TABLE OF CONTENTS
FOREWORD
Page
Fair Use of Copyrighted Works in the Digital Age
Khanh Pham and Shushik Mkhitaryan ………………………
1
Collective Management of Copyright and Related Rights in Music:
A Case Study of the United Kingdom and Ghanaian System
Alfred Kumi-Atiemo ……………………………………………
21
Technological Protection Measures for Digital Works: A Legal
Analysis
Márcio Mello Chaves …………………………………………
43
Fashion Forward or Fashion Victim: Intellectual Property
Protection in the Fashion Industry
Layne Randolph…………………………………………………
65
Economic Implications of Patent Claim Scope
Eno-obong Usen ………………………………………………
81
The Interface between Intellectual Property and Competition Law:
Is the Refusal of a Patentee to License Anti-Competitive?
Fanny Koleva …………………………………………………
-v-
107
Patent Ownership in view of Technology Transfer in GovernmentSponsored Research
Dragan Ćorić ……………………………… ………….………
127
Extraterritorial Technology in a Territorial Regime:
Challenges after Cardiac Pacemakers v. St. Jude Medical
Emily J. Zelenock …………………………………………………..…
141
The Legal Aspects of Technology Transfer Offices in Arab
Public-Funded Universities
Ahmed Abd Eltawab Elsisi and Shaikha Nasser Ali Al-Akzam …
159
The Optimal Scope of Patent Protection in Common Law and
Civil Law Countries
Zhao Wenhua and Zhang Zhu …………………………………..…
179
The Madrid Protocol for Trademark Registration: Would it be
Convenient for Bolivia?
Pablo Kyllmann …………………………………………….………
207
A Comparative Study of Well-Known Trademarks Protection
in Italy, Pakistan and Uzbekistan
Saad Nusrullah, Luigi Mastroianni and Djakhagir Aripov …
221
Color and Combination of Colors as Trademark
Chiara Gaido and Giselda Metaliaj …………………………..…
- vi -
263
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic
Reproductions of Real Cars on which the Owner’s Mark appears?
John Graziadei and Angela Saltarelli ……………………………
287
Analysis of the Geographical Indications (GIs) in the
United States of America-Colombia FTA and Choice of Forum
in Adjudicating a Geographical Indication’s Dispute
Sofia Rodriguez-Moreno …………………………………….…….
319
Geographical Indications: A Review of GI Protection in Switzerland
Larisa Thommen ……………………………………………………
333
The Patent Rights Enforcement in China
Feiyu Lei …………………………………………………………….
351
The Protection of Intellectual Property Rights (IPRs) in the
Pharmaceutical Market after Patent Expiration. An Analysis of the
Reverse Payment Settlements in Light of Competition Law
Karoline Brandi and Federica Lorenzato …………………….…
367
Interplay between IPRs and Competition: Case of Information and
Communication Technology Standards (ICT) Standards
Larysa Kushner ………………………………………………………
397
Challenge(s) of Access to Patented Technologies Incorporated
in Information andCommunication Technology Standards:
Application of Competition Law and Policy
Simon Z. Qobo ………………………………………………………
- vii -
413
IPRs Infringement on Trade Exhibitions in China:
In Search of a Practical Solution
Hua Yu, Qing Yang …………………………………………………
433
Access and Benefit Sharing System under Thai Plant
Variety Protection Act 1999
Setthabut Ittithumwinit …………………………………………….
451
The Public Domain and Traditional Knowledge:
Friends or Adversaries in the Quest for Development?
Ewan Danny Anthony Simpson ……………………………………
463
Creative Commons of Indigenous People: An Appraisal
of the Public Domain Tensions and Customary Practices
Yewande Gbola-Awopetu ………………………………………….
475
LIST OF PARTICIPANTS ……………………………………………….
487
- viii -
FAIR USE OF COPYRIGHTED WORKS IN THE DIGITAL AGE
by
Khanh Pham and Shushik Mkhitaryan
ABSTRACT
Copyrights have been granted with the objective of providing more
incentives for creative activities. However, as the ultimate goal of copyright
legislation is not only protecting the right-holders but as well the interest of the
public at large, certain exceptions and limitations (including fair use) to those
exclusive rights have been introduced since the dawn of copyright. In the digital
age, along with the modernization of the traditional copyright system, the
copyright-holders also have sought for supplementary protection from
technological measures and contract law. This has resulted in changes in
international and national legislation as well as case law. These changes help to
reassure the ―survival‖ of copyright system in the new context but also threaten to
restrict the fair use doctrine. The scope of fair use as well as the interaction
between ―fair use‖ and ―contracting around‖ in the digital era is not yet decided.
Nevertheless, in order to protect the legitimate beneficiaries of fair use, copyright
legislators in the U.S. and EU have codified certain exceptions for the protection of
technological measures and some courts have given pro-―fair use‖ rulings. Based
on this analysis, certain recommendations regarding anti-circumvention rules and
the treatment of fair use doctrine v. contract doctrine for two developing countries,
namely Armenia and Vietnam, is also one of the expected contributions of this
paper to the broad topic.
1. WHAT IS COPYRIGHT?
Copyright is a bundle of exclusive moral and economic rights of the author to
his works. The granting of copyright is considered as a constitutional policy of
promoting the progress of science and the useful arts.1 Works which qualify for
copyright protection shall be the unique outcome of a creative activity in the
domain of science, literature and art. Copyright protection provides two types of
rights in the work: moral rights and economic rights. Moral non-economic rights of
the author are his intellectual and personal ties to the work, granting the author the
so called ―right of paternity‖ and ―right of integrity‖. Moral rights are not
transferable and not subject to exhaustion. Along with moral rights the author has
economic rights. Economic rights provide the economic interests of the author
giving the author an exclusive right to authorize or to prohibit the use of his work
or copies thereof. The right of receiving remuneration is an incentive for creation.
In the contrary to moral rights, economic rights are transferable and are subject to
exhaustion. It is with economic rights, that the concept of exceptions and
limitations to copyrights arose.
1
See, for example, Art I of the U.S. Constitution states that Congress shall have the power ―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.‖
2
Fair Use of Copyrighted Works in the Digital Age
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2. FAIR USE AND OTHER LIMITATIONS TO COPYRIGHT
Protecting authors‘ rights had been the main reason of the existence of
copyright law, which however is not the ultimate objective of copyright law; it is as
well a method to achieve the purpose of ensuring the public‘s access to copyrighted
material and promoting the public welfare.2 Therefore, copyright owners‘ rights are
not untrammeled; they are subject to important exceptions and limitations or, as it
is called in the American system, the ―fair use‖ doctrine. Fair use is traditionally
defined as ―a privilege in others than the owner of the copyright to use the
copyrighted material in a reasonable manner without his consent.‖3 Nowadays, it
means that the use of a work shall be allowed without the consent of the author and
without remuneration, however with the obligatory mention of the author's name
and the origin of the work, provided that it is not of prejudice to the normal
exploitation of the work and legitimate interests of the author to his work.
As the original source of the term, the Anglo-American approach highlights
more the idea of free use and freedom of speech. Some infringements are regarded
as worthy of protection because they promote the free discussion about the quality
of the work (e.g. criticism, review), or they enhance the general public
understanding of literature or the art (e.g. parodies, satire).4
The purposes of copyright exceptions are various. The author‘s consent to a
reasonable use of his copyrighted works has always been implied by the courts as a
necessity to reach the objective of promoting the progress of science and the useful
arts, since a prohibition of such use would prevent subsequent authors from
attempting to improve upon prior works.5 The exceptions and limitations may be
used to serve some public interests of more significance than the private benefit of
the copyright owner. In this case, the realization of copyrights should not be
dependent on the latter‘s consent. Some exceptions that reflect these wider interests
include education, news reporting, efficient public services or the protection of the
rights of the disabled.6
Another justification for the existence of ―fair uses‖ is that copyrights must
come to an end somewhere. The rights should not extend into the regulation of
wholly private or non-commercial activities, to over-protect the right holder‘s
interest. Exceptions should cover common and socially beneficial uses of
copyrighted works where formal permission requirements would impose
excessively burdensome transaction costs on all parties.7
2
L. Luo, Legal Protection of Technological Measure in China, in EIPR Issue 2. 2006, 101.
F.M. Abbott, T. Cottier and F. Gurry, The International Intellectual Property in an Integrated
World Economy, Aspens Publisher, New York, 2007, 423.
4
E. Barendt, Freedom of Speech, Oxford University Press, 2005, 255.
5
F.M. Abbott el. al., supra note 3, at 423.
6
L. Edwards, Law and the internet, Hart Publishing, Portland Or., 2009, 204.
7
Ibid., at 204-205.
3
Khanh Pham and Shushik Mkhitaryan
3
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As mentioned above, traditionally the fair use doctrine can be justified in
case when the transaction costs are too high and prevent copyright owners and
users from entering a license. But modern technologies have enabled copyright
owners and users to negotiate individual licenses for digital works at a low cost,8
therefore, criteria to define a fair use exception must be focused more on the social
and cultural aspects of copyrights. Moreover, to meet the original purpose of
copyright system, the right-holders must have exclusive rights to fully exploit the
economic potential of the work. That is why the fair use doctrine has always
precluded a use that ―supersedes‖ the use of the original.9
Fair Use in International Treaties:
The Berne Convention and TRIPS Agreement permit exceptions for fair use of
copyrighted works. The availability and scope of the exceptions remain, for the most
part, subject to national law.
The Berne Convention, being the first international convention on the
protection of literary and artistic works, provides that any type of use, but for the
purposes of private use, educational and scientific research, etc. shall be subject to
authorization and payment. Exceptions for fair use have been mentioned in various
specific conditions, namely Art. 2bis (2) regarding press reporting of publicly given
addresses; Art. 10 regarding quotation and use of work for teaching; Art. 10bis
regarding reproduction of ―current affair‖ articles and use of work in reporting
current events; Art. 11bis (3) regarding ephemeral recording by broadcasters.
However, the ―three-step-test‖ set out in Art. 9 (2) of the Convention is the general
guidance for member states to codify the fair use doctrine. Member States of the
Convention can provide exceptions (1) in certain cases; (2) which do not conflict
with a normal exploitation of the works; and (3) do not unreasonably prejudice the
legitimate interests of the author.
Although the TRIPS Agreement requires all the WTO members to comply
with Art.1 to 21 of the Berne Convention (which includes Art. 9 (2)), the ThreeStep-Test has been reinforced in Art. 13 of this Agreement which does not confine
exceptions only to the right of reproduction but to all internationally recognized
exclusive rights.
8
C.M. Correa, Fair Use in the Digital Era, in IIC 2002,
<http://webworld.unesco.org/infoethics2000/documents/paper_correa.rtf >.
9
F.M. Abbott el. al., supra note 3, at 423
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Fair Use of Copyrighted Works in the Digital Age
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Under the WIPO ―Internet‖ Copyright Treaty, ―the need to maintain a
balance between the rights of authors and the larger public interest, particularly
education, research and access to information, as reflected in the Berne
Convention‖ has been re-proclaimed.10 The Three-Step-Test has been adopted
again in Art. 10 of WCT.
Fair Use in the US, UK and Continental European Countries
As early as 1841, in Folsom v. Marsh case, the fair use doctrine has been
recognized in the US.11 With the power granted by Article I of the United States
Constitution,12 the Congress has adopted the Copyright Act (1976) to codify the
common law doctrine. Section 107 of the Act requires a case-by-case determination
of whether or not a particular use is fair. It allows limited use of copyrighted
material without requiring permission from the right-holders, such as for
commentary, criticism, news reporting, research, teaching or scholarship. It
provides for the legal, non-licensed citation or incorporation of copyrighted
material in another author's work under a four-factor balancing test. The factors to
determine fairness includes: (1) Purpose and character of the use, including
whether the use is for commercial or non-profit educational purpose,
transformative and productive or duplicative; (2) the nature of work or adaptation,
(3) the amount and substantiality of the part copied taken in relation to the whole
work or adaptation; and (4) the effect of the use upon the potential market for, or
value of the work or adaptation. However, the distinction between fair use and
infringement may be unclear and not easily defined. There is no specific number of
words, lines, or notes that may safely be taken without permission. Acknowledging
the source of the copyrighted works does not exempt the users from obtaining
permission.
As mentioned above, the term "fair use" originated in the United States, but
has been added to several countries laws as well; a similar principle, fair dealing,
exists in some other common law jurisdictions. Since the Copyright Act (1911),
UK copyright law has provided for exceptions or limitations upon the exclusive
rights of copyright owners, for the benefit of users of their works. In the Copyright
and Patent Act (1988) (CDPA) they are described as ―permitted acts‖ and the
relevant sections are nearly 60 in number.13 Unlike the US where a general defense
of fair use is available (omnibus and open ended), the Anglo-Australian law
provides for fair dealing for specific purposes within certain statutory limits. It is
not enough that the copying or other dealing was carried out for the purpose of
research or study, the dealing must be fair. Principles involving fair dealing defense
include the degree and impression of the dealing which should be judged by
10
The Preamble of the WIPO Copyright Treaty (1996).
F.M. Abbott el. al., supra note 3, at 423
12
See supra note 1.
13
L. Edwards, supra note 6, at 201
11
Khanh Pham and Shushik Mkhitaryan
5
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criterion of a fair minded and honest person. Fairness is to be judged objectively in
relation to the relevant purpose and is an abstract concept.
Civil law jurisdictions have other limitations and exceptions to copyright.
Opposing to the Anglo-American approach, protection of the author‘s rights in the
European copyright system is in the centre of the law as authors are the weakest
part in civil interrelations. Notwithstanding this fact, the legislators also stress that
the interests of the public as a whole should not be ignored. As knowledge is a
public good and access to knowledge is a human right there should be some
balancing regulation between these two layers of the society, thus the legislators‘
conclusion on providing exceptions and limitation to the authors‘ rights but under
certain conditions.14 Along with the progress made in the harmonization of
different aspects of intellectual property laws, the issue of exceptions to copyrights
is contained in many directives. Given that copies of software can be identical to
the original, the EC Computer Program Directive narrowly tailored exceptions to
such rights. The EC Directive on Databases also limits reproduction for private
purposes only to non-electronic databases (Art. 6.2.a). The most important
directive as far as exceptions to copyright protection are concerned is the
Information Society Directive (2002/29/EC-Infosoc Directive). Besides the
reintroduction of the three-step-test, Article 5 of the Infosoc Directive provides a list
of mandatory and possible exceptions to the three exclusive rights that member
states are required to provide. The only mandatory area of this Article (5.1),
requires Member States to take account of ―temporary acts of reproduction which
are transient or incidental [and] an integral and essential part of a technological
process whose sole purpose is to enable transmission in a network between third
parties by an intermediary, or a lawful use of a work, which have no ―independent
economic significance‖ (mostly involving caching15). Subsections 2 and 3 of
Article 5 detail possible exceptions to the reproduction and communication and
―making available to the public‖ rights. Member states are permitted to exempt
from the reproduction rights copies for non-commercial purposes including private
use, special acts by libraries, museums and educational establishments; in respect
of ephemeral fixations made by broadcasting organizations by means of their own
facilities and for their own broadcasts, etc. (Art. 5 (2)). Possible exceptions to the
rights of reproduction and communication to the public in the following cases:
14
Article 10 of the European Convention on Human Rights provides freedom of speech mentioning
that the article shall not prevent States from requiring the licensing of broadcasting, television or
cinema enterprises. Notwithstanding the principle of free use of copyrighted works, there are
provisions on liabilities for misuse of any such work that may be of prejudice to the reputation or
the rights of the author or likely to mislead the public, unauthorized disclosure, etc. Paragraph 2 of
the same article expressly states: ―The exercise of these freedoms, since it carries with it duties and
responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are
prescribed by law and are necessary... for the protection of the reputation or the rights of others, for
preventing the disclosure of information received in confidence, or for maintaining the authority and
impartiality of the judiciary.‖
15
Temporary copy of materials
6
Fair Use of Copyrighted Works in the Digital Age
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illustration for teaching and scientific research, dissemination of news, political
speeches as well as extracts of public lectures; criticism, etc (Art. 5 (3)).
The primary objective of this Article of the Infosoc Directive is to settle
liability that could be placed upon host service providers, transmitters and access
providers on the internet.16 With the limitation set forth in Art. 5(1), there is no
general obligation to monitor for internet service providers (ISPs). In other words,
ISPs are not liable for the data they transmitted even if it infringes copyright.
However, the exemptions permitted under the Directive are prescriptive, with
the permitted acts being listed within Article 5 (exemptions and limitations).
Member states are therefore not able to deviate from or add to these exceptions.
This is in order to ―ensure the proper functioning of the internal market‖ (Recital
31).17 This limitation constricts the ability of national states to respond to
technological change and potential the new uses of information within society. The
restriction could be seen as contrary to the WIPO Copyright Treaty of 1996 which
the Directive is implementing. Under the terms of the WIPO Treaty, member
states are permitted ―to carry forward and appropriately extend into the digital
environment limitations and exceptions in their national laws which have been
considered acceptable under the Berne Convention‖. To ensure that there are no
barriers to the internal marketplace, the Directive must not be more restrictive than
international treaties.18
Though the case by case approach of the U.S. proved to be more flexible than
the rigid prescribed list in the EU Directive, it has been recommendable for the
U.S. law to follow in part the practice of European copyright systems. While case
by case fair use determination is still applied, the U.S. copyright law should specify
precisely the kinds of uses of creative work that should be regulated by copyright
law and certain uses that were beyond the scope of copyright law to make the
system clearer and simpler.19 This ―hybrid‖ approach may be considered as an
effective way to avoid the over-protection of copyrights (either by providing a very
restrictive list of exemptions in the EU case or by the burden of proof or lawyer
cost in the case of the U.S.).
16
M. Li, Fair use of Copyrighted Works in the Digital Age, Collection of Research Papers, Master
of Laws in Intellectual Property, Turin, Italy, 2007, 64.
17
M. Wallace, The Information Society Directive (UK implementation): the end of educational and
research use of digital works?,<http://www.bileta.ac.uk/DocumentLibrary/1/>
18
Ibid.
19
L. Lessig, Remix. Making Art and Commerce Thrive in the Hybrid Economy, The Penguin Press,
2008 , 266-267.
Khanh Pham and Shushik Mkhitaryan
7
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Digitization and Challenges to Copyright
With the coming of the digital era, there arises a conflict between the fact that
new digital technologies provide incentive to the free flow of ideas, knowledge and
information, and the fundamental design of copyright law which is to limit the
unauthorized flow of copyrighted works.20 From the copyright-holders‘
perspective, the digital environment brings great dangers to copyright protection.
Information in digital form is intangible and can be reproduced instantaneously.
Digital copies are different from printed copies as there is no difference between
the original and a copy. Digital technology also eases the retrieval and distribution
of works via the internet.21 After a certain period of bewilderment with the fear
about ―the death of copyright‖, copyright and other forms of protection of
intellectual property rights have been modernized so as to be appropriate for the
digital age.22 This movement has lead to the introduction of WIPO ―internet‖
treaties (including the WCT mentioned above and WPPT23). The ―Digital Agenda‖
has been built up in the WCT in two agenda. In Agenda I, the right of reproduction
has been expanded to temporary reproduction (Art. 1(4)) and the right of making
available has been introduced under the ―umbrella solution‖ (Art. 8). In Agenda II,
copyright protection has been enhanced with the revised limitation and exception
(Art. 10), the introduction of technological measures (Art. 11) and Right
Management Information (Art. 12).
3. NEW CHALLENGES FOR THE FAIR USE OF COPYRIGHTED WORKS
IN THE DIGITAL AGE
As mentioned above, along with technology development, there emerge new
control mechanisms over access to copyrighted works. The previous broad
reproduction rights and broad distribution rights are now exempted by technology.
Access to content and copies has been restricted by the use of digital right
management measures and licenses with restriction conditions, alternative business
models. Those restriction measures pose new challenges for the traditional
beneficiaries of ―fair use‖ doctrine.
The development of right management protection technologies and
the application of technical protection measures (TPMs) and anticircumvention measures
Supported by the famous phrase by Charles Clark: ―the answer to machine is
machine‖24, various technological measures have been developed to strengthen
20
P. Akester and F. Lima, The Economic Dimension of the Digital Challenge: A Copyright
Perspective, IPQ, 2005, 80.
21
Ibid. at 71
22
L. Edwards, supra note 6, at 183.
23
WIPO Performances and Phonograms Treaty
24
A. Abdalla, International protection of intellectual property rights in light of the expansion of
electronic commerce, Trafford, Victoria, B.C. 2005, 190.
8
Fair Use of Copyrighted Works in the Digital Age
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copyright protection in a digital environment which aim either to control access to
content (access control) or to control the copying of content (copy control).
Technological solutions such as digital watermarking25 and encryption26 have
been used to develop copyright protection systems to limit use to a single user and
to avoid redistribution or reuse of material.27 Although those technological
protection measures (TPMs) may be effective with ordinary users, they can be
neutralized, ―hacked‖ or circumvented by high-tech users. Thus, a market for illicit
devices facilitating decryption and other forms of TPM circumvention has
emerged.28 Therefore, anti-circumvention legislation has been introduced with the
purpose of providing extra protection against piracy. At international level, Art. 11
of the WCT provides an independent legal protection for TPMs used by copyright
owners which requires Contracting Parties to provide “adequate legal protection
and effective legal remedies against the circumvention of effective technological
measures that are used by authors in connection with the exercise of their rights
under this Treaty or the Berne Convention and restrict acts, in respect of their
works, which are not authorized by the authors concerned or permitted by law”.
It can be interpreted from this provision that Contracting Parties are allowed
to implement this obligation at their discretion provided that the implementation is
adequate and effective to protect technological measures as required by the WCT.
The U.S. adopted a minimalist approach when implementing the WCT, based
on the understanding that any provision of the Treaty that had already been
implemented in US law would not be addressed in new legislation.29 The Digital
Millennium Copyright Act (DMCA) has been enacted in 1998 with a new chapter
(section 1201-1205) that regulates the protection of TPMs. Section 1201 covers
both the protection of ―access control‖ and ―copy control‖ technologies. The
protection of technological measures established under section 1201 is threefold
which prohibit (1) the act of circumvention of TPMs that protect access control; (2)
25
Digital watermarks are bits embedded in digital content, usually invisible in the absence of the
proper software to detect and decode it. The watermarks can contain information such as the author‘
name and email address, ID number and a URL, information about who owns a work, how to
contact the owner and whether a fee must be paid to use the work. A watermark can only be
effective if the playback and record devices look for the watermark in that particular piece of
content.
26
Encryption is a technological method used to obscure the meaning of a message. There are
various types of encryption. Asymmetric encryption is the best suited for e-commerce, since it uses
two different keys and only public keys need to be distributed. Each user generated two keys that
are different: a private key and a public key. They keep their private key secret but send their public
key to other users. The sender encrypts a message with the public key of the intended recipient and
then sends it on to the recipient. Only the recipient‘s privat key can be used to decrypt the message.
27
P. Akester and F. Lima, supra note 20, at 71-72.
28
A. Abdalla, supra note 24, at 192.
29
N. Braun, The interface between the Protection of Technological Measures and Exercise of
Exceptions to Copyright and Related Rights: Comparing the situation in the United State and the
European Community, EIPR, Issue 11, 2003, 496.
Khanh Pham and Shushik Mkhitaryan
9
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trafficking in devices, services, etc. that circumvent ―access control‖ TPMs; (3)
trafficking in devices, services that circumvent ―copy control‖ TPMs.30
All Contracting Parties implementing the WCT face the problem that, on the
one hand, there is a need to protect the technological measures which right owners
apply to the protected content, on the other hand, the beneficiaries of ―fair use‖ or
other exceptions or works that fall into public domain need not be restricted in
realizing the benefits. As another Contracting Party, the U.S. has tried to strike a
balance between both positions by not prohibiting the act of circumvention itself of
a ―copy control‖ technology. 31 The legislators were aware of the scenario where
activities might be allowed under the ―fair use‖ doctrine but prevented by a ―copy
control‖ technology. However, it is noteworthy that there is no obligation of the
right owner to provide the beneficiary of ―fair use‖ defense with the means to
enable the enjoyment of the content. In the contrary, the act of circumvention of an
―access control‖ technology is prohibited as ―access‘ to a work has to be
distinguished from ―use‖ of work and the legislators‘ concerns with respect to the
―fair use‖ defense focused merely on the second act.
The DMCA provides a closed list of limited exceptions permitting the
circumvention of and/or trafficking in TMPs in respect of legitimate encryption
research, computer security testing, reverse engineering for computer program,
libraries (for the sole purpose of determining whether to acquire a particular work),
and when it is necessary to achieve interoperability and used solely for that
purpose. However, the DMCA does not mention the phrase ―fair use‖.
In Europe, the Infosoc Directive deals with the protection of technology
measures. Art. 6 (1) and (2) establish the scope and Art. 6 (3) sets forth the
definition of the technological protection measures. The scope of protection is
broad and obliges Member States to protect right holders against both the act of
circumvention of any effective technological measure (Art. 6 (1)) as well as against
the trafficking in circumvention devices and services (Art. 6 (2)). The content of
Art. 6 (2) is similar to those set forth in section 1201 of the U.S. Copyright Act.
The definition of technology measures in Art. 6 (3) refers to ―any effective
technological measure… designed to prevent or restrict acts… which are not
authorized by the right holder‖. Technological measures shall be deemed
―effective‖ where the use of a protected work is controlled by the right-holders
through application of an access control or protection process or a copy control
mechanism, which achieves the protection objective. The Directive does not
distinguish between ―access control‖ and ―copy control‖ technology as in the
DMCA. Art. 6 (1) to (3) the Infosoc Directive introduce a three levels of protection
for digital works: copyright, TPMs and legal protection of TPMs (ACP). The same
problem here is copyright‘s balance (level 1) can be jeopardized by the legal
30
31
Ibid.
Ibid. at 497.
10
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protection (level 3) of TPMs (level 2). Art. 6 (4) of the Directive is designed to
solve the dilemma but does not introduce exceptions to the liability of the
circumvention of TPMs but rather introduce a unique legislative mechanism which
foresees responsibility on the right-holders to accommodate certain exceptions to
copyrights. If Art. 6 (4) is implemented properly, it can help in the finding of
solutions by right-holders and beneficiaries of exceptions without weakening the
effective protection of technological measures.32 Art. 6 (4) distinguishes between
―public policy‖ exceptions (para. 1) and ―private copying‖ exceptions (para. 2).
Member States are obliged to introduce mechanisms to accommodate the
exceptions only with respects to ―public policy‖ exceptions in Art. 5 of the
Directive. The scope of the intervention of Member States is limited in the online
environment where the making available of content on agreed contractual terms is
involved.
If the digital protection measures and anti-circumvention rules are applied
properly, with very limited exceptions provided by DMCA and EC Infosoc
Directive, there are concerns that right-holders are in a position to prohibit any type
of use or to seek for payment for any use of their works. Therefore, they can
supersede any rules allowing fair use.33 Besides, there are concerns that DRMs will
be used for anti-competitive purposes, or to restrict the freedom of speech.
There are cases in which the use of DRMs has proved to rendered
competition and innovation. Lexmark v. SCC (6th Cir. 2004), regarding the control
of the aftermarket for printer cartridges, held that it is not illegal to circumvent a
technological measure that is blocking access to an unprotected idea. The Federal
Circuit also held that authentication sequence does not effectively control access
and does not effectively prevent all access to a work protected under copyright law
and the Printer Engine Program is copyrightable, but not its functionality.
32
Art 6 (4) ―Notwithstanding the legal protection provided for in paragraph 1, in the absence of
voluntary measures taken by rightholders, including agreements between rightholders and other
parties concerned, Member States shall take appropriate measures to ensure that rightholders make
available to the beneficiary of an exception or limitation provided for in national law in accordance
with Article 5(2)(a), (2)(c), (2)(d), (2)(e), (3)(a), (3)(b) or (3)(e) the means of benefiting from that
exception or limitation, to the extent necessary to benefit from that exception or limitation and
where that beneficiary has legal access to the protected work or subject-matter concerned.
A Member State may also take such measures in respect of a beneficiary of an exception or
limitation provided for in accordance with Article 5(2)(b), unless reproduction for private use has
already been made possible by rightholders to the extent necessary to benefit from the exception or
limitation concerned and in accordance with the provisions of Article 5(2)(b) and (5), without
preventing rightholders from adopting adequate measures regarding the number of reproductions in
accordance with these provisions.
The technological measures applied voluntarily by rightholders, including those applied in
implementation of voluntary agreements, and technological measures applied in implementation of
the measures taken by Member States, shall enjoy the legal protection provided for in paragraph 1.
The provisions of the first and second subparagraphs shall not apply to works or other subjectmatter made available to the public on agreed contractual terms in such a way that members of the
public may access them from a place and at a time individually chosen by them.‖
33
C. M. Corea, supra note 7.
Khanh Pham and Shushik Mkhitaryan
11
______________________________________________________________________________
In Chamberlain v. Skylink (Fed. Cir. 2004) case regarding the prevention of
the use of universal remote controls; the court held that circumvention is illegal
only if it enables infringing copying, consumers have a right to use a copy (so far
as copyright law does not explicitly restrict it). DMCA should not allow any
company to attempt to leverage its sales into aftermarket monopolies, a practice
that both antitrust laws and the doctrine of copyright misuse normally prohibit.
However, there are also court findings in which the development of new
programs/devices that promote competition was not considered as an exception for
the protection of TPMs based on anti-trust ground. Cases include Universal v.
Reimerdes (SDNY, 2000), Sony v. Gamemaster (2000), Reimerdes & Corley
(2001), RealNetworks v. Streambox (2000), Blizzard v. Bnetd (2004).
For other grounds of fair use, there also different court rulings. Freedom of
speech could not help the defendant in Universal City Studios v. Corley (2nd Cir.
2001). However, in Felten v. RIAA (2002), the case was only dropped by Felten
when the courts implied that scientists studying digital copying technologies would
not be subject to the DMCA.
The extended use of contract law to control access to and the use of
digital copyright works
Besides resorting to technological measures, the copyright-holders also seek
for supplement protection under the law of contracts (which can be called
―contracting around‖ the Copyright law34). Since modern technologies permits
right-holders to directly interact with users and to determine the conditions for
access to and use of works, the cost of establishing and monitoring contracts have
been reduced dramatically and contracts with ―a very fine-grained level of details‖
and a variable pricing mechanism have been enabled.35 Moreover, it is argued that
copyright law was originally conceived as a mechanism for creating property rights
in intangibles. The presumption is that voluntary exchange will be of benefit for
both buyers and seller and voluntary exchange is facilitated by property rights.
Therefore, individuals are free to make virtually any contract over copyrighted
works they choose, whatever effects on ―fair use‖ or the ―first sale‖ doctrines.36
In fact, the massive use of contracts on terms and conditions dictated by
suppliers to extend the copyrights beyond those granted by the copyright legislation
is a real challenge to fair use doctrine. The enforcement of a particular type of
contract: the "shrink wrap" license37 for software and of pre-determined conditions
34
V. R. Moffat, Rethinking Contractual Restrictions on Fair Use: Preemption and the Structure of
Copyright Policymaking, (2007) < http://works.bepress.com/viva_moffat/1>
35
T. Hardy, Contracts, Copyright and Preemption in a Digital World, 1 RICH. J.L. & TECH. 2
(1995) <http://www.richmond.edu/jolt/v1i1/hardy.html>
36
Ibid.
37
The shrink-wrap license agreement purports to create a binding legal agreement (so it says)
between the software vendor and the user. A ―shrink-swap‖ license is simply a set of terms printed
inside the heat-shrunk wrapping of the commercial software. These terms constitute an ―offer‖ that
12
Fair Use of Copyrighted Works in the Digital Age
________________________________________________________________________________
attached to the commercialization of other digital works illustrate this threat.38
In Vault v. Quaid (5th Cir. 1988), Vault, a software developer, introduced a
computer program named ―Prolok‖ that rendered other commercial software
impossible to copy. Vauld sold Prolik with ―shrink-wrap‖ licenses. A Louisiana
state statute expressly validated those ―shrink-wrap‖ licenses. Quaid, Inc. made
copies of the Prolok program to reverse engineer its anti-copy scheme and then
sold its software which can disable the Prolok mechanism and permit copying. In
this case, Vault sued Quaid for copyright infringement and lost. The court held that
Quaid‘s actions to be permissible even though they violated the license restrictions.
The Louisiana statute that effectively prevented the running of such programs by
validating Vault‘s license restrictions therefore conflicted with the U.S. Copyright
Act and was preempted.39
In Warner Bros., Inc. v. Wilkinson (D.Utah 1981), appeal dismissed, (10th
Cir. 1985), Warner Bros. involved ―blind bidding‖, a common practice in the
motion picture industry. With blind bidding, motion picture distributors require that
theatres agree to certain conditions before viewing the entire movie. The conditions
may include guaranteeing certain minimum royalty fees.40 This practice has been
considered very unfair for the theatre owners and in many state in the U.S., statutes
have been enacted to prohibit or curtail such practice. Motion picture owners and
distributors then challenged the statutes but failed. The courts held that states may
impose restraints on what would otherwise be valid contracts relating to copyrights.
Though the enforcement of unconscionable contractual terms may be denied
by courts based on copyright or unfair competition or antitrust law,41 the
asymmetry in the contractual relationship may still lead to overriding fair use and
other statutory limitations to copyright.42 The land-mark conclusion reached in
Vault did not seem to be reaffirmed in other contract cases in the U.S.43 The
reasoning in these cases is that copyright should not preempt when the state law at
issue requires elements of proof (offer and acceptance) of contracts which is not
relevant to the U.S. Copyright Act. It can be concluded that the question of
whether the ―fair use‖ doctrine (and copyright in general) preempt ―contract‖
the buyers is said to accept by the act of tearing open the plastic wrapping. Such license agreement
should be challenged as adhesion contracts or invalidated on the ground of unequal bargaining
strength.
38
C.M. Correa, supra note 7.
39
T. Hardy, supra note 35
40
Ibid.
41
The U.S Uniform Computer Infornmation Transactions Act (1999) authorizes a court to refuse
enforcement to contractual terms that violate a "fundamental public policy"
42
R. Denicola, Mostly dead? Copyright law in the new millennium, Journal of the Copyright
Society of the USA, vol.47, 2000, 198, quoted in C. M. Correa, supra note 7.
43
Gates Rubber Co. v. Bando Chem. Indus. (10th Cir. 1993); Nat'l Car Rental Systems v. Computer
Assocs. Int'l (8th Cir.), cert. denied (1993); Valente-Kritzer Video v. Pinckney (9th Cir. 1989), cert.
denied, (1990); Acorn Structures v. Swantz (4th Cir. 1988); Adobe v. Stargate (N.D. Cal. 2002),
ProCD v. Zeidenberg (7th Cir. 1996).
Khanh Pham and Shushik Mkhitaryan
13
______________________________________________________________________________
doctrine has not yet settled and still left open for case-by-case judgments by the
courts.
It is also noteworthy that the use of contract not always restricts ―fair uses‖
but can support them. In the case of A.V. v. iParagigms LLC (2009), Rurnitin.com
operated by the defendant iParadigms LLC compares the newly submitted works
by the students against its database of existing student works in order to deliver an
assessment to the educational institution customers regarding plagiarism. Before
submitting, each student is asked to accept an e-contract. The lower court held that
Turnitin.com made a fair use of the student works and the e-contract is a valid one
and the 4th Federal Circuit reaffirmed this decision.
4. INITIATIVES AND RECOMMENDATIONS TO BALANCE THE
INTEREST BETWEEN FAIR USERS AND COPYRIGHT OWNERS IN
THE DIGITAL ENVIRONMENT
Before going to the recommendations on how to ―protect‖ fair users against
these above changes in legislation and case law, it is necessary to answer again the
question regarding the importance of ―fair use‖ in the digital environment.
Copyright-holders argue that the justifications underlying the exceptions and
limitations such as fair use has been eliminated online44. As transaction cost for
licensing has been reduced, there is no market failure to provide end-users with
their needs. Besides, the loss for author‘s earnings is no longer insignificant but
accumulatively significant. This argument, however, concentrates more on the
economic aspects of copyright but not on its social and cultural aspects as other
―fair use‖ justifications do stand in whatever technological context. In the digital
age, ―fair use‖ is more needed to promote User-Generated-Content (creative
activity without a business structure); to promote remix, mash-up culture which can
create a wider creative space; to ensure the freedom of speech (and freedom of
expression in general); and to protect privacy45. Fully recognized the important
balance between copyright-holders and fair users, some initiatives have been
launched in the U.S., continental European Community to neutralize the threats of
these above movements on the exercise of exceptions to copyrights.
At corporate level, shared interest of platform and content owners (i.e.,
YouTube, Google Settlement) has been created. Under those, ―fair use‖ has been
implemented with automated enforcement. However, there are concerns that
automated system should be applied for detection only and not for removal.
Removal should be done upon notice and ―fair use‖ should be considered prior to
issuing a notice. Some authors have also come up with the idea of voluntary
contributions46 to effectively exercise the rights conferred by copyright but not
prejudice the benefit of fair users. However, there‘s not yet any ―real‖ experiment
44
A. Abdalla, supra note 24, at 194.
L. Lessig, supra note 19
46
P. Akester and F. Lima, supra note 20, at 79
45
14
Fair Use of Copyrighted Works in the Digital Age
________________________________________________________________________________
with this.
At national and regional level, under both the DMCA and the EC Infosoc
Directive, a Committee is directed to examine the effects of the anti-circumvention
rules and to adjust the list of exceptions in order to avoid the ―side effects‖ of those
rules on issues related to copyright such as ―fair use‖. In Europe, besides adopting
the human review to determine fair use, the Council of Europe has introduced
human rights guidelines for ISPs (Council of Europe in cooperation with
EuroISPA, 2008). The guidelines recognize that internet service is increasingly
becoming a prerequisite for a comprehensive participatory democracy and that ISPs
should not be put under a general obligation to actively monitor content and traffic
data. This initiative has re-stated the rule set forth in the above-mentioned Art. 5 (1)
of the Infosoc Directive. With the guidelines, the question of whether online
service providers are obliged to screen/track all transmissions or not has been
answered again. More certainty has been created for ISPs. This helps to balance
between keeping them away from liability and engaging them in enforcement.
Some Recommendations for Armenia and Vietnam:
Regardless of the status of being Contracting Parties to WIPO ―internet‖
treaties or not, both Armenia and Vietnam have codified anti-circumvention rules
as set by WCT and WPPT.
Articles 22-26 of the Law of the Republic of Armenia on Copyright and Related
Rights provide for ―free use of works‖ stating that ―Free use of a work shall mean the
use of a work without the consent of the author and without remuneration, however
with the obligatory mention of the author's name and the origin of the work, which
does not prejudice the normal exploitation of the work and legitimate interests of the
author to his work.‖ The Articles expressly state ―works lawfully made public‖ as to
secure the authors‘ right of making the work public. Article 22 (2)(f) states that
among others, the use of a work, except computer programs, for the purposes of court
and administrative proceedings, to the extent justified by the purpose , shall as well be
free, and in such cases the mentioning of the author‘s name and the source of the
work is not obligatory. Chapter V of the Law concerns enforcement of the law and
technical protection measures; namely Art. 67 Protection of Technological Measures
and Art. 68 Protection of Rights Management Information provide for liability for
circumvention of technical protection measures, which are in total compliance with
the WCT and WPPT (Armenia is a member of these treaties in March 6, 2005).
Copyright law in Vietnam is governed by the ―Intellectual Property Law,‖
effective July 1, 2006 and Decree 100/ND-CP/2006 implementing the Law. Like
China, though Vietnam has not yet ratified WCT and WPPT, the law provides
protection for temporary reproductions (Article 4(10)), and protection against
circumvention of technological protection measures used by right holders to protect
their works/subject matters in the digital environment (Articles 28(12) and 35(7)) and
against trafficking in circumvention devices (Article 28(14)). Besides, right-holders
Khanh Pham and Shushik Mkhitaryan
15
______________________________________________________________________________
are allowed to ―apply technological measures to prevent acts of infringing upon
intellectual property rights‖ as part of the right to self protection (Art. 198 (1) (a)).
The IP Law also offers a broad range of exceptions to copyright and related rights.
There are some exceptions that can be considered overly broad, e.g., Art. 25 (g) on
―[d]irectly recording and reporting performances for public information and
educational purposes,‖ and Art. 25(k) regarding personal use imports, and Article
25(1)(e) on ―dramatic works and other forms of performing arts in cultural gatherings
or in promotional campaigns, Art. 25(2) of the implementing Decree appears to allow
the copying of a computer program ―for archives in libraries for the purposes of
research.‖
A common character of the two copyright systems in respect to anticircumvention rules is that they are general in nature and there is no provision
which provides exceptions to the protections of TPMs. These rules also do not
address the relationship between TPMs and exceptions and limitations. It is not
clear whether fair uses can be considered as a justifiable defence for violations of
anti-circumvention rules. The role of ISPs is also not clarified.
Besides, in both systems, there is no provision regarding the treatment of fair
use doctrine when it conflicts with contract doctrine.
The following recommendations can be adopted in the process of revision of
those regulations:
Regarding Anti-Circumvention Rules
The Armenian copyright law provides for a definition of technological
measure in compliance with the WCT47 but the Vietnamese law does not. It is
necessary to give a legal definition of technological measures in the anticircumvention rules and set some limitations to the function of TPMs in Vietnam‘s IP
Law and implementing decree. For both countries, it would be recommendable to
introduce a general purpose clause for the exceptions to the protection of TPMs and to
establish a committee to monitor and adjust this list of exceptions. The list should
include exceptions to protect consumers‘ privacy, freedom of speech, etc. Besides,
just like the approach taken in EC Database Directive, legal protection should be
given to not only technological measures that related to copyrighted works but also
those needed to protect investment in the creation/collection of material (under a sui
generic regime). This will avoid the pro-investment tendency in the copyright
enforcement and keep the copyright systems in the right track to the very ends they
sought to attain. ISPs should not be imposed from monitoring obligation but
encouraged to cooperate with the State for surveillance and enforcement of
copyrights.
47
Art. 67 (2) of the Armenian Copyright law states ―A technological measure for the protection of
copyright and related rights shall mean any device or their components, that in the normal course of
their operation, are designed to prevent or restrict acts in respect of works or subject matters of
related rights which are not authorized by holder of copyright or related rights.‖
16
Fair Use of Copyrighted Works in the Digital Age
________________________________________________________________________________
Regarding the ―Contracting Around‖Iissue
As mentioned above, preemption doctrine has not yet been recognized as a
tool for addressing contractual restrictions on fair use. However, the doctrine
should be applied since it is a way of acknowledging and emphasizing the
policymaking role of the government. If the law has already defined in detail the
proper uses of a copyrighted work, including its fair uses, it was based on a careful
balance of interest and therefore, individuals should not be free to redefine that
liability.48
Besides, along with promoting voluntary measures (agreements) to achieve the
objective of certain specific exceptions/limitations, the law should ensure that rightholders provide beneficiaries of such with appropriate means of benefiting from them.
CONCLUSIONS
In the digital context, the copyright law has regulated more and seeks for
technology and other branches of law to regulate more effectively. With the
ratification of the control that technology can impose over every use of the
copyrighted works (by TPMs and anti-circumvention rules) and the supplement of
standardized contractual schemes, copyrights in the digital age are thus ―open to
control in a way that was never possible in the analog age‖.49 However, more control
of copyrighted works does not always help to promote innovation and creation. The
protection of created works and their creators must always be balanced with the
guarantee of public interest and fundamental freedoms. Fair use is designed to
maintain such balance. The growing use of contracts and application of technological
measures may threaten the fair use doctrine thus cause an unprecedented break in the
balance inherent in all intellectual property system50
The relationship between anti-circumvention rules and fair use has been dealt
with under the U.S. DMCA as well as EU Infosoc Directive with certain exceptions
to the rules. There are also court rulings that were pro-―fair use‖. Nevertheless, fair
use justifications were not strong enough in a variety of cases regarding anticircumvention rules under DMCA. The use of pre-described contracts has also
been addressed by the U.S. courts with the principle of preventing contracts with
unbalanced bargain power but preemption doctrine has not yet recognized.
It is inevitable that maintaining the scope of fair use to promote access to
valuable knowledge is even more important in developing countries like Armenia
48
COHEN has noted that ―if society values the fair use limits on copyright protection, it would be
entirely logical to forbid or limit the ability to contract around them -particularly where the terms
are non-negotiated and bind large numbers of consumers" (J. Cohen, WIPO Copyright Treaty
Implementation in the United States: Will Fair Use Survive?, EIPR, Issue 5, 1999, 240)
49
L. Lessig, supra note 19, at 100.
50
S. Dusollier, Y. Poullet and M. Buydens, Copyright and Access to Information in the Digital
Environment, (2000) <http://unesdoc.unesco.org/images/0012/001214/121406e.pdf>.
Khanh Pham and Shushik Mkhitaryan
17
______________________________________________________________________________
and Vietnam. Both countries have ratified anti-circumvention rules but exception
clause should be introduced and monitored. To protect fair users in those two
developing countries, it is also recommendable to apply the pre-emption doctrine in
case of conflict between fair use doctrine and contract law.
BIBLIOGRAPHY
F. M. ABBOTT, T. COTTIER and F. GURRY, The International Intellectual
Property in an Integrated World Economy, Aspens Publisher, New York, 2007
A. ABDALLA, International protection of intellectual property rights in
light of the expansion of electronic commerce, Trafford, Victoria, B.C. 2005
P. AKESTER, A Practical Guide to Digital Copyright, Thomson-Sweet &
Maxwell, 2008
P. AKESTER and F. LIMA, The Economic Dimension of the Digital
Challenge: A Copyright Perspective, IPQ, 2005, 69-81
E. BARENDT, Freedom of Speech, Oxford University Press, 2005
N. BRAUN, The interface between the Protection of Technological Measures
and Exercise of Exceptions to Copyright and Related Rights: Comparing the
situation in the United State and the European Community, in EIPR, Issue 11,
2003, 496-503.
J. COHEN, WIPO Copyright Treaty Implementation in the United States:
Will Fair Use Survive?, in EIPR, Issue 5, 1999
C.M. CORREA, Fair Use in the Digital Era, in IIC 2002,
<http://webworld.unesco.org/infoethics2000/documents/paper_correa.rtf >.
S. DUSOLLIER, Y. POULLET and M. BUYDENS, Copyright and Access to
Information in the Digital Environment, (2000)
http://unesdoc.unesco.org/images/0012/001214/121406e.pdf.
L. EDWARDS, Law and the internet, Hart Publishing, Portland Or., 2009
M. FICSOR, The Law of Copyright in the Internet. The WIPO Treaties and
their Implementation, Oxford University Press, Oxford, 2002 (INT 1006)
Y. GAUBIAC, Technical Measures and Interoperability in Copyright and
Related Rights Law, UNESCO, e-Copyright Bulletin, April – June 2007,
http://portal.unesco.org
18
Fair Use of Copyrighted Works in the Digital Age
________________________________________________________________________________
C. GEIGER, The Role of the Three-Step Test in the Adaptation of Copyright
Law to the Information Society, UNESCO e-Copyright Bulletin, January - March
2007, http://portal.unesco.org
T. HARDY, Contracts, Copyright and Preemption in a Digital World, 1
RICH. J.L. & TECH. 2 (1995) <http://www.richmond.edu/jolt/v1i1/hardy.html>
B. KAPLAN, An Unhurried View of Copyright (Republished), Matthew
Bender, 2005
M.F. KIGHTLINGER, A Solution to the Yahoo! Problem? The EC ECommerce Directive as a Model for International Cooperation on Internet Choice
of Law, in 24 Michigan J. of Int. L. 2003, 719-766
L. LESSIG, Remix. Making Art and Commerce Thrive in the Hybrid
Economy, The Penguin Press, 2008
M. LI, Fair use of Copyrighted Works in the Digital Age, Collection of
Research Papers, Master of Laws in Intellectual Property, Turin, Italy, 2007
J. LITMAN, Digital Copyright, Prometheus Books, New York, 2006
A. LUCAS, Applicable Law in Copyright Infringement Cases in the Digital
Environment, UNESCO e-Copyright Bulletin, October - December 2005,
http://portal.unesco.org
L. LUO, Legal Protection of Technological Measure in China, in EIPR Issue
2. 2006, 100-105
G. MAZZIOTTI, EU digital copyright law and the end-user, Springer,
Berlin, 2008
R. MOFFAT, Rethinking Contractual Restrictions on Fair Use: Preemption
and the Structure of Copyright Policymaking, (2007), <
http://works.bepress.com/viva_moffat/1>
R.T. NIMMER, Google Print Library Project” – Unfair Use of Copyright / J.
BAND, M. SCHRUERS, Grokster in the International Arena, The Merits of
Grokster (U.S.) and Sharman (Australia) compared.
M. SCHOLOSSER, Fair Use in the Digital Environment, The Alert
Collector, A Research Guide, volume 46, issue 1, 11-17
P. SCHONNING, Internet and the Applicable Copyright Law: A
Scandinavian Perspective, in EIPR, 1999, 45 ff.
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19
______________________________________________________________________________
S. STOKES, Digital copyright: law and practice, Hart Publishing, Oxford,
2009
M. WALLACE, The Information Society Directive (UK implementation): the
end of educational and research use of digital works?,
(<http://www.bileta.ac.uk/DocumentLibrary/1/>
H. WIESE, The Justification of the Copyright System in the Digital Age, in
24 EIPR 2002, 387 ff.
WIPO, WIPO Intellectual Property on the Internet: A Survey of Issues,
http://ecommerce.wipo.int, 2002
COLLECTIVE MANAGEMENT OF COPYRIGHT AND RELATED
RIGHTS IN MUSIC – A CASE STUDY OF THE UNITED KINGDOM AND
GHANAIAN SYSTEM
by
Alfred Kumi-Atiemo
TABLE OF CONTENTS
1.
INTRODUCTION
1.1.
Abstract
1.2.
Background : Why Writing the Topic
1.3.
Definition of Copyright and Related Rights
1.4.
Purpose of Copyright and Related Rights
2.
WHY THE NEED FOR COPYRIGHT COLLECTIVE MANAGEMENT
2.1.
History of Collective Management Organisations
2.2.
Objectives/Functions of Collective Management Organisations
2.3.
Legal Statutes - UK
2.4.
Legal Statutes - Ghana
2.5.
Structures of Collective Management Organisations
3.
DOCUMENTATION - REPERTOIRE
3.1.
National Repertoire
3.2.
Foreign Repertoire
3.3.
The Works of Authors who do not belong to Collective
Management
Societies and the Works of Unknown Authors
3.4.
The Global Repertoire
4.
5.
CLIENTS – RELATIONSHIP WITH CLIENTS
4.1.
Contract with Clients
CONCLUSION
BIBLIOGRAPHY
22
Collective Management of Copyright and Related Rights in Music:
A Case Study of the United Kingdom and Ghanaian System
________________________________________________________________________________
INTRODUCTION
1.1. Abstract
Collective management of authors‘ rights has been seen as indispensable
method of exploiting creative works. The system has worked over a century and
half in developed countries in the creative industry especially in developing the
music industry. However, in spite of the support and technical assistance for the
developing world including African countries to set up and manage collective
management organisations; it has been relatively difficult task for countries in SubSaharan Africa like Ghana to succeed. The essence of the paper is to do a
comparative case study of collective management societies (CMS) in developed
and developing countries with particular reference to the United Kingdom and
Ghana and see if there are some best practices (lessons) that can be learnt from the
developed world. It is the desire of the author as part of the recommendations at the
end of the research paper that there will be an international treaty such as the
TRIPS Agreement1 or a special treaty of the Berne Convention2 to govern the
activities of collective management societies (CMS).3 Since the World Intellectual
Property Organisation (WIPO) guidelines for CMS has not been helpful particular
to developing countries such as Ghana.
1.2. Background: Why Writing the Topic.4
As stated in the abstract, collective management of authors‘ rights has been
seen as indispensable method of exploiting creative works. The system has worked
over a century and half in developed countries and has helped the development of
the music industry. The World Intellectual Property Organisation (WIPO)5 and its
developing partners such as United Nations Education, Scientific and Cultural
Organisation (UNESCO), the International Confederation of Societies of Authors,
Composers (CISAC) and collective management societies in developed countries
have given support and technical assistance to African countries to set up collective
management societies for effective management of copyright and related rights.
However, in spite of the support and technical assistance to developing countries to
collectively license, collect and distribute royalties on behalf of right owners, it
has been relatively difficult task for countries in Sub-Saharan Africa like Ghana to
1
The TRIPS Agreement stands for the Agreement Trade-Related Aspects of Intellectual Property
Rights.
2
Article 20 of the Berne Convention (1971) provides ―… countries reserve the right to enter into
special agreements…‖
3
Wherever collective management societies or (CMS) is used it also refers to Collective
Management Organisations (CMOs) and are used interchangeable.
4
Interest of the author in the research.
5
Hereinafter, the World Intellectual Property shall be referred to as [WIPO].
Alfred Kumi-Atiemo
23
_______________________________________________________________________________
succeed.6 Such societies are often accused of lack of efficiency, transparency and
abuse of incumbency due to the “de facto or de jury monopoly‖ they enjoy.
This has generated various uprising and ‗factionalism‘ among rightholders
especially in the music industry in Africa who are constantly agitating for reforms
and formation of other competitive societies. In Ghana efforts, however, to set up
rivalry societies7 has not succeeded as a result of constitutional issues and the need
to amend the Copyright law whilst Nigeria saw a number of court cases between
the Nigerian Copyright Commission (NCC) and various stakeholders who
attempted to set up rivalry societies but could not secure approval from the NCC.8
Section 32B of the Nigerian Copyright Act (as amended in 1999) made it a
prerequisite for approval by the Nigerian Copyright Commission for the operation
of a collective management organisation in Nigeria.9 It was also noted in two
landmarks Nigerian case law that “no collective society could operate as such
unless it was approved under the relevant legal provisions.10
The focus of the paper therefore is to do a comparative study of collective
management societies in developed and developing countries systems with
particular reference to the United Kingdom and Ghana and see the sort of lessons
that can be learnt from the developed world.11
The choice of the author of the British system is as a result of the long
standing relationship between the two countries since the 19th century. Indeed the
legal system in the United Kingdom has influenced the development of the
Ghanaian legal system.12 The paper will focus on CMS in the music industry
because of the potential the industry holds for Ghana and the Sub-Saharan Africa
6
CMS system has failed in Ghana and there is the need to rebuild the system. See Poku Adusei, The
Evolution of Ghana‘s Copyright Regime Since Independence: A Critical Appraisal published in
Ghana Law Since Independence, History, Development and Prospects, UGFL 2007 p11et seq.
7
Ibid p25, Musicians such as Charles Amoah, Rex Omar and Carlos Sakyi et al. played leading role
in the fight for rival societies.
8
For further reading see, See John Asein, Nigeria Copyright Law and Practice, Abuja, 2004.
9
The Musical Society Nigeria Ltd. was not approved to operate as a collective management
organisation.
10
See Musical Copyright Society Nigeria Ltd. v. Details Nigeria Ltd. (Suit No. FHC/L/ICS/434/95)
and Musical Copyright Society Nigeria Ltd. v. Ade Okin Records (Suit No. FHC/L/CS/216/96)
The law in Ghana now has been amended for rightholders desiring to form a society to seek
approval from the sector minister. However, commentators are arguing that the power struggle
problem which confronted other developing countries like Nigeria would soon be experienced in
Ghana.
11
The author is mindful of the fact that collective societies operating in the two countries operate in
heterogeneous environments and can therefore not be compared. However, the choice of the two
countries is as a result of the long standing socio-political, legal and economic relationship between
them as stated in the subsequent paragraph.
12
For in-depth study on the relation between the two legal systems see supra 6, p11-12. See also
Marisella Ouma, Copyright and the Music Industry in Africa, in JWIP2004 p919. Poku Adusei,
Kwame Anyimadu-Antwi and Naana Halm in Africa Copyright & Access to Knowledge Ghana
Country Report 2008.
24
Collective Management of Copyright and Related Rights in Music:
A Case Study of the United Kingdom and Ghanaian System
________________________________________________________________________________
as a whole.13 In Africa, music is seen as a way of life and like other cultural
industries, it can be a source of wealth, music is seen as a kind of “cultural gold,”
for developing countries if well managed.14
1.3. Definition of Copyright and Related Rights
Copyright is a form of intellectual property (IP) which protect authors‘ and
artists‘ creative expression. Legislatures and courts have consistently interpreted
the term ―expression‖ to exclude the protection of ideas or methods of operation
that might be embodied in an expressive work.15
There exist related rights to, or ―neighbouring on,‖ copyright. Works of the
mind ―copyright‖ are created in order to be disseminated among as many people as
possible, however, this cannot be done generally by the author him/herself, it
requires intermediaries whose professional capability gives the works those forms
of presentation that are appropriate to make accessible to a wider public. All
persons who make use of literary, artistic or scientific works in order to make them
publicly accessible to others require their own protection against the illegal use of
their contributions in the process of communicating the work to the public.16 These
include performers, producers of phonogram and broadcasting organisations,
however, their contributions are not creative enough to meet the requirement of
copyright, and hence, protection is attempted by means of related rights to
copyright. These rights are generally referred to as related rights or neighbouring
rights. 17
1.4. Purpose of Copyright and Related Rights
The objective of copyright is the protection not only of the creators of work
but also promotion, enrichment and dissemination of the national cultural heritage.
Copyright constitutes an essential element in the developmental process of a
country and its development to a large extent depends on the creativity of its
people. Encouragement of individual creativity and its dissemination is a sine qua
non for progress.18
13
The principles as discussed can be applied to other category of protected works as well.
Supra note 12 Ouma, p. 920.
15
For further reading on copyright, works protected and types of rights granted by copyright see
Fredrick M. Abbott, Thomas H. Cottier and Francis Gurry, International Intellectual Property in an
Integrated World Economy, Aspen Publishers, 2007 p413et seq., also see provisions of article 2 –
18 of the Berne Convention.
16
WIPO Intellectual Property Handbook: Policy, Law and Use, Geneva p.47.
17
Whenever the term copyright is used, it should be understood to refer to both copyright and
related rights.
18
Supra note 16 p41.
14
Alfred Kumi-Atiemo
25
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2. WHY THE NEED FOR COPYRIGHT COLLECTIVE MANAGEMENT
2.1. History
Historically, collective management organisation (CMO) was introduced as
early as the 19th century for musical works whose authors were clearly powerless
to control their use individually.19 The foundation of the very first society was
closely linked to the named of Beaumarchais. He led the legal battles against
theaters which were reluctant to recognize and respect authors economic and moral
rights. Those victorious battles, led, on his initiative, to the foundation of the
Bureau de législation dramatique in 1777, which was later transformed into the
Société des auteurs et compositteurs dramatiques (SACD), the first society dealing
with the collective administration of authors‘ right.
This encouraged Honoré de Balzac, Alexandra Dumas, Victor Hugo and
other French writers to follow suit in the field of literary more than half a century
later when they constituted the Société des gens de letters (SGDL) whose general
assembly met, for the first time, at the end of 1837.20
However, the events leading to a fully developed collective administration
started only in 1847 when two composers, Paul Henrion and Victor Parizot and a
writer, Ernest Bourquet, supported by their publisher, brought a lawsuit against
“Ambassadeurs”, a ―café-concert‖ in the Avenue des Champs-Elsyées in Paris.
They saw a flagrant contradiction in the fact that they had to pay for their seats and
meals in the “Ambassadeurs”, whereas nobody had the intention of paying for
their works performed by the orchestra. They took the brave and logical decision
that they would not pay as long as they were not paid as well. In the litigation, the
authors won; the owner of the “Ambassadeur” was obliged to pay a substantial
amount of fees.
Enormous new possibilities were opened for the composers and text-writers
of non-dramatic musical works by that court decision. It was clear, however, that
they would not be able to control and enforce their newly identified rights
individually. The realization led to the foundation of a collecting agency in 1850,
which was soon replaced by the still functioning ―Société des auteurs,
compositteurs et éditeur de musique” (SACEM).21
At the end of the 19th century and during the first decades of the 20th century,
similar authors‘ organisations (so-called performing rights societies) were formed
19
The first authors‘ societies that were more than mere professional associations of authors and also
fought for the recognition of authors‘ rights in their works were established in France.
20
According to Paul Florence in the Management of Authors‘ Rights and Neighbouring Rights in
Europe, in RIDA 2003, SGDL now has the status of association.
21
The historic account of Collective management is quoted as Dr. Mihály Ficsor gave in Collective
Management of Copyright and Related Rights, WIPO Publication, Geneva 2002 p18-19.
26
Collective Management of Copyright and Related Rights in Music:
A Case Study of the United Kingdom and Ghanaian System
________________________________________________________________________________
in nearly all European countries and in some other countries as well. Cooperation
developed rapidly among those organisations and they felt a need for an
international body to coordinate their activities and contribute to a more efficient
protection of authors‘ rights throughout the world. It was in June 1926 that the
delegates from 18 societies set up the International Confederation of Societies of
Authors and Composers (CISAC). The membership of CISAC has been constantly
widening since then and now also includes, in addition to the more traditional ones,
societies dealing with other types of works (such as works of fine art and
audiovisual works.22
2.2. Objectives/Functions of Collective Management Organisations
Authors and performers can choice from a whole range of methods of
management adapted to the nature of work and performance, and the rights
conferred by such works and performance; and the status of the author or
performer. Some of them manage their interests themselves, although uncommon,
some may also use the services of ―agents‖23 to act as intermediary between them
and users. Even so, the laws protecting rightholders have not disregarded individual
management: controls on contractual practices have been established in order to
protect authors, who are considered to be the weak party in negotiations concerning
their economic rights. Some laws have also provided a protective framework for
exploitation contracts involving neighbouring rights where the ordinary law of
contracts did not seem sufficient on its own.
However, experience has shown that in certain cases, individual management
is unable to meet the requirements of the exploitation of works and performances,
especially where secondary use of works and performances are concerned, even
within an organized contractual framework. This is particularly true in the case of
musical works whose reproduction and performance cannot be controlled
individually due to the number of frequency of such acts and the variety of
communication channels.24 When a work appears on the market, the public starts to
take interest in it. The disks or cassettes sold commercially are sooner or later used
22
For in-depth information on the activities and contributions of CISAC to the growth and
development of collective management over the years, visit the CISAC
http://www.cisac.org/CisacPortal/security.do;jsessionid=C44C52A97DC654ED6A6C418EF6C204
66?method=before (date last accessed 18th February, 2010).
23
There are various types of agents that can be used in the making of a work or performance
available to the public, notable amongst them in the music industry is the services of publishers or
phonogram producers. Their activities and the important role they play, the author hopes to discuss
in another forum.as it is beyong the scope of this paper.
24
The advent of new technology such as the internet makes the situation much complicated. For an
in-depth analysis of this challenges see, inter alia, Marco Ricolfi, Individual and Collective
Management of Copyright in the Digital Environment, in Paul Torremans (edited by) Copyright
Law: A Handbook Contemporary Research, Edward Elgar Publishing Ltd., 2007, p283et seq.;
published work 2008, M.M. Frabboni, Online Music Licensing, the calm after the storm,
Entertainment Law Review, 2006, 17 (2), p65-69.
Alfred Kumi-Atiemo
27
_______________________________________________________________________________
for the purposes of broadcasting and/or public performance in restaurants, hotels,
shops and other public places. The author or composer is rarely consulted; the work
follows, so to speak ―the law of the market‖.25
The authors or composers have realized they are completely unable to
monitor what happened to their works that were published. They had the choice
between resigning to their fate – considering the uses of their works as the
appendage of the success of the sales of copies – or defending their rights.26 On the
other hand given the scope of usage of music outside the private sphere – for
purposes of public performance, broadcasting programmes or production of
phonograms, rightholder could look for publishers who would act as intermediaries
between creators and the public.
According to the legal provisions, user organisations are obliged to contact
authors in advance so as to know whether, how many times and under what
financial conditions the composers and/or authors would consent to their works
being performed or broadcast. However, users found this a difficult task seeking
clearance from rightholders who were scattered all over the world and where they
were able to make such contacts, experience shows that most composers never
responded to those contacts.27 It should therefore be noted that such a method
would quite simply be absurd. The use of music for the masses requires a special
service where the copyrights are gathered together by one person or organisation,
thereby allowing users to respect them more easily. This need for specialized
organisation in the form of concentration of copyrights, one-stop-shop28, where
such clearance can be obtained, facilitated the need for collective management
organisations or societies. Collective management societies on behalf of members
simply the procedure for “negotiations, calculation of fees and facilitate access to
works and distribute royalties to its members,” consequently reduce administrative
cost for both rightholders and users.29 Collective management societies are
therefore in a better position in establishing appropriate and efficient monitoring
and fee calculation mechanisms which would work in favour of both their members
and clients. Thus, in conclusion, tracing the owners and obtaining permission was
not necessary when the client knows there exist such one stop-shop in its
operational territory, as they ameliorate the cumbersome tracing problem.
25
The law of demand and supply in economics.
As narrated the history of collective management above, this struggle for defense led to Paul
Henrion et al. with the support of their publisher, bringing a lawsuit against “Ambassadeurs”, a
―café-concert‖ in the Avenue des Champs-Elsyées in Paris in 1847.
27
See Dr. Ulrich Uchteenhagen in Copyright Collective Management in Music, WIPO Publication
No. 789(E) p.12.
28
Supra 24, as stated, the advent of the information age has created serious challenges to
rightholders. To overcome this, major corporations are using a centralised form of license for online
music. A typical example is the Warner/Chappell Music Launches initiative for Pan-European
Digital Licensing (P.E.D.L.) which is discussed later.
29
Major users of services of corporate firms are often referred to as clients so the article will refer to
users of copyright works as clients of CMS. This will be explained in chapter 4 below.
26
28
Collective Management of Copyright and Related Rights in Music:
A Case Study of the United Kingdom and Ghanaian System
________________________________________________________________________________
2.3. Legal Statutes: Nature & Status of Collective Management Organisation –
UK
Before we look at the legal statutes in the United Kingdom (UK) and Ghana
governing collective societies, it will be appropriate to comment briefly on the
nature and status of CMS in general as they differ from one jurisdiction to the
other. The nature and status of CMS may differ in various respects depending on
the choice of legal regime involved. They differ in respect of the form and the
extent of governmental supervision, whether as private, public or semi-public
societies. CMS also differ in respect of the scope and the types of rights they
manage. Some mange exclusively performing rights, some manage a combination
of performing rights and mechanical reprographic rights whilst in other countries
especially developing countries CMS mange works in all categories, ―trilogy‖ of
economic rights.30 Finally, CMS differ in respect of whether they are the only CMS
in the jurisdiction responsible for the management of the rights, ―de facto or de jury
monopoly” or there are more than one such organisation in the field.31
Collective management began in the UK early in the twentieth century when
it was also realized that in many circumstances it was virtually impossible for an
individual owner of an intellectual property right to police all potentially infringing
uses. This gave rise to the idea of collective licensing, whereby rights were
assigned to a society or such a society was given the right to grant licenses on
behalf of the right-owner and to enforce those rights against infringers. The UK
Copyright Act 1911 gave impetus and even before the Act was adopted the
Mechanical Copyright Licenses Copyright Ltd. (MECOLICO) was formed in order
to collect and distribute mechanical royalties from the gramophone companies.32
Soon afterwards, in 1914, the Performing Rights Society Ltd. (PRS) saw the light
of the day with the specific aim to collectively administer public performance
rights in musical works.33 A role, PRS has up-to-date successfully played on behalf
of its members and went to court whenever the need arose to enforce the rights of
its members and principals.34 Collective management organisation in UK has
always been private and there had been various societies which were incorporated
after PRS to administer other category of works subject to the statutory regulatory
30
Supra note 27, p.18.
For some examples of each type see Dr. Mihály Ficsor supra note 26, p38 et seq.
32
Gramophone Co. Ltd. v. Stephen Cawardine & Co. [1934] gave credence to development of
collective licensing in UK. For chronological account of the development of CMS in the UK see
Paul L.C. Torremans, Collective Management in the United Kingdom (and Ireland), in Daniel
Gervais (edited by) Collective Management of Copyright and Related Rights, Kluwer Law
International, 2006, p227et seq.
33
For historic account of PRS incorporation see
http://www.prsformusic.com/SiteCollectionDocuments/AboutMCPS-PRS/PRSMEMART.pdf (last
visited 3rd February, 2010)
34
To cite a few case law to support the assertion: - Performing Rights Society v. Hammonds
Bradford Brewery Co. Ltd. [1935] AII ER 270; Jennings v. Stephens [1936] AII ER 409 and
Performing Rights Society v. Harlequin Record Shop Ltd. [1972] 2 AII ER 828.
31
Alfred Kumi-Atiemo
29
_______________________________________________________________________________
authority.35 It is worth mentioning that the Mechanical Copyright Society Ltd.
(MCPS) and the Performing Right Society (PRS) entered into an alliance, known
as the MCPS-PRS Alliance, which became operational in 1997. The MCPS-PRS
Alliance was further rebranded as “PRS for Music” in January, 2009.
For purposes of this paper, the focus will be on societies relating to the music
industry, particularly PRS for Music, and currently operating as CMS.
2.4. Legal Statutes: Nature & Status of Collective Management Organisation –
Ghana
Although Ghana, since early the twentieth century, has legal framework
concerning the protection of intellectual property rights including copyright and
related right; the concept of collective management of rights was introduced in
1986 following the enactment of the Copyright Law, 1985 (PNDCL 110). Ghana
like all other English speaking countries in Sub-Saharan Africa were colonized by
Britain, the UK therefore applied the Copyright Act of 1911 and subsequent Acts
to all the colonies. Ghana for instance had the Copyright Ordinance, 1914 (CAP
126) with its enabling Copyright Regulations 1918, the Ordinance sought to carry
into effect within the colony the fore mention British Copyright Act. After
independence in 1957, not much was done to enact Ghana‘s own laws, the common
law system was carried over with a mere cosmetic changes.36 The 19661Copyright
Act (Act 85) and the Copyright (Fee) Regulation of 1969 (L.I. 174) respectively
therefore borrowed the UK Copyright Act of 1956 which remained in force until
1985. The Act 85 and its L.I. only added more materials as far as protectable
subject matter of copyright was concerned.
As a result of technological challenges which confronted copyright protection
in the 70s and 80s, Ghana enacted its own copyright law P.N.D.C Law 110 of
198537 to meet the demands of the challenges and also to take into cognizance
international norms such as provisions of the Berne Convention and the Rome
Convention. Section 42 of the PNDCL 110 made provision for “the establishment
of a non-profit making society of body corporate which shall, among other things,
be responsible for authors, the promotion and protection of the interest of authors
and, in particular the collection and distribution of any royalties or other
remuneration accruing to authors in respect of their rights as was provided under
the law”. In pursuant to that mandate a semi-quasi society, the Copyright Society
of Ghana (COSGA) was set up in 1986 and like other developing countries,
35
Section 128A of the English Copyright, Designs and Patents Act 1988 ("the Act") confer such
statutory regulatory authority on the Secretary of State.
36
Supra note 6, Adusei p13-24 and note 12, Ouma p921-923.
37
P.N.D.C Law 110 of 1985 has since been repealed by the enactment of Copyright Act 690 of
2005. The Act 690 took into consideration Ghana‘s obligation under the TRIPS Agreement and
other international treaties such as the WIPO Copyright Treaty (WCT) and the WIPO Performances
and Phonograms Treaty (WPPT).
30
Collective Management of Copyright and Related Rights in Music:
A Case Study of the United Kingdom and Ghanaian System
________________________________________________________________________________
COSGA, managed works in all categories.38 COSGA enjoyed both “de facto or de
jury monopoly” as the law and regulation made provision for a single society to
administer all categories of works.39 There were two great setbacks to the
substantive law and the regulation which are:- one, the lack of possibilities for the
formation of several collective societies to the promotion and protection of
different creators.40 The interest of literary authors are entirely different from the
interest of musical, artistic authors etc., therefore such unrelated interests been put
together to be administered by a single society as stated above rather achieved a
detrimental result for creators. COSGA has not been able to organize its general
assembly after a failed General Assembly in 1992 elected a literary author as its
president which music composers opposed. COSGA only ended up administering
public performance of music right owners. Again, lack of a provision in the law for
a supervisory authority to supervise the activities of COSGA, accounts for
accusations and counter accusations against the operation of the society. This has
affected public image of COSGA and its overall performance. Nonetheless, these
anomalies have been corrected by the Copyright Act, 2005 (Act 690); the Act
provides for formation of several collective societies to the promotion and
protection of different creators.41 It also gives the Minister of Justice the
responsibility to make regulation and supervise the activities of CMS so formed.42
Again the Act provides for a Copyright Tribunal to settle disputes such as license
schemes, tariff related disputes etc.43,44 with the activities of the Tribunal subject to
appeal.45 The provision for an appeal by an aggrieved party is informed by abuse of
power and biases which such tribunals in African are often accused of.
2.5. Structures of Collective Management Organisations
The structures of collective management organisations are relatively the
same, the structure however, differ slightly depending on the choice of its
38
COSGA operated under the P.N.D.C Law 110 of 1985 between 1986 and 1992 until the
regulation governing the activities of COSGA, the Copyright Society of Ghana Regulations 1992,
L.I.1527 was promulgated in 1992.
39
There is no significant judicial pronouncement s in the development of collective management of
authors‘ rights in Ghana. The only case law that can be cited is Copyright Society of Ghana v.
Afreh [1999-2000] 1 GLR 135.
40
L.I.1527 Regulation 2 of the LI states the objects of the COSGA as:(a) to represent and protect the professional, economic, moral and other interests of authors of
literary, musical, artistic, dramatic and other works.
(b) to serve as a collecting society for the collective administration of copyright of the members of
the Society.
41
Section 49(a) of Act 690 (Act 205)
42
Section 49(c)
43
Sections 51-58
44
Supra note 35 Sections 145-151 also provides for Copyright Tribunal ("the Tribunal"). The
Tribunal has the right pursuant to 128(A) and (B) also to make decision on licensing schemes, it
may either confirm or vary a license or licensing scheme section 128 B(3). The decisions of the
Tribunal is also subject to an appeal to the High Court pursuant to s. 152 of the Act
45
Supra note 43Section 58
Alfred Kumi-Atiemo
31
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regulation, legal regime involved and the form and the extent of governmental
supervision, whether as private, public or semi-public societies. A general structure
of a CMS consist of a general assembly constituted by members and principals of
the CMS which elect a board, president or chairpersons, committees appointed by
the board; general administration/commission headed by a chief executive officer
which run the day-to-day affairs of the CMS. It also determines the procedures
through which authors become members and principals of the CMS and how works
are assigned to a CMS concerned. Details of the structure of PRS for Music are part
of the PRS Rules and Regulations46 whilst that of COSGA can be found in the
COSGA Regulation.47
3. DOCUMENTATION – REPERTOIRE
3.1. National Repertoire
The repertoire of a CMS means all the works for which the society is entitled
to grant to third parties, administer or grant its clients authorization for use. For a
society to operate successfully without any limitation to the content of its
repertoire, it must hold the global repertoire where it is able to encompass not only
works of its nationals but also works originating from all countries and the
continents. This begins with the national repertoire, i.e. works created or published
by the specific members and principals of the society. The society is obliged to
prove which authors it represents, its status and capacity to represent authors,
composers and publishers.
A good CMS must from the onset concentrate all its efforts on keeping a
repertoire which is as complete as possible. To achieve this, authors must be aware
of the existence and functions of their national society and furthermore be
convinced to enroll with the CMS as principals and subsequently become
members. Trust in the CMS is a major factor and the level of management of its
documentation. The PRS for Music over the years has been able to establish and
built that level of trust and confidence required as a corporate body to operate, its
membership now stands at about 65,000.48 In Ghana, it has not only been difficult
to tell the membership of and the repertoire COSGA holds at the moment, its
membership is also dwindling each day in and day out. This can be attributed to
lack of proper filing system and accountability which affect most organisations in
developing countries. It is difficult to readily ascertain the total number of works
46
Source see:-http://www.prsformusic.com/SiteCollectionDocuments/AboutMCPSPRS/PRSRULES.pdf (date last accessed 19th February, 2010).
47
Supra note 40 Regulation 3-14.
48
Source PRS for Music website for membership information
www.prsformusic.com/SiteCollectionDocuments/Membership/MA2andannexes.pdf (date last
accessed 10th February, 2010).
32
Collective Management of Copyright and Related Rights in Music:
A Case Study of the United Kingdom and Ghanaian System
________________________________________________________________________________
which have been assigned to COSGA) by its members.49 Members of COSGA
have also lost trust in the society due to accusations of alleged lack of transparency
and accountability and this has subsequently affected the quality of the relationship
COSGA has as members and principals are no longer interested in assigning news
works or updating their records with the society. These have also affected the
relationship COSGA has with its major clients as most of its clients year after year
feel no longer obliged to pay attention to renewing or signing new contracts with
the society or pay royalties for the works they use. The above description has
characterised the operations of CMS not only in Ghana but in some developing
countries. COSGA and CMS in some developing countries can therefore learn
from their counterparts in the developed world how to build and establish trust
required to operate as corporate bodies with their principals, members, clients and
the general public within their operational environment.
3.2. Foreign Repertoire
The rights relating to foreign repertoires are conferred as part of the
―reciprocal representation contracts‖ which the national CMS signs with foreign
sister societies. These contracts signed between societies which are based on the
CISAC and BIEM models50 have come under close scrutiny especially by antitrust
bodies, in the EU in particular, as the terms and conditions of such agreement are
seen as anti competitive. The scrutiny is beyond the scope of this paper.51 The
reciprocal representation contract itself does not give a society the mandate to
represent other societies in its territory. It is other well developed international
documentation such as the CISAC CAP/IPI documentation which contained
detailed information on the foreign authors, composers and publishers a society
represents.52 This information system which is shared amongst CMS assists in
administering foreign repertoire.
49
COSGA still uses paper filling system and the same declaration forms used since its inception
1986.
50
Articles 1-3 of the CISAC model agreement define the rules of governing such reciprocal
agreement.
51
For in-depth analysis of reciprocal agreements and the reaction of the EU Antitrust see inter alia,
Enrico Bonadio, Copyright Collective Licensing and the EU initiatives in the on-line music field, in
DANTe 2006, p387et seq. Also see M.M. Frabboni, The current discussion on collective
management of rights in the EU, Economic Concerns, paper presented at the Workshop on the Law
and Economics of Intellectual Property and Information Technology, July 22-23 2005, Universitá
Carlo Cattaneo Castellanza LIUC 7 (available at
http://www.liuc.it/ricerca/istitutoecomicsjuly2005/papers/frabboni_LIUCpaper.pdf), M.M.
Frabboni, Cross Border Licensing and Collective Management: A Proposal for the On-Line
Context, in Entertainment Law Review, 2005, 16 (8), 204.
52
CAP means ―composers, authors and publishers‖ whilst IPI stands for Interested Party
Information. They contain relevant information relating to authors, composers and publishers who
are affiliated to CMS as members and principals. For detailed discussions on what constitute such
documentation system and how it works, see supra note 27 Uchtenhagen, p58-67.
Alfred Kumi-Atiemo
33
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CMOs in Europe including PRS for Music have over the years utilised such
reciprocal agreements to widen its repertoire and licensing even into the online
music field. This includes but not limited to the Simulcasting Agreement signed on
16th November, 2000 by CMS. The Simulcasting Agreement which included PRS
for Music had 31 countries; this was followed by the Webcasting Agreement in
2003. It is also worth mentioning the Santiago Agreement signed in October,
200053 as some of the many of such reciprocal agreements. The PRS for Music has
been involved in all these reciprocal agreements and many more and now is in a
position to grant Pan-European licensing for European repertoire which cover the
EU member states. Two of such initiatives of late which PRS for Music is involved
are “the Pan-European Digital Licensing Initiative (PEDL”) and “the Centralised
European Licensing and Administrative Service (CELAS). The PEDL initiative was
launched in June 2006 by Warner Chappell Publishing, European CMS
representing author and music publishers were invited to join. Some of the CMS
which joined the initiative were PRS for Music (UK), STIM (Sweden), SACEM
(France), SGAE (Spain), BUMA-STEMRA (the Netherlands). These CMS were
designated as non-exclusive licensing agents of Warner/Chappell Music for the
mechanical rights54 of its Anglo-American repertoire. Licenses are granted on a
short term basis (1-2 years) and tariffs are based on the country of destination. In
principle, any European CMS may join the initiative, provided it complies with a
set of specific criteria intended to ensure transparency, efficiency and
accountability.55
The CELAS GmbH is also a new entity which was established in 2007, based
in Munich, and is jointly owned by the German CMS, Gema and by the UK CMS
PRS for Music. CELAS was set up to also provide cross-border licensing and
administration services on a pan-European basis to right holders for on-line and
mobile exploitations. The entity is theoretically “open for all types of right
holders”; however, currently it only licenses the mechanical rights of EMI music
Anglo-American repertoire. The licenses cover all interactive and some noninteractive forms of exploitation, including ring-tones, downloads, streaming and
web-casting. In 2008 CELAS entered into agreements with several commercial
users, including 7Digital, iTunes, Nokia, Real and Omnifone. By the end of
January 2009, licenses have been granted to more than 20 of the largest digital
providers in Europe56.
53
For information about the pros and cons of each of these agreements and how they were received
by antitrust bodies, clients and members of CMS involved see Bonadio, supra note 51 p395 -399.
54
Mechanical rights means a piece of music reproduced as a physical product.
55
For further reading on ―the Pan-European Digital Licensing Initiative (PEDL‖)
http://findarticles.com/p/articles/mi_pwwi/is_200606/ai_n16451812/ (last visited 18th February,
2010).
56
For further reading on the Centralised European Licensing and Administrative Service (CELAS)
see http://www.internationallawoffice.com/newsletters/detail.aspx?g=aabcf6cf-9152-4dd7-b8d5fb3faf9834fc
34
Collective Management of Copyright and Related Rights in Music:
A Case Study of the United Kingdom and Ghanaian System
________________________________________________________________________________
COSGA like most developing countries‘ societies began very well from its
initial stages with a number of reciprocal representative agreements with foreign
societies which were members of CISAC. But the competence to manage its owner
repertoire has dwindled with time, COSGA has not been able to analyse or
exchange any of the documentations mentioned above with sister societies.
Although sister societies constantly send documentation on their repertoires to
COSGA, the latter has not been able to analyse, administer, nor send its own to
other societies.57
3.3. The works of Authors who do not belong to Collective Management
Societies and The Works of Unknown Authors
Clients such as broadcasting organisation58 broadcast or use works created by
authors and composers who may not be members and principals of CMS.
Experience has shown that this practice is unavoidable as clients cannot determine,
with the best will in the world, who is and who is not affiliated as members or
principals of a CMS. Nor can clients easily determine which society to seek
authorisation from for works of authors who do not belong to the society concerned
in its territory of operation. Clients often conclude by arguing that the authorisation
to broadcast the works granted by a CMS is general in scope and covers all sorts of
musical works.59
The big question is: which should the attitude be of the CMS when it
discovers, in the lists of broadcast works, works created by non-member or
―unknown authors‖?60 Should the CMS remove these works on the grounds they
are not part of its documented repertoire or should it by contrast include them in its
distribution work?
The general practice is that CMS are seen as firms established in the interest
of the public to provide services to everyone and not only those who wish to use it
or who are members or principals of the society. CMS thus manage works of
authors who do not belong to the CMS based on a solid legal foundation:
“business management without a mandate.”61 The non-member or the unknown
author cannot know what happens to his/her works and he/she is unable to act
57
A search at COSGA showed a number of documentation on foreign repertoire including the
repertoire of BUREAU BURKINABE DU DROIT D'AUTEUR (BBDA) i.e. the collective society
of Burkina Faso.
58
Whenever broadcasting organisations are referred to, it includes webcasters and
organisations/individuals that commercialised copyright protected works on the internet.
59
Supra note 55 and 56.
60
―Works of unknown authors‖ often termed as ―orphan works‖ are works in respect of which the
right owner cannot easily be ientified and/or located.
61
This is a quasi-contract relationship between two persons, one of which relies on the other in case
of incapacity. Also article 3 of the Berne Convention provides the principle of ―national treatment‖.
Alfred Kumi-Atiemo
35
_______________________________________________________________________________
him/herself. During such situation the CMS can intervene by carrying out business
without a mandate, according to the legal definitions, “in order to prevent damage
with which the non-member or unknown author is threatened”. The CMS then
collect royalties; pay the share of royalty collected on his/her behalf, after
administrative expenses have been deducted.
The payment of non members or unknown authors, however, should not be
subject to the condition that the author must join the CMS beforehand. The
percentage of fees to be deducted must correspond to the rate applied to the
management of the rights of members and principals affiliated to the CMS in the
normal manner. Where the CMS manages to identify the author, it is obliged to
pay the royalty within the deadlines prescribed by the applicable law. This period
varies between two and five years.
Whilst CMS in developed countries including PRS for Music have been able
to administer works of authors who do not belong to the CMS and works of
unknown authors including works of foreign origin and have created accounts for
such authors, it has been very difficult to manage such works in developing
country. COSGA has not been able to administer such works, collect royalties and
pay the authors concerned. This is attributed to the difficulties with which COSGA
has to administer works of its members and principal as it is unable to identify
works of its own members and principals. As being practiced by COSGA at the
moment, the minimal money paid by clients are shared among its members
subjectively without sound best practice. It is therefore the wish of the author that
developing countries should be assisted to overcome the administrative challenges
they face in order to broadened their scope of operation. Ghana would need such
technical assistance as new CMS are envisaged for all categories of copyright
works under the ACT 690.
3.4. The Global Repertoire
Global repertoire consists, in each county, of the national or a repertoire
specific to the CMS, the foreign repertoire entrusted to the CMS under reciprocal
representation contracts with sister societies of other countries as discussed above.
And also the works of non-members or unknown authors may be included in the
repertoire through the application of business management without a mandate also
discussed above. It is worth mentioning that not all states have adopted a system of
―extended collective licensing, however, every CMS must be able to play its role as
an intermediary between production and consumption on the music market. To
play this role effectively, the CMS must be able to authorise its clients to use the
global repertoire on the conditions that every effort is made to be the owner or
assignor of the repertoire. A role CMS in developed world have played very well
using approved international documentation system such as the CISAC CAP/IPI
documentation system.
Although clients in Ghana and all developing countries presume CMS in
their territories possess such mandate and on that assumption use the global
36
Collective Management of Copyright and Related Rights in Music:
A Case Study of the United Kingdom and Ghanaian System
________________________________________________________________________________
repertoire, COSGA has not been able to effective manage the global repertoire as
mentioned above. This is an area that needs rethinking in collective administration
of such rights vis-á-vis authorisation for public performance. There is at the
moment a regime of “free commercial usage musical works” by TV and radio
stations62 for economic benefits without corresponding remuneration to authors
who created such works. It is worth mentioning that this practice of ―free usage of
musical works‖ for commercial activities at the detriment of authors cannot, in the
imagination of any fair minded person, constitute permitted or fair use under the
current copyright dispensation.63 Efforts should therefore be made to correct such
practices which are not only detrimental to the creative industries but also
discourages foreign investment flow into Ghana and other developing countries.
It is also worth adding that whilst management of such global repertoire must
be encouraged, care must be taken to ensure that agreements that would be reached
between sister CMS to promote global repertoire are without ―customer allocation
clauses‖ or ―territorial restriction clause.‖64
Management of such global repertoire must, however, be encouraged without
―customer allocation clauses‖ or ―territorial restriction clause.‖65
4. CLIENTS – RELATIONSHIP WITH CLIENTS
4.1. Contract with Clients
The paper will be incomplete without a comment regarding clients of CMS.
Indeed - like every corporate entity - CMS have their own clients. As a matter of
fact, all those who use music for professional or commercial purposes should be
treated as partners of the authors‘ society in the music market – or as ―clients‖ and
not as ―users‖66 – the word ―user‖ which has been used in the development of CMS
system conveys lack of respect for these major partners who play crucial role in
making authors works available to the public. Broadcasting organisation and other
users relied on the consent of CMS in order to be able to carry out their duties; the
clients were often seen as subservient or inferior in relation to these authors‘
societies. CMS thus were often seen as awkward; in their arbitrary billing system
which often left clients with missed feeling after their first contact with CMS as is
62
Ghana at the moment has 47 authorised TV stations and 217 F.M. stations with total of 177 radio
stations in operation. Source Ghana‘s National Communication Authority website:http://www.nca.org.gh/index.php?option=com_content&view=article&id=199&Itemid=113
(visited 17th February 2010)
63
See Adusei supra note 6, p25.
64
See Bonadio, supra note 51, p396 -397.
65
See Bonadio, supra note 51, p396 -397.
66
See Uchteenhagen, supra note 27, p12
Alfred Kumi-Atiemo
37
_______________________________________________________________________________
being witnessed in Ghana at the moment. CMS often solely took decisions whether
or not to authorise a client the use of its repertoire and fixed the royalties as they
deemed fit.
For decades numerous CMS, particularly in developing world, have not
signed contracts with clients. Clients were unilaterally ―authorised‖ and their
obligations took the form of conditions for the grant of authorisation. And in
extreme cases as is still the case in Ghana, the authorisation was combined with the
invoice issued after the royalty had been paid. This created tensions and
disagreements which much often than not worked against CMS not only from the
point of view of clients but also from the point of view of antitrust authorities, as
this unilateral method of authorisation was accompanied by legal failings. As stated
above, clients relation building based on trust and confidence is a major area CMS
in developing countries including COSGA would need support from their
developed counterparts to build to enable CMS in developing countries to succeed.
5. CONCLUSION
In conclusion, the failure of CMS in Ghana and most developing countries
does not mean the CMS system is not workable; the system has worked over a
century and half in developed countries in the creative industry especially in the
music industry. The failure of CMS in Ghana and for that matter for some
developing countries are due to a number of factors, some of which have been
summed up by Dr. Poku Adusei in his article67 as follows:- first, the fight against
capitalist interests, since time immemorial, has never been easy to surmount;
secondly, the failure of the musicians to establish vibrant collective societies to
pursue a common legal cause; thirdly, the failure of institutions such as the
Musicians Union of Ghana (MUSIGA), the National Communications Authority
(NCA), the National Commission On Culture (NCC), the Ministry of Justice and
the courts to enforce the legislative framework to the core.‖ The net effect has been
negative on the music industry as musicians are unable to get equitable
remuneration for commercial use of their works.
All hopes are not lost:- Ghana is currently working on a new regulation to
govern the activities of CMS and, the legislators may help to strengthen the new
CMS that will be formed to function well and avoid any ambiguity that have
confronted management of rights in Ghana over the years. This can be done by
detailing in the regulation of what can be managed and what cannot be managed by
a CMS in Ghana.68 As stated above management of global repertoire must also be
encouraged in developing countries also ―customer allocation clauses‖ or
―territorial restriction clause.‖ These CMS should be encouraged to make efforts to
be the depository of the global repertoires as being done by the European
67
See Adusei, supra note 6, p25
Section 49(3) provides that ―the he Minister may by legislative instrument make Regulations for
the formation, operation and administration of societies‖.
68
38
Collective Management of Copyright and Related Rights in Music:
A Case Study of the United Kingdom and Ghanaian System
________________________________________________________________________________
Commission in the EU instead of allowing proliferation of CMS to manage each
economic right. It however should be stressed that the trilogy of economic rights
for each category of work can be exercised either by the author him/herself or by a
national CMS, authorised for this purpose and placed rather under State
surveillance.69 Thus excluding any form of dissent and any two-track system which
is being agitated for in Ghana today by stakeholders; authors are already aware of
the alternative between the individual exercise of their rights and collective rules
governing these rights.
To conclude, CMS so formed should be encouraged to make efforts to be the
depository of the global repertoires in the category of work set up to managed.
However, such efforts should in no way affect authors of their right to become
members of a CMS of their choice or limit clients in their choice to any
monopolistic CMS established in their operational territory. A comprehensive
system of reciprocal representation contracts based on the CISAC/BIEM70 models
between CMS would allow the author to become a member where he/she wishes
and clients to obtain authorisation of CMS of their choice without weakening the
system. Whatever the author‘s place of membership, his/her works will form part
of the global repertoire and wherever a client chooses to seek authorisation from, it
might still have access to the global repertoire and/or multi-territorial license. The
freedom of membership and clients corresponds to the element of free competition
between CMS which affects neither their monopoly position “de jure or de facto”,
nor the content of the global repertoire.
Again, in order to cut short any arbitrary attempt, a good number of
legislators especially in Europe have stipulated a legal constraint obliging authors‘
societies to consent any use of music in their repertoire, which would be requested
by all clients willing to pay the fee charged irrespectively of their operational
territory. This legal constraint is a clear indication that any arbitrary consideration
must be eliminated from CMS. The new CMS in Ghana must learn from such best
practices and domesticate it in their interest.
Furthermore, CMS now negotiate contracts and tariffs71 simultaneously with
client and in most cases with associations on behalf of their members. The resultant
negotiation is then submitted for approval or amendment by a competent authority.
This practice has helped to reduce the tension, if not eliminated, as through the
combination a situation is avoided in particular where contradictory opinions on
certain tariff-related provisions again become inflamed during the discussion of the
69
COSGA‘s failure is due to lack of proper supervision by the then National Commission on
Culture and the Copyright Office.
70
CISAC was defined at the beginning of the paper. BIEM however is defined as the International
Bureau of Societies Managing Recording and Mechanical Reprographic Rights.
71
Tariff means the determination of the royalties applicable to a particular circle of clients for the
use of music during a particular period. The good experience acquired from international best
practices is that tariffs are often based on a percentage of the income of a client.
Alfred Kumi-Atiemo
39
_______________________________________________________________________________
content of the contracts. There is an appreciable difference between a client who
undertakes through its signature to pay a tariff-related royalty and a client who does
not respect an authorisation condition. The author recommends that developing
country CMS adopt such approach to avoid animosity which has characterised their
operations. The publication of Dr. U. Uchtenhagen, ―the Setting-up of New
Copyright Societies: Some Experiences and Reflexions,‖ can be of immense
benefit in that direction. CISAC would also need to strengthen its technical
cooperation towards capacity building of CMS in developing countries including
Ghana to make the CMS much more effective and relevant in the 21st Century.
Finally, the author recommends the adoption of an international treaty under
the auspices of WIPO, which could be called “WIPO Collective Management
Organisation Treaty (WCMOT)”. To be spearheaded by WIPO and CISAC for
CMS operations. Such a treaty could be seen as a special treaty of the Berne
Convention72 like the WIPO Copyright Treaty (WCT) to govern the activities of
CMS. It will replace the WIPO guidelines73 on CMS and technical assistance
provided for such CMS, which have not been helpful particular to developing
countries like Ghana.
72
Article 20 of the Berne Convention (1971) provides ―… countries reserve the right to enter into
special agreements…‖ Also article 1(1) of the WCT states, ―This Treaty is a special agreement
within the meaning of Article 20 of the Berne Convention…..‖
73
For up to date information on technical assistance see WIPO publication No. PCIPD/1/7 of the
Permanent Committee on Cooperation for Development Related to Intellectual Property
on ―Promotion and Development of Collective Managemen t of Copyright and Related
Rights.
40
Collective Management of Copyright and Related Rights in Music:
A Case Study of the United Kingdom and Ghanaian System
________________________________________________________________________________
BIBLIOGRAPHY
F.M. Abbott - T.H. Cottier – F. Gurry, International Intellectual Property in
an Integrated World Economy, Aspen Publishers, 2007
WIPO Intellectual Property Hand Book, Administration of Copyright, WIPO
Publication No. 489(E)
M. Ficsor, Guide to the Copyright and Related Rights Treaties administered
by WIPO & Glossary of Copyright and Related Rights Terms, WIPO Publication
No. 816
U. Uchtenhagen, the Setting-up of New Copyright Societies: Some
Experiences and Reflexions, WIPO Publication No. CD 926
M. Fiscor, Collective Management of Copyright and Related Rights, WIPO
Publication No. 855(E)
U. Uchtenhagen, Copyright Collective Management in Music, WIPO
Publication No. 789(E)
D. Gervais, Collective Management of Copyright and Related Rights, Kluwer
Law International 2006
P. Adusei, The Evolution of Ghana‘s Copyright Regime Since Independence:
A Critical Appraisal published in Ghana Law Since Independence, History,
Development and Prospects, UGFL 2007
M. Ricolfi, Individual and Collective Management of Copyright in the
Digital Environment, polished work 2008
M. OUMA, Copyright and the Music Industry in Africa, in JWIP 2004, 919 ff.
J. Asein, Nigeria Copyright Law and Practice, Abuja, 2004
H. Cohen Jehoram, The Future of Copyright Collecting Societies, EIPR,
2001, 134ff.
P. Florenson, Management of Authors‘ Rights and Neighbouring Rights in
Europe, in RIDA 2003, 2 ff.
E. Bonadio, Copyright Collective Licensing and the EU initiatives in the online music field, in DANTe 2006 ff
P. Gillierson, Collecting Societies and the Digital Environment, in 37 IIC
2006, 939-969
Alfred Kumi-Atiemo
41
_______________________________________________________________________________
P. Adusei, K. Anyimadu-Antwi, M. Halm, Ghana Country Report, African
Copyright and Access to Knowledge (ACA2K), 2009
The English Copyright, Designs and Patent Act 1988
Copyright Law of Ghana, PNDC Law 110 of 1985
Copyright Society Regulation L.I.1527
Copyright Act 690, (2005)
M.M. Frabboni, A Difficult Future for Reform on Collective Management of
Rights, Entertainment Law Review, 2005, 144-148
M.M. Frabboni, The current discussion on collective management of rights in
the EU, Economic Concerns, paper presented at the Workshop on the Law and
Economics of Intellectual Property and Information Technology, July 22-23 2005,
Universitá Carlo Cattaneo Castellanza LIUC 7 (available at
http://www.liuc.it/ricerca/istitutoecomicsjuly2005/papers/frabboni_LIUCpaper.pdf
)
M.M. Frabboni, Cross Border Licensing and Collective Management: A
Proposal for the On-Line Context, in Entertainment Law Review, 2005, 16 (8), 204
M.M. Frabboni, Online Music Licensing, the calm after the storm,
Entertainment Law Review, 2006, 17 (2), 65-69.
TECHNOLOGICAL PROTECTION MEASURES FOR DIGITAL WORKS:
A LEGAL ANALYSIS
by
Author: Márcio Mello Chaves
Advisor: Giancarlo Frosio
TABLE OF CONTENTS
1.
INTRODUCTION
2.
BRIEF TECHNOLOGY CLARIFICATION
a. Digitization of Works, Internet and the Access to Contents
b. Technological Protection Measures
i. Technological Protection Measures on Digital Works
c. Digital Rights Management (DRM)
d. The Analog Hole
3.
LEGAL BACKGROUND
a. Anti-circumvention Provisions
b. Users' Rights and Public Interest
i. Introduction to Fair Use and Legal Exceptions to Copyright
ii. Visually impaired Exceptions
a. Recent Trends at the International Level
4.
KNOWLEDGE PROTECTION
a. Content Protection of Digital Works
b. Digital Libraries
5.
CONCLUSION: TPM vs Users' Rights and Public Interest: Who Should
Prevail?
6.
BIBLIOGRAPHY
44 Technological Protection Measures for Digital Works: A Legal Analysis
___________________________________________________________________________
1. INTRODUCTION
On a traditional point of view in the field of Intellectual Property Rights or
IPRs, copyrights have as a main objective the incentive to authors and artists in
general to create, granting a temporary, economical monopoly on their creations
and is called the dynamic benefit. This traditional overview has been updated by
new analysis concerning the static point of view. According to that doctrine, the
static benefit allows IPR owners to overuse property rights based on the right to
exclude others from using the protected works1.
Such monopoly, granted by the country where the creation occurred, has to
be enforced by the IPRs owners, which have the burden of actively policing
infringement on every territory (principle of territoriality) on the limits on the
jurisdictional reach of laws and regulatory actions of countries.2 In addition, the
digitalization of works such as music and movies had a tremendous impact on
those industries when technology switched from analog to digital, with global
reach of illegal distribution.
As consequence of such burden, IPR owners take measures to control the use
of their digital works in the online environment through technology, measures
which could be grouped into two separate categories: (i) measures that are
deployed to limit access to protected content to users who are authorized to such
access, such as cryptography, passwords and digital signatures; and (ii) measures
that are deployed to control the use of protected content once users have access to
the work.
In the digital world, however, the scenario becomes more complex due to the
ease to copy. In that matter, an effective way to avoid piracy has been the usage of
Technological Protection Measures (TPM), the object of the present study. Such
active rather than passive enforcement has undeniable benefits for IPR owners as it
reaches the problem's cause instead of its consequences.
Aside from the effectiveness brought by the TPM to the works in the digital
format, some of the tools used deserve a special attention due to the consequences
of an abuse of the IPRs that could affect copyright exceptions. In this study, the
user‘s rights and public interest will be the focus. In particular, I will review the
conflict between two counterpoising interests: the right to enforce IPRs by means
of TPM versus User‘s rights and Public Interest.
Another important issue to be addressed is the legislation that concerns
Information Technology and shares common problems from around the world. As
1
W. M. LANDES & R. A. POSER, The Economic Structure of Intellectual Property Law, Harvard
University Press, Cambridge, 2003, p. 12.
2
Idem.
Márcio Mello Chaves
45
______________________________________________________________________________
stated by MOORE3, technology develops at rampant speed, causing great
difficulties for the legislation to keep up with and resulting in last minute changes
of bills.
The scope of the present study is to analyze, technically and legally, the TPM
in the digital environment. The technical analysis will be toned down to allow
better understanding of the legal analysis.
The prevention of IP infringements by technological means is one of the most
dynamic areas related to the enforcement of intellectual property rights, in both the
legal and technological arenas. Faced with an ongoing period of dramatic
commercial losses caused by counterfeiting and piracy as well as IP infringements
in general, IP right owners have made over the past years, vast efforts to develop
measures and technologies aiming to protect their products from being copied.
New technologies usually bring challenges, but also opportunities: (i) the
visually impaired and the organizations which provide to them access to
information and knowledge have on technology a great ally; (ii) libraries have
changed their traditional view of being a simple collection building for provision
and preservation of printed material activities to become providers of material in
alternative formats, such as audio books or digitized material.
As I will propose, works under TPM, including those under Digital Rights
Management – DRM – can invert the logistics of the authorizations required to
have access to them through copyright exceptions for users rights (i.e. fair use) and
public interest (i.e. the visually impaired, digital libraries). The exercise of
copyright exceptions for their benefit allow under certain conditions the use of a
work without any authorization, but works under TPM could require such
authorization to avoid breaching anti-circumventing legislation. As an effect, ―the
exercise of exceptions for the benefit of the visually impaired, including the
operation of the libraries for the blind, has been affected by important shifts
regarding the copyright protection of works in the global information
infrastructure‖.4
At last, it is crucial to explain the interdisciplinary importance and context of
this study. Computer technicalities can seem extremely complicated to the law
student; the same way, legal technicalities have the same effect on computer
engineering students. The challenge faced by the current study is to find a simple,
yet complete on its terms, explanation, since technical terms do not facilitate law
interpretation and vice versa.
3
Moore's theory suggests that computer's processing capacity doubles every two years. G. Moore E.
Cramming more components onto integrated circuits. Electronics Magazine, 1965.
4
G. LUNG, Copyright Exceptions for the Visually Impaired - International Perspective, lecture
presented in the 70th IFLA General Conference and Council, Buenos Aires, 2004.
46 Technological Protection Measures for Digical Works: A Legal Analysis
________________________________________________________________________________
2. BRIEF TECHNOLOGY CLARIFICATION
a.
Digitization of Works and the Internet
Technologies have major developments from time to time, drastically
changing previous technologies. The digitalization phenomenon and the internet
are two of those examples and to better understand the current situation faced by
this study it is of great importance to first analyze their how they affected IPRs.
Technology made possible to convert works such as music, movies or books
beyond mere human capacity. Computer language converted images and sounds to
zeros and ones (0, 1), making possible to obtain perfect copies of works in digital
format.
But the digitalization of works mentioned above alone did not cause the
digital revolution that currently challenges IPR owners. Many of the current
problems, especially in the uncontrollable levels faced nowadays, happened due to
the widespread use of the Internet, beyond any prediction.5 Over the last years, the
growing access to personal computers caused the Internet to grow exponentially.
The Internet is being used by approximately 1.73 billion people worldwide,
representing 25.6% of the world population with a 380.3% growth since 2000,
being of great importance to individuals and the global society as a whole, with
economic, cultural and, inevitably, legal impacts.6
b.
Technological Protection Measures
TPM are technological methods, which certify the authenticity (physically) or
control the access to or the use of a copyrighted work (digitally), and hence
facilitate authorized use of copyrighted material. Although this study will focus on
the second type of TPM, a brief explanation on the first type will be given for
illustration and better understanding.
As stated before, enforcement of IPRs are crucial to any IPR owner and, as a
way to better identify legitimate copies of works, distinguishing them from
counterfeited illegitimate ones, physical TPM were developed. Holograms,
stickers, microscopic labels, or banderoles, placed on products prior to their
distribution on the market are common examples largely used.
5
J. KANG, History of the internet: internet basics and protocols.
http://law.ucla.edu/faculty/kang/scholarship/scholarship.htm. defending an academic origin which
followed the military network ARPANET in the sixties as an alternative to unique and centralized
computer storage to military data. Based on the open structure and broad usage, scientists
exchanged research data using the later called ARPA-INTERNET for academic purposes only. In
order to make the data transmission, which was inconsistent due to the great variety of computers
and Operational Systems (OS), uniform, the TCP-IP protocol was developed.)
6
World Internet Stats – Use and Population Statistics, 2010, available at
http://www.worldinternetstats.com.
Márcio Mello Chaves
47
______________________________________________________________________________
Physical TPM therefore enable customers and authorities to be aware of the
legitimacy of a product, reacting when facing infringing content on the market.
Nonetheless, they can be forged in a way that confuses both users and authorities.
Besides simple stickers, far more complex stamps with holograms are
created, which can be relatively costly and hard to forge, but are also produced by
counterfeiters, making it harder to both users and authorities to identify illegitimate
products. 7
Digital TPM, on one other hand, can be grouped into two separate
categories8: (i) measures that are developed to limit access to protected content to
users who are authorized to such access, such as cryptography, passwords and
digital signatures; and (ii) measures that are deployed to control the use of
protected content once users have access to the work.
DRMs, on the other hand, are sophisticated systems9 inserted into the
lifecycle of the copyrighted work, usually including a set of technological tools for
protecting the content as well as monitoring the users' behavior and controlling
payment terms.
i. Technological Protection Measures on Digital Works
The TPM used in the digital works are highly developed as result of their
easiness to make perfect copies of digital content. Digital systems such as the
binary codes, are represented by zeros (0) and ones (1), hence making possible the
reproduction of works perfectly despite the number copies or the media it was
fixed.10
As IPRs owners have the burden of actively policing every territory in which
infringement occurs, its enforcement simply treats the symptoms of the disease
and, as most of the medical treatments, it can be really expensive to its rightful
owners.
That analogy was followed on January 1986, when two Pakistani
programmers, released one of the first computer viruses in history, the ©Brain.11
7
Good examples of complex holographic stamps are in the Microsoft`s products with the Certificate
of Authenticity – COA, that vary from versions, sellers and products. Available at:
http://www.microsoft.com/howtotell/content.aspx?pg=coa
8
See in general on TPM in R. ARIDOR-HERSHKOVITZ, Antitrust Law – A Stranger in the
Wikinomics World? The John Marshall Journal of Computer and Information Law, 2010.
9
Idem.
10
See in general on digital TPM in R. TOCCI, Digital Systems: Principles and Applications.
Prentice Hall, 2006.
11
The ©Brain (also know as Lahore, Pakistani, Pakistani Brain, Brain-A, UIUC and the Pakistan
Flu), was created to stop and track pirate copies of the Farooq Alvi brothers‘ heart monitoring
program for the Apple //e series. The ―virus‖ came with the users‘ address, phone numbers and a
message telling the user that their machine was infected and, for inoculation, the user should call
them. The company owned by Basit and Amjad, was sued for damages right after receiving phone
48 Technological Protection Measures for Digical Works: A Legal Analysis
________________________________________________________________________________
What could be seen as just a prank or a demonstration of computer knowledge was,
in fact, not only the first MS-DOS computer virus but also, the first technological
protection measure in the software industry.12
That first example of TPM was then followed by a series of TPM such as
serials and encryption methods by the high-tech industry, with a far less negative
impact on their users. The easiness to copy digital content demanded additional
legal protection and its failure came with the Content Scrambling System
technology, CSS13, to the Digital Versatile Disk, DVD. In 1999, shortly after the
popularity of DVD players in the USA, this TPM tool, sponsored and developed by
the main entertainment and high-tech companies and supposedly inviolable, was
circumvented by a 15-year old programmer, Jon Lech Johansen, later known as
DVD-John.14
Nowadays, digital TPM are very well developed. Ironically, the same internet
that helps to disseminate illegitimate copies of digital works now helps IPR
owners: through online software authentication, up-to-date technological protected
content confronts legitimate licenses with the illegitimate copies, as an attempt to
block unauthorized use of such digital works. This type of digital TPM has had
good results once that it is usually used when installing or updating software, but is
limited to this kind of content.
c.
Digital Rights Management (DRM)
The term digital rights management or DRM is a general term, which means
management of works to, digitally or not (e.g., use of access codes to limit use of
photocopiers), include copy restrictions. DRM inserts on digital works digital
licensing agreements, digitally setting legal permissions to establish what one can
and cannot do.15
It is mostly important to mention that DRM itself is not the copy protection
that TPM include on works16, but only relies on them to control and/or restrict the
calls from several countries demanding that they disinfect their PCs and, shortly thereafter, the
company was quickly dissolved. R. FORD & E. H. SPAFFORD, Happy Birthday, Dear Viruses,
Science Magazine, 2007, p. 210.
12
Idem.
13
See in general on CSS technology in the DVD Copy Control Association website: http://
http://www.dvdcca.org/css/.
14
Jon Lech Johansen, Jon Lech Johansen's blog. Available at http://nanocr.eu/. For more
information on the CSS related U.S. cases, see Universal City Studios v. Reimerdes (S.D.N.Y. 2000)
and Universal City Studios, Inc. v. Corley (2nd Cir. 2001).
15
See in general on Digital Rights Management in P. AKESTER. Technological accommodation of
conflicts between freedom of expression and DRM: the first empirical assessment. Social Science
Research Network, 2009.
16
R. ARIDOR-HERSHKOVITZ. Antitrust Law – A Stranger in the Wikinomics World? The John
Marshall Journal of Computer and Information Law, 2010, p. 02.
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use and access to digital content on electronic devices with such technologies
installed.
DRM is applied to enforce limitations on the use and transfer of copyrighted
digital content. MP3 and AAC songs, JPEG and GIF pictures, MPEG and DivX
videos, Playstation, Wii and PC games, are some of the formats in which DRM that
have in their lifecycle a set of technological tools for protecting the content. The
technological tools set in the DRM works can be used to even monitor the user
behavior and control payment terms.17
DRM technology can be classified as (i) first-generation or (ii) secondgeneration: the first is merely sought to control copying, while the second seeks to
control viewing, copying, printing, altering or using in any other way that digital
content18.
A very well known example of a DRM that uses TPM is the Apple‘s
FairPlay, which consists on encrypting Advanced Audio Coding (AAC) to control
the access to copyrighted works. It imposes licensing schemes through several
restrictions on the use of the AAC encrypted files such as the number of devices a
song can be played.
d.
The Analog Hole
The analog hole or analog loophole19 or reproduction problem is considered a
fundamental and inevitable vulnerability in copy protection schemes for
noninteractive (software is excluded) works in digital formats which can be
exploited to duplicate copy-protected works that are ultimately reproduced using
analog means. 20 It is based on the fact that it is simply impossible to
simultaneously display and conceal a signal. In particular, an audio signal must be
converted to analog before it reaches the speaker/screen.21
Once digital information is converted to a human-perceptible (analog) form,
it is a relatively simple matter to digitally recapture that analog reproduction in an
unrestricted form, thereby removing any restrictions placed on copyrighted work. It
17
P. AKESTER, supra, p. 15.
P. AKESTER, supra, p. 15.
19
See in general on analog hole in D. SICKER, P. OHM & S. GUNAJI, The Analog Hole and the
Price of Music: An Empirical Study. Journal on Telecommunications and High Technology Law,
2007.
20
The term "analog hole" was first popularized by the Motion Picture Association of America and
some of its members during speeches and legislative advocacy in 2002; this term later fell into
disrepute within the industry after it was abbreviated to "a. hole" (which was misconstrued as an
allusion to the word asshole), thus being replaced by analog reconversion problem, analog
reconversion issue and similar terms.
21
L. M. EZRA.The Failure of the Broadcast Flag: Copyright Protection to Make Hollywood
Happy. Hastings Communications and Entertainment Law Journal, 2005, p. 384.
18
50 Technological Protection Measures for Digical Works: A Legal Analysis
________________________________________________________________________________
is usually followed by quality loss of the work copied, which many times result in a
low percentage of use among copyright exceptions beneficiaries.22
Although the technology for creating digital recordings from analog sources
has existed for some time, it was not necessarily viewed as a "hole" until the
widespread deployment of TPM. For example, bootleg films may have poor audio,
or highly washed-out video.
At a minimum, copy protection can be circumvented for types of material
whose value is aesthetic, and does not depend on its exact digital duplication. In
general, performing a digital-to-analog conversion followed by an analog-to-digital
conversion results in a worse quality copy, except if used high quality conversion
equipment to reduce the loss of quality, to the point where such noise is essentially
imperceptible to the human senses. For instance, playing a video in a DVD player
and using a DVD recorder to record the output can create a high-quality copy of the
video.
Regardless of any digital or software copy control mechanisms, if sound can
be heard it can also be recorded using a microphone. And if images such as pictures
or movies can be seen by the eye, they can also be recorded by a camera. For texts,
the image can be converted back to text using optical character recognition (OCR).
The movie industry legally tried to eliminate the analog hole23.
Technologically, IPR owners tried to block the analog hole by degrading analog
signals to interfere with some recording devices.24 Some vendors claim to have
developed equivalent techniques for preventing recording by video capture cards in
personal computers. Recording devices can be required to screen analog inputs for
watermarks (or Macrovision or CGMS-A) and limit recording as a condition of
private contracts. Set-top boxes can have its analog outputs entirely disabled, or to
degrade the analog output quality, when particular programming is displayed.25
Despite the fact that the abovementioned technologies can be quite advanced
and beyond the capacity of most people to circumvent them, in theory it is possible
to bypass all these measures by constructing a player that creates a copy of every
22
See D. SICKER et al., supra, p. 05.
In 2002 and 2003, the U.S. motion picture industry publicly discussed the possibility of
legislation to "close the analog hole" — most likely through regulation of digital recording devices,
limiting their ability to record analog video signals that appear to be commercial audiovisual works.
These proposals are discussed in the Content Protection Status Report, User Broadband and Digital
Television Promotion Act, and Analog Reconversion Discussion Group.
24
Macrovision attempt to defeat recording by VCRs by outputting a deliberately distorted signal,
crippling the automatic gain control for video, causing the brightness to fluctuate wildly.
25
P. ARKESTER, Technological accommodation of conflicts between freedom of expression and
DRM: the first empirical assessment, Centre for Intellectual Property and Information Law,
Cambridge, 2010.
23
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frame and sound it plays.26 Motion Picture Association of America has even
recommended the use of a camcorder as an alternative to circumventing the
Content Scrambling System on DVDs for educational purposes, indicating that this
technique could have acceptance when dealing with copyright exceptions. 27
3. LEGAL BACKGROUND
The internet global reach also enhanced international integration, challenging
jurists to the applicable law. Nonetheless, intellectual property law has the
advantage of being rather recent, thus conceived with a different perspective and
nowadays with legal standards imposed by International Treaties, subject to
examination on this chapter.
In this scenario, two conflicting interests received legislative treat: (i) the
anti-circumvention legislation and (ii) the user‘s rights for fair use and the public
interest of the visually impaired and the libraries exceptions to copyrights,
appearing internationally in the WIPO Treaties, with proportional effects on
national legislations.
Since the goal of this study is to give an international overview on this
matter, three main groups of legislation will be analyzed: (i) international treaties,
(ii) the American legislation and (iii) the European Union legislation. The three
legislation different levels are important to show the wide acceptance of the TPM
and the necessary legislative changes that could be required to insert previsions to
the copyright exceptions.
Before reaching a conclusion on this topic, it is mandatory for the present
study to describe some the most important legal background behind TPM.
a.
Anti-Circumvention Provisions
i. WIPO Treaties – The WCT and the WPPT
Starting with the international level legislation, two WIPO treaties dated from
1996 need to be mentioned: the Copyright Treaty (WCT) and the Performance and
Phonograms Treaty (WPPT), recently ratified by the European Union.28
Known as ―The WIPO Treaties‖ they entered into force in 2002 establishing
an international legal framework for TPM.29 The two treaties state in their
26
Nonetheless, certain contents could not be benefitted by the analog hole. For obvious reasons,
interactive works such as videogames cannot be circumvented through analog reconversion
methods, which can copy signals only, not the rules used to generate those signals.
27
J. CHENG. MPAA: teachers should videotape monitors, not rip DVDs. Ars Technica, 2009.
28
The EU ratified the WIPO Internet Treaties on December 14 th, 2009.
29
A status quo of the implementation as of April 01, 2003, can be found in a WIPO Survey on
Implementation Provisions of the WCT and the WPPT.
52 Technological Protection Measures for Digical Works: A Legal Analysis
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―Obligations concerning Technological Measures‖30 chapter that counties shall
provide adequate legal protection and effective legal remedies against the
circumvention of effective technological measures in connection with the exercise
of rights under these Treaties or the Berne Convention and that restrict acts, in
respect of their works, which are unauthorized concerned or permitted by law.31
However, WIPO Internet treaties implementation in national legislation has
provided sometimes rather different solutions to the treaties‘ obligations. Acts of
circumvention or preparatory acts or making available of equipment aiming to
circumvention, legal remedies that are provided for the interrelation between the
use of technological protection measures and the limitations and exceptions of
copyright, i.e. for educational purposes, are some of the differing known legislative
solutions. These last may render more difficult when protection measures for
copyrighted content are deployed and require well-balanced legislative solutions.
ii. United States Legislation
The American legislation concerning DRM is commonly analyzed due to its
impact on technology. Approved in 2001, the Digital Millennium Copyright Act
(DMCA) created an extra protection to copyrighted works in the digital era and
complied with the WIPO Internet Treaties, amending Title 17 of the U.S. Code
with the § 1201 ―Circumvention of copyright protection systems‖.
According to the §1201, owners of a valid copyright on a work, effectively
controlled by a technological measure are protected from having it circumvented to
allow third parties to access without authorization. Therefore if a product is
designed or produced primarily for circumvention, made available despite only
limited commercial significance other than circumvention or marketed for use in
circumvention of the controlling technological measure, it infringes the right
protected by the DMCA.
Despite the explicit provision that states the prohibition of anti-circumventing
technologies, Article 17 of the U.S.C. § 1201(a)(1) requires that the Librarian of
Congress issue exemptions32 from the prohibition against circumvention of accesscontrol technology. Such exemptions,33 which have to be revised and renewed
every three years, have to be granted when access-control technology has had a
substantial adverse effect on the ability of people to make non-infringing uses of
copyrighted works.
30
Article 11 of the WCT and Article 18 of the WPPT.
Idem.
32
See generally on Copyright Exemptions in W. HARTZOG. Falling on Deaf Ears: Is the "FailSafe" Triennial Exemption Provision in the Digital Millennium Copyright Act Effective in
Protecting Fair Use? Journal of Intellectual Property Law, 2005. Recommendations on Section
1201(a)(1) title 17, of the United States Code.
33
In 2000 there were only two exemptions, number that doubled in 2003 and tripled in 2006.
Exemption history and full text can be accessed in http://www.copyright.gov/1201/.
31
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The six current exemptions (2006)34 are: (i) non-profit libraries, archives,
educational institutions35, (ii) law enforcement, intelligence, and other government
activities, 36 (iii) reverse engineering, 37 encryption research,38 exceptions regarding
minors39, protection of personally identifying information,40 security testing 41 and
certain analog devices and certain technological measures.42
iii. European Union Legislation
The European Union Legislation concerning TPM is located in the
2001/29/European Copyright Directive from May, 22nd. Articles six makes
reference to the protection of technological measures designed to prevent or restrict
acts, in respect of works unauthorized by IPR owners.
The directive defines Technological Measures as ―any technology, device or
component that, in the normal course of its operation, is designed to prevent or
restrict acts, in respect of works or other subject matter, which are not authorized
by the right holder of any copyright or any right related to copyright as provided
for by law or the sui generis right provided for in Chapter III of Directive
96/9/EC‖.43
It also demands that the technological measures must be ―effective‖, through
application of an access control or protection process, such as encryption,
scrambling or other transformation of the work or other subject matter or a copy
control mechanism, which achieves the protection objective.44
This directive states in article 6 of the ―Obligations as to technological
measures‖ that Member States shall provide:
(i) adequate legal protection against the circumvention of any effective
technological measures, which the person concerned carries out in the
34
See generally on Copyright Exemptions in W. HARTZOG. Falling on Deaf Ears: Is the "FailSafe" Triennial Exemption Provision in the Digital Millennium Copyright Act Effective in
Protecting Fair Use? Journal of Intellectual Property Law, 2005. Recommendations on Section
1201(a)(1) title 17, of the United States Code.
35
Section 1201(d) title 17, of the United States Code.
36
Section 1201(e) title 17, of the United States Code.
37
Section 1201(f) title 17, of the United States Code.
38
Section 1201(g) title 17, of the United States Code.
39
Section 1201(h) title 17, of the United States Code.
40
Section 1201(i) title 17, of the United States Code.
41
Section 1201(j) title 17, of the United States Code.
42
Section 1201(k) title 17, of the United States Code.
43
Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the
harmonization of certain aspects of copyright and related rights in the information society.
44
Article 6 (1) of the Directive 2001/29/EC.
54 Technological Protection Measures for Digical Works: A Legal Analysis
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knowledge, or with reasonable grounds to know, that he or she is pursuing
that objective; and
(ii) adequate legal protection against the manufacture, import, distribution,
sale, rental, advertisement for sale or rental, or possession for commercial
purposes of devices, products or components or the provision of services.
In addition, these last must be promoted, advertised or marketed for the
purpose of circumvention, have only a limited commercially significant purpose or
use other than to circumvent and be primarily designed, produced, adapted or
performed for the purpose of enabling or facilitating the circumvention of, any
effective technological measures.
At last, as a main provision to the present study, the directive determines that
in the absence of voluntary measures taken by IPR owners, including agreements
with other parties concerned, countries must take appropriate measures to ensure
that they make available to the beneficiary of an exception or limitation provided
for in national law the means of benefiting from that exception or limitation, to the
extent necessary to benefit from that exception or limitation and where that
beneficiary has legal access to the protected work or subject matter concerned.45
Such prevision therefore assures the rights originated in the fair use doctrine
and the visually impaired exceptions, further analyzed in the following topics.
b.
User's Rights and Public Interest
i. Introduction to Fair Use and Legal Exceptions to Copyright
Despite of not being the core of this study, it is mandatory to contemplate
some concepts of the Fair Use exceptions to Copyright legislation46. In American
copyright law,47 the fair use doctrine establishes the conditions under which the
IPRs owners do not need to be asked for permission, allowing third parties to use
copyrighted works as long as four conditions are observed48:
45
Idem at n. 44.
See in general on fair use doctrine in T. K. ARMSTRONG, Digital Rights Management and the
Process of Fair Use. Harvard Journal of Law & Technology, 2006.
47
Although the doctrine only existed in the U.S. as common law until it was incorporated into the
Copyright Act of 1976, 17 U.S.C. § 107, the legal concept of "test copyright" was first ratified in the
British 1709 Statute of Anne followed by the courts creation of the doctrine of "fair abridgment" in
Gyles v Wilcox, evolved into the modern concept of fair use.
48
The four fair use factors where firstly introduced by the classic opinion of Joseph Story in Folsom
v. Marsh, 9 F.Cas. 342 (1841), in which the defendant had copied 353 pages from the plaintiff's 12volume George Washington biography in order to produce a two-volume work.
46
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(i) the purpose and character of the use, including whether such use is of a
commercial nature or is for nonprofit educational purposes;
(ii) the nature of the copyrighted work;
(iii) the amount and substantiality of the portion used in relation to the
copyrighted work as a whole; and
(iv) the effect of the use upon the potential market for or value of the
copyrighted work.
Amongst the most common cases of fair use are those used for commentary,
criticism, news reporting, research, teaching or scholarship and parodies. Copyright
exceptions happened as a way of ―counterbalance the minimum standards of
protection, limiting the strict application of the rules regarding exclusive rights‖49.
Most copyright legislations worldwide hold in their texts such previsions50
but legal texts usually have a numerus clausus effect. Therefore, although
exceptions must be limited to those hypotheses, interpretations to other fair uses
arise such as user‘s rights and recent trends at international level, as occurred with
the exceptions for the visually impaired.
ii. Visually Impaired Exceptions
a.
Recent Trends at the International Level
The meeting held in December 200951 in Geneva at the WIPO‘s headquarters
turned eyes to an ever existing problem faced by the visually impaired52: getting
access to reading content made available through copyrighted works. Nearly sixty
countries 53 have statutory exceptions to allow access and conversion to Braille or
other reading formats without previous consent of authors but a global consensus is
still far from reality.
49
F.M. ABBOT; TH. COTTIER; F; GURRY, International Intellectual Property in an Integrated
World Economy, Aspen Publishers, 2007.
50
Canada, Israel, South Korea, Brazil and many other countries have specific legislative prevision
on the fair use as a direct consequence of two International Treaties: The Berne Convention (Article
9 (2), 10, 10 bis, and 11 bis (3) and the TRIPS Agreement.
51
World Intellectual Property Organization Standing Committee on Copyright and Related Rights
(SCCR) Nineteenth Session, December 14-18, 2009.
52
The term visually impaired persons refers to blind or partially sighted people. According to the
World Health Organization, 161 million people worldwide are blind or visually impaired and
another 153 million have an uncorrected visual impairment, of which 87 per cent live in developing
countries.
53
Treaty Proposal made by Brazil, Ecuador and Paraguay before the Standing Committee on
Copyrights and Related Rights WIPO. WIPO Treaty for Improved Access for Blind, Visually
Impaired and other Reading Disabled Persons, Geneva, 2009. Available at:
http://www.wipo.int/meetings/en/doc_details.jsp?doc_id=122732.
56 Technological Protection Measures for Digical Works: A Legal Analysis
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The United Nations Universal Declaration on Human Rights and the United
Nations Standard Rules on the Equalization of Opportunity for Disabled People are
the main international instruments to this matter. They allow such exception to
secure the right to access information and knowledge to blind or partially sighted
people.54
As stated in the Berne Convention, the TRIPS Agreement and the WIPO
Internet Treaty, any exception for the visually impaired must pass the three-step
test, which are as follows:
(i)
(ii)
(iii)
the exception must apply to certain special cases limited to specified
groups of users and covering certain kinds of works and uses;
it must be satisfied in the sense that such uses may not have the
potential to conflict with a normal exploitation of the work and;
the use must be considered in order to determine if the exception
should be subject to a requirement to pay equitable remuneration, or
qualified as a free use.
It is important to mention that many current national copyright laws include
specific provisions addressed to this exception: the United States, in the Section
121 of the Copyright Law (the Chafee Amendment of 1996); the European Union,
on Article 5(3)(b) of the Directive 2001/29/EC on the Harmonization of Certain
Aspects of Copyright and Related Rights in the Information Society of 2001;
Brazil, in the Article 46 of the Copyright and Related Rights Law 9.610 of 1998,
among others that fall out of this study‘s scope.
The ways these exceptions are used also vary greatly from country to
country, restricting or extending them, with different types of royalties collection.
The restrictions can be to certain types of works or rights or to the inexistence of
commercially available versions.
The exceptions can be extended to governmental organizations, authorized
entities or individuals acting on behalf of the visually impaired, or any noncommercial basis for the visually impaired. The Braille system, for instance,
usually allowed free or under compulsory licenses, sometimes is extended to other
formats such as audio, large print and electronic formats.
Yet, no reference is made on those legislations to technologically protected
works and the conflict with the anti-circumventing laws, which brings in the need
to insert on international legislation specific provisions referring to that matter, as
further suggested in the conclusion of this study.
54
G. LUNG, supra n. 4.
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4. KNOWLEDGE PROTECTION
a.
Content Protection of Digital Works
History has taught us that the means of information preservation are as
important as the means to access it. Cave men‘s paintings survived thousands of
years; information stored on paper several centuries, but information stored
digitally may not be recoverable due to the rampant technology development,
which makes digital created works rapidly inaccessible.
Around seven million pages of new information are added to the Internet
every day. Scientific journals are choosing it as their primary publication venue.
Nonetheless, storage and access systems are not always compatible with the goals
of long-term preservation and access.55
As a pioneer system, the LOCKSS Program, initiated by Stanford University
Libraries, was launched to aid librarians whose mission is to build collections and
transmit today's intellectual, cultural, and historical content to the future
generations.
LOCKSS (Lots of Copies Keep Stuff Safe) is open source software that
provides librarians a way to collect, store, preserve, and provide access to their
own, local copy of authorized content. The system converts a personal computer
into a digital preservation appliance, creating low-cost, persistent, accessible copies
of web based content as it is published. Accuracy and completeness of LOCKSS
appliances is assured through a peer-to-peer polling and reputation system.
Despite the fact that Project LOCKSS only acts through express consent of
authors, the idea behind it shows really shows the reality of what could happen to
hundreds of thousands of information which could be lost due to works protected
with TPM. Preservation of this huge amount of information created exclusively in
the digital format is extremely important and could result in an important font of
data for us in a near future and to the generations to come.
b.
Digital Libraries
Technology is changing the way people deal with the once thought
unchangeable instruments: books. The nowadays so present term e-book56 is
subject to several studies, which have as main objective the possibility of a
55
See generally on Project LOCKSS at http://www.lockss.org/lockss/About_Us.
See generally on e-books in T. C. FOLSOM, Can't Stop the Signal: The Library in Space and
Transformational Copyright Law-Specifying Fair Use in the Public Interest, Social Science
Research Network, 2009 and J. T. L. GRIMMELMANN, The Google Book Search Settlement:
Ends, Means, and the Future of Books, NYLS Legal Studies Research Paper, 2009.
56
58 Technological Protection Measures for Digical Works: A Legal Analysis
________________________________________________________________________________
complete substitution of physical books, p-books, to new technological devices
from Amazon‘s Kindle to the recent Apple iPad.
Nonetheless, e-books alone do not have direct impact on copyright
exceptions for information preservation and knowledge divulgation as libraries do.
Google Books project to digitalize every book, indexing information for the
purpose of searching and selling has drawn attention to what can become
tomorrow‘s libraries.57
Libraries, which have always depended on physically preserving and storing
books, due to national statutes, started making copies of materials for research and
preservation. Now, the growing trend to content creation exclusively on electronic
format has drawn the attention to the huge amount of information that has to be
stored and organized.58
Although national legislations that have library exceptions to copyrighted
works could apply directly to e-books or to digitalization of works, TPM could also
get in the way of using such exception. Since they depend on voluntary actions
from TPM users, the road from requesting the use based on the exception becomes
tortuous and mostly uncertain, questioning the validity of the protection
measures59.
5. CONCLUSION: TPM VS USERS' RIGHTS AND PUBLIC INTEREST:
WHO SHOULD PREVAIL?
Technology has developed to give to the visually impaired and to contentprotecting libraries the opportunity to gain access to certain works which, in other
times, would be virtually inaccessible. Despite the great advantage brought by such
development, it also brought a set of technological restrictions that limit the use,
not rarely in a complete disregard to unauthorized uses protected by copyright
exceptions.
As this brief study has the objective to give an overview focused on the legal
aspects of the TPM in the digital environment, the uniqueness of this specific
market demands a specific approach from studies concerning the enforcement and
genuine use of IPRs by their owners. Excessive use of such rights through TPM
emerges as the focus of discussions.
As an attempt to follow technological development, copyright law is
constantly changing. Those changes affect both IPR owners on one hand, users and
57
The recent settlement in The Authors Guild, Inc., et al. v. Google Inc., Case in the New York
District Court brought good success probability to the Google Books Project.
58
See generally on digital libraries in T. HANNIBAL. Building Universal Digital Libraries: An
Agenda for Copyright Reform. Pepperdine Law Review, 2006.
59
P. AKESTER, supra n. 15, p. 15.
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special communities, such as libraries and the visually impaired, on the other,
bringing up the question: who`s interests should prevail?
The EU Information Society Directive made the measures required to solve
potential problems voluntary instead of compulsory.60 IPR owners complain that
one of the reasons they have not introduced voluntary measures is the absence of
legal obligation, which leads them to help beneficiaries on a case-by-case basis.
In order to achieve balance between protection of works, to allow proper
compensation for their owners and stimulate creativity, and the reasonable
exceptions for user‘s rights and public interest, legislation, nationally or
internationally, fail to present a practical and convincing solution. Technology
itself may not give the solution to this problem once that circumventing TPM have
legislative prohibitions.
In this scenario, three solutions could be given to the situation proposed: (i)
the creation of an administrative system that assures that beneficiaries from
copyright exceptions have access to the pledged digital works; (ii) the use of the
analog hole and (iii) the solely insertion on international treaties of the obligation to
embrace in the national legislations such exceptions, allowing the use of TPM
circumventing tools when not properly respected.
Although TPM has not impacted on many acts permitted by law, certain
permitted acts are being affected by their use despite of the existence of
technological solutions which enable partitioning and authentication of users to
accommodate those permitted acts through privileged exceptions.
Beneficiaries of privileged exceptions who have been prevented from
carrying out those permitted acts due to TPM brought up a legal dilemma between
the rights of IP owners to enforce their works, using the anti-circumventing legal
shield, and the interests represented by the legally protected copyright exceptions.
The current existing onus some legislations have on content owners to
accommodate privileged exceptions, making available to the lawful beneficiaries,
are simply voluntarily. The effect of a voluntary action is usually the absence of an
active conduct, which can many times simply impede beneficiaries to have access
to digital works.
The use of the analog hole could be a solution to the issue, apparently
dismissing the creation of an administrative system and/or the insertion on
international and national legislation. Nevertheless, as it is usually followed by
60
Article 5.3.(b) of the Directive EC/ 2001/29 on the Harmonization of Certain Aspects of
Copyright and Related Rights in the Digital Environment.
60 Technological Protection Measures for Digical Works: A Legal Analysis
________________________________________________________________________________
quality loss61 of the work copied and the limitations to certain types of digital
works, it could result in a low percentage of use among copyright exceptions
beneficiaries.
On the other hand, the creation of an administrative system to which the
alleged beneficiaries request access to TPM protected content expressing their
needs is also an option. The request could either (i) be granted if the content has
already been willingly by IPR owners, (ii) be forwarded to IPR owners to provide
the TPM-free work or, (iii) in case of express or implicit denial, circumvented by
the administrative system itself.
Along with this previous solution is the solely insertion on international
treaties the obligation to embrace in the national legislations the exceptions,
allowing the use of TPM circumventing tools when such exceptions are not
properly respected. The absence of an administrative body to link the beneficiaries
request to IPR owners would simplify the process of implementation of such
solution.
The two above-mentioned solutions are surely complex and would require
further development and analysis by governments and international bodies to
inserted in the related legislation, but could put an end to this legal dilemma,
making sure no right surpasses the other.
Despite the complex situation faced as result of this conflict of interests,
TPM are unlikely to disappear. The IPR owners such as the editors, movie and
music industries maintain permanent lobby to avoid or at least mitigate any attempt
to reduce the reach of copyrights, and copyright-exception beneficiaries and
governmental bodies which defend their rights must stand up to this arm war,
apparently still far from ending.
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61
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FASHION FORWARD OR FASHION VICTIM:
INTELLECTUAL PROPERTY PROTECTION IN THE FASHION
INDUSTRY
by
Layne Randolph
TABLE OF CONTENTS
1. INTRODUCTION
2. TRADEMARK INFRINGEMENT CONSIDERED COUNTERFEITING
3. COPYRIGHT INFRINGEMENT IN FASHION DESIGN NOT
UNIVERSALLY TREATED AS DESIGN PIRACY
4. EU TERRITORIES GRANT MULTI-TIERED IP PROTECTION S FOR
FASHION DESIGN
5. SPARSE IP PROTECTION FOR US FASHION DESIGN
6. US DEBATES THE PROS AND CONS OF COPYRIGHT PROTECTION FOR
FASHION DESIGN
7. PROPONENTS OF THE ACT: FASHION DESIGN IS A CREATIVE WORK
AND DESERVES PROTECTION TO DETER PIRACY
8. OPPONENTS OF THE ACT: THE ACT WOULD HAVE A CHILLING
EFFECT ON THE US FASHION INDUSTRY BECAUSE LESS PROTECTION
EQUALS MORE INNOVATION
9. CONCLUSION: LEVEL OF IP PROTECTION GRANTED NOT
DETERMINING FACTOR
BIBLIOGRAPHY
66
Fashion Forward or Fashion Victim: International Property Protection in
the Fashion Industry
________________________________________________________________________________
1. INTRODUCTION
―Fashion is made to become unfashionable,‖ according to Coco Chanel. Ms.
Chanel may have been an accidental intellectual property (IP) guru, decades ahead
of her time. She unwittingly referred to an aspect of fashion that some modern IP
scholars claim is the crux of the reason why they oppose stronger IP protection for
fashion.1 The nature of fashion is such that regardless of what is created, it has
likely been borrowed or referenced from someone else‘s work. The standard
thinking is that there are only so many ways to cover the body, and the
determination of what is original is very subjective. And while much of the current
focus of the IP world revolves around gaining and maintaining IP protection of
creative works; in certain circles, IP specialists strongly assert that IP protection
should be granted only in exceptional circumstances to reward innovation truly
worthy of a limited monopoly in a free market. Not surprisingly, this debate is
particularly intense in fashion where the boundaries between inspiration and
imitation shift, are questioned, and by virtue of the subject matter will never be
defined by any sort of bright line test.
The top fashion capitals of the world are London, Milan, Paris and New York
and so for the purposes of this paper we will focus on Europe and the United
States. Of these, the European fashion design protection is better established. The
most controversial battle over fashion design protection at the moment occurs in
the United States, where fashion design has been left largely outside of the purview
of IP protection and where many fashion designers argue for an amendment to the
US Copyright Act to protect original fashion designs from copyists. The US battle
wages among those who argue that fashion is better off in a low IP environment,
and those who argue that fashion designs are no less creative than other protected
industries and deserve similar protection.
2. TRADEMARK INFRINGEMENT CONSIDERED COUNTERFEITING
No discussion of IP protection in fashion would be complete without a
discussion of brands, i.e. trademarks. Trademark law has traditionally been the
source of the strongest IP protection for the fashion industry, as the trademarks
serve to identify the products and their source to consumers and function as
advertising to create good will and awareness in the product.2 Designers have the
ability to successfully assert monopolistic rights in their brands and to litigate to
stop the counterfeiting of them, often with the aid of law enforcement officials.
The penalties are strict because many of the counterfeiters use the industry as a
money laundering opportunity and as a vehicle to commit more dangerous crimes.
1
See K. RAUSTALIA & C. SPRIGMAN, The Piracy Paradox: Innovation and Intellectual
Property in Fashion Design, Virginia Law Review, Vol. 92, p. 1687, 1691 (2006).
2
Lanham Act, 15 U.S.C. § 1127.
Layne Randolph
67
____________________________________________________________________________
Partly aided by the fact that the international counterfeiting in goods trade has been
working in conjunction with organized crime, these counterfeiters can now face not
only fines but also potential imprisonment if found to be infringing on trademark
rights.3
Designers know that strong protections exist for their trademarks and many
splash their brands and logos all over the products so as to attempt to protect their
rights from infringement. From the double F‘s of Fendi to the LV‘s of Louis
Vuitton, top designers know that a logo or brand name built into the product is the
best and strongest offense in the world of counterfeiting. But, there is a major
loophole in law enforcement and it‘s the banning of a fake label but not a fake
design. And while in the US ―it is perfectly acceptable to sell merchandise that
copies a fashion design and style, and these are called ―knock-offs‖, it is against the
law to sell merchandise that copies a trademark.‖4
Because of the strength of trademark protection in fashion and the virtually
harmonious application of trademark law internationally, most conflict over IP
protection in fashion relates not to the counterfeiting of trademarks, but instead, the
counterfeiting of fashion designs5. It‘s the fashion design itself, the shape of the
bag, the cut of a sleeve or the overall impression of a garment that causes the most
discord among industry officials, lawyers, legislators, judges and designers
themselves.
3. COPYRIGHT INFRINGEMENT IN FASHION DESIGN NOT
UNIVERSALLY TREATED AS DESIGN PIRACY
Fashion design counterfeiting (more commonly referred to as design piracy)
is nothing new, and even in concept causes debate ranging from the Miuccia Prada
argument that copying is the highest form of flattery (―We let others copy us, and
when they do, we drop it‖) to the Council of Fashion Designers of America‘s
argument that fashion designers are creators of independent expression no different
from authors or painters, and therefore deserve a similar form of intellectual
property protection. The debate ranges between giving a designer all of the rights
of an artist in his designs, to the most open and free market perspective that more
3
If infringement is willful, a court may treble the award of damages and profits and in some cases, a
plaintiff may recover reasonable attorneys' fees. The Trademark Counterfeiting Act of 1984 (18
U.S.C. 2320) made counterfeiting a federal crime and allows the destruction of the counterfeit
labels, packages and the machines for making them. Additionally, the federal counterfeiting statute
provides for fines of up to $2 million dollars and prison terms of up to 10 years, or both, for
individuals, and fines of up to $5 million for business entities.
4
J. BARNETT, Shopping for Gucci on Canal Street: Reflections on Status Consumption,
Intellectual Property, and the Incentive Thesis, 91 VA. L. REV. 1381 (2005).
5
M. NIMMER & D. NIMMER, Nimmer On Copyright § 2.08[H][1], Bender, New York, 1997 at 2143 to 2-144 (2009) (noting the difference between the terms ―fabric design‖ and ―dress design,‖
and defines ―dress design‖ as ―the design that graphically sets forth the shape, style, cut, and
dimensions for converting fabric into a finished dress or other clothing garment.‖).
68
Fashion Forward or Fashion Victim: Intellectual Property Protection
in the Fashion Industry
copying is better for society but also for designers as well, since it speeds up the
design cycle and keeps customers consuming and designers producing.6
However, ―while digital technology has made the fashion industry much
more efficient and has facilitated creativity, the same technology has also
facilitated counterfeiting and piracy‖7 which means that with the advent of digital
technology and virtually instantaneous information sharing, the copyists can beat
the originators at their own game, often knocking off fashion designs exactly,
reproducing them in cheaper fabrics and with much less attention to detail, and
mass producing and selling them to mega-stores worldwide before the creators
have had the chance to produce one version for sale. Both European and American
territories have attempted to deal with these issues and have taken decidedly
different approaches to the situation. While Europe employs a vast array of IP
protections to cover fashion designs, the American approach has been to apply as
little protection as possible. An analysis of each is in order.
4. EU TERRITORIES GRANT MULTI-TIERED IP PROTECTIONS FOR
FASHION DESIGN
In the European Community, fashion designers have the ability to avail
themselves of design protection, both registered and unregistered. The community
design system defines a design as "[t]he outward appearance of a product or part of
it, resulting from the lines, contours, colors, shape, texture, materials, and/or its
ornamentation."8 All designs receive three years of protection whether or not they
are registered. With registration, the initial period of protection is five years, but
designers can increase the protection to up to 25 years with renewals. This
registration provides a rebuttable presumption of validity and an exclusive right to
use the registered design.9 Also, a single distinguishing feature may produce a
unique overall impression and justify protection.10
Designs must be new and have an individual character in order to be eligible
for design protection. The originality will be viewed from the standard of the
informed user, i.e. a fashion consumer, and it must be apparent to the public that it
6
See K. RAUSTALIA & C. SPRIGMAN, supra note 1, at 1689.
LECG, Economic Analysis of the Proposed CACP Anti-Counterfeiting and Piracy Initiative
Prepared for the Coalition Against Counterfeiting and Piracy (CACP), at 14 (Nov. 2007), available
at http:www.lexisnexis.com/documents/pdf/20080610072737_large.pdf.
7
8
Office for Harmonization in the Internal Market, The Community Design, Frequently Asked
Questions on the Community Design, Question 1.1, http://oami.europa.eu/en/design/faq.htm (last
visited February 2010).
9
M. NIMMER & D. NIMMER, Nimmer On Copyright, supra note 5, § 12.11[A], at 12-196 (stating
that courts may "examine the underlying facts" of a registration to rebut the presumption of
validity); see also Council Regulation No. 6/2002, art. 85, 2001 O.J. (L 3) 20 (EC) ("Validity [of a
registration] may be challenged only with a counterclaim for a declaration of invalidity.").
10
Mega Zipper (registered Community Design no. 000823414-0002. OHIM).
Layne Randolph
69
____________________________________________________________________________
is different from products that already exist.11 Unregistered European designs must
meet the same criteria as registered designs in that they must be new and have an
individual character. While unregistered designs are automatically protected for
three years, they are only protected against deliberate copying and the design
owner must prove that an infringer had knowledge of the design, in order to prevail
in an infringement action.12 France goes one step further and specifically provides
copyright protection to the three-dimensional garment on the basis that fashion is
art13 and the French Design Act extends patent-like protection to designs, where
infringement is based on use and not copying14 and specifically provides for
protection for fashion articles.15 In contrast to the more liberal French system, the
EC law protects all types of design without singling out fashion design for special
protection.
And yet, there is little use of this type of protection by fashion designers in
Europe16 and in fact, there are few lawsuits concerning fashion designs.17 While
increased IP protection would seem to produce a more enforceable right, these
factors suggest that not to be the case. Certainly, litigation activity is not the only
representation of enforcement actions taken but nonetheless provides some
information of market activity. Perhaps most interestingly however, fast-fashion is
the most rapidly growing segment of fashion in the world; a segment that regularly
copies top designers looks and reproduces them for the mass market. Three of the
top fast-fashion companies are in Europe: H&M (Sweden), Zara (Spain), and
11
Council Regulation 6/2002 on Community Designs, 2001 O.J. (L 3) 5 art. 11.
Council Regulation 6/2002 on Community Designs, 2001 O.J. (L 3) 4 art. 4., stating that the
design owner must demonstrate that the item has individual character and prove the date that the
article was made public).
13
J.H. REICHMAN, Design Protection in Domestic and Foreign Copyright Law: From the Berne
Revision of 1948 to the Copyright Act of 1976, Duke L.J. 1143, 1153 (1983), see also C.
PROPRIÉTÉ INTELLECTUELLE, art. I, L112-2 (14) (Act No. 94-361 of 10 May 1994 art. 2
Official Journal of 11 May 1994), available at http://www.legifrance.gouv.fr.
14
V. MANLOW, Designing Clothes: Culture And Organization Of The Fashion Industry,
Transaction Publishers, 2007.
15
C. PROPRIÉTÉ INTELLECTUELLE, supra, note 13, specifically lists as protected works
―creations of the seasonal industries of dress and articles of fashion. Industries which, by reason of
the demands of fashion, frequently renew the form of their products, particularly the making of
dresses, furs, underwear, embroidery, fashion, shoes, gloves, leather goods, the manufacture of
fabrics of striking novelty or of special use in high fashion dressmaking, the products of
manufacturers of articles of fashion and of footwear and the manufacture of fabrics for upholstery
shall be deemed to be seasonal industries‖.
16
Although Europe is a breeding ground for haute couture design houses, surprisingly fashion
designs accounted for only 8.98% of all design registrations. See Statistics for Community Designs
2006, Breakdown by Class, at 10 (Dec. 31, 2006), available at
http://oami.europa.eu/pdf/office/SSC007-Statistics_of_Community_Designs_2006.pdf (last visited
February 2010), (listing registered Community designs by class). The class used is Locarno
Classification 02, which applies to clothing, shoes, and accessories. See Locarno Classification.
(However, under the community design system, registration is optional; many designers may opt not
to register because they are given three years of protection for free).
17
Kal Raustalia & Christopher Sprigman, supra note 1, at 1722.
12
70
Fashion Forward or Fashion Victim: Intellectual Property Protection
in the Fashion Industry
Topshop (U.K.)18 These models of fashion design piracy not only exist but are
allowed to thrive in the more fashion design IP protective environment of the EC.19
For these reasons, the thoughtful IP scholar must question whether the granting of
more IP protection truly dissuades copyists thereby creating stronger IP in fashion
design, or whether there may be other, more relevant issues at play.
5. SPARSE INTELLECTUAL PROPERTY PROTECTION FOR US
FASHION DESIGN
In terms of levels of protection for fashion worldwide, the US‘s level is quite
low. Most intellectual property laws were not written with fashion protection in
mind. Although certain elements of fashion can be protected by various forms of IP
protection, the majority of fashion designer‘s rights slip through the cracks of the
IP system. The basic premise at the heart of US fashion design protection is the
notion that apparel is useful and therefore outside copyright protection. Current US
copyright law covers ―original works of authorship fixed in any tangible medium
of expression‖20 and specifically includes: (1) literary works; (2) musical works,
including any accompanying words; (3) dramatic works, including any
accompanying music; (4) pantomimes and choreographic works; (5) pictorial,
graphic, and sculptural works; (6) motion pictures and other audiovisual works; (7)
sound recordings; and (8) architectural works.21 Certain elements of fashion design
are specifically protected under US IP law. Two-dimensional fashion design
sketches are protected as pictorial works under copyright law, however, the threedimensional garment exists in a virtually copyright-free zone. While an aesthetic
component of the fashion design can be protected if physically or conceptually
separable,22 the garment in its totality is considered to be primarily used for
covering the body and therefore does not rise to the necessary standard for
copyright protection because it is generally considered to have a ―utilitarian
function‖ as a ―useful article‖.23
Design patents provide some protection for the non-useful, ornamental
elements of a fashion design but the standards required to obtain a design patent are
18
DPPA Testimony of Christopher Sprigman, Associate Professor, University of Virginia School of
Law, infra note 35 (stating that stores like H&M, Zara, and Topshop are three of the largest retail
culprits of copying high end designs and selling them at affordable prices). Professor Sprigman
argues that the fact that there is widespread copying and minimal litigation in Europe means that the
design protection system has done nothing to affect the way the industry operates.
19
See Kal Raustalia & Christopher Sprigman, Where IP Isn‟t, UCLA Sch. of Law Pub. Law &
Legal Theory Research Paper Series, No. 07-05 (2007).
20
See U.S. Copyright Act, 17 U.S.C. § 102 (2000).
21
Id.
22
United States District Court For The Central District Of California, 2006, Express, LLC v. Fetish
Group, Inc., 424 F. Supp. 2d 1211, 1224–25, 1228–29 (C.D. Cal. 2006) (holding that, although the
utilitarian aspects of a camisole could not be protected, lace and embroidery elements were
copyrightable because they were irrelevant to the utilitarian aspects of the camisole).
23
U.S. Copyright Act, 17 U.S.C. § 101.
Layne Randolph
71
____________________________________________________________________________
extremely difficult to meet. A design patent is a type of patent that protects the
inventor of ―any new, original and ornamental design for an article of manufacture‖
for fourteen years24. The design element seeking protection must be novel and nonobvious,25 which excludes inspiration because it requires that the new creation
advance beyond prior art in a way that is not obvious.26 Moreover, this patent
protection is limited by the expense and time involved in obtaining patent
protection, because although very few items or garments meet the standards of
patentability, even if they did, a patent takes months or years to obtain, which is
generally unworkable in the fast-paced fashion world.
The limited protection afforded US designers by application of design patent
or copyright protection gives way to an extended protection under trademark law.27
Typically, trademark law gives the strongest and most enforceable protection
against infringement universally. Even the Burberry plaid has become a legitimate
trademark28, namely because the pattern has acquired a secondary meaning that can
be protected under trademark law. In the US trademarks are relatively easy to
obtain and do not require registration for legal protection.29 A subset of trademark
law in the US is trade dress protection for iconic designs, which requires source
identification and secondary meaning. This protection encompasses
signature/iconic looks so recognizable that they have acquired secondary
meaning.30 Secondary meaning is difficult to achieve and usually arises only after a
significant amount of time in the public eye, and therefore, trade dress protection is
not readily available to most designers for their designs, and certainly rarely
available to the new or small designer. Moreover, trade dress protection is rarely
available to designers due to the fact that the primary significance of the feature
must be to identify the source, which is a standard that will rarely be met with
clothing due to its inherent usefulness. Some US fashion designers have chosen to
confront this IP protection void by proposing an amendment to the US Copyright
Act which would grant a limited copyright protection to fashion designs.
24
U.S. Patent Act, 35 U.S.C. § 171 (2006).
U.S. Patent Act, Conditions for Patentability, 35 U.S.C. §102 (2002).
26
United States Supreme Court, Gorham v. White, 81 U.S. 511 (1871).
27
United States District Court for the Southern District of New York, Diane von Furstenberg
Studio, LP v. Forever 21, Inc., No. 07-2413 (S.D.N.Y. Mar. 29, 2007). Without any legal authority
to support design infringement, von Furstenberg‘s lawsuit was primarily based on infringement of
copyrighted fabric designs.
28
US Trademark, Ser. No. 73, 170, 890, Reg. No. 1,241,222 (filed May 17, 1978).
29
U.S. Patent & Trademark Office, Trademarks, Basic Facts, Should I Register My Mark?,
http://www.uspto.gov/web/offices/tac/doc/basic/register.jsp, (last modified 12/30/2009, last visited
February 2010), (stating that registration, while not required, provides many benefits to the
registrant).
30
T. MCCARTHY, McCarthy on Trademarks and Unfair Competition § 7:91 (4th ed. 2008).
25
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Fashion Forward or Fashion Victim: Intellectual Property Protection
in the Fashion Industry
6. US DEBATES THE PROS AND CONS OF COPYRIGHT PROTECTION
FOR FASHION DESIGN
The Design Piracy Prohibition Act (―DPPA‖)31 is a bill to prohibit design
piracy in the US, and according to some proponents, to prevent the US from
becoming a safe haven for design piracy and to promote international
harmonization of IP protection. The DPPA bill pending in the US Senate would
amend the Copyright Act to provide copyright protection to fashion designs after
requisite registration of an original design. Under copyright, an owner can rarely
bring an action for an article that is not registered.32 "Original, as the term is used
in copyright, means only that the work was independently created by the author (as
opposed to copied from other works), and that it possesses at least some minimal
degree of creativity."33 The standard of protection under DPPA is ―all expression
not copied in its entirety from others that contains a modicum of creativity‖
extended to the appearance as a whole of an article of apparel, including its
ornamentation. And apparel is defined as ―men's, women's, or children's clothing,
including undergarments, outerwear, gloves, footwear, and headgear; handbags,
purses, and tote bags; belts; and eyeglass frames.‖ 34 However, the DPPA would
not protect any design that has been made public prior to the law‘s enactment.
Those designs, lacking in originality, will belong to the public domain.
The standard of infringement under the DPPA would be ―closely and
substantially similar‖35, and defenses to infringement would include merely
reflecting a trend, and independent creation. One criticism of the bill is the test of
"substantial similarity" that courts would be required to use to determine if articles
31
Design Piracy Prohibition Act, H. REP. NO. 5055, 109th Cong. (2006), Design Piracy Prohibition
Act, H. REP. NO. 2033, 110th Cong. (2007), S. 1957, 110th Cong. (2007), Design Piracy
Prohibition Act, H. REP. NO. 2196, 111 th Congress (2009-2010). On March 30th, 2006, H.R. 5055
was introduced to Congress. The bill proposed an amendment to Title 17, United States Code to
provide protection to fashion design. Hearings were held to discuss the bill on July 27th, 2006, but a
debate on the issue was never brought to the House floor and H.R. 5055 was thus never put to a
vote. The 110th Congress saw an almost identical bill, H.R. 2033, introduced on April 25th, 2007.
Although it was referred to a subcommittee on May 4th, 2007, the bill was once again abandoned
and cleared at the end of the Congressional session. On Apr 30, 2009, the bill was referred to the
House Committee on the Judiciary.
32
U.S. Copyright Act, 17 U.S.C. § 411 ("Except [for certain actions] no action for infringement of
the copyright in any United States work shall be instituted until preregistration or registration of the
copyright claim has been made in accordance with this title.").
33
1 M. NIMMER & D. NIMMER, Nimmer On Copyright, supra note 9, at §§ 2.01[A], [B], 1990.
34
DPPA Hearings, supra note 31, A Bill to Provide Protection for Fashion Designs: Hearing
Before the House Subcommittee on Courts, the Internet, and Intellectual Property, 109th Cong., 2nd
sess. (2006) at § 2(a)(2).
35
Written Statement on H.R. 5055, ―The Design Piracy Prohibition Act‖ presented to the
Subcommittee on Courts, the Internet and Intellectual Property, U.S. House of Representatives, by
Susan Scafidi, Associate Professor of Law and Adjunct Professor of History, SMU, Visiting
Professor, Fordham Law School, at 812 available at 2006 WL 2127242 (F.D.C.H.).
Layne Randolph
73
____________________________________________________________________________
are infringements of protected articles.36 The substantial similarity liability
standard ―presents one of the most difficult questions in copyright law, and one that
is least susceptible of helpful generalizations.‖37 The bill is aimed at deterring the
counterfeiting of fashion design by changing the behavior of would-be infringers.
By creating financial liability for direct copying (paying any profits to original
design holder), the copyists would have strong incentive not to directly copy
another designer‘s design exactly. With damages for infringements suggested at
the greater of $250,000, or $5 per copy, this infringement standard could incite a
plethora of litigation, and the ―fast-fashion‖ designers would presumably be most
negatively affected by the DPPA.
7. PROPONENTS OF THE ACT: FASHION DESIGN IS A CREATIVE
WORK AND DESERVES PROTECTION TO DETER PIRACY
The Council for Fashion Designers and Artists (―CFDA‖), a non-profit trade
association for American fashion and accessory designers, represents a small
number of elite and often very successful designers including Tom Ford, Calvin
Klein, Ralph Lauren, and Diane von Furstenberg.38 CFDA argues that American
designers need protection for their designs in order to remain innovative and
competitive in today‘s fashion industry. Essentially, the pro-DPPA arguments
focus on the deterrent factor behind the bill, and that the rampant copying of
fashion designs hurts the industry. The DPPA proponents also assert that copyright
protection may strengthen the American fashion brands, pointing to the French
protection of fashion as an art form which has helped maintain the pre-eminence of
the French fashion industry.
Susan Scafidi, a professor of Fashion Law at Fordham University School of
Law, is a vocal supporter and one of the sponsors of the Bill39. She argues that it‘s
the small designer who suffers the most without copyright protection-they have no
trademark to brand per se, and their designs are knocked off without recourse.
Small and start-up designers are at great risk if their designs are not protected by
copyright because small designers cannot rely on their reputation or trademark to
make up for lack of design protection and cannot afford litigation for
enforcement.40 She argues the law would change the behavior of the large fast36
4 M. NIMMER & D. NIMMER, Nimmer On Copyright, supra note 9, at § 13.03[A], at 13-34.1 to
-34.3 (2007) (providing "substantial similarity" as the standard for copyright infringement); see also
U.S. Copyright Act 17 U.S.C. § 1309(e) (using the same standard for infringement of vessel hulls).
37
M. NIMMER & D. NIMMER, Nimmer On Copyright, supra note 9, at § 13.03[A].
38
For the membership roll, see Council of Fashion Designers of America,
http://www.cfda.com/members (last visited February, 2010).
39
Written Statement on H.R. 5055, supra note 35, Scafidi Testimony, at 814.
40
S. SCAFIDI, Intellectual Property and Fashion Design, in 1 Intellectual Property and
Information Wealth, Peter K. Yu, 2006, at 117 (stating that even if a famous designer‘s new line is
knocked off, consumers may still be willing to pay higher prices for the trademarked version.
Emerging designers, by contrast, cannot depend exclusively on brand recognition for protection
against design piracy. The author went on to quote a young designer who explained the problem as
74
Fashion Forward or Fashion Victim: Intellectual Property Protection
in the Fashion Industry
fashion companies that knock off the small designer‘s ideas and that if these
companies know that they cannot make an exact copy, they will be required to
innovate-which she rightly states as the goal of IP. If they do copy, a cease and
desist letter may be enough to stop them since they know the designer has a prior
right. Other proponents of the DPPA further assert that the relatively short term of
protection afforded—three years—is particularly suited to the fashion industry‘s
shorter life cycles.41
8. OPPONENTS OF THE ACT: THE ACT WOULD HAVE A CHILLING
EFFECT ON THE US FASHION INDUSTRY BECAUSE LESS
PROTECTION EQUALS MORE INNOVATION
The American Apparel and Footwear Association (AAFA) strongly oppose
the DPPA, citing the chilling effect such a law would have on the US fashion
industry. The AAFA and other opponents to the bill believe that a low IP
environment is beneficial to the US fashion industry, and that copyright protection
would curb creativity and innovation in fashion design. Opponents to the bill cite
various reasons for their stance. Legal scholars argue that due to the referencing
and borrowing inherent in the fashion industry cycles, originality is difficult to
define and monitor and too low of a bar for copyright protection in fashion.42 But
by far the most convincing arguments relate to the principal at the core of the bill,
that the copying of fashion design must be deterred in order to encourage
innovation. Many DPPA opponents assert that in reality the contrary is true, that
copying in the fashion industry does not stifle innovation, but rather that copying is
beneficial to the fashion industry. This concept, developed by Kal Raustiala &
Christopher Sprigman, is referred to as ―The Piracy Paradox‖.43
The Piracy Paradox arises from the premise that desirable designer fashions
get copied by lower-end producers and are then picked up by the masses. By the
time the masses have adopted the fashions, the consumers of designer fashions are
looking for the next trend. Therefore, the copying of the fashion designs creates a
faster trend cycle which benefits the fashion industry by inducing rapid turnover
and additional sales. And Raustiala and Sprigman argue that the consumer is the
one who wins in this scenario, because the consumer has access to affordable yet
fashionable products. The conventional thinking is that unauthorized copying of
fashion designs tarnishes a brand‘s image by confusing the public and
commingling the designer‘s image with that of cheaper and less desirable products
she sees it: ―[Famous designers] can just sell their trademarks. We [unknown designers] have to sell
our designs.‖
41
Design Piracy Prohibition Act, H. REP. NO. 2196, 111 th Congress (2009-2010) at § 2(f).
42
U.S. Copyright Act, 17 U.S.C. § 1301(b)(1) ("A design is ‗original‘ if it is the result of the
designer‘s creative endeavor that provides a distinguishable variation over prior work pertaining to
similar articles which is more than merely trivial and has not been copied from another source.").
43
K. RAUSTIALA & C. SPRIGMAN, The Piracy Paradox: Innovation and Intellectual Property
in Fashion Design,, supra note 1, at 1692.
Layne Randolph
75
____________________________________________________________________________
(or inversely, literally stealing a design to produce a design copy under a different
brand and stealing the consumer as well). The piracy paradox theory essentially
turns this theory on its head, and asserts that once a high-status customer senses
that the fashion trend has become ordinary, the high status customer moves on to
the next trend. But for the ordinary consumer the trend stays in place longer and
even extends to the mass market, at which time the ordinary consumer moves on to
the next trend. Because of the cyclical nature of the industry and the constant need
for new products and trends to feed the cycle, the over-arching theory behind the
piracy paradox is that fashion design works best in a low-IP environment where
designs can be pirated/copied most effectively. In fact, ―the low-IP regime acts as
an accelerant of innovation.‖44
And then there is the nearly universally accepted notion that much of fashion
design is an accepted derivative work i.e., a work that appropriates certain design
elements of a specific design but is still distinguishable to the average consumer. 45
This derivation is helpful to those consumers who wish to flock to the latest
designs while still being distinguishable in some way.46 And, the designers of the
original fashions most often accept this type of derivative work as a part of the
world of fashion, and simply move on to the next design and trend rather than
spend time and money fighting every knock-off which may just as well be
considered a derivative work. It should be stated that the piracy paradox, while
certainly applicable for the major fashion conglomerates, leaves small designers
outside of the analysis. It‘s as if the proponents of the piracy paradox believe that
fashion innovation is solely a top-down affair, when industry experts know that this
is often not the case. Street fashion and young/small designer fashion is often
copied by the major conglomerates themselves, with little to no recourse when
considering the time and expense needed for the creator to pursue litigation. In this
arena, the more established designer would simply argue inspiration as a defense to
a substantially similar design, without the added protection of the DPPA. The cost
of arguing whether a second design is substantially similar to the original design is
significant in terms of time and money. Additionally, by the time a court reaches a
final decision, the fashion design will likely no longer be in vogue47. Therefore, it
is this segment of the US fashion industry that will suffer without further
protection, even though the industry as a whole may thrive.
A direct copy, however, is certainly almost never looked upon with favor,
especially if done by a direct competitor who is likely to steal the original
44
K. RAUSTIALA & C. SPRIGMAN, Where IP Isn‟t, supra note 19, at 1209.
U.S. Copyright Act, supra, note 23.
46
C. SCOTT HEMPHILL & J. SUK, The Law, Culture, and Economics of Fashion, 61 STAN. L.
REV. 1147 (2009).
47
L. HEDRICK, Tearing Fashion Design Protection Apart at the Seams, 65 WASH. & LEE L.
REV. 215, 272 (2008).
45
76
Fashion Forward or Fashion Victim: Intellectual Property Protection
in the Fashion Industry
designer‘s sale/customer.48 However, the same designer who may be willing to
litigate a direct competitor‘s knock-off, may not care quite as much if fast-fashion
industry copies his designs49 for some of the exact reasons stated in the piracy
paradox theory. Frankly, there are many reasons why European designers may not
choose registration or the courts as a way to protect their fashion designs.
Therefore it is difficult to accept the notion that design protection is not fully
enjoyed in the EU as a rationale for not providing additional IP protection in the
US, although many opponents to the DPPA are quick to do so. But beyond
whether the European or the American approach to provide legal protection for
fashion design is better, the bigger question for the DPPA revolves around the
concept of territories when looking to impose new protections and requirements.
9. CONCLUSION: LEVEL OF IP PROTECTION GRANTED NOT
DETERMINING FACTOR
Opponents of the DPPA commonly refer to the Piracy Paradox as evidence
that while there may be a dearth of IP protection for fashion design in the US, there
is no correlating negative effect to the industry because the US has a thriving
fashion industry.50 The EU fashion industry and market are thriving too,51 even in
the face of blatant fashion design piracy52 and an apparent under-utilization of
protections. However, an identical system of protection in the US may not produce
the same effect due to cultural differences in the territories. Taken one step farther,
to introduce added IP protections could have a chilling effect on the marketplace,
one that doesn‘t exist in European markets due to the differences in the civil law
systems. "Unlike in Europe where there is a weak civil litigation system, here in
the States we have a very powerful civil litigation system and we are a society
teeming with lawyers, including obviously a class of litigation entrepreneurs that
accesses the Federal courts."53
48
T. JACKSON & D. SHAW, The Fashion Handbook 177 (Routledge 2006), See also Yves Saint
Laurent S.A. v. Societe Louis Dreyfus Retail Management S.A., Tribunal de Commerce, Paris (1994)
E.C.C. 512
49
J. BARNETT, Shopping for Gucci on Canal Street: Reflections on Status Consumption,
Intellectual Property, and the Incentive Thesis, supra at note 4 at 1385.
50
U.S. Marketline Report 2007. Industry reports on the apparel industry indicate that the U.S.
menswear market generated $106 billion in 2007, the US women‘s wear market generated revenues
of $175.3 billion, and the US infants‘ wear market generated revenues of $9.9 billion. Thus,
according to these figures, the total U.S. fashion industry generated $291.2 billion in 2007.
51
Global Marketline Report 2007 stated that revenues of the global fashion industry range
somewhere between $750 billion and $862 billion.
52
Testimony on H.R. 5055, ―The Design Piracy Act‖, given July 27, 2006 before the Committee on
the Judiciary, U.S. House of Representatives, Subcommittee on Courts, the Internet, and Intellectual
Property, given by Christopher Sprigman, Associate Professor, University of Virginia School of
Law (stating that stores like H&M, Zara, and Topshop are three of the largest retail culprits of
copying high end designs and selling them at affordable prices. Professor Sprigman argues that the
fact that there is widespread copying and minimal litigation in Europe means that the design
protection system has done nothing to affect the way the industry operates).
53
Testimony on H.R. 5055, supra note 52 at 4 (stating that ―[W]e fear that H.R. 5055 might turn the
industry‘s attention away from innovation and toward litigation.‖).
Layne Randolph
77
____________________________________________________________________________
Although the two territories operate with very different levels of IP for
fashion designs, it would appear that the level of IP protection available is not
determinative of success in the fashion industry. With increased protections and
incentives for litigation in the US, the market could change dramatically in ways
that would not necessarily be expected in the EU, i.e. more legal protection in the
US would probably equal more litigation and a potential stall to fashion innovation
as designers act out of an abundance of caution for fear of crossing the
inspiration/imitation line. Whether IP protections granted are many or are few, the
best environment for a thriving fashion industry still appears to be one in which the
utilization of the IP protection is low. And within each territory, it would be
advisable to structure the level of protection taking into account that territory‘s
cultural norms as regards utilization.
Finally, we must address the issue of the technological advances that allow
the fashion cycle to recycle itself at a pace inconceivable only a few years ago. To
a certain extent, design copyists are able to take the punch out of the piracy paradox
with their ability to copy designs before the original designer can produce one
garment. No longer does the mass market not have to wait for fashion trends to
trickle down, through fast-fashion and the like the mass market is often on the edge
of fashion just as quickly as the top designer‘s customers. This may be the best
argument for additional IP protections for the original designer, both the original
top fashion house designer and the small emerging designer.
The DPPA may not be the perfect solution, but a limited and specific
protection could certainly provide a proactive response to industry changes as they
occur. Certainly there is no easy answer to this conundrum, other than for fashion
and IP legal experts to remain alert to potential risks inherent in their applicable
territory, risks which may not be so great that a radical change is immediately
necessary, but which may require future intercession. Because even if we find that
current IP protections are well-suited to their territory and the industry today, there
may very well come a point at which these protections are no longer adequate
which would warrant adjustments. For the moment, however, the debate over
whether now is the time for intercession rages on.
78
Fashion Forward or Fashion Victim: Intellectual Property Protection
in the Fashion Industry
BIBLIOGRAPHY
Articles
J. BARNETT, Shopping for Gucci on Canal Street: Reflections on Status
Consumption, Intellectual Property and the Incentive Thesis, in Virginia L. Rev.,
2005.
L. HEDRICK, Tearing Fashion Design Protection Apart at the Seams, 65
WASH. & LEE L. REV., 2008.
T. JACKSON & D. SHAW, The Fashion Handbook, Routledge, 2006.
V. MANLOW, Designing Clothes: Culture And Organization Of The
Fashion Industry, Transaction Publishers, 2007.
T. MCCARTHY, McCarthy on Trademarks and Unfair Competition,
Thomson West, 2008.
M. NIMMER & D. NIMMER, Nimmer On Copyright, Bender (1990).
M. NIMMER & D. NIMMER, Nimmer On Copyright, Bender (2007).
K. RAUSTALIA & C. SPRIGMAN, The Piracy Paradox: Innovation and
Intellectual Property in Fashion Design, in Virginia L. Rev., 2006.
K. RAUSTALIA & C. SPRIGMAN, Where IP Isn‟t, in UCLA Sch. of Law
Pub. Law & Legal Theory Research Paper Series, 2007.
H. REICHMAN, Design Protection in domestic and Foreign Copyright Law:
From the Berne Revision of 1948 to the Copyright Act of 1976, Duke L.J. 1143
(1983).
S. SCAFIDI, Intellectual Property and Fashion Design, in 1 Intellectual
Property and Information Wealth, Peter K. Yu, 2006.
Laws and Treaties
Council Regulation No. 6/2002 on Community Designs, 2001 O.J. (L 3).
C. Propriété Intellectuelle, art. I, L112-2 (Act No. 94-361 of 10 May 1994 art.
2 Official Journal of 11 May 1994).
Design Piracy Prohibition Act, H. REP. NO. 5055, 109th Cong. (2006),
Design Piracy Prohibition Act, H. REP. NO. 2033, 110th Cong. (2007) and S.
1957, 110th Cong. (2007). Design Piracy Prohibition Act, H. REP. NO. 2196, 111th
Congress (2009-2010).
Layne Randolph
79
____________________________________________________________________________
Lanham Trademark Act, 15 U.S.C. § 1127.
Trademark Counterfeiting Act, 18 U.S.C. 2320 (1984).
U.S. Copyright Act, 17 U.S.C. (2006).
U.S. Patent Act, 35 U.S.C. (2006).
Cases
United States District Court for the Southern District of New York, Diane
von Furstenberg Studio, LP v. Forever 21, Inc., Case No. 07-2413 (S.D.N.Y. Mar.
29, 2007).
United States District Court For The Central District Of California, Express,
LLC V. Fetish Group, Inc., 424 F. Supp. 2d 1211 (C.D. Cal. 2006).
United States Supreme Court, Gorham v. White, 81 U.S. 511 (1871).
Tribunal de Commerce Paris, 1994, Yves Saint Laurent S.A. v. Societe Louis
Dreyfus Retail Management S.A., E.C.C. 512, case «Yves Saint Laurent».
Additional Sources
Global Marketline Report 2007.
LECG, Economic Analysis of the Proposed CACP Anti-Counterfeiting and
Piracy Initiative Prepared for the Coalition Against Counterfeiting and Piracy
(CACP), 2007.
Mega Zipper (registered Community Design No. 000823414-0002. Office for
Harmonization in the Internal Market).
Office for Harmonization in the Internal Market, The Community Design,
Frequently Asked Questions on the Community Design, Question 1.1,
http://oami.europa.eu/en/design/faq.htm (last visited February 2010).
Testimony on H.R. 5055, ―The Design Piracy Act‖, given before the
Committee on the Judiciary, U.S. House of Representatives, Subcommittee on
Courts, the Internet, and Intellectual Property, by Christopher Sprigman, Associate
Professor, University of Virginia School of Law (2006).
Written Statement on H.R. 5055, ―The Design Piracy Prohibition Act‖
presented to the Subcommittee on Courts, the Internet and Intellectual Property,
U.S. House of Representatives, by Susan Scafidi, Associate Professor of Law and
80
Fashion Forward or Fashion Victim: Intellectual Property Protection
in the Fashion Industry
Adjunct Professor of History, SMU, Visiting Professor, Fordham Law School
(2006).
U.S. Marketline Report 2007.
U.S. Patent & Trademark Office, Trademarks, Basic Facts, Should I Register
My Mark?, http://www.uspto.gov/web/offices/tac/doc/basic/register.jsp, last
modified 12/30/2009, last visited February 2010.
US Trademark, Ser. No. 73, 170, 890, Reg. No. 1,241,222 (filed May 17,
1978).
ECONOMIC IMPLICATIONS OF PATENT CLAIM SCOPE.
by
Eno-obong Usen
TABLE OF CONTENTS
1. INTRODUCTION.
2. CLAIMS
Broad Patent Claim Scope
Narrow Patent Claim Scope
3. COMPARISON
Pros and Cons of Broad and Narrow Scope Infringement
 Direct Infringement
 Indirect Infringement
- Induced Infringement
- Contributory Infringement
4. INFRINGEMENT
5. CONCLUSION
BIBLIOGRAPHY
82
Econimic Implications of Patent Scope
1. INTRODUCTION:
The baseline rationale for intellectual property right is to grant exclusivity to
its owner as a means of discouraging free-riding and encouraging innovation1. The
right so granted consist mainly of patrimonial and non-patrimonial (moral) right.
The non-patrimonial aspect (moral right) consist of the right to paternity and
integrity it pertains mostly to copyright and some neighbouring rights while the
patrimonial right consist of the exclusive right to authorise or prevent others from
making, using, selling or otherwise dealing in the invention without the prior
consent of the right holder2. This pertains to other branches of intellectual property
rights. Patents right are mainly patrimonial3.
The scope of the patent right determines the extent of the exclusionary
characteristic of the grant4. Patent has its strong area of influence secondarily
concealed behind the words used to define its scope5 . The scope of protection
plays an important role in the decision by an inventor whether to patent or keep the
invention a secret, this is partly due to the educative nature of the specification6. It
is also a critical factor in determining the proximity of any new competitor7: that is
how close a new invention maybe in order to be termed infringing. In addition it
serves a commercial purpose in adjusting the relationship between the inventor and
the second comer to the technological area, who neither bore the burden of creation
1
J. HARRISON, Law and Economics, Thomson West, New York, 2007 at 683
S. THORLEY-R. MILLER-G. BURKILL- C. BIRSS, TERRELL on the Law of Patents, 15th ed., Sweet
& Maxwell, London, 2006 at 1
3
Article 28 of the TRIPS Agreement present the rights conferred in a succinct manner and in doing
so reflect common practise nationally. Accordingly 1(a) where the subject matter of a patent is a
product, to prevent third parties not having the owner's consent from the acts of: making, using,
offering for sale, selling, or importing for these purposes that product; (b) where the subject matter
of a patent is a process, to prevent third parties not having the owner's consent from the act of using
the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at
least the product obtained directly by that process. 2. Patent owners shall also have the right to
assign, or transfer by succession, the patent and to conclude licensing contracts. See Agreement on
Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement
Establishing the World Trade Organization, Annex 1C, Legal Instruments—Results of the Uruguay
Round, 33 I.L.M. 1125, 1197 (1994) [hereinafter TRIPs Agreement]
4
Idem, 133 ―once the public misperception of patent changes from anticompetitive monopolies to
useful stimulant for economic growth, the patent becomes revived to some extent‖, Kastriner, The
Revivial of Confidence in the Patent System (1991) 73 JPTOS 5 at 8
5
M. FISHER, Fundamentals of Patent Law: Interpretation and scope of protection Hart Publishing,
Oxford – Oregon , 2007 at 113
6
The patent documents have a legal obligation to teach the reader how to make the stated
invention. Even where the innovators in developing countries may not be able to reproduce the
latest cutting edge technology contained in patent documents, they may be still be able to use
information contained in the specifications about the technology to adapt to local situations. This
could be the very backbone for a technological revolution in developing countries.
7
M. FISHER, Fundamentals of Patent Law: Interpretation and scope of protection, Supra note 5 at
113.
2
Eno-obong Usen
83
or the risk if failure8. The wordings of the patent claim play an important role in the
determination of the scope of protection.
2. CLAIMS
The claim is a technical description of the process, machine method or matter
to be patented. It defines what the inventor considers to be the scope of her
invention, the technological territory she claims is hers to control and it
distinguishes the inventor‘s intellectual property right from other terrains9. The
claim is often required to be crafted in clear and certain words so as to provide a
clear definition of the scope of patent right to be granted because lack of clarity can
impede legitimate investment in technological-based products and services10 . In
the United States and the United Kingdom the claim determines the scope of the
invention by placing a ‗fence post‘ around it, in other jurisdiction the claim are
meant to provide ‗sign post‘ for the invention to make it easier to ascertain the
inventive step and novelty of the invention 11. The European Patent Convention
reflects a compromise between the fence post and sign post claiming12.
In the UK, the United States, Japan and Germany, the Patent Offices and the
courts constant make decisions as to the exact coverage of the patent claim scope13.
The former does this when it determines which claims to be allowed on a specific
claim and the latter in litigation where questions of infringements are decided14.
8
J. HARRISON, Law and Economics, supra at note1 at 688.
R. MERGES and R. NELSON, On Complex economics of Patent Scope decisions, in the Colum. L.
Rev . Vol 90, 1990 at 845
10
C. NARD, Law of Patents, Aspen, New York, 2008 at 437
11
G. SUTHERSANEN, Global Intellectual Property Law. Commentary and Materials, Edward Elgar,
2008 at 123
12
W. CORNISH and LLEWELYN, Intellectual Property: Patents, Copyright, Trademark and Allied
Marks, Sweet and Maxwell, 2003, at 66 . It is instructive to note that the fence post claiming is
otherwise called the peripheral claiming approach, it purports to set the outermost boundaries of
patent rights. It serves as a notice function in setting out clear boundaries to warn the public of what
is and is not claimed. Its ―notice function‖ has been terms by scholars as a dangerous illusion,
because it means that courts define the scope of legal rights not by reference to the invention but by
reference to semantic debates over the meaning of words chosen by lawyers. For this reason, it
brings uncertainty into the patent system. In the sign post claiming otherwise known as central
claiming approach, the patentee does not delineate the outer reach of what it claims. Rather, the
patentee discloses the central features of the invention, what distinguishes it from the prior art, and
the courts determine how much protection the patent is entitled to by looking at the prior art that
cabins the invention, how important the patentee‘s invention was, and how different the accused
device is. While the peripheral claiming establishes fence posts marking the boundary of the patent,
the central claiming replaces the fence posts with sign posts identifying new inventions by
describing the core or gist of the patentee‘s contribution to technology.
See D. BURK & M. LEMLEY., Fence posts or sign posts? Rethinking Patent claim construction, U.
Pal L. Rev. , Vol. 57 at 1745-6 available at http://www.law.upenn.edu/journals/lawreview/
articles/volume157/issue6/ BurkLemley157U.Pa.L.Rev.1743(2009).pdf
13
R. MERGES and R. NELSON, On Complex Economics of Patent Scope decisions, supra note 9 at
840
14
C. NARD, Law of Patents, supra note 10 at 395
9
84
Economic Implications of Patent Claim Scope
The determination of the optimal claim scope of protection of patent plays an
important role in the stimulation of economic growth. The creation of rules for
determining the optimal patent scope that maintain the protection a patent is meant
to confer while still keeping the patent monopoly within reasonable bounds has
posed a major challenge to court and legislature. The difficulty of this task has led
to different results in different jurisdictions. Many jurisdictions have chosen to
determine the scope of patent protection under broad claim scope, while others
have maintained the position that adequate scope can be obtained by a narrow
claim interpretation. Article 5 of the TRIPS Agreement deals with issues bordering
on Patent. It is silent on the issue of claim interpretation, thus leaving this issue at
the discretion of member states. The Patent Act of United kingdom, United States,
Japan and German represent divergence view of the interpretation of the patent
claim scope. The objective of this research is to study the claim interpretation of
four patent jurisdictions—the United States, the United Kingdom, Germany and
Japan, their divergent approach to the interpretation of the patent claim scope of
protection and the resultant effect in their economy, with a view of providing
possible clues for developing countries. For a gainful insight it is pertinent to
understand the concept of broad and narrow patent claim scope.
Broad Patent Claim Scope
There has been a lot of debate weighted heavily on the proposition that broad
claim scopes of protection are conducive to economic development and growth15.
Notable proponents of the Patent induced theory depicts patent as a necessity for
inducing invention and suggest broad claim scope of protection for revolutionary
inventions16, yet many scholars have argued along the line that broad patent claim
scope were not always necessary to induce invention and entailed significant
economic cost17. Scholars have suggested that the optimum patent claim scope is
that which promote competition in research18. Kitch argues that since competition
in research is inefficient broad claim scope of protection to the originator of
revolutionary creations would provide optimum incentive for technological
development and improve the larger social welfare19. Schumpeter elucidating on
this point avers that market factors alone would not justify entities investing the
amount of time, effort and money that the creation of a spectacular technical
contribution would require more so revolutionary creations are an important
15
R. MAZZOLENI- R. NELSON, Economic theories about the benefits and costs of patents, in J. of
Econ Issues 1998, 1031ff at 25.
16
The anticipation of obtaining a patent induces firms to invest money into the research that resulted
in the invention or bring the invention into the market. Fisher supra at note 3 at p 114
17
R. MAZZOLENI- R. NELSON, Economic theories about the benefits and costs of patents, supra note
15 at 26.
18
R. MERGER and R. NELSON, On limiting or encouraging rivalry in Technical Progress: The effect
of Patent Scope decisions in the J. of Econ Behaviour Org Vol. 25, 1994
19
E. KITCH, Nature and Function of the Patent System, 20 J.L. & Econ. 265(1977) cited in J.
HARRISON, Law and Economics, supra note 1 at 689
Eno-obong Usen
85
driving force behind economic growth20. Fisher also asserts that broad patent
claim scope of protection induces disclosure. The narrower the scope of protection
offered by the patent system is the less the potential returns, the less likely public
disclosure and the decision to patent would be made by inventors21. On the other
hand broad patent leads to potentially large social cost, such as the inefficiencies
associated with monopoly profit (deadweight losses)22.
The broad claim scope of patent protection is justified by Kitch from a
different perspective; he reasoned that the patent system is a necessity to encourage
investment in technological prospect after the right has been granted. He
emphasized that patents are granted after invention but before commercialisation:
this enables the inventor to invest in development without fear of imitation and also
enables him to coordinate future R&D efforts of potential imitators to reduce
inefficient duplication of inventive effort23. Kitch demonstrates that unless there is
a broad patent claim scope of protection on the prospect opening invention, greater
competition in the race for the new product and development of the prospect may
proceed in a socially wasteful way24. From this perspective, broad patents are
probably better since they tend to reduce the inefficiencies associated with rivalry
uncoordinated invention and reduce over fishing within the same product space.
Broad patent claim scope of protection however, poses a danger of raising up
industries who create such ‗inventions‘ and get such patent with the aim to make
profit through licensing rather than development and commercialization in-house25.
There is a danger of fostering the growth of a market based on patent licensing, this
becomes worst where such rights are conferred on research tools and ideas that
would have otherwise formed part of the public domain26 yet it the fact that such
inventions would have otherwise been kept secret cannot be ignored. The granting
of broad claim scope results in a social cost to the society, it acts as a deterrence to
other firms with capacity to invent in the neighbourhood to undertake any of the
wide variety of follow on inventive work that improves, or variegate on an initial
invention because of the likelihood that their inventions would be challenged27 as
infringing. The option to for the follow-on inventor lies on his ability to negotiate a
20
J. SCHUMPETER, Capitalism, Socialism and Democracy, 5th ed. London: George Allen and
Unwin, 1976 cited in M. FISHER, Fundamentals of Patent Law: interpretation and scope of
protection, supra at note 5 at 140
21
Ibid. at156
22
Ibid at 143
23
This amount to granting a right over an unexplored pool with the right holder granted the right to
charge an access fee for the exploitation of the various part of this pool. E. KITCH, Nature and
Function of the Patent System supra at note 19 at 279 cited in R. MERGES and R. NELSON, On
Complex economics of Patent Scope decisions, supra at note 9 at 871
24
The rationale here is that too many people would race to that same opportunity and the result
would be ‗wasteful mining‘ of the prospect or ‗over fishing of the pool‘
25
R. MAZZOLENI- R. NELSON, Economic theories about the benefits and costs of patents, supra note
15 at 278
26
Ibid at 282
27
Ibid at 275
86
Economic Implications of Patent Claim Scope
license with the holder of the original prospect defining patent, and to do these
broad claims patent offers less incentive28.
Narrow Patent Claim Scope
There are yet other scholars who proposed a narrower claim scope. Scherer
identifies two categories of invention in addition to revolutionary invention;
serendipitous or accidental inventions often termed market induced invention, and
invention characterised by high development cost29. For the latter inventions
Scherer suggests a narrow patent scope of protection in view of the fact that
incentive should not extend further than is necessary to induce invention and broad
claim scope will reduce the incentive for others to make improvements and would
restrict the use that could be made of the invention thereby increasing the cost
associated with the patent.30 Scotchmer asserts that the interaction between the first
and second generation inventions depends on the scope of claim protection of the
primary patent, often referred to as the upstream right31. If the primary patent has a
narrow scope of protection, it will allow many improvements to be patented and
marketed without fear of infringing the primary right.
Merger & Nelson justifies the award of narrow claim scope of patent
protection on its importance role in preserving competition and place the inventor
of significant improvements in a good bargaining position vis-a-vis the inventor of
basic invention, more so every potential inventor is also a potential infringer32. For
this reason patents ought to be confined and controlled, their scope restricted to
curb possibility of abuse33.
A narrower patent scope is useful in lowering the transaction cost34 of
cumulative innovators. This is essentially so because contemporary innovation is
more of a network process and new ideas and inventions are a result of
recombination of element from various industries, even with the benefit of the
patent monopoly the production of an invention is often beyond the capacity of a
lone inventor. Fisher however argues that narrow patent claim grant gives rise to
consequential incremental technological advances which could potentially translate
into patent clusters springing up to surround any given innovation, this could give
rise to a situation where technological field becomes entangled with narrow
28
The rationale behind this is that a controlling patent on the original invention is a means of
preventing competitors from sharing in the returns through imitation.
29
F. SCHERER, Patents. Economics, Policy and Measurement, Edward Elgar , Cheltenham, 2005 at
447
30
Ibid at 139
31
S. SCOTCHMER, Standing on the shoulders of giants: cumulative research and the Patent Law, in
J. Econ Persp 1991 at 30
32
R. MERGER and R. NELSON, On limiting or encouraging rivalry in Technical Progress: The effect
of Patent Scope decisions, supra note 18 at 916
33
F. SCHERER, Patents. Economics, Policy and Measurement, Edward Elgar supra note 29 at p.153
34
C. NARD, Law of Patents supra note 10 at 65
Eno-obong Usen
87
competing interest. 35and what we may have would be a number of small clusters
of blocking patent preventing technological advancement. Thus narrow patent can
be just as stifling in number as broad patent. However the Japanese system which
is typified by narrow patent grant demonstrate that this problem could be avoided
or at least lessen by anticompetitive regulation of the market, cross licenses or other
technology transfer practices36.
The determination of the proper patent claim scope of patent has been the
subject of policy debate over the years37. Yet there has been no consensus on its
optimal scope. Figures from the European patent office easily demonstrate that the
use of patent system varies widely between different technologies38. This might
reflect the notion that there is inherently less innovative activity occurring in
certain industries or that there is something in the patent system that makes it less
attractive to these industries. Another rationale for this might well be that technical
advances varies significantly in different field of industries making any attempt to
provide a general formulae of claim scope for all nature of invention fundamentally
flawed.
Countries at different stages of economic development show preference to
broad or narrow patent claim scope of protection in response to the need for
technological and economic advancement that might exist at that particular period
in their history or as a reflection of their historical and cultural circumstances. This
is mainly due to the variation in incentives that broad and narrow protection
provides to the inventive pool39. At a low level of economic development,
countries develop by bridging their technology gap through imitation. A narrow
scope of patent protection serves to reduce the cost of imitation. But as their
indigenous innovation capability develops and an indigenous innovation springs
up, the welfare calculus changes such that countries find it in their own interest to
broaden their scope of protection. To this end it is pertinent to compares the Patent
claim scope regime of different countries.
3. COMPARISON
35
M. FISHER, Fundamentals of Patent Law: interpretation and scope of protection, supra note 5
at155
36
Ibid at 256
37
R. J. GILBERT and C. SHIPORA, Optimum Patent Length and Breadth in RAND J. of Econs 21,
no. 1, Spring 2001, pp. 106 at 112
38
The top performer in 2005 was, according to the Annual Report of the European Patent Office ,
electronics and electrical communications technology, which accounted for 11.06% of filings.
Agriculture accounted for 0.79% of applications , and mining for 0.32%. Health related inventions
made up 6.92%, and 1.30% were in the field of inorganic chemistry. Nucleonic was at the bottom of
the table, accounting for only 0.13% of applications. The Annual Report is available at
http://annual-report.european –patent-office.org/2005_chapter4.pdf
39
As earlier noted broad protection is often said to encourage so-called pioneer inventions well
adapted to countries at a high level of technological evolution while narrow protection encourages
follow-on inventions preferable for countries at a lower level of technological evolution.
88
Economic Implications of Patent Claim Scope
Broad and Narrow Patent Claim Scope of Protection
The Agreement on the Trade Related Aspects of Intellectual Property Right
(TRIPS) of 199440 was established as a response to the need to for an effective
international protection measure for intellectual property right as necessitated by
increased international trade and development. Section 5 borders on patent related
issues, yet its provision is silent on the issue of claim interpretation, leaving the
matter to the discretion of national legislation of contracting parties. The approach
to this issue reflects disparity between nations; with some giving broad protection,
others narrow protection and yet others trying to maintain a balance between broad
and narrow protection. Such manifest disparity is unfavourable to the maintenance
of the spectrum of innovative activity in the world system and goes against the
tenet of the TRIPS agreement itself which is the transfer and dissemination of
intellectual property41.
The United States, Germany and Japan are the three systems that at one times
was acclaimed to handle nearly 90 percent of the world‘s patent traffic42, United
Kingdom also is a major player in the patent system. The approach to the
appropriate scope of patent claim varies widely. Claim interpretation in these
countries are diversified, from the traditionally narrow, sub-literal, Japanese
approach, through the expansive effect of the US Doctrine of equivalents, to the
German broad protection of the general inventive Idea43 and the UK purposeful
claim interpretation approach.
In the United States and the United Kingdom, the principle upon which claim
drafting is based is that of peripheral definition, with the claim marking the outer
boundary of the protection44. However when it comes to interpretation, the two
system part company, for the United States, patent claim scope is determined by
application of a two stage test whereby the literal assessment of the wordings used
in the claim is augmented by recourse to the doctrine of equivalents45. The
doctrine of equivalent seeks to eliminate the problem resulting from literalism in
the construction and application of the claim language judging from the fact that
the literal infringement alone is sometimes inadequate to protect the patentee and
the recognition that the literal claim language may not fully capture the patentee‘s
40
TRIPS Agreement is Annex 1C of the Marakesh Agreement establishing the World Trade
Organisation
which was concluded on April 15, 1994. Available at http://www.wto.org/english/tratop_e/trips_e/t_
agm0_e.htm
41
ibid Article 7
42
T. Isayama, „Japan‟s view on a Desirable IP System for the Global Economy‟ in JWIP 1999,
679ff at 687
43
M. FISHER, Fundamentals of Patent Law: interpretation and scope of protection, supra note 5 at
174
44
Ibid.
45
Per Justice Jackson in Graver Tank v Linde Air Products, 339 US 605(1949, Supreme Ct) at 608
and also Section 112 Patent Act of 1952, ch 950, 66 Stat 792 (19 July, 1952)
Eno-obong Usen
89
contribution to the invention46. It further presupposes that limiting patent protection
to the literal scope of the claim would encourage the concealment of invention
thereby going against a tenet of the patent law47 and the very foundation of the
American Patent Law48. The doctrine of equivalent has been viewed as extending
the patent claim scope beyond that contemplated by the inventor at the time of
filing the patent application and thus negatively affecting after raising inventions.
However there exist other methods of expanding protection beyond the literal
wording that the patentee uses, such as a true purposive construction wherein the
perceived desire of the patentee inform the lexicon.
Conversely, in the United Kingdom the scope of protection is determined by
a single- stage purposive construction of the claim49. A purposive interpretation
demands that the claims be read through the eyes of a person skilled in the art, and
that the purpose or function of the invention should be borne in mind when the
patent is interpreted50. Thus how broad or narrow the patent claim scope should
be, is left to the determination of the person skilled in the art. The European Patent
Convention51 entered into force in 1977, UK is a signatory and as part of its
obligation under the convention the UK Patent Act 1977 was passed into law52.
The provisions of Article EPC and the Patent Act of 1977 are similar. Section 69 of
the European Patent Convention provides that ‗the extent of the protection
conferred by the European patent or a European patent application shall be
determined by the terms of the claim, Nevertheless, the description and drawings
shall be used to interpret the claims‘. Contracting States have criticised this
principle as often leading to an unduly narrow and literal interpretation and in
certain cases it has also lead to an over generous interpretation53 Lord Diplock in
the leading case of Catnic Components Ltd v Hills & Smith Ltd (1982) RPC 18354
interpreted this principle to mean that which actually gave effect to what the person
46
J. S. CIANFRANI, An Economic Analysis of the Doctrine of Equivalents in Va. J. of L.& Tech ,
Spring 1997, pp. 8 available at http://www.vjolt.net/vol1/issue/vol1_art1.html
47
M. FISHER, Fundamentals of Patent Law: interpretation and scope of protection, supra note 5 at
187
48
To promote the progress of science and useful arts, by securing for a limited times to authors the
exclusive right to their respective writings and discovery. Article 1 of the Constitution of the United
States of America.
49
Kirin-Amgen v Transkaryotic Inc (2005) 1All ER 667
50
Kastner v Rizla (1995) RPC 585, cited in L. BENTLEY and B. SHERMAN, Intellectual Property
Law, Oxford
University Press, 2009 at pp. 536
51
European Patent Convention(EPC) was signed in Munichi on 5 October, 1973 but entered into
force 7 October 1977. It is available at http://www.epo.org/patents/law/legaltexts/html/epc/1973/e/ma1.html
52
M. FISHER, Fundamentals of Patent Law: interpretation and scope of protection, supra note 5 at
291
53
C. NARD, Law of Patents supra note 10 at 507
54
―A patent specification should be given a purposive construction rather than a purely literal one
derived from applying to it the kind of meticulous verbal analysis in which lawyers are too often
tempted by their training to indulge‖. Ibid. At 538
90
Economic Implications of Patent Claim Scope
skilled in the art would have understood the patentee to be claiming. Thus article
69 prevents equivalence from extending protection outside the claims
Contracting States to the European Patent Convention criticised this
principle as often leading to an unduly narrow and literal interpretation and in
certain cases it has also lead to an over generous interpretation55. It is appreciated
the fact that matters relating to claim construction by the contracting states admits
widely differing interpretative styles. To this end the protocol on the interpretation
of Article 69 was enacted. The protocol makes it clear that one cannot go beyond
the claim to what, on the basis of the specification as a whole, it appears that the
patentee has contemplated but however in determining the extent of protection
according to the content of the claim but avoiding literalism, the court of the
Contracting State should combine a fair protection for the patent with reasonable
degree of certainty for third parties56. The drafters of the Convention by adopting a
formula whereby the extent of protection conferred by a patent is determined by the
terms of the claims rather than the words of the claim takes a position somewhat
broader than that of a pure literal claim interpretation57. The protocol has been
regarded as a compromise between the claim interpretation policies of United
Kingdom and Germany which are the two most important patenting powerhouses
in Europe58.
Traditionally in Germany as opposed to UK where the claim formed the
periphery of the monopoly, and interpretation a key to both the definition of the
invention and the extent of protection. Traditionally, in Germany claim
interpretation formed the core of the monopoly, but protection is determined by
extrapolation from this central point based on what the patent actually teaches the
skilled addressee59. Thus the claim served only to define the invention, the scope of
the protection was determined by a generalisation of the inventive concept,
unhindered by the exact words used in any claim limitation60. The German courts
traditionally adopt a reward-based justification for the grant of patent, this
establishes another key principle in German Claim interpretation namely the idea
that a broad scope protection should be given to the so-called ‗pioneer inventions‘
55
C. NARD, Law of Patents supra note 10 at 507
Ibid at 508
57
M. FISHER, Fundamentals of Patent Law: interpretation and scope of protection, supra note 5 at
225
58
Germany accounts for nearly 45 % of patent applications originating in Europe and the United
Kingdom accounts for nearly 10% of this figure. See : EPO Annual Report for 2005 available at
http://annual-report.european-patent-office.org/facts_figures/_pdf/fact_figures_05.pdf
59
This is otherwise called the Central Definition theory.
60
T. TAKENAKA, Interpreting Patent Claims: The United States, Germany and Japan, 17 IIC
Studies, 1995 ed., Max Plant Institute of Foreign and International Patent, Copyright and
Competition Law, Munich. At 30
in M. FISHER, Fundamentals of Patent Law: interpretation and scope of protection, supra note 5 at
224
56
Eno-obong Usen
91
than to minor advances61.Thus if the patent did not add appreciably to the prior
teaching, then it was not deserving of a reward and would be given a narrow
interpretation but for pioneer or revolutionary inventions a broad interpretation
would be given62. The essence of this was to spare competitors the necessity of
bringing a nullity suit.
This expansive interpretation of patent scope admits a lot of uncertainty into
the process of innovation and patenting. Theoretically beneficial to the patentee, as
protection is provided that is commensurate to the inventive merit of their creation
yet third parties are at disproportionate disadvantage as they can no longer rely on
patent document to determine the scope of the invention. This tends to undermine
the value of patent as an information tool63.
The traditional German claim interpretation had been criticised, exalted,
supported and denounced but one key fact is undeniable; German industry did not
falter and grind to a halt under its influence, the inventive landscape was not
chocked with unwieldy broad patent grants. It serves its purpose. Perhaps that was
the support for the method of interpretation that no agreement could be found over
narrowing the wording of the official German Version of Article 69 EPC(which
refers to the ‗content‘s of claims) to match the official English and French versions
( referring to ‗terms‘). The German Act of 1918 was promulgated in order to satisfy
German obligation under the EPC. Article 69 of the EPC viewed as incompatible
the Central definition theory thus forcing German Patent practice to be modified to
a position where by claim occupied a position more central to the grant. In practice
however the presumption underlying the protection of the general inventive ideathat the patentee is entitled to reward to the full extent of their contribution to the
art is most significant and can be seen to have coloured many decisions under the
1981 Act64. German claim scope nevertheless remains much broader than that of
the United Kingdom yet as earlier noted the general inventive idea did not stifle
German‘s economic and technological advancement to any appreciable extent.
However there remains yet another claim interpretation style the Japanese subliteral interpretative style which may give more insight on this issue.
61
Decision of Reichsgericht of 2 Mar cited in T. TAKENAKA, Interpreting Patent Claims: The
United States, Germany and Japan, supra note 60 at 24 Thus if the patent did not add appreciably
to the prior teaching, then it was not deserving of a reward and would be given a narrow
interpretation but for pioneer or revolutionary inventions a broad interpretation would be given.
62
M. FISHER, Fundamentals of Patent Law: interpretation and scope of protection, supra note 5 at
231
63
ibid at 232
64
In Formstein‘s case for instance the court while asserting that the new law marked a firmed
departure from the principles of the old structures the new test and in particular the statement of
invention paraphrased in the claims to reflect the legacy of expansive interpretation. It provided a
potential scope of protection which does not seem to be different from the traditional German Claim
Interpretation- Geissler, ‗Comments on Formstein‘ (1987) 18 IIC 795 at 802 See for instance
Improver Corp v Remington Consumer Products Ltd, (1993) 24 IIC 838
92
Economic Implications of Patent Claim Scope
Japan Patent Ordinance of 1959 represented a novel approach to claim
interpretation. Article 70 provides that the court should determine the technical
scope of a patented invention, and therefore the breadth of protection, by reference
to the claim65. The Ordinance came into force as a response to government policy
to aid Japan in its post-war recovery66. However the Ordinance did little to change
the institutionalised perception of the Japanese Patent Claim scope which was
fundamentally narrow67. Therefore despite the provisions of Article 70 of the 1959
Patent Law Ordinance, the claim was still being utilised up till the late1990 as a
guiding principle to be remoulded at will68. Takura summarised the three main
position that may be adopted to in the determination of claim scope in Japan as
follows: The literal interpretation which is important for legal certainty, second a
supra-literal interpretation which expands the patent‘s scope beyond their precise
wordings, thereby emphasising protection of the right holder and thirdly the subliteral interpretation which provides for a narrow understanding of the claim than
the actual wording would suggest, and emphasis protection of the general public69.
Thus the claim was considered to provide a succinct summary of the invention
while the scope of protection had to be decided on the basis of the entire
application including the specification and the drawings70. The third approach is
peculiar only to Japan, though in decided cases Japanese courts tend to follow this
seemingly unorthodox pathway71. The sub-literal protection reflects an essential
element of Japanese patenting culture that is collectivism, over individual reward
system72. The system of narrow grant allows patent to beget patent thus making it
virtually impossible for one entity to control all technology surrounding an
invention.
Apparently, the Japanese system protects what the inventor actually realise
he had invented and thus fully disclosed to the public in his specification. This is a
somewhat limiting principle as it tends to suppress the breadth of patent. 73.
Takenaka rightly asserts that if protection does not extends to minor innovation
then this is a tragedy especially to the inventor who is thereby not wholly rewarded
for his contribution further more if infringement does not cover minor modification
65
M. FISHER, Fundamentals of Patent Law: interpretation and scope of protection, supra note 5 at
260
66
T. TAKENAKA, Interpreting Patent Claims: The United States, Germany and Japan, supra note
60 at 34
67
M. FISHER, Fundamentals of Patent Law: interpretation and scope of protection, supra note 5 at
260
68
ibid
69
O. TUKURA, „Japanese Claim interpretation‟ (1994) AIPPI Journal 215 at 215
70
Ibid at page 194
71
See for example Token Lender-Ace Denken KK v Yuai Shoji – p.113 Hanrei Jihou(Law Report)
No. 1390 (July 1999)
72
M. FISHER, Fundamentals of Patent Law: interpretation and scope of protection, supra note 5 at
274
73
The practice of limiting patent scope based on disclosure in the specification rather than the
wording of the claim is also known as the inventors recognition theory.- T. TAKENAKA,
Interpreting Patent Claims: The United States, Germany and Japan, supra note 60 at 66
Eno-obong Usen
93
then patent law would encourage imitation instead of innovation74. Fisher
reasoning along this line avers that as an ideology, it fits very well with an
economic model that promotes importation and assimilation of technology, a sort
of legalised piracy promoting patent clusters, rather than giving incentive to
pioneer inventions75. While these views are well maintained, yet Japan based on
her model of patent scope did reach a high level of economic and technological
growth within a very short expanse of time. The narrow scope of protection in the
long run became of immense benefit to all categories of people in Japan, from
inventors to innovators down to the consumers. The technical teachings of the
patent system provided a platform upon which future technology built on without
fear of infringements.
There are no uniform rules applicable to the interpretation of patent claim and
their scope even at the international level. The ambivalence in claim interpretation
across national territories produces a disincentive to inventors and investors to
transfer technology or engage in inventive activities in states which offer an
inadequate protection for their rights and economic interest76. It is therefore of
much economic advantage for the claims to be construed in a manner clear enough
to mark a definite boundary between what is actually protected and the extent to
which a new inventors activity would constitute an infringement. To this end it is
important to consider what actually institutes and infringement of a patent right.
Infringement can be loosely defined as the commission of a prohibited act with
respect to a patented invention without permission of the patent holder and this
forms our next discussion.
4. INFRINGEMENT
Patent infringement is the commission of a prohibited act with respect to a
patented invention without the permission or licence from the patent holder. Patent
is territorial and infringement is only possible in a country where a patent is in
force. The definition of patent infringement varies by jurisdiction but it typically
includes using or selling the patented invention. In most countries, a use is required
to be commercial or have a commercial purpose to amount to an infringement. In
German Section 9 of the Patent Act defines the uses constituting patent
74
Ibid at 47
M. FISHER, Fundamentals of Patent Law: Interpretation and scope of protection, supra note 5 at
261
76
In 1871, Bessmer, the German-born inventor of a revolutionary steel-making process that bears
his name told the those gathered at the select committee that he brought his invention to Britain
because he of the protection afforded by the patent system. Also Holden, in evidence before the
same committee cited example of Switzerland, ‗where there was no protection afforded by the
patent system at that time, industries made no progress and people were unemployed‘- See Report
of the 1871 Select Committee on Letter Patent, House of Common Papers N 0 368 at 746-62 cited in
76
M. FISHER, Fundamentals of Patent Law: interpretation and scope of protection, supra note 5 at
76.
75
94
Economic Implications of Patent Claim Scope
infringement as use of a patented method or process in Germany77. This is similar
to direct patent infringement provision under the US laws, Article 35 U.S.C. 271
provides that the unauthorized making, using, offering for sale or selling any
patented invention by the infringer must be within the United States or United
States Territories,. In Japan Article 101 of Patent Act provides for the use by the
patent infringer to be ―...exclusively for the producing of the said patented product
as a business‘ coupled with the ‗...knowing that the said invention is a patented
invention and the said product is used for the working of the invention‘. Impliedly
‗use‘ has to exclusively pertain to the patented product and for commercial
purpose. In the UK by section 60 of the Patent Act 1977 the ‗use‘ constituting
infringement is ‗.... the use, or offer for use where it is known that the use of the
process would be an infringement‘. Thus the said use must be coupled with
malicious. It is important however to note that such ‗use‘ of the patented product
must be done during the lifetime of the patent.
The laws of the United State, UK, Japan and Germany bellies two broad
categories of patent infringement namely indirect infringement and direct
infringement78. Nard elucidating on this categorises of infringement identifies
indirect infringement as occurring where a party encourages or aids another
directly to infringe the patent while direct infringement, occurs where a party is by
himself committing acts (e.g., making a product or practicing a process) that
infringe one or more patent claims79.
Direct infringement: This comprises literal infringement and non-literal
infringement, commonly referred to as the doctrine of equivalents (or ‗‗DOE‘‘)80.
Literal infringement seems to assume a somewhat uniform interpretation in
UK, USA, Japan and Germany. Nard rightly points out that it occurs when an
accused device possesses each and every limitation recited in at least one patent
claim81. Literal infringement is also found where the accused device in addition to
possessing each and every limitation recited in at least one of the patent claims
contains additional elements not found in the claim82. However it has been
commonly recognized that literal infringement alone is sometimes inadequate to
protect the patentee as the literal claim language may not fully capture the
77
A German patent and a European patent granted for Germany are not generally affected by acts
committed exclusively in other countries.
78
R. WESTON JR. A comparative analysis of the Doctrine of equivalent: Can European Approach
solve an American Dilemma. 39 IDEA 35 see generally on the provisions for infringement Article
101 of the Japanese Patent Act (Act No. 121 of 1959), Section 60 of the UK Patent Act 1977,
Section 35 U.S.C. § 154 in United States and German Patent Act Section 139-142.
79
C. NARD, Law of Patents, supra note 10 at 391.
80
ibid
81
Ibid 457.
82
For example, Inventor claims a sewing device, comprising A, B, and C; an accused device would
still infringe if it possessed A, B, C, and D see for instance Dippin‘ Dots, Inc. v. Mosey, 476 F.3d
1337
Eno-obong Usen
95
patentees‘ contribution to the art83 . This was also well noted by Justice Jackson‘s
in Graver Tanks & Manu. v Lined Air Product Co when he stated that ‗‗to permit
imitation of a patented invention which does not copy every literal detail would be
to convert the protection of the patent grant into a hollow and useless thing‘‘ and
limiting the patentee to his literal claim scope ‗‗would leave room for—indeed
encourage—the unscrupulous copyist to make unimportant and insubstantial
changes and substitutions in the patent.‘‘84. In the case of Hoechest Celanese v BP
Chem Ltd85, there was an intense dispute over the term ―stable‖. It clearly
illustrated that the meaning of even the seemingly clear term in a patent claim can
be hotly contested in an infringement suit and the entire case can turn on which
definition the court would accept86. Thus the same word would mean different
things to different people making language inherently incapable of capturing the
essence of the invention and a patent susceptible to being easily circumvented87. In
order to mitigate the hardship that may be occasioned by literal infringement courts
have over time evolved infringement under the doctrine of equivalent otherwise
known as non-literal infringement.
The doctrine of equivalent is an equitable remedy, applied where the accused
product or process does not literally infringe the claim, it allows liability to be
found if the infringing device (or process) is an ‗‗equivalent‘‘ to the claimed
invention88. The doctrine of equivalent gives the patent applicant all of the reward
to which they are entitled to without the cost of obtaining additional protection thus
giving him the protection that would otherwise not have been possible under the
literal infringement.
The doctrine of equivalent thought to have evolved in the US, have been
given different interpretation by courts in different jurisdiction89. Ralston90 mirrors
this inconsistency as driven by national tradition. He noted that some countries,
83
S. HALPERN, C. NARD and K. PORT, Fundamentals of United States Intellectual Property Law:
Copyright, Patent, and Trademark, Kluwer 1999 at 285
84
Graver Tank & Manufacturing Co. v. Linde Air Products Co., 339 U.S. 605 (1950) cit. In S.
HALPERN, C. NARD and K. PORT, Fundamentals of United States Intellectual Property Law:
Copyright, Patent, and Trademark ibid.
85
Hoechst Celanese Corp. v. BP Chemicals, Ltd., 846 F. Supp. 542, 31 USPQ2d 1825 (S.D. Tex.
1994).
86
J. S. CIANFRANI, An Economic Analysis of the Doctrine of Equivalents supra note 46 at 22
87
Miquel reasoned in her writing that patent law would have no purpose if third parties are allowed
to use without permission(and without infringement) allege technical solutions, which, without
falling into the scope of the literal wording of the claims of a previous patent , showed insubstantial
variants in respect of the element claimed therein.
88
S. HALPERN, C. NARD and K. PORT, Fundamentals of United States Intellectual Property Law:
Copyright, Patent, and Trademark supra note 83 at 266
89
See International Association for the Protection of Intellectual Property (AIPPI), Committee
Q175, Summary Report, The role of equivalents and prosecution history in defining the scope of
patent protection 1(2003), available at http://www.aippi.org/reports/q175/q175_summary_e.pdf.
90
W. T. RALSTON, Foreign Equivalents of the U.S. Doctrine of Equivalents: We‟re Playing in the
Same Key but it‟s not Quite Harmony, Chicago-Kent J. Intell. Prop. 2007 p. 2 available at
http://jip.kentlaw.edu/art/volume%206/6%20Chi-Kent%20J%20Intell%20Prop%20177.pdf
96
Economic Implications of Patent Claim Scope
including Japan and the United Kingdom, traditionally interpreted claims very
literally, and thus did not until recently have any doctrine analogous to the U.S.
doctrine of equivalents91. Conversely, other countries, including Germany,
interpreted claims very broadly and incorporated doctrines similar to the U.S.
doctrine of equivalents into their approach to determining literal infringement92.
In the United States for infringement to be found under the doctrine of
equivalence the accused infringing device must have each element of the patented
claim93. This all elements rule was affirmed in Pennwalt, and the Federal Circuit
asserted that the element by element analysis must consider all of the limitations
included in the claim94.
The U.K. recognized a doctrine of equivalents, referred to as the doctrine of
―pith and marrow.‖95 Under this doctrine, if an accused device contains all of the
elements of the claim, but some ―inessential elements‖ are substituted with
equivalent elements, then non-literal infringement of a patent is found96. Hence, for
infringement to be found ―every element and limitation … is essential.‖97
Germany‘s approach to infringement under the doctrine of equivalence
mirrored that of the U.S. accordingly any accused device that embodied the same
inventive concept as claimed in a patent infringed that patent98. But, after Germany
signed the EPC, it made a number of changes to its laws, and requires that for an
infringement to be said to have occurred the court must look at the technical
function of each of the individual features of the claims. This analysis considers
―every single feature and . . . the mutual connection of all features of the claim99.‖
Takenaka recounting the Japanese experience noted that its Patent Laws were
originally patterned according to Germany‘s approach, but the Law came under
much influence by the U.S. law. Consequently Japan adopted a much narrower
91
See also W. C. REVELOS, Patent Enforcement Difficulties in Japan: Are There Any Satisfactory
Solutions for the United States?, 29 GEO. WASH. J. INT‘L L. & ECON. 503, 521 (1995)
92
A. M. SOOBERT, Analyzing Infringement by Equivalents: A Proposal to Focus the Scope of
International Patent Protection, 22 RUTGERS COMPUTER & TECH. L.J. 189, 190 (1996) at 207
93
C. NARD , The Law of Patents supra note 10 at 418
94
833 F.2d at 949-954 (J. Nies, concurring); See also Warner-Jenkinson Co. v. Hilton Davis
Chemical Co., 520
U.S. 17, 29 (1997) (setting forth same rule).
95
R. D. WESTON, A Comparative Analysis of the Doctrine of Equivalents: Can European
Approaches Solve an American Dilemma, 39 IDEA 35, 40 (1998), 49-50
96
Ibid. 50-51
9797
The following cases are instructive on this issue ; Catnic Components Ltd. v. Hill & Smith Ltd.,
[1982] R.P.C 183 (H.L.) and Improver Corp. v. Remington Consumer Products Ltd., [1990] F.S.R.
181 (Pat. Ct. 1989)
98
W. T. RALSTON, Foreign Equivalents of the U.S. Doctrine of Equivalents: We‟re Playing in the
Same Key but it‟s not Quite Harmony supra note 90 at 11
99
Ibid.
Eno-obong Usen
97
interpretation of claims100. Thus, Japan also applies the ―all elements‖ rule101 in
order to determine an infringement under the Doctrine of Equivalence.
However, in order to strike a balance between the interest of the patent
applicant and the new comer to the technological area, by ensuring that the
innovation process in not stifle the courts formulated four important limitations on
the doctrine of equivalent they include: prosecution history estoppel- which
prevents a patentee from capturing (or recapturing) claim scope which the patentee
had surrender during prosecution to obtain allowance over cited prior art102. The
public dedication rule- subject matter disclosed but not claimed in the patent
application is dedicated to the public103 ; the all-limitations rule demands that each
limitation of a patent claim is material to defining the scope of the patented
invention and must not be vitiated or rendered meaningless. Thus, for there to be
infringement under the doctrine of equivalent an equivalent of each claim
limitation must be found in the accused device104. Relatedly specific exclusion
rule, which is a corollary to the all-limitations rule, holds that the doctrine of
equivalent is unavailable to capture subject matter that the claim specifically
excludes. The reasoning behind this rule is that by defining a claim in a way that
specifically excludes certain subject matter, the patentee implicitly disclaimed the
subject matter and is therefore prevented from invoking the doctrine of
equivalent105. Prior Art The role of prior art as a limitation on the doctrine of
equivalent is straightforward. Claim coverage under the Doctrine of Equivalent
cannot extend to include subject matter that forms part of the prior art. The reason
is claims that read on the prior art do not satisfy the patentability requirements, and
therefore, the Patent office would never have issued the patent106.
Indirect infringement: Nards identifies two possible types of indirect
infringement known to patent law, there are induced infringement and contributory
infringement107. In Germany and the Patent Laws did not expressly make mention
of contributory and induced patent infringement, yet it is submitted that induced
and contributory infringement as a common legal principle which the court would
always give effect to, is reflected in its Patent provisions to.
Induced infringement is alleged where there is some positive act of
inducement by the person being sued to another to carry out a direct infringement
of that which is claimed. Having case law roots, induced infringement was codified
100
T. TAKENAKA, Harmonizing the Japanese Patent System with Its U.S. Counterpart Through
Judge-Made Law: Interaction Between Japanese and U.S. Case Law Developments, 7 PAC. RIM.
L. & POL‘Y 249, 252-253 (1998)
101
Ibid. 253
102
Sofamor Danek Corp., v DePuy-Motech Inc., 74 F.3d 1216,1222(Fed. Cir. 1996) cit. Ibid. at 267
103
Maxwell v J. Baker, Inc., 86 F. 3d 1098,1106 (Fed. Cir.1996) cit. Ibid. At 266
104
C. Nard, Law of Patents supra note 10 at 454
105
SciMed Life Systems, Inc. v. Advanced Cardiovascular Systems, Inc., 242 F.3d 1337, 1347 (Fed.
Cir. 2001). Cit , ibid.
106
C. Nard, Law of Patents supra note 8 at 454
107
Ibid.
98
Economic Implications of Patent Claim Scope
in 1952 by the Patent Act .under § 271(b) of Title 35 of the United State Code
which succinctly provides that ―[w]hover actively induces infringement of a patent
shall be liable as an infringer‖. Such a positive act may be in instructing, directing
or advising the third party as to how to carry out a direct infringement108. To
constitute infringement by inducement under the US Laws two element must be
present: (1) direct infringement by another and (2) intent to cause the acts which
constituted infringement109. Though the term ‗Inducement‘ is not expressly
mentioned under Article 101 of Japanese Patent Law yet its provision mirrors
same110. In Germany and UK, provisions for induced infringement is not clearly
reflected in the Patent Laws, however European Patent Convention (EPC 1973)
Article 64 (3) provides that any infringement of a European patent shall be dealt
with by national law, this gives courts in Germany and UK the leverage of
resorting to their national laws in order to find induced patent infringement,
howbeit against the provisions of section 10 of the German Patent Act and UK
Section 60(2)(3) Patent Act 1977 respectively. The German Civil Code §840 BGB
bellies the provisions for induced infringement and has provided a basis upon
which patent infringement has been found. Elements that constitute infringement
under the German and UK laws can be summarized as: (1) the allegedly infringing
part, which must not be a staple commercial product, has to relate to an essential
element of the patented invention. (2) It has to be suitable and intended for
exploiting the invention. (3) It has to be supplied within and for use in Germany or
UK as the case may be and (4) must be delivered to a person that is not entitled to
exploit the invention. (5) the supplier has to know that the means are suitable and
intended for exploiting the invention or it has to be at least obvious to him.(5)
Finally, the patentee must not have consented to this specific supply.
Contributory infringement: The doctrine of contributory infringement, like
the doctrine of equivalents, provides patentees with some additional protection
against those who unfairly took advantage of their inventions111. A contributory
infringement occurs where a person without the authority from the patentee sells or
offers to sell within the patent granting States or imports in such States, a
component of the patented machine, manufacture, combination or composition, a
material or apparatus for use in practicing a patented process, or machine
constituting a material part of the invention, knowing the same to be especially
made or especially adapted for use in infringement such as patent, and not a staple
108
Hewlett – Packard Co. V Baushch & lomb, Inc 909 F. 2d 1464(fed. Cir, 1990)
S. HALPERN, C. NARD and K. PORT, Fundamentals of United States Intellectual Property Law:
Copyright, Patent, and Trademark supra note 83 at 268
110
Article 101 of the Japan Patent Law provides where a patent has been granted for an invention of
a product, acts of producing, assigning, etc., importing or offering for assignment, etc. any product
(excluding those widely distributed within Japan) to be used for the producing of the said product or
process and indispensable for the resolution of the problem by the said invention as a business,
knowing that the said invention is a patented
invention and the said product is used for the working of the invention;
111
LADAS and PARRY LLP. Indirect infringement available at / http://www.ladas.com/Patents/
BiotechnologyUSPharmPatentLaw/USPhar31.html
109
Eno-obong Usen
99
article of commerce, suitable for substantially non-infringing use112.
The concept of contributory patent infringement varies from country to
country. There exist substantial differences in the scope, premises and the laws
bordering on contributory infringement although a look at the various applicable
laws reveal a general consensus that the sale or offer for sale of an article will
constitute contributory infringement only if the said article is not a staple article of
commerce. In the US inducement is also a key element in contributory patent
infringement. First recognized as a tort in the United States in 1871, developed in
the case law until it was eventually codified by the patent statute. Section 271(b) of
the Patent Act declares that a person who actively induces the infringement of
another‘s patent is jointly responsible with the direct infringer. Prior to
codification, however, the case law further extended the limits of contributory
infringement and § 271(c) of the current federal patent statute likewise includes
elements beyond active inducement113. Many other countries do not require active
inducement but instead merely require proof of another‘s actual direct infringement
or a substantial possibility of direct infringement114. Often, these countries strictly
required the contributory infringer to know that the components sold were to be
used for patent infringement. Recent statutes, however, only require awareness that
the components were made for the exploitation of the patented invention. By
contrast, some countries like Japan do not require any knowledge of the direct
infringement. Contributory infringement is recognised from the mere production of
components that could only be used to produce a patented article where the
infringer must have knowledge that the article in question was patented and that his
use of such an invention to make, use, sell or offer for sell will constitute an
infringement115.
The German Patent Law Section 10 bellies the essential elements of
contributory infringement. It has been contended that contributory infringement in
Germany requires the ―essential element‖ to be set out in the claims of the
infringed patent116. The law of contributory infringement in the UK is codified in
Sections 60(2) and 60(3) of The Patents Act 1977, The elements of contributory
infringement under the Act in UK is similar to that of Germany and can be
summarised thus; (1) the infringing product of process must have been supplied or
offered to be supplied within the jurisdiction. (2)the means supplied must relate to
an Essential element of the invention;(3) the person supplied must not be a
licensee, or otherwise entitled to work the invention;(4) the patent must be in
force;(5) the supply must be without the consent of the patentee; and (6) the
112
B. LOHARY, K. BANERJEE and A. PANIKAR, Contributory Patent Infringement and the
Pharmaceutical Industry, 8 JIPR July 2003 at 303
113
S. JONG, Contributory Patent Infringement in Korea; Re-Engineering Patent Law, Wash. U. J.L.
& Pol‘y Vol.2:287 2000 p. 295 available at http://law.wustl.edu/journal/2/p287jong.pdf
114
Aro Manufacturing Co. v. Convertible Top Replacement Co., 377 U.S. 476(1961)
115
Stroco Prod. Inc v Mullenbach 67 USPQ 168, 171(S. D. Call 1944)
116
J. TAORMINO, Contributory Patent Infringement in Germany, Hoffmann.Eitle, Munchen London
2008 at p. 6
100
Economic Implications of Patent Claim Scope
infringer must know, or it must be obvious to a reasonable person in the
circumstances, that the means supplied are suitable for putting, and are intended to
put, the invention into effect in the jurisdiction117.
It is however observed that in UK where a staple product is supplied, it will
only be a contributory infringement if the supply is accompanied by an inducement
for the person supplied to commit a direct infringement. Such an inducement might
come in the form of instructions which would lead the person supplied to commit
an infringement. It has been maintained that the U.S. Patent Law theoretically
provides a patent owner with stronger or broader protection under contributory
infringement118.
5. CONCLUSION:
It is safe to conclude that the approach to the interpretation of claim scope
plays a vital role in the promotion of research investment, foreign technology
transfer and consequently higher economic growth in the nation. It has been
proposed by some writers that the level of development in a country ought to be a
strong determinant of the scope of patent protection offered in that country.
Developed countries are most likely to benefit from a broader scope of patent
construction because they engage in more international trade and in revolutionary
research. In developing countries most industries lack technical capacity and
inadequate infrastructure to engage in break through research and they majorly
engage in improvements or follow-on inventions, to this end a narrow scope of
claim interpretation is suggested.
It is worth emphasising that the technological field also plays a major role in
determing the scope of protection. With broad patent claim scope, revolutionary
and breakthrough inventions is expected as any invention close to the patented
claim would be in danger of infringement, for instance the quest for permanent cure
to HIV (in form of vaccine and drug) might well benefit from broad patent claim
scope of protection, as researcher would need the prospect of broad protection to be
induced into such venture. Whilst a narrow patent claim scope for the most time
births many improvement as mirrored in electronic industries. For this reason the
computer industry witnesses many patented improvements which might take place
as quick as the speed of light. This is a model of which Japan is noted for. Indeed
countries could draw a lot of lessons from the Japanese experience when adopting
the narrow patent claim scope which could positively translate to the birth of
industries specializing in adaptation and improvement of invention developed in
117
See J. TAORMINO, Contributory Patent Infringement in Germany, Hoffmann.Eitle, Munchen
London 2008 p.6
118
K. KURUSU, Recent Amendments to Indirect Infringement Provision of Japan Patent Law with
Corresponding Ones in the U.S. and Germany, Oct. 2002 available at
http://homepage2.nifty.com/kurusu-patent/information_draftclaim_e.htm
Eno-obong Usen
101
other countries more so, the patentee could generate a lot of revenue from
licensing.
Stimulation of invention and their commercial activities is one of the
rationale for the grant of patent right. However with its monopolistic nature and
tendency, patent can negatively impact diffusion of new technology and
information as the system itself is susceptible to abuse. It is a common place
observation that inventors most at times seek to extend and expand patent
protection to major advancements and myriads of minor developments thereby
limiting competition in that sector of the economy. Countries can benefit from
adapting into their legislation the pro-competitive measure allowed by TRIPS and
the exceptions to patent right, as a safeguard in order to strike a meaningful balance
between the need to ensure reward to the inventor and the preservation of the
public welfare and economic advancement.
TRIPS, which are administered by the World Trade Organization (WTO),
sets minimum standards of availability, scope, use, and enforcement of IP rights.
These standards are essentially based on those of the United States and the EU
member states and seem to be virtually oblivious of the peculiarities in developing
countries. Consequently, WTO members must, in accordance with Article 27 of
TRIPS, make patents available "for any inventions, whether products or processes,
in all fields of technology, provided that they are new, involve an inventive step
and are capable of industrial application." Furthermore, patents must be available
and patent rights enjoyable "without discrimination as to the place of invention, the
field of technology and whether products are imported or locally produced." The
divergent construction of the appropriate claim scope and how patent policy should
promote national economic development and public policy priorities challenges the
very foundation of such ―one size fit all‖ provision. This rightly reflects the
divergent social and economic circumstances countries face. The better view
however would be that countries should adopt the appropriate claim construction
well suited for its own economic and technological level to ensure a balance
between the need to reward the inventors for their creative efforts and the
dissemination of information and technology transfer.
Economic Implications of Patent Claim Scope
102
BIBLIOGRAPHY
A. M. SOOBERT, Analyzing Infringement by Equivalents: A Proposal to
Focus the Scope of International Patent Protection, 22 RUTGERS COMPUTER &
TECH. L.J. 189, 190 (1996)
B. LOHARY, K. BANERJEE and A. PANIKAR, Contributory Patent
Infringement and the Pharmaceutical Industry, 8 JIPR July 2003 at 303
C. NARD, Law of Patents, Aspen, New York, 2008
D. BURK & M. LEMLEY., Fence posts or sign posts? Rethinking Patent
claim construction, U. Pa. L. Rev , Vol. 57 at 1745-6 available at
http://www.law.upenn.edu/journals/
lawreview/articles/volume157/issue6/BurkLemley157U.Pa.L.Rev.1743(2009).pdf
F. SCHERER, Patents. Economics, Policy and Measurement, Edward Elgar II,
Cheltenham,
G. SUTHERSANEN, Global Intellectual Property Law. Commentary and
Materials, Edward Elgar, 2008 International Association for the Protection of
Intellectual Property (AIPPI), Committee Q175, Summary Report, The role of equivalents
and prosecution history in defining the scope of patent protection 1(2003), available at
http://www.aippi.org/reports/q175/q175_summary_e.pdf
J. HARRISON, Law and Economics, Thomson West, New York, 2007
J. S. CIANFRANI, an Economic Analysis of the Doctrine of Equivalents in Va.
J. L & Tech, spring 1997, pp. 8 available at
http://www.vjolt.net/vol1/issue/vol1_art1.html
J. SCHUMPETER, Capitalism, Socialism and Democracy, 5th ed. London:
George Allen and Unwind, 1976.
J. TAORMINO, Contributory Patent Infringement in Germany,
Hoffmann.Eitle, Munchen London 2008
K. KURUSU, Recent Amendments to Indirect Infringement Provision of Japan
Patent Law with Corresponding Ones in the U.S. and Germany, Oct. 2002
available at http://homepage2.nifty.com/kurusupatent/information_draftclaim_e.htm
K. KURUSU, Recent Amendments to Indirect Infringement Provision of Japan
Patent Law with Corresponding Ones in the U.S. and Germany, Oct. 2002
available at http://homepage2.nifty.com/kurusupatent/information_draftclaim_e.htm
Eno-obong Usen
103
Kastriner, The Revivial of Confidence in the Patent System (1991) 73 JPTOS
5
L. BENTLEY and B. SHERMAN, Intellectual Property Law, Oxford University
Press, 2009
LADAS and PARRY LLP. Indirect infringement available at
http://www.ladas.com /Patents/Biotechnology/
USPharmPatentLaw/USPhar31.html
M. FISHER, Fundamentals of Patent Law: interpretation and scope of
protection, Hart Publishing, Oxford – Oregon, 2007
O. TUKURA, „Japanese Claim interpretation‟ (1994) AIPPI Journal 215 at
215
R. MERGER and R. NELSON, On limiting or encouraging rivalry in Technical
Progress: The effect of Patent Scope decisions in J. of Econ Behaviour Org. Vol
25, 1994
R. WESTON JR. A comparative analysis of the Doctrine of equivalent: Can
European Approach solve an American Dilemma. 39 IDEA 35 available at
http://jip.kentlaw.edu/art/volume%206/6%20ChiKent%20J%20Intell%20Prop%20177.pdf
R. MERGES and R. NELSON, On Complex economics of Patent Scope
decisions, in the Column. L. Rev. Vol 90, 1990
R. MAZZOLENI- R. NELSON, Economic theories about the benefits and costs
of patents, in J. of Econ. Issues 1998, 1031ff at 25.
R. J. GILBERT and C. SHIPORA, Optimum Patent Length and Breadth in
RAND J. of Econs 21, no. 1, Spring 2001
S. JONG, Contributory Patent Infringement in Korea; Re-Engineering Patent
Law in the Wash. U. J.L. & Pol‘y Vol.2:287 2000 p. 287 available at
http://law.wustl.edu/journal/2/p287jong.pdf
S. THORLEY-R. MILLER-G. BURKILL-C. BIRSS, TERRELL on the Law of
Patents, 15th ed., Sweet & Maxwell, London
S. HALPERN, C. NARD and K. PORT, Fundamentals of United States
Intellectual Property Law: Copyright, Patent, and Trademark, Kluwer 1999
104
Economic Implications of Patent Claim Scope
S. SCOTCHMER, Standing on the shoulders of giants: cumulative research and
the Patent Law, in J. Econ Persp. 1991
T. TAKENAKA, Interpreting Patent Claims: The United States, Germany and
Japan, 17 IIC Studies, 1995 ed., Max Plant Institute of Foreign and International
Patent, Copyright and Competition Law, Munich.
T. TAKENAKA, Harmonizing the Japanese Patent System with Its U.S.
Counterpart Through Judge-Made Law: Interaction Between Japanese and U.S.
Case Law Developments, 7 PAC. RIM. L. & POL‘Y 249, 252-253 (1998)
T. Isayama, „Japan‟s view on a Desirable IP System for the Global Economy‟
in JWIP 1999
W. CORNISH and LEWELYN, Intellectual Property: Patents, Copyright,
Trademark and Allied Marks, Sweet and Maxwell, 2003,
W. C. REVELOS, Patent Enforcement Difficulties in Japan: Are There Any
Satisfactory Solutions for the United States? 29 GEO. WASH. J. INT‘L L. &
ECON. 503, 521 (1995)
W. T. RALSTON, Foreign Equivalents of the U.S. Doctrine of Equivalents:
We‟re Playing in the Same Key but it‟s not Quite Harmony, Chicago-Kent Journal
of Intellectual Property 2007 p. 2 available at
http://jip.kentlaw.edu/art/volume%206/6%20Chi-Kent%20J%20Intell %20Prop
%20177.pdf
Table of Cases
Aro Manufacturing Co. v. Convertible Top Replacement Co., 377 U.S.
476(1961)
Catnic Components Ltd. v. Hill & Smith Ltd., [1982] R.P.C 183 (H.L.)
Hewlett – Packard Co. V Baushch & lomb, Inc 909 F. 2d 1464(fed. Cir,
1990)
Hoechst Celanese Corp. v. BP Chemicals, Ltd., 846 F. Supp. 542, 31
USPQ2d 1825 (S.D. Tex. 1994).
Improver Corp. v. Remington Consumer Products Ltd., [1990] F.S.R. 181
(Pat. Ct. 1989)Kirin-Amgen v Transkaryotic Inc (2005) 1All ER 667
Kastner v Rizla (1995) RPC 585
Eno-obong Usen
105
Maxwell v J. Baker, Inc., 86 F. 3d 1098,1106 (Fed. Cir.1996) cit. Ibid. At
266
Stroco Prod. Inc v Mullenbach 67 USPQ 168, 171(S. D. Call 1944)
Sofamor Danek Corp., v DePuy-Motech Inc., 74 F.3d 1216,1222 (Fed. Cir.
1996) cit. Ibid. at 267
SciMed Life Systems, Inc. v. Advanced Cardiovascular Systems, Inc., 242
F.3d 1337, 1347 (Fed. Cir. 2001). Cit , ibid
Stroco Prod. Inc v Mullenbach 67 USPQ 168, 171(S. D. Call 1944)
Tank v Linde Air Products, 339 US 605(1949, Supreme Ct) at 608
Token Lender-Ace Denken KK v Yuai Shoji – p.113 Hanrei Jihou(Law
Report) No. 1390 (July 1999)
Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520 U.S. 17, 29 (1997)
Statutes
European Patent Convention(EPC) 1977. Available at
http://www.epo.org/patents/law/legal-texts/html/epc/1973/e/ma1.html
Japanese Patent Act (Act No. 121 of 1959),
The German Patent Act Section 139-142
TRIPS Agreement is Annex 1C of the Marrakesh Agreement establishing the
World Trade Organisation Available at
http://www.wto.org/english/tratop_e/trips_e/t_ agm0_e.htm
UK Patent Act 1977,
US, Section 35 U.S.C. § 154 of the United States
Abbreviation of Journals
Colum. L. Rev
J. L. & Econ.
J. of Econs
–
–
Columbia Law Review.
Journal of Law and Economics J.L. & Econ.
–
Journal of Economics.
J. of Econ Behaviour Org. Organisation
Journal of Economic Behaviour and
Economic Implications of Patent Claim Scope
106
J. of Econ Issues
–
Journal of Economic Issues
J. of Econ
–
Journal of Economics
J.L. & Pol'y
–
Journal of Law and Policy
J. Econ persp.
–
Journal of Economic Perspectives
JWIP
–
Journal of World Intellectual Property.
J. Int‘l L. & Econ
–
Journal of International Law and Economics
J. Intell. Prop.
–
Journal of Intellectual Property.
JIPR
–
Journal of intellectual property right
Rutgers Computer & Tech. L.J. - Rutgers Computer & Technology Law
Journal
U. Pa. L. Rev.
–
University of Pennsylvania Law Review
Va. J. L & Tech
–
Virginia Journal of Law and Technology
Wash. U. J.L. & Pol'y –
Washington University Journal of Law and
Policy
THE INTERFACE BETWEEN INTELLECTUAL PROPERTY
AND COMPETITION LAW: IS THE REFUSAL OF A PATENTEE
TO LICENSE ANTI-COMPETITIVE?
by
Fanny Koleva1
TABLE OF CONTENTS
1. INTRODUCTION
2. IS THE PATENTEE ALWAYS IN A DOMINANT POSITION?
3. DOES THE DOMINANT PATENTEE ALWAYS BEHAVE IN AN
ANTICOMPETITIVE WAY IN CASE OF REFUSAL FOR
LICENSING?
4. CASE LAW
5. CONCLUSION
BIBLIOGRAPHY
Acknowledgements
The author wishes to thank Professor Marco Ricolfi for his support
throughout the program and Professor Paolisa Nebbia for her guidance in the
research process. The support of Ms. Laura Milano, Ms. Simonetta Sabbadini and
Ms. Ilaria Iannazzo is also appreciated. Special thanks to all lecturers and
participants in the program, as well as to the teams of WIPO, University of Turin
and ITC of ILO.
“In any case, one may hope that future enforcement of antitrust law will
succeed in combining the need to maintain competition with the quest for legal
certainty, without any attempt to penalize firms because (and not despite) of their
IP rights”.
Rita Coco and Paolisa Nebbia.2
1
Assistant Professor, Intellectual Property Department, University of National and World
Economy, Sofia, Bulgaria. E-mail: fanny_koleva@unwe.eu.
2
Compulsory licensing and interim measures in Merck: a case for Italy or for antitrust law?, in
JIPLP 2007, 452 ff., at 462.
108
The Interface between Intellectual Property and Competition Law:
Is the Refusal of a Patentee to License Anti-Competitive?
1. INTRODUCTION
The purpose of the patent system is to provide incentives for innovations, and
therefore for competition, through the grant of property rights upon the created
inventions. The aim of the antitrust law, on the other hand, is to guarantee the
competition, and in this way the innovations, by monitoring the behaviour of the
competitors and not allowing restrictive practices and abuse of market power.
Therefore the two systems share basically the same purpose – to keep markets
innovative and competitive, although they use different tools to achieve this1.
At the same time, their differing approaches may cause tension in a short run
perspective, as far as the grant of a property right on an invention in fact restricts
the competition for the term of protection, creating incentives for competition in
the long run. One of the controversial issues in this respect is if the patentee‘s
refusal to license his invention is anticompetitive. The view points are highly
differing, from the one that the opportunity to exclude is the very essence of the
property right and therefore should be excluded from antitrust scrutiny, to the other
that the patent right is a monopoly and therefore should be object to the same level
of scrutiny as every other monopoly2. The purpose of the paper is to try to find the
answer, as well as if there‘s a way to balance the two systems‘ approaches in this
respect. As far as many considerations are at hand, we will explore theoretically
and regarding the experience of EU and USA basically first the question if the
patentee is a monopolist, afterwards if his behaviour is anticompetitive and how is
this being assessed, including in patent cases, in order to conclude.
1
Probably this is the reason for being said sometimes that they are controversial, while these
differing approaches show that the two systems are complementary, see U. S. DEPARTMENT OF
JUSTICE AND THE FEDERAL TRADE COMMISSION, Antitrust enforcement and intellectual
property rights: promoting innovation and competition, Bibliobazaar, Charleston, 2007, 2 ff., B.
GALLEGO, Unilateral refusal to license indispensable intellectual property rights – US and EU
approaches in J. Drexl (ed.), Research Handbook on Competition and Intellectual Property Law,
Edward Elgar, Cheltenham, 2008, 216 ff., G. GHIDINI, Intellectual Property and Competition Law.
The Innovation Nexus, Edward Elgar, Cheltenham, 2006, 99 ff., H. HOVENKAMP, M.D. JANIS
and M.A. LEMLEY, Unilateral refusal to license in the US, in F. Leveque - H. Shelanski (eds.),
Antitrust, Patents and Copyright. EU and US Perspectives, Edward Elgar, Cheltenham, 2005, 12 ff.,
R. WHISH, Competition Law, Lexis Nexis, UK, 2003, 663 ff., V. KORAH, Antitrust
considerations: refusal to license intellectual property in the U.S. and EC, in C. Heath – A. Sanders
(eds.), Spares, repairs and intellectual property rights, Kluwer Law International BV, The
Netherlands, 2009, 185 ff., R. GILBERT – C. SHAPIRO, An economic analysis of unilateral
refusals to license intellectual property, in PNAS, USA, 1996, 12749 ff., P. NEBBIA, EU
competition law (lectures for the LLM in intellectual property law, 2009/2010), 2 ff.
2
On this controversy, see U. S. DEPARTMENT OF JUSTICE AND THE FEDERAL TRADE
COMMISSION, Antitrust ..., supra at note 3, at 21, V. KORAH, The interface between intellectual
property and antitrust: the European experience, in ALJ 2001, 801 ff., at 803, R. GILBERT – C.
SHAPIRO, An economic analysis ..., supra at note 3, at 12750.
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2. IS THE PATENTEE ALWAYS IN A DOMINANT POSITION?
The refusals for licensing are viewed in competition terms as abuses of
dominant positions or anticompetitive monopoly creations or maintenances. In
order to apply the instruments of the competition policy to a company in this
direction, two things must be at hand: that it is in a dominant position on the market
and that this position is being abused or the monopoly is abusively created or
maintained. Very often the patent right is called monopoly right and therefore it‘s
automatically considered that the first prerequisite is fulfilled.
The things, nevertheless, are usually not so straightforward, because the very
existence of a patent right doesn‘t also mean that the products under it are present
on the market3. On the other hand, the right, given by the patent, is to exclude, the
same property right obviously as any other one in this respect. Interestingly, the
property is usually not called a monopoly right, but only in the case of intellectual
creations4.
Even if we leave this aside and concentrate on the popular assumption that
the patent creates legal monopoly, we must say that the legal monopoly doesn‘t
necessarily coincide with a market monopoly5. There usually are other products on
the market, not covered by the patent, which serve the same purpose and satisfy the
same needs. Therefore, if the patentee is not in a dominant position on the specific
market, his behaviour on it can not be considered abusive.
The said doesn‘t necessarily mean that the patentee can not be a real
monopolist on the market, but that this happens seldom and has to be established in
3
Therefore, even if there is a patent, the very fact that the holder is not on the market with it means
that he can not be in a dominant position and his conduct – anticompetitive. See J. LANG, The
application of the essential facility doctrine to intellectual property rights under European
competition law, in F. Leveque - H. Shelanski (eds.), Antitrust, Patents and Copyright. EU and US
Perspectives, Edward Elgar, Cheltenham, 2005, 63 ff.
4
Probably this is mostly historically based, coming from the first law, regulating the issue in a
contemporary manner, the English Statute of monopolies, 1623 (which covered other issues too, we
must not forget), see http://en.wikipedia.org/wiki/Statute_of_Monopolies_1623.
5
Even if this is a legal monopoly, it‘s an abstract one, limited to the niche market of the very
products under the patent and not the real market situation. Nowadays both the theory and practice,
both in the field of IP and competition law usually recognize it. For example Torremans said
―Intellectual property rights confer exclusive rights, but they hardly ever confer a real monopoly in
the sense that the monopolist can act in an arbitrary way without being influenced by his
competitors‖ in P.L.C. TORREMANS, Holyoak and Torremans Intellectual Property Law (5th
edition), Oxford University Press, 2008, 15 ff. and a competition body stated ―…intellectual
property rights do not necessarily (and indeed only rarely) create monopolies….Therefore, antitrust
doctrine doesn‘t necessarily presume the existence of market power from the mere presence of an
intellectual property right.‖ in U. S. DEPARTMENT OF JUSTICE AND THE FEDERAL TRADE
COMMISSION, Antitrust …, supra at note 3, at 2 and ECJ confirmed that ―the mere ownership of
an intellectual property right cannot confer a dominant position‖ in V. KORAH, The interface
between …, supra at note 4, at 810. See also M. RICOLFI, Is there an antitrust antidote against IP
overprotection within TRIPS, in MIPLR 2006, 305 ff, at 351 on the issue.
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every single case. This makes the determination of the relevant market and the
share of the patentee on it crucial. As far as there‘s very seldom a lack of any
substitutes, in which case the monopoly is usually at hand, in the rest of cases the
dominance must be present on the market of all substitutes, being such because of
the products‘ characteristics, their prices and their intended use6.
Apart from this, if the products under the patent are also branded products, it
can mean that the relevant market coincides with the niche market of the exclusive
right in case that the brand creates barriers for entry at the market. Again, it‘s the
case only seldom.
Regarding the geographical scope, as far as the patent is territorially limited,
the relevant market can usually not be bigger than this territory7. On the other hand,
if the SSNIP test is applied, it can turn out that the neighbouring geographic
markets (or parts of them) must be included in the scope of the relevant market,
because there‘s a serious probability for consumer ―migration‖ to those markets
(demand-side substitutability)8. In such a case, the relevant market would be bigger
again, meaning a lower probability of dominance.
Therefore, if dominance is really established, the next step is to check if the
patentee‘s behaviour is abusive9. Obviously, the legislator had this probability in
6
Another approach is to look for dominance of the patentee on the technology market, defined
again by the very technology and its substitutes, determined by the same criteria. This approach is
considered heavier for application and therefore recommended for use in combination with the
product oriented approach in order to assess more accurately the market strength of the patentee, see
the Commission Guidelines on the application of Article 81 of the EC treaty to technology transfer
agreements, April 2004, in the Official journal of the European Union, 5 ff. Moreover, some authors
criticize the evaluation of the dominance of the technology markets as far as it makes it easier to
find dominance on them because of the exclusive right of the patentee, see B. GALLEGO,
Unilateral refusal …, supra at note 3, at 226. The relevant market must in fact also include the
substitutes of the products/ technologies under the patent if the assumption of the SSNIP (The Small
but Significant Non-transitory Increase) test can be presumed, i.e. if in case of small price increase,
there‘s enough ―migration‖ of the customers to other goods, technologies or markets to make the
price increase unprofitable for the dominant company.
7
This doesn‘t mean that there‘s no demand for the goods under the patent on other markets, but
only that in the lack of exclusive right for them, it‘s much less probable that the patent owner is in
dominant position there.
8
This would usually be connected with the lower prices there, due to the lack of patent protection
for these territories and respectively the presence of competition.
9
Regarding the dominance issue, the approach in the countries differs – in EU 50% market share at
hand is enough, while in USA the threshold is 70%. Share between 40 and 50% and even less (but
no less than 25%) is also possible in EU, if other circumstances, showing dominance, are at hand
(e.g. low number of competitors, having low market shares, existing barriers for entering or
expansion in the market, lack of opportunity for their replication, etc. or basically independence on
the market). See DG Competition Discussion Paper on the application of article 82 of the Treaty to
exclusionary abuses, issued by the Commission December 2005, in
http://ec.europa.eu/competition/antitrust/art82/discpaper2005.pdf, 9 ff., as well as V. KORAH,
Antitrust ..., supra at note 3, at 184. This clearly shows that it‘s more probable to find an abuse in
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mind, while working on the patent law, because it recognized the opportunity for
compulsory licensing for the cases of non-use of the patent and dependent
patents10. At the same time, as far as the possible cases of abuse are much more and
not so straightforward, the instruments of the competition law are at hand to
balance the patentee‘s and the public‘s interest, if and when necessary11.
3. DOES THE DOMINANT PATENTEE ALWAYS BEHAVE IN AN
ANTICOMPETITIVE WAY IN CASE OF REFUSAL FOR LICENSING?
The real issue here is how to differentiate the cases when the patentee just
exercises his rights from the cases, in which his behavior is anticompetitive. And
this is the area where the approaches differ substantially. However, as far as in the
very beginning in the intellectual property (IP) cases the common attitude, already
used for other types of assets for refusals to deal (supply), has been tested,
requiring risk for the competition and lack of objective justification, it is
recognized that there must be negative effect on the competition and therefore on
the consumers12. EU considers that this effect is abuse of a dominant position,
EU than in USA. Moreover, the fact that IP rights are considered both barriers and absolute cost
advantages in EU confirms this further, although it‘s recognized that they do not confer dominance
themselves.
10
In fact the legislator in these cases protects the public interest against the patent abuse in a broader
sense than the competition law by protecting the very purpose of the patent system to encourage the
creation and utilization of inventions and therefore doesn‘t require a dominant market position. In
this sense the law is stricter in these cases, considering the behaviour abusive even if there‘s no
market dominance, if the specific prerequisites are at hand (non-use for 4 years after the application
or 3 years after the patent issuance date, considering the later and refusal for licensing respectively,
as well as lack of objective justification). Moreover the patent laws usually also include other
grounds for compulsory licensing, which are not connected with the risk of abuse, but with the
common public interest, which we don‘t take in consideration here (e.g. national security protection
or emergency). For more information on the issue see also the Paris convention for the protection of
the industrial property, March 20, 1883, which came into force on July, 7, 1884, 173 member
countries, art. 5A, esp. (2) and (4) and the Agreement on Trade-Related Aspects of Intellectual
Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization,
Annex 1C, Legal Instruments—Results of the Uruguay Round, 33 I.L.M. 1125, 1197 (1994), art.
31, and M. RICOLFI, Is there an antitrust …, supra at note 7, at 305.
11
This means in fact that even if the patentee has market dominance, the abuse must be at hand in
order to have him liable. This point of view is also shared in the practice. The U.S. Supreme court
for example said that ―the mere possession of monopoly power…is not unlawful unless it‘s
accompanied by an element of anticompetitive conduct.‖ in U. S. DEPARTMENT OF JUSTICE
AND THE FEDERAL TRADE COMMISSION, Antitrust ..., supra at note 3, at 22.
12
It must be underlined that the negative effect must be on competition and not on a specific
competitor. See V. KORAH, The interface between …, supra at note 4, at 817, 820 and I.
HARACOGLOU, Competition law and patents. A follow-on innovation perspective in the
biopharmaceutical industry, Edward Elgar, Cheltenham, 2008, 123 – 126 ff., R. STERN, Refusals
to license intellectual property rights and monopoly “leverage”, in EIPR 1998, 390 ff., at 393. This
has also been recognized many times by EU in the DG Competition Discussion Paper ..., supra at
note 11, although it has also stated that sometimes the fate of a competitor might influence the fate
of the competition. Moreover, in EU the approach hasn‘t also been consistent. See A. STRATAKIS,
Comparative analysis of the US and EU approach and enforcement of the essential facilities
doctrine, in ECIR 2006, 434 ff. Here Australia has an approach different to some extent, as far as its
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which can affect the trade between the member states13 and USA – that the effect is
the anticompetitive monopolization or maintenance of monopoly14. Together with
this as far as the IP laws give the owner a legal monopoly and a right to exclude,
the refusals per se have not been usually considered anticompetitive and therefore
something additional has been felt necessary in order to recognize antitrust
scrutiny. What is it is treated in various ways, as follows.
The ―scope of the rights‖ approach presumes that if the right is exploited out
of its borders, the exploitation is anticompetitive15. Recognized extensions are
when the patented invention is input for the activity of another company on another
market16 and by the refusal the owner aims to create or maintain monopoly on one
law said that ―eliminating or damaging a competitor‖ would be considered abuse. See M.
O‘BRYAN, Refusal to license intellectual property under Australian Trade practices act, in PW
1992, 10 ff. Nevertheless, it‘s usually considered necessary to have a competitive relationship
between the parties at hand in order to have anticompetitive behavior recognized. See H.
HOVENKAMP, M.D. JANIS and M.A. LEMLEY, Unilateral refusal …, supra at note 3, at 15, G.
MCCURDY, Intellectual property and competition: does the essential facilities doctrine shed any
new light?, in EIPR 2003, 472 ff., at 476. It must also be said that in legislative, as well as in case
law dimension in the field of antitrust, EU usually follows USA – in time and in doctrine
application.
13
It is regulated by art.82 of the Treaty of Amsterdam amending the Treaty on European Union, the
Treaties establishing the European Communities and Certain Related Acts, Oct. 2, 1997, entered
into force on May 1, 1999. The abuse can be exploitative or exclusionary conduct. According to DG
Competition Discussion Paper ..., supra at note 11, the refusals to supply are part of the potential
abuses.
14
It is regulated by section 2 of the Sherman antitrust act, July 2, 1890. The case law (United States
v. Grinnell Corp., 384 U.S. 563 (1966); see also Weiss v. York Hosp., 745 F.2d 786 (3d Cir. 1984),
Wikipedia, http://en.wikipedia.org/wiki/Sherman_Antitrust_Act) develops the concept further,
differentiating the anticompetitive cases from the ones, when the monopoly is a result of superior
product, business acumen or historic accident. This can also be read in sense that the IP refusals to
license are seldom anticompetitive, as far as IP is usually connected with superior product.
15
The interpretation of this approach is usually that the patent gives the right to exclude the
competitors for one market and when the owner refuses licensing for exploitation in other/s, it‘s
extension of the rights out of their scope (or attempt for monopoly leverage) and therefore
anticompetitive (the additional element is the very fact that the refusal is for another market).
16
The term market is perceived as flexible sometimes, covering the situations when the invention is
input for activity on downstream, neighbouring, complementary or even the same market, if it
contains different levels. See R. GILBERT – C. SHAPIRO, An economic analysis ..., supra at note
3, at 12751, R. PITOFSKY, The essential facilities doctrine under United States antitrust law,
submitted to the European Commission in support National Data Corporation in the IMS case, at 20,
V. KORAH, The interface between intellectual property rights and competition in developed
countries, in SCRIPT-ED 2005, 429 ff., at 437, R. WHISH, Competition Law, supra at note 3, at
664, B. GALLEGO, Unilateral refusal ..., supra at note 3, at 223-8, G. GHIDINI, Intellectual
Property and Competition Law ..., supra at note 3, at 104, B. ONG, Anti-competitive refusals to
grant copyright licenses: reflections on the IMS saga, in EIPR 2004, 505 ff., at 506, G.
MCCURDY, Intellectual property and competition ..., supra at note 14. On the other hand, the issue
is quite controversial, incl. the case law, see I. HARACOGLOU, Competition law and patents …,
supra at note 14, A. STRATAKIS, Comparative analysis …, supra at note 14, at 441. The EU
position is very interesting, while saying numerous times that two markets are necessary, it also says
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or the two markets. The doctrines, used to address the refusals to supply, are
additionally developed and applied for the IP extensions as follows.
Inherent for this approach is the leverage test (facilitation of
monopolization). It has usually been applied with other doctrines and approaches.
In USA the courts said that the refusal was legal, if it was in the scope of the
right17, that it could be abusive if it extended this scope18, as well as that patents
were not always limited to one market (Xerox), but missed to clarify when the
refusal was out of the rights‘ scope (or how to differentiate when the right covered
one or more markets). Together with this the courts differed in their opinions – in
Data General it was considered that there was rebuttable presumption of legality of
the refusal, in Xerox that the refusal in IP cases was per se legal, and that the
presumption was irrebuttable regarding patents. Moreover, the courts rarely
recognized anticompetitive behavior in refusals to license IP19. In EU among the
examples for the application of the test are the Magill and Decca cases, in both of
which the behaviour have been found abusive20.
The approach has also been developed to include the essential facility
doctrine, requiring except a risk for the competition and lack of objective
justification, also indispensability or essentiality of the asset as an input for the
competitors21.
that even potential or hypothetical markets are enough, especially in IP cases, opening the concept
in this way, see DG Competition Discussion …, supra at note 11, at 65.
17
Data General Corp. v. Grumman Systems Support Corp., 36 F.3d 1147 (1 st Cir.1994).
18
Image Technical Services, Inc. v. Eastmen Kodak Co., 125 F.3d 1195 (9th Cir. 1997); In re
Independent Service Organizations Antitrust Litigation (CSU v. Xerox), 203 F.3d 1322 (Fed. Cir.
2000).
19
The appellate courts in the cases haven‘t also agreed under what circumstances the presumption
has been rebuttable, having had different opinions on the issue. Of the discussed cases, only the
behavior of Kodak has been found abusive; see the analysis for the reasons further. Moreover, the
very property has sometimes been recognized as objective justification of the refusal, e.g. in Data
General v. Grumman Systems Support Corp., Image Technical Services, Inc. v. Eastmen Kodak
Co., CSU v. Xerox. For more information, see H. HOVENKAMP, M.D. JANIS and M.A.
LEMLEY, Unilateral refusal …, supra at note 3, GALLEGO, Unilateral refusal …, supra at note 3,
G. MCCURDY, Intellectual property and competition ..., supra at note 14.
20
Magill case (C-241 & 242/91P, Radio Telefis Eireann and Independent Television Publications v.
Commission [1995] ECR I-743) and Decca (Commission Decision Decca Navigation System, OJ
1989 L 43/27). We have also to add that the discussed approaches and doctrines are applied for
refusals to license as a whole, and not necessarily to patents. Therefore in this part various examples
are cited.
21
The asset is considered indispensable if the competitor/s can not duplicate it (or invent around it)
as input for their activity, being under the control of the monopolist. And it‘s considered essential if
it‘s not possible or reasonable, or economically feasible for the competitor/s to duplicate the
necessary input, controlled by the dominant company. Although the essentiality is derived on the
base of indispensability, it is obviously further developed in direction of higher level of flexibility
for application. See R. PITOFSKY, The essential facilities ..., supra at note 18, at 6.
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In USA, where the doctrine has been created, its application to IP is
considered problematic22, as far as the incentives for innovations of all the parties
can decrease and those claims have never been supported by the courts. Moreover,
with the time the scope of the doctrine has been narrowed. On the other hand, in
Europe, where the doctrine has almost never been used explicitly, it has been more
often and more readily applied incl. with negative outcome for the right holder23.
Besides the usually assessed issues under claims of essentiality, EU sometimes also
addresses additional questions, meaning that it started interpreting the doctrine
narrowly, which is positively assessed by some authors24. It can also be said that
the essentiality is to some extent irreconcilable with IP, as far as IP is something
extraordinary, appearing on the market, technological, cultural and scientifical
landscape and that‘s why exclusive rights are going with it. Or said in another way,
there must usually be substitutes anyway. The approach is also criticized as far as
the patent law doesn‘t specify ―scope market‖ and therefore this interpretation is
quite fragile25. Moreover the problem how to define the scope and what is out of it
is a serious one26.
22
See H. HOVENKAMP, M.D. JANIS and M.A. LEMLEY, Unilateral refusal …, supra at note 3,
at 20, analyzing the case law too.
23
Among the EU IP examples for the application of the doctrine are the Magill, Ladbroke (T504/93 Tierce Ladbroke [1997] ECR 927) and IMS (C-418/01 [2004] ECR I-05039) cases, where
the behavior of the defendant has been respectively found abusive, non-abusive and for IMS –
abusive at first and non-abusive at second instance. In F. LEVEQUE, Innovation, leveraging and
essential facilities ..., supra at note 27, at 110 the doctrine is criticized as being risky regarding the
incentives for innovations, as far as the patentees would potentially have their rights at antitrust
scrutiny.
24
See e.g. V. KORAH, Antitrust …, supra at note 3, at 190. See also the analysis for the next
approach on this issue.
25
The approach is also fragile, as far as no other concrete interpretation suggestion is at hand, which
means that the level of legal uncertainty around it is very high. On the other hand the Chicago
school says that it‘s out of sense for the monopoly to be extended to other markets as far as all the
profits can be extracted on the first market. This compromises the approach even more, if accepted.
But this is not the critic, best fitting to it, as far as some authors say that in high technology markets
this is not the fact (e.g. G. GHIDINI, Intellectual Property and Competition Law ..., supra at note 3,
at 105). Together with this it is really possible to have an IP monopoly, which covers more than one
market. More about the critics of the approach and its application to IP cases can be read in I.
HARACOGLOU, Competition law and patents …, supra at note 14, at 131, H. HOVENKAMP,
M.D. JANIS and M.A. LEMLEY, Unilateral refusal …, supra at note 3, at 18 – 26, F. LEVEQUE,
Innovation, leveraging and essential facilities: interoperability licensing in the EU Microsoft case,
in F. Leveque - H. Shelanski (eds.), Antitrust, Patents and Copyright. EU and US Perspectives,
Edward Elgar, Cheltenham, 2005, 103 ff, at 111, B. GALLEGO, Unilateral refusal …, supra at note
3, at 217.
26
Possible reading of this approach is the broad one, that there is attempt for extension when the IP
is used as a ―ground‖ for anticompetitive conduct, which is not connected with it in fact, but the
truth is that such an interpretation is not justifiable, as far as case of the kind is not IP case, but one,
disguised as such one, and therefore – subject to standard scrutiny. The test for differentiation of
such cases from real IP refusals is if the competitors would infringe the exclusive right if they use
the asset without license; see H. HOVENKAMP, M.D. JANIS and M.A. LEMLEY, Unilateral
refusal …, supra at note 3, at 37.
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The “plus” approach presumes that together with the refusal for licensing
(being it on the same or another market), additional anticompetitive behavior is
necessary. This approach is usually being applied together with the previous.
Again, there‘s lack of consistency what‘s this behavior - first the more common
test for other anticompetitive acts has been introduced and after that specifications
on it followed, sometimes as examples and sometimes as prerequisites. In USA
presumed examples for such additional acts are when: the IP is adopted illegally
(Data General), there are concerted acts (Kodak) or tying, fraud on the Patent and
trademark office or sham litigation (Xerox). Those are criticized, as far as they are
not connected with the very act of the refusal and can be subject to separate
scrutiny27. Probably the most popular of the additional acts, which in fact are
connected with the refusals is the ―new product development prevention‖, followed
later by the ―technological development prevention‖, developed as tests
respectively by EU in the Magill and Microsoft cases and clarified in other cases
too (e.g. IMS, Bronner)28. There are arguments if the test, developed in Magill,
must be alternatively or cumulatively required with the other ones, specific for the
more common doctrines and if the whole list is exhaustive or non-exhaustive29. The
answer of the case law after it doesn‘t help a lot30. In the Discussion Paper of the
Commission it is stated not only that the list is cumulative, but that the last test in it
– the product development or technological development (follow-on innovation)
prevention would be considered only after the previous circumstances are at hand31.
This shows clearly that the concept is narrowing, but at the same time the approach
of the Discussion Paper is also been criticized, because it doesn‘t cover every
possible scenario32. In this way a separate doctrine on the refusals for licensing
has been developed, although it‘s based on the already mentioned at great extent33.
27
For more information see U. S. DEPARTMENT OF JUSTICE AND THE FEDERAL TRADE
COMMISSION, Antitrust ..., supra at note 3, B. GALLEGO, Unilateral refusal …, supra at note 3.
28
These mean that the refusal is anticompetitive if it prevents the development of a new product on
the market (and not me-too version) or the development of new technologies from the competitor/s
respectively, as far as the refusal contradicts the purpose of the IP system (see B. GALLEGO,
Unilateral refusal …, supra at note 3, at 228). The second test is obviously closely connected with
the first. But here even the development of specific new product must not be at risk, but only of a
potential new product, resulting from the technology development. Microsoft (COMP/C-3/37.792
[2004]) and Bronner (C-7/97 [1998] ECR I-7791).
29
See for example V. KORAH, The interface between …, supra at note 4, at 811, J. LANG, The
application …, supra at note 5, at 64 on this issue.
30
But after IMS it‘s usually considered that the list is cumulative. In Microsoft it was considered
non-exhaustive and in IMS – exhaustive. For critics on these tests, see e.g. A. STRATAKIS,
Comparative analysis …, supra at note 14, at 440, V. KORAH, Antitrust ..., supra at note 3, at
195.
31
See DG Competition Discussion Paper ..., supra at note 11.
32
See B. GALLEGO, Unilateral refusal …, supra at note 3, at 234.
33
Or, said in other words the leverage and essential facility doctrines haven‘t been considered as
sufficient criteria and therefore recently the concepts have been developed to include additional
abusive conduct. At least in Europe there seem to have attempt for imperative doctrine in the field,
although it‘s quite controversial if this is achieved already. Moreover in EU abusive behaviour in
cases of refusals for licensing has quite often been found.
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The “intent” approach presumes that the refusal is anticompetitive, if the
owner‘s purpose is such. Although it‘s implicitly present in the other approaches
too, sometimes it‘s explicitly recognized by the case law. Such is the case of Kodak
in USA, when the IP argument was used long after the start of the proceedings and
recognized as ―mere pretext‖. Moreover, only insignificant part of the refused
assets has been protected by IP rights. In EU the approach hasn‘t been explicitly
addressed. At the same time, it‘s again rarely used as the only approach. It‘s
criticized because it‘s hard and subjective to prove this intent and also because the
very intent can be considered insufficient, as far as the results of the behaviour are
more important34. The already mentioned lack of objective justification also shows
implicitly bad (anticompetitive) intent, being together with this more objective35.
All these approaches and the imposition of compulsory licensing in case of
anticompetitive behaviour of the patentee are very often criticized because of the
probable negative effect on the incentives for innovation36, although the opinions
on this also differ. The authorities in the USA usually don‘t impose such a remedy
exactly because of this consideration. The opposite approach in EU has sometimes
been criticized37 for being short term oriented and not taking into consideration the
long term dimensions of the problem, basically if the imposition of compulsory
licensing would not deprive the patentee and ones competitors from their incentives
to innovate, as far as the lack of certainty in the opportunity to assert ones patent
makes the investment too risky. Therefore, probably because of the mentioned
critics, in its recent decisions the EU institutions also applied38 another approach
together with the other ones.
The “incentives balance” approach has the purpose to assess if the decrease
in the incentives for the monopolist because of the potential compulsory licensing
(incl. the ones for follow-on innovations) would be compensated by the increase of
the incentives for follow-on innovations of his competitors, and therefore of the
whole industry. Only if this is the case, compulsory licensing should be imposed39.
Although this approach shows intention on part of EU to make the evaluation in
34
H. HOVENKAMP, M.D. JANIS and M.A. LEMLEY, Unilateral refusal …, supra at note 3, at
31.
35
Moreover, it transfers the burden of evidence to the accused. Nevertheless, although this test is
often mentioned, it‘s not developed in fact, which makes this burden quite heavy. Mentioned in this
respect are the efficiency considerations and the lack of ability to serve the own clients. See for
example in the case law in R. PITOFSKY, The essential facilities ..., supra at note 18, at 7.
36
See e.g. J. LANG, The application …, supra at note 5, at 66 – 67, V. KORAH, Antitrust …, supra
at note 3, at 184, R. GILBERT – C. SHAPIRO, An economic analysis …, supra at note 3, at 12753.
37
See for example V. KORAH, The interface between …, supra at note 4.
38
The first case, in which the Commission explicitly considered this approach, was Microsoft, and
later it was also confirmed in its Discussion Paper. See F. LEVEQUE, Innovation, leveraging and
essential facilities ..., supra at note 27, at 106 – 110 and B. GALLEGO, Unilateral refusal …, supra
at note 3, at 232 for more information.
39
Moreover, this assessment must be made only after refusal, dominance, indispensability, negative
effect on competition are recognized.
Fanny Koleva
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cases of refusals more economically oriented and more flexible regarding the long
term dimensions of the problem, it‘s still criticized40. Among the critics are that as
it is developed, it doesn‘t cover all the possible scenarios, as well as it doesn‘t fit to
all the cases. We would also like to add that the approach is quite abstract, as far as
it‘s not clear how in fact would the two types of effects on the innovations
incentives be measured and therefore balanced41. Moreover, in case of compulsory
licensing the incentives of the competitors can also be negatively influenced as
concerns to their own basic innovations, which must be balanced with the other
mentioned effects too. The same refers to the fact that in case of compulsory
licensing the competitors would have incentives to duplicate and free ride and
therefore they would be deprived substantially of their follow-on innovation
incentives42. Therefore, this approach is also not the one, solving all the
problems43.
Additional Circumstances, which can Influence the Decision
One of the specific issues is if in case that the information is an industry
standard, this influences on the evaluation of the refusal as anticompetitive. Often
it‘s considered that there‘s such a risk, because the standard in fact gives market
power, if held by a company, and therefore it includes risk of anticompetitive
conduct44. And that this is even more valid for the information technologies
sector45. Some authors even consider the cases of standards as ones of the few,
when the duty to supply may be justified46. So, as far as there is a standard and
there are no substitutes (because often inventing around is impossible), the asset is
40
See for example B. GALLEGO, Unilateral refusal …, supra at note 3, R. WHISH, Competition
Law, supra at note 3.
41
See also on this issue A. STRATAKIS, Comparative analysis …, supra at note 14, at 441 and V.
KORAH, Antitrust …, supra at note 3, at 190.
42
The Commission in its Discussion Paper also recognizes this risk and the necessity for its
consideration, supra at note 11, at 62. But still it‘s not clear how to do it.
43
Some authors think that if the compulsory licensing is not royalty free, there should be no
problem with the innovation incentives (e.g. G. GHIDINI, Intellectual Property and Competition
Law ..., supra at note 3, at 107 – 108). Nevertheless we would say that the incentives are not
connected only with the opportunity for direct financial return from the asset, but also with the
possibility to exclude because of strategic considerations. Moreover, the appropriateness of the
compulsory licensing as a remedy is also quite often criticized for cases of anticompetitive refusals
for licensing on many grounds, as well as the preparedness of the authorities to determine properly
the conditions of the compulsory license (see H. HOVENKAMP, M.D. JANIS and M.A.
LEMLEY, Unilateral refusal …, supra at note 3, at 16 and 34, V. KORAH, Antitrust ..., supra at
note 3, at 190 and 194, U. S. DEPARTMENT OF JUSTICE AND THE FEDERAL TRADE
COMMISSION, Antitrust …, supra at note 3, at 22). Together with this, as far as all the existing
approaches and doctrines are highly criticized, some authors propose alternative variants, e.g.
impossibility for competition by substitution as criterion or consideration of the refusals for
licensing as never being abusive, but imposing compulsory licensing as a remedy in case of other
abuse by the dominant company (see B. GALLEGO, Unilateral refusal ..., supra at note 3, at 236
and J. LANG, The application ..., supra at note 5, at 74 respectively).
44
See for example U. S. DEPARTMENT OF JUSTICE AND THE FEDERAL TRADE
COMMISSION, Antitrust …, supra at note 3, at 36.
45
See G. GHIDINI, Intellectual Property and Competition Law ..., supra at note 3, at 104 – 106.
46
See V. KORAH, Antitrust …, supra at note 3, at 194, 204.
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The Interface between Intellectual Property and Competition Law:
Is the Refusal of a Patentee to License Anti-Competitive?
indispensable or essential and therefore access to it should not be denied.
Otherwise it turns into an entry barrier. This logic was more readily followed in EU
(e.g. in IMS, as well as in Microsoft case)47. If there‘s a refusal after consent to
license for the purposes of the standard in case of standard-setting organizations,
it‘s usually really anticompetitive48. A similar logic does exist as regards to pools,
which because of the synergy between the partners‘ technologies, can give rise to
de facto standards and therefore the refusals for licensing can be anticompetitive49.
Another important issue is if the refusal is in fact termination of contractual
relations, which would change the analysis regarding its anticompetitive character.
The opinions on the issue also differ. In USA the courts sometimes tend to impose
duty for licensing in such cases under circumstances, which would not be
considered sufficient for new relationships. Still, as regards to IP cases, it‘s
considered that although imposition of such obligation happened (Kodak), it has
never been based on this circumstance. Moreover, such a termination may be based
on efficiency grounds, and as far as the IP related markets are fast changing, this is
even truer. Therefore the risk of compulsory licensing could decrease the licensing
incentives, which are presumed to have pro-competitive effect, as a whole50. In EU
on the other hand, there‘s rebuttable presumption that continuing such relationships
is pro-competitive, as far as their very existence shows that they have been efficient
at a certain point. Moreover, the customers may usually have made investments
because of these relations. Therefore, the refusals are considered anticompetitive,
unless objective justification is at hand51.
47
Moreover, it must be mentioned that in these cases there was de facto standard and not even an
official one. Together with this, in cases of standards the ―new product‖ test is considered out of
sense (see B. GALLEGO, Unilateral refusal ..., supra at note 3, at 229), and therefore abuse is
easier to be found. For more information on this, see I. HARACOGLOU, Competition law and
patents …, supra at note 14, at 136, V. KORAH, The interface …, supra at note 18, at 437, 442, B.
ONG, Anti-competitive refusals …, supra at note 18, at 507.
48
See J. LANG, The application ..., supra at note 5, at 68. Still some authors think that in cases of
standard setting organizations, the contract with the organization is what should compel the owner
to license, and not the antitrust law (H. HOVENKAMP, M.D. JANIS and M.A. LEMLEY,
Unilateral refusal …, supra at note 3, at 24). Other authors (B. ONG, Anti-competitive refusals …,
supra at note 18, at 511) consider the refusals for licensing for standards, covered by patents, easier
for justification because of the novelty and inventive step, than for copyright cases, where the
criteria for protection are lower (and for which the rights are considered invalid by the case law in
USA, if they have turned into standards). Nevertheless, we think that the industry standards usually
really change the factual environment of the case and, as far as they often include patent issues, this
can also influence its outcome. Moreover, the standard setting organizations usually do not address
the issue themselves in cases of refusals, and leave its solving to the parties.
49
See G. GHIDINI, Intellectual Property and Competition Law ..., supra at note 3, at 101 and also
U. S. DEPARTMENT OF JUSTICE AND THE FEDERAL TRADE COMMISSION, Antitrust …,
supra at note 3, at 66 – 67.
50
For more information see H. HOVENKAMP, M.D. JANIS and M.A. LEMLEY, Unilateral
refusal …, supra at note 3, at 33 – 35 and U. S. DEPARTMENT OF JUSTICE AND THE
FEDERAL TRADE COMMISSION, Antitrust ..., supra at note 3, at 28.
51
For more information see DG Competition Discussion Paper …, supra at note 11, at 62 – 64.
Fanny Koleva
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4. CASE LAW
It should be mentioned in the very beginning that it‘s very limited for IP and
even more restricted for patents52. Therefore it‘s difficult to have representative
analysis. In the same time, the two systems already showed certain attitudes in the
refusals to license cases, which could support the analysis here53.
The first EU case, which came to the attention of the Commission, was
IGR54. The Commission tended to order compulsory licensing, but IGR agreed to
license Salora and therefore formal decision hasn‘t followed. Shortly, collective
dominance was recognized in the case together with prevention of competitor from
entering the market, meaning that the common approach for refusals to supply has
been applied (including also the essential facility implicitly). At the same time it
can be argued if it has not been too broadly applied55. A patent pool was also at
hand and the information could be considered a standard, as far as the authorities
approved it. We believe that these considerations also influenced the decision.
A more recent case, including patents among other assets, was Microsoft56.
The Commission found that Microsoft was dominant on the market of PC
52
Moreover, the patent cases without presence of other types of IP are even fewer. The cases
regarding the so called aftermarkets (spare parts and service markets) will not be considered, as far
as on one hand they are specific, and on the other hand they may include different forms of tying or
refusals (not necessarily connected with IP).
53
At Community level these issues are addressed either from the Commission, or from the court
system (the European court of justices upon request of national courts or as a stage of appeal on
Commission‘s decisions together with the Court of first instance). In USA a similar approach is
followed by the Federal Trade Commission and the court system.
54
In it German manufacturers of television transmission and receiving equipment, having patents
for a system for stereo reception in Germany, grouped them into a pool, IGR. The system was
approved by the authorities in the country and TV sets could not function in Germany without this
type of receiver. The members of the pool exchanged licenses, but refused to license a Finnish
company, Salora (in fact they planned to delay the licensing for non-members after a certain date
and for a limited number of TV sets). Moreover, IGR used the patent rights in order to prevent
Salora to distribute its own sets on the market of the country. The competitor complained. IGR
Stereo Television EC, Comm XIth Competition Policy Report, 1982, 63 ff., para. 94. For more
information, see J. LANG, The application ..., supra at note 5, at 56 and I. HARACOGLOU,
Competition law and patents …, supra at note 14, at 150.
55
On one hand, collective dominance has been recognized - concept, unknown in USA, except if
concerted practices can be recognized (see A. STRATAKIS, Comparative analysis …, supra at note
14, at 439). On the other hand, negative effect on competitor is recognized, although it can be said
that effect on the competition itself can be implicitly recognized (on potential competitors, as far as
the non-members have been treated equally). This case shows the trend (or al least in the past) in
EU to find the behaviour abusive even in cases, for which the US approach could find no abusive
character. Moreover, the inclination in EU to use flexible criteria as potential, hypothetical, etc. can
also be recognized here – something, criticized by some authors in the sense that if it‘s intended to
find abuse, some things can even be invented (see e.g. A. STRATAKIS, Comparative analysis …,
supra at note 14, at 441 again).
56
The company refused to share with its competitors its interoperability information (specifications
of the interfaces of the PC operating system), protected by copyrights, patents and trade secrets,
necessary for them in order to develop their own products (programs for work group server
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The Interface between Intellectual Property and Competition Law:
Is the Refusal of a Patentee to License Anti-Competitive?
operating systems with 90% market share, accompanied by entry barriers,
presented by network effects57, learning or switching costs, etc. Regarding the
abuse, it was found that: Microsoft‘s behavior limited the technical and market
development, the company extended (leveraged) its dominance from PC operating
systems to the market of server operating systems, which posed serious risks for
elimination of competition from the server markets. Essentiality has been implicitly
recognized. There was also license withdrawal and industry standard character of
the information, which again influenced the decision. In the case the Commission
also developed the incentives balance approach. In the end it ordered Microsoft to
license the interface information to its competitors on reasonable and nondiscriminatory terms (and to unbundle the media player from Windows)58. Later
the Court of first instance confirmed this decision on appeal59.
If the EU approach regarding the patents has to be summarized, it can be said
that not only exceptional circumstances must be at hand, but even extremely
exceptional circumstances, as far as in the two cases one or more of the specific
scenarios have been at hand (pool, standard, withdrawal)60. At the same time, it still
seems that the bodies in EU tend to recognize anticompetitive behavior in refusals
for license cases. Probably for this reason some authors considered this approach
hostile61.
A very popular and controversial patent case in USA was the one of Intel62.
The district court recognized the essentiality argument of the plaintiff and also that
operating systems), compatible with Windows. Moreover, Microsoft tied its media player with its
operating system for PCs. In the past Microsoft supplied the designers with all the necessary
information for the development of compatible operating systems, but this changed with time. As a
result of this lack of interoperability, the servers started not to work so well with Windows, which
could prevent the competitors from developing their own products. One of the competitors – Sun
Microsystems complained, which gave start to the official case.
57
The more consumers buy its products, the more potential customers want to buy them and also
the more they want to buy products, compatible with the ones of this supplier. On this issue and the
other entry barriers, see V. KORAH, The interface …, supra at note 18, at 439 – 442.
58
It can be said that in this case the Commission applied all the possible approaches and doctrines in
its reasoning. We hope that this really shows a trend for narrowing the treatment of the refusals for
licensing as abusive, although flexible criteria have also been at hand here, e.g. risk for potential
new product development as a result of the technological development prevention. Moreover in two
similar cases with Microsoft in USA, the behavior of the company has been found nonanticompetitive (see H. HOVENKAMP, M.D. JANIS and M.A. LEMLEY, Unilateral refusal …,
supra at note 3, at 21 and G. MCCURDY, Intellectual property and competition …, supra at note
14, at 476 for more information on those cases).
59
Microsoft v. Commission, T-201/04, (2007) ECR 3601, (2007) 5 CMLR 846.
60
Moreover, we must say that we consider these circumstances specific not themselves, but only in
combination with other circumstances as essentiality, leveraging, etc.
61
V. KORAH, The interface between …, supra at note 4.
62
The company provided microprocessor chips (having 100% market share) for use by companies
on products (basically computer systems) with different markets. One of these companies was
Intergraph, who held patents on chips. Intel also had patents and trade secrets, some of which
Fanny Koleva
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Intel tried to extend its monopoly on the graphic subsystem market (having 10% of
it for the moment), where the plaintiff acted. Moreover it stated that as far as Intel
had established relationship with Intergraph, and nothing changed, the use of IP as
only objective justification was a mere pretext. On the appeal, the Federal Circuit
reversed as far as the two companies were not competitors, and therefore although
essential for Intergraph activity, the information foreclosure didn‘t lead to
prevention, elimination or restriction of competition. The other consideration at
hand was if Intel tried to create, maintain or facilitate a monopoly with its
behaviour. Again, the court hasn‘t recognized abuse, because the Intergraph patent
infringement suit was considered objective justification for Intel‘s refusal and also,
because of the lack of competitive relationship between the two companies, the
negative effect of Intel‘s conduct falls on Intergraph, but not on the competition
itself. The Federal Trade Commission (FTC) started suit against Intel on the same
grounds and in the same time, but it also dealt with the previous behavior of the
company63. This case was closed with settlement with Intel, under which it could
not withhold the information unless there was (real) objective justification64.
If this case is compared with the previous ones, it can clearly be recognized
that the courts in USA tend to find the refusals for licensing non-anticompetitive
than vice versa. In fact under quite similar and even heavier circumstances the
court refused to impose compulsory licensing, which has already been commented
covered the information, it used to supply to Intergraph (chips for workstations and Windows NT
operating systems). Intergraph found out that Intel used the patented information, it owned, in its
own chips and tried to sell licenses to some of the Intel‘s clients. Then Intel asked Intergraph for
royalty-free cross-license, offering the company patented information, which the last never used in
its activity. Therefore Intergraph refused to license under these conditions and started infringement
suit. As a response Intel stopped supplying the company with the necessary information and
products. It must also be mentioned that Intel had the same behaviour in the past (refused to supply
other companies with the necessary technical information if they do not leave the infringement suits
and give royalty-free licenses for their own patented information), but the companies always
dropped the case, being the weaker parties in the argument. Moreover, in the very case Intel didn‘t
tell to Intergraph about a bug in the already supplied equipment and also interfered when the
company tried to buy equipment from another provider in order to fix it. Together with this a public
campaign on its part against Intergraph followed, the purpose of which was to show that it was no
more reliable supplier on its market. Intergraph claimed antitrust behaviour on part of Intel, raising
the essentiality argument. Intergraph Corp. v. Intel copr., 195 F. 3d 1346 (Fed. Cir. 1999). See R.
STERN, Refusals to license …, supra at note 14, H. HOVENKAMP, M.D. JANIS and M.A.
LEMLEY, Unilateral refusal …, supra at note 3, G. MCCURDY, Intellectual property and
competition …, supra at note 14, at 476 for more information.
63
Together with this, FTC had the authority to act in order to ―reach incipient antitrust violations‖,
meaning that the standard for finding an abuse was lower. Unfairness was an argument, which it could
also use, as well as the overall public interest, especially regarding the incentives for innovations and the
functioning of the patent system.
64
Moreover, later the infringement suit ended with settlement between the two companies in favour of
Intergraph. See E. HAUSMAN, FTC approves Intel settlement, at http://www.crn.com/itchannel/18802020;jsessionid=EV3SXKC3VDZDJQE1GHPCKH4ATMY32JVN and L. FLYNN,
TECHNOLOGY; Intergraph And Intel Settle Chip Dispute, in NYT 2004, at
http://www.nytimes.com/2004/03/31/business/technology-intergraph-and-intel-settle-chipdispute.html for more information.
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The Interface between Intellectual Property and Competition Law:
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as a trend in IP cases. Only FTC found abuse, but its approach was more similar to
the one of EU, as far as potential harms could be considered under it, as well as
unfair behavior. This again confirms the already stated that EU imposes
compulsory licenses readily, especially in comparison with USA (see the
comparative table).
Considerations, claims and
additional circumstances
IGR
case
Microsoft
case
Intel
case
Effect on competition
X
X
X
Essential facility
X
X
X
Leverage
X
X
Incentives for innovation
X
Technical development prevention
X
Anticompetitive intent
X
License withdrawal
X
X
Standard
X
X
X
Patent pool
X
Others65
X
Table. Comparative analysis of cases of patent refusals for licensing in EU (IGR
and Microsoft) and USA (Intel)
5. CONCLUSION
If the patentee‘s refusal for licensing is anticompetitive is obviously a
question with a hard answer and many considerations at hand. As far as the
patentee is rarely in a dominant position on the market, incl. because there are
substitutes usually, the refusal can not be anticompetitive in all the cases, when
there‘s a lack of dominance. Moreover, even if there‘s dominance, consistent
approach and criteria for assessment of the anticompetitive character of the
behaviour are missing and therefore legal certainty too.
The standard approaches for refusal for supply cases have been applied and
adjusted for IP (and patent) cases, and even new ones have been developed, but all
of them are controversial. There are differing opinions on the issue not only
between the legal systems, but even within the very same legal systems. And this
also refers to the case law.
The patent cases analyzed show only that the outcome reflects the basic
approach of the legal systems to the refusals. Together with this, although it is
broadly recognized that the patents should probably be treated with more attention
65
Similar behavior in the past, information hidden, regarding the already supplied product,
anticompetitive (unfair) information campaign.
Fanny Koleva
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because of the incentives for innovations issue, only the approach of USA in
practice reflects this point of view. On the other hand, even there the authorities
missed to clarify what should be the extremely exceptional circumstances, which
could lead to duty for patent licensing. Regarding EU, it must be mentioned, that
the attitude to the cases of refusals for licensing develops (narrows), which is
positive and we hope that the often called ―hostile‖ approach to IP is more a growth
mistake than real issue, because something similar happened in the past in the USA
too.
But still the lack of consistent approach for answering to the commented
question comprises the risk to have patentees penalized because of their rights and
not despite them. For this reason we would conclude with the opinion that at least
for the moment it‘s necessary factual based case-by-case analysis to be realized for
the refusals for patent licensing than mechanical application of tests and that in
case of doubts it‘s better to miss an eventual short term solution than to put at risk
the long term overall incentives for innovations of the industry.
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BIBLIOGRAPHY
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C. HEATH – A. SANDERS (eds.), Spares, repairs and intellectual property
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F. LEVEQUE - H. SHELANSKI (eds.), Antitrust, Patents and Copyright. EU
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G. GHIDINI, Intellectual Property and Competition Law. The Innovation
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I. HARACOGLOU, Competition law and patents. A follow-on innovation
perspective in the biopharmaceutical industry, Edward Elgar, Cheltenham, 2008.
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COMMISSION, Antitrust enforcement and intellectual property rights: promoting
innovation and competition, Bibliobazaar, Charleston, 2007.
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A. STRATAKIS, Comparative analysis of the US and EU approach and
enforcement of the essential facilities doctrine, in ECIR 2006, 434 ff.
B. ONG, Anti-competitive refusals to grant copyright licenses: reflections on
the IMS saga, in EIPR 2004, 505 ff.
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facilities doctrine shed any new light?, in EIPR 2003, 472 ff.
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“leverage”, in EIPR 1998, 390 ff.
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competition in developed countries, in SCRIPT-ED 2005, 429 ff.
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Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr.
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The Interface between Intellectual Property and Competition Law:
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PATENT OWNERSHIP IN VIEW OF TECHNOLOGY
TRANSFER IN GOVERNMENT-SPONSORED RESEARCH
by
Dragan Ćorić1
ABSTRACT
This article analyzes the issue of patent ownership which arises from
government sponsored research. In addition, it describes and compares two
ownership systems: professor‘s privilege and institutional ownership.
1. INTRODUCTION
The topic of technology transfer2 and patents that arise from the publicly
funded research organizations (PFRO) is the object of discussion and interest of
various stakeholders: universities3 (and other PFRO), researchers and students,
industry, policy makers, and general public. In many cases these stakeholders have
different position4 on the main question: how the knowledge produced at
universities can be effectively transferred and commercialized? This debate became
especially active in the last 30 years. Before that period even the most prominent
universities considered patenting contrary to their role as public servants, and it
was considered ―not deemed within the sphere of the university‘s scholarly
objectives‖5. The changes came from the fact that two traditional roles of the
university, education and research, are today accompanied by the third role,
interaction with industry and commercialization. The creation of the invention is
directly related to the intellectual property (IP), and whenever there is a property in
1
Author is researcher at Swiss Federal Institute of Technology in Lausanne Switzerland
(dragan.coric@epfl.ch)
2
Technology transfer is the process of sharing of skills, knowledge, technologies, methods of
manufacturing, samples of manufacturing and facilities among governments and other institutions to
ensure that scientific and technological developments are accessible to a wider range of users who
can then further develop and exploit the technology into new products, processes, applications,
materials or services. Definition from www.wikipedia.org.
3
This work is focused on the universities as the main representative of publicly funded research
organizations (PFRO). Some national legislation may treat universities differently from the rest of
PFROs.
4
The extensive analysis of the subject can be found in a following works: A.L. MONOTTI, S.
RICKETSON, Universities and Intellectual Property. Ownership and Exploitation, Oxford
University Press, Oxford, UK, 2003; F. MONTOBBIO, Intellectual Property Rights and Knowledge
Transfer from Public Research to Industry in US and Europe: which Lessons for Innovation
Systems in Developing Countries? in The Economics of Intellectual Property WIPO, 2009; R.
EISENBERG, Public Research and Private Development: Patents and Technology Transfer in
Government Sponsored Research, in Virginia Law Review, 1996, 1663 ff.
5
S.STERCKX, Patenting and Licensing of University Research: Promoting Innovation or
Undermining Academic Values?, in Science and Engineering Ethics 2009, 1ff., at 2
128
Patent Ownership in View of Technology Transfer in Government-Sponsored
Research
the stake there is automatically the question of the ownership. The early discussion6
was focused on the question who should be the owner of the intellectual property
(on the results of the PFROs research): funding agency (government) or PFROs
and researchers. Many scholars argued that giving this right to PFROs will impose
double taxation7 on the public. However, currently accepted general opinion is that
ownership should not be assigned to government, mostly in the name of efficiency,
since the state bureaucracy had proven to be inefficient in managing technology
transfer.
From the legal point of view, the subject of university IP ownership is related
to the broader issue of employees‘ inventions, which is regulated by national laws
or acts. The main question that arises is whether employee or employer is the
owner of the invention, and thus entitled to apply for the patent. This question,
which can have significant social and economical impact, is regarded differently
depending on the country, legal system, and type of the IP involved. Main
regulations8 discuss issues such as the notification (of the employer) and claiming
process, and determination of a fair remuneration. It is clear that these regulations
can have a dramatic impact on the employees‘ incentives and productivity. This
complexity is further reflected in the fact that international conventions such as
TRIPs9 Agreement, the Paris Convention10 and Patent Cooperation Treaty (PCT)11
do not include any provisions on employees‘ inventions. Only European Patent
Convention (EPC) in the Article 60(1)12 gives provision regarding conflict in the
case of the different national legislations. In the public sector, it is mostly accepted
that inventions performed during the employment belong to the employer (with
possible employee compensation). However, in academic sector the issue of
6
Elaborated discussion can be found for example in R. EISENBERG, Public Research and Private
Development: Patents and Technology Transfer in Government Sponsored Research, in Virginia
Law Review 1996, 1663 ff.
7
Double taxation refers to funding of the research by public money, and paying higher price
because of the patent protection.
8
Examples from German Employees‘law (Arbeitnehmererfindungsgesetz or AEG) can be found in
M. DECKER, J. MATTHES, Employee Inventions in Germany, in Intellectual Asset Management
2005, 63 ff.
9
Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh
Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments-Results of the
Uruguaz Round, 33 I.L.M. 1125, 1197 (1994)
10
Paris Convention for the Protection of Industrial Property (as modified in 1967),
mentioned in the WTO TRIPS Agreement Article 2.
11
Patent Cooperation Treaty, done at Washington on June19, 1970, amended on September 28,
1979, modified on February 3, 1984, 2001, as in force from April 1,2002, adopted by 142 countries.
12
EPC Article 60(1) in the second sentence states‖ If the inventor is an employee the right to the
European patent shall be determined in accordance with the law of the State in which the employee
is mainly employed; if the State in which the employee is mainly employed cannot be determined,
the law to be applied shall be that of the State in which the employer has his place of business to
which the employee is attached‖.
Dragan Ćorić
129
_______________________________________________________________________________
invention property is treated differently13 from the general principles of employee
invention laws. Traditionally, Germany14 and Nordic countries15 preferred
assigning rights to the inventors i.e. employees (regardless of funding source)
based on academic freedom, and even human rights16 (right to publish) arguments,
while common law countries17 such as US, UK, Canada and Australia gave
preference to the university (employer) ownership.
This paper aims to analyze and compare two different types of allocation of
the ownership on the results of university research through patents18: Institutional
(university) ownership, according to which the invention is attributed to the
university where the research is performed, and professor‟s privilege, which
confers the exclusive right on the invention to the professor19 who performed the
research.
2. DEVELOPMENT OF TECHNOLOGY TRANSFER AND PATENTING
FROM UNIVERSITIES
To better understand the issue of the technology transfer and patenting from
PFRO it is necessary to look at its historical and geographical evolution. United
States are considered as a pioneer in this aspect: the number of patents registered
by US universities at USPTO has increased from 436 in 1981 to more than 3500
patents in 200120. Usually, the increase in the patenting in US is related to the
Bayh-Dole Act21 (BDA) which encouraged small businesses and non-profitable
organization to patent the results of government sponsored research by allowing
them to keep patent ownership. It is unquestionable that BDA had big impact on
13
The Norwegian Employee Invention Act before changes in 2005 stated that ―For the purpose of
this Act teachers and scientific staff at universities and colleges shall not, in that capacity be deemed
to be employees‖.
14
H.GODDAR, Compliance with the German Employees‟ Invention Law in the Handling of
Inventions Developed by Universities, in Proceedings of the 1999 Summit Conference on
Intellectual Property, University of Washington, Seattle, 1999
15
W.PRINZ, M.J. ADELMANN, R. BRAUNEIS, J.DREXL, R.NACK, Patents and Technological
Progress in a Globalized World, Chapter 5., Springer-Verlag Berlin, 2009, 329 ff.
16
In Finland, Article 16 (3) of the constitution states that ―The freedom of science, the arts and
higher education is guaranteed‖, while Article 13 in European Charter of Fundamental Right states:
―The art and scientific research shall be free of constraints. Academic freedom shall be respected‖.
17
A.F. CHRISTIE, S.D‘ALOSIO, K.L. GAITA, M.J. HOWLETT, Analysis of the Legal
Framework for Patent Ownership in Publicly Funded Research Institutions, Commonwealth
Department of Education Science and Training, Canberra, Austarlia, 2003
18
The report focuses on the patents, considering they are the most significant type of IP to be
transferred from universities. Other important IP assets include copyright (mostly software).
19
In broader sense, the privilege extends to collaborators and student. In some countris it is also
known as teacher‘s privilege.
20
The data on US patenting and licensing from US universities can be found on the
www.autm.net/surveys, official web page of the Association of University Technology Managers
(AUTM).
21
Act of Dec.12, 1980, Pub. L. No. 96-517, 94 Stat. 3015-3028 (codified as ammended at 35 U.S.C.
§§ 200-211, 301-307 (1994)
130
Patent Ownership in View of Technology Transfer in Government-Sponsored
Research
university patenting, but some scholars22 argue that patenting increase in US is also
related to the culture and traditional close relation between universities and
industry in this country, and that such ―patent boom‖ would have occurred even
without BDA. However, considering the role played by the specific characteristics
of the US system, it is not possible to assume that in the other countries the simple
introduction itself of similar legislation would produce the same increase in patent
outputs. The BDA offered the universities the choice of using exclusive or nonexclusive licenses; it arises therefore the risk of impairing or delaying the
knowledge transfer. The surveys23 show that today most of the US university patent
licenses are exclusive, but, while this policy could provide the universities with
more revenues in the short time, in the longer run it could provoke negative
consequences to them.
European Union (EU) countries witnessed important increase in the number
of university patents as well. It is interesting to note that, contrary to US
experience, most of the patents on EU university research results are owned by the
private companies. In the US commercial companies own only 24 per cent of US
academic patents, while in Europe this percentage is from 60 per cent (France) up
to 81 per cent (Sweden)24. It is still questionable whether high percentage of patents
owned by private companies can be considered as the sign of an efficient
technology transfer system. It is common understanding that Europe is less
successful in converting its academic results into economic output. The European
Commission (EC) expressed concern about the fact that European research
institutions are good in producing academic output, but they are not able to transfer
those outputs to the industry (this is known as ―European paradox‖). Such a
problem could be related to the inefficiency of European Technology Transfer
Offices (TTO) as well. Recent studies25 show that this gap (between EU and US
TTO generated revenues) is narrowing.
4. OWNERSHIP AND ALLOCATION OF IP RIGHTS IN UNIVERSITY
ENVIRONMENT
The ownership (that is in some cases separated from the creator of invention)
of the IP rights created in the university depends on the various factors such as: IP
creators and their legal relationship among themselves and with funding source,
and legal frameworks (national laws, university IP policies, and contractual
22
D.MOWERY, B.N. SAMPAT, The Bayh-Dole Act of 1980 and University Technology Transfer:
A Model for Other OECD Governments?, in Journal of Technology Transfer 2005, 124 ff.
23
M. LAMLEY, Are Universities Patent Trolls?, in Stanford Public Law Working Paper No.
980776. 2007
24
J. THURSBY, M. THURSBY, Knowledge Creation and Diffusion of Public Science with
Intellectual Property Rights, in Intellectual Property Rights and Technical Changes, K. Maskus
(Ed.), Elsevier Ltd. 2007
25
A. CONTI, P. GAULE, D. FORAY, Academic Licensing: a European Study, Working paper
2007-001 CEMI, 2007
Dragan Ćorić
131
_______________________________________________________________________________
agreements). As a result, the ownership can be allocated to the inventors
(researchers and students), the university, industrial partners, governmental or other
funding agency. The first step in ownership allocation is the identification of the
inventors and their legal status and relationship with university (employees and
non-employees). For example, graduate students, who are deeply involved in the
research, are not often university employees. Inventor identification is important,
firstly, to help allocate the ownership, and secondly, to be aware of the person that
can claim compensation once the patent is exploited. The most common situation
in which university can claim rights on a work occurs when it has been created as
the result of the performance of employment duties. Other typical circumstances
which allow the university to claim the ownership of the exclusive rights are those
in which the university.26
- provides the funding or obtains funding from other sources (sponsored
research)
- makes available equipment, facilities and other infrastructure
- provides pre-existing university IP available.
An important doctrine that strongly affects the allocation of IP rights in
academic environment is the so called ―employed to invent‖. This doctrine is
related to the controversial issue of distinguishing between invention and research.
In the case of United States v Dubliner Condenser Corporation27 the court
distinguished between research and invention claiming that the two are not
equivalent; as a consequence the person who was hired to perform research is not
automatically employed to invent. Most of European legislations28 distinguish
between service inventions (invention made under the duties of employment
contract), free inventions (made without connection with duties or resources
provided by employer), and dependent inventions (made outside the contract but
using the employer‘s resources). The fear from the many remaining legal
uncertainties resulted in increase of the contractual agreements between
universities and inventors, but also in the creation of detailed university IP
policies29. Every university, unless restricted with strict legal limitations (such as
Bayh-Dole Act), creates its own policies, which resulted in low level of the
uniformity even among similar institutions. The interesting example is Stanford
University policy30where, even though the university own IP from the research,
inventors have right to decide to put inventions in the public domain. The
interrelation of various legislation and policies resulted in many different
26
A.L. MONOTTI, S.RICKETSON, Universities and Intellectual Property. Ownership and
Exploitation, Oxford University Press, Oxford, 2003 at 302
27
United States v. Dubliner Condenser Corporation, 289 U.S. 178, amended, 289 U.S. 706 (1993)
28
L. MACDONALD, G. CAPART, Community Research. Management of Intellectual Property in
Publicly-Funded Research Organizations: Towards European Guidelines, Commission of European
Communities, Brussels, 2004. at 11
29
A.L. MONOTTI, S. RICKETSON, Universities and Intellectual Property. Ownership and
Exploitation, supra at note 25, at 298
30
Stanford University IP policy available at http://rph.stanford.edu/5-1.html
132
Patent Ownership in View of Technology Transfer in Government-Sponsored
Research
ownership systems which could be classified in two31 dominant models of
university IP ownership systems: professor‘s privilege and institutional ownership.
5. PROFESSOR’S PRIVILEGE
The concept of ―Professor‘s privilege‖ represents the idea that the results of
the research performed at the university or other PFRO are retained by the person
(generally a professor) who performed the research and not by the institution where
such research was performed. It aims to motivate academics to get more actively
involved in the commercialization of academic output. In Europe the general trend
is toward abolishing the professor‘s privilege32: Denmark abolished it in 2000,
followed by Germany in 2002, Norway in 2003, and Finland in 2007. The main
reasons33 for this ―abolitionist movement‖ can be found in the increased
recognition that principle of academic freedom is not valid reason to grant
privileges and to deprive universities from the IP rights. Another reason34 for this
property shift is the desire of policy makers to create similar conditions to US
where university retains all IP rights.
Italy was the only country that went in opposite direction adopting the
privilege regime in 2001. It seems that Italy adopted professor‘s privilege for two
main reasons35: because it could encourage the patenting of existing research, and
because it could help to solve the problem of bureaucracy in university
administrations, which often made impossible the exploitation of many academic
inventions. However, these changes introduced concern36 among Italian
universities and companies since most of the university inventions could be then
owned by private sector. For the same reason the adoption of professor‘s privilege
system in developing countries might not be the best idea because public
institutions could lose the control over strategic fields such as agriculture and
health. Currently, in EU, only Italy and Sweden have professor‘s privilege
31
In EU the ownership systems are as follows:
Professor‘s Privilege: Sweden, Italy
Institutional Ownership: Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland,
France, Germany, Greece, Ireland, Latvia, Lithuania, Luxemburg, Malta, Netherlands, Portugal,
Slovak Republic, Spain, UK
32
Turning Science into Business: Patenting and Licensing at Public Research Organizations,
OECD, Paris, 2003
33
W.PRINZ, M.J. ADELMANN, R. BRAUNEIS, J.DREXL, R.NACK, Parents and Technological
Progress in a Globalized World, supra at note 14, at 339
34
F. LISSONI, P.LOTZ, J. SCHOVBSO, A. TRECCANI, Academic Patenting and the Professor‟s
Privilege: Evidence on Denmark from the KEINS database, in Science and Public Policy 2009, 595
ff. at 596
35
Monitoring and Analysis of Technology Transfer and Intellectual Property Regimes and Their
Use, Draft report to the commission, Mayson Hayes and Curran, 2008, at 17
36
F. MONTOBBIO, Intellectual Property Rights and Knowledge Transfer from Public Research to
Industry in US and Europe: which Lessons for Innovation Systems in Developing Countries? in The
Economics of Intellectual Property WIPO 2009, 180 ff., at 200
Dragan Ćorić
133
_______________________________________________________________________________
implemented. Outside Europe, the professor privilege existed in Japan until 2004.
Traditionally, the academic research in Japan was strongly supported by private
sector and professor‘s privilege system was, in a certain manner, necessary to
ensure that all inventions with commercial potential could be attributed to sponsors
(i.e. private companies). This kind of technology transfer process was tolerated by
policy makers and university administrations. The system of professor privilege has
never been introduced in US.
Typical characteristics of professor‘s privilege (as implemented in Italy and
Sweden) are37:
-
-
-
Scope to whom and to which IP privilege is applied: in Italy this scope is
wider (compared to Sweden). For example, it applies not only to all
employees of PFRO but also to all consultants and to third parties
involved in research, while in Sweden it applies only to professors
(teachers), graduate students and doctoral candidates. In Sweden
professor‘s privilege applies to copyright as well, while in Italy it does
not.
Compensation: In Italy PFRO is entitled to the part of the profits derived
from the exploitation of the invention, while in Sweden PFRO can not
profit from it.
Patent protection: In Italy, there is strict obligation on the researchers to
patent their invention while in Sweden such a provision does not exist.
Derogations: Italian regulation states that if the researcher does not
industrially exploit the invention within 5 years then PFRO is entitled to
exercise a non exclusive right on the invention. Furthermore, if the
invention came from the privately financed research, then PFRO owns the
invention. There are not equivalent provisions under Swedish law.
The introduction or abolition of professor‘s privilege can have important
consequences on the university patenting and university-industry partnership, and
disrupt the usual way of collaboration. The analysis of biotechnological research in
Denmark38 (which is good example because Denmark was first to abolish the
privilege 10 years ago, and can provide earliest effects on the abolition), after the
abolition of professor‘s privilege system in 2000, showed that it has been a decline
in collaboration of Danish scientists and firms; the latter started to negotiate more
with the scientists which benefit from the privilege (like those in Sweden). The
same study showed that introduction of the intermediate (TT Office) can
significantly delay decisions on university intellectual property. Another Danish
37
Monitoring and Analysis of Technology Transfer and Intellectual Property regimes and Their
Use, supra at note 34, at 15.
38
F.VALENTIN, R.L. JENSEN, Effects on Academia-Industry Collaboration of Extending
University Property Rights, in Journal of Technology Transfer 2007, 251 ff., at 271.
134
Patent Ownership in View of Technology Transfer in Government-Sponsored
Research
study39 showed that considerable amount of patenting activities moved from the
professors to the universities.
Ownership of invention is a strong financial incentive for the researchers,
since salary structures are rigid and bonuses are very rare in the academic
environment. Another function is to reward the individual effort and to motivate
the researcher to take an active role in the commercialization of their inventions.
On the other side, the professor‘s privilege system has been criticized for the
following reasons40:
-
-
-
Lack of resources to commercialize: the academic researchers usually do
not have skills, expertise, and financial resources, or even interest to
commercialize their research output.
No benefit for the universities: attribution of all IP rights to the
researchers does not bring any benefit to the department where research
was performed. The benefits and knowledge are shared by a small
number of people instead of wider scientific community and public.
Researcher Retention: PFRO are not likely to encourage any link
between researchers and industry out of fear that researchers might move
to industry rewards.
6. INSTITUTIONAL OWNERSHIP
Institutional ownership of university related research means that the IP rights
on the results of academic research belong to the institution where the research is
performed. There is a global trend41 to move to this type of system. In general,
institutional ownership system can be divided into two classes. First regime is
automatic ownership42, where the first owner of the IP rights is the employer
(university). In this regime usually there are no reversion rights to the employee.
The right for compensation depends on the national legislation43 and university IP
policy. Second type of the institutional ownership is pre-emption rights44, where
the first owner is employee (researcher), but employer (university) is entitled to
claim the invention (usually within a certain term). In the case the university does
39
F. LISSONI, P.LOTZ, J. SCHOVBSO, A. TRECCANI, Academic patenting and the professor‘s
privilege: evidence on Denmark from the KEINS database, supra at note 33.
40
Monitoring and Analysis of Technology Transfer and Intellectual Property regimes and Their
Use, supra at note 34, at 41.
41
Italy is rare example of opposite trend of moving from institutional ownership to professor‘s
privilege
42
The examples of countries with automatic ownership are : Latvia, France, U.K. Estonia and
Ireland
43
The comparison of employees‘ remuneration in Germany, Sweden, Denmark, UK, France. Japan,
Switzerland and US can be found in D. HARHOFF, K. HOISL, Institutionalized Incentives for
Ingenuity-Patent Value and the German Employees' Inventions Act, in Research Policy 2007, 1143
ff., at 1146
44
The examples of countries with pre-emption rights are: Austria, Finland, Germany, Lithuania
Dragan Ćorić
135
_______________________________________________________________________________
not claim the invention; the rights are reverting to the inventor. The reversion of the
rights (in the case that PFRO does not claim rights or has no intention to
commercialize the invention) to employee depends highly on national legislature,
and the time usually ranges from 3 to 6 months. In addition, the university is
usually obliged to pay certain remuneration to the inventor as a compensation for
transferring the rights. There are several ways of compensation, depending on the
national law45:
-
countries where no right of remuneration is provided with by the law46;
countries where right to remuneration exists and is clearly defined47;
countries where a right to remuneration exists and is not clearly defined48;
countries where additional right to remuneration exists when the
employer owns IPR49
Institutional ownership reduces freedom and rights of the researcher, but at
the same time the advocates of Institutional ownership system claim several
positive aspects:
-
-
-
-
Facilitation of technology transfer and competition: The institutional
ownership incentivizes PFROs to develop technology transfer skills and
capabilities. The US is a good example of a country where this approach
has created a competitive environment.
Lack of incentives to develop infrastructure: without automatic ownership
system PFROs would have no motivation to develop even basic
infrastructure for commercialization and patenting.
Technology transfer simplification: the adoption of the institutional
ownership allows creation of technology transfer offices, which can
centralize and simplify the procedures. In this way the researchers can
focus on what they do best – make inventions and breakthrough research.
Technology transfer awareness: the presence of the TT office in the
university environment will likely increase understanding of IP rights and
motivate the researches to commercialize.
It is important to emphasize that pre-emption rights regime, contrary to
automatic ownership, can negatively affect the university IP portfolio since in
many cases when the invention is not claimed by the university it is reclaimed by
the inventor, and eventually can not be reutilized by the academic or the industrial
users.
45
Monitoring and Analysis of Technology Transfer and Intellectual Property regimes and Their
Use, supra at note 34, at 23
46
EU examples : Ireland, Lithuania, Luxemburg, Cyprus
47
EU example : Slovenia
48
EU examples: Netherlands, Czech Republic and Malta
49
EU example : France
136
Patent Ownership in View of Technology Transfer in Government-Sponsored
Research
7. CONCLUSIONS
Even though in theory there are only few distinctive university ownership
systems, in the reality there are many layers of hard law (such as employees‘
invention law), soft law (recommendations and directives), and university IP
policies. These differences indicate that there is not general agreement yet on what
should be considered the best system, and this circumstance negatively affects the
harmonization and cross-border research.
There is a general trend toward to institutional ownership since this system of
allocation of IP rights seems to be the most suitable way to transfer technology for
the interests of the majority of stakeholders. Research institution seems to be the
best initial owner of the rights. Even though professor‘s privilege can be a good
incentive for researchers, there is no evidence that it is an efficient technology
transfer system. The effect of recent abolishing of the professor‘s privilege in some
European countries is still to be fully understood in the following years.
Regardless of the type of the ownership, the fruitful commercialization is
only possible when the creators of the inventions are actively involved and
motivated. For this reason the policy makers have to try to create legal framework
that will encourage effective collaboration between researches, universities, and
industry, and not create the tension among them.
Dragan Ćorić
137
_______________________________________________________________________________
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EXTRATERRITORIAL TECHNOLOGY IN A TERRITORIAL
REGIME:
CHALLENGES AFTER CARDIAC PACEMAKERS V. ST. JUDE
MEDICAL
by
Emily J. Zelenock
TABLE OF CONTENTS
INTRODUCTION
1. DIRECT INFRINGEMENT UNDER 35 U.S.C.§ 271(A)
a. The Deepsouth Loophole: Exported Components of a Patented
Product
b. Expanding the Extraterritorial Reach of U.S. Patent Law by Closing
the Deepsouth Loophole: Enactment of 35 U.S.C. § 271(f)
2. TRACING THE EVOLUTION OF § 271(F) CASE LAW FROM DEEPSOUTH
TO CARDIAC PACEMAKERS
a. The Clear-Cut Cases: Patents for Machines with Mechanical Parts
b. Where § 271(a) and § 271(f) Collide: Making Sense of the
Blackberry Case
c. The Supreme Court Weighs In
A. The Conflict: Cases Involving ―Components‖ of Methods
i.
ii.
Union Carbide: Extension of § 271(f) to Methods
Cardiac Pacemakers: Reversing Union Carbide, Narrowing
the Extraterritorial Reach of U.S. Patent Law, and Creating a
New
Loophole
3. CLOSING THE CARDIAC PACEMAKERS LOOPHOLE
B. Inadequacy of Domestic Solutions
C. Proposed International Treaty Addressing Transnational Method
Patents
CONCLUSION
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BIBLIOGRAPHY
Appendix (i-iii)
Emily J. Zelenock
143
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INTRODUCTION
The territoriality of intellectual property rights (―IPRs‖) has long posed
significant obstacles for IPR holders, but never more so than now.1 The Internet
has made the global dissemination of information instantaneous, digitization has
made it possible to cheaply reproduce and distribute perfect copies of copyrighted
and patented material, and many of the most cutting-edge innovations are practiced
without regard to geographical borders.2 The increasingly interdependent and
―borderless‖ world is reflected not only by the nature of technology, but also by its
ownership. Whereas the territorial system of IPR was predicated on a world where
inventors sought IPR protection in their own country and then exploited their rights
there, the demographics of technology ownership are far different today. Indeed,
last year, a full 50% of U.S. patents granted were of foreign origin, as compared to
18% in 1963 (when the United States Patent & Trademark Office began tracking
the data).3 It is no longer the case that one may presume that a ―U.S. patent‖ has
U.S. ownership. Therefore, developments in U.S. law regarding the territoriality of
IPR have international significance, impacting not only anyone who owns U.S.
IPR, but also anyone who seeks to avoid infringement of such.4 Similarly,
developments in other countries with robust IP systems can have a far-reaching,
transnational impact.
In the patent context, the territoriality requirement generally means that a
U.S. patent can only be infringed by conduct taking place ―within‖ the United
States.5 Thus, as a general rule, an infringing party can escape liability for
1
While the territoriality of IPR is generally accepted and often cited principle, its basis in
international law is not as easy to define. As Professors Cottier, Abbott and Gurry point out, the
principle of independence embodied in the Paris and Berne Conventions appear to provide some
basis, but yet territoriality is not discussed in either convention. Between those conventions and
general jurisdictional principles that have evolved in the area of public international law, there
remain ―a substantial number of questions regarding the territorial scope of intellectual property
protection.‖ See F. ABBOTT, T. COTTIER AND F. GURRY, INTERNATIONAL INTELLECTUAL PROPERTY
IN AN INTEGRATED WORLD ECONOMY, Aspen Publishers, New York, 2007, at p. 75-76. See also M.
LEMLEY ET AL., Divided Infringement Claims, in 33 AIPLA Q.J. 255-56 (2005).
2
Dan L. Burk, Patents in Cyberspace: Territoriality and Infringement on Global Computer
Networks, in 68 TUL. L. REV. 1, 1993, p. 38-39. (―The dissolution of geographic, political, and
temporal barriers made possible by global computer networks may pose a new challenge to the
operation of U.S. patent law – a challenge not yet fully realized and likely impossible for the
framers of the present patent code to anticipate, but a challenge whose parameters can already be
seen.‖). See also T.R. HOLBROOK, Extraterritoriality in U.S. Patent Law, 49 WM. AND MARY L.
REV. 6 (2008).
3
See United States Patent & Trademark Office Patent Statistics Report, available at:
http://www.uspto.gov/web/offices/ac/ido/oeip/taf/reports.htm#pat_trends.
4
For an overview of the evolution of the territoriality principle in U.S. patent law, see C.A. NARD,
THE LAW OF PATENTS, Wolters Kluwer, New York, 2008, at 538-71.
5
35 U.S.C. § 271(a); see, e.g., Pellegrini v. Analog Devices, Inc., 375 F.3d 1113, 1117 (Fed. Cir.
July 8, 2004) (―[T]he U.S. patent laws ‗do not, and were not intended to, operate beyond the limits
of the United States….‖) (citing Brown v. Duchesne, 60 U.S. 183 (1857)); Rotec Indus., Inc. v.
Mitsubishi Corp., 215 F.3d 1246, 1251 (Fed. Cir. June 13, 2000) (―extraterritorial activities are
irrelevant to the case before us, because ‗the right conferred by a patent under our law is confined to
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infringement of a U.S. patent by shifting the infringing conduct outside of the
United States. Yet every ―general rule‖ gives rise to exceptions, which are often
more important than the rule in delineating the rights at issue. Carved out through
statute and case law, the exceptions to the territoriality rule are far from clear and
present particular difficulty for practitioners advising American and non-American
owners of U.S. patents on the scope of their patent rights and accused infringers on
the legality of their conduct. This article discusses recent developments in the law
governing the territorial reach of U.S. patents and suggests that international
collaboration may be necessary to achieve protection of inherently transnational
technology.
Part I of this article addresses direct infringement under 35 U.S.C. § 271(a),
the ―loophole‖ created by the U.S. Supreme Court‘s ruling in Deepsouth Packing
Co. v. Laitram Corp.6, and closure of that loophole via Congressional enactment of
35 U.S.C. § 271(f). Part II traces the evolution of case law interpreting § 271(f),
including the Federal Circuit‘s7 recent ruling in Cardiac Pacemakers, Inc. v. St.
Jude Medical Center, Inc.8, which held that § 271(f) does not apply to
transnational method patents and thus created a new loophole in the law. Part III
considers various domestic options for closing the Cardiac Pacemakers loophole,
but ultimately concludes that an international approach will be the most effective
long-term solution.
1. DIRECT INFRINGEMENT UNDER 35 U.S.C.§ 271(A)
The primary statutory provision addressing direct infringement of a U.S.
patent is found in 35 U.S.C. § 271(a), which provides: ―whoever without authority
makes, uses, offers to sell, or sells any patented invention, within the United States,
or imports into the United States any patented invention during the term of the
patent therefore, infringes the patent.‖9 While ―within the United States ―is on its
face simple and clear language, the case law reveals that determining the metes and
bounds of the territoriality requirement can be a very challenging task indeed.
the United States and its territories….‖); Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S.
641, 650 (1915) (same).
6
Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (May 30, 1972).
7
The Federal Circuit refers to the U.S. Court of Appeals for the Federal Circuit, which is the U.S.
federal appellate court that handles all patent-related appeals from U.S. federal district courts.
8
Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc., 576 F.3d 1348 (Fed. Cir. Aug. 19, 2009).
9
35 U.S.C. § 271(a) (emphasis added).
Emily J. Zelenock
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a.
The Deepsouth Loophole: Exported Components of a Patented Product
Section 271(a) hit the proverbial bump in the road in 1972, with the United
States Supreme Court‘s landmark case Deepsouth Packing Co. v. Laitram Corp.
Laitram sued Deepsouth for infringing two patents directed to machines used to
―devein‖ shrimp. Through extensive litigation, Laitram established that
Deepsouth‘s shrimp deveining machines that were made, used and sold in the
American market constituted infringement of Laitram‘s patents under § 271(a); the
issue before the Supreme Court was whether Deepsouth could also be liable for
direct infringement if it sold the disassembled components of the infringing
machines and exported them to foreign countries, where they were then assembled
and sold. The Court noted that Deepsouth was ―entirely straightforward‖ in
admitting that it had devised this scheme for the express purpose of escaping
liability under § 271(a).10 Laitram argued that ―Deepsouth in all respects save final
assembly ‗makes‘ the [patented] invention‖ within the meaning of § 271(a).11
However, the Court was persuaded by Deepsouth‘s argument that the express
statutory language required that, to be liable for direct infringement, an infringer
make, use or sell the ―patented invention‖ ―within the United States.‖12
Accordingly, Deepsouth‘s sales and export of the disassembled components of the
patented invention did not fall within the scope of § 271(a).
b.
Expanding the Extraterritorial Reach of U.S. Patent Law by Closing
the Deepsouth Loophole: Enactment of 35 U.S.C. § 271(f)
In reaching its decision in Deepsouth, the U.S. Supreme Court stated that
―clear congressional indication of intent‖ would be required in order to extend the
patent monopoly in the manner suggested by Laitram.13 Clear indication of intent
came -- albeit ten years later -- with 35 U.S.C. § 271(f), which was enacted in
direct response ―to the…decision in Deepsouth…concerning the need for a
legislative solution to close a loophole in patent law.‖14
Section 271(f)(1) provides:
Whoever without authority supplies or causes to be supplied in or from the
United States all or a substantial portion of the components of a patented
invention…in such manner as to actively induce the combination of such
10
Deepsouth, 406 U.S. at 523.
Deepsouth, 406 U.S. at 525.
12
The Court characterized the issue as follows: ―did Deepsouth ‗make‘ (and then sell) something
cognizable under the patent law as the patented invention, or did it ‗make‘ (and then sell) something
that fell short of infringement?‖ Deepsouth, 406 U.S. at 527.
13
Deepsouth, 406 U.S. at 532.
14
130 Cong. Rec. H10525 (1984); see also Cardiac Pacemakers, 576 F.3d at 1360 (―In response to
Deepsouth, Congress enacted Section 271(f).‖) (citing Patent Law Amendments of 1984, S. Rep.
No. 98-663, pp. 2-3 (1984) (explaining that 271(f) was a response to Deepsouth) and Microsoft
Corp. v. AT&T Corp., 550 U.S. 437, 444 (Apr. 30, 2007) (―AT&T II‖)).
11
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components outside of the United States in a manner that would infringe the
patent if such combination occurred within the United States, shall be liable
as an infringer.15
2. TRACING THE EVOLUTION OF § 271(F) CASE LAW FROM DEEPSOUTH
TO CARDIAC PACEMAKERS
a. The Clear-Cut Cases: Patents for Machines with Mechanical Parts
Not surprisingly, cases involving similar fact patterns to Deepsouth -- that is,
patents for machines with mechanical components -- are the ―easy‖ cases involving
a relatively cut-and-dried application of § 271(f). When the fact pattern of a case
falls squarely within the Deepsouth loophole that § 271(f) was designed to close,
the dispute is not whether § 271(f) applies16 (it clearly does), but rather whether the
accused infringer‘s disassembled component parts would infringe the patent if
combination thereof took place within the United States.17
b.
Where § 271(a) and § 271(f) Collide: Making Sense of the Blackberry
Case
In NTP, Inc. v. Research in Motion, Ltd.18 (well-known as the ―Blackberry
case‖), NTP alleged that Research in Motion‘s (―RIM‖) Blackberry devices (and
systems and processes for using wireless e-mail via those devices) infringed its
15
Section 271(f)(2) includes a similar, related provision: ―Whoever without authority supplies or
causes to be supplied in or from the United States any component of a patented invention that is
especially made or especially adapted for use in the invention and not a staple article or commodity
of commerce suitable for substantial noninfringing use, where such component is uncombined in
whole or in part, knowing that such component is so made or adapted and intending that such
component will be combined outside of the United States in a manner that would infringe the patent
if such combination occurred within the United States, shall be liable as an infringer.‖ 35 U.S.C. §
271(f)(2).
16
Challenges regarding the scope of § 271(f) have arisen in cases involving product claims that are
not directed to machines having mechanical parts - namely, claims directed to a chemical
formulations in which the ―components‖ are individual chemical compounds and claims directed to
software in which the ―components‖ are code. The chemical cases were resolved with relative ease
by the Federal Circuit, however, and there is no longer any dispute that chemical compounds are
―compounds‖ within the meaning of § 271(f). See, e.g., W.R. Grace & Co.-Conn. v. Intercat, Inc.,
60 F. Supp.2d 316 (D. Del. Aug. 9, 1999) (holding that that chemical compounds are ―components‖
within the meaning of § 271(f)); Bristol-Myers Squibb Co. v. Rhone-Poulenc Rorer, Inc., 326 F.3d
1226 (Fed. Cir. Apr. 15, 2003) (same). The cases involving software are more complex and are
discussed in Section II.C., infra.
17
For examples of cases involving the application of 271(f) in scenarios directly analogous to
Deepsouth, see, e.g., T.D. Williamson, Inc. v. Laymon, 723 F.Supp. 587, 590 (N.D. Okla. Sept. 21,
1989); Windsurfing Int‟l v. Fred Ostermann, 668 F. Supp. 812, 813 (S.D.N.Y. Aug. 21, 1987);
Smith Int‟l, Inc. v. Hughes Tool Co., 1986 U.S. Dist. LEXIS 28247 (C.D.Cal. Mar. 12, 1986)
(vacated for reasons unrelated to resolution of § 271(f) issue).
18
NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. Aug. 2, 2005), reh‟g denied, 2005
U.S. App. LEXIS 23112 (Fed. Cir. Oct. 7, 2005), cert. denied, 546 U.S. 1157 (U.S. Jan. 23, 2006).
Emily J. Zelenock
147
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patents. One of the key bases upon which RIM argued that it did not infringe was
that a component of its system/process (known as a ―relay station‖) was based in
Canada and, as such, was not ―within the United States‖ as required by 35 U.S.C. §
271(a). The Federal Circuit drew a distinction between NTP‘s patent claims that
were directed to systems and processes, holding that the ―use‖ of a patented process
(as proscribed by § 271(a) required completion of each and every process step
within the United States. This compelled the Court‘s conclusion that RIM did not
infringe NTP‘s process claims, as one step was performed in Canada. However, as
to NTP‘s system claims, the Court stated that ―the ‗use‘ of the claimed system
under § 271(a) is the place at which the system as a whole is put into service, i.e.
the place where control of the system is exercised and beneficial use of the system
obtained.‖19 Accordingly, RIM was liable under § 271(a) for infringing NTP‘s
system claims, but not its process claims.20
NTP also argued that RIM infringed its method claims under § 271(f). RIM
supplied Blackberry devices to its U.S. customers and those devices, concert with
the Canadian relay station, employed NTP‘s patented method. In essence, NTP
argued that each device was a ―component‖ of the patented method sufficient to
trigger liability under § 271(f). The Court disagreed, noting that a component of a
process claim is not a physical product, but rather a step of the process: ―By merely
supplying products to its customers in the United States, RIM is not supplying or
causing to be supplied in this country any steps of a patented process invention for
combination outside the United States and cannot infringe NTP‘s asserted method
claims under section 271(f) as a matter of law.‖21 The Court did not reach the
question of whether § 271(f) could apply to process claims, but noted that ―it is
difficult to conceive of how one might supply or cause to be supplied all or a
substantial portion of a patented method in the sense contemplated by the phrase
‗components of a patented invention‘ in section 271(f)22.
19
NTP, 418 F.3d at 1317 (citing Decca Ltd. v. United States, 544 F.2d 1070, 1083 (Ct. Cl. July 19,
1976).
20
A similar approach has been taken in the United Kingdom. See Menashe Business Mercantile
Ltd. & Anor v William Hill Organization Ltd. [2002] EWCA Civ 1702 (28 November 2002) (Court
of Appeal decision); see also Menashe Business Mercantile Ltd. & Anor v William Hill
Organization Ltd. [2002] EWHC 397 (Patents) (15 March, 2002) (Court of First Instance decision).
In the Menashe case, the patent holder alleged that the defendant‘s operation of an online gaming
system infringed the patent-at-issue. The defendant argued that there could be no infringement of
the patented system because the server (which was an essential part of the system) was located
outside of the U.K. Noting that to allow such a defense would undercut the spirit of the patent laws,
the Court of First Instance found infringement. The Court of Appeal likewise found infringement,
but did so based on a rationale similar to the NTP Court, i.e. that the ―use‖ of the invention was in
the U.K., irrespective of where the server was located.
21
NTP, 418 F.3d at 1322-23.
22
NTP, 418 F.3d at 1322.
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c.
The Supreme Court Weighs In
Software has presented particular challenges in the § 271(f) context. In Eolas
Technologies, Inc. v. Microsoft Corp.23, Eolas Technologies, Inc. (―Eolas‖) sued
Microsoft Corp. (―Microsoft‖) alleging, inter alia, that Microsoft‘s Internet
Explorer infringed two of Eolas‘ patent claims for a web browser having an
interactive environment.24 At the trial stage, Microsoft was found to infringe and
the district court ruled that Microsoft was liable for its domestic and foreign sales
of Internet Explorer.25 On appeal to the Federal Circuit, one of the key issues was
whether Microsoft‘s software code on its exported ―golden master disks‖26 could
be considered a ―component‖ within the meaning of § 271(f).27 Microsoft argued
that code was not a component and, therefore, should not be liable for infringement
damages for its foreign sales.28 The Federal Circuit ruled against Microsoft, noting
§271(f)‘s use of the ―broad and inclusive term ‗patented invention‘…[which]
includes ‗any new and useful process, machine, manufacture or composition of
matter‖ and further noting that ―[w]ithout question, software code alone qualifies as
an invention eligible for patenting[.]‖29 The Court expressly rejected Microsoft‘s
argument that ―component‖ should be limited to machines with physical
components, explaining that this did not square with the plain language of § 271(f),
in which ―every form of invention eligible for patenting falls within…§ 271(f).‖30
Notably, the Court cited the TRIPS Agreement‘s non-discrimination provision for
additional support of its view that ―all forms of invention‖ should be covered under
§ 271(f), noting that ―this court cannot construct a principled reason for treating
process inventions different than structural products.‖31
23
Eolas Techs., Inc. v. Microsoft, Inc., 399 F.3d 1325 (Fed. Cir. Mar. 2, 2005), reh‟g denied, 2005
U.S. App. LEXIS 10067 (Fed. Cir. May 3, 2005), cert. denied, 126 S. Ct. 568 (U.S. Oct. 31, 2005).
24
Eolas, 399 F.3d at 1328.
25
Eolas, 399 F.3d at 1331.
26
The golden master disks were either physical disks that were sent to foreign manufactus l yorers
via conventional mailing methods or encrypted electronic versions that were transmitted to foreign
manufacturers electronically.
27
The golden master disks contained the ―software code for [Microsoft‘s] Windows operation
system to Original Equipment Manufacturers (OEMs) abroad who use that disk to replicate the code
onto computer hard drives for sale outside the United States. The golden master disk itself does not
end up as a physical part of an infringing product.‖ Eolas, 399 F.3d at 1331.
28
Eolas, 399 F.3d at 1331.
29
Cf. European Patent Convention, Article 52(2) (stating that ―programs for computers‖ are not
patentable inventions).
30
Eolas, 399 F.3d at 1339.
31
Eolas, 399 F.3d at 1339. The non-discrimination provision of the TRIPS Agreement provides
that ―Patents shall be available and patent rights enjoyable without discrimination as to the place of
invention [] [and] the field of technology[.]‖ See Agreement on Trade-Related Aspects of
Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade
Organization, Annex 1C, Legal Instruments—Results of the Uruguay Round, 33 I.L.M. 1125, 1197
(1994) (hereinafter ―TRIPS Agreement‖).
Emily J. Zelenock
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Shortly after the Eolas case, a similar case came before the Federal Circuit
which involved Microsoft‘s exportation of ―golden master‖ disks containing
Microsoft‘s Windows software (which was then copied and sold to customers
abroad), though this time the patent holder was AT&T.32 Relying on the reasoning
in Eolas, the Court held that the software was a ―component‖ of a patented
invention and, accordingly, Microsoft could not escape liability under § 271(f).
However, the U.S. Supreme Court agreed to take this case on appeal and ultimately
reversed the Federal Circuit, ruling in favor of Microsoft.33 Critical to the Supreme
Court‘s reasoning was the fact that the master disk itself was never installed on any
foreign-made computers; rather, the software contained on the master disk was
copied and those foreign-made copies were installed. Therefore, these
―components‖ were not supplied from the United States, as required by § 271(f).34
Moreover, the Supreme Court was of the view that the software was not a
―component‖ until it was expressed as computer-readable copy (which occurred
when the foreign-made copies were generated). The Supreme Court expressly
rejected the Federal Circuit‘s view that the software on the master disk was a
―component‖ because copies could be readily and cheaply made from it: ―While
copying software abroad is indeed easy and inexpensive….Section 271(f) contains
no instruction to gauge when duplication is easy and cheap enough to deem a copy
in fact made abroad nevertheless ‗supplie[d]…from the United States.‖35 Finally,
the Supreme Court explained:
The presumption [against extraterritoriality] tugs strongly against
construing § 271(f) to encompass as a ‗component‘ not only a physical
copy of software, but also software‘s intangible code, and to render
‗supplie[d]…from the United States‖ not only exported copies of software,
but also duplicates made abroad…. If AT&T desires to prevent copying
abroad, its remedy lies in obtaining and enforcing foreign patents.36
32
AT&T Corp. v. Microsoft Corp., 414 F.3d 1366 (Fed. Cir. July 13, 2005) (“AT&T I”).
Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (U.S. Apr. 30, 2007) (“AT &T II”).
34
As the Supreme Court pointed out, neither party ―argues that software can never rank as a
‗component‘ under § 271(f).‖ Rather, the parties disagreed ―over the stage at which software
becomes a component.‖ AT&T II, 550 U.S. at 447. AT&T maintained that ―software in the
abstract, not simply a particular copy of the software, qualifies as a ‗component‘‖ and Microsoft
argued (supported by an amicus brief of the United States) that only a copy of software in its usable
form (i.e., functional object code rather than source code) and not software in the abstract, can be a
component.‖ AT&T II, 550 U.S. at 447. Microsoft and the United States maintained that The
Supreme Court ultimately agreed with Microsoft and the United States‘ position: ―Abstract software
code is an idea without physical embodiment, and as such, it does not match 271(f)‘s categorization:
‗components‘ amenable to ‗combination.‘‖ AT&T II, 550 U.S. at 449.
35
AT&T II, 550 U.S. at 440.
36
AT&T II, 550 U.S. at 440. See also C.A. BRADLEY, Territorial Property Rights in an Age of
Globalism, 37 VA. J. INT‘L L. 505, 513–16 (1997) (discussing five separate bases underlying the
presumption against extraterritoriality).
33
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A. The Conflict: Cases Involving “Components” of Methods
i. Union Carbide: Extension of § 271(f) to Methods
In 2006, a Federal Circuit panel explicitly held that § 271(f) applies to
patented methods.37 In Union Carbide, Union Carbide had patent protection for a
method of producing ethylene oxide and alleged that Shell‘s chemical catalyst,
which was necessary for performing the patented method and was exported outside
of the U.S. for the purpose of performing the method outside of the U.S., was a
―component‖ within the meaning of § 271(f). The Court distinguished the facts
from NTP on relatively shaky grounds: ―NTP is different from this case because
Shell supplies catalysts from the United States directly to foreign customers[,]‖
whereas in NTP, ―RIM itself did not supply any component to a foreign affiliate.‖38
Rather than NTP, the Union Carbide Court relied upon the reasoning of Eolas,
which is of course now the Supreme Court has reversed in pertinent part.
ii. Cardiac Pacemakers: Reversing Union Carbide, Narrowing
the Extraterritorial Reach of U.S. Patent Law, and Creating a
New Loophole
In August 2009, the Federal Circuit, sitting en banc, overruled Union
Carbide and held that § 271(f) does not apply to patented methods.39 Cardiac
Pacemakers alleged that St. Jude infringed its patented method of heart stimulation
in which an implantable heart stimulator (known as an implantable cardioverter
defibrillator or ―ICD‖) is used to determine an abnormal heart condition (e.g., an
irregular heart rhythm known as an arrhythmia) and then selects and executes a
single or multimode operation to treat that condition.40 After a long and
complicated procedural history, St. Jude‘s ICDs were found to infringe Cardiac‘s
patented method -- at least insofar as the ICDs were used (and thus the method
practiced) within the United States.41 However, the parties vigorously disputed
whether St. Jude should also have to pay royalties on those ICDs that were
exported from the United States to other countries. Cardiac argued that § 271(f)
applied, meaning that St. Jude should be liable for having supplied a ―component‖
(the ICD) of the ―patented invention‖ (the method). St. Jude argued that § 271(f)
does not apply to method claims, so it should be relieved from any duty to pay
royalties when the ICDs had been exported and thus the patented method had been
37
Union Carbide Chemicals & Plastics Technology Corp. v. Shell Oil Co., 425 F.3d 1366 (Fed.
Cir. Oct. 3, 2005).
38
Union Carbide, 425 F.3d at 1380.
39
Cardiac Pacemakers, 576 F.3d at 1365.
40
U.S. Patent No. 4,407,288 (―the ‗288 patent), claim 4 (claim 4 reproduced at Cardiac
Pacemakers, 576 F.3d at 1352).
41
For a summary of the procedural history, see Cardiac Pacemakers, 576 F.3d at 1352-55.
Emily J. Zelenock
151
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practiced outside of the United States. The Federal Circuit agreed to resolve this
issue en banc.42
The Court acknowledged that Cardiac was correct that the term ―patented
invention‖ encompasses both product and method claims.43 However, the Court
noted that ―it is critical‖ to bear in mind that ―components‖ of patented methods are
the ―intangible‖ steps of the method, thus flatly rejecting Cardiac‘s argument that a
―component‖ of a method also includes ―the apparatus that performed the
process.‖44 Based on this definition of ―component,‖ the Court then concluded that
§ 271(f)‘s requirement that the components be ―‗supplied‘…eliminates method
patents from Section 271(f)‘s reach.‖45 The Court reasoned that the word ―supply‖
connotes ―the transfer of a physical object. Supplying an intangible step is a
physical impossibility.‖46 The Court explained that its conclusion was ―fully
consistent‖ with Congress‘ intent underlying its enactment of § 271(f), which was
to close the Deepsouth loophole and nothing more.47 Moreover, ―[a]ny ambiguity
as to Congress‘s intent in enacting Section 271(f) is further resolved by the
presumption against extraterritoriality.‖48 Therefore, St. Jude was not liable for its
shipment overseas of ICDs capable of performing Cardiac‘s patented method.49
Judge Pauline Newman issued a strong dissent in response to the Court‘s
interpretation of § 271(f). Judge Newman is particularly bothered that the Court‘s
exclusion of methods from the scope of § 271(f) ―place[es] a different definition on
‗patented invention‘ in § 271(f) than in any other provision of‖ the United States
patent statute.50 Moreover, she points out that the policy underlying the enactment
of § 271(f) was to prevent purposeful ―evasion of United States patents,‖ and the
42
See Cardiac Pacemakers, Inc. v. St. Jude Medical Center, Inc., 315 Fed. Appx. 273 (order
granting rehearing en banc) (Fed. Cir. 2009).
43
Cardiac pointed to 35 U.S.C. 101, which broadly defines ―invention‖ as ―any new and useful
process, machine, manufacture or composition of matter.‖ The Court could not disagree that this
definition ―is broad enough to include method patents.‖ Cardiac Pacemakers, 576 F.3d at 1362.
44
Cardiac Pacemakers, 576 F.3d at 1362-63.
45
Cardiac Pacemakers, 576 F.3d at 1364; see also James R. Farrand, Territoriality and Incentives
Under the Patent Laws: Overreaching Harms U.S. Economic and Technological Interests, 88
JPTOS 761, 771-72 (2006) ("The wording and legislative history of Section 271(f) discourage
application of that provision to method claims").
46
Cardiac Pacemakers, 576 F.3d at 1364.
47
Cardiac Pacemakers, 576 F.3d at 1364.
48
Cardiac Pacemakers, 576 F.3d at 1365. The Federal Circuit was particularly swayed by the
Supreme Court‘s reversal of its decision in AT&T I. In that case, the Supreme Court held that
Microsoft‘s export of master disks (for overseas copying) did not constitute the ―supply‖ of
combinable ―components.‖ AT&T II, 550 U.S. 437 (2007); see also Cardiac Pacemakers, 576 F.3d
at 1362 (discussing AT&T II). From this case, the Federal Circuit received a ―clear message that the
territorial limits of patents should not be lightly breached.‖ Cardiac Pacemakers, 576 F.3d at 1362
(citing AT&T II, 550 U.S. 454-56).
49
Cardiac Pacemakers, 576 F.3d at 1365-66.
50
Cardiac Pacemakers, 576 F.3d at 1366 (Newman, J., dissenting); see also 35 U.S.C. § 101 et
seq.
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________________________________________________________________________________
Court‘s ruling creates yet another loophole for infringers.51 While she ―share[s]…
[the] concern about legislatively impinging upon sovereign foreign rights[,]‖ she
rejects the notion that allowing methods to fall underneath the umbrella of § 271(f)
would constitute an overreaching of U.S. patent laws:
[T]he statutory purpose is to reach the evasion of United States rights by
actions that are taken within the United States by entities subject to United
States law. The practice in foreign countries of United States-origin
technology without any contribution of components from the United States
is untouched by § 271(f), whether of process or product. Liability under §
271(f) is based on domestic conduct and intent.52
In addition, Judge Newman dismissed the idea that foreign patents could
adequately protect inventors, noting that this alternative is not only expensive, but
not always available.53 Judge Newman cautioned:
When a patented process is practiced so that some steps are performed in
the United States and other steps are performed offshore, the purloiner of
the patented process may escape liability everywhere, for United States
infringement is avoided if all of the patented process steps are not practiced
in the United States, and infringement of foreign patents is avoided for the
same reason.54
Judge Newman concluded that Congress could not have intended to ―enable
avoidance of process patents by this ploy, while correcting it for machine patents‖
and, thus, the en banc‘s interpretation of § 271(f) to exclude method patents leads
to an ―absurd result,‖ as it ―seriously devalue[s]‖ all method patents.55
3. CLOSING THE CARDIAC PACEMAKERS LOOPHOLE
There can be no doubt, as Professor Holbrook has pointed out, that the word
―loophole‖ itself suggests a ―normative bias‖ against the strict application of the
territoriality principle. 56 Indeed, it is entirely possible that one ―could view these
‗loopholes‘ as the proper functioning of a territorially based patent system.‖57
However, it is clear that the preference for a strictly territorial regime is slowly but
51
Cardiac Pacemakers, 576 F.3d at 1366-71 (Newman, J., dissenting) (finding puzzling the
Court‘s ruling that ―the legislators intended to preserve a large loophole for patented processes, and
never intended to cover more than the narrow Deepsouth loophole for machinery.‖).
52
Cardiac Pacemakers, 576 F.3d at 1373 (Newman, J., dissenting) (emphasis added).
53
Cardiac Pacemakers, 576 F.3d at 1373 (Newman, J., dissenting).
54
Cardiac Pacemakers, 576 F.3d at 1373 (Newman, J., dissenting).
55
Cardiac Pacemakers, 576 F.3d at 1373 (Newman, J., dissenting) (citing Dewsnup v. Timm, 502
U.S. 410, 427 (1992) (the interpretation of a statute should ―avoid absurd results‖).
56
T.R. HOLBROOK, Extraterritoriality in U.S. Patent Law, 49 WM. AND MARY L. REV. 2119, 2127
(2008).
57
HOLBROOK, 49 WM. AND MARY L. REV. at 2127.
Emily J. Zelenock
153
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steadily eroding, even in countries that have long favored such an approach.58
What is far from clear, however, is where --- and how -- to draw the line.59
B. Inadequacy of Domestic Solutions
On January 10, 2010, the U.S. Supreme Court denied Cardiac‘s petition for
writ of certiorari, meaning that the Federal Circuit‘s holding in Cardiac
Pacemakers will have a significant impact on U.S. patent law.60 For patent
attorneys advising U.S. and non-U.S. clients who own U.S. patents or patent
applications, the challenge is how to secure the best protection for innovative
processes in light of this decision.
First, to the extent possible, patent attorneys should be sure to always include
claims directed to the products as well as the methods.61 This was in fact the case
in Cardiac Pacemakers, as there were product claims directed to the ICDs as well
as claims directed to the method of using the ICDs (but only a method claim was at
issue on appeal). If a product claim had been at issue in Cardiac Pacemakers, St.
Jude‘s would have been liable for infringement under § 271(f) if it had exported
―all or a substantial portion‖ of the disassembled components of the ICD ―in such a
manner as to actively induce the combination of such components outside of the
United States.‖62 Moreover, patent applicants should strategically target markets in
which their invention is likely to be made, used or sold and apply for foreign
58
G.A. BENDER, Clash of the Titans: The Territorality of Patent Law vs. The European Union, 40
IDEA 49 (2000)
(noting several signs that ―the territorial limit of patents in European countries is rapidly
dissolving.‖).
59
Academics and practitioners have advanced various possible theories and solutions. See, e.g.,
T.R. HOLBROOK, Extraterritoriality in U.S. Patent Law, 49 WM. AND MARY L. REV. 2119, 2122
(2008); D. DEFRANCO & A. SMITH, Technology and the Global Economy: Progress Challenges the
Federal Circuit To Define the Extraterritorial Scope of U.S. Patent Law, 34 AIPLA Q.J. 373
(2006); JAMES R. FARRAND, Territoriality and Incentives Under the Patent Laws: Overreaching
Harms U.S. Economic and Technological Interests, 88 JPTOS 761 (2006); J. OSBORNE, A Rational
Analytical Boundary for Determination of Infringement by Extraterritorially-Distributed
Systems, 46 IDEA 587 (2006); Y. CHAIKOVSKY & A. PERCER, Globalization, Technology Without
Boundaries & the Scope of U.S. Patent Law, 9 U.S.F. INTELL. PROP. L. BULL. 95 (2005); R.
DREYFUSS, The ALI Principles on Transnational Intellectual Property Disputes: Why Invite
Conflicts?, 30 BROOK. J. INT'L L. 819 (2005); C.A. BRADLEY, Territorial Property Rights in an Age
of Globalism, 37 VA. J. INT‘L L. 505, 513–16 (1997); D. CHISUM, Normative and Empirical
Territoriality in Intellectual Property: Lessons from Patent Law, 37 VA. J. INT'L L. 603 (1997); J.R.
THOMAS, Litigation Beyond the Technological Frontier: Comparative Approaches to Multinational
Patent Enforcement, 27 LAW & POL'Y INT'L BUS. 277 (1996)
60
Cardiac Pacemakers, Inc. v. St. Jude Medical Center, Inc., 78 U.S.L.W. 3392 (U.S. Jan. 11,
2010).
61
Professor Lemley is among the prominent academics who advocates for careful claim drafting to
reduce (though admittedly not eliminate) the ―divided infringement‖ problem, i.e., the problem of
an otherwise infringing act becoming non-infringing by virtue of the infringing steps taking place in
different countries. See M. LEMLEY ET AL., Divided Infringement Claims, 33 AIPLA Q.J. 255, 256
(2005).
62
35 U.S.C. § 271(f).
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Cardiac Pacemakers v. St. Jude Medical
________________________________________________________________________________
patents in those countries. This was a point made by both the Supreme Court in
AT&T II and the Federal Circuit in Cardiac Pacemakers.
While it is best practice to have a diversity of claims directed to both
products and processes, not all method claims can be rewritten as product claims.
Indeed, while technology like Cardiac‘s is a physical device (ICD) used in a
process, often it is the process itself that is the heart of the innovation. In such
cases, the process is only infringed if each and every step takes place ―within the
United States‖ under § 271(a); after Cardiac Pacemakers, there can be no doubt
that § 271(f) is not an option for direct infringement of a method claim. For
industries where transnational processes are inherent (such as telecommunications,
distributed computer systems and Internet-based services), this can be seen as a
blessing or a curse -- depending to some extent on whether the party is a patent
holder or an accused infringer.
Likewise, while it is best practice to obtain patents from multiple countries,
doing so will not necessarily provide protection, as Judge Newman pointed out in
dissent. Indeed, in a scenario involving an innovative process that can be practiced
so that some steps are performed in the U.S. and another step (or steps) can be
performed outside of the U.S., infringers ―may escape liability everywhere, for
United States infringement is avoided if all of the patented process steps are not
practiced in the United States, and infringement of foreign patents is avoided for
the same reason.‖63
To the extent that this loophole is sought to be closed, it is unlikely that it can
be done so through a purely domestic solution. The Supreme Court made it crystal
clear in AT&T II that any further ―reaching‖ of the U.S. patent laws beyond the
strict territorial boundaries of the U.S. will need to be determined by Congress, not
the courts. However, it took Congress over ten years to close the Deepsouth
loophole with § 271(f) and that involved a far less controversial measure. Indeed,
the U.S. software industry and the Solicitor General of the United States (in an
amicus brief) supported Microsoft‘s position in AT&T II; with such powerful
lobbying, it is difficult to imagine that Congress could or would even want to
respond to this loophole, much less in a timely manner.
C. Proposed International Treaty Addressing Transnational
Method Patents
Any proposed international solution dealing with transnational method
patents should be narrowly tailored to specifically resolve the problem identified in
Judge Newman‘s dissent in Cardiac Pacemakers -- i.e., to respond to the situation
where someone has a U.S. patent for a patented method and foreign equivalent(s)
but nevertheless is deprived of enforcing any of those patents because potential
63
Cardiac Pacemakers, 576 F.3d at 1373 (Newman, J., dissenting).
Emily J. Zelenock
155
___________________________________________________________________
infringers could simply avoid liability by strategically placing the method steps in
different countries. The international community should give serious consideration
to this scenario, realizing of course that without international collaboration on this
point, the effective result is to eliminate transnational methods from the scope of
patent coverage.
CONCLUSION
A survey of the recent U.S. case law regarding the territoriality principle in
the patent area calls to mind the old adage: the only thing that is certain is that
nothing is certain. This uncertainty is compounded when we consider that every
country will ultimately devise its own solution for dealing with these issues. Still,
perhaps now we have one more point to hold onto as practitioners: U.S. patent
claims directed to transnational methods are in peril after the holding in Cardiac
Pacemakers, allowing potential infringers to escape liability for patent
infringement by strategically placing in different countries the different steps of a
protected method. Whether this is a loophole that should be closed is one that
requires careful examination by - and potentially collaboration with - the
international community.
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Cardiac Pacemakers v. St. Jude Medical
________________________________________________________________________________
BIBLIOGRAPHY
Cases
AT&T Corp. v. Microsoft Corp., 414 F.3d 1366 (Fed. Cir. July 13, 2005)
Bristol-Myers Squibb Co. v. Rhone-Poulenc Rorer, Inc., 326 F.3d 1226 (Fed.
Cir. Apr. 15, 2003)
Brown v. Duchesne, 60 U.S. 183 (U.S. 1857)
Cardiac Pacemakers, Inc. v. St. Jude Medical Center, Inc., 315 Fed. Appx.
273 (Fed. Cir. 2009)
Cardiac Pacemakers, Inc. v. St. Jude Medical Center, Inc., 576 F.3d 1348
(Fed. Cir. Aug. 19, 2009)
Cardiac Pacemakers, Inc. v. St. Jude Medical Center, Inc., 78 U.S.L.W. 3392
(U.S. Jan. 11, 2010)
Decca Ltd. v. United States, 544 F.2d 1070 (Ct. Cl. July 19, 1976)
Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (May 30, 1972)
Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641 (U.S. Jan. 11,
1915)
Eolas Techs., Inc. v. Microsoft, Inc., 399 F.3d 1325 (Fed. Cir. Mar. 2, 2005),
reh‟g denied, 2005 U.S. App. LEXIS 10067 (Fed. Cir. May 3, 2005), cert. denied,
126 S. Ct. 568 (U.S. Oct. 31, 2005).
Menashe Business Mercantile Ltd. & Anor v William Hill Organization
Ltd. [2002] EWCA Civ 1702 (28 November 2002)
Menashe Business Mercantile Ltd. & Anor v William Hill Organization
Ltd. [2002] EWHC 397 (Patents) (15 March, 2002)
Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (Apr. 30, 2007)
NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. Aug. 2,
2005)
NTP, Inc. v. Research in Motion, Ltd, 2005 U.S. App. LEXIS 23112 (Fed.
Cir. Oct. 7, 2005)
NTP, Inc. v. Research in Motion, Ltd., 546 U.S. 1157 (U.S. Jan. 23, 2006).
Emily J. Zelenock
157
___________________________________________________________________
Pellegrini v. Analog Devices, Inc., 375 F.3d 1113 (Fed. Cir. July 8, 2004)
Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d 1246, 1251 (Fed. Cir. June
13, 2000)
Smith Int‟l, Inc. v. Hughes Tool Co., 1986 U.S. Dist. LEXIS 28247 (C.D.Cal.
Mar. 12, 1986)
T.D. Williamson, Inc. v. Laymon, 723 F.Supp. 587 (N.D. Okla. Sept. 21,
1989)
Union Carbide Chemicals & Plastics Technology Corp. v. Shell Oil Co., 425
F.3d 1366 (Fed. Cir. Oct. 3, 2005)
W.R. Grace & Co.-Conn. v. Intercat, Inc., 60 F. Supp.2d 316 (D. Del. Aug. 9,
1999)
Windsurfing Int‟l v. Fred Ostermann, 668 F.Supp. 812 (S.D.N.Y. Aug. 21,
1987)
Statutes and Legislative History
35 U.S.C. § 101
35 U.S.C. § 271(a)
35 U.S.C. § 271(f)
130 Cong. Rec. H10525 (1984)
European Patent Convention, Article 52(2)
Patent Law Amendments of 1984, S. Rep. No. 98-663 (1984)
Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr.
15, 1994, Marrakesh Agreement Establishing the World Trade Organization,
Annex 1C, Legal Instruments—Results of the Uruguay Round, 33 I.L.M. 1125,
1197 (1994)
Other Sources
F. ABBOTT, T. COTTIER AND F. GURRY, INTERNATIONAL INTELLECTUAL
PROPERTY IN AN INTEGRATED WORLD ECONOMY, Aspen Publishers, New York
(2007)
G.A. BENDER, Clash of the Titans: The Territorality of Patent Law vs. The
European Union, 40 IDEA 49 (2000)
158
Extraterritorial Technology in a Territorial Regime: Challenges after
Cardiac Pacemakers v. St. Jude Medical
________________________________________________________________________________
DAN L. BURK, Patents in Cyberspace: Territoriality and Infringement on
Global Computer Networks, in 68 TUL. L. REV. 1 (1993)
C.A. BRADLEY, Territorial Property Rights in an Age of Globalism, 37 VA.
J. INT‘L L. 505, 513–16 (1997)
Y. CHAIKOVSKY & A. PERCER, Globalization, Technology Without
Boundaries & the Scope of U.S. Patent Law, 9 U.S.F. INTELL. PROP. L. BULL. 95
(2005)
D. CHISUM, Normative and Empirical Territoriality in Intellectual Property:
Lessons from Patent Law, 37 VA. J. INT'L L. 603 (1997)
D. DEFRANCO & A. SMITH, Technology and the Global Economy: Progress
Challenges the Federal Circuit To Define the Extraterritorial Scope of U.S. Patent
Law, 34 AIPLA Q.J. 373 (2006)
R. DREYFUSS, The ALI Principles on Transnational Intellectual Property
Disputes: Why Invite Conflicts?, 30 BROOK. J. INT'L L. 819 (2005)
JAMES R. FARRAND, Territoriality and Incentives Under the Patent Laws:
Overreaching Harms U.S. Economic and Technological Interests, 88 JPTOS 761
(2006)
T.R. HOLBROOK, Extraterritoriality in U.S. Patent Law, 49 WM. AND MARY
L. REV. 2119 (2008).
M. LEMLEY ET AL., Divided Infringement Claims, 33 AIPLA Q.J. 255 (2005)
C.A. NARD, THE LAW OF PATENTS, Wolters Kluwer, New York (2008)
J. OSBORNE, A Rational Analytical Boundary for Determination
ofInfringement by Extraterritorially-Distributed Systems, 46 IDEA 587 (2006)
J.R. THOMAS, Litigation Beyond the Technological Frontier: Comparative
Approaches to Multinational Patent Enforcement, 27 LAW & POL'Y INT'L BUS. 277
(1996)
United States Patent & Trademark Office Patent Statistics Report, available
at: http://www.uspto.gov/web/offices/ac/ido/oeip/taf/reports.htm#pat_trends.
THE LEGAL ASPECTS OF
TECHNOLOGY TRANSFER OFFICES IN ARAB PUBLIC-FUNDED
UNIVERSITIES
Cairo University (Egypt) and Sultan Qaboos University (Oman)
by:
Ahmed Elsisi and Sheikha Al-Akhzami
TABLE OF CONTENTS
1. INTRODUCTION
2. LITERATURE REVIEW
3. THE HISTORICAL DEVELOPMENT OF TTOS IN UNIVERSITIES
4. SOCIAL & ECONOMIC IMPACT OF TTOS IN THE COMMUNITY
5. ESTABLISHED IP POLICIES
5.1. Stanford University IP Policy, Usa
5.2. Glasgow University IP & Commercialization Policy, Uk
5.3. Osaka University IP Policy, Japan
6. ANALYSIS OF THE CURRENT SITUATION IN ARAB UNIVERSITIES
6.1. Sultan Qaboos University IP Policy, Oman
6.2. Cairo University, Egypt
7. RECOMMENDATIONS
8. CONCLUSION
BIBLIOGRAPHY
160
The Legal Aspects of Technology Transfer Offices in
Arab Public-Funded Universities
________________________________________________________________________________
1. INTRODUCTION
As from the eleventh century and during the Islamic Renaissance, the Arab
world was the unrivaled intellectual centre for science, philosophy, medicine and
art. Scholars were attracted from all over the world to cities like Cairo, Damascus
and Baghdad, acquiring the knowledge and innovation.
Nowadays, Arab countries‘ contribution to science and art is far beyond the
contribution of developed countries. This situation is in part due to the brain drain
problem and the inadequate implementation of rules, that makes their universities
miss essential tools in research and education which are commonly used by their
counterparts in the developed countries; and one of these tools is the necessary
interaction between the university-industry-government (triple helix model) as a
key for innovation through developing technology transfer offices.
The two selected Arab universities are examples from the two categories of
the Arab countries. While Egypt is representing the countries with historical
universities and a strong industry, Oman represents the Arabian Gulf countries with
young universities and a growing economy due to the oil evolution in the 1970s.
Our research will excavate different intellectual property (IP) policies in the
developed countries, giving examples of three universities representing three
different continents (Stanford University in the US as private university, Glasgow
University in the UK and Osaka University in Japan as public funded universities).
Then, it will analyze the current situation in the two selected Arab public funded
universities (Cairo University in Egypt and Sultan Qaboos University in Oman)
highlighting the IP systems in both universities. Based on that, the research will
recommend the improvements in the IP system for the Arab universities.
2. LITERATURE REVIEW
Technology Transfer Office (TTO) is a new organizational entity has
emerged in the administrative structure of universities. Its main function is to
facilitate commercial knowledge transfers from universities to practitioners in the
industry.1
The Organization for Economic Co-operation and Development (OECD)
report on patenting and licensing at public research organizations shows that many
of the TTOs are in their infancy. Most TTOs are less than 10 years old and have
1
D. Siegel, D. Waldman, L. Atwater, A. Link, Toward a model of the effective transfer of scientific
knowledge from academicians topractitioners: qualitative evidence from the commercialization of
university technologies, Journal of Engineering and Technology Management, Volume 21, Issues 12, 2004, p. 115-142.
Ahmed Abd Eltawab Elsisi and Shaikha Nasser Ali Al-Akzam
161
_______________________________________________________________________________
less than five full-time staff. However, the number of new TTOs is growing, to the
order of 1 per year per institution.2
A common problem identified in the literature is the difficulty these
universities face in getting the researchers to first disclose their inventions to the
TTO and second to cooperate with the university in further development of their
patent after licensing3. Some studies support the importance of encouraging
inventors to disclose, protect and exploit their inventions through the incentives
which can be legal or administrative. Royalty sharing agreements or equity
participation in academic start-ups could be key factor to encourage researchers to
evaluate and patent their inventions and eventually will increase the university
number of patents and revenue obtained from licensing. Therefore, incentive
element in the license seems to encourage higher levels of research effort and
attract more productive researchers.4
According to Nelson5, The sharp increase in university patenting and
licensing are clearly associated with the development and maturation of certain
new fields of university research, in particular the rise of biotechnology, where
research results seem to promise significant commercial value of great interest to
the industry6.
WIPO publication shows that technology transfer in universities calls for a
high level of different expertise, a firm knowledge of technology and the way
universities function, and familiarity with the legal aspects of IPRs. One problem
researcher face is their lack of expertise in filing patent application and negotiating
agreement with the industry. This raises a fundamental issue for universities to
have strong and effective TTO staffed with legal and technical experts.7
The literature lacks published work regarding technology transfer in the Arab
universities, and no studies were found on IP policies in the Arab world.
According to Zahlan8, what‘s needed for the Arab development is to combine
2
M. Cervantes, Academic Patenting: How universities and public research organizations are using
their intellectual property to boost research and spur innovative start-ups,WIPO website:http://
www.wipo.int/sme/en/documents/academic_patenting.htm
3
I. Macho-Stadler, D. Pérez-Castrillo, R.Veugelers, Licensing of university inventions: The role of a
technology transfer office, International Journal of Industrial Organization., 2007, p. 483-510
4
Supra note 2 M. Cervantes, Academic Patenting…
5
R. Nelson, Observations on the post-bayh-dole rise of patenting at American universities, Journal
of technology transfer, 26, 2001, pp13-19
6
D. Mowery, R. Nelson, B. Sampat, A. Ziedonis, The growth of patenting and licensing by U.S.
universities: an assessment of the effects of the Bayh–Dole act of 1980, Research Policy,Volume 30,
Issue 1, January 2001, Pages 99-119
7
Technology transfer, intellectual property and effective university-industry partnerships: the
experience of China, India, Japan, Philippines, the Republic of Korea, Singapore and Thailand,
WIPO website: http://www.wipo.int/freepublications/en/intproperty/928/wipo_pub_928.pdf
8
A. B. Zahlan is an independent science policy consultant. Formerly a professor of physics at the
American University of Beirut, he has published extensively in the fields of chemical physics,
science and technology policy, and the history of technology in the Arab World.
162
The Legal Aspects of Technology Transfer Offices in
Arab Public-Funded Universities
________________________________________________________________________________
human resources and support services with effective government policies. But he
shows a negative view when he mention the immigration of professionals including
scientists and engineers and the massive brain drain.9 Also Saleh10 emphasize that
many universities in the Arab countries ought to change from being classical
establishments to become more pro-active in their research management.
3. THE HISTORICAL DEVELOPMENT OF TTOS IN UNIVERSITIES
The concept of technology transfer found its way through the American
industrial environment and education system in the last century. Before 1940, a
little thought was given to the importance of technology, but during World War II,
the value of technological advances to a strong military defense was recognized.
The emerging needs of the U.S. military resulted in a large increase in governmentsponsored research. The government began contracting with qualified companies,
universities, but with no overall plan for handling the intellectual property that
would be developed.
In 1945, US president Franklin D. Roosevelt's Science Advisor, Vannevar
Bush, drafted a report (published on Science: ―The Endless Frontier‖ magazine)
emphasizing the importance of basic research to a strong economy. At that time,
each funding agency developed its own intellectual property policies. There were
more than 25 different policies for dealing with intellectual property. In general,
research institutions were unable to obtain title to their inventions developed under
federal funding and were unable to license their own technologies, because at that
time the government had the right to own the outcome of federal funding. In
addition, the government adopted a non exclusive licensing policy. The result was
that few inventions were licensed and even fewer were commercialized.
In 1960‘s, the Department of Health, Education, and Welfare and then the
National Science Foundation entered into inter-institutional patent agreements with
a few universities. These agreements were the foundation for modern technology
transfer. For the first time, universities were permitted to own the inventions they
made under government-funded research. The terms and provisions of these
agreements led to the passage of two very important statutes concerning technology
transfer in the United States.
As Lee mentioned in his book (Technology transfer and public policy)11, the
first statute is the Stevenson-Wydler Technology Innovation Act in 1980 (Public
Law 96-480). This Act established the foundation for technology transfer at the
national laboratories. It made technology transfer an integral part of the research
9
A.Zahlan, Arab societies as knowledge societies, Minerva, 2006, 44:103-112
N. Saleh, Research management issues in the Arab countries, Higher Education Policy, Volume
15, Issue 3, September 2002, Pages 225-247
11
Y. Lee, Technology Transfer and Public Policy, Quorum Books, 1997, p. 28
10
Ahmed Abd Eltawab Elsisi and Shaikha Nasser Ali Al-Akzam
163
_______________________________________________________________________________
and development responsibilities of federal laboratories and their employees. A
main target was to disseminate the information from the Federal government to
private industry, and to establish an Office of Research and Technology
Application (i.e., technology transfer office).
After only two months of Stevenson-Wydler Act, US Congress passed the
Bayh-Dole Act, the key piece of legislation enabling technology transfer in the
whole nation. In this law, Congress determined that private (not government)
ownership of inventions, motivated by the prospect of financial gain, would lead to
commercialization of federally funded inventions. Consequently, small businesses
and nonprofit organizations were given a statutory right to choose to retain title to
inventions made during federally-assisted research and development (R&D), as
long as they were interested in patenting and attempting to commercialize those
inventions.
After the Bayh-Dole Act, some minor laws were also issued serving the same
purpose. One of them was the Federal Technology Transfer Act, which was issued
in 1986 empowering government-owned government-operated labs (GOGOs)
directly to enter into cooperative R&D agreements (CRADA) with firms and
established the Federal Laboratory Consortium (FLC) for Technology Transfer.
The great success of these former laws has strengthened the U.S. economy
and helped make the United States a world technology leader. 12 According to
Nelson13, the number of universities with technology transfer offices increased in
the US from 25 in 1980, to 200 in 1990.
4. SOCIAL AND ECONOMIC IMPACT OF TTOS IN THE COMMUNITY
Over the last twenty years or so, the contribution of university research
output of technological advance in industry has become even more important than
it used to be. In particular, industries employing biotechnology draw greatly on
university research. The contribution of university research to industrial
development has been strong in several areas of electronics, and in certain kinds of
software developments.14
Having a successful TTO in a university as a central body to handle all issues
relating to the transfer of technology makes possible to professionalize technology
transfer activities and enhance the bargaining power of the universities.15 Also, it
generates high social returns to the society at large by both creating new products
or enhancing product quality/variety and boosting new industries.
12
Technology transfer: The history, Industrial partnership office, 2005,
website: https://ipo.llnl.gov/data/assets/docs/TechTransfer.pdf
13
Supra note 5, R. Nelson, Observations on the post-bayh-dole…
14
ibid
15
Supra note 7, Technology transfer, intellectual property…
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As widely known, innovation is very much dependent on R&D which had to
be accompanied by the acquisition of knowledge16 especially through basic
sciences research which is done mostly at public funded universities. Moreover,
quantitative studies tend to show that patenting has effect on the direction of
research which led universities to conduct more applied research. This means that
IP and technology transfer activities is making university research more responsive
to the economy, leading to a danger impact on basic research.17 In a free market
economy, firms are not willing to invest in basic science research due to a high
degree of technical and commercial uncertainty associated with it. Therefore,
government direct financial support to public funded universities prevents underinvestment in basic science research and eventually will prevent market failure.18
In general, public funded universities have obligations toward promoting
local and regional development through IP spillovers. This leads to a preference
for local licensing agreements in favor of smaller firms with a consequent income
loss.19
The technology transfer policy in a university gives firms incentives to
develop commercial products resulted from university patents and on the other
hand it gives incentives for researchers to cooperate in the commercial exploitation
of their inventions by allowing them to own patents and to share
profits.20Therefore, in order for universities to balance the benefits, there are three
types of licenses between the university and industry: exclusive, non-exclusive and
sole licenses.
5. ESTABLISHED IP POLICIES
In this section we will go through examples of developed systems in
technology transfer in three universities from different developed countries (USA,
UK and Japan). We will discuss the provisions of ownership, income sharing,
confidentiality and clauses in case the university is unable to commercialize the
patent. In the following IP policies.
5.1. Stanford University IP Policy, United States
16
D. Siegel, M. Weight, IP: the assessment, Oxford review of economic policy, v.23 no4, 2007,
pp.529-540.
17
Supra note 2 M. Cervantes, Academic Patenting…..
18
Report of the multi-year expert meeting on enterprise development policies and capacity-building
in science, technology and innovation (STI) on its first session, United Nations conference on trade
and development, 2009, p.12, website: http://www.unctad.org/en/docs/ciimem1d4_en.pdf
19
Supra note 16, D. Siegel, M. Weight, IP: the assessment…
20
R. Eisenberg, Public Research and Private Development: Patents and TT in governmentsponsored research, Virginia law review, v.82, 1996, p.1709
Ahmed Abd Eltawab Elsisi and Shaikha Nasser Ali Al-Akzam
165
_______________________________________________________________________________
For nearly three decades, Stanford University has been a leader in technology
transfer, fostering the growth of northern California's Silicon Valley and the
biotechnology industry and providing a model for other research and educational
institutions across the United States and the world.
Stanford Office of Technology Licensing (OTL) is the first office to be set up
for university technology transfer in the US. It was established in 1970 by its first
director Mr. Niels Reimers who left Stanford in 1991 to consult to other
universities.
According to statistics, patent licenses income in Stanford from 1954 to 1967
(before the Bayh-Dole Act) was roughly $45,000. Now, Stanford‘s start-ups in one
year are more than what were raised by University of Cambridge -the leading
university in the UK- in the whole period of the Nineteenth. A huge success that
led universities like; Harvard and the Massachusetts Institute of Technology to
model their own technology transfer programs on Stanford's practices.21
5.1.1. Ownership of IPRs:
Regardless of the source of funding, all potentially patentable inventions
conceived or first reduced to practice in whole or in part by university employees
and students in the course of their university responsibilities or with more than
incidental use of the university resources shall be assigned to the university.
Waivers of the provisions of this policy may be granted only by the president
or the president's designate on a case-by-case basis, giving consideration among
other things to university obligations to sponsors, whether the waiver would be in
the best interest of the university and whether the waiver would result in a conflict
of interest.
5.1.2. Income Sharing from IP:
Before distributing the revenues, a deduction of 15% to cover the
administrative overhead of OTL is taken from gross royalty income, followed by a
deduction for any directly assignable expenses, typically patent filing fees. After
deductions, royalty income is divided one third to the inventor, one third to the
inventor's department, and one third to the inventor's school. In the case of
Independent Laboratories and Independent Research Centers or Institutes, which
report directly to the vice provost and dean of research, the inventor may assign to
his/her independent laboratory, center or institute the department's third of the
royalty income or a part thereof, based on support of the work. In these cases, the
school's portion goes to the dean of research. Similarly, when more than one
department is involved, the inventor shall designate the distribution of the
department and school thirds based on support of the work.
21
L. Fisher, The Innovation Incubator, Strategy+Business Magazine, Issue13, 1998.
166
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5.1.3. Confidentiality Clauses:
Inventors in Stanford must prepare and submit on a timely basis an invention
disclosure to the TLO for each potentially patentable invention conceived or first
actually reduced to practice in whole or in part in the course of their university
responsibilities or with more than incidental use of university resources.
5.1.4. Where the University is unable to commercialize the IP
If the University cannot, or decides not to, proceed in a timely manner to
patent and/or license an invention, it may reassign ownership to the inventors upon
request to the extent possible under the terms of any agreements that supported or
related to the work.
5.2. Glasgow University IP & Commercialization Policy, United Kingdom:
In the UK during the period 1997-2000, an average of 95 spin-offs per year
were created from universities. As a result of changes in government policy, 2006
witnessed an increase in spin-offs having the potential to create new markets. 22
The Glasgow university IP issues are managed through the Research and
Enterprise Department which deals with the ownership, protection and
commercialization of IP and know-how created by employees of the university.
The policy aims to encourage and reward inventors and protects the university
against any unnecessary risks as will be seen from the different clauses below.
5.2.1. Ownership of IPRs:
It indicates that all rights in IP devised or created by a University employee
including students employed by the university in the course of his or her normal
duties of employment will generally belong automatically to the university. But in
the case of a sponsored research or other type of agreement with an external body,
the IP will initially belong to the university and then ownership will be determined
according to the terms of such agreement.
In the case of any IP created by a university employee, the ownership belong
to the university if the employee‘s normal duties are such that it would be
reasonable to expect the creation of IP and if the employee of the university creates
IP outside the course of his/her employment or normal duties with more than
incidental use of university resources.
22
Supra note 16, Siegel, M. Weight, IP: the assessment…
Ahmed Abd Eltawab Elsisi and Shaikha Nasser Ali Al-Akzam
167
_______________________________________________________________________________
In the case of university employees working at other institutions, any IP
created during that appointment should lie with the employer who pays the salary.
On the other hand, in the case of academic or researchers who have an honorary
association with the university but are not employed by the university, they are
generally required to transfer any IP they create in the course of their honorary
activities to the university. This includes visiting academics and individuals with
honorary appointment in the university.
Students who are not employed by the university own any IP they create and
shall be given the option to assign any IP to the university; then they will be
granted the same rights as any employee inventor.
5.2.2. Income Sharing from IP:
The policy stated that all license income from new technologies is distributed
net of any legal, patent or other costs. The distribution is according to the income
generated as following:
-
Up to £50,000 income: 50% inventor, 50% faculty.
Over £50,000 income: 33% inventor, 67% faculty.
For equity sharing from spin-out development the distribution is as
following: founding scientist 50%, faculty 25%, and university 25%. But if there is
a partnership from an IP Group23, the following equity sharing applies: Founding
scientist 50%, faculty 19%, university 19% and IP Group 12%. In general, the
share distributed for the inventor remains the same (50% of the net income) in
different scenarios.
5.2.3. Confidentiality Clauses:
The policy indicated that all university information must be treated
sensitively and each employee (or student) of the university must ensure that any
valuable or potentially valuable information is protected by a suitable agreement
before disclosure to others who are not university employees or students. While the
policy emphasizes strictly the importance of non disclosure clauses of information
covered under any agreement/understanding with external body. But the
disclosures may be permitted to other employees of the university.
5.2.4. Where the University is unable to commercialize the IP
After the decision by the faculty to commercialize the IP, the university
agrees to a commercialization plan with the individual within 3 months of the
decision by the faculty. Appropriate steps will be taken to protect the IP generated
23
University support individuals in the creation of spin-out ventures via its partnership with the IP
Group (www.ip2ipo.co.uk), IP and commercialization policy, Glasgow University, P. 8
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by employees and students generally at the university‘s expense and within the
timetable of the commercialization plan.
If the university is unable to commercialize the IP then, upon the request
from the individual, the university will assign all its rights, titles and interest of
such IP to the individual in return for a perpetual non-exclusive royalty-free license
with the right to sub-license.
Where the individual successfully commercialize any IP created by them,
following an assignment of such IP to them, then the individual will reimburse any
expenses previously incurred by the university in connection with the protection of
such IP, including patent agents‘ and other legal costs, out of any income generated
by or on behalf of the individual from the commercialization of such IP.
5.3. Osaka University IP Policy, Japan
The WIPO report in the Japan experience mention that during 1977, it was
agreed to transfer the IPRs resulted from national universities research to the
individual researchers. But it was too burdensome for individual researchers to file
patent applications or undergo the other processes necessary to claim and use IPRs.
It was only as late as the 1990s that Japanese society became serious about
establishing mutually supportive relation with industry due to the heavy loss of
competitiveness by Japanese firms to the US in such key sectors as information
technology and biotechnology. Under the pressure of global competition,
companies began to show increasing interest in utilizing the most advanced
knowledge developed by universities. On the part of universities, there have been
increasing indications that Japanese universities are falling behind foreign
universities in their levels of academic research because they have not interacted
with industries. Therefore, as the result of a set of laws that were introduced in the
late 1990s, Japanese universities are now capable of owning IPRs for inventions
developed at their universities and are obliged to go through radical transformation
in managing IPRs at universities. 24
Osaka University IP policy issued in April 2004 and managed through the IP
office and the Technology Licensing Organization (TLO). The IP policy objective
is to provide fundamental rules with regard to the handling of IP in order to
advance the university‘s social contribution and to serve the promotion of academic
study.
5.3.1. Ownership of IPRs:
24
Supra note 7, Technology transfer, intellectual property…
Ahmed Abd Eltawab Elsisi and Shaikha Nasser Ali Al-Akzam
169
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IPR created by the employees of the university during their duties at the
university shall belong to the university.
If an IP is created through study conducted by students of the university
using funds or equipment of the university or the public, the IPR may be assigned
to the university by conducting agreements with students. However, students
employed by the university and signed agreements concerning their rights to the IP
they create shall be treated as employees of the university.
Rights regarding the IP created by the employees shall belong to the
university in principle. If the invention is made jointly by the employees and
research partners, the IPRs shall be jointly owned by the university and the partner.
But when the IP from the results of joint research are considered to be best used
only by the partner, the IPR may be assigned to the partner for an appropriate
compensation to the university.
Income Sharing from IP
The income gains from an invention for which application is made by the
TLO will be distributed after deducting actual expenses related to the application as
the following: the inventor, the TLO, the university each receive one third (1/3) of
the net income. In that case, the university distribute one half (1/2) of its share to
the inventor‘s research laboratory.
If the income generated by the transfer or assignment of a tangible research
results, the university pays 50 per cent of the net income to the inventor and his/her
research laboratory as compensation.
If the income generated related to IP assigned by students to the university,
the university pays compensation to the student in the same manner as employees
of the university.
Confidentiality Clauses
The policy stated that university employees shall have responsibility to
faithfully observe any secrecy obligations related to IP. In the case of conducting
cooperative activities with external organizations, both external organizations and
the university shall conclude and observe secrecy agreements.
5.3.1. Where the University is unable to commercialize the IP
The policy mentioned briefly that the IPR that the university decides not to
succeed shall belong to the employee who created the IP.
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The Legal Aspects of Technology Transfer Offices in
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5. ANALYSIS OF THE CURRENT SITUATION IN ARAB UNIVERSITIES
From the WTO data, the below figures where generated to summarize the
economic situation in the two selected Arab countries. The figures25 show that the
GDP for Egypt is more compared to Oman, this indicate a stronger industry base in
Egypt (Figure1) which is reflected in the number of industrial property of 300
patents compared to non in Oman (Figure2). But this is far below the number of
industrial property for the three developed countries: US, UK and Japan.
180,000
160,000
140,000
120,000
100,000
80,000
GDP(US$)
60,000
40,000
20,000
0
Egypt
Oman
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
United States
United
Kingdom
Trademark registrations by office
172,427
Patent grants by patent office
157,283
Japan
Egypt
Oman
31,966
95,034
3,029
118
5,930
164,954
300
Figure (1) GDP in million US$, 2008 25
Figure (2) number of industrial property, 2007 25
Some data shows that 69% of research is carried out in governmental
institutions and 30% in universities in the Arab countries, and only 30–35% of all
universities in region are research universities26. But this data is outdated because
many Arab universities have made the transition from being classical academic
establishments to becoming more pro-active toward research
25
The two figures were generated in addition to several bar graphs showing the GDP in comparison
with the population. This is based on the statistical data from the trade profile of each country (US,
UK, Japan, Egypt and Oman) in the World Trade Organization report “Trade profiles 2009”.
26
Supra note 10, N. Saleh, Research management issues…
Ahmed Abd Eltawab Elsisi and Shaikha Nasser Ali Al-Akzam
171
_______________________________________________________________________________
.
6.1. Sultan Qaboos University IP Policy, Oman
The IP policy in SQU was issued in January 2006 managed by the Research
& Innovation Affairs Department (RIAD) to protect the intellectual creation and
innovation in the university resulted from the investment in laboratories and
experimental fields. In addition, it will lead to commercialize the IP either through
establishing spin-offs or licensing.
But the IP policy is putting all the responsibility for the management of IPRs,
including disclosure, ownership protection and commercialization on one single
researcher with coordination with RIAD. This would discourage the researcher and
reduce the likelihood of filing patents. On the other hand, the high royalty share of
70% for the inventor is given as encouragement to disclose and patent his/her
invention.
6.1.1. Ownership of IPRs:
Any IP created by the university employees (this includes the present
employees and employees who left the university after creating the IP), students
and visiting researchers with incidental use of university facilities belongs to the
university. This is applied unless specified in an agreement of sponsored research
with external organizations.
6.1.2. Income Sharing from IP:
The income generated from the IP is distributed after deducting the related
expenses of filing and legal expenses. The remaining income is distributed as
following: inventor/s 70% and the university 30% will be divided between the
research department, college and the department/research center.
6.1.3. Confidentiality Clauses:
The policy emphasize that, from the idea is perceived, the inventor must not
disclose the information related to his invention and keep it confidential. If it‘s
necessary to disclose it to a third party, then a confidentiality and non-disclosure
agreement should be signed.
The inventor must keep a confidential notebook of the invention technical
details of the experiments or research achievements in a time frame signed by one
of the researchers as a witness. This notebook will include the invention stages and
the university will rely on it as evidence in distributing the future royalties among
the research team. In addition, the technical details will help in drafting the
application for patent filing.
6.1.4. Where the University is unable to commercialize the IP
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The IP commercialization shall be initiated and managed by the inventor on
behalf of the university by identifying the interested companies. The university is
responsible for the administrative and financial procedures related to IP protection,
commercialization and licensing unless the university expresses unwillingness to
proceed with it or renew the IP. In that case, the university will transfer back the
IPR to the inventor unless the IP is a result of a sponsored research with a condition
to prevent transferring the IPRs stated in the agreement.
In the case of successful commercialization of the IP after transferring the
IPR back to the inventor, the latter will benefit from any licensing or commercial
contracts that may occur. In addition, he could establish a spin-off firm from the IP
and the university may hold a share as a return of participating in the cost of
protecting the IP.
6.2. Cairo University, Egypt
In Egypt, one of the first national systems for planning and funding R&D
activities was set up in 1972 with the establishment of the Egyptian Academy of
Scientific Research and Technology (ASRT). ASRT serves as a national
organization responsible for the planning and funding of R&D activities in Egypt
as well as patents and intellectual properties. Planning is carried out through 15
specialized research councils. 27
In the Middle East, Egypt was one of the leading countries in issuing IP law.
The first Egyptian IP law was issued in 1949. Then, after Egypt joined TRIPS
agreement, the new law was drafted to comply with the agreement and it has been
put into force since 2002. The regulation included in that law is similar to the one
in the TRIPS agreement which finally gives a quite strong protection to the IPRs.
According to Article 7 of the said law, the employer shall have all the rights
derived from the inventions discovered by the worker or the employee during the
period of work relationship or employment, insofar as the invention falls within the
scope of the work contract, relationship or employment. Also, the name of the
inventor shall be mentioned in the patent, and he shall be remunerated in all cases.
If such remuneration was not agreed on, he shall be entitled to a fair compensation
from the employer who requested the invention.28
Cairo University like all Egyptian universities, has not yet issued an IP
policy. The technology transfer issue is based on a contractual agreement between
the researcher and the institution in order to regulate the revenues generated from
the research within the scope of the law. In addition, the university-industry
27
28
Supra note 10, N. Saleh, Research management issues…
The Egyptian Law of Protecting the Intellectual Property Rights number 82/2002
Ahmed Abd Eltawab Elsisi and Shaikha Nasser Ali Al-Akzam
173
_______________________________________________________________________________
relation is under the role of the research liaison and marketing office in Cairo
University but most Egyptian Universities do not have an IP or technology transfer
office. This has a profound negative influence on the research environment in
Egypt especially the public funded research institutions which are almost 90
percent of the research institutions in Egypt as it reflected negatively on the
researchers‘ incentives to innovate. However, still we can find some inventions that
are patented by the Egyptian Patent Office, but most of them are driven by
individuals not research institutions.
7. RECOMMENDATIONS
The factors that affect the success of technology transfer are both individual
researcher‘s motivation and institutional forces from inside and outside academia
such as public policy.29 Since both Arab countries are signatories of the TRIPS
Agreement, the following recommendations shall be adopted inside academia:
1. Oblige universities to issue IP policies and establish TTOs responsible of
evaluating the inventions, patenting procedures and commercialization.
2. Include provisions in the IP policy to monitor the patenting and the
commercialization process. If the office did not start the patent
procedures for an invention after a certain period of time, the inventor
shall have the right to go for patenting it individually and acquire the title
and the ownership for him/her automatically. On the other hand, if the
inventor failed to meet the commitments in the commercialization plan,
then the TTO have the right to terminate the commercialization process.
3. To compete globally, Arab public funded universities must push
themselves to understand exactly what the markets want from them and
learn to commercialize research outputs.
4. Like education and research, technology transfer should be part of the
mission of Public funded universities in the Arab countries through its
role in the community service.
5. Arab public funded universities should contribute to generate knowledge
in basic science in all levels of its growth in addition to support research
in applied science.
6. In the Arab countries where the industry is not strong and the surrounding
IP environment is not yet well established in reality, Arab public funded
universities should focus on funding research in the engineering and life
science research which include biotechnology and medical research
which are the most attractive for the industry. Moreover, from those
fields the fruits can be harvested quicker and its affect will make a
difference in the community.
29
Y. Dai, D. Popp, S. Bretschneider, Institutions and intellectual property: the influence of
institutional forces on university patenting, Journal of policy analysis and management, V.24 No.3,
2005, p.p. 579-598.
174
The Legal Aspects of Technology Transfer Offices in
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7. Arab public funded universities should adopt awareness programs among
it‘s‘ staff and students about the IP policy and to what extent is the
important effect of the IPRs. This could be in forms of seminars,
workshops, etc.
8. Arab public funded universities should give higher royalty shares to the
inventor in the first stage after establishing the TTOs. Meanwhile, this
incentive encourages researchers to become inventors by encouraging
them to disclose, protect and exploit their inventions before publishing it.
Gradually, the quality, rather than the quantity, of inventions will
increase. In addition, such incentive will help in preventing the brain
drain problem because inventors in that case are getting compensation for
their intellectual creation in their country.
9. Arab public funded universities should realize the pro-active role of the
TTOs to help the university to generate funding having three primary
functions: legal, technical and managerial. Therefore, keeping technology
transfer professionals is a difficult task and common worldwide. But this
should be done by adjusting employment and pay-scales rules to provide
competitive salaries to such professionals.
10. Due to the current situation in the Arab world with under-developed
industry facing lack of adopting new technologies in the market, Arab
public funding universities have to realize its objectives relating to the
promotion of local development through IP spillovers and a preference
for local licensing agreements to smaller firms.
11. Arab public funded universities should focus on two effective tools of
transferring technologies from academia to industry: First, establishing
Science Parks and incubators to accommodate the new technologies and
commercialize the patents in order to strengthen the industry in the longrun. Second, involving the existing firms from the research proposal
stages and employs the research expertise to improve the local firm‘s
product/service.
12. Arab public funded universities should adopt a balanced mix of exclusive
and non-exclusive licenses and should decide depending on the type of
technology. On one side, transferring the new technology and develop it
as a new product in the market is a risky situation for a local business
firm. So, in order to attract them, an exclusive license has to be granted
to prevent competitors from exploiting the patent. On the other side, non
exclusive license shall be granted to maintain disseminating the
knowledge among the science community for further research.
Ahmed Abd Eltawab Elsisi and Shaikha Nasser Ali Al-Akzam
175
_______________________________________________________________________________
8. CONCLUSION
This research paper is the first to explore the current situation of IP policies
and TTOs in Arab public funded Universities presented by Sultan Qaboos
University in Oman and Cairo University in Egypt. Major points were observed to
emphasize the necessities of adopting IP policies in the Arab Universities to cope
with the rapid changes in the education field as well as in the technology field. In
addition, the recommendations were based on combining both analysis; the legal
through the existing IP policies and the economical through WTO statistical report
due to the interrelation of the IP issues with the economic and welfare of the
countries.
Technology transfer is a very important factor for developing research and
economy in the Arab countries. To reach and maintain a competitive edge globally
in education and research, Arab universities should recognize the paramount social
and economic importance of the academia-industry linkage.
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universities, Journal of technology transfer, 26, 2001, pp13-19
D. Mowery, R. Nelson, B. Sampat, A. Ziedonis, The growth of patenting and
licensing by U.S. universities: an assessment of the effects of the Bayh–Dole act of
1980, Research Policy,Volume 30, Issue 1, January 2001, Pages 99-119
178
The Legal Aspects of Technology Transfer Offices in
Arab Public-Funded Universities
________________________________________________________________________________
L. Fisher, The Innovation Incubator, Strategy+Business Magazine, Issue13,
1998.
T. Massaro, Innovation, technology transfer, and patent policy: the university
contribution, Virginia Law Review,V. 82, 1996, p.p 1729-1735.
R. Eisenberg, Public Research and Private Development: Patents and TT in
government-sponsored research, 1996. v.82, Virginia Law Review, 1996, p.p
1663-1727.
Laws and Policies
Stanford University IP policy.
Glasgow University IP & commercialization policy.
Osaka University IP policy.
Sultan Qaboos University IP policy.
The Egyptian Law of Protecting the Intellectual Property Rights number
82/2002
Bayh-Dole Act 1980.
THE OPTIMAL SCOPE OF PATENT PROTECTION IN COMMON LAW
AND CIVIL LAW COUNTRIES
by
Zhao Wenhua and Zhang Zhu
1. INTRODUCTION
2. SUBJECT MATTER
2.1. In Common Law
2.1.1.Nowadays in the US
2.1.2. History of Subject Matter
2.1.3. Technology Development History in the US
2.1.4. Economic Changes in the US
2.1.5. Political Changes in the US
2.1.6. Analysis
2.1.7. Conclusion
2.2. In Civil Law
2.2.1. In the EU
2.2.2. In China
2.3. Discussion
3. NOVELTY, UTILITY, NON-OBVIOUSNESS
3.1. Novelty
3.1.1. In Common Law
3.1.2. In Civil Law
3.2. Utility
3.3. Non-obviousness
3.3.1. In Common Law
3.3.2. In Civil Law
3.4. Discussion
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4. THE SCOPE OF CLAIMS
4.1. Disclosure
4.1.1. In Common Law
4.1.2. In Civil Law
4.2. The Scope of Claims
4.2.1. Literal Infringement
4.2.2. the Doctrine of Equivalents
5. TERMS OF THE PATENT
5.1. In Common Law
5.2. In Civil Law
5.2.1. In the EU
5.2.2. In China
6. CONCLUSIONS
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1. INTRODUCTION
In the last decades, patent laws have been changed more rapidly.1 The subject
matters of patent law have been developed, such as software, business methods,
generic methods, etc. No surprisingly, therefore, patent laws have been at the centre
of the policy and economic agenda over the last 30 years. 2
Look back to the history, we would find the changes of the scope of patent
protection, and we would have interest to find what will be, and how it could be.
For us, we want to do some researches to find what would be the optimal scope of
Patent Laws.
On 1884, Paris Convention on the Protection of Industrial Property was built.
It cost more than one century to develop members‘ number from first 11 to 173 till
2008, 3which gives influence to the whole word, but could not provide a
harmonized dispute solution. On 1994, GATTs gives more attention on IP, and
TRIPs came to the international stage4, which made big effects on worldwide
patent law‘s development, now it has 153 members5, and built a new legal system
of DSB6. After that, many countries make their efforts to try to harmonize patent
laws.7
On these basis, we will list some acts in Common laws and Civil Laws, try to
compare Patent laws under Common Law system and Civil Law system, find
difference between them, abstract the common regulations in them, put forward
analysis including legal parts, political parts, economic parts and so on, give
suggestion of what will be the optimal choice for them.
1
EC patent laws give 13 editions during last 30 years (1977-2007), nearly every 2 years a new
version, under legal system, it is amazing for changing so often. See EPC official website.
2
On 2007, Falk Martin wrote an article about ―What Determines Patents per Capita in OECD
Countries?‖, introduced elements affecting patent application through 22 members of OECD,
including policy and economy. Article, See,
http://findarticles.com/p/articles/mi_qa5417/is_200704/ai_n21288317/pg_1?tag=artBody;col1.
And, to the Common Law, we could find topics of ―on the political economy of patent reform in the
US‖, see Landes and Posner (2004) and Scherer (2007) .
3
See Statistics of Paris Convention for the Protection of Industrial Property, provided by WIPO.
4
In the Uruguay Round Agreement, the TRIPS Agreement is Annex 1C of the Marrakesh
Agreement Establishing the World Trade Organization, signed in Marrakesh, Morocco on
15 April 1994. See WTO official website.
5
See WTO website, 153 members on 23 July 2008 (with dates of membership).
6
See Dispute Settlement Body Of WTO
7
The most important example is what happened in USA. On April 18, 2007, U.S. Congress
proposed the bill of Patent Reform Act ( S1145), which made many harmonizations between
Common Law system and Civil Law system. Act, See 110th CONGRESS Calendar No. 563,1st
110th CONGRESS,2d Session, S. 1145[Report No. 110-259]
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2. SUBJECT MATTER
In order to be eligible for patent protection, an invention must fall within the
scope of patentable subject matter. Patentable subject matter is always established
by statute, and is usually defined in terms of the exceptions to patentability.8 The
statutory subject matter requirement pertains to the kinds of inventions that are
eligible for patent protection.9 Generally, patents shall be available for any
invention, whether products or processes, in all fields of technology.10 But actually,
it differed widely from country to country as what can be patentable subject matter
or not.
Subject matter is the most important element of patent protection. If one
invention was excluded out of subject matter, it never could be protected by patent
laws. We will try to tell the difference between Common legal system and Civil
legal system, and discuss the optimal scope in Common law and Civil law.
2.1. In Common Law
2.1.1. Nowadays in the US
According to United State patent law, ―Whoever invents or discovers any
new and useful process, machine, manufacture, or composition of matter, or any
new and useful improvement thereof, may obtain a patent therefore, subject to the
conditions and requirements of this title.‖11
The courts have taken an expansive view of statutory subject matter; in case
Diamond v. Chakrabarty, which happened on 1980, the Supreme Court made the
following points:
―this Court has read the term ‗manufacture‘ in § 101 in accordance with its
dictionary definition to mean ‗the production of articles for use from raw
materials prepared by giving to these materials new forms, qualities,
properties, or combinations whether by hand labor or by machinery.‘‖―The
Committee Reports accompanying the 1952 act inform us that Congress
intended statutory subject matter to ‗include any thing under the sun that is
made by man.‘ S. Rep. No. 1979, 82d Cong., 2d Sess., 5 (1952).‖ ―This is not
to suggest that § 101 has no limits or that it embraces every discovery. The
laws of nature, physical phenomena, and abstract ideas have been held not
patentable.‖12
8
See WIPO Intellectual Property Handbook, 2006, 18 ff.
Craig Allen Nard, The Law of Patents, Aspen Publisher, 2008, 109 ff
10
See Article 27.1 of the TRIPS Agreement.
11
See 35 U.S.C 101
12
See case Diamond v. Chakrabarty
9
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Indeed, Chief Justice Burger famously wrote that ‗‗Congress intended
statutory subject matter to ‗include anything under the sun that is made by man.‖13
In fact, it was not easy to say after that anything under the sun that is made by
man always could be granted patent. There were lots of changes in the US patent
laws, and we can trace the development of the scope of subject matter.
2.1.2. History of Subject Matter
The first United States Patent Act that of 1790 was a short act of seven
sections only entitled ―An act to promote the Progress of Useful Arts‖.14 Under its
terms any two of the Secretary of State, the Secretary of War and the Attorney
General were empowered to grant patents for terms of up to fourteen years for
inventions that were "sufficiently useful and important" provided that the grantee
submitted a specification describing the invention (and where appropriate a model
thereof) to the Secretary of State at the time of the grant.15 There was no direct
definition of scope of subject matter.
In 1793, patent law was amended. Under it, first time a definition was given:
any new and useful art, machine, manufacture or composition of matter and any
new and useful improvement on any art, machine, manufacture or composition of
matter.16
In 1842 a statute was passed to provide for the grant of patents for "any new
and original design for a manufacture or for printing on a fabric.17
In 1930, the Plant Patent Act provided for the possibility of patent protection
for asexually reproduced plants.
In 1952, patentable subject matter was changed by replacing the eighteenth
century word "art" by "process".
In 1954, Provisions relating to plant patents were amended to make it clear
that cultivated sports, mutants, hybrids and newly found seedlings were patentable.
13
Craig Allen Nard, The Law of Patents, Aspen Publisher, 2008, 110 ff.
A similar title was used for all acts relating to patents before the consolidation of 1870.
15
See ―A Brief History of the Patent Law of the United States,‖ there is no author for this article.
http://www.ladas.com/Patents/USPatentHistory.html
16
See "Patent Act 1793" section 1; the term "art" was replaced by "process" in 1952 but this term is
itself defined as a "process, art or method" 35 USC 101
17
See ―A Brief History of the Patent Law of the United States,‖ there is no author for this article.
http://www.ladas.com/Patents/USPatentHistory.html
14
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In 1980, Supreme Court upholds the patentability of a genetically modified
bacterium quoting the Congressional report leading up to the 1952 Act that
"anything made by man under the sun" should be patentable.18
But even after this decision, in 1989, United States Court of Appeals for the
Federal Circuit made a decision that denied software to be a patent by holding a
pre-solution step of gathering data incapable of imparting patent-eligibility under §
101.19
In 1992, under courts‘ decision, software was able to be eligible subject
matter.20
On March 29, 1996, Examination Guidelines for Computer-Related
Inventions applied.21
In 1998, The Court of Appeals for the Federal Circuit in State Street Bank v.
Signature Financial22 holds that there is no prohibition in U.S. law on patents for
business methods as long as they are new, useful and non-obvious.
Therefore, after the brief review of US patent law‘s history, we could find
eligible subject matter was always changed with time goes on.
2.1.3. Technology Development History in the USA
At the same time, technology has changed fast.
The First Industrial Revolution happened in the late 18th and early 19th
centuries when major changes in agriculture, manufacturing, production, and
transportation had a profound effect on the socioeconomic and cultural conditions
in Britain.23 The changes subsequently spread throughout Europe, North America,
and eventually the world. The signal was the application of power-driven
machinery to manufacturing, such as stationary steam engine.24 The Industrial
Revolution began an era of per-capita economic growth in capitalist economies.25
18
See Diamond v. Chakrabarty 206 USPQ 193.
See In re Grams, 888 F.2d. 835, 838-39 (Fed. Cir. 1989).
20
See Arrhythmia Research Technology, Inc vs. Corozonix Corp (Feb.Cir.1992), and In re Alappat
(Feb.Cir.1992)
21
See Examination Guidelines for Computer-Related Inventions,61 federal Register 7478(Feb.28
1996)
22
See 149 F.3d. 1368 47 USPQ2d 1596 (Fed Cir 1998).
23
There were many different opinion of when the Industrial Revolution began, but the common
opinion is late 18th century.
24
There are many innovation on that time, which are big steps to development, including textiles,
steam power, and iron founding.
25
Lucas, Robert consider "annual growth rates of 2.4 percent for the first 60 years of the 20th
century, of 1 percent for the entire 19th century, of one-third of 1 percent for the 18th century. See
19
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In the USA, it first happened in Lowell, Massachusetts26. During this period,
the most common inventions were about machine manufacture.
After the 1850s, there came further progress in the application of electricity
and cheap steel technology.27 In succession, telegraph, plane, radio, TV and so on
came one by one. In 1940s, computer appeared first time. In 1980s, software grew
up, went into not only enterprise use but private use. In 1990s, business methods
became popular in money market, especially in investment banks.28
If we reflected the technology development to patent eligible subject matter,
we could find they have direct ratio relationship. Technology development changes
the range of subject matter, takes wider scope of subject matter.
2.1.4. Economic Changes in the USA
In 1790, USA had established for short time, things were bad that time. The
economy was struggled during the happening war. 29USA had no much stronger
economic power that time. Technology developing makes economy better. But
conflict between the North and the South of American grew, and since 1849, Civil
War happened. Economy rushed down.30
"The Industrial Revolution Past and Future".2003 annual report essay. Whole article could be
found on the website:
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3333
26
Lowell, Massachusetts is considered the Cradle of the American Industrial Revolution, as it was
the first large-scale factory town in America. See history of Lowell, Massachusetts
27
It was not until 1873 that a dynamo capable of prolonged operation was developed, but as early as
1831 Michael Faraday demonstrated how electricity could be mechanically produced. Through the
nineteenth century the use of electric power was limited by small productive capacity, short
transmission lines, and high cost. Up to 1900 the only cheap electricity was that produced by
generators making use of falling water in the mountains of southeastern France and northern Italy.
Italy, without coal resources, soon had electricity in every village north of Rome. Electric current
ran Italian textile looms and, eventually, automobile factories. As early as 1890 Florence boasted
the world's first electric streetcar.
28
There were more and more technology invention to be mentioned, such as satellite, space shuttle.
29
We can find the first several decades of USA was war time. American colonists fought off the
British army in the American Revolutionary War of the 1770s and issued a Declaration of
Independence in 1776. Seven years later, the signing of the Treaty of Paris officially recognized
independence from Britain. See History of the United States,
http://en.wikipedia.org/wiki/History_of_the_United_States#Westward_expansion_.281789.E2.80.9
31849.29
30
Civil war era happened in the middle of the 19th century, white Americans of the North and
South were unable to reconcile fundamental differences in their approach to government,
economics, society and African American slavery, Which led to the Civil War. In 1965, the North
of American won. See History of the United States,
http://en.wikipedia.org/wiki/History_of_the_United_States#Westward_expansion_.281789.E2.80.9
31849.29
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In 1865, Civil war was over. There came the era for rreconstruction and the
rise of industrialization, which made the consequence of progressivism. USA
became the most important rich country before World War Ι.
Because of the special geographical location, World War Ι took little harm
to USA, on the contrary, USA made more health economic steps, and became the
largest economic entity.
In the 1920s and 1930s the Great depression came.
In the later 1930s, World War Two took place. Before USA joined, The War
provided immediate benefits to the U.S. economy because it led to a substantial
increase in exports.31 When joined, The War stimulated martial relevant
industries, such as steel manufacture.
After world War Two, US got bigger and bigger progress in economy. After
1980s, economy gets more benefits from High-technology product, and takes more
and more welfare to whole US.
2.1.5. Political Changes in the USA
Policy is one of important factors to patent protection, when policy trending
to protect more rights, patent protection went into broad range, and with tough
policy, patent would be confined into a narrow space tightly.
During late 18th century and early 19th century, USA was only consisted of
north states. The most important policy was how to defend USA, and establishing a
whole legal system and a whole government system. Reflecting to patent law,
patent law was simple in 1790, and amended with a whole definition on subject
matter in 1793.
In 1890, Sherman Act passed, which is forming the basis for antitrust law32 ,
which showed policy to keep balance between public welfare and private interest.
Competition policy always influences the patent authorization.33
During 1930s and 1940s, policy turned to give more and more severe
restriction to patent protection. For example, during the depression and World War
II, the courts were generally not sympathetic to patents. Indeed in 1941, in Cuno
Engineering v. Automatic Devices Corp,34 the Supreme Court suggested that to be
31
Dr. Carole E. Scott, ―American Economic History‖, See
http://freepages.history.rootsweb.ancestry.com/~cescott/economics.html
32
Sherman Act have no direct effect to patent law, but after that, antitrust law gives principle how to
defend unfair competition arose by patent exclusive rights.
33
Nowadays, some competition policy trends to circumscribe patent pool application.
34
See 314 U.S. 84, 51 USPQ 272
Zhao Wenhua and Zhang Zhu
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patentable an invention must "reveal the flash of creative genius not merely the
skill of the calling".
After World War Two, policy comes into positive time, pays more attention
to economic affairs, and technology development, and makes more projects to
promote welfare of the whole society.
In US, policy for innovation always changes with the whole environment,
sometimes stimulates, sometimes balances, totally, which is trending to protect
each invention in special regulation.
2.1.6. Analysis
What is the factor to influence patent law? Every body could give the answer,
but there are some obvious factors including economy, policy and technology.
What will be the most important factor? Maybe the most important factor in
different time is different, sometimes economic factors would take the important
position, e.g. during the depression through 1920s and 1930s, patent was tough
restricted, and hard to achieve. Back to late 19th century, one clear affair was
antitrust policy. In early 20th century, political power took on in every area,
especially in patent system; there were fewer patents to be granted. After world war
two, USA got a big chance to develop itself, began to incent innovation, and in
1952, patent law was a whole amendment which is the foundation of today‘s patent
law. Since 1950s, USA has more innovations on computer-related area and
business industries. With technology, economic and political changes, patentable
subject matter changes lot. We try to analysis how software got to be subject matter
to tell how the influence works.35
35
Sometimes, people may confuse softwares with programs, programs have longer history than
software. Here, softwares only mean computer software, and we will focus on those not programs.
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1. Background
Software came with computers. Since computer into market, software went
into market.36 First several decades, only several independent companies got orders
from US government and big companies, which took software industries into rapid
development.37 Software grew strong and strong, till 1980s, which was one of big
industry in US. But the great achievement was in 1990s; Microsoft, Oracle, Sun
companies and so on became independent from hardware, and got more attractive.
Especially, in 1993, National Information Infrastructure came into
implementation.38
2. Case law
First period (1946-1978), is a period without patent protection. Software was
not the eligible subject matter. The Supreme Court refused to authorize patent
rights to computer software. In Gottschalk vs. Benson, 409U.S.63(1972) case, The
Supreme Court held that a patent cannot cover all possible uses of a mathematical
procedure or equation within a computer. That would be tantamount to granting the
inventor a patent on the mathematical procedure itself, and this was no more
acceptable than granting Samuel Morse a patent covering all possible uses of
magnetism to communicate, rather than a narrower patent covering only the
specific way in which Morse actually used magnetism to communicate in his
telegraph. The court then said that "[i]f these programs are to be patentable,
considerable problems are raised which only committees of Congress can manage
...." This decision was accepted as a final determination that computer programs
were not patentable, and the Patent Office immediately ceased examining all
36
In 1949, the language Short Code appeared . It was the first computer language for electronic
devices and it required the programmer to change its statements into 0's and 1's by hand. Still, it was
the first step towards the complex languages of today. In 1951, Grace Hopper wrote the first
compiler, A-0. A compiler is a program that turns the language's statements into 0's and 1's for the
computer to understand. This lead to faster programming, as the programmer no longer had to do
the work by hand. And after those, software was easy to produce. See www.byte.com.
37
Big orders were all from US government, for example, the SAGE project for continental air
defense (1949-1962) costed nearly 8 billion dollars, which is the first huge software project in the
history. See Dag Spicer,” Dr. Strangelove Meets IBM: The SAGE System‖,
http://www.ddj.com/architect/184403974
38
The National Information Infrastructure (NII) was the product of the High Performance
Computing and Communication Act of 1991. It was a telecommunications policy buzzword, which
was popularized during the Clinton Administration under the leadership of Vice-President Al Gore.
It was a proposed, advanced, seamless web of public and private communications networks,
interactive services, interoperable hardware and software, computers, databases, and consumer
electronics to put vast amounts of information at users' fingertips. A side-effect of the Clinton
Administration programs to build the NII was a push by cultural industries to expand the scope of
copyright. This led to the creation of the WIPO Copyright Treaty and the passage of the Digital
Millennium Copyright Act. It was also used by the patent industry in order to widen the scope of
patentability.
Zhao Wenhua and Zhang Zhu
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computer program inventions.39 In the case Dann vs. Johnston, 425 U.S.219(1976)
and Parker vs.Flook,437 U.S.584(1978), The Supreme Court still refused to grant
patent rights.40
Second period was a limited patent protection period (1978-1992). During
this period, The Supreme Court didn‘t deny each case. In 1981, in Diamond v.
Diehr, 450 U.S. 175 (1981) case, The Supreme Court ordered the P.T.O. to grant a
patent on an invention even though computer software was utilized. 41As such, this
case is important in the history of software patents. The invention in this case
relates to a method for determining how rubber should be heated in order to be best
"cured." The invention utilizes a computer to calculate and control the heating
times for the rubber. However, the invention (as defined by the claims) included
not only the computer program, but also included steps relating to heating rubber,
and removing the rubber from the heat. The Supreme Court stated that in this case,
the invention was not merely a mathematical algorithm, but was a process for
molding rubber, and hence was patentable. This was true even though the only
"novel" feature of this invention was the timing process controlled by the
computer.42
But only eight years later, in In re Grams, 888 F.2d 835 (Fed. Cir. 1989) case,
the Federal Circuit stated that these remaining steps were ―a procedure for solving
a given kind of mathematical problem." The court cited the rule of In re Abele,
which stated that: ―if a claim would be otherwise statutory, albeit inoperative or
less useful without the algorithm, the claim likewise presents statutory subject
matter when the algorithm is included.‖43 The Federal Circuit would not interpret
this language as declaring any claim that was statutory without the algorithm as
patentable. It also pointed to the ―provided that" qualification in Abele as denying
effect to field of use limitations or nonessential post-solution activity. The court
decided that the claimed process was nonstatutory subject matter because the step
of performing lab tests ―merely provides the data for the algorithm,‖ and that
whether or not the claims required that the method be performed by a programmed
computer was irrelevant to the determination of whether the claim defined a
Section 101 process.44
Last period (1992- ) is the width protection period. In 1992, in Arrhythmia
Research Technology, Inc vs. Corozonix Corp (Feb.Cir.1992) case45, the
39
See Gottschalk vs.Benson,409U.S.63(1972), http://www.oyez.org/cases/19701979/1972/1972_71_485/
40
See Dannvs.Johnston,425 U.S.219(1976), Parker vs.Flook,437 U.S.584(1978), in those case, the
Supreme Court thought software could not be patentable, and no mere mathematical algorithm
could be patentable.
41
See Diamond v. Diehr, 450 U.S. 175 (1981), http://supreme.justia.com/us/450/175/case.html
42
See Diamond v. Diehr, 450 U.S. 175 (1981)
43
See In re Abele, 684 F.2d 902 (C.C.P.A. 1982) .
44
See In re Grams, 888 F.2d 835 (Fed. Cir. 1989)
45
See Arrhythmia Research Technology, Inc vs. Corozonix Corp (Feb.Cir.1992)
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transformation of electrocardiograph signals from a patient's heartbeat by a
machine through a series of mathematical calculations constituted a practical
application of an abstract idea (a mathematical algorithm, formula, or calculation),
because it corresponded to a useful, concrete or tangible thing--the condition of a
patient's heart, and the Court of Appeals Federal Circuit reasoned that the method
claims qualified as statutory subject matter by noting that the steps transformed
physical, electrical signals from one form into another form - a number
representing a signal related to the patient's heart activity, a non-abstract output. In
1994, further, In re Alappat, 33 F.3d 1526, at 1544, 31 U.S.P.Q.2d 1545 (Fed. Cir.
1994) case, the Court of Appeals Federal Circuit confirmed that software could be
patentable subject matter.46 In 1996, USPTO applied ―Examination Guidelines for
Computer-Related Inventions‖.
3. Analysis
When software could not be popular goods, and could not make more
economic benefits, no regulation would give the patent protection to software. But
when technology developed, software came into more popular in the market, and
made more and more money. The first condition is technology development, if no
quick progress happened, there were not enough numbers of companies to pursue
the absolute monopoly rights. Now software industry could not be replaced, which
spreads every where. If no personal computer makes, software industry could
develop so quickly, now each computer has to have many softwares, or could not
work.
When we reviewed the economic rate, we could find in the last few decades,
software industry got larger and larger rate in US GDP.47 More and more huge
software companies appeared. Never mind made in US or other nations because of
outsourcing, software industry has much more influence to whole economy.
For the political reasons, U.S government supported software development
from the first period, and with software industry growing, adapted their policy to
support. For instance, in 1991, NII was proposed, in 1993, NII came in to
implementation.
The corresponding relationship of patent law and economic, technology,
political factors could be easy found. What will be considered is how to find the
future influence, which will decide the optimal scope of subject matter.
46
47
See In re Alappat, 33 F.3d 1526, at 1544, 31 U.S.P.Q.2d 1545 (Fed. Cir. 1994)
See Bureau of Economic Analysis of U.S.
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2.1.7. Conclusion
Summarizing U.S. Patent legal, economic, political and technical history,
from 1790-2007, could find three important factors during the development of
Patent law: economic, political, technical factors. Educational and other factors will
not be focused. In the historical view, we should connect those with the
development of globalization, we could find patents become more and more
important for US Goods in the world, such as Qualcomm Company, which has got
lots of profits from his patents‘ pool, not only in USA, but all over the world. Let
us imagine that if no export, what would be? Maybe we could read some materials
of North Korea, 48 we could find no argue on the scope of patent protection.
Patent could be barriers for other countries‘ competitors, especially in hightechnology fields. In order to keep advantage, US will continue strength the patent
power and give more and more broad scope of the subject matters.
2.2. In Civil Law
2.2.1. In the EU
According to EPC, European patents shall be granted for any inventions, in
all fields of technology, provided that they are new, involve an inventive step and
are susceptible of industrial application.49 The subject matter will be any
inventions, in all fields of technology. EPC give a list to exclude some kinds of
inventions out of the subject matter, if not on the exception list, it could follow
Article 52(1), and be patentable.
The following in particular shall not be subject matter: ―(a) discoveries,
scientific theories and mathematical methods; (b) aesthetic creations;(c) schemes,
rules and methods for performing mental acts, playing games or doing business,
and programs for computers;(d) presentations of information.‖50
And in Article 53, there are exceptions to be subject matter: ―(b) plant or
animal varieties or essentially biological processes for the production of plants or
animals; this provision shall not apply to microbiological processes or the products
thereof; (c) methods for treatment of the human or animal body by surgery or
therapy and diagnostic methods practiced on the human or animal body; this
provision shall not apply to products, in particular substances or compositions, for
use in any of these methods.‖51
48
Law on invention of North Korea,
http://www.kcckp.net/ko/notice/rainbow/index.php?en+Laws+3
49
See EPC Article 52 (1)
50
See EPC Article 52 (2)
51
See EPC Article 53
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So, under EU patent law, subject matter is strictly defined, only the invention
not in the excluding list could be subject matter. It is very clear for the inventors,
they could easy to find whether or not their invention‘s patentability.
But look back to the history, there are many things out of the meaning
literatim. In 1998, European Union (EU) based on the consideration of the needs
both of economy and respects, finally legislated Directive 98/44/EC52 to provide a
clear and determinative legal protection for biotechnological inventions, which
enlarges the scope of subject matters.
Another thing in EU is about software. In theory, the systems should be
consistent: all should follow the Convention, which says that computer programs
"as such" are not eligible for patenting. But different interpretations of that rule
have evolved, with the European Patent Office in particular becoming rather liberal
about its granting of software-related patents. In 2002, the Commission published a
draft Directive53 that intended to harmonize the approaches of the various patent
offices and only permit so-called computer-implemented inventions, not pure
software. Its proposal provided that, in order to be patentable, an invention that is
implemented through the execution of software on a computer or similar apparatus
has to make a contribution in a technical field that is not obvious to a person of
normal skill in that field. The Commission considered this consistent with the 1973
Convention. But, as a result, on 6th July 2005, the proposal was killed by the
European Parliament. The Commission had no plans to put forward a new draft in
the near future.
Also the bill delayed, but the argument never goes down. Some fear that
Europe would get a much more liberal regime, like that of the US. Some fear that
they would lose the patent protection they already enjoyed. And some think no
patent protection would reduce competition facing companies from USA or other
nations which give patent protection to software, others think it will depress
innovation on software. On November, 2007, on Official Journal EPO, EPO
pressed the article ―Examination of computer-implemented inventions at the
European Patent Office with particular attention to computer-implemented business
methods‖54, which gave some standards for computer software. In Oct. 8, 2008, the
Court of Appeal in London confirmed that software can be patented if it provides a
technical contribution to the state of the art, in Symbian‘s case.55 So EU has to
move to patent protection for software.
52
See Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal
protection of biotechnological inventions
53
See Directive on the patentability of computer-implemented inventions(2002/0047/COD)
54
See http://www.european-patent-office.org/epo/pubs/oj007/11_07/11_5947.pdf
55
See http://www.managingip.com/Article/2025189/Court-of-Appeal-confirms-software-can-bepatented.html
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Nowadays, globalization makes earth like a small village, some have no
protection, but some give, which will lead to confliction. How to face it? As the
argument to software, EU will face more and more challenges, what will be?
If analyzing factors, such as economy, policy, and technology, maybe when
the benefits are so attractive that no one could resist it, the optimal scope of subject
matters will be the same as USA, EU would choose broader scope.
2.2.2. In China
In Chinese patent law system, any invention or utility model for which patent
right may be granted must possess novelty, inventiveness and practical
applicability. 56Just like EPC, it gives clear exclusion of subject matter by a list. If
not on the list, the invention would be eligible.
For any of the following, no patent right shall be granted: (1) scientific
discoveries; (2) rules and methods for mental activities; (3) methods for the
diagnosis or for the treatment of diseases; (4) animal and plant varieties; (5)
substances obtained by means of nuclear transformation. For processes used in
producing products referred to in items (4) of the preceding paragraph, patent right
may be granted in accordance with the Provisions of this Law.57
2.3. Discussion
Under the globalization economic environment, any nation would choose
better regime to develop quickly. Patent protection would be the same, and the
scope of subject matter would be the same too.
There are many different regulations in different countries. USA has one, EU
has one, and others are the same. So there will be conflict. Now, EU companies
could feel it when they could not apply for patent protection on software. To some
extent, they loose the competition.
How to solve? Maybe the first choice is adopting the same standard. I think
some day, EU will choose patent to protect software, and it will be the optimal
scope for EU.
Another choice is rebuilding the convention, for example, PCT could
substitute domestic Law. It will depend on the negotiation. Maybe WIPO could
lead it.
56
57
See Patent law of the People's Republic of China, Article 22.
See Patent law of the People's Republic of China, Article 25
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3. NOVELTY, UTILITY, NON-OBVIOUSNESS
3.1 Novelty
The novelty is related with prior art. The novelty requirement asks whether
the applicant‘s invention is new. In another meaning, the novelty requires that no
other person previously knew, disclosed or invented the applicant is seeking to
patent. If an invention isn‘t new, it is said to be anticipated by the prior art.
3.1.1. In Common Law
Under U.S. patent law, a person shall be entitled to a patent if no conflict to
novelty.
In the regulation, there are many actives to destroy the novelty, including:
(a)the invention was known or used by others in this country, or patented or
described in a printed publication in this or a foreign country, before the invention
thereof by the applicant for patent, or
(b)the invention was patented or described in a printed publication in this or a
foreign country or in public use or on sale in this country, more than one year prior
to the date of the application for patent in the United States, or
(c)he has abandoned the invention, or
(d)the invention was first patented or caused to be patented, or was the
subject of an inventor‘s certificate, 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 or inventor‘s certificate filed more than twelve
months before the filing of the application in the United States, or
(e)the invention was described in — (1) an application for patent, published
under section 122(b), by another filed in the United States before the invention by
the applicant for patent or (2) a patent granted on an application for patent by
another filed in the United States before the invention by the applicant for patent,
except that an international application filed under the treaty defined in section
351(a) shall have the effects for the purposes of this subsection of an application
filed in the United States only if the international application designated the United
States and was published under Article 21(2) of such treaty in the English
language; or
(f)he did not himself invent the subject matter sought to be patented, or
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(g)(1)during the course of an interference conducted under section 135 or
section 291, another inventor involved therein establishes, to the extent permitted
in section 104, that before such person‘s invention thereof the invention was made
by such other inventor and not abandoned, suppressed, or concealed, or (2) before
such person‘s invention thereof, the invention was made in this country by another
inventor who had not abandoned, suppressed, or concealed it. In determining
priority of invention under this subsection, there shall be considered not only the
respective dates of conception and reduction to practice of the invention, but also
the reasonable diligence of one who was first to conceive and last to reduce to
practice, from a time prior to conception by the other.‖58
There are still two aspects related, one is first-to-invent, the other is one-year
grace period.
First-to-invent asks the person applies for patent should be the first inventor.
Invention ownership is determined by who can establish she was "first to invent".
All other developed economies grant patent rights to she who is "first to file" a
successful patent application. Clause 101 of US Code 35 states:‖ Whoever invents
or discovers any new and useful process, machine, manufacture, or composition of
matter, or any new and useful improvement thereof, may obtain a patent therefore, .
. ."This has further been defined by the following case law: "He who first perfected
a thing is the inventor although others might have experimented with the idea." 59
and "Crude and imperfect experiments are not sufficient to confer right to patent;
until invention is perfected and adapted to use it is not patentable and he who first
perfects it and adapts it to use is first inventor in sense of patent law and entitled to
patent." 60
Grace period: The patent laws therefore seek both to protect the public‘s right
to retain knowledge already in the public domain and the inventor‘s right to control
whether and when he may patent his invention. In 1839, Congress ameliorated that
requirement by enacting a 2-year grace period in which the inventor could file an
application. In 1939, Congress reduced the grace period from two years to one
year.61
3.1.2. In Civil Law
1. In EU Law
The novelty requirement is:― (1) An invention shall be considered to be new
if it does not form part of the state of the art. (2) The state of the art shall be held to
comprise everything made available to the public by means of a written or oral
description, by use, or in any other way, before the date of filing of the European
patent application. (3) Additionally, the content of European patent applications as
58
See 35 U.S.C. 102
See Agawam Co. v Jordan (1869) 74 US583, 19 L Ed 177
60
See Seymour v Osborne (1871) 78 US516, 20 L Ed 33
61
Craig Allen Nard, The Law of Patents, Aspen Publisher, 2008, 264 ff
59
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filed, the dates of filing of which are prior to the date referred to in paragraph 2 and
which were published on or after that date, shall be considered as comprised in the
state of the art. (4) Paragraphs 2 and 3 shall not exclude the patentability of any
substance or composition, comprised in the state of the art, for use in a method
referred to in Article 53(c), provided that its use for any such method is not
comprised in the state of the art. (5) Paragraphs 2 and 3 shall also not exclude the
patentability of any substance or composition referred to in paragraph 4 for any
specific use in a method referred to in Article 53(c), provided that such use is not
comprised in the state of the art. ‖62
2. In China
Novelty means that, before the date of filing, no identical invention or utility
model has been publicly disclosed in publications in the country or abroad or has
been publicly used or made known to the public by any other means in the country,
nor has any other person filed previously with the patent administrative organ
under the State Council an application which described the identical invention or
utility model and was published after the said date of filing.63
3. First-to-File and Grace Period
Most Civil Law countries adopt first-to-file and six-month grace period.
Grace period always is strict. In China, only three conditions could apply for grace
period: (1) where it was first exhibited at an international exhibition sponsored or
recognized by the Chinese Government; (2) where it was first made public at a
prescribed academic or technological meeting; (3) where it was disclosed by any
person without the consent of the applicant.64
Currently, the European Patent Convention (EPC) and Member States' patent
laws do not offer a general grace period, except in specific situations in which a
grace period is provided. Disclosure of an invention is not taken into account if it
occurred less than six months before the filing of a patent application and if: (1) a
third person has disclosed the invention in an abusive way that obviously harms the
applicants' interests; (2) the applicant has displayed the invention at an official
international exhibition falling within the terms of the Convention on international
exhibitions .65
Some countries, such as Spain and Portugal, which are Member States of the
EPC, have a special regulation on grace period . The Spanish patent law offers a
grace period for tests carried out by the applicant or by his legal predecessor
62
See EPC Article 54
See Patent law of the People's Republic of China, Article 22
64
See Patent law of the People's Republic of China, Article 24
65
See EPC, Article 55
63
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provided that they do not imply using the invention or offering it for sale, and that
they were carried out during the six months preceding the filing of the application.
Under Portuguese patent law, the novelty of an invention shall not be eliminated by
communications made before scientific societies or professional technical
associations or for the purpose of Portuguese or international competitions or
exhibitions if the patent application is filed in Portugal within 12 months.
Furthermore, the grace period for abusive disclosures does not have any time
limit.66
3.2. Utility
The utility requirement demands the invention should be operable, in another
words, the invention should be made or used and can produce effective results.
While there are examples of inoperable inventions (e.g., perpetual motion
machines), the operability requirement is easily satisfied. Therefore, it is more
similar in Common Law countries and Civil Law countries.
3.3. Non-Obviousness
The inventive step and non-obviousness reflect a same general patentability
requirement present in most patent laws, according to which an invention should be
sufficiently inventive — i.e., non-obvious — in order to be patented.
The expression "inventive step" is predominantly used for instance in
Germany, in the United Kingdom and under the European Patent Convention
(EPC), while the expression "non-obviousness" is predominantly used in United
States patent law. Although the basic principle is roughly the same, the assessment
of the inventive step and non-obviousness varies from one country to another. For
instance, the practice of the European Patent Office (EPO) differs from the practice
in the United States.
3.3.1. In Common Law
"Non-obviousness" is the term used in US patent law to describe one of the
requirements that an invention must meet to qualify for patentability, codified in 35
U.S.C. §103. One of the main requirements of patentability is that the invention
being patented is not obvious, meaning that a "person having ordinary skill in the
art" would not know how to solve the problem at which the invention is directed by
using exactly the same mechanism. The Graham Factors, shown below, are used by
courts to determine if the claimed invention is nonobvious.
Further, the combination of previously known elements can be considered
obvious. As stated by Winner Int'l Royalty Corp. v. Wang, 202 F.3d. 1340, 1348
66
See Grace Period in the Industrial Property Law, http://www.iprhelpdesk.org/documents/ES_GracePeriod_0000006559_00.xml.html
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(Fed. Cir., 2000), there must be a suggestion or teaching in the prior art to combine
elements shown in the prior art in order to find a patent obvious. Thus, in general
the critical inquiry is whether there is something in the prior art to suggest the
desirability, and thus the obvious nature, of the combination of previously known
elements.
This requirement is generally referred to as the "teaching-suggestionmotivation" (TSM) test and serves to prevent against hindsight bias (In re Kahn,
Fed. Cir. 2006). As almost all inventions are some combination of known elements,
the TSM test requires a patent examiner (or accused infringer) to show that some
suggestion or motivation exists to combine known elements to form a claimed
invention. Some critics of the TSM test have claimed that the test requires evidence
of an explicit teaching or suggestion to make a particular modification to the prior
art, but the Federal circuit has made clear that the motivation may be implicit, and
may be provided for example by an advantage resulting from the modification. In
other words, an explicit prior art teaching or suggestion to make a particular
modification is sufficient, but not required for a finding of obviousness. The TSM
test has been the subject of much criticism. The U.S. Supreme Court addressed the
issue in KSR v. Teleflex (2006). The unanimous decision, rendered on April 30,
2007, overturned a decision of the Federal Circuit and held that it "analyzed the
issue in a narrow, rigid manner inconsistent with §103 and our precedents,"
referring to the Federal Circuit's application of the TSM test.67 The court held that,
while the ideas behind the TSM test and the Graham analysis were not necessarily
inconsistent, the true test of nonobviousness is the Graham analysis. However,
according to Chief Judge Michel, the TSM test remains a part of the Federal
Circuit's analysis, though it is applied mindful of the decision in KSR.68
Graham Factors
The factors a court will look at when determining obviousness and nonobviousness in the United States were outlined by the Supreme Court in Graham et
al. v. John Deere Co. of Kansas City et al., 383 U.S. 1 (1966) and are commonly
referred to as the "Graham factors"69. The court held that obviousness should be
determined by looking at:
(1)the scope and content of the prior art;
(2)the level of ordinary skill in the art;
(3)the differences between the claimed invention and the prior art; and
(4)objective evidence of nonebviousness.
67
See Syllabus and Opinion of the Court in KSR v. Teleflex
http://www.supremecourtus.gov/opinions/06pdf/04-1350.pdf
68
See Lawrence Ebert,More on the impact of KSR, 2007-05-01,
http://www.scotusblog.com/wp/more-on-the-impact-of-KSR/
69
See Tag, Gramham factors,
http://www.fedcirc.us/index.php?option=com_tag&tag=Graham%20factors
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In addition, the court outlined examples of factors that show "objective
evidence of nonebviousness". They are: (1)commercial success; (2) long-felt but
unsolved needs; and (3)failure of others.
3.3.2. In Civil Law
1. In the EU
Pursuant to the Article 52(1) in conjunction with Article 56, first sentence,
EPC, European patents shall be granted for inventions which inter alia involve an
inventive step, that is, the invention, having regard to the state of the art, must not
be obvious to a person skilled in the art.70
In the practice, The Examining Divisions, the Opposition Divisions, and the
Boards of Appeal of the EPO almost always apply the "problem-solution approach"
in order to decide whether an invention involves an inventive step. The approach
consists in: (1)identifying the closest prior art, i.e., the most relevant prior art;
(2)determining the objective technical problem, i.e., determining, in the view of the
closest prior art, the technical problem which the claimed invention addresses and
successfully solves; and (3)examining whether or not the claimed solution to the
objective technical problem is obvious for the skilled person in view of the state of
the art in general. 71
This last step is conducted according to the "could-would approach".
Pursuant to this approach, the question to address in order to assess whether the
invention involves an inventive step is the following (the question is the climax of
the problem-solution approach):Is there any teaching in the prior art, as a whole,
that would, not simply could, have prompted the skilled person, faced with the
objective technical problem formulated when considering the technical features not
disclosed by the closest prior art, to modify or adapt said closest prior art while
taking account of that teaching [the teaching of the prior art, not just the teaching of
the closest prior art], thereby arriving at something falling within the terms of the
claims, and thus achieving what the invention achieves? 72
If the skilled person would have been prompted to modify the closest prior
art in such a way as to arrive at something falling within the terms of the claims,
then the invention does not involve an inventive step.
The point is not whether the skilled person could have arrived at the
invention by adapting or modifying the closest prior art, but whether he would have
done so because the prior art incited him to do so in the hope of solving the
objective technical problem or in expectation of some improvement or advantage.
70
See EPC Article 56,―An invention shall be considered as involving an inventive step if, having
regard to the state of the art, it is not obvious to a person skilled in the art.‖
71
See The Problem-Solution Approach, http://www.spiraldomain.com/6h_Problem_Solution.htm
72
See Guidelines for Examination in the EPO, 11.7.3 Could-would approach
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This must have been the case for the skilled person before the filing or priority date
valid for the claim under examination.
2. In China
Inventiveness means that, as compared with the technology existing before
the date of filing the invention has prominent substantive features and represents a
notable progress.73
3.4. Discussion
In fact, it was more similar in common law and civil law. The difference
focuses on two points, one is the first-to-file and first-to-invent, the other is grace
period. Only in the court, or in the examination, judges or examiners would have
different comprehension, in fact, there would be no substantial different between
them.
4. THE SCOPE OF CLAIMS
Patent claims are usually in the form of series of specified elements and
corresponding limitations, or more precisely noun phrases, following the
description portion of the invention in a patent or patent application. The claims
define, in technical terms, the extent of the protection conferred by a patent, or the
protection sought in a patent application.
Patent claims are the touchstone of patent protection, and it is the claims that
make two functions. Patent claims serve as a way for the Patent Office to determine
whether an invention is patentable, and as a way for a court to determine whether a
patent has been infringed. In concept, a patent claim marks the boundaries of the
patent in the same way as the legal description in a deed specifies the boundaries of
the property.
4.1. Disclosure
The claims (typically found at the end of a patent document) provide a
definition of what the patent protects. Terms used in a claim may be defined by the
whole document, but ultimately only what is described in the claims is protected.
The claims are always used when judging the validity of a patent (or application).
When prior art is found, it must be compared against the claims to determine
if the patent is new and nonobvious. Even if the "spirit of the invention" or the
"general idea" is the same as in the prior art, if the claims contain one feature that is
73
See Patent law of the People's Republic of China, Article 22
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not mentioned in the prior art, the invention is new. If the one new feature is not
obvious, then the claim is patentable. 74So disclosure is very important.
4.1.1. In Common Law
The disclosure requirements of § 112 are perhaps the most important of any
of the patentability requirements, and are at the heart of patent law‘s goal of
promoting the progress of the useful arts. By requiring the patent applicant to claim
the invention with clarity and to sufficiently disclose his invention to persons
having ordinary skill in the art, patent law seeks to facilitate the dissemination of
technical information and follow-on innovation. Moreover, the disclosure
requirements oblige the patentee to provide notice to the public of what the
patentee regards as the boundaries of his property right.75
There are four disclosure requirements under US patent law: (1) Enablement;
(2) Written Description; (3) Best Mode; and (4) Definiteness. 76
1. Enablement
United States patent law requires that the patent specification "contain a
written description of the invention, and of the manner and process of making and
using it, in such full, clear, concise, and exact terms as to enable any person skilled
in the art to which it pertains, or with which it is most nearly connected, to make
and use the same." 77 The requirement "to enable" a person of ordinary skill in the
art to make and use the invention is colloquially referred to as the "enablement"
requirement. A patent that does not meet the enablement requirement may be
declared invalid by a court.
The enablement requirement can be viewed as serving two functions: (1)
information dissemination; and (2) constraining claim scope. Technical information
disclosed in the patent has potential immediate value to follow-on researchers
interested in improving the patented invention or to the public by contributing to
the general storehouse of technical knowledge.78
2. Written Description
As mentioned above, the patent specification "contain a written description of
the invention, and of the manner and process of making and using it, in such full,
clear, concise, and exact terms ".
74
See Determining the scope of a patent, http://www.iusmentis.com/patents/claims/
Craig Allen Nard, The Law of Patents, Aspen Publisher, 2008, 49 ff
76
See 35 U.S.C. 112
77
See 35 U.S.C. 112
78
Craig Allen Nard, The Law of Patents, Aspen Publisher, 2008, 51 ff
75
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The ‗‗purpose of the ‗written description‘ requirement is broader than to
merely explain how to ‗make and use‘; the applicant must also convey with
reasonable clarity to those skilled in the art that, as of the filing date sought, he or
she was in possession of the invention. The invention is, for purposes of the
‗written description‘ inquiry, whatever is now claimed.‘‘79
3. Best Mode
The specification shall set forth the best mode contemplated by the inventor
of carrying out his invention.80
Determining compliance with the best mode requirement requires a twoprong inquiry. First, it must be determined whether, at the time the application was
filed, the inventor possessed a best mode for practicing the invention. This is a
subjective inquiry which focuses on the inventor's state of mind at the time of
filing. Second, if the inventor did possess a best mode, it must be determined
whether the written description disclosed the best mode such that a person skilled
in the art could practice it. This is an objective inquiry, focusing on the scope of the
claimed invention and the level of skill in the art.81
4. Definiteness
The specification shall conclude with one or more claims particularly
pointing out and distinctly claiming the subject matter which the applicant regards
as his invention.82
Because claims delineate the patentee‘s right to exclude, the patent statute
requires that the scope of the claims be sufficiently definite to inform the public of
the bounds of the protected invention, i.e., what subject matter is covered by the
exclusive rights of the patent. Otherwise, competitors cannot avoid infringement,
defeating the public notice function of patent claims.83 In the case ―Athletic
Alternatives, Inc. v. Prince Mfg., Inc., 73 F.3d 1573, 1581 (Fed. Cir. 1996) ,‖court
stated that ―the primary purpose of the requirement is ‗to guard against
unreasonable advantages to the patentee and disadvantages to others arising from
uncertainty as to their respective rights.‘‖. The Supreme Court has stated that ―the
statutory requirement of particularity and distinctness in claims is met only when
the claims clearly distinguish what is claimed from what went before in the art and
clearly circumscribe what is foreclosed from future enterprise.‖84.
79
See Vas-Cath, 935 F.2d at 1563-64
See 35 U.S.C. 112
81
See Eli Lilly & Co. v. Barr Laboratories Inc., 251 F.3d 955, 963, 58 USPQ2d 1865, 1874 (Fed.
Cir. 2001).
82
See 35 U.S.C. 112
83
See The Patent Prospector, http://www.patenthawk.com/blog/2008/01/indefinite_drilling.html
84
See United Carbon Co. v. Binney & Smith Co., 317 U.S. 228, 236 (1942)
80
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4.1.2. In Civil Law
1. In the EU
Article 84 of the European Patent Convention (EPC) defines the function of
the claims under the European Patent Convention, the function being to define the
matter for which patent protection is sought. This article also imposes that the
claims must be clear, concise as well as supported by the description of the
European patent application or patent. The form and content of the claims are
supported by Article 84, and supplemented by the Rule 43 EPC. 85
2. In China
The request shall state the title of the invention, the name of the inventor or
creator, the name and the address of the applicant and other related matters. The
description shall set forth the invention or utility model in a manner sufficiently
clear and complete so as to enable a person skilled in the relevant field of
technology to carry it out; where necessary, drawings are required.86
4.2. The Principle of Protection
Similar to the language in a deed for real property (i.e., land), the claims are
to set out the "metes and bounds" of the intellectual property protected by the
patent. They are of the utmost importance both during prosecution and litigation.
4.2.1. Literal Infringement
Literal infringement demands that the accused product possess each and
every limitation of at least one of the patent claims in suit. The Larami case
highlights this rule as well as the importance of claim drafting, particularly drafting
with an eye towards litigation and competitor conduct. Literal infringement cannot
be avoided if the accused device contains additional elements not found in the
claim. Literal infringement has considerable practical significance. 87
While there are relatively few published opinions, literal infringement is a
common occurrence in practice, largely because of the uncertainties relating to
claim interpretation, namely, ‗‗the pre-litigation ambiguity of the literal scope of
the claims.‘‘ 88
85
See EPC Article 84, ―The claims shall define the matter for which protection is sought. They shall
be clear and concise and be supported by the description‖
86
See Patent law of the People's Republic of China, Article 26
87
Craig Allen Nard, The Law of Patents, Aspen Publisher, 2008, 434 ff
88
Jannice M.Mueller, An Introduction to Patent Law, Aspen Publishing 2nd ed.,2006,287 ff .
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4.2.2. The Doctrine of Equivalents
The doctrine of equivalents is a legal rule in most of the world's patent
systems that allows a court to hold a party liable for patent infringement even
though the infringing device or process does not fall within the literal scope of a
patent claim, but nevertheless is equivalent to the claimed invention. U.S. judge
Learned Hand has described its purpose as being "to temper unsparing logic and
prevent an infringer from stealing the benefit of the invention". 89
The goal of the doctrine of equivalents is to provide patent owners with fair
protection for their patents. Historically, courts took a literal approach to patent
interpretation, based on established principles of legal interpretation. However, by
the 18th and 19th centuries, this had come to be seen as unduly limiting on the
scope of protection afforded a patent-holder, especially as patent applicants are
often required to describe new technology for which an adequate vocabulary has
not yet been developed. In response to this, the English courts developed a socalled 'pith and marrow' approach, which tried to distinguish between the essential
and non-essential features of a patent claim when deciding infringement cases. At
the same time, courts in other countries, notably the United States, developed
slightly different approaches to claim interpretation, of which the 'doctrine of
equivalents' is perhaps the most famous. The equivalents doctrine takes a more
holistic approach when comparing the patented invention with an alleged
infringing device than did the 'pith and marrow' approach.
4.3. Discussion
To some extent, the claims are the most important part of a patent. Not the
title, not the text, not the examples, and not the figures. It is the claims that define
the boundaries of the patent owner's rights. Importantly, the patent owner's
rights are exclusionary: he may exclude others from making, using, selling,
offering to sell, and importing the patented invention (e.g., a product or a
process) and importing a product made by a process patented in the importing
country. To determine if someone is infringing a patent (that is, making or using the
invention) without the patent owner's permission, the allegedly infringing product
or process is compared only to the claims of the patent. Sometimes, claims defend
on the demand of disclosure, and disclosure defends on the regulation.
Actually, nowadays, many nations take the same steps to determine the scope
of the claims. PCT is a good example for civil patent system, we could find the
demands of claims, and we can easily find how broad the claims would be. The
optimal scope of claims in Common Law and Civil Law countries are almost the
same, sometimes they have to choose the same steps as PCT, so today claims get to
be harmonized.
89
See Royal Typewriter Co. v. Remington Rand, Inc., 168 F.2d 691, 692 (2d Cir. 1948).
Zhao Wenhua and Zhang Zhu
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The Optimal Scope of Patent Protection in Common Law and
Civil Law Countries
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5. CONCLUSIONS
Firstly, subject matter should be restricted in some scope, and maybe civil
law could give some more width scope; as mentioned in the article, there are three
important factors to determine how broad the subject matter could be. Nowadays,
globalization changes behavior of countries, though patent law is always a national
law issue. More and more countries make efforts to harmonize patent law system in
the worldwide range. Since USA adopted software to be subject matter, many
countries amended their law to adapt the change, but it was not a good thing, which
means more and more countries want to divide the market in their territories.
Therefore, I think the optimal scope of subject matter is the criterion of EPC, which
could be more effective and sufficient to protect patent, and provide the ability for
every country to protect patent. But EPC would not have sufficient reasons to
refuse broader protection, and reject the profits during the EU nations. Maybe in
few years, we would find more and more countries, never mind in Common Law
countries, or in Civil Law countries, including EU and China, would have to
choose the broader scope of subject matters. And someday, we could find no one
would think invention is necessary for a patent, many other things could be
eligible.
Secondly, grace period should be harmonized. And first-to-file will substitute
first-to-invent. How long grace period will be is related with the choice of first-tofile and first-to-invent. Three years ago, USA made a try to change first-to-invent
system into first-to-file system. So we could expect the same regulation on first-tofile system and the same length and width of grace period.
Thirdly, the scope of claims will be more similar in Common Law countries
and Civil Law countries. Case Kirin-Amgen, Inc. v Hoechst Marion Roussel Ltd.
was quoted as a common reorganization on enablement, never mind in Common
Law countries or Civil Law countries.
Fourthly, nowadays, most countries choose same term of patent protection.
The duration will achieve more protection under same regulations, on the other
hand, some countries would refuse giving longer term protection, so it is an
opportunity to harmonize the term worldwide.
Finally, international treaties will be more effective, and will push the
progress to whole patent system. When we look back to the history, we could find
after WTO established, there were how many changes happened. It will be
beneficial to each country. PCT could play an important role in the harmonization
all the world, which could provide a standard for each country.
THE MADRID PROTOCOL FOR TRADEMARK REGISTRATION:
WOULD IT BE CONVENIENT FOR BOLIVIA?
by
Pablo Kyllmann1
DESCRIPTION OF RESEARCH
1.
WHAT IS THE MADRID PROTOCOL?
1.1. Traditional System
1.2. Madrid Protocol
2.
WHY THE MADRID PROTOCOL?
2.1 The International Conference of The Union For The Protection of
Industrial Property held in Madrid, April 2 to 14, 1890
2.2. Development
3.
MEMBERS OF THE PROTOCOL
3.1. Madrid Union
3.2. Does the Protocol work for the Members?
4.
NOT MEMBERS OF THE PROTOCOL
4.1. Who are not Members and Why?
4.2. The Case of Bolivia
5.
FINAL REMARK
BIBLIOGRAPHY
The Madrid Agreement concerning the International Registration of Marks
(―the Madrid Agreement‖ that was concluded in 1891 and entered into force in
1892), and the Protocol Relating to the Madrid Agreement (―the Madrid Protocol‖
or ―the Protocol‖ that was adopted in 1989, entered into force on December 1,
1995, and came into operation on April 1, 1996) are treaties which were adopted at
1
Pablo Kyllmann is an attorney in private practice in Bolivia, IP LL.M. 2010 (University of
Turin and WIPO), Domain Name Panellist for the .bo, and co-founder of DAK Intellectual Property
(www.dak.com.bo).
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Diplomatic Conference held in Madrid, Spain, and are conveniently referred to
jointly as ―the Madrid system‖.2
The application of these two treaties is governed by two texts, namely the
Common Regulations under the Madrid Agreement and Protocol (―the Common
Regulations‖ or ―the Regulations‖) and the Administrative Instructions for the
Application of the Madrid Agreement and Protocol (―the Administrative
Instructions‖).3
The Madrid system of international registration of marks is administered by
the International Bureau of the World Intellectual Property Organization (WIPO) in
Geneva, Switzerland.4
This international procedural mechanism offers a trademark owner the
possibility to have his trademark protected in several countries by filing one
application directly with his own national or regional trademark office. An
international mark so registered is equivalent to an application or a registration of
the same mark effected directly in each of the countries designated by the
applicant. If the trademark office of a designated country does not refuse protection
within a specified period, the protection of the mark is the same as if it had been
registered by that Office.
The Madrid system also deals with the subsequent management of the mark,
like recording subsequent changes or to renew the registration through a procedural
step at the International Bureau of WIPO. Also further countries may be designated
subsequently. I will mention later which countries are members of the Madrid
Union, but I can anticipate that the Madrid Union has 84 members today February
22, 2010).
It is important to study this system and the possible implications that the
eventual ratification and application of it would have in a specific country or region
and arrive to conclusions and recommendations.
I have chosen to conduct my research paper about the Protocol (not the
Agreement) because the Protocol has more chances to meet the expectations of
holders, representatives and contracting parties to attract more undeveloped
countries also to the system. For example, the official language for the Agreement
is only French, but for the Protocol the official languages are French, English, and
2World Intellectual Property Organization, Guide to the International Registration of Marks under
the Madrid Agreement and the Madrid Protocol, WIPO publication, Geneva, 2008, p. A. 1.
3World Intellectual Property Organization, Guide to the International Registration of Marks under
the Madrid Agreement and the Madrid Protocol, WIPO publication, Geneva, 2008, p. A. 1.
4World Intellectual Property Organization, Guide to the International Registration of Marks under
the Madrid Agreement and the Madrid Protocol, WIPO publication, Geneva, 2008, p. A. 2.
Pablo Kyllmann
209
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Spanish. On the other hand, just States can be members of the Agreement, but
States and Organizations can be members of the Protocol. The other difference is
that the basic mark for the Agreement has to be a basic registration, but for the
Protocol it can be a basic registration or application. Also has to be mentioned that
the Protocol permits ―individual fees‖ to be decided by each Contracting Party for
each designation, but with the condition of not charging higher than national fees.
With respect to periods of denial, the Protocol provides for the possibility that the
Contracting Parties replace the general term for the 12 months notice or the refusal
of protection for a period of 18 months, or if denial is based in an opposition, an
even longer period.
The system has to be attractive, flexible, and user friendly, but there are
concerns in countries like South American countries about the implications that the
eventual ratification and application of the Protocol would have in a specific
country or region. No South American country (with the exception of Cuba,
Antigua and Barbuda) is a member of the system. Bolivia is not a member, so I
analyse the advantages and disadvantages of the Protocol specifically for Bolivia,
considering the stakeholders: IP Agents, National IP Office, National Applicants,
Foreign Applicants, Bolivia itself.
1. WHAT IS THE MADRID PROTOCOL?
1.1. Traditional System
A mark can get protection through different routes: a. National route (country
by country), b. Regional route (Example: European Union), and c. International
route (Example: Madrid system, specifically in my research paper, the Madrid
Protocol).
The traditional system would be the national route or national system.
Anybody can use the national system filing applications in the countries of interest.
The argument against this system is that there are several languages involved
because each country has its own language, different national procedural rules, and
lawyers in each country that make the cost are higher. But the traditional system is
very important and depending the country and region has to be analyzed and used
to satisfy the different interests analyzed in my research paper.
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1.2. Madrid Protocol
Any State which is party to the Paris Convention for the Protection of
Industrial Property may become a party to the Agreement or the Protocol or both.
In addition, an intergovernmental organization may become a party to the Protocol
(but not the Agreement).
It has to be mentioned that an international mark does not exist. The system
is a procedural system, an international application must be presented to the
International Bureau through the IP office which is the Office of Origin of the
applicant: The IP Office of the contracting party where the applicant has: a.
required company, b. domicile, or c. nationality.
The system is only for family members meaning this that the system can not
be used by a person or legal entity which does not have the necessary connection,
through establishment, domicile or nationality, with a member of the Madrid
Union. Nor can it be used to protect a mark outside the Madrid Union.
The filing formalities indicate that there is one form (MM2), one language
(English, French or Spanish), and payment of the following fees: a. basic fee, b. a
complementary fee in respect of each designated Contracting Party for which no
individual fee is payable, and c. a supplementary fee in respect of each class of
goods and services beyond the third.
The international registration is for ten years, renewable per periods of ten
years. There is a centralized management, for example regarding also assignments,
changes in name and address of holder and representative, recording of limitation,
renunciation and cancellation, recording of licenses. All this at the International
Bureau, not with local law firms neither with National Offices. The International
Bureau does the formality examination, publication at the WIPO Gazette,
inscription in the International Register, issues one certificate, and notifies it to all
the designated contracting parties. An International trademark registration (ITM)
means, in other words, that there is one registration with many designations.
The countries that are the major users of the Madrid Protocol are Germany,
France, and the United States. The average fee per registration is CHF 3.734 (Three
thousand seven hundred thirty four 00/100 Swiss Francs) that are about US$ 3.638
(Three thousand six hundred thirty eight 00/100 American dollars).
The ten top holders of ITM registrations in 2008 are Henkel (DE), Janssen
Pharmaceutica (BE), Novartis (CH), L'Oreal (FR), Nestlé (CH), Unilever (NL),
Sanofi-Aventis (FR), Siemens Building Technologies Fire & Security Products
(DE), ITM Enterprises (FR), Lidle (Germany).
Pablo Kyllmann
211
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WIPO states that the system of international registration of marks has several
advantages for trademark owners. Instead of filing many national applications in all
countries of interest, in several different languages, in accordance with different
national procedural rules and regulations and paying several different (and often
higher) fees, an international registration may be obtained by filing one application
with the International Bureau (through the Office of the home country), in one
language (either English, French, or Spanish) and paying one set of fees.
According to WIPO similar advantages exist when the registration has to be
renewed, this involves the payment of the necessary fees, every 10 years, to the
International Bureau. Likewise, if the international registration is assigned to a
third party or any other change, such as a change in name and/or address, has
occurred, this may be recorded with effect for all the designated Contracting Parties
by means of a single procedural step. Later I will analyse the implications of this.
2. WHY THE MADRID PROTOCOL?
2.1. The International Conference of The Union For The Protection of
Industrial Property held in Madrid, April 2-14, 1890
The system (first as the Madrid Agreement) was created as a system to
expand a national mark.
At the fourth session on April 09, 1890 at the international conference of the
Union for the protection of industrial property held in Madrid (April 2 to 14, 1890),
the subject of the Agreement concerning the international registration of
trademarks was finally addressed. The text serving as a basis for discussion was
that which had been submitted by the Swiss administration in the preceding
Conference in Rome, with amendments made by Italy. The Swiss project accorded
with the spirit of the International Convention of March 20, 1883, but it was
criticized for depriving the signatory states of the fees they had been receiving, and
for failing to take into account relevant national legislations.5
At all events, from the beginning of the Conference, national registration was
regarded as the basis of international protection.
But this system would be disadvantageous to signatory countries which were
less developed industrially. Such countries which consumed more than they
produced, and which therefore received more files from abroad than from their own
nationals, would have to set very high fees for international registration,
compensating with the few trademarks they filed internationally for the lack of
income resulting from the shortage of direct registration of foreign trademarks in
5REGISTRO DE LA PROPIEDAD INDUSTRIAL, MINISTERIO DE INDUSTRIA Y ENERGIA,
A brief history of the Madrid Agreement concerning the international registration of marks signed
1891, Impresión Epes, Industrias Gráficas, S.L., Spain, 1989.
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their national offices. Mr. Snyder, a delegate from the Netherlands, pointed out the
inequities which would result from the adoption of this clause of the draft. In his
opinion, an international surcharge of 200 francs should be added to the fees freely
established by each state. This suggestion sparked a lively argument, since it would
mean sacrificing one of the main purposes of the Agreement: to offer international
protection of trademarks at a moderate cost.6
2.2. Development
The Madrid Protocol introduced elements into the system originally created
under the base of the Madrid Agreement in order to favor the accession of new
States and Intergovernmental Organizations like the European Community.
As mentioned, the Protocol permits ―individual fees‖ to be decided by each
Contracting Party for each designation, but with the condition of not charging
higher than national fees. With respect to periods of denial, the Protocol provides
for the possibility that the Contracting Parties replace the general term for the 12
months notice or the refusal of protection for a period of 18 months, or if denial is
based in an opposition, an even longer period. Under the Protocol it is possible to
file an international applications based on a pending trade mark application, so that
a trade mark owner can file an international application concurrently with or
immediately after filing an application in a member jurisdiction. By comparison,
the Agreement requires that the trade mark owner already holds an existing
registration in a member jurisdiction.
Also one significant development is the mentioned that the official language
for the Agreement is only French, but for the Protocol the official languages are
French, English, and Spanish.
The system has been revised through the years, but it did not adjust to the
necessities of all countries, so that at the beginning of 1989 only 23 countries were
members. Today the Protocol has 80 members.
It has to be mentioned the accession of the United States on November 02,
2003 and the accession of the European Union on October 01, 2004 as mayor
accessions to the Protocol.
6 REGISTRO DE LA PROPIEDAD INDUSTRIAL, MINISTERIO DE INDUSTRIA Y ENERGIA,
A brief history of the Madrid Agreement concerning the international registration of marks signed
1891, Impresión Epes, Industrias Gráficas, S.L., Spain, 1989.
Pablo Kyllmann
213
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3. MEMBERS OF THE PROTOCOL
3.1. Madrid Union
Together, the Contracting Parties to the Agreement and the Protocol
constitute the Madrid Union, which is a Special Union under Article 19 of the Paris
Convention for the Protection of Industrial Property. The mentioned article
indicates the following: It is understood that the countries of the Union reserve the
right to make separately between themselves special agreements for the protection
of industrial property, in so far as these agreements do not contravene the
provisions of this Convention.
The Madrid Union has 84 current members: Albania (A&P), Germany
(A&P), Antigua and Barbuda (P), Algeria (A), Armenia (A&P), Australia (P),
Austria (A&P), Azerbaijan (A&P), Bahrain (P), Belarus (A&P), Belgium (A&P),
Bhutan (A&P), Bosnia and Herzegovina (A&P), Botswana (P), Bulgaria (A&P),
China (A&P), European Community (P), Croatia (A&P), Cuba (A& P), Denmark
(P), Egypt (A&P), Slovakia (A & P), Slovenia (A&P), Spain (A&P), USA (P),
Estonia (P), Former Yugoslav Republic of Macedonia (A&P), Russian Federation
(A&P), Finland (P), France (A&P), Georgia (P), Ghana (P), Greece (P), Hungary
(A&P), Iran - Islamic Republic of (A&P), Ireland (P), Iceland (P), Italy (A & P),
Japan (P), Kazakhstan (A), Kenya (A & P), Kyrgyzstan (A& P), Lesotho (A&P),
Latvia (A&P), Liberia (A& P) , Liechtenstein (A& P), Lithuania (P), Luxembourg
(A&P), Madagascar (P), Morocco (A& P), Monaco (A&P), Mongolia (A& P),
Montenegro (A& P), Mozambique (A&P), Namibia (A&P), Norway (P), Oman
(P), the Netherlands: - Territory in Europe (A& P) and Netherlands Antilles (P),
Poland (A& P), Portugal (A&P), UK (P), Czech Republic (A&P), Syrian Arab
Republic (A&P), Republic of Korea (P), Republic of Moldova (A& P), Democratic
People's Republic of Korea (A&P), Romania (A&P), San Marino (A& P), Sao
Tome and Principe (P), Serbia (A&P), Sierra Leone (A&P), Singapore (P), Sudan
(A), Sweden (P), Switzerland (A&P), Swaziland (A&P), Tajikistan (A),
Turkmenistan (P), Turkey (P), Ukraine (A&P), Uzbekistan (P), Vietnam (A & P),
Zambia (P).
So (A) means part of the Agreement (56), and (P) means part of the Protocol
(80). No protection may apply separately for Belgium, Luxembourg and the
Netherlands, but only for all these three countries (Benelux) subject to payment of
a fee complement or a unique individual rate. The territory of the Netherlands
Antilles is part of the Kingdom of the Netherlands. However, the Benelux
Trademark Act does not apply in the territory of the Netherlands Antilles. These
have their own trademark law and their own Office in charge of registering
trademarks. Protection from the Netherlands Antilles must be submitted through a
specific designation of the Netherlands Antilles, other than the designation of the
Benelux.
The Madrid Protocol for Trademark Registration:
Would it be Convenient for Bolivia?
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3.2. Does the Protocol Work for the Members?
The Madrid Protocol has its advantages and disadvantages. Japan is a
member of the Protocol, but 80% of the Japanese companies opt to file their
trademarks through the national route. Maybe Japanese companies fear the
disadvantages of the Madrid Protocol.
Regarding the regional exchange of commerce, the treaty can be useful for
certain regions and not for other regions; it works for some members, and not for
others.
4. NOT MEMBERS OF THE PROTOCOL
4.1. Who are not Members and why?
Many countries are not members of the Protocol yet because as mentioned
the Protocol has its advantages and disadvantages that each country has to consider
according to his own reality.
The world has different regions and different countries with diverse
economies and laws, and systems of Intellectual Property protection. For each
country there are stakeholders that have to be taken into consideration the moment
of studying this system and the possible implications that the eventual ratification
and application of it would have in a specific country or region and arrive to
conclusions and recommendations.
4.2. The Case of Bolivia
My analysis considers the stakeholders (IP Agents, National IP Office,
National Applicants, Foreign Applicants, Bolivia itself):
IP Agents
The registration is done for 10 years and renewals and changes are done
directly at the International Bureau of WIPO, not with local agents. This situation
is against the income of the IP agents. Law firms reduce staff, so less people
specializes in IP. Agents can prepare themselves for the eventual ratification of the
Protocol because it is mentioned that litigation will increase, licenses too, but
actually it is uncertain and in a country like Bolivia where judges and authorities do
not now work properly regarding litigation, less will litigation work if the
registration of the trademark is in the International Bureau. Unfortunately IP is seen
many times as a strange distant discipline, and could be seen further away with the
Protocol. It is not good to centralize the applications in Geneva, it is like State
control, and it is difficult to conduct searches.
Pablo Kyllmann
215
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National IP Office
The National Office has to work well for receiving a system like the Protocol.
In Bolivia, the National IP Office is not ready for the Protocol. It needs capacity
building and automation first, support staff. The registration is done for 10 years
and renewals and changes are done directly at the International Bureau of WIPO,
not with local agents, and not with the National Office, so it is replacing those
important works for the National Office and income. The National Office loses
competence with the Protocol, does not only lose the competence to do the
formality examination, but also loses the competence to renew the trademark or to
record the following changes regarding the trademarks (changes of name, address,
etc.), so there is a limitation in the work for the National IP Office, also taxes are
not paid locally.
The publication is insufficient because the international applications are
published in the WIPO Gazette. The applications could be republished in the
country again, but the cost would be too high. The law in Bolivia obligates to
publish the applications in Bolivia, so the Protocol is against Bolivian law. I see
constitutional problems and sovereignty problems because also when a country
ratifies the Protocol the Assembly takes legislative decisions and can modify the
system. The territoriality justification for sovereignty and jurisdiction is an
argument that is important. Now it is not possible to file an international
application directly in Geneva at the International Bureau, but maybe in the near
future the Assembly will decide to change the rules, so that also any other change
can happen through the Assembly and not the Legislative Power of a certain
country.
National Applicants
If the country does not use the right to deny the application, an administrative
positive silence is applied, so that the trademark is considered registered. This can
bring problems because the National Office should mention if accepts or not the
application. From year 2010 all countries will have to communicate their decision.
Till 2009 if there was no opposition the international application was considered
registered and problems can arise if that application is very similar or identical to
an existent trademark and the National Office did not deny it properly on time for
examination difficulties, and the public itself can suffer confusion.
The National Office receives income from the designations and the country
can establish individual fees with the condition that those individual fees are not
higher than national fees, so if we increase the individual fees for Bolivia, national
fees will also have to be increased in detriment of national applicants (national
users).
There is also the problem of the central attack, there is no security. I mean,
there is the possibility to transform and re-file the application locally, but maybe it
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is better to file directly in the market of interest. For example, regarding Japan,
80% of the Japanese companies opt to file their trademarks through the national
route. Maybe Japanese companies fear the ―central attack‖.
The Protocol is a mechanism that facilitates the access to transnational
companies, is not good for local companies because Bolivia does not export
trademarks as much as receiving them. Local companies have to defend and file
oppositions against new international applications, so it is not good for local
companies. The searches cost increases and is more complicated with the Protocol.
Foreign Applicants
The Protocol reduces costs for companies that export much IP and simplifies
the monitoring of the trademarks.
A Contracting Party, indicating the motives, can deny the protection of the
international application in his territory after 12 to 18 months after the publication
of the application. In Bolivia it takes about 10 months from application to
registration. With the Protocol the country can communicate the acceptance or
denial before, but I believe our National Office would take the 12 to 18 months to
do so if Bolivia ratifies the Protocol, so it would not be good for the foreign
applicants.
Also a problem is the one regarding to the ―central attack‖. There is the
possibility to transform and file an application locally, but it is better to file directly
in the market of interest.
With the Protocol the search cost increases and is more complicated.
The Case of Bolivia
Bolivia is a developing country, not an emerging economy. The world has a
widely variant economic reality, and attitudes toward IP tend to differ greatly
between countries that import IP and countries that export it.
5. FINAL REMARK
The regional exchange in South America tells us to wait and see. There is no
value addition for Bolivia for ratifying the Protocol.
Pablo Kyllmann
217
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BIBLIOGRAPHY
Books
David Bainbridge, Intellectual Property, Longman, 7th Ed, 2009.
E.P. WINNER. A.W. DENBER, International Trademark Treaties with
Commentary, Oceana Publications, Inc., Dobbs Ferry, New York, USA, 2004.
F.M. ABBOTT-TH. COTTIER-F. GURRY, International Intellectual
Property in an Integrated World Economy, Aspen Publishers, New York, USA,
2007.
L.E. BERTONE-G. CABANELLAS, Derecho de marcas, Marca, Designaciones
Y Nombres Comerciales, Tomo I and II; Editorial Heliasta, Buenos Aires, 2003.
Lionel Bently-Brad Sherman, Intellectual Property Law, Oxford University
Press, 2009.
M. LOBATO, Comentario a la Ley 17/2001, de marcas, Ed. Thomson Civitas, 2a ed., 2007.
REGISTRO DE LA PROPIEDAD INDUSTRIAL, MINISTERIO DE
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the international registration of marks signed 1891, Impresión Epes, Industrias
Gráficas, S.L., Spain, 1989.
S. ALIKHAN, World Intellectual Property Organization, Socio-Economic
Benefits of Intellectual Property Protection in Developing Countries, WIPO
publication, Geneva, 2000.
Willliam Cornish-David Llewelyn, Intellectual Property: Patents, Copyright,
Trade Marks and Allied Rights, Thomson-Sweet & Maxwell, 2007.
World Intellectual Property Organization, Guide to the International
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WIPO publication, Geneva, 2008.
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for Economic Growth, WIPO publication, Geneva, 2003.
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that Agreement: Objectives, Main Features, Advantages, WIPO publication,
Geneva, 2008.
World Intellectual Property Organization, WIPO Intellectual Property
Handbook, Second Edition, WIPO publication, Geneva, 2004, Reprinted 2008.
Articles
DENIS S. PRAHL, The Madrid Protocol: International Trademark
Protection for United States Trademark Owners, USA, 2003 (www.marcasur.com).
F. TRIANA-SOTO, Aspectos polémicos del Protocolo de Madrid, Colombia,
2006 (www.dinero.com).
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W.D. UBEDA, No al Protocolo de Madrid en el CAFTA, Nicaragua, 2004
(www.marcasur.com).
Laws and Treaties
Arreglo de Madrid relativo al Registro Internacional de Marcas, del 14 de
abril de 1891, revisado en Bruselas el 14 de diciembre de 1900, en Washington el 2
de junio de 1911, en la Haya el 6 de noviembre de 1925, en Londres el 2 de junio
de 1934, en Niza el 15 de junio de 1957, en Estocolmo el 14 de julio de 1967 y
modificado el 28 de septiembre de 1979-Protocolo concerniente al Arreglo de
Madrid relativo al Registro Internacional de Marcas, adoptado en Madrid el 27 de
junio de 1989, modificado el 3 de octubre de 2006 y el 12 de noviembre de 2007Reglamento, texto en vigor el 1 de septiembre de 2008-Instrucciones
Administrativas, texto en vigor el 1 de enero de 2008.
Constitución Política del Estado, Estado Plurinacional de Bolivia.
Decisión 486, Régimen Común sobre Propiedad Industrial (Bolivia,
Colombia, Ecuador, and Perú).
Websites:
www.asipi.org.
www.comunidadandina.org.
www.dinero.com.
www.inta.org.
www.marcasur.com.
Pablo Kyllmann
219
________________________________________________________________________________
www.oepm.es.
www.turin-ip.com.
www.wipo.int.
www.wto.org.
Others
Gaceta del Congreso, Ponencia para primer debate al proyecto de Ley No.
277 de 2009, República de Colombia.
Gaceta del Senado, Punto de acuerdo sobre el Protocolo de Madrid, por el
Grupo Parlamentario del Partido Verde Ecologista de México, 2008, México.
Proyecto de Ley No. 277 de 2009, Senado, 2009, República de Colombia.
OMPARATIVE STUDY OF WELL-KNOWN TRADEMARKS
PROTECTION IN ITALY, PAKISTAN AND UZBEKISTAN
by
Saad Nasrullah
Luigi Mastroianni
Djakhagir Aripov
TABLE OF CONTENTS
INTRODUCTION
1. INTERNATIONAL REGIME FOR THE PROTECTION OF WELL KNOWN
TRADEMARKS:
1.1. Protection of Well Known Trade Marks under the Paris Convention
1.2. Protection of Well Known Trademarks under TRIPS
1.3. WIPO Joint Recommendation for Well Known Trademarks
2. PROTECTION OF WELL KNOWN TRADEMARKS IN ITALY:
3. PROTECTION OF WELL KNOWN TRADEMARKS IN PAKISTAN:
4. PROTECTION OF WELL KNOWN TRADEMARKS IN UZBEKISTAN:
5 A COMPARATIVE ANALYSIS
CONCLUSIONS
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INTRODUCTION
Well-known international trademarks such as Coca-Cola, Microsoft, IBM
and Google surpass the boundary of marks known only in single countries. It is
now generally accepted that these well-known marks should be given protection
against later registration by third parties — although laws to offer this protection
are still being developed. The definition and protection of well-known trademarks
is still a grey area internationally. Despite general recognition that protection
should be given to well-known marks, the national laws implementing the Paris
Convention Art 6 Bis at present give variable protection depending upon
jurisdiction.1
Well-known trademarks have been a legal concept that requires interpretation
by the authorities of the country in which protection is sought. Its protective scope
depends on the authorities‘ objective of protection of well-known trademarks. Mass
media, telecommunications, travels and advertising promotion make people
become familiar with the trademarks in other countries. Especially the extensive,
skillful and modern advertising promotion can bring the high reputation to the
owners. The effects of well-known trademarks extend to unrelated field in
comparison with the original goods or services the trademarks are used. However,
the trademark piracy and unfair use affect the owner of well-known trademark to
expand their business activities under those marks in other jurisdiction. For the
sake of the protection of consumers‘ interests and trademark owner‘s reputation,
the enhanced protection of well-known trademarks has become the international
trend.2
Some trade marks are so well known that their fame transcends the bounds of
normal trademark law.3 A ―strong‖ and famous brand may give unrelated firms
incentives to choose a free riding strategy to exploit the full potential of the brand:
a small producer of skis might, for example, be interested in using the FERRARI
brand for the launch of a new product line. Free riding may, in turn, generate
negative spillover effects that may derive from a free riding strategy on a famous
trademark. In reality, the defense of the extended protection of ―strong‖ trademarks
may be to a great extent based on the likelihood that free riding practices dilute the
promotional value of a trademark. The rationale behind the extension of protection
to include principles of antidilution and prohibitions against free riding has been
clear to both courts and commentators from the very beginning. When a trademark
may be perceived as ―strong‖ because it possesses a distinctive character or is
―famous,‖ then its value is endangered by unauthorized uses by a non-related third
party; this is true even though consumers may not be misled. Rather than aim
1
Protecting and managing well-known trademarks by Vasheharan Kanesarajah, Thomson
Scientific, November 2007
2
Protection of well-known trademarks the comparision of trademark examination standards and
trademark law systems between Japan and China, Xia Qing
3
Well-known Marks, Famous Marks and Dilution, Chapter 12 page 398.
Saad Nursrullah, Luigi Mastroianni and Djakhagir Aripov
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merely to protect against confusion as to the origin of goods, these extended
protections are intended to avoid dilution of the promotional value of trademarks
and the misappropriation of the capital of publicity invested in trademarks. As a
result, protections are now afforded to trademarks where they formerly might not
have been. The trademark ROLLS-ROYCE can now be protected, for example, in
most jurisdictions against its use as sign for a pub even if no consumer would be
misled into believing that the trademark owner had branched off into pub
franchises or that there is an association with or sponsorship of the pub by the
luxury car manufacturer. For a finding of infringement, confusion as to the origin
of goods is no longer required. It is sufficient that consumers establish some sort of
link between the junior sign and the senior one, and such a link may be established
even if the goods are comparatively remote.4
However, even though a trademark has acquired the position of a globally
well known trademark it cannot be said that their goods or services are actually
supplied to the market in every country and in addition, this also does not mean
that these trademarks are registered in every country throughout the world.
Therefore, in the case such a trademark happens to be imitated or pirated in a
country in which it is not registered or used yet, namely when a trademark identical
or similar to such a well-known or famous trademark is applied for registration or
begun to be used by an unrelated third party, the Trademark Office or Court of that
country is confronted with complex legal issues in order to deal with this situation.
Moreover in the case a third party applies for registration of this type of
bothersome trademark under his own name or commences to use that trademark in
respect of the goods or services that are quite remote from the goods or services on
which the well-known or famous trademark is used, the Trademark Office or Court
of that country encounters even more complex legal issues5.
4
N. BOTTERO-A. MANGÀNI-M. RICOLFI, The Extended Protection of “Strong” Trademarks, in 11 Marquette
Intellectual Property Law Review, 2007, 265 ss
5
Japan Patent Office Asia-Pacific Industrial Property Center, JIII-Protection of Well-Known
and Famous Trademarks
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1. INTERNATIONAL REGIME FOR THE PROTECTION OF WELLKNOWN TRADEMARKS
1.1. Protection of Well-known Trademarks under the Paris Convention
The universal body of law on well-known marks finds its roots in the 1925
addition of Article 6bis to the Paris Convention for the Protection of Industrial
Property (hereinafter ―Paris Convention‖). Article 6bis states that participating
countries agree to prohibit use of with the mark of someone else and used on
identical or similar goods.
This Article was introduced into the Convention by the Revision Conference
of The Hague in 1925. It was somewhat modified at two subsequent Revision
Conferences, held in London in 1934 and in Lisbon in 1958, but it still retains its
original number. At the latter Conference, the Article was very thoroughly
discussed and its application, which formerly concerned only the refusal or
cancellation of the registration of a mark conflicting with a mark which is well
known in the country concerned, was then extended to a prohibition of the use of
the mark first mentioned.
For many years international trade mark law (as opposed to national law)
concentrated on the protection that was granted to trade marks through registration.
A frequent theme in the discussion of international trade mark law in the first part
of the twentieth century was the extent to which rights should be granted, first, to
unregistered marks and, secondly, to marks used on dissimilar goods or services.
Hence, Article 6bis was originally designed to address the concept that owners of
marks which were widely known in the marketplace but not registered needed
some measures of protection against later registrations of the same mark by others.
This was deemed to be particularly important in jurisdictions where the rights to a
trade mark flow principally from registration rather than from mere use. However,
the concentration on registration is no longer paramount ad in some legislations the
distinction between the rights which derive from registration and those from mere
use is blurred, most notably in the Regulation on the European Community Trade
Mark, in which registration and user rights are both recognised.
As conceived in 1925, Article 6bis protected well-known marks only against
the registration of identical or similar marks for identical or similar goods by an
unauthorised third party. In 1958, at the Lisbon Revision Conference, when the
subject of well-known marks was again very thoroughly discussed, it was agreed
that the Article should be extended to protect well-known marks also against the
unauthorised use of identical or similar marks. But, unfortunately, there was no
agreement on two other proposals that were put forward, namely that the Article
should be extended to include a provision for the well-known mark not to have
actually been used in the country where the identical or similar mark had been
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applied for; and that the Article should be extended both to services as well as to
dissimilar goods.
As will be seen from the text above, the Article permits the owner of a mark,
either in person or through the relevant authority to resist, for a period of five years,
the deposit, the registration, or the use, by a third party, for the same or similar
goods, of a mark which reproduces, translates, or is an imitation liable to create
confusion with his mark if it is well known but not registered.
At the 1958 Lisbon Conference, an attempt at clarification was made by
including in Article 6bis the statement in sub-paragraph (1) that responsibility for
deciding the well-known status of a mark lay with the competent authorities in any
country applying its effects. Perhaps our predecessors thought that the meaning of
―well-known‖ was beyond argument, but I cannot think there would be all this
discussion, and all that litigation, if the matter was not open to question. But with
so many countries now having a provision relating to Article 6bis in their laws,
understandably there has been a tendency for the Article to be given different
interpretations by the national offices and the courts in different countries6.
Since 1925 many of the over 150 countries that are members of the Paris
Union have sought to introduce Article 6bis into their trade mark laws, but without
explaining precisely what is meant by the phrase ―well-known‖. A typical approach
towards Article 6bis is that of the European Community Trade Mark Regulation
which provides, in Article 8(2)(c), that one of the earlier rights which may prevent
the registration of a Community trademark is any mark which is well-known in one
of the Member States of the E.U. ―in the sense in which the words well known are
used in Article 6bis‖. Interestingly, the Regulation creates another sort of mark, one
which has a reputation, and this can be utilised by its owner to prevent the
registration of a later mark also for dissimilar goods or services. Most
commentators are agreed that this mark referred to Article 8, and this has now been
confirmed by the European Court of Justice in Luxembourg in a case involving the
trade mark CHEVY (Case C-375/97 General Motors Corporation v. Yplon S.A.).
Article 6bis of the Paris Convention reads as follows:
(1) The countries of the Union undertake (a), ex officio if their legislation so
permits, or at the request of an interested party, to refuse or to cancel the
registration, and to prohibit the use, of a trademark (b) which constitutes a
reproduction, an imitation, or a translation, liable to create confusion (c), of
a mark (d) considered by the competent authority of the country of
registration or use to be well known (e) in that country as being already the
mark of a person entitled to the benefits of this Convention (f) and used for
identical or similar goods (g). These provisions shall also apply when the
6
DAVID H. TATHAM, WIPO Resolution on Well-known Marks: A Small Step or a Giant Leap?,
Sweet & Maxwell Ltd and Contributors, 2000, 130.
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essential part of the mark constitutes a reproduction of any such well-known
mark or an imitation liable to create confusion therewith.
(2) A period of at least five years from the date of registration shall be
allowed for requesting the cancellation of such a mark (h). The countries of
the Union may provide for a period within which the prohibition of use must
be requested (i).
(3) No time limit shall be fixed for requesting the cancellation or the
prohibition of the use of marks registered or used in bad faith (j).
(a) One of the questions which arises with respect to this Article is whether it
may be considered ―self-executing‖ – in countries which admit such possibility –
with the result that interested parties may directly claim its application by the
administrative or judicial authorities of the country concerned. This question gives
rise to the following observations.
On the one hand, in stipulating that ―the countries of the Union undertake...‖,
the Article is drafted differently from many other Articles of the Convention, which
directly refer to rights or obligations of interested parties (for example, Articles 2,
3, 4, 4ter, 5bis, 5ter, 5quater, 6, 6septies, 8), or directly regulate a situation at issue
(for example, Articles 4bis, 5 A(1), (3) to (5), B, C, D, 6quater, 6quinquies, 7).
Nor, on the other hand, does Article 6bis refer only to an undertaking by the
countries of the Union to legislate on a particular matter, as in the case, for
example, with Article 10ter and 11. Therefore, and although the Article leaves
certain liberties to national legislations (paragraph (1): ―if their legislation so
permits‖; paragraph (2): ―a period of at least five years... shall be allowed...‖; ―The
countries of the Union may provide for a period...‖), it cannot be deemed only to
oblige the Member States to legislate on the subject concerned, but may be
considered to contain an undertaking also on behalf of the administrative and
judicial authorities of these States, which – if compatible with their constitutional
systems – must then give effect to the provisions of the Article at the request of
interested parties.
(b) The provision under consideration refers only to trademarks and not to
service marks. The Member States are therefore not obliged to apply it to service
marks, but are free to do so in analogous situations.
(c) The purpose of the provision under consideration is to avoid the
registration and use of a trademark, liable to create confusion with another mark
already well known in the country of such registration or use, although the latter
well-known mark is not, or not yet, protected in that country by a registration
which would normally prevent the registration or use of the conflicting mark7. This
7
Cf. STEPHEN P. LADAS, International Protection of Well-Known Trade-Marks, The TradeMark Reporter, 1951, p. 661; TROLLER, La marque de hatue renommée, P.I., 1953, p. 73; BLUM,
La marque de hatue renommée, P.I., 1954, p. 110.
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exceptional protection of a well-known mark has been deemed to be justified
because the registration or use of a confusingly similar mark will in most cases
amount to an act of unfair competition8, and may also be considered prejudicial to
the interests of those who will be misled9. Whether a trademark will be liable to
create confusion with a well-known mark will be determined by the competent
authority of the country concerned, and in so doing the said authority will have to
consider the question from the viewpoint of the consumers of the goods to which
the marks are applied10. The provision specifies that such confusion may occur in
cases of reproduction, imitation or translation of the well-known mark, or even if
only an essential part of a mark constitutes a reproduction or confusing imitation of
the well-known mark.
(d) The word ―mark‖ in itself would not exclude the extension of the
envisaged protection also to well-known service marks, but the words ―used for
identical or similar goods‖ make it clear that only well-known trademarks are
covered by the provision. The Member States are; however, free to apply the same
rules also to service marks in analogous circumstances.
(e) A trademark may be well known in a country before its registration there
and, in view of the possible repercussions of publicity in other countries11, even
before it is used in such country. Whether a trademark is well known in a country
will be determined by its competent administrative or judicial authorities. The
Revision Conference of Lisbon in 1958 rejected a proposal according to which use
of a well-known mark in the country in which its protection is claimed would not
be necessary for such protection12. This means that a Member State is not obliged
to protect well-known trademarks which have not been used on its territory, but it
will be free to do so13. In view of the vote taken at the Lisbon Conference14, the
great majority of the Member States will probably adopt this attitude.
(f) A well-known trademark will, naturally, only be protected by the Article
under consideration if it belongs to a person entitled to the benefits of the
Convention, that is, to a natural or legal person who may claim the application of
the Convention according to Articles 2 or 315. The provision under examination,
however, goes further than that when it states that, in order to be protected, the
mark must be considered well known in the country concerned ―as being already
the mark of‖ such person. The history of the provision16 shows, however, that it
8
Actes de La Haye, p. 455.
Actes de La Haye, pp. 453-454.
10
Actes de La Haye, pp. 453-454.
11
Actes de Lisbonne, pp. 659, 667. See in Brazil: Supremo Tribunal Federal, 26/04/1963, G.R.U.R.
Int., 1964, p. 318.
12
Actes de Lisbonne, pp. 659, 666-667.
13
Actes de Lisbonne, p. 668.
14
The above proposal was rejected at the Lisbon Conference by 2 countries only, while 25 approved
it: Actes de Lisbonne, pp. 666-667.
15
Actes de La Haye, pp. 456, 543; Actes de Lisbonne, p. 637.
16
Actes de La Haye, p. 543.
9
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will be sufficient if the mark concerned is well known in commerce in the country
concerned as a mark belonging to a certain enterprise, without its being necessary
that it also be known that such enterprise is entitled to the benefits of the
Convention. Nor is it necessary – and it is therefore not necessary to prove – that
the person who has applied for or obtained a conflicting registration or who uses a
conflicting marks possessed such knowledge.
(g) The protection of well-known marks, according to the provisions under
examination, applies only with respect to other marks filed, registered or used for
identical or similar goods. Whether this condition is fulfilled will be determined by
the administrative or judicial authorities of the country in which protection is
claimed17.
(h) In order to give the owner of a well-known trademark sufficient time to
react to the registration of a conflicting mark; this provision specifies that he must
have a period of at least five years during which he may request the cancellation of
such registration. This minimum period was three years until the Revision
Conference of Lisbon in 1958. The words ―at least‖ indicate that the fixation of the
period is left, on condition that it may not be shorter than five years, to the national
legislation or to decisions of the administrative or judicial authorities of the
Member States18.
(i) The Member States are free also to provide for a period within which the
prohibition of use of the conflicting mark must be requested, but no minimum is
indicated for this period.
(j) The administrative or judicial authorities of the country in which the
protection of a well-known mark is requested will determine whether the
conflicting mark is registered or used in bad faith, in which case no time limit for
action will prevail. Bad faith will normally exist when the person who registers or
uses the conflicting mark knew of the well-known mark and presumably intended
to profit from the possible confusion between that mark and the one he has
registered or used.
Thus, many features of the protection provided for and many situations not
expressly contemplated in Article 6bis may be noted:
17
Cf. in France: Cour de Riom, 01/04/1957, Ann., 1959, p. 32; Cour de Paris, 08/12/1962, Ann.,
1963, p. 147, with note by DUSOLIER. The question whether, at least for a certain category of
marks of high renown, protection should not be extended to non-similar goods was discussed at the
Revision Conference of Lisbon, but without giving positive results: Actes de Lisbonne, pp. 660-664,
705-724; see also MIOSGA, Internationaler Markenund Herkunftsschutz, pp. 49-50, referring to
further literature.
18
Actes de Lisbonne, pp. 665, 758.
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1. Nothing is said in the Convention regarding the protection of service
marks, nor about the possibility of relying upon Article 6bis to take action against
an unauthorized third party that adopts the well-known trademark in relation to
different goods.
The protection in Article 6bis extends only to trademarks (marks in respect of
goods), and does not extend to service marks (used in respect of services). By
virtue of Article 16 of Trademark Law Treaty (TLT, 1994, 25 States), however, the
provisions of the Paris Convention relating to trademarks were extended to service
marks.
2. The protection extends to registration or use in respect of identical or
similar goods (in accordance with the principle, known as the ―principle of
speciality‖, under which protection for a trademark extends only to the same or
similar goods as are covered by the registration or use of the trademark);
It may be said that the provision in Article 6bis addressing the protection of
well-known trademarks is a provision of exception to the general rule that
conditions trademarks protection for use or registration19. The owner of a
trademark which is not used or registered in the country where protection is sought
by a third party may still obtain protection for the mark, provided the requirements
of Article 6bis (1) are met, namely that the mark is well-known in the country
where protection is sought.
Practice shows that trademark owners who have failed to register a trademark
in a country where protection is granted only by local registration – as is the case in
most countries of the world – often try to rely on Article 6bis in an attempt to
remedy their failure to register. Clearly this was not the intention of the drafters of
the Article. Whether as a provision of exception or as a different source of rights,
the fact is that only those well-known but unregistered trademarks in the country
where protection is sought have access to the privileged protection afforded by
Article 6bis.
Again, whether as a provision of exception or a different source of rights, the
party that may benefit from the privileged protection afforded to well-known
trademarks by Article 6bis may not benefit from all the rights given to registrants
under national laws, but only those specifically contemplated in the Convention,
namely:
 the right to have local authorities refuse registration to an unauthorized
third party;
 the right to move for the cancellation of then mark registered by an
unauthorized third party;
19
HORACIO RANGEL-ORTIZ, Well-Known Trademarks Under International Treaties,
Trademark World, February 1997, 15.
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 the right to move for the prohibition of use of the mark by an unauthorized
third party.
This is provided, in all cases, that the legal proceedings instituted by the
owner of the well-known trademark attack the unauthorized use or registration by a
third party in relation to identical or similar goods.
The term ―well-known trademark‖ as used in Article 6bis extends to
situations involving:
 a reproduction of the mark liable to create confusion;
 an imitation of the mark liable to create confusion;
 a translation of the mark liable to create confusion.
The text of Article 6bis makes it clear that the protection afforded by its first
paragraph extends to:
 situations where the essential part of the mark constitutes an unauthorized
reproduction ―of any such well-known mark‖ liable to create confusion;
 situations where the essential part of the mark constitutes an unauthorized
imitation ―of any such well-known mark‖ liable to create confusion.
Acknowledging that there are reasons favouring the notion that Article 6bis is
a provision of exception that should be interpreted in a restrictive way, practise,
cases, law and the contributions of legal commentators have consistently shown
that there is substantial room for argument, discussion, interpretation and
speculation in the text of this provision.
3. Article 6bis is silent on what constitutes a well-known mark. The
appreciation of whether a mark is well-known is left to the ―competent authority of
the country where the illegitimate registration or use occurs‖.
Article 6bis does not define a well-known mark; it only enjoins the Member
States of the Paris Union for the Protection of Industrial Property not to grant
protection to any mark which the relevant authorities consider to be in conflict with
a well-known mark belonging to someone else. Unfortunately, the Article fails to
define what exactly one should understand by the term ―well-known‖; it does not
extend this protection to services or to goods that are not similar, and it is silent on
the question of whether the well-known marks should have been used in the
country where protection is being sought.
Although the first recognition of the concept of a well-known mark is
embodied in Article 6bis, the Paris Convention does not provide any definitions or
criteria for establishing which trademarks qualify as well-known marks.
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The better view seems to be one that focuses on the universal term provided
in Article 6bis of the Paris Convention of a well-known mark: ―mark notoirement
connue‖, ―notorisch bekannte Marke‖, ―marchio notoriamente conosciuto‖ o
―marca notoriamente conocida‖.
4. Article 6bis is of major importance for cases where a trademark in a given
country does not – or does not yet – enjoy protection on the basis of a registration
in that country or on the basis of an international or regional registration having
effect in that country.
This does not mean that the application of Article 6bis is excluded if the
trademark is registered in the country where the protection is sought. However,
protection according to Article 6bis does not go beyond what normally is conferred
by registration of a trademark, namely, protection against the registration or use of
the same or a similar sign for the same or similar goods. Thus, if the trademark is
normally registered in the country, there is no need to invoke Article 6bis20.
5. As to the activities that may be attacked by the owner of a well-known
trademark, the Conventon is not explicit with respect to situations where an
unauthorized third party adopts the well-known mark as a part of a corporate name.
In all these situations, case law shows different ways to construe Article 6bis.
In some cases, local authorities have interpreted it in strict terms, whilst others have
been more flexible, affording protection to owners in circumstances not expressly
contemplated in Article 6bis. Case law also provides examples of owners obtaining
protection under a combination of Article 6bis and Article 10bis, governing unfair
competition, or under the provisions of Article 10bis alone. Finally, Article 6bis
does not address the issue of the criteria that should be used in the determination of
whether or not a trademark is well-known.
It appears that in drafting provisions of new international treaties, legislators
did not merely reproduce Article 6bis but have indeed incorporated these situations.
It is arguable, therefore, that the text of Article 6bis is due for an update.
6. Article 6bis of the Paris Convention provides protection for marks which
are well-known in the country in which protection is sought. Article 6bis is
therefore of particular importance in cases where a well-known mark is not
registered in a given country, so that protection must be predicated on the fact that
the mark is well-known.
According to the weight of authority, a mark must be well-known in the
country in which protection is sought in order for it to enjoy the benefit of Article
6bis of the Paris Convention. It is not sufficient that the mark be well-known only
20
DENIS CROZE, Protection of Well-Known Marks, Journal of Intellectual Property Rights, Vol.
5, May 2000, 139.
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in the country of origin or elsewhere; it must in fact also be well-known in the
country where the protection is sought.
Once a mark has been recognised as being well-known by applying the
relevant criteria and parameters, Article 6bis of the Paris Convention provides for
protection as follows. The owner of a well-known mark is entitled to request that
with respect to a mark which is ―liable to create confusion‖ with the well-known
mark, an application be refused or a registration be cancelled (at the registry) or the
use be prohibited (by injunctive relief in court). Protection is granted against the
―reproduction‖ or ―imitation‖ of the well-known mark with respect to ―identical or
similar goods‖.
Many countries have incorporated these protection standards into national
law. Accordingly, where applicable, the likelihood-of-confusion-standard will be
applicable within the framework of local law in order to determine whether an
infringement of a well-known mark is present.
7. Although ―famous‖ is not a word employed in the Paris Convention, it is a
term which recurs in discussions relating to the extent of protection which the law
should accord to trade marks which are merely known, well known or truly
famous.
The terminology of ―famous‖ and ―well-known‖ marks is unhelpfully
imprecise.
Article 6bis of the Paris Convention sought to protect ―well-known‖ marks
against the use by others of those marks on identical or similar goods. In contrast,
the original dilution doctrine propounded by Frank Schechter sought to protect
trade marks against the use by others of those marks on non-related goods.
How do the two major pieces of European trade mark law implement Article
6bis of the Paris Convention? Although the final recital to the Preamble of
Directive 89/104 confirms that the Directive‘s provisions are ―entirely consistent‖
with the Paris Convention, its English text contains scarcely a mention of the words
―well known‖ in relation to trade marks21. The registration of another‘s ―wellknown‖ mark is a ground, upon which a trade mark application can be refused, or
registration invalidated22, but the rights conferred against infringers are egalitarian
in their nature and treat all used trade marks in a similar manner, protecting them
by virtue of their reputation23 even if they are not well known.
21
Paris Convention, art. 6 bis(1).
Council Regulation 89/104, art. 4(2)(d).
23
Council Regulation 89/104, art. 5(2). The Trade Marks Act 1994, s56, gives foreign ―wellknown‖ marks only the level of protection required by the Paris Convention, that is to say,
protection against use on identical or similar goods which is likely to cause confusion.
22
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The approach taken by the CTM Regulation corresponds to that adopted by
Directive 89/104. The registration of another‘s ―well-known‖ mark is a ground of
refusal of a trade mark application24, or registration invalidated25. Once again, the
rights conferred against infringers treat all used trade marks in a similar manner,
regardless of whether they are well known26.
This relatively straightforward analysis has been thrown into small
uncertainty by the ECJ in Davidoff v. Gofkid27 when it chose, in the English version
of its decision, to refer to the protection granted under Directive 89/10428 to trade
marks which have ―a reputation in the Member State‖ as being the protection of
―well-known marks‖. Does this mean that ―marks with a reputation‖ and ―wellknown marks‖ are now synonymous? The ECJ itself in General Motors v. Yplon29
noted that the marks ―having a reputation‖ in the English were ―well-known‖
marks in the French, German, Italian and Spanish versions of Directive 89/104 and
considered this no more than a ―nuance which does not entail any great
contradiction‖. Regardless of the terminology employed, a trade mark must be
known to a particular extent before it is entitled to receive the protection accorded
to such a mark. This extent is reached where the mark is known by a significant
part of the public concerned with the goods sold under that trade mark.
One final point should be mentioned. Directive 89/104 states that, for the
purpose of refusing a national trade mark application or invalidating a subsequent
grant, the words ―well known‖ mean well known in a Member State, in the sense in
which the words ―well-known‖ are used in Article 6bis of the Paris Convention30.
In theory, this qualification, which is not found in those provisions in
Directive 89/104 that refer to marks being (in English) marks with a reputation and
(in French, German, Italian and Spanish) well-known marks, suggest that it is
somehow for the Paris Union rather than the ECJ to determine what ―well known‖
means for Article 6bis purposes. In practice, the Paris Union countries have so far
failed to come up with a consensus or understanding as to what ―well known‖
means, though they may one day do so, and not all European jurisdictions however
take their lead from the Directive.
1.2. Well-Known Trademarks under TRIPS
The Agreement on Trade Related Aspects of Intellectual Property Right
(TRIPS Agreement), entered into force on January 1, 1995, an annex to the
24
Council Regulation 40/94, art. 8(2)(c).
Council Regulation 40/94, art. 52.
26
Council Regulation 40/94, art. 9(1)(c).
27
Davidoff & Cie and Zino Davidoff SA v. Gofkid Ltd, Case C-292/00 (2002) ETMR 1219, (2003)
FSR 50 (Advocate General‘s Opinion); (2003) ETMR 534 (ECJ).
28
Council Directive 89/104, arts 4(4)(a) and 5(2).
29
General Motors Corp. v. Yplon SA, Case C-375/97 (1999) ETMR 950.
30
Council Directive 89/104, arts 4(2)(d).
25
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Marrakesh Agreement that established the World Trade Organization, perhaps is
the most important international agreement promoting the harmonization of
Intellectual Property Rights in member countries. TRIPS Agreement establishes the
basic principles and minimum standards concerning the availability, scope, and use
of trade-related international property rights; civil and criminal enforcement
obligations including border measures; procedural requirements regarding
governing the administrative acquisition and maintenance of intellectual property
rights; dispute settlement for the resolution of any disputes between WTO member
countries over the implementation of the TRIPS Agreement.31
The TRIPS Agreement requires its member countries to provide protection to
well-Known trademarks. Article 2(1) of the TRIPS Agreement32, which enunciates
as follows,
―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)‖
requires member countries to provide protection to well-known trademarks as per
Article 6bis of the Paris Convention under which member countries are required,
ex officio or on the request of an interested party, to refuse/cancel registration and
prohibit use of a trademark which is a reproduction/imitation/translation of a
trademark considered well- known by competent authorities of the country if used
for identical/similar goods and is liable to cause confusion.
The TRIPS Agreement not only incorporates Article 6bis of the Paris
Convention but also has extended the scope of protection of well-known
trademarks in the member countries. Article 16 of the TRIPS Agreement
enunciates as follows:
“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
31
Protection of well known trademarks the comparison of trademark examination standards and
trademark law systems between Japan and China by XIA Qing.
32
Agreement on Trade-Related Aspects of Intellectual Property Rights art. 16, Apr. 15, 1994,
Marrakesh Agreement Establishing the World Trade Organization, Annex IC, Legal Instruments—
Results of the Uruguay Round, 33 I.L.M. 1125, 1197 [hereinafter TRIPs Agreement].
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interests of the owner of the registered trademark are likely to be damaged
by such use”.
Article 16(2) of the TRIPS Agreement requires member countries that Article
6bis of the Paris Convention-related to well-known trademarks should apply to
services as well in addition to the goods.
The TRIPS Agreement does not provide any definition of well-known
trademark. Also, only a competent authority of a member country can determine
whether a trademark is well known or not in the country. However, Article 16(2) of
the TRIPS Agreement requires member countries to take knowledge of the
trademark in the relevant sector of the public, even if the knowledge is obtained as
a result of the promotion of the trademark, as an important factor in determining
whether a trademark is well known or not in the country.
Article 16(3) of the TRIPS Agreement extends protection of the well-known
trademark for dissimilar goods/services in certain conditions which are as follows:
1. well-known trademark is registered in the member country;
2. use of the trademark may cause likelihood of association with the wellknown trademark;
3. interest of the owner of the registered well known trademark is likely to
be damaged by such use.
Article 16 of the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPs Agreement), to some extent, generalized anti-dilution
prohibitions.33 The concept of trademark dilution is inherently complex. Because
[dilution] is largely a theoretical and almost ephemeral concept, the legal theory of
―dilution‖ is exceedingly difficult to explain and understand. Misunderstanding is
rampant.34
As one of the most controversial and perhaps most elusive topics in
intellectual property law, trademark dilution law has undergone a significant
transformation over the past decade. For nearly all of the 20th century, to the extent
that trademark dilution was even recognized as a cause of action, it was only
recognized as such under state statutory law, and dilution law was seen as
protecting the commercial value or ―selling power‖ of a mark by prohibiting uses
of a mark that were deemed to dilute the distinctiveness of the mark or to tarnish
the associations it evoked.35 A cause of action for dilution was first recognized
33
BOTTERO-A. MANGÀNI-M. RICOLFI, The Extended Protection of “Strong” Trademarks, in 11
Marquette Intellectual Property Law Review, 2007, 265 ss.
34
J.Thomas McCarthy, McCarthy on Trademarks and Unfair Competition 24:67, at 24-166-24167(4th ed. 2008)
35
Restatement (Third) of Unfair Competition s 25(1995), cmt. A, at 265.
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under US statutory law in the FTDA36 which was later fine tuned with the
adoption of the TDRA.37
For dilution to occur, the relevant public must make some connection or
association between the mark and both parties. But that connection or association is
not the kind of mental link between the parties that triggers the classic likelihood of
confusion test. Rather, the assumption is that the relevant public sees the junior
user‘s use, and intuitively knows, because of the context of the junior user‘s use,
that there is no connection between the owners of the respective marks.38
According to the doctrine of trademark dilution, famous trademarks should be
granted protection even in the absence of direct competition between the senior and
the junior users and in the absence of a risk of confusion as to the origin of the
marked goods.39 A mark may be diluted either by "tarnishment" or "blurring."
Tarnishment occurs when someone uses a mark on inferior or unwholesome goods
or services . Tarnishment involves a newcomer‘s use of a mark in acontext that
risks consumer aversion to the famous brand.40 A classic example of tarnishment
under FDTA case law involved the use of CANDYLAND.COM for a sexually
explicit website, which understandably evoked negative associations with the
famous CNDYLAND brand of children‘s board games.41 ―Blurring‖ involves a risk
of ―clutter‖ in the minds of consumer on account of the newcomer‘s use of a mark
that is similar to a famous brand.42 Dilution by blurring consists of a single mark
identified by consumers with two different sources. One mark: two sources.43 One
example of blurring under the FTDA case law involved the use of HERBROZAC
as a mark for a natural alternative to the PROZAC brand pharmaceutical.44
Though the TRIPS Agreement provides minimum standards for the
protection of well-known trademarks which each member country is required to
provide in its relevant national legislation, however, member countries are free to
provide higher standards of protection in their legislation if they wish. TRIPS
Agreement neither provides any definition of a well-known trademark nor any
criteria for determining whether a trademark is well-known or not in a member
country and it has been left for the member states to determine.
36
Federal Trademark Dilution Act, P.L. 104-98 (H.R. 1295, S. 1513), 109 Stat. 505 (1995) enacted
January 16, 1996.
37
Trademark Dilution Revision Act of 2006, Pub. L. No. 109-312, 120 Stat. 1730 (2006), enacted
October 6, 2006
38
McCarthy, 24:72 at 24-176.
39
Frank I. Schechter, The Rational Basis of Trademark Protection, 40 HARV. L. REV. 825-30
(1927).
40
Scot A. Duvall, The Trademark Dilution Revision Act of 2006: Balanced protection for famous
Brands, 97 TMR 1253.
41
Hasbro, Inc. v. Internet Entm‘t Group Ltd., 40 U.S.P.Z. 2d 1479(W.D. Wash. 1996).
42
Scot A. Duvall, The Trademark Dilution Revision Act of 2006: Balanced protection for famous
Brands, 97 TMR 1252, 1254.
43
44
McCarthy, 24:67 at 24-169.
Eli Lilly & Co. v. Natural Answers, Inc. 233 F.3d 456(7 th Cir. 2000).
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1.3. WIPO Joint Recommendation Concerning Provisions on the Protection of
Well-Known Marks
Despite the fact that the TRIPS agreement has introduced some new elements
as well as clarity into the notion and regime of protection of well-known
trademarks45, there still have been a lot of unanswered questions left as to the
criteria of recognition and scope of protection of well-known marks46. As a reply to
this demand in 1995 World Intellectual Property Organization (WIPO) started
working on what is now known as Joint Recommendation Concerning Provisions
on the Protection of Well-Known Marks 47.
The Preface to this document clearly states that the ―Recommendation is the
first implementation of WIPO‘s policy to adapt to the pace of change in the field of
industrial property by considering new options for accelerating the development of
international harmonized common principles‖. Joint Recommendation is not
legally binding, and therefore is a flexible instrument of international
harmonization in the field of trademark law. It has a profound significance for
countries, which seek to comply with their international obligations and are on the
stage of development of their national legislation concerning protection of wellknown marks. But for the countries that already have an elaborated legislation and
judicial practice in this field, the Joint Recommendation may at times be seen as
controversial48.
The Joint Recommendation addresses the issues that have stayed unclear
since the introduction of the Article 6bis of the Paris Convention, namely i) the
determination of a well-known mark in a Member State49, by offering guidelines
for assessment of a mark for being well-known; ii) the scope of protection of wellknown marks, by defining marks, business identifiers and domain names50
conflicting with a mark deemed well-known.
Article 2(1)(b) of the Joint Recommendation proposes the following nonexhaustive list of types of information that must be taken into account by
45
For a brief analysis see David H.Tatham, WIPO Resolution on Well-Known Marks: A Small Step
or a giant Leap?, I.P.Q. No.2, Sweet & Maxwell Ltd and Contributors, 2000, at 131-132
46
See David H.Tatham, supra note 1, at 132-133
47
Adopted by the Assembly of the Paris Union for the Protection of Industrial Property and the
General Assembly of the WIPO at the Thirty-Fourth Series of Meetings of the Assemblies of the
Member States of WIPO, September 20 to 29, 1999; available at http://www.wipo.int/aboutip/en/development_iplaw/pdf/pub833.pdf [hereinafter Joint Recommendation].
48
See e.g. Maxim Grinberg, The WIPO Joint Recommendation Protecting Well-Known Marks And
The Forgotten Goodwill, Chicago-Kent Journal of Intellectual Property, 2005
49
a State member of the Paris Union for the Protection of Industrial Property and/or of the WIPO
[see Art.1 of Joint Recommendation]
6
the extension of protection of well-known marks to conflicting business identifiers and domain
names is a distinctive feature of the Joint Recommendation, as these matters have never been
included in an international document before; see David H.Tatham, supra note 1, at 133-134
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competent authority when determining whether a mark is well-known in a Member
State:
(1) the degree of knowledge or recognition of the mark in a relevant sector of
the public;
(2) the duration, extent and geographical area of any use of the mark;
(3) the duration, extent and geographical area of any promotion of the mark,
including advertising or publicity and the presentation, at fairs or
exhibitions, of the goods and/or services to which the mark applies;
(4) the duration and the geographical area of any registrations, and/ or any
applications of the mark, to the extent that they reflect use or recognition of
the mark;
(5) the record of successful enforcement of rights in the mark, in particular,
the extent to which the mark was recognized as well known by competent
authorities;
(6) the value associated with the mark.
The approach of true flexibility in application of Joint Recommendation is
reflected in Art. 2(1)(c), which states that
―the determination in each case will depend upon the particular
circumstances of that case. In some cases all of the factors may be relevant.
In other cases some of the factors may be relevant. In still other cases none of
the factors may be relevant, and the decision may be based on additional
factors that are not listed in subparagraph (b), above. Such additional
factors may be relevant, alone, or in combination with one or more of the
factors listed in subparagraph (b)‖.
Art. 2(3) also provides for the list of ―non-requirements‖ for well-known
marks. It is not required:
(i) that the mark has been used in, or that the mark has been registered or
that an application for registration of the mark has been filed in or in respect
of, the Member State;
(ii) that the mark is well known in, or that the mark has been registered or
that an application for registration of the mark has been filed in or in respect
of, any jurisdiction other than the Member State; or
(iii) that the mark is well known by the public at large in the Member State.
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Thus, according to this article, the mark only needs to have a reputation in
―the relevant sector of the public”51 and not the public at large. Also, use and/or
registration cannot be a requirement for protection.
As to the question of the scope of protection for a well-known mark against
conflicting marks, business identifiers and domain names, the Joint
Recommendation establishes that it shall be at least from the time when the mark
becomes well known in the Member State52, and that bad faith should be
considered in balancing the interests of the parties involved when assessing
possible infringement of well-known marks53.
It also stipulates the conditions under which a mark is deemed to be in
conflict with a well-known mark in respect of identical or similar goods and/or
services. The provisions also cover conflicts with regard to dissimilar goods and
services. However, in these cases, knowledge of the public at large can be required.
In conclusion, it must be said that although the Joint Recommendation is a
―soft‖ law document, and has some controversial provisions, it is a document
reflecting a very high level of international consensus on harmonization of the
national substantive law on protection of well-known marks, and is widely
recognized and supported as one of the basic documents in this field54.
2. PROTECTION OF WELL-KNOWN TRADEMARKS IN ITALY
Article 12(1)(b) and (g) of the Italian Industrial Property Code (D.Lgs.
February 10, 2005, n. 30) incorporate Article 6bis of the Paris Convention, as
interpreted and expanded in its scope of application by Articles 16(2) and (3) of the
TRIPS Agreement.
Under Article 12(1)(b) and (f), a mark is not new and, therefore, inelegible
for registration, if it is identical with or similar to a mark that is ―well-known
within the meaning of Article 6bis of the Paris Convention‖ (in accordance with
Article 16(2) of the TRIPS Agreement), in the following cases:
(i) when the later mark is registered for identical or similar goods or services,
if ―by virtue of the identity or similarity of the signs and the identity or
similarity of the goods or services, a risk of confusion may arise on the part
51
as defined in Art. 2(2)(a) of the Joint Recommendation. It must be said that this notion clearly
takes its roots from the TRIPS Agreement‘s Art. 16.2, and is an attempt to clarify the definition in
question.
52
Art 3(1) of the Joint Recommendation
53
Art 3(2) of the Joint Recommendation
54
See e.g. position of the International Trademark Association on this issue at
http://www.inta.org/index.php?option=com_content&task=view&id=133&Itemid=143&getcontent
=3
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of the public, which may also consist of a risk of association of the two
signs‖; and
(ii) when the later mark is registered for dissimilar goods or services,
irrespective of whether a risk of confusion or association may arise on the
part of the public, on condition that use of the later mark ―without due cause‖
is likely to take unfair advantage of, or be detrimental to, the distinctive
character or the repute of the well-known mark.
To qualify as ―well-known wihthin the meaning of Article 6bis‖ a mark
needs to be well-known in Italy where its reputation will come as a result of its use
or promotion in international trade55.
Similarly, under Article 17(1)(f), a registered mark that ―enjoys a reputation‖
in Italy constitutes a bar to the valid registration of identical or similar marks when
use of the mark ―without due case‖ is likely to take unfair advantage of, or be
detrimental to, the distinctive character or the repute of the mark.
The only provision of the Italian Industrial Property Code that deals with the
protection of marks enjoying a reputation is Article 20(1)(c), under which the
owner of a registered mark that enjoys a reputation is entitled to prevent
unauthorized third parties from using identical or similar signs with respect to
dissimilar goods or services, provided that use of the mark ―without due case‖ is
likely to take unfair advantage of, or be detrimental to, the distintive character or
the repute of the mark.
It is noteworthy that the Italian Industrial Property Code affords to both
marks that are well-known within the meaning of Article 6bis of the Paris
Convention and registered marks that enjoy a reputation the power to cancel the
registration of identical or similar marks for dissimilar goods or services, while it
affords only the latter protection against the unauthorized use of identical or similar
marks with respect to dissimilar goods or services. In other words, the Italian
Industrial Property Code does not contain any provision that expressly affords
protection to unregistered well-known marks within the meaning of Article 6bis of
the Paris Convention against the unauthorized use of conflicting signs by third
parties as provided by Articles 16(2) and 16(3) of the TRIPS Agreement.
This is simply because, when dealing with the issue of protection, the Italian
Industrial Property Code applies only to registered marks. In practical terms, to
prevent the unauthorized use of the conflicting mark, the owner of a well-known
mark within the meaning of Article 6bis of the Paris Convention will have only the
very light burden of filing an application in Italy before taking action.
55
See ADRIANO VANZETTI – VINCENZO DI CATALDO, Manuale di diritto industriale, 6^
edizione, Giuffré Editore, 2009, 181.
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Hypothetically speaking, if the owner of a well-known mark within the
meaning of Article 6bis does not intend to file an application, protection against the
unauthorized use of a conflicting mark could be alternatively sought under Article
21(3) of the Italian Industrial Property Code. Under this provision, no one may use
a registered trademark after its registration has been declared invalid, when the
reason for invalidity involves the unlawfulness of the use of the trademark.
According to the most convincing scholarly interpretation of this provision56, the
above prohibition not only applies with respect to absolute grounds of invalidity,
but also when there is a violation of Article 14(1)(c) of the Italian Industrial
Property Code (in relation with Article 21(2) of the Italian Industrial Property
Code), which prohibits the registration as trademarks of signs when their use would
infringe someone else‘s copyright, industrial property right, or any other exclusive
right.
In any event, it should be remembered that Article 6bis of the Paris
Convention and, consequently, Articles 16(2) and 16(3) of he TRIPS Agreement,
are automatically applicable in countries that are signatories to these agreements
absent a specific, more favourable national provision57.
Two additional provisions of interest for the protection of famous trademarks
are Articles 8(3) and 19(2) of the Italian Industrial Property Code.
Article 8(3) prescribes that, if well-known, personal names, signs used in
artistic, literary, scientific, political or sports fields, denominations and acronyms
of exhibitions and events, and non-profit bodies and associations, as well as the
characteristic emblems thereof, may be registered as trademarks only by those
entitled to them, or with their consent. This provision aims at preserving the
possibility of exploiting the evocative power of famous names or signs that have
not yet been used or registered as trademarks to those who have established their
fame58.
As in the case of marks that are well known within the meaning of Article
6bis of the Paris Convention, Article 8(3) grants only the possibility of invalidating
marks illegitimately registered. To prevent also the unauthorized use of a
conflicting sign, those who have built the fame of these signs will have the burden
of registering them as trademarks59.
56
See ADRIANO VANZETTI – VINCENZO DI CATALDO, Manuale di diritto industriale, 6^
edizione, Giuffré Editore, 2009, 278-279.
57
See, among others, PEROT-MOREL, Les difficultés d‟application de l‟Article 6bis de la
Convention d‟Union de Paris relatif à la protection internationale des marques notoires, Riv. dir.
ind., 1981, I, 34, 49: ―On s‘accorde... à admettre qu‘en absence d‘une disposition spécifique de la
loi nationale (de pays unionistes), l‘Article 6bis doit pouvoir etre invoqué directement, en tout état
de cause, par les intéressés‖.
58
See, e.g., Twentieth Century Fox Film Corporation v. Giammar S.n.c., Court of Rome, January 9,
2001, unpublished.
59
However, in FIFA v. Panini S.r.l., June 26, 1994, Giur, ann. dir. ind., 1994, No. 3133, the Court
of Modena stated that ―even though Article 21(3) of the Italian Trademark Act – now Article 21(3)
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Article 19(2) prohibits the registration of a mark filed in bad faith. An
important area in which this provision can be invoked is that of marks that are
famous abroad but not yet known to Italian consumers. Under these circumstances,
in which it is not possible to resort to the protection afforded to marks that are wellknown within the meaning of Article 6bis of the Paris Convention, the fact that the
mark was well-known in other jurisdictions could play an important role in
determining whether the adoption of an identical or similar mark in Italy by a third
party was in bad faith and, specifically, was done with the intent of taking unfair
advantage of the reputation that would eventually reach our country60. Often, the
element of bad faith can be inferred by the conduct of the registrant following
registration.
Finally, it has been noted by commentators that European trade mark law
makes very little specific provision for the protection of famous trade marks as a
separate category of subject matter of legal protection61.
With the implementation of the European Trademark Harmonization
Directive62 a ―new‖ trademark was born in Italy: a trademark is no longer merely
an indicator of source; it is also a means of communication, a message bearer, a
carrier of goodwill, functions that better reflect the role of trademarks in today‘s
market reality. Well-known trademarks – or better yet, trademarks enjoying a
reputation in the words of the Directive – are now recognized as having an intrinsic
value, stretching beyond the information they provide to the public with respect to
the entrepreneurial origin of the goods and services they distinguish. Although the
indication of origin remains the fundamental and primary function of all
trademarks, the existence of this additional function has become legally relevant.
Thus, trademarks are protected also with respect to this intrinsic value and for
which the concept of likelihood of confusion cannot provide appropriate
protection63.
Under the former Italian Trademark Act, which, as mentioned previously, did
not expressly provide for any special protection of famous marks, courts, especially
of the Italian Industrial Property Code – recognizes to those who have contributed to the notority of
a sign the right to register it as a trademark, a parallel prohibition is to be recognized as to the
unathorized use of the sign, being otherwise defeated the scope of the provision, which is that of
avoiding parasitism by protecting the evocative value of the sign‖.
60
See ADRIANO VANZETTI, La nuova legge marchi, Milano, 1993, 106; MARCO RICOLFI, I
segni distintivi dello sport, AIDA, 1993, 123 ss..
61
See PIER LUIGI RONCAGLIA, Should We Use Guns and Missiles to Protect Famous
Trademarks, in Europea (1998) 88 TMR 551.
62
First Council Directive of 21 December 1988, to Approximate the Laws of the Member States
relating to Trade Marks (Directive 89/104/EEC).
63
See PIER LUIGI RONCAGLIA, Italy, in FREDERICK W. MOSTERT, Famous and WellKnown Marks. An International Analysis, 2nd Edition, International Trademark Association, 2004,
4-221.
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from the late 1970s, tended to hold that the achievement by a mark of a general
reputation enabled the broadening of its scope of protection so as to extend also to
goods and services not strictly related. ―Famous‖ or ―well-known‖ were only those
marks known to the public at large, generally identified as those that:
(i)
enjoyed a high degree of recognition: survey evidence, if accurate
and trustworthy, was often admissible to prove such recognition64;
(ii)
were associated with products that were widely distributed and
enjoyed great consumer recognition: documentation attesting a significant
volume of sales in Italy was generally of great assistance in proving fame;
(iii)
had been on the market for a long time;
(iv)
were the subject of intense and effective advertising: evidence of
extensive advertising, especially on television and/or in national or foreign
pubblications circulating in Italy65, was always of paramount importance.
In determining whether a mark was famous or well-known, Italian courts
generally adopted a case-by-case approach, considering the overall commercial
impression emerging from the totally of the evidence produced.
The Italian Industrial Property Code currently in force does provide special
protection for marks enjoying a reputation. However, it still does not contain any
definitions or guidelines to determine when a mark is well known within the
Article 6bis of the Paris Convention or enjoys a reputation. In particular, debate
arose among Italian scholars as to whether the concept of marks ―which enjoy a
reputation‖ set out in Article 1(1)(c) of the last Trademark Act – now Article
20(1)(c) of the Italian Industrial Property Code – is equivalent to that of wellknown marks. Some authors assumed that the two categories were coincident66.
Others maintained that the definition ―mark which enjoys a reputation‖
encompasses not only famous marks, i.e., marks that are known by a very high
percentage of the public at large, but also marks that are simply known in the
interested circles of trade or industry67. This latter interpretation is now the
prevailing one68 as a result of the European Court of Justice‘s decision in the
64
In Jean Patou Parfumer SA v. Priority Srl, 23 May 1991, in Giur. ann. dir. ind., 1991, No. 2671,
the Court of Milan considered hardly relevant a survey conducted among 500 consumers ―picked in
only one commercial area, that ―of highest level‖, of only one Italian city, Turin‖.
65
In Standard Oil Co. of California v. Ditta Santa Rita Mercantile Co. and Chevron Oil Italiana
SpA Intervenor, Court of Catania, 25 January 1977, in Riv. dir. ind., 1977, II, 396, 426-428, it was
held that the advertising of the plaintiff‘s mark in foreign magazines circulating in Italy amounted to
legally relevant use of the mark.
66
See FLORIDIA, La nuova legge marchi. Il commento, in Corr. Giur., 1993, 268 et seq.;
FAZZINI, Prime impressioni sulla riforma della disciplina dei marchi, in Riv. dir. ind. 1993, I, 159
et seq.
67
See ADRIANO VANZETTI – VINCENZO DI CATALDO, Manuale di diritto industriale, 6^
edizione, Giuffré Editore, 2009, 207 et seq.; SENA, Il nuovo diritto dei marchi, 3^ edizione,
Milano, 2001, 87-88.
68
In Altavista Company v. Alta Vista Srl, 9 November 2000, in Giur. ann. dir. ind., 2001, No. 4249,
the Court of Vicenza stated that ―a famous trademark is a mark known within a considerable sector
of the public interested in the products or services covered by the mark‖ (applying such principle,
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General Motors Corporation v. Yplon case69. According to the Court‘s ruling, a
trademark is famous pursuant to Article 5(2) of the Directive and, therefore, is
entitled to the broader protection set forth in such provision, when it ―enjoys a
reputation within the relevant sector of the public for which the particular goods or
services it distinguishes are destined‖. In its decision, the Court of Justice also
stated that ―the higher the distinctiveness and reputation of the trademark, the
easier the ability to demonstrate the existence of an injury to the interest of the
owner‖.
The above decision is particularly important because it clearly indicates that
the function of carriers of goodwill or message bearers is not performed only by
exceptionally famous trademarks. Every trademark, as long as it has acquired some
consumer recognition in the relevant field of trade or industry, is entitled to be
protected against the unathorized use of an identical or similar mark, pursuant to
Article 20(1)(c), even in the absence of a likelihood of confusion, when use of the
later mark is likely to take unfair advantage of, or be detrimental to, the distinctive
character or the repute of the prior mark.
3. PROTECTION OF WELL-KNOWN TRADEMARKS IN PAKISTAN
Pakistan became a member of WTO, hence signatory to the Agreement on
Trade Related Aspects of Intellectual Property Right (TRIPS Agreement), in
199570. TRIPS Agreement created an obligation on Pakistan to amend its
intellectual property laws and to provide in its national legislation minimum
standards of intellectual property rights protection provided in the TRIPS
Agreement. Therefore, in order to comply with the TRIPS Pakistan promulgated its
new Trademark Law in the year 200171(hereinafter referred to as Ordinance).
Article 16(2) and 16(3) of the TRIPS Agreement which deal with the protection of
well known trademarks were duly incorporated into the Ordinance, 2001.
Section 86(1) of the Ordinance provides that a Trade Mark which is entitled
to protection as a well known trademark shall be a mark which is so entitled under
the Paris Convention and which is well known in Pakistan as being the mark of a
person who:
1. is a national of a Convention Country- a country, other than Pakistan,
which is a party to the Paris Convention; or
the trademark ―Alta Vista‖ has been considered famous with regard to the specific service offered
by the plaintiff on the Internet).
69
Case C-375/97 General Motors Corporation v. Yplon SA, decision of 14 September 1999, in Giur.
ann. dir. ind., 1999, No. 4047.
70
http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm
71
Pakistan Trade Marks Ordinance, 2001http://ipo.gov.pk/Trademark/Downloads/TradeMark_Ordinance.pdf
Saad Nursrullah, Luigi Mastroianni and Djakhagir Aripov
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2. is domiciled in, or has a real and effective industrial or commercial
establishment in, a Convention Country.
It is not necessary that person carries on business, or has a good will, in
Pakistan.
1. The Criteria: When is a Mark Well Known?
The Ordinance also set forth criteria for tribunal- ―the Registrar or, as the
case may be, the High Court or a District Court before which the proceedings
concerned are pending‖72 to distinguish well known trademarks from other marks.
Subsection 2 of Section 86 provides that the tribunal shall take into account
the following factors as relevant criteria in deciding whether or not a Trade Mark is
well known:
1. the amount of Pakistan or worldwide recognition of the Trade Mark;
2. the degree of inherent or acquired distinctiveness of the Trade Mark;
2. the Pakistan or worldwide duration of the use and advertising of the Trade
Mark;
4. the Pakistan or worldwide commercial value attributed to the Trade Mark;
5. the Pakistan or worldwide geographical scope of the use and advertising
of the Trade Mark;
6. the Pakistan or worldwide quality and image that the Trade Mark has
acquired; and
7. the Pakistan or worldwide exclusivity of use and registration attained by
the Trade Mark and the presence or absence of identical or deceptively
similar third party Trade Marks validly registered or used in relation to
identical or similar goods and services.
What is more significant is that the section 86(2) of the Ordinance provides
that the following should not be required by the tribunal while determining a
trademark is well known:
1. registration of the trademark is in Pakistan;
2. actual use in the form of sales of goods/services under the trademark in
Pakistan.
However, in addition to the list of factors mentioned above the tribunal may
consider any other factor as relevant while determining a trademark is well known
or not among relevant public in Pakistan.
Section 86(3) of the Ordinance provides that the owner of a well known
trademark is entitled to restrain, by injunction, the use in Pakistan of a trademark
which or essential part of which is identical/deceptively similar to the well known
trademark:
72
Section 2 (li) of the Pakistan Trademarks Ordinance, 2001
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1. in relation to identical/similar goods or services where such use is likely to
cause confusion; or
2. where such use causes dilution73 of the distinctive quality of the well
known trademark.
2. Well-Known Trademarks and Non-Competing Goods
The most important aspect of well known trademarks is that the protection
extends beyond the class of goods/services. The Ordinance provides for this as a
special right for well known marks in Section 17 which deals with the ―relative
grounds of refusal‖ of a trademark74. Section 17(3) of the Ordinance reads:
―A trade mark which- (a) is identical with or similar to an earlier trade
mark; and (b) is to be registered for goods or services which are not similar
to those for which the earlier trade mark is registered. shall not be registered
if, or to the extent that, the earlier trade mark has a reputation in Pakistan
and the use of the later mark without due cause would take unfair advantage
of, or be detrimental to , the distinctive character or the repute of the earlier
trade mark‖.
Section 18(1)( c) of the Ordinance provides that an earlier trademark means a
trademark which was entitled to protection under the Paris Convention as a well
known trademark.
Section 40 (4) of the Ordinance provides that a person shall infringe a
registered trade mark if the person uses in the course of trade mark which- (a) is
identical with or deceptively similar to the trade mark; and (b) is used in relation to
goods or services which are not similar to those for which the trade mark is
registered. Where the trade mark is a well known trade mark, or has a reputation in
Pakistan, and the use of the mark being without due cause, takes unfair advantage
of, or is detrimental to, the distinctive character or the repute of the trade mark.
73
Section 2(xiii) of the Ordinance provides that "dilution" means the lessening of the capacity of a
well known trade mark to identify and distinguish the goods or services, regardless of the presence
or absence of competition between owner of the well know trade mark or other parties. or likelihood
of confusion or deception
74
The Trademarks Ordinance, 2001 provides for two types of grounds of refusal to register a
trademark. The first one is an ―absolute‖ ground of refusal to register based on the inherent
characteristics of the impugned mark only and the second one is the ―relative‖ grounds of refusal
that are contingent on the existence of another mark.
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3. Protection of Unregistered Well-Known Trademarks under the Law of
Passing Off
Passing off is a common law tort which can be used to enforce unregistered
trademark rights. The tort of passing off protects the goodwill of a trader from a
misrepresentation that causes damage to goodwill. In passing off, the plaintiff is
required to meet certain well entrenched qualifications in order to succeed. These
test evolved as a result of successive court dicta, takes various forms ranging from
the most basic ones calling for meeting of only the bare essential to more elaborate
mandating the proof of supplementary conditions. The three essential constituents,
viz., goodwill, misrepresentation and the damage are the primary elements, a
successful claimant must prove, and are collectively referred to as the ‗classical
trinity‘ of passing off75.
Pakistani courts have been applying the common law action of passing off for
the protection of well known trademarks in Pakistan for years. Keeping in mind the
development in the protection of unregistered well known trademarks through
passing off actions, the Ordinance under Section 17(4)(a) provides:
―A trade mark shall not be registered if, or to the extent that, its use in
Pakistan
is liable to be prevented(a) by virtue of any law, in particular, the law of passing off, protecting an
unregistered trade mark or other mark used in the course of trade”.
Section 46 (3) of the Ordinance provides that nothing in the Ordinance shall
be deemed to affect rights of action against any person for passing off goods as the
goods of another person or services as services provided by another person, or the
remedies in respect thereof.
Also, Subsection 3 of Section 39 states that without prejudice to the right of
the proprietor of a registered Trade Mark to obtain any relief under any other law
for the time being in force, the proprietor shall also have the right to obtain relief
under this Ordinance if the Trade Mark is infringed.
75
Narayanan P, supra note 11, at 685
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4. Protection of Well Known Trademarks under Unfair Competition
The Trademarks Ordinance, 2001 also provide protection to the well known
trademarks under the law of unfair competition. Section 67 of the Ordinance
provides that any act of competition contrary to honest business practices in
industrial or commercial matters such as fraudulently registering or applying for
registration of a trade mark is an act of unfair competition. And an action against
unfair competition may be brought before a District Court of competent
jurisdiction.
Section 14(4) of the Ordinance, which deals with the absolute grounds for
refusal of registration, provides that a trade mark shall not be registered if or to the
extent that the application is made in bad faith.
However, subsection 4 of Section 86 of the Ordinance provides that the
continuation of any bona fide use of a trademark begun before the commencement
of the Ordinance shall not be effected by the provisions of this Ordinance.
5. Opposition to Registration of a Trademark by Proprietor of a Well-Known
Trademark
Pakistan Trademark Ordinance, 2001 provides an opportunity to the
proprietor of a well known trademark to oppose an application for registration of
trademark which is identical/deceptively similar to the well known trademark in
Pakistan and the use of which is likely to cause dilution/confusion. Section 29 of
the Ordinance provides grounds on the basis of which registration of a trademark
may be opposed. Section 29(4) reads as follows:
―The registration of trade mark in respect of particular goods or services
may be opposed on the grounds that- (a) it is substantially identical with, or
deceptively similar to, a well known trade mark to a trade mark that, before
the priority date for the registration of the first-mentioned trade mark in
respect of those goods or services, had acquired a reputation in Pakistan;
and (b) because of the reputation of that other trade mark, the use of the firstmentioned trade mark would cause dilution or would be likely to deceive or
cause confusion‖.
6. Approach of the National Courts
The Pakistani courts have long acknowledged the importance of protecting
the rights of IP owners and have extended protection to well-known foreign
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trademarks far beyond the traditional scope of such protection. Their approach
when dealing with issues relating to IP rights has been forward looking76.
The first key judgment in this area was given in 1979 by the Sindh High
Court in Societé De Fabrication v Deputy Registrar of Trademarks77. In protecting
an international trademark the court observed: ―The conduct of the respondent in
appropriating trademarks of foreign owners is not proper… It is common
knowledge that trade in French perfumery is of international character. With the
revival of international trade and international publicity, the rights of owners of
foreign trademarks ought to receive some safeguard unless it is clear from the
evidence that the foreign owners have abandoned their intention of marketing their
products under the mark in this country.‖ This trend was confirmed in Alpha
Sewing Machine v Registrar of Trademarks78, in which the Supreme Court of
Pakistan approved the following observations of the Lahore High Court: ―With the
proliferation of the means of communication media the names and products of
major world-renowned companies are getting the attention of the public at large in
all civilized countries of the world and Pakistan is no exception. Extensive
travelling abroad in the recent past has made it possible for the people of Pakistan
to have knowledge of internationally renowned companies and their products.‖
This judicial trend was explained by the Sindh High Court in Morphy Richards Ltd
v Registrar of Trademarks79 as follows: ―An enactment on trademarks is essentially
an international statute, catering to national and international sensibilities… We are
living in an information age where the world has become a veritable global
village.‖ Globalisation thrives on the honesty of business practices. The judgments
delivered by the Pakistani courts on IP rights (particularly in relation to the
adoption and use of marks, the marketing of novel products and the use of
copyrighted matter) show that the consideration of honest intentions has been
pivotal to such judgments. Thus, in Cooper‟s Incorporated v Pakistan General
Stores 80 the Supreme Court of Pakistan held that: ―although the appellant has not
been selling its products in Pakistan because of import restrictions, this does not
entitle the respondent to copy the appellant‘s trademark because by doing so it is
deceiving the public into thinking that its products are the products of the
appellant.‖ In the same case the Supreme Court also approved the following
findings by the High Court: ―Clearly, if the adoption of a trademark by an appellant
is proved to be dishonest, no amount of use of the trademark by it can justify
registration.‖ In Kabushiki Kaisha Toshiba v Ch Muhammad Altaf81 the Supreme
Court, while refusing a Pakistani applicant‘s registration of the trademark
TOSHIBA, held that: ―The respondent has shown no reason tenable at law to pick
up an invented word of a foreign firm enjoying both inside and outside the country
76
Pakistan Globalization and protection of foreign trademarks- Building and enforcing intellectual
property value 2007 p 285-287.
77
(PLD 1979 Kar83)
78
(PLD 1990 SC 1074)
79
(1992 MLD 2506)
80
(1981 SCMR 1039)
81
(PLD 1991 Supreme Court 27)
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a reputation for electrical goods of various descriptions. It is registered in this
country as such. Against this background, the adoption of the same trademark
phonetically in respect of electric fans is bound to create a likelihood of confusion
and deception to the consumers of such goods. Hence, it is against the public
interest to register such a trademark.‖ In another landmark judgment of the Sindh
High Court in National Detergents Ltd v Nirma Chemicals Works82, in which the
foreign company‘s trademark NIRMA was not being used in Pakistan, it was held
that: ―The appellants have not alleged that the first respondents had abandoned any
intention to use their foreign trademark in Pakistan for the goods and such
inference cannot also be drawn in this case as the respondents have themselves
filed an application for registration of their mark and have expressed their intention
to use it in Pakistan. The use of the word ‗Nirma‘ is clearly not bona fide. No
appreciable reason has been shown by the appellants or their counsel except with
the intention to cause confusion. The conduct of the appellants in appropriating the
trademark of foreign owners is not proper.‖ In Mars Incorporated v Pakistan
Mineral Water Bottling Plant (Private) Limited83the defendants launched their
beverages under the trademark MARS, which is famous worldwide for
confectionery. The Sindh High Court at Karachi granted an interim injunction in
favor of Mars even though the plaintiff‘s goods (confectionery products) were
different from the defendant‘s goods, and recognized MARS as a well known
international mark.
4. PROTECTION OF WELL-KNOWN MARKS IN UZBEKISTAN
Since 1991, when Uzbekistan had to jump from socialist to market economy,
there has been a great amount of work done in the field of legislative reforms in all
of the branches of law, including intellectual property. As a member of the Paris
Union and WIPO, and a country willing to become a member of World Trade
Organization (WTO), Uzbekistan nowadays needs to build a mechanism for
efficient protection of intellectual property, including the protection of well-known
marks.
The national legislation concerning protection of well-known marks in
Uzbekistan at the moment consists only of three documents. They are:
1. Law of the Republic of Uzbekistan ―On Trademarks, Service Marks and
Appellations of Origin‖, 2001 (hereinafter ―The Law‖);
2. Rules of filing and examination of appeals and applications in the Board of
Appeal of the State Patent Office of the Republic of Uzbekistan, reg.# 1889
of 24.01.2009 (hereinafter ―The Rules‖);
3. Recommendations on the conduction of surveys among consumers on the
issue of recognition of a trademark to be well-known in Uzbekistan
(hereinafter ―The Recommendations‖).
82
83
(1992 MLD 2357)
(2001 MLD 39)
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The Law
The current edition of the Law of the Republic of Uzbekistan ―On
Trademarks, Service Marks and Appellations of Origin‖ was adopted in 2001 and
was amended twice since that time: in 2002 and 2007. The last time it was
amended there were added two articles, the significance of which for the purpose of
this chapter is enormous. Those two articles, namely 321 (―A Well-Known Trade
Mark‖) and 322 (―Legal Protection of a Well-Known Trade Mark‖), in strive of
implementing of the Art. 6bis of the Paris Convention, directly deal with the issues
of recognition of well-known marks in Uzbekistan.
Article 321 of the Law stipulates the following:
―A trademark84 protected in the territory of the Republic of Uzbekistan on the
basis of its registration, a trademark, protected in the territory of the
Republic of Uzbekistan without registration in accordance with the
international treaty of the Republic of Uzbekistan, as well as a sign used as a
trademark, but having no legal protection in the Republic of Uzbekistan, may
be recognized as well-known in the Republic of Uzbekistan on the basis of the
application of a legal or a natural person, if such trademarks or signs have
on the date specified in the application become widely known among relevant
consumers in respect of the goods of that person, as a result of their
[trademarks and signs] intensive use.
Well-known trademark is granted the same legal protection as provided by
this Act for a trademark‖.
As we can see, the article provides us with basic concept of a Well-Known
Mark in Uzbekistan, namely it establishes the following requirements:
1) The mark claimed to be well-known must be one of the following 3
types of marks are eligible for protection:
a) registered trademarks;
unregistered trademarks protected under international treaties85;
b) unregistered signs used as trademarks.
2) The mark is widely known among relevant consumers in respect of the
goods of the claimant.
3)
84
There must be intensive use of the mark86.
Under the Art. 3 of the Law, the term ―trademark‖ also applies to service marks, therefore
protection for a well-known service mark may also be sought under the same conditions. This is of
specific importance in the context of compliance with Art. 16.2 of the TRIPS Agreement
85
at the moment the only treaty under which protection is granted to trademarks without registration
in Uzbekistan is a Protocol Relating to the Madrid Agreement Concerning the International
Registration of Marks (1989) (Madrid Protocol), in force for Uzbekistan since December, 2007
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The procedure of recognition can be started only upon the request
(application) of an interested person, and not ex officio.
Article 322 of the Law deals with the bases of procedure for granting
protection to well-known marks: designation of a ―Competent Authority‖87,
inclusion of recognized well-known mark into the special List, publication and
issuance of a certificate. According to this article, legal protection of a well-known
trademark once granted is valid indefinitely.
As to the issue of protection from dilution the following must be stated.
According to the Art. 10 of the, Law existence of a well-known trademark is an
absolute ground for refusal of registration of another identical of confusingly
similar trademark in respect of any types of goods [or services]. This looks like an
attempt to comply with the requirements of the Art. 16.3 of the TRIPS Agreement,
although rather awkward and vague, because it does not say that the well-known
mark must be registered first, as well as that the requirements i) of a threat of
―connection‖ or association with the well-known mark owner, and ii) possible
damage to the interests of the latter, must be met. Therefore, this provision may,
and certainly will88, give birth to a lot of complications in practice.
The Rules
The document is compulsory to be followed by all legal and physical persons
in Uzbekistan. The part relating to the procedure of recognition of a mark as wellknown in Uzbekistan mainly deals with the following issues:
1) requirements to application on recognition of a well-known mark, and
materials complementary to it;
2) procedural issues: registration of applications, duration of proceedings,
rules of proceedings, and issuance of a decision by the BoA.
The core part of the Rules (for the purpose of this paper) is the requirements
to application on recognition of a well-known mark, as it describes what type of
information and supporting documents to be presented to the BoA for
consideration. Article 7 of the Rules reads:
86
as we can see form the analysis of WIPO Joint Recommendations in Chapter 1.3 above, the
criterion of intensive use of the trademark is contradicting to the Art.2(3) of the Joint
Recommendation.
87
According to the Law, the Board of Appeal of the State Patent Office of Uzbekistan (hereinafter
―BoA‖) is the only competent governmental body to decide on the issue if recognition of wellknown marks. Courts have absolutely no authority over this issue.
88
up to the moment there has been issued not a single decision on the recognition of well-known
marks in Uzbekistan
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―Application […], and the accompanying materials must contain the actual
data confirming that the trademark is well-known. These materials may be
documents containing:
information about intensive use of the trademark on the territory of the
Republic of Uzbekistan;
list of geographic locations where the goods (in respect of which the
trademark is used) have been sold;
information about the amount of sales of these goods;
information about the way of use of the trademark, including advertising and
presentation at fairs or exhibitions of products and/or services for which the
mark is applied;
information about annual average number of consumers of the goods;
information about the countries in which the trademark has become wellknown;
the surveys of consumers of goods, provided by specialized independent
organization, in accordance with the recommendations set out by the Patent
Office.
The duration, continuity, intensity and volume of use of a trademark may be
demonstrated by presenting of: conclusions of product quality control bodies,
trade organizations, and societies for the protection of consumer rights;
declarations, quality certificates, and other documents.
The application must indicate the date from which the use of the trademark
has begun, and the date from which the claimant considers his trademark as
well-known in the territory of the Republic of Uzbekistan‖.
This is an obvious attempt to implement WIPO Joint Recommendation
Concerning Provisions on the Protection of Well-Known Marks89, but with its
specific features. Although optional (as well as the Joint Recommendation itself),
the list above focuses more on the criterion of intensive use of the trademark in
Uzbekistan, as implying that use is a decisive factor (and it actually is according to
the Article 321 of the Law) in recognition of a well-known mark, which is
inconsistent with the Art.2(3) of the Joint Recommendation. In fact the Rules (as
well as the Law) do not contain any ―non-criteria‖, i.e. criteria which cannot be
demanded by the BoA to be met by the claimant, which leaves a room for abuse by
the BoA of its powers to grant protection to a well-known mark.
The Recommendations
The Recommendations are not obligatory provisions to be taken into account
when conducting a survey on whether the mark is well-known or not in
Uzbekistan. According to the Rules mentioned above, surveys or polls are not
compulsory to be presented to the Board of Appeal for the latter to decide on the
issue of recognition of a mark to be well-known in Uzbekistan. But it is encouraged
to present them anyway (although they can turn out to be very costly) because they
89
See Chapter 1 above
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give a clear picture of the issue, i.e. the actual numbers and figures on how wellknown a mark is in a certain relevant sector of the public, or in other words, by an
―average consumer‖ of goods and/or services in Uzbekistan.
Mainly the Recommendations contain guidelines for conducting a survey
specifically designed to help specialized organizations present information
necessary to identify if a trademark has or has not become well-know in
Uzbekistan.
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5. A COMPARATIVE ANALYSIS
No.
1
2
Name of legal element of well-known
marks protection regime
Legal system
International obligations
3
Who can claim protection and how
it can be claimed?
4
Grounds (criteria) for protection
5
Competent authorities
6
Exception from the principle of
territoriality
Italy
Civil law
TRIPS, Paris Convention
An interested legal or a
natural person can file an
application with the
Competent Authority, not ex
officio
The Italian Industrial
Property Code affords to
both marks that are wellknown within the meaning
of Article 6bis of the Paris
Convention and registered
marks that enjoy a
reputation the power to
cancel the registration of
identical or similar marks
for dissimilar goods or
services, while it affords
only the latter protection
against the unauthorized use
of identical or similar marks
with respect to dissimilar
goods or services.
Tribunal IP Specialized
Sections
Present
Pakistan
Common law
TRIPS, Paris
Convention
Owner of a well known
TM can file an
application with the
competent authority.
Any ground competent
authority consider
relevant especially
mentioned in Sec. 86(2)
of the TM Ordinance,
2001.
Trademark Tribunal,
Court of law
Present
Uzbekistan
Notes
Civil law
Paris Convention
An interested legal or a
natural person can file an
application with the
competent authority, not
ex officio
1. The mark is widely
known among relevant
consumers in respect of
the goods of the claimant
2. There must be intensive
use of the mark
Board of Appeal of the
State Patent Office of
Uzbekistan
Present
Uzbekistan: the criterion of
intensive use of the trademark is
contradicting to the Art.2(3) of
the WIPO Joint Recommendation
Uzbekistan: protection may be
granted to unregistered signs used
as trademarks and service marks
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Uzbekistan: too broad –
existence of a WKTM is an
absolute ground for cancellation
of any identical or confusingly
similar existing mark or refusal to
future identical or confusingly
similar mark for any types of
goods or services
7
Exception from the principle of
specificity
Present
Present
Present
8
9
Protection from dilution by blurring
Protection from dilution by
tarnishment
Scope of protection if mark is
registered
Yes
Yes
Yes
Yes
See notes to point 7 above
See notes to point 7 above
Registration does not
influence the scope of
protection
Registration does not
influence the scope of
protection
Uzbekistan: See notes to point 5
11
Scope of protection if mark is
unregistered
Bad faith consideration
Registration does not
influence the scope of
protection
Not present
Uzbekistan: See notes to point 5
12
Registration does not
influence the scope of
protection
Article 19(2) prohibits the
registration of a mark filed
in bad faith.
For protection of wellknown mark
registration is not
mandatory
Protection is provided
for unregistered well
known marks
Usually considered
especially for passing
off actions
13
Retroactive protection of wellknown mark or possibility of
coexistence of two similar or
identical marks (for similar or
identical products in case of
unregistered WKTMs)
Yes, Depending upon
the merits of a case.
See notes to point 7 above
10
See point 4 above
Uzbekistan: This must be
definitely included into
legislation of Uzbekistan along
with the basics of doctrine of
passing off from common Law
tradition
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CONCLUSIONS
Trademarks/service marks are used by persons or companies to identify their
goods/services. Marks exist to protect consumers from confusion as to the source
of a product/service. Principle of territoriality and specificity are very important
part of any trademark law. However, an exception to these principles is the well
known marks doctrine. Statutory evolution and recent cases show that the
protection afforded to ―Well Known‖ trademarks is increasing. Even in the absence
of any likelihood of confusion as to the origin of products, the protection of a
trademark aimed at providing its owner with a return for promotional and
advertising investment is clear.
In this paper we have reviewed the concepts of the well known and famous
marks. We have examined Trademark Laws of Italy, Pakistan and Uzbekistan for
approaches to well known trademarks and have found that, in general, well known
and famous trademarks are well protected by trademark law in Italy, Pakistan and
Uzbekistan even though the means of achieving protection is sometimes is unclear
in its path or uncertain in its objectives.
258
A Comparative Study of Well-Known Trademarks Protection in Italy,
Pakistan and Uzbekistan
________________________________________________________________________________
BIBLIOGRAPHY
International Disciplines and Relevant Literature
FREDERICK M. ABBOTT – THOMAS COTTIER – FRANCIS GURRY,
International intellectual property in an integrated world economy, Aspen
Publishers, 2007
BARTON BEEBE, A Defense of the New Federal Trademark Antidilution
Law, in 16 Fordham Intell. Prop. Media & Ent. L.J. 2006, 1142 ff.
W. CORNISH- D. LLWELYN, Intellectual Property: Patents, Copyrights,
Trademarks and Allied Rights, Sweet & Maxwell, London, 2007
TASHIA A. BUNCH, Well-known Marks Doctrine: Where do we go from
here?, Journal of the Patent Trademark Office Society, March 2008, Thomson
Reuters, 2009
S. P. CHEETHAM, Protection of Intellectual Property Rights in luxury
goods, M.A. Cohen-A.E. Ban-S.J. Mitchell (eds.), Chinese Intellectual Property
law and practice, Kluwer Law International, The Hague, 2000.
J. THOMAS MCCARTHY, Dilution of a trade mark: European and United
States law compared, in Vaver D., Bently L. (edited by), Intellectual property in
the new millennium, Essays in honour of William R. Cornish, Cambridge
University Press, Cambridge, 2004,
F. MOSTERT, The protection of famous trademark on non competing goods,
in Vol. I Intellectual Property Studies, 1996.
B. W. PATTISHALL–D. C. HILLIARD–J. N. WELCH II, Trademarks and
competition desk book, Matthew Bender, New York, 2001.
The protection of well known marks in Asia-pacific, Latin America and
Africa, issued by the International Trademark Assoication, Oct. 2004.
MCCARTHY, On Trademarks and Unfair Competition, West Group, 2002.
T.J. MCCARTHY & F. MOSTER, Famous and Well-Known Marks - An
International Analysis, 2nd Edition, International Trademark Association, New
York, 2004.
A.KUR, TRIPS and TRADEMARK LAW, in ―From GATTS to TRIPS‖,
WEINHEIM, 1996.
Saad Nursrullah, Luigi Mastroianni and Djakhagir Aripov
259
________________________________________________________________________________
M. GRINBERG, The WIPO Joint Recommendation Protecting Well Known
Marks and the Forgotten Good Will, Chicago- KENT Intellectual Property Law
Society Journal of Intellectual Property, 2005.
MICHAEL BLAKENEY, The Protection of Well-Known Trademarks, Lecture
prepared for WIPO National Seminar On Intellectual Property organized by the
World Intellectual Property Organization (WIPO) in cooperation with the Cairo
University, Arab Republic of Egypt (Cairo, February 17 to 19, 2003)
STEPHEN P. LADAS, International Protection of Well-Known TradeMarks, The Trade-Mark Reporter, 1951
FREDERICK W. MOSTERT, Well-Known and Famous Marks: Is harmony
possible in the global village?, The Trademark Reporter, 1996
HORACIO RANGEL-ORTIZ, Well-Known Trademarks Under International
Treaties, Trademark World, February 1997
DAVID H. TATHAM, WIPO Resolution on Well-known Marks: A Small
Step or a Giant Leap?, Sweet & Maxwell Ltd and Contributors, 2000
Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS),
signed in Marrakesh, Morocco, on 15 Apr 1994.
Joint Recommendations Concerning Provisions on the Protection of WellKnown Marks, adopted in 1999 by the World Intellectual Property Organization.
Paris Convention for the Protection of Industrial Property, as amended in
1979.
National (or Domestic) Disciplines of Italy, Uzbekistan and Pakistan and
Relevant Literature
ADRIANO VANZETTI – VINCENZO DI CATALDO, Manuale di diritto
industriale, 6^ edizione, Giuffré Editore, 2009
JASMINE KARIMI, Avoiding Dilution of Well-known Marks in the US, EU
and Asia, http://www.asialaw.com/Article/1971062/Avoiding-Dilution-ofWellknown-Marks-in-the-US-EU-and-Asia.html, April 2007
C. HEATH & K. LIU, The protection of well-known marks in Asia, Kluwer,
The Hague, 2000
K. FAULKNER, Branding in South East Asia, in Brands and Branding, The
Economist Series, Bloomberg press, Princeton, New Jersey, 2004.
260
A Comparative Study of Well-Known Trademarks Protection in Italy,
Pakistan and Uzbekistan
________________________________________________________________________________
S. YOOK, Trademark Dilution in European Union, North Western School of
Law, LEWIS & CLARK COLLEGE, 2001.
Commentaries
PIERGAETANO MARCHETTI – LUIGI CARLO UBERTAZZI,
Commentario breve alle leggi su proprietà intellettuale e concorrenza, 4 edizione,
Cedam, 2007
Cases (Chronological Order)
Corte di Giustizia 6 ottobre 2009, causa C-301/07, Pago International GmbH
c. Tirolmilch Genossenschaft mbH, caso «Pago»
Opinion of the Advocate General Poiares Maduro of 22 September 2009, in
Cases C-236-238/08, Google France e Google Inc. c. Lousi Vuitton Mallettier,
Google France c. Viaticum Luteciel e Google France Bruno Raboin, Tiger SARL c.
CNRHH, Pierre Alexis Thonet, case ―Google-Ad-Words‖
Trib. primo grado CE 15 settembre 2009, causa T-308/08, Parfums Christian
Dior c. UAMI e Consolidated Artists BV, caso «MANGO adorably»
Corte di Giustizia 18 giugno 2009, causa C-487/07, L‘Oréal SA, Lancôme
parfums et beauté & Cie, Laboratoires Garnier & Ci. c. Bellure NV, Malaika
Investments Ltd. e Starion International Ltd., caso «L‘Oréal»
Conclusioni dell‘Avvocato generale Paolo Mengozzi del 10 febbraio 2009,
causa C-487/07, L‘Oréal SA, Lancôme parfums et beauté & Cie, Laboratoires
Garnier & Ci. c. Bellure NV, Malaika Investments Ltd. e Starion International Ltd.,
caso «L‘Oréal»
Corte di Giustizia 18 dicembre 2008, causa C-16/06 P, Les Editions Albert
René c. UAMI, caso «Mobilix»
Corte di Giustizia 11 dicembre 2008, causa C-57/08 P., Gateway, Inc. c.
UAMI e Fujitsu Siemens Computers, caso «Activy Media Gateway»
Corte di Giustizia 27 novembre 2008, causa C-252/07, Intel Corporation c.
CPM UK Ltd., caso «Intel»
Conclusioni dell‘Avvocato generale Sharpston del 26 giugno 2008, causa
252/07, Intel c. CPM UK Ltd., caso «Intel»
Trib. primo grado CE 19 giugno 2008, causa T-93/06, Mühlens GmbH & Ko.
KG c. UAMI e Spa Monopole, compagnie fermière de Spa SA/NV, caso «Mineral
spa»
Saad Nursrullah, Luigi Mastroianni and Djakhagir Aripov
261
________________________________________________________________________________
Corte di Giustizia 12 giugno 2008, causa C-533/06, O2 Holding Ltd., 02
(UK) Ltd. c. Hutchinson 3G UK Ltd., in Racc. 2008, I, 4231 ss., caso «O2»
Trib. primo grado CE 16 aprile 2008, causa T-181/05, Citigroup Inc. e
Citibank NA c. UAMI e Citi SL, in Racc. 2008, II, 669, caso «Citi/Citibank»
Conclusioni dell‘Avvocato generale Paolo Mengozzi del 31 gennaio 2008,
causa C-533/06, O2 Holding Ltd., 02 (UK) Ltd. c. Hutchinson 3G UK Ltd., caso
«O2»
Trib. primo grado CE 30 gennaio 2008, causa T-128/06, Japan Tobacco, Inc.
c. UAMI e Torrefação Camelo Lda, caso «Camelo»
Conclusioni dell‘Avvocato Generale Trstenjak del 29 novembre 2007, causa
C-16/06 P, Les Editions Albert René c. UAMI, caso «Mobilix»
Trib. primo grado CE 27 novembre 2007, causa T-434/05, Gateway Inc. c.
UAMI e Fujitsu Siemens Computers GmbH, caso «Activy Media Gateway»
Corte di Giustizia 22 novembre 2007, causa C-328/06, Alfredo Nieto Nuño c.
Leonci Monlleó Franquet, caso «Fincas Tarragona»
Conclusioni dell‘Avvocato generale Paolo Mengozzi del 13 settembre 2007,
causa C-328/06, Alfredo Nieto Nuño c. Leonci Monlleò Franquet, caso «Fincas
Tarragona»
Trib. primo grado CE 11 luglio 2007, causa T-150/04, Mühlens GmbH & Co.
KG c. UAMI e Minoronzoni s.r.l., in Racc. 2007, II, 2353 ss., caso «Tosca Blu»
Trib. primo grado CE 11 luglio 2007, causa T-263/03, Mühlens GmbH & Co.
KG c. UAMI e Conceria Toska s.r.l., caso «Toska»
Trib. primo grado CE 16 maggio 2007, causa T-137/05, Gruppo La Perla c.
UAMI e Worldgem Brands – Gestão e Investimentos Lda, caso «La Perla»
Court of First Instance 10 May 2007, in case T-47/06, Antartica s.r.l. c.
UAMI e Nasdaq, case «Nasdaq»
CFI 22 March 2007, in Case T-215/03, Sigla SA v. OHIM and Elleni
Holding BV, case «VIPS»
CFI 6 February 2007, case T-477/04, Aktieselkabet af 21.november 2001 v.
OHIM and TDK Kabuiki Kaisha (TDK Corp.), case «TDK»
Corte di Giustizia 25 gennaio 2007, causa C-48/05, Adam Opel c. Autec, in
Racc. 2007, I, 1017 ss.; in Foro It. 2007, 137 ss. con nota di CASABURI e in Il dir.
ind. 2007, 423 ss. con nota di M. BOGNI, Il marchio automobilistico dei modellini,
262
A Comparative Study of Well-Known Trademarks Protection in Italy,
Pakistan and Uzbekistan
________________________________________________________________________________
caso «modellini in miniatura»
Trib. primo grado CE 27 ottobre 2005, causa T-336/03, Les Editions Albert
René c. UAMI e nei confronti di Orange A/S, in Racc. 2005, II, 4667 ss., caso
«Mobilix»
Trib. primo grado CE 25 maggio 2005, causa T-67/04, Spa Monopole,
compagnie fermière de SPA SA/NV c. UAMI e Spa-Finders Travel Arrangements,
in Racc. 2005, II, 1825 ss., caso «Spa-Finders»
Trib. di primo grado 13 dicembre 2004, in causa T-8/03, El Corte Inglés SA
c. UAMI e Emilio Pucci, in Racc. 2004, II, 4297 ss., caso ―Emilio Pucci‖
Corte di Giustizia 23 ottobre 2003, causa C-408/01, Adidas-Salomon AG e
Adidas Benelux BV c. Fitnessworld Trading Ltd., in Racc. I, 389 ss., Giur. ann.
dir. ind. 4608; in Il dir. ind., 2004, 31 ss. con Commento di R. S. DE MARCO e in
Giur. comm. 2004, II, 363 ss. con nota di N. BOTTERO, Marchi notori, beni affini e
usi atipici nella giurisprudenza comunitaria, caso «Adidas-Fitnessworld»
Corte di Giustizia 9 gennaio 2003, causa C-292/00, Davidoff & Cie SA e
Zino Davidoff SA c. Gofkid SA, in Racc. 2003 I, 389 ss., in Giur. it. 2003, 283 s.
con mia nota La tutela dei marchi che godono di rinomanza nei confronti della
registrazione ed utilizzazione per beni affini nella giurisprudenza della Corte di
Giustizia e in Giur. comm. 2003, II, 574-584 con mia nota Marchi che godono di
rinomanza e beni affini nella giurisprudenza comunitaria,, caso «Davidoff»
Corte di Giustizia 14 settembre 1999, causa C-375/97, General Motors Corp.
c. Yplon, in Racc. 1999, I, 5421 ss., caso «General Motors/Yplon»
Boards of Appeal, Yearly overview of decisions 2007,
http://oami.europa.eu/search/LegalDocs/la/en_BoA_index.cfm
National Laws and Regulations
Pakistan Trademark Ordinance, 2001.
Pakistan Trademark Rules, 2003.
Law of the Republic of Uzbekistan on Trademarks & Appellations of Origin
of Goods, 2001
Rules of filing and examination of appeals and applications in the Board of
Appeal of the State Patent Office of the Republic of Uzbekistan, reg.# 1889 of
24.01.2009.
COLOR AND COMBINATION OF COLORS AS TRADEMARK
by
Chiara Gaido
Giselda Metaliaj
TABLE OF CONTENTS
1. INTRODUCTION
1.1. Non-Traditional Trademarks
1.2. Where is the Distinctiveness?
2. REGISTRABILITY OF COLORS AND COMBINATION OF COLORS AS
TRADEMARK
2.1. The European Situation
2.2. The Registrability of Color per se
2.3. Is there a Different Approach for what concerns the Combination of Colors?
3. THE CASES
3.1. The Libertel Case
3.2. The Heidelberger Case and the Subsequent Decisions
4. THE US SITUATION
5. A CASE STUDY: THE PHARMACEUTICAL INDUSTRY
6. IS THERE ANY FUTURE FOR THESE TRADEMARKS?
BIBLIOGRAPHY
264
Color and Combination of Colors as Trademarks
________________________________________________________________________________
1. INTRODUCTION
The scope and functions of the modern trademark have expanded, as
civilization continues to evolve into a modern technological era. For many years, it
has been impossible to protect colors as trademarks and also even if still there is a
large amount of uncertainty1 about the protection of colors as a trademark, it‘s now
undeniable that, in the most recent jurisprudence of European Court of Justice
(ECJ), something new is now appearing on the scene bringing the European
statements closer to the US approach.
In this paper we will deal with colors per se and with combinations of colors
as one of the most important category of non-conventional trademarks. In the light
of the leading cases from US Supreme Court and from ECJ, considering the
evolved applicable law in these countries, we will try to draw a picture of the
present situation and to consider what are the possible future scenarios for this
category of marks. While the combination of colors is quite more unified area, the
destiny of colors per se is related to the national legislations, where different
countries have chosen to specifically permit or exclude the registrability of color
per se as trademark.
We have chosen to inscribe a case study focused on the pharmaceutical
industry, as it is a very interesting field where colors trademark are getting used
more and more by companies to identify their products. The aim of this paragraph
is to analyze the existing relationship between consumers and pharmaceutical
trademarks, especially from the point of view of their perception of the signs and
the relevant public that has to be taken into account in the case of likelihood of
confusion.
1.1. Non-Traditional Trademarks
Among the world of trademarks the so called non-conventional or nontraditional trademarks have recently created a new group that is getting more and
more attention from the market, lawyers, and by consequence, from the Courts2.
Due to the lack of clearness, exhaustive explanations and strictness of the
Legislator in the approach to the non-traditional trademarks, then the last word
belongs to the Courts.
Before analyzing the different features and issues of non-traditional
trademarks, it is compulsory to explain what can constitute a trademark in the light
of the main international treaties.
1
P. A. Dubois, Color trademark-the US and European approaches converge, IAM magazine, 2005,
at 30
2
P. Torremans, Intellectual Property Law, Fifth edition, Oxford University Press, 2008 ; M.
Schwarz, Registration of colours as trademarks, case comment, EIPR; L. Bently, B Sherman,
Intellectual Property Law, Third Edition Oxford University Press, November 2008
265
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Chiara Gaido and Giselda Metaliaji
Article 6ter of the Paris Convention for the Protection of Industrial Property,
signed on the 20th march 1883 (and following amendments) has only defined what
can not be used as a mark, not giving any further explanation on which signs can be
validly used. In particular, this article expressly excludes from the registration
―...State Emblems, Official Hallmarks, and Emblems of Intergovernmental
Organizations”3. Can the famous statement ―what is not prohibited is allowed‖
take place in this case? TRIPs agreement tried to fill this gap by dealing with the
protectable subject matter for trademarks.
The TRIPS Agreement was adopted at Marrakesh on April 15, 1994 as annex
C of the final act embodying the results of Uruguay Round of Multilateral Trade
Negotiations from 1986 to 1994. The Agreement came into force on January 1995
and introduced global minimum standards for protecting and enforcing all forms of
intellectual property rights. For what concerns trademarks, articles 15-21 lay down
the rules for their protection.
Article 15 (1) gives a broad definition of a trademark as it includes “any sign,
or any combination of signs, capable of distinguishing the goods or services of one
undertaking from those of other undertakings”. The second sentence continues by
listing some of the signs that can be a valid trademark, such as “...in particular
words including personal names, letters, numerals, figurative elements and
combinations of colors as well as combinations of such signs...”.
The words “such as” lead us to the conclusion that this is an indicative list,
not an exhaustive one. Therefore, other signs can be eligible for trademark. Nontraditional trademarks belongs to this group, even if they are not specifically
mentioned by article 15 and they comprise shapes, sounds, colors, smells or tastes.
If the purpose of a trademark is to distinguish the goods or services of one
undertaking and non-traditional trademarks are able to do that, why than their
registration is so perplex and controversial from State to State? A lot of factors play
an important role, like the difficulty of these marks to be presented graphically, to
be visually perceptible4 and the lack of inherent distinctiveness. The most frequent
reason for refusal to register non-traditional trademarks, such as color and shape
marks, is lack of distinctiveness. In order to harmonize this area and to reach some
unified standards AIPPI5 in 2004 has came up with a resolution for the Conditions
3
Paris convention for the Protection of Industrial Property signed on the 20th march 1883
[hereinafter Paris Convention], revised Iin the following years and amended in 1979, it counts today
173 contracting countries.
4
Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh
Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments—Results of
the Uruguay Round, 33 I.L.M. 1125, 1197 (1994) [hereinafter TRIPs Agreement], art. 15(1)
5
AIPPI resolution, Q.181. Conditions for registration and scope of protection of non conventional
trademarks, in www.aippi.org
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________________________________________________________________________________
for registration and scope of protection of non-conventional trademarks6 aiming to
influence the international regulation of this field.
In any case, a mark not having a prima facie distinctive character, can
nonetheless be protected if, following intense use over certain time period by a
company, it assumes, in the eyes of the public, an individualizing capacity it lacked
originally towards the goods and services of that company (the so called secondary
meaning).
In relation to this aspect, article 15 (1) of the TRIPs agreement states that
“...Where signs are not inherently capable of distinguishing the relevant goods or
services, Members may make registrability depend on distinctiveness acquired
through use. Members may require, as a condition of registration, that signs be
visually perceptible”.
In other words, the secondary meaning is acquired when, in the mind of the
public, the primary meaning of sign serves to identify the origin of a product and
not the product itself.
As we will see further, the registration of colors trademarks have been
accepted, in many cases, only on the basis of their proved secondary meaning. In
fact the inherent disctinctiviness of these signs still remains a ground of refusal
difficult to overcome.
1.2. Where is the Distinctiveness?
According to the statistics of 2008 of OAMI7 color is the second mark, after
shape, most registered in EU belonging to the group of non-traditional trademarks.
The color‘s power in the identification of the brand has been understood from
the marketers and effectively used by them because color is first perceived by the
sense of sight8, the first element that attract our attention. Considering the power of
advertisement in this consuming society, companies are willing to be more
attractive and to present their products or services in such a manner that would be
appealing to the consumer‘s aesthetic sense9. Furthermore, color can be the
identifier of the company‘s image10, despite the different types of products it may
offer. Today, in a world market, colors are most likely to overcome the linguistic
and cultural barriers, being perceived in the same way throughout the world. But,
maybe because of these facts there is the need to let colors free and not give
monopolist rights over their use.
6
R. Sieckmann, Welcome to the non-traditional trademark archive, in www.copat.de
OHIM Report, Statistics of Community Trade Marks 2008, in www.oami.europa.eu
8
S. Sandri- S. Rizzo, Non-conventional trademarks and community law , Marques, 2003, at 70
9
N. Mishra, Registration of Non-traditional trademarks, JIPR, January 2008, 43 ff
10
S. Sandri- S. Rizzo, Non-conventional trademarks and community law , supra note 6, at 70
7
267
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Chiara Gaido and Giselda Metaliaji
The color mark is either composed of a color per se or of a combination of
colors. A color combination is a collection of more than a single color on products
and services for the purpose of distinctiveness and of indicating their commercial
or service origin.
One of the first and most important conditions for a mark to be eligible for
registration is the requirement of distinctiveness. A mark has to be distinctive in
order to get registered. When it comes to colors this requirement is probably the
most difficult barrier to overcome.
In fact it is still controversial if a color can be considered inherently
distinctive from the beginning. It seems that ―the distinctiveness‖ requirement in
the case of colors is more rigid and strict comparing with signs or words because of
the competitors‘ interest to keep the colors free to use11. In the Light Green case12,
Board of Appeal of OHIM (BOA) affirmed that a color per se in many cases lacks
the distinctiveness. Exception to this rule may be only found if a very peculiar
color shade is used and it regards very specific goods (for instance, black color use
for detergents). The Board also affirmed that if a monopoly right on the use of light
green for chewing gum were allowed, it would prohibit competitors from using
similar shades for similar products with regard to which confusion could arise,
bringing as consequence, problems on the competition.
Another position has been held by the ECJ in the case KWS Saat AG13. With
this decision, the Court has established that a decisive factor to decide whether the
color is distinctive or not, it is the public itself to whom the goods/services are
targeted. The relevant public of a particular sector is knowledgeable and attentive;
therefore it can distinguish if the color used really acts as badge of the commercial
origin of the product without misunderstanding any substantive value of the
product itself.
On the other hand, we have to consider that, for a lot of colors there is a
conventional meaning as e.g green means natural products, white has a connection
with cleanliness and purity, as well as blue with freshness. These associations are
regularly used in marketing and advertising to promote a product through the use of
positive associations14. In the mind of consumers there is a strong link between
these colors and characteristics of the products. From this point of view, the use of
the color per se can be considered non distinctive and can put at in a disadvantage
position the competitors.
11
C. Schulze, Registering Color trade mark in European Union, in EIPR, 2003 at 55
Board of Appeal of OHIM December 3, 1998, Light Green R-122/2998-3
13
European Court of Justice October 21, 2004, case C-447/02 , KWS Saat AG v. OHIM
14
M. Green, Color in Trademark and Trade Dress disputes, in www.visualexpert.com, 2007
12
268
Color and Combination of Colors as Trademarks
________________________________________________________________________________
2. REGISTRABILITY OF COLORS AND COMBINATION OF COLORS
AS TRADEMARK
A trademark to be validly registered has to consist in a ―sign‖; no statutory
definitions of this term are expressed neither in the European legislation, neither in
the American one, furthermore, the ECJ has held that the concept of sign is not
limited to visually perceptible matter15 and for this reason, sounds, smells and
colors have been held to fall within the notion of sign.
The essential function of a trademark is to guarantee the identity of the origin
of the marked goods or service to the consumer or end-user by enabling him,
without any possibility of confusion, to distinguish the product or service from
others which have another origin. In other words, the primary purpose of a
trademark is to act as a badge of origin.
When a color can be considered as a sign identifying a specific good or
service? In the light of the Qualitex and Libertel decisions, we have to consider that
trademark rights are monopolistic and have no limitation on the duration of their
subsistence; and for this reason once a sign has been accepted for registration, the
rights of the proprietor are very strong, subject to a few minor exceptions and
limitations16.
The main problems concerning the registration of colors as trademarks are
two: the first issue regards the greater monopoly that could be granted to the
proprietor of a single color mark with a reputation. In this case, in fact, the
protection could be extended to different shades of that color and to non similar
goods, bringing by consequence, dangerous effects on competition.
The second problem instead is connected to the balance that has to be found
between the interest of companies, which want to achieve more and more
competitiveness on the market, and the public interest of their competitors, to not
be restricted on the availability of signs to distinguish their products or services
(the so called requirement of availability)17.
2.1. The European Situation
The European Community enacted the First Council Directive on trademark
law of 21 December 1988 (Regulation n. 104/89), which was aimed in
15
European Court of Justice December 12, 2002, case C-273/00, Ralf Sieckmann v. Deutsches
Patent-und Markenant , parag. 43-44
16
D. I. Bainbridge, Smelll, Sound, Colour and Shape trade marks: an unhappy flirtation?, in JBL,
2004, at 223
17
European Court of Justice February 12, 2002, case C-363/99 Koninklijke KPN Nederland NV
and Benelux Merkenbureau, parag. 32 Conclusion; S. Sandri, La giursprudenza comunitaria in
tema di marchi non convenzionali, in Dir. Ind. 2004, at 216
269
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Chiara Gaido and Giselda Metaliaji
approximating the trademark laws of the Member States, in order to promote the
internal market and remove disparities that may impede competition.
In order to open up unrestricted economic activity, in 1993 the European
Council promulgated the Community Trademark Regulation n. 40/94. The
Regulation uniformed the identification of products and services throughout the EU
and settled out the provisions governing the filing of an application for a
community trademark, the conditions associated with the entitlement of the
proprietor and the possibility for third parties to make written observations to
OHIM and to oppose the registration of a trademark18.
In particular, the Regulation established the ―searching‖ system designed to
identify any conflict with other earlier rights.
The Regulation was later amended into the European Council Regulation No.
3288/94 in order to implement the TRIPs agreement.
In 2004, the European Regulation No. 422/04 made a number of significant
amendments to the community trademark system, with a view to increase its
efficiency and to improve its operation. In particular, it simplifies the application of
the ―searching system‖ in relation of existing rights.
Because of many amendments introduced by the European Legislator to the
Community Trademark System, in 2009 the European Council decided to codify it
in the Regulation n. 207/200919, without making any substantive changes.
The Community trademark regime is an autonomous system with its own set
of objective sand rules peculiar to it; it is self-sufficient and applies independently
of any national system. Consequently the registrability of a sign as a Community
mark must be assessed by reference only to relevant Community rules.
Accordingly, the Examination Office and, if appropriate, the Community judicature
are not bound by a decision given in a Member State, or indeed a third country, that
the sign is registrable as a national mark.
According to article 2 of Council Directive n. 104/89 and to article 4 of
Council Regulation No. 40/94 (now article 4 of the Council Regulation No.
207/2009): “A community trade mark may consist of any signs capable of being
represented graphically, particularly words, including personal names, designs,
letters, numerals, the shape of goods or of their packaging provided such signs are
capable of distinguishing the goods or services of one undertaking from those of
other undertakings.”. This article sets out the main features that a sign has to
possess to be validly registered as trademark.
18
19
G. Rusen, ―Registrability of colors and smells as trademark”, in IJPM 2008, at 76
European Council Regulation No. 207/2009 on the Community Trade Mark
270
Color and Combination of Colors as Trademarks
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In particular, the sign must be capable of being graphically represented and it
must be able to distinguish the related goods or services from those of the other
companies18. Failure to comply with these requirements determines the denial of
the registration as they are included in the absolute grounds for refusal provided by
article 7 (1) (a) and (b), of the Council Regulation No. 207/2009.
For what regards the graphical representation, in the case C-273/00 Ralf
Sieckmann v. Deustches Patentund Markenant, the ECJ stated that the requirement
of a graphical representation must ―enable the sign to be represented visually,
particularly by means of images, lines or characters, so it can be properly
identified... It must be clear, precise, self-contained, easily accessible, intelligible,
durable and objective‖20.
It is clear that this requirement is fundamental to grant legal certainty. In fact
the trademark and the nature and scope of the rights associated with it can only be
determined if the representation is precise and complete on its face. A graphical
representation bearing the characteristics and qualities, settled out in the ECJ
decision above mentioned, and the description of the goods or services for which
the trademark is to be used, fully defines the true extent of the monopoly granted to
the proprietor.
In this way, on one side, other companies will be in the position to determine
with a high degree of predictability what they can and cannot do. On the other side
the proprietor of an earlier trademark will be able to see the precise nature of a
trademark application so that he can assess whether or not it impinges upon his
rights such that opposition proceeding should be initiated21.
Instead, for what concerns the requirement of the distinctiveness, the focus is
therefore on how the trademark would be perceived by the relevant public, which
consists of average consumers of the goods or services in question.
The Tribunal of First Instance of the European Court of Justice (TFI) has
established that a sign, to be validly registered, it has to be capable to put the
average consumer in the condition of repeating his choices in purchasing a specific
good or service any time he will meet that particular sign22.
Although the consumer is assumed to be reasonably observant, his level of
attentiveness varies from sector to sector: the general consumer‘s level is lower in
relation to everyday goods and it is higher for expensive goods23. For instance, for
20
European Court of Justice December 12, 2002, case C-273/00, Ralf Sieckmann v. Deutsches
Patent-und Markenant, parag.46 and 55
21
D. I. Bainbridge, Smelll, Sound, Colour and Shape trade marks: an unhappy flirtation?, in JBL,
2004, at 223
22
European Court of First Instance February 7, 2002, case T-88/00, Mag Instrument Inc v. OHIM;
S. Sandri, La Giurisprudenza comunitaria in tema di marchi non convenzionali, supra at note 14, at
218
23
L. Bently-B. Sherman, Intellectual Property Law, 3d ed., Oxford Press, at 819
271
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Chiara Gaido and Giselda Metaliaji
what concerns the pharmaceuticals, the jurisprudence of the ECJ has stated in many
cases (recently in the case T-95/07, Aventis Pharma SA v. OHIM, parag. 25), that
the level of attentiveness of consumers is particularly hight when it comes to
medicines.
2.2. The Registrability of a Color per se
The European trademark legislation does not contain any provisions limiting
or barring the registration of colors or combination of colors as a trademark,
provided they conform to the legal requirements of registration. The most
important benchmark is whether the color performs the basic function of a
trademark, which is to be distinctive of the proprietor‘s goods or services. Also the
OHIM Examination Guidelines 24 explicitly contemplate the possibility of
registering a color mark.
Before analyzing the problems connected to the registrability of colors per se,
it is necessary to focus our attention on the terms of signs and marks.
A. Although the concept of sign is broad, it is not without limits. The terms
of ―sign‖ and ―trademark‖ are not interchangeable, and there is a distinction
between them.
A sign can be a symbol, a device or an indicator (for example, an indication
of quality or character). Trademarks are included within the meaning of signs but
are sub species of them: they are graphical representations indicating origin25 of the
related goods or services.
In the leading case Libertel, the ECJ stated that “…that a color per se cannot
be presumed to constitute a sign. Normally a color is a simple property of things.
Yet it may constitute a sign. That depends on the context in which the color is used.
None the less, a color per se is capable, in relation to a product or service, of
constituting a sign”26 .
B. Furthermore, the Court has held that a graphical representation it is
necessary to enable the sign to be represented visually so that it can be
precisely identified.
In order to fulfill its function, the graphical representation must be “…clear,
precise, self-contained, easily accessible, intelligible, durable and objective.”27
24
OHIM Examination Guidelines, parag. 3.7 in www.oami.europa.eu
D. I. Bainbridge, Intellectual Property, 7th Edition, Pearson Longman, at 639
26
European Court of Justice May 6, 2003, case C-104/01, Libertel Groep BV v. Benelux
Merkenbureau, parag. 28-29
27
European Court of Justice December 12, 2002, case C-273/00, Ralf Sieckmann v. Deutsches
Patent-und Markenant, ut supra note 11 and 16, parag. 55
25
272
Color and Combination of Colors as Trademarks
________________________________________________________________________________
In the Libertel case, the Court also specified that to fulfill this requirement, it
is not sufficient the deposition of a single sample of color while a verbal
description could suffice under certain circumstances.
The main purpose of this requirement is to enable the sign to be represented
visually, granting in this way legal certainty. The importance of the graphical
representation it is clear, in fact: 1) the precise subject of the protection afforded by
registration can be determined; 2) competent authorities will be able to identify the
sign with clarity and precision, so that they can fulfill their obligations (e.g.
examinations, publications, maintaining the register, etc...) and 3) economic
operators will be able, by consulting the register, to find out registrations and
applications made by current or potential competitors and to receive informations
about the rights of third parties.
C. One of the aims of the trademark is to preserve consumers from
confusion. To achieve this, a trademark has to be distinctive, it has to elude
distraction or depletion and it has to make trademarks different from each
others.
When it comes to color marks, to prove their distinctiveness becomes more
complicated and arduous as colors can also refer and belong to public domain. A
mark's distinctiveness must be assessed, firstly, by reference to the related goods
and services and, secondly, by reference to the way in which the mark is perceived
by a targeted public, which is constituted by the consumers of the products.
The mark must enable the public targeted to distinguish the goods or services
from those of other undertakings, and to believe that all the goods or services
identified by it are manufactured or provided under the control of the trademark
owner, who can be held responsible for their quality. Only in this way will a
consumer, who purchases the goods or services identified by the mark, be in a
position on a subsequent purchase to make the same choice, if his experience is a
positive one, or to choose differently if it is not.28
The ECJ in the Libertel case stated that “a color per se is not normally
inherently capable of distinguishing the goods of a particular undertaking”27. The
Court also recognized that there is a strong public interest in favor of keeping
colors free because the number of colors actually available is limited and for this
reason, a small number of trademark registrations could exhaust the entire range of
colors available. It is clear that, in the case of a color per se, “distinctiveness
without any prior use is unconceivable save in exceptional circumstances, and
particularly where the number of goods or services for which the mark is claimed
is very restricted and the relevant market is very specific‖29.
28
European Court of First Instance February 7, 2002, case T-88/00 Mag Instrument Inc. v OHIM,
ut supra note 20, parag. 31
29
European Court of Justice Justice May 6, 2003, case C-104/01, Libertel Groep BV v. Benelux
Merkenbureau, parag. 66
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Chiara Gaido and Giselda Metaliaji
Simple colors are likely to be treated as devoid of distinctive character
because in many cases the color it has been considered part of ―the look of the
goods‖ and consumers were not in the habit of assuming the origin of goods merely
from the color of packaging30.
In order to decide whether or not a sign is perceived as a trademark, it is
compulsory to consider the average consumers‘ perspective of it. The relevant
consumer has been construed as a reasonably well-informed and reasonably
observant and circumspect.
For what regards colors trademark, the consumer‘s perception is different
from the perception related to traditional trademarks29, because it varies remarkably
due to external conditions, to different culture, language, etc.
In any case, if the sign can not be considered inherently distinctive, the
distinctiveness can be acquired through use. If a sign is recognizable for the
consumers and capable of distinguishing the related goods or services from the
others products, this means that it acquired the so called secondary meaning. In
relation to this aspect, article 7(3) of the Council Regulation No. 207/2009 states
that “Paragraph 1 (b), (c) and (d) shall not apply if the trade mark has become
distinctive in relation to the goods or services for which registration is requested in
consequence of the use which has been made of it‖.
On the basis of its established use in trade, OHIM has accepted the
registration of lilac/purple color as a community trademark for Milka chocolate31.
In the case Audi AG32, the CFI held that, to satisfy the requirement of
acquired distinctiveness to overcome the absolute grounds for refusal under art.
7(1) (b)-(d) of the Regulation No. 207/09, the trademark must be seen by a
significant proportion of relevant public as identifying the origin of goods or
services in respect of which the trademark is used and that distinctive character
must be shown to exist in the substantial part of the Community where it was
devoid of any distinctive character. Factors to be taken into account include market
share, intensity, geographical scope, duration of use and the amount of promotion
of the mark33.
30
L. Bently – B. Sherman, Intellectual property law, ut supra note 19 , 823 ff
OHIM registration n. 31336; UKPTO registration n. 2042556A
32
European Court of First Instance December 3, 2003, case T-16/02, Audi AG v. OHIM
33
European Court of Justice 30 June, 2005, case C-286/04P, Eurocermex SA v.OHIM
31
274
Color and Combination of Colors as Trademarks
________________________________________________________________________________
2.3. Is there a Different Approach for what concerns the Combination of
Colors?
In respect of a single color trademark, combinations of colors should present
fewer problems because they can be considered as expression per se of a minimum
effort of creativity.
The requirements needed for the registrability of these kinds of signs as
trademarks are exactly the same than those required for the registration of a color
per se. This means that a combination of colors, to be considered a valid trademark,
it has to fulfill, first of all, the distinctiveness requirement and then the graphical
representation. This principle has been confirmed by the CFI in the case VikingUmwelttechnik GmbH34. With this decision the CFI stated that colors or color
combinations per se are capable of constituting Community trademarks in so far as
they are capable of distinguishing the goods or services of one undertaking from
those of another.
The Court also focused its attention on the fact that the perception of the
relevant section of the public is not necessarily the same in the case of a sign
composed of a color or color combination per se as it is in the case of a word or
figurative mark composed of a sign that bears no relation to the appearance of the
goods that it identifies. While the public is accustomed to perceive words or
figurative marks as instantly identifying the commercial origin of the goods, the
same is not necessarily true where the sign forms part of the look of the goods in
respect of which registration is sought.
In the Viking case, the application was denied because of the imprecise and
abstract graphical representation and because the combination of colors was not
arranged in a particular format. In this case, the Court considered the juxtaposition
of the colors just as characteristics of the goods themselves.
Displaying colors on the products in a non-ordered way means that there will
be a variety of possible different formats, which will not enable consumers to
remember a particular colors combination and they could not repeat the purchase
directly and with certainty.
In conclusion, for what concerns the registrability of these non-traditional
trademarks, we should underline that, it is not relevant the distinction between a
color per se and a colors combination. The only important factor to be considered
is weather the color in question, because of the arbitrariness of the choice or, for
example for the constant use in time of it, can concretely function with a distinctive
capacity for the products it characterizes.
34
European Court of First Instance 25 September, 2002, case T-316/00, Viking-Umwelttechnik
GmbH v. OHIM, parag. 23-27
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Chiara Gaido and Giselda Metaliaji
3. THE CASES
3.1. The Libertel Case
Qualitex case has influenced the European approach. Although sympathy has
been emanating towards the registration of color trademarks, the preponderance of
cases rejected the distinctive character of color per se, and it has been accepted
only if the color has gained the secondary meaning.
OHIM remarked that, to be registered as a community trademark on the basis
of the acquired distinctiveness, at first the trademark has to be used in the
community as a whole or, at least, in a substantial part of it and, secondly,
substantial part of the consumers have to recognize the sign as a distinctive
trademark at the time the application is submitted.
Before the leading case Libertel, BOA has dealt with various cases of color
marks. The first case the Board dealt with, Orange I35, was concerned with formal
requirements for the registration of a color mark rather than the issue of
registrability as such.
The applicant, in this case, had neither submitted a reproduction of the
specific color shade claimed, nor referred to a widely known color reference
system. The application was denied and also its subsequent appeal was dismissed
because of lack of a clear graphical representation of the mark.
The Libertel case 36 is the leading case for what concerns the registrability of
a color per se in the European Union. In this case an application was made to
register the single color orange in the telecommunications‘ field and the
representation was submitted in the form of a rectangle of color with no other
indication such as references to a color coding system.
In this case, the ECJ stated that “a color per se may be found to possess
distinctive character within the meaning of Article 3(1) (b) and Article 3 (3) of
Directive 89/104, provided that, as regards the perception of the relevant public,
the mark is capable of identifying the product or service for which registration is
sought as originating from a particular undertaking and distinguishing the product
or service from those of others undertakings”. This means that a color must have
acquired distinctive character before it can be registered.
The Court also confirmed that the condition required for the acceptance of
the application for registration of a color mark is that this application must include
35
Board of Appeal of OHIM February 12, 1998, case R-7/1997-3, Orange, in.
www.oami.europa.eu
36
European Court of Justice May 6, 2003, case C-104/01, Libertel Groep BV v. Benelux
Merkenbureau, supra note 22 and 25
276
Color and Combination of Colors as Trademarks
________________________________________________________________________________
a written, clear, precise, self contained, easily accessible, intelligible and objective
description.
Merely reproducing the color in question on paper does not satisfy these
requirements, whereas using an internationally recognized color code does. The
deposition of a single sample of color it is not sufficient to grant the required
protection. The Court also recognized the existence of an international color
identification code (e.g. the Pantome Code), which is a commercial system that
designates specific shades numerically and categorizes over thousands of shades by
unique code37. This putted to an end the arguments that colors or combination of
colors cannot be graphically represented.
3.2. The Heidelberger Case and the Following Decisions
Libertel has been further confirmed by the Heidelberger case38 where the
ECJ established, once again, its reticence regarding the registration of signs
consisting of combination of colors.
In this case the issue was focused on the requirement of the graphical
representation, in particular the Court was asked to consider if a sample made of
two stripes (one blue, the other one, yellow) could fulfill the requirement of a
precise graphical representation. The trademark applied for were the applicant‘s
corporate colors which were used in every conceivable form, in particular on
packaging and labels.
The ECJ ruled the abstract registrability of colors or combination of colors.
Furthermore the Court stated that the protection could be granted only if: 1) the
color or combination of colors used do not appear as characteristics of the marked
goods or services; 2) the color can be represented graphically with lines, images,
etc…and through an internationally recognized color coding system such as the
Pantome Code to identify with certainty the scope of the protection sought and 3)
the color have to be able to act as badge of origin of the marked goods or services.
In conclusion, under current ECJ case law, color per se registrations, which
might have been granted without a showing of acquired distinctiveness, are
strongly suspect and most likely invalid.
The KWS case39: this case regards the registration sought by KWS Saat AG
as a community trademark of the single color orange for seeds treatment
installations and for other agricultural products. KWS Saat submitted that the
37
INTA, Non-Traditional Trademarks in Europe-Shape Colour Trademarks-Commons Isuses with
obtaining, Exploiting and Enforcinfg Rights ,2005
38
European Court of Justice June 24, 2004, case C-49/02 Heidelberger Bauchemie GmbH v.
OHIM
39
European Court of Justice October 21, 2004, case C-447/02 , KWS Saat AG v. OHIM, supra note
11
277
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Chiara Gaido and Giselda Metaliaji
distinctive character of trademarks consisting of one color must be assessed
according to the same standards as the distinctive character of other marks,
particularly word and figurative marks. The company argued that the CFI had
applied more stringent criteria for color marks than for other types of marks.
This case confirms a long line of ECJ decisions that have established that
colors will be registrable as trademarks only once distinctiveness through use has
been proved. It endorses the possibility of registering colors as trademarks but
restrains that protection with a high distinctiveness requirement. Such decision
sends out a clear message: companies can acquire the trademark protection only if,
over time through public familiarity generated by extensive promotions and
advertising, they can give evidence to the fact that their used color on the product
can be immediately associated to their brand.
4. THE US SITUATION
In the United States the trademark field is covered by the Lanham Act,
passed in 1946 but it was updated several times, the last of it was in 2005.
According to this act the definition40 of what is a trademark is quite broad, stating
that ―The term trademark includes any word, name, symbol, or device, or any
combination thereof--to identify and distinguish his or her goods, including a
unique product, from those manufactured or sold by others and to indicate the
source of the goods, even if that source is unknown”. The standard used to define
the trademark is in persistence with the article of TRIPS and it is not too different
with the EU directive on trademark. Colors or combination of colors are not
mention specifically in this Act. What can be considered different from the EU
approach is the fact that the ―graphical presentation‖ is not a prerequisite for the
registration as a trademark. The final word in the US system belongs to the Court,
especially to the Supreme Court. The American jurisprudence on trademark when it
comes to the ―color issue‖ has without doubt created the basic for the acceptance of
the registration of colors as trademarks. The issue of protecting color as a
trademark was raised in the U.S.A. over twenty years ago when the U.S. judiciary,
in the Owens-Corning Fiberglass corp., 774 Fed. 1116, 1120 (Fed. cir. 1985),
granted protection to the purple color used by Owens-Corning to distinguish its
products.
This decision, however, did not put an end to the discussion, on whether a
color per se may serve as a trademark, due to the several difficulties that were
pointed out and developed by some legal authors supported by a number of U.S.
Court decisions.
It is the US jurisprudence that has created and developed several important
theories applying in order to determine if a color is eligible for registration, like the
theory of depletion of colors, theory of shade confusion and theory of functionality.
40
Lanham Act, 15 USC 1127
278
Color and Combination of Colors as Trademarks
________________________________________________________________________________
All these theories together try to justify the opposition to the registration of the
color per se as trademark.
The theory of depletion was developed early in 1949, in the case Campell
Soup co41 and according to the Court the registering a single color as a trademark
will limit the choice of the manufactures. By giving monopolistic rights over
specific colors the list of available colors will be narrowed, especially when it
comes to the most usual and appealing colors.
In the same line with the theory of depletion was developed the theory of
shade confusion according to which by giving the rights over one color in practice
all the relative shades of that color will not be valid for use anymore by other
companies, because the consumers are not so attentive to the exact shade of one
particular color. Often it may be confusing and not easy to immediately notice the
differences.
According to the theory of functionality if a feature of the product is
functional, meaning that it is essential to the use or purpose or it affects the cost or
quality of the product it cannot be registered as a trademark because in that way it
would harm the competition.
The three above mentioned theories have been mentioned again in the case
Qualitex, in 1995 by the Supreme Court. We can say that Qualitex is the leading
case for the color registration, not only in US but it clearly had a very strong
influence on the European approach to this issue. Qualitex Company has for years
colored the dry cleaning press pads it manufactured with a special shade of greengold. After respondent Jacobson Products (a Qualitex rival) began to use a similar
shade on its own press pads, Qualitex registered its color as a trademark and added
a trademark infringement count to the suit it had previously filed challenging
Jacobson's use of the green-gold color. The Supreme Court held that color alone
can meet the basic legal requirements for use as a trademark, and this is
demonstrated both by the language of the Act and by the underlying principles of
trademark law, including the requirements that the mark "identify and distinguish
(the seller's) goods . . . from those manufactured or sold by others and to indicate
(their) source.
In Qualitex it was clearly stated that a color can be registered as a trademark
with the condition that it has to have acquired a secondary meaning. This secondary
meaning constitutes the necessary distinctiveness that can be acquired through the
use of the color prior to the application. The Court raised a very interesting
question, by saying that if trademark law permits a descriptive word with a
secondary meaning to act as a mark, why would it not permit a color, under similar
circumstances to do the same?
41
S. Sandri, S. Rizzo, Non-conventional trademarks and community law, supra note 6 and 8, at 70
279
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Chiara Gaido and Giselda Metaliaji
The Court tried to criticize the theory of depletion and the shade confusion,
and the theory of functionality. The color sometime plays an important role in
making product more desirable and sometimes it does not effect neither, cost nor
quality of the product. Considering so, the Court stated that the doctrine of
functionality does not create an absolute bar to the use of color alone as a
trademark.
In a recent case in US, Smack Apparel 200842, the Court of Appeal seems to
reaffirm strongly the registration of a single color as a trademark. The Fifth Circuit
upheld the district Court‘s finding that Smack Apparel, a company that makes tshirt who used school color schemes in combination with specific facts and indicia
about the school infringed on the schools‘ trademark rights in those color schemes,
even if neither the school logo nor other marks appeared on the t-shirt. The Court
determined that the color schemes had developed a secondary meaning and for the
first time a Court has analyzed the trademark rights of a color scheme separate and
apart from an accompanying word mark or logo. But what if the color scheme
would have been used without the specific facts and indicia about the school?
Would Court go so far to give protection to specifically the color scheme? It might
have been an audacious decision. If courts will go that far in the future, this is
something to be seen in the future decisions.
5. A CASE STUDY: THE PHARMACEUTICAL INDUSTRY
Trademarks, as a vital aspect of building and expanding an IP monopoly in
many fields, are largely used in pharmaceuticals. The use of non traditional
trademarks it is starting to be frequent also for what concerns pharmaceutical
goods. Companies in fact understood that these non-conventional signs can become
important and powerful tools to create brand identification. For example for what
concerns the U.S. system, on 14 June 2006 the USPTO Trademark and Appeal
Board handed down its decision in In re N.V. Organon concerning trademark
application for ―an orange flavor‖ for antidepressants tablets and pills (the product
concerned was Mirtazapine marketed as RemeronSoltab)43.
In order to gain a competitive advantage in this market, pharmaceutical
companies strive to increase consumers‘ recognition through name of the brand,
color, shape, taste or aroma. All these features of pills can be registered and gain
protection as a trademark if they comply with the legal requirements, mostly if they
are distinctive and non-functional. But, differently from other colors trademarks
when it comes to the drug industry there are a lot of factors who play an important
role.
Sometime a colored pill becomes so well-known and finishes by serving to
identify the kind of medication in addition to its source. In this situation the Courts‘
42
5th Circ.Federal Court November 25, 2008, Board of Supervisors v. Smack Apparel No. 0730580
43
RemeronSoltab Application n. 76467774, in www.uspto.gov
280
Color and Combination of Colors as Trademarks
________________________________________________________________________________
decisions in US has written that competitors might be free to copy the color of a
medical pill where that color serves to identify the kind of medication in addition to
its source44. The main obstacles a color has to deal with in order to gain protection
through trademark are distinctiveness and functionality. In the case Wal-Mart
Stores v Samara Bros.45 the Supreme Court of US pronounced that because product
design serves purposes other than source identification, there is no consumer
predisposition to equate the feature with the source, and it can therefore never be
inherently distinctive. But even if a color trademark is registered in the
pharmaceutical industry it is weak and there are decisions that affirm that the
applicant has the burden of proof in order to register the color and shape of its
wares as a trademark46. Future Applicants, especially in the pharmaceutical
industry, should be weary of the fact that, although the color and shape of their
wares may be different from those of others, color and shape should not
automatically be construed as distinctive, thus warranting trademark registration.42
As for other color marks, even in pharmaceutical industry it is necessary that color
has gained a secondary meaning.
As we mentioned above, some patients rely on the color of the pill to
differentiate one from another or a particular feature of a product is deemed by a
Court to have a psychological impact on patients, this may be considered
functional. Drug color cases “has more to do with public health policy” regarding
generic drug substitution “than with trademark law”47 and the possibility of
confusion of the consumers are the reasons why competition is left in a second
place. Nevertheless, it should be considered, case by case, the possibility of
confusions of the relevant public or consumer before taking that decision. It is
necessary to establish what constitutes ―the relevant public‖, and to see if the risk
of confusion is a real option. As it is wide known, when it comes to the
pharmaceutical industry the consumers tend to be highly attentive. This fact leads
to the conclusion that the higher level of attention, the lower the risk of confusion.
In the recent Prazol case48 the CFI reaffirmed this principle also for what concerns
the over-the-counter products (products which are accessible to consumers without
the need of a prescription by the doctor), leaving definitely the previous opinion
which was focused on a case by case analysis of the type of product sold to
determine the level of consumers‘ attention . The relevant public mostly is
composed not only of end users, but also of professionals, that are, doctors who
prescribe the medicines and pharmacists who sell that prescribed product
(confirmed by the European jurisprudence: case T-146/06 ATURION/URION
parag. 23; case C-412/05 TRAVATAN/TRIVASTAN parag. 49; case T-483/04
44
Supreme Court of US March 28, 1995, Qualitex Co. v Jacobson Products Co. 514 US, 149
Supreme Court of US, Case No.99-150 March 22, 2000 Wal Mart Stores Inc. v. Samara Brothers
Inc.
46
A. Steele, The colour and shape of a pharmaceutical tablet deemed not distinctive enough to
warrant trade-mark registration, federal court rules, WIPR, Leger Robic Richard, 2002
47
Supreme Court of US March 28, 1995, Qualitex Co. v Jacobson Products Co. 514 US, 149
48
European Court of First Instance October 21, 2008, case T-95/07, Aventis Pharma SA v. OHIM
and Nycomed GmbH
45
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Chiara Gaido and Giselda Metaliaji
GALZIN parag. 66 and in the case T-154/03 ALREX, parag.4649). For what
concerns the so called over-the-counter drugs, the possibility of confusion is higher
in this case. Because colors are attractive and can be easily stick in your mind,
consumers may identify the drug through the color. It is left to the Courts that in
the basis of a case by case analysis, will define the relevant public, and the
possibility of confusion.
The situation of pharmaceutical colors trademarks is not that different from
trademarks in other fields, the two basic requirements needs to be fulfill: the color
should not be functional and it should be distinctive, meaning it should have
acquired a secondary meaning.
6. IS THERE ANY FUTURE FOR THESE TRADEMARKS?
Although the Courts‘ decision in US and in EU made it clear that there is no
absolute bar against color per se serving as a trademark, it is not clear whether a
color per se can be registered as a trademark without having first acquired a
secondary meaning. There exists the possibility to register a color as a trademark if
the color chosen is unusual in relation to the products.
But even if a color can be registered we think that the trademark will be weak
if it has not acquired a secondary meaning. In order to build up a strong trademark
it is necessary to select an unusual shade of color and then to prove the secondary
meaning for that color.
The secondary meaning can be acquired through use, but not only. There is a
list of fact and factors that serve to establish if there is a secondary meaning for the
mark. The type and amount of evidence necessary to establish secondary meaning
varies by case, but rarely is it created by happenstance. Rather, appropriate
evidence typically results from an artfully executed marketing effort, meaning
strong advertisements are needed. Surveys, market research and consumers‘
reaction studies, as well as intentional, direct copying by a competitor can support
the finding of acquired distinctiveness, as it is said "one only copies something of
value‖.
In the pharmaceutical field the Courts tends to become increasingly open to
allow protection and ‗value-added‘ through the use of distinguishing elements
other than traditional words and designs as color, shape or flavor. But, the risks in
this field are greater than in the others because of the consumers‘ wealth. It would
be maybe too dangerous to rely on the pharmaceuticals brands identification only
on the color used, especially for what concerns the over-the-counter products.
49
European Court of First Instance October 17, 2006, case T-483/04, Armour Pharmaceutical Co. v.
OHIM andTeva Pharmaceutical Industries Ltd; European Court of First Instance November 17,
2005, case T-154/03, Biofarma SA v. OHIM and Bausch & Lomb Pharmaceuticals Inc.
282
Color and Combination of Colors as Trademarks
________________________________________________________________________________
In conclusion, color is powerful tool and over time, customers may come to
treat a particular color on a product or its packaging as signifying a brand; but these
marks have been generally recognised by Courts as weak marks if they do not
show an acquired secondary meaning. The inherent disctinctive character of these
signs is still difficult to prove.
283
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Chiara Gaido and Giselda Metaliaji
BIBLIOGRAPHY
Doctrine and Articles
AIPPI resolution, Q.181. Conditions for registration and scope of protection
of non conventional trademarks, in www.aippi.org
D. I. BAINBRIDGE, Intellectual Property, 7th Edition, Pearson Longman
D. I. BAINBRIDGE, Smelll, Sound, Colour and Shape trade marks: an
unhappy flirtation
L. BENTLY, B SHERMAN, Intellectual Property Law, Third Edition
Oxford University Press, November 2008
CERINA, I marchi solo di colore negli Stati Uniti, Il Dir. Ind., 1995
P.A. DUBOIS, Colour trademarks- the US and European approaches
converge, in www.iam-magazine.com
M. GREEN, Color in Trademark and Trade Dress disputes, in
www.visualexpert.com, 2007
INTA, Non-Traditional Trademarks in Europe-Shape Colour TrademarksCommons Isuses with obtaining, Exploiting and Enforcing Rights, 2005
N. MISHRA, Registration of Non-Traditional Trademarks, in JIPR, 2008
OHIM Examination Guidelines, in www.oami.europa.eu
OHIM Report, Statistics of Community Trade Marks 2008, in www.oami.europa.eu
G. RUSEN, Registrability of colours and smells as trademark, in IJIPM,
2008
S. SANDRI, S. Rizzo, Non-conventional trade marks and community law,
Marques, 2003
S. SANDRI, La giurisprudenza comunitaria in tema di marchi non
convenzionali, in Dir. Ind., 2004
C. SCHULZE, “Registering colour trade marks in E.U.” in EIPR, 2003
M. SCHWARZ, Registration of colours as trademarks, case comment, EIPR,
Vol. 17, no. 8
R. SIECKMANN, Welcome to the non-traditional trademark archive, in
www.copat.de
284
Color and Combination of Colors as Trademarks
________________________________________________________________________________
M. S. SOMMERS, Owning your own colour, Trademark World 1995, No. 77
A. STEELE, The colour and shape of a pharmaceutical tablet deemed not
disctinctive enough to warrant trade-mark registration, federal court rules, WIPR,
Leger Robic Richard, 2002
P. TAYLOR, Pharmaceuticals trademarks – public health issues, in
www.worldtrademarkreview.com
P. TORREMANS, Intellectual Property Law, Fifth edition, Oxford
University Press, 2008
Laws
Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr.
15, 1994, Marrakesh Agreement Establishing the World Trade Organization,
Annex 1C, Legal Instruments—Results of the Uruguay Round, 33 I.L.M. 1125,
1197 (1994)
European Council Regulation No. 207/2009 on the Community Trade Mark
First Council Directive 89/104/EEC of December 21, 1988 to approximate
the laws of the Member States relating to Trade Marks, 1989 OJ (L 40)
Lanham Act (art. 15 United States Code)
Paris Convention For the protection of Industrial Property of 20, March 1883
and following amendments.
Cases
Board of Appeal of OHIM, February 12, 1998, case R-7/1997-3, Orange
Board of Appeal of OHIM December 3, 1998, Light Green R-122/2998-3
European Court of Justice February 27, 2002, case T- 106/00, Streamserve
Inc. V. OHIM
European Court of Justice February 12, 2002, case C-363/99 Koninklijke
KPN Nederland NV and Benelux Merkenbureau
European Court of First Instance September 25, 2002, case T-316/00,
Viking-Umwelttechnik GmbH v. OHIM
European Court of Justice December 12, 2002, case C-273/00, Ralf
Sieckmann v. Deutsches Patent-und Markenant
285
________________________________________________________________________________
Chiara Gaido and Giselda Metaliaji
European Court of Justice May 6, 2003, case C-104/01, Libertel Groep BV
and Benelux-Merkenbureau
European Court of First Instance December 3, 2003, case T-16/02, Audi AG
v. OHIM
European Court of Justice June 24, 2004, C-49/02, Heidelberger Bauchemie
GmbH
European Court of Justice October 21, 2004, C-447/02, KWS Saat AG v.
OHIM
European Court of Justice June 30, 2005, case C-286/04P, Eurocermex SA
v.OHIM
European Court of First Instance October 17, 2006, case T-483/04, Armour
Pharmaceutical Co. v. OHIM and Teva Pharmaceutical Industries Ltd
European Court of First Instance November 17, 2005, case T-154/03,
Biofarma SA v. OHIM and Bausch & Lomb Pharmaceuticals Inc.
European Court of Justice April 26, 2007, case C-412/05, Alcon Inc. v.
OHIM
European Court of First Instance October 21, 2008, case T-95/07, Aventis
Pharma SA v. OHIM and Nycomed GmbH
5th Circ.Federal Court of US, November 25, 2008, Board of Supervisors v.
Smack Apparel, No. 07-30580
Kraft Foods Schweiz Holding GmbH registration n. 31336 on
www.oami.europa.eu; Kraft Foods Schweiz Holding GmbH registration n.
2042556A on www.ipo.gov.uk
RemeronSoltab Application n. 76467774, in www.uspto.gov
Supreme Court of US March 28, 1995, Qualitex Co. v Jacobson Products Co.
514 US, 149
Supreme Court of US, Case No.99-150 March 22, 2000 Wal Mart Stores Inc.
v. Samara Brothers Inc.
CAN THE OWNER OF A MARK REGISTERED FOR TOY CARS
PROHIBIT THE MANUFACTURE AND SALE OF TOY CARS WHICH
CONSTITUTE NATURALISTIC REPRODUCTIONS OF REAL CARS ON
WHICH THE OWNER’S MARK APPEARS?
University Network Research Session
Office for Harmonization in the Internal Market
Alicante, Spain
May 3 – 5, 2010
by
John Graziadei and Angela Saltarelli
1. INTRODUCTION
2. TRADEMARK BACKGROUND
a. Overview
b. The Essential Function: ―Use as a Trademark‖
c. Descriptive Use and Embellishment
i. Descriptive / Referential Use
ii.Embellishment
3. INFRINGEMENT ANALYSIS
a. Trademark Use Requirement
b. Likelihood of Confusion
4. ANALYSIS
5. CONCLUSION
6. FINAL THOUGHTS
BIBILIOGRAPHY
288
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
________________________________________________________________________________
1. INTRODUCTION
Can the owner of a trademark registered for toy cars (hereinafter ―model
cars‖) prohibit the manufacture and sale of model cars which constitute naturalistic
reproductions of real cars (hereinafter ―automobiles‖) on which the owner‘s mark
appears? We conclude that the manufacturers of model cars should be free to make
and sell naturalistic reproductions of automobiles and to which they have affixed
relevant automobile trademarks even though the mark may be owned by another
entity seeking to prevent such use. This is true where the trademark is affixed to
the model‘s visible exterior as a descriptive element of the automobile‘s design
(hereinafter the ―Detail Trademark‖) as opposed to the underside of the model car
to guarantee source of origin (hereinafter the ―Origin Trademark‖). Moreover,
finding that the descriptive use of the Detail Trademark is non-infringing is on such
solid theoretical ground that European Community Law should provide the
certainty, consistency, and predictability necessary to prevent automobile
manufacturers, who generally own the rights to their automobile trademarks in the
―Scale Models of Motor Cars‖ class from dominating the model car industry
through an unjustified expansion of the their rights.1
European Community law, however, currently provides that the owner of a
trademark registered for model cars could potentially prohibit the manufacture and
sale of model cars displaying the owner‘s mark as a Detail Trademark depending
on the jurisdiction and the perceptions of consumers in local markets.2 The body
of law comprising the European Court of Justice‘s jurisprudence on this issue is
therefore far from clear and decisive. Indeed, although the ECJ could have
provided a more definitive solution to this conundrum in deciding the 2007 case
Opel v. Autec by finding that decorative applications of trademarks are beyond the
scope of Article 5(1), ultimately the Court declined to employ a trademark use
requirement in favor of protracted, costly, and unpredictable factual assessments of
local markets by national courts. In so doing, the Court left the matter essentially
unresolved and invited inconsistent results concerning what types of uses are
infringing.3
Answering the question posed requires an analysis of legal issues at the very
heart of trademark theory such as what constitutes trademark use and whether
descriptive, decorative, or referential use may also be considered infringing. Of
fundamental concern is the appropriate balance between the trademark owner‘s
interests and those of competitors, third-party businesses, and the marketplace. A
heated debate has been entertaining trademark law practitioners and academics for
1
Nice Classification System, Class No. 28.
Or the automobiles on which they are based, although this is beyond the scope of the question
posed.
3
European Court of Justice January 25, 2007, Case C-48/05, Adam Opel v. Autec (2007) ECR I1017 ff., case ―Autec‖.
2
289
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John Graziadei and Angela Saltarelli
the last few years and the tension between the two sides is manifest in both
European and American discourse and jurisprudence.4 While some scholars submit
that trademarks should be protected from a broad array of unauthorized uses by
third parties, and that the optimal way to accomplish this is for the courts to
conduct comprehensive analyses of the impact each use has on consumer
confusion, others assert that trademarks are registered for certain limited purposes –
to distinguish goods and services – and should therefore remain generally available
to third parties for other uses as a matter of law.5
For purposes of infringement analysis, certain courts, such as those
influenced by the Chicago School, support the application of a ―trademark use
requirement.‖6 Generally, this approach requires plaintiffs in trademark
infringement cases to demonstrate that a defendant made a ―trademark use‖ of its
validly registered mark as a threshold requirement prior to factual discovery
concerning markets and consumer perceptions. Advocates submit that this
approach provides a straightforward, objective, and, most importantly, efficient,
means of determining whether consumers are likely to look to the defendant‘s use
of a symbol for information about the source of origin – whether consumers are
likely to be confused or deceived. As we shall see, applying a trademark use
requirement raises corresponding concerns about the value of registering an
automobile trademark in the model car class for what is, in practice, use primarily
as a Detail Trademark.
Applied more frequently by courts in trademark infringement litigation is a
test focused squarely on the likelihood of consumer confusion caused by a
particular use. This approach moves the analysis beyond the purely legal question
of whether a trademark use has been made by a defendant to the assumption that
any use can be infringing so long as the trademark owner can demonstrate that it
raised the level of confusion in the marketplace, thereby diminishing the ability of
the trademark to perform its essential function.
4
See generally M. BARRET, Internet Trademark Suits and the Demise of “Trademark Use, 39
U.C. Davis. L. Rev. 371 (2006); S. L. DOGAN & M. LEMLEY, Trademark and Consumer Search
Costs on the Internet, 41 Hous. L. Rev. 777 (2004); U. WIDMAIER, Use, Liability, and the
Structure of Trademark Law, 33 Hofstra L. Rev. 603 (2004); see also Mark P. MCKENNA, The
Normative Foundations of Trademark Law, 82 Notre Dame L. Rev., 1839, 1892 (noting the
―traditional requirement that, in order to infringe, the defendant [must] use a term as a sourcedesignator (as a ―trademark‖)).
5
W. M. LANDES, R. POSNER, The Economic Structure of Intellectual Property Law, The
Belknap Press of Harvard University Press, Cambridge, Mass., 2003; see also M. RICOLFI,
Strategic Branding (Opel/Autec, Eventmarke), Max Planck Institute paper, 2009 (citing A. KUR,
Strategic Branding: Does Trade Mark Law Provide for Sufficient Self Help and Self Healing
Forces? in I. Govaere, H. Ullrich (eds.), Intellectual Property, Market Power and the Public
Interest, College of Europe Series, Bruxelles, P. I. E. Lang, 2008, 191-217; M. S. SPOLIDORO, La
capacità distintiva dei marchi c.d. «deboli», in Il dir. ind. 2007, 39 ff.; J. DAVIS, European Trade
Marks Law and the Enclosure of the Commons, in I.P.Q. 2002, 343 ff.); G. B. DINWOODIE, M. D.
JANIS, Confusion Over Use: Contextualism in Trademark Law, in Iowa L. Rev. 2007, 1597 ff.
6
W. M. LANDES, R. POSNER, The Economic Structure of Intellectual Property Law, supra at
note 5.
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
290
Although the interests of a well-functioning trademark system, and society as
a whole, would be better served by consistent application of one or the other
approach in infringement litigation across jurisdictions, choosing a winner is
unnecessary here and, indeed, beyond the scope of our analysis. For our purposes,
the answer to the question posed is the same under either approach. Nevertheless,
as we shall see, had the ECJ resolved the legal questions raised in Opel v. Autec by
focusing on the actual use of the mark, or by applying a strict trademark use test,
the result would have been increased efficiency in the marketplace, albeit at the
expense of a marginally higher degree of confusion in the minds of consumers until
market forces had an opportunity to react.
2. TRADEMARK BACKGROUND
a.
Overview
Trademarks are signs or symbols used to distinguish the goods or services of
one enterprise from those of other enterprises in commerce.7 Other related or
corresponding functions generally attributed to trademarks including the tendency
they have to reinforce consistent levels of product quality, to represent businesses
goodwill, and to function as tools for advertising products by fostering thoughts or
emotions in the minds of consumers.
From the Chicago School, however, we understand that the fundamental
value of trademarks is their ability to reduce consumer search costs which, in turn,
promotes efficiency in the marketplace.8 Trademarks facilitate consistent and
lasting associations in the minds of consumers between brands and quality,
providing consumers with valuable information concerning goods and services.
Trusting a reliable trademark is, of course, less costly and time consuming for the
consumer than conducting research and assuming associated risks while relying
primarily on asymmetric information at the point of each purchase decision.
Informed consumers will generally make better decisions as a result and this will,
in turn, increase the overall utility of the products purchased while simultaneously
pushing producers to develop higher quality goods and services – or at least to
maintain appropriate price-quality relationships.9 The public therefore benefits
7
F. ABBOTT, T. COTTIER, F. GURRY, International intellectual property in an Integrated
World Economy, Aspen Publishers, New York, 2008, 259; M. BARRETT, Internet Trademark Suits
and the Demise of ―Trademark Use,‖ 39 in U.C. Davis L. Rev. 2006, 388.
8
W. M. LANDES, R. POSNER, The Economic Structure of Intellectual Property Law, supra at
note 5, 169.
9
In the words of United States Supreme Court Justice Frankfurter: ―The protection of trade-marks is
the law‘s recognition of the psychological function of symbols.... A trade-mark is a merchandising
short-cut which induces a purchaser to select what he wants, or what he has been led to believe he
wants. The owner of a mark exploits this human propensity by making every effort to impregnate
the atmosphere of the market with the drawing power of a congenial symbol. Whatever the means
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John Graziadei and Angela Saltarelli
from the trademark system insofar as the establishment and maintenance of a mark
facilitates the flow of reliable of information, encourages higher and more
consistent product quality, and reduces social waste and consumer deception.
The trademark system‘s effectiveness in performing these functions makes it
extremely valuable to the marketplace. While, for obvious reasons, trademark
owners view the objective of the trademark system to be the protection of the
investment in their company‘s goodwill, in fact the guiding principle the trademark
system must be continued reduction of consumer search costs. Trademark doctrine
must therefore always consider first the costs and benefits that accrue to the
marketplace as a whole and not only the interests of trademark holders. The scope
of the rights protected by trademark law must therefore be narrower and more
context-specific than in the case of patents, trade secrets, and copyrights. Indeed,
other intellectual property rights are generally understood to bestow far-broader,
although time-limited, protection from unauthorized use than trademarks in order
to achieve their policy objectives. Illustrative of the theoretical difference between
trademarks and other IPRs is the fact that trademark owners are not granted
property rights in their trademarks.10 As a result, owners are not permitted to sell
or otherwise transfer their trademarks in gross, or separate them from their business
goodwill.11
To fully realize the benefits of trademarks, it is imperative that the legal
system provide clear rules and strong protection since the cost of misappropriating
a trademark is undoubtedly less than the potential profit to a concern from
confusion with another firm‘s superior reputation. Clarity in enforcement increases
the entire system‘s effectiveness by strengthening the message trademarks carry
and reinforcing their trustworthiness. Whether by protecting established
trademarks from potentially confusing appropriation by third parties or by
streamlining the litigation process through application of a trademark use
requirement, the law must facilitate an honest, open, inexpensive, and consistent
dialogue between producers and consumers. From a clear and reliable system both
sellers and buyers benefit: producers can invest in their brand‘s goodwill with the
confidence that trademark infringement will be prevented while consumers can be
confident that they are receiving what they expect in the marketplace. In the
absence of clear and reliable enforcement, excessive free-riding would inevitably
corrupt the information capital embodied in a trademark; even more destructive, the
employed, the aim is the same – to convey through the mark, in the minds of potential customers,
the desirability of the commodity upon which it appears. Once this is attained, the trade-mark
owner has something of value.‖ Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 US
203 (1942).
10
M. BARRETT, Internet Trademark Suits and the Demise of “Trademark Use”, supra at note 7,
377.
11
L. J. OSWALD, Tarnishment and Blurring under the Federal Trademark Dilution Act of 1995, in
American Business Law Journal, 1999, 255 ff.
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
292
threat of an intolerable amount of free-riding could reduce the incentive for
companies to invest in their goodwill in first place.12
Chief among the concerns when answering the question posed is sound
competition policy. For example, stretching the right to prevent third-party use of a
word or symbol in additional contexts – even those not signalling origin – would
inadvertently bestow unjustified legal power to trademark proprietors over
―downstream‖ markets thereby conferring unwarranted competitive advantages
over neighboring markets for goods and services.13 While the tension between
trademarks and free competition is less alarming than in other fields of intellectual
property law where the rights granted could be, if too broad or impenetrable,
severely antagonistic to healthy competition, trademarks can also have a negative
impact on competition if not properly understood or respected. Rather than
accruing to their owner a monopoly over a certain product, creation, invention,
good, or service, trademarks protect information about goods and services and
should therefore facilitate consumer access to the goods or services with which
they are associated. A properly functioning trademark system therefore assists,
rather than inhibits, competition and trademark law represents an affirmation of,
rather than a departure from, the competitive model. The danger, however, is clear:
unenlightened and poorly calibrated trademark law, as in other fields of intellectual
property, would have an anticompetitive influence on the public‘s access to goods,
services, and markets.14
It is axiomatic that, absent extraordinary circumstances, competition is
beneficial to the marketplace and deserves careful consideration when resolving
disputes between rights owners and third parties.15 While it is has been argued that
the ECJ does not sufficiently consider preserving, let alone fostering, competition
in its interpretation of Community Law (except with respect to the
anticompetitiveness inherent in granting protection to overly-descriptive marks),
failure to do so could lead to unintended results that contradict the very purpose of
granting control over the use of signs and marks in the first place and actually
12
W. M. LANDES, R. POSNER, The Economic Structure of Intellectual Property Law, supra at
note 5, 169.
13
M. RICOLFI, Strategic Branding (Opel/Autec, Eventmarke), supra at note 5; see also A. KUR,
Strategic Branding: Does Trade mark law Provide for Sufficient Self Help and Self Healing
Forces?, supra at note 5, 191-217; see A. SRAFFA, Monopoli di segni distintivi o monopoli di
fabbricazione, in Riv. dir. comm. 1930, II, 1 ff. (arguing that trademark protection should always
ensure that exclusivity over signs does not translate into monopolies over markets for goods and
services); T. ASCARELLI, Teoria della concorrenza e dei beni immateriali. Lezioni di diritto
industriale, Giuffrè, Milano, 1960 (arguing that trademark exclusivity should never enable control
of linguistic or semantic entities).
14
A. KUR, Strategic Branding: Does Trade Mark Law Provide for Sufficient Self Help and Self
Healing Forces?, supra at note 5, 191-217, 216.
15
Ibid, at 195.
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John Graziadei and Angela Saltarelli
enable their use as swords rather than signals in the battle to dominate additional
markets and goods.16
b.
The Essential Function: “Use as a Trademark”
The point has been correctly made that if trademark law were properly
calibrated, it would enable rights owners to prevent use by third parties in more
limited contexts than other IPRs and with respect to specific types of uses only.17
This approach is supported by the argument that, in principle, trademark protection
aims to confer exclusivity over symbols rather than over goods, services, or
markets and that the cost of overly broad protection is an anticompetitive restriction
on the flow of information through the marketplace, even preventing would-be
participants from accessing markets entirely. As we will see, however, courts
occasionally venture beyond the core principles of trademark law to bestow what
may be regarded as anticompetitive or even monopolistic power unjustified by
trademark theory.18 In order to ensure trademark law stays true to its mission, it is
therefore necessary to consider the essential function for which the right to exclude
is granted – the so-called ―use as a trademark.‖19
16
M. RICOLFI, Strategic Branding (Opel/Autec, Eventmarke), supra at note 5 (Contrast the
Opinion of the Advocate General, Ruiz-Jarabo Colomer of June 13, 2002, Case C-206/01, Arsenal
Football Club plc v. Matthew Reed, (2002) ECR I-3422 ff., case ―Arsenal‖, para 43, acknowledging
the importance of competition policy in European trademark law but failing to draw from the
statement a corollary either way with the Opinion of the Advocate General Poiares Maduro,
September 22, 2009, in Cases C-236-238/08, Google France and Google Inc. v. Louis Vuitton
Mallettier, Google France v. Viaticum Luteciel and Google France Bruno Raboin, Tiger SARL v.
CNRHH, Pierre Alexis Thonet, case “Google-Ad-Words”, paras 102-103 and 105-106 where the
balancing between the ―protection afforded to innovation and investment‖ (para 102) by means of
trademarks and the requirements ―of competition and open access to ideas, words and signs‖ (para
103) is determinative of the outcome reached (or, rather, in this case, suggested)).
17
A. KUR, Strategic Branding: Does Trade Mark Law Provide for Sufficient Self Help and Self
Healing Forces?, supra at note 5, 191-217, 216; M. RICOLFI, Strategic Branding (Opel/Autec,
Eventmarke), supra at note 5.
18
A. KUR, Fundamental Concerns in Harmonization of (European) Trademark Law, in G. B.
DINWOODIE, M. D. JANIS, Trade Mark Law and Theory, a Handbook of Contemporary
Research, Edward Elgar, Cheltenham UK, Northampton MA USA, 2008, 151-176, 165.
19
M. BARRETT, Internet Trademark Suits and the Demise of “Trademark Use”, supra at note 7,
392. The author clarifies that the rationale of trademark use ―is consistent with the limited purpose
of trademark protection. We protect trademarks to ensure that they will effectively communicate the
source of goods or services to consumers, thus lowering consumer search costs and promoting a
more efficient marketplace. If the defendant does not refer to the plaintiff‘s mark or if consumers
are not exposed to the defendant‘s reference, then finding infringement would not serve trademark‘s
purpose: consumers would not likely rely on the mark to identify the source of the defendant‘s
goods or services, there would be no interference with the source indicating function of the
plaintiff‘s mark, and, thus, there would be none of the harm that trademark and dilution laws are
meant to prevent. Trademark laws were never meant to prevent all forms of free riding on a
plaintiff‘s business goodwill. Indeed, we have long recognized that, in many instances, free riding
may be pro-competitive.‖; see G. B. DINWOODIE, M. D. JANIS, Lessons from the Trademark Use
Debate, in Iowa L. Rev. 2007, 1713; M. BARRETT, Finding Trademark Use: The Historical
Foundation for Limiting Infringement Liability to Uses „In the Manner of a Mar‟, in Wake Forest
Law Review, 2008, 895.
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
294
Strangely, the Trademark Directive fails to define ―trademark use.‖ Scholars
have observed that it is ironic that ―such an essential criterion in the hierarchy of
criteria necessary to establish an infringement was paid such little attention during
the drafting process.‖20 Indeed, if this one criterion is not satisfied, a dispute
should not – although sometimes does – fall within the web of European trademark
law.21 Although the term ―trademark use‖ is not explicit in the Directive, the
concept flows from Article 5 where infringement is defined as the use of marks ―in
the course of trade‖ in a manner that conflicts with the essential functions of the
trademark.22 The legal protection of marks must be connected to a mark‘s ability
to distinguish a good or service; the importance of this criterion is justifiably
recognized as the conceptual foundation of trademark theory. The determination of
whether a sign was used as a mark at all is therefore an obvious and indispensable
step in assessing whether a use was infringing.23
The ECJ first addressed the question of trademark use in the case of BMW v.
Deenik where it considered whether the use of the BMW trademark by a third-party
automotive service center to identify a characteristic of its own service infringed
the registered mark. In defining trademark use as a ―use for the purpose of
distinguishing and identifying goods or services as originating from a particular
undertaking,‖ the Court found that it did.24 The Court defined trademark use under
the Directive as use which caused consumers to infer the existence of a material
link in the course of trade between a concern and its goods or services.25 Indeed, in
deciding BMW, the ECJ properly required a trademark use to find infringement, but
did so in the broadest sense: the Court found that the mark must be used to indicate
the origin of either of the parties‘ goods or services – not necessarily those of the
alleged infringer. Thus, in BMW, the Court concluded that conduct now generally
described as ―referential use‖ was trademark use in violation of Article 5 even
though we may safely conclude that consumers were not confused about the origin
of the goods or services and that the flow of useful information to the consumer
was likely facilitated, not corrupted, by the defendant‘s use.26 The BMW Court
found, however, that the actual confusion engendered by use of a registered
20
A. KUR, Small cars, Big Problems? An Analysis of the ECJ‟s Opel/Autec Decision and its
Consequences, in Engelbrekt-Bakaedjieva et al. (eds.), Writings in Honor of Marianne Levin,
Norsteds, 2008, 335.
21
Ibid, at 335.
22
Directive 2008/95/EC of the European Parliament and of the Council of 22 October 2008 to
approximate the laws of the Member States relating to trade marks.
23
A. KUR, Fundamental Concerns in Harmonization of (European) Trademark Law, in G. B.
DINWOODIE, M. D. JANIS, Trade Mark Law and Theory, a Handbook of Contemporary
Research, supra at note 19, 151-176, 166.
24
European Court of Justice February 23, 1999, case C-63/97, BMW v. DEENIK, (1999) ECR I905 ff., case ―BMW‖, para 38.
25
Ibid, para. 53.
26
European Court of Justice February 23, 1999, case C-63/97, BMW v. DEENIK, (1999) ECR I905 ff., case ―BMW‖.
295
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John Graziadei and Angela Saltarelli
trademark by a third party is secondary and that the only questions to be answered
are whether there was a use to describe an essential characteristic of the goods or
services offered and, if so, whether the use was authorized.27
c.
Descriptive Use and Embellishment
Straightforward trademark infringement cases typically involve the
unauthorized use of a trademark by a third party seeking to confuse consumers as
to the origin of goods or services offered for sale – to blur in the minds of
consumers the third-party‘s products with those of the trademark proprietor,
presumably to exploit the owner‘s superior reputation. In such cases, infringement
must be found to prevent third-party users from deceiving the public and diluting
the power of the trademark to convey essential information about the relevant good
or service.
There are many trademarks uses other than those identifying and
distinguishing goods and services, however, and each presents challenges for
courts, trademark owners, and third parties seeking to use trademarks not to
confuse or deceive, but rather to convey information in good faith.28 Two common
uses relevant to our analysis are frequently referred to as descriptive, or referential,
use and embellishment.
i. Descriptive / Referential Use
In an effort to strike the appropriate balance between the power granted to
trademark owners and the public‘s interest in a healthy public domain, courts must
establish the appropriate scope of the right to prevent use by third parties for
purposes other than identifying or distinguishing goods. One category of such uses
are so-called descriptive, or referential, uses which include, for example, affixing a
trademark to an article of clothing not to indicate origin, but rather to enable the
27
Ibid, para 65.
The comparative advertising conundrum is frequently debated in the context of the so called
―trade mark use debate‖ (citing R. KNAAK, Markenmäßiger Gebrauch als Grenzlinie des
harmonisierten Markenschutzes, in GRUR Int. 2008, 91 ff.; A. KUR, Confusion over Use? – Die
Benutzung “als Marke” im Lichte der EuGH Rechtsprechung, in GRUR Int. 2008, 1 ff.; B.
TRIMMER, An Increasingly Uneasy Relationship: The European Courts and the European Court
of Justice in Trade Mark Disputes, in E.I.P.R. 2008, 87 ff.; CH. RUTZ, After Arsenal and
Electrocoin: Can the Opinions on Trade Mark Use be Reconciled?, in 36 IIC 2005, 682 ff. but also,
in connection with the increasingly crucial issue of the lawfulness of the use of trademarks as sold
―ad-words‖, N. SHEMTOV, Searching for the Right Balance: Google, Keywords Advertising and
Trade Mark Use, in EIPR 2008, 470 ff. For the U.S. see among the many U.S. cases Government
Employees Insurance Co. v. Google, Inc., 330 F.Supp.2d 700 (E.D. Va. Aug. 25, 2004) and Google
Inc. v. American Blind & Wallpaper Factory, 74 U.S.P.Q.2d 1385 (N.D. Cal. March 30, 2005) and
in the literature G. DINWOODIE - M. D. JANIS, Lessons from the Trademark Use Debate, in 92 Iowa
L.R. 2007, 1703 ff. and S. L. DOGAN, M. A. LEMLEY, Grouding Trademark Law Through
Trademark Use, 92 Iowa L.R. 2007, 1669 ff., in both of which the link with the ad-words issue is
palpable.
28
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
296
wearer to display appreciation or loyalty for the brand associated with the mark.29
Frequently, trademark owners seek to prevent such uses by third parties, whether to
protect their brand‘s image or to capture the economic benefits represented by the
use. Defendants typically respond by arguing that descriptive use is not infringing.
The ECJ has been asked to consider these questions but has responded with a
somewhat inconsistent body of jurisprudence.
After BMW, the ECJ revisited the question of trademark use in Arsenal v.
Reed, in which the Court opined on whether the unlicensed use of the famous
English football club‘s trademark by a third party on sports merchandise
constituted infringement.30 The English Court referred to the ECJ the question of
whether a valid defense to allegations of infringement existed where the use does
not indicate trade origin but rather satisfies some other purpose.31 While plaintiff
alleged that defendant infringed its rights by appropriating its trademark for use on
goods identical to those it produced, defendant argued that its use of the mark was
not a ―trademark use‖ and that consumers would not interpret the mark as
signifying the origin of the goods but rather recognize it as a ―badge of support,
loyalty or affiliation.‖32 Defendant argued that such descriptive uses are beyond
the scope of Article 5 and should be permitted.
In rejecting defendant‘s argument, the ECJ concluded simply that ―where a
third party uses in the course of trade a sign which is identical to a validly
registered trade mark on goods which are identical to those for which it is
registered, the trade mark proprietor of the mark is entitled . . . to rely on [Article
(5)(1)(a) of the TMD] to prevent that use.‖33 The Court found that ―[i]t is
immaterial that, in the context of that use, the sign is perceived as a badge of
support for or loyalty or affiliation to the trade mark proprietor.‖34 The ECJ thus
found that it was of little significance whether there was another use implied by the
defendant‘s appropriation of the mark, in this case a descriptive use; it was
sufficient only that an identical mark was affixed to identical goods.35
Although the question referred by the English court was whether use as a
trademark was necessary to find infringement, the ECJ did not answer this question
directly but instead focused its attention on the likelihood of confusion in the
marketplace, finding that the use was infringing because ―[t]he use of a sign which
29
European Court of Justice June 13, 2002, case C-206/01, Arsenal Football Club plc v. Matthew
Reed, (2002) ECR I-10273 ff., case ―Arsenal‖.
30
European Court of Justice February 23, 1999, case C-63/97, BMW v. DEENIK, (1999) ECR I905 ff., case ―BMW‖.
31
European Court of Justice June 13, 2002, case C-206/01, Arsenal Football Club plc v. Matthew
Reed, (2002) ECR I-10273 ff., case ―Arsenal‖, para. 27.
32
Ibid, para 63.
33
Ibid, para 34.
34
Ibid, para 63.
35
Ibid.
297
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is identical to the trade mark at issue in the main proceedings is liable to jeopardise
the guarantee of origin which constitutes the essential function of the mark.... It is
consequently a use which the trade mark proprietor may prevent in accordance with
Article 5(1) of the Directive.‖36 Importantly, although such questions are clearly
matters of fact that should be referred to national courts, the ECJ also found that the
average consumer in the relevant local market perceived that goods bearing the
football club‘s marks had an economic link of some sort with the trademark
owner.37
In so holding, the ECJ rejected the non-trademark use defence in support of a
test based more broadly on the likelihood of, or potential for, consumer confusion.
In elevating the potential for consumer confusion over liberal competition in the
marketplace on the list of priorities, the Court rejected a strict trademark use test in
cases arising under Article 5(1). Indeed the ECJ found that the analysis of whether
the defendant was making a descriptive, or non-trademark, use of the mark wasn‘t
definitive. Rather, the appropriate test is whether a particular third-party use of a
mark has a damaging effect on the mark‘s ability to function as a trademark for its
owners‘ goods or services. The ECJ cared less about whether the actual use itself
implicated the ―essential function‖ of the trademark (i.e., distinguishing the origin
of the goods) than about whether, as a result of the defendant‘s use, the owner‘s
mark was subsequently less able to distinguish the goods and services due to
increased confusion in the minds of consumers. In sum, the ECJ didn‘t look at the
character of the use by the third party but rather at the impact of the use on the
trademark itself.
According to the Court‘s decision, the Directive does not require use as a
trademark to find infringement but rather only that the third-party use ―creates the
impression that there is a material link in trade between the third party‘s goods and
the undertaking from which those goods originate.‖38 Arsenal thus provides that
uses other than distinctive trademark uses can cause confusion impairing a
trademark‘s ability to guarantee source of origin, and that such impairment is more
harmful to the marketplace than other implied costs such as protracted litigation by
trademark owners and the chilling effect the threat of litigation can have.39 As a
practical matter, however, if consumers do not perceive the defendant‘s mark as
distinguishing goods or services, there should be no basis on which to find the
existence of increased confusion.
In questioning the concept of descriptive use, some critics have asked
whether a fundamental difference truly exists between descriptive use and
trademark use that distinguishes descriptive use from unauthorized copying and
infringement. For example, critics have pondered the difference between real and
counterfeit handbags and why the trademark located on the fake bag can‘t also be
36
Ibid, para 55.
Ibid, para 63.
38
Ibid, para 56.
39
Ibid, para 54.
37
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
298
also considered ―descriptive use.‖40 The answer is likely found in the relationship
between the goods themselves. Counterfeit handbags are substitutes for the
authentic bags on which they are based and, while consumers are not typically
confused between the two given the often dramatically different price points and
markets in which they are sold, nevertheless the class is the same and the
―descriptive‖ use of the trademark is clearly motivated by the desire to deceive.
Indeed, there is no benign or good faith justification for making and selling
counterfeit Louis Vuitton handbags other than a desire exploit the reputation of
Louis Vuitton. For our purposes, model cars certainly perform a function
independent from automobiles so a fundamental distinction exists.41
ii.
Embellishment
The use of a mark as an embellishment is another type of trademark use
relevant to our analysis. The question of whether embellishing uses of trademarks
violate Article 5 was addressed by the ECJ in Adidas Salomon v. Fitnessworld
Trading LTD, in which the Court considered the proper scope of European dilution
protections. Specifically, the Court considered the impact on infringement analysis
when ―consumers see a sign purely as an embellishment.‖ 42 In interpreting the
Directive, the Court opined that, where a later use of a mark is viewed purely as an
embellishment, it cannot have any link with a registered mark with the result that
one of the conditions of protection conferred by Article 5(2) of the Directive would
not be satisfied.43 In evaluating the practical impact of the case, it has been argued
that the ECJ effectively introduced a trademark use requirement.44
The ECJ did not define the term embellishment in Adidas, although the
Advocate General appears to use the term synonymously with decorative use.45
The AG opined that Article 5(5) was intended to redress provisions of national law
in areas other than trademark regulation, such as unfair competition and
comparative advertising.46 It follows from that provision, he concluded, ―that the
regulation of non-trade mark use of a sign which without due cause takes unfair
advantage of, or is detrimental to, the distinctive character or the repute of a trade
40
A. KUR, Small Cars, Big Broblems? An Analysis of the ECJ‟s Opel/Autec Decision and its
Consequences, supra at note 22, 344.
41
A. KUR, Small Cars, Big Problems? An Analysis of the ECJ‟s Opel/Autec Decision and its
Consequences, supra at note 22, 344.
42
European Court of Justice October 23, 2003, C-408/01, Adidas Salomon v. Fitnessworld Trading
LTD, (2003), ECR I-4881 ff., case ―Adidas‖.
43
European Court of Justice October 23, 2003, C-408/01, Adidas Salomon v. Fitnessworld Trading
LTD, (2003) ECR I-4881 ff., case ―Adidas‖, para 40.
44
I. SIMON, Embellishment: Trade Mark Use Triumph or Decorative Disaster?, in E.I.P.R 2006,
321 ff.
45
Opinion of the Advocate General Jacobs July 10, 2003, C-408/01, Adidas Salomon v.
Fitnessworld Trading LTD, (2003), ECR I-3711 ff., case ―Adidas‖.
46
Ibid, para 57.
299
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John Graziadei and Angela Saltarelli
mark is not governed by the Directive. Such use cannot therefore fall within
Article 5(2).‖47 The Advocate General further opined that:
The question therefore is whether a sign may be correctly
regarded as ―used for the purpose of distinguishing goods or
services‖ where it is viewed purely as a decoration by the
relevant section of the public. It seems to me that that question
must be answered in the negative. If the relevant section of the
public perceives a given sign as doing no more than embellishing
goods, and in no way as identifying their origin, that sign cannot
be regarded as used for the purpose of distinguishing those
goods.48
Purely decorative use would therefore not be viewed as a trademark since the
fact that consumers only viewed the mark as decorative meant that they did not see
it as as an indication of source.49
The ECJ, however, elaborated on the issue, stating that
the fact that a sign is viewed as an embellishment by the relevant
section of the public is not, in itself, an obstacle to the protection
conferred by Article 5(2) of the Directive where the degree of
similarity is none the less such that the relevant section of the
public establishes a link between the sign and the mark.50
Under what circumstances consumers would or would not make this
connection is left unanswered by the Court.
The embellishing use of a trademark has also been addressed in United States
case law. In Interactive Products Corp. v. A2 Z Mobile Office Solutions, for
example, the 6th Circuit found that use of a registered trademark on a book cover is
a non-trademark use if the mark is merely descriptive of the book‘s subject matter
and the actual source of the book is clearly indicated.51 Thus, under U.S. law, if a
defendant uses a trademark in a ―non-trademark way,‖ the laws of infringement
and false designation are also not implicated.
Other examples of descriptive or referential use or embellishment with
potentially infringing characteristics can be found in contemporary art. Indeed,
with its focus on the topic of consumerism, American Pop Art after 1945 is rife
with potential trademark infringement. Andy Warhol‘s 1962 Campbell Soup Cans,
47
Ibid.
Ibid, para 60.
49
Ibid, paras 52-61.
50
European Court of Justice October 23, 2003, C-408/01, Adidas Salomon v. Fitnessworld Trading
LTD, (2003), ECR I-4881 ff., case ―Adidas‖, para 41.
51
Interactive Products Corporation v. A2 Z Mobile Office Solutions, Inc, 326 F.3d 687, 695 (6th
Cir. 2003).
48
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
300
for example, provide little information to the viewer other than reproducing images
of the food company‘s products and trademarks. Moreover, Warhol‘s purpose was
undoubtedly commercial, at least in part. Nevertheless, Warhol was neither
competing with Campbell nor was he confusing consumers as to the origin of his or
Campbell‘s products. It is likely that such uses, if challenged, would be considered
non-trademark and non-infringing use, if not fair use.52
3. INFRINGEMENT ANALYSIS
a.
Trademark Use Requirement
Realizing the trademark system‘s full potential is not an easy task and the
evolution of trademark law reflects a perpetual recalibration in an effort to
maximize the informational value of marks while avoiding their propensity to
facilitate anticompetitive conduct.53 To effectively perform a trademark‘s primary
function of lowering search costs for consumers, trademark use by third parties
should be prevented only when the use causes significant confusion over origin.54
One way to ensure this is for courts to apply a strict ―trademark use‖ test, providing
that a plaintiff must demonstrate as a preliminary matter that an alleged infringing
use involved the misappropriation of their mark for use as a trademark and not in
another, non-origin signaling way. Supporters of the so-called trademark use
requirement believe that limiting the court‘s analysis at the outset to a preliminary
assessment of trademark use, so that any use aside from a trademark use shall be
presumptively permissible, provides crucial legal certainty.
A requirement that plaintiffs demonstrate use as a trademark by a third party
would thus serve as a preliminary threshold, limiting litigation of trademark rights
to those cases in which potential consumer confusion is likely to be material and
substantially detrimental. Proponents argue that the trademark use requirement
tailors infringement causes of action to ensure that enforcement serves its purpose
without interfering unnecessarily with the flow of otherwise useful market
information. The requirement also shelters certain unauthorized but beneficial uses
of marks without necessitating a factual inquiry into the issue of consumer
confusion.55 In practice the theory subjugates broad protection for trademark
52
Indeed Campbell appears to have been savvy enough to appreciate the free advertising. In 1965
the company provided Warhol with actual soup can labels to be used as invitations for an exhibit
and, in 1985, commissioned the artist to paint a series of their dry soup mixes. They recognized the
brand enhancement his paintings provided.
53
S. L. DOGAN, M. A. LEMLEY, A Search-cost Theory of Imitating Doctrines in Trademark Law,
in G. B. DINWOODIE, M. D. JANIS, Trade Mark Law and Theory, a Handbook of Contemporary
Research, Edward Elgar, Cheltenham UK, Northampton MA USA, 2008, 65-94.
54
W. M. LANDES, R. POSNER, The Economic Structure of Intellectual Property Law, supra at
note 5, 169.
55
M. BARRETT, Internet Trademark Suits and the Demise of “Trademark Use”, supra at note 7,
379; Cf., G. B. DINWOODIE, M. D. JANIS, Lessons from the Trademark Use Debate, in Iowa L.
301
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John Graziadei and Angela Saltarelli
owners and the value to them in reducing confusion in favor of more information,
greater legal certainty, reduced enforcement costs ex ante, and less anticompetitive
conduct by trademark owners seeking to expand their control over their goods and
services or neighboring industries.
Trademark doctrine must, of course, always justify an owner‘s right to
exclude other entities from using a particular sign. The system must therefore be
guided by an effort to increase its value to the marketplace and to the public rather
than on merely bestowing rewards or benefits to complaining firms. Proponents
argue that trademark use theory accomplishes numerous related objectives. First,
pursuant to trademark use theory, courts are charged with the responsibility of
establishing the existence of trademark use as a matter of law, rather than of
consumer perception as a matter of fact, in order to identify and dispose of cases in
which the degree of consumer confusion at issue fails to justify the potential for
anticompetitive conduct, the increased unpredictability of enforcement, and the
chilling effects of protracted litigation. Although the market may be forced to
adjust to some greater degree of confusion, it would simultaneously benefit from
additional activity by market participants seeking to make socially beneficial uses
of marks in good faith.
Jurisdictions vary concerning their willingness to apply a trademark use
requirement to infringement litigation. English courts are more amenable to the
theory than other European courts, often determining early in infringement
litigation whether conduct has been infringing as a matter of law in order to avoid
factual analysis of consumer confusion in a relevant market.56 As we shall see, had
the ECJ opted to avail itself of the efficiencies of the trademark use requirement
system, model car manufacturers in need of access to Detail Trademarks would not
be liable for infringement, nor would they be intimidated ex ante by the devastating
impact of trademark enforcement litigation. Without it, however, they could
eventually lose the market entirely to large concerns willing to battle over
infringement alleged on the basis of descriptive uses of their trademarks. Indeed,
according to trademark use theorists, without the ―use as a trademark‖ requirement
for finding infringement, trademark owners could accrue through aggressive
litigation an unjustified monopoly over their marks and, in turn, over goods and
markets.57
b.
Likelihood of Confusion
Rev. 2007, 1714 (opining that ―[t]he trademark use doctrine is simply not an effective surgical tool
for defining the normative boundaries within which the likelihood of confusion doctrine can
operate, but is instead a clumsy stratagem for rendering a priori judgments without the benefit of a
contextual inquiry‖).
56
See, for example, Court of Appeal (Civil division) on Appeal from Chancery division, Mr.
Justice Laddie, May 21, 2003, WCA Civ. 96 Case No: A2/2003/007, Arsenal Football Club v.
Matthew Reed, case ―Arsenal‖.
57
I. SIMON, Embellishment: Trade Mark Use Triumph or Decorative Disaster?, supra at note 46,
321-328.
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
302
As we have discussed, trademarks are not property rights but limited
entitlements to protect owners against uses that diminish the informative value of
their marks.58 Trademark law historically limited itself to preventing uses of marks
that ―defraud[ed] the public‖ by confusing people into believing that an infringer‘s
goods were produced or sponsored by the trademark holder.59 Likelihood of
confusion does not necessarily ensue from every instance of third-party
appropriation of a registered trademark; rather, it turns on a long and complicated
analysis of many factors such as competitive proximity, relevant consumer
sophistication, and other factors that explore to what degree, if any, a use will
create a false association in the minds of consumers thereby distorting the
information in the marketplace. Certainly, when the average relevant consumer is
confused, the ability of a trademark to function has been impaired. Many courts
and scholars maintain that such impairment must be prevented notwithstanding the
increased costs so disliked by trademark use theory.
The ECJ‘s 2007 decision in Opel v. Autec appears to move ECJ further away
from trademark use theory.60 In Opel, plaintiff automobile manufacturer sued
remote-control model car manufacturer Autec in German District Court for
trademark infringement alleging that it had wrongfully manufactured and sold a
1:24 scale model based on an Opel to which it had affixed the Opel ―Blitz‖
figurative trademark in the same place where it is found on the automobiles, i.e., as
a Detail Trademark. In its defence, Autec argued that the use of the Blitz logo on
its remote-controlled cars was not ―use as a mark‖ and that it therefore could not be
held to have infringed Opel‘s trademark under the German trademark statute. The
defendant‘s own trademark, together with its trade name and addresses, were
58
S. L. DOGAN, M. A. LEMLEY, A Search-Cost Theory of Imitating Doctrines in Trademark
Law, in G. B. DINWOODIE, M. D. JANIS, Trade Mark Law and Theory, a Handbook of
Contemporary Research, supra at note 53, 65-94, 70; See Beanstalk Group, Inc v AM Gen. Corp.,
283 F.3d 856, 861 (7th Cir. 2002) (stating that ― a trademark is an identifier, not a free standing piece
of intellectual property; hence the rule that a trademark cannot be sold in gross, that is, without the
assets that create the product that it identifies‖); Marshak v. Green, 746 F.2d 927, 929 (2d Cir.1984)
(invoking the rule against assignments of trademarks in gross, which states that ― (a) trade name or
mark is merely a symbol of goodwill; it has no independent significance apart from the goodwill it
symbolizes‖); see generally ETW Corp. v. Jireh Publ‟g, Inc., 332 F.3d 915, 922 (6th Cir. 2003)
(differentiating between trademarks and patents because the latter confer a property right in gross
rather than a limited interest). Professor Landes and Judge Posner explain the rule against the
transfer of trademarks in gross is important to prevent consumer deception during a ―last-period‖
game in which the company is going out of business and wishes to spend its goodwill; the longterm effect of permitting confusion of consumers in this way would be to increase aggregate search
costs, W. M. LANDES, R.A. POSNER, The economic structure of Intellectual Property Law, supra
at note 5, 185-186.
59
S. L. DOGAN, M. A. LEMLEY, A Search-Cost Theory of Imitating Doctrines in Trademark
Law, in G. B. DINWOODIE, M. D. JANIS, Trade Mark Law and Theory, a Handbook of
Contemporary Research, supra at note 53, 65-94, 71; see Taylor v. Carpenter, 23 Fed. Cas. 742,
744 (CCD Mass. 1844).
60
European Court of Justice January 25, 2007, case C-48/05, Adam Opel v. Autec, (2007), ECR I1017 ff., case ―Autec‖.
303
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John Graziadei and Angela Saltarelli
displayed on the remote control device for the cars as well as on the packaging and
user instructions. Indeed, Autec was correct that such descriptive use was not, in
fact, use as a trademark and, in a system incorporating trademark use theory, the
litigation would likely have ended in the preliminary stages as a matter of law.
Seeking guidance from the ECJ, the German district court referred the
question of whether the use of the Opel sign constituted ―use as a mark‖ and, if not,
whether such use was preventable.61 In his opinion, Advocate General Ruiz Jarabo
Colomer found that ―use for toys of a registered sign does not constitute use as a
trade mark within the meaning of Article 5 of [the Trademark Directive], where the
manufacturer of a toy car copies a real car in a reduced scale, including the
proprietor‘s trade mark and markets it since the activity of creating models consists
basically in making an accurate and detailed copy of reality.‖ 62 ―According to the
case-law,‖ the AG explained, ―references made to trade marks for purely
descriptive purposes do not constitute use as a trade mark since, in such situations,
there is no infringement of any of the interests which Article 5(1) is intended to
protect.‖63 The Advocate General referring to, inter alia, the decision in Hölterhoff
v. Ulrich Freiesleben, in which the ECJ adopted Advocate General Jacob‘s
conclusions that
[w]here a sign identical or similar to a registered trade mark is
used by a competitor for a purpose other than [the] essential
function [of identifying goods and services] it is much more
difficult to see why the proprietor should be entitled to prevent
such use. And, as has been pointed out in the observations to the
Court, both the wording of Article 5(5) of the Trade Marks
Directive and the judgment in BMW support the view that the use
which may be prevented under Article 5(1) or (2) is confined to
use for the purposes of distinguishing goods or services. Perhaps
even more cogently, the Commission drew attention at the
hearing to the existence of situations in which it would clearly be
inequitable to allow the trade mark proprietor to prevent use by
third parties yet where the Trade Marks Directive contains no
provision precluding him from doing so if his right is taken to
61
In full, the referring court asked: ―When a trade mark is registered both for motor vehicles and for
toys, does the affixing by a third party, without authorisation from the trade mark proprietor, of a
sign identical to that trade mark on scale models of that make of car, in order to reproduce it
faithfully, and the marketing of those scale models, constitute, for the purposes of Article 5(1)(a) of
the Directive, a use which the trade mark proprietor is entitled to prevent?‖ in European Court of
Justice January 25, 2007, in case C-48/05, Adam Opel v. Autec, (2007), ECR I-1017 ff., case
―Autec‖, para 14.
62
Opinion of the Advocate General Ruiz-Jarabo Colomer, March 7, 2006, C-48/05, Adam Opel v.
Autec, (2007), ECR I-905 ff., case ―Autec‖, para 46.
63
Ibid, para 32.
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
304
extend to all forms of use, including use which cannot and does
not purport to indicate the origin of supplies.64
The Advocate General Colomer also found that, should the ECJ disagree with
his conclusion concerning the inapplicability of Article 5(1) to prevent descriptive
use, the Directive nevertheless permitted the use of trademarks by model car
manufactures insofar as such marks are ―an inherent part of the original which, in
order for the consumer to be better informed and for all operators in the sector to
compete on the same terms, can be considered as falling under Article 6(1)(b) . . .
as one of the other characteristics to which the provision refers.‖65
The ECJ did not reverse the opinion of the Advocate General, but did dismiss
his conclusion that defendant‘s conduct should be permissible as a matter of law
pursuant to Article 6(1)(b), finding that affixing a trademark to a model car is, in
fact, a descriptive use and not an indication of its one of its essential characteristics
such as kind, quality, or intended purpose. The Court‘s decision not to apply
Article 6(1)(b) has been questioned¸ with some scholars arguing that the exception
would have been an expeditious way to protect against what appears to be the
inevitable monopolization of the model car market by a few large players.66 The
Court further opined that Art. 6(1)(c) was also unavailing to the defendant model
car manufacturer, finding that the affixing of the trademark on Autec‘s scale
models was not designated to indicate the ―intended purpose‖ of the goods.67 In
other words, the trademark does not constitute an essential descriptive term
necessary for consumers to understand the model cars, similar to information
relevant to fair use exceptions.68 Instead, it is merely ―an element in the faithful
reproduction of the original vehicles.‖69
64
European Court of Justice, September 20, 2001, Case C‑ 2/00, Hölterhoff v. Ulrich Freiesleben,
(2002), ECR I‑ 4187, case ―Hölterhoff‖, para 16.
65
Ibid, para 51.
66
A. KUR, Small Cars, Big Problems? An Analysis of the ECJ‟s Opel/Autec Decision and its
Consequences, supra at note 20, 329-352.
67
European Court of Justice January 25, 2007, case C-48/05, Adam Opel v. Autec, (2007), ECR I1017 ff., case ―Autec‖, para 29.
68
The fair use doctrine in the United States acknowledges that trademark protection is an exception
to the rule of free competition. Fair use provides a safe haven for uses of trademarked terms that
belong beyond the boundaries of trademark enforcement. A strong fair use defence alleviates
concerns of free riding because there is little justification for eliminating free riding for its own sake
since the purpose of trademark law has never been to maximize profits for trademark owners at the
expense of competitors and consumers. The fair use defence is meant to accommodate the special
concerns that arise when businesses claim exclusive rights in surnames and descriptive words and
symbols. Thus fair use defence focuses on a defendant‘s purpose in applying a surname or
descriptive word or symbol, determined through examination of circumstantial evidence, not on the
impact of the use on consumers. The fair use defence provides defendants who are acting in good
faith leeway to make descriptive use of words and symbols in their primary meaning even if
consumers may perceive the use as source-indicating. Thus, even though a plaintiff demonstrates
that the defendant made a trademark use of it symbol, and even though plaintiff demonstrates that
305
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John Graziadei and Angela Saltarelli
In addressing the question of whether the owner of a trademark registered for
model cars could prevent third parties from using its mark pursuant to Article 5(1),
the ECJ observed, as a preliminary matter, that Article 5(1) does bestow an
exclusive right to the owner of a registered trademark entitling it to prevent third
parties from using it in the course of trade. The ECJ then observed, in contrast to
the the Attorney General‘s decisive opinion, that ―the exclusive right under Article
5(1) was conferred in order to enable the trademark proprietor to protect his
specific interests as proprietor‖ and, therefore, ―the exercise of that right must be
reserved to cases in which . . . use of the sign affects or is liable to affect the
functions of the trademark, in particular its essential function of guaranteeing to
consumers the origin of the goods.‖70 The Court‘s test of whether a particular use
is infringing under Article 5(1) appears similar to Arsenal: the use itself – in this
case descriptive – is not determinative. Rather, the impact of the use on the
trademark itself must be analyzed. If the use is considered liable to impair the
trademark‘s ability to perform its essential function, then the infringement analysis
would continue. Finding that this was a possibility, the Court therefore held that
the German national court should conduct a factual inquiry to determine whether
the trademark‘s ability function had been impaired by the defendant‘s use.
The Court thus held that potential liability depended on whether the relevant
consumer ―perceived the sign identical to the [plaintiff‘s] logo appearing on the
scale models . . . as an indication that those products come from [plaintiff] or an
undertaking economically linked to it.‖71 The test is, in essence, an analysis of the
likelihood of confusion or, more strictly, of antecedent consumer association that
might in turn lead to confusion.72 So, if the relevant public were to interpret the
Opel logo on Autec‘s remote control cars as an indication that the toys were
somehow linked to Opel, the essential guarantee of origin function of the trademark
this trademark use is likely to confuse consumers, the defendant can avoid liability by
demonstrating that it applied the word or symbol in good faith merely for the purpose of describing
its own goods or services. Occasionally the fair use defence is denied because of its propensity to
cause consumer confusion. In KP Permanent Make-up v. Lasting Impressions, 543 U.S. 111, 122
(2004), the Supreme Court continues its tendency to restrain protection in favour of preserving
competition and recognizing distinctiveness as the essential ingredients of trademark protection
when it recognized that fair use and some confusion may coexist. It rejected the approach of the
Ninth Circuit which shifts the burden of proof to the defendant to prove a lack of consumer
confusion. See Margreth Barett, Reconciling Fair Use and Trademark Use, unpublished, pp. 8-12.
69
European Court of Justice, January 25, 2007, case C-48/05, Adam Opel v. Autec, (2007), ECR I1017 ff., case ―Autec‖, para 44.
70
European Court of Justice January 25, 2007, case C-48/05, Adam Opel v. Autec, (2007), ECR I1017 ff., case ―Autec‖, para 31 (emphasis supplied).
71
European Court of Justice, June 13, 2002, case C-206/01, Arsenal Football Club plc v. Matthew
Reed, (2002), ECR I-10273 ff., case ―Arsenal‖, para 24. The German Supreme Court recently held
that there has been no trademark infringement according to Article 5(1)(a) and 5(2) (decision
forthcoming); but see Decision of the Spanish Supreme Court (Sala 1a), 8 March 2004, case
168/2004, Harley Davidson Inc. v. Juguetes Faber S.A., Repertorio de Jurisprudencia Aranzadi Nr.
2004/813.
72
G. B. DINWOODIE, M. D. JANIS ―Confusion Over Use: Contextualism in Trademark Law‖,
Iowa L. Rev. 2007, 1597-1667.
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
306
could be impaired and infringement under Article 5(1)(a) could be found.
Conversely, if the relevant public did not perceive the sign as an indication that the
models originated from Opel or an undertaking economically linked to it, the
German court should conclude that Autec‘s use did not affect the essential
functions of Opel trademark and that there had been no infringing pursuant to
Article 5.73
73
European Court of Justice, January 25, 2007, case C-48/05, Adam Opel v. Autec, (2007), ECR I1017 ff., case ―Autec‖, para 24.
307
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John Graziadei and Angela Saltarelli
4. ANALYSIS
If, as in Arsenal, Autec‘s use of an identical mark on identical goods were
found to implicate Article 5(1) despite the descriptive use of the mark, how could
model car makers avoid liability when they affix identical marks on identical goods
in their production of model cars? According to the Arsenal and Opel Courts, the
answer is found in the minds of the consumers and, at least in the case of Opel,
that‘s where the national courts must look to find it. While the English High Court
found that the use of Arsenal‘s trademark by defendant was not a ―trademark use,‖
it nevertheless found that such use was harmful to its ability to function as a
trademark. To explain why, one must look to the market in which it was
demonstrated that relevant consumers believed the manufacturer of the goods was
economically linked to the football club.74
According to the Advocate General Colomer, while some uses should not be
considered use as a trademark and are therefore outside of the scope of Article 5(1),
these must nevertheless be determined through an analysis of the relevant market,
noting that ―when I stated [in Arsenal that] it was for the national court to specify
the moment at which a trade mark is used [for decorative and not trademark
purposes], I pointed out the need to consider other factors, particularly the nature of
the goods in question, the structure of the market and the position in the market of
the proprietor of the trade mark….‖75 Thus, because the owner of the mark in
Arsenal had a validly registered trademark for sports merchandise, and because the
trademark in that market could potentially function as a symbol of origination to
the relevant consumer market, permitting a descriptive but nevertheless confusing
use by a third party could harm the Arsenal trademark. Accordingly, the use made
by the defendant could therefore be precluded pursuant to Article 5(1).
Providing in Opel an assessment of the presently booming model car market
to frame the context, the Advocate General observed – importantly – that that
particular market had been served by independent model car manufacturers for
more than a century and that automobile manufacturers had only recently begun to
push for control of their marks in that industry. As a result, because of the nature
and history of this specific market, present-day consumers and collectors of model
cars expect that their models are constructed by myriad manufacturers who may
have no connection with the automobile manufacturers whatsoever; that, for
example, the Ferrari Scudetto on a die-cast model 250 GTO does not reliably
signify that the good was made by, or even in conjunction with, the company in
Maranello. He further concluded that consumers of model cars associate the
model‘s Detail Trademark with the trademark on the automobile on which the
model is based and not with the trademarks on the models manufactured for Opel
by its licensees.76
74
Ibid, case ―Arsenal‖.
Opinion of the Advocate General Ruiz-Jarabo Colomer, March 7, 2006, C-48/05, Adam Opel v.
Autec, (2007), ECR I-905 ff., case ―Autec‖, para 33.
76
Ibid, paras 37, 40.
75
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
308
Because trademarks registered in the model car class fail to reliably signal to
the market the characteristic of origin, national courts deciding such cases today
pursuant to the ECJ‘s interpretation of Community Law should generally find that
the descriptive use of a mark by model car manufacturers does not impair the
ability of a trademark to function because the Detail trademark does not – and has
never – functioned effectively as an Origin Trademark. Thus, Detail Trademarks
affixed to model cars should not implicate Article 5. At least for the time being.
Indeed, to hold that automobile trademarks registered in the model car class could
exclude other makers from using the marks in a descriptive manner would be
tantamount to stretching the power of the automobile companies (who, in practice,
have registered most of the automobile trademarks in the model car class) over the
model car industry. To grant them control – significant legal power – over another
industry would contravene the pro-competitive principles of trademark theory.
The ECJ thus concluded that the Detail Trademark may not indicate an
essential characteristic of the good since the identical reproduction of the
automobile logo may not be interpreted by relevant consumers as a mark
guaranteeing origin.77 Nevertheless, while the ECJ could have simultaneously
concluded that the descriptive use implicit in a Detail Trademark excluded it from
application as an Origin Trademark, it deferred this crucial question to the German
national court.78 The result is clear: while national courts may presently decide that
Detail Trademarks do not impair the functionality of Origin Trademarks, trademark
proprietors are free to campaign for the minds of consumers with the hope of
changing their perception concerning the trademarks in order to capture the market
in the future.
5. CONCLUSION
Similar to many European industries, the model car industry is comprised of
a vast array of producers ranging from large toy companies producing inexpensive
toys for children in large quantities to artisans and craftsmen making limited
numbers of exquisite models for serious collectors. However, in ruling on the
various questions referred by national courts and, specifically, in Opel v. Autec, the
ECJ may have made it more difficult for this diverse and growing industry to
continue its robust expansion. Indeed, it is likely that the ECJ‘s decision in Opel
will have a negative impact on the market, limiting the ability of many producers to
continue making and selling their models and of many collectors to enjoy the array
of collectibles previously available to them. Automobile makers, economically
powerful concerns compared to model car makers, typically register their famous
77
Or takes an ―unfair advantage‖ of the reputation of the motor car trademark if the plaintiff is an
automobile producer.
78
T. C. JEHORAM, M. SANTMAN, Opel /Autec: Does the ECJ Realize What it Has Done?, supra
at note 75, 507-510.
309
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John Graziadei and Angela Saltarelli
trademarks in the toy car class and do so with the intention of controlling an
industry related to its own in only the most aesthetic of ways. Should a national
court find that a trademark owner registered for model cars could prevent other
model car makers from using trademarks necessary for naturalistic reproductions,
as the Spanish national court did in Harley Davidson v. Juguetes Faber Sa, the
ability to make naturalistic models using purely descriptive trademarks would be
limited to an extent unprecedented in the model car industry.79 It is, of course,
apparent how so many European industries could be affected by opening the door
to such an unjustified restriction on descriptive use.
Had the ECJ recognized that Article 5(1) required a demonstration of use as a
trademark by alleged infringers, however, it would likely concluded that the
decorative use of Detail Trademarks by model car manufacturers in the creation of
their models is not infringing. Moreover, had the ECJ arrived at this conclusion as
a matter of law, it would have increased legal certainty and consistency across
jurisdictions while reducing costs for manufacturers and consumers. Requiring a
trademark use for infringement, or finding that descriptive use either does not
impair the functionality of Origin Trademarks or is properly beyond the scope of
Art. 5(1), would have provided appropriate protection for the descriptive use of
trademarks generally. This, in turn, would have provided the certainty necessary to
permit smaller manufacturers to commit to production and for financiers to invest
with more confidence. By electing, instead, for a localized consumer confusion
test that ignores the descriptive characteristic inherent in Detail Trademarks, the
ECJ reduced certainty, raised costs for producers, and cast a pall over prospects for
growth and diversity in the model car industry as well as other industries dependent
on access to trademarks for descriptive purposes.
The likelihood of confusion analysis delegated to national courts by the ECJ
also increases temporal uncertainty in the market by permitting large manufacturers
who own the trademarks to important automobile brands (and who likely own the
corresponding marks in the model car class) to allocate their considerable resources
to change consumer perception about the origin of models in an effort to capture
the increasingly lucrative market. Thus, while the trademark use requirement
would have provided legal certainty by basing infringement analysis on a
consistent type of use, the likelihood of confusion analysis also raises costs for
market participants by enabling courts to regularly revisit the question of consumer
confusion, perhaps arriving at different conclusions based on changing perceptions
or as a result of judicial subjectivity. When national courts inevitably arrive at their
irreconcilable factual conclusions, model car makers will face additional challenges
created by territorial restrictions on the marketplace; their markets will be reduced
as will the diversity of models available to collectors.
The evolution of trademark law reflects a continuous rebalancing that seeks
to maximize the informational value of marks while avoiding their use to suppress
79
Spanish Supreme Court (Sala 1a), 8 March 2004, case 168/2004, Harley Davidson Inc. v.
Juguetes Faber S.A., Repertorio de Jurisprudencia Aranzadi Nr. 2004/813.
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
310
access to goods, services, and markets.80 However, it would seem unjustified and
inadvisable to satisfy the anticompetitive potential of trademarks by enabling a few
trademark owners to control entire markets by granting them control not just over
Origin Trademarks but Detail Trademarks as well. Particularly in cases where
trademark owners have substantial economic power, to grant them outsized control
over all uses of their marks would create market friction in the form of, at a
minimum, additional barriers to entry for competitors.81 This would, of course,
result in fewer options, reduced quality, and higher costs for consumers.
As we have seen, if the use of a trademark is descriptive, as in the case of
affixing a Detail Trademark to a model car, then it is generally understood that the
mark no longer functions reliably as an indication of origin – it is no longer
trustworthy for that purpose and it is no longer properly within the scope of Art.
5(1). As a result, in deciding Opel, the ECJ should have resolved the problem of
distinguishing between trademark and descriptive uses of marks as a matter of law
by recognizing that trademark theory doesn‘t support the expansion of the right to
preclude the use of marks in all contexts. The benefits of carefully defining the
differences are clear. The costs of monopolization of marks and protracted
infringement litigation are also clear.82 While it‘s true that consumer perception of
the Detail Trademark may vary by jurisdiction, the increased efficiency in a
marketplace operating under clear rules would certainly work to ameliorate initial
confusion.
In conclusion, the owner of a trademark registered for model cars should not
be able to prohibit the manufacture and sale of model cars which constitute
naturalistic reproductions of real cars on which the owner‘s mark appears because
such use is descriptive, does not conflict with the purpose of trademarks, and is
outside the scope of protection pursuant to Art. 5(1). The ECJ‘s decision in Opel
paves the way for this outcome but, unfortunately, does not guarantee this result for
the many diverse jurisdictions of Europe. Thus, while the ECJ suggested that a
case for infringement under Article 5(1) may be defeated on the basis of nontrademark use, it nevertheless found there could be (under the same circumstances)
an infringement depending on a national court‘s assessment of local consumer
perception. This, of course, provides an opportunity for trademark owners to
campaign for changes in consumer perception in the years to come.
80
S. L. DOGAN, M. A. LEMLEY, A Search-Cost Theory of Imitating Doctrines in Trademark
Law, in G. B. DINWOODIE, M. D. JANIS, Trade Mark Law and Theory, A Handbook of
Contemporary Research, supra at note 53, 65-94, 66
81
Ibid, 65-94, 70; the danger of monopolization of trademarks is explored by G. S. LUNNEY Jr.,
Trademark Monopolies, 48 Emory L. J. 1999, 367, 370.
82
American Honda Motor Co., Inc. v. Pro-Line Protoform and T. Mattson Enterprise, Inc., 2004
U.S. Dist. LEXIS 13949.
311
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John Graziadei and Angela Saltarelli
6. FINAL THOUGHTS
When deciding whether to register automobile trademarks for application on
model cars, companies and authorities must ask for what purpose these marks have
been registered in the model car class. Are they registered to function as Origin
Trademarks on the models as they are on the automobiles after which they are
modelled? Or are registrants seeking to restrict third-party access to their
trademarks – even though use as a Detail Trademark is purely descriptive – in an
effort to corner the market? If the answer is the latter, what is the basis for
inferring the right to preclude such descriptive use in light of the true scope of
protection provided for by Article 5(1)?
As we know, tension between trademark owners and third-party users may
arise in three primary contexts in the life of a trademark: registration, infringement
litigation, and the assertion of fair-use defence.83 In asking whether there has been
an infringement by a third-party model car maker, the question posed assumes the
existence of a validly registered trademark in the model car class. However, in
light of our conclusion that the purely descriptive use of Detail Trademarks should
never be considered infringing, we submit that a system based on sound trademark
theory must question whether there is any theoretical or legal justification for
granting registration of these marks in the first place. Since all infringement
litigation should fail in cases of descriptive use, the market would certainly benefit
from clearer signals not only in the early stages of infringement litigation through
application of trademark use theory, but at an even earlier stage – the point of
registration – where the strength of such marks and the potential outcome of
litigation is first assessed by existing and potential market participants.
83
M. RICOLFI, Strategic Branding (Opel/Autec, Eventmarke), Max Planck Institute paper, 2009,
supra note 5.
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
312
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Case Law
a. ECJ
European Court of Justice February 23, 1999, case C- 63/97, BMW v. Deenik,
(1999) ECR I-905 ff., case ―BMW‖.
European Court of Justice, September 20, 2001, Case C‑ 2/00, Hölterhoff v.
Ulrich Freiesleben, (2002), ECR I‑ 4187 ff., case ―Hölterhoff”.
Opinion of the Advocate General Ruiz-Jarabo Colomer June 13, 2002, C206/01, Arsenal Football Club plc v. Matthew Reed, (2002) ECR I-3422 ff., case
―Arsenal‖.
European Court of Justice June 13, 2002, case C- 206/01, Arsenal Football
Club plc v. Matthew Reed, (2002) ECR I-10273 ff., case ―Arsenal‖.
Opinion of the Advocate General Jacobs July 10, 2003, C-408/01, Adidas
Salomon Ag v. Fitnessworld Trading LTD, (2003) ECR I-3711 ff., case ―Adidas‖.
European Court of Justice October 23, 2003, C-408/01, Adidas Salomon Ag
v. Fitnessworld Trading LTD, (2003) ECR I-4881 ff., case ―Adidas‖.
European Court of Justice November 16, 2004, C-245/02, Anheuser-Busch
v. Bud jovickð Budvar, (2004) ECR I-2013 ff., case ―Budweiser‖.
European Court of Justice March 17, 2005, case C-228/03, The Gillette
Company, Gillette Group Finland Oy v. LA-Laboratories Ltd Oy, (2005) ECR I2337 ff., case ―Gillette‖.
Opinion of the Advocate General Ruiz-Jarabo Colomer March 7, 2006, C48/05 Adam Opel v. Autec, (2007) ECR I-905 ff., case ―Autec‖.
European Court of Justice January 25, 2007, case C-48/05, Adam Opel v.
Autec, (2007) ECR I-1017 ff., case ―Autec‖.
European Court of Justice September 11, 2007, case C-17/06, Céline Sarl v.
Céline SA, (2006) ECR I-7041 ff., case ―Celine‖.
European court of Justice October 10, 2007, C-487/07, L‟Oréal S.A. (and
others) v. Bellure N.V. (and others), (2007) ECR I-7079 ff., case ―l‟Orèal‖.
b. European Member National Cases

England
317
________________________________________________________________________________
John Graziadei and Angela Saltarelli
Court of Appeal ( Civil division) on Appeal from Chancery division, Mr
Justice Laddie, May 21,2003, WCA Civ 96 Case No: A2/2003/007, Arsenal
Football Club v. Matthew Reed, case ―Arsenal‖.

Germany
Bundesgerichtshof, 14 January 2010, I ZR, 88/08.

Italy
Cassazione civile, I° sezione, September 1, 1998, n° 10739, available on
www.cortedicassazione.it
Cassazione civile, I° sezione, September 20,1998 n° 10416, available on
www.cortedicassazione.it
Tribunale di Roma, ordinanza 28 aprile 2004, in Foro It, 2005, 586 ff.

Spain
Spanish Supreme Court (Sala 1a), 8 March 2004, case 168/2004, Harley
Davidson Inc. v. Juguetes Faber S.A., Repertorio de Jurisprudencia Aranzadi Nr.
2004/813.
c. United States
Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 US 203, 205,
53 USPQ 323, 324-25, 1942.
Warner Bros Inc v. Gay Toys Inc, 553 F. Supp 1018, 1983 Us Dist.
American Honda Motor Co Inc v. Pro Line Protoform and T Mattson
Enterprise Inc, F. Supp 2D 1081, 325 F. Supp. 2d 1081; 2004 U.S. Dist. LEXIS
13949.
Dr Ing H.C.F. Porsche AG ans Porsche Cars North America Inc v Universal
Brass Inc., 1995 U.S. Dist Lexis 7079.
Interactive Products Corporation v. A2Z Mobile Office Solutions Inc, 326 F
3d 687, 695, April 10, 2003, (6th Cir 2003 ).
KP Permanent Make-Up, Inc v. Lasting Impression I Inc, 328 F. 3d 1061,
1072 (9th Cir 2003).
Volkswagen Ag v. Dorling Kindersley Publishing Inc, 614 F. Supp. 2d 793,
2009 US dist Lexis 288851.
Legislation
Directive 2008/95/EC of the European Parliament and of the Council of 22
October 2008 to approximate the laws of the Member States relating to trade
marks.
Can the Owner of a Mark Registered for Toy Cars Prohibit the
Manufacture and Sale of Toy Cars which constitute Naturalistic Reproductions
of Real Cars on which the Owner‟s Mark appears?
___________________________________________________________________
318
Council Regulation 09/207/EC of February 26, 2009 on the Community trade
mark, 2009.
Internet
http://juris.bundesgerichtshof.de
http.//en. wikipedia.org
ANALYSIS OF THE GEOGRAPHICAL INDICATIONS IN THE USCOLOMBIA FTA AND CHOICE OF FORUM IN ADJUDICATING A
GEOGRAPHICAL INDICATION’S DISPUTE
by
Sofia Rodriguez-Moreno
A Free Trade Agreement between Colombia and the United States (herein
thereafter referred to as the ―FTA‖) was concluded in 2006.1 The goal of the
agreement is to eliminate tariffs and other barriers to goods and services, and to
expand trade between the United States and Colombia. The agreement is pending
before US Congress and its approval it is expected to happen in 2010. The
intellectual property provisions as well as the dispute settlement provisions are
among the most important parts of the agreement. Given the social and economical
advantages resulting from the protection of Geographical Indications (GIs) for a
developing country like Colombia, it is important to analyze which changes are
introduced in this regard in the FTA. Furthermore, this work will observe some
factors to be taken into account in order to choose between the FTA or the World
Trade Organization (WTO) system of settlement disputes in order to solve a
controversy regarding GIs that may arise between Colombia and the US.
1. SCOPE OF THE APPLICATION
The General Agreement on Trade and Tariffs (GATT) Article XXIV
authorizes members of the World Trade Organization (WTO) to establish free trade
areas.2 Consistent with this agreement the governments of Colombia and the
United States decided to engage in an agreement that will eliminate tariffs and
other barriers in order to trade in good and services. The scope of the agreement
includes important areas relating to customs administration and trade facilitation,
technical barriers to trade, government procurement, investment,
telecommunications, electronic commerce, intellectual property rights and labor
and environmental protection.
In the following part the work will focus on the intellectual property rights
provisions, and specifically on the geographical indications rules in order to
determine what changes are introduced by the FTA and whether or not they go
beyond the requirements of the Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS).3
1
The text of the agreement can be accessed at: http://www.ustr.gov/trade-agreements/free-tradeagreements/colombia-fta/final-text (last visited Feb. 21, 2010).
2
Article 24 of the GATT 1994.
3
Agreement on Trade-Related Aspects of Intellectual Property Rights, 15 April 1994, Marrakesh
Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments-Results of the
Uruguay Round, Vol. 31, 33 IM 81 (1994).
Analysis of the Geographical Indications in the US-Colombia FTA and
Choice of Forum in Adjudicating a Geographical Indication‟s Dispute
___________________________________________________________________
320
2. THE GEOGRAPHICAL INDICATION STANDARD: WHAT GOES
BEYOND TRIPS?
2.1. Geographical Indications under the Current Standard of Protection
According to Article 22.1 TRIPS geographical indications are ―indications
which identify a good as originating in the territory of a Member (country) or a
region o locality in that territory, where a given quality, reputation or other
characteristic of the good is essentially attributable to its geographical origin‖. Such
definition has been incorporated in Decision 486/2000 which is the Common
Regime on Intellectual Property for the countries of the Andean Community
(Bolivia, Peru, Ecuador and Colombia). The Decision makes a distinction between
designations of origin (DOs) and indications of origin (IOs). In fact, DOs indentify
a good as originating in a particular territory, the qualities, reputation, or
characteristics of which are exclusively or essentially attributable to the
geographical environment in which such good is produced, including both natural
and human factors. On the other hand, IOs are understood to be a name, expression,
image, or sign that indicates or evokes a particular country, region, locality, or
place. However, the qualities of the good identified with an IO are not exclusively
attributable to the geographical origin.4
As it can be observed, Colombia as part of the Andean Community, has
given GIs independent protection from trademarks. Such separate protection is due
to the fact that some benefits are said to be obtained by protecting GIs, among them
the promotion of manufacture of local products, the regional marketing of protected
products, the promotion of tourism and touristic routes, the establishment of high
levels of quality control.5 Indeed, through GIs, in the words of J. Bullbrook ―it is
ensured that consumers in international markets will accept and favor the
product‖.6 Evidence of that could be the most famous Colombian GI ―Café de
Colombia‖.
4
Cfr. Articles 201 and 221, Decision 486/ 2000 of December 14, 2000, Common Regime on
Intellectual Property, GO 20, 1ff. Furthermore, Decision 486 also includes additional protection for
GIs for wines and spirits (Articles 135, 215) in the same line as Article 23 TRIPS.
5
D. VIVAS-EUGUI, Negotiations on Geographical Indications in the TRIPs Council and their
Effect on the WTO Agricultural Negotiations – Implications for the Developing Countries and the
Case of Venezuela, in JWIP 2001, 703 ff. at 715. In the same line, M.A. E CHOLS, Geographical
Indications for Food, TRIPs and the Doha Development Agenda, in 47 Journal of African Law,
2003, 199ff. at 200.
6
J. BULLBROOK, Geographical Indications within GATT, in 7 JWIP 2004, 501ff. at 502. See
also, S. REVIRON, Geographical Indications: Creation and Distribution of Economic Value in
Developing Countries, NCCR Trade Working Paper No. 2009/14, 2009, 30ff.
321
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Sofia Rodriguez-Moreno
As L. SCHÜSSLER points out, for many years coffee producers have faced
low and unsteady coffee prices.7 Nevertheless, in the case of Colombia the National
Federation of Colombian Coffee Growers (NFC), a nonprofit and nonpolitical
organization for the collective of over 560.000 coffee growers of Colombia that
tries to stabilize the market for Colombian coffee, has relied not only in trademark
but also on GI protection in order to increase market shares in the global market.8
In fact, in 2005 ―Café de Colombia‖ became the first protected DO in Colombia
and in 2007; it was recognized as a Protected Geographical Indication (PGI) under
the European Community (EC) system (Council Regulation (EC) No. 510/2006).
―Café de Colombia‖ was the first non- EC application ever filed and the first time
that a product from a country outside from the EC was granted protection as a GI
under the EC system.9
Other Colombian products may follow the same path. Besides ―Café de
Colombia‖, the Colombian Patents and Trademarks Office (PTO) has granted
protection as DOs for ―Cholupa del Huila‖ an exotic fruit from Colombia and it is
currently examining the applications for ―Queso del Caquetá‖ for cheese, ―San
Agustín‖ for coffee, ―Cristal‖ for an alcoholic beverage, ―Ron de Caldas‖ for rum,
and ―Cacao de Tumaco‖ for Cocoa. Furthermore, protection as DO was granted in
2009 for a type of handicraft as ―Cestería en Rollo de Guacamayas‖.10
2.2. Geographical Indications under the FTA
The FTA agreement defines GIs as ―indications that identify a good as
originating in the territory of a Party, or a region or locality in that territory, where
a given quality, reputation, or other characteristic of the goods is essentially
attributable to its geographical origin. Any sign or combination of signs, in any
form whatsoever, shall be eligible to be a geographical indication‖ (Note 4 to
Article 16.2). Moreover, Article 16.2 of the FTA establishes that ―each party shall
provide that trademarks shall include collective and certification marks. Each party
shall also provide that signs that may serve, in the course of trade, as geographical
indications may constitute certification or collective marks‖.11
7
L. SCHÜSSLER, Protecting „Single-Origin Coffee‟ within Global Coffee Market: The Role of
Geographical Indications and Trademarks, in TECJILTP, 10(1), 2009, 149ff. at 150. Retrieved
[December 9, 2009] from the World Wide Web: http://www.esteyjournal.com
8
Ibid. at 165. See also, G.E. EVANS and M. BLAKENEY, The Protection of Geographical
Indications after DOHA: QUO VADIS?, in 9 JIEL 2006, 575 ff. at 607.
9
It is important to note that the NFC originally filed an application for a Protected Designation of
Origin (PDO). Nevertheless, it was changed to a Protected GI application (PGI) since Colombian
coffee is based on Arabica species.
10
Further information on Colombian GI‘s can be found at the website of the PTO Office at
httt://www.sic.gov.co (last visited February 9, 2010).
11
It is also important to note Article 16.3 of the FTA:
1. If a Party shall provide the means to apply for protection or petition for recognition of
geographical indications, through a system of protection of trademarks or otherwise, it shall accept
those applications and petitions without the requirement for intercession by a Party on behalf of its
nationals and shall:
(a) process applications or petitions, as relevant with a minimum of formulations.
Analysis of the Geographical Indications in the US-Colombia FTA and
Choice of Forum in Adjudicating a Geographical Indication‟s Dispute
___________________________________________________________________
322
When comparing the above mentioned FTA regulation of GIs with the
current laws under Decision 486/2000, several contradictions arise. First of all,
although the FTA defines GIs as indications that identify a good as originating in
the territory of a Party, it goes beyond to establish that any sign or combination of
signs is eligible for GI protection. The Decision 486 is very specific in requiring
the sign to be either an indication which identifies a good as originating from a
particular territory or to evoke it. Hence, not ―any sign‖ is eligible for GI, but only
those which resort to a geographical area, used to communicate a product's
geographic origins or product characteristics due to a geographic origin.
Secondly, under the FTA GIs can be protected as certification or collective
marks following the US approach under which GIs are not protected independently
from trademarks.12 Several authors have criticized such approach since it is clear
that this approach favors US. In the words of the Colombian former Intellectual
Property FTA negotiator ―…The European and Andean perspective (in Intellectual
Property matters the Andeans have closely followed the European regulations)
privilege geographical indications over trademarks even if they are subsequent in
time to trademarks. In the FTA such preferential treatment disappears‖.13
Furthermore, Colombian Professor of Law J.A. Zarama highlights that the
rules contained in the FTA leave open the possibility of monopolize GIs which are
(b) make its regulations governing filling of such applications or petition, as the case may be,
readily available to the public.
(c) provide that applications or petitions, as the case may be, for geographical indications are
published for opposition, and shall provide procedures for opposing geographical indications that
are the subject of applications or petitions. Each Party shall also provide procedures to cancel a
registration resulting from an application or a petition.
(d) provide that measures governing the filling of applications or petitions for geographical
indications set out clearly the procedures for these actions. Such procedures shall include contact
information sufficient for applicants and/or petitioners to obtain specific procedural guidance
regarding the processing
2. Each Party shall provide that grounds for refusing protection or recognition of a geographical
indication include the following:
(a) the geographical indication is likely to cause confusion with a trademark that is the subject of a
good-faith pending application or registration; and
(b) the geographical indication is likely to cause confusion with a preexisting trademark, the rights
to which have been acquired through use in good faith in that Party.
12
The advantages of protecting geographical symbols under a property rights system are
appropriately explored by Prof. Ricolfi , see M. RICOLFI, ―Geographical Symbols in Intellectual
Property Law: the Policy Options”, in SCHUTZ VON KREATIVITÄT UND WETTBEWERB,
FESTSCHFIRFT FÜR ULRICH LOWENHEIM, ZUM 75. GEBURTSTAG, 2009, 231 ff, at 233.
13
LA. MADRID, Negociaciones de Propiedad Intelectual en el TLC con EEUU: Proceso,
Resultados y Algunos Mitos, Bogota, Universidad Sergio Arboleda, Retrieved [December 9, 2009]
from the World Wide Web: http://www.usergioarboleda.edu.co
323
________________________________________________________________________________
Sofia Rodriguez-Moreno
signs of common use.14 He also explains that the protected interest in the case of
GIs and DOs is the one of a community represented by people which elaborate
their products in a specific geographical place. Hence, consumers acquire a
product, induced by the reputation of the product derived from its geographical
origin rather than from the trademark that may identify it. He argues that in the case
of collective trademarks the protected interest is the product quality that has been
developed by the holders of the trademark. Moreover, in the case of certification
trademarks, the protected interest is the public‘s reliance on the certification
organism in regards to the quality of the product without considering the
importance of the geographical origin of the same.15
Conversely, at the European level Prof. M. Ricolfi stresses out the
importance of collective and certification trademarks as an ideal solution towards a
harmonized protection of geographical signs, which can lead to a system of
multilateral registration of collective and certification trademarks.16 Undoubtedly,
the certification and collective trademarks system has important advantages over
the GIs Andean and European model. Indeed, as explained by Prof. Ricolfi, with
such system (i) registration of the sign is enough to avoid the need to prove
reputation; (ii) the enforcement of the property right granted by registration is
easier to obtain; (iii) the system contributes to the optimal allocation of resources
by means of lowering consumers search costs, a goal also attained due to the
essential information that collective or certification trademarks provide; (iv) it
―provides an incentive for an investment towards a quality-price combination
satisfactory to consumers‖; furthermore, (v) there are already registration systems
in place for individual trademarks.17 Additional benefits/distinctions between the
European and the American approach to GIs are highlighted by American professor
J. Hughes.18 Prof. Hughes explains how certification marks can develop as a matter
of common law without USPTO registration: ―Thus, if an appellation or
denominazione is controlled locally in France or Italy, the producers market in the
United States, and no one else in the United States is using the GI for the same
product, there are probably common law trademark rights under U.S. trademark
doctrine. This means that a European producer can gain common law protection of
its geographical indication in the United States without regard to whether the GI is
protected under an EU member state's trademark law, geographical indications law,
or both‖. 19 Furthermore, Prof. Hughes explains how a certification mark system
14
J.A. ZARAMA, Las Indicaciones Geográficas en el TLC firmado por Colombia y Perú con los
Estados Unidos frente al TLC firmado con Chile, (El problema de la desprotección de las
Denominaciones de Origen)”, in 7 REM (1), Universidad Externado de Colombia, 24 ff, at 23.
Retrieved [December 9, 2009] from the World Wide Web: http://www.emercatoria.edu.co.
15
Ibid.
16
M. RICOLFI, Geographical Symbols in Intellectual Property Law: the Policy Options, supra at
note 12, at 249.
17
Ibid. 233-237.
18
J. HUGHES, Champagne, Feta, and Bourbon: The Spirited Debate about Geographical
Indications, in 58 Hastings L.J. 299, 1ff. at 6. Retrieved [January 16, 2010] from the World Wide
Web: http://www.lexis-nexis.com.
19
Ibid.
Analysis of the Geographical Indications in the US-Colombia FTA and
Choice of Forum in Adjudicating a Geographical Indication‟s Dispute
___________________________________________________________________
324
polices itself on quality controls as well as GIs do, because both GIs and
certification trademarks share the incentive to maintain quality in order to retain
consumer loyalty and to gain new market share.20
These advantages will be applied to Colombia as a result of the protection
adopted in the FTA and therefore, Colombia will certainly benefit from such
system. As a matter of fact, the protection of Colombian GIs in the US already
follows the route of the certification trademark while in Europe they follow the GI
European model. 21
Nevertheless, Colombia as part of the Andean Community has the obligation
to follow Decision 486 which, as examined before, provides independent
protection from trademarks to GIs.22 It is unclear what would be the position of the
other members of the Community (except from Peru that has also signed an FTA
with the US), and how the Decision should be updated in case Ecuador and Bolivia
do not accept the obligations that Colombia has undertaken.23
2.3. What goes beyond TRIPS?
In general, the analyzed FTA norms with regards to GIs do not provide for a
higher standard of protection compared with TRIPS. However, a provision to fulfill
the obligations contained in Article 22.2 TRIPS was not included within the FTA.24
20
Ibid. at 15. He also refutes the thesis according to which stronger GIs rights would benefit
developing countries. According to the author, (i) such argument is unproven; (ii) the most
important geographical names are concentrated in Europe and North America; (iii) certification
trademark law provides a legal framework in which GIs from developing countries can construe
reputational capital that to be exploited and (iv) the same type of initial reputational investment
would be needed to build recognition of a country‘s GIs as would be required with new trademarks.
Ibid. at 28.
21
Indeed, the NFC has maintained since 1981 USPTO registration of the certification mark the
COLOMBIAN (1.160.492) for coffee, which has reached incontestable status. Retrieved [February
21, 2010] from the World Wide Web: http://www.uspto.gov.
22
It is important to distinguish the protection that a geographical sign may get in Colombia. A
geographical sign may be registered as trademark or as a part of a trademark. Nevertheless, if the
protection is oriented to value the geographical origin and the product characteristics due to
geographic origin that the sign conveys, then such sign is registered as a GI. On the contrary, if the
protection is oriented to value the ability of the sign to differentiate products or services of one
company from those of another, then the sign is protected as a trademark. Trademarks and GI under
the Andean Community Decision have two separate regimes and requirements. Authors such as K.
Maskus have established that ―In Colombia geographical indications may be registered as
trademarks […]‖. Articles 134 and 201 of Decision 486/2000 have a clear wording on the law not
allowing for such confusion. K. Maskus in Jeffrey J. Schott, Trade relations between Colombia and
the United States Volume 79, Policy analyses in international economics, Peterson Institute, 2006,
145 ff. at 152.
23
F. M. ABBOT, T. COTTIER, F. GURRY, International Intellectual Property in an Integrated
World Economy, Aspen Publishers, New York, 2007. 683 ff. at 394.
24
Art. 22.2 TRIPS reads: ―[…] 2. In respect of geographical indications, Members shall provide the
legal means for interested parties to prevent: (a) the use of any means in the designation or
325
________________________________________________________________________________
Sofia Rodriguez-Moreno
Unlike the North American Free Trade Agreement (NAFTA)25 in which Article
1712 requires members to provide means for private parties to prevent the use and
registration of false geographical indications that are misleading to the public, the
FTA is silent in this regard.26 It is important to note that as a consequence of
Article 1712, US Congress amended the Lanham Act provisions related to the
registration of false geographical indications and trademarks.27 Nonetheless, no
modification to United States law was made with respect to the use of geographical
indications.28
As for enforcement provisions regarding IP matters in the FTA, it is
necessary to highlight that the main changes introduced by the FTA which have
some differences with the current Colombian enforcement regulations are in the
field of copyright and neighboring rights which would deserve a separate analysis
from this work (article 16.11).
3. THE CHOICE OF FORUM FOR THE SETTLEMENT OF A GI
DISPUTE: THE FTA OR THE WTO SYSTEM?
3.1. Scope of Application of the FTA Dispute Settlement Provisions
Article 21.2 of the FTA limits the application of the dispute settlement
provisions to the disputes between Colombia and the US regarding the
interpretation or application of the agreement or wherever a party considers that the
obligations contained in the FTA have been violated; this applies to the GI disputes
as well. An obvious but important difference from the WTO system comes out of
this rule. The FTA provisions will be only applied to the disputes that arise on the
bilateral level (Colombia –US) while the WTO dispute settlement provisions aim at
operating at a global or near-global level.
On the other hand the FTA dispute settlement provisions do not apply to
disputes that arise between members of the Andean Community (Art. 21.2). This
is an important clarification since initially all the Andean Community countries
were going to negotiate as a bloc a free trade agreement with the US. However, the
governments could not agree on this possibility and it was determined that every
member would decide whether or not to negotiate a bilateral agreement with the
presentation of a good that indicates or suggests that the good in question originates in a
geographical area other than the true place of origin in a manner which misleads the public as to the
geographical origin of the good; (b) any use which constitutes an act of unfair competition within
the meaning of Article 10bis of the Paris Convention (1967).
25
North American Free Trade Agreement (NAFTA), adopted on December 1992 by México,
United States and Canada. Enforce since January 1, 1994.
26
Indeed, it prevents the use and registration of similar trademarks or signs similar to a protected
trademark but not prevents the registration of false GIs. cfr. art. 16.2 (4) FTA.
27
P. M. BRODY, Protection of Geographical Indications in the Wake of TRIPs: Existing United
States Laws and the Administration‟s proposed Legislation, in 84 TR 520, 1994, 520 ff. at 522.
28
Ibid.
Analysis of the Geographical Indications in the US-Colombia FTA and
Choice of Forum in Adjudicating a Geographical Indication‟s Dispute
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326
US. For that reason, disputes among members of the Andean Community will
continue being decided under the dispute settlement mechanism established by the
Andean agreements.
3.2. Choice of Forum, Timeframes and Enforcement of the Decision
Article 21.3 of the FTA sets out that when a dispute regarding any matters
arises under the agreement or another free trade agreement to which the disputing
Parties are party or the WTO agreement, the complaining party may select the
forum in which to settle the dispute. Once the complaining Party has requested a
panel under an agreement referred to in Art. 21-2 paragraph 1, the forum selected
shall be used to the exclusion of the others.
That means that the two countries may choose both the FTA and the WTO
dispute settlement procedures for settling a GI dispute. In the future if Colombia or
the US is faced up to selecting the forum in a GI controversy, it will be important
to consider the type of GI dispute to settle. Colombia or the US may prefer the
WTO mechanism -which has a multilateral nature- if the type of controversy may
be benefited from the participation of third parties (third countries) with substantial
trade interest. Such would be the case of the members of the Andean Community,
which share similar economic needs and structures as Colombia if the type of
dispute allows such members to be on Colombia‘s side or to defend Colombia‘s
interests. On the contrary, the bilateral procedure could be strategically more
discrete when involving other WTO members may have an undesired international
political effect either for Colombia or the US.
As for the timeframes and enforcement of the decision, the FTA (Art. 21.4 21.18) follows the steps of the WTO system. As a first step, the parties commit for
consultations. If consultations are not successful they might request the body
appointed to meet in order to analyze the agreement and if this fails to lead to an
accepted solution the parties can go to a panel. The rules or procedure provide
procedural fairness (right to hearings and submissions) determine the timeline for
issues such as submissions, reports by the panel and if required the suspension of
benefits.29
Other factors to take into account to select the relevant system will be ―the
specific facts of the case, which include the expertise of adjudicators of each
forum, the need for efficiency and specific remedies, and the procedural aspects of
each forum. In addition, there are other factors of a more political nature that may
29
P. DRAHOS, The Bilateral Web of Trade Dispute Settlement, 1ff. at 9. Retrieved [February 21,
2010] from the World Wide Web: http://www.twnside.org.sg. A comprehensive list of the WTO
dispute settlement steps is provided in C. BOWN and B.M. HOECKMAN. BOWN, C. and
HOEKMAN, B., WTO Dispute Settlement and the Missing Developing Country Cases: Engaging
the Private Sector, in JIEL, v8, n4, 2005, 861 ff at 863.
327
________________________________________________________________________________
Sofia Rodriguez-Moreno
affect the state‘s choice of forum, such as whether the state will seek a dispute
settlement or a systemic declaration or what type, importance, or influence the
forum will have, which will affect the state‘s choice of forum‖. 30
Also, it will be important to take into account that the WTO mechanism will
be held at the WTO headquarters in Geneva which involves more costs than
choosing as a forum either the US or Colombia. With respect to this issue a
comprehensive analysis of the costs of actual WTO litigation for developing
countries is made by Bown and Hoeckman, arriving to a bill of approximately
US$500,000 (by 2005) for litigation only (to an exporter for a market access case)
without including the pre-litigation phase of investigation and post-litigation phase
to ensure compliance.31
W. J. Davey points out that in real practice, with the exception of
MERCOSUR32 dispute settlement in regional trade agreements does not seem as
successful as WTO dispute settlement.33 Among the reasons that explain such
situation according to Davey are (i) the WTO dispute settlement system is a more
sophisticated mechanism; (ii) it has a more effective enforcement system, and (iii)
the WTO decisions are observed as more legitimate than many other bilateral
dispute settlement systems.34 Since the FTA provides protection that does not go
beyond TRIPS, the WTO dispute settlement mechanism will enforce the standards
at the level provided in the TRIPS Agreement as well as it would do with the
obligations contained in the FTA.
Additionally, as explained by P. Drahos ―Whether two states pursue a trade
dispute in the WTO using the DSU or whether they use the procedure available to
30
K. KWAK and G. MARCEAU, Overlaps and Conflicts of Jurisdictions between the World Trade
Organization and Regional Trade Agreements, in Regional Trade Agreements and the WTO Legal
System, Edited by L. BARTELS and F. ORTINO, Oxford University Press, Oxford, 2006. 465 ff. at
482.
31
C. BOWN and B.M. HOECKMAN. BOWN, C. and HOEKMAN, B., WTO Dispute Settlement
and the Missing Developing Country Cases: Engaging the Private Sector, at note 29, at 870.
32
MERCOSUR agreement or Mercado Común del Sur (Southern Common Market) was adopted on
March, 1991 by Argentina, Brasil, Paraguay, Uruguay and Venezuela. It came into force in 1995.
33
W. J. DAVEY, Dispute Settlement in the WTO and RTAs: A Comment, in Regional Trade
Agreements and the WTO Legal System, Edited by L. BARTELS and F. ORTINO, Oxford
University Press, Oxford, 2006. 343 ff. at 354.
34
Ibid. at 355. An interesting analysis in regards to the success of developing countries in WTO
disputes is made by C. BOWN; he wonders ―what can developing countries do to increase the
likelihood that they will achieve success as plaintiffs in trade disputes? Can they do anything to
improve the likelihood that developed countries will abide by their market access commitments?
Perhaps an obvious question that is frequently lost in the discussion is that developing countries
should continue to liberalize and expand their own market access commitments in order to receive
more exports from developed trading partners and thus to become more integrate in the world
trading system….Having substantial imports will give developing countries the power to make
credible threats that they will take away valuable concessions from developed trading partners who
refuse to comply with their WTO obligations and whom they might face as defendants in WTO
trading disputes‖, C. BOWN, Developing Countries as Plaintiffs and Defendants in GATT/WTO
Trade Disputes, TWE v27, n1 2004, 1ff at 26.
Analysis of the Geographical Indications in the US-Colombia FTA and
Choice of Forum in Adjudicating a Geographical Indication‟s Dispute
___________________________________________________________________
328
them under a bilateral trade agreement, the dispute still remains a bilateral dispute.
In either case, the superior bargaining power of a strong state also remains.‖35
Colombia and the US are free to submit their GI disputes regarding matters
concerned by the agreement to the WTO or to use the dispute settlement
environment established by the FTA. Nevertheless, in order to promote the
uniformity in decisions a party should not undergo a process before an arbitral
Panel formed according to the FTA provisions and bring the same controversy
before the WTO. Otherwise, the parties could be encountering different decisions
since the WTO Panelists‘ decisions will be influenced by the WTO goals of trade
liberalization while the FTA Panelists‘ decisions will reflect the FTA objective of
commercial cooperation among two countries: the US and Colombia.
Finally, one major issue to look at when choosing between the FTA or the
WTO forum is that under the FTA the Panel‘s ruling cannot be appealed. It is
interesting to see that countries that have established regional trade agreements
such as MERCOSUR have decided little by little to introduce innovations in their
rulings in order to allow the appeal of the decisions by creating an international
judicial body in charge of issuing a decision on appeal. In fact, just by means of the
Protocol of Olivos in 2004, MERCOSUR introduced the possibility of appeal for
decisions issued by ad hoc arbitration tribunals.36 Probably with the time Colombia
and the US will include the possibility of appeal for the disputing parties, by means
of the creation of a neutral appeal body. In fact, it would be useful for disputing
parties to have a neutral body to review the decision on points of law and to correct
possible mistakes that the Panel could have made on legal interpretation of GI
provisions.
4. CONCLUSIONS
According to the above analysis, Colombia‘s current GI regime is close to the
European model of protection. Nevertheless, there are many advantages of
adopting the collective and certification trademark system and therefore Colombia
has been benefited from the FTA regime.
However, it is evident that although GIs have been included as a protected
interest in the FTA, there is a substantial difference between the current regulation
contained in the Common Regime for the Andean Community countries and the
type of protection allowed by the FTA. Such difference puts Colombia in a difficult
position since it is bound to comply with Decision 486. Sooner or later, the
35
36
P. DRAHOS, The Bilateral Web of Trade Dispute Settlement, supra at 29 at 14.
A comprehensive study has been made by G. LUCARELLI and J. GAMA, Considerations of the
Mercosur Dispute Settlement Mechanism and the Impact of its Decisions in the WTO Dispute
Resolution System, 2006, 31ff.
329
________________________________________________________________________________
Sofia Rodriguez-Moreno
government of Colombia will have to address this issue in regards to its Andean
Community partners.
On the other hand, since the GI‘s protection in the FTA does not go beyond
TRIPS, Colombia and the US will have to take a look at different factors that were
described in this work, when adjudicating a controversy regarding GIs in order to
select the relevant dispute settlement system.
Analysis of the Geographical Indications in the US-Colombia FTA and
Choice of Forum in Adjudicating a Geographical Indication‟s Dispute
___________________________________________________________________
330
BIBLIOGRAPHY
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Trading System, New York: Oxford University Press, 2001.
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GEOGRAPHICAL INDICATIONS:
A REVIEW OF GI PROTECTION IN SWITZERLAND
by
Larissa Thommen
INTRODUCTION
The protection of geographical indications (GIs) has long been the untended
patch of the intellectual property law garden. That is not to say that this branch of
intellectual property law has withered. However, the use of GIs as a means of
protecting intellectual property has not enjoyed the some broad support as
trademarks (TMs) or copyrights. This situation is now changing.1
Europe has a long history of protecting GIs which have existed for hundreds
of years. So in Yugoslavia, as early as 1222, a Charter of Steven I governed the
sale of wine. So-called ―guild marks‖ were a common means indicating the
geographical origin of products in Middle Ages. Murano glass from the island near
Venice, Italy is an example of those that remain common today.
Marks indicating the geographical origin of goods were the earliest type of
TMs, taking into account that the products of particular regions having special
quality and some features were more saleable. Climate, geology, indigenous raw
materials, food processing techniques local to a region also as manufacturing skills
were by those features identifying the quality of goods creating their
distinctiveness. The evolution of general marks associated with a region to the
specific ―trade‖ marks that apply to the products of individual manufactures, has
not resulted in the disappearance of geographical marks. This is particularly so in
Europe where substantial processed food markets and markets for alcoholic
beverages are dependent upon the continued recognition of GIs.2
Like TMs or commercial names, GIs are distinctive signs with permit the
identification of products on the market. If they are used in the proper way and are
well protected; they can become an effective marketing tool of great economic
value. GIs indeed convey the cultural identity of nation, religion or specific area.
They make it possible to add value to the natural riches of country and to the skills
of its population, and they give local products a distinguishable identity.3
1, 2
B. O‘CONNOR, The Law of Geographical Indications, Cameron May Ltd, London, 2004, 1 ff., at
21-22.
3
F. ADDOR, A. GRAZIOLI, Geographical Indications Beyond Wines and Spirits. A Roadmap for a
Better Protection for Geographical Indications in the WTO/TRIPs Agreement, in JWIP 2002, 865
ff., at 865
334
Geographical Indications: A Review of GI Protection in Switzerland
________________________________________________________________________________
Starting from a review of the current protection of GIs at the international
level and at the Swiss level, the purpose of this paper is to analyze how the current
reform of the Swiss legislation and the proposed enhanced protection for
the‖Swissness‖ concept fit in the overall debate on the protection of unique
products, whose quality and/or reputation is due to their geographical origin.
1. GENERAL PROTECTION OF GEOGRAPHICAL INDICATIONS (GIs)
1.1. What are Geographical Indications?
A GI is an expression with a ―place-goods‖ connection with permits the
producers of products or offers of services of certain geographical region to claim a
right in such region. A GI, therefore, is a broad term which refers to any type of
expression which connotes a geographical origin of particular product.4 GIs,
however, do not protect products or methods of production as such, but rather
confer to all producers from a given geographical area the exclusive rights to use a
distinctive sign identifying their products. In case of properly using of GIs and also
if it is well protected, they can receive worthwhile marketing tool, as they enable
the producers to convey the considerable information to the consumers.
Even though the Paris Convention for the Protection of Industrial Property
does not provides explicitly the expression of GIs, but the new standard global
definition of GIs is found in the WTO TRIPs Agreement of 15 April 1994, Art. 22
(1), which states: ―GIs are, for the purpose of this Agreement, indications which
identify a good as originating in the territory of a member or a region or locality in
that territory, where a given quality, reputation or other characteristic of the good
is essentially attributable to its geographical origin‖.5
The TRIPs definition of GIs includes also Appellations of Origin (AOs),
since the Lisbon Agreement limits AOs to the criteria of quality or characteristics
of a product attributable to its geographical origin, whereas the TRIPs mentions
also the reputation of the product. Although, the definition of GIs is similar to the
definition of AOs that given in the Lisbon Agreement, but it does not cover all GIs.
Following the wording of Article 22 (1) of TRIPs, not all types of GIs are covered
there being further requirements in relation to goods. However, protection is also
granted to places not known in other countries or by consumers. Services are not
cover by this wording.6
4
C. LACKERT, Geographical Indications: What does the WTO TRIPs Agreement Require?, in TMW
1998, 22 ff., at 22
5
Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh
Agreement Establishing, the World Trade Organization, Annex 1C, Legal Instruments-Resultants of
the Uruguay Round, 33 I.L.M. 1197 (1994) [hereinafter TRIPs Agreement].
6
M. BUNDI, Swiss Trade Marks Practice on Misleading Geographical Indications, in JIPLP 2008,
262 ff., at 264
Larisa Thommen
335
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2. The Concepts of Indications of Source (ISs) and Appellations of Origin
(AOs)
There are two multilateral Agreements concerning ISs: the Paris Convention
of 20 Mach 1883 for the Protection of Industrial Property7 and the Madrid
Agreement of 14 April 1891 for the Repression of False or Deceptive Indications
of Source on Goods8 which do not define the term IS. Nevertheless, Art. 1(1) of the
Madrid Agreement contains elements clarifying that are meant by this term: ―All
goods bearing a false or deceptive indication by which one of the countries to
which this Agreement applies, or a place therein, is directly indicated as being the
country or place of origin shall be on importation into any of the said countries.‖
Based on this, an IS can be defined as: Any expression or sign used to indicate that
a product or a service originates in a country, region or a specific place, without
any element of quality or reputation.9 This distinguishes them from GIs. However,
like GIs, ISs relate to the geographical area from where the product originates and
not to another type of origin such as the product manufacturer, as for TMs. IS can
be words that directly indicate the origin of the product such as the name of
countries or of regions, and cities therein. Also it can be in another written
figurative form, symbols, emblems that call up to the geographical origin of the
product indirectly – the name of ―William Tell‖ for Swiss products or the ―Eiffel
Tower‖ for products from region of Paris.
AO is a term used in Art. 1(2) of the Paris Convention and identifying in Art.
2 of the Lisbon Agreement for the Protection of AOs as follow: ―Appellation of
Origin means the geographical name of a country, region or locality, which serves
to designate a product originating therein, the quality or characteristics of which are
due exclusively or essentially to the geographical environment, including natural
and human factors.10
Three elements constitute the notion:
7
Paris Convention for the Protection of Industrial Property of 20 March 1883, as revised at Brussels
on 14 December 1900, at Washington on 2 June 1911, at The Hague on 6 November 1925, at
London on 2 June 1934, at Lisbon on 31 October 1958, and at Stockholm on 14 July 1967, and as
amended on 28 September 1979, 21 U.S.T. 1583, 828 U.N.T.S. 305, [hereinafter Paris Convention]
8
Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods of 14
April 1891, Act revised at Washington on 2 June 1911, at The Hague on 6 November 1925, at
London on 2 June 1934, and at Lisbon on 31 October 1958, Additional Act of Stockholm of 14 July
1967, 828 U.N.T.S. 168, [hereinafter Madrid Agreement]
9
F. ADDOR, A. GRAZIOLI, Geographical Indications Beyond Wines and Spirits, supra at note 3, at
867.
10
Lisbon Agreement for the Protection of Appellations of Origin and their International
Registration of 31 October 1958, as revised at Stockholm on 14 July 1967, and as amended on 28
September 1979, 923 U.N.T.S. 205, [hereinafter Lisbon Agreement]
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Geographical Indications: A Review of GI Protection in Switzerland
________________________________________________________________________________



appellations must be direct geographical names;
appellation must serve as a designation of geographical origin of the
product;
quality and characteristics exhibited by the product must be essentially
attributable to the designated area of geographical origin.
This is similar to GIs, but the definition of AO has higher requirements with
regard to the following two main points. First, for AOs, mere ―reputation‖ of the
products is not sufficient to get protection by an AO; specific qualities or
characteristics need to be expressed in the particular product. Second, AOs must be
direct geographical names of countries, regions or localities; mere symbols or
emblems evoking indirectly a geographical origin are nor sufficient.11
3. PROTECTION OF GEOGRAPHICAL INDICATIONS AT THE
INTERNATIONAL LEVEL
As present below, there are 3 multilateral agreements relating to the
protection of GIs and relatedconcepts in addition to the TRIPs.
The Paris Convention for the Protection of Industrial Property
The Paris Convention for the Protection of Industrial Property (Paris
Convention) of 1883 was the first international agreement relating to the protection
of GIs. Art. 10(1) of the Convention provides for the certain remedies in respect
unlawful use of ISs on goods, meaning that no ISs may be used if it refers to a
geographical area from which the products in question do not originate. It does not
mention AOs expressly; however, they are covered by the term ISs as all AOs are
considered of the source of goods. The basis for protection against misleading ISs,
including AOs is given in Article 11bis and it obliges members to provide protection
against unfair competition containing a non-exhaustive list of acts, which are to be
prohibited. The Paris Convention does not provide for any special remedies against
infringement of this provision.
The Madrid Agreement for the Repression of False or Deceptive Indications of
Source on Goods
The Madrid Agreement for the Repression of False or Deceptive Indications
of Source on Goods (Madrid Agreement) of 1891 was the first multilateral
agreement providing specific rules for the repression of false and deceptive ISs and
did not add much to the protection already given by the Paris Convention, but it
extended protection to the deceptive ISs in addition to false indications, which can
11
F. ADDOR, A. GRAZIOLI, Geographical Indications Beyond Wines and Spirits, supra at note 3, at
868.
Larisa Thommen
337
________________________________________________________________________________
be the true name of place where the good originates from ,but nevertheless
confusing the purchaser in respect to the true origin and quality of the good.
The Lisbon Agreement for the Protection of Appellations of Origin and Their
International Registration
The Lisbon Agreement for the Protection of Appellations of Origin and Their
International
Registration gives a proper AO definition reflecting two basis requirements for an
AO to be protected:
 the AO should be protected in its country of origin, and
 the AO should be registered in the International Register of WIPO
In accordance with its terms, countries are free to adopt its own system for
AOs designating by juridical and/or administrative decision. Protection against all
usurpation or imitation, including cases there the true origin of a product is
indicated or where the AO is used in translated form or accompanied by terms such
as: ―kind‖, ―type‖, ―make‖, ―imitation‖ or ―like‖ stipulated in Art.3. Once
registered, it is protected in other contracting parties and they have to protect the
AO, to which international protection was required, except if a contracting party
declares, within a period of one year that it can not ensure the protection for a
certain application. There are no specified grounds for refusal to names in the
Agreement. The duration of the protection by international registration is the same
which given in the country of origin of AOs and therefore no requirements for
international renewal.
The TRIPS Agreement on the Protection of Geographical Indications
A specific section of the WTO TRIPs Agreement is dedicated to GIs. It is the
first multilateral text dealing with GIs as such and may be rightly considered an
important first step in this difficult field. Given its groundbreaking nature, this
section of the Agreement begins with a definition of what constitutes a GI. This
should be welcomed because definitions are crucial to distinguish GIs from the
notion of IS and that of AO. At first glance Art. 22 (1) resembles Art. 2 of the
Lisbon Agreement, yet it differs from Lisbon on a number of points: (1) AO under
the Lisbon Agreement are necessarily geographical names of a country, region, or
locality, while GIs under TRIPs are any indication pointing to a given country,
region or locality; (2) AO under Lisbon designates a product, while a GI under
TRIPs identifies a good; (3) Lisbon limits appellations to the quality or
characteristics of a product, while TRIPs also mentions its reputation; (4) finally,
AOs refer to a geographical environment, including natural and human factors,
while TRIPs uses a more general concept of "geographical origin".12 Art. 22
provides the basis framework for GIs establishing the minimum scope of protection
and is limited if the public misled concerning real geographical origin of goods or
12
D. Cervais, The TRIPS Agreement: Interpretation and Implementation, in EIPR 1999, 156 ff., at
158.
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Geographical Indications: A Review of GI Protection in Switzerland
________________________________________________________________________________
if it constitutes acts of unfair competition. Moreover, Art.22 does not prevent the
use of GIs in translation or accompanied by a ―de-localizer‖.13
Additional Protection for Geographical Indications for Wines and Spirits
Art. 23 of TRIPs provides stronger protection than does Art. 22 for GIs used
in respect of wines and spirits. In this regard, member countries are required to
provide interested parties with the legal means to prevent the use of a GI for wines
or spirits not originating in the place indicated by the GI. The most relevant reasons
that GIs for wines and spirits deserve stronger protection under Art. 23 of the
TRIPs are their reputation. Long time ago, wines and spirits from particular regions
have acquired reputation thanks to their qualities. Unlike Art. 22, under this
provision no requirement that the use of the GI is misleading in order to be
enforceable, except in relation to the registration of TMs containing a GI for wines
and spirits. Furthermore, use of a false GI for wines and spirits will be prohibited
even where the true place of origin is indicated or is accompanied by terms such as
―kind‖, ―type‖ or ―style‖. This provision has a purpose to balance between the
producer concerns from misappropriation of the products and consumer
expectations excluding the trickery regarding wines and spirits.
International Negotiations, Exceptions.
In general, Art. 24 of the TRIPs provides exceptions that limit Art. 22 and 23.
Based on Art. 24(4), continued and similar use of a GI in respect of wines and
spirits by other parties in the member countries for 10 years prior to the enactment
of the TRIPs is permitted. This means that, even though Art. 23 specifically
provides greater protection for wines and spirits, but under Art. 24(4), the
protection is limited to the use after entering the TRIPs into force. Another
exception is Art. 24(5) dealing with the relationship of GIs to TMs. With respect to
the registration of TMs, a TM registered in good faith before the enactment of the
TRIPs remains valid and a TM consisting of a GI is valid if the GI has not yet been
registered in its country of origin.
A further possibility of international protection of GIs is the conclusion of
bilateral and/or regional agreements specifying a kind and lists of GIs protected by
the contracting parties. Although, the scope of protection remains de minimis and
often limited to specific products such as wines and/or spirits.
4. PROTECTION OF GEOGRAPHICAL INDICATIONS AT THE
NATIONAL LEVEL
There are a few forms of protection of GIs at the national level: Special Title
of Protection, Registration of Collective Marks or Certification Marks, and the Law
13
M. VITTORI, The International Debate on Geographical Indications (GIs): The Point of View of
the Global Coalition of GI Producers-oriGIn, in JWIP 2009, 1 ff., at 4
Larisa Thommen
339
________________________________________________________________________________
of Unfair Competition (Passing-Off) or the TM Law developing locally and is
limited by the territory of its jurisdiction. Therefore it is impossible to secure
protection of domestic geographical symbols abroad by means of domestic
legislation alone: international cooperation is indispensable. Domestic provisions
may be fashioned in such a way as to optimize the possibility of extension abroad
of domestic protection. Conversely, domestic rules may be fashioned in a way
which is art to minimize the rate of access of foreign GIs to domestic market.
While welfare-economics considerations as to the comparative efficiency of the
different solutions may be to a certain extent be taken into account in this
lawmaking process, they are not likely to be decisive for the ultimate choice.14
4.1. Unfair Competition
Under the Unfair Competition Law principles, in order to be protected, a
given GI must have acquired a certain reputation or goodwill. In other words,
consumers must associate the GI with the place of origin of its products or services.
Furthermore, it is required that the use of a certain GI on goods or services not
originating from the geographic area is misleading, so that consumers are deceived
against the true place of the product or service. In this regard, proof of damages
caused by such misleading practices is required. In order to be protected under the
Law of Unfair Competition, a GI should have a reputation. Therefore, a GI which
does not have an established reputation yet in the market, may not be protected by
the Law of Unfair Competition. Yet, a GI which has not been used for a certain
time may lose its reputation and may no longer be protected under Unfair
Competition Law principles. Under the TM Law, a GI may be protected by
refusing or invalidating TMs that consist wholly or partly of a GI which misleads
consumers about the real geographic origin of the goods. This kind of protection
may be accorded in members countries pursuant to Article 22(3) of the TRIPs
Agreement.
Protection accorded to GIs following a lawsuit based on unfair competition is
only effective between the parties to the procedure. The entitlement to protection of
a given GI shall be demonstrated every time enforcement is sought.
4.2. Trademarks, Certification Marks and Collective Marks
Most TM Laws, in general, prohibit the registration of a geographical name
because considered descriptive. However, under certain conditions, a geographical
name can be registered as a TM, for instance, if it has acquired a ―secondary
meaning‖. If this is not the case, GI producers have often been forced to seek a
limited protection - for their logo only - via a figurative TM registration. In
addition, experience shows that some IP Offices regularly reject registration
14
M. RICOLFI, Geographical Symbols in Intellectual Property Law: the Policy Options,
in Festschrift für Ulrich Loewenheim zum 75. Geburstag, Schutz von Kreativität und Wettbewerb,
C.H.Beck, Munich, 2009, 321 ff., at 244
340
Geographical Indications: A Review of GI Protection in Switzerland
________________________________________________________________________________
requests from producers on the grounds that GI names are: a simple indication of
the place of origin of the goods (i.e. an IS) and/or a generic name.
GIs are often protected via a Collective or a Certification Mark when such
legal concepts exist and which usually depend on the applicable national law. They
may serve to indicate the origin of goods or services, thus to some extent they may
be suitable for the protection of GIs. A Collective Mark is a mark which may be
only used by members of a collective body: associations, cooperative
manufacturers, producers, traders. The Collective Mark is owned by the association
which exclusively grants its member to use it and is governed by rules, which has
to be submitted to the IP Office together with the application for registration. Once
a GI has been registered as a Collective Mark, the association has the right to
prohibit its use by not member of the association. However, the registration of a GI
as a Collective Mark may not prevent the mark from becoming a generic term. Yet,
this system contains requirements of the use which may be subject to the
cancellation of registration, when the Collective Mark is not continuously used. On
the contrary to Collective Marks, Certification Marks are not owned by a collective
body such as an association of producers, but by a certification authority. Such an
authority may be a local council or an association or a commission which is not
engaged in the production or the trade of the product concerned. In this regard, the
owner of Certification Marks must ensure that the goods bearing the Certification
Mark pose a certified quality.
The geographical character of the symbol is not nor an obstacle to the
registration of Collective and Certification TMs. The reason for this rule, much
more liberal than the opposite one applicable to individual geographical TMs, are
quite straightforward. Once the business located in a certain area has set up the
organization registering the TM and are in principle entitled to obtain an
authorization to use the same, there is no risk that competitors are disadvantaged or
consumers deceived.15
4.3. Sui generis System
In countries where there is a sui generis system which provides for the
registration of GIs, producers do not encounter major difficulties in protecting their
IPRs on their name. It is much more difficult, monetary and time costly for GI
producers to rely on unfair competition and consumer protection acts, passing off
actions or the TM regime.
The EU has come up with a third sui generis option for protection of
geographical symbols, which is provided by regime initially set up by Reg. No
2081/1992 and later refurbished by Reg. No 510/2006. Under EU law, access
requirements to GI protection are rather low. This is immediately apparent. Indeed,
Art.2 (1) (a) of Reg. No 510/2006 protects as designation of origin only agricultural
15
M. RICOLFI, Geographical Symbols in Intellectual Property Law: the Policy Options, supra at
note 14, at 234
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products which at least in principle are unique, as ―the quality or characteristics of
which‖, according to this provision, ―are essentially or exclusively due to a
particular geographical environment with its natural and human factors‖.16 The
Regulation 510/200617 sets out provisions on agricultural products and foodstuffs
(excluding all wine-sector products, except wine vinegar) from a defined
geographical area. If there is a link between the characteristics of certain products
and their geographical origin, they may qualify for either a protected geographical
indication (PGI) or a protected designation of origin (PDO) and they are different.
The PDOs cover the term used to describe foodstuffs which are produced,
processed and prepared in a given geographical area using recognized know-how
(such as Mozzarella di Bufala Campana).The PGIs indicate a link with the area in
at least one of the stages of production, processing or preparation (such as Turrón
de Alicante). Therefore, the link with the area is stronger for PDOs. Generic names,
that have become common names for a product even though they refer to a
geographical region, can not be granted PDO or PGI status. No exhaustive list of
generic exist and they are defined only when a producer group attempts to register
such names.18
According to the Art.13 and 14 of Reg. 510/2006 the product is protected
against any practice liable to mislead the consumer as to the true origin of the
product, for example: any direct or indirect use of the registered name by a product
not covered by the registration or by any misuse or imitation not only in a language
of the application but also in translation.
Several countries have ex officio protection, where the public authorities can
intervene without being asked to. Such countries are geographically closed to the
EU (exl: Switzerland). Also some countries have an ex officio protection but with a
limited scope (Japan for liquors, Chile for wines and spirits GIs), as a result of the
bilateral agreement signed with the EU. Such countries, as Algeria, Tunisia and
Mauritius, have ex parte and ex officio protection available at the request of the
competent authorities, for example governmental bodies and GI groups, that
however, difficult to know how often and how well the controls are made. In
general, the EU legislation is perceived as the model for the protection of GIs by
third countries. The scope of the protection offered in the EU, in particular the ex
officio protection, is therefore of high importance to these countries.
Over the past years more and more countries around the world have
established sui generis systems for GI protection. This process in ongoing and will
certainly facilitate the protection of GIs around the world demonstrating the fact
16
M. RICOLFI, Geographical Symbols in Intellectual Property Law: the Policy Options, supra at
note 14, at 340
17
Council Regulation (EC) No 510/2006 of 20 March 2006 on the Protection of Geographical
Indications and Designations of Origin for Agricultural Products and Foodstuffs, 1 ff.
18
T. Josling, The War on Terroir: Geographical Indications as a Transatlantic Trade Conflict,
in JAE 2006, 337 ff., at 345
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Geographical Indications: A Review of GI Protection in Switzerland
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that countries recognize the need for a specific GI protection system that coexists
with TM regimes.
5. GEOGRAPHICAL INDICATIONS AND TRADEMARKS:
COEXISTENCE AND POTENTIAL CONFLICTS
Although GIs and TMs represent different spheres of distinguishing marks,
the efforts to protect them sometimes create conflicts. Such conflicts arise between
TMs and PGIs for identical/similar products containing the same sign.
Nevertheless, it is difficult determining who should have the right to use that sign
as TM or GI. The question whether exclusivity of a registered TM trumps a laterin-time PGI is also of great significance. The conflicts that arise can be settled from
either a TM perspective or a GI perspective and depending on which perspective is
used, conflicts will be dealt with differently. It is, basically, a matter of either
granting exclusive rights to either the TM or the GI according to a ―first-in-time,
first-in-right‖ scheme, or granting the GI exclusive rights, without taking possible
prior TMs into account, or prescribing a co-existence of the TM and the GI.
TRIPS deals with these conflicts by prescribing that previously registered
TMs containing a PGI can be invalidated, under certain circumstances. Such
circumstances include the situation when the use of a TM ―is of such a nature as to
mislead the public‖ about the origin of the goods carrying it. The burden of proof
lay on the producer claiming that an illegitimate use of the GI is taking place. But if
the GI relates to wine or spirits, no proof regarding risk of misleading is needed;
the TM shall be invalidated anyway. Nonetheless, a TM will prevail, even though it
is ―identical‖ or ―similar‖ to the GI if it is registered or applied for in good faith,
before a certain time, or if rights to it have been acquired through use.19
Moreover, Art 22 TRIPs allows for the use of a GI by producers from outside
the designated geographical area, provided that such a use is accompanied by a
corrective label. Such a label discloses the true origin of the good, thus disclosing
that it is another than what is actually indicated by the GI that the good carries. The
position of TRIPs is that corrective labels prevent consumers from being misled
about the actual origin of the good. By identifying the true origin, the GI can be
legitimately used on the good, even though it originates from elsewhere.20
However, corrective labels cannot be used on wines or spirits, according to Art 23
TRIPs. It is further noted that Reg. No 510/2006 proscribes the use of corrective
labels – a prohibition which thus applies to corrective labels on agricultural
products.
19
M. BLAKENEY, Proposal for the International Regulations of Geographical Indications, in JWIP
2001, 641 ff., at 64320 D. Rangnekar, Demanding Stronger Protection for Geographical Indication:
The Relationship between Local Knowledge, Information and Reputation, UNU-INTECH,
Netherlands, 2004, 1 ff., at 13
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Conflicts will at times also be settled in direct favor of the TM. So Parma
Ham is a PGI within the EU, but cannot be used as GI in Canada or Mexico. A
prior Canadian TM registration of the very same connotation renders such use
impossible. Often, countries in support of more limited GI protection measures use
TM Law as the vehicle for protection, which involves a ―first-in-time, first-inright‖ resolution of conflicts. In such situations, producers of GI labeled goods will
be denied the right to use that GI as a direct result of the principle of priority.
Furthermore, TM Law itself sometimes hinders producers of GI labeled
goods to use the GI relating to the goods. Since GIs commonly entail geographical
references, such as names of regions or cities, they cannot be registered under TM Law
since such names are in nature descriptive.
6. PROTECTION OF GIs IN SWITZERLAND21
6.1. General Legal Framework
Switzerland has a long tradition, since 19th century, for protecting GIs for all
goods and services. Until the adoption of special rules for the registration of GIs for
agricultural products in 1997, legal protection for agricultural GIs was exclusively
granted under the Federal Law on the Protection of Trademarks and Indications of
Source22 providing general protection. Under this law, protection of GIs is granted
automatically, without a formal notification/registration procedure, provided that
certain conditions are satisfied. In addition to the protection granted by the TM
Law, producers of agricultural products have, since 1997, the possibility of
entering their GIs in a national registry. The first GI for such products was
registered in January 2000. The Ordinance23 on PAOs and PGIs distinguishes two
different types of GIs, the Appellation d‟origine contrôle (AOC/PAO) and the
Indication géographique protégée (IGP/PGI).
The AOC constitutes the name of a place, region, or traditional denomination
that is used to designate an agricultural product whose quality and character draw
essentially or exclusively from the nearby geographical environment, including
both human and natural factors. Some products had successfully completed AOC
registration, including for the most part cheeses, spirits, bakery products and other
products of vegetable origin.
21
Part II prepared on the base of the materials published by Swiss State Institute of Intellectual
Property: www.ige.ch
22
Federal Law on the Protection of Trademarks and Indications of Source adopted on 28 August
1992 (Status as at 1 August 2008), 1ff.
23
Ordinance on the Protection of Appellations of Origin and Geographical Indications in Respect of
Agricultural Products and Processed Agricultural Products adopted on 28 May 1997 (Status as at 1
January 2008), 1 ff.
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The IGP concept is based on a slightly weaker linkage between the product
and the territory of origin. This concept applies to products for which the quality,
reputation or other characteristic may be attributed to the region or place of origin.
So some products have enjoyed IGP protection, including for the most part meats
and sausages.
The most relevant laws are the TM Law and Ordinance on the Protection of
AOs and GIs in respect of Agricultural Products and Processed Agricultural
Products. Also, GI protection in Switzerland extends widely to imitations;
fallacious indications; misleading packaging; translations; abusive labeling such as
―like‖, ―type,‖ ―according to the recipes‖; as well as ―other recourses to the
distinctive shape of the product‖ even if the true origin of the product is identified.
Registration of the AOC or IGP is not an easy process. Such applications undergo a
thorough review by the Swiss authorities. Currently, six cheese products, five meat
products, one plant-based product, two alcohol-based products, and one forestry
product are undergoing evaluation.
Also under the Swiss law, foreign GIs are granted the same protection as
Swiss GIs. Thus, foreign GIs may benefit from the general protection provided by
TM Law and may apply for AOC or IGP registration under Ordinance.
6.2. Specific Protection for Agricultural Products and Processed Agricultural
Products
The ordinance on the protection of AOs and GIs for agricultural products and
processed agricultural products of 28 May 1997 establishes a register at the federal
level for PAOs and PGIs for agricultural and processed agricultural products except
wines. This includes all foodstuffs from the agricultural sector, the main categories
being dairy products, fresh meat, salted, smoked and cold cooked meats, fruit,
vegetables and other crops, processed products and spirits. Manufactured products
and wines can not be registered. Under the terms of this ruling, the commercial use
of PAOs and PGIs is prohibited for all comparable products which do not meet the
specifications as well as any other non-comparable product if it exploits the
reputation of the protected indication.
6.3. Specific Protection for Wines
Wine appellations are protected under Ordinance on Viticulture and the
Importation of Wine from 7 December 199824 defining the AOC, the country
wines and the table wines. At the federal level, the Federal Office of Agriculture
maintains a register of the Swiss AOCs, which is based on the cantonal AOCs
publishing at regular intervals. At the cantonal level, no similar register exists, but
there is a land registry of wine producing zones which describes among others the
specific properties of the vineyard and the AOC authorized for the designation of
24
Ordinance on Viticulture and the Importation of Wine adopted on 7 December 1998, last
amended on 13 April 2005 (Status as of 17 May 2005), 1 ff.
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the wine stemming from a given wine-growing area. The cantons have own
legislation on AOs. They have issued regulations on the use of the AOC
designation and defined the production areas as well as the authorized blends. The
cantonal legislations include additional conditions to those set out in the federal
wine ordinance. As the production areas are clearly delimited, wine producers
within a given geographical zone have the right to use the AOC in question,
provided the quality criteria is met.
6.4. Specific Protection for Swiss-Watchers
When we think watch, we think Swiss, which label confers a certain status in
the marketplace. What is exactly a Swiss watch? A ―Swiss Made‖ watch is not
necessarily made entirely in Switzerland. In accordance with Ordinance 1971,
modified in 199525 and which was issued by Federal Council based on the TM
Law: a watch may legally bear the label ―Swiss‖ or ―Swiss Made‖ if it has a Swiss
movement is cased up in Switzerland, where the manufacturer must have carries
out its final inspection. Furthermore, components of Swiss manufacture must
account for at least 50% of the total value-not number of parts-exclusive of
assembly costs. But with watchmakers importing an even-increasing of parts, the
Federal Council announced that it intended to tighten the legal definition of ―Swiss
Made‖ applicable to all products, including horological. Proposed legislation would
raise the value threshold to 60%. The Federal Council may define the conditions
under which a Swiss IS may be used for certain products if it is in the best
interests of Swiss economy or particular sectors like this was done in the case
which defines the Swiss watch.
6.5. Bilateral Treaties for the Protection of GIs
The seven bilateral treaties on protection of GIs and AOs were concluded
between Switzerland and European countries (Germany, Socialist Republic of
Czechoslovakia, France, Spain, Portugal, and EU). The names of countries and
cantons are granted absolute protection. The protection of the designation
―Switzerland‖ is therefore not limited to certain types of product or goods. This
may include all industrial products, such as watches, chocolate, textiles, etc., as
well as natural products, such as wines and agricultural products. However, there is
a general provision preventing use of ISs which mislead the public. These treaties
specify that GIs must be used in conformity with the law of the country of origin
(re-application of the law of the country of origin). The protection system also
prohibits the illicit appropriation of an IS as a TM. Also, an IS can not be
transformed into a generic name in the country where it is protected as well as the
legislation of the country of origin applies in respect to sanctions.
25
Ordinance on the Use of the Designation Swiss for Watches of 23 December 1971 as last
amended on 29 March 1995 (Status as at 1 July 1995), 1 ff.
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6.6. The Concept of ―Swissness‖
Although according to the criteria of the Madrid Agreement ―made in
Switzerland‖ should be a mere IS without any reference to quality, the concept of
being ―Swiss‖ indicates to Swiss as well as foreign consumers primarily,
associating Swiss products and services with ―top quality‖, as a synonym for
innovation, exclusivity, superior services which economic value is clearly
recognized. Over 50% of all businesses trading in Swiss products affix a ―made in
Switzerland‖ designation and/or the Swiss Cross besides their own TM (cobranding) and more then 40% of business activities would like to use it in the
future. Moreover, the use of these is neither standardized nor coordinated because
based on the strategy of each individual activity. It is not surprise, that producers
are increasingly using or misusing ―Swiss made‖ as marketing tool. This has led to
a growing realisation that this valuable asset needs to be carefully preserved and
defended. That element of quality is of particular interest and is the reason why it is
mention here in a debate on the protection of GIs.
6.1.1. Project Swissness
Permanent changing market conditions under impact of globalization and
other factors create the strong necessity of amendments in the current legislation.
The origin of legislative revision is the increasing illegal use of the IS
―Switzerland‖ and Swiss Cross26 both domestically and abroad. On November
1997 was launched a ―Swissness‖ project under motto: „better protection of
designation ―Made in Switzerland‖ and Swiss Cross‖. The Federal Council began
the consultation process for the legislation in respect of it. The draft aims at two
main goals: firstly, protection for ―Made in Switzerland‖ designations and the
Swiss Cross should be strengthened domestically and abroad, secondly, regulations
regarding ―Made in Switzerland‖ designations and the Swiss Cross should be
formulated more precisely in order to create greater legal certainty and clarity. The
Federal Council approved on 18 November 2009 the dispatch for the ―Swissness‖
legislative amendment. The bill strengthens the domestic protection of both the IS
―Made in Switzerland‖ and the Swiss Cross as well as facilitating law enforcement
abroad. It thus provides a basis for preserving the value of the ―Swiss‖ TM for the
future. The Federal Institute of Intellectual Property is working at full speed on
proposed amendments to the legislation .We hope that in the near future this work
will be ended and the new legal instruments allow moreover to strengthen the
positions of ―Swiss made‖ goods and services domestically and abroad.
26
Federal Law on the Protection of Emblems and the Name of the Red Cross of 25 March 1954, 1
ff.
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6.1.2. The use of “Swiss”
Designation ―made in Switzerland‖ belongs to the public domain available
for anyone to use andcan not be monopolized. The conditions for using of ―Swiss‖
for products are defined in the TM Law as follows: the origin of goods shall be
determined by the place of manufacture or by the origin of basis materials and
components used, at least 50%. The origin of services is defined by the
headquarters of the person providing service or by citizenship or the domicile of
the persons actually controlling the policies and management of the business.
Federal Council can specify such conditions if it is justified by general economic
interests or interests of individual sectors, as in case of Swiss-watches.
6.1.3 Enforcement Domestic and Abroad
Any person who comes across an illegal use of an IS may demand a
restraining order to stop the violation or to impede an imminent violation (Art.55 of
TM Law). Illegal use of a IS can said to take place when a third party uses an IS
with a product which does not come from the place in question, or applies a PAO
to a product which does not satisfy the conditions set out in the specifications. In
the latter case, the rightful producers of a PAO or a producer satisfying the official
specifications, may request a court to stop the illegal acts. Any person authorized to
take action against the illegal use of an IS may request the assistance of the
customs office if the case involves imported products. National or regional
consumer associations and organizations can take direct legal action. Also any
person accused of using an inexact IS or a designation which could be confused
with an inexact IS, or of creating a risk of deception by using a name, address or
TM in relation to products or services of a different source may be criminally
liable. If the offender has acted in a professional capacity, the offence is
prosecutable ex officio. So, an importer of products from China affixes a label with
his full Swiss address may also be subject to criminal prosecution because he
misleads the buyer about the actual origins of the goods. Criminal prosecution is
the responsibility of the cantons and it is determined by the codes of criminal
procedure at the cantonal level. In addition to the general provisions of the TM
Law, Art.172 of the Federal Law on Agriculture,27 lays down specific criminal
sanctions in the event of intentional illegal use of a PAO or PGI for agricultural and
processed agricultural products, as well as for wines. The Federal Law on
Foodstuffs and objects in everyday use28 also specifies criminal punishment for
acts which risk misleading the consumer on the origins of products. Since foreign
laws differ from Swiss law, also the interpretation and judicature of the
international treaties is often vague that makes the prosecution very expensive and
uncertain. Although no designation ―made in Switzerland‖ exists in legal sense as
27
Federal Law on Agriculture adopted on 29 April 1998 last amended on 24 March 2006 (Status as
of 26 September 2006), 1 ff.
28
Federal Law on Foodstuffs and Everyday Objects of 9 October 1992 last amended on 16
December 2005 (Status as of 20 June 2006), 1 ff.
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Geographical Indications: A Review of GI Protection in Switzerland
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well as it is not clear who has a right to enforce it in the foreign courts, such
enforcements are rarely attempted.
In order to deal with issues regarding effectiveness of the current
international regulations, taking into account an increase in the trade the goods
which carry unauthorized country names as result of globalization and trade
liberalization, Jamaica proposed to open discussions in the forum of the SCT29 for
the provision of Art.6ter of Paris Convention to be amended to reflect the
protection of these country names, in addition to the other categories of protection
already in existence, the widening of the categories of protection considering
different factors of such amendment. That has not only for the value of private
TMs, but on a country‘s ability to properly protect its IP generally.
CONCLUSION
GIs, as a valuable commercial instrument, have the capability to acquire a
high reputation. For reasons of misappropriation, counterfeiting, misleading, their
protection is needed to avoid consumers from deceptions. There are many functions
of GIs: as source identifiers, indicators of quality, business interests and an area of
IPRs. GIs can be protected nationally and internationally. At the national level,
they may be protected by special regulations, under the law of unfair competition,
or under the TM law. So, the amendment of current law of Switzerland having
―weaknesses‖ is an example of creating more effective regulation satisfying today‘s
requirements. On the contrary to the protection at the national level, at the
international level, there are three treaties relating to the protection of GIs prior to
the TRIPs Agreement. Since the enactment of the TRIPs, international protection
of GIs has become an important issue because GIs are increasingly recognized as
marketing tools in the global economy, but …the international rules do not provide
in the interested parties with effective legal remedies to stop infringements. As a
result unlawful uses of protected names have been increasing over the year.30 With
the reality of market globalization, GIs may be used to protect products of certain
regions from misappropriation as well as to protect consumers from deceptions. As
an area of IPRs, the use of GIs is comparable with the use of TMs. GIs and TMs
benefit consumers by providing them with reliable information and assurances of
authenticity. They also respond to concerns of certain producers, particularly local
communities, more effectively than other IPRs do. Especially rights to control GIs
and TMs can be maintained indefinitely and they do not confer a monopoly right
over the use of certain information, but simply limit the people who can use a
specific symbol. Furthermore, they protect goodwill and reputation acquired by
producers over centuries. In this regard, they can serve to maintain traditional
heritages and practices.
29
Proposal by Jamaica to WIPO Standing Committee on the Law of Trademarks, Industrial Design
and Geographical Indications (SCT), Twenty- First Session , Geneva , 22-26 June 2009
30
M. VITTORI, The International Debate on Geographical Indications (GIs), supra at note 13, at 1
Larisa Thommen
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Growing interest to the better protection of country‘s names for commercial
purposes indicating a geographical provenance as well as given quality or
reputation demonstrates the importance of the issues of improvements in the
current international and national rules. These changes would ensure the benefits
from the more sophisticated, efficient and adequate GI protection for all world
community, its value also in the future, that is the potential of debate on protection
of GIs.
THE PATENT RIGHTS ENFORCEMENT IN CHINA
by
Feiyu Lei
1. RECOGNISE THE PATENT RIGHTS ENFORCEMENT IN CHINA
2. COMPARATIVE ISSUES BETWEEN CHINESE PATENT CIVIL LAW
ENFORCEMENT AND TRIPS
2.1. Introduction
2.2. Jurisdiction, Evidence, Pre-Litigation Injunctions
2.3. Disposal of Goods Confiscated by Court
3. COMPARATIVE ISSUES BETWEEN CHINESE PATENT
ADMINISTRATIVE LAW ENFORCEMENT AND TRIPS
3.1. Introduction
3.2. How does Chinese Administrative Law Enforcement Frame comply with
TRIPS?
3.3. The Border Enforcement
4. COMPARATIVE ISSUES BETWEEN CHINESE PATENT CRIMINAL LAW
ENFORCEMENT AND TRIPS
5. SOME IMPLEMENTATION ISSUES
6. CONCLUSION: HOW TO REINFORCE THE PATENT PROTECTION IN
CHINA
6.1. Improve the Patent Administrative Law Enforcement
6.2. Enhance the Assistance of Patent Enforcement
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The Patent Rights Enforcement in China
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INTRODUCTION
In Recent years, China has attached great importance to IPR Protection,
specially the patent protection. The protection level of patent has achieved
remarkable results: In 2008, there were 828,328 applications for patent; the third
amended patent law of the People's Republic of China1 (hereinafter referred to as
the Patent Law) has been adopted on 27th December, the smooth completion of the
third amendment of the Patent Law was another milestone in the development of
the Chinese patent system which indicated Chinese patent law became more perfect
and compatible with international law. In 2008, local IP administrations nationwide
received a total of 1,092 patent disputes over infringement and 34 other types of
patent disputes2. They investigated and handled 59 cases of counterfeiting patents
and 601 cases of passing off others‘ patents.3 The trial of IPR cases continued to
make tremendous progress. Courts of law nationwide took 24,406 and resolved
23,518 first-instance IPR civil cases, up 36.52% and 35.2% respectively. Among
them, there were 4,074 patent cases, up 0.82%.4
This paper will introduce the civil, administrative and criminal law
enforcement of patent rights in China, and put emphasis on discussing how Chinese
norms comply with the TRIPS respectively, and also discuss some implementation
issues, in the end of the paper, it will give some suggestion on how to reinforce the
patent protection in China.
1. RECOGNISE THE PATENT RIGHTS ENFORCEMENT IN CHINA
China is a member of WTO, it should commit to implement the Agreement
on Trade-Related Aspects of Intellectual Property Rights (TRIPS). As TRIPS
provides in the foreword that ―recognizing the underlying public policy objectives
of national systems for the protection of intellectual property, including
developmental and technological objectives‖, accordingly, we need first know what
are the public policy objectives of patent enforcement in China and whether they
comply with TRIPS. Article 1 of Patent Law provides the aims of the Law are to
protect the legal rights of patentees, to encourage invention-creation, to foster the
spreading and application of inventions-creations, to enhance innovation ability,
and to promote the development and innovation of science and technology. They
are all compatible with TRIPS. Furthermore, the patent rights enforcement is the
1
Which was adopted at the Fourth Session of the Sixth Standing Committee of the National
People‘s Congress on Mar 12th, 1984, came into force on Oct 1st, 1990, the third revised at the
Sixth Session of the Eleventh Standing Committee of the National People‘s Congress on Dec 27th,
2008.
2
It is the patent administrative enforcement that will be introduced in the following sections.
3
Counterfeiting patents means counterfeiting any unpatented product as a patented product. the
2008 version Patent Law has combined the passing-off and counterfeiting activities into passing-off
.
4
See China's Intellectual Property Protection in 2008.
http://www.sipo.gov.cn/sipo_English/laws/whitepapers/200904/t20090427_457167.html
Feiyu Lei
353
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core part of patent system, it guarantees the public police objectives to be achieved,
so the patent right enforcement is crucial in a national patent system.
For the sake of the above objectives, Article 41 of TRIPS requires the general
obligations of enforcement that the member countries should ensure their law
provides effective, fair, equitable enforcement procedures. Chinese patent rights
enforcement system includes three ways: the civil, administrative and criminal law
enforcement. The Patent Law and the Implementing Regulations of the Patent Law5
are the special laws on patent system, they defines patent enforcement apply to the
three measures. At the same time, the three measures are regulated in the
departmental laws respectively: the civil law enforcement system is regulated by
General Principles of the Civil Law6 and the Civil Procedure Code7; the
administrative law enforcement system is regulated by the Patent Administrative
Enforcement Measures8; the criminal law enforcement system is regulated by the
Criminal Law9. There is some relevant Judicial Interpretation of the Supreme
People‘s Court to complement the above laws.
2. COMPARATIVE ISSUES BETWEEN CHINESE PATENT CIVIL LAW
ENFORCEMENT AND TRIPS
2.1. Introduction
Patent right is private property, so civil law in each country should apply to
patent civil law enforcement. Civil law enforcement generally refers to actions in
civil court.10 Article 42 of TRIPS requires that member countries should make
available to right holders civil judicial procedures concerning the enforcement of
patent rights. The Civil Procedure Code gives all the civil procedures which s to
patent civil lawsuits, Article 60-70 of Patent law regulate further rules to detail it.
The civil enforcement of patent in China isn‘t independent or distinct from the
enforcement of law in general, which satisfies Article 41(5) of TRIPS.
2.2. Jurisdiction, Evidence, Pre-Litigation Injunctions
With respect to the competent courts, the Intermediate People‘s Courts in the
CAPITALS of the provinces, autonomous regions and municipalities directly under
5
Which was published on Jun 15th, 2001, first revised on Sep 28th, 2002, second revised on Jan
9th, 2010.
6
Which was adopted at the Fourth Session of the Sixth National People‘s Congress on Apr 12th,
1986, came into force on Oct 1st. 1990, the third revised at the Sixth Session of the Eleventh
National People‘s Congress on Dec 27th,2008.
7
Which was adopted at the Fourth Session of the Seventh National People‘s Congress on Apr 9th,
1991, came into force on the same day.
8
Promulgated by the State Intellectual Property Office (SIPO) and came into force since Dec 17th,
2001.
9
Which was adopted at the Second Session of the Fifth National People‘s Congress on Jul 1st, 1979,
and revised at the Fifth Session of the Eighth National People‘s Congress on Mar 14th, 1997, came
into force on Jul 1st, 1997.
10
C.HEATH, L.PETIE, Patent enforcement worldwide: a survey of 15 countries; writings in honour
of Dieter Stauder, Hart Publishing Ltd., Oxford, 2005, at 287.
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the central government and those specially designated by the Supreme People‘s
Court have jurisdiction in the first instance of patent infringement cases, and the
second instance acts in the Higher People‘s Courts of which the decision is final.
The Supreme People‘s Court hears particular and significant case in the whole
country. View from practice, the system satisfies the Article 41(2) of TRIPS that
requires procedures should be fair and equitable and not be unnecessarily
complicated or costly or unreasonable time-limits, since the duration of court
proceedings is between 4 and 7 years to receive a final judgment in the patent area
as long as it takes in many other Western countries.11
Article 43 of TRIPS regulates the principles of presentation of evidence in
civil procedures with which the related regulations of the Civil Procedure Code
comply. First, the interested parties (e.g. patentees assert an infringement) must
bear the burden of proof for the facts to support their claim or the facts to rebut the
claim of the other party.12 Second, article 64(2) of the Civil Procedure Code(CPC)
of which provides the court shall investigate and collect the evidences on its own
initiative when the party are unable to obtain them themselves because of objective
reasons. A special rule called Burden of proof in reverse presented in Article 61 of
patent law, which stipulates that in infringement cases relating to invention patents
for production processes for new products, manufacturers of identical products
must furnish proof that their production processes are different from the patented
process.13 It also satisfies Article 34 of TRIPS concerning burden of proof of
process patents.
Article 50 of TRIPS provides that the judicial authorities shall have the
authority to order prompt and effective provisional measures. The Civil Procedure
Code and the Patent Law both provide provisional measures definitely. Article 66
of the Patent Law regulates that patentee or other interested party can request the
court to adopt measures to order the suspension of relevant acts before any legal
proceedings, with the related requirements, providing security, reasonable period,
etc. Article 67 of the Patent Law regulates that patentee or other interested party
can request the court to adopt measures for preservation of evidence before any
legal proceedings, with the related requirements, providing security, reasonable
period, etc. The Judicial Interpretation of the Supreme People‘s court on applying
law issues concerning the suspension of infringement patent before any legal
proceedings14provides more details in applying the pre-action injunction.
11
T.BENDER, How to Cope with China‟s (Alleged) Failure to Implement the TRIPs Obligations on
Enforcement,, in JWIP 2006, 230 ff., at 233.
12
C.HEATH,L.PETIE, Patent enforcement worldwide: a survey of 15 countries; writings in honour
of Dieter Stauder, supra at note 10, at 299.
13
C.L.LI, Recent Chinese Patent Reform, in JWIP, 2001, 919 ff., at 936.
14
Which was adopted on May 5th, 2001, at the 1179nd Session of the Judicial Committee of the
Supreme People‘s Court, and to be effective on Jul 1st, 2001.
Feiyu Lei
355
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2.3. Disposal of Goods Confiscated by Court
Article 46 of TRIPS provides the requirements related to disposal or
destroying of infringement goods by the judicial authorities. Article 118 of section
3 of chapter 6 of General Principles of the Civil Law of P.R.C provides civil
liability for infringement of IPRS obliges the party infringing such rights to stop
the infringement, to eliminate the ill effects and to pay damages. According to
judicial practice, the utilize of elimination of ill effects in patent infringement
means the right holder enjoys a claim to the elimination of goods and methods of
production that infringe rights if the stop of the infringement action is not sufficient
to prevent a repetition thereof.15 The word ―eliminate‖ implicates ―dispose‖ or
―destroy‖ in judicial practice.
3. COMPARATIVE ISSUES BETWEEN CHINESE PATENT
ADMINISTRATIVE LAW ENFORCEMENT AND TRIPS
3.1. Introduction
What ―Administrative enforcement‖ means in China is not the same as in
other countries. It is a system of Intellectual Property Rights with Chinese
characteristics while most of the developed countries don‘t adopt it. In China, the
courts and specific authorities each have a parallel responsibility for the
enforcement of IPRS.16 Right holders have the choice between civil and
administrative enforcement which leads to the description of this system as one of
―dual enforcement‖ which is quite common in Asian countries.17 The enforcement
of IPRS by means of administrative measures which is very popular amongst
Chinese nationals and foreigners.18 This situation isn‘t altered from version 2000 of
patent law to version 2008.
The administrative enforcement mainly embodies in Article 3 and Article 60
of the Patent Law and the Patent Administrative Enforcement Measures (PAEM).19
The rights of Administrative enforcement of IP in China belong to different
competent administrative authorities in every region. The administrative authority
for patent affairs under the people‘s governments of provinces, autonomous regions
and municipalities directly under the Central Government (hereinafter referred to as
―local IP office‖20) are responsible for the administrative enforcement of patent in
15
L. XIAOHAI, Enforcement of Intellectual Property Rights in the People‟s Republic of China, in
32 IIC. 2001, 141 ff., at 150.
16
L. XIAOHAI, Enforcement of Intellectual Property Rights in the People‟s Republic of China,
supra at note 15, at 142.
17
C.HEATH,L.PETIE,Patent enforcement worldwide:a survey of 15 countries;writings in honour
of Dieter Stauder, supra at note 10, at 285.
18
L. XIAOHAI, Enforcement of Intellectual Property Rights in the People‟s Republic of China,
supra at note 15, at 142.
19
Promulgated by SIPO and in force since Dec 17th , 2001.
20
Although they are called IP office, they are mainly responsible for patent affairs.
356
The Patent Rights Enforcement in China
________________________________________________________________________________
their respective administrative areas.21 Article 60 of Patent Law is the primary
article in patent administrative enforcement system, which regulates that the
patentee or any interested party may request the administrative authority for patent
affairs to handle the infringement dispute, the administrative authority may order
the infringer to stop the infringement act immediately if the infringement is
established, the decisions of the administrative authority may be judicially
reviewed by the court. PAEM regulates details on how the administrative
enforcement come into effect, including principles, procedure in handling patent
infringement disputes, procedure in mediating a patent infringement disputes,
procedure in investigating of passing-off and counterfeiting, investigation and
taking of evidence, injunctions, etc.
3.2. How does Chinese Administrative Law Enforcement Frame Comply with
TRIPS?
The related articles about administrative enforcement in TRIPS are Article
41, 49. (Article51-60 are special requirements related to the border measures, they
will be discussed in the following sections.) Article 41 is the general obligations
about enforcement of intellectual property rights; the administrative enforcement
procedures shouldn‘t violate these obligations. Article 41(2) requires the
enforcement procedures shall be fair and equitable, and shall not be unnecessarily
complicated or costly, or entail unreasonable time-limits or unwarranted delays. It
gives out the ―low cost‖ and ―high efficiency‖ requirements. Concerning the
administrative enforcement, many opinions tended to favour administrative
enforcement over the courts because this procedure is faster and cheaper.22 So,
Chinese administrative enforcement complies with this obligation. Furthermore,
administrative competent authorities often play the neutral roles who mediate the
parties in the cases. Most of the time the mediation in the cases is an efficient
method for each parties.
Article 41(4) of TRIPS regulates parties shall have an opportunity for review
by a judicial authority of final administrative decision which being called ―judicial
review‖ principle. Article 61 of the Patent Law and the related clauses of PAEM
regulate if the infringer is not satisfied with the order from patent administrative
authority, he may, within 15 days from the date of receipt of the notification of the
order, institutes legal proceedings in court in accordance with the Administrative
Procedure Law of the People's Republic of China (APL)23, namely if one of the
parties does not agree with the authority‘s decision he can file an action against it
before the court. APL is the special law on establishing judicial review system to
supervise and restrict the administrative authorities in China. So, the judicial
21
As Article 3 of Patent Law regulates, the patent administration department under the State
Council (SIPO) is responsible for the patent work throughout the country which include
examination applications and grant patent rights, but not for enforcement directly.
22
C.HEATH,L.PETIE,Patent enforcement worldwide:a survey of 15 countries;writings in honour
of Dieter Stauder, supra at note 10, at 285.
23
Which is adopted at the Second Session of the Seventh National People‘s Congress on Apr 4th,
1989, came into force on Oct 1st, 1990.
Feiyu Lei
357
________________________________________________________________________________
review of patent administrative enforcement in China complies with Article 41(4)
of TRIPS well.
Article 49 of TRIPS is the only special clause about the administrative
procedures which requires that administrative procedures of which any civil
remedy can be ordered as a result shall conform to principles equivalent in
substance to those set forth in section 2. The words ―conform to principles
equivalent in substance‖ gives the obligation that the administrative procedures
must conform to the civil procedures in TRIPS. Although civil and administrative
enforcement of patent are different remedy procedures and the competent
authorities are different, many procedures and principles of the two systems of
China are homologous. The administrative enforcement of patent infringement
disputes has many features of ―quasi-judicial‖ which is different from other IPRS
administrative enforcement. These features comply with the principles equivalent
of civil enforcement, for example, (i)fair and equitable procedures: the basic
principles of administrative enforcement regulated in Article 2 of PAEM that the
administrative authority shall base themselves on facts and regard the law as the
criterion in the conduct of all cases and follow the principles of fair and timely
conform to principles of Article 42 of TRIPS; (ii)evidence: the interested parties
must bear the burden of proof , and the requested party have the right to defend
himself; (iii) injunctions: local IP offices may make the injunctions if the
infringement act exist and order the infringer to stop the infringing act
immediately. If such proceedings are not instituted and the order is not complied
with, local IP offices may approach the people's court for compulsory execution.
(iv) Disposal of infringing goods: the Patent Law doesn‘t provide the remedies
which described in article 46 of TRIPS explicitly, which only says the
administrative authority may order the infringer to stop the infringing act
immediately. But the PAEM concretes the measures what the administrative
authority can do. Article 33 of PAEM says they may order the infringer to stop the
infringing act immediately, and destroy the implements which are used for creation
of the infringing goods, not to sell and use the infringing goods or to launch the
infringing goods into market by other methods, to destroy the infringing goods
which are hard to reserve. If the infringer doesn‘t execute the order, the
administrative authority may approach court for compulsory execution. The
provisions conform to principles equivalent in substance to those in article 46 of
TRIPS.
In the other hand, there are still some procedures don‘t comply with TRIPS
completely, for example, article 45 of TRIPS regulates the authorities shall have
the authority to order the infringer to pay the right holder damages adequately.
Chinese local IP offices may only, upon the request of the parties, mediate in the
amount of compensation for the damage caused by the infringement of the patent
right, with no fines. It brings right holders a choice that if he is more concerned
with stopping the infringement than with compensation, the administrative route
may be the preferred option.24 If he is concerned with compensation, he may
24
C.L.LI, Recent Chinese Patent Reform, supra at note 13, at 936.
358
The Patent Rights Enforcement in China
________________________________________________________________________________
choose to claim to court in another independent suit if he wants. So the civil
enforcement complements the insufficiency of the administrative enforcement to
this point.
3.3. The Border Enforcement
In a broad sense, the administrative enforcement of patent includes the border
enforcement. Section 4 of TRIPS provides for special requirements related to
border measures. The Customs IPR Regulations25 and the Custom IPR
Implementing Measures26 regulates the border enforcement of IPRS. General
Administration of Customs of the People‘s Republic of China and local customs
responsible for the border protection of patent.
The most interesting topic about Chinese border enforcement of patent is
whether it complies with Article 59 of TRIPS concerning the disposal of
confiscated goods. Article 59 of TRIPS refers specifically to disposal of goods
confiscated by Customs Authorities that infringe IPRs while article 46 with respect
to dealing with infringing goods. Article 27 of the Customs IPR Regulations and
Article 33 of the Custom IPR Implementing Measures set forth the requirements
for the disposal of goods that infringe IPRs and that are confiscated by Chinese
customs authorities. There are four ways to deal with the infringing good: (i)
donate to welfare institutions, (ii) transfer to the right holder, (iii) where the above
two means can‘t be adopted, they may be auctioned after eliminating the
infringement character, (iv) where the infringement character can‘t be eliminated,
the goods shall be destroyed. Although there are a hierarchy of requirements for the
disposal of infringing goods that are confiscated by Chinese customs
authorities27and they will give priority to allow such goods to enter the channels of
commerce (for example, auction), however, it still doesn‘t violate the principles in
article 46 and 59 of TRIPS. First, the (i)(ii) ways don‘t make the infringing goods
enter into commercial channels, and the last sentence of Article 33 of the Custom
IPR Implementing Measures regulates that Chinese customs shall make necessary
supervision over them when the (i)(ii) ways are carried out. Second, auction only
can be done when the conditions satisfied that all infringement characters have
been eliminated and customs have asked the attitude of the right holder. So, when
the infringing goods are confiscated that create a deterrent to infringement, the
auctions don‘t make any harm to right holder while at the same time make use of
the resource effectively.
25
Which was adopted at the 30th Executive Meeting of the State Council on Nov 26th, 2003,
promulgated by Decree No.395 of the State Council of the People‘s Republic of China on Dec 2nd,
2003, and effective from Mar 1st, 2004.
26
Which was adopted at an Administrative Affairs Meeting of the General Administration of
Custom on Apr 22nd, 2004, revised at an Administrative Affairs Meeting of the General
Administration of Custom on Feb 17th, 2009, and effective from Jul 1st, 2009.
27
One of the controversial points between US and China.
Feiyu Lei
359
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4. COMPARATIVE ISSUES BETWEEN CHINESE PATENT CRIMINAL
LAW ENFORCEMENT AND TRIPS
Criminal procedures in China has been provided through the Criminal Law of
PRC which contains a separate section(Sec.7 of Ch.3 of Part 2) named ―Crime of
Infringing upon Intellectual Property‖ and the related judicial Interpretations ―the
2004 Judicial Interpretation‖28 and ―the 2007 Judicial Interpretation‖29. With regard
to patent, Article 216 of Criminal Law regulates criminal procedures and penalties
on passing-off and counterfeiting of patent when the circumstance is serious. The
relevant authorities are the Public Security Bureaus (PSBs) and the People‘s
Procuratorate and the People‘s Court. Each local General Brigade of Economic
Investigation under Public Security Bureau responsible for investigating and
prosecuting and punishing for infringement. Some of the criminal cases are filed by
patentees, and the others are transferred from the administrative authorities30. Once
a case is transferred and accepted, the rules governing criminal law apply,31and the
case starts to go through the judicial procedure.
Article 61 of TRIPS requires an obligation for members to provide for
criminal procedures and penalties to be applied at least in cases of willful
trademark counterfeiting or copyright piracy on a commercial scale, while does not
oblige members to apply the same rule in other field of IP, only ask for ―may
provide‖ term, so in the field of patent, China is free to provide criminal procedures
and penalties in patent.
Article 216 of Criminal Law provides the remedies for crime of passing-off
and counterfeiting of patent including fixed-term imprisonment of not more than
three years or criminal detention, and fine. These remedies comply with which
article 61 of TRIPS require. The seizure, forfeiture and destruction of the infringing
goods and any related materials are the civil law liabilities which can be claimed by
patentee in the civil law system. So, different damages can be available to different
law, and they are complementary.
28
The Interpretation by the Supreme People‘s Court and the Supreme People‘s Procuratorate on
Several Issues of Concrete Application of Law in Handing Criminal Cases of Infringing Intellectual
Property, came into force on Dec 22nd, 2004.
29
The Interpretation by the Supreme People‘s Court and the Supreme People‘s Procuratorate on
Several Issues of Concrete Application of Law in Handing Criminal Cases of Infringing Intellectual
Property(II), came into force on Apr 5th, 2007 .
30
It means a patentee may file to criminal authority for the patent infringement directly, if the case
satisfied the criminal threshold regulates in the Criminal Law, the application will be accepted; he
may also file to administrative authority, if the administrative authorities judge the infringement
have committed the Criminal Law, they will transfer the case to criminal authorities to deal with.
31
C.HEATH,L.PETIE,Patent enforcement worldwide:a survey of 15 countries; writings in honour
of Dieter Stauder, supra at note 10, at 316.
360
The Patent Rights Enforcement in China
________________________________________________________________________________
5. SOME IMPLEMENTATION ISSUES
In the past 20 years, Chinese government endeavor to establish a perfect legal
system of IP which can promote the technical development and boom the art and
literature. Although the accession to the WTO brought lots of pressure to change
and adjust legislation to comply with the TRIPS, ―Most legal experts agree that
China‘s laws meet most international standards‖.32 In the other hand, we should
keep a clean head to recognize that the period patent law established in China is so
short that Chinese patent rights enforcement system still face many problems both
in legislation and practice. For example, the legislation still need to perfect to
comply with TRIPS better; the administrative law enforcement is not very effective
in some areas of China because of lack of man-power; a general enforcement
problem which has a detrimental impact on civil law enforcement is the inability to
execute judgments33; counterfeiting always was and until today remains a rampant
problem in the Chinese market34; many patent right holders in China today still
know little about how to enforcement their rights because they are inventors but not
lawyers, or they don‘t have money to protect patents as said the heavy cost also in
European countries, specially the right holders are the smaller firms (SMEs) or
individuals. As a 1999 report by experts to the European Commission stated that:
―In our view, by far the greatest deterrent to the use of intellectual property rights,
in particular patents, by SMEs as well as universities and similar institutions, is the
fear of heavy costs to enforce them.‖35
6. CONCLUSION: HOW TO REINFORCE THE PATENT PROTECTION
IN CHINA
6.1. Improve the Patent Administrative Law Enforcement
From the patent system established in China to now, there have been many
controversies about China‘s system of the administrative protection of patent be
―abolished‖ or ―reserved‖? Or ―Strengthen‖ or ―weaken‖? In fact, the 1984 patent
law, the 1992 version, the 2000 version, and the 2008 version all reserved the
administrative law enforcement of patent; it indicates the patent administrative
enforcement is essential and important. There are several reasons need to
recognize: First, Article 49 of TRIPS provides the international norms to patent
administrative enforcement, it doesn‘t deny administrative procedures on the merits
of a case and any civil remedy, and it also gives the requirements of administrative
enforcement. Second, the legal system in China has been imperfect at the present,
32
D.K.CHOW, A Primer on Foreign Investment Enterprises and Protection of Intellectual Property
in China, Kluwer, The Hague, 2002, at 205.
33
T.BENDER, How to Cope with China‟s (Alleged) Failure to Implement the TRIPs Obligations on
Enforcement, supra at note11, at 233.
34
C.HEATH,L.PETIE,Patent enforcement worldwide:a survey of 15 countries;writings in honour
of Dieter Stauder, supra at note 10, at 285.
35
see W. KINGSTON, Improving Patents for Smaller Firms: Insurance, Incontestability,
Arbitration? in IPQ 2007, 1-18, at 2.
Feiyu Lei
361
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judicial officers are not enough and some of them lack of experiences in judging
patent infringement, so the judicial channel alone is not adequate to enforce patent
rights. Third, viewed from practice, the procedure of administrative enforcement on
patent infringement is quick and saving for parties, and the decision made by local
IP administrations is supported and supervised by court according to law (Article
60 of Patent Law). Fourth, according to the provisions of other related Chinese
laws such as the trademark law and copyright law, the Administrative Departments
for trademark and those for copyright are specifically empowered to impose
administrative sanctions against infringements, and patent administrative
enforcement of law is obviously less powerful than that of trademark and
copyright. To harmonize with other legislation on IP in China, it is necessary to
establish such a power.36 So, All the above reasons show China‘s patent
administrative law enforcement fulfils international norms and China's actual
conditions, which is important and essential to improve it: (i) to enhance the
authorities of the administrative authority through legislation; (ii) to increase the
resources and man-power to put into the fighting against patent infringements,
provide more training or other measures to establish experienced and competent
enforcement groups; (iii) to establish some cooperation mechanisms of patent
administrative enforcement across different districts.
6.2. Enhance the Assistance of Patent Enforcement
In recent years, Chinese government dedicated to transform its functions to a
service-oriented government, to enhance the public service and social
administration. To supply public and right holders‘ service on IP is IP
administration authorities‘ inevitable option. In this case, the State Intellectual
Property Office published the Guidelines on initiation of assistance for IPRs
enforcement in 2007; soon Chinese Assistance Centers of Intellectual Property
right enforcement (hereinafter referred to as Assistance Center) were established in
many districts. Chinese government hope them can be one of the measures to solve
enforcement issues. Their responsibilities are summarized as to provide intellectual
assistance for Chinese individual or legal person whoever faces problems
concerning IPRs which are difficult to solve, and economic assistance for whom
can‘t afford IP enforcement cost, they may be SMEs or individuals. The main work
pattern is to organize local related governments, law firms, IP agents, research
institutes, social organizations, experts to provide assistance for enforcement for
who satisfies the requirements. As these centers were established one after another,
and have been operated for one or two years, they present some problems lead to
they can not achieve the original aims. First, the assistance center is a new thing
that there is no perfect operation mode and experience to use, every local center
would only ―grope in the blank‖ based on the basic principles. Second, most of the
local centers don‘t have enough funds to enforce assistance.
36
This discuss part see X.Q.FENG,J.Q.LIU, A Review of Recent Developments in Patent Law in the
People‟s Republic of China, in 4 The Journal of World Trade Law, 2001, at 861-863.
362
The Patent Rights Enforcement in China
________________________________________________________________________________
How to solve the above problems and make the Assistance center to play a
big role in patent enforcement? There are some suggestions: (i) to consummate the
assistance system of the assistance centers, give more regulations about the system,
rather than only a guidance; (ii) to establish an assess system to stimulate these
centers to create more effective performance and popularize the good cases in all
the centers; (iii) every center should establish a multi-channel funds to ensure the
operation of the assistance centers, including government support, social donation,
etc.
Feiyu Lei
363
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The Patent Rights Enforcement in China
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http://www.sipo.gov.cn/sipo_English/laws/whitepapers/200904/t20090427_457167
.html
THE PROTECTION OF IPRS IN THE PHARMACEUTICAL MARKET
AFTER PATENT EXPIRATION: AN ANALYSIS OF THE REVERSE
PAYMENT SETTLEMENTS IN LIGHT OF COMPETITION LAW
by
Karoline Brandi and Federica Lorenzato
INTRODUCTION
CHAPTER 1
THE PHARMACEUTICAL REGULATORY ENVIRONMENT
A. USA: The Hatch-Waxman Act
1. The ANDA Process
2. The Paragraph IV-Certification
3. Patent Term Restauration
B. Europe
1. Supplementary Protection Certificate (SPC)
2. Regulatory Data Protection, Marketing Exclusivity, „Bolar Scheme―
CHAPTER 2
LIFE CYCLE MANAGEMENT STRATEGIES
A. Patent Filing Strategies, Evergreening
B. Vexatious Litigation
C. Second Generation Products
D. Authorized Generics
E. OTC Switches
F. Reverse Payment Settlements
CHAPTER 3
THE REVERSE PAYMENTS SETTLEMENTS IN DETAIL
A. The Reverse Payments Settlements in U.S.
3.1. Definition of Reverse Payment Settlements
368
The Protection of IPRs in the Pharmaceutical Market after Patent
Expiration.
An Analysis of the Reverse Payment Settlements in Light of Competition
Law
________________________________________________________________________________
3.2. Factors proving Incentives for Reverse Payment sSttlements in the Drug
Industry
3.2.1 Innovative Drugs have intrinsically High Social Utility
3.2.2. Barriers to Generic Market Entry
3.3. Reverse Payment Settlements in the FTC‘s Opinions
3.4. Reverse Payment SettlementS in the Courts
B. The Reverse Payments Settlements in Europe
CONCLUSION
BIBLIOGRAPHY
Karoline Brandi and Federica Lorenzato
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INTRODUCTION
Intellectual property rights - and patents in particular - are arguably more
important to the pharmaceutical industry than to any other industry. There are a
number of reasons for this, which distinguish the pharmaceutical industry from
most other sectors.
The research-based pharmaceutical industry is particularly dependant on
being able to benefit from the full duration of the 20 years patent protection. This
contrasts with many other industries, where a product can enter the market soon
after a patent application is made and where innovation and technological
development can make patented technology obsolete long before the expiry of the
patent.
First, there are significant regulatory and scientific requirements that must be
fulfilled before any new drug can be placed on the market. The drug must complete
a rigorous testing process to establish that it is both safe and effective. It usually
takes 6 to 12 years from the date of patent application until an innovative drug is
put on the market. As a result, effective patent protection is reduced up to only
eight years.1
Second, the relative speed with which generic producers can enter the market
once the patent has expired given that they do not need to repeat the regulatory
process. This means that the pharmaceutical company which developed the drug
must plan to recoup the cost of its Research and Development (R&D) investment
before patent protection expires.
Third, the very significant cost of developing a new drug, which has been
estimated as being around a billion dollars today. This compares to approximately
$230 million at the end of the 1980s.2
Obtaining a patent on its invention allows the pharmaceutical firm to benefit
from a monopoly power for a certain period, during which it has the exclusive right
to produce the patented drug and/or to concede licences to other laboratories. In
this case, patents are an efficient tool for innovative firms to make their R&D
investments profitable and represent therefore an incentive for further innovation.
However, this situation totally changes once the patent expires and the
invention falls into the public domain; many generic copies of the originally
patented drug could henceforth be produced by different laboratories in different
countries. The market for this drug turns from a monopole into a competitive
structure. Traditionally, innovative pharmaceutical companies lose 20% to 50% of
1
GARLAND P.,LARUSSON H.K., Data Exclusivity, Bolar Exemption and Generic Drugs in the
EU, 129, EIPR (2007)
2
KILLICK J., SCHULZ A., DAWES A., 7, The Special Regime of Intellectual Property for the
Pharmaceutical Industry, IP & Technology Programme Report (BNA), 2006
370
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their market share when a first generic pharmaceutical enters the market.
Subsequent generic entries can cause prices to drop by as much as 90%.3
With patent term expiries in full swing, innovative market players
increasingly have recourse to diverse strategies aimed at reducing the adverse
effects of generic competition. These practices to encounter the entry of generics
have drawn the attention of antitrust authorities, especially in the United States.
The European Commission (EC) in July 2009 issued its Final Report on its
inquiry into competition in the pharmaceutical sector, after having conducted
surprise inspections of certain pharmaceutical companies, seeking evidence of anticompetitive conduct.4. The inquiry, which began in January 2008 under Art.81 and
82 of the ex-EC Treaty (which is now Art.101 and 102 of the Treaty on the
Functioning of the European Union (TFEU)) was mandated to examine why fewer
novel medicines were being brought to market and why generic entry was
frequently delayed.
The findings of the inquiry indicate that originator companies use a variety of
instruments to extend the commercial life of their medicines. The results of the
sector inquiry suggest that the behaviour of companies contributes to the generic
delay.5
Our aim in this work is to study, how innovative pharmaceutical firms react
in response to generics competition. A special analysis will be given on the socalled „Reverse payment settlements―strategy in the light of antitrust law.
First of all, there are the strategies that exploit regulations to maintain market
share or delay the introduction of generic drugs. Therefore, initially we will sum up
the particular regulatory environment of the pharmaceutical industry, with a focus
on the regime in Europe and the US.
3
LAMOTE A., L‘ECLUSE P., LONGEVAL C., Generic entry - a challenge to traditional EC
competition law?, 81, Cross-Border Handbook Life Sciences (2008/09)
4
EU Commission Final Report, available at
http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/communication_en.pdf
5
EU Commission Final Report, 11
Karoline Brandi and Federica Lorenzato
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CHAPTER I. THE PHARMACEUTICAL REGULATORY
ENVIRONMENT
A. USA: The Hatch-Waxman Act
The United States in 1984 enacted the Hatch-Waxman Act with the dual
objectives of facilitating entry of generic competition while preserving sufficient
patent exclusivity time to incentivize drug innovation.6
1. The ANDA Process
The Hatch-Waxman Act changed the regulatory criteria for the U.S. Food
and Drug Administration (FDA) approval of generics, thereby significantly
reducing the costs and time delays of generic entry. This abbreviated new drug
application (ANDA) process requires generic manufacturers to demonstrate that the
generic is ―bioequivalent‖ to an approved brand drug.7 Prior to passage of the
Hatch-Waxman Act, generic firms could not rely on branded drugs‘ safety and
efficacy data unless this information was published in the scientific literature. In
effect, these safety and efficacy data were given „trade secret―status. Hence a
generic imitator had to undertake many of the same safety and efficacy tests as the
innovator to gain FDA approval. Second, the Act allowed generic manufacturers to
conduct their testing prior to patent expiration without infringing the patent (= US
„Bolar Scheme―8). This allowed generics to enter the market much more quickly
after patent expiration than previously.9
2. The Paragraph IV-Certification
If the ANDA applicant is seeking approval to market a drug before the
expiration of one or more patents listed in the Orange Book, then for each patent
the ANDA applicant must include a certification (a so-called „paragraph IVcertification―) which states that the patent is invalid or will not be infringed by the
proposed generic product. The patent owner may then file a patent infringement
lawsuit within 45 days of receiving a paragraph IV notification. In that case, FDA
approval of the ANDA is automatically stayed for 30 months. During the stay, the
FDA is prohibited from approving another ANDA. Additionally, the first ANDA is
granted a 180-day market exclusivity period, as an incentive whereby the generic
company does not have competition from other generic companies and can both
establish market share and charge a higher price.10
6
SLOAN F., Pharmaceutical innovation: incentives, competition, and cost-benefit analysis in
international perspective, 153, Cambridge University Press, New York, 2007
7
SLOAN F., 153.
8
GARLAND P., LARUSSON H.K., 130.
9
SLOAN F., 154.
10
RUMORE M., The Hatch-Waxman Act - 25 years later: Keeping the Pharmaceutical Scale
Balanced,
www.pharmacytimes.com/supplement/pharmacy/2009/GenericSupplement0809/GenericHatchWaxman-0809; PAVANE M., FERRARI L., Reverse payment settlement agreements, trading
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3. Patent Term Restauration
Hatch-Waxman also provided benefits to innovative firms by restoring some
of the patent life lost during the long clinical and regulatory periods for new
drugs.11 In particular, new drugs were eligible for a Hatch-Waxman extension in
patent life equal to the sum of the NDA regulatory review time plus one-half of the
IND testing time. The law also constrained extensions to a maximum effective
patent lifetime of 14 years and capped extensions at five years.
In addition, Title I of the law provided for a five-year data exclusivity period
for the drugs‘ safety and efficacy data. In essence, no generic firm could submit an
ANDA and rely on the safety and efficacy data of the innovating firm until five
years after FDA approval.12
However, the primary impact of the Act has been to foster greater generic
competition, since the patent term extension benefits to innovators were more than
offset by the increased generic competition after patent expiration that was
facilitated by the law.13
B. Europe
1. Supplementary Protection Certificate (SPC)
After the passing of Waxman Hatch innovative European firms were put at a
competitive disadvantage vis à vis the US. Pressure was put on the EC Commission
to provide for extension or restoration of patent terms for pharmaceuticals.14 The
E.U. responded in 1992 by adopting the Supplementary Protection Certificate
(SPC) Regulation15, which grants pharmaceutical products up to five years‘ extra
patent protection (or 15 years from the first marketing authorization in the EU16) to
compensate research-based companies for the delays inherent in the regulatory
system.17
one litigation headache for another, Managing Intellectual Property, available at
http://www.managingip.com/Article.aspx?ArticleID=2324934 .
11
SLOAN F., Pharmaceutical innovation: incentives, competition, and cost-benefit analysis in
international perspective, 153, Cambridge University Press, New York, 2007.
12
SLOAN F., 165.
13
SLOAN F., 154.
14
MARKS D., Life beyond the patent, 13, Managing Intellectual Property (1994).
15
Regulation 1768/92 of 18 June 1992 concerning the creation of a supplementary protection
certificate for medicinal products.
16
GARLAND P.,LARUSSON H.K., Data Exclusivity, Bolar Exemption and Generic Drugs in the
EU, 129, EIPR (2007).
17
KILLICK J., SCHULZ A., DAWES A., 8, The Special Regime of Intellectual Property for the
Pharmaceutical Industry, IP & Technology Programme Report (BNA), 2006 .
Karoline Brandi and Federica Lorenzato
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To obtain an SPC on the date of application in the territory concerned, three
conditions must be met. Firstly, a medicinal product must be covered by a basic
patent in force. Secondly, the manufacturer must have been granted a valid
authorization18 to place the product on the market as a medicinal product and it
must have been the first manufacturer to obtain an authorization for that particular
product. Thirdly, the product may not already have been the subject of an SPC: a
product may only obtain a single SPC for a maximum of five years19.
2. Regulatory Data Protection, Marketing Exclusivity and the „Bolar
Scheme“ (Directives 2001/83 and 2004/27)
In addition to patents and SPC, pharmaceutical products in Europe also
benefit from the „regulatory data protection―. Following the example of the US
(five-year data exclusivity period of the Hatch-Waxman Act), Directive 2001/83,
amended by Directive 2004/27, provides 8-years protection of the drugs‘ safety and
efficacy data. An „abridged― application for marketing a generic drug can therefore
be filed only eight years after the first marketing authorization of the innovative
drug upon which the generic drug is based.20
Art. 8 (3) (i) of the amended 2001 Directive states that the results of preclinical tests and clinical trials must be submitted with an application for the grant
of marketing authorization of a particular drug. Art.10 (1) - as an exception to this
provision - allows a generic producer, once the data exclusivity period has expired
(as well as the patent protection and the SPC), to submit an application for
marketing authorization for a generic drug submitting the data referred to in Art.8
(3) (i). According to this „abridged procedure― the manufacturer of the generic
drug is not required to repeat pre-clinical tests and clinical trials carried out in
relation to the innovative drug, but can in its application refer to the innovative
pharmaceutical company‘s original research data kept by the relevant marketing
authorization authorities.21
The eight years of data exclusivity are complemented by an overlapping 10year market exclusivity22 which means that a generic drug cannot be placed on the
market until 10 years have elapsed from the initial authorization of the innovative
drug.23 Therefore, if processing a marketing application for a generic drug takes
less than two years (as is usually the case), generic manufacturers now have real
prospects of being able to put their products an the market as soon as the 10-year
market exclusivity expires.
18
Under either Directive 2001/83/EC or Regulation 726/2004/EC.
KILLICK J., SCHULZ A., DAWES A., 8.
20
GARLAND P.,LARUSSON H.K., 129.
21
GARLAND P.,LARUSSON H.K., Data Exclusivity, Bolar Exemption and Generic Drugs in the
EU, 129, EIPR (2007).
22
Directive 65/65/EEC, 87/21/EEC.
23
Art.10 (1) of the Amended 2001 Directive.
19
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However, this two-year window between the end of the data exclusivity
period and the end of the marketing exclusivity period would in most cases be of
no practical use without the simultaneous implementation of the „Bolar Scheme―.
Art.10 (6) of the amended 2001 Directive expressly states that conducting the
necessary studies and trials with a view of marketing an application for marketing
authorization ―shall not be regarded as contrary to patent rights or SPC‘s―.24
CHAPTER II. LIFE CYCLE MANAGEMENT STRATEGIES
Besides filing for a European SPC25 or using the patent term restoration and
the 30-month stay provision of the Waxman-Hatch Act, there are other responses
of branded firms, typically referred to as life cycle management strategies. 26 In the
following we will explore some of the prevalent strategies, especially those
mentioned in the European Commissions Final Report on its inquiry into
competition in the pharmaceutical sector.27
A. Patent Filing Strategies, Evergreening
The findings of the inquiry suggest that in recent years originator companies
developed strategies to extend the breadth and duration of their patent protection.
In order to delay or block the market entry of generics, originators use to file
numerous patent applications for the same medicine (forming so called "patent
clusters" or "patent thickets").28 By using this so called „evergreening―-strategy,
the brand-name manufacturer literally ―stockpiles‖ patent protection by obtaining
separate 20-year patents on multiple attributes of a single product. These patents
can cover everything from aspects of the manufacturing process to tablet colour or
way of dosing. Through this tactic the generic manufacturer are forced to choose
between waiting for all the patents to expire and applying for marketing
authorization anyway, running the risks of litigation and the associated costs and
delays. Originator laboratories no longer wait until the end of a product‘s patent life
to begin the evergreening process. In order to maximize revenues from their
24
GARLAND P., LARUSSON H.K., 130.
From a competition law perspective, limited risks are involved, but see the misuse case of
AstraZeneca (http://ec.europa.eu/competition/sectors/pharmaceuticals/cpn2005_3_54.pdf) In 2006,
the European Commission imposed a € 60 million fine on AstraZeneca for having abused its market
power (or ‗dominance‘) by pursuing certain intellectual property (IP) and regulatory strategies
aimed at keeping generics off the market.
26
SLOAN F., Pharmaceutical innovation: incentives, competition, and cost-benefit analysis in
international perspective, 167, Cambridge University Press, New York, 2007.
27
EU Commission Final Report, 11-16.
28
EU Commission Final Report, 11..
25
Karoline Brandi and Federica Lorenzato
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products, pharmaceuticals executives begin preparing strategies to extend patents
and stifle generic competition at the outset of product life-cycles. 29
B. Vexatious Litigation
Another common strategy for a patentee to prolong the life cycle of its
pharmaceutical, is to bring or threaten to bring patent infringement actions against
generic competitors that are about to launch substitutes for the patentee‘s
pharmaceutical. The primary purpose of this vexatious litigation is to delay the
entry of generic medicines rather than a serious attempt to enforce legal rights (e.g.,
by obtaining interim injunctions keeping generic companies off the market).
Branded firms often simply question the bioequivalence and reliability of generic
products before the courts.30
Vexatious litigation is arguably a technique that is more rewarding in the US,
where the Hatch-Waxman Act offers innovative pharmaceutical companies the
opportunity to delay generic entry by filing a patent infringement suit against the
generic applicant within the 45 day-deadline.31 By providing such infringement
claim, the approval of the generic‘s market authorization can be postponed for 30
months.
In the EU, in contrast, there is no such linkage between the grant of
marketing authorization and alleged patent infringement. The relevant authority
will typically grant marketing authorization, irrespective of such infringement. The
patent holder will need to start litigation and, importantly, seek an injunction
preventing the entry of the generic drug onto the market. This will require a prima
facie case, in contrast with the US, where the stay in the authorization process is
automatic.32
C. Second Generation Products
The Commissions inquiry discovered that many originator companies launch
second generation or follow-on medicines before loss of exclusivity of the first
generation product.33 Thereby branded firms try to switch patients to nextgeneration drugs with little or no added therapeutic value, prior to the market entry
29
RUMORE M., The Hatch-Waxman Act - 25 years later: Keeping the Pharmaceutical Scale
Balanced,
www.pharmacytimes.com/supplement/pharmacy/2009/GenericSupplement0809/GenericHatchWaxman-0809; SLOAN F., 167 ff.
30
EU Commission Final Report, 12; LAMOTE A., L‘ECLUSE P., LONGEVAL C., Generic entry a challenge to traditional EC competition law?, 82, Cross-Border Handbook Life Sciences
(2008/09)
31
LAMOTE A., L‘ECLUSE P., LONGEVAL C., 82.
32
VAN KERCKHOVE M., VARMA A., Getting The Deal Through: Pharmaceutical Antitrust Overview, 4, Global Competition Review 2009, available at
http://www.blakes.com/pdf/Getting_the_Deal_Through-Pharmaceutical_Antitrust_09.pdf
33
EU Commission Final Report, 15.
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of a generic version of the first generation product.34 Through this tactic generic
companies are less able to gain a significant share of the market.
If on the other hand generic companies enter the market before the patients
are switched, originator companies may have difficulties in convincing doctors to
prescribe their second generation product or in obtaining a high price for the
second generation product.35
D. Authorized Generics
Authorized generics are pharmaceutical products commercialized under a
generic product name by the manufacturer of the original branded pharmaceutical,
or by a generic manufacturer under a licensing agreement with the original
manufacturer. Pharmaceutical companies can decide to launch an authorized
generic as part of a strategy to secure competition in the generics market on patent
expiry. Alternatively, an innovator can license an authorized generic to a generic
competitor as a way to terminate patent infringement litigation.36
The authorized generic is sold at a lower cost, and as an alternative to the
branded product. The brand companies may choose to launch an authorized generic
for a variety of reasons, including to settle patent litigation with a generic company
by partnering with it, to participate in the generic market once generic competition
starts, or to maintain manufacturing capacity for the drug substance or the drug
product.37
Arguably, it is mostly US firms that have resorted to this strategy because it
allows them to undermine the 180-day exclusivity period granted by the HatchWaxman Act to the first generic manufacturer, as they do not have to abide by this
provision.38 The introduction of an authorized generic during the 180-day period
indeed results in a situation where two generic companies directly compete on the
34
SIPKOFF M., Big Pharma uses effective strategies to battle generic competitors, available at
http://drugtopics.modernmedicine.comSipkoff, Big Pharma uses effective strategies to battle generic
competitors.
35
EU Commission Final Report, 16.
36
LAMOTE A., L‘ECLUSE P., LONGEVAL C., Generic entry - a challenge to traditional EC
competition law?, 85, Cross-Border Handbook Life Sciences (2008/09); SLOAN F.,
Pharmaceutical innovation: incentives, competition, and cost-benefit analysis in international
perspective, 160, Cambridge University Press, New York, 2007; NARINDER S.,
Authorized Generics: Antitrust Issues and the Hatch-Waxman Act, 1, available at
http://www.fenwick.com/docstore/publications/IP/Authorized_Generics.pdf; EU Commission Final
Report, 12,13.
37
NARINDER S., 1.
38
LAMOTE A., L‘ECLUSE P., LOGEVAL C., 85; NARINDER S., 1.
Karoline Brandi and Federica Lorenzato
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same market. This substantially reduces the economic incentive warranted by the
180-day rule and possibly deters generic competition.
Yet, the Federal Food and Drug Administration (FDA) and the US courts
have stated on several occasions that authorized generics appear to promote rather
than to impede competition. The introduction of authorized generics to the EU
market would probably provoke less resentment from generic competitors than in
the US, given that there are no Hatch-Waxman type rules in the EU.39
E. OTC Switches
Another basic option available in the case of some therapeutic categories is to
develop an over-the-counter (OTC)-version of a product subject to patent
expiration. The strategy has been employed for example for anti-inflammatory pain
relievers such as Motrin and Naprosyn. A key driver of success in the OTC market
is the ability to capitalize on the brand loyalty enjoyed by the prescription
product.40
F. Reverse Payment Settlements
Among the practices identified in the Commissions Report that possibly lead
to delay of generic entry were also listed so-called „reverse payment
settlements―between brand pharmaceutical manufacturers and generic entrants.41
Via such an - also referred to as „pay for delay - agreement a brand company pays
a substantial amount of money to a potential generic entrant (and alleged infringer)
to delay entry of a competing generic version of the brand-name drug.42 The
Commission noted that this type of settlement has attracted antitrust scrutiny in the
United States. However, unlike in the U.S., cases of reverse payment agreements in
Europe only recently have drawn attention.
In the US, patent litigation settlements are extremely rewarding as they may
result in a complete foreclosure of the market for generics manufacturers. Under
the Hatch-Waxman Act, if the generics manufacturer decides to delay market entry
for some reason, the 180-day period will not begin to run, which results in other
generics manufacturers being prevented from entering the market. Therefore, if an
39
LAMOTE A., L‘ECLUSE P., LOGEVAL C., 85, 86.
SLOAN F., Pharmaceutical innovation: incentives, competition, and cost-benefit analysis in
international perspective, 167,168, Cambridge University Press, New York, 2007; MARKS D., Life
beyond the patent, 18, Managing Intellectual Property (1994); RUMORE M., The Hatch-Waxman
Act - 25 years later: Keeping the Pharmaceutical Scale Balanced, available at
www.pharmacytimes.com/supplement/pharmacy/2009/GenericSupplement0809/GenericHatchWaxman-0809.
41
GATES S., JAECKEL J., BETETA D., Pharmaceutical Patent Settlements Under Fire on Both
Sides of the Atlantic, available at http://www.mofo.com/news/updates/files/15791.html .
42
RUMORE M., The Hatch-Waxman Act - 25 years later: Keeping the Pharmaceutical Scale
Balanced; DUXBURY P., MADAWELA Y., Patent misuse in the pharmaceutical industry:
developments in US & EU (2007), available at
http://www.wragge.com/published_articles_2852.asp.
40
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innovator succeeds in keeping the first generics manufacturer from entering the
market, he can almost indefinitely maintain his monopoly status on the product
under attack. This is why in the US most patent litigation settlements contain
exclusionary payment features by which the innovator offers payment to the
generics manufacturer in exchange for the latter not entering the market, if it
obtains marketing authorization.43
In the following chapter the reverse payment settlements strategy will be
analyzed in detail and in the light of competition law.
CHAPTER III. THE REVERSE PAYMENTS SETTLEMENTS
A. The Reverse Payment Settlements in the US
3.1. Definition of Reverse Payment Settlements
The term ―reverse payment‖ is used to define a variety of diverse patent
settlement agreements that involve a transfer of money from the patent owner to
the alleged infringer.
In a broader sense, it can be used to define any agreement between patent
litigants, or potential litigants, wherein the patent owner agrees to provide some
compensation to the alleged infringer, and the alleged infringer agrees to delay
developing or marketing a product. The ―reverse‖ designation refers to the
direction of the payment from the patentee to the alleged infringer. In most patent
litigation settlements, any payments typically flow from the alleged infringer to the
patentee44.
Although reverse payment settlements can and probably do occur in other
contexts, it appears that all of the reverse payment settlements that have been
challenged as antitrust violations have occurred in the context of challenges by
generic drug companies of branded drug patents.
The most extreme example of reverse payment settlements would be an
agreement terminating litigation, pursuant to which the potential generic competitor
would agree to stay off the market for the full duration of the patent term in
exchange for cash payments.
43
LAMOTE A., L‘ECLUSE P., LONGEVAL C., Generic entry - a challenge to traditional EC
competition law?, 81, Cross-Border Handbook Life Sciences (2008/09).
44
C. S. HEMPHILL, Paying for delay: pharmaceutical patent settlement as a regulatory design
problem, 81 N.Y.U.L.R. 1553 (2006); C.M.HOLMAN, Do Reverse Payment Agreement violate the
Antitrust Laws?, 23 Santa Clara Comp. & High Tech. L.J. 490 (2007).
Karoline Brandi and Federica Lorenzato
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But a closer look to the facts of individual cases reveals that few, if any,
reverse payment settlements are as simple as that or as clearly anticompetitive.
For example, most agreements that terminate a patent dispute involve a
negotiated market entry date for the generic product that substantially occurs later
than would have likely occurred if the generic company had prevailed in the patent
dispute, i.e. the parties split the remaining patent term. Settlements such as this,
involving a negotiated generic entry date prior to patent expiration, can promote
competition by providing a guaranteed reduction in the effective patent term that
would not have occurred absent the patent challenge.
In other cases, the litigants do not settle the underlying dispute, but the
generic company agrees to stay off the market for some period of time while the
patent litigation remains pending. These types of agreements are often referred to
as ―interim settlements‖ or ―partial settlements agreements‖ and can take on the
attributes of a privately negotiated preliminary injunction. Various attributes of
partial settlements agreements can render them potentially more or less procompetitive than final settlements agreements. On the positive side, partial
settlements agreements can allow the parties to diligently pursue the underlying
litigation to final judgment without exposing both parties to the huge potential
losses facing each party if the generic enters the market but is subsequently found
have infringed a patent. On the other hand, interim settlements can tend to prolong
litigation. Because the generic company is benefiting from a steady, and typically
substantial, incoming flow of cash payments and the branded company is
continuing to reap supra-competitive profits as the sole purveyor of the patent drug,
there is little incentive for either party to push for a speedy resolution of the matter.
Moreover, in many cases these agreements affectively restrict market entry by third
generic manufacturers. The anticompetitive potential of interim settlements
agreements is substantial, and both the FTC and the courts have treated them as
generally more problematic than final agreements45.
Other deviations from the simple model occur when the payment is not a
simple transfer of cash. For example, in some interim settlements, the payment is
contingent upon the defendant prevailing on appeal. In other cases, payment is
contingent upon the generic company achieving final approval from the FDA.
In many cases the ―payment‖ comes in the form of a side deal, i.e., an
agreement ancillary to the patent settlement. For example, in some cases there is an
ancillary agreement pursuant to which the defendant licenses one or more of its
products to the patentee. If the licensing payments exceed the fair market value of
the in-licensed technology, one may infer that the excess amount represents a
camouflaged payment for the delayed generic market entry. For example, one
agreement at issue in the Schering-Plough involves a payment of $ 600 million that
Schering agreed to make in exchange for the right to market several of the generic
45
See FTC, Generic Drug Entry Prior to Patent Expiration: An FTC Study, available at
http://www.ftc.gov/os/2002/07/genericdrugstudy.pdf.
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company‘s proprietary drug products46. The FTC went to great lengths in an
attempt to establish that the size of the Schering‘s payment exceeded its actual
valuation of the in-licensed drug products. On appeal, however, the court rejected
the FTC‘s conclusion that the terms of the ancillary agreements were anything but
the product of legitimate arm‘s-length business negotiations.
There are potential pro-competitive aspects to these ancillary agreements. For
example, the licensing of the products to the branded drug company could facilitate
their commercialization, fostering competition in the ancillary drug market. To the
extent the ancillary agreements were legitimate business deals, the Schering-Plough
agreements were effectively cross-licensing agreements, a form of patent licensing
that the FTC and courts have found to be generally pro-competitive.
In some cases, reverse ―payment‖ takes the form of an ancillary agreement
pursuant to which the patent owner grants the defendant a license to sell a drug
other than the one that is subject of the patent dispute. As with case where the
generic company licenses a product to the patent owner, these agreements can
promote competition in the ancillary market. Of course to the extent the payment is
less than a legitimate valuation of the product, the license to sell the other product
can function as a disguised payment for delay in the marketing of the product
allegedly covered by the disputed patent.
Furthermore, in other cases the reverse payment is an ancillary agreement
pursuant to which the patent owner grants the defendant a license to sell the
patented drug, manufactured by the patent owner, under a generic label. This type
of agreement has procompetitive potential, because this generic labelled product
will typically come at a price lower than the branded drug product47.
In some cases, the parties characterize reverse payments a ―saved litigation
expenses‖. The FTC and some commentators have proposed that reverse payment
should not raise a presumption of illegality where the payment is limited to the
litigation costs that the patentee would expect to save by discontinuing the
litigation. The rationale is that even a patent owner convinced of the merits of its
patent case might still legitimately settle a nuisance suit by paying the patent
challenger an amount representing the amount of money that would otherwise be
spent on litigation costs.
46
Schering-Plough Corp. v. FTC, , 402 F.3d at 1060 (11th Cir. 2005).
It must be noted that, however, the price discount is limited by the terms under which the branded
company supplies the drug to the generic company, and the drop in price is generally much less than
would be expected in the case of true generic competition. Nevertheless, there will generally be
some consumer benefit, at least compared to an alternative where the patent owner ultimately
prevails in the litigation.
47
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In other cases, an alleged reverse payment takes the form of an ancillary
agreement, pursuant to which the generic company receives payments to copromote the branded drug company‘s product. Sometimes the co-promoted product
is the product at issue in the litigation; at other times, it is another product.
In further cases, the reverse payment comes in the form of an ancillary
agreement under which the generic receives compensation for agreeing to supply
the branded drug company with either raw materials for the manufacture of the
brand product or with finished drug product. In some cases, the compensation to
the generic company consists of an agreement by the brand company not to launch
an authorized generic during the first-filer generic company‘s 180-days exclusivity
period for the product at issue in the litigation.
Further, in other cases the payment is actually an agreement on the part of the
brand company to pay the generic up-front payments, milestones, sale percentages,
or development fees for unrelated products to be developed using the generic
company‘s technology.
3.2. Factors proving Incentives forRreverse Payment Settlements in the
DrugIindustry
3.2.1. Innovative Drugs have intrinsically High Social Utility
A fundamental issue driving large reverse payment is the amount of profit
that can be made in the sale of prescription drugs, particularly ―blockbuster‖ drugs
that offer unique and substantial therapeutic benefit relative to other product in the
market48.
A branded drug company‘s profit margins are to a large extent dependant
upon the market exclusivity provided by patents. When patent protection expires,
generic competition quickly erodes margins and market share, resulting in
precipitous declines in profitability. The high profitability of branded drugs
motivates drug patent owners to take extreme measures to maintain and enforce
their patent rights.
High profit reflects the relative inelasticity of consumer demand for patented
prescription drugs, particularly in the case of a true blockbuster drug with no
reasonably acceptable substitute.
It is important to remain cognizant of the high social utility in drug
innovation. The patent system is the primary engine driving the highly risky and
expensive machine that is modern drug development. Any attempts to restrict the
rights of pharmaceutical patent owners should only be taken while bearing in mind
the potential harm to incentives for innovation, and ultimately the impact this might
have on the next generation of innovative drugs.
48
C.M.HOLMAN, Do Reverse Payment Agreement violate the Antitrust Laws?, cit., 504.
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The introduction of generic competition dramatically reduces the profitability
of a prescription drug. According to FDA, analysis of retail data shows that the
price of a generic drug averages 94% percent of the brand price when there is one
generic competitor in the market and that the entry of a second generic competitor
reduces priced to 52% of brand price49.
It follows that the existence of reverse payments, and their sizeable
magnitude can in large part be attributed to the branded and generic companies‘
exposure to enormous potential financial losses and gains respectively, should the
patent challenge succeed.
3.2.2. Barriers to Generic Market Entry
Substantial barriers to market entry confront potential generic drug
competitors, and these barriers tend to incentivize reverse payments settlements.
These barriers to entry are unique to the drug industry and depend on the regulatory
provisions that interact with the drug development process, in the context of the
Hach-Waxmac patent challenges.
Moreover, it must be noted that a consideration of barriers to market entry
and the source of these barriers, is critical in any assessment of the anticompetitive
potential of a specific agreement, as well as reverse payment settlements in general.
In the context of a Paragraph IV litigation, barrier to third parties generic
entry are very high and the appearance of reverse payments settlements in
Paragraph IV disputes is due to the fact that –unique to pharmaceutical patents- a
properly defined settlement-plus-exit-payment keeps not only the immediate
infringement defendant out of the market for a time, but also keeps generic firm
from entering as well. By making reverse payments pharmaceutical patentees are
able to achieve ―a guaranteed insulation from competition, without the risk that the
patent will be held invalid‖50.
In fact, in the context of Hatch-Waxman there is one barrier to third party
generic entry that has the potential to dominate over all others and that is the ability
of a first Paragraph IV filer or a first filer to indefinitely ―park‖ its 180-day
exclusivity period. A parked GE (generic exclusivity) can create a bottleneck in
FDA regulatory process preventing the approval of any third party generic
competitor, at least until the expiration of the challenged patent.
49
See FDA, Generic Competition and Drug Prices, available at
http://www.fda.gov/CDER/ogd/generic_competition.htm.
50
H. HOVERKAMP, M. JANIS, M. LEMLEY, Anticompetitive Settlements of Intellectual Property
disputes, 87 Minn. L. Rev. 1719, 1761-62 (2003).
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The potential to park GE arises out of the criteria used to trigger the awarding
of GE and the initiation of the GE period. Recall that GE is awarded to first-filer
and generally does not commence until after the first-filer begins marketing a
generic version of the drug, or a decision is reached in a lawsuit filed in response to
the Paragraph IV litigation. If the parties to Paragraph IV litigation reach an
agreement pursuant to which the first-filer agrees to delay or forgo market entry,
the 180-day GE period will not begin until after the patent litigation is a final
settlement, resulting in dismissal of the infringement action, the 180-day GE period
is never triggered; if it never begins, it can never end. As a consequence, the parties
can agree to ―park‖ the GE indefinitely, creating a bottleneck that will prevent any
generic third party from entering the market, even if that party is never sued for
patent infringement, or succeeds in establishing in court that the patent is invalid or
not infringed.
The ability to park GE creates a huge incentive for collusive settlement
agreements between branded drug companies and first-filer generic companies. By
effectively creating an insurmountable barrier to third party generic entry, it allows
the settling parties to share in supra-competitive profit made possible by market
exclusivity. In fact, were it not for fear of antitrust liability, it would probably
always be in the interest of a branded drug company and the GE owner to reach
such an agreement51. The profit margins available under monopoly conditions
generally exceed those available in a market with two or more competitors, and
with only a single potential generic competitor both parties would be better off
sharing those profits than competing.
Moreover, also the ANDA approval process acts can be considered as a
relevant barrier to generic market entry. Even if the reformed process has reduced
the regulatory burden on generic drug companies, it still imposes its own
substantial monetary and temporal barriers to entry for third party generic
competition. The process typically requires a would-be generic competitor twelve
months and around $1 million just to generate and compile the data necessary to
file an ANDA. If that is the case and the ANDA includes a Paragraph IV
certification that results in an automatic thirty-month stay, a time lag of at least
forty-two months between commencement of approval process and ability to
market the drug can be expected.
Another way in which drug regulation encourages reverse payment
settlements of Paragraph IV litigation is by bolstering the effective exclusionary
potential of drug patent. In fact, while designating around a generally a legitimate
means to circumventing a competitor‘s patent, it is often difficult to accomplish in
the context of prescription drugs. Strict regulatory controls make it heavily difficult
more the competitor to design around an Orange Book-listed patent. If the design
around process involves any change to the chemical structure of the active
ingredient of the drug or results in a product that is not bioequivalent to the original
patented product, the competitor will generally not be able take advantage of the
51
C. SHAPIRO, Antitrust Limits to Patent Settlements, 34 Rand J. Econ. 391, 391 (2003).
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ANDA process. Instead, it will be required to get through the regular NDA process,
resulting in a drastic increase in the time and expense to secure marketing approval.
This, in part, explains why generic companies expend so much energy challenging
patents, rather than attempting to design around them: in fact, any design around
involving an alteration of the structure of the active ingredient or lack of
bioequivalence will preclude marketing approval by means of an ANDA.
3.3. Reverse payments settlements in the FTC‟s opinions
Over the last ten years, FTC scrutiny of the pharmaceutical industry has
expanded dramatically, driven by a rapid rise in the nation‘s expenditure on
prescription drugs.
The FTC originally focused only on settlements agreements that parked
Generic Exclusivity or covered non-infringing products, not reverse payments. Its
scrutiny in fact focused primarily on terms in patent settlements that either had the
potential to park the 180-day GE or that extended to activities and/or products not
covered by the patent, for example by requiring the generic company to refrain
from marketing any form of the generic drug, even forms not covered by patent,
founding both of them anticompetitive52.
In a prepared statement before the Senate Judiciary Committee on June 17,
2003, Commissioner Muris stressed that all of the early enforcement actions
against reverse payment settlements ―alleged that the brand-name company used
the generic company‘s right to the 180-day exclusivity under Hatch-Waxman to
impede entry by other generic competitors. Commissioner Muris made a number of
recommendations for congressional action with respect to Hatch-Waxman,
including revisions to the 180-day GE provisions. Many of these proposals were
adopted in the 2003 Medicare Modernization Act. For example, the FTC
recommended that the brand-name companies and first generic applicants be
required to provide copies of settlements agreements to the FTC and the DOJ in
order for them to ensure that the 180-day provision is not manipulated in a way to
delay entry of additional generic applicant. There was no suggestion that the review
provision was intended to police against reverse payment per se.
More recently, the FTC has shifted his position on reverse payment
settlements. It has come to equate reverse payments settlements with horizontal
market allocation agreements, which are normally per se antitrust violations when
no patent is involved. The FTC advocates a rule that would essentially find such
agreements presumptively illegal independent of the existence of GE parking or
restrictions extending beyond the exclusionary potential of the patent53.
52
53
See FTC Generic Drug Study, cit.
See, e.g. Palmer v. BRG of Georgia, Inc., 498 U.S. 46, 49 (1990).
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This is in contrast to the position taken by most courts, which have generally
held that an agreement settling a legitimate patent dispute does not violate the
antitrust laws. Although an agreement to stay off the market would be illegal per se
in the absence of a patent, most courts would recognize that a patent provides a
legitimate and independent basis foe excluding an alleged infringer, and that a
settlement agreement is legal so long as it does not restrict competition to an extent
exceeding the reasonable exclusionary potential of the patent. Courts tend to point
the fact that patents are, in a sense, anticompetitive by their very nature, but this is
part and parcel of their ability to incentivize innovation. They also point the
presumption of validity conferred by the statute to the issued patent54.
In contrast, the FTC evinces considerable scepticism regarding the
presumption of patent validity, and points out that any exemption from the
application of normal antitrust rules to patent settlements does not apply if the
patent is invalid, or does not cover the restricted activities. The agency points to
statistics showing that courts routinely find asserted patents to be invalid or not
infringed, particularly in the case of Paragraph IV patent challenges, and would
infer form a patent owner‘s willingness to make sizeable reverse payments that it
considers its patent case to be weak. For example, the FTC in its petition for writ of
certiorari in Schering-Plough cites to a leading treatise of antitrust law for the fact
that a firm ―certain that a patent was valid (…) would have no incentive whatsoever
to pay another firm to stay out of the market‖55.
The FTC‘s position relies on a body of scholarly literature that stresses the
uncertainty of patent litigation and the probabilistic nature of a patent right in
respect to its validity and scope prior to court‘s decision. As expressed by
Hovenkamp et al., a patent is not a right to exclude competition, but more correctly
it is a ―right to try to exclude competition‖56. The FTC has essentially taken the
position that in every Paragraph IV litigation, consumers have an expectation
interest in the finite probability that the patent challenge will succeed. The FTC
argues that any settlement between parties that deprive consumers of the value of
this expectation interest is a presumptive violation of the antitrust laws. Under the
FTC‘s approach, essentially any reverse payment settlement will be found illegal,
regardless of the strength or weakness of the patent, as an inquiry into the merits of
the underlying patent case is inappropriate, except in cases of an objectively
baseless or sham patent suit.
On July 20, 2006, in a prepared statement before the Senate‘s Special
Committee on Aging, the FTC reiterated its position that reverse payment
agreements are anticompetitive and ought to be presumptively illegal, and warned
that the Second and Eleventh Circuits‘ rejection of this position in In re Tamoxifen
54
Schering-Plough Corp. v. FTC, , 402 F.3d at 1066-76 (11th Cir. 2005).
In re Schering-Plough Corp., No. 9207, slip. op. at 30 (F.T.C. Dec. 18, 2003).
56
H. HOVERKAMP, M. JANIS, M. LEMLEY, Anticompetitive Settlements of Intellectual Property
disputes, cit., 1761.
55
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Citrate Antitrust Litigation and Schering-Plough had ―staggering‖ negative
economic implications and would result in ―tremendous‖ cost to consumers,
insurers, employers and the government57.
A number of academic commentators have taken even a stronger position
against settlements including reverse payments. For example, Hoverkamp et al.
have suggested the following rule. In an antitrust challenge, a payment from a
patentee to an infringement defendant for the latter‘s exit from the market is
presumptively unlawful, shifting the burden of proof to the infringement plaintiff.
The infringement plaintiff can defend by showing both (1) that the ex ante
likelihood of prevailing in its infringement lawsuit is significant, and (2) that the
size of the payment is no more than the expected value of litigation and collateral
costs of the lawsuit58.
Taken literally, this standard would apparently render any patent settlement
involving a reverse payment exceeding litigation costs per se illegal.
In contrast, the FTC would recognize pro-competitive justifications for
sizeable reverse payments in certain circumstances. For example, in ScheringPlough, the Commission accepted, in principle, that, in certain cases, a reverse
payment to a ―cash-starved‖ generic company might enable the latter to enter the
market earlier and more effectively, and such payment could be pro-competitive.
B. Reverse Payments Settlement in the Courts
Courts have repeatedly refused to find a basis for antitrust liability in reverse
payments. Generally, courts will only find an antitrust violation if terms of the
agreement restrict competition to an extent exceeding the exclusionary potential of
the patent. This most typically occurs when the agreement is found to result in a
parking of GE, creating a bottleneck blocking all third party generic market entry,
or when the agreement requires generic company to refrain from marketing or
developing products that would not infringe the patent. This standard is consistent
with a line of earlier court decisions that have generally found the agreements
involving patents o not violate the antitrust laws, so long as the term of the
agreement do not extend beyond the exclusionary potential of the patent. It is also
consistent with the FTC‘s early enforcement actions, which only targeted
agreements with restrictions alleged to exceed the exclusionary potential of the
patent.
57
See Jon Leibowitz, Comm‘r, FTC, Prepared Statement of the FTC bifore the Special Committee
on Aging of the United States Senate on Barriers to Generic Entry 17-19 (July 20, 2006).
58
H. HOVERKAMP, M. JANIS, M. LEMLEY, Anticompetitive Settlements of Intellectual Property
disputes, cit., 1759.
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The emerging consensus test for analyzing the legality of reverse payment
settlements under the antitrust laws, which focuses on the extent to which the terms
of the agreement exceed the exclusionary potential of the patent is exemplified by
the Eleventh Circuit‘s holding in Schering-Plough according to which ―the proper
analysis of antitrust liability requires an examination of: 1) the scope of the
exclusionary potential of the patent; 2) the extent to which the agreements exceed
that scope; and 3) the resulting anticompetitive effects59. The court cited as an
agreement exceeding the potential of the patent an agreement intended merely to
circumvent antitrust laws, or where the settlements resolves a patent litigation
involving a patent which the patent owner knows is almost certainly invalid. The
court noted that when a patent is involved the mere existence of anticompetitive
effects cannot be the basis for antitrust liability, since patents are by their very
nature anticompetitive. Antitrust liability only attaches when anticompetitive
effects exceed the exclusionary potential of the patent.
Recently, the Second Circuit has adopted the same standard, ruling that a
patent settlement, regardless of whether it includes a reverse payment, is generally
not in violation of the antitrust laws so long as the patent holder is not acting in bad
faith beyond the limits of the patent monopoly to restraint or monopolize trade, for
example in case of sham or baseless litigation involving a patent that would
certainly not survive a judicial challenge60.
Courts cite to a variety of rationales supporting the consensus rejection of
presumptive illegality based on reverse payment. For example, they typically point
to a general policy in favour of the settlement of litigation, particularly with respect
to complex and judicial resource intensive patent dispute.
In Tamoxifen, the Second Circuit, noted that rules restricting the ability of
parties to settle might actually delay generic entry and be contrary to the goals of
the patent system. In that decision, the court stressed the public‘s interest in
encouraging settlements, particularly in the context complex and expensive
litigation, as patent litigation are61.
Furthermore, a number of courts express scepticism as to the existence of any
distinction between reverse payment settlements and ordinary patent settlements, as
long as, if not all, settlements agreements include some form of compensation from
the patent owner to the alleged infringer.
Courts have also been reluctant to infer from the presence of reverse
payments that the patent owner must have viewed the patent case as weak, even in
cases involving very large payments, relying on the statutory presumption of patent
validity, in contrast with the FTC, which relies on the probabilistic character o
patent rights.
59
Schering-Plough, 402 F. 3d at 1066 (citing Valley Drug, 344 F.3d at 1312).
In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187, 213 (2 Cir. 2006).
61
Tamoxifen Citrate Antitrust Litig., 466 F.3d at 207 n. 20.
60
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In Valley Drug, the Eleventh Circuit cautioned against inferring from the size
of reverse payments that the parties lacked faith in the validity of the patent. The
court pointed out specifically to the uncertainty inherent in any attempt to
accurately assess: 1) a branded drug company‘s lost profit, (2) potential profits for
the generic companies, (3) the risk of the defendant‘s ability to satisfy a judgment,
(4) the true cost of litigation, or (5) how much of the payment might have been in
exchange for provisions of the agreements other than an acknowledgement of the
patent validity62.
The Second Circuit in Tamoxifen specifically considered and rejected the
argument that excessive reverse payments could lead to a presumption of antitrust
liability. Essentially, the court found that the antitrust laws do not prevent a patent
owner from paying to protect even a weak patent claim. Under this approach the
size of the payment becomes irrelevant, because even if one were to take it as
evidence of a subjective lack of confidence in the merits of the patent case, a mere
lack of confidence does not lead to antitrust liability foe settling the case.
Essentially, courts have not been receptive towards the FTC‘s theory of
antitrust liability based on the probabilistic nature of the patent right, not the related
theory of a consumer expectation interest in the possibility that the patent challenge
might have succeeded were it not for the settlement.
One issue on which the courts and the FTC are in substantially agreement is
that the analysis of the legality of a reverse payment settlement under the antitrust
laws should generally not entail any evaluation of the merits of the underlying
patent case, at least in cases where the patent case does not appear be a sham or
objectively baseless, or the patent does not appear to have been obtained by fraud.
In Valley Drug, the Eleventh Circuit stressed the importance of the
presumption of validity of issued patents and concluded that ―patent litigation is
too complex and the results too uncertain for parties to accurately forecast whether
enforcing the exclusionary right through settlement will expose them to treble
damages if the patent immunity were destroyed by the mere probability of the
patent‖63. The courts advocates a very high threshold to find antitrust liability based
on the merit of the patent case.
Finally, a consideration of barriers to third party generic entry is relevant in
any assessment of the potential anticompetitive effect of a settlement agreement. In
the absence of significantly barriers to third party generic entry, a reverse payment
settlement with one generic company might have little effect on competition
62
63
Valley Drug Co. v. Geneva Pharms., Inc., 344 F.3d 1294 (11th Cir. 2003).
Valley Drug, 344 F.3d 1294.
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overall, whereas, in the presence of substantial barriers to third party generic entry,
an agreement with a single generic company might effectively foreclose any
generic competition. Agreement with potential to park GE are of most concern, but
there are also other substantial barriers to third party generic entry, primarily
arising from the lengthy FDA pre-marketing approval process. The FTC and other
critics of reverse payment agreement implicitly assume very high barriers to third
party generic entry, which facilitates a reverse payment settlement between two
parties with the potential to effectively block all generic competition. However,
aside from parking GE, they normally do not explicitly point out and assess other
specific barriers to third parties generic entry.
Courts, on the others side, often implicitly assume that barriers to third party
generic entry are not overly high, with the exception of cases of GE parking, which
are considered in violation of antitrust laws. For example, a number of courts noted
that, in general, a reverse payment settlement should not be effective in foreclosing
competition, particularly where the merits of the patent case are weak, because of
the ability of the third party to challenge the patent. This, of course, ignores the
issue of the regulatory barrier to third party generic entry mentioned above.
Moreover, in Tamoxifen, the Second Circuit noted that a challenged reverse
payments agreement was not in violation of antitrust laws, because it did not
entirely foreclose competition in the market for the patented compound. The court
argued that a strategy of simply paying potential generic competitors to stay off the
market would ultimately fail, because, at some point, the cost of paying off
subsequent generic challengers would exceed the ability of the patentee‘s supracompetitive prices to support them64. Essentially, the court challenged the
plaintiff‘s implicit assumption that an agreement with one generic firm could block
all generic competition. To the extent that this analysis is interpreted ad applying to
reverse payment settlements in general, however, it seems unrealistic in assuming
minimal barriers to subsequent third party generic entry and it seems also
inconsistent with the general antitrust doctrine. In general, it is true that horizontal
market allocation agreements would not negatively impact competition were it not
for some barriers to third party market entry, but courts have classified such
agreements as per se illegal regardless the size of entry barrier. In Ciprofloxacin,
the court ruled that: ―it is unlikely that the holder of a weak patent could stave off
all possible challengers with exclusion payment because the economics simply
would not justify it‖65. The reasoning is surely correct, if we assume that barriers to
third party generic entry are not prohibitive. However, to the extent barriers to
entry impede subsequent generic challengers; the Second Circuit‘s rationale would
appear to fail. In fact, as previously noted, the barriers to entry for subsequent
generic competitors would be high, and, as a consequence, a reverse payment
strategy could be economically feasible and highly effective even in situation
where the merits of the patent case are weak, raising substantial competition
concerns.
64
65
Tamoxifen Citrate Antitrust Litig., 466 F.3d at 207 n. 20.
Ciprofloxacin, 261 F. Supp. 2d at 252.
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In conclusion, as now, arguments for presumptive illegality of reverse
payments settlements agreements have met with little success in the courts, where
the current consensus would not condemn such settlements merely on the existence
or excessiveness of reverse payments.
B. The Reverse Payments Settlements in Europe
As mentioned above, in 2008, the EU Commission launched an inquiry to
investigate any possible anticompetitive conditions in the pharmaceutical sector.
The Commission‘s report presented detailed findings and proposed several ways to
improve patients‘ rapid access to safe, innovative and affordable medicine66. The
inquiry tied with other EU initiatives aimed at improving patients with safe,
effective and affordable medicines, but also was aimed at creating a business
environment in order to stimulate research, innovation and competition in the
pharmaceutical industry.
One of the findings of the inquiry was that generic medicines take too long
time to reach the market: on average, consumers have to wait seven months for
cheaper generic medicines to become available once patents for brand-name
medicine has expired. According to the inquiry, pharmaceutical companies are
manipulating the intellectual property rights system and are actively trying to delay
the entry of generic medicines onto their markets. As a result, there has been a
decline in the number of innovative medicines getting to the market. In an
immediate action related to the findings, the European Commissioner for
Competition, Mrs Neelie Kroes announced the pending of a first antitrust case
resulting from the inquiry. It alleged breaches of European rules on ―restrictive
business practices‖ and ―abuse of a dominant market position ―by a French
branded- company -Les Laboratoires Servier- and other five generics with which it
had made anticompetitive deals.
The sector-wide inquiry was opened because the Commission suspected the
slowdown in novel medicines entering the market - 27 annually since 2000 as
compared to 40 annually between 1995 and 1999- was a systemic problem, and
they sought to find out what was causing it.
The European Generic Medicines Association (EGA) in a subsequent release
emphasised the Commission‘s finding showing that: ―originator companies use a
variety of instruments to extend the commercial life of their products without
generic entry for as long as possible‖. The EGA called for quick implementation of
the recommendations. The organisation had itself made several, including more
66
EU Commission Final Report, available at
http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/communication_en.pdf.
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stringent patentability requirements (especially on inventive step), timelines for
oppositions and litigation procedures, controls for medical advertisement, sanctions
of misbehaviour, as well as community patents and a unified EU patent court.
The European Commission found that companies engaged in delaying
strategies such as loading up a single medicine with up to 1,300 patents or
engaging in litigation. These are won by generics about two-thirds of the time, but
can last up to three years. Meddling with regulators was also an issue, as the
Commission found ―originator companies intervened in national procedures for the
approval of generic medicines in a significant number of cases, which on average
led to four months of delay for the generic medicine.‖ The inquiry found that
companies would release claims about the generic product‘s safety and quality. The
Commission also found ―at least 200 settlement agreements between generic and
originator companies,‖ many of which restrict generics, driving up prices for
consumers. The vast majority of the settlements were reached in the context of
litigation cases, the remaining settlements were concluded out of court disputes
and/or during an opposition procedure. In approximately half of these settlements
the generic company‘s ability to market its medicine was restricted, a significant
proportion of these settlements contained –in addition to the restriction- a value
transfer from the originator company to the generic company, either in the form of
a direct payment or in the form of a license, distribution agreement or a ―side-deal‖.
Direct payments occurred in more than 20 settlements and the total amount of these
direct payments from Originator Company to generic companies exceeded euros
200 million.
In the view of this inquiry, there is an urgent need for an EU patent and
unique patent litigation systems that will cut costs and improve efficiency for drug
companies. In fact, nearly a third of national court cases on patents are happening
in parallel in other jurisdictions, and in 11 percent of cases they ―reach conflicting
conclusions.‖ All stakeholders, including originator companies also supported the
idea of a community patent and a unified litigations system.
Suspected anti-competitive behaviour across Europe's pharmaceutical
industry has now led the European Commission to confirm that it has started
surprise inspections at the offices of various companies. According to reports,
officials say they "have reason to believe" that those companies now under
investigation are "abusing their dominant positions in the marketplace by illegally
delaying the launch of generic competitors‖. However, the suspicions include
backhand deals with makers of cheaper copycat versions of branded medicines that
keep them off the market; a practice which is thought could cost healthcare systems
in Europe billions of euros. The EC‘s report, published earlier this year, notes how
at least 200 settlement agreements between generic and originator companies were
known, and that ―a good number‖ of these were formed to restrict generic entry
onto the market.
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In that occasion, the Commission took the initiative to scrutinise the sector
more closely and -where appropriate- to prosecute specific companies for alleged
violation of competition law; to focus on enforcing deadlines for evaluating safety,
quality and efficacy of medicines and granting them pricing and reimbursement
status; to help the European Medicine Agency and National agencies to assess how
to solve resources and capacity problems.
At the same time, EU countries were required to take actions against
misleading campaigns questioning the quality of generic medicine, to introduce
mechanisms to accelerate approval procedures for generic medicines and
streamline trials that test the added value of medicine and improve