copyrights. So there is ambiguity, sometimes uncertainty, as to the rules of the game. I do think five years ago everything was rather murky, Jacqueline. Things are a little bit better today. People do not need to tread as cautiously. It is a somewhat more market-friendly environment today, from an understanding-of-rights perspective. It still needs to get better. Where we still need to improve is, now that we understand the rules of the game better, and as we continue to understand the rules of the game better, we need more efficient licensing mechanisms. The great promise of the digital space is the long tail, the fact that I go to Best Buy and find 10,000 records there that they are willing to stock on their shelves. As records begin to sell less well — Led Zeppelin IV will be there forever; The Beatles’ White Album will always be in Best Buy — it will not make sense for them to stock certain albums at some point. However, it will not make sense for a record company to manufacture and distribute certain albums in the physical space. In the digital space, you can have a virtual store in the sky with millions and millions of products. You know what? Records that sell only one or two a week, over millions and millions of units, really are an exciting opportunity for copyright holders and the digital stores. But the promise of the long tail is somewhat frustrated by our arcane licensing system for musical works that are licensable under Section 115. I do think we do need some kind of blanket licensing regime, akin to what we do under Section 114 for sound recordings, for Internet radio, or akin to — I am afraid to say it — the European system that is undergoing some change now. We do need one-stop shopping that will enable new products to come to the marketplace with greater efficiency and at lower cost. In sum, we need to keep our foot on the accelerator to ensure that there is legal clarity and that we can clear the rights so that we can put products out on the market. At Warner Music Group, we believe in music —that is why I am here — and we believe in the digital opportunity. MR. SCHWARTZ: Let’s now hear from our last speaker, Howard Knopf, who will talk about Canadian digital music issues. After his presentation, we have David Carson and David Jones interject their questions and comments on the EU, Canadian, and U.S. issues. Howard, the floor is yours. ***
110 SESSION II: COPYRIGHT ONLINE MUSIC 2007 Howard P. Knopf15 INTRODUCTION This paper will outline the situation in Canada regarding “online” music in this author’s view, along with some observations on the overall international scene. In the spirit of disclosure, I should point out that I have at various times acted for and against parts of the music industry. Lately, I have fought on behalf of various clients against private copying levies and against the attempts by the major record companies to sue alleged P2P downloaders and file sharers in Canada. I also wrote an amicus brief for KaZaA in the Grokster litigation in the U.S. Supreme Court. However, the view presented in this paper or in my presentation are strictly my own.16 I. THE OVERALL CANADIAN SITUATION A. THE COLLECTIVES
The major traditional collectives representing composers, authors, and publishers who have an interest in online music are: (1) SOCAN — for composers, authors and publishers. This is the counterpart of ASCAP + BMI + SESAC. There used to be two such collectives in Canada, but they were allowed to merge in 1990. (2) CMRRA — The Canadian Musical Reproduction Rights Agency is the counterpart of Harry Fox in the United States. (3) SODRAC is roughly the French Canadian counterpart to CMRRA. (4) CMRRA/SODRAC have combined for certain purposes as CMRRA/SODRAC Inc., or CSI. Canada now has neighboring rights; therefore, performers and producers want to be paid for everything online. Enter the NRCC (Neighboring Rights Collective of Canada). B. THE PRIVATE COPYING LEVIES
Canada has a private copying levy, which has generated probably close to $200 million since 1999. The figures for 2006 have not yet been publicly reported. This is collected by the Canadian Private Copying Collectives,17 which is a collective of music industry collectives. I mention this levy scheme because it is the elephant in the room of Canadian copyright in many respects and has a profound impact on copyright issues affecting the music industry in Canada. The levy scheme has effectively legalized P2P downloading.18 This is because Part VIII of the Canadian Copyright Act provides a quid pro quo: In exchange for the levy scheme, private copying is legal — and the Copyright Board has indicated that it doesn’t matter where the copy comes from, or whether the CPCC has chosen to ask for a levy on the 15 Counsel, Macera & Jarzyna, LLP, Ottawa, Canada; howard.knopf@macerajarzyna. com; www.excess copyright.blogspot.com. 16 Some of this material previously appeared in my blog, http://www.excesscopyright.blogspot.com. 17 See http://www.cpcc.ca. 18 See my discussion on the BMG v. Doe trial level and appeal decisions, wherein the Federal Court of Appeal stopped short of reversing in substance the much-commented-upon findings of the trial judge, available at http://www.macerajarzyna.com/pages/publications/ BMG%20Case%20-%20E-Commerce.pdf.
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particular medium which is being used to make the copy. So, in other words, copies made onto CDs are clearly legal because there is a levy on CDs. Copies made onto PC hard drives are very likely legal because the CPCC could probably ask for and receive a levy on PC hard drives.19 They have refrained from doing so for blatantly obvious practical and political reasons. The interesting gray area concerns things like iPods — which the Federal Court of Appeal has clearly ruled cannot be levied because they are devices and not “media” and are, therefore, outside of the scope of the levy legislation. However, the Court has gone further and suggested in obiter dicta that making copies on iPods may be infringing because an iPod does not fall within the definition of “blank audio recording medium.”20 In any event, the levy scheme is very controversial even within the music industry. It, along with Canada’s privacy legislation, has made it more difficult for CRIA to proceed in mass RIAA-type litigation. I say difficult, but not impossible. If CRIA were to put forward sufficient and reliable evidence that is not blatant hearsay (in contrast to the evidence that they used in the unsuccessful attempt), it might well succeed, at least against file sharers.21 But CRIA has chosen not to press forward and has used its partly self-inflicted loss in Canada as a means of attempting to convince law makers that it needs much tougher DMCA-type legislation in Canada. Only time will tell if this strategy will succeed. So — for the moment — there are no lawsuits against individuals underway in Canada for P2P activity and no tactics such a deposition of a ten-year-old child with a disabled mother living off medical benefits who was seven years old when the alleged infringement took place.22 And no lawsuits against twelve-year-old girls living in subsidized housing.23 The next major round in the levy controversy will be CPCC’s recent attempt to impose a $75 levy — or “tax” as it is commonly called — on iPods, Zunes, and other MP3 players. The Federal Court of Appeal clearly ruled in 2004 that this was not possible,24 and leave to appeal was denied by the Supreme Court of Canada in 2005. However, the CPCC is back attempting to do exactly the same thing in 2007. This would appear to be a clear instance of res judicata. In anticipating this point, the CPCC announced at the time of publication of the proposed tariff to have an opinion to the contrary from its law firm, but has not seen fit to publish it. The next levy round will also include an attempt by CPCC to impose a $10 levy on flash memory cards, which by its own figures are only used, at most, about 20–25 percent for the reproduction of music — and I suspect that the actual figure is only a fraction of this fraction. And much of that music has already been paid for at least once already, especially if the card is in a cell phone or an MP3 player. Finally, the private copying levies are a major complicating factor in copyright reform in Canada. The potential that Canadian WIPO treaty ratification will result in a doubling of the cost of the levies and outflows of hundreds of millions of dollars due to the 19
See http://cb-cda.gc.ca/decisions/c12122003-b.pdf, at 20–21. Canadian Private Copying Collective v. Canadian Storage Media Alliance et al., (2004) [2005] 2 F.C. 654, (2004) 36 C.P.R. (4th) 289 ¶ 147. 21 The BMG v. John Doe litigation in the Federal Court and Federal Court of Appeal is analyzed from various points of view in (2005–06) 6 I.E.C.L.C., available at http://www. macerajarzyna.com/pages/publications/BMG%20Case%20-%20E-Commerce.pdf. 22 Atlantic v. Andersen (Oregon), available at http://recordingindustryvspeople.blog spot.com/search?q= kylee+Andersen. 23 See http://news.com.com/RIAA+settles+with+12-year-old+girl/2100-1027_3-5073717.html. 24 Canadian Private Copying Collective v. Canadian Storage Media Alliance et al., (2004) [2005] 2 F.C. 654, (2004) 36 C.P.R. (4th) 289, ¶ 164. 20
112 SESSION II: COPYRIGHT national treatment requirement of the WPPT is an acknowledged issue and a major complication in the revision process. Everything would be much simpler if the levies were repealed — which Canada’s New Government pledged to do in its March 19, 2005 Policy Declaration,25 before the election in which it gained power — at least the power of a minority government. The Policy Declaration also promised to “to continue to allow an individual to make copies of sound recordings of musical works for that person’s personal and individual use.” II. CURRENT AND PENDING ONLINE TARIFFS IN CANADA A. SOCAN TARIFF 22 — PHASE I
In 1995, SOCAN started out on what it calls Tariff 22, which was an application to the Copyright Board to get paid for the use of music on the Internet. The Board early on wisely bifurcated the hearing into legal and quantum issues. Some, but by no means all, of the legal issues were finally determined by the Supreme Court of Canada in 2004.26 That decision held that ISPs as such are off the hook in their capacity as passive carriers of content and can rely on a particular exception in the legislation for the caching activity as a necessary aspect of providing the means of communication by telecommunication. In fairness to SOCAN, it appears that the issue of liability for caching arose from the bench in the Federal Court of Appeal — but, however, if it arose, it became the focus of a very complex appeal and resulting decision from the Supreme Court of Canada. In what may prove to be the most complex legacy of the initial round of Copyright Board hearings, and the resulting litigation, the Supreme Court of Canada held that liability could arise to SOCAN in Canada for activity abroad, thereby injecting an element of extraterritoriality into Canadian copyright law: [60] . . . A real and substantial connection to Canada is sufficient to support the application of our Copyright Act to international Internet transmissions in a way that will accord with international comity and be consistent with the objectives of order and fairness. [61] In terms of the Internet, relevant connecting factors would include the situs of the content provider, the host server, the intermediaries and the end user. The weight to be given to any particular factor will vary with the circumstances and the nature of the dispute.27 However, even after all of this, we still do not know definitively what the problematic phrase “communication to the public by telecommunication” means in Canada in terms of various architectures and modes of “online” delivery. B. RINGTONES DECISION OF AUGUST 18, 2006
The “communication by telecommunication” issue could be, and perhaps should have been, addressed squarely, but was not even substantively dealt with in the Copyright Board’s decision on August 18, 2006 on ring-tones.28 The reason it was not addressed was that the objectors to the tariff inexplicably conceded that the delivery of ring tones to members of the public involved a “communication by telecommunication.”29 They did not concede that it was to the public. 25 26 27 28 29
See http://www.conservative.ca/media/20050319-POLICY%20DECLARATION. pdf. SOCAN v. CAIP, 2004 S.C.C. 45. Id., ¶¶ 60, 61. See http://cb-cda.gc.ca/decisions/m20060818-b.pdf. Id. at 4.
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Now, on judicial review, the objectors have changed counsel and raised this argument for the first time. Again, in the spirit of disclosure, I had raised this argument at an earlier stage of the hearing, but my client, then known as MOVISO, the largest supplier of ringtones at the time, withdrew from the hearing, as have other large entities since then on other files at the Copyright Board. However, that is another story. It will be interesting to see how the Federal Court of Appeal deals with this new issue that is now being raised for the first time at the judicial review stage. Further, re ringtones, back on August 22, 2006 I wrote on my blog: 1. It’s not obvious that any or all of the various methods of delivering ringtones to customers involve a “communication to the public by telecommunication.” The remaining objectors conceded that there was a “communication by telecommunication” of a musical work — but disputed whether it was “to the public,” which is indeed an arguable point. The objectors’ strategy was to argue that the communication was not “to the public”— and, alternatively, if there was liability, the “communication” aspect is purely incidental to the reproduction right and should thus be valued accordingly. 2. But, actually, it’s not clear that the provision of ringtones to customers in the various ways that this is normally done even involves “communication” or “telecommunication” at all. There are many ways of moving music around on the Internet — and it is arguably erroneous to lump them all together as “communication” or “telecommunication” or both. For example, the transmission of a digital file that must be stored and may later be performed as a musical composition is arguably not the same thing at all for copyright purposes as real time on demand streaming that cannot be stored for later retrieval and amounts, in effect, to on demand radio or webcasting. 3. The problem with this decision lies in the result that effectively conflates and perhaps even confuses the communication right with the reproduction right. This goes back to the Board’s 1999 decision in SOCAN’s Tariff 22. Whether or not this should have been challenged following the 1999 Tariff 22 decision, or whether it should have been raised in this instance is a matter upon which reasonable minds may disagree. But the result, unless reversed, will likely compound the imposition of multiple layers of payment to multiple claimants for multiple rights involving the same activity and transaction. The concept of “double payment” will likely become “triple” or more. 4. Thus, ringtone users will eventually be making payments potentially for the communication right, the performance right, and the reproduction right to potentially three categories of claimants who sometimes wear multiple hats — composers/authors and their publishers, record producers and performers. The same will hold true for online music — i.e. iTunes. 5. In fact the Board itself even seems to hint in para. 12 of its decision that SOCAN could file a tariff for the “performance in public” of a ring-tone, which would compound the multi layering problem to a new level, i.e. SOCAN has not filed a tariff for the performance that may occur when a ringtone is played in a public setting. (Emphasis added) 6. The Board does more than hint in paragraph 7. It virtually lays down the red carpet for the recording industry to come and claim their share of the pie in respect of master tones (i.e., recorded performances). 7. Is this what Parliament intended? One would hope not. This would be the antithesis of efficiency and even the music industry has mixed feelings about it — witness the opposition even of CRIA to SOCAN in this hearing and to the music publishers in the CSI hearing on online music starting on September 6, 2006. 8. Even the Copyright Board cannot make the Internet cash pie expand forever, and the
114 SESSION II: COPYRIGHT current and future internecine battles in the music industry are mostly about how large the pie can grow and how it will divided before the growth boom finally gets corrected. 9. Note that composers and authors have always been paid for ringtones obtained though Canadian wireless providers or any other “authorized” sources, and access is tightly controlled in Canada. The essence of the transaction involves a reproduction, which has already been taken into account in the “behind the scenes” licensing. The question is how many more times and to how many more parties is the Copyright Board going to allow payments to be made? SOCAN doesn’t control reproduction rights here. But it represents the same composers, authors and publishers who do. If the Copyright Board is correctly interpreting the law, is Parliament going to stand by and let this multiple payment game continue? 10. This would not surprise me. The policy of Canadian Heritage is to support collectives in a variety of ways, including subsidies and legislation that creates new rights and the possibility of new tariffs and ever increasing revenues. Many of these officials probably see the prospect of multiple payments to multiple collectives for the same transaction as a good thing. Collectives do indeed serve an essential function — if not encouraged to excess. But the danger of the Canadian Heritage approach is that it appears to exemplify the old fallacy that that, if copyright is good, more of it must be even better. Lest we forget, we are dealing with the collective exercise of monopoly rights. 11. It was exactly this type of multiple payment problem arising from then-new technology (“talking pictures”) that led Parliament back in the 1930’s to put the brakes on SOCAN’s predecessor by establishing the predecessor of the Copyright Board. 12. The result of this decision is another blow to the concept of technological neutrality, as some would define it. Why should the efficient transfer of a file over the Internet trigger copyright liability for “communication” by “telecommunication” when the provision of the same file by much less efficient physical means (e.g. sending a CD by snail mail) does not? Quite apart from the spectre of multiple payments and layering, this amounts to a tax on efficiency. It could also spread to other businesses, even beyond the music business. If the Board is right, then it would presumably follow that e-books involve the “communication” of literary works. But I shouldn’t give Access Copyright ideas. ... 15. On the communication point, it strikes me that the Board hung its hat mainly on one word — the word “might” — from an obiter dicta passage in the Supreme Court of Canada’s decision in CCH v. LSUC. In that passage, Chief Justice McLachlin said that: “I agree with these conclusions. The fax transmission of a single copy to a single individual is not a communication to the public. This said, a series of repeated fax transmissions of the same work to numerous different recipients might constitute communication to the public in infringement of copyright. However, there was no evidence of this type of transmission having occurred in this case”(emphasis added). 16. The Supreme Court was not concerned in that case with the niceties of the various architectural permutations of how things happen on the internet, and the Copyright Board appears not to have delved too deeply even in this instance into how ringtones find their way from a composers’ pen to the intrusive and usually distorted cacophony that we too often hear during quiet meditative moments at the opera or in funeral parlours. 17. Moreover, a fax “transmission” — note that the Chief Justice does not necessarily equate the word “transmission” with the word “communication” — results immediately in something that is directly readable by the recipient. The transmission of a ringtone file does not immediately result in the conveying of any information — much less music — to any
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person. It must get properly loaded into the handset, paid for, selected, and is later activated only when the cell phone “rings.” 18. Nor, with respect, should the Copyright Board put too much reliance on paragraph 42 of the SOCAN v. CAIP decision in which Justice Binnie agreed with the Board that “a telecommunication occurs when the music is transmitted from the host server to the end user.” There is a potentially big difference between “the music” being “transmitted” and a file being copied that only later can be heard as music when it is played on a device. This may sound picky and even akin to sophistry — but that’s the nature of history of copyright law, which has always focussed on legal and technological niceties. 19. It appears that the objectors may have indirectly broached the “communication” point indirectly by arguing that the Board was really seeking to impose a “making available” right — which is required by the 1996 WIPO WCT treaty. But, as everyone knows, Canada has notably NOT YET ratified this treaty. And even if Canada does, the scope of the “making available” right is very uncertain and Canada would be wise to implement it in the most narrow and careful possible fashion. Ironically, the cursory 1998 analysis by Johanne Daniel and Lesley Ellen Harris, upon which the government relied for so long, concluded, without any stated reasoning, that Canada already complied with the WIPO WCT treaty in respect of the required “communication right” that included “a making available” right for composers and authors. The debate about whether Canada does or does not already have a “making available” right evidently is far from over. Some will see this decision as effectively confirming that we do, even if the Board says that we don’t. 20. The rate calculation issue will be even harder to review — the Federal Court of Appeal is very reluctant to interfere with the fact finding/ evidentiary aspect of any tribunal’s work. Much of the evidence was treated as confidential — which may be just fine for the parties, including interests not present, although this leaves the public very much in the dark. Consider the expurgated final conclusion, which will cause considerable frustration to anyone trying to understand what the Board was trying to say here: J. Ability to Pay[127] The Canadian ringtone market has grown very quickly in recent years. Mr. Sone estimated the revenues generated by ringtone retail sales in 2004 to be over $15 million, and predicted that revenues might reach $30 million in 2006. In addition, the costs associated with the production and sale of ringtones seem to be quite low. Those figures, which were not challenged by the objectors, are indications of a financially sound industry. Moreover, the rate we have set is low enough not to lead to XXXXXXXXXXXXXXXXXXX in the ringtone market. In other words, larger than the XXXXXXXXXXXXXXXXXXXXX amount of the royalties that will actually be paid. There should therefore be no consequence on market prices.30 21. This is a highly unusual way to conclude a decision of this importance that will set the stage for much to come in the future. Look at the actual decision — it at least indicates the amount of space of the expurgated portions. 22. Interestingly, the rate arrived at by the Board after 14 months of consideration ends up being effectively the average of the rate proposed by SOCAN (10%) and the rate proposed by the objectors (1.5%). The exact arithmetic average would have been 5.75%. The Board ends up with 6%, although they have an admittedly more complex way of getting to that conclusion. 23. It is difficult to guess whether there will be judicial review. We’ll know by September 18, 2006. Depending on how one reads between the lines, so to speak, of the final paragraph, 30
Footnote omitted. XXX = expurgated by the Board.
116 SESSION II: COPYRIGHT the 6% solution may not cause immediate serious pain to any of the remaining objectors. The Board seems confident that “There should therefore be no consequence on market prices” —for reasons that must remain confidential. We shall see. That’s a lot for the Board to assume, especially when the impact of the inevitable future multiple layer ringtone tariffs becomes apparent. 24. The public interest factor in this case may not be as obvious as in some other Board decisions. If kids want to spend lots of money on ringtones and buy new ones every week in order to be “cool,” that is their decision — and it may annoy their beleaguered parents who will foot the bill. Clearly, this is discretionary spending. The real public interest lies in the legal and rate making precedents that are being set here. 25. The absentee proxy for the public interest — who is mandated by law to watch out here — is the Commissioner of Competition — who has basically never become involved in Board matters, even though there are many situations where such involvement might may be warranted. Moreover, the Board itself could and arguably should look out more for the public interest and play a more proactive inquisitorial role. Instead, it treats most proceedings as adversarial. In the result, the administrative law process is often more adversarial than actual litigation. 26. If there is no attempt at judicial review, it may be because there is no immediate and direct cost/benefit advantage to any of the objector parties. If so, this will not be the first time that the public interest has been left behind by a simple cost/benefit analysis by the objectors and the unwillingness of the Board or the Commissioner of Competition to fully pursue their roles in the guardianship of the public interest. 27. The real danger is that this ruling on communication to the public by telecommunication will serve as a springboard — both legally and in terms of a quantitative proxy — for the forthcoming attempts by SOCAN and the music publishers and eventually others to add large amounts to the cost of online music obtained from iTunes, and other Internet music modes, etc. The current 6% solution is far from a “low” rate. Given the size of the ringtone industry, it will be a lot of money and an important precedent and building block in other files to come. 28. It is not known why it took the Board 14 months to render this decision. Meanwhile, the CMRRA/SODRAC (“CSI”) attempt to add 15% to the cost of online music is about to start hearings on September 6, 2006 and will hopefully confront some of the “double payment” issues that are now looming larger than ever. That hearing is based upon the reproduction right. The SOCAN attempt to ratchet up the price of paid downloads by 25%[31] based upon the allegedly applicable communication right is lurching along at full speed — albeit with several notable drop outs — including clients of mine once again. The SOCAN hearing in particular stands to be profoundly effected if there is successful judicial review of the current decision. 29. Finally, it’s frankly disappointing that the full Board did not hear this case. We had the benefit of the Chairman’s presence (he is a Court of Appeal judge from Saskatchewan). However, two of the most experienced Board members did not sit on this matter, which is potentially one of the most important that the Board has heard in a very long time. Since I wrote the above,32 the judicial review process is well underway and the memoranda have been filed. The issue concerning “communication” has indeed been raised.
31 32
See http://cb-cda.gc.ca/tariffs/proposed/ma20052006-b.pdf at 14. See http://excesscopyright.blogspot.com/16 2006/08/ringtones-observations-on-6-solution.html.
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In fact, this is how I compared the Canadian ringtones decision to the American one,33 which followed shortly thereafter, on my blog on October 18, 2007:34 Ringtones REDUX — US & Canada compared Here’s an update of my earlier posting and a brief take on yesterday’s American decision. The US Register of Copyrights has just rendered a very important decision on ringtones, which can be found here. The proceeding was commenced on August 1, 2006. After written submissions received on September 14, 2006 and a brief oral hearing on October 4, 2006, she yesterday issued a detailed 35 page single spaced decision with 137 footnotes, one of which refers to the recent Canadian decision on a small point. Bill Patry has a good analysis of the decision on his blog. Here’s my quick take on a very complex and very important decision, from Canada’s standpoint: Canadians should note: 1. Providers of ringtones in the USA may avail themselves of the compulsory license regime found in s.115 of the US Copyright Act. Canada, probably unwisely, abolished the compulsory mechanical licensing regime for musical works in 1988. Not only has the USA retained its compulsory license for mechanical reproductions — but has created a new compulsory license regime in the form of the Digital Performance Right in Sound Recordings Act of 1995, which was held to apply in most cases to the provision of ringtones as songs or portions thereof as a “digital phonorecord delivery” or “DPD.” The argument that the compulsory license applies only to a whole song and not a portion thereof was rejected. Generally speaking, it appears that there will be a one stop shop mechanism for ringtone providers to get a compulsory license for monophonic, polyphonic and mastertone ringtones, except in the presumably rare case that a ringtone comprises sufficient originality to be a “derivative work” under American law, or is an newly created composition and recording never before distributed to the public. 2. Although the actual rates are not yet determined, they will likely be MUCH lower than in Canada — where an initial 6% solution was imposed (essentially half way between SOCAN’s number and the objectors’ number). And Canada has not seen the end of ringtone tariff costs, because the 6% goes to SOCAN and the other “colleges” of rights holders will soon want their piece of the pie in addition. Some points worthy of note: 앫 Not everything about US copyright law is bad. Au contraire. This decision illustrates an example of what is good about it — namely it is much more technologically neutral in the result than we see in Canada in this instance. It may turn out as well that that Congress saw more clearly into the digital future in 1995 in some respects than Canada has yet managed to do. Canada is still grappling with some of the less desirable last century aspects of US law, such as the DMCA — while ignoring what is sometimes better and more prescient about US copyright law. 앫 The Copyright Office has shown its ability to deliver a very learned decision very quickly. The process — which involved referral of a question of law by the Copyright Royalty Board to the Register of Copyrights — started on August 1, 2006 and resulted in the ruling of October 17, 2006 — less than three months. The lengthy delay of 14 months in the rendering of the Canadian ringtones decision — this following a two year lead up of preliminary matters — will have a ripple effect on other Board hearings, especially since the Canadian decision is now the subject of judicial review and could be 33 34
See http://www.copyright.gov/docs/ringtone-decision.pdf. See http://excesscopyright.blogspot.com/2006/10/ringtones-redux-us-canada-com pared.html.
118 SESSION II: COPYRIGHT overturned. To be fair, the Canadian Copyright Board heard a lot of factual evidence that was apparently not dealt with in the American proceeding which was on certain legal issues only, and has determined a rate — which also has not yet happened in the USA. 앫 But it should be asked whether Canada’s Copyright Board should bifurcate more often Not every instance will turn out to be as much of a problem as Tariff 22. In fact, an early determination of some of the obvious legal questions in de novo tariffs — based upon a minimum evidentiary record if indeed needed — might save a lot of time and money overall. In some cases, tariffs have been so poorly conceived that the Board ought to find a way at the outset to say “try again next year” — and save everyone a lot of bother. 앫 The American case illustrates the ongoing complexities and ironies of internecine warfare in the music industry. However, Congress and the Copyright Office appear to have a good understanding of how this works. One can only smile that the RIAA also has been caught, yet again, sucking and blowing. It often deplores the concept of compulsory licenses when it is on the receiving end, but is apparently quite happy to take advantage of them when it suits its needs. 앫 The American decision is expected to result in falling prices to consumers in the “mobile industry” — whereas Canadian prices are clearly heading upwards due to high and layered tariffs. 앫 This decision illustrates by contrast that Canada has a much more costly and complex system. That seems to be the Canadian way. This renews the question about whether or not the Canadian Board can or should do something to stop this costly and complex layering of tariffs. Paying much higher tariffs overall to more parties in Canada — when most of the money will go the USA and Europe anyway — is not very obviously in Canada’s national interest, to say the least. 앫 Do we need another judicial commission to sort out what the bureaucrats, Parliament and the Copyright Board are all unwilling or unable to confront? … C. CSI ONLINE DECISION — MARCH 16, 2007
CSI (roughly the equivalent to the Harry Fox Agency) sought a tariff for online music based on permanent downloads, limited downloads and on-demand streams. The CSI decision has recently been rendered by the Copyright Board on March 16, 2007.35 This matter was heard by the Board in September, 2006 and the decision was rendered approximately six months later in accordance with the new benchmark announced by the Board’s Chairman in a speech last year. The six-month benchmark is based upon a comparison the Judge made in a recent speech with the pendency of Supreme Court of Canada proceedings.36 This is a significant improvement over the fourteen months it took to render the Ringtones decision. This is decision that will not likely provoke much controversy. Although the Board rejected much of the theory advocated by CSI for valuing its tariff rates,37 it gave CSI a goodly proportion of what it wanted in terms of actual numbers. For example, with respect to permanent downloads, which will surely prove to be the most important aspect of this tariff, CSI had asked for 15 percent of gross revenues with a minimum of 10 cents 35 36 37
See http://cb-cda.gc.ca/decisions/i16032007-b.pdf. See http://cb-cda.gc.ca/aboutus/speeches/20060823.pdf. In particular, CSI’s attempt to use the recently established Mastertone rate as a proxy.
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per download. The Objectors suggested 5.3 percent and 3.85 cents, respectively. In the result, the Board awarded 8.8 percent of gross revenues with a minimum of 5.9 cents for this category — better than half of what CSI had asked for. There appears to have been little discussion of legal issues, and in particular the question of double payments. The point of potential overlap with SOCAN’s Tariff 22 appears to have been made by the Objectors but dismissed in short order by the Board.38 The Copyright Board apparently took a very hands-on approach in devising wording for the tariff that it believes will be viable — which involved much communication after the hearing between the Parties and Board counsel. The final tariff wording is very different from what was published initially in the official Canada Gazette. One positive outcome is that the Board declined to incorporate any reference to TPMs or minimum security requirements, noting that Puretracks, a major Canadian provider, has begun to offer DRM-free music.39 D. SOCAN TARIFF 22 — PHASE II
In a few days, on April 17, 2007, the Board will resume hearings on SOCAN’s Tariff 22. There will be many uncertainties about this hearing. Mostly, there will be uncertainty about the “communication” right — because that is still pending before the Federal Court of Appeal. There will also be uncertainty because some parties that should be there won’t be there — including clients of mine and others. Here is part of the blog entry I posted on March 2, 2006: “Fallout” at the Copyright Board? Two significant players in Canada’s copyright scene have just conspicuously withdrawn in protest from two major Copyright Board hearings. They are Archambault (the Quebec music retailer) and Canoe (an internet portal), which are both part of the giant Quebecor empire. The hearings involved music on the internet. One is the decade old and still inchoate SOCAN Tariff 22 tariff. The other is the CMRRA/SODRAC (CSI) proposed webcasting tariff. Archambault had earlier withdrawn from the CSI proposed online music tariff. Efforts on the part of objectors to somehow consolidate or rationalize these three closely interrelated tariffs have proven fruitless. In an 8 page letter from their counsel, Me Jean-Philippe Mikus, Archambault and Canoe stated that they had to take: the least harmful path given the untenable constraints now being imposed on objectors wishing to express their point of view before the Board. Archambault and Canoe are compelled to withdraw because their participation in the Board’s proceedings would imperil their key financial information invaluable trade secrets critical technological information strategic information concerning development and marketing plans and projects, and a host of other information in respect of which the utmost secrecy is essential for their survival. They point out that “. . . the mere participation in the Board’s hearings is in and of itself a very considerable burden on a number of levels. The mass of information that collectives systematically seek to obtain from objectors brings about exorbitant costs both in terms of collecting the information and then processing it.” They suggest: When collective societies holding monopolies or quasi-monopolies are involved in infighting and then formulate grossly exaggerated claims and multiply instances before the Board, including unreasonable requests for disclosure of irrelevant or marginally relevant 38 39
See http://cb-cda.gc.ca/decisions/i16032007-b.pdf, ¶ 84. See http://cb-cda.gc.ca/decisions/i16032007-b.pdf, ¶¶ 134, 158.
120 SESSION II: COPYRIGHT highly confidential information, some measure of control must be exercised. The Board should be the first line of defense to avoid that exclusive copyrights established by Parliament and concentrated in the hands of collective societies be an instrument of oppression (to paraphrase Lord Justice Lindley in Hanfstaengl v. Empire Palace (1894) 3 Ch. I09). The experience of Archambault and Canoe leave the bitter impression that the Board is failing at this task and that this failure is already causing extremely serious harm to businesses that have had the courage to jump into untested waters. Significant reform is both necessary and urgent to end the abuses that threaten the very foundation of Canadian businesses offering legal alternatives for the use of music on the Internet. At this stage, it appears that such reforms can only originate from the government or Parliament; it is unfortunate to say that our clients no longer hold out any hope that the Board is able or wiling to address these concerns. They conclude by reserving the right to seek judicial review “on the basis inter alia that they have not been given the right, reasonably exercised, to be heard in these proceedings.” While none of this is particularly new to those experienced with Board practice, the letter is a potentially very important development. It was copied to the very long list of objectors in both files and to both Ministers responsible for the copyright file. The current Ministers may prove to be more sympathetic to the concerns of objectors than their predecessors, given this Government’s potentially different perspective on regulation and the costs thereof imposed upon business. The fundamental dilemma is that virtually all objectors have many issues to worry about other than fighting copyright tariffs. And almost all of them balk at the incredibly high costs of pursuing objections, which routinely run into the six figures and can go beyond. Resulting direct financial savings are often hard to quantify since most collectives overreach to an often absurd extent in the initial proposed tariff. For these and many other reasons, the economics of objecting are not alluring to many entities, even though they may be directly affected. And trade associations aren’t always the answer. In fact, the sad demise of the CCTA, after so many years of valiant and competent contributions to Copyright Board and appellate jurisprudence, shows the difficulties faced by even the most sophisticated and substantial of objectors. The collectives, on the other hand, have usually only one purpose on their mind, which is increasing Copyright Board tariffs and lobbying for the statutory rights that make this possible. Their costs are paid for — not surprisingly — from the Copyright Board tariffs that are paid by objectors. The more the collectives spend, the more they make — and vice versa and so on. This is classic asymmetrical warfare, in which a relatively small single purpose and highly strategic entity can win major victories against a much larger opponent. As the letter points out, it is very difficult for an objector to play a limited role in a hearing. It is basically all or nothing: The approach adopted by the Board so far is very much akin to an “all or nothing” approach. There is simply no way of participating in the Board’s work if a party wishes to both put forward its point of view usefully before the Board and be concerned about the confidentiality of its business information. Parties are expected to be subjected to a full inquiry by collective societies, in the presence of all their competitors. The issuance of confidentiality orders does not justify such inflexibility. There have been other withdrawals in the past, including MOVISO (for whom I acted), which was perhaps the largest supplier of ringtones in Canada and the world. It withdrew during the interrogatory phase from a major hearing on SOCAN’s proposed ringtone tariff, where staggering amounts of money and important legal issues were at stake. The Board and the Canadian public lost the benefit of their participation. ADISQ recently withdrew from the CSI Online Music Services Tariff proceedings. ADISQ is a professsional association
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which represents hundreds of independent Quebec undertakings working in various aspects of the record, entertainment and video industries, including record producers, distributors, publishing firms, performers’ managers, entertainment producers, booking agencies, playhouses, video clip production firms, etc. There are still many problems with SOCAN’s proposed Tariff 22. It is still inchoate and unfocused. As framed, it can lead to absurd results. Anyone who posts a tiny amount of music is liable for a minimum of $200 a month to SOCAN. That is absurd. Meanwhile, it is going forward. The Supreme Court of Canada has opened a potential Pandora’s box of uncertainty in terms of extraterritorial application of the tariff, as noted above. It will be interesting to see if SOCAN attempts to enforce its potential extraterritorial reach against major foreign providers, such as MSN, Yahoo!, etc. It is fairly safe to assume that SOCAN’s Tariff 22 quest will continue long into the future before there is any resolution. Meanwhile, we have no idea what webcasting will cost in Canada. Or how much SOCAN will add to the already existing costs of delivery of a song from iTunes, etc. Or how many more multiple payments we will see for the same transaction. And SOCAN’s Tariff 22 isn’t the end of the matter. We have yet to hear from CMRRA/SODRAC, whose webcasting tariff was withdrawn on March 22, 2006. I assure you that they have not gone away and that they will return. III. PROS AND CONS OF CANADIAN APPROACH The Canadian copyright landscape is probably more akin to a labyrinth, and is one of the most complex in the world. In the recent CSI hearing, the Board heard from the interestingly named Eddy Cue, head of the iTunes project worldwide for Apple. The Board found that: [58] Mr. Cue compared the way in which iTunes clears rights in Canada, the United States and Europe. In the United States, record labels generally provide all necessary rights for one fee, having secured the right to reproduce the musical work. In Europe, iTunes must purchase the rights for the sound recording and for the musical work separately, but is able to purchase the right to reproduce and communicate the work in a single transaction. In Canada, iTunes must licence separately the right to reproduce the musical work, the right to communicate the musical work and the right to reproduce the sound recording. And even this fails to point out the obvious — that Canada has neighbouring rights and a vast number of active collectives. The complexities in Canada have only started. Canada has about ten times the number of organized collectives as the United States. And the Government is encouraging this proliferation. This is not the fault of the Copyright Board. Canada’s Parliament has handed the Board a mandate that consists of some generally sketched and inevitably overlapping rights deliberatively designed to catch just about every activity anyone can imagine. Canada’s government has directly and indirectly subsidized many of the collectives — in ways ranging from direct subsidies of electronic activity to very favorable licensing deal that provided millions in start up cash flow in the case of Access Copyright. That said, the Copyright Board, however, has not done everything it can to confront the issue of double, triple and more payments. It tends to “value” each usage on its own, often reaching back for proxies based upon previous Board decisions. This shows the tremendous importance of inaugural tariffs.
122 SESSION II: COPYRIGHT There has been little or no interest on the part of the Commissioner of Competition in the activity of the Copyright Board, despite a clear role for the Commissioner that is set out in the legislation. This is in complete contrast to the approach of the European Union and the United States — where there is an innate antitrust-based skepticism of collectives. The Canadian approach is also highly inbred. In some cases, the same parties that form together to make one collective or coalition find themselves opposing each other in another hearing. This leads to interesting situations — such as the same law firm effectively acting both for and against the same client in different files before the Copyright Board. Odd coalitions of apparently sophisticated clients come and go — but I sometimes wonder if they all really understand just how small a world it has become in Canada. And it need not be this way. And from a public interest standpoint, it probably shouldn’t be this way — because some important arguments may fall by the wayside in this process. Canada’s Supreme Court may soon have something to say about this, in a pending and potentially landmark decision concerning alleged conflict of interest by a major law firm.40 This is especially worrisome in view of the increasing convergence taking place between content owners and users, and the decreasing level of competition — as evident in the recent rapid approval by Canada’s Competition Bureau of the merger of two major broadcasting entities, namely CTV and CHUM. There are also a number of problems concerning the way the Board deals with interrogatories, hearsay evidence and evidence from witnesses who may indeed have some expertise but little or no independence. However, these are issues for another day. IV. SLOW ROLL-OUTS BUT MUCH SUCCESS IN CANADA Canada has had a slower roll out of online services than the USA. There are many possible explanations for this and there has been a lot of finger pointing. However, certain music industry statistics are very interesting. According to Michael Geist: The success of the Canadian music industry is also being replicated online. Nielsen SoundScan Canada reports that digital download sales in Canada grew by 122 percent last year, well above the growth rates in both the U.S. (65 percent) and Europe (80 percent). Moreover, the Canadian market now features twice as many online music sellers as the U.S. when measured on a per capita basis.41 According to Nielsen Soundscan Canada, there was a 9.8 percent growth in music industry sales overall in 2006 based on units sold, including the spectacular 120 percent or so increase in online sales.42 Interestingly, CRIA’s Web site that normally reports such statistics is now several months behind.43 The Canadian statistics are clearly rather awkward for the music industry — since there is obvious success of online music in particular and the industry overall in Canada despite its protestations that the sky is falling. The need for urgent and draconian copyright revision based upon a ten-year-old American model DMCA approach seems even less compelling now — not that it ever was. 40 41 42 43
See http://205.193.81.30/information/cms/case_summary_e.asp?30838. See http://www.michaelgeist.ca/content/view/1856/159/. See http://excesscopyright.blogspot.com/2007/01/sky-isnt-falling.html. See http://cria.ca/stats.php.
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V. THE DRM DEBATE IN CANADA Speaking of DRM and DMCA, it is well known that the Canadian government is under much pressure from the international recording industry and the American government to ratify the 1996 WIPO treaties and implement tough DMCA-style legislation to force the acceptance of DRMs and TPMs. Much can be said about this — but Bruce Lehman has probably said it best and most eloquently at a recent conference at McGill.44 This is what he said, according to Michael Geist: The most interesting — and surprising — presentation came from Bruce Lehman, who now heads the International Intellectual Property Institute. Lehman explained the U.S. perspective in the early 1990s that led to the DMCA (ie. greater control though TPMs), yet when reflecting on the success of the DMCA acknowledged that “our Clinton administration policies didn’t work out very well” and “our attempts at copyright control have not been successful” . . . Moreover, Lehman says that we are entering the “post-copyright” era for music, suggesting that a new form of patronage will emerge with support coming from industries that require music (webcasters, satellite radio) and government funding. While he says that teens have lost respect for copyright, he lays much of the blame at the feet of the recording industry for their failure to adapt to the online marketplace in the mid-1990s. In a later afternoon discussion, Lehman went further, urging Canada to think outside the box on future copyright reform. While emphasizing the need to adhere to international copyright law (i.e. Berne), he suggested that Canada was well placed to experiment with new approaches. He was not impressed with Bill C-60, seemingly because he does not believe that it went far enough in reshaping digital copyright issues.45 I shall have more to say about the Canadian legislative environment in another panel at this year’s conference. VI. THE GLOBAL FUTURE It is clear that online music industry revenues have not yet replaced the declines in traditional sources of revenues for record companies. Is this bad news? If so, what is the cause? I would suggest that the music business is remarkably healthy — but the major record industry is wallowing in potentially suicidal self-destruction. People are still spending lots of money on music that frankly isn’t very good. And they are doing so in sprite of intense competition from DVDs, cable TV fees, video games, and other sources of competition for household entertainment dollars. Gone are the days when disposable income was dissipated only at the movie theatre and the record store. There is compelling econometric evidence and analysis from Oberholzer and Strumpf that P2P activity has at most a negligible effect on music industry revenues and may actually help the record companies.46 Perhaps the problem with the music industry — and particularly the major recording industry because the music industry is far from monolithic — is that it has come to 44 See http://mediasite.campus.mcgill.ca/mediasite2/viewer/Viewer.aspx?layoutPrefix= LayoutTopLeft& layoutOffset=Skins/Clean&width=800&height=631&peid=6e197c68-0b63-4474-ac3b-f770e220de0e&pid=2276 b8bb-0299-4f9e-9be8-d83d3539f313&pvid=501&mode=Default&shouldResize=false&playerType=WM64Lite. 45 See http://www.michaelgeist.ca/content/view/1826/125/.
124 SESSION II: COPYRIGHT assume that it is entitled to a constant rate of return and rate of growth. That is not so — unless it wishes to be treated as a government-regulated monopolist — and there are few of those left. In most competitive industries, it is clear that the road to success lies not in extracting the most possible monopoly rents but rather in acquiring inputs for the least possible price and selling outputs for the least possible margin that will suffice to undermine the competition and still yield a sufficient profit. A small margin on billions can be worth much more than a large margin on millions. That is the open secret of success of many of many clients in the retail sector today. It wasn’t always this way. Perhaps the record companies will learn this lesson before it is too late. However, I doubt it. VII. ALTERNATIVES? There is proverbial talk about “alternative compensation systems,” models involving “trusted Intermediaries,” and other systems that depend on the notion that the public will be willing — or at least obliged — to pay a little each that will add up to a lot overall. Two current variations on this theme emanate from credible sources. Both are preferable to traditional levies because they come closer to the mark in terms of exacting payment from those who actually engage in copying. However, both depend essentially on content owners being economic rationalists and acting in their best interests, which experience shows is unlikely to happen. A. THE EFF SCHEME
The Electronic Frontier Foundation (EFF) has a scheme that would involve voluntary low monthly payments that would give the right to a sort of “all you can eat” license to download copyrighted material. This is what the EFF calls “A Better Way Forward: Voluntary Collective Licensing of Music File Sharing.”47 In the words of the EFF: The concept is simple: the music industry forms a collecting society, which then offers file-sharing music fans the opportunity to “get legit” in exchange for a reasonable regular payment, say $5 per month. So long as they pay, the fans are free to keep doing what they are going to do anyway—share the music they love using whatever software they like on whatever computer platform they prefer—without fear of lawsuits. The money collected gets divided among rights-holders based on the popularity of their music. In exchange, file-sharing music fans will be free to download whatever they like, using whatever software works best for them. The more people share, the more money goes to rights-holders. The more competition in applications, the more rapid the innovation and improvement. The more freedom to fans to publish what they care about, the deeper the catalog. The problem with this is that, absent a more or less complete catalog, there is little incentive for either content owners or users to sign up. Users will not be immune from lawsuits for statutory damages if one of more of the litigious major record companies stay outside of the scheme. To the average user, it makes little difference if they are sued for one million or four million dollars. Either claim, if successful, will have the same result. So, why pay “insurance” to eliminate only part of this risk? 46 47
See http://excesscopyright.blogspot.com/30 2007/02/statistically-indistinguishable-from.html. See http://www.eff.org/share/collective_lic_wp.pdf.
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B. THE NOANK SCHEME
The Noank scheme emanates from Harvard and is led by Paul Hoffert and Terry Fisher. It would entail the payment by commercial ISPs, universities, etc. to a trusted intermediary — i.e., Noank — of small sums collected from each user — for the right to download ad libitum. Eighty-five percent of this money would find its way to the appropriate content owners. However, once again, this will only be attractive to anyone if virtually all of the major content owners in a particular category — such as music — are onboard. Noank claims to be making progress in China, with Canada next on the horizon. This effort seems to trace back in some ways to the mid-1990’s. In Mr. Hoffert’s own words: In the 1990s, I was director of CulTech Research Centre at York University, where I led teams that investigated digital content distribution on broadband networks. We followed both the technology and cultural impacts of the information revolution. In 1996, in Ontario, we undertook one of the most extensive digital communities trials to date. In Newmarket, a suburb of Toronto, we took 100 homes and spent approximately $100 million: so it actually cost us a million dollars per home to do the trial. We wanted to see what would happen, how these users would react to content. We gave them advanced digital devices throughout their homes and watched it become, on many levels, a highly integrated community — a community in the broadest sense.48 The Noank scheme would work as follows: In brief, here’s how the system works: In each country, copyright owners (record companies, music publishers, film studios, etc.) authorize Noank to distribute digital copies of their works. Noank, in turn, enters into contracts with major network service providers: broadband consumer ISPs; mobile phone providers; and universities. Noank provides the service providers’ end-users with unlimited downloading, streaming, and copying licenses. In return, each access provider pays Noank a fee on behalf of each of its end-users (consumers, students, employees). 85% of the money collected from these content fees is distributed to content copyright owners. A small software program on the users’ device counts the content use. That information (automatically aggregated to protect users’ privacy) is used to determine the amount of money paid to each copyright owner. Implementation of the system is currently most advanced in China and Canada. Once it is up and running in those countries, we plan to launch in other countries.49 Noank has the Harvard halo over it. Harvard is the largest shareholder. It has no government funding. Thus far, it has also no major Western content owners on-side. This may succeed to an extent in China, because China is quite eager to show respect for intellectual property and at least some enforcement activity. However, I suspect that this will be a much tougher sell in North America and the rest of the world. In addition to the Newmarket project, Mr. Hoffert led an earlier effort to simplify the licensing process for musical rights in Canada. It cost a lot of money; however, the music industry did not sign on. It exists now only as a demo Web site.50 Content owners and collectives were not really interested in simplifying transactions, and are certainly not interested in loss of control. 48 Hoffert, P., Action, Canadian Journal of Communication [Online], Jan. 1, 2002, at 27(4), available at http://www.cjc-online.ca/ viewarticle.php?id=741. 49 See http://www.noankmedia.com/index.html.
126 SESSION II: COPYRIGHT C. IF YOU BUILD IT, WILL THEY COME?
The problem with these approaches lies in the notion that the content industries willing be willing to accept small payments from large numbers of people in exchange for massive loss of control and loss of exclusive rights. This has never been the case and it unlikely to happen in the absence of severe coercion by Government and major revision of international treaties. In other words, it likely won’t happen. There will have to be major market failures before it happens. These utopian visions are unlikely, in my view, to work out. This is because these concepts must inevitably involve either or both of the “C” word and the “D” word, as I call them. More on this below. D. OTHER IDEAS THAT MIGHT WORK
In my view, the only future approaches that may work in the foreseeable future are either or both of the following. 1. “A Nickel a Schtickel” The first and most obvious is that of the Sandy Pearlman approach, namely lowering the price of an authorized download to a nickel or some other irresistible price point. Some New Yorkers and others may understand what I mean when I call this a “nickel a schtickel” approach. The idea is very simple. If one lowers the price, the demand will increase and the quantity sold could increase far more than the factor of price reduction. The price elasticity of demand of online music is very likely quite high. So, if Pearlman is right, the price can be lowered by a factor a twenty to a nickel and the quantity sold would increase by forty or more — a huge net gain. And the increase would be pure profit because the incremental costs for additional downloads are — or ought to be — or will be — close to zero. This is really simple Economics 100. But it won’t happen soon. In fact, it probably can’t happen in Canada in the foreseeable future. This is because the Copyright Board has set minimum royalties that already exceed the retail price of the “nickel a schtickel” model. The Canadian Copyright Board has been nothing if not consistent in rejecting “ad valorem” royalty rates in the digital context — with the result that Canadian pay almost twice as much for blank CDs than Americans — the difference being the $0.21 Canadian levy which is almost half the retail cost of the product in Canada. These minimum rates are effectively fixed for years at a time. In my view, the Copyright Board should not be setting minimum rates in an era where prices can free fall fast in a truly free market. For example, hard-drive storage is now less than $0.50 per gigabyte at the retail consumer level. It wasn’t long ago that PCs and laptops were sold with hard drives that measured in the few or few hundred megabytes and sold for much more than the price of today machines. Even in 2003, the CPCC was seriously proposing a levy of $21 per gigabyte on hard-drive memory in MP3 players. If it had succeeded, today’s 80-gigabyte iPod would presumably have a levy or “tax” on it of $1,680, when it now sells retail for less than $400. And we can now buy external terabyte hard drives for under $500, for example — US$350 here in NYC now,51 and even in Canada for less than $500.52 That is a lot of memory. It translates, in the words of one seller, to: up to 284,000 digital photos, up to 250,000 songs, up to 76 hours of digital video. The message ought to be clear — a free market with low royalty rates could result in 50
See http://www.rightsclearinghouse.ca.
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bountiful profits to everyone. Minimum royalty rates — either through regulation or industry price fixing to which antitrust authorities turn a blind eye — are a definite disincentive to efficiency in the digital age. 2. Wait and See Then, there is the “wait and see” alternative. It worked rather well in the movie industry — despite the efforts of Jack Valenti, who saw the VCR as analogous to the Boston Strangler. Governments resisted his efforts to get a rental right written into the copyright law. The U.S. Supreme Court resisted the effort to ban the time shifting technology of the VCR. Many economists said that if prices were lowered, good things would happen. Finally, the prices of Hollywood movies came down from $150 wholesale to about $20 retail. The rest is history. And the Valenti/VCR melodrama once again shows that the entertainment industry can be capable of some very irrational economic behavior that gets them acting against their own fiscal best interests. This has happened since the earliest days of technology. The industry almost always tries to lobby and litigate to preserve its then current business model. Fortunately for them, they rarely succeed in the end. The entertainment industry is often motivated by an instinct to preserve control — and that is not always good economics. When consumers decided how they wanted to use commercially recorded videos and VCRs, the industry prospered. Why won’t the industry let go of digital music and let the consumers decide best how to use it, along with the hardware and software that promises a bountiful feast of choice? VIII. THE “C” WORDS The main “C” word is “compulsory licensing.” It is what we have in effect in Canada in many respects, through various Copyright Board tariffs. It is what Noank and the EFF will ultimately need for their ideas to work. It is as old as copyright law — but as fresh as tomorrow’s guru vision. It’s just that one can’t use this term anymore. The big record companies love to hate the idea of a compulsory mechanical license — but seem to be quite addicted to the concept as long as it is called something else. And this is notwithstanding the fact that they now own an enormous share of the music publishing business. Compulsory licenses can work and are sometimes needed, as long as one dare not speak their name and as long as the rate is set by legislators or a truly independent authority that will look out for and be held accountable to the public interest. Another “C” word is “control.” The major content owners don’t want to hear any discussion about schemes that would see them losing any “control” of their property. Still another “C” word is that of “collective” — which can be stretched to have a socialist or even Communist sense. Indeed, in some minds, some of the utopian schemes based upon alternative licensing compensation schemes smack somewhat of payment “from each according to their ability and to each according to their need.” Graham Henderson, the CEO of CRIA (CDN counterpart to RIAA), reportedly referred at a conference to Terry Fisher, a Harvard professor, author of a book that deals with alterative compensation schemes53 and a founder of Noank, as “Comrade Fisher.”54 51
See http://www.jr.com/JRProductPage.process?Product=4112 488. See http://www.costco.ca/en-CA/Browse/Product.aspx?Prodid=10299356&whse=BCCA&topnav= &browse=. 53 William W. Fisher III, Promises to Keep (2004). 54 See http://www.michaelgeist.ca/resc/html_bkup/feb212005.html. 52
128 SESSION II: COPYRIGHT IX. THE “D” WORDS The “D” word these days may be either or both of DRM and DMCA. At the EMI/Apple news conference of April 2, 2007, I don’t know how many times I heard Steve Jobs and EMI Group CEO Eric Nicoli refer to “DRM-Free” music. It seems that DRM is becoming the “D” word — even in the highest corporate musical circles. Interestingly, Jobs himself kept repeating that DRMs can already be stripped form iTunes songs by making a CD copy — which lots of folks know. This is a “hassle” as he calls it, but not an insurmountable one. It will disappear now — but for a price. Jobs also explicitly mentioned the Sony root kit episode as an example of how DRM doesn’t work. Nicoli conceded that file sharing might become easier now. The implication here is that any losses due to increased private copying due to file sharing will be more than capitalized into the purchase price of the download. It will, of course, be difficult to separate out what relative premium consumers notionally allocate to the two improvements — i.e., “DRM free,” and higher fidelity. It remains to be seen what the take up will be. The DMCA is also a term that can evoke mixed reactions. As noted above, its father and architect, Bruce Lehman, is distancing himself from it. The DMCA can have some perverse results — especially with respect to DRM. At the time of the Sony root kit disaster, where Sony’s DRM and TPM scheme negligently infected thousands of computers, it was observed by many that any attempt to rescue or repair one’s computer would — strictly speaking — be illegal under the DMCA. True, the Librarian of Congress, on the recommendation of the Register of Copyrights, came to the rescue and provided an exemption under rule-making power55 to cover this type of situation. However, one should not need recourse to such a mechanism. The concept of mandating the approval of limits on technology and actually penalizing persons or prohibiting devices that can reach beyond those limits is deeply troubling and is getting very far removed from any underlying notion of what copyright is or ought to be. In any event, with very credible people running for cover and distancing themselves from DRMs, and even the DMCA, there would seem to be no need for any country to rush into new legislation that embraces these concepts. Especially — as in the in the case of Canada — when sales are improving. Could it be that Canada’s music and record industry — at least the independent part of it that is opposed to a DRM and DMCA approach — is so healthy because of the absence of DMCA type of legislation? Last year, most of the important independent record companies split from CRIA and formed their own coaltion, called the Canadian Music Creators Coaltion. Some very well known artists, such as Steve Page of Bare Naked Ladies, have become outspoken and articulate advocates for a brand of copyright protection that the majors don’t want. In its own words, the Coalition says: Suing Our Fans is Destructive and Hypocritical Artists do not want to sue music fans. The labels have been suing our fans against artists’ will, and laws enabling these suits cannot be justified in artists’ names. Digital Locks are Risky and Counterproductive Artists do not support using digital locks to increase the labels’ control over the distribution, use and enjoyment of music or laws that prohibit circumvention of such tech55
See http://www.copyright.gov/1201.
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nological measures. Consumers should be able to transfer the music they buy to other formats under a right of fair use, without having to pay twice.56 One of the main forces behind this coaltion is Nettwerk Records, whose artists include Sarah McLachlan and Avril Lavigne. In a move bound to raise eyebrows in multinational record industry circles, the Canadian government has just announced a direct funding of $650,000 for this innovative and brave company,57 which is also funding the defense of one of the victims of the American RIAA litigation campaign. According to Nettwerk’s press release on the RIAA litigation: In August 2005, the Recording Industry Association of America (RIAA) filed a complaint against David Greubel for alleged file sharing. Greubel is accused of having 600 suspected music files on the family computer. The RIAA is targeting nine specific songs, including “Sk8er Boi” by Arista artist Avril Lavigne, a Nettwerk management client. The RIAA has demanded Greubel pay a $9,000 stipulated judgment as a penalty, though it will accept $4,500 should Greubel pay the amount within a specific period of time. “Suing music fans is not the solution, it’s the problem,” stated Terry McBride, C.E.O of Nettwerk Music Group. Nettwerk became involved in the battle against the RIAA after 15-year-old Elisa Greubel contacted MC Lars, also a Nettwerk management client, to say that she identified with “Download This Song,” a track from the artist’s latest release. In an e-mail to the artist’s website, she wrote, “My family is one of many seemingly randomly chosen families to be sued by the RIAA. No fun. You can’t fight them, trying could possibly cost us millions. The line ‘they sue little kids downloading hit songs’ basically sums a lot of the whole thing up. I’m not saying it is right to download but the whole lawsuit business is a tad bit outrageous.”58 And that leads to the third “D” word — which is “dystopia.” In 2005 I wrote about a “policy dystopia of levies + litigation + TPMs + statutory damages + overlapping potential tariffs at the Copyright Board.”59 The word was also part of the title of a recent conference on these issues at McGill.60 The concept is simple: we could be in a best of all possible utopian digital world. The celestial jukebox is a good idea — not an evil one. It just came to soon for some people and there are strong forces that want to prevent this from happening. At the highest levels, they are seeking curbs and limits on new technology and the resurrection and perpetuation of a business model that died a long time ago. At its worst, it involves lawsuits against children and their devastated parents. These lawsuits carry clout because of the regrettable availability of statutory damages against individuals for commonly accepted, practised, and even inadvertent behaviour. In fact, even Edgar Bronfman, who runs one of the four major record companies, has admitted that his own kids are guilty of the behaviour for which he is busy suing other kids and families. This is from a recent Reuters interview and report:
56
See http://www.musiccreators.ca/wp/?page_id=8. See http://www.pch.gc.ca/newsroom/index_e.cfm?fuseaction=displayDocument& DocIDCd=CR061625. 58 See http://www.marketwire.com/mw/release_html_b1?release_id=107623. 59 (2005–06) 6 I.E.C.L.C., available at http://www.moffatco.com/pages/publications/BMG%20Case %20-%20E-Commerce.pdf. 60 Musical Myopia, Digital Dystopia: New Media and Copyright Reform, available at http://www.cipp. mcgill.ca/en/events/past/. 57
130 SESSION II: COPYRIGHT We asked Edgar Bronfman, the head of the world’s fourth largest music company, at the Reuters Summit whether any of his seven kids stole music. “I’m fairly certain that they have, and I’m fairly certain that they’ve suffered the consequences.” We couldn’t begin to guess what that means. He explained to our Second Life reporter, Adam Pasick: “I explained to them what I believe is right, that the principle is that stealing music is stealing music. Frankly, right is right and wrong is wrong, particularly when a parent is talking to a child. A bright line around moral responsibility is very important. I can assure you they no longer do that.”61 Great, but what did he do to them? “I think I’ll keep that within the family.” I don’t recall any of the 20,000 or so lawsuits having a defendant by the name of Bronfman. The feature of American and Canadian law which permits such law suits must be reformed — because it has been violently and shamefully abused by the record industry. These lawsuits are a low point in corporate and legal behavior. They will ultimately cause a great deal of damage and backlash — which could adversely affect the many creators and content owners who are responsible and who use their rights with more wisdom and maturity. X. THE APPLE/EMI MOVE On April 2, 2007, Apple and EMI announced that they would offer “DRM-free” music — but at a higher price. Many pounced on the higher price, and noted that the move should be towards a lower one. I’ve already talked about that. There were other interesting aspects to the news conference. Jobs himself admits that less than 5 percent of tunes on an iPod are paid for from iTunes. So where do the other 95–98 percent come from? Isn’t this is a bit like asking where babies come from? Most of us know the answer. The other 95–98 percent of the songs come from P2P and from CDs already owned by music fans, who are being sued in massive quantities in the United States for enjoying their music in the way that the industry is encouraging them. Besides, does anyone seriously think that a device that can hold 20,000 or so songs is going to be filled up with 20,000 songs at $0.99 each — so that it can left on a subway or dropped from a bicycle? These are fragile and allegedly not very reliable machines — and I doubt that even Edgar Bronfman would spend $20,000 or more to legally fill one up with songs from the iTunes store. Of course, one way of increasing the percentage of paid for music would be to drastically lower the price. But that would be too easy. Moreover, iPods are used for lots of things other than music, e.g., podcasts, photos, videos, and even movies. That, however, is not stopping the CPCC from seeking a levy of up to $75 on these devices. I’ve already mentioned the very basic res judicata legal issue. XI. TECHNOLOGICAL NEUTRALITY Everyone believes in technological neutrality — but rarely in their own back yard. At some point, there needs to cogent answers to questions such as: 61
See http://blogs.reuters.com/2006/12/01/the-most-dangerous-download-of-all/.
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앫 Why does the music cost more when delivered over the Internet than when sold as a CD — and sound worse — and include DRM? 앫 Why can consumers import CDs but not iTune files over the Internet? 앫 Why does making a webcast cost so much more than broadcasting from a radio transmitter? 앫 Why are levies and royalty rates on digital delivery modes seeming to be going up when hardware (particularly memory) and software technology and traditional CD and DVD prices are dropping? 앫 Why is there an apparent digital penalty and not a digital dividend? XII. THE EU ANTITRUST AND FREE TRADE INITIATIVES The day after the EMI/Apple announcement last week, the European Union indicated it would press ahead with an investigation as to why songs on iTunes cost more in some countries than others. Many at this conference would roll their eyes and say that, of course, it’s obvious that there are differences because copyright laws and licensing deals are still primarily territorial in nature. Except that we are dealing now with Europe, and that principle has long been under attack with tangible goods — such as normal plastic CDs and books. If these physical objects can travel freely across borders in order ensure free trade inside the European Union, why shouldn’t electronic files? The European Union is making progress on EU-wide deals for collective licensing and even perhaps on an EU patent system. The music industry’s series of country-specific fortresses is under attack. And if it falls in Europe, it may well fall elsewhere. And many observers have wondered aloud whether the Apple/EMI move that would give consumers a DRM-free option for a price isn’t some sort of attempt to distract the European Union and several concerned countries from ongoing concerns about interoperability.62 Time will tell. XIII. CONCLUSION Revenue-generating online music has a great future — perhaps the only future for big music as we know it. But this will only happen if, and only if: 앫 There are no artificial minimum royalty prices imposed; 앫 True competition is allowed and, if necessary, imposed at both a national and international level; 앫 Technological neutrality is honored in spirit and result and not simply in name; 앫 Compulsory licenses are utilized when necessary — and are not repressed out of ideological principle; 앫 DRMs and TPMs are not given life support and mandatory deference by legislation and treaty law. * * * MR. SCHWARTZ: We now have about twenty minutes for discussion. Let me use the Chair’s prerogative to point out two things. The first is a rights clarity case, as much about enforcement as licensing. It is the case of 62 Ed Felten has a good blog on some of the possible strategies behind the Apple/EMI move. See http://www.freedom-to-tinker.com/?p=1141.
132 SESSION II: COPYRIGHT Elektra v. Barker;63 oral arguments were held in this Southern District of New York case in January and the case is now awaiting a decision. At issue is the application in the United States of the distribution right and the right of making available. The question, simply put, is: If someone uploads or makes available copies of illegal files but the copies do not move from point A to point B, is there an infringement of the right of distribution? If the answer to the question is “no,” then the United States is going to have a problem with its compliance with the WIPO digital treaties64 and the requirement of those treaties to provide a making-available right. I suspect that, whatever the court determines, we can expect it to be appealed to the Second Circuit. The second point is for me to clarify what another speaker mischaracterized this morning. That is the business decision by EMI to sell its music on iTunes without DRMs. The mischaracterization suggested that this is the demise of DRMs in the music industry, across the board. In fact, different applications of rights and different business models exist for different music services. What EMI did was to take DRMs off of its download-only service. They are not taking DRMs off of the subscription services because, for those services, the DRMs are effective. Further, although I cannot speak for them, I imagine that the other labels will simply sit back and see whether or not what EMI did works in this instance or not and judge accordingly. Note that what EMI is offering is DRM-free music, but at a higher cost. They are experimenting with cost differentials for higher and lower quality music as well. All the other labels, I am guessing, will wait and see how these new business models work. I see I have already provoked questions from the audience. David Carson and David Jones have some comments. I see Shira Perlmutter has a comment as well. PARTICIPANT [Shira Perlmutter, IFPI Secretariat, London]: It wasn’t a question, just a correction. EMI was taking DRM only off of certain downloads, which are then sold at a higher price. So it is even more complex than that. MR. SCHWARTZ: Thank you, Shira. Let me turn to the two Davids for comments on anything you have heard so far, and then we will open it up for questions from the audience. MR. CARSON: Let me talk a little bit about what we have been doing at the Copyright Office. Unfortunately, we have been working for several years on this issue. I have had endless conversations with Mr. Jones here when he was, until very recently, on the staff of the Judiciary Committee, and I am sure I will have many more conversations in the years to come with his successors, the way things are going. Trying to solve the music licensing issue has proven to be a very difficult question. One way of looking at it, perhaps, particularly since we don’t have the DiMA person here — I won’t exactly put a DiMA hat on; I don’t have that hat to put on — but we can sympathize to some degree with some of the positions taken by DiMA. Put yourself in the shoes of an online music provider who wants to engage in the service of offering downloads or streaming or whatever of large numbers of existing musical works. As we all know, there are two sets of rights — actually, as we will develop, there are more than two sets of rights, but let’s start at the first cut with two sets of rights — that 63
Elektra Entm’t Group, Inc. v. Barker, No. 05CV7340 (KMK) (THK) (S.D.N.Y. filed Aug. 18, 2005). World Intellectual Property Organization, Copyright Treaty [adopted in Geneva, Dec. 20, 1996], 36 I.L.M. 65 (1997) [hereinafter WCT]; World Intellectual Property Organi-zation, Performances and Phonograms Treaty [adopted in Geneva, Dec. 20, 1996], 36 I.L.M. 76 (1997) [hereinafter WPPT], available at http://www.wipo.org. 64
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they have to worry about: the rights in the sound recordings, the record companies; and the rights in the musical works themselves that are recorded. As we understand it, and as we are told, it is not that difficult to clear the rights for the sound recordings, for the records themselves. You go to the record company, and you can usually figure out which is the record company that owns the rights to a particular sound recording — that’s not so difficult usually — and you go and you get a license. That license allows you to do whatever you need to do. Turn around and try to clear the musical rights and it is a very different situation. First of all, we are told it is often far from clear who owns those rights. If you can figure out who owns those rights, fine, you go to them and you try to get a license. Maybe you can; maybe you can’t. If they are represented by Harry Fox Agency, as very many of them are, you might be able to get a license.65 If they are not, then good luck to you. And there is the problem of multiple owners and how do you pay the multiple owners, and can you just pay one of them or not, and that becomes difficult as well. So it is very difficult simply on the logistical level to actually clear those rights. It is not so difficult with the record companies. Then, as we have heard, there are also issues with respect to the specific exclusive rights that you have to clear with respect to those works. We have heard about public performance rights and we have heard about the reproduction right. I don’t think we have heard today, but certainly Jacqueline will tell you, that when you are dealing with streaming, for example, music publishers will say there is a distribution right implicated as well. How do you clear those rights? Well, with the record company it is real easy. The record company owns all the rights. You get the license, you pay the value of those rights, and you’ve got the license and you are off and running. Well, you are not quite off and running, because you still have to deal with the music publishing rights. What do you do for that? Well, you don’t just go to the music publisher typically and have the music publisher say, “Fine, whatever rights you need, here’s the price, you’ve got the license.” You go for the public performance rights to a performing rights society — ASCAP, BMI, or SESAC — and they will be happy to license those rights to you. Then you go to a music publisher — or Harry Fox if you are lucky — and they will license to you the reproduction and distribution rights. Each of them is more than happy to license those rights to you for exactly the same conduct that you are doing. So if you are streaming, you will be paying a public performance license to one set of intermediaries and you will be paying a reproduction and distribution license to another set of intermediaries. And, as we have heard, if you want to engage in the business of downloading, you can certainly pay for the reproduction and distribution. And, assuming there is a public performance in a download, which is a fair question — I think you can interpret our law either way as to whether there is or there isn’t, and Elliot sort of rehearsed those arguments for you — you can also pay ASCAP or BMI or SESAC for the public performance that they say is part of that download. But what happens is that you are paying all sorts of people for the same rights essentially, for the right to do the same conduct. It is a much more complicated and difficult 65 The Harry Fox Agency, Inc., a subsidiary of the National Music Publishers Association and the leading musical work licensing agency, released a notice in 2004 informing all licensees of its stated position that Section 115 does not cover ringtones or mastertones. See Mario F. Gonzales, Are Musical Compositions Subject to Compulsory Licensing for Ringtones?, 12 UCLA ENT. L. REV. 11, 11–12 (2004).
134 SESSION II: COPYRIGHT transaction for you when you are trying to get the musical rights than when you are trying to get the rights to the sound recordings. There are all sorts of costs associated with that. At least from the point of view of online musical services, there is a perception that “I am often being forced to pay someone for rights that I am really not exercising, but I’ve got to, otherwise they’re going to sue me.” So it is much more complicated on the music side than it is on the sound recording side. We have tried in advising Congress over the last several years to figure out how to address this. It would take me more time than I have to go over the various solutions we have offered. The blanket licensing scheme, along the lines of Section 114, would seem to work reasonably well for non-interactive streaming of sound recordings. That is a very good model, and it is not so far off from what was in SIRA last year.66 That is one thing we have talked about. MR. SCHWARTZ: David, let me interrupt you to get a prediction from you. Do you think that we are closer to or farther from Section 115 reform now than we were a year ago? MR. CARSON: We are closer only in terms of the fact that we started talking about it several years ago. When we finally do resolve it — perhaps in our lifetime — we are closer to that time now than we were then. I don’t think we are very close to resolving it. As Marybeth essentially said to Congress three weeks ago:67 It’s time for you folks to make some decisions. We have had attempts over the last several years to get the parties together, to have them work on an agreement. Congress always prefers to do that, particularly in copyright law. It is relatively rare for Congress to actually pick winners and losers in copyright with respect to legislation. They always want people to work it out. It’s just not going to happen. I think the experience with SIRA tells us that. So Congress has to make some hard choices. MR. SCHWARTZ: Unfortunately, Congress has also made it clear that this is the year of patent reform. Copyright reform is following behind that, so any copyright law reforms are unlikely this year. MR. CARSON: I Am not predicting they are going to do it. In fact, if I had to predict, I would not predict that they will do it this year. MR. SCHWARTZ: David, comments? MR. JONES: Perhaps it would be useful to step back and note some of the similarities between the fights in different countries. I find it fascinating how similar the behavior of the music industry, or the various components of the music industry, is from country to country. One of the things that you see country by country is a strict focus on the technical aspects of copyright law that frequently overrides the economic interests of the rights holders, at least in my opinion. You get these fights in the United States over what’s a performance, what’s a download. The second one is the rights clarity issue, which is a serious issue. The copyright laws, at least in the United States, are predominantly about commercial exploitation of works. There are other things built into it, but that is primarily what it is about. Our rights system is based on a time when the main revenue streams were live perfor66 67
See SIRA, supra note 12. See Statements of Marybeth Peters, supra note 11.
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mances, piano rolls, and sheet music. So the rights system that we have now, and the way that it is administered, no longer match up with the valuable economic transactions that people want to have happen in the marketplace. That causes real problems when you have entrenched middlemen, as more than one person has referred to them, administering those rights separately for a single copyright holder. When you have to go to multiple places to get all these arcane rights that actually do not match up with anything that makes sense in the real world today, or especially the online world today, you drive up transaction costs. Anyone who is in the online music will tell you that the transaction costs are what kill it. It is a pennies business, not a dollars business. So if you are blowing 30, 40, 50 percent of the money you are spending on administering the system, then rights holders lose out and the users ultimately lose out as well. Another thing that you see fairly frequently both here and abroad are agency problems. This is a somewhat delicate subject. Having, as David mentioned, worked for the Senate Judiciary Committee doing intellectual property issues, you would frequently see the agents of the copyright holders come and argue for things that were very clearly not in their best interests. So you get fights between people who, very understandably, want to retain their position in the world, want to retain their job and their ability to feed their family. But that gets in the way of significant reforms that actually would make everybody ultimately better off. MR. SCHWARTZ: Let’s open up the discussion to the audience. You have been chomping at the bit. Go ahead. QUESTION [Richard Pfohl, Canadian Recording Industry Association, Toronto]: Thanks. I’ve been chomping at the bit. Frankly, I found Howard’s presentation a bit onesided. I wanted to address a couple of points that he made and correct a couple of misstatements. The first misstatement is he said that all downloading in Canada is legal because the Copyright Board said that if you put it on a hard drive it is legal. Actually, the closest that the Copyright Board got to that was the hard drive that is embedded in an iPod. That case went to the Federal Court of Appeal in Canada. The Federal Court of Appeal said that that hard drive is not an audio recording medium and, therefore, is not covered by the private copying exception. So if you make a copy onto the hard drive of your iPod, it is not covered by the exception. I would argue that if an iPod hard drive is not covered, then certainly the hard drive of our PC is similarly not an audio recording medium and is not covered. So not only is uploading not legal in Canada, downloading is not legal in Canada, according to the Federal Court of Appeal. MR. KNOPF: Everybody should read pages 20 and 21 of the Copyright Board’s decision from 2003. It is all explained there.68 QUESTIONER [Mr. Pfohl]: Everyone should read the Federal Court of Appeal decision.69 MR. KNOPF: And that too. QUESTIONER [Mr. Pfohl]: That reversed that decision. MR. KNOPF: No it didn’t. And read Judge von Finckenstein’s decision, which was not 68 See BMG Canada Inc. v. John Doe (F.C.), [2004] 3 F.C. 241, available at http://www.canlii.org/ca/cas/ fct/2004/2004fc488.html. 69 See BMG Canada Inc. v. John Doe (F.C.A.), [2005] F.C.A. 193, available at http://reports.fja.gc.ca/en/2005/ 2005fca193/2005fca193.html.
136 SESSION II: COPYRIGHT reversed by the Federal Court of Appeal. Anyway, Richard, reasonable minds can disagree on this. MR. SCHWARTZ: And obviously some do. QUESTIONER [Mr. Pfohl]: Secondly, Howard noted that online revenues in Canada are increasing. Well, of course they are increasing. They were zero a couple of years ago. The fact is, though, online revenues in Canada are about 2 percent of what they are in the United States. Now, they ought to be about 10 percent, so they are about five times worse if you take historically what we sell in relative CDs. So we are doing about five times worse than the United States. Why is that so? Howard said independents are doing well. They are not. They actually have the worst profit margins of any record companies in Canada. Their profit margin is at about 0.5 percent. The reason is because the legal landscape is terrible. The OECD has said that Canada has the highest per capita unauthorized downloading rate in the world. Canada is number one. Why is that so? It was mentioned earlier by Elliot Peters that the United States has challenges with its legal landscape. Walk into Canada. It is much worse in Canada. Just to briefly quote one independent, Grant Dexter runs Maple Music. That’s one of the leading independents in Canada. He said: “We recently launched our music label. It was damn near impossible to raise money from the typical sources that entrepreneurs look to. We live in a country in which copyright laws do not protect businesses like mine and in which courts support the proposition that downloading and uploading of music is legal.” So in other words, it is confused. Howard does have that right. “As a result of this,” he said, “raising capital to grow our business was almost impossible. Prospective investors view the music industry as a no-fly zone, and they will continue to until we get the proper laws to protect developing businesses like mine.” That’s what the independents think in Canada. On DRM, Howard counts on, I guess, that we reject the WIPO approach in Canada, which Canada has not yet ratified. Frankly, Eric, you pointed out the sole success story in the music industry is ringtones. They are a success because they are a walled garden and we are able to protect them. You cannot steal them. MR. KNOPF: Right, at the moment. QUESTIONER [Mr. Pfohl]: Finally, I’ve got to correct a comment that was taken out of context. I was at the conference where Howard quoted my boss, Graham Henderson, as referring to Terry Fisher as “Comrade Fisher.” They were on a panel together. They were joking. It’s as if you were to say that Hugh Hansen is prejudiced against French people. Terry Fisher laughed. MR. SCHWARTZ: I am not even going to go there. I will let that be the last word. Thank you very much. Other questions? Are there other questions from the audience? QUESTION: David, in 2007 do I understand the testimony of Marybeth Peters as saying that we should now move to a scheme of sublicensing where record labels would be licensing songs from publishers that they put on their CDs and sound recordings? MR. CARSON: What she suggested this year, having made some much more far-reaching suggestions — which are probably our preferred suggestions from a policy point of view — in the past on how to solve this problem, was: Think small. Try to do as little as you need to to fix the major problems that are really confronting us. After you have done that, come back and maybe we can try to fix things in other realms. She made two suggestions with that in mind. One was take the existing model in Section 114 and move it over to Section 115, the blanket licensing approach.
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The other one was to take the existing provision in Section 115, which appears to already give record companies the right to sublicense the musical composition rights. In other words, when a record company licenses you the right to engage in online reproduction and distribution of the sound recording, if the record company has taken a license for the musical composition, it may sublicense to you the rights to that musical composition as well. That seems to be what is happening to a large degree in the marketplace now. Let’s clarify that, give the record companies a little bit of the protection they think they need in order to do that. That is another way in which, with just a few strokes of the pen, you can fix that aspect of the problem. MS. CHARLESWORTH: I just want to comment on the pass-through license. There exists what we call “pass-through” license in Section 115, which in the digital realm does allow record labels to pass through our rights to third parties. Publishers very much dislike this piece of the copyright law. In fact, one of our primary goals in the SIRA legislation was to change it. We do not like having the labels — no offense intended — act as our middlemen. And there is a lack of transparency, there are no audit rights. It is very problematic. I just wanted to comment a little bit further on the Register’s proposal. I think that the assumption there is that the labels will continue to be the primary distributors of recorded music. I think as we are moving into this new space to assume that — rather than that there will be a proliferation of distributors, that you will have individuals distributing music, and many small companies distributing music — I am not sure that in the future that would end up being in any way an efficient model because you would have to go to each sound recording owner, someone who is probably going to be capable of distributing content on the Internet themselves without necessarily going to a major record label. It just seems like a perpetuation of a system that is already in flux, on an assumption that it will stay the same, when I think it probably will not. I just wanted to comment a little bit further in response to what the two Davids said about licensing reform. As I said, we agree that there are issues with music licensing. But I think we do have an existing system, we do have separate rights that are implicated. One way to solve that problem is to grant an all-in license and let the performance side and the mechanical rights side whack it out. That is the approach that is taken in Great Britain. Rather than choosing between the rights, there is an understanding that both may be implicated in online delivery, but let the respective interests or the performance side and the mechanical side divide it up. The other thing is right now you do have to go to four major record labels and do deals. Granted, they have a lot of MFNs in them, but they are separate deals. Plus that only covers 80 percent of the sound recording market. There is another 20 percent that are independent labels. So I do not think we should oversimplify the label licensing process. I have heard some about this from my colleagues at DiMA. I think, assuming that the mechanical rights side moves to a blanket system, it would really be one more stop. Certainly, DiMA embraced that as a potential solution. I do not know that we need to move to a system where the record labels are entirely controlling the distribution of music. QUESTIONER: Let me ask this. In the distrust that the publishers have for the labels, one of the ways to stop distrust is to write a good contract between you that would resolve some of the terms of distrust. Can you envision any contract that you would write, any terms that you could write, by which this idea of the record labels conveying publishing rights through their sale of the sound recording, can you imagine any way you could write the terms of an agreement that would enable that to happen?
138 SESSION II: COPYRIGHT MS. CHARLESWORTH: Yes. MR. SCHWARTZ: That was a part of the NMPA-RIAA 2001 agreement,70 right? MS. CHARLESWORTH: Yes. The 2001 agreement was governed by Section 115,
which already grants that right. We operate under a compulsory license, so unfortunately we do not have the privilege of writing contracts. MR. PETERS: Jacqueline, there are a lot of voluntary agreements out in the marketplace. Look, I wear two hats at my company, but when I’m wearing the record label hat and I am negotiating against the publisher — I think earlier you said they have little leverage. That is not exactly how I feel. Actually, when I am negotiating on behalf of Chappell, I feel rather empowered. So I do think there are a lot of protections based in marketplace agreements that are out there covering video product, covering — MS. CHARLESWORTH: Right. I was going to finish my comment by saying that in some instances, for example under voluntary ringtone licensing agreements or agreements outside of Section 115 — the agreements you are referring to tend to be maybe some compulsory uses mixed with video and things that are clearly outside the compulsory, which gives the publisher greater leverage to control the terms of the deal, whether there is an audit right. In some cases, the ringtone agreements might provide for pass-through to the ringtone provider. I have actually been involved in some of those negotiations that included audit rights. But that is just not something that can effectively happen for the most part under a compulsory license. We live by the rules that are in the statute. MR. JONES: That certainly did seem to be the case from the record that was compiled on Capitol Hill on music licensing. For anything that the Section 115 license clearly covers the record labels have little or no incentive to actually cut a reasonable deal. That will only apply where other rights are implicated that are not covered by the statutory license. MR. SCHWARTZ: Marybeth. QUESTION [Marybeth Peters, Register of Copyrights, U.S. Copyright Office, Washington, D.C.]: Jackie, isn’t it true that Section 115 really sets the limit with regard to the rate but that very few deals are really compulsory licenses? MS. CHARLESWORTH: I think people use the term differently. Harry Fox represents, depending on whom you ask, from 60 to 70 percent of the market. A Harry Fox license is what is called a variation on the compulsory license. Courts have held for the most part that it really is a statutory license. It very much tracks the Copyright Act, although it does vary certain terms, like the accounting from thirty days to forty-five days. Whether you call that a variation on the compulsory or a compulsory, I think is sometimes a semantic question. QUESTIONER [Ms. Peters]: I think we call it a voluntary license. MR. SCHWARTZ: So, Marybeth has the last word, unless there are any other questions or comments. No other questions? Let me again thank very much all of the speakers.
70 See Digital Millennium Copyright Act § 104 Report, House of Representatives, (Dec. 13, 2001), available at http://commdocs.house.gov/committees/judiciary/hju7666
SESSION III: PATENT PART A: NON-OBVIOUS AND INVENTIVE STEP
SESSION III: PATENT
Part A: Non-Obviousness and Inventive Step: A Comparative View
Moderator NORMAN ZIVIN
Cooper & Dunham LLP (New York)
Speaker JOHN RICHARDS
Ladas & Parry LLP (London)
Panelists HON. KLAUS GRABINSKI
STEVEN J. LEE
Presiding Judge, District Court (Düsseldorf)
Kenyon & Kenyon LLP (New York)
RT. HON. LORD JUSTICE JACOB
HON. RANDALL R. RADER
Court of Appeal, Royal Courts of Justice (London)
Judge, U.S. Court of Appeals, Federal Circuit (Washington)
EIJI KATAYAMA
HERBERT F. SCHWARTZ
Abe, Ikubo & Katayama (Tokyo)
Ropes & Gray LLP (New York)
MR. ZIVIN: Good afternoon, ladies and gentlemen. I’m Norman Zivin of Cooper & Dunham. I’m the moderator for this session is on “Non-Obviousness and Inventive Step.” Let me introduce the panel. We have Judge Grabinski from Düsseldorf and Lord Justice Jacob from the United Kingdom, both of whom were on a panel this morning, so I will not further introduce them; Mr. Eiji Katayama from Tokyo, who will tell us the Japanese view; from the American side, Steve Lee from Kenyon & Kenyon, Judge Randall Rader from the Federal Circuit Court of Appeals, and Herb Schwartz from Ropes & Gray. We are going to hear first from Mr. John Richards of Ladas & Parry, who will talk about the differences (or non-differences) between non-obviousness and inventive step.
140 S E S S I O N I I I : P A T E N T MR. RICHARDS: We heard this morning a lot of discussion about whether the patent system is broken or not. I think how we resolve the non-obviousness/inventive step issue is going to be a big factor in whether, in ten years’ time, we have decided that the system was broken or whether in fact we are just suffering from a temporary aberration. The question I want to pose is: What is the non-obviousness/inventive step/inventive activity requirement for? I am going to look at how the law has developed in a few countries — not spending too much time on the United States, because I think most people here are aware of the developments in the United States — to give us some clues as to what the answer to that question might be. Let me kick off with a couple of U.S. cases, which I think set off the two rival approaches. In Atlantic Works v. Brady in 1883,1 the Supreme Court said the test is: Did the alleged inventor make “a selection and combination of elements” which would not have occurred to anyone “of ordinary skill” in the field in question? In Hotchkiss v. Greenwood,2 the case on which we focus a lot nowadays, a somewhat earlier case, the Supreme Court said the test was that unless more ingenuity and skill is applied to the new invention than is possessed by an “ordinary mechanic acquainted with the business,” there was an absence of that degree of skill and ingenuity which constitute essential elements in every invention. So are we in a situation where what we are trying to prevent from being patented is something that would have occurred to anyone of “ordinary skill in the art,” or do we need some measure of ingenuity, some sort of quasi-subjective test, in order to determine what it is that we regard as being patentable? I fear that we are drifting towards a more subjective approach that people have been trying to adopt for the last few years. I aim to put that in its international context. The state law in most countries did not specifically address the question of non-obviousness until the mid-twentieth century. In the early days in this country, we had a requirement that something was “new” and “useful.”3 In the United Kingdom, it was simply that it needed to have “a manner of new manufacture.”4 Over the years, the courts added into that novelty/usefulness requirement the idea that there had to be subject matter or there had to be “inventivity,” deriving simply from the use of the word “invention. That came into the U.K. statute in 1932, which, as far as I can see, was the first statute to specifically deal with this, where the requirement was that the invention should not be obvious and should involve an “inventive step.”5 We did not get similar legislation in the United States until 1952, with the enactment of 35 U.S.C. 103,6 which specifically says that the way in which the invention is created should not determine whether something is to be regarded as being obvious or not, overruling the Supreme Court’s 1940 decision in Cuno, which talked about a “flash of creative genius” being required in order to establish patentability.7 In France, we did not get an addition of a requirement for non-obviousness/inventive step until the 1968 statute,8 but prior to that the French courts had created a concept of “patentable novelty.” Patentable novelty was not strict novelty, in the sense that the 1
Atlantic Works v. Brady, 107 U.S. 192 (1883). Hotchkiss v. Greenwood, 52 U.S. (11 How.) 248 (1851). 3 Patent Act of 1790, ch. 7, 1 Stat. 109-112 (Apr. 10, 1790). 4 See, e.g., Losh v. Hague, 1 Webster’s Pat. Cas. 202, 208 (1838). 5 Patents and Designs Act, 1932, 22 & 23 Geo. 5, c. 32 (Eng.). 6 Patent Act of 1952, Pub. L. No. 593, 66 Stat. 792, 798 (1952). 7 Cuno Eng’g Corp. v. Automatic Devices Corp., 314 U.S. 84, 91 (1941). 8 Law No. 68-1 of Jan. 2, 1968, Journal Officiel de la République Française [J.O.] [Official Gazette of France], Jan. 3, 1968, ¶ 13, translated in 67 Pat. & Trade Mark Rev. 100, 100–09, 128–36 (1969). 2
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Anglo-American tradition looks at it and says that something is new if it is not specifically disclosed in prior art. The French concept of novelty had a penumbra of things that were evident from the prior art being included as within what was to be regarded as lacking in novelty. In Germany, the courts early on, after the 1878 statute,9 started to add in two additional requirements beyond “new” and “industrially applicable,” which were the two specific things required in the German statute at the time: namely, that there should be a measure of “inventivity” [erfindung shöhe] and also there should be a “technical advance” [technischem Fortschritt].10 That remained the German law up until harmonization with the European Patent Convention11 in 1981. So we have this background against which the question of whether one is looking at preventing patents from being granted for that which lies in the way of the development of the industry, or whether there is a need for some creativity beyond just looking at what is a natural development. The word “obvious” itself comes from the Latin ob via [in the way]. The European Patent Office set out to create a definition of inventive step when it was created. Now, the words “inventive step” are unfortunate in the English version of the European Patent Convention. The German text, Erfinderische Tätigkeit, and the French text, activité inventive, both effecttively mean “inventive activity” rather than “step.” So when we talk about “inventive step” in the Anglo-American approach, we are, in fact, perhaps misunderstanding what the intention was behind the original language of the European Patent Convention. Now, the courts have recognized this and attempt to deal with it. Nevertheless, to the average practitioner this idea of a “step” rather than “activity” can at times be confusing. The approach adopted by the European Patent Office was based on the way in which things were done in Germany to some extent. At the time when the European Patent Convention was set up, there was a famous paper given by the president of the European Patent Office, who said that since the Dutch standard for inventive step is too high and the British standard is too low, we are going with the German standard. Now, there is a difference between standard and the methodology that you employ in order to get to a result. The approach adopted by the European Patent Office is based on a so-called “problem and solution” approach, defining the problem and then looking to see whether what is done creates a solution to that problem. That comes out of the German jurisprudence. However, the European Patent Office has gone beyond what I understand to be the German approach, at least to some extent, by saying that you have to identify a single piece of prior art which is the point of reference for determining what the problem is to be solved. The European Patent Office says that the problem to be solved can change as you go through the case, so if different additional prior art comes up of which the inventor was not aware at the time the application was written, then you can redefine the problem; and as long as you can derive the problem somehow from the documents filed, then you have a problem which needs to be solved. You then go to the knowledge of one skilled in the art and see whether there is something that bridges that gap. Much of the recent case law in Europe, and also in Germany, has focused on what the 9
Patentgesetz [Patent Act], May 25, 1877, RGBI I at 501 (F.R.G.). Patentgesetz [Patent Act], May 5, 1936 RGBI II at 117 (F.R.G.). 11 Convention on the Grant of European Patents, signed at the Munich Diplomatic Conference for the Setting up of a European System for the Grant of Patents on Oct. 5, 1973, 13 I.L.M. 270 (1974), 1160 U.N.T.S. 231 [hereinafter European Patent Convention], available at http://www.epo.org/patents/law/legal-texts/epc.html. 10
142 S E S S I O N I I I : P A T E N T nature of that problem needs to be. As pointed out, it must be a “technical problem.”12 This has caused some difficulty in the computer software area and the things that border on business methods which are not quite business methods, as to defining exactly what is a “technical problem.” The law in the United Kingdom — Sir Robin, I’m sure, will correct me if I am wrong — still seems to be somewhat uncertain. LORD JUSTICE JACOB: No. MR. RICHARDS: No? You think it is certain. I tried to derive some sort of rational principle out of some of the recent decisions that have come down. Nevertheless, in the English jurisprudence one starts off by doing a so-called Windsurfing analysis. 13 The Windsurfing analysis has four steps to be taken: (1) identify the inventive concept, which may or may not be the same as the problem; (2) thereafter the court has to assume the mantle of the “normally skilled but unimaginative addressee” of the art at the priority date and impute to him the “common general knowledge of the art” at that date; (3) identify what, if any, are the differences between the matter cited as known or used and the alleged invention; and (4) finally, the court has to ask itself whether, viewed without any knowledge of the alleged invention, those differences constitute something that could have been obvious to the skilled man or required any degree of invention. That test really ducks the question of exactly what is obvious. The case law, until Sir Robin corrected it recently,14 has led people to believe that being “obvious to try” was something that met that conclusion. He addressed this in 2004 and said that the “obvious to try” test is in fact not normally to be regarded as being an indicia of obviousness in the United Kingdom, unless it is absolutely evident that it is going to work.15 So we come to a situation somewhat similar to the “reasonable expectation of success” test that is used elsewhere. In Germany, as I said before, the issue is whether there is “inventive activity.” My reading of the law is that one addresses the problem and the solution, but one does not necessarily have to focus on the closest piece of prior art in order to determine whether inventive activity has taken place in moving from that to the invention claimed. In Canada, the leading case, Beloit Canada Ltd. v. Valmet Oy,16 says: The test for obviousness is not to ask what competent inventors did or would have done to solve the problem. Inventors are by definition inventive. The classical touchstone for obviousness is the technician skilled in the art but having no scintilla of inventiveness or imagination; a paragon of deduction and dexterity, wholly devoid of intuition; a triumph of the left hemisphere over the right. The question to be asked is whether this mythical creature (the man in the Clapham Omnibus of patent law) would, in the light of the state of the art and of common general knowledge as at the claimed date of invention, have come directly and without difficulty to the solution taught by the patent.”17 Basically taking the view there that it is something that has to be a natural development; therefore, for the purposes of the non-obviousness requirement is simply to prevent the 12 See Case T 0641/00, COMVIK GSM AB v. DeTeMobile Deutsche Telekom Mobile Net GmbH (Technical Bd. of App. Sept. 26, 2002), available at http://legal.european-patent-office.org/dg3/pdf/t000641ep1.pdf. 13 Windsurfing Int’l Inc. v. Tabur Marine (Great Britain) Ltd., [1985] R.P.C. 59, 73–74 (C.A. (Civ.) 1984). 14 Angiotech v. Conor, [2007] E.W.C.A. Civ. 5 (Jacob, J.). 15 See Saint-Gobain v. Fusion Provida, [2005] E.W.C.A. Civ. (Jacob, J.). 16 Beloit Canada Ltd. v. Valmet Oy, [1986], 8 C.P.R. (3d) 289. 17 Id. at 294.
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public from being deprived of something that might otherwise naturally have developed. No focus on creativity or “inventivity” at all. The Australians, as Sir Robin commented this morning, have gone backwards in time and gone back to English law before anything virtually. In the Aktiebolaget Hässle v. Alphapharm Pty. Ltd. case,18 they say: “Would the notional research group at the relevant date, in all the circumstances, which include a knowledge of all the relevant prior art and of the facts of the nature and success” and other approaches to the same problem “directly be led as a matter of course to [the claimed invention] in the expectation that it might well produce a desired result?” Finally, Japan. Basically, the guidelines of the Japanese Patent Office set out a number of factors to be looked at when determining questions of inventive step: whether the invention was a simple selection or an optimization; whether there is probable cause or motivation to take the step clamed; and finally, whether there are any advantageous effects beyond those which would be foreseen by those skilled in the art in order to establish whether there was inventive activity or not.19 MR. ZIVIN: Thank you, John. We are now going to go to discussion. Maybe we can start off with comments by anyone who wishes to talk about whether there is any difference between the obviousness test in the United States and the inventive step test as applied in Europe or in Japan. Anyone? JUDGE GRABINSKI: I have a lot of sympathy for the remark made by the Canadian judge this morning.20 We have to be aware that the question of inventiveness concerns a highly fictitious situation. We are dealing with two kinds of fiction. First, we have to determine what is inventiveness — or inventive step, or whatever notion you may like to use — from the point of view of the “average person skilled in the art.” I always wanted to meet once in my life the “average person skilled in the art.” LORD JUSTICE JACOB: He’s a very boring chap. JUDGE GRABINSKI: Unfortunately, I didn’t meet him or her, and probably I will not do so in the future. The question that the judge has to establish is what is the average knowledge, the average ability, of a person who is dealing with the particular technology. That is the first fiction. The second fiction has to do with time. When you have to determine inventiveness, it is always later. You always have a perspective post the decisive point of time, meaning the priority date. These two fictions have, first of all, to be recognized. This also opens quite a range of interpretation, and also a range for some distinction, in deciding whether there is inventiveness in a particular case, yes or no. I would like to tell you briefly how the German courts deal with it, in particular the Supreme Court. The Supreme Court decides on appeals from decisions of the Federal Patent Court in nullity proceedings. These are de novo appeals. At the Federal Patents Court (first instance level) you have technical judges and legally qualified judges on the bench, whereas at the Supreme Court (on the appeal level) you only have legally qualified judges; therefore, they will in 95 percent of all cases appoint an expert. 18
Aktiebolaget Hässle v. Alphapharm Pty. Ltd., (2002) 212 C.L.R. 411. Examination Guidelines for Patent & Utility Model, Japanese Patent Office, pt. II, ch. 2, § 2.4, available at http://www.jpo.go.jp/tetuzuki_e/t_tokkyo_e/Guidelines/PartII-2.pdf. 20 See remarks of The Hon. Roger Hughes, Federal Court of Canada, supra this issue, Session I Part D, The Next Ten Years in Patents. 19
144 S E S S I O N I I I : P A T E N T They will ask in a written decision questions to the expert. They will ask with regard to the question of inventiveness: 앫 Who is the person skilled in the art, the “average person?” 앫 They will ask the expert about novelty. Novelty is now not the subject. 앫 Then, they will ask him which steps the person skilled in the art had to do in order to get the solution of the patent, hoping that the expert makes an analysis of the documents of the state of the art that have been put on the table, and then explains the steps that are led from the state of the art to the alleged invention. 앫 The next question is: Has the person skilled in the art reason to start with consideration in that direction, in the direction of the steps that are leading to the invention? 앫 In the next question, the expert will be asked: What are the pros and cons that the person skilled in the art would get to the solution of the patent on the basis of these kind of considerations? 앫 Then, you have different aspects that may be of importance, but must not be of importance in the particular case: for example, whether there has been a certain prejudice in the state of the art that had to be overcome, and other aspects; whether there are particular advantages. These may give some indication whether there is inventiveness or not. Then the expert will write his opinion. The judges and the parties will also ask questions to the expert in a final hearing. But in the end it is the judge — or in the case of the Supreme Court, the panel of judges — who will decide on inventiveness. It is also recognized that this is a question of law, so it will not be the expert but it will be the judges who will decide. Of course, at a certain point there is some discretion, and there I come back to the remark of our Canadian colleague, who said that at a certain point you have to decide whether there is inventiveness or not. MR. ZIVIN: Thank you. Mr. Katayama, could you tell us a bit about what the law is at present in Japan? MR. KATAYAMA: The present situation in Japan is that the level of inventive step that the Patent Office or the court has to find to clear for patentability21 is too high. That is a general criticism. But this kind of thing is a bit difficult, because in the 1990s there was very severe criticism on the opposite side. People said then that the Japanese patent law did not have a provision, other than novelty, for obviousness. So historically speaking, unfortunately, the level of inventive step varied. This is probably true. In a certain era it was easy, but in these days it is difficult. That is the present status. Whether too difficult or not is a matter of policy, I think. That is the position that industry supports and likes. On the other hand, the problem for the practitioners especially is the level varies much in the short period, or it varies from continent to continent. In these days, as you know well, business is cross-border. You should not have that situation. In that sense, harmonization of the level is very important. I do not think there is a very substantial difference between deciding the elements to consider in the patentability and obviousness issue. So it is a matter of overall perception as to whether it is too difficult or it is too easy. That is a brief view from Japan. Thank you. 21 See Patent Act, Act No. 121 of 1959, art. 29(2), translated in http://www.cas.go.jp/jp/seisaku/hourei/ data/PA.pdf.
PART A: NON-OBVIOUS A ND INVENTIVE STEP MR. ZIVIN: Steve, do you agree with that? MR. LEE: I have no knowledge about the law
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of Japan, so I cannot comment on that. I would like to address the question that was asked. We have inventive step, which is defined as being non-obviousness, and we have obviousness in the United States. The statutes seem very similar. Are the results very similar? I think that, quite clearly, the results are not similar. We have systems that use the same words but mean almost completely different things. In my narrow area of pharmaceutical law, I see patents that are held invalid under the European standards that are held valid as being non-obvious in the United States, but not the reverse. I have yet to find a case — and I would love it if somebody would bring one to my attention — of a patent that was found obvious in the United States but was upheld as valid in Europe. Of course, because I have clients that are trying to sell essentially the same products in markets in the United States, in Japan, and in Europe, these different standards are a problem for them — and a problem for me, because they say, “If my European attorneys can do so well, how come you can’t find a way around this U.S. patent? I can go into specifics, but I do not think it is probably warranted here. I would love to hear what other people think about the standards. Even though the words are the same, the tune seems to be different in the United States and around the world. MR. ZIVIN: Judge Rader? JUDGE RADER: First, let’s understand what we are really doing. We are trying to ascertain whether an advance in technology is sufficient to warrant an exclusive right. We are going to give this inventor an incredibly valuable monopoly. We want something in exchange for it. What we want in exchange is a significant advance in the art, not the advance that would have come by virtue of the natural evolution in the step-by-step process that would happen anyway. We want an inventive contribution. How do you assess that? You are correct, I think. The words are sometimes similar, sometimes different. I think there are differences. The problem/solution approach, for instance, used in Europe seems to me to have a little problem because often the definition of the problem is a significant part of the inventive contribution. You recognize the problem; the solution then becomes easy. My favorite example [indicating]. Is that inventive? You like that invention? MR. LEE: I use it every day. MR. ZIVIN: Everybody uses it. JUDGE RADER: Yes. Obvious prior art in each case. Once you understood the problem, replacing paper clips or whatever you want to define the problem as, the invention was itself the solution. So it seems to me, as I say to my students whom I teach every year, “I can teach you the rules in about five minutes. It is going to take you about fifteen years before you are any good at all at assessing obviousness.” It is a combination of understanding technology and law. It requires complete immersion in the prior art, an ability to ascertain the trajectory and pace of change in that art over time, and then using that as the baseline — and by the way, the “person of ordinary skill in the art” is a magnificent invention in patent law and a great advance. It’s the “reasonable person” in negligence law. It is the objectification of the standard and a great help to us. What it does for us, thinking in the terms I am suggesting, is that it allows us to project that trajectory and pace and then make some kind of a judgment as to whether there has been a significant deviation therefrom that warrants an exclusive right. It is going to
146 S E S S I O N I I I : P A T E N T require judgment. It is not going to be done by changing the formulation of words or reorienting the test that you use. You are still going to have to have some way, without taking the invention itself into consideration or the problem itself into consideration, of measuring that trajectory and trend and ascertaining the merits of the deviation. MR. ZIVIN: Herb, what comments do you have on this? MR. SCHWARTZ: To me one of the interesting questions will be: When and if the words change, if the words were changed, in the United States, how will that affect the process ultimately? It is interesting to look at the most recent decision of Lord Justice Jacob, which he issued a few weeks ago.22 He basically said that there really is no single test that you can apply, and he goes through the litany of basically different cases requiring different tests — maybe motivation is important sometimes; maybe commercial success is important sometimes, maybe it’s not. I don’t know if I am mischaracterizing him, but I think that he is basically saying you cannot reduce this to a simple rubric. My sense of reading what the Supreme Court has said is that they are really in the same place. When you read particularly some of the words of Justice Breyer, to me he says: Well, you can’t have a non-exclusive list; you really have to look at a variety of different factors and decide which ones fit which case. It seems to me, although I can’t read tea leaves, that ultimately the Supreme Court will move away from that. 23 Whether that will really change what happens in the application is the interesting question, as to how that will really change the result. I think to the extent that people have been critical of the Federal Circuit for having a formulaic rule of teaching/suggestion/motivation (TSM), I think that those factors will still be important and prevalent but they won’t be an all-encompassing test. How this will affect the result I don’t know, but I am somewhat sympathetic to Lord Justice Jacob’s broad view of it, namely that there is no “one size fits all” basically. JUDGE RADER: Whether you call it TSM, teaching/suggestion/ motivation — whatever labels you put on it, — if you are going to extract hindsight from the analysis, you have to somehow evaluate the evidence that occurred before the time of invention. You are going to have to evaluate the prior art to that trajectory/trend/pace that I was talking about. Maybe we’ll change the words to “trajectory, trend, and pace” instead of “teaching, suggestion, and motivation.” But if you are going to assess inventiveness and the contribution to an area of technology of an invention, you are going to have to take the invention out of the equation, remove hindsight from the equation. Whether you call it TSM or not, you are going to be making an evaluation of those factors that allow you to read the prior art without the invention. MR. ZIVIN: Sir Robin? LORD JUSTICE JACOB: I think Herb has accurately summarized my view, that you 22
Angiotech v. Conor, [2007] E.W.C.A. Civ. 5 (Jacob, J.). See KSR Int’l v. Teleflex, Inc., 127 S. Ct. 1727 (2007) (holding that Graham v. John Deere Co., 383 U.S. 1 (1966), controls obviousness; that “the results of ordinary innovation are not the subject of exclusive rights under the patent laws”; and warning that a rigid application of the teaching/suggestion/motivation test as a litmus test for obviousness is inconsistent with the Graham framework, but stopped short of rejecting the TSM test outright. Simply put, the TSM shortcut for an obviousness analysis is no longer available. The Court’s decision immediately focuses the obviousness spotlight back onto the framework that has controlled the issue for more than forty years, forcing everyone who has grown comfortable with the TSM litmus test shortcut to return to full Graham analyses when assessing the obviousness of patent claims. The Court’s opinion touches on several other issues, including the roles of “hindsight bias” and common sense in an obviousness inquiry, a question about the rationale for affording a presumption of validity to the patent-in-suit, which avoided a Graham analysis during prosecution, and a rejection of the rigid rule that “obvious to try” is per se insufficient to show obviousness), available at http://www.supremecourtus.gov/opinions/06pdf/04-1350.pdf. 23
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cannot take this word “obvious,” put it in other words, and come up with a formula that tells you what the word “obvious” means. Ultimately, it is a multifactorial assessment. I think one of the most interesting cases in recent years is one of Hugh Laddie’s.24 It is a splendid case, full of human interest, the invention of the “Anyway Up” cup. Now, nobody who has had small children before that invention would say anything other than that was a bloody good idea. What was the idea? Putting a valve on top to stop something leaking. It is a children’s cup. You put drink inside it, they have it in their cot, it goes on the side, they go to sleep, it doesn’t leak all over the place. Now, by any kind of criteria which you could think of, once you state the problem and ask people to start thinking of a solution, putting a valve on was the only way you can think of an answer, and you could find the suitable valve. And yet it was a good idea. There is a lovely story that goes with the case. The people who invented it had very little money, they didn’t know how to market this, so what they did was to put some Ribena [a British sticky drink] in the cup, put the whole thing inside an empty shoebox, posted it to the marketing manager of one of the big companies, and said, “If this has leaked we’ve shot ourselves in the foot.” It was a brilliant way of selling the thing. But if you try to think of it in terms of patent law — any formula — you are going to say that was obvious. And yet it was not. In the end, I do not think there are big differences at all. I think the big danger is trying to create a formula. So I do not like the European Patent Office trying to invent a problem. That seems to me to be inventing a complicated way of answering the question in the first place, a lot like translating something into Swahili and then translating it back again. You’ve got to ask whether this was a good idea or not, that’s all. Randy is right. If I may say so, Lord Justice Hoffmann in STEP v. Emson,25 who got ticked off by a subsequent court of appeal, was also right — does this chap deserve a monopoly for twenty years? JUDGE RADER: Excuse me, Lord Justice. “Is this a good idea or not?” What you have just done is factored the invention into your test for non-obviousness and decided whether you’re getting a “gee whiz” reaction from it or not. LORD JUSTICE JACOB: No. JUDGE RADER: That’s exactly the problem of hindsight. You have to ignore whether this was a good idea or not from your vantage point. You are irrelevant. You have to get yourself back into the world of this technology without the invention and see what was happening, and not whether this was a good idea measured after the fact. LORD JUSTICE JACOB: You can measure it at the time. I am not disagreeing with that. JUDGE RADER: No. LORD JUSTICE JACOB: Here is the guy sitting there, this nerd — I called him “a nerd” in one judgment, the “unimaginatively skilled man”26 — and somebody says, “What about so and so? He says, ‘Hey, that’s a good idea.’” JUDGE RADER: It is not a good idea unless you have a context in which to place it as a good idea. In other words, you have to be able to evaluate what was the nature of all ideas in that technology that preceded it and is this one somehow “deflecting the trajectory,” to use my term. 24 Case CH 2003/APP/0035, Mandy Haberman v. The Comptroller General of the Patent Office and Playtex Prods., Inc., [2003] E.W.H.C. 430 (Pat.) (5 Mar. 2003) (Laddie J.), available at http://www.mandyhaberman.com/ vpp/haberman_v_comptroller.htm. 25 STEP v. Emson, [1993] R.P.C. 513. 26 Rockwater Ltd. v. Technip France SA & Anor, [2004] E.W.C.A. Civ. 381 (Jacob, J.).
148 S E S S I O N I I I : P A T E N T MR. LEE: And if you solve that question, then you have a good solution of the particular case that is before the court, which is of course the primary job of the court. But it doesn’t really help those people who are trying to predict whether this patented invention is obvious or not so that they can make commercial decisions as to whether to invest millions of dollars on this if, as the most recent decision of the Federal Circuit pointed out, every case, particularly those raising the issue of obviousness under Section 103, must necessarily be decided upon its own facts. If these cases are each one sui generis, each one to be decided by somebody trying as hard as they can, honestly, to figure out whether there was a real invention there, then all of the rest of us are left trying to guess what is going to happen, with the result that the transactional costs of investing in the marketplace and expensive patent litigation just keep going on and on. Even though we cannot make a formulation which is going to accurately cover what obviousness means, if we do not, we run the opposite risk of leaving everything up in the air for the most clever and persuasive advocate. JUDGE GRABINSKI: I think what we are having is a general problem in the law. You have the general notion of non-obviousness, inventiveness. In other areas, you may also have a general notion, like equity. And then you have different kinds of situations where you say, “Well, it is obvious; it is non-obvious.” For example, if there was in a particular case a certain prejudice in the state of the art and it has been overcome by the idea, then it is an invention and it is inventive. But there are also other kinds of situations imaginable. For example, as has been mentioned, you have a certain trend in technology, and suddenly someone is there who had a new idea and this led into another direction. Then it is also inventive. So you have different kinds of situations that do not always apply in every case but which can be an argument to say it is inventive or it is not inventive. MR. ZIVIN: When I first started practicing a few years ago, we used to talk a lot about the objective tests of obviousness — commercial success, failure of others, long-felt need. I have not heard one mention of any of those factors in this discussion. Are they still alive? JUDGE GRABINSKI: Yes. MR. SCHWARTZ: I think they are very much in Robin’s exposition, which is what I think I discussed, and I think they are very much alive in the Federal Circuit. I do not have any problem with that at all. Although I sympathize with Steve Lee, and I have similar problems advising clients, I don’t think that this is something that is necessarily going to lend itself to a simple solution. It seems to have almost come full circle to going back now to where the statute was, rather than trying to find some simple solution of “one size fits all.” MR. ZIVIN: Thank you. MR. KATAYAMA: I think it is more so, especially if you think about, for example, pharmaceuticals. At this moment, you can make any chemical compound, but the important thing is to find out what is good and the result. If that is very good for cancer, that is an invention. I think now, while invention and discovery historically speaking are said different, now I think discovery means the finding of the good result, and who did it is given the monopoly. That is my feeling. I would like to stress that. MR. ZIVIN: Thank you. We have about one minute left. Maybe we’ll have something new, a question from the audience. Anybody have any questions?
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QUESTION [Prof. Jay Thomas, Georgetown University Law Center, Washington, D.C.]: How will we know if the U.S. Supreme Court gets it right? What is the optimal level of obviousness? JUDGE RADER: We will ask the law professors to tell us that. I will wait for your law review article, Jay. LORD JUSTICE JACOB: It is a serious question. It is one of the things that we all sit down and say what should it be, and we actually have no real idea what the impact on industry really is. We do it by gut feeling, that somehow industries should be allowed to compete and this is a good enough idea. But we really have no idea. JUDGE RADER: What is hidden in Jay’s question is the fact that we have been talking around, and that is that the standard has different effects in different industries. By definition, you have to apply the same standard of law to every set of facts you encounter. But it has significantly different effect in the electronics industry than it does in the pharmaceutical. That is, I think, where Eiji’s thoughts are going to come into play. Those unexpected results are going to have tremendous impact in the chemical world. They do not have much to say at all to the electronics industry, or less so anyway. But I think that is a little bit what Jay is pointing out, that, no matter what they decide, it will have a little different effect in one place than another. There probably is no way to say ever that the Supreme Court got it right. It will get it right for some and it will get it wrong for others. It will be left to the Federal Circuit to try to figure it out. MR. LEE: I do not think that they are going to reach a standard where what they tell you is concrete enough so you can even decide what the effect is going to be for many years afterwards. Whatever the Supreme Court says, you are going to have to decide what that means in a concrete, practical case. JUDGE RADER: That is what they will do anyway. They will send it back to us to decide what it means. MR. ZIVIN: Thank you, panel.
SESSION III: PATENT PART B: EXTRATERRITORIALITY AND RELATED PRINCIPLES
SESSION III: PATENT
Part B: Extraterritoriality and Related Principles: To What Extent Have and Should National Courts Apply their Domestic Patent Laws and Policies to Activities in Other Countries?
Moderator JOHN RICHARDS
Ladas & Parry LLP
Speakers NICHOLAS GROOMBRIDGE
JOHANN PITZ
Weil Gotshal & Manges LLP (New York)
Vossius & Partners (Munich)
HON. ROGER HUGHES
PROF. JOHN R. THOMAS
Judge, Federal Circuit Court of Canada (Ottawa)
Georgetown University Law Center (Washington, DC)
Panelists HON. KLAUS GRABINSKI
RT. HON. LORD JUSTICE JACOB
Presiding Judge, District Court (Düsseldorf)
Court of Appeal, Royal Courts of Justice (London)
DAVID PERKINS
Milbank Tweed Hadley & McCloy LLP (London) MR. RICHARDS: We will now move to the panel on “Extraterritoriality and Related Principles: To What Extent Have and Should National Courts Apply their Domestic Patent Laws and Policies to Activities in Other Countries?” We have three newcomers: David Perkins, Nicholas Groombridge, Johann Pitz. Jay Thomas will kick off.
152 S E S S I O N I I I : P A T E N T VODA V. CORDIS1 John R. Thomas Georgetown University Law Center INTRODUCTION Technology knows no borders. Globalization trends have resulted in expanding international trade, growing ability to share information, and increasingly dispersed manufacturing facilities. One consequence of these trends is that innovators increasingly find U.S. patent rights insufficient by themselves. Patents must instead be procured abroad, on a nation-by-nation basis. International agreements, such as the Paris Convention,2 Patent Cooperation Treaty,3 and the European Patent Convention,4 have eased the burden of acquiring foreign patents. Yet they have made scant progress towards redressing infringement of those rights. Although patents held in different nations increasingly resemble one another, the combination of their formal independence and territorial limitations have traditionally compelled patent holders to bring suit on each one individually. The result has been costly, piecemeal litigation that burdens innovators and the world’s judicial systems alike. In recent years, the jurisprudence of the Federal Circuit Court of Appeals has reflected these increasing strains upon the international patent regime. Thus far the Federal Circuit’s response has been to augment the scope of U.S. patents to cover foreign activity. In Eolas Technologies v. Microsoft Corp.5 the court interpreted 35 U.S.C. § 271(f ) in a manner that will increasingly allow U.S. patents to regulate foreign manufacturing.6 Similarly, in NTP, Inc. v. Research in Motion, Ltd.7 the court concluded that infringement occurs under 35 U.S.C. § 271(a) where the “control and beneficial use” of a patented combination occurs within the United States — even when a component of that combination is physically located abroad. At the same time, the Federal Circuit has voiced considerable suspicion over the propriety of enforcing foreign patents via domestic litigation. In Mars, Inc. v. KabushikiKaisha Nippon Conlux8 the court held that a U.S. district court lacked jurisdiction to entertain claims of infringement of a Japanese patent. That decision was reached under the particular circumstances of that case and did not announce a per se rule that foreign patent infringement claims may never be heard in U.S. courts. Yet the tenor of the opinion is unmistakably that such claims are disfavored. In the opinion of amici, this international intellectual property policy merits further reflection. Rather than increasingly imbue U.S. patents with extraterritorial effect, the Federal Circuit should, in appropriate cases, allow the assertion of foreign patents in U.S. 1 This article is an excerpt from the Argument in John R. Thomas, Brief for Amici Curiae Law Professors in Support of the Appellee, in Appeal No. 05-1238, Jan K. Voda, M.D. v. Cordis Corp., in the United States Court of Appeals for the Federal Circuit (July 29, 2005). The complete Brief in pdf format, including the list of Amici Law Professors, Statement of Interest, and Table of Authorities, is available at the Fordham IP Conference Web site, www.fordhamipconference.com. 2 Paris Convention for the Protection of Industrial Property, Mar. 20, 1883, as last revised, Stockholm, July 14, 1967, 21 U.S.T. 1583, 423 U.N.T.S. 305, available at http://www.wipo.int/treaties/en/ip/paris/trtdocs_wo020.html. 3 Patent Cooperation Treaty, June 19, 1970, 28 U.S.T. 7645, 9 I.L.M. 978. 4 Convention on the Grant of European Patents, Oct. 5, 1973, 13 I.L.M. 268. 5 399 F.3d 1325 (Fed. Cir. 2005). 6 See AT&T Corp. v. Microsoft Corp., slip op. 04-1285 (July 13, 2005) (Rader, J., dissenting). 7 392 F.3d 1336, 1370 (Fed. Cir. 2005). 8 24 F.3d 1368 (Fed. Cir. 1994).
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courts. Respecting the legitimately granted proprietary interests of other nations, rather than imposing U.S. patents upon foreign markets, would best achieve the goal of respecting the sovereign interests of other nations, while at the same time addressing the needs of the innovative community within a global economy. And in so doing the court would follow a line of decisions issued by leading foreign tribunals, including those of Düsseldorf, the Hague, and Tokyo, certain U.S. courts; and indeed its own predecessor. Application of ordinary principles of supplemental and diversity jurisdiction establish that, in appropriate cases, the federal courts possess the authority to resolve disputes concerning patents issued by an entity other than the U.S. Patent and Trademark Office (PTO). Further, application of the act of state doctrine, forum non conveniens, and the “exceptional case” restriction of 28 U.S.C. § 1367(c)(4) fail to justify either discouraging, or rejecting per se, the pursuit of foreign patent infringement claims in U.S. courts. Amici therefore respectfully counsel the court to articulate appropriate factors that courts should consider in deciding whether or not to exercise supplemental jurisdiction over assertions of foreign patent infringement. ARGUMENT I. U.S. COURTS POSSESS THE ABILITY TO HEAR FOREIGN PATENT INFRINGEMENT CLAIMS UNDER ESTABLISHED JURISDICTIONAL PRINCIPLES. A. U.S. AND FOREIGN INFRINGEMENT CLAIMS MAY SHARE A COMMON NUCLEUS OF OPERATIVE FACT SO AS TO FULFILL SUPPLEMENTAL JURISDICTION STANDARDS
The standards of supplemental jurisdiction are familiar to the Federal Circuit. 28 U.S.C. §367(a) provides, in part, that: In any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Under the well-known standard articulated in United Mine Workers v. Gibbs,9 causes of action that share a “common nucleus of operative fact” with the federal claims may be heard under the doctrine of supplemental jurisdiction. The only decision of the Federal Circuit applying these principles towards a claim of foreign patent infringement is Mars, Inc. v. Kabushiki-Kaisha Nippon Conlux.10 The Mars panel identified the following factors as relevant to determining whether a “common nucleus of operative fact” existed between the domestic and foreign causes of action: The similarity of the foreign patent claims to those of the U.S. patent; the similarity of the accused devices; and whether the infringement was direct or induced.11 Upon analyzing these factors, the Mars panel ultimately concluded that “the foreign patent infringement claim at issue here is not so related to the U.S. patent infringement claim” that supplemental jurisdiction was appropriate.12 Yet other cases, involving different facts, may well fulfill the Mars standard. Not only may a differently pleaded complaint involve only assertions of, say, direct infringement, 9
383 U.S. 715, 725 (1966). 24 F.3d 1368 (Fed. Cir. 1994). 11 Id. at 1375. 12 Id. 10
154 S E S S I O N I I I : P A T E N T any well-traveled individual is aware that multinational firms commonly sell products that are similar or identical on an international basis. As a result, each assertion of patent infringement may well involve substantially similar, if not identical, products or processes. As well, the claims of different national patents will in certain cases be similar, if not entirely the same, as a consequence of the mechanisms commonly used to acquire patents worldwide. Under the international priority system established by the Paris Convention, inventors ordinarily file a patent application in their home patent office. Up to twelve months later, they may then file one or more patent applications claiming entitlement to the filing date of their earlier domestic application. In order to serve as an effective priority document for a later foreign application, however, the first application must fully disclose the invention that is later claimed abroad. Additional subject matter that is incorporated into the subsequent foreign applications does not receive the benefit of the earlier filing date.13 As a result, a patent’s written description will be substantially related to, if not identical to, its foreign priority document. Given this relationship, the claims of these patents will necessarily share common traits, and will not infrequently be identical or substantially similar themselves.14 Under the Federal Circuit’s existing precedent, then, no per se rule establishes that U.S. and foreign patent infringement cases can never possess a “common nucleus of operative fact.” Rather, where the asserted claims, accused infringements, and the nature of the infringing acts are sufficiently related, the basic requirements of supplemental jurisdiction may be fulfilled. B. DIVERSITY OF CITIZENSHIP PROVIDES AN ALTERNATIVE BASIS FOR JURISDICTION
Whether or not supplemental jurisdiction is fulfilled in a particular case, jurisdiction founded upon diversity of citizenship provides an additional mechanism for federal courts to hear foreign patent infringement cases.15 For cases arising under 28 U.S.C. § 1332, there is no question that courts possess broad authority to resolve claims arising under foreign law.16 This result holds even though foreign legislation grants jurisdiction to hear such cases to a particular forum.17 Even in cases where supplemental jurisdiction standards are not fulfilled, then, diversity jurisdiction provides an alternative basis for judicial power to address claims of foreign patent infringement. II. PRUDENTIAL DOCTRINES BY NO MEANS COMPEL THIS COURT TO BAR OR DISCOURAGE JURISDICTION OVER FOREIGN PATENT CLAIMS The usual standards governing both supplemental and diversity jurisdiction will, in many cases, grant U.S. courts the authority to entertain claims of foreign patent infringement. Nonetheless, certain prudential doctrines, such as forum non conveniens and the act of state doctrine, allow courts to refuse to exercise this authority in particular cases. In the opinion of amici, the Federal Circuit should establish no special rules for patent cases, but rather apply established jurisdictional principles in a neutral way. In particular, the court 13
See In re Gostelli, 872 F.2d 1008, 1010 (Fed. Cir. 1989). Particularly in fields where technical nomenclature has become standardized — for example, chemistry — parallel patents from around the world commonly employ the same established terms and illustrations to define new compounds. 15 As in Mars, the plaintiff in this case has not pleaded jurisdiction on the basis of diversity of citizenship, although this circumstance appears to exist. 16 See Peter Nicolas, The Use of Preclusion Doctrine, Antitrust Injunctions, and Forum Non Conveniens Dismissals in Transnational Intellectual Property Litigation, 40 VA. J. INT’L L. 331, 352 (1999). 17 See Randall v. Arabian Am. Oil Co., 778 F.2d 1146, 1149–50 (5th Cir. 1985). 14
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should refrain from either discouraging the hearing of foreign patent infringement claims, or from announcing a per se rule that categorically rejects such jurisdiction. The court should also establish clear standards for the application of these restraining doctrines on a case-by-case basis. A. THE PATENT ACT REQUIRES U.S. COURTS TO DETERMINE THE SCOPE OF FOREIGN PATENTS
Concerns have arisen that U.S. courts are not well suited to determine the scope of protection that should be accorded foreign patents. This belief is belied by the fact that the U.S. patent statute has, for well over a century, compelled precisely this inquiry. As stipulated by the Patent Act of 1870, and currently codified at Section 102(d) of the Patent Act of 1952, a U.S. patent may not issue when: The invention was first patented or caused to be patented . . . by the applicant or his legal representatives or assigns in a foreign country prior to the date of the application for patent in this country on an application for patent . . . filed more than twelve months before the filing of the application in the United States. As the Federal Circuit has explained, the Section 102(d) bar operates when three conditions are met: First, the applicant must file an application on the invention in another country. Then, more than twelve months later, the applicant must file for a patent on the same invention in this country. Third, the foreign patent must issue before the applicant filed the U.S. patent application.18 To be clear, then, Section 102(d) does not simply mandate a review of the entirety of the disclosure of the foreign patent instrument, as do paragraphs (a) and (b) of Section 102. By its express wording, Section 102(d) instead requires U.S. patent authorities to decide whether an invention has been “patented . . . in a foreign country . . ..” This inquiry necessarily requires a parsing of the claims of a foreign patent, followed by a determination of the extent of their coverage under the law of the jurisdiction that issued the patent.19 A review of the policy goals of Section 102(d) buttresses this conclusion. As the Patent Office Commissioner explained in 1870: The intention of [C]ongress obviously was to obtain for this country the free use of the inventions of foreigners as soon as they became free abroad. This is indicated by the use of the phrase, “first patented, or caused to be patented, in a foreign country,” for it was presumable that American citizens would obtain their first patent here, while a foreigner would first patent his invention in his own country. The statute was designed to prevent a foreigner from spending his time and capital in the development of an invention in his own country, and then coming to this country to enjoy a further monopoly, when the invention had become free at home. The result of such a course would be that while the foreign country was developing the invention and enjoying its benefits, its use could be interdicted here; while, if the term of the monopoly could be further extended here, the market could be controlled long after the foreign nation was prepared to flood this country with the unpatented products of the patented process.20 18
Bayer AG v. Schein Pharms., Inc., 301 F.3d 1306, 1312 (Fed. Cir. 2002). See In re Kathawala, 9 F.3d 942, 944 (Fed. Cir. 1993) (construing claims of Greek and Spanish patents). 20 Bate Refrigerating Co. v. Sulzberger, 157 U.S. 1, 27 (1895) (quoting Ex parte Mushet, 1870 Comm’r Dec. 106, 108 (1870)). 19
156 S E S S I O N I I I : P A T E N T Congress therefore endeavored to limit circumstances where a particular invention was subject to patent protection in the United States, but was “off-patent” overseas, by encouraging the prompt filing of domestic patents vis-à-vis their foreign counterparts. Achieving this policy goal necessarily requires U.S. authorities to comprehend the extent of the proprietary interest afforded by a foreign patent within the context of the relevant national law.21 Section 102(d) of course relates to the validity of a U.S. patent, rather than the infringement of a foreign patent. Nonetheless the basic inquiry compelled by that statute — determination of the scope of a foreign patent within the parameters of foreign law — has been a feature of U.S. patent law since the nineteenth century. This longstanding statute belies claims of the lack of expertise of U.S. courts to resolve such issues, and also the lack of congressional interest in having U.S. courts review the patent instruments and laws of other nations. B. FEDERAL CIRCUIT’S PREDECESSOR IS AMONG THOSE THAT HAVE ADJUDICATED CLAIMS OF FOREIGN PATENT INFRINGEMENT
As the Federal Circuit weighs concerns over judicial competence to adjudicate issues of foreign patent law, it should recall its own history. Its own predecessor in fact engaged in this exercise over seventy years ago. The occasion was a congressional enactment that provided, in part: Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the United States Court of Claims be, and it is hereby authorized and directed to hear and determine the claim of Elwood Grissinger for compensation for any unlawful sale by the United States, and any unlawful sale by others for the United States, either in the United States or elsewhere, for any use outside the United States and exclusive of any use by the United States, or certain long-distance telephone repeaters and of a system for the use of any repeaters on transmission lines, as disclosed and described in certain letters patent granted to said Grissinger by the United States, and also as disclosed and described in patents granted to him by certain foreign countries and competent jurisdiction is hereby conferred upon said court in this matter.22 The Court of Claims responded by issuing a reported decision adjudicating the validity and infringement of parallel French, Italian, British, and Belgian patents.23 The Grissinger case stands beside a small number of other judicial opinions, including Ortman v. Stanray Corp.24 and Distillers Co. Ltd. v. Standard Oil Co.,25 that have reasoned that 21 In Kathawala the Federal Circuit affirmed the USPTO Board’s refusal to assess the validity of a Greek patent that a U.S. patent applicant contended had been improvidently granted. This holding was consistent with the requirement of § 102(d) that the invention merely be “patented” abroad. As the court explained: “When a foreign patent issues with claims directed to the same invention as the U.S. application, the invention is ‘patented’ within the meaning of section 102(d); validity of the foreign claims is irrelevant to the section 102(d) inquiry.” Kathawala, 9 F.3d at 945. The panel in Kathawala went on to explain that a contrary holding would require the USPTO to “engag[e] in an extensive exploration of the fine points of foreign law.” Id. This statement confirms that the choice-of-law rule under § 102(d) is the law of the jurisdiction that granted the foreign patent. As a result, the express wording, policy grounding, and governing precedent pertaining to § 102(d) each compel the conclusion that U.S. patent authorities must apply foreign patent law in order to determine whether the invention “pat-ented” abroad is the same as the one for which a patent is sought in the United States. 22 See Grissinger v. United States, 77 Ct. Cl. 106, 17 U.S.P.Q. (BNA) 95 (Ct. Cl. 1933). 23 Id. 24 371 F.2d 154 (7th Cir. 1967). 25 150 U.S.P.Q. (BNA) 42 (N.D. Ohio 1964).
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U.S. courts possess jurisdiction to resolve claims of foreign patent infringement under more traditional grounds. The modest number of U.S. opinions addressing claims of foreign patent infringement is augmented by those of foreign courts. A German court reportedly resolved an infringement dispute concerning a British patent.26 Dutch courts have been well known for their relatively broad view of their own competence to address claims of foreign patent infringement, particularly in the pan-European context.27 Japanese courts have also resolved such claims.28 In one recent case, a Tokyo court applied the rule of prosecution history estoppel announced in Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co.29 to decide that a U.S. patent was not infringed.30 These proceedings have no infrequently involved U.S. firms.31 In the view of amici, this experience provides four important policy implications. First, the contention that Congress has never created an express cause of action to litigate foreign patent law claims in federal court is incorrect as a matter of historical fact. Admittedly, this legislation did not invoke diversity jurisdiction, or the predecessor doctrines to what today is termed supplemental jurisdiction. Yet this episode demonstrates that federal jurisdiction over cases of foreign patent infringement cannot fairly be characterized as unprecedented, lacking legislative imprimatur, or somehow raising vexing constitutional issues. Second, both U.S. and foreign courts have proven capable of managing consolidated multinational infringement proceedings. In particular, it strains belief to conclude that in the seven decades since the Grissinger opinion issued, the ability of U.S. courts to resolve claims of foreign patent infringement has not improved drastically. Third, foreign tribunals require no invitation from the Federal Circuit to adjudicate infringement disputes involving U.S. patents. They have already done so. Concerns that assumptions of jurisdiction over foreign patent infringement claims by the U.S. courts would be out of step with international developments, or would for the first time cause courts overseas to recognize such claims, are misplaced. Finally, to the extent that foreign courts are more amenable to resolving claims of foreign patent infringement than those of the United States, U.S. industry will face a comparative disadvantage. Firms based overseas will be able to rely upon their own national judicial apparatus for consolidating multinational patent infringement claims. U.S. firms would instead be required to litigate before less familiar fora. This reality further counsels against the announcement of rules disposed against entertaining foreign patent infringement claims.
26
See James A. Forstner, Managing International Patent Litigation, Litig. Y.B. 1995 at 3, 6 (1995). See John R. Thomas, Litigation Beyond the Technological Frontier: Comparative Approaches to Multinational Patent Enforcement, 27 L. & Pol’y Int’l Bus. 277, 299–305 (1996). The European Court of Justice is currently considering the future availability of jurisdiction under the Brussels Convention to address pan-European patent infringement disputes. See Gesellschaft für Antriebstechnik GmbH v. Lamellen und Kupplungsbau Beteiligungs KG (GAT v. LuK), Case C-4/03, European Court of Justice. This proceeding is limited to interpretation of art. 16.4 of the Brussels Convention, however, an agreement that applies only to members of the European Union. The impact of that litigation upon the jurisdiction of the European courts to resolve matters involving states that are not members of the European Union remains to be seen. 28 See Shoichi Okuyama, Competition/International Jurisdiction/Infringement on a US Patent, 29 AIPPI Japan J. 72 (Jan. 2004). 29 535 U.S. 722 (2002). 30 K.K. Coral Corp. v. Marine Bio K.K., Case No. 1943(wa)/2002 (Tokyo District Court, Oct. 16, 2003). 31 See, e.g., Expandable Grafts P’ship v. Boston Scientific BV, [1999] F.S.R. 352 (Ct. App. The Hague, Apr. 23, 1998). 27
158 S E S S I O N I I I : P A T E N T C. CONSOLIDATED MULTINATIONAL PATENT ENFORCEMENT CAN BE MORE EFFICIENT FOR BOTH COURTS AND LITIGANTS
Patent litigation is expensive, time-consuming, and resource-intensive. As a consequence, intellectual property policy has long reflected concerns about subjecting patent proprietors, accused infringers, and the judicial system alike to the burdens of duplicative litigation. In Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation,32 for example, the Supreme Court squarely identified “the goal of limiting relitigation of issues where that can be achieved without compromising fairness in particular cases.” Justice White further explained: [A] second infringement action raising the same issue and involving much of the same proof has a high cost to the individual parties. . . . These moneys could be put to better use, such as further research and development. The alleged infringer . . . is forced to divert substantial funds to litigation that is wasteful.33 The Blonder-Tongue Court’s reasoning related to defensive non-mutual issue preclusion, of course, rather than consolidated multinational patent enforcement. The Court’s policy discussion nonetheless applies with equal force in this context. Although the costs of fragmented national infringement trials are apparent, concerns have been expressed that few benefits would flow from judicial assumption of foreign infringement claims. In the experience of amici, however, the most time-consuming tasks related to patent litigation are achieving an understanding of the technologies at issue, as well as making a detailed review of the specific wording of the asserted patent instruments. To the extent that the patent instruments, accused infringements, and relevant prior art are similar or identical, there seems little doubt that consolidating domestic and foreign infringement claims would reduce the burdens of all participants in the international system. As explained by the court in Distillers Co. Ltd. v. Standard Oil Company: Even if the application of foreign tort law might be necessary . . . this does not pose as serious a problem as that which would confront the parties if the claims . . . . were left for separate trials in separate tribunals. The law is in the books, and may be found conveniently if not easily. The facts are the elusive elements of lawsuits. If the parties must collect and interpret facts for one action, we might properly make every effort to adjudicate all the claims arising out of the facts in one forum at one time.34 It should also be noted that even wholly domestic patent litigation has, under the Federal Circuit’s stewardship, become increasingly concerned with foreign patenting activity. For virtually its entire history, the court has held that “representation[s] to foreign patent offices should be considered . . . when [they] comprise relevant evidence.”35 In particular, statements made to foreign patent examiners are permissibly employed as evidence of the scope of that applicant’s U.S. patent claims.36 Similarly, the court has closely scrutinized a U.S. patent holder’s conduct before foreign patent offices in order to determine whether inequitable conduct occurred in this country or not.37 In view of this longstanding case law, every U.S. patent infringement case potentially involves a detailed inquiry into activities at foreign patent offices. Indeed, a U.S. patent 32 33 34 35 36 37
402 U.S. 313, 328 (1971). Id. at 338. 150 U.S.P.Q. (BNA) 42, 48 (N.D. Ohio 1964). Caterpillar Tractor Co. v. Berco S.p.A., 714 F.2d 1110, 1116 (Fed. Cir. 1983). See Tanabe Seiyaku Co. v. United States Int’l Trade Comm’n, 109 F.3d 726, 733 (Fed. Cir. 1997). See Molins PLC v. Textron, Inc., 48 F.3d 1172 (Fed. Cir. 1995).
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attorney who fails to review parallel foreign patent instruments and their prosecution histories may well have failed in his professional obligations as an advocate. The deep involvement of U.S. patent enforcement with foreign patenting activity again suggests that the burdens of adjudicating foreign infringement suits may be less than have been suggested. D. DIFFERENCES AMONG NATIONAL PATENT LAWS EXIST, BUT SHOULD NOT BE OVERSTATED
The world’s patent laws are converging. The North American Free Trade Agreement (NAFTA),38 the TRIPs Agreement,39 and various Free Trade Agreements,40 in combination with domestic law reform, have harmonized world patent laws to an extent unimaginable to an earlier generation of patent attorneys. As a result, while differences between U.S. and foreign patent laws continue to exist, they by no means compel rules that discourage or prevent the assumption of jurisdiction over foreign patent infringement claims. Comparative studies between U.S. and foreign patent laws have suggested a substantial, and increasing, conformity among the world’s patent laws. Seven years ago, Federal Circuit Judge Newman was able to state: “[O]n review of specific cases that have been litigated in countries in addition to the United States, it seems to me that the differences in result and in analysis are no greater than the differences among the judges of the Federal Circuit.”41 Studies conducted between the USPTO, Japanese Patent Office (JPO), and European Patent Office (EPO) have also demonstrated the substantial similarity of patent examination results among those jurisdictions. An exchange of examiners between the JPO and USPTO, reported seventeen years ago, allowed these offices to “confirm[] that standards of inventive step and novelty are substantially the same in the JPO as they are in the USPTO.”42 A similar exercise between the EPO and USPTO led to the following result: [I]t should be emphasized that this evaluation including patentability determinations of a total of 112 independent and dependent claims, which resulted in a different patentability determination of only a single dependent claim . . ..43 Further, distinctions that did arise in examination approaches and outcomes were frequently attributed to reasonable differences between individual examiners — the same sort that might arise between two examiners employed by the USPTO.44 Remaining gaps between U.S. and foreign patent laws appear to be on the verge of narrowing. Recently introduced legislation would adopt several common features of foreign patent laws. The proposed Patent Act of 2005, H.R. 2795, would, among other measures adopted from overseas practice, adopt a first-inventor-to-file priority system and prior user rights; eliminate the best mode requirement from U.S. law; and encourage 38
North American Free Trade Agreement, Dec. 17, 1992, 107 Stat. 2057, 32 I.L.M. 289. Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Annex 1C, 33 I.L.M. 1197 (1994) [hereinafter TRIPs Agreement]. 40 See, e.g., United States-Chile Free Trade Agreement, June 6, 2003, 42 I.L.M. 1026. 41 Pauline Newman, On Global Patent Cooperation, 8 Fordham Intell. Prop. Media & Ent. L.J. 3, 6 (1997). 42 JPO-USPTO Examiner Exchange Program Final Report (Pt. I), 70 J. Pat. & Trademark Off. Soc’y 449, 484 (1988). 43 EPO-USPTO Examiner Exchange Program Final Report, 72 J. Pat. & Trademark Off. Soc’y 5, 28 (1990) (emphasis in original). 44 E.g., id. at 621, 654. 39
160 S E S S I O N I I I : P A T E N T the adoption of a one-year grace period within the European Patent Convention and Japanese Patent Act.45 As a result, it is simply inaccurate to assert that assumption of foreign patent infringement claims will invariably lead U.S. courts into unknown landscapes. Core doctrines of the leading patent-issuing states are substantially similar to the point of identity; other determinations, such as the prior art status of a particular reference under a firstinventor-to-file system, will differ from U.S. law but would nonetheless be straightforward to apply. In sum, given the convergence between domestic and foreign patent laws, and the increasing likelihood these regimes will coalesce even further in the near future, a generally exclusionary or per se rule against hearing foreign patent infringement claims would be inappropriate. E. COMITY CONCERNS DO NOT COMPEL A CONTRARY RESULT
Comity concerns should also not lead to the usual or unvarying conclusion that jurisdiction over claims of foreign patent infringement should be denied. History offers an important lesson in this context. Amici are unaware of even a single instance in which any state has reacted unfavorably to a foreign court assuming jurisdiction to decide an infringement suit involving its national patents. Given that courts of several nations have asserted such jurisdiction over a period of many years, the lack of articulated political concerns offers compelling evidence that comity concerns have been overstated in this context. This experience reflects the fact that all patent-issuing states share an interest in the efficient and fair disposition of multinational enforcement litigation. In contrast, the Federal Circuit’s approach of applying U.S. patent law to foreign activity has proven more controversial. Earlier this year, in NTP, Inc. v. Research in Motion, Ltd.,46 the court for the first time concluded that infringement occurs under 35 U.S.C. § 271(a) where the “control and beneficial use” of a patented combination occurs within the United States — even when a component of that combination is physically located abroad. This lone decision attracted an amicus curiae brief from the Government of Canada stating that the Federal Circuit’s interpretation of Section 271(a) “is susceptible of interpretations that may have unfortunate, and unintended consequences, affecting Canada’s interests, as well as the interests of Canadian companies carrying on multi-jurisdictional operations.”47 More formal legal analysis supports this experience. In particular, established judicial precedent indicates that the act of state doctrine is not an appropriate basis for denying U.S. courts the ability to entertain foreign patent infringement claims in the majority of cases. As appropriately recognized by the court in Mannington Mills,Inc. v.Congoleum Corp.,48 patent infringement disputes typically constitute affairs of private, commercial law, and do not provide an essential ordering of political conditions, set forth the organization of the state, or dictate the relations between the role of individuals and the government in a fundamental way. To the contrary, sovereign activity forms “merely . . . the background to the dispute or in which the only governmental actions were the neutral 45 For a more detailed discussion of pending patent reform legislation, see Wendy H. Schacht & John R. Thomas, Patent Reform: Innovation Issues (Congressional Research Service July 15, 2005), available at http://patentlaw.typepad.com/patent/RL32996.pdf. 46 393 F.3d 1336, 1370 (Fed. Cir. 2005). 47 Amicus Curiae Brief of Canadian Government, NTP, Inc. v. Research in Motion, Ltd., Appeal No. 03-1615, at 2 (Jan. 13, 2005). The Canadian Government’s amicus brief may be conveniently found at http://patentlaw. typepad.com/patent/files/CAGovBr.pdf. 48 595 F.2d 1287, 1294 (3d Cir. 1979).
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application of the laws,” circumstances in which courts have reasoned that the act of state doctrine does not apply.49 It should also be appreciated that the grant of a patent is less of a governmental act than a governmental reaction. Private parties initiate the process of patent prosecution by filing an application. Whether this application will ultimately mature into a granted patent or not is hardly a discretionary matter. Reflecting the obligations o the TRIPs Agreement, world patent statutes instead establish that patents must be granted to applicants who fulfill the statutory conditions. While surely not every patent examiner would respond to a given application in an identical way, these individual differences can occur as much within a single national patent office as among several different patent offices. Although such idiosyncrasies are inevitable, they should hardly be considered a political act of central concern to a sovereign power.50 This is not to say that the patent law does not reflect more holistic concerns over innovation policy. But these concerns are more typically addressed by national legislatures in setting forth broad principles of patentable subject matter, standards of inventive activity, the term and scope of protection, and other substantive patent law doctrines. U.S. courts can fully respect these choices by properly applying them. Nor would the exercise of jurisdiction of foreign patent infringement claims cause U.S. courts to strike down patents issued by agencies other than the USPTO. Previous U.S. courts that have concluded that foreign patents were improvidently granted have not formally declared them invalid. They have instead avoided comity concerns through the straightforward mechanism of enjoining one litigant from enforcing those rights against another.51 As a result, exercise of jurisdiction to hear foreign patent infringement claims would by no means cause U.S. courts to assume full supervisory authority over the work product of patent offices other than the USPTO. None of this is to say that foreign patent infringement cases will never raise concerns over comity. Patents that a foreign government asserts or is accused of infringing may present special considerations, for example. Comity concerns are nonetheless a factor that is appropriate for consideration on a case-by-case basis, and by no means compel the conclusion that jurisdiction over foreign patent infringement claims should be disfavored or simply rejected out of hand. III. THE FEDERAL CIRCUIT SHOULD ARTICULATE SOUND GUIDELINES TO GUIDE DISTRICT COURTS IN RESOLVING FUTURE CASES Amici are of the view that no fundamental barriers prevent U.S. courts from hearing claims of foreign patent infringement. Under these circumstances, it is incumbent upon this court to identify factors that courts should consider in deciding whether or not to assert jurisdiction over claims of foreign patent infringement. Amici encourage this court to review prudential considerations developed within two of patent law’s allied disciplines: Trademark law52 and antitrust law.53 Space limitations associated with this brief prevent a more detailed discussion of these considerations. Broadly speaking, amici nonetheless believe that courts should consider the following factors when determining 49
Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 406 (9th Cir. 1983). Thomas, supra note 26, at 1–2. 51 See Forbo-Giubiasco S.A. v. Congoleum Corp., 516 F. Supp. 1210, 1218 (S.D.N.Y. 1981) (the court’s judgment that foreign patents were unenforceable because they were procured via inequitable conduct did not lead to comity concerns because the holding “would affect only the rights between Congoleum and Giubiasco, not Congoleum’s foreign patent rights generally”). 52 See Ocean Garden, Inc. v. Marktrade Co., 953 F.2d 500 (9th Cir. 1991). 53 See Timberline Lumber Co. v. Bank of Am. Nat’l Trust & Savings Ass’n, 549 F.2d 597 (9th Cir. 1976). 50
162 S E S S I O N I I I : P A T E N T whether they should decline to hear cases in which supplemental or diversity jurisdiction exists: 1. The nationality of the litigant. The Supreme Court has long acknowledged that “Congress in prescribing standards of conduct for American citizens may project the impact of its laws beyond the territorial boundaries of the United States.”54 This factor is responsive to comity concerns. Further, U.S. nationals should expect their cases to be tried at home and possess familiarity with the U.S. judicial system. 2. Whether a U.S. patent is being asserted. Although Congress expressly authorized the Court of Claims to hear a dispute that exclusively involved foreign patents,55 the presence of a patent issued by the USPTO increases the legitimacy of the assertion of jurisdiction over parallel foreign patents. 3. The relative importance of any asserted U.S. patent infringement as compared with the infringements asserted abroad. In cases where the courts of several nations may hear claims of multinational infringement, jurisdiction is more appropriately asserted in states where the infringing activity is comparatively significant. 4. The similarity of the accused infringements in the United States and abroad. The goal of avoiding repetitive multinational litigation, as well as unwieldy litigation in the United States, are fulfilled only where the accused infringements are identical or substantially similar. 5. The similarity of the asserted patents in the United States and abroad. Significant similarities between different national patents is more likely to occur when the different asserted national patents share a common international priority document. 6. The similarity of the prior art in the United States and abroad. In many, if not most, cases, the prior art applicable to the U.S. and foreign patents provide the identical or similar teachings. Courts nonetheless should have the power to decline jurisdiction in individual cases involving complex technologies. 7. Potential conflicts with foreign law or policy. The existence of parallel foreign proceedings, in a foreign court or patent office, increases the potential for conflicts between U.S. and foreign law. 8. Whether a potential U.S. judgment could be enforced domestically and, if necessary, by foreign courts. To the extent that the accused infringer possesses sufficient assets in the United States, foreign recognition of the judgment of a U.S. court may prove unnecessary. If foreign enforcement is likely, however, it should be recognized that many foreign systems recognize judgments only upon the basis of reciprocity. It is thus necessary to determine whether a U.S. court had previously recognized a judgment from a court within the appropriate foreign jurisdiction. CONCLUSION For the foregoing reasons, this court should both hold that foreign courts possess supplemental jurisdiction over foreign patent claims in appropriate cases, and identify the circumstances under which that inquiry should proceed. * * * Thank you, Jay. Next up is Judge Hughes from the Federal Court of Canada.
MR. RICHARDS:
* 54 55
*
*
Steele v. Bulova Watch Co., 344 U.S. 280 (1952). See Grissinger v. United States, 77 Ct. Cl. at 106, 17 U.S.P.Q. (BNA) at 85.
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JURISDICTION OF THE STATE: RESPECTING THE INCORPOREAL Caterina Chiocchio56 Law Clerk to the Honourable Mr. Justice Roger T. Hughes I. INTRODUCTION The focus of this paper is a discussion of the exercise of national courts’ and, in particular, the Federal Court of Canada’s jurisdiction in extraterritorial matters in civil disputes in relation to maritime and Internet law through a discussion of international practices. This paper will consider two questions: (1) When does the Federal Court of Canada have extraterritorial jurisdiction; (2) If yes, should the Federal Court of Canada exercise its extraterritorial jurisdiction? The first question considers statutory grants of authority, and common law principles with a view to resolving conflict of law issues. The second question is more narrow, in that it applies principles of comity, judicial economy, fairness, and the doctrine of forum non con-veniens. The principal of territoriality provides that a modern sovereign state has jurisdiction over its territory. In Canada, however, under the Statute of Westminster,57 Parliament has jurisdiction to enact legislation that has been granted extraterritorial jurisdiction. Whether there is express authority or not, courts have developed tests by applying principles of territoriality to court-made tests, so as to advance the common law. These early principles were: ratione materiae (jurisdiction over the subject matter), ratione personae (jurisdiction over the person), and ratione loci (jurisdiction over the territory). Where the material or subject matter, the person, or the location of an event had a connection to a sovereign state, a court could have extra-territorial jurisdiction in one of those three instances. These principles have been extensively applied in maritime law. “Connection” was, and perhaps still is, a crucial element in these principles, such that both the United States and Canada have adopted the “most substantial and real connection” test to determine if a court has jurisdiction over a proceeding, or whether they should exercise their legislated authority, having regard to the principles of comity, fairness, judicial economy, and the doctrine of forum non conveniens. In Tolofson v. Jensen58 Justice La Forest emphasizes that the “real and substantial connection test” is an appropriate way to “prevent overreaching . . . and [to restrict] the exercise of jurisdiction over extraterritorial and transnational transactions.” More recently, the “most and substantial connection test” found its way into other federal matters, such as patents and Internet privacy rights. As the “real and substantial connection test” is applied to the incorporeal, the first fundamental issue is: How will courts use to establish “connection” to multi-jurisdictional issues or “borderless” transactions?” The second question is: How and when should courts restrict the exercise of their discretion to assert extraterritorial jurisdiction; how will traditional principles comity, fairness, forum non conveniens, and judicial economy be applied? II. DOES THE FEDERAL COURT OF CANADA HAVE EXTRATERRITORIAL JURISDICTION? A. MARITIME LAW — OUR HISTORICAL ROOTS
Maritime law historically was based on the principle of territoriality. The Federal Court 56 57 58
Supervised by the Honourable Mr. Justice Hughes. 1931 (U.K.), 22 Geo V, C.4. [1994] 3 S.C.R. 1022 at 1049.
164 S E S S I O N I I I : P A T E N T has jurisdiction in maritime law matters under Sections 91(2) and 101 of the Constitution Act of 1867,59 and generally under the Federal Courts Act.60 The Federal Courts Act expressly authorizes the Court to exercise extraterritorial jurisdiction in the enumerated subject areas under Sections 23, 43, and 44. The Supreme Court of Canada in Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd.61 outlines the common law test used to resolve disputes over the Court’s jurisdiction in a particular subject area. The test is that “the subject matter is so integrally connected to maritime matters as to be legitimate Canadian maritime law within federal competence.” 2. Maritime Liens Maritime liens are specialized actions in maritime law because possession is not needed in order to exert a claim. Rather, they are a proceeding in rem, where the lien follows the object to which it attaches, such as a vessel or its cargo. This proposition was first enunciated in the “Bold Buccleugh”62 by Sir John Jervis, whose definition of a maritime lien remains the current standard in Canadian maritime law today. Sir John Jervis states: A maritime lien does not include or require possession. The word is used in Maritime Law not in the strict legal sense in which we understand it in Courts of Common Law, in which case there could be no lien where there was no possession, actual or constructive; but to express, as if by analogy, the nature of claims which neither presuppose nor originate in possession . . .. A maritime lien is the foundation of the proceeding in rem, a process to make perfect a right inchoate from the moment the lien attaches; . . . a maritime lien exists, which gives a privilege or claim upon the thing, to be carried into effect by legal process. This claim or privilege travels with the thing, into whosesoever possession it may come. It is inchoate from the moment the claim or privilege attaches, and when carried into effect by legal process, by a proceeding in rem, relates back to the period when it first attached.63 Despite express statutory enactments concerning jurisdiction, this historic principle of “possession following the thing” has called upon the courts to resolve conflict of law issues for nations to exert jurisdiction or for the enforcement of foreign laws. In Holt Cargo Systems Inc. v. ABC Containerline N. V. (Trustees of)64 a Belgian ship was arrested in the Halifax harbor under an arrest warrant issued by the appellant, Holt Cargo, the U.S. creditor. The Belgian bankruptcy court requested the Quebec Superior Court to enforce a bankruptcy order. Meanwhile the U.S. creditor filed an action and arrested the ship, claiming that it was to be reimbursed for stevedoring services rendered. The Supreme Court of Canada held that the Federal Court had jurisdiction because the claim was based in maritime law and not in bankruptcy law. The Supreme Court found a sufficient connection between the parties and the subject matter to the Federal Court of Canada so that the Federal Court of Canada could assert extraterritorial jurisdiction, as defined by the Federal Courts Act and the common law. The Supreme Court states in obiter that the lack of connection of an object to the territory is an inherent part of maritime law; therefore, the principle of ratione loci was rejected. The second issue was whether the Federal Court could adjudicate foreign laws where 59
Constitution Act, 1867 (U.K.), 30 & 31 Vict., c.3, reprinted in R.S.C. 1985, App. II, No. 5, §§ 91(2), 101. Federal Courts Act, R.S., 1985, c. F-7. 61 [1997] 1 S.C.R. 779 at 795. 62 (1850–51), 7 Moo. P.C. 267 (P.C.), quoted in Imperial Oil v. Petromar Inc., 2001 FCA 391 (Imperial Oil). 63 The Bold Bucculeigh was significantly influenced by the views of Story J. in The Nestor, 18 F. Cas. 9 (No. 10,126) (C.C.D. Me. 1834). 64 2001 SCC 90. 60
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there was no equivalent law in Canada.65 The Supreme Court held that a maritime lien validly created under foreign law will be recognized and given the same priority in Canada as a maritime lien created in Canada under Canadian maritime law “unless opposed to some rule of domestic policy or procedure which prevents the recognition of the right.”66 Since there is nothing offensive in the U.S. law to allow maritime liens for stevedoring services, Canada recognized the foreign right as though the lien has originated in Canada. The Federal Court was thus able to adjudicate over a foreign law. The third question was whether the Court should exercise its jurisdiction. The Supreme Court of Canada stated it was open to the Federal Court to decide whether it should exercise extraterritorial jurisdiction based on the principles of comity, convenience, and the protection of the rights of its own citizens or other persons who are under the protection of our laws. Quoting from Amchem Products v. ABC Containerline N.V. (Trustees of),67 the Supreme Court of Canada stated that the “natural forum” is not only that with the “most real and substantial connection”; it also includes several factors, such as: issues of public policy; potential loss to the plaintiff of a juridical advantage sufficient to work an injustice of the proceedings were stayed; the place or places where the parties carry on their business; the convenience and expense of litigating in one forum or the other; and the discouragement of forum shopping. Professor Tetley, a noted Canadian maritime law lawyer and academic, identifies that in the absence of statutory or contractual directions . . . facts and circumstances of the problem . . . are “connecting factors” or “contacts” and are the basic “raw materials” of conflict of laws. . . . It is these factors that the court uses to link the particular set of circumstances of the case to a particular law. Usually there are many connecting factors to consider. They may be the place of the contract, the place of the delict or tort, the place of carrying out of the contract, the flag of the ship, the nationality of the crew, the domicile of the vessel owners or the domicile of the charterers. All the connecting factors must be ascertained and valued in order to determine the applicable law amongst the laws of the competing states. This same reasoning used in maritime lien matters was applied by Justice Binnie of the Supreme Court of Canada in SOCAN v. CAIP,68 where copyright infringement was the subject of transnational communication by way of music available over the Internet. The Supreme Court had to determine whether copyright liability for Internet service providers extended beyond the territorial limits in Canada, for music available over the Internet. The Supreme Court applied the “real and substantial connection” test, but also concluded that certain aspects of transnational jurisdictional issues are to be considered on the facts of each case. Therefore, copyright infringement may be actionable even if the location of an object is not physically located within the geographic territory of a nation. B. TECHNOLOGY AND THE INTERNET — THE MODERN ERA
How does one determine the jurisdiction of a country where there are no boundaries? In maritime law the jurisdiction follows the vessel or “thing,” that is, the physical object. What happens when there is no material property or geographic territory to define property boundaries? 65
Canadian maritime law does not recognize liens for claims for stevedoring services. Holt Cargo Sys., Inc. v. ABC Containerline N.V. (Trustees of ), 2001 S.C.C. 90, ¶ 41 (Holt Cargo). 67 [1993] 1 S.C.R. 897; quoted in Holt Cargo at ¶ 91. 68 Society of Composers, Authors and Music Publishers of Can., and others v. Canadian Ass’n of Internet Providers and others, 2004 S.C.C. 45, [2002] 2 S.C.R. 427 (SOCAN). 66
166 S E S S I O N I I I : P A T E N T The new challenge for courts in the era of borderless transactions is to apply existing common law tests, to create a new set of flexible yet consistent principles that are not overreaching and are compatible with domestic and international norms. In the cases that follow, the trend is for courts to decide narrowly on the given set of circumstances of each particular case. This includes considering where a signal commences, who is the receiver, and how the parties use the technology to determine answers to the two questions posed in this paper. What arises is a balancing of rights between individuals and commercial interests. 1. Supreme Court of Canada The Supreme Court of Canada in SOCAN notes that: “Parliament made a policy distinction between those who use the Internet to supply or obtain content such as ‘cheap music’ and those who are part of the infrastructure of the Internet itself. Parliament decided that there is a public interest in encouraging intermediaries that make telecommunications possible to expand and improve their operations without the threat of copyright infringement.” Paragraph 2.4(1)(b) intends that Internet intermediaries are not “users” for purposes of the Copyright Act. In SOCAN the appellants the Society of Composers, Authors and Music Publishers of Canada (SOCAN) sought to impose liability on Internet service providers (ISPs) located in Canada for royalties, where an ISP was the source of the signal transmissions. The question asked of the Supreme Court was whether Canada could exercise copyright jurisdiction in respect of transmissions originating in Canada and abroad (having been received in Canada). The short answer is yes. Justice Binnie, speaking for the majority, expanded traditional common law tests founded in Canadian maritime by taking a contextual approach based on the “circumstances of a case.” The Court held that where there is “[a] real and substantial connection to Canada to support the application of our Copyright Act to international Internet transmissions in a way that will accord with international comity and be consistent with the objectives of order and fairness.” The Court applied several factors, including: the situs of the content provider, the host server, the intermediaries, and the end user, in keeping with national and international copyright practice.69 The Court states that the weight to be given to any particular factor will vary with the circumstances and the nature of the dispute.70 The Court reasoned that the Copyright Act was intended to have extra-territorial effect after conducting an analysis on the statutory interpretation of Paragraph 2.4(1)(b). The Supreme Court, however, did not limit liability only to circumstances where the ISP was located in Canada. Justice Binnie noted that liability may still attach to a server or ISP located abroad, but it will depend on the circumstances of the transmission.71 The Supreme Court held that a telecommunication occurs in Canada where there is a transmission and destination within Canada. A server need not be in Canada for a finding that there has been a telecommunication. The Court found that this understanding was based on the ordinary language in the Copyright Act and was consistent with other Internet law regulation. Finally, the Supreme Court considered whether it would exercise its extraterritorial jurisdiction on every participant with a “real and substantial connection” to Canada. The Court answered this generally in the negative, after undertaking statutory interpretation 69 70 71
Id. at 61–63. Id. at 77. Id. at 105, 106.
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of Paragraph 2.4(1)(b), reading the Section in its ordinary and grammatical sense. As long as a provider only acts as a conduit, then it fulfills its role as providing “the means of telecommunication necessary” and is caught within the exception under Paragraph 4(1)(b). Copyright liability for royalty payments will attach to an ISP in Canada if it stores or caches or uses hyperlinks of the content.72 Justice LeBel, in dissent, maintained traditional principles of “territoriality” in interpreting Parliament’s intent, if any, of conferring extra-territorial jurisdiction under the Copyright Act. Justice LeBel commented that it is well-settled law that Parliament has power to legislate with extra-territorial effect. A common law presumption is that Parliament does not intend to give extraterritorial effect to legislation unless it is expressly stated in statute. Justice LeBel stated that there is nothing express or implied under Paragraph 3(1)(f )73 of the Copyright Act that demonstrates Parliament’s intent that copyright law would extend beyond Canada’s (geographical) territory. The Court relied on the situs of the host server within its territorial borders in order to determine whether an ISP will attract the protection under Paragraph 3(1)(f ). This is consistent with the principle of territoriality and international conventions. 2. United States Supreme Court This traditional approach of restricting jurisdiction within geographic boundaries was also expressed in patent law in the 1972 decision by the U.S. Supreme Court in Deepsouth Packing Co. Inc. v. Laitram Corp.74 The appellant, Deepsouth, was exporting individual components of shrimp deveiners from the United States to foreign jurisdictions. When the components were assembled by the customer, it amounted to the patented invention. Laitram claimed that this activity amounted to patent infringement. The Supreme Court of the United States took a literal restrictive interpretation of 35 U.S.C. § 271,75 defining patent infringement, and concluded “[t]he statute makes clear that it is not an infringement to make or use a patented product outside of the United States.” The Supreme Court stated “combination patent protects only against the operable assembly of the whole and not the manufacture of its parts.” The majority judgment of the Supreme Court concluded that the unassembled export of the elements did not constitute infringement. The majority emphasized that they could not expand patent rights where the language of the code was unambiguous and the U.S. patent system did not contemplate any extraterritorial effect. It appears that the Supreme Court made this decision so as to remain consistent with the previous case law. It also perhaps served as a warning to Congress that the U.S. Code needed some amendments in order to adequately deal with situations of exporting component parts. After the decision in Deepsouth, Congress enacted 35 U.S.C. § 271(f ), which provides that “anyone who supplies, or causes to be supplied, components or substantial portions of components of a patented invention, where such components are uncombined in whole or in part or adapted for use outside of the United States, the supplier will be liable for infringement of the patented invention as though such infringement took place in the United States.” If the steamship was the “it” invention of the nineteenth century, and the “computer” 72
Id. at 102. Section 3(1)(f) of the Copyright Act is one part of the scope of protection of a copyrighted musical, literary, dramatic, or artistic work; that is, copyright protection extends to works that are communicated to the public by telecommunication. 74 406 U.S. 518, 92 S. Ct. 1700 (1972) (Deepsouth). 75 Title 35, Patents, Pt. III, Patents and Protection of Patent Rights, Ch. 28; Infringement of Patents, Preceding § 271, United States Code Service. 73
168 S E S S I O N I I I : P A T E N T is the invention of the twentieth century, then perhaps the BlackBerry can be touted as the next great invention of the twenty-first century, at least so far — a handheld computer that allows you to communicate with third parties, either in writing or by telephone. This technology also is paving the way to a new perspective on the law of extraterritorial jurisdiction. In the 2005 decision from the U.S. Court of Appeals for the Federal Circuit (CAFC), NTP Inc. v. Research in Motion Ltd (RIM),76 the Court had to decide whether the trial court had properly determined that the Canadian Company, RIM, infringed on the U.S. patents held by NTP, a U.S. company. The patents at issue transmit e-mails on “wireline” systems with radio frequency wireless communication networks. RIM’s relay is located in Canada and routes emails from the BlackBerry relay to the partner’s wireless network, which then transmits the messages to the person’s handheld BlackBerry. NTP claimed that RIM infringed on its system and method claims in several of its patents. RIM argued that a component of its system, the relay device, was located in Canada, which is the “control point” of RIM’s system (this relay/control point was likened to the “interface” device in the U.S. patents). The CAFC had to determine if the trial court was correct in finding that, despite RIM’s relay being located in Canada, it was not a bar for determining infringement. The CAFC commenced with statutory interpretation of Section 271(a) of the United States Code, Title 35, authorizing District Court special jurisdiction to hear extraterritorial matters. The CAFC concluded the trial court did have jurisdiction to consider the issue of extraterritorial patent infringement.77 The next question was whether there was infringement. The trial judge held RIM accountable for contributory and induced infringement because the jury found that the customers are direct infringers of the claimed systems and methods claims.78 RIM argued that the infringing activity had to occur within the United States, as outlined in Section 271(a), based on the literal interpretation of that section rendered on Deepsouth. Instead of engaging in statutory interpretation, as in Deepsouth, the CAFC rephrased the issue to determine whether there was “use” of the patented invention in the United States and applied contextual factors to Section 271(a). The CAFC distinguished Deepsouth on its facts and instead applied another case, Decca Ltd. v. United States,79 where the United States operated transmitting stations located in Norway that used the following patented invention: “a radio navigation system requiring stations transmitting signals that are received by a receiver, which then calculates position by the time difference in the signals.”80 The Court in Decca based its decision on several factors to determine if the act of infringement occurred where the United States “used” the invention. The factors were: (1) ownership of the equipment by the United States; (2) control of the equipment from the United States; and (3) the actual beneficial use of the system within the United States. Even though Decca was decided under Section 1498, dealing with use of a patented invention by the United States, the CAFC in RIM stated that Section 271(a) was also implicated because the decision led to direct infringement. In RIM the Court used the 76
418 F.3d 1282, LEXIS 15920 (Fed. Cir. 2005) (Appeal to the U.S. Supreme Court pending) (RIM). 35 U.S.C. § 271(a): “Except as otherwise provided in this title, whoever without authority makes, uses, or offers to sell or sells any patented invention, within the United State or imports into the United States any patented invention during the term of the patent therefore, infringes the patent.” 78 There must be direct infringement before contributory or inducing infringement can be found. 79 544 F.2d 1070 (Ct. Cl. 1976) (Decca). 80 RIM, 418 F.3d at 1317. 77
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Decca factors as a framework for interpreting infringement under Section 271(a), i.e., “use,” “offers to sell, or sells,” and “imports into the United States” for the system and method patents. They also relied on case law that the analysis for patent infringement will “differ for different type of infringing acts, and will depend on the differences between the different claims.”81 Furthermore, the CAFC found that non-parties, customers who used RIM’s technology, were the infringers, and that RIM was a contributory and inducing infringer. The approach is different from the Canadian approach in SOCAN, in that users who cache the music on their hard drives and make it available to the public are the real infringers of copyright. a. Use of the Invention — Systems Claims The Court of Appeal reviewed the case law to determine whether RIM “used” the patented invention.82 In interpreting “uses . . . any patented invention within the United States” in Section 271(a), the CAFC concluded the situs of the infringement is where the act is committed. The situs of the infringing act is a physical occurrence. Courts have interpreted “use” broadly, given its ordinary meaning; use was defined as “put into action.” Thus, under Section 271(a), the use is “where the patented invention is put into service (i.e., the place where control of the system is exercised and beneficial use of the system obtained.)” The answer to this question under traditional approach would be Canada, since that is where the relay was located, and the relay is what constituted the patented invention. Yet, in applying common law factors in Decca, the CAFC concluded that customers in the United States had the control and benefit from the exchange of information, so they were direct infringers; the location of relay in Canada did not, as a matter of law, preclude infringement. With the requisite direct infringement found, RIM was liable for contributory and inducing infringement. In RIM it was the “location of use” and not necessarily the location of the relay that led to a finding of patent infringement for the system claims. b. Use of the Process — Method (Process) Claims The Court found differently concerning the process claims. The process could not be said to have been “used within” the United States, as required by §271(a). The CAFC distinguished that the use “of a whole operable assembly” could not exist for a process claim.83 For infringement of a process claim, “all steps and stage of the claimed process are utilized.”84 Since the relay was located in Canada, the Court concluded not all processes had been performed in the United States, and there could be no infringement. III. CONCLUSION: WHEN DOES THE FEDERAL COURT OF CANADA HAVE EXTRATERRITORIAL JURISDICTION? does a court have jurisdiction over extraterritorial matters? When dealing with maritime law, the question was dependent on the common law test that relates to the connection to the territory. The link was based on a “real and substantial connection” between the people, subject matter, or physical location in a territory. Maritime liens expanded these traditional legal tests by applying contractual law factors, commercial interest, and contextual factors, such as the intention of the parties, and whether a foreign law 81 82 83 84
Id. Id. 1316, 1317. Id. Id. at 1318.
170 S E S S I O N I I I : P A T E N T “offends” Canada’s domestic law. As this common law principle is applied to the incorporeal with Internet or radio communication signals, a more contextual approach is used to attempt to connect invisible transmissions to a physical object, person, or place. In SOCAN, where there is no physical subject matter, the Supreme Court of Canada first determined whether there something express or implied in the Copyright Act that Parliament intended that copyright laws or the court could apply extraterritorial jurisdiction. Then the Supreme Court applied the “real and substantial test” to determine a sufficient connection to Canada by applying the test first used in maritime law. In recognizing that maritime law could have limited application in cases where there was no physical object attached to a claim, the Court left the door open by applying a contextual approach that “depends on the circumstances of the case” when an ISP will be liable for copyright infringement when it is not located in Canada. In RIM the CAFC first separated the patents into system claims and process claims. Where there were system claims, the court applied common law factors and a broad interpretation of “use” of a patented invention in the United States, through the customers. There was ownership, control, and beneficial use by customers in the United States, and through this analysis contributory and inducing infringement attached to RIM despite the invention itself (the relay) being located in Canada. IV. WHEN SHOULD A COURT EXERCISE ITS AUTHORITY? Turning to the second questions posed in this paper, the following discussion addresses when a court should or should not use its discretion to exercise extraterritorial jurisdiction. 1. U.S. Court of Appeals for the Federal Circuit (CAFC) a. Voda v. Cordis Corporation In Voda v. Cordis Corporation85 Dr. Voda, the inventor of the patents, alleged infringement of his U.S. patents relating to guiding catheters for use in interventional cardiology. During the proceeding the appellant filed a motion to amend his claim to include European, Canadian, and Japanese patents. The Respondent asserted it was beyond the jurisdiction of the U.S. District Court. The District Court, pursuant to 28 U.S.C. § 1367, granted leave to Dr. Voda to assert infringement of the foreign patent claims. Was the U.S. District Court correct in exercising its discretion that it had extra-territorial jurisdiction over foreign patents? Or had the District court abused its discretion under Section 1367(c)? The Court of Appeal determined that the lower court had abused its discretion. Under 28 U.S.C. § 1367(a), U.S. district courts have supplemental jurisdiction to consider extraterritorial matters, with certain exceptions. Subsection (c) outlines when a court may decline to exercise that supplemental discretion. The CAFC first conducted a review of the case law, concluding that “district courts of the United States . . . are ‘courts of limited jurisdiction.’ They possess only that power authorized by Constitution and statute . . .. District courts may be obligated not to decide stay law claims (or to stay their adjudication) where one of the abstention doctrines articulated by the [Supreme] Court applies.”86 Paragraph 1367(a) authorizes supplemental jurisdiction to district courts, except as provided otherwise by Federal statute. This constitutes a first exception. A second exception is found at Subsection (b), where district courts have original jurisdiction founded solely on “diversity.” The third exception, found at 85 86
476 F.3d 887, 904 (Fed. Cir. 2007) (Voda). Id. at 11.
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Subsection (c), is the discretionary provision where district courts may decline to exercise supplemental jurisdiction in certain circumstances. Generally, though, Section 1367(a) also grants supplemental jurisdiction to district courts where claims are “so related to claims in the action within such original jurisdiction.” (1) Discretion, Section 1367(c) — Abuse of discretion This Section provides that district courts may decline to exercise supplemental jurisdiction over a claim under Subsection (a) if: (1) The claim raises a novel or complex issue of state law; (2) The claim substantially predominates over the claim or claims over which the district court has original jurisdiction; (3) The district court has dismissed all claims over which it has original jurisdiction; or (4) In exceptional circumstances, there are other compelling reasons to decline jurisdiction. It was stated by the United States Supreme Court in City of Chicago v. International College of Surgeons “when deciding whether to exercise supplemental jurisdiction, a federal court should consider and weigh in each case, and at every stage of the litigation, the values of judicial economy, convenience, fairness and comity.”87 Based on these factors, as well as those outlined in Section 1367(c), the Court of Appeal held that the trial court had abused its discretion in refusing to exercise its discretion. (2) International Treaties The CAFC held that by exercising its discretion the trial court disregarded the international treaties to which the U.S. was a signatory and consequently “supreme law.” Nowhere in the treaties did it permit the United States to adjudicate on foreign registered patents. (3) Comity The CAFC in Voda defined “comity” as the “spirit of cooperation in which a domestic tribunal approaches the resolution of cases touching the laws and interest of other sovereign states.”88 Quoting from Société Nationale Industrielle Aerospatiale v. U.S. District Court for the S.D. of Iowa, the United States Supreme Court stated that “it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.”89 The CAFC held in Voda that the trial judge ought to have been sensitive to the possibility that the Court does not prejudice the rights of other governments or their citizens.90 Dr. Voda did not have an international duty that would require the District Court’s intervention. There was no evidence that his rights were jeopardized, or that those foreign countries could not provide adequate patent protection. There was no evidence that the foreign governments consented to the adjudication by the United States of Dr. Voda’s international patents. The CAFC applied the “local doctrine action” that applied to trespass or title to real property. They found that “while our Patent Act declares that
87 88 89 90
522 U.S. 156, 173, 118 S. Ct. 523 (1997) (emphasis added). SOCAN, 2004 SCC at 35, 36. 482 U.S. 522 (1987). Id. 36–40.
172 S E S S I O N I I I : P A T E N T ‘patents shall have the attributes of personal property,’” exercising supplemental jurisdiction could prejudice the rights of foreign governments.91 The CAFC also expressed that, under statutory interpretation, the goal is to “construe ambiguous statutes to avoid having unreasonable interference with the sovereign authority of other nations.”92 Patent law was “not intended to operate beyond the limits of the United States.”93 (4) Judicial Economy In Voda the CAFC also found the trial court’s decision offended the principle of judicial economy. To adjudicate on several foreign patents where the law is different than that of the United States would not only confuse juries and precedent, it would likely have the same “magnitude of litigation” as if each patent was adjudicated in the country of registration. (5) Convenience The doctrine of forum non conveniens favors the court declining to exercise its supplemental jurisdiction. Several reasons are that the costs of interpreters and experts in foreign law mitigate towards declining jurisdiction. (6) Fairness — “Act of State” doctrine The CAFC in Voda held that the “act of state doctrine” made it unfair to exercise supplemental jurisdiction. The doctrine “requires that, in the process of deciding the acts of foreign sovereigns taken within their own jurisdiction shall be deemed valid.”94 The CAFC was not persuaded that the granting of a patent was not indeed “an act of state.” As such, the U.S. courts would be prevented from “inquiring into the validity of a foreign patent grant and require only . . . to adjudicate patent claims regardless of validity or enforceability.” The CAFC used principles of common law, such as international treaties, comity, fairness, judicial economy, and the doctrine of forum non conveniens, to conclude that even where this is a statutory grant of supplemental jurisdiction, and limits to that jurisdiction, common law principles can be an “exceptional circumstances” such that it would constitute an abuse of authority under Section 1367(c). 2. Federal Court of Canada a. Phillipa Lawson v. Accusearch Inc, and others In the most recent Internet case heard by the Federal Court of Canada, Lawson v. Accusearch, Inc. DBA Abika.com and others,95 the Court had to resolve whether the Assistant Privacy Commissioner of Canada (the “Assistant Commissioner”) had extraterritorial jurisdiction to investigate complaints on the collection, use, and disclosure of personal information of Canadians under the Personal Information Protection and Electronics Documents Act (PIPEDA).96 The applicant requested her personal information from a U.S. company running an Internet information service, Abika.com. The respondent is a database company with offices located in Wyoming; its Internet server is located in Delaware. The Respondent 91
Id. at 40, 41. Id. at 41, also meaning that patents are not intended to operate beyond the territorial limits of a nation. 93 Id. at 42. 94 Id. at 47, 48. 95 2007 FC 125 (Lawson). 96 The Personal Information Protection and Electronic Documents Act (Apr. 12, 2000) ch. 5, updated Mar. 3, 2006, available at http://www.privcom.gc.ca/legislation/02_06_01_e. asp. 92
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obtained personal information from various databanks in Canada and would “sell” the information to anyone who made the request and paid (Cdn)$119.00. Even though the respondent owns a “.ca” Web site, its only function is to route a user to the “.com” Web site. The Commissioner found that the respondent did not have a “real and substantial” connection to Canada, and concluded that she did not have jurisdiction to investigate the complaint. The applicant filed a judicial review against the Assistant Privacy Commissioner to investigate her complaint that the respondent had contravened the provisions under PIPEDA. Commencing with its interpretation of the relevant statute, the Court analyzed whether there was express or implied provisions in the PIPEDA showing Parliament’s intent to legislate with extraterritorial effects. The Court concluded that Parliament did not intend that PIPEDA apply extraterritorially, nor that it conferred extraterritorial jurisdiction on the Commissioner. The Court then considered whether there were any common law principles that conferred extraterritorial jurisdiction on the Assistant Commissioner to investigate companies of foreign jurisdiction. The Court commenced with the traditional common law principles related to maritime law and the “real and substantial connection test” with regard to ratione materiae (over the subject matter), ratione personae (over the person), and ratione loci (over the territory).97 In reviewing if the Assistant Commissioner had ratione materiae jurisdiction, the Court first noted that even if a decision maker has jurisdiction over the subject matter, that tribunal may decline to exercise its jurisdiction where a party has an insufficient connection to the subject matter, the location of the event, or if they are not themselves connected to Canada (by citizenship or residency).98 The Court also stated that ratione materiae may only be conferred by Parliament, and consequently rejected finding a conferral of extraterritorial jurisdiction on this ground. In considering the Assistant Commissioner’s jurisdiction of ratione personae, Justice Harrington noted that courts have used restraint when exercising jurisdiction over foreign parties to a proceeding when they have not been served in Canada and the matter does not have a connection to Canada. If there is no equivalent Canadian law, then a decision maker may still have jurisdiction over the person but he or she should be mindful of the principle of forum non conveniens when exercising extraterritorial jurisdiction.99 The Court in Lawson concluded that no conflict of law principle or provision in PIPEDA would allow the Assistant Commissioner to exercise extraterritorial jurisdiction. After reviewing the Commissioner’s ratione loci jurisdiction, the Court found that PIPEDA was not intended to stretch beyond Canada’s borders. The Court noted that PIPEDA does grant to the Assistant Commissioner jurisdiction to investigate every complaint; the Assistant Commissioner erred by misinterpreting her investigative authority for the enforcement; and, since PIPEDA did not have such effect, she could not investigate the matter. The Court concluded that, as a matter of statutory interpretation, Parliament had granted the Assistant Commissioner a duty to investigate every complaint, even where effective enforcement was beyond her control. As a result, the Assistant Commissioner cannot decline to investigate a complaint brought before her on the basis of extraterritoriality. If the Assistant Commissioner concludes that Accusearch breached PIPEDA, then 97 98 99
Lawson, 2007 F.C. at 29. Id. 30, quoting Bangoura v. Washington Post, (2005), 258 D.L.R. (4th) 341 (Ont. Ct. App.). Id. 34, 36, quoting Tropwood A.G. v. Sivaco Wire & Nail Co., [1979] 2 S.C.R. 157.
174 S E S S I O N I I I : P A T E N T it would be incumbent on the applicant to file the Assistant Commissioner’s decision with the Court for enforcement. Lawson engages maritime law principles with statutory interpretation to decide how privacy law and Internet commerce is to be regulated. The Court in this case distinguished the exercise of extraterritorial jurisdiction with the enforcement of extraterritorial jurisdiction. The Court indicated that where Parliament does not intend to authorize extraterritorial jurisdiction, the courts in reviewing the common law should not attempt to read in such jurisdiction. Where a statutory duty exists to exercise some type of power, the decision maker may take such measures so as to fulfill its statutory obligation, even if the method of enforcement is not effective. In Lawson the Court was reluctant to turn a privacy law issue into an Internet commerce proceeding. 3. House of Lords a. West Tanker Inc. v. RAS Riunione Adriatica de Scicurta SpA and another In the recent decision of the House of Lords, West Tankers Inc. v. RAS Riunione Adriatica di Scicurta SpA and another,100 the Court had to decide whether a court of a Member of the European Union may grant an injunction against a person bound by an arbitration agreement to restrain that person from commencing or prosecuting proceedings in breach of the agreement in a court of another Member State which has jurisdiction under European Council (EC) Regulation 44/2001. One of the vessels owned by the appellant had collided with another vessel owned by Erg Peroli SpA and caused damage to the latter vessel at Syracuse. Erg made a claim to its insurers, Ras Riunione Adriatica di Sicurta SpA and Generali Assicurazioni Generali SpA. The insurers brought a claim against West Tankers, pursuant to a statutory right of subrogation under Article 1916 of the Italian Civil Code, to the Tribunale de Siracusa to recover the amounts paid to Erg. The appellant West Tankers commenced an application to the English Court of Appeal for an injunction to prevent the insurers for taking further proceedings and for declarations that the insurers were bound by the agreement to refer the matter to arbitration in London. The Court of Appeal granted both injunctions and referred the matter to the House of Lords to determine whether as a matter of discretion an English court should refuse to restrain a proceeding in another Member state. The House of Lords affirmed the Court of Appeals’ decision. However, their decision was not based on principles of maritime law, but instead was based upon statutory interpretation and common law principles involving commercial interest. Moreover, in the exercise of discretion the Court held that this was within the principles of comity. The House of Lords determined that the English courts had jurisdiction under British statute, in particular Section 37(1) of the Supreme Court Act of 1981, and that the “High Court had regularly exercised this jurisdiction to restrain parties to an arbitration agreement from commencing or continuing proceedings in the courts of other countries.”101 The House of Lords held that the law is settled that Article 1(2)(b) of EC Regulation 44/2001 not only excludes arbitration agreements but also court cases where arbitration is the subject matter before the court.102 The Court noted the Regulation’s provision is “entirely unsuited” to arbitration agreements where the parties intend to agree to a situs 100 101 102
[2007] H.L. 4, [2007] All E.R. (D) 249 (Feb) (West Tankers). Id. at 8–11. Marc Rich & Co. AG v. Societa Italiana Impianti PA, [1991] E.C.R. 1-2855 (“the Atlantic Emperor”).
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and a governing law based on “neutrality, availability of legal services and the unobtrusive effectiveness of the supervisory jurisdiction.”103 The House of Lords granted both injunctions on contractual principles of autonomy of the parties to choose the appropriate forum for resolving commercial disputes.104 The House of Lords stated that “Member States should trust the arbitrators or the court exercising supervisory jurisdiction to decide whether the arbitration clause is binding and then to enforce that decision by orders which require the parties to arbitrate and not litigate.”105 The Court concluded that Member States must realize that commercial competition is on a global scale and that when other jurisdictions (such as New York, Bermuda, and Singapore) exercise this same jurisdiction — that is, to enforce arbitration clauses — a court is not acting beyond their jurisdiction, because it is in keeping with principles of international commerce and there is no prejudice to the European Community to allow courts to make such determinations. By approaching this case as a question of commercial interests founded in the law of contracts, the House of Lords, after considering statutory interpretation and common law tests on extraterritorial jurisdiction, decided that jurisdiction was permitted since one of the parties was from England and could apply to those courts to enforce their contractual rights. V. CONCLUSION National courts must decide whether they have jurisdiction of a person, place, or thing when it extends beyond their geographic territorial limit. This examination commences with statutory interpretation of enabling legislation. Common law tests have been used to assist in statutory interpretation where there are gaps or ambiguities. It could be the traditional method that the person, place, or thing have a “real and substantial connection” to the sovereign power exerting jurisdiction or, more broadly, by taking a contextual approach and applying the specific facts and circumstances to a common law or statutory test (the majority in SOCAN). Other factors by which a court may exert extraterritorial jurisdiction include ownership, control, and beneficial use of an object (RIM); or jurisdiction through contracts and commercial interests (West Tankers). In some cases, national courts take a restrictive view of determining whether they have extraterritorial jurisdiction (Deepsouth, the dissents in SOCAN and Lawson) by defining the proceedings restrictively under the enabling legislation. In Canada common law and international law principles determine the limit of the Court’s discretion in applying extraterritorial jurisdiction and when courts ought not to act extraterritorially. Principles such as comity, judicial economy, fairness, doctrine of forum non conveniens, and more recently commercial expectations, are commonly used throughout North America and Britain. In the United States there must first be a statutory analysis under 28 U.S.C. § 1367(a)(c) that permits district courts supplemental jurisdiction with exceptions, and further situations when the court may decline to exercise its jurisdiction. A review of the law demonstrates that courts have flexibility to apply existing law and principles to encompass changing technology. These cases can be influential in assisting governments to review or amend statutes to ensure global competitiveness while main103 104 105
West Tankers, [2007] H.L. 4 at 12. Id. 17–21. Id. 20.
176 S E S S I O N I I I : P A T E N T taining protection for its citizens and commerce. Courts ought to be cautious not to exceed their statutory grant of power or to interpret a section so broadly that it would create unfair consequences either domestically or internationally.
MR. RICHARDS:
* * * Next we have Johann Pitz from the Vossius firm in Munich. *
*
*
EXTRATERRITORIALITY OF GERMAN PATENTS Dr. Johann Pitz I. THE PRINCIPLE OF TERRITORIALITY In principle, a German patent or a European patent granted by the European Patent Office with effect in Germany can be infringed only by acts performed in Germany. Section 9 of the German Patent Act defines the uses constituting direct patent infringement under German law as making, offering, putting on the market, or using a product that is the subject of the patent, or importing or stocking a product for such purposes, and the use of a patented method or process in Germany. A German patent and a European patent granted for Germany are not generally affected by acts committed exclusively in other countries. Regarding contributory or indirect patent infringement, Section 10 of the Act provides for extended liability in cases of supplying or offering to supply means related to essential elements of an invention. Indirect patent infringement even requires a double reference to German territory: both the supply or offer to supply by the indirect patent infringer, and the expected use by the consumer, must take place in Germany in order to establish contributory infringement of the German patent. In view of economic globalization and increasing technical activities across national borders the question arises, whether the existing principle of territoriality is still appropriate to face multinational infringing activities. In contrast to the concept of cross-border litigation, where one national court could have international jurisdiction to decide on infringement of foreign patents based on foreign patent law, the question here is whether infringing activities abroad are covered by German Patent Law. The presentation will focus the relevant case law in order to draw a line between non-infringing and infringing activities relating to Germany. II. PRODUCTION OF PARTS IN GERMANY BUT ASSEMBLY IN FOREIGN COUNTRIES It is undisputed that a German patent is infringed by producing combination products protected by patents in Germany, and also when the product is exported to other countries where no such patent protection exists.106 Most legal experts believe that a German patent is also infringed by the production of parts of a patented device for delivery to a country where no patent protection exists, provided that these parts are only suitable for 106
11.
Case BGHZ 23 100, 106; OLG Hamburg GRUR 1985, 923; Benkard/Bruchhausen, Patent Act, § 9, Margin
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and intended to be assembled to form the device patented in Germany.107 In such cases the Supreme Court has concentrated on the commencement of production of the complete device in Germany, even if completion takes place in another country. This view is upheld by the case law of the Federal Supreme Court. In the Diarähmchen-V decision108 regarding a device consisting of a combination of parts, the Federal Supreme Court expressed the view that the production or delivery of parts of the patented device constitutes direct — and not just contributory — patent infringement if the parts are specifically made to be used for the patented device. To fulfil this requirement, these parts must not be readily usable in any other way than in the patented device and must have been designed to work with the patented device. As it is the commencement of production in Germany that is important, an act of use in Germany is affirmed even if the patented product is never put on the market in Germany. The Federal Supreme Court’s broad interpretation of the terms “making” and “producing” protects the patent owner against obvious attempts to circumvent the patent by delivering parts of a patented device to another country for assembly, since the completion of the patented device in Germany is no longer the decisive issue for assuming patent infringement. These legal principles are also applied by other German courts in agreement with the prevailing legal commentaries.109 III. COMPLETION BY THIRD PARTIES IN FOREIGN COUNTRIES In accordance with the courts’ broad interpretation of the term “making,” the making of a product also occurs when a party starts making parts in such a way that the patented product necessarily results from the making. Therefore, a party that does not commit an act directly leading to the creation of the patented product may nonetheless be considered as a manufacturer infringing the patent if it controls the completion of the product by a third party. According to case law by the Düsseldorf District Court, the same applies for a process patent.110 This case law states that direct patent infringement — and not merely contributory infringement — is affirmed when the acting party does not itself perform the very last partial act of the patented process but uses, as a tool for this purpose, a third party which completes the process predictably, necessarily, and independently of any knowledge of the invention. Therefore, it is not decisive for assessing infringement whether the very last partial act of the protected process or of the production of a patented device is carried out in Germany or by a customer abroad. IV. ACTIVITIES ABROAD RESULTING IN GERMAN PATENT INFRINGEMENT German and foreign companies have repeatedly been held liable for activities outside Germany in cases where these activities resulted in an infringement in Germany. In particular, this holds true for cases where the making and distribution of patented products has been wholly or partially transferred to foreign countries. 107
Busse/Keukenschrijver, Patent Act, § 9, Margin 132; RG GRUR 1901, 152; BGH GRUR 1957, 231. GRUR 1971, 78. 109 See Benkard/Bruchhausen Patent Act, § 9, Margin 33; Schulte, Patent Act, § 9, Margin 27; Busse/ Keukenschrijver, Patent Act, § 9, Margin 68, for an assessment of “making” according to the Patent Act. 110 BGH GRUR 1977, 250, Kunststoffhohlprofil; GRUR 1982, 165, Rigg; LG Düsseldorf, Entscheidungssammlung (Collected Decisions) 1999, 75, Verglasungsklotz; LG Düsseldorf, decision Nov. 7, 2000, InstGE 1, 26, Cam-Carpet. 108
178 S E S S I O N I I I : P A T E N T A. “RADIO-CONTROLLED CLOCK I”
According to the principles laid down in the Federal Supreme Court decision in Funkuhr I (“Radio-Controlled Clock I”),111 each activity adequately resulting into a patent infringement in Germany can also be considered as an infringement or as a participation therein. The defendant — which was aware of the patent at issue — produced radio-controlled clocks in Hong Kong and passed them on to the customer (also in Hong Kong) for transportation to Germany, where the customer delivered them to third parties. The defendant was held liable for patent infringement in Germany. The court held that not only is a person who illegally uses a patented invention in Germany liable for patent infringement in Germany, but a person who contributes to the marketing of the product in Germany is also liable. Therefore, in cross-border cases the foreign manufacturer of patent-infringing devices shares liability for patent infringement when it supplies the products to a foreign customer that will offer the infringing devices in Germany and will import them into Germany for marketing purposes.112 The consequences of this far-reaching liability are considerable. As a result, a supplier acting in another country will be held responsible for its customers’ infringing acts, even though it does not supply products within or from Germany or use the patent in Germany. This also applies to activities performed exclusively abroad if only the infringement occurs in Germany. Therefore, a manufacturer offering goods in foreign countries should determine the countries to which the customer plans to deliver the goods. If the products are aimed at the German market, the manufacturer can preclude liability under German patent law by drawing the customer’s attention to the German patent laws so that the customer will not market the products in Germany. B. “RADIO-CONTROLLED CLOCK II”
Unlike direct infringement and by its very nature, indirect patent infringement only covers the acts of offering or delivering of parts suitable for exploiting the patent protected invention. Indirect infringement requires a so-called “double reference” to the German territory. Delivery or offer must take place in Germany and the customer must further intend to make use of the invention inside Germany. Both delivery and intended use must take place in Germany. There is no liability for indirect infringement in cases where offer or supply of parts takes place abroad. An offer in Germany is not sufficient to establish liability based on indirect patent infringement in cases where use and/or intended use by customers take place abroad. Not required is, however, that direct infringement actually takes place in Germany. It is therefore not necessary that the parts are finally used to exploit the invention. In the past, export business regarding such parts with foreign customers was not considered as an act of contributory infringement. In its recent judgement of January 30, 2007, “Radio-Controlled Clock II,” the Federal Supreme Court changed this view.113 According to the Federal Supreme Court, the delivery of parts from Germany abroad has to be considered as an infringing act within Germany under the precondition that patent-protected use in Germany is intended by the foreign customer. This was true in the Radio-Controlled Clock II case, where a German company delivered detection devices for 111
Mitt 2002, 416. LG Düsseldorf, InstGE 1, 154 – Rohrverzweigung; LG Düsseldorf – Herz-kranzgefäß-DilatationsKatheter. 113 Case X ZR 53/04, Funkuhr II (Radio-Controlled Clock II), BGH (Jan. 30, 2007). 112
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a patented protected-radio clock to its customer in Hong Kong that produced radio clocks and delivered them into Germany. In the Radio-Controlled Clock II decision the Federal Supreme Court compared the legal requirements of direct and indirect patent infringement in cases of delivery of parts from Germany abroad. Whereas the mere causation of patent infringement without any negligence or intention is sufficient for direct infringement, it is required for contributory infringement that the supplier of parts knows or has to know (because it is obvious from the circumstances) about the customer’s intention to exploit the invention. The court stated as a general principle that such a delivery may be considered principally both as an act of indirect infringement and as a support of direct infringement. The court, however, underlined that the limitations for indirect patent infringement must not be circumvented. As a consequence delivery of parts from Germany abroad is only considered as an act of patent infringement if the requirements of indirect infringement are fulfilled. This leads, according to the Federal Supreme Court, to the result that such deliveries can only be considered as an act of indirect infringement in case of negligence. * * * Thank you. Next we have Nicholas Groombridge. MR. GROOMBRIDGE: One of the great things about transnational patent enforcement is that there is nothing like it as a topic to get people riled up. It is one of those hot-button issues where, all of a sudden, you bring it up and a big fight breaks out. That is one of the things that, I guess, brings us all here today, so we can have some fireworks. I want to start off by talking about the RIM case114 (the BlackBerry case), which has been alluded to twice, because it is paradigmatically very good. It almost perfectly embodies one of the threads that runs through this whole topic, which is a deep-seated belief that “my country does this right and your country does it wrong, and if we did it in my country, we would get a better answer.” I wrote down one of the things that Roger Hughes said. He said all of the important part transactions took place in Canada. That is the Canadian view of the world in the BlackBerry case. The U.S. view of the world is that all of the important transactions took place in the United States. So let’s look at what was going on there and see what this tells us about transnational enforcement in general. The BlackBerry case got a huge amount of publicity, largely as an injunction issue — bad patents, big threat of injunction; non-practicing patent owner can shut down the poor little innovator there, and it’s bad for everybody. But inside that is the transnational issue that got some play, a good deal less than the injunction question. Inside that are some issues that really need to be teased out, because they didn’t get much play at all. Look at the system that is involved there. We are all familiar with these; we are all addicted to them. The way this thing works is, basically, the system starts off with my desktop computer with some software sitting in it. When I get an email, it pushes that email out over a landline network and it goes to Canada. It goes to a relay system — basically, a server farm — in Canada. This is very much the Canadian perspective: That’s where all the important transactions take place. That’s the engine that runs the BlackBerry system. MR. RICHARDS:
114 NTP Inc. v. Research in Motion Ltd., 418 F.3d 1282, LEXIS 15920 (Fed. Cir. 2005) (appeal to the U.S. Supreme Court pending) (RIM).
180 S E S S I O N I I I : P A T E N T I don’t know if you know this, but every time you use one of these devices to send or receive a message, that message has traveled through Canada. This system doesn’t work without the stuff that is going on in Canada. From Canada, it goes through the relay systems and is switched, pushed back out into a wireless network and delivered to my handheld device sitting here in my pocket. From my perspective, the important bits of this system are not the server farm in Canada; they are the desktop on my desk back in the office and the handheld in my pocket. When we look at the decision, the decision says, in essence, those are the important bits of the system. Because the important bits of the system are in the United States, the infringement is in the United States, and we can seize for ourselves the jurisdiction and do whatever we want with it. Is that a change in the law? Part of what is built into the BlackBerry decision’s reasoning is based on an earlier Court of Claims decision in 1976, Decca Ltd. v. United States,115 which involved a system that was a somewhat primitive ancestor to modern GPS. That system required a number of transmission stations, one of which was based outside the United States, in Norway. There was a patent claim that was directed to the system. So we had a system that was mostly in the United States but one little piece of it was outside the United States. The Court of Claims, the predecessor of the Federal Circuit, said, “That does not matter. This system is being used in the United States and it is an infringement.” In the BlackBerry case, the Federal Circuit extends that logic. A good issue in there is: Is that a qualitative change or not? I would suggest that it is a qualitative change, because what we have now, at least arguably, is a regime in which you can have the guts of the system outside the United States and it is still an infringement. That is going to be more and more important as we move forward and we start to see the technology that surrounds the flow of information through the world depending on broader, more distributed systems with global pieces. There is a related issue that we down in the trenches in patent litigation are beginning to see more and more frequently: Apart from any transnational issues, what about the situation where I have a claim to a system involving various parts and the system is being used without my authorization, but it is being used by several entities? There is no one single infringer. We have this combination infringement. Maybe it involves a telecommunications network that is operated by somebody, some service somewhere. We put all those pieces together, and there is an infringement, but there is no one single infringer I can go after. If that problem is arising — and I can tell you, it is arising with repeated frequency — then it does not take much imagination to say it is only a matter of time before you start to get the same issue in which one or more of the component pieces is located outside the United States. That begs the question: How do we deal with this? How much of the infringing activity has to be within the jurisdiction in order for it to be an active infringement? One of the things I would like to ask my learned colleagues here is: If we looked at this BlackBerry case, how would that be decided under the law of, let’s say, England or Germany? And if we changed the paradigm just a little bit, what would the impact be on infringement? This is a very real-world change. When the BlackBerry case was pending, hanging there 115
Decca Ltd. v. U.S., 544 F.2d 1070 (Ct. Cl. 1976).
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like the sword of Damocles, all of us who are, perhaps, addicted to these things started to get worried. And some people made contingency plans. They asked: “How about if I move this operation so every bit of it is offshore except for the handheld device? For example, I have a big data center in London, so I could run everything out of there, and the only thing that will be in the United States is the handheld device. Is that still an active infringement or not?” A pretty tough question to answer. It would be interesting to know. I was going to engage Jay on Voda,116 because I can’t resist, but perhaps I am out of time. I would just say there that maybe we should look at the practical problems there. What would happen in Voda if the Eastern District of Texas assumed jurisdiction and decided that a whole handful of European patents were invalid, let’s say? What would the European Patent Office or the national authorities in the various countries have to do? I suspect, when we look at it in that way, there is a reason why all of the practitioners and the bar associations and so on look at the Voda case and say, “You’ve got to be kidding. I don’t care how we get there, but the result has to be that you cannot sue for infringement of a European patent in Marshall, Texas.” MR. RICHARDS: One of the points to note about the RIM case is there are two sets of claims in there, method claims and system claims. The systems claims were found to be infringed because they were used in the United States, but the method claims were found not to be infringed. So a note for those who draft to bear in mind for how to deal with this. David, I don’t think we have heard from you yet this conference. Do you have any thoughts on any of this? MR. PERKINS: To the benefit of everybody else. It seems to me that the RIM case is not dissimilar, Robin, to your Menashe case.117 Is it? LORD JUSTICE JACOB: It is exactly the same. MR. PERKINS: There you had a gaming system and the claims required both a host computer and a player terminal. The players, the punters, were all in the United Kingdom. Their handheld terminals and the host computer were in Antigua, and then it was shifted to the Netherlands Antilles, or some other fairly soft jurisdiction. It was held, for different reasons by Robin at first instance, then by the court of appeal, that it was the system that was being infringed through the player terminals in the United Kingdom so the U.K. court had jurisdiction. But on the finer points of that I will defer to Robin. It seems to me on the Voda case that one of the answers is if you find your European patents being hijacked by the court in the Eastern District of Texas, you might try an anti-suit injunction in your home territory. I would be interested to know how the English court would view that. Would you be interested in it, English court? LORD JUSTICE JACOB: They are two things. They are quite different things under discussion here. One is the assertion of a national patent in the national court against certain extraterritorial effects. It is an assertion that the national patent is infringed. All the German cases we heard were cases of infringement of the German patent. A quite different thing is asking a national court to enforce some other country’s patent. In principle, if it can, there is no need even for there to be a national patent in the country concerned. You simply say, “I’ve got you here, you are French, you are in the 116
Voda v. Cordis Corp., 476 F.3d 887, 904 (Fed. Cir. 2007). Menashe Bus. Mercantile Ltd. & Anor v. William Hill Org. Ltd., [2002] E.W.H.C. 397 (Pat.) (Mar. 15, 2002), first instance judgment available at http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/ EWHC/Patents/2002/397.html; Menashe Bus. Mercantile Ltd. & Anor v. William Hill Org. Ltd., [2002] E.W.C.A. 1702 (Civ.) (Nov. 28, 2002), Court of Appeal judgment available at http://www.bailii.org/cgi-bin/markup.cgi? doc=/ew/cases/EWCA/Civ/2002/1702.html. 117
182 S E S S I O N I I I : P A T E N T United States now, we are suing you for infringing the French patent and the German patent,” and so on and so forth — “We’ve got you here, we can sue you.” That seems to me to be a very dangerous thing to be doing. I am not going to go into the legalities, but the Eastern District of Texas is a serious threat. If the position is that you can sue European companies for infringement for doing things in Europe in the Eastern District of Texas with an American plaintiff in front of a Texan jury, something seriously is at risk. I am asked could the court want an anti-suit injunction? It wouldn’t be for me to say at this moment, would it? MR. RICHARDS: Jay, maybe you want to say something on that. I know this is an issue close to your heart. PROF. THOMAS: I’ve received a number of challenges. Let me try to respond to them in series. The first question is: How would a U.S. court notify foreign patent-granting states about the invalidity of a patent? The answer is quick and ready. It’s what the Dutch courts have done, which is they are not declaring the patent invalid; they are simply declaring that this act of infringement is not going to proceed because the right is unenforceable, without questions of the infringement position. So it is simply a matter of as between these parties whether the patent is enforceable. For those of you who know U.S. law well, this is the situation that existed in the United States prior to the Blonder-Tongue case in 1971,118 where patents were enforced regionally; there was no estoppel effect upon losing a single patent judgment. The other comments are basically ones that disparage particular courts. Certainly I am familiar with the debate in Europe about whether we ought to designate certain courts in different countries. I simply will not traffic in that conversation. It seems to me that courts are capable of resolving patent disputes and other courts don’t want to enforce the judgment because they doubt the integrity or the legitimacy of the tribunal, and they can do so. But I generally will not proceed in that conversation. In terms of the nautical reference, I took maritime law in law school. One of the big cases we read was Smith v. Condry,119 an 1843 decision from the U.S. Supreme Court that involved two U.S. ships that collided in the Liverpool harbor. The U.S. court applied British law to determine liability under the torts laws of the place where the accident occurred. So it just seems to me that, applying the maritime principles or any general principles of civil law, that there is no per se rule against litigating foreign patents. I believe the Supreme Court has made it very clear that per se rules in patent cases are inappropriate. MR. RICHARDS: Judge Hughes? JUDGE HUGHES: That troubles me, because your Voda case, as I read it, turned on the assumption or statements that courts like Canadian courts and European courts are respectable courts and quite capable of looking after patent matters themselves. What if you had instead of the case of a Syrian or a North Korean or an Iraqi patent? Would the Eastern District of Texas be quite cheerful and everybody else supporting them on the way up in declaring liability and so forth in that case? PROF. THOMAS: Well, I think extreme examples don’t overcome the general proposition. Of course I’m not advocating a uniform adoption of jurisdiction. But what I am saying is that there are factors we are capable of considering on a case-by-case basis. 118 119
Blonder-Tongue Labs., Inc. v. University of Ill. Found., 402 U.S. 313 (1971). Smith v. Condry, 42 U.S. 28 (1843).
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Is it a controversial subject matter, such as a business matter or a living invention? As a Canadian jurist knows well, the United States and Canada basically have the same statute on subject matter but they have come to very different conclusions on higher life forms. That’s the kind of area in which on a discretionary basis a court couldn’t proceed. The comment that I usually get at this point is, “Well, how will U.S. industry like it when foreign courts hear the cases?” The answer to that is simple: foreign courts do not require the permission of U.S. courts to adjudicate U.S. patents, and in fact they have already done so. For example, recently the Tokyo court adjudicated a U.S. patent and found that there was no infringement under the doctrine of equivalence, applying the Festo Rules.120 We have cases in the United States. The Federal Circuit’s predecessor adjudicated foreign patents, and we have plenty of other cases that have done so. So again, I think there is a temptation among patent specialists — and I count myself among you — that patent cases are really special, complex, and that we shouldn’t dabble in each other’s affairs, even though, of course, we are quite commonly resolving each other’s contract laws, tort laws, usury laws, insurance laws, and all manner of other disciplines. I can go to the courts of Canada and London and find all sorts of cases on U.S. laws. Again, I just do not think a special patent exemption is warranted. MR. RICHARDS: Judge Grabinski, do you want to say something on this point, because you haven’t had a chance to say anything yet? JUDGE GRABINSKI: Perhaps a comment on what Robin said about the differentiation between the cases, where a national patent is concerned, before the court of that country — infringement of a German patent being brought before a German court; or an infringement case for a U.S. or a U.K. patent being brought before a German court. In terms of the consolidation question in Europe, Professor Thomas referred to the jurisdiction of the Dutch courts. There was some sympathy among some German courts for this law. But this has come to an end. Last year we had the GAT v. LuK decision by the European Court of Justice (ECJ).121 In this decision the ECJ said: Under the Brussels Regulation, it is possible if you have, let’s say, a German defendant, that you can sue him not only for the German but also for the U.K. part, for example of a European patent; but if then, as a defense, the defendant attacks the validity of the U.K. part of the European patent, then the German court has declared itself incompetent to decide in this matter; has no longer jurisdiction. This is now the end of this cross-border jurisdiction. There have been some proposals by some scholars to amend the respective provisions of the Brussels Regulation. But this is only a proposal; it is far from becoming law. As long as the situation is as such, we will say we have no jurisdiction in these kinds of cases. Also, in practice, we never got a new case in that regard, because any defendant would say, “We question the validity of the foreign part of the European patent” and that’s the end. The other kind of situation is where it is about the infringement of a German patent but it concerns also activities outside Germany. There the German courts tend to have a rather generous approach to it. For example, a rather typical situation is that you have a big car maker in Germany someplace and you have, for example, a factory in Portugal, and they are producing an 120 Coral Corp. v. Marine Bio K.K., Case No. 1943(wa)/2002, Tokyo Dist. Ct. (Oct. 16, 2003). An English summary and comment of the case by Toshiko Takenaka are available at http://www.law.washington.edu/CASRIP/ Newsletter/Vol10/newsv10i3jp2.pdf. 121 Case C-4/03, Gesellschaft für Antriebstechnik mbH & Co. KG v. Lamellen und Kupplungsbau Beteiligungs KG, E.C.J. (July 13, 2006) (GAT v. LuK).
184 S E S S I O N I I I : P A T E N T item that is used for the car that is produced in Germany and it is also provided for the German market. In this kind of situation, if the Portuguese company knows that the item will be used for the production of the car and then the car will be distributed in Germany, I think we will accept jurisdiction with regard to the infringement of the German patent because there is a kind of contributory act, contribution to the infringement of the German part. Another kind of situation is if a company is selling its product on the Internet, maybe the company is situated in the United States, and they offer to send the product to Germany, then of course it also may be considered an infringement of a German patent. MR. RICHARD: David, I think you wanted to say something. MR. PERKINS: I think a not entirely flippant remark on this is that this perhaps indicates that international arbitration of multinational patent disputes is something that parties who are routinely in litigation between each other should seriously consider. I mean Airbus and Boeing have publicly entered into a dispute resolution mechanism where no injunctions are obtainable, only higher rates of royalties. It has been approved for competition purposes by the European Commission. It seems an entirely sensible way of resolving one’s patent disputes without the vagaries of courts in various parts of the world. There is another example, which I think is fairly public, as a result of the diaper wars between Procter & Gamble and Kimberly-Clark. They have a not dissimilar patent pact that they will go through the ADR route rather than be litigating, as they did in the United States, Holland, the United Kingdom, and probably elsewhere several years ago. LORD JUSTICE JACOB: This is providing work for judges who are retired. MR. PERKINS: I am hoping for a favorable appeal judge. LORD JUSTICE JACOB: As a volunteer. MR. RICHARDS: Nicholas, did you want to say something? MR. GROOMBRIDGE: Following on David’s remarks, I think what it shows is it seems to me there are two drivers to this. One is entirely legitimate, and it’s exactly the type of thing Jay was talking about, where there is a significant pull from the user community to say, “Look, this is just going to be better and more efficient if we do this in one proceeding. Where we have significant commonality here, why should we have to traipse around to litigate these things in a whole bunch of different national systems and have to coordinate all of that and the run of risk of this? I have already hired David White. Why should I have to come and hire Nicholas Groombridge to do a different case somewhere else?” That in itself is a perfectly legitimate goal. In fact, patents lend themselves to this. You heard Klaus’s remarks about contracts and so on. There are very few other examples where you have corresponding legal rights that are generated out of the same underlying set of facts in different national systems. That is all fine and good. But in addition to that, there is a separate strand, which is a kind of procedural arbitrage, which is one party looking for an advantage by saying, “If I am in that forum, it is going to be better for me. If I am in the Eastern District of Texas or if I” — we used to hear about “Belgian torpedoes” and such like — “that is going to work better for me, and I am going to get an advantage that I cannot get in my native system or in whatever forum I am already litigating.” That would seem to be a very good matter for what we heard this morning. That is a disturbance in the force. If what is going on here is people trying to get an unfair advantage, then the system is ultimately not going to reward that, nor should it. MR. RICHARDS: Do we have anybody from the Eastern District of Texas who wants to speak on this?
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QUESTION [Martin Adelman, George Washington University Law School, Washington, D.C.]: I have a question for Nick. I am going to defend Jay. Nicholas, let’s go back to Voda for a moment.122 The patents are actually the same and there was no language issue. For the only German patent the English version is the official version. So it is all in English. The first six figures are all the same. So we all agree on that. What if Dr. Voda, instead of — I think he was playing games, and I would have rejected his claim if I was the judge — had come in as an honest man and said, “I want it all heard in this court. I am waiving, of course, any right to a jury trial. Naturally I’m not entitled to a jury trial. I understand that. I’m not gaming the system. I want efficiency. I understand that the judge will decide damages, and that’s all we’re talking about, enhancement of damages.” Would you have the same feeling about this case? LORD JUSTICE JACOB: Me? QUESTIONER [Prof. Adelman]: No, I am talking to Nicholas because he was ranting about it. Not you, Robin. MR. GROOMBRIDGE: I may have been being a little flippant. My strong feeling is that if you have a really honest desire to try to make the system more efficient because we’ve got a lot of commonality, that’s totally fine. In fact, it really does make sense to have some form of unified adjudicatory mechanism. Incidentally, I am not suggesting that there is an institutional problem with the Eastern District of Texas or anywhere. I am only referring to the idea that seems to be prevalent, that people go to those jurisdictions because they think it is going to be better. QUESTIONER [Prof. Adelman]: Everybody goes to a jurisdiction that they think is going to be better. MR. GROOMBRIDGE: Yes, they naturally do. There is nothing wrong with that. My view, Marty, is that it makes a heck of a lot of sense. In fact, you see sophisticated users where they have the means to do exactly what David was referring to. If you see that going on, isn’t that extremely good evidence that there is a significant pull for this? People are going out and actually creating what amount to parallel systems for themselves where they can. I think that is entirely good. MR. PERKINS: But if you are the defendant, Marty, presumably, if you had any sense, you would rush off to one of the quick courts, like the English High Court, and go for a declaration of non-infringement and revocation. If you were a defendant in Eastern Texas, there is no way the Eastern Texas judge could stop you from doing that, I assume. QUESTIONER [Prof. Adelman]: That may be. But Cordis might not have been upset at having a qualified federal judge decide it all. I am assuming that Cordis honestly believes that it has a good case and there is no gaming — you are not trying to get a jury to decide damages on an English patent or a Canadian patent. You are not going to get that. You come in and don’t talk about that. You just want it in one place. Cordis may have wanted it in one place. But if I were Cordis, I would go to a district court and there is going to be a jury trial, and, instead of one patent, I am allegedly infringing four patents before a jury. That is crazy, and obviously they are going to fight it. MR. RICHARDS: Robin, you set that up. Do you want to say anything? QUESTIONER [Prof. Adelman]: I’m helping Jay because if he would get Voda to waive the jury trial and be honest, he might have a stronger case, or en banc. LORD JUSTICE JACOBS: Several things. One is, of course, there is nothing to stop parties saying, “We’ve got a dispute on. We are not going pay for an arbitrator. We won’t have a retired judge because they cost so 122
Voda v. Cordis Corp., 476 F.3d 887, 904 (Fed. Cir. 2007).
186 S E S S I O N I I I : P A T E N T much. We will just abide by the judge’s decision in one country and we will agree that it applies for everywhere.” There is nothing to stop people from doing that. Secondly, there is quite clearly the possibility of either anti-suit injuncttions if there is an assertion of infringement of a British patent or a German patent in a foreign country where nobody likes what’s going on there. The implications are quite serious. Take damages. The levels of damages are different in different places. I may even say that, by and large, they are the same principle, compensatory in the United States and in the United Kingdom; going to be compensatory, or practically gotten there, in Germany, although they are still pretty mean. JUDGE GRABINSKI: You are right. LORD JUSTICE JACOB: So what happens next? Do you now have a case even about the level of damages in Germany in front of an American trial judge? And then you have other things to consider. You on the whole might prefer to go in front of a judge who knows about patents if you think you’ve got a good case and go in front of a judge who doesn’t know about patents if you have a weak case. Everybody tries that game. The whole thing is going to be lawyers playing games, trying to get jurisdiction in one court or another court. Very weak courts might be brought into play. Nobody has done that yet. You know, the Slovakian court may come in sooner or later. There are problems about recognition of the judgment. Often you can get around that by saying, “We can recognize the judgment because this chap has got money.” That would be the way of the Americans with the Voda v. Cordis case. It is difficult. It is opening up a whole can of worms. The alternative, and one of the reasons I am deeply opposed to it in Europe, is that we’ve got to create a common jurisdiction. If you weaken that, you weaken the case for a common jurisdiction. PROF. THOMAS: Let me just add a few remarks. Regarding GAT v. LuK 123 — and I’m glad you put it into an acronym because the names are completely unpronounceable — sadly, the United States is not a member of the European Union, and in fact that holding does not apply to suits brought on U.S. patents in Europe. Indeed, it wouldn’t apply to any patents of EU Member States before European courts. It will be interesting to see, for example, if the Dutch courts continue their practice of adjudicating foreign rights, including at times U.S. rights, despite GAT v. LuK , because again we are not a party to that regulation. Marty, with the jury trial it is quite traditional that each tribunal uses its own procedures. When our Canadian jurist friend decides a case under New York contract law, I rather doubt he raises the Stars and Stripes and trades his charming accent of the north for something sounding more like Tony Soprano. Indeed, we all use our own procedures. So do federal courts when they apply U.S. state law. So I guess we are going to have to agree to disagree on that. Actually one important point. We should hire law professors rather than retired judges as arbitrators. I think you will get a much better hearing. It just strikes me again that firms, whether they engage in elaborate arbitration procedures or not, commonly operate, innovate, license, operate in different jurisdictions on the assumption that the patent rights are essentially going to provide them with the same right, which is the right to prevent competition. Now, it is true the subtleties and nuances 123 Case C-4/03, Gesellschaft für Antriebstechnik mbH & Co. KG v. Lamellen und Kupplungsbau Beteiligungs KG, E.C.J. (July 13, 2006) (GAT v. LuK).
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differ, but the way commerce acts is that you will obtain multiple patents and parallel rights in multiple jurisdictions and you will market on that basis. It is saddening to me that as lawyers we are unwilling to serve our clients and to recognize that commercial reality. The real interest, the elephant in the room, is that lawyers don’t want to lose business to the Dutch or to the Americans. That is the reality of why so many obstacles to this approach are cited, rather than the obvious advantages of consolidating what in many contexts has already been brought together. MR. RICHARDS: Anybody not from the Eastern District of Texas in the audience who has any comment or question they want to raise on this? JUDGE HUGHES: I’ll give you an example. Before I was appointed, I was an arbitrator, along with a U.S. arbitrator and a British Q.C. We had British patents, U.S. patents, and Canadian patents. We were kind of like “fries with that” when you go to McDonald’s, the Canadian patent. But we were deciding essentially the same factual subject matter, the same infringement activity, the same patent validity, and so on, but it was in an arbitration circumstance. We picked people from different jurisdictions, heard witnesses, and the whole bit. MR. RICHARDS: Any other comments or questions from the audience or the panel? LORD JUSTICE JACOB: I have just one extra comment, which Klaus Grabinski has whispered to me. In Germany judges can be arbitrators, but only once a year. QUESTION: Robin Pearson. I’m a student at Fordham. I was just wondering how the panelists feel about software, in terms of the fact that you can export it and that can be considered an infringement, and it can be replicated as a wholly foreign activity? It is before the court right now in the United States in AT&T v. Microsoft.124 I just wanted to know what your impression was of software and the nature of recreating that invention? MR. RICHARDS: I think this is part of a more general question: Exactly what is “use” from an infringement point of view? We have not really explored that in recent years. Jay? PROF. THOMAS: I am relatively unimpressed with the case. They admitted infringement in the United States of a whole disk. Under Rite-Hite Corp. v. Kelley,125 and its “but for” damage principle, they owe they entire amount as damages. So I am relatively unimpressed by the Section 271(f ) issue. I think that it could be done through common law principles. MR. PERKINS: Is your point that when it is replicated it will be brought back into the United States? QUESTIONER [Ms. Pearson]: No. The point is if we are going to consider infringement the exporting of the actual software and then the duplication of that software and then the repeated sale of that software also being considered an infringement, at least from my perspective of U.S. patent law, that is regulating wholly foreign activity. MR. PERKINS: I will give you a partial answer and pass it down the table, as usual. There was a decision by a certain judge in England in 1998, Union Carbide v. BP Chemicals,126 which I think said developing a process that was done in the United Kingdom for licensing abroad is not an infringing use in the United Kingdom. So I think you wouldn’t get the uses. I don’t see what you are doing outside the jurisdiction would be a use within 124 AT&T Corp. v. Microsoft Corp., 2004 WL 406640 (S.D.N.Y. Mar. 5, 2004), aff’d, 414 F.3d 1366 (Fed. Cir. 2005), cert. granted, 127 S. Ct. 467 (U.S. Oct. 27, 2006), argued Feb. 21, 2007, decided Apr. 30, 2007 (slip op.), available at http://www.supremecourt us.gov/opinions/06pdf/05-1056.pdf. 125 Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3rd 1538 (Fed. Cir. 1995) (en banc). 126 Union Carbide Corp. v. BP Chems., Ltd., [1999] R.P.C. 409; 22(2) I.P.D. 22012, (Ct. App.), reversing in part [1998] R.P.C. 1 (Pat.).
188 S E S S I O N I I I : P A T E N T the jurisdiction where you want to sue. I think it would be much the same principle, wouldn’t it, Robin, as you decided then? LORD JUSTICE JACOB: I remember nothing about it whatever. Did I decide that? Software is a particularly difficult example because software is only patentable in the United States. So you are assuming somebody sends out of the United States an infringing copy of software, which goes to Europe or China or wherever, where it is replicated in vast quantities. Presumably, the question is: Can you get damages for the one export or damages for the vast amount of replication that went on following? Well, that may depend on a lot of other facts too. If it was possible to get hold of this some other way, take out a lawful copy, then there would be no damage if it was subsequently replicated across China, because it is not unlawful in China to do that. It may be copyright infringement, but put that on one side. So it may be you are in a position to say there are no damages except the single sale. I would have thought that might be a reasonable answer. But a lot depends I think on the facts in some detail. MR. RICHARDS: Thank you. Time is up.
SESSION III — PATENTMATTER PART C: PATENTABLE SUBJECT
SESSION III — PATENT
Part C: Patentable Subject Matter: The Road Ahead for Software and Business Method Patents
Moderator PROF. MARTIN J. ADELMAN
George Washington University Law School (Washington, D.C.)
Speakers BART EPPENAUER
DAVID J. KAPPOS
Chief Patent Counsel, Associate General Counsel, Microsoft Corporation (Redmond, WA)
Vice President & Assistant General Counsel, Intellectual Property, IBM Corp. (Armonk, N.Y.) RON MARCHANT
Former CEO, U.K. Patent Office (London)
Panelists DR. ANNE FITZGERALD
PROF. JOHN R. THOMAS
Queensland University of Technology (Brisbane)
Georgetown University Law Center (Washington, D.C.)
PROF. ADELMAN: We are going to start the last session so that we can finish promptly at 6:00 o’clock and enjoy a drink or two afterwards. We had a lively session earlier. Now we are going to discuss patentable subject matter, software and business method patents, maybe even broader than that, because reading for this session I read the Bloomberg opinion of Mr. Justice Pumfrey.1 He has a whole section there that essentially slams the U.S. Supreme Court (at least Justices Breyer, Stevens, 1 Joined Cases Nos. CH/2006/APP/0487 & CH/2006/APP/0481, Patent Applications of Pablo Cappellini and Bloomberg Ltd., [2007] E.W.H.C. 476 (Pat.) (Pumfrey J.) (holding that mental act exclusion could be avoided by “tethering” the claim to a physical article (confirming his earlier decision in Halliburton v. Smith, [2006] R.P.C. 653) (Mar. 13, 2007)), available at http://www.bailii.org/ew/cases/EWHC/Patents/2007/476.html.
190 S E S S I O N I I I — PA T E N T Souter, dissenting) in LabCorp.2 I do not know if he did it intentionally (I suspect he did), but it shows that this issue of subject matter may have broader implications than software and business method patents. We have a really incredible panel here: Bart Eppenauer, Chief Patent Counsel for Microsoft; David Kappos, Vice President and Assistant General Counsel for Intellectual Property at IBM; and Ron Marchant, who is the former CEO of the U.K. Patent Office, who already met earlier this morning. As panelists we have Dr. Anne Fitzgerald from Queensland University of Technology and Jay Thomas of Georgetown University Law Center, with whom I was fighting just a few moments ago in the previous panel. I am going to focus on why we have any of these limitations at all. Normally, they make a mess of the law. If you really want to talk about a mess, look at the exclusion for medical methods. The Europeans, in order to deal with the exclusion for medical methods, have to declare under the European Patent Convention that certain prior art isn’t prior art.3 And then, the Swiss have to invent a new claim form that nobody understands, which we understand avoids this exception for medical methods.4 I was doing some research on the sulfa drugs, because actually that is one of the great inventions of the twentieth century. It started all the pharmaceuticals from the dye industry in Germany. It turned out that sulfanilamide, which was the first, actually was not patentable as a medical method because that wasn’t patentable at the time and somebody had published a paper on sulfanilamide. They didn’t know what it was; they just had made it. That, of course, voided patentability.5 It created all kinds of problems. We are going to hear from our distinguished speakers on the question we keep asking: Why do we have any exclusions at all in patents? Why isn’t everything patentable — except that it has to be nonobvious (and we should have a vigorous nonobvious standard); obviously it has to have utility; and it has to meet the patent specification, it has to meet all the proper standards of the claims? With that, Bart, do you want to start off ? MR. EPPENAUER: While this panel has a focus on software and business methods, the larger theme of the Conference is “Intellectual Property Law Over the Next Ten Years” and, in that context, taking a look at patentable subject matter. Clearly, I believe, and I think many would believe, that software and business methods are not going to be the final frontier in terms of new patentable subject matter that we grapple with over the next ten years. We can already see today some issues developing around examining, defining, and patenting new innovative areas, such as folded proteins or increased mergers of biotechnology and information technology. Certainly from my perspective, as you might imagine, some of the greatest innovations over the last twenty years have occurred with respect to computer software, computer hardware, telecommunications, Internet-based services. If you disagree, just ask yourself what you would do without your BlackBerry, your SmartPhone, your iPod, or whatnot. Life would be maybe harder, or maybe easier — I don’t know; sometimes I wonder. These new inventions in these areas have certainly transformed the way we work and the way we 2 Laboratory Corp. of Am. Holdings v. Metabolite Labs., Inc., 126 S. Ct. 2921, slip op. (June 22, 2006) (Breyer, Stevens, and Souter, J., dissenting), available at http://www.supremecourtus.gov/opinions/05pdf/04-607.pdf. 3 Convention on the Grant of European Patents, signed at the Munich Diplomatic Con-ference for the Setting up of a European System for the Grant of Patents on Oct. 5, 1973, 13 I.L.M. 270 (1974), 1160 U.N.T.S. 231, art. 52 [hereinafter EPC], available at http://www. epo.org/patents/law/legal-texts/epc.html. 4 Switzerland Patent Law (Jan. 1, 1996), available at http://www.jpo.go.jp/shiryou_e/s_sonota_e/fips_e/ switzerland/pl/mokuji.htm. 5 German Patent Act (last amended by Laws of July 27 and Aug. 6, 1998), available at http:// www.ip-firm.de/patentact.pdf.
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live, and they are creating some widespread societal impact. The patent system needs to address these areas of innovation in the same way it has addressed areas of innovation in the past that have caused controversy. It should also be equipped to handle new frontiers of innovation that will follow in the future. In that respect, we really need to ensure that the patent system can adapt to and assimilate new, innovative technologies, handle them in a rapidly advancing way, and not shut them out. With that, just some brief historical context. If you look at, particularly, U.S. history, whenever there has been a major industrial renaissance and new domains of innovation have arisen, there have been questions about the expansion of patentable subject matter and controversy around that. If you look at the telephone era, in the latter 1800s, railroads, telegraphs, patenting started increasing substantially, and there were calls for outright limitations or complete elimination of the patent system, and, particularly with respect to those new technologies, questioning the quality of those patents and providing some sort of limitations on those patents. At that time, Congress and the courts recognized that the answer was not to eliminate the patent system, or even limit the subject matter of patents, but instead to adapt to the new technological era by reforming the system and reforming both the courts and the Patent Office through procedural reforms and other reforms in patent examination, such as more resources for the Patent Office.6 As we sit here today at this Conference, in the twenty-first century, it seems that we could conclude that we are dealing with a brand-new situation that has not been addressed before — in fact, a lot of commentary and rhetoric seems to indicate that that is the case. But, in fact, I would submit that there are very close parallels between what we are talking about today, with the rapid technological advancement and asking questions about patentable subject matter, and what has been dealt with as long ago as the latter 1800s. This Conference has discussed some of the driving forces behind the calls for reform or attacks on intellectual property. A lot of those could be competitive. They could be ideological. I think, from the information technology perspective, for certain, litigation and the increase in litigation has really been a key driver in the call for reforms. There has been a significant increase in patent litigation. I think that is well recognized. Recent estimates show that the number of patent lawsuits filed annually in the U.S. has grown in the last few years from under 1,000 in the 1980s to over 2,500 today. Certainly, from Microsoft’s perspective, we see things from both sides. On the one hand, we invest $6 billion in research and development annually, and we are a very large intellectual property holder. But on the other hand, due to our balance sheet and our popular products, we are the largest target of patent litigation in the country. We typically spend up to $100 million annually to defend thirty-five to forty patent infringement lawsuits at a time, nearly all of which involve companies that do not really make products and do not really sell anything or have any business, other than suing for a lot of money. In our experience with litigation, there really is a very wide chasm between the patent that is issued by the Patent Office and the patent examiner, on the one hand, what a patent holder much later will assert is the scope of the patent, and then what might be deemed to be the construction of the claims by the district court. So what we really need is a clear and consistent claim construction between what a patent examiner actually allows and what the courts construe the claims to be. 6
See Patent Act of 1870, Ch. 230, 16 Stat. 198–217; Patent Act of 1897, Ch. 391, 29 Stat. 692–694.
192 S E S S I O N I I I — PA T E N T It is a challenging issue. One way to improve that would be more specialized judges or magistrates at the district court level. That is a subject of some recent legislation, Representative Darrell Issa’s bill in the House and Senator Orrin Hatch’s bill in the Senate, which we support.7 Certainly damages issues in the information technology space have become very problematic, in particular, what the proper royalty base for patent damages is when you have complex products and systems involving hundreds or thousands of component parts. A very recent jury verdict, unfortunately for Microsoft, to the tune of $1.52 billion (just a jury verdict right now; certainly we are trying to turn that around) relating to MP3 audio technology does not quite seem to have a proper valuation. I think it is indicative of some problems with damages law that we are trying to address.8 So taking a look at patentable subject matter, where should we go from here? First, the Supreme Court is asking questions and taking a lot of patent cases. It would seem natural to look at the Supreme Court for guidance on where to go in the next ten years. I think it is well understood for Section 101 analysis. In Diamond v. Chakrabarty9 the Court recognized Congress’s intent that Section 101 extend to “anything under the sun made by man,” and that is the test. Similarly, if you look at cases such as Gottschalk v. Benson10 and Diamond v. Diehr,11 they seemed to make clear that a patentable process must meet some physical requirements. To be patentable, the process should be tied to the use of some physical apparatus or it must transform an article, which is a physical thing, into some different state or thing. This could be thought of as, perhaps, a physicality requirement. Cases in the Federal Circuit also recognize this. Marty asked the question, Why should there be any limitations? The limitations on mathematical algorithms by themselves, laws of nature, natural phenomena — that is recognized, understood, and that seems appropriate. But short of that, I tend to agree that the law ought to be that “anything under the sun made by man” is patentable, and then you look to the rest of the patent statute to determine patentability. One area that would really help along those lines is a stronger enforcement and application of Section 112. That is particularly true for patents that use broad functional language with higher levels of abstraction to cover their embodiments, but also perhaps embodiments that aren’t disclosed by their patents. In those sorts of functional cases, which we often see in litigation against us, where claims are expressed with words at a high level of abstraction, which clearly don’t cover anything that is disclosed in the specification, it would be appropriate to apply Section 112, paragraph 6, to the construction of those claims, even where those claims may not be written as a means for or a step for performing a particular function.12 That would put limits on the claims to just those disclosed in a specification and their equivalents. That is consistent with two recent
7 H.R. 34, 110th Cong.: To establish a pilot program in certain United States district courts to encourage enhancement of expertise in patent cases among district judges (passed by House, Feb. 2, 2007), available at http://www.govtrack.us/congress/bill.xpd?bill=h110-34. This bill is identical to S. 3923 (introduced Sept. 1, 2006), available at http://www. govtrack.us/congress/bill.xpd?bill=s109-3923. 8 Alcatel-Lucent Tech. v. Microsoft Corp., 470 F.Supp.2d 1180, 2007 WL 172221, at *1 (S.D. Cal. Jan. 12, 2007) (verdict set aside Aug. 6, 2007). 9 Diamond v. Chakrabarty, 447 U.S. 303 (1980). 10 Gottschalk v. Benson, 409 U.S. 63 (1972). 11 Diamond v. Diehr, 450 U.S. 175 (1981). 12 35 U.S.C. § Section 112 ¶ 6 (allows an applicant to express an element in a claim for a combination as a means or step for performing a specified function without the recital of structure in the claim).
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Federal Circuit cases, Lizard Tech13 and Phillips,14 where the court emphasized the importance of looking at the specification in assessing construction and written description and adequacy of the claim. This solution should also help prevent a situation where, years later, someone drafts claims that have no relationship to the disclosed embodiment whatsoever. To conclude, in our view we should not move down a path where we create special rules or limitations on new and innovative technologies. Instead, we should look to reform the system on clear sets of principles, ensuring patent quality, more work sharing and collaboration between global patent offices, and minimizing litigation abuse where it occurs. PROF. ADELMAN: Thank you, Bart. And thank you for the correction. I didn’t mean to say science or algorithms per se, but any use of them or scientific principles, in spite of what Mr. Justice Breyer said in his poorly reasoned objection to the denial of Certiorari in LabCorp.15 Let’s move on now. I think we will go first with David, and then we will finish with the Patent Office. MR. KAPPOS: Thanks for inviting me to speak. Let me start off by saying that it is a pleasure to be at the Fordham International IP Conference, where you see this tremendous diversity of views and a little bit of fun debate going on that we do not see so much at IP conferences these days. I will try to help that along by taking some different views than what you have just heard from Bart on a few of these subjects. What I am going to do is go very practical, by just sort of ticking off the answers to some of the questions that Hugh Hansen posed in the agenda item, and offering my view that the answer to the “dilemma” of business method patents and software patents is far from unifaceted. In fact, it involves lots of different portions of a solution coming together, some involving what I will call tinkering with the statutory subject matter requirement, some involving very practical things that need to go on in the U.S. Patent Office to address patent quality; and at least one involving the KSR case that we are all waiting to hear about here.16 I will start by separating business method patents from software patents in the analysis because I think that you have very different policy concerns that come about between the two of them. In the area of software patents, the way I look at their relationship as statutory subject matter is that software is just a language — it’s like French, it’s like Spanish, it’s like English — it is a medium of expression for an algorithm. If the underlying algorithm happens to be an invention, there is absolutely no policy-based or principle-based justification for removing it from patent eligibility because it happens to have been expressed in “French,” software in this case. We see that all the time in the information technology industry, where we regularly see ideas initially embodied, proven out in software, then implemented in hardware, then later moved into software again, then later moved into ASICs. It’s all an issue of where the technology is most effectively implemented. It has nothing at all to do with the quality of the invention. 13 LizardTech, Inc. v. Earth Resource Mapping, Inc., 424 F.3d 1336. (Fed. Cir. 2005) (Rader, J., dissenting), available at http://www.fedcir.gov/opinions/05-1062.pdf. 14 Phillips v. AWH Corp., 376 F.3d 1382 (Fed. Cir. 2004), available at http://www.fedcir.gov/opinions/ 03-1269.pdf. 15 Laboratory Corp. of Am. Holdings v. Metabolite Labs., Inc., 126 S. Ct. 2921, slip op. (June 22, 2006) (Breyer, Souter, and Breyer, J., dissenting), available at http://www.supremecourtus.gov/opinions/05pdf/04-607. pdf. 16 KSR Int’l v. Teleflex, Inc. et al., 127 S. Ct. 1727 (2007). [Note: See Supreme Court decision, Apr. 30, 2007, available at http://www.supremecourtus.gov/opinions/06pdf/04-1350.pdf.]
194 S E S S I O N I I I — PA T E N T So I can’t get my head around how you would discriminate against an invention based on the medium in which it is instantiated, how you would say “we don’t want patents in Spanish but we are okay with having them in Portuguese.” So that is to me the issue with software patents. I think they absolutely should not be discriminated against. Business method patents are a lot trickier subject in my view. The analysis, in my view, cannot actually close. It comes down to almost an article of faith or a decision as to whether you feel that innovative business methods need to be protected by patents or not. There are certainly arguments on both sides of that issue. But there are a couple of things that uniquely trouble me about business method patents. One of them is that they seem to have a pernicious side effect. This is not an issue of obviousness-based examination or whether they meet some criterion for being fine inventions or not. It goes to the fact that, because business methods are inherently not tethered to technology, they tend to preclude all technical solutions to the problem that is covered by the business method. So I see a fairly uniform problem with business method patents where the “problem” winds up being the subject of the patent claim, not a solution to the problem. The effect of that is that all technical ways to solve the problem wind up being encompassed by the patent claim. That is a unique problem that causes me to be more cautious about business method patents than about software-based invention. The other question — and this really comes down to an article of faith — is whether you feel incentives are needed for non-technological business method innovation. I will not claim to know the answer to that question. Every time I think the answer is “no,” then I see some great business method innovation come along and I find myself saying, “God, I wish I would have thought of that.” So I am not going to try to answer that question. I am going to say that question, though, is much more in debate for business methods than it is for technology-based innovation. So that’s business methods and software patents. Now I will very briefly address some of the other questions that were posed in Hugh’s subject matter materials for us. What are the other parts to the solution? Strengthening the obviousness standard is clearly one of them. The Patent Office is clearly challenged, the courts are clearly challenged, all of us in industry are challenged, to understand where the obviousness standard is, especially applied to software innovation and business method patents. I think that the teaching/suggestion/motivation (TSM) test is fine. But, as will hopefully see from the Supreme Court in KSR, it does not need to be the only test.17 I think that, particularly in the software and business method area, applying some kind of rebuttable presumption that a person having ordinary skill in the art would have been automatically motivated or would have known to combine references together if they’re both in the same field as the problem that the invention addressed, I think some kind of presumption like that that could be rebutted by the patentee, thereby reducing into the written record the debate for it to be challenged openly or not challenged openly later, is a sensible part of the solution to the obviousness issue. Lastly, I will say the other part of the solution to business method patents and software 17 See id. [Note: The decision held that Graham v. John Deere Co., 383 U.S. 1 (1966), controls obviousness; that “the results of ordinary innovation are not the subject of exclusive rights under the patent laws”; and warned that a rigid application of the teaching/suggestion/ motivation test as a litmus test for obviousness is inconsistent with the Graham framework, but stopped short of rejecting the TSM test outright. Simply put, the TSM shortcut for an obviousness analysis is no longer available. The Court’s decision requires a return to full Graham analyses when assessing the obviousness of patent claims. Importantly, the Court’s opinion touches on several other issues, including the roles of “hindsight bias” and common sense in an obviousness inquiry, a question about the rationale for affording a presumption of validity to the patent-in-suit, which avoided a Graham analysis during prosecution, and a rejection of the rule that “obvious to try” is per se insufficient to show obviousness.]
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patents clearly lies in improving the patent examination process. That is where you get to some of these tools that the U.S. Patent and Trademark Office (PTO) is now looking at using: peer-to-patent, or what is also sometimes known as public patent review, that the PTO has undertaken. A number of companies in the industry, including Bart’s and mine, are trying to help the PTO find a way to tap into the almost inexhaustible supply of technical expertise all over the world that can pinpoint prior art and direct it into the Patent Office to help examiners in a very, very effective way. A terrifically practical project. It has got to be able to work. It can advance us a long ways in helping the PTO examiners, and I’ll say also in the Japanese Patent Office (JPO), the European Patent Office (EPO) — really every patent office that wants to use this technique. One other example I will give, which I think is a very practical thing that the Open Source community is working on, is turning those many, many millions of lines of Open Source software out there, which are already by definition in the public domain, into searchable prior art so that patent examiners and members of the public can find it and direct it to the examination of patent applications, obviously particularly in the software area, helping the PTO to do a much better job. I think if we apply this combination of some practical approaches that could help the PTO improve patent quality, along with strengthening the obviousness standard, and again tinkering with statutory matter, we can go a long way toward finding whatever the right answer is to business method patents, and certainly for software patents, making sure that the patents that come out of the PTO are good ones and not bad ones. PROF. ADELMAN: Let’s hear from Ron now. MR. MARCHANT: Being a non-lawyer, I feel somewhat intimidated being sandwiched between two lawyers here on this topic. You should have been listening to Bob Hart at this point, but Bob couldn’t turn up, so they asked me to stand in and talk about the U.K. experience. The downside to that is that Bob was an expert witness in the Aerotel/Macrossan case18 and knows what he is talking about. The upside is that, as well as getting Bob’s paper,19 I hope you will also get a view of what it means on the ground for the U.K. Patent Office and where that might be heading in Europe too. I think it is important to start from the comment Hugh made yesterday. In the United Kingdom, we come from a general background that patents are an exception to the ideal of competition and that we need a justification for creating monopolies. Therefore, within both the U.K. law and the European Patent Convention, we have exceptions to patentability, almost ideological statements of “we will not grant patents for the following.” In the United Kingdom it is Section 120 and in the European Patent Convention (EPC) it is Article 52.21 It is important to bear that in mind. I remember a few years ago, when I first became Director of Patents, we had a Chief Executive and Controller General who was going around the world saying to people that you couldn’t get patents for software in the United Kingdom. We had to correct, that because you could obtain patent protection if there was a technical effect. But we were 18 Aerotel Ltd. v. Telco Holdings Ltd. and Others and Patent Application by Neal William Macrossan, [2006] E.W.C.A. (Civ.) 1371, ¶ 1, available at http://www.bailii.org/ ew/cases/EWCA/Civ/2006/1371.html. 19 Robert Hart’s paper, Patentable Subject Matter: The Road Ahead for Software and Business Method Inventions in Europe and the U.K., is included as Appendix A to this Session. It also available in pdf format at the Conference Web site, http://www.Fordhamip conference.com. 20 U.S. Patents Act 1977, as amended Apr. 29, 2006, § 1, Patentable Inventions, available at http://www. jenkins-ip.com/patlaw. 21 EPC, art. 52, Patentable Inventions, available at http://www.european-patent-office.org/legal/epc/e/ ar52.html#A52.
196 S E S S I O N I I I — PA T E N T troubled by defining this whole question of “technical effect.” I will be coming back to that. As time went on, we became concerned that we were getting engaged in form rather than substance. People were saying things like, “Well, you can have a patent for software if is claimed on a carrier,” such as a disk carrying a program. Intellectually that is pretty thin, not only because you are actually looking in the wrong direction, but a lot of software these days, as you know, doesn’t come on a carrier at all; you download it over the Net onto your PC. So we issued a Practice Note basically saying we would take claims directed to programs as well as carriers providing they had a technical effect.22 We were aware that we weren’t doing things quite the same way as the EPO, partly because of precedent decisions in the U.K. courts, but by and large — and I think you have heard this said before — we were getting similar results to the EPO. There was lots of confusion. Therefore, we welcomed the European Commission’s initiative for the Computer-Implemented Inventions Directive.23 The stuff really hit the fan at that point, because our ministerial post bag was bigger than it has ever been before or since, mainly letters from anti-patent lobbyists. Our Minister, Lord Sainsbury, at the time took a very courageous step. He decided to tackle this head-on and called in to a series of meetings all the people who had written, almost uniformly saying we should just ban patents for software, or even patents altogether. I have never seen as many anoraks in the same place other than on the top of a mountain. It was really quite incredible. Lord Sainsbury was very courageous. He engaged in a debate and he said, “What we are trying to do here is clarify, not extend, patent protection.” But as you know, the European Parliament didn’t buy the proposition. The governments of Europe and the IT industry I think were comprehensively out-lobbied by the anti-software lobby. Several lessons were learned, not the least of which, I think, was that the European Commission retired hurt into a shell, and we are not getting very much in the way of strong leadership in terms of IP these days. So it didn’t help us. We still have confusion. So what happened next? The next thing is the independent Gowers Review.24 I am not going to say much because Gowers himself doesn’t say much. In the Report, almost without context, there was an almost throwaway line, “The U.K. should continue its current policy vis-à-vis software, business methods, and genetic patenting.” No real argumentation beyond that. So that set the political scene. We than had Aerotel/Macrossan,25 which for us basically settles the situation for the foreseeable future. Aerotel/Macrossan looked at a new four-step test for us to apply in terms of patentability: 앫 Step 1: Construe the claim, actually assess what the claim is saying. That sounds pretty obvious. 앫 Step 2: Identify the actual contribution embodied in that claim. Okay, that’s going to 22 U.K. Intellectual Property Office, Practice Note, Patents Act 1977: Patentable Sub-ject Matter, Nov. 3, 2006, available at http://www.patent.gov.uk/patent/p-decisionmaking/p-law/p-law-notice/p-law-notice-subjectmatter.htm. 23 EC Proposal for Directive on Patentability of Computer-Implemented Inventions, available at http://ec.europa.eu/internal_market/indprop/comp/index_en.htm. 24 U.K. Treasury, Gowers Review of Intellectual Property (Dec. 2006), available at http://www.hm-treasury. gov.uk/media/6/E/pbr06_gowers_report_755.pdf. 25 Aerotel Ltd. v. Telco Holdings Ltd. and Others and Patent Application by Neal William Macrossan, [2006] E.W.C.A. (Civ.) 1371, available at http://www.bailii.org/ew/ cases/EWCA/Civ/2006/1371.html.
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be provisional because at this stage you haven’t done the search and you are basically taking the alleged contribution plus the examiner’s judgment. 앫 Step 3: Ask whether that contribution covers the excluded area. If it fails that test, it is rejected. 앫 Step 4: If it passes that test — and it can pass that test even if it partially covers the excluded area — you then assess whether the contribution is technical. So that test that we were originally trying to put up front is now the last of a series of tests. What does that mean? We won’t be starting to search every single claim for software just to check the contribution. We will take this initial decision because we are entitled to say “a search will form no useful purpose,” and examiners will continue to make that judgment. We have never accepted, despite it being argued a few times, that a useful purpose is somebody deciding whether to file abroad in a country where claims are allowed for software. The other thing is that the decision makes clear that Article 52 of the EPC is not a list of exceptions as such but a positive category of things that are not patentable. That means that the principle of interpreting exceptions now does not apply in this case. That actually means less flexibility in one sense, because we will not be giving the same benefit of the doubt on interpretation of law as we had been previously. If there is an interpretation in questions of fact, it may well come along. The decision doesn’t cover mental acts and schemes, rules, and so on, but it does indicate that perhaps the non-patentability does not apply to electronic means for doing mental calculations. The form of the claim will probably be more significant now than in the past, because you can put a question of carrier, the program itself, or use. It may well be that people will think very carefully about how they formulate the claim and the form now will be more important than it was when we had our original practice correction, which in a way we have had to partly reverse. We did some tests on old decisions and adopting the new approach. If you look on our Web site, http://www.patent.gov.uk, you will find that by and large we thought the outcome was probably going to be the same again. As I think you know, Lord Justice Robin Jacob asked the EPO Enlarged Board of Appeal to make a decision so we get some consistency across Europe. The president was advised not to take that course because there was no legal need for it at the moment.26 Not many people in the United Kingdom — the attorneys, ourselves, and I think Robin, though I can’t speak for him — are terribly happy with that. So I think it’s a “watch this space,” because there is now a discrepancy between the way we will be doing work and the way the EPO is likely to be doing work. That will have an impact in terms of people choosing where and how to file. So it is clear for us. It is not consistent across Europe. We have a very clear political direction from the government’s acceptance of the Gowers Review that we stay roughly where we are ideologically. My answer to the question that was asked at the beginning of this session — what is the road ahead for business methods and software? — is that in the United Kingdom it is short and rocky, and potentially we are not heading anywhere other than where we are. 26 See Letter from Alain Pompidou, president of the EPO, to Lord Justice Jacob, advising that he has “decided that at the moment there is an insufficient legal basis for a referral under Article 112(1) (b),” and that “the appropriate moment for a referral would be where the approach taken by one Board of Appeal would lead to the grant of a patent whereas the approach taken by another Board would not,” available at http://www.patent.gov.uk/ patent/p-decisionmaking/p-law/p-law-notice/p.law-notice-subjectmatter/p-law-notice-subject matter-letter.htm.
198 S E S S I O N I I I — PA T E N T PROF. ADELMAN: We now have found out that the United Kingdom is engaging in this four-step enterprise to determine whether the claim is statutory. I am not sure what is achieved by all of that and whether it is really very wise, but perhaps it is what they have to do because of the decisions. We have a couple of panelists who may want to comment. Is a standard that everything is patentable if they meet the patentability standards, including some of the suggestions made by our speakers, is that better than the English four-step test? Jay, since you’ve never been a fan of software patents, you probably like it. But maybe you don’t. I don’t know. PROF. THOMAS: I will just offer a few observations on your comments. [Slide] I put this slide up a few minutes ago. Some of you are probably wondering what exactly that photo was. It is a patent diagram that proprietizes the method of making a drawing and performing a psychological analysis. Have a rather Spartan décor in your New York hotel room? Well, if you would like something that is a little more aesthetically pleasing, I’ve got the patent solution for you. [Slide] Wonder what this image is? Some of you have probably seen it before. It describes the product of the process that is laid out there for you. It may seem a little unusually aesthetic. [Slide] This patent claims a technique of exercising your mouth by moving your tongue within your mouth. PROF. ADELMAN: Jay, we need some argument, not silly patents that are obvious. PROF. THOMAS: Of course, the plot is thickening as the story line patents proceed through the Patent Office. Why do we have statutory subject matter limits? I think, Marty, your question was “Why do we have any at all?” But then you conceded that mathematical equations, scientific principles were not patentable. PROF. ADELMAN: No, no. I have only conceded the mathematics on pieces of paper. PROF. THOMAS: Okay. So you conceded there are some spaces that are not patentable. PROF. ADELMAN: Science. PROF. THOMAS: So the question is: Are there other spaces that are not patentable? Let me reframe your question. Marty, I know you started out in anti-trust, so the concept of rule of reason and per se rules are apparent to you. For those of you who are not steeped in our rather obscure antitrust doctrines, we have a per se rule of antitrust violation. We recognize that sometimes a prohibitive per se rule is going to block conduct that is not anti-competitive. But we do it because of our long history recognizing that such conduct is likely to be anticompetitive, and also to promote ease of decision-making. Similarly, the statutory exclusions for patentability operate in the same way. I would certainly like to ally myself with David Kappos and his remarks about certain patents claiming all solutions to a problem. I would add the patent system is increasingly encroaching upon our traditional liberties to speak, to talk, and to move our bodies. I think we should think very carefully before we allow the patent system to embrace these areas. Statutory subject matter is a very important principle in patent law, unlike copyright, because in copyright there are a number of ameliorating doctrines —a fair use privilege exists, and there are dozens of compulsory licenses written into the statute. But not so in patent. So when we make the subject matter decision, the resulting patent enjoys all the potent proprietary interests that all other patents get. It would be easy to say that all subject matter, “anything under the sun,” is patentable. But that is not what our statute says. That is also not what over two centuries of our traditions and the traditions we inherited from the Statute of Monopolies says.
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Marty, you have made fun of Swiss-style claims and other approaches, saying that it is hard. I think some hard things are worth doing, so I defend that practice. PROF. ADELMAN: I am in favor of the Swiss form claims, but they should not be necessary. PROF. THOMAS: I also would like to ally myself with the U.K. Patent Office. In fact, your Practice Note on Software and Business Method Patenting is obligatory reading in my International IP class.27 I also think that statement’s perspective on the role of the patent system in our competitive market is the most appropriate one concerning the patent system. I also come from a “competition first” perspective. If we do not know what we are doing when we allow the patent system to enter disciplines that it has traditionally not approached, I think we ought to be chary and proceed with caution. PROF. THOMAS: Anne? DR. FITZGERALD: Marty, you asked the question should we have exclusions from the scope of patentability at all. Well, the reality is you are actually looking at it. In Australia, we actually have virtually no exclusions from the scope of patentability. There is essentially only one, which is human beings and processes for their generation. This applies to the standard patents. We have an innovation patent system as well. And what’s more, we do not actually have a real definition of invention, or we have a very fuzzy definition of invention, which was purposefully kept there when our Act was redrafted in 1990.28 So we actually have invention defined in terms of manner of manufacture, referring specifically to Section 6 of the Statute of Monopolies from 1623.29 In fact, the leading case that interprets what that means basically, as many of you would know, is the High Court’s NRDC case in 1959,30 which basically says that the question to actually ask is: Is this a proper subject of a patent according to the principles which have been developed from the application of Section 6 of the Statute of Monopolies? The Australian courts have been quite reluctant to actually draw limits. Our legislature has been reluctant to draw limits. We have had software patents granted in Australia since the IBM decision in 1991.31 We have had business method patents implemented in software and hardware. We have not had any pure business method patents granted. The Advisory Council on Intellectual Property looked at this issue a couple of years ago and came out with a report in 2004 saying we should keep the law as it is.32 They specifically looked at whether we should go the U.K. route of introducing, essentially, a technical effects test and rejected that. The other factor that we have operating in our jurisdiction is the fact that as of 2004 we entered into the U.S.-Australia Free Trade Agreement.33 So essentially, if there were to be 27 U.K. Intellectual Property Office, Practice Note, Patents Act 1977: Patentable Subject Matter, Nov. 3, 2006, available at http://www.patent.gov.uk/patent/p-decision making/p-law/p-law-notice/p-law-notice-subjectmatter.htm. 28 Patents Act 1990, available at http://www.austlii.edu.au/au/legis/cth/consol_act/ pa1990109. 29 Statute of Monopolies 1623, available at http://www.ipmall.fplc.edu/hosted_resources/lipa/patents/ English_Statute1623.pdf. 30 National Research Dev. Corp. v. Commissioner of Patents, (1959) 102 C.L.R 252. 31 IBM v. Commissioner of Patents, (1991) 22 I.P.R. 417. 32 Advisory Council on Intellectual Property, Patents and Experimental Use (June 17, 2004), available at http://www.ausbiotech.org/data/downloads/GM%20Crops%20-%20Preparing%20a%20Pathway%20to%20Mar ket.pdf; see also Advisory Council on Intellectual Property, Report on a Review of the Patenting of Business Systems, available at http://www.acip.gov.au/library/bsreport.pdf. 33 U.S.-Australia Free Trade Agreement, May 18, 2004, available at http://www.ustr. gov/Trade_Agreements/ Bilateral/Australia_FTA/Final_Text/Section_Index.html.
200 S E S S I O N I I I — PA T E N T any major disparity between U.S. and Australian practice in this area, I think it would certainly act to our economic detriment. We are operating in this context where I think it is most likely that our law is going to continue to actually track the U.S. law. For us, then, it becomes important to look at the methods or the steps that are actually being taken at the moment to really address the deficiencies of the U.S. system. I think that the Community Patent Review and some of the Open Source initiatives are going to be quite important. They are not very high-profile, people are not really talking about them yet in Australia, but I think that that kind of system is going to be relevant. We have an open and transparent patent application system. Applications are in fact published no later than eighteen months after they are filed. So there is actually opportunity for objection to be made to the grant of a patent before it is granted. There is also opportunity for post-grant revocation proceedings. So there is actually a lot built into the system to guard against the grant of patents that really are not warranted. MR. MARCHANT: May I comment? There is a huge philosophical debate about exclusions. I do agree that the silly patents seriously color that debate and they almost divert attention. Silly patents bring the whole issue into disrepute. That is why we were pleased when Gowers said the United Kingdom would join in the peer review scheme, and we are working on doing that. The other thing is that, like Australia, we have publication within eighteen months, at which point Section 21 of our legislation kicks in, where third parties can bring prior art to the attention of the examiner. They do not become party to the proceedings by doing so, but they just bring it to our attention. It is very rarely used. I remember that from the time when I was an examiner. Again, the Gowers Review said that we can find a way, perhaps using IT, to make that an easier job. I think it is really important that we do improve the overall grant process. Daft patents, regardless of which field they are in, but particularly when they are in this area, really make the system look disreputable. And trivial patents exist in all areas. I was in Washington not long ago. If you go to the art gallery in the old USPTO building, there is a little corner where they have some USPTO exhibits. I took a picture. It says: “Many people regard patents granted by the USPTO as trivial.” It was some sort of egg-cooking device. So we have not moved on that much in a couple hundred years. PROF. ADELMAN: Sandwiches.34 MR. MARCHANT: But I think it is important. Put the philosophical to one side for the moment, because we are not going to shift; given the political situation in the United Kingdom, given Gowers, we are not going to move. What we are going to do is try to use the peer-review patent to get a sensible situation moving here. PROF. ADELMAN: With our corporations here that operate world-wide, do you have any problems in Australia, which does not have any limitations? MR. EPPENAUER: I do not think we have any problems actually. We tend to try to focus our inventions in much the same way as we are able to in the United States or in Europe or in Japan. We have to tune claims to different laws, but in essence we do not encounter problems as such. DR. FITZGERALD: I think you will find that it would be quite rare for a patent not to be granted in Australia. 34 In December 1999, two independent inventors, Len Kretchman and David Geske, were granted U.S. Patent 6,004,596, “Sealed Crustless Sandwich,” for an improved peanut butter sandwich.
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PROF. ADELMAN:
For subject matter? Yes, that’s right. I can think of a recent example, a company that I am aware of in Queensland, which actually was knocked back in the U.K. Patent Office, whereas it was granted a patent in the United States early last year for a translation kind of software. PROF. ADELMAN: Jay, do you have any comment on the Australian situation? PROF. THOMAS: I think Professor Fitzgerald can handle that well. Perhaps we should just briefly talk about the Metabolite case.35 May I spend just a moment on that? PROF. ADELMAN: Absolutely, if you can defend it. PROF. THOMAS: The claim that was at issue in Metabolite is what would be called a “diagnostic method.” Of course, there is a lot of case law coming out from Europe that essentially gets rid of the diagnostic method limitation, unless you can perform the method by visual inspection, so effectively there is no limitation. The subject matter patentability of this invention really depended on how you looked at it. One way was: When we detect this substance in the blood, that substance indicates a certain medical condition. Under that approach, this invention merely claims a scientific truth. Another way to look at the invention is: The compound we are searching for just does not drop out of the sky. We have to do a lot of synthesis and chemical maneuvering to identify that compound, so we are performing a number of physical steps here. That is hardly a scientific truth. It is a practical method and has this beneficial result. The Supreme Court took the case. There was a great hue and cry over the Section 101 issue. By the way, the Federal Circuit opinion covered, I think, just about every other issue in patent law except for Section 101, so it really was not that properly vetted below.36 The Court ended up dismissing the case as improvidently granted. After the Supreme Court agreed to hear the case, they later decided that it hadn’t been such a great idea. There was a dissent from the order to dismiss the case by Justice Breyer, joined by Justices Stevens and Souter, who felt the case was a slam dunk, not patentable subject matter. So who cares? Well, remember that three judges present 60 percent of five votes, which is the majority of the Court, and 75 percent of four votes, which is enough to grant Certiorari. Given the number of lower court cases pending — and we could talk for a long time about those — in fact this is an issue that may go before the Supreme Court. I think even two or three years ago we would have laughed off Section 101 as a really serious topic of discussion for patentability in the United States, but in fact it does seem to be very much ripe now. PROF. ADELMAN: I think Jay is absolutely right about that. To have three judges be so wrong is a real threat to the patent system. Let me just read to you from Sir Nicholas Pumfrey. This is from his Bloomberg decision talking about pension benefits in the EPO: DR. FITZGERALD:
The basic reasoning appears to have been that the Technical Board of Appeal considered that contributions to inventive step lying in excluded matter should not be taken into account in considering the obviousness of the claim. I really cannot see how this is permissible reasoning, if only because a vast class of inventions depend for their 35
Laboratory Corp. of Am. Holdings v. Metabolite Labs., Inc., 126 S. Ct. 2921, slip op. (June 22, 2006). Metabolite Labs., Inc. v. Laboratories Corp. of Am. Holdings, 370 F.3d 1354 (Fed. Cir. 2004), available at http://www.ll.georgetown.edu/Federal/judicial/fed/opinions/ 03opinions/03-1120.pdf. 36
202 S E S S I O N I I I — PA T E N T non-obviousness on a new discovery of some property of nature — such a discovery being excluded subject matter.37 Now, I do not know whether he was writing this to simply counter the three Justices on the U.S. Supreme Court. I asked Lord Hoffmann about this, and he said, “Oh yes, of course that is obvious, that has to be correct,” and told me that Mr. Justice Whitford had said that earlier,38 before Mr. Justice Pumfrey. So I said to Lord Hoffmann, “Please, maybe you can talk some sense into these people. Maybe they will listen to you.” But Jay is right. This is a very serious situation where three Justices do not understand that there are many inventions where somebody makes a scientific discovery and then there is an application of that discovery, like there. It actually is quite an important invention. When I read this in a case about a computer programming invention, I thought, “Is he trying to say something beyond what he is doing here?” MR. MARCHANT: I think one thing you have to remember is that since the British banned fox hunting judges have to kill something. About the Technical Board of Appeal, talking to U.K. patent attorneys, there are concerns that the Technical Boards of Appeal go their own way and they are unpredictable. They have no influence over one another. They are often very jealous territorially of their own cases. So the United Kingdom has unsuccessfully, I regret to report, been trying to say that we need to reform the whole appeal process in the EPO because it is rather hit-and-miss at the moment. I think it is heavily over-engineered at the Technical Board level and under-engineered at the Enlarged Board of Appeal level. PROF. ADELMAN: Does anybody in the audience have a question? Let’s start back here. QUESTION: I was going to actually ask Dr. Fitzgerald if she would say anything of the recent decision in the Australian Full Federal Court in the Grant case?39 DR. FITZGERALD: This is an interesting case. I was not going to mention this. It is, in fact, parallel to the U.K. Macrossan case. Neal William Macrossan is an Australian lawyer. There has been an application in Australia for a patent. The Macrossan case, for those of you who are not aware, involves a method of incorporating companies, not done by software, but the steps and the documents that you need. Ron, you might be able to tell us more about that. MR. MARCHANT: Just very briefly — and I’m not really an expert on this — it was basically a way of assembling the documentation you need to incorporate a company. It had a decision tree in it. In response to the questions you answered, it would then direct you to the next set of questions, and at the end of it were the forms you need to incorporate a company. PROF. FITZGERALD: Right. My theory is that there is a group of Australian lawyers going around the world targeting different jurisdictions, trying to actually succeed in getting a patent for a method of performing legal services. Now, you have to remember that in Australia we have actually had cases in recent years that have said that you can in fact patent a method of medical treatment. My gut feeling about it is that these guys have really gotten up their nose, as it would in Australia, the way that doctors and lawyers hate each other so much. 37 Joined Cases Nos. CH/2006/APP/0487 and CH/2006/APP/0481, Patent Applications of Pablo Cappellini and Bloomberg Ltd., [2007] E.W.H.C. 476, ¶ 8 (Pat.) (Pumfrey J.), available at http://www.bailii.org/ew/cases/ EWHC/Patents/2007/476.html (emphasis in original). 38 See American Cyanamid Co. v. Berk Pharms., Ltd., [1976] R.P.C. 231, 257 (Whitford J.). 39 Grant v. Commissioner of Patents, [2006] FCAFC 120.
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They have not tried to do this by means of software. I would not even call it a business method. They are actually legal services methods. They are much more specific. There may, in fact, be one like this going through the U.S. courts. I do not know. What they actually had here was what they called an “asset protection method.” It is a method for structuring a financial transaction, the effect of which is to protect an individual’s assets presumably against the lawful claims of the individual’s creditors. Essentially, it was a way of protecting assets against bankruptcy claims. I am just going to read you Claim 1 so you can see how basic it is: “An asset protection method for protecting an asset owned by an owner, the method comprising the steps of (a) establishing a trust having a trustee, (b) the owner making a gift of a sum of money to the trust, (c) the trustee making a loan of said sum of money from the trust to the owner, and (d) the trustee securing the loan by taking a charge for said sum of money over the asset.” Now, not surprisingly, at every level — in the Patent Office, at first instance Justice Branson [phonetic] in the Federal Court, and in the full court of the Federal Court of Australia — that was actually held to be not patentable, that it was not actually a matter of manufacture within the concept of Section 6 of the Statute of Monopolies. Just about every judge that considered it gave a different reason, so we have a whole bunch of different reasons given in the single judgment in the full Federal Court, as opposed to what Justice Branson said at first instance and then yet again different reasons back in the Patent Office. I think it is pretty obvious that this is the kind of thing that you are not going to grant a patent for. There are many, many reasons as to why you can say that. In my view, unfortunately, what the full Federal Court did is it went further and actually introduced a physical effects test, which I think was unwarranted here. It could have actually been struck out on a whole bunch of other reasons without having to go that far. I think there is some danger in deciding to go down that physical effects route because it starts taking you into the territory of technical effects, and I think that could actually lead us into water that the High Court very distinctly warned us about in NRDC in 1959.40 I think you have to be very careful when you start building in these kind of limitations. PROF. ADELMAN: Shamnad? QUESTION [Shamnad Basheer, George Washington University Law School, Washington, D.C.]: I found most of the perspectives really interesting. I just wonder whether, particularly in the context of countries that have explicit subject matter exclusions in the statute, part of the confusion really arises because we have different kinds of exceptions to patentability that are exceptions for different reasons. This goes back to Marty’s point that he would readily concede that some stuff is not part of patentable subject matter because in some way it derives from our jurisprudence on the notion of what an invention really ought to be. So a literary work, like a poem, no matter how good it makes you feel, is clearly excluded by the European Patent Convention, and the U.K. Patent Act as well, as a mental method. On the other hand, you have a method of medical treatment, which seems like an invention insofar as we understand an invention to be technology of some sort, that I think is really excluded for a public policy reason. It has created some confusion, because they linked it up to lack of utility, which is not really a credible enough reason. But I 40
National Research Dev. Corp. v. Commissioner of Patents, (1959) 102 C.L.R. 252.
204 S E S S I O N I I I — PA T E N T think it mainly has something to do with public policy. Business methods may again fall within that realm. We have now countries like India, in the context of pharmaceutical patents, saying: “This entire class of pharmaceutical patents that are new salt forms are just obvious; unless you show that it has increased efficacy, we are not going to grant a patent.” But they club it as a patentable subject matter exclusion, just for the sake of convenience, because I think when you are examining it is much easier to exclude something at the first level rather than going down to novelty and nonobviousness. So there seem to be different reasons driving us to what is an exception or what is not a patentable subject matter. I am just wondering, if you make those explicit, as opposed to the European Patent Convention, which plainly says “these are not inventions,” whether we might get a little further on this debate. PROF. ADELMAN: Anybody have a comment? MR. MARCHANT: Yes. I think you are absolutely right. There is just a common view “yeah, that’s not patentable.” There are others where we are all agreed “yes, this is in some way or other patentable.” We are desperately keen not to try to use the word “physical” in that. That is where we found onion layers of definition. We are trying to avoid saying “this is physical” because that is not where we are going. Then there is this public policy, and probably quite different shades of public policy. I think the Indian example is a good one. When Dr. Mashelkar was asked to look at whether or not the interpretation of the new law could be adapted and still stay within TRIPs, he came up with an answer that was fairly quickly jumped on. The answer has been put on the back shelf for a while. I think that is driven by public policy.41 Also, in Europe we have a Biotechnology Directive,42 which was pointing at stem cells not being patentable. There was a bit of a dilemma there, because it said biotechnology is an industry, therefore deserving of patenting, but anything that will turn up as a human embryo is not patentable. We were getting applications and needed to find an answer. We went back to the Dame Mary Warlock Commission on Stem Cell and Embryology Research to see if could we find a non-slippery slope argument. We came up with a Practice Notice saying: yes, we will grant patents for stem cells to a certain stage, a stage that can be objectively defined and does not lead to a slippery slope.43 But that is very uncommon in Europe, because our public policy motivation was medical research. It was also partly economic — let’s be honest, we are talking about attracting and being the home of biotechnology research, whereas for many European Member States there is a fundamental religious reason why anything to do with the Biotech Directive is anathema. I do not think we will get the clarification you asked for. It would be nice if we did, but I just do not think we will. PROF. ADELMAN: Question? QUESTION [John Richardson, Arbitrator and Mediator, New York]: I wanted to get back to Martin and Jay on the LabCorp case, because there is something I do not understand, and maybe you or the panel can help me. 41 Balachandra Mashelkar, Report of the Technical Expert Group on Patent Law Issues (Dec. 2006), available at http://spicyipindia.blogspot.com/2007/01/mashelkar-committee-report-on-patents_28.html. 42 Directive 98/44/EC of 6 July 1998 of the European Parliament and of the Council on the legal protection of biotechnological inventions, 1998 O.J. (L 213) 13, available at http://europa.eu.int. 43 U.K. Intellectual Property Office, Practice Notice, Inventions Involving Human Embryonic Stem Cells (April 2003), available at http://www.ipo.gov.uk/patent/p-decision making/p-law/p-law-notice/p-law-noticestemcells.htm.
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As I understand it, irrespective of the discovery of a correlation between homocysteine and low levels of vitamin B, which I think has an impact on cardiovascular disease, apparently homocysteine was a known substance that independently had certain medical consequences. Apparently, homocysteine was a causal agent in various diseases way before this came along. There were numerous tests to determine the presence and the level of homocysteine. My question is: Couldn’t they have written a better claim? They are talking about an assay. But they had a way of determining homocysteine. If somebody used it, fine. But apparently the defendant decided it would use a prior, maybe less-efficient method of determining the level of homocysteine. So what was the real defect in the claim? Couldn’t they have claimed that correlation better? PROF. THOMAS: John, as somebody who used to write claims for a living, of course claims could be better written, and just about any claim I wrote could have been better written. I think your inquiry points to the higher policy perspective: Do we conduct a novelty inquiry within the statutory subject matter inquiry, or do we in fact conduct them seriatim? The latter approach is the current U.S. technique, so we are supposed to look at the subject matter not in regard to the prior art. For a brief period we did, in the Parker v. Flook era.44 That, again, seemed to be an era to which we could not return just a few years ago. Do we just look at what is new, the inventive contribution, and look at that in terms of its subject matter; or are we supposed to look at the claim as a whole, which basically eviscerates the requirement? So I think that we may be back to that debate at the Supreme Court in days yet to come. PROF. ADELMAN: I think Jay is absolutely right. In terms of the claim, homocysteine is old and people tested for it. This patent had a new way of doing it. But that wasn’t Claim 13. Claim 13 went to the specific discovery of the correlation. Apparently it is quite important, because you really have to accurately diagnose pernicious anemia, if my memory serves me correctly. All the other diagnostic tests were quite inaccurate for pernicious anemia. If it is not diagnosed, you die. This was a much better way of doing that. That is very important. It is a very important practical effect. I have talked to people who have studied the patent, studied the record, and they say that this was an important invention. We have to assume that, because we are assuming it is not obvious. The issue is not that, but that, even though it is non-obvious, a great invention, maybe worthy of a Nobel Prize, you cannot get a patent on it. That is what we are talking about. Any further questions? We have two minutes left, but we could use it for drinking. I want to thank everybody.
44
Parker v. Flook, 437 U.S. 584 (1978).
206 S E S S I O N I I I — PA T E N T APPENDIX A Patentable Subject Matter: The Road Ahead for Software and Business Method Inventions in Europe and the UK. Robert Hart INTRODUCTION I have to open my remarks by saying that the road is very restricted and is subject to considerable diverging routes when the journey at the EPO, using autoroutes and autobahns, is compared with U.K. motorways. Firstly, I need to review those issues that have appeared during the last year following the demise of the Commission’s proposal for a Directive on the patentability of Computer-Implemented Inventions (CIIs).45 You will recall that the draft Directive, the intention of which was to harmonize the law on the patentability of CIIs in Europe without any sudden change in the legal position and without extending patent protection to computer programs as such, was decisively thrown out when the European Parliament voted with a majority of 648 of the 680 MEPs present. Three issues have occurred during the last twelve months, two having a political effect and the third being of considerable legal consequence. The first of these issues, of considerable political significance, was the publication on December 6, 2006 of the Gowers Review of Intellectual Property,46 which included the recommendation for the “Maintenance of the current policy not to extend patent rights beyond their present limits within the area of software, business methods and genes.” The second issue was the submission to the U.K. Prime Minister of an e.petition47 signed by 2,216 signatures (one of which is a Dr. Robert Hart, not me nor any relation I hasten to add). The petition asked the Prime Minister to “make software patents clearly unenforceable.” In the annex to my paper I have reproduced the e.petition reply. The e.petition was organized by the Open Source community, which of course was very active in lobbying at the European Parliament against the proposed CII Directive. I turn now to the third issue, and as far as the law is concerned, the most significant occurrence of 2006, the Court of Appeal decision in Macrossan and Aerotel.48 It is ten years since the Court of Appeal has reviewed the test for what is to be properly regarded as patentable subject matter for computer programs and business methods. I have to declare more that a passing interest in this decision as I was retained as the technical expert for Aerotel and it was my expert witness statement that was misinterpreted in the lower Court leading the Judge to construe the equipment of the patent “as known” and “used in a way that amounts to no more than a method of conducting business.” Fortunately for me, the Court of Appeal recognized that that was not what I had said in my witness statement. The Court of Appeal Judgment at 56 states: What Mr. Hart actually said was: “The Patent provides a new method and system for facilitating telephone calls. A skilled reader of the Patent in 1985 would have been able to implement the described special exchange using an electron ic control exchange of the kind that was available in the UK and elsewhere at that time.” 45 46 47 48
2002 O.J. (C 151) 129, Inter-institutional file, COM 2002/0047 (COD) (Feb. 20, 2002). See http://www.hm-treasury.gov.uk/independent_reviews/gowers_review_intellectual_ property. Available at http://www.number-10.gov.uk/output/Page11077.asp. [2006] E.W.C.A. Cir. 1371.
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Facts The first case involved Aerotel and the defendant Telco. Aerotel sought the restoration of its patent for a telephone system incorporating a special exchange arranged to hold information on the subscribers to the Aerotel system together with telephone call credit for each subscriber on the system. In operation a subscriber to the Aerotel system dials the special exchange from any suitable telephone line and inputs his or her identity code together the telephone number of the called party. The special exchange verifies the caller’s identity code and establishes if sufficient credit is available for the required call. Upon successful verification of sufficient credit the call is completed by the special exchange. The special exchange monitors the call decrementing the credit and terminates the call if credit runs out. The telephone line from which the call is made is not debited with the cost of the call. As identified above the Patents Court rejected the patent as being for a method of doing business. The second case involved a patent application from an Australian inventor (Neal Macrossan) for an automated method of acquiring the documents required to incorporate a limited company. The method operated by asking the user a series of questions with subsequent questions taken from a data base depending on the responses to previous questions. The application had been rejected by the U.K. Patent Office as being a method of performing a mental act and for being a computer program as such. On appeal, the Patents Court restored the application. The Court of Appeal Judgment The first thing to note is that the Court chose to use the wording of the European Patent Convention (EPC) rather than the Patents Act 1977. The aim of the Court was to produce a judgment that would contribute to achieving a unified position across Europe. To this end the Court of Appeal thoroughly reviewed the existing law together with TRIPs and the approaches adopted in countries outside the European Union including the United States. The Court noted that the exceptions referred to in the U.S. cases (e.g., laws of nature) had some equivalents in Article 52(2) EPC but that they by their very nature were incapable of being the subject of a legal monopoly and gave no guide to the interpretation of Article 52 EPC. The Court summarized the various approaches employed by the EPO Boards of Appeal so far as follows: 1. The contribution approach. In this approach it was necessary to decide if the inventive step resided only in the contribution of excluded matter. If it did Article 52(2) EPC applies and the invention is not patentable. 2. The technical effect approach. In this approach it was necessary to decide if the invention as defined in the claim made a technical contribution to the known art. If it did not Article 52(2) applies and the invention is not patentable. 3. The “any hardware” approach. In this approach it was necessary to decide if the claim involved the use of or was to a piece of physical hardware. If it was article 52(2) did not apply. The Court identified three variations of the latter approach: 3(i) Where a claim to a method which consists of an excluded category, it is excluded by Article 52(2) even if hardware is used to carry out the method. But a claim to the apparatus itself, being “concrete” is not so excluded. The apparatus claim is nonetheless bad
208 S E S S I O N I I I — PA T E N T for obviousness because the notional skilled man must be taken to know about the improved, excluded, method. This is the EPO Board of Appeal Pension Benefits49 approach: 3(ii) A claim to hardware necessarily is not caught by Article 52(2). A claim to a method of using that hardware is likewise not excluded even if that method as such is excluded matter. Either type of claim is nonetheless bad for obviousness for the same reason as above. This is the EPO Board of Appeal Hitachi50 approach, expressly disagreeing with Pension Benefits. 3(iii) Simply ask whether there is a claim to something “concrete,” e.g., an apparatus? If yes Article 52(2) does not apply. Then examine for patentability on conventional grounds – do not treat the notional skilled man as knowing about any improved excluded method. This is the EPO Board of Appeal Microsoft/Data Transfer51 approach. The Court of Appeal discussed the above identified approaches rejecting the “Any Hardware” and the “Contribution” approaches. The “Any Hardware” approach was rejected mainly because it could lead to contradictory results and the “Contribution” approach because it was bound by its own precedents: that decided in Merrill Lynch,52 Gale,53 and Fujitsu.54 Accordingly, the Court followed the “technical effect” approach, with the rider that any “technical contribution” could not reside in the novel or inventive purely excluded matter and identified a four-step test suggested during the hearing on behalf of the U.K. Patent Office. The Four-Step Test: 1. Properly construe the claims. 2. Identify the actual contribution (the invention makes). 3. Ask whether it (the contribution) falls solely within the excluded subject matter. 4. Check whether the actual or alleged contribution is actually technical in nature. The Application of the Four-Step Test to Aerotel and Macrossan In applying the test in Aerotel, the system as a whole was found to be new in itself, “not merely because it is to be used in the business of selling phone calls.” The contribution of Step 2 is a new system (a new physical combination of hardware). Step 3 is satisfied because the new system is more than just a method of doing business and the new combination of apparatus is clearly technical in nature. The above reasoning was initially applied to the apparatus claims of the Aerotel patent and then to the method claims. The main apparatus and method claims are reproduced in the annex to this paper. In the Macrossan case, the assessment of the inventor’s contribution under Step 2 was 49 50 51 52 53 54
(2000) T-931/95. (2004) T-258/03. (2006) T-424/03. Merrill Lynch’s Appn, [1989] R.P.C. 561. Gale’s Appn, [1991] R.P.C. 191. [1997] R.P.C. 608
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that he had thought of an interactive system that did a job that might otherwise have been done by a solicitor or company formation agent. Before the Examiner this was found to fall within the excluded subject matter — a scheme or rule for doing business. The “potentially” issue arose because of question 4 and that it would be necessary to decide whether or not there was anything technical in character about the claim. The Examiner found there was none and rejected the claim. On appeal, the Patents Court restored the claim citing the EPO authorities and taking the view that the Macrossan system was a tool used within a business. The Judge also thought that it was implicit that some form of transaction must take place for there to be a business method. The Court of Appeal had no difficulty with Step 1. Step 2 was also straightforward; it was to provide a computer program that could be used to carry out the method. Step 3 was also found to be easy, in that the contribution was simply the running program. The contribution was not technical (Step 4) so the exclusion applied and the Court of Appeal rejected the application. Proposed Questions for an Enlarged EPO Board of Appeal In following Merrill Lynch, the Court of appeal anticipated a clash with the EPO. Accordingly, although the Court stated it had no power itself to make a referral to an Enlarged Board of Appeal, the Court suggested questions the EPO Enlarged Board of Appeal might like to consider as follows: (1) What is the correct approach to adopt in determining whether an invention relates to subject matter that is excluded under Article 52? (2) How should those elements of a claim that relate to excluded subject matter be treated when assessing whether an invention is novel and inventive under Articles 54 and 56? (3) And specifically: (a) Is an operative computer program loaded onto a medium, such as a chip or hard drive of a computer, excluded by Art. 52(2) unless it produces a technical effect, if so what is meant by “technical effect?” (b) What are the key characteristics of the method of doing business exclusion? These questions have been responded to in a letter55 from Alain Pompidou, president of the EPO, to Lord Justice Jacob, advising that he has “decided that at the moment there is an insufficient legal basis for a referral under Article 112(1) (b),” and that “the appropriate moment for a referral would be where the approach taken by one Board of Appeal would lead to the grant of a patent whereas the approach taken by another Board would not.” The Aftermath of Aerotel and Macrossan The U.K. Patent Office has issued a practice notice56 announcing a change in the way patent examiners will assess whether inventions are for patentable subject matter conforming to the Court of Appeal Four Step Test. The Patents Court in Cappellini and Bloomberg57 has used the Four-Step Test to reject 55 Available at http://www.patent.gov.uk/patent/p-decisionmaking/p-law/p-law-notice/p.law-notice-subject matter/p-law-notice-subjectmatter-letter.htm. 56 Available at http://www.patent.gov.uk/patent/p-decisionmaking/p-law-notice-subject matter.htm. 57 [2007] E.W.H.C. (Pat.) 476.
210 S E S S I O N I I I — PA T E N T a claim to a method of distributing data in which the data transmitted to a user is mapped (using a record relating to the applications that that user has access to) to a form suitable for the application to be used by the user in question. The Court found that the contribution of the Bloomberg application “lies in the idea of appropriately treating data to match the requirements of a particular end user prior to its transmission to that end user,” which did not satisfy the fourth step of the test (i.e, technical effect). The Court noted that it was not helpful to draw a distinction with the RIM case.58 “In RIM the whole purpose of the server-side treatment of the data to be transmitted was to reduce the information content to ensure more rapid transmission over reduced bandwidth channels.” This was considered to be a technical effect. No such limitation could be found in the Bloomberg application and, therefore, the application failed the fourth-step test. The Cappellini application related to a novel algorithm for determining the routes to be taken by a carrier when delivering packages, the permitted routes being variable to allow two carriers to deviate, meet and transfer one or more packages. The application included claims to: (i) A relay detection and coordination system for a computer-implemented geographically-simulated network of flexibly defined paths corresponding to paths of real transportation carriers each having a predefined degree of geographical operational flexibility, which are to be coordinated using the computer-implemented detection algorithm; (ii) A method of coordinating a transportation process; (iii) A network relay transportation system and (iv) A method of processing loads. The Court decided that the relay detection and coordination system was a pure manipulation of data without the production of any physical or real world effect thereby failing steps 3 and 4 of the four step Aerotel/Macrossan test. The Court considered that both the method of coordinating a transportation process and the network relay transportation system were a “method of performing a set of journeys” and considered these claims to be “a method of doing business”. The method of processing loads was considered closest to comprising patentable subject matter. However, the Court decided that there was no technical effect in merely moving vehicles and their cargos around according to a routing algorithm. Conclusions The U.K. Patent Office is operating a strict line so that applications for patents in technologies, such as source code compilers,59 geo-coded databases,60 security features for internet transactions61 and the classification or indexing of items of information62 have all been found to be non-statutory subject matter. The Aerotel/Macrossan judgment has highlighted that applicants for U.K. patents must carefully consider the wording of their applications to clearly identify the contribution to the art and why that contribution is of technical effect. This I think should have particular resonance here in the United States, where the practice of filing in the United Kingdom the same text as filed in the United States may no longer be appropriate. 58 59 60 61 62
RIM v. Inpro, [2006] E.W.H.C. (Pat.) 70. Intel Corp., BLO/187/06. Overture Services Inc., BLO/331/05. Fair, Isaac & Co., BLO/329/05. Canon, BLO/045/07.
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During the “discussion” section of the judgment in the Aerotel/ Macrossan case the issue of computer programs “as such” was reviewed. The Court of Appeal decided that the narrow view, as identified by the three EPO Board of Appeal decisions (i.e. computer program as such means just the set of instructions as an abstract thing albeit they could be written down on a piece of paper), was not one they could use to qualify the exception. They took the view that the “framers of the EPC really meant to exclude computer programs in a practical and operable form. They (the framers) meant to exclude real computer programs, not just an abstract series of instructions.” It is my opinion that the framers of the EPC did not so intend. My reading of the various reports of discussions63 under the exclusion for computer programs is that the intention was that inventions representing a technical progress or technological improvement should be patentable but those which were purely abstract should not. Taking the Court of Appeals view into account, the four-step test can only be interpreted, in my opinion, as excluding all computer-implemented inventions that do not have an external effect. Patents granted on operating systems, for example, at the EPO will have a good chance of being revoked if litigated in the United Kingdom. So how do the events of 2006 affect the Road Ahead? As far as patents for computerimplemented inventions are concerned, there is a roadblock if that invention has no external effect beyond the computer. In addition, even if a computer-implemented invention does have a technical effect beyond the computer, claims to the program on a carrier will not be allowed in the United Kingdom, and therefore unauthorized export of a program incorporating that technical effect, cannot be addressed under infringement in the United Kingdom. The consequences of the Aerotel/Macrossan judgment are likely to have a severe effect on U.K. creators of computer-implemented inventions, putting them at a disadvantage with respect to their other European counterparts who are already open to online infringement risks from U.S. patent holders. The only way in which the position can change is if the application of the “four-step test” is challenged up to the House of Lords or is modified during the discussions currently taking place over the implementation of the European Patent Litigation Agreement. In the light of the failure of the CII Directive directly as a result of the European Parliament, this latter course, I believe, is unlikely to change the position in the United Kingdom and may even lead to the modification of the position under the EPC.
ANNEX Aerotel Claims “1. A method of making a telephone call from any available telephone, comprising: obtaining a special code by making a prepayment; inserting the prepayment in a memory in a special exchange and being allocated to the special code in the memory for use in verifying a calling party call; dialing the special exchange when a telephone call connection is desired; inputting the special code for verification; inputting the number of called party; verifying at the special exchange by checking the special code and comparing the prepayment less any deductions for previous calls in the memory with the minimum cost of a call to the called party station; connecting the called and calling parties’ stations in response to said verification; monitoring the remaining prepayment less deductions for 63
See Keith Beresford, Patenting Software Under the European Patent Convention (2000).
212 S E S S I O N I I I — PA T E N T the running cost of the call; and disconnecting the call when the remaining prepayment has been spent by the running cost of the call. “9. A telephone system for facilitating a telephone call from any available telephone station, comprising: means for coupling a calling party station to a special exchange; memory means in the special exchange for storing customer special codes and prepayment information individual to each customer; means for verifying the calling party responsive to a code transmitted from the calling party station to the special exchange so as to verify that the code matches the special customer code in the memory means and the calling party has unused credit; and means for connecting said calling party station to a called station responsive to the verification.” Software Patents — e-Petition Reply 26 February 2007, we received a petition: We, the undersigned, petition the Prime Minister to make software patents clearly unenforceable. Software patents are used by convicted monopolists to threaten customers who consider using rival software. As a result, patents stifle innovation. Patents are supposed to increase the rate of innovation by publicizing how inventions work. Reading a software patent gives no useful information for creating or improving software. All patents are written in a sufficiently cryptic language to prevent them from being of any use. Once decoded, the patents turn out to be for something so obvious that programmers find them laughable. It is not funny because the cost of defending against nuisance lawsuits is huge. The UK patent office grants software patents against the letter and the spirit of the law. They do this by pretending that there is a difference between software and “computer-implemented inventions.” Some companies waste money on “defensive patents.” These have no value against pure litigation companies and do not counter threats made directly to customers. 앫 Read the e-petition: http://petitions.pm.gov.uk/softwarepatents/ 앫 Petitions home page: http://petitions.pm.gov.uk/ Read the Government’s Response The Government remains committed to its policy that no patents should exist for inventions which make advances lying solely in the field of software. Although certain jurisdictions, such as the United States, allow more liberal patenting of software-based inventions, these patents cannot be enforced in the United Kingdom. The test used to discern between patentable and non-patentable subject matter in the UK has recently been clarified by the courts, and is applied rigorously by the Patent Office. Under this test, the true nature of the advance being claimed in a patent application must be determined, and if this advance lies solely in the field of software, or another non-technical field such as methods of doing business, the patent will not be granted. If the advance being made by an invention does lie in a technical field, it must also be non-obvious and sufficiently clearly described for the invention to be reproduced before a patent will be granted by the Patent Office. The recently published Gowers Review of Intellectual Property, an independent review commissioned by the Government, recommended that patent rights should not be extended to cover pure software, business methods and genes. The Government will
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implement those recommendations for which it is responsible, and will therefore continue to exclude patents from areas where they may hinder innovation: including patents which are too broad, speculative, or obvious, or where the advance they make lies in an excluded area such as software. 앫 Read the Gowers Report: http://www.hm-treasury.gov.uk/independent_reviews/ gowers_review_intellectual_property/gowers review_index.cfm 앫 The Patent Office: http://www.patent.gov.uk
SESSIONPART IV: ANTITRUST/COMPETITION LAW & INTELLECTUAL PROPERTY A: STANDARD SETTING AND COMPETITION ISSUES
SESSION IV: ANTITRUST/COMPETITION LAW & INTELLECTUAL PROPERTY
Part A: Standard Setting and Competition Issues
Moderator ANDREAS P. REINDL
Executive Director Fordham Competition Law Institute (New York)
Speakers NICHOLAS BANASEVIC
GEOFF OLIVER
Deputy Head of Unit, Information Industries, Internet and Consumer Electronics Unit, DG Competition, European Commission (Brussels)
Assistant Director for Anticompetitive Practices U.S. Federal Trade Commission (Washington, D.C.)
ROY HOFFINGER
JOHN TEMPLE LANG
Vice President & Legal Counsel, Qualcomm, Inc.
Cleary Gottlieb Steen & Hamilton (Brussels)
Panelists VICTORIA A. ESPINEL
DAVID J. KAPPOS
Assistant U.S. Trade Representative for Intellectual Property and Innovation, Office of the U.S. Trade Representative (Washington)
Vice President & Assistant General Counsel, Intellectual Property Law IBM Corporation (Armonk, NY)
RONDAL MOORE
SeniorAttorney, Microsoft Corporation
216 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY MR. REINDL: Good afternoon. Welcome to the panel on standard setting and competition issues. My name is Andreas Reindl. I am with the Fordham Competition Law Institute. I welcome you all. Since we are running a little late, let me briefly introduce the panel. Nick Banasevic, from the European Commission, DG Competition, works in the unit that deals with intellectual property, including standard setting. Roy Hoffinger is with Qualcomm. Geoff Oliver, from the Federal Trade Commission, was involved in standard-setting cases, as he will explain. John Temple Lang is with Cleary Gottlieb in Brussels. David Kappos is with IBM. Rondal Moore is with Microsoft. Victoria Espinel is with the Office of the U.S. Trade Representative (USTR) in Washington, where she is responsible for IP issues. An outstanding panel, with knowledge of many issues. Standard setting has raised a broad range of issues with respect to antitrust and competition law enforcement that. We have decided to limit the issues that we want to cover and focus primarily on general policy and rate-setting issues — if there is a standard being developed and intellectual property rights are involved, how can companies come to an agreement on issues related to license terms? In the second part of the discussion, we want to talk about the strategic use of intellectual property rights in the course of standard-setting negotiations or afterwards, once a standard has been agreed upon. Those are the two areas that we will cover this afternoon. Without further ado, I turn it over to Nick for his initial remarks. MR. BANASEVIC: Thank you very much, Andreas. It is a pleasure to be here today. I have to stress that the views that I express today are not necessarily those of the European Commission, but my personal views. As Andreas said, I have been working in the Antitrust Unit in the Competition Directorate General of the European Commission, which deals with antitrust issues in the IT sector. We are responsible for the Microsoft investigation, amongst others, as well as a number of standard-setting cases. That is what I want to focus on today. I am going to give a brief overview of why, on occasions, it may be necessary for a competition authority to involve itself in standards issues and standards cases, what type of approach that should be, and how proactive it should be. Essentially, that is the framework of my presentation. Just as a very brief introduction — and we see it through the cases that cross our door — standards cases and standards issues have over the past few years increased exponentially in prominence and importance. We see many more cases coming to us. This reflects, I think, the importance of standards, particularly in the IT sector, in the global economy. The basic economic and legal framework in which we examine standards:
앫 The economic framework is based on papers by Carl Shapiro, a very prominent antitrust economist.1 He says the cost of standards is that they limit product variety, because one particular technology is chosen to the exclusion of others; hence, there is potential market power for the company that controls the standards. The benefits that result from open standards: 앫 Certainty for the businesses involved. 앫 Network effects, which result from the standard allowing everyone to make sure that 1 See Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools and Standard Setting, in Innovation Policy and the Economy (Adam Jaffe, Joshua Lerner & Scott Stern, eds., National Bureau of Economics, 2001); Carl Shapiro & Hal R. Varian, Information Rules: A Strategic Guide to the Network Economy (1999); Joseph Farrell, John Hayes, Carl Shapiro & Theresa Sullivan, Standard Setting, Patents, and Hold-Up (forthcoming, 2007), available at http://faculty.haas.berkeley.edu/shapiro/standards2007. pdf.
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their products are interoperable with each other, so the market can grow on that basis. 앫 Consumer benefit, which is protection from stranding. The consumer can switch a product, safe in the knowledge that it will still be compatible with the other products in the market. I would say that economic approach is encapsulated in the European Commission’s legal framework, which comes through a range of various legal instruments, mainly the antitrust guidelines.2 Of course, the context of standardization is very specific. As I said, it is companies coming together and agreeing to choose one alternative, to the exclusion of others. So if you were taking a very literal approach, that is something that a competition authority would have concerns about. But, of course, in this context the benefits are generally recognized, in line with what I outlined in terms of what Professor Shapiro said. But, of course, as the guidelines stress, it is important that the process is transparent, that there are no restrictions that are not indispensable, and that the standard is open and available to all who wish to enter and participate. One specific question that is asked — and, indeed, that informs whether and how much we should involve ourselves in specific cases — is whether a standard or ownership of a standard (in other words, a company having an essential patent in a standard) confers market power. Not in itself, I would say, but it can do so. That depends on two things: 앫 First, the commercial importance of the standard in the market. If it is commercially indispensable to comply with a particular standard — if you cannot, in fact, sell your products in the market without complying with it — that is an important factor. 앫 Second, there is the question of lock-in, whether it is easy to change to another standard. That in itself, I would say, depends on whether costs have been sunk into investment related to the standard and whether there are associated network effects deriving from the standard. In those circumstances, I would say that it is possible for a standard to confer on an essential patent holder market power or a monopoly that, absent the standard, it may not have obtained. I think the key framework for our analysis in this area is whether or not the standard confers a degree of market power that otherwise would not be there. There are possible implications, as a result of this, on the price that is charged, i.e., the royalty that is charged for the essential technology. That is what I am going to focus on. The second part of my presentation was going to be on patent ambush, which looks at things in a very similar framework, but Geoff is going to talk about that in greater detail. In terms of pricing, we have seen complaints coming to us — through a number of mobile operators initially, but also through a range of other companies — that ( precisely because it is the view of certain companies that standards confer market power that otherwise would not be attributed to companies) there are excessive royalties due to complementary essential patents. One idea they have suggested to overcome this issue is so-called ex ante royalty setting, ex ante pricing. What is meant by this? Traditionally, in a standards body, companies are obliged to declare before the standard is agreed whether or not they believe they have essential intellectual property in the standards. Ex ante pricing goes one step further. 2 European Commission, Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003, (2006), O.J. (C 210) 2–5, available at http:// eur-lex.europa.eu/LexUriServ/LexUriServ.do? uri=OJ:C:2006:210:0002:0005:EN:PDF.
218 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY Under this system, companies would declare, at the same time, not only that they have essential patents in the standard that is being developed, but the royalties that they would charge for that standard. The proponents of this scheme say that this prevents precisely the problem of ex post excessive royalties because it allows ex ante competition, not only on technology, which has always been traditionally the case, but also on price. If you have a number of potential ex ante suppliers, then you can have price and technology competition, which would, ex ante, push the royalty rate, before the standard is agreed, down to a competitive level and prevent the potential problem of ex post monopoly pricing. It is not for the European Commission or any antitrust authority, I believe, to prescribe what kind of standard scheme industry should have. That may vary according to different sectors, according to different needs of industry. All we can do is say that we do not see a problem in this kind of scheme. It is important that that context is recognized, because traditionally there has been some pushback against this type of scheme. The idea has been that talking about prices together in a standards context may raise some suspicions of collusion and price fixing. But in itself, if the purpose is different and if companies are not going to do that which otherwise would be sanctionable, then I do not see why that would be a problem, and it can avoid the potential costs of ex post monopoly pricing. Of course, if there is only one alternative before the standard is agreed, then it still allows the innovator to reap the rewards for that innovation, because the price that it would get would be the same ex post and ex ante, if it is the only one alternative. The same approach was encapsulated by the U.S. Department of Justice (DOJ), which issued a formal Business Review Letter for a specific type of ex ante scheme, the VMEbus International Trade Association (VITA) standards body scheme, where they indeed said that there could be benefits from an ex ante pricing/royalty-setting scheme.3 I will stop there. I will just say, in conclusion, that our role as a competition authority should not be prescriptive intervention. In other words, we should not be prescribing to standards bodies how they set their rules. It is for them to design their rules in the most efficient way, subject, of course, to their complying with the competition regime. But when we do intervene, it is important that we do have the appropriate framework to do so, because there are specific issues that can be raised. MR. REINDL: Thank you very much for a very good introduction and overview of the first set of issues. We have heard now from a policymaker and competition law enforcer. Let’s hear now from two counsel, one outside counsel and one in-house counsel, about the issues of rate setting and royalties in the context of standard setting. John, may I ask you first for your remarks? Then Roy will speak as an in-house counsel who is also involved in this issue.
3 Letter from Thomas O. Barnett, Assistant Att’y Gen., U.S. Dep’t of Justice, to Robert A. Skitol (Oct. 30, 2006) (hereinafter VITA Business Review Letter), available at http:// www.usdoj.gov/atr/public/busreview/ 219380.pdf.
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LICENSING, ANTITRUST AND INNOVATION UNDER EUROPEAN COMPETITION LAW Dr. John Temple Lang4 I. AGREEMENTS ON STANDARDS A. EX ANTE DISCLOSURES ARE LAWFUL
Provided that certain rules are respected,5 agreements to set up standards are procompetitive. They often involve the companies in choosing between alternative technologies for the functions of the end product. These choices are usually made on the basis of the relative technical merits of alternative technologies. It may be difficult, or impossible, before the technical features of the standard have been agreed, to estimate what revenues or profits will be available from using the standard, or what each patent owner’s share should be. But neither EC nor U.S. competition law prohibits owners of patents that are likely to be essential from saying what royalty they would expect to charge if their technology is chosen.6 If the owners do this, there are various benefits, and it is useful in deciding what royalties are reasonable after the standard is adopted (“ex post”). If there is a choice on technical grounds between technologies, and if the owners have stated what royalties they intend to charge (independently, without collusion), the choice of technology may be influenced by the royalties proposed. A technology that was subject to competition ex ante would get a lower royalty than one that was not. Because a less technically satisfactory technology would tend to be offered at a very low royalty, the royalty for the technically better technology would tend to be driven down to a level based on its relative value; that is, how much better it was than the second-best. II. CONSEQUENCES OF A STANDARD A. LEGAL CONSTRAINTS ON ESSENTIAL PATENT OWNERS
When important companies agree on a standard, the result is usually to restrict or end competition between technologies. The value of patents is, therefore, greatly increased when they become technically essential for a standard. Every essential patent becomes a potentially blocking patent. Owners of essential patents obtain market power of which, unless constrained, they could take advantage, to discriminate between users, to prevent use by other parties by refusing to license, or to charge excessive royalties. Under European Community law, their freedom to do this is limited by three legal principles: (1) Owners of patents that they claim are technically essential are requested by stan4 Cleary Gottlieb Steen and Hamilton LLP, Brussels and London; Professor, Trinity College, Dublin; Visiting Senior Research Fellow, Oxford. John Temple Lang represents Nokia. 5 Competition law requires standard-setting procedures to be “open, transparent, and non-discriminatory.” They should not oblige manufacturers to comply with the standard unless that is part of a wider agreement to ensure compatibility. EC Commission Notice on Horizontal Agreements, 2001 O.J. (C 3) 2. Standards should be no more detailed or restrictive than necessary, and must not lead to horizontal agreements on prices or exchange of sensitive market information. Competition law also prohibits manipulation of standard-setting procedures. See Maurits Dolmans, Standards for Standards, 26 FORDHAM INT’L L.J. 163 (2002). 6 Commission Regulation (EC) No. 772/2004 of 27 April 2004 on the Application of Article 81(3) of the Treaty to Categories of Technology Transfer Agreements, 2004 O.J. (L 123) 11, available at http://europa.eu/eur-lex/ pri/en/oj/dat/2004/c_101/c_10120040427en 00020042.pdf. See Deborah Platt Majoras, FTC Chairman, Recognizing the Procompetitive Potential of Royalty Discussions in Standard Setting, Presentation Before Standardization and the Law: Developing the Golden Mean for Global Law, Stanford Univ. (Sept. 23, 2005), available at http://www.ftc.gov/speeches/majoras/050923stanford.pdf; see also VITA Business Review Letter, supra note 3.
220 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY dards organizations to give commitments that they will grant licenses on fair, reasonable, and non-discriminatory (FRAND) terms. In exchange for the advantages of having their patents made essential for a standard, the patent owner limits its remedies to those allowed by FRAND contracts. If a FRAND commitment is given (it is voluntary), this is a binding contractual obligation, which must be effectively enforceable to prevent “hold-up,” and to prevent every essential patent becoming a blocking patent.7 (2) If Article 81 EC applies, and if licenses were not granted on non-discriminatory and reasonable terms, the agreement would infringe Article 81(3)(b).8 (3) Under Article 82 EC, patent owners that are in dominant positions, obtained by giving FRAND commitments to get their patents made essential for a standard, have a duty to grant licenses on non-discriminatory and reasonable terms.9 These three legal constraints have similar or identical legal effects and economic objectives, although they differ in scope. All three are intended to allow undistorted downstream competition. (For convenience, they are treated as the same here.) Courts can, if necessary, decide what the legal consequences of these obligations are in individual cases. If FRAND contracts are carried out, competition law will not normally be needed in this respect. It is well-established in EC competition law under Article 81 (3) that members of a patent pool, joint venture, or a group of companies agreeing on a substantial restriction of competition, such as a standard, may have a legal duty to license non-parties on non-discriminatory and reasonable terms. If this is not done, the agreement becomes unlawful.10 This would be so even if there was no contractual commitment to grant licenses, or if a contractual commitment was ineffective. A company that owns patents that are technically essential for a standard is not necessarily in a dominant position as a result.11 Its market power might be constrained by its interest in ensuring that its downstream operations are profitable, or the standard might be subject to competition from another standard, the patents for which are owned by other companies, or by carrying out its FRAND obligations or its Article 81 obligations. Its technology might be declining in value. But blocking patents, plus lock-in to the standard, especially if a company has no downstream operations, is likely to lead to dominance. Licensees are entitled to the more favorable of the two requirements of “non-discriminatory” and “fair and reasonable.” 1. “Non-discriminatory” Terms In the case of a second or subsequent license, it is usually easy to determine whether the later terms are equivalent to the earlier terms, if both sets of terms are known. In such 7 If FRAND commitments were unenforceable, most agreements to set standards would be illegal under art. 81, because the overall effect would be to restrict competition without safeguards or compensating benefits. 8 Article 81 applies where no alternative standard exists or is likely to be developed, the principal companies in the industry are parties to the standard-setting agreement, and products not complying with the standard would not in practice find a market. Consten and Grundig shows that companies cannot use IP rights to do what they cannot do by agreement. Joined Cases 56 & 58/64, Etablissements Consten SA and Grundig-Verkaufs GmbH v. EEC Commission, 13 July 1966, [1966] E.C.R. 299, [1966] C.M.L.R. 418, C.M.R. 8046. 9 This duty arises under art. 82(e) (no discrimination), art. 82(b) (no foreclosure of rivals), and art. 82(a) (no unfair prices), in each case if harm to consumers results. 10 See, e.g., Salora-IGR Stereo Television (1981), European Commission, Eleventh Report on Competition Policy ¶ 94 (1982); British Interactive Broadcasting/Open, Case No. IV/36.539, 1999 O.J. (L 312) 1. For a list of similar cases, see 1999 Fordham Corp-orate Law Institute 447–49 (Barry Hawk ed., 2000). 11 See Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006).
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cases “non-discriminatory” is often more precise than “fair and reasonable.” There may however be some complications: 앫 The fact that a later licensee has to pay the gross royalty rate, and has no right to get royalties under a cross-license, does not involve discrimination. 앫 Lump-sum payments, rather than royalties, are not inherently discriminatory. 앫 If the earlier terms were not “reasonable,” it is no defense that the later terms are the same.12 앫 The later licensees might knowingly agree to terms less favorable in some respects in exchange for terms more favorable in other respects. 앫 Licensors are not free to discriminate in favor of their own downstream operations (e.g., they must be treated as charging them the same royalty as they charge third parties). 앫 In general, changed circumstances do not necessarily justify different royalty rates. The first licensee knows that there will be later licensees on the same terms. The later licensees have the advantage of seeing how the market is developing, but they have lost any early-mover advantage. “Non-discriminatory” terms are necessary to ensure that the downstream market is competitive and that all licensees are on equal terms. 앫 A licensor cannot justify more favorable treatment for licensees that agree to buy components or raw material from the licensor, or otherwise do separate deals. A licensor cannot justify discrimination between its licensees by means of arrangements outside the scope of the license agreements themselves. Discrimination by a licensor is unlawful whether or not it is apparent on the face of the licenses of the technically essential patents.13 앫 Higher royalties cannot be justified by obliging a licensee to take and pay more for licenses of patents that it does not want. 앫 Justifications for different treatment must be for legitimate (i.e., not anticompetitive) purposes, must be appropriate and effective for that purpose, no less-restrictive alternatives must be available, and the balance of interests must be considered (a trivial purpose does not justify a serious competitive disadvantage). 앫 Non-discrimination duties may need to be certified, e.g., by auditors of the licensor company. 2. “Fair and Reasonable” Royalty Terms A royalty must be “reasonable” in comparison with both (1) the aggregate royalties on all genuinely essential patents, and (2) the royalties being claimed by other owners of essential patents for the same standard. So the fact that the aggregate royalty is reasonable does not necessarily mean that each licensor’s royalty is reasonable. If some licensors are charging low royalties, customers should benefit. Another licensor should not be allowed to expropriate the sums involved. In the abstract, “fair and reasonable” may imply a range of possibilities. What is FRAND for one standard is not necessarily lawful for another. It always means that the aggregate royalty must allow an efficient licensee to make a reasonable profit.14 A series 12 If it became clear that earlier terms were too high to be reasonable, the licensor could always refund the excess. 13 For example, if a licensor gives one licensee of technically essential patents more favorable treatment than another, by giving the first licensee better terms in a separate license of “commercially essential” patents, that might be discriminatory.
222 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY of tests may need to be used to decide whether an individual licensor’s royalty is “reasonable” in any specific context: 앫 Is it approximately the royalty rate that would have resulted from an agreement ex ante between a willing licensor and a willing licensee? 앫 Does the rate correspond to the extent to which the patent licensed was more valuable ex ante than the next best?15 (If not, the licensor is trying to expropriate part of the value added by the standard,16 and denying to users the full benefits of the standard contrary to Article 81(3).) A patent that was exposed to competition ex ante should get a lower royalty ex post. 앫 Is the royalty at the rate (if any) that the patent owner said ex ante that it would charge? 앫 Is the rate per patent similar to that charged by other licensors, in particular to those charged by other owners of essential patents (or claimed essential patents) for the same standard comparable in number and value? 앫 If all owners of essential patents charged the same rate per essential patent (or claimed essential patent), would the aggregate royalty be uneconomic for licensees?17 (If so, the licensor is charging a disproportionate royalty, and creating a margin squeeze.) 앫 Are there reasons for regarding some or all of the licensor’s patents as especially valuable, or as less valuable? 앫 Has the royalty been influenced by anticompetitive or other unlawful practices, by the licensor or by other companies? 앫 Is the royalty similar to those charged by the licensor, or by other companies, in similar but competitive markets?18 앫 Is the royalty equal to that applied in cases of infringement of patents where no FRAND commitment had been given, under Georgia Pacific19 or similar principles? If so, it is too high, because a FRAND commitment gives a legal right to a license on reasonable terms, and must lead to some reduction of the royalty which would be payable if there were no right to a license. 앫 Does the royalty rate create a margin squeeze for licensees? If a royalty is so high as to be contrary to a FRAND commitment, or to Article 81 or 82, harm to consumers would necessarily result.
14 The European Court of Justice has repeatedly said that a price must not exceed the “economic value” of what is given, and a royalty that made a license uneconomic would by definition exceed the economic value of the license. An exclusionary royalty rate would pre-vent or interfere with use of the standard. 15 In re Rambus, Inc., Docket No. 9302 (F.T.C. July 31, 2006), available at http://www.ftc.gov/os/adjpro/ d9302/index.shtm; see also Daniel Swanson & William Baumol, Reasonable and Non-discriminatory (RAND) Royalties, Standards Selection, and Control of Market Power, 73 Antitrust L.J. 1 (2005). 16 Mark Patterson, Inventions, Industry Standards and Intellectual Property, Paper Presented at Symposium on Patent and Related Issues in Standard Setting, George Washington Univ. Law School (Apr. 19, 2002), available at http://www.ftc.gov/opp/intellect/ 020418markpatterson.pdf; see also Mark Patterson, Antitrust and the Costs of Standard Setting: A Commentary on Teece and Sherry, 87 Minn. L. Rev. 1995 (2003). 17 Siemens v. Amoi, judgment of Feb. 13, 2007, Landgericht Düsseldorf. 18 See Case 395/87, Ministère Public v. Tournier, [1989] E.C.R. 2811. 19 Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). See Roy J. Epstein & Alan J. Marcus, Economic Analysis of the Reasonable Royalty: Simplification and Extension of the Georgia-Pacific Factors, 85 J. Pat. & Trademark Off. Soc’y 555 (July 2003).
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B. NOT ALL PATENTS CLAIMED AS TECHNICALLY ESSENTIAL ARE REALLY ESSENTIAL, OR EVEN VALID
Some companies claim that many of their patents are essential, and make FRAND commitments on that basis. Other companies claim that they have essential patents only when there are clear reasons for saying so (which leaves them contractually free to claim higher royalties for implementation patents or “commercially essential” patents if they can. FRAND commitments are voluntary, although obligations under competition law, if they apply, are not). 1. Patents About to Expire, or artificially multiplied or subdivided, or in force only in some countries, should not be treated as having equal value Some patents are needed only for secondary, optional, or unimportant functions. Patents that need to be licensed only to ensure interoperability are less valuable than patents with substantive functions. A patent should be valued in the technical and economic context in which it is used, including the total number of essential patents, the value of the other technologies in the complete product, and the value of the patent in question. The total number of essential patents is the first factor to be looked at (but of course not the only one). III. “FAIR AND REASONABLE” NON-ROYALTY TERMS It would be impractical to try to list exhaustively all the kinds of non-royalty terms that would be anticompetitive or extortionate or otherwise would not be “fair and reasonable.” In general, terms should not distort competition in technology or downstream competition. However, the following examples can be given: 앫 In general, any terms that enable a licensor indirectly to escape its obligations not to discriminate and not to charge excessive royalties would be unreasonable. 앫 Forcing licensees to allow the licensor to use their patents royalty-free, or to cross-license their non-essential patents.20 This would be particularly likely to be unlawful if the licensor could pass on the IP rights so surrendered to selected other companies at its discretion, or if licensees were obliged to surrender their technologies irrespective of substantial differences in their value, or if the benefit of the licensees’ rights was given to customers (rather than licensees) of the licensor. It is particularly anticompetitive and likely to discourage innovation if the licensees are obliged to give up their future patent rights. (Of course, a normal, balanced, fully reciprocal “patent clearance” arrangement or patent pool between patent owners is lawful.) 앫 It may be illegal for a company to insist that, if a licensee challenges any of the licensor’s patents or asserts its patents against the licensor, the license will terminate. 앫 Licenses must not be given on exclusionary conditions, e.g., must not give lower royalty rates to licensees that buy components or raw materials exclusively from the licensor, or on other terms that raise rivals’ costs. 앫 A licensor with patents that are essential for two competing standards may have a duty not to favor one standard rather than the other, or at least a duty not to obstruct or to make uneconomic the standard in which it has the lesser interest. 20 See Siemens v. Amoi, supra note 16 (holding the ETSI reciprocity obligation applies only to patents claimed to be essential).
224 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY 앫 Any terms (other than offering better bargains) by which the licensor creates or increases the disincentives for competitors, licensees or customers to innovate is likely to be illegal. IV. OTHER LEGAL CONSEQUENCES A. “PATENT AMBUSH”
If a company which is a member of a standard-setting organization is aware that a proposed standard is being discussed, and does not claim before the standard is adopted that it holds essential patents, (or if it makes a FRAND contract and does not carry it out), it has obtained market power by deception, and in breach of its contractual obligations, and would probably infringe each of the three legal rules mentioned above. In both cases the company has prevented alternative technologies being considered. It presumably would lose, wholly or partly, its right to whatever FRAND rate of royalty it might otherwise have been entitled to claim. (It must get less than it could have got if it had given and carried out a FRAND commitment). B. NO INJUNCTIONS AGAINST A WILLING LICENSEE OF ESSENTIAL PATENTS
A FRAND commitment creates a license or a contractual obligation to grant a license, and Articles 81 and 82, when they apply, create an obligation to grant a license (or at least prevent enforcement of IP rights except on FRAND terms). So a licensor that is subject to a FRAND obligation has no right to seek an injunction against a company that is willing to take a license on FRAND terms. It cannot refuse to license, and it can license only on FRAND terms.21 C. COURTS DO NOT NEED TO WRITE LICENSES
A court does not need to write a patent license under these rules. Even in the case of a first license, the court only needs to determine whether the terms offered by the licensor are, or are not, within the FRAND range in the circumstances, and so consistent with its legal obligations. If not, the licensor cannot enforce those terms. In the case of a second or subsequent license, the non-discrimination principle provides a standard of comparison, provided that the previous license was on lawful terms. * * * MR. REINDL: Perfect, John. Thank you very much. A great presentation of the topics, and really setting it up for Roy to give us his perspective. We can open up the floor afterwards for panelists and for your questions. MR. HOFFINGER: Thank you, Andreas. It is great to be here. We appreciate you all coming out. I am going to talk about two major subjects: first, rate regulation; second, something that Mr. Banasevic touched on, SDO ex ante policies. When Mr. Temple Lang talks about “fair, reasonable, and non-discriminatory” rates, he is referring to something that in Europe is called FRAND. In the United States, it is “reasonable and non-discriminatory,” which is called RAND. 21 See Joseph Scott Miller, Standard Setting, Patents, and Access Lock-in: RAND Licensing and the Theory of the Firm, 40 Ind. L. Rev. 351 (2006) (if there is a legal duty to give a license, seeking an injunction against a willing licensee can only be a means of pressure to increase the royalty).
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That is an undertaking on the part of an owner of essential patents to license on fair, reasonable, and nondiscriminatory terms. The FRAND regime has been very successful. It has been in effect for a number of years. Remarkably, there have been very few disputes that have required the intervention of courts or agencies. That accounts for the almost complete absence of case law on the subject. Contrary to my good friend’s claim, there is absolutely no support in either United States antitrust law or Articles 81 and 82 in Europe that addresses FRAND or the reasonableness of royalties. We can dispute what these cases say. I would urge you to read them yourself, to the extent that it is relevant to what you are doing or of interest to you. The simple fact is, patent owners and licensees or implementers have negotiated thousands upon thousands of licenses, without any dispute or the need for any kind of judicial or regulatory intervention. The only case that actually does address the subject is Broadcom, Inc. v. Qualcomm Inc, decided by a New Jersey federal court last year. This case involved a claim that failure to
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offer FRAND rates violated the Sherman Antitrust Act. The court simply dismissed the claim, saying that it may be a breach of contract claim, but it is not an antitrust claim.22 Another highly relevant case is Trinko, which was decided by the U.S. Supreme Court a couple of years ago.23 That case held that a complaint alleging violations of a statutory duty to enter into agreements to lease portions of local telephone networks, on “fair, reasonable, and non-discriminatory terms” —did not state a claim under the antitrust laws. If the violation of a statutory duty to deal on reasonable terms cannot be the basis of an antitrust claim, then, a fortiori, a violation of such a duty imposed by a private contract cannot be the basis of an antitrust claim. So in the United States I think there is now a settled body of law where an allegation that terms offered by the licensor are not FRAND or RAND does not state an antitrust claim. As for Europe, the cases cited by Mr. Temple Lang have nothing to do with FRAND or reasonable royalties. In addition to having no support in existing precedent, using antitrust law to enforce FRAND is also horrible public policy. What we are talking about here are simply commercial disputes over licensing terms. We are not talking about a failure to disclose the existence of essential patents. In contrast to disputes over license terms, some U.S. antitrust cases suggest that the intentional concealment from a standard-setting organization of patents that are essential to a standard may in certain circumstances give rise to antitrust claims. None of those cases, however, involved a dispute over license terms, much less a good-faith dispute over such terms. One of many reasons why the Supreme Court in Trinko refused to create antitrust liability based on a violation of a statutory duty to deal on “reasonable” terms is that courts do not regulate rates. Mr. Temple Lang responds to this concern by observing that the enforcement of a FRAND commitment by an antitrust court is not rate setting, because the court would not be “establishing” a “precise” rate. With regard to burden and institutional competence, however, which were the concerns of the Trinko Court, there is no meaningful difference between determining the reasonableness of a proposed rate and establishing a rate. Finally, and most fundamentally, using antitrust law to enforce 22 Broadcom, Inc. v. Qualcomm, Inc., 2006 U.S. Dist. LEXIS 62090 (D.N.J. 2006), memorandum opinion, filed Aug. 31, 2006, available at http://isites.Harvard.du/fs/docs/ icb.topic131566.files/Broadcom_Qualcomm_NJ_ Dismiss_Order_83106.pdf; see also Townshend v. Rockwell Int’l Corp., 2000 WL 433505 (N.D. Cal. 2000). 23 Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko LLC, 539 U.S. 980 (2003).
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FRAND would either replace commercial negotiations with litigation or give to licensees a huge advantage in negotiations with licensors. Rather than negotiate in good faith with the licensor, a licensee might choose instead to file a lawsuit in the hope that the a jury would not like the licensor’s offer and award treble damages to the licensee. The licensee, however, faces no corresponding risk. The same considerations apply in Europe, except the concern is fines and penalties, not treble damages. Further, under Mr. Temple Lang’s view, pending a decision by the court on compliance with FRAND, the licensee would be able to use the patents without fear of an injunction, and pay nothing until country-by-country litigation on the reasonableness of the licensor’s offer. In that circumstance, the licensor has to wait forever to realize any royalties, and if the court should happen to find that its offer was noncompliant with FRAND, pay treble damages, at least in the United States.
I would like to comment on the argument of Mr. Temple Lang and others that the maker of a FRAND commitment is legally foreclosed from obtaining an injunction against patent infringement. The theory underlying that argument is that the FRAND commitent itself is a license. But it plainly is not. The relevant standard-setting organization (SSO) rules and policies, and the written commitments themselves, state that the licensor is prepared to offer or negotiate licenses. Those same rules and policies also state that the license must be negotiated between licensor and licensee. A no-injunction rule would allow users of patented technology to bleed licensors to death by paying them nothing until the licensor is forced to litigate, potentially on a country-by-country basis, to establish that it has made a FRAND offer. If the court comes back and says the offer does not comply with FRAND, then the patent owner must make another offer, which is likewise subject to challenge by the licensee, making the process potentially an endless one unless the patent owner capitulates to the demand of the licensee. Otherwise, the licensee continues to use the patent, and the licensor gets no revenue. What kind of scheme is that? It substitutes regulation for any chance of marketplace negotiation, and eliminates the incentives for investment that the patent laws were designed to create.
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Wholly apart from the question of whether breach of commitment gives rise to antitrust liability, FRAND does not, and was never intended to, mandate or authorize rate regulation of intellectual property. Mr. Temple Lang’s notes set forth no fewer than twenty rate regulation principles that supposedly are embodied in FRAND. Most, if not all, of these bear striking similarity to the most onerous form of rate regulation: public utility regulation. Again, there is no support in precedents or SSO IP policies for applying public utilitytype rate regulation to intellectual property. Indeed, that would stand on its head the concept that patent owners should be allowed to establish the compensation for which they make their intellectual property available to others. The fact of the matter is that FRAND regimes were not adopted to authorize rate regulations. What FRAND was about, when you go back to its origin, was a concern that licensors would keep the technology to themselves and thus would be the only entity able to produce and sell products in the downstream market. In other words, FRAND was intended to promote the availability of licenses, and was not addressed to particular terms
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of licenses, including royalties, except to the extent that the terms of an offer to license amount to a constructive refusal to license. What we see here is you are going from a situation where intellectual property laws are designed to encourage innovation by giving patent owners a fair amount of latitude with regard to their rates, and now you are going to the opposite extreme and purporting to subject them to government-type regulation.
There are many, many constraints — I will not go through them — on the practical ability of a licensor to extract unreasonable rates. That those constraints exist and are effective is confirmed, again, by the relative absence of disputes and case law on the subject. Finally, there has been this notion that the way to determine a reasonable rate is simply by counting all the essential patents, having some industry segment decide an aggregate royalty that would be allocated to patent owners based on the numerical proportion of the essential patents they own, without regard to relative value of the patents. There is no support in case law, economics, or industry practice for the arbitrary determination of an arbitrary aggregate royalty, or determining whether a royalty is reasonable based on the number of patents owned by a licensor. Very recently, Nokia and Ericsson stated in a case in Europe that that no member of the wireless industry, for example, determines royalties in that manner. My outline addresses SDO IP policies other than FRAND, the absence of any evidence of so-called patent hold-up through unreasonable license terms, and the dangers that proposed SDO IP policies to encourage or permit groups of licensees to jointly negotiate license terms with licensors will have the same anticompetitive effects as buyer cartels. Thank you very much for your attention. MR. REINDL: Thanks very much, Roy, for that spirited presentation. If you had any doubts that there are different views of standard setting, now these doubts should be all removed. John, there was so much direct back and forth between the two of you. I will give you the opportunity to respond very briefly. MR. TEMPLE LANG: The first point that Roy made was the absence of disputes. That is true, in the sense that there is an absence of recorded cases and judgments, which I
230 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY pointed out. What happens in practice frequently is that there is arbitration. Ultimately, if there has been a dispute, it gets resolved in that way. Roy is, I’m afraid, wrong when he says there is no support for the views that I have put into my notes. He has not read the cases. There are plenty of cases in Europe. They are referred to indirectly. There are rather a lot of them in the footnotes to my paper. There is, however, a more important point that I think is implicit in what he is saying, which he did not make clear. If I am misunderstanding him, no doubt he will correct me. What he is saying, basically, is that the issue of whether a rate of royalty — or, I assume, also other non-royalty terms — in a license which is subject to a FRAND commitment is not at all a justiciable matter. If that is really what he is saying, then it is certainly not the law in Europe, and I would be surprised if it was the law in the United States. He referred to a judgment of a First Instance Court in New Jersey, which I happen to know is on appeal, but which, as he mentioned, recognized that a FRAND commitment might be a contractual obligation. If a FRAND commitment is a contractual obligation, then it must be justiciable, however you do it. MR. HOFFINGER: Let me clarify. MR. REINDL: Let me get to a couple of other speakers first to make sure that we hear other views as well. We have twenty minutes for discussion on this point Geoff or Nick, you have two very different views about whether competition authorities should get involved in FRAND issues at all. Any views from your side? MR. OLIVER: More generally, let me say, first, I felt very comfortable with everything that Nick was saying. I think we have very different views, generally, in terms of whether to get involved. I would respond to the last two presentations on a couple of points, if I may. First, on the idea that RAND may be a contract issue but not an antitrust issue, at least in my own personal view, the two are not necessarily mutually exclusive. Indeed, I think there is some mistaken understanding in United States case law because of the way that issue tends to have come up in private litigation. You can have, of course, a contractual dispute between two parties, but if you have a very similar contractual dispute among many parties to the point that it affects an entire marketplace, that can also be an antitrust issue. So I would dispute the idea that it is either/or. I certainly would agree that the idea of setting RAND is a very difficult proposition. It is certainly one that an antitrust authority would not undertake lightly. However, if necessary, it can be done. I point to the Federal Trade Commission’s recent remedy decision in the Rambus case24 as an instance in which the Federal Trade Commission was forced to, and did, determine what a reasonable royalty was. Finally, on the question on antitrust selectivity and the balance, because it involves treble damages or penalties, that, of course, would be true of private actions in the United States, but that would not be the case with respect to a government enforcement action in the United States. MR. REINDL: Thank you. Nick? MR. BANASEVIC: Just briefly, I would go back to my basic proposition, that a potential way — in a sense, the most economically pure way — for these issues to not have to come to an antitrust agency’s or a court’s attention is precisely this ex ante scheme. It is the 24 In re Rambus, Inc., Docket No. 9302 (F.T.C. July 31, 2006), available at http:// www.ftc.gov/os/adjpro/d9302/ index.shtm.
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market deciding in advance, on the basis of technology and price, what the solution should be, avoiding this debate about whether there is an ex post unreasonable monopoly price. Again, it is not for an antitrust agency to start recommending that kind of thing, because we do not know which specifics of each industry and each standards body are best. It is for industry to push that itself and decide if it wants to go down that route. I am interested in what Roy might have to say. I am not sure that there is a concern per se that that would lead to collusion. If collusion is going to happen, collusion will happen, whether or not you have an ex ante regime. I do not see any potential problems in that respect. I think that is what the DOJ said as well. MR. REINDL: We will make sure we can get to this topic at the end. Let me ask our other panelists, David or Rondal: Are there more disputes about standard setting than before? Is it becoming a more important issue? From your own practical involvement and the views that you heard, how does rate setting in the standard-setting settings play out? MR. KAPPOS: I am happy to address that. I think in the information technology industry, where my client is active, we are unquestionably seeing more issues involving standard setting. The reason for that is not rooted in the fine legal discussions that we are having here today. It is rooted in the proliferation of standards, standard bodies, and technical people involved in them. In the case of my client alone, we are involved in literally thousands of standard-setting efforts simultaneously, with tens of thousands of our employees, who cannot possibly be policed by lawyers in an effective way. That amount of standard setting is accelerating over time. We have all of that going on, rooted on the base of need for product interoperability that did not exist with anywhere near the same level of intensity that it does now. When you have that coupled with the network effects, the lock-in effects that occur after standards get set and proliferate — whether you think Rambus was right or not, whether you like the Broadcom-Qualcomm dispute or not, or whose side you are on — there clearly is lots of tension coming up. It is not rooted in the legal issues; it is rooted in people needing products to work together. So to answer your question, yes, there is a lot of tension at the interface between standard setting, intellectual property laws, and competition laws. The other comment I will make, listening to all the other speakers, is that I think that regulators do play a role — and should play a role, particularly right now, when there is all this confusion — when different standards bodies are having so much trouble coping with understanding where the bright lines are and where the not-so-bright lines are. I do not disagree with what people are saying. You want the regulators to play a relatively judicious role and to regulate only when there is tremendous clarity to be gained from doing so. In the setting of royalty rates, in particular, product prices, those kinds of things, it is probably the place where it is the most difficult for regulators to become involved. One example of where you see some real value in a little bit of clarity is indeed ex ante, which was mentioned a couple of times. The reason I say that is because I think the VITA letter,25 the statements of FTC Chairman Majoras,26 the recent statement of another U.S. government lawyer in China,27 all supporting the concept that ex ante is procompetitive, 25
VITA Business Review Letter, supra note 3. See, e.g., Majoras, supra note 5. 27 See Gerald F. Masoudi, Dep. Ass’t Att’y Gen., U.S. Dep’t of Justice, Key Issues Regarding China’s Antimonopoly Legislation, Address at the International Seminar on Review of Antimonopoly Law, Hangzou, China, May 19, 2006, available at http://www. usdoj.gov/atr/public/speeches/217612.pdf. 26
232 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY are really going to have the effect of settling down that part of the confusion. I think that is the kind of place where the regulator can play a positive role without getting too involved. MR. REINDL: Just one quick question. You speak generally about standard setting, and we talk about standard setting. Are the practices between various organizations very different in that sense? We do not really have, I think, a lot of empirical data about how different standard-setting organizations work. Do you see that there is a more common policy evolving, or are there still very different policies around today? I think Professor Merges28 once did a study that showed that things are very different. I wonder whether this all now converges a little bit more. MR. MOORE: There has been some move towards organizations becoming more harmonized in their IP policies. Just recently, ISO, IEC, and ITU agreed to merge and harmonize their IP policies, which was, I think, a good thing. To the extent that the rules are the same in every game that you are playing in, at least it is a lot easier, with the proliferation of standards organizations, to deal with that. However, there are other organizations that are very different. — W3C, OASIS, the Institute of Electrical and Electronics Engineers (IEEE), and Internet Engineering Task Force (IETF) — that all have very different rules, some of them more developed, some of them less developed. There is a lot of flux in the rules right now because of this whole process of harmonization and the governments being involved, whether it is governments being involved through DG Comp and DOJ writing letters saying that they really like this idea or they do not, or governments becoming involved by choosing to put purchasing preferences into laws, based on the use of certain standards or standards with a certain set of characteristics to them. Because of that, you are going to see more pressure on standards organizations and more pressure on people to participate in standards organizations and to expand the subject-matter standards, which may not be in anybody’s best interest. MR. REINDL: Victoria, welcome to the panel. I wonder whether you can add something at this point in the discussion. MS. ESPINEL: Sure, I am happy to. My office oversees intellectual property and innovation issues generally. I think this issue, where you have intellectual property rules, trade rules, and competition rules all intersecting, is a very interesting one. From the USTR’s perspective, our overarching goal, and the goal of the World Trade Organization (WTO), is to try to reduce market barriers generally and try to increase global competition in a way that has a positive impact on consumer welfare. We are seeing this issue come up more and more at international fora, including at the WTO, but also places like the Asia-Pacific Economic Cooperation (APEC). We have some concerns with the extent to which certain governments may or may not involve themselves in this process, particularly governments that are considering policies that 28 See, e.g., Robert P. Merges, Contracting Into Liability Rules: Intellectual Property Rights and Collective Rights Organizations, 84 Cal. L. Rev. 1293, 1340–58 (1996) (noting that patentees use patent pools as a form of private ordering to clear mutually blocking patent portfolios that would otherwise halt commercialization in a valuable market space); Robert P. Merges, Institutions for Intellectual Property Transactions: The Case of Patent Pools, in Expanding the Boundaries of Intellectual Property: Innovation Policy for the Knowledge Society 123, 146–54 (Rochelle Cooper Dreyfuss et al. eds., 2001) (discussing the MPEG-2 and DVD pools); Robert P. Merges, From Medieval Guilds to Open Source Software: Informal Norms, Appropriability Institutions, and Innovation 4, 18–19, Presentation at Conference on the Legal History of Intellectual Property, Univ. of Wisc. Law School Inst. for Legal Studs. (Nov. 13, 2004), available at http://ssrn.com/ abstract=661543 (noting the similar institutional function of patent pools and SSOs).
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would benefit their domestic industries in a way that would severely limit foreign competition. Much of this is being developed. I think, for the next few years, it will be an interesting area, to watch certain countries, in particular, as they are internally considering what their policies in this area are going to be and trying to work those into their own domestic innovation policies. MR. REINDL: Roy, you had to hold back. Just very briefly, another comment. Then we can open up the floor. MR. HOFFINGER: Thank you for giving me the opportunity to clarify. This is not a justiciability issue. You are correct that FRAND is enforceable as a contract. What we disagree about is exactly what the contract is. The contract binds patent owners and implementers to negotiate license agreements in good faith. Compliance with that obligation is judiciable. But that is very different than rate regulation. The other thing I want to say, in response to Nick’s statement about SDO ex ante policies, is that the danger of collusion occurs from such policies that encourage or permit multiple implementers or prospective licensees to discuss terms upon which they would be willing to license patents essential to a standard. That is classic cartel behavior, and settled antitrust law prohibits such cartels even when the participants are buyers, not sellers. Although that was not the subject of DOJ’s Business Review Letter on the VITA policy — and, indeed, there was an express, unqualified, and unambiguous prohibition on discussions between multiple licensees of royalties and other license terms— IEEE’s current request before DOJ for a Business Review Letter expressly encourages discussion of those very subjects.29 It is notable that general counsel for IEEE has written an article about why he believes multiple licensees should be able to discuss and agree among themselves on license terms they will accept. He calls this “coordinated buyer power.”30 MR. REINDL: Thanks. Perhaps we will have a chance to get back to this issue towards the end of the panel. Let me open up the floor and see whether there are any questions, primarily on these issues that we have discussed, rate setting, FRAND, and license commitments. QUESTION [James Love, Knowledge Ecology International, Washington]: A lot of businesses have expressed to us their feeling that the standard-setting process is in trouble, that it is more and more difficult to consolidate intellectual property rights or to develop certain kinds of interfaces, and the extent to which they feel that intervention by governments, in terms of addressing things like norms in terms of royalties and things like that, is appropriate. Why is it so self-evident that it is such a difficult thing to do in the context of pools, in terms of what a pool might charge? The reason I say that is because it seems, in reading the literature, that pools that result in royalties that are single digit, in the course of negotiations seem to be applauded as being a successful negotiation. Again, if you have an idea of what constitutes, through market transactions, an appropriate outcome, wouldn’t you save yourself a lot of time in terms of transaction costs by just having some guidelines by the government as to what would constitute some sense of what would be an appropriate cap in terms of royalties for certain kinds of pools in certain kinds of areas? In other words, if you do not feel like you can control patent quality or the proliferation of patents, it just becomes completely out of control. There is just no other way to think about it. 29 Letter from Thomas O. Barnett, Assistant Att’y Gen., U.S. Dep’t of Justice, to Michael A. Lindsay (Apr. 30, 2007), available at http://www.usdoj.gov/atr/public/bus review/222978.pdf. 30 Robert Skitol, Concerted Buying Power: Its Potential for Addressing The Patent Holdup Problem in StandardSetting, 72 Antitrust L.J. 727 (2005).
234 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY If the patent landscape becomes a huge problem in some areas, what would be wrong with the government basically saying, “We are just going to tell you that if pools are fixed in this area and 6 percent of the revenue goes to patent owners, this would fit into some norm?” Wouldn’t that allow some compression of time for the negotiations? Wouldn’t that force people into compulsory licensing arrangements? I think Europe does a lot of this, in the sense that they have these compulsory licensing issues that are in the background of negotiations, more so than they have in the United States. Wouldn’t you say that the European refusal-to-license doctrines and compulsory licensing statutes provide, in some sense, a less transparent set of norms that drives things in a direction that just does not exist in the United States, for example? MR. REINDL: Thanks. Any direct response from the representatives of the two agencies? MR. OLIVER: From my point of view, speaking just as an individual, I think we are very concerned about a couple of different things: first, ensuring that innovation continues to be encouraged going forward, on an ongoing basis; and second, that free markets are allowed to work and to operate and find their own equilibrium dynamic. In my own personal point of view, the idea of a government stepping in and setting a cap on royalties risks discouraging future innovation. It also could interfere with market forces. As an example, the idea of trying to determine what a patent is worth or what an invention is worth — certainly a government antitrust agency is not in a good position to be able to do that. That is what I referred to in my earlier comments when I said that I think if an antitrust agency feels it is absolutely necessary, it might be able to step in, as it did in the Rambus case, and determine what a reasonable royalty might be. But it is a measure of last resort. MR. BANASEVIC: I would agree with everything that Geoff said. I am not sure that the compulsory-licensing doctrine rules are as prevalent in Europe as you might imagine. It is true that we have had, most recently, the Microsoft case, which is only the third case ever.31 It is true that we have also come to the preliminary conclusion that the royalties that Microsoft is charging, which is the remedy in the liability decision, are unreasonable. But I think that serves to illustrate the general point that every case is different. That is the special context of an exceptional antitrust liability case that deals with monopolization, That illustrates, more generally, that in standards bodies you may have different rates, different market equilibria, that would come out through a dynamic process. For the government to be starting to impose or recommend certain general rules, I think, would not be appropriate. MR. REINDL: Thanks. Let’s move on to the second topic. We should have time at the end, too, and you can ask your questions. I just want to make sure we do have enough time for an also very interesting and controversial topic in standard-setting organizations. Geoff, do you want to talk about Rambus? MR. OLIVER: Thank you very much. I am delighted to have the opportunity to speak here today. I plan to give a brief overview of the Rambus case.32 What I thought I would do is give 31 Case COMP/C-3/37.792, Microsoft Corp. v. Commission, Decision of Mar. 24, 2007, available at http://europa.eu.int/comm/competition/antitrust/cases/decisions/37792/ en.pdf. 32 In re Rambus, Inc., Docket No. 9302 (F.T.C. July 31, 2006), available at http:// www.ftc.gov/os/adjpro/ d9302/index.shtm. Opinion of the Commission (Pamela Jones Har-bour, Cmm’r), available at http://www.ftc.gov/ os/adjpro/d9302/060802commissionopinion.pdf.
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a quick overview not only of the legal context, but actually of some of the exhibits that came up during the course of the trial, just to give a more concrete sense of what this case was about and a concrete sense of what the concerns were underlying the decision that the Commission issued. Unfortunately, because of the time limits today, I will have to be very fast, I will have to be grossly over simplistic, and I will be one-sided. I apologize, but I am happy to take more balanced questions at the end. The views I express here are mine, and mine alone, and do not necessarily reflect the views of the Commission, of any Commissioner, or the FTC staff. To start, what are the antitrust concerns with standard setting? A standard, as Nick was saying, can represent an agreement among competitors to limit their competition. As the Supreme Court has stated, a standard is implicitly an agreement not to compete in certain ways.33 Furthermore, members of SSOs are not always altruistic. It is possible for one member to capture the power of a standard, and thereby exclude competitors or harm competition.34 So why then does antitrust law permit standards? As the Supreme Court has noted, when done properly and when procedures prevent the standard-setting process from being biased by members interested in stifling competition, standards can have procompetitive benefits.35 But, as the Supreme Court has emphasized, “[T]he hope of procompetitive benefits depends upon the existence of safeguards to prevent the standard-setting process from being biased by members with economic interests in restraining competition.”36 In the Rambus matter, what safeguards did the standard-setting organization, the Joint Electron Device Engineering Council (JEDEC), have in place to prevent the standardsetting process from being biased by a member with an interest in restraining competition? JEDEC’s antitrust safeguards consisted of three layers: First, their basic rules governing EIA and JEDEC standardization programs. Second, on top of that, JEDEC’s commitment to avoid patented technologies where possible, or at least to secure a rate commitment before incorporation of a patented technology in a standard. Third, specific JEDEC procedures require disclosure of patents. JEDEC’s basic rule number 5 is almost a statement of antitrust law: JEDEC programs “shall not be proposed for or indirectly result in ... restricting competition, giving a competitive advantage to any manufacturer, [or] excluding competitors from the market.”37 Multiple witnesses confirm that JEDEC’s basic purpose was to develop open standards that are available on equal terms to everybody in the industry.38 The evidence confirmed that, to ensure that standards would be open to all, JEDEC sought to avoid using patented technology when possible. As Richard Crisp, the Rambus representative at JEDEC, explained to others within Rambus, “The job of JEDEC is to
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Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500 (1988). See American Soc’y of Mech. Eng’rs, Inc. v. Hydrolevel Corp., 456 U.S. 556, 571 (1982) (“[A] standardsetting organization like ASME can be rife with opportunities for anticompetitive activity. … When the great influence of ASME’s reputation is placed at their disposal, the less altruistic of ASME’s agents have an opportunity to harm their employers’ competitors through manipulation of ASME’s codes.”). 35 Allied Tube, 486 U.S. at 501. 36 Id. at 509. 37 JEDEC Manual of Organization and Procedure, JEP21-I (Jan. 2005), available at http://jedec.org/Home/ manuals/JM5.pdf. 38 See, e.g., Appleton, Tr. 6328; Bechtelsheim, Tr. 5781–2, 5785; Rhoden, Tr. 536; Williams, Tr. 761. 34
236 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY create standards which steer clear of patents which must be used to be in compliance with the standard whenever possible.”39 To ensure that its members could make fully informed decisions, JEDEC imposed an “obligation on all participants to inform the meeting of any knowledge they may have of any patents, or pending patents, that might be involved in the work they were undertaking.”40 The JEDEC Committee Chairman, Jim Townsend, opened each meeting with a statement of the disclosure policy. Multiple witnesses testified that his statements were consistent with the Manual.41 The evidence also showed that the Committee Chairman kept a running list of all patents that were disclosed, and that list was published in each of the minutes. The Chairman also sent follow-up memoranda to patent holders requesting additional information about their patents. Richard Crisp of Rambus informed others at Rambus of an uproar that occurred within JEDEC when JEDEC members learned that Texas Instruments had started enforcing, against a JEDEC standard, a patent that Texas Instruments had failed to disclose at JEDEC. Let’s turn now to Rambus’s conduct and whether, in the circumstances of JEDEC, Rambus’s conduct was anticompetitive. Rambus started by consulting its outside patent counsel to discuss, first, pre-planning before accusing others of infringement, and second, advising JEDEC of its patent applications. Rambus’s CEO held a strategy meeting regarding JEDEC, at which he asked two key questions: First, what additional patent claims should Rambus file? Second, what obligations does Rambus have to inform JEDEC? On the first question, the handwritten notes of Rambus’s outside patent counsel confirm that Richard Crisp, Rambus’s representative at JEDEC, sought to add patent claims based on work that Richard Crisp had observed taking place at JEDEC. An internal Rambus business plan confirmed that Rambus representatives believed that JEDEC-compliant products would infringe claims in Rambus’s pending patent applications and that Rambus could file additional claims to cover features in the JEDEC standard.42 Rambus’s action was to move ahead with those claims. On the second question, Richard Crisp, Rambus’s representative at JEDEC, answered the question: “I know that JEDEC takes the position that we should disclose.”43 Indeed, in a deposition he answered a question as follows, “Well, they [JEDEC] wanted to know about both patents and patent applications that might relate to the works that were going on within JEDEC.”44 Indeed, Rambus’s outside patent counsel advised Rambus that there could be an equitable estoppel problem if Rambus creates the impression on JEDEC that it would not enforce a patent or patent application against JEDEC-compliant products. But Rambus did not inform JEDEC that it had a patent and multiple patent applications relevant to specific JEDEC work. Why not? As Richard Crisp explained, in a slightly different context but also arising directly out of JEDEC, “If it is not a really key 39 Response of Complainant, In re Rambus, Supplemental Spoliation Memorandum, CX0903, available at http://www.ftc.gov/os/adjpro/d902/050330ccsuppmemeorespoliation.pdf. 40 Id. at 16, n.12. 41 See, e.g., Lee, Tr. 6597; Landgraf, Tr. 1698–99; Williams, Tr. 786–87; G. Kelley, Tr. 2406–07; Rhoden, Tr. 332; Williams, Tr. 788–89. 42 CX 543a at 14–17, Rambus 1992-97 Business Plan. 43 CX 5105 (Dec. 1992 Crisp email). 44 CX 2104 at 852–53 (Micron Dep.)
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issue, then I think it makes no sense to alert them to a potential problem that they can easily work around.”45 Rambus’s CEO stated it more succinctly, in an email sent to other Rambus employees: “do NOT tell customers/partners that we feel [JEDEC-compliant products] may infringe — our leverage is better to wait.”46 So what were the effects of Rambus’s conduct? Before the standards were adopted, Rambus’s technology was merely one of a number of competing technologies in the marketplace. After the standard was adopted and implemented by the industry, over 90 percent of all DRAMs complied with the JEDEC standards. As a result of that, Rambus acquired the power to charge royalties on over 90 percent of all DRAMs. As Subcommittee Chairman Gordon Kelley wrote in response to Texas Instruments’ enforcement of undisclosed patents, “I am and have been concerned that this issue can destroy the work of JEDEC. If we have companies leading us into their patent collection plates, then we will no longer have companies willing to join the work of creating standards.”47 That, of course, is just a very small portion of the evidence introduced in the Rambus case. Obviously, this is the evidence only supporting the Commission decision, but this gives a small taste of why the Commission had concerns here and a sample of why the Commission issued a ruling of liability against Rambus and issued a remedy that Rambus should be enjoined in the future, going forward, from charging royalties greater than reasonable royalties on JEDEC-compliant products. I will be happy to answer questions. Thank you very much. MR. REINDL: Thank you very much. It is like a little detective story that you have developed here. Very interesting. Let me ask our panelists a question. I do not want an opinion of whether the FTC was right or not — we just heard that it was right. Based on your involvement in standard setting, generally are these issues that you see coming up? What should or could authorities or the courts do about it? MR. MOORE: I am curious. I will open up a question to the audience: How many people think that having an ex ante disclosure policy would have stopped Rambus? Nobody. I do not think it would have either. Rambus is held up as sort of the poster child for what is wrong with standard-setting organizations. But, in fact, they should be held up as the poster child, maybe along with Texas Instruments — I do not know, since I am not sure what happened to that part of this instance. They are a bad actor. They do bad things. They lied. They withheld information from people when they knew that they were asking for it. They would have lied about an ex ante disclosure, too. It sounds like they would lie to their grandmother if they had to. The problem is that there is a lot more pressure being put on standards organizations and the people using standards. Because of that, more and more products are going to be built around standards, just because they are standards. I heard my colleague from IBM say that the issue was interoperability. I think Andreas, and even Nicholas, said that, too. I think what people should be focusing on is how interoperable products are. Standardization is one way to do that, but there are lots of other ways as well. 45 46 47
CX 711 at 73. CX 919. CX2384, Letter from Gordon Kelley, IBM.
238 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY MR. KAPPOS: I will take another cut at the question of whether an ex ante policy would have caused the case to come out differently. I actually think it could have, not because Rambus necessarily would have done anything differently. But if there would have been clear disclosure rules on the part of the JEDEC, if it would have been clearly documented and all the appropriate legal terminology used, people forced to sign documents — the things that we would do if we had lawyers hovering over these standard-setting activities — Rambus still may have done whatever it is they did, but I think the case would have been resolved much more expeditiously, effectively, maybe not requiring several years of government intervention. I think, moreover, the remedy would have been able to be more effective than it is going to turn out to be in that case. By getting clarity, you could have wound up with a much quicker and more pro-consumer resolution than you wound up with in that case. MR. REINDL: Just a brief follow-up question. Everyone on the panel has emphasized that there is more and more standard setting going on and it is becoming more and more interesting. You three are from organizations that are on both sides of the standardsetting process. Your IP is involved in the standards, but also you license the standards from other companies. Should we believe that just because it is a more repeat game, and more and more of these things develop, companies overall tend to be more cooperative, because they know if bad behavior becomes the standard, they may be on the receiving end, too? MR. MOORE: Yes. I am sure responsible standards participants generally would like everybody else to be responsible standards participants. I would say that, probably five years ago or more, that was the norm in standards organizations, where engineers just went to standards groups, they collaborated on things, and standards were released. The IP policies were very much like JEDEC’s, ones that encouraged disclosure, but did not have lots of rules and forms that you had to fill out. That system has worked, by and large, even through today. How many Rambuses can we point to? Not many. Again, I think the problem is, the more important you make standards, the more likely you are to create another Rambus. You make it so important for standards to be standard, and you make it so important for people to get their IP into standards — we are seeing more and more that standards are bloating in terms of how many patents are involved and how much technology is involved, how many complementary solutions there are. Many more standards these days have the mandatory way and then five or six or more optional ways of doing some particular function. It is because everybody wants to donate their solution, because everybody wants their solution to be standardized. Again, okay, but it just makes it a lot more complicated. It makes trying to figure out what patents you should disclose, and when, a lot more complicated. It is going to start to break the backs of people that are participating broadly in standards. It is very expensive for them to do. MR. REINDL: Any other speakers? John? MR. TEMPLE LANG: If a standard-setting organization wished to do so, it could amend its normal rule encouraging FRAND commitments to specify that any company that had a patent at the date of the adoption of a standard that he had not disclosed would, for the purposes of that standard, as a matter of contract, to insist on any royalties being paid by any company using that standard. That would be possible. That would be something that a standard-setting organization could say, if it wished to do so. It could specify that, even without requiring companies disclosing that they own essential patents to specify in advance what patent royalties they want to charge. That, I think, has to be optional, because I think there are many circumstances in
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which you just cannot do that in any sort of meaningful sense until after the standard is adopted. But there is no reason why you cannot impose by contract a penalty — maximum royalty X or no royalties at all — for failure to disclose. MR. REINDL: Roy, you are looking at me like something is burning. MR. HOFFINGER: Just two comments. I want to, first, draw a distinction between failure to disclose patents, which is the Rambus case and most of the other cases that have dealt with the issue, and mandatory disclosure and joint negotiation among implementers of license terms. With regard to disclosure of essential patents, I do not have a problem with devising and applying appropriate remedies. But I do think we need to exercise caution, especially when we talk about draconian remedies, such as royalty-free licensing. And bear in mind that identifying essential or potentially essential patents is a difficult undertaking. Again, you want to be careful to make sure that the policy is balanced and reasonable, and that good-faith mistakes — we are not talking about Rambus here — are not punished, so that we do not chill innovation and participation in standards bodies. The idea that you must disclose your license terms raises issues. John mentioned one of them: How do you know what your terms should be at a given point in the standarddevelopment process? Beyond that, if the disclosed terms are discussed among implementers, you raise the concerns about collusion. MR. REINDL: We have a few more minutes for one, or perhaps two, quick questions. QUESTION: Good afternoon. I would like to ask the panel their thoughts on the scenario — if we assume, as Mr. Moore suggests, that the ambush or hold-up problem is really more the exception than the rule, what is the panel’s thinking regarding whether all this discussion about IPR policies and SDOs is more motivated by business strategies and business-model issues than by real fears of a hold-up? MR. MOORE: I would say that is absolutely true. Whenever anybody is suggesting anything to you, part of the thought process that should go through your mind is: Why are they asking me this? Many companies and many individuals will put forward solutions to problems because that advantages their business model. Again, that comes back to preferences in purchasing, making these things that much more commercially required, and part of the process of trying to steer their business model into the fast lane of the commerce highway. MR. BANASEVIC: I would agree. We have followed over the last year discussions on whether or not the European Telecomms Standardization Institute (ETSI) should change its rules; and, if so, how. From our outside perspective, we saw that there were clearly different streams, according to the commercial interests of the companies involved, depending on, amongst other things, the strength of their patent portfolio. I would go back and say more generally, though, that these issues that have come up — these problems, if you like — have nevertheless lent themselves to companies coming forward, just as a general policy interest, and getting clarification to avoid these kinds of problems arising. As well as what you might call their company-specific interests, there is also, I think, a desire to clarify things, to avoid problems like this coming up. MR. OLIVER: If I may also comment, I do not know what the answer is. Clearly, there is a lot of this that is being motivated by a business strategy. However, we have also heard from quite a number of standard-setting organizations as well. It is impossible for us to tell whether those organizations are, in turn, reacting to business pressure, or whether the organizations truly see a problem and are trying to do
240 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY the right thing, or both. I suspect probably both. That leads me to conclude that, even though business strategy might be driving a lot of it, I think it is more than just that. MR. REINDL: We have time for one quick question. QUESTION: Do you think there could be a role for WIPO, in the multilateral context, to help do a better job of managing the disclosure process for patents on standards, for example, through a multilateral agreement that if people would fail to disclose patents against a standard which was widely advertised, they would not be able to subsequently try to enforce the patent against the standard. That might help deal with the ambushing problem, and reach outside the people within the standard-setting organization, who are not always the problem in some of these cases? MR. OLIVER: My personal response is that I am rather skeptical that one size fits all, regardless of where it is done or where it takes place. I think there is a potential for a lot of variation from one industry to another, from one organization to another, and maybe even from one standard to another. I would be prepared to give quite a bit of deference to an organization, and its members, to know what is best for that particular situation and to be prepared to give a certain amount of flexibility to the organization to craft the procedures that it thinks work best in that setting. MR. REINDL: Any other quick reactions? MR. MOORE: I would also say that, most often, standards are beginning to be implemented long before they actually are finished and published as standards. By the time you finish, publish something, and then give people this idea that it is widely available, that standard, if it is going to be a successful one, is already in that zone where people could be held up over it. So you are probably past the place where you could do that. MR. REINDL: Thank you. We have reached the end of this panel. Let me thank the speakers and the panelists for a very lively and informative discussion. Thanks very much.
APPENDIX Competition Policy and the European Commission: CDMA Standards and Qualcomm Michael A. Einhorn, Ph.D.48 I. INTRODUCTION Regulatory authorities in the United States and Europe now approach the antitrust issues of exclusive dealing, predatory pricing, and other potentially anticompetitive actions in a somewhat different manner. In the United States, the competitive process is viewed as a powerful check upon the unbridled exercise of producer power. Competition then is a process that forces rival producers to be responsive to consumer needs, as well as a selection mechanism that rewards producer efficiency and innovation. When enforcing antitrust laws, U.S. competition authorities then examine purported contested competitive tactics for their effect upon consumer prices and overall economic efficiency, rather than profit losses and other hardships imposed on direct competitors. The situation is somewhat different in Europe. Here, the same antitrust authorities of the European Commission more often regard competitive harm as dangers that may recur to market rivals. In particular, producer competitive actions may actually be regarded as economically harmful if they have the effect of taking market share from a less-efficient rival in the industry. If the initiator is a producer in control of a particular 48
Advisor, CONSOR Intellectual Asset Management.
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technology that is patented or otherwise necessary, the contested practice may be limited or disallowed by competition authorities at the European Commission. The difference is highlighted in an ongoing matter initiated before the Commission in 2005. In that year, six major technology companies (Broadcom, Nokia, Ericsson, Panasonic Mobile Communications, and Texas Instruments) requested the Competition Directorate of the European Commission to enjoin Qualcomm from certain practices in the licensing of patented technologies now used in the European standard for third-generation cell phones. In the plaintiffs’ view, Qualcomm failed to meet prior commitments to license its technologies on terms that were fair, reasonable, and non-discriminatory (FRAND), and apparently required by the standards agreement. Along with two South Korean companies, two plaintiffs — Texas Instruments and Broadcom — also filed similar complaints with the Korean Fair Trade Commission. A related action in the United States was dismissed in summary judgment, but is now pending appeal. In 1989 Qualcomm publicly introduced the concept that a digital communication technique, called code division multiple access (CDMA), could be commercially successful in wireless communication applications. Along with the market-dominant GSM (Global System for Mobile Communications) and TDMA (Time Division Multiple Access), CDMA became one of three voice-only digital wireless technologies that displaced analog techniques in Europe in a second generation of phone technology. Subsequently, variations of each technology would become competing third-generation (3G) wireless standards that would be capable of carrying both data and voice traffic. Indeed, the International Telecommunications Union (ITU) in May 2000 adopted a 3G standard (IMT-2000) that now encompasses five different technology modes. Three such technologies — CDMA 2000, W-CDMA, and TDD — implicate CDMA protocols and utilize Qualcomm’s intellectual property in core components. These operating modes are separately implementable and are not interchangeable from a technological perspective. The United States and Asia have moved to implement CDMA-2000, while the European Community has focused on the W-CDMA alternative. Compared with the Europe-dominant standard GSM, CDMA remains a smaller technology in Europe. As a lead developer of CDMA, Qualcomm now licenses to original equipment manufacturers (OEM) technologies from a menu of 1000 patents; the company now has over 1700 patent applications pending in the United States. For W-CDMA, licensees include leading equipment providers, such as Siemens, Nokia, Ericsson, Motorola, Lucent, Samsung, and LG Electronics. As the standards use technology from different technology owners, licenses for the sharing of technology are established under the governance of the ITU. The licenses regarding W-CDMA specify that licensing terms must be fair, reasonable, and non-discriminatory As compensation for patented technology used in integrated circuits, Qualcomm generally receives royalties that are paid as a percentage (e.g., 5 percent) of the selling price (net of permissible deductions) of the equipment. The company also performs contract R&D for specific projects on behalf of various government agencies and commercial contractors. In the plaintiffs’ eyes, Qualcomm’s licensing practices fail to meet the necessary FRAND criteria for two reasons. First, the company set lower royalty rates to handset customers who buy chipsets exclusively from Qualcomm (which is the largest provider of CDMA chips but a relatively small provider in Europe where CDMA is not dominant). Second, the company fixed the same royalty rate on W-CDMA handsets as it did for CDMA2000 3G handsets, although it contributed less technology to the former standard.
242 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY II. SELECTIVE DISCOUNTING In examining the issue, we face a key distinction between aggressive competition and harm to a particular group of competitors. By any stretch, selective discounting by a market competitor is vigorously competitive. Qualcomm is a small player in the overall European chipset market, which is dominated by manufacturers that produce for the larger GSM standard Accordingly, if Qualcomm lowers the price of its licensed technology to buyers that agree to purchase its CDMA chipsets, it evidently expands the market share of CDMA in this wider competitive market, to the detriment of larger chipset manufacturers (such as Texas Instruments) that produce for the dominant standard. An astute analysis of a related matter appeared in a U.S. decision written by Judge Frank Easterbrook in the Seventh Circuit, in the matter of Gary Schor v. Abbott Laboratories.49 The facts of the case were as follows. Defendant Abbott Labs owned a patent on Norvir, a protease inhibitor that slows down the progress of the HIV-AIDS virus. Because Norvir can cause serious side effects, it is commonly used in combination with other inhibiting drugs that mitigate these dangers. Abbott now offers one such combination cocktail under the brand name Kaletra, but also makes available Norvir as a standalone product for use with other competitive components. In its pricing practices for its pharmaeceutical portfolio, Abbott sold the combination Kaletra at a higher price than the standalone Norvir, and sold both above their respective average variable cost (AVC) 50.
Even though Kaletra was priced higher than Norvir, Plaintiff Gary Schorr contended that Abbott’s pricing was anticompetitive; i.e., Norvir was priced too high and Kaletra too low. To Schorr’s view, Abbott’s intent was to obtain a monopoly for the other competitive inhibiting drugs now sold as part of the Abbott cocktail. Per the plaintiff ’s reasoning, competitive manufacturers would be driven from the market. At this point, Schorr anticipated that Abbott would increase the price of Kaletra, expectedly to the level of a monopoly. In Judge Easterbrook’s view, Abbott’s strategy in and of itself would violate no antitrust laws unless it implicated a definable anticompetitive act that had already led to, or presented a real possibility of, monopolization in at least one particular market.51 This was not the case here. As the exclusive owner of a lawfully acquired patent, Abbott had under U.S. law the right to charge whatever the market will bear, or even refuse to sell or license its patented invention to another.52 That said, were the other components of Kaletra not made available at reduced prices, users such as Mr. Schorr would actually
49 Case No. 05-3344 (7th Cir. July 26, 2006), available at http://caselaw.lp.findlaw.com/data2/circs/7th/ 053344p.pdf 50 This eliminates the price-squeeze claim in United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945), in which the defendant producer sold processed aluminum (a “combination product”) below the price of raw aluminum. It also eliminates the predatory price claim. 51 These terms appear as Section 2 of the Sherman Act, an antitrust statute passed in 1890 for the purpose of protecting against harm to competition. “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.” 15 U.S.C. § 2, available at http://www.usdoj.gov/atr/foia/division manual/two.htm#a1. 52 See, e.g., CSU et al. v. Xerox Corp., 203 F.3d 1322, 1326 (Fed. Cir. Feb. 17, 2000), available at http://www.ll. georgetown.edu/federal/judicial/fed/opinions/99opinions/99-1323. html.
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have had to pay more to other competitive producers for much the same inhibiting components offered in the Kaletra cocktail. But Easterbrook also realized a larger theoretical point. As a patent owner with the exclusive right to price its product, Abbott had presumably priced Norvir in a manner that would maximize its profits. Once that price is set, the company could have maintained the same profit level simply by pricing the related components of Kaletra at the market-bearing price of Abbott’s competitors, i.e., not discounting the cocktail from its competitive level elsewhere charged in the market. By pricing Kaletra below this level, Abbott actually was reducing its short-run profits. In Judge Easterbrook’s view, there was no danger of any monopoly being established in the long run as a consequence of this competitive price move. The upshot of Easterbrook’s analysis is this: with the right to price Norvir as it saw fit, Abbott actually set the price of other inhibiting components below the prevailing market level — thus benefiting consumers and harming competitors. A ruling for the plaintiff would have offset these competitive effects. III. FUNDING RESEARCH AND DEVELOPMENT Plaintiffs also contended that Qualcomm’s licensing practices were unfair for yet a second reason; Qualcomm affixes the same royalty fee on each CDMA phone regardless of whether it is CDMA2000 or W-CDMA. That is, Qualcomm did not then give discounts to W-CDMA users, despite the fact that W-CDMA used fewer components contributed by Qualcomm. Accordingly, this gives the appearance that Qualcomm is charging higher rates for the use of individual components in W-CDMA. Some financial analysis will shed some light on the practice. Qualcomm earned the following revenues and operating incomes in the past five fiscal year (ending December): Revenues (in millions, except per share data) 2006
2005
2004
2003
2002
$7,526
$5,673
$4,880
$3,847
$2,915
In fiscal 2006, Qualcomm earned 34.9 percent of its total revenue (or $2.63 billion) through the operations of Qualcomm Technology Licensing, which licenses patented technology to some 135 providers that use CDMA. The remainder of the company’s revenues were earned by segments of the company that perform manufacturing, services, and strategic investment management operations — Qualcomm CDMA Technologies (QCT), Qualcomm Wireless & Internet (QWI), and Qualcomm Strategic Initiatives (QSI). The overall importance of technology licensing to Qualcomm has increased in the past three years, as QTL revenues accounted for only 27.2 percent ($1.33 billion) of total consolidated revenues in fiscal 2004.53 Besides the expanding importance of its licensing operations, there is yet is another discernible complicating trend in Qualcomm’s business. As CDMA has made wider inroads into new markets, the company’s revenue base has moved away from its historically strong markets in South Korea, Japan, and the United States where CDMA had its early breakout. Combined revenues from customers in South Korea, Japan, and the United States have decreased as a percentage of total revenues, from 82 percent in fiscal 53 QCT revenues comprised 58%, 58%, and 64% of total consolidated revenues in fiscal 2006, 2005, and 2004, respectively. QWI revenues comprised 9%, 11%, and 12% of total consolidated revenues in fiscal 2006, 2005, and 2004, respectively.
244 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY 2004 to 76 percent in fiscal 2005 and 66 percent in fiscal 2006. Meanwhile, Europe accounted for a growing share of Qualcomm revenues — from 11 percent in 2004 to 17 percent in 2006. Qualcomm’s revenues from sales and licensing cover, among other items, the company’s expenditures for research and development, which is performed in various locations throughout the world in order to advance technologies related to CDMA. R&D expenditures are then related to the design of new integrated circuit products and other initiatives designed to support lower-cost phones, multimedia applications, high-speed wireless Internet access and multimode, multiband, multi-network products and technologies. The company’s R&D expenditures in fiscal 2006, 2005, and 2004 totaled approximately $1.5 billion, $1.0 billion, and $720 million, respectively, and therefore accounted for about 20 percent of revenues, and 60 percent of operating income Although Qualcomm does perform contract R&D, a large percentage of the company’s expenditure is on pooled efforts not intended for any one user. At the time when Qualcomm starts a particular research undertaking, company engineers cannot know exactly what part of an activity will actually be used in subsequent devices and what the final market yield will be. To avoid the danger of under-compensating investments, the company must necessarily determine a way to recover or monetize total investments over the sales of all products to which it contributes. Much like the historic Bell Laboratories and the major pharmaceutical companies that have funded pooled research of this nature, Qualcomm recovers its considerable costs of research by earning revenues on the smaller group of technologies that it can actually patent and bring to market. Predictably, returns on some technology components would appear to exceed some informal breakdown of costs that would attempt to apportion general R&D to individual final components of the process. But the real economic causality between market winners and starting costs is tenuous. Fact is, technology winners must cover all R&D costs if the company is to cover also the costs of failures that it cannot reasonably anticipate at the outset. Accordingly, Qualcomm would evidently fail to recover ongoing costs if it were to reduce license fees ex post for the smaller users of W-CDMA. Qualcomm’s financing situation then is much like an amusement park that charges visitors fixed fees for an all-day or all-season pass; the park does not reduce fees for individuals who only ride roller-coasters, Ferris wheels, or merry-go-rounds. The park’s overall revenues would be deficient if the company were to allow individual visitors the right to “creamskim” their favored rides without compensation for the wider costs of running the enterprise. Much like the amusement park, Qualcomm offers its technology through a “one size fits all” arrangement that makes all technology available for a fee unrelated to components finally in use. There are two key benefits to such a financing arrangement. First, the company does not have to worry about market conditions for individual technologies that may deplete ex post the amount of funds available to finance ongoing R&D. Second, users face no incremental cost to adopt any one additional component of the Qualcomm IP portfolio. With no incremental cost to migrate to new technologies, equipment manufacturers have the opportunity to build out CDMA technology in the most rapid fashion. As an amusement park may choose instead to sell tickets for individual rides, it is certainly possible that Qualcomm could offer an alternative licensing deal that might indeed be more favorable to particular users. But to suggest that they be legally compelled to do so defies economic sense.
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IV. STANDARDS GOVERNANCE Problematic would be efforts by the plaintiffs or other companies to amend or modify the intellectual property policies of standards organizations regarding the proper licensing procedures for component technologies that are now used in industry standard portfolios. In this context, some participants have indeed suggested that standards organizations establish maximum aggregate royalty rates for revenues paid by each OEM, and to apportion the affixed ceiling amount to each technology donor based upon the size or value of its particular contribution to the industry standard. While apparently fair, such a proposal would actually put different technology donors into a “zero sum” game with one another; one company can gain a larger share of the fixed royalty rate only if another one loses. Whatever apportioning procedures are designed, the suggested rule is also heedless of the underlying costs of developing portfolio of particular technologies. V. CONCLUSION The issue highlights the crossroads at which European competition law now finds itself. In criticism of European antitrust policies, the Economic Advisory Group for Competition Policy (EAGCP), a group of seven European academic economists, wrote a position paper in 2005 entitled “An Economic Approach to Article 82.” The paper was commissioned by the Chief Economist of DG Comp but remained independent of the organization’s review process. Per the EAGCP study, DG Comp must come to recognize that certain practices, such as discriminatory prices and preferential deals, may have different effects upon consumers and other producers; the overall net benefits that could be expected may also depend upon circumstantial details. When gauging market harm, authorities must not confound the protection of competitors with the protection of consumers; it is the satisfaction of consumer needs that should be the “ultimate yardstick of competition policy.” Regulators may then consider the possible beneficial effects of Qualcomm’s tactics. First, the company is now competing with the predominant GSM standard by lowering the price of its chips, admittedly selectively, in a manner that benefits the buyers of cellphone handsets. Second, the company is funding research efforts that provide new technologies with a stable revenue source that is appropriate given the nature of applied research in this industry. We do hope that a balanced and nuanced approach will ultimately prevail in this investigation. How about one would hope that a balanced and nuanced approach will ultimately be adopted by the European Union’s competition authorities, including in this ongoing investigation? ABOUT THE AUTHOR: Michael A. Einhorn is a leading economic expert active in the areas of intellectual property, media, entertainment, licensing, valuation, and antitrust. He is a Senior Advisor at CONSOR Intellectual Asset Management, a member of the Gerson Lehrman Group, and the author of the book Media, Technology, and Copyright: Integrating Law and Economics (Edward Elgar Publishers). In media and intellectual property, he has consulted to inventors, publishers, songwriters, composers, cartoonists, sculptors, photographers, architects, artists, record labels, movie producers. and screenwriters. Dr. Einhorn has designed and applied innovative techniques related to damage estimation, valuation, licensing, and strategy in transactional and litigation matters involving patents, copyrights, trademarks, trade secrets, and publicity rights. He has testified, counseled, published articles, or lectured in music rights, fair use, data mining, royal-
246 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY ties, damages, hyperlinking, file-sharing, and digital rights management. Michael Einhorn received a B.A. from Dartmouth College and a Ph.D. in Economics from Yale University. He taught at Rutgers University and worked at the U.S. Department of Justice, Broadcast Music, Inc., and Bell Laboratories. He served as an Adjunct Professor of Communications and Media in the Graduate School of Business at Fordham University and a Research Fellow and Adjunct Professor at Columbia University. He is also a frequent lecturer in Continuing Legal Education programs. CONSOR Intellectual Asset Management (http://www.consor.com) is an international consulting firm that specializes in valuation, management, and licensing of intellectual property and entertainment assets. The company operates offices in San Diego, New York, London, and Hamburg. With work experience that spans nearly twenty years, CONSOR uses real-world evidence, marketing criteria, and proprietary programs to assist clients in measuring and maximizing the value of their intellectual property and intangible assets. Results at CONSOR are applicable to tax strategy, bankruptcy, corporate reorganization, collateral, damages, donation/sale, investment fund security, and litigation.
SESSION IV: ANTITRUST/COMPETITION & INTELLECTUAL PROPERTY PART B: REFUSALSLAW TO LICENSE
SESSION IV: ANTITRUST/COMPETITION LAW & INTELLECTUAL PROPERTY
Part B: Refusals to License
Moderator PROF. HUGH C. HANSEN
Fordham University School of Law
Speaker DARYL LIM
Allen & Gledhill (Singapore)
Panelists HEINZ GODDAR
SUSAN MANNING
Boehmert & Boehmert (Munich)
Managing Director COMPASS/FTI Consulting (Washington, D.C.)
PROF. VALENTINE KORAH
JOHN TEMPLE LANG
University College (London)
Cleary Gottlieb Steen & Hamilton (Brussels)
PROF. HANSEN: Welcome to the panel on refusals to license, which is certainly an interesting topic, and one that is being thought about and litigated throughout the world. Our speaker is Daryl Lim. His biography is in the materials. He is now at Allen & Gledhill in Singapore, but is moving to a career in think-tank academia in the future. He is a very good candidate for that. We are also very fortunate to have an excellent panel: Heinz Goddar, from Boehmert & Boehmert in Munich; Valentine Korah, from University College London; Susan Manning, Managing Director of COMPASS/FTI Consulting, an economist; and John Temple Lang, who used to run EU competition law for many years at DG IV, now DG Comp, and is now in private practice with Cleary Gottlieb in Brussels. MR. LIM: Thank you, Hugh. Good afternoon, ladies and gentlemen. Thank you for coming. I am very privileged to be here. New York is a far-away place. I did not think I would be here speaking at the Fordham IP conference. But this has happened as part of the fact that we live in an ever-shrinking world, and this will be an important theme.
248 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY Beyond Microsoft: Intellectual Property, Peer Production and the Law’s Concern with Market Dominance Daryl Lim1 I. INTRODUCTION In the last decade, cases arising at the interface between intellectual property rights (“IPRs”) and antitrust/competition law (“the Interface”) seem invariably related to subject matter which pre-existing IPRs have expanded to encompass.2 These have sprung from technological advances, as well as the purported need to preserve the ability of owners to take advantage of their investments, and thereby their incentives to innovate for the benefit of society.3 The growth of IPRs has occurred despite doubts that have been raised as to the force of these justifications fuelling its growth.4 As IPRs are strengthened, lengthened, and expanded over new categories of works, a concern arises that intellectual property (“IP”) owners have an unprecedented ability to distort competition in the marketplace.5 At the heart of the Interface arguably lies the issue of refusals to license.6 Anticompetitive abuses involving refusals to supply licenses may occur when the dominant undertaking denies an actual or potential licensee access to an input to exclude it from participating in an economic activity.7 IPRs are legal barriers and may limit the 1 LLM (National University of Singapore), B.Sc. Economics and Management, London School of Economics. I thank Professor Hugh Hansen for the opportunity to contribute to this important forum. It is hoped that my thoughts and observations may be put down in the best and simplest way. All views expressed are my own, and should not be attributed to Allen & Gledhill or its clients. I welcome comments, questions, or criticisms, and may be contacted at
[email protected]. All Web site references were visited in April 2007. 2 These cases include IPRs over databases and software. See United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001); Attheraces Ltd. v. British Horseracing Bd., [2007] EWCA (Civ) 38 (Eng.) (horseracing data); Case C-241/91, Radio Telefis Eireann v. Comm’n, 1995 E.C.R. I-743 (television program schedules); Case C-418/01, IMS Health GmbH v. NDC Health GmbH, [2004] E.C.R. I-5039 (German pharmaceutical market data); Case T-201/04, Comm’n v. Microsoft, 2004 E.C.R. II-4463. 3 It has been argued that digitization and the Internet allowed instantaneous perfect replication. IPRs therefore had to grow. See Jessica Litman, Digital Copyright (2001). In 2005, the U.S. Supreme Court expanded the Copyright Act to cover a form of liability it had never before recognized in the context of copyright—providing technology that induces copyright infringement. MGM Studios v. Grokster, Ltd, 545 U.S. 913, 940 n.13 (2005) (ruling against Grokster’s peer-to-peer file sharing program). 4 See Don Tapscott & Anthony D. Williams, Wikinomics: How Mass Collaboration Changes Everything 179 (Portfolio 2006). In the case of software, product life-cycles have historically been somewhere between 5 and 15 years. Still, copyright protection of computer programs follows today the same terms as those of any artistic work and is currently multiple times over product lifetimes. Yale M. Braunstein et al., Economics of Property Rights as Applied to Computer Software and Data Bases, in Technology and Copyright 231, 241–42 & n.11 (George P. Bush et al. eds., 1979) (questioning whether efficiency gains would outweigh administrative costs of multiple protection terms in copyright legislation). Recently, leading U.S. economists published a well-argued note in a legal case challenging the copyright term extension in the United States from 50 to 70 years. See, e.g., Brief for George A. Akerlof et al. as Amicus Curiae Supporting Petitioners, Eldred v. Ashcroft, 239 F.3d 372 (2003), available at http://eon.law.harvard.edu/openlaw/eldredvashcroft/supct/amici/economists.pdf. 5 The Directorate-General for Competition recognizes that “[t]he impact of intellectual property rights on expansion and entry depends on the nature and actual strength of the intellectual property right held by the allegedly dominant undertaking.” DG Competition Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses, at 13 (2005), available at http://ec.europa.eu/comm/competition/antitrust/ art82/discpaper2005.pdf [hereinafter DG Competition Paper]. 6 Refusals to license generally occur where a company that has exclusive control over a scarce resource owns access that is indispensable to compete in the same market or closely related market. The undertaking takes advantage of such a strategic position and employs it in order to preserve or strengthen its dominant position in that market or to acquire it in the second-related market. 7 Refusals to supply can take several forms. It can be a simple refusal (halting existing supplies or refusing to deal) or a constructive refusal (pricing so that it becomes economically unviable for the buyer to continue its activ-
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number of market participants. Foreclosure may be of concern to competition law when efficient rivals are discouraged from entry or encouraged to exit.8 The ability for IP owners to do so stems from their market power, typically characterized by sustained high levels of market shares,9 as well as barriers to entry and expansion faced by competitors. Antitrust authorities look at whether the latter would have been sufficiently immediate and persistent to prevent the abuse of market power.10 This area is highly contentious because in some cases, antitrust/competition policy requires dominant undertakings to grant competitors access to valuable IPRs in order to ensure that effective competition is maintained.11 This raises the question of whether and how antitrust/competition law can be used to counterbalance informational bottlenecks that could become a form of abuse.12 There is a need for clear and economically robust rules to regulate the amorphous boundaries of innovation. United States jurisprudence has a long history of examining such issues in sectors involving IPRs as well as more traditional infrastructure.13 It has settled on a deferential approach. In the absence of immediate consumer harm, antitrust law is reluctant to ities, calc ulated delays in supplying, exclusive dealing or tying arrangements). It can also be horizontal (where the dominant undertaking attempts to exclude a rival at its own level in the supply chain) or vertical (where the dominant undertaking attempts to exclude a active or potential participant in a downstream market). 8 That is not to say that any time an efficient rival is discouraged from entry or encouraged to exist there is a foreclosure and/or an abuse because of IPR. However, it is a weighty factor affecting the conclusion of the analysis. 9 See Commission Notice on the Definition of the Relevant Market, 1997 O.J. (C 372) paras. 54–55. 10 E.U. authorities recognize that this assessment depends on the characteristics and dynamics of the market — factors such as capacity constraints, the history of frequent and successful entry and entry costs. DG Competition Paper, supra note 5, at 13–14. 11 An additional explanation for this conflict stems from competition law’s focus on attaining competitive market conditions not particular outcomes, as opposed to intellectual property law’s preoccupation with ensuring the optimum amount of innovation. Competition law assumes that deterring monopolies will lead to the attainment of economic efficiency, while intellectual property law assumes that efficiency will be achieved only if regulators correctly estimate the proper mix of incentive and access to copyright as needed to provide the optimal amount of innovation. See David McGowan, Regulating Competition in the Information Age: Computer Software as an Essential Facility Under the Sherman Act, 18 Hastings Comm. & Ent. L.J. 771, 773–74 (1996); Thomas F. Cotter, Intellectual Property and the Essential Facilities Doctrine, 44 Antitrust Bull. 211, 227–28 (1999). 12 See, e.g., Frank L Fine, European Community Compulsory Licensing Policy: Heresy versus Common Sense, 24 Nw. J. Int’l L. & Bus. 619, 620 (2004) (describing “a stormy debate on both sides of the Atlantic as to whether compulsory licensing, on antitrust grounds, is an appropriate means of breaking monopolies that owe their existence, to a large extent, to the ownership of valuable intellectual property”); see also Alberto Heimler & Antonio Nicita, Intellectual Property Right-Based Monopolies and Ex-Post Competition: Some Reflections on the Essential Facilities Doctrine, at 26–28 (2000) (noting the growing number of cases involving IPRs and competition law). 13 Section 2 of the Sherman Act punishes, with a fine or by imprisonment or both, “monopolization” and “attempts to monopolize.” Monopolization occurs when the owner wilfully acquires monopoly power in the relevant market or maintains the power without any superior product, business acumen, or historic accident. See Intergraph Corp. v. Intel Corp., 195 F.3d 1346, 1353 (Fed. Cir. 1999). American antitrust treatment of monopolization cases in general tends to focus its attention exclusively on the market where the conduct under analysis displays its effects. This means that the monopolization claim under § 2 will be framed (as monopolization or attempt to monopolize) pursuant to the degree of market power held by the company in the market that will be ultimately affected by the anticompetitive conduct. Attempt to monopolize regards conduct that aims at achieving monopoly power in a certain market. These are harder to prove because every firm tends to achieve a position of strength in the market. Thus liability is found when there is proof of: 1) predatory or anticompetitive conduct, 2) a specific intent to monopolize, and 3) a dangerous probability of success. Spectrum Sports Inc. v. Shirley McQuillan, 506 U.S. 447, 455–56 (1993); see, e.g., Verizon Commc’ns Inc. v. Law Offices of Cutris V. Trinko, L.P., 540 U.S. 398 (2004); United States v. Terminal R.R. Ass’n of St. Louis, 224 U.S. 383 (1912); Indep. Serv. Orgs. Antitrust Litig. CSU, LLC. v. Xerox Corp., 203 F.3d 1322 (Fed. Cir. 2000); Image Technical Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997); Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147 (1st Cir. 1994); BellSouth Adver. & Publ’g Corp. v. Donnelley Info. Publ’g, Inc., 719 F. Supp. 1551 (S.D. Fla. 1988). 14 The locus classicus of this is Data Gen. Corp., 36 F.3d at 1186–87, where the court held: 1) neither the antitrust
250 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY compel access where an owner unilaterally refuses to license.14 Proof of such approach is evident in Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP. (“Trinko”), where the Supreme Court held that a company with monopoly power had no duty to open an infrastructural facility to its competitors because compelling it to share the source of its own advantage lessens the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.15 This suggests that U.S. jurisprudence accepts the philosophy that markets are best placed to determine an efficient equilibrium. On May 1, 2002, the Federal Trade Commission (“FTC”) and U.S. Department of Justice (“DOJ”) conducted a round of hearings on single firm conduct with respect to refusals to deal.16 The discussion focused on views on the nature of IPRs compared to property rights, as well as on the conditions to rebut a presumptively valid justification for an owner to refuse access to its IPRs. This was followed by another round of hearings on July 18, 2006.17 This discussion focused on proposed tests, as well as on the competence of courts to determine harm to markets and consumers and to regulate the terms of access. There was also recognition that economic analysis has not developed sufficiently to provide clear rules.18 The E.U. has chosen a different approach to regulating innovation. Influenced by the German ordoliberal school, it sees competition law as an instrument to ensure freedom of action and participation from all market players.19 It has developed tests to determine when an IPR owner exceeds the basis of IPRs granted to it. An IP owner had the duty to license its IPRs where refusing a ccess to indispensable proprietary content would stifle a nor IP legislation worked to erode the scope of other, 2) the limited copyright monopoly was based on Congress’ intent that the right to “exclude others from using their works creates a system of incentives that promotes consumer welfare in the long term by encouraging investment in the creation of desirable artistic and functional works of expression,” and 3) IPRs, although granted by the State, were not exempt from the application of antitrust law. See Emanuela Arezzo, Intellectual Property Rights at the Crossroad Between Monopolization and Abuse of Dominant Position: American and European Perspectives Compared, 24 J. Marshall J. Computer & Info. L. 455, 505 (2006) (noting that “the United States intends to protect competition by preserving a dominant firm’s incentives to compete and innovate; in order to do so, U.S. antitrust authorities think it is necessary not to force a dominant firm to deal or to license its competitors because they fear this might reduce its incentives to invest and compete to gain a monopolistic position”). 15 540 U.S. 398 (2004) [hereinafter Trinko]. 16 Participants in this session discussed “the extent to which refusals to license intellec tual property create competitive concerns, how recent case law on refusals to license is being interpreted, and whether this recent case law appropriately balances the interests of intellectual property law and antitrust law.” A list of the participants, as well as a transcript of the proceedings can be found at http://www.ftc.gov/opp/intellect/detailsandparticipants. htm#May%201 (last visited Oct. 12, 2007). 17 Federal Trade Commission/Department of Justice Hearings, Federal Trade Commision, http://www.ftc. gov/opa/2006/07/section2july.htm (last visited Oct. 12, 2007). 18 Jeffrey K. Mackie-Mason, What to Do About Unilateral Refusals to License, Federal Trade Commision, http://www.ftc.gov/opp/intellect/020501mackie2.pdf (“The optimal balance between innovation incentives and protection against static monopoly harm is not knowable to any reasonable degree of precision. Economists may be able to identify some special cases in which the desired rule is unambiguously knowable, but these cases will be few.”). 19 The core principles and ideas of the ordoliberal school can be found in: David Gerber, Law and Competition in Twentieth Century Europe 241–46 (Oxford University Press, 2001) (1998). In essence, ordoliberal theory focuses on the importance of a stable and transparent framework of rules for the efficient functioning of a private market economy, as embodied by the notion of “complete competition” in which no firm can engage in abuses of monopoly positions and other forms of coercion in a given market, emphasizing the need for the state to ensure that the free market produces results close to its theoretical potential. Article 82 of the E.C. Treaty governing this area of European competition law provides a list of examples of abusive conduct, but E.C. founders purposefully left both the concepts of dominance and of abuse to be further developed by the Court of Justice and Member State courts. See Treaty Establishing the European Community, art. 86, Mar. 25, 1957, 298 U.N.T.S. 3. [hereinafter E.C. Treaty] This was similar to the Warren Court’s antitrust populist approach which focused on freedom of action but with concern focused on autonomy for small players in market.
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new product from being offered in a related market for which there was real consumer demand.20 As economic theory was introduced into European competition analysis, its tests became more ambitious. Most recently in Commission of the European Communities v. Microsoft, the Commission was purportedly able to weigh the loss in incentives to the owner to innovate by providing access against an aggregate gain in incentives to innovation in the relevant markets identified.21 At the time of this writing, the Court of First Instance has not pronounced on the substantive merits of the case. In December 2005, the European Commission initiated a public consultation to review the application of Article 82 of the E.C. Treaty to exclusionary abuses and treatment of refusals to license, followed by a public hearing on June 14, 2006.22 It adopted an effectsbased analysis grounded on economic principles rather than per se prohibitions, which was roundly welcomed.23 However, respondents were also concerned that an effects-based analysis would be hard to implement.24 There were numerous requests for clearer rules to assist businesses in self-assessments of lawful conduct,25 including “white areas.”26 DG Competition has indicated that IPRs and their effects will be carefully evaluated.27 However, as in the U.S., a concern has also been expressed that economic theory in this area had not developed to an extent where the impact of such refusals can be sufficiently understood for regulators to intervene with confidence.28 These actions of the Commission and the responses thereto are important and have contributed to an understanding of the Interface. Nevertheless, beyond a rough measure, there are still difficulties in deciding when and whether it is right for mandatory access to be granted to IPRs. Moreover, the approaches to solving this puzzle are likely to be heavily influenced by socio-economic infrastructures including fairly entrenched views about the role of capitalism and socialism.29 Solutions will not come easily and, even if forthcoming, might not be consistent in different jurisdictions. 20
Case C-241/91, Radio Telefis Eireann v. Comm’n, 1995 E.C.R. I-743 at para. 2. Case C-3/37.792, Comm’n v. Microsoft, 2004 E.C.R. at para. 782. Intriguingly, an observation has been made that “[t]he possibilities of even the US and EU to influence the behavior of the world’s biggest computer and software companies are limited.” Mikko Välimäki, The Rise of Open Source Licensing: A Challenge to the Use of Intellectual Property in the Software Industry, 79 n. 207 (Helsinki, ed., Turre Publishing 2005). 22 Exclusionary abuses refer to “behaviours by dominant firms which are likely to have a foreclosure effect on the market . . . to actual or potential competitors and which ultimately harm consumers.” DG Competition Paper, supra note 5, at 4. 23 See, e.g,, Baker & McKenzie Response to DG Competition’s Article 82 Consultation, 1 (Mar. 31, 2006), http://ec.europa.eu/comm/competition/antitrust/art82/076.pdf (stating that “we welcome the proposal by DG Competition to adopt an effects based approach grounded on foreclosure analysis. While we comment on how the Paper should be clarified and expanded, we agree with the broad thrust of the Paper in applying economic principles to Article 82”). 24 See, e.g., Common Position of Cercle de l’Industrie on Revision of the Application of Articles 82 EC Treaty to Exclusionary Abuses, para. 9 (Mar. 31, 2006) [hereinafter Common Position of Cercle], http://ec.europa.eu/comm/ competition/antitrust/art82/008_en.pdf. 25 This is supported by Douglass C. North, Structure and Change in Economic History 162–66 (W.W. Norton & Co., 1981). 26 See Common Position of Cercle, supra note 24, at para. 28. 27 According to the DG Competition, it is “sufficient” that competitors are “disadvantaged and consequently compete less aggressively . . .” while E.U. “enforcement policy toward refusals to supply will take into account both the effect of having more short-run competition and the possible long-run effects on investment incentives” though less weight will be given to future efficiencies compared to present efficiencies. DG Competition Paper, supra at note 5, paras. 58, 213. See also Arezzo, supra note 14, at 457 (asserting that “European antitrust law has endorsed a more restrictive attitude, holding that when exceptional circumstances do exist, the exclusive faculty of the IP-owner can be curtailed in favor of a more competitive structure of the market”). 28 See Public Hearing on Article 82 Before the European Comm’n (14 June 2006) (testimony of Damien Geradin, Global Competition Law Centre), available at http://ec.europa.eu/comm/competition/antitrust/art82/en_42.wmv. 29 For example, the DOJ and FTC have adopted a decidedly more capitalistic approach, preferring not to disincentivize IP owners with vague and complicated rules. In doing so, there is a risk that the state of innovation 21
252 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY It will continue to be important to try to work out the test for dominance and with it, the role of IPRs in the antitrust and competition law context. But, it is possible also that non-legal and non-traditional economic development will make it more likely that economic dominance will be less likely to occur in market situations. This means that it is possible that collective social and economic activities without traditional economic incentives will make it more likely that competitiveness and consumer welfare will thrive in markets driven by IP products and services. Up to now the market, and together with it the propertisation of information, have become integral mechanisms to efficiently allocate scarce resources. Economic rewards have been considered necessary to promote the creation of artistic or inventive works. But there is evidence that the needs for those economic rewards are changing. We know that some creativity such as cave drawings has been historically without the need for personal economic incentives. But dissemination of creative works almost always required incentives and operate through a downward dissemination of information goods. For some time, there has been evidence that at least some types of creativity and dissemination do not fit into this traditional mould. Open source is perhaps the most well-known example. The law has often lagged behind technology and economic changes. The law of the Interface is no exception. Thus, while competition authorities in the U.S. and E.U.—both global leaders in IP and competition policy—apply themselves assiduously to the task of ironing out the analytics of abuses of dominant positions including the refusals to license,30 the world had moved quietly and quickly forward. In 2006, Time Magazine selected “You” to be Person of the Year.31 It did so because it saw “collaboration on a scale never seen before . . . wresting power from the few and helping one another for nothing and how that will not only change the world, but also change the way the world changes.”32 Traditionally, the sunk costs of innovation and commoditization were generally high in nearly every commercially valuable IP market.33 IP markets are traditionally organized along national boundaries according to strict hierarchical lines of supply, and customers and consumers are confined to relatively limited economic roles—whether as passive consumers or corporate customers trapped beneath IP owners in organizational hierarchies.34 Owners with substantial market power could may reflect the reality of geopolitics that too much information will be controlled by the hands of a select few. DG Competition has been influenced by a more socialist perspective of IP ownership, and a general distrust for broad IPRs. Thus dominant IP owners are under a “special responsibility” not to distort the competitive structure, weakened by their presence, further by abusing their dominance. Commission Decision 98/531/EC, 1998 O.J. (246), para. 267. 30 See supra notes 6–11 and accompanying text. 31 Lev Grossman, Time’s Person of the Year: You, Time, Dec. 13, 2006, available at http://www.time.com/ time/magazine/article/0,9171,1569514,00.html. 32 Id. 33 Dennis W. Carlton & Jeffrey M. Perloff, Modern Industrial Organisation 531 (Pearson 2005) (1990) (citing examples of investment outlays by major multinationals as a percentage of revenue: “In 2002, Microsoft (software) (invested) 15.2%; Advanced Micro Devices, 30.3% (microprocessor chips); Biogen (biotechnology), 32%”). 34 IP exploitation is essentially based on two rights which have been codified in national legislation through the impetus of international treaties. The first is the right to own and sell ideas. The second is the right to control the use of those ideas after sale. These create vertical relationships which content protected by IP is traded on the marketplace for payment, whether in the form of a royalty or a license fee. As an example, see Accenture Global Convergence Forum 2005: Plenary Session, available at http://www.accenture.com/Global/About_Accenture/ Business_Events/By_Industry/Communications/DigitalMeet.htm (noting that “in the current value chain in the digital world we look for content creation to come from the media and entertainment industry, distribution from the communications and retail world, while end users are dependent on consumer electronics for delivery”). See also Richard Whish, Competition Law 734 (Oxford University Press 2005) (1989) (“Generally speaking, intellectual property rights are the product of, and are protected by, national systems of law, although the growth of in ternational commerce has resulted in an increasing measure of national cooperation.”).
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exclude competitors by unilaterally refusing to license their proprietary content in primary or secondary markets.35 Barriers to entry were high, and the risk of consumer harm could be great. Antitrust analysis took place in these paradigmatic, vertical silos of innovation. While these vertical hierarchies remain, changes in technology are giving rise to new models of production based on collaboration and self-organization rather than on hierarchy and control.36 Technology has “increase[d] access to information, and [brought] us closer to” an ideally “efficient, frictionless global market.”37 Ordinary individuals have platforms to collaborate and share content at very little cost.38 Critically, it potentially reduces the reliance on dominant firms and markets to respectively create and trade the goods and services they desire, and with them the anticompetitive market effects of a refusal to license.39 This new mode of innovation and value creation is called “peer production” or “wikinomics.”40 Peer production has reached a tipping point where new forms of mass collaboration are changing the production and exploitation of IP. Economies of scale and scope—which gave dominant undertakings a highly developed distribution network and wide geographical coverage—are vanishing.41 In other words, capacity constraints due to the prohibitive cost of sunk investments are becoming less important. The power to disseminate products and ideas rather than just passively consuming them fundamentally reshapes the flow of innovation.42 Critically, it potentially reduces the reliance on dominant firms and markets to respectively create and trade the goods and services they desire, and with them, the anticompetitive market effects of a refusal to license.43 It follows that if there is an alternative system of innovation that creates more market players on a continuing basis, it should result in less dominance and, consequently, less need for intervention by competition authorities in IP markets. II. WIKINOMICS: ANOTHER WAY FORWARD? Peer production is emerging as an alternative model of innovation that harnesses human ingenuity efficiently and effectively. Two examples are open source 44 and crowd35
See DG Competition Paper, supra note 5, at 67–69. See generally Tapscott & Williams, supra note 4. 37 Thomas L. Friedman, The World is Flat: A Brief History of the Twenty-First Century 237 (Farrar, Staus & Giroux 2006) (2005). 38 Tapscott & Williams, supra note 4, at 12. 39 Friedman, supra note 37, at 93–95. 40 The term “peer production” describes what happens when masses of people and firms collaborate openly to drive innovation and growth, and was coined by Professor Yochai Benkler in his 2003 paper, Coase’s Penguin, or Linux and the Nature of the Firm. See Yochai Benkler, Coase’s Penguin, or, Linux and the Nature of the Firm, 112 Yale L.J. 369, 375 (2002). The term “wikinomics” was coined by Don Tapscott and Anthony D. Williams. See generally Tapscott & Williams, supra note 4. 41 Tapscott & Williams, supra note 4, at 10–11. 42 Michael Sandel observed that this phenomenon was first identified by Karl Max and Friedrich Engels in the Communist Manifesto, published in 1848. While the shrinking and flattening of the world constitute a difference of degree from what they saw happening then, it is nevertheless part of the same historical trend they observed — the inexorable march of technology and capital to remove all barriers. See Friedman, supra note 37, at 234. 43 As Thomas Friedman put it, “communities of geeks are now collaborating to design new software and then to upload it to the world. . . . The genesis of the flat world platform not only enabled more people to author more content, and to collaborate on that content. It also enabled them to upload files and globalize that content . . . without going through any of the traditional hierarchical organisations or institutions.” Friedman, supra note 37, at 93–94. 44 Wikipedia describes “open source” as “a set of principles and practices that promote open access to the design and production of goods and knowledge. The term is most commonly applied to the source code of software that is made available to the general public with relaxed or non-existent intellectual property restrictions. 36
254 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY sourcing.45 The collective knowledge, capability, and resources embodied within broad horizontal networks of participants can be mobilized to accomplish more than one firm acting alone. More importantly, the ability to integrate the talents of dispersed individuals and organizations could potentially mitigate the anticompetitive effects of refusals to license by dominant undertakings.46 Indeed, it may reshape the strategies through which dominant undertakings exploit their IPRs, so that instead of refusing access, they actively seek out other stakeholders to in a new model of collaborative proprietary innovation. It is important to clarify, however, that peer production does not merely encompass altruistic community efforts like those from the contributors of Wikipedia or some open source software projects. As will be seen, peer production also offers a platform for commercially viable, sometimes highly successful, business models.47 At least two factors made this possible. First, in the 1990s, Windows-enabled computers made it possible for individuals to author their own content from their desktops in digital form.48 With the steady advance of telecommunication, they were able to disseminate their own digital content in new ways to many more people. At the same time, computers became cheaper and more available all around the world. There was also an explosion of software that allowed work to be dissected, sent for remote development, and reassembled.49 People discovered that they could connect their computers to their telephones and emails through the Internet. The diffusion of computer, faxes, Windows, and modems connected to a global telephone network came together in the 1990s to create a basic platform that started the global information revolution.50 Second, the dotcom bubble that stimulated the overinvestment in fibre-optic cable communications allowed competitors and consumers to use networks to link to Internet services.51 Glass and radio waves are woven into intercontinental fibre-optic nerves that This allows users to create software content through either incremental individual effort or through collaboration.” Open source, Wikipedia, http://en.wikipedia.org/wiki/Open_source (last visited Oct. 7, 2007). 45 Wikipedia describes “crowd sourcing” as “a neologism for the act of taking a job traditionally performed by an employee or contractor, and outsources it to an undefined, generally large group of people in the form of an open call. . . . In some cases the labor is well-compensated. In other cases the only rewards may be kudos or intellectual satisfaction. Crowdsourcing may produce solutions from amateurs or volunteers working in their spare time.” Crowdsourcing,Wikipedia, http://en.wikipedia.org/wiki/Crowd_sourcing (last visited Oct. 7, 2007). 46 As Thomas Friedman put it, “Everywhere you turn, hierarchies are being challenged from below or are transforming themselves from top-down structures into more horizontal and collaborative ones. ‘Globalization’ . . . is not simply about how governments, business, and people communicate, not just about how organizations interact, but is about the emergence of completely new social, political, and business models. . . . [T]here is something about the flattening of the world that is going to be qualitatively different from the great changes of previous eras: the speed and breadth with which it is taking hold. The introduction of printing happened over a period of decades and for a long time only affected only a relatively small part of the planet. . . . This flattening process is happening at warp speed and directly or indirectly touching a lot more people on the planet at once.” Friedman, supra note 37, at 48–49. 47 See, for example, infra Parts II.A.2 and II.B.2. 48 See Friedman, supra note 37, at 54–55. 49 See id. 50 See id. at 53. From a geopolitical perspective, the opening up of China, India, and Eastern Europe coincided with the growth of the global communications platform. There was nothing to stop the digital representation of everything—words, music, photos, data, and video—and the global exchange of all that digital information. This coincidental breakthrough suddenly gave individuals both reach and scale—reach because they could create content in so many new and different ways, and scale because they could share their content with so many more people. See id. at 51–52. 51 The dot com bubble happened shortly after Netscape went public in 1995 and made the Internet accessible to everyone. The more alive the Internet was, the more different people demanded computers, software, and telecommunications networks that could easily digitize words, music, data, and photos and transport them through the Internet to anyone else’s computer. In that year, another catalytic event took place. Windows ’95 was rolled out with a built-in browser that allowed all PC applications to interact with the Internet. This set off an explosion in
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wire up disparate individual undertakings into a grand network.52 Unlike the first generation of companies, companies today can plug-and-play because a lot of the essential infrastructure is free.53 The Internet significantly lowered entry barriers. From this came a collaborative interface for wikinomics—a global, Web-enabled platform for multiple forms of collaboration. A. SCHUMPETER, CREATIVE DESTRUCTION, AND WIKINOMICS
Underlying the trade-off between free competition and exclusive IPRs is Joseph Schumpeter’s theory that it may sometimes be necessary to forego static efficiency for greater gains in dynamic efficiency.54 Schumpeter described the process of “creative destruction” and the dynamics of innovation as the most important drivers of the competitive process.55 Technical progress makes market power a temporary phenomenon, more than compensating for static welfare losses.56 Further, without proper regard for incentives, the result of competition will be insufficient innovation. It follows that since innovation is the engine that powers competition and ensures consumer welfare, the goal of competition law should be to encourage broad IP protection to foster and support firms’ incentives to innovate.57 While Wikinomics might call into question to some extent Schumpeter’s view on the need for ince ntives for innovation, it might prove him right on the role of creative destruction. In any case, Wikinomics has the potential to supercharge the process of “creative destruction” in at least some IP markets. The most important question is whether Wikinomics will lead to a transformation of the competition-law landscape.
demand for all things digital and sparked the Internet boom, because everything was going to be digitized and transported and sold on the Internet. Then the demand for Internet-based products and services would be infinite. As investors watched this mad rush to digitize, they realized that the demand for web service companies and fiber-optic cables to handle all the digital stuff was going to be limitless. It sparked an overinvestment in fiber-optic cables which dramatically drove down the cost of making a phone call or transmitting data anywhere in the world. And thus was the dot com bubble born. See id. at 57–66. 52 See id. at 66–69. 53 See id. at 181. The ready availability of well-honed and free Linux software, the Apache Web server, the MySQL database, and the PHP and Perl scripting languages — collectively known as the LAMP stack — means significantly lower capital investments. See LAMP (software bundle), Wikipedia, http://en.wikipedia.org/wiki/ LAMP_(software_bundle) (last visited Oct. 7, 2007); see also Plug-and-play, Wikipedia, http://en.wikipedia.org/ wiki/Plug-and-play (last visited Oct. 7, 2007). 54 Static efficiency occurs when firms compete within an existing technology to streamline their methods, cut costs, and drive the price of a product embodying that technology down to something close to the cost of unit production. Static goals lead to a focus on short-run marginal cost, to the exclusion of long run efficient capital investments in research and development (“R&D”). Static efficiency is a powerful force for increasing consumer welfare, but economists tell us that an even greater driver of consumer welfare is dynamic efficiency. Dynamic efficiency refers to gains that result from entirely new ways of doing business. See generally Joseph A. Schumpeter, Capitalism, Socialism and Democracy (Harper & Brothers Publishers, 2d ed. 1947). 55 See id. at 82–85. Creative destruction is describes the process of transformation that accompanies radical innovation. In Schumpeter’s vision of capitalism, innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power. “Economists are at long last emerging from the stage at which price competition was all they saw. As soon as quality competition and sales effort are admitted into the sacred precincts of theory, the price variable is ousted from its dominant position. However, it is still competition within a rigid pattern of invariant conditions, methods of production and forms of industrial organisation in particular, that practically monopolizes attention. But in capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but competition from the new commodity, the new technology, the new source of supply, the new type of organisation . . . — competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profit and outputs of existing firms but at their foundations and their very lives.” Id. at 84. 56 See id. at 97 n.13. 57 Phillip Beutel, The Intersection of Antitrust and Intellectual Property Economics: A Schumpeterian View, in Economics Of Antitrust: New Issues, Questions, And Insights, 133, 133 (Lawrence Wu ed., 2004).
256 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY Below the question is asked in the context of some landmark cases and new factual scenarios. 1. Microsoft In the E.U. Microsoft case, the Commission found that Microsoft was a “superdominant” undertaking which used its market power to exclude competition and destroy the incentive for competitors to innovate.58 It found that in the past, Microsoft competitors were deterred from introducing new application programs for the Microsoft workgroup server operating systems.59 This is because if they now did not have interface protocols for Windows, their only market was Microsoft who might buy it and introduce it into the system.60 Moreover, the Commission did not disclose its interface information to competitors who could or had designed competing programs. This locked consumers into Microsoft’s server market.61 In an interim hearing, the Court of First Instance denied Microsoft’s request for a stay of the Commission’s fine of nearly 500million, the largest ever imposed on a single firm.62 However, what was perhaps more important to Microsoft is that the CFI also denied its request for a stay of the Commission’s order for Microsoft to disclose interface information on reasonable and non-discriminatory terms.63 Specifically, the Commission ordered Microsoft to disclose to competitors the interface specifications of the Windows workgroup server operating systems so as to enable them to achieve full interoperability with Microsoft’s desktop Windows operating systems.64 The Commission in Microsoft opined that since access to the source code was not being required, Microsoft’s fears of cloning were not justified.65 It followed that Microsoft’s incentives to innovate would not be affected.66 This order covers past, present, and future Microsoft products without any time limitation.67 This means that Microsoft must continually update this information as it brings to market new versions of its products. This remedy has been criticized as extraordinary, both in terms of the significant loss in the strategic value of its copyright and trade secrets as but also the fact that competition authorities are involved in the first place in determining how much a company should disclose.68 This contrasts with the 58 Case COMP/C-3/37.792, Comm’n of the European Comtys. v. Microsoft Corp., 2004 O.J. (L 32) para. 435 (“Microsoft, with its market shares of over 90%, occupies almost the whole market — it therefore approaches a position of complete monopoly, and can be said to hold an overwhelming dominant position.”). It should be recognized from the onset that the Commission took great care in preparing its case against Microsoft, even subjecting the file to peer-review. Valentine Korah, Intellectual Property Rights and the EC Competition Rules 166 (Hart Publishing 2006). 59 Workgroup server operating systems be understood as software that manages the sharing of the resources of several computers within a linked network. The operating system processes raw system data and user input, and responds by allocating and managing tasks and internal system resources as a service to users and programs of the system. See generally, William Stallings, Operating Systems, Internals and Design Principles (Prentice Hill, 2005). 60 See Case COMP/C-3/37.792, Comm’n v. Microsoft, 2004 O.J. (L 32) paras. 453, 779. 61 See id. at para. 694. It should be recognized from the onset that the Commission took great care in preparing its case against Microsoft, even subjecting the file to peer-review. See Korah, supra note 58, at166. 62 Korah, supra note 58, at 150; see also Microsoft hit by record EU fine, CNN.com, available at http://edition. cnn.com/2004/BUSINESS/03/24/microsoft.eu/ (Mar. 25, 2004). 63 Korah, supra note 58, at 162. 64 Case COMP/C-3/37.792, Comm’n v. Microsoft, 2004 O.J. (L 32) para. 999. 65 Id. at paras. 713–22. 66 Id. at para. 729. But see Korah, supra note 58, at 162 (saying that: “the incentive must have been considerably reduced”). And if Microsoft’s cutback on R&D is anything to go by, Korah is probably right. Microsoft’s Annual Reports for 2000 and 2005, available at http://www.microsoft.com/msft/ar.mspx (last visited Oct. 8, 2007) (showing that Microsoft reduced R&D expenditures from $3.775 million in 2000 to $1.241 million in 2005). 67 Case COMP/C-3/37.792, Comm’n v. Microsoft, 2004 O.J. (L 32) paras. 1000–03. 68 See Ian S. Forrester, Article 82: Remedies in Search of Theories?, 28 Fordham Int’l L.J. 919, 927, 931 (2005)
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result in the U.S. DOJ antitrust action against Microsoft, where the DOJ made similar claims against but were only able to achieve more modest results.69 Microsoft’s conduct reduced the incentives of competitors and potential competitors to undertake R&D because “they know that Microsoft will be able to limit the rewards from any resulting innovation . . . .”70 However, the theory that market power can be leveraged to significantly stifle innovation may now be questionable as an absolute rule. Since the elimination of Netscape,71 Microsoft did not experience any real competition in the Web browser market. In 2004, Netscape was reborn as Firefox, an open-source Web browser.72 Firefox allows users to alter the code and create plug-ins and customized “extensions” that can then be downloaded by any user.73 Web-surfers adopted Firefox rapidly, despite Internet Explorer coming pre-installed with every copy of Microsoft’s dominant Windows operating system. And Firefox is a viable alternative to Windows Internet Explorer.74 Downloads (drawing a parallel with Syfait v. GlaxoSmithKline AEVE, Case C-53/03, 2005 ECR I-4609 where “GSK, a pharmaceutical company, [was] under an affirmative duty to supply unlimited orders from wholesalers active in the trade of certain prescription drugs from low-price to high-priced Member States,” but distinguishing Microsoft because it goes further and represents the most expansive inroad of E.C. competition law enforcement into the protection of IPRs in Community legal history). 69 Essentially, the U.S. case revolved around the allegation that Microsoft had illegally tied its operating system to its Internet browser, thereby extending its monopoly power in both markets. The DC Circuit Court of Appeals found that Microsoft prevented computer manufacturers from modifying or removing pre-bundled icons. See United States v. Microsoft Corp., 231 F. Supp. 2d 144, 202 (D.D.C. 2002). In addition, the court found that Microsoft entered into agreements with Internet Access Providers and Independent Software Vendors to promote its browser exclusively, and also to use its Java Virtual Machine instead of Sun Microsystems’ Java programming. Id. The trial ended in settlement, with Microsoft agreeing not to prohibit computer manufacturers and vendors from adding features that could divert users away from Microsoft products. Final Judgment, United States v. Microsoft Corp., No. 98-1232 (D.D.C. 2002), available at http://www.usdoj.gov/atr/cases/f200400/200457.htm. The agreement also prohibits Microsoft from entering into exclusionary agreements with Internet Access Providers prohibiting the use of products that compete with Microsoft’s products. Id. Microsoft also cannot discriminate against internet access providers, independent software vendors, and internet content providers who choose to use competing products. Id. Finally, the agreement also stipulated that Microsoft disclose to Independent Software Vendors how its operating system interoperated with its middleware products. Id. This allows competitors to use Windows for their own programs. Id. In contrast, the E.U. investigations were more narrowly tailored to issues of server compatibility and the bundling of its media player software with its Windows operating system. See generally Case COMP/C-3/37.792, Comm’n v. Microsoft, 2004 O.J. (L 32). 70 Complaint at 12, United States v. Microsoft Corp., No. 98-1232 (D.D.C. 1998), available at http://www. usdoj.gov/atr/cases/f1700/1763.htm (last visited Oct. 5, 2007). 71 Mozilla, Wikipedia, http://en.wikipedia.org/wiki/Mozilla (last visited Oct. 5, 2007). 72 “The Firefox project went through many versions before 1.0 was released on November 9, 2004. In addition to stability and security fixes, the Mozilla Foundation released its first major update to Firefox 1.5 on November 29, 2005. On October 24, 2006, Mozilla released Firefox 2. This version includes updates to the tabbed browsing environment, the extensions manager, the GUI, and the find, search and software update engines; a new session restore feature; inline spell checking; and an anti-phishing feature which was implemented by Google as an extension and later merged into the program itself.” See Mozilla Firefox, Wikipedia, http://en.wikipedia.org/wiki/ Firefox (last visited Oct. 5, 2007). 73 For example the Bugmenot feature allows users to bypass compulsory registration for sites such as the New York Times. It automatically enters account details from its database, so that users do not have to go through the entire registration process. Bugmenot.com, Frequently Asked Questions, http://www.bugmenot.com/faq.php (last visited Oct. 9, 2007). 74 In same year Firefox was introduced, Forbes called Firefox “the best Web browser.” Arik Hesseldahl, Better Browser Now The Best, Forbes, Sept. 29, 2004, available at http://www.forbes.com/2004/09/29/cx_ah_0929tentech. html (last visited Oct. 5, 2007). PC World named Firefox the “Product of the Year” in 2005 on their “100 Best Products of 2005” list. PCWorld.com, The 100 Best Products of 2005, http://www.pcworld.com/article /id,120763-page,12/article.html (last visited Oct. 2, 2007). After the release of Firefox 2 and Internet Explorer 7 in 2006, PC World reviewed both and announced that Firefox was the better browser. Erik Larkin, Radically New IE 7 or Updated Mozilla Firefox 2 — Which Browser Is Better? PC World, Oct. 24, 2006, available at http://www. pcworld.com/article/id,127309-pg,1-RSS,RSS/article.html (last visited Oct. 9, 2007). A report in mid-2006 by
258 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY have continued at an increasing rate; as of February 2007, Firefox had been downloaded over 300 million times.75 Internet Explorer has seen a steady decline of its usage share since Firefox’s release.76 With Microsoft releasing version 7 of Internet Explorer (“IE7”) that same month, Firefox’s share growth might have been expected to slow, but IE7 has instead gained share mostly at the expense of older versions of IE.77 What is perhaps more remarkable about Firefox is that two people in particular are most responsible for the browser’s success: a 19-year-old Stanford sophomore and 24-year old New Zealander working in an open-source community for free, starting from both ends of the world and without having ever met, produced a browser that took 15% of the browser market in about three years.78 This raises the question whether any analysis of Microsoft’s market power as a vertical silo of innovation would be accurate today without taking into consideration peer produced alternatives such as Firefox. 2. Trinko In Verizon Communications Inc. v. Law Offices of Curtis v. Trinko, LLP., Verizon was the incumbent local exchange carrier (“ILEC”) in New York.79 The 1996 Telecommunications Act requires that ILECs sell unbundled parts of their local networks at cost to competitive local exchange carriers (“CLECs”), so that ILECs share their networks to give new competitors a toehold in the market.80 The Federal Communications Commission asserted that Verizon breached its duty by inadequately providing access to the customers of its CLEC competitors, one of which is AT&T.81 Trinko was an AT&T customer.82 Trinko alleged that Verizon discouraged customers from becoming or remaining customers of CLECs like AT&T, and claimed that Verizon’s breach of its duties under the Telecommunications Act to grant access to AT&T constituted an antitrust violation.83 While the Supreme Court ultimately found that Verizon had no duty to license,84 it again raises the question how the analysis of the case would have been altered when viewed through the lenses of wikinomics. OneStat stated that almost 13% of Internet users around the world now use Firefox, up from 8% in 2005. Melissa Tan, How to switch to Mozilla Firefox, Straits Times Interactive, Apr. 3, 2007, available at http://www.straits times.com. 75 Mozilla Firefox, supra note 72. This number does not include downloads using software updates or from third-party websites. They also do not represent a user count, as one download may be installed on many machines, or one person may download the software multiple times. Mozilla Vice President of Products Christopher Beard estimates that Firefox had 70 million to 80 million users as of October 2006. Elizabeth Montalbano, Final Version of Mozilla Firefox 2 Available Today, PC World, Oct. 24, 2006, available at http://www.pcworld.com/ article/id,127603-c,mozilla/article.html (last visited Oct. 5, 2007). 76 According to Dutch web analytics firm OneStat, by July 2006, Firefox was the second most widely-used browser, with 12.93% of global usage share, a percentage that has remained steady. OneStat.com, Mozilla Firefox Global Usage Share Remains Stable, http://www.onestat.com/html/aboutus_pressbox44-mozilla-firefox-hasslightly-increased.html (last visited Oct. 5, 2007). By December 2006, according to data made available by U.S. firm NetApplications, Firefox’s market share had grown to 14% globally. Gregg Keizer, Firefox Continues Growth, PC Chat, Jan. 17, 2007, http://www.pcchatshow.com /articles/showarticle.php?ArticleID=642. 77 Gregg Keizer, Despite 100 Million IE 7 Installs, Microsoft’s Browser Still Loses Ground, InformationWeek, Jan. 16, 2007, available at http://www.informationweek.com/news/showArticle.jhtml?articleID=196901142 (last visited Oct. 10, 2007). 78 Int’l Monetary Fund, Transcript of an IMF Book Forum—The World Is Flat: A Brief History of the TwentyFirst Century, Apr. 8, 2005, available at http://www.imf.org/external/np/tr/2005/tr050408bf.htm (last visited Oct. 9, 2007). 79 540 U.S. 398, 401 (2004) [hereinafter Trinko]. 80 See id. 81 See id. at 403, 413. 82 Id. at 404. 83 See id. at 404–05. 84 See id. at 415–16.
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Since its inception, companies have charged for communications by telephones based on the length of time and distance across which the call was made. However, this pricing scheme might not last much longer. In 2003, Niklas Zennström and Janus Friss founders of the file sharing application Kazaa, launched Skype.85 Skype’s software harnesses the collective computing power of peers, allowing them to speak with each other free of charge via the Internet.86 Skype competes against existing open Voice over Internet protocol service (“VoIP”) providers.87 Skype’s business model creates a self-sustaining telecommunications system that requires no central capital investment. Skype went from 100,000 to 100 million registered users in two years, and was acquired by eBay for US$2.0 billion in 2005.88 Today, “Skype claims that about 30% of Skype accounts are business accounts.”89 Internet communications in business reduce costs and increase productivity within a company. It also promotes collaboration among a company’s different groups that may be located in different locations, and enhances the way a company communicates with its suppliers, vendors, and customers. Skype’s broad feature set of voice and video calling, conference calling, in stant messaging, and file transfer is applicable in many of these situations.90 At present, every business and personal phone call to anywhere in the world is as cheap as a local call.91 As consumers get more choices, the competition will be such that the negative effects of undertakings refusing access to CLECs like AT&T will be diluted. “What phone companies will compete over, and charge for, will be the the add-ons.”92 While customers may not pay for calls, they will pay for premium services such as making calls to a landline network or for voice and video messaging. But even as peer-to-peer internet telephony wires consumers to anyone in the world with a phone, the causeways of information become ever wider. The WiFi93 revolution 85 Skype, http://www.skype.com; About Skype, http://about.skype.com/; Jeremy Caplan, Bringing TV to the Web, Time, Mar. 1, 2007, available at http://www.time.com/time/nation/article/0,8599,1595049,00.html (last visited Oct. 5, 2007). 86 Skype Help, http://support.skype.com/?_a=knowledgebase&_j=subcat&_i=3 (follow link “What is Skype”). 87 VoIP allows consumers to make phone calls over the Internet by turning voices into data packets that are sent down Internet networks and converted back into voices on the other end. Anyone who subscribes to the service through a phone company or private operator can receive unlimited local and long-distance phone calls, via the Internet — over his personal computer, laptop, or PDA — with just a small microphone attachment. See Federal Communications Commission Consumer Facts, Voice over Internet Protocol (VoIP), http://www.fcc.gov/cgb/ consumerfacts/voip.pdf (last visited on Oct. 5, 2007). In contrast, “Skype operates on a peer-to-peer model, rather than the more traditional server-client model. The Skype user directory is entirely decentralised and distributed among the nodes in the network, which means the network can scale very easily to large sizes . . . .” See Skype, Wikipedia, http://en.wikipedia.org/wiki/Skype (last visited Oct. 5, 2007). 88 Nate Mook, eBay Acquires Skype for $2.6 Billion , BetaNews.com, Sept. 12, 2005, http://www.betanews.com/ article/eBayAcquires_Skype_for_26_Billion/1126540985 (last visited Oct. 11, 2007); see Tom Sanders, Skype Signs Up 100 Millionth User, Computing.co.uk, May 1, 2006, http://www.computing.co.uk/vnunet/news/2155074/ skype-signs-100-millionth-user (last visited Oct. 11, 2007). In February 2007, Skype reported its 500 millionth user download. See Paul D. Kretkowski, Skype Roadmap 2007, VoIP News, Feb. 20, 2007, http://www.voipnews.com/interviews/skype-qa-oberg-022007/ (last visited Oct. 5, 2007). 89 See Kretkowski, supra note 87. 90 “Skype already has more than 50 leading hardware manufacturers producing more than 160 Skype Certified devices and accessories, including desktop Internet phones, cordless phones, headsets and WiFi phones. In addition, Skype for Windows Mobile works on more than 120 different Pocket PC and Smartphone devices. In fact, it has been downloaded more than 5 million times, making it one of the most popular Windows Mobile applications to date.” Id. 91 Voice Over IP, Wikipedia, http://en.wikipedia.org/wiki/Voice_over_IP (last visited on Oct. 6, 2007). 92 Posting of Bill Binning to Jaduka blog, http://blog.jaduka.com/archives/34-Its-the-Services,-Stupid!.html (Feb. 27, 2007, 8:41 EST) (quoting Friedman, supra note 37). 93 WiFi “is a set of product compatibility standards for wireless local area networks (“WLANs”) based on the IEEE 802.11 specifications. . . . Wi-Fi enables a person with a wireless-enabled computer or personal digital
260 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY allows consumers to use Skype on mobile devices.94 Yet even now, WiFi could be made obsolete by the presence of WiMax95 processors which will have the potential to cover a much greater range than WiFi—in the order of several kilometres.96 This means that our mobile communication lines may soon take place over peer-to-peer network providers like Skype rather than LECs. But Skype is not without its potential antitrust controversies. “Skype has been criticized over its use of a proprietary protocol, instead of an open standard . . . since this makes it much more difficult, if not impossible, for other developers to interact with Skype.97 Some have theorized that the decision was made to prevent competition over business with SkypeOut,”98 which “allows Skype users to call traditional telephone numbers, including mobile telephones, for a fee.”99 While this potentially raises access concerns of its own, the point remains that entry is free to all who can provide a new and better alternative to traditional LECs. 3. Magill In Radio Telefis Eireann (RTE) v. Comm’n of the European Comtys (“Magill”), three broadcasting companies were dominant over the listings of its own programs.100 This dominance was achieved through questionable copyright protection granted in the United Kingdom and Ireland for TV listings.101 “When Magill started to publish comprehensive weekly listings for all three stations, each TV station successfully sued for copyright infringement.”102 Each station had refused to license its listing information to anyone.103 The European Court of Justice (“ECJ”) found that the refusal to license “amounted to an abuse of a dominant position over the programme information.”104 The copyright for the non-creative listing of facts allowed each station a monopoly over the use of those facts or lists.105 Under E.U. law, the Court of Justice cannot rule on the correctness of Member State copyright laws unless that Member State protection falls within the subject matter for an E.U. copyright directive.106 Copyright in television assistant (“PDA”) to connect to the Internet when in proximity of an access point. The geographical region covered by one or several access points is called a hotspot.” Thefreelibrary.com, Wi-Fi, http://www.thefreelibrary. com/Wi-Fi-a0163332784 (last visited Oct. 11, 2007). “[H]otspots only have an effective range of 300 metres.” James Brown, Vnunet, Mar. 16, 2006, http://www.vnunet.com/computing/analysis/2152089/wifi-provide-answer. 94 Compare Accessories and Devices, http://skype.com/help/accessories/devices.html# wifiphone (last visited Oct. 12, 2007). 95 “WiMAX is an acronym that stands for Worldwide Interoperability for Microwave Access, a certification mark for products that pass conformity and interoperability tests for the IEEW 802.16 standards. WiMAX is a standards-based wireless technology that provides high-throughput broadband connections over long distances.” Human Law Mediation: WiFi on the Rise, but WiMax Poised to Take Over, http://www.human-law.org/human law/2006/03/wifi_on_the_ris.html (Mar. 17, 2006). 96 Id. 97 Skype, Wikipedia, supra note 87. 98 Id. 99 Id. 100 See Case C-241/91, Radio Telefis Eireann (RTE) v. Comm’n of the European Comtys., 1995 E.C.R. I-743 [hereinafter Magill]; Korah, supra note 58, at 138. 101 Magill, 1995 E.C.R. I-743. 102 Korah, supra note 58, at 138. 103 Id. at 139. The stations had only provided programme information to daily newspapers on a limited basis. Magill, 1995 E.C.R. I-743 at para. 9. 104 Korah, supra note 58, at 138. 105 Id. 106 As the ECJ in Magill noted, “In the absence of Community standardization or harmonization of laws, determination of the conditions and procedures for granting protection of an intellectual property right is admittedly a matter for national rules and the exclusive right of reproduction forms part of the author’s rights, with the result that refusal to grant a licence, even if it is the act of an undertaking holding a dominant position, cannot in itself constitute abuse of a dominant position.” Magill, 1995 E.C.R. I-743 at para. 49 (citing judgment in Case C-238/87, AB Volvo v. Erik Veng (UK) Ltd., 1988 E.C.R. I-6211 at paras 7–8).
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listings had not been the subject of any E.U. directive. But many people think that the Court of Justice viewed the British and Irish protection for television listings as suspect, and used a novel application of competition law to do i ndirectly what it could not do directly.107 The Court held that: 앫 The television stations were the only sources of the basic information,108 their refusal to supply this information prevented the appearance of a new product which the stations did not offer and for which there was constant consumer demand;109 앫 There was no justification for the refusal;110 and 앫 The stations reserved to themselves the secondary market of weekly TV guides, by excluding all competition on that market.111 Television stations, whether broadcast, cable, or satellite, need television listings to serve their consumers. To the extent that a competitor wants to use those listing, the market would be defined again as the station’s TV listings. If the listings were still protected by copyright, then stations would continue to have dominance even if peer production of video alternatives were rampant. Thus, on the sui generis facts of Magill, the result would be the same. However, the potential role of peer production in the production of video products that can compete with traditional television shows is strong. YouTube and similar sites promise to provide an Internet-based alternative to local television stations.112 YouTube was started as an “angel-funded enterprise” in garage with an initial investment of US$3.5 million.113 In November 2006, Google announced that it had reached a deal to acquire the company for US$1.65 billion in Google’s stock.114 “YouTube’s pre-eminence in the online video market is staggering.”115 While it has some copyrighted works 107 Duncan Curley, Balancing Intellectual Property Rights and Competition Law in a Dynamic, KnowledgeBased European Economy, in The Intellectual Property Debate: Perspectives from Law, Economics and Political Economy 220 (Edward Elgar 2006) (noting that “(i)n consequence of the ruling in Magill and the particular facts of that case, there was much subsequent debate in the literature about whether ‘exceptional circumstances’ might apply to force compulsory licensing of IPRs in circumstances where IPRs were thought to be undeserving of legal protection, without the requirement to demonstrate that other unilateral conduct as well”). 108 Magill, supra note 194, at para. 53. 109 Id. at para. 54. 110 Id. at para. 55. 111 Id. The European Court of Justice’s judgment was extremely vague. The precise scope of “exceptional circumstances” remains unknown even to this day. Whether this was because of a shrew desire to preserve wiggle room to refine the conditions for access or otherwise will remain for all time, a matter for academic speculation. See Korah, supra note 152, at 139. 112 According to Wikipedia, “YouTube is a popular video sharing website where users can upload, view, and share video clips.” YouTube, Wikipedia, http://en.wikipedia.org/wiki/Youtube (last visited Oct. 6, 2007) [hereinafter YouTube, Wikipedia]. “Videos can be rated, and the average rating and the number of times a video has been watched are both published.” YouTube, Simple English Wikipedia, http://simple.wikipedia.org/wiki/YouTube (last visited Oct. 11, 2007) [hereinafter YouTube, Simple Wikipedia]. The New York Times reported that Hollywood producers are already placing a full television series, “Quarterlife,” on MySpace, another free access community site. Michael Ciepley, Show Series to Originate on MySpace, N.Y. Times, Sept. 12, 2007, available at http://www.nytimes.com/2007/09/13/business/media/13quarterlife.html (describing the show as “a regular television series, made by network-caliber writers, directors and production crews”). 113 See YouTube, Wikipedia, supra note 112. 114 Google closes $A2b YouTube deal, Reuters, Nov. 14, 2006, available at http://www.theage.com.au/news/ Busness/Google-closes-A2b-YouTube-deal/2006/11/14/1163266548827.html. 115 “According to a July 16, 2006 survey, 100 million clips are viewed daily on YouTube, with an additional 65,000 new videos uploaded per 24 hours. The site has almost 20 million visitors each month, according to Nielsen/NetRatings; . . . [a]ccording to the website Hitswise.com[sic], YouTube commands up to 64% of the UK online video market.” Mysite.cc, http://www.mysite.cc/ (quoting http://en.wikipedia.org/wiki/YouTube) (last visited Oct. 11, 2007). See also USATODAY.com, YouTube Serves up 100 Million Videos a Day Online, Reuters, July 16, 2006, available at http://www.usatoday.com/tech/news/2006-07-16-youtube-views_x.htm? (last viewed Oct. 6, 2007); YouTube, Wikipedia, supra note 112.
262 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY uploaded in full without permission, its main attraction are the massive independently produced videos of members of the public, or excerpts chosen and edited by members of the public of copyrighted works. This creative force has been unleashed and will be difficult to stop. It has already created a huge audience that otherwise would most likely would be watching traditional television programs. As the sophistication of these public creators increases, the product will improve. We might see sophisticated shorts and, perhaps, full length programs that will cut sharply into the market share of traditional shows.116 As a mark of its importance in setting the tone for the way media will be consumed in future, YouTube was named Time magazine’s “Invention of the Year” for 2006.117 With the emergence of digital video on demand,118 the need to rely on national broadcasters, and consequently, their indulgence in providing access to their television listings, will be obviated. As long as this emerging trend of independent global network of content providers sustains itself, Magill-type cases will not likely re-emerge. 4. FairPlay Apple developed the iPod, a portable music player, and iTunes, an online music store.119 Apple has sold more than three billion songs on iTunes,120 and accounted for 82% of legal downloads in the U.S. in May 2005.121 Apple has sold over 100 million iPods,122 and has over 70% market share of all mp3 players.123 It agreed to provide FairPlay,124 its digital rights management (“DRM”) protection,125 to the big-four music companies in order to entice them to make their music content available on iTunes. However, “Apple’s tight control over FairPlay” has prevented its users from playing files “bought from other 116 BBC Joins Forces with YouTube, ZDNet UK, Reuters, Mar. 2, 2007, available at http://news.zdnet.co.uk/ internet/0,1000000097,39286149,00.htm (BBC director-general Mark Thompson noted that “[i]t’s essential that the BBC embraces new ways of reaching wider audiences with nonexclusive partnerships such as these . . .”). 117 Lev Grossman, Best Inventions 2006: Invention of the Year, Time, Nov. 13, 2006, at 62, available at http://www.time.com/time/2006/techguide/bestinventions/inventions/youtube.html. 118 See Video on demand, Wikipedia, http://en.wikipedia.org/wiki/Video_on_demand (last visited Oct. 23, 2007). 119 Apple – iPod + iTunes, http://www.apple.com/itunes (last visited Oct. 7, 2007). 120 iTunes Store Tops Three Billion Songs, http://www.apple.com/pr/library/2007/ 07/31itunes.html (last visited Oct. 6, 2007). 121 MacDailyNews, Apple’s iTunes Music Store Passes 430 Million Downloads, Market Share Increases to 82-Percent in May, http://macdailynews.com/index.php/weblog/comments/5967/ (last visited Oct. 6, 2007). 122 Apple Introduces New iPod Classic, http://www.apple.com/pr/library/2007/09/ 05classic.html (last visisted Oct. 6, 2007). 123 Phillip Cruz, U.S. Top Selling Computer Hardware for January 2007, BLOOMBERG.COM, Mar. 13, 2007, http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=AAPL:U.S.&sid=ap0bqJw2Vpw I (last visited Oct. 6, 2007). 124 FairPlay, Wikipedia, http://en.wikipedia.org/wiki/FairPlay (last visited Oct. 23, 2007). 125 Digital rights management technologies attempt to control use of digital media by preventing access, copying or conversion to other formats. Digital rights management systems have received some international legal backing by implementation of the 1996 WIPO Copyright Treaty. See http://www.wipo.int/treaties/en/ip/ wct/trtdocs_wo033.html (last visited Oct. 6, 2007). Article 11 of the Treaty requires contracting parties to enact laws against DRM circumvention. Id. The U.S. has implemented the Digital Millennium Copyright Act (DMCA), while Europe has implemented the Directive 2001/29/EC (directive on the harmonisation of certain aspects of copyright and related rights in the information society), which requires E.U. member states to implement legal protections for technological prevention measures. See Digital Millenium Copyright Act of 1998, available at http://www.copyright.gov/legislation/dmca.pdf; Council Directive 2001/29/EC, para. 47, 2001 O.J. (L 167) 10 (EC), OJ 2001 L167/10 (Westlaw). Wikipedia describes digital rights management as follows: “Digital rights management (DRM) is an umbrella term that refers to access control technologies used by publishers and other copyright holders to limit usage of digital media or devices. It may also refer to restrictions associated with specific instances of digital works or devices. To some extent, DRM overlaps with copy protection, but DRM is usually applied to creative media (music, films, etc.) whereas copy protection typically refers to software.” Digital rights management, Wikipedia, http://en.wikipedia.org/wiki/Digital_rights_management (last visited Oct. 23, 2007).
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online services.”126 It also prevents iTunes rivals from providing interoperable content.127 The French enterprise Virgin Media accused Apple of abusing its dominance by refusing to license its FairPlay digital rights management system in France.128 It claimed that in order to be a viable provider of online music, it had to be able to sell to iPod users.129 This meant access to FairPlay. In November 2004, the French Competition Commission rejected the complaint.130 It first held that because the market was rapidly expanding, new competitors were entering, prices were decreasing, and functionalities increasing, present market share did not reflect actual market power.131 Second, it held that FairPlay was not indispensable.132 There were other uses of pay-per-song and several other music portable players on the market. Finally, the DRM was easily circumvented by burning the song onto a compact disc, and ripping it into another format.133 In the U.S., a class action suit was brought against Apple in the U.S. District Court of Northern California.134 It was accused of leveraging its monopoly on the iTunes market to thwart competition in its iPod market.135 Pandora and Last.fm are potential alternatives to the DRM protected music from iTunes. These are essentially automated music recommendation and Internet radio services.136 “Users begin by entering a song or artist that they enjoy, and the service responds by playing selections that the program thinks are musically similar.”137 “Songs played are added to a log from which personal top artist/track bar charts and musical recommendations are calculated.”138 Users are then able to provide feedback on the individual song choices . . . which the system takes into account for future selection. Over 400 different musical attributes or genes are considered when selecting the next song. These 400 attributes are combined into larger groups called focus traits. There are 2,000 focus traits.139 126 Natali Helberger, Virgin Media versus iTunes, 2 Indicare Monitor 16, 16 (2005), available at http://www.indicare.org/tiki-read_article.php?articleID=150 (last visited Oct. 2, 2007). 127 See id. 128 See id. at 17. 129 See id. 130 See Didier Deneuter, No Abuse of Market Dominance by Apple According to the French Competition Council, EuroJuris International, Dec. 12, 2004, http://www.eurojuris.net/eng/article-detail.asp?ArticleId=206. 131 See Helberger, supra note 126, at 18. 132 Id. 133 See Terrence O’Brien, The New Weapon Against Online Music Theft?, Switched, Aug. 20, 2007, http://www.switched.com/2007/08/20/a-new-weapon-aganst-online-music-theft/ (last visited Oct. 2, 2007). In March 2006, the “[French Senate passe[d] a watered[-]down DRM bill” forcing suppliers of DRMs to provide information necessary for interoperability. Marc Perton, French Senate Passes Watered Down DRM Bill, Engadget, May 11, 2006, http://www.engadget.com/2006/05/11/french-senate-passes-waterd-down-drm-bill/ (last visited Oct. 2, 2007). 134 Tucker v. Apple Computer, Inc., 493 F. Supp. 2d 1090 (N.D. Cal. 2006). 135 See id. at 1094; see also Nancy Gohring, Apple faces US lawsuit over iTunes-iPod link, Infoworld, Jan. 2, 2007, http://www.infoworld.com/article/07/01/02/HNapplelawsuit_1.html (“Apple faces a lawsuit in the U.S. . . . over tying its iTunes music store to the iPod digital music player. . . . The suit was filed by a user, Melanie Tucker, and seeks class-action status. It alleges that Apple violates antitrust laws by refusing to allow music bought in its iTunes store to be played on any digital music player besides the iPod. It also charges Apple with not making it clear to customers that music from the iTunes store and the iPod are incompatible with music and devices offered by other companies. The suit asks that Apple be forbidden to continue to support the exclusive tie-in between iTunes and the iPod and that Apple pay damages to anyone who has bought an iPod or music from the iTunes store after April 28, 2003.”). 136 See Last.fm, http://www.last.fm (last visited Oct. 4, 2007); Pandora, http://pandora.com (last visited Oct. 4, 2007). 137 Pandora Users Groups at Last.fm, http://www.last.fm/group/Pandora+Users (last visited Oct. 4, 2007). 138 This is termed “automatic track logging scrobbling.” Last.FM, Wikipedia. http://en.wikipedia.org/wiki/ Last.fm (last visited Oct. 4, 2007). 139 See Pandora Users Groups, supra note 137.
264 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY These allow consumers to get the songs they want, as well as other similar samplings which they may enjoy for free anywhere and anytime they are connected to the Internet. With increasing penetration of WiFi and WiMax, consumers listening are able to enjoy the selection and convenience of songs downloaded from iTunes while on the move in their cities without any anticompetitive concerns with respect to interoperability. B. THE COMPETITIVE PROCESS IN A COLLABORATIVE WORLD
New low-cost collaborative infrastructures allow competitors and entrants to access markets in ways that only large corporations could manage in the past. The information and tools are available with a small amount of capital—dominance has been downsized.140 Indeed, as a growing number of firms see the benefits of mass collaboration, this new way of organizing could eventually displace traditional corporate structures as the economy’s primary engine of wealth creation. However, two issues should be resolved. First, it may be argued that evidence of change in the way IP markets operate is scanty. This suggests that the examples cited earlier are isolated occurrences or that they may only have minimal impact on the market power and strategies of dominant undertakings. Second, even if wikinomics could have a significant impact on analysis at the Interface, the business model could upset the traditional IP mechanism of rewarding innovation through temporary exclusivity. 1. Where Has Peer Production Succeeded Commercially? An argument may be validly raised that the impact of peer production on traditional dominance in the market is speculative. For example, open source has not seen significant success in personal computer desktop software so far.141 Market shares have not changed much.142 While there have been reliable open source software alternatives in major application software categories, it has proved difficult to gain any relevant market share from the dominating Microsoft products.143 The short answer is that changes in market behavior take time and happens in markets with suitable conditions. When computers were first introduced into offices, some expected a significant boost in productivity.144 However, Professor Paul David explained such a lag by pointing to a 140 For example, for a fee, SalesForce.com gives small and medium enterprises (“SMEs”) access to a library of Web-based business applications, which can be tapped into online to run their businesses. See On-Demand CRM Applications, http://www.salesforce.com/products/appexchange-applications/ (last visited Oct. 3, 2007). These applications operate like traditional software programs and can handle a wide range of business tasks. The big difference is that these management tools are stored remotely on the SalesForce.com platform. Because they are delivered over the Internet and written in standard Web formats, they are accessible to anyone who has an Internet connection and are easily interoperable with any business. Microsoft has taken notice. The New York Times reported on 9 November 2005 that several Microsoft internal memos from senior executives suggested that “Microsoft must fundamentally alter its business or face being at a significant competitive disadvantage to a growing array of companies offering Internet services. . . . [A few days later], Microsoft . . . announced that it would offer two new services—Windows Live and Office Live . . .” which are essentially Business Web versions of its more popular products. John Markoff, Internet Services Crucial, Microsoft Memos Say, N.Y. TIMES, Nov. 9, 2005, at C5, available at http://www.nytimes.com/2005/11/09/technology/09soft.html. 141 Mikko Välimäki & Ville Oksanen, The Impact of Free and Open Source Licensing on Operating System Software Markets, 22 Telematics and Informatics 97, 98 (2005). 142 “If one uses searches made on Google as an indicator, during June 2001 and October 2003, a steady 1% of all searches came from computers using Linux as the operating system. The market share of Mac OS has been around 3–4% while other non-Windows operating systems gaining another 4%. The rest of Google queries, that is over 90%, were made from computers running Microsoft Windows.” Id. at 99 n.1. 143 Mikko Välimäki, The Rise of Open Source Licensing: A Challenge to the Use of Intellectual Property in the Software Industry 19 (Fin. Turre Publ’g 2005), available at http://pub.turre.com/openbook_valimaki.pdf. 144 See Paul A. David, The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox, 80 Am. Econ. Rev. 355, 355 (1990). The noted economist Robert Solow quipped that “[w]e see the computers everywhere but in the productivity statistics.” Id.
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historical precedent.145 He noted that while the light bulb was invented in 1879, it took several decades for electrification to permeate the industrial process.146 Only when there was a critical mass of experienced factory architects, electrical engineers, and managers who understood the complementarities among the production line did electrification really deliver a productivity breakthrough.147 In the same way, while the impact of wikinomics is already beginning to be felt, changes in antitrust analysis may only be present necessary in limited technology and telecommunications markets. It may take some years before there is a critical mass of business models based on peer collaboration for antitrust analysis as a whole to be altered significantly. Yet it is significant that wikinomics has already found a willing audience in the governmental IP framework. The U.S. Patent and Trademark Office (“USPTO”) will soon begin experimenting with a wikinomics approach to reviewing patent applications.148 The Community Patent Review project aims to create an online system for peer review of patents.149 “It will support a network of experts to advise the Patent Office on prior art as well as to assist with patentability determinations.”150 By using social software, such as social reputation, collaborative filtering and information visualization tools, this project aims to “make it easier to protect the inventor’s investment while safeguarding the marketplace of ideas.”151 While there remains a risk that the system could be gamed, an opaque patent review system would likely be more susceptible to abuse than one where a community of peers can review and rate each others comments on a given patent application in an open and transparent forum.152 But the progressive march of wikinomics is not without its opponents. There are at least three reasons why it might be derailed. First, intrinsic to peer production is a continuing supply of willing collaborators. Many open source software collaborators are driven by a desire to counterbalance the dominance of software corporations such as Microsoft and the desire to be part of creating a better system. Idealism alone limits the quality and 145
Id. Id. at 356. 147 See id. at 358. 148 Posting of Anthony D. Williams to Wikinomics: The Blog, A Wikinomics Approach to the Patent System, http://www.wikinomics.com/blog/index.php/2007/03/05/a-wikinomics-approach-to-the-patent-system/ (Mar. 5, 2007, 19:26 EST). 149 Id. 150 Id. 151 Id. 152 Id. “The quality of patents has sharply decreased as underpaid and overwhelmed patent examiners struggle with a backlog of over 600,000 applications and growing.” Id. “Companies try to patent things that other people or companies will unintentionally infringe and then they wait for those companies to successfully bring products to the marketplace.” Id. Undertakings who file these patents and extract license fees from successful businesses play the patent system like a lottery. Id. “The real danger is that these questionable patents will end up driving up the costs of innovation by generating an increasing number of lawsuits, or threatened lawsuits, that genuinely innovative companies cannot avoid.” Id. The problem is so endemic in fields like software and electronics, “low-quality patents have become a serious drag on the technological and scientific progress that the patent system was designed to promote.” Id. See also U.S. Patent & Trademark Office, United States Patent and Trademark Office 2007–2012 Strategic Plan 13 (2007) (“We believe that partnership with stakeholders is crucial to defining, in a collaborative manner, solutions that will benefit the entire IP system. We also believe that such partnerships can offer keys to global IP solutions, as American inventors, entrepreneurs, and businesses have global issues to consider. As an example, in fiscal year 2006, the U.S.PTO cooperated with a private sector-led group that chose to focus on so-called ‘peer review’ as a possible means of improving the quality of patent application packages received by the USPTO. Private sector-initiated and -led efforts may provide the USPTO with important data and feedback that will help us, as stewards of the public trust, improve patent, trademark, and other IP systems for the benefit of all.”) (emphasis added), available at http://www.uspto.gov/web/offices/com/strat2007/stratplan20072012.pdf. 146
266 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY quantity of alternatives available to consumers. In order for peer production to become a fully sustainable alternative to current business models, it will need to incorporate elements of a structured system of financial rewards in the way forward thinking organizations such as Skype and P&G have done.153 Second, a large part by successful commercial models of peer collaboration relies in part of the use of copyrighted works. The trend then hinges on whether the law will provide for continued use of these works in some fashion through doctrines such as fair use or whether copyright owners will succeed in seeking to curtail use of their works. For instance, in March 2007, Viacom filed a $1 billion lawsuit against YouTube and Google, alleging massive copyright infringement.154 Viacom said in its complaint: YouTube’s brazen disregard of the intellectual-property laws fundamentally threatens not just plaintiffs but the economic underpinnings of one of the most important sectors of the United States economy.155 ... YouTube has deliberately chosen not to take reasonable precautions to deter the rampant infringement on its site . . . because YouTube directly profits from the availability of popular infringing works on its site, it has decided to shift the burden entirely onto copyright owners to monitor the YouTube site on a daily or hourly basis to detect infringing videos.156 Third, the progressive march of wikinomics rests in large part on a presumption that the Internet remains affordable for the large body of collaborative creators. Like the media industries, telecommunications firms “need to recoup their investments in maintaining and upgrading the telecommunications infrastructure.”157 Telecommunications firms may charge fees in exchange for giving faster service. Users who are used to fast service might become disaffected with collaborative sites that are too slow. Thus, those sites might lose both creators and viewers. On the other hand, the slower sites should have a market of people who cannot afford the faster service. There is no reason to think that those who cannot afford the faster service will no longer participate in the collaborative creative process or view it. This tiered Internet with different levels of service has created a strong debate on the merits “net neutrality.” Some have predicted very dire consequences.158 This structure 153 Another successful model of peer production is Google. See David Post & Bradford C. Brown, On the Horizon: ‘Peer Production’ Promises to Leap in Importance, InformationWeek, Jan. 2, 2002 (“Google . . . shows another side of peer production. It has become, almost overnight, the gold standard for search engines. What makes Google different from and better than other search engines is that it evaluates the usefulness of each of the billions of Web pages out there and the relevance of each page to a particular query by counting and analyzing the links leading into the page in question. In other words, it lets the network do the hard work of ranking Web pages. It’s as though everyone who builds a Web page and links to other pages is working for Google, helping it provide better service to its customers.”), available at http://www.informationweek.com/story/showArticle.jhtml?article ID=6500771. 154 Complaint, Viacom Int’l Inc. v. YouTube, Inc., No. 1:2007cv02103 (S.D.N.Y. Mar. 13, 2007), available at http://ngdaly.googlepages.com/ViacomvYouTube.pdf. 155 Id. at para. 2. 156 Id. at para. 6. 157 Tapscott & Williams, supra note 4, at 273. 158 Id. As Don Tapscott and Anthony Williams dramatically put it, “[i]f Yahoo pays the freight, BellSouth users will find Yahoo’s search engine works faster and better than Google’s. So, in effect, BellSouth becomes a gatekeeper for the types of services that thrive on the Internet. . . . This is not just a war against the open Internet; it’s a war against economic development, a war against competitiveness, and a war against innovation. In short, it’s a war against the future.” Id. at 273. In the wake of this statement, the Australian Competition and Consumer Commission has alleged that Google has deceived consumers by not differentiating between its organic search
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underlying much of the technological progress we take for granted today may collapse and choke the lifeblood out of the current and future collaborative creative process afforded by cheap and ready access to tec hnological infrastructure.159 If it does, society may have to turn to antitrust and competition law for a possible solution in the form of the essential facilities doctrine.160 2. Is Peer Production a Threat to the IP Mechanism of Rewarding Innovation Through Temporary Exclusivity? There is a view that “if innovators are not going to be financially rewarded, the incentive for path-breaking innovation will eventually dry up, as will the money for deep R & D that is required to drive [technological] progress.”161 To this concern two responses may be given. First, peer production offers an open technological infrastructure.162 Most open source solutions like Linux provide the basic infrastructure on which software developers can build applications and businesses.163 It allows commercial entities to compete in areas to which they can add value without being inhibited by lack of access to basic technological infrastructure. Competitors will still have to develop a unique product or service, and a unique way to apply technology to areas of core value. This means competitors will still need proprietary insights, innovations and proprietary software tools to build unique products or services. As a consequence, durable competitive advantages in R&D-intensive industries will still be rooted in the growth of deep domain-specific knowledge. IBM shows how IP can be treated like a mutual fund—a balanced portfolio of some results and those which are being displayed because Google has received payment from an advertiser. See John Collins, Google Antitrust Case Opens in Australia, Irish Times, Sept. 11, 2007, available at http://contentagenda. com/articleXml/LN667905952.html?industryid=45174. 159 Here an irony may be observed. The Internet was created to facilitate the transfer of information, offering a communications network that could potentially survive a nuclear war. Yet it remains pitifully vulnerable to technological bottlenecks which could be put in place by service providers seeking to profit by auctioning information to the highest bidders. 160 The Essential Facilities Doctrine (“EFD”) grew out of cases where a vertically integrated owner had exclusive control over some facility, and used that control to gain advantage over competitors in an adjacent or downstream market. Herbert Hovenkamp et al., Unilateral Refusals to License, 2 J. Competition L. & Econ. 1, 10 (2006). It was first discussed in the U.S. in United States v. Terminal Railroad Ass’n, in which a set of railroads formed a joint venture owning a key bridge across the Mississippi River and excluded non-member competitors. 224 U.S. 383 (1912). In the E.C., the EFD was first discussed in Sea Containers v. Stena Sealink, where a port owner was prohibited from imposing competitive constraints on downstream customers. 1994 O.J. (L 15) 8 (1994). The doctrine has also surfaced in cases involving such “bottleneck” inputs as sports stadiums, warehouse spaces, and newspaper distribution systems. However, recent cases have focused on technological knowledge for access to networks. These include physical networks like electricity or telecommunications, where there are clear elements of natural monopoly and the presence of explicit regulation, as well as “virtual” networks. Richard N. Langlois, Technological Standards, Innovation, and Essential Facilities Toward a Schumpeterian Post-Chicago Approach 4–5 (U. Conn. Dep’t Econ., Working Paper No. 1999-07, 1999), available at http://www.econ.uconn.edu/working/ 1999-07.pdf. 161 Friedman, supra note 131, at 109. For example, “Microsoft’s success in creating the standard PC operating system produced the bankroll that allowed Microsoft to spend billions of dollars on R & D to develop Microsoft Office, a whole suite of applications” that it can now sell for a few hundred dollars. Id. As Craig Mundie, Microsoft’s Chief Research and Strategy Officer, put it: “The virtuous cycle of innovation, reward, reinvestment, and more innovation is what has driven all big breakthroughs in our industry. The software business as we have known it is a scale economic business. You spend a ton of money up front to develop a software product, and then the marginal cost of producing each one is very small, but if you sell a lot of them, you make back your investment and then plough profits back into developing the next generation. But when you insist that you cannot charge for software, you can only give it away, you take the software business away from being a scale economic business.” Id. 162 Id. at 91 (“Commercial software companies have to start operating further up the [software] stack to differentiate themselves. . . . The open source community is basically focusing on infrastructure.”) (quoting Jack Messman, chairman of Novell, Inc.). 163 Tapscott & Williams, supra note 98, at 91–92. See also Linux, http://www.linux.org.
268 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY protected and shared IP assets.164 “At a time when reliability and trust were the big question marks surrounding Linux, IBM indemnified client risk.”165 “Because it was reliable and free, Linux became a useful operating system for computers hosting Web servers, and ultimately databases, and today many companies consider Linux an enterprise software keystone.”166 Linux offers a viable platform uniquely tailored to bus iness needs for 20% of the cost of proprietary operating systems.167 A company that was proprietary, insular, and vertically integrated fifteen years ago now partners extensively with the open source community and is considered a positive force for collaboration and openness. IBM enjoys the goodwill of thousands of independent and corporate developers who are committed to the Linux vision and community growth. IBM’s partnering and collaboration with communities it does not directly control are strategic tools competitors have yet to master.168 In doing so, IBM gained a viable alternative to the Windows server on Intel-based platforms. Just as important, IBM has gained experience and knowledge in a vital new model of value creation. Today, Linux services and hardware represent billions of dollars in revenue. IBM estimates it has saved nearly a billion dollars per year compared to what it would have to spend on creating and maintaining an operating system in-house.169 More than that, supporting open source has enabled IBM to undercut competitors who charge for proprietary operating system software. Though Linux is free to use or modify, it has been embedded in all kinds of profitable products and services developed by large companies like BMW, IBM, Motorola, Philips, and Sony.170 Contributing to the commons is not altruism. Rather, it promotes vibrant business ecosystems that harness a shared foundation of technology and knowledge to accelerate growth and innovation. But in-house innovation alone will not be enough to survive in a fast changing and intensely competitive economy. The speed and complexity of change is such that no one firm can create all the innovations needed to compete in information technology, or in any other industry. With a little time and effort, most technology can be invented around. Firms that make the boundaries of innovation porous to peer collaboration have a better chance to outper form competitors that rely solely on internal resources and capabilities. As Joel Cawley, head of IBM’s strategic planning unit, put it: What we are seeing in so many different fields . . . is that the next layers of technical innovation involve the intersection of very advanced specialities. The cutting edge of technical innovation in every field is increasingly specialized. . . . Therefore to come up with any valuable new breakthrough, you have to be able to combine more and more of these increasingly granular specialties. That is why collaboration is so important.171
164 Id. at 26, 120. “For example starting in 1999, more than a dozen pharmaceutical firms abandoned their proprietary R&D projects to support open collaborations such as the SNP Consortium and the Alliance for Cellular Signaling. Both projects aggregate genetic information culled from biomedical research in publicly accessible databases. They also use their shared infrastructures to harness resources and insights from the for-profit and not-for-profit research worlds. Nobody gives up their potential patent right over new end products, and by sharing some basic intellectual property the companies bring products to market more quickly.” Id. at 27. 165 Id. at 82. 166 Id. at 24. 167 Id. at 81. 168 Id. at 82. 169 See id. at 78. 170 See id. at 65. 171 Friedman, supra note 37, at 439; see also Tapscott & Williams, supra note 4, at 297–98 n.6 (noting that “as
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Between 2001 and 2006, the pace of innovation has doubled in the pharmaceutical industry alone.172 When Procter & Gamble (“P&G”) realized that its army of 7,500 researchers was no longer enough to sustain its lead, it sourced 50% of its new product and service ideas outside their payroll, including the InnoCentive network.173 Ninety thousand scientists around the world are collaborating “to solve tough R&D problems for a cash reward.”174 P&G thus posts “R&D problems on the InnoCentive Web site, while ‘solvers’ submit their solutions in a bid to capture cash prizes ranging from $5,000 to $100,000.”175 In 2006, “more than 35% of [P&G’s] products in market ha[d] elements that originated from outside P&G . . . . And 45% of the initiatives in [its] product development portfolio ha[d] key elements that were discovered externally.”176 At P&G, R&D productivity had increased by nearly 60%, while “R&D investment as a percentage of sales [wa]s down from 4.8% in 2000 to 3.4% . . . “ in 2006.177 “Five years after the company’s stock collapse[d] in 2000, [it] . . . doubled [it’s] share price and ha[d] a portfolio of 22 billion-dollar brands.”178 This shows that our increasingly complex and interconnected world has made wikinomics not merely be an intriguing alternative to current models of IP exploitation, but their evolutionary successor. III. CONCLUSION In today’s IP markets, the war between stakeholders will be less over prices and output as it will be over the ownership and access to information. In this regard, it is important to recognize that protection and expansion of IPRs are means of serving a wider social purpose of promoting innovation, rather than satisfying an economic end in themselves. Properly conceived, they are tools for preserving and enhancing a system of free enterprise and free competition. Nevertheless, IPRs improperly constructed or applied may cumulatively yield unacceptably high social costs by compromising the competitive process. As Don Tapscott and Anthony D. Williams put it: Of course, as authors and business people we recognize that rewarding creativity and investment is central to promoting innovation. In theory, intellectual property law exists to do just that. But expansion in the law’s breadth, scope, and term over the last thirty years has resulted in an intellectual property regime that is radically out of line with modern technological, economic, and social realities. This threatens the chain of creativity and innovation on which we (and future generations) depend. In today’s economy we need an intellectual property system that rewards invention global complexity increases so do the list of challenges we face that are unsolvable by individual organizations acting alone. . . . There is simply no end to the requirements or possibilities for innovation. These complex problems demand cross-disciplinary and interorganizational solutions. Even comparatively simple products are becoming more complex. All of this complexity is fueling an increase in the requirement for openness and boundary-spanning collaborations”). 172 See Tapscott & Williams, supra note 4, at 13. 173 Id. InnoCentive is an open innovation company that takes research and development problems in the sciences, frames them as challenge problems, and opens them up for anyone to solve them. They give cash awards for the best solutions to scientists who meet the challenge criteria. See David Wessel, Prizes for Solutions to Problems Play Valuable Role in Innovation, Wall St. J. Online, Jan. 25, 2007, available at http://webreprints. djreprints.com/1657770067525.html. 174 Tapscott & Williams, supra note 4, at 13. 175 Id. at 98–99. 176 Larry Huston & Nabil Sakkab, Connect and Develop: Inside Procter & Gamble’s New Model for Innovation, Harv. Bus. Rev., Mar. 2006, at 58 para. 15. 177 Id. 178 Id.
270 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY and encourages openness—one that fuels private enterprise and sustains the public domain.179 If the legal incentives provided by IPRs stimulate the first-comer’s investments at the expense of second comers who wish to make investments on follow-on applications, IP laws would have traded one kind of market failure for another. This is the fear competition authorities have. However, wikinomics and the conditions that facilitate it are ushering us toward a world where knowledge, market power, and productive capability will be more dispersed than at any time in our history—a world where innovation will be fast, fluid, and persistently disruptive. Dominant undertakings which fail to grasp this will find themselves cut off from collaborative networks that are sharing, adapting, and updating knowledge to create value. But the idea of monopoly power being broken by individual effort is hardly new. The Roman Catholic Church had long been a predominant source of biblical knowledge.180 Then, in 1522, Martin Luther translated the New Testament from Greek to vernacular, and suddenly, the common man had access to the Holy Scriptures.181 This catalysed a huge incentive to read and find out spiritual truths for themselves, and it in turn created the impetus toward the development of the printing press.182 As Don Tapscott and Anthony D. Williams observed, wikinomics works best when at least three conditions are present: 1) [t]he object of production is information or culture, which keeps the cost of participation low for contributors; 2) [t]asks can be chunked out into bite-size pieces that individuals can contribute in small increments and independently of other producers. . . . . This makes their overall investment of time and energy minimal in relation to the benefits they receive in return. And, finally, 3) [t]he costs of integrating those pieces into a finished end product, including the leadership and quality-control mechanisms, must be low.183 Collaborative networks will grow as they are free. Switching costs are overcome by people who have a strong reason to do so. When innovators give consumers a new way of connecting, they will punch through any technical barrier. However, this may take several years. Significant shifts in market share take time, as there needs to be a critical mass for market tipping to occur. While wikinomics has not yet generated sufficient examples to justify an overhaul competition analytics in refusals to license cases, the point remains that some competitors and entrants now have easy access to business tools that only large undertakings could afford a few years ago and is setting the stage for a revolutionary change in the balance of power. This should be taken into account in the analysis of the anticompetitive potential of a refusal to license. As wikinomics penetrates the production and sale of IP products and barriers to entry are lowered, it may become increasingly more difficult to succeed in a complaint of abuse of dominance or monopolization. As competition becomes increasingly globalized, vague and interventionist competition laws will repel investors who can move their businesses offshore on short notice. In doing so, they will take with them invaluable technology which will give national economies a much needed edge.184 When
179 180 181 182 183 184
Tapscott & Williams, supra note 4, at 179. See The Dictionary of Bible and Religion, Bible Versions, 134, 135 (William H. Gentz ed., 1986). See The New Encyclopædia Britannica, Biblical Literature, Macropædia Volume 14, at 916 (15th ed. 1994). See id. Tapscott & Williams, supra note 4, at 70. See Korah, supra note 58, at 172 (“I remain concerned that the EC position is in many ways stricter than
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the dust settles, a new legal architecture may emerge that is better suited to vastly different economic realities of information, and to the technology upon which it subsists. *
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PROF. HANSEN: Heinz, you had some things you wanted to say about refusal to license. MR. GODDAR: There are many experts on European competition law here. I wanted just to add two comments from the German viewpoint. Even in Germany we have an Act185 against competition restraints — competition law, if you like. We had in 2004 a very interesting decision, called “Standard Barrel.”186 Some of you may have heard of it. What happened there was that there was a certain company that had developed with the German chemical industry, all over the place more or less, a new standard plastic barrel that was now the only “accepted” barrel the chemical industry could use for waste purposes in Germany. In its wisdom, that company had given licenses to three German companies to also make these barrels and to deliver them to German industries. German industry was happy with this. They had now four sources of supply, and this is usually what industry likes. Then came an Italian company who also wanted a license. The patentee that had patented the “standard barrel” said no. The Italian company was unhappy about this. The case came to the German Federal Supreme Court, which said, in essence, the following: If you have a dominant position — for example, by having a de facto standard, or even worse, if you have developed it in, let’s say, collusion (I could also say conspiracy) with the industry, with the market — you are fine if you don’t grant any license. That’s perfectly okay. If you are the patentee and you are the only source of supply, you can enjoy your intellectual property right, your patent. There is nothing wrong with this under German law. The first day you give the first license, however, you come into trouble. From then on, if you read the reasoning of that 2004 decision rightly, you are even suspicious from a prima facie view, as we say, to conduct a discriminatory act against Article 21 of German Law against Competition Restraints if you don’t grant further licenses to others, rather “discriminate” by not doing so, without justified reason. So I always tell people: Enjoy in Germany your patents! As long as you don’t license, you are fine. No problem — except, of course, in Magill 187 or IMS Health188 cases. That is a different story. German courts did not address this aspect in Standard Barrel. But as soon as you have granted a first license, in the case of a de facto standard situation, you
that in the U.S. This may encourage firms to perform their R&D and produce the results outside the Common Market, exporting the products to the Common Market. This avoids the wider scope of Article 82 and the special responsibility of dominant firms to give access to essential facilities.”). A recent reminder of this came from a South Korean competition case against Microsoft. Microsoft threatened to withdraw its Windows operating system from the Republic when its national competition authority imposed an order requiring Microsoft to remove code or redesign Windows uniquely for the Korean market. For reasons known best to itself, Microsoft later decided otherwise. See South Korea Fines Microsoft $32m, BBC News, http://news.bbc.co.uk/1/hi/business/ 4505698.stm (last visited Oct. 6, 2007). 185 Gesetz gegen den unlauteren Wettbewerb [Act against Unfair Competition] July 3, 2004, BGBl. I 2004 32/1414 (UWH). 186 Standard-Spundfass [Standard-Bung Barrel], Fed. Sup. Ct., [2004] GRUR 966; KZR 40/02. 187 Joined Cases C-241 & C-242/91 P, Radio Telefis Eireann and Independent Television Publ’ns v. Commission, [1995] E.C.R. I-743, [1995] 4 C.M.L.R. 718 (Magill). 188 Case C-418/01, IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. KG, [2004] E.C.R. I-5039 (Apr. 29, 2004), available at http://curia.eu.int/jurisp/cgi-bin/gettext. pl?lang=en&num=79959570C19010418& doc=T&ouvert=T&seance= RRET& where=().
272 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY are in trouble. You must grant further licenses; there is no chance anymore to enjoy your monopoly situation in a discriminatory manner. QUESTION: A quick question. Do you have to sell them at the same price? If you sold a license to one person for $10.00, could you then sell a license to another person for $100.00? MR. GODDAR: Unfortunately, the Federal Supreme Court did not go into that detail. They only said you must, in principle, also give the possibility to manufacture or supply to some other licensees. They did not go so far as to say that all the licenses have to be under the same conditions, but they must be under conditions — this is a clear outflow of that decision — which are similar enough not to make the product of the fourth or fifth licensee “unwished” by the market, i.e., that you would give him such unfavorable license conditions that the product could not, in fact, anymore compete. The latter is a well-known “ETSI problem,” where such wonderful clubs give everybody the possibility — to a Chinese newcomer in the mobile phones market, for example — to enjoy the standard. But he has to pay something like 53 percent “stacked” royalties, which makes a product virtually unsalable in Europe. So you would not have to do it at the same price. The licenses may have different prices, but it must not be so different that entry into the market would be unduly difficult and actually even impossible. This would be the outflow of that decision. PROF. HANSEN: How different is this than the law in many countries? Is this unique? How would you characterize it? MR. GODDAR: I think that in Europe it would not be unique. I think Germany was the only country, outside of the European Court of Justice (ECJ) and its jurisdiction, that I am aware of where this problem came up. This is why it became pretty famous in Germany. And Germany is not an unimportant market in Europe. QUESTION: What I understand is that if you do not license your patent, you are fine. If you license it once and somebody comes and asks for a license, you have to give it. MR. GODDAR: Yes. QUESTIONER: It amounts to compulsory licensing for the second and third and so on. MR. GODDAR: The Supreme Court made an interesting remark. The first defense, of course, of the German company and patentee was that this is compulsory licensing. Compulsory licensing is regulated in Article 24 of the German Patent Act. This regulation is TRIPs-compliant compulsory licensing. The patentee argued that there would be no other way to give a compulsory license. The Federal Supreme Court said, however, in a crystal-clear manner, even in one of the two headlines of the decision, that Article 24 of the German Patent Act describes one possibility for compulsory licensing, which is often used in Germany — never decided, but a nice leverage to facilitate the voluntary licensing, let’s say, in our Patent Act — but this does not mean that there are not other reasons, based on competition law, for granting compulsory licenses. This is the basis of the decision of the Federal Supreme Court. PROF. HANSEN: Any further comments on this? Valentine, do you want to talk about a different topic? PROF. KORAH: I have a different topic. PROF. HANSEN: Go ahead. PROF. KORAH: I can’t resist mentioning the GlaxoSmithKline case,189 because the Court 189 December 2006, T-168/01, Appeal lodged to ECJ; Case C-515/06 P, Glaxo Smith-Kline Servs. Unlimited v. Commission of the European Communities, 2007 O.J. (C 56) 31, available at http://www.cgsh.com/files/tbl_ s5096AlertMemoranda%5CfileUpload5741% 5C693%5C83-2006.pdf.
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of First Instance (CFI) says that in Consten and Grundig190 the ECJ said that when looking to the object of the agreement — I am not talking about its effect — one must take into account the economic and legal context. I do not know anyone who took that view of the Consten and Grundig case at any time before they read the Glaxo decision. The Glaxo judgment is only from the CFI. I think Chris Stothers was saying that there were four appeals from that decision. It is a fairly recent judgment, so it is going to be a couple of years, I suppose, before we get anything from the ECJ. But it seems to me the beginning of a complete change. In GlaxoSmith Kline we didn’t get everything. The CFI said that the dual-pricing agreement did not have the object of restricting competition and the Commission had to establish much more about the economic context. Nevertheless, when it came to look at the effect, it said that dual pricing did have an anti-competitive effect. This is one of those pharmaceutical cases where the maximum price is controlled in every Member State, one way or another. Consequently, in Greece, where the control was at the lowest level, and Spain all the wholesalers were buying far more than they needed in order to sell it in the countries where the control was at a higher level. Glaxo admitted that its intent in requiring of the dealers — and the dealers signed a contract — different prices for different destinations was to avoid parallel trade. Even so, one has one of the sacred cows of the competition department of the Commission saying that this is bad, and the CFI knocked it down as regards object. Nevertheless, the main destination of the parallel trade was the United Kingdom, and the U.K. government did grab back some of the savings that the wholesalers made by buying from Greece. The CFI said that there was a detriment to consumers and that the agreement infringed Article 81(1), though it had a very small effect. It also upheld the refusal by the Commission to grant an exemption under Article 81(3). I do not know how one can reconcile these three bits of the judgment. But we live in interesting times. PROF. HANSEN: What do you think of the chances on appeal? PROF. KORAH: We don’t know which members of the ECJ will sit, do we? Judge Vesterdorf retires in the summer, so he won’t. I think it’s the year when the mission of a third of the judges ends. Some may, of course, be repeated, but others will not. PROF. HANSEN: I thought you said this was a CFI case. PROF. KORAH: This is a CFI case. PROF. HANSEN: It has gone to the Court of Justice. PROF. KORAH: It has been appealed by four people. PROF. HANSEN: So what does Vesterdorf have to do with it?191 PROF. KORAH: You were asking what would happen at the next stage, on the appeal. PROF. HANSEN: Yes, but that is in the Court of Justice. Judge Vesterdorf is in the CFI. PROF. KORAH: Yes, sorry, I should not have mentioned Vesterdorf. But up to half the judges in the ECJ may be retiring in the summer. The appeal is likely to be heard by three or five judges. I think it is theoretically important. It will be heard by at least five judges, and possibly even a full court. I do not think one can possibly prejudge that. 190 Joined Cases 56 & 58/64, Etablissements Consten SA and Grundig-Verkaufs- GmbH v. EEC Commission, [1966] E.C.R. 299, [1966] C.M.L.R. 418, C.M.R. 8046 (July 13, 1966). 191 Case C-501/06 P, Appeal brought on 11 Dec. 2006 by GlaxoSmithKline Servs. Unlimited (GSK), anciennement Glaxo Wellcome plc against the judgment of the Court of First Instance (Fourth Chamber, Extended Composition) delivered on 27 Sept. 2006 in Case T-168/01, GlaxoSmithKline Servs. Unlimited v. Comm’n, 2007 O.J. (C 42) 11, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri =OJ:C:2007:042:0011:0011: EN:PDF.
274 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY PROF. HANSEN: So the jurisprudence of this is slim. It is going to be a case of first impression in the Court of Justice. PROF. KORAH: No. There have been lots and lots of cases where the Court has referred to the consumer. The Commission says that the agreement has the object of restricting competition because it controlled the freedom of buyers to sell in other countries. There is lots of jurisprudence the other way. PROF. HANSEN: So why is it so hard to predict? PROF. KORAH: Competition policy has changed immensely. We started liberalizing vertical agreements with the distribution regulation eighteen years ago.192 The Commission has started to rethink everything and many people are saying that economics is now important. We have a chief economist advising the Commission. There is an attitude that is much closer to that in America. The pharmaceutical industry is very, very special. They have regulation as to distribution. Once they have started to distribute, they cannot restrict the supply, under national law. The maximum prices are regulated at different levels in each Member State. If one goes back to the Syfait opinion of Francis Jacobs a couple of years back, everything is different.193 He even sets out Ramsey pricing,194 which the Commission has never done. No one did in the court, as opposed to the advocate general (he is a member of the court). Producers of pharmaceuticals have very high overheads, very high fixed costs, virtually no marginal costs. This is a case where I think almost any economist would want discrimination.195 It wasn’t Glaxo that has split the Common Market; it was the regulation in Member States. PROF. HANSEN: We have a weak CFI decision, a lot of things going in the other direction. So is there a decent chance the ECJ will reverse? PROF. KORAH: I just don’t know how decent the chance is. But this could affect all patent licenses in the pharmaceutical industry because it is the industry where there are the huge investments in R&D and it is the industry where the splitting of the Common Market is done by the national regulation. PROF. HANSEN: Susan, as an economist, what does an economist have to contribute that is going to enlighten us on this? Are you an economist who thinks like a lawyer or thinks like an economist? MS. MANNING: I am an economist who worked for a law firm for seventeen years, so I have been well indoctrinated. I am of the view that economics can shed quite a bit of guidance and light, not only on the issue of refusal to deal, not only in terms of firms trying to understand what the limits are that they have, but also helping to inform judges and juries. I always go back to three basic economic principles and apply those when I am looking at restraints of trade, something like refusal to deal. I go back to consumer welfare. I go 192 Commission Regulation (EC) No 2790/99, December 22, 1999, on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices, 1999 O.J. (L 336) 21, available at http://eur-lex. europa.eu/LexUriServ/LexUriServ.do?uri =OJ:L:1999:336:0021:0025:EN:PDF. 193 Case C-53/03, Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and Others v. GlaxoSmithJline (Opinion of Advocate General Francis Jacobs, Oct. 28, 2004), available at http://curia/europa. eu/en/actu/communiques/cp04/aff/cp040087.en.pdf. 194 Ramsey pricing, a linear pricing scheme designed for the multiproduct natural monopolist, is concerned with prices that maximize the sum of industry consumer surplus and profits. See Frank Ramsey, A Contribution to the Theory of Taxation, 37 Econ. J. 47 (March 1927). 195 That is probably because most economists believe in total welfare, whereas the agencies in Europe and the EC profess belief in consumer welfare.
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back to the ultimate competitive objective that we have. In the United States and in Europe, it is substantial lessening of competition. Then I look clearly at the economic incentives that are involved in the parties and their refusal to deal, not only the licensor, but also the licensee, in wanting a license. So let’s start with the economic incentives of the licensor and the licensee. As an economist, we believe that if you can identify what the economic incentives are of the parties, then you can quantify them, or at least approximate them. That is an important step in looking at the competitive aspects of refusals to deal. If you can estimate what the economic incentives are, the gains and losses, the benefits and the harms, to each of the parties, then you can look at it in terms of consumer welfare, simply weighing those objectives. When you look at it in terms of consumer welfare, you are looking at pricing issues, you are looking at output issues, and you are also looking at economic efficiency and, most importantly in intellectual property, innovation and incentives to innovate. All of those can be identified, I think — not always perfectly, but at least they can be approximated. I think once you have sort of set out that paradigm, where you have looked at consumer welfare of offsets, you can weigh those. Then you can apply the third principle, and that is whether or not there has been a substantial lessening of competition. For economists, in situations such as refusals to deal, we are not really looking at it in terms of whether a license enhances competition. Rather, we are looking at it from a little different perspective — that is, whether the refusal to license harms competition. I, as an economist, think that that is probably a reasonable standard, or economic principle, to look at and not necessarily just the image of whether or not there has been an enhancement of competition, the fact of whether competition is harmed. PROF. HANSEN: To what extent does the law reflect your analysis? MS. MANNING: I think, in some respects, when you look at refusals to deal, they are looking at whether or not it has a competitive effect. When you go to apply the law — and I am certainly not a lawyer — I think you can look at it in terms of whether or not there is an adverse effect in the market from refusing to license. If you look at it from the reverse perspective and only look at whether you are enhancing competition, then I think you are getting into not necessarily what I would call the basic principles of what underlies consumer welfare. PROF. HANSEN: That is your view as an economist in the United States. MS. MANNING: Yes. PROF. HANSEN: What would be the view in Europe of that approach? Do you know? MS. MANNING: I am not as familiar with Europe. PROF. HANSEN: They are pretty ignorant in Europe of economics, aren’t they? [Laughter] MS. MANNING: But as Valentine says, they are becoming more interested in economics. There is a role for economics to play. Underlining our basic system of antitrust is the notion of competition — perfect competition, monopoly, consumer welfare. PROF. HANSEN: Not everything is consumer welfare. Daryl mentioned in his talk that there is a much more open view about refusals to deal in Europe. One of the issues in Europe is small-firm autonomy. They want them to be players, and usually small firms have less economic clout and less ability to get deals. Basically, they need government to help them. It is really not even necessarily consumer-enhancing. It is more of a populist view about how you run an economy with small firms. MS. MANNING: But I think that does go to consumer welfare. If you think of consumer
276 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY welfare as also incorporating an element of lack of innovation or disincentives to innovation — PROF. HANSEN: No, no. Look at WalMart. Look at A&P. They basically got rid of, as a result of their consumer-enhancing prices, the mom-and-pop stores, the wholesalers — all driven out of business. Consumers got more selection, cheaper prices. Looking at it strictly from a consumer-enhancement view, you are going to get a different view than if you are saying, “We want wholesalers. We want mom-and-pop stores. We want all of these things.” MS. MANNING: But the result that you are talking about is the difference between short-term consumer welfare and long-term consumer welfare. You could certainly argue that the appropriate economic incentives are there. Long-term consumer welfare arguably may not have been enhanced by the refusal to deal or restraints of trade in that situation, although there may have been some positive short-term benefits in consumer welfare. PROF. HANSEN: John Temple Lang, you have been quiet over there, which is actually not your style, so it worries me. What do you have to say about this? MR. TEMPLE LANG: First of all, on the last point it seems to me that it is quite right to say that a compulsory license can be given only if a refusal has a positively harmful effect on competition. It is not the business of competition law to require a license merely because somebody thinks there would be more competition if there was a license. So there has to be a proof of an abuse, and the compulsory license, if it is to be ordered at all, must be the remedy. PROF. HANSEN: You are talking about the European Union now? MR. TEMPLE LANG: Correct. Apart from that, I want to make three quick points, and I have a problem. The first point: Do remember that a great many of the cases that have actually been dealt with under EC law have been discrimination cases and not cases of refusal to grant a first license. That is important for understanding purposes. Secondly, bear in mind that you ought to be able to identify the principle under Article 82 with which you are concerned. The principle with which you are primarily concerned, except in distribution cases, is the clause that says that it is illegal for a dominant company to limit the marketing, production, or technical development of its competitors. Those words have been added by case law; they are not in the Treaty.196 But that’s what it means — in other words, foreclosure. In a foreclosure case, if there is sufficient harm for consumers, a compulsory license may be the appropriate remedy. The last point: Don’t be fooled into believing that the only possible kind of exclusionary behavior that harms consumers is the suppression of a new kind of product for which there is an unsatisfied demand. That’s just one specific example, which has arisen in a couple of cases, but you shouldn’t take it as the only case. Now, let me put forward my problem, which concerns the new type of product. I represent a company that has an idea for a new kind of product and we need a license from a dominant company. I go to the dominant company and I explain this. The dominant company says, “That’s very interesting, but we don’t know whether we have an obligation to give you a license, because you haven’t told us what your idea for the new product is.” I say, “Well, I’m not going to tell you, because if I told you, you would go ahead and make it yourself. You have all the technology that you require to do that.” 196 Treaty Establishing the European Community, Feb. 7, 1992, 1992 O.J. (C 224) 1 , [1992] 1 C.M.L.R. 573, 626 [hereinafter EC Treaty], incorporating changes made by Treaty on European Union, Feb. 7, 1992, 1992 O.J. (C224) 1, [1992] 1 C.M.L.R. 719. The EC Treaty was amended by the Treaty of Amsterdam, Oct. 2, 1997, 1997 O.J. (C 340) 1.
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How do I overcome that problem? It seems to me that I am not able to overcome that problem and that a dominant company is in the position to play stalling tactics, unless I can actually get a blocking patent of my own which will prevent the dominant company from making use of my idea. If I get a sufficiently effective blocking patent, I can solve the problem. Am I right? PARTICIPANT [Prof. Hugh Laddie, University College London]: No. You are wrong. You say you need a blocking patent. The idea would be that if the big company went off and used your idea, you could sue them. So you are contemplating an environment in which you are prepared to sue the big company. If that is the case, then you do not need a blocking patent at all, because certainly, under common-law principles, if you went to a big company and said, “I will tell you in confidence the details of my product so that I can obtain the license. You mustn’t use this except for the purpose of deciding whether to grant me a license,” and they went off and made the product or used your idea, you would sue them for breach of confidence. On the assumption that you are prepared to sue, it makes no difference. You would be protected anyway. It is well-established under common law that you can sue somebody for misusing information which was given for one purpose by using it in another way. It’s the same with patents. MR. TEMPLE LANG: That’s fine if you can prove it. But suppose the dominant company says, “That’s very interesting. We just had that idea ourselves, and we are developing it?” PARTICIPANT [Prof. Laddie]: You know what? I have not actually seen a single case where a company has gotten away with that one. They all say they thought of it themselves, and they never prove it. PROF. KORAH: Is that the same under German law? MR. GODDAR: I was just thinking about this. In principle, this would also apply in Germany, of course. But don’t forget, countries like Germany — I don’t wish to bring Germany into the foreground here — where we do not have discovery, where it is so difficult to find out what really behind the scene took place in the dominant company in this case, whether they independently, “unfortunately,” had this idea — how would you ever find out? They never paid any attention to the wonderful invention, and they would say, incidentally, this is the proposal they just got here, and you will probably not be able to find out the truth. So I fully agree with what you are saying, if you can prove it. But I would feel better for my client if I would, as a life insurance policy, have deposited a nice patent application on this improvement, just to make life easier. PARTICIPANT [Prof. Laddie]: Heinz, you may not have discovery in Germany, but you don’t have gullible judges. PROF. HANSEN: Do you agree with that? MR. GODDAR: I would agree with that. QUESTION: I have a question for Ms. Manning. In all the refusal-to-deal cases, the best cases are those where you have an industry standard or you have an interface-type thing that is protected by IP. In all these “good” cases, as I call them, the IP in question protects subject matter that actually creates a barrier to market entry, essentially. You need access to the industry standard, you need access to the interface subject matter, in order to get into the market. What are the efficiency justifications for allowing these sorts of barriers to market entry to continue? What sort of arguments would an economist put forward to justify the refusal to deal? In doing so, you basically perpetuate the existence of these barriers to market entry. MS. MANNING: I think that is, in fact, a very difficult case. When you are looking at the
278 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY incentives of the licensor who is refusing to deal or to license his product, that is a pretty high threshold, as to why it is in his economic interest to prevent that market entry. You could say it is because, as we have just been talking about, “I can introduce a substitute product or get a head start on you.” But as the patent holder refusing to license, what you are really looking at is whether or not, in refusing to license, I am worse off or better off. The only circumstances I can think of where it would be economically justified, from an efficiency standpoint, is if the licensor was in a position to be able to introduce a competitive product. But even then, you can look at whether or not the monopoly rents from the introduction of that patent could be essentially offset by the fees or royalties that he would obtain by licensing that product. It seems to me that the license holder has to look at whether or not he is better off or worse off by the license. In most terms, that would be quantified in dollars or euros. Other than his introducing a product that would be competitive and achieve those monopoly rents himself, I cannot see why it would make sense from an economic perspective to refuse to license. PROF. HANSEN: Let me ask a question. The premise of Daryl’s talk in the beginning was that we are entering a brave new world in which we have this collaborative creativity, low market barriers to entry. We have Firefox taking large market share in a short amount of time, competing with Internet Explorer. Therefore, the normal rules that we have applied about dominance and other things may become irrelevant because of the marketplace scenario. I am not sure in Europe that would make a difference. It is almost like telling someone the sun doesn’t revolve around the earth. They are just going to reject it, and maybe hang you for it. In Europe it is almost a secular religion that “big is bad” — Microsoft is “badder” — and even if the facts do not support those allegations, especially in the Commission, they are going to go after them. That may just be my hunch. The Warren Court’s approach to antitrust was not changed by hardcore people in DOJ or FTC; it was changed by the Reagan Administration changing the heads of the agencies and putting judges into the courts. He was able in a short amount of time to bring in a modified Chicago School approach. Europe is much more entrenched in the Commission, in terms of hierarchies and everything else. I know a number of “young Turks” have been disappointed in the Commission because it was not moving fast enough to what they thought was a law in economics. To what degree does the real world matter, if it is almost a political issue about “size is bad” and the activities of “size is bad?” That is a neutral question, John. MR. TEMPLE LANG: It sounded neutral to me. I think there are two answers. One, we are going to know more in another few weeks, when the Commission publishes a revised version of its guidelines on Article 82.197 I do not know what is going to be in them, but I hope they will be substantially better than the last lot. I think they will be better in the direction that you would like to see. The other point is a different one and concerns the court. Both the CFI and the ECJ have been very slow to pick up on economic thinking on competition matters and have been slow to criticize the Commission for not having done so. I think that we can expect that, if and when the Commission takes the lead and says something better than it has done in the past on Article 82 — the rest of its thinking on economics is not too bad, but it is still, judging by the last discussion paper, very unsatisfactory on exclusionary abuses under Article 82 — if the Commission takes a stiff drink 197
See http://ec.europa.eu/enterprise/pharmaceuticals/pharmacos/docs/doc2007/2007 _03/recom_cabr.pdf.
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and says the right things, I think we can expect the Court to follow. But the Court has not led the Commission so far. PROF. HANSEN: Valentine, do you have a view on that? PROF. KORAH: Yes. I heard that it wasn’t going to be published until early next year, but that it’s going to Member States fairly soon. We all hope that it will leak, but I hear people in the Commission telling me it won’t this time. I am bit doubtful about that. I think there is a bloody battle going on. The Ordoliberals did some wonderful things for competition. They said that we should attack national monopolies; we shouldn’t be worried about vertical agreements in the absence of strong market power. These were all very positive and helpful things that they said. But they also had an idea of Article 82, based on their experience under the Nazis and the loss of freedom, that people were entitled to get into the market, and that was part of their constitutional rights. That side of it is much more worrying. We get statements from the members of the Commission saying that competition is all about the proper allocation of resources and consumer benefit. There are some statements in the quarter to that effect. Are we going to have an American-based idea — and, indeed, I think it includes the common-law countries — that what we are concerned about is consumer welfare and efficient production and distribution, or are we concerned with the freedom of my wholesalers in Greece making a huge profit on selling in England? Clearly, I am on the American side of this, but I don’t know whether you are. PROF. HANSEN: I think God is, too, frankly. [Laughter] QUESTION: I am interested in whether there is indeed this perception in the United States that Europe still has this “big is bad” mindset. I am biased because I worked in the Commission on the Microsoft case. We did conduct a detailed economic analysis of the incentives of Microsoft, the concomitant harm to competition, what I would call an effects-based new approach, whatever you want to call it. So it’s interesting coming to the United States and hearing that there may still be this perception. I think there is recognition that we are moving forward. MR. TEMPLE LANG: I think there is undoubtedly a perception in the United States, and I think it’s almost entirely due to public-relations propaganda that has been put out by Microsoft and by various other companies, which has been very pervasive and, in a lot of cases, quite well concealed. There are now large numbers of academics, both in Europe and in the United States, who are being paid by larger American corporations, of which Microsoft is one, to make statements of the kind that we have just heard referred to, which I don’t think have any justification at all. I never heard the word “Ordoliberalism” until I read Dave Gerber’s book.198 I do not think it is true to say that there is still a view, derived from German inter-war competition-policy theory or economic theory, that says that everybody has a right to enter the market. The Treaty itself says that consumer harm is essential. That is said both in Article 81 and in Article 82, paragraph (b), the one that I was quoting a few minutes ago. I think it is extremely important for those of you who live on this continent that you should not be misled by the propaganda of large corporations. A friend of mine recently was asked whether he would be kind enough to write an article for, I think, the Financial Times, expressing a certain view, which they thought he agreed with. He said, yes, he would write the article, but he would have to say that he was 198
See Gerber, supra note 19.
280 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY being paid by this particular corporation to write the article. They said, “Thank you very much. In that case, we won’t bother you.” PROF. HANSEN: John, you can’t be serious about this crap you are giving out here. Are you? You actually believe it? MR. TEMPLE LANG: Yes. PROF. HANSEN: Then you are one of the most ridiculous conspiracy theorists I have ever heard. The idea that Microsoft is generating all this, and that, all of a sudden, exonerates everyone over there, and you can go about your business of doing the same old stuff you have been doing, nailing anybody who is big and bad. MR. TEMPLE LANG: I didn’t say that. PROF. HANSEN: I have heard this for years from people in DG IV, when it was DG IV. Come on. What is this Microsoft stuff ? You have millions of people who left your Commission because they were so upset with the reluctance of people in power there to switch to any sort of law and economics. This is not made up by Microsoft now. This is ridiculous. And try to stay neutral on this. MR. TEMPLE LANG :Yes, just as you are. There is a great deal of propaganda being put out by companies like Microsoft. This is a systematic business. There are academics who are being paid by American companies to argue that the Commission is wrong. Now, maybe the Commission is wrong on specific issues. I didn’t say the Commission was infallible. I am not saying that. I certainly didn’t say that the Commission knows all the economics it needs to know and acts on all the economics that it needs to act on. I said you have to be very careful — and I meant this — not to accept the popular prejudice against the European Commission, which has been put out as propaganda by some big American corporations. That is an important thing for you to bear in mind. PROF. HANSEN: It’s important that you don’t have to address the merits, but you just do an ad hominen attack. Anyone who goes to ad hominem — or ad corporem — usually can’t defend himself on the merits. That’s why you drop down to that, isn’t it? When you attack the person rather than answer the question — whether the Commission is actually doing it, and show examples of it — it’s usually because you can’t answer the question. If you don’t have the facts, attack the person making the allegation. MR. TEMPLE LANG: How long do you want me to go on for? PROF. HANSEN: Actually, I don’t want you to go on anymore if it’s going to be the same stuff you are saying. I have never heard that in my life, and I am old enough to be your son. [Laughter] I am shocked. I have to say I am completely shocked. If that’s what you are spewing forth in Europe, it’s kind of pathetic, actually. I am trying to stay relaxed. But I think there are legitimate arguments and legitimate cases. That, of course, is the perception, because that’s exactly what the Commission has been doing for years. The fact that it’s changing is great. But the idea that all this is just propaganda is nonsense. I know people in DG IV, Valentine knows people in DG IV, who left DG IV because they were getting nowhere with any sort of situation. Now it’s DG Competition. Maybe now, hopefully, it is changed. I was just asking the question, generally, of what you thought about the hierarchy or the rigidity of change in DG Competition — or at least there used to be — and whether there is any change or not. The fact of the matter is I get $100,000 a year from Microsoft, and it doesn’t influence me a bit. [Laughter] MS. MANNING: I think one of the problems that may exist at DG Comp at this point is the fact that they have hired economists, but the last time I spoke with one of the major
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economists there, they dispersed those economists throughout DG Comp, rather than having, as in the United States, a focused bureau of economics, as in the FTC, or an economic analysis group, as in the DOJ. When you disperse that analysis, sometimes you don’t get as strong a viewpoint to counter some of the factors that you are raising in a more united voice. PROF. HANSEN: Why don’t you tell us? QUESTION: That is not the case. There is a specialized kind of thing which is growing. We could go on for a long time, I guess. But in the United States as well, at least in the refusal-to-supply case, the case of the remedy, it is actually the same. Are you still convinced that there is some European Ordoliberalism? PROF. HANSEN: I am not convinced at all. I just asked the question. I don’t know enough, currently, about what is going on to make a judgment. QUESTIONER: Then the point is, it is exactly the same remedy for the same type of information in the European Union as the United States. So I would say that it has changed. PROF. HANSEN: Any final thoughts from the audience? QUESTION [James Love, Director, Knowledge Ecology International, Washington, D.C.]: On the refusal to license, the Italian government has issued three compulsory licenses for refusal to license since 2005 on pharmaceutical drugs, two on Merck products and one on a GlaxoSmith Kline product. The most recent was March 21, 2007.199 The European Commission filed a complaint against Taiwan on their compulsory license, which is a refusal-to-license case involving the CD-ROM patents on which Phillips had previously filed a complaint.200 The last thing I want to mention is that the eBay decision201 seems to be fertile ground in the United States for refusal-to-license cases. Microsoft has a compulsory license on the z4 patents on its digital rights management (DRM) technology. While they are complaining about the EU compulsory licenses on their protocols, they asked for and received a compulsory license on the z4 patents, after losing an infringement case in the United States.202 So I think there are a lot of different things going on in the refusal-to-license field right now. PROF. HANSEN: I think a moment of silence would be good to commemorate this session. John, any final word? MR. TEMPLE LANG: No. PROF. HANSEN: John, I apologize for getting overexcited. 199 Press Release, Italian Competition Authority, Italian Competition Authority ruled Merck must grant free licenses for Finasteride (Mar. 26, 2007), available at http://www.agcm.it/ agcm_eng/COSTAMPA/ E_PRESS.NSF/92e82eb9012a8bc6c125652a 00287fbd/28653b373e56772ac12572ab003a4d68; Press Release, Italian Competition Authority, Italian Competition Authority ruled Merck must license manufacture of Imipenem Cilastatine (June 21, 2005), available at http://www.agcm.it/agcm_eng/COSTAMPA/E_ PRESS.NSF/92e82eb9012a8bc6c125652a00287fbd/4d1b5a8692226567c125702800540 161?OpenDocument& Highlight=2,patent; Press Release, Italian Competition Authority, Italian Competition Authority press release, Pharmaceuticals: Antitrust says Glaxo has made amends and abuse of dominant position discontinued — Granting of license opens ways for manufacture of generic migraine drugs (Sumatriptan succinate) (Feb. 26, 2006), available at http://www.agcm.it/agcm_eng/COSTAMPA/E_PRESS.NSF/92e82eb9012a8 bc6c125652a 00287fbd/634fe21d.c342c220c125711d003692c3?OpenDocument&Highlight=2,p. 200 See Press Release, European Commission, European Commission launches investi-gation into granting of compulsory licences for CDRs by Taiwan (Mar. 1, 2007), available at http://trade.ec.europa.eu/doclib/ docs/2007/march/tradoc_133480.pdf. 201 eBay Inc v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006). 202 z4 Technologies, Inc. v. Microsoft Corp., 434 F. Supp.2d 437 (E.D. Tex. 2006).
282 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY MR. TEMPLE LANG: It’s that $100,000. PROF. HANSEN: I’m sure John will be going
around saying, “Hansen’s getting $100,000 a year.” Obviously, that was a joke. If I was getting $100,000 a year from Microsoft, I might not be here today. Thanks to the panel. Thanks to Daryl.
APPENDIX: European Competition Law and Refusals to Licence Intellectual Property Rights Dr. John Temple Lang203 The Relevant EU Legal Rules Any comprehensive view on compulsory licensing must give due importance to all the relevant legal principles stated in the Treaty: 앫 Article 4 (competition is an EU objective). 앫 Article 10 (the duty of Member States not to endanger the achievement of EC objectives). 앫 Article 98 (Member States accept the principle of an open market economy with free competition). 앫 Article 81 (a duty to licence on a non-discriminatory basis, as a condition for fulfilling Article 81(3)). 앫 Article 82(b) (a duty to licence, to prevent foreclosure or limitation of competitors if there would otherwise be harm to consumers). 앫 Article 82(c) (a duty to licence, to prevent discrimination). 앫 Article 295 (the Treaty does not affect national rules on ownership of property). Articles 81–2, the competition Articles, must be interpreted and applied in the light of the general Articles in the Treaty. An intellectual property right creates a legal monopoly, but does not necessarily create a dominant position. This is because the scope of a patent is not necessarily coextensive with the scope of the relevant product market. There may be unpatented products or processes which are substitutable for the patented product or process, and there may be other patents protecting products or processes which are substitutable for the product subject to the first patent. A patent can be “invented around.” Intellectual property rights may cost a lot to produce, but they can be used at very low marginal cost, so a price above marginal cost does not indicate market power. Two other basic principles are accepted by everybody. First, dominance, in itself, is never illegal. Only abuse of a dominant position is prohibited. European competition law gives no power to break up a legally acquired monopoly. Second, a dominant enterprise is free to compete, as long as it does not use exclusionary or exploitative methods. It is legitimate and procompetitive for even an already dominant company to develop or acquire intellectual property rights, and to exercise them in cases of infringement, even if the 203 Cleary Gottlieb Steen and Hamilton, Brussels and London; Professor, Trinity College, Dublin; Visiting Senior Research Fellow, Oxford. Some of the points made here are ex-plained in detail in John Temple Lang, Anticompetitive Non-pricing Abuses Under European and National Antitrust Law, in 2003 Fordham Corporate Law Institute 235 (Barry Hawk ed., 2004). Cleary Gottlieb represents Nokia.
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intellectual property rights give it an important competitive advantage. “The fact that a dominant trader has, by virtue of his dominance, a competitive advantage over competitors is not an abuse.”204 In practice, a distinction must be drawn between a dominant company which acquires the patent or other right from another company, and a dominant company which creates the intellectual property right itself. It is in the former cases that competition law is most likely to intervene. Foreclosure, First Licences and Discrimination in Later Licences Under Article 82(b), there is a duty to grant access if refusal of access would harm consumers by “limiting” the production, technical development, or marketing of competitors,205 either in a way in which it would not otherwise be limited, or if consumers are harmed because the emergence of a new kind of product, for which there is a clear demand, is being prevented. Under Article 82(c), there may also be a duty to grant access to the facility to a second or subsequent licensee, on non-discrimination grounds. It is primarily under Article 82(b), in the case of compulsory first licences, that controversy arises. Most of the reported cases have been discrimination cases under Article 82(c), although this has not always been clear. The distinction between foreclosure and discrimination is important because: 앫 There can be a duty to give access for the first time only under Article 82(b), which expressly requires proof of harm to consumers, for illegality.206 앫 The most useful test of exclusionary conduct is whether it “limits” possibilities otherwise open to competitors. These two points make Article 82(b) the legal basis for all cases of exclusionary or anticompetitive abuse, much the commonest kind of abuse cases. But the requirement of “limiting” rivals’ possibilities must be applied with care in cases involving intellectual property. In general, the law on discrimination under Article 82(c) is regarded as being clearer 204 Getmapping v. Ordnance Survey, High Court, England, H.C. 02C 00521, [2002] E.W.H.C. 1089 (Ch) (quoting Mr. Justice Laddie, from the judgment dated May 31, 2002). 205 Joined Cases 40-48/73, Suiker Unie and others (Sugar Cartel), [1975] E.C.R. 1663, ¶¶ 399, 482–83, and in particular ¶¶ 523–27; Case 41/83, Italy v. Comm’n (British Tele-communications), [1985] E.C.R. 873; Case 311/84, Telemarketing CBEM, [1985] E.C.R. 3261, ¶ 26; Case 53/87, CICR and Maxicar v. Renault, [1988] E.C.R. 6039; Case 238/87, Volvo v. Veng, [1988] E.C.R. 6211; Joined Cases C-241/91P, RTE & ITP (Magill), [1995] E.C.R. I-743, ¶ 54; Case C-41/90, Höfner and Elsner, [1991] E.C.R. I-1979, 2017–018, and in particular ¶ 30; Case C-55/96, Job Centre, [1977] E.C.R. I-7119 at 7149–150, ¶¶ 31–36; Case C-258/98, Carra, [2000] E.C.R. I-4217. See John Temple Lang, Abuse of Dominant Positions in European Community Law, Present and Future: Some Aspects, in Fifth Annual Fordham Corporate Law Institute 24, at 52, 60 (Barry Hawk ed., 1979). This point is not mentioned in Jonathan Faull & Ali Nikpay, The EC Law of Competition 194 (1999), but is correctly stated in, e.g., Bellamy & Child: European Community Law of Competition 754 (5th ed., 2001), and in Lennart Ritter, W. David Braun & Francis Rawlinson, EC Competition Law — A Practitioner’s Guide, 362 (2d ed., 2000), in Michel Waelbroeck & Aldo Frignani, European Competition Law 551 (1999), and in Mercier, Mach, Gilliéron & Affotten, Grands Principes du Droit de la Concurrence 260 (1999), among others. In Arkin v. Borchard Lines and others, High Court, London, [2003] E.W.H.C. 687 (Apr. 10, 2003), Colman J. said (at ¶ 293) “quite simply, an undertaking in a dominant position must not reduce or attempt to reduce the ability of other parti-cipants in the market or of the would-be entrants into the market to compete. This principle palpably underlies the reasoning of the European courts in all the authorities . . . .” See also Luc Gyselen, Abuse of Monopoly Power Within the Meaning of Article 86 of the EEC Treaty: Recent Developments, in 1989 Fordham Corporate Law Institute 597, at 613–17, 635–36 (Barry Hawk ed., 1990); Thomas E. Kauper, Whither Article 86? Observations on Excessive Prices and Refusals to Deal, in 1989 Fordham Corporate Law Institute 651, at 668–85 (Barry Hawk ed., 1990). 206 There are strong reasons for saying that harm to consumers is also necessary for an abuse under Article 82(c), but the question has not been decided.
284 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY and less controversial than the law under Article 82(b), except for one important issue. Surprisingly, it is not clear whether harm to consumers is a necessary element of an abuse under Article 82(c), as it clearly is under Article 82(b).207 If so, it would have to be harm to consumers resulting from the discrimination (and not merely because consumers would benefit if all the prices were at the lower level). The keys to understanding the case law are: 앫 Many of the cases involve discrimination against second or later applicants for access, not first applicants, so Article 82(c) applied. 앫 Article 82(b) (foreclosure due to discrimination in favour of the vertically integrated company’s own downstream operations) is stricter than Article 82(c) (discrimination between non-associated companies). 앫 Any exclusionary practice causing harm to consumers (including intermediate commercial or industrial users) can lead to a compulsory licence as a remedy. The abuse does not need to be suppression of a new product. 앫 Standard-setting agreements come under Article 81(3). The EU Case Law on Compulsory Licences Nungesser,208
the Court said that under Article 81 restrictions on the licensor and other In licensees would be justified if, without the restrictions, a rational licensee would not take the licence, and competition would not be increased. Competition authorities should not presume that a licence would have been granted even without the restriction which they object to. In Salora v. IGR Stereo Television,209 German manufacturers of television equipment pooled their patents for a stereo television system, and their system was approved by the German authorities. They refused to licence Salora, a small Finnish company, until after most viewers would have bought new sets. The Commission ordered the German companies to grant Salora an immediate licence without quantity limits. No formal decision was adopted, which was a pity because the case was important. The Commission dealt with the Salora case under Article 81 (then 85), but it could have been dealt with under Article 82 (then 86). A duty to licence on non-discrimination grounds can arise under Article 81. In the leading case Volvo v. Veng and CICRA v. Renault,210 the Court said that the freedom of the owner of an intellectual property right to refuse to licence was the core of the right, and therefore a refusal to licence in itself could not be contrary to Article 82. Refusal could be an abuse only if there was some “additional abusive conduct,” e.g., the refusal to supply spare parts to independent repairers, or stopping sales of spare parts for models still in widespread use, or charging excessive prices for the spare parts. In Tetra Pak I (BTG Licence),211 the Commission decided that the acquisition by a
207
See John Temple Lang, Anticompetitive Non-pricing Abuses Under European and National AntitrustLlaw, in
2003 Fordham Corporate Law Institute 235, at 250–53 (Barry Hawk ed., 2004). 208
Case 258/78, Nungesser v. Comm’n, [1982] E.C.R. 2015. European Commission, Eleventh Competition Policy Report 63 (1981). The duty to supply under art. 81 may be similar to the duty under art. 82(c) and is wider than the duty under art. 82(b), which normally arises only if there is no other source available, and because under art. 81(3) non-discriminatory licensing may be necessary to avoid the parties having the possibility of eliminating competition in respect of “a substantial part” of the products in question. A basis of comparison is available if the parties have received licences, and a refusal to licence can amount to a collective boycott. See also Case 22/78, Hugin Cash Registers v. Comm’n, [1979] E.C.R. 1869, and OECD, Competition policy and intellectual property rights, DAFFE/CLP(98)18, (1998). 210 Case 238/87, Volvo v. Veng, [1988] E.C.R. 6211; Case 53/87, CICRA v. Renault, [1988] E.C.R. 6039. 211 1998 O.J. (L 272) 27; Case T-51/89, Tetra Pak v. Comm’n, [1990] E.C.R. II-309. 209
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dominant company of an exclusive licencee of the principal alternative technology was contrary to Article 82. Magill,212 the television programs case, is the other leading case, and the only case so far in which a compulsory licence of an intellectual property right has been required under EU competition law. The television companies in Britain and Ireland each published weekly program magazines listing their own programs. They refused to give lists of their next week’s television programs to an independent weekly TV magazine Magill, which wanted to publish all the programs on all the channels for the whole week in one magazine. The television companies claimed that their programme lists were copyright. The Court repeated that normally refusal to licence an intellectual property right is lawful. However, the television companies were ordered to give Magill the information, on the basis of Article 82. The Court gave three reasons for ordering disclosure: 앫 The information was indispensable for the production of a comprehensive TV program guide covering all the TV channels, a new type of product for which there was a clear and unsatisfied consumer demand. 앫 The TV companies, by refusing to provide essential information, were monopolising the separate market for TV program magazines. 앫 There was no objective justification for the refusal. The essential points to note are: 앫 Magill magazine needed the information. The copyright issue was raised only as a defence, by the television companies.213 The control of the information was not based on copyright. The issues would have been the same if there had been no copyright, if the companies had simply refused to give Magill the information. 앫 The only provision of Article 82 which could apply was Article 82(b). 앫 The Court did not say whether two of the conditions for a compulsory licence (preventing the sale of a new kind of product for which there was an unsatisfied demand, and monopolising a second market) were alternative or cumulative.214 (Later, in IMS Health v. NDC,215 the Court said they are cumulative.)
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Case C-241/91P, RTE & ITP v. Comm’n, [1995] E.C.R. I-743. In Philips Elecs. v. Ingman and Video Duplicating, High Ct. London, May 13, 1998, C.H. 1997 P.No. 4100, Mr. Justice Laddie said (¶ 52) about Magill: “Even if Irish copyright law did not protect the type of low-level information which Magill wanted to publish, the television companies were the only source of it. If they chose not to distribute the information at all, it was not obtainable elsewhere. Similarly, if they chose to distribute the information in small packages and only at the last possible moment, it might have crippled Magill’s nascent business. The information was the raw material from which television guides were made. The television companies therefore held a dominant position both in the information itself and in the guides made from it quite independently of any copyright they might own. It was that dominant position which was being abused. The copyright was merely the tool used to effect the abuse.” Later he went on (¶ 55): “Furthermore, on the basis of CICRA v. Renault and Volvo v. Veng, I do not accept that the defendants have pleaded an arguable case of abuse . . . the proprietor of an intellectual property right is entitled to go as far as refusing to licence even if it is offered reasonable terms. Based on the cases referred to above it is not an abuse of a dominant position to refuse to licence an intellectual property right on reasonable terms. Even if the royalties sought by the plaintiff are objectively unreasonable and have the effect of destroying the competitiveness of the defendant, it is not an abuse of a dominant position defined by reference to the existence of the intellectual property right. Indeed the proprietor may offer terms which no reasonable competitor could accept. It is difficult to see how that can be worse, or commercially different, to offering no terms at all — i.e., to refusing a licence — a course the rights owner is entitled to take.” 214 See Case T-184/01R, IMS Health v. Comm’n, [2001] E.C.R. II-3193, ¶ 104. 215 Case C-418/01, [2004] ECR I-____, Apr. 29, 2004. 213
286 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY 앫 The copyrighted information was of no literary or artistic value in itself (although the timetables were no doubt the result of planning and market research). 앫 The comprehensive magazine was not merely a new product, but a new kind of product, which was clearly better than any existing kind of television magazine.216 Ladbroke217 claimed that it was contrary to Article 82 for French horse racecourses to refuse to licence Ladbroke to transmit live pictures of French races in its betting shops in Belgium. The Court said the refusal was lawful because the French racecourses were not on the separate Belgian market (so they were not discriminating in favour of their own operations on that market), and Ladbroke was on the Belgian market (and so live pictures could not be essential to be present on that market). Bronner,218 primarily because of the Advocate General’s opinion, is an important case on “essential facilities,” though not concerned with intellectual property. A newspaper publisher which had the only home delivery service in Austria refused to provide delivery services for a competing newspaper. The Court said that the refusal would be unlawful only if it would eliminate all competition by the plaintiff, without objective justification, and if the service was indispensable because there was no actual or potential substitute. But there were alternatives to home delivery, and it was possible to develop a competing home delivery system. There was no proof that it would be uneconomic for competitors, acting jointly if necessary, to set up a second system on a scale similar to the existing system. The IMS Health decision of the Commission is discussed below.219 The Court confirmed that a refusal to licence cannot be an abuse in itself. For an abuse, the company seeking the licence must intend to offer a new product, not offered by the dominant company, for which there is a potential consumer demand, and for which a licence is indispensable. The refusal must also reserve the market to the dominant company by eliminating all competition, and there must be no objective justification for refusal 3 in other words, the Magill requirements are cumulative. There must be at least two stages of production. The Principle of a Duty to Contract – Under Article 82(b) The conventional theory is that compulsory licensing of intellectual property rights under 216 The Magill judgment effectively required a new kind of product, not merely one more product of the same kind as that already available (which would lead to a duty to licence in every case, if the other conditions were fulfilled). This means that the demand for the new kind of product must be unsatisfied as well as clear. The more explicit phrase is used in this paper. The point is discussed below. There was an element of discrimination in Magill, since the television companies were supplying programme information to daily (but not weekly) newspapers, but this does not seem to have been important. The Court did not consider whether it made a difference that Magill needed to get programme information compulsorily from several sources rather than only one. The television companies did not claim that they would jointly produce a comprehensive magazine, which would have been a valid defence if it had been true. 217 Case T-504/93, Tiercé Ladbroke v. Comm’n, [1997] E.C.R. II-923. The Court said: “The refusal to supply the applicant could not fall within the prohibition laid down by Article 86 unless it concerned a product or service which was either essential for the exercise of the activity in question, in that there was no real or potential substitute, or was a new product whose introduction might be prevented, despite specific, constant and regular potential demand on the part of consumers.” Id. at ¶ 131. The Court does not seem to be suggesting that either of these alternatives are sufficient conditions for a duty to supply, it is merely saying that one or the other is a necessary condition. 218 Case C-7/97, Bronner v. Mediaprint, [1998] E.C.R. I-7791; see also joined cases T-374/94 and Others, European Night Services, [1998] E.C.R. II-3141. 219 O.J. (L 59) 18, Feb. 28, 2002: withdrawn, O.J. (L 268) 69, 2003; Case C-418/01, IMS Health v. NDC Health (Judgment dated Apr. 29, 2004); Case T-184/01R, [2001] E.C.R. II-3193.
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Article 82 is a specific example or subset of essential facilities cases.220 When the supposed essential facility is an intellectual property right, the usual rules about essential facilities are supplemented by an additional rule. The characteristic feature of an “essential facility” case is that when the abuse has been identified, there is a duty to give mandatory access to the input which is necessary in the downstream market. The rules, as they have been understood, say that there is a duty under Article 82(b) to give a first contract on non-discriminatory terms when all the following conditions are met: 앫 A company is dominant on the market for the supply of a product or service which is essential for competitors operating on a second (downstream) market. 앫 There is no other actual or possible source of the essential product or service, or of a satisfactory substitute for it: competitors could not produce it themselves. 앫 Objectively, competitors cannot even offer their products on the second market without access to the product or service. If they can offer their products, even subject to a serious disadvantage, the advantageous facility cannot be essential. 앫 A refusal to supply the product or service would harm consumers (this is required by Article 82(b). 앫 This could be because it creates, confirms or strengthens the company’s dominance on the second market221 (as a seller on that market, and not merely because of its control of an essential factor of production). This usually would be by “limiting” or reducing existing competition in some way in which it would not otherwise have been restricted. It might also be by preventing the emergence of a new type of product or service offering clear advantages for consumers222 which would compete with the dominant company’s product. There cannot be a duty under Article 82(b) to contract for the first time unless there has been an identifiable abuse.223 It is not an abuse to refuse access merely because the applicant would be better off if it was given access, or because there would be one more competitor. 앫 A less obvious but important point is that there must be scope for substantial non-price competition on the second market, that is, it must not be merely resale or distribution of products or services. More competition must be promoted by a duty
220 See John Temple Lang, Defining Legitimate Competition: Companies’ Duties to Supply Competitors, and Access to Essential Facilities, in 1994 Fordham Corporate Law Institute 245 (Barry Hawk ed., 1995); John Temple Lang, The Principle of Essential Facilities and its Consequences in European Community Competition Law, in Regulatory Policy Institute, Oxford, Essays in Regulation No. 7, at 19–46 (1996); John Temple Lang, The Principle of Essential Facilities in European Community Competition Law — The Position Since Bronner, 1 J. Network Indus. 375 (2000); Barry Doherty, Just What Are Essential Facilities?, 38 Common Mkt L. Rev. 397–436 (2001); see generally OECD, The Essential Facilities Concept, OCDE/GD(96)113 (1996). 221 If the dominant enterprise is not present on the second market, there can be no foreclosure in its favour, and so only art. 82(c) can apply; Case T-504/93, Ladbroke, [1997] E.C.R. II-923. 222 In Magill and in Sea Containers-Stena Sealink, 1994 O.J. (L 15) 8, there were new kinds of product or service for which there was a clear and unsatisfied demand, which could be met only if the proposed supplier was given access to the facility (information or harbour). The Sea Containers case could be regarded as coming under art. 82(c), as access was already being given to a third company. In both Magill and Sea Containers there was harm to consumers as a result of limiting competitors’ possibilities, prohibited by art. 82(b). But if competitors’ possibilities are not being limited in a way in which they would not otherwise be limited, that is, if the conduct does not reduce competition, there must be harm to consumers through suppression of a new kind of product. 223 All of the cases in which compulsory access has been ordered have involved an identifiable abuse, either discrimination in favour of the dominant company’s downstream product, cutting off supply, creating a handicap for a rival, or depriving consumers of a new kind of product for which there was a clear demand, to protect the incumbent from competition.
288 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY to contract than would be discouraged by the loss of the incentives of the parties to improve the facility or to develop a new facility (apart from the effect of discouraging investment in general). 앫 There is no objective justification for the refusal to contract.224 The “essential facility” label does not create a different kind of infringement or different rules. Nor does it create an abuse where no abuse would otherwise exist. Although this is not widely understood, the essential facilities rule is based on Article 82(b), and so it is subject to the constraints of that clause: there must be some “limitation” of rivals’ possibilities, e.g., exclusionary conduct, which harms consumers.225 A dominant company is never required to compensate its competitors for disadvantages which they have (unless, of course, it caused them). If there is a duty to give access, it is a duty to give access on non-discriminatory terms, that is, on terms corresponding to those given to the dominant company’s downstream operations (because less favourable terms would cause some degree of foreclosure contrary to Article 82(b)). If there are no such operations but Article 82(c) applies, the terms must be sufficient to comply with the requirements of Article 82(c).226 The Additional Rule on Intellectual Property Rights The additional rule, added to the essential facilities principle to deal with intellectual property rights, says that when a licence of an intellectual property right is asked for, the refusal to licence is unlawful only if there is some other “additional abusive conduct,” as well as the refusal to licence. This additional rule was based on two principles. First, under Community law dominance is never illegal. So even if dominance is due to intellectual property rights, competition law cannot be used to bring the dominance to an end, as compulsory licensing might do. Second, refusal by a dominant company to licence an intellectual property right could not normally be an abuse, because that would mean that dominant companies would be effectively prevented from acquiring and keeping intellectual property rights. It cannot be illegal for even a dominant company to use intellectual property rights as they are designed to be used. So a compulsory licence can be required only in some situations, and could not be required in all. So a dominant company which owns an intellectual property right is not obliged, merely because it is dominant, to licence the right, even if the right causes the dominance.
224 Some possible justifications for refusing to contract are listed in John Temple Lang, The Principle of Essential Facilities in European Community Competition Law — The Position Since Bronner, 1 J. Network Indus. 375, at 385–88 (2000). Not all of these would be relevant to intellectual property rights. In OFT decision No. CA 98/07/2003, Sept. 9, 2003, E.I. du Pont de Nemours v. Op. Graphics (Holography), it was held to be a justi-fication for refusal to supply film for graphic arts uses that the supplier was withdrawing from that market to use the technology only for security applications. 225 It was decided in Joined Cases 40-48/73, Suiker Unie, [1975] E.C.R. 1663, 1983, 2004, that art. 82(b) prohibits “limiting” rivals’ possibilities. Commission decision, British Telecommunications, 1982 O.J. (L 360) 36, ¶ 34; Notice on the application of the competi-tion rules to access agreements in the telecommunications sector, 1998 O.J. (C 265) 2, ¶ 88. Case 85/76, Hoffmann LaRoche, [1979] E.C.R. 461, and Case 322/81, Michelin, [1983] E.C.R. 3461, should be regarded as based on art. 82(b). When the Court describes a particular type of conduct as contrary to art. 86, it often does not say which paragraph it is contrary to: joined cases C-395/96P, Compagnie Maritime Belge, [2000] E.C.R. I-1365, ¶¶ 112 ff. 226 In non-intellectual property cases, the dominant company may not discriminate in favour of its own downstream activities. But if the essential facility is an intellectual property right, it may licence its own downstream activities without licensing rivals”: the difference in treatment is not “additional abusive conduct.” Otherwise there would always be a duty to licence rivals if the dominant company was using its own intellectual property, which has never been suggested.
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Mere refusal to grant a licence of an intellectual property right is not unlawful under Article 82. Any other rule would be inconsistent with the concept of intellectual property, and with the principle that Article 82 can apply only if an abuse is being committed. It would also be inconsistent with Articles 4 and 98 EC, which must allow a dominant enterprise to compete, and to invest in intellectual property in order to do so. One defect of the conventional theory is that it does not say what kind of additional abuse is required, or how it must be linked to the refusal to contract. Except for the obvious point that a refusal to licence cannot, by itself, be an abuse, the theory does not provide a clear approach for use in future cases. It simply provides some examples of situations in which there is “additional abusive conduct.” Apart from typical two-market essential facility situations, in which the dominant company is monopolising a clearly distinct downstream market,227 the example which arose in the Magill television licensing case228 is where the refusal to licence deprives consumers of a new kind of product, not being produced by the dominant company, for which there is a clear unsatisfied demand.229 So What is “Additional Conduct?” The refusal, even if there is additional “abusive conduct,”230 is unlawful only if the refusal is linked to the separate abuse in some way.231 A wholly unrelated abuse could not affect the lawfulness of the refusal to licence. The other abuse may be outside the market to which the intellectual property right primarily relates, and the abuse in question can be relevant only (because of Article 82(b)) if the harm to consumers is serious enough. The characteristic of “essential facility” cases is that when an abuse has been identified, the
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Case 238/87, Volvo v. Veng, [1988] E.C.R. 6211. Joined Cases C-241/91P, RTE and ITP v. Comm’n, [1995] E.C.R. I-743 (Magill). 229 The question has been asked whether the new product, not being produced by the dominant company, and for which there is a clear unsatisfied demand, is in the same or a dif-ferent market from the dominant company’s downstream product. If it is accepted that what is needed is a new kind of product, the question of the market does not seem to be useful. It is necessary to define a product market to measure market power, or dominance. It is not necessary in order to assess whether consumers are being denied a new product, or a new kind of product, for which there is an unsatisfied demand. In practice, the proposed new product is likely to be in the same market, because if it did not compete with the dominant company’s product, that company would presumably either produce the new product itself, or licence some other company to produce it. But this is a practical comment, not a legal requirement: the dominant company might have some other reason for refusing to licence. 230 The phrase “abusive conduct” was used in Case C-241/91P, RTE and ITP, [1995] E.C.R. I, ¶ 823. 231 There are a number of cases under art. 82 in which conduct which might have been lawful in isolation was unlawful because it was combined with other behaviour making up an exclusionary strategy: Case 27/76, United Brands, [1978] E.C.R. 207; Case 53/87, CICRA v. Renault, [1988] E.C.R. 6039, 6073; Case T-83-91, Tetra Pak, [1994] E.C.R. II-755, and [1996] E.C.R. 5951; T-65/89, British Gypsum, [1993] E.C.R. II-389; Case T-228/97, Irish Sugar, [1999] E.C.R. II-2269; Case C-395/96P, Compagnie Maritime Belge, [2000] E.C.R. I-1365; Commission Merger Regulation decision, Microsoft/Liberty/Telewest, Thirtieth Report on Competition Policy 186–187 (2000) (the Commission argued that Microsoft regularly set up working groups to influence buyers’ choice of software). In predatory prices cases under the second Akzo rule (price between average variable costs and average total costs, and evidence of intention to exclude a competitor) the evidence will necessarily be cumulative. In Pitney Bowes v. Francotyp–Postalia, (1991 F.S.R. 72) the U.K. court held that the owner’s ability to enforce its intellectual property right could be limited if the right created or strengthened the dominant position which was being abused. See also Rensburg GEMA v. Electrostatic Plant Sys., [1990] F.S.R. 287; IBM v. Phoenix Int’l, [1994] R.P.C. 251; Chiron Corp. v. Murex Diagnostics, [1994] F.S.R. 187. But if the intellectual property right creates the dominant position which is being abused, a compulsory licence might put an end to the dominant position as well as to the abuse, and if there was only one market involved, this would normally be disproportionate. The compulsory licence should only be the appropriate remedy for the “additional abusive conduct,” as it was in the Magill case. 228
290 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY remedy is to order mandatory access to the facility, not merely to stop the abuse. So there must be a relationship between the abuse and the compulsory access.232 The view that the “additional abusive conduct” must be itself an identifiable abuse that is contrary to some provision of Article 82 makes the law clear. Unless “additional abusive conduct” means “a separate abuse,” it is not easy to see what it could mean. If it does mean “a separate abuse,” there is no reason why it should be limited to any particular type of abuse, whether exploitative or exclusionary. But if it is exclusionary, it must be something more than the mere exercise of intellectual property rights. The Remedy Principle The second theory is an explanation of all of the case law of the Community Courts and the Commission, but which has not been explicitly stated officially. This theory says that although it is never an abuse to refuse to give a licence of an intellectual property right, if the dominant company has committed an abuse, a compulsory licence may be the appropriate remedy. One defect of the conventional theory has already been mentioned. A second defect is that it does not account for the comment of the Court and the Advocate General in Volvo v. Veng that a refusal to licence may be illegal if it is combined with excessive prices which are contrary to Article 82(a).233 On the conventional theory this comment is hard to understand, because excessive prices have nothing to do with essential facilities, and would be an abuse in the same market as that for which the compulsory licence would be granted. That would be inconsistent with the well-established and undeniably correct principle that in essential facility cases there must be two markets (if there were not, the dominant firm would be compelled to share a competitive advantage with a direct competitor). So there is already in the case law a second principle, which applies to exploitative abuses, and which is a general principle which provides an overall explanation of the cases. This second principle is that if an abuse has been committed, mandatory access may be an effective and appropriate remedy. 232 See concerning copyright, Case 158/86, Warner Bros., Inc. and Metronome Video ApS v. Erik Viuff Christiansen, [1988] E.C.R. 2605 ¶¶ 12–13; and concerning patents, Case 19/84, Pharmon B.V. v. Hoechst AG, [1985] E.C.R. 2281 ¶ 26. In Volvo the Court stated: “It follows that an obligation imposed upon the proprietor of a protected design to grant to third parties, even in return for a reasonable royalty, a licence for the supply of products incorporating the design would lead to the proprietor thereof being deprived of the substance of his exclusive right.” Case 238/87, AB Volvo v. Erik Veng (UK) Ltd., [1988] E.C.R. 6211, ¶ 8. The Commission has reached the same conclusion in a case concerning a request for compulsory licensing of intellectual property (relating to hepatitis) in the market to which it primarily relates: “it is highly doubtful whether one could impose an obligation upon a dom-inant firm (in an eventual EC bulk intermediate Hep B market), as a remedy to ensure the maintenance of effective competition in the national Hep B markets, to share its intellectual property rights with third parties to allow them to develop, produce and market the same products (i.e., multivalent containing the Hep B antigen) which the alleged dominant firm was also seeking to develop, produce and market.” Complaint by Lederle-Praxis Biologicals, XXIV Competition Report, point 353 (1994). The court rejected an essential facilities claim in the U.K. case CH 1997 P No 4100, Philips Electronics NV v. Ingman, May 13, 1998. See Pat Treacy, Essential Facilities—Is the Tide Turning?, Eur. L. Rev. 501–05 (1998); Abbott B. Lipsky Jr. & J. Gregory Sidak, Essential Facilities, 51 Stan. L. Rev. 1187, 1219 (1999). This led the authors to conclude that essential facilities principles should not apply to intellectual property under U.S. law. Simon Bishop & Mike Walker, The Economics of EC Competition Law 119–120 (1999); Derek Ridyard, Essential Facilities and the Obligation to Supply Competitors Under UK and EC Competition Law, 8 Eur. Comp. L. Rev. 438, 446 (1996). 233 See also Case 78/70, Deutsche Grammophon v. Metro, [1971] E.C.R. 487. On the view suggested in the text, essential facility cases would be a sub-set of the cases in which compulsory access or a compulsory licence is the appropriate remedy, not vice versa.
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There are a number of arguments of law, economics and policy for this way of looking at the subject, which cumulatively are extremely strong:234 앫 It involves no new rules or concepts. It is based on the express words of Article 82(b), “limitation” (of the possibilities of rivals) and “prejudice” to consumers. Conduct which limits possibilities of rivals only in ways in which they would anyway be limited cannot be illegal. Rivals are anyway limited by having to respect intellectual property rights. 앫 It provides a rational, coherent and comprehensive basis for the relevant legal and economic principles, which should be broadly acceptable to both competition lawyers and intellectual property lawyers, since it does not regard the two bodies of law as conflicting. 앫 It confines the concept of “abuse” under Article 82 to the three correct, useful and traditional areas under European competition law: exploitative abuses (Article 82(a)), foreclosure of competitors (Article 82(b)), and unjustified discrimination between companies not otherwise associated with the dominant company (Article 82(c), which is primarily to prohibit protectionist discrimination by State enterprises).235 앫 It answers the two questions: what “additional abusive conduct” is enough, and why, if refusal to give access is only illegal when linked to such conduct, not simply prohibit the separate abuse? The only answer is: because a compulsory licence, when appropriate, is a more effective remedy. 앫 It encourages use of a market-based remedy requiring little antitrust supervision (which would be particularly useful in excessive pricing cases). 앫 It creates a rule with built-in limiting principles: there would be no new concept of abuse and, as in the case of any other remedy for an abuse under Article 82, the remedy must be an appropriate, proportionate and effective remedy to put an end to the abuse. This question arises on any view of the law. 앫 It provides a basis for distinguishing cases where the dominant company developed the property itself (normally, no duty to give a first licence, and no duty except under Article 82(c)), cases where it acquired the property and then deprived its competitors of access to it (a duty to licence is appropriate if the dominant company is restricting 234 See judgment of Mr. Justice Laddie in Philips Electronics v. Ingman and Video Duplicating, High Ct. London, May 13, 1998, CH. 1997P No. 4100 ¶ 37: “The existence of the intellectual property rights may facilitate anti-competitive behaviour, but such behaviour consists of abusive interference with the market for a product . . . . In prohibiting the conduct the court may have the power to intervene in the manner in which the intellectual property rights are exploited by the proprietor. This is to ensure that the proprietor does not continue the abusive conduct in relation to the products by the back door route of using the intellectual property rights.” The remedy theory does not solve, but does not increase, the difficulty of deciding the rate of royalty in a first compulsory licence. It does not imply that the royalty should be low-ered to compensate the licensee for any losses caused by the abuse: the two questions should be kept separate. In an interface disclosure or “patent thicket” case, or if the intellectual property had been illegally obtained, a royalty-free licence might be appropriate. In the case of a standard, “fair reasonable and non-discriminatory” (FRAND) terms might be based on other licences. The dominant company need not be compensated for loss of its monopoly. See John Temple Lang, Anticompetitive Non-pricing Abuses Under European and National Antitrust Law, in 2003 Fordham Corporate Law Institute 235, at 302–03 (Barry Hawk ed., 2004). 235 John Temple Lang & Robert O’Donoghue, Defining Legitimate Competition: How to Clarify Pricing Abuses Under Article 82 EC, 26 Fordham Int’l L.J. 83 (2002). The Court in Case T-191/98, Atlantic Container Line, [2003] E.C.R. II-___, ¶ 1460, said that the “special responsibility” of dominant companies merely means that art. 82 applies only to them. By implication, there is no fourth kind of abuse. Tying under art. 82(d) should be regarded as an example of foreclosure under art. 82(b).
292 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY existing competition), and cases when the dominant company harms consumers by foreclosing competition. 앫 It gives the phrase “additional abusive conduct” a clear meaning, that of “abuse.” 앫 It confirms that, in principle, it is never illegal in itself to refuse to licence an intellectual property right, as the Court has repeatedly said. 앫 It has the important advantage that it would not lead to protecting competitors rather than competition, or using competition law for (whether officials realise it or not) regulatory purposes, or discouraging investment or innovation. 앫 It provides a rationale for saying what almost all lawyers believe is the law, that a dominant company has no duty to facilitate companies which wish to add on or imitate devices unless it has taken steps to exclude them or create difficulties or handicaps for them. 앫 It allows a variety of justifications for refusal to licence. 앫 It seems to be an approach on which European and US law could agree. This is important because it is often said that intellectual property rights are an area on which they diverge (which may or may not prove to be correct). 앫 It allows a distinction to be drawn between a compulsory licence in a single market situation (e.g., excessive pricing), which can be appropriate only if the abuse is in that market and which requires a strong justification (since it would lessen or eliminate dominance, as distinct from ending abuse), and a compulsory licence in a second distinct market, which is more likely to be proportional. 앫 It does not involve trying to use competition law to correct any defects which may exist in intellectual property law. 앫 It provides a relatively uncontroversial rationale for the result in the Magill television programmes case. Licensing as Remedies in Other Kinds of Cases The remedy principle is not limited to any particular kind of abuses. Apart from cases of suppression of a new and desirable kind of product, a compulsory licence might be an appropriate remedy for excessive pricing contrary to Article 82(a), as the Court suggested, and of course in disrimination cases. Compulsory licences would be appropriate if the company had committed itself to grant licences for the purposes of a standard. If a dominant company makes two products which must work together, it may be required to licence any intellectual property rights involved in the interface making them do so, so as to enable competitors to make each product compatible with the other (but not to copy either product). This would be a natural part of a remedy in a tying case under Article 82(d) or in a “bundling” case. In a fraud or “patent thicket” case (deliberate multiplication of doubtfully valid patents to obstruct competitors), a compulsory licence of all the patents might be the only effective remedy. If a dominant company unjustifiably acquired intellectual property rights, it might be required to licence them. In addition, if an intellectual property right was used to supplement or reinforce an exclusionary abuse committed in some other way, the right could not be used to achieve the illegal result.236 It is well established in European competition law that behaviour that in isolation might be 236 Cases 56 & 58/64, Consten and Grundig, [1966] E.C.R. 299 (an art. 81 case, but the same principle must apply under art. 82); Philips Elecs. v. Ingman, High Ct. London, May 13, 1998 CH. 1997P, No. 4100, ¶ 37; see also Case T-30/89, Hilti, [1991] E.C.R. II-1439, ¶¶ 95–119; Case C-53/92P, [1994] E.C.R. I-667 (other situations involving art. 82 and intellectual property rights).
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legal can be unlawful if it combined with unlawful conduct in a single exclusionary strategy. However, in cases in which the abuse is monopolisation of a second, downstream, market, the essence of the abuse is suppression of existing competition, and if there is no competition to suppress, there is normally no abuse. Intellectual property rights entitle even a dominant company to refuse to open a market to its competitors. The IMS Health Case237 IMS Health provides pharmaceutical companies with information on sales of pharmaceutical products in Germany, among other countries. This information is used as the basis for paying sales representatives. These representatives talk only to doctors, and patients who get prescriptions often buy the prescribed drugs where they live or work and not from pharmacies in the neighbourhood of the doctor. So collecting and presenting the information in a way that best allows the pharmaceutical companies to measure the effectiveness of their sales representatives is complex and difficult. European data privacy laws do not permit sales data to identify the sales of any individual pharmacist. IMS Health solved this problem by producing a map of Germany divided into areas, drawn so as to group together in each area a full range of specialist doctors and the pharmacists to whom their patients are likely to go. IMS Health then collects sales data from wholesalers which sell to the pharmacists, and supplies the data to pharmaceutical companies on the basis of each area. These areas are used as the basis of the representatives’ sales territories. When it appeared that competitors of IMS Health were using the area structure which IMS had developed, (in which Germany was divided into 1860 areas), IMS sued for copyright infringement, and the German courts accepted that the map of 1860 areas was copyright. The competitors complained to the European Commission, arguing that because the pharmaceutical companies insisted on using the 1860 map, the use of IMS’s structure was essential for them to supply sales information to pharmaceutical companies. By an interim measures decision in July 2001, the Commission, ordered IMS to grant a copyright licence to its two competitors. IMS appealed, and in October 2001 the decision was suspended by Order of the President of the Court of First Instance.238 This Order 237 Case C-418/01, IMS Health v. NDC Health (Opinion of Advocate General Tizzano, 2 Oct. 2003) (Judgment dated Apr. 29, 2004). 238 Case T-184/01R, [2001] E.C.R. II-2349 and 3193. The IMS Health case has given rise to a great deal of comment and criticism. See Jurgen Schwarze, Der Schutz des geistigen Eigentums im europäischen Wettbewerbsrecht, Europäische Zeitschrift für Wirt-schaftsrecht 75 (March 2002); Robert Pitovsky et al., The Essential Facilities Doctrine Under U.S. Antitrust Law, 70 Antitrust L.J. 443 (2002); Paul D. Marquardt & Mark Leddy, The Essential Facilities Doctrine and Intellectual Property Rights: A Response to Pitovsky, Patterson & Hooks, 70 Antitrust L.J. 847 (2002); E. Derclaye, Abus de position dominante et droits de propriété intellectuelle dans la jurisprudence de la Communauté européenne: IMS survivra-t-elle au monstre du Dr. Frankenstein?, 15 Les Cahiers de Propriété Intellectuelle 21 (2002); Christian Koenig, Andreas Bartosch & Jens-Daniel Braun, EC Competition and Telecommunications Law 133, 151 (2002); Sergio Baches Opi, The Application of the Essential Facilities Doctrine to Intellectual Property Licensing in the European Union and the United States: Are Intellectual Property Rights Still Sacrosanct?, 11 Fordham Intell. Prop. Media & Ent. L.J. 409 (2001); David W. Hull, James R. Atwood & James B. Perrine, Compulsory Licensing, Eur. Antitrust Rev. 36 (2002); Matthias Casper, Die wettbewerbsrechtliche Begründung von Zwangslizenzen, Zeitschrift für das gesamte Handelsrecht und Wirtschaftsrecht, 166 Band 685 (Dezember 2002); Donna M. Gitter, The Conflict in the European Community Between Competition Law and Intellec-tual Property Rights: A Call for Legislative Clarification of the Essential Facility Doctrine, 40 Am. Bus. L.J. 217 (2003); Maurits Dolmans & Daniel Ilan, A Health Warning for IP Owners: The Advocate General’s Opinion in IMS and its Implications for Compulsory Licensing, 11 Comp. L. Insight 12 (2003); Alessandra Narciso, IMS Health or the Question Whether Intellectual Property Still Deserves a Specific Approach in a Free Market Economy, Intell. Prop. Q. 445 (2003); E. Derclaye, Abuses of Dominant Position and Intellectual Property Rights: A Suggestion to Reconcile the Community Courts Case Law, 26 World Comp. 695 (2003); Bruno Lebrun, IMS v.
294 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY says that a judge should “normally treat with circumspection a Commission decision imposing, by way of interim measures . . . an obligation . . . to licence the use of [an] intellectual property right . . . . The Commission’s provisional conclusion that the prevention of the emergence of a new product or service for which there is a potential consumer demand is not an indispensable part of the notion of “exceptional circumstances” developed by the Court of Justice in Magill constitutes, at first sight, an extensive interpretation of that notion . . . .” The Order added that the requirements in Magill may be cumulative. (This was later confirmed by the Court of Justice). In April 2002 the President of the European Court of Justice dismissed an appeal against the Order of October 2001, substantially confirming all the findings made in the earlier Order.239 Also in 2001, the German courts, which had concluded that European competition law did not entitle the competitors to copyright licences or prevent IMS from claiming its rights under copyright law, referred to the Court of Justice several questions intended to resolve the conflict between the judgments of the German courts and the decision adopted by the Commission. By a decision in August, 2003, the Commission withdrew its interim measures decision (but not retroactively), giving as the reason that NDC had made contracts with some big customers. However, NDC had always been free to offer any structure which did not infringe copyright and unfair competition law, and had argued that only by using IMS Health’s 1860 structure could it get customers to contract with it. The Court240 confirmed that refusal to licence cannot in itself be an abuse. For an abuse, the product or service must be indispensable for carrying on a business, the company seeking the licence must intend to offer new products or services, not offered by the copyright owner, for which there is a potential consumer demand, the refusal must reserve the market to the copyright owner by eliminating all competition on that market, and the refusal must not be justified objectively. There must be new products, rather than merely products with different characteristics. The Court also said that there must at least be two different stages of production, so that the upstream product is indispensable for supply of the downstream product. The refusal must prevent the development of the secondary market to the detriment of consumers. Microsoft — Interoperability Information The now well-known issues in the Microsoft case are different from those in IMS Health, because the abuse here relevant as found by the Commission was refusal to supply interoperability information, using the monopoly of desktop operating systems software to monopolise workgroup server software products. The Commission based the order to licence on the need for interoperability, the risk of elimination of competition on the secondary market, the ill effects on innovation, the harm to consumers, and the absence of justification. So there was, the Commission said, an abuse in addition to the refusal to supply. Microsoft went further than was necessary to fulfill the essential function of the right, by reducing innovation. The key exceptional circumstances are the abuse itself (although there were others). NDC: Advocate General Tizzano’s Opinion, Eur. Intell. Prop. Rev. 84 (2004); David Aitman & Alison Jones, Competition Law and Copyright: Has the Copyright Owner Lost the Ability to Control his Copyright?, Eur. Intell. Prop. Rev. 137 (2004); Beatriz Conde & Dimitrios Riziotis, Comment, 5 Int’l Rev. Intell. Prop. & Competition L. 564 (2004). 239 Case C-481/01P(R), [2002] E.C.R. I 3401. 240 Apr. 29, 2004, Case C-418/01, IMS Health v. NDC Health, [2004] E.C.R. I-___.
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On this basis, the intellectual property right does not need to apply to the downstream product, or can be only an element in it. It concerns the “interface.” A key finding was that for other companies reverse engineering was not a solution, not merely because it is time-consuming and costly, but because at any time Microsoft could alter the relevant characteristics of the software, and recreate the handicap again. To be prohibited under Article 82, the conduct must lead to a serious, permanent and inescapable handicap, even if the companies disadvantaged have not been forced to leave the market. The Microsoft case was not based on the argument that a new kind of product, for which there was a clear and unsatisfied demand, was being suppressed. That is not the only situation in which harm to consumers occurs: other kinds of harm to competition are enough. It seems (but we must wait for the judgment) that a refusal to licence as a remedy for an abuse would be justified only if it seeks to achieve a legitimate aim, it is necessary and reasonably suitable to achieving it, and the procompetitive aim outweighs the anticompetitive effects.
SESSION IV: ANTITRUST/COMPETITION LAW & INTELLECTUAL PROPERTY PART C: PARALLEL TRADE
SESSION IV: ANTITRUST/COMPETITION LAW & INTELLECTUAL PROPERTY
Part C: Intellectual Property and Competition Policy on Parallel Trade
Moderator THOMAS HEIDE
Berwin Leighton Paisner (London) Speakers CHRISTOPHER STOTHERS
JAMES B. KOBAK JR.
Milbank Tweed Hadley & McCloy LLP (London)
Hughes Hubbard & Reed, LLP (New York)
Panelists PROF. VALENTINE KORAH
JOHN TEMPLE LANG
University College London
Cleary Gottlieb Steen and Hamilton (Brussels)
SUSAN MANNING
THOMAS CHENG
Managing Director, COMPASS/FTI Consulting
University of Hong Kong
MR. HEIDE: Good afternoon, and welcome. This is the session on Intellectual Property and Competition Policy on Parallel Trade. I am Thomas Heide from Berwin Leighton Paisner in London. Let me introduce the panelists. First and foremost, Chris Stothers will be giving the main paper. This is the book that he has just published.1 We have a couple of panelists from the last session: John Temple Lang, Susan Manning, and Prof. Valentine Korah. James Kobak has joined us, as has Thomas Cheng. Hugh has asked me to give a very quick, whistle-stop tour of parallel trade, and I will do so. What are we talking about when we talk of parallel trade? It is essentially about a good being put on one market ending up in another market. Who does this? Consumers do it, intermediaries — or, as they are often better known as, parallel traders. 1 Christopher Stothers, Parallel Trade in Europe: Intellectual Property, Competition and Regulatory Law (2007).
298 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY Is it a good thing? It depends whom you are talking to. For the consumers, yes, if they get what they want at a cheaper price. For parallel traders, most certainly yes. They have a business. They get to arbitrage between different markets, and often they make lots of money. For manufacturers or brand owners, the answer is most certainly no. Why is that? It’s because their products from low-price countries end up in high-price countries. That affects their bottom line. Not only that, many times it can affect their goodwill and brand value. That might happen, for instance, where a product with certain specifications or functionality is sold in one country and then gets imported into another country, where consumers are confused, because what they are used to experiencing from that product is not the same. That may actually tarnish the brand and hurt the company’s goodwill. How about governments? Generally, there is a cautious “yes” in terms of being for parallel trade. Certainly if we look back at the late 1990s, when there was a huge debate in Europe about parallel trade of consumer products, particularly CDs and music, Sweden and the United Kingdom were very much pro parallel trade. These days, of course, a big topic of discussion is that of pharmaceuticals. Here in the United States, as in most countries around the globe, there are strong interests in government lowering the price of pharmaceuticals. But there is also a certain caution. That caution essentially comes down to one point: that is the fact, as was mentioned this morning, that fakes are finding their way into the distribution chain. So pharmaceuticals being parallel traded is okay. However, if fakes end up in the stream of commerce, this is quite a problem. Intellectual property rights, as you know, are territorial in nature. These rights give the rights owner the right to stop infringing products at the border. In law, whether by legislation or case law, we have the exhaustion doctrine. That doctrine essentially limits what a right owner can do once products containing or bearing the IP rights have been placed on the market and are free to circulate. In the United States, it is called the first-sale doctrine; in Europe, we call it the exhaustion doctrine. There are a couple of different flavors of exhaustion. There is international exhaustion. That means a product put on the market anywhere on the globe is essentially deemed to exhaust the rights of the right holder. Then we have regional exhaustion, or, as we call it in Europe, Community exhaustion, which means that any product put on the market anywhere in Europe exhausts the rights vis-à-vis that good within the European Union. We also have national exhaustion, which is the case here in the United States, by virtue of the Jazz Photo case of 2001,2 with regards to patents. Under national exhaustion, the IP rights are exhausted only within the boundaries of the country in issue when a product is put on that national market. Where does antitrust come into the picture? You can imagine that many rights holders are not very enthusiastic about parallel trade. They would like to control their distribution networks. They commonly look to contracts to do so where you will find various provisions — for instance, export bans, territorial restrictions, or exclusivity — being used as a means to control parallel trade. Other means can also be used. Pricing — where there is one price for local consumption and another price if products are being exported — Chris will talk about shortly. Limiting quantities, or stock-allocation schemes, for example, where a manufacturer looks at what is consumed locally and only supplies on the basis of the local history of consumption, is another means of controlling parallel trade. 2 Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), cert. denied, 536 U.S. 950 (2002).
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These various means can be attacked through competition law. In the United States, it is the Sherman Act.3 In the European Union, it is Articles 81 and 82 of the EC Treaty.4 But it does not have to be done through competition law. It can also be done by legislation. One of the points that James Kobak will talk about is how parallel trade can be addressed through legislation. There are some very interesting debates in the United States at the moment focusing on the Pharmaceutical Market Access and Drug Safety Act.5 I think we have a very promising lineup. Chris is going to start and give more of a forensic analysis of some of the points that I have just given you a whistle-stop tour of. I know that Susan is quite keen on providing some economic perspectives to parallel trade. James is going to give the background from the United States. There will be some very practical perspectives from John with regard to stock-allocation schemes, in terms of what companies can lawfully do under the law in the European Union. Chris, over to you. MR. STOTHERS: Thanks, Tom. Good afternoon. Who are parallel traders? Certainly, if you listen to brand owners, they are pirates; they are leeches; they are WAGs (for those unfamiliar with soccer, WAGs are the wives and girlfriends of the England football team). The picture on the slide is of Wayne Rooney’s girlfriend, Coleen McLoughlin, who was caught bringing far too much shopping back from the United States and forced to paid customs duty and VAT. As for “lying bastards,” these aren’t my words. It is the title of a book by a parallel trader explaining what parallel traders do and describing them as “lying bastards.”6 Of course, the title itself rather suggests that the book might not be the whole truth. As for the last one — “You?” — I am somewhat disappointed that Hugh Hansen is not still here, because I was going to point out that, as a frequent visitor to the United Kingdom, Hugh Hansen as a shopper might be one of the biggest parallel traders in the world. I. BACKGROUND Moving on, what I really want to talk about today about is the overlap or linkage between IP and competition policy when it comes to parallel trade. In most cases, there is no conflict and the policy goes the same way, but that is not always the case. Within the European Community, can you use IP to block parallel trade? In general, no you cannot. Community Exhaustion — Can you use other measures? Probably not, because they are very likely to involve an anticompetitive restriction. Article 28 of the EC Treaty states that: “Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.”7 Article 30 then gives a limited range of exceptions as follows: “The provisions of 3
Sherman Antitrust Act, ch. 647, 26 Stat. 209 (1890) (codified as 15 U.S.C. §§ 1–7). Treaty Establishing the European Community, Feb. 7, 1992, O.J. (C 224) 1 (1992), [1992] 1 C.M.L.R. 573, 626 [hereinafter EC Treaty], incorporating changes made by Treaty on European Union, Feb. 7, 1992, O.J. (C 224) 1 (1992), [1992] 1 C.M.L.R. 719. The EC Treaty was amended by the Treaty of Amsterdam, Oct. 2, 1997, O.J. (C 340) 1 (1997). After the amendment introduced by the Treaty of Amsterdam, Articles 85 and 86 of the EC Treaty have become Articles 81 and 82, respectively. 5 Pharmaceutical Market Access and Drug Safety Act of 2007, S. 242 & H.R. 380, 110th Cong. (2007) (introduced Jan. 10, 2007 to amend the Federal Food, Drug, and Cosmetic Act with respect to the importation of prescription drugs), available at http://www.govtrack.us/congress/bill.xpd?bill=h110-380. 6 Ricky George, Lying Bastards: Confessions of a Grey Market Trader (2004). 7 EC Treaty, supra note 4, art. 28. 4
300 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY Articles 28 and 29 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of . . . the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.”8 Goods coming from outside Europe into Europe? For these it is the other way around. There is no international exhaustion — in fact, it is prohibited. And restrictions are unlikely to be regarded as anticompetitive because there is unlikely to be an effect on trade between Member States. As for the United States, although people like to say the approach to parallel trade is entirely different, I think it is actually similar to that in Europe. Within the United States, there is an awful lot of parallel trade, which is supported by the first-sale doctrine and by antitrust. However, parallel trade of goods from outside the United States raises different issues, and certainly on the competition/antitrust side restrictions are far less likely to trigger sanctions. So what are the clouds on the horizon? Why am I bothering to talk about this if IP and competition policy on parallel trade are the same? In brief, there is some divergence between IP and competition policy on parallel trade in certain cases, and I feel these divergences indicate some dissatisfaction with either or both policies. I want to pick out just three examples today, in this relatively limited time: pharmaceuticals, online transactions, and what people like to grandly title “Fortress Europe.” II. PHARMACEUTICALS Starting off with pharmaceuticals, why are there problems and policy disagreements? Well, we have discussed earlier today that the prices in Europe are set at the Member State level, or interfered with at the Member State level, but the single-market imperative still applies as a general rule. So even though companies cannot choose to set their prices freely across Europe, they still have to bear the brunt of the internal market. You get similar policy disagreements between the United States, where there is freemarket pricing of pharmaceuticals, and Canada, where there is more interference with pricing and visibly lower prices. That, in turn, leads to a lot of unhappiness, particularly for consumers who cannot easily afford the U.S. prices. So we have policy disagreements relating to pharmaceuticals. How do we deal with them? In Europe, Community exhaustion applies, as I said. But then the courts start playing slightly funny games with repackaging. When we talk about repackaging, we are talking about the fact that pharmaceuticals sold in Greece have Greek packaging and Greek instructions. Those pharmaceuticals cannot simply be imported and sold in the United Kingdom. Regulatory provisions require English packaging and English instructions for patients. There are fairly important and obvious public-health reasons why that is the case. Therefore, it is necessary to repackage in order to parallel import. However, if you repackage, that amounts to trademark infringement under Community law, and thus parallel imports are restricted under Community law. This is one example where the courts have given something back to the pharmaceutical industry, rather than simply applying the full brunt of the Community exhaustion rules. On the other hand, a parallel trader, like anyone else, needs a marketing authorization to put a pharmaceutical on the market. There is a simplified approach for parallel imports, where you do not have to go through the whole rigmarole of carrying out tests 8
Id. art. 30.
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on rodents and so on. But, although there is this simplified approach, there remain significant delays, which again restricts parallel trade of pharmaceuticals within Europe. On the competition side, the European Commission applies normal competition principles and pharmaceutical companies are just as much at risk from the rules. However, Advocate General Jacobs and the Court of First Instance (CFI) have both suggested a slightly lighter touch may need to be applied in the pharmaceutical sector in Syfait 9 and GlaxoSmithKline,10 respectively. The Syfait case is now going back to the European Court of Justice (ECJ). If you remember, that is the case where Advocate General Jacobs cunningly tried to divide the baby so that Community competition law still applies in general but some special conditions are permitted for pharmaceuticals. The ECJ ducked the question and said it was not allowed to hear the reference because it came from the Greek Competition Commission, which was not a court of tribunal. The Greek courts have come back and said, “Well, here’s a whole handful of cases, all with exactly the same reference. Now you are going to have to hear it, because we definitely have permission. We are definitely allowed to refer our cases.”11 Other distribution models for pharmaceuticals are also raising issues. Pfizer’s distribution model, in particular, was the subject of AAH Pharmaceuticals v. Pfizer12 and also the Office of Fair Trading (OFT) study that was announced recently.13 Pfizer wants to supply to the market through a single wholesaler, and various other wholesalers are objecting. The case is not just about parallel imports, but one of the complaints is that the system will restrict parallel exports from the United Kingdom, because other wholesalers simply will not be able to get Pfizer products. The U.S. system, as James will pick up in due course, also restricts pharmaceutical parallel imports from an IP and regulatory perspective. However, again there are various administrative, legislative, and individual initiatives seeking to allow parallel trade in some cases, particularly from Canada. Before I move on to online transactions, is there a resolution to pharmaceuticals? I am not very positive that there is. This debate has been going on for years and years and years. There does not seem to be any great inclination to have legislative action to resolve it. There is a basic problem, in that the EC Treaty provides no special treatment for pharmaceuticals despite the impact of pricing intervention. So it is very difficult, without some legislative reform, or even Treaty reform, to find a solution that will allow different treatment for pharmaceuticals while keeping the rest of the single market intact. The other obvious solution would be to have all the Member States give up interfering with prices and have single pricing throughout Europe. That is not going to happen. III. ONLINE TRANSACTIONS So on to online transactions. This is far sexier than pharmaceuticals — well, I think so at 9 Case C-53/03, Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and Others v. Glaxosmith-kline, 2005 E.C.R. I-4609 (Opinion of Advocate General Francis Jacobs, Oct. 28, 2004), available at http://curia/ europa.eu/en/actu/communiques/cp04/aff/cp040087.en.pdf. 10 Case T-168/01, GlaxoSmithKline Services Unlimited v. Commission of the European Communities, 2007 O.J. (C 42) 11, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2007:042:0011:0011: EN:PDF. 11 Cases C-468/06 to C-478/06, Sot. Lélos kai Sia EE v. GlaxoSmithKline (all pending). 12 [2007] E.W.H.C. 565 (Ch). 13 U.K. Office of Fair Trading, Distribution of Medicines in the UK, OFT914 (Apr. 4, 2007), available at www.oft.gov.uk/shared_oft/reports/comp_policy/oft914.pdf.
302 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY least. Particular factors here are the reduction of search and transaction costs and the introduction of new business models. The first basically means that consumers can now go on the Internet, they can see how much something costs in another country, and, all else being equal, they can order it from that country and get it posted across to them. They do not have to physically travel to the other country, learn the language, and then go traveling around to find the cheapest price. It is much easier to do it via the Internet. Equally, we have distribution of media electronically rather than in physical form. By virtue of being a very different business model than the one in place when the “free movement of goods” doctrine was developed, this raises serious new issues, which really have not been dealt with properly (yet). So what happens with online transactions? Individuals are unlikely to infringe IP rights themselves, but Web sites that are allowing them to purchase can infringe. A recent case in the English High Court, Sony Computer v. Pacific Game Technology,14 concerned a Web site in Hong Kong selling Sony products that was clearly aimed at the U.K. market. It was found that the Web site owners were issuing copies in the United Kingdom, and thus infringing copyright in the United Kingdom, even though they were based in Hong Kong and doing everything in Hong Kong, because the Web site was targeted at the United Kingdom. This is not the only example of cross-border purchasing by consumers. Another recent case in a slightly different field is Joustra,15 which was about a group of wine lovers in the Netherlands who were trying to buy their wine in France as a group. The ECJ was asked whether the purchasers had to pay Dutch excise duty on the wine, which was relatively high, or French excise duty, which was relatively low. In that case, they were not physically going to France to pick up the wine themselves — in which case they would have paid French excise duty. They were getting a third party to import it and, as a result, they had to pay the higher Dutch excise duty. All very inefficient! What about services? Well, exhaustion has not typically applied to services. We have the old Coditel cases16 and various cases about collecting societies. A lot of those cases were really about people trying to use the copyright work in question without any payment at all, and so it was not really surprising that exhaustion was rejected. But as a result of those decisions, we now have the situation where it is somewhat unclear whether exhaustion will apply to modern services, such as iTunes, where people are downloading music and putting it onto their own iPods, and whether people can resell without infringement. The issue is also arising, to a certain extent, in relation to licenses for computer software, particularly in Germany. But it is still quite early days to say what is going to happen. However, this issue is very important, because if companies are able to divide up the European market and charge different prices in each Member State then it undermines the goal of the rules that apply to the parallel trade of goods. The Commission is also getting rather excited the competition side of online transactions at the moment. In particular, various regulations (block exemptions) and guidelines attack any attempt to restrict online sales. However, sometimes these are a bit naïve or, at least, by the time they are published, they are already outdated. Collecting society models for online use are also being considered, but with a slightly 14
[2006] E.W.H.C. 2509 (Pat.) (the “Lik Sang” case). Case C-5/05, Staatssecretaris van Financiën. v. B.F. Joustra, [2006] E.C.R. I-11075. 16 Case 62/79, Coditel v. Ciné Vog Films, 1980 E.C.R. 881 (Coditel I); Case 262/81, Coditel SA v. Ciné-Vog Films SA, [1982] E.C.R. 3381 (Coditel II). 15
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different approach in each field. There is no real consistency between the way collecting societies are viewed by the Commission officials responsible for intellectual property and the way they are viewed by those responsible for competition. Until there is some sort of consistency, we do not know what types of models are going to develop. Finally, people are getting quite excited about the iTunes investigation. That is an investigation into iTunes for charging different prices in different Member States. In itself that isn’t necessarily problematic. What is problematic is that iTunes apparently includes measures to try to make sure consumers use only their own national iTunes Web site, rather than another one — for instance, to stop consumers in, say, the United Kingdom going on to the French iTunes Web site and downloading their songs from that Web site. A statement of objections against that has been issued by the Commission under Article 81.17 Restrictions on cross-border purchasing also appear in other service areas, particularly airlines and rental rights, where suppliers try to charge different prices in different countries and to make sure the prices that are paid are determined by the residence of the consumer rather than the Web site that the consumer is using. By way of example, the sorts of measures enforced would be only allowing payment by credit cards registered in the country at which the Web site is targeted — so not allowing a U.K. consumer to use a U.K. credit card on a French Web site. For the few consumers who also have a French credit card, that is not going to be a problem, but for the majority of consumers that is going to block them using the French Web site. In the iTunes case, the Commission has suggested that the agreements required for the purpose of Article 81 are between the music producers and Apple.18 However, with other services, there may not be any such agreements, and so there may be no infringement of Community competition law even if the Commission’s case against Apple is successful. So what is going to happen on the online transaction issue? The area to watch is the competition side. I do not think anything particularly exciting is likely on the IP side, although any developments there are most likely to occur in Germany, particularly in terms of the resale of software licenses. IV. “FORTRESS EUROPE.” The third of today’s examples is “Fortress Europe.” The Silhouette decision19 confirmed that the Trademark Directive20 prohibited international exhaustion, thus allowing brand owners to prohibit parallel import from outside the European Economic Area. Several Member States were unhappy after Silhouette, and as others realized what it actually meant, more and more Member States were unhappy. The European Parliament was also very unhappy, and there were plenty of fairly pointed questions asked in Parliament. The national judges were unhappy after Silhouette. One former national judge, who 17 See COMP/39.154, MEMO/07/126, Press Release, European Commission, European Commission confirms sending a Statement of Objections against alleged territorial restrictions in on-line music sales to major record companies and Apple (Apr. 3, 2007), available at www.europa.eu/rapid/pressReleasesAction.do? reference=MEMO/07/126. 18 Id. 19 Case C-355/96, Silhouette Int’l Schmied GmbH & Co. KG v. Hartlauer Handels-gesselschaft GmbH, [1998] E.C.R. I-4799 (July 16, 1998), available at http://curia.europa.eu/en/actu/communiques/cp98/cp9849en.htm. 20 1989 Community Trademark Directive: First Council Directive 89/104 (EEC) Dec. 21, 1988 to approximate the laws of the Member States in relation to trademarks, 1989 O.J. (L 40) 1, available at http://eur-lex.europa.eu/ LexUriServ/site/en/consleg/1989/L/01989 L0104-1991123-en.pdf.
304 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY shall remain nameless — but the fact that he is a former national judge probably gives the game away — is particularly unhappy with Silhouette and is said to have offered a medal to anyway who can find a way around it. There are also judges in the English Court of Appeal who remain fairly unhappy with the effect of Silhouette. That said, other Member States are entirely happy with the Silhouette approach, and the Commission itself has been fairly unwilling to change the legislation. In particular, the Commission has avoided some of the demands by Parliament to investigate the issue further. The unhappiness on the IP side with the prohibition of international exhaustion can be seen in a number of recent cases.21 I will not go through the details today. They are just examples of the fact that, although international exhaustion is prohibited in theory, in practice people are not always happy with that policy choice. In terms of competition, we have the Javico case,22 which is really the only case we have on point. The ECJ said there was no effect on trade between Member States in the case and, therefore, no competition infringement. That, for most cases of restrictions in parallel trade from outside the Community, is going to be the end of the matter. However — and this is very much my speculation, as there is little case law — a number of the free trade agreements entered into by the European Community contain competition provisions and say they must be interpreted in line with Articles 81 and 82. It will be interesting to see — as I say, perhaps the English judges want to play with a new toy — whether they will try to play with those agreements and use their competition provisions as a way of trying to allow parallel imports, or at least to block restrictions on parallel imports from outside the Community. You have had the mandatory plug of my book – Parallel Trade in Europe, published this month by Hart Publishing. I will hand it back over to Tom. MR. HEIDE: Thank you very much, Chris. I think it would be a good idea if, James, you would give a view of what is happening in the United States with regard to pharmaceuticals. As Chris was just talking about, there is a hotbed of activity there, all the cases before the European Court. Over to you. *
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An Update on the Law, Politics and the Re-Importation of Pharmaceuticals in the United States James B. Kobak Jr. & Ramsey Chamie23 I. BACKGROUND This draft paper summarizes developments affecting the controversial and important issue of gray market importation of patented and branded pharmaceutical products into the United States. Prices at which a medication are sold in one country may be substan21 See, e.g., Case C-244/00, Van Doren v. Lifestyle Sports, [2003] E.C.R. I-3051; Case C-16/03, Peak Holding v. Axolin-Elinor, [2004] E.C.R. I-11313; Case C-405/03, Class Int’l v. Unilever, [2005] E.C.R. I-8389; Sun v. Amtec, [2006] E.W.H.C. 62 (Ch); Mastercigars Direct v. Hunters & Frakau, [2007] E.W.C.A. 176. 22 Case C-306/96, Javico Int’l and Javico AG v. Yves Saint Laurent Parfums, [1998] E.C.R. I-1983. 23 James Kobak is Partner, Hughes Hubbard & Reed LLP and Adjunct Professor, Fordham Law School. Ramsey Chamie is a Hughes Hubbard & Reed LLP Associate.
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tially lower than in a neighboring country because of government price controls or purchasing practices as well as differences in currency valuation. Purchasers in the low-price country may profit by resale into the higher-priced country, with some reduction in price to some consumers of that medication in the higher-priced country. But these benefits for the gray market importers and the consumers who choose to deal with them may do little to reduce overall price levels in the high-price country and may come with costs: these include the adverse effect on revenues for the pharmaceutical manufacturers that develop the products; attendant diminution of resources and incentives for research and innovation; adverse economic and health consequences to consumers in the country where the medication is originally sold; and potentially adverse health consequences to consumers in the destination country. Manufacturers and rights holders in the United States, where many research-based international pharmaceutical companies are headquartered or maintain substantial operations, have taken steps to limit supply to wholesalers or distributors or to place restrictions against resale into the United States in their contracts with distributors. These efforts have been directed particularly at Canada, where government-mandated prices are substantially lower than in the United States and from which the logistics of U.S. importation and Internet advertising are relatively simple and inexpensive. This paper focuses on the limits that antitrust, competition law, or other administrative procedures or legislative initiatives may place on efforts, such as those now being undertaken to limit imports into the United States. II. RECAP OF THE INTERNATIONAL EXHAUSTION DOCTRINE As explained in previous work, the historical doctrine of international exhaustion has yielded to a rule of national exhaustion of patent rights in the United States as a result of a decision by the U.S. Court of Appeals for the Federal Circuit, the court that ultimately decides most issues of U.S. patent law.24 The Federal Circuit has recently confirmed that it has “expressly limited first sales under the exhaustion doctrine to those occurring in the United States.”25 Efforts by IP rights holders to take advantage of these newly recognized rights to exclude imports may include infringement suits or invocation of administrative procedures, such as International Trade (ITC) procedures. There are, however, practical limitations to these remedies. Infringement suits are costly, cannot be instituted until after imports have appeared, and often suffer from the inability to identify, obtain personal jurisdiction over, or effecttively enforce judgments against, significant parties in the distribution chain. Administrative trade remedies, such as ITC exclusion orders, avoid some of these limitations but still cannot be invoked until some significant infringement has occurred. The trade laws that govern these procedures also require that significant manufacturing operations be conducted in the United States to satisfy the domestic inquiry requirement of the law26 and have practical limitations. (These limitations include the less than infinite resources of the ITC and U.S. Customs and Border Protection and an intentional loophole in the U.S. trade law permitting importation by individuals for personal 24 Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), cert. denied, 536 U.S. 950 (2002); Fuji Photo Film Co., Ltd. v. Jazz Photo Corp., 249 F. Supp. 2d 434 (D.N.J. 2003). See also James B. Kobak Jr. & Robert P. Reznick, Recent Developments of Interest to Patent Licensors, Licensees, and Their Lawyers, Licensing J. 12, 15–16 (June–July 2003); Daniel Erlikhman, Jazz Photo and the Doctrine of Patent Exhaustion: Implications to TRIPS and International Harmonization of Patent Protection, Hastings Comm. & Ent. L.J. (Winter 2003). 25 Fuji Photo Film Co., Ltd. v. Jazz Photo Corp., 394 F.3d 1368, 1376 (Fed. Cir. 2005). 26 10 U.S.C. § 1337(a).
306 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY use). In the 1980s, the ITC, at the urging of the U.S. Federal Trade Commission (FTC), refrained from instituting measures to attack gray market goods proactively under trademark laws.27 IP rights owners and manufacturers may, therefore, seek to supplement their pure IP rights by resorting to contractual restrictions and business strategies, such as restricting supply to a few reliable pharmacies wholesalers and refusing to deal with others. The question is whether these efforts could or should be trumped by regimes, such as antitrust law, or by specific legislation designed to encourage pharmaceutical imports. III. DEVELOPMENTS IN THE UNITED STATES Pharmaceutical imports from Canada, in particular, remain a significant political issue in the United States because of price disparities between patented pharmaceutics in the United States and Canada. These disparities have arisen, in part, because of differences between the Canadian and U.S. dollars, but, more significantly, because of the effect of government purchases and price regulation in Canada. The ultimate importance of these imports can easily be overstated because drugs purchased in Canada (with its much smaller population) represent only a small portion of U.S. purchases. Nevertheless, in individual cases differences may be significant and are well publicized.28 A number of U.S. states and cities are seeking, and in some instances have implemented, plans to purchase or facilitate the purchase of imports on a regular basis for their citizens despite Food & Drug Administration (FDA) statements that such actions might violate federal law. These imports even became an issue in the 2004 U.S. presidential debates from which other significant domestic issues, such as the environment and the impact of the Patriot Act on individual rights, were almost entirely absent. As the dollar fell and U.S. demand increased, some Canadian Web sites offering drugs from Canada reportedly began to fill orders with product from Europe and other parts of the world.29 Indeed, some Web sites are actually only faux Canadian — consisting in reality of facilities located in places, such as the Bahamas, that fill orders with products originating in Asia.30 As a result, FDA has warned customers not to buy or use prescription drugs from Canadian Web sites.31 A recent FDA operation found that, of the drugs being promoted to consumers as “Canadian,” 85 percent came from outside Canada, and several of the pharmaceuticals sampled were counterfeit.32 In October 2006, one month before congressional mid-term elections, Congress passed the Department of Homeland Security Appropriations Act, 2007, H.R. 5441. A provision in the Act allows individuals returning from Canada to carry into the United States up to a ninety-day supply of prescription medicines for personal use. An additional provi27 Comments of the Bureaus of Competition, Consumer Protection and Economics of the Federal Trade Commission on Gray Market Options Facing the United States Custom Service (Oct. 17, 1986). 28 See United States Department of Health & Human Services Task Force on Drug Importation, Report on Prescription Drug Importation (Dec. 2004), available at http://www.hhs.gov/importtaskforce [hereinafter HHS Task Force Report], at 67 (con-cluding that savings on an individual’s purchases may be substantial but that overall savings would amount to at most 1–2 percent); Congressional Budget Office, Economic and Budget Issue Brief, Would Prescription Drug Importation Reduce U.S. Drug Spending? (Apr. 29, 2004). 29 FDA Operation Reveals Many Drugs Promoted as “Canadian” Products Really Originate from Other Countries, FDA News (Dec. 16, 2005), available at http://www.fda.gov/bbs/topics/NEWS/2005/NEW01277.html. 30 HHS Task Force Report, supra note 27, at 19–20. 31 FDA Warns Consumers Not to Buy or Use Prescription Drugs from Various Canadian Websites that Apparently Sell Counterfeit Products, FDA News, Aug. 30, 2006, available at http://www.fda.gov/bbs/topics/ NEWS/2006/NEW01441.html. 32 FDA News, supra note 29.
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sion offered by Rep. Chet Edwards (D-Texas) would have also permitted importation of prescription drugs from Mexico, but did not make it into the bill. Because this narrow exception applies only to those transporting prescription drugs “on their person” — as opposed to through the mail or another third party — it is unlikely to have a significant impact on the vast majority of U.S. citizens who do not live close to the U.S.-Canada border. The law also requires that imported drugs from Canada comply with the Federal Food, Drug, and Cosmetic Act (FFDCA). This provision is ambiguous, and potentially problematic, because FDA has never identified a Canadian drug that would be consistent with the requirements of the FFDCA, and recently the Eighth Circuit held that the requirements for Canadian drugs are different from those applicable in this country.33 Concurrently with the passage of H.R. 4551, the U.S. Customs and Border Protection (CBP) reversed its policy regarding the handling of prescription drugs mailed from Canada to the United States for personal use. In years past, CBP would send imported prescription drugs to FDA for a determination whether they should be allowed to enter the United States. FDA has for a number of years permitted individual importation for personal use in limited quantities (ninety days’ supply) of potentially life-saving drugs not otherwise readily available in the United States. On November 17, 2005, CBP began to seize shipments of imported drugs and notify intended recipients of the seizure by mail. Customers had thirty days to request that their packages be sent to FDA for an admissibility determination; otherwise the packages were destroyed. Several members of Congress expressed concern that this policy shift harmed consumers, particularly senior citizens.34 Perhaps due to political pressures, CBP recently reinstituted its previous policy; beginning October 9, 2006, CBP has once again been referring imported prescription drugs from Canada to FDA, where admissibility standards are expected to be more relaxed.35 This policy emerged historically as a matter of administrative discretion, not a legal or regulatory requirement. Apart from the limited individual transport for personal use exception, the importation of foreign pharmaceuticals remains illegal.36 Congress in 2000 first passed legislation authorizing pharmaceutical re-importation of a limited range of products, but only if the Secretary of Health and Human Services (HHS) certified that importation would pose no additional risk to health and public safety. In 2003 Congress passed legislation that provides a prescription drug benefit for seniors. This statute again includes a provision that would allow wholesalers and pharmacists to import prescription drugs from Canada to the United States. The statute also includes for the first time an individual use exception. As did its predecessor, the 2003 statute continues to contain provisions that require the HHS Secretary to certify that there is no public safety risk before the importation provisions will become effective. Under both statutes, Secretaries of HHS in both the Clinton and Bush administrations have consistently refused to make such a certification; they have instead threatened, and in a few instances taken, enforcement action against Internet pharmacies and U.S. entities offering to sell patented medications from Canada.37 33
In re Canadian Import Antitrust Litig., No. 05-3873, 2006 U.S. App. LEXIS 29394 (8th Cir. Nov. 30, 2006). Christopher Lee, U.S. to Stop Seizing Prescription Drugs Imported for Personal Use, Wash. Post, Oct. 5, 2006. 35 Susan Heavey, FDA Role Restored Over Mail-Order Drug Imports, Reuters, Oct. 5, 2005. 36 In re Canadian Import Antitrust Litig., 470 F.3d 785 (8th Cir. Nov. 30, 2006). 37 See Peter L. Glossop, Drug Importation from Canada: What Does Canadian Competition Law Have to Say?, 5 Antitrust & Intell. Prop. 30 n.13 (Fall 2004) (Newsletter of the Intellectual Property Committee of the ABA Antitrust Section) (citing letter from William K. Hubbard, Associate Comm’r for Pol’y and Planning, U.S. Food & Drug Admin., to Robert P. Lombardi, Esq., The Kullman Firm (Feb. 12, 2003), available at http://www.fda.gov/ ora/import/kullman; HHS Task Force Report, supra note 27, at nn.17 & 18; United States v. Rx Depot, Inc., 297 F. Supp. 2d 1306 (N.D. Okla. 2003). 34
308 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY This January, Congress introduced the Pharmaceutical Market Access and Drug Safety Act of 2007 (H.R. 380; S.242), a far-reaching bill that would amend the Federal Food, Drug, and Cosmetic Act (FFDCA)38 to allow for U.S.-licensed pharmacies and drug wholesalers to import qualifying medications from Canada, Europe, Australia, New Zealand, and Japan, and individual consumers to purchase prescription drugs for personal use from FDA-inspected Canadian pharmacies. A similar bill with the same name was presented in 2005 but never made its way out of committees; however, the result could be different this time, in part, as a result of heightened political sensitivity to demands for lower-priced pharmaceuticals. Under the proposed legislation, a qualifying drug — one for which there is a corresponding U.S. label drug — may be imported by a registered importer or from a registered exporter. The bill would establish requirements for registration and command the FDA to inspect places of business and facilities, and verify chains of custody for imported drugs. It also would waive the FFDCA’s limitation on re-imported prescription drugs, thereby creating a new prescription drug exception to the rule of national exhaustion of patent rights established in Jazz Photo39 and subsequent decisions of the U.S. Court of Appeals for the Federal Circuit. The proposed bill inserts the following sentence into the U.S. Code Title 35 – Patents: It shall not be an act of infringement to sue, offer to sell, or sell within the United States or to import into the United States any patented invention under section 804 of the [FFDCA] that was first sold abroad by or under authority of the owner or licensee of such patent.40 In addition, unlike prior bills, the proposed legislation does not require HHS Secretary safety certification. A study by HHS mandated by the 2003 statute concludes that safe importation of a few widely recognized drugs through recognized wholesalers in Canada (but not from anywhere else) could be possible at a realistic cost, but that its benefits for U.S. consumers would be small and would require extensive record-keeping and regulation as well as cooperation by Canadian entities.41 The report concludes that most of the cost savings relate to higher-priced branded pharmaceuticals and that savings many times greater could be saved by more widespread use of generics, which actually cost substantially less in the United States than they do under the price control regimes of foreign countries. This point was also made in a Department of Commerce study transmitted to Congress at the same time as the HHS Task Force Report.42 The Commerce Department report concluded that price controls in OECD countries deterred desirable innovation. It also noted — more debatably — that group purchasing through drug discount cards for the elderly might reduce some of the current disparity in pricing of well-known branded pharmaceuticals. A few years ago Congress also considered, but did not enact, legislation that, provided some safeguards were met, would have prevented pharmaceutical companies from refusing to supply established Canadian customers or to deny them permission to import even when the manufacturer believes there is far more product ordered than is needed for 38
Federal Food, Drug, and Cosmetic Act (FFDCA), 52 Stat. § 1040 (1938). Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), cert. denied, 536 U.S. 950 (2002). 40 S. 242, § 4 (a)(d)(1)(B). 41 HHS Task Force Report, supra note 28. 42 U.S. Dep’t of Commerce, Int’l Trade Admin., Pharmaceutical Price Controls in OECD Countries: Implications for Consumers, Pricing, Research and Development, and Innovation (Dec. 2004), available at http://www. ita.doc.gov/drug pricingstudy. 39
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Canadian consumption. The proposed Pharmaceutical Market Access and Drug Safety Act would similarly prohibit pharmaceutical companies from engaging in selective dealing with foreign wholesalers and other tactics designed to limit parallel trade despite the fact that HHS and Commerce had both recommended against any such provisions in jointly transmitting their respective reports to Congress. One important question is whether affirmative efforts by pharmaceutical companies to limit imports from Canada presently comply with U.S. and Canadian antitrust or other law. Efforts by some companies to date have included limiting supply, placing restrictions against resale into their contracts for the sale of drugs sold in Canada, and terminating or threatening to terminate distributors who refuse to limit sales. These efforts have been attacked under antitrust and other laws, principally on the allegation that the companies acted in concert. These theories premised on an agreement among the competing companies do not seem well founded even on their face given the disparities in the timing and scope of actions taken and individual interest of each of the companies. In November 2006, the U.S. Court of Appeals for the Eighth Circuit affirmed the dismissal of antitrust allegations on the ground that the commerce affected was illegal under U.S. law to begin with and could not confer standing on those excluded from participating.43 The court held that because the Canadian prescription drugs at issue were not labeled in conformity with the FFDCA, they are “unapproved,” and their importation is prohibited by law. The Court explained that its focus on mislabeling as a source of illegality was a “manifestation of a congressional plan to create a ‘closed system’ designed to guarantee safe and effective drugs” for American consumers.44 Even though no federal statute bans expressly the importation of prescriptions drugs from Canada, “such an explicit country-by-country prohibition is unnecessary” because Congress has already “precluded importation of these drugs” through FFDCA restrictions.45 Thus, the absence of competition from Canadian sources in the U.S. pharmaceutical market is attributable to the fact that it is prohibited by federal law, rather than the conduct of defendant pharmaceutical companies. On a unilateral basis, under present law it is unlikely that efforts by pharmaceutical companies would be held to constitute a patent misuse either. (Misuse is a doctrine of U.S. patent law under which attempts to extend the rights conferred by patent law in an unreasonable or anticompetitive manner may make the patent unenforceable.46 As a preliminary matter, as the Eighth Circuit explained in its recent decision, the antitrust laws do not create liability for alleged efforts to restrain unlawful trade of commerce — here, Canadian drug imports that are likely both to violate the FFDCA and to constitute patent infringement. Even apart from this basic issue, vertical territorial restrictions are in general analyzed under the antitrust rule of reason and would be regarded as presumptively in aid of patent rights as well as in the legitimate business interests of the IP owners under Jazz Photo47 and earlier Federal Circuit case law.48 Indeed, if the restrictions are 43 In re Canadian Import Antitrust Litig., 470 F.3d 785 (8th Cir. 2006). One of the authors is a partner in, and the other was until recently associated with, a law firm that represents one defendant in this action and argued for all defendants in the Eighth Circuit. 44 Id. at 790. 45 Id. at 790–91. 46 American Bar Association, Section of Antitrust Law, Intellectual Property Misuse: Licensing and Litigation 1–3, 33–35 (2000). 47 Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), cert. denied, 536 U.S. 950 (2002). 48 Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992); see also Eveready Wholesale Drugs Ltd. v. Pfizer, Inc., 2004 U.S. Dist. LEXIS 20546 (S.D.N.Y. Oct. 13, 2004).
310 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY deemed to be related to patent rights, and if they are clearly expressed, they may conceivably fall within the exclusive jurisdiction of the Federal Circuit or at least be governed by Federal Circuit interpretations of antitrust and misuse law — interpretations generally favorable to patent owners.49 Certain conduct, such as pure refusals to supply, might be held to be permissible in any event.50 The proposed Pharmaceutical Market Access and Drug Safety Act, however, would in effect reverse the Eighth Circuit’s decision. Specifically, the bill would undermine the court’s grounds for dismissing the antitrust allegations by eliminating congressional intent to create a “closed system” by expanding the national exhaustion principle for drug patents to qualifying countries. The proposed legislation not only would allow for the import of qualifying prescription drugs from a number of countries, but also would prevent pharmaceutical companies from taking actions in order to limit parallel trade, and authorizes the FTC to seek treble damages for violations of its provisions. The bill’s expansive definition of “unfair and discriminatory acts and practices” includes: charging a higher price for a prescription drug to a registered exporter in a permitted country; denying, restricting or delaying supplies of a prescription drug to a registered exporter; refusing to do business with a registered exporter; causing there to be a difference (including a difference in active ingredient, route of administration, dosage form, strength, formation, manufacturing establishment or process) between a prescription drug for distribution in the United States and in a permitted country; refusing to allow FDA inspection of manufacturing plants; entering into a contract that restricts, prohibits, or delays the importation of a qualifying drug; and engaging in any other action to restrict, prohibit, or delay the importation of a qualifying drug.51 The legitimization of parallel trade between the two countries has been seen by some in the Canadian government (outside sparsely populated Manitoba, where several Internet pharmacies are located) as adversely affecting the interests of Canadian consumers. Canadian officials have expressed concern with the Internet drug export market and oppose becoming the drugstore for the United States because this role is inconsistent with the purposes of its pricing regime, jeopardizes supply to Canadian consumers, and ultimately undermines incentives to innovate in Canada and elsewhere.52 In addition, Canadian pharmacist associations and patients advocacy groups have lobbied both Canadian and U.S. governments in opposition to the U.S. Congress’s recent proposal to legalize bulk imports of Canadian prescription drugs.53 The HHS Task Force, noting the apparent lack of enthusiasm by any foreign government to assume duties designed to assure safety for U.S. consumers, predicted, “there will be significant pressure on foreign governments, including the Canadian government, to take actions to protect their supply of inexpensive pharmaceutical products.”54 An unusual trade issue could arise if the United States were to forbid private efforts to prevent U.S. resales by such means as the proposed legislation, while at the same time Canada determined that facilitating those 49 American Bar Association, Section of Antitrust Law, Report on the United States Court of Appeals for the Second Circuit (July 2002). 50 S. 1392, 109th Cong., 1st Sess. (2005), approved by a Senate Subcommittee as a rider to reauthorization of the FTC’s budget in July, 2005, but never enacted, would have established a reporting and monitoring regime for licensed importers from Canada and some other parts of the world and would specify that qualifying imports do not infringe patent rights. 51 S. 242, § 4(n). 52 Clifford Krauss, Internet Drug Exporters Feel Pressure in Canada, N.Y. Times, Dec. 11, 2004, at A-1, col. 3, A-5. 53 Canadian Groups Protest U.S. Bid to Legalize Bulk Drug Imports, The Canadian Press, Mar. 7, 2007). 54 HHS Task Force Report, supra note 28, at 77.
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sales to the U.S. was contrary to its national health and welfare interests. Strong legislation, such as that described above, would be necessary because it seems unlikely that the current administration in the United States will change policy. The Department of Justice (DOJ) has undertaken a significant initiative to stem imports that violate IP rights and has noted the possibility of a link between that activity and sale of counterfeits.55 VI. CONCLUSION Those judging the validity of efforts to limit parallel trade ought to engage in a serious rule of reason analysis that addresses the specific economic peculiarities of the pharmaceutical sector. Prices of pharmaceutical companies may still be determined largely by competitive forces in the United States — at least for now — but they cannot freely negotiate on an undistorted price to their Canadian customers any more than they can in Europe. The effect on Canadian consumers is ultimately likely to be detrimental if Canada becomes the drugstore for U.S. citizens rather than Canadian ones; in fact, because of Canada’s relatively small volume of sales, pharmaceutical companies could conceivably begin to refuse to sell important products there, and Canada would cease to be much of a drugstore for anyone. (Even the most far-reaching proposed legislation would condemn discriminatory treatment against qualified exporters to the United States in a country where a company makes sales but would not require a company to make any sales at all in a given country). In addition, the economic benefits even for U.S. consumers generally are likely to be small. In the first place, some of the price differential is likely to disappear into shipping, advertising, record keeping, and monitoring costs and intermediary profits. Second, even apart from the administrative cost, the volume of supply that will ultimately be siphoned off from Canada or other parts of the world will likely be a small proportion of total U.S. pharmaceutical sales, and it will likely have an equivalently small effect on overall prices for U.S. consumers. As noted, the HHS Task Force calculated that even if the laws were changed to encourage such imports, the maximum likely overall savings would be in the range of no more than one to two percent. And this modest savings comes with a substantial potential cost in terms of the quality and safety of re-imported products. Indeed, over thirty of the pharmaceuticals tested by the FDA in a recent operation were determined to be counterfeit.56 Encouraging re-importation of pharmaceuticals from Canada or other countries is an expedient panacea for a politician to announce to his or her constituents. This is not the place to argue whether pharmaceuticals are overpriced or debate all the things that the U.S. government could do to make better use of purchasing power and reduce inefficiency. Even on the assumption that U.S. pharmaceutical prices are in some meaningful sense too high, re-importation is not the appropriate remedy. Since the supply of pharmaceuticals for re-importation is finite at best, re-importations are not likely to have a significant impact on overall price levels. Already their growth has spawned fraud, profiteering, and outright counterfeiting, a serious concern of both industry and government. The long-term consequences of encouraging this conduct could be even more grave. They include loss of patent rights; health risks; reduction in innovation, production and investment; and the exacerbation of trade and diplomatic frictions between such countries as the United States and Canada. 55 U.S. Dep’t of Justice, Task Force on Intellectual Property Report (December 2004), available at http://www. usdoj.gov/criminal/cybercrime/IPTaskForceReport.pdf. 56 FDA News, supra note 29.
312 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY * * * Thank you very much. Panel, can I turn it over to you? PROF. KORAH: I spoke enough in the last one. I will keep quiet. MR. HEIDE: Fair enough. Susan? MS. MANNING: I think parallel trade is quite interesting, particularly because there is considerable harm that can emerge from parallel trade, in terms of consumers thinking that they are getting one product and, in fact, not getting that product, but getting another product. I think that is particularly true in the case of pharmaceuticals, but it is also true in other types of goods that come in. I was working with one client who was faced with a parallel-trade situation. In this case, they had a distribution network set up that was independently owned, and they had goods coming from Europe into the United States. Those goods were coming in. They had significant price erosion. What was occurring there was the situation where people who were buying these very expensive goods thought they were getting one product, and in fact they were getting that product — it was the same OEM product that was manufactured by the original equipment manufacturer — but what they did not know is that once that good came into the United States, it was not supported by the infrastructure in terms of servicing and maintenance, because they did not buy it from a dealer in the United States. As a result, they were getting a good price off of the original equipment, but they were paying through the nose because their product was not getting the free service, the free maintenance, and checks that they needed. There we had consumer harm — in my view, probably consumer fraud. I think these are situations where perfect information is not out there. When you get into situations with parallel trade, you really have to not only look at whether or not there is competitive enhancement with lower prices, but also look in the long term as to what the underlying, maybe not so obvious consumer harms are that are occurring. MR. HEIDE: And do you think economics can help? I am just referring back to what happened in Europe, where NERA was commissioned to do a report for the Commission and actually looked at different economic arguments. I think there were lots of arguments on either side. Perhaps it all boils down to just helping to clarify the issue. Or can you take it further than that? MS. MANNING: Of course, I am an economist, so I believe economics always helps. But I think what you can do in this case with economics, as, probably, NERA did in the study that you were mentioning, is look at all the different harms quantitatively and see whether or not parallel trade is helpful for the economy and for consumers, or if you look at it in the long run, taking into account all the potential consumer harm — lack of information and other types of things — whether or not the price erosion that benefits consumers in that market actually bears out in the long run. MR. HEIDE: John, would you like to give a perspective on the practical steps? MR. TEMPLE LANG: I want to make four points. First of all, I think it is worth saying that the price of pharmaceutical products is regulated in different countries in Europe, not because governments simply like regulating things, but because they are paid for by the national social welfare systems, and part of the regulation of the cost of providing the social welfare is to regulate the price of pharmaceuticals. I think it is important. That explains why it is difficult to alter the existing system. Secondly, I think it must be clear that a pharmaceutical company, even if it is dominant MR. HEIDE:
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for a particular product, must have a right to integrate forward and to distribute its own product right down to the retail level, if it so wishes. If you accept that, then you realize that there is no need for a pharmaceutical company to maintain an independent network of distributors, which would give rise to the kind of problem we are talking about. The third point: It seems to me that any pharmaceutical company now — and I think, probably, they were all doing it anyway before the GlaxoSmithKline judgment57 — should have a comprehensive policy on sales in Europe by which it will sell in the low-price companies at a price that, presumably, gives rise to a small profit but does not enable it to make a substantial contribution, or perhaps any contribution at all, to its research and development expenditures. That has to be paid for by the prices charged in the higher-price countries. It seems to me that if a pharmaceutical company has a rational policy that provides sources of funds for R&D in Europe, it can maintain the regime by which it supplies limited quantities to the low-price countries so as to maintain that setup. The last point, on the idea that the competition clauses of free trade agreements might be used to interfere with restrictions on parallel trade: I think there is no chance of that, because there have been several cases over the years which said that those clauses are not directly applicable. Therefore, I would have thought it was impossible for a national court to interpret them any other way. MR. HEIDE: Thank you very much. Thomas? MR. CHENG: In terms of allowing parallel trade, it is important to realize that there are certain types of goods for which there are special concerns of consumer protection, pharmaceuticals being one of them. But I think there is also a category of goods for which there really are not a lot of consumer-protection concerns. I do not see a lot of justification for imposing restrictions on parallel trade. For iTunes music, it does not seem to me that there is a compelling consumer-protection concern. Even for goods with substantial consumer protection issues, I wonder if relying on consumer protection laws would just be a better way of dealing with the issue — allowing parallel trade; and then, if there are consumer protection issues, using consumer protection laws to deal with them. At the same time, I think it is important to consider what would happen if there was unfettered parallel trade. I would imagine, from a producer’s perspective, you would start setting the price at a weighted average of what your perceived market is. If there was unfettered parallel trade in Europe, you would probably just set your price at a median or weighted average of some kind across Europe, which means that certain consumers will be priced out and certain consumers will be paying less. I wonder if that is something we want to happen. Particularly in the pharmaceuticals context, if there is relatively unfettered trade internationally, that could very well happen. Some pharmaceutical companies have been more willing to allow prices to drop, or even allow licensing, in developing countries. But if there is, increasingly, a great flow of parallel trade, and drugs produced in Third World countries start going into First World countries, things will change, and the pharmaceutical companies will just change their policy of allowing lower prices for developing countries. MR. HEIDE: Thank you very much. 57 Case T-168/01, GlaxoSmithKline Services Unlimited v. Commission of the Euro-pean Communities, 2007 O.J. (C 42) 11, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2007:042:0011:0011: EN:PDF.
314 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY We will open it up to questions. One issue I am quite keen to get James’s perspective on: If we look at what is happening in Europe with regards to pharmaceuticals, a lot is being driven by competition law — the dual-pricing case that Chris was talking about, and also the Syfait case with regards to stock-allocation schemes.58 In the United States, they seem to be looking to legislation, doing it that way, rather than resorting to the antitrust rules. Do you think that is a better approach? Is it likely to yield a better result? MR. KOBAK: Asking whether our Congress will yield a better result is a pretty loaded question on any count. There is a potential antitrust issue. But because of the way our Food and Drug Act works and the way it has been interpreted in an Eighth Circuit case,59 there is really not much occasion for it to come into play. I think if HHS were ever to say, “Yes, there are some groups of products form some parts of the world that can come into the United States” — and companies do now put different restrictions on people — I think at that point you would get to the question of whether competition law or applied. In the United States, we also have a doctrine of patent misuse that might apply. I personally think it would probably be hard for antitrust law to reach that conduct the way it is presently interpreted under the rule of reason, and particularly with the Jazz Photo case,60 where you would always have a defense that what you were doing was more or less in aid of your patent rights. That is not to say that you might not have something like a big block-buster pharmaceutical product that was pretty much its own market, and maybe in those circumstances, antitrust law would reach it. But that really has not been tested in the United States. Until our law changes, I really do not see how it will be tested, at least in the pharmaceutical area. MR. HEIDE: What I also find interesting about the proposed U.S. law is that it is essentially trying to address part of the problem by expanding the personal-use exception. MR. KOBAK: There are a lot of states and cities and so forth that have actually passed statutes saying that their citizens can do that or they will purchase for them. It is all preempted by the federal laws. But that has a lot of appeal to a politician, to say to the seniors — and more and more of us are qualifying as seniors every day — “Under this statute, you could go to Canada and you could, if you could show that it was for your own use, buy a ninety-day supply and get cheaper drugs.” So I think you might see something like that getting passed at some point. But I am not an expert on the politics behind this. Obviously, there is a lot of lobbying going on, on both sides. MR. HEIDE: May I open it up to the floor at this stage? Questions, please. QUESTION [Philip Carpio, U.S. Customs and Border Protection]: I am with the U.S. Customs and Border Protection, so the pharmaceutical issue is of interest to my agency. This question is for Mr. Kobak. Other than the pharmaceuticals, are you aware of any other issues of parallel trade occurring in the United States for domestically manufactured goods? That is obviously something that we want to keep an eye on, if in fact it is occurring. Part B to this question: It seems like the focus here has been on the antitrust remedies that might be available or the patent remedies that might become available. But if these 58 Case C-53/03, Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and Others v. GlaxoSmithKline, [2005] E.C.R. I-4609 (Opinion of Advocate General Francis Jacobs, Oct. 28, 2004), available at http://curia/ europa.eu/en/actu/communiques/cp04/aff/ cp040087.en.pdf. 59 In re Canadian Import Antitrust Litig., 470 F.3d 785 (8th Cir. 2006). 60 Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), cert. denied, 536 U.S. 950 (2002).
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are, in fact, licensed, correctly trademarked goods, there are importation restrictions on marking that would allow our agency, for example, to seize marked goods that would be redirected back into the country. I am curious as to whether there are any other issues like that. MR. KOBAK: I think there are issues. Pharmaceuticals have attracted a lot of attention. For a long time, people have been concerned about that. My personal feeling, just from clients that call up and ask questions about ITC proceedings and so forth, is that people are starting to think about that more than they have in the past. I am not too sure to what extent they are actually availing themselves of those remedies. I know a lot of times the problems that you have, even with being able to stop something at the border, is that when people realize they have a counterfeit problem, it is after the stuff is in the United States. So one of the things people are always looking for is a way to kind of restrict the distribution chain, to limit the extent to which it will happen. That is where the antitrust focus is. QUESTION: The opposite of parallel trade in the United States is around the regulatory issues about the safety of the product. Europe has a fairly well-developed system of regulating parallel traders. Repeatedly in Europe you hear people saying that quality is not really an issue in the European parallel trade market. It just seems like an obvious solution to the quality issue is to do what Europe has done, which is to license the parallel traders, so you have some assurance of the quality. That seems like a fairly manageable problem. I think there are seventy votes in the Senate now in favor of parallel trade. The last vote I looked at, every single Democrat and about half the Republicans were supporting parallel trade in the U.S. Senate, on a straight up-and-down vote. The bigger issue in pharmaceuticals is, looking forward: Should Americans be paying considerably higher prices than people in other high-income countries for the same products? Is that good public policy or bad public policy? Pharma’s position is that it is good public policy, because they just want high prices. You cannot blame them for wanting that. Why wouldn’t they want that? But in terms of public policy, does it make much sense for prices to be radically different between high-income countries? I can understand the concern about countries that are lower-income — Eastern Europe, for example, or Mexico or other places. But just in that area, I think that is the important public policy issue. If you had more liberalized parallel trade with the United States and other highincome countries, you would probably see an increase in the prices in those countries as well, because people would anticipate that if they accept a certain price in another country, it would be imported back to the United States. I am sure it will probably raise prices some places and lower prices other places. MR. KOBAK: I tend to represent drug companies. I do not think you can belittle counterfeiting. Maybe if you had a really good system of inspection and so forth, that would alleviate that. But certainly my clients have begun seeing a lot of that. People go to buy on the Internet, and it turns out that it is not only from Canada, but it is not Viagra, or whatever it was supposed to be. I think that is a problem that you can’t belittle. QUESTIONER: From what I hear about counterfeiting in Europe, it was high-quality counterfeits, not imitating parallel-traded products or generic products, but imitating the local thing. You have the capacity to do pretty slick packaging — counterfeiters do. One of the problems in counterfeiting is that you have no barrier between the prices of the drugs and the cost of manufacturing, so it attracts a criminal element. It is almost like
316 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY counterfeiting cash to counterfeit a drug. You could even make a high-quality product fairly cheaply. Another approach people have we talked about, and some people in the European Commission have talked to us about, is the idea of a different business model for innovation that does not tie the R&D incentive to the price of the drug, but rather directly rewards drug developers for the impact of the invention on health-care outcomes. In that kind of situation, you could have very different contributions coming from, say, Poland, Hungary, Mississippi, the Bronx, and Manhattan, or wherever. You have a reward system for inventors that is not tied to the product. You have a competitive generic market for the products, but you would have highly differentiated contributions from countries based upon their percapita incomes. That is a radical change over the current system. But if the numbers are right, it could be designed to be just as profitable for the pharmaceutical industry as the current system. MR. HEIDE: May I come in just in relation to that, not from the U.S. perspective, but from the European one? It is always very good to hear people say what Europe is doing is good and the United States should follow. It does not tend to happen that way round very often. But, in terms of marketing authorizations, although within Europe you can paralleltrade without the need to get a full marketing authorization, if you try to parallel-trade from outside Europe, like from the United States, then you will need one. So it is actually quite similar to the United States, if you treat the whole European Union in a similar way to the United States. I would just pick up on that point. But I take the general point. It may be that, once America copies Europe, Europe will have to copy America, if people go down that line. The other point I wanted to pick up on, which is a more general one, is in relation to Ramsey pricing,61 which Val had mentioned earlier — this idea that we have this pot of R&D to pay for somehow, and discriminatory pricing is a good way of paying for it. Ramsey pricing was about paying for utilities, where there was a set amount that had to be recovered. Obviously, the difficulty of applying Ramsey pricing to pharmaceuticals is that there is no cap to the overall recovery. It is not that someone is saying, “This is how much we are going to recover, and now we are going to divide it up among the countries or consumers.” The second thing is, dividing it up by countries is a fairly rough and ready way of price discriminating. To say to consumers who are rich in the United States, “You are in a rich country; therefore, you have to pay more” might be acceptable. To say to poorer consumers in the United States, “You happen to live in a rich country, so tough luck; you have to go with the high prices” — there is not a lot of sensitivity to applying Ramsey pricing to pharmaceuticals. QUESTION: A lot of people, when they say Ramsey pricing — my background is in economics, and I used to do a lot of regulatory work — they do not like to say monopoly pricing. It just sounds more elegant and higher-tech to say Ramsey pricing. But they leave out an important part of what Ramsey did, which was the revenue constraint. Ramsey pricing is the idea that you have some fixed cost and that you allocate it among people, in the same way that a monopolist would, up to the point where you have to to cover that, but not beyond. Monopoly pricing is just monopolists following their natural 61 Ramsey pricing, a linear pricing scheme designed for the multiproduct natural monopolist, is concerned with prices that maximize the sum of industry consumer surplus and profits. See Frank Ramsey, A Contribution to the Theory of Taxation, 37 Econ. J. 47 (March 1927).
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instincts to just get as much as they can. Most people, when they refer to Ramsey pricing, really mean monopoly pricing, but they just do not want to sound like they are saying monopoly pricing. A real way to do Ramsey pricing is through price distributions as they relate to linking the R&D incentive and price. You really can decide how much money you want to pay for innovation, as an innovation reward. Is it $100 billion from the U.S. market? What would the number be from Europe, where prices are quite a bit lower right now? Then you let prices really fall to the marginal costs. That way, the poor person in the rich country would not face an access barrier. Counterfeiters would not find it that interesting to enter the market. You would have an efficient product market, but you would have a highly differentiated distribution of payments from the country, and you get closer to what I think Ramsey was looking at. You would charge more in Germany per capita than you would in, say, Hungary or some country like that. But I do not think the current situation is completely sustainable. I think it is really: What is the business model for paying for innovation in the area of medicine, where the Internet is making prices much more transparent and where there are all sorts of other problems? I think Europe is facing a lot of problems in Eastern Europe right now. The accession is really going to change their views eventually, when the accession countries get more political power. A lot of the very strong IP regimes in Europe now are causing problems in Eastern Europe, like the orphan drug extensions, the eleven-year data exclusivity, et cetera. They are really causing a lot of resentment. There are ten states in Europe that have less than half the per-capita income than the rest of the countries do. It is interesting to see how Europe is going to play things out with the accession. I know there are restrictions on parallel trade from Eastern Europe to Western Europe, but those will eventually be phased out, too. MR. HEIDE: Val, in the last session you made some comments about the dual-pricing case. I think they are quite important, and it would be a good idea to give a synopsis of those points now. It is a very important case in terms of what the court has actually done, moving things from the object box — or, as the Americans say “per se” — into an effects analysis, or the “rule of reason,” as they call it here in the United States. PROF. KORAH: One used to think that certain things had the object of restricting competition, where they limited the freedom of people to do what they want, such as the liberty of the wholesaler to sell in the most profitable way. Parallel trade was a very important aspect of the Common Market. There was no hope of a significant export ban or deterrent being upheld. Now the CFI seems to have changed that. Dual pricing no longer necessarily has the object of restricting competition. The Commission, or whoever is alleging illegality — it might be in a private action before a court — is going to have to prove that it does harm competition. They are not probably going to have to prove it precisely, but at least they are going to have to produce some sort of case. That is, I think, a completely radical U-turn from what started in Consten and Grundig.62 Consten and Grundig itself was a U-turn from La Technique Minière63 three weeks earlier. But there were only five judges in La Technique Minière. There were seven, a full court, in Consten and Grundig. Consten and Grundig has been held treated as the bible 62 Joined Cases 56 & 58/64, Etablissements Consten SA and Grundig-erkaufs-GmbH v. EEC Commission, 13 July 1966, [1966] E.C.R. 299, [1966] C.M.L.R. 418, C.M.R. 8046. 63 Case 56/65, Société La Technique Minière v. Maschinenbau Ulm GmbH, 30 June 1966, [1966] E.C.R 235, [1966] C.M.L.R. 357, C.M.R. 8047.
318 SESSION IV: A NTITRUST/COMPETITI ON LAW & INTELLECTUAL PROPERTY for many years. From the date of its decision in 1966 until about ten years ago, it was considered a serious heresy to deny this. That, at any rate, has changed in the view of this case in the CFI. It was a chamber of extended composition. There were seven of them, not the normal three. How important it is, I think, must depend on what the ECJ decides later. It is, of course, a vertical restraint. Vertical restraints, for many years, were considered by DG IV, as it then was, as being particularly dangerous, because they divided the Common Market. Producers tended to have one distributor for the whole of a Member State . This is not the current thinking about vertical restraints. The Commission went into a great debate internally from the late 1980s. We did not know about it much outside the Commission. I am sure John Temple Lang, who was in the Commission, must know all about it. It appeared, at any rate, by the end of the 1990s, that the Commission had quite changed its views on vertical restraints. In its Guidelines on Vertical Restraints64 it pointed out the efficiencies those agreements might bring. That does not mean to say that all vertical restraints were good, but it was very far from the thinking in the 1960s and 1970s. I have not seen any signs of the Commission going back on that. The CFI judgment is interesting, because if the Commission was minded to change from Consten and Grundig and the Court allows it a wide margin of appreciation, it and just might follow it. Perhaps that would take rather more years than we are likely to have before the judgment of the ECJ in the GlaxoSmithKline case,65 or whatever it comes to be called. MR. HEIDE: Thank you very much. If the Court does actually follow it — and this is for John, Val, and Chris — do you think it is restricted on its facts just to pharmaceuticals, or do you think this argument — something that is not in the object box could actually be put into the effects box — could apply more generally? I think that would be very helpful to a lot of companies. Clients that I advise in terms of distribution in Europe are often constrained by the rules and find them too restrictive. Those rules were referred by Chris before, the EC Vertical Restraints Block Exemption under EC Competition Law. Any comments? PROF. KORAH: I think it is going to be very limited. The first chink in the armor, I suppose, was the opinion of Advocate General Jacobs in Syfait, and he made it quite clear that what he was saying was confined to the pharmaceutical industry. It might be extended — I do not know enough about the industry — to something like pesticides or herbicides, where consumers would probably want the producer to have very considerable control over its products after they have gone to the wholesaler. I am not going to say there is no other industry, but I would be very surprised if there were many other industries found. Again, in the GlaxoSmithKline case, the recent one, the CFI was very narrow in what it was talking about. But all things change. It was unthinkable that Consten and Grundig would be doubted, until about ten years ago. Joliet doubted it in 1967;66 I doubted it in 64 European Commission, Guidelines on Vertical Restraints (13 Oct. 2000), 2000 O.J. (C 291) 1; [2000] 5 C.M.L.R. 1074; available at http://europa.eu/scadplus/leg/en/lvb/l26061.htm. 65 Case T-168/01, GlaxoSmithKline Services Unlimited v. Commission of the European Communities, 2007 O.J. (C 42) 11, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2007:042:0011:0011: EN:PDF. 66 See Rene Joliet, Rule of Reason in Antitrust Law 174 (1967).
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1972;67 then Ian Forrester and Christopher Norall produced a very interesting Common Market Law Review article.68 Slowly, more and more people have doubted it. So it is very difficult to judge what will happen in ten years’ time. MR. STOTHERS: Just picking up on that, I think the CFI’s decision is very interesting because it is so heretical. But I do wonder what the practical impact is going to be. It is a bit of what they describe in software patents as “The Lord giveth and the Lord taketh away.” Essentially, what they have done now is to say the object may not be anticompetitive (in pharmaceuticals and perhaps in certain other sectors), but then look for an effect in the form of consumer harm. In virtually any case of parallel trade, the parallel trader is either selling at a lower price or providing something that consumers could not get access to. So in almost every case there is likely to be an effect. It is going to be a fairly unusual case where there is no consumer harm and, thus, no anti-competitive effect. From my perspective, I think the Court has wasted an awful lot of pages coming up with this sort of petty heresy. It is like the little boy who rings the doorbell and then runs away. Now the Commission and the courts are going to have to spend a lot of paper going through the economic analysis each time, but I am not sure it is ever going to come to a different conclusion than it would under the per se rule. MR. HEIDE: I would disagree with that, because to be able to say to a client that they can actually come up with some justifications, instead of just being faced with “that’s in the object box,” is absolutely crucial. It may require more lawyers’ time, of course. But if they feel that they can actually come up with some justifications for what they are doing, that is very, very important. MR. STOTHERS: That is justification under Article 81(3). Under Article 81(1), there is still going to be an effect on consumers. You may be able to justify that effect, but the object/effect debate I think is pretty sterile. MR. HEIDE: I disagree with that. PROF. KORAH: One should also add that under Article 81(3), the onus is on the person alleging legality, whereas under Article 81(1), it is on the person alleging illegality. It seems to me a pretty heavy onus of proof. So it does make a difference whether it is Article 81(1) or Article 81(3) — less than it used to, before the new procedural reg. MR. HEIDE: John, any comments? MR. TEMPLE LANG: Only one comment. The special circumstances in the pharmaceutical industry, I think, do not arise anywhere else. But they are the justification, if there is one — and I think there is — for what pharmaceutical companies can do, if they do it cleverly. But I do not think it is an object-and-effect problem. I think it is proving a justification under 81(3). MR. HEIDE: Thank you very much. MR. STOTHERS: May I ask a question? The panel might want to pick it up, or others in the audience may. Has anyone got a good reason, when you are talking about parallel trade, why an individual is allowed to parallel import for personal consumption, up to fairly high levels, so long as they do it in person; but if they do it over the Internet, in exactly the same volumes, they are not allowed to do it — beyond blocking parallel trade? MR. KOBAK: Because Congress says so. That is the only justification I can see. MR. HEIDE: I think the drinks are awaiting. With that, thank you very much. Please join me in giving a hand of applause to everybody. 67
See Valentine Korah, EC Competition Law and Practice 125 (6th ed. 1997). Ian S. Forrester & Christopher Norall, The Laicization of Community Law: Self-Help and the Rule of Reason: How Competition Law Is and Could Be Applied, 21 Common Mkt. L. Rev. 11, 22 (1984). 68
SESSION IP V: PATENT PART A: JAPANESE DEVELOPMENTS
SESSION V: PATENT
Part A: Japanese IP Developments
Moderator JOHN RICHARDS
Ladas & Parry LLP (London)
Speakers Prof. Kazuo Makino Omiya Law School (Omiya, Japan)
TSUYOSHI ISOZUMI
Deputy Director, International Affairs Division, Japan Patent Office (Tokyo) EIJI KATAYAMA
PROF. TETSUYA OBUCHI
Abe, Ikubo & Katayama (Tokyo)
Faculty and School of Law, University of Tokyo
HON. KOICHI TANAKA
Judge, Intellectual Property High Court of Japan (Tokyo)
Panelists PROF. SOUICHIRO KOZUKA
HAROLD C. WEGNER
Faculty of Law, Sophia University (Tokyo)
Foley & Lardner LLP (Washington, D.C.)
MR. RICHARDS: Good morning. Our panel discussion this morning is on recent developments in Japan. We have a very distinguished panel: Mr. Isozumi from the Japan Patent Office will speak first; followed by Judge Tanaka from the Intellectual Property High Court in Tokyo; Eiji Katayama, a very well-known and well-respected patent practitioner; and Professor Obuchi. After that we will have a discussion with the remaining panel members. Without saying anything more, Mr. Isozumi, please start.
322 SESSION V: PATENT Mutual Utilization & Enhanced Work-Sharing Patent Prosecution Highway and New-Route Proposal Tsuyoshi Isozumi Japan Patent Office Thank you. Good morning, everyone. My name is Tsuyoshi Isozumi. I am from the Japan Patent Office. Today I would like to introduce to you the activities of the Japan Patent Office, especially the mutual utilization of search and the examination of results and enhanced work sharing. First, let’s look at some statistics for 2005. Worldwide, 1,600,000 patent applications were filed. Look at the patent activity figures for the Trilateral Region. The Trilateral Offices are the Japan Patent Office (JPO), the European Patent Office (EPO), and the U.S. Patent and Trademark Office (USPTO). You may be very surprised at the number of patent applications filed with and duplicated among the Trilateral Offices. In 2005, 950,000 patent applications were filed with the Trilateral Offices. Of these 950,000, there was an overlap of 230,000 applications. Therefore, harmonization and mutual utilization are very important for improving the infrastructure for processing global applications.1 In terms of harmonization, the discussion of substantive patent law harmonization is still in progress. This will result in greater predictability in obtaining patents abroad. Mutual utilization of examination results in reduced applicants’ burden. I will explain. PATENT PROSECUTION HIGHWAY One of the major developments is the Patent Prosecution Highway (PPH). The Patent Prosecution Highway is a framework between two offices. If a patent application has been determined to be patentable in the office of first filing (OFF), the corresponding application is qualified for accelerated examination in the office of second filing (OSF). Users benefit in numerous ways from the PPH Network. For example, users can obtain a patent quickly. Let me explain. With regard to the PPH applications in Japan coming from the United States, the time required for the JPO to issue an OFF action has been reduced from twenty-six months to two-to-three months. The twenty-six months is the time required for the processing of a normal application. If you use the PPH, it will be reduced to two-to-three months. In addition, the mutual utilization of examination results improves the examination quality because examiners in the OSF refer to the examination results of another OFF. So the quality is improved. The PPH is now spreading worldwide. Japan and the United States started a pilot project in July 2006.2 Japan and Korea started a PPH in April 2007.3 The Japan-United 1 The Standard Format of patent application was agreed upon at the Trilateral (JPO-USPTO-EPO) Conference held in November 2006. The Trilateral Offices will conduct a pilot program from a practical perspective with the cooperation of users during FY2007, and take necessary measures, including revision of PCT regulations and national regulations with the aim of the coming into use of the Standard Format in April 2009. 2 At a Jan. 8, 2007 meeting held between Minister of Economy, Trade and Industry Akira Amari and Carlos M. Gutierrez, Secretary of U.S. Department of Commerce, the JPO and USPTO agreed the full implementation of the PPH to start in July 2007, based on the result of the PPH pilot program. The JPO and USPTO will encourage other countries’ participation, aiming to establish a PPH Network centered around the JPO and USPTO based on the Joint DOC-METI Initiative for Enhanced U.S.-Japan Cooperation on IPR Protection and Enforcement and other Global Issues, agreed upon between the two ministers at the Jan. 8, 2007 meeting. 3 At a conference held on Dec. 27, 2006, the JPO and the Korea Intellectual Property Office (KIPO) agreed upon the launch of the PPH in April 2007.
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Kingdom PPH is planned to begin in July of this year. The United States and the United Kingdom are now discussing the start of a PPH. Such a global network of PPHs will provide applicants and users with expeditious, inexpensive, high-quality patent protection. The JPO is also proposing a new route in the context of enhanced work sharing. The new route is similar to the Patent Cooperation Treaty (PCT),4 but there is no international phase. The new route has three main features: 앫 A filing with the OFF (applicant’s home country) is to be considered a “simultaneous filing” with the IP offices of other countries. This will reduce filing costs. 앫 The OFF examines the application first. Thereafter, the OSF utilizes the search and examination results of the OFF. This avoids duplication of search/examination and the applicant’s procedural cost is reduced. 앫 The applicant defers submission of translation to the OSF until search/ examination results of the OFF have been verified. Thus, there is no unnecessary cost of translation. Applicants are given a thirty-month period in which to make a decision. We believe this proposal will enhance work sharing and provide sufficient flexibility for users and applicants.5 As I said, the mutual utilization of search and examination results is now expanding globally. Therefore, the JPO has created guidelines for examiners to effectively exploit the search and the examination results of foreign patent offices.6 This will help examiners to utilize the examination results of other offices. Through effectively exploiting the search and examination results of foreign patent offices, we have been trying to reduce the examination workload and improve examination quality. Especially, the search and examination results should be exploited effectively for applications examined under the PPH. Following the guidelines, examiners take into account the prosecution history and examination results of a foreign patent office and conduct an additional prior art search, if necessary. Due to time constraints, I cannot explain the details of the contents, but important points include: 앫 The examiner does not need to conduct an additional prior art search when he/she can conduct an examination appropriately and efficiently by utilizing the search/examination results of the foreign patent office which pertain to the related invention in the application being examined. 앫 When the examiner conducts an additional prior art search, he/she is supposed to refrain from searching in an area in which the foreign patent office has already conducted a search unless he/she is convinced that a search in such an areas is necessary.
4 World Intellectual Property Organization, Patent Cooperation Treaty, Done at Washington on June 19, 1970 (enacted Jan. 21, 1978), amended Sept. 28, 1979, modified Feb. 3, 1984 and Oct. 3, 2001 (effective Apr. 1, 2002) [hereinafter PCT], available at http://www.wipo.int/pct/en/texts/pdf/pct.pdf. 5 The JPO has formulated and released Implementation Plans to Achieve Mid-Term and Long-Term Goals for Expeditious and Efficient Patent Examination based on the Intellectual Property Strategic Programs. For FY2007 the JPO will adopt the AMARI Plan 2007 as the replacement of an Implementation Plan, and will basically apply the same approach for FY2008 and thereafter. 6 Japan Patent Office, Guidelines Concerning the Use of Prior Art Search/Examination Outcomes of Foreign Patent Offices, available at http://www.jpo.go.jp. See also Ministry of Economy, Trade and Industry (METI), Advanced Measures for Accelerating Reform and Innovation Plan in Patent Examination (Jan. 25, 2007), available at http://www. jpo.go.jp/torikumi_e/hiroba_e/pdf/amari_plan/amari_plan.pdf [hereinafter METI Plan].
324 SESSION V: PATENT 앫 In considering the prior art of a foreign patent office or other aspects regarding the patentability of an invention, the examiner is supposed to take into account the prosecution history and examination results of the foreign patent office. If you would like to learn more about the PPH7 or our new route, please feel free to contact me or the Japan Patent Office. MR. RICHARDS: Judge Tanaka.
Speedy and High Quality Disposition IP High Court Judge Koichi Tanaka Intellectual Property High Court of Japan (Tokyo) I. INTRODUCTION A. TWO CATEGORIES OF PATENT LAWSUITS
In Japan, there are two categories of patent lawsuits. The first category involves infringement lawsuits seeking injunction and damages. The other category is lawsuits that seek the cancellation of decisions made by the Japanese Patent Office Appeal Board over the patentability or validity of patents. The IP High Court, which entered its third year since its establishment, enjoys exclusive jurisdiction over both types of cases, so we can render unified judgments when the two types of the case are pending before the IP High Court. B. STATISTICS
We accept about 600 newly filed lawsuits against appeal/trial decisions made by the Japanese Patent Office Appeal Board each year, while we accept about 100 appeal cases from district courts. I would like to focus my speech on the former, which comprise over 80 percent of all cases. Concerning the cancellation cases, the average period from filing to disposition is about nine months, and we enjoy the reputation of high quality of our judgments. In my opinion, the first main reason for this “speedy and high-quality” service has been the more intensified case management system taking root in the IP High Court. The second main reason for it has been the ample technical aid resources. I would like to comment these two factors. II. CASE MANAGEMENT A. PROPOSAL Efforts to improve management of lawsuits against Patent Office Appeal Board decision had already started during the era of the IP Divisions of the Tokyo High Court. In 2002 a project team of judges was established. After they studied the existing case management methods, they proposed a more intensified case management system in their published report. Those proposals were brought into practice by the IP Divisions in 2003. The main contents of the proposal was as follows: first, the court should encourage parties to submit briefs and evidence by the date of a hearing agreed upon by the parties;
7 For information on detailed procedures for applying the PPH pilot program before the JPO, see http://www.jpo.go.jp/torikumi/t_torikumi/pdf/highway_pilot_program/ 1e.pdf.
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second, judges and parties should discuss factual and legal issues intensively in the hearing; third, parties should be given enough time in the hearing to give explanations on technical or scientific aspects of the case to the judge. B. GUIDELINES
The establishment of the IP High Court triggered further efforts by judges across divisions to improve our case management, which ended up in the guidelines for parties of cancellation lawsuits. The contents of the guidelines are mainly based on the proposal that I referred to the above. However, they have special contents. That is, the guidelines contain a very concrete case management method. The method aims at completing discussions on basic technical matters, factual issues, and legal issues in virtually two hearings as a whole. C. CURRENT PRACTICE
One model proceeding is as follows: The first hearing is held after the plaintiff submits evidence and the first brief, in which the plaintiff discusses its allegations in detail. In the first hearing, a judge discusses with parties the first brief of the plaintiff and sets deadlines for the defendant’s evidence, the first brief, and the plaintiff’s second brief. In the second hearing, the judge and the parties intensively discuss the issues of the case. After the second hearing, the final hearing is held for the case to be concluded. Written judgment is rendered soon after the final hearing. For example, in the second division’s practice, the period is about a week. Roughly speaking, the period from filing to the first hearing is about two months, the period from the first hearing to the second is about three months, and the period from the second to the final hearing is about three months. The judgment is rendered soon after the final hearing. As attorneys are aware of the importance of well-tried and speedy trials in terms of the business decision-making process, not only for plaintiffs but also for defendants, they are cooperative with judges in this area. III. CONDUCTING PROCEEDINGS AND NARROWING ISSUES FROM A JUDGE’S POINT OF VIEW A. FROM FILING TO THE FIRST HEARING
The judge utilizes this period in order to understand the patented invention and compare the invention with the prior art and relevant basic technical knowledge around the case. We read through claims, specifications, drawings, prosecution history, and other documents and analyze them in advance. As the plaintiff should express what part of the decision can be admitted and what part cannot and clarify the concrete grounds of reversal of the Patent Office’s decision, the court can assume what is the genuine issue of the case to some extent. To ascertain what is the genuine issue from the lawyer’s point of view is crucial. To do that, claim construction always becomes the starting point. The objective of the first hearing is to define and narrow the genuine issue appropriately by clarifying the alleged grounds of reversal of the Patent Office’s decision. The court sets deadlines when both parties should submit their documents. B. FROM THE FIRST HEARING TO THE SECOND HEARING
After clarifying the alleged grounds of reversal thorough the first hearing, the defendant starts to prepare his or her first brief against the plaintiff’s brief and evidences. When the defendant submits the brief, the judge can grasp a total image of the case and understand
326 SESSION V: PATENT the issues and the parties’ assertions correctly. In this period, the judge thinks over the case from many perspectives. The judge can be given more detailed help by court research officials and expert commissioners. When the plaintiff’s second brief is submitted, the case image becomes clearer than before. The second hearing is crucially important because the judge gets a concrete impression of which side’s assertion is more persuasive. C. FROM THE SECOND HEARING TO THE RENDERING OF A WRITTEN JUDGMENT
When the second hearing is over, the judge can have a clear picture of which side is to win the case and what is the proper reasoning of the consequence. The judge then starts to write the judgment. The judge can receive report written by judicial research officials. However, to write a judgment is a big burden on judges, as even the in the average type of the case the amount of pages is over thirty. The judge should write, on average, one judgment per week. IV. JUDICIAL RESEARCH OFFICIALS AND EXPERT COMMISSIONERS How to get scientific knowledge is also a big problem for the court. Judges are lay persons with respect to technology, so we need assistance in understanding technical and scientific matters. Judicial research officials are full-time court employees. They are appointed mainly from the staff of the Japanese Patent Office, and a few are patent attorneys in private practice. There are seven research officials at the Tokyo District Court, three at the Osaka District Court, and eleven at the IP High Court. The judicial research official usually submits his or her report on the case to the judge. The expert commissioner system was introduced in 2004. They are part-time staff of the court, and are appointed from a list of more than 200 registered scientists, such as university professors and research institute researchers. When a particular technology becomes the center of dispute in a case, the judge will appoint three relevant expert commissioners for the case. The appointed commissioners will then provide their specialized knowledge and contribute to the smooth progress of the case. The expert commissioner is different from the expert witness in that the expert commissioner is not expected to comment on the conclusion of the case. The main difference between them is that judicial research officials cover a relatively wider area of general science; on the other hand, expert commissioners are expected to play a role in a very advanced and specialized area of technology. This two-tier system is expected to raise the courts’ ability to deal with difficult cases. V. CONCLUSION Intensified case management and various technical aids are driving factors that lead to speedy and high-quality disposition of cases by reducing unnecessary time in the proceeding and by getting attorneys’ cooperation. Also from now on, the IP High Court has to continue innovating upon the dispute resolution system. * * * MR. RICHARDS: Thank you. Mr. Katayama, from the practitioner’s point of view. * * *
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Japanese Patent Recent Developments: View from Industry and Attorney Eiji Katayama Abe, Ikubo & Katayama (Tokyo) My given theme is recent developments in Japanese patent from the practitioner’s view. I would like to cover these issues: 앫 The obviousness issue was discussed yesterday, but if I have some time I will touch on the question: Is it too harsh or not? 앫 Claim interpretation — Different standards for validity and infringement. 앫 Injunctive relief — Whether to restrict patent right for research tool and technical standard? 앫 Protection of licensee in licensor’s bankruptcy. I. CLAIM INTERPRETATION The first issue is claim interpretation, now in dispute in Japan. Here in the United States you have a Markman Hearing8 and you determine what the meaning of the claim is for both validity and infringement purposes. You have a unanimous interpretation as a result of a Markman Hearing. On the other hand, in a country like Japan, where the basic idea is a dual system for invalidity and infringement, we have a different way of interpreting the claim language when facing infringement and when facing invalidity. Historically speaking, the Japanese court, especially the infringement court, tried to restrictively interpret the claim based upon the description in the patent specification. In that way, sometimes a very narrow interpretation of the claim language occurred. On the other hand, when you file a patent application to the Patent Office, the patent examiner likes to read the claim literally. This is natural, I think. In the appeal from the Patent Office decision, the court says that the claim language should be interpreted literally. So if you have a certain specification and if the claim language is too broad as compared to the disclosure in the specification, then the patent is rejected. That has been the historical approach, in which two ways of interpreting the patent claim language existed in Japan. Whether that is okay or not is the issue now being discussed in Japan. This very issue was to be argued and determined in the Grand Panel of the Intellectual Property High Court recently in the Hynix Semicionductor v. Toshiba case. Unfortunately (or fortunately), the case was settled. I was representing one of the parties. So, unfortunately, the Grand Panel opinion on this interesting issue did not come. II. INJUNCTIVE RELIEF The next issue rather repeatedly argued in Japan is, like in your case, whether injunctive relief is really preferable or not. Or can the court reject injunctive relief requests when it is
8 Pre-trial hearing during which a judge hears testimony from both parties on the appropriate meanings of the relevant key words used in the claims of a patent, the infringement of which is alleged by the plaintiff. A Markman Hearing in patent infringement cases has been common practice since it was determined in Markman v. Westview Instruments, Inc., 116 S. Ct. 40 (1995), that the language of a patent is a matter of law for a judge to decide, not a matter of fact for a jury to decide.
328 SESSION V: PATENT in appropriate? Under the Japanese law, patent right is an exclusive right, so you have a legal right to injunction against the infringement. 앫 On the other hand, what is argued here is whether in the case of, for example, an invention such as a research tool, a technical standard for telecommunications, or the so-called patent troll, the injunctive relief might bring a bad influence to the society. 앫 The issue is whether “too strong” patent rights that stop development of research might hinder the advancement of the technology. 앫 Whether the court can reject this type of relief request or not is argued. There are some legal measures under the Japanese law. 앫 One is so-called doctrine of abuse of right. This exists, I think, all over the world. Another is whether a compulsory license for the public interest can be used under Japanese law. These two measures, however, have not yet been realized in an actual case in Japanese patent litigation. However, if the case comes, these issues will be vigorously argued. III. PROTECTION OF LICENSE IN BANKRUPTCY The third issue is protection of license in bankruptcy. It is quite a different issue here. This kind of thing differs from country to country very much. In the United States, if you go through the history of the bankruptcy law, you will find that a certain amendment was made in the 1990s. That is, under the bankruptcy law the trustee or the debtor in possession can reject the so-called executory contract. A licensing agreement is a typical executory contract. The U.S. law protects the licensee, even if the bankrupt trustee rejects a license contract. This has been followed in present Japanese law. Recently, the Japanese bankruptcy law was amended in order to protect “registered” licensees. However, in the real world, in the industry, it is quite uncommon to register a license in Japan. The reason is, number one, the parties, especially patent holders, do not like to disclose to a third party that they are licensing something to somebody else. The Patent Office fee to register a license is substantial. As you can imagine, a certain licensing agreement, especially a cross-licensing agreement between two electronics companies, includes hundreds, sometimes thousands, of patents that each party has. That type of cross-licensing is not uncommon in that industry. Here the cost becomes very substantial to register. Even the parties themselves cannot recognize or identify which patents are licensed and which are not. The brand-new law made by the Ministry of Economy, Trade and Industry (METI) will start this year, the registration of agreement itself. This is quite a new idea to the Japanese patent law. In this way, Japan decided to protect the licensees, especially those cross-licensing in certain industries. IV. OBVIOUSNESS IN JAPAN Coming back to the first obviousness issue, let us look at some figures: The first figure, 33/37, represents judgments in 2006 of patent infringement suits at the district court level. Among thirty-seven, thirty-three were defeated; the patent holder lost the case. Among the thirty-three lost cases, in twenty-two the court declared the patent invalid, and in nineteen of the twenty-two because of obviousness. This figure has a certain strong impact. The way of argument in obviousness is not much different, I think, in the three jurisdictions, Japan, the United States, and the European Union. But the result is different. That is the reason why the industry is now
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criticizing the Japanese standard of obviousness as being too high. I do not know exactly whether that is really too high or not, but the figure speaks for itself. A. STRUCTURE OF DETERMINING OBVIOUSNESS IN JAPAN
The structure of determining obviousness in Japan includes: 앫 Find basic prior art. 앫 Find difference between patent and prior art. 앫 Find second prior art to cover difference. 앫 Find whether reasonable logic leads to patented invention. 앫 Total determination of obviousness in consideration of various factors. One interesting thing that I would like to add is that Judge Sato of the IP High Court, who is a colleague of Judge Tanaka, published a very interesting article in AIPPI Japan Journal (April 2007) analyzing and comparing the Japanese approach with the U.S. Federal Circuit Court of Appeal (CAFC) approach in DyStar:9 앫 U.S. approach is to find each element of claim in prior arts and find motivation to combine; 앫 Japanese approach is to bind a basic (nearest) prior art first; and 앫 Motivation is examined in the context of hindering element in Japan. 앫 The U.S. and Japanese approaches are becoming similar, especially if the CAFC may find implied motivation in the problem itself, common knowledge among people in art, etc. 앫 Opposite criticism: Japanese industry criticizes Japanese standard as being too harsh. Thank you very much. * * * Thank you for that superb timing. Professor Obuchi.
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Japanese Patent and Copyright Law Developments Prof. Tetsuya Obuchi University of Tokyo My name is Tetsuya Obuchi. After serving as a judge for fifteen years, I quit the Tokyo High Court judgeship and joined the University of Tokyo, in 1999. Now I teach intellectual property law, mainly patent law and copyright law. Today I will talk on both patent law and copyright law, because the title of this session is “Japanese IP Developments.” Because time is so limited, I would like to focus on major issues in which I hope you will be interested. In patent law, I have chosen the important
9 Dystar Textilfarben GMBH & Co Deutschland KG v. C.H. Patrick, Co., 64 F.3d 1356 (Fed. Cir. 2006), cert. denied, 127 S.Ct. 2937 (2007). The Federal Circuit’s Oct. 3, 2006 opinion is available at http://www.fedcir.gov/ opinions/06-1088.pdf.
330 SESSION V: PATENT topics to be discussed later. In copyright law, I have chosen the topic of private copy exception and levy for private recording. This topic and the issue of copyright term extension are the most controversial copyright issues in Japan today. After discussing the topic of private copy, I would like to briefly touch upon the issue of copyright term extension. I. PATENT LAW IN JAPAN On the whole, I feel that the patent law in Japan today seems to be rather stable, at least when compared with copyright law, after a series of substantial legislative changes during the last ten years. I am going to briefly touch on six major, important issues: patentable subject matter, inventive step, injunctions, technical expertise of the court, interplay between the court and the Patent Office, and problems concerning actions against decisions of the JPO Board. A. PATENTABLE SUBJECT MATTER
I talked on this topic in the patent Plenary Session yesterday,10 but I would like to add one point. According to current Japanese patent law, even a computer program, as such, can be patentable subject matter. Thus, actually the issue of subject matter loses its practical importance significantly. However, because the threshold of patentable subject matter has become lower, inventive step, disclosure, and other requirements have become more and more important these days for computer programs. B. INVENTIVE STEP AND INJUNCTION
I would like to skip inventive step. Injunction is certainly a very interesting issue, but since Mr. Katayama talked about it, I will skip it, too. C. TECHNICAL EXPERTISE OF THE COURT
The next issue is technical expertise of the court. Through the substantial legislative changes during the past ten years, now the Japanese patent judiciary, such as the IP High Court and the Tokyo and Osaka District Courts — we have only three courts for patent cases — enjoy an extremely high level of jurisdictional concentration (namely, exclusive jurisdiction) and of technical expertise. The technical expertise has been assisted by an advanced level of technical support through a good combination of judicial research officials and newly introduced expert commissioners. D. INTERPLAY BETWEEN THE COURT AND THE PATENT OFFICE
The next topic is the interplay between the court and the Patent Office. The significant increase of technical expertise of the court actually changes the traditional distribution of power between the court and the Patent Office regarding the power to find a patent invalid. Now we have two routes for finding a patent invalid in Japan. In addition to the invalidation procedure of the JPO Board, the possibility of attacking a patent through a defense regarding invalidity in infringement litigation is available. It is very interesting that the United States and Japan approach the problem from opposite directions. The United States starts from the defense of invalidity at the court, while Japan starts from the invalidation procedure at the Patent Office. Nevertheless, both
10 See supra, Session I Part D, The Next Ten Years in Patents: Some Thoughts on the Future of Intellectual Property Protection.
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the United States and Japan are now heading in the same direction — namely, a combination of defense of invalidity at the court and administrative proceedings at the Patent Office invalidating a patent, such as the reexamination in the States and the invalidation proceedings in Japan. Certainly, an effective mechanism for invalidating a patent that is actually invalid is of great importance. E. PROBLEMS CONCERNING ACTIONS AGAINST JPO BOARD DECISIONS
The last question is the problem concerning actions against the JPO Board decisions. There are two types of patent litigation. The first type is an action against a decision of the JPO Board. The second type is an infringement action, as was just mentioned. An action can be filed before the IP High Court, with exclusive jurisdiction, against a decision of the JPO Board, such as a decision on invalidity or a decision of rejection of patent application, etc. According to the Supreme Court Grand Bench decision of March 10, 1976, the scope of examination and decision of the IP High Court in an action against a JPO Board decision is strictly limited to the grounds of invalidity or rejection already examined and decided upon by the JPO Board.11 This strict limitation of the scope of examination and decision of the court in the action against the JPO Board decision causes a socalled “catch-ball phenomenon,” in which the case goes back and forth between the JPO Board and the court. I hope all of you are familiar with this baseball-based terminology. The second point to be examined is comparison with the position in the infringement procedure. As I told you, in infringement procedures, the whole patent dispute, including the issue of validity, can be solved in a single infringement litigation procedure, through a defense regarding invalidity. However, in an action against a decision of the JPO Board, the dispute is actually split up into small pieces in terms of new grounds of invalidity and causes the “catch-ball phenomenon.” I believe that one of the most important tasks of the IP High Court in the future will be how to deal with the “catch ball phenomenon.” II. COPYRIGHT LAW IN JAPAN I will turn to copyright. Article 30 of the Japanese Copyright Act12 is a provision on reproduction for private use. Article 30, paragraph (1) provides a limitation of copyright, and paragraph (2) is a provision on levy for private recording. According to Article 30, paragraph (1), reproduction for private use enjoys an exclusion from the copyright protection, except in two cases: (1) by automatic reproducing machines available for use by the public; and (2) by the circumvention of technological protection measures. A. DIGITAL RECORDING LEVY
I will briefly discuss the levy for private digital audio or visual recordings. Those who make digital audio or visual recordings for the purpose of private use should pay compensation to the copyright holder, etc., which is actually added in advance to the price of digital recording machines and media. The private copy exception of Article 30, paragraph (1) presupposes that a private copy in analog form will not cause serious damage to 11 Stocking Machine, Sup. Ct. (Grand Bench), Mar. 10, 1976, Minshu 30-2-79 (holding that parties are prohibited from submitting new publicly known references other than those already submitted and discussed before the Appeal/Trial Board). 12 Copyright Act, Act. No. 48 of 1970 (English version), available at http://www.cas.go.jp/jp/seisaku/ houri/data/CA.pdf.
332 SESSION V: PATENT the interest of the copyright holder. However, a digital private copy is substantially different and can cause serious damage to the interest of the copyright holder, especially in the area of audio or visual recording. Therefore, the system of levy for private digital audio or visual recording was introduced to compensate for such damage in the 1992 amendment, after a long, long debate. Recently, the technology of digital rights management (DRM), has increasingly progressed. Thus, some commentators strongly argue that, because the technology that enabled the right clearance with respect to private digital copying did not exist, a levy for private recording had to be introduced. But now the situation has completely changed, and the right clearance with respect to private digital copying can be done through the new technology of DRM. Thus, the levy for private recording — called “rough justice” — is no longer needed and, therefore, should be abolished or substantially diminished. Actually, three kinds of arguments are made: 앫 The first argument is simply to abolish the private copy exception itself. 앫 The second argument is to abolish the levy for private recording, substituting DRM for it. 앫 The third argument is to maintain the levy for private recording. It seems to me that the first argument is not realistic. As the coverage of DRM is increasing, the area where the right clearance with respect to private recording is possible is expanding. Yet there is still a substantial area where the right clearance with respect to private recording is not feasible. This kind of situation is very difficult to deal with. In 2005 the Japanese government tried to expand the scope of the levy for private recording to include iPod-type machines/media — namely, the devices having both functions of machines and media for recording — in such scope, but it did not succeed because there was strong opposition against the current system of levies for private recording. Now a serious discussion is going on at the government advisory committee as to whether the current levy system should be improved or should be abolished, and whether the DRM should address the question of right clearance with respect to private recording. Now two major points are discussed. The first point is how much the scope of Article 30, paragraph (1) should be reduced. The second point is whether, after reducing the scope of Article 30, paragraph (1) — namely, private copy exception — the possible damage to the interest of the copyright holder should be addressed, and if so, how — by levy or by DRM? It seems to me that people’s attitudes towards DRM have become more realistic these days. B. COPYRIGHT TERM EXTENSION
The last very important issue is copyright term extension. Under current Japanese copyright law, the copyright term is lifetime plus fifty years. In the past, several times requests for copyright term extension by up to lifetime plus seventy years have been made by the right holders, but always failed. However, this time such a request for the copyright term extension to lifetime plus seventy years is strongly made. The argument for such extension emphasizes international harmonization, saying that both Europe and the United States have extended the copyright term up to lifetime plus seventy years, in the interest of creators. The argument against such extension emphasizes that such extension does not serve as an incentive to creators but impairs the interests of the users.
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Now this issue is becoming extremely controversial in Japan. In this regard, I am very much interested in hearing why both Europe and the United States have extended the copyright term by up to lifetime plus seventy years, and what actually happened to Europe and the United States after copyright term was extended, and whether or not Europe and the United States are happy with the results. I am very much interested in the opinion of the audience. Thank you for your attention. * * * Thank you. Professor Kozuka. PROF. KOZUKA: Thank you. I thought that I was a panelist rather than a speaker, but having heard the previous speakers talk about patents, and with Professor Obuchi mentioning copyright in the last minute, I thought that some reference may be useful with regard to trademarks. There was an important amendment to the Trademark Law of Japan in 2005.13 That is the addition of a provision on local brands. A local brand is a brand for a product that is unique to some geographic area, say, “New York bagel” — I am not sure whether a bagel is unique here or not, but it is just an example. This has been introduced with the intent of stimulating the local activities in areas other than the urban cities in Japan, especially of promoting trade in agricultural or traditional handicraft products. The idea is if that brand is unique to some geographical area and is used by most of the producers there, that brand may be registered, notwithstanding that all the conditions for registration of a brand are not met. What is the difference from ordinary trademarks? The difference lies in that the requirement for distinguishing the product is lessened. If the brand distinguishes a product that is unique to a producer, then of course it can be registered as a normal trademark of that producer. If the brand is not sufficient for distinguishing one product but is unique enough to designate a product of that local area, then it can be registered as a local brand by the producers in the area. This amendment entered into force last April. I have heard that many local brands have been applied for registration with the JPO since then. MR. RICHARDS: Thank you. Professor Makino, do you have some comments on what we heard? PROF. MAKINO: Good morning. My name is Kazuo Makino. I am now teaching IP law at Omiya Law School in Japan, but previously I was working as in-house counsel for multinational companies for many years and recently joined the faculty. Let me give you just one comment. As you can see from the excellent presentations today, in Japan there are so many developments in many areas, not only in patent but also in copyright and trademark. Did they incidentally happen simultaneously? Or did they intentionally occur? This development was actually intentionally created. In Japan, beginning in 2002, the Japanese government established a national strategy to strengthen IP rights.14 This began in 2002. All of the developments occurred based on this strategy. Of course, the establishment of the new IP High Court is one of the major developMR. RICHARDS:
13 14
Trademark Law Amendments (2005), available at See METI Plan, supra note 6.
334 SESSION V: PATENT ments. Also, promoting a fast-track prosecution system is one of these developments. We can see more developments in the future. Let me add one thing. This strategy of Japan actually was following U.S. pro-patent strategies. Back in 1985, during the Reagan Administration, your country established a pro-patent strategy to recover from a bad economy. As you know, in the 1990s Japan experienced bad economies for many years. We were struggling. How to survive, how to recover from bad economies? One of the answers was to follow the pro-patent strategy of the United States. It was a very successful story. As you can see, IBM, Microsoft, many IT companies, were very successful through utilizing this strategy. That is why we started. We have just started. We can see more important developments in the future. Under the Cabinet, they have a working office to promote Japan’s IP strategy. Every year since 2003, at least once a quarter, they meet to discuss and finalize the activity list. Every year more than 200 action items are listed. This is too many. Every year it was announced to the public, so all the governmental ministries were working to implement all of them. I have one concern. Looking at Mr. Katayama’s figures for 2006, I am a little bit concerned. The invalidity rate is very high. When you started your pro-patent strategy in the United States, you established the Federal Circuit Court of Appeals. In the CAFC the invalidity data was very high. But in Japan we have just started. I hope in the future this invalidity rate will be much lower. It should be improved. It is very important to implementing pro-patent strategies. Thank you very much. MR. RICHARDS: Thank you very much. Hal Wegner from Foley & Lardner. MR. WEGNER: Two very brief questions. The first question: With respect to the thirty-three of thirty-seven cases found non-infringed or invalid, what is the rate of reversal or affirmance at the Intellectual Property High Court? So if you took, for example, a cross-section of 100 cases from the Tokyo District Court on infringement/invalidity, either way, what percent is reversed at the Tokyo High Court, approximately? JUDGE TANAKA: I do not have exact statistics, but approximately 20 percent of cases are reversed in total. I think that that 20 percent is not different from appeal cases, infringement cases, and lawsuits on cancellation. MR. WEGNER: I was very fascinated by both Professor Obuchi’s and Mr. Katayama’s discussion of trolls and research tools. In the case of a classic troll, where the plaintiff owns a patent but does not practice the invention, what is your prediction as to what type of relief the troll may get in Japan when this issue is resolved? What do you predict, Professor Obuchi and Mr. Katayama? PROF. OBUCHI: Do you mean if we had a patent troll and then the patent troll tried to enforce his rights? MR. WEGNER: Yes. Let’s say he wins the case in the district court, the troll is infringing. What relief will he get? Will he get an injunction or will there be some other relief ? PROF. OBUCHI: Generally speaking, a patent holder can get both injunctive relief and damages. If we want to deny the remedies, then we have to use the doctrine of abuse of rights. If such an exercise of right amounts to abuse of rights, then that exercise of right should be denied. Actually, the real application of abuse of rights is very much limited to extremely special cases.
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MR. WEGNER: So do you see any possibility this will happen, either of you, Professor Obuchi or Mr. Katayama? MR. KATAYAMA: Patent troll itself is not such a clear concept. You cannot recognize the difference between a patent troll or a personal inventor or universities, that sort of thing. First of all, I would not say that the patent troll itself is the reason for abuse of rights. If the only reason is the patent troll, that is probably not abuse of rights. You need to have a more serious result, like a technical standard injunction because of patent troll litigation. In that kind of case, I think I can argue the case on quite a reasonable basis and the court might agree with me. MR. WEGNER: That is a very interesting point. In the case of a technical standard, where one patent might block the technical standard, this might be a case where abuse of right might be found? PROF. OBUCHI: It could be. It would depend on the facts. MR. WEGNER: Of course. Another point you raised was on research tools. As I understand Article 69(1), some research tools may be exempt, experimentation on the subject. But you mentioned also the possibility of compulsory license relief. That is very difficult to get, isn’t it, procedurally? Do you see any special way this could be used or broadened? MR. KATAYAMA: Historically, it was difficult in the past — actually not difficult; it was impossible; there was no case. However, I think there is a possibility. The United Kingdom used this approach, although the royalty rate is very high. Yet, I think this is fine. Especially for research tools, usually, the patent holder seeks the so-called “reach-through royalty.” It is in that sense that the patent holder has no objection to have a compulsory license, so long as they have money. So there is that possibility. PROF. OBUCHI: I am sure that most of you are very interested in Mr. Katayama’s number, that shocking number of thirty-three out of thirty-seven. But you have to take into account the very important factor that patents in today’s patent litigation were granted long ago, like ten years ago or whatever. The problem is that at that time the level of inventive step in Japan was much lower than today. Actually, that low standard was very much criticized by the Japanese industry. Then the Patent Office changed their practice. So now the level of inventive step required is very high. But in the past it was low. That is why the invalidation rate is this high. Please take this into account. MR. KATAYAMA: I agree with that opinion. Yet, the figure is shocking in a sense. If you compare it with the figure in the United States, there is a great difference. MR. WEGNER: I think the British judiciary must be very happy not to be the target again. MR. RICHARDS: With that note, and since the next panel is on Europe, I think we have to conclude. Thank you all very much.
SESSION V: RELATED PATENT DEVELOPMENTS PART B: EU LEGISLATIVE AND
SESSION V: PATENT
Part B: EU Legislative and Related Developments
Moderator DAVID PERKINS
Milbank Tweed Hadley & McCloy LLP (London)
Speakers HARRIE TEMMINK
HON. KLAUS GRABINSKI
Administrator, Industrial Property Unit, DG Internal Market, European Commission (Brussels)
Presiding Judge District Court (Düsseldorf)
Panelists ERIK NOOTEBOOM
PROF. ALAIN STROWEL
Head of Unit, Industrial Property Unit, DG Internal Market, European Commission (Brussels)
Saint-Louis University; Covington & Burling LLP (Brussels)
MR. PERKINS: This is the EU Legislative and Related Developments session. You might have thought, after listening to the discussion yesterday morning, that this session would be utterly redundant, because I think the message we were left with was probably that we were going back to the beginning and a period of stagnation was foreseen in Europe. I have a slightly rosier view of the future than that. Just to perhaps start off with a couple of thoughts before I hand you over to Harrie Temmink, I looked back on the Community Patent discussion. In 2003, a Commission Communication estimated the cost of obtaining a patent in fifteen Member States was five times the cost of obtaining a patent in the United States.1 Now something very strange has happened. There has been hyper-inflation in Europe. Charlie McGreevey’s Communication in March this year put the cost, four years later, at eleven times the cost of obtaining a patent in the United States and thirteen times the cost of obtaining a
1 European Commission, Memo 03/47, Results of the Competitiveness Council of Ministers (Mar. 3, 2003), available at http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/03/47&format=PCF&aged= 1&language=EN&guiLanguage=en.
338 SESSION V: PATENT patent in Japan.2 So something has gone seriously wrong in Europe — or the statistics, as ever, are capable of being interpreted in more than one way. In terms of enforcement, you will hear from Klaus Grabinski that the cross-border phenomenon is pretty much dead. We still do have, though, forum shopping in Europe, by reason of the doctrine that the court first seized has primacy and other courts are not able to pursue parallel litigation at the same time. I will leave you with one comment on this which I particularly like. It is from Hugh Laddie, who is obviously hiding somewhere else so I can give it to you. This is from the days when he was a judge, in the case called Sepracor v. Hoescht Marion Roussel.3 Talking about this forum-shopping phenomenon in Europe, he said: “As it is, there is a positive incentive to commence proceedings in countries where they are not likely to come to a hearing within a reasonable period, or in countries which have no relationship to the acts of infringement, or, as in this case, both.” He finished by saying: “A less sensible system could not have been dreamt up by Kafka.” I will now hand over to Harrie Temmink to unravel Kafka for you. Harrie reminded me that he spoke here three years ago, but I assured him everyone has very short memories so he will not be picked up on anything he said then. He will take you through legislative developments in the Community. MR. TEMMINK: Thank you very much. Good morning, everybody. I will start off by reflecting on what has just been said about the inflation of the European figures and the different kinds of interpretation. The present cost figures are based on a very thorough study that was conducted, not by the European Commission, but by someone else, Mr. van Pottelsberghe, a Chief Economist from the European Patent Office (EPO). He is also a professor. He is highly respected in the field of patents. He came up with these statistics. He made a thorough comparison of the costs in the United States and Japan, on one hand, and in the European Community, on the other hand, based on an average of thirteen designations per European patent.4 I will give you an overview of the state of play: Where are we, and how did we come to that? How will the future look? The future, according to some — perhaps even the majority — is not very bright. I do not share that feeling, overall. I will explain why in a couple of minutes. It also gives me an opportunity now to come back to some of the elements that were expressed yesterday, which I will try to put in a more proper context. I will come to that in a minute as well. If we look at the initiatives on the Community patent, which is what we are basically talking about right now, there are several key moments: 앫 First of all, the proposals of the Commission on the Community Patent of 2000.5 앫 The political agreement in the Council of 2003, which failed in 2004.6 2 Communication from the Commission to the European Parliament and the Council, COM/2007/0165 final (Mar. 4, 2007), available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=COM:2007:0165:FIN:EN: HTML. 3 [1999] F.S.R. 746. 4 Bruno van Pottelsberghe & Didier Francois, The Cost Factor in Patent Systems, CEPR Discussion Paper No. 5944 (Nov. 2006), available at http://ssm.com/abstract= 954607. 5 Commission of the European Communities, Proposal for a Council Regulation on the Community Patent, COM(2000)412 (final) (Jan. 8, 2000), available at http://mineco.fgov.be/intellectual_property/presidency/ patent_reglement_en.pdf. 6 Proposal for a Council Decision conferring jurisdiction on the Court of Justice in disputes relating to the Community patent, COM/2003/0827 (final) CNS 2003/0326, available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=CELEX:52003PC0827: EN: HTML. Proposals before the Council (May 2004), available at http://ec.europa.eu/ internal_market/ indprop/patent/index_en. htm.
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앫 After that, in 2006 the Commission relaunched the debate by organizng a consultation on the future patent policy in Europe. Very important here is to mention that a Competitiveness Council took place in the beginning of December and a European Council in mid-December, where the issue of patents, and in particular the issue of litigation, was addressed. On the basis of this past, the Commission very recently published a Communication Enhancing the Patent System in Europe.7 I will focus mainly on that Communication. First, let me talk about the 2000 Commission Proposal. It is history, but it is important to understand that it is the Commission that proposes but it is the Council that adopts. If we look at the Proposal of the Commission in 2000, we can see that the petitioners and people who are, on a day-by-day basis, working with patents were fairly happy with the proposals of the Commission. Why? One of the main reasons was that we had a language regime in the proposals that was based on the EPO regime. We had then three working languages: German, French, and English. We also had, of course, references to the EPO. For the Community patent, the procedure would be absolutely the same as for European patents, but once a Community patent would be granted, then, of course, the effects would be different. Instead of having a bundle of national patents for the Community patent, we have one single patent with validity throughout the European Union, and with the same consequences in the whole territory of the European Union, now twenty-seven Member States. In our proposals we also had a centralized court structure. I will come back to that later. Then, in March 2003, we had a breakthrough in the Council. The breakthrough was based on a couple of features. I will not mention them all, but there are two main issues here for you to remember. First of all, the language regime was different from that proposed by the Commission. Instead of having a language regime based on three working languages, the Council decided that it would be best to have equal respect for all the official languages of the European Union. That would mean, in practice, that the claims — not the descriptions — of the patents would have to be translated into all official languages. That would, in practice, mean that there would be more costs on the basis of the Council political agreement than there would have been under the Commission proposal. Another thing to bear in mind is that the Council decided that there should be a centralized court system, centralized in terms of having only one seat in Europe for patent litigation, for validity and for infringement cases on the Community patent. The creation of a judicial panel was foreseen at the Court of First Instance in Luxembourg. That would be the first-instance court, and then the second-instance court would be the CFI. The proposal of March 2003 in the Council was followed by some detailed proposals of the Commission in December 2003. We did our homework on the basis of the instructions of the Council. The Commission proposed in December 2003 a full-fledged proposal on the creation of a Community patent court at the Court of Justice in Luxembourg. 7 Communication from the Commission to the European Parliament and the Council, COM/2007/0165 (final) (Mar. 4, 2007), available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=COM:2007:0165:FIN:EN: HTML; Communication from the Commission to the European Parliament and the Council – Enhancing the patent system in Europe (Mar. 29, 2007), available at http://ec.europa.eu/internal_market/indprop/docs/patent/ strategy_en.pdf; see also Press Release, European Commission, Patents: Commission sets out vision for improving patent system in Europe (Mar. 4, 2007), available at http://europa.eu/rapid/pressReleasesAction.do?reference= IP/07/463&format=HTML&aged=0&language=EN&guiLanguage=en.
340 SESSION V: PATENT But, as we all know, the negotiations stalled in the Council in 2004. Actually, the proposals that the Commission made in December 2003 were never discussed in the Council. So we had these proposals, but no debate took place in the appropriate political forum, which is the Council. The next step was the Consultation of last year.8 In order to relaunch the debate, as a Commission, we decided to put the question to the stakeholders: What do you want? What do you want as far as the Community patent is concerned? What do you want as far as the European Patent Litigation Agreement (EPLA)9 is concerned? What do you want as far as further harmonization in the field of patents in Europe is concerned, et cetera? We had a bundle of questions. We got an enormous response. We got more than 2,500 responses. Of these responses, about 1,500 were originals. We got some very interesting messages from the stakeholders. First of all, as far as the Community patent is concerned, there was almost unanimity about the wish to have a Community patent, as we do have a Community trademark and a Community design. An overwhelming majority of people said: “Yes, the best thing we could have in Europe is the Community patent. But it should be an affordable Community patent. It should be a legally secure Community patent.” Then, of course, the problems begin. It is very important to stress that a Community patent for the stakeholders remains number one. It is also very important to stress that the political agreement of 2003 was not considered as the best way forward by the stakeholders, for two reasons: the high cost of translation, and excessive centralization of the jurisdictional system. As far as the existing patent system in Europe is concerned, we also got some messages. A considerable number of stakeholders were in favor of rapid achievement of EPLA. It was certainly not unanimous, but there were a considerable number of stakeholders who were in favor of EPLA. There were also a considerable number of stakeholders who were in favor of the adoption of the London Protocol,10 which is supposed to reduce costs even more under the present system. But I will not discuss that issue now. What did we do, then, on the basis of that consultation? We proposed to follow up in the form of a Communication, the Communication I referred to in the beginning, which is the Communication of April 3, 2007. What is new in that Communication is that, first of all, we wish to restart negotiations on the Community patent. I have to refer to something that was said yesterday, that the Communication does not address the Community patent in a serious matter. That is incorrect. If you look at the Communication, you will see that the Community patent remains objective number one for the Commission — except, of course, that we do not wish to pursue the debate on the same basis as the political agreement of 2003. That is what we learned from the consultation. So what we propose, actually, is to have a fresh look at the language arrangement and to explore, together with the Member States, new ways forward. How should that be done? That is something that we will discuss with the Member States now. 8 Public Hearing on Future Patent Policy in Europe, Brussels, launched July 12, 2006. Agenda, Speeches and PowerPoint Presentations, Preliminary Findings, and Final Report available at http://ec.europa.eu/internal_ market/indprop/patent/ hearing_en.htm. 9 European Patent Litigation Agreement, available at http://www.epo.org/patents/law/legislative-initiatives/ epla.html. 10 The London Agreement: European Patents and the Cost of Translation, Agreement on the Application of Article 65, EPC (Oct. 17, 2000), available at http://www.epo.org/about-us/publications/general-information/ london-agreement.html.
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There should be more flexibility in the language regime, that is for sure, not the translation of all the claims in all official languages. That is far too expensive. We have to seek ways to make that system more flexible. But we could also perhaps think about alternatives — for example, fee reductions for small and medium enterprises (SMEs) or machine translations. What is the role of machine translations right now? So it is not only the flexibility as such; we might find and explore other ways to actually make the language regime more acceptable. The second thing is that as far as litigation is concerned, the idea of having a centralized court in Europe that would take first- and second-instance litigation in the field of Community patents is also obsolete now. It is very clear that all stakeholders want to have a first-instance court decentralized at the Member State level, and a centralized court somewhere in Europe that would then take the litigation in second instance. These ideas on litigation we also explore in our Communication. Apart from the Community patents and the litigation ideas, there is a third element, which we call the flanking measures or the supplementary measures of a non-legislative nature. There, we explore some possibilities for the future in the field of the quality of patents, in the field of petitions of SMEs, in the field of enforcement, in the field of technology transfer, or, as it is called nowadays, knowledge transfer. It is no longer “technology transfer”; nowadays it is “knowledge transfer.” These non-legislative ideas will be explored more in detail in a Communication that will be published by 2008, a broader Communication on IP rights in general. Let me turn now to the litigation arrangements. It is very important to understand that at the Council meetings in December 2006 there was a discussion of litigation agreements and there was a discussion of EPLA. One of the participants said that it was a bloodbath. It means that there was no dancing in the street for either of the options that you could have in the field of litigation, EPLA, or a more Community-like system. Now we as a Commission are actually trying to build a bridge between the two polarized positions that we have in Europe in the Member States. There is one group of Member States, an important group of Member States, that is dealing with EPLA. EPLA will be discussed later. There are two things I want to say here about EPLA. First of all, EPLA is fine, but it only foresees litigation in the field of European patents, validity and enforcement of European patents. It does not consider the validity and enforcement of future Community patents. Second — and this is something that was said yesterday, but I would like to stress it — whatever EPLA may be, the Community should be involved. Why is that? It is not because the Commission thinks that the Community should be involved; it is because of the way the EU Treaties work that the Community, and in particular the Commission, should be involved in EPLA. EPLA is covering competencies of the Community. In the field of enforcement, we have an Enforcement Directive11 that deals with procedures, remedies, and measures in the field of, for example, taking evidence, damages, et cetera. That’s Community “acquis,” as we call it in Europe. That means that if a Member State wishes to conclude an international agreement with third countries, then what should happen is that it is not the Member State individually that should negotiate that, but it is the Member State in the 11 Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, 2004 O.J. (L 195) 32–36, available at http://europa.eu.int/eur-lex/pri/en/oj/ dat/2004/l_157/l_15720040430en00450086.pdf.
342 SESSION V: PATENT context of the Council that should ask the Commission to negotiate this area, because the area is a Community area. It is not a purely national area anymore. The same applies for the jurisdiction and enforcement of judicial decisions, where we have the so-called “Brussels I” Regulation.12 That is what I want to say about EPLA and the group of Member States that is in favor of concluding EPLA as soon as possible. The other thing that we have as the second option is a group of Member States that wishes to have it all “communitarized”; both the litigation on European patents and the litigation on Community patents should be dealt with within a purely Community context in first and second instance. So we have two groups of countries. One is in favor of EPLA; the other group is in a favor of Community jurisdiction for European and future Community patents. I will leave that for what it is. What is the Commission proposing? The Commission is proposing a realistic approach, which means a step-by-step approach. What we try to do in our Communication is to build a bridge between the two opposite views, the polarized views, that we have in Europe. What do we mean by step-by-step? It means that we say: Let’s start by having a look at those things we agree upon. Then we see, remarkably, that we agree already on a lot of issues: 앫 First of all, there should not be two different supranational courts in the field of patents. We should have one EU-wide patent court. There is a substantial amount of agreement on that. So you should not have one supranational court for European patents and then, afterwards, in the field of Community patents a Community court dealing with patents. It should be one EU-wide court. 앫 Second, this court should take cases of infringement and validity for both European patents and Community patents. 앫 Third, this court should work with first-instance chambers at a decentralized level — not at a centralized level — and a there should be a centralized appeal court. 앫 Fourth, there should be common rules of procedure for this court. 앫 Fifth, there should be both technically qualified judges and legally qualified judges. That was one of the criticisms that we were facing in 2003, when we made our proposals on the Community patent court, that it was only for lawyers and that there should also be technicians on the bench.13 We propose now that we should have in a future court both technically and legally qualified judges. 앫 Finally, when it comes to matters of EC law, it is the Court of Justice that should be the final arbitrator. I want to say one thing — maybe Erik will discuss this later — about why the European Court of Justice, when it creates a judicial panel, can be an absolutely competent court taking patent litigation. There are very good arguments for believing that, actually. What is next? That everyone wants to know. Now that we have the Communication, what is going to happen? 12 Council Regulation (EC) No. 44/2001 of 22 December 2000, on jurisdiction and the recognition of judgments in civil and commercial matters, 2001 O.J. (L 12) 1, available at http://europa.eu.int/eur-lex/pri/en/oj/ dat/2001/1_012/1_-1220010116en00010023.pdf. 13 Commission of the European Communities, Proposal for a Council Decision establishing the Community Patent Court and concerning appeals before the Court of First Instance, COM (2003) 828 (final) (Dec. 23, 2003), available at http://europa.eu.int/eur-lex/en/com/pdf/2003/com2003_0828en01.pdf.
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The German presidency already has scheduled three Council working parties, as we call them, three full-day meetings in May and the first of June, to discuss this Communication and to see how we can move forward the debate on the litigation issues, and perhaps also in the field of Community patent. So that is where we are now. I hope that it is not as dark as people thought yesterday. Thank you very much for your attention. MR. PERKINS: We are inevitably slipping, but we are now going to hear from one of the two signatories in this room to the Second Venice Resolution, which must have come, I hope, after very good pasta and Chianti in November last year.14 It is the European judges leading the charge towards a European court. So I will hand over to one of the chargers now, Klaus Grabinski, to explain it to you. JUDGE GRABINSKI: Ladies and gentlemen, good morning. I would like to start with a short overview of the current situation concerning patent litigation in Europe and then turn to the EPLA proposal. Starting with the current situation in Europe, we have first to notice that we have achievements so far. We have European patents, meaning there is one prosecution for a European patent. But as soon as the patent is granted, it splits up into a number of national patents. There the problem begins. We still have an opposition before the EPO, a unique opposition before the EPO, but at the same time we have national patents, and the national patents have to be litigated in the respective contracting states of the European Patent Convention (EPC).15 There was an attempt in the early 1990s to overcome this situation by national courts, particularly in the Netherlands, but also followed with some sympathy by German courts and courts of other Member States, but not all. This was on the basis of the Brussels I Regulation, which was preceded by the Brussels Convention.16 Courts accepted to decide not only on the infringement of the national part of the European patent of the state where the court was situated, but also on other parts, in particular, on the basis of Article 2, paragraph (1), which concerned the general jurisdiction, and also on the basis of Article 6, paragraph (1), which concerns special jurisdiction when a number of defendants are concerned. It was agreed, at least by Dutch courts, that one could also sue a group of companies that had their seats in different contracting states, to be sued before one national court for the infringement of different national parts of European patents. But this came to an end last year, on 13 July 2006, when the ECJ issued two decisions. The first one is the Roche v. Primus case.17 They denied cross-border jurisdiction with regard to a group of companies, with regard to a number of defendants, when a number of companies established in various contracting Member States commit allegedly European patent-infringing acts in one or more of those states, even if those companies 14 Principles Relating to the Rules of Procedure of the European Court pursuant to art. 17 of the Draft European Litigation Agreement (EPLA) and art. 17 of the Draft Statute of the European Patent Court “The Rules of Procedure”), San Servolo, Nov. 4, 2006 (Second Venice Resolution), available at http://ipgeek.blogspot. com/2006/11/european-patent-judges-agree-on-rules.html. 15 Convention on the Grant of European Patents, signed at the Munich Diplomatic Conference for the Setting up of a European System for the Grant of Patents on Oct. 5, 1973, 13 I.L.M. 270 (1974), 1160 U.N.T.S. 231 [hereinafter European Patent Convention], available at http://www.epo.org/patents/law/legal-texts/epc.html. 16 Brussels Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters, 1927 O.J. (L 299) 32, amended by 1978 O.J. (L 304) 77, amended by 1989 O.J. (L 285) 1 (full text, English version, at 1978 O.J. (L 304) 77). 17 Case C-539/03, Roche Nederland B.V. et al v. Primus and Goldenberg, [2006] E.C.R. I-0000, 2006 O.J. (C 224) 1, available at http://eur-lex.europa.eu/LexUriServ/Lex UriServ.do?uri=OJ:C:2006:224:0001:0001:EN:PDF.
344 SESSION V: PATENT belong to the same group and have acted in an identical or similar manner, in accordance with common policy, elaborated by one of them. This was also the end of the so-called “spider in the web” theory that was developed by Dutch courts.18 For those who advocated cross-border jurisdiction, the day of 13 July 2006 was even worse, because there was also another decision of the ECJ in the GAT v. LuK case.19 This dealt with the question of whether a court that accepted cross-border patent litigation loses its jurisdiction as soon as the defendant raises the validity defense, as soon as he says the national parts of the European patent do not concern the state where the court has its seat. The ECJ, in a decisive sentence on this ruling, said the rule of exclusive jurisdiction laid down in Article 16, paragraph (4) of the Brussels Convention, which is now Article 22, paragraph (4) of the Brussels I Regulation, concerns all proceedings relating to the registration of validity of a patent, irrespective of whether the issue is raised by way of an action or a plea in objection. This means that as soon as the validity becomes an issue in a cross-border patent litigation lawsuit, the court has to declare it to be incompetent insofar as the infringement of national parts of the European patent are concerned that are not the parts where the court is situated. This is said by the court in, for example, paragraph 24 of the decision. This was the end of cross-border jurisdiction. I can tell you from real life that since this decision we have never gotten a cross-border case. There are still some open questions, such as whether this is also true with regard to interim injunctions. We will see how we will deal with this in the future. There are some proposals to adopt the Brussels I Regulation to get back to the situation before GAT v.LuK, but I do not know whether they will get a lot of political support. Let me also mention that the situation is so far unsatisfactory, that the law in Europe, the patent law, law in patent litigation, has only harmonized to some extent. Harmonization has been achieved insofar as the EPC is applicable. There has also been some harmonization in national patent law with regard to the 1989 Community Patent Convention, which itself was never enacted.20 Quite recently, there has also been some more harmonization with the introduction of the Enforcement Directive.21 But one has still to consider that harmonization has not been achieved to an important extent, in particular, when you think of the separation of
18 The Court of Appeal of the Hague on Apr. 23, 1998 in case Expandable Grafts, Ethicon & Cordis Europe v Boston Scientific, [1999] F.S.R. 352, held that art. 6 (1) does not allow to sue as joint defendants the Dutch infringer (for infringement of the Dutch patent) and the foreign infringers (for the infringement of the foreign patents belonging to the European bundle). One exception, however, was accepted: The court may derive jurisdiction from art. 6 (1) with regard to foreign defendants who infringe the foreign patents arising out of the European bundle, if these foreign defendants belong to the same group of companies and the European headquarters of that group of companies is located on the territory of the court. This approach to the limitation of the applicability has been named the “spider in the web” theory; the defendants can be sued as joint defendants if they form a web among themselves and the action has to be brought before a court located in the center of the web (the spider’s domicile). 19 Case C-4/03, GAT v. Lamellen und Kupplungsbau, [2006] E.C.R. I-0000, 2006 O.J. (C 224) 1, judgment available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri =OJ:C:2003:055:0014:0014:EN:PDF. 20 89/695/EEC: Agreement relating to Community Patents, done at Luxembourg on 15 Dec. 1989, 1989 O.J. (L 401) 0001–0027, available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=CELEX:41989A0695(01): EN:HTML. 21 Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, 2004 O.J. (L 195) 16–26, available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=CELEX:32004L0048R(01):EN: HTML.
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infringement action in Germany, in contrast to the situation in most other Member States. Also very important, in the Member States different rules of procedure apply. I think the main difference concerns whether oral or written proceedings are more important during the proceeding. German litigation tends toward written preparation of the case. It tends to say that the written proceeding is very important and the oral hearings are not so important. Other differences do concern the question of whether you have expert witnesses or court-appointed experts. Another very important point concerns different qualifications of judges. In some countries you have technical judges; in others you do not. Also you have in some countries judges with quite a lot of experience in dealing with patent litigation, and in other states you do not. Another point I want to make is the different interpretation of harmonized provisions — for example, Article 69 of the EPC, concerning scope of protection. This provision is differently interpreted and applied in different countries. Whether this really means that cases are decided differently, I doubt, at least to some extent. But one has still to notice that there are differences. It would be a better situation if we would interpret and apply Article 69 and other provisions of the EPC in a harmonized manner. Harrie already dealt with the Community patent court. I just want to mention that there have already been some attempts to get a Community patent in 1975. We are more than thirty years in dealing with this matter, and did not achieve it. So it is quite a problem. With regard to the common political approach, also mentioned by Harrie, of March 3, 2003, there are some features that are important.22 A centralized Community patent court was, I think, criticized with good reason. It is better to have a regional court system. I think the political approach was right in having technical experts. You may have technical judges or technical experts. It does not matter. What we have to have are technicians to be involved. Of course, the main failure of this common political approach is the language regime. They proposed that the language of the proceedings should be the language of the state where the defendant is domiciled. Just imagine: you have a defendant from Finland and then the whole litigation will take place in Finnish; and you have three judges that do not understand a word of the Finnish language. Now let me turn to the EPLA. EPLA’s main features are facultative accession by any contracting state of the EPC. So those who are not interested or who do not want to participate, or even want to block the whole process, do not have to. They can stay out. Another feature, quite important, is the language regime, which will mean the three official languages of the EPO. It will have a central division and regional divisions. In the regional divisions, one of the three official languages will apply. There will be one central court of appeal. This is very important for harmonization, of course. There will be a panel of an odd number of judges — if there are three, two legally qualified and one technically qualified, and from the respective technology, of course. Persons to be appointed as judges will, of course, be judges from the contracting states, but also members of a board of appeal of the EPO. This raised some criticism, because there was 22 COM/2003/0827 (final), CNS 2003/0326, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ. do?uri=CELEX:52003PC0827:EN:HTML.
346 SESSION V: PATENT a fear that the EPLA could be not sufficiently independent from the EPO. One has to rethink this point. It should be open to all possible solutions. Of course, exclusive jurisdiction of infringement and validity with regard to European patent effective in one or more of the contracting states; provisional substantive patent laws; the jurisdiction of the court and the effect of its decisions; and procedural provisions and so on. I just want to turn to a recent development with regard to the EPLA draft proposal. In October 2006, the European Parliament requested the Legal Service provide an interim opinion on EU-related aspects of the possible conclusion of EPLA by the Member States. The interim opinion of the Legal Service23 came to the following conclusion: Member States are not competent to conclude EPLA because the draft EPLA aims to lay down rules in which the Community has adopted internal rules — notably, the Enforcement Directive and the Brussels I Regulation, which is also called the acquis communautaire; therefore, Member States are not competent to conclude EPLA because acquis communautaires is concerned.24 The conclusion of EPLA would affect the uniform and consistent application of the Enforcement Directive and the Brussels I Regulation. What are possible ways out of this situation? I have to say that the Legal Service, in principle, seems to be right in this assessment. One possible way out, of course, is the accession of the Community to the EPLA system. But I am not sure, after more than thirty years of struggle in this field, whether all Member States can agree on an accession of the Community to EPLA. If this is not possible, due to the opposition of some Member States, there seems to be another way possible. I have to say that this proposal does not go back to myself, but the merits for this idea belong to Anthony Arnull and Robin Jacob.25 They thought of the following: Amendment of the draft EPLA by excluding all provisions that concern matters governed by the Enforcement Directive or the Brussels I Regulation, and contracting states that take an interest confer to the European Patent Court the status of a national court by virtue of national law. We have already an example of this kind of court in the Benelux Trademark Court. If the attempts of the Commission fail, in order to bring concert among Member States, then there is also this possibility. I do not know whether those states that are interested in EPLA could agree in going this way, but I think it is a possible way. It is worth mentioning it and introducing it in the discussion. Then we will see what the future will bring on this. Thank you very much. MR. PERKINS: Thank you very much, Klaus. We started off with no time problems at all and now we are in dire problems. I have a couple of words, but I will ask Erik to follow on from Harrie’s point, and then maybe, Alain, you can follow on. MR. NOOTEBOOM: As you have learned from the earlier speakers, the debate in the European Union on the creation of a Community patent and a specialized patent jurisdiction go back some forty years. But, in order to place this in the right perspective, you 23 On Feb. 1, 2007, the Legal Service produced its opinion, available at http://www.ipeg.com/_UPLOAD %20BLOG/Interim%20Legal%20Opinions%20Legal%20Service%20 24 “Acquis Communautaire” means essentially “the EU as it is” — in other words, the rights and obligations that EU countries share. The acquis includes all the EU treaties and laws, declarations and resolutions, international agreements on EU affairs, and the judgments given by the ECJ. It also includes action that EU governments take together in the area of “justice and home affairs” and on the Common Foreign and Security Policy. 25 See Anthony Arnull & Robin Jacob, European Patent Litigation: Out of the Impasse?, 29 Eur. Intell. Prop. Rev. 6, 209–14 (2007).
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should be aware that when these discussions started, the European Union consisted of only six states, which altogether had only four official languages. By the time the discussions on the first Community patent project came to an end in the late 1980s, the number of Member States had doubled and altogether there were nine official languages. The agreement at the end of the 1980s foresaw the creation of a centralized specialized patent jurisdiction with a centralized appeal court with regional first-instance courts. On languages, it said that the Community patent should be translated fully into all of the languages of the participating states. That was the reason why business rejected that agreement very strongly, because it implied translations of Community patents into nine official languages in those days, and because they felt that the regional first-instance courts would not constitute sufficient harmonization and a reliable jurisdiction, in spite of the fact that there would be overview by a common appeal court. Then, the Commission, as you know, relaunched the debate after the adoption of the Lisbon Agenda to bring economic growth and more jobs to Europe.26 We took very careful note of the reasons for which business had rejected the agreement, which was concluded by the end of the 1980s. As a result of our continued efforts, after three years of negotiations in the European Council, we presented a proposal which was in both critical aspects much better than the result of the work that had been on the table before. On jurisdiction, the agreement provided exactly what business had always asked for, a centralized specialized patent jurisdiction, not only centralized at the appeal level but also at the first-instance level. On languages, there was a major breakthrough, because there was no longer an obligation for the patent holder to translate the patent fully into all the official EU languages; there was only an obligation to translate the claims of the Community patent into all of the official EU languages. Nevertheless, this agreement was also torpedoed by business. This time the reason was that the centralized first-instance courts were not welcomed any longer by businesses because they preferred that the element of proxmity to the citizens was taken into account; in other words, apparently, twenty years after the agreement was initially reached, the feeling now was that at the first instance level there should be regional courts to allow access at the local level. Appeals of court remained centralized. Also very important to note is that when this agreement in 2003 was adopted, the Community had enlarged even further, because at that very moment the European Union counted fifteen Member States and twelve official languages. The main reason, I think, why that agreement was rejected was because one of our Member States had a major difficulty with the centralization of the jurisdiction in Luxembourg. That is the current European Presidency [Germany]. They had big, big troubles with the fact that they had agreed before to do away with regional jurisdiction access at the local level, so they firmly rejected centralized first instance. That was a pity. I think that agreement would have been wholeheartedly supported by business if it had been concluded by the end of the 1980s, when we only had twelve Member States with nine languages. Anyway, we are now four years later. What has happened in the meantime? The number of Member States has basically doubled compared to 2003. Today we have twenty-seven Member States. Almost each of the new Member States that we welcomed brought with it a new official language. So today our discussions are taking place in a completely 26 Lisbon Agreement for the Protection of Appellations of Origin and their International Registration (Oct. 31, 1958, as revised at Stockholm on July 14, 1967, and as amended on Sept. 28, 1979), available at http://www. ipprolaw.com/english/article8.html.
348 SESSION V: PATENT different setting than we had a couple of years ago. Now, on languages, any decision that takes all the languages as official languages for the patent system implies translation into twenty-three languages. So as you see, the more time we lose, the more complex the whole issue becomes. Under these circumstances, the Commission has decided to give it a very, very last try to come to an agreement between all our Member States on a workable, accessible, and efficient single Community patent system, accompanied with an efficient and reliable jurisdiction. But it will not come as a surprise to you that, given the constant movement of the Union, every time welcoming new Member States with new languages, it has become ever more difficult to reach any sensible solution. I think the Communication we released last week, which Harrie elaborated so eloquently, is basically a document that merely serves to relaunch the debate for a last time. The elements that you will find in that Communication contain all the ingredients we think Member States should agree on in order to find an agreement that works. But I think we cannot lose much more time on this. It is a last call. We have learned that the very important projects under the European Patent Organization, the EPLA Project and the London Protocol, also have been bombarded recently by the Member State that initiated this work and which always proclaimed that it was a major step forward for the European patent system. That is France. France launched the EPLA discussion and it launched the London Protocol on languages. When we launched our consultation, which obliges all the Member States to show their cards on where they really stand, it appeared that all of a sudden France was no longer supporting the London Protocol nor EPLA. So the question really which we are facing today is: What do our Member States really want? Are they playing games with us, or do they really have serious concerns to work together to come to a solution? Therefore, what we will do is now to force Member States to play their cards in the official setting — that is, at the European Council of Ministers, at the highest possible level — to see whether there is really a willingness to move forward on this in a sensible way. It is evident that, as far as I am concerned, if within, let’s say, one year there is no hope on progress because we continue to turn in circles on languages and on either centralized or decentralized jurisdictions, and as Europe makes up its mind how it wants to shape its structure in patents for the future, if they are not able to do it together, we may well have to take a decision to allow the coalition of those who are willing to work together in a more restricted setting — that is, together with Member States that want to make progress — and I imagine those Member States will have a real interest in patenting and innovation. Because the European Union has grown so big, it will not be a surprise to you that some regions are more innovative than others, that some regions have more interest in an efficient patent system than others. That means that if our last efforts to stay all together fail, the time has come, to first think seriously about so-called reinforced cooperation. That is a process that is enshrined in the European Treaty,27 which allows Member States to go on a particular subject with a limited number of Member States that are ready and willing to do something together. That is a necessary step in order to, so to say, create the “Europe of two speeds.” If that would fail as well — because, again, this requires decision-making within the 27 Treaty Establishing the European Economic Community, Mar. 25, 1957, 198 U.N.T.S. 11, 1973 Gr. Brit. T.S. No. 1 (Cmd. 5179-II) [hereinafter EEC Treaty], amended by Single European Act, O.J. (L 169) 1 (1987), [1987] 2 C.M.L.R. 741, in Treaties Establishing the European Communities (EC Off’l Pub. Off. 1987).
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European Union, where all Member States are involved; that also means that Member States may create blocking minorities to obstruct reinforced cooperation — then there is one alternative left, and I think that Klaus Grabinski referred to that. That would possibly be that Member States decide to go on between themselves in an intergovernmental setting, carefully trying to bypass European acquis communautaire, European legislation. That is, if a court were to be created to deal specifically with patents, they would not touch upon questions that relate to so-called Community legislation. I think, David, that is in a nutshell what I wanted to say. So we have entered the last round. It should not be a long round. We basically have had forty years of discussions. If there is no hope of progress with twenty-seven states, then I would say let’s try it with a restricted number of Member States, those who are willing. But, of course, this all means that we are not really talking here about patents. We are talking here about the shaping of the future of Europe. It means that we are tackling here very sensitive political and important issues about the treatment of languages in Europe in the future and also the creation of specialized jurisdictions, not only for patents but possibly also in other fields. That makes this dossier extremely challenging, but at the same time sometimes frustrating. MR. PERKINS: Thanks very much, Erik. I think this will be a very interesting discussion in twelve months’ time at Fordham. I have an instant solution for you on the twenty-three languages. It is time to revive Esperanto as the compulsory language for Europe. Alain, have you got a very quick contribution? PROF. STROWEL: Yes, a few comments. First, let me recast the debate so as to make it more understandable for an American audience. A common judiciary, competent to consider issues of law and fact in civil matters, challenges the standard core competence of States. The situation we are facing in Europe is a very difficult one, and, at the end, it is not surprising that we did not reach some agreement after thirty years of discussions around the Community patent and the patent litigation arrangement. The adoption of a litigation arrangement has far-reaching consequences. It would be, for an American audience, like having a treaty on jurisdiction between all South American and North American countries that would allow, for instance, a Venezuelan judge to rule on the validity and infringement of a patent covering the United States; or, maybe worse, a Canadian judge ruling on this patent. (I am joking, because I think most of our Canadian friends are in a parallel session.) Just a remark on the possibility to revive EPLA. I think EPLA is dead. But, as we say in French, “The king is dead, vive le roi!” — it might survive in another way. I think it may be still possible — I am optimistic — to keep the substance of EPLA and to integrate it within the infrastructure of a Community jurisdiction system, as proposed in the French submission of November 2006. Before having a full Community jurisdiction system for patents, we could start with a system that would be a little bit like the Community trademark court system, where you have basically a national judge with Community competence. The existing Community trademark court system should, of course, be upgraded to fit in the French architecture, but this remains feasible. As you know, the Community trademark courts can rule on trademark issues and their rulings are valid in all countries of the European Union. In the case of the European patent jurisdiction system, the judge would only issue decisions valid for the countries that are designated in the European patent. That makes a difference. There are other differences with the current Community trademark court system. In
350 SESSION V: PATENT the Community trademark court system, there is an appeal before a national court of appeal and then eventually before the national supreme court. Of course, those two levels should be changed if we want to have a Community structure for the patent jurisdiction to be created. At first sight, the system could work with an appeal before a specialized chamber of the Court of First Instance, and eventually — but the relation should be further thought out — some kind of referral to the European Court of Justice. Of course, the language issue remains in that scheme. I do not know whether it would be possible to take the language solution of EPLA and to integrate it in this upgraded Community trademark court system. The right procedure to adopt the new judicial system and to avoid blocking minorities will be decisive to decipher the present conundrum. Whether “enhanced cooperation” or new procedural rules to be adopted in the mini Constitutional Treaty, now in preparation, will be followed remains to be seen. It is clear that, going forward, some institutional imagination will certainly be required. Thank you. MR. PERKINS: Just very quickly, it is not all black, it is not all bleak, in Europe. I think, despite the fact that we have not got a Community patent, a Community patent court, even an EPLA, in place, there are good signs in Europe. For example, on the practical side, you have a Regulation on cooperation between the courts of Member States in the taking of evidence in civil matters.28 It is a bit like accelerated letters of request, which actually works between Member States. That has now been in operation since 2001. There is an interesting case, Dendron GmBh v. Regents of University of California and Boston Scientific,29 in the British courts, where the British courts asked the court in Germany to take evidence on a prior use from a fact witness in Germany. It worked. It was very efficient. And it was used in other jurisdictions, in a parallel case in California, although the EPO said, “We are not interested in evidence; we are not going to accept it.” Klaus also had mentioned the Enforcement Directive that came into force in April 2006. Just about all Member States have enacted the Directive. I think Germany is a bit behind. JUDGE GRABINSKI: Yes. Nineteen out of twenty-seven. MR. PERKINS: It is quite interesting that it deals with things like the obtaining and preservation of evidence of infringement; it deals with the availability of provisional and precautionary measures, including preliminary injunctions, the seizure of goods, the Anton Piller-type seizures,30 the saisie contrefaçon type procedure,31 and the English Mareva injunction.32 All of these we have had in the United Kingdom since about 1970-something, but they have now been brought in as Community measures. 28 Council Regulation (EC) No 1206/2001 of 28 May 2001 on cooperation between the courts of the member states in the taking of evidence in civil or commercial matters, available at http://europa.eu/scadplus/leg/en/lvb/ l33130.htm. 29 [2004] E.W.H.C. 589 (Pat.). 30 An Anton Piller court order provides for the right to search premises and seize evidence without prior warning. The order is named for the case Anton Piller KG v. Manufacturing Processes Ltd., [1976] 1 All E.R. 779, [1976] Ch. 55 (C.A.), although the first order was granted by Templeman J. in EMI Ltd. v. Pandit, [1975] 1 All E.R. 418 (Ch.). Because such an order is essentially unfair to the accused party, Anton Piller orders are only issued exceptionally and according to the three-step test set out by Ormrod L.J. in the Anton Piller case: (1) there is an extremely strong prima facie case against the respondent; (2) the damage, potential or actual, must be very serious for the applicant; and (3) there must be clear evidence that the respondents have in their possession incriminating documents or things and that there is a real possibility that they may destroy such material before an inter partes application can be made. 31 This seizure is very efficient and is often used in practice. It is ex parte and, thus, made without any notifi-
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So at the procedural level I think you are going to see a lot of procedures will be harmonized. However, Klaus is right; there are still big differences between the common law system and the civil system, and the bifurcated system particularly in Germany. But I think we are on the road. The other thing is that there is much more cooperation now between patent judges. In fact, as a practitioner, there really is no hiding place. They are in touch with each other by email; they exchange views. They have even harmonized their approach to patent claim construction. We have the quintet of cases in Germany. We have Lord Hoffmann’s Amgen case,33 which somebody says is different from my Catnic case;34 but I think it is pretty much the same, it is just different packaging. So we are on the way. Finally, going back to twenty-five years ago when I was talking about the thenCommunity patent, which was “just around the corner,” there was great concern from the pharmaceutical industry that they would have a very valuable patent, let’s say, which could be invalided for all Member States by a nominated court in one of the countries with very little experience in patent litigation. It was asked, “What happens if your very valuable patent on Zantac, as it was in those days, was revoked by the district court judge in Thessaloniki?” There was a bit of laughter. Someone from the audience said, “So what’s the difference between that and your Justice Whitford?” So what you have to think about is our perception of other judges in less-experienced countries. I think actually they can sometimes bring a breath of fresh air. So I am ever the optimist, even though we are told the problem is bigger and bigger. Thank you all for listening. We have time for one question. QUESTION: I would like to make a comment and a bold suggestion. What if we strengthened the organic links between the European Union and the EPO to the extent that the EPO becomes an EU institution? JUDGE GRABINSKI: What about Switzerland? QUESTIONER: Forget about the difficult cases. I mean the 720-plus who are members of the European Patent Convention and not a member of the European Union. Let’s forget about them for just a minute and focus on the twenty-seven. MR. PERKINS: You have more contracting states in the EPC than you have members of the Community. So forget consensus on doing that. QUESTIONER: I know. Let’s forget about those just for a minute and focus on the twenty-seven that are both a member of the European Union and have signed the EPC. MR. NOOTEBOOM: That is an interesting suggestion. That only would tackle a particular issue, which is the democratic control over the EPO. But it does not introduce a cation to the alleged infringer. The holder of a patent or patent application must request an order from the president of the court of first instance of the place of the alleged infringement in order to be entitled to instruct a bailiff, assisted by a patent agent, to carry out investigations at the premises of the alleged infringer. The seizure may take the form of a certified description of the alleged infringement (saisie descriptive) or actually involve removing samples of any alleged infringing product (saisie réelle). It is extremely rare for the court to allow the seizure of all the infringing products. 32 The Mareva injunction (variously known also as a freezing order, Mareva order, or Mareva regime) in Commonwealth jurisdictions, is a court order which freezes assets so that a defendant to an action cannot dissipate their assets from beyond the jurisdiction of a court so as to frustrate a judgment. It is named for Mareva Compania Naviera SA v. International Bulkcarriers SA, [1975] 2 Lloyd’s Rep. 509, although the first recorded instance of such an order in English jurisprudence was in Nippon Yusen Kaisha v. Karageorgis in 1975, decided very shortly before the Mareva decision. The U.K. Civil Procedure Rules 1998 now define a Mareva order as a “freezing” order. It is widely recognized in other common-law jurisdictions and such orders can be made to have worldwide effect. 33 Kirin-Amgen Inc & Others v. Hoechst Marion Roussel Ltd. & Others, [2004] H.L. 46. 34 Catnic Components Ltd. v. Hill & Smith Ltd., (1982) R.P.C. 183.
352 SESSION V: PATENT Community patent, nor does it introduce jurisdiction in Europe to handle patent litigation. There is a third element of the long discussion in Europe that would be solved by that, which is that the EPO would come under the control of the European institutions. But it does not bring a single patent nor a single jurisdiction. MR. PERKINS: Thank you all, panelists.
SESSION V: PATENT PART C: COURTHOUSE RELATIONSHIPS
SESSION V: PATENT
Part C: Courthouse Relationships: The Federal Circuit and the Supreme Court, The Court of Appeal and the House of Lords, Member State Courts and the Court of Justice
Moderator PROF. MARTIN J. ADELMAN
George Washington University Law School (Washington, D.C.) Speakers PROF. JOHN DUFFY
LORD HOFFMANN
George Washington University Law School (Washington, D.C.)
Law Lord, House of Lords, Parliament (London)
Panelists HON. KLAUS GRABINSKI
HON. PAULINE NEWMAN
Presiding Judge, District Court (Düsseldorf)
Judge, U.S. Court of Appeals, Federal Circuit (Washington, D.C.)
PROF. SIR HUGH LADDIE
Hon. Randall R. Rader Judge, U.S. Court of Appeals, Federal Circuit (Washington, D.C.)
Rouse & Co. International; University College London
HAROLD C. WEGNER
Foley & Lardner LLP (Washington, D.C.) PROF. ADELMAN: We have an absolutely fascinating topic, the relationship between the high court and courts just below it. We have in the United States a very interesting issue, because the Federal Circuit was, in part, created to deal with the fact that Congress correctly believed the Supreme Court had done a dismal job in the patent area. To say that it was dismal would be to compliment the Supreme Court. But that was in 1982. Well, maybe the Supreme Court has forgotten why the Federal Circuit was created. In
354 SESSION V: PATENT any event, we have had some very interesting recent developments, one of them involving the KSR case,1 where the Supreme Court took a case that was unpublished, that was sent back. I have looked at the prior art. I think everybody agrees that maybe the Federal Circuit made a mistake, if you just take a piece of kluge, a piece of prior art you would never use, but it is obvious to modify it, and you get something within the claim. While most of the claim was actually directed at some useful device, this was a broad claim. It is invalid. It doesn’t matter what theory you have of obviousness; it is invalid. But it was unpublished. And I believe the Federal Circuit would have corrected it anyhow, because they sent it back to the lower court to make a few extra findings. At any rate, the Supreme Court took the case. The next thing that happens is the Dystar opinion comes from the Federal Circuit.2 Now, the Federal Circuit appeared to be writing a brief to the Supreme Court, explaining that it really was doing everything correctly. The patent was held invalid. If you look closely at the patent, you can make a pretty powerful argument that maybe it was valid. The art was close, but in 100 years BASF had never changed from practicing the prior art. Maybe there were good reasons why they did not change; maybe it was because the invention was non-obvious. Then a couple of weeks ago came the Pfizer case, involving the second-most-widelysold drug in the world, Norvasc®, which the Federal Circuit holds invalid.3 I have made a count of judges around the world who have ruled on this patent: Canada, three judges for validity, one judge for invalidity; three separate lower court federal judges in the United States held full trials on this case and they believed the patent was valid. However, three Federal Circuit judges said, “No, that’s wrong.” We could argue who is right or wrong. But there is an interesting effect, I believe, of the KSR case, which is still brooding in the Supreme Court. Maybe they realized that obviousness is more difficult than they thought from simply reading The Wall Street Journal’s or The New York Times’ relatively ignorant editorials on the subject. PROF. DUFFY: What do you really think, Marty? PROF. ADELMAN: We’ll see. If they produce a decent opinion, maybe they will add something. We can only hope and pray. At any rate, we have a very distinguished panel: Lord Hoffmann you know; my dear colleague, John Duffy, who I believe is one of the finest of the young patent academics — 1 KSR Int’l v. Teleflex, Inc., 127 S. Ct. 1727 (2007). [Note: After the conclusion on the Conference, the Supreme Court decision was handed down Apr. 30, 2007 (holding that Graham v. John Deere Co., 383 U.S. 1 (1966), controls obviousness; that “the results of ordinary innovation are not the subject of exclusive rights under the patent laws”; and warning that a rigid application of the teaching/suggestion/motivation (TSM) test as a litmus test for obviousness is inconsistent with the Graham framework; but stopped short of rejecting the TSM test outright. Simply put, the TSM shortcut for an obviousness analysis is no longer available. The Court’s decision immediately focuses the obviousness spotlight back onto the framework that has controlled the issue for more than forty years, forcing everyone who has grown comfortable with the TSM litmus test shortcut (including the Federal Circuit, the Patent and Trademark Office, and the patent bar) to return to full and proper Graham analyses when assessing the obviousness of patent claims. Importantly, the Court’s opinion touches on several other issues, including the roles of “hindsight bias” and common sense in an obviousness inquiry, a question about the rationale for affording a presumption of validity to the patent-in-suit, which avoided a Graham analysis during prosecution, and a rejection of the rigid rule that “obvious to try” is per se insufficient to show obviousness. Decision available at http://www.supremecourtus.gov/opinions/06pdf/ 04-1350.pdf.] 2 Dystar Textilfarben GmbH & Co. Deutschland KG v. C.H. Patrick Co., 464 F.3d 1356 (Fed. Cir. 2006), cert. denied, 127 S. Ct. 2937. 3 Pfizer, Inc. v. Apotex, Inc., 480 F.3d 1348, 2007 U.S. App. LEXIS 6623, 82 U.S.P.Q.2d (BNA) 1321 (Fed. Cir. Mar. 22, 2007), reh’g denied and reh’g en banc denied, 488 F.3d 1377, 2007 U.S. App. LEXIS 11886, 82 U.S.P.Q.2d 1852 (Fed. Cir. May 21, 2007), cert. denied, 128 S. Ct. 110 (2007).
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I say young because I think of him as young, but he is very mature and absolutely brilliant; then we have Judge Grabinski, from whom we have heard earlier; Hugh Laddie needs no introduction; Pauline Newman needs no introduction; Judge Rader needs no introduction; and Hal Wegner. With that, I turn it over to Lord Hoffmann. LORD HOFFMANN: The relationship between the higher courts and the lower courts — and also I am going to mention some courts that are outside our system altogether — depends very much upon whether you are an insider or an outsider. Reading what people outside say about the relationship between the U.K. Court of Appeal and the House of Lords, I frequently do not recognize it. I would suspect that this is equally true, even more intensely so, in the United States, where a great deal of effort is focused upon what the court thinks it is getting up to, what the different views are of the Justices in the Supreme Court, how they are likely to react — this, that, and the other. There is not a great deal of that in the United Kingdom, because we are pretty well anonymous. Nobody much cares. But it certainly does look different from outside. I can only give you an inside view. Therefore, that means that such questions as whether, as Marty said, the House of Lords, like the Supreme Court, did a dismal job on patents is not really for me to say. Occasionally, I read comments and criticisms and so forth by other people, but all I can say is how the matter looks to me. You cannot really compare the relationship between the House of Lords and the Court of Appeal with the relationship between the Federal Circuit Court of Appeals and the Supreme Court without taking into account who they are, where they come from, how they are actually appointed, and what their personal relationships are. In the United Kingdom, we have a House of Lords with twelve members. All of them have been members of the Court of Appeal for varying periods, sometimes as few as two years, sometimes as long as eight years. But they have all been members of the Court of Appeal or members of the equivalent court in Scotland or Northern Ireland. Of the twelve of us, two are Scots and one is Northern Irish. We come from the same background. We know the people who are in the lower courts. Likewise, everybody in the Court of Appeal has had a turn as a High Court judge — that is the equivalent of a federal district judge — and has done trial work, and has done that for periods varying between four and nine years. In my own case, I was seven years a High Court judge, I was two and a bit years in the Court of Appeal, and then for the last twelve years I have been in the House of Lords. We are small in number. There are twelve in the House of Lords. There must be just over forty in the Court of Appeal. In the High Court there are about a hundred. I will come in a moment to the question of those who are dealing with IP, where the matter is much more restricted. So the English judiciary is a village — or perhaps the more appropriate metaphor would be a monastery, because on leaving practice we all took a vow of poverty. [Laughter] But we all know each other, and have known each other since we were members of the bar litigating cases against each other. That makes a great difference to relationships between courts. You know the person personally and you have a respect for his opinions, not as a member of a particular court, but as a person. Coming to IP, that makes a great deal of difference to the way in which we deal with IP cases. We have had — I am looking back now over the last twenty years during which I have been a judge — powerful specialist IP judges at the first instance. In those twenty years, we have had William Aldous, Robin Jacob, Hugh Laddie, and now Nicholas
356 SESSION V: PATENT Pumfrey and David Kitchin. They are serious people, and one views what they say with great respect. When one comes to the Court of Appeal, specialization drops out. At any given moment, we are likely to have in the Court of Appeal, out of forty judges, one ex-specialist of those that I have mentioned (of those that I mentioned, three of them have gone at one stage or another to the Court of Appeal) and perhaps one, maybe two, what I might call amateurs — that is, those who did not specialize in IP but who had an interest in it and were occasionally drafted to deal with cases where, for example, the specialist judges were conflicted, because it was a case which had been going on for fifteen years, in which they had been advising when they were members of the bar. So there was need for these supplementary judges. In that way, some of us picked up an interest in IP. I was an amateur when I was in the High Court. I did, I think, one patent trial and a certain amount of IP work, and then got more interested in it when I went to the Court of Appeal. In the House of Lords, again, there are no specialist judges and only one amateur — that is me. Now we have just gained another one in the appointment of David Neuberger from the Court of Appeal. He was the trial judge in the Kirin-Amgen case,4 did what seemed to me to be an absolutely first-class job in that case, took an interest in the subject, did it in the Court of Appeal. He was only there for a very short time. Now he is in the House of Lords. He is going to be there for a long time. I am retiring in two years’ time. He is going to be there for another sixteen or seventeen years. So you are going to hear a lot about him. That personal relationship is, I think, very important to the way in which we deal with IP cases. But it is not just the relationship between the English courts. You must also bear in mind that, because we are members of the European Patent Convention,5 we pay the greatest attention to what is going on in the European Patent Office (EPO) and also what is going on in the domestic courts of other Member States. On the interpretation of the Convention, we do not want to get out of line. What we have there is what I hope might be called a dialogue between our courts and the EPO and the courts of the other Member States. We do not simply follow them blindly. We follow them if we think we possibly can. If we think that perhaps things could be put slightly differently, we will give a judgment that is addressed to them and then we wait and see how they react to that. For example, on the question of the patenting of business methods, Robin Jacob in the Court of Appeal has just given a judgment in which he has analyzed in the greatest detail decisions of the European Patent Office (EPO) over the past twenty years on this subject, pointed out that they go somewhat in different directions, and invited the EPO to reconsider the matter and to give a firm direction.6 If they give a firm direction, then I daresay we shall follow it.7 So there is a close link in that way. There are personal links. David Perkins was talking earlier about the personal relationships between the English judges who are interested in patents and those in Germany and 4
Kirin-Amgen, Inc. v. Hoechst Marion Roussel Ltd., [2005] R.P.C. 169. Convention on the Grant of European Patents, signed at the Munich Diplomatic Conference for the Setting up of a European System for the Grant of Patents on Oct. 5, 1973, 13 I.L.M. 270 (1974), 1160 U.N.T.S. 231, available at http://www.epo.org/patents/law/legal-texts/epc.html [hereinafter European Patent Convention]. 6 Aerotel Ltd. v. Telco Holdings Ltd. and Others and Patent Application by Neal William Macrossan, [2006] E.W.C.A. 1371 (Civ.) (Jacob, J.), available at http://www.ipo.gov.uk/2006ewcaciv1371.pdf. 7 See Letter from Alain Pompidou, EPO President, to Lord Justice Jacob, available at http://www.ipo.gov.uk/ patent/p-decisionmaking/p-law/p-law-notice/p-law-notice-subject matter/p-law-notice-subjectmatter-letter.htm. 5
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the Netherlands. For example, when I was having to draft the opinion in the Kirin-Amgen case, I sent, in confidence, a copy of that opinion before it was published to Peter Meier-Beck of the Bundesgerichtshof, their panel, and said to him: “What have you got to say about this? What do you think of it? What comments have you got to offer?” I was extremely anxious that we should stay in line. It does seem to me that the comparisons between the situation in Europe, as a matter of the relationship between courts and the relationship between judges, is very different from that which exists in the United States, where the judges come from different backgrounds, they are appointed in different ways, they have not necessarily come up, all of them, in this absolutely uniform way in which English judges are appointed, and possibly they do not know each other as well as we do. Thank you very much. PROF. ADELMAN: Thank you, Lord Hoffmann. John. PROF. DUFFY: Thank you, Marty. I have written previously about the relationship between the Federal Circuit, in particular, and the Supreme Court. In 2002 I predicted that the Supreme Court was in the process of returning to patent cases and the patent bar in general.8 At the time it was somewhat of a radical view. There were two competing views. There was an article published nearly simultaneously about the patent system in the age of the “invisible Supreme Court.”9 I think time has shown that, even then, you could see that the Supreme Court was reentering the patent system. That is history now. That is a point we can all agree on at this time. Even if Marty thinks it may not be a great thing that the Supreme Court is back, it certainly is back. The one point I want to talk about today is that at the very end of that article, I said that each case that comes to the Supreme Court of the United States from the Federal Circuit comes with a subtext about the proper relationship between the generalist Supreme Court and the specialist Federal Circuit. I suggested that the relationship between the courts would work best if each practiced the virtue of humility, to some degree. Lord Hoffmann used the word “respect.” I think that is a very similar concept. But the respect or humility that the courts need is not generated by personal relationships, as it is in the English system. Therefore, I think our judges have to be a little bit more self-conscious about trying to understand the perspective and the capabilities of the other court. With respect to the Supreme Court, I think its strengths are that it has a more general perspective and can put intellectual property law in a broader context with, let’s say, general property theory or general judicial theory of remedies. I think it tried to do that in many of its cases, most prominently the eBay case,10 where the Supreme Court said to the Federal Circuit: “The general rules granting injunctions are the general rules that you have to apply in your case law.” But the Court also did, I think, the correct thing, which was to remand the case back to the Federal Circuit, with a great degree of flexibility about how those general principles will actually apply in the specialized circumstance of the patent context. Indeed, they actually seemed to give the Federal Circuit two options, 8 See John R. Duffy, The Festo Decision and the Return of the Supreme Court to the Bar of Patents, 2002 Sup. Ct. Rev. 273 (2002). 9 See, e.g., Mark D. Janis, Patent Law in the Age of the Invisible Supreme Court, 2001 U. Ill. L. Rev. 387, 387 (2001). 10 eBay Inc v. MercExchange, LLC, 126 S. Ct. 1837 (2006).
358 SESSION V: PATENT in two concurring opinions, almost inviting the Federal Circuit to explain which of the options is the superior option in the patent context. The Federal Circuit’s strength is its expertise in the patent system and its day-to-day contact with all of the other actors in the patent system, including the Patent Office and the trial judges who have to try cases. The Supreme Court, I think, has the de jure position to control the pace of the law, the development of the law in the patent area, by establishing binding precedents for the nation. But, really, the Federal Circuit has the de facto ability to actually control the pace of the law and the implementation of the law, because the Federal Circuit sees so many patent appeals in a year. I think that without some degree of humility and respect for each institution’s strengths and each institution’s weaknesses, the relationship will not work very well. In terms of how the relationship is going, I think there are some mixed results. There are some rather famous cases, visible cases at least, where you might say that the courts have seemed somewhat hostile to each other. In the recent argument in KSR, the Chief Justice and Justice Scalia made comments that seemed — well, favorable to me, because I actually represented one of the parties —somewhat troubling. Justice Scalia said of the lower court’s law, “This is gobbledygook. It really is, it’s irrational.”11 I don’t think that was a terribly helpful comment. The Chief Justice, who is usually more reserved, actually said that “it’s worse than meaningless.”12 Though it was somewhat helpful for me in my narrow interest, because I was representing one side of that, as a professor, I thought this was not entirely consistent with what I had written in 2002 about how courts are supposed to respect each other and have some sense of their institutional limitations. I think if the Supreme Court cannot understand what the Federal Circuit is saying, it needs to try a little bit harder. So too with the Federal Circuit. If the Federal Circuit cannot understand what the Supreme Court is saying or cannot understand the more generalist perspective, it too needs to try a little bit harder. I want to close by talking about three more specific things about the relationship between the Supreme Court and the Federal Circuit in our system. In general, these three things, I think, go to the question of whether the two circuits are actually developing a good relationship. One is a statement that you hear quite often today, that the Supreme Court seems to be reversing the Federal Circuit an awful amount, and that that might be one indication that the Supreme Court has lost confidence in the Federal Circuit. I think this is pernicious. I think it is wrong. First of all, all circuits at the Supreme Court have an average of getting reversed more frequently than they get affirmed. That is just a function of the Supreme Court’s docket. The Supreme Court can choose which cases it hears, so it often chooses cases in which it thinks the lower court decided the issue incorrectly. So all circuits get reversed more than they get affirmed. Another important factor here is that the Court has increasingly asked the government — the Solicitor General’s Office and the Department of Justice — whether the Court should grant certiorari. The government is a very respected player at the Supreme Court and is very good at predicting which way the Supreme Court will come out on an issue. So 11 KSR oral argument, Tr. at 41, available at http://www.supremecourtus.gov/oral_arguments/argument_ transcripts/04-1350.pdf. 12 Id. at 40.
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they often, on important issues where I think the Supreme Court if it took the case would affirm the Federal Circuit, tell the Supreme Court not to take the case. They tell the Supreme Court that the approach taken by the Federal Circuit is correct and the Supreme Court denies certiorari. A fairly famous case of that was the case SmithKline Beecham v. Apotex, which was written by Judge Rader.13 The Supreme Court asked the Department of Justice whether it should grant certiorari. The Department of Justice came back and said, “No. This is perfectly correct. Everything that was said below is correct.” The Supreme Court denied certiorari. That does not go into the statistics of affirmances, so people do not see that. It is a little less visible. But it is a case in which I think the Supreme Court was confident that the Federal Circuit got it right, and that explains why certiorari was denied. The second major point that I want to make is that even though the Federal Circuit gets reversed on individual issues by the Supreme Court, individual judges on the Federal Circuit are oftentimes in agreement with the Supreme Court. For example, there is a case right now at the Supreme Court, Microsoft v. AT&T,14 which came from a split panel. Judge Rader dissented from the panel majority.15 No matter which way the Supreme Court rules, it is going to affirm the views of one side of that debate in the Federal Circuit.16 Also on issues of deference to the district court, there is a deep split right now on whether the Federal Circuit should defer to the rulings of a trial court. If the Supreme Court takes that case, which many people think likely, the Supreme Court, no matter which way it rules, will endorse one side of that debate. So it is not a complete rejection of the entirety of the Federal Circuit’s jurisprudence. Even on some of the individual issues that the two Federal Circuit judges here feel strongly about, the Supreme Court precedent is more in their favor, even though a majority of their colleagues are against them. I think that Judge Rader on the deference issue is probably more consistent with the Supreme Court law. Judge Newman’s opinions on infringement are very close to Supreme Court precedents in their basic approach. So those are issues where, if they do make it to the Supreme Court, the opinions of individual judges will triumph, even if the Federal Circuit loses. In closing, I have one last idea, which I have six seconds to deliver. I have written a paper suggesting that it would be helpful for this process of dialogue that at least one additional circuit court, one additional intermediate court, be created.17 I think that would create a dialogue at the intermediate appellate level, a dialogue among peer institutions. The dialogue between the Supreme Court and the Federal Circuit is a very difficult dialogue to have, for a variety of reasons. I think it would be helpful if another court had jurisdiction and could have a respectful dialogue with the Federal Circuit on the major issues of patent law of the day. I think that would be helpful, and I hope we have time to discuss that idea. 13
SmithKline Beecham v. Apotex Corp., 365 F.3d 1306 (Fed. Cir. 2004). Microsoft Corp. v. AT&T Corp., 127 S. Ct. 1746 (2007). 15 AT&T Corp. v. Microsoft Corp., 414 F.3d 1366 (Fed. Cir. 2005) (Rader, J., dissenting) (“Had Congress intended to give extraterritorial effect to U.S. patent laws, it would have expressly stated so. Instead, Title 35 expressly limits liability under § 271(f) to activities occurring in the United States that result in the literal shipment of components in or from the United States.”) Id. at 1374. 16 Microsoft, 127 S. Ct. 1746. [Note: The case was decided on Apr. 30, 2007 (holding that to be liable under § 271(f), a U.S. infringer must manufacture and ship tangible components from the United States that are later incorporated into an infringing device).] 17 Craig Allen Nard & John F. Duffy, Rethinking Patent Law’s Uniformity Principle, 101 Nw. U. L. Rev. 1619 (June 2007). 14
360 SESSION V: PATENT Thank you. PROF. ADELMAN:
Thank you, John. Let’s move on to Judge Grabinski. Perhaps you and Sir Hugh could talk about the relationship between the national courts in Europe and the European Court of Justice (ECJ) in the same way as we’ve heard from Lord Hoffmann and John Duffy. JUDGE GRABINSKI: Concerning the relationship between German courts and the ECJ, from my perspective, frankly, I cannot say too much, because I am practicing patent law, and patent law is not dealing with Community law. But we also deal with Community plant variety rights, and in this respect we once made a reference to the ECJ, and we also made some suggestion how to resolve the question we asked to the ECJ. In this particular case, the Advocate General obviously did not take the same line as we had. But then — and this is quite exceptional — the ECJ followed our line. So we were quite satisfied with the result of this case.18 PROF. ADELMAN: Let me then ask you about your relationship to superior courts in Germany. JUDGE GRABINSKI: This is to some extent similar to the situation in the United States, as I understood your talk, and to some extent similar to the situation in the United Kingdom. In Germany, you have a lot more judges than in the United Kingdom. If you look at the general situation, then you will rarely find a personal relationship between the judges of the three court levels. But the situation is quite different as soon as patent law is concerned, because obviously there are only a few courts that have jurisdiction, at least in the real life. In most cases, they only go to three or four district courts, and then they go from one district court — take the example the district court of Düsseldorf — to the respective court of appeal and then to the Supreme Court. Since there are only a few judges involved, they get to know each other quite soon, in particular if you are working for a long period in this field, and usually you do. Because you have to specialize, you have to gain experience. I can say that there is also this mutual respect that you find in the United Kingdom. So the situation is quite similar. PROF. ADELMAN: Hugh, do you want to comment on Lord Hoffmann’s comments? PROF. LADDIE: Yes. Can I talk about the relationship between the national courts? Of course, I talk from the perspective of the U.K. courts’ relationship with the ECJ. It is great stuff to read about. It is always painted in Technicolor — you know, there is this toe-to-toe fight; we try to hit the ECJ in the knees, then they thump us on the chin — it is great reading. It is not really like that at all, not most of the time anyway. I want to develop something Lord Hoffmann said. I think it is really quite important, particularly for those who are not judges and have never been judges, to appreciate that there is a remarkable consistency amongst judges, that they think that their job is to do the job properly for the benefit of the users of the system. So there is no place for petty rivalries and to say, “I’m just going to disagree with So-and-So because I don’t like him or her.” What you are trying to do is to apply the law correctly in relation to the case that is in front of you. That is, by far and away, the most important principle. In Europe, we have a quasi-federal state, I am glad to say, with effectively a federal supreme court, and that court tells us what the law is on European issues. I think it is essential that we have that and it is an extremely good thing for Europe. 18 Case C-305/00, Christian Schulin v. Saatgut-Treuhandverwaltungsgesellschaft mbH, EuZW 2003, 404, E.C.J. (Fifth Chamber) (Apr. 10, 2003), available at http://eur-lex.europa.eu/JOHtml.do?uri=OJ:C:2003:135: SOM:EN:HTML.
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But there is one other feature of British judges, which I think Lord Hoffmann did not refer to, which is worth putting into the equation. The overwhelming majority of U.K. judges were members of the bar for about twenty-five years before going on the Bench. When you get to the top of the bar, under the system that used to exist until about two or three years ago, you are invited by the government to become a judge. Barristers are, by training, exceedingly independent. They also become, unfortunately, extremely opinionated. That is a fact of life. So you end up with a judiciary made up of very, very independent-minded and very opinionated judges. Our system of giving judgments encourages the opinionated side because we do not give communal judgments; each judge expresses his or her view. So there is a real emphasis on being your own person. This has a remarkable effect, for example, when it comes to disputes between the government, cases against the government. Our courts are remarkably independent. They do not in any sense feel that it is their job to support the government because it is the government on legal issues. We think it is our job to look at the facts and the law independently. This has an impact on our relationship, I’m afraid, in the case of IP law and Europe. It is not telling any secrets that there have been differences of view as between the U.K. courts and the ECJ on IP issues. The ECJ would be, to use Lord Hoffmann’s words, made up of amateurs as far as IP is concerned. It is necessary that that is so because the ECJ has one judge from each country and it has to cover the whole spectrum of law that is covered by the European Union. What happens then is that very opinionated British judges think they understand what the law is. Matters are sent off to the ECJ. A group of what may be regarded, probably unfairly, as amateurs come to a conclusion, sometimes a conclusion that is extremely badly expressed so that it is not quite clear what is being said. Then you end up with the English courts not reacting as well as they ought to. The most recent example of this relates to repackaging of pharmaceutical goods. There was a big case called Boehringer. I sent a reference to the ECJ.19 They came to some conclusions that I thought were wrong.20 They sent the case back. I applied the law as I thought they had said it — even though I did not think it was right, that did not matter; that is what they had said — and sent it to the U.K. Court of Appeal.21 Lord Justice Jacob obviously did not like what the ECJ said, and so he sent the whole lot back again and asked them a whole new series of questions.22 It looks like he is asking new questions, 19 Glaxo Group Ltd v. Dowelhurst Ltd; Boehringer Ingelheim KG v. Dowelhurst Ltd; Boehringer Ingelheim KG v. Swingward Ltd; Eli Lilly & Co v. Dowelhurst Ltd; Glaxo Group Ltd v. Swingward Ltd; SmithKline Beecham Plc v. Dowelhurst Ltd., [2000] 2 C.M.L.R. 571, [2000] E.T.M.R. 415, [2000] F.S.R. 529 (28 Feb. 2000) (Laddie J.). Following his judgment, Mr. Justice Laddie referred a number of questions to the ECJ in relation to the “necessity” and “specific subject matter” (non-damaging to the trade mark) tests. 20 Case C-143/00, [2002] E.C.R. I-3759 (23 Apr. 2002) (holding that a parallel importer must fulfill all the BMS conditions even if the repackaging causes no harm to the specific subject matter of a trade mark; and that repackaging is necessary where effective access to the market is hindered as a result of strong resistance from a significant proportion of consumers to relabeled products). 21 Following the ECJ judgment, the cases went back before Mr. Justice Laddie, who gave his second judgment on Feb. 6, 2003. 22 Both parties appealed. Glaxo Group Ltd v. Dowelhurst Ltd., [2004] E.W.C.A. (Civ.) 290 (Mar. 15, 2004) (Jacob J.). The Court of Appeal referred questions to the ECJ concerning the following areas of continued uncertainty: (1) where the burden of proof should lie in relation to the BMS conditions; (2) whether the necessity test applies merely to the fact of repackaging or also to the manner of repackaging; (3) whether damage to the reputation of a trade mark encompasses anything, not just defective, poor quality or untidy repackaging or relabeling; (4) whether the BMS conditions apply to a product which has simply been over-stickered; (5) whether de-branding or co-branding are to be regarded as damaging; (6) whether failure by the parallel trader to give notice
362 SESSION V: PATENT but what he is really saying is “I don’t like what you said the first time around.” I am not sure that is a good way of proceeding, but I’m afraid it is the reality. As to the relationship between us and our European colleagues at the national court level, I think most people would be amazed at how much respect we give to our colleagues’ judgments. As far as we are concerned, they are treated as the product of really able lawyers at the same level as us. PROF. ADELMAN: Thank you, Hugh. Now I’m going to ask Judge Newman and Judge Rader about the relationship between the Federal Circuit and the Supreme Court and to comment on what Professor Duffy had to say. Polly, do you want to go first? JUDGE NEWMAN: I am pleased to follow Professor Duffy because he raises points that are important for all of us to have in mind when we consider our court and its context with the Supreme Court. The way one views how the Federal Circuit handles its cases depends on the background of the observer. Many people look at our court and call it “the patent court.” Many more people call it “the government contracts court.” Others know that we are the successor to the Indian Claims Commission and look at our court in terms of its jurisdiction of Native American claims. Or they will look at our tax cases —for instance, we recently declared unconstitutional the export tax — and see us as a dominant court in the tax area. Others look at our court as “the Customs court” because we receive all of the appeals from the Court of International Trade on Customs duties, countervailing duties, dumping cases, and so on. There also are the appeals of veterans’ claims. We are the exclusive appellate body for statutory and constitutional issues arising from the court of appeals for veterans’ claims. There also are the federal employment cases. We are the judicial body of appeals for federal employees, including military cases. The way to think about the court and the way to describe it is, yes indeed we are experts. We are experts in the defined statutes that are assigned to us. There are some twenty-five, I think. All of these cases have raised important policy questions that have taken the attention of the Supreme Court. The percentages, if one counts percentages — and I am benefiting from some of the counts that Professor Duffy has made because they are so complete — show that the ratio of patent cases that our Supreme Court has taken to review is in almost direct proportion to the percentage of patent cases that are decided in our court. Another interesting observation is, when you look at the number of petitions for certiorari in patent cases, as in others, that are taken to the Supreme Court, the ratio is even lower, less than 1 percent, I think; whereas in our Native American cases the Supreme Court has taken a significantly higher percentage of cases on appeal. Now, these are all very important issues, and they all raise important policy issues. This current agitation about the relationship between the Federal Circuit and the Supreme Court in patent cases has caused me to look at the overview. Since the beginning of the Federal Circuit twenty-five years ago, there has been a grant of certiorari petition to the trade mark owner per se means that all products subsequently imported are infringing, and, if so, what relief should be. Case C-348/04, Judgment of ECJ (Second Chamber), upon the second reference in the Boehringer Ingelheim v. Dowelhurst parallel import proceedings (Apr. 26, 2007), available at http://www.lawreports.co.uk/ WLRD/2007/ECJ/apr0.1.htm.
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in twenty-four or twenty-five cases — it has increased by one, a tax case, in the last couple of months. A quite small number overall. As you look at those cases in the patent field, they are policy issues, important questions of national commercial policy. For instance, how is industry or competition affected by precedent in the patent field, for in most of the areas in which the Supreme Court has accepted petitions concerning Federal Circuit cases, the Supreme Court has already spoken. There is a significant body of basic law in many of these areas in which, because of the fairly large number of appeals in recent years, there have been refinements and elaborations that can be challenged in the specific context of the case. I was interested to see that in one of the decades at the heart of the Industrial Revolution, in the 1870s or 1880s, our Supreme Court took 151 patent appeals. So if you look at the numbers, it is hard to make much out of where we are now. There is what I have called a “spike” in the last year or so, of six or seven petitions that have been accepted by the Supreme Court, preceded by a dearth of one or two per year in the preceding decade. So one can say that there is more interest. But much more likely, it seems to me, is that it has finally penetrated to those senior jurists what has happened in industry and in commerce and in technology in the United States and in the world; and in trade the increasing globalization of patent, copyright, and trademark issues; the increasing dependency on technological advance; the extreme importance to the nation and to the world of striking the right balance. I should say as an aside that I think we make a point on our court of speaking out and expressing and recording the differences of opinion among our judges, so the various viewpoints that have been considered and accepted or rejected are known to the public. It is hard to find an area of litigation within our court that is more pervasive in its policy impact on the nation, on the public interest, of the balance between competition among existing products and technological advance based on the new products. These are opposing poles of how the patent system works — the time limits on patent life, the criteria for patentability — that the Patent Office and the courts are attempting to apply, in searching for the optimum balance. Now, the losing party in these litigated issues always has something important to say. Those voices are more vigorous than they have been in the past because there is much more involved, much more at stake. As I said yesterday, I very much welcome the judicial and national attention that this debate is receiving because there is so much misinformation that has been spread, including misinformation spread by patent insiders who do not represent the larger picture. The courts, however, are concerned with the overall balance in the public interest, the balance between emphasis on technological advance and emphasis on competition on existing products, even if it slows technological advance. So when you look at the relationship between us and the Supreme Court, look at it in that context. It is not a personal relationship. It is not a matter of personalities. I see it as a matter of recognition of the burgeoning national interest in these areas and speaking out as well as we can to get it as right as we can. PROF. ADELMAN: Thank you, Judge Newman. Judge Rader? JUDGE RADER: Let me address the Federal Circuit’s identity crisis and whether or not the Supreme Court is the best therapist. With every case, with every major issue confronted by the Federal Circuit, we undergo an identity crisis battle. It is present in every en banc reconsideration, it is present in every case, as we try to decide, individually and as a court, are we just another court of appeals
364 SESSION V: PATENT taking in the confluence of federal jurisprudence appeals from lower courts, handling them according to standard procedures, and occasionally receiving review from the Supreme Court? Or are we a court of special creation, with a mission to achieve uniformity in the adjudication of patents, to ensure that patents are uniformly applied and enforced, even — if you go back to the 1982 creation and before — with a mission to improve competitiveness of the United States and rescue an economy with a policy of innovation? Does the Federal Circuit have an agenda, an economic competitive agenda, an uninformative agenda; or is it a neutral judicial body with the same powers as every other circuit? Let me show you how this plays out, for instance, with the big issue that is continually hashed over in this kind of conference, the standard of review for claim construction. If you believe the Federal Circuit is a circuit, just as the Ninth Circuit or the D.C. Circuit, then you will say, “Of course it receives determinations made by lower courts, gives them appropriate deference, particularly in areas where there has been fact finding,” and therefore you would perceive a need for deference. On the other hand, if the Federal Circuit has an agenda, a mission — it was given a mission by its creation — then it must maintain the discretion in each case to ensure that the patent is being properly and uniformly enforced, to ensure that competitive forces of innovation are properly being balanced with competition, the beautiful remarks of my colleague taken into consideration? Which is it? Well, the court has said both things. We have an identity crisis on occasion. Now, is the Supreme Court the best therapist for that great problem which confronts the Federal Circuit, because it is unlike not every other judicial institution in the United States, but every other judicial institution in the world? Where else in the world do you find the policy for an entire nation, indeed the most powerful economic nation in the world, on the cutting-edge of economic law, patent law and innovative products that form the marketplace for the global market, set by, on occasion, two out of three judges? That was an incredibly aggressive thing done by the United States in 1982. Is the Supreme Court the one, however, to step in and decide whether the Federal Circuit should pursue this agenda that it apparently was given in 1982, or whether it should with humility, to use the words of Professor Duffy, drop back into a position more like that of every other circuit? Now, the Supreme Court has, to use an ill-timed word here, an agenda in making that resolution. Its agenda is to, of course, do that which it is most comfortable with. It reviews every circuit according to a similar procedure. It feels like its mission, to use the thoughts of Professor Duffy, is to get the global view of the law, see the jurisprudential landscape, and put the Federal Circuit’s decisions in the proper box. But notice that identity crisis that puts them on one direct side of the equation. Is that the proper side? Well, perhaps. Perhaps you could argue that while in 1982 the uniformity was necessary, because of the aggressive economic competition, the balancing of the forces that my colleague discussed, maybe we have evolved to a point now where the Federal Circuit should reconsider whether that mission was really given to it and whether it has an agenda or not. But notice that the Supreme Court is not considering whether there was something given to the Federal Circuit to do in 1982. It has dismissed that point and is pursuing one side of the identity crisis. I think the best therapist is the one who approaches the identity crisis neutrally. Let’s hope that our psychiatrist is able to handle this particular patient. PROF. ADELMAN: Thank you, Judge Rader.
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Before we turn to Hal, as we are dealing with psychology here, I wonder why the Supreme Court allowed that. If you read the transcripts, which are now published, of the oral argument that day, it is amazing. Why do they allow it? In IP cases they should suppress it. They look so bad and the counsels are so bad. I can argue, even though Professor Duffy wants to defend the MedImmune case,23 that is a perfect example of not giving you one reason why they made that policy choice. Professor Duffy said they did not make a policy choice; they had some idea of what a case or controversy is and that is all they were thinking about, that they were not thinking about the implications of anything. But at least Mr. Justice Thomas told them what the implications were. So they rejected it all. Very embarrassing stuff. The KSR arguments you do not want to read.24 You really cannot read it on a full stomach. So I do not know how they actually are going to be the psychiatrist. Maybe they need some psychiatric help. Hal, and then I want to take questions from the audience. We have had a terrific discussion. MR. WEGNER: Just a couple points. First of all, the best therapist is not the Supreme Court. I have always been reluctant to see the Court take certiorari in patent cases because they deal so infrequently with patent cases. There are two views of Supreme Court reviews of patent cases. The predominant view, which I have heard expressed on this panel — and I heard it in California on February 20th and other places —shows that the jurisprudence of the Federal Circuit is very important. That is a good reason to grant certiorari. Indeed, we have various en banc Federal Circuit cases where ideas are developed very thoughtfully by both the majority and the dissenting opinions. I think that helps. But there is a second aspect. I think Professor Duffy did tantamount to calling the Supreme Court really the “en banc policemen.” In the Microsoft case,25 there has been balkanization of panel precedent in this area, and it forced the Supreme Court to play the role that the Federal Circuit should have done en banc. There are several areas where the Federal Circuit looks less than optimum in terms of its legal skills and scholarship, for example, the Voda v. Cordis case came out in February.26 Did you know that the Paris Convention27 was only implemented in the 1970s? Read the opinion. I could go on for about three or four hours on that majority opinion. The court must take responsibility for what it is doing. Claim construction has gone berserk in the Markey period.28 If you look at the twenty-five-year period of the Federal Circuit, break it into two eras: during the first ten years of the court there was 0.7, less than one, per year split panel, set of panels in claim construction per year; in the eight-year period Professor Moore had studied just before
23 MedImmune, Inc. v. Genentech, Inc., 427 F.3d 958 (2005), vacated and remanded, 127 S. Ct. 764 (2007) (No. 05-608), available at http://www.supremecourtus.gov/opinions/06pdf/05-608.pdf. 24 KSR Oral Argument Transcript, available at http://www.supremecourtus.gov/oral_ 25 Microsoft Corp. v. AT&T Corp., 127 S. Ct. 1746 (2007). 26 Voda v. Cordis Corp., No. 05-1238, 2007 WL 269431, at *15 (Fed. Cir. 2007). 27 Paris Convention for the Protection of Industrial Property, Mar. 20, 1883, as last revised, Stockholm, July 14, 1967, 21. U.S.T. 1583, 423 U.N.T.S. 305. 28 Howard T. Markey, first Chief Judge of the Federal Circuit (and the last Chief Judge of the Court of Customs and Patent Appeals), retired in 1991.
366 SESSION V: PATENT Phillips,29 it was 4.5 per year, thirty-six in eight years. Since Phillips it is at the rate of nine per year.30 The court has to do a better job of resolving its dirty laundry. If the view is, “We shouldn’t en banc cases because it exposes our cases to scrutiny,” it is much better to bring that out now and either rehear the case by a panel or do things en banc than to let scholars — if I wanted to have a whole-semester course, I would give Voda v. Cordis as a course. I imagine some professors are going to do that. My new name for that is the “Voda patent piñata.” It trumps everything else I have seen in years. The court will have a healthy relationship if it does en banc cases. PROF. ADELMAN: Hal, that one is not over in terms of what the Federal Circuit is going to do. MR. WEGNER: Then I don’t understand. PROF. ADELMAN: I do not want to get too far off-track here. We are talking about the relation to the Supreme Court. MR. WEGNER: All right. Let me just finish, Marty. I think that the importance of patents will require the Supreme Court to take cases. If they are properly presented, it will enhance the reputation of the Federal Circuit. PROF. ADELMAN: Let’s take some questions from the audience. Judge Hughes. QUESTION [Judge Roger Hughes, Federal Court of Canada, Ottawa]: In the Kirin-Amgen case that Lord Hoffmann referred to twice, the House of Lords took special instruction from a professor — I think from Oxford, possibly Cambridge — for one morning each of three successive Tuesdays in a very difficult area of biotechnological science. I think not only is the patent law difficult, but the subject matter of patents, especially when you get beyond the edge and into electronics and pharmaceuticals and biology, is very difficult too. What is your thought on the highest court getting in effect — and I am not going to call it fresh evidence — a refresher course, if I can call it that, on the subject matter of the lawsuit? PROF. LADDIE: It is very interesting. First of all, you must understand that the technical advisors who were supplied to the House of Lords were not there to tell them what the facts were at all. Indeed, if you read the House of Lords’ decision in the Kirin-Amgen case, it is not a decision about facts; it is about the policy to be applied when deciding what is the scope of patents. What they were using the technical advisor for was to put them in a position where they could actually understand the judgments below, because the judgments below included technology. If you read the Kirin-Amgen case, frankly you could get rid of all the science. The only value in that case is its direction given to U.K. courts, unfortunately, on how to construe patents. So it is not giving new evidence to the court. QUESTIONER [Judge Hughes]: Just to follow up, is that unique? Is that the first time it has ever been done? PROF. LADDIE: No. QUESTIONER [Judge Hughes]: Secondly, would you suggest that that is something that should be done in other cases? 29 Phillips v. AWH Corp., 363 F.3d 1207, 1216, 70 U.S.P.Q.2d (BNA) 1417, 1423 (Fed. Cir. 2004), vacated, 376 F.3d 1382, 71 U.S.P.Q.2d (BNA) 1765 (Fed. Cir. 2004). 30 Kimberly A. Moore, Judges, Juries, and Patent Cases – An Empirical Peek Inside the Black Box, 99 Mich. L. Rev. 365 (2000) (validity of litigated patents upheld in 67% of cases in study sample – 64% of bench trials; 71% of jury trials).
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PROF. LADDIE: It is not the first time it has been done. In one of the very first genetic engineering cases, the Court of Appeal had Sidney Brenner, a Nobel Laureate, as a technical advisor. And certainly when I was a judge, there was one case that involved a specialist type of electronics, and I asked for the Patent Office to send a technical advisor to sit with me. It was a disaster because they misunderstood the request and they sent me somebody who knew nothing about the technology at all. So it did not work very well in that case. That said, I think it is actually one of the weaknesses of the way patents are determined, certainly at first instance, and maybe also on appeal. Normally, one of the most important issues is obviousness. I think it is a weakness in the United Kingdom that the courts are entirely made up of lawyers. At the end of the day, who should be helping determine questions of obviousness should be those who are technically qualified. That is why I have a very great respect for the German system, where they do have proper technical assistants to help on determining scientific matters, not legal matters. JUDGE GRABINSKI: Very briefly, if it is about novelty, in the first instance we have the Federal Patents Court. There you have three technicians, technical judges, on the board that decide, and technicians from the respective technology. Then on the appeal level if it goes to the Supreme Court, it is still not only on law but also on facts. It is a very exceptional situation. In perhaps 98 percent of all cases they have a court-appointed expert before they decide. From this expert they get the necessary information in order to decide the case. This is for patentability; this is not for infringement. PROF. ADELMAN: We will take one more question. QUESTION: It may be for the next session, but what about the human rights? PROF. ADELMAN: That is next session. A perfect lead-in. What a straight man. This session is over. I want to thank all the speakers.
SESSION SESSION VI: VI: HUMAN HUMAN RIGHTS RIGHTS & & INTELLECTUAL INTELLECTUAL PROPERTY PROPERTY
SESSION VI: HUMAN RIGHTS & INTELLECTUAL PROPERTY
Moderator PROF. MARTIN J. ADELMAN
George Washington University Law School (Washington, D.C.)
Speakers ORIT FISCHMAN AFORI
PROF. LAURENCE R. HELFER
College of Management, Academic Studies Law School (Rishon Lezion, Israel); Visiting Scholar, University of California, Berkeley, School of Law
Vanderbilt University School of Law (Nashville, TN)
PROF. F. WILLEM GROSHEIDE
Prof. Geertrui Van Overwalle Centre for Intellectual Property Rights (CIR), Faculty of Law, University of Leuven
Chair, Centre for Intellectual Property Law (CIER) University of Utrecht
Panelists HANNU WAGER
PROF. PETER K. YU
Counsellor, Intellectual Property Division, World Trade Organization (Geneva)
Michigan State University College of Law (East Lansing, MI)
PROF. ADELMAN: Now we will turn to the human rights panel. This session is really the creation of Professor Grosheide, who had a wonderful conference in Utrecht last year where this was the main subject. That stimulated the idea that we ought to do something like that at Fordham and have some of Utrecht Conference1 participants here. We are going to discuss human rights and intellectual property and see if there really is something to be learned, something to help IP lawyers or help human rights lawyers in this intersection. Since the original idea of discussing this topic is Professor Grosheide’s, I am going to have him go first, after I introduce our distinguished panel. Immediately to my left is Professor Orit Fischman Afori, who teaches at an excellent private law school in Israel. Professor Willem Grosheide, as you of course know, is the head of a very large center at Utrecht. Professor Laurence Helfer teaches at Vanderbilt, a 1 The Human Rights Paradox in Intellectual Property Law Conference, Centre for IP Law (CIER), University of Utrecht, The Netherlands, July 3–4, 2006.
370 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y great law school in the United States. Professor Geertrui Van Overwalle teaches not only at Leuven, one of the most famous European universities, but at other universities in Belgium. Somebody has to teach patents, so she does it. It is one of the great deficiencies of European universities in my opinion. She is trying to single-person/ single-woman, take care of this problem. Hannu Wager is well known to all of us. Peter Yu runs a big IP program at Michigan State University in East Lansing and has written widely. Let me turn it over to Professor Grosheide.
The Human Rights Paradox Prof. F. Willem Grosheide Center for Intellectual Property Law, University of Utrecht PROF. GROSHEIDE: When we organized the Utrecht conference that Marty was kind enough to refer to, we used for it as a general theme the human rights paradox. As I look around here, I think those were well-chosen words. Being here is also paradoxical. We have the main room, but the attendance is not that great. PROF. ADELMAN: It is Friday. PROF. GROSHEIDE: It is Friday. But it is a paradox — the main room and modest attendance. I think that is very well chosen for the human rights issue today. Nonetheless, human rights are here to stay. That is the main theme of my talk today. I will not run through my slides because that will take too much of my time. They are in your materials. I may refer you, as a context, to my slides. What I will do is give some general information to introduce the theme of human rights and their relation to intellectual property law. I start with the observation that, traditionally, human rights, at least in the civil law context — it may be somewhat different in a common law context, but I am bound to the civil law context in this respect — relate to the vertical relationship between state and citizen. Human rights have been perceived for ages as something that protects citizens against governments, states, or however you want to think of that — vertical relationships. But in the last ten, twenty, thirty years, what we have seen is that, more and more, human rights have been introduced in horizontal relationships. That is a hot topic in Europe, I can say. We call that in Europe the constitutionalization of, particularly, private law. What is promoted most of all in Germany is that when we have private law relationships in front of us that should be subordinate to human rights issues. Take, for instance, contract law. In very famous German law decisions, the Bundesverfassungsgericht has said contracts should be subordinate to human rights issues. That is repeated also in intellectual property law now. When intellectual property law was first related to human rights law, that had to do with the vertical relationship. The first connection was, I would say, when copyright law was seen as a barrier to the freedom of expression. The first cases, at least in Europe, with regard to the relationship between intellectual property law and human rights law were in that domain — the freedom of speech, the freedom of expression. There, it was said that copyright law should not be a barrier to the freedom of expression. We have a very interesting case in the Netherlands, the Scientology case.2 There, the 2
Scientology v. XS4ALL, Karin Spaink et al., President District Court of The Hague, (12 Mar. 1996) (the
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Church of Scientology tried to block the distribution of documents of the Scientology Church that had come to someone who put them on the Internet, referring to its copyright in that particular material. Our Court of Appeals in The Hague said: “This is copyrighted material, but the freedom of speech should not be blocked by copyright reference here. It is of general interest that these documents are brought to the floor, are distributed, come to the knowledge of everybody.” So copyright law was set aside. Noody said that copyright law in itself is a human right. No. Copyright law was part of private law, was a sort of subsection of civil law, and that could not be interfering with the exercise of human rights. But that has changed over the last ten or fifteen years. Now what we see is that very often intellectual property rights themselves are categorized as human rights. In my perspective, that comes from two sources. The first is that we have come to learn about what I would call indigeous knowledge, traditional knowledge, folklore, all that kind of thing, which has to do with cultural identity, cultural diversity, and which falls out so far from the scope of traditional intellectual property rights, but which we think are worth protecting under some sort of intellectual property right scheme — these indigenous knowledge rights, so to say. In that discussion, it is very often said that we should call these positions of those native cultures and those who are the owners of the native culture as human rights. That is one venue from which intellectual property rights are seen as human rights nowadays. The other venue is that more and more we think that intellectual property law has become a tool within what I would call the “entrepreneurs rule the words.” Particularly in patent law and copyright law and trademark law, you will see that those rights are not anymore that much individual, personal rights, but are corporate rights. We heard that on Thursday. This is something that we really should take into account when we look at what we think intellectual property law is about. Even yesterday, Professor Jane Ginsburg said that in the next ten years maybe we will see more and more accent on the individual, on the personal rights aspect, in the domain of intellectual property law. That, I would say, is another venue alongside which we come to looking at intellectual property rights as human rights. That may be as it is. I have some observations to make here that are placing me in an ambiguous position. This is a good development, seeing intellectual property rights per se as human rights. I have three observations to make, three thoughts. The first is if we call intellectual property rights human rights, then I would suggest that we at least make a distinction between different intellectual property rights. If we speak about patents and copyrights, where you have a creative or an innovative structure, then I think that is all right. But speaking about database rights, as we have them in the European Union, or trademark rights from a human rights perspective I would not say is a good idea. What I would suggest is that if we accept a human rights approach to intellectual property rights, then we should make a distinction. We should have a tailor-made approach here and sort out which intellectual property rights are proper to be categorized as human rights and which are not. Second, if we call intellectual property rights human rights, we have a problem if we President ruled that an Internet provider, in granting access to copyright- protected materials placed on Internet Web sites, cannot be held liable for copyright infringement); Scientology v. XS4ALL, Ct. Ap, The Hague, [2003] AMI 217, I.E.R. 2003/6, 352 (4 Sept. 2003) (holding that in the absence of a statutory limitation that might cover Spaink’s extensive postings, Scientology’s copyright was trumped by the freedom of expression enshrined in art. 10 of the European Convention on Human Rights).
372 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y still accept that entrepreneurs refer to intellectual property rights and call them human rights. That, of course, is something we will not accept. Again here, we should make a distinction and we should sort out individual and personal copyright and patent law rights, and not allow entrepreneurs to refer to intellectual property rights, if they own them, as their human rights. That would be an anomaly, I would say, in using the term “human rights.” If we accept that intellectual property rights are categorized from now on as human rights, that is only acceptable, I would say, if we distinguish, if we tailor-make those intellectual property rights according to the kind of right. Not every intellectual property right can be categorized as a human right. And we should sort out who is the owner of the right. We should distinguish in that respect also between entrepreneurs and individual people. Thank you very much. * * *
Copyright and Human Rights: External Balance for Internal Benefit Orit Fischman Afori Visiting Scholar, University of California, Berkeley, School of Law Assistant Professor, School of Law, College of Management Academic Studies, Israel I. INTRODUCTION My entry ticket here is an article I wrote about the potential impact of human rights’ international norm on American copyright law.3 The relevant international norm is Article 27 of the Universal Declaration of Human Rights,4 which basically acknowledges two human rights: The first right is the right of every person to freely participate in cultural life — a right which includes both a passive element of access to culture and an active element of engaging in creative activity; therefore, the right might be called the right to “access and participation.” The second right is the right of authors to enjoy protection over moral and material interests with respect to their productions — a right which is a sort of intellectual property right.5 And I am deliberately avoiding the word “copyright.” Article 27, then, is comprised of two parts, which together create a package of rights called “cultural rights.” In my article I proposed the idea that, because the Universal Declaration reflects customary international law, or that is at least one source of inspiration, it should as such influence American internal copyright law. With respect to this proposition two basic questions might be posed — how and why: How can the Universal Declaration influence 3 Orit Fischman Afori, Human Rights and Copyright: Introduction of Natural Law Considerations Into American Copyright Law, 14 Fordham Intell. Prop. Media & Ent. L.J. 497 (2004) [Copyright Fordham Intellectual Property, Media & Entertainment Law Journal 2004.] 4 Universal Declaration of Human Rights, G.A. Res. 217A, U.N. GAOR, 3d Sess., Supp. No. 16, at 71, U.N. Doc. A/810 (1948). 5 Id. art. 27: 1. Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits. 2. Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.
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domestic copyright law, given that the American Constitution’s Copyright Clause apparently allows only utilitarian perceptions, while the human rights underpinnings are from the field of natural law theory?6 Since I have discussed this and it relates only to the American realm, I will skip this fascinating discussion. The point I would like to stress today is the question of “why” — why should we get human rights involved in this already complex area of private law, and what benefit will stem from it? My notion is that the external human right norm might have a moderating effect on the development of internal, domestic copyright law.7 II. THE PROPOSED MODEL I will begin by sketching the proposed model in broad terms, and then I will explain the scheme in more detail. The international norm acknowledges two conflicting interests — the proprietary interests of owners and the liberties of users — as human rights. This begs the question how to reconcile the two — which right supersedes? The international instruments do not present a fixed formula, such as the primacy of one of these rights over the other, but see the benefit in the very basic acknowledgement of a specific human interest as a human right. This is where the marginal contribution of the external human right norm to the internal domestic balance comes into play: Though it is a common view that the domestic intellectual property statutes already contain a decisive balance between the conflicting interests, the truth is that in many cases it does not. The final balance — the fine tuning — is left up to the courts. However, the courts lack coherent guide line in order to prevent arbitrary decisions or forum shopping. In order to further the values of fairness and justice, the cultural rights scheme may function as such a guideline — I prefer to call it a “compass” — which will assist in finding the general preferred direction. This guideline is the following: whenever there are different options for interpreting or operating the domestic rule, courts should opt for the option that realizes best both of the competing human rights — taking into consideration the precise interest at stake, evaluating its true relevant human right strength or weight. The beneficial outcomes are numerous: the promotion of public access to knowledge as a balance to the industries’ intent to maximize profits, and the promotion of authors’ personal interests as individuals as a balance to entrepreneurs’ interests. Now I will explain the model in more details. I will refer to two themes: First, what exactly is the scope of cultural rights as human rights? Second, what are cultural rights’ potential functions as a moderating means? III. SCOPE OF CULTURAL RIGHTS: ACCESS AND PARTICIPATION AND COPYRIGHT As to the exact content of cultural rights as human rights, I will begin by mentioning that the cultural rights, being the “third generation” of human rights, are not yet being debated. However, the rights acknowledged in Article 27 of the Universal Declaration were also acknowledged in Article 15 of the subsequent International Covenant on 6
See Fischman Afori, supra note 3, at 530 ff. See id. at 539–48. 8 International Covenant on Economic, Social and Cultural Rights, G.A. Res. 2200A, U.N. GAOR, 21st Sess., Supp. No. 16, at 49, U.N. Doc. A/6316 (1966). Article 15(1) states: The States Parties to the present Covenant recognize the right of everyone: (a) To take part in cultural life; (b) To enjoy the benefits of scientific progress and its applications; (c) To benefit from the protection of the moral and material interest resulting from any scientific, literary or artistic production of which he is the author. 7
374 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y Economic, Social and Cultural Rights (ICESC), with more or less same wording.8 As to the right of “access and participation” as a human right, it is extremely significant that the right is located in a covenant that deals with social-economic rights, in contrast to civil-political rights. This, I believe, is the key for segregating the cultural right of access from the basic freedom of speech. The focus is not on political liberties but rather on making the concrete opportunities available for a person to realize his right of access to culture, by the creation of appropriate socioeconomic conditions.9 As to the content of copyright as a human right — which tends to be more problematic — the U.N. Committee on Economic, Social and Cultural Rights released one year ago “Comment 17,” referring to the author’s right as a human right.10 There are some important insights in this exceptional interpretive tool. First, copyright as a human right must not be identified with domestic civil law copyright. Only some aspects of domestic copyright law are appropriate candidates for consideration as a human right.11 For example, copyright as a human right can be claimed only by human beings and not by artificial legal entities.12 Furthermore, the Committee makes clear in Comment 17 that the protection of the material interests of authors does not compel property rights, nor maximum benefit from the work of authorship, rather only adequate standard of living.13 To conclude this point, the interests of authors which are acknowledged as human rights are different from the domestic copyright scheme, and only certain elements of the domestic law deserve the highest protection of a human right. IV. CULTURAL RIGHTS’ POTENTIAL FUNCTION AS A MODERATING MEANS: INFLUENCE ON OPERATING INTERNAL OPEN STANDARDS Here I come to the second theme, how the human rights scheme can promote the development of a more balanced domestic copyright law. The potential functions of the human rights scheme could be divided into two: functions which come into play during the legislation process itself, which might be titled “ex-ante functions”; and functions that follow the enactment of the statute, which might be titled “ex post functions.” My focus is on the second. The most fundamental ex-post function of the human rights scheme is its influence on the operation of the internal, domestic rule. Intellectual property laws in general, and copyright law in particular, are embedded with “open standard rules.” In “open standard rules” I refer to norms which propose a general framework for filtering different policy considerations; however the final crystallization of the rule is performed by courts on a case-by-case basis.14 In copyright law some of the most basic terms and doctrines are actually “open stan9 For the difference between social-economic rights and civil-political rights compare the International Covenant on Economic, Social and Cultural Rights, supra note 8, and the International Covenant on Civil and Political Rights, G.A. Res. 2200A, U.N. GAOR, 21st Sess., Supp. No. 16, at 52, U.N. Doc. A/6316 (1966). See also Matthew C. R. Craven, The International Covenant on Economic, Social, and Cultural Rights, A Perspective on Its Development 106 (1995). 10 Committee on Economic, Social, and Cultural Rights, Thirty-fifth Session (2005), General Comment No. 17 (2005): “The right of everyone to benefit from the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author” (Covenant art. 15 ¶ 1(c)), E/C.12/GC/17 (12 Jan. 2006). 11 Id. ¶ 2. 12 Id. ¶ 7. 13 Id. ¶¶ 15–16. This means that a movie production company does not enjoy a human right, nor can an individual author claim a human right of maximizing all possible profits from his or her writings. 14 For the function of open standard norms in contrast to strict rules, see Louis Kaplow, Rules Versus Standards: An Economic Analysis, 43(3) Duke L.J. 557 (1992).
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dards” — for example, the originality requirement;15 the idea/ expression dichotomy;16 the substantial similarity standard for infringement;17 and of course the fair use exemption.18 So the common view, accor ding to which in the intellectual property field the legislature has long since tilted the balance between the conflicting interests, is far from accurate.19 The balance is often constructed by courts according to the legislature’s mandate. The outcome is the known situation of arbitrary and unsystematic decisions. Though the gap is filled with the common law mechanism, still there is inevitably a missing bright-line rule, or “compass” — a directive tool for the final ad hoc balance. The proposition is that in operating the open norms, in proper cases, the courts might use the cultural rights scheme as a conduit to determining the proper balance of interests. There is no advance determination of “copyright” or “copy-left.” The final goal is promotion of holistic fairness and justice. In this respect, it should be noted that in operating the open standard rules, courts in any case are motivated by a human right impulse. Sometimes it is done on a completely intuitive basis.20 Therefore, it is a better policy to bring these considerations into light: it furthers transparency and the rule of law; and it enables a true inspection and review. V. CONCLUSION To conclude, in my view, there is much to gain from importing the external international norm into internal domestic copyright law, if cultural rights as human rights will be taken seriously. Thank you. *
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PROF. ADELMAN: Thank you. Professor Van Overwalle?
Human Rights’ Limitations in Patent Law21 Prof. Geertrui Van Overwalle Centre for Intellectual Property Rights (CIR), Faculty of Law, University of Leuven, Belgium There is no better way to introduce the topic of human rights and patent law than by quoting an eminent colleague, “the Pope of IP and Human Rights,” Laurence Helfer. 15 17 U.S.C. § 102(a). For the question what is an original work, see Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 2.01 (2006). 16 17 U.S.C. § 102(b). For the complexities in employing the idea/expression dichotomy, see Nimmer & Nimmer, supra note 15, § 2.03[d]. 17 For the complexities in employing the substantial similarity standard of infringement, see Nimmer & Nimmer, supra note 15, § 13.03. 18 17 U.S.C. § 107. For the open standard fair use defense, see id. § 13.05. 19 For such an approach, see e.g., Harper and Row Publishers, Inc., v. Nation Enters., 471 U.S. 539, 560 (1985). 20 In favor of author’s right, see e.g., Bleistein v. Donaldson Lithographing Co., 188 U.S. 239 (1903); Gilliam v. ABC, 538 F.2d 14 (1976). In favor of public’s access rights, see e.g., Time, Inc. v. Bernard Geis Assocs., 293 F. Supp. 130 (1968). For a somewhat similar opinion, according to which in this latter case Court was motivated by a freedom of speech impulse while the reasoning was based on an erroneous realization of the fair use doctrine, see Nimmer & Nimmer, supra note 15, § 1.10 [D]. 21 This paper is an abbreviated version of Geertrui Van Overwalle, Human Rights’ Limitations in Patent Law, in The Human Rights Paradox in Intellectual Property Law (F. Willem Grosheide ed., 2007 (in press)).
376 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y According to Helfer, “IP rights have remained a normative backwater in the burgeoning post-World War II human rights movement.”22 Only over the last decade has human rights discourse gained wider attention and have commentators started to explore the relationship between IP and human rights in more detail.23 I. TWO APPROACHES Professor Helfer points out that in bringing this topic to the attention of IP lawyers two approaches can be witnessed. A first school of thought claims that human rights and IP are in a fundamental conflict. Strong IP protection is undermining, and therefore incompatible with, a broad spectrum of human rights.24 This point of view is echoed in UN Resolution 2007/7.25 The only way to resolve the conflict is to recognize the normative primacy of human rights over IP law and to make IP rights the servant of human right. IP law can only exist if it is instrumental to the fulfillment of human rights objectives. A second line of thought argues that human rights and IP rights are essentially compatible, because they both share the same objectives and the same goals, namely, human welfare, social welfare, and benefit for society. Such an approach is echoed in the International Covenant on Economic, Social and Cultural Rights (ICESCR).26 II. A THIRD WAY In my view, human rights and patent law interact in a still different way. Indeed, human rights and IP law are two distinct, separate bodies of law. However, human rights are a necessary complement of patent law in those (rare) cases where patent law is focusing too one-sidedly on financial gain, market success, and monopoly power. Human rights may and must thus assist in defining the utter limits of patent law. This third way can be based on the line of reasoning explained hereafter. The patent system is represented as a balance, where a quid pro quo exists between the private interest of the inventor, on the one hand, and the public interest of society, on the other hand. The private inventor benefits through the grant of a temporary monopoly right, whereas the public interest benefits from the production of goods and services and the disclosure of information embedded in the invention. Although the debate on the legitimization of the patent system has a long and turbulent history, this consequentialist, utilitarian justi22 Laurence R. Helfer, Toward a Human Rights Framework for Intellectual Property, Vanderbilt University Law School Public Law and Legal Theory, Vanderbilt Public Law Research Paper 06-03, available at http://papers.ssrn. com/sol3/papers.cfm?abstract_id=891303, 40 U.C. Davis L. Rev. 971 (2007). 23 Cf. Laurence R. Helfer, Human Rights and Intellectual Property: Conflict or Coexistence?, 5 Minn. Intell. Prop. Rev., 24 (2003), available at http://mipr.umn.edu archive/v5n1/Helfer.pdf. 24 The multilateral trade negotiations in the GATT Uruguay Round, which were concluded in 1993 and resulted in the formation of the WTO, encompassed for the first time discussions on aspects of intellectual property rights. The result of those negotiations was embodied in the Agreement on Trade-Related Aspects of Intellectual Property Rights, 33 I.L.M. 1197, in General Agreement on Tariffs and Trade: Multilateral Trade Negotiations Final Act Embodying the Results of the Uruguay Round of Trade Negotiations, Apr. 15, 1994 (333 I.L.M. 1125, Annex C) [hereinafter TRIPs Agreement], contained in an Annex to the WTO Agreement, available at http://www.wto.org/english/tratop_e/trips_e/trips_3.htm. Membership in the WTO implies adherence to the TRIPs Agreement. 25 United Nations, Sub-Commission on the Promotion and Protection of Human Rights, Resolution 2000/7, Intellectual Property Rights and Human Rights (17 Aug. 2000), available at http://www.unhchr.ch/Huridocda/ Huridoca.nsf/0/c462b62cf8a07b13c256970006704e?Opendocument. 26 International Covenant on Economic, Social and Cultural Rights, adopted by the General Assembly, Resolution 2200A (XXI) of 16 Dec. 1966, and entered into force on 3 Jan. 1976, available at http://www.ohcr.org/ English/law/cescr.htm.
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fication is probably most accepted in economic literature.27 This justification theory is also reflected in case law. Indeed, Lord Hoffmann refers to the tradeoff underlying the patent system as a “social contract.”28 How do human rights feed into this patent equilibrium? Human rights fit into this framework in a twofold way. First of all, human rights may offer a foundation, a basis, for the private interest component of patent law. Human rights may offer a basis for claiming that patent rights are themselves human rights. This perspective is somewhat contested and will not be further developed here. Secondly, human rights feed into the public interest component of patent law. This proposition can be based on a reinterpretation of the notion of public interest in patent law. The traditional notion of public interest, echoed in many parliamentary debates taking place at the event of the establishment of a domestic patent system some 100–150 years ago, is very economically oriented. Public interest was understood to relate to economic expansion and technical progress. Patent law was put in place as an instrument to stimulate economic welfare. Given the current globalization trend and the North/South divide, this one-sided notion of public interest should be reassessed. A new, more contemporary interpretation and a more contemporary definition of public interest should be contemplated. One way to do so is to reflect upon a wide, general, abstract or holistic definition. Such an approach is rather complicated and not very helpful.29 An alternative method is to opt for a concrete approach, where the “sacred” and holistic notion of public interest is abandoned and the concept is disaggregated into its concrete components. In an effort to do so, the notion of public interest can be screened in various fields of law, ranging from administrative law, constitutional law, economic law, and competition law, in an effort to filter out what is meant when the notion “public interest” is being used. An extensive survey of current public interest interpretations in various legal regimes, indicates that the notion “public interest” irrefutably encompasses morality, public security, consumer protection, and the protection of the life of animals and plants.30 Furthermore, it includes notions of human dignity, food security, informed consent, and access to public health. This legal tour d’horizon offers a well-founded basis for my proposition that the public interest concept can rightly serve as a gateway to introduce human rights in patent law. III. HUMAN RIGHTS’ LIMITS TO PATENT LAW What kind of limits do human rights introduce in the patent law framework? There is a series of human rights that might be contemplated in this regard. These rights can be grouped according to the function they fulfill in patent law. Some human rights act as a basis to limit the coming into existence of patent rights in certain fields (see infra Part III.A). Other human rights act as a means to implement procedural guarantees in the patent application procedure (see infra Part III.B.). Yet other human rights serve as limitations with regard to the exercise of patent rights (see infra Part III.C.). 27 For more on this theory, as well as the other justifications theories, see Sigrid Sterckx, The Ethics of Patenting — Uneasy Justifications, in Death of Patents 175–211 (Peter Drahos ed., 2005). 28 See Lord Hoffman in the House of Lords Decision of 21 Oct. 2004, Kirin-Amgen, Inc. and Others v. Hoechst Marion Roussel Ltd. and Others, [2004] H.L. 46, ¶ 77, available at http://www.publications.parliament. uk/pa/ld200304/ldjudgmt/jd041021/kirin-3.htm. 29 See Geertrui van Overwalle, L’intérêt général, le domaine public, les commons et le droit des brevets d’invention, in l’Intérêt Général et l’Accès à l’Information en Propriété Intellectuelle, (2007 (in press)). 30 See Geertrui Van Overwalle, Klinische proeven en volksgezondheid. Naar een herijking van het algemeen belang in het octrooirecht, Tijdschrift voor Privaatrecht (TPR), 899–968 (2000).
378 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y A. HUMAN RIGHTS LIMITING THE COMING INTO EXISTENCE OF PATENT RIGHTS
The major right limiting the coming into existence of patent rights that comes to mind is human dignity. The basis of human dignity is well-established in contemporary law. Human dignity appears as a pivotal concept in a variety of international and European conventions. The relationship, however, between human dignity and patent law is rather recent. The credit for factoring in human dignity in patent law goes to the European Union and the EU Biotechnology Directive,31 which introduced the notion of human dignity into patent law and explicitly stated that human dignity should act as an outer limit of patenting subject matter related to the human person. A second human right that might act as a limit in patent law is the right to food. The basis of that right is clearly established as well: the right to food is proclaimed in the International Covenant on Economic, Social and Cultural Rights (ICESCR).32 Quite surprisingly, the relationship between patent law and the right to food is quite old. The right to food was contemplated explicitly when establishing patent acts in the nineteenth century. In the original patent acts of the Netherlands, Belgium, and Germany, for example, certain foods were excluded from patentability. Similarly, certain foods, such as soup vegetables, were banned from protection under the U.S. Plant Variety Protection Act.33 However, most food exemptions in patent law were repealed later. Nevertheless, the debate was reopened at the occasion of development of genetically modified organisms. Fortunately, nowadays, a strong legal basis allowing the exclusion of food from patentability can be found in Article 27 of TRIPs. B. HUMAN RIGHTS BURDENING THE COMING INTO EXISTENCE OF PATENT RIGHTS
A major human right burdening patent law is the right to informed consent. It is not crystal clear yet what the exact legal basis is for the right to informed consent. One school of thought claims that the right of informed consent is an accessory right of another fundamental human right, in particular, the prohibition of torture and inhuman or degrading treatment or punishment. Other human rights scholars take the view that the right of informed consent is an accessory right of the right for respect of physical integrity. Notwithstanding this lack of consensus about the exact legal basis of this human right, the relationship between the right to informed consent and patent law has recently been formalized. Once again the European Union and the Biotechnology Directive took the lead. Recital 26 stipulates that “if an invention is based on biological material of human origin or if it uses such material, where a patent application is filed, the person from whose body the material is taken must have had an opportunity of expressing free and informed consent thereto, in accordance with national law.” Unfortunately, the recital was not implemented in the patent law of the Member States. 31 Directive 98/44/EC of 6 July 1998 of the European Parliament and of the Council on the legal protection of biotechnological inventions, 1998 O.J. (L 213) 13, available at http://europa.eu.int. 32 International Covenant on Economic, Social and Cultural Rights, adopted by the General Assembly, Resolution 2200A (XXI) of 16 Dec. 1966, and entered into force on 3 Jan. 1976, available at http://www.ohcr.org/ English/law/ceser.htm. 33 Plant Variety Protection Act of 1970 (PVPA), as amended, 7 U.S.C. §§ 2321–2582, available at http://www. ams.usda.gov/SCIENCE/PVPO/PVPO_Act/PVPA2005. pdf.
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C. HUMAN RIGHTS LIMITING THE EXERCISE OF PATENT RIGHTS
A human right that is highly relevant in this context is the right of access to public health. The basis of the right of access to public health is well established. The right is proclaimed in the Universal Declaration of Human Rights of 1948 (UDHR),34 which stipulates that “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care.” The relationship between the right of access to public health and patent law was clearly established in the TRIPs Agreement, and especially in the Doha Ministerial Declaration35 and the various, subsequent national rules on compulsory licenses for public health. Also the right to education and research comes to mind in this context. This right is equally recognized in UDHR, which proclaims that “Everyone has the right to education” (Article 26 (1)). The relationship between the right to research and patent law is most cumbersome at present. However, safeguards for research against the overwhelming effect of patents have been established through the enactment of a research exemption in many domestic patent acts in Europe. Another hotly debated human right in this regard is the right of access to information. Both the UDHR and the ICESCR clearly place a discernible emphasis on the interests humans have in the access to knowledge. Applying principles of access to knowledge in a patent context does not seem to raise real concern, as patent law requires that the patented invention is disclosed in a manner sufficiently clear and complete for the invention to be carried out by a person skilled in the art.36 IV. CONCLUSION As has become clear from the exploration of the human rights framework, it is imperative that patent law takes into account human rights discourse. Human rights should feed into patent law in a moderate, complementary manner. Human rights are valuable and necessary complements of the patent system. They serve as a counterbalance of patent rights centering too one-sidedly on trade, access to markets, and economic calculus. For patent law to be widely accepted and generally recognized as a tool fostering both private and public interest, it is vital that current patent law regimes are inextricably linked with human rights discourse and that human rights assist in defining the utter limits of patent rights. * * * Thank you. I had to make sure that the talk ended in ten minutes because there would be nothing left of patent law if I gave her another five minutes. [Laughter] With that, we will turn to “the Pope?” PROF. HELFER: That’s quite an accolade. I’m not sure I will come close to living up to it. PROF. ADELMAN:
34 On Dec. 10, 1948 the General Assembly of the United Nations adopted and proclaimed the Universal Declaration of Human Rights. 35 World Trade Organization, Ministerial Declaration, Adopted at 4th WTO Ministerial Conference in Doha, Qatar, 9–13 Nov. 2001, available at http://www.wto.org/english/ thewto_e/minist_e/min01_e/mindecl_e.htm. 36 Cf. TRIPs art. 29 (1); European Patent Convention, Oct. 5, 11973, 13 I.L.M. 270, art. 83; and PVPA art. 112, 35 U.S.C. § 112 (utility patents).
380 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y We decided to rearrange the order, in part, because I am going to speak about a very specific instance of the interface between human rights and intellectual property.37 My colleagues, who have themselves published extensively on these issues, have talked mainly about the limits that human rights may place on existing intellectual property protection standards. We have also heard from Professor Grosheide about the rights that individual authors and inventors may have — the human rights, that is. I am going to speak about an instance in which, very recently, at the beginning of this year, the European Court of Human Rights recognized the right of property in a U.S. corporation over its trademarks and trademark applications. For some of you this may be a cause for rejoicing in the streets; for others it may make your blood run cold. Which of those outcomes you prefer — or anywhere in between those two polestars — is going to depend on what the European Court of Human Rights actually does with its new recognition that the right of property covers intellectual property, in all of its forms — copyrights, patents, trademarks, and presumably all of the other manifestations of intellectual property. For those of you who are not familiar with the European human rights system, let me highlight a few of its important features. The European Court of Human Rights is the most effective international human rights tribunal in the world. It has forty-six member countries. It issues hundreds of judgments a year. It awards monetary damages to prevailing parties. It has a new class action procedure. It has a very high rate of compliance with its judgments among the Member States. So we are not talking about guidelines or “soft law” or recommendations; we are talking about a court that has the power to issue legally binding judgments, which are very often implemented with the help of national courts. All in all, the court’s judgments are quite consequential and have a real impact in European countries. In January of this year, the Grand Chamber of the ECHR held that IP is protected by the right of property against unjustified government interferences.38 It made that ruling both with respect to existing intellectual property and applications to register intellectual property, in particular with respect to trademarks. This case was one skirmish in the decades-long litigation war between the American brewer Anheuser-Busch and its beer Budweiser and its archrival, Budejovicky Budvar, a Czech brewery. These two rivals have litigated in any court that you can name in Europe and elsewhere around the world. After losing one of these disputes in Portugal to its rival, which had registered a geographical indication in that country, Anheuser-Busch decided to file a complaint with the European Court of Human Rights. By doing that, it turned what was a private dispute between two IP owners into a public law dispute, and that altered the character of the case. Unlike the treaty provisions my colleagues have mentioned, the European Convention on Human Rights does not have a single clause that comprehensively balances the rights of innovators and creators against the rights of users and consumers. Instead, it has discrete and specific clauses that might allow the European Court either to expand the rights of intellectual property owners or to limit them — limit them in the name of free expression or privacy; expand them in the name of the right to property. Whereas much of the recent activity relating to human rights and intellectual property 37 Laurence R. Helfer, The New Innovation Frontier? Intellectual Property and the European Court of Human Rights, 49 Harv. Int’l L.J. _____ (forthcoming Winter 2008). Appendix A. The March 2007 prepublication draft is available on the Fordham IP Conference Web site, http://www.fordhamipconference.com. 38 Anheuser-Busch, Inc. v. Portugal, Application No. 73049/01 (Grand Chamber, 2007) [hereinafter Anheuser-Busch Grand Chamber Judgment].
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has been focused on the limits or constraints on intellectual property or redefining the intellectual property balance, the European Court intervened in the Anheuser-Busch case on behalf of business entities that were IP owners. With respect to the comment that Prof. Grosheide made about human rights not attaching to corporations or business entities, in general I am in agreement with that. But Article 1 of the First Protocol to the European Convention39 says that the right of property attaches to “legal persons,” as well as natural persons. Why on earth would the drafters of the Convention extent property protection to corporations? I will say more about that in a moment. Although the American brewer did not prevail on the specific facts presented in the Anheuser-Busch case, the European Court suggests two ways in which it might become an important player in shaping the region’s innovation and creativity policy, perhaps for good, perhaps for ill. First, the Court said to European governments that they must provide fair and effective judicial procedures to allow intellectual property owners to enforce their rights and to adjudicate infringement claims. In addition, the European Court has reserved to itself the power to review whether national court decisions that affect the right to property are arbitrary or manifestly unreasonable. The ECHR did not provide a detailed elaboration of these two points in the AnheuserBusch case. In my paper available on the conference Web site, I attempt to develop these points in greater detail. I trace the right-to-property jurisprudence since the ECHR’s founding, review the recent increase in right-to-property cases, and explain how the court has increased its scrutiny over property regulations in the wake of the accession of Eastern European governments, which have had quite a few property disputes left simmering from their socialist days. In the final section of my article, I sketch three potential futures for the right-toproperty jurisprudence and intellectual property jurisprudence of the European Court of Human Rights. I refer to these three paradigms as the rule-of-law paradigm, the intellectual property-enforcement paradigm, and the intellectual property-balancing paradigm. The first of these, the rule-of-law paradigm, is the most minimalist. It helps to explain why corporations’ property rights were also protected as human rights in the European Convention. The rule of law, one of the hallmarks of a democratic society, include, the protection of private property from arbitrary and unjustified government interferences. If the ECHR applies this model, it would only intervene in national intellectual property regulations in the case of genuinely ultra virus actions or failures to follow previously established legal rules – conduct that are clear violations of the rule of law and that fit within the rule-of-law cases that the court has decided with respect to real property and other forms of property, not only IP. The second paradigm, which is somewhat more intrusive, would have the ECHR articulate an obligation for national governments to provide adequate judicial, administrative, and criminal proceedings that would allow private owners to enforce their intellectual property rights effectively. For those of you who are thinking about the multilateral system, the analogy here is the domestic enforcement provisions of the TRIPs Agree39 Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms, opened for signature Mar. 20, 1952, 213 U.N.T.S. 262, 262. Article 1 of Protocol No. 1 states in its entirety: Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.
382 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y ment. There have been allegations of widespread IP piracy in some countries that are members of the World Trade Organization (WTO) and members of the Council of Europe, and also some nations that are members of the Council of Europe and not yet members of the WTO, like the Ukraine and Russia. It is quite possible that the ECHR, using its class action procedure that it developed three years ago and using the new conception of the right to property from the Anheuser-Busch case, may allow private rights owners to petition directly to the ECHR rather than petitioning their trade ministries to bring an IP enforcement claim, whether that is a WTO proceeding or a special 301 complaint leading to unilateral trade sanctions by the United States. So this is the enforcement paradigm. It’s not yet clear that the Court is going down this road, but it’s certainly possible. The third and final paradigm is the intellectual property-balancing paradigm. Here, the ECHR would use, for example, the freedom of expression provisions in the European Convention to impose limits on, say, copyrighted works relating to political discourse. Such cases have been percolating for several years in national courts, for example in the Netherlands. Professor Christophe Geiger40 and others have written on these issues. If the ECHR applies this paradigm, it would set an upper limit on intellectual property, but also would set a floor, in which the right to property would prevent decision-makers in national governments in Europe from diminishing the exclusive rights of intellectual property owners with respect to preexisting works of intellectual property. Which one of these three visions or paradigms will prevail in the future is something I discuss in more detail in the paper. I would be happy to talk more about these issues with you during the question and answer period. Thank you. PROF. ADELMAN: Thank you. Hannu, do you want to make some comments? MR. WAGER: As I mentioned yesterday,41 in the WTO we tend to look at intellectual property matters in the broader context of the trade regime as embodied in the WTO. Therefore, I would first like to say a few words about the interlinkages between human rights and the trade regime in general. I will then turn to intellectual property more specifically, and comment on some points made by others. Let me make the customary disclaimer that these are very much my personal thoughts. These issues have not been discussed within the WTO. Last year I published a paper together with my college, Rob Anderson, on this topic about human rights and the WTO.42 In that paper, we argued that the rules and procedures of the WTO are directly supportive of civil rights in the sense of freedom to participate in markets and freedom from arbitrary governmental procedures. The system contributes to development and to the realization of economic, social, and cultural rights by stimulating economic growth, thereby helping to generate the resources that are needed for the fulfillment of such rights. In that sense, human rights instruments and the trade regime as embodied in the WTO 40 See, e.g., Christophe Geiger, “Constitutionalising” Intellectual Property Law? The Influence of Fundamental Rights on Intellectual Property in the European Union, 37 Int’l Rev. Intell. Prop. & Comp. L. 371, 382 (2006); Christophe Geiger, Copyright and Free Access to Information: For a Fair Balance of Interests in a Globalised World, 28 Eur. Intell. Prop. Rev. 366, 370 & n.44 (2006). 41 See, infra this issue, Session I, Part A, The Next Ten Years in WIPO and WTO. 42 Robert D. Anderson & Hannu Wager, Human Rights, Development, and the WTO: The Cases of Intellectual Property and Competition Policy, 9 J. Int’l Econ. L. 707 (2006).
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can be seen as part of a broader coherent international legal framework created after the Second World War. As regards the TRIPs Agreement, its Article 7, which refers to the objectives of IP protection, puts emphasis on the utilitarian rationale of IP protection. But it must be borne in mind that the TRIPs Agreement also incorporates by reference the provisions of the Berne Convention, and this includes the entire acquis of these provisions. Human rights considerations, together with utilitarian objectives, were guiding the discussions that eventually led to the adoption of the Berne Convention in 1886. You will find references to human rights or natural law already in the 1884 diplomatic conference documents. In that sense, the human rights aspect is nothing new to international IP law. Neither is it new to domestic laws. Just think for example the French revolution and the references to natural law as a justification of the first copyright law in 1791. This raises then the question to which some have already alluded: To what extent is a human rights approach helpful today in finding proper solutions to various evolving IP problems that we have been discussing at this Conference? I should say that one should not overstate the utility of the human rights approach in this regard. The UN Declaration on Human Rights and other instruments contain various rights or entitlements that need to be balanced against each other. The tensions inherent between various competing interdependent human rights are those that also underlie the considerations of balance in IP systems. If we base IP protection mainly on the utilitarian or public interest rationale, one can similarly argue that while the interests of the public are a reason for granting protection, they are also a reason for limiting it. Again, one ends up balancing between various legitimate public policy goals. So whether one lays emphasis on the human rights or public interest rationale, at the end one needs to rely on good judgment and available empirical evidence in determining whether any particular policy measures are effective in meeting the stated objectives. However, perhaps one could say that one conceptual difference between human rights and utilitarian approaches is that if we were to look at IP law through the human rights lens, we would need to move from state-centered international relations in this area towards increased focus on human beings and their empowerment domestically and across borders through adequate protection of their creative work. I guess this would be supportive of the notion of putting authors more at the center of copyright policy, an idea that Professor Ginsburg mentioned yesterday morning, and to which some others have also referred to, including Professor Grosheide. Professor Grosheide referred to the Scientology case43 as an illustration of a conflict between freedom of expression and copyright. I would like to say a few words on how I see the interface between freedom of expression and copyright. While there is a need to maintain balance between these two considerations, and at times some specific conflicts may arise that need to be resolved, freedom of expression and an appropriately formulated copyright system can generally be seen as being mutually supportive. Copyright systems maintain this balance through a carefully crafted scope of protectable subject matter. Under the idea/expression dichotomy, information and ideas remain free. We have the originality requirement, although it varies between different jurisdictions. The term of protection is limited. These features help to maintain a robust public domain on which follow-on creation depends. The limited scope and term of protection operate in conjunction with various excep43
See Scientology v. XS4ALL, supra note 2.
384 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y tions found in domestic laws and jurisprudence that allow quotations, reporting of current events, criticism, parody, and similar uses, even when the use would involve a part of the protected expression. Arguably, both the protection of exclusive rights and exceptions to it are, in the proper mixture, supportive of freedom of expression and the democratic process, the first by enabling the economic independence of the media and professsional authors, and the second by balancing the interests of authors and users in particular situations. One should bear in mind that freedom of expression would have little practical value without independent media.
PROF. ADELMAN:
* * * I know that Willem has a comment. Why don’t you make your
comment now? PROF. GROSHEIDE: Maybe I could comment on your introduction of the European Court of Human Rights decision, which I know and which I did not refer to because that decision, in my reading, does not introduce anything new. What it did was say that in this vertical relation, which I distinguished from the horizontal relation, intellectual property rights are property in the sense of the European Convention of Human Rights. So there is nothing new there. There is a decision that says when it comes to intellectual property rights states should take the same approach as they have to take towards other parts of property. So there is nothing new there. PROF. ADELMAN: Peter? PROF. YU: I am going to make three observations. The moderator is actually quite intimidating. First, I think it is time to bury the conflict or coexistence approach. People keep on talking about that, but I think there are a lot of problems with it. The main problem is that some attributes of intellectual property rights are considered human rights, whereas others do not have any human rights basis. That is why Professor Grosheide started off saying that we need to look at the different types of rights. So if you are thinking about copyright, trademarks, trade secrets, work made for hire, employee inventions, database protection, data exclusivity — all those are properties. Some have rights that have no human rights basis. So it is kind of a misnomer to consider that you elevate those rights to human rights status. The second observation I want to make is that you are likely to be surprised by the language used in those documents. Some of you are probably wondering why you are here. When you are listening to a lot of the discussion here, the language they usually use is somewhat alien to you. Intellectual property is a good example. I think it is very important for us to distinguish between the moral conception of the human right and the political conception of the human right. If you look at the documents, intellectual property is probably not the type of property you conceptualize as a moral right. You are probably thinking about the protection of property, like what you have a lot of here in the United States or in European countries. But it could be very different, because of the Cold War, because of a lot of political baggage they had when they were drafting those documents. So actually in the Universal Declaration you have the right to property alone and in association with others. Just imagine that. It is not just about private property. If you look at the international covenants, you do not even have the property provision. I think it is very interesting when you look at those documents that they are actually what Professor Fischman Afori was referring to as open standards. There is no scope and there is no format. You can decide whether you want to use the property approach; you
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can decide whether you want to go for liability rules; or you can go for rewards and prices; or you can just go for the moral protection of authorship. You can have different types of formats, and it is entirely up to you. The third observation is basically people are not going to like you if you are going to talk about human rights and IP, mainly because if you are going to talk about the material interest, you are going to lower the protection you have at the moment for intellectual property rights. So those people who are publishers, who are rights holders, are not going to like you. But if you are going to talk about the material interest, which is the second distinct interest in those documents, then those people who are proponents for access to knowledge, who are public domain advocates, and who are pro developing countries are also not going to like you because you are going to raise the standard. By saying that people cannot do any recording, people have to make sure that there is a disclaimer, they are not distorting a work, they are protecting the reputation of the authors, that is going to make it more difficult for people to actually reuse the content, to have access to the content. Those are my three observations. PROF. ADELMAN: So, Peter, nobody is going to like this? PROF. YU: I think on the whole people are not going to like you. They will probably like some of the points you raise but probably not the others. I think that is the biggest challenge. At almost all the conferences I go to, when I present human rights and IP issues, you always get questions from people who disagree with certain parts of the proposition but totally agree with others. PROF. ADELMAN: What about the human right to wealth that is created by the patent system? Questions from the floor? QUESTION: The opening speaker, Professor Grosheide, raised the issue of the connection between traditional knowledge and the human rights. I just want to make a couple of comments on that. Of course, I think that there is an important discussion to make all the connections between the human rights arena. Hannu Wager perhaps did not have time to mention the discussion in relation to Article 27(3)(b) of TRIPs, which has telescoped from what is essentially a human rights issue into a very direct way to amend the patent system to include the patentability criteria of access and benefit sharing, which is informed consent followed by access and benefit sharing. Although that is very much in the discussion phase, I think that there is an important connection to be made also to the presentation by Professor Van Overwalle about the link between Article 27(2) and the ordre publique and how this discussion has come to this very narrow concept within Article 27(3) of TRIPs. I would argue that Article 27(2) presents the opportunity for people to have that human rights aspect of patentability in their domestic laws and to be TRIPs-compliant at present. Then, of course, there is the question to put it in Article 27(3) to have an international field in that. I appreciate that is very early discussion, but I think it is very important, a different human rights context from the European one, to remember that in the international forum there is this very important discussion, which is essentially a human rights/IP face-off and how to make them work, so moving away from the conflict and how to make them work together. I just wanted to bring that in, if anyone wants to comment. PROF. ADELMAN: Why don’t we take the next question? That was a comment rather than a question.
386 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y QUESTION [Mustafa Safiyuddin, DSK Legal, Mumbai]: I disagree with Peter’s statement that nobody is going to like you. I think developing countries like India, particularly the pharmaceutical industry, are going to love you, not only going to like you, because they do not want strong patent protection for pharmaceuticals. PROF. ADELMAN: Not true. The responsible ones do. The irresponsible ones may not, but the responsible ones do. QUESTIONER [Mr. Safiyuddin]: The responsible ones are very few. The irresponsible ones are many. PROF. ADELMAN: They are the most important. Does anybody want to comment? PROF. YU: I think the pharmaceutical industry, especially the generic manufacturers, will like you if you focus on right to health. I think a lot of people in India, in Brazil, in China, in a lot of different countries, will like you if you focus on right to food. But if you are talking about the mature interest in authorship, they are not going to like you, because it is going to be more expensive for them to have software and textbooks. That is why I think you cannot strike the happy medium where everybody will like you. PROF. HELFER: Marty, may I respond? PROF. ADELMAN: Sure. PROF. HELFER: I want to just take up the point that Professor Grosheide was saying a moment ago, that there is nothing new here. I mostly disagree, but I agree on a couple of points. I agree that the European Court of Human Rights is thinking about intellectual property the way it thinks about other forms of property. That is certainly true. It is not engaging in a utilitarian calculus, as IP lawyers and policymakers do. PROF. ADELMAN: You mean the European Court of Human Rights? PROF. HELFER: Yes. It is the right of property under it. I also agree with Professor Grosheide that, as a formal matter, the European Court and the European Convention on Human Rights only concern a vertical relationship between the state and a private right holder. But it is very clear from reading the Court’s judgment that one of the things that can trigger the state’s responsibility is the way that its national legislators, and more particularly its national courts, adjudicate intellectual property disputes between private parties. So I believe that the Court has signaled, both as a substantive matter and even more so in terms of domestic judicial proceedings and enforcement, that it is going to view the inability for IP owners to enforce their IP rights on a widespread basis as a right to property problem. While I do not think that the European Court of Human Rights will deliberately try to reshape IP, as a practical matter, the Court’s intervention will have all sorts of interactive effects with the European Union and the World Trade Organization, and that will affect the substance of IP laws and regulations. PROF. VAN OVERWALLE: I believe that what seems to be obvious to both of you might be relevant in view of the European Charter.44 People who are familiar with the European Charter know that Article 17.2 is related to protection of intellectual property rights.45 44 Charter of Fundamental Rights of the European Union (Dec. 7, 2000), available at http://www.europarl. europa.eu/charter/pdf/text_en.pdf. 45 Id. art. 17: “Right to property. 1. Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest. 2. Intellectual property shall be protected.”
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The discussion so far has focused on the interpretation of Article 17.2. Is this a protection of a right that is granted, or is it already the protection of a right coming into being? So is it protection of a granted patent or a patent application? After having heard the case on Anheuser Busch, I would argue that the line in the European Charter for the European Union should be interpreted to encompass both existing rights and rights coming into being. In that regard, I think it is a very relevant decision. PROF. HELFER: That is a very good point. PROF. ADELMAN: Who would decide that? If we have some charter from the United Nations but there is no court, what exactly does it mean? Now, you are talking about the European Court of Human Rights. PROF. HELFER: Right. Marty, there is an interactive effect in the following sense. The European Court of Justice, which is the supreme court of the European Union in effect, and the European Court of Human Rights do engage in a dialogue over fundamental rights. The European Court of Justice has very often, in interpreting directives and European Community law, looked to the European Court of Human Rights and its jurisprudence to interpret the meaning of fundamental rights within the European Union. So Geertrui’s point is very well taken, because it suggests the opening for not just protection of recognized rights, but rather a right to intellectual property in some free-standing sense. Now, that is an expansion of existing IP rights, and I don’t know that either of the two courts would adopt it. But it would be enforced by both the European Court of Human Rights and the European Court of Justice. PROF. FISCHMAN AFORI: I would like to follow up the remarks and response to Peter. If nobody is going to love you, for sure the Court is going to love you, because I think that human rights can expand the Court’s mandate. So the Court is going to love you. PROF. VAN OVERWALLE: By the way, what I found a comforting idea is one of the closures of Professor Helfer’s article: “Maybe the others won’t like us, but we will like one another.” It is like IP and human rights becoming “intimate bedfellows.”46 I’m looking forward to that. PROF. ADELMAN: That’s a proposition. PROF. HELFER: I don’t know. I think I am just not going to go there. PROF. ADELMAN: Other questions? Annette? QUESTION [Annette Kur, Max Planck Institute for Intellectual Property, Munich]: The human rights discussion is here to stay. I cannot agree with those saying that nobody loves you when you deal with that topic. On the contrary, at least in the academic scene, this seems to be a very up-to-date, “fashionable” topic that can be found all over the place. And that is probably good, because there was not so much debate about all this previously. On the other hand, that does not mean that human rights have never played a role before. As a matter of principle, every country has its constitution, and national laws are bound to respect constitutional law. Constitutions, of course, are supposed to respect human rights. It seems to follow that IP laws that comply with their domestic constitutional law also can be supposed to respect human rights. What I want to say is that the topic may not be so new after all; it has always been there, it was just not articulated that much. There is, of course, a certain danger, that by trying to involve human rights aspects so intensely into the discussion about concrete topics, a sort of inflationary use is made of 46
Helfer, supra note 22, at 47.
388 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y these arguments. “Human rights” then could become a sort of catch-all phrase for all the interests one wants to see encompassed by IP laws. The notion might then be watered down. Or else, if one wants to maintain a rather strict and elevated notion of human rights, it may happen that those rules are discredited for which it is not possible to find a basis in human rights, as, for instance, limitations that are purely based on economic considerations. From my point of view, that would be an unfortunate result, because such limitations can be as legitimate as others. I want to make another point with regard to pharmaceuticals. It was said here that it is quite obvious what the result of a human rights approach to patent protection of pharmaceuticals should be. But even that is not really so obvious. One might have different views about these things. Of course, the interest of patients who are suffering from diseases right now is to get access to medicines that are cheap. Therefore, it is clear that they do not want patents. But one might also think about the interests of patients who are suffering from diseases for which no cure has been found. They want companies to invest in finding new cures. Those interests will be violated if patent protection is reduced to an extent that it would totally discourage further investments. What I want to say is that the discussion on IP and human rights must go on, but that we also need to be aware of the risks that the discussion involves. PROF. ADELMAN: I like Annette’s discussion very much because I, of course, would take human rights arguments and say that one has a right to have the pharmaceutical industry do its best to keep me alive the longest. That means strong patent rights. Of course, the wise people in India think the same way. On the other hand, if I do not want to pay, like Thailand, where you have a billion-dollar former prime minister who could pay for the drugs out of his petty cash fund but they have decided to steal drugs from Americans, they could make the human rights argument that “we don’t want to pay.” That leads me to wonder whether we get anything from this discussion, that each side uses it for its own purposes. PROF. HELFER: I would add on that point, Marty, that things evolve over time. We are taking the first steps of mapping out the interface between these two fields. Eventually, some arguments are going to be washed through the judicial systems of various countries and you will end up with some arguments that are going to be given primacy over others. Then we will have some resolution. This is quite common when any two previously unrelated fields bump up against each other. PROF. YU: I like the second half of your statement. But for the first half what I find problematic is that if you want to live longer, then you make a leap to strong patent rights. Some people would disagree with that, especially from developing countries. They might believe that if they want to live longer they probably need to have more access to medicines. I think the strongest human rights claim is actually the right to property and making sure that all inventions or investments will be protected. PROF. ADELMAN: No, Peter. I am saying for myself, for everybody in this room, our human rights interest is for strong patent rights. There may be people who cannot afford to pay, whose governments are unwilling to pay for them, mainly because they are irresponsible and squander their wealth, and, therefore, they will ask for the drugs now and make that claim. I didn’t mean to say that they would make that argument. I would say that everybody in this room has the human rights interest in strong patents because most of us would not be here, given our ages, if it were not for the developments
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of the pharmaceutical industry in the twentieth century. I dare say of this group very few would be here now. QUESTION [Prof. Coenraad Visser, University of South Africa]: Just one comment. I think the human rights law tried to say that no human right is absolute. You always have competing claims. I think a lot of human rights law is about resolving the limitations and the contrasting human rights claims. That, I think, informs intellectual property debate, because it informs the debate between rights holders and the other members of society who have different claims — access to education, access to health, that kind of debate. So I think from that perspective the human rights debate is a major informer of intellectual property policy. PROF. ADELMAN: Let’s take South Africa. It is a good example. Most of the claim that the pharmaceutical companies were terrible is that they actually wanted to charge for their drugs — in a country that has a great deal of wealth, that could have purchased those drugs, that could have an active anti-AIDS strategy — maybe it will develop it now — and, because of certain political considerations, decided not to do so. I am just wondering exactly how the human rights issues inform the whole debate. That is why we are having fun here. QUESTION: Marty, I wanted to turn your argument about the human right of stronger patent rights on its head. Actually, you could say that your claim — and this was said in a similar way, but I wanted to emphasize this — is in fact a claim for access to further and future medicine development, which is the same human rights claim as access to medicines. Therefore, it is a case that you actually have the same claim but a different economic situation. PROF. ADELMAN: I agree. QUESTIONER: So one does not have to pose them as conflict. I think that you touched on compulsory licensing. I will not, because we have a whole other panel on that. But that is an attempt to balance those two human rights claims. I agree with the speakers that there are many instances of human rights already present in the law in various ways. But I also just wanted to pick up on the point from the EC cases about the right to develop an intellectual property right. I would also put to you that there is a parallel there in some of the traditional rights holders’ and indigenous people’s claims about the right to develop their own intellectual property. I wonder down the chain what the outcome will be as the European jurisprudence develops and creates a certain international norm that has a flow over borders, how those two will deal with the apparent, but hopefully not too great, conflict. PROF. ADELMAN: One more comment. QUESTION [Mr. Safiyuddin]: I think the danger is in imposing American standards of patent protection in developing countries, which require different considerations in human rights. PROF. ADELMAN: You are certainly not including India in that, I hope, because India is a very advanced, scientific country with 300 or 400 million in the middle class, with a very wealthy class, many of whom can afford pharmaceuticals. And India might actually have developed something for the world if it had had a patent system in the last forty years. One of the great losses that we have had is, if people followed this gentleman’s direction, that India has hardly developed one new pharmaceutical. I do not know of anybody in this room who is alive today who was aided by an Indian pharmaceutical developed in the last forty years, even though it has one of the best scientific educational systems in the world and its chemistry and its biology are world-class.
390 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y We could spend a couple of hours arguing about the India situation,47 but we are going to close because we are going to have lunch and have some drinks. That is a human right.
APPENDIX A Human Rights and Copyright: The Introduction of Natural Law Considerations into American Copyright Law48 Orit Fischman Afori49 Hebrew University of Jerusalem and Tel-Aviv University, Israel INTRODUCTION Copyright law in the United States is predominantly based on utilitarian justifications.50 According to such justifications, copyright is aimed to benefit society as a whole.51 The main projection of utilitarian justifications for copyright in U.S. law is in the U.S. Constitution, according to which Congress has the power to legislate copyright laws in order “to promote the Progress of Science and useful Arts.”52 The emphasis on utilitarian justifications in the Constitution has greatly influenced the development of copyright law.53 The purpose of this Essay is to shed light on another “supernorm,” an alternative kind of constitutional norm that might be taken into consideration while shaping copyright law. This refers to Article 27 (“Article 27”) of the Universal Declaration of Human Rights (“Universal Declaration”),54 adopted and proclaimed by the General Assembly of the United Nations on December 10, 1948.55 Article 27 proclaims as follows:
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See, infra this issue, Session XII, Part C, India, IP Developments and TRIPs. This article was previously published in 14 Fordham Intell. Prop. Media & Ent. L.J. 497 (2004). A reprint of the article is available at the Conference Web site, http://www. fordhamipconference.com. 49 LL.B. (1996), LL.D. (2003), Hebrew University of Jerusalem. Lecturer, College of Management Academic Studies Law School, and Faculties of Law, Hebrew University of Jerusalem and Tel-Aviv University, Israel. The author wishes to thank Michael Birnhack, Guy Pessach, and Tamir Afori for their helpful comments. 50 See Paul Goldstein, Copyright: Principles, Law, and Practice § 1.1, ¶ 4 (1989); Paul Edward Geller, Must Copyright Be Forever Caught Between Marketplace and Authorship Norms?, Of Authors and Origins: Essays on Copyright Law 159 (Brad Sherman & Alain Strowel eds., 1994) (“Anglo-American copyright laws, in the usual course of affairs, rely on marketplace norms.”); Barbara S. Murphy, Note & Comment, The Wind Done Gone: Parody or Piracy? A Comment on Suntrust Bank v. Houghton Mifflin Co., 19 Ga. St. U. L. Rev. 567, 571 (2002) (“U.S. copyright law derives from the English, utilitarian theme by proposing to advance creative expression for the benefit of the public at large by granting a copyright to the individual author as both an economic incentive and a reward. . . . The ultimate aim was to promote broad public availability of literature, music, and the arts for the public good.” (citations omitted)). 51 See id. 52 U.S. Const. art. I, § 8, cl. 8 (“To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”). 53 One of the central examples of such impact is the Feist decision, where the Court interpreted the constitutional Copyright Clause as decisive for rejecting the “sweat of the brow” doctrine, namely, that investment of labor and effort by authors does not in itself justify a grant of copyright. See Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 354 (1991) (stating that “sweat of the brow” flouted basic copyright principles and that while copyright protection for labor may be appropriate under certain unfair competition principles, applying such protection solely on this basis “creates a monopoly in public domain materials without the necessary justification of protecting and encouraging the creation of ‘writings’ by ‘authors’” (quotations omitted)). 54 Universal Declaration of Human Rights, G.A. Res. 217A, U.N. GAOR, 3d Sess., Supp. No. 16, at 71, U.N. Doc. A/810 (1948), available at http://www.un.org/Overview/ ights.html (last visited Jan. 22, 2004) [hereinafter Universal Declaration]. 55 See id. 48
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1. Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits. 2. Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.56 The underpinnings of the Universal Declaration are from the field of natural law theory, namely philosophical justifications that are concerned with individual benefit rather than societal benefit.57 The question to be addressed in this Essay is whether Article 27 of the Universal Declaration, along with its theoretical infrastructure, can influence American copyright law. Article 27 can be used as a conduit to introduce natural law considrations into American copyright law. For a long time there has been an ongoing debate on whether the justifications of copyright are utilitarian only or a merger of utilitarian and natural law justifications instead.58 This Essay will not discuss those questions. The sole aim is to point out a normative source that may be used as a means to introduce natural law perceptions into American copyright law in a balanced way. To be clear, the proposition of this Essay is instrumental in character and is aimed to reveal a new legal mechanism for introducing natural law philosophies into the copyright discourse, but not to re-evaluate such justifications. Even though Article 27 of the Universal Declaration might have great importance in the field of art and culture, it has been completely ignored in copyright discourse in the United States.59 A better comprehension of the complex interests expressed in Article 27 might influence its acceptance as a normative source in the domestic field. Article 27 embraces a balance of interests between authors’ proprietary rights over their works and the rights of other members of society to enjoy these works.60 Thus, the introduction of natural law considerations through Article 27 need not necessarily sway the balance in favor of authors; it might even advance the rights of members of society to enjoy works, and hence will contribute to copyright restraint. As a result, using Article 27 as a medium of introduction of natural law considerations into domestic copyright law can contribute to the development of copyright law in a balanced way, by enriching the different considerations taken into account. Nevertheless, prima facie, the proposed use of Article 27 of the Universal Declaration may be problematic in the United States due to the Constitution’s copyright clause (“Copyright Clause”),61 according to which utilitarian consider-
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Id. See Wendy J. Gordon, A Property Right in Self-Expression: Equality and Individualism in the Natural Law of Intellectual Property, 102 Yale L.J. 1533, 1544 (1993) [hereinafter Gordon, Property Right in Self-Expression] (“As individuals we can take actions that cause us to deserve more or less than these fundamental human entitlements would dictate. Most notably, if we work productively, our labor may entitle us to own more goods than less industrious people are entitled to have.”). 58 For examples of such debate, see Geller, supra note 1; Gordon, Property Right in Self-Expression, supra note 57, at 1607–08 (stating that “it remains to be specified what relationship should exist between natural rights arguments and the various other norms our law appropriately recognizes, particularly economic or utilitarian consequentialism”); Alfred C. Yen, Restoring the Natural Law: Copyright as Labor and Possession, 51 Ohio St. L.J. 517 (1990) (presenting a view that natural law should be restored to modern copyright jurisprudence to reflect the historical development of copyright law in which there has been a presence of both natural law and economic theory). 59 Present research indicates that U.S. copyright law has not been challenged in U.S. courts with arguments based on article 27 (“Article 27”) of the Universal Declaration of Human Rights (“Universal Declaration”). Additionally, Article 27 is completely neglected in academic discourse. For more on the neglect of rights contained in Article 27, see infra note 104. 60 Göran Melander, Article 27, in The Universal Declaration of Human Rights: A Commentary 429, 430 (Asbjørn Eide et al. eds., 1992). 61 U.S. Const. art. I, § 8, cl. 8. 57
392 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y ation should be taken into account in legislating copyright law.62 In other words, the question is whether the Copyright Clause (dictating utilitarian considerations) proscribes the proposed use of Article 27 (reflecting natural law considerations). As this Essay shall explain at length, the utilitarian values, as reflected in the Copyright Clause can be reconciled with natural law values to some extent. Therefore, the Copyright Clause does not have to be understood as a total exclusion of naturalistic perceptions. Moreover, the universal human right—the super-norm—can be a source of inspiration to infuse U.S. standards, reflected in the Constitution and in statutes. Consequently, Article 27 can function as a supplementary source of consideration for inserting natural law considerations into American copyright law. Part I of this Essay presents the legal instruments and doctrines that will be used in Part II, in order to outline the proposal. Part I will briefly explain the theoretical dichotomy in copyright underpinnings and contains an in-depth analysis of Article 27 of the Universal Declaration. Part II of this Essay contains an application of the proposal according to which Article 27 can be used to introduce natural law considerations into American copyright law. It sketches the proposed mechanism enabled via Article 27 and concentrates on resolving the problems posed by the U.S. Constitution. I. HUMAN RIGHTS AND COPYRIGHT The final aim of this Essay is to propose a mechanism that enables to introduce natural law considerations into American copyright law. To this end, the essential components for constructing such a mechanism will be presented in the following first part of the Article. Thus, the general debate over copyright underpinnings will be briefly presented, followed by a more thorough presentation of the human rights’ international norm to be used in the framework of the proposition regarding the introduction of human rights discourse into the copyright scheme. A. JUSTIFICATIONS FOR COPYRIGHT
One common justification for copyright is based on utilitarian considerations.63 Copyright, like any other property right, is aimed to benefit as many people as possible in society and, as a result, to benefit society as a whole.64 Concentrating on public welfare, and not on the individual, means that there is a justification for copyright as long as it benefits the public.65 Aside from the utilitarian theory, however, there are philosophical and moral theories which center on the individual.66 The basic idea in those theories is 62 See Melville B. Nimmer & David Nimmer, 1 Nimmer on Copyright § 1.03[A] (2003) (“The primary purpose of copyright is not to reward the author, but is rather to secure ‘the general benefits derived by the public from the labors of authors.’” (citing N.Y. Times Co. v. Tasini, 121 S.Ct. 2381, 2401 (2001)). 63 See id. 64 For a general discussion on the utilitarian theory and its justifications for property rights, see Lawrence C. Becker, Property Rights: Philosophic Foundations 57–67 (1977); James W. Harris, Legal Philosophies 36–48 (1st ed. 1980); Stephen R. Munzer, A Theory of Property 196–98 (1990). 65 See 1 Copinger and Skone James on Copyright 15 (Kevin Garnett et al. eds., 14th ed. 1999) [hereinafter Copinger]; Gillian Davies, Copyright and the Public Interest 7–11 (VCH Publishers 1st ed.1994); Wendy J. Gordon, An Inquiry into the Merits of Copyright: The Challenges of Consistency, Consent, and Encouragement Theory, 41 Stan. L. Rev. 1343, 1438 (1989) (discussing the view taken by many economically oriented commentators that a person could only claim property rights for their creation if those rights would help the public) [hereinafter Gordon, Inquiry into Copyright Merits]. For more information about a utilitarian justification for copyright, see J.A.L. Sterling, World Copyright Law 56–62 (1st ed. 1998); Robert M. Hurt & Robert M. Schuchman, The Economic Rationale of Copyright, 56 Am. Econ. Rev., Papers and Proceedings 421 (1966); William M. Landes & Richard A. Posner, An Economic Analysis of Copyright Law, 18 J. Legal Stud. 325 (1989). 66 See Jeremy Waldron, The Right to Private Property 13 (1988); see also Jonathan Drimmer, Hate Property: A
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that human beings have fundamental interests, which should not be sacrificed for public benefit, and that society’s well-being does not override those interests.67 Protecting those interests is deemed vital for maintaining individual autonomy, independence, and security.68 Acknowledgment of these interests, which are vital for the individual, has led to the emergence of the term “natural right”69 and the development of theories that justify the natural property right conferred on individuals.70 The naturalistic character of the right does not mean that a person is born with it; rather it means that other people—society—acknowledge the right morally or rationally even though there is no positive rule establishing the right.71 Thus, a natural right stems from the nature of human kind.72 Two central theories that are a part of general natural law theories are the labor theory and the personality theory.73 These theories explain the nature of interest that an author has with regard to his or her work and, as a result, justify the assertion of that right.74 Briefly, according to the labor theory, the justification for copyright is based on the assumption that the author has a natural right in the fruits of his or her labor.75 This justification is a development of a general and common justification for property rights, ascribed in the literature mainly to philosopher John Locke.76 According to Locke, every person has a right over his or her body, hence, also a right over the fruits of his or her labor.77 The product of a person’s labor, which is the result of labor investment with respect to resources that are part of the public domain, is that person’s property.78 The personality theory, like the labor theory, deals with the natural justification of ownership over Substantive Limitation for America’s Cultural Property Laws, 65 Tenn. L. Rev. 691, 728–31 (1998) (discussing Locke’s labor theory and Hegel’s personality theory, both of which focus on the individual). 67 Id. at 728 (“Traditionally, to own private property is to have individual, exclusive rights to possess, use, and dispose of that property as seen fit.”). 68 Id. (“Western property theories traditionally embrace private, individual ownership schemes, deemed to ‘represent[] and protect[] the sphere of legitimate, absolute individual autonomy.’” (citations omitted)). 69 See Waldron, supra note 66, at 19. 70 For a discussion of such theories, see id. at 13. 71 Id. 72 Id. at 19. 73 Lawrence C. Becker, Deserving to Own Intellectual Property, 68 Chi.-Kent L. Rev. 609, 610 (1993) (describing the Lockean labor theory and the Hegelian personality theory as strong justifications for intellectual property); Michael D. Birnhack, Copyright Law and Free Speech After Eldred v. Ashcroft, 76 S. Cal. L. Rev. 1275, 1293 (2003) (describing the Lockean labor theory as “a ‘just rewards’ intuition” and the Hegelian personality theory as emphasizing a “personal connection between a person and a physical object that embodies his or her free will”); Edwin C. Hettinger, Justifying Intellectual Property, 18 Phil. & Pub. Aff. 31, 36, 45 (1989) [hereinafter Hettinger, Justifying Intellectual Property] (“Perhaps the most powerful intuition supporting property rights is that people are entitled to the fruits of their labor. . . . Private property can be justified as a means to sovereignty. Dominion over certain objects is important for individual autonomy.”); see also Gordon, Property Right in Self-Expression, supra note 57, at 1544 (describing the Lockean labor theory as based, inter alia, on the notion of “desert”). 74 See Gordon, Property Right in Self-Expression, supra note 57, at 1544 (“To the extent that [the Lockean] theory purports to state a nonconsequentialist natural right in property, it is most firmly based on the most fundamental law of nature, the ‘no harm principle.’”). 75 See Hettinger, Justifying Intellectual Property, supra note 73. 76 See infra note 78 and accompanying text. 77 See Hettinger, Justifying Intellectual Property, supra note 73, at 37 “A person owns her body and hence she owns what it does, namely, its labor. A person’s labor and its product are inseparable, and so ownership of one can be secured only by owning the other. Hence, if a person is to own her body and thus its labor, she must also own what she joins her labor with — namely, the product of her labor.”). 78 John Locke, Two Treatises on Civil Government (London, Routledge 1884). For a general overview of Locke’s ideas, see Huntington Cairns, Legal Philosophy from Plato to Hegel 35–36 (Johns Hopkins Univ. Press 1949). For the labor justification for property rights, see Becker, supra note 64, at 32–56; Munzer, supra note 64, at 37–58; Waldron, supra note 66, at 137–253.
394 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y assets.79 The claim is that a person’s control over assets expresses that person’s personality and inner will, and that these are necessary for the realization of autonomy, freedom, and confidence.80 In order to enable proper self-development, the individual needs control over the surrounding resources.81 Sometimes, the self-determination of a person is done via external objects.82 In this context, acknowledging the right to property answers the expectation of a person for continuous control over his or her external identity.83 The personality theory functions also as an explanation for copyright, because the work reflects the personal expression, will, and identity of the author in the external world. Thus, the author should be given control over the work that represents the external expression of his or her personality.84 In European, or continental countries, the theories justifying the author’s natural right with respect to his or her work have great impact on copyright law.85 In the United Kingdom and the United States, natural right theories were used alongside utilitarian theories as a basis for justifying copyright.86 The U.S. Supreme Court decision rendered in Feist Publications, Inc. v. Rural Telephone Service Co.,87 however, was a significant turning point. According to the Feist decision, labor is not enough to confer proprietary
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See infra note 54 and accompanying text. Margaret J. Radin, Reinterpreting Property 44–48 (1993) [hereinafter Radin, Reinterpreting Property]; Waldron, supra note 66, at 20, 377–78; Hettinger, Justifying Intellectual Property, supra note 73; Margaret J. Radin, Property and Personhood, 34 Stan. L. Rev. 957, 957–59 (1982) [hereinafter Radin, Property and Personhood]. 81 Radin, Property and Personhood, supra note 80, at 957. 82 See Justin Hughes, The Philosophy of Intellectual Property, 77 Geo. L.J. 287, 333 (1988) (“Mental processes — such as recognizing, classifying, explaining, and remembering—can be viewed as appropriations of the external world by the mind. Cognition and resulting knowledge, however, are the world imposing itself upon the mind. The will is not bound by these impressions. It seeks to appropriate the external world in a different way — by imposing itself upon the world.”); see also Waldron, supra note 17, at 352–55; Radin, Property and Personhood, supra note 80, at 961–62. 83 Hughes, supra note 82, at 333; Radin, Property and Personhood, supra note 80, at 968. 84 This idea is mainly ascribed in literature to Hegel. See Georg Hegel, Hegel’s Philosophy of Right (Thomas M. Knox trans., Oxford Univ. Press, 1942), available at http://www.marxists.org/reference/archive/hegel/prindex. htm (last visited Jan. 22, 2004). For a brief overview of Hegel’s ideas, see Cairns, supra note 78, at 517–23. For justifications of property rights and copyright according to Hegel’s theory, see Becker, supra note 64, at 29–30; Peter Drahos, A Philosophy of Intellectual Property 73–90 (Dartmouth 1996); Munzer, supra note 64, at 67–70; Waldron, supra note 66, at 20; Hughes, supra note 82, at 332–38; Radin, Property and Personhood, supra note 80, at 971; Stewart E. Sterk, Rhetoric and Reality in Copyright Law, 94 Mich. L. Rev. 1197, 1239–42 (1996). 85 Robert P. Merges et al., Intellectual Property in the New Technological Age 4 (2d ed. 1997); Stephen M. Stewart, International Copyright and Neighboring Rights 6, 24–27 (2d ed. 1989). 86 Many scholars hold the opinion that the theoretical basis of Anglo-American copyright law is dualistic, and that utilitarian and natural rights theories are used in combination. See, e.g., Merges, supra note 85, at 4; Benjamin G. Damstedt, Limiting Locke: A Natural Law Justification for the Fair Use Doctrine, 112 Yale L.J. 1179, 1179 (2003) (“Courts also have a long history of using natural law justifications in intellectual property cases”) (citation omitted); Jane C. Ginsburg, Creation and Commercial Value: Copyright Protection of Works of Information, 90 Colum. L. Rev. 1865, 1874 (1990) (“[T]hroughout the nineteenth century and into the twentieth, the concept of original authorship embraced both original labor and original creative activity.”); Gordon, Property Right in Self-Expression, supra note 58; Stewart E. Sterk, Rhetoric and Reality in Copyright Law, 94 Mich. L. Rev. 1197, 1199 (1996) [hereinafter Sterk, Rhetoric and Reality] (“Early American enactments also focused on these twin goals: assuring authors their just deserts and encouraging authors to create and disseminate works of social value. . . . Over the ensuing two centuries, as copyright protection has expanded, each expansion has been accompanied by rhetoric championing the needs of the deserving author, emphasizing the need to induce creative activity, or both.”) (citations omitted); Alfred C. Yen, The Interdisciplinary Future of Copyright Theory, in The Construction of Authorship: Textual Appropriation in Law and Literature 159, 161–62 (Martha Woodmansee & Peter Jaszi eds., 1994); Diane Leenheer Zimmerman, Information as Speech, Information as Goods: Some Thoughts on Marketplaces and the Bill of Rights, 33 Wm. & Mary L. Rev. 665, 690–703 (1992) (discussing the strong natural law influence on early intellectual property law in the United States and England). 87 Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 (1991). 80
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rights to the author.88 Furthermore, according to the Feist decision, labor investment does not replace the minimal degree of originality that is necessary for enjoying copyright.89 The Feist decision mainly turned on the Copyright Clause, which empowers Congress to legislate copyright law in order to promote science and useful arts for the benefit of society.90 The interpretation given to the Copyright Clause by the Supreme Court was that copyright protection was granted on the condition that there existed some originality, and this condition was articulated as a certain creativeness beyond mere labor investment.91 In contrast with the Feist decision, the labor theory is still in force in the United Kingdom and in other Anglo-Commonwealth jurisprudences.92 B. ARTICLE 27 OF THE UNIVERSAL DECLARATION OF HUMAN RIGHTS
The natural rights discourse is the background on which the human rights legal discipline developed.93 This legal discipline mainly deals with the legal means to realize natural rights.94 From human rights discourse emerged the recognition of “universal human rights.”95 The acknowledgment of fundamental basic rights, given to human beings wherever they are, reflects a wide philosophical and political position concerning the place of the individual in society and the need to entitle the individual with certain basic liberties.96 An expression of universal human rights may be found in the constitutions of several different countries97 and in treaties and international declarations regarding human rights. One of the most central sources for the recognition of global human rights is the Universal Declaration of Human Rights.98 The Universal Declaration is the fruit of philosophical and moral justifications of basic human rights, but in some ways has become the moral decree itself. The natural liberties that have an impact on positive rights are those acknowledged in countries’ constitutions, treaties, and international declarations; they are not those that are completely theoretical or which deal with a primeval world with no legal order at all.99 88 See id. at 352 (rejecting the “sweat of the brow” doctrine and requiring a showing of originality for copyright protection). 89 Id. at 340–41. 90 U.S. Const., art. I, § 8, cl. 8. 91 Feist, 499 U.S. at 340. 92 See Copinger, supra note 65, at 30; Report of the Comm. to Consider the Law on Copyright and Designs (Whitford Report), 1977, CMND 6732, at 3. It should be explained that although the seminal decision in the case of Donaldson v. Beckett, (1774) 1 E.R. 837, has stressed utilitarian justifications for copyright, naturalistic justifications were never abandoned. For example, see the decision held by the House of Lords in Ladbrook (Football) Ltd., v. William Hill (Football) Ltd., [1964] 1 W.L.R. 273, 277–78, according to which labor investment is a relevant threshold for conferring copyright. Recently, the appeals court of Australia laid down a decision according to which English law must be adopted continually, so labor theory continues to be a justification of copyright. See Desktop Mktg. Sys. Pty. Ltd. v. Telstra Corp. Ltd. (2002) 192 A.L.R. 433. In this case it was held that a telephone directory was copyrightable. 93 Louis Henkin, The Age of Rights 1 (1st ed. 1990) [hereinafter Henkin, Age of Rights]. 94 Therefore, the Human Rights discipline could not be classified as a “theory” standing on its own, because it does not give additional theoretical justification for acknowledging natural rights. For the position that the human rights legal movement is based on different values but is not in itself a philosophical theory, see id. at 1–2, 6, 31. 95 Jerome J. Shestack, The Jurisprudence of Human Rights, in 1 Human Rights in International Law: Legal and Policy Issues 69, 70–74 (Theodor Meron ed., 1985). 96 Discussion over the theoretical basis of universal human rights is beyond the scope of this Essay. It should be noted, however, that natural rights theories served as the main cause, although not the exclusive one, for the development of universal human rights. See id. at 85–101. 97 Henkin, Age of Rights, supra note 93, at 26–29. 98 See supra note 5 99 Jeremy Waldron, From Authors to Copiers: Individual Rights and Social Values in Intellectual Property, 68 Chi.-Kent L. Rev. 842, 869–70 (1993). The Universal Declaration manifests the general legal movement of human
396 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y Thus, the status and the great influence of the Universal Declaration turned it into a quasi-justification in itself for different human rights.100 Intellectual property rights, and in particular copyright, are also treated in the framework of the Universal Declaration.101 As cited previously, Article 27(2) of the Universal Declaration states that the material and moral interests of the author with respect to his or her work should be protected.102 In further protection of the author’s rights, Article 27(1) proclaims a basic and universal right, according to which “[e]veryone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits.”103 Thus, Article 27(1) includes a range of different rights, from freedom of creation to the right to enjoy existing works.104 The aim of Article 27(1) is to make it clear that culture must be within everyone’s reach and, therefore, it must be possible not only to access culture but to participate in its creation as well.105 This is a reason for referring to the rights proclaimed in Article 27(1) as rights of “access and participation.”106 Article 27 of the Universal Declaration, then, is comprised of two parts, which together grant a package of rights called “cultural rights.”107 This bundle of cultural rights includes the right to participate in cultural life, the freedom of creation, the right to enjoy culture, the right to enjoy the products of scientific progress, the freedom of scientific research, and the economic and moral rights the author has with respect to his or her work.108 It should be noted that after the acceptance of the Universal Declaration, the United Nations (U.N.) decided to formulate treaties on the issues related to the Universal Declaration.109 Accordingly, in 1966 two treaties were formed: one dealing with civil and political rights and the other with economic, social, and cultural rights.110 The package of cultural rights, proclaimed in Article 27, was acknowledged in the treaty regarding
rights in concrete and applicable terms. See Louis Henkin, The Universal Declaration at 50 and the Challenge of Global Markets, 25 Brook. J. of Int’l L. 17, 18–19 (1999) [hereinafter Henkin, Universal Declaration at 50]. 100 The Universal Declaration is deemed to be the prime document and constitution of the human rights movement, with a symbolic and ideological status. See Henry J. Steiner & Philip Alston, International Human Rights in Context: Law, Politics, Morals: Text and Materials 138–39 (2d ed. 2000). 101 Universal Declaration, supra note 54. 102 Id. 103 Id. 104 Francois Dessemontet, Copyright and Human Rights, in Intellectual Property and Information Law: Essays in Honour of Herman Cohen Jehoram 113, 117 (Jan J.C. Kabel & Gerald J.H.M. Mom eds., 1998). 105 See Audrey R. Chapman, A Human Right Perspective on Intellectual Property, Scientific Progress, and Access to the Benefits of Science, in Intellectual Property and Human Rights 127, 132 (1999). 106 See Mehmet Komurcu, Cultural Heritage Endangered by Large Dams and Its Protection Under International Law, 20 Wis. Int’l L.J. 233, 276–77 (2002) (discussing Article 27 and recognizing a person’s “right to participation in culture” and that “cultural rights should give priority to access to, and education about one’s own culture”) (emphasis added). 107 Ragnar Adalsteinsson & Páll Thórhallson, Article 27, in The Universal Declaration of Human Rights: A Common Standard of Achievement 575 (Gudmundur Alfredsson & Asbjørn Eide eds., 1999) (“Article 27 is usually said to proclaim cultural rights.”). 108 Id.; Yoram Dinstein, Cultural Rights, 9 Israel Yearbook of Human Rights 58 (1979). 109 See infra notes 110–13 and accompanying text. 110 International Covenant on Economic, Social and Cultural Rights, G.A. Res. 2200A, U.N. GAOR, 21st Sess., Supp. No. 16, at 49, U.N. Doc. A/6316 (1966); International Covenant on Civil and Political Rights, G.A. Res. 2200A, U.N. GAOR, 21st Sess., Supp. No. 16, at 52, U.N. Doc. A/6316 (1966). Besides those two treaties, in 1966 another declaration was made regarding the need for international cooperation on cultural issues. See United Nations Educational, Scientific and Cultural Organization (“UNESCO”), Declaration of the Principles of International Cultural Cooperation, reprinted in 1 Human Rights: A Compilation of International Instruments 595 (1994).
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economic, social, and cultural rights.111 The United States, however, is not a party to this treaty.112 Moreover, the cultural rights were also established almost identically in the 1948 American Declaration of the Rights and Duties of Man, adopted by the Organization of American States, of which the United States is a member nation.113 C. THE STATUS OF THE UNIVERSAL DECLARATION OF HUMAN RIGHTS
The Universal Declaration is not a treaty that states are parties to; rather, it is a declaration proclaiming universal rights that everyone should have wherever they are.114 The declaration is not aimed to bind states in particular, but rather society as a whole.115 The original intent of the framers of the Universal Declaration, at least of some of them, was that it would have mainly moral force and would be used as a source of inspiration and guidance in the field of human rights.116 At the time the Universal Declaration was formulated, however, there was no consent between its supporting states on its legal force.117 The superpowers of that time, the United States and the Soviet Union, as well as other states such as Great Britain and China, held that the Universal Declaration was only a moral source of inspiration and nothing more.118 Other states, such as France, Chile, and Lebanon, held the opposite position, that the Universal Declaration was a continuation of the U.N. Charter, and hence, had binding legal force.119 More than that, 111 Article 15(1) of the International Covenant on Economic, Social and Cultural Rights states that: The States Parties to the present Covenant recognize the right of everyone: (a) To take part in cultural life; (b) To enjoy the benefits of scientific progress and its applications; (c) To benefit from the protection of the moral and material interest resulting from any scientific, literary or artistic production of which he is the author. Article 15(2) of said covenant stipulates that the states parties are bound to take steps to promote said cultural rights. Article 15(2) is compatible with the general policy of the covenant, according to which the rights in the states parties are not “guaranteed,” and that the states parties should take measures to realize the rights, as part of an ongoing process. See Matthew C.R. Craven, The International Covenant on Economic, Social and Cultural Rights: A Perspective on its Development 106–52 (1995); David M. Trubek, Economic, Social, and Cultural Rights in the Third World: Human Rights Law and Human Needs Program, in 2 Human Rights in International Law: Legal and Policy Issues 205, 210, 212–14 (Theodor Meron ed., 1985). Article 15(3) stipulates that “[t]he States Parties to the present Covenant undertake to respect the freedom indispensable for scientific research and creative activity.” 112 International Covenant on Economic, Social and Cultural Rights, G.A. Res. 2200A, U.N. GAOR, 21st Sess., Supp. No. 16, at 4, U.N. Doc. A/6316 (1966). The United States is not a party to this treaty. 113 American Declaration of the Rights and Duties of Man, O.A.S. Res. XXX, International Conference of American States, 9th Conf., O.A.S. Doc. OEA/Ser. L/V/I.4 Rev. XX (1948). According to article XIII of the American Declaration of the Rights and Duties of Man: Every person has the right to take part in the cultural life of the community, to enjoy the arts and to participate in the benefits that result from intellectual progress, especially scientific discoveries. He likewise has the right to the protection of his moral and material interests as regards his inventions or any literary, scientific or artistic works of which he is the author. Id. It should be noted that this declaration precedes the Universal Declaration of Human Rights. 114 See Gudmundur Alfredsson & Asbjørn Eide, Introduction to The Universal Declaration of Human Rights: A Common Standard of Achievement xxx (Gudmundur Alfredsson & Asbjørn Eide eds., 1999) (“[The Universal Declaration] is not a convention subject to the ratification and accession requirements foreseen for treaties. Nevertheless, it is clear that [it] . . . carries legal weight far beyond that of ordinary resolutions or even other declarations emanating from the General Assembly [of the United Nations].”). 115 The framers of the Universal Declaration had an internal conflict on the question of whether it was best to shape it as an international covenant, which binds countries, or as a declaration, which has moral force only. Finally, the second option was adopted, with the support of different countries, including the United States and the (then) U.S.S.R. Ashild Samnøy, Human Rights as International Consensus: The Making of the Universal Declaration of Human Rights 1945–1948, 57–67 (1993). 116 The original framers who shared this view included the United States, China, Australia, Mexico, the Netherlands, New Zealand, Poland, the Union of South Africa, and the United Kingdom. Id. at 70–72. 117 Id. at 77 (“In the end, the Declaration was adopted with a variety of views on its legal value.”). 118 Id. at 70–72. 119 Id. at 76 (“Chile, France and Lebanon were the leading forces among those who saw the Declaration as binding.”).
398 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y many countries announced their obligation to the Universal Declaration, simply due to its importance.120 Therefore, the legal status of the Universal Declaration is controversial. Some hold the view that despite its moral importance it does not have binding status, while others hold the view that it reflects binding law, either because it continues the U.N. Charter or because it is part of customary international law.121 Even if the Universal Declaration has not become part of customary international law, however, at least it should have impact on interpreting domestic laws, due to its position as a moral source of inspiration.122 The fact that the status of the Universal Declaration is not assimilated into a binding treaty does not mean that any state simply can ignore it.123 In any case, the Universal Declaration manifests a variety of human rights, from basic freedoms to social and economic rights.124 Therefore, it is not made of one cloth, and a separate discussion can be held regarding the status of each one of the different rights included therein. For the purposes of the discussion here, it is assumed that Article 27 is of an inspirational nature.125 D. THE RIGHT TO PARTICIPATE IN CULTURAL LIFE AS A HUMAN RIGHT
The right to participate in cultural life is included in the package of cultural rights proclaimed in Article 27(1) of the Universal Declaration.126 The research on the right to participate in cultural life is limited.127 Different declarations and treaties are some of the 120
Henkin, Universal Declaration at 50, supra note 99, at 21. Paul Seighart, The International Law of Human Rights 14–19 (1983). For the status of the Universal Declaration in various countries, including the United States, and for the position that it has become part of customary international law, see Hurst Hannum, The Status and Future of the Customary International Law of Human Rights: The Status of the Universal Declaration of Human Rights in National and International Law, 25 Ga. J. Int’l & Comp. L. 287, 298, 301, 304–07, 322–24 (1995/1996); see also Samnøy , supra note 115, at 128–30; Richard B. Lillich, Invoking International Human Rights Law in Domestic Courts, 54 U. CIN. L. REV. 367, 394 (1985) (quoting one of the drafters of the Universal Declaration stating that “the Declaration has been invoked so many times both within and without the United Nations that lawyers now are saying that, whatever the intention of its authors may have been, the Declaration is now part of the customary law of nations and therefore is binding on all states”). For more on this issue, see Restatement (Third) of the Foreign Relations Law of the United States § 701–02 (1987) (invoking an obligation upon states to respect human rights and listing the customary international law of human rights) [hereinafter Restatement of Foreign Relations]. 122 Pieter van Dijk, The Universal Declaration Is Legally Non-Binding: So What?, in Reflections on the Universal Declaration of Human Rights: A Fiftieth Anniversary Anthology 108, 109 (Barend van der Heijden & Bahia Tahzib-Lie eds., 1998). For Tony Blair’s opinion on the practical aspects of the Universal Declaration, see Tony Blair, The Universal Declaration as a Source of Inspiration, in Reflections on the Universal Declaration of Human Rights: A Fiftieth Anniversary Anthology 65 (Barend van der Heijden & Bahia Tahzib-Lie eds., 1998); see also Edward D. Re, The Universal Declaration of Human Rights and the Domestic Courts, 14 St. Thomas L. Rev. 665, 680–81, 685–86 (2002) (discussing the moral and legal effect of the Universal Declaration, and the role of domestic courts in following the spirit of the Universal Declaration, inter alia, through interpretation of domestic statutes and constitutional provisions). 123 Oscar Schachter, The Twilight Existence of Non-Binding International Agreements, 71 Am. J. Int’l L. 296, 298 (1977); van Dijk, supra note 73, at 108. 124 See Universal Declaration, supra note 54. 125 Such view was held, obiter dictum, with respect to Article 27 of the Universal Declaration in a case discussing the status of the right to free elementary education, proclaimed in article 26(1). See In re Alien Children Educ. Litig., 501 F. Supp. 544, 593 (S.D. Tex. 1980), aff’d sub nom. Plyler v. Doe, 457 U.S. 202 (1982) (It should be noted that the reference in this case was made to Article 27(1), but the wording of Article 27(2) was quoted.). For scholarly acceptance of such a conclusion, see Lillich, supra note 121, at 407 n.189. 126 See Universal Declaration, supra note 54 (“[e]veryone has the right freely to participate in the cultural life of the community”). 127 This situation was described by leading commentators as “clear neglect of the specifically economic and social rights dimensions of cultural rights.” Steiner & Alston, supra note 100, at 248. “Cultural rights are [also] often qualified as an ‘underdeveloped category’ of human rights.” See Human Rights: Concepts and Standards 175 (Janusz Symonides ed., 2000) [hereinafter Symonides, Human Rights]. 121
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available tools for clarifying its content.128 Reference to the content and interpretation of said right may be found in the U.N. Educational, Scientific and Cultural Organization’s (“UNESCO”) 1986 recommendation titled Participation by the People at Large in Cultural Life and Their Contribution to It.129 In this recommendation, UNESCO determined that there are two key terms in this context: (1) Access to Culture: This is defined as “the concrete opportunities available to everyone, in particular through the creation of the appropriate socioeconomic conditions, for freely obtaining information, training, knowledge and understanding, and for enjoying cultural values and cultural property”;130 (2) Participation in Cultural Life: This is defined as “the concrete opportunities guaranteed for all—groups or individuals—to express themselves freely, to act, and engage in creative activities with a view to the full development of their personalities, a harmonious life and the cultural progress of society.”131 This recommendation actually refers to the connection between protection of cultural rights and guarantees for a modern, democratic society.132 UNESCO’s recommendation held that the right to participate in cultural life includes two central elements. One, passively characterized, concerns the right to have access to culture as a right to be exposed to knowledge, ideas, etc.133 The second element, actively characterized, concerns having a role in cultural life, by engaging in creative activity and communicating its product to the public.134 As a result of recognizing the right to participate in cultural life as an active right, or one of creative activity, there was a need to recognize the right to have the freedom of creation as well, because freedom of creation is essential for realizing 128 There are many declarations and treaties dealing with the subject of “cultural rights.” Despite the existence of these international legal instruments, it has been claimed that the international institutes responsible for their implementation have not made an effort to interpret them or to stimulate international discourse on the issue. See Chapman, supra note 105, at 134. For a review of the acts taken by UNESCO in order to promote the cultural rights discourse and implementation, see Symonides, Human Rights, supra note 78, at 176–79. The following are some international instruments referring to the subject of “cultural rights”: (1) The Declaration of the Principles of International Cultural Co-Operation, supra note 110, proclaims in article 1(2) that, “Every people has the right and the duty to develop its culture.” Id. Article 7(1) of this declaration proclaims that, “[b]road dissemination of ideas and knowledge, based on the freest exchange and discussion, is essential to creative activity, the pursuit of truth and for the development of the personality.” Id. (2) In 1980, a Recommendation Concerning the Status of the Artist was accepted by UNESCO, in which there is a commitment of states to protect artists, aid them, and ensure freedom of creation, by legislating these rights in domestic and international law concerning human rights. See Recommendation Concerning the Status of the Artist, UNESCO, 21st Sess., available at http://www.unesco.org/culture/laws/artist/ html_eng/page1.shtml (Oct. 27, 1980); see also Stephan P. Marks, Education, Science, Culture and Information, in 2 United Nations Legal Order 576, 613–14 (Oscar Schachter & Christopher C. Joyner eds., 1995). (3) The Declaration on the Right to Development, from 1986, states in article 1(1), inter alia, that the right to development is an inalienable human right, which confers on everyone the right to participate in cultural progress. See Declaration on the Right to Development, G.A. Res. 41/128, U.N. GAOR, Supp. No. 53, at 186, U.N. Doc. A/41/53 (1986), available at http://www.-unhchr.ch/html/menu3/b/74.htm (last visited Jan. 22, 2004). 129 Recommendation on Participation by the People at Large in Cultural Life and Their Contribution to It, UNESCO, 19th Sess., I.2 [hereinafter Recommendation on Participation in Cultural Life], available at http://www.unesco.org/culture/laws/nairobi/html_eng/page1. html (Nov. 26, 1976); see also Marks, supra note 128, at 599. 130 Recommendation on Participation in Cultural Life, supra note 129, I.2. 131 Id. 132 Marks, supra note 128, at 576, 600–01. 133 See Recommendation on Participation in Cultural Life, supra note 129, I.2(a) 134 See id. at I.2(b) (stating that “participation in cultural life . . . [means] the concrete opportunities guaranteed for all—groups or individuals—to express themselves freely, to act, and engage in creative activities with a view to the full development of their personalities, a harmonious life and the cultural progress of society”).
400 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y the right to creative activity.135 In an early draft of Article 27 of the Universal Declaration, the right was defined as the following: “Everyone has the right to participate in the cultural life of the community . . . .” After discussions, it was decided to add the word “freely” before the word “participate,” hence, without full freedom of creation there cannot be creative activity honoring human beings.136 Furthermore, in order to clarify the content of the right to participate in cultural life one must clarify the term “culture.” UNESCO’s recommendation mentions that the term “culture” is a very broad one, and does not only refer to works of art or to the products of the social elite—such as those exhibited in museums— but also to acquisition of knowledge, a demand for a way of life, and the need to communicate.137 Indeed, according to the working papers of the Universal Declaration, the term “culture” designated “high” culture.138 As later treaties are common and acceptable tools for interpreting prior treaties,139 however, the right to participate in cultural life should not be understood as limited to certain kinds of works.140 In any case, it is hard if not impossible to define the term “culture” accurately, and it was suggested to include in it the following: language, literature, religion, art, science, knowledge in general, and any spiritual endeavor.141 The term “culture” was thus given a flexible meaning, which includes art as well as science, according to the specific context.142 135 See id. at I.1 (“This Recommendation concerns everything that should be done by Member States or the authorities to democratize the means and instruments of cultural activity, so as to enable all individuals to participate freely and fully in cultural creation and its benefits, in accordance with the requirements of social progress.” (emphasis added)). 136 Adalsteinsson & Thórhallson, supra note 107, at 578–79. 137 On the preamble to UNESCO’s recommendation, the term “culture” is described or defined as a “social phenomenon resulting from individuals joining and co-operating in creative activities.” See Recommendation on Participation in Cultural Life, supra note 129, I.2(a). 138 This was namely culture as perceived by the social elite. See Adalsteinsson & Thórhallson, supra note 107, at 579. 139 According to article 31(3) of the 1969 Vienna Convention on the Law of Treaties, all late agreements between parties, late practice, and all relevant international rules applying to the parties should be taken into account while interpreting prior treaties. Vienna Convention on the Law of Treaties, opened for signature May 23, 1969, art. 31(3), 1155 U.N.T.S. 331, available at http://www.un.org/law/ilc/texts/treaties.htm (last visited Jan. 22, 2004). 140 Nowadays, a central implication of the broad interpretation given to the term “culture” is the recognition of rights of developing minorities. Over the last decade a lively discussion has been held on the issue of protecting folk culture and on the cultural rights of developing ethnic minorities as a group. For example, see John Mugabe, Intellectual Property Protection and Traditional Knowledge, in Intellectual Property and Human Rights 97 (1999); Carol M. Rose, The Several Futures of Property: Of Cyberspace and Folk Tales, Emission Trades and Ecosystems, 83 Minn. L. Rev. 129, 160 (1998) (“[F]ailure to recognize traditional people’s creative work—in which generations of people add incrementally to local legends, craft traditions, and cultivated products—has of course led a number of critics to assert that author- and inventor-centrism has the intended or unintended consequence of . . . permitting Western appropriators to plunder the work of traditional peoples. . . . [T]he creators of these collaborative works could benefit from property protection—not necessarily to cash in on their work, but sometimes simply to achieve recognition, and to prevent outsiders from appropriating and commercializing their emergent artistic products.”). In this spirit, there is also a recommendation of UNESCO: Recommendation on Safeguarding of Traditional Cultureand Folklore, UNESCO, 25th Sess., available at http://www.unesco.org/culture/laws/paris/ html_eng/page1.shtml (Nov. 16, 1989). It should be emphasized, however, that the right to participate in cultural life as a human right applies to individuals only, wherever they are, and not to groups of people, such as minorities or ethnic groups. See Dinstein, supra note 108, at 75. 141 Dinstein, supra note 108, at 74–75. For more on the different definitions and meanings of “culture,” see Symonides, Human Rights, supra note 127, at 179–81. 142 Dinstein, supra note 108, at 74. Accordingly, it was claimed that eliminating the term “art” from article 15(3) of the International Covenant on Economic, Social and Cultural Rights, supra note 110, does not reflect an opinion according to which the right of enjoying arts should not be recognized; rather it reflects the fact that the term “art” is superfluous since it is included in the broad term “culture.” Dinstein, supra note 108, at 75.
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As to the term “community” mentioned in Article 27(1), according to which there is right of participation in cultural life “of the community,” this wording replaced the words “of the society” that had appeared in an early draft of the article.143 The common view is that the words “of the community” do not limit the scope of the right, and some even support the view that it is superfluous.144 Other issues regarding the right to participate in cultural life require a brief explanation. The first issue concerns the aim of the right. The justification for the right mainly stems from the aim of developing and realizing a human being’s personality.145 This right is connected to the human right to dignity, which according to the preamble to the Universal Declaration is the basis of the human right to freedom.146 The second issue concerns the classification of the right. The right includes many other basic rights, such as the right to self-expression, to receive information, to use a language, and to education.147 All these rights enable a person to participate in the cultural life of his or her community.148 Because the right to participate in cultural life could be divided into further basic rights, some of which are recognized as independent rights, the need for another independent right containing those not recognized should be explained. As illustrated below, some scholars have suggested classifying intellectual property rights in general and copyright in particular as rights functioning as a means to realize primary universal human rights, such as freedom of expression.149 This kind of classification is also suitable for the right to participate in cultural life.150 E. COPYRIGHT AS A HUMAN RIGHT
Article 27(2) of the Universal Declaration establishes the status of the material and the moral rights of the author as human rights. Despite the content of Article 27(2) there is much criticism of viewing intellectual property rights in general and copyright in particular as universal human rights.151 143
Adalsteinsson & Thórhallson, supra note 107, at 579. Accordingly, some scholars claim that omission of the term “community” from article 15(1) of the Covenant on Economic, Social and Cultural Rights, supra note 110, is wise because of the conflicting views of commentators on how the term should be interpreted and whether it should be there at all. Adalsteinsson & Thórhallson, supra note 58, at 579. See also Dinstein, supra note 108, at 76–77 145 See Adalsteinsson & Thórhallson, supra note 107, at 576 (“[T]he basic idea of cultural rights is that all human beings shall be entitled to take part in cultural life. . . . Otherwise, they would not be able to develop themselves as individuals in society, and human society would not flourish.”). 146 Id. at 575–76. Support for this proposition can be found in article 22 of the Universal Declaration, which declares that realization of economic, social, and cultural rights is indispensable for a person’s dignity and free development of personality, and according to which the entire declaration should be interpreted. Universal Declaration, supra note 54. 147 See Adalsteinsson & Thórhallson, supra note 107, at 576 (“In its broadest sense, the expression ‘cultural rights’ thus understood engulfs much of human rights altogether. Freedom of speech, freedom of religion, freedom of association, the right to self-determination, the right to choose one’s identity, the right to receive information, the right to education, and the right to use the language of one’s choice can all be considered cultural rights.”). 148 Id. 149 See infra note 166 and accompanying text. 150 It should be mentioned that there are scholars who think that the correct classification of the right to participate in cultural life is a subsidiary civil and political right, and that placing it in the economic and social rights arena is not accurate. See Adalsteinsson & Thórhallson, supra note 107, at 577; Ann I. Park, Comment, Human Rights and Basic Needs: Using International Human Rights Norms to Inform Constitutional Interpretation, 34 UCLA L. Rev. 1195, 1229 n.136 (1987). For the distinction between the different kinds of rights, compare the International Covenant on Economic, Social and Cultural Rights with the International Covenant on Civil and Political Rights, supra note 110. 151 See Dessemontet, supra note 104, at 116–20 (discussing the concern that resulted from the Universal Declaration’s embrace of the freedom to create, which many countries, including the United States, found at odds with the protection of intellectual property rights); see also infra notes 152–62 and accompanying text 144
402 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y First, there is doubt as to whether property rights in general are human rights. This is because, inter alia, property rights are not absolute, but rather subject to public interests.152 Discussion of the question of whether property rights are indeed human rights is beyond the scope of this Essay; however, it is clear that such a discussion will have a crucial impact on the status of copyright as a human right.153 Apart from the difficulty of recognizing property rights as human rights, various characteristics of intellectual property rights, such as their non-perpetuity, have been claimed to undermine their validity as a basic human right.154 Second, in order to recognize copyright as a human right one must adopt the view that it is a natural right. As mentioned above, however, there is an ongoing debate on the subject.155 It is not enough that natural law doctrines influenced the development of intellectual property rights. The question remains as to whether intellectual property rights are natural rights or rights only made by positive law. Despite the fact that copyright is widely recognized, there are profound differences in the theoretical foundations on which the legal copyright system is based in each country. Therefore, there is great difficulty from a practical point of view in referring to copyright as a basic human right.156 A similar quandary exists in relation to other economic, social, or cultural rights, whose recognition as human rights are questioned because their justifications do not stem from natural law doctrines.157 Third, a common claim is that there is a difference between copyright law today, which is mostly dictated by developed countries in order to maintain their economic interests, and the rights and liberties proclaimed by international institutions.158 An example of 152 See Lynda J. Oswald, Property Rights Legislation and the Police Power, 37 AM. Bus. L.J. 527, 535 (2000) (“Protection of private property rights . . . has never been absolute in the U.S. legal system. The law constantly struggles to balance private property rights and public interests, with mixed results.” (footnote omitted)); see also infra note 153. 153 In a nutshell, it is possible to classify human rights into basic liberties everyone is entitled to, such as the right to life and freedom, and into basic rights that everyone has the option to be entitled to, such as a property right, although the first kind of basic liberties might not be realized. Economic, social, and cultural rights, including property rights, are classified as rights that everyone may have, but not everyone will actually have them. Furthermore, sometimes these rights impose positive obligations on society and, as a result, some state action is necessary, such as resource collecting. Thus, these rights are not absolute but contingent, and their realization is subject to different factors, such as source allocation by the state. See Becker, supra note 64, at 76; Craven, supra note 111, at 14; Waldron, supra note 66, at 4–5, 20. A basic claim against recognizing a property right as a human right is that it is not universal and absolute, and the list of universal human rights should reflect basic and absolute rights, which can not be restricted from time to time. Peter Drahos, The Universality of Intellectual Property Rights: Origins and Development, Intellectual Property and Human Rights 13, 25–27 (1999) [hereinafter Drahos, Origins and Development]; see also Craven, supra note 111, at 6; Michel Vivant, Authors’ Rights, Human Rights?, 174 Revue Internationale du Droit d’Auteur 60, 84 (M. Platt-Hommel trans., 1997). Moreover, it is claimed that the fact that the property right was included in the Universal Declaration should not be regarded as proof of its classification as a human right, and a property right does not deserve wide and universal protection because it causes socio-economic gaps. See Craven, supra note 111, at 11; Catarina Krause & Gudmundur Alfredsson, Article 17, in The Universal Declaration of Human Rights: A Common Standard of Achievement 359, 359–61, 378 (Gudmundur Alfredsson & Asbjørn Eide eds., 1999). Opposing these claims are scholars who classify economic rights, including property right, as “second generation” human rights, which arose from political ideas and legal perceptions that are not only rooted in natural law and have emerged in the modern era. In contrast to these rights, the “absolute” human rights are “first generation,” which were established from the eighteenth century on. See Craven, supra note 111, at 8, 10. For a critical review of this distinction between first and second generation human rights, see Park, supra note 150, at 1226–31 154 Drahos, Origins and Development, supra note 153, at 30. 155 See supra notes 152–4 and accompanying text. 156 Robert L. Ostergard, Intellectual Property: A Universal Human Right?, 21 Hum. Rts. Q. 156, 161–62 (1999); Vivant, supra note 153, at 70, 84. 157 Craven, supra note 111, at 10. 158 Edited Transcript of Discussion on Intellectual Property and the Right to Culture (Nov. 9. 1998), Intel-
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such differences between copyright as human right and existing positive copyright involves the issue of protection of an author’s copyright in foreign countries. For if copyright is a human right, then there is no need to codify rules according to which under some conditions authors could enjoy copyright protection outside their homeland, because the right should be given to them wherever they are.159 Another common claim is that intellectual property rights do not protect the traditional knowledge of developing countries, causing discrimination against part of the world population and undermining the moral foundations of those rights as universal human rights.160 There are even scholars who hold the view that the trend among international treaties concerning intellectual property rights is to broaden the scope of the rights and their field coverage, which is not necessarily compatible with cultural rights aimed to increase dissemination of works.161 Therefore, although copyright has universal recognition, it is not universally perceived as a human right.162 Following the criticism outlined above, Article 27(2) was not included in an early draft of the Universal Declaration.163 The article was added despite the view of opposing countries, including England and United States, that copyright and neighboring rights are not human rights.164 The context for the addition of cultural rights to the Universal Declaration of 1948 included the events of World War II and the public debate afterwards on the need for a universal ethical code to regulate the use of the fruits of science and cultural properties.165 Since copyright was added to the list of human rights despite the problems that arose, it was suggested to classify copyright as a means to realize other universal human rights, such as the freedom of expression or the right to self-dignity, and not as a basic human right.166 lectual Property and Human Rights 59, 63 (1999), available at http://www.wipo.int/tk/en/activities/1998/ humanrights/papers/index.html; Rochelle Copper Dreyfuss & Diane Leenheer Zimmerman, Convenors’ Introduction: The Culture and Economics of Participation in an Intellectual Property Regime, 29 N.Y.U. J. Int’l L. & Pol. 1, 1–9 (1996–1997). 159 Silke von Lewinski, Intellectual Property, Nationality, and Non-Discrimination, in Intellectual Property and Human Rights 175, 176–77, 188, 193 (1999), available at http://www.wipo.int/tk/en/activities/1998/humanrights/ papers/index.html. In France, in one particular case, the court concluded the existence of a moral right in favor of a plaintiff who was not a French citizen, due to the influence of the Universal Declaration. See Dessemontet, supra note 104, at 114–15 n.7. In that case, copyright in a Charlie Chaplin silent film was infringed by adding a soundtrack without permission. Id. 160 Drahos, Origins and Development, supra note 153, at 29–30; Mugabe, supra note 140, at 111–12. 161 Id., at 28–29. 162 See id. at 30–31. In order for a right be recognized as a universal human right, it is not enough that it is recognized all over the world; “human rights are held to exist independently of recognition or implementation in the customs or legal systems of particular countries.” James W. Nickel, Making Senses of Human Rights Philosophical Reflections on the Universal Declaration of Human Rights 3 (1987). 163 For a general summary of the concerns surrounding the drafting of Article 27(2), see Adalsteinsson & Thórhallson, supra note 107, at 577–80; Chapman, supra note 105, at 131–32. 164 Adalsteinsson & Thórhallson, supra note 107, at 579; Dessemontet, supra note 104, at 117. For the general objection to including economic rights, which incorporates property rights, in the Universal Declaration, see supra note 153 and Samnøy, supra note 115, at 79–85. 165 Chapman, supra note 105, at 131–32. For the general impact of World War II events on the Universal Declaration, see Samnøy, supra note 115, at 79. 166 Peter Drahos, Intellectual Property and Human Rights, 3 Intell. Prop. Q., 349, 367 (1999); see also Drahos, Origins and Development, supra note 153, at 31–32 (discussing the complementarities among clusters of rights: “[s]ome rights . . . are instrumental in securing the feasibility of claiming other types of rights.”); Vivant, supra note 153, at 78 (quoting Christian Mouly’s views on property: “The place given to it . . . can only . . . be explained by analyzing it as a legal procedure for protecting the other human rights. Property is not the expression of one of the three fundamental rights (freedom, equality, dignity), it is a guarantee of the human rights which are the expression of them.”). For the general view that all economic, social, and cultural rights function as means to realize other basic human rights, see Craven, supra note 111, at 13.
404 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y Despite the above criticism, some scholars do view copyright as a human right, in that copyright contains characteristics that justify recognition of a universal human right, and those characteristics do not refer specifically to purely proprietary elements.167 According to this proposition, the connection between copyright and the personality theory, focusing on the protection of the external reflection of the author within the work might justify recognition of copyright as a human right.168 Such personal interests of the author, aimed to protect his or her personality, might also be protected via tort law in some cases. For example, courts in the United States have used the traditional tort doctrines of libel and slander, invasion of privacy, and unfair competition in order to protect the personal bonds of authors to their respective works.169 This phenomenon demonstrates that the so-called moral interests of authors are not purely proprietary in nature, but are concerned with personal injury, and that the legal means to redress such injury might be tort law rather than property law.170 Therefore, the connection between copyright and the personality theory might be viewed as not purely proprietary in nature.171 Moreover, further support for the view that recognition of copyright’s status as a human right, stemming mainly from the personal attachment of an author to his or her work, may be evidenced in early drafts of Article 27(2) that were focused only on the moral aspects of the author’s right.172 Furthermore, there is great difference between the impact of natural law theories in general and the personality theory in particular on the recognition of the different intellectual property rights such as copyright and patents.173 Therefore, one should not refer to intellectual property rights as a whole, but inspect the underpinnings of each right separately.174 The underpinnings of copyright are twofold—natural law as well as utilitarian
167 See, e.g., Dane S. Ciolino, Moral Rights and Real Obligations: A Property-Law Framework for the Protection of Authors’ Moral Rights, 69 Tul. L. Rev. 935, 958 n.162 (1995) (quoting a letter in which A.N. Yiannopoulos “suggested that the ‘analytically preferable framework’ for the protection of authors’ moral rights would be to treat moral rights as ‘absolute rights in the framework of personality’”). 168 Id. 169 See Nimmer & Nimmer, supra note 62, § 8D.02[A] (“‘[T]he doctrine of moral right is not part of the law in the United States . . . except insofar as parts of that doctrine exist in our law as specific rights—such as copyright, libel, privacy and unfair competition.’” (citing Geisel v. Poynter Prods., Inc., 295 F. Supp. 331, 340 n.5 (S.D.N.Y. 1968))). 170 See Ciolino, supra note 167, at 959. 171 For an explanation of the common view regarding the non-proprietary nature of the moral right of authors and for a position rejecting this view, see id. at 958. In this context, the connection between copyright and the personality theory, briefly described above in notes 80–84 and accompanying text, is much more complex. The personality theory, which gives another justification for property right with respect to different assets in general, has special application with regard to authorial works. The need to give an author control over his or her work, namely over his or her intellectual endeavor, is not the same as the need to give a person control over tangible assets which he or she is attached to (such as a wedding ring). An authorial work is a special kind of asset because, through the work, the author expresses his and her thoughts and desires. Thus, the personality theory has a broader justification for copyright, beyond the one with regard to property rights in general, and in this specific context it might assimilate not purely proprietary argumentation. For a discussion on the connection between authors’ rights and the personality theory, see Drahos, supra note 84, at 80–81; David Saunders, Authorship and Copyright 110–15, 117–18 (1992); Jacob H. Spoor et al., Copies in Continental Copyright 1, 14–15, 55 (Kluwer Academic 1980). 172 See Vivant, supra note 153, at 92. In this context, article 22 of the Universal Declaration should be mentioned. According to article 22, everyone has a right to realize the economic, social, and cultural rights indispensable for their dignity and the free development of their personalities. Furthermore, personality theory justifies property rights per se, because control over one’s assets gives one independence and security. See Nickel, supra note 162, at 152; supra notes 82–85 and accompanying text. 173 See Drahos, Origins and Development, supra note 153, at 31. 174 See id. at 30–31.
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justifications175—while the underpinnings of patent rights are mainly utilitarian.176 Therefore, copyright might be a better candidate to be acknowledged as a human right than are patents. Among the different intellectual property rights, the patent right in particular is hard to accept as a human right mainly because it can bar access to supplies necessary for life and health.177 Accordingly, if copyright is to be recognized as a human right while patent is not, then the recognition of copyrights’ status would not be due to its proprietary characteristics, but rather to an original or creative activity of a person, and the impact of such activity on his or her personality.178 It should be borne in mind, however, that if recognition of copyright’s status as a human right stems from the personality theory, then a question arises in cases where copyright is not aimed to protect an author personally, such as where the owner of copyright is not the actual author of the work.179 A possible solution for such a difficulty is to recognize copyright’s status as human right only in those cases in which copyright serves the personal interest of the author.180 A different question, which is beyond the scope of this Essay, is which of the positive rights included in copyright serves the function of protecting the personal interests of the author. On this subject, it should be noted that traditionally a distinction has been made between the economic rights included in copyright, such as the exclusive right to reproduce a work or to publicly perform it, and the so-called moral right.181 The moral right is a right given personally to the author, which remains in his or her possession even after the transfer of the other rights included in copyright, in order to enable the author to protect some reflections of his or her personal ties with the work.182 Most known and 175
See supra Part I.A. The main justification for patents is that the right encourages inventors to develop new inventions, and many and varied inventions benefit society. See William R. Cornish, Intellectual Property: Patents, Copyrights, Trademarks and Allied Rights 129 (4th ed. 1999) (pointing out that the current debate over patent systems “concentrate[s] upon their role as a ‘public’ instrument of economic policy[,]” while “rewarding inventive ingenuity may seem little more than an incidental consequence of modern patent systems”); Richard A. Posner, Economic Analysis of Law 37–39 (Aspen Publishers 6th ed. 2003) (providing an example of how patents supply economic incentive for inventive activity and discussing the legal devices used within the patent system); Edmund W. Kitch, Property Rights in Inventions, Writings, and Marks, 13 Harv. J.L. & Pub. Pol’y 119, 121 (1990) (“Patent rights are viewed as entirely creatures of the statute[,]” not “as having emerged through a process of natural, customary or common-law development.”); Arnold Plant, The Economic Theory Concerning Patents for Inventions, 1 Economica 30, 32 (1934) (The aim to encourage inventing “is undoubtedly the expectation and hope of the vast majority of disinterested advocates of patents. . . . We are surely entitled, therefore, to attribute the existence of the patent law to a desire to stimulate invention.”), available at http://www.compilerpress.atfreeweb.com/ Anno%20Plant%20Patent.htm. 177 The right of access to knowledge is of great importance, and some hold that there is no justification to recognize intellectual property rights as natural human rights if they bar use of knowledge necessary to human life. A common example is a patent right over medication, which injures poorer people’s ability to obtain it. With regard to copyright, however, usually the problem of access to knowledge affecting human life does not arise. Therefore, it is claimed that recognition of intellectual property rights as a human right should not be unified and each specific right should be inspected according to how much it causes harm to essential needs for human life. See Ostergard, supra note 156, at 161, 169, 175–76. For a discussion of the problems patent rights pose for the health of the world’s population, see Silvia Salazar, Intellectual Property and the Right to Health, in Intellectual Property and Human Rights 65 (1999), available at http://www.wipo.int/tk/en/activities/1998/humanrights/papers/index.html. 178 See Vivant, supra note 153, at 74–76, 88–90. 179 See id. at 94. 180 Giving effect to human rights in a “graded” way is not so rare. For example, the right to freedom of expression is given effect to a different degree according to the kind of speech being referred to. Id. at 100–02. 181 See Henry Hansmann & Marina Santilli, Authors’ and Artists’ Moral Rights: A Comparative Legal and Economic Analysis, 26 J. Legal Stud. 95, 99 (1997) (“Independently of the author’s economic rights, and even after the transfer of said rights, the author shall have the right . . . to object to any distortion, mutilation, or other modification of, or other derogatory action in relation to, the said work, which would be prejudicial to his honor or reputation.”). 182 See id. 176
406 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y recognized are the right of attribution (the right of an author that his or her work be attributed to him or her) and the right of integrity (the right of an author that derogatory and other kind of changes shall not be made with respect to his or her work).183 Therefore, the center of copyright as a human right lies in the moral rights arena. Reducing the human right perspective of copyright to the protection of the personal interests of the author, however, does not mean necessarily that it only applies to moral rights. Other rights included in the economic bundle of copyright also may be used for the protection of the personal interests of the author.184 The best example is the exclusive right to prepare derivative works, such as translations, musical arrangements, and dramatizations,185 which might also function as a moral right because it enables authors to prevent unwanted changes in their works.186 To conclude this point, Article 27 of the Universal Declaration acknowledges the status of copyright as a human right. Nevertheless, this acknowledgment has been widely criticized. One possible compromise is to limit the acknowledgment of copyright’s status as a human right only to the aspects of the right that deals with protection of personal interests of authors with respect to their works. F. ARTICLE 27 OF THE UNIVERSAL DECLARATION, PROPERTY RIGHT, AND FREEDOM OF SPEECH
A question to be asked is whether recognizing copyright as well as the right to participate in cultural life is redundant since the Universal Declaration recognizes the general right of property at article 17 (“Article 17”)187 and the freedom of speech at article 19 (“Article 19”)188 as human rights. As to the relation between Article 27(2) (recognizing copyright as a human right) and Article 17, in discussions preceding the proclamation of the Universal Declaration some delegates claimed that the article concerning copyright was superfluous.189 Finally, it was accepted that the article concerning the general property right does not cover all the economic and moral rights of the author, hence, there was need to dedicate a separate article to those interests.190 In this context, special attention is drawn to the protection of the personal interests of authors with respect to their works—a goal
183 For a description of the origin of moral rights in Continental-European jurisprudence, see id.; Ciolino, supra note 167, at 938–48; Russell J. DaSilva, Droit Moral and the Amoral Copyright: A Comparison of Artists’ Rights in France and the United States, 78 Bull. Copyright Soc’y U.S.A. 1, 7–11 (1981). 184 Such rights include, inter alia, the exclusive right to prepare derivative works, as discussed in supra notes 185–86 and accompanying text. 185 Under U.S. copyright law: A “derivative work” is a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications, which, as a whole, represent an original work of authorship, is a “derivative work.” Copyright Act of 1976, 17 U.S.C. § 101 (2000). The exclusive right of a copyright owner to prepare derivative works is defined in 17 U.S.C. § 106(2). 186 For this possible function of the exclusive right to prepare derivative works, see Geller, supra note 50, at 193–95; Paul Goldstein, Adaptation Rights and Moral Rights in the United Kingdom, the United States and the Federal Republic of Germany, 14 Int’l Rev. Indus. Prop. & Copyright L. 43, 45–46, 49–50, 53–54 (1983); Hansmannand & Santilli, supra note 181, at 112–13; Neil Weinstock Netanel, Alienability Restrictions and the Enhancement of Author Autonomy in United States and Continental Copyright Law, 12 Cardozo Arts & Ent. L.J. 1, 42–44 (1994). 187 Universal Declaration, supra note 54. 188 Id. 189 Chapman, supra note 105, at 132. 190 Adalsteinsson & Thórhallson, supra note 107, at 579.
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mainly achieved by the moral right191—that are viewed as not purely proprietary in nature.192 It also has been claimed that the rights aimed to guarantee participation in cultural life in Article 27(1) could be realized, at least in part, through the freedom of speech clause in Article 19.193 Freedom of speech, generally speaking, protects the public’s interest in free access to information, as part of the democratic process and for the sake of revealing the truth, as well as protecting individual interests in self-expression as part of self-fulfillment.194 Therefore, freedom of speech could be used to protect the interest of participation in cultural and creative life. A possible segregation between the two rights could be done, however. First, despite the fact that works are often used to express an author’s personal opinion, it was claimed that freedom of creation was not entirely included within freedom of speech because, for example, some works lacked any “expression” or “message” at all. Namely, freedom of creation does not necessarily include “speech” in its simplest meaning, therefore, its inclusion in the scope of freedom of speech is not obvious.195 As 191
For the content of positive moral right, see supra note 183 and accompanying text. See supra notes 168–72 and accompanying text. 193 Chapman, supra note 105, at 140; Christine Steiner, Intellectual Property and the Right to Culture, in Intellectual Property and Human Rights 43, 48–49 (1999), available at http://www.wipo.int/tk/en/activities/1998/ humanrights/papers/index.html. 194 Eric Barendt, Freedom of Speech 8–23 (101 Productions 1985) (discussing three major theories of free speech: “the importance of open discussion to the discovery of truth”; free speech “as an integral aspect of each individual’s right to self-development and fulfillment”; and protection of “the right of all citizens to understand political issues so as to be able to participate effectively in the workings of democracy”); see also Frederick Schauer, Free Speech: A Philosophical Enquiry 15–86 (Cambridge Univ. Press 1982). 195 Although “political” speech stands at the heart of freedom of speech, there are additional kinds of expression that will be protected, on different levels, including “artistic expression.” Artistic expression is often included in freedom of speech. In the United States, after Brandenburg v. Ohio, 395 U.S. 444 (1969), speech could no longer be suppressed unless aimed at and likely to incite lawless conduct. Art “unlikely to trigger city-wide riots, seems on the whole protected.” For the European rule, see 31 Yearbook of the European Convention on Human Rights 143, 144 (Council of Europe ed., 1988) (summarizing the judgment in the case of Müller v. Switzerland, 13 E.H.R.R 212 (1988), in which the court stated that “Article 10 of the Convention included the freedom of artistic expression, ‘which affords the opportunity to take part in the public exchange of cultural, political and social information and ideas of all kinds’” (citation omitted)). For the rule in England, see Human Rights Act, 1998, c. 42, § 12(4) (Eng.) (“The court must have particular regard to the importance of the Convention right to freedom of expression . . . where the proceedings relate to . . . journalistic, literary or artistic material . . . .”), available at http://www.opsi.gov.uk/acts/acts1998/ukpga_19980042_en_1 (Nov. 13, 1988). For the rule in Canada, see Can. Const. (Constitution Act, 1982), pt. I (Canadian Charter of Rights and Freedoms), § 2(b), (“[F]reedom of thought, belief, opinion and expression” is included among the fundamental freedoms.), available at http://laws.justice.gc.ca/en/charter; Aubry v. Éditions Vice-Versa Inc., [1998] S.C.R. 591, 615–16 (The Supreme Court of Canada stated that “[i]t is our view that freedom of expression includes freedom of artistic expression.”). For the rule in Germany, see article 5 of the Basic Law art. 5 Nr. (3) GG (“Art and scholarship, research, and teaching shall be free.”), available at http://www.iuscomp.org/gla/statutes/GG.htm#5; Barendt, supra note 194, at 35. Even if artistic expression is included in freedom of speech, however, it is claimed that certain works do not include any expression, verbal or nonverbal, as referred to in the context of the freedom of speech right, because the work does not communicate any specific idea, message, or information. In those cases, therefore, freedom of creation will not fully be protected through freedom of speech. Actually, the claim is that there must be a separation between applying freedom of speech with artistic speech, and applying freedom of speech with freedom of creation in its broadest meaning. Freedom of artistic speech involves some sort of “speech,” hence it could be interpreted as included in the scope of freedom of speech. In contrast, freedom of creation does not necessarily include “speech” in its simplest meaning, therefore, its inclusion in the scope of freedom of speech is not obvious. See Paul Kearns, The Legal Concept of Art, 174–75 (1998) (“[N]ot all art can be protected as ‘symbolic speech’ if that term implied a cognitive or propositional content. Abstract art, for instance, seldom communicates a knowledge-based idea . . . .”); Mark A. Lemley & Eugene Volokh, Freedom of Speech and Injunctions in Intellectual Property Cases, 48 Duke L.J. 147, 210 (1998) (“Certain types of expressive works may not qualify as speech at all.”). The question of whether freedom of speech includes freedom of creation deals with setting limits to the 192
408 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y aforesaid, there are various justifications for freedom of speech,196 each one of them leading to a different interpretation as to the scope of the term “speech.”197 Nevertheless, it is clear that there is an overlap between freedom of speech as part of self-fulfillment and freedom of creation.198 Even though freedom of creation may be encompassed in the broad freedom of speech, however, freedom of creation should be treated distinctively in order to allow incorporation of the relevant considerations for its full fulfillment.199 In other words, proclaiming the right to access and participation in cultural life is not superfluous due to the recognition of the general freedom of speech; rather, it could be classified as a narrower, more specific form of freedom of expression, concerning particular interests in the field of art and culture. Second, it also may be claimed that the right to participate in cultural life, being a kind freedom of speech right and not with the principal question of whether those liberties should be maintained. In other words, the question discussed above is what is included in the term “speech,” and whether said kind of works, with no specific ideas, are to be regarded as “speech.” See Barendt, supra note 194, at 37–67. 196 See supra note 194 and accompanying text. 197 Barendt, supra note 194, at 8–23, 37–41; Dessemontet, supra note 104, at 117 (“[A] wide understanding of the freedom of speech shall encompass the freedom to create as a wide understanding of copyright shall attach not only to published productions, but also to unpublished ones.”); Schauer, supra note 194, at 91 (“The concept of free speech is far too complex for that, and at too many points the definition depends upon the resolution of undetermined behavioural, ethical and empirical issues from which any justification for freedom of speech must be resolved.”). 198 For a presentation of this view and criticism of it, see Fiona Macmillan Patfield, Towards a Reconciliation of Free Speech and Copyright, 2 Y.B. Media & Ent. L. 199, 206 (1996); see also Barendt, supra note 194, at 14–20. 199 Freedom of creation discourse might be focused on different considerations than those emerging out form a typical freedom of speech debate. An example is to be found in the European case of Müller v. Switzerland, 13 E.H.R.R 212 (1988), which was concerned with an obscene painting removed by the authorities form a public exhibition, according to a law against publication of obscenity. Up to this point, it seems to be a typical freedom of speech controversy, of posing limitation on artistic expression involving obscenity. The European court held that freedom of speech is not absolute, and rules against publication of obscene materials prevail. Id. at 226–29. For similar position in the United States and for more about art, obscenity, and free speech, see Barendt, supra note 194, at 269–72; Owen M. Fiss, The Irony of Free Speech 27–49 (Harvard Univ. Press 1996); Schauer, supra note 194. Another question was raised in the Müller v. Switzerland case, however, and that is whether confiscating the painting was legal. Court affirmed such confiscation, and held that it was compatible with limitations over free speech. Id. at 229–32. It is to be asked whether the court’s decision would have been the same in a case emphasizing freedom of creation instead of freedom of speech. A possible entitlement of an artist to keep a copy of his work in privacy could be derived from the freedom of creation discourse and its specific considerations, while examining such entitlement through the typical freedom of speech prism does not necessarily reveal its full complexity. Accordingly, another proposition with respect to a possible segregation between the two rights is that freedom of creation “is not freedom of opinion; although a creation may convey an opinion, that fact alone does not justify the freedom of creation. . . . [I]t appears that the freedom of creation is a condition precedent to the unfettered exercise of the freedom of speech and of opinion.” Dessemontet, supra note 104, at 117. Therefore, it might be that freedom to create is recognized even if eventually speech is restricted due to the prevailing ethic. See id. And, referring to the above example of the Müller v.Switzerland case, the artist has a right to create even if such art is doomed to be silenced. In other words, even if obscenity is “speech,” it might as well be restricted; however, it is still to be asked whether there is a right to create obscenity art, and consequentially possess such art in private. Dessemontet describes another situation, other than obscenity, in which speech might be restricted due to prevailing public interest, although creation in itself is allowed—that is, in a case of an exhibition of photos showing various bridges and other locations where suicide could be easy. Although no one would object to taking pictures at the various spots, still speech as a concrete message of the exhibition might be restricted. See id. Getting deeper into the possible philosophical differentiation between freedom of creation and freedom of speech according the self-fulfillment justification leads to the touchstone of “communication.” Freedom of speech is highly connected to the interest of both speaker and audience in communication of speech, see Barendt, supra note 194, at 18–19; Schauer, supra note 194, at 91, 95. Freedom to create, however, might be relevant also without any external communication of the creation at stake, and thus it is more connected to freedom of conscience and thought, and restrictions on such freedoms can be viewed as purely paternalistic. See Schauer, supra note 194, at 94. In this context, see also Jed Rubenfeld, The Freedom of Imagination: Copyright Constitutionality, 112 Yale L.J. 2, 4, 34 (2002) (discussing “freedom of imagination” as a right which is preliminary to the traditional freedom of artistic speech).
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of a socioeconomic human right and not a civil-political human right,200 is focused on the social and economic terms of people to obtain participation in cultural life.201 Therefore, for example, while in accordance to the traditional reasoning of the Supreme Court copyright does not conflict with freedom of speech,202 still it is open to be decided whether copyright conflicts with the right to participate in cultural life because “ the concrete opportunities available to everyone, in particular through the creation of the appropriate socioeconomic conditions for freely obtaining information”203 are not guaranteed. To conclude, although the interests protected by Article 27 of the Universal Declaration might be included in the scope of the general property right and the right to freedom of speech, Article 27 is not redundant. It is necessary because it focuses on the unique aspects of cultural subjects, creation, and science, and their special problems, such as the moral right protecting the personal interests of authors in their works, freedom to create works of art that do not include “speech” specifically, and the socioeconomic aspects of obtaining cultural products. II. THE PROPOSAL: THE INTRODUCTION OF NATURAL LAW CONSIDERATIONS INTO AMERICAN COPYRIGHT LAW As explained above, the status of the Universal Declaration is controversial.204 It is accepted, however, that it is at least a central source of inspiration and therefore has potential for great influence in the domestic field.205 Such influence might occur, for example, through the interpretation of domestic laws.206 As a result, the Universal Declaration has the potential to enable the insertion of its rights into domestic laws, accompanied by the natural law perceptions on which it is founded.207 Therefore, Article 27 of the Universal Declaration can be used to introduce its agenda into domestic copyright law, namely to embed natural law considerations in the existing theoretical infrastructure of American copyright law. 200 See Dessemontet, supra note 104, at 117 (“The freedom of creation is not first and foremost a political right, as is on the whole—but not only—the freedom of speech.”); supra note 101 and accompanying text. 201 See Recommendation on Participation in Cultural Life, supra note 129, at I.2(a) (“[A]ccess to culture . . . [means] the concrete opportunities available to everyone, in particular through the creation of the appropriate socioeconomic conditions, for freely obtaining information, training, knowledge and understanding, and for enjoying cultural values and cultural property.”) (emphasis added); see also Symonides, Human Rights, supra note 127, at 191 (“[G]overnments should help to create and sustain not only climate encouraging freedom of artistic expression but also the material conditions facilitating the release of creative talents.”); Recommendation on Participation in Cultural Life, supra note 129, at I.2(b) (stating that “participation in cultural life . . . [means] the concrete opportunities guaranteed for all—groups or individuals—to express themselves freely, to act, and engage in creative activities with a view to the full development of their personalities, a harmonious life and the cultural progress of society”) (emphasis added). 202 See Eldred v. Ashcroft, 537 U.S. 186, 212–13 (2003); Harper & Row Publishers, Inc., v. Nation Enters., 471 U.S. 539, 560 (1985). For the opinion that such reasoning is a denial of an existing conflict, see Yochai Benkler, Free as the Air to Common Use: First Amendment Constraints on Enclosure of the Public Domain, 74 N.Y.U. L. Rev. 354 (1999); Michael Birnhack, The Copyright Law And Free Speech Affair: Making-Up And Breaking-Up, 43 IDEA 233 (2003); Mark A. Lemley & Eugene Volokh, Freedom of Speech and Injunctions in Intellectual Property Cases, 48 Duke L.J. 147, 189 (1998); Lawrence Lessig, Copyright’s First Amendment, 48 UCLA L. Rev. 1057 (2001); Neil Weinstock Netanel, Locating Copyright Within the First Amendment Skein, 54 Stan. L. Rev. 1 (2001) [hereinafter Netanel, Locating Copyright]. 203 See Recommendation on Participation in Cultural Life, supra note 129, at I.2(a). 204 See supra Part I.B. 205 See supra notes 122, 125 and accompanying text. 206 See Re, supra note 122 (discussing the role of domestic courts in following the spirit of the Universal Declaration, inter alia, through interpretation of domestic statutes and constitutional provisions); see also supra note 125 and accompanying text. 207 See id.
410 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y Article 27 is not made of one cloth, however. Therefore, attention should be given to the meaning of inserting into the domestic field rights that may conflict with each other. Section C discusses this concern. As will be explained, the fact that Article 27 contains two opposing balancing rights should be considered in the introduction of natural law considerations into domestic copyright law in a balanced way. The natural rights included in Article 27 can be used to support both authors and users of works, and they serve the interests of both private individuals and the public at large.208 Thus, the natural rights perceptions reflected in the Universal Declaration can be integrated into the current American copyright system without changing the existing balance of interests, or even enhance the interests of users of works. The proposed mechanism for using Article 27 to insert natural law considerations into American copyright law might be seen as problematic in another dimension. As mentioned, Congress has the constitutional power to legislate copyright law in order “to promote the Progress of Science and useful Arts.”209 This could be taken to mean that the Constitution dictates the use of exclusively utilitarian considerations in legislating copyright law. As Section D will demonstrate, however, there is a way to interpret the Constitution so as not to exclude natural law perceptions in the field of copyright.210 Two questions still need to be answered before continuing. The first relates to why an enabling mechanism to insert natural law perceptions into American copyright law is needed. The second concerns exactly how Article 27 can be used as a source of influence in copyright law. A. THE QUESTION OF WHY
The first question we must ask is why we need an enabling mechanism to insert natural law perceptions into American copyright law. The relevance of this question is even greater if one accepts the proposition that the natural rights that Article 27 would insert into domestic law would not change the existing balance of interests,211 thus rendering Article 27 superfluous. There are several answers to this question. First, as explained above, there is an ongoing debate over the justifications for copyright.212 Adherents of the view that copyright may be justified by a combination of different theories213 might seek a path to introduce the natural law perceptions into positive law. Second, it is a known phenomenon that, even though American copyright law is deemed to be utilitarian oriented,214 it contains other elements as well.215 In existing copyright law and jurisprudence there is a notable presence of natural law perceptions and considerations, whether explicit or implicit.216 Some of the reasoning emanating from the 208
See discussion supra Part I.D–E and notes 126–86. U.S. Const. art. I, § 8, cl. 8. 210 See discussion infra Part II.D.1 and notes 269–301. 211 That is because the natural rights included in Article 27 can be used to support both authors and users of works, and they serve the interests of both private individuals and the public at large. 212 See discussion supra Part I.A and notes 63–92 (discussing utilitarian, moral, and natural right justifications). 213 See supra note 86 (acknowledging that scholars recognize the dualistic natural and utilitarian theoretical basis for Anglo-American copyright law). 214 See supra notes 50–53, 62 and accompanying text (discussing the utilitarian justifications of American copyright law). 215 See supra note 86 (as acknowledged by proponents of the dualistic view). 216 See, e.g., Ginsburg, supra note 86, at 1873–88 (addressing the history of labor and authorship in copyright law); Gordon, Property Right in Self-Expression, supra note 58, at 1592–04 (giving examples of natural law and Lockean labor theory in copyright cases); Sterk, Rhetoric and Reality, supra note 86, at 1198–1204 (addressing the dual rhetoric in the Supreme Court’s reasoning); Yen, supra note 58, at 529–31. 209
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U.S. Supreme Court is based on natural law considerations.217 Moreover, some of the rules codified by U.S. law reflect strong ties to natural law notions, a good example of which is the moral right, codified in 17 U.S.C. § 106A.218 The United States has acknowledged moral rights, to some extent, due to its international obligations after joining the Berne Convention for Literary and Artistic Works.219 Moral rights reflect natural law conceptions, and despite this they have found their way into American copyright legislation.220 How could Congress add these naturalistic rights to the copyright arena despite the utilitarian command of the Copyright Clause? The formal answer is that a utilitarian purpose underlies moral rights as well.221 Accordingly, Congress was convinced that the 217 An interesting recent example is the New York Times Co. v. Tasini holding in which the U.S. Supreme Court interpreted 17 U.S.C. § 201(c) of the copyright law as fortifying authors’ rights. 533 U.S. 483, 487–506 (2001). According to § 201(c), “[c]opyright in each separate contribution to a collective work is distinct from copyright in the collective work as a whole,” and unless agreed otherwise, “the owner of copyright in the collective work is presumed to have acquired only the privilege of reproducing and distributing the [separate] contribution of an author as part of the particular collective work . . . .” 17 U.S.C. § 201(c) (2000). The question in the Tasini case was whether the privilege of reproducing and distributing the separate contribution of an author as part of the particular collective work should enable a newspaper publisher to include the separate articles written by freelance journalists in an electronic database containing other articles published by the newspaper. See Tasini, 533 U.S. at 487. The Court held that the interpretation of the privilege given to the owner of the newspaper as a collective work is done through the prism of the fact that where a freelance author has contributed an article to a newspaper, copyright in this article vests initially in the freelance author. See id. at 496–97 (“[A]fter authorizing initial publication, the freelancer may also sell the article to others.”). Therefore, in order to preserve the right of the freelance author, the privilege of the publisher must be constructed narrowly, as not encompassing a right to include the article in an electronic database. See id. at 499. The Court was interested in protecting the author’s exclusive right from invasion. See id. This result might be explained by utilitarian tools. See id. at 495 n.3 (referring to the famous quotation from Mazer v. Stein, 347 U.S. 201, 219 (1954), according to which “encouragement of individual effort [motivated] by personal gain is the best way to advance public welfare”). The decision’s “aroma,” however, is naturalistic. Copyright is now more identified with the author than with the publisher. See id. (observing that the 1976 revision of the Copyright Act represented a break from the former tradition of identifying copyright more closely with publishers than with authors). Accordingly, the Court is concerned with preserving the authors’ interests to have control over the exploitation of their work. In natural law language, it could even be said that the Court is concerned about the (natural) expectations of authors to have such control. For more examples, see Ginsburg, supra note 86, at 1873–88; Sterk, Rhetoric and Reality, supra note 86; Yen supra note 58 at 529–31. 218 Copyright Act of 1976, 17 U.S.C. § 106A (2000). Moral rights include the right of attribution and the right of integrity. Id.; see also supra notes 183–86 and accompanying text (suggesting that moral rights also include the right to prepare derivative works). 219 See Berne Convention for the Protection of Literary and Artistic Works, July 24, 1971, 25 U.S.T. 1341, 828 U.N.T.S. 221 [hereinafter Berne Convention]; Visual Artists Rights Act of 1990, Pub. L. No. 101-650, tit.VI, 104 Stat. 5089, 5128–5133 (1990); see also 136 Cong. Rec. H3111, H3113 (1990) (statement of Rep. Kastenmeier) (stating that the Visual Rights Act grants “important new rights [to visual artists] based on those set forth in the Berne [C]onvention”). Representative Kastenmeier noted that although Congress, before joining the Berne Convention in March 1989, “decided that United States law was already sufficient to comply” with the Convention’s requirement that “its members . . . provide artists with a certain level of protection,” this did “not necessarily mean that [U.S. laws were] sufficient for all purposes.” Id. The obligation to recognize the attribution right and the integrity right under the Berne Convention is stipulated in article 6bis thereof. See Nimmer & Nimmer, supra note 62, § 8D.06[C][1] (affirming that the statutory language regarding visual artists’ right to prevent distortion, mutilation, or modification of their work was drawn from the Berne Convention). 220 See, e.g., 17 U.S.C. § 106A. 221 Many scholars have pointed out the aggregate economic rationale underlying moral rights. See, e.g., Thomas F. Cotter, Pragmatism, Economics and the Droit Moral, 76 N.C. L. Rev. 1, 27–96 (1997) (discussing a pragmatic and economic approach); Hansmannand, supra note 134, at 102, 104–05. Melville B. Nimmer, in a 1967 article, while discussing the needed revisions in American copyright law in order to accomplish the Berne Convention standard, noted that Congress has the constitutional power to legislate moral rights. Contrary to other topics, such as protection of unfixed works, acknowledgment of moral rights does not contain a constitutional problem. See Melville B. Nimmer, Implications of the Prospective Revisions of the Berne Convention and the United States Copyright Law, 19 Stan. L. Rev. 499, 519 (1967). Accordingly, Congress was presented with the view that the moral rights added by the Visual Artists’ Rights Act of 1990 would advance public aims, such as preservation of works, or general utilitarian aims, such as protection of artists’ reputations. See Nimmer & Nimmer,
412 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y narrow moral right to be legislated had a utilitarian justification and did not interfere with the realization of economic rights.222 Even if the formal answer as to the authority to legislate moral rights were focused on the possible incremental underlying utilitarian justification for moral rights and its non-interference with economic rights, the major source of these rights is grounded in natural law perceptions.223 Incidentally, moral rights were legislated only after the United States was driven to do so by international obligation, and this very obligation is rooted in natural law perceptions.224 It could be argued, therefore, that natural law has already colonized American copyright law. The alternative view, according to which moral rights are acknowledged in copyright law as long as there are utilitarian justifications, ignores reality and the background of legislation. In any case, the answer as to Congress’ power to legislate moral rights also can be found in the mandate to accomplish international obligations, which functions as an additional constitutional source of power, along with the power stipulated by the Copyright Clause.225 Aside from moral rights, there are other examples of natural law “footprints” in existing positive copyright law, such as the fair use doctrine,226 according to which an unauthorized use of copyrighted work might be allowed.227 The Copyright Act includes an exemplary list of considerations with which to inspect the fairness of the use of a supra note 62, § 8D.06 nn.58, 67 & 108. Statements drawn from congressional records demonstrate this insight. For example, Representative Robert Kastenmeier presenting the Visual Artists Rights Act for vote in the House of Representatives on June 5, 1990, explained two of the goals of the act as follows: “First, the act must protect the honor and reputations of visual artists. . . . The second goal was to protect the works of art themselves. Society is the ultimate loser when these works are modified or destroyed.” 136 Cong. Rec. H3111, H3113 (1990) (statement of Rep. Kastenmeier). Representative Pat Williams summarized the purpose of the Visual Artists Rights Act before the House of Representatives on June 13, 1990 in the following way: The Visual Artists Rights Act affords two main benefits. First, it would help prevent the destruction or mutilation of important works of art—art that is an invaluable part of American culture. Second, the legislation would give an artist legal recourse to prevent an individual from attributing his or her work to another and to prevent an individual from claiming that an artist was the creator of a work he or she did not create. 136 Cong. Rec. E1939 (1990) (extension of remarks of Rep. Williams). Another example of the utilitarian justification for moral rights from the Congressional Record is given by Melville B. Nimmer and David Nimmer in explaining the purpose of the attribution right, quoting from the House Report: “The purpose of these rights is both to provide basic fairness to artists and to ‘promote the public interest by increasing available information concerning artworks and their provenance, and by helping ensure that information is accurate.’” See Nimmer & Nimmer, supra note 62, § 8D.06[B][1] (quoting H.R. Rep. No. 101-514, at 14 (1990)). Hence, it seems that the legislation of moral rights via the Visual Artists Rights Act is consistent with the utilitarian constitutional command. See Nimmer & Nimmer, supra note 62, § 1.03[A], at n.1.1. 222 It was stated in the Congressional Record that the narrow moral right recognized in legislation was “designed to preserve and protect certain limited categories of works of visual art” and “to achieve this goal without interfering, directly or indirectly, with the ability of U.S. copyright owners and users to further the constitutional goal of ensuring public access to a broad, diverse array of creative works.” 136 Cong. Rec. H3111, H3114 (1990) (statement of Rep. Moorhead). 223 For the natural law conception underlying article 6bis of the Berne Convention, which acknowledges moral rights, see Sam Ricketson, The Berne Convention for the Protection of Literary and Artistic Works: 1886–1986, 455–59 (1987). See also Sterk, Rhetoric and Reality, supra note 86, at 1244 (“Beyond Hegel, it remains difficult to understand why the identity of artists and authors should be more bound up with their work than the identity of others who enjoy no protection against alteration of their work.”). 224 For the natural law conception underlying the right recognized by the Visual Artists Rights Act, adding a sort of “moral right” to the American copyright law, see Nimmer & Nimmer, supra note 62, § 8D.06[A][2]. See also 101 Cong. Rec. H3111, supra note 219. 225 See U.S. Const. art. I, § 8, cl. 3 (governing the regulation of commerce with foreign nations). In this context, see infra note 321 and accompanying text. For the legislation of moral right as a fulfillment of international obligations under the Berne Convention, see Nimmer & Nimmer, supra note 62, § 8D.02[B]–[D]. 226 Copyright Act of 1976, 17 U.S.C. § 107 (1996). 227 “[T]he fair use of a copyrighted work . . . for purposes such as criticism, comment, news reporting, teaching, . . . scholarship, or research, is not an infringement of copyright.” Id.
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work; however, it is left to the court’s discretion to weigh the balance of the fair use factors based on the specific facts of the case.228 There are leading theories that suggest a market-failure test to determine when a fair use defense ought to be accepted by the courts.229 Other theories advance the utilitarian attitude of the doctrine with other tests.230 Fairness, after all, is clearly not a purely utilitarian term.231 The advantage that stems from the proposed mechanism enabling the formal insertion of natural law perceptions is that it will contribute to the transparency of the American copyright system and will shed light on some of the basic and unavoidable “impulses” of copyright law.232 In this way, some of the considerations that are taken into account in any case will be legitimized, and there will be no need to disguise them rhetorically by artificial utilitarian justifications. Consequently, if legitimized, such argumentation also could be properly inspected and scrutinized. Section C will return to this question of why, and suggest further possible answers. B. THE QUESTION OF HOW
The second question to be asked is how exactly Article 27 can be exercised as a source of influence in domestic copyright law. Generally, international rights can be integrated into domestic law in several ways, such as enforcement of international agreements that are part of American law, or by recognizing the right at stake as part of customary international law and, hence, part of American law.233 As noted above, however, there is room for the view that the Universal Declaration has a non-binding status, and the status of each of the rights proclaimed in it must be inspected separately. Moreover, it is debated whether a state’s international obligations create legal obligations as to its own nationals.234 This Essay is interested in finding a mechanism that will enable courts to internalize Article 27 philosophies into the domestic scheme. If one accepts the presumption that Article 27 is of an inspirational nature,235 then a better answer to the question of 228 The statutory fairness considerations are: (1) the purpose and character of the use . . .; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for . . . the copyrighted work. Id. For a thorough description of the fair use doctrine, and the different considerations in examining the fairness of use of a copyrighted work, see William F. Patry, The Fair Use Privilege in Copyright Law (1995). 229 See Wendy J. Gordon, Fair Use as Market Failure: A Structural and Economic Analysis of the Betamax Case and Its Predecessors, 30 J. Copyright Soc’y U.S.A. 253 (1983). 230 See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994) (accepting District Court Judge Leval’s approach that a “transformative” use is a better candidate for the fair use defense); see also Pierre N. Leval, Nimmer Lecture: Fair Use Rescued, 44 U.C.L.A. L. Rev. 1449 (1997) (finding the Campbell case has restored order and rediscovered the central meaning of fair use); Pierre N. Leval, Toward a Fair Use Standard, 103 Harv. L. Rev. 1105 (1990) (positing that the governing principles of fair use are “rooted in the objectives of the copyright law”). 231 For the non-utilitarian origins of the fair use doctrine, see Gideon Parchomovsky, Fair Use, Efficiency, and Corrective Justice, 3 Legal Theory 347, 350–54, 366–70 (1997). See also Damstedt, supra note 86, at 1213 (“The fair use doctrine in U.S. copyright law is similar in function and economic justification to the Lockean fair use right developed in this Note. . . . The functional application of the fair use doctrine in copyright law mirrors Lockean principles.”). 232 For a remarkable discussion of such “impulses,” see Wendy J. Gordon, On Owning Information: Intellectual Property and the Restitutionary Impulse, 78 Va. L. Rev. 149 (1992). 233 See Restatement of Foreign Relations, supra note 121, § 701 (describing how human rights have come to be a part of international and U.S. law). 234 According to the traditional view, the individual is only a “third party beneficiary” of the state’s obligation to another state. See Louis Henkin, International Human Rights Standards in National Law: The Jurisprudence of the United States [hereinafter Henkin, Human Rights Standards], in 49 International Studies in Human Rights: Enforcing International Human Rights in Domestic Courts 189 (Benedetto Conforti & Francesco Francioni eds., 1997). 235 See supra note 125 and accompanying text.
414 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y how will be that the perceptions found in Article 27 might be inserted into copyright law mainly through interpretive use. That is to say, these perceptions could be used in interpreting domestic law. Although doctrines of law interpretation is beyond the scope of this Essay, according to a basic interpretive principle, there are general values of the legal system that influence the interpretation of existing laws, including the Constitution’s provisions.236 These general values might be, for example, basic and universal rights and liberties recognized by all people. In other words, human rights norms can aid the interpretation of domestic norms.237 Scholarly writings adhere to the thesis that human rights norms should be used to infuse U.S. constitutional and statutory standards.238 It even was proposed that relevant human rights norms should be used in interpreting and applying constitutional provisions involving similar rights, because human rights are a positive external source of law and the Constitution should be interpreted according to a broader context rather than the purely domestic one.239 This thesis is directly connected to the argument concerning the nature of human rights in general, according to which human rights may be used to express the expectations of the community at large, even between a state and its own nationals.240 Namely, international human rights law is “national” law, because it is concerned with “rights which every human being enjoys, or should enjoy, in his or her own society and under its national law.”241 Human rights, therefore, might create an external source of law that applies domestically, which is beyond the traditional international law that is concerned only with interrelations between states. Even if the proposition viewing human rights as a positive external source of law is too ambitious, it is acceptable to view international human rights norms as sources of inspiration, whose influence is felt via the indirect route of interpreting domestic laws. Going back to the issue at stake, this means that the natural law perceptions reflected in Article 27 of the Universal Declaration, being a source of inspiration, can be absorbed in American copyright law by giving them proper weight when interpreting copyright law, including the Copyright Clause in a specific case. The following section illustrates the possible ways Article 27 can be brought to bear domestic copyright law. Section D will address why this proposed mechanism is not barred by the Copyright Clause itself. 236
See e.g., U.S. Const. art. I, § 8, cls. 3, 8. For this interpretive principle, see Robert S. Summers, Statutory Interpretation in the United States, in Interpreting Statutes: A Comparative Study 407, 417–18, 453 (D. Neil MacCormick & Robert S. Summers eds., 1991). Generally speaking, the American legal culture is open to value and policy judgments. See id. at 456–57; see also Committee Report: Judicial Education on International Law Committee of the Section International Law of the American Bar Association, 24 Int’l Law. 903, 907–09, 914 (1990) (submitted by Edward D. Re, Chairman). 238 See, e.g., Henkin, Human Rights Standards, supra note 234, at 189, 198; Lillich, supra note 121, at 408–11. For the important role courts have in implementing the rights and liberties proclaimed in the Universal Declaration, see Re, supra note 122 at 680–81, 686. For the potential role of courts in implementing the international instruments regarding human rights, especially via posing remedies, see Steiner & Alston, supra note 100, at 248, 275. For an example of the possible use of the interpretive tool in order to implement social welfare rights, as human rights, into American law, see Park, supra note 150, at 1243–46. 239 This was Professor Christenson’s proposition. See Gordon A. Christenson, Using Human Rights Law to Inform Due Process and Equal Protection Analyses, 52 U. Cin. L. Rev. 3, 4–5, 12–13 (1983). 240 See id. at 5–6 (discussing D’Amato’s thesis with regard to the impact of human rights in the domestic field); see also Anthony D’Amato, The Concept of Human Rights in International Law, 82 Colum. L. Rev. 1110, 1125–27 (1982) (discussing the place of human rights in international law and proposing to view human rights as entitlements affecting the domestic law referring to a nation’s citizens and not only to aliens). 241 Henkin, Human Rights Standards, supra note 234, at 189; see also supra note 115 and accompanying text (discussing the proposition that the Universal Declaration is not aimed to bind states but rather society as a whole). In this context another profound thesis should be noted, and according to which “the European Convention on Human Rights [though an international instrument] ought to be interpreted so that it is applicable where [people] face abuses from private actors.” Andrew Clapham, Human Rights in the Private Sphere 343 (1993). 237
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C. THE POTENTIAL OF A BALANCED USE OF ARTICLE 27
Article 27 of the Universal Declaration sets forth two human rights: (1) the right to participate in cultural life and, as a result, the freedom of creation, and (2) the author’s economic and moral right with respect to his or her work.242 Copyright, which represents the author’s economic and moral right, at times may conflict with the right to participate in cultural life. The basic conflict lies in that the owner of copyright is given the power to control the exploitation of his or her work and, to some extent, even the power to prevent the public free access to it.243 There are many situations illustrating this possible conflict. A conflict may arise, for example, when a person is interested in using a preexisting work as the basis for a new work, but is prevented from doing so due to rights of the preexisting work’s owner.244 As mentioned above, different countries, including the United States and the United Kingdom, objected to the inclusion of Article 27(2) because of conflicts with Article 27(1).245 Article 27, however, reflects the tension existing at the basis of copyright law. It is the tension between granting the author material and moral control over his or her work and enabling the public at large to obtain free access to works and information, including the possibility to use such materials that are necessary for cultural development. And this tension exists according to both natural law and utilitarian standpoint for justifying copyright.246 Thus, the recognition of the two conflicting rights included in Article 27 is neither surprising nor impossible. 242 See Universal Declaration, supra note 54. It should be mentioned that, according to the classic view, human rights are given to individuals and not to the public. See Mugabe, supra note 140, at 111–14 (discussing intersection of Universal Declaration with traditional knowledge of indigenous people). 243 See Copyright Act of 1976, 17 U.S.C. § 106 (1996) (defining the exclusive powers authorized by copyright). See also the additional powers given to copyright owners by the Digital Millennium Copyright Act of 1998. 17 U.S.C. § 1201 (1998). 244 One of the powers conferred by copyright is the right to control production of derivative works, which are works based upon preexisting works. See 17 U.S.C. §§ 101, 106(2). Another possible example of conflict between copyright (or the author’s right) and the right to participate in cultural life is when an author wishes to modify his or her work, but the public desires to prevent such modification in order to preserve a work of great public importance. These potential conflicts presume that the right to participate in cultural life could be interpreted as a right protecting public interest in artistic discourse, rather than a right protecting the individual’s interest. Furthermore, the clash between the two rights might include a situation in which society wishes to protect a work from its own creator. For this proposition, see Christoph B. Graber & Gunther Tubner, Art and Money: Constitutional Rights in the Private Sphere?, 18 Oxford J. Legal Stud. 61, 67–68 (1998). 245 See supra note 164 and accompanying text. 246 Many scholars have demonstrated the basic contradiction in the justifications for copyright, inspected from the natural law and utilitarian points of view. See Sterk, Rhetoric and Reality, supra note 86, at 1209, 1239 (“It is critical, however, that no efficiency justification—other than administrative simplicity—can support a copyright regime that gives authors protection that would not induce the creation of new works. Indeed, from an efficiency standpoint, the optimal copyright system would not seek to maximize the number of works created but, in recognition of the costs of copyright, would withdraw protection even when marginally more protection would result in marginal increase in creative activity . . . . For those who believe in the distribution of social wealth according to moral principle, copyright is problematic because the talents people are born with appear morally arbitrary. For those who believe the state should not intervene to redistribute the proceeds of natural talents, copyright is problematic because authors cannot rely exclusively on voluntary transfers to derive a return on their talents.”) (citation omitted); Richard A. Posner, Economic Analysis of Law 47 (5th ed. 1998) (“The greater the scope of copyright protection of the earlier works, the higher the cost of creating subsequent works. So while an increase in the scope of copyright protection will enhance an author’s expected revenues from the sale or licensing of his own copyrights, it will also increase his cost of creating the works that he copyrights.”); see also Glynn S. Lunney, Jr., Reexamining Copyright’s Incentives-Access Paradigm, 49 Vand. L. Rev. 483, 486 (1996) (stating that “[a]s a general proposition, a work’s desirability will indicate both the need to ensure the work’s creation and the need to secure its widespread distribution. The more desirable a work is, the greater the need to ensure the creation of the work and the greater the need to secure its widespread dissemination. If the need to ensure a work’s creation suggests a broad copyright, while the need to secure its widespread dissemination suggests a narrow copyright, then incentive and access will always oppose each other with exactly equal force.); Gordon, Property Right in Self-Expression, supra note 58.
416 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y If both copyright and the right to participate in cultural life are acknowledged as human rights, then there will be a need to develop a mechanism for striking a balance between them in the event of contradiction. Consequently, the question becomes: what is the relation between Articles 27(1) and 27(2)? More specifically: which of these two rights is the general prevailing principle, and which is regarded as the restrictive inferior right? Among the adherents of natural law justifications for copyright, there is a tendency to shape copyright as a primary right and to impose a general obligation not to harm it, subject to exemptions that are essential for the protection of the interest of participation in cultural life.247 An alternative view is that the right to participate in cultural life is cited as the first right by the Universal Declaration,248 and the right of the author with respect to his or her work is cited second.249 This order is not accidental.250 It supports the view that the right to participate in cultural life is the primary rule, and it is restricted by the individual’s copyright.251 Namely, conferring full significance on the right of participation means acknowledgment of a general right of everyone to participate in cultural life, except for the duty to refrain from doing so in certain cases, which are determined according to the need to protect the material and moral interests of the author. Giving the public’s cultural rights their proper importance may have great influence. Despite the pressure to enlarge copyright according to Article 27(2), there will be an 247 See Waldron, supra note 99, at 859 (describing two different interpretations that may be applied in shaping copyright). The German law is a good example of the view that property right including copyright is the main rule, but they should be limited in order to protect public interest. According to article 14 of the German Basic Law, property rights have constitutional status; however, property rights also pose obligations on their owners, aimed to protect public interests. See art. 14 Nr. (1)–(3) GG, available at http://www.iuscomp.org/gla; Gunnar F. Schuppert, The Right to Property, in The Constitution of the Federal Republic of Germany 107, 107–18 (Ulrich Karpen ed., 1988). It was held by a German court that injury to the property right is justified only for the sake of a public interest, after balancing the rights in conflict, and that such injury should be minimized according to the importance of the public interest at stake. See Davies, supra note 65, at 121–27; Donald P. Kommers, The Constitutional Jurisprudence of the Federal Republic of Germany 276 (1989) (providing case examples of German courts balancing these issues). A German case, known as the School Book Case, challenged a specific exemption to copyright, which allowed preparation of compilations for schools for educational purposes. It was held that the constitutional protection of copyright, as a kind of property right, does not guarantee the copyright owner’s absolute control over all exploitation of his of her work, and it was recommended that the legislature codify the proper balance between the author’s interests and public interest. Public interest in free access to cultural values justifies said exemption to copyright, but the author should not be deprived from the right of payment for such use of his or her work. The author should not be obliged to accept free use of his or her work only because such use is in the public interest, even if it is for educational interests. See In re Kästner et al., BVerfGE 31, 229 (1971); Kommers, at 271–75. The meaning of this decision is that in many cases, limitations to copyright that are a result of the need to balance conflicting interests should be determined as a compulsory license that enables use of a work subject to payment. See David P. Currie, The Constitution of the Federal Republic of Germany 298–99 (1994); Matthias Ruete, The ‘Kirchenmusik’ Judgment, Constitutional and Intellectual Property Rights, 2 Eur. Intell. Prop. Rev. 198, 198–99 (1980). 248 Article 27(1) states: “Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits.” Universal Declaration, supra note 54. 249 Article 27(2) states: “Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.” Id. 250 Although the Universal Declaration is not a treaty signed by states, the rules of treaties’ interpretation are applicable, with cautions due to its special status. The interpretive rules of treaties are codified in the 1969 Vienna Convention on the Law of Treaties. Vienna Convention on the Law of Treaties, opened for signature May 23, 1969, art. 31(3), 1155 U.N.T.S. 331, available at http://www.un.org/law/ilc/texts/treaties.htm. One of the interpretive rules of treaties is the literal interpretation rule, according to which one must inspect the relevant norms in any treaty according to the order of their codification. Furthermore, the context, syntax, and wording should be taken into consideration. See Myres S. McDougal et al., The Interpretation of International Agreements and World Public Order: Principles of Content and Procedure 121, 273 (2d prtg. Martinus Nijhoff Publishers 1994) (1967). The different means for treaties’ interpretation, however, are aiding tools for revealing the parties’ true intent. See Lord McNair, The Law of Treaties 366 (Oxford: Clarendon Press 1986). 251 McNair, supra note 250.
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emphasis on the need to restrain this enlargement in order to implement the right of access and participation under Article 27(1).252 It also might be that such an inversion of priorities will lead to the same result existing in a system of exemptions to copyright; nevertheless, situating the right of participation as the primary right might be crucial in difficult decisions. In any case, it should be noted that the proposition of inversing the relation between the two rights at stake has no basis in actual law.253 The U.S. Constitution places the public’s interest first, and so it is not an example of a law that implements such a list of priorities. In the Constitution, the superiority of public interest stems from utilitarian theory and not from natural law perception regarding the priorities of natural and basic liberties.254 In international instruments and activities, however, the right to participate in cultural life, as a human right, is what is being stressed.255 Deciding which of the two rights is primary, and thus prevailing, would be rash. Human rights are relative and not absolute.256 Describing human rights as absolutes reflects a guiding principle and not a specific rule.257 Implementation of the guiding principle of any human right is made by setting limits to the right, even if such limitations do not appear explicitly in the articulation of the right.258 While shaping the scope of one human right, other human rights should be taken into account. Therefore, unless there is a severe and unresolved conflict between two rights, both rights should be embedded into a more or less coexisting pattern of norms. Whatever the way of resolving the conflict between the two rights proclaimed in Article 27 may be, the fact that both are recognized as human rights should in itself lessen the apprehension of using Article 27 to insert natural law considerations into domestic copyright law. The Universal Declaration acknowledges both the interest of the author with respect to his or her work and the interest of members of the public to enjoy works.259 Therefore, the fear of bias in favor of one of the interests, especially in favor of the author’s rights, is relieved. Article 27 can be used as a normative source for natural law consideration enhancing each one of the conflicting rights.260 Therefore, Article 27 can be used for balanced introduction of natural law considerations into domestic law, as well as a means for balanced development of copyright law. Section A posed the question of why a mechanism to insert natural law considerations into copyright law is needed. If Article 27 is used as a normative source for natural law considerations enhancing each one of the conflicting rights, another nourishing layer will be added to the theoretical discourse of copyright law. The practical meaning of this 252 See Davies, supra note 65, at 4 (discussing the twofold purpose of copyright systems); Jeremy J. Phillips et al., Whale on Copyright 17 (4th ed., Sweet & Maxwell 1993); Stewart, supra note 85, at 5; Chapman, supra note 105, at 153–56 (discussing the history of protections and creator rewards for database compilation); Yen, supra note 58, at 559 n.241. 253 See Chapman, supra note 56, at 161–62 (discussing the need for intellectual property lawmakers to undertake human rights as well as economic concerns in the future). 254 See U.S. Const. art. I, § 8; see also Drahos, Origins and Development, supra note 153, at 30–32. 255 For a review on such different activities and international instruments, see Symonides, Human Rights, supra note 127, at 176–79, 181–86, 189–90. See also supra note 128. 256 Dinstein, supra note 108, at 79. 257 See Jerome J. Shestack, The Philosophical Foundations of Human Rights, in Human Rights: Concepts and Standards 175, at 32–35, 44 (Janusz Symonides ed., 2000) (discussing the nature of human rights and distinguishing the core principles affirmed in human rights from the system of rights sought by international law). 258 For example, Dinstein points out two restrictions relating to intellectual property rights, such as human rights, which also apply to other human rights: (1) prohibition on misuse of human rights (a principle that is also proclaimed in article 30 of the Universal Declaration); (2) restriction of human rights in time of war or emergency. See Dinstein, supra note 108, at 80. 259 Universal Declaration, supra note 54. 260 For this conclusion, see infra text accompanying notes 328–30.
418 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y proposal is that in proper cases attention will be given to the extent of an interest from the point of view of human rights. This will confer proper weight to the liberty to participate in cultural life on one hand, and to the material and moral interests of the author on the other. After all, the reason for the inclusion of economic rights, including copyright, into the Universal Declaration despite the initial objection of some of the party states is due, inter alia, to the understanding that in some areas within the economic field, robust moral considerations function as guidance for individual as well as institutional behavior.261 In these areas, basing decisions only in terms of economic gain is improper.262 In other words, the economic human right can enrich the considerations taken into account while shaping an economic norm by adding moral aspects to the utilitarian ones. Hence, in the task of norm configuration, an effort should be made to settle the conflict between the different interests until a proper balance is achieved, and not to reject moral or natural law considerations entirely. For example, in certain cases in which the personal interest of an author with respect to his or her work is remarkable, as part of the expectation to have control over the external reflection of his or her personality, proper importance should be given to such interest as a human right, despite the utilitarian interest to limit such control for the sake of public benefit.263 In contrast, in other cases the basic right of members of the public to be exposed to works, or even to exploit them as part of creative activity, should be given proper weight, despite utilitarian interest to encourage creation of works by conferring exclusive rights on authors.264 These examples demonstrate that in any case, utilitarian 261
See Nickel, supra note 168, at 49. This explanation was suggested by Nickel. See id. 263 A more concrete example might be when artists wish to control the way their works are communicated to the public, and to prevent the media corporation that performs the work publicly to “edit” the work for its convenience in order to embed commercials. See Gilliam v. ABC, 538 F.2d 14 (1976) (The Monty Python comedy troupe sued the ABC network due to its film editing for insertion of commercial breaks and obscenity. The troupe had to use contractual tools, however, to prevent such modification and protect its so-called personal artistic interest); Graber & Tubner, supra note 244, at 61–62 (describing a dispute between the famous cinema director, Fellini, and the “media tycoon,” Berlusconi, where the director sued Berlusconi contending that numerous commercial breaks embedded into his film had interrupted the flow of the film’s artistic message and hence distorted it). This kind of interest is protected in many countries via the “integrity right, which is one of the known moral rights. For more on moral rights, see supra note 183 and accompanying text. 264 In this contrary situation, a more concrete example might be cases acknowledging a large “Lending Right,” enabling authors to prevent lending of lawful copies of their works in public libraries. Vast acknowledgement of such a right might be problematic, if the right to participate in cultural life is taken into consideration. It should be mentioned that, due to the fear that vast lending rights may impose an inappropriate interference with the availability and accessibility of books and other cultural goods in public libraries, the E.C. Directive on the subject left the member states flexibility with respect to legislation on lending rights, including the option to shape the lending rights to equitable remuneration, instead of an exclusive right enabling authors to prevent lending of copies of their works. See Jörg Reinbothe & Silke von Lewinski, The E.C. Directive on Rental and Lending Rights and on Piracy 12–13 (1993). By the same token, article 11 of the Agreement on Trade-Related Aspects of Intellectual Property Rights, which is part of the World Trade Organization scheme, obliges contracting states to acknowledge only a right to authorize or to prohibit commercial rental to the public, and such right relates only to computer programs, cinematographic works, and sound recordings. See Agreement on Trade-Related Aspects of Intellectual Property, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments—Results of the Uruguay Round vol. 31, 33 I.L.M. 81 (1994) [hereinafter TRIPs Agreement]. Another somewhat surprising example concerns the issue of extending the copyright term, which was challenged in Eldred v. Ashcroft, 537 U.S. 186 (2003). The dichotomy presented in the Court’s holding, both by opinion of the Court and by dissenting opinions, is that extension of the copyright term complies with private interests and the question is whether in the long run such an extension will also comply with the public interest, which is the objective of the constitutional copyright clause. According to the opinion of the Court, the Court should not interfere with Congress’ decisions as to how best to achieve the public’s interests, and according to dissenting opinions such extension does not serve the public’s welfare. Id. Such a dichotomy of argumentation presents only one side of the coin. Human rights conceptions might also have insights on the subject matter. Thus, even though 262
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considerations can be manipulated in order to achieve the desired result, whether by emphasizing the public need in restraining copyright or by emphasizing the social need to give incentives for creative activity. Therefore, considering natural law interests, and reference to the rights of access and participation of members of the public as well as to an author’s right as human rights, might enrich and deepen the copyright discourse, without necessarily causing a dramatic change in existing balance of interests. As discussed above, this naturalistic discourse is important, even though it might not change the existing positive balance of interests, because it will advance legal transparency and will bring “natural impulse” reasoning to light. It should be mentioned in this context that when the Universal Declaration was announced in 1948, it reflected the values of natural law regarding the claims of individuals against the state, which represented society.265 Today, however, when centers of power have been transferred from the state to the open market, adjustments to the interpretation of the Universal Declaration should be made to limit the power of large-scale corporations, as opposed to the state. As mentioned above, the Universal Declaration does not bind states, but society as a whole. Therefore, such interpretive adjustments are possible and proper.266 Such an adjustment of Article 27 might be valuable in typical legal rivalries because it can empower authors and users of works by giving them legal tools in the battle against the large media corporations that, to a great extent, control cultural production and consumption.267 This is another answer to the question of why a mechanism for inserting natural law perceptions into the copyright arena is needed. Natural law considerations are mostly relevant for preserving individuals’ interests vis-à-vis large media corporations, and without such a mechanism courts will lack a powerful tool for achieving justice.268 D. THE CONSTITUTIONAL PROBLEM IN THE UNITED STATES
The above sections discussed the potential of using Article 27 of the Universal Declaration as a means for inserting natural law considerations into the American copyright discourse. The question to be asked at this stage is whether such use of Article 27 is permissible according to the U.S. Constitution. The Copyright Clause of the Constituextension of the copyright term might be justified by acknowledging the author’s natural material rights, such extension might be problematic due to acknowledging the basic human right of members of the public to enjoy culture and to participate in cultural life. Therefore, also according to natural law philosophies, there is a debate over whether extending the copyright term is justified. In addition, taking into consideration the naturalistic point of view might not change the final resolution; it might enrich and nourish the discourse, or might even change the balance of interests in favor of the public’s right to participate in cultural life. As a consequence, it would lead to denial of such term extension. 265 Samuel K. Murumba, Introduction to the Universal Declaration of Human Rights at 50 and the Challenge of Global Markets: Themes and Variations, 25 Brook. J. Int’l L. 5, 6 (1999). 266 Id.; see also Dessemontet, supra note 104, at 114–15 (discussing the direct application of Article 27 in French courts to defend artists’ moral rights in two examples, including one where a Charlie Chaplin film was changed by the addition of an unauthorized soundtrack and colorization). 267 For the proposition that constitutional protection of artistic interests should be shifted so as to constrain the power of large private economical entities, such as protecting artists from the large media corporations which control the public performance of their works, see Graber & Tubner, supra note 244, at 68–71, 72. 268 A good example for the relevance of natural law consideration in the relations between individual authors and large media corporations is in the Tasini case, described supra note 217. In this case, the Court was concerned with protection of the rights of freelance journalists against their publishers’ use of their articles. The anchor of the Court decision is the statute itself, i.e. 17 U.S.C. § 201(c), which reflects, inter alia, naturalistic perceptions. See N.Y. Times Co. v. Tasini, 533 U.S. 483, 496 n.3 (2001). Had the Court been equipped with the proposed mechanism for inserting natural law considerations into American copyright law, the reasoning might have been more enriching.
420 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y tion empowers Congress to legislate copyright law to promote the progress of science and the useful arts.269 The Supreme Court has interpreted this clause as a mandate to shape copyright law according to utilitarian considerations.270 Therefore, the question is whether introduction of Article 27 of the Universal Declaration, which is based on natural law values, into American copyright discourse contradicts the Copyright Clause’s utilitarian command. The basic rule in American law is that the Constitution supersedes any other law, federal or state, and any treaty or international obligation of the United States.271 Taking this into account, the following sections will outline propositions enabling the insertion of Article 27 of the Universal Declaration into American copyright discourse in a manner compatible with the Constitution. According to these propositions the Copyright Clause allows pluralistic considerations, to some extent, and Article 27 functions as the engine of the mechanism injecting natural law perceptions within such considerations. I. Interpreting the Constitutional Copyright Clause as Not Totally Rejecting Natural Law Conceptions To answer the question regarding the relationship between the Copyright Clause and Article 27 of the Universal Declaration, one must heavily depend upon the interpretation given to the Copyright Clause. Thus, part of the question is whether the Copyright Clause should be interpreted as non-flexible and completely rejecting any consideration of natural law values in the framework of copyright, or whether is there some interpretive way of embedding natural law considerations within the constitutional framework.272 There is an academic debate as to how the Supreme Court should interpret the Constitution, and as to the weight that should be given to the language of the text and the purported intention of the Framers in construing the meaning of a particular provision.273 The basic tension is between “originalism,” a method of interpreting the Constitution that concentrates on the original text and the Framers’ intentions, and “policymaking,” a method of interpretation concentrating on revealing the fundamental values of the Constitution and examining the purpose served by any particular provision therein.274 In practice, the Court’s constitutional interpretation is predisposed to the “policy-making” school,275 especially with regard to the Copyright Clause.276 Thus, the 269
U.S. Const. art. I, § 8, cl. 8. See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 575 (1994); Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 349–50 (1991); Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984) (discussing the objective of copyright monopoly which lies in the public benefit from the labor of authors); see also Nimmer& Nimmer, supra note 62, § 1.03[A]. For a thorough review of the steadfast rejection of the natural law theory of copyright by the Court, due to the interpretation given to the constitutional clause, see Marci Hamilton, Copyright at the Supreme Court: A Jurisprudence of Deference, 47 J. Copyright Soc’y U.S.A. 317 (2000). 271 U.S. Const. art. VI, § 2. Therefore, the Constitution also supersedes customary international law, sometimes viewed as part of common law. See Restatement of Foreign Relations, supra note 121, § 701–02. 272 The interpretation of the Constitution is a primary source of American constitutional law, because the provisions of the Constitution are general and broadly phrased and the actual meaning depends on how they have been interpreted by the Court. See Robert A. Sedler, United States — Constitutional Law, 5 Int’l Encyclopaedia of Laws 35 (Kluwer Law International 2000) [hereinafter Sedler, Constitutional Law]. 273 See Robert S. Peck, The Bill of Rights & the Politics of Interpretation 151–52 (1992) (discussing academic debate). 274 See a collection of essays on this issue in Constitutional Law (Mark V. Tushnet ed., 1992) (collected essays on constitutional interpretation); Walter F. Murphy et al., American Constitutional Interpretation 289–316 (1st ed. 1986) (addressing approaches, modes, and techniques to constitutional interpretation); Peck, supra note 273, at chs. 10–12 (1992) (discussing the interpretive trends of originalism and textualism). 275 See Sedler, Constitutional Law, supra note 272, at 35 n.1. 276 See, e.g., Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, 57–58, 60 (1884) (interpreting the word “writings” in the constitutional copyright clause as encompassing photographs, because such interpretation is in 270
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first explanation, outlined in Subsection (a) below, concentrates on the policy-making method and argues that revealing the fundamental values of the Copyright Clause and searching for the purpose it serves leads to the conclusion that the clause does not necessarily reject natural law philosophy entirely. The second explanation, outlined in Subsection (b) below, follows the originalism method,277 claiming that the Framers’ original intent was not to reject natural law philosophy in the field of intellectual property rights. This Essay’s proposal for settling the apparent conflict between the Constitution’s utilitarian command and the natural law perceptions reflected in Article 27 of the Universal Declaration may also be described as not applying the interpretive rule of expressio unius est exclusio alterius278 with regard to the Copyright Clause.279 This Essay’s contention is that the Copyright Clause does not totally exclude natural law considerations. Such interpretation is supported by either policy-making interpretation, seeking to reveal the purpose of the constitutional command, or by originalistic interpretation, tracking the legislative history of the Copyright Clause.280 a) The Utilitarian Objective Is Not Decisive Regarding the Specific Way of Achieving It The first way to reconcile the Copyright Clause with natural law perceptions is by interpreting the clause so that it explains the aim of copyright law, but does not determine a fixed standard of means to be used in shaping copyright.281 This insight leads to a possible philosophical standpoint from which to solve the conflict, so that both utilitarian and natural law justifications can be used in the field of copyright law. According to utilitarian theory, the goal is to achieve a social situation that benefits as many people as possible, and as a result, the optimal welfare of society as a whole is attained.282 Nevertheless, the utilitarian approach does not decide how to determine what people’s benefit is. Although economic or monetary tools are common measures of individual and aggregate welfare, they are not the only ones.283 Thus, possibly, if the protection of the natural accordance with the purpose of the clause). For more on the interpretation of the constitutional copyright clause by the Supreme Court, see Hamilton, supra note 270, at 336–40. 277 See Peck, supra note 273, at 161–78 (discussing originalism). 278 [Latin] “[T]o express or include one thing implies the exclusion of the other . . . .” Black’s Law Dictionary 476 (7th ed. 2000). 279 For this interpretive rule, see MacCormick & Summers, supra note 237, at 418. In this context it should be borne in mind that according to the Ninth Amendment of the Constitution, the enumeration of certain rights in the Constitution shall not prejudice other rights not so enumerated. See U.S. Const. amend. IX. 280 See Peck, supra note 273 (discussing originalism). 281 Nimmer & Nimmer, supra note 62, § 1.03; see also Paul M. Schwartz & William M. Treanor, Eldred and Lochner: Copyright Term Extension and Intellectual Property as Constitutional Property, 112 Yale L.J. 2331, 2336 (2003) (“Like numerous constitutional texts, these few words lead to innumerable debates. . . . If Congress’s power to provide copyright or patent protection is only proper if the exercise of that power advances certain ends, how tight must the fit between means and ends be?”). 282 See John Rawls, A Theory of Justice 20 (Harvard Univ. Press 1999) (“The main idea is that society is rightly ordered, and therefore just, when its major institutions are arranged so as to achieve the greatest net balance of satisfaction summed over all the individuals belonging to it.”) (citation omitted). For this basic utilitarian paradigm used with respect to justification of property rights in general, see Becker, supra note 64, at 57–67; Munzer, supra note 64, at 196–98. See also Frank J. Garcia, Global Trade Issues in the New Millennium: Building a Just Trade Order for a New Millennium, 33 Geo. Wash. Int’l L. Rev. 1015, 1030 (2001) (“Utilitarian theory provides that an act will be right insofar as it maximizes utility, here defined as the satisfaction of preferences. Essentially, utilitarianism claims that the principle of utility maximization follows naturally and compellingly from the simple fact that people have preferences and are happier to the extent to which such preferences are satisfied.”). 283 See Ruth Gana Okediji, Perspectives on Globalization from Developing States: Copyright and Public Welfare in Global Perspective, 7 Ind. J. Global Legal Stud. 117, 137 (1999) (stating, in the context of international economic policies and free trade, “[t]he market mechanism fails to yield true measurements of social welfare because it cannot account for values which shape an individual’s desires, and which must be accounted for in the calculation of social optimum”) (citation omitted).
422 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y rights of as many people in society as possible is achieved, optimal utilitarian welfare may be attained.284 In other words, utilitarian considerations do not necessarily reject the consideration of natural law values.285 The Supreme Court also has stressed that the immediate impact of copyright is conferring reward to the author, and the long-term aim of such reward is to advance public welfare.286 And recently, in the same context, the Court again has stressed that it is for Congress to decide how best to pursue the Copyright Clause’s objectives,287 referring to an enactment furthering the reward given to authors.288 It should be admitted, however, that although such an approach enables the embedding of natural law considerations within the constitutional framework, it grades natural law justification for copyright as inferior to the utilitarian one, and not as a pari passu justification. Adherents of the natural law justification for copyright might view this result as the lesser evil, and utilitarians as an unavoidable concession.289 It can further be argued that the utilitarian justification for copyright expressed in the U.S. Constitution is an example of what legal theorist John Rawls calls “overlapping consensus.”290 Namely, the Copyright Clause comprises the general framework or basic construction within which a variety of values might be integrated. The constitutional framework reflects the lowest common denominator of consensus, but it does not mean that in all cases other values should necessarily be rejected. Tracking the history of the Constitution reveals that the Copyright Clause itself is not made out of one cloth, and that there was no consensus among the Framers with respect to the theoretical justifica-
284 A central criticism of the utilitarian-economic approach, in general, and to copyright in particular is that wealth maximization raises the issue of resource allocation in society, and such allocation is dependent on distributive justice values. Therefore, a discussion according to the utilitarian-economic approach will be circular, because the basic decisions are made according to values that are external to this approach. Furthermore, the emphasis on economic efficiency has been criticized as ignoring additional socially important interests which cannot be estimated by economic or monetary tools. Therefore, such emphasis does not necessarily promote the benefit of as many people in society. See Gordon, Inquiry into Copyright Merits, supra note 65, at 1439; Neil Weinstock Netanel, Copyright and a Democratic Civil Society, 106 Yale L.J. 283, 288 (1996); Yen, supra note 58, at 541; see also Waldron, supra note 66, at 13. The common answer to this criticism is that economic tests aid in identifying the point of maximum social welfare, which also reflects non-monetary values. See Becker, supra note 64, at 67–74; Stanley M. Besen & Leo J. Raskind, An Introduction to the Law and Economics of Intellectual Property, 5 J. Econ. Persp. 3, 5 (1991). Another common answer is that economic efficiency is a central but not exclusive tool to determine ways of operation in order to promote social welfare. See Becker, supra note 64, at 57–67; Gordon, Inquiry into Copyright Merits, supra note 65, at 1388 n.206; Parchomovsky, supra note 231, at 354–55. Hence, even according to adherents of the utilitarian-economic approach, welfare maximization means considering, inter alia, non-utilitarian economic considerations. 285 See id. 286 See Eldred v. Ashcroft, 537 U.S. 186, 212 n.18 (2003); N.Y. Times Co. v. Tasini, 533 U.S. 483, 496 n.3 (2001); Mazer v. Stein, 347 U.S. 201, 219 (1954); see also Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975) (discussing reward to public); Nimmer & Nimmer, supra note 62, at § 1.03[A]; L. Ray Patterson & Stanley W. Lindberg, The Nature of Copyright: A Law of Users’ Right 47–55 (1991). 287 See Eldred, 537 U.S. at 204, 208, 222 (2003) (affirming the time extension of the copyright term by Congress). 288 See id. at 205–07 (describing the benefits of term extension to authors). 289 For an opposite view, according to which the language of the constitutional copyright clause clearly indicates that copyright power is limited and Congress cannot consider natural law proprietary rights for authors, see L. Ray Patterson, Understanding the Copyright Clause, 47 J. Copyright Soc’y U.S.A. 365, 369–74 (2000). This view follows Patterson’s conclusion that, according to the textual analysis of the clause, it contains three ideas with regard to copyright: (1) copyright is not to be used for censorship; (2) copyright protects public domain; and (3) copyright provides public access to learning materials. See id. at 367–68. As explained in the text above, in my view the clause should not be interpreted as limiting the ways to achieve final welfare, and it does not totally exclude naturalistic proprietary interests from copyright’s menu of considerations. Such a conclusion is also supported by the Court’s holdings. See supra note 286. 290 John Rawls, The Idea of an Overlapping Consensus, 7 Oxford J. Legal Stud. 1, 4–5 (1987).
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tions for copyright.291 This bolsters the notion that the Copyright Clause is outlined so as to contain a variety of values and philosophical attitudes, and is, therefore, a fruit of consent to articulate a provision encompassing incommensurable concepts, namely both utilitarian and naturalistic objectives.292 According to Rawls, an overlapping consensus containing utilitarian concepts, while problematic, is made possible by integrating the other concepts as a means to achieve the greatest welfare.293 If using these philosophical arguments to interpret the Copyright Clause, then the introduction of the underpinnings of Article 27 of the Universal Declaration into American copyright law is proper and suitable, especially in light of the view expressed above: that the interpretation of domestic laws, including the constitutional provisions, should be aided by human rights norms, especially if they involve similar rights. As explained, it is possible to view human rights as a positive external source of law and, therefore, the Constitution should be interpreted according to a broader context other than a purely domestic one.294 Furthermore, it is established that in cases of ambiguity the domestic norm should be interpreted in a way consistent with the law of all peoples, namely international law.295 Therefore, if possible, Article 27 should influence the interpretation given to domestic copyright law, even though it might not be regarded as 291 Edward C. Walterscheid’s research on the history of the copyright clause shows that it is not made out of one cloth, and that its theoretical basis of codifying is complex. See Edward C. Walterscheid, To Promote the Progress of Science and Useful Arts: The Background and Origin of the Intellectual Property Clause of the United States Constitution, 2 J. Intell. Prop. L. 1, 44–48 (1994) [hereinafter Walterscheid, Origin of the IP Clause]. Walterscheid claims that the first initiative to codify a clause empowering Congress to confer rights to authors and inventors was made by James Madison, who was especially interested in protection of scholars’ interests. See id. at 47–48. Recently, the Supreme Court has also referred to Madison’s insights with respect to copyright’s objectives, according to which “in copyright ‘[t]he public good fully coincides . . . with the claims of individuals.’” See Eldred, 537 U.S. at 212 n.18; see also Schwartz & Treanor, supra note 281, at 2385 (“[James Madison] did not view the purpose of the Copyright Clause as limited to encouragement of future production. . . . Madison was interested in a notion of reward for authors; he speaks of ‘recompence’ and ‘compensation for a benefit’ that could have been withheld. Also significantly, Madison’s focus with respect to the ‘limited Times’ provision is on patents, not copyrights. ‘The limitation is particularly proper,’ he writes, ‘in the case of inventions.’”) (citation omitted); Damstedt, supra note 86, at 1179 (“Lockean natural rights informed the Framers’ understanding of intellectual property law.”) (citations omitted). For more on Madison’s influence on the clause, see Patterson & Lindberg, supra note 286, at 53–54. For a thorough review of the history of the copyright clause, illustrating its complex underpinnings, see Schwartz & Treanor, supra note 281, at 2375–90 (concluding that the view according to which Framers intended the copyright clause to limit tightly Congress’s powers, and bind to pure utilitarian consideration is inaccurate and incompatible with historical facts). For more on the history of the clause, see Tyler T. Ochoa & Mark Rose, The Anti-Monopoly Origins of the Patent and Copyright Clause, 49 J. Copyright Soc’y U.S.A. 675, 685–95 (2002). Nimmer and Nimmer have also noted that the Founders did not reject the view that copyright is a natural right. See Nimmer & Nimmer, supra note 62, § 1.03[A]. They further note that the constitutional command to limit the term of intellectual property rights is aimed to strike a balance between the interest of the author in the fruits of his or her labor and the public interest in free access to materials needed for the development of society. See id. § 1.05[D]. In other words, the clause intends to balance the “natural” interests of the author and the “utilitarian” interests of society. For further discussion on the legislative history of the constitutional clause, see infra Part II.C. For an opposite view with regard to the origins of the constitutional clause, as purely based on public welfare objectives, see Patterson, supra note 279, at 374–84. For a further review of such opposite views, see Schwartz & Treanor, supra note 281, at 2339–42 (reviewing the “intellectual property restrictors” originalist and textualist interpretation of the copyright clause). 292 As John Rawls explains, overlapping consensus is not a mere modus vivendi, because it includes within one workable framework incommensurable philosophies, such as different religions. Therefore, the outcome of overlapping consensus is not a compromise, which is the outcome of political bargaining, but rather an agreement to encompass all concepts. See Rawls, supra note 290 at 9–12. 293 See id. at 12. 294 See supra note 239 (concerning Prof. Christenson’s proposal). 295 See Restatement of Foreign Relations, supra note 121, § 114 (according to which, where it is fair, a U.S. statute is to be construed so as not to conflict with international law).
424 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y binding international law. Hence, there exist both a legitimization in the Copyright Clause, allowing pluralistic consideration with regard to copyright, and a positive mechanism to accept the perceptions reflected in Article 27 into the clause. b) Interpreting the Constitutional Copyright Clause According to Its Legislative History The possibility of integrating natural law considerations into American copyright law, within the constitutional framework, is also supported by the legislative history of the constitutional Copyright Clause.296 As already mentioned above,297 the history of the Constitution reveals that the Copyright Clause itself is not made out of one cloth, and it had complex underpinnings, including natural law ones.298 Furthermore, Professor Edward C. Walterscheid argues that the aim of the Copyright Clause is to emphasize the issue of setting a time limitation to the rights.299 Namely, the need for a clause in the Constitution concerning intellectual property rights arose for the purpose of determining explicitly and specifically that the correct way to promote science and useful arts is by limiting the right vested with respect to such intangible resources.300 Beyond this, there is no need for an explicit constitutional mandate to regulate the protection of intellectual assets, because Congress is empowered to do so under its general regulative authority.301 Additionally, there are many different ways to promote science and useful arts, aside from nonperpetuity of intellectual property rights.302 It is, therefore, claimed that the inclusion of the Copyright Clause in the Constitution was done mainly over fear that without it Congress would lack the power to set a time limitation on intellectual property rights.303 Another asserted reason for the inclusion of the Copyright Clause in the Constitution is that it aimed to include the regulation of intellectual property in the federal sphere and not leave the subject to state regulation.304 As a result of this historical process, it is possible to argue that the clause is not specifically aimed to prevent considering natural law conceptions within the framework of copyright law. The Copyright Clause had objectives other than limiting the range of theoretical underpinnings of copyright. Therefore, it should not be interpreted as barring the introduction of natural law considerations into copyright law. 296 For a review of an opposite view with respect to the legislative history, see Schwartz & Treanor, supra note 281, at 2339–42 (reviewing the “intellectual property restrictors” originalist and textualist interpretation of the copyright clause). See also Ruth Okediji, Toward an International Fair Use Doctrine, 39 Colum. J. Transnat’l L. 75, 94–95 (2000); Patterson, supra note 279, at 374–84. 297 See supra note 291 and accompanying text. 298 Id.; see Nimmer & Nimmer, supra note 62, § 1.03[A]; Schwartz & Treanor, supra note 281, at 2375–90; Walterscheid, Origin of the IP Clause, supra note 291, at 44–48. 299 See Edward C. Walterscheid, Defining the Patent and Copyright Term: Term Limits and the Intellectual Property Clause, 7 J. Intell. Prop. L. 315 (2000) [hereinafter Walterscheid, Term Limits and the IP Clause]. 300 Id. at 316. 301 For example, Congress could do so under its power to regulate commerce. For a similar conclusion, see Schwartz & Treanor, supra note 281, at 2387 (“The interpretive approach reflected in these views about incorporation would suggest that for many, and perhaps most, of the Founders, the Copyright Clause was a clarification of a congressional power already existing under the Commerce Clause, perhaps in conjunction with the Necessary and Proper Clause, rather than a vesting of a new power in Congress.”). For more about Congress’s power in this context, see infra notes 320–22 and accompanying text. 302 Walterscheid, Terms Limits and the IP Clause, supra note 299, at 316. 303 Walterscheid, Origin of the IP Clause, supra note 291, at 33–34; Walterscheid, Term Limits and the IP Clause, supra note 299, at 318–20. For an opposite view with regard to the origins of the constitutional clause, as aimed to limit the power of Congress with policies to promote learning, namely to consider only public welfare objectives, see Patterson, supra note 279, at 374–84. 304 Nimmer & Nimmer, supra note 62, § 1.01; Rochelle Cooper Dreyfuss, A Wiseguy’s Approach to Information Products: Muscling Copyright and Patent into a Unitary Theory of Intellectual Property, 1992 Sup. Ct. Rev. 195, 231 (1992).
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2. Alternative Constitutional Basis Aside from the interpretative ways of inserting natural law conceptions reflected in Article 27 of the Universal Declaration into the framework of the Copyright Clause, as suggested above, uncertainty remains as to whether there is an alternative constitutional basis for introducing natural law philosophy into the intellectual property field, and furthermore, whether such circumvention of the Copyright Clause is possible. a) Possibilities for an Alternative Constitutional Basis As to the first question, whether there is an alternative constitutional basis for acknowledging copyright as a human right according to natural law perceptions, one must turn, arguendo, to the Fifth Amendment protection of property.305 As explained above, in Part I.F, the interests protected by copyright as a human right might also be protected, at large, through the vast property right also acknowledged in the Universal Declaration. In other words, the large scope of protection of property rights might include protection of intellectual property rights in general and copyright in particular. Therefore, it could be argued that protection of copyright as a property right, considering inter alia natural law considerations, could be achieved via the constitutional status of property rights. This vast topic of the constitutional status of property rights in American law is undoubtedly beyond of the scope of this Essay.306 Nevertheless, it should be noted that constitutional protection of property is interpreted broadly as embracing intangible property as well,307 and stems also from natural law perceptions.308 Such protection, however, is focused on the compensation that should be paid in cases of expropriation of private property for public use—known as “taking.”309 Therefore, bypassing the Copyright Clause through 305 U.S. Const. amend. V (“No person . . . shall be deprived of life, liberty, or property, without due process of law . . . private property . . . shall not be taken for public use without just compensation.”). 306 For a general review of the constitutional protection of property, see Erwin Chemerinsky, Constitutional Law: Principles and Policies 504–24 (1997). For a critical review of the legislative history of the Fifth Amendment, see H.N. Scheiber, The “Takings” Clause and the Fifth Amendment: Original Intent and Significance in American Legal Development, in The Bill of Rights: Original Meaning and Current Understanding 233 (Eugene W. Hickok, Jr. ed., 1991). For the difficulties underlying the doctrinal conception of property right’s status, see Andrea L. Peterson, The Takings Clause: In Search of Underlying Principles, 77 Cal. L. Rev. 1301 (1989). See also Frank Michelman, Property as a Constitutional Right, 38 Wash. & Lee L. Rev. 1097 (1981). 307 The Supreme Court held that trade secrets were property within the meaning of the Fifth Amendment. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002–04 (1984). For the broad interpretation given to the term “property,” including intangible proprietary interests, see also Chemerinsky, supra note 306, at 505, 519–22. According to some scholars, however, copyright should be characterized as speech regulation, rather than property right. See Netanel, Locating Copyright, supra note 202, at 39 (“Copyright is often characterized as a property right. As such, to some, copyright doesn’t sound like censorship, just people enforcing their lawful property rights. To be certain, rights in real property do enjoy at least qualified First Amendment immunity. One cannot generally trespass on privately-owned land in order to speak. But that, in First Amendment terms, is because real property rights are general regulations that impose only isolated and incidental burdens on speech. Where property rights are not in land, but in information, expression, or communicative capacity, they are more properly characterized as speech regulations.”) (citations omitted); Lemley & Volokh, supra note 202, at 184 (“Furthermore, consumption of intellectual property, unlike consumption of tangible property, is ‘nonrivalrous’ — one person’s use of a work does not prevent others from using it as well. This makes intellectual property sufficiently unlike tangible property that some courts that have faced the issue directly have even concluded that copyrights and trademarks are not ‘property’ within the meaning of the Takings Clause. Whether or not that’s correct, the nonrivalrous aspect of intellectual property infringement weakens the property rights argument.”) (citations omitted); see also infra note 319. 308 For the naturalistic roots of the constitutional protection over property, see Murphy et al., supra note 274, at 1070–71. Furthermore, constitutional protection over property might also be justified due to the “Personhood Function” of property rights, which is a naturalistic justification of property rights. See Chemerinsky, supra note 306, at 521; C. Edwin Baker, Property and Its Relation to Constitutionally Protected Liberty, 134 U. Pa. L. Rev. 741, 746, 761–64 (1986). 309 Much of the litigation concerning the Fifth Amendment has focused on the question: What is a “taking”?
426 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y the Fifth Amendment might be relevant and operative in particular circumstances that are analogous to a taking of a copyright, although some interpretive effort would be needed to do so.310 But in other circumstances, it might be even less clear whether the Fifth Amendment might function as a separate source of power for initial acknowledgement of proprietary rights with regard to copyrightable materials. Nevertheless, the Fifth Amendment is still an insufficient alternative to the Copyright Clause, not only because it might apply only to particular circumstances analogized to a taking, but also due to the non-proprietary aspects of some of the interests authors have with respect to their works. As explained above in Part I.F,311 devoting a special article in the Universal Declaration to copyright was not superfluous despite the existence of the general property right because there are special interests in the field of creation that deserve special attention. One of these interests is the protection of an author’s personal bond with his or her work, which is mainly acknowledged in positive law through moral right.312 Moreover, as explained above in Part I.E, it was suggested that the scope of copyright as a human right be restricted only with respect to the aspects of protecting the author’s personal interests in his or her work, and these interests are not purely proprietary in nature.313 The center of copyright as a human right lies in the moral right arena.314 Protection of the personal interests of authors, mainly through moral rights, cannot stem from the Fifth Amendment precisely because they are not proprietary in nature.315 Therefore, another constitutional basis for inserting natural law values accompanying moral rights must be found. Roughly speaking, there are two kinds of takings: (1) a “possessory” taking that occurs when the government confiscates or physically occupies property, and (2) a “regulatory” taking that occurs when the government’s regulation leaves no reasonably economically viable use of the property. See Chemerinsky, supra note 306, at 506. 310 For example, courts tend to emphasize the importance of parodies to the public and, therefore, approve their creation although they are created through exploiting a preexisting work, by the fair use doctrine, codified in 17 U.S.C. § 107 (1996). Thus, through the fair use “regulation,” courts approve the use of someone else’s property for free, for the benefit of the public. It seems that this situation can be seen, through the prism of the Fifth Amendment, as a kind of a regulatory taking. It should be noted that the interpretation of the Fifth Amendment might apply in such cases, because the “taking” may be considered to be for a “public purpose” even though the taking will also benefit a private entity. See Chemerinsky, supra note 306, at 522–23. Applying the Fifth Amendment in such cases, however, might be problematic due to the Lucas decision, holding that regulatory taking occurs in cases where the owner is deprived from any reasonable economic use of his or her property. See Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992). For the view that parodist use of a work should not be exempt from payment only because it concerns a use that the public is interested in, see Paul Goldstein, Derivative Rights and Derivative Works in Copyright, 30 J. Copyright Soc’y U.S.A. 209, 235–36 (1983); Richard A. Posner, When Is Parody Fair Use?, 21 J. Legal Stud. 67, 73 (1992). This question becomes more complicated in cases that are not clear-cut parodist uses of works, and which are accompanied with big profits gained by the user. The arguments against free use of works could be bolstered by the human rights perspective of copyright, according to which it is not fair that another shall enjoy something that originated from an author’s labor without paying the author. It does not mean that the user will be silenced and that the public will not enjoy parodies, rather that the author of the work being parodied will share some of the profits gained by the user. In other words, the author will get “just compensation” for the use of his or her property. As mentioned supra note 198, this attitude was held by the German Supreme Court in the School Book Case, regarding a specific exemption in statute. The author of this Essay does not think that allowing parodies through the fair use doctrine codified in federal law, however, is necessarily an illegal uncompensated taking. Rather, when natural law considerations are proper, such considerations hypothetically could have been taken into account via the window of the Fifth Amendment, if barred at the front door of the constitutional copyright clause. 311 See supra notes 189–92 and accompanying text. 312 For the content of moral rights, see supra notes 183–86. 313 See supra notes 189–192 and accompanying text. 314 But as explained above, this is not only in the moral rights arena. See supra note 186 and accompanying text. 315 As explained supra notes 169–71 and accompanying text, the common view is that moral rights protect against personal injury, for which the legal means of redress is tort law (i.e., libel, slander, etc.), rather than property law.
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Prima facie, and somewhat ironically, the situation concerning moral rights might not be so complicated. Moral rights represent an already “colonized” area of natural law in federal copyright law.316 As a result, it also could be argued that the search for an alternative constitutional basis for the introduction of natural law considerations is unnecessary, with respect to the personal interests of an author in his or her work, because Congress already has realized its power to acknowledge moral rights. In other words, the legislation of moral rights in federal copyright law serves as the gateway for inserting natural law considerations into domestic copyright law. It should be borne in mind, however, that the scope of the moral right recognized in American copyright law is narrow and only relates to certain visual works.317 This argument is problematic for another reason as well. Specifically, in the theoretical search for a constitutional authority for inserting natural law considerations into copyright law, the presence of natural law considerations in positive copyright law does not prove the existence of a constitutional authority.318 To claim so would be to assume the solution that is being sought. b) Circumvention of the Constitutional Copyright Clause Is Futile As to whether it is possible to use another constitutional provision to add to copyright law perceptions, prima facie, not falling within the mandate given by the Copyright Clause, there is no clear answer. The Fifth Amendment as an alternative to the intellectual property clause, in this context, has not been challenged in court.319 A similar issue, however, has been challenged, relating to the possibility of using the constitutional commerce clause320 as an alternative to the Copyright Clause. Professor David Nimmer explains at length the issue of using the commerce clause and other authority under the Constitution to enter into treaties as an alternative constitutional mooring for the Copyright Clause.321 He refers to the case of United States v. Moghadam,322 in which the defendant challenged the argument that the criminal anti-bootlegging amendments to the copyright statute, enacted according to United States obligations under the Agreement on Trade-Related Aspects of Intellectual Property (“TRIPs Agreement”),323 lies outside Congress’s Copyright Clause powers. The Court concluded that the commerce clause might be used in order to regulate matters lying within the copyright field, especially if such “interference” is not fundamentally inconsistent with the Copyright Clause.324 316
See supra notes 218–25 and accompanying text. See 17 U.S.C. § 106A (1996). 318 But recently the Supreme Court has acknowledged Congress’s practice of extending copyright terms and supported the constitutionality of such acts. See Eldred v. Ashcroft, 537 U.S. 186 (2003). According to Justice Stevens, reliance on congressional practice is mistaken, because if the practice is unconstitutional it should be invalidated. See id. at 235–39 (Stevens, J., dissenting). 319 As far as it is known to the author of this Essay. But see Lemley & Volokh, supra note 202, at 184 (stating that “some courts that have faced the issue directly have even concluded that copyrights and trademarks are not ‘property’ within the meaning of the Takings Clause”). The cases that authors Mark A. Lemley and Eugene Volokh refer to are A. College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 148 F.3d 1343, 1347 (Fed. Cir. 1998), cert. granted, 144 L. Ed. 2d 575, 589 (1999), and B. Chavez v. Arte Publico Press, 157 F.3d 282, 286, 289 (5th Cir. 1998). Id. With respect to the question at stake, whether naturalistic approach could be introduced into American copyright law through the Fifth Amendment as an alternative to the intellectual property clause, the above-referred decisions are not decisive. 320 U.S. Const. art. I, § 8, cl. 3. 321 Nimmer & Nimmer, supra note 62, §§ 1.09[A]–[B], 8E.01[B]–[C], 9A.07[B], 18.06[C][3][a]. 322 175 F.3d 1269 (11th Cir. 1999), cert. denied, 529 U.S. 1036 (2000). 323 TRIPs Agreement, supra note 264. 324 United States v. Moghadam, 175 F.3d 1269, 1279–80 (11th Cir. 1999). Also, in In re Trade-Mark Cases, 100 U.S. 82 (1879), the question of using the commerce clause as an alternative authority to the intellectual property clause was applied. The Supreme Court held that the challenged trademark law had no connection to the subject matter of the intellectual property clause, so the only question was whether the trademark law at stake was duly 317
428 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y Hence, as Nimmer explains, the resolution is that using alternative constitutional mooring for achieving objectives that are in harmony with copyright doctrine is less problematic than using such alternatives in cases of fundamental inconsistency.325 By the same token, returning to the issue at stake, in order to examine whether it is possible to insert natural law values into copyright law, for example through the Fifth Amendment, the question one should ask is whether natural law perceptions regarding copyright as a human right are fundamentally inconsistent with copyright doctrine, as reflected in the Copyright Clause. In order to answer this question one must return to square one and inspect whether the Copyright Clause praising utilitarian aims may bear natural law considerations. In other words, if the possibility to use an alternative constitutional basis for inserting natural law considerations into domestic copyright law is dependent on whether such considerations are in harmony with the copyright scheme under the Copyright Clause, then one must return to the basic philosophical question of interpreting the Copyright Clause. Thus returned, the Copyright Clause can be interpreted so as to allow the consideration of natural law perceptions.326 Given the decision in United States v. Moghadam, however, it is clear that the constitutional adventure outlined above is not that helpful. If the journey outside the Copyright Clause in search of an alternative constitutional basis for inserting natural law conceptions into domestic copyright law leads one back to the internal question of interpreting the Copyright Clause itself, then that journey is futile. Either the Copyright Clause bears natural law considerations, or it does not. If it does, then the insertion of natural law considerations into domestic law may be done directly through the Copyright Clause itself, taking into account the particular checks and balances of the field, and there is no need to explore other constitutional clauses.327 In other words, the key to resolving the puzzle of using Article 27 of the Universal Declaration as a conduit to insert natural law considerations into American copyright law, despite the constitutional command to legislate copyright law according to utilitarian end, is to be found in the interpretation of such command as not rejecting natural law considerations completely, whether through a policy-making kind of interpretation or even through that of originalism, as sketched above. enacted according to the commerce clause. Therefore, the Moghadam court concluded that “the Supreme Court’s analysis in the Trade-Mark Cases stands for the proposition that legislation which would not be permitted under the Copyright Clause could nonetheless be permitted under the Commerce Clause, provided that the independent requirements of the latter are met.” Moghadam, 175 F.3d at 1269, 1278. Although the Moghadam court concluded that in some circumstances the commerce clause can be used by Congress to accomplish something that the intellectual property clause might not allow, it cannot be used, however, to eradicate a limitation placed upon congressional power in another grant of power. Therefore, the court evaluated whether the anti-bootlegging law was in harmony with the existing scheme that Congress had set up under the intellectual property clause. Id. at 1279–80. Another case to be decided, challenging the question of whether the copyright clause has a preemptive effect with respect to both the foreign commerce clause and the treaty clause, is Golan v. Ashcroft, Civil Action No. 01-B-1854. See Schwartz & Treanor, supra note 281, at 2361 n.195. 325 Nimmer & Nimmer, supra note 62, § 1.09[B]; see also Edward C. Walterscheid, Confronting the General Welfare Clause and the Intellectual Property Clause, 13 Harv. J.L. & Tech. 87 (1999). For an objection to the use of an alternative constitutional basis, see Cooper Dreyfuss, supra note 304, at 230. 326 To complete the example given supra note 261 concerning parodies, it could be argued that, while inspecting the fair use defense in a specific case, it is not contrary to copyright doctrine to take into account considerations that could be labeled as “natural law,” such as the right of the author to enjoy the fruits of his or her labor, and other personal interests of the author with regard to his or her work. As mentioned above, fairness is not a pure utilitarian term. See supra notes 231, 308. 327 By way of association, the Supreme Court has chosen a similar path in holding that the tension between copyright and the freedom of speech interests should be resolved within the internal framework of copyright law. See Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 560 (1985).
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CONCLUSION The Universal Declaration of Human Rights announces two fundamental rights in Article 27: (1) the right of everyone to participate in cultural life; and (2) the material and moral rights of authors with respect to their works.328 Article 27 has been neglected for decades, despite the status and importance of the Universal Declaration. Although the Universal Declaration may have no binding authority, it nevertheless functions at least as a primary source of inspiration, influencing domestic law, inter alia, by way of interpretation. Taking Article 27 seriously could be helpful in the field of copyright, where a constant debate over theoretical foundations and justifications is taking place. Acknowledgment of human rights is based on natural law theories.329 Thus, an additional factor that should be taken into account in such a debate is the possible status of the right of people to be exposed to works—and in some cases to exploit them—as well as the author’s moral and material rights, as human rights. The acknowledgement of author’s rights as human rights has been criticized. Nevertheless, a possible compromise is to limit this acknowledgement only to the aspects of the right that deals with protection of personal interests of authors with respect to their works. Therefore, the human rights discourse is relevant in the copyright field. This Essay has proposed using Article 27 of the Universal Declaration to conduct natural law considerations into American copyright law. The American copyright system stands to gain from such a use of Article 27, especially if the complex interests expressed in Article 27 are properly comprehended. Article 27 embraces a balance of interests between authors’ interests and those of the other members of society to enjoy works. More than that, it is possible to interpret Article 27 as emphasizing the right to participate in cultural life as the primary right. Therefore, used properly, Article 27 can enrich and enhance the theoretical discourse in the field of copyright in a balanced way, allaying the fears of favoring authors over users of copyrighted works. Furthermore, the adoption of the proposed mechanism, which opens an aperture in American copyright law for naturalistic philosophy, might also contribute to the system’s transparency. That is because the naturalistic considerations, which are in any case taken into account, could be legitimized, and as a result properly inspected and scrutinized. Article 27 also can arm both authors and users of copyrighted works with legal arguments vis-à-vis large media corporations and other entrepreneurs controlling the cultural market. Thus, the proposed mechanism to use Article 27 might nourish the American copyright discourse and have promising outcomes. Adoption of the proposed mechanism, however, encounters prima facie difficulties due to the Copyright Clause of the U.S. Constitution, which has been interpreted as determining a utilitarian framework for copyright. It is possible to solve the problem by interpreting the constitutional Copyright Clause as not rejecting natural law considerations completely. The interpretation of the Copyright Clause as not totally excluding natural law perceptions can be supported both by legislative history and policy-making interpretation. This interpretive path is possible because the Copyright Clause determines the objectives of copyright law, but is not decisive with respect to the way it is to be achieved. Consequently, the utilitarian aim reflected in the Copyright Clause both could serve as the lowest common denominator of consensus with respect to the general aim of copyright law, and at the same time bear natural law considerations. Introduction of the underpinnings of Article 27 into American domestic copyright law is also proper and 328 329
See supra notes 54–55. See supra note 57.
430 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y suitable in light of the view that the interpretation of domestic laws, including the constitutional provisions, should be aided by human rights norms, especially if such interpretation involves similar rights. The Copyright Clause thus allows the insertion of pluralistic values into the copyright scheme, and interpretative procedures provide a positive mechanism to introduce the perceptions reflected in Article 27. Moreover, another question is whether there is an alternative constitutional basis for introducing natural law philosophy into the intellectual property field, and furthermore, whether such circumvention of the Copyright Clause is possible. According to Court, the circumvention of the Copyright Clause is permissible only if it results in an outcome that is not fundamentally inconsistent with the copyright scheme under the Copyright Clause.330 Therefore, an attempt to insert natural law considerations into American copyright law via an alternative constitutional basis, such as the Fifth Amendment’s protection over property rights, is not helpful because there is no escape from the need to answer the basic and internal question of whether the Copyright Clause can be interpreted as not rejecting natural law conceptions. And, as outlined above, the answer is in the affirmative.
APPENDIX B The New Innovation Frontier? Intellectual Property and the European Court of Human Rights331 Laurence R. Helfer332 Vanderbilt University ABSTRACT
This article provides the first comprehensive analysis of the intellectual property case law of the European Court of Human Rights (ECHR). Within the last three years, the ECHR has issued a trio of intellectual property rulings interpreting the right of property protected by the European Convention on Human Rights. These decisions, which view intellectual property through the lens of fundamental rights, have important consequences for the region’s innovation and creativity policies. The cases are also emblematic of a growing number of controversies in domestic and international law over the intersection of human rights, property rights, and intellectual property. The article analyzes this trend and uses it to develop three distinct paradigms to identify the proper place of intellectual property issues in the European human rights system. It concludes that the ECHR should find a violation of the right of property in intellectual property disputes only in cases of arbitrary government conduct. I. INTRODUCTION In Europe, human rights law is intellectual property’s new frontier. This statement will no doubt surprise many observers of the region’s intellectual property system, which has 330
See supra note 318. The final version of this article is available on the Harvard International Law Journal website, www.harvardilj.org/print/131 332 Professor of Law and Director, International Legal Studies Program, Vanderbilt University Law School. E-mail:
[email protected]. An earlier version of this Article was presented at the New York University Law School Colloquium on Innovation Policy. Thanks to Rochelle Dreyfuss, Jane Ginsburg, Anthony Reese, Katja Weckstrom, and Diane Zimmerman for their thoughtful and insightful comments. 331
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steadily expanded over the last few decades. The mechanisms of that expansion have included a litany of now familiar legal and regulatory tools—the negotiation and ratification of multilateral agreements, the promulgation of European Community (“EC”) directives, the rulings of the powerful European Court of Justice, and the revision of national laws and administrative regulations. The result of these cumulative and interrelated initiatives is a highly developed intellectual property system that is strongly protective of creators, innovators, and businesses. This regional intellectual property regime has developed in relative isolation from Europe’s other judicial powerhouse, the European Court of Human Rights (“ECHR” or “Court”).333 The ECHR began its existence modestly as an optional judicial review mechanism for European states which had ratified the Convention for the Protection of Human Rights and Fundamental Freedoms334 (“European Convention” or “Convention”) and its Protocols. But in the half century since its creation, the ECHR has evolved into something far more momentous — the judicial guardian of a “constitutional instrument of European public order.”335 The Court now reviews tens of thousands of complaints each year and its jurisdiction extends the length and breadth of the continent, encompassing 800 million people in forty-seven nations from Azerbaijan to Iceland and from Portugal to Russia.336 One might reasonably ask what an international human rights court and the human rights treaty it interprets has to do with intellectual property. The answer is the right of property, which appears in the European Convention together with more widely recognized civil and political liberties such as the prohibitions of slavery and torture, due process rights, and freedom of expression. Yet the protection of “the peaceful enjoyment of possessions” in Article 1 of Protocol No. 1 (“Article 1”)337 has long been considered among the weakest rights in the Convention system, affording governments broad discretion to regulate private property in the public interest.338 Partly for this reason, the ECHR and the European Commission on Human Rights (“European Commission” or “Commission”) for decades gave intellectual property issues 333 For a detailed discussion of the ECHR’s success and its influence on other international tribunals, see Laurence R. Helfer & Anne-Marie Slaughter, Why States Create International Tribunals: A Response to Professors Posner and Yoo, 93 Calif. L. Rev. 899, 917–22 (2005); Laurence R. Helfer, Adjudicating Copyright Claims Under the TRIPs Agreement: The Case for a European Human Rights Analogy, 39 Harv. Int’l L.J. 357, 399–410 (1998) [hereinafter Helfer, Adjudicating Copyright Claims]; Laurence R. Helfer & Anne-Marie Slaughter, Toward a Theory of Effective Supranational Adjudication, 107 Yale L.J. 273, 297–98 (1997). 334 Convention for the Protection of Human Rights and Fundamental Freedoms, Nov. 4, 1950, 213 U.N.T.S. 222 [hereinafter European Convention]. 335 Loizidou v. Turkey, 310 Eur. Ct. H.R. (ser. A) at 27 (1995). 336 See European Court of Human Rights, Survey of Activities 2006, http://www.echr.coe.int/NR/rdonlyres/ 69564084-9825-430B-9150-A9137DD22737/0/Survey_2006.pdf. 337 Article 1 of Protocol No. 1 states in its entirety: Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms art. 1, Mar. 20, 1952, 213 U.N.T.S. 262, 262 [hereinafter Article 1]. 338 See Arjen van Rijn, Right to the Peaceful Enjoyment of One’s Possessions, in Theory and Practice of the European Convention on Human Rights 863, 864 (Pieter van Dijk et al., eds., 4th ed. 2006) (“[T]he right of property has actually lost a good deal of its inviolability, also in the Member States of the Council of Europe, under the influence of modern social policy—Sozialstaat. This fact is reflected in the very far-reaching limitations which Article 1 allows.”).
432 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y a wide berth. Intellectual property claimants did not file any complaints alleging violations of property rights until the early 1990s. And when they did, the ECHR and the European Commission summarily dismissed their challenges. Applying a restrictive interpretation of Article 1, the two tribunals eschewed searching scrutiny of national courts and administrative agencies and allowed Europe’s intellectual property system to evolve largely unfettered by human rights concerns.339 This judicial reticence has now decisively ended. Within the last three years, the ECHR has issued a trio of decisions holding that patents, trademarks, copyrights, and other economic interests in intangible knowledge goods are protected by the European Convention’s right of property.340 The most recent of these rulings — a 2007 judgment of the Grand Chamber in Anheuser-Busch, Inc. v. Portugal — is especially striking.341 The case involved a dispute between two corporations, the well-known American brewer and its longstanding Czech rival, Budìjovický Budvar, over the exclusive right to market “Budweiser” beer in Portugal. The ECHR concluded that both registered trademarks and applications to register such marks fall within the ambit of the treaty’s property rights clause. On the particular facts presented, however, the Court found that the Portuguese government had not violated Article 1.342 Nevertheless, the analysis in Anheuser-Busch suggests that the ECHR recognizes the broader human rights implications of the region’s innovation and creativity policies and that its future rulings may influence intellectual property protection standards in Europe.343 From just this brief description, the Grand Chamber judgment in Anheuser-Busch v. Portugal may strike many observers as misguided in several respects. First, the decision protects the fundamental rights of multinational corporations rather than those of natural persons. For reasons I explain below, the adjudication of property rights claims by business entities is indisputably authorized by Article 1’s text and the intent of its drafters.344 Such cases nevertheless sits uneasily in a treaty whose principal objective is to protect the civil and political liberties of individuals. This is particularly true given that serious or systemic violations of those liberties are occurring in many countries.345 In 339
See infra Part III (reviewing intellectual property rulings of the ECHR and the European Commission). See Anheuser-Busch, Inc. v. Portugal, App. No. 73049/01, 44 Eur. H.R. Rep. 836 [42], 846 (2005) (registered trademarks protected by Article 1); Melnychuk v. Ukraine, App. No. 28743/03 at 8 (2005) (admissibility decision) (intellectual property protected by Article 1); Dima v. Romania, App. No. 58472/00 at 20 (2005) (admissibility decision) (in French only; unofficial English translation on file with author) (copyrighted works protected by Article 1). All decisions of the ECHR and the European Commission on Human Rights are available at the ECHR Portal Search page: http://cmiskp.echr.coe.int/tkp197/search.asp? sessionid=10323833&skin=hudoc-en. 341 Anheuser-Busch, Inc. v. Portugal, App. No. 73049/01, 45 Eur. H.R. Rep. 830 [36] (Grand Chamber 2007). 342 The facts of the Anheuser-Busch case are complex. In essence, the ECHR concluded that Portugal had not interfered with the American brewer’s application to register the trademark “Budweiser” because the application had been contested by Budìjovický Budvar, the owner of previously-registered geographical indication for “Budweiser Beir.” For a more detailed analysis of the case, see infra Parts III.A. & III.A.2. 343 Intellectual property owners have heralded Anheuser-Busch as a watershed ruling, suggesting that the case may trigger the filing of new complaints alleging violations of Article 1. See, e.g., Arthur Rogers, Anheuser-Busch Hails European Court Ruling that Trademark Applications Get Protection, 24 Int’l Trade Rep. 72, 72 (2007) (characterizing the Grand Chamber 2007 judgment as a “landmark” decision); Burkhart Goebel, Geographical Indications and Trademarks in Europe, 95 Trademark Rep. 1165, 1179 (2005) (describing 2005 Chamber judgment as “remarkable and most important” in recognizing trademarks “as protected fundamental rights”). 344 See Article 1, supra note 337 (“Every natural or legal person is entitled to the peaceful enjoyment of his possessions”) (emphasis added). See also infra notes 355 and 502 and text accompanying (discussing the rationales for protecting the property rights of corporations and other business entities in the European human rights system). 345 See, e.g., Council of Europe Parliamentary Assembly, Comm. on Legal Affairs and Human Rights, Supplementary Introductory Memorandum (revised), Implementation of Judgments of the European Court of Human Rights, AS/Jur (2005) 55 rev, at 11-13 (Dec. 20, 2005), available at http://assembly.coe.int/CommitteeDocs/2005/ 340
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addition, since with the accession to the Convention of Eastern European states in the 1990s, the ECHR’s caseload has exploded. The result is a mountainous backlog of pending complaints.346 Adding intellectual property disputes to the Court’s already vastly overburdened docket will only make difficult for the judges to adjudicate other complaints that allege violations of fundamental rights. A second concern relates to the broader legal and political context in which the ECHR’s recent intellectual property rulings are situated. The last several years have seen an explosion of competing human rights claims relating to intellectual property—in Europe, in the United States, and in numerous international venues. There are two separate catalysts for these developments. On the one hand, the expansion of intellectual property protection standards raises numerous human rights concerns relating to the right to life, health, food, privacy, freedom of expression, and enjoying the benefits of scientific progress. International experts, government officials, judges, and scholars are responding to these concerns by analyzing the interface between the two legal regimes,347 and, in particular, whether human rights should serve as “corrective[s] when [intellectual property] rights are used excessively and contrary to their functions.”348 On the other hand, litigants, lawmakers, 20051220_Ejdoc55.pdf (assessing compliance with ECHR judgments involving widespread human rights abuses by the Russian military in Chechnya and massive structural failures of the Russian courts and the criminal justice system); Paul Mahoney, Speculating on the Future of the Reformed European Court of Human Rights, 20 Hum. Rts. L.J. 1, 4 (1999) (predicting that ECHR will increasingly be confronted with “serious human rights violations” such as “minorities in conflict with [a] central government” and cases relating to “terrorism, violence, and civil strife”); Menno T. Kamminga, Is the European Convention on Human Rights Sufficiently Equipped To Cope with Gross and Systematic Violations?, 12 Neth. Q. Hum. Rts. 153, 153–54 (1994) (analyzing the increasing number of systemic human rights abuses being challenged before the ECHR). 346 Lucius Caflisch, The Reform of the European Court of Human Rights: Protocol No. 14 and Beyond, 6 Hum. Rts. L. Rev. 403, 404 (2006) (“[T]he Court is presently confronted with an accumulated case-load of 82,600 applications, out of which 45,550 were made in 2005, the yearly capacity of absorption of the Court now being at around 28,000 cases.”). 347 See, e.g., U.N. Econ. & Soc. Council [ECOSOC], Sub-Comm’n on the Promotion and Cultural Protection of Human Rights, Realization of Economic and Cultural Rights, at 1, U.N. Doc. E/CN.4/Sub.2/2000/L/20 (2000) (identifying conflicts between intellectual property and “the right of everyone to enjoy the benefits of scientific progress and its applications, the right to health, the right to food and the right to self-determination”); ECOSOC, Comm. on Econ., Soc. & Cultural Rights, Substantive Issues Arising in the Implementation of the International Covenant on Economic, Social and Cultural Rights: Statement on Human Rights and Intellectual Property, U.N. Doc. E/C12/2001/15 (Dec. 14, 2001) (analyzing conflicts between intellectual property and the International Covenant on Economic, Social and Cultural Rights); The High Commissioner, Report of the High Commisioner on the Impact of the Agreement on Trade-Related Aspects of Intellectual Property Rights on Human Rights, U.N. Doc. E/CN.4/Sub.2/2001/13 (June 27, 2001). For more detailed analyses of these developments, see for example Christophe Geiger, “Constitutionalising” Intellectual Property Law? The Influence of Fundamental Rights on Intellectual Property in the European Union, 37 Int’l Rev. Intell. Prop. & Comp. L. 371, 382, 390–97 (2006) [hereinafter Geiger, Constitutionalizing Intellectual Property Law] (analyzing recent intellectual property cases from Belgium, France, Germany, the Netherlands, Switzerland, and countries outside of Europe that raise non-trivial freedom of expression issues); Christophe Geiger, Fundamental Rights, a Safeguard for the Coherence of Intellectual Property Law?, 35 Int’l Rev. Intell. Prop. & Comp. L. 268, 277 (2004) [hereinafter Geiger, Fundamental Rights Safeguard] (analyzing “decisions in the field of copyright in which the freedom of expression has been invoked to justify a use that is not covered by an exception provided for in [intellectual property] law”); Laurence R. Helfer, Toward a Human Rights Framework for Intellectual Property, 40 U.C. Davis L. Rev. 971, 1001–14 (2007) [hereinafter Helfer, Human Rights Framework] (analyzing recent treaty-making initiatives in the UN Educational, Scientific and Cultural Organization, the World Health Organization, and the World Intellectual Property Organization concerning the relationship between human rights and intellectual property); Laurence R. Helfer, Regime Shifting: The TRIPs Agreement and New Dynamics of International Intellectual Property Lawmaking, 29 Yale J. Int’l L. 1, 26–53 (2004) (analyzing intellectual property standard setting in the biodiversity, plant genetic resources, public health, and human rights regimes). 348 Geiger, Fundamental Rights Safeguard, supra note 347, at 278; see also Helfer, Human Rights Framework,
434 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y and courts are increasingly invoking fundamental rights—including the right of property—as a justification for protecting intellectual property and the corporations and individuals that own it.349 This countervailing trend is reflected in treaties,350 reports of international expert bodies,351 and judicial rulings in the Europe352 and in the United States.353 The ECHR’s entrée into this maelstrom of competing human rights-based claims to restrict or expand intellectual property raises important and difficult questions. For example, does intellectual property deserve to be treated as a fundamental right? And if it does, how does a human rights-inspired conception of intellectual property differ from existing rules that promote innovation and creativity? More concretely, what role, if any, should the ECHR play in shaping innovation and creativity policy in Europe? Should the Court favor the rights of corporate intellectual property owners over the rights of individuals users and consumers, or should it strike a distinctive human rights balance among these actors with competing interests? In this article, I consider one important dimension of these questions in light of the ECHR’s recent intellectual property rulings. I provide the first detailed assessment of the European human rights tribunals’ Article 1 intellectual property case law.354 And I develop a comprehensive proposal for the ECHR to adjudicate intellectual property disputes under the European Convention’s property rights clause. supra note 347, at 1017–18 (analyzing how international human rights law can be interpreted to impose “external limits on intellectual property”). 349 See, e.g., Michael A. Carrier, Cabining Intellectual Property Through a Property Paradigm, 54 Duke L.J. 1, 1 (2004) (“[o]ne of the most revolutionary legal changes in the past generation has been the ‘propertization’ of intellectual property”); Kal Raustiala, Density and Conflict in International Intellectual Property Law, 40 U.C. Davis L. Rev. 1021, 1032 (2007) (stating that “the embrace of [intellectual property] by human rights advocates and entities . . . is likely to further entrench some dangerous ideas about property: in particular, that property rights as human rights ought to be inviolable and ought to receive extremely solicitous attention from the international community”). 350 See Charter of Fundamental Rights of the European Union, 2000 O.J. (C 364) 1, art. 17 (“Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions… Intellectual property shall be protected.”), available at http://www.europarl.europa.eu/charter/pdf/text_en.pdf. 351 See Comm. on Econ., Soc. and Cultural Rts., General Comment No. 17: The Right of Everyone to Benefit from the Protection of the Moral and Material Interests Resulting from Any Scientific, Literary or Artistic Production of which He is the Author (Article 15, Paragraph 1(c) of the Covenant), U.N. Doc. E/C.12/GC/17 General Comment No. 17 (Nov. 21, 2005) [hereinafter General Comment], available at www.ohcr.org/English/ bodies/cescr/docs/gc17.doc. 352 See, e.g., Thomas Crampton, Apple Gets French Support in Music Compatibility Case, N.Y. Times, Jul. 29, 2006, at C9 (discussing a ruling of the French Constitutional Council, the country’s highest judicial body, which “declared major aspects of the so-called iPod law unconstitutional.” The court’s decision “made frequent reference to the 1789 Declaration on Human Rights and concluded that the law violated the constitutional protections of property”); Joseph Straus, Design Protection for Spare Parts Gone in Europe? Proposed Changes to the EC Directive: The Commission’s Mandate and its Doubtful Execution, 27 Eur. Intell. Prop. Rev. 391, 398 (2005) (discussing 2000 decision of the Federal Constitutional Court holding that patents constitute property under the German Constitution). 353 See, e.g., Zoltek Corp. v. United States 442 F.3d 1345 (Fed. Cir. 2006), reh’g denied, 464 F.3d 1335 (Fed Cir. 2006) (rejecting a claim that the federal government’s uncompensated use of a patent amounts to a taking of private property in violation of the U.S. Constitution). 354 The few existing analyses of intellectual property in the European human rights system focus on treaty provisions that restrict intellectual property—such as the right to freedom of expression—or emphasize the European Convention’s influence on the intellectual property laws of a specific country. See P. Bernt Hugenholtz, Copyright and Freedom of Expression in Europe, in Expanding the Boundaries of Intellectual Property: Innovation Policy for the Knowledge Society 343 (Rochelle Cooper Dreyfuss et al. eds., 2001); Timothy Pinto, The Influence of the European Convention on Intellectual Property Rights, 24 Eur. Intell. Prop. Rev. 209 (2002). No comprehensive study of the European human rights tribunals’ intellectual property jurisprudence under the Convention’s property rights clause has ever been attempted.
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The article begins in Part II with an overview of the right of property in Article 1 and the decisions interpreting it. Part III develops a tripartite framework to analyze the ECHR’s intellectual property case law, including decisions that commentators have not previously identified. I use this framework to link together a series of seemingly disconnected rulings and to expose the many points of intersection between Europe’s human rights and intellectual property systems. Part IV analyzes three distinct paradigms that the ECHR may apply in future intellectual property disputes. I label these approaches as the rule of law paradigm, the enforcement paradigm, and the intellectual property balancing paradigm. Each paradigm finds support in the Court’s case law and its interpretive methodologies. However, the three paradigms have radically different consequences for innovation and creativity policy in Europe. I analyze these consequences and emphasize the systemic effects of overlaying two previously unrelated legal regimes. I argue that the ECHR should follow the rule of law paradigm and restrict its review of Article 1 intellectual property claims to cases of arbitrary government conduct. Part V briefly concludes. II. EUROPEAN CONVENTION ON HUMAN RIGHTS AND THE RIGHT OF PROPERTY This Part surveys the property rights jurisprudence of the European human rights tribunals, highlighting issues that are relevant to the more detailed analysis of the intellectual property case law that appears in the next Part of the article. Before turning to this survey, however, a brief introduction to the structure of the European human rights system and the ECHR’s interpretive methodologies are in order. The European Convention enshrines a broad catalogue of civil and political liberties. The primary beneficiaries of these liberties are natural persons, although certain rights of corporations also receive protection, including the right of property.355 In addition, the Convention is principally a charter of negative liberties that constrain the behavior of state actors. But it also imposes a limited set of positive obligations on European governments.356 When reviewing the actions of national governments, the ECHR gives pride of place to the Convention’s text, from which it has distilled a diverse array of bright line rules and multi-part balancing tests. But other interpretive methodologies have been equally vital forces in shaping European human rights jurisprudence. For example, the Court assesses the functional importance of particular rights in democratic societies, the rationale governments advance for restricting those rights, the arguments for and against deference to domestic decision makers, and the need for the Convention to evolve in response to legal, political, and social trends in Europe.357 As explained below, the Court has applied each of these doctrines and interpretive tools when analyzing the right of property.
355 See generally Marius Emberland, The Human Rights of Companies: Exploring the Structure of ECHR Protection (2006). 356 See generally Alastair R. Mowbray, The Development of Positive Obligations under the European Convention on Human Rights by the European Court of Human Rights (2004). For a discussion of “positive obligations” relating to the right of property, see infra Part IV.B. 357 See Helfer, Adjudicating Copyright Claims, supra note 333, at 407.
436 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y A. ARTICLE 1 OF PROTOCOL NO. 1: PROTECTING PEACEFUL ENJOYMENT OF POSSESSIONS
The protection of “the peaceful enjoyment of possessions” for “every natural or legal person” is one of the more controversial and obscure provisions in the European human rights system.358 The right appears not in the Convention’s primary text, but in Article 1 of its first Protocol.359 This placement, as well as the absence of any mention of the word “rights” in Article 1, reflects a disagreement among European governments over the inclusion of a property rights clause in the treaty as well as the scope and extent of protection it provides.360 The Convention’s drafters recognized that democratic governments need leeway to adopt or modify economic and social policies implicating private property rights without, in every instance, compensating adversely affected property owners. On the other hand, the drafters also understood that the rule of law in general and the stability and predictability of property rights in particular would be undermined if governments could arbitrarily deprive owners of their possessions.361 In attempting to reconcile these competing perspectives, the European Court and Commission have created a complex and intricate jurisprudence interpreting the right of property. B. THE SUBJECT MATTER AND TEMPORAL SCOPE OF THE RIGHT OF PROPERTY
A preliminary issue the tribunals faced was defining Article 1’s subject matter scope. The Court and Commission adopted a capacious interpretation of the word “possessions,” extending it to a broad array of “concrete proprietary interests” having economic value.362 Whether such interests qualify as possessions does not depend on their status in domestic law.363 Rather, Article 1 has an “autonomous meaning” that authorizes the ECHR to decide “whether the circumstances of the case, considered as a whole, may be regarded as having conferred on the applicant title to a substantive interest protected by” Article 1.364 Applying this expansive if amorphous standard, the Court has adjudicated restrictions on most economically important types of tangible and intangible property, including land, chattels, licenses, leases, contractual rights, corporate securities, business goodwill, and, as described in detail below, intellectual property.365 Article 1’s temporal scope extends to current and future proprietary interests. As the ECHR recently stated, “‘Possessions’ can be either (1) ‘existing possessions’ or (2) assets, including claims, in respect of which the applicant . . . has at least a ‘legitimate expectation’ of obtaining effective enjoyment of a property right.”366 The Court has extended the latter line of cases to enforceable debts, lease renewal options, final court judgments, and vested rights to social security and pension benefits.367 By contrast, the mere “hope of 358 For more detailed analyses of the right of property in the European human rights system, see Ali Riza Çoban, Protection of Property Rights within the European Convention on Human Rights 124–25 (2004), Camilo B. Shutte, The European Fundamental Right of Property (2004), and Rijn, supra note 338. 359 See Article 1, supra note 337. 360 See Çoban, supra note 358, at 124–25 (reviewing Article 1’s drafting history). 361 See id. at 127–37; Helen Mountfield, Regulatory Expropriations in Europe: The Approach of the European Court of Human Rights, 11 N.Y.U. Envtl. L.J. 136, 146-47 (2002). 362 Kopecky v. Slovakia, 2004-IX Eur. Ct. H.R. 125, 144 (Grand Chamber). 363 Kechko v. Ukraine, App. No. 63134/00, ¶ 22 (2005). 364 Öneryýldýz v. Turkey, 2004-XII Eur. Ct. H.R. 79, 127 (Grand Chamber). 365 Çoban, supra note 358, at 152-55 (collecting cases); David Anderson, Compensation for Interference with Property, 6 Eur. Hum. Rts. L. Rev. 543, 546 (1999) (same). 366 Kopecky, 2004-IX Eur. Ct. H.R. at 139–40 (enumeration added). 367 See Çoban, supra note 358, at 152–55 (collecting recent decisions).
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recognition of a property right which it has been impossible to exercise effectively” is not protected, nor is “a conditional claim which lapses as a result of the non-fulfillment of the condition.”368 Future interests must also have a solid basis in domestic law, such as a statute or a judicial ruling that recognizes their existence.369 C. INTERFERENCES WITH PROPERTY
If the ECHR determines that a possession falls within Article 1’s subject matter and temporal scope, it must then consider whether the government has interfered with the possession. The second and third sentences of Article 1 recognize two distinct categories of government interferences—deprivations of property and controls on its use.370 Deprivations are the more invasive of these two categories. They include expropriations, nationalizations, confiscations, and other comprehensive dispossessions. The ECHR has avoided finding a deprivation unless the government has effectively extinguished the owner’s property right. In contrast, controls on use encompass any lesser restriction on an owner’s possessory interests. The ECHR has adopted “a very broad concept of ‘control of use,’” thereby bringing “a wide range of regulatory measures within its jurisdiction.”371 D. ASSESSING THE LEGALITY OF INTERFERENCES
Where a state interferes with a possession, the Court must assess the validity of its actions. For an interference to be compatible with the Convention, it must be “provided by law” and pursue “a legitimate aim” in the public interest.372 Interferences must also achieve “a fair balance . . . between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights.”373 Striking this balance requires “a reasonable relationship of proportionality” between the means employed by the state and the objectives it seeks to achieve.374 Although this proportionality test is highly fact-specific, the ECHR has identified several considerations relevant to assessing whether the government has maintained the fair balance required by Article 1. These factors include the owner’s reasonable expectations;375 whether the restriction imposes an inequitable or excessive burden (especially on 368 Kopecky, 2004-IX Eur. Ct. H.R. at 140; see also Gratzinger v. Czech Republic, 2002-VII Eur. Ct. H.R. 399, 419–20 (Grand Chamber). The ECHR has often applied these principles to complaints seeking restitution of real or personal property seized by socialist governments in Eastern Europe. The Court has held that former property owners have no “legitimate expectation” of receiving restitution if they do not have “a currently enforceable claim that was sufficiently established,” for example because they do not meet “one of the essential statutory conditions” for recovery of previously-owned property or because there is “a dispute as to the correct interpretation and application of domestic law by the national courts.” Rosival v. Slovakia, App. No. 17684/02 at 12 (2007) (admissibility decision) (internal citations omitted). 369 Zhigalev v. Russia, App. No. 54891/00, ¶ 131 (2006); Kopecky, 2004-IX Eur. Ct. H.R. at 144. 370 Hellborg v. Sweden, App. No. 47473/99, 45 Eur. H.R. Rep. 29 [3], ¶ 45 (2006) (explaining this distinction); see also Çoban, supra note 358, at 174–86. The ECHR has also recognized a third category—interference with the substance of property. This category is reserved for government intrusions which, as a formal matter, “do[] not transfer the property to public authorities, nor . . . limit or control the use of the property.” Id. at 187. In practice, however, the Court has not applied this concept consistently or coherently. Commentators have also noted that the cases decided under this rubric could easily fit under the first two categories. Id. at 189; Anderson, supra note 365, at 551–52. For these reasons, I do not give separate treatment to “substance of property” claims. 371 Mountfield, supra note 361, at 146; see also Çoban, supra note 358, at 175–85 (analyzing deprivations and comparing them to controls on use). 372 Jahn v. Germany, App. No. 46720/99, 42 Eur. H.R. Rep. 1084 [49], ¶ 81, ¶ 88 (Grand Chamber 2005). 373 Kirilova v. Bulgaria, App. No. 42908/98, ¶ 106 (2005). 374 L.B. v. Italy, App. No. 32542/96, ¶ 23 (2002). 375 Pine Valley Developments Ltd. v. Ireland, 222 Eur. Ct. H.R. (ser. A) at 23 (1991).
438 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y non-nationals);376 the amount of compensation (if any) paid by the government;377 the uncertainty created by the regulation;378 and the speed and consistency with which the state acts.379 In assessing these factors, the ECHR affords governments considerable leeway to regulate private property in the public interest. Because states frequently impose property controls when implementing broader social and economic policies, “the national authorities” — which have direct knowledge of their society and its needs — “are in principle better placed than the international judge” to decide whether a regulation is necessary to achieve those policies.380 As a result, the ECHR gives significant deference to “the legislature’s judgment as to what is in the public interest unless that judgment is manifestly without reasonable foundation.”381 It also stresses the “wide margin of appreciation” that states enjoy “with regard both to choosing the means of enforcement and to ascertaining whether the consequences of enforcement are justified in the general interest for the purpose of achieving the object of the law in question.”382 This deference does not, however, amount to a blank check for European governments. To the contrary, as the docket of property rights cases has expanded exponentially over the last decade,383 the ECHR has pointedly refused to “abdicate its power of review” and has reserved to itself the final authority to “determine whether the requisite balance was maintained in a manner consonant with” the right of property.384 As a result of this European judicial supervision, the ECHR has found an increasing number of violations of Article 1 in the last few years.385
376 The Court has justified this differential treatment on public choice grounds, reasoning that non-nationals lack representation in domestic political processes and thus risk bearing a disproportionate share of the costs of property deprivations. See Lithgow v. United Kingdom, 102 Eur. Ct. H.R. (ser. A) at 49 (1986). 377 See Tom Allen, Compensation for Property Under the European Convention of Human Rights, 28 Mich. J. Int’l L. 287, 298–300 (2007). When the state deprives non-nationals of their property, Article 1’s reference to “the general principles of international law” mandates the payment of prompt, adequate, and effective compensation. Article Proposal 1, supra note 337, art. 1; Anderson, supra note 365, at 548. By contrast, Article 1 does not require compensation to be paid to nationals. Lithgow, 102 Eur. Ct. H.R., at 47–49. In practice, however, the Court has applied an equivalent standard of compensation to both types of takings. As a result, where a state deprives its own citizens of their property, it must normally pay “an amount reasonably related to its value,” and its failure to provide any compensation “can be considered justifiable under Article 1 of Protocol No. 1 only in exceptional circumstances.” Scordino v. Italy (No. 1), App. No. 36813/97, 45 Eur. H.R. Rep. 207 [7], 239 (Grand Chamber, 2006). 378 Hutten-Czapska v. Poland, App. No. 35014/97, 45 Eur. H.R. Rep. 52 [4], 108 (2006). 379 Kirilova, App. No. 42908/98 at ¶ 106; Broniowski v. Poland, 2004-V Eur. Ct. H.R. 1 (Grand Chamber). 380 Draon v. France, App. No. 1513/03, 42 Eur. H.R. Rep. 807 [40], 832–33 (2005) (internal quotations omitted). 381 Id. 382 Scordino, 45 Eur. H.R .Rep. at 239. 383 Çoban, supra note 358, at 258 (stating that over the last decade “both the magnitude and variety of the applications regarding [Article 1] have escalated significantly and the number of the judgments rose consequently”). Not surprisingly, this expansion followed the accession of Eastern European countries to the Convention in the 1990s. These governments have faced significant challenges in reallocating property rights during their transition from socialist to democratic governments. See Tom Allen, Restitution and Transitional Justice in the European Court of Human Rights, 13 Colum. J. Eur. L. 1, 13–29 (2006/2007). 384 Jahn, 42 Eur. H.R. Rep. at ¶ 93 (Grand Chamber 2005); see also Fedorenko v. Ukraine, App. No. 25921/02, ¶ 29 (2006) (asserting that the state’s “margin of appreciation . . . goes hand in hand with European supervision” which authorizes the ECHR to “ascertain whether the discretion afforded to the Government was overstepped”). 385 Kopecky, 2004-IX Eur. Ct. H.R. 125, 155 (dissenting opinion of Judge Strážnická) (“In the Court’s case-law from 2000 onwards, a tendency may be discerned to subject the application of national law to supervisory review by the Court.”); Çoban, supra note 358, at 258 (stating that the ECHR has found “more and more violations of [Article 1] in the last couple of years” and that it “is not as reluctant as it was before to find [a] violation”).
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III. INTELLECTUAL PROPERTY AND THE EUROPEAN CONVENTION’S RIGHT OF PROPERTY: A TRIPARTITE FRAMEWORK FOR ANALYSIS In this Part, I apply the general principles reviewed above to cases in which intellectual property owners alleged a violation of Article 1 of Protocol No 1. The analysis consists of three questions: First, does Article 1 apply to the intellectual property at issue, either because it is an existing possession or because the owner has a legitimate expectation of obtaining a future proprietary interest? If neither type of property exists, the government’s conduct, however egregious, cannot violate Article 1. In contrast, if the ECHR answers this question affirmatively, it must consider a second question: Has the government “interfered” with the possession? The absence of such an interference also requires a ruling for the respondent state. Conversely, the existence of an interference leads to a third and final question: Whether the interference is justified, i.e. has the state upset the fair and proportional balance that Article 1 requires between the interests of the public and the property owner’s rights? Analyzing the intellectual property jurisprudence of the ECHR and the European Commission using this tripartite framework helps to expose the numerous points of intersection—and of potential conflict—between the European human rights system and the region’s intellectual property laws. A. IS INTELLECTUAL PROPERTY PROTECTED BY ARTICLE 1?
In three decisions dating back to 1990, the European Commission has consistently held that patents and copyrights fall within Article 1’s subject matter scope.386 The Court did not directly address this issue until 2005,387 when it issued a trilogy of decisions applying Article 1 to intellectual property disputes.388 Anheuser-Busch, Inc. v. Portugal is the most well-known of these three rulings. In that judgment, analyzed in detail below, a sevenmember Chamber of the ECHR concluded that “intellectual property as such incontestably enjoys the protection of Article 1 of Protocol No. 1.”389 The case was reargued before a Grand Chamber of the ECHR in 2006. Review by this panel of seventeen judges is reserved for disputes which involve “a serious question affecting the interpretation or application of the Convention or the protocols thereto, or a serious issue of general importance.”390 In a judgment issued in early 2007, the Grand Chamber unanimously agreed with the Chamber’s conclusion, holding that Article 1 “is applicable to intellectual property as such.”391 The Grand Chamber’s statement is more measured than the language used by the Chamber. Nevertheless, its holding is an
386 See Lenzing AG v. United Kingdom, App. No. 38817/97, 94-A Eur. Comm’n H.R. Dec. & Rep. 136 (1998) (patent); Aral v. Turkey, App. No. 24563/94 (1998) (admissibility decision) (copyright); Smith Kline & French Lab. Ltd. v. Netherlands, App. No. 12633/87, 66 Eur. Comm’n H.R. Dec. & Rep. 70, 79 (1990) (admissibility decision) (patent). 387 In a 1995 ruling, British Am. Tobacco Co. Ltd. v. Netherlands, 331 Eur. Ct. H.R. (ser. A) (1995), the Court avoided deciding whether patent applications are possessions—an issue I discuss in greater detail below. See infra Part III.A.2. 388 See supra note 340. 389 Anheuser-Busch, Inc. v. Portugal, App. No. 73049/01, 44 Eur. H.R. Rep. 836 [42], 856 (2005). I discuss the complex facts and procedural history of the case below. See infra Part III.A.2.a. 390 European Convention, supra note 334, art. 43. 391 Anheuser-Busch, Inc. v. Portugal, App. No. 73049/01, 45 Eur. H.R. Rep. 830 [36], 849 (Grand Chamber 2007). Both the concurring and dissenting judges agreed that Article 1 applies “to intellectual property in general and to a duly registered trade mark.” Id. at 853 (joint concurring opinion of Judges Steiner & Hajiyev); id. at 855 (joint dissenting opinion of Judges Caflisch & Cabral Barreto).
440 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y unequivocal endorsement of the view that the right of property protects the financial interests of intellectual property owners in their inventions, creations, and signs. The ECHR’s only justification for this conclusion is found in a brief quotation from the European Commission’s first intellectual property decision, in which the Commission stated that under Dutch law the holder of a patent is referred to as the proprietor of a patent and that patents are deemed, subject to the provisions of the Patent Act, to be personal property which is transferable and assignable. The Commission finds that a patent accordingly falls within the scope of the term “possessions” in Article 1 of Protocol No. 1.392 The Commission’s reasoning in this passage is sparse. But it suggests that the European tribunals place significant weight on the exclusivity of the exploitation and transfer rights that national laws confer on intellectual property owners.393 Inasmuch as these exclusive rights are standard features of national and international intellectual property systems, it is safe to predict that the ECHR will treat other forms of industrial and artistic property — such as new plant varieties, integrated circuits, performers’ rights, trade secrets, and the like—as “possessions” protected by Article 1. In addition, because Article 1 applies to fixed claims to future revenue and compensation,394 the Court will likely extend Article 1 to intellectual property rights that are subject to a statutory or compulsory license (i.e. a license that authorizes users to exploit protected works provided that they remunerate rights holders).395 These logical extensions of prior Article 1 case law suggest that there are no obvious jurisdictional limits on the ECHR’s power to review a wide array of intellectual property disputes under the rubric of the right of property. Outside of these broad jurisdictional parameters, however, the scope of Article 1 is much less certain. This is particularly true where Article 1 intersects with intellectual property subject matter and ownership rules, for example, where ownership is contested or where it is unclear whether an inventor, creator, or business has satisfied the requirements for protection under domestic law. I analyze these unresolved issues below. I begin with literary and artistic works that are protected from the moment of their creation or fixation. I then discuss industrial property whose eligibility for protection is determined by a registration procedure. 1. Literary and Artistic Works Consider first an easy case—literary and artistic works whose ownership and eligibility for protection in domestic law are undisputed. The creators of such works possess exclusive exploitation and assignment rights that fit comfortably within European tribunal’s jurisprudence recognizing various forms of intellectual property as protected by Article 1. In these cases of undisputed ownership and eligibility, the ECHR will simply defer to the national copyright or neighboring rights laws and conclude that Article 1 is applicable. 392 Smith Kline & French Lab. Ltd. v. Netherlands, App. No. 12633/87, 66 Eur. Comm’n H.R. Dec. & Rep. 70, 79 (1990) (admissibility decision). 393 See Laurent Sermet, The European Convention on Human Rights and Property Rights 13 (1998) (“patents have two characteristics—exclusiveness and transferability—which are also hallmarks of property”). 394 See supra Part II.B. 395 Compulsory licenses fit easily within the concept of Article 1 “assets,” even where the amount of compensation is determined ex post by a government agency or royalty tribunal. Broniowski v. Poland, 2004-V Eur. Ct. H.R. 1, 54 (Grand Chamber) (applying Article 1 to a right “to obtain. . . . compensatory property” notwithstanding the fact that the “right was created in a somewhat inchoate form, as its materialization was to be effected by an administrative decision allocating State property to him”).
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Yet such a deference may not always yield easy answers, particularly when domestic law provides limited guidance concerning a creator’s proprietary interests. a. Dima v. Romania Dima v. Romania,396 a 2005 admissibility decision previously unmentioned by commentators, highlights these complexities. The case concerned a graphic artist, Victor Dima, who created the design for a new national emblem and seal shortly after the fall of Romania’s communist regime in 1989. Dima developed a preliminary drawing of the state symbols in response to a public competition. A government commission selected his prototype over several other submissions and directed him to work with two history and heraldry experts to revise the design.397 The Romanian Parliament later adopted the revised design as the state emblem and seal, listing Dima as the “graphic designer” in a statute published in the country’s Official Journal.398 Inexplicably, however, the Parliament never paid Dima for his work. In addition to seeking to recover the compensation owed to him, Dima responded by asserting his rights as the graphic designer of the state emblem and seal. He turned first to Romania’s administrative agencies. The Patent and Trademark Office refused to register the design, relying on a provision of Romania’s industrial design statute which excludes from protection designs “whose purpose and appearance are contrary to morality or public policy.”399 Dima had better luck with the Copyright Agency, whose Director informed him in a series of letters that he was the author of the graphic design and enjoyed all of the rights in domestic copyright law. On the strength of these assertions, Dima filed three copyright infringement actions in the Romanian courts against two private businesses and a state-owned enterprise responsible for minting Romanian coins—all of which had reproduced and distributed the design for profit.400 The courts dismissed all three suits, holding that Dima did not own a copyright in the design of the state symbols. The decisive rulings were issued by the Romanian Supreme Court of Justice. The court acknowledged that Dima had personally created the design. But it held that the Parliament, which had commissioned the revision of the design, was the “author” of the works.401 Alternatively, the Supreme Court concluded that “symbols of the State could not be the subject of copyright,” neither under the 1956 copyright statute in effect at the time Dima created the design (which did not mention state symbols) nor under a revised 1996 statute (which expressly excluded such symbols from copyright protection).402 Finally, the Supreme Court rejected Dima’s argument that the
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Dima, App. No. 58472/00 at 20 (admissibility decision). The ECHR does not indicate whether Dima prepared his initial design for the competition, although that is the most plausible interpretation of the facts. See id. at 2. 398 Id. at 2 (“auteur des maquettes graphiques” in French). 399 The Patent and Trademark office also based its refusal on an unpublished internal rule which provided that industrial drawings and models representing the emblem of a state were excluded from copyright protection (“droit d’auteur”). Id. at 3. The ECHR did not explain why an industrial property office believed itself competent to interpret an issue of copyright law. However, settled grounds for rejecting the registration of state symbols as trademarks appear in Article 6 ter of the Paris Convention, which prohibits the registration and use of “armorial bearings, flags, and other State emblems” as such marks or as elements thereof “without authorization by the competent authorities . . . .” Although the Patent and Trademark Office did not rely upon this provision in denying Dima’s registration, Romania cited it in opposing his complaint to the ECHR. See id. at 7, 18. 400 See id. at 3–7. 401 The Supreme Court emphasized the collective process of the models’ creation and the decisive role played by the Parliament in selecting the final models. See id. at 4–5. 402 According to the ECHR, the 1996 statute was adopted to “modernize the field of copyright”after the fall of the socialist regime in 1989. See id. at 14–15. 397
442 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y lower courts had retroactively applied the 1996 statute to his design, since even under the earlier law Dima was not the author of “works of intellectual creation.”403 Dima challenged these rulings before the ECHR, alleging that the Romanian courts had deprived him of a possession in violation of Article 1.404 He invoked the subject matter and authorship rules of the 1956 copyright statute, which protected “all works of intellectual creation in the literary, artistic and scientific domain, whatever the contents and form of expression,” including “works of graphic art.”405 The statute further provided that the “author” of such works “shall be the person who has created” them and that the copyright “arise[s] the moment the work takes . . . concrete form.”406 Dima asserted that, as a result of these statutory provisions, his copyright in the graphic design arose at the moment he created it, or, at the latest, when he was listed as the graphic designer in the Official Journal.407 The ECHR began its analysis by stating that Article 1 protects copyrighted works. But this conclusion did not resolve whether Dima had “a ‘possession’ or at least a ‘legitimate expectation’ to acquire a ‘possession’” as the author of the graphic models he created.408 To assess that issue, the Court first turned to the subject matter rules of European copyright laws. It observed that “the majority of national legal systems, including that of Romania, provide that copyright arises upon the creation of an artistic work. Some jurisdictions require, in addition . . . that the work have a concrete form of expression.”409 These general principles, viewed in the abstract, appeared to support a ruling in Dima’s favor. Yet the Court also recognized that these principles did not answer all unsettled questions concerning the scope of national copyright law. In cases where the “existence or extent” of copyright is uncertain, the ECHR stated, it is the task of domestic courts to resolve any ambiguities.410 Only once those ambiguities have been resolved can the Court determine the extent of the applicant’s property right and whether the state had violated that right. The key question, therefore, was whether Romanian courts had decided that a graphic design of a state emblem could be protected by copyright prior to the adoption of the 1996 statute that expressly denied such protection. On this issue, the facts did not favor Dima. Although he was listed as the graphic designer in the official gazette and the subject matter provisions of the 1956 copyright law were ambiguous, he could not point to “a judgment in his favor, nor could he rely on any favorable case law concerning the ability to copyright models of the State emblem and seal.” In addition, the Supreme 403
Id. at 4. Dima’s complaint to the ECHR also raised two other claims: (1) the government’s failure to compensate him for his work, and (2) various procedural objections to the domestic infringement proceedings. As to the first claim, the ECHR ruled that Dima had failed to exhaust domestic remedies, thus precluding the Court from reviewing his allegations on the merits. Id. at 18–19. As to the second claim, the ECHR rejected all of Dima’s objections save one—a challenge to a report produced by an expert witness for one of the defendants. As to that issue, it declared Dima’s complaint admissible. Id. at 15–16. In November 2006, the ECHR concluded that Romania had violated the European Convention’s right to a fair hearing when the Romanian Supreme Court dismissed his appeal without addressing Dima’s challenge to the expert’s report. The Court awarded Dima 2,000 euros in damages. See Affaire Dima c. Roumanie, App. No. 58472/00 (2006); see also Press Release, Registrar, European Court of Human Rights, Chamber Judgments Concerning Azerbaijan, Bulgaria, Croatia, Italy, Lithuania, Romania and Russia (Nov. 16, 2006) (summarizing the ECHR’s judgment in English). 405 Decree No. 321 Relating to Copyright, June 18, 1956, art. 9 (Rom.) (copy on file with author). 406 Id. at art. 2. 407 See Dima, App. No. 58472/00 at 10. 408 Id. at 20. 409 Id. 410 Id. 404
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Court of Justice ultimately rejected Dima’s proposed interpretation of the 1956 statute (and, implicitly, that of the Copyright Agency, although the ECHR failed to mention this fact). In light of this rejection, Dima could not claim to have any “‘legitimate expectation’” of acquiring a possession, since such an expectation cannot arise where there is “a dispute as to the interpretation and application of national law, and . . . the applicant’s submissions [are] subsequently rejected by the national courts.”411 The ECHR concluded by reaffirming its “limited power” to review allegations of legal or factual errors committed by national courts when interpreting domestic law. Applying this deferential standard, the ECHR found “no appearance of arbitrariness” in the Supreme Court’s ruling. There was thus “no basis on which the [ECHR] could reach a different conclusion on the question of whether [Dima] . . . did or did not have a copyright” in the design he created.412 b. Implications of Dima for the Protection of Literary and Artistic Works Dima v. Romania raises several important issues regarding the application of Article 1 to literary and artistic works. Perhaps most significantly, the ECHR refused to second guess the Romanian courts’ interpretation of domestic copyright law in a case whose facts were sympathetic to the creator. Instead, it deferred to the authority of national courts of last resort to resolve contested legal issues that divide lower courts and administrative agencies. Yet the Court also signaled that its deference to these domestic decision makers would not be unlimited. A close parsing of the judgment suggests several issues which may engender more searching scrutiny by the ECHR in future cases. First, the ECHR in Dima did not address the issue of moral rights, a branch of copyright law that enables creators to control the attribution and integrity of their works. Inasmuch as moral rights protect the personal link between the creator and his or her intellectual creations, some commentators have argued that they have a stronger claim to protection as human rights than do copyright’s economic exploitation privileges.413 Scholars are divided, however, over whether Article 1 extends to moral rights.414 The Court did not resolve this debate, inasmuch as Dima’s challenge focused solely on his economic rights in the graphic designs. In future cases, however, creators may raise moral rights claims where the state misattributes authorship or distorts or damages a protected work.415 In such cases, the Court will need to consider whether national decision makers deserve less deference if they restrict a creator’s moral rights. Second, the ECHR refused to conflate subject matter standards from different branches of intellectual property law. In contesting Dima’s allegations before the ECHR, Romania had argued against the copyrightability of state symbols by citing to a trademark provision of the Paris Convention and Romania’s industrial design statute,416 both of 411
Id. at 21. Id. 413 See D. Beldiman, Fundamental Rights, Author’s Rights and Copyright – Commonalities or Divergences, 29 Colum. J. L. & Arts 60 (2005). But see General Comment, supra note 349, ¶¶ 30–34, 44–46 (emphasizing importance of economic exploitation rights for creators and innovators and their interdependence with moral rights). 414 Compare Çoban, supra note 358, at 149–50 (suggesting that Article 1 covers only the economic value of a possession), with Geiger, Constitutionalizing Intellectual Property Law, supra note 347, at 383 & n.54 (suggesting that Article 1 also protects moral rights). 415 Plausible examples of such claims include disputes over the government’s removal or destruction of sculptures, murals or other works of visual art from public buildings or parks. Cf. Rebecca Stuart, Comment, A Work of Heart: A Proposal for a Revision of the Visual Artists Rights Act of 1990 to Bring the United States Closer to International Standards, 47 Santa Clara L. Rev. 645, 659–76 (2007) (reviewing cases decided under U.S. moral rights law in which creators challenged the government’s removal, destruction or mutilation of works of visual art, and comparing U.S. law to the protection of moral rights in international agreements and in other countries). 416 See Dima, App. No. 58472/00 at 18–19. Dima challenged this government’s reliance on these authorities. Id. 412
444 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y which exclude such symbols as protectable subject matter.417 The ECHR studiously avoided any mention of industrial property, however, restricting its analysis to copyright law. Had the Romanian courts relied solely on industrial property principles to reject Dima’s copyright infringements claims, the case’s outcome before the ECHR might have been quite different. A broader implication of this approach is that the ECHR will interpret Article 1 in a manner that is appropriately sensitive to the distinct subject matter and protection standards of different fields of intellectual property law. Third, the ECHR signaled in Dima a concern with the retroactive application of domestic intellectual property laws. The ECHR recognized that copyright protection exists from the moment an author creates a work. Had the Romanian Supreme Court rejected Dima’s authorship claim based solely on the subsequently enacted 1996 statute, the ECHR’s recognition of this rule would have supported a finding that the retroactive application of the new law interfered with an existing possession. On the facts presented, however, Dima did not have a reasonable basis for claiming copyright protection even before the new statute took effect. There was no final judgment nor any favorable precedent that recognized the copyrightability of design models for state symbols. This raises the possibility that the ECHR may find in favor of authors and rights holders who rely on these legal authorities before a change in the applicable law. Fourth, the ECHR did not dismiss Dima’s complaint solely on the ground that he did not own a possession protected by Article 1. Although the Court emphasized that issue, it also considered whether the Romanian courts had acted arbitrarily, indicating that the Court was also implicitly addressing the second issue identified above—whether the government had “interfered” with a possession.418 Had Dima not been the owner of such a possession, no amount of arbitrariness by the Romanian courts could have justified the ECHR in finding a violation of Article 1. The Court’s willingness to consider the issue of arbitrariness suggests that in close cases it may assume arguendo that the complainant has an existing possession or a legitimate expectation in order to correct egregious errors of national courts in domestic intellectual property disputes. 2. Industrial Property A different set of ambiguities arises with respect to the ECHR’s treatment of industrial property. As mentioned above, the Grand Chamber’s judgment in Anheuser-Busch, Inc. v. Portugal definitively resolved the question of whether registered industrial property rights are existing possessions protected by Article 1. The Court also concluded that applications to register trademarks are similarly protected, overruling the Chamber’s conclusion that such applications are neither “existing possessions” nor “legitimate expectations.” This extension of Article 1 to trademark applications raises several important issues. I discuss those issues below, but first provide an overview of the case and the reasoning of the Chamber and the Grand Chamber. a. Anheuser-Busch, Inc. v. Portugal The ECHR’s judgment in Anheuser-Busch is one small skirmish in a longstanding litigation war between the American brewer of “Budweiser” beer and a rival Czech company, Budìjovický Budvar (Budìjovický), which also distributes beer under the “Budweiser Bier,” “Budweiser Budvar,” and similar brand names. Over the last quarter century, nearly fifty disputes between the two competitors have raged across Europe in industrial
417 418
See supra note 399 & accompanying text (discussing these two provisions). See supra Part II.C.
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property offices, domestic courts, and regional tribunals.419 These disputes raise difficult questions concerning the relationship between trademarks and geographical indications (“GIs”)420 and between national and international intellectual property laws. The Portuguese legal system confronted these conflicts in 1981 when Anheuser-Busch applied to the National Institute for Industrial Property to register “Budweiser” as a trademark. Budìjovický opposed the registration, citing its 1968 Portuguese registration of an appellation of origin421 for “Budweiser Bier.”422 The industrial property office refrained from acting on Anheuser-Busch’s application while the parties attempted to negotiate a licensing agreement. Eight years later, in 1989, after protracted negotiations proved unsuccessful, Anheuser-Busch asked the Portuguese courts to cancel Budìjovický’s registration. An additional six years elapsed before a lower court ruled in favor of the American company in 1995, canceling the registration on the ground that “Budweiser Bier” was not a valid appellation of origin.423 In the wake of this ruling, the industrial property office promptly registered Anheuser-Busch’s trademark.424 It was now the Czech brewer’s turn to petition the Portuguese courts, invoking a 1986 bilateral treaty between Czechoslovakia and Portugal that provided reciprocal protection for each country’s indications of source and appellations of origin. Budìjovický argued that the bilateral agreement required Portugal to register “Budweiser Bier” as a Czech GI. But the lower court held that only “ÈeskoBudìjovický Budvar”—a Czech phrase indicating a beer from Èeské Budìjovice, a town in the Bohemia region of the Czech Republic where the brewer is based—was an appellation of origin. The German name of that town—“Budweis or “Budweiss”—and the German translation of the phrase designating beer from that town—“Budweiser Bier”—was not.425 419 See European Rights Court Rejects Budweiser Bid for Protection Against Rival Czech Brand, 70 Pat., Trademark & Copyright J., 668, 668 (2005); Jeremy Reed, ECJ Protects Simple Geographical Indications for their Buddy, 27 Eur. Intell. Prop. Rev. 25 (2005); Budweiser Budvar, Disputes Concerning Registered Trademarks, available at http://www.budvar.cz/en/web/Znacka-Budvar/Znamka-Budvar.html. 420 The World Intellectual Property Organization (WIPO) defines a GI as a “sign used on goods that have a specific geographical origin and possess qualities or a reputation that are due to that place of origin.” WIPO, What is a Geographical Indication?, http://www.wipo.int/about-ip/en/about_geographical_ind.html#P16_1100 (last visited Oct. 15, 2007). The TRIPs Agreement has a similar definition. Agreement on Trade-Related Aspects of Intellectual Property Rights, art. 22.1, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments—Results of the Uruguay Round, 33 I.L.M. 1125 (1994) [hereinafter TRIPs]. 421 The Lisbon Agreement defines an appellation of origin as “the geographical name of a country, region, or locality, which serves to designate a product originating therein, the quality and characteristics of which are due exclusively or essentially to the geographical environment, including natural and human factors.” Lisbon Agreement for the Protection of Appellations of Origin and Their International Registration, Art. 2(1), Oct. 31, 1958, last revised Jan. 1, 1994, 923 U.N.T.S. 205. For a discussion of the relationship between GIs and appellations of origin, see Felix Addor & Alexandra Grazioli, Geographical Indications Beyond Wines and Spirits: A Roadmap for a Better Protection for Geographical Indications in the WTO/TRIPS Agreement, 5 J. World Intell. Prop. 865, 867–69 (2002). 422 Anheuser-Busch, Inc. v. Portugal, App. No. 73049/01, 45 Eur. H.R. Rep. 830 [36], 833–34 (Grand Chamber 2007). The 1968 registration was filed pursuant to the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration, which was opened for signature on October 31, 1958. Id. 423 Id. at 834. The Lisbon Court of First Instance held that, under the terms of the Lisbon Agreement, appellations of origin were “reserved to the geographical name of a country, region, or locality, which served to designate a product originating therein . . . . ‘Budweiser’ did not come within this category.” Id. For a more detailed explanation of this issue, see infra note 93 and accompanying text. 424 Id. Budìjovický had filed an opposition to the application to register the Anheuser-Busch mark with the industrial property office. Notwithstanding this opposition, the office mistakenly issued a certificate of registration to the American brewer in June 1995. See id. 425 The translation from Czech to German is not serendipitous. Until the middle of the last century, a large German-speaking population resided in the Bohemia region of the Czech Republic (formerly Czechoslovakia
446 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y An intermediate appellate court reversed this decision and ordered the cancellation of Anheuser-Busch’s trademark. The Supreme Court of Portugal affirmed. It interpreted the 1986 bilateral treaty to protect each signatory’s national products in translation as well as in their original language.426 The German translation of ÈeskoBudìjovický Budvar— “Budweiser Bier”—was therefore eligible for protection as a GI under the 1986 treaty. Moreover, the refusal to register the American company’s mark in reliance on that treaty did not violate the trademark priority rules in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs).427 With the Portuguese litigation at an end, Anheuser-Busch filed a complaint with the ECHR. The beer manufacturer alleged that Portugal had violated Article 1 by invoking the 1986 bilateral treaty to deny registration of its “Budweiser” trademark that the company had applied to register in 1981, six years prior to the treaty’s entry into force.428 In their respective judgments, both the Chamber and the Grand Chamber began by surveying industrial property treaties, EU directives, and domestic laws. These sources treat registration as the key to obtaining protection of a trademark. But they also confer “certain rights” on trademark applications, such as fixing the beginning of the mark’s period of validity and exclusivity. In addition, “in some countries, an application to register a mark . . . may be the subject of an assignment, security assignment or licence and (provided the mark is subsequently registered) create an entitlement to compensation in the event of fraudulent use by a third party.”429 These rights notwithstanding, most European states also authorize interested parties to oppose trademark applications and to bring actions to revoke or invalidate a mark within a set time period after its registration.430 The key issue facing the ECHR was whether, in light of this palimpsest of legal rules, Article 1 protects not only registered marks but trademark applications as well. The Chamber Judgment. By a five-to-two vote, the Chamber ruled that Article 1 was inapplicable to the dispute before it.431 The majority offered two justifications for this and, before 1918, a province of the Austro-Hungarian Empire). According to the Budweiser Budvar website, “Since the 14th century the official name of [Èeské Budìjovice] was Budweis. Only in 1918 was the name changed into the Czech name of Èeské Budìjovice. However, the indication Budweis is today the official translation of the name of the city into many foreign languages.” Budweiser Budvar, Information About Trademarks, http://www.budvar.cz/en/web/Znacka-Budvar/Znamka-Budvar.html (last visited Oct. 15, 2007). 426 Anheuser-Busch disputed that the appellation of origin “Èeskobudejovicky Budvar” corresponds to the German expression “Budweiser,” with the result that, even if the bilateral treaty applied to translations, it did not support the registration of “Budweiser Bier” as a geographical indication. The Supreme Court of Portugal rejected this argument. Anheuser-Busch, 44 Eur. H.R. Rep. at 848–49 (Chamber). 427 TRIPs, supra note 420, art. 24. Anheuser-Busch claimed a right of priority for its “Budweiser” mark application under Article 24.5 of TRIPs, which addresses a sub-set of the conflicts between geographical indications and trademarks. Article 24.5 gives priority to trademarks that have been applied for or registered in good faith before the entry into force of TRIPs or before the geographical indication is protected in its country of origin. The Supreme Court rejected the American company’s claim of priority under this provision. Anheuser-Busch, 44 Eur. H.R. Rep. at 848–49 (Chamber). For a more detailed discussion of the court’s decision, see Antonio Corte-Real, The Budweiser Case in Portugal, 24 Eur. Intell. Prop. Rev. 43, 46 (2002). 428 Anheuser-Busch, 44 Eur. H.R. Rep. at 853–56 (Chamber). The 1986 bilateral agreement entered into force for Portugal on March 7, 1987. Id. at 848. 429 Id. at 852; Anheuser-Busch, 45 Eur. H.R. Rep. at 841 (Grand Chamber). The Portuguese courts had held that “the mere filing of an application for registration conferred on the applicant a ‘legal expectation’…that warranted the protection of the law.” Anheuser-Busch, 44 Eur. H.R. Rep. at 852 (Chamber); Anheuser-Busch, 45 Eur. H.R. Rep. at 842 (Grand Chamber). This expectation was later codified in a provision of the Portugese Code of Industrial Property — enacted after after the conclusion of the domestic litigation between Anheuser-Busch and Budejovicky — that provided “provisional protection” to trademark applicants and authorized them to bring infringement actions on the basis of that protection. Id. 430 See Anheuser-Busch, 44 Eur. H.R. Rep. at 854–55 (Chamber); Anheuser-Busch, 45 Eur. H.R. Rep. at 843 (Grand Chamber). 431 Anheuser-Busch, 44 Eur. H.R. Rep. at 858 (Chamber).
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conclusion. The first rationale was limited to the case’s complex procedural history. Among the twists and turns of twenty years of litigation, two events stood out: first, that the American company’s right to use its mark in Portugal “was already contested by Budìjovický Budvar when [Anheuser-Busch first] filed its application” in 1981; and second, that the 1986 bilateral treaty had been in force for more than two years when the company first challenged Budìjovický’s GI registration in 1989.432 As a result of these events, Anheuser-Busch could not be sure of being the owner of the trademark in question until after final registration and then only on condition that no objection was raised by a third party. In other words, the applicant company had a conditional right, which was extinguished retrospectively for failure to satisfy the condition, namely that it did not infringe third-party rights.433 This narrow, fact-specific rationale was sufficient to support the Court’s conclusion that Article 1 was inapplicable. The Chamber went further, however, holding that Article 1 applies only “after final registration of the mark, in accordance with the rules in force in the State concerned.” Prior to that time, while an application to register is pending, the applicant has “a hope of acquiring” a possession. But it does not have “legally protected legitimate expectation” of a future proprietary interest.434 This second, categorical construction of Article 1 easily disposed of Anheuser-Busch’s principal argument—that the Portuguese Supreme Court had expropriated its property when it invoked the 1986 bilateral treaty to reject the company’s previously-filed application to register “Budweiser.” Under the majority’s second, broader holding, the court’s adherence to the later-in-time treaty was simply “irrelevant, since, when that Agreement entered into force . . . the applicant did not have a ‘possession.’”435 In contrast to the judges in the majority, the two dissenting judges believed that Anheuser-Busch had a legitimate expectation protected by Article 1.436 That expectation was based on the Portuguese Code of Industrial Property, which conferred three rights on trademark applicants: (1) a right of priority over subsequent applications, (2) a right to compensation for illegal uses of the mark by third parties, and (3) a right to have their “application[s] examined in accordance with the rules” in force when they file an application.437 The Portuguese courts had interfered with these rights by refusing to register the “Budweiser” mark in reliance on the 1986 bilateral agreement.438 The refusal resulted in a “total inability to exploit the mark commercially” in Portugal without the payment of compensation. For this reason, the interference did not strike a fair balance between the company’s property rights and the general interest.439 The Grand Chamber Judgment. Anheuser-Busch petitioned for a review of the Chamber’s ruling before the Grand Chamber. The ECHR granted the company’s request, received additional arguments from the parties, and issued a revised judgment in January 2007. By a fifteen-to-two vote, the ECHR held that Portugal had not violated Article 1. Unlike the Chamber judgment, however, the Grand Chamber advanced once step further 432 433 434 435 436 437 438 439
Id. at 857. Id. at 858. Id. Id. Id. at 858–60 (dissenting opinions of Judges Costa and Cabral Barreto). Id. at 859. Id. Id. at 859–60.
448 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y in the analytical framework outlined above.440 Specifically, the majority held that property rights in the European Convention apply to trademark applications as well as to registered marks.441 To reach this result, the Grand Chamber reviewed the “bundle of financial rights and interests that arise upon an application” to register a mark. These rights and interests enable applicants to enter into transactions (such as assignments or licensing agreements) that may have “substantial financial value.” The majority categorically rejected Portugal’s claim that these transactions have only “negligible or symbolic value,” citing the numerous rights that domestic law grants to trademark applicants. The economic value of trademark applications was especially likely in the case of Anheuser-Busch’s “Budweiser” mark, which the ECHR recognized as enjoying “international renown.”442 The Court next turned to the Chamber’s conclusion that trademark applicants possess only conditional rights prior to registration, a status that precludes their protection under Article 1. The majority acknowledged the conditional status of the rights that attach to trademark applications. But it reasoned that when it filed its application for registration, the applicant company was entitled to expect that it would be examined under the applicable legislation if it satisfied the other relevant substantive and procedural conditions. The applicant company therefore owned a set of proprietary rights . . . that were recognised under Portuguese law, even though they could be revoked under certain conditions.443 The Court thus held that Article 1 was “applicable in the instant case,” a conclusion that made it “unnecessary . . . to examine whether the applicant company could claim to have had a ‘legitimate expectation.’”444 b. The Significance of Anheuser-Busch’s Extension of Article 1 to Trademark Applications Before analyzing the next stage in the Grand Chamber’s analysis, it is worth pausing to consider the significance of the Court’s decision to overrule the Chamber and to apply European Convention’s property rights clause to Anheuser-Busch’s application to register the “Budweiser” mark. In particular, the Grand Chamber’s judgment raises at least three issues that will affect the future relationship between the European human rights system and national and regional intellectual property laws. The first issue concerns the European-wide influence of the Court’s ruling. As a formal matter, ECHR judgments only bind the parties to the dispute. They do not have binding precedential effect for future controversies involving other complainants or respondent states. In practice, however, many ECHR rulings have trans-jurisdictional consequences. These effects are especially pronounced when the Court departs from its normal practice
440 441
See supra Part III (introductory paragraph). Anheuser-Busch, Inc. v. Portugal, App. No. 73049/01, 45 Eur. H.R. Rep. 830 [36], 850 (Grand Chamber
2007). 442
Id. Id. 444 Id. The majority’s holding logically implies that trademark applications are “existing possessions,” the only other temporal category of property rights protected by Article 1. See supra Part II.B. It is uncertain, however, whether the Grand Chamber placed trademark applications in this category, since it stated only that such applications “g[i]ve rise to interests of a proprietary nature.” Anheuser-Busch, 45 Eur. H.R. Rep. at 850 (Grand Chamber). In contrast to the majority, the concurrence and dissent analyzed trademark applications under the rubric of “legitimate expectations.” Id. (joint concurring opinion of Judges Steiner & Hajiyev); id. at ¶¶ 5–6 (in the joint dissenting opinion of Judges Caflisch & Cabral Barreto). 443
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of resolving cases on narrow, fact-specific grounds and includes general statements of principle in its judgments.445 A close reading of the Grand Chamber’s analysis suggests that Anheuser-Busch is just such a case. Although the Court refers to facts specific to the dispute between the two brewers, such as the claim that “Budweiser” is a well-known mark, several aspects of the decision suggest that the judges intend the case to apply more broadly. These include the Court’s canvassing of international, regional, and national trademark treaties and statutes; its discussion of the economic value of trademark applications in a market economy; and the phrasing of its holding—that “the applicant company’s legal position as an applicant for the registration of a trade mark came within Article 1.”446 The Court’s inclusion of these general principles strongly suggests that its analysis of Article 1 applies to applications to register trademarks in all forty-seven European Convention member states. A second unsettled issue concerns the consequences of the Grand Chamber’s analysis for applications to register other forms of intellectual property, such as patents, industrial designs, plant varieties, and integrated circuits. The Court’s twin focus on (1) the priority, exploitation, and transfer rights that international, regional, and national laws grant to trademark applicants, and (2) the practical economic value that such applications possess, suggests that the ECHR will examine these same two factors to decide whether to extend Article 1 to applications to register these other forms of intellectual property. ` The Court’s judgment does not expressly delineate the relationship between the two factors. Its analysis strongly suggests, however, that the legal recognition of these exclusive rights creates a presumption of economic value, even if the applicant did not itself assign, license or otherwise derive financial benefit from the application.447 Thus, to the extent that patent, industrial design, and similar laws confer such rights upon applications to register, those applications will fall within Article 1’s ambit.448 By contrast, if the relevant legal rules do not confer such rights, applicants will need to prove that they in fact engage in “legal transactions, such as a sale or license agreement for consideration.”449 Such evidence demonstrates that applications to register these other forms of intellectual property are “capable of possessing . . . substantial financial value” even in the absence of formal legal protection.450 A third consequence of the Grand Chamber’s decision relates to the ECHR’s jurisdiction to review the refusal of domestic industrial property offices and domestic courts to
445 See Robert Harmsen, The European Convention on Human Rights After Enlargement, 5 Int’l J. Hum. Rts. 18, 32–33 (2001) (discussing ECHR’s common practice of issuing narrow, fact-specific rulings rather than broad statements of principle). The most recent past President of the ECHR has urged the Court to abandon this practice. See Luzius Wildhaber, A Constitutional Future for the European Court of Human Rights, 23 Hum. Rts. L.J. 161, 162–63 (2002). 446 Anheuser-Busch, 45 Eur. H.R. Rep. at 150 (Grand Chamber) (emphasis added). 447 The fact that the ECHR did not reference Anheuser-Busch’s attempt to license its trademark application to Budìjovický Budvar in its analysis of the scope of Article 1 supports this view. See id. at 834 and 849. 448 See, e.g., European Patent Convention, Oct. 5, 1973, 1065 U.N.T.S. 199, art. 67 (defining the rights conferred by a European patent application after publication) and arts. 71-73 (describing a European patent application as “an object of property” and enumerating rights of applicants including transfer, assignment, and licensing); Council Regulation No. 6/2002, Community Designs, 2002 O.J. (L 3/1) 1 (EC), available at http://oami. europa.eu/ en/ design/pdf/reg2002_6.pdf, art. 12 (term of protection exists from the date of filing of an application to register a Community design) and art. 34 (describing an “application for a registered Community design as an object of property”). 449 Anheuser-Busch, 45 Eur. H.R. Rep. at 850 (Grand Chamber). 450 Id.
450 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y register trademarks on grounds such as consumer confusion or lack of distinctiveness.451 These issues lurked in the background of the Anheuser-Busch case. The parties disputed whether the Portuguese courts had rejected the American brewer’s 1981 application to register “Budweiser” not only because it conflicted with the 1986 bilateral agreement, but also because it was confusingly similar to the Czech brewer’s appellation of origin.452 Neither the Chamber nor the Grand Chamber addressed this issue. But its importance to the parties—and to future ECHR intellectual property disputes—is easy to explain. Consumer confusion has long been accepted as a valid basis for refusing to register trademarks. Had such confusion in fact been the basis for the refusal to register “Budweiser,” Anheuser-Busch could not have argued that Portugal had interfered with its statutory right of priority by enforcing the subsequently adopted bilateral treaty. Rather, the American brewer could only have complained that the domestic courts had misjudged the reputation and consumer associations of the two companies’ brands in the Portuguese beer market. It is here that the consequences of the different approaches adopted by the Chamber and Grand Chamber are illustrated most starkly. By deciding that Article 1 is not implicated until after a trademark registration is final, the Chamber adopted a bright-line rule that categorically precluded the ECHR from reviewing national court and administrative agency decisions that refuse to register trademarks. By extending Article 1 to trademark applications (and, as I argue above, to applications for other registered rights) and holding that Anheuser-Busch was “entitled to expect that [its application] would be examined under the applicable legislation,”453 the Grand Chamber expanded the ECHR’s jurisdiction to review the denial of registrations on any ground recognized in national and regional intellectual property laws. As I explain below, the ECHR’s review of complaints challenging refusals to register is likely to be quite limited.454 It nevertheless creates an additional layer of European human rights scrutiny over domestic intellectual property registration systems. B. HAS THE STATE INTERFERED WITH A POSSESSION?
After concluding that a particular form of intellectual property qualifies as an “existing possession” or a “legitimate expectation” protected by Article 1, the ECHR and the European Commission must next consider the second question identified above—whether the state has “interfered” with such a possession or expectation. The tribunals have identified two distinct types of interferences: (1) government restrictions on the exercise of intellectual property rights, and (2) interferences that result from domestic intellectual property litigation between private parties.455 451 First Council Directive 89/104/EEC of 21 December 1988 to Approximate the Laws of the Member States Relating to Trade Marks, 1989 O.J. (L 40) 1, arts. 3–4 (setting forth mandatory and permissive grounds for denying registration of a trademark). 452 Compare Anheuser-Busch’s claim that during the domestic litigation, “there had never been any question of a risk of confusion with the Czech company’s products,” Anheuser-Busch v. Portugal, App. No. 73049/01, 44 Eur. H.R. Rep. 846 [42], 854 with Portugal’s response that the Supreme Court considered both the risk of confusion and the 1986 bilateral agreement in refusing to register the American company’s trademark, id. at 855. 453 Anheuser-Busch, 45 Eur. H.R. Rep. at 850 (Grand Chamber). 454 See infra notes 513, 516–17 and text accompanying. 455 The ECHR and the European Commission have also indirectly considered the interference issue in two other categories of Article 1 cases. In the first category, the tribunals decline to review a claim under Article 1 if they have already examined it under another provision of the Convention. See British Am. Tobacco Co. Ltd. v. The Netherlands, 331 Eur. Ct. H.R. (ser. A), ¶ 91 (1995) (refusing to consider Article 1 claim challenging denial of patent application where claim was “in substance identical to that already examined and rejected in the context of ” complainant’s Article 6 challenge to the independence and impartiality of the Appeals Division of the Dutch
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1. Restrictions on the Exercise of Intellectual Property Rights As explained above, government “interferences” with property rights take two principal forms—use controls and deprivations.456 The ECHR and the European Commission have considered state interferences with intellectual property on only two occasions. In both instances, the tribunals concluded that the government had restricted the exercise of intellectual property rights—that is, had controlled its use—but had not completely deprived rights holders of their possessions. The most recent analysis of use controls appears in the dissenting opinion to the Anheuser-Busch Chamber judgment. According to the two dissenting judges, the Portuguese Supreme Court’s “refusal to register” the Budweiser trademark in Portugal “indisputably amount[ed] to [an] interference with the applicant company’s right of property.” The dissenting judges rejected the American brewer’s claim that the refusal to register was an expropriation of its trademark. The state had not deprived Anheuser-Busch of its ownership interest but instead had prevented the company from “exploit[ing] the mark commercially” in the country.457 Fifteen years earlier, the Commission considered whether a compulsory license issued by the Dutch Patent Office amounted to an interference within the meaning of Article 1.458 The government argued that such licenses were not interferences because “patents are granted subject to the provisions of the Patent Act, which expressly limits the scope of the patent owners’ rights by providing for the grant of compulsory licences. . . .” The Commission disagreed. It reasoned that “a patent initially confers on its owner the sole right of exploitation. The subsequent grant of rights to others under the patent is not an
Patent Office); Dimitrievski v. The Former Yugoslav Republic of Macedonia, App. No. 26602/02, ¶ 7.2 (2006) (admissibility decision) (refusing to examine alleged violation of right of property where the complaint under Article 1 “relate[d] solely to the outcome of the proceedings” and was “in fact a restatement of the complaints under Article 6”). A second category of indirect interference has arisen in challenges to the authority of the European Patent Office (EPO) to review patent applications and register patents. Inventors file applications directly with the EPO, whose examiners decide whether the applications meet the eligibility requirements of the European Patent Convention (EPC). If the EPO grants the application, the patent is automatically protected in all states that have ratified the EPC. National industrial property offices and national courts may not deny a patent that that the EPO has granted nor grant a patent that the EPO has denied. In four cases, inventors whose patent applications were rejected challenged the state’s delegation of decision-making authority to the EPO. In each case, the European Commission rejected the challenge. The Commission highlighted the numerous benefits of the EPO’s centralized review and registration system and emphasized the EPC’s “procedural safeguards,” including an appeals procedure staffed by independent legal and technical experts. In light of these “equivalent protections” for the rights of patent applicants, the states’ delegation of authority to the EPO to review patent applications and register patents did not interfere with a possession in a manner proscribed by Article 1. Lenzing AG v. Germany, App. No. 39025/97 at 5–6 (1998) (admissibility decision); Lenzing AG v. United Kingdom, 94 Eur. Comm’n H.R. Dec. & Rep. 136, 144 (1998) (admissibility decision); Heinz v. The Contracting Parties also Parties to the Eur Pat. Convention, App. No. 21090/92, 76 Eur. Comm’n H.R. Dec. & Rep. 125 (1994) (admissibility decision); Reber v. Germany, App. No. 27410/95, 22 Eur. H.R. Rep. 98 (1996) (admissibility decision). The ECHR has never addressed this issue, although it recently cited the Commission’s case law with approval. See Bosphorus Hava Yollari Turízm ve Tícaret Anoním Şírketí v. Ireland, App. No. 45036/98, 42 Eur. H.R. Rep. 1 [1], ¶¶ 108 and 155 (Grand Chamber 2005) (analyzing the delegation of authority by the European Convention’s member states to the European Union). 456 See supra Part II.C. 457 Anheuser-Busch, 44 Eur. H.R. Rep. at 859 (Chamber) (dissenting opinion of Judges Costa & Cabral Barreto). The two judges who dissented from the Grand Chamber’s judgment did not discuss whether Portugal’s refusal to give priority to the Budweiser trademark was a control of a possession or a more substantial deprivation of property. They merely concluded that, by applying the 1986 bilateral agreement retroactively, “the Portuguese authorities have objectively caused damage to the applicant company.” Anheuser-Busch, 45 Eur. H.R. Rep. at 857 (Grand Chamber) (joint dissenting opinion of Judges Caflisch & Cabral Barreto). 458 Smith Kline & French Lab. Ltd. v. Netherlands, 66 Eur. Comm’n H.R. Dec. & Rep. 70, 79 (1990).
452 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y inevitable or automatic consequence.” The Patent Office’s decision to grant a compulsory license thus “constituted a control of the use of property.”459 2. Interferences Resulting from Litigation Between Private Parties A second category of interference cases arises from domestic litigation between private parties. It is axiomatic that only states parties to the European Convention can violate the rights and freedoms it protects. The ECHR thus has “no jurisdiction to consider applications directed against private individuals or businesses.”460 When those individuals or businesses turn to national courts to resolve their property disputes, however, the decisions of those courts trigger the application of Article 1. The ECHR and the European Commission have thus recognized that domestic judicial rulings are a form of state action.461 At the same time, they have been wary of treating those rulings as “interferences” with property. The tribunals have considered the interference issue in three types of intellectual property disputes involving private parties: (1) cases in which national courts adjudicate a contract involving the licensing or transfer of intellectual property; (2) cases in which national courts reject an intellectual property owner’s infringement claims; and (3) cases in which national courts resolve competing claims of intellectual property ownership. I analyze these three categories of disputes below, highlighting the ways in which the Grand Chamber in Anheuser-Busch v. Portugal expanded member states’ obligations relating to domestic litigation between private parties. a. Adjudication of Intellectual Property Contracts Aral v. Turkey,462 a previously unnoticed admissibility decision, reveals the tribunals’ treatment of the first type of dispute—private contract claims involving the licensing or transfer of intellectual property rights. In Aral, the Commission dismissed a complaint filed by three artists who alleged that Turkey had violated Article 1 when its courts enforced a contract that governed the rights to cartoon characters that the artists had created.463 The Commission held that the case concerns a commercial dispute between private parties. The State’s intervention in the case only occurred through its courts. . . . [T]here is no interference with the right to peaceful enjoyment of possessions when, pursuant to the domestic law and a contract regulating the relationship between the parties, a judge orders one party to that contract to surrender a possession to another, unless it arbitrarily and unjustly deprives that person of property in favour of another.464 After briefly reviewing the domestic court decisions, which had interpreted the contract and Turkish intellectual property law to divide ownership of the cartoons between the
459 Id. The Commission’s conclusion raises the question of whether such a control is justified. I address this issue below. See infra Part III.C. 460 Reynbakh v. Russia, App. No. 23405/03, ¶ 18 (2005). Only one decision applies this principle to intellectual property. See Mihãilescu v. Romania, App. No. 47748/99, 5–6 (2003) (admissibility decision) (dismissing Article 1 claim by patent owner who was unable to enforce a domestic court damage award against a state enterprise which had been privatized and later declared bankrupt). 461 See S.Ö. v. Turkey, App. No. 31138/96, ¶ 1 (1999) (admissibility decision) (stating that a transfer of property ownership was “enforced by a court order and thus by an act of a State organ”). 462 Aral v. Turkey, App. No. 24563/94 (1998) (admissibility decision). 463 Id. at 2. 464 Id. at 6.
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parties,465 the Commission found no evidence that “the courts acted in an arbitrary and unreasonable manner. Accordingly, there is no shortcoming attributable to the State.”466 b. Rejection of Domestic Infringement Claims Melnychuk v. Ukraine467 exemplifies the ECHR’s analysis of the second category of private disputes—cases in which an intellectual property owner challenges a national court’s dismissal of its infringement claims against a third party. Melnychuk involved a dispute between a writer and a newspaper that published disparaging reviews of his books. The writer asked the newspaper to publish his reply to the reviews. When the newspaper refused, the author filed a complaint with the Ukrainian courts seeking “compensation for pecuniary and non-pecuniary damage caused by the publication” of the critical book reviews. He also claimed that the newspaper had violated his copyright, although he did not explain the basis for the alleged infringement. The trial court dismissed Melnychuk’s complaint in its entirety. As to the copyright claim, the court stated simply that his allegations were “unsubstantiated.”468 After exhausting all domestic appeals, Melnychuk filed a complaint with the ECHR. His complaint included a claim that “the newspaper articles about his books violated his copyright.”469 The Court rejected the claim, stating that “the fact that the State, through its judicial system, provided a forum for the determination of the applicant’s rights and obligations does not automatically engage its responsibility under Article 1 of Protocol No. 1.” Rather, the state’s responsibility in such cases is only triggered in “exceptional circumstances” for “losses caused by arbitrary determinations.” Melnychuk’s complaint did not meet this high threshold. To the contrary, “the national courts proceeded in accordance with domestic law, giving full reasons for their decisions. Thus, their assessment was not flawed by arbitrariness or manifest unreasonableness.”470 The European tribunals’ limited scrutiny of national court rulings in Melnychuk and Aral indicates that challenges to garden variety infringement and breach of contract actions will rarely succeed. The ECHR did not simply dismiss Melnychuk’s weak copyright claims out of hand, but instead emphasized the exceptionally narrow scope of review in such cases. This suggests that the Court will defer to domestic judges’ resolution of infringement and breach of contract disputes even where an applicant’s claims have greater merit. Such an approach is consistent with the European Convention’s core objective—preventing governments and public officials from violating civil and political liberties. As stated above, the treaty has no “horizontal effect” between non-state actors.471 The ECHR will thus only rarely find fault with “the determination of [property] rights in disputes between private persons.”472 465 Id. at 2. The Turkish court held that the magazine publisher owned cartoons which had been “published or which were unpublished but held in the archives of the magazines.” But it also held that the artists “could continue to draw the same characters . . . in association with other subjects and stories [and] in other magazines or newspapers.” Id. at 6. 466 Id. at 6. 467 Melnychuk v. Ukraine, App. No. 28743/03, (2005) (admissibility decision) 468 Id. at 3. 469 Id. at 8. 470 Id. 471 This contrasts with many provisions of EC law, which have both a “vertical effect (between the State and the individual), [and] a horizontal effect (between individuals).” Bosphorus Hava Yollari Turízm ve Tícaret Anoním Şírketí v. Ireland, App. No. 45036/98, 42 Eur. H.R. Rep. 1 [1], 32, and 34 (Grand Chamber 2005) (internal quotations omitted). It bears noting, however, that some national court decisions have given horizontal effect to certain provisions of the European Convention. See Geiger, Constitutionalizing Intellectual Property Law, supra note 15, at 384. 472 Voyager Limited v. Turkey, App. No. 35045/97, 10 (2001) (admissibility decision).
454 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y c. Resolution of Competing Ownership Claims A third category of Article 1 interference cases arises when national courts resolve competing claims of intellectual property ownership. This issue arose in Anheuser-Busch, a case in which the Portuguese courts confronted “the conflicting arguments of two private parties concerning the right to use the name ‘Budweiser’ as a trade mark or [as an] appellation of origin.”473 As explained above, the courts ruled in favor of the Czech owner of the appellation on the basis of a 1986 bilateral agreement between the two countries. The American brewer challenged that ruling before the ECHR, alleging that Portugal had violated the right of priority attaching to its previously-filed 1981 application to register Budweiser as a trademark.474 After concluding that trademark applications were protected by Article 1, the Grand Chamber considered whether the Portuguese courts had interfered with AnheuserBusch’s application to register Budweiser. In analyzing this issue, the ECHR struggled to knit together two previously unrelated strands of case law. One line of decisions concerned “the retrospective application of legislation whose effect is to deprive someone of a pre-existing asset.”475 The retroactivity of such domestic laws “may constitute [an] interference that is liable to upset the fair balance that has to be maintained between the demands of the general interest on the one hand and the protection of the right to peaceful enjoyment of possessions on the other.”476 Previously, the ECHR had applied this principle to interactions between the government and private parties.477 But in the year prior to the Grand Chamber’s judgment, the Court extended the principle “to cases in which the dispute is between private individuals and the State is not itself a party to the proceedings.”478 These decisions provided support for Anheuser-Busch’s claim that Portugal had violated Article 1 by applying the 1986 bilateral treaty retroactively to its 1981 trademark application. The American brewer’s complaint also intersected with a second strand of ECHR jurisprudence—cases challenging the interpretation or application of domestic law by national courts. When confronted with such challenges, the Court has consistently held that it cannot review errors of fact or law that domestic judges have allegedly committed. Rather, its jurisdiction is limited to ensuring that national court rulings “are not flawed by arbitrariness or otherwise manifestly unreasonable” and that their interpretations of domestic law do not violate the Convention.479 To the extent that Anheuser-Busch’s arguments were premised on the Portuguese courts’ misinterpretation of the bilateral treaty and the Code of Industrial Property, the ECHR had solid jurisprudential grounds for rejecting its complaint. The Grand Chamber reconciled these two lines of case law by emphasizing that the retroactive application of the 1986 bilateral treaty was itself an unsettled issue. Unlike prior decisions in which “the retrospective effect of the legislation [was] indisputable . . . [and] intentional,” the application of the bilateral treaty to pending trademark applications presented “difficult questions of interpretation of domestic law.”480 The complexities of the case were compounded by the fact that, at the time of the treaty’s entry into 473
Anheuser-Busch v. Portugal, App. No. 73049/01, 45 Eur. H.R. Rep. 830 [36], 852 (Grand Chamber). See supra Part III.A.2.a. 475 Anheuser-Busch, 45 Eur. H.R. Rep. at 852 (Grand Chamber) 476 Id. at 852. 477 See Kopecky v. Slovakia, 2004-IX Eur. Ct. H.R. 125, ¶¶ 45–47 (Grand Chamber) (reviewing case law). 478 Anheuser-Busch, 45 Eur. H.R. Rep. at 851 (Grand Chamber) (citing Lecarpentier v. France, App. No. 67847/01, ¶¶ 48, 51, and 52 (2006); Cabourdin v. France, App. No. 60796/00, ¶¶ 28–30 (2006)). 479 Anheuser-Busch, 45 Eur. H.R. Rep. at 851 (Grand Chamber) 480 Id. at 851–52. 474
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force, the appellation of origin was still registered and the parties were attempting to negotiate a license agreement. Given these unique circumstances, the ECHR concluded that the Portuguese Supreme Court’s rejection of Anheuser-Busch’s claim of priority and its interpretation of the bilateral treaty were neither arbitrary nor manifestly unreasonable.481 As a result, the Supreme Court’s ruling did not “interfere” with the application to register Budweiser as a trademark and thus did not violate Article 1. The ECHR’s narrow, fact-specific disposition of the case gives broad deference to national courts to interpret intellectual property statutes and treaties incorporated into domestic law. But the Grand Chamber did not limit its analysis to resolving the dispute between parties. In addition to affirming the difficulty of reconciling retroactive property restrictions with the Convention, the Court made the following general statement: [E]ven in cases involving litigation between individuals and companies, the obligations of the State under Article 1 of Protocol No. 1 entail the taking of measures necessary to protect the right of property. In particular, the State is under an obligation to afford the parties to the dispute judicial procedures which offer the necessary procedural guarantees and therefore enable the domestic courts and tribunals to adjudicate effectively and fairly in the light of the applicable law.482 The Grand Chamber did not elaborate upon these seemingly basic due process requirements. As I explain below, however, the Court’s statement has important implications for its future review of intellectual property disputes under Article 1. In particular, the ECHR may interpret these due process guarantees as requiring member states to provide statutory, administrative, and judicial mechanisms to enable intellectual property owners to prevent private parties from infringing their protected works.483 C. HAS THE STATE ADEQUATELY JUSTIFIED ITS INTERFERENCE WITH A POSSESSION?
If the ECHR concludes that a possession exists and that the state has interfered with that possession, it must then consider a third and final issue—whether the state has adequately justified that interference. The standard for assessing such justifications is well-settled. Every interference must be specified by law, pursue a legitimate aim, and achieve a fair and proportional balance between the rights of the property owner and the public interest.484 The European tribunals use this multi-part standard to assess the social policies and values that underlie state regulations of property.485 1. Dependent Patent Compulsory Licenses The ECHR has never applied this standard to intellectual property, and the European Commission has done so only once. In Smith Kline & French Laboratories, discussed above,486 the Commission upheld the grant of a compulsory license to the owner of a dependent patent to use a previously-registered invention. After the company that owned the dominant patent refused to negotiate a license, the dependent patent owner asked the Dutch Patent Office to award a compulsory license. The Office issued the license, which the Dutch courts upheld on appeal.487 481
Id. at 852. Id. at 851. 483 See infra Part IV.B. 484 See supra Part II.D. 485 See Çoban, supra note 26, at 195-210. 486 See supra Part III.B.1. 487 Smith Kline & French Lab. Ltd. v. Netherlands, App. No. 12633/87, 66 Eur. Comm’n H.R. Dec. & Rep. 70, 72–73 (1990) (admissibility decision). 482
456 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y The dominant patent owner then filed a complaint with the European Commission, alleging that the compulsory license violated its exclusive exploitation rights. The Commission agreed that the license interfered with a possession, but it held that the interference was justifiable and thus did not violate Article 1. The Commission first found that the compulsory license was provided by law — the Dutch Patent Act — and pursued the legitimate aim of “encouraging technological and economic development.” The Commission then emphasized that “many” European Convention member states restrict a patentee’s exclusive rights to enable “other persons to make use of a particular patented product or process . . . for the purpose of preventing the long term hampering of technological progress and economic activity.”488 As to the crucial issue of proportionality, the Commission emphasized the social benefits of granting compulsory licenses to dependent patent owners as well as the protections such licenses afford to dominant patent owners: [T]he Commission notes that the provision only comes into effect where such license is necessary for the working of a patent of the same or later date and the license should be limited to what is required for the working of the patent. Further, the owner of the dominant patent is entitled to royalties in respect of each compulsory license granted under the legislation and receives reciprocal rights under the dependent patent. . . . [T]he Commission finds that the framework imposed by the legislation is intended to prevent the abuse of monopoly situations and encourage development and that this method of pursing that aim falls within the margin of appreciation accorded to the Contracting State. The Commission accordingly finds that the control of use in the circumstances of this case did not fail to strike a fair balance between the interests of the applicant company and the general interest. . . .489 This short paragraph reveals a fairly sophisticated understanding of patent policy, especially for a human rights tribunal’s foray into substantive intellectual property law.490 It also appears to afford considerable leeway to national decision makers to restrict exclusive rights as a means of furthering intellectual property’s underlying social functions. As I explain in the next section, however, several factors limit the precedential value of the Commission’s analysis for future Article 1 disputes over the validity of exceptions and limitations to intellectual property rights. 2. Other Exceptions and Limitations to Exclusive Rights First, the Commission’s holding is narrow and fact-specific. The scope of a dependent patent compulsory license is carefully limited to the justifications for granting it. In addition, dominant patent owners receive considerable benefits in exchange for the diminution of their exclusive rights, including remuneration and a cross-license to exploit the dependent invention. Where these benefits are absent—such as for exceptions to exclusive rights whose substantive contours are more capacious and do not require remuneration—the ECHR may be less willing to defer to national decision makers in striking a balance between private property and the public interest. In this respect, it is noteworthy that the two dissenting judges in Anheuser-Busch believed that Portugal had violated Article 1’s proportionality requirement by failing to compensate the American company for the refusal to register its trademark application.491 488
Id. at 80. Id. 490 The Commission’s decision in Smith Kline was its first analysis of an intellectual property dispute under Article 1. See supra Part III.B.1 and note 386. 491 See Anheuser-Busch, Inc. v. Portugal, App. No. 73049/01, 44 Eur. H.R. Rep. 836 [42], 858 (2005) (dissenting opinion of Judges Costa and Cabral Barreto). 489
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Second, the Commission upholds a limitation on patents that unambiguously protects both the rights of other intellectual property owners and the public interest in technological progress. The European Convention repeatedly refers to rights of others as a justification for limiting civil and political liberties.492 The Commission’s reasoning therefore suggests that other exceptions to intellectual property rights, such as private copying, parody, noncommercial uses, are more likely to be upheld if the ECHR interprets them as safeguards for protecting the human rights of users and consumers—an issue that the Court has yet to address. The subsequent history of Smith Kline & French Laboratories provides a third basis for giving limited precedential weight to the Commission’s analysis. Although the Commission rejected the dominant patent owner’s Article 1 claim, it was more troubled by the assertion that the Dutch Patent Office was not an independent or impartial tribunal.493 After the Commission decided to review this claim on the merits, the patent owner and the Dutch government entered into settlement negotiations. The chief component of the state’s settlement offer was a pending revision of Dutch patent law which vested the civil courts, rather than the Patent Office, with “the decision making powers for the grant or refusal of a compulsory license.” The amendment also restricted the compulsory licenses for dependent patent owners to “cases where the dependent, competing patent involves substantial technical progress in the field.”494 The Commission, which reviewed all proposed settlements to determine whether they manifest “respect for human rights,” approved the parties’ agreement.495 This suggests that its rejection of the company’s Article 1 claim was in fact a close question. It also suggests that the Commission was untroubled by the state’s decision to narrow the statutory exceptions to a patent owner’s exclusive rights without considering the social policies underlying such a change in the law. This Commission’s approval of the settlement thus leaves unresolved precisely how much discretion national decision makers enjoy to restrict intellectual property in the public interest. IV. FORECASTING THE FUTURE: THREE PARADIGMS FOR ECHR ADJUDICATION OF INTELLECTUAL PROPERTY DISPUTES to analyze the ECHR’s intellectual property case law under Article 1. Such a framework has three benefits. First, it provides an organizing principle to explain the relationships among a group of diverse judicial rulings, including several decisions that commentators have not previously analyzed. Second, it exposes the numerous points of intersection between European human rights law and international and domestic intellectual property law. And third, it provides an informed basis for predicting how ECHR intellectual property jurisprudence will develop in the future. 492 See European Convention, supra note 334, at arts. 8(2), 9(2), 10(2), and 11(2) (all recognizing “the rights and freedoms of others” as a legitimate basis for restricting rights). 493 Smith Kline, 66 Eur. Comm’n H.R. Dec. & Rep. at 78. 494 Smith Kline & French Lab. v. Netherlands, Application No. 12633/87, ¶ 11 (1991) (Commission Report). This revision was later enacted. See Patents Act of the Kingdom 1995, art. 57.4, Stb. 1995 No. 51 (Dutch Patent Act of 1995) available at http://www.wipo.int/clea/docs_new/en/nl/nl020en.html#JD_NL020_57_4 (authorizing dependent patent compulsory licenses only where “the patent for which the license is requested represents a considerable advance”). This clause implements a provision of TRIPs which requires dependent patent to contain “a considerable technical advance of considerable economic significance”in relation to the dominant patent. Id. at n.4 (paraphrasing TRIPs, supra note 420, art. 31(l)(i)). 495 Smith Kline, Application No. 12633/87 at ¶ 3 (1991) (Commission Report). After the Commission’s abolition in 1998, the ECHR performs this settlement review function and applies the identical legal standard. See European Convention, supra note 334, art. 38(b).
458 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y This Part forecasts the evolution of the ECHR’s intellectual property case law in greater depth. It does so by developing and analyzing three paradigms that the ECHR may apply when deciding future disputes relating to intellectual property. I label these approaches the rule of law paradigm, the enforcement paradigm, and the intellectual property balancing paradigm. These three paradigms, illustrated below with contemporary examples, provide competing visions of how to conceptualize intellectual property’s place in the European human rights system. Each paradigm finds support in the Court’s case law and in the interpretive methodologies that ECHR judges use to further he European Convention’s objectives and values.496 However, the three paradigms have radically different consequences for the region’s innovation and creativity policies. I analyze these consequences below, emphasizing the sometimes problematic effects of overlaying two previously distinct legal regimes. A. THE RULE OF LAW PARADIGM
Many legal scholars and philosophers recognize the importance of protecting property as a fundamental right, although they differ on the appropriate justification for and scope of that protection.497 As noted above, the decision to include a right of property in the European Convention was contested and controversial.498 The drafters did not endorse any single philosophical or theoretical rationale for property rights. But the history and text of Article 1 reflects a consensus on the basic proposition that protection of private property is essential to preserving the rule of law. The rule of law is a concept that suffuses the entire European Convention.499 But it is expressed with particular forcefulness in Article 1, which provides that deprivations of property must be “subject to the conditions provided for by law” and requires controls on the use of property to be based on “such laws as [the state] deems necessary.”500 The ECHR has interpreted this dual reference to law as establishing Article 1’s “first and most important requirement”—that “any interference by a public authority with the peaceful enjoyment of possessions should be lawful. . . . [T]he principle of lawfulness presupposes that the applicable provisions of domestic law are sufficiently accessible, precise and foreseeable in their application.”501 By compelling states to regulate property pursuant to previously established rules with these characteristics, the Court prevents arbitrary and excessive exercises of government power.502 The desire to uphold the rule of law also explains and justifies Article 1’s application to corporations, since arbitrary deprivations of property do not only affect natural persons.503 Under a rule of law paradigm, therefore, the ECHR would treat intellectual property no differently than any other type of real, personal, or intangible property protected by Article 1. The Court would not consider the public good qualities of intellectual property rights, nor would it concern itself with the social and cultural policies which justify the 496
See supra notes 355–7 and text accompanying (analyzing the ECHR’s interpretive methodologies). See generally Jeremy Waldron, The Right to Private Property (1990). For a comprehensive review of the literature, see Çoban, supra note 358, at 35–77. 498 See supra Part II.A. 499 See Emberland, supra note 355, at 44. 500 Article 1, supra note 337. 501 Edwards v. Malta, App. No. 17647/04, ¶ 60 (2006). See also Zlínsat, Spol. S R.O. v. Bulgaria, App. No. 57785/00, ¶ 98 (2006) (“The requirement of lawfulness . . . means not only compliance with the relevant provisions of domestic law, but also compatibility with the rule of law.”). 502 Emberland, supra note 355, at 46 (“When the Court invokes the rule of law as an interpretive argument, it emphasizes its capacity to prevent governmental arbitrariness and excessive wielding of public power.”) 503 See id. at 44 (“The rule of law also helps explain why corporate persons enjoy ECHR protection”). 497
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state’s protection of those rights. Instead, it would find fault only with arbitrary government conduct, such as ultra vires actions, failure to follow previously established rules and procedures, or laws that contravene the rule of law principles described above.504 The Court’s scrutiny of national decision makers would thus be minimal and unobtrusive. It would allow governments unfettered discretion to fashion their domestic innovation and creativity policies as they see fit, provided that they adhere to previously established rules embodying those policies. Does the ECHR believe that intellectual property complaints should be analyzed under the rule of law paradigm? The Grand Chamber intimated as much in Anheuser-Busch when it emphasized that it could not “take the place of the national courts, its role being rather to ensure that the decisions of those courts are not flawed by arbitrariness or otherwise manifestly unreasonable.”505 Similarly, in Melnychuck, the Court held that providing intellectual property owners with a judicial forum to adjudicate domestic infringement claims did not “automatically engage [the state’s] responsibility” under Article 1. Only “in exceptional circumstances” could the state “be held responsible for losses caused by arbitrary determinations.”506 These quotations suggest that the ECHR will avoid using Article 1 as a vehicle to review the micro-foundations of domestic intellectual property laws. Other than these general statements, however, neither the Court nor the Commission has considered how the rule of law paradigm applies to intellectual property. But the tribunals have frequently addressed arbitrary government conduct in other property rights contexts. For example, the ECHR has found fault with a domestic law that authorized an executive branch official to obtain a court order quashing a final, executed judgment that restored nationalized real property to its former owner.507 It has disapproved of a statute conferring unbounded discretion on a prosecutor to suspend a contract to privatize real property.508 It has criticized the withdrawal of a banking license without prior notice or a procedure for subsequent administrative or judicial review.509 It has condemned a state’s failure to comply with final judgments ordering it to pay pension and disability benefits.510 And it has found a violation of Article 1 when the eviction and continuing dispossession of a lessee was “manifestly in breach” of domestic law.511 Extrapolating from these cases, it is possible to predict how the ECHR would apply the rule of law paradigm to intellectual property disputes. Government agencies that themselves infringe intellectual property rights arguably provide the strongest case for finding a violation of Article 1 using this approach. A ministry that installs copyrighted software on all of its desktop computers without obtaining a license from the software’s owner provides a ready example. A state-owned enterprise’s failure to pay royalties to an inventor whose patented product or process it had previously licensed would be equally problematic from a rule of law perspective.512 504
See Çoban, supra note 358, at 196–97 (reviewing case law). Anheuser-Busch, Inc. v. Portugal, App. No. 73049/01, 45 Eur. H.R. Rep. 830 [36], 851 (Grand Chamber 2007) (emphasis added). 506 Melnychuk v. Ukraine, App.No. 28743/03, ¶ 4 (2005) (admissibility decision), 507 Brumãrescu v. Romania, 1999-VII Eur. Ct. H.R. 201, 209-26. 508 Zlínsat, Spol. S R.O. v. Bulgaria, Application No. 57785/00, at 23 (2006) 509 Capital Bank AD v. Bulgaria, App. No. 49429/99, 44 Eur. H.R. Rep 952 [48], 984–85 (2007). 510 Chebotarev v. Russia, App.No. 23795/02, at 6 (2006) 511 Iatridis v. Greece, App. No. 31107/96, 30 Eur. H.R. Rep. 97, 20 (Grand Chamber 2000). 512 In Mihãilescu v. Romania, App. No. 47748/99 (2003), a state-owned enterprise unilaterally reduced royalties to a patent owner whose invention it had previously licensed. Two decades later, a new government enacted a statute authorizing compensation to inventors whose royalties had been reduced. On the basis of the statute, the patent owner filed suit against the enterprise, which had recently been privatized. A domestic court awarded compensation to the patent owner, but the owner was unable to execute the judgment against the enterprise, which 505
460 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y Other instances of arbitrary government conduct may involve the judiciary. A domestic court that refuses to consider a trademark applicant’s plausible arguments in favor of registration illustrates one possible scenario.513 Another involves domestic infringement proceedings that are inexplicably or inexcusably prolonged, such that the right holder is effectively precluded from preventing unauthorized exploitation by third parties.514 In both instances, the state has failed to provide the minimal procedural guarantees to which property owners are entitled under the ECHR’s conception of the rule of law.515 The above examples must be distinguished from court decisions that invalidate a previously registered patent or trademark. It is an inherent feature of patent and trademark systems that third parties may challenge the validity and scope inventions and marks after administrative agencies have registered them. In fact, roughly half of all patents whose validity is later tested in litigation are found to be invalid.516 In this sense, registered rights are always conditional. Thus, although it is accurate to state that if a patent or trademark “is found invalid, the property right will have evaporated,”517 the dissolution of that property right raises no Article 1 concerns. Domestic laws that authorize governments to exploit patented inventions and copyrighted works without right holders’ consent present a closer question.518 On the surface, these statutes appear to authorize wholesale infringements similar to the software infringement and patent royalty examples described above. In fact, however, such laws allow governments to use private knowledge goods for the public’s benefit under previously specified conditions and for particular purposes.519 Because intellectual property rights are state-created monopolies, the ECHR should reject rights holders’ challenges to the application of these laws, provided that they are publicly available and drafted with sufficient prevision to enable rights holders to predict when the government may use their protected works.520 By contrast, the ECHR should find a violation of Article 1 where the state fails to comply with the conditions specified in these statutes, for example by refusing to pay the required compensation or by exceeding the scope of the privilege. had been declared bankrupt. The ECHR held that the enterprise was not a state actor and that, as a result, the patent owner’s inability to execute its judgment against it did not violate Article 1. Id. at 5–6. 513 Cf. Hiro Balani v. Spain, App. No. 18064/91, 19 Eur. H.R. Rep. 566, 572–73 (1995) (finding a violation of the right to a fair hearing where the Supreme Court failed to consider a trademark owner’s argument that its mark had priority over the trade name of a competitor that had successfully applied to cancel the mark). 514 See Stele v. Slovenia, App. No. 6549/02, 2 (2006) (friendly settlement) (approving the settlement of a complaint alleging a violation of Article 1 in which a domestic court had not acted on a patent owner’s infringement action for nearly 11 years). 515 See, e.g., Capital Bank AD v. Bulgaria, App. No. 49429/99, 44 Eur. H.R. Rep 952 [48], 984 (2007) (stating that although Article 1 “contains no explicit procedural requirements,” its provisions nevertheless imply that “any interference with the peaceful enjoyment of possessions must be accompanied by procedural guarantees affording to the individual or entity concerned a reasonable opportunity of presenting their case to the responsible authorities for the purpose of effectively challenging the measures interfering with the rights guaranteed by this provision.”). 516 Mark A. Lemley & Carl Shapiro, Probabilistic Patents, 19 J. Econ. Perspectives. 75, 76 (2005). 517 Id. at 75. 518 For summaries of such government use exemptions relating to copyright, see, for example, 2 Melville B. Nimmer & Paul E. Geller, International Copyright Law and Practice, GER § 8(2)(d)(iii) (2005) (Germany); id. ITA § 8(2)(b)(iii) (Italy); id. POL § 8(2)(c) (Poland); id. SWE § 8(2)(d)(iii) (Sweden); id. UK § 8(2)(c) (United Kingdom). For an analysis of foreign statutes authorizing government use of patented inventions, see LiLan Ren, Note, A Comparison of 28 U.S.C. § 1498(a) and Foreign Statutes and an Analysis of § 1498(a)’s Compliance with TRIPS, 41 Hous. L. Rev. 1659, 1664–69 (2005). 519 See Ren, supra note 518, at 1666, 1669 (reviewing European laws that provide for government use of patented inventions for purposes of, inter alia, national defense and producing or supplying drugs and medications). 520 Cf. De Graffenried v. United States, 29 Fed. Cl. 384, 387 (1993) (stating that a patent owner’s rights “do not include the right to exclude the government from using his or her patented invention” because “the statutory framework that defines a patent owner’s rights gives the government the authority to use all patented inventions.”)
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In summary, the rule of law paradigm as described above has several virtues. It enables the ECHR to police arbitrary excesses of state power and unambiguous violations of national law without interfering with domestic intellectual property systems. Application of the Court’s authority in such cases is fully consistent with the objectives of the European Convention and the shared intent of Article 1’s drafters. The disputes thus merit a place on the Court’s overloaded docket, whether the complaints are filed by individuals or by corporations. In addition, any violations that the ECHR finds in such cases would not exacerbate human rights concerns with capacious intellectual property protection standards. On the contrary, states would be free to either expand or reduce such standards without fear of violating Article 1, provided that the government did not itself infringe protected works and provided that the laws were precise, accessible, and foreseeable. B. THE ENFORCEMENT PARADIGM
There is solid support for the rule of law paradigm in recent ECHR jurisprudence. But the cases also contain a broader vision for the Court’s adjudication of intellectual property disputes. Embedded in the Grand Chamber’s Anheuser-Busch ruling are the seeds of an enforcement paradigm, in which the ECHR interprets Article 1 to require states to provide statutory, administrative, and judicial mechanisms that allow intellectual property owners to prevent private parties from infringing their protected works. Whereas the rule of law paradigm targets arbitrary government interferences with possessions, the enforcement paradigm emphasizes the state’s “positive obligations” to protect private property.521 Positive obligations require public authorities to take affirmative steps to ensure that rights holders can effectively exercise their rights. It is the state’s wrongful omission, not its wrongful action, that triggers its responsibility under international law.522 As applied to Article 1, positive obligations include “provid[ing] a legal system so that property rights can be enforced.”523 For example, the Court has required states to provide police assistance to landlords seeking to recover possession of leasehold property after the termination of a tenancy.524 States must also “afford judicial procedures that offer the necessary procedural guarantees and therefore enable . . . domestic courts and tribunals to adjudicate effectively and fairly any [property] disputes between private persons.”525 The Grand Chamber in Anheuser-Busch quoted this language almost verbatim, although it did not acknowledge that it was implicitly referencing the Court’s positive obligations case law.526 The ECHR’s application of positive obligations to private intellectual property disputes is likely to generate a fresh set of complaints by rights holders challenging the adequacy of domestic enforcement procedures. These complaints will require the Court 521 See Sovtransavto Holding v. Ukraine, App. No. 48553/99, 38 Eur. H.R. Rep. 911 [44], 938 (2004); see also Broniowski v. Poland, 2004-V Eur. Ct. H.R. 1, 56 (Grand Chamber). 522 See Mowbray, supra note 356. See also Clare Ovey & Robin White, Jacobs and White, The European Convention on Human Rights 51–52 (4th ed. 2006). 523 Çoban, supra note 358, at 164. 524 See Immobiliare Saffi v. Italy, 1999-V Eur. Ct. H.R. 73, 90-92 (Grand Chamber). 525 Sovtransavto Holding, 38 Eur. H.R. Rep. at 916 (“positive obligations may entail certain measures necessary to protect the right of property . . . even in cases involving litigation between individuals or companies”) (citation omitted). 526 See Anheuser-Busch Inc. v. Portugal, App. No. 73049/01, 45 Eur. H.R. Rep. 830 [36], 851 (Grand Chamber 2007) (“[T]he State is under an obligation to afford the parties to the dispute judicial procedures which offer the necessary procedural guarantees and therefore enable the domestic courts and tribunals to adjudicate effectively and fairly in the light of the applicable law.”).
462 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y to articulate with greater precision which mechanisms states must provide to enable rights holders to prevent and punish infringements by third parties. In determining Article 1’s implicit affirmative requirements, the ECHR may draw inspiration from the domestic enforcement provisions of the TRIPs Agreement.527 TRIPs requires countries to establish “fair and equitable” procedures that “permit effective action against any act of infringement of intellectual property rights,” including procedures to prevent and deter infringements.528 The treaty also contains detailed rules for civil and administrative remedies, provisional measures, border enforcement, and criminal penalties.529 Tempering these obligations, TRIPs acknowledges that intellectual property enforcement measures may vary from country to country depending upon the resources available for law enforcement in general.530 Several factors suggest that the ECHR may refer to TRIPs when defining the positive obligation to protect intellectual property. First, TRIPs binds thirty-seven of the fortyseven European Convention members.531 The Court has held that the Convention “must be applied in accordance with the principles of international law,” including treaties to which the respondent state is a party.532 For these thirty-seven countries, consulting TRIPs to interpret Article 1 would help to harmonize the states’ treaty obligations.533 Second, the ECHR has held that the Convention must be interpreted in light of regional and international trends in law and social policy.534 Thus, even for countries that are not WTO members, the ECHR may consult TRIPs to elucidate the domestic enforcement mechanisms that Article 1 requires. To be sure, the Court is unlikely to incorporate every nuance of TRIPs into Article 1, especially in cases involving countries that are not WTO members. Rather, the ECHR would use the treaty as a rough benchmark to aid it in fashioning minimum enforcement standards that respect “the fair balance that has to be struck between the general interest 527 As a formal matter, TRIPs protects only foreign intellectual property owners, whereas Article 1 protects the owners of all possessions regardless of nationality. As a political and practical matter, however, states rarely protect foreigner intellectual property owners without extending equivalent protections to domestic creators, innovators, and businesses. See Helfer, Adjudicating Copyright Claims, supra note 1, at 367 & n.38. As a result, the formal differences in scope between the two treaties are unlikely to deter the ECHR from consulting TRIPs when fashioning Article 1 positive obligations. 528 TRIPs, supra note 420, arts. 41(2), 41(1). 529 Id. arts. 42–51, 61. These provisions have resulted in substantial changes to domestic enforcement procedures in many countries. See J.H. Reichman, Enforcing the Enforcement Procedures of the TRIPS Agreement, 37 Va. J. Int’l L. 335 (1997). 530 Id. art. 41.5. For a detailed analysis of how WTO dispute settlement panels might draw on ECHR jurisprudence to interpret TRIPs’ enforcement obligations, see Helfer, Adjudicating Copyright Claims, supra note 333, at 416–20. 531 See Understanding the WTO: The Organization — Members and Observers, http://www.wto.org/english/ thewto_e/whatis_e/tif_e/org6_e.htm (last visited Oct. 15, 2007); Member States of the Convention for the Protection of Human Rights and Fundamental Freedoms, available at http://conventions.coe.int/Treaty/ Commun/ChercheSig.asp?NT= 005&CM=8&DF=2/23/2007&CL=ENG (last visited October 13, 2007). The ten European Convention members who have not yet ratified the WTO Agreement are Andorra, Azerbaijan, Bosnia and Herzegovina, Montenegro, the Russian Federation, San Marino, Serbia, Slovakia, the Former Yugoslav Republic of Macedonia, and the Ukraine. Id. 532 Guichard v. France, 2003-X Eur. Ct. H.R. 419, 431 (admissibility decision). See also Paradis v. Germany, App. No. 4783/03 (2003) (admissibility decision). 533 The case for using TRIPs as a benchmark is strengthened by the fact that both treaties require the rights they protect to be practical and effective. Compare TRIPs, supra note 420, art. 41(1) (TRIPs enforcement provisions aim “to permit effective action against any act of infringement of intellectual property rights”), with Artico v. Italy, 37 Eur. Ct. H.R. (ser. A) ¶ 33 (1981) (“the Convention is intended to guarantee . . . rights that are practical and effective”). 534 See Alastair Mowbray, The Creativity of the European Court of Human Rights, 5 Hum. Rts. L. Rev. 57, 60–71 (2005).
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of the community and the interests of the individual” and that do not “impose an impossible or disproportionate burden on the authorities.”535 Aware of the helpful analogies that TRIPs provides, rights holders are likely to invoke the treaty in three types of Article 1 enforcement cases. First, even where a domestic legal system in the aggregate satisfies the Convention’s rule of law requirements, rights holders may contest the remedies awarded in individual infringement proceedings. These challenges are unlikely to succeed. Disputes over issues such as the amount of damages, the denial of injunctive relief, or the failure to impound infringing articles are precisely the sort of case-specific applications of domestic law with which the ECHR rarely finds fault.536 In addition, nothing in TRIPs limits the discretion of national courts to tailor remedies to the facts and circumstances of individual disputes.537 Only in extraordinary cases, such as where national courts refuse to award a remedy mandated by domestic law, might the ECHR plausibly intervene. A second category of cases concerns a state’s failure to provide one of the enforcement measures that TRIPs requires.538 In the late 1990s, for example, the United States successfully challenged the lack of ex parte civil remedies in Denmark and Sweden.539 Most European countries now authorize ex parte orders.540 Some intellectual property owners claim, however, that the procedures for obtaining these orders are “unnecessarily complicated” and “costly” in some jurisdictions. These claims could be refashioned as arguments that the states concerned have failed to provide the effective enforcement measures required by Article 1. The third and most serious non-enforcement claim concerns the wholesale failure to prevent private infringements of intellectual property. Cases of this nature target pervasive, systemic defects in civil, administrative, or criminal procedures which prevent intellectual property owners from enforcing their rights. Such system-wide enforcement deficiencies exist principally (although by no means exclusively) in Eastern Europe.541 Piracy and counterfeiting in the Ukraine, Russia, and Turkey are especially flagrant.542 535
Özgür Gündem v. Turkey, 2000-III Eur. Ct. H.R. 1, 21. See supra Part III.B.2.b. 537 Cf. eBay, Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006) (emphasizing the discretionary nature of injunctive relief in patent infringement cases). 538 See Int’l Intellectual Prop. Alliance, Copyright Enforcement Under the TRIPS Agreement 5 (2004) (summarizing in chart form the TRIPs deficiencies found in national copyright laws and enforcement practices), available at http://www.iipa.com/rbi/2004_ Oct19_TRIPS.pdf. 539 See Notification of Mutually Agreed Solution, Denmark — Measures Affecting the Enforcement of Intellectual Property Rights, WT/DS83/2 (June 13, 2001); Notification of Mutually Agreed Solution, Sweden — Measures Affecting the Enforcement of Intellectual Property Rights, WT/DS86/2 (Dec. 11, 1998). 540 Int’l Intell. Prop. Alliance, supra note 538, at 3. 541 See Ed Bates, Supervision of the Execution of Judgments Delivered by the European Court of Human Rights: The Challenges Facing the Committee of Ministers in European Court of Human Rights: Remedies and Execution of Judgments 49, 84–96 (Theodora Christou & Juan Pablo Raymond, eds. 2005) [hereinafter ECHR Remedies] (describing systemic and structural problems, including lack of resources, infrastructure, and slow or corrupt domestic judicial processes, leading to widespread violations of the European Convention in Turkey and in several Eastern European countries). 542 According to a recent report, the deficiencies include the “lack of an effective and deterrent criminal enforcement system . . . , the lack of effective plant inspection [for optical media production and distribution…]; the lack of civil ex parte search procedures; an extremely porous border; delays in criminal prosecutions and adjudications; and infrequent destruction of seized pirate goods.” U.S. Trade Representative, Special 301 Report at 32 (2005), available at http://www.ustr.gov/assets/Document_Library/Reports_Publications/2005/ 2005_Special_301/asset_upload_file195_7636.pdf; see also id. at 24 (highlighting the need for Ukraine to “deter[] optical media piracy through adequate enforcement”); id. at 33 (highlighting “concerns over patent protection, copyright piracy, trademark counterfeiting, and IPR enforcement problems” in Turkey). Not coincidentally, both Russia and Ukraine have yet to be admitted to the WTO, in part because of their poor record of enforcing intel536
464 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y The ECHR recently established a “pilot judgment procedure” that is well suited to redressing widespread piracy of intellectual property rights. Under this new class action mechanism, the Court adjudicates a single case that represents a large number of similar human rights claims, and it uses the case to develop systemic reforms for the entire class. The ECHR first applied the procedure in a 2004 decision affecting nearly 80,000 real property claimants in Poland.543 It later approved a settlement of the dispute, but only after the state had enacted legislation to prevent future Article 1 violations and provide remedies to all affected property owners.544 The case publicized the Court’s determination to scrutinize systemic problems that affect large numbers of similarly-situated property owners.545 Intellectual property rights holders could invoke the pilot judgment procedure if they are unable, after reasonable diligence, to protect their works within the respondent state’s territory. If rights holders prove that piracy in the jurisdiction is pervasive, the ECHR could require the government to adopt system-wide reforms. Depending on the nature and scope of the violations, such measures could include enacting domestic legislation, streamlining judicial procedures or allocating additional resources to criminal or administrative enforcement actions. Here too the ECHR may turn to the TRIPs enforcement provisions for guidance in fashioning appropriate systemic remedies, although the Court should also be mindful of the statement that nothing in the agreement “creates any obligation with respect to the distribution of resources as between enforcement of intellectual property rights and the enforcement of law in general.”546 Should the ECHR endorse the enforcement paradigm described above? The arguments in favor of its doing so are equivocal. On the one hand, once a government has recognized exclusive rights in knowledge goods, the owners of Article 1 possessions can reasonably expect the state to provide them with the means to prevent and punish infringements by third parties. This expectation is bolstered where the state is a WTO member and has accepted the obligation to conform its domestic laws to TRIPs. In addition, once a state has incorporated intellectual property enforcement mechanisms into its domestic legal system, rights holders can reasonably expect it to devote sufficient resources to make those mechanisms practical and effective. Yet the enforcement paradigm also raises troubling issues. The first relates to the different judicial access rules of the WTO and the ECHR. In the WTO dispute settlement system, only states can file complaints alleging violations of TRIPs. This limitation on WTO standing acts as a key political filter that limits the number and type of TRIPs controversies547 and colors how disputes are resolved.548 lectual property rights. See Gary G. Yerkey, Russia Needs to Do ‘Much More’ Before U.S. Will Sign Off on WTO Accession Agreement, 6 WTO Rep. (BNA) No. 184 (Sept. 22, 2006). 543 Broniowski v. Poland, 2004-V Eur. Ct. H.R. 1, 76 (Grand Chamber). The Article 1 violations in this case concerned the state’s failure to meet its positive obligations and its interference with property rights. Id. at 57. 544 Broniowski v. Poland, App. No. 31443/96, 43 Eur. H.R. Rep. 1, 19-20 (Grand Chamber 2005) (friendly settlement). 545 See Philip Leach, Beyond the Bug River — A New Dawn for Redress Before the European Court of Human Rights, 10 Eur. Hum. Rts. L. Rev. 148 (2005). The Court has since issued a pilot judgment involving an even larger number of property claimants. See Hutten-Czapska v. Poland, App. No. 35014/97, 42 Eur. H.R. Rep. 330 (2006) (holding that domestic legislation which prevented 100,000 landlords from raising rents to cover property maintenance for between 600,000 and 900,000 tenants violated Article 1). 546 TRIPs, supra note 420, art. 41.5. 547 See Alan O. Sykes, Public Versus Private Enforcement of International Economic Law: Standing and Remedy, 34 J. Legal Stud. 631 (2005) (analyzing “political filters” that allow states to limit WTO litigation to disputes that produce joint welfare gains). In the intellectual property context, governments litigate only a subset of TRIPs disputes that rights holders bring to their attention. In some cases, a state may decline to file a complaint
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The enforcement paradigm bypasses this political filter by allowing private parties to litigate breaches of TRIPs’ enforcement provisions in the guise of violations of Article 1’s positive obligations. As the years of ceaseless judicial battles between Anheuser-Busch and Budìjovický Budvar illustrate, many businesses have the incentive and the means to litigate in every available forum. The ECHR’s adoption of the enforcement paradigm would thus presage an increase in litigation of intellectual property enforcement disputes framed as human rights complaints, including cases that, under the current system, would not have been litigated or would have been resolved through politically palatable settlements. It is highly questionable whether these cases warrant a place on the Court’s already overcrowded docket. A second concern that the enforcement paradigm raises relates to the dissimilar remedies that the WTO and the ECHR award. Although both tribunals recommend responses for states that have violated their treaty commitments, the ECHR’s remedial powers are more expansive. Its recent judgments have included recommendations to reopen closed court proceedings, revise domestic statutes, and award restitution in kind.549 In addition, the ECHR awards “just satisfaction” to “injured parties.”550 Damage awards are usually less than 10,000 euros, and the Court has discretion to award no monetary relief. In property rights cases, however, pecuniary damage awards “can assume gigantic proportions,” the largest on record being nearly $31 million.551 Governments have promptly paid these sums in all but a handful of cases.552 The ECHR’s award of these remedies when states violate Article 1’s positive obligations could impose significant constraints on national legal systems. If countries do not adopt the remedies that the Court recommends, injured rights holders could file complaints with the Court seeking compensation. In addition, under the new pilot judgment procedure described above, the ECHR could recommend systemic reforms benefiting all similarly-situated rights holders. In counterfeiting and piracy cases, for example, the Court may award large monetary awards to an entire class of intellectual
because it fears a WTO countersuit. In others, it may refuse to do so because the probability of success is low or because victory will only marginally benefit domestic industries. In still others, geostrategic factors unrelated to trade or intellectual property may lead governments to refrain from litigating. In each instance, the “decision whether to challenge a practice of a member may be made only by another member government, not by the private party who is directly aggrieved by that practice.” Judith H. Bello, Some Practical Observations About WTO Settlement of Intellectual Property Disputes, 37 Va. J. Int’l L. 357, 358 (1997). 548 When governments do file TRIPs complaints, they often prefer politically palatable settlements or an ambiguous panel decisions to a definitive WTO Appellate Body ruling. Such compromises allow both sides to claim victory and resolve the litigation in ways that both states are willing to accept. See Notification of a Mutually Satisfactory Temporary Arrangement, United States – Section 110(5) of the US Copyright Act, WT/DS160/23 (June 26, 2003) (notifying WTO of lump-sum payment by United States to the EC to settle TRIPs copyright dispute in which the EC prevailed); see also Eva Gutierrez, Geographical Indicators: A Unique European Perspective on Intellectual Property, 29 Hastings Int’l & Comp. L. Rev. 29, 48–49 (2005) (stating that both the United States and EC claimed victory and did not appeal a WTO panel deision partially invalidating EC protection of GIs). 549 See Leach, supra note 545, at 149–51 (describing evolution of ECHR’s approach to remedies). 550 European Convention, supra note 334, art. 41. 551 Marius Emberland, Compensating Companies for Non-Pecuniary Damage: Comingersoll S.A. v. Portugal and the Ambivalent Expansion of the ECHR Scope, 74 Brit. Y.B. Int’l L. 409, 412 (2003); see also Çoban, supra note 26, at 228. In addition, the ECHR has “awarded monetary compensation for moral injury in almost all of the property cases where it found [a] violation of ” Article 1. Id. at 230. Moral damage suffered by corporations includes harm to business reputation, uncertainty in future planning, disruption in management, and inconvenience to directors and officers. Emberland, supra note 355, at 132. 552 Bates, supra note 541, at 74 (“in the vast majority of instances settlement is made, at the latest, within six months of the date due for payment expired”).
466 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y property owners if states do not improve domestic judicial procedures.553 These concerns suggest, on balance, that the ECHR should avoid interpreting Article 1 to provide an alternative mechanism for private parties to challenge noncompliance with TRIPs’ enforcement provisions. C. THE INTELLECTUAL PROPERTY BALANCING PARADIGM
If the merits of the enforcement paradigm are at best ambiguous, the Court’s adoption of an intellectual property balancing paradigm would have indisputably negative consequences for innovation and creativity law and policy. Such deleterious effects would result from the ECHR’s inevitably ad hoc interventions at the upper and lower boundaries of intellectual property protection standards. Under the balancing paradigm, the ECHR would interpret the European Convention to impose both a floor and a ceiling on domestic intellectual property rights. The Court would police the lower limits of protection by reviewing whether the government’s diminution of exclusive rights or expansion of exceptions and limitations satisfies Article 1’s fair and proportional balance standard.554 And it would police the upper boundary by assessing whether expansions of exclusive rights or restrictions on exceptions and limitations violate other European Convention provisions, such as freedom of expression and the right of privacy.555 The intellectual property balancing paradigm finds some support in recent European human rights jurisprudence. With respect to Article 1, the Court in both Anheuser-Busch and Dima suggested that retroactive laws that deprive intellectual property owners of an existing asset may violate Article 1. This concern extends not only to interactions between the state and rights holders, but also to disputes between private parties.556 With respect to other human rights, the ECHR recently decided a string of cases challenging the Austrian Copyright Act’s ban on public dissemination of “portraits of persons” that cause injury to “the legitimate interests of the persons portrayed.”557 In each case, the Court held that injunctions prohibiting newspapers from publishing photographs of politicians or individuals involved in matters of public interest violated the right to freedom of expression.558 In reaching this result, the ECHR stated that freedom of expression “protects not only the substance of ideas and information but also the form in which they are conveyed.”559 The Court also conducted a detailed and fact-intensive
553 See Hutten-Czapska v. Poland, App. No. 35014/97, 42 Eur. H.R. Rep. 52[4], 139 (Grand Chamber 2007) (partly concurring and partly dissenting opinion of Judge Zupanèiè) (stating that judgment finding a violation of Article 1 in a pilot judgment case “bind[s] the state to indemnify all” similarly situated rights holders). 554 See supra Part II.D. 555 European Convention, supra note 334, art. 10(1) (“Everyone has the right to freedom of expression. This right shall include freedom to . . . receive and impart information and ideas without interference by public authority and regardless of frontiers.”); id. art. 8(1) (“Everyone has the right to respect for his private and family life, his home and his correspondence.”). 556 See Anheuser-Busch v. Portugal, App. No. 73049/01, 45 Eur. H.R. Rep 830 [36] (Grand Chamber 2007); Dima v. Romania, App. No. 58472/00, 20-21 (2005) (admissibility decision). 557 Urheberrechtgesetz — UrhG. Bundesgesetz über das Urheberrecht an Werken der Literatur und der Kunst und über verwandte Schutzrechte. [UrhG] [Federal Law on Copyright in Works of Literature and Art and on Related Rights] [BGBI] No. 111/1936, § 78 ¶ 1 (Austria). (“Portraits of persons may not be exhibited or otherwise distributed in a manner which would make them available to the public if legitimate interests of the person portrayed, or, should he have died without authorizing or ordering the publication of the portrait, of a close relative would be prejudiced.”). 558 See, e.g., Österreichischer Rundfunk v. Austria, App. No. 35841/02 (2006); Verlagsgruppe News Gmbh v. Austria (No. 2), App. No. 10520/02 (2006); Krone Verlags GmbH & Co. KG v. Austria, App. No. 34315/96, 36 Eur. H.R. Rep. 1059 [57] (2003); News Verlags GmbH & Co. KG v. Austria, 2000-I Eur. Ct. H.R. 157. 559 Verlagsgruppe News Gmbh, App. No. 10520/02, ¶ 29 (citing additional cases).
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balancing analysis, weighing the interests of the individuals whose images were disseminated against the media’s interest in conveying information to the public.560 Several predictions follow from these two lines of decisions. The first concerns Article 1’s application to retroactive restrictions on property rights. When governments revise intellectual property protection standards, they generally apply the revisions to works already in existence as well as to those yet to be created.561 Where such modifications reduce the level of protection, they may upset rights holders’ reasonable expectations and investments made in reliance on the prior legal regime.562 Although expansions of exclusive rights have receive the lion’s share of attention in recent years,563 contractions are more widespread than is commonly believed. Consider a few examples of diminutions of intellectual property protection standards that apply to preexisting works. Belgium recently introduced a new research exemption and a compulsory license for public health uses of biotechnology patents.564 The United Kingdom eliminated perpetual protection for unpublished copyrighted works in 1989.565 Germany and Belgium amended their copyright statutes to implement a 2001 EC Directive on the harmonization of copyright.566 The new laws authorize users “to demand from the right holder any support required for the exercise of certain legitimate uses. This means that if a technical measure hinders a user in a use permitted by law, the user can ask a judge to enforce his limitation.”567 As applied to preexisting works, each of these statutory revisions interferes with an existing possession and thus raises the retroactivity concerns identified by the Grand Chamber in Anheuser-Busch. If rights holders challenge these laws as violating Article 1, the ECHR would need to address the third and most difficult issue in the tripartite frame560 See News Verlags GmbH, 2000-I Eur. Ct. H.R. at 175-77; Österreichischer Rundfunk, App. No. 35841/02, ¶ 62-73; Verlagsgruppe News Gmbh, App. No. 10520/02, ¶ 34–44. 561 Nothing in Article 1 or ECHR case law prohibits governments from prospectively reducing intellectual property protection standards. In practice, however, states rarely limit the application of revised standards of protection to inventions, creations, and signs that have yet to be created. 562 See Rochelle Cooper Dreyfuss, Patents and Human Rights: Where is the Paradox?, Molengrafica Series, at 9 n.43 (2006) (forthcoming), available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=929498 (arguing against protecting patents as human rights but stating that “there is a grey area where investments made in reliance on a particular scheme of patent protection are frustrated by a change in regime; whether the change amounts to a taking of property is arguably a hard question.”). 563 See id. at 9–12. 564 See Geertruii Van Overwalle, The Implementation of the Biotechnology Directive in Belgium and its After-Effects, 37 Int’l Rev. Intell. Prop. & Comp. L. 889, 905–18 (2006) (describing the scope of the exemption and compulsory license in Belgium). 565 See R. Anthony Reese, The New Property, 85 Tex. L. Rev. 585, 608 (2007). The law provides a 50-year transition period, so that works unpublished in that year date will be protected until the end of 2039. 566 Directive on the Harmonization of Certain Aspects of Copyright and Related Rights in the Information Society, Council Directive 2001/29/EC, pmbl., 2001 O.J. (L 167) 10, 11 (EC). The Act of May 22, 2005 amended Belgium’s copyright legislation to implement the directive. Nimmer & Geller, supra note 518, BEL § 1 (Belgium). The Amendment of Sept. 10, 2003 implemented the directive in Germany. Id. GER § 1 (Germany). 567 Christophe Geiger, Copyright and Free Access to Information: For a Fair Balance of Interests in a Globalised World, 28 Eur. Intell. Prop. Rev. 366, 370 & n.44 (2006). Not all European countries have successfully limited intellectual property protection standards. In France, for example, a draft law implementing the EC Directive initially included a provision requiring Apple Computer to license its FairPlay digital rights management for use in devices that compete with its highly successful iPod. The Constitutional Council declared the provision to violate the right of property in the French Constitution. Crampton, supra note 352, at C9; Charles Jade, Parts of French “iPod Law” Ruled Unconstitutional, ars technica, July 29, 2006, available at http://arstechnica.com/ news.ars/post/20060729-7380.html. French courts are widely known for their strong support for authors’ rights. Hugenholtz, supra note 22, at 357. A similar law in a different jurisdiction might well survive a constitutional challenge, paving the way for rights holders to file a complaint with the ECHR.
468 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y work developed above—whether the laws strike a fair and proportional balance between the rights of intellectual property owners and the broader public interest.568 This inquiry raises questions whose answers have important systemic consequences. For example, what is the relationship between the fair and proportional balance standard and the “three-step test” that TRIPs uses to regulate exceptions and limitations in national copyright, patent, and trademark laws?569 If the Article 1 standard is more lenient than the three-step test, rights holders whose complaints are rejected by the ECHR could petition their governments to challenge the exceptions as a violation of TRIPs, taking what is, in effect, an appeal from the ECHR to the WTO. If the Article 1 standard is more restrictive than the three-step test, rights holders will have an incentive to challenge exceptions and limitations before the ECHR, bypassing the WTO dispute settlement system’s political filters570 and adding more cases to the Court’s docket. Even if Article 1 and the three-step test impose equivalent restrictions, their substantive standards will undoubtedly differ. This will create complexity and uncertainty for both rights holders and users and increase opportunities for protracted, duplicative litigation and forum shopping. These problems will only be compounded if the ECHR establishes an upper human rights boundary on intellectual property protection standards using other individual liberties. Although a detailed treatment of these issues is beyond the scope of this article, recent national court rulings and the writings of commentators suggest the kinds of cases that the ECHR may soon face.571 As one scholar has predicted: [F]reedom of expression arguments are likely to succeed against copyright claims aimed at preventing political discourse, curtailing journalistic or artistic freedoms, suppressing publication of government-produced information or impeding other forms of “public speech.” In practice, this might imply that the [ECHR] would be willing to find violations of Article 10 [protecting the right to freedom of expression] if national courts fail to interpret broadly or “stretch” existing copyright limitations to permit quotation, news reporting, artistic use or re-utilization of government information. The Court might also be willing to find national copyright laws in direct contravention of Article 10 if they fail to provide exceptions for uses such as parody.572 There are several reasons to be concerned about the ECHR imposing upper and lower limits on intellectual property protection standards. First, the rights and freedoms in the European Convention, even when viewed collectively, do not provide a coherent blueprint for the Court to undertake such a sensitive and policy-laden function. Unlike the Universal Declaration of Human Rights573 and the International Covenant on Economic, Social and Cultural Rights,574 the Convention does not contain a single provi568
See supra Part II.D. & III.C. For example, Article 13 of TRIPs confines exceptions and limitations to copyright to “certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder.” TRIPs, supra note 420, art. 13. See also id. art. 17 (trademark); art. 30 (patent). 570 See Sykes, supra note 547 (discussing how the restriction of judicial access to states functions as a political filter on WTO dispute settlement). 571 See Geiger, Constitutionalizing Intellectual Property Law, supra note 347, at 394–96 (discussing court decisions from Austria, the Netherlands, and Germany in which freedom of expression and the public’s right to information prevailed over claims for protection by copyright and trademark owners). 572 Hugenholtz, supra note 354, at 362. 573 Universal Declaration of Human Rights, G.A. Res. 217A (III), at 71, U.N. GAOR, 1st plen. mtg., U.N. Doc. A/810 (Dec. 10, 1948) [hereinafter UDHR]. 574 International Covenant on Economic, Social and Cultural Rights, arts. 15(1)(b) & 15(1)(c), Dec. 16, 1966, 993 U.N.T.S. 3, 9 [hereinafter ICESCR]. 569
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sion that expressly balances the rights of (human) authors and inventors575 against the public’s right to benefit from the scientific and cultural advances that knowledge goods can engender.576 In the absence of such a provision, the ECHR’s interventions at the upper and lower boundaries of protection will inevitably be ad hoc. They also create a risk of both underprotection and overprotection, depending on the vagaries of which cases are filed, in what order, and how the Court extends its jurisprudence over time.577 Second and more fundamentally, the European Convention does not provide a mechanism to address the utilitarian and social welfare arguments that are central to intellectual property law and policy.578 If the ECHR adopts the balancing paradigm, the disputes it reviews will be framed not in utilitarian terms but as clashes pitting one group of rights holders (intellectual property owners) against another (such as consumers or the media). The Court will respond to these competing claims by weighing one right against the other. Much has been written about the problematic nature of constitutional balancing methodologies.579 These concerns are even more compelling when rights claims are infused with the myriad contestations of economic and social policy that intellectual property disputes inevitably engender. A third and final reason to eschew the intellectual property balancing paradigm concerns the multiplier and feedback effects of ECHR rulings. Formally, the Court’s judgments are only binding as a matter of international law and only upon the parties to each dispute.580 But the influence of European human rights jurisprudence is far more sweeping in practice. In some countries, national courts give direct effect to ECHR judgments, a method of compliance that leaves little room for legislative compromises that preserve competing national values.581 In addition, legislators and courts across Europe 575 UDHR, supra note 573, art. 27(2) (“Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he [or she] is the author”); ICESCR, supra note 242, art. 15(1)(c) (recognizing the same right in nearly identical language). 576 ICESCR Article 15 recognizes “the right of everyone” to “enjoy the benefits of scientific progress and its applications,” and obligates states to take steps “necessary for the conservation, the development and the diffusion of science and culture.” ICESCR, supra note 574, arts. 15(1)(b) & 15(2). Similarly, the UDHR protects the right of everyone “freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits.” UDHR, supra note 573, art. 27(1). 577 The above statement does not imply that the authors’ rights provisions of the ICESCR and UDHR provide a fully coherent framework for a human rights-inspired conception of intellectual property. To the contrary, such a framework remains to be specified through, for example, additional general comments of the ICESCR Committee, the decisions of national courts, and the writing of commentators. 578 See Dreyfuss, supra note 562, at 13–18 (critiquing human rights approaches to intellectual property as ignoring utilitarian concerns). But see Geiger, Constitutionalizing Intellectual Property Law, supra note 347, at 388 (arguing that human rights “are effective tools to guarantee a balance development and understanding of IP rights and a remedy for the overprotective tendencies of lobby-driven legislation”). 579 See, e.g., T. Alexander Aleinikoff, Constitutional Law in the Age of Balancing, 96 Yale L.J. 943, 972–83 (1987) (critiquing case-by-case or ad hoc balancing standards in constitutional adjudication). The difficulties with balancing tests include determining which factors a court should weigh against each other and whether those factors can be measured on the same scale. More generally, balancing “expands judicial discretion [and] frees it substantially from the need to justify and persuade. . . . [I]t gives a view of judicial review that is intuitional, if not incomprehensible.” Louis Henkin, Infallibility Under Law: Constitutional Balancing, 78 Colum. L. Rev. 1022, 1047–49 (1978). 580 European Convention, supra note 334, art. 53(1) (“The High Contracting Parties undertake to abide by the final judgment of the Court in a case to which they are parties”). 581 See, e.g., Council of Europe, Committee of Ministers, Interim Resolution DH(2006)27 on Judgments by the European Court of Human Rights, ResDH(2006)27E, (June 7, 2006) (government of Greece stated that “the Convention and the Court’s case law enjoy direct effect in Greek law,” citing a 2005 Court of Cassation decision that “recognised and stressed the supra-statutory force of Article 1 of Protocol No 1 to the Convention”); see also Frank Hoffmeister, Germany: Status of European Convention on Human Rights in Domestic Law, 4 Int’l J. Const. L. 722, 726–28 (2006) (reviewing the legal status of the European Convention in member states).
470 S E S S I ON VI : HU MA N R I GHT S & I N T E L L E CTU A L PR OPE R T Y — including the European Court of Justice582 — consult ECHR case law when drafting or interpreting statutes and constitutions.583 These consultations extend the Court’s influence and further constrain the discretion of domestic decision makers to set national intellectual property policies.584 As a result, even if the ECHR intervenes in intellectual property issues only rarely, its rulings will likely have extensive regional effects. V. CONCLUSION
This article provides the first comprehensive analysis of the intellectual property jurisprudence of the European Court and Commission of Human Rights under the property rights clause of the European Convention on Human Rights. It organizes the tribunals’ decisions interpreting Article 1 of Protocol No. 1 into a tripartite framework that exposes the many points of intersection — and of potential conflict — between human rights and intellectual property. It also provides a vision of how the ECHR’s intellectual property jurisprudence may evolve in the future by developing three paradigms that the Court may follow, each of which has very different consequences for innovation and creativity policies in Europe. The article concludes that the rule of law paradigm, which targets arbitrary government conduct, presents the strongest justification for the ECHR to find in favor of intellectual property owners. Such a minimalist approach serves the core European Convention values of promoting predictability, certainty, and adherence to the rule of law. And it does so without unduly constraining the discretion of national legislators and judges to tailor domestic intellectual property rules to local circumstances. A more equivocal case can be made for the enforcement paradigm, which requires national governments to provide the minimal administrative, judicial, and criminal procedures necessary for intellectual property owners to challenge infringements of their protected works. Finding Article 1 violations where a state fails to adopt such procedures provides an alternative enforcement mechanism for rights holders to prevent widespread intellectual property piracy. But it does so by circumventing the political filter that prevents private parties from litigating intellectual property complaints in the WTO dispute settlement system. The intellectual property balancing paradigm presents the least persuasive case for ECHR intervention. Under this approach, the Court determines the legality of diminutions of intellectual property laws by applying Article 1’s fair and proportional balance standard. It assesses the legality of expansions of intellectual property laws under other European Convention provisions, such as freedom of expression and the right of privacy. Adoption of the balancing paradigm would create several interrelated problems, including greater complexity and uncertainty and increased opportunities for forum shopping. The paradigm would also transform the ECHR into an arbiter of intellectual property law and policy in Europe, a role that the Court is jurisprudentially and institutionally ill-suited to play. 582 See, e.g. Case C-347/03, Regione Autonoma Friuli-Venezia Giulia v. Ministero delle Politiche Agricole e Forestali, 2005 E.C.R. I-3785, ¶ 125 (referencing the “case-law of the European Court of Human Rights” as establishing the standard for assessing whether government controls on the use of property are compatible with European Community law); Case C-479/04, Laserdisken ApS v. Kulturministeriet, 2006 E.C.R. I-08089, ¶ 65 (stating that “intellectual property rights . . . form part of the right to property”). 583 See Tom Barkuysen & Michel L. van Emmerik, A Comparative View on the Execution of Judgments of the European Court of Human Rights 1, 15, 19, in ECHR Remedies, supra note 541. 584 See id. at 12 (describing Dutch legislative proposals that were modified to comply with Article 1 and stating that “in recent years the right to property, contained in Article 1 . . . seems to have been discovered in legal practice” and “is gaining more attention in the legislative process”).
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Finally, this article highlights the broader theoretical and doctrinal controversies over the intersection of human rights, property rights, and intellectual property. The boundaries between these three areas of law are increasingly overlapping, leading to contestations among rights holders, governments, consumers, and non-governmental organizations. These contestations are playing out in multiple venues, including domestic courts, international tribunals, national legislatures, and intergovernmental organizations. As these controversies become more contentious and more pervasive, government officials, scholars, and policymakers in Europe and elsewhere would benefit from the cautionary lessons that the ECHR’s intellectual property jurisprudence offers.
SESSION VII: TRADEMARK PART A: TRADEMARK LAW DEVELOPMENTS IN THE EUROPEAN UNION
SESSION VII: TRADEMARK
Part A: Trademark Law Developments in the European Union
Moderator CLAUS KÖHLER
Jones Day (Munich)
Speakers WILLIAM ROBINSON
DR. GAIL E. EVANS
Freshfields Bruckhaus Deringer (London)
Queen Mary Center for Commercial Law Studies, University of London
PROF. SPYROS MANIATIS
Queen Mary University of London
Panelists PROF. ANNETTE KUR
DAVID LLEWELYN
Max Planck Institute (Munich)
IP Academy, Singapore; White & Case LLP (London)
PROF. SIR HUGH LADDIE
PAUL MAIER
Rouse & Co. International; University College London
President, Boards of Appeal Office for Harmonization in the Internal Market (Alicante)
MR. KÖHLER: Good morning to everybody. I am Claus Kohler of Jones Day, Munich. Our first presentation will be on trademark developments in the European Union. When I prepared for this session, I found out that William Robinson did a perfect selection of cases, of course, on the basis that Picasso v. Picaro1 was discussed last year and Opel 2 will be discussed in detail later. The premium for this perfect selection is that he has three minutes per case.
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Case C-361/04P, Claude Ruiz-Picasso v. OHIM, [2006] E.C.R. I-643. Case C-48/05, Adam Opel AG and Deutscher Verband der Spielwaren-Industrie eV v. Autec AG, Judgment of the Court (First Chamber) of Jan. 25, 2007 available at http://curia.europa.eu/jurisp/cgi-bin/gettext.pl?lang= en&num=79929874C19050048&doc= T&ouvert=T&seance=ARRET) [2007]. 2
474 S E S S I O N V I I : T R A D E M A R K MR. ROBINSON: Good morning, everyone. Let me give you a quick overview of three essential areas I want to cover. Firstly, looking at a quick overview of the cases before the European Court of Justice (ECJ); and, in particular, looking at the statistics, looking at the case flow that the ECJ has had to deal with. Secondly, I will discuss five cases very briefly — as the Chairman said, three minutes each. Then, to conclude, some themes and conclusions about where the case law, to my mind, seems to be going over the last year. The statistics on the screen show the ECJ cases (the completed cases in bold, the line indicating the new cases) and the number of CFI cases (the completed cases in the block and the line indicating the new cases).3 Just a couple of things to flag here.
앫 There has been a general rise since 2001, which is to be expected. 앫 The number of cases has not achieved the predictions that the CFI put out in 1997, which was between 200 and 400 cases a year. 앫 Third, just to pick up on the flow of decisions, in 2006 there were approximately 80,000 applications for Community Trade Marks, of which 68,000 were registered; about 85 percent were registered in Alicante. Of the 68,000, 1,700 went to the Board of Appeal, approximately 2.5 percent; 143 cases went to the CFI, so about 8.5 percent of the Board of Appeal decisions go to the CFI; nineteen cases went to the ECJ, so about 13 percent of the cases from the CFI go up to the ECJ. Now, in real terms, the number of cases going from the CFI to the ECJ is actually a little more than that, given the number of cases that are dismissed by reasoned order. In real terms, about one-third of the substantive decisions of the CFI are being appealed to the ECJ. But when you look at this in absolute terms, taking the 80,000 applications for Community Trade Marks through to the nineteen cases lodged before the ECJ, you are looking at 0.024 percent of cases are getting to the ECJ. I think that shows the scale of the cases that are going through, and I think that is a real testament to Alicante and the Board of Appeal, to ensure that there is this level of appeals. That is not to say that they are not important. Let me go on to the key developments, looking at five cases. I am omitting Opel because Spyros Maniatis will discuss it in more detail later.
Levi Strauss & Co. v. Casucci SpA The first case I wanted to look at is Levi Strauss.4 The Levi Strauss case was an Article 234 reference from the Belgian Cour de Cassation. Levi’s “mouette” was registered in 1980. In 1997 Casucci created jeans with a similar mark on their pockets. Levi brought an application for an injunction and damages. Perhaps to its surprise, both at the first and second instance its application was rejected. The argument that prevailed was that Levi’s mark had become common. The critical issue was: Under Article 5(1) of the Trade Mark Directive,5 at what point in time should the reputation and the distinctiveness of the mark be assessed? Was it in 3 See, William Robinson, Christopher Pickup, Joanna Glenn, Community Trade Mark Jurisprudence of the European Community Courts, 1 January 2006 to 31 March 2007, infra Appendix A. 4 Case C-145/05, Levi Strauss, Inc. v. Casucci SpA, E.C.J. (Third Chamber, 27 Apr. 2006 (AG Ruiz-Jarabo Colomer), 2006 O.J. (C 143) 19, available at http://eur.lex europa.eu/LexUriServ/site/en/oj/2006/c_143/ c_14320060617en00190020.pdf. 5 First Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States
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1997, when Casucci put its alleged infringing mark on the market; or was it later, namely the date at which the court was deciding the case? That was the critical issue that went up to the ECJ: What is the relevant time of assessment of likelihood of confusion? There were two additional questions, which were interesting, on procedural grounds: (1) whether or not a national court should order an injunction as a general rule; and (2) should it order an injunction where the trademark has lost its distinctive character due to an act or omission of the trademark owner? The ECJ was pretty clear and followed Advocate General Ruiz-Jarabo Colomer (and, indeed, followed the decisions of the Benelux court in the Quick case):6 앫 The time for assessment of likelihood of confusion must assess at the time the infringing use began (in this case in 1997); otherwise the infringing user “might take undue advantage of his own unlawful behavior,” essentially taking the benefit of its infringement by in fact creating the common use after that date up until the date of trial. 앫 On the procedural issues, the ECJ showed a real respect for national procedural autonomy — and, no doubt, with its eye also on the Enforcement Directive7 — to say that the national court itself must take appropriate measures to safeguard the trademark owner’s rights. That can include an injuncttion, but it did not prescribe that. Article 5(3) of the Trade Mark Directive sets out that an injunction is one possible remedy but does not prescribe it. 앫 However, the Court did go on in the third question to say that it is not appropriate to order an injunction if (1) the trademark has lost its distinctive character in consequence of acts of inactivity of the trademark owner so that (2) it has become a common name under Article 12(2) and has been revoked. So there is a temporal issue there: provided it has been revoked, you clearly cannot order an injunction. So, in fact, this argument becomes a little bit circular: if it is revoked, you cannot have an injunction; you do not have an infringement.
Dyson Ltd. v. Registrar of Trade Marks The next case is Dyson.8 This case was again an Article 234 reference to the ECJ. Dyson made an application to register the transparent bin on its vacuum cleaners. Interestingly, the mark was said to be “as shown in the representation.” Now, there is no representation in the application, because in fact it evolved into a generic application for transparent bins on vacuum cleaners. So, in fact, it was trying to register as a trademark a generic bin. The application was rejected. Dyson appealed to the High Court. An issue arose about acquired distinctiveness.9 The precise questions on acquired distinctiveness were: relating to trademarks, available at http://europa.eu.int/eur-lex/en/consleg/ pdf/1989/en_1989L0104_do_001.pdf [hereinafter Trade Mark Directive]. 6 Case T-348/02, Quick Restaurants SA v. OHIM, Ct. of First Instance (4th Chamber), 27 Nov. 2003, available at http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&ubmit=Submit&docrequire=alldocs&numaff= &datefs=&datefe=&nomusuel=quick&domaine=& mots=&resmax=100. 7 Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, 2004 O.J. (L 195) 32–36, available at http://europa.eu.int/eur-lex/pri/en/oj/dat/2004/ l_157/l_15720040430en00450086.pdf. 8 Case C-321/03, Dyson Ltd. v. Registrar of Trade Marks, E.C.J. 25 Jan. 2007 (AG Léger). 9 Trade Mark Directive, Art. 3(3).
476 S E S S I O N V I I : T R A D E M A R K 앫 Where a sign (which is not a shape) (1) consists of a feature which has a function and (2) forms part of the appearance of a new kind of product; and the applicant had a de facto monopoly in the product until the date of the application, is it sufficient for acquiring distinctiveness under Article 3(3) that a significant proportion of the relevant public have come to associate the relevant products with the applicant and no other manufacturer? 앫 If not, what else is needed to satisfy Article 3(3)? 앫 Is it necessary for the applicant to have promoted the sign as a trade mark? But that is not where this case is important. This case is important because the Commission intervened and said that the mark was not a “sign” under Article 2 of the Trade Mark Directive. So, even though the questions were posed on the basis of acquired distinctiveness, the Commission said you have to answer the prior question about Article 2. Dyson and the U.K. government said, “Well, hang on a minute. That is not the role of the court in this case. The national court has referred questions on Article 3(3). That is what you should be answering.” The ECJ decided that it should answer the question on the Article 2 basis, not on the Article 3(3) basis. So this comes back to the same sort of scenario as in Arsenal,10 where the Court decided to answer a totally different question to that which was posed. It said that the ECJ had discretion, essentially, to reformulate questions and to take into account issues that were relevant for the national court even though they had not been raised.11 So the Court believed that it was necessary for it to answer this question. In respect of the Article 2 issue, it said that, indeed, the application was not sufficient to be a sign; in other words, it failed the first Libertel criterion, that a proposed mark must be a sign.12 The Advocate General had also gone further, to say that this generic application was not capable of graphical representation. But again, it seems to me that this case is important because it gives a clear indication about how the ECJ has been prepared to step into the details of the case, and in fact come up with new arguments and deal with new issues, even those that have not been referred.
August Storck v. OHIM The third case is Storck.13 There were two cases on appeal from the CFI concerning a 3D representation of a sweet, a confectionary, and a 2D representation of the wrapper of those sweets. The Board of Appeal in Alicante rejected the applications and the CFI did
10 Case 206/01, Reference for a preliminary ruling by the High Court of Justice (England & Wales), Chancery Division, by order of that court of 4 May 2001, in the case of Arsenal Football Club plc against Matthew Reed, 2002 O.J. (C 333) 22; see also Arsenal Football League plc v. Matthew Reed, [2003] E.W.C.A. Civ. 696, May 21, 2003; [2003] E.T.M.R. 73 (CA) (on remand from ECJ), available at http://www.hmcourts-service.gov.uk/ judgmentsfiles/j1751/arsenal_v_reed.htm. 11 Applying Case C-299/99, Koninklijke Philips Electronics NV v. Remington Con-sumer Products Ltd [2002], E.C.R. 2002. 12 Case C-104/01 Libertel Groep v. Benelux Merkenbureau, 2003 E.C.J. 6 May 2003. Advocate General Léger’s opinion is published at [2003] E.T.M.R. (41) 508. 13 Case C/24/05 P, August Storck KG v. OHIM [3D application], E.C.J. (First Chamber), 22 June 2006, available at http://oami.europa.eu/en/mark/aspects/pdf/jj05024. pdf; Case C-25/05 P, August Storck KV v. OHIM, [2D application], E.C.J. (First Chamber), 22 June 2006, 2006 O.J. (C 212) 7, available at http://oami.europa.eu/ en/mark/aspects/pdf/ jj05025.pdf.
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likewise. It went up to the ECJ. Essentially, the questions concerned the relationship between the 2D and 3D representations of the mark. On distinctiveness, the issue was whether or not the CFI had correctly applied the “depart significantly from the norm or customs in the sector” test.14 The ECJ held that the CFI had done that correctly, but it said that the perception of the public could be different when you are looking at a name, a 2D representation, or a 3D representation. So the test is the same, and the correct test was applied, but its method of application could be different depending upon the type of mark in question. So, essentially, the Court is applying the same test but is clearly making it more difficult to apply on distinctiveness grounds for 2D and 3D marks.
Boehringer Ingelheim II I will move quickly on to Boehringer.15 The long-running repackaging saga continues. Everyone will be familiar with the Bristol-Myers Squibb (BMS) criteria.16 This case is on its second reference from the U.K. Court, this time from the Court of Appeal. The ECJ had already given guidance in its reply to the first reference from Mr. Justice Laddie.17 Again, quite a good dialogue going on between the two courts in this respect. It went back to the ECJ with further questions from Lord Justice Jacob, requesting more detail in respect of reboxing, overstickering, and the conesquences of breaching the notice requirement,18 and it asked very detailed questions about the burden of proof and exactly how the court should deal with this. Here are the questions: 앫 On reboxing, it looked at the burden of proof; exactly the requirements of “necessity” (is it just the reboxing or does it go further); what exactly did the BMS fourth 14 See Joined Cases C-456/01P & C-457/01, P. Henkel v. OHIM, [2004] E.C.R. I-5089, ¶ 35; Case C-136/02 P, Mag Instrument v. OHIM, [2004] E.C.R. I-9165, ¶ 30; Case C-173/04 P, Deutsche SiSi-Werte v. OHIM, E.C.J. 12 Jan. 2006, ¶27. 15 Case C-348/04, Boehringer Ingelheim and Others v. Swingward Ltd. and Boehringer Ingelheim and Others v. Dowelhurst Ltd., E.C.J., Apr. 26, 2007 [Boehringer Ingelheim II] (questions referred to the ECJ by the Court of Appeal (England and Wales), seeking further guidance on the effects of the judgment in Case C-143/00 (Feb. 28, 2000)). 16 Joined Cases C-427, 429 & 436/93, Bristol-Myers Squibb v. Paranova AS, July 11, 1996, [1997] 1 C.M.L.R. 1151. The “BMS Conditions” include: (1) necessary in order to market the product; (2) cannot affect the original condition of the product; (3) clearly state name of manufacturer and importer; (4) presentation not liable to damage the reputation of the trademark; (5) importer gives notice and (on demand) a specimen to trademark owner before sale. 17 Following his Feb. 28, 2000 judgment in the Dowelhurst cases, Mr. Justice Laddie referred a number of questions to the ECJ in relation to the “necessity” and “specific subject matter” tests. Case C-143/00, Boehringer Ingelheim v. Swingward and Dowelhurst, [2002] E.C.R. I-3759, 23 Apr. 2002 [Boehringer Ingelheim I] (holding that a parallel importer must fulfill all the BMS conditions even if the repackaging causes no harm to the specific subject matter of a trade mark; and that repackaging is necessary where effective access to the mar-ket is hindered as a result of strong resistance from a significant proportion of consumers to relabeled products). Following the ECJ judgment, the cases went back before Mr. Justice Laddie, who gave his second judgment on 6 Feb. 2003. The parties appealed both the judgments of Mr. Justice Laddie. 18 With its order of 17 June 2004, the Court of Appeal referred questions to the ECJ concerning the following areas of continued uncertainty: (1) where the burden of proof should lie in relation to the BMS conditions; (2) whether the necessity test applies merely to the fact of repackaging or also to the manner of repackaging; (3) whether damage to the reputation of a trade mark encompasses anything, not just defective, poor quality or untidy repackaging or relabeling; (4) whether the BMS conditions apply to a product which has simply been overstickered; (5) whether de-branding or co-branding are to be regarded as damaging; (6) whether failure by the parallel trader to give notice to the trade mark owner per se means that all products subsequently imported are infringing and if so what relief should be available.
478 S E S S I O N V I I : T R A D E M A R K requirement extend to when it looked at defective or poor quality packaging (was it just that or did it go further). 앫 Overstickering: Do the BMS conditions apply? 앫 Notice: What do you do if no notice is given? Running through the opinion of Advocate General Sharpston of April 6, 2006 very quickly, the Advocate General basically said: “Look, you’ve had the principles; now you should get on and apply them. We have to answer these questions because they have been referred. We hope that this is the last time this case comes before the Court. But here are the proposed answers.” The Advocate General was very, very good at trying to balance the previous case law, and in fact has departed from the previous case law in certain respects. 앫 Burden of proof: For the parallel importer, the first, second, third, and fifth BMS conditions; whereas the fourth is for the trademark owner.
Montex Holdings v. Diesel Very, very quickly, a fascinating case, Montex Holdings v. Diesel,19 about whether or not trademark owners can enforce in transit. Answer: No. It does not matter whether the country of origin or the country of importation has got trademark protection. I will leave it there. My time is up. Hopefully we can pick up on some of the themes a bit later. MR. KÖHLER: Thank you, William. Our next speaker is Gail Evans, Queen Mary University of London. Her presentation is on recent developments in the international protection of trade names in the European Union under TRIPs and the European Community law. *
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Recent Developments in the Protection of Trade Names in the European Union Gail E. Evans Reader in International Trade and Intellectual Property Law, Centre for Commercial Law Studies, Queen Mary University of London I. INTRODUCTION The prominence of the corporation within the global information economy is giving renewed emphasis to the international protection of trade names.20 Trade names provide consumers with an efficient means of acquiring information on the reputation of suppliers.21 The more new media facilitate the creation of corporate celebrity, the more 19 Case 281/05, Montex Holdings Ltd. v. Diesel SpA, E.C.J. (Second Chamber), 9 Nov. 2006, judgment available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do? uri=CELEX:62005J0281:EN:HTML. 20 Kerly’s Law of Trademarks observes that most modern authorities on trade names concern the names of limited companies rather than of individuals or of partnerships: David Kitchin et al., Kerly’s Law of Trademarks and Trade Names 15–161 (14th ed., 2005) [hereinafter Kerly’s]. A trade name is defined under the U.S. Lanham Act as “any name used by a person to identify his or her business or vocation.” 15 U.S.C. § 1127 (2007). 21 William M. Landes & Richard A. Posner, The Economic Structure of Intel-lectual Property Law 168 (2003).
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critical the management of the company’s image becomes to building a global brand. Where the company shares the same name as the trademark for the product, the opportunity for creating and sustaining brand loyalty will be commensurately greater. In optimizing their brand equity, companies wish to draw a distinction between a trademark that is used to indicate the source of the product and the asset that constitutes the company name. While the trade name has become an independent and valuable component of brand management, until recently the law has offered only limited means of protection. A trader may be eligible for trademark protection in respect of a variety of trade indicia, including the trade name of the company. In practice, this means that the name of the company is accorded legal protection against infringement on the same principles as trademarks. It therefore becomes necessary to draw a distinction between trademarks owned by a company in respect of goods or services, and the company name, which may or may not function as a trademark. Independently of its distinctiveness as a trademark, if the trade name is found to possess sufficient goodwill, it will be protected by the law of unfair competition and the tort of passing-off. When the WTO Appellate Body22 held that trade names comprised a separate category of intellectual property under the TRIPs Regime,23 the ruling significantly strengthened their recognition and legal effect. First, it promoted their status as a distinct object of intellectual property protection. A trade name with reputation is now an intellectual property right of indefinite duration. As personal property, the trade name may be licensed or assigned. As part of the TRIPs regime, trade names are now subject to the enforcement provisions of the Agreement and to the nondiscriminatory principles of national and most-favored-national treatment.24 This article examines the nature of strengthened international protection for trade names and their interrelationship with registered trademark rights. In the course of the analysis, it is argued that, given the new status of trade names as a distinct category of intellectual property under the TRIPs Agreement, adjudicators need to be all the more discriminating in interpreting the constituent elements of the action for trademark infringement. In elaborating this argument, Part I explains how trade names have become the latest category of intellectual property subject to the TRIPs Agreement and the legal effects of this enhanced status. It also considers how trade name rights may be asserted successfully as an existing prior right in an action for trademark infringement. Part II examines the nature the obligation to protect trade names under the Paris Convention25 and the extent 22 The World Trade Organization (WTO) Appellate Body functions as a quasi-judicial tribunal as constituted by the Dispute Settlement Understanding (DSU). Art. 17 of the DSU provides for the establishment of “a Standing Appellate Body, composed of seven persons, three of whom shall serve on any one case to hear appeals from panel cases.” Text available at http://www.wto.org/english/tratop_e/dispu_e/dsu_e.htm. 23 Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Marrakesh Agreement Establishing the World Trade Organization, signed at Marrakesh (Morocco), April 15, 1994 [hereinafter WTO Agreement], Annex IC, Agreement on Trade-Related Aspects of Intellectual Property Rights [hereinafter TRIPs Agreement or TRIPs], reprinted in The Results of the Uruguay Round of Multilateral Trade Negotiations — The Legal Texts, 1–19, 365–403 (GATT Secretariat, Geneva 1994). The “provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding” apply to consultations and the settlement of disputes under Article 64(1) of that Agreement. 24 National treatment, Art. 3; and most-favored-nation treatment, Art. 4. 25 Paris Convention for the Protection of Industrial Property of 20 March 1883, as last revised at Stockholm on 14 July 1967, (United Nations Treaty Series, Vol. 828, No 11847, at 108) [henceforth “the Paris Convention”]. Art. 1(2) concerning the scope of industrial property provides: “The protection of industrial property has as its object . . . trademarks, service marks, trade names, indications of source or appellations of origin, and the repression of unfair competition.”
480 S E S S I O N V I I : T R A D E M A R K to which it is satisfied by means of unfair competition law and the tort of passing off. Part III considers the extent to which the trademark proprietor can prevent third party use of an identical trade name. It analyzes the role of “trademark use” as defined by the European Court of Justice (ECJ),26 in calibrating the limits of trademark rights. Part IV examines the circumstances under which the trade name owner may affirm the right to use his own name as a defense to an action for trademark infringement. Part V evaluates the impact of the principle of the free movement of goods, as found in the TRIPs Agreement and the European Trademark Directive,27 on the scope of rights allowed trademarks and trade names independently. In view of the overlapping nature of the rights in play, the author advises a cautious approach to the adjudication of conflicting trademarks and trade names to include a more exhaustive analysis of the defendant’s honest commercial practice in adopting the trade name and the likely impact of the defendant’s use on the trademark at issue. II. TRADE NAMES AS A CATEGORY OF INTELLECTUAL PROPERTY SUBJECT TO THE TRIPs AGREEMENT A well-placed submission of the European Communities (EC) to the WTO Appellate Body in the case of the HAVANA CLUB trademark28 saw the status of trade names improve markedly, to the extent that the Appellate Body saw fit to declare trade names a distinct category of international intellectual property under the TRIPs Agreement. In the Havana Club case the EC argued that trade names comprise a category of intellectual property that should be protected under the provisions of the TRIPs Agreement. As trade names are not expressly protected in the TRIPs Agreement, this raised the question as to whether they are protected by means of the incorporation of Article 8 of the Paris Convention. The Parties agreed that the TRIPs Agreement incorporates an obligation to protect trade names in accordance with the Paris Convention but they disagreed as the legal effects of that incorporation. In the first instance, the submission of the European Communities was declined. The Panel29 interpreted the term “intellectual property” as it is found in the TRIPs Agreement to refer exclusively to the categories of intellectual property that are the express subject of Sections 1 through 7 of Part II as if that phrase read “intellectual property means those categories of intellectual property appearing in the titles of Sections 1 through 7 of Part
26 The ECJ is established pursuant to the Treaty Establishing the European Community Section 4, Articles 220–45. Consolidated Version of The Treaty Establishing The European Community, 2002 O.J. (C 325) 1, available at http://europa.eu.int/eur-lex/en/treaties/dat/ EC_consol.html. 27 First Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States relating to trademarks, available at http://europa.eu.int/eur-lex/en/consleg/pdf/1989/en_1989L0104_do_001.pdf [hereinafter Trademark Directive]. 28 The U.S. law at issue in the case, § 211 of the Omnibus Appropriations Act of 1998, applies to a defined category of trademarks, trade names, and commercial names, specifically to those trademarks, trade names, and commercial names that are the same as or substantially similar to a mark, trade name, or commercial name that was used in connection with a business or assets that were confiscated by the Cuban Government on or after Jan. 1,1959. The effect of § 211 and the Cuban Assets Control Regulations (CACR) is to render “inapplicable to a defined category of trademark and trade names certain aspects of trademark and trade name protection that are otherwise guaranteed in the trademark and trade name law of the United States,” under both the U.S. Trademark Act (the Lanham Act) and common law. 29 Concerning WTO Panels, see, Understanding on Rules and Procedures Governing the Settlement of Disputes, Annex 2 of the WTO Agreement, in particular, Art. 6 concerning the “Establishment of Panels,” Art. 7 concerning the “Terms of Reference of Panels,” and Art. 8 concerning the “Composition of Panels.” Text available at http://www.wto.org/ english/tratop_e/dispu_e/dsu_e.htm. The Appellate Body reversed of the Panel’s opinion.
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II.”30 Drawing upon the purposive approach to treaty interpretation, the Appellate Body found that the Panel’s interpretation ignored the plain meaning of Article 1.2, in so far as it failed to take into account that the phrase “the subject of Sections 1 through 7 of Part II” of the Agreement deals not only with the categories of intellectual property indicated in each section title, but with other subjects as well.31 In order to justify the notion of including “other subjects of intellectual property” the Appellate Body found evidence of the potential breadth of intellectual property rights in the TRIPs Agreement. Drawing widely, it found evidence in a reference to sui generis protection for plant inventions in Article 27(3)(b). In a second, more oblique purposive reference, the Appellate Body invoked the redundancy rule to argue consequentially that, to adopt the Panel’s approach would be to deprive Article 8 of the Paris Convention (1967), as incorporated in TRIPs Article 2.1, of meaning and effect.32 When it reversed the Panel’s decision regarding the incorporation of trade names as a category of intellectual property, the Appellate Body did so on the basis that the Panel’s interpretation of the Agreement was contrary to the plain meaning of the words and was, therefore, not in accordance with the customary rules of interpretation prescribed in Article 31 of the Vienna Convention on the Law of Treaties.33 Thus, employing the plain meaning rule, the Appellate Body simply declared that it did “not believe” that the Panel’s interpretation of Article 1.2 [could] be reconciled with the plain words of Article 2.1 since that Article “explicitly incorporates Article 8 of the Paris Convention (1967) into the TRIPs Agreement.” The Appellate Body paired the plain meaning rule with the redundancy rule to create the inference that the meaning was fixed once and for all at the moment lawmakers drafted the treaty. It therefore reasoned: If the intention of the negotiators had been to exclude trade names from protection, there would have been no purpose whatsoever in including Article 8 in the list of Paris Convention (1967) provisions that were specifically incorporated into the TRIPs Agreement. To adopt the Panel’s approach would be to deprive Article 8 of the Paris Convention (1967), as incorporated into the TRIPs Agreement by virtue of Article 2.1 of that Agreement, of any and all meaning and effect. For the purposes of Article 32 of the Vienna Convention,34 it found that the negotiating history of the Agreement did not confirm the Panel’s interpretation of Articles 1.2 and 2.1. The rejection is based on a lack of specific reference in the records as to the inclusion of trade names in the TRIPs Agreement. On this basis the Appellate Body concluded
30 United States—Section 211 Omnibus Appropriations Act of 1998 (Havana Club), Report of the Appellate Body, WT/DS176/AB/R (WTO 2002), ¶ 334. 31 Id. ¶ 335. 32 Art. 2(1) of the TRIPs Agreement provides: “In respect of Parts II, III and IV of this Agreement, Members shall comply with Articles 1 through 12, and Article 19, of the Paris Convention (1967).” 33 The Convention entered into force 27 Jan. 27, 1980, in accordance with Art. 84(1). United Nations, Treaty Series, vol. 1155, at 331, available at http://fletcher. tufts.edu/multi/texts/BH538.txt. Pursuant to Art. 64 of TRIPs, adjudicators must interpret that Agreement in accordance with the Vienna Convention on the Law of Treaties 1969. WTO adjudicators therefore adopt a textualist approach in accordance with Art. 31 of the Vienna Convention, that a treaty must be interpreted in “good faith in light of (i) the ordinary meaning of its terms, (ii) the context and (iii) its objects and purpose.” This assumes that a good part of the time such meaning is plain, clear or unambiguous. The plain meaning rule presumes that lawmakers do not insert unnecessary, redundant language in their treaties. Likewise, see Art. 3.2 of the WTO Dispute Settlement Understanding. 34 Art. 32 of the Vienna Convention (Note 53), permits recourse “to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of Article 31.”
482 S E S S I O N V I I : T R A D E M A R K that trade names constitute a category of intellectual property for the purposes of the TRIPs Agreement.35 A. IMPLICATIONS OF APPLYING THE TRIPS ENFORCEMENT REGIME TO TRADE NAMES
The decision of the Appellate Body has the advantage that it defines with greater clarity the obligations of the TRIPs Agreement applicable to trade names. Undoubtedly, the most significant effect is that, like trademarks, trade names are now subject to the obligation in Article 41.1 requiring WTO Members “shall ensure that enforcement procedures as specified . . . are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement.”36 In so far as the trade name is protected as a registered trademark it will be subject to civil as well as criminal sanctions in cases of willful trademark counterfeiting on a commercial scale. In so far as the trade name is subject to protection under Article 10bis of the Paris Convention as incorporated, the decision strengthens the obligation to make available injunctions to prevent further breaches, and orders to pay financial compensation. Since the majority of successful actions for unfair competition and passing-off are disposed of upon an application for interim injunction, the provision of Article 44, requiring “judicial authorities shall have the authority to order a party to desist from an infringement,” will strengthen protection. However, absent further harmonization, the substantive law still shows a marked disparity in the level of protection available throughout Europe. 37 The national law of Members differs significantly in so far as some States protect trade names with a showing of mere use, while others require evidence of goodwill or some degree of public awareness. 38 Moreover, in so far as the name under which a business trades will almost invariably be eligible for protection as a service mark, there is likely to be far more call upon those provisions of registered trademark law that permit certain third-party uses.39 Just as the characterization of trade names as an industrial property right in Article 1(2) of the Paris Convention enabled their subsequent classification as a separate category of intellectual property for the purposes of the TRIPs Agreement,40 so the ruling of the Appellate Body facilitates their further substantive development. It does so by extending the substantive scope of protection to (a) rights which already existed but were not systematically categorized and; (b) rights newly recognized as a result of technological or economic development. 35 Panel Report, United States—Section 211 Omnibus Appropriations Act of 1998 (the “Panel Report”) WT/DS176/R (WTO 2001), ¶ 8.41. 36 Havana Club, Report of the Appellate Body, WT/DS176/AB/R (WTO 2002), ¶ 206. Art. 41.1 of the TRIPs Agreement mandates that WTO Members make available the enforcement procedures listed in the Agreement “so as to permit effective action against any act of infringement of intellectual property rights” covered by the Agreement. 37 Annette Kur, Future Challenges in the EU — Trademarks, Trade Names, IPR at the Crossroads, Helsinki, Sept. 6–8, 2006, available at http://www.iprinfo.com/tiedostot/ Kur_FutureChallenges.pdf. See also Annette Kur, Trade Names — A Class of Signs “More Equal” than Others?, available at http://www.iprinfo.com/page.php? page_id=36&action= articleDetails&a_id=280&id=22. 38 See Reuter v. Mulhens, (1953) 70 R.P.C. 235; Wright, Layman & Umney v. Wright, (1949) 66 R.P.C. 149. See also Kerly’s, supra note 20, at Ch. 15, ¶ 143. 39 See infra Part IV regarding the trade name holder’s right to the use of its own name under Art. 6 of the Trademark Directive. 40 The Paris Convention for the Protection of Industrial Property of 20 March 1883, as last revised at Stockholm on 14 July 1967, (United Nations Treaty Series, Vol. 828, No 11847, 108, ¶ 2: “The protection of industrial property has as its object . . . trademarks, service marks, trade names, indications of source or appellations of origin, and the repression of unfair competition.”
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B. TRADE NAMES AS EXISTING PRIOR RIGHTS IN RELATION TO TRADEMARKS
Subsequently, in the analysis of Anheuser-Busch Inc. v Budejovický Budvar, the ECJ was able to acknowledge the realities of modern commerce by recognizing that the public’s level of awareness of a trade name may allow the holder to establish priority over the competing rights of a registered trademark provided that the name possesses sufficient reputation.41 Since defendant Budvar had forfeited its Finnish trademark rights,42 the question was whether its trade name, used on labeling for beer, could be considered an “existing prior right” within the meaning of Article 16(1) of the TRIPs Agreement.43 In respect of the rights conferred on the trademark owner that Article provides as follows: The owner of a registered trademark shall have the exclusive right to prevent all third parties not having the owner’s consent from using in the course of trade identical or similar signs for goods or services which are identical or similar to those in respect of which the trademark is registered where such use would result in a likelihood of confusion. In case of the use of an identical sign for identical goods or services, a likelihood of confusion shall be presumed. The rights described above shall not prejudice any existing prior rights, nor shall they affect the possibility of Members making rights available on the basis of use. To this end the question was whether the basis for the trade name in question had arisen at a time prior to the grant of the trademark with which it was alleged to conflict. In fact, registration of the defendant’s trade name in the business register in Czechoslovakia predated the registration of Anheuser-Busch’s trademarks in Finland. Consistently with the decision of the Appellate Body, the Court began by affirming that trade names constitute a distinct category of intellectual property, whose protection is mandated pursuant to the TRIPs Agreement, as follows:44 It should be observed that a trade name is a right falling within the scope of the term “intellectual property” within the meaning of Article 1(2) of the TRIPs Agreement. Moreover, it follows from Article 2(1) of the TRIPs Agreement that the protection of trade names, for which specific provision is made in Article 8 of the Paris Convention, is expressly incorporated into that agreement. Therefore, by virtue of the TRIPs Agreement, the members of the WTO are under an obligation to protect trade names. As far as the first condition laid down in TRIPs Article 16(1), the defendant therefore possessed an existing right in the trade name falling within the temporal scope and, following the Appellate Body’s decision, subject to the substantive provisions of the 41 ITC Ltd. and ITC Hotels Ltd. v. Punchgini, Inc., 482 F.3d 135 (2d Cir. 2007); Grupo Gigante S.A. de C.V. v. Dallo & Co., Inc., 119 F. Supp. 2d 1083, at 1090, 1089–90, 1092. 42 Budvar was the proprietor in Finland of the trademarks BUDVAR and BUDWEISER BUDVAR, which designate beer and were registered on May 21, 1962 and Nov. 13, 1972, respectively, but the Finnish courts declared that it had forfeited those rights as a result of a failure to use the trademarks. 43 With respect to the application of Art. 8 of the Paris Convention as incorporated, there was no question that Budvar’s trade name possessed a right falling within the substantive and temporal scope of Art. 70(2) of the TRIPs Agreement. Further see Gail E. Evans, Substantive Trademark Law Harmonization by Means of the WTO Appellate Body and the European Court of Justice: The Case of Trade Name Protection, 41 J. World Trade L. (2007). 44 At which point the court referred to the Report of the WTO Appellate Body, United States — Section 211 of the Omnibus Appropriations Act, ¶¶ 326–41. Art. 19.2 of the Dispute Settlement Understanding states that Panels and Appellate Body “cannot add to or diminish the rights and obligations provided in the covered agreements.” While the international legal system is technically without a formal doctrine of binding precedent, as a matter of practice, the legal reality is otherwise. A record of the interpretations accorded the provisions of the TRIPs Agreement by the Panels and Appellate Body is maintained as the WTO Analytical Index: see Art. 16 as interpreted by the Appellate Body in Havana Club, available at http://www.wto.org/English/res_e/booksp_e/analytic_ index_e/trips_e.htm.
484 S E S S I O N V I I : T R A D E M A R K TRIPs Agreement.45 Pursuant therefore to Article 8 of the Paris Convention as incorporated, the defendant’s trade name was protected in Finland “without the obligation of filing or registration, whether or not it formed part of a trademark.” In a reversal of the principle of territoriality, if the trade name is registered in its home state A then it has priority in State B if the trade name owner has established a minimum of sufficient goodwill and reputation in that territory. Nonetheless, concerned as to the degree that its activism may tend to privilege trade names, by way of qualification, the Court’s reading of Article 8 does not preclude Member States laying down conditions relating to minimum use or minimum awareness of the trade name among the relevant public in their territory. EC Members may therefore provide that a trade name must have a certain level of repute in the country where the protection is sought. In the case of Budvar’s trade name, the court characterized the test as to whether the BUDVAR name was sufficiently well-known among relevant class of consumers in Finland. III. LACK OF HARMONIZED PROTECTION OFFERED TRADE NAMES BY UNFAIR COMPETITION LAW A. THE PROTECTION OF TRADE NAMES UNDER THE PARIS CONVENTION
In 1894 Sir Duncan Kerly remarked that the law applicable to trade names was not so clearly ascertained chiefly because, in the earlier stages of its development, the distinction between trademark and trade name was not adverted to.46 Article 8 of the original Paris Convention mandates the protection of trade names, independently of their entitlement to trademark protection, in the following unqualified terms: “A trade name shall be protected in all the countries of the Union without the obligation of filing or registration, whether or not it forms part of a trademark.” 47 As incorporated within the TRIPs Agreement, the implementation of Article 8 requires State A not only to protect trade names registered or established by use in that state but also foreign trade names which have been registered in State B of the Paris Union. In principle, foreign defendants claiming trade name protection in State A would rely on the law of the state in question and would receive the same protection as if they were citizens of the State A. While Article 8 does not precisely stipulate the way in which this protection for trade names has to be granted, most Members began to protect trade names in accordance with the principles of unfair competition as set out in Article 10bis.48 However the difficulty in this method of protection laid in the fact that Article 10bis of the 1911 Washington Act lacked provisions as to the precise character of the frauds, the appropriate remedies and the means of enforcement.49 With a view to addressing this deficiency, the Report of the 45
TRIPs Art. 70(2) concerning the temporal application of the Agreement to the dispute in question. Sir Duncan Kerly, The Law of Trade-Marks, Trade-Names, and Merchandise Marks 12–17 (1894). Sir Duncan continued: “These badges are generally numerous, and they comprise in particular the name under which he trades, that is, his trade-name; the names or titles by which his goods are referred to, that is, the trade-name of his goods; and the fashion or ‘get up’ in which the goods appear in the market, so far as these are distinctive of his trade and goods.” Id. at 13. Similarly, see Frank I. Schechter, The Historical Foundations of the Law Relating to Trademarks 5 (1925). 47 Paris Convention, Art. 8. 48 Although Art. 8 of the original Paris Convention of 1883 provided for the trade names to be protected without any requirement for registration, Art. 10bis concerning unfair competition was not added until 1911. The original Preamble simply referred to the desire of the contracting states to guarantee “la loyauté des transactions commerciales.” Further on the negotiating history of Article 10bis, see Christopher Wadlow, The British Origins of Article 10bis of the Paris Convention for the Protection of Industrial Property, at 7 (2002), available at http://www.oiprc.ox.ac.uk/EJWP0403.pdf. 49 Sir Hubert Llewellyn Smith, League of Nations Report of 1922, League of Nations Official J. 625–32, cited in Wadlow, supra note 48, at 14. 46
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Geneva Meeting of Experts of 1924 to the Economic Committee of the League of Nations50 recommended the drafting of two articles that would provide separately for trademark infringement and acts of unfair competition. In the event, the Hague Conference of 1925 saw the provision of a general proscription against unfair competition and acts contrary to honest practices in industrial or commercial matters. In addition, the London Conference of 1934 saw only the brief enumeration of specific abuses, notably “acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor.” B. INADEQUATE PROTECTION OF TRADE NAMES BY MEANS OF PASSING-OFF
In the result, the lack of precision in respect of the level of protection to be accorded trade names left it open to the United Kingdom to implement Article 10bis to no greater extent than the acts expressly prohibited in Article 10bis(3) strictly required.51 Protection for the purposes of passing off was consistent with the narrower meaning of “unfair competition” and the specific prohibitions in Article 10bis against false allegations likely to confuse the public. Such acts will be actionable by means of the common law tort of passing off whenever the defendant company’s name is calculated to deceive, and so to divert business from the claimant, or to cause confusion between the two businesses.52 So it is that today the action for passing-off remains the chief means of defending trade names against unauthorized use. The common law tort of passing-off provides a remedy against the deceptive invasion of property in the goodwill or business, likely to be injured by the misrepresentation of the defendant passing off his goods as those of the plaintiff.53 In accordance with the modern formulation of the tort, the plaintiff must establish three essential elements: (1) that the business possesses sufficient goodwill; (2) that the defendant trader made a misrepresentation in the course of trade to customers or prospective customers of the goods or services concerned, which is likely to deceive them into believing that the goods or services the defendant offers are those of the plaintiff; and (3) that there exists a connection between the first and the second elements in so far as the misrepresentation causes actual damage to the plaintiff’s business or goodwill or will probably do so.54 If a later company takes the whole name of a subsisting company, even though that name is of a descriptive character, there is a high probability of deception.55 Thus, plaintiff Manchester Brewery Co. Ltd.56 had a brewery and a large business at Manchester. The court restrained the defendant, a new company which had acquired a brewery at Macclesfield with a business extending to Manchester, as well as other towns attached to it, from trading as the “North Cheshire and Manchester Brewery Co. Ltd.” on the ground that the use of the name would amount to a representation that the new company was connected with the business of the plaintiff. More recently, courts in the United Kingdom have extended passing-off to protect 50 These recommendations were elaborated in the three rough heads of Articles of Convention on Unfair Competition annexed to the above Report: Wadlow, supra note 48, at 14–16. 51 Wadlow, supra note 48, at 4. 52 Kerly’s, supra note 20, at 19–49. 53 Spalding & Bros. v. AW Gamage Ltd., [1915] 32 R.P.C. 273. 54 Reckitt & Colman Prods. Ltd. v. Borden, Inc., [1990] R.P.C. 341; Erven Warnink v. J. Townend & Sons (Hull) Ltd., [1979] A.C. 731, at 742. 55 Kerly’s, supra note 20, at 15–148. 56 Manchester Brewery v. North Cheshire, [1899] A.C. 83.
486 S E S S I O N V I I : T R A D E M A R K well-known trademarks and trade names. Thus, in British Telecommunications Plc and others v. One In A Million Ltd. Aldous L.J., having reviewed the history of passing off cases in which the defendant had taken a well-known trade name comprising plaintiff’s trademark, concluded that “there can be discerned from the cases a jurisdiction to grant injunctive relief where a defendant is equipped with or is intending to equip another with an instrument of fraud . . .. A name which will, by reason of its similarity to the name of another, inherently lead to passing off is such an instrument.”57 Absent goodwill however, the plaintiff has no cause of action.58 The Paris Convention does not create a general tort of unfair competition. As incorporated within TRIPs, the Convention requires that Members prohibit “[a]ny act of competition contrary to honest practices in industrial or commercial matters. In accordance with the principle of national treatment foreign nationals are entitled to the rights available under that treaty, as implemented in the domestic laws of Member States. The common law of passing off incorporates the provisions of the Paris Convention, but only to give foreign nationals the same rights to which nationals are entitled.59 In the United Kingdom, this may leave trade names outside the broader concept of unfair competition set forth in the Paris Convention’s injunction against competition that is “contrary to honest practices in industrial or commercial matters” as adopted by the more liberally constructed laws of France, Germany, or Switzerland. In the United Kingdom, the Gowers Review of Intellectual Property of 200660 pointed to a certain inadequacy in the protection accorded trade names in the United Kingdom, being of the view that “passing off does not go far enough” to protect many brands from misappropriation where the plaintiff has not been in business long enough to build up the goodwill required by the law of passing off.61 In such cases, new entrants may be prevented from adequately protecting their trade name and trademarks. Secondly, it can be difficult and costly to demonstrate that the misrepresentation is a sufficient cause of likely consumer confusion.62 C. ABSENCE OF HARMONIZATION UNDER THE COMMUNITY TRADEMARK DIRECTIVE
The position with respect the protection of trade names by means of unfair competition law is no more certain as a result of European trademark harmonization. Article 5(5) of the Trademark Directive reflects the absence of harmonization with respect to unfair competition law.63 It provides: 57
[1999] F.S.R. 1 at 18. Goodwill is defined as the good name and reputation of a business; it is the “thing” that attracts consumers to a particular business, product or service. IRC v. Muller & Co.’s Margarine, [1901] A.C. 217. The relevant date for proving goodwill in a claim for passing-off is the date of commencement of the conduct complained of. Cadbury Schweppes Pty Ltd. v. Pub Squash Co. Pty Ltd., [1981] R.P.C. 429. Gail E. Evans, Trade Marks, in New Oxford Companion to Law (P. Crane & J. Conaghan eds., forthcoming 2007). 59 See Empresa Cubana del Tabaco v. Culbro Corp., 399 F.3d 462, 484–85 (2d Cir. 2005); Grupo Gigante SA de CV v. Dallo & Co., Inc., 391 F.3d 1088, 1099–00 (9th Cir. 2004); Mattel, Inc. v. MCA Records, Inc., 296 F.3d 894, 908 (9th Cir. 2002); International Café, S.A. v. Hard Rock Café Int’l Inc., 252 F.3d 1274, 1277–78 (11th Cir. 2001). 60 In December 2005 the Chancellor of the Exchequer asked Andrew Gowers, a former editor of the Financial Times, to conduct an independent review into the U.K. intellectual property system, available at http://www. hm-treasury.gov.uk/media/583/91/pbr06_gowers_ report_755.pdf 61 Id. ¶ 5.84. 62 Id. (speaking with reference to the appearance of “copycats” in the market. 63 The sixth recital in the preamble states that the Trademark Directive of 89/104 does not exclude the application of provisions of law of the Member States other than trademark law, such as laws relating to unfair competition, civil liability or consumer protection. 58
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Paragraphs 1 to 4 shall not affect provisions in any Member State relating to the protection against the use of a sign other than for the purposes of distinguishing goods or services, where use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trademark. Consistent with its provisions, claimants must refer to the laws of a Member State where the unauthorized use of a trade name not being used as to distinguish the goods and services, takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the plaintiff’s trademark. Consequently, where the sign being a trade name is not used for the purposes of distinguishing goods or services, it is necessary to refer to national law to determine the extent and nature, if any, of the protection afforded to owners of trademarks who claim to be suffering damage as a result of use of that sign as a trade name or company name. 1. Robelco NV v. Robeco Groep NV The reference to national laws in respect of Article 5(5) was confirmed by the ECJ in Robelco NV v. Robeco Groep NV.64 Plaintiff company Robeco, founded in 1929, was well-established in the field of financial services. It had used the trade name ROBECO, a condensed form of the words Rotterdams Beleggings Consortium, since 1959. On May 21, 1987, it registered ROBECO as a word and figurative mark at the Benelux Trademark Office65 for financial services.66 Defendant Robelco NV was a Belgian company established in 1996. The company’s activity was largely based in the province of Flemish Brabant and involved property sales and promotion that included sales and leasing as well as the supply of loans and the financing of property developments. Robeco Groep NV brought an action against Robelco NV for trademark infringement under Article 13A(1)(d) of the Benelux Uniform Law on Trademarks (UBL),67 which is intended to implement Article 5(5) of the Directive in Benelux law. On February 9, 2000, the Commercial Court in Brussels granted the injunction and prohibited Robelco NV from continuing to use its trade name or any sign similar to the name Robeco. When Robelco appealed the injunction, given the lack of identicality of the respective signs and the services they signified, the national court asked the ECJ for a preliminary ruling as to the scope of trademark rights pursuant to Article 5(5). The ECJ ruled that where the allegedly infringing trade name is used for purposes other than distinguishing goods or services, it is necessary to refer to the legal orders of the Member States in order to determine the nature and extent of the protection afforded to trademark owners who have allegedly been injured as a result of such use. The Court found that Article 5(5) of the Directive must be interpreted as meaning that Member States may, in accordance with the prohibition on unfair competition in the Paris Convention, protect a trademark against use of a sign other than for the purposes of 64 Case C-23/01 on the interpretation of Article 5(5) of First Council Directive 89/104/ EEC of 21 December 1988 to approximate the laws of the Member States relating to trademarks, E.C.J. (Sixth Chamber) (Nov. 21, 2002), 1989 O.J. (L 40) 1. 65 Together with a number of other marks in a series, including ROLINCO, ROPARCO, ROTRUSCO. 66 In Class 36 for financial and monetary matters, including services relating to saving and investing. Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks of 15 June 1957, as revised and amended. 67 Art. 13A(1)(d) provides: “Without prejudice to any application of the ordinary law governing civil liability, the exclusive rights in a trademark shall entitle the proprietor to oppose: (…) (d) any use, in the course of trade and without due cause, of a trademark or of a similar sign other than for the purposes of distinguishing goods, where use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trademark.”
488 S E S S I O N V I I : T R A D E M A R K distinguishing goods or services, where such use without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trademark. III. SCOPE OF TRADEMARK RIGHTS IN RELATION TO THIRD PARTY USE OF AN IDENTICAL TRADE NAME Following the decision of the ECJ in Robelco, some uncertainty remained concerning the extent to which the registered proprietor is able to invoke the exclusive rights conferred on the trademark in order to prevent third-party use of an identical trade name in relation to identical goods and services pursuant to Article 16(1) of TRIPs and 5(1) of the Directive.68 However it was not until the case of Anheuser-Busch Inc. v. Budejovicky Budvar69 in 2004 that the question appeared on the center stage of European jurisprudence, when the Supreme Court of Finland asked the ECJ for guidance in determining the scope of the plaintiff trademark owner’s rights in relation to a conflicting trade name. Plaintiff Anheuser-Busch was the proprietor in Finland of the BUDWEISER family of trademarks,70 which designate beer and were registered between June 5, 1985 and August 5, 1992. The first application for registration of those marks that for Budweiser, was filed on October 24, 1980. By an action brought before the Helsinki District Court of Finland on October 11, 1996, Anheuser-Busch sought to prevent Budvar from continuing or recommencing the use in Finland of the trademarks BUDEJOVICKÝ BUDVAR, BUDWEISER BUDVAR, BUDWEISER, BUDWEIS, BUDVAR, BUD and BUDWEISER BUDBRAÜ as signs for the marketing and sale of beer produced by Budvar. By the same suit, Anheuser-Busch sought a further order prohibiting Budvar from using in Finland the trade names BUDEJOVICKÝ BUDVAR NÁRODNÍ PODNIK, BUDWEISER BUDVAR, BUDWEISER BUDVAR NATIONAL ENTERPRISE, BUDWEISER BUDVAR ENTREPRISE NATIONALE, and BUDWEISER BUDVAR NATIONAL CORPORATION, on the ground that those names were
liable to be confused with its trademarks. Anheuser-Busch argued that the signs used by Budvar could be confused, within the meaning of the Tavaramerkkilaki,71 with its trademarks since those signs and trademarks designate identical or similar types of goods. Although defendant Budejovický Budvar had once been the owner in Finland of the trademarks BUDVAR and BUDWEISER BUDVAR, which designate beer and were registered on May 21, 1962 and November 13, 1972, respectively, those rights had been forfeited as a result of the company’s failure to use the marks. In counterclaim, the defendant therefore sought to rely on its trade names, arguing that it was entitled to the use of its trade names which had been duly registered in the Czechoslovakian commercial register on February 1, 1967. Budvar submitted that the signs used in Finland to market its beer could not be confused with Anheuser-Busch’s trademarks. It further submitted that, with respect to the sign BUDWEISER BUDVAR, the registration of its trade name in Czech, English and French conferred on it, pursuant to Article 8 of the Paris Convention, a right in Finland 68 Art. 5(1)(a) provides: “The registered trademark shall confer on the proprietor exclusive rights therein. The proprietor shall be entitled to prevent all third parties not having his consent from using in the course of trade: any sign which is identical with the trademark in relation to goods or services which are identical with those for which the trademark is registered.” The opinion of AG Sharpston in Céline of Jan. 18, 2007 is at pains to point out that the decision in Robelco in no way precludes a finding that Art. 5(1)(a) may be applied in respect of trade names. 69 Case C-245/02, [2004] E.C.R. I-10989. 70 The trademark registrations at issue also included BUDWEISER, BUD, BUD LIGHT and BUDWEISER KING OF
BEERS. 71 Paragraph 4.1 of the Tavaramerkkilaki provides: “The right to use a sign for a product under Paragraphs 1 to 3 of this law means that no one other than its proprietor may use commercially as a sign for his products a sign liable to be confused therewith, on the product or its packaging, in advertising or business documents or otherwise, including also use by word of mouth.” Law on Trademarks (7/1964) of 10 Jan. 1964.
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earlier than that conferred by Anheuser-Busch’s trademarks and that the earlier right was therefore protected under that Article. A. WHETHER THIRD PARTY USE AFFECTS THE ESSENTIAL FUNCTION OF THE MARK
Following its ruling in Arsenal v. Reed 72 the Court concluded that the exclusive rights conferred upon the registered trademark owner may be exercised where the defendant’s adoption of the trade name constitutes a trademark use within the meaning of TRIPs Article 16(1) and Article 5(1) of the Directive as follows: A trade name may constitute a sign within the meaning of the first sentence of Article 16(1) of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs Agreement). That provision is intended to confer on the proprietor of a trademark the exclusive right to prevent a third party from using such a sign if the use in question prejudices or is liable to prejudice the functions of the trademark, in particular its essential function of guaranteeing to consumers the origin of the goods.73 The trademark owner will be entitled to exercise his rights under Article 5(1)(a) of the Directive, if he can establish that the use of the sign is such (a) as to distinguish the goods concerned and (b) that it affects the his interests by “encroaching upon” the ability of the mark to fulfill its essential function of guaranteeing to customers the origin of his own goods.74 For the essential function of the mark to be affected it is necessary that the use in question must create the impression that there is a material link in trade between the proprietor of the mark and the goods offered for sale by the defendant. It must be established whether the relevant consumers are likely to interpret the sign, as it is used, as designating or tending to designate the undertaking from which the goods originate. The Court in Arsenal found that the essential function of the mark was jeopardized because of the defendant’s sale of unauthorized club merchandise gave the impression that there was a material link between the goods and plaintiff Arsenal Football Club, despite the presence of a disclaimer at the point of sale. The positive finding of the Court rested on the rationale that use of the defendant’s sign would deprive the mark of its distinctive character because it would no longer be capable of guaranteeing origin. B. THE RELATIONSHIP BETWEEN IDENTICAL GOODS AND THEIR RESPECTIVE MARKETS
In the case of Adam Opel AG v. Autec the scope of the trademark owner’s rights in Article 5(1) of the Directive were again at issue.75 The facts of the case were novel in the sense that the defendant was using the plaintiff’s trade name and trademarks concurrently with 72 Case C-206/01, Arsenal Football Club plc v. Matthew Reed, [2002] E.C.R. I-10273. Reference to the Court under Art. 234 EC by the High Court of Justice of England and Wales, Chancery Division, for a preliminary ruling in the proceedings pending before that court on the interpretation of Art. 5(1)(a) of the First Council Directive 89/104/EEC of 21 December 1988, ¶ 48. See also Arsenal Football Club plc v. Reed, [2003] E.W.C.A. Civ. 696, Ct. Ap., per Aldous LJ, ¶ 27. 73 Case C-245/02, [2004] E.C.R. I-10989. 74 As to the definition of the mark’s essential function, in Hoffmann-La Roche v. Centrafarm, Case C-102/77, [1978] E.C.R. 1978–139, the ECJ ruled that the essential function of a trademark is to guarantee to consumers the origin of the goods, by enabling them without any possibility of confusion to distinguish certain products from products which have another origin. See also Case 16-74, Centrafarm BV v. Winthrop BV, [1974] E.C.R. 1974–183, ¶ 8. 75 Case C-48/05, Judgment of the Court (First Chamber) of 25 Jan. 2007.
490 S E S S I O N V I I : T R A D E M A R K its own trade name and trademarks. The plaintiff, a famous car manufacturer and European subsidiary of General Motors, had used the “Opel-lightning” logo for many years. It had also registered the mark in respect of toys, in the event it might wish to use scale models of its automobiles for promotional purposes. In 2004 Opel discovered that a remote-controlled scale model of the Opel Astra V8 coupé, bearing the OPEL logo on its radiator grille was being manufactured by Autec and marketed in Germany. The plaintiff claimed that the defendant’s use of the OPEL logo on the scale models constituted an infringement of that trademark. It claimed, pursuant to Article 5(1)(a) of the Directive, that the mark was being unlawfully used for products identical with those in respect of which it is registered, namely toys. Defendant Autec manufactured remote-control model cars. It sold a model car that was a copy of Opel’s V8, including the registered logo on the radiator grill. The CARTRONIC trademark, accompanied by the symbol ®, was clearly visible on the front page of the user instructions accompanying each scale model and also on the front of the remote control transmitter. The defendant placed its own marks, AUTEC® AG and CARTRONIC®, on the front of the remote control transmitter and on the front page of the user instructions accompanying each scale model. In addition, the marks AUTEC® AG and AUTEC® AG D 90441 NÜRNBERG appeared on the back of the user instructions, the latter indication appearing also on a label attached to the underside of the remote control transmitter. The case raised the question whether third-party use of a trademark that the plaintiff has also registered in respect of “toys” constituted use as a trademark for the purposes of Article 5(l)(a).76 In this case the use of the sign identical to the mark was clearly in the course of trade, since it took place in the context of commercial activity with a view to economic advantage. The plaintiff argued that the public would assume that the manufacturer of scale model cars to which the mark was affixed manufactures and distributes them under a license from the proprietor of the mark. The defendant argued, with the support of the German Toy Industry Association, that affixing a protected trademark on scale models that were a true replica of vehicles of that mark did not constitute a trademark use as such. Applying Arsenal, the question was whether the defendant’s use of the sign affects or is liable to affect the functions of the plaintiff’s mark, in particular its essential function of guaranteeing to consumers the origin of the goods77 in circumstances where the defendant affixes a sign identical to a trademark registered for toys to scale models of vehicles pursuant to Article 5(1)(a). To answer this question, the ECJ considered that it was necessary to take account of the extent to which the average consumer of scale-model cars would associate the two marks and goods. Such an assessment required considering the public association of the marks and the goods concerned. In circumstances where the average consumer of scale-model vehicles was reasonably well-informed and accustomed to the standards of the toy industry’s faithful reproduction of scale-model vehicles the Court found that there was no cause for association, since the consumer would understand that the OPEL logo appearing on Autec’s products indicated that it was a reduced-scale reproduction of an Opel car. Liability under Article 5(1)(a) requires identicality not only in respect of the marks but 76 The use at issue was that of a sign affixed “in relation to goods” within the meaning of Art. 5(1)(a) of the Directive since it concerned the affixing of a sign identical to the trademark onto goods, offering the goods and putting them on the market within the meaning of Arts. 5(3)(a) and (b) of the Directive. 77 See Arsenal Football Club, at ¶¶ 40, 41 & 51; Case C-245/02, Anheuser-Busch Inc. v. Budejovický Budvar, Národní Podnik, November 2004, ¶ 59.
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also the goods at issue. The Court began by distinguishing Bayerische Motorenwerke (BMW).78 In that case the plaintiff’s mark was registered for vehicles but not for vehicle repair services. But as the vehicles in question constituted the subject matter of the defendant’s repair services, liability was held to follow upon “that specific and indissociable link between the products bearing the trademark and the services provided by the third party.” In BMW it was held that there may still be identicality in accordance with Article 5(1)(a) where the plaintiff’s goods constitute the subject of the defendant’s services. The Court’s response to the question whether the defendant used Opel’s logo in its capacity as a trademark Registered for motor vehicles, required consideration of the relationship between motor cars and scale-model cars. The Court held that the test for infringement under Article 5(1)(a) should focus upon the actual goods marketed or services supplied by the third party which are identical to those in respect of which the trademark is registered. Such an interpretation was found consistent with the text of Article 5(1)(a) in so far as it refers to “using . . . in relation to goods or services.” Since the model and its original did not belong to the same category of goods they were not found to be identical products. As Autec did not sell vehicles, there was no use of the OPEL logo by Autec as a trademark registered for motor vehicles. In Opel’s case the comparison of the goods was particularly significant, since model cars constituted a secondary market of the trademark owner. Advocate General Colomer’s Opinion in the Arsenal Football Club case advised that in determining the question of trademark use, the national court should take account of factors found in the 10th recital of the Trademark Directive, in particular, (a) the nature of the goods in question; (b) the structure of the market; and (c) the position in the market of the proprietor of the trademark. In subsequently rendering his Opinion as to whether the defendant’s application of the OPEL BLITZ logo affected the functions of the mark, Advocate General Colomer took account of the nature of the goods and the position of the proprietor in the market. With respect to the former, economic and cultural considerations were relevant. The German toy industry had a history of more than 100 years in the manufacture and sale of scale models cars. Culturally, the model cars had acquired during this time a symbolic link with childhood for discriminating adult customers.79 In contrast, the recent date of registration of its logo in respect of toys indicated that Opel AG had only lately recognised a potential market for the promotional use of model cars among its customers. In the circumstances, the plaintiff could not establish the requisite secondary meaning in respect of scale model cars needed to pursue an action for infringement.80 The Advocate-General therefore concluded that the plaintiff had failed to establish that consumers targeted interpreted the sign as designating the undertaking which had registered it. Moreover, with respect to the need for a material link, the plaintiff would have to show that the relevant consumers associated the OPEL logo on the miniatures manufactured by Autec, with the logo applied to the models marketed by Opel AG. Consumers were found to still connect the scale prototype with the real vehicle, not with the models manufactured for Opel AG by its licensees. The association was, therefore, one between goods of different classes. As Autec’s use did not create the impression that there was a material
78 Case C-63/97, Bayerische Motorenwerke AG (BMW) and BMW Nederland BV v. Ronald Karel Deenik, Judgment of the Court, February 1999, ¶ 61. 79 AG Colomer describes how the little cars have become the “Proust’s Madeleine” of adults seeking to relive their childhood experiences in short trousers, by indulging their fantasies: Case C-48/05, Opinion, ¶ 37. 80 Registration of the logo was extended in respect of toys in 1990.
492 S E S S I O N V I I : T R A D E M A R K link between the goods concerned and the mark of the plaintiff,81 it could not be inferred that the defendant’s use infringed. In the circumstances, including the size and clarity of the defendant’s marks on the product, the ECJ, following the Opinion of the Advocate General, found it highly unlikely that such use could affect the essential function of the OPEL logo as a trademark registered for toys. The case of Adam Opel indicates the limits of the exercise of the powers conferred by Article 5(1) of the Directive on the trademark proprietor, denying him the right to prohibit the use of an identical trade name if that use cannot affect his own interests as proprietor of the mark. IV. ENTITLEMENT OF A COMPANY TO USE ITS “OWN NAME” AS A DEFENSE TO TRADEMARK INFRINGEMENT Even where there is found to be a trademark use, the defendant may continue to use an identical sign if it is found to be merely using its own company name in accordance with honest business practice. Thus in the case of Anheuser-Busch Inc. v Budejovický Budvar defendant Budvar sought to rely on the defense that it was doing no more than using its own name. Under the trademark law of Finland:82 Any person may use, in the course of his trade, his name, address or trade name as a trade symbol for his products unless use of that symbol might give rise to confusion with the protected trademark of a third party or with a name, address or trade name lawfully used by a third party in his trading activities. Whereas Finnish law refers expressly to the defendant’s use of his “trade name,” Article 6 of the Trademark Directive refers only to a trademark owner not having the right to prohibit a third party from using in the course of trade “his own name or address.”83 In national courts throughout the European Union, there remained some uncertainty as to whether the defense should apply not only in respect of the name of a natural person but also that of a company or business name. Thus, in Scandecor Development AB v. Scandecor Marketing84 the House of Lords observed that the inclusion of company names in the ambit of the defense represented the “better view,” nonetheless holding that the matter was not acte clair. 85 As a matter touching the harmonized interpretation of the Directive, the Supreme Court of Finland referred the question to the ECJ.86 With respect to the question whether the “own name defense” may extend to corporate 81
Case C-48/05, Opinion, ¶¶ 54–57. Paragraph 3.1 of the Tavaramerkkilaki (Law on Trademarks) (7/1964) of Jan.10, 1964. 83 First Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States relating to trademarks, Art. 6, 1989 O.J. (L 40) 1. “Name” is not restricted in the text. 84 [2001] 2 C.M.L.R. 30. Similarly, see Asprey & Garrard v. WRA (Guns), [2002] F.S.R. 310, 487, CA; WebSphere Trademark, [2004] E.W.H.C. 529 (Ch); [2004] F.S.R. 39, ¶¶ 37–38. In Scandecor the House of Lords referred the question to the ECJ, but as the case subsequently settled, the matter remained unresolved. 85 The Council of the European Union and the Commission of the European Communities issued a joint declaration, which was recorded in the minutes of the Council when Directive 89/104 was adopted, that that provision covers only natural persons’ names. Such a declaration is “without prejudice to the interpretation of that text by the Court of Justice of the European Communities.” See also to that effect Heidelberger Bauchemie *, ¶ 17; Antonissen *, [1991] E.C.R. I-745; Bautiaa and Société Française Maritime [1996] E.C.R. I-505). Under the U.K. Trademarks Act 1938, Trademarks Act 1938 § 8, protection extended to the use by a company of its registered name. Parker-Knoll v. Knoll Int’l, [1961] R.P.C. 345, CA; [1962] R.P.C. 265, H.L. 86 In the case of a company, the use of its own “name” will include its full corporate name and the name by which it is known to its customers — that is to say, omitting such words at the end of the name as “Limited,” “Corporation,” “Incorporated,” or other words or letters indicating corporate status. See, e.g., Reed Executive Pfc Ors. v. Reed Bus. Info. Ltd. Ors, [2004] E.W.C.A. Civ. 159 (Mar. 3, 2004), [2004] R.P.C. 40 ¶115; WebSphere Trademark, [2004] E.W.H.C. 529 (Ch); [2004] F.S.R. 39 ¶ 39. 82
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names, the ECJ began its analysis at the highest level of harmonization, by examining Article 17 of the TRIPs Agreement, which allows the members of the WTO to provide generally for limited exceptions to the rights conferred by a trademark as follows: Members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties. The Court then proceeded to draw upon the authority of Community trademark law and jurisprudence, to reason that Article 6(1)(a) of the Directive, would similarly allow an exception in favor of trade names, though drafted more specifically as follows: The trademark shall not entitle the proprietor to prohibit a third party from using, in the course of trade, (a) his own name or address; . . . provided he uses them in accordance with honest practices in industrial or commercial matters. Invoking the canons of interpretation, the Court applied the ejusdem generis rule to the effect that where general words follow an enumeration of specific items, the general words must be read as applying to items of the same kind. Since company names are of the same class, its application permits the limitation of trademark rights to prohibit the use of not only personal names but also trade names. The Court therefore found that Article 6(1)(a) is not confined to the names of natural persons. The potential application of the exception is further broadened by reference to Community trademark jurisprudence concerning the interpretation of the proviso. The Court concluded that the defendant may, in principle, rely on the exception provided for in Article 6(1)(a) in order to be entitled to use, for the purpose of indicating his trade name, a sign which is identical or similar to a trademark, even if that constitutes a use falling within the scope of Article 5(1) which the trademark proprietor would otherwise be able to prohibit by virtue of the exclusive rights conferred on him by that provision. A. USE OF TRADE NAME DEPENDENT UPON HONEST COMMERCIAL PRACTICE
In Anheuser-Busch, Inc. the Court incorporated the reading of “honest practice” for the purposes of Community Law with the injunction in Article 17 to consider the legitimate interests of the trademark owner as follows: The condition of “honest practice” is, in essence, an expression of the duty to act fairly in relation to the legitimate interests of the trademark proprietor . . . It is therefore essentially the same condition as that laid down by Article 17 of the TRIPs Agreement. In the case of Bayerische Motorenwerke (BMW)87 the Court held that the condition constitutes a duty to act fairly in relation to the legitimate interests of the trademark owner. The ECJ set out the test as to whether the use was in accordance with honest practice.88 National courts must take into account first, the extent to which the use of the third party’s trade name is understood by the relevant public, as indicating a link between 87 Case C-63/97, Bayerische Motorenwerke AG (BMW) and BMW Nederland BV v. Ronald Karel Deenik, Judgment of the Court, February 1999, ¶ 61 (BMW); Case C-100/02, Gerolsteiner Brunnen GmbH & Co. v. Putsch GmbH, Judgment of the Court, 7th January, 2004, ¶ 24. 88 BMW, ¶ 61. In respect of Art. 6(1)(c)of the Directive, where it is necessary to indicate the intended purpose of a product or service, in particular as accessories or spare parts use of a trademark to advertise to the public the repair and maintenance of products covered, such a use does not constitute further commercialization for the purposes of Article 7 of the Directive, but use indicating the intended purpose of the service within the meaning of Article 6(1)(c).
494 S E S S I O N V I I : T R A D E M A R K the third party’s goods and the trademark owner and; secondly, the extent to which the third party ought to have been aware of that link.89 A third factor to be taken into account is whether the trademark concerned enjoys a certain reputation in the Member State in which it is registered and where its protection is sought — a reputation from which the third party might profit in marketing its goods. In BMW, where the defendant’s business was the second-hand sale and repair of BMW cars, “honest practice” meant avoiding any suggestion that the business remained affiliated to the BMW dealer network. In retrospect, BMW appears to have been the thin end of the wedge. In Gillette90 the Court offered a negative summation of factors relevant to the assessment. It held that use will not be in accordance with honest practices in industrial and commercial matters if, inter alia: (a) it is done in such a manner as to give the impression that there is a commercial connection between the user and the trademark owner; or (b) it affects the value of the trademark by taking unfair advantage of its distinctive character or repute; or (c) it entails the discrediting or denigration of that mark. In Gerolsteiner Brunnen GmbH & Co. v. Putsch GmbH 91 the ECJ further broadened the scope of “honest practice” for the purposes of the derogation in Article 6 of the Trademark Directive. The case concerned the use of the words KERRY SPRING on mineral water bottles, which might be in conflict with the mark GERRI for products of the same description. The defendant argued that the prominent display of KERRY SPRING on the product was justified under Article 6 (b) of the Trademark Directive92 since the water came from a source in county Kerry, Ireland. The ECJ found that the indication of geographical origin is used in accordance with honest practices in industrial or commercial matters if the defendant has acted fairly in relation to the legitimate interests of the trademark owner. The fact that there existed a likelihood of confusion between a word mark registered in one Member State and an indication of geographical origin from another Member State was insufficient to conclude that the use of that indication in the course of trade was not in accordance with honest practice. Conversely, a third party’s right to use its trade name will be lost where the use is not considered to be in accordance with honest commercial practice.93 In the case of Céline Sàrl v. Céline SA94 the ECJ was asked once again to consider the extent to which the plaintiff trade mark owner should be able to exercise its rights under Article 5(1) against 89 Case C-245/02, Anheuser-Busch Inc. v. Budejovický Budvar, Národní Podnik, E.C.J., November 2004, ¶¶ 54–55. 90 Case C-228/03, The Gillette Co. and Gillette Group Finland Oy v. LA-Laboratories Ltd. Oy, E.C.J. Mar. 17 2005. The case concerned the operation of Art. 6(1)(c) of the Trademark Directive (89/104/EEC), which provides that a person uses another’s trade mark where it is “necessary to indicate the intended purpose of a product or service, in particular as accessories or spare parts” provided that the use is “in accordance with honest practices in industrial or commercial matters.” A parallel provision for the Community Trademark exists in Art. 12(c) of the Community Trade Mark Regulation (40/94/EEC). 91 Case C-100/02, Gerolsteiner Brunnen GmbH & Co. v. Putsch GmbH, E.C.J. Jan. 7, 2004, ¶¶ 25 & 26. Further see Gail E. Evans & Michael Blakeney, The Protection of Geographical Indications after Doha: Quo Vadis?, 9 J. Int’l Econ. L. 575, 594 (2006). 92 Art. 6(1)(b) of First Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States relating to trademarks. 93 Note: it is for the national court to carry out an overall assessment of all the relevant circumstances to determine whether the producer of the product bearing an indication of geographical origin is unfairly competing with the proprietor of the trademark. Further concerning the scope of Art. 6 and the concept of trademark use, see Opinion from Advocate General Colomer in Case C-48/05, Adam Opel AG v. Autec AG, March 2006. 94 Case C-17/06, E.C.J. Opinion, January 2007.
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the defendant’s adoption of an identical trade name. The plaintiff SA Céline is registered as a company in Paris in 1928 and carries on the business of making and selling clothing and fashion accessories. It registered the French word CÉLINE in 1948 as a trademark for a wide range of goods and services, including clothes and shoes. Defendant Céline Sàrl was registered as a company in Nancy on January 31, 1992, and carries on a business trading in clothing, lingerie, furs, and accessories under the name CÉLINE. Defendant first entered the name CÉLINE in the local trade register in 1950. Just over fifty years later, in 2003, Céline SA became aware of the existence of Céline Sàrl and of the similarity between their types of business. It then took action against Céline Sàrl for trademark infringement concerning the unauthorized use of its trade name. Céline SA bases its action solely on the use of the name CÉLINE to designate the entity Céline Sàrl and the business which it operates. The court of first instance found the defendant was liable for trademark infringement, ordering Céline Sàrl to change its company name and shop sign, and to pay the plaintiff damages in respect of both trademark infringement and unfair competition. Prima facie, under French law, given the broad implementation of Article 5(1)(a), there was little doubt that the plaintiff would be entitled to relief since an action for infringement lies whenever the distinctive elements of a trademark are reproduced, whatever use is made of them.95 Nonetheless, the Court of Appeal of Nancy considered that some doubt remained as to the applicability of Article 5(1)(a) in the circumstances where the sign in question is not affixed to the product.96 It therefore asked the ECJ for a preliminary ruling concerning the question whether Article 5(1) of the Directive may be exercised against a third party who without consent, has adopted the same name as a company name in the context of a business marketing goods of the same kind. Significantly, the case of Céline calls into question the proviso that the use must be in accordance with honest business practices, since the name Céline Sàrl was not adopted or used, either as a trade name or as a company name, until after Céline SA had registered its trademark CÉLINE. The plaintiff ’s registration of its trademark and trade name pre-dates that of the defendant. When it is heard by the Grand Chamber or full court of the ECJ, the question will be whether the adoption of the name CÉLINE for the business in Nancy as a trade name, after the registration of the trademark CÉLINE by the plaintiff and its subsequent use in relation to goods, is in accordance with honest practices in industrial and commercial matters. B. PRESUMPTION OF BAD FAITH ON SUBSEQUENT REGISTRATION OF TRADE NAME
As to the question whether there should be a presumption of bad faith in such circumstances, generally speaking, the condition of honest practice expresses a duty to act fairly in relation to the legitimate interests of the trademark owner. In Céline Advocate General 95 Art. L713-2(a) of the French Code De La Propriete Intellectuelle prohibits “la reproduction, l’usage ou l’apposition d’une marque, même avec l’adjonction de mots tels que: ‘formule, façon, système, imitation, genre, méthode’, ainsi que l’usage d’une marque reproduite pour des produits ou services identiques à ceux désignés dans l’enregistrement.” 96 See Case C-23/01, Robelco NV v. Robeco Group NV, [2002] E.C.J. ¶ 34. Further see § 10(4)(d) of the U.K. Trademarks Act, which provides that “a person uses a sign if . . . he . . . uses the sign on business papers or in advertising.” See also Section 10(5) of the UK Act to the effect that a “person who applies a registered trademark to material intended to be used for labelling or packaging goods, as a business paper, or for advertising goods or services, shall be treated as a party to any use of the material which infringes the registered trademark if when he applied the mark he knew or had reason to believe that the application of the mark was not duly authorised by the proprietor or a licensee.”
496 S E S S I O N V I I : T R A D E M A R K Sharpston’s Opinion referred to a presumption that there is bad faith where the defendant has subsequently adopted an identical or similar trade name. She advised that a person could not normally be said to be acting in accordance with honest commercial practice if he adopted a name to be used in trade for purposes of distinguishing goods or services which he knew to be identical or similar to those covered by identical or similar existing trademark.97 1. Applying Standards of Reasonable Diligence The question whether the defendant had actual or constructive knowledge of the name at issue is clearly critical to the assessment of honest practice. Honest practice in the choice of a name to be used in trade implies reasonable diligence in ascertaining that the name chosen does not conflict with an existing trademark, and thus in verifying the existence of any such mark. The defendant is expected to search in national and Community trademark registers and if the name is found to contact the plaintiff. If reasonable diligence was exercised, Advocate General Sharpston pointed out, and no such mark was found, then it is hardly possible to maintain the assertion that the defendant has acted contrary to honest practice.98 However, in the event a similar or identical trademark was found then the defendant’s entitlement to use the disputed trade name would depend upon the probity of his subsequent conduct. Honest practice implies giving notice to the trademark owner and seeking his response. Thereafter, if the trademark owner has an objection to the use of the name, based on one of the grounds of Article 5, the trademark owner’s rights would be subject to Article 6(1) of the Directive, given that its operation is conditional on the honesty of the user’s conduct. On the other hand, should the defendant continue to use the name in the face of the owner’s objection, presumably this would not be in conformity with honest commercial practice.99 If, on the other hand, the defendant contacted the trademark proprietor and, assuming the notification was received, no objection was made to the defendant’s use of the name after a reasonable period of time, it might then be open to the defendant to claim that the plaintiff had acquiesced or impliedly consented to such use, thus removing it from the scope of the prohibition of Article 5(1). To apply such criteria, it is submitted, would also be consistent with Article 5(2) of the Unfair Practices Directive which describes a commercial practice as unfair “if . . . it is (a) contrary to the requirements of professional diligence, and (b) it materially distorts or is likely to materially distort the economic behavior with regard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice.”100 V. INTERRELATIONSHIP BETWEEN THE FREE MOVEMENT OF GOODS AND TRADEMARK RIGHTS Trademark rights and derogations must be seen not only as a question of balancing the legitimate interests of the parties but also in the light of the overriding principle of the 97
Case C-17/06, Opinion, January 2007, ¶ 54. Id. ¶ 55. 99 Id. ¶¶ 56 & 64. 100 Id. ¶¶ 80 & 81. Note that (a) Art. 6 of the Trademark Directive adopts the express wording of Art. 10bis of the Paris Convention concerning “unfair competition”; (b) the linkage between the principle of the free movement of goods and the text of Art. 5(2) of the Unfair Commercial Practices Directive. See infra Part V. 98
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free movement of goods within the European Community.101 Principles relating to the free transborder movement of goods and services under the EC Treaty have a significant impact on the scope of rights accorded trademarks and trade names. In this regard, the principal aim of the Directive, expressed in the first recital in the preamble, is to harmonize the trademark laws of Member States with a view to eliminating “disparities which may impede the free movement of goods and freedom to provide services and may distort competition within the common market.”102 The ECJ justifies its interpretation of the limitation on the rights conferred by a trademark with reference, as follows. to the EC’s foundational principles: Article 6 seeks to reconcile the fundamental interests of trademark protection with those of free movement of goods and freedom to provide services in the common market in such a way that trademark rights are able to fulfill their essential role in the system of undistorted competition which the Treaty seeks to establish and maintain.103 Similarly, in Arsenal Football Club,104 the opinion of AG Colomer expresses the classic view that the essential function of a trademark is to identify and differentiate products on the basis of their trade origin should be seen as part of a broader objective, namely ensuring a system of genuine competition within the internal market.105 This overriding imperative strongly informs the exercise of trademark rights and the respective scope of privileged use accorded trade names.106 Gerolsteiner107 is instructive, since the breadth of the derogation in that case was justified not with reference to the mark as an indicator of source or quality but to that of the common market and the free movement of goods.108 Let us suppose that the situation in Céline concerned the subsequent registration of a similar trade name in another member state. In light of the preambular principles, such a situation would be unlikely to alter the resultant position of the plaintiff trademark
101 Concerning the free movement of goods and the extent of industrial property rights protection: see EEC Treaty, Art. 36; see also Art. 3 ¶¶ 1(a), 1(c), 14, 23–31, & 90. See further Case 16-74, Centrafarm BV et Adriaan de Peijper v Winthrop BV, Judgment of the Court of 31 October 1974. 102 Compare the first preamble to the TRIPs Agreement, which expresses the desire of Members “to reduce distortions and impediments to international trade, and taking into account the need to promote effective and adequate protection of intellectual property rights, and to ensure that measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade.” 103 See HAG II, ¶ 13; Case C-63/97, Bayerische Motorenwerke AG (BMW) and BMW Nederland BV v. Ronald Karel Deenik, Judgment of the Court, February 1999, ¶ 62; Case C-245/02, Anheuser-Busch Inc. v. Budejovický Budvar, Národní Podnik, November 2004, ¶ 16. 104 See [2002] E.T.M.R. 975, ¶¶ 41–49. 105 Id. ¶ 42. 106 The ideology of free trade may come into conflict with that of the individual trademark owner’s right to the peaceful enjoyment of property. Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trademark (CTMR) Art. 24; U.K. Trademarks Act, § 22. In Anheuser-Busch Inc. v. Portugal the applicant company complained of an infringement of its right to the peaceful enjoyment of its possessions in accordance with Art. 1 of Protocol No. 1 (protection of property) to the European Convention on Human Rights. The question for the Court was whether the decision of the Supreme Court of Portugal to apply the provisions of the Bilateral Agreement of 1986 to an application for registration filed in 1981 could amount to interference with the applicant company’s right to the peaceful enjoyment of its possessions. Having characterized the complaint as one concerned with the manner in which national courts interpreted domestic law in proceedings between two claimants to the same name, the Grand Chamber found no basis on which to conclude that the decision of the Supreme Court was affected by arbitrariness or that it was otherwise manifestly unreasonable. Consequently, it found no violation of Protocol No. 1, Article 1: (application no. 73049/01) January, 2007. 107 Case C-100/02, Gerolsteiner Brunnen, [2004] E.C.J. 108 An idea associated with the thinking of classical economists such as Adam Smith who emphasized the advantages of free trade policies for the improvement of living standards and the promotion of economic growth. Adam Smith, The Wealth of Nations (1776).
498 S E S S I O N V I I : T R A D E M A R K owner in Anheuser-Busch Inc. v. Budejovický Budvar.109 In keeping with principle, the Advocate General in Céline opined that an economic operator must be “be allowed to use the same personal, company or trade name throughout the Community, and not be prevented from doing so in one Member State by the subsequent registration in that Member State (or in the Register of Community trademarks) of a trademark identical or similar to the name in question.”110 This would also be the case in respect of the operation of the proviso with the effect that any “extension of the use of the name to a second Member State would be subject to the same requirement of honest practice in ascertaining whether a similar or identical trademark had already been registered in that Member State (or as a Community trademark) before the name was adopted.”111 The duty to observe honest practices therefore would not be affected if Céline Sàrl were a business in another Member State, entering the French market. A. ON THE NEED TO DEVELOP NUANCED CRITERIA WHEN ANALYZING TRADEMARK USE
Prima facie, the heightened protection of trade names is likely to facilitate the transborder movement of goods throughout the Community. Once the company name is recorded in the business register in State A, assuming that the defendant has acquired sufficient goodwill in State B, depending on how it is used in the course of trade, an identical or similar trade name will be allowed to coexist over an earlier registered trademark. The enhanced protection of trade names renders registration of the company name a valuable asset. Like a well-known trademark, a trade name having reputation will transcend the customary territorial constraints of trademark law. In the case of the trademark law of the United Kingdom, the recent jurisprudence of the Appellate Body and ECJ concerning the protection of trade names fills an evident lacuna. Prior to the 1994 Trademark Act there was no infringement where use was not of the owner’s mark but of the owner’s business name containing that mark. This lacuna appears not to have been filled by the 1994 Act unless a trade name is consider to be a “sign.” However, in mediating the respective rights of trademark and trade name holders, adjudicators would be well advised to develop more nuanced criteria. Considerations of trademark use require a discriminating analysis of character of the goods, the structure of the market and the respective positions of the parties within the market. In the interests of competition, a systematic analysis of the goods for identicality is particularly significant, where those goods constitute a possible secondary market for the plaintiff trademark owner. As the German Toy Industry Association submitted in the Adam Opel case, a finding that the affixing of a protected trademark on scale models which are true replicas of vehicles sold under that mark does indeed constitute use as a trademark as such, would have allowed Opel to reserve the market in model cars to its licensees. On the other hand, to “reconcile the fundamental interests of trademark protection” means recognizing that third-party use of an identical trade name may significantly erode the ability of the mark to function as a guarantee of origin. For example, consumers who buy clothes in the Céline shop in Nancy and who are given invoices, payment receipts, and possibly other material, bearing the name CÉLINE, will associate the clothes with the name CÉLINE, even though such name is not affixed to the clothes themselves. The impact is likely to be all the more significant where the same name is used as a trademark 109 Case C-245/02, Anheuser-Busch Inc. v. Budejovický Budvar, Národní Podnik, E.C.J. November 2004 , ¶¶ 54–55. 110 See Case C-17/06, Céline Sàrl v Céline SA, Opinion ¶ 60. 111 Id.
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and trade name on the store fascia. In this regard, the corporate name, trade name, and style will fulfill the same function as would a trademark, i.e., distinguishing the goods sold by the SARL Céline company.112 The nature and the extent of the use of the trade name needs to be weighed with care. Even where a trade name primarily serves to identify a company, it may also have the effect of indirectly serving to distinguish the products sold by this company, even though the name is not affixed to the products. It is also obvious that, if such trade name is identical to a competitor’s trademark, the essential function of the mark could be affected, where consumers are likely to consider that there is a material link between the goods or services of the defendant’s trade name and those of the plaintiff’s trademark. In a case such as Céline trademark law should provide a remedy. An injunction may be granted to restrain a defendant from trading under a name resembling or including the plaintiff’s trademark. Trademark law would be unduly limited if the use of the CÉLINE trade name by the defendant were to be considered as incapable of amounting to trademark infringement as defined in Article 5(1). Such a use would affect the essential function of the registered CÉLINE trademark in the same manner as would a use of this sign directly on the products, since consumers may be led to believe that the goods have the same origin. The more distinctive the registered trademark, as in Céline, the more likely this is to happen.113 Clearly, in such a case, if the mark is inherently distinctive most consumers will assume that any company with that mark in its name is either an offshoot of the owner of the mark or that owner having changed its name. 1. Distinguish Merely Formal Use Advocate General Sharpston in Céline, therefore, cautions against too broad an interpretation of infringement in relation to the use of a trade name. In such cases it may be necessary to distinguish, between the merely formal adoption of such a name and the way in which it is subsequently used.114 A company name need not necessarily be used “in relation to” goods or services which the company supplies “in the course of trade,”115 Its use may be confined to more formal circumstances, the company in fact trading under one or more other names, as in the case of an invoice in the company name for the sale of goods identified by a different brand name or trademark. Her cautionary advice is tendered in light of the framework for infringement in Article 5 of the Directive. Use within the meaning of Paragraphs 1–4 is use for the purpose of distinguishing goods or services, whereas in Paragraph 5 there is use other than for the purpose of distinguishing goods or services.116 An injunction may be refused in circumstances where the defendant is able to market the goods in connection with his name, by clearly distinguishing those goods from the goods of the plaintiff.117 Moreover, even where the company name is used in some relationship to goods or services in the course of trade that use will not necessarily be such as to create the impression of a material link in trade with the proprietor of an identical or similar trademark and therefore to designate their origin. 112
Opinion of Advocate General Sharpston delivered on 18 January 2007, Case C-17/06 Céline Sàrl v Céline
SA. 113
Case C-251/95, Sabel BV v. Puma AG, 1998 R.P.C. 199, 1998 E.T.M.R. 1 (1997), ¶ 24. Id. ¶ 21. 115 Opinion of Advocate General Sharpston delivered on 18 January 2007, Case C-17/06 Céline Sàrl v Céline SA, ¶ 23. 116 Id. ¶¶ 23 & 24. 117 As Lord Greene said in Saville Perfumery Ltd v. June Perfect Ltd., [1941] 58 R.P.C. 147: “the statutory protection is absolute in the sense that once a mark is shown to offend, the user of it cannot escape by showing that by something outside the actual mark itself he has distinguished his good from those of the registered proprietor.” 114
500 S E S S I O N V I I : T R A D E M A R K 2. Taking a Global Approach to the Assessment of Liability In order to sharpen the focus of analysis in Céline, Advocate General Sharpston suggests that the court might employ a global appreciation in respect of the factors pertinent to trademark use for the purposes of Article 5(1)(a). As a method of assessing liability, such an approach is more likely to promote a greater understanding of how the factors involved in testing for trademark use, may serve to complement or contradict each other. Consider for example the case of Opel, while the marks were identical, an analysis of the respective markets, the consumers to whom the goods were intended and, the position of the trademark owner in the market, meant that the requisite liability for trademark use was absent. Conversely, were there a greater approximation of goods and markets, liability would have been all the likelier considering the identicality and proximity of the marks. B. THE DIRECTIVE ON UNFAIR COMMERCIAL PRACTICES
In addition to the relief available under national unfair competition laws,118 trademark and trade name holders throughout the Community will shortly have recourse to the Directive on Unfair Commercial Practices.119 With the aim of facilitating cross-border trade by harmonizing national laws, the Directive applies to misleading commercial practices between business and consumers.120 In accordance with Article 6(2): A commercial practice shall . . . be regarded as misleading if . . . it causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise, and it involves: (a) any marketing of a product . . . which creates confusion with any products, trademarks, trade names or other distinguishing marks of a competitor . . . .121 The criteria are objective so that there is no need to prove that a consumer was actually misled. The possibility of deception alone can be considered misleading, if the other elements are present as well. There is no need to prove a financial loss. Article 11 of the Directive stipulates that legal action may be taken by “persons or organizations regarded under national law as having a legitimate interest in combating unfair commercial practices.” The remedies available include injunctions restraining or prohibiting the misleading act, even if no actual loss or damage can be shown.122 118 In this regard Art. 5(5) allows Member States to provide protection for unfair competition and passing off against use of a sign “other than for purposes of distinguishing goods or services.” 119 Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market. Unfair commercial practices” include marketing that distorts consumers’ economic behaviour or harms consumers’ economic interests. It. at Art. 1 and Recital 11. In addition, Art. 1 lists specific examples of commercial practices that are regarded as automatically unfair, including “promoting a product similar to a product made by a particular manufacturer in such a manner as to deliberately mislead the consumer into believing that the product is made by that same manufacturer when it is not.” 120 According to Art. 2 (d), “business-to-consumer commercial practices” means “any act, omission, course of conduct or representation, commercial communication including advertising and marketing, by a trader, directly connected with the promotion, sale or supply of a product to consumers.” 121 Art. 6(1) contains a definition of a “misleading action.” If deemed to be a misleading action, a practice will automatically become an unfair commercial practice and will be prohibited. A misleading action is a practice that “contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct . . . and . . . causes or is likely to cause him to take a transactional decision that he would not have taken otherwise’. 122 Art. 13 provides not only for damages on a showing of loss but also for “effective, proportionate and dissuasive” monetary penalties. Art. 13 leaves it open to Member States to impose penalties for infringements of the rules introduced by the Directive.
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The Unfair Commercial Practices Directive is due to be implemented by October 2007.123 It remains to be seen therefore whether the unreliable protection accorded trade names by the action for passing-off will be offset when claimants are able to take alternative action against conduct that is misleading or deceptive. VI. CONCLUSION The visibility of the company within the new media, the corresponding rise of the corporate brand and the need to optimize brand equity have contributed to the development of trade name protection in Europe. The decision of the WTO Appellate Body to recognize trade names as a category of intellectual property subject to the TRIPs Agreement facilitated the work of the ECJ in bringing about their further harmonization. So much is evident from the case of Anheuser-Busch, which resulted in better-defined protection for the trade name of Budjovicky Budvar. As long as unfair competition law is not harmonized throughout the European Union, trade names will rely on the jurisprudence of the ECJ to determine appropriate standards of protection and mediate the scope of trademark rights. The protection of trade names continues to rely on general rules of unfair competition and civil remedies in accordance with Article 8 of the Paris Convention. In principle, a trade name that has been duly registered in its home state will be protected against a later conflicting trademark. Assuming the trade name possesses sufficient reputation, this may mean that where products or services are identical or similar, a certain degree of consumer confusion may be tolerated, allowing identical or similar trade names and trademarks to coexist. The overlapping nature of rights in trademarks and trade names, the need to determine the nature of honest business practice, and to consider the base line for entry into secondary markets, has given rise to the need for a more discriminating approach to adjudication.124 Necessary limits to the privileged scope of rights in the defendant’s use are marked by the proviso that the trade name has been established in accordance with honest business practice marks. Where registration of the trade name is later in time than the conflicting trademark, the holder of the trade name will have to show a standard of reasonable diligence in registering an identical or similar trade name, if protection is not to be lost. If the budding entrepreneur is to later affirm rights in the trade name, due diligence indicates that he or she would be well advised to conduct a European-wide trademark search prior to adopting and registering a company name in the local business register. While the principle of the free movement of goods favors the expansion of business into new national markets, this advantage comes at the price of higher policing and transaction costs. As a matter of regulatory theory, the reconciliation inheres in the view that promoting innovation and enterprise constitutes the common factor in protecting intangible property rights in both trademarks and trade names.125
123 The obstacle for brand owners who wish to use the Directive may still be the requirement for confusion. Nowhere does the Directive explain precisely what is intended by confusion as to commercial origin. Further see Gill Grassie, EU Directive on Unfair Commercial Practices — A UK Perspective, 1 J. Intell. Prop. L. & Prac. 103 (2006). 124 Gowers Report, supra note 60, at 1.28. 125 On the common element of all “intellectual property” as a “right over intangible property” or Immaterialgüterrecht, and on the latter twentieth-century provenance of the term, see Georges Koumantos, Reflections on the Concept of Intellectual Property, in J. Intell. Prop. & Info. L.: Essays in Honour of Herman Cohen Jehoram 39–45 (J.C. Kabel & Gerard J.H.M. Mom eds., 1998).
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MR. KÖHLER:
* * * Thank you, Gail. I am really curious to listen to your comments on the
Opel case. Spyros Maniatis, Queen Mary University of London, will present this case to us, “Opel: What Will it Mean for the Future?” *
*
*
Opel: What Will It Mean for the Future? Spyros Maniatis Professor in IP Law, Centre of Commercial Law Studies, Queen Mary, University of London I. INTRODUCTION Adam Opel126 offered the ECJ the opportunity to consider the fundamentals of trade mark infringement. For instance, does use of identical signs on identical products lead to an automatic finding or simply to an assumption of infringement? Are there any variations in the concept of confusion? Or, how can the type of use of the conflicting sign influence the outcome of an infringement case? Adam Opel was the registered proprietor in Germany of a figurative mark, the OPEL BLITZ for “motor cars” and “toys.” Autec manufactured remote-controlled model cars, marketed under the brand CARTRONIC, one of which was a replica of the Opel Astra V8 Coupé bearing the OPEL mark. The Court repeated that protection under Article 5(1)(a) was not unconditional: “. . . the affixing by a third party of a sign identical to a trade mark registered for toys to scale models of vehicles cannot be prohibited under Article 5(1)(a) . . . unless it affects or is liable to affect the functions of that trade mark.” Accordingly, if “the relevant public does not perceive the sign identical to the Opel logo appearing on the scale models marketed by Autec as an indication that those products come from Adam Opel or an undertaking economically linked to it, [the national court] would have to conclude that the use at issue in the main proceedings does not affect the essential function of the Opel logo as a trade mark registered for toys.” Regarding the scope of Article 6(1)(b), the Court concluded by attempting a balancing exercise. On the one hand, “[O]ne cannot … exclude a priori the possibility that that provision might authorize a third party to use a trade mark if such use consists in giving an indication concerning the kind, quality or other characteristics of products marketed by that third party, provided that use is made in accordance with honest practices in industrial or commercial matters.” Nevertheless “the affixing of a sign which is identical to a trade mark registered, inter alia, in respect of motor vehicles to scale models of that make of vehicle in order to reproduce those vehicles faithfully is not intended to provide an indication as to a characteristic of those scale models, but is merely an element in the faithful reproduction of the original vehicles.” The paper argues that, given the jurisdictional and jurisprudential limitations of the Court and the factual peculiarities of trade mark cases, the Court should take a step back 126 Case C-48/05, Adam Opel AG and Deutscher Verband der Spielwaren-Industrie eV v. Autec AG, E.C.J. (Jan. 25, 2007).
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and detach itself from the facts of each case and instead insist on the basic principles established by its jurisprudence: genuine and substantiated likelihood of confusion that influences or affects the behavior of customers at the point of sale is at the core of trade mark protection. In Opel this could have accommodated the use of identical signs on identical products, whereas in Picasso127 the Court would not have to appear to backtrack from its acceptance of post-sale confusion in Budweiser.128 II. ADAM OPEL — THE FACTS Opel came before the Court as a reference from the Landgericht Nürnberg-Fürth (Germany). Adam Opel AG (Opel) was the Registered proprietor in Germany of a figurative mark, the OPEL BLITZ, for a number of products including “motor cars” and “toys.” Autec AG (Autec), a manufacturer of remote-controlled model cars, marketed under the brand CARTRONIC, used the OPEL trade mark on the grille of a replica of the Opel Astra V8 Coupé. On the packaging, the instructions, and the remote control there were various indications linking the product with Autec. When Opel started trade mark infringement proceedings, the German court referred the following questions to the Court: 1. Does the use of a protected mark, including as a “toy,” constitute use as a trade mark under Article 5(1)(a) when the manufacturer of toy-scale cars produces a scale model of a car that actually exists, including the sign placed on the model of the owner of the brand, and markets this scale model? 2. If the answer to question 1 is yes: Does the means of use of the brand described in question 1 constitute a mention relating to the type or quality of the scale-model of the vehicle under the terms of Article 6(1)(a) of the Directive? 3. If the answer to the question under two is yes: What are, in a case of this type, the determining criteria for evaluating whether use of the brand constitutes honest use when the manufacturer of the scale model places on the packaging and on an accessory necessary for the use of the scale model a recognizable sign of its own brand for the public along with an indication of the offices of the company? III. THE JURISPRUDENTIAL CONTEXT A. THE IDENTITY ISSUE
In Hölterhoff v. Freisleben129 the Court had declined to support an automatic funding of infringement in the case of identity: “. . . in a situation such as that described by the national court, the use of the trade mark does not infringe any of the interests which Article 5(1) is intended to protect. Those interests are not affected by a situation in which: – the third party refers to the trade mark in the course of commercial negotiations with a potential customer, who is a professional jeweler; – the reference is made for purely descriptive purposes, namely in order to reveal the characteristics of the product offered for sale to the potential customer, who is familiar with the characteristics of the products covered by the trade mark concerned; – the reference to the trade mark cannot be interpreted by the potential customer as indicating the origin of the product.” In Arsenal v. Reed 130 Advocate General Ruiz-Jarabo Colomer had also opposed auto127 128 129 130
Case C-361/04P, Claude Ruiz-Picasso v. OHIM, [2006] E.C.R. I-643. Case C-245/02, Anheuser-Busch Inc. v. Budejovicky Budvar [2004] E.C.R. I-10989. [2002] E.C.R. I-4187. [2002] E.C.R. I-10273.
504 S E S S I O N V I I : T R A D E M A R K matic findings. There should only be a presumption of likelihood of confusion in the case of identity; but that presumption might be rebutted if “there is a possibility, however remote it may be, that in a specific case use of a sign identical with another registered as a trade mark may not be prevented by the proprietor on the basis of Article 5(1)(a).” In cases of identity between signs and products there is a “presumption iuris tantum that the use by a third party of the trade mark is use thereof as such.” The Court was less clear. It focused on the interests of the proprietor and trade marks appeared to become objects of property. However, it linked the proprietor’s interests with the protectable functions of a trade mark. “It follows that the exclusive right under Article 5(1)(a) of the Directive was conferred in order to enable the trade mark proprietor to protect his specific interests as proprietor, that is, to ensure that the trade mark can fulfill its functions. The exercise of that right must therefore be reserved to cases in which a third party’s use of the sign affects or is liable to affect the functions of the trade mark, in particular its essential function of guaranteeing to consumers the origin of the goods.” The mirror argument was that the proprietor might not prohibit uses that could not affect its “own interests as proprietor of the mark, having regard to its functions.” B. POST-SALE CONFUSION
The Court also hinted that confusion away from the point of sale — in this case post-sale confusion — could suffice: “. . . there is a clear possibility in the present case that some consumers, in particular if they come across the goods after they have been sold by Mr Reed and taken away from the stall where the notice appears, may interpret the sign as designating Arsenal FC as the undertaking of origin of the goods.” Justifying its position from the consumer’s perspective, the Court added that under these circumstances the guarantee that all goods bearing the same “trade mark have been manufactured or supplied under the control of a single undertaking which is responsible for their quality” would be impaired. Post-sale confusion was revisited in Anheuser Busch v. Budejovicky Budvar,131 which involved a conflict between a trade mark and a trade name. There the Court noted that using the latter sign in such a way as to create the impression of a material link in trade between a third party’s goods and the undertaking from which the original goods originated would be an infringement and appeared to endorse post-sale confusion. “It must be established whether the consumers targeted, including those who are confronted with the goods after they have left he third party’s point of sale, are likely to interpret the sign, as it is used by the third party, as designating or tending to designate the undertaking from which the third party’s goods originate.” However, the Court took a step back in Claude Ruiz-Picasso v. OHIM.132 From a positive perspective, the Court stressed that the level of consumer attention at the time of purchase would be higher for particular products. “Where it is established in fact that the objective characteristics of a given product mean that the average consumer purchases it only after a particularly careful examination, it is important in law to take into account that such a fact may reduce the likelihood of confusion between marks relating to such goods at the crucial moment when the choice between those goods and marks is made.” Undermining the relevance of post-sale confusion, the Court accepted that the post-sale effects do not “prevent the taking into account of the particularly high level of 131 132
[2004] E.C.R. I-10989. [2006] E.C.R. I-643.
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attention exhibited by the average consumer when he prepares and makes his choice between different goods in the category concerned.” And, revisiting Arsenal, it noted that it involved the application of a sign that was identical to the registered trade mark on identical goods. This, it stressed, should have been precluded according to Article 5(1)(a). The Court had only referred to the post-sale effect of the sign in order to assert that the message conveyed at the point of sale — regarding the source of the product — should not affect its interpretation of the provision. In a rebalancing exercise, the Court combined the factual background of the earlier case with the legal findings of Picasso in order to avoid a broad reading of Arsenal on post-sale confusion. Almost defensively, the Court stated: “In doing so, the Court did not in any way express a general rule from which it could be inferred that, for the purposes of an assessment of the likelihood of confusion . . . there is no need to refer specifically to the particularly high level of attention displayed by consumers when purchasing a certain category of goods.” C. DEFENSES
Turning to defenses, the Court of Justice had ruled in BMW AG & BMW Nederland BV v. Deenik133 that trade mark rights may be limited under Article 6(1)(c) if the marks are used by a third party to indicate the intended purpose of a product or service. The unauthorized, but legitimate under Articles 6 and 7, use of a trade mark would carry part of the aura surrounding the trade mark from its registered proprietor to the unauthorized user but this is the price for reconciling the exclusivity of trade mark rights with competition, free movement of goods, and freedom to provide services. In Gerolsteiner Brunnen — KERRY/GERRY 134 it added that Article 6(1)(b) does not distinguish between the possible uses of the indications to which it refers. The only test should be whether the indication of geographical origin is used in accordance with honest practices in industrial or commercial matters, equating to a duty to act fairly in relation to the legitimate interests of the trade mark owner. Thus, “the mere fact that there exists a likelihood of confusion between a word mark registered in one Member State and an indication of geographical origin from another Member State is . . . insufficient to conclude that the use of that indication in the course of trade is not in accordance with honest practices.” In Gillette v. LA-Laboratories135 the Court attempted another balancing exercise. It found that Article 6(1)(c) goes beyond the distinction between accessories and spare parts; it is not necessary to determine whether a product should be regarded as an accessory or a spare part. On the other hand, it narrowed the scope of the provision in two ways. First, by noting that what matters is whether the use in question is in practice the “only means” of providing such information; for example, the national authority would have to consider whether technical standards can convey similar messages. Second, by adding that the “honest practices” requirement would not be satisfied when: there is an impression of a commercial connection; unfair advantage of the trade mark’s distinctive character or repute; use that might discredit or denigrate the mark; there is an impression of an imitation or replica. National courts should take into account: the overall impression of the product, in particular the circumstances in which it is displayed; the distinction made between the marks, the effort to distinguish between the products. 133 134 135
[1999] E.C.R. I-905. [2004] E.C.R. I-691. [2005] E.C.R. I-2337.
506 S E S S I O N V I I : T R A D E M A R K III. THE OPINION OF THE ADVOCATE GENERAL A. USE OF A SIGN AS A REGISTERED TRADE MARK
Advocate General Ruiz-Jarabo Colomer noted that a basic characteristic of toys was that they constituted the representation of something else. Interpreting the jurisprudence of the Court, he linked the ruling in BMW, on the scope of trade mark rights under Article 5(1)(a), with Arsenal, finding that there the Court had followed a similar teleological approach by linking the exclusive right with the function of a trade mark and holding that use that did not harm the rights of the proprietor fell outside the scope of protection. In Opel the national court had to conduct a similar evaluation, recognizing the fact that the OPEL logo appeared on the body of the toy cars irrespective of whether the manufacturer was a licensee or a third party. B. OTHER USES OF A SIGN
Regarding the exceptions under Article 6(1)(b), he noted that they applied when third parties, for reasons dictated by the public interest, were allowed to benefit from the advantages deriving from the use of the sign as a trade mark. Citing Hölterhoff, he added that references for purely descriptive purposes did not constitute use as a trade mark because, in these conditions, there was no harm done to the interests that Article 5(1) aimed to protect. And he referred to his Opinion in Arsenal where he had included to non-fringing uses private use, use of symbols that failed to satisfy the requirements for their registration, and uses for educational purposes. He had also stated there that the national judge had to take additional factors into account, like the nature of the goods, the structure of the market, and the penetration of the brand. Concluding, he stated that uses outside the essential function of a trade mark would have to be assessed progressively, on a case-by-case basis. Looking at them from a broader theoretical and justificatory perspective, he remarked that, unlike the cases falling under Article 6(1), they did not require a restrictive interpretation, because they did not constitute derogations, but rather limitations on the use of ius prohibendi. IV. APPLICATION TO THE FACTS — ARTICLE 51(1)(a) Having set the legislative background, he went on to examine how the facts of the case fitted into it. He found that the application of the logo on the toy cars should not be linked with the protectable function of a trade mark for two reasons: first, because of the nature of the product and, second, because of consumer perceptions. Looking at the product market, he noted that miniature cars, trains, shops, and airplanes had been marketed widely since 1898; little cars were the “Proustian Madeleine” of adults reliving their childhood experiences. The audience for the product comprised children of different ages but had gradually also reached adult collectors. To satisfy demand the toys had to replicate even the tiniest details of the original car, including the signs appearing on them. The car industry had only recently been involved in this market, primarily in order to build customer loyalty through merchandising and advertising. As a result of the product market analysis, he concluded that it would be difficult to imagine that the public would automatically associate the signs appearing on the toy cars with the manufacturer. A monopoly over the use of the signs on toy cars, following a too rigorous interpretation of the ius prohibendi, would threaten the existence of the market for toy cars. The licensees of the car manufacturers “would be the only ones authorized to provide detailed replicas of the authentic vehicles, thereby unjustifiably restricting the freedom of competitors to conduct their business.”
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Regarding consumer perception, the Advocate General referred to Anheuser-Busch: the identification of possible harm caused by a third party’s use depended on the perception of a material link in the course of trade between the third party’s products and those of the trade mark proprietor. So, what courts had to do was assess whether the relevant consumers perceived the sign as designating the trade mark proprietor. The referring court had examined the link created by the sign and found that, as intended by the nature of the product, it established a link between the miniature prototype and the real car, but not with the toy models manufactured by Opel’s licensees. This should not constitute trade mark infringement. “This would only be the case if the consumer associated the Opel sign on the toy cars of third parties with the one figuring on the toy cars marketed by Opel.” The next remark of the Advocate General was that the toy car and the original car did not belong to the same category of goods; thus they did not constitute identical goods under Article 5(1)(a). In his concluding suggestion on how the first question should be answered, the Advocate General refocused on the importance of use as a trade mark. Use of a registered sign on toys should not constitute use as a trade mark under the terms of Article 5(1)(a) when the manufacturer of a model car reproduced on a smaller scale and marketed a replica of an actual existing model bearing the trade mark of the owner. A. THE APPLICATION OF ARTICLE 6(1)
Advocate General Ruiz-Jarabo Colomer looked briefly at the remaining two questions, in the hypothetical scenario of a negative answer to the first question, finding that Article 6 would also cover the use made by the toy manufacturer. The aim of Article 6(1) was to balance between the interests of the trade mark proprietor, on the one hand, and those of its competitors, on the other, seeking to secure the availability of descriptive signs. But, since it constituted an exception to the general rules on protection under Article 5, he accepted it had to be interpreted narrowly. Accordingly, he found it difficult to argue that the reproduction of the sign on the toy car qualified as an indication of the type or quality of the product. However, since the nature of a model necessitated the accurate and detailed copy of the original, the sign should be considered as falling within the scope of Article 6(1)(b) as describing other characteristics of the product because it achieved two objectives: it enhanced the information conveyed to consumers and ensured that the operators in the same product market competed under the same conditions. In essence, what the Advocate General suggested was that the market for each replica constituted a distinct product market. The third question concerned the remaining consideration for the application of Article 6(1)(b): had the sign been used in accordance with honest commercial or industrial practices. To answer that question, he went back to the jurisprudence of the Court in Gillette. The most relevant of the uses mentioned therein would be where the third party presented its product as an imitation or reproduction of the marked product. This would not, however, cover miniature toys because they did not imitate the miniatures manufactured by Opel licensees but the actual car manufactured by Opel. According to the Advocate General, compliance with the condition of honest practices should be determined, according to Anheuser-Busch, by making an overall assessment of the facts of the case and taking into account three particular factors: the extent that use of a commercial name would be understood by the relevant public as indicating a link between the third party’s products and the trade mark proprietor; the extent that the third
508 S E S S I O N V I I : T R A D E M A R K party should have been aware of this; and whether it possessed a reputation from which the third party could benefit in order to market its own products. The way Autec presented its products warranted the application of Article 6(1)(b); the inclusion of its own trade marks and indications was evidence of honest behavior in compliance with commercial practice. VI. THE JUDGMENT OF THE COURT OF JUSTICE A. THE FIRST QUESTION
The Court started by stating that under Article 5(1)(a), the “exclusive right entitles the proprietor to prevent all third parties, acting without his consent, from using in the course of trade any sign which is identical to the trade mark in relation to goods or services which are identical to those for which the trade mark is registered.” In this case it was undisputed that the use of the sign was use in the course of trade. “In so far as the Opel logo has been registered for toys,” this is moreover the case envisaged in Article 5(1)(a) of the Directive, namely that of a sign identical to the trade mark in question in relation to goods — toys — which are identical to those for which the trade mark was registered.” ’ It added though that protection was not unconditional: “. . . the affixing by a third party of a sign identical to a trade mark registered for toys to scale models of vehicles cannot be prohibited under Article 5(1)(a) . . . unless it affects or is liable to affect the functions of that trade mark.” Turning to the factual scenario, it noted that “the referring court has explained that, in Germany, the average consumer of the products of the toy industry, normally informed and reasonably attentive and circumspect, is used to scale models being based on real examples and even accords great importance to absolute fidelity to the original, so that that consumer will understand that the Opel logo appearing on Autec’s products indicates that this is a reduced-scale reproduction of an Opel car.” Accordingly, “[I]f, by those explanations, the referring court intended to emphasize that the relevant public does not perceive the sign identical to the Opel logo appearing on the scale models marketed by Autec as an indication that those products come from Adam Opel or an undertaking economically linked to it, it would have to conclude that the use at issue in the main proceedings does not affect the essential function of the Opel logo as a trade mark registered for toys.” The Court then considered the mark registered for motor vehicles. Distinguishing Opel from BMW, the Court noted that the latter “concerned the use of a sign identical to the trade mark for services which were not identical to those for which that trade mark was registered, since the BMW trade mark at issue in the main proceedings was registered for vehicles but not for vehicle repair services. However, the vehicles marketed under the BMW trade mark by the proprietor of that mark constituted the subject-matter of the services — the repairing of vehicles — supplied by the third party, so that it was essential to identify the origin of the BMW cars, the subject-matter of those services. It was having regard to that specific and indissociable link between the products bearing the trade mark and the services provided by the third party that the Court of Justice held that, in the specific circumstances of the BMW case, use by the third party of the sign identical to the trade mark in respect of goods marketed not by the third party but by the holder of the trade mark fell within Article 5(1)(a) . . ..” The Court then attempted to provide a broader principle: “Apart from that specific case of use of a trade mark by a third-party provider of services having as subject-matter the products bearing that trade mark, Article 5(1)(a) . . . must be interpreted as covering
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the use of a sign identical to the trade mark in respect of goods marketed or services supplied by the third party which are identical to those in respect of which the trade mark is registered. It looked at the provision, both from a literary and contextual/teleological perspective. “First of all, the interpretation whereby the goods or services referred to in Article 5(1)(a) . . . are those marketed or supplied by the third party followed from the wording of that provision itself, particularly the words ‘using . . . in relation to goods or services.’ Secondly, the contrary interpretation could lead to the words ‘goods’ and ‘services’ used in Article 5(1)(a) . . . designating goods or services of the trade mark proprietor, whereas the words ‘goods’ and ‘service’ appearing in Article 6(1)(b) and (c) . . . necessarily refer to those marketed or supplied by the third party, thereby leading, contrary to the scheme of the Directive, to interpreting the same words in a different way according to whether they appear in Article 5 or in Article 6.” Accordingly, and since Autec did not sell vehicles, it found that there was no use of the OPEL logo by Autec “as a trade mark registered for motor vehicles, for the purposes of Article 5(1)(a).” The Court then looked at the applicability of Article 5(2) in relation to the motor vehicles mark; “. . . subject to verification by the referring court, it is a trade mark well known in Germany for that kind of products, and, finally, a motor vehicle and a scale model of that vehicle are not similar products. Therefore, the use at issue in the main proceedings is also capable of being prohibited, in accordance with Article 5(1(a) of the Directive, if such use without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of that trade mark registered for motor vehicles.” The Court noted that Adam Opel had argued that it had an interest in the quality of scale models of Opel vehicles being good and the range of models being up to date. It found that this was a factual assessment. “It is for the referring court, where necessary, to determine whether the use at issue in the main proceedings constitutes use without due cause which takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the registered trade mark.” The Court concluded as follows: “Therefore, the answer to the first question must be that, where a trade mark is registered both for motor vehicles — in respect to which it is well known — and for toys, the affixing by a third party, without authorization from the trade mark proprietor, of a sign identical to that trade mark on scale models of vehicles bearing that trade mark, in order faithfully to reproduce those vehicles, and the marketing of those scale models: — constitute, for the purposes of Article 5(1)(a) of the Directive, a use which the proprietor of the trade mark is entitled to prevent if that use affects or is liable to affect the functions of the trade mark as a trade mark registered for toys; — constitute, within the meaning of Article 5(2) of the Directive, a use which the proprietor of the trade mark is entitled to prevent — where the protection defined in that provision has been introduced into national law — if, without due cause, use of that sign takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark as a trade mark registered for motor vehicles.” B. THE SECOND QUESTION
Here the Court ignored the specific reference to Article 6(1)(a) by the referring court: “Although, in its second question, the referring court requests interpretation of Article 6(1)(a) . . ., it is clear from the order for reference that it is in reality seeking an interpretation of Article 6(1)(b).” It also dismissed the applicability of Article 6(1)(c): “As a preliminary observation, it should be noted that the use of the Opel logo at issue in the main
510 S E S S I O N V I I : T R A D E M A R K proceedings cannot be authorized on the basis of Article 6(1)(c) . . . The affixing of that trade mark on Autec’s scale models is not designed to indicate the intended purpose of those toys.” Regarding the scope of Article 6(1)(b), the Court stated: “. . . the trade mark shall not entitle the proprietor to prohibit a third party from using, in the course of trade, indications concerning the kind, quality, quantity, intended purpose, value, geographical origin, the time of production of goods or of rendering of the service, or other characteristics of goods or services ... whilst this provision is primarily designed to prevent the proprietor of a trade mark from prohibiting competitors from using one or more descriptive terms forming part of his trade mark in order to indicate certain characteristics of their products.” The Court concluded by attempting a balancing exercise. On the one hand, “[O]ne cannot . . . exclude a priori the possibility that that provision might authorize a third party to use a trade mark if such use consists in giving an indication concerning the kind, quality or other characteristics of products marketed by that third party, provided that use is made in accordance with honest practices in industrial or commercial matters.” Nevertheless “the affixing of a sign which is identical to a trade mark registered, inter alia, in respect of motor vehicles to scale models of that make of vehicle in order to reproduce those vehicles faithfully is not intended to provide an indication as to a characteristic of those scale models, but it merely an element in the faithful reproduction of the original vehicles.” VII. THE WAY FORWARD: REVISITING THE PAST It is worth highlighting three points regarding the jurisdiction of the Court. First, it does not have the luxury of picking its cases. Second, at least in its interpretive function, it only looks at snippets of cases that are often characterized by very particular facts. It is not uncommon for the Court to get drawn into the facts when it should be dealing with basic principles. This distorts the rulings of the Court in two ways. From its own perspective the Court often appears to shift from one position to another in order to accommodate diverse factual scenarios. On the other hand the wider significance of a judgment can be lost because the audience is fixated on the facts or the particular question referred to the Court. Third, the Court has to speak with one voice; the embedding into the same judgment of potentially conflicting views means that basic principles are stretched to their limits or that succinct multifactor tests are lost into the balancing narrative. On the other hand the Court appears to have chosen a pragmatic approach, adjusting the scope of the right when it feels that it has perhaps gone too far and in a way functioning as an ultimate court of appeal. This, though, might create some uncertainty from an interpretive perspective. A possible solution is for the Court to take a step back and detach itself from the facts of each case and instead insist on the basic principles established by its jurisprudence: genuine and substantiated likelihood of confusion that influences or affects the behavior of customers at the point of sale is at the core of trade mark protection. In Opel this could have accommodated the use of identical signs on identical products, whereas in Picasso the Court would not have to appear to backtrack from its acceptance of post sale confusion in Budweiser. *
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MR. KÖHLER: Spyros, one key question is whether the case was correctly decided. We have identical marks. We have identical goods. PROF. MANIATIS: As an audience, trademark lawyers are getting too much hooked on the outcome of the case. I think, as an outcome, it was correctly decided. But I would say that it should have decided that case in that way under Article 6 rather than Article 5. MR. KÖHLER: May I ask you one additional question? How would you evaluate the following case: Local trains branded in white and red with the COCA-COLA logo were manufactured as scale-model toys. These trains exist in reality. But, of course, there are also other local trains not branded with the COCA-COLA logo. What would you think about that? PROF. MANIATIS: It could be a case where you want to protect a trademark that has a reputation used on similar goods. Then, as the courts in Opel highlighted, you do have also the possibility to protect your sign on the basis of Article 5.2. MR. KÖHLER: But the toy manufacturer will argue, “We want to reproduce this train, which is existing in reality.” PROF. KUR: Can you please answer me a question first? How did the court decide Opel? What is the outcome of the case? Nobody knows about that exactly because it goes back to the national court. The national court must find out how consumers perceive the mark. MR. KÖHLER: What will the outcome be? PROF. KUR: We do not know. But the Court, without having been asked, seemed to be quite convinced that consumers do not see this as indicating. This is another instance where the Court simply stepped in, in order to give guidance in something that it wasn’t even asked, and said, “But there is still Article 5(2); this could be an abuse of reputation”; and again, “Please, national court, you make up your mind whether this is so or not.” There is no guidance at all as to how the court should handle that particular argument. So nobody knows what will come out of it. I think there is a big chance, in this case and also in other cases, that the courts will say, “If the ECJ thinks that this is the reputed mark, and maybe because Opel cannot be so sure whether the quality of the cars is good or not, then let’s judge that this is an abuse of reputation.” There are a lot of things that need to be criticized about the Opel judgment. But throwing this stone into the water without having been asked, without saying anything about how this should then be judged, whether it is indeed something that is legally important that somebody who is a car manufacturer, who is identified and perceived by consumers as having no links with Opel at all — maybe that guy does not make very good cars. How can this affect the reputation of Opel, without people seeing any links? The Court does not say anything about how this should be legally assessed. It just gives the court the opportunity to do whatever it wants. MR. LLEWELYN: Even before you get into that difficult issue of Article 5(2), how do you reconcile this case with Arsenal? PROF. KUR: No way you can reconcile it. MR. KÖHLER: May I ask one question? David, do you think the Court is absolutely neutral about Article 5(2) in its finding? I would not say that. MR. LLEWELYN: No, I do not think it is neutral. I think it is almost saying, “If these were of a poor quality, then Opel might have the possibility of stopping it,” which is absurd. MR. KÖHLER: How can it be about quality? MR. LLEWELYN: I agree. MR. KÖHLER: I think the Court is not neutral, because there is a clear understanding of what the outcome should be.
512 S E S S I O N V I I : T R A D E M A R K PROF. LADDIE: May I just say there are going to be people in this audience who do not know the Opel case and are learning about it for the first time. I think it is quite important to realize that there were two marks, both for the OPEL logo. A shrunk-down version of the OPEL logo was put on the defendant’s toy cars, because they were imitations of Opel cars. The two trademarks owned by the Opel company were, first, that sign for motor cars and, second, that sign for toys. There are, therefore, two parts of the decision. It is very important to distinguish between the two parts. Insofar as the mark was for toys, you had the identical mark used on precisely the same goods. It is quite important to realize that. As a result of Arsenal, people would say it is used in the course of trade, it is a commercial use by the defendant, it is on identical products; therefore, it must be an infringement. It is important to realize that under our jurisprudence, when it is identical goods and identical marks, you do not need to show confusion. Therefore, identical goods, identical marks — bang, it must be an infringement. But what the Court said was no. There is an enormous argument now in Europe as to precisely why it said that. One of the arguments centers on a dispute as to whether the Court held that this was not trade mark use by the defendant. The sign was used to decorate the toy car, but nobody looking at the toy car would say that the little logo indicated who made the car. That takes us right back to Arsenal. If you ask a hundred trademark lawyers in Europe what Opel means, you will get 120 answers, at least. MR. KÖHLER: Let me add something. Opel has licensees and is licensing toy manufacturers. This is also important to know. In the judgment of the ECJ, the ECJ argues that consumers looking at the toy are not thinking about toys; they are thinking about the real car. Then it was over for Opel. PROF. MANIATIS: The Court said, “We do not want to get drawn into whether this is trademark use. This is why we will use the interests of the proprietor and the essential function of the trademark.” This use, the Court said, according to the German court, does not affect the interests of the proprietor, so it should not be covered even under Article 5(1)(a). I think the Court has to sometimes deal with unsatisfactory legislation. We have this distinction in Europe between identical marks/identical goods infringement, and identical or similar marks/identical or similar goods where you need to show confusion. The Court cannot do what the Supreme Court has done in the United States and say “We will have a multifactor test, where we will put everything into this melting pot and we will decide whether there is confusion or not at the end.” I think this is what the Court would like to do, and what the ECJ is trying to do. It is trying to say that the hard core of trademark protection is based on confusion; it is confusion that we should protect against. To some extent, it is introducing confusion into Article 5(1)(a) through the back door, by referring to the essential function of the trademark and to the protectable interests of trademark proprietors. DR. EVANS: The expression the Court used is “a material link.” So when the Court is determining whether the third party’s use affects the essential function of the plaintiff’s mark, it is saying that a part of the analysis is whether there is a material link in the minds of consumers. I have a brief anecdote that highlights the Opel case. I was teaching this case, and after the class a student came to me and he said, “This case is nonsense. I was shopping in Germany, in Berlin, on the weekend, as a matter of fact.” He went on to explain that he was aware that at issue was one of Autec’s word marks, CARTRONIC, the trade name
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Autec AG, as well as the OPEL ASTRA V8 logo on the grill (that is, the circle with the lightning through it). He said, “It is quite clear to me that there can be absolutely no confusion.” Indeed, if you look on the Internet, if you go to the Autec site, you will see that the packaging bears the word CARTONIC in large letters. Of course, for trademark lawyers, it is a matter of principle that we are talking about. But I think, as the panel has made quite clear, for consumers there is no question of confusion or, as we say with respect to Article 5(1) of the Trademark Directive regarding identicality, no “material link.” MR. LLEWELYN: Isn’t one of the problems, though, that trademark law in Europe has just lost touch with reality? One can, I think, understand the reason for having a provision that gets rid of the requirement of showing a likelihood of confusion where one is dealing with counterfeits. You can see why you warrant a provision like this, so that where you have a counterfeit, you do not have to go through those particular hoops. But the problem is that, in introducing a provision for a quite legitimate reason, the legislature did not think beyond that particular limited issue and think about how, once you divorce trademark law from either confusion or the likelihood of confusion, both in the case of identicality and in the case of dilution, that way lies madness. MR. KÖHLER: Annette? PROF. KUR: I just wanted to stress that the ECJ has now demanded that the use that is made of the mark is, in a way, conflicting with the functions of the trademark. But they say — and it is really important to the details — it must conflict with the functions of the trademark, in particular its essential function. So they leave the door open, even if it conflicts with other functions, like the advertisement function, which could also come into the picture. This is why you do not know what trademark law is about in Europe right now. I think that for the ECJ the situation is now very comfortable, because they have made so many statements in so many different ways, and they are so contradictory in what they have said, that, whatever they are going to decide in the future, they will find one or another decision that they can cite, where they can create the impression that they are still in line with what they have said before. I wanted to address one other thing that we have not been talking about. There was quite a lot in this awful decision. One of the points that struck me is that they obviously do not want to include any longer the referential use of trademarks, which is an important topic. We talked about that yesterday in the Plenary Session. One of the statements that they make is that the use that is made of the mark by the third party must relate to the goods or services offered by that third party and not by somebody else. So if you just use the mark in order to refer to somebody else, then it is not use that comes into Article 5. They make a distinction and say only the case where you are rendering services is one where it would be used as a mark, when you point towards the mark of the goods to which your services relate. They did not think about, for instance, Gillette.136 I asked myself, what about that decision? Gillette’s case was a case where somebody was selling replacement blades for razors, and where he was just pointing out that the blades he was selling under his trademark also fit the razors of Gillette he made reference to Gillette. That was considered to be trademark use. It was a referential use. They do not distinguish Opel from that case. Again I wonder, what is the situation now? Is Gillette included? Is it not included? Is 136
2005.
Case C-228/03, The Gillette Co. and Gillette Group Finland Oy v. LA-Laboratories Ltd. Oy, E.C.J. Mar. 17
514 S E S S I O N V I I : T R A D E M A R K referential use something they get rid of ? Is it only use for one’s own products that would count under Article 5? Then what about this O2 thing that goes up to the ECJ? In a comparative advertisement, you are also not using another’s mark for your own products or services; you are making reference to that guy. Is that under trademark law or not? We do not know where we are. They really created chaos. PROF. LADDIE: Once again, for those in the audience who are not familiar with these cases, can I just tie together two things that David and Spyros said? Spyros used a very interesting little expression in the course of his talk. He said that with identical marks, identical goods, there is an inference of confusing similarity. The whole point of our trademark legislation in Europe is, as David says, that it creates a special category of infringement — identical mark, identical goods — where you do not need to prove confusion. But most people believe that that was created not because it was creating a new super type of right, but it was saying it is not necessary to prove confusion where the defendant is using the same mark on the same goods. That is the idea. The trouble with it — and it is a problem that we have to face that has kept on resurfacing in Europe – is if you ignore questions of confusion and you simply ask, “Is the mark identical? Are the goods identical,” if the answer to those two questions is yes, it is a short step to a finding of infringement. You end up with a right like copyright. There is a well-known example used by lawyers. Let’s say the trademark is a question mark. It is registered for paper articles. Somebody writes a book with the title The End of the World? Is that an infringement? It has a question mark. It is the same sign and it is used on the same goods and it is used in the course of business. Most lawyers would say that cannot be an infringement. The problems created by Arsenal and by Opel are the recognition that there must be some limit on the scope of trademark rights. But the ECJ, in my view — and, I suspect, in Annette’s view — has failed conspicuously to make it clear what the limit is. As somebody who has an interest in trademark law, that is a most crucial failing. Of all the things that you need to know in trademark law, probably the most important is what is the scope of the rights that you acquire by getting a registered trademark. You have to know what monopoly rights, what exclusive rights, you get. That is not a peripheral question; it is central. Some of us did not like what is the ECJ said in Arsenal. I am one of them. But I am now in the happy position of saying Arsenal may have been wrong. Who knows? Had Opel been decided before Arsenal, Arsenal might have been decided a different way. We just do not know. It is a mess. And that is a real failing of the ECJ. MR. LLEWELYN: But I think another important point is that the ECJ actually said, as well, that the defense of descriptive use or referring to characteristics did not apply. I think that is a critical point as well. Everybody was thinking it doesn’t matter about the breadth of this “identical/identical, no-need-to-show-confusion” provision, because you have the defense of referring to a characteristic of the goods or being purely descriptive. But they said that does not apply. Therefore, where does that leave you? If, for example, you have on the front of a T-shirt a registered trademark, that does not refer to the characteristics of T-shirts, unless it happens to be the word “cotton.” So is that an infringement under Article 5? That, again, is one of the issues about which everybody thought, “Oh, no problem. It can’t be an infringement, can it?” It might be unfair competition, in my view, but whether it is trademark infringement I have great doubts about. But now where does this leave us? PROF. LADDIE: An example I like to give students is as follows: everybody knows that
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political parties now have to make money to support their election campaigns. Assume that in the United Kingdom the Conservative Party registers CONSERVATIVE with a little logo as a trademark for clothes and caps, and the Labour Party registers the word LABOUR — or NEW LABOUR as it is now called — as a trade mark for clothes and caps. Somebody who wants to support the Labour Party at the election has a golf cap and it has “Labour” written across the top. When Arsenal came out, somebody selling caps with the word LABOUR across the top would be an infringer. After Opel, who knows? PROF. KUR: May I say something? I think what David said is extremely important. The limitations are so important. The way in which the Court dealt with that point in Opel may be the worst one, although it is hard to decide which is the worst thing — not as regards the outcome; it may be that the court in Nuremburg will get it right. I am sympathizing with the carmaker, obviously. But one may have different opinions on that. I am not talking about the outcome of the concrete case, which is quite insecure, I think. But the decision as such has so many flaws. One of them is what they said about the non-applicability of the limitation concerning descriptive use in this case. Again, you find a clear contradiction of that statement, when you look into the Linde, Winward, Rado case, the case about registration of three-dimensional signs.137 One of the questions has been there whether the obstacle against registration applying to descriptive marks can be applied to three-dimensional signs. There were some doubts about that. Can you say that a three-dimensional object is descriptive, as to itself ? The Court said, yes, of course it can be descriptive. There is no reason to exclude a three-dimensional sign from falling under the obstacle against a descriptive mark. In Opel they said the affixing of the OPEL logo was an element in faithful reproduction of that scale model. I ask myself: When the scale model itself, as a three-dimensional object, can be descriptive of itself, being a scale model, and the OPEL sign being affixed to it is an element of that making of the toy model, why can that not be descriptive? So again, there is no consistency in what the Court is saying. MR. KÖHLER: Paul, OHIM was not involved in this case, so you can speak up freely. MR. MAIER: Yes, but with prudence. A number of criticisms that were raised here are certainly valid criticisms. But I would like to bring in some words of understanding for the ECJ and also for the CFI. The procedure of reference for a preliminary ruling in an infringement procedure is actually something perverse. Obviously, the judges get a very complete file. They know everything that happened in the first instance and in the appeal, how the questions came to arise. They, of course, have a very human reaction as to, “I would like to cite this one or the other one.” Very unfortunately, with what I called “the shrapnel approach” when speaking to David — picking out of a big box where all these principles cook, and where trademark lawyers, with a safe hand, pick the right one —sometimes they pick it wrong, that is true. But I think the criticism that is aired here is somehow exaggerated. You must simply know that things are like that. Then there is something very important that Spyros said. Of course, I have never worked for the Court of Justice, but I can tell you that when we sit together in the Grand Board, it is the same thing. The solution is one thing, how you get to it is another one, and how you draft a decision or judgment is yet another one. A number of things disappear in paragraphs or are exaggeratedly highlighted, just because, in our case, a vote is cast in one direction or another. That you have to understand. 137
Joined Cases C-53/01 to C-55/01, Linde, Winward, Rado, [2003] E.C.R. I-0000.
516 S E S S I O N V I I : T R A D E M A R K Another very, very basic thing — and I am saying this very much for Hugh Laddie — is that a sentence in a particular trademark decision has a value only in that decision and the facts against which it was taken. I know that may sound regrettable, but in Europe this is the situation that we have. To highlight this, I would give the following example on how things can go far and not far. The BMW case was a retailer who wanted to use the BMW brand and also the logo to show that he repairs BMW cars. It was considered fair use to be allowed to do it. There was a similar case — or thought to be a similar case — in France, where someone who was repairing Porsche cars and selling secondhand Porsche cars condemned by the Court of Appeal in Paris simply because the extent of use of the logo and the way it was used in the advertisement was manifest, as such, that he was going beyond the requirements of fair use. So from a purely theoretically identical case, you have — and you must have — a different solution. The problem is that these are supreme court decisions. Maybe the system is flawed somewhere. Maybe we should not just simply get there by a supreme court saying something, actually justifying itself more than motivating a decision, and coming to a particular conclusion. MR. ROBINSON: Just to pick up on a couple of points here, it seems to me that your last point is the critical one. What the Court has not achieved is either stepping back from the case and giving guidance at a level of principle or, on the other hand, getting into the facts, rolling up its sleeves, and taking a decision that truly is limited to the facts. Under the current system, it is not allowed to roll up its sleeves and get its hands dirty on the facts. But on the other hand, the current system, with the 234 references, puts you more into the position whereby it does hide behind the facts of the case, because it does not quite know the extent of where its ruling is going to take it. So it’s hiding behind the facts of the case, and the fact that it does have the full dossier, in order to protect itself in respect to future decisions. It is one of the unfortunate things about the system that we have at the moment. You are neither in the facts nor at the complete level of principle. This is where I think the issue that Advocate General Sharpston has raised again is particularly important. If the Court is going to be a true supreme court, then it needs to withdraw and go up to a level of generality. This is a two-way street. On the one hand, it requires the ECJ to go back to a level of principle. On the other hand, respectfully put, it requires national courts not to refer questions of absolute minute detail. This goes back to an opinion of Advocate General Jacobs in a case called Wiener in 1996,138 where he called for a principle of judicial restraint from national courts. He said national courts should be much more restrained about the types of questions they put to the ECJ. Unfortunately, that has not been reflected in the case law of the ECJ. Therefore, we are left, as Spyros was saying, with a situation whereby they have to answer every question, and the national courts still feel that they ought to put questions to the court where they have any doubt, as Lord Hoffmann was saying yesterday. So we are in this intermediary system. Picking up on what Paul was saying, I think there has to be an element of realism in respect to the court’s judgments. Individual sentences in the cases have to be taken with a pinch of salt. I know that is hugely unsatisfactory, but it is the system that we are working with at the moment. What are the chances of changing the system? Close to zero at the moment. That is my take on the constitutional arrangements. The European Union cannot even get agreement 138
Case C-338/95, Wiener SI, [1997] E.C.R. I-6495 (opinion of Advocate General Jacobs).
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about its political institutions to deal with twenty-seven Member States, let alone trying to deal with the nuances of the ECJ, particularly with regard to intellectual property cases. That is so far down the agenda that it is simply not going to be dealt with. We are going to have to work with the system that we have at the moment. MR. KÖHLER: Thank you, William. Before we take questions from the audience, I have a question. How would the Opel case have been decided in the United States? PARTICIPANT [John Richardson, Arbitrator & Mediator, New York]: There may be somebody in the audience who knows more about it. There is an American Honda case decided in California a couple of years ago, 2004, the Central District of California, which found infringement dilution.139 One of the facts was that Honda offered licenses for people to do this, and it offered the sort of labeling or reproductions of the mark that the defendant went out and procured for itself. The judge did not seem to like that very much. That is all I know of the case. I haven’t read it recently. MR. KÖHLER: Questions from the audience? QUESTION: May I discuss, very peripherally, the Nike case,140 because this case has something in common with Opel. We all know that NIKE is a brand owned by an American sportswear company, but in Spain, NIKE is owned by a Spanish local company, Cidesport, for some historical reason. This Spanish company entered into a contract with a Chinese company. The Chinese company produced sportswear under the trade mark NIKE in China. According to the contract, all the sportswear produced by this company would be exported to Spain. There was no sale in China and no sale anywhere else in the world, only in Spain. The question is whether the Chinese company infringed on the trade mark of NIKE. Nike China is a subsidiary of the American company. It has registered the trade mark NIKE in China. PROF. LADDIE: It depends. I think it depends on the domestic Chinese law, whether marking goods for export is included as an infringement. If your legislation says that it is an infringement to use a mark, a confusingly similar mark, and use includes putting the mark on for export, then you would infringe. QUESTIONER: It is very interesting. Chinese trade mark law learned a lot from the EC Directive on Trademarks. Article 52 of China’s trademark law says if there is an identical mark used on identical goods it is an infringement, but there is no mention of exportation.141 PROF. LADDIE: The question is what is meant by “use”? Most lawyers would say that when you talk about use, you are talking about use inside the jurisdiction covered by the legislation. But many trade mark acts go further and say that if you mark goods for export so that they will not actually touch the market covered by the law, but are exported from that 139
American Honda Motor. Co., Inc. v. Pro-Line Protoform, 325 F. Supp.2d 1081, 1085 (C.D. Cal. 2004). Comercial Ibérica de Exclusivas Deportivas, S.A. (CIDESPORT), Flora B.M. and Juan A.F. v. Nike Int’l, Ltd. and Am. Nike, S.A, Spain Sup. Ct. 28 Mar. 2005. 141 Trademark Law of the People’s Republic of China, as amended on Oct. 27, 2001, entered into force Dec. 1, 2001, available at http://www.chinaiprlaw.com/english/laws/ laws11.htm. Article 52: “Any of the following acts shall be an infringement of the exclusive right to use a registered trademark: (1) to use a trademark that is identical with or similar to a registered trademark in respect of the identical or similar goods without the authorization from the trademark registrant; (2) to sell goods that he knows bear a counterfeited registered trademark; (3) to counterfeit, or to make, without authorization, representations of a Regis-tered trademark of another person, or to sell such representations of a registered trademark as were counterfeited, or made without authorization; (4) to replace, without the consent of the trademark registrant, its or his registered trademark and market again the goods bearing the replaced trademark; or (5) to cause, in other respects, prejudice to the exclusive right of another person to use a registered trademark.” 140
518 S E S S I O N V I I : T R A D E M A R K market, nevertheless that can still be infringement. If that provision exists, it’s infringement. If it does not exist, it probably is not infringement. At least there is a good argument that it is not. QUESTIONER: Where is the confusion? There is no sale in China, so there is no confusion in China. PROF. LADDIE: Oh, sure. When you make rigid rules in your legislation — identical mark, identical sign, and covering exports — you will end up including within the scope of the trademark activities that do not cause confusion. But that is a result of putting in your legislation definitions that are very wide in scope. As I say, in the United Kingdom, if you have legislation that says that marking goods for export counts as use, and the rights cover identical marks for identical goods, it would be an infringement. It doesn’t matter that in the country you are exporting to there is no infringement. In your case, the question is not whether there would be infringement in Spain, because there clearly wouldn’t be. The question is only whether you fall within the scope of the monopoly rights created in China for activities in China. MR. KÖHLER: Any questions as to Opel or beyond that? QUESTION [Mustafa Safiyuddin, DSK Legal, India]: Sir Hugh is saying that the defendant’s toy car perhaps carried two marks, one the OPEL mark and the other the mark of the defendant. What you are saying is that the Court came to the conclusion that so far as the defendant’s mark is conerned that it was used in a trademark sense but so far as OPEL is concerned it was not used in a trademark sense. PROF. LADDIE: Yes, I think that is what it is saying. That goes right back to the argument that existed at the time of the Arsenal decision. That was one of my cases. I said that the word ARSENAL was used on clothing not to designate the manufacturer of the goods but, rather, it was a way the person who wore the clothes could show that he supported the Arsenal football team. I said that was not trademark use. What happened in the ECJ appeared to be a suggestion that as long as the mark was used in commerce on identical goods, it was infringement. Opel, I think, has gone back. QUESTIONER [Mr. Safiyuddin]: This case is slightly different. What you are saying is that the defendant could carry two marks, and not one mark. One is the OPEL mark and the defendant’s mark. PROF. LADDIE: No, no. The fact that it had its own trademark was irrelevant. The only issue that had to be considered was what the impact was of using the OPEL mark. QUESTIONER [Mr. Safiyuddin]: I agree that that was the impact. But the fact was that the toy carried two marks. Therefore, implicitly, the court held that the defendant’s mark was trade mark use. PROF. LADDIE: Let me give you an example. Let’s say the Ford Motor Company decided next week to produce a new car and it put the OPEL mark on the radiator grille. It would be no defense to Ford to say, “I also used the FORD mark, and everybody knows FORD is my mark.” You would have two marks, sure. That would still be an infringement. QUESTION [Veronica Barresi, University College London]: I would like to spend a word in favor of the ECJ. I think Opel confirms Arsenal in a way. What the Court is trying to do and what it wants to do is to get distance from the notion of trade mark use in relation to infringement in case of identical signs and identical goods. It wants to rely on a broader principle that it is trying to establish, which is that infringement would catch any use that affects or is liable to affect the essential function of a trade mark. I do not know whether this is wrong or right. But it is a way around the concept of presumption of likelihood of confusion, which is not only a principle in Europe, but is embodied in Article 16 of the TRIPs Agreement and one of the areas of the Directive,
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which says that in the case of identical goods and identical signs, the protection is absolute. QUESTION: I think Mustafa makes a very, very good point. The fact that the defendants have their own trade mark, in addition to the trade mark owner’s mark, surely should affect the way customers perceive that second trademark. In Arsenal the scarves had “Arsenal” in the corner and “Made by Gap,” or “Made by Marks & Spencer.” The presence of something else there would surely affect the way “Arsenal” is perceived. MR. LLEWELYN: That is just not the case. Indeed, replica football shirts are a classic example of why that is not the case. On a replica Arsenal football jersey and you have the Gunners’ logo; you have EMIRATES, BERGKAMP, or HENRY — registered trade mark; you have the number — registered trade mark; you have the “Nike swoosh” — registered trade mark. It is a whole mix of different signs. There is no way that just because it has EMIRATES on it or it has something else, you can say that is not infringement or that is infringement. You have to look at all these other things surrounding the sign. QUESTION [Philip Carpio, U.S. Customs and Border Protection, Miami, FL]: I do want to disclaim that this is not the position of the U.S. government, but this is my personal opinion, based on experience. Obviously, Customs has the responsibility of interdicting counterfeit or infringing items coming into the United States. Assuming that the OPEL logo is registered in the United States or the sports teams’ logos are registered in the United States, those toy cars or those sports T-shirts, it is highly likely that their importation would be seized as infringing. In the United States, there is no per se rule about identical marks on identical goods automatically infringing, but there is a very strong presumption to that effect. It would require some extraordinary evidence to try to rebut that. I just find it interesting that in Europe you are going through this effort to wrestle with this. In the United States, the analysis would be a lot shorter and a lot sweeter. QUESTION [Barton Beebe, Cardozo Law School, Yeshiva University, New York]: I wanted to follow up on the first question, which is how the U.S. courts would decide this issue, and pose to the panel possibly a more difficult question, which I suspect is coming. It is bubbling up through the American courts currently. That is the problem of virtual reality games, games where you drive through a city or you go through some sort of maze and commit acts of violence. Or, to follow up on David Llewelyn’s comments, what about a virtual reality game that involves soccer, or football? Let’s say it is a game where you get to play English Premier League teams. Because it is a virtual reality game, you want it to be as realistic as possible, so you have the Arsenal players with HENRY on the back, EMIRATES across the front, NIKE, and the rest. What are the rights? Are there any rights infringed in that situation? I am not sure that it is clear how the American courts will decide that. But I suspect, following from the Customs official’s and other comments, that the American courts would say that all of that is promotional use and permission must be gotten in order to use all of those marks — in a game that is, after all, just trying to represent reality. PROF. LADDIE: I have no doubt that Veronica Barresi would say that is an infringement. I would say that is not. One of the disasters is, at the moment, nobody has any idea what the ECJ would say. It is very difficult. PROF. KUR: I found that also quite interesting. They go back to saying that we have an infringement when there is a conflict with a trademark’s function, in particular the essential function, and they found a formula to wrap it all up. But that formula is vague and diffuse. Again, they talk about trademark functions, in particular the essential function. They can put anything into that. So you have nothing. They have a nice formula that
520 S E S S I O N V I I : T R A D E M A R K covers everything, but it does not tell you a single secure thing about where they are going. Article 16 of TRIPs talks about double identity giving rise to a presumption of likelihood of confusion. But we do not do that. We go beyond TRIPs. Our provision, double identity giving, as a matter of principle, absolute protection — at least that is how it could be read — originally meant to go beyond that. It was written that way, that after you establish double-identity goods and marks the game would be over, the file would be closed, unless you could get out of this by using the limitation. So I think TRIPs is not an argument. Whether we have a presumption or not, rebuttable or not, that is not something that you find so clearly in the European text. PROF. MANIATIS: Sometimes the Court, in particular the Advocate General, is very pragmatic. Ruiz-Jarabo Colomer was Advocate General in both Arsenal and in Opel. In Arsenal it was obvious that he wanted to protect the signs of Arsenal because football clubs make money out of them. In Opel perhaps he wanted to protect toy manufacturers because there is a very strong market, in Germany in particular, for toy manufacturers, so there should be no infringement. It is the pragmatic route that sometimes the Court is following. MR. KÖHLER: Two short questions from the audience. QUESTION: If an unauthorized seller of the Opel cars comes along and says, “I’m XYZ Motors, I’m a seller of Opel cars,” that will not be an infringement under BMW.142 But if he then goes on and takes a photograph of the Opel cars and, as part of that, takes a photograph of the grill — with the additional photograph, obviously there is no issue of copyright infringement — and he takes a photograph of his own car, would that amount to infringement? PROF. LADDIE: It depends entirely on whether or not the use he makes is considered to be unfair, not in accordance with business practice. If he uses the photograph to give the impression that he is an authorized dealer, which is false, then it would not be a fair use. If he just has a picture — let’s say I sell Porsches, Opels, Audis, and I have photographs of all of them — probably they will say that is in accordance with ordinary business practice and it would not be an infringement. MR. KÖHLER: Last question. QUESTION [Ilanah Simon, Brunel University, Uxbridge, England]: I wanted to agree with what Veronica was saying. I do not think the essential function is empty of content. It is clearly stated, first of all, in the case law and also in the Preamble, that what our trademarks should be doing is distinguishing. That is what the Court has read into Article 5(1)(a) that confusion is one embodiment of it. It also comes back in Article 5(2), our definition of “blurring”; you are damaging the distinctiveness of the trademarks. So this essential function is there, and it does seem to be shaping the entire ambit of infringement and beyond. MR. KÖHLER: Thank you very much for your patience.
142 Case C-63/97, Bayerische Motorenwerke AG (BMW) and BMW Nederland BV v. Ronald Karel Deenik, Judgment of the Court, February 1999.
Case and date
Mark(s)
C-29/05 P OHIM v Kaul GmbH/Bayer AG (Opinion 26.10.2006 (Sharpston)) 13.03.2007
C-214/05 P Sergio Rossi SpA/Sissi Rossi Srl (Opinion 16.03.2006 (Kokott)) 18.07.2006
3.
MISS ROSSI/SISSI ROSSI
ARCOL/CAPOL
QUANTUM/Quantième C-171/06 P T.I.M.E. ART Uluslararasi Saat Ticareti ve dis Ticaret AS/Devinlec Développement Innovation Leclerc SA (No Opinion) 15.03.2007
2.
1.
Judgments
A. Court of Justice of the European Communities
No
Opposition procedure Article 8(1)(b)
Opposition procedure (i) Article 42(3) (ii) Article 59 (iii) Rules 16(3) and 20(2) of Reg (iv) Article 62(1) (v) Article 74(2)
Opposition procedure (i) Article 8(1)(b) (ii) Article 7(1)(b)
Provisions allegedly infringed
Grand Chamber. Submission of facts and evidence to OHIM possible after expiry of time-limits in CTMR; late submission particularly justified where likely to be relevant to outcome of opposition or stage/circumstances of late submission does not argue against; Board of Appeal failed to exercise discretion as to whether to take into account late submission; appeal to Board of Appeal does not start new time-limit for submission running. CFI not required to give express reasons for evaluation of every piece of evidence; overall assessment of similarity and likelihood of confusion sufficient; ECJ has no jurisdiction to substitute its own assessment of facts for that of the CFI. Appeal upheld. Contested CFI judgment and Board of Appeal decision annulled
Appeal dismissed
Plea based on Article 7(1)(b) not admissible as not pleaded before CFI. Distinctiveness of earlier mark not an essential element of likelihood of confusion; conceptual difference between marks part of global assessment and not of predominant importance.
Comments
Appeal dismissed
Decision of Court
William Robinson, Christopher Pickup, Joanna Glenn FRESHFIELDS BRUCKHAUS DERINGER
APPENDIX COMMUNITY TRADE MARK JURISPRUDENCE OF THE EUROPEAN COMMUNITY COURTS 1 JANUARY 2006 TO 31 MARCH 2007 PA R T A : T R A D E MA R K LA W D E VE L OPME N T S I N T H E E U R OPE A N UN I ON
521
Shape of a sweet (3D)
VITAFRUIT/VITAFRUT
C-24/05 P August Storck KG v OHIM (Opinion 23.03.2006 Colomer)) 22.06.2006
C-416/04 P The Sunrider Corp v OHIM (Opinion 15.12.2005 (Jacobs)) 11.05.2006
C-206/04 P Muehlens GmbH & Co KG/Zirh International Corp (Opinion 10.11.2005 (Colomer)) 23.03.2006
C-361/04 P Ruiz-Picasso/Daimler Chrysler AG (Opinion 08.09.2005 (Colomer)) 12.01.2006
5.
6.
7.
8.
Opposition procedure Article 8(1)(b)
Opposition procedure Article 8(1)(b)
PICARO/PICASSO
Opposition procedure (i) Article 43(2) (ii) Article 8(1)(b)
(i) Article 7(1)(b) (ii) Article 74(1) (iii) Article 73 (iv) Article 7(3)
(i) Article 7(1)(b) (ii) Article 74(1) (iii) Article 73 (iv) Article 7(3)
Provisions allegedly infringed
SIR/ZIRH
Sweet wrapper (2D)
C-25/05 P August Storck KG v OHIM (Opinion 23.03.2006 (Colomer)) 22.06.2006
4.
Mark(s)
Case and date
No
Appeal dismissed
Appeal dismissed
Appeal dismissed
Appeal dismissed
Appeal dismissed
Decision of Court
Likelihood of confusion to be assessed globally, taking into account all relevant factors; assessment of similarity, distinctiveness and level of attention paid by consumers at different times were questions of fact for CFI; level of attention likely to vary depending on product.
Likelihood of confusion to be assessed globally, taking into account all relevant factors including phonetic and aural similarities and visual and conceptual differences; assessment a question of fact for the CFI.
If TM owner claims that third party use is ‘genuine use’, it is presumed that he consented to such use. ‘Genuine use’ means use of a mark to guarantee origin and does not include token use to preserve rights; an overall assessment of use must be carried out.
Article 7(1)(b) : same test of distinctiveness for 3D marks as word/figurative marks; perception of relevant public not necessarily the same; potentially more difficult to establish distinctiveness for 3D mark. Article 7(3) : potentially more difficult to establish distinctiveness where 3D mark not visible (e.g. packaging); customers’ perception at time of purchase critical.
Article 7(1)(b): reasoning as 3D case. Article 7(3): market share and share of advertising investment are relevant factors not conditions; CFI correctly applied factors.
Comments
522 S E S S I O N V I I : T R A D E M A R K
C-173/04 P Deutsche SiSi-Werke GmbH & Co. Betriebs KG v OHIM (Opinion 14.07.2005 (Colomer)) 12.01.2006
9.1.
C-324/05 P POWER/Turkish Power Plus Warenhandelsgesellschaft mbH v OHIM 01.06.2006
C-235/05 P L’Oréal SA/Revlon (Switzerland) SA 27.04.2006
4.
5.
FLEXI AIR/FLEX
Applicant wrongly placed undue importance on distinctiveness of earlier mark; contrary to applicant’s claim, CFI fulfilled its obligation to state adequate reasons when assessing the similarity of the goods and the likelihood of confusion between the signs
Opposition procedure Article 8(1)(b)
Appeal manifestly Opposition procedure unfounded (i) Article 8(1)(b) (ii) Articles 36 and 53 of the Statute of the Court of Justice
Applicant sought to challenge the CFI’s assessment of the facts (visual, aural and conceptual differences between marks); these are questions of fact within the exclusive jurisdiction of the CFI
Applicant sought to challenge the CFI’s assessment of the facts (visual, aural and conceptual differences between marks); these are questions of fact within the exclusive jurisdiction of the CFI
Applicant sought to raise new facts and to question CFI’s factual assessment; contrary to allegations, CFI did take account of product’s link to fashion sector in its global assessment of similarity
ECJ decided CFI judgment based on Article 7(1)(b) not (c). Under 7(1)(b), same test for distinctiveness applies to 3D marks as word/figurative marks, but perception of relevant public not necessarily the same; CFI correctly applied this test; ECJ emphasised CFI’s decision based on lack of distinctiveness not monopoly on shape.
Comments
Applicant sought to challenge the CFI’s assessment of the facts (perception of average customers, likelihood of confusion); these are questions of fact within the exclusive jurisdiction of the CFI; factual differences between caselaw cited was sufficient basis for CFI’s conclusions
Appeal manifestly inadmissable
Appeal manifestly inadmissable
Appeal partly manifestly inadmissible and partly manifestly unfounded
Appeal dismissed
Decision of Court
Appeal partly manifestly inadmissable and partly manifestly unfounded
PC WORKS/W WORK PRO Opposition procedure Article 8(1)(b)
C-314/05 P Creative Technology Ltd/José Vila Ortiz 29.062006
3.
Opposition procedure Article 8(1)(b)
NICKY/NOKY, noky
C-92/06 P Soffass SpA/Sodipan SCA 13.07.2006
2.
Opposition procedure (i) Article 8(1)(b) (ii) Article 8(5)
EMIDIO TUCCI/EMILIO PUCCI
Article 7(1)(b) and (c)
Form of drinks packaging (stand-up pouches)
C-104/05 P El Corte Inglés, SA/Emilio Pucci Srl 28.09.2006
Provisions allegedly infringed
Mark(s)
1.
Orders
Case and date
No
PA R T A : T R A D E MA R K LA W D E VE L OPME N T S I N T H E E U R OPE A N UN I ON
523
C-82/04 P Audi AG v OHIM 19.01.2006
6.
T-230/05 Golf USA v OHIM 06.03.2007
T-501/04 Bodegas Franco-Espanolas, SA v OHIM 15.02.2007
4.
5.
(i) Article 7(1)(b) (ii) Article 7(1)(c) (iii) Article 7(3)
ROYAL BRANDE/ROYAL Opposition procedure FEITORIA (i) Article 8(1)(b)
GOLF USA
Opposition procedure (i) Article 43 (ii) Article 8(1)(b)
T-364/05 Saint-Gobain Pam SA/Propamsa, SA 22.03.2007
3.
PAM PLUVIAL/two figurative marks containing word element ‘Pam’
T-322/05 TERRANUS/figurative mark Opposition procedure (i) Article 8(1)(b) Carsten Brinkmann/Terra with word element ‘Terra’ Networks, SA 22.03.2007
2.
(i) Article 8(5) (ii) Article 74
(i) Article 7(1)(c) (ii) Article 7(3) (iii) Procedural irregularity
Provisions allegedly infringed
T-215/03 SIGLA SA/Elleni Holding BV 22.03.2007
VIPS/VIPS
TDI
Mark(s)
1.
B. Court of First Instance
Case and date
No
Applicant has no right to demand proof from opposing party of genuine use of mark at Board of Appeal stage where it has not done so beforehand. Goods covered by marks similar and marks also visually and phonetically similar due to ‘Pam’ being dominant element of both marks, leading to likelihood of confusion. Availability of each of ‘golf’ and ‘USA’ would be restricted by registration of this mark. ‘Golf’ is descriptive term devoid of distinctive character and ‘USA’ implies geographical origin. Similar registered marks distinguished from present mark.
Visually and phonetically similar - endings ‘nus’ and ‘a’ not sufficient to displace similarities. No marked conceptual differences. Therefore likelihood of confusion exists.
To point (i), no risk of dilution of distinctive character of earlier mark as abbreviation ‘VIP’ common term. No risk of detriment to reputation of earlier mark or risk of unfair advantage. To point (ii), Board of Appeal failed to fulfil obligations by failing to examine relative ground for refusal under Article 8(1)(b) put forward by applicant in good time and reiterated in observations.
Application for CTM withdrawn
Comments
Appeal upheld and The term ‘Feitoria’ suffices to distinguish one brand from contested decision the other despite the brands having the same same prefix annulled ‘royal’.
Appeal dismissed
Appeal dismissed
Appeal dismissed
Appeal dismissed in relation to Article 8(5) but upheld in relation to Article 74. Contested decision annulled
Appeal discontinued
Decision of Court
524 S E S S I O N V I I : T R A D E M A R K
T-88/05 Quelle AG/Nars Cosmetics, Inc 08.02.2007
T-317/05 Kustom Musical Amplification, Inc v OHIM 07.02.2007
T-477/04 Aktieselskabet/TDK Kabushiki Kaisha 06.02.2007
T-283/04 Georgia-Pacific Sàrl v OHIM 17.01.2007
9.
10.
11.
12.
Kitchen towel pattern and design
Word mark TDK/figurative and word mark TDK
Guitar model/shape
Figurative mark ‘Nars’/figurative mark ‘Mars’
T-256/04 RESPICUR/RESPICORT Mundipharma AG/Altana Pharma AG 13.02.2007
8.
(i) Article 7(1)(b)
Opposition procedure (i) Article 8(5)
(i) Article 73 (ii) Article 7(1)(b)
Opposition procedure (i) Article 8(1)(b)
Opposition procedure (i) Article 8(1)(b)
Opposition procedure (i) Article 8(1)(b)
CURON/EURON
T-353/04 Ontex NV/Curon Medical, Inc 13.02.2007
7.
(i) Article 7 (1)(b) (ii) Article 7 (1)(c)
HAIRTRANSFER
T-204/04 Indorata-Serviços e Gestão, Lda v OHIM 15.02.2007
6.
Provisions allegedly infringed
Mark(s)
Case and date
No
General impression created by marks differs considerably due to first letter of each, accentuated by fact that consumers are used to seeing sequence ‘e-u-r-o’. Conceptually, marks evoke different ideas (‘Europe’ vs. ‘cure’). No likelihood of confusion.
Implies transplant or implant of hair which does not reflect nature of product (epilation devices and hair/beauty products).
Comments
Some phonetic similarity but little visual similarity and no conceptual similarity. Phonetics not sufficient to show likelihood of confusion as visual perception more important in this market.
Appeal dismissed
Appeal dismissed
Pattern devoid of distinctive character – simple geometric shapes are typical of this type of product and commercial origin not distinguishable from this.
Earlier mark has enhanced distinctive character because of reputation. Risk that later mark would take unfair advantage over earlier mark if later mark applied to appear on sports clothing, given sports sponsorship activities of earlier mark.
Appeal upheld and Board of Appeal took into account facts not contested decision communicated to the applicant prior to the adoption of annulled its decision.
Appeal dismissed
Appeal upheld and For end consumers, marks are visually, phonetically and contested decision conceptually similar. Professional public will perceive annulled conceptual difference but not sufficient to counteract visual and phonetic similarities or eliminate risk of confusion.
Appeal dismissed
Appeal dismissed
Decision of Court
PA R T A : T R A D E MA R K LA W D E VE L OPME N T S I N T H E E U R OPE A N UN I ON
525
T-392/04 Salvatore Gagliardi/Norma Ledensmittelfilialbetrieb GmbH & Co AG 14.12.2006
T-81/03, T-82/03, T-103/03 Mast-Jägermeister AG/Licorera Zacapaneca SA 14.12.2006
T-43/05 Camper, SL/JC AB 30.11.2006
16.
17.
Appeal dismissed
Figurative mark ‘Brothers by Camper’/figurative mark ‘Brothers’
‘Brothers’ is dominant part of Camper mark. Marks are visually and aurally similar and conceptually identical – words ‘by Camper’ do not help in this regard. Nor do they help to eliminate likelihood of confusion.
Appeal upheld and Goods substantially identical (non-alcoholic beverages). decision annulled Presence of halo above deer’s head on earlier mark not sufficient to make marks visually and conceptually distinct, despite marks being phonetically different as earlier mark contains no word element. Differences not enough to eliminate likelihood of confusion.
Three figurative marks (black, Opposition procedure (i) Article 8(1)(b) white and gold respectively) depicting stag’s head including (ii) Article 73 word element ‘Venado’(meaning ‘deer’ in Spanish/figurative mark also depicting stag’s head Opposition procedure (i) Article 8(1)(b)
Contested decision partially annulled (to extent that refuses to register ‘Manu’ mark for products under class 25, and class 18 and 24.) Remainder dismissed.
Figurative mark ‘Manu’/word Opposition procedure mark MANOU (i) Article 74(1) (ii) Article 43(2)&(3) (ii) Article 8(1)(b)
Board of Appeal should have allowed registration of mark under ‘clothes’ category in class 25 and in classes 18 and 24. Sufficient evidence produced by intervener for use of mark only in relation to underwear and not to clothes in general. Analysis of likelihood of confusion therefore limited to underwear. In this regard, marks visually and phonetically similar, reinforced by fact that products sold in same isles/rows in shops. Therefore risk of confusion exists.
Marks visually and phonetically dissimilar. Conceptual comparison irrelevant as neither sign has any meaning in Germany. No risk of confusion.
15.
Appeal dismissed
Opposition procedure (i) Article 8(1)(b)
FERRO/FERRERO T-310/04 Ferrero Deutschland GmbH/Cornu SA Fontain 15.12.2006
14.
Comments
(i) Article 42 (3) Appeal upheld and Board of Appeal wrongly annulled decision of (ii) Article 74(1) (read in contested decision Opposition Division, and wrongly rejected applicant’s conjunction with Rule 20(3) annulled opposition as unfounded. EC 2868/95)
Decision of Court
T-53/05 Figurative mark ‘Calvo’/word Calavo Growers, Inc/Luis mark CALAVO Calvo Sanz SA 16.01.2007
Provisions allegedly infringed
13.
Mark(s)
Case and date
No
526 S E S S I O N V I I : T R A D E M A R K
T-483/04 GALZIN/CALSYN Armour Pharmaceutical Co./Teva Pharmaceutical Industries Ltd 17.10.2006
23.
Appeal dismissed in relation to Article 43(2) but upheld in relation to Article 8(1)(b). Contested decision annulled.
Appeal dismissed
STENIGE SLOTT/STENIGE Opposition procedure T-499/04 (i) Article 8(1)(b) Hammarplast AB/Stenige KERAMIK Slott AB 17.10.2006
22.
Opposition procedure (i) Article 43(2) and (3) (ii) Article 8(1)(b)
Appeal dismissed
Word mark BUD and two figurative trade marks (‘American Bud’ and ‘Anheuser Busch Bud’)/word mark BIT and various figurative marks ‘Bitburger’ and ‘Bitte ein Bit’
Opposition procedure (i) Article 8(1)(b) (ii) Article 8(5)
T-350/04 to T-352/04 Bitburger Brauerei Th. Simon GmbH/Anheuser-Busch, Inc 19.10.2006
21.
Board of Appeal was correct in taking into account only calcium-based pharmaceutical preparations but was wrong in concluding that similarities between marks do not give rise to likelihood of confusion.
Distinct purpose of goods (flowerpots v glass vases). Despite identical dominant element ‘Steinige’, this word only acquires significance as result of additional elements ‘Slott’ and ‘Keramik’ – key conceptual difference. Therefore no likelihood of confusion.
Goods identical, but only slight degrees of visual, aural and conceptual similarities, and therefore no likelihood of confusion. Lack of similarity means no basis for violation of Article 8(5).
Risk of confusion caused by visual and phonetic similarities - difference in pronunciation between the marks barely audible in most languages. No conceptual difference. Risk of confusions results.
Appeal upheld and Board of Appeal erred in its cost assessment, wrongly contested decision assuming that applicant would have been unsuccessful partially annulled party in proceedings between it and Laboratoire as it had been rejected in separate opposition proceedings.
Appeal dismissed
T-13/05 Castell del Remei, SL/Bodegas Roda, SA 25.10.2006
20.
Comments
Appeal upheld and Board of Appeal incorrect in concluding that products contested decision relating to each mark are different. Marks visually and partially annulled phonetically very similar – difference between ‘k’ and ‘p’ insignificant. Conceptual difference based on lack of meaning of ‘Yuki’ in Spanish also insignificant. Therefore cannot eliminate risk of confusion.
Decision of Court
Opposition procedure (i) Article 8(1)(b)
(i) Article 81(4) (ii) Rules 48(1)(c) and 49(1) EC 2868/95 principle of equal treatment (iii) Rules 21 and 51 EC 2868/95
LYCO PROTECT/LYCO T-32/04 Q10 Lichtwer Pharma AG/Laboratoire L.Lafon SA 16.11.2006
19.
ODA/RODA
Opposition procedure (i) Article 8(1)(b)
YUKI/YUPI T-278/04 Jabones Pardo, SA/Quimi Romar, SL 16.11.2006
Provisions allegedly infringed
18.
Mark(s)
Case and date
No
PA R T A : T R A D E MA R K LA W D E VE L OPME N T S I N T H E E U R OPE A N UN I ON
527
T-172/04 Telefónica SA/David Branch 27.09.2006
29.
Figurative mark ‘Emergia’ in Opposition procedure orange, white, green and (i) Article 8(1)(b) black/word mark EMERGEA
Opposition procedure (i) Article 15(2) (consideration of use of mark)
T-96/05 Monte di Massima SAS di Pruneddu Leonardo & C./J.M.Höfferle Internationale Handelsgesellschaft mbH 04.10.2006
28.
Figurative and word mark ‘Valle della Luna’/figurative and word mark ‘Valle de la Luna’
T-188/04 Freixenet SA v OHIM 04.10.2006
27.
(i) Article 73 (rights of defence) (ii) Article 7(1)(b) (iii) Article 7(3) (i) Article 73 (ii) Article 7(1)(b) (iii) Article 7(3)
T-190/04 Freixenet SA v OHIM 04.10.2006
26.
Opposition procedure (i) Article 8(1)(b)
Wine bottle which turns a matte gold colour like frosted glass when filled with sparkling wine Wine bottle which turns a matte gold colour like frosted glass when filled with sparkling wine
T-172/05 ARMAFOAM/ Armacell Enterprise/nmc NOMAFOAM SA 10.10.2006
25.
(i) Article 7(1)(b) (ii) Article 7 (1)(c)
MAP&GUIDE
T-302/03 PTV Planung Transport Verkehr AG v OHIM 10.10.2006
24.
Provisions allegedly infringed
Mark(s)
Case and date
No
Board correct to conclude that marks are visually and phonetically similar despite differing first components of marks (‘arma’ and ‘noma’). Marks definitely similar for non-English-speaking public so no need to consider whether marks similar for English-speaking public.
Mark devoid of distinctive character and merely descriptive of goods and services in question. Application did not differentiate between different kinds of computer programming or software.
Comments
Appeal dismissed
Appeal dismissed
Services relating to each mark very similar (both linked to telecommunications)
Even if Board of Appeal did not pay proper regard to Article 15, this is not sufficient to allow annulment of contested decision. Suspension of use of earlier mark for period of one year not enough to necessitate review of Board’s evaluation.
Appeal upheld and Board of Appeal neglected to submit list of bottle types contested decision and internet sites to applicant in order that applicant annulled might use this in preparing defence.
Appeal upheld and Board of Appeal neglected to submit list of bottle types contested decision and internet sites to applicant in order that applicant annulled might use this in preparing defence.
Appeal dismissed
Appeal dismissed
Decision of Court
528 S E S S I O N V I I : T R A D E M A R K
T-168/04 L&D, SA/Julius Sämann Ltd 07.09.2006
T-133/05 Gérard Meric/Arbora & Ausonia, SL 07.09.2006
T-6/05 DEF-TEC Defense Technology GmbH/Defense Technology Corporation of America 06.09.2006
VITACOAT/ T-277/04 VITAKRAFT Vitakraft-Werke Wührmann & Sohn GmbH & Co. KG/Johnson’s Veterinary Products Ltd 12.07.2006
31.
32.
33.
34.
Provisions allegedly infringed
Opposition procedure (i) Article 8(1)(b) (ii) Article 73
Figurative mark ‘First Defense Aerosol Pepper Projector’/word mark FIRST DEFENSE, figurative mark representing and eagle, and figurative mark ‘Def-Tec Products’
Opposition procedure (i) Article 8(1)(b)
Opposition procedure (i) decision of Opposition Division void as not duly signed (ii) Article 8(3) (consent for proprietor’s agent to make application)
Word mark PAM-PIM’S Opposition procedure BABY PROP/figurative mark (i) Article 8(1)(b) ‘Pam Pam’
Figurative mark in the shape of a tree with a verbal element/various tree-shaped figurative marks with verbal elements
Figurative mark ‘Metro’/word Opposition procedure mark METRO (i) Article 74 (esp. Rules 16 and 20 of the implementing legislation)
T-191/04 MIP Metro Group Intellectual Property GmbH & Co. KG/Tesco Stores Ltd 13.09.2006
30.
Mark(s)
Case and date
No
Comments
Marks visually similar and aural similarity not affected by difference in pronunciation by Spanish public or inclusion of words with secondary importance, i.e. ‘baby-prop’. Therefore likelihood of confusion existed.
Graphic/figurative element not dominant element and not sufficient to exclude importance of visual and phonetic similarities. Likelihood of confusion therefore results.
Appeal dismissed
‘Vitakraft’ and ‘Vita’ held not to be ‘distinctive as a result of public recognition’ due to insufficient evidence produced by applicant. Differences between ‘-kraft’ and ‘-coat’ outweighed the similarities. No likelihood of confusion.
First plea regarding Contested decision validly communicated to applicant. signing of decision Board of Appeal failed to have regard to validity of consent received by applicant from intervener. rejected; second plea regarding breach of 8(1)(b) upheld and contested decision annulled in this respect
Appeal dismissed
Appeal dismissed
Appeal upheld and Opposition division should have taken into account fact contested decision that protection of earlier mark expired before its decision. annulled Division did have power to request information on renewal of earlier mark after initial evidence filed. Relevant time for opponent to prove earlier right is time at which opposition division made its decision.
Decision of Court
PA R T A : T R A D E MA R K LA W D E VE L OPME N T S I N T H E E U R OPE A N UN I ON
529
T-153/03 Inex SA/Robert Wiseman & Sons Ltd 13.06.2006
T-323/03 LA BARONIE/BARONIA La Baronia de Turis, Cooperativa Valenciana/Baron Philippe de Rothschild SA 10.07.2006
38.
39.
T-247/03 Miguel Torres, SA/Bodegas Muga, SA 11.07.2006
37.
(i) Applicant’s demand for refusal to register (ii) Intervener’s request for partial annulment based on Article 8(4)/Article 8(1)(b) confusion (iii) Applicant’s demand for annulment based on Article 43(2)&(3); Article 8(4); Article 8(1)(b)
Opposition procedure (i) Article 8(1)(b) (ii) Violation of defence rights – procedural irregularity
(i) Regulations 40/.94 and 2868/95 (ii) Principle of equal treatment (iii) Principle of good administration
Opposition procedure Figurative mark/design (i) Article 8(1)(b) displaying black and white cowhide markings/milk bottle displaying black and white cowhide markings
Figurative mark ‘Torre Muga’/word mark TORRES
ASETRA/figurative mark ‘Caviar Astara’
T-252/04 Caviar Anzali SAS/Novomarket, SA 11.07.2006
36.
Opposition procedure (i) Article 8(1)(b)
MARCOROSSI/word sign MISS ROSSI and figurative sign ‘Sergio Rossi’
T-97/05 Sergio Rossi SpA/Marcorossi Srl 12.07.2006
35.
Provisions allegedly infringed
Mark(s)
Case and date
No ‘Rossi’ held not to be the dominant element of ‘Marcorossi’. Verbal similarities between ‘Marcorossi’, ‘Sergio Rossi’ and ‘Miss Rossi’ not sufficiently similar to cause likelihood of confusion.
Comments
Despite ‘torre’ being the dominant element of both marks, the overall impression shows more differences than similarities and the likelihood of confusion is low. To point (ii), a procedural irregularity can only cause a decision to be annulled if the outcome of the decision would have been different without such an irregularity. Here it would not have been different.
Appeal dismissed
Cowhide design not distinctive as strongly allusive to goods in question. Despite strong visual and some conceptual similarities, the design has very little imaginative content and is unlikely to lead to a likelihood of confusion.
Decision annulled on basis of omission to examine (i) Applicant’s demand rejected as evidence produced by applicant during time period specified in Article 59, thus violating Article 74. inadmissible (i) Intervener’s request rejected (iii) Contested decision annulled
Appeal dismissed
Appeal upheld and OHIM has right to allow recourse on basis of new facts; contested decision in this case the OHIM was obliged to consider evidence annulled later produced despite its power to disregard evidence not produced in ‘good time’. OHIM therefore wrongly interpreted general rules.
Appeal dismissed
Decision of Court
530 S E S S I O N V I I : T R A D E M A R K
T-388/04 Habib Kachakil Amar v OHIM 05.04.2006
T-344/03 Saiwa SpA/Barilla Alimentaire SpA 05.04.2006
T-202/04 Madaus AG/Optima Healthcare Ltd 05.04.2006
T-322/03 Telefon & Buch Verlagsgesllschaft mbH/HEROLD BUSINESS DATA GmbH & Co. KG 16.03.2006
42.
43.
44.
45.
(i) Article 73 (defence rights/right to hearing) (ii) Violation of confidence (iii) Article 7(1)(b) (iv) Article 7(3)
Opposition procedure (i) Article 8(1)(b)
(i) Article 7(1)(b) (ii) Article 7(1)(c) (iii) Article 7(1)(d)
ECHINAID/ECHINACIN
WEISSE SEITEN
Figurative mark and word Opposition procedure mark ‘Selezione Oro, Barilla’/ (i) Article 8(1)(b) word mark ORO and ORO SAIWA
Figurative mark in shape of a tick
(i) Article 7(1)(b) (ii) Article 74(1) (examination of evidence)
T-439/04 Eurohypo AG v OHIM 03.05.2006
41.
EUROHYPO
T-15.05 Twisted sausage design for gut (i) Article 7(1)(b) Wim De Waele v OHIM for making sausages 31.05.2006
Provisions allegedly infringed
40.
Mark(s)
Case and date
No
Appeal dismissed
Appeal dismissed
Appeal dismissed
Board of Appeal correct in concluding that mark was invalidly registered in respect of goods and services under classes 9, 16, 41, and 42. Words ‘Weisse Seiten’ had become customary as generic term for telephone directories for private individuals, and equally electronic directories. Mark therefore descriptive of such goods and devoid of distinctive character.
Prefix ‘Echina’ not distinctive but merely descriptive, as public concerned would regard marks as deriving from the plant Echinacea, i.e. composition of the product rather than its commercial origin.
Applicant could not use evidence relating to use of ‘Oro Saiwa’ to prove distinctiveness of ‘Oro’ as these are separate marks. Despite goods being substantially identical, similarities insufficient to lead to confusion.
Lack of evidence to prove violation of confidence. All relevant factors considered for purposes of Article 7(3).
Appeal dismissed
Appeal dismissed
Relevant market for assessment of distinctiveness of mark made up of both those in the charcuterie business and end consumers. Design devoid of distinctive character. Article 74 does not state how OHIM is to examine evidence; it was therefore sufficient that the Board applied the descriptiveness test and there was no obligation to produce evidence. ‘Eurohypo’ devoid of distinctive character.
Comments
Appeal dismissed
Decision of Court
PA R T A : T R A D E MA R K LA W D E VE L OPME N T S I N T H E E U R OPE A N UN I ON
531
Opposition procedure (i) Article 8(1)(b)
Opposition procedure (i) Article 8(1)(b) (ii) Article 73
T-35/04 Figurative and word sign ‘Ferro’/word mark Athinaiki Oikogeniaki Artopoiia AVEE/Ferrero FERRERO OHG mbH 15.03.2006
Figurative mark ‘Euromaster’/word mark EUROMASTER
Figurative mark ‘Bainbridge’/various figurative marks containing word element ‘Bridge’ and word mark BRIDGE
Figurative mark representing a Opposition procedure rabbit labelled ‘Quicky’/word (i) Article 8(1)(b) marks QUICK, QUICKIES and figurative sign ‘Quick’
T-31/04 Eurodrive Services and Distribution NV/Jésus Gómez Frías 15.03.2006
T-194/03 Il Ponte Finanziaria SpA v OHIM 23.02.2006
T-74/04 Société des produits Nestlé SA/Quick Restaurants SA 22.02.2006
48.
49.
50.
Appeal dismissed
Likelihood of confusion found. Phonetically identical as ‘s’ in ‘Quickies’ not pronounced in French. Where marks consists of both verbal and figurative elements, the former are more distinctive than the latter as consumer refers more easily to mark by citing it than by describing figurative element - here rabbit merely decorative and word element central.
To point (i), evidence failed to demonstrate consistent presence of mark on Italian market within relevant period. Article 15(2)(a) does not permit owners to circumvent their obligation of use by relying on use of similar mark covered by separate registration. To point (ii), despite some aural similarity, word ‘bridge’ not visually prominent enough to create likelihood of confusion.
Appeal dismissed Opposition procedure (i) Article 43(2)&(3), Article 15(2)(a), and Rule 22 EC 2868/95 (ii) Article 8(1)(b)
‘Ferro’ dominant part of figurative mark. Marks visually and phonetically dissimilar. Conceptual comparison irrelevant as neither sign has any meaning in Germany.
Shape of bottle devoid of distinctive character - particular features not sufficiently different from usual shape of bottles to enable it to indicate origin. To point (ii), Board of Appeal was correct in holding that earlier national registration not decisive (although it might be taken into consideration).
Comments
No similarity between goods and services relating to marks (repair and maintenance of land vehicles vs. sports event management services). Therefore no likelihood of confusion possible.
Appeal dismissed
Appeal dismissed
Decision of Court
Appeal dismissed
(i) Article 74(1) (ii) Article 6 of Paris Convention (iii) Article 73 (iv) Article 7(1)(b)
47.
Plastic bottle design
T-129/04 Develey Holding GmbH & Co. Beteiligungs KG v OHIM 15.03.2006
Provisions allegedly infringed
46.
Mark(s)
Case and date
No
532 S E S S I O N V I I : T R A D E M A R K
Figurative mark T-202/03 Alecansan, SL/CompUSA ‘CompUSA’/figurative mark ‘CompUSA’ Management Co 07.02.2006
T-206/04 Fernando Rodrigues Carvalhais/Profilpas Snc 01.02.2006
T-466/04 and T-467/04 Elisabetta Dami/The Stilton Cheese Makers Association 01.02.2006
T-317/03 Volkswagen AG/ Nacional Motor, SA 26.01.2006
52.
53.
54.
55.
Opposition procedure (i) Article 74(1) (ii) Article 8(1)(b)
VARIANT/DERBI VARIANT and VARIANTDERBI
As products bought by oral request, strong phonetic similarity was sufficient to create risk of confusion, despite visual and conceptual differences.
Despite visual and phonetic similarity, goods and services not similar (transport and travel services vs. computer software and hardware), nor in competition with one another. Parties’ customers not the same, nor did those consumers buy services in same places. Therefore no likelihood of confusion.
Sufficient statement of reasons for decision given by Board. Likelihood of confusion found. Polo-player device is dominant element most easily remembered by consumers and intrinsically highly distinctive in relation to all class 3 goods.
Comments
Contested decision partially annulled (to extent that refused to register ‘Variant’ mark for classes other than classes 7, 12 and 37). Remainder dismissed
Goods and services identical, and ‘derbi’ part of ‘Derbivariant’ not dominant element and not sufficient to displace visual and phonetic similarities. Both marks point to concept of ‘variant’. Likelihood of confusion therefore found.
Appeal upheld and Board of Appeal erroneously held that parties expressed contested decision common intention to bring proceedings before OHIM to annulled an end. Applicant expressly refused to restrict list of goods designated by mark according to terms of opposing party and submitted no express application to contrary effect. Therefore no factual basis for Board’s decision.
Appeal dismissed
Opposition procedure (i) Article 8(1)(b)
(i) Article 44(1)
Appeal dismissed
Contested decision partially annulled (to extent that allowed registration of ‘Royal County’ mark); remainder dismissed
Opposition procedure (i) Breach of duty to state reasons (ii) Article 8(1)(b)
Opposition procedure (i) Article 8(1)(b)
Decision of Court
Provisions allegedly infringed
GERONIMO STILTON/various marks corresponding to word ‘Stilton’ and relating to milk products
Figurative mark containing word element ‘Perfix’/figurative mark containing word element ‘Cerfix’
Figurative and word sign ‘Royal County of Berkshire Polo Club’ displaying horse and rider/word mark POLO and various figurative marks containing word element ‘Polo’ or horse and rider
T-214/04 The Royal County of Berkshire Polo Club Ltd/The Polo/Lauren Co. LP 21.02.2006
51.
Mark(s)
Case and date
No
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T-439/05 The Royal Bank of Scotland Group plc/Lombard Risk Systems Limited and Lombard Risk Consultants 12.03.2007
T-273/05 The Black & Decker Corporation/Atlas Copco Aktiebolag 06.03.2007
T-238/06 Pax AG/Premier Profiles Ltd 28.02.2007
1.
2.
3.
Orders
Figurative sign ‘Quantum’/two Opposition procedure T-147/03 Devinlec Développement figurative marks ‘Quantième’ (i) Rule 50 EC 2868/95 (ii) Article 8(1)(b) Innovation Leclerc SA/T.I.M.E. ART Uluslararasi Saat Ticareti ve dis Ticaret AS 12.01.2006
-
-
-
Marks which do not depart significantly from norm or customs of a sector must generally be held to be devoid of distinctive character. Here, shape applied for is normal for detergent tablets, and is combined with colours indicating different chemical agents rather than commercial origin of product.
Comments
Appeal removed from register
Appeal removed from register
Appeal dismissed as manifestly inadmissible
-
-
Applicant’s request did not conform to Article 44 and no evidence or documentation filed within fixed period.
Appeal discontinued by applicant
Appeal discontinued by applicant
Appeal upheld and Board of Appeal wrong in law in assessing likelihood of contested decision confusion by taking into account particular annulled circumstances in which applicant’s goods had been sold (namely in E. Leclerc shopping centres). Conceptual difference between the signs did not counteract the visual and phonetic similarity and likelihood of confusion found.
Appeal dismissed
Decision of Court
-
(i) Article 7(1)(b) (ii) Principle of equal treatment
57.
Design of dishwasher tablet comprising three colours and elements
T-398/04 Henkel KgaA v OHIM 17.01.2006
Provisions allegedly infringed
56.
Mark(s)
Case and date
No
534 S E S S I O N V I I : T R A D E M A R K
T-248/06 The Professional Golfers Association Limited/ Ladies Professional Golf Association (Corporation) 02.02.2007
T-124/06 MIP Metro Group Intellectual Property GmbH & Co. KG/MetroRED Telecom Group Ltd 24.01.2007
T14/06 K-Swiss,Inc v OHIM 14.12.2006
T-92/05 Figurative mark containing word element Movingpeople.net International BV/Thomas ‘Movingpeople.net’ Schafer 06.12.2006
T-366/05 Anheuser-Busch, Inc/Budejovicky Budvar, narodni podnik 15.11.2006
5.
6.
7.
8.
9.
BUDWEISER
Figurative mark consisting of five parallel stripes on side of shoe
-
-
LYCO PROTECT/ LYCO Q10
T-32/04 Lichtwer Pharma AG/ Laboratoire L.Lafon SA 14.02.2007
4.
Mark(s)
Case and date
No
-
-
-
-
-
-
Provisions allegedly infringed
Comments
Fact that mark applied for is not to be registered is sufficient to render action devoid of purpose.
Appeal discontinued by applicant
Action dismissed
No need to adjudicate on action
Arguments raised by applicant that ‘alcoholic beverages’ are different to ‘beer’ are not such as to call contested decision into question.
Following transfer of earlier mark and lack of arguments put forward by applicant, action has become devoid of purpose.
Action dismissed as Despite contested decision not having been notified to manifestly applicant in accordance with Rules 61 and 62 EC inadmissible 2868/95, present action still not brought within correct time period, as time period runs from date on which applicant deemed to receive notification.
No need to adjudicate on action
Appeal removed from register
Error in translation Applicant pointed out error in German translation; corrected defendant had no observations.
Decision of Court
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T-52/06 Harry’s Morato SpA/ Ferrero Deutschland GmbH 17.10.2006
T-461/05 L’Oréal S.A/Revlon (Suisse) S.A. 11.10.2006
T-323/03 REC La Baronia de Turis, Cooperativa Valenciana/ Baron Phillipe de Rothschild SA 06.10.2006
T-442/05 Biofarma/Anca Health Care Limited 06.10.2006
T-383/04 VITACAN Erich Drazdansky/ Bad Heilbrunner Naturheilmittel GmbH & Co 27.09.2006
11.
12.
13.
14.
15.
-
-
-
-
-
T-261/06 Suzuki Motor Corporation/Whirlpool Europe S.R.L 17.10.2006
10.
Mark(s)
Case and date
No
Errors corrected
No need to adjudicate on action Appeal removed from register
-
-
Opposition procedure
Appeal removed from register
No need to adjudicate on action
-
-
Appeal removed from register
Decision of Court
-
Provisions allegedly infringed
Opposition withdrawn by intervener following agreement between the parties
Applicant withdrew registration application rendering action devoid of purpose.
Applicant pointed out errors of print in documents.
Appeal discontinued by applicant
Following transfer of earlier mark, action has become devoid of purpose.
Appeal discontinued by applicant
Comments
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T-159/05 DELTA UNIPOR-ZieglMarketing GmbH/Ewald Dörken AG 29.06.2006
T-217/05 Marker Völkl International GmbH/Icon Health & Fitness Italia SpA 27.06.2006
21.
22.
Opposition procedure
Cancellation proceedings
-
ALLES, WAS UNS VERBINDET
T-18/06 Deutsche Telekon AG v OHIM 05.07.2006
20.
Opposition procedure
T-32/06 Justerini & Brooks Ltd/ Elia Canelo Gutierrez 05.07.2006
19.
-
T-45/05 Micronas GmbH v OHIM 06.09.2006
18.
Cancellation proceedings Article 8(2) and (3)
-
HENSOTHERM
T-366/04 Hensotherm AB/Rudolf Hensel GbmH 06.09.2006
17.
Opposition procedure
Provisions allegedly infringed
3D mark
EAGLE
T-340/05 Adler Mödemarkte GmbH/BVM S.p.A 12.09.2006
16.
Mark(s)
Case and date
No
Appeal removed from register
Appeal removed from register
Appeal removed from register
Appeal removed from register
Appeal removed from register
Appeal partly inadmissable and partly manifestly unfounded
Appeal removed from register
Decision of Court
Appeal discontinued by applicant
Opposition withdrawn by intervener following agreement between the parties
Applicant withdrew registration application rendering action devoid of purpose.
Appeal discontinued by applicant
Appeal discontinued by applicant
Board of Appeal did not err in rejecting the applicant’s appeal as inadmissable, as appeal was outside time limits; applicant unable to exercise Article 78(1) right of appeal where it has failed to act with all due care
Opposition withdrawn by intervener following agreement between the parties
Comments
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Mark(s)
T-72/05 Deutsche Telekom AG v OHIM 13.06.2006
T-62/05 Lotto Sport Italia S.p.A/Lotos Brillen Vertriebs-GmbH 07.06.2006
T-194/05 TELETECH and TeleTech Goldings, Inc/ TELETECH GLOBAL Teletech International SA VENTURES 11.05.2006
27.
28.
29.
-
-
T-362/02, T-363/02, T-364/02, T-365/02 and T-366/02 Muswellbrook Limited/Nike International Limited 14.06.2006
26.
-
T-306/03 CLIMATIC Volkswagen AG v OHIM 16.06.2006
25.
REDEFINING COMMUNICATIONS
T-453/05 Vonage Holdings Corporation v OHIM 26.06.2006
T-436/05 Ajinomoto Co., Inc/Kaminomoto Co., Ltd 26.06.2006
Case and date
24.
23.
No
-
-
-
Opposition procedure
-
Article 19 Statute of the Court of Justice
Opposition procedure
Provisions allegedly infringed
Action dismissed
Appeal removed from register
Appeal removed from register
Appeal removed from register
Appeal discontinued
Appeal manifestly inadmissible
Appeal removed from register
Decision of Court
Opposition Division rejected registration in entirety taking into account all applicant’s arguments. Correct that applicant not admitted to appeal to Board of Appeal.
Appeal discontinued by applicant
Appeal discontinued by applicant
Opposition withdrawn by intervener following agreement between the parties
Application signed by Swedish ‘lawyer’ (not a member of the Swedish Bar Association); as ‘lawyer’ was not authorised to practise before an EEA court, application is inadmissible; alternative lawyers would not be substituted at this stage Applicant withdrew registration application rendering action devoid of purpose.
Appeal discontinued by applicant
Comments
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T-377/03 ATI Technologies Inc/Asociacion de Tecnicos de Informatica-ATI 27.04.2006
T-322/04 Colgate-Palmolive Company v OHIM
30.
31.
T-330/05 Aqua-Terra Bioprodukt GmbH/De Ceuster Meststoffen N.V 08.02.2006
T-341/04 Datac AG/Datev Eg 06.02.2006
T-67/03 Henkel KgaA/Koen Brutsaert 17.01.2006
32.
33.
34.
21.03.2006
Case and date
No
-
-
-
-
-
Mark(s)
Appeal removed from register
Appeal removed from register Appeal removed from register
-
-
Appeal removed from register
Appeal removed from register
Decision of Court
-
-
-
Provisions allegedly infringed
Appeal discontinued by applicant
Parties decided between themselves re: withdrawal of registration application. Action had therefore become devoid of purpose.
Appeal discontinued by applicant
Applicant informed court that wishes to withdraw its registration application and defendant indicated that it had no observations.
Appeal discontinued by applicant
Comments
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SESSION VII:USES TRADEMARK PART B: THIRD-PARTY OF TRADEMARKS
SESSION VII: TRADEMARK
Part B: Third-Party Uses of Trademarks: Search Engines and Key Words
Moderator JOHN RICHARDSON
Arbitrator and Mediator (New York) Speakers PROF. GRAEME DINWOODIE
PETER RUESS
Chicago-Kent College of Law (Chicago, IL)
Freshfields Bruckhaus Deringer (Düsseldorf) Panelists
JEFFREY BUTLER
PAUL W. GARRITY
Kenyon & Kenyon LLP (New York)
Kelley Drye & Warren LLP (New York)
PROF. SUSY FRANKEL
PROF. MARSHALL LEAFFER
Victoria University of Wellington
University of Indiana School of Law (Bloomington, IN)
ILANAH SIMON
Brunel University (Uxbridge) MR. RICHARDSON: Good morning, ladies and gentlemen. My name is John Richardson. I am your moderator this morning. Before I introduce the speakers and the panelists, I want to explain briefly that the origin of this question goes back to the preparatory work for the conference, when a group of us came up with some ideas for questions. What has happened is, in fact, it was split into two. You heard earlier this morning a discussion of the recent trademark law developments in the European Union,1 and particularly the Opel case,2 and now you are going to hear about the Internet.
1
See infra this issue, Session VII Part A, Trademark Law Developments in the European Union. See Spyros Maniatis, Opel: What Will It Mean for the Future, id. Adam Opel AG and Deutscher Verband der Spielwaren-Industrie eV v. Autec. AG, [2007] E.C.J. (Opinion of Advocate-General Ruiz-Jarabo Colomer, May 7, 2006) (EU) (merchandising); Judgment of the Court (First Chamber) Jan. 25, 2007, available at http://curia. europa.eu/jurisp/cgi-bin/ gettext.pl?lang=en&num=79929874C19050048&doc=T&ouvert= T&seance=ARRET. 2
542 S E S S I O N V I I : T R A D E M A R K Alan Hartnick is an adjunct professor at Fordham. I was inspired by a very short article he wrote in the New York Law Journal in April 2006 about the notion of fair use in trademarks.3 I was not very happy, when I read some of the literature, about all this terminology we had. We have the notions of: 앫 Trademark use/non-trademark use 앫 Commercial use, use in commerce sufficient for registration, use in commerce sufficient for infringement 앫 “Classic” fair use, nominative fair use, the sort of fair use that is associated with comparative advertising 앫 Promotion of competition 앫 Parody, satire, commentary, criticism, free speech, commercial speech, creative artistic uses, the scope of permissible free riding 앫 Unjust enrichment short of physically affixing a mark to goods or packaging or sales materials 앫 Essential function of a trademark, which we know from the European context 앫 And, of course, trademark use under the European Directive.4 We were playing around with all these things. We had a large question, which then became two questions. With that, I would like to introduce the two speakers. Biographical information is available in your binders. To my immediate right is Professor Graeme Dinwoodie, ChicagoKent College of Law in Illinois. The second speaker is Peter Ruess from Freshfields Bruckhaus Deringer in Düsseldorf, Germany. They will be speaking for ten minutes each. Let me also introduce our panelists: Ilanah Simon, from the School of Social Sciences and Law, is a lecturer at Brunel University in Uxbridge in the United Kingdom; Jeffrey Butler is a Partner at Kenyon & Kenyon here in New York; Professor Susy Frankel is from Victoria University of Wellington in New Zealand; Paul Garrity is a Partner with Kelley Drye & Warren in New York; and Professor Marshall Leaffer is from the University of Indiana School of Law. I would like to thank, in particular, my committee members, Ilanah and Jeffrey, for their help in working through the weeks of coming up with these recommendations and questions. I would like to thank Scott Smedresman, who is a student at Fordham, who provided me with some notes on various parts of the literature, which is how I got to learn about Margreth Barrett and Martin Lemley and other people, some of whom maybe Graeme knows. With that in mind, I will introduce Prof. Graeme Dinwoodie. PROF. DINWOODIE: Thank you. The remarks I am going to make are based upon a paper in your materials that I wrote with Mark Janis.5 A revised version will be published in about a month’s time in Iowa Law Review, with a reply by Mark Lemley and Stacey
3 See Alan J. Hartnick, Fair Use, N.Y.L.J. (Apr. 6, 2006); see also Alan J. Hartnick, “Framing” the Internet Equivalent of Pirating?, N.Y.L.J. (Apr. 4 & 11, 1997). 4 First Council Directive 89/104 (EEC) of 21 Dec. 1988 to approximate the laws of the Member States in relation to trademarks, 1989 O.J. (L 40) 1, available at http://eur-lex.europa.eu/LexUriServ/site/en/consleg/1989/L/ 01989L0104-19911223-en.pdf [hereinafter Trade Mark Directive]. 5 Graeme B. Dinwoodie & Mark D. Janis, Confusion Over Use: Contextualism in Trademark Law, 92 Iowa L. Rev. 1597 (2007), available at http://works.bepress.com/cgi/ viewcontent.cgi?article=1001&context=graeme_ dinwoodie.
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Dogan,6 who argue the contrary position, and then a reply from us.7 It is hard to fit all of that content into the ten minutes I have here. However, I am really going to talk only about part of the paper. The paper has a lot of comparative material in it, because we use Arsenal8 and Opel9 and a few other cases to show why we think trademark use is a bad thing to require as an element of infringement. The paper is also about use generally and not just the sale of keywords. However, I am going to confine my remarks to the United States, and also confine them largely to key words and pop-up ads, which is the subject of this session. Peter Ruess is going to cover the situation in Europe. However, one preliminary point of comparison to the European Union has to be borne in mind. This fits with the discussion we had in the previous panel before the break about Opel. That is, we do not have the rigidity of Article 5(1)(a) of the Trademark Directive10 in the United States, so we do not have to try and find the “safety valve” out of the odd results that flow from the identity of goods/identity of marks problem. Therefore, there is not the same need in the United States to contort existing law to find a trademark use requirement. Moreover, in the United States we not have really an effective separate unfair competition law. The unfair competition law is effectively incorporated into and defined by the trademark law. So we end up forcing into trademark proper things which I think Europeans might see as things that should be dealt with by unfair competition law. But that is a consequence of the failure of the United States to have a viable unfair competition law. The problem we are addressing is really a problem of what can be called contextual advertising. In recent years, this phenomenon started with pop-ups, where pop-up ads reflected the Web sites you had visited and the search queries that you had made. Producers could pay to ensure that it was their ad that popped up, mapping ads to particular terms that you had input into the computer. That practice then migrated to the sale of keywords by search engines. Those are the two problems that we are going to look at in this session. I have just vastly generalized the practices involved in contextual advertising. There are many variations among the different search engines. That is actually an important point, because if the other side’s view on this comes to pass, then it does not matter what the variations are between different search engines, because every one would be immunized on the ground so that there would not be trademark use on the part of the search engines. 6 Stacey L. Dogan & Mark A. Lemley, Grounding Trademark Law Through Trademark Use, 92 Iowa L. Rev. 1669 (2007). 7 Graeme B. Dinwoodie & Mark D. Janis, Lessons in the Trademark Use Debate, 92 Iowa L. Rev. 1703 (2007), available at http://works.bepress.com/cgi/viewcontent.cgi?article=1040&context=graeme_dinwoodie. 8 Arsenal Football League plc v. Matthew Reed, [2001] R.P.C. 922 (Laddie J.) (finding no infringement); Case C-206/01, Reference for a preliminary ruling by the High Court of Justice (England & Wales), Chancery Division, by order of that court of 4 May 2001, in the case of Arsenal Football League plc against Matthew Reed, 2002 O.J. (C 333) 22 (suggesting that only use that jeopardizes the essential function of a trade mark is an infringing use); Arsenal Football League plc v. Matthew Reed, [2003] E.W.C.A. Civ. 696, May 21, 2003; [2003] E.T.M.R. 73 (CA) (on remand from ECJ), decision available at http://www.hmcourts-service.gov.uk/judgmentsfiles/j1751/arsenal_ v_reed.htm (reversing Laddie J. and finding infringement). 9 Adam Opel AG and Deutscher Verband der Spielwaren-Industrie eV v. Autec AG, [2006] E.C.J. (Advocate-General Ruiz-Jarabo Colomer, May 7, 2006) (EU) (merchandising), Judgment of the Court (First Chamber) of Jan. 25, 2007, available at http://curia.europa.eu/jurisp/cgi-bin/gettext.pl?lang=n&num=79929874 C19050048&doc=T&ouvert=T&seance= ARRET. 10 Trade Mark Directive, supra note 4. Under art. 5(1)(a) of the Directive, the owner of a registered trade mark can prevent the use of any sign which is identical with the earlier mark, provided the infringing goods or services are also identical with those registered. In the case of such identity, it is not necessary for a likelihood of confusion to be established for the owner of the earlier right to succeed.
544 S E S S I O N V I I : T R A D E M A R K Our approach would require some analysis of the different key word sales practices and presentation of search results. If you look at the suits that have been brought against both search engines and pop-up advertisers, on the one hand, and the purchasers of advertising on the other, on the whole, to the extent the cases have concluded, the search engines and the purchasers have won. But the defendants have won in two different ways, and that is the key here. We are debating not so much the outcome but more the means by which we get to the outcome. So the two ways in which the defendants have won are: 앫 First, by proving no likelihood of confusion and, therefore, no infringement. You have that result reached after trial in the GEICO v. Google case11 and you have it as a summary judgment matter in the Wentworth case.12 That is the way that Mark and I propose that we go about resolving these cases. 앫 The second way is probably now the majority view. It is certainly the majority view among scholars, and perhaps increasingly among courts. We have one appellate decision dealing with pop-up ads, and that court held that activity that does not constitute “use as a mark” does not implicate the trademark statute in the first place; there is absolute immunity regardless of any confusion that might occur. Mark and I take the position that, first, there is no such thing as a “use as a mark” requirement in U.S. law and, secondly, there should not be one. We would instead give much more importance to context and to an assessment of confusion. We believe that the “use as a mark” requirement does not achieve the goals that it claims it can achieve. In particular, it will not create certainty, because if there is one area of uncertain doctrine in U.S. law, it is the doctrines surrounding the concept of use. Secondly, we think that there are adverse effects that flow from imposing this sort of filter. In particular, it fails to regulate in any effective way the marketing and presentation of search results. On the descriptive question for a moment, there is no reference to “use as a mark” in the U.S. statute. There are plenty of references to different types of use, as we heard. There is “use in commerce,” the jurisdictional prerequisite. There is “use in connection with the sale of goods and services,”13 which cuts out many of the uses that are thrown up as nightmare scenarios that would occur if we do not have a trademark use requirement. But there is no reference to “use as a mark.” In fact, the only reference to something approaching “use as a mark” is in the fair use defense, where we find the phrase “use otherwise than as a mark.”14 I will come back to that in a second. So, given the paucity of language in the statute, some scholars have argued it is in the statute through incorporation of the common law. It was there at common law, the argument goes, even though no one actually talked much about it, and the Lanham Act15 was basically codifying what was there at common law.16 Even if you buy the argument that it was there at common law, the principal problem you have in interpreting the statute is Section 33(b)(4), which sets out the fair use defense.17 One element of the defense is that the defendant’s use is “use otherwise than as a mark.” If the “use as a mark” requirement in fact existed, you would not need Section 11
GEICO v. Google, Inc., 330 F. Supp. 700 (E.D. Va. 2004). J.G. Wentworth, S.S.C. L.P. v. Settlement Funding, LLC, 2007 U.S. Dist. Lexis 288 (E.D. Pa. Jan. 4, 2007). 13 See 15 U.S.C. §1114(1)(a) (registered mark); 15 U.S.C. §1125(a)(1)(A) (unregistered mark). 14 See 15 U.S.C. § 1115(a). 15 15 U.S.C. § 1127 (1994). 16 See, e.g., Stacey L. Dogan & Mark A. Lemley, Trademark and Consumer Search Costs on the Internet, 41 Hous. L. Rev. 777, 798 (2004). 12
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33(b)(4). So looking at the statute, and looking at the case law, we say that the trademark use requirement is not there as a descriptive matter. Prescriptively, we say it should not be there. If you look at use doctrines in the United States, they tend to be a proxy for many other parts of trademark analyses, particularly distinctiveness, which are immensely fact-dependent. We think, therefore, the certainty claims made by advocates of a trademark use requirement are simply illusory. In particular, the argument for the requirement necessarily wanders into the very contested debate about exactly what is “use as a mark.” Is merchandising use as a mark? Is copying a product design feature use as a mark? These difficult issues would come to the fore if the trademark use requirement were adopted. Moreover, we think that there will be adverse effects that come from taking trademark law and unfair competition law entirely out of the game by saying, “Just stop the analysis; this is not something trademark law gets into.” In particular, there is a decent debate to be had about whether more information is always good, which is the premise of trademark use advocates. And we also think that there is a need to recognize that different search providers market their advertising programs in different ways, making different claims, making different use of trademarks, and foisting trademarks on advertisers as key words in very, very different ways. To give an example, if you go back to the early Netscape cases18 where Netscape was sued, Netscape required those people advertising who were running adult Web sites to purchase “Playboy” as one of their key words. That strikes me, in terms of commercial ethics, as somewhat different from what Google is doing. Google is not positively trying to foist trademark key words on particular producers. If you say there is a threshold filter of trademark use, you cannot differentiate between any of these search engines because they all get off. If you instead look at confusion or you look at defenses that take into account honest commercial practices (or acting in good faith and fairly), you can differentiate between the conduct of different search engines that behave in different ways. That seems to me an appropriate form of regulation. The same argument applies with respect to the presentation of results. Some of the search engine pages that are produced in response to user queries clearly differentiate between sponsored and organic results. It is a good thing that we monitor and police the way that results are in fact presented. But if you have a trademark use filter you cannot police the different manner in which the results are actually presented to the public because every single search engine provider is immune from any regulation under the trademark statute. Yet, the manner of presentation surely can affect whether and in what way consumers are confused. Thus, trademark use advocates are essentially taking trademark law out of the game of regulating these practices. Now, some people might say that is a good thing. But let me just suggest to you that there are other ways in which the sale of key words could be regulated. I will give you two examples, one of which is really frightening. In the last month, 17 Section 33(b)(4) of the Lanham Act provides that it shall be a defense to an action for infringement of any mark That the use of the name, term, or device charged to be an infringement is a use, otherwise than as a mark, of the party’s individual name in his own business, or of the individual name of anyone in privity with such party, or of a term or device which is descriptive of and used fairly and in good faith only to describe the goods or services of such party, or their geographic origin. 18 Playboy Enters., Inc. v. Netscape Commc’ns Corp., 354 F.3d 1020 (9th Cir. 2004) (initial interest confusion actionable).
546 S E S S I O N V I I : T R A D E M A R K the State of Utah has enacted a law that purports to govern the sale of key words in the United States.19 If you are uncomfortable with the Lanham Act regulating the sale of key words, I guarantee you would not be happy with the Utah state statute. Alternatively, you could look at getting the Federal Trade Commission (FTC) involved. Frank Pasquale has argued that maybe there should be some FTC regulation of the way that key words are sold and the way that search engine results would be presented.20 I am not entirely averse to that idea, but I think that trademark law has a dynamic capacity, a flexibility, built into it that I think FTC regulation probably does not have. So the choices you are left with are: No regulation, which does not allow you to differentiate between different marketing of advertising or presentation of results; a form of regulation like the Lanham Act, which operates by reference to core purposes of trademark law; scattered state regulation, which is a nightmare prospect; or bureaucratic regulation by the federal government, which I think would be backward-looking and probably insufficiently dynamic. Thank you. MR. RICHARDSON: Thank you very much. Wonderful timing. I will now turn things over to Peter Ruess. I hope that you will get to the nightmare in Nanterre. DR. RUESS: Actually I have to start with one apology. The EU general part is in the materials. I was told that my slot, which was last year twenty-five minutes, is ten now. Since I cannot make up everything with speed like Graeme Dinwoodie can, I had to take out some content. Third-party uses — Google and eBay. I link these two because I have seen that in what we do for our clients these are issues that are interesting. I will try to focus on the use element. The background — I just need the name Graeme Dinwoodie. He already described the background, and I am certainly free riding on that. Let me show you what we are trying to do in the next minutes. Going through eBay, I am going to show you several examples of how, if you are looking for something on eBay and type in a trademarked term, it can maybe violate (or not violate) use as a mark (or not use as a mark) this trademark. I am going to move to keyword advertising and I am going to bother you with a little summary if I have time left. FIRST PROVIDER LIABILITY UNDER GERMAN LAW Section 11 of the German Teleservices Act21 exempts from liability host providers that are only storing third-party content. Is interesting to note that this provision in the German Act that stems from the EU Directive, so it is not peculiar to German law. For example, 19 See 2007 Utah Trademark Protection Act, SB 236 (Mar. 19, 2007), available at http://le.utah.gov/~2007/bills/ sbillamd/sb0236.htm. 20 See Frank Pasquale, The Law and Economics of Information Overload Externalities, 60 Vand. L. Rev. (2006), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id= 888410. 21 Teleservices Data Protection Act (Teledienstedatenschutzgesetz) of 1997, adopted 22 July 1997, entered into force 1 Aug. 1997, available at http://www.iid.de/iukdg/iukdge. html. Section 11— Storage of Information [Hosting]: “Providers shall not be responsible for third-party information that they store for a user if 1. they have no actual knowledge of illegal activity or information and, as regards claims for damages, is not aware of facts or circumstances from which the illegal activity or information is apparent, or 2. acts expeditiously to remove or to disable access to the information as soon as they become aware of such circumstances. Sentence 1 shall not be applied if the user is subordinate to or supervised by the provider.”
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eBay is a host provider, and they are hosting foreign content. That does not mean, however, that if you are eBay and somebody sends you a cease-and-desist letter, you can hold up your hands and say, “I don’t care,” as the Federal Supreme Court said in the ROLEX v. Ricardo decision.22 The exemption does not exclude injunctive relief. That means you do not have to pay damages. I will give you an example. Say you were Rolex and somebody is selling counterfeit watches, and if you type in “Rolex,” you see an offer of a blue plastic Rolex. You say, “There is no such thing as a blue plastic Rolex. I want you, eBay, to take that down.” Once put on notice, eBay has not only to take down this particular Rolex, but every blue plastic Rolex that they can find, certainly provided that this is technically possible. I would in this case argue that this is indeed technically feasible. There is a word filter system in place which eBay uses to target consumers. You just enter “blue” and “plastic” in conjunction with “Rolex,” and out these offers go. For the panel discussion, it may be interesting that the usual argument you always get from eBay is, “We have this verified rights owners program. It is sophisticated. It solves all your problems.” I am happy to go into further detail in the discussion session if you are interested. I would like to move on to how we can use search terms on eBay. USE ON eBAY The Frankfurt Higher Regional Court has a lot of decisions dealing with Cartier. In one case,23 someone who was selling gold jewelry activated the following search terms: “gold silver diamond rare rarity Cartier Bulgari Chanel.” Sounds like a dream shopping spree to some, I guess. The court said that linking “Cartier” as a search term for non-Cartier products that could theoretically be original — as in gold jewelry and as opposed to shoes — infringes the Cartier trademark, if no further clarifying statement is made in the context that Cartier is not used as a source indicator. The Frankfurt Court of Appeals said there cannot be a bright-line rule as to when a trademark counterfeit is used in commerce on Internet auction sites.24 Let’s try to find examples to clarify this further. There is a ridiculously expensive handbag my girlfriend wants to have. The reason she doesn’t get it is the price. You find a used one on eBay for $3,000, seventeen hours to go — ridiculous. If you were to buy this and it is a fake, I do not think we have to discuss that this is certainly objectionable. It is trademark infringement. A German came up with this one: “Very nice lady’s watch, Gucci imitation.” The argument was made, “I am not deceiving anybody. Whoever buys this knows perfectly well it is not a real Gucci watch.” That didn’t stand a chance in the court. The Federal Supreme Court said, “This is at the core of trademark infringement. You are using the 22 ROLEX v. Ricardo, Fed. Sup. Ct. (Mar. 11, 2004) (upholding lower court’s decision that the auction site operator was not “using” the ROLEX trademark and, therefore, was not directly liable for trade mark infringement). On Apr. 6 2000 Montres Rolex, S.A. filed a trademark claim with the Regional Court of Cologne against Ricardo in Germany, alleging that replica Rolex watches were being traded on Ricardo’s Web site. Under this claim Rolex sought an injunction preventing Ricardo from allowing further replica Rolex watches to be offered on its Web site, seeking a penalty fine of DM 500,000 for each infringement. On Oct. 31, 2000 judgment was made by the Cologne Regional Court prohibiting Ricardo from either selling or allowing replica Rolex watches to appear on its Web site. Rolex’s claim was dismissed by the Cologne Higher Regional Court on 2 Nov. 2001. Rolex is currently appealing this decision to the German Federal Civil Court in Karlsruhe. 23 Frankfurt Higher Reg. Ct., 6 U 252/04 (8 Sept. 2005), available at http://dejure. org/dienste/internet2?www. jurpc.de/rechtspr/20060040.htm. 24 Frankfurt Ct. App., 6 U 149/04 (7 Apr. 2005).
548 S E S S I O N V I I : T R A D E M A R K mark for something similar. It is not just about deceiving or not deceiving.” So this was overruled. What they are trying now is “look” or “style.” So you have this dress and somebody says it’s a “silky Gucci look.” That might work. There is another Frankfurt Higher Regional Court decision.25 Guess who sued? Cartier again. The seller advertised jewelry not made by Cartier with “Cartier-style.” That was not considered trademark infringement. Says the court, “It is not used as a trademark. It does not work as a source indicator.” It does not say “Cartier” anywhere. It just says it is “like Cartier.” It is a little bit the style and the design of Cartier. However, they lost, because it is comparative advertising, which under German rules26 is unlawful because the seller exploits the goodwill associated with the Cartier brand. I like this one, disclaiming the character is a genuine trademark. The text actually says, “The salesgirl swore it was authentic, but I don’t know.” No court decisions on this. Pragmatic legal advice: Violates eBay’s terms of use. You can get that taken down. In summary, on eBay use: 앫 Trademark use for non-trademark goods is infringement if it is used as a source indicator. That is not the case if you have “style” or “look.” 앫 Auctioneers are exempted from damages but have to take down whatever you tell them.27 앫 There is no exemption for injunctive relief. 앫 Take a look at the eBay policies (recently updated). KEYWORD ADVERTISING Let me use the four remaining minutes to go into keyword advertising. I unfortunately do not have to explain to you what that is. 앫 Search engines de facto the key to being or not being online. 앫 Advertising finances search engines. 앫 Advertising should target recipient appropriately and efficiently. 앫 In the 1990s, metatags (HTML elements used to provide structured metadata about Web sites) placed as tags in the head section of HTML. 앫 Influence on search results => considered unethical, used less today. Google has a trademark policy. I tried to get some harder information from them. It did not work. I just would like to draw your attention to the last line. It says, “Any potential confusion would come from the trademark in the text of an ad only.” If you enter a search term there, for example “Porsche,” and then on the right-hand side it says “Porsche cars” and there is no Porsche, then Google would see an issue. If you enter “Porsche” and it comes up “Peter’s Luxury Cars,” they would not see an issue. It is very questionable whether this visibility requirement, which is nowhere in the German Trademark Act or in the Trademark Directive, makes a huge difference. We do not have a European Court of Justice, Court of First Instance, or German Federal Supreme Court decision on keywords. There are some decisions on metatags. The Federal Supreme Court said that meta25
Frankfurt Higher Reg. Ct., 6 W 80/04 (27 July 2004). German Act against Unfair Competition, §§ 3, 6, subsect. 1. See also Case C-112/00, Toshiba Europe v. Katun Germany, [2001] E.C.R. 7945. 27 TDG § 11. 26
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tagging is illegal.28 Courts are now battling over whether this can be used as a precedent or not. No trademark infringement say two German higher regional courts.29 A funny thing is that in both of these cases the trial courts have precisely said what I stated before, which is that the keyword is not visible; therefore, it is not used as a trademark, and so not as a source indicator; it is not trademark infringement. The higher regional courts in both cases affirmed, but for rather procedural reasons. They tried to get their way around the real issue. In the Hamburg case, they had some procedural issues. In the Dresden case, they said the trademark is descriptive anyway. There is one higher regional court, which is the German appeals court level, that says use in commerce is no different from metatagging; it is an exploitation of the “pilot function” of the trademark.30 I personally think this is the most interesting point: Is the source indicator function, in terms of visibility, the only arbiter we go by, or can we say that if I build up goodwill and somebody uses this mark — enters “Rolex” and gets transferred to a site where they sell Cartier — that is just exploitation of what these people who invested in the trademark built up? It is not yet solved on the Federal Supreme Court level. So auction sites and search engines both profit from the guidance function, from this pilot function, of trademarks. The use in commerce is most likely the most relevant point on how to decide on whether you have a trademark infringement case or not. As we have seen with the auction sites, you have always infringement if you cannot disclaim it — such as “Gucci-look,” “Cartier-style” — which shows to the interested buyer that you are referring to a certain kind of design or style, but are not using the mark as a source indicator. As with the search engines, we have this issue of the visible use. If I get to these sites off Google, does it really make a difference whether I can see the mark or not? This very much leads into the point of what the consumer’s perception is. We can all guess whatever we want. There are people who say, “No way does the consumer ever link the term he entered with the commercials on the right-hand side.” Others say, “Yes, of course, because I do that.” I had a colleague who said he was looking for a children’s trolley and entered “Bugaboo” and was led to a site where they did not have it. He feels that that is just a waste of his time. That remains to be discussed. So what about the use to facilitate an effect on commerce? The trademark, as you see from the marketing perspective, decreases information costs. This pilot function is heavily disputed in Germany, but it makes sense from an approach of what trademark law is about. Then you have the initial interest confusion issue, which you know in the United States as well. There is the well-known example: You leave the highway because you want to go to a McDonald’s, and you end up at Burger King. The rest is open for discussion. My time is up. Thank you very much. MR. RICHARDSON: Thank you very much, Peter. We have five panelists. I think the fair thing to do is give each panelist two minutes now. That will leave us with fifteen minutes for an interchange with the audience and panelists. I will ask Marshall to start. 28
Federal Sup. Ct., I ZR 183/03 (13 May 2006). Hamburg Higher Reg. Ct., 3 U 180/04 (4 May 2006) (holding search engine cannot have knowledge of each case); Dresden Higher Reg. Ct., 14 U 498/05 (30 Aug. 2005) (trademark found descriptive). 30 Braunschweig Higher Reg. Ct., 2 W 177/06 (11 Dec. 2006). 29
550 S E S S I O N V I I : T R A D E M A R K PROF. LEAFFER: I urge you to read Mark Janis and Graeme Dinwoodie’s monumental work of scholarship and wonderful against a current notion of trademark use that captured the imagination of academics and some courts.31 I completely agree with Professor Dinwoodie’s functional approach to the AdWord issue. We are experiencing new forms of search engine technology — a technology that is a moving target. At the same time, consumer understandings change in tandem with this technology. Consumers are ever more sophisticated in their assessment of Web practices. Thus, I do not think a bright-line rule, as the French have done in condemning all uses of AdWords,32 is the right approach. Alternatively, I believe that our “use” theorists who call for complete impunity for most uses of AdWords are on the wrong track as well. My reason for condemning the bright-line approach is that AdWord practices from a global standpoint are difficult to characterize as being beneficial or detrimental to consumer interests. On the positive side, certain AdWord usages reduce search costs to the consumer by supplying them with useful information. At the other extreme, AdWords can be used deceptively, resulting in consumer confusion. Then there are other uses of AdWords that are ambiguous from a consumer welfare standpoint. Because we have not sorted out the varied world of AdWord effects, I do not think that a legislative fix should result at this time. I would prefer that the case law sort out the problem case by case, using a flexible approach based on likelihood of confusion. If this fails, Congress might consider establishing a safe harbor in the AdWords context modeled on Section 512 of the Copyright Act. Unfortunately, Congress might have to get into the act sooner rather than later because some states have taken or are considering the ill-advised — downright stupid — move of banning keywords. On March 19, 2007, Utah did so,33 and we may be entering a state law-induced chaos that will have to undone by Congress. MR. RICHARDSON: Thank you, Marshall. MR. GARRITY: Thank you, John. I think much of the semantics of arguing trademark use and what is or is not trademark use is completely lost upon the fact that if you go back and look at the studies and surveys that were done, both in the reported cases, starting from the Playboy case,34 which found north of 50 percent consumer confusion, all the way through to independent survey work that is being done today by the Pew Internet and American Life Project35 as well as Consumer WebWatch,36 it basically demonstrates unequivocally, in my estimation, the fact that consumers out there don’t know and understand that they are being served advertising when they are using search engines. Frankly, in my opinion — and I am representing a plaintiff against Google in the American Blind case37 — Google knows that and Google takes advantage of that. That is 31 Graeme B. Dinwoodie & Mark D. Janis, Confusion Over Use: Contextualism in Trademark Law, 92 Iowa L. Rev. 1597 (2007). See also Graeme B. Dinwoodie & Mark D. Janis, Trademarks and Unfair Competition: 2006–07); Graeme B. Dinwoodie & Mark D . Janis, Trademarks and Unfair Competition: Law and Policy Supplement, ch. 9 (2004) (collecting cases and materials on “Permissible Uses of Another’s Trademarks”). 32 See Google France Loses AdWords Appeal, Mar. 17, 2005, http://www.out-law.com/page-5395. 33 See 2007 Utah Trademark Protection Act, SB 236 (Mar. 19, 2007), available at http://le.utah.gov/~2007/bills/ sbillamd/sb0236.htm. 34 Playboy Enters., Inc. v. Netscape Commc’ns Corp., 354 F.3d 1020 (9th Cir. 2004). 35 See Pew Research Center, Pew Internet and American Life Project, Search Engine Users (Jan. 23, 2005), available at http://www.pewinternet.org/pdfs/PIP_ Searchengine_users.pdf [hereinafter Pew Search Engine Study]. 36 See, e.g., Consumer Union WebWatch Report, False Oracles: Consumer Reaction to Learning the Truth About How Search Engines Work (June 30, 2003), available at http://www.consumerwebwatch.org/dynamic/ search-report-false-oracles-ab stract.cfm. 37 Google, Inc. v. American Blind & Wallpaper Factory, Inc., 74 U.S.P.Q.2d 1385 (N.D. Cal. 2005).
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the reason why Google is basically going to sell $9 billion worth of search engine advertising this year. They are now basically taking advantage of the fact that when someone is looking for a “Bugaboo stroller,” they are going to search for it by name. There is goodwill that is attendant to that mark, to that brand, and they are specifically searching for a product by that name. For Google to say, “Oh well, if the context of the ad that is served is such that it does not include the trademark in the ad” — I think that is all bunk. I think at the end of the day you are going to the first thing that you see on the page. They know it. There are studies that back that up. I think, again, the empirical data that is out there shows and demonstrates the fact that most people do not know and understand that they get advertising served to them. That’s my take on it. MR. RICHARDSON: Thank you very much, Paul. PROF. FRANKEL: One of the issues, with either the American approach or the European approach, is that the laws are not really designed for the online world. The law is very terrestrial. I shall remind us of the international dimension a little here. I do agree with Graeme that consumer confusion is the better touchstone and that use is not. I think that, in part, this is an acknowledgement that trademark law is very fact-driven. When a court refers to “consumers,” which consumers are they talking about? The facts of a situation are determinative. To attempt to codify what is essentially a factual analysis is bound to give rise to difficulties, both within one jurisdiction and internationally. With that in mind, let’s contemplate the relevance, if any, of the TRIPs Agreement.38 In this situation it adds very little. Article 17 of the TRIPs39 Agreement is the attempt to bring the three-step test,40 which has been discussed much in relation to copyright law and patent law, to trademarks. What is fair use of a trademark? What is legitimate here? After setting out the three-step test, TRIPs then gives the specific example that “descriptive use” of the mark is acceptable.41 That begs the question of what is descriptive use? 38 Agreement on Trade-Related Aspects of Intellectual Property Rights, 33 I.L.M. 1197, in General Agreement on Tariffs and Trade: Multilateral Trade Negotiations Final Act Embodying the Results of the Uruguay Round of Trade Negotiations, Apr. 15, 1994 (333 I.L.M. 1125, Annex C) [hereinafter TRIPs Agreement], contained in an Annex to the WTO Agreement, available at http://www.wto.org/english/tratop_e/trips_e/trips_3.htm. 39 Id. art. 17: “Members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties.” 40 Id. art. 13: “Members shall confine limitations and exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the rights holder.” Pursuant to art. 9.2 of the Berne Convention (“three-part test”): “The reproduction of literary and artistic works protected by copyright can be authorized in certain specific cases provided that such reproduction does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author.” 41 Id. art. 16: “Rights Conferred” — 1. The owner of a registered trademark shall have the exclusive right to prevent all third parties not having the owner’s consent from using in the course of trade identical or similar signs for goods or services which are identical or similar to those in respect of which the trademark is registered where such use would result in a likelihood of confusion. In case of the use of an identical sign for identical goods or services, a likelihood of confusion shall be presumed. The rights described above shall not prejudice any existing prior rights, nor shall they affect the possibility of Members making rights available on the basis of use. 2. Article 6bis of the Paris Convention (1967) shall apply, mutatis mutandis, to services. In determining whether a trademark is well-known, Members shall take account of the knowledge of the trademark in the relevant sector of the public, including knowledge in the Member concerned which has been obtained as a result of the promotion of the trademark. 3. Article 6bis of the Paris Convention (1967) shall apply, mutatis mutandis, to goods or services which are not similar to those in respect of which a trademark is registered, provided that use of that trademark in relation to those goods or services would indicate a connection between those goods or services and the owner of the registered trademark and provided that the interests of the owner of the registered trademark are likely to be damaged by such use.”
552 S E S S I O N V I I : T R A D E M A R K There needs to be quite a lot of work at the international level to discuss the issues. It is all very well to say the French consumer believes this or an American consumer believes the other, but how do you assess consumer confusion in a worldwide market? So far we see technology being used so that a consumer may not be able to buy products if they reside in a particular area. There is a real thing that scholars need to engage in here. We cannot have the situation continuing forever with the French doing it one way, the Germans doing it another way, the Americans doing it another way, because there are consumers outside of those areas who buy from those countries. And the world trading system built on theories of comparative advantage encourage consumers to make international purchases. Trademark law is supposed to protect the consumer, but consumer confusion is rife. MR. RICHARDSON: Thank you, Susy. MR. BUTLER: I think that many trademark owners would argue that they are being shortchanged, at least in the United States, under the current laws. Maybe it is because the Lanham Act has not evolved as quickly as the Internet has — or at least the courts’ interpretation of the Lanham Act has not evolved as quickly. Let me argue their side here. Take the example where someone types the word “Allstate,” to use an American insurance company as an example, into a search engine and a bunch of insurance companies come up as sponsored links. To say that that is not “use” is really, I think, a stretch. It is a real stretch of the imagination to say that that is not trademark use of some sort. The problem in the case of sponsored links — probably with respect to metatags as well — is the notion that trademark owners are sort of “stuck” with the definition in Section 45 of the Lanham Act of “use in commerce.” Certainly, when someone types in the word “Allstate,” for example, and a sponsored link comes up for Joe’s Insurance Company, the word “Allstate” might not be there (visibly) in the sponsored link. It does not appear on the screen. It does not appear when you click on the sponsored link and open up the Joe’s Insurance Company Web site. You do not see “Allstate” at all. But I think that a trademark owner, such as Allstate in my example, would probably say that its mark is being used – without authorization – for commercial purposes to sell competing products or services. So, when we consider AdWare, and even, for similar reasons, when we consider spyware, phishing, gripe sites, metatags, sponsored links, et cetera — all of which are concepts that have evolved fairly recently — we need to consider also whether trademarks of others are being used in an actionable way. I think that, with respect to the issue of whether AdWare can amount to trademark use, we in the United States are perhaps going to end up having to deal with the law the way that we did when we grappled with anti-cybersquatting, where the U.S. Congress had to amend the Lanham Act in order to address that developing and quite nontraditional phenomenon. Similarly, with respect to AdWare and the like, if the courts are constrained in their ability to find “use” (that is, if they are constrained due to perceived limitations in the scope of the Lanham Act), then I suspect that the trademark owners will beseech Congress to amend the laws so as to make AdWare and other such utilizations of marks, actionable trademark “use” under the Lanham Act. MR. RICHARDSON: Thank you, Jeffrey. Ilanah? MS. SIMON: It seems to me unfortunate that we are basically fighting against two moving targets. On the one hand, as Marshall has said, we have to grapple with new technology. But we cannot even get the basics of offline trademark clear, particularly our
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trademark use question. As has been said, you do not need confusion in the European Union if you have identical goods and identical marks. You might think, “Wonderful. That means everything is going to be easy.” It is not easy. As no doubt you have learned from the previous session, we have this thorny issue of trademark use. As we have seen, the case law is not wonderfully clear. The correct test does not seem to be use to indicate origin. You do not seem to need that for trademark infringement, although some of the national courts have seemed to think that that has been the case. Instead, what you do seem to need is use that jeopardizes the ability to distinguish the trademark owner’s goods. You would think that use in keywords would be the paradigm example of that. If someone puts your trademark into a search engine and someone else’s goods come up, then your trademark just is not functioning to direct your consumers to your goods. That would seem to jeopardize the essential function. Again, so far, so good. But then we have an extra added dimension from Adam Opel.42 We have these issues of whether referential use is caught or not. I think we need some work on that. Just to finish up, the referential use issue would seem to be pretty fatal for any uses on eBay. Even if you say, “My goods look just like Burberry’s,” you are still referring back to Burberry. That is referential use. It is not use to refer to services. Therefore, it would seem to fall outside of infringement under Adam Opel. MR. RICHARDSON: Thank you, Ilanah. We have fifteen minutes for some audience and panel participation. Let me throw something out to start things off and see what people think. If you make the assumption that we are talking about a valid trademark, there is a case called 1-800 Contacts, decided by the Second Circuit in 2005.43 Does anybody think that is a good decision? PROF. DINWOODIE: That is why I said the position I was advancing was the minority position. 1-800 Contacts is the only appellate decision thus far. There are district court decisions, the American Blind decision44 and the GEICO45 decision. But 1-800 Contacts is the exact paradigm example and most authoritative example of what I was arguing against. So I disagree with the outcome. QUESTION [Andrew Bridges, Winston & Strawn, San Francisco]: Actually, I think it was well decided. I have a question for Mr. Butler. I own an Audi. I go to a Porsche/Audi dealer and I say, “I want a new stereo system for my car. I want a JVC.” He says, “Oh, but you really should look at the Blaupunkt.” Is that an infringement of the JVC mark? MR. BUTLER: By your Audi dealer? QUESTIONER [Mr. Bridges]: By the Audi dealer, to suggest an alternative when I suggest a brand. MR. BUTLER: I think one could argue that a person suggesting another brand like that is not infringing the trademark, just as when you walk into a store and you look for Coca-Cola brand beverage and right next to it is the Pepsi brand. There might be a Pepsi salesman there saying, “Please try Pepsi,” even though you went into the store looking for 42 Case C-48/05, Adam Opel AG and Deutscher Verband der Spielwaren-Industrie eV v. Autec AG, Judgment of the Court (First Chamber) of Jan. 25, 2007 available at http://curia.europa.eu/jurisp/cgi-bin/gettext.pl?lang= en&num=79929874C19050048&doc= T&ouvert=T&seance=ARRET). 43 1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400 (2d Cir. 2005). 44 Google Inc. v. American Blind & Wallpaper Factory, Inc., 74 U.S.P.Q.2d 1385 (N.D. Cal. 2005). 45 GEICO v. Google, Inc., 330 F. Supp. 700 (E.D. Va. 2004).
554 S E S S I O N V I I : T R A D E M A R K and thinking you wanted the Coca-Cola brand. I think you could make an argument that it is not infringement, but rather fair use. I would take issue, though, with the suggestion that 1-800 Contacts was not a well-decided case. All those kinds of pop-up ad cases, I think, have come out fairly consistently, some at the district court level and I think that one at the appellate court level by the Second Circuit. I think the consistency is helpful. The suggestion that it’s not trademark use in a pop-up ad like that I think needs to be examined. But I think the courts were confined with the laws as they read them, as they interpret the Lanham Act. QUESTIONER [Mr. Bridges]: I would like to follow up. I practice a lot of Internet law, but I actually do not think that it is special. I think law has always grappled with new technologies and new business models. Coming back to a regular, non-Internet example, you say that the suggestion of the Blaupunkt radio might not be an infringement, maybe because it is not confusing. Has the dealer used the JVC trademark when I ask for the JVC radio and he suggests a Blaupunkt? MR. BUTLER: Consumers benefit when they can identify products in order to make the right choices and proper decisions when they make a purchase. If one goes into a store and says, “I think I want a JVC brand radio,” and the salesperson says, “I don’t recommend the JVC; I recommend the Blaupunkt brand radio,” I am sure that there is no consumer confusion. And I am also sure that there is no a trademark infringement there. You are shaking your head. QUESTIONER [Mr. Bridges]: Right, because my question is not whether it is infringement. My question is whether there is trademark use of JVC, the brand I suggest. MR. BUTLER: I hear you. I think the differences between use and wrongful use — of course, it is use (in the sense of employment or utilization of something) if I go on the Internet and I am looking for radios and I type in the letters “JVC” and I then see a bunch of JVC brand radios. That is a use of a trademark, of course. I think the issue under the Lanham Act would be, in your hypothetical, whether there is a wrongful, unauthorized use that leads to the likelihood of confusion, et cetera. In that hypothetical instance, I am not thinking that I am buying a JVC brand Blaupunkt. I know I am buying Blaupunkt. So in a hypothetical like this, I think one could argue that it is a utilization of a trademark per se; but it is certainly not a Lanham Act wrongful “use.” In addition, in your example, the salesman might well argue that his mention of the mark of another is unactionable fair use (or descrip-tive use), for legitimate comparison purposes. QUESTION [Mark Traphagen, Traphagen Law PLC, Washington, D.C.]: I have a question that I think dovetails into Andrew’s observation, but it genuinely is a question. Isn’t there something in Section 43(a)(1) that establishes a cause of action, not just for what we would call use on the goods or services, but also some sort of representation in connection with advertising? Is that true or not? I would love to hear more about it. PROF. DINWOODIE: Just very quickly, there is the false advertising claim in Subsection (b). In fact, that can be used in a supplemental way if the actual text of the ad violated the relevant standards. That is an independent cause of action. It is an alternative cause of action. In fact, there are some people who will argue that that is one way to go. But it is much more limited, both in terms of the standing to bring suits and the ease of making out the case. MR. RICHARDSON: I see the gentleman from Customs, and then the lady back there. We will take the gentleman first. QUESTION [Philip Carpio, U.S. Customs and Border Protection Miami]: I’m not sure if
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I like to be known as “the gentleman from Customs.” [Laughter] I just happen to work for them. This question is generically for the panel, but specifically I was looking at the article by Professor Dinwoodie. I agree with a lot of it, that there is no kind of per se rule or strict liability for just use of a mark. But you did acknowledge in your article, I think, importantly, that use of a mark is still relevant evidence in the infringement inquiry. But as we know, use of a mark or weight of evidence is not all accorded equally to all the different factors. As a practical matter, in the case law that you are aware of and researched, do you find that the courts are according a kind of predominant weight to the concept of use and how the mark is used in determining whether or not a mark is infringing? It seems like that is kind of the primary focus now, at least in our most recent jurisprudence. PROF. DINWOODIE: Two responses. One is, to the extent that it is included, it is not as a direct independent factor. It informs other factors. The channels of advertising obviously reflect the nature of the use. Actual use rules reflect the nature of use. So use comes into all the different factors, informing all those factors. I probably should ask Barton Beebe, who has done empirical studies of which ones actually count, to give us the numerical, quantitative analysis of which factors play. But there is no autonomous use factor. It is a factor that informs almost every one of the multifactor tests in most of the circuits. In terms of the ontological classification of the nature of the use or the mark, you are more likely to see that not so much in the likelihood-of-confusion analysis, but maybe more in the fair use analysis, where courts actually will ask, is this functioning otherwise than as a mark? Is this actually describing the goods or services, or, in the nominative context, is this nominative? So you are going to see it inform the analysis of the likelihood of confusion, but not as an autonomous factor. QUESTION [Yee Fen Lim, Galexia Consulting Pty, Ltd., Sydney]: I have two questions. Basically, from what I understand, there was some reference to some empirical studies that indicate user perceptions on the Internet being confused and so on and so forth. I just wondered whether the survey subjects were actually from any particular age group or particular geographical areas. From my understanding, the U.K. courts anyway, since as far back as Catnic in 1982,46 have taken a far less patronizing attitude towards Internet users than the U.S. courts have taken. My second question goes to the relationship between some of the cases in the United States on metatags vis-à-vis what has been said this morning about using trademarks as search terms. I do remember – correct me if I am wrong — a case where, I think, a court said that the “Playboy” term, although it is a trademark owned by Playboy Enterprises, has become a generic word to describe certain activities and, therefore, the use of that as a metatag was not infringing.47 I was just wondering how that sits with particular use in search terms. If I type in “Playboy,” it may be that I am referring to Playboy Enterprises or I may be referring to more general concepts. MR. GARRITY: I will tackle the first question that you posed — that is, the survey evidence that is out there as it relates to confusion of consumers that use search engines. Certainly the surveys that have been done in the keyword advertising cases, the spyware cases, and also the banner advertising cases — that survey evidence has been done under appropriate safeguards, so that it would be expert testimony that would be admissible in a court in the United States. 46 47
Catnic Components v. Hill & Smith, [1982] R.P.C. 183 (H.L. 1980). Playboy Enters., Inc. v. Netscape Commc’ns Corp., 354 F.3d 1020 (9th Cir. 2004).
556 S E S S I O N V I I : T R A D E M A R K Again, I just want to stress that if you go back and look through that body of case law — granted, that is survey evidence in litigation — the evidence of confusion that is reflected in those surveys starts at about 50 percent and goes up from there. With respect to the non-litigation empirical data that I have seen, I can-not speak to the composition of who it is that was being studied. I am very familiar with the Pew study.48 I think that was surveying north of 2,500 people, taken from all walks of life. I think the only prerequisite for someone participating in that particular study was the fact that they had made a significant amount of use of Internet search engines in the preceding six months or year. PROF. DINWOODIE: I will just take a quick bite at the second part. “Playboy” has not been found to be generic. That is wrong. There was a case in which “Playmate of the Year” was used by the person who was Playmate of the Year and, therefore, it actually was a fair use.49 But that is a different conclusion from the conclusion that “Playboy” is generic. QUESTIONER: You are referring to the Terri Welles case. That is not the case I am referring to. PROF. DINWOODIE: “Playboy” is not a generic mark in the United States. With respect to the question of the studies, you are right about the Pew Study. But what is important, of course, is if you take the trademark use position, the studies do not matter. The point is, in fact, if you look at the studies that have been adduced in the litigation, in GEICO the defendant won. The studies showed insufficient confusion. That may be the case. But if you adopt the trademark use position, all those studies could say absolutely anything, and they would be irrelevant. PROF. FRANKEL: Referring to the study point and who is being studied, it makes sense in those cases to study the local market, because that might have been what was at issue. But it makes exactly no sense when you are trying to have an international market. That is also why I support what Graeme is saying. If you try to take a study of a particular state in the United States to demonstrate whether “Bugaboo” has been used fairly or is causing confusion, this does not clarify whether any confusion exists beyond that state. The geography of where the study takes place is very important. That is a fact-driven issue and why maybe Janis and Dinwoodie have a point. MR. RICHARDSON: Peter, you have been very patient. DR. RUESS: I just want to add one little thing that always comes up when you discuss skewed advertising, and somebody says, “Well, isn’t that about comparing product A to product B?” My theory is, no, it is not. It is the initial interest confusion. If you drive on a highway and you see a McDonald’s sign, you pull off, and you end up in the parking lot of a Burger King, you do not go away. Because you are hungry, you go in. Solely because online it is so easy, with a few clicks, we tried to revert the whole system that works in the offline world and say, “No, actually, that is not initial interest confusion. It is like two pieces that are offered on the same table.” That is not true. It is just not true. The metaphor with the comparison, although it comes every single time you discuss skewed advertising, I believe doesn’t fit. MR. RICHARDSON: I just have one closing comment. The most interesting part of 1-800 Contacts,50 I found, was the attempt to distinguish between “www.trademark.com” and plain “trademark.” It reminds me of a case that I was involved in when I was in practice. 48 49 50
Pew Search Engine Study, supra note 37. Playboy Enters., Inc. v. Welles, 7 F. Supp.2d 1098 (S.D. Cal. 1998). 1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400 (2d Cir. 2005).
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That the symbol for China is “cn.” The WWW.CNNEWS.COM was scotched by the Fourth Circuit as being an infringement of CNN.51 An interesting point. Thank you very much panelists, speakers, audience.
51 Cable News Network, LP, LLLP, v. CNNEWS.COM, 2003 WL 152846 (4th Cir. Jan. 23, 2003), available at http://www.eff.org/legal/cases/CNN_v_CNnews/021112.U.pdf.
SESSION VII: TRADEMARK PART C: DILUTION: A REVIEW OF RECENT DEVELOPMENTS
SESSION VII: TRADEMARK
Part C: Dilution: A Review of Recent Developments Moderator PROF. COENRAAD VISSER
University of South Africa (Pretoria) Speakers PROF. BARTON BEEBE
KENNETH A. PLEVEN
Benjamin N. Cardozo School of Law, Yeshiva University (New York)
Skadden Arps Slate Meagher & Flom LLP (New York)
DAVID LLEWELYN
ILANAH SIMON
IP Academy, Singapore; White & Case LLP (London)
Lecturer, School of Social Sciences and Law, Brunel University (Uxbridge) Panelists
PROF. VERONICA BARRESI
ANDREW BRIDGES
University College (London)
Winston & Strawn LLP (San Francisco)
SUSAN PROGOFF
Ropes & Gray LLP (New York) PROF. VISSER: Let’s move on to our next panel for a discussion of trademark dilution. Of course, it overlaps to a certain extent with the two previous sessions, and especially with what was already touched upon in the last session on the use of trademarks as keywords in search engines. Of course, it is entirely topical that we talk about dilution separately this morning, not only because of the trend of the new Trademark Dilution Revision Act here in the United States, but because of the continuing struggle of the courts in this branch of trademark law. The struggle is always to set the limits, I think, to the remedy. The court is clear. The limits are less clear. That, I think, will appear also in the presentations this morning. It is almost from decision to decision that the remedy contracts or expands. It is almost as if the courts never quite know exactly where the firm ground is for this in trademark remedies.
560 S E S S I O N V I I : T R A D E M A R K Let’s start with developments in the United States. We have two presenters here, Barton Beebe and Kenneth Plevan. Barton? PROF. BEEBE: Thanks very much for the introduction. In the next ten minutes, I plan to make a very modest sort of presentation that essentially will review the changes to U.S. federal antidilution law made by the Trademark Dilution Revision Act (TDRA).1 Then I will speak very briefly in general terms about some of the cases that have come down since the effective date of the TDRA, October 6, 2006. I apologize to many in the room because, based on the questions asked so far, I suspect that many in the room could give this presentation. It is very basic, but hopefully it will at least get things started for the new federal antidilution law in the United States. Much of what I will say is based on an article that I put together for a Symposium here at Fordham, entitled “A Defense of the New Federal Trademark Antidilution Law.”2 Apparently, that is why I am on this panel. I may be the only academic that Hugh knows who actually is willing to defend U.S. antidilution law. But, as one reader of this article said to me, with friends like me, the TDRA does not need enemies. I’m not sure if that’s true. I will first talk about the changes in the subject matter of antidilution protection. I realize that most of you who are familiar with TDRA know that it primarily reverses or overrides the Supreme Court judgment in Moseley 3 by establishing a likelihood-of-dilution standard in U.S. federal antidilution law. I want to start with the subject matter changes made by the TDRA because these are less in the headlines but I think equally as important. 앫 First, the TDRA quite clearly establishes that non-inherently distinctive marks may qualify for antidilution protection, which overrides a line of cases out of the Second Circuit Court of Appeals in New York and other states, most often associated with Judge Leval.4 But I have said here “But see Section 1125 (c)(2)(b)(ii),” because I think this provision of the TDRA still gives an avenue for the Judge Levals of the world to find a way to limit antidilution protection, to some extent, to inherently distinctive marks. 앫 Second, and very clearly, niche fame is held not to be sufficient by the TDRA, overriding Times Mirror,5 among other cases. Here I have also shown a “but see,” which refers to a case out of the Southern District of Texas from just a few weeks ago,6 which seemed not to know that the TDRA had been passed and was still referring to Fifth Circuit doctrine, which said that market fame is sufficient. This previews what I will say at the end of my presentation about the apparent unwillingness, or deliberate (or otherwise) ignorance, by most U.S. courts so far of the changes made by the TDRA. 앫 Third, the TDRA sets out new factors to determine whether a mark is sufficiently famous to qualify for protection under federal antidilution law. By the way, I keep using the term “U.S. federal antidilution law.” That is because we 1 Trademark Dilution Revision Act of 2006 (TDRA), Pub. L. 109-312, 120 Stat. 1730, 15 U.S.C. § 1051 (Oct. 6, 2006), available at http://www.informationtechnologylaw.com/materials/tmda.pdf. 2 Barton Beebe, A Defense of the New Federal Trademark Antidilution Law, 16 Fordham Intell. Prop. Media & Ent. L.J. 1143 (2006). 3 Moseley v. V Secret Catalogue, Inc., 537 U.S. 418 (2003). 4 See, e.g., TCPIP Holding Co. v. Haar Commc’ns, Inc., 244 F.3d 88, 96 (2d Cir. 2001). 5 Times Mirror Magazines, Inc. v. Las Vegas Sports News, 212 F.3d 157, 167 (3d Cir. 2000). 6 Pet Silk, Inc. v. Jackson, No. 06-2465, 481 F. Supp.2d 824, 2007 WL 951635 (S.D. Tex. Mar. 28, 2007).
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still do not know how the TDRA will interact with state law. There is a big bomb, I put it to you, in current U.S. antidilution law, and that is the state-level antidilution protection given by, for example, the New York state statute;7 or California state statute,8 which have completely vague terms, highly undisciplined language. We do not know how that state language will affect antidilution law in the future. The old Federal Trademark Dilution Act (FTDA) offered eight factors,9 which were far too many for courts to handle. Now we have four new factors for fame: (i) The duration, extent, and geographic reach of advertising and publicity of the mark, whether advertised or publicized by the owner or third parties. (ii) The amount, volume, and geographic extent of sales of goods or services offered under the mark. (iii) The extent of actual recognition of the mark. (iv) Whether the mark was registered under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register.10 One comment I will make on these factors is that factor (iii), the extent of actual recognition of the mark — is not this, after all, the main question that we are trying to determine by these fame factors? We get this a lot in U.S. trademark law, in these multifactor analyses, where one of the factors is actually the empirical question. What is the fact in the marketplace? Then we look at factors (i) and (ii) to help us try to estimate that fact in the marketplace — advertising or extent of sales. But the third factor, strangely, is really the main question. I think trademark lawyers would say, “No, wait. Actual recognition — this is an invitation for the submission of survey evidence.” But still it is a very awkwardly worded factor, and we see this as well in the test for blurring, which we will see in a moment, and also in the multifactor test for trademark confusion. Note, by the way, one other thing about this idea of famousness. The Act uses very sparingly the word “distinctive.” It very sparingly refers to the concept of trademark distinctiveness. Why? I think this is a very good move by the Act because distinctiveness, at least in U.S. federal law, is a meaningless concept. It has been given so many definitions as to mean nothing. Now the Act uses the term “recognition.” It is a new age, an age where we talk about the recognition given to marks. I think that is great, because “distinctiveness” was a disaster, almost as bad as the term “dilution” for antidilution law. Changes in the scope of antidilution protection made by the Act: 앫 First, and most notoriously, the Act establishes a likelihood of dilution standard, overriding the Moseley opinion.11 앫 Also the Act establishes definitions of blurring and tarnishment: (B) For purposes of paragraph (1), “dilution by blurring” is association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark. In determining whether a mark or trade name is likely to cause dilution by blurring, the court may consider all relevant factors, including the following: (i) The degree of similarity between the mark or trade name and the famous mark. 7
New York General Business Law § 360-l. California Business & Professions Code § 14330. 9 Lanham Act § 43(c)(1), 15 U.S.C. § 1125(c)(1). 10 TDRA § 2. 11 Moseley v. V Secret Catalogue, Inc., 537 U.S. 418 (2003). 8
562 S E S S I O N V I I : T R A D E M A R K (ii) The degree of inherent or acquired distinctiveness of the famous mark. (iii) The extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark. (iv) The degree of recognition of the famous mark. (v) Whether the user of the mark or trade name intended to create an association with the famous mark. (vi) Any actual association between the mark or trade name and the famous mark. (C) For purposes of paragraph (1), “dilution by tarnishment” is association arising from the similarity between a mark or trade name and a famous mark that harms the reputation of the famous mark.12 Although we have this new definition of likelihood of dilution, I think most U.S. trademark lawyers in the room would say that we still do not know how courts are going to treat this. There is good empirical evidence13 that courts in the United States, Federal District courts especially, and also appellate courts — Judge Leval is an example — are hostile to antidilution protection. Just because we have this new likelihood of dilution standard, how will courts actually treat likelihood of dilution? Will they just say, “It says likelihood of dilution, but I am still going to write my opinion in such a way that I am basically asking for evidence of actual dilution?” I put it to you that the way the courts will do this — we already see some evidence of this in the Century 21 case,14 which Ken will talk about in much more detail — is they will take advantage of the definitions of “blurring” and “tarnishment” given in the Act. These definitions, I think, are the weakest points of the Act from the perspective of those who are against antidilution protection. Look at the definition of “blurring,” for example (and the same analysis can be done with “tarnishment”): “Blurring is association arising from the similarity between a mark or trade name in a famous mark that impairs the distinctiveness of the famous mark.” Arguably, this definition implies a four-step test for determining whether blurring has occurred: 앫 First, the plaintiff must show that the defendant’s speech qualifies as a mark or trade name. This raises all of the metaphysics that we were just talking about with “use in commerce,” but in slightly different terms. In other words, the plaintiff must show that, but for its dilution, the defendant’s mark is perceived by consumers as a designation of source — in other words, as a mark or a trade name. This raises the Louis Vuitton case15 (CHEWY VUITON), which we will get to in a moment, with which many in the room are quite familiar. 앫 Second, the plaintiff must show that consumers make an association between defendant’s mark and plaintiff’s mark. This goes to the whole debate of identity versus “identity plus” that came down after Moseley. Is mere similarity enough or is mere identity enough to show blurring — or, in other words, dilution? The wording of “dilution by blurring” definition suggests that no, it is not; not only must you show similarity; you must show that this similarity creates association. 앫 Third, you have to show that this similarity arises because of similarity from the marks, not the goods. 12
Id. See Clarisa Long, Dilution, 106 Colum. L. Rev. 1029 (2006). 14 Century 21 Real Estate LLC v. Century Ins. Group, 2007 WL 484555 (D. Ariz. 2007). 15 Louis Vuitton Malletier SA v. Haute Diggity Dog, LLC, 464 F.Supp 495, 2006 WL 3182468 (E.D. Va. Nov. 3, 2006). 13
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앫 Fourth, even if you have shown similarity that causes association, furthermore you have to show that this association impairs distinctiveness. The whole point is: Why include all these terms in this definition if all the plaintiff has to show is identity, and then we presume dilution? I think we are way past that old identity interpretation in U.S. trademark law. In the short time I have left, I will say also that the Act establishes new factors for determining a likelihood of blurring. Take a look at factor (ii), “the degree of inherent or acquired distinctiveness of the famous mark.” This is an invitation to Judge Leval and other judges to say, “Sure, we must give antidilution protection to non-inherently distinctive marks. The Act commands us to do so. However, going to the world of Feist16 on the copyright side, the protection we will give will be extremely thin. We will say that non-inherently distinctive marks, such as BRITISH AIRWAYS or AMERICAN AIRLINES, will receive extremely thin, wafer-thin — possibly nonexistent — protection.” What the TDRA gives on subject matter the judges will take away on scope. Finally, we will talk more about fair use in a moment, the various exclusions that are enhanced. In the forty seconds I have left, I want to point out to you a very strange glitch in the TDRA. Let me highlight for you the relevant language of Section 1125(c)(6) of the Act: (6) OWNERSHIP OF VALID REGISTRATION A COMPLETE BAR TO ACTION.—The ownership by a person of a valid registration under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register under this Act shall be a complete bar to an action against that person, with respect to that mark, that— (A) (i) is brought by another person under the common law or a statute of a State; and (ii) seeks to prevent dilution by blurring or dilution by tarnishment; or (B) asserts any claim of actual or likely damage or harm to the distinctiveness or reputation of a mark, label, or form of advertisement. This language suggests that if you, as a defendant, have a registered mark, that is a complete bar to any action against you for dilution. The reason that we have this problem is that the “or” there should have been an “and.” But there was a mistake apparently made in the drafting — so we speculate — and so we have “or.” Registration is a complete bar to a dilution action against you. In conclusion, the best thing about the Act, in its defense, is that it offers blurring and tarnishment protection. It still uses the term “dilution,” but the term is so vague we should get rid of it altogether and just talk about anti-blurring and anti-tarnishment protection. One offshoot of that is to note that there is no misappropriation protection in American law under Section 43(c). We have had two chances to provide that, as the EC Directive17 does, and we have not. I will conclude with that. MR. PLEVAN: Where are we? What is the problem with the Federal Trademark Dilution Act? First is the difficulty in defining “dilution.” A little quick history. The Fourth Circuit said that it is a “dauntingly elusive concept” in Ringling Brothers.18 Professor McCarthy 16
Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., Inc., 111 S. Ct. 1282 (1991). First Council Directive to Approximate the Laws of the Member States Relating to Trade Marks, No. 89/104/EEC, 1989 O.J. (L 40) 1, Arts. 4(4)(a) and 5(2). 18 Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Utah Div. of Travel Dev., 170 F.3d 449, 451 (4th Cir. 1999). 17
564 S E S S I O N V I I : T R A D E M A R K said — time doesn’t permit use of the entire quote — that it is “a doctrinal puzzlement,” “judicial incomprehension,” “a daunting pedagogical challenge,” and that when he tries to talk to people, he is encountered with “blank stares of incredulity or, worse, nods of understanding which mask and conceal puzzlement and misconceptions.” That is Professor McCarthy, 2004.19 Along comes our own Professor Barton Beebe, who makes this observation in the Fordham Intellectual Property, Media and Entertainment Law Journal article to which he referred. Professor Beebe stated: “Understood in terms of typicality and consumer search costs, the blurring theory of dilution is relatively straightforward.”20 If anyone is litigating a case, particularly if you are a defendant, Barton’s article is a must-read. I agree that, as he defends the Act, Barton pretty much tells us all how to get out of it. Does dilution ever really happen? Professor Beebe notes that marks which are so famous as to deserve anti-blurring protection are essentially immune to blurring because of their overriding fame. So whether we call it a catch-22 or the irony of the statute, it is well-documented in Professor Beebe’s article. So here is the problem. Dilution is an elusive concept. Or it is easy to grasp in theory and difficult to prove in the real world. The owners, I would add, of the most powerful consumer brands in the world are simply not a sympathetic group. That probably is what led to the continuing unsympathetic attitude of the federal judiciary. We will have to see in the next six months to a year as to whether that attitude continues. I am just going to touch very briefly on three cases. Century 21 v. Century Surety21 is a lawsuit that was filed in 2003. The plaintiff had already lost all of its claims – summary judgment was granted dismissing the dilution claims and the trademark infringement claims. Lo and behold, there was still one issue left. The statute comes down, and so plaintiff moves for reconsideration based on the amended statute. CENTURY 21 is as strong a mark in the consumer area as you could imagine. The defendant, however, was a pretty obscure business that was issuing environmental hazard bonds and things like that — not known at all in the consumer area. The interesting thing is that the district court, in a decision in February this year, relied heavily on Ninth Circuit cases decided under the old statute, and basically said, “Look, this principle was not changed. You need to have an identical mark or a near-identical mark.” Even though “Century” and “Century” are identical, in the mark “CENTURY 21” the “21” was so important that, therefore, there was nothing close to a near-identical mark. That pretty much was dispositive. The court went on to address some of the other issues, such as the need for market association. The court said, “You have to prove association, and the plaintiff has no evidence of this.” These two marks had coexisted for at least fifteen years. The court said, “I do not see any likelihood of confusion.” You might say, why is that relevant to anything in dilution? The court said, “If for fifteen years you coexisted and there was not even a complaint from any of those franchisees out there from Century 21 about likelihood of confusion, then there could not have been any association, and so this is affirmative evidence that there is no association.” It is an interesting twist. Even though we quickly say, “What does likelihood of confusion have to do with likelihood of dilution,” here is a place where the court actually found the connection. 19 J. Thomas McCarthy, Proving a Trademark Has Been Diluted: Theories or Facts?, 41 Hous. L. Rev. 713, 726 (2004). 20 Beebe, supra note 2, at 1149. 21 Century 21 Real Estate LLC v. Century Ins. Group, 2007 WL 484555 (D. Ariz. 2007).
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The court did a full-factor analysis on the degree of recognition. Again, the court said, “The ‘21’ is so important. Yes, ‘CENTURY 21’ is a highly recognizable mark, but it is recognizable because of the ‘21’ part and not because of the ‘Century’ part. It is the combination. So even though it is a highly recognizable mark, I am not going to give it any points under this likelihood-of-dilution factor.” The lesson from this case is judges like to have precedent. The precedent that is out there is pre-amendment. If you want to find some help in the pre-amendment cases, it is worth citing Starbucks v. Wolfe’s Borough Coffee:22 I assume you have all heard of Starbucks. It needs no introduction. Wolfe’s is a New England-based coffee bean roaster, with a mail-order business and a couple of supermarket sales — not too much. It named one of its coffees MR. CHARBUCKS, a dark-roasted coffee. Why? It said because they were inspired by STARBUCKS. Everyone knows that STARBUCKS is a very strong coffee, so their strong coffee they called MR. CHARBUCKS. Interestingly enough, in the district court’s decision — again, this was a decision decided a year or two ago, before the statute was amended, when it was easy to get rid of dilution — the judge never mentions the word “parody.” Is it a parody? Is it a pun, a joke? Who knows? It’s clear that the logos do not look alike at all. So this is a good test for real pure dilution, as opposed to likelihood of confusion. Nobody is going to be confused. District Judge Swain went through the survey evidence, which, of course, we do not have access to — just from reading the opinion — and concluded that there really was not any kind of dilution case here. What is interesting is that the judge rejected dilution under the New York state statute. Arguably, she did do a likelihood of dilution analysis. The Second Circuit has now vacated per curiam and sent it back for Judge Swain to reconsider in the light of the new statute.23 I suggest that this is the kind of tough case that is going to decide what the new statute means, where there is absolutely no confusion, and yet certainly there must be an association. If you hear “Charbucks for strong coffee,” you are going to immediately think of Starbucks. It has to be near-universal association. Is it diluting? We will just have to wait and find out what happens on remand, and perhaps a second appeal if Starbucks loses again, as its resources are quite unlimited. Also, interestingly enough, the Second Circuit said that it is not clear that the New York statute is coextensive with the amended statute, a view that the International Trademark Association (INTA), which of course mostly wrote the statute, feels very strongly about. The Second Circuit decided that this was not something they were ready to deal with, and sent it back to the district court judge to let her try to decide whether or not likelihood of dilution in both statutes means the same thing, i.e., can you ignore the fact that the New York statute says virtually nothing else and the federal statute has all these other provisions. Then we have the Louis Vuitton case against Haute Diggity Dog,24 that extremely wellknown manufacturer of plush stuffed toys and beds for dogs under names that parody the products of other companies — for example, the well-known CHEWNEL NO. 5, SNIFFANY & CO. , and of course CHEWY VUITON. The humor here was apparently lost on Louis Vuitton. So a lawsuit was brought, followed by cross motions for summary judgment. The district court, having seen the new
22 23 24
Starbucks Corp. v. Wolfe’s Borough Coffee, Inc., 2005 WL 3527126 (S.D.N.Y. 2005). Starbucks Corp. v. Wolfe’s Borough Coffee, Inc., 477 F.3d 765 (2d Cir. 2007). Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 464 F. Supp.2d 495 (E.D. Va. 2006).
566 S E S S I O N V I I : T R A D E M A R K statute, nevertheless relied on the parody cases, such as the Hormel 25 and the Hilfiger 26 cases, which were mostly decided under the New York state statute, and accepted the argument that had been made previously, articulated by courts, that a parodic use depends on the continued association with the well-known mark. Tarnishment? Rejected on the conclusion that the usage was harmless, clean fun. So now the case is in the Fourth Circuit. INTA has filed an amicus brief.27 Since it wrote the statute — and may have screwed up the statutory language on a few points — it may have some insight as to what the new statute means. Some of the key points INTA argues: 앫 First, the district court should not be relying on parody. There is nothing in the statute on parody. Do not give it too much weight. 앫 Second — I love this one – by relying on New York dilution law, the decision undermines the clarity to litigants that the TDRA was expressly enacted to provide — suggesting presumably that most statutes were intended by Congress to be obscure, whereas this one was intended to tell litigants exactly where they stood. 앫 The TDRA was a legislative compromise. 앫 There is nothing in there about parody. 앫 The district court judge did not do a full factor analysis. 앫 Finally, fair use under the Lanham Act, INTA advises the Fourth Circuit, is distinct from fair use under the Copyright Act.28 So the question is: Why are they saying something that should be so obvious? Why is INTA, in effect, talking down to a Fourth Circuit panel of judges? Don’t the judges already know that copyright law is different from trademark law? I think the answer is, if you go back to the Campbell case29 — and I am certainly not an expert in copyright law — in addressing the four fair use statutory factors in the Copyright Act, the Supreme Court grabbed hold of parody and, in effect, promoted it to the status of a fifth factor. INTA is trying to say here: “Do not do that. It is not in the statute. Please do not give a lot of weight to parody.” I think the decision in this case will provide us with a lot of answers. This is a classic case where the defendant is using a famous mark as a mark and there is no question about the association. If INTA (and Louis Vuitton) lose this case, then I am not sure how much will really be left of the amended federal dilution statute. PROF. VISSER: Thank you. Now moving to the other side of the ocean, we have two speakers, Ilanah Simon and David Llewelyn. MS. SIMON: First of all, just to reassure you, we do actually have dilution protection in 25 Hormel Foods Corp. v. Jim Henson Prods., Inc. , No. 95 Civ. 5473 (S.D.N.Y. Sept. 22, 1995), available at http://www.inta.org/downloads/brief_INTA_LV.pdf. 26 Tommy Hilfiger Licensing, Inc. v. Nature Labs. LLC, 221 F. Supp.2d 410 (S.D. N.Y. 2002. 27 Brief of Amicus Curiae International Trademark Association in Support of Vacatur and Remand, Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 464 F. Supp.2d 495 (E.D. Va. 2006), appeal docketed, No. 06-2267 (4th Cir. Dec. 5, 2006), available at http:// www.inta.org/downloads/brief_INTA_LV.pdf. 28 Compare fair use provisions of the Lanham Act, 15 U.S.C. § 1115(b)(4) and § 1125(c)(3)(A), with Copyright Act, 17 U.S.C. § 107. The TDRA statute reads: “The following shall not be actionable as dilution by blurring or dilution by tarnishment . . . : Any fair use, including a nominative or descriptive fair use, or facilitation of such fair use, of a famous mark by another person other than as a designation of source for the person’s own goods or services, including in connection with — (i) advertising or promotion that permits consumers to compare goods or services; or (ii) identifying and parodying, criticizing, or commenting upon the famous mark owner or the goods or services of the famous mark owner.” 15 U.S.C. § 1125(c)(3)(A). 29 Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994).
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Europe. You can find it in Directive 89/104.30 Article 4(4)(a) gives protection in opposition and Article 5(2) in infringement situations. A key point to note here is that you need identical or similar marks, and also we give protection against blurring, tarnishment, and also unfair advantage, although we have our own little European terms for these things. It is also worth noting that if you look at the express wording of the Directive, it says you need to have dissimilar goods. If you need to have dissimilar goods, you might think: What am I talking about — how is similarity of goods narrowing things? The European Court of Justice (ECJ) in the Davidoff v. Gofkid decision31 has told us that the Article, despite its express wording, also covers identical and similar goods. This has meant that we have had the door open to an overt, upfront role for similarity of goods, and our courts have, to some extent at least, taken that and run with it. But even beforehand, we did have it being given some importance in the United Kingdom, in particular. A recent example is the VIPs decision.32 In VIPs we have fast-food services versus computer services for hotels and restaurants. The Court of First Instance (CFI) expressly highlights that the opponent has provided no explanation why a mark that is used for fast foods would bring an advantage for computer services. So, really, it is saying there is no real link between the goods here. If there is no real link between the goods, how do you get your unfair advantage? What the court does say, as well, which slightly undermines what I am saying, is that similarity of goods is irrelevant to blurring. I do not really see why this should be the case. The way that the U.K. courts have taken things, and also the way that the Office for Harmonization in the Internal Market (OHIM) guidelines and certain Board of Appeal decisions have taken things, is to say that where the goods — even though they are not similar in a kind of confusion sense — where there is some link between them, there is more likely to be an association. We need that association for there to be any harm. If consumers are not associating the two marks, then how can the later mark harm the earlier mark? You need association for blurring. Similarity of goods helps you to have association. You need association for blurring. Therefore, similarity of goods, or some link at least between the goods, should be helpful in showing blurring. As I said, that is the approach that has been taken elsewhere in Europe, and in the United Kingdom in particular. One last comment on similarity of goods. I know that in the United States similarity of goods had been used in various of the pre-TDRA multi-factor tests. It is missing from the TDRA. One point for discussion might be: Why has it been taken out of the TDRA test? Should we in Europe be giving it a more prominent role if it is not really thought important in the United States? Moving on to the next trend, similarity of marks, I argue that the particular role that is being given to the conceptual aspect of trademarks in the comparison is meaning that dilution protection is actually wider. Just a recap on our test for similarity of marks: We find it from the ECJ in the Adidas v.
30
Trade Mark Directive, supra note 17. Case C-292/00, Davidoff & CIE SA, Zino Davidoff SA v. Gofkid Ltd. Hong Kong, [2003] E.T.M.R. 42 (9 Jan. 2003), available at http://curia.eu.int/jurisp/cgi-bin/form.pl?lang=en&Submit=Submit&docrequire= alldocs&numaff=c-292%2F00&datefs=&datefe=&no musuel=&domaine=&mots=&resmax=100. 32 Case T-215/03, SIGLA SA v. OHIM, Ct. of First Instance judgment 22 Mar. 2007, 2007 O.J. (C 95) 71, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri= OJ:C:2007:095:0036:0037:EN:PDF. 31
568 S E S S I O N V I I : T R A D E M A R K Fitnessworld decision.33 The marks need to be similar enough to lead to an association or a link between the marks. To find this association or link, you have to look at the visual, aural, and conceptual elements of the two trademarks. It sounds like we have three equal things here. I am going to be saying that actually the conceptual aspect is getting an increasingly dominant position. These are the same factors as we use in our confusion test for similarity of marks, but not necessarily to the same extent. It seems that, certainly in the confusion cases, we have been a bit more evenhanded. We have not really pressed one of the three elements — the visual, aural, or conceptual — but even our confusion test does in some instances allow us to place particular importance on one of those factors in exceptional cases. How has this increase in the similarity of the marks case happened? I am going to trace a few recent U.K. decisions. First up, we have O2 v. H3G.34 The registered trademark is a kind of big flattish bubble. Hutchinson’s advert for its own mobile phone services has little bubbles, and as the advert goes on they spread along the screen. You might think, bubbles versus bubbles — kind of similar, and therefore qualifying for dilution protection. The court of first instance actually takes quite a wide view of similarity. Although there was an appeal on this decision, the dilution aspect was not appealed. The court here says, “We need similarity of marks, like the ECJ has told us. Similarity of marks means we need an association between the two marks. Basically, what we need is for the later mark to bring to mind the earlier mark.” “Bringing to mind” does not sound like a particularly onerous standard. That would seem, potentially, to give us quite wide protection against dilution, or at least allow us to go on to the further questions of whether there has been this detriment or unfair advantage, in a large number of cases. But the court has narrowed this down. The court looks particularly at what mark has a reputation. Rather than saying, “You, O2, earlier trademark owner, will get protection for the whole concept of bubbles and no one else can use the concept of bubbles because that will be similar to your mark,” the court says, “You only have reputation in that single embodiment, that one particular flattish bubble, and you can only stop the use of bubbles that are similar to that particular bubble.” So you don’t have a particularly strong role for the conceptual element of the comparison in that case. But the plot thickens, and our protection gets a bit wider. Next we go on to L’Oreal v. Bellure.35 This was a case about knockoff perfumes. Two knockoff perfumes I want to look at in particular. The original one is TRESOR (“tresor” meaning “treasure”). The defendant’s knockoff, LA VALEUR, uses a picture of a treasure chest. There were also two registered perfumes called MIRACLE and PINK WONDER. In this case the court is giving some emphasis to the conceptual elements of trademarks. So, yes, the court does emphasize the visual similarities. It says, yes, the coloring on the TRESOR and LA VALEUR marks are quite similar. We have the gold-on-black writing — again, quite similar. But the judge particularly notes that there is a treasure chest on the La Valeur packaging. As I said, “tresor” means “treasure” (treasure, treasure chest). We have the same concept there, even though the word “tresor” and a little picture of a treasure chest by no means look or sound the same. The same in the PINK WONDER/MIRACLE case. Again, the shapes are relatively similar, 33 Case C/408/01, Adidis v. Fitnessworld Trading Ltd., E.C.J. (6th Chamber) 23 Oct. 2003, available at http://oami.europa.eu/en/mark/aspects/pdf/JJ010408.pdf. 34 O2 Holdings Ltd. and O2 (UK) Ltd. v. Hutchison 3G Ltd., [2006] E.W.H.C. 534 (Ch). 35 L’Oreal v. Bellure, 2006] E.W.H.C. 2355 (Ch), [2006] All E.R. (D) 39 (Oct.), (Approved judgments), available at http://counterfeitchic.com/cases/LOrealvBellure_UK_ Oct42006.pdf.
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so we do have some visual similarity. But the judge particularly singles out that we have the word “miracle” being conceptually similar to the word “wonder,” even though they do not sound the same and they do not look the same. Again, we have this kind of wide definition of association, just looking for a link in the mind of the average consumer. The upshot of this case is, yes, we have given a quite prominent role to conceptual similarity, but we have not let it dominate. We have also looked at visual similarity and said that is pretty strong in these cases — for the overall packaging, that is, rather than for the particular word marks. Now the plot thickens even further. This is a decision of the Trademark Registry, eSure’s Application,Opposition of Direct Line.36 The case involved two rival insurance companies, Direct Line’s telephone on wheels and eSure’s rather cute little mouse on wheels. The hearing officer here says that there is a modest degree of visual similarity; they do look a bit the same; yes, they have both got wheels — but that is kind of as far as it goes. But at the same time, the hearing officer pulls out the conceptual content of the two marks and says we have this idea here of an electronic communication device with wheels. That concept sets the stage for him giving really quite wide protection. He says there is unfair advantage here; eSure, the junior user, is hitching a ride on the repeated idea of a communication device with wheels. But even more worryingly, they are saying that Direct Line, the senior user, is the only company on the market with the conceptual idea of a communication device on wheels and if you let anyone else use a communication device on wheels, that is going to reduce the distinctiveness of Direct Line’s mark. So what is our result here? Our result here is, effectively, a monopoly on the idea of a communication device on wheels. This seems rather wide. How did we get to this situation? To me, one possible reason is the fact that where we make our confusion comparison, when we look at similarity of marks, we ask: Are these marks similar enough to lead to confusion? If there is something else there that is stopping confusion from being there, then you stop; you cannot prove infringement. We do not have the same limits for dilution provisions. We just look at association in isolation. We ask: Are the marks similar enough to lead to association? All association is, is “bringing to mind.” More than that: If you just show one of the aspects, even if you show that the marks are not visually similar or do not really sound alike, even if the idea brings the other mark to mind, then that is enough; you have just fallen within the association criterion and you can move on to look at the other aspects of dilution. This seems to be pretty dangerous. We are giving protection for concepts. You seem to be able to have monopolies in whole themes of marks. So in that particular Direct Line case you have this monopoly in the whole idea of a communication device on wheels. If you took it to its extreme, I guess in the O2 case you would have your monopoly on this whole idea of bubbles as a trademark for communication services. To conclude, I want to draw an analogy. We do have a somewhat similar issue to that which we have in copyright. In copyright we have idea/expression dichotomy — our idea, our concept, is not protected; however, our expression is. Here it seems to be the same kind of thing that is happening — or rather, we do not have this limitation. You are able to get your monopoly over the idea, over the concept, but ideally your monopoly should be limited to the expression, the specific embodiment of your trademark. 36 eSure Ins. Ltd. v. Direct Line Ins. Ltd., [2007] E.W.H.C. 1557 (Ch.) 29 June 2007, available at http://www. bailii.org/ew/cases/EWHC/Ch/2007/1557.html.
570 S E S S I O N V I I : T R A D E M A R K MR. LLEWELYN: I am just going to say a few things about European law because Ilanah has covered the field very well. First of all, I want to express some surprise that Mr. Plevan was surprised that INTA is telling a court that copyright law is different from trademark law. We have just heard about protecting the concept of a communication device with wheels. Isn’t that what patent is there for, if it was novel? We are here suggesting that one can have everlasting protection, provided you pay your renewal fees every ten years, for something which is proper subject matter if it is in any intellectual property right for patents or possibly, say, registered designs — patents without end. We also have all these notions of copyright law being brought in. If you look at the L’Oreal v. Bellure case,37 it was about packaging of perfumes. I am really sorry, but I have a problem, because I think trademark law is about trademarks. That is a really basic misunderstanding that I suffer from. This morning I heard from Graeme Dinwoodie that the first thing you should say in a Trademarks Act is “this is about trademarks.” When the U.K. Parliament looked at this issue and it was suggested that there should be a requirement to use trademark use in a Trademark Act, they said, “It is so obvious that it is about trademarks and it is about trademark use that we should not put it in.” The law has lost touch with reality. So I am not surprised when I hear that judges squirm to avoid the provisions of dilution statutes. I think, as lawyers, we have a major problem when we start believing our own publicity. Trademark law should be relatively simple. Once we remove it from, however, likelihood of confusion, once we move it from trademark use, that is when we get the problems. Why do we get the problems? Because, actually, that is not how the real world works. If I pass a Dogs’ Act, I do not expect Section 1 to say, “This Act is not about cats.” Yet that is almost what we are saying here. If you come back to look at L’Oreal v. Bellure, where do some of the problems lie? They lie with the fact that this — it was characterized as a misappropriation provision, somewhat surprisingly, by Mr. Plevan — this dilution provision that is in EU law now was introduced because certain EU Member States do not have a law against unfair competition. In England and in Ireland — Scotland is different, of course — we have various other laws that comply with our obligations under Paris Convention Article 10bis.38 We do have a law against unfair competition, to catch those unfair practices that the “normal” man or woman in the street — I am not talking about lawyers here — would say are 37 L’Oreal v. Bellure, 2006] E.W.H.C. 2355 (Ch), [2006] All E.R. (D) 39 (Oct.), (Approved judgments), available at http://counterfeitchic.com/cases/LOrealvBellure_UK_ Oct42006.pdf. 38 Paris Convention for the Protection of Industrial Property, Mar. 20, 1883, as last revised, Stockholm, July 14, 1967, 21. U.S.T. 1583, 423 U.N.T.S. 305, available at http://www.wipo.int/treaties/en/ip/paris/trtdocs_wo020.html. Art. 10bis, Unfair Competition: (1) The countries of the Union are bound to assure to nationals of such countries effective protection against unfair competition. (2) Any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition. (3) The following in particular shall be prohibited: (i) all acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor; (ii) false allegations in the course of trade of such a nature as to discredit the establishment, the goods, or the industrial or commercial activities, of a competitor; (iii) indications or allegations the use of which in the course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity, of the goods.
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unfair and should be enjoined. But in certain EU countries they do not have that — registration is all. Therefore, we now have the absurd situation that you can have Registered trademarks for banal shapes, as in the Nestlé Waters case,39 for all sorts of unconventional marks, which are then given broad protection under the dilution statute, even apparently where there is some sort of conceptual similarity, which is really something to be considered under copyright law or patent law or design law. We have gotten ourselves into a horrible mess, because under a law entitled “trademarks” we do not have the honesty to say, “This is actually an unfair competition law, with a requirement being registration.” So within Europe now we are in a mess. I am delighted, however, to hear that the United States appears to be in a mess as well. It is great for lawyers, for the law is an ass. PROF. VISSER: Thank you, David. We now have three panelists: Veronica Barresi, Andrew Bridges, and Susan Progoff. MS. BARRESI: I just want to briefly comment on two concepts, one of which is reputation, and explain to a non-EU audience why we have so many problems in defining what reputation is. First, it is because the relevant provisions on dilution in the Directive,40 the implementing national rules, and the Community Trade Mark Regulation41 are expressed in the twenty-three different languages of the European Union. Reputation, the first condition for the wider protection provided for in Article 5(2) of the Directive, is expressed by the words er renommeret in the Danish version of that provision; bekannt ist in the German version; goce de renombre in the Spanish version; jouit d’une renommée in the French version; gode di notorietà in the Italian version; bekend is in the Dutch version; goze de prestigio in the Portuguese version; laajalti tunnettu in the Finnish version; är känt in the Swedish version; and by the words “has a reputation” in the English version. Of course, the ECJ has reassured us that, despite linguistic differences, a knowledge threshold requirement needs to be satisfied. In an example of clarity, it held that for a mark to have a reputation in a territory, “the registered trademark has to be known by a significant part of the public concerned, in a substantial part of that territory, which part may consist of a part of one of the countries composing that territory.”42 This is just to point out that at least the United States just has to deal with fame. We have twenty-three concepts of reputation in the European Union! The second point I would like to make is on the VIPs case.43 It seems to me that, although on the facts of the case dilution was not found to be there, the CFI used a language very similar to that used in Arsenal 44 and Adam Opel 45 that we have discussed this morning. It has been argued this morning that the ECJ is trying to construe a general principle as to when, in case of identical goods and identical signs, a likelihood of confu39
Case T-305/02, Nestlé Waters France v. OHIM, [2003] E.C.R. II-5207. Trade Marks Directive, supra note 17. 41 Council Regulation (EC) 40/94 of Dec. 20, 1993, on Community Trade Mark, 1994 O.J. (L 11) 1. 42 Case C-375/97, General Motors v. Yplon (Chevy), E.C.J. 14 Sept. 1999, available at http://eur-lex.europa.eu/ smartapi/cgi/sga_doc?smartapi!celexplus!prod!CELEXnumdoc&lg=en&numdoc=61997J0375. 43 Case T-215/03, SIGLA SA v. OHIM, Ct. of First Instance judgment 22 Mar. 2007, 2007 O.J. (C 95) 71, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri= OJ:C:2007:095:0036:0037:EN:PDF. 44 Case 206/01, Reference for a preliminary ruling by the High Court of Justice (England & Wales), Chancery Division, by order of that court of 4 May 2001, in the case of Arsenal Football Club plc against Matthew Reed, 2002 O.J. (C 333) 22. 45 Case C-48/05, Adam Opel AG and Deutscher Verband der Spielwaren-Industrie eV v. Autec AG, E.C.J., Judgment of the Court (First Chamber) of Jan. 25, 2007 available at http://curia.europa.eu/jurisp/cgi-bin/ gettext.pl?lang=en&num=79929874C19050048&doc=T&ouvert=T&seance=ARRET. 40
572 S E S S I O N V I I : T R A D E M A R K sion will be presumed together with infringement. The principle is based on the essential function of the trademark, which is that to guarantee origin. In the VIPs case, the CFI held that the scope of the dilution provisions in the Directive and the Community Trade Mark Regulation is to protect marks that have a reputation from other identical or similar marks that might “adversely affect its image.” According to the CFI, conveying an image is one of the essential functions of a trademark. Thus, do we have an essential function for every occasion — the origin function for the purposes of infringement (identical signs and goods or services) and the image function for the purposes of dilution? It seems to me that the CFI’s statements are quite broad. You can bring many things under the dilution provisions if you say that their scope is to punish use that adversely affects the image of your mark. MS. PROGOFF: I just had a couple of comments on things that have been raised in part of the discussion so far. First of all, I am not an expert in European law, so I am not going to address that. In the United States, a trademark is defined as “any word, name, symbol, or device that identifies the source or origin of a product or service.” It has been broadened out from word marks to things like the telephones on wheels. The key in the dilution area is: Is what is being litigated something that really functions to identify source or is it being used for some other purpose? If you look at the facts in the Haute Diggity Dog case,46 they are similar to many of the traditional parody cases that courts have dealt with under Section 43(a) of the Lanham Act for years. If the court thinks that what is happening is that somebody is making a joke and they are using a trademark or a takeoff of the trademark to do that, unless it deals with sex or drugs, generally the courts will allow it. I predict that when we get the appeal court’s decision in the Haute Diggity Dog case, we are going to find that the defendant’s activities in that case do not really fall within what the court views as dilution; I expect it is going to come down as a parody decision. But wait and see if I am right or wrong on that. I think the real problem with the dilution statute is how blurring is going to be interpreted by the courts in a more pragmatic sense. In other words, how are you going to prove it and what does it really mean? Does it mean association? There have been surveys under the old version of the statute where survey experts went out and said, “What does this bring to mind?” The courts have said that type of survey does not show dilution. I am not sure that anybody really knows how, in a pragmatic sense, you have to prove blurring to prevail on a dilution claim. The courts are a little reluctant to grant protection for blurring unless you have a truly famous mark. I think there will be some issues with acquired distinctiveness. Suppose you try to enforce a mark like AMERICAN AIRLINES, for example, against dilution. Does that mean you are going to be able to stop third parties from using AMERICAN? I don’t think so. So where do you get to the part where you actually will have some blurring? I think what you are going to need is a fairly unique mark, and the kinds of things the courts are going to look for are going to be very similar to what they look for in deciding whether there is a likelihood of confusion, because that’s a concept that judges feel comfortable with in protecting what they perceive as goodwill. MR. BRIDGES: I have a few comments. I would like to highlight one large-scale, pervasive problem with dilution law and then one particular problem. 46
Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 464 F. Supp.2d 495 (E.D. Va. 2006).
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The large-scale, pervasive problem is, following Mr. Llewelyn’s remarks, that there is some fundamental dishonesty here. The American dilution statute is a remedy in search of a justification. It is an exemplification of the biblical maxim, “To those who have plenty, more will be given.” One can compare the United States to Europe. At least Europe is honest that dilution is about taking unfair advantage. In the United States the question of taking unfair advantage only enters the calculation when assessing damages. U.S. law instead refers to the harm as the lessening of the distinctiveness of the plaintiff’s mark; it does not refer to dilution as the defendant profiting from associations with the mark. There may be some steps to get there, but the law is just not clear on that. There is an enormous paradox, that the strongest marks, as I think Barton Beebe said, may be immune to dilution harm. The paradox is that not only is that the case, but the worst forms of dilution are not actionable under the law. If The New York Times discusses “kleenexes” as a generic term, that is the most harmful thing that can happen to a trademark, but it is not actionable. So this is really sort of a make-weight type of case to give certain powerful companies an easier time to win their cases. What is the particular problem? This did not get fixed in the revised statute, after Victoria’s Secret.47 The Supreme Court put ammonia up the nose of most trademark lawyers by explaining to them that they did not understand dilution. We all thought — I thought — that dilution is when CHARBUCKS brings STARBUCKS to mind. The Supreme Court said, no, dilution is when STARBUCKS brings CHARBUCKS to mind because CHARBUCKS has diluted the distinctiveness of STARBUCKS ; that means when you see STARBUCKS, you start thinking about other things. It doesn’t mean that when you see the junior mark, you think about the senior mark. That has not been fixed. Whereas the standard has been changed from actual dilution to likelihood of dilution, and whereas what I call this upstream association (CHARBUCKS bringing STARBUCKS to mind) might be circumstantial evidence that eventually there will be what I call downstream association (STARBUCKS bringing CHARBUCKS to mind), you still have to prove that downstream association under the new statute. That is probably the toughest standard that exists of any of the elements to meet in dilution law. It was articulated well by the Supreme Court in Victoria’s Secret, and the statute did nothing to fix that. So that is the particular problem, in addition to the general resistance to dilution law caused by the dishonesty of the fact that it is really about free riding but it doesn’t talk about free-riding. Those are the two challenges for people bringing dilution claims. PROF. VISSER: That leaves us with eight minutes for discussion from the floor. Do you have any comments or questions to the panel? QUESTION: Is anybody aware of any actual empirical research that shows that dilution is a real phenomenon — in other words, that use by a third party of a well-known mark, or something similar to a well-known mark in fact has been shown to lessen the distinctiveness of the well-known mark? Of course, the point is, if we don’t know what actual dilution is, how are courts or litigators or survey experts who design surveys to assess whether dilution is likely? MR. BRIDGES: I don’t have survey information, but I do have, I think, some good anecdotal information. Unfortunately, now whenever I see a Dallas Cowboys cheerleader’s 47
Moseley v. V Secret Catalogue, Inc., 537 U.S. 418 (2003)
574 S E S S I O N V I I : T R A D E M A R K outfit, I think about the Dallas Cowboy Cheerleaders case.48 I think tarnishment is very different from blurring. I think it’s much easier in tarnishment cases. PROF. BEEBE: There actually is an empirical paper by Jacob Jacoby and Maureen Morrin.49 This paper does present, it says, empirical evidence of blurring. It doesn’t really address tarnishment, but it addresses blurring. This is the paper, however, that also presents strong evidence, very straightforward, that the strongest marks are impervious to blurring. I think, depending on your theory of dilution, if you believe dilution is what Frank Schecter intended it to be, which is a very mystical concept about uniqueness, then the Jacoby article has nothing to do with Schecter’s original idea of dilution.50 Instead, it’s about blurring, which is essentially consumer confusion inverted; it’s about search costs. That’s why blurring is so simple to understand and why judges tend to like it. Plaintiffs prefer the concept of dilution because they can fit misappropriation under it; they can slip it in. This is the best article we have so far that I know of on dilution. MR. PLEVAN: Which suggests that there is no real example of any major mark, or even a non-major mark, having lost its way because of a thousand small cuts or anything like that. Obviously, empirical research by Jacob Jacoby is not the same thing as “did it ever happen in real life?” QUESTIONER: I haven’t looked at the Jacoby article in some time, but I was working with him on a case where I think he developed a lot of these ideas, back in the early 1990s. I think what he was referring to was a situation where encoding of new information was made more difficult where words — again, not words that are already well-set in one’s mind, but words that are new to one — are not so well-known, and so the ability to encode that new information is rendered more difficult if they are competing for similar names. But again, I do not know of anything that addresses a well-known mark that is already encoded in one’s memory. PROF. BEEBE: I will respond to that very briefly. I am not sure the article would be helpful for lawyers talking to a wise case-law judge or jury, because the article essentially uses response times to figure out dilution. You expose the person to a new stimulus and then you show him the old trademark: How quickly does he associate that trademark with its typical product? This sounds a bit silly. It is like a video game. I can see how a defendant’s lawyer could make fun of the study. Nevertheless, Jacoby is a serious trademark expert, so, at least for his purposes that is what he has done. QUESTION: I have a question for the American speakers and panelists. One of the origins of the TDRA is actually part of the United States’ obligations, under a free trade agreement with Singapore,51 to implement the WIPO Joint Recommendations.52 Pardon my ignorance about the legislative process leading up to the enactment of the Act. But if you look at the WIPO Joint Recommendations concerning the protection of well-known trademarks, there is a specific misappropriation/unfair advantage type of thing there, which somehow does not seem to have made its way into the Act itself. Are there any comments or explanations as to how it slipped out? 48
Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 467 F. Supp. 366 (S.D.N.Y. 1979). Maureen Morrin & Jacob Jacoby, Trademark Dilution: Empirical Measures for an Elusive Concept, 19 J. Pub. Pol’y & Mktg 265 (2000). 50 Frank I. Schechter, The Rational Basis of Trademark Protection, 40 Harv. L. Rev. 813 (1927). 51 U.S.-Singapore Free Trade Agreement, May 6, 2003, ch. 16, available at http://www. wipo.int/export/sites/ www/about-ip/en/development_iplaw/pdf/pub833.pdf. 52 WIPO Joint Recommendation Concerning Provisions on the Protection of Well-Known Marks, adopted by the Assembly of the Paris Union for the Protection of Industrial Property and the General Assembly of the World Intellectual Property Organization (WIPO) at the Thirty-Fourth Series of Meetings of the Assemblies of the Member States of WIPO, Sept. 20–29, 1999, available at http://www.wipo.int/export/sites/www/about-ip/en/development_iplaw/pdf/pub833.pdf. 49
PA R T C: D I L U T I ON: A R E VI E W OF R E CE N T D E VE L OPME N T S MR. PLEVAN: I know little about that obligation, so I will pass. PROF. BEEBE: I exaggerate when I say that misappropriation does
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not fit under antidilution law in the United States. That is my wish, if you read the Act strictly. But I think if you look at even the old FTDA cases, a lot of those cases are misappropriation cases. As for this WIPO recommendation, the most recent reference to it is in the Bukhara Grill case,53 which Graeme Dinwoodie mentioned yesterday. But it is typical of American courts that when they refer to it, it is almost as this “exotic” document that maybe one of our state courts should look at. It has no real influence, I think, in U.S. law. MR. BRIDGES: I think that if we made free riding expressly part of the statute, it would open up a Pandora’s box. Free riding is not illegal under American law; you have to violate some other norm. If free riding is the problem, why are you limiting it to famous marks? If you are not limiting it to famous marks, then you are opening this up to the entire field of commerce, and that would never have passed Congress. MR. PLEVAN: Almost every state, I assume, has an unfair competition law. From time to time, I was asked to look at the issue, back in the old days before the federal dilution statute, whether you could make out an unfair competition case. I do not know that anyone has ever brought it. It would be very difficult, even though there are very strong and vibrant unfair competition statutes in, probably, every jurisdiction in the United States. PROF. VISSER: The last question. QUESTION: This is for the European members of the panel. The presentation about confusion of trade drafts being tackled under trademark law seems to make it very difficult for international companies to clear trademarks. I wonder what advice you might give to companies that are trying to clear trademark internationally from someplace other than Europe. MR. LLEWELYN: Get it to a good lawyer. In the front here we have a representative from OHIM itself. I might be a bit too sarcastic. Perhaps Paul has some advice for us. PARTICIPANT [Paul Maier, Office for the Harmonization in the Internal Market, Alicante]: To come back to what you said before, I wish, indeed, that different parts of the law in intellectual property were used for what they were made for, rather than organizing big mixtures. The ECJ has said, I don’t know how many times, that registering a three-dimensional trademark should not be more difficult than registering a two-dimensional trademark or word mark. But the reality of life is that things are not like that. It is true that it can be difficult. The easy answer is, file a registered community design. You will get protection. Only one in a thousand is rejected by filing, because you have not paid the fees or whatever. You will get your protection. That is the fast answer. MR. LLEWELYN: But to be serious, in answer to your question about what you do as a foreign company or business looking to find out whether you are infringing somebody’s rights if you are coming into the European Union, the answer is now it is very difficult to do that and be assured that you are not going to be on the receiving end of a legal action when you get there. The best way to find out is to do it. That is, unfortunately, becoming the only realistic advice, unless you are going to spend a heck of a lot of money analyzing your search reports. PROF. VISSER: With that, we have to conclude this discussion. I would like to thank the panel. 53
ITC Ltd. & ITC Hotels Ltd. v. Punchgini, Inc., 482 F.3d 135 (2d Cir. 2007).
SESSION VII: TRADEMARK MARKS PART D: PRODUCT CONFIGURATION
SESSION VII: TRADEMARK
Part D: Functionality and Protection of Product Configuration Marks Moderator PAUL W. GARRITY
Kelley Drye & Warren LLP Speakers PAUL MAIER
JONATHAN MOSKIN
Office for Harmonization in the Internal Market (Alicante)
White & Case LLP (New York)
Panelists PROF. GRAEME DINWOODIE
SUSAN PROGOFF
Chicago-Kent College of Law (Chicago)
Ropes & Gray LLP (New York)
PROF. KENNETH L. PORT
PROF. SUSAN SCAFIDI
William Mitchell College of Law (St. Paul, MN)
Visiting Fordham Law School; Southern Methodist University
MR. GARRITY: My name is Paul Garrity. I will be moderating this session on product configuration marks, and specifically product configuration marks and their relationship to the issue of functionality. I will briefly introduce who is here on the dais: Paul Maier from the Office for Harmonization in the Internal Market (OHIM) and Jonathan Moskin from White & Case, who will each speak for ten minutes. Joining us as panelists are Professor Graeme Dinwoodie from Chicago-Kent College of Law, Professor Ken Port from William Mitchell College of Law, Susan Progoff from Ropes & Gray, and Professor Susan Scafidi from Southern Methodist University and a visiting professor at Fordham. Without further ado, Paul. MR. MAIER: The question of functionality and the exclusion of trademark protection for functional features has given rise to important decisions in Europe over the last years. Some aspects of the question have been settled it seems, while others remain to be clarified.
578 S E S S I O N V I I : T R A D E M A R K The question will be presented in the light of the Decision of the Grand Board of Appeal of the Office for Harmonization in the Internal Market (OHIM) the “Lego Brick” case.1 The Grand Board had to decide whether the cancellation of the Community Trade Mark (CTM) for the Lego brick for construction toys should be overturned or not. Held: “the appeal is dismissed,” i.e., the decision to cancel the CTM for construction toys was confirmed. I. THE REGISTRATION OF THE LEGO BRICK. On 19 October 1999, Kirkbi A/S registered at the OHIM the following three-dimensional trade mark (“the Lego brick”):
The registration was requested for a number of goods from Class 9 (scientific, nautical and other instruments and apparatus) and Class 28 (games and playthings; gymnastic and sporting articles included in Class 28; decorations for Christmas trees). The registration claimed the “color red.” The Lego brick was accepted for registration on the basis of acquired distinctiveness pursuant to Article 7(3) of the Community Trade Mark Regulation (CTMR).2 By courier on 21 October 1999, Ritvik Holdings Inc. filed an application, pursuant to Article 51(1)(a) CTMR, for a declaration that the CTM registration was invalid in relation to “construction toys” in Class 28. The invalidity action was, in turn, based on Articles 7(1)(a), (e)(ii), (e)(iii), and (f ) CTMR. This cancellation request is the beginning of a still-unfinished legal marathon between these two parties before EU courts of first instance and it is in parallel with many other actions settled or still under way before national courts both in Europe and North America. The matter is still not finally decided before EU courts, as the decision of the Grand Board described and commented below has been appealed to the Court of First Instance of the European Union. II. PROCEEDINGS BEFORE THE CANCELLATION DIVISION OF OHIM After having had a look at the file, the Cancellation Division of OHIM stayed the proceedings. The reason for this is that the legal question of functionality and registration was central in a case before the European Court of Justice (ECJ), Philips v. Remington. The judgment in this latter case was rendered on 18 June 2002.3 Proceedings before the Cancellation Division were resumed on 31 July 2002. The relevant arguments of the cancellation applicant filed during the cancellation proceedings can be summarized as follows: 1
Case R 856/2004-G, Lego Juris A/S v. Mega Brands, Inc. (“Lego Brick”) (decision of 10 July 2006). Council Regulation (EC) No 40/94 of 20 December 1993 on the Community Trade Mark, 1994 O.J. (L 11) 1; O.J. OHIM 1/95, p. 52). 3 Case C-299/99, Koninklijke Philips Elecs. NV v. Remington Consumer Prods. Ltd., [2002] E.C.R. I-5475, available at http://www.ipo.gov.uk/mcps/philips1.htm. 2
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앫 The Lego U.K. patents, relating to the basic elements of the stud-and-tube bricks, are now expired. It follows that all technical means described in the relevant patents are now part of the public domain and are, consequently, freely available without limitation. 앫 The shape of the toy brick that is the subject matter of the CTM registration is necessary to achieve a technical result in that it allows multiple assembly and disassembly of toys. All the elements of the shape are essential, even optimal, for a toy brick stability and firmness of connection (“clutch power”). 앫 The subject matter of the Lego brick has been described and claimed, at least as a preferred embodiment of the respective inventions, in the U.K. Patents Nos. 529580, 587206, 633055, 673857, 866557, and 1231489, issued in 1940, 1947, 1949, 1950, 1961, and 1971, respectively. The subject matter of the Lego brick, therefore, constitutes a shape necessary to achieve a technical result within the meaning of Article 7(1)(e)(ii) CTMR. 앫 The bar to registration, pursuant to Article 7(1)(e) CTMR, is not overcome by establishing that there are other shapes that can obtain the same technical result. All that has to be shown is that the essential features of the shape are attributable only to the technical result. Progress has always found ways to come up with alternative forms or shapes that suit the same purpose as well or better than the original. 앫 All the features of the Lego brick are purely, exclusively, and necessarily functional. 앫 The CTM proprietor sought, through means of a trademark registration, an extension of a patent monopoly that hampers free competition. 앫 The possibility of distinctiveness acquired through use will not remedy a lack of distinctiveness falling under Articles 4, 7(1)(e)(ii) and (iii), and 7(1)(f ) CTMR. The proprietor’s arguments in defense filed during the cancellation proceedings and later on can be summarized as follows: 앫 The existence of one or more patents is irrelevant to the validity of a CTM registration. Patents, trade marks, copyrights, and designs are all independent rights, each governed by independent statutes that contain complete codes for regulation of the respective rights. 앫 The Lego brick design was never an inventive feature of any prior patent. U.K. Patent No. 529580 dated 25 November 1940, of “a toy building block” required “a block of hollow form.” This is not part of the Lego brick. There is nothing in the claim that defines the “bosses” in terms of the specific geometrical relationship and shapes that characterize the Lego brick. The “bosses” in the patent are said to be “round, square or other cross section so as to prevent rotation or lateral movement thereof.” The patent was not obtained for any particular arrangement of knobs or bosses on a toy building brick. It was for a functional relationship between knobs of a suitable shape. If something is shown in a patent but is not claimed in the patent, it is free for the public to copy. The presence of a design in an expired patent, even when the design is part of the preferred embodiment, does not of itself debar the patentee from claiming trademark rights. 앫 The Lego brick design is not necessary to obtain a technical result. Numerous alternative designs are available to competitors that are at least equal in efficiency and attractiveness and which would cost no more, or would cost less, to produce than the
580 S E S S I O N V I I : T R A D E M A R K Lego brick. The Lego brick is not primarily functional. It has strong visual appeal, which is not dictated by mere functional considerations. 앫 The features that make the Lego brick design attractive are unnecessary to achieve a technical result. These features appeal to the eye. 앫 During the period of time after the patents expired, the proprietor worked hard to build up goodwill and reputation in the Lego brick design. That design is now recognizable to many millions of people. 앫 It can be proved by expert evidence that the registered CTM is distinctive in fact. 앫 The history of the provision shows that it was not the intention of the legislators to exclude the large majority of shapes from trademark registration, which would be the result of the interpretation proposed by the Cancellation Applicant. Article 7(1)(e)(ii) CTMR, properly construed, excludes shapes from registration if, and only if, no other practical shapes are available for achieving a particular technical result. As almost all product shapes have some purpose that could be seen as a technical purpose, this would leave very little room for any trademark protection of product shapes, although these are explicitly referred to in Article 4 CTMR. On 30 July 2004, after considering all the submissions and evidence submitted by the parties, the Cancellation Division adopted Decision No. 63 C 107 029/1 (“the contested decision”) rejecting the CTM registration with respect to “construction toys” in Class 28. The reasons of the Cancellation Division were mainly based on the ruling of the ECJ in Philips v. Remington. III. PHILIPS v. REMINGTON The Philips v. Remington case is a reference for a preliminary ruling under Article 234 CE by the Court of Appeal of England and Wales4 on the interpretation of Articles 3(1) and (3), 5(1) and 6(1)(b) of First Directive 89/104/EEC to approximate the laws of the Member States relating to trade marks.5 The questions relate to a dispute between the above-mentioned parties in an action for infringement of a trademark that Philips had registered on the basis of use in the United Kingdom. The trademark in question is the graphic representation of the shape and configuration of the three-headed rotary shaver developed by Philips in the 1960s (i.e., three circular heads with rotating blades in the shape of an equilateral triangle). When Remington began to manufacture and sell in the United Kingdom its own three-headed shaver forming an equilateral triangle, Philips sued. The questions referred to the ECJ were mainly about functionality and the possibility to overcome this exclusion for trademark registration either by use or through the addition of capricious elements. The case gave the occasion to the Advocate General Ruiz-Jarabo Colomer to deliver landmark conclusions on 23 January 2001. The Advocate General began by making the difference between the reasons for excluding trade mark protection because of the absence of distinctive character or the generic nature of the sign or because the sign has become customary. Such exclusions can be overcome by acquired distinctiveness.
4
Id. First Council Directive 89/104 (EEC) of 21 Dec. 1988 to approximate the laws of the Member States in relation to trademarks, 1989 O.J. (L 40) 1, available at http://eur-lex.europa.eu/LexUriServ/site/en/consleg/1989/ L/01989 L0104-19911223-en.pdf. 5
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However, acquired distinctiveness cannot help to overcome the exclusion of protection for three-dimensional devices which have a functional character: “subparagraph (e) . . . applies to three-dimensional signs which arise solely from the nature of the goods themselves, seek to obtain a technical result or which give substantial value to the goods. The exclusion . . . reflects the legitimate concern to prevent individuals from resorting to trade marks in order to extend exclusive rights over technical developments” (par. 16). He went on to define the words “merely functional” as meaning “any function whose essential features are attributable to the achievement of a technical result.” Such features cannot be protected by trademark law as a trademark confers unlimited rights, whereas the “legislature has sought to make subject to limited periods” the protection of such matters through patent or design law (par. 30). The Advocate General goes on comparing the wording of the Trade Mark and the Designs Directives: “The wording used in the Designs Directive for expressing that ground for refusal (i.e., functionality) does not entirely coincide with that used in the Trademark Directive. That discrepancy is not capricious . . . the level of functionality must be greater in order to be able to assess the ground for refusal in the context of designs; the feature concerned must not only be necessary but essential in order to achieve a particular technical result: form follows function. This means that a functional design may, none the less, be eligible for protection if it can be shown that the same technical function could be achieved by another different form.” (par. 34) On the contrary, the AG considers that “the Trade mark Directive excludes all shapes necessary (in the sense ideally suited) to achieve a technical result” (par 35). In its decision, the ECJ largely followed the conclusions of its AG. It started by stating that “if a shape is refused registration pursuant to Article 3(1)(e) of the Directive, . . . it can in no circumstances be registered by virtue of Article 3(3)” (par. 57). In other words, acquired distinctiveness cannot overcome the functionality exclusion. In paragraph 78, the ECJ states that “the rationale of the ground for refusal of registration laid down in Article 3(1)(3) of the Directive is to prevent trade mark protection from granting its proprietor a monopoly on technical solutions or functional characteristics of a product which a user is likely to seek in the products of competitors.” And further in paragraph 79 it is stated that “that provision is intended to preclude the registration of shapes whose essential characteristics perform a technical function, with the result that the exclusivity inherent in the trade mark right would limit the possibility of competitors supplying a product incorporating such a function or at least limit their freedom of choice in regard to the technical solution they wish to adopt in order to incorporate such a function in their product.” The reasoning is crowned by the clear statement that the existence of other shapes which could achieve the same technical result is not indicated in the text of the law as allowing overcoming the exclusion (par 81). It concludes that “in refusing registration of such signs, . . . the Directive reflects the legitimate aim of not allowing individuals to use registration of a mark in order to acquire or perpetuate exclusive rights relating to technical solutions” (par 82).
582 S E S S I O N V I I : T R A D E M A R K IV. DECISION OF THE CANCELLATION DIVISION AND APPEAL Basically, the ECJ decision in Philips v. Remington gave most answers needed to solve the Lego case. The Cancellation Division thus concluded that: 앫 Article 7(1)(e)(ii) CTMR excludes from registration a sign that consists exclusively of the shape of goods which is necessary to obtain a technical result. 앫 Each of the elements of the shape of the mark, and thereby the shape of the mark as a whole, is necessary to obtain a result. 앫 It then looked into the detail of all patents that had been cited in the case to conclude that they demonstrate the functionality of the Lego brick and its various elements. 앫 According to paragraph 83 of Philips v. Remington, where the essential functional characteristics of the shape of a product are attributable solely to the technical result, registration of that sign is precluded, even if that result could be achieved by other shapes. 앫 Insofar as the ECJ uses the wording “where the essential functional characteristics of the shape of a product are attributable solely to the technical result,” it refers to nothing else than the question as to whether the functional characteristics of the shape serve the purpose of achieving the result, and whether they are essential in doing so. Furthermore, the term “essential” means that not all the elements of the shape must, in equal proportion, contribute to the technical result, but that the application of Article 7(1)(e)(ii) CTMR is not precluded if the shape as a whole contains other elements which are insignificant both for the technical result and the appearance of the shape as such. 앫 The rationale of Article 7(1)(e) CTMR is to protect third parties who want to achieve a technical result without being unfairly restricted by trade mark monopoly in their choice of shape. 앫 All the elements of the shape of the toy brick — that is, the shape as a whole — are necessary to perform a technical function. The fact that the LEGO brick is red does not alter that finding. 앫 For the goods concerned, one basic color on its own is not distinctive. 앫 Objections raised under Article 7(1)(e)(ii) CTMR cannot be overcome by evidence of acquired distinctiveness. On 20 September 2004, the proprietor filed a notice of appeal against the contested decision. On 7 March 2006, pursuant to Article 1(b)(3) of Commission Regulation (EC) No 216/96 of 5 February 1996 laying down the Rules of Procedure of the Boards of Appeal of the Office, the Presidium of the Boards of Appeal, on the proposal made by the President of the Boards of Appeal allowing the proprietor’s request, referred the appeal to the Grand Board. The referral was regarded as justified, since the outcome of the case may have major economic consequences given the considerable turnover generated by trade in the products in the shape of the Lego brick. A. SUBMISSIONS OF THE APPELLANT
Before the Board, the proprietor requests that the contested decision be set aside. It mainly focuses in its argumentation on the fact that its trademark for the Lego brick does not constitute a monopoly. Obviously, the arguments and reasoning of the ECJ and the
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Cancellation Division have been understood as having to be answered mainly on that subject. Its arguments can be summarized as follows: 앫 The Lego brick does not consist exclusively of a shape that is necessary to achieve a technical result. It does not entail a monopoly on a technical solution. The same technical solution can be embodied in different visual appearances. 앫 There is an “infinite” number of other technically equivalent toy bricks that employ the same technical solution to come to the same result. The freedom of competition is, therefore, not hampered in any way by Registration of the Lego brick shape. 앫 Where there is no compelling technical reason to use the same design as a competitor, one of various available designs for the same technical solution is not excluded from trade mark protection pursuant to Article 7(1)(e)(ii) CTMR. The rationale behind that provision is to prevent monopolies on technical solutions and not on individual designs. 앫 The fact that there are recent design registrations for stackable interlocking bricks proves that there is competition in the relevant market, without competitors monopolizing or attempting to monopolize technical solutions. 앫 There is no restraint on competition where the identical technical solution can be embodied in an infinite number of individual designs. In such a case there is no need to allow competitors to copy exactly the distinctive appearance of one of the competing products. It is too simplistic to say that the ECJ in Philips v. Remington has declared alternative shapes entirely irrelevant. It rather said that the application of the “functionality clause” could not be excluded by saying that the same result could be achieved with other shapes. Clearly, the new arguments put forward by the appellant did not convince the Board. In its decision the Board recalls first the Regulation and the relevant provisions that apply to functionality. It finds that Article 7(1)(e) CTMR explicitly singles out certain three-dimensional marks by listing specific grounds for refusing their registration. Under Article 7(1)(e), signs which consist exclusively of the shape which results from the nature of the goods themselves, or the shape of the goods which is necessary to obtain a technical result, or the shape which gives substantial value to the goods cannot be registered or, if registered, are liable to be declared invalid pursuant to Article 51(1)(a) CTMR. Article 7(1)(e) CMTR prevents a sign consisting exclusively of the shape of a product from being registered if any one of the criteria listed in that provision is satisfied. Furthermore, Article 7(3) CTMR cannot be applied to overcome the obstacle, because the rationale of Article 7(1)(e) is not the lack of distinctiveness but the public interest in the free use of the specific shapes of the products in question.6 (According to established case law, Article 7(1)(e)(ii) CTMR precludes from registration three-dimensional marks whose essential characteristics perform a technical function, because trademark monopoly on such marks would illegitimately restrict competitors trading in identical or similar goods which incorporated such a function. Such a monopoly would, at the very least, limit their choice to achieve a similar technical function for their own products. In other words, Article 7(1)(e)(ii) CTMR pursues an aim which is in the public interest, namely to bar from registration shapes whose essential characteristics perform a technical function, and were chosen to fulfil that function, hence allowing them to be freely used by all.7 6 7
Philips v. Remington, ¶¶ 74–76. Id., ¶¶ 79 & 80.
584 S E S S I O N V I I : T R A D E M A R K Three-dimensional shapes whose essential characteristics perform a technical function are inventions that can be protected under patent law only if they meet the strict patentability requirements, and then only for a limited period. Patented inventions fall into the public domain when the patent expires. These aspects of patent law are of public interest because they safeguard free competition, which is essential for the fair and unimpeded trade in the Community. These patent law safeguards would be vitiated if trademark protection were allowed to provide a back door to grant permanent protection to functional three-dimensional shapes either when they were not patentable or when the patent had expired. Furthermore, if a three-dimensional mark is found objectionable pursuant to Article 7(1)(e)(ii) CTMR, the fact that it has a color, even a highly distinctive colour, cannot overcome that objection. Such a mark performs a technical function when its essential features are attributable to the achievement of a technical result. A shape that contains an arbitrary element which, from a functional point of view, is minor, such as its color, does not escape the prohibition.8 The Board went on to further argue the relevance of the patents cited in the case. To do that it looked into the decision of the first instance but also at case law from the U.S. Supreme Court. Notably, it stated that it is difficult to argue that the expired patents pertaining to the Lego brick are unimportant. “On the contrary, these expired patents are key facts of this appeal, since a prior patent is practically irrefutable evidence that the features therein disclosed or claimed are functional, as the United States Supreme Court affirmed in similar terms in the case TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23 (2001).” National decisions were also looked into. It is underlined that in its depositions the cancellation applicant informed the Board that the Lego brick trade mark has — on essentially the same grounds as given above — either been denied registration or cancelled in France, Benelux, Sweden, Germany, Greece, and the United Kingdom. In Italy the registrations have been withdrawn. The Board considered these national decisions as important elements. Even if it first recalled that “as is well known, national decisions are not binding [on the Boards of Appeal of OHIM]; nevertheless in this case, taken as a whole, they cannot but help highlight a markedly consistent approach towards the registrability (or rather lack of it) of the proprietor’s mark.” The Board thus found further support for its already clear position that the brick should not be a registered trade mark for construction toys. What is more interesting is that for the second time in this decision the Board takes argument from a non-EU court decision, as it then goes on to state that “the same lack of registrability of the Lego brick is underscored by the recent judgement of the Supreme Court of Canada of 17 November 2005, which also found that the functional characteristics of the Lego brick were designed to achieve a technical end.” In view of the above, the Board finds that the Lego brick is not registrable by virtue of Article 7(1)(e)(ii) CTMR for “construction toys” covered by Class 28. V. CONCLUSION The Lego brick case and other decisions mentioned or referred to in the case allow us to come to some clear conclusions as to functionality as it is understood in EU trademark law. Firstly, functionality is a strict exclusion for the registration of CTMs or national trademarks. It is irrelevant that other technical solutions can be found to achieve the same 8
See id., Opinion of Advocate General Ruiz-Jarabo Colomer, in particular ¶¶ 27 & 28.
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result. If a shape of a three-dimensional sign is dictated by the technical result that is to be achieved, the exclusion will bar any trademark registration, and if such a registration had been granted beforehand it must be cancelled. Second, functionality cannot be overcome by intensive use contrary to descriptiveness or genericness. The nature of trade mark law protection and its function in the overall IP protection requires that functional elements cannot be subject to trademark registration and protection. One cannot obtain an indefinite protection of its patented inventions or reregistered designs through trademark protection. Third, both North American and European solutions are harmonized in this matter. The decisions of the other judicatures have been considered and taken into account by the Board of Appeal, and this fact is in itself of importance. This is all the more true in such a matter of principle. Fourth, patents are to be looked into to determine whether a particular feature of a trademark is functional. They constitute an essential element: “expired patents are key facts . . ., since a prior patent is practically irrefutable evidence that the features therein disclosed or claimed are functional.” The result is not absolute, though. It will indeed be difficult to argue that patented matter is not functional, but the Board does not exclude that in particular cases it will be possible to escape the exclusion. The same is true for the U.S. Supreme Court, which did not state an absolute rule either. Could one think of obsolete technology that has become “vintage?” Maybe the future will tell. MR. GARRITY: Thank you, Paul. Jonathan? MR. MOSKIN: Good afternoon. The subject is functionality of trade dress in designs. We are talking about physical things in the real world. Of course, a picture is thus worth a thousand words, and if I were to use a thousand words, I would use up all of my nine minutes and fifty seconds. Let me show you pictures of some of the products that have been involved in some of the more noteworthy cases in this area: First, let me show you a picture of the oval-shaped cable-head tie from the Thomas & Betts case,9 which was litigated up and down the appellate ladder in Chicago for I don’t know how many years. Next, the trailer pinch posts, which, as best I can tell, are these curved devices (numbered 27 and 28 as disclosed in Patent No. 5,518,261) at issue in Midwest Industries v. Karavan Trailers,10 although they were not expressly claimed in the patent. In each of these cases, for industrial products or designs shown within an actual patent, the courts could not make up their minds whether the designs were functional under U.S. law; whereas for a simple toy that all of us would immediately recognize and have known since childhood, without any hesitation, courts uniformly have held the LEGO building block is functional and not protectable.11 Admittedly, if one goes back to the patent claims, the language very broadly describes the functional nature of the interlocking mechanism. One could easily imagine, with the benefit of hindsight, that had they written
9
Thomas & Betts Corp. v. Panduit Corp., 138 F.3d 277, 46 U.S.P.Q.2d 1026 (7th Cir. 1998). Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356 (Fed. Cir. 1999) (refusing to foreclose trade dress protection for previously patented curved pinch post for hitching boats to trailers). 11 U.S. Patent No. 3,005,282, “Toy Building Brick,” issued Oct. 24, 1961 to Interlego AG. See also Tyco Indus., Inc. v. Lego Sys., Inc., 5 U.S.P.Q.2d 1023 (D.N.J. 1987), aff’d 853 F.2d 921 (3d Cir.), cert. denied, 488 U.S. 955 (1988) (holding Lego building block design functional); Kirkbi AG v. Ritvik Holdings, Inc., (2005) 433 C.P.R. (4th) 385 (S.C.C.) (holding the design unprotectable based, in part, on the fact that the design has been claimed in a utility patent). 10
586 S E S S I O N V I I : T R A D E M A R K these patent claims more narrowly they could perhaps have escaped a later finding of functionality. But more broadly, my point is there is nothing intuitively obvious about what is or is not functional. I think, as a litigator, if you were to ask me what is functional, my answer would be that my adversary’s products are functional; my client’s products are nonfunctional. The courts have not done a very good job of line drawing. They have helped us identify two broad issues in assessing functionality — namely, whether protecting a design under trade dress law or trademark law will conflict with our patent system, and whether protecting designs will inhibit competition. But these two very different inquiries not easily reconciled. I think it is very telling to look at the language of one of the Supreme Court cases. In the Qualitex case,12 the Supreme Court said, “In general terms, a product feature is functional and cannot serve as a trademark if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.” The Court then went on to say, “That is, if the exclusive use of the feature would put competitors at a significant non-reputation-related disadvantage.” Despite what the Court said, I do not see these as in any way equivalent statements. The first, I can understand, is addressed to the thing itself: in common parlance, does it have a function? Would it be more expensive to make it a different way? Is it essential to the use of the article? The second half of the formulation, however, is something entirely different. It is an economic analysis having nothing to do with the thing itself: Can you design it a different way? The courts have been rather frustrating in their inability to come to terms with these two distinct issues. If I can refer back to the comments of my partner, David Llewelyn, I think the real problem here is that we have a somewhat dysfunctional system, where product designs are not clearly protectable under trademark law, and the courts have also made very clear that under copyright law, design protection is extraordinarily limited, under the similar doctrine of utilitarianism. Although we have a design patent statute in the United States,13 design patents have been so limited as to have largely been deprived of their value. There are some instances where they have some meaningful enforceable value, but the courts have interpreted the scope of the design patent statute, somewhat questionably perhaps, as to say that design patents have no scope. Here is a very clear example which the Supreme Court was confronted with very directly in the TrafFix case.14 Many litigants urged it to hold that once something has been claimed in a patent it cannot thereafter be protected as trade dress law. This has a constitutional dimension in the United States because of the limited times provision of the Constitution. Yet, confronted with something that was clearly functional, and that the Court ultimately held was functional, and which had been the subject of a utility patent, the Supreme Court nonetheless declined to rule whether trade dress protection is precluded by patent protection. The Supreme Court has in other places made very clear its philosophy that there is a “carefully constructed bargain” among the different branches of intellectual property law. In homage to Kurt Vonnegut, who just passed away, perhaps One First Street, which is the address of the Supreme Court, is one of what Vonnegut described as a “chrono12 13 14
Qualitex Co. v. Jacobson Prods., 514 U.S. 159 (1995). 35 U.S.C. §§ 171–173, 102, 103, 112, 132; see http://www.uspto.gov/web/offices/pac/design/toc.html. TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23 (2001).
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synclastic infundibulum,” which are, he said, places in the universe where all truths come together.15 To the rest of us in the intellectual property bar, and to courts, it is far less clear. It is not carefully constructed. And, if you look at the litigants in the Thomas & Betts case and the years and years they spent litigating, it is not such a bargain either. There is a sense that maybe now, under our system in the United States, we can pass this down from the courts to the Trademark Office by requiring that the claimed trade dress owner first register its design as a trademark. In order to protect a design in litigation, it is indeed now the plaintiff’s burden to prove that a design is nonfunctional. So, under the recent revisions to the Lanham Act,16 one does need first to get a registration. I am not criticizing the Black & Decker court,17 but if one looks at this recent case, which really perhaps had more to do with ornamentation than functionality, the impression is that all Black & Decker had to do to get a trademark registration was simply to present in an ex parte forum some evidence from favored customers that its octagonal key-head shape had become associated with Black & Decker. If so, it is not clear how much of a benefit there is in shifting responsibility from the courts to the Trademark Office to decide functionality. On the other hand, once you get a registration, how good is it anyway? In the Fuji Kogyo case, decided recently by the Sixth Circuit,18 similar designs for fishing line guides, which are the little eyelets that are mounted on a fishing pole to guide the line through, had once been the subject of patent protection, not the identical designs. The designs at issue in the case were also the subject of trademark registrations. The court wasted little time, however, dispensing with the registrations, and gave no evidentiary weight to the fact that they were registered. So the law, despite anything the Supreme Court says, is extraordinarily unclear, and therefore a subject of continuing litigation and discussion. In conclusion, I do want to suggest that there is yet a third complicating factor. You may wonder why I have put up a picture of a Cohiba cigar. That is because there is also something unique about product configurations that may or may not have to do with functionality, but within the definition that Sue Progoff, quoted earlier: What is a trademark? It is a symbol that has come to identify the source of origin of a product. If one looks to the origins of the word “symbol,” it is derived from the Greek as “the present half of a broken tablet or coin, representing the missing part.” It is difficult conceptually for the mind to wrap itself around the notion that a particular thing is also a symbol for itself. The thing is itself; there is no missing part and it is awkward, at best, to say it is a symbol for itself. Therefore, why the cigar? Even Sigmund Freud, who I think most of us would agree knew more about symbolism (or thought he did) than most, recognized that sometimes a good cigar is simply a good cigar. MR. GARRITY: Thanks, Jonathan. Sue Progoff, do you have some thoughts? MS. PROGOFF: I do have a few thoughts about this. It is something that I think has become a much more unsettled area of the law than it used to be. From the early days of the Lanham Act until probably five to ten years ago, courts were expanding the kind of protection that they would give to product designs and product configurations under 15 16 17 18
See Kurt Vonnegut, Sirens of Titan (1959). 15 U.S.C. § 1124 (Supp. I 1984). Black & Decker, Inc. v. Pro-Tech Power, Inc., 47 U.S.P.Q.2d 1843, 1845–46 (E.D. Va. 1998). Fuji Kogyo Co. v. Pacific Bay Int’l, Inc., 461 F.3d 675 (6th Cir. 2006).
588 S E S S I O N V I I : T R A D E M A R K Section 43(a) of the Lanham Act. In view of a series of decisions by the Supreme Court, that has been cut back gradually. I think where things are going now is that the courts really do not like the idea of giving unlimited protection to product designs, and so functionality is really only the tip of the iceberg in terms of the problems that you have in protecting product configurations. Once you get past the functionality hurdle, you still have to show that the things that you say constitute the trade dress are things that consumers use to recognize the source of the product — in other words, those are the features that function as a trademark. I think with a product configuration that can be very difficult, because you have to define what your trade dress is. You cannot just say it is “the overall look of a product” anymore, which is what people used to say in the 1970s and 1980s. You have to be able to say, “It is this feature and this feature and this feature.” The next step in proving your case is to show that those particular features are the things that consumers look at to identify source. The third hurdle is to show that, because somebody copied those features, there is a likelihood of confusion. I think it is a very tough row to hoe. The decisions seem to be coming out more and more on the defense side in this area. The other thing I want to mention very briefly is that one of the questions in this area in terms of functionality also is the role that a design patent would play in determining whether or not something is functional, because a design patent can only cover something that is considered nonfunctional. There was a recent case that came down about a month or so ago in the Western District of New York, Keystone Manufacturing v. Jaccard Corp.19 The case involved trade dress in meat tenderizers. (I don’t know what meat tenderizers look like.) There were some expired patents and the court was asked to construe those. There were also some expired design patents. The court engaged in a fairly good discussion of where the law has been with respect to design patents and trade dress. They say, essentially, that it is relevant to non-functionality but it does not create a presumption. I am sure there is going to be more to come on that issue, but that is the most recent learning on that. MR. GARRITY: Thank you, Sue. Susan? PROF. SCAFIDI: I will keep my remarks especially brief, because my voice sounds like the consumptive soprano with one last aria before the curtain. I will loan you a meat tenderizer, Sue. It is a kind of hammer with little points on it. I was particularly inspired by Jonathan’s remarks to think of another recently dead guy, the French philosopher Jean Baudrillard, who wrote in Simulacra and Simulation20 about how the representation of the object can become more important than the object itself — indeed, the object can disappear, leaving only the representation. What it made me think of was what exactly we are asking trade dress to do. Trade dress is fine and works perfectly well if we really do limit ourselves to the idea that we are talking about source indicators. What it seems that many of us would rather do, and perhaps fairly so, is find a way to protect the designs themselves, which is why we keep reaching with trade dress to award design patents, to award copyright, to award other areas that would protect the underlying designs. It sounds as though, listening to both of you, a great deal of our underlying tension is because we are uncomfortable with trade dress merely being a subset of trademark and would like it to do more. I would love to hear both of you comment on that. 19
Keystone Mfg. Co. v. Jaccard Corp., 03-CV-648S (W.D.N.Y. Feb. 26, 2007). Jean Baudrillard, Simulacra and Simulation, in Jean Baudrillard, Selected Writings 166–184 (Mark Poster ed., 1998). 20
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Thank you, Susan.
Ken? PROF. PORT: To quote David Llewelyn, the law is an ass. I have no real reason to say that. I just am jealous that he got to say it first. [Laughter] Not that there is any connection between those comments and what I am about to say. I will provide the comparative perspective.21 The Japanese have adopted a very broad unregistered product configuration protection statute.22 In its entirety, that section of the statute says that selling, distributing, exporting, or importing goods that imitate the product configuration of another, excluding functional marks, are protected for a three-year period. What do they mean by “functional marks” there? That is obviously very broad protection. It seems that under the Japanese statute functionality is very clearly defined as competitive need for the good. If a manufacturer does not need to make a product look like your trade dress, it is okay to protect it. For example, one case I cite is the case where they have a pink sleeveless girl’s shirt, and the court says the fact that it is a sleeveless shirt does not make it functional. In fact, it is not functional, because there are so many different ways you could make a sleeveless shirt. Therefore, it granted protection for this pink sleeveless shirt. Although there is very broad protection under the Japanese statute, it is limited somewhat by this functionality concern. But when it is defined as competitive need, maybe it is a little broader than we would expect. MR. GARRITY: Thank you, Ken. Graeme? PROF. DINWOODIE: Just very quickly, a couple of points. First of all, to compare a little bit the position in Europe and in the United States, I would agree with Paul that the position the United States has reached in TrafFix 23 and Samara 24 is pretty close to where the ECJ is in Philips,25 even if the cases — in their final formulations — are very different. The United States has the formal requirement that for product design distinctiveness you have to show secondary meaning by demonstrating actual public association of the designs with a source. The ECJ gets to the same place. So I think we actually have two very similar laws. What is intriguing is, if you look at the mass of doctrine that exists at the level below that, you wouldn’t know you were on the same planet. One of the things that is really important in understanding functionality law in the United States is that the doctrine is 21 See Kenneth L. Port, Trademark Dilution in Japan (Nov. 2005), William Mitchell Legal Studies Research Paper No. 30 , available at http://www.ssrn.com/abstract=844189; Kenneth L. Port, Kenneth, Dead Copies Under Japanese Unfair Competition Prevention Act: The New Moral Right, William Mitchell Legal Studies Research Paper No. 37, available at http://www.ssrn.com/abstract=892008. 22 The Unfair Competition Protection Act, Law No. 14 of 1934, as amended by Law No. 47, promulgated on May 19, 1993, further amended by Law No. 116 of Dec. 14, 1994) (UCPA), available at http://www.wipo.int/ clea/docs_new/en/jp/jp005en.html. Art. 2(1)(iii) states: “As used in this Law, the term ‘unfair competition’ shall mean any act under the following: . . . (iii) The act of selling, distributing, displaying for the purpose of sell or distribute, exporting or importing goods which imitated the configuration (excluding a configuration which is commonly used for goods of the same kind (or, in the case where it is not the same kind of goods, goods which has an identical or similar function and utility of those of such other person) as that of such other person) of another person’s goods (excluding goods for which three years have elapsed from the date selling thereof first commenced);” see also Japan Design Law, art. 1, § 5.7.1; The Trademark Law, codified at Law No. 127 of 1959, as amended, art. 2. 23 TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23 (2001). 24 Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205 (2000). 25 Case C-299/99, Koninklijke Philips Elecs. NV v. Remington Consumer Prods. Ltd., [2002] E.C.R. I-5475, available at http://www.ipo.gov.uk/mcps/philips1.htm.
590 S E S S I O N V I I : T R A D E M A R K all over the place. It is not all coherent. No one knows quite how all the different rules connect. But the reality is the courts have taken the message from TrafFix. I think Susan is quite right. Since TrafFix, the rules have been applied a lot more strictly. The trend is very, very clear, that there is reduced protection. So my cry to courts would be to not get so bogged down in trying to work out whether, for example, the evidentiary trigger from the TrafFix opinion is the central advance in the patent or whether it is in the claim or whether it is in the disclosure or whether it is in a hypothetical doctrine of equivalents. It is all fascinating, but not particularly edifying in working out what is functional. I just hope that we do not create more and more doctrine, as we seem to be doing, in trying to implement what are actually pretty basic purposes. On the subject of purposes, one other thing that I think courts should be doing a lot more of, which historically the U.S. Supreme Court did do, is to recognize that when you have something that serves source-identifying purposes, which should be potentially protected under trademark or unfair competition law, on the one hand, and the functionality doctrine suggesting otherwise on the other, you can balance those concerns by ensuring that the defendant is able to copy, but require some degree of labeling or other relief. I would like to see courts do a little bit more of that as a way of balancing the different demands of patent and trade dress law. MR. GARRITY: Thanks. I do not want to stand between anybody and lunch, but we have five or ten minutes for questions. There are a lot of hungry people out there. Susan, how about a red sole on the bottom of a pair of shoes? PROF. SCAFIDI: Like the ones I’m wearing? MR. GARRITY: Yes. PROF. SCAFIDI: This is very embarrassing. We have trade dress, I think. MR. GARRITY: Do you think that’s trade dress? PROF. SCAFIDI: I would think so. It is certainly a source identifier, and an effective one, since celebrities and so forth photographed wearing the shoes flash the hint of red. So I think we are going there. Is it functional? Probably not. MR. GARRITY: Jonathan? MR. MOSKIN: Wasn’t Judge Frankfurter’s Mishawaka case26 about a red plug in the heel of a shoe? MR. GARRITY: You are right. MS. PROGOFF: Also, there are a number of shoe companies now that are registering sole designs, both as design patents and trademarks. So there you go. MR. GARRITY: Thanks to everyone on the panel. Enjoy your lunch.
26
Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203 (1942).
SESSION VIII: COPYRIGHT PART A: CANADA, AUSTRALIA AND NEW ZEALAND
SESSION VIII: COPYRIGHT
Part A: Canada, Australia and New Zealand
Moderator PROF. BRIAN FITZGERALD
Head of School of Law Queensland University of Technology (Brisbane) Speakers PROF. ROBERT BURRELL
PROF. SUSY FRANKEL
University of Queensland (Brisbane)
Victoria University of Wellington (New Zealand) HOWARD P. KNOPF
Macera & Jarzyna LLP (Ottawa) Panelists PROF. CHRISTOPH ANTONS
PROF. DANIEL J. GERVAIS
University of Wollongong (Australia)
Faculty of Common Law, University of Ottawa
PROF. ANNE FITZGERALD
HON. ROGER HUGHES
Queensland University of Technology (Brisbane)
Judge, Federal Court of Canada (Ottawa)
PROF. B. FITZGERALD : Good morning, everyone. Brian Fitzgerald is my name, Professor of Law at the University of Queensland in Australia. This morning we have a distinguished panel of people from Canada, Australia, and New Zealand, to discuss the recent developments in copyright law across those jurisdictions. I will just make a few opening comments, if I may. In Australia we have had significant copyright law reform over the last six months or so.1 A couple of comments that come out of the Australian experience apply generally to each of the jurisdictions that we are talking about today, and probably to many other jurisdictions in the world. 1
Copyright Amendment Act 2006 (Cth), G096v06, available at http://www.copyright. org.au/g096.pdf.
592 S E S S I O N V I I I : COP Y R I G H T The first thing about the implementation of the free trade and other copyright amendments in Australia was the speed with which they were introduced and the level of consultation that was available for the community to provide feedback on the amendments. The process was put into serious question in terms of the amount of legislation that was to be implemented and the time that people — experts, but anyone else in the community — had to review the legislation. It was very short. This, in turn, led to the second point that I would like to make. In this instance, there was a short but significant campaign to raise community awareness around the issues concerning the copyright amendments. They were reasonably successful, when you consider that the front page of The Sydney Morning Herald, one of our leading daily newspapers, ran a story with a photo on it of young people at a U2 concert with mobile telephones recording and taking photos, and the caption saying, “copyright criminals.”2 So the process, the level of community awareness, engagement, and concern around the amendments, was something that was very unique to this process. Thirdly, the amendments, in themselves, centered around balancing rights. We did introduce a new right, fair dealing, for the purpose of parody and satire. We were faced with many, many criminal provisions, a significant process of criminalizing copyright infringement, which really did cause alarm within the community. Eventually, the government backed down on that. To some extent, the provisions were reduced. I am sure some of the panel members will talk about that today. The scope of those criminal provisions was reduced. The other thing that was in question was the scope of technological protection measures. Pursuant to the U.S.-Australia Free Trade Agreement,3 amendments were made in this area. It seems that the legislation would take us beyond what the Federal Circuit would say the law is in the United States. It caused a lot of debate. But the amendment was made. I am sure some of the panelists or members of the audience today will talk about some of those issues. These are the broad issues for al
