CHANGING THE PATENT SYSTEM
FROM THE PARIS CONVENTION TO THE TRIPS AGREEMENT
The Position of Brazil
Heinrich Böll Foundation, Rio de Janeiro
FDCL - Forschungs- und Dokumentationszentrum Chile-Lateinamerika, Berlin
This publication was made possible through the financial support of the European Community. The opinions expressed therein represent the opinion of the author and do not represent the official opinion of the European Community.
"CHANGING THE PATENT SYSTEM: FROM THE PARIS CONVENTION TO THE TRIPS AGREEMENT. The Position of Brazil" by Cícero Gontijo was published too as
Global Issue Paper No. 26
CHANGING THE PATENT SYSTEM
FROM THE PARIS CONVENTION TO THE TRIPS AGREEMENT
The Position of Brazil [pdf hbs Global Issue Paper N°26]
Published by the Heinrich Böll Foundation in cooperation with FDCL - Forschungs- und Dokumentationszentrum Chile-Lateinamerika, Berlin
Preface by Thomas Fatheuer (Heinrich Böll Foundation, Rio de Janeiro)
The WTO has set itself the task of comprehensively restructuring the international trading system. That this aim is not only about continuing liberalisation and deregulation can be seen most clearly in the negotiations over intellectual property rights, where there is no sign of liberalisation. Cícero Contijo shows that negotiations are being carried out with the intention of "tightening up norms, imposing standards and strengthening monopolies". In examining this contradiction, the author of this
study describes the historical development of international intellectual property rights from the Paris Convention of 1883 to the WTO's TRIPS Agreement. Whereas at the outset, the requirement of disclosure of the invention and the recognition of the principle of local production were considered founding principles, international patent law soon evolved increasingly and exclusively in the direction of property protection rights. This concept of intellectual property primarily secures the utilisation rights of the copyright holders and does not concern itself with other aims such as development or health. The debate over the fight against HIV/AIDS has thrust this questionable aspect of the international copyright system into the consciousness of a much wider public.
Contijo's report focuses on Brazil's attempts to move the international system of intellectual property rights and copyright towards a more development-oriented stance. In doing so, he shows that the current regulations were not and are not the only
option. In their interesting proposal to WIPO (World Intellectual Property Organization), Brazil and Argentina have introduced a more development-orientated regulatory system for intellectual property which outlines a possible political alternative to the existing situation. This makes the position of Brazil and Argentina
extremely interesting and controversial in the discussion of patent regulation within the WTO. It also remains to be seen whether the Doha round will live up to its claim of being a development round in regard to this strand of the negotiations. The author sees little sign of that happening, and sees furthermore the necessity of placing the apparently intractable question of intellectual property rights at the centre of a broader
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Table of Contents
1.1. The Paris Convention and the Legislative Freedom of its Member States
1.2. Compulsory Disclosure and Exploitation of the Patent in the Country of Origin
1.3. Strong and Weak Instruments: Exhaustion and Compulsory Licence
1.4. The TRIPS Agreement: Flexible Monopolies in the Times of Free Trade
1.5. The End of Exhaustion and the Introduction of the Compulsory Licence
2.1. Patents as Market Reservation
2.2. Prices for Products which cannot be Substituted
2.3. The Aids Issues. Rejection of the Patent System
3.1. The State's Right to Demand Local Exploitation
3.2. Avoid TRIPS plus and act in the WTO for a modification of TRIPS
3.3. The WIPO Initiative
1.FREE TRADE versus MONOPOLIES
At the beginning of the 19th century, Europe saw a serious debate between the monopolists, who were in favour of the patent system, and those in support of free trade, meaning minimal restrictions on the exchange of goods and services. The controversy was so huge that Switzerland and the Netherlands revoked their intellectual property rights; Germany followed in 1869, revoking its law from 1817, which was only reinstalled in 1910. It became evident that a monopoly-based protection system for inventions and a free trade system could not coexist without serious difficulties. They represent antagonistic and conflicting positions because they are pulling in different directions.
Two centuries later, free trade has more supporters than ever before, a phenomenon that has been labelled globalisation. The revolution of the information and communication technologies, amplified by pressure from the leading countries, particularly the United States, has forced the other countries to implement changes. They have been forced to open their frontiers, reduce tariffs, accept foreign competitors in their domestic markets and admit a debate on market accessibility (including public acquisitions and uncontrolled financial transfers). This overwhelming movement renders obsolete the import-substitution growth projects and clearly diminishes the sovereignty of each country.
This globalisation should go together with a strong opposition to the intellectual property protection systems; it should dilute the principles and concepts that support the protection of inventions, above all those of foreign nationals, which guarantee monopolies in third-country markets. One would have expected the patent system to come under pressure; and the underlying property theory to have been substituted by compensation theories that admit some type of benefit for the inventor, under the complete exclusion of monopoly grants.
None of this has happened. Not only have free trade and patent protection not been represented as antagonistic movements. On the contrary, they have been presented at the same time and on the same forum (GATT, later converted into WTO). We commented on this amazing contradiction in an article published in March of 1995:
"It must be remembered that the idea of the TRIPS agreement totally contradicts the other agreements signed in the GATT framework which are directed at eliminating barriers, demolishing monopolies and abolishing the subsidies system - in the spirit of liberalisation advocated by the industrialised countries. The appearance of the TRIPS agreement is a part of the efforts to achieve more rigid norms, impose standardisation and consolidate monopolies. This will have an impact on one of the most valuable economic agents at the end of the millenium: human knowledge. The markets are opened, but, on the other hand, the system in place to produce new technologies is consolidated and strengthened (it is no coincidence that the system concentrates in the countries that demand better protection for the right holders of intellectual property)." (1.Gontijo, Cícero, "O acordo sobre propriedade intelectual contido no GATT e suas implicações para o Brasil" in: Revista de Informação Legislativa, Senado Federal, January/ March 1995, p. 181).
The theoretical justification is presented these days as the "Market-Failure" theory, which tries to portray patent-derived monopolies as an exception in the market economy. Recognising that disclosing inventions would give equal conditions to all competitors, while preventing inventors from being compensated for the costs incurred, temporary user-monopolies arise as a solution. This doctrine is explained in Wendy J. Gordon, "Fair Use as Market Failure: A Structural and Economic Analysis of the Betamax Case and Its Predecessors", 82 Colum. L. Rev. 1600 (1982) and J.H. Reichman, Charting the Collapse of the Patent-Copyright Dichotomy: Premises for a restructured International Intellectual Property System, 13 Cardozo Arts & Ent. L.J. 475 (1995).
An ingenious theory, but it does not take into account less rigid means to compensate inventors.
The state can act in two ways to stimulate creation:
a) by socialising the creation costs and risks, the state pays the creator a financial indemnity. The underlying assumption is that the investor will invest in the new creation. The Brazilian law of 1830 provided this form of compensation.
b) by the private appropriation of the results through the legal construction of artificial exclusivity (of which patents are an example). Transferable rights of exclusive use and benefit are thus created.
A third alternative to substitute patents is also being discussed because of its greater flexibility: inventors are granted a non-exclusive right, but they have the right to demand a price for the use of the disclosed information, yet no right to prohibit its use. This includes the "inventor certificates" (used in Mexico and the former Soviet Union for inventions with industrial application) and the "plant breeders' certificates" used by the International Union for the Protection of New Varieties of Plants (UPOV) that are applied to inventions in the sector of seeds and crops.
This type of inventor compensation that Carlos Correa calls "paying public-domain" deserves a more detailed examination since it may become an interesting alternative to patents, at least for some economic sectors, and for certain countries. (2.Correa, Carlos, in: "Intellectual Property Rights, the WTO and Developing Countries", Malaysia, TWN, 2000, p. 248/251).
1.1. The Paris Convention and the Legislative Freedom of Member States
The Paris Convention, which aimed at harmonising - as far as possible - intellectual property legislation in the different countries has been one of the most successful treaties so far, due both to the impressive number of its members as well as the long time it has existed without substantial change. More than 150 countries have adopted the Paris Convention, which goes back to 1883, when it was signed by eleven members, among them Brazil.
The main reason for this success is that the Convention did not try to level national laws or establish the reciprocity principle for national treatment. On the contrary, it stipulated a vast legislative freedom for each country and only required the equal treatment of nationals and foreigners (national treatment principle). Its other basic principle, priority, was in reaction to a more practical than theoretical question. To prevent elements of a patent application from being irregularly appropriated, and to prevent conflict between two or more inventions concerning the same matter, a priority period was established. This means that applicants who submit an application in one member state have a priority period (currently 12 months) to file an application in other member states. During this period no other application, publication or exploitation of the invention will invalidate their application.
As a result, although it is not mentioned in the original text, the principle of patent independence was established, whereby decisions of a country regarding an application or a patent do not have any impact on the treatment by other member states. These principles - agreed in 1883 - stayed in place for more than a century.
1.2. Compulsory Disclosure and Exploitation of Patents in the Country of Origin
The official text of the Paris Convention stipulated the complete disclosure of inventions, and due to the experience of the leading countries, the effective exploitation of patents. In fact, the English Statute of Monopolies only granted patents to inventors who would produce their invention in the country.
The question of effective use had been at the centre of discussions between Austria and the United States at the Vienna Conference (1875). The US demanded that imports should be included as effective use of patented goods.
The Paris Conference (1878), which elaborated the text of the treaty, established that patents could be revoked after a certain period in the absence of local production.
A number of countries, including the United States, England, Germany, Canada, Hungary and Austria were not among the original signatories of the Paris Convention because they objected to the adoption of compulsory local exploitation in the original art. 5:"Importation by the patentee into the country where the patent has been granted of articles manufactured in any of the countries of the Union shall not entail forfeiture of the patent. However, the patentee shall be subject to the obligation to use his patent according to the laws of the country where he imports the patented articles."
This definition, which gives member states the right to demand local exploitation of patented articles and processes, is a consequence of the experiences of the leading countries. The legislations of all modern industrialised nations used to contain an obligation of local exploitation, which in the period of their industrialisation was the main objective of the patent system. Patents were granted to develop the exploitation of natural resources and increase the numbers of skilled workers and engineers; the aim was to establish new industries, or new technologies for those already existing. In the United States, a law from 1886 determined that the patents of foreign inventors had to be exploited on US territory. This rule also applied in England, France and Germany. In time, the international trade of these countries increased and they reduced the application of this requirement. However, most countries (except the US) maintained some legal regulation on compulsory local exploitation.
The subsequent revisions of the Paris Convention kept compulsory local exploitation; the text was altered in the sense that the absence of local exploitation is considered a sanctionable infringement by the patentee.
This issue remains the central point of the debate on patentees' duties.
1.3. The Strong Nullity and the Weak Compulsory Licence
The threat arising from patent revocation through exhaustion was the first instrument of 20th century intellectual-property-law to be implemented to enforce the compulsory local exploitation of patents. After the declaration of exhaustion a patent becomes public domain. This permits every person or company to exploit the invention. In these cases, the monopoly is exhausted and any product can compete on the market on equal terms. This corresponds to the situation of countries where the inventor did not patent an invention already patented in the country of origin.
Even before the Paris Convention came into being, legal provisions on nullity due to failing local exploitation existed, among other countries in France, Mexico and Tunisia. When the Convention was signed, it was decided that the import of patented products produced in other member states should not entail the loss of this right. At the same time compulsory local exploitation was confirmed.
Nullity is a powerful legal instrument because it automatically comes into force after the period for local exploitation has ended and the absence of local exploitation has been proved. For this reason it has gradually been substituted in the revisions of the Convention by the compulsory licence.
The compulsory license is one of the instruments the state can use to act on a patent monopoly provided it is in the public interest. It is less drastic than patent revocation through nullity and permits use by others under certain conditions, with a remuneration established by the state. From the legal point of view, the patent monopoly is substituted by the right to receive financial compensation for the use of the invention.
Its first historical appearance was at the Vienna Convention in 1873 for "cases where the public interest made it necessary", and in 1877 it was incorporated into German law. It was not mentioned again until it reappeared in the version of the Hague in 1925, where its goal was to prevent "the abuse that might arise from the practice of the exclusive right conferred by the patent, for instance, by the absence of effective exploitation"; from then on, almost all countries have adapted their laws to incorporate it. In time, it occupied the space that had formerly belonged to revocation through nullity because it was a less drastic measure than the latter.
In contrast to nullity, its practical use is problematic in that it is necessary to find another company of the respective branch willing and capable to produce the product or process without the assistance of the patent-holding company, only equipped with the official authorisation.
The Stockholm Revision (1967) of the Paris Convention brought a modification which made it even more difficult to apply the compulsory licence: it established that the licence should not only be non-exclusive, but that it had to be refused if the holder could justify his inaction with legitimate reasons. The automatic implementation of the instrument disappeared and the rejection by its potential applicants increased.
It is unlikely that a private entrepreneur would have the courage to invest in a factory project to produce an invention under a compulsory licence if there was any doubt that his market would be exclusive, at least for a certain period. A production project requires investment, construction works, buying equipment, hiring staff - all this on the basis of the market that will be served. If the licence is non-exclusive, the holder could decide at any time to produce locally or to grant a voluntary license, which would oblige the compulsory licence holder to compete with other producers. Considering that the patent holder still has the marketing power of his brand it becomes clear that the chances of a non-exclusive compulsory licence are quite slim. Under these circumstances, using the compulsory licence as a means to prevent abuse by patent holders proves totally ineffective. It becomes a blunt knife with the extra disadvantage that the right holders know about it.
Once the compulsory licence had been transformed into a complex and impractical instrument the next step was to find a way to strip the instrument of nullity of its efficiency.
The solution came with the text of the Stockholm revision which conditioned the application of nullity to the prior use of the compulsory licence as laid down in art. 5.3: "The nullity or extinction of a patent may not be declared before a period of two years has expired, beginning with the grant of the first compulsory licence". The required prior compulsory licence, granted extremely rarely, means that the strong instrument of nullity is practically inapplicable.
1.4. The TRIPS Agreement: Rigid Monopolies in Times of Free Trade
From 1979 the US showed its dissatisfaction about what it saw as insufficient protection for intellectual property. The US tried to transfer the discussions to GATT (General Agreement on Tariffs and Trade) to strengthen protection mechanisms for patent holders' rights. Several countries opposed this move and it was only included into the agenda in 1989, after Brazil and India gave their consent. These countries had insisted that the WIPO (administrator of the Paris Convention) and not GATT was the appropriate forum for the discussion of intellectual property.
The US proposal which was negotiated by GATT was arranged around three topics: the definition of minimum standards (art. 9 - 40), the introduction of implementation mechanisms (art. 41 - 61) for member states (administrative and judicial proceedings) and the creation of a strong international arbitration system (art. 63 and 64). All this was in contrast to what the Convention had established. Instead of just two basic principles, a large number of concepts and requirements had to be adopted by all members' legislations in a kind of standard law. Rigid rules were imposed as to how the different national administrations and legislations had to act regarding the enforcement of the new intellectual property rules. And finally, a vast and practical dispute-settlement system to avoid any differences arising from industrial property questions remaining unresolved because of questions of national sovereignty.
As could be expected, there was a very strong adverse reaction, especially from the developing countries. The project meant huge changes to the existing laws, all aimed at a higher level of protection for patents and trademarks.
Since it was generally understood that many countries, particularly in the developing world, were not in favour of the new agreement on intellectual property, much effort was necessary to achieve its approval.
"To advance the negotiations in all the areas of the Uruguay Round, the director-general of GATT presented the Dunkel text as an essential part of the negotiations. The director-general presented the document as an "all-or-nothing" agreement because he was determined to prevent it from being divided into several parts that the members could vote separately. This requirement proved useful for achieving the TRIPS agreement, since the United States and other industrialised countries could use concessions in the agricultural or textile areas requested by the developing countries to obtain an appropriate TRIPS agreement" (3. Michael Doane, Georgetown University Law Center, in: "Trips and International Intellectual Property Protection in an age of advancing technology" - American University Journal of International Law and Policy 9 (2), p. 476).
1.5. The End of Nullity and the Introduction of the Compulsory License
The TRIPS document mentions nullity only once: it defines that judicial review must be available in any decision to revoke or forfeit a patent.
As for the compulsory licence, the term does not even appear in the text; it was replaced by the euphemistic phrase "other use without authorisation of the right holder". Apart from the above-mentioned exceptions in the Stockholm text of the Convention (non-exclusiveness and justification with legitimate reasons), the treaty weakens the instrument to fight abuse even further with additional determinants: it establishes that the proposed user must first have tried to obtain a licence from the right holder; that the use must predominantly supply the domestic market; that the licence has to be revoked when the circumstances under which it was granted cease to exist; and that the right holder has to be appropriately compensated.
As to the right of states to demand the local exploitation of patented products or proceedings, the text is not very clear on this issue. Article 27.1 of TRIPS established a confusing provision that appears to exclude the further use of this alternative:
"Art. 27.1 - (...) Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall 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 first impression may lead to the belief that the requirement of local production has been banned. Some authors believe that the obligation for local exploitation cannot be required any longer from the right holders, and Carlos Correa puts it like this:
"The compulsory-license granting system of many countries could also be affected by the prohibition to discriminate due to the country of origin (local production or import). The authors of this document wanted to dilute the obligation to exploit the patented inventions, one of the traditional pillars of the patent system". (10. Correa, Carlos, "Acuerdo Trips" Ciudad Argentina , Buenos. Aires, 1996, p. 136.
However, there is also a differing interpretation, according to which art. 27.1 refers to a different problem. For Figueira Barbosa:
"TRIPS certainly stipulates a compulsory license on the grounds of insufficient work, within the principles and limitations of art. 5A of the Paris Convention, even when, in the spirit of 'Paris plus', it informs that the license has to aim 'predominantly (at) the supply on the domestic market' (art. 31.f.)" (4. Barbosa, A.L.F, "Sobre a propriedade do trabalho intelectual", UFRJ Publishing House, 1999, p.189).
Referring to art. 27.1, Correa states that the text was in reaction to a complaint in the EU preparatory document for the TRIPS negotiations. According to the EU document, the US legislation contained proceedings that discriminated against foreign nationals in legal disputes on the counterfeiture of imported goods. The EU also protested against the preferential treatment of activities on US territory by US legislation, which grants patents to the 'first-to-invent' to the detriment of the 'first-to-file' of European law; this was complemented by restricting the patent validity to US territory. This is what Barbosa says:
"An interesting part of the document exclusively deals with the discrimination against imported goods. It is divided into two important subjects: (a) discriminating proceedings, and (b) preferential treatment for activities on national territory. There can be no doubt that, on both issues, the complaints pointed mainly at the US (...) The result could not come as a surprise; and article 27 of TRIPS ends with the often quoted and rephrased words: "...patent rights (shall be) enjoyable without discrimination as to the place of invention (...) and whether products are imported or locally produced." (12. Barbosa, A. L.F, op.cit., p. 184).
As two experts on the subject prove, both interpretations are possible.
Add to this that TRIPS seems to deal with this issue in another part; without repeating the Paris Convention texts, TRIPS establishes in art. 2.1:
"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)."
From this we can deduce that the matter referred to the Convention, always in its Stockholm version (1967):
Art. 5. (2) "Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work."
Based on these arguments, diplomats of the Brazilian Ministry of Foreign Affairs assured the Senate (Upper House) in the course of discussions for the National Congress (Lower House) approval of TRIPs that the failure to work remained an abuse by the right holder. Therefore, this understanding was preserved in the text referring to art. 68 (1), I of the Patent law.
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